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, 1998 Commission File No. 0-1857-3
THE BERKSHIRE GAS COMPANY
Massachusetts 04-1731220
115 Cheshire Road, Pittsfield, Massachusetts 01201-1803
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, 1998, the Registrant had issued and outstanding 2,352,335
shares of Common Stock, par value $2.50.
THE BERKSHIRE GAS COMPANY
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS - Unaudited
----------------------------------------------------------
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
09/30/98 09/30/97
-------- --------
<S> <C> <C>
Operating Revenues $ 4,247 $ 4,480
Cost of Gas Sold 1,559 1,949
---------------------
Operating Margin 2,688 2,531
---------------------
Other Operating Expenses 2,909 2,659
Depreciation 352 365
---------------------
Total 3,261 3,024
---------------------
Utility Operating Loss (573) (493)
Other Income - Net 432 424
---------------------
Operating Loss and Other Income (141) (69)
Interest Expense 1,078 1,101
Other Taxes 215 204
---------------------
Pre-Tax Loss (1,434) (1,374)
Income Tax Benefit (558) (538)
---------------------
NET LOSS (876) (836)
Retained Earnings at Beginning
of Period 8,911 8,739
---------------------
Total 8,035 7,903
---------------------
Dividends Declared:
Preferred Stock 4 4
Common Stock 682 638
---------------------
Total Dividends 686 642
---------------------
Retained Earnings at End
of Period $ 7,349 $ 7,261
=====================
Loss Attributable to Common
Stock $ (880) $ (840)
=====================
Average Shares of Common Stock
Outstanding 2,337.9 2,231.6
---------------------
Basic and Diluted Loss
Per Share of Common Stock $ (0.38) $ (0.38)
=====================
</TABLE>
See Independent Accountants' Review Report and Notes to Financial Statements.
THE BERKSHIRE GAS COMPANY
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS - Unaudited
----------------------------------------------------------
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Twelve Months Ended
9/30/98 9/30/97
------- -------
<S> <C> <C>
Operating Revenues $49,626 $48,826
Cost of Gas Sold 24,140 23,526
-------------------
Operating Margin 25,486 25,300
-------------------
Other Operating Expenses 12,616 11,992
Depreciation 4,158 4,049
-------------------
Total 16,774 16,041
-------------------
Utility Operating Income 8,712 9,259
Other Income - Net 1,927 2,364
-------------------
Operating and Other Income 10,639 11,623
Interest Expense 4,369 4,289
Other Taxes 1,881 1,787
-------------------
Pre-Tax Income 4,389 5,547
Income Taxes 1,636 2,119
-------------------
NET INCOME 2,753 3,428
Retained Earnings at Beginning
of Period 7,261 6,396
-------------------
Total 10,014 9,824
-------------------
Dividends Declared:
Preferred Stock 15 72
Common Stock 2,650 2,491
-------------------
Total Dividends 2,665 2,563
-------------------
Retained Earnings at End
of Period $ 7,349 $ 7,261
===================
Earnings Available for Common
Stock $ 2,738 $ 3,356
===================
Average Shares of Common Stock
Outstanding 2,290.1 2,198.4
-------------------
Basic and Diluted Earnings
Per Share of Common Stock $ 1.20 $ 1.53
===================
</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,
1998 1998
------------- --------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS:
Utility Plant:
Utility Plant - at original cost $108,268 $106,654
Less: Accumulated Depreciation 31,607 31,371
------------------------
Utility Plant - Net 76,661 75,283
------------------------
Other Property:
Other Property - at original cost 12,862 12,784
Less: Accumulated Depreciation 6,620 6,420
------------------------
Other Property - Net 6,242 6,364
------------------------
Current Assets:
Cash 116 160
Accounts Receivable
Utility Service (less allowance:
Sept. 1998-$919;June 1998-$900) 2,788 5,427
Merchandise & Other (less
allowance: Sept. 1998-$81;
June 1998-$74) 362 669
Other Receivables 562 181
Inventories (at the lower of
average cost or market):
Natural Gas 3,248 2,313
Liquefied Petroleum 143 134
Materials and Supplies 1,830 1,814
Prepayments and Other 857 979
Prepaid Taxes 1,939 370
Recoverable Gas Costs 1,965 224
------------------------
Total Current Assets 13,810 12,271
------------------------
Deferred Debits:
Unamortized Debt Expense 2,176 2,200
Capital Stock Expense 264 275
Environmental Cleanup Costs 840 800
Other 1,515 1,414
------------------------
Total Deferred Debits 4,795 4,689
------------------------
Recoverable Environmental Cleanup
Costs 3,290 3,290
------------------------
TOTAL ASSETS $104,798 $101,897
========================
</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,
1998 1998
------------ --------
(Unaudited) (Audited)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Common Shareholders' Equity:
Common Stock $ 5,881 $ 5,790
Premium on Common Stock 19,535 18,835
Retained Earnings 7,349 8,911
------------------------
Total Common Shareholders'
Equity 32,765 33,536
------------------------
Redeemable Cumulative
Preferred Stock 312 321
------------------------
Long-Term Debt 34,000 34,000
------------------------
Current Liabilities:
Notes Payable to Banks 10,835 7,085
Current Maturities of Long-Term Debt 6,000 6,000
Accounts Payable 2,724 3,024
Other Current Liabilities 2,660 3,098
------------------------
Total Current Liabilities 22,219 19,207
------------------------
Other Liabilities 1,600 1,676
------------------------
Unamortized Investment Tax Credit 1,121 1,139
------------------------
Deferred Income Taxes 9,491 8,728
------------------------
Reserve for Recoverable Environmental
Cleanup Costs 3,290 3,290
------------------------
TOTAL CAPITALIZATION
AND LIABILITIES $104,798 $101,897
========================
</TABLE>
See Independent Accountants' Review Report and Notes to Financial Statements.
THE BERKSHIRE GAS COMPANY
STATEMENTS OF CASH FLOWS - Unaudited
------------------------------------
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
9/30/98 9/30/97
------- -------
<S> <C> <C>
Cash flows from Operating Activities:
Net Loss $ (876) $ (836)
Adjustments to Reconcile Net Loss to Net
Cash Used in Operating Activities:
Depreciation and Amortization 577 606
Provision for Losses on Accounts Receivable 99 102
Recoverable Gas Costs (1,741) (1,542)
Deferred Income Taxes 763 626
Changes in Assets and Liabilities Which
Provided (Used) Cash:
Accounts Receivable 2,848 2,848
Other Receivables (381) 109
Inventories (959) (1,404)
Accounts Payable (300) (479)
Prepaid Taxes (1,569) (1,426)
Other (537) (660)
--------------------
Total Adjustments (1,200) (1,220)
--------------------
Net Cash Used in Operating Activities (2,076) (2,056)
--------------------
Cash Flows Used in Investing Activities:
Construction Expenditures (1,814) (2,100)
--------------------
Cash Flows Provided by Financing Activities:
Dividends Paid (686) (642)
Proceeds from Notes Payable 3,750 4,240
Proceeds from Other Stock
Transactions 782 362
--------------------
Net Cash Provided by
Financing Activities 3,846 3,960
--------------------
Net Decrease in Cash (44) (196)
Cash at Beginning of Period 160 356
--------------------
Cash at End of Period $ 116 $ 160
====================
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Year for:
Interest(net of amount capitalized) $ 1,422 $ 1,517
====================
Income Taxes(net of refund) $ 181 $ 204
====================
</TABLE>
See Independent Accountants' Review Report and Notes to Financial Statements.
The Berkshire Gas Company
Notes to Financial Statements
September 30,1998
- -------------------------------------------------------------------------------
(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. Due to the significant impact
of gas used for space heating during the heating season (November-April) and
the Company's seasonal rate structure, the results of operations for the
interim periods are not necessarily indicative of the results to be expected
for the 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, 1998.
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. In accordance
with SFAS No. 5, the Company has recorded the most likely cost of $3,290.
The Company 's unamortized cost at September 30, 1998 was $840 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, 1998 versus First
Quarter Ended September 30, 1997
- -------------------------------------------------------------------------------
Berkshire Gas considers Operating Margin (Operating Margin or Gross
Profit = Operating Revenues Net of Cost of Gas Sold) to be a more pertinent
measure of operating results than Operating Revenues. This is due primarily
to the fact that revenues include changes in the cost of natural gas which
must be recovered or returned to customers through the Cost of Gas
Adjustment Clause. Consequently, changes in the cost of gas will affect
revenue levels, but does not have a corresponding affect on income.
Additionally, margins earned on interruptible gas sold and transported are
flowed back to the customers and therefore are not included in income.
Accordingly, the discussion below pertains to Operating Margin.
Operating Margin increased $157,000 or 6.2%, despite warmer weather,
from the three months ended September 30, 1997, primarily due to growth in
transportation revenues.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
3 Month Firm MCF Sold & Transported 703,000 713,000
3 Month Operating Margin $2,688,000 $2,531,000
3 Month Average Operating Margin
Per Firm MCF $3.82 $3.55
</TABLE>
Other Operating Expenses increased $250,000 or 9.4% from the three
months ended September 30, 1997. The increase is primarily due to employee
benefits costs, the development and implementation of new information
systems companywide, costs incurred for the restructuring to a holding
company and marketing promotions.
Depreciation Expense decreased $13,000 due to a program of leasing
short-lived assets previously purchased.
Other Income increased $8,000 due to additional revenues generated by
the Propane operation.
Interest Expense decreased $23,000 due to lower levels of borrowings.
Dividends on Common Stock increased $44,000 primarily due to an
increase in the number of shares reflecting active shareholder participation
in the Dividend Reinvestment Program ("DRIP"), and to a lesser extent, a
quarterly increase in dividends to $.29 per share from $.285 in 1997.
- -------------------------------------------------------------------------------
Results of Operations - Twelve Months Ended September 30, 1998 versus Twelve
Months Ended September 30,1997
- -------------------------------------------------------------------------------
Earnings available for Common Stock were $2,738,000 for the twelve
months ended September 30, 1998 as compared to $3,356,000 for 1997. The
decrease is primarily due to increased operating expenses and lower other
income caused by a warmer heating season.
Operating Margin increased $186,000 or .7% from the twelve months
ended September 30, 1997. The Company increased firm volumes sold during
the winter heating season through commercial growth, which more than offset
the 11% warmer than normal weather.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
12 Month Firm MCF Sold & Transported 6,105,000 6,448,000
12 Month Operating Margin $25,486,000 $25,300,000
12 Month Average Operating Margin
Per Firm MCF $4.17 $3.92
</TABLE>
Other Operating Expenses rose $624,000 or 5.2% over the twelve months
ended September 30, 1997. The increase is due to costs incurred for the
restructuring to a holding company, employee benefit costs, costs reflecting
the development and implementation of new information systems companywide
and increased marketing and promotion expenses.
Other Income decreased $437,000 or 18.5% from 1997 primarily due to
lower Propane revenues as a result of substantially warmer weather and lower
Interest Income on undercollected gas costs recovered through the CGAC.
This was partially offset by increased income from appliance rentals.
Other Taxes increased $94,000 or 5.3% due to increases in plant
property and municipal tax rates.
Dividends declared on Common Stock increased $159,000 due to
additional shares outstanding through the Company's DRIP.
LIQUIDITY AND CAPITAL RESOURCES - SEPTEMBER 30, 1998
The Company added approximately $1,814,000 to Utility Plant assets and
Other Property during the three months ended September 30, 1998. These
construction expenditures primarily represent investments in new and
replacement mains and services.
The capital structure of the Company at September 30, 1998 was 48.8%
Common Equity, 0.5% Preferred Stock and 50.7% 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 and cash investments from the
Company's DRIP.
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.
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
Telecommunications and Energy ("DTE"), formerly the Massachusetts Department
of Public Utilities ("MDPU").
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.
Year 2000 Compliance
The Company has identified all significant applications that will
require modification to ensure Year 2000 Compliance. Internal and external
resources are being used to make the required modifications and test Year
2000 Compliance.
The Company believes that the most critical risk relates to the
replacement and modification of its business application software.
During the second quarter of fiscal 1999, the Company has replaced its
core business applications which support customer service, billing,
collection, jobbing and engineering. This upgraded system is Year 2000
compliant. The Company expects to have completed an upgrade to its finance,
accounting, payroll and inventory systems by the end of the second quarter
of fiscal 1999. These upgrades were initiated in the normal course of
addressing business needs.
The Company has also assessed the other areas of its business not
related to its core information systems. Presently, the Company believes
that these areas which include automated meter reading, dispatch,
administrative and distribution, can be modified or upgraded without
disruption of service or material cost.
Due to the complexity of the Year 2000 problem and the reliance on
certain critical vendors and suppliers, there can be no guarantees that the
Company will achieve Year 2000 compliance or that critical vendors and
suppliers will achieve Year 2000 compliance. At this time, the Company
cannot assess the effect on the Company of such non-compliance. The Company
expects to include contingency plans as part of its Year 2000 study in an
effort to mitigate the risks of any non-compliance by third parties.
The total cost to the Company of Year 2000 Compliance activities has
not been and is not anticipated to be material to its financial position or
results of operations in any given year. These costs and the date on which
the Company plans to complete Year 2000 modification and testing processes
are based on management's best estimates, which were derived utilizing
numerous assumptions of future events including the continued availability
of certain resources, third party modification plans and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ from those plans.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
No developments during the quarter.
Item 2. Changes in Securities
- ------- ---------------------
The Company has filed an S-3 effective November 12, 1998 for an
increase of 200,000 Common shares available for the Company's DRIP.
Item 3. Defaults Upon Senior Securities
- ------- -------------------------------
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
On November 6, 1998, the Annual Meeting of the shareholders of the
Berkshire Gas Company was held at the Crowne Plaza Pittsfield
Hotel, Pittsfield, Massachusetts at 10:00 a.m.
Proxies for said annual meeting were solicited pursuant to
Regulation 14A. There was no solicitation in opposition to
Management's nominees, as listed in the Proxy statement, for the
election of Directors. All nominees were duly elected.
Item 5. Other Information
- ------- -----------------
On June 23, 1998, the Company filed a petition with the DTE for
approval to form a holding company which will be called Berkshire
Energy Resources. Thereafter, on August 14, 1998 Berkshire Gas
filed a petition with the DTE for the issuance and sale of not
more than 200,000 additional shares of Common Stock, purusant to
the DRIP. These petitions were approved on November 5, 1998 by the
DTE.
Item 6. Exhibits and Reports on Form 8 - K
- ------- ----------------------------------
(a) List of Exhibits
Exhibit 27 - Financial Data Schedule
The balance sheet as of September 30, 1998, the related statements of
operations and retained earnings for the three month and twelve month periods
ended September 30, 1998 and 1997, and the statements of cash flows for the
three month periods ended September 30, 1998 and 1997 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, 1998, the related statements of operations and retained
earnings for the three month and twelve month periods ended September 30,
1998 and 1997, and the statements of cash flows for the three month periods
ended September 30, 1998 and 1997. 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 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,
1998, and the related statements of income, stockholders' equity, and of
cash flows for the year then ended (not presented herein); and in our report
dated August 12, 1998, 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, 1998 is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived.
/s/ Deloitte & Touche LLP
November 5, 1998
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, 1998
<TABLE> <S> <C>
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 76,661
<OTHER-PROPERTY-AND-INVEST> 6,242
<TOTAL-CURRENT-ASSETS> 13,810
<TOTAL-DEFERRED-CHARGES> 4,795
<OTHER-ASSETS> 3,290
<TOTAL-ASSETS> 104,798
<COMMON> 5,881
<CAPITAL-SURPLUS-PAID-IN> 19,535
<RETAINED-EARNINGS> 7,349
<TOTAL-COMMON-STOCKHOLDERS-EQ> 32,765
0
312
<LONG-TERM-DEBT-NET> 34,000
<SHORT-TERM-NOTES> 10,835
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 26,886
<TOT-CAPITALIZATION-AND-LIAB> 104,798
<GROSS-OPERATING-REVENUE> 4,247
<INCOME-TAX-EXPENSE> (558)
<OTHER-OPERATING-EXPENSES> 2,909
<TOTAL-OPERATING-EXPENSES> 3,261
<OPERATING-INCOME-LOSS> (573)
<OTHER-INCOME-NET> 432
<INCOME-BEFORE-INTEREST-EXPEN> (356)
<TOTAL-INTEREST-EXPENSE> 1,078
<NET-INCOME> (876)
4
<EARNINGS-AVAILABLE-FOR-COMM> (880)
<COMMON-STOCK-DIVIDENDS> 682
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> (2,076)
<EPS-PRIMARY> (.38)
<EPS-DILUTED> 0
</TABLE>
