<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 March 31, 2000 Commission file number 0-449
- --------------------------------------------------------------------------------
FALL RIVER GAS COMPANY
- --------------------------------------------------------------------------------
(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.
<TABLE>
<CAPTION>
Class Outstanding at March 31,2000
- ---------------------------------- -----------------------------
<S> <C>
Common stock,par value of $.83 1\3 2,214,388 shares
</TABLE>
<PAGE>
FALL RIVER GAS COMPANY
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Part. I. Financial Position
Consolidated Condensed Balance Sheets -
March 31, 2000 and September 30, 1999 1
Consolidated Condensed Statements of Income -
Six Months Ended March 31, 2000 and 1999 2
Consolidated Statements of Cash Flows -
Six Months Ended March 31, 2000 and 1999 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
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
FALL RIVER GAS COMPANY AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited
MARCH 31, SEPTEMBER 30,
ASSETS 2000 1999
----------- -----------
<S> <C> <C>
Gas Plant, at original cost $63,100,667 $62,319,207
less accumulated depreciation 23,933,766 22,552,849
----------- -----------
39,166,901 39,766,358
----------- -----------
Rental Property 6,090,237 6,069,442
less accumulated depreciation 1,850,548 1,887,415
----------- -----------
4,239,689 4,182,027
----------- -----------
Current Assets:
Cash 467,697 279,079
Accounts receivable, less allowance for
doubtful accounts of $1,578,197 as of
3/31/00 and $1,064,497 as of 9/30/99 6,234,483 1,617,329
Inventories, at average cost
Liquefied natural gas and propane 1,874,176 3,574,561
Materials and Supplies 1,418,354 1,345,614
Purchased gas costs deferred 2,649,016 3,627,483
Prepaid and Deferred Taxes 0 143,478
Prepayments and Other 751,295 710,005
----------- -----------
13,395,021 11,297,549
----------- -----------
Deferred Charges:
Regulatory Asset 370,504 426,313
Other 0 10,702
----------- -----------
370,504 437,015
----------- -----------
$57,172,115 $55,682,949
=========== ===========
STOCKHOLDERS' INVESTMENT AND LIABILITIES
CAPITALIZATION:
Stockholders' investment--
Common stock, par value $.83-1/3 par, 2,951,334 authorized
and 2,231,262 shares issued $ 1,859,385 $ 1,834,856
Premium paid in on common stock 5,649,209 5,086,794
Retained earnings ($6,865,648 restricted
against payment of cash dividends as
of 3/31/00 and as of 9/30/99) 11,860,873 10,661,885
----------- -----------
19,369,467 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 38,869,467 37,083,535
----------- -----------
CURRENT LIABILITIES:
Notes payable to banks 4,900,000 5,800,000
Dividends Payable 0 528,567
Accounts Payable 2,326,224 1,798,662
Accrued taxes 175,784 0
Other - Commitment and Contingencies 2,797,645 2,488,776
----------- -----------
10,199,653 10,616,005
----------- -----------
DEFERRED CREDITS:
Accumulated deferred income taxes 4,532,790 4,532,790
Unamortized investment tax credits 419,027 441,169
Regulatory Liability 383,763 383,763
Other 2,767,415 2,625,687
----------- -----------
8,102,995 7,983,409
----------- -----------
$57,172,115 $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 Six Months Ended
March 31 March 31
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
GAS OPERATING REVENUES $21,036,442 $20,259,752 $31,004,742 $30,754,820
----------- ----------- ----------- -----------
OPERATING EXPENSES
Cost of gas sold 12,662,470 11,866,472 17,910,153 17,511,411
Other operation 3,340,573 3,410,617 6,506,085 6,546,307
Maintenance 486,467 384,151 932,079 733,449
Depreciation 1,109,581 1,081,876 1,588,063 1,548,446
Local Property and Other 619,250 656,439 939,346 1,003,780
Federal and State income taxes 904,946 925,576 917,180 967,768
----------- ----------- ----------- -----------
Total operating expenses 19,123,287 18,325,131 28,792,906 28,311,161
----------- ----------- ----------- -----------
OPERATING INCOME $ 1,913,155 $ 1,934,621 $ 2,211,836 $ 2,443,659
OTHER INCOME:
Earnings of Fall River Gas Appliance
Company, Inc. (a wholly-owned subsidiary) 184,320 226,394 351,407 467,494
Other 6,837 135 11,810 5,140
----------- ----------- ----------- -----------
INCOME BEFORE INTEREST EXPENSE 2,104,312 2,161,150 2,575,053 2,916,293
----------- ----------- ----------- -----------
INTEREST EXPENSE AND OTHER:
Long-term debt 401,825 401,825 803,650 803,650
Other 27,991 15,965 39,772 28,260
----------- ----------- ----------- -----------
429,816 417,790 843,422 831,910
----------- ----------- ----------- -----------
NET INCOME $ 1,674,496 $ 1,743,360 $ 1,731,631 $ 2,084,383
RETAINED EARNINGS - BEGINNING OF PERIOD $10,719,020 $11,013,808 $10,661,885 $10,672,783
ADD - Dividends declared 0 0 528,567 526,173
DEDUCT - Dividends paid 532,643 526,721 1,061,210 1,052,892
RETAINED EARNINGS - END OF PERIOD
($6,865,648 restricted against payment of
cash dividends as of 3/31/00 and 3/31/99 $11,860,873 $12,230,447 $11,860,873 $12,230,447
=========== =========== =========== ===========
BASIC EARNINGS PER SHARE 0.75 0.79 0.78 0.95
=========== =========== =========== ===========
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 2,222,627 2,195,585 2,214,388 2,194,362
=========== =========== =========== ===========
CASH DIVIDEND PAID PER COMMON SHARE 0.24 0.24 0.48 0.48
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
FALL RIVER GAS COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Unaudited
Six Months Ended
March 31
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash Provided by (used for)
Operating Activities:
Net income $ 1,731,631 $ 2,084,383
Items not requiring (providing) cash:
Depreciation 1,861,544 1,785,775
Deferred Income Taxes 143,478 401,160
Investment Tax Credits, net (22,142) (22,142)
Change in working capital (1,012,996) (1,654,157)
Other sources, net 150,093 467,187
----------- -----------
Net cash used for
operating activities 2,851,608 3,062,206
----------- -----------
Investing Activities:
Additions to utility property, plant and equipment (967,894) (1,001,884)
Additions to nonutility property (320,830) (230,850)
----------- -----------
Net cash used by investing activities (1,288,724) (1,232,734)
----------- -----------
Financing activities:
Cash dividends on common stock (1,061,210) (1,052,892)
Common stock transactions 586,944 88,010
Increase (decrease) in notes payable to banks, net (900,000) (800,000)
----------- -----------
Net cash provided by
financing activities (1,374,266) (1,764,882)
----------- -----------
Increase (decrease) in cash 188,618 64,590
Cash, beginning of period 279,079 356,005
----------- -----------
Cash, end of period $ 467,697 $ 420,595
=========== ===========
Changes in Components of Working Capital
(excluding cash)
(Increase) decrease in current assets:
Special Deposits $ 19,050 $ 0
Accounts receivable (4,617,155) (5,398,167)
Inventories 1,627,646 817,156
Prepayments and other (33,219) (39,697)
Deferred gas cost 978,467 2,832,003
Increase (decrease) in current liabilities:
Accounts payable 527,562 (786,087)
Accrued taxes 175,784 521,586
Other 308,869 399,049
----------- -----------
Change in Working Capital $(1,012,996) $(1,654,157)
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during year for:
Interest $ 995,269 $ 950,442
Income taxes $ 620,596 $ 620,792
</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 second quarter of fiscal 2000 was $1,674,500 or
$0.75 per average share as compared with earnings of $1,743,400 or $0.79 for the
second quarter in fiscal 1999. Earnings for this period was negatively impacted
by the higher operating expenses compared to the identical period in 1999. Net
income for the six months ended March 31, 2000 was $1,731,631 with earnings per
average share at $0.78 compared to net income of $2,084,383 and earnings per
average share of $0.95 for the same period in 1999. For the six month
comparison, the Company experienced higher operating expenses and $160,000
non-taxable merger costs.
During the second quarter of 2000 colder weather in which effective
degree days rose 1.6% from 2,964 in 1999 to 3,010 in 2000 positively impacted
firm sales. Firm sales volumes increased 3.9%, from 2,506,400 MCF in 1999 to
2,603,100 MCF in 2000. Operating revenues for the three months ended March 31,
2000 increased $776,700 to $21,036,400 from $20,259,700 in 1999. Cost of gas
(CGA) revenues for the second quarter increased by $816,043 or 5.7%. Revenues
increased due to the net changes in our CGA billings along with increased 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.
Gas operating revenues for the six months ended March 31, 2000
increased $249,900, 0.8%, from $30,754,800 in 1999 to $31,004,700 in 2000. With
the colder weather that the Company experienced during this period, in which
effective degree days increased 0.8% from 4,911 in 1999 to 4,949 in 2000, total
sales volumes increased slightly from 4,680,800 Mcf to 4,681,700 Mcf in 2000.
The increase of operating revenues is attributable to increased CGA revenues and
conservation program revenues and slightly higher base revenues due to colder
weather.
Operating expenses, excluding federal and state income taxes, for the
three month comparison increased 4.7% from $17,399,600 in 1999 to $18,218,300 in
2000, an increase of $818,800. The most significant operation expense - cost of
gas sold - increased by $796,000 for the three month comparison mainly due to
the reasons discussed above. Other operation expenses including health benefits,
payroll, and materials and supplies have decreased by $70,000, 2.0% lower than
the comparable period in 1999.
Total operating expenses, excluding federal and state income taxes,
for the six month comparisons reflected a 1.9% increase from $27,343,400 to
$27,875,700 an increase of $532,300. The most significant operation expense -
cost of gas sold - increased by $398,700 for the six month comparison due mainly
to the increase in the volumes of purchased gas and the higher commodity cost.
Other operation expenses including health benefits, payroll, and materials and
supplies have decreased by $40,200, 0.6% lower than the comparable period in
1999.
4
<PAGE>
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 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 six months by
about $0.07 per share. Costs are included in operating expenses for the three
and six months ended December 31, 1999 and March 31, 2000, respectively.
Premium paid on common stock for the six month period increased
$562,415 or 11.1% from $5,086,794 in September 1999 to $5,649,209 in March 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 six months ended March
31, 2000 reflect a decrease of 25% or $116,100. Earnings decreased from $467,500
recorded in fiscal 1999 to $351,400. 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
six months ended March 31, 2000, capital expenditures totaled approximately
$1,228,700.
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;
5
<PAGE>
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 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
<PAGE>
FALL RIVER GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The results of operation for the six month periods ending March 31,
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 March 31, 2000 and 1999, and the
results of operations for the six months ended and changes in financial
position for the six months then ended.
3. The Company had no shares of its common stock reserved for officers and
employees, options, warrants, conversions or other requirements at
March 31, 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 May 12, 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 MARCH 31,
2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 467,697
<SECURITIES> 0
<RECEIVABLES> 7,812,680
<ALLOWANCES> (1,578,197)
<INVENTORY> 3,292,530
<CURRENT-ASSETS> 3,770,815
<PP&E> 69,190,904
<DEPRECIATION> (25,784,314)
<TOTAL-ASSETS> 57,172,115
<CURRENT-LIABILITIES> 18,302,648
<BONDS> 19,500,000
0
0
<COMMON> 1,859,385
<OTHER-SE> 17,510,082
<TOTAL-LIABILITY-AND-EQUITY> 57,172,115
<SALES> 31,004,742
<TOTAL-REVENUES> 31,367,959
<CGS> 17,910,153
<TOTAL-COSTS> 9,026,227
<OTHER-EXPENSES> 939,346
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 843,422
<INCOME-PRETAX> 3,588,157
<INCOME-TAX> 917,180
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,731,631
<EPS-BASIC> .78
<EPS-DILUTED> .78
</TABLE>
