SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended September 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File Number 0-449
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 02720
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(Address or principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 675-7811
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Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock Par Value $.83 1/3 Per Share American Stock Exchange
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Securities registered pursuant to Section 12 (g) of the Act:
Common Stock Par Value $.83 1/3 Per Share
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(Title of Class)
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 .
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Indicate by check mark if disclosures of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by references in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant (1,933,161) shares was $41,079,671 as of December 14, 1999 of
$21.25.
Indicate the number of shares outstanding of each of the Registrant's
classes of the latest practicable date.
Class Outstanding at December 14, 1999
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Common Stock, $.83 1/3 par value 2,208,145
Documents incorporated by reference:
Definitive Proxy Statement dated December 17, 1999 (Part III)
FALL RIVER GAS COMPANY
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1999 FORM 10-K ANNUAL REPORT
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Table of Contents
PART I
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Page
Item 1. Business 3
General 3
Sales And Transportation 4
Rates and Regulation 6
Gas Supply And Storage 9
Competition 12
Employees 14
Item 2. Properties 15
Item 3. Legal Proceedings/Environmental Matters 15
Item 4. Submission of Matters to a Vote of Security Holders 17
PART II
Item 5. Market for the Registrant's Common Stock and 20
Related Stockholder Matters
Item 6. Selected Financial Data 21
Item 7. Management's Discussion and Analysis of Financial 22
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 28-37
Item 9. Disagreements on Accounting and Financial Disclosure 37
PART III
Item 10. Directors and Executive Officers of the Registrant 37
Item 11. Executive Compensation 38
Item 12. Security Ownership of Certain Beneficial Owners and 38
Management
Item 13. Certain Relationships and Related Transactions 38
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports 39
of Form 8-K
2
PART I
ITEM 1. BUSINESS
GENERAL
The Company, organized as a Massachusetts corporation on September
25, 1880, is an investor-owned public utility company that sells, distributes
and transports natural gas (mixed with propane and liquefied natural gas during
winter months) at retail through a pipeline distribution system in the City of
Fall River and the towns of Somerset, Swansea and Westport, all located within
the southeastern portion of the Commonwealth of Massachusetts. The principal
markets served by the Company are (1) residential customers using gas for
heating, cooking and water heating, (2) industrial customers using gas for
processing items such as textile and metal goods, (3) commercial customers using
gas for cooking and heating, and (4) federal and state housing projects using
gas for heating, cooking and water heating.
The Company is engaged in only one line of business as described
above, and in activities incidental thereto. The Company has one wholly-owned
subsidiary, Fall River Gas Appliance Company, Inc., a Massachusetts corporation,
which rents water heaters and conversion burners (primarily for residential use)
in the Company's gas service area. Earnings from the Appliance Company are
primarily the result of revenues from the rental of water heaters and conversion
burners. As of September 30, 1999, the water heater program had 14,063 rentals
in service and the conversion burner program had 4,399 rentals in service. The
Appliance Company also derives revenues from the sale of central heating and
air-conditioning systems and water heaters.
This Annual Report contains forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the
3
Exchange Act, particularly in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital Resources"
and "Business" sections. Forward-looking statements are generally identified
with the following phrases: "believes", "expects", and "anticipates", or words
of similar import. Actual results could differ materially from those expressed
or implied in such forward-looking statements as a result of the risk factors
set forth below and other information contained elsewhere in the Annual Report.
In addition to the other information contained and incorporated by reference in
this Annual Report, the following factors should be carefully considered in
evaluating the Company and its business.
SALES AND TRANSPORTATION
The Company's service territory is approximately 50 square miles
in the area surrounding the City of Fall River, Massachusetts. The Company had
an average of 47,843 sales customers during the twelve months ended September
30, 1999, of which approximately 94% were residential and 6% were commercial and
industrial. For the twelve months ended September 30, 1999 approximately 73% of
the Company's gas operating revenues were derived from sales to residential
customers and 27% were derived from sales or transportation to commercial and
industrial customers. At September 30, 1999 the Company had 46 commercial and
industrial transportation customers, which, in the aggregate, accounted for 24%
of the total gas carried over the Company's pipeline system ("throughput") and
approximately 4% of gas operating revenues for the twelve months ended September
30, 1999. The Company's tariffs currently do not allow for residential
transportation service. The Company's residential customers take service only
under firm sales tariffs and use natural gas for heating, cooking and water
heating, of which heating use constitutes most of such consumption. Commercial
customers (such as stores, restaurants and offices) generally use gas for
4
cooking and heating. Under currently effective tariffs, commercial customers may
take the Company's transportation service and purchase their own gas. At this
time, however, most commercial customers take firm sales service from the
Company. Industrial customers primarily use natural gas in manufacturing and
processing applications, such as for metal or textile goods. Such firm
industrial sales and transportation load is fairly level throughout the year
because generally a small part of those customers' usage is for heating. Certain
of the Company's industrial customers also take interruptible service either on
a sales or transportation basis. These customers are subject to service
discontinuance on short notice as system firm requirements may demand. Such
customers generally use interruptible natural gas service for boiler or plant
heating and are able to change to an alternate fuel when there are supply
constraints (generally during the heating season). Also, the prices of
alternative sources of energy impact the interruptible markets. Prices for these
customers are based on the price of the customers' alternative fuel.
The following table shows the Company's throughput during each of
the periods shown below in millions of cubic feet ("MMcf"):
5
For the Fiscal
Year Ended
September 30,
1999 1998 1997 1996 1995
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Residential.............. 3,738 3,823 4,063 4,351 3,858
Commercial............... 1,250 1,302 1,400 1,454 1,262
Industrial-firm.......... 148 261 383 418 443
Industrial-interruptible. 38 32 15 71 430
Special Contracts........ 0 0 0 498 441
Transportation........... 1,626 1,523 1,701 1,101 818
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TOTAL.................... 6,800 6,941 7,562 7,893 7,252
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The Company's utility sales business is seasonal. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Seasonality".
RATES AND REGULATION
The Company is subject to the regulatory authority of the
Massachusetts Department of Telecommunications and Energy ("MDTE") with respect
to various matters, including the rates it charges for services, financings,
certain gas supply contracts and planning and safety matters.
The Company's principal firm sales rate classifications are
residential, commercial and industrial. The Company also provides transportation
service and, from time to time subject to specific MDTE
6
approval, may provide service under special contracts. As of and after October
1, 1997, the Company had no special contracts. The Company's rate structure is
based on the cost of providing service to each class of customer. The Company's
firm rate structure is based on generally seasonal rates, whereby base rates are
higher in the winter (November through April) and lower in the summer (May
through October). In addition to its base rates, the Company has a seasonal cost
of gas adjustment rate schedule (the "CGAC"), which provides for the recovery
from firm customers of all purchased gas costs. Through the CGAC, the Company
also imposes charges, subject to MDTE approval, that are estimated semi-annually
and include credits for gas pipeline refunds and profit margins applicable to
interruptible sales. Actual gas costs are reconciled semi-annually and any
difference is included as an adjustment in the calculation of the CGAC charges.
Charges under the CGAC rate schedule are added to the base rates and are
designed generally to recover higher costs in the winter and refund lower gas
costs in the summer. Pursuant to MDTE approvals, the Company has collected all
Federal Energy Regulatory Commission ("FERC") Order 636 transition costs billed
to it.
On May 17, 1996 the Company filed revised tariffs with the MDTE
to unbundle its commercial and industrial service classes and to increase annual
revenues. By order dated October 16, 1996, the MDTE authorized the Company to
increase its rates for sales of gas effective December 1, 1996. The amount of
this increase on an annualized basis was $3,200,000. That MDTE order also
approved various changes to the Company's commercial and industrial rates to
facilitate the ability of customers on such rates to choose between purchasing
their gas supplies from the Company on a "bundled" basis or purchasing from
third parties and having the Company transport and deliver such supplies. Such
rates were also designed to make the Company economically indifferent to a
customer's choice of bundled sales service or transportation service. Such
transition to local
7
distribution companies ("LDC's"), such as the Company, providing more service by
transporting, as opposed to selling, natural gas has continued. Over the past
year, LCDs, unregulated gas marketers, customer groups and the Massachusetts
Attorney General have worked together to address a variety of issues relating to
restructuring the natural gas industry. This effort, known as the Massachusetts
Gas Collaborative has led to further unbundling by several Massachusetts LDCs
and an agreement by such industry participants on the basic rules governing the
relationships and transactions between LDCs and marketers. In February 1999, the
MDTE issued an order establishing a three year transition period for industry
restructuring. Specifically, the MDTE ruled that with the exceptions of
marketers' existing customers, natural gas marketers or customers MUST accept
portions of the LDC's supply and transportation contract capacity rights when
customers shift from purchasing their gas supplies from LDCs to marketers. The
MDTE also required exploration of issues such as LDCs outsourcing management of
their supply portfolio or sale thereof by auction and exiting the business of
selling natural gas generally. Such developments will over time lead to
increased activity by marketers and a greater percentage of LDCs' (including the
Company's) throughput being transportation rather than sales. Also the MDTE is
currently considering other issues that are central to the structure and extent
of composition within the natural gas industry in Massachusetts, including the
structure and mechanics of assigning (and where applicable, recalling) capacity
to marketers of LDCs; providing "default service' (i.e., where the customer
returns to the LDC as its source of supply); and provision of peaking service to
marketers.
The regulation of prices, terms and conditions of interstate
pipeline transportation and sales of natural gas is subject to the jurisdiction
of FERC. Although the Company is not under the direct jurisdiction of FERC, the
Company monitors, and periodically participates in, proceedings before
8
FERC that affect the Company's pipeline gas transporters, the Company's
operations and other matters pertinent to the Company's business.
The Company is also subject to standards prescribed by the
Secretary of Transportation under the Natural Gas Pipeline Safety Act of 1968
with respect to the design, installation, testing, construction and maintenance
of pipeline facilities. The enforcement of these standards has been delegated to
the MDTE.
GAS SUPPLY AND STORAGE
For several decades, until 1993, the Company primarily relied
upon a single supplier, Algonquin Gas Transmission Company ("Algonquin"), for
its gas supply needs. In its merchant role, Algonquin provided all the Company's
pipeline-supplied natural gas and storage, as well as transported such pipeline
and storage supplies to the Company's system. This supply paradigm changed,
however, in 1993 following FERC's issuance of Order 636. Order 636 was intended
to encourage more competition among natural gas suppliers and required
interstate pipelines to unbundle or separate gas sales, transportation and
storage services. With the implementation of Order 636, most pipeline companies
(including Algonquin) discontinued their traditional merchant function. Order
636 allowed pipeline companies to recover from their customers, gas distribution
companies such as the Company, costs associated with the service unbundling and
discontinuation of merchant service. This resulted in each local distribution
company becoming responsible for obtaining all of its gas supply in the open
market. While unbundling of these services allows a local distribution company,
such as the Company, more flexibility in selecting and managing the type of
services required to provide its customers with the lowest possible priced gas
while maintaining a reliable gas supply, it also places additional
responsibility on a distribution company to obtain its natural gas supply in the
open market on a timely basis to fulfill commitments
9
during peak demand periods.
With the advent of FERC Order 636, which was implemented on June
1, 1993, the Company assumed the full responsibility for aggregating, gathering
and arranging for the transmission of all required pipeline gas supplies to its
distribution system.
The pipelines serving the Company, Algonquin and its affiliate
Texas Eastern Transmission Company ("Texas Eastern"), have made the required
compliance filings of tariff sheets and have fully implemented the provisions of
Order 636. The primary related issue of the billing by Algonquin and Texas
Eastern of transition costs has been resolved. The Company has made appropriate
arrangements for supplies to replace the sales service formerly provided by
Algonquin, or "Conversion Supplies".
The Company is required to obtain the approval of the MDTE for
gas supplies that are to be purchased over a period in excess of one year,
including any Conversion Supplies. Through its arrangements for the Conversion
Supplies, the Company has contracted for a "city gate management service", which
includes the provision of transportation, sales and storage services by a third
party. The Company has maintained reliability and flexibility of service through
this arrangement at a cost very competitive with any other combination of
unbundled services, but with much less administrative risk and costs than would
pertain to alternatives. Approximately 90% of the Company's Conversion Supplies
are provided under a multi-year contract with SEMPRA Energy Trading (formerly
CNG Energy Services Corporation) ("SEMPRA") in quantities described below. Such
contract remains effective through October,2000. In June 1995, the MDTE approved
the Company's contract with SEMPRA and in November 1999 the MDTE approved an
extension thereof. The Company also has short-term arrangements in place for
supplemental supplies for the 1999-2000 winter heating season. The Company is
currently analyzing the proper amount of such supply for future years and has
filed a "Forecast and Supply Plan" with the MDTE,
10
along with a request for approval thereof and certain supplemental gas supplies.
The MDTE's decision is pending.
The Company has contracted with SEMPRA for the purchase of all
pipeline commodity supplies for delivery to the Company's distribution system,
as well as storage services, management of Company-owned pipeline and storage
capacity and provision of significant amounts of back-up deliveries from a
different gas production area. SEMPRA's firm, year-round contract deliveries to
the Company provide for an annual contract quantity of 5,219,255 Mcf delivered
to the Company's facilities ("City Gate") on a 365-day basis and for deliveries
into storage for the Company in an annual amount of 841,355 Mcf. The maximum
daily quantity ("MDQ") of City Gate deliveries are 17,461 Mcf and the storage
MDQ is 11,441 Mcf with 7,124 Mcf of that total MDQ available for City Gate
deliveries from November 16 through April 15 as winter service supplies
delivered via Algonquin.
The remainder of the MDQ is available each day of the year. All
commodity deliveries are priced at an index price reflective of the market
price. This type of pricing mechanism is designed to allow the Company to obtain
its gas supply at competitive prices. The SEMPRA supply contract includes a
mechanism whereby alternative market indices may be used in conjunction with the
futures market to fix the price of all or part of the gas supplied if the market
is such that additional price security is deemed prudent. The SEMPRA contract
commenced on June 1, 1993 and has been extended until October 31, 2000. The
Company, along with the informal buying group with whom it arranged the original
SEMPRA contract, has been discussing with SEMPRA and other suppliers, potential
arrangements for supply after October 31, 2000.
In addition to the supplemental gas supplies described below, the
Company has requirements for a supply of approximately (1,479,000) Mcf during
the 1999-2000 heating season (November through March). To fulfill this portion
of its supply portfolio, the Company obtained bids from
11
several potential suppliers and has entered into supply contracts for a three
year term with Distrigas of Massachusetts Corporation ("DOMAC") and a separate
one year contract with SEMPRA. Supplies are currently being provided under the
DOMAC contracts, though the MDTE must approve the contract. The Company has made
the necessary filing with the MDTE and awaits action on its request for
approval.
The Company has a renewable one-year Firm Liquid Contract with
DOMAC for 200,000 MMBTU of liquefied natural gas ("LNG"), to be delivered by
truck to the Company's storage tank for use in "peak shaving" operations which
supplement pipeline volumes in peak requirement situations.
In addition to the LNG peak shaving facilities, the Company also
maintains storage and send out facilities for liquefied propane gas ("LPG") that
provide an additional 88,000 MMBTU of sendout capacity when needed. The
Company's projected peak day requirements are 68,598 Mcf for the 1999-2000
heating season compared to the Company's peak day capacity of 70,000 Mcf.
The Company's peak day capacity is comprised of 29,859 Mcf of
pipeline deliveries pursuant to the SEMPRA contracts to the City Gate; 13,000
Mcf of supplemental DOMAC and SEMPRA gas supplies, delivered by pipeline;
vaporization of Company stored liquid propane ("LP") into gas for injection (all
by Company-owned equipment) into the Company's distribution system in daily
amounts of about 10,000 Mcf; and vaporization of Company-stored LNG and
injection into the distribution system in daily amounts of about 20,000 Mcf.
COMPETITION
Historically, the Company was not subject to competition from any
other gas public utility or gas marketers with respect to sales of the natural
gas commodity, but rather only from electricity, oil, coal and other fuels for
heating, water heating, cooking, air conditioning and other
12
purposes. Generally, the Company does not face competition relative to its
delivery of natural gas. As discussed above, however, the status of competition
among suppliers of natural gas sales service has significantly increased with
the level of marketer activity and tariff and regulatory changes that facilitate
competition. As a result, marketers are currently selling natural gas to several
large volume end-users to whom the Company has historically made sales.
Marketers can be expected to seek to provide an increasing volume of sales
services to end-users located within the Company's service territory. At the
current time, for all third-party commodity sales that are occurring in the
Company's service territory, the Company transports those gas supplies within
the Company's service territory and delivers the supplies to the customers. The
margins earned by the Company for such transportation services are the same as
margins earned on bundled supply/delivery sales to the same end-users. Similar
opportunities may exist for the Company to broker gas to new or existing
customers, whether or not located within the Company's service territory,
although the Company has not done so to date and strict affiliate transaction
rules would apply.
The principal considerations in the competition between the
Company and suppliers of other fuel or energy include price, equipment
operational efficiencies and ease of delivery. In addition, the type of
equipment already installed in the businesses and residences significantly
affects the customer's choice of fuel or energy source, and in some cases
whether a customer will choose to transport gas supplied by marketers, or to
purchase from the Company.
The price of natural gas currently compares favorably to
electricity but is generally higher than fuel oil, especially the grade of oil
used by certain commercial and industrial customers. As price is generally
considered the most significant factor affecting competition among the various
energy sources, there is always uncertainty in the continuing
13
competition among such energy sources, due to variations in price. Equipment
operational efficiencies and ease of delivery give natural gas advantages over
oil and also makes natural gas comparable to electricity in these respects.
Because of the environmental advantages associated with natural gas and the
efficiency and security of its supply, the demand for natural gas is expected to
continue to increase. Also, manufacturing, processing and other equipment
requirements are such that the use of gas rather than another fuel is virtually
a necessity for certain large commercial and industrial customers. Heating,
water heating and other domestic or commercial equipment is generally designed
for a particular energy source, and especially with respect to heating
equipment, the cost of conversion is a disincentive for individuals and
businesses to change their energy source. Currently, the Company estimates that
its gas heating saturation in areas in which it has been in active service is
approximately 89%.
The regulatory initiatives now under consideration pursuant to
which gas distribution companies in Massachusetts, such as the Company, would
restrict their sales activities, will also have a significant impact on the role
of the Company in an increasingly competitive market.
For all of these reasons, the Company believes that competition
in the area of natural gas sales from natural gas brokers and marketers, as well
as from other fuel sources, will intensify in the future.
EMPLOYEES
The Company employed 171 full-time and 7 part-time employees as
of September 30, 1999. Of those employees, 73 are represented by the Utility
Workers Union of America, AFL-CIO, Local No. 431. The Company and its union
employees currently have a contract through April 30, 2002. The Company believes
that it enjoys generally good labor relations.
14
ITEM 2. PROPERTIES
The Company owns approximately 635 miles of distribution mains,
the major portion of which are constructed of coated steel, plastic or cast
iron. The Company owns and operates LP vaporizing equipment with an approximate
daily capacity of 14,000 Mcf and six LP storage tanks with a total capacity of
approximately 320,000 gallons. The Company also owns and operates an LNG storage
tank with a capacity of 45,000 barrels, equivalent to approximately 157,000 Mcf
of vaporized gas, and LNG vaporization equipment with a daily vaporization rate
of approximately 20,000 Mcf. The Company has three gate stations receiving gas
from the Algonquin pipeline. The Company also owns four office and operations
buildings in the service area.
All of the principal properties of the Company are owned in fee, subject to
the lien of the mortgage securing the Company's First Mortgage Bonds (the
"Indenture of First Mortgage"), and further subject to covenants, restrictions,
easements, leases, rights-of-way and other similar minor encumbrances common to
properties of comparable size and character, and none of which, in the opinion
of the Company's management, materially interferes with the Company's use of its
properties for the conduct of its business. The Company's gas mains are
primarily located under public highways and streets. Where they are under
private property, the Company has obtained easements or rights-of-way from the
record holders of title. These easements and rights are deemed by the Company to
be adequate for the purpose for which they are being used.
ITEM 3. LEGAL PROCEEDINGS/ENVIRONMENTAL MATTERS
In January 1990 the Company received notification from the
Massachusetts Department of Environmental Protection ("MDEP") that it is one of
numerous "potentially responsible parties" under Massachusetts laws in
connection with two sites in Massachusetts which were the subject of
15
alleged releases of hazardous materials, including lead, by a company which had
purchased scrap meters from various utilities including the Company. The Company
has entered into an agreement with a group of other potentially responsible
parties (the "Group") to respond jointly and to share costs associated with the
MDEP's investigation. The Group negotiated an agreement with the MDEP to conduct
limited response actions at one of the sites without admission of liability, at
a cost of about $100,000 to the entire Group, pursuant to which members of the
Group would be released from any further liability at the site. Remedial actions
were commenced September 5, 1995 and have been completed. Though final MDEP
approval of the actions taken has not been issued, the Group considers the issue
closed. Efforts regarding the second site are in the early stages and potential
remediation costs at the second site and the Company's degree of responsibility
has not been determined, but the Group has made an offer to the MDEP for the
Group to undertake to do some remidiation work at the Main Street site, but not
to assume full responsibility for performing response actions with respect to
either debris at that site or contamination in wetlands of surface water. This
offer would be in exchange for a release from all other past of future response
costs. The MDEP has not yet responded to this offer. The Company does not expect
its allocated share of costs of any response actions which it may take or which
may be required at the second site to be significant.
On July 12, 1999, the suit, Louis Andrade, Donald P. Rodrigues
and Dawn C. Rodrigues v. Fall River Gas Company, United States District Court of
Massachusetts, C.A. No. 99-11669CAO, against the Company was filed with the
United States District Court of the District of Massachusetts. The Plaintiffs
are the mortgagee and owners, respectively, of 12 acres of land located in
Tiverton, Rhode Island. The Plaintiffs have asserted claims against the Company
pursuant to the Federal Comprehensive Environment Response, Compensation and
Liability Act ("CERCLA") and the Rhode Island
16
Industrial Remediation and Refuse Act seeking to recover from the Company the
costs of remediation of alleged lead and coal gas waste contamination on the
property. The site of the contamination is within the 12 acres but does not
comprise the full 12 acres. The Plaintiffs have made a settlement demand in the
amount of $300,000 on October 22, 1999. The Company has refused that demand.
The Plaintiffs allege that the Company is responsible for the
presence of the hazardous materials found at the property. The only support the
Plaintiffs have for their allegations is the eyewitness testimony of a single
witness and his recollections from the 1930's, who has provided inconsistent
testimony.
The Company intends to contest the Plaintiffs' claims vigorously.
The Company believes it will ultimately prevail and thus has not provided for
any loss relative to this matter in its financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
17
ADDITIONAL ITEM - EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers:
RAYMOND H. FAXON*
Age 92, currently Vice Chairman of the Board of Directors and
assistant Treasurer of the Registrant. His current business function is Vice
Chairman of the Board of Directors and Assistant Treasurer. He is the father of
Bradford J. Faxon. Positions held for the past five years are as follows:
1/1/88 - 12/31/93 - Chairman of the Board of Directors and
Assistant Treasurer
1/1/94 - to Present - Vice Chairman of the Board of Directors
and Assistant Treasurer
His principal occupation for the past five years has been
employment with the Registrant.
BRADFORD J. FAXON*
Age 61, currently chairman of the Board of Directors, President
and a Director of the Registrant. His current business function is Chief
Executive Officer. Positions held with the Registrant for the past five years
are as follows:
12/1/78 to Present - Director
8/1/86 to Present - President
1/1/94 to Present - Chairman of the Board of Directors
He is the son of Raymond H. Faxon. His principal occupation for
the past five years has been employment with the Registrant.
PETER H. THANAS
Age 55, currently Senior Vice President and Treasurer of the
Registrant. His current business function is Chief Financial and Accounting
Officer of the Registrant. Positions held for the past five years are as
follows:
18
8/ 1/86 to 9/19/94 - Financial Vice President and Treasurer
9/20/94 to Present - Senior Vice President and Treasurer
His principal occupation for the past five years has been
employment with the Registrant.
JOHN F. FANNING
Age 53, currently Vice President of Production and Gas Supply.
His current business function is Vice President of Production and Gas Supply of
the Registrant. Positions held with the Registrant for the past five years are
as follows:
7/ 1/87 - 12/31/89 - Manager of Gas Supply
1/ 1/90 - 9/20/93 - Superintendent of Production and Gas Supply
9/21/93 to Present - Vice President of Production and Gas Supply
His principal occupation for the past five years has been
employment with the Registrant.
WALLACE E. FLETCHER
Age 66, currently Comptroller and Assistant Treasurer. His
current business function is Comptroller and Assistant Treasurer of the
Registrant. Positions held with the Registrant for the past five years are as
follows:
5/27/92 to Present - Comptroller and Assistant Treasurer
His principal occupation for the past five years has been
employment with the Registrant.
All officers are either elected or appointed at the Directors'
Meeting following the annual Stockholders' meeting. Their terms of office are to
be for one year or until their successors have been duly elected or appointed.
*Members of the Executive Committee.
19
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCK-
Holders Matters
- --------------------------------------------------------------------------------
(a) Common Stock Quotations
AMEX
3 Months
Ended 9/30/99 6/30/99 3/31/99 12/31/98 9/30/98 6/30/98 3/31/98 12/31/97
(See Note)
High 22 19-7/8 18-1/4 17-1/2 16-3/8 16-3/4 17-1/4 16-5/8
Low 18-3/4 17-1/8 16-7/8 15-1/8 14-3/8 14-1/4 14-7/8 13
Because of the infrequency of trading of the Registrant's Common Stock, such
quotations may reflect inter-dealer prices, not actual transactions.
(b) Number of Stockholders at September 30, 1999 is 789.
(c) Dividends:
1999 1998
---- ----
November 15, 1998 - $.24 November 15, 1997 - $.24
February 15, 1999 - .24 February 15, 1998 - .24
May 15, 1999 - .24 May 15, 1998 - .24
August 15, 1999 - .24 August 15, 1998 - .24
As of September 30, 1999 the Registrant had retained earnings
totaling $10,661,885 of which $6,865,649 was restricted against payment of cash
dividends under the terms of the Registrant's Indenture of Trust.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain consolidated financial data
and is qualified in its entirety by the more detailed Consolidated Financial
Statements included herein.
20
Selected Financial Data
Fall River Gas Company and Subsidiary
The following table summarizes certain consolidated financial data
and is qualified in its entirety by the more detailed Consolidated Financial
Statements included herein.
Twelve Months Ended September 30,
---------------------------------
1999 1998 1997 1996 1995
----------- ----------- ---------- ----------- -----------
Balance Sheet Data:
Assets (in thousands)
Utility plant-net................... $39,766 $39,650 $39,340 $38,653 $36,209
Non-utility plant-net............... 4,182 4,248 2,924 2,762 2,613
Current assets...................... 11,298 11,269 10,154 9,088 9,934
Other assets........................ 437 472 2,517 2,688 2,201
-------- --------- ------- ------ -------
Total......................... $55,683 $55,639 $54,935 $53,191 $50,957
======= ======= ======= ======= =======
Capitalization and liabilities
Capitalization
Common equity....................... $17,584 $17,430 $12,618 $12,637 $12,922
Long-term debt (less current
maturities)........................ 19,500 19,500 13,500 13,500 6,500
------- -------- ------- ------- -------
Total.......................... 37,084 36,930 26,118 26,137 19,422
Current Liabilities................... 10,616 10,915 21,390 20,014 24,692
Other Liabilities..................... 7,983 7,794 7,427 7,040 6,843
-------- -------- ------ ------- ------
Total.......................... $55,683 $55,639 $54,935 $53,191 $50,957
======= ======= ======= ======= =======
Income Statement Data:
Gas operating revenues................... $42,081 $42,671 $45,261 $48,966 $44,418
Operating expenses:
Cost of gas sold....................... 22,491 22,921 25,315 31,133 28,097
Other operation and maintenance........ 12,561 12,601 13,314 12,257 10,992
Depreciation........................... 2,104 2,050 1,935 1,609 1,499
Taxes-other than Federal income taxes.. 1,602 1,434 1,408 1,283 1,053
Federal income......................... 607 687 428 342 471
------- ------ ------ ------ ------
Total........................... 39,365 39,693 42,400 46,624 42,112
------- ------ ------ ------ ------
Operating income......................... 2,716 2,978 2,861 2,342 2,306
Other income-net of tax.................. 1,019 871 850 790 772
Total interest charges................... 1,635 1,769 2,086 1,708 1,461
------ ------ ------ ------ ------
Net income............................... $2,100 $2,080 $1,625 $1,424 $1,617
====== ====== ====== ====== ======
Shares outstanding-average............... 2,196,938 2,146,119 1,784,993 1,780,542 1,780,542
Earnings per share....................... $0.96 $0.97 $0.91 $0.80 $0.91
Dividends declared per share............. $0.96 $0.96 $0.96 $0.96 $0.96
Appliance Company net income............. $1,007 $851 $825 $779 $753
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
Operating results are derived from two major classifications - utility and
non-utility. Utility revenues are generated from the operations of the regulated
natural gas distribution company and include the sale and distribution, as well
as the transportation, of natural gas to firm and interruptible customers.
Non-utility revenues are almost entirely from the rental of water heaters and
conversion burners.
The sale and distribution, as well as the transportation, of natural gas to
customers on a year-round basis for heating, water heating, cooking and
processing are the sources of firm utility revenues, as described below. Firm
customers can be residential, commercial or industrial. The revenues from firm
sales customers are determined by regulated tariff schedules and through
Massachusetts Department of Telecommunications and Energy ("MDTE") approved
commodity charge factors. These factors include the Cost of Gas Adjustment
Clause ("CGAC"), which allows the Company to collect from or return to customers
changes in gas cost from those included in the regulated tariffs. The CGAC also
provides for collection of: (i) carrying costs on gas purchases; (ii) pipeline
transition costs; (iii) costs, incentives and lost base revenues associated with
demand side management (DSM) programs; and (iv) certain costs of compliance with
environmental regulations. In accordance with the Company's approved CGAC,
increases or decreases in the cost of gas sold continue to be passed directly to
firm customers, dollar for dollar.
Sales to other utilities ("off-system sales") and to dual-fuel customers
("interruptible sales") are made when excess gas supplies are available and
prices are competitive. Interruptible sales are generally made in non-winter
months and can be interrupted by the Company at any time.
Transportation, the delivery of gas purchased to customers from marketers and
other third parties through the Company's distribution system, has recently
become a growing portion of the Company's business. With the restructuring of
the natural gas pipeline industry and the development of the state-level policy
of unbundling of delivery and commodity sales functions, the Company's largest
customers have moved first from firm tariffed sales service to firm sales
service under special contracts and more recently to transportation service. The
movement to the Company's transportation service occurred primarily after
implementation of new rates on December 1, 1996. Under these rates, the Company
earns the same margins on transportation service as it does on bundled commodity
sales and delivery. Accordingly, the Company is generally indifferent as to
whether customers take bundled sales and delivery or unbundled transportation
service only. Such movement to transportation results in reduced gas operating
revenues, because no commodity is bought by the Company for such customers.
Correspondingly, cost of gas sold is reduced. Consequently, there is no impact
on earnings because the Company earns no margin on the sale of natural gas
itself.
The Appliance Company generates non-utility revenues primarily from the rental
of water heaters and conversion burners. The Appliance Company also sells such
equipment and other gas-burning appliances such as central heating and air
conditioning systems and water heaters. Such rentals and sales are made to the
Company's gas customers and thereby assist the utility sales efforts. For income
statement purposes, the net earnings of the Appliance Company are shown under
"Other Income." A breakdown of the revenue and expenses of the Appliance Company
is found in the Notes to Consolidated Financial Statements.
22
SEASONALITY
The nature of the Company's business is highly seasonal and
temperature-sensitive. As a result, the Company's operating results in any given
period reflect, in addition to other matters, the impact of the weather, with
colder temperatures resulting in increased sales and transportation by the
Company. The substantial impact of this sensitivity to seasonal conditions is
reflected in the Company's results of operations and the Company anticipates
that it will continue to be so reflected in future periods.
Short-term borrowing requirements vary according to the seasonal nature of sales
and expense activities of the Company. Accordingly, there is a greater need for
short-term borrowings during periods when internally generated funds are not
sufficient to cover all capital and operating requirements, particularly in the
fall and winter. Short-term borrowings utilized for construction expenditures
generally are replaced by permanent financing when it becomes economical and
practical to do so and where appropriate to maintain an acceptable relationship
between borrowed and equity resources.
RESULTS OF OPERATION
FISCAL 1999 VERSUS FISCAL 1998
Operating revenues in fiscal 1999 totalled $42,081,000 a decrease of 1.4% from
fiscal 1998. The decrease was attributable to a weather related decline in firm
sales and transportation, and a decrease in gas costs recovered through the
Company's CGAC. As discussed earlier, fluctuations in the cost of gas do not
impact the profitability of the Company as these changes are recovered or
returned to customers through the CGAC.
Firm gas sales and transportation services was 6,761,000 Mcf in fiscal 1999, a
decrease of 2.1% from fiscal 1998. The primary factor for the decline in firm
gas sales was weather, which was 9.2% warmer than a normal year and 2.1% warmer
than the prior year.
Cost of gas sold includes costs for gas operation including supplemental fuels,
such as, liquefied natural gas (LNG), propane (LPG), and storage, which are used
to augment the Company's primary supply of natural gas during periods of peak
usage. During fiscal 1999, gas costs decreased $430,000, 1.9%, to $22,491,000,
due to reduced firm gas sales. The average cost per Mcf of gas distributed in
fiscal 1999 and 1998 was $4.25 and $4.39, respectively.
Other operations expense in fiscal 1999 totalled $11,033,000, a 0.7% decrease
from the prior period. A decrease in overtime hours associated with the warmer
weather caused this decline.
Maintenance expenses increased in fiscal 1999 by 2.8% over the prior fiscal
period to $1,528,000. The slight increase was a result of normal wage and
material costs.
Earnings of Fall River Gas Appliance Company, Inc., the Company's wholly-owned
subsidiary, totaled $1,007,000 in fiscal 1999, an increase of $156,000 over
fiscal 1998. This increase was a result of increased rental revenues from water
heaters and conversion burners, as a result of a higher rental rate, and
increased merchandise sales.
Fiscal 1999 interest expense was $1,636,000, a 7.5% decrease from the prior
fiscal period as a result of decreased short-term interest expense offset by
increased interest expense on long-term debt. The net proceeds of the Company's
long-term debt and equity offerings during the first quarter of fiscal 1998 were
used to reduce the short-term borrowing for utility operations resulting in the
decrease interest expense.
Fiscal 1998 versus Fiscal 1997
Operating revenues in fiscal 1998 totalled $42,671,000, a decrease of 5.7% from
fiscal 1997. The decrease in revenues from the prior fiscal period was
attributable to a weather related decline in firm sales and a decrease in gas
costs recovered through the Company's CGAC. Firm gas sales volume, firm sales
and firm transportation, was 6,910,000 Mcf in fiscal 1998, a decrease of 6.1%
from fiscal 1997. This decrease was a result of warmer weather, which was 8.4%
warmer than normal and 6.5% warmer than the prior fiscal period.
Cost of gas sold includes the costs of all commodity, storage, transportation
and peak shave fuel requirements to serve utility sales customers. The average
cost per Mcf of gas distributed in fiscal 1998 and fiscal 1997 was $4.39 and
$4.46, respectively.
Other operations expense in fiscal 1998 totaled $11,113,000, a 2.0% decrease
from the prior fiscal period. A reduction in the costs associated with employee
benefit programs and pension expense were primarily responsible for this
decrease.
Maintenance expense totaled $1,487,000 in fiscal 1998, a 24.8% decrease from the
prior fiscal period. More efficient use of Company labor with a strict cost
cutting program generated substantial savings compared to fiscal year 1997.
Earnings of the Company's appliance company totaled $850,000 in fiscal 1998
compared to $824,000 in fiscal 1997. This increase was the result of increased
revenues from water heater and conversion burner rentals.
Fiscal year 1998 interest was $1,769,000, a 15.2% decrease from the prior fiscal
period as a result of the issuance of equity totaling approximately $5,000,000
and long-term debt totaling $6,000,000 during the first quarter of fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's major capital requirements result from upgrading the efficiency of
existing plant and expanding plant to serve additional customers. Such capital
expenditures are primarily for expansion and improvements of the Company's
distribution system. For the 1999 fiscal year, capital expenditures totalled
approximately $2,150,000 compared to $2,289,000 in fiscal 1998 and $2,468,000 in
fiscal year 1997.
Capital expenditures and other cash requirements were financed by internally
generated funds and supplemented by short-term borrowings. During fiscal 1999
and fiscal year 1998 gas cost billings were lower than the Company's cost of
gas, thereby having a negative impact on cash flow of approximately $10,000 and
$1,837,000 in fiscal years 1999 and 1998, respectively. Lower gas cost billings
also increased the Company's deferred gas balance to $3,627,000 in fiscal year
1999 from $3,617,000.
The Company's net cash generated from operating activities in fiscal year 1999
was $3,581,000 compared to $4,253,000 and $3,289,000 in fiscal years 1998, and
1997, respectively. The Company had capital expenditures for utility and
non-utility operations in the amounts of $2,413,000, $2,672,000, and $2,894,000
in fiscal years 1999, 1998, and 1997, respectively.
As is customary in the utility industry, cash for construction requirements in
excess of internally generated funds are provided through short-term borrowings
under existing lines of credit, then from time to time repaid with the proceeds
24
from equity and long-term financing as deemed appropriate by management. On
September 30, 1999 the Company had $14,200,000 of available borrowings under its
lines of credit. While these lines are reviewed annually by our lending banks,
management believes they will be renewed or replaced. Management believes the
available lines of credit are sufficient to meet cash requirements for the
foreseeable future.
Cash flow patterns reflect the seasonality of the Company's business. The sales
of natural gas are seasonal, generating approximately seventy percent of the
Company's annual revenues between November 1 and March 31. The greatest demand
for cash is in the late fall and winter as construction projects are brought to
completion and accounts receivable balances rise.
The Company anticipates annual utility construction expenditures over the next
fiscal year to be approximately $2,300,000 and non-utility capital expenditures
to be approximately $400,000 over the same period. It is anticipated that such
expenditures will be financed from internally generated sources supplemented, as
required, by short-term borrowing.
YEAR 2000 ISSUES
Software applications currently in use by the Company are certified to be Year
2000 compliant by the software vendors from whom the applications were
purchased. The Company has modified, replaced or upgraded those applications
which were not Year 2000 compliant and based on its testing of its systems,
management believes its systems are Year 2000 compliant. The Company compiled
cost estimates of the effort involved to perform those modifications,
replacements and upgrades and to date Year 2000 related costs have not been
material to the Company.
The Company has inquired of third parties; i.e., vendors, suppliers and
customers, which have a material relationship with the Company as to the status
of their Year 2000 readiness. The Company continues to work with critical
vendors, suppliers and customers to gain assurance of their readiness for Year
2000 and has developed contingency plans to mitigate anticipated shortcomings in
their readiness. The Company cannot guarantee that the systems of other on which
the Company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's, would not have a material adverse impact on the Company.
The Company expects that its Year 2000 plan will be adequate to address its Year
2000 issues and has developed contingency plans to further assure that the vital
functions of the Company dependent on third parties will continue uninterrupted.
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 CGAC 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 to future regulatory proceedings with resulting decreases in
transportation margins; and uncertainty as to environmental costs and as to
regulatory approval of the full
25
recovery of environmental costs, transition costs and other regulatory assets.
NEW ACCOUNTING STANDARD
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 at 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 qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income 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.
26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Fall River Gas Company:
We have audited the accompanying consolidated balance sheets of FALL RIVER GAS
COMPANY (a Massachusetts corporation) and subsidiary as of September 30, 1999
and 1998 and the related consolidated statements of income, retained earnings
and cash flows for each of the three years in the period ended September 30,
1999. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fall River Gas Company and
subsidiary as of September 30, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1999, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The financial statement
schedule under part IV, Item 14, presented for purposes of additional analysis
and is not a required part of the basic consolidated financial statements. This
information has been subject to the auditing procedures applied in our audit of
the basic consolidated financial statements and, in our opinion, is fairly
stated, in all material respects, in relation to the basic consolidated
financial statements taken as a whole.
/S/ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 12, 1999
27
CONSOLIDATED STATEMENTS OF INCOME
Fall River Gas Company and Subsidiary
For the Years Ended September 30, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
GAS OPERATING REVENUES....................... $42,081,629 $42,670,838 $45,261,249
OPERATING EXPENSES:
Operations -
Cost of gas sold.......................... 22,491,345 22,920,783 25,314,769
Other..................................... 11,033,098 11,113,369 11,337,000
Maintenance................................ 1,527,715 1,487,345 1,977,172
Depreciation .............................. 2,103,801 2,050,207 1,934,959
Taxes -
Local property and other.................. 1,602,272 1,433,887 1,408,507
Federal and state income (Note 3)......... 607,212 686,909 427,768
----------- ----------- -----------
39,365,443 39,692,500 42,400,175
----------- ----------- -----------
OPERATING INCOME.............................. 2,716,186 2,978,338 2,861,074
OTHER INCOME (EXPENSE):
Earnings of Fall River Gas Appliance
Company Inc.(Note 2)...................... 1,006,938 850,517 824,724
Interest income............................ 13,723 13,661 13,775
Other...................................... (1,364) 6,836 11,375
------------ ----------- -----------
INCOME BEFORE INTEREST EXPENSE................ 3,735,483 3,849,352 3,710,948
----------- ----------- -----------
INTEREST EXPENSE:
Long-term debt............................ 1,607,300 1,534,900 1,172,900
Other..................................... 28,342 234,390 913,405
----------- ----------- -----------
1,635,642 1,769,290 2,086,305
----------- ----------- -----------
NET INCOME.................................... $ 2,099,841 $ 2,080,062 $ 1,624,643
=========== =========== ===========
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING-Basic and Diluted.................... 2,196,938 2,146,119 1,784,993
=========== =========== ===========
EARNINGS PER AVERAGE COMMON SHARE-Basic and Diluted $ 0.96 $ 0.97 $ 0.91
=========== =========== ===========
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
For the Years Ended September 30, 1999, 1998, and 1997
1999 1998 1997
---- ---- ----
BALANCE AT BEGINNING OF YEAR................. $10,672,783 $10,693,309 $10,865,648
Net Income................................... 2,099,841 2,080,062 1,624,643
----------- ----------- -----------
Total.................................... 12,772,624 12,773,371 12,490,291
Dividends declared........................... 2,110,739 2,100,588 1,796,982
----------- ----------- -----------
BALANCE AT END OF YEAR....................... $10,661,885 $10,672,783 $10,693,309
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
28
CONSOLIDATED BALANCE SHEETS
Fall River Gas Company and Subsidiary
September 30, 1999 and 1998
ASSETS
1999 1998
---- ----
PROPERTY, PLANT AND EQUIPMENT, at original cost:
Gas................................................... $ 62,319,207 $ 60,448,647
Nonutility, principally rented gas appliances......... 6,069,442 6,288,100
------------ ------------
68,388,649 66,736,747
Less-Accumulated depreciation......................... 24,440,265 22,839,053
------------ ------------
43,948,384 43,897,694
------------ ------------
CURRENT ASSETS:
Cash.................................................. 279,079 356,005
Accounts receivable, less allowance for doubtful accounts
of $1,065,000 in 1999 and $957,000 in 1998............. 1,617,328 1,807,487
Inventories, at average cost -
Liquefied natural gas, propane, and natural gas in storage 3,574,562 3,148,311
Materials and supplies................................ 1,345,614 1,273,772
Deferred gas costs.................................... 3,627,483 3,617,512
Prepaid taxes......................................... 143,478 401,160
Prepayments and other................................. 710,005 665,243
------------ ------------
11,297,549 11,269,490
------------ ------------
DEFERRED CHARGES:
Regulatory asset (Note 5)............................. 426,313 453,471
Other................................................. 10,702 18,885
------------ ------------
437,015 472,356
------------ ------------
$ 55,682,948 $ 55,639,540
============ ============
The accompanying notes are an integral part of these consolidated financial
statement.
29
CONSOLIDATED BALANCE SHEETS(Cont.)
Fall River Gas Company and Subsidiary
September 30, 1999 and 1998
CAPITALIZATION: 1999 1998
---- ----
Stockholders' investment-
Common stock, par value $.83-1/3 per share, 2,951,334
shares authorized, 2,201,827 issued in 1999 and
2,201,334 in 1998................................. $ 1,836,109 $ 1,834,445
Premium paid-in on common stock..................... 5,085,540 4,954,532
Retained earnings (Note 4).......................... 10,661,885 10,672,783
----------- -----------
17,583,534 17,461,760
Less zero shares in 1999 and 9,326 in 1998 of
common stock held in treasury, at cost.............. 0 31,443
----------- -----------
17,583,534 17,430,317
Long-term debt (Note 4) 19,500,000 19,500,000
----------- ----------
Total capitalization.............................. 37,083,534 36,930,317
----------- -----------
CURRENT LIABILITIES:
Notes payable to banks (Note 4)....................... 5,800,000 5,100,000
Dividends payable..................................... 528,567 526,173
Accounts payable...................................... 1,798,662 3,074,673
Other................................................. 2,488,776 2,214,022
----------- -----------
10,616,005 10,914,868
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 6)
DEFERRED CREDITS:
Accumulated deferred income taxes (Note 3)............ 4,532,790 4,462,626
Unamortized investment tax credits (Note 3)........... 441,169 485,453
Other................................................. 2,625,687 2,390,716
Regulatory liability (Note 3)......................... 383,763 455,560
----------- -----------
7,983,409 7,794,355
----------- -----------
$55,682,948 $55,639,540
=========== ===========
The accompanying notes are an integral part of these financial statements.
30
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fall River Gas Company and Subsidiary
For the Years Ended September 30, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
Cash Provided by (Used for)
Operating Activities:
Net Income ....................................... $ 2,099,841 $ 2,080,062 $ 1,624,643
Items not requiring (providing) cash:
Depreciation ................................... 2,347,615 2,292,374 2,121,759
Deferred income taxes .......................... 70,164 188,786 149,854
Investment tax credits, net .................... (44,284) (44,284) (37,958)
Change in working capital ...................... (1,106,243) (1,278,188) (939,194)
Other sources, net ............................. 213,624 1,013,970 370,037
------------ ------------ ------------
Net cash provided by operating activities ..... 3,580,717 4,252,720 3,289,141
------------ ------------ ------------
Investing Activities:
Additions to utility property, plant and equipment (2,149,649) (2,288,562) (2,467,988)
Additions to nonutility property ................. (263,764) (383,801) (426,502)
------------ ------------ ------------
Net cash used for investing activities ......... (2,413,413) (2,672,363) (2,894,490)
------------ ------------ ------------
Financing Activities:
Cash dividends paid on common stock .............. (2,108,345) (2,086,070) (1,712,657)
Retirement of long-term debt through sinking fund 0 0 0
Common stock transactions ........................ 164,115 4,832,318 153,471
Proceeds from long-term debt issue ................ 0 6,000,000 0
Increase(decrease) in notes payable to banks, net 700,000 (10,300,000) 1,100,000
------------ ------------ ------------
Net cash used for financing activities .......... (1,244,230) (1,553,752) (459,186)
Increase (decrease) in cash .............................. (76,926) 26,605 (64,535)
Cash, beginning of year .................................. 356,005 329,400 393,935
------------ ------------ ------------
Cash, end of year ........................................ $ 279,079 $ 356,005 $ 329,400
============ ============ ============
Changes in Components of Working Capital(excluding
cash): (Increase) decrease in current assets:
Accounts receivable ............................. $ 190,159 $ 164,814 $ 704,021
Inventories ..................................... (498,093) 28,371 179,311
Prepayments and other ........................... 212,919 554,694 (434,175)
Deferred gas cost ............................... (9,971) (1,836,714) (1,579,533)
Increase (decrease) in current liabilities:
Accounts payable ................................ (1,276,012) (470,971) (8,980)
Gas supplier refunds due customers .............. 0 0 0
Accrued taxes ................................... 0 0 0
Other ........................................... 274,755 281,618 200,162
------------ ------------ ------------
Change in working capital ...................... $ (1,106,243) $ (1,278,188) $ (939,194)
============ ============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest ........................................ $ 1,770,762 $ 1,745,556 $ 2,015,215
Income taxes .................................... 1,156,500 593,588 1,131,624
The accompanying notes are an integral part of these financial statements.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fall River Gas Company and Subsidiary
September 30, 1999
1) ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The Consolidated financial statements include the accounts of Fall River Gas
Company (the Company) and subsidiary, Fall River Gas Appliance Company, Inc.,
(the Appliance Company). The Company's principal business is the operation of a
regulated gas distribution company in southeastern Massachusetts, while its
wholly-owned subsidiary rents gas appliances. All significant intercompany
accounts and transactions have been eliminated in consolidation.
REGULATION
The Company's rates, operations, accounting and certain other practices
are subject to the regulatory authority of the Massachusetts Department of
Telecommunications & Energy (MDTE). The Company's accounting policies conform to
generally accepted accounting principles applicable to rate regulated
enterprises and the reported amounts of revenues and expenses during the
reported period.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reporting and disclosure of assets and liabilities,
including those that are of a contingent nature, at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
DEPRECIATION & AMORTIZATION
Depreciation of property, plant and equipment is provided using the
straight-line method at rates designed to amortize the cost of these assets over
their estimated useful lives. The composite depreciation rate for gas plant is
3.5%. Rented gas appliances have estimated useful lives of 10 to 20 years.
Installation costs of rented appliances are amortized over the estimated life of
the lease period.
GAS OPERATING REVENUES AND COST OF GAS SOLD
Gas operating revenues are recorded based on meter readings made on a
cycle basis throughout the month. Accordingly, in any period, the actual volume
of gas supplied to customers may be more or less than the usage for which the
customers have been billed.
The Company's approved rate tariffs include a cost of gas adjustment
(CGAC) factor allowing dollar-for-dollar recovery of the cost of gas sendout to
firm customers. Actual costs incurred at the end of any period may differ from
amounts recovered through application of the CGAC. Any excess or deficiency in
amounts billed as compared to costs is deferred and either refunded to, or
recovered from, the customers over a subsequent period.
REGULATORY ASSETS
Regulatory assets relate to unrecovered expense from the adoption of
Statement of Financial Accounting Standards No. 106, "Employers", " Accounting
for Posretirement Benefits other than Pensions" (SFAS)106. These regulatory
assets do not earn a return on investment.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
2) FALL RIVER GAS APPLIANCE COMPANY, INC.
The earnings of the Fall River Gas Appliance Company, Inc. are shown as
Other Income in the accompanying Consolidated Statements of Income. Condensed
operating information of the Appliance Company for the years ended September 30,
1999, 1998, and 1997 is as follows:
1999 1998 1997
---- ---- ----
Operating revenues ........... $4,170,646 $3,409,506 $3,176,526
Costs and expenses ........... 2,475,830 1,976,501 1,786,944
---------- ---------- ----------
Income before income taxes 1,694,816 1,433,005 1,389,582
Income tax expense ........... 687,878 582,488 564,858
---------- ---------- ----------
Net income ........... $1,006,938 $ 850,517 $ 824,724
========== ========== ==========
3) INCOME TAXES
The Company and its subsidiary file a consolidated Federal income tax
return. Each company provides Federal income taxes on a separate company basis.
The following is a summary of the provision for Federal and State income taxes:
1999 1998 1997
-------------------------- -------------------------- --------------------------
FEDERAL STATE FEDERAL STATE FEDERAL STATE
----------- ----------- ----------- ----------- ----------- -----------
Current ............................... $ 999,764 $ 266,532 $ 891,431 $ 235,811 $ 693,858 $ 194,129
Deferred .............................. 57,443 12,721 155,731 33,056 123,690 26,164
Investment tax credits ................ (44,284) -- (44,284) -- (37,958) --
----------- ----------- ----------- ----------- ----------- -----------
Total provision ................ $ 1,012,923 $ 279,253 $ 1,002,878 $ 268,867 $ 779,590 $ 220,293
=========== =========== =========== =========== =========== ===========
Provision for income taxes included in:
Operating expenses .................. $ 496,616 $ 110,596 $ 562,784 $ 124,125 $ 348,708 $ 79,060
Other income-
Fall River Gas
Appliance Company ............ 518,726 169,152 438,145 144,343 424,858 140,001
Other ............................... (2,419) (495) 1,949 399 6,024 1,232
----------- ----------- ----------- ----------- ----------- -----------
Total provision ............... $1,012,923 $ 279,253 $ 1,002,878 $ 268,867 $ 779,590 $ 220,293
=========== =========== =========== =========== =========== ===========
On October 1, 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") 109, "Accounting for Income Taxes". SFAS 109 requires
adjustments of deferred tax assets and liabilities to reflect the future tax
consequences, at currently enacted tax laws and rates, of items already
reflected in the financial statements. The implementation of SFAS 109 resulted
in the recognition of a regulatory liability of approximately $412,000 for the
tax benefit of unamortized investment tax credits, which SFAS 109 requires to be
treated as a temporary difference. This benefit is being passed on to customers
over the lives of the property giving rise to the investment tax credit.
The tax effect of the cumulative differences that gave rise to the
deferred tax liabilities and deferred tax assets for the year ended September
30, 1999 and 1998 are detailed on the following page (in thousands):
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
1999 1998
---------- ----------
Deferred Tax Assets:
Allowance for doubtful accounts ...... $ 379,607 $ 362,311
Unamortized investment tax credits . 172,019 189,326
Contributions in aid of construction 261,493 226,199
Unbilled revenue ................... 377,378 340,971
Deferred pension ................... 313,044 253,461
Deferred compensation .............. 268,175 257,323
Regulatory liability ............... 195,035 195,035
Other .............................. 916,711 903,024
---------- ----------
Total Deferred Tax Assets ..................... $2,883,462 2,727,650
Deferred Tax Liabilities:
Property related ................... 5,365,346 5,272,976
Deferred gas costs ................. 1,416,336 1,410,829
Other .............................. 634,570 513,494
---------- ----------
Total Deferred Tax Liabilities ................ 7,416,252 7,197,299
---------- ----------
Net Deferred Tax Liability .................... $4,532,790 $4,469,649
========== ==========
The combined Federal and State income tax provision set forth above
represents approximately 38% of income taxes in 1999, 1998 and 1997. The
combined statutory rate for Federal and State income tax was approximately 39%
in 1999, 1998, and 1997. The difference between the effective income tax rate
and statutory rate results primarily from the amortization of investment tax
credits
Investment tax credits are amortized over the life of the property giving
rise to the credits.
4)CAPITALIZATION
Common Stock Issuance
During 1999 the Company issued the remaining 9,326 shares of Treasury stock
bringing the treasury stock balance to zero. The Company also issued 493 shares
from the previously authorized but unissued shares. All shares issued were the
result of the Company's Dividend Reinvestment Plan (DRIP).
Long-Term Debt And Notes Payable to Banks
The Company has three issues of first-mortgage bonds outstanding with
maturities from 2020 through 2027. Under the most restrictive terms of the
indenture securing the bonds, retained earnings of $6,865,648 were restricted
against payment of dividends at September 30, 1999. The Company's ability to pay
dividends is not restricted by these terms. There are no aggregate maturities or
sinking fund requirements for the next five years applicable to the issues
outstanding at September 30, 1999.
The fair value amounts disclosure below have been reported to meet the
disclosure requirements of SFAS No. 107 "Disclosures About Fair Values of
Financial Instruments" and are not necessarily indicative of amounts that the
Company could realize in a current market exchange.
At September 30, 1999 and 1998 the fair value of the Company's long-term
debt is estimated to be $21,350,207 and $24,669,399, respectively, These amounts
were calculated based on market rates of similar instruments.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
The Company maintains lines of credit with various banks under
which it may borrow up to $20,000,000. These lines are reviewed periodically by
the various banks and may be renewed or cancelled. The Company pays a commitment
fee on the lines of credit at rates ranging from 5/16 of 1% to 1/2 of 1%. At
September 30, 1999, there were $5,800,000 borrowings under these lines of
credit.
The following table summarizes certain information related to the Company's
short-term borrowings for the years ended September 30, 1999 and 1998:
1999 1998
------------ -------------
Average daily balance outstanding for the period .................. $ 4,799,000 $ 6,917,000
Weighted average interest rate for the period ..................... 5.4% 6.2%
Maximum amount outstanding during the
period based on month-end balances .................. $ 9,000,000 $ 16,900,000
Weighted average interest rate at end of period ................... 5.5% 6.0%
5) Disclosures about Pension and Other Postretirement Benefit Plans
The Company has defined benefit plans covering substantially all
of its employees. The benefits under these plans are based on years of service
and employees' compensation levels. The Company's policy is to fund pension
costs accrued including amortization of past service costs. In addition to
providing pension benefits, the Company provides certain health care and life
insurance benefits to qualified retired employees. In 1994, the Company adopted
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" (SFAS 106). Prior to 1994, expense was recognized when benefits were
paid. In accordance with SFAS 106, the Company began recording the cost for this
plan on an accrual basis for 1994. As permitted by SFAS 106, the Company is
recording the transition obligation over a twenty year period.
The following tables set forth the status of the Pension and other
Postretirement Benefit Plans in a format as amended by SFAS No. 132 "Employers'
Disclosures about Pensions and Other Postretirement Benefits":
PENSION BENEFITS PENSION BENEFITS
------------------------ ------------------------
UNION NON-UNION & SALARIED
---------- ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Change in benefit obligation
Benefit obligation at beginning of year 7,342,996 6,450,299 7,516,071 6,897,893
Service cost 155,964 144,154 302,328 278,465
Interest cost 587,440 516,024 601,286 551,831
Plan participants' contributions 0 0 0 0
Amendments 0 0 0 0
Acturial gain/(loss) (346,984) 779,051 294,284 74,297
Acqusition 0 0 0 0
Benefits paid (548,282) (546,532) (302,835) (286,415)
---------- ---------- ---------- ----------
Benefit obligation at end of year 7,191,134 7,342,996 8,411,134 7,516,071
---------- ---------- ---------- ----------
Fair value of plan assets at beginning of year 7,888,434 7,075,403 7,619,218 6,382,236
Actual return on plan assets 693,426 1,225,217 511,618 1,106,497
Acquisition 0 0 0 0
Employer contribution 154,128 134,346 306,135 416,900
Plan participants' contributions 0 0 0 0
Benefits paid (548,282) (546,532) (302,835) (286,415)
---------- ---------- ---------- ----------
Fair value of plan assets at end of year ..................... 8,187,706 7,888,434 8,134,136 7,619,218
---------- ---------- ---------- ----------
Funded status ................................................ 996,572 545,438 (276,998) 103,147
Unrecognized net actuarial loss .............................. (1,459,195) (1,070,741) (1,149,006) (1,745,402)
Unrecognized net obligation .................................. 224,712 299,616 84,664 112,883
Unrecognized transition obligation ........................... 0 0 0 0
Unrecognized prior service cost .............................. 193,070 231,684 944,988 1,063,112
---------- ---------- ---------- ----------
Prepaid (accrued) benefit cost ............................... (44,841) 5,997 (396,352) (466,260)
---------- ---------- ---------- ----------
OTHER BENEFITS
--------------
1999 1998
---------- ----------
Change in benefit obligation
Benefit obligation at beginning of year 1,798,569 1,868,988
Service cost 152,282 155,425
Interest cost 130,706 132,889
Plan participants' contributions (105,495) (106,080)
Amendments 0 0
Acturial gain/(loss) (59,773) (163,092)
Acqusition 0 0
Benefits paid (86,222) (89,561)
---------- ----------
Benefit obligation at end of year 1,830,067 1,798,569
---------- ----------
Fair value of plan assets at beginning
of year 220,940 210,528
Actual return on plan assets 10,405 10,413
Acquisition 0 0
Employer contribution 0 0
Plan participants' contributions 0 0
Benefits paid 0 0
---------- ----------
Fair value of plan assets at end of year 231,345 220,941
---------- ----------
Funded status (1,598,722) (1,577,628)
Unrecognized net actuarial loss (1,390,117) (1,445,572)
Unrecognized net obligation 0 0
Unrecognized transition obligation 1,979,423 2,120,800
Unrecognized prior service cost 90,177 101,283
---------- ----------
Prepaid (accrued) benefit cost (919,239) (801,117)
---------- ----------
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
PENSION BENEFITS-UNION PENSION BENEFITS-NON-UNION OTHER BENEFITS
---------------------- -------------------------- --------------
Weighted-average assumptions as of
December 31 1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Discount rate 8 8 8 8 8 8
Expected return on plan assets 8 8 9 9 8 8
Rate of compensation increase 3 3 3 3 0 0
For measurement purposes, a 7 percent annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1999. The rate was assumed
to decrease gradually to 4 percent by fiscal 2009 and remain at that level
thereafter.
PENSION BENEFITS-UNION PENSION BENEFITS-NON-UNION OTHER BENEFITS
---------------------- -------------------------- --------------
Components of net periodic benefit cost 1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- --------
Service cost 155,964 144,154 302,328 278,465 46,787 49,345
Interest cost 587,440 516,024 601,286 551,831 130,706 132,889
Expected return on plan assets (615,309) (549,937) (685,878) (580,282) (15,059) 0
Amortization of prior service cost 38,614 38,614 118,124 118,124 11,106 11,106
Unrecognized transition obligation 0 0 0 0 141,377 141,377
Recognized net actuarial loss (36,647) (69,631) (127,852) (90,222) (115,228) (88,898)
Amortization of net obligation 74,904 74,904 28,219 28,219 0 0
-------- -------- -------- -------- -------- --------
Net periodic benefit cost 204,966 154,128 236,227 306,135 199,689 245,819
-------- -------- -------- -------- -------- --------
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percent-point change in assumed health
care cost trend would have the following effects:
1- 1-
PERCENTAGE- PERCENTAGE-
POINT POINT
INCREASE DECREASE
-------- --------
Effect on total of service and
interest cost components 15,070 12,737
Effect on postretirement benefit
obligation 127,272 109,978
September 30, 1999, the Company has a regulatory asset amounting to $426,313
related to unrecovered SFAS 106 expenses. On October 16, 1996, the MDTE approved
a settlement agreement between the Company and intervenors for an increase in
rates effective December 1, 1996. As part of the settlement agreement, the
Company was allowed recovery of annual SFAS 106 expenses, as well as, amounts
recorded as regulatory assets prior to December 1, 1996.
6) COMMITMENTS AND CONTINGENCIES
The Company and certain of its predecessors owned or operated facilities for
the manufacture of gas from coal, a process used through the mid-1900's that
produced by-products that may be considered contaminated or hazardous under
current law, and some of which may still be present at such facilities. The
Company accrues environmental investigation and clean-up costs with respect to
former manufacturing sites and other environmental matters when it is probable
that a liability exists and the amount or range of amounts is reasonably
certain.
Under current MDTE regulatory practive, environmental remediation
and other costs related to former manufactured gas plant sites and recoverable
in rates over periods of seven years, without a return on the unrecovered
balance. The Company had no significant accrued environmental liabilities as of
September 30, 1999.
36
7) UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is unaudited quarterly information for the fiscal years ended
September 30, 1999 and 1998. Quarterly variations between periods are caused
primarily by the seasonal nature of the gas distribution business.
FISCAL 1999 FISCAL 1998
------------------------------------ -----------------------------------
QUARTER ENDED QUARTER ENDED
------------------------------------ -----------------------------------
(Thousands except per share amounts) DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30
------------------------------------ -----------------------------------
Operating Revenues............... $10,495 $20,260 $7,909 $3,417 $11,273 $18,513 $8,582 $4,303
Operating Income................. 509 1,935 339 (67) 791 1,791 429 (33)
Net Income....................... 341 1,744 182 (167) 548 1,512 249 (229)
Net Income per Share............. 0.16 0.79 0.08 (0.07) 0.27 0.69 0.11 (0.10)
8) NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board
(FASB) issued SFAS No. 133 (SFAS133), "Accounting for Derivative Instruments
and Hedging Activities". This statement establishes accounting and reporting
standards for derivative instruments and for hedging activities. In June
1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of SFAS No. 133" to
amend the implementation date of SFAS No. 133. Adoption of SFAS No. 133 for
the Company is now required beginning with the first quarter of fiscal 2001.
The Company is aware of certain provisions which may impact the gas industry
but has not yet reviewed these provisions in detail against its existing
accounting practices and disclosures. At this time, the Company cannot
predict what impact, if any, the adoption of SFAS No. 133 will have on its
financial condition or results of operations.
9) MERGER WITH SOUTHERN UNION
On October 5, 1999 the Company and Southern Union Company
(Southern Union) announced that their boards of directors have unanimously
approved a definitive merger agreement. The agreement calls for Southern Union
to acquire the Company in a transaction valued at approximately $75 million,
including assumption of debt. Under the terms of 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
Telecommunications and Energy, the Pennsylvania Public Utility Commission, as
well as regulators in Missouri, where Southern Union currently has operation.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Information required under this item regarding directors and
compliance with Section 16(A) of the Exchange Act is contained in the
Registrant's 1999 Proxy Statement, to be filed with the commission pursuant to
Regulation 14A, and is incorporated herein by reference, pursuant to Form 10-K
General Instruction G(3). See also Additional Item - Executive Officers of
Registrant in above.
37
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
Information required under this item is contained in the
Registrant's 1999 Proxy Statement, filed with the commission pursuant to
Regulation 14A, and is incorporated herein by reference, pursuant to Form 10-K
General Instruction G(3).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this item is contained in the
Registrant's 1999 Proxy Statement, filed with the commission pursuant to
Regulation 14A, and is incorporated herein by reference, pursuant to Form 10K
General Instruction G(3).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) and (2) The response to this portion if Item 14 is
submitted in the following pages.
(b) The Registrant was not required to file a Form 8-K during
fiscal year 1999.
The Registrant does note that it did file a report on Form
8-K on October 20, 1999 with respect the proposed merger of
the Registrant into Southern Union Company.
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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
BY /S/ Peter H. Thanas
----------------------
Senior Vice President and Treasurer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
President, Chairman of
the Board and Director
/s/ Bradford J. Faxon (Chief Executive Officer) 12/16/99
- ----------------------------
Vice Chairman of the
/s/ Raymond H. Faxon Board and Director 12/16/99
- ----------------------------
Senior Vice President
and Treasurer
(Chief Financial and
/s/ Peter H. Thanas Accounting Officer) 12/16/99
- ----------------------------
/s/ Cindy L.J. Audette Director 12/16/99
- ----------------------------
/s/ Thomas K. Barry Director 12/16/99
- ----------------------------
/s/ Thomas H. Bilodeau Director 12/16/99
- ----------------------------
/s/ Ronald J. Ferris Director 12/16/99
- ----------------------------
/s/ Jack R. McCormick Director 12/16/99
- ----------------------------
/s/ Gilbert C. Oliveira Jr. Director 12/16/99
- ----------------------------
/s/ Donald R. Patnode Director 12/16/99
- ----------------------------
40
PAGE NUMBER OR
EXHIBIT INCORPORATION OR
NUMBERS DESCRIPTION REFERENCE TO
- ------- ----------- ------------------
(3) Articles of Incorporation and Exhibit 3 to Report
By-Laws on Form 10-K for
calender year ended
December 31, 1982
(3a) A copy of an Amendment to the Exhibit 3a to Report
Articles of Incorporation to on Form 10-K for
increase the number of Common calendar year ended
Shares from 366,889 to 1,100,667 December 31, 1987
and to change the Par Value from
$5.00 to $1 2/3
(3b) A copy of an Amendment to the By-Laws Exhibit 3b to Report
on Form 10-K for
calendar year ended
December 31, 1990
(3c) A copy of an Amendment to the By-Laws Exhibit 3c to Report
on Form 10-K for
calendar year ended
December 31, 1991
(3d) A copy of an Amendment to the Articles To report on Form 10-K
of Incorporation, dated December 31, 1993 for calendar year ended
to increase the number of Common Shares September 30, 1997
from 1,100,667 to 2,201,334 and to change
the Par Value from $1 2/3 to $0.83 1/3
(3e) A copy of an Amendment to the Articles of Exhibit3e to Report
Incorporation, dated February 19, 1998 to on Form 10-K for
increase the number of Common Shares fiscal year ended
from 2,201,334 to 2,951,334 September 30, 1998
(4) Instruments defining the rights Exhibit 4 to Report
of security holders, including on Form 10-K for
indentures calendar year ended
December 31, 1982
(4a) Thirteenth Supplemental Indenture Exhibit 4a to Report
between the Registrant and on form 10-K for
State Street Bank and Trust Co. fiscal year ended
December 31, 1997
(10a) Purchase of F-1 from Algonquin Exhibit 10a to Report
Gas Transmission Company on Form 10-K for
calendar year ended
December 31, 1982
(10b) Purchase of SNG from Algonquin Exhibit 10b to Report
Gas Transmission Company on Form 10-K for
calendar year ended
December 31, 1982
(10c) A copy of the contract between Exhibit 10c to Report
the Registrant and Utility on Form 10-K for
Workers Union of America, AFL-CIO calendar year ended
and Local No. 431, dated May 1, 1984 December 31, 1984
(10d) A copy of an Employment and Con- Exhibit 10d to Report
sulting Agreement dated as of on Form 10-K for
September 18, 1984, between the calendar year ended
Registrant and Jack R. McCormick December 31, 1984
(10e) A copy of an Employment and con- Exhibit 10e to Report
sulting Agreement dated as of on Form 10-K for
September 18, 1984, between the calendar year ended
Registrant and Bradford J. Faxon December 31, 1984
41
PAGE NUMBER OR
EXHIBIT INCORPORATION OR
NUMBERS DESCRIPTION REFERENCE TO
- ------- ----------- ------------------
(10f) A copy of an Employment and Con- Exhibit 10f to Report
sulting Agreement dated as of on Form 10-K for
September 18, 1984 calendar year ended
Registrant and Norman J. Meyer December 31, 1984
(10g) A copy of the Restatement of Con- Exhibit 10g to Report
sulting Agreement dated as of on Form 10-K for
December 13, 1983, between the calendar year ended
Registrant and Thomas H. Bilodeau December 31, 1984
(10h) A copy of an Agreement, Combined Sup- Exhibit 10h to Report
plementary Agreement, and Amendment on Form 10-K for
to Agreement for Employment and calendar year ended
Consulting Services between the December 31, 1984
Registrant and Raymond H. Faxon
(10i) A copy of an Amendment to Employment Exhibit 10i to Report
and Consulting Agreement dated on Form 10-K for
January 1, 1987 between the Regi- calendar year ended
strant and Bradford J. Faxon December 31, 1986
(10j) A copy of an Amendment to Employment Exhibit 10j to Report
and Consulting Agreement dated on Form 10-K for
January 1, 1987 between the Regi- calendar year ended
strant and Norman J. Meyer December 31, 1986
(10k) A copy of an Employment and Consulting Exhibit 10k to Report
Agreement dated as of August 1, 1986 on Form 10-K for
between the Registrant and Peter H. calendar year ended
Thanas December 31, 1986
(10L) A copy of an Amendment to Employment Exhibit 10L to Report
and Consulting Agreement dated on Form 10-K for
January 1, 1987 between the Regi- calendar year ended
strant and Peter H. Thanas December 31, 1986
(10m) A copy of the Contract between the Exhibit 10m to Report
Registrant and Utility Workers on Form 10-K for
Union of America, AFL-CIO and calendar year ended
Local, 431, dated May 31, 1987 December 31, 1987
(10n) A copy of Precedent Agreement for Exhibit 10n to Report
Firm Sales Service under Rate on Form 10-K for
Schedule F-4 calendar year ended
December 31, 1987
(10o) Settlement Agreement between DOMAC Exhibit 10o to Report
and Registrant to terminate and on Form 10-K for
abandon GS-1 and TS-1 Service calendar year ended
Agreements December 31, 1988
(10p) A copy of Service Agreement for Firm Exhibit 10p to Report
Liquid Service between Distrigas on Form 10-K for
and Registrant calendar year ended
December 31, 1988
(10q) A copy of Service Agreement for Exhibit 10q to Report
Interruptible Vapor Service be- on Form 10-K for
tween Distrigas and Registrant calendar year ended
December 31, 1988
(10r) A copy of Service Agreement for Firm Exhibit 10r to Report
Vapor Service between Distrigas on Form 10-K for
and Registrant calendar year ended
December 31, 1988
42
PAGE NUMBER OR
EXHIBIT INCORPORATION OR
NUMBERS DESCRIPTION REFERENCE TO
`------- ----------- ------------------
(10s) A copy of a Deferred Compensation Exhibit 10s to Report
Agreement with Bradford J. Faxon on Form 10-K for
calendar year ended
December 31, 1989
(10t) A copy of a Deferred Compensation Exhibit 10t to Report
Agreement with Peter H. Thanas on Form 10-K for
calendar year ended
December 31, 1989
(10u) A copy of the Contract between the Exhibit 10u to Report
Registrant and Utility Workers on Form 10-K for
Union of America, AFL-CIO and calendar year ended
Local 431, dated May 1, 1990 December 31, 1990
(10v) A copy of an Employment Contract Exhibit 10v to Report
with Bradford J. Faxon on Form 10-K for
calendar year ended
December 31, 1991
(10w) A copy of an Employment Contract Exhibit 10w to Report
with Peter H. Thanas on Form 10-K for
calendar year ended
December 31, 1991
(10x) A copy of the Contract between the Exhibit 10x to Report
Registrant and Utility Workers on Form 10-K for
Union of America, AFL-CIO and fiscal year ended Local
431, dated May 1, 1995 September 30, 1995
(10y) A copy of Gas Sales Agreement Exhibit 10y to Report
between CNG Gas Service Corporation on Form 10-K for
and Fall River Gas Company fiscal year ended
September 30, 1995
(10z) A copy of the Contract between the Exhibit 10z to Report
Registrant and Utility Workers on Form 10-K for fiscal
Union of America, AFL-CIO and September 30, 1998
Local 431, dated May 1, 1998
(10aa) A copy of Employment Agreement Attached hereto as
Amendment with Bradford J. Faxon Exhibit 10(aa)
(10bb) A copy of Employment Agreement Attached hereto as
Amendment with Peter H. Thanas Exhibit 10(bb)
(10cc) A copy of Employment Agreement Attached hereto as
Amendment with John F. Fanning Exhibit 10(cc)
(10dd) A copy of Severance Agreement Attached hereto as
Bradford J. Faxon Exhibit 10(dd)
(10ee) A copy of Severance Agreement Attached hereto as
with Peter H. Thanas Exhibit 10(ee)
(10ff) A copy of severance Agreement Attached hereto as
John F. Fanning Exhibit 10(ff)
(10gg) A copy of an Amendment to Attached hereto as
Employment and Severance Agreement Exhibit 10(gg)
with Bradford J. Faxon
43
PAGE NUMBER OR
EXHIBIT INCORPORATION OR
NUMBERS DESCRIPTION REFERENCE TO
- ------- ----------- ------------------
(10hh) A copy of an Amendment to Attached hereto as
Employment and Severance Agreement Exhibit 10(hh)
with Peter H. Thanas
(10ii) A copy of an Amendment to Attached hereto as
Employment and Severance Agreement Exhibit 10(ii)
with John F. Fanning
(22) The Registrant has one Subsidiary,
Fall River Gas Appliance Company, Inc.,
that is incorporated in Massachusetts,
and does business under said name
(23) Consent of Independent Public Accountants Attached
To the Stockholders and Board of Directors
of Fall River Gas Company
44
FALL RIVER GAS COMPANY AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
(Submitted in Answer to Item 14 of Form 10-K,
Securities and Exchange Commission)
REFERENCE
---------
Report of independent public accountants Page 27
Fall River Gas Company and Subsidiary
Consolidated balance sheets - As of
September 30, 1999 and September 30, 1998 Page 29 & 30
Consolidated statements for the years ended
September 30, 1999, 1998, and 1997
Income Page 28
Retained earnings Page 28
Cash flows Page 31
Notes to consolidated financial statements Page 32-37
SCHEDULES
VIII - Valuation and Qualifying Accounts and
Reserves for the years ended September 30,
1999, 1998, and 1997 Attached
Schedules, other than the one listed to above, are either not required or not
applicable or the required information is shown in the financial statements or
notes thereto.
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FALL RIVER GAS COMPANY AND SUBSIDIARY SCHEDULE VII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR YEAR ENDED SEPTEMBER 30, 1999
ADDITIONS DEDUCTIONS
--------- ----------
BALANCE AT CHARGES TO CHARGES CHARGES FOR BALANCE AT
BEGINNING COSTS AND TO OTHER WHICH RESERVES END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS WERE CREATED OTHER PERIOD
- ----------- --------- -------- -------- ------------- ----- -------
Allowance for
doubtful accounts $957,148 $481,500 - $397,420 ($23,268) $1,064,496
--------- --------- --------- --------- --------- ----------
FOR YEAR ENDED SEPTEMBER 30, 1998
ADDITIONS DEDUCTIONS
--------- ----------
BALANCE AT CHARGES TO CHARGES CHARGES FOR BALANCE AT
BEGINNING COSTS AND TO OTHER WHICH RESERVES END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS WERE CREATED OTHER PERIOD
- ----------- --------- -------- -------- ------------- ----- -------
Allowance for
doubtful accounts $907,357 $473,500 - $472,625 ($48,916) $957,148
--------- --------- --------- --------- --------- ---------
FOR YEAR ENDED SEPTEMBER 30, 1997
ADDITIONS DEDUCTIONS
--------- ----------
BALANCE AT CHARGES TO CHARGES CHARGES FOR BALANCE AT
BEGINNING COSTS AND TO OTHER WHICH RESERVES END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS WERE CREATED OTHER PERIOD
- ----------- --------- -------- -------- ------------- ----- -------
Allowance for
doubtful accounts $670,038 $761,500 - $563,691 ($39,510) $907,357
--------- --------- -------- --------- ---------- ---------
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