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 March 31, 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 March 31, 1997, the Registrant had issued and outstanding 2,192,887
shares of Common Stock, par value $2.50.
THE BERKSHIRE GAS COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS - Unaudited
(In Thousands Except Per Share Amounts)
Three Months Ended
----------------------
3/31/97 3/31/96
------- -------
Operating Revenues $21,803 $21,059
Cost of Gas Sold 10,667 9,229
----------------------
Operating Margin 11,136 11,830
----------------------
Other Operating Expenses 3,373 3,392
Depreciation 1,901 1,875
----------------------
Total 5,274 5,267
----------------------
Utility Operating Income 5,862 6,563
Other Income - Net 972 635
----------------------
Operating and Other Income 6,834 7,198
Interest Expense 1,118 937
Other Taxes 784 766
----------------------
Pre-Tax Income 4,932 5,495
Income Taxes 1,890 2,108
----------------------
NET INCOME 3,042 3,387
Retained Earnings at Beginning
of Period 6,823 5,770
----------------------
Total 9,865 9,157
----------------------
Dividends Declared:
Preferred Stock 5 173
Common Stock 614 588
----------------------
Total Dividends 619 761
----------------------
Retained Earnings at End of Period $ 9,246 $ 8,396
======================
Earnings Available for Common Stock $ 3,037 $ 3,214
----------------------
Average Shares of Common Stock
Outstanding 2,192.9 2,138.0
----------------------
Earnings Per Share of Common
Stock $1.38 $1.50
======================
See Independent Accountants' Review Report and Notes to Financial
Statements.
THE BERKSHIRE GAS COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS - Unaudited
(In Thousands Except Per Share Amounts)
Nine Months Ended
----------------------
3/31/97 3/31/96
------- -------
Operating Revenues $38,029 $37,164
Cost of Gas Sold 17,949 16,246
----------------------
Operating Margin 20,080 20,918
----------------------
Other Operating Expenses 9,008 8,649
Depreciation 3,240 3,192
----------------------
Total 12,248 11,841
----------------------
Utility Operating Income 7,832 9,077
Other Income - Net 2,135 1,417
----------------------
Operating and Other Income 9,967 10,494
Interest Expense 2,942 2,716
Other Taxes 1,410 1,359
----------------------
Pre-Tax Income 5,615 6,419
Income Taxes 2,157 2,468
----------------------
NET INCOME 3,458 3,951
Retained Earnings at Beginning
of Period 7,883 6,718
----------------------
Total 11,341 10,669
----------------------
Dividends Declared:
Preferred Stock 266 519
Common Stock 1,829 1,754
----------------------
Total Dividends 2,095 2,273
----------------------
Retained Earnings at End of Period $ 9,246 $ 8,396
======================
Earnings Available for Common Stock $ 3,192 $ 3,432
----------------------
Average Shares of Common Stock
Outstanding 2,176.2 2,124.7
----------------------
Earnings Per Share of Common
Stock $1.47 $1.62
======================
See Independent Accountants' Review Report and Notes to Financial
Statements.
THE BERKSHIRE GAS COMPANY
STATEMENTS OF INCOME AND RETAINED EARNINGS - Unaudited
(In Thousands Except Per Share Amounts)
Twelve Months Ended
----------------------
3/31/97 3/31/96
------- -------
Operating Revenues $46,915 $46,564
Cost of Gas Sold 21,918 21,091
----------------------
Operating Margin 24,997 25,473
----------------------
Other Operating Expenses 11,842 11,306
Depreciation 3,894 3,913
----------------------
Total 15,736 15,219
----------------------
Utility Operating Income 9,261 10,254
Other Income - Net 2,253 1,534
----------------------
Operating and Other Income 11,514 11,788
Interest Expense 3,698 3,576
Other Taxes 1,765 1,697
----------------------
Pre-Tax Income 6,051 6,515
Income Taxes 2,331 2,480
----------------------
NET INCOME 3,720 4,035
Retained Earnings at Beginning
of Period 8,397 7,387
----------------------
Total 12,117 11,422
----------------------
Dividends Declared:
Preferred Stock 439 692
Common Stock 2,432 2,333
----------------------
Total Dividends 2,871 3,025
----------------------
Retained Earnings at End of Period $ 9,246 $ 8,397
======================
Earnings Available for Common Stock $ 3,281 $ 3,343
----------------------
Average Shares of Common Stock
Outstanding 2,167.4 2,116.8
----------------------
Earnings Per Share of Common
Stock $1.51 $1.58
======================
See Independent Accountants' Review Report and Notes to Financial
Statements.
THE BERKSHIRE GAS COMPANY
BALANCE SHEETS
(In Thousands)
March 31, June 30,
1997 1996
--------- --------
(Unaudited) (Audited)
ASSETS:
Utility Plant:
Utility Plant - at original cost $100,910 $96,571
Less: Accumulated Depreciation 27,968 25,356
----------------------
Utility Plant - Net 72,942 71,215
----------------------
Other Property:
Other Property - at original cost 11,846 11,229
Less: Accumulated Depreciation 5,785 5,280
----------------------
Other Property - Net 6,061 5,949
----------------------
Current Assets:
Cash 377 196
Accounts Receivable
Utility Service (less allowance):
Mar. 1997-$827; June 1996-$720 10,384 5,781
Merchandise & Other (less
allowance: Mar. 1997 $111;
June 1996-$96) 1,372 685
Other Receivables 120 347
Inventories (at the lower of
average cost or market):
Natural Gas 707 1,330
Liquefied Petroleum 134 248
Materials and Supplies 1,551 1,492
Prepayments and Other 466 307
Recoverable (Refundable)
Gas Costs 2,014 (831)
----------------------
Total Current Assets 17,125 9,555
----------------------
Deferred Debits:
Unamortized Debt Expense 2,328 729
Capital Stock Expense 330 508
Environmental Cleanup Costs 1,066 973
Other 1,429 1,192
----------------------
Total Deferred Debits 5,153 3,402
----------------------
Recoverable Environmental Cleanup
Costs 3,290 3,290
----------------------
TOTAL ASSETS $104,571 $93,411
======================
See Independent Accountants' Review Report and Notes to Financial
Statements.
THE BERKSHIRE GAS COMPANY
BALANCE SHEETS
(In Thousands)
March 31, June 30,
1997 1996
--------- --------
(Unaudited) (Audited)
CAPITALIZATION AND LIABILITIES
Common Shareholders' Equity:
Common Stock $ 5,482 $ 5,382
Premium on Common Stock 16,859 16,330
Retained Earnings 9,246 7,883
----------------------
Total Common Shareholders'
Equity 31,587 29,595
----------------------
Redeemable Cumulative
Preferred Stock 363 8,406
----------------------
Long-Term Debt 40,000 31,999
----------------------
Current Liabilities:
Notes Payable to Banks 9,180 3,636
Accounts Payable 2,630 3,176
Taxes Accrued 1,186 (249)
Other Current Liabilities 3,922 2,453
----------------------
Total Current Liabilities 16,918 9,016
----------------------
Other Liabilities 1,457 1,159
----------------------
Unamortized Investment Tax Credit 1,227 1,280
----------------------
Deferred Income Taxes 9,729 8,666
----------------------
Reserve for Recoverable Environmental
Cleanup Costs 3,290 3,290
----------------------
TOTAL CAPITALIZATION AND LIABILITIES $104,571 $93,411
======================
See Independent Accountants' Review Report and Notes to Financial
Statements.
THE BERKSHIRE GAS COMPANY
STATEMENTS OF CASH FLOWS - Unaudited
(In Thousands)
Nine Months Ended
----------------------
3/31/97 3/31/96
------- -------
Cash flows from Operating Activities:
Net Income $ 3,458 $ 3,951
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation and Amortization 3,955 3,877
Provision for Losses on Accounts
Receivable 728 967
Recoverable (Refundable) Gas Costs (2,845) (1,711)
Deferred Income Taxes 1,063 640
Changes in Assets and Liabilities Which
Provided (Used) Cash:
Accounts Receivable (6,018) (4,913)
Other Receivables 227 118
Inventories 678 1,608
Accounts Payable (546) 522
Prepaid and Current Deferred Taxes 1,435 1,931
Other 1,107 (2,872)
----------------------
Total Adjustments (216) 167
----------------------
Net Cash Provided by Operating Activities 3,242 4,118
----------------------
Cash Flows from Investing Activities:
Construction Expenditures (5,737) (4,930)
----------------------
Cash Flows from Financing Activities:
Dividends Paid (2,095) (2,273)
Proceeds from Issuance of Long-Term Debt 16,000 (7,883)
(Payments on) Proceeds from Note
Payable Borrowings (2,455) 10,410
Redemption of Preferred Stock (9,360) 0
Proceeds from Other
Stock Transactions 586 480
----------------------
Net Cash Provided by Financing Activities 2,676 734
----------------------
Net Increase (Decrease) in Cash 181 (78)
Cash at Beginning of Period 196 492
----------------------
Cash at End of Period $ 377 $ 414
----------------------
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Year for:
Interest(net of amount capitalized) $ 3,157 $ 3,068
======================
Income Taxes(net of refund) $ 6 $ 231
======================
See Independent Accountants' Review Report and Notes to Financial
Statements.
The Berkshire Gas Company
Notes to Financial Statements
March 31,1997
(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 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, 1996.
RECLASSIFICATION:
The Company has reclassified certain amounts for prior
years to conform with the 1997 presentation.
NEW ACCOUNTING PRONOUNCEMENT:
Statement of Financial Accounting Standards No. 128 ("SFAS
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 March 31,
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.
In accordance with SFAS No. 5, the Company has recorded the
most likely cost of $3,290. The Company's unamortized costs at
March 31, 1997 were $1,066 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 - Third Quarter Ended March 31, 1997
versus Third Quarter Ended March 31, 1996
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 decreased $694,000 or 5.9% from the three
months ended March 31, 1996. Operating Margin is primarily
affected by the change in the level of firm gas sold and
transported. The decrease from 1996 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.
1997 1996
---- ----
3 Month Firm MCF Sold & Transported 2,642,000 2,792,000
3 Month Operating Margin $11,136,000 $11,830,000
3 Month Average Operating Margin
Per Firm MCF $ 4.21 $ 4.24
Other Operating Expenses decreased $19,000 or 0.6% from
the three months ended March 31, 1996. The decrease is due to
overall lower costs in Production, Transmission and
Distribution, Customer Accounts and Marketing. All of these
departments had lower overtime due to the warmer than normal
weather. The decrease in Customer Accounts was due to lower
meter reading expenses, a result of automation.
Depreciation Expense increased $26,000 due to an increase
in the amount of depreciable assets.
Other Income increased $337,000 or 53.1% from 1996. The
increase was primarily due to higher interest income from the
under collection of gas costs from customers through the CGAC,
increase in Propane 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 $181,000 due to higher levels
of borrowings caused by increased gas costs.
Dividends on Preferred Stock decreased $168,000 due to the
retirement of the 8.4% Preferred Stock series. Dividends on
Common Stock increased $26,000 due to an increase in the number
of shares reflecting shareholder participation in the Dividend
Reinvestment Program ("DRIP").
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Nine Months Ended March 31, 1997 versus
Nine Months Ended March 31, 1996
Operating Margin decreased $838,000 or 4.0% as compared
with the nine months ended March 31, 1996. The decrease is due
to 7% warmer than normal weather, partially offset by higher
transportation revenues and increased customer base.
1997 1996
---- ----
9 Month Firm MCF Sold & Transported 4,989,000 5,155,000
9 Month Operating Margin $20,080,000 $20,918,000
9 Month Average Operating Margin
Per Firm MCF $ 4.02 $ 4.06
Other Operating Expenses increased $359,000 or 4.2% from
the nine months ended March 31, 1996. The increase is due
primarily to higher Administrative and General Expenses of
$346,000 due to the implementation of an early retirement
program to lower payroll costs, higher professional fees
reflecting costs related to the Company developing a strategic
plan as the gas industry continues deregulation, increased
workers compensation insurance, higher Transmission and
Distribution expense of $63,000 due to increased customer
service costs and vehicle leasing costs, and higher Marketing
expenses due to increased advertising and customer incentive
programs, partially offset by lower costs of uncollectible
accounts expense and meter reading expense.
Depreciation expense increased $48,000 due to an increase
in the level of depreciable assets.
Other Income increased $718,000 or 50.7% from 1996. The
increase was primarily due to higher interest income from the
under collection of gas costs from customers through the CGAC,
increase in Propane 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 $226,000 or 8.3% due to higher
levels of borrowings because of increased gas costs, and to
debt restructuring which replaced $8,000,000 of the 8.4%
Preferred Stock with a 7.8% Senior Note.
Income Taxes decreased $311,000 or 12.6% due to a decrease
in Pre-Tax Income.
Dividends on Preferred Stock decreased $253,000 due to the
retirement of the 8.4% Preferred Stock. Dividends on Common
Stock increased $75,000 due to continued shareholder
participation in the DRIP.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Twelve Months Ended March 31, 1997
versus Twelve Months Ended March 31, 1996
Earnings available for Common Stock were $3,281,000 as
compared to $3,343,000 for 1996. The $62,000 or 1.8% decrease
is primarily due to 8.8% warmer than normal temperatures for
the twelve months ended March 31, 1997.
Operating Margin decreased $476,000 or 1.9% from 1996
primarily due to lower volumes of firm gas sold due to warmer
weather. Operating Margin is primarily affected by the change
in the level of firm gas sold and transported and is weather
affected as a majority of the firm customers use natural gas
for heating.
1997 1996
---- ----
12 Month Firm MCF Sold & Transported 6,348,000 6,444,000
12 Month Operating Margin $24,997,000 $25,473,000
12 Month Average Operating Margin
Per Firm MCF $ 3.94 $ 3.95
Other Operating Expenses increased $536,000 or 4.7%.
The increase reflects higher Administrative and General costs
of $385,000 due to higher professional fees reflecting costs
related to the Company developing a strategic plan as the gas
industry continues deregulation, the implementation of an early
retirement program, higher workers compensation insurance
costs, and increased Transmission and Distribution of $130,000.
Other Income increased $719,000 or 46.9% from 1996. The
increase was primarily due to higher interest on the under
collection of prior period gas costs through the CGAC, higher
Propane revenue due to increased gross margin, and an increase
in jobbing revenues of $111,000 due to increased activity.
Interest Expense increased $122,000 or 3.4% due to the
increase in long-term debt used to retire the $8,000,000, 8.4%
Preferred Stock series.
Dividends declared on Preferred Stock decreased $253,000
due to the retirement of the 8.4% Preferred Stock in the second
quarter of fiscal 1997.
Common Stock dividends increased $99,000 due to additional
shares outstanding through the Company's DRIP over the twelve
month period.
Liquidity and Capital Resources - March 31, 1997
The capital structure of the Company at March 31, 1997 was
43.9% Common Equity, 0.5% Preferred Stock and 55.6% Long-Term
Debt.
Cash flows from operating activities have decreased over
the nine month period ended March 31, 1997, primarily due to a
decrease in net income, an increase in Recoverable Gas Costs
and Accounts Receivable related to higher natural gas costs,
and a lower turnover of gas inventory due to warmer than normal
weather. The Company financed these costs through short-term
bank borrowings.
The Company added approximately $5,737,000 to Plant assets
during the nine months ended March 31, 1997. These
construction expenditures primarily represent investments in
new and replacement mains and services, and the continued
conversion to automated meter reading.
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 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.
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 MDPU.
NEW ACCOUNTING PRONOUNCEMENT:
Statement of Financial Accounting Standards No. 128 ("SFAS
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 March 31,
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
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Other Information
Not Applicable
Item 5. Exhibits and Reports on Form 8 - K
(a) List of Exhibits
27 - Financial Data Schedule
The balance sheet as of March 31, 1997, the related statements of income and
retained earnings for the three month, nine month and twelve month periods
ended March 31, 1997 and 1996, and the statements of cash flows for the nine
month periods ended March 31, 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 March 31, 1997, the related
statements of income and retained earnings for the three month,
nine month and twelve month periods ended March 31, 1997 and
1996, and the statements of cash flows for the nine month
periods ended March 31, 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 making inquiries of persons responsible for
financial and accounting matters. It is substantially less in
scope that 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, 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
May 12, 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: May 13, 1997