<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED DECEMBER 31, 1999 COMMISSION FILE NUMBER 0-449
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FALL RIVER GAS COMPANY
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-1298780
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
155 NORTH MAIN STREET, FALL RIVER, MASSACHUSETTS 02722
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 508-675-7811
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"Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ."
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by this report.
CLASS OUTSTANDING AT DECEMBER 31, 1999
- ----------------------------------- --------------------------------
Common stock, par value of $.83 1\3 2,206,234 shares
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FALL RIVER GAS COMPANY
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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Part I. Financial Position
Consolidated Condensed Balance Sheets -
December 31, 1999 and September 30, 1999 1
Consolidated Condensed Statements of Income
and Retained Earnings -
Three Months Ended December 31, 1999 and 1998 2
Consolidated Statements of Cash Flows -
Three Months Ended December 31, 1999 and 1998 3
Management's discussion and Analysis of the
Consolidated Condensed Statements of Income 4,5,6
Notes to Consolidated Condensed Financial Statements 7
Part II. Other Information 7
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PART I. FINANCIAL INFORMATION
FALL RIVER GAS COMPANY AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
ASSETS 1999 1999
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(Unaudited)
<S> <C> <C>
Gas Plant, at original cost $62,929,589 $62,319,207
less accumulated depreciation 22,969,864 22,552,849
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39,959,725 39,766,358
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Rental Property 6,038,753 6,069,442
less accumulated depreciation 1,866,149 1,887,415
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4,172,604 4,182,026
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CURRENT ASSETS:
Cash 321,074 279,079
Accounts receivable, less allowance for
doubtful accounts of $1,361,728 as of
12/31/99 and $1,065,000 as of 9/30/99 4,596,487 1,617,328
Inventories, at average cost
Liquefied natural gas and propane 3,494,989 3,574,562
Materials and Supplies 1,381,172 1,345,614
Purchased gas costs deferred 5,124,949 3,627,483
Prepaid and Deferred Taxes 382,415 143,478
Prepayments and Other 725,554 710,005
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16,026,640 11,297,548
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DEFERRED CHARGES:
Regulatory Asset 398,409 426,313
Other 17,853 10,702
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416,262 437,015
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$60,575,231 $55,682,948
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STOCKHOLDERS' INVESTMENT AND LIABILITIES
----------------------------------------
CAPITALIZATION:
Stockholders' investment--
Common stock, par value $.83-1/3 par, 2,951,334 authorized
and 2,214,239 shares issued as of 12/31/99
and 2,201,827 as of 9/30/99 $ 1,845,199 $ 1,834,856
Premium paid in on common stock 5,332,220 5,086,794
Retained earnings ($6,865,648 restricted
against payment of cash dividends as
of 12/31/99 and as of 9/30/99) 10,719,020 10,661,885
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17,896,439 17,583,535
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Long-term debt, less current sinking
fund requirements
First Mortgage Bonds--9.44% due 2020 6,500,000 6,500,000
First Mortgage Bonds--7.99% due 2026 7,000,000 7,000,000
First Mortgage Bonds--7.24% due 2027 6,000,000 6,000,000
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19,500,000 19,500,000
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Total capitalization 37,396,439 37,083,535
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CURRENT LIABILITIES:
Notes payable to banks 9,900,000 5,800,000
Dividends Payable 0 528,567
Accounts Payable 2,475,691 1,798,662
Other--Commitments and Contingencies 2,781,034 2,488,776
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15,156,725 10,616,004
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DEFERRED CREDITS:
Accumulated deferred income taxes 4,532,790 4,532,790
Unamortized Investment tax credits 430,098 441,169
Regulatory Liability 383,763 383,763
Other 2,675,416 2,625,687
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8,022,067 7,983,409
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$60,575,231 $55,682,948
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</TABLE>
See accompanying notes to consolidated condensed financial statements.
1
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SUMMARIZED FINANCIAL INFORMATION
FALL RIVER GAS COMPANY AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
December 31
-----------------------------
1999 1998
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<S> <C> <C>
GAS OPERATING REVENUES $ 9,968,300 $10,495,068
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OPERATING EXPENSES
Cost of gas sold 5,247,683 5,644,939
Other operation 3,165,512 3,135,690
Maintenance 445,612 349,298
Depreciation 478,482 466,570
Local Property and Other 320,213 347,341
Federal and State income taxes 12,118 42,192
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Total operating expenses 9,669,620 9,986,030
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OPERATING INCOME 298,680 509,038
OTHER INCOME:
Earnings of Fall River Gas Appliance
Company, Inc. (a wholly-owned subsidiary) 167,087 241,100
Other 4,973 5,005
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INCOME BEFORE INTEREST EXPENSE 470,740 755,143
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INTEREST EXPENSE AND OTHER:
Long-term debt 401,825 401,825
Other 11,780 12,295
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413,605 414,120
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NET INCOME 57,135 341,023
RETAINED EARNINGS - BEGINNING OF PERIOD 10,661,885 10,672,783
DEDUCT - Dividends declared - (2)
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RETAINED EARNINGS - END OF PERIOD
($6,865,648 restricted against payment of
cash dividends as of 12/31/99 and 12/31/98) $10,719,020 $11,013,808
=========== ===========
BASIC EARNINGS PER SHARE $0.03 $0.16
=========== ===========
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 2,206,234 2,193,161
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
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FALL RIVER GAS COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
December 31
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1999 1998
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<S> <C> <C>
Cash Provided by (used for)
Operating Activities:
Net income $57,135 $341,025
Items not requiring (providing) cash:
Depreciation 620,569 582,484
Deferred Income Taxes (238,937) 163,465
Investment Tax Credits, net (11,071) (11,071)
Change in working capital (3,465,237) (4,029,065)
Other sources, net 33,439 134,833
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Net cash used for
operating activities (3,004,102) (2,818,329)
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Investing Activities:
Additions to utility property, plant and equipment (653,596) (613,837)
Additions to nonutility property (127,509) (67,814)
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Net cash used by investing activities (781,105) (681,651)
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Financing Activities:
Cash dividends on common stock (528,567) (526,173)
Common stock transactions 255,769 37,587
Increase (decrease) in notes payable to banks, net 4,100,000 3,900,000
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Net cash provided by
financing activities 3,827,202 3,411,414
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Increase (decrease) in cash 41,995 (88,566)
Cash, beginning of period 279,079 356,005
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Cash, end of period $321,074 $267,439
=========== ===========
Changes in Components of Working Capital
(excluding cash)
(Increase) decrease in current assets:
Accounts receivable $(2,979,159) $(2,611,108)
Inventories 44,015 (162,357)
Prepayments and other (1,914) (125,675)
Deferred gas cost (1,497,466) (902,609)
Increase (decrease) in current liabilities:
Accounts payable 677,029 (588,732)
Other 292,258 361,416
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Change in Working Capital $(3,465,237) $(4,029,065)
============ ============
Supplemental disclosure of cash flow information:
Cash paid during year for:
Interest $289,488 $283,553
Income taxes $290,299 $55,383
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
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FALL RIVER GAS COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Net income for the first quarter of fiscal 2000 was $57,000 or $0.03
per share as compared with earnings of $341,000 or $0.16 for the first quarter
in fiscal 1999. Basic earnings per share, for the three month period, have been
impacted by the warmer weather recorded in fiscal 2000 as compared to the first
quarter fiscal 1999.
Gas operating revenues for the three months ended December 31, 1999
reflect a decrease of 5.0% or $526,800. Revenues decreased from $10,495,100
recorded in fiscal 1999 to $9,968,300, mainly due to a 2.7% decrease in firm
sales volume due to warmer weather. Firm sales volume for three months ended
December 31, 1999 is 1,164,375 MCF as compared to the 1,196,817 MCF reported in
fiscal 1999. Total sales for the three month period which include Interruptible
customers, Interruptible Transportation and Transportation customers, decreased
5.7% from 1,666,604 MCF to 1,571,760 MCF in 1999. The primary factor for the
decline in gas sales was weather, which was 9.4% warmer than a normal year and a
0.4% warmer than the prior year. Cost of gas (CGA) revenues for the three months
ended December 31, 1999 decreased by $333,671 or 5.0%. Revenues decreased from
$6,622,695 recorded in fiscal 1999 to $6,289,023 in fiscal 2000 due to the net
differences in our CGA decimal along with decreased firm sales volume as stated
above. The fiscal 2000 and 1999 CGA revenues, referred to above, have been
computed on the current rate structure. In accordance with the Company's
approved CGAC increases or decreases in the cost of gas sold continue to be
passed directly to our firm customers, dollar for dollar.
Total operating expenses, excluding federal and state income taxes, for
the three month comparisons reflected a 2.9% decrease from $9,943,800 to
$9,657,400 a decrease of $286,500. The most significant operation expense, cost
of gas sold, decreased by $397,300 for the three month comparison due mainly to
the decrease in the volumes of purchased gas and the lower commodity cost. Other
operation expenses including health benefits, payroll, and materials and
supplies have increased by $29,800, which was 1.0% higher than the comparable
period in fiscal 1999.
On October 5, 1999 the Company and Southern Union Company(Southern
Union) announced that the board of directors had unanimously approved a
definitive merger agreement. The agreement calls for Southern Union to acquire
the Company in the transaction valued at approximately $75 million, including
assumption of debt. Under the terms of the agreement, the Company shareholders
will receive $23.50 per Fall River Gas share in Southern Union common stock or
cash. The Company's shareholders can elect to receive Southern Union common
stock, cash, or a combination of stock and cash, subject to proration and an
adjustment formula.
The transaction will require the approval of the holders of two thirds
of the Company's outstanding shares, the Massachusetts Department of
Telecommunication and Energy, the Pennsylvania Public Utility Commissions as
well as regulators in Missouri, where Southern Union currently has operations.
The Company has recognized approximately $160,000 of
investment banking and legal fees in the first quarter related to its proposed
merger agreement with Southern Union
4
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Company, which has reduced earnings for the first quarter by about $0.07 per
share. Costs are included in operating expenses for the three months ended
December 31, 1999.
Fall River Appliance Company earnings for the three months ended
December 31, 1999 reflect a decrease of 33% or $74,013. Earnings decreased from
$241,100 recorded in fiscal 1999 to $167,087. Fiscal 1999 included merchandise
sales of 58 unit heaters to a new apartment complex under development.
Capital Resources and Liquidity
The Company's major capital requirement results from upgrading the
efficiency of existing plant, as well as, to serve additional customers. For the
three months ended December 31, 1999 capital expenditures totaled approximately
$654,000.
Cash flow patterns reflect the seasonality of the Company's business.
The greatest demand for cash is in the late fall and winter as construction
projects are brought to completion and accounts receivable balances rise.
Capital expenditures and accounts receivable balances were financed by
internally generated funds and supplemented by short- term borrowings.
Factors that May Affect Future Results
The Private Securities Litigation Reform Act of 1995 encourages the use
of cautionary statements accompanying forward-looking statements. The preceding
Management's Discussion and Analysis of Financial Condition and Results of
Operations includes forward-looking statements concerning the impact of changes
in the cost of gas and of the CGA mechanism on total margin; projected capital
expenditures and sources of cash to fund expenditures; and estimated costs of
environmental remediation and anticipated regulatory approval of recovery
mechanisms. The Company's future results, generally and with respect to such
forward-looking statements, may be affected by many factors, among which are
uncertainty as to the regulatory allowance of recovery of changes in the cost of
gas; uncertain demands for capital expenditures and the availability of cash
from various sources; uncertainty as to whether transportation rates will be
reduced in future regulatory proceeding with resulting decreases in
transportation margins; and uncertainty as to regulatory approval of the full
recovery of environmental costs, transition costs and other regulatory assets.
The Company had no factors that would create deluded earnings per
share.
The "Year 2000" Issue
The Company has evaluated its principal computer systems and
noninformation technology systems including, but not limited to,
telecommunications systems, automated meter reading systems, SCADA, regulator
stations, plant remote control systems and security systems to
5
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determine readiness for the year 2000. As of December 31, 1999, all principal
systems have been modified, upgraded or replaced to ensure year 2000 capability.
All principal systems were tested and completed by November 1999. To date no
"Year 2000" problems have been identified. The cost incurred to complete the
year 2000 readiness were not significant and will not have a material impact on
the Company's financial position or results of operations.
New Accounting Standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured as its fair value. It
also requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for quality hedges allows a derivative's gains and losses to offset
related results on the hedged item in the statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. The new standard, as amended by SFAS No. 137, is
effective for fiscal years beginning after June 15, 2000. Adoption of SFAS No.
133 is not expected to effect the Company's financial condition or results of
operation.
See accompanying notes to consolidated financial statements
6
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FALL RIVER GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The results of operation for the three month periods ending December
31, 1999 and 1998 are not necessarily indicative of the results to be
expected for the full year.
2. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the
Company's financial position as of December 31, 1999 and 1998, and the
results of operations for the three months ended and changes in
financial position for the three months then ended. On an interim
basis, the Company allocates depreciation, property taxes and pension
costs on a normal revenue curve to better match costs with related
revenues.
3. The Company had no shares of its common stock reserved for officers and
employees, options, warrants, conversions or other requirements at
December 31, 1999.
PART II. OTHER INFORMATION
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
FALL RIVER GAS COMPANY
----------------------
(Registrant)
Peter H. Thanas
----------------------
(Signature)
Date February 9, 2000 Peter H. Thanas, Treasurer,
----------------- Chief Financial and
Accounting Officer
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET INCOME STATEMENT AND CASH FLOW STATEMENT FOR THE MONTH ENDED DECEMBER 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 321,074
<SECURITIES> 0
<RECEIVABLES> 5,958,215
<ALLOWANCES> (1,361,728)
<INVENTORY> 4,876,161
<CURRENT-ASSETS> 6,649,180
<PP&E> 68,968,342
<DEPRECIATION> (24,836,013)
<TOTAL-ASSETS> 60,575,231
<CURRENT-LIABILITIES> 23,178,792
<BONDS> 19,500,000
0
0
<COMMON> 1,845,199
<OTHER-SE> 16,051,240
<TOTAL-LIABILITY-AND-EQUITY> 60,575,231
<SALES> 9,968,300
<TOTAL-REVENUES> 10,140,360
<CGS> 5,247,683
<TOTAL-COSTS> 4,089,606
<OTHER-EXPENSES> 320,213
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 413,605
<INCOME-PRETAX> 389,466
<INCOME-TAX> 12,118
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,135
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
