<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 June 30, 2000 Commission File Number 0-449
--------------------------------------------------------------------------------
FALL RIVER GAS COMPANY
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-1298780
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
155 North Main Street, Fall River, Massachusetts 02722
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 508-675-7811
--------------------------------------------------------------------------------
"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 June 30, 2000
------------------------------------ ----------------------------------
Common stock, par value of $.83 1\3 2,223,295 shares
<PAGE>
FALL RIVER GAS COMPANY
----------------------
INDEX
-----
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part. I. Financial Position
Consolidated Condensed Balance Sheets -
June 30, 2000 and September 30, 1999 1
Consolidated Condensed Statements of Income
and Retained Earnings
Three and Nine Months Ended June 30, 2000 and 1999 2
Consolidated Statements of Cash Flows -
Nine Months Ended June 30, 2000 and 1999 3
Management's discussion and Analysis of the
Consolidated Condensed Statements of Income 4
Notes to Consolidated Condensed Financial Statements 8
Part II. Other Information 8
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------------------------------
FALL RIVER GAS COMPANY AND SUBSIDIARY
-----------------------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-----------------------------------------------------
<TABLE>
<CAPTION>
Unaudited
June 30, SEPTEMBER 30,
ASSETS 2000 1999
------------ ---------------- --------------------------
<S> <C> <C>
Gas Plant, at original cost $63,673,328 $62,319,207
less accumulated depreciation 24,276,372 22,552,849
---------------- --------------------------
39,396,956 39,766,358
---------------- --------------------------
Rental Property 6,105,662 6,069,442
less accumulated depreciation 1,854,218 1,887,415
---------------- --------------------------
4,251,444 4,182,027
---------------- --------------------------
Current Assets:
Cash 321,908 279,079
Accounts receivable, less allowance for
doubtful accounts of $1,445,156 as of
6/30/00 and $1,064,497 as of 9/30/99 2,695,776 1,617,329
Inventories, at average cost
Liquefied natural gas and propane 3,005,724 3,574,561
Materials and Supplies 1,459,957 1,345,614
Purchased gas costs deferred 3,527,474 3,627,483
Prepaid and Deferred Taxes 0 143,478
Prepayments and Other 728,456 710,005
---------------- --------------------------
11,739,294 11,297,549
---------------- --------------------------
Deferred Charges:
Regulatory Asset 342,599 426,313
Other 187,881 10,702
---------------- --------------------------
530,480 437,015
---------------- --------------------------
$55,918,174 $55,682,949
================ ==========================
STOCKHOLDERS' INVESTMENT AND LIABILITIES
-----------------------------------------
CAPITALIZATION:
Stockholders' investment--
Common stock, par value $.83-1/3 par, 2,951,334
authorized
and 2,252,429 shares issued $1,877,024 $1,834,856
Premium paid in on common stock 6,078,784 5,086,794
Retained earnings ($6,865,648 restricted
against payment of cash dividends as
of 6/30/00 and as of 9/30/99) 10,915,333 10,661,885
----------------- --------------------------
18,871,141 17,583,535
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
----------------- --------------------------
19,500,000 19,500,000
----------------- --------------------------
Total capitalization 38,371,141 37,083,535
----------------- --------------------------
CURRENT LIABILITIES:
Notes payable to banks 3,500,000 5,800,000
Dividends Payable 542,459 528,567
Accounts Payable 2,451,327 1,798,662
Accrued taxes 30,746 0
Other 2,912,110 2,488,776
----------------- --------------------------
9,436,642 10,616,005
----------------- --------------------------
DEFERRED CREDITS:
Accumulated deferred income taxes 4,532,790 4,532,790
Unamortized investment tax credits 407,956 441,169
Regulatory Liability 383,763 383,763
Other 2,785,882 2,625,687
----------------- --------------------------
8,110,391 7,983,409
----------------- --------------------------
$55,918,174 $55,682,949
================= ==========================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
1
<PAGE>
SUMMARIZED FINANCIAL INFORMATION
-----------------------------------------------------
FALL RIVER GAS COMPANY AND SUBSIDIARY
-----------------------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
---------------------------------------------------------------------
<TABLE>
<CAPTION>
Unaudited Unaudited
Three Months Ended Nine Months Ended
June 30 June 30
-------------------------------- ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
GAS OPERATING REVENUES $ 8,862,906 $ 7,909,572 $ 39,867,648 $ 38,664,392
------------ ------------ ------------ ------------
OPERATING EXPENSES
Cost of gas sold 4,733,457 3,891,581 22,643,610 21,402,992
Other operation 2,658,933 2,582,658 9,165,018 9,128,965
Maintenance 433,732 386,752 1,365,811 1,120,201
Depreciation 434,958 424,092 2,023,021 1,972,538
Local Property and Other 348,476 342,576 1,287,822 1,346,356
Federal and State income taxes (62,583) (57,450) 854,598 910,318
------------ ------------ ------------ ------------
Total operating expenses 8,546,973 7,570,209 37,339,880 35,881,370
------------ ------------ ------------ ------------
OPERATING INCOME $ 315,933 $ 339,363 $ 2,527,768 $ 2,783,022
OTHER INCOME:
Earnings of Fall River Gas Appliance
Company, Inc. (a wholly-owned subsidiary) 208,412 240,644 559,819 708,138
Other 2,317 10,777 14,126 15,917
------------ ------------ ------------ ------------
INCOME BEFORE INTEREST EXPENSE 526,662 590,784 3,101,713 3,507,077
------------ ------------ ------------ ------------
INTEREST EXPENSE AND OTHER:
Long-term debt 401,825 401,825 1,205,475 1,205,475
Other (8,976) 6,696 30,796 34,956
------------ ------------ ------------ ------------
392,849 408,521 1,236,271 1,240,431
------------ ------------ ------------ ------------
NET INCOME $ 133,813 $ 182,263 $ 1,865,442 $ 2,266,646
RETAINED EARNINGS - BEGINNING OF PERIOD $ 11,860,873 $ 12,230,447 $ 10,661,885 $ 10,672,783
ADD - Dividends declared
September 30, 1999 and
October 6, 1998, payable
November 15, 1999 and 1998, respectively 0 0 528,567 526,173
DEDUCT - Dividends paid on
Common Stock 536,894 527,438 1,598,103 1,580,330
Declared Payable
August 15, 2000 and 1999 542,459 528,016 542,459 528,016
------------ ------------ ------------ ------------
RETAINED EARNINGS - END OF PERIOD
($6,865,648 restricted against payment of
cash dividends as of 6/30/00 and 6/30/99 $ 10,915,333 $ 11,357,256 $ 10,915,332 $ 11,357,256
============ ============ ============ ============
BASIC EARNINGS PER SHARE 0.06 0.08 0.84 1.03
============ ============ ============ ============
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 2,241,210 2,198,335 2,223,295 2,195,686
CASH DIVIDEND PAID PER COMMON SHARE 0.24 0.24 0.72 0.72
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
FALL RIVER GAS COMPANY AND SUBSIDIARY
-------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
<TABLE>
<CAPTION>
Unaudited
Nine Months Ended
June 30
------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash Provided by (used for)
Operating Activities:
Net income $ 1,865,444 $ 2,266,645
Items not requiring (providing) cash:
Depreciation 2,415,666 2,369,369
Deferred Income Taxes 143,478 401,160
Investment Tax Credits, net (33,213) (33,213)
Change in working capital 598,784 1,940,264
Other sources, net (14,980) 274,666
----------- -----------
Net cash provided by
operating activities 4,975,179 7,218,891
----------- -----------
Investing Activities:
Additions to utility property, plant and equipment (1,621,811) (1,523,136)
Additions to nonutility property (446,594) (318,730)
----------- -----------
Net cash used for investing activities (2,068,405) (1,841,866)
----------- -----------
Financing activities:
Cash dividends on common stock (1,598,104) (1,580,329)
Common stock transactions 1,034,159 117,123
Proceeds from long-term debt issue 0 0
Increase (Decrease) in notes payable to banks, net (2,300,000) (3,400,000)
----------- -----------
Net cash used for
financing activities (2,863,945) (4,863,206)
----------- -----------
Increase in cash 42,829 513,819
Cash, beginning of period 279,079 356,005
----------- -----------
Cash, end of period $ 321,908 $ 869,824
=========== ===========
Changes in Components of Working Capital
(excluding cash)
(Increase) decrease in current assets:
Special Deposits 19,050 0
Accounts receivable (1,078,448) (492,777)
Inventories 454,495 228,104
Prepayments and other (3,067) (28,710)
Deferred gas cost 100,009 2,525,599
Increase (decrease) in current liabilities:
Accounts payable 652,665 (1,471,602)
Accrued taxes 30,746 270,950
Other 423,334 507,540
----------- -----------
Change in Working Capital $ 598,784 $ 1,539,104
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during year for:
Interest $ 1,247,798 $ 1,173,408
Income taxes $ 650,893 936,201
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
FALL RIVER GAS COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Net income for the third quarter of fiscal 2000 was $133,800 or $0.06
per average share as compared with earnings of $182,300 or $0.08 for the third
quarter in fiscal 1999. Net income for the nine months ended June 30, 2000 was
$1,865,400 with earnings per average share at $0.84 compared to net income of
$2,266,700 and earnings per average share of $1.03 for the same period in 1999.
During the third quarter of 2000 cooler weather in which effective
degree days increased 24.0% from 741 in 1999 to 919 in 2000 positively impacted
firm sales. Firm sales volumes increased 3.6%, from 1,027,200 Mcf in 1999 to
1,064,300 Mcf in 2000. Operating revenues for the three months ended June 30,
2000 increased $953,300 to $8,862,900 from $7,909,600 in 1999. Of this increase
of $953,300, $758,900 was attributable to the Company's application of its Cost
of Gas Adjustment Clause (CGA). This clause, as approved by the Massachusetts
Department of Telecommunications and Energy (MDTE), allows the Company to
collect from or return to customers, changes in gas cost. Though the application
of this clause has positively impacted operating revenues, the matching of gas
cost has negated any affect on net income.
Gas operating revenues for the nine months ended June 30, 2000
increased $1,203,300, 3.1%, from $38,664,400 in 1999 to $39,867,600 in 2000.
With the colder weather that the Company experienced during this period, in
which effective degree days rose 3.8% from 5,652 in 1999 to 5,868 in 2000, total
sales volumes increased by 0.4% from 6,106,600 Mcf to 6,132,900 Mcf in 2000.
Total operating expenses, excluding federal and state income taxes, for
the nine month comparisons increased 4.3% from $34,971,000 to $36,485,300 an
increase of $1,514,200. The most significant operation expense - cost of gas
sold - increased by $1,240,600 for the nine month comparison mainly due to the
higher gas costs being charged to our firm customers. Other operation expenses
including health benefits, payroll, and materials and supplies have increased by
$36,000, 0.4% higher than the comparable period in 1999.
Operating expenses, excluding federal and state income taxes, for the
three month comparison increased 12.9% from $7,627,700 in 1999 to $8,609,600 in
2000, a increase of $981,900. The most significant operation expense - cost of
gas sold - increased by $841,900 for the three month comparison mainly due to
the higher gas costs being charged to our firm customers. Other operation
expenses including health benefits, payroll, and materials and supplies have
increased by $76,300, 3.0% higher than the comparable period in 1999.
Interest expense decreased by $4,200, 0.3%, for the nine month
comparison and $15,700, 3.8% for the three month comparison as a result of
decreased short term borrowing.
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
4
<PAGE>
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, shareholders of Southern Union, 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 had recognized approximately $160,000 of investment banking
and legal fees in the first quarter related to its proposed merger agreement
with Southern Union Company, which reduced earnings for the first nine months by
about $0.07 per share. Costs are included in operating expenses for the nine
months ended June 30, 2000, respectively.
Premium paid on common stock for the nine month period increased
$991,990 or 19.5% from $5,086,794 in September 1999 to $6,078,784 in June 2000.
This increase was due to the continuing purchase and participation in the
Company's Dividend Reinvestment Plan.
Fall River Appliance Company earnings for the nine months ended June
30, 2000 reflect a decrease of 21% or $148,300. Earnings decreased from $708,100
recorded in fiscal 1999 to $559,800. 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
nine months ended June 30, 2000, capital expenditures totaled approximately
$1,882,600.
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.
Legal Proceedings/Environmental Matters
On July 12, 1999, a civil action styled Louis Andrade, Donald P.
Rodrigues, and Dawn C. Rodrigues v. Fall River Gas Company, C.A. No.
99-11669-GAO, was filed against the Company in the United States District Court
for the District of Massachusetts. The Plaintiffs are the mortgagee and owners,
respectively, of twelve acres of land located in Tiverton, Rhode Island. The
Plaintiffs have asserted claims against the Company pursuant to the Federal
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
and the Rhode Island Industrial Remediation and Refuse Act seeking to recover
from the Company the costs of remediation of alleged cyanide and coal gas waste
contamination on the property. The site of the contamination is within the
twelve acres but does not occupy the full twelve acres. The Plaintiffs alleged
that the Company is responsible for the presence of hazardous materials found at
the property. The Plaintiffs made a settlement demand in the amount of $300,000
on October 22,
5
<PAGE>
1999. The Company refused that demand, and the Plaintiffs have since
withdrawn it.
The case has been bifurcated into a liability phase and a damage
phase. The parties are nearing the completion of discovery with respect to
the liability phase. The Company continues to contest the Plaintiffs' claims
vigorously.
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 diluded 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 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
6
<PAGE>
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 and C 138, 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
7
<PAGE>
FALL RIVER GAS COMPANY AND SUBSIDIARY
-------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. The results of operation for the nine month periods ending June 30,
2000 and 1999 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 June 30, 2000 and 1999, and the results of operations
for the nine months ended and changes in financial position
for the nine 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 June
30, 2000.
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 August 14, 2000 Peter H. Thanas, Treasurer,
---------------- ---------------------------
Chief Financial and
Accounting Officer
8
