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 December 31, 1995 Commission File No. 0-1857-3
THE BERKSHIRE GAS COMPANY
Massachusetts 04-1731220
115 Cheshire Road, Pittsfield, Massachusetts 01201-1388
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 filling requirements for the past 90 days.
Yes X No
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At December 31, 1995, the Registrant had issued and outstanding 2,125,048
shares of Common Stock, par value $2.50.
THE BERKSHIRE GAS COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS - Unaudited
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(In Thousands Except Share Amounts)
Three Months Three Months
Ended 12/31/95 Ended 12/31/94
-------------- --------------
Operating Revenues $ 11,952 $ 12,086
Cost of Gas Sold 5,298 6,375
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Operating Margin 6,654 5,711
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Other Operating Expenses 2,975 2,924
Depreciation Expense 982 912
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Total 3,957 3,836
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Utility Operating Income 2,697 1,875
Other Income - Net 466 503
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Operating and Other Income 3,163 2,378
Interest Expense 912 938
Other Taxes 402 404
--------- ---------
Pre-Tax Income 1,849 1,036
Income Taxes 711 380
--------- ---------
NET INCOME 1,138 656
Retained Earnings at Beginning of Period 5,389 5,670
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Total 6,527 6,326
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Dividends Declared:
Preferred Stock 173 173
Common Stock 584 573
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Total Dividends 757 746
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Retained Earnings at End of Period $ 5,770 $ 5,580
========= =========
Earnings Available for Common Stock $ 965 $ 483
--------- ---------
Average Shares of Common Stock Outstanding 2,125,048 2,081,515
--------- ---------
Earnings Per Share of Common Stock $ 0.45 $ 0.23
========= =========
See Independent Accountants' Review Report and Notes to Financial Statements.
THE BERKSHIRE GAS COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS - Unaudited
------------------------------------------------------
(In Thousands Except Share Amounts)
Six Months Six Months
Ended 12/31/95 Ended 12/31/94
-------------- --------------
Operating Revenues $ 16,105 $ 16,918
Cost of Gas Sold 7,017 8,757
--------- ---------
Operating Margin 9,088 8,161
--------- ---------
Other Operating Expenses 5,257 5,536
Depreciation Expense 1,317 1,222
--------- ---------
Total 6,574 6,758
--------- ---------
Utility Operating Income 2,514 1,403
Other Income - Net 782 851
--------- ---------
Operating and Other Income 3,296 2,254
Interest Expense 1,779 1,860
Other Taxes 593 616
--------- ---------
Pre-Tax Income/(Loss) 924 (222)
Income Taxes/(Benefit) 360 (112)
--------- ---------
NET INCOME/(LOSS) 564 (110)
Retained Earnings at Beginning of Period 6,718 7,098
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Total 7,282 6,988
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Dividends Declared:
Preferred Stock 346 347
Common Stock 1,166 1,061
--------- ---------
Total Dividends 1,512 1,408
--------- ---------
Retained Earnings at End of Period $ 5,770 $ 5,580
========= =========
Earnings Available for/(Loss)
Attributable to Common Stock $ 218 $ (457)
--------- ---------
Average Shares of Common Stock Outstanding 2,119,008 1,922,339
--------- ---------
Earnings/(Loss) Per Share of Common Stock $ 0.10 $ (0.24)
========= =========
See Independent Accountants' Review Report and Notes to Financial Statements.
THE BERKSHIRE GAS COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS - Unaudited
------------------------------------------------------
(In Thousands Except Share Amounts)
Twelve Months Twelve Months
Ended 12/31/95 Ended 12/31/94
-------------- --------------
Operating Revenues $ 47,121 $ 52,455
Cost of Gas Sold 23,079 27,506
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Operating Margin 24,042 24,949
--------- ---------
Other Operating Expenses 11,310 12,964
Depreciation Expense 3,719 3,468
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Total 15,029 16,432
--------- ---------
Utility Operating Income 9,013 8,517
Other Income - Net 1,447 2,296
--------- ---------
Operating and Other Income 10,460 10,813
Interest Expense 3,355 3,641
Other Taxes 1,905 1,670
--------- ---------
Pre-Tax Income 5,200 5,502
Income Taxes 1,997 2,200
--------- ---------
NET INCOME 3,203 3,302
Retained Earnings at Beginning of Period 5,580 4,606
---------
Surplus Invested in Plant 390
---------
Total 8,783 8,298
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Dividends Declared:
Preferred Stock 693 697
Common Stock 2,320 2,021
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Total Dividends 3,013 2,718
--------- ---------
Retained Earnings at End of Period $ 5,770 $ 5,580
========= =========
Earnings Available for Common Stock $ 2,510 $ 2,605
--------- ---------
Average Shares of Common Stock Outstanding 2,105,488 1,835,027
--------- ---------
Earnings Per Share of Common Stock $ 1.19 $ 1.42
========= =========
See Independent Accountants' Review Report and Notes to Financial Statements.
THE BERKSHIRE GAS COMPANY
BALANCE SHEETS
----------------------------------------
(In Thousands)
December 31, June 30,
1995 1995
------------ --------
(Unaudited) (Audited)
ASSETS:
Utility Plant:
Utility Plant - at original cost $94,952 $91,863
Less: Accumulated Depreciation 23,364 22,537
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Utility Plant - Net 71,588 69,326
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Other Property:
Other Property - at original cost 11,016 10,766
Less: Accumulated Depreciation 5,064 4,804
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Other Property - Net 5,952 5,962
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Current Assets:
Cash and Cash Equivalents 364 492
Accounts Receivable
Utility Service (less allowance: 7,458 6,103
Dec. 1995-$861; June 1995-$832)
Merchandise & Other (less allowance: 941 509
Dec. 1995-$116; June 1995-$119)
Other Receivables 104 234
Inventories (at the lower of average
cost or market):
Natural Gas 1,679 1,702
Liquefied Petroleum 237 250
Materials and Supplies 1,242 1,284
Prepayments 364 178
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Total Current Assets 12,389 10,752
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Deferred Debits:
Unamortized Debt Expense 555 578
Capital Stock Expense 561 638
Environmental Cleanup Costs 1,151 1,046
Other 760 787
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Total Deferred Debits 3,027 3,049
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Recoverable Environmental Cleanup Costs 2,894 2,894
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TOTAL ASSETS $95,850 $91,983
======= =======
See Independent Accountants' Review Report and Notes to Financial Statements.
THE BERKSHIRE GAS COMPANY
BALANCE SHEETS
----------------------------------------
(In Thousands)
December 31, June 30,
1995 1995
------------ --------
(Unaudited) (Audited)
LIABILITIES AND OTHER CREDITS
Common Shareholders' Equity:
Common Stock $ 5,312 $ 5,259
Premium on Common Stock 15,978 15,711
Retained Earnings 5,770 6,718
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Total Common Shareholders' Equity 27,060 27,688
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Redeemable Cumulative Preferred Stock 8,406 8,448
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Long-Term Debt(less current maturities) 30,903 30,983
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Current Liabilities:
Notes Payable to Banks 7,095 0
Current Maturities of Long-Term Debt 900 900
Accounts Payable 3,954 3,091
Taxes Accrued (846) 125
Other Current Liabilities 4,762 5,518
Refundable Gas Costs 1,524 4,117
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Total Current Liabilities 17,389 13,751
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Unamortized Investment Tax Credit 1,318 1,355
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Deferred Income Taxes 7,880 6,864
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Reserve for Recoverable Environmental
Cleanup Costs 2,894 2,894
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TOTAL LIABILITIES AND OTHER CREDITS $95,850 $91,983
======= =======
See Independent Accountants' Review Report and Notes to Financial Statements.
THE BERKSHIRE GAS COMPANY
STATEMENTS OF CASH FLOWS - Unaudited
---------------------------------------
(In Thousands)
Six Months Six Months
Ended 12/31/95 Ended 12/31/94
-------------- --------------
Cash flows from Operating Activities:
Net Income/(Loss) $ 564 $ (110)
Adjustments to Reconcile Net Income/(Loss)
to Net Cash Used in Operating Activities:
Depreciation and Amortization 1,780 1,642
Provision for Losses on Accounts Receivable 448 255
Refundable Gas Costs (2,593) (1,615)
Deferred Income Taxes 1,016 764
Changes in Assets and Liabilities Which
Provided (Used) Cash:
Accounts Receivable (2,235) 155
Other Receivables 130 (76)
Inventories 78 (544)
Capital Stock Expense 0 (440)
Accounts Payable 863 970
Taxes Accrued (971) (979)
Other (1,019) (376)
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Net Cash Used in Operating Activities (1,939) (354)
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Cash Flows from Investing Activities:
Construction Expenditures (3,970) (4,554)
------- -------
Net Cash Used in Investing Activities (3,970) (4,554)
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Cash Flows from Financing Activities:
Dividends Paid (1,512) (1,408)
Principal Payments on Long-Term Debt (80) (80)
Proceeds from Note Payable Borrowings 7,095 1,690
Proceeds from Sale of Common Stock 0 4,499
Proceeds from Other Stock Transactions - Net 278 262
------- -------
Net Cash Provided by Financing Activities 5,781 4,963
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Net Increase/(Decrease) in Cash (128) 55
Cash and Cash Equivalents
at Beginning of Period 492 65
------- -------
Cash and Cash Equivalents
at End of Period $ 364 $ 120
======= =======
See Independent Accountants' Review Report and Notes to Financial Statements.
The Berkshire Gas Company
Notes to Financial Statements
December 31,1995
- -------------------------------------------------------------------------------
(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 to 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, 1995.
CONTINGENCIES:
ENVIRONMENTAL:
Federal, State and local laws and regulations establishing standards and
requirements for protection of the environment have increased in number and
scope in recent years. The Berkshire Gas Company (the "Company") cannot
predict the future impact of such standards and requirements, which are
subject to change and can have retroactive effect.
During fiscal 1990, the Massachusetts Department of Public Utilities
("MDPU") issued a generic ruling on cost recovery for environmental cleanup
with respect to former gas manufacturing sites. Under the ruling, the Company
may recover annual cleanup costs, excluding carrying costs, over a seven year
period through the Cost of Gas Adjustment Clause ("CGAC"). This ruling also
provides for the sharing of any proceeds received from insurance carriers
equally between the Company and its ratepayers, and establishes maximum
amounts that can be recovered from customers in any one year.
During the period ended December 31, 1995, the Company continued the
analysis and field review of two parcels of real estate formerly used for gas
manufacturing operations, which had been found to contain coal tar deposits
and other substances associated with by-products of the gas manufacturing
process. The review and assessment process began in 1985 with respect to the
first site which is owned by the Company, and in 1989 with respect to the
second site, which was formerly owned by the Company. With the review and
approval of the Massachusetts Department of Environmental Protection ("MDEP"),
at the first site, the investigative work is near completion and remedial
alternatives are being examined. At the second site, investigative activities
are continuing. It is difficult to predict the potential financial impact of
the sites until first, the nature and risk is fully characterized and second,
the remedial strategies and related technologies are determined. The general
philosophy of the Company is one of source removal and/or reduction coupled
with risk minimization. Assuming successful implementation, it is anticipated
that through 2010 the level of expenditures for the site will range from
$2,894 to $8,777. The anticipated level of expenditures has remained the same
from prior year estimates resulting from the Company's analysis and review of
the sites and the commencement of clean-up activities at the first site. The
Company has recorded the most likely cost of $2,894 in accordance with SFAS
No. 5. Ultimate expenditures cannot be determined until a remedial action
plan can be developed and approved by the MDEP. The Company's unamortized
costs at December 31, 1995 were $1,151 and should be recovered using the
formula discussed above.
TRANSPORTATION PIPELINE:
Claims against the Company have been asserted by a general contractor
and certain subcontractors involved in the construction of a transportation
pipeline for which the Company served as developer. An agreement to resolve
all issues has been reached, and has been submitted to the Bankruptcy Court.
The Company fully expects the Court to approve the settlement, and believes
that the outcome will not have a material adverse impact on the overall
financial condition or results of operations of the Company.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
- -------------------------------------------------------------------------------
Results of Operations - Second Quarter Ended December 31, 1995 versus Second
Quarter Ended December 31, 1994
- -------------------------------------------------------------------------------
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). Berkshire Gas Company considers Operating Margin to be a more pertinent
measure of operating results than Operating Revenues.
Operating Margin increased $943,000 or 16.5% from the three months ended
December 31, 1994. Operating Margin is primarily affected by the change in
the level of firm gas sold and transported. The Company is required to
recover or return to the customer through the Cost of Gas Adjustment Clause
("CGAC") any changes in the cost of natural gas. Interruptible gas sold and
transported has no affect on Operating Margin since those margins are flowed
back to the firm customer. The increase from 1994 is primarily due to higher
volumes of firm gas sold due to colder than normal weather, and to a lesser
extent, an increase in the number of customers.
1995 1994
---- ----
3 Month Firm MCF Sold & Transported 1,662,276 1,436,772
3 Month Operating Margin $6,654,000 $5,711,000
3 Month Average Operating Margin
Per Firm MCF $ 4.00 $ 3.97
Other Operating Expenses increased $51,000 or 1.7% from the three months
ended December 31, 1994. The increase is due primarily to an increase in
customer accounts expense of $156,000 due to bad debt expense, higher
marketing expenses of $65,000 for customer incentives and conservation
programs, partially offset by reduction in Administrative and General costs of
$144,000 due to cost containment measures, lower legal expenses, lower
regulatory commission expenses and lower employee benefits costs due to higher
amounts charged to capital, and lower Transmissions and Distribution costs of
$17,000 due to reduction in personnel.
Depreciation Expense increased $70,000 due to an increase in the amount
of depreciable assets.
Other Income decreased $37,000 from the quarter ended December 31, 1994.
The decrease was primarily due to lower interest income from the over/under
collection of gas costs from customers through its "CGAC" of $93,000,
decreased jobbing revenues of $37,000 due to lower levels of service activity
and a decrease in rental revenues of $20,000. Partially offsetting these was
an increase in propane revenues of $116,000 due to colder than normal weather,
and to a lesser extent, an increased customer base.
Income Taxes increased $331,000 due to changes in net earnings as
discussed above.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
- -------------------------------------------------------------------------------
Results of Operations - Six Months Ended December 31, 1995 versus Six Months
Ended December 31, 1994
- -------------------------------------------------------------------------------
Operating Margin increased $927,000 or 11.4% as compared with the six
months ended December 31, 1994. During the period November 1 - April 30, the
Company bills its' customers at a winter rate structure that provides greater
operating margins than the summer rate structure. The increase over 1994
resulted from colder weather during November and December causing higher
volumes of firm gas sold at winter rates.
1995 1994
---- ----
6 Month Firm MCF Sold & Transported 2,363,045 2,188,640
6 Month Operating Margin $9,088,000 $8,161,000
6 Month Average Operating Margin
Per Firm MCF $ 3.85 $ 3.73
Other Operating Expenses decreased $279,000 or 5.0% from the six months
ended December 31, 1994. The decrease is primarily due to lower Transmission
and Distribution expense of $178,000 due to personnel reduction and cost
containment measures, reduced Administrative and General costs of $225,000 due
to a reduction in regulatory costs, and reduced legal and consulting expenses,
partially offset by an increase in bad debt expense of $203,000.
Depreciation expense increased $95,000 or 7.8% due to an increase in the
level of depreciable assets.
Other Income decreased $69,000 or 8.1% from 1994 due to the same
explanations discussed in the three month analysis above.
Income Taxes increased $472,000 due to changes in net earnings as
discussed above.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
- -------------------------------------------------------------------------------
Results of Operations - Twelve Months Ended December 31, 1995 versus Twelve
Months Ended December 31, 1994
- -------------------------------------------------------------------------------
Earnings available for Common Stock were $2,510,000 for the twelve
months ended December 31, 1995 as compared to $2,605,000 for 1994. The
decrease is due primarily to warmer weather during the third quarter of fiscal
1995, furthermore, 1994 results included proceeds from an insurance settlement
which increased earnings $403,000.
Operating Margin decreased $907,000 or 3.6% from the twelve months ended
December 31, 1994. 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 decrease from 1994 is primarily due
to lower volumes of firm gas sold due to 3.7% warmer than normal temperatures
for the twelve month period.
1995 1994
---- ----
12 Month Firm MCF Sold & Transported 6,122,496 6,338,020
12 Month Operating Margin $24,042,000 $24,949,000
12 Month Average Operating Margin
Per Firm MCF $ 3.93 $ 3.94
Other Operating Expenses decreased $1,654,000 or 12.8% from the twelve
months ended December 31, 1994 due to the Company's cost containment programs.
The decrease reflects lower Administrative and General costs of $887,000 due
to lower insurance, regulatory costs, legal and association dues;decreased
Customer Accounts expense of $395,000 due to lower levels of uncollectible
accounts', reduced Transmission and Distribution of $340,000 due to reduced
payroll and lower system maintenance costs and lower professional fees
associated with restructuring supply contracts.
Depreciation expense increased $251,000 due to an increase in the amount
of depreciable assets.
Other Income decrease $849,000 from 1994. The decrease was due to an
insurance settlement that was included in 1994 income in the amount of
$403,000 (net of taxes and amounts previously recorded). Interest Income was
$279,000 less resulting from the overcollection of prior period gas costs
through the CGAC. Jobbing revenues were $87,000 less due to lower levels of
service activity, partially offset by an increase in propane revenue of
$72,000 due to colder weather during the second quarter of fiscal 1996, and a
larger customer base.
Income Taxes decreased $203,000 from 1994 due to lower earnings.
Dividends declared on Common Stock increased $299,000 due to additional
shares outstanding. The Company sold 295,000 shares of Common Stock during
the second quarter of fiscal 1995.
Liquidity and Capital Resources - December 31, 1995
The Company added approximately $3,970,000 to Plant assets during the
six months ended December 31, 1995. These construction expenditures primarily
represent investments in new and replacement mains and services.
The capital structure of the Company at December 31, 1995 was 40.8%
Common Equity, 12.7% Preferred Stock and 46.5% 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 incentives, the Company called for
redemption of those series of debt that presently do not have high premium
calls, First Mortgage Bonds, Series K, 7.875% at $520,000 and First Mortgage
Bonds, Series M, 9.375% at $640,000 and the 9 1/8% Debentures at $5,743,000
during the third quarter of fiscal 1996.
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 MDPU.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------- -----------------
In relation to the "Transportation Pipeline" footnote to this
financial statement, the Company and the general contractor, along
with the general contractor's bonding company, has reached an
agreement to resolve all issues. That settlement has been submitted
to the Bankruptcy Court, where the general contractor's affairs are
being resolved. The Company fully expects the Court to approve the
settlement, which will not have a financial impact on the Company.
During the reporting period the Company, along with some current and
former employees, were named in an harassment suit. Although the
Company cannot predict the ultimate outcome of the claim, which the
Company believes is without merit, it intends to contest the claim
vigorously and believes that the outcome will not have a material
adverse impact on the overall financial position or results of
operations.
Item 2. Changes in Securities
- -------- ---------------------
Not Applicable
Item 3. Defaults Upon Senior Securities
- -------- -------------------------------
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
- -------- ---------------------------------------------------
On November 14, 1995, the Annual Meeting of the shareholders of the
Berkshire Gas Company was held at the Berkshire Hilton Inn,
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
- -------- -----------------
Not Applicable
Item 6. Exhibits and Reports on Form 8 - K
- -------- ----------------------------------
(a) List of Exhibits
27 - Financial Data Schedule
The balance sheet as of December 31, 1995, the related statements of
income and retained earnings for the six month periods ended December 31, 1995
and 1994, and the statements of cash flows for the six month periods ended
December 31, 1995 and 1994 have been reviewed, prior to filing, by the
Registrants 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 December 31, 1995, the related statements of income and retained
earnings for the three month, six month and twelve month periods ended
December 31, 1995 and 1994, and the statements of cash flows for the six month
periods ended December 31, 1995 and 1994. These financial statements are the
responsibility of the Company's management.
We conducted our review 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 as a whole. Accordingly, we do not express such an opinion.
Based on our review, 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, 1995,
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
25, 1995, 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, 1995 is fairly stated, in all material respects, in relation to
the balance sheet from which it has been derived.
Deloitte & Touche LLP
February 9, 1996
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: February 13, 1996