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, 1996 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 December 31, 1996, the Registrant had issued and outstanding 2,177,377 shares
of Common Stock, par value $2.50.
THE BERKSHIRE GAS COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS - Unaudited
(In Thousands)
Three Months Three Months
Ended 12/31/96 Ended 12/31/95
-------------- --------------
Operating Revenues $ 12,109 $ 11,952
Cost of Gas Sold 5,650 5,298
-------------------------
Operating Margin 6,459 6,654
-------------------------
Other Operating Expenses 2,905 2,975
Depreciation 1,003 982
-------------------------
Total 3,908 3,957
-------------------------
Utility Operating Income 2,551 2,697
Other Income - Net 747 466
-------------------------
Operating and Other Income 3,298 3,163
Interest Expense 1,034 912
Other Taxes 438 402
-------------------------
Pre-Tax Income 1,826 1,849
Income Taxes 702 711
-------------------------
NET INCOME 1,124 1,138
Retained Earnings at Beginning of Period 6,396 5,389
-------------------------
Total 7,520 6,527
-------------------------
Dividends Declared:
Preferred Stock 88 173
Common Stock 609 584
-------------------------
Total Dividends 697 757
-------------------------
Retained Earnings at End of Period $ 6,823 $ 5,770
=========================
Earnings Available for Common Stock $ 1,036 $ 965
-------------------------
Average Shares of Common Stock Outstanding 2,177.4 2,125.0
-------------------------
Earnings Per Share of Common Stock $ 0.48 $ 0.45
=========================
See Independent Accountants' Review Report and Notes to Financial Statements.
THE BERKSHIRE GAS COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS - Unaudited
(In Thousands)
Six Months Six Months
Ended 12/31/96 Ended 12/31/95
-------------- --------------
Operating Revenues $ 16,226 $ 16,105
Cost of Gas Sold 7,282 7,017
-------------------------
Operating Margin 8,944 9,088
-------------------------
Other Operating Expenses 5,635 5,257
Depreciation 1,339 1,317
-------------------------
Total 6,974 6,574
-------------------------
Utility Operating Income 1,970 2,514
Other Income - Net 1,163 782
-------------------------
Operating and Other Income 3,133 3,296
Interest Expense 1,824 1,779
Other Taxes 626 593
-------------------------
Pre-Tax Income 683 924
Income Taxes 267 360
-------------------------
NET INCOME 416 564
Retained Earnings at Beginning of Period 7,883 6,718
-------------------------
Total 8,299 7,282
-------------------------
Dividends Declared:
Preferred Stock 261 346
Common Stock 1,215 1,166
-------------------------
Total Dividends 1,476 1,512
-------------------------
Retained Earnings at End of Period $ 6,823 $ 5,770
=========================
Earnings Available for Common Stock $ 155 $ 218
-------------------------
Average Shares of Common Stock Outstanding 2,169.0 2,119.0
-------------------------
Earnings Per Share of Common Stock $ 0.07 $ 0.10
=========================
See Independent Accountants' Review Report and Notes to Financial Statements.
THE BERKSHIRE GAS COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS - Unaudited
(In Thousands)
Twelve Months Twelve Months
Ended 12/31/96 Ended 12/31/95
-------------- --------------
Operating Revenues $ 46,170 $ 47,121
Cost of Gas Sold 20,480 23,079
-------------------------
Operating Margin 25,690 24,042
-------------------------
Other Operating Expenses 11,860 11,310
Depreciation 3,868 3,719
-------------------------
Total 15,728 15,029
-------------------------
Utility Operating Income 9,962 9,013
Other Income - Net 1,916 1,447
-------------------------
Operating and Other Income 11,878 10,460
Interest Expense 3,516 3,355
Other Taxes 1,748 1,905
-------------------------
Pre-Tax Income 6,614 5,200
Income Taxes 2,548 1,997
-------------------------
NET INCOME 4,066 3,203
Retained Earnings at Beginning of Period 5,770 5,580
-------------------------
Total 9,836 8,783
-------------------------
Dividends Declared:
Preferred Stock 607 693
Common Stock 2,406 2,320
-------------------------
Total Dividends 3,013 3,013
-------------------------
Retained Earnings at End of Period $ 6,823 $ 5,770
=========================
Earnings Available for Common Stock $ 3,459 $ 2,510
-------------------------
Average Shares of Common Stock Outstanding 2,153.9 2,105.5
-------------------------
Earnings Per Share of Common Stock $ 1.61 $ 1.19
=========================
See Independent Accountants' Review Report and Notes to Financial Statements.
THE BERKSHIRE GAS COMPANY
BALANCE SHEETS
(In Thousands)
December 31, June 30,
1996 1996
(Unaudited) (Audited)
------------ ---------
ASSETS:
Utility Plant:
Utility Plant - at original cost $ 99,296 $ 96,571
Less: Accumulated Depreciation 26,207 25,356
----------------------
Utility Plant - Net 73,089 71,215
----------------------
Other Property:
Other Property - at original cost 11,621 11,229
Less: Accumulated Depreciation 5,618 5,280
----------------------
Other Property - Net 6,003 5,949
----------------------
Current Assets:
Cash 402 196
Accounts Receivable
Utility Service (less allowance: Dec. 1996-$569;
June 1996-$720) 7,036 5,781
Merchandise & Other (less allowance: Dec. 1996-$118;
June 1996-$96) 1,153 685
Other Receivables 173 347
Inventories (at the lower of average cost or market):
Natural Gas 2,806 1,330
Liquefied Petroleum 454 248
Materials and Supplies 1,481 1,492
Prepayments and Other 586 307
Prepaid and Current Deferred Taxes 1,934 249
Recoverable(Refundable) Gas Costs 3,784 (831)
----------------------
Total Current Assets 19,809 9,804
----------------------
Deferred Debits:
Unamortized Debt Expense 2,240 729
Capital Stock Expense 454 508
Environmental Cleanup Costs 1,048 973
Other 1,674 1,192
----------------------
Total Deferred Debits 5,416 3,402
----------------------
Recoverable Environmental Cleanup Costs 3,290 3,290
----------------------
TOTAL ASSETS $ 107,607 $ 93,660
======================
See Independent Accountants' Review Report and Notes to Financial Statements.
THE BERKSHIRE GAS COMPANY
BALANCE SHEETS
(In Thousands)
December 31, June 30,
1996 1996
(Unaudited) (Audited)
------------ ---------
CAPITALIZATION AND LIABILITIES Common Shareholders'
Equity:
Common Stock $ 5,443 $ 5,382
Premium on Common Stock 16,652 16,330
Retained Earnings 6,823 7,883
----------------------
Total Common Shareholders' Equity 28,918 29,595
----------------------
Redeemable Cumulative Preferred Stock 363 8,406
----------------------
Long-Term Debt 40,000 31,999
----------------------
Current Liabilities:
Notes Payable to Banks 14,965 3,636
Accounts Payable 4,727 3,176
Other Current Liabilities 2,246 2,453
----------------------
Total Current Liabilities 21,938 9,265
----------------------
Other Liabilities 1,391 1,159
----------------------
Unamortized Investment Tax Credit 1,244 1,280
----------------------
Deferred Income Taxes 10,463 8,666
----------------------
Reserve for Recoverable Environmental Cleanup Costs 3,290 3,290
----------------------
TOTAL CAPITALIZATION AND LIABILITIES $ 107,607 $ 93,660
======================
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 12/31/96 Ended 12/31/95
-------------- --------------
Cash Flows from Operating Activities:
Net Income $ 416 $ 564
Adjustments to Reconcile Net Income to Net Cash Used
in Operating Activities:
Depreciation and Amortization 1,817 1,780
Provision for Losses on Accounts Receivable 351 448
Refundable Gas Costs (4,615) (2,593)
Deferred Income Taxes 1,797 1,016
Changes in Assets and Liabilities Which Provided
(Used) Cash:
Accounts Receivable (2,074) (2,235)
Other Receivables 174 130
Inventories (1,671) 78
Accounts Payable 1,551 863
Prepaid and Current Deferred Taxes (1,685) (971)
Other (983) (1,019)
--------------------------
Total Adjustments (5,338) (2,503)
--------------------------
Net Cash Used in Operating Activities (4,922) (1,939)
--------------------------
Cash Flows from Investing Activities:
Construction Expenditures (3,705) (3,970)
--------------------------
Cash Flows from Financing Activities:
Dividends Paid (1,477) (1,512)
Proceeds from Issuance of Long-Term Debt 16,000 0
Proceeds from Note Payable Borrowings 3,330 7,015
Redemption of Preferred Stock (9,360) 0
Proceeds from Other Stock Transactions 340 278
--------------------------
Net Cash Provided by Financing Activities 8,833 5,781
--------------------------
Net Increase (Decrease) in Cash 206 (128)
Cash at Beginning of Period 196 492
--------------------------
Cash at End of Period $ 402 $ 364
==========================
See Independent Accountants' Review Report and Notes to Financial Statements.
The Berkshire Gas Company
Notes to Financial Statements
December 31,1996
- -------------------------------------------------------------------------------
(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, 1996.
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 costs at December 31, 1996 were $1,048 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 - Second Quarter Ended December 31, 1996
versus Second Quarter Ended December 31, 1995
- --------------------------------------------------------------------------------
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 firm customers and
therefore are not included in income. Accordingly, the discussion below pertains
to Operating Margin.
Operating Margin decreased $195,000 or 2.9% from the three months ended
December 31, 1995. Operating Margin is primarily affected by the change in the
level of firm gas sold and transported. The decrease from 1995 is primarily due
to lower volumes of firm residential and commercial gas sold resulting from
warmer than normal weather, partially offset by higher transportation revenues
and an increase in the number of customers.
1996 1995
----------- ------------
3 Month Firm MCF Sold & Transported 1,651,000 1,662,000
3 Month Operating Margin $ 6,459,000 $ 6,654,000
3 Month Average Operating Margin Per Firm MCF $ 3.91 $ 4.00
Other Operating Expenses decreased $70,000 or 2.4% from the three months
ended December 31, 1996. The decrease is primarily due to lower Administrative
and General Costs reflecting lower costs of employee benefits and a decrease in
customer accounts expense due to reduced bad debt expense.
Depreciation Expense increased $21,000 due to an increase in the amount of
depreciable assets.
Other Income increased $281,000 or 60.3% from 1995. The increase was
primarily due to higher interest income from the over/under collection of gas
costs from customers through the CGAC, increase in propane net revenues due to
greater margins, and to a lesser extent, an increased customer base. Higher
jobbing revenues was due to higher levels of service activity.
Interest Expense increased $122,000 due to higher levels of borrowings
caused by increased gas costs and to a debt restructuring which replaced
$8,000,000 of the 8.4% Preferred Stock with a 7.8% Senior Note.
Dividends on Preferred Stock decreased $85,000 due to the retirement of
the 8.4% Preferred series. Dividends on Common Stock increased $25,000 due to an
increase in the dividend rate of 1/2 cent per share quarterly and an increase in
the number of shares reflecting shareholder participation in the Dividend
Reinvestment Program.
The Allowance for Doubtful Accounts on Utility Service Accounts Receivable
was reduced by $151,000 since June 30, 1996 due to additional accounts being
written off.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------------------
Results of Operations - Six Months Ended December 31, 1996
versus Six Months Ended December 31, 1995
- --------------------------------------------------------------------------------
Operating Margin decreased $144,000 or 1.6% as compared with the six
months ended December 31, 1995. The decrease is due to 6% warmer than normal
weather, partially offset by higher transportation revenues and increased
customer base.
1996 1995
----------- -----------
6 Month Firm MCF Sold & Transported 2,347,000 2,363,000
6 Month Operating Margin $ 8,944,000 $ 9,088,000
6 Month Average Operating Margin Per Firm MCF $ 3.81 $ 3.85
Other Operating Expenses increased $378,000 or 7.2% from the six months
ended December 31, 1995. The increase is due primarily to higher Administrative
and General Expenses of $239,000 due to the implementation of an early
retirement program to lower payroll costs, higher Transmission and Distribution
expense of $112,000 due to increased customer service costs and vehicle leasing
costs, and higher Marketing expenses, partially offset by lower costs of
uncollectible accounts expense.
Depreciation expense increased $22,000 due to an increase in the amount of
depreciable assets.
Other Income increased $381,000 or 48.7%, Interest Expense increased
$45,000 or 2.5%, Dividends on Preferred Stock decreased $85,000, and Dividends
on Common Stock increased $49,000 from the six months ended December 31, 1995
for the same reasons as discussed in the Results of Operations - Second Quarter.
Income Taxes decreased $93,000 or 25.8% due to a decrease in Pre-Tax
Income.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------------------
Results of Operations - Twelve Months Ended December 31, 1996
versus Twelve Months Ended December 31, 1995
- --------------------------------------------------------------------------------
Earnings available for Common Stock were $3,459,000 for the twelve months
ended December 31, 1996 as compared to $2,510,000 for 1995. The increase is due
primarily to a return to colder weather during the 1996 heating season.
Operating Margin increased $1,648,000 or 6.9% from the twelve months ended
December 31, 1995. 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 increase from 1995 is primarily due
to higher volumes of firm gas sold due to 13.0% colder weather for the winter
period of January - March as compared with 1995.
1996 1995
------------ ------------
12 Month Firm MCF Sold & Transported 6,498,000 6,122,000
12 Month Operating Margin $ 25,690,000 $ 24,042,000
12 Month Average Operating Margin Per Firm MCF $ 3.95 $ 3.93
Other Operating Expenses increased $550,000 or 4.9% over the twelve months
ended December 31, 1995. The increase is primarily the result of higher Customer
Accounts expenses of $255,000 due to higher levels of uncollectible accounts and
increased data processing costs, higher Transmission and Distribution expenses
of $256,000 and net increase in all other expenses of $39,000.
Depreciation increased $149,000 over the twelve months ended December 31,
1995, due to an increase in the level of depreciable assets.
Other Income increased $469,000 or 32.4% from 1995. The increase was
primarily due to higher interest on the undercollection of prior period gas
costs through the CGAC, higher Propane revenues due to colder weather, partially
offset by lower Appliance Rental revenues.
Interest expense increased $161,000 due to the increase in long-term debt
used to retire the $8,000,000, 8.4% Preferred Stock series.
Income Taxes increased $551,000 due to higher earnings in 1996.
Dividends on Preferred Stock decreased $86,000 due to the retirement of
the 8.4% Preferred Stock in the fourth quarter of 1996.
Dividends declared on Common Stock increased $86,000 due to additional
shares outstanding through the Company's DRIP and to a lesser extent, an
increase in quarterly dividends to $.28 per share from $.275, effective the
fourth quarter of 1996.
Liquidity and Capital Resources - December 31, 1996
The Company added approximately $3,705,000 to Plant assets during the six
months ended December 31, 1996. These construction expenditures primarily
represent investments in new and replacement mains and services, and the
continued conversion to automated meter reading.
The capital structure of the Company at December 31, 1996 was 41.7% Common
Equity, .5% Preferred Stock and 57.8% 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 called for redemption the First Mortgage Bonds,
Series K, 7.875%, $540,000 and Series M, 9.375%, $720,000 and the 9.125%
Debentures, $6,543,000 during the third quarter of fiscal 1996. 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. As of June 30, 1996, in
accordance with SFAS No. 6, the Company had classified $7,999,000 of Notes
Payable to Banks as Long-Term Debt in anticipation of the Senior Note
transaction.
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.
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
- -------------------------------
During November, 1996, the Company repurchased all 80,000 shares of
the 8.4% Preferred Stock series at $117 per share. The redemptions
were financed through the sale of a $16,000,000, 7.8% Senior Note
due 2021.
Item 3. Defaults Upon Senior Securities
- -----------------------------------------
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
On November 13, 1996, 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
3(i) - Articles of Incorporation including an Amendment to the
Company's Charter dated September 10, 1996, and attached
herewith.
4 - A copy of the Senior Note Agreement dated November 1,
1996, and attached herewith.
27 - Financial Data Schedule
The balance sheet as of December 31, 1996, the related statements of operations
and retained earnings for the three month, six month and twelve month periods
ended December 31, 1996 and 1995, and the statements of cash flows for the six
month periods ended December 31, 1996 and 1995 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 December 31, 1996, the related statements of operations and retained earnings
for the three month, six month and twelve month periods ended December 31, 1996
and 1995, and the statements of cash flows for the six month periods ended
December 31, 1996 and 1995. 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 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 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, 1996,
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 19,
1996, 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, 1996 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
February 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: February 11, 1997