10-Q 1 a10-q.txt FORM 10-Q 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 FALL RIVER GAS COMPANY ---------------------- INDEX -----

PART I. FINANCIAL INFORMATION ----------------------------------------------------- FALL RIVER GAS COMPANY AND SUBSIDIARY ----------------------------------------------------- CONSOLIDATED CONDENSED BALANCE SHEETS -----------------------------------------------------

See accompanying notes to consolidated condensed financial statements. 1 SUMMARIZED FINANCIAL INFORMATION ----------------------------------------------------- FALL RIVER GAS COMPANY AND SUBSIDIARY ----------------------------------------------------- CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS ---------------------------------------------------------------------

See accompanying notes to condensed financial statements. 2 FALL RIVER GAS COMPANY AND SUBSIDIARY ------------------------------------- CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------

See accompanying notes to consolidated condensed financial statements. 3 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 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 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 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 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

FALL RIVER GAS CO 10-Q