SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended September 30, 1997 Commission File No. 0-1857-3
THE BERKSHIRE GAS COMPANY
Massachusetts 04-1731220
115 Cheshire Road, Pittsfield, Massachusetts 01201-1879
Registrant's telephone number, including Area Code 413:442-1511
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 [ ]
At September 30, 1997, the Registrant had issued and outstanding 2,237,560
shares of Common Stock, par value $2.50.
<PAGE> 1
THE BERKSHIRE GAS COMPANY
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS - Unaudited
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
--------------------
9/30/97 9/30/96
------- -------
<S> <C> <C>
Operating Revenues $ 4,480 $ 4,117
Cost of Gas Sold 1,949 1,632
--------------------
Operating Margin 2,531 2,485
--------------------
Other Operating Expenses 2,659 2,730
Depreciation 365 336
--------------------
Total 3,024 3,066
--------------------
Utility Operating Loss (493) (581)
Other Income - Net 424 416
--------------------
Operating Income (Loss) and Other Income (69) (165)
Interest Expense 1,101 790
Other Taxes 204 188
--------------------
Pre-Tax Loss (1,374) (1,143)
Income Tax Benefit (538) (435)
--------------------
NET LOSS (836) (708)
Retained Earnings at Beginning of Period 8,739 7,883
--------------------
Total 7,903 7,175
--------------------
Dividends Declared:
Preferred Stock 4 173
Common Stock 638 606
--------------------
Total Dividends 642 779
--------------------
Retained Earnings at End of Period $ 7,261 $ 6,396
====================
Loss Attributable to Common Stock ($ 840) ($ 881)
--------------------
Average Shares of Common Stock Outstanding 2,231.6 2,162.7
--------------------
Loss Per Share of Common Stock ($ 0.38) ($ 0.41)
====================
</TABLE>
See Independent Accountants' Review Report and Notes to Financial Statements.
THE BERKSHIRE GAS COMPANY
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS - Unaudited
(In Thousands)
<TABLE>
<CAPTION>
Twelve Months Ended
---------------------
9/30/97 9/30/96
-------- --------
<S> <C> <C>
Operating Revenues $ 48,826 $ 46,013
Cost of Gas Sold 23,526 20,128
---------------------
Operating Margin 25,300 25,885
---------------------
Other Operating Expenses 11,992 11,929
Depreciation 4,049 3,847
---------------------
Total 16,041 15,776
---------------------
Utility Operating Income 9,259 10,109
Other Income - Net 2,364 1,635
---------------------
Operating and Other Income 11,623 11,744
Interest Expense 4,289 3,395
Other Taxes 1,787 1,711
---------------------
Pre-Tax Income 5,547 6,638
Income Taxes 2,119 2,558
---------------------
NET INCOME 3,428 4,080
Retained Earnings at Beginning of Period 6,396 5,389
---------------------
Total 9,824 9,469
---------------------
Dividends Declared:
Preferred Stock 72 692
Common Stock 2,491 2,381
---------------------
Total Dividends 2,563 3,073
---------------------
Retained Earnings at End of Period $ 7,261 $ 6,396
=====================
Earnings Available for Common Stock $ 3,356 $ 3,388
---------------------
Average Shares of Common Stock Outstanding 2,198.4 2,141.4
---------------------
Earnings Per Share of Common Stock $ 1.53 $ 1.58
=====================
</TABLE>
See Independent Accountants' Review Report and Notes to Financial Statements.
THE BERKSHIRE GAS COMPANY
BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
(Unaudited) (Audited)
------------- ---------
<S> <C> <C>
ASSETS:
Utility Plant:
Utility Plant - at original cost $ 103,509 $ 101,983
Less: Accumulated Depreciation 28,416 28,343
------------------------
Utility Plant - Net 75,093 73,640
------------------------
Other Property:
Other Property - at original cost 12,199 11,983
Less: Accumulated Depreciation 6,044 5,887
------------------------
Other Property - Net 6,155 6,096
------------------------
Current Assets:
Cash 160 356
Accounts Receivable
Utility Service (less allowance:
Sept. 1997-$935; June 1997-$900) 3,941 6,386
Merchandise & Other (less allowance:
Sept. 1997-$121; June 1997-$121) 364 869
Other Receivables 223 332
Inventories (at the lower of average cost or market):
Natural Gas 3,312 1,844
Liquefied Petroleum 169 146
Materials and Supplies 1,588 1,675
Prepayments and Other 785 689
Prepaid Taxes 1,522 96
Recoverable Gas Costs 2,946 1,404
------------------------
Total Current Assets 15,010 13,797
------------------------
Deferred Debits:
Unamortized Debt Expense 2,277 2,302
Capital Stock Expense 308 319
Environmental Cleanup Costs 836 819
Other 1,454 1,425
------------------------
Total Deferred Debits 4,875 4,865
------------------------
Recoverable Environmental Cleanup Costs 3,290 3,290
------------------------
TOTAL ASSETS $ 104,423 $ 101,688
========================
</TABLE>
See Independent Accountants' Review Report and Notes to Financial Statements.
THE BERKSHIRE GAS COMPANY
BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
(Unaudited) (Audited)
------------- ---------
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Common Shareholders' Equity:
Common Stock $ 5,594 $ 5,529
Premium on Common Stock 17,436 17,097
Retained Earnings 7,261 8,739
-------------------------
Total Common Shareholders' Equity 30,291 31,365
-------------------------
Redeemable Cumulative Preferred Stock 321 363
-------------------------
Long-Term Debt (less current maturities) 40,000 40,000
-------------------------
Current Liabilities:
Notes Payable to Banks 10,720 6,480
Accounts Payable 3,034 3,513
Other Current Liabilities 4,106 4,621
-------------------------
Total Current Liabilities 17,860 14,614
-------------------------
Other Liabilities 1,558 1,561
-------------------------
Unamortized Investment Tax Credit 1,191 1,209
-------------------------
Deferred Income Taxes 9,912 9,286
-------------------------
Reserve for Recoverable Environmental Cleanup Costs 3,290 3,290
-------------------------
TOTAL CAPITALIZATION AND LIABILITIES $ 104,423 $ 101,688
=========================
</TABLE>
See Independent Accountants' Review Report and Notes to Financial Statements
THE BERKSHIRE GAS COMPANY
STATEMENT OF CASH FLOWS - Unaudited
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
----------------------
9/30/97 9/30/96
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss ($ 836) ($ 708)
---------------------
Adjustments to Reconcile Net Loss to Net Cash Used
in Operating Activities:
Depreciation and Amortization 606 569
Provision for Losses on Accounts Receivable 102 69
Recoverable Gas Costs (1,542) (2,278)
Deferred Income Taxes 626 732
Changes in Assets and Liabilities Which Provided
(Used) Cash:
Accounts Receivable 2,848 2,073
Other Receivables 109 89
Inventories (1,404) (1,872)
Accounts Payable (479) 214
Prepaid Taxes (1,426) (1,098)
Other (660) (897)
---------------------
Total Adjustments (1,220) (2,399)
---------------------
Net Cash Used in Operating Activities (2,056) (3,107)
---------------------
Cash Flows used in Investing Activities - Construction
Expenditures (2,100) (1,605)
---------------------
Cash Flows from Financing Activities:
Dividends Paid (642) (779)
Proceeds from Note Payable Borrowings 4,240 5,315
Proceeds from Other Stock Transactions 362 178
---------------------
Net Cash Provided by Financing Activities 3,960 4,714
---------------------
Net (Decrease) Increase in Cash (196) 2
Cash at Beginning of Period 356 196
---------------------
Cash at End of Period $ 160 $ 198
=====================
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Year for:
Interest (net of amount capitalized) $ 1,518 $ 1,202
=====================
Income Taxes $ 204 $ 300
=====================
</TABLE>
See Independent Accountants' Review Report and Notes to Financial Statements.
The Berkshire Gas Company
Notes to Financial Statements
September 30,1997
- -------------------------------------------------------------------------------
(Dollars in Thousands Except Share Amounts)
NOTES:
OTHER FINANCIAL INFORMATION:
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. All adjustments, which in the opinion of
management are necessary for a fair presentation of the operations for the
interim periods presented, have been made. These adjustments are of a normal
recurring nature. The results of operations for such interim periods are not
necessarily indicative of results of operations for a full year. These
financial statements should be read in conjunction with the summary of
accounting policies and notes to financial statements included in the Company's
Annual Report on Form 10-K for the year ended June 30, 1997.
LONG-TERM DEBT:
During fiscal 1997, in conjunction with the Company's cost containment
incentives, the Company revised its capital structure to lower its borrowing
costs. The Company issued a $16,000, 7.8% Senior Note and used a portion of the
proceeds to redeem 80,000, $100 par value shares of the 8.4% Preferred Stock.
NEW ACCOUNTING PRONOUNCEMENT:
Statement of Financial Accounting Standards ("SFAS") No. 128 was issued
in February, 1997 and is effective for financial statements issued after
December 15, 1997. The statement establishes new standards for computing and
presenting earnings per share ("EPS") and will require restatement of prior
year's information. This statement simplifies the standards for computing EPS
previously found in APB Opinion 15. It replaces the presentation of basic EPS
and diluted EPS, requires a dual presentation on the face of financial
statements, and requires a reconciliation of basic EPS to diluted EPS. Had SFAS
No. 128 been effective for the September 30, 1997 financial statements,
computation and presentation of EPS would result in no change due to the
current capital structure of the Company.
CONTINGENCIES:
ENVIRONMENTAL:
Like other companies in the natural gas industry, the Company is a party
to governmental actions associated with former gas manufacturing sites.
Management estimates that expenditures to remediate and monitor known
environmental sites will range from $3,290 to $12,302. Accordingly, the Company
has recorded the most likely cost of $3,290 in accordance with SFAS No. 5. The
Company's unamortized costs at September 30, 1997 were $836 and should be
recovered over a seven-year period through the Cost of Gas Adjustment Clause
("CGAC").
Management's Discussion and Analysis of Financial Condition and
Results of Operations
- -------------------------------------------------------------------------------
Results of Operations - First Quarter Ended September 30, 1997 versus
First Quarter Ended September 30, 1996
- -------------------------------------------------------------------------------
Since income is not significantly affected by changes in revenue due to
changes in gas costs, the discussion below pertains to Operating
Margin(Operating Margin or Gross Profit = Operating Revenues Net of Cost of Gas
Sold). The Berkshire Gas Company considers Operating Margin to be a more
pertinent measure of operating results than Operating Revenues.
Operating Margin increased $46,000 or 1.9% from the three months ended
September 30, 1996. Operating Margin is primarily affected by the change in the
level of firm gas sold and transported. Interruptible gas sold and transported
has no effect on Operating Margin since those margins are flowed back to the
firm customer. The increase from 1996 is primarily due to 9.6% higher revenues
on firm transportation to industrial customers, resulting from 14.9% higher
volumes.
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
3 Month Firm MCF Sold & Transported 713,000 695,000
3 Month Operating Margin $ 2,531,000 $ 2,485,000
3 Month Average Operating Margin Per Firm MCF $ 3.55 $ 3.58
</TABLE>
Other Operating Expenses decreased $71,000 or 2.6% from the three months
ended September 30, 1996. The decrease is primarily due to lower Administrative
and General costs of $265,000 reflective of the costs of implementing an early
retirement program in 1996, and decreased Marketing expenses of $13,000,
primarily due to lower customer incentive programs. Offsetting the decreases
were higher Production expenses of $17,000, higher Transmission and
Distribution expenses of $71,000, and increased Customer Accounts expenses of
$120,000 due to information systems upgrading.
Other Income increased $8,000 or 1.9% from 1996. The increase was
primarily due to higher interest income of $59,000 from the undercollection of
gas costs through the Cost of Gas Adjustment Clause ("CGAC"), partially offset
by lower non-utility income of $50,000 reflecting increased fleet and equipment
maintenance costs.
Income Tax Benefit increased $103,000 from 1996 due to an increase in the
Pre-Tax Loss.
Dividends Declared on Common Stock increased $32,000 due to additional
shares outstanding from the Dividend Reinvestment Program ("DRIP"), and to a
lesser extent, a quarterly increase in dividends to $.285 per share from $.28
in 1996.
- -------------------------------------------------------------------------------
Results of Operations - Twelve Months Ended September 30, 1997 versus
Twelve Months Ended September 30, 1996
- -------------------------------------------------------------------------------
Earnings available for Common Stock were $3,356,000 for the twelve months
ended September 30, 1997 as compared to $3,388,000 for 1996. The decrease is
due primarily to warmer temperatures for the twelve months ended September
30, 1997.
Operating Margin decreased $585,000 or 2.3% from the twelve months ended
September 30, 1996. Operating Margin is primarily affected by the change in the
level of firm gas sold and transported.
The Company's sales are affected by weather as the majority of its firm
customers use natural gas for heating. The 0.9% decrease in firm gas sold is
due to 4.9% warmer weather in 1997.
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
12 Month Firm MCF Sold & Transported 6,448,000 6,508,000
12 Month Operating Margin $ 25,300,000 $ 25,885,000
12 Month Average Operating Margin Per Firm MCF $ 3.92 $ 3.98
</TABLE>
Other Operating Expenses increased $63,000 or 0.5% over the twelve months
ended September 30, 1996. The increase is due to higher Administrative and
General costs of $161,000 for professional fees as the Company continues its
strategic planning for the gas industry deregulation. Offsetting this increase
is lower Customer Accounts expense due to the automation of meter reading.
Depreciation Expense increased $202,000 over the twelve months ended
September 30, 1996, due to an increase in the level of depreciable assets.
Other Income increased $729,000 from 1996. The increase was primarily due
to higher interest on the undercollection of prior period gas costs through the
CGAC, and to a lesser extent, higher Propane revenues due to greater margins
and increased jobbing revenues.
Interest Expense increased $894,000 due to the increase of long-term debt
used to retire the 8.4% Preferred Stock series and the expenses associated with
the debt restructuring. This is offset by lower related income taxes and
Preferred Stock dividend.
Income Taxes decreased $439,000 due to lower earnings in 1997.
Dividends Declared on Common Stock increased $110,000 due to additional
shares outstanding through the Company's DRIP and to a lesser extent, an
increase in quarterly dividends to $.285 per share from $.28, effective the
fourth quarter of 1997.
Liquidity and Capital Resources - September 30, 1997
The Company added approximately $2,100,000 to Utility Plant assets during
the three months ended September 30, 1997. These construction expenditures
primarily represent investments in new and replacement mains and services, and
the conversion to automated meter reading.
The capital structure of the Company at September 30, 1997 was 42.9%
Common Equity, 0.5% Preferred Stock and 56.6% Long-Term Debt.
The Company initially finances construction expenditures and other
funding needs primarily with short-term bank borrowings, and to a lesser extent
with the reinvestment of dividends. The Company continually evaluates its
short-term borrowing position and based on prevailing interest rates, market
conditions, etc., makes determinations regarding conversion of short-term
borrowings to long-term debt or equity. As part of this process and in keeping
with its cost containment program, the Company revised its capital structure to
lower borrowing costs. During the second quarter of fiscal 1997, the Company
repurchased the 80,000 shares of the 8.4% Preferred Stock at $117 per share. To
finance these redemptions the Company sold a $16,000,000 Senior Note at 7.8%
due 2021.
It is management's view that the Company has adequate access to capital
markets and will have sufficient capital resources, both internal and external,
to meet anticipated capital requirements.
Funds for environmental clean-up costs are initially financed through
short-term borrowings and all such costs will be recovered over a seven-year
period under a ruling issued by the Massachusetts Department of Public
Utilities("MDPU").
NEW ACCOUNTING PRONOUNCEMENT:
Statement of Financial Accounting Standards ("SFAS") No. 128 was issued
in February, 1997 and is effective for financial statements issued after
December 15, 1997. The statement establishes new standards for computing and
presenting earnings per share ("EPS") and will require restatement of prior
year's information. This statement simplifies the standards for computing EPS
previously found in APB Opinion 15. It replaces the presentation of primary and
fully diluted EPS with a presentation of basic EPS and diluted EPS, requires a
dual presentation on the face of the financial statements, and requires a
reconciliation of basic EPS to diluted EPS. Had SFAS No. 128 been effective for
the September 30, 1997 financial statements, computation and presentation of
EPS would result in no change due to the current capital structure of the
Company.
Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act
of 1995
This Quarterly Report contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Actual results
could differ materially from those contemplated by such statements. Such
statements reflect management's current views, are based on many assumptions
and are subject to risks and uncertainties.
Certain important factors which could cause such results to differ
include risks associated with the Company's maintaining contracts with specific
customers, government regulation, the increasingly competitive nature of the
markets in which the Company is engaged, and dependence on key personnel. These
factors are not intended to represent a complete list of the general or
specific risks that may affect the Company.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
No developments during the quarter.
Item 2. Changes in Securities
- ------- ---------------------
None.
Item 3. Defaults Upon Senior Securities
- ------- -------------------------------
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
Not Applicable.
Item 5. Other Information
- ------- -----------------
Not Applicable.
Item 6. Exhibits and Reports on Form 8 - K
- ------- ----------------------------------
(a) List of Exhibits
27 - Financial Data Schedule
The balance sheet as of September 30, 1997, the related statements of
operations and retained earnings for the three month and twelve month periods
ended September 30, 1997 and 1996, and the statements of cash flows for the
three month periods ended September 30, 1997 and 1996 have been reviewed, prior
to filing, by the Registrant's independent public accountants, Deloitte &
Touche LLP, whose report covering their review of the financial statements is
presented below.
Deloitte &
Touche LLP
- ------------ -----------------------------------------------------------
City Place Telephone:(860)280-3000
185 Asylum Street Facsimile:(860)280-3051
Hartford, Connecticut 06103-3402
INDEPENDENT ACCOUNTANTS' REPORT
The Berkshire Gas Company:
We have reviewed the accompanying balance sheet of The Berkshire Gas Company as
of September 30, 1997, the related statements of operations and retained
earnings for the three month and twelve month periods ended September 30, 1997
and 1996, and the statements of cash flows for the three month periods ended
September 30, 1997 and 1996. These financial statements are the responsibility
of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to such financial statements for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of The Berkshire Gas Company as of June 30, 1997,
and the related statements of income and retained earnings and of cash flows
for the year then ended (not presented herein); and in our report dated August
15, 1997, we expressed an unqualified opinion on those financial statements. In
our opinion, the information set forth in the accompanying balance sheet as of
June 30, 1997 is fairly stated, in all material respects, in relation to the
balance sheet from which it has been derived.
/s/ DELOITTE & TOUCHE LLP
- ----------------------------------
Deloitte & Touche LLP
November 10, 1997
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE BERKSHIRE GAS COMPANY
-------------------------------------
Registrant
/s/ MICHAEL J. MARRONE
-------------------------------------
Michael J. Marrone
Vice President, Treasurer &
Chief Financial Officer
Dated: November 12, 1997
<TABLE> <S> <C>
<ARTICLE> UT
<S> <C>
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