-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RHTCYK7KjG3dCIx+hlyYFB0dsJ+o/PZ92KhyGanBG5iRmA7On1soqfFIGS8ztYbZ cygNzWW0/kKLWbZqkTjugA== 0000910647-97-000211.txt : 19970929 0000910647-97-000211.hdr.sgml : 19970929 ACCESSION NUMBER: 0000910647-97-000211 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970926 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERKSHIRE GAS CO /MA/ CENTRAL INDEX KEY: 0000317406 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 041731220 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-01857 FILM NUMBER: 97686375 BUSINESS ADDRESS: STREET 1: 115 CHESHIRE RD CITY: PITTSFIELD STATE: MA ZIP: 01201-1388 BUSINESS PHONE: 4134421511 10-K 1 BODY OF 10-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee required) For the fiscal year ended June 30, 1997 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No fee required) For the transition period from ________________ to _______________ Commission File Number 0-1857-3 ---------- The Berkshire Gas Company - ------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Massachusetts 04-1731220 - ------------------------------------- ------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 115 Cheshire Road, Pittsfield, MA 01201-1879 - ---------------------------------------- ---------------------------------- (Address of Principal Executive Offices) (Zip Code) (413) 442-1511 - ------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- --------------------- ___________________ _____________________ Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $2.50 Per Share - ------------------------------------------------------------------------------- (Title of Class) 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of shares of Common Stock, $2.50 par value of the Registrant held by non-affiliates as of July 31, 1997 was $33,005,685. Total shares of common stock of the Registrant outstanding as of July 31, 1997 were 2,221,606. Documents Incorporated by Reference: 1. The Berkshire Gas Company's Annual Report to Shareholders for the fiscal year ended June 30, 1997 (Items 5, 6, 7, and 8 of Part II). 2. The Berkshire Gas Company's definitive Proxy Statement, to be filed on October 3, 1997, pursuant to Regulation 14A under the Securities and Exchange Act of 1934 (Items 10, 11, 12 and 13 of Part III). FORM 10-K THE BERKSHIRE GAS COMPANY PART I ------ Table of Contents
Item Page Number Number ------ ------ Business 1 3 Properties 2 12 Legal Proceedings 3 12 Submission of Matters to a Vote of Security Holders 4 12 Additional Items - 13 (Executive Officers of the Registrant) PART II ------- Market For Registrant's Common Equity and Related Stockholder Matters 5 14 Selected Financial Data 6 14 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 14 Financial Statements and Supplementary Data 8 14 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 9 14 PART III -------- Directors and Executive Officers of the Registrant 10 15 Executive Compensation 11 15 Security Ownership of Certain Beneficial Owners and Management 12 15 Certain Relationships and Related Transactions 13 15 PART IV ------- Exhibits, Independent Auditors' Report on Supplemental Schedules, Financial Statement Schedules, and Reports on Form 8-K 14 16
FORM 10-K THE BERKSHIRE GAS COMPANY PART I ------ Item I. Business - ---------------- General The Berkshire Gas Company ("the Company") was incorporated in the Commonwealth of Massachusetts in 1853 and is a publicly-held utility engaged in the distribution and sale of natural gas for residential, commercial and industrial use. The Company also has an appliance rental division that sells and leases gas burning equipment. Through its Berkshire Propane division, the Company markets liquefied petroleum gas. Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 This Annual 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. Territory Served The Company's utility service territory includes 19 communities in the western portion of the Commonwealth of Massachusetts, including the cities of Pittsfield and North Adams, the towns of Adams, Amherst, Great Barrington, Greenfield and Williamstown, and twelve smaller municipalities. The population of the area served is estimated at 190,000 and is primarily residential in character, but the territory also includes industrial, agricultural, educational, cultural and resort facilities. The Company also markets propane throughout the western portion of Massachusetts, eastern New York and southern Vermont. The Company currently serves over 32,000 natural gas and 5,000 propane customers. Customers The largest group of natural gas customers is the residential class. During the fiscal years ended June 30, 1997, 1996 and 1995, residential consumers accounted for approximately 55%, 54% and 53%; commercial and industrial consumers accounted for 40%, 42% and 44%; and transportation consumers accounted for approximately 5%, 4% and 3% of operating revenues respectively. Although transportation consumers account for a small percentage of revenues, they account for approximately 37%, 19%, and 34% of pre-tax income for fiscal years 1997, 1996 and 1995, respectively. Net income could be impacted by the loss of one or more significant transportation consumers, who are all under contracts. The number of natural gas customers increased 1.2% in 1997 over 1996, from 32,129 to 32,526, both in the residential heating class as well as commercial and industrial classes. Total Mcf sold and transported increased from 8,075,347 Mcf in 1996 to 8,079,811 in 1997, due to an increase in load from the commercial and industrial segment. Total natural gas customers by classification at June 30 in each of the previous five years were:
1997 1996 1995 1994 1993 ------ ------ ------ ------ ------ Residential 28,321 28,073 27,894 27,524 27,199 Commercial & Industrial 4,205 4,056 4,031 3,921 3,854
Competition Implementation of the Federal Energy Regulatory Commission's ("FERC") Order 636 has increased the potential for competition in gas procurement, supply and sale. FERC's actions have sought to encourage competition and natural gas market efficiency through deregulation and "unbundling of services" at the interstate pipeline level. This unbundling has changed the historical relationships, whereby producers sold to pipelines, pipelines sold to local distribution companies ("LDCs") such as Berkshire Gas and LDCs sold to end-users. Now LDCs or end-users may utilize pipeline services primarily for the transportation of gas purchased from third parties. While historically the Company has been subject to competition from electricity, oil, propane, coal and other fuels for heating, water heating, cooking, air conditioning and industrial applications, the regulatory changes have created the competition among existing and new suppliers or marketers of natural gas. As a result, the Company is subject to increasing competition from others to sell natural gas or provide brokerage service to end-users to whom the Company might otherwise have made sales or provided brokerage service. Large volume end-users are initially most likely to be the primary target for third parties seeking to make such sales. When third parties do, in fact, provide a substantial volume of sales or brokerage service to end-users located within the Company's service territory, the Company will provide the local transportation across its distribution system for such third party sales. At the current time, however, limited third party sales have occurred in the Company's service territory. Similar opportunities exist for the Company to market gas to new or existing customers, whether or not they are located within the Company's service territory. Rates and Regulations The Company is subject to the regulatory authority of the Massachusetts Department of Public Utilities ("MDPU") with respect to various matters, including rates, financing, certain gas supply contracts, demand-side management programs and planning and safety matters. The principal rate classifications are residential, commercial and industrial. The Company also offers five Quasi-Firm transportation rates for large end-users as well as interruptible sales and transportation service. The Company's rate structure is based on the cost of providing service to each customer class. Current rates became effective January 1, 1994 through a recalculation of a prior rate increase granted by the MDPU in March 1993. On May 15, 1995, the Company filed with the MDPU a change in its Transportation Terms and Conditions to coordinate its balancing and penalty practices with pipeline standards. At the same time, the Company requested revisions to its Interruptible Transportation Rate and its five Quasi-Firm Transportation Rates to be consistent with these new Terms and Conditions. On June 28, 1996, the MDPU approved the Company's revised Interruptible Transportation Rate and on November 1, 1996, the proposed Terms and Conditions and Quasi-Firm Transportation Rates became effective. The Company's residential rates are designed separately for heating and non-heating purposes. Additionally, for the Company, like most other utility companies in Massachusetts, subsidized rates are available to residential customers who qualify for certain government entitlements. These customers receive a 20% discount from the standard residential rates. The commercial and industrial rates are based on load factor; that is, the cost is based on how much gas is consumed and when it is consumed. Those customers who use more than 30% of their annual usage in the summer are considered high load factor; those using less than 30% of their annual usage during the summer season are considered low load factor. There are seven classifications of load factor rates. The current firm rate structure is based on seasonal rates, whereby base rates are higher in the winter (November through April) and lower in the summer (May through October). In addition to the base rates, the Company has a seasonal Cost of Gas Adjustment Clause ("CGAC") rate schedule, pursuant to which the Company recovers (primarily variable) gas costs. Charges under the CGAC rate schedule are added to the base rates and are designed to recover higher gas costs in the winter and refund lower gas costs in the summer. The Company also provides several non-firm and special rates to meet the varying needs of large customers. These rates include Interruptible Sales Service whereby a customer is capable of either ceasing operations or switching to an alternate fuel. Five Quasi-Firm Transportation Rates are available for large end-users and provide firm transportation and optional standby service for less than twelve months. Additionally, a Load Management Rate is available for nonresidential customers who agree to reduce demand to a predetermined minimum level on peak days. Finally, the Company makes sales to primarily larger customers under special contracts that reflect charges, levels, and terms of service different from those under generally available tariffs. Often arrangements of this nature are made to meet competitive challenges. Such contracts must be approved by the MDPU on an individual case basis. The Company is also subject to standards prescribed by the Secretary of Transportation under the Natural Gas Pipeline Safety Act of 1968 with respect to the design, installation, testing, construction and maintenance of pipeline facilities. The enforcement of these standards has been delegated to the MDPU which has taken an active role in such enforcement, including the application of civil penalties and the requirement of remedial programs. The regulation of prices, terms and conditions of interstate pipeline transportation and sales of natural gas is subject to the jurisdiction of FERC. The Company is not under the direct jurisdiction of FERC, but monitors, and periodically participates in, proceedings before FERC which involve the Company's pipeline gas suppliers/transporters, the Company's operations, and other matters pertinent to the Company's business. (See also "Competition".) Environmental Matters 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 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 MDPU issued a generic ruling on cost recovery for environmental cleanup costs with respect to former gas manufacturing sites. Under the ruling, the Company will recover, excluding carrying costs, the prudently incurred annual cleanup costs over a seven-year period through the 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 during any one year. During the year ended June 30, 1997, 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 by the Massachusetts Department of Environmental Protection ("MDEP"), at one site, the investigative activities are continuing, while at the second site, the investigative work is near completion and remedial alternatives are being examined. It is difficult to predict the potential financial impact of required remediation of a site 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 2012, the level of expenditure for the sites will range from $3,290,000 to $12,302,000. The Company has recorded the most likely amount of $3,290,000 in accordance with SFAS No. 5. Ultimate expenditures cannot be determined until a remedial action plan can be developed and approved by MDEP. The Company's unamortized costs at June 30, 1997, (which are not included in the above estimate of future costs), were $819,000 and should be recovered using the formula discussed above. Seasonality The Company's business has a distinct seasonal quality because a large percentage of its sendout serves residential and commercial heating loads. Gas operating revenues reflect the seasonal nature of the business. Such revenues are affected by temperature variations between the heating and non-heating seasons and by seasonal pricing differentials embodied in the Company's effective schedule of rates and charges for gas services. (See also "RATES AND REGULATIONS"). Employee Relations The Company has 153 employees, approximately 54% of whom are represented by the United Steelworkers of America, AFL-CIO-CLC, under a contract which remains in effect until March 31, 2000. Relations with employees are generally satisfactory. Gas Supply In 1992, the FERC issued Order 636 which restructured interstate natural gas pipeline services. Order 636 required that interstate pipeline companies unbundle (i.e., separate) their sales, transportation and storage services and provide all transportation services on a basis that was equal in quality for gas supplies whether purchased from the pipeline or from any gas supplier. During fiscal 1994, the Company completed its conversion of firm supply contracts from its interstate pipeline supplier, Tennessee, to third party suppliers as mandated by Order 636. The Company's purchases of natural gas under contracts lasting more than one year are subject to the approval of the MDPU. The Company's portfolio of firm natural gas contracts consists of Aquila Energy Marketing (2,683 Mcf/day); Boundary Gas (1,050 Mcf/day); Natural Gas Clearinghouse ("NGC") "Cosmic" (2,682 Mcf/day) and NGC "636"(4,920 Mcf/day); and Tenngasco Corporation("TC")(7,599 Mcf/day). The remaining terms of the Company's gas supply contracts range from approximately four years to six years. Under the terms of a fuel purchase agreement executed with Altresco, Inc. on December 11, 1992, the Company is entitled to receive gas peaking service of up to 7,310 Mcf per day during the Winter Period of November 1 through March 31 of each year (not to exceed 307,018 Mcf for each Winter Period) and back-up gas supplies of up to 30,702 Mcf per day in the event of proration or curtailment of firm gas supplies (including propane). In addition, the Company executed two contracts with Distrigas of Massachusetts Corporation ("DOMAC") which entitled the Company to receive up to 5,409 Mcf per day of vaporized Liquified Natural Gas ("LNG"). These contracts are renewable from year to year. The Company estimates that its supply of natural gas and supplemental sources under contract are adequate to meet the anticipated needs of the Company's customers for the foreseeable future. The annual sources of supply are as follows: firm long-haul pipeline natural gas, including storage gas, 8,459,574 Mcf; natural gas peaking service (Altresco), 307,000 Mcf; ("DOMAC") 1,920,995 Mcf; and Liquefied Petroleum Gas, 13,800 Mcf (daily capability). Additional pipeline supplies designated as "best efforts" or "interruptible" are available from time to time, but are subject to daily curtailment at the suppliers'/transporters' discretion. The Company has five Liquefied Petroleum Gas ("LPG") plants and one temporary portable LNG vaporizing unit which are utilized on peak days to supplement the pipeline natural gas supply. By supplementing its natural gas supply with LPG, the Company is able to meet its customers' requirements during peak periods. The Company's pipeline deliveries combined with LPG facilities' storage capacity yield a maximum daily sendout of approximately 54,900 Mcf. Actual maximum daily sendout during the 1996-97 heating season was 44,734 Mcf, which occurred on January 18, 1997, with an average temperature of 1 degree Fahrenheit. During the fiscal year ended June 30, 1997, the Company purchased an aggregate of 5,637,542 Mcf of interstate pipeline natural gas at an average cost of $4.3635 per Mcf. The average cost in each of the three preceding years ended June 30 was: 1996 - $3.7234; 1995 - $3.2820; and 1994 - $3.9725. The composition of gas supply for customer requirements during the fiscal year ended June 30, 1997, was: 99.9% natural gas and .1% LNG and LPG. On December 29, 1994, Tennessee filed with the FERC a general rate increase (Docket RP 95-112) seeking $181 million in additional jurisdictional revenues. After five months' suspension, Tennessee's rate filing was put into effect by the FERC subject to refund. From January through March 1996, the parties held intensive rate settlement negotiations in which various rate and operational tariff issues were discussed. On April 5, 1996, Tennessee filed a Stipulation and Agreement which resolved all outstanding issues in the proceeding. The Stipulation provided for:(a) a cost of service of $689 million;(b) settlement periods consisting of two phases, Phase I covering the period July 1, 1995-October 31, 1996, and Phase II beginning November 1, 1996;(c) the reclassification of $80 million of fixed costs to the commodity component beginning in Phase II; (d) reduced seasonalized fuel rates beginning in Phase II; (e) Market Area Storage billing determinants equal to first day deliverability and 9 MMDth of storage space inputted for system use, (f) a rate case effective date moratorium until November 1, 1998; and (g) credits to various customers on an annual basis for both Phase I and Phase II. On February 28, 1997, the FERC order approving the Stipulation and Agreement became final. On March 28, 1997, the Company received a rate refund from Tennessee of $1,814,455 which included principal amounts for the period July 1, 1995, through February 28, 1997, and interest through March 27, 1997. This refund to the Company was returned to its customers through the CGAC and effectively reduced the cost of gas to the customers. On February 28, 1997, after several years of arduous and difficult negotiations with its customers, Tennessee filed a settlement offer to resolve the recovery of all its restructuring costs. On April 16, 1997, the FERC approved the unopposed settlement offer which disposed of 34 FERC dockets and some 39 appeals of FERC orders pending in the D.C. circuit. The settlement established a cost sharing mechanism between Tennessee and its customers. As a result of the order, Tennessee implemented a reduced Gas Supply Realignment ("GSR") surcharge retroactively for the two-year period of January 1, 1997, through December 31, 1998. On June 30, 1997, the Company received a refund from Tennessee of $323,457 representing excess GSR surcharges from January through March 1997. The refund was returned to Berkshire's customers through the Company's CGAC. The GSR surcharges that remain to be charged to Berkshire by Tennessee through December 1998 will not significantly affect the Company's competitiveness. The GSR surcharges will be absorbed by all of Berkshire's customer classes. Item 2. Properties - ------------------ The Company has approximately 669 miles of distribution mains, the major portion of which are constructed of coated steel, plastic or cast iron. Berkshire owns and operates five auxiliary liquefied petroleum gas plants for supplementing its supply of natural gas. (See "Business - Gas Supply"). The Company has five terminal stations receiving gas from the interstate pipeline. All the principal properties of the Company are owned in fee, subject to the lien of the mortgage securing the Company's First Mortgage Bonds, and are also subject to covenants, restrictions, easements, leases, rights-of-way and other similar minor encumbrances or defects common to properties of comparable size and character; none of which in the opinion of the Company's management materially interferes with the Company's use of its properties in order to conduct its business. The Company's gas mains are primarily located under public highways and streets. Where they are under private property, the Company has obtained easements or rights-of-way from the record holders of title. These easements and rights are deemed by the Company to be adequate for the purposes for which they are being used. Item 3. Legal Proceedings - ------------------------- With reference to the matters discussed in Item I "Environmental Matters", the Company notified its present and former insurance carriers that it has incurred and will incur further costs associated with the previously-referenced coal tar deposits, for which it will seek coverage under applicable insurance policies. No litigation has yet commenced and it is not possible to determine the extent to which recovery of costs will ultimately be obtained from such insurance carriers. The Company is also involved with other legal proceedings incidental to its business. At the present time the Company cannot predict the outcomes of these proceedings and also believes that the outcome will not have a material adverse impact on its overall financial position or results of operations. Item 4. Submission of Matters To A Vote Of Security Holders - ----------------------------------------------------------- None. Additional Items - ---------------- Executive Officers of the Registrant The table set forth below shows the names, titles and ages of all executive officers of the Registrant as of June 30, 1997. There is no family relationship among officers of the Registrant. There is no arrangement between any of the officers and any other person(s) pursuant to which such officer as or is to be elected as an officer.
Served in This Name Title Capacity Since Age - -------------- ----------------------------- -------------- --- S.S. Robinson President and Chief Executive 10-28-87 57 Officer M.J. Marrone Vice President, Treasurer 10-28-87 55 and Chief Financial Officer L.H. Hotman Vice President of Supply, 10-16-91 54 Rates and Planning D.P. Atwater Vice President of Customer 11-14-95 48 Services R.M. Allessio Vice President of Marketing 11-14-95 47 and Distribution
The executive officers are elected annually. Listed below is a brief account of the business of each of the above executive officers during the past five years.
Name Capacity in Which Served During Past Five Years - -------------- ----------------------------------------------------------- S.S. Robinson President and Chief Executive Officer M.J. Marrone Vice President, Treasurer and Chief Financial Officer L.H. Hotman Vice President of Supply, Rates & Planning; Vice President of Supply, Rates & Marketing D.P. Atwater Vice President of Customer Services; Director of Customer Services, Manager of Distribution - Engineering R.M. Allessio Vice President of Marketing and Distribution; Director of Marketing and Distribution; Director of Engineering and Distribution; Chief Engineer
PART II ------- Item 5. Market For Registrant's Common Equity and Related Stockholder Matters - ----------------------------------------------------------------------------- The number of registered common shareholders of record of the Registrant as of the close of business on July 31, 1997, was 1,902. The other information required is contained in The Berkshire Gas Company's Annual Report to Shareholders for the fiscal year ended June 30, 1997, ("Registrant's Annual Report") on page 31, under the heading "Quarterly Financial Information". This information is hereby incorporated by reference in this report. Item 6. Selected Financial Data - ------------------------------- The information required is contained in Registrant's Annual Report on pages 14 - 15, under the heading "10-Year Comparative Summary of Operations and Statistics". This information is hereby incorporated by reference in this report. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - ------------------------------------------------------------------------------- The information required is contained in Registrant's Annual Report on pages 16 - 18, under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations". This information is hereby incorporated by reference in this report. Item 8. Financial Statements and Supplementary Data - --------------------------------------------------- The information required is contained in Registrant's Annual Report on pages 19 - 31, in the financial statements of The Berkshire Gas Company for the years ended June 30, 1997, 1996 and 1995, together with the related notes to financial statements, under the heading "Independent Auditors' Report", and under the heading "Quarterly Financial Information". This information is hereby incorporated by reference in this report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - ----------------------------------------------------------------------- None. PART III -------- Items 10, 11, 12 and 13 - ----------------------- The information required regarding the Executive Officers of the Registrant is included in Part I under "Additional Items". Certain other information called for by Items 10, 11, 12 and 13 has been omitted from this report pursuant to General Instruction G(3), and is incorporated herein by reference from the definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the close of the Company's last fiscal year. PART IV ------- Item 14. Exhibits, Independent Auditors' Report on Supplemental Schedules, Financial Statement Schedules and Reports on Form 8-K - -------------------------------------------------------------------------- (a) 1. Financial Statements ----------------------- The following financial statements and related notes are contained in the Registrant's Annual Report for the fiscal year ended June 30, 1997, and are incorporated herein by reference. Report of Independent Auditors. Statements of Income for the years ended June 30, 1997, 1996 and 1995. Balance Sheets, June 30, 1997, 1996 and 1995. Statements of Shareholders' Equity, June 30, 1997, 1996 and 1995. Statements of Cash Flows for the years ended June 30, 1997, 1996 and 1995. Notes to Financial Statements. Selected Quarterly Financial Data (unaudited) for the years ended June 30, 1997, 1996 and 1995. 2. Independent Auditors' Report on Supplemental Schedules --------------------------------------------------------- FORM 10-K THE BERKSHIRE GAS COMPANY PART IV ------- INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULES To the Shareholders of The Berkshire Gas Company: We have audited the accompanying balance sheets of The Berkshire Gas Company as of June 30, 1997, 1996 and 1995, and for each of the three fiscal years in the period ended June 30, 1997 and have issued our report thereon dated August 15, 1997; such financial statements and report are included in The Berkshire Gas Company's 1997 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedules of The Berkshire Gas Company, listed in item 14. These financial statement schedules are the responsibility of The Berkshire Gas Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statements schedules, when considered in relation to the basic financial statements, taken as a whole, present fairly in all material respects the information set forth therein. /s/ DELOITTE & TOUCHE LLP Deloitte & Touche LLP August 15, 1997 3. Financial Statement Schedules ----------------------------- The information called for by this item appears under the caption "Financial Statement Schedules and Exhibits Filed with Annual Report on Form 10-K" (page 1 hereof). Such information is incorporated by reference herein. 4. Exhibits -------- The information called for by this item appears under the caption "Financial Statement Schedules and Exhibits Filed with Annual Report on Form 10-K" (page 1 hereof). Such information is incorporated by reference herein. (b) Reports on Form 8-K ------------------- None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 26, 1997 By: /s/ SCOTT S. ROBINSON ---------------------------------- Scott S. Robinson, President & CEO Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons in the capacities on the dates indicated.
Signatures Capacity Date - ------------------------------- ---------------------- --------------- /s/ FRANKLIN M. HUNDLEY Director August 26, 1997 Franklin M. Hundley Chairman of the Board /s/ SCOTT S. ROBINSON Principal Executive August 26, 1997 Scott S. Robinson Officer; Director President and Chief Executive Officer /s/ MICHAEL J. MARRONE Principal Financial August 26, 1997 Michael J. Marrone & Accounting Officer Vice President, Treasurer and Chief Financial Officer /s/ GEORGE R. BALDWIN Director August 26, 1997 George R. Baldwin /s/ JOHN W. BOND Director August 26, 1997 John W. Bond /s/ PAUL L. GIOIA Director August 26, 1997 Paul L. Gioia /s/ JAMES R. KEYS Director August 26, 1997 James R. Keys /s/ ROBERT B. TRASK Director August 26, 1997 Robert B. Trask
THE BERKSHIRE GAS COMPANY FINANCIAL STATEMENT SCHEDULES and EXHIBITS Filed With ANNUAL REPORT ON FORM 10-K FORM 10-K EXHIBIT INDEX Certain of the following exhibits are filed herewith or will be filed herewith by amendment. Certain other of the following exhibits have heretofore been filed with the Commission and pursuant to Rule 411 are incorporated herein by reference.
Exhibit Number Description - ------- ------------------------------------------------------------------- 4(a) First Mortgage Indenture and Deed of Trust, dated as of July 1, 1954, between Pittsfield Coal Gas Company (now The Berkshire Gas Company) and Chemical Corn Exchange Bank (now Chemical Bank), Trustee. Filed as Exhibit 4(c) to the Company's Registration Statement on Form S-1, Registration Statement No. 2-19808, and incorporated herein by reference. 4(b) First Supplemental Indenture, dated as of June 1, 1956, between the Company and Chemical Corn Exchange Bank (now Chemical Bank), Trustee. Filed as Exhibit 4(d) to the Company's Registration Statement on Form S-1, Registration Statement No. 2-19808, and incorporated herein by reference. 4(c) Second Supplemental Indenture, dated as of October 1, 1957, between the Company and Chemical Corn Exchange Bank (now Chemical Bank), Trustee. Filed as Exhibit 4(e) to the Company's Registration Statement on Form S-2, Registration Statement No. 2-19808, and incorporated herein by reference. 4(d) Third Supplemental Indenture, dated as of October 1, 1958, between the Company and Chemical Corn Exchange Bank (now Chemical Bank), Trustee. Filed as Exhibit 4(f) to the Company's Registration Statement on Form S-1, Registration Statement No. 2-19808, and incorporated herein by reference. 4(e) Fourth Supplemental Indenture, dated as of August 1, 1960, between the Company and Chemical Bank New York Trust Company (now Chemical Bank), Trustee. Filed as Exhibit 4(e) to the Company's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(f) Fifth Supplemental Indenture, dated as of June 1, 1962, between the Company and Chemical Bank New York Trust Company (now Chemical Bank), Trustee. Filed as Exhibit 4(f) to the Company's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(g) Sixth Supplemental Indenture, dated as of February 1, 1965, between the Company and Chemical Bank New York Trust Company (now Chemical Bank), Trustee. Filed as Exhibit 4(g) to the Company's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(h) Seventh Supplemental Indenture, dated as of October 1, 1965, between the Company and Chemical Bank New York Trust Company (now Chemical Bank), Trustee. Filed as Exhibit 4(h) to the Company's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(i) Eighth Supplemental Indenture, dated as of September 1, 1967, between the Company and Chemical Bank New York Trust Company (now Chemical Bank), Trustee. Filed as Exhibit 4(i) to the Company's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(j) Ninth Supplemental Indenture, dated as of April 1, 1969, between the Company and Chemical Bank, Trustee. Filed as Exhibit 4(j) to the Company's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(k) Tenth Supplemental Indenture, dated as of March 1, 1972, between the Company and Chemical Bank, Trustee. Filed as Exhibit 4(k) to the Company's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(l) Eleventh Supplemental Indenture, dated as of April 15, 1975, between the Company and Chemical Bank, Trustee. Filed as Exhibit 4(l) the Company's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(m) Twelfth Supplemental Indenture, dated as of November 27, 1978, between the Company and Chemical Bank, Trustee. Filed as Exhibit 4(m) to the Company's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(n) Thirteenth Supplemental Indenture, dated as of October 15, 1981, between the Company and Chemical Bank, Trustee. Filed as Exhibit 4(n) to the Company's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(o) Fourteenth Supplemental Indenture, dated as of August 19, 1983, between the Company and Chemical Bank, Trustee. Filed as Exhibit 4(o) to the Company's Registration Statement on Form S-2, File No. 33-1492, and incorporated herein by reference. 4(p) Fifteenth Supplemental Indenture, dated as of August 19, 1985, between the Company and Chemical Bank, Trustee. Filed as Exhibit 4(p) to the Company's Registration Statement on Form S-2, Registration No. 33-1492, and incorporated herein by reference. 4(q) Sixteenth Supplemental Indenture, dated as of January 1, 1988, between the Company and Chemical Bank, Trustee. Filed as Exhibit 4(q) to the Company's Registration Statement on Form S-3, Registration No. 33-27785, and incorporated herein by reference. 4(r) Seventeenth Supplemental Indenture, dated as of February 1, 1989, between the Company and Chemical Bank, Trustee. Filed as Exhibit 4(r) to the Company's Registration Statement on Form S-3, Registration Statement No. 33-27785, and incorporated herein by reference. 4(s) Eighteenth Supplemental Indenture, dated as of September 1, 1991, between the Company and Chemical Bank, Trustee. Filed as Exhibit 4(x) to the Company's Registration Statement on Form S-3, Registration Statement No. 33-64302, and incorporated herein by reference. 4(t) Nineteenth Supplemental Indenture, dated as of September 1, 1992, between the Company and Chemical Bank, Trustee. Filed as Exhibit 4(z) to the Company's Registration Statement on Form S-3, Registration Statement No. 33-64302, and incorporated herein by reference. 4(u) Debenture Indenture, dated as of November 1, 1986, between the Company and Centerre Trust Company of St. Louis (now Boatmen's Trust Company), as Trustee. Filed as Exhibit 4(q) to the Company's Registration Statement on Form S-2, Registration Statement No. 33-9509, and incorporated herein by reference. 4(v) Senior Note Agreement, dated as of July 1, 1990, between the Company and Allstate Life Insurance Company. Filed as Exhibit 4(w) to the Company's Registration Statement on Form S-3, Registration Statement No. 33-64302, and incorporated herein by reference. 4(w) Charter of the Company. Filed as Exhibit 3(a) to the Company's Form 8, amending the Company's Form 10-Q for the fiscal quarter ended September 30, 1984, File No. 0-1857-3, and incorporated herein by reference. 4(x) Amendment to the Company's Charter, dated October 30, 1985. Filed as Exhibit 3(b) to the Company's Registration Statement on Form S-2, Registration Statement No. 33-1492, and incorporated herein by reference. 4(y) Amendment to the Company's Charter, dated July 14, 1986. Filed as Exhibit 3(a) to the Company's Form 10-K for the fiscal year ended June 30, 1986, File No. 0-1857-3, and incorporated herein by reference. 4(z) Amendment to the Company's Charter, dated October 28, 1986. Filed as Exhibit 4(v) to the Company's Registration Statement on Form S-3, Registration Statement No. 33-27785, and incorporated herein by reference. 4(aa) Amendment to the Company's Charter, dated June 15, 1992. Filed as Exhibit 4(y) to the Company's Registration Statement on Form S-3, Registration Statement No. 33-64302, and incorporated herein by reference. 4(bb) Amendment to the Company's Charter, dated July 29, 1994. Filed as Exhibit 4(bb) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 4(cc) Amendment to the Company's Charter, dated September 10, 1996. Filed as part of Exhibit 3(i) to the Company's form 10-Q for the fiscal quarter ended December 13, 1996. File No. 0-1857-3, and incorporated herein by reference. 4(dd) Senior Note Agreement, dated November 1, 1996, between the Company and First Colony Life Insurance Company. Filed as Exhibit 4 to the Company's form 10-Q for the fiscal quarter ended December 31, 1996. File No. 0-1857-3, and incorporated herein by reference. 10(a) Employment Contract between the Company and Scott S. Robinson. Filed as Exhibit 10(f) to the Company's Form 10-K for the fiscal year ended June 30, 1985, File No. 01857-3, and incorporated herein by reference. 10(b) Contract for the operation and maintenance of a cogeneration pipeline between the Company and Altresco Financial, Inc., dated December 11, 1992. Filed as Exhibit 10(n) to the Company's Form 10-K for the fiscal year ended June 30, 1993, File No. 0-18573, and incorporated herein by reference. 10(c) Year-to-yea r contract for the purchase of propane gas between the Company and Enron Gas Liquids, dated June 1, 1993. Filed as Exhibit 10(c) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 10(d) Contract for the transportation of natural gas under IT rate schedule between the Company and Tennessee Gas Pipeline Company, contract number 103250-8, dated September 1, 1993. Filed as Exhibit 10(d) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 10(e) Contract for the transportation of natural gas under FT-A rate schedule between the Company and Tennessee Gas Pipeline Company, contract number 2030, dated September 1, 1993. Filed as Exhibit 10(e) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 10(f) Contract for the transportation of natural gas under FT-A rate schedule between the Company and Tennessee Gas Pipeline Company, contract number 2064, dated September 1, 1993. Filed as Exhibit 10(f) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 10(g) Contract for the transportation of natural gas under FT-A rate schedule between the Company and Tennessee Gas Pipeline Company, contract number 779, dated September 1, 1993. Filed as Exhibit 10(g) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 10(h) Contract for the transportation of natural gas under CGT-NE rate schedule between the Company and Tennessee Gas Pipeline Company, contract number 2063, dated September 1, 1993. Filed as Exhibit 10(h) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 10(i) Contract for the purchase of natural gas between the Company and Tenngasco Corporation, dated September 14, 1993. Filed as Exhibit 10(I) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 10(j) Contract for the purchase of natural gas between the Company and Natural Gas Clearinghouse, dated as of November 1, 1993. Filed as Exhibit 10(j) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 10(k) Gas Storage Agreement between the Company and Tennessee Gas Pipeline Company, dated as of September 1, 1993. Filed as Exhibit 10(k) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 10(l) Company Corporate Incentive Compensation Plan ("ICP"). Filed as Exhibit 10(l) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 10(m) Severance Agreement, dated September 28, 1993, by and between the Company and Donald Atwater. Filed as Exhibit 10(m) on the Company Registration Statement on Form S-2, Registration Statement No. 33- 83828, and is incorporated herein by reference thereto. 10(n) Severance Agreement, dated September 28, 1993, by and between the Company and Robert M. Allessio. Filed as Exhibit 10(n) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 10(o) Severance Agreement, dated October 15, 1993, by and between the Company and Michael J. Marrone. Filed as Exhibit 10(o) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 10(p) Severance Agreement, dated October 15, 1993, by and between the Company and Leslie H. Hotman. Filed as Exhibit 10(p) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 10(q) Severance Agreement, dated October 15, 1993, by and between the Company and Cheryl M. Clark. Filed as Exhibit 10(q) on the Company Registration Statement on Form S-2, Registration Statement No. 33-83828, and is incorporated herein by reference thereto. 13(a) Annual Report to Shareholders Filed Herewith: A copy of the Company's Annual Report to Shareholders for fiscal year ended June 30, 1997. 27(a) Financial Data Schedule Filed Herewith: Financial Data Schedule for the fiscal year ended June 30, 1997.
EX-13 2 ANNUAL REPORT OF BERKSHIRE GAS Berkshire Gas Company Energizing a Diverse Economy Not since the economic boom that swept the country in the mid to late 80s has there been so much excitement about the strength of the national economy. In New England, the regional economy has been reinvigorated. No longer relying on any single business or industry, the region's economic strength is now built on a broader base, encompassing new ventures, the expansion of successful enterprises and the ingenuity of entrepreneurs and investors. Diversification is largely responsible for fueling New England's economic resurgence and - more importantly - the economic revival in the Berkshire Gas service area. This year's annual report focuses on the diverse nature of the customers we serve and their many successes. By knowing our customers, you will come to know us as a company committed to progress and growth, and dedicated to energizing a diverse economy for the benefit of our customers and our shareholders. FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------------- For the Fiscal Year Ended June 30,
1997/1996 1996/1995 OPERATIONS ($000) 1997 1996 % Change 1995 % Change - ----------------------------------------------------------------------------------------------------------------- Operating Revenues $ 48,463 $ 46,050 5.2% $ 47,934 -3.9% Operating Margin 25,253 25,835 -2.3 23,114 11.8 Operating and Other Income 11,527 12,042 -4.3 9,418 27.9 Net Income 3,556 4,213 -15.6 2,529 66.6 Earnings Available for Common Stock 3,316 3,521 -5.8 1,835 91.9 COMMON SHARE DATA - -------------------------------------------------------------------------------------------------------------- Earnings Per Share $ 1.52 $ 1.65 -7.9% $ 0.92 79.3% Dividends Per Share 1.125 1.105 1.8 1.10 0.5 Book Value Per Share 14.18 13.75 3.1 13.16 4.5 Market Price (Year-End) 16.00 15.38 4.0 15.00 2.5 Average Shares of Common Stock Outstanding (000's) 2,181.5 2,129.2 2.5 1,990.5 7.0 Number of Registered Common Shareholders 1,902 1,881 1.1 1,878 0.2 OTHER DATA - -------------------------------------------------------------------------------------------------------------- Gross Utility Plant ($000) $101,983 $ 96,571 5.6% $ 91,863 5.1% Net Utility Plant ($000) 73,640 71,215 3.4 69,326 2.7 Capital Expenditures ($000) 7,393 6,507 13.6 7,746 -16.0 Total Gas Sold and Transported (MCF-000's) 8,080 8,075 0.1 7,392 9.2 Total Natural Gas Customers 32,526 32,129 1.2 31,925 0.6 Propane Gallons Sold (000's) 4,443 4,251 4.5 3,738 13.7
To Our Shareholders The past year has been one of strong performance for the Company. We have seen real strength in the service area economy largely due to the diversification of existing enterprises and the growth of a wide variety of new undertakings and emerging technologies. The customers featured in this year's report provide prime examples of how our economy is growing and why prospects for future expansion are so encouraging. Diversity Driving Demand As existing customers expand their use of natural gas and demand for our product grows with the addition of new customers, it becomes clear that the diversification of our economic base has played a major role in the overall health of our region's economy. With the move of heavy industry and manufacturing to the South and West, New Englanders have had to utilize their native resourcefulness to inject new life into their economy. Many have accomplished this by expanding existing businesses into new markets and products areas. Others have focused on investing time and energy in new service sector ventures. And still others have tapped their entrepreneurial drive to achieve commercial success by utilizing new and emerging technologies. This diversity has yielded both economic strength and opportunity. Many such opportunities for the Company have been driven by the recognition of natural gas as a highly adaptable premium fuel that is also a friend to the environment. Additionally, the Company's market position as a full service energy supplier dedicated to the success of its customers has made natural gas the first choice for many enterprising business owners as well as homeowners throughout western Massachusetts. With small business providing more that 85% of all jobs in this country, a diverse economy has never been more important. We serve a portion of Massachusetts known for its academic and research resources. We continue to be well positioned for new and innovative growth as well as adaptation of existing assets. The Company is committed to working in partnership with all segments of our market and of our economy toward mutual success. The profiles in this report more fully detail our initiatives and we look forward to continuing to energize the ever diversifying economy in our area. Performance Poised for continued success in diverse markets, we take great pride in our achievements to date. Per share earnings for the year ended June 30, 1997, were $1.52. Although earnings were lower than in the prior year, we were successful in achieving this level of performance despite weather during the heating season that was 9% warmer than the preceding year and 5% warmer than the 20-year average. Additionally, operating margins, which are the best measure of a natural gas utility's performance, were only 2.3% lower than in the previous year. Efforts to achieve greater earnings stability irrespective of the effects of unusual weather variances have met with success. We fully intend to continue to focus every facet of our organization toward further increases in efficiency, productivity and, in turn, profitability. During the year, the Company saw considerable growth in income from its service and propane operations. Dividend Increase The Company's Board of Directors is strongly committed to providing shareholders with a fair return on their investment. The Board reviews the dividend in light of the Company's financial performance and capital needs on an ongoing basis in keeping with its conservative, yet progressive dividend policy. Improved performance led the Board to take action in June this year, increasing the quarterly dividend pain on Common Stock from 28 [CENTS] to 28-1/2 [CENTS] per share resulting in an annual dividend of $1.14. This is the third dividend increase since 1994. (Picture of President & Chief Executive Officer, Scott S. Robinson) Propane Expansion The Company's retail propane division, Berkshire Propane, continues to achieve new milestones of profitability in serving customers across its 5,000 square mile service area in western Massachusetts and eastern New York. This year, despite warmer than normal weather, the division's 1997 revenues increased by 17% over the prior year. Operating margins also increased by 14% over 1996. In addition, Berkshire Propane tapped two new markets during the year in an effort to expand upon its track of strong performance - wholesale operations and retail delivery service in the state of Vermont. Given the division's considerable storage capacity as well as its strategically located storage facilities, the decision to offer wholesale propane services to competitors without similar capacity made sound business sense. As a result, margins earned from the sale of additional wholesale volumes supplement those earned on direct retail sales to Berkshire Propane customers. Capitalizing on existing resources and assets made it possible for Berkshire Propane to pursue this opportunity without additional expense or overhead. Plans call for continued expansion and marketing of the division's wholesale business. On the retail side, Berkshire Propane expanded its reach in July of this year adding portions of southern Vermont to its existing service territory. Initially offering service in and around the towns of Bennington and Brattleboro, long range plans call for expanding service to surrounding communities as well. Efforts to date in this new market have met with considerable success and are expected to continue to present further expansion opportunities for Berkshire Propane. Deregulation This has been a year of change in the competitive landscape of our industry and it has also brought the dawning of new opportunities associated with deregulation. When it comes to deregulation, opportunity is the key word. Our role as the transporter of natural gas in western Massachusetts is historic. This is a service that we have provided for more than 145 years and one that we will continue to provide in a deregulated environment. The key difference, however, will be our ability to work strategically with marketers to expand service while also using the flexibility provided by deregulation to compete in other segments of the energy marketplace. In many ways, offering transportation services in a deregulated market is a natural extension of what we have been doing for a number of years. As far back as 1987, the Company began to work cooperatively with interested commercial and industrial customers in offering customized service, which included transportation of third-party gas supplies. Today, we are successfully providing transportations services to more than 35% of the Company's commercial and industrial customers. As well, we will continue to expand our offering of unbundled rates to customers during the next calendar year. Viewing marketers as partners instead of as competitors will allow us to work side by side in expanding the use of natural gas throughout our service area. Building strategic alliances with marketers and suppliers will benefit everyone involved while also keeping rates stable and competitive for commercial end users and consumers. We are truly excited about the opportunities that deregulation is bringing and we are both enthusiastic and optimistic about future prospects. We have been working diligently toward optimizing our organization and operations for competition in open energy markets with the assistance of the Reed Consulting Group, a firm widely recognized for its expertise in this area. The Company anticipates segregating non-regulated market functions from regulated operations as part of these efforts. This will provide greater flexibility for pursuing competitive opportunities under deregulation including the establishment of a separate entity for the marketing of a full range of energy services. Finally, the Company is also working with the other investor-owned natural gas utilities in the Commonwealth of Massachusetts to develop comprehensive principles and procedures for the "unbundling" of services offered to customers. The development of these standards will assure a level playing field while also defining opportunities for open competition. Tomorrow and Beyond With the diversification of our service area, our economy grows stronger. Similarly, deregulation will make it possible for Berkshire Gas to diversify by providing the flexibility necessary to pursue new opportunities, enhance profitability and strengthen the Company. As our industry moves toward open markets and competition, future prospects are greater than ever before imagined. Deregulation is expected to change many of the traditional ways of doing business while also creating new areas of opportunity. Moving beyond the limits of regulation into new ventures and undertakings provides the Company with new avenues of profitability. At the same time, we will continue to commit ourselves to exceptional service and competitive prices in regulated markets. Building on 145 years of success, we welcome the new millennium, we seek opportunity and we are well positioned to break new ground. We thank you for your commitment to Berkshire Gas and we sincerely hope that this year's report conveys a sense of the excitement, enthusiasm and optimism that we share as together we work toward building a better company and continuing to reward you for your investment. /s/ SCOTT S. ROBINSON Scott S. Robinson President & Chief Executive Officer Energizing a Diverse Economy As the oldest and most established region in the nation, New England has always been home to innovation and diversity. From the earliest settlers, the spirit and drive to create, expand and diversify has been as much a part of New England as the brightly colored leaves of autumn and the flowing maple syrup that signals the onset of spring. As a region, we have experienced the industrial revolution, the advent of technology and the development of infrastructure dedicated to manufacturing and economic growth. (An inset picture of MASS MoCA clock tower) We are now in the midst of another phase in the natural evolution of the New England economy. The days of heavy manufacturing are fading, being replaced by a visionary emphasis on the development of emerging technologies, entrepreneurial pursuits, cutting-edge ideas and a real focus on the future. These are truly exciting times in our region. (An insert picture of landscaper at Country Village Condominiums in Great Barrington, Massachusetts) Long home to some of the country's most prestigious academic institutions, our region trains some of the finest minds in the world and benefits from research that is constantly breaking new ground in the arts and sciences. This is particularly true in western Massachusetts, where we have seen innovations ranging from the invention of Lexan and other space-age materials at GE Plastics, to Crane & Company's development of new technologies designed to protect U.S. currency from counterfeiting. (An insert picture on left of roof line at Devonshire Estates in Lenox, Massachusetts, insert picture on right of steam turbine cogeneration system from Ewing Power Systems) Supplementing the human energy that drives a diverse economy, Berkshire Gas is proud to play a role in providing the raw materials to fuel growth and diversification. Working hand in hand with its customers, Berkshire Gas has been instrumental in providing energy for new entrepreneurial efforts - ranging from a facility in Amherst, Massachusetts, dedicated to breeding African fish for retail sale, to a top-flight coffee roaster providing some of the world's finest coffees to discriminating consumers around the globe. At the same time, we have been working with more traditional customers to support expanding markets in our area. (An insert picture on left of painters at Town of Adams Town Hall, an insert picture on right of special beans selected for Barrington Coffee Roasting Company in Great Barrington, Massachusetts) The following profiles, broken down by specific market segments, are intended to give you a snapshot of the diverse enterprises and undertakings the Company is proud to support. They'll help you to share some of the excitement of a region that's building a bright future, while preserving the treasures of its past. (An insert picture of a hydroponic plant being harvested at Bioshelters, Inc. located in Amherst, Massachusetts) Innovation, economic growth and expansion, public-private partnerships, entrepreneurial enterprises and a focus on the future-we are proud to be energizing a diverse economy with natural gas, America's premium fuel. MARKET SEGMENT CULTURAL MASS MoCA The Massachusetts Museum of Contemporary Art is symbolic of the economic renaissance unfolding throughout the Berkshire Gas service area, as 20th century manufacturing interests are replaced by emerging 21st century technologies. The revolutionary MASS MoCA concept is being forged by passionate visionaries intent on revitalizing the small New England city of North Adams, Massachusetts, by transforming a vacant mill complex into a world-class center for the arts. Ten years in the making, MASS MoCA will be a living laboratory for artists and businesses working in virtually every artistic medium, including sculpture, theater, dance, film, computer graphics and music. As MASS MoCA Director Joseph Thompson put it, "MASS MoCA is a supercollider for new art and new technology." Built in 1872 to manufacture textiles and later owned by a world leader in high-quality electronic components, the complex employed 4,000 at its peak. Foreign competition and manufacturing changes resulted in cutbacks, however, leaving thousands out of work when the mill closed in 1985. The site's silver lining was soon discovered by Williams College officials seeking possible mill locations to meet the space requirements of contemporary art installations. By 1987, the idea to convert the 13-acre, 27-building mill into a mixed-use cultural and commercial complex had crystallized. When it officially opens in 1998, MASS MoCA will awe visitors with its sheer size. It will house expansive art galleries, performing arts facilities, rehearsal space, offices, fabrication areas, live studio space and pre- and post-production facilities for audio and video. A diverse consortium of cultural institutions, artists, and technology firms-including New York's prestigious Guggenheim Museum-have teamed with MASS MoCA to develop the sprawling complex. The first technology firm to become a tenant was the Kleiser-Walczak Construction Company, which has produced computer-generated special effects for the entertainment industry, including major motion pictures and theme parks. Excited by MASS MoCA's potential, the firm moved its headquarters from Hollywood to studios within the facility. The architects' decision to preserve the mill's historic character by retaining its vast, open spaces was popular with artists-and made natural gas the right choice for heating. It also eliminated the environmental concerns and liability associated with on-site oil storage and the nuisance of oil delivery. "Natural gas provided the most economic and efficient way to serve a complex campus that must house new functions in old buildings," Thompson said. "Berkshire Gas has been very loyal to this project, and has been a good friend as well as a good vendor." Berkshire Gas is proud to have been one of the first corporate supporters in this noble private-public venture that could one day establish North Adams as a global hub for contemporary arts. (A picture of MASS MoCA and people touring the complex) A truly unique center for the arts, MASS MoCA will feature a mix of traditional and non-traditional works. The flexibility and cleanliness of natural gas made Berkshire Gas the logical energy partner. (A picture of Kleiser-Walczak employee) The creative synergies offered by MASS MoCA compelled the Kleiser-Walczak Construction Company to relocate its computer-generated special effects firm from Hollywood to studios within the complex. MARKET SEGMENT RETIREMENT LIVING Devonshire Estates Because the number of Americans age 65 and older is expected to double between now and the year 2050, the retirement living industry is one of the fastest-growing market segments in the Berkshire Gas service area. The Company has recognized and capitalized on opportunities in this sizable market, establishing natural gas as the fuel of choice for retirement homes in western Massachusetts. So it came as no surprise when Holiday Retirement Corp., and industry leader based in Salem, Oregon, with more than 200 retirement developments across the U.S., Canada and England, chose Berkshire Gas as its energy partner for Devonshire Estates, which is nearing completion in Lenox, Massachusetts. Unlike most others in the industry, Holiday Retirement's parent company owns both the construction and management interests in its residences. "When you're responsible for maintaining a facility, you put a little more care into building it," said Georgie Kennel who is teaming with her husband, Will, on their sixth construction management assignment for Holiday Retirement. "We're more quality-oriented than most. We have to do things right." Doing it right includes using natural gas for a wide range of energy needs, including heating, hot water, gas fireplaces and dryers in the six laundry areas. "We almost always specify natural gas," said Kennel. "It's more efficient and more economical, especially in an area like this where electric rates are so high." Devonshire Estates will provide "independent living" for its senior residents. One monthly fee covers virtually every resident's needs, including three meals a day in a full-service restaurant setting. Residents will feel secure in the knowledge that live-in managers can attend to their needs and, with dependable natural gas, they won't have to worry about the effect of winter storms. "It's like living in a fine hotel," Kennel said. Devonshire Estates has a total of 128 units designed to accommodate a wide range of needs. The main building features studio apartments, one-bedroom/one bath units, and two-bedroom/two bath units. There are also 20 deluxe units in separate buildings called garden suites and garden cottages, which include such amenities as an attached garage, a full kitchen and washer/dryer. Construction, which began in the spring of 1997 is scheduled for completion by year's end. Interest was so keen that fully one-third of the units had been reserved midway through construction. Because comfort is critical to the seniors, dependable natural gas is the right choice for their energy needs and, with its history of reliability, Berkshire Gas is the right supplier. (A picture of Devonshire Estates units under construction) Efficient, dependable natural gas is part of "doing it right" at Devonshire Estates in Lenox, Massachusetts, a 128-unit retirement development scheduled for completion in December 1997. MARKET SEGMENT MUNICIPAL CONVERSIONS Town of Adams Strolling through downtown Adams, Massachusetts, is like walking into a Norman Rockwell painting. Its friendly people, quaint victorian architecture, and tidy streets and storefronts are a source of pride for those who have worked so hard to preserve its old New England charm. The town hall has long been a focal point of this pride, with a rich tradition that include Mark Twain's address to the townspeople in December 1884, just a year after it was completed. By the 1990s, however, the town hall and adjacent police station were outdated, overcrowded and badly in need of repair. Even more importantly, the liability and environmental issues associated with the aging underground oil tank forced the town into action. Adams took a unique approach to its space dilemma, renovating a historic downtown mansion perfectly suited to its needs. For its energy requirements, Adams turned to Berkshire Gas for professional services, technical expertise and environmentally friendly natural gas. According to Town Administrator Jim Leitch, a capital planning committee chose historic Plunkett mansion as the new home for the town hall after a lengthy search of prospects. Built in 1905, it offered an ideal downtown location and the opportunity to restore a historic building to its original beauty. Relocation of the town offices to Plunkett mansion enabled the police department to expand into the old town hall, but both buildings still faced major renovations. In addition, neither the old nor new town halls had the equipment necessary for conversion to natural gas. As it has with other municipalities in its service area, the Company demonstrated its commitment to public/private partnership, providing professional services and energy solutions throughout the conversion process to satisfy the town's needs. In that spirit, Berkshire Gas installed the necessary service lines while also providing valuable engineering services and technical guidance. "Berkshire Gas was a good partner in the construction of both of these facilities," Leitch said. "They provided much-needed equipment, installation assistance and technical support in addition to meeting difficult site and scheduling demands." Although both facilities were designed for oil, Leitch said natural gas was the clear choice for the future because of maintenance and environmental issues. It was particularly well-suited for the police station's rooftop heating and air conditioning unit, and as a fuel for its emergency backup generator. When construction is completed in December 1997, Adams will again take pride in its municipal buildings, and comfort in the knowledge that dependable, all-American natural gas will be fueling its growth into the next century and beyond. (A picture of the new town hall in Adams, Massachusetts) Municipalities across the Company's service area are choosing to convert their buildings and facilities from oil to natural gas. By converting its new town hall, the Town of Adams, Massachusetts, has avoided the liability and environmental issues associated with underground oil tanks. (A picture of Adams Town Administrator Jim Leitch with Berkshire Gas Salesperson Marty Martin with Adams Town police station under construction in background) The new Town of Adams police station-under construction in background-will use natural gas for heating and air conditioning, as well as for its emergency backup generator. MARKET SEGMENT GOODS & SERVICES Bioshelters, Inc. Under a futuristic, dome-like structure in landlocked Amherst, Massachusetts, a revolutionary aquaculture experiment has been transformed into a thriving example of entrepreneurial achievement, expected to produce 1.2 million pounds of fresh water fish when it reaches full production in 1998. This farm of the future, whose resource conservation strategies may be an answer to feeding the world's exploding population, is being energized by the fuel of the future: clean-burning, efficient natural gas. Bioshelters uses an ingenious, energy-efficient process to raise tilapia, a warm water fish native to Africa, and gourmet herbs under the same roof. The tilapia are bred and raised in a series of tanks on the ground floor, including four that can each hold 160,000 gallons and an equal number of mature fish. Water from these tanks is pumped to a hydroponic garden located on the second floor, where herbs grow in water rather than soil and absorb sunlight through the structure's translucent roof. The closed-loop system recirculates water, carrying fish manure to fertilize the garden's herbs. The fish make food for the plants, the plants clean the water for the fish and 99.7 percent of the water and waste is recycled. "We call this an artificially created natural ecosystem," said John Reid, Bioshelters' President and CEO. "It solves a growing environmental problem and produces profitable products." The fish are shipped live for sale in Boston and the herbs are sold at supermarkets all over the Northeast. Because the fish are indigenous to warm African waters, heating the tanks is Bioshelters' most critical energy need. Berkshire Gas made a significant investment to serve Bioshelters' growth, extending its gas mains to provide the rural facility with a more controllable and dependable fuel source. Efficient gas-fired boilers provide energy for the eight miles of concrete-embedded, polyethylene tubing that make up the radiant heating system. Berkshire Gas also solved Reid's concerns about the dependability of electricity for the facility's water circulation pumps. "If we're down for three hours, we're in trouble," he said. "With the damage summer or winter storms can do to power lines, the power company just isn't reliable enough for our purposes." Bioshelters' recent installation of a cogeneration system-fueled by reliable natural gas-further reduces its dependence on the power company by generating electricity for pumps, lights and other needs. Bioshelters' ambitious five-year plan calls for the construction of additional facilities to serve major markets across the U.S. and Canada. Reid has found that natural gas is a natural fit for continued growth in his farms of the future. (A picture of a Bioshelters employee) An employee examines the root development of plants in Bioshelters' second-floor hydroponic garden. Recirculated water carries fish manure to nourish the plants in the unique, closed-loop system heated by gas-fired cogeneration equipment. (An aerial picture of Bioshelters) Dependable, clean-burning natural gas fits both the efficiency and environmental standards of Bioshelters, a thriving aquaculture business in Amherst, Massachusetts, that produces tilapia fish and hydroponic herbs. The one-of-a-kind, dome-like structure makes efficient use of solar and thermal energy. MARKET SEGMENT RESIDENTIAL Country Village Condominiums Hardwood floors. Granite and marble fireplaces. Jacuzzi tubs. Set foot in one of the Country Village Condominiums in Great Barrington, Massachusetts, and you'll want to move in. "That's the immediate reaction of everyone who sees them, from the workmen to our prospective buyers," said Richard Stanley, the project's developer. "It's not something you see as much as something you feel." The "feel" is a result of Stanley's attention to detail and demand for quality, from the attractive landscaping and fine interior trim to his choice of clean-burning, efficient natural gas for heating. "Simplicity and cleanliness are key issues when it come to heating fine homes," he said. "I never would have considered oil." Stanley began developing the seven-acre site in the fall of 1996. When it's completed, there will be a total of 25 units in eight buildings. The three-bedroom condos each offer up to 2,100 square feet of living space and are replete with amenities, including oversized windows, tiled bathrooms, central air, central vacuum, appliances, 200-square foot decks and attached garages with automatic door openers. Country Village, a short walk from downtown, appears especially attractive to homeowners in their mid-50s or older who are not interested in shoveling, mowing and other maintenance chores. Dependable natural gas fits their care-free demands, providing no-worry heat, hot water, and easy operation for the fireplaces that grace each condo. "Today's more sophisticated buyer also typically insists on a gas stove for cooking," Stanley noted. Experienced developers like Stanley know that natural gas is the best energy value, outperforming other fuels for temperature control, BTU efficiency, equipment reliability and heating system recovery rates. A New York native, Stanley inherited a hair salon franchise from his father and built it to more than 600 locations at home and abroad. But when he purchased a second home in the Berkshires in the early 1980s, he was captivated by the region's natural beauty and cultural attractions. He sold the franchise and moved here permanently to "semi-retire" a few years later. "Now I'm working harder than ever," he said with a laugh. Stanley's first ventures as a developer involved investments of more than $1 million to buy and develop commercial properties in downtown Great Barrington. Now his condos are generating inquiries from upscale second-home owners and retirees interested in residing near Great Barrington's thriving downtown. Prospective buyers will see in a moment that Country Village offers everything needed for a contemporary, upscale lifestyle:elegant construction, a quaint bustling town life, maintenance-free living and dependable natural gas, the fuel of choice for the educated home-owner. (A picture of developer Richard Stanley with a client) Developer Richard Stanley(left) said he "never would have considered oil" for his beautiful, new condominiums in Great Barrington, Massachusetts, preferring the dependability and performance of natural gas for the heat, hot water, fireplaces and cooking needs of his upscale clientele. (A picture of a Country Village Condominium) MARKET SEGMENT ECONOMIC DEVELOPMENT Airport Industrial Park Development interests throughout the Berkshire Gas service are finding that the availability of dependable, economical natural gas can play as vital a role as land availability in attracting prospective tenants to their industrial parks. Although industrial parks are not new to New England, their growth in the post-recession economy has created one of the Company's fastest-growing market segments. Berkshire Gas recently completed work in Montague, Massachusetts, where the town has invested more than $1 million to revitalize Airport Industrial Park-which originally opened in the early 1980s-by developing an additional 52 acres. "Industry carries a lot of the tax load," said Denis Superczynski, Community Development Planner for the Town of Montague. "The more new and expanding companies we can attract, the more job opportunities we'll provide and the lower everyone's taxes will be as a result." So the Town of Montague is rolling out the red carpet, providing tax increment financing, training funds and other incentives. Recognizing the importance of providing uninterrupted, cost-efficient natural gas as part of the park's infrastructure, the town asked Berkshire Gas to extend its gas mains by 1.5 miles. "Most of our prospects ask about the availability of natural gas," Superczynski said. "Companies really appreciate the benefits it provides." Superczynski said businesses have come to Airport Industrial Park for a number of reasons, including its proximity to the Connecticut River and Interstate 91, competitive land pricing and a skilled work force. He said flexibility also is a plus, as the park can accommodate individual lots ranging from a single acre to more than 15 acres. The natural gas line, which was completed in July, enables the park to meet a wide range of tenant needs, from heating and air conditioning to manufacturing processes. One of the first tenants in the new development was Ewing Power Systems. The company, whose work force has more than doubled in the past year, supplies steam turbine cogeneration systems to large steam users both in the U.S. and abroad. These systems allow Ewing customers to produce low-cost electricity with the same steam they are now using for heating or process. Ewing President Lynn B. DiTullio said the company's fastest growing markets are international. "Electricity costs even more overseas," she said. "It can be four times as much as in the U.S." Although Ewing, which was founded in 1986, traditionally has customized its systems, the company recently introduced standard products to serve smaller customers at a fraction of the original cost. By including natural gas in the infrastructure of their industrial parks, developers in the Berkshire Gas service area are improving their site's marketability and their tenants' profitability. (An aerial picture of the Airport Industrial Park) Airport Industrial Park in Montague, Massachusetts, is one of many developments in the Company's service area that is providing natural gas for tenants' use in everything from heating and air conditioning to manufacturing processes. (A picture of Ewing Power Systems employee) Airport Park tenant Ewing Power Systems produces steam turbine cogeneration systems like this one, built for a municipal power plant near Paris, France. MARKET SEGMENT PROPANE Barrington Coffee Roasting Company Premium coffee with a premium fuel...A coffee lover's dream has become a reality at the Barrington Coffee Roasting Company in Great Barrington, Massachusetts, where two entrepreneurs have perfected the art of roasting exotic coffee beans from around the world using a precision process that is fueling rapid growth in their business. Owners Gregg Charbonneau and Barth Anderson, who met and began sharing their coffee obsession while in college, are dedicated to producing the highest-quality coffee in the world. From their Great Barrington facility, they search the globe for the finest coffee beans, screen them for quality and then roast them to perfection for whole-sale, mail-order and sale on the Internet. Business is great. Annual production has jumped from 20,000 pounds when they opened in 1993 to a projected 125,000 pounds in 1997. The key to their success? "We're fanatics about quality," Charbonneau said. He said they choose only coffees from the species of tree known as Coffea arabica-the highest quality coffee-in the world's richest coffee-growing regions and then roast them in small batches, carefully controlling each step of the process. Fine coffee is like fine wine. Just as fine wines may begin with grapes from France, Italy or California, fine coffees may begin with beans grown in Costa Rica, Indonesia or Ethiopia. "Characteristics such as body, mouth, feel and acidity may vary from year to year, so we sample constantly," Charbonneau said. Anderson calls Barrington Coffee's contribution to the final product "a blend of art and science." During this process, propane-heated air roasts the beans, which are kept moving so as not to burn. Precise temperature controls and timing are critical to this process, which is why propane gas is the only fuel Barrington Coffee trusts to meet its exacting standards. "The quality of the fuel and constant supply are exceedingly important," Anderson said. "If there's any fluctuation in temperature, the coffee will pick it up. Propane gas gives us that consistency." When they're deemed perfect, the beans are "quenched" by rapidly flowing air and packaged immediately. Charbonneau and Anderson recently invested $60,000 in a new French-built roaster-the only one of its kind in this country. Anderson said Berkshire Propane provided valuable assistance with its installation. "Everyone at Berkshire Propane has been extremely helpful, from management to sales and service representatives," Anderson said. So if you're fortunate enough to sample one of the fine, exotic coffees produced by the master roasters of Barrington Coffee, remember that Berkshire Propane helped make it great. (A picture of Barrington Coffee owners, Barth Anderson and Gregg Charbonneau) Quality and consistency are critical in the propane-heated, roasting process at Barrington Coffee in Great Barrington, Massachusetts, where owners Barth Anderson and Gregg Charbonneau (above, l-r) select only the world's finest coffee beans and then roast them to flavor perfection (right). (A picture of Barrington Coffee owners, Barth Anderson and Gregg Charbonneau during a different phase of production) Service Area The Company's service area encompasses parts of three counties in western Massachusetts and a portion of eastern New York, providing natural gas services to 19 cities and towns with a total population of more than 190,000. Propane service is provided to more than 100 communities in western Massachusetts, eastern New York and southern Vermont. The unspoiled beauty of the Berkshire Gas service area is treasured by residents and visitors alike, serving as a magnet to lovers of brilliant fall foliage, charming ski resorts and scenic golf courses, as well as providing a picturesque backdrop for renowned cultural attractions. The Company is proud to fuel the growing and diverse energy needs of a region whose desire to achieve economic prosperity is exceeded only by its determination to protect its environment for future generations. (Map of Berkshire Gas and Berkshire Propane service area) Financial Review Contents 10-Year Comparative Summary of Operations and Statistics............... 14 Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................... 16 Financial Statements: Statements of Income................................................. 19 Balance Sheets....................................................... 20 Statements of Shareholders' Equity................................... 21 Statements of Cash Flows............................................. 22 Notes to Financial Statements........................................ 23 Independent Auditors' Report......................................... 29 Quarterly Financial Information........................................ 31 Officers and Directors................................................. 32 10-Year Comparative Summary of Operations and Statistics - ---------------------------------------------------------------------------
For the Years Ended June 30, OPERATIONS ($000) 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------- Operating Revenues $ 48,463 $46,050 $47,934 $53,029 $47,132 Cost of Gas Sold 23,210 20,215 24,820 27,885 24,831 ------------------------------------------------ Operating Margin 25,253 25,835 23,114 25,144 22,301 ------------------------------------------------ Net Income 3,556 4,213 2,529 3,673 2,810 Earnings Available for Common Stock 3,316 3,521 1,835 2,953 2,066 COMMON SHARE DATA - ------------------------------------------------------------------------------------- Earnings Per Share $1.52 $1.65 $0.92 $1.69 $1.20 Annualized Dividends Per Share 1.14 1.12 1.10 1.10 1.08 Dividends Declared Per Share 1.125 1.105 1.10 1.085 1.08 Book Value Per Share 14.18 13.75 13.16 12.99 12.30 Market Price (Year-End) 16.00 15.38 15.00 16.25 18.00 Average Shares of Common Stock Outstanding (000s) 2,181.5 2,129.2 1,990.5 1,751.8 1,718.5 CAPITALIZATION ($000) - ------------------------------------------------------------------------------------- Common Equity $ 31,365 $29,595 $27,688 $22,946 $21,326 Preferred Stock 363 8,406 8,448 8,491 9,026 Long-Term Debt 40,000 31,999 30,983 31,083 25,413 ------------------------------------------------ Total Capitalization $ 71,728 $70,000 $67,119 $62,520 $55,765 ------------------------------------------------ % OF TOTAL - ------------------------------------------------------------------------------------- Common Equity 43.7% 42.3% 41.2% 36.7% 38.2% Preferred Stock 0.5 12.0 12.6 13.6 16.2 Long-Term Debt 55.8 45.7 46.2 49.7 45.6 RATIOS (%) - ------------------------------------------------------------------------------------- Payout Ratio 74% 67% 120% 65% 90% Market-to-Book Ratio 113 112 114 125 146 Return on Average Common Equity 10.9 12.3 7.2 13.3 9.8 PROPERTY ($000) - ------------------------------------------------------------------------------------- Capital Expenditures $ 7,393 $6,507 $7,746 $5,112 $5,458 Pipeline Construction 0 0 0 0 5,659 Gross Utility Plant 101,983 96,571 91,863 86,098 83,016 Net Utility Plant 73,640 71,215 69,326 66,191 65,846 Net Non-Utility Plant 6,096 5,949 5,962 5,715 5,004 Total Assets 101,688 93,660 87,741 90,991 91,891 GAS SALES (MCF-000s) - ------------------------------------------------------------------------------------- Residential 2,730 2,814 2,513 2,839 2,730 Commercial & Industrial 2,289 2,626 2,305 2,625 2,681 Interruptible 592 522 1,104 807 1,012 - ------------------------------------------------------------------------------------- Total Natural Gas Sales 5,611 5,962 5,922 6,271 6,423 GAS TRANSPORTED (MCF-000s) - ------------------------------------------------------------------------------------- Firm Transportation 1,409 1,073 1,130 874 289 Interruptible Transportation 1,060 1,040 340 217 0 - ------------------------------------------------------------------------------------- Total Gas Sold and Transported 8,080 8,075 7,392 7,362 6,712 - ------------------------------------------------------------------------------------- Propane Gallons Sold 4,443 4,251 3,738 3,904 3,522 OTHER STATISTICS - ------------------------------------------------------------------------------------- Customer Meters 32,526 32,129 31,925 31,445 31,053 Maximum Daily MCF Sendout 44,734 44,161 45,760 43,934 39,446 Minimum Daily MCF Sendout 7,847 8,381 8,216 8,114 7,371 Degree Days 6,953 7,402 6,748 7,651 7,396 20-Year Average Degree Days 7,301 7,300 7,354 7,356 7,341 Number of Employees 153 153 160 173 181
10-Year Comparative Summary of Operations and Statistics - --------------------------------------------------------------------------------
For the Years Ended June 30, OPERATIONS ($000) 1992 1991 1990 1989 1988 - ------------------------------------------------------------------------------------ Operating Revenues $47,969 $41,408 $39,476 $37,274 $34,992 Cost of Gas Sold 26,741 22,341 20,280 20,953 19,619 ----------------------------------------------- Operating Margin 21,228 19,067 19,196 16,321 15,373 ----------------------------------------------- Net Income 1,952 1,462 2,047 1,769 1,757 Earnings Available for Common Stock 1,849 1,377 1,955 1,671 1,653 COMMON SHARE DATA - ------------------------------------------------------------------------------------ Earnings Per Share $1.10 $0.83 $1.21 $1.05 $1.14 Annualized Dividends Per Share 1.08 1.08 1.28 1.28 1.28 Dividends Declared Per Share 1.08 1.23 1.28 1.28 1.235 Book Value Per Share 12.13 12.07 12.40 12.40 12.57 Market Price (Year-End) 14.75 13.00 14.50 17.25 16.75 Average Shares of Common Stock Outstanding (000s) 1,687.7 1,655.6 1,622.6 1,595.1 1,444.7 CAPITALIZATION ($000) - ------------------------------------------------------------------------------------ Common Equity $20,626 $20,155 $20,299 $19,904 $19,848 Preferred Stock 9,111 1,196 1,290 1,378 1,465 Long-Term Debt 26,564 28,156 29,147 23,066 14,952 ----------------------------------------------- Total Capitalization $56,301 $49,507 $50,736 $44,348 $36,265 ----------------------------------------------- % OF TOTAL - ------------------------------------------------------------------------------------ Common Equity 36.6% 40.7% 40.1% 44.9% 54.7% Preferred Stock 16.2 2.4 2.5 3.1 4.1 Long-Term Debt 47.2 56.9 57.4 52.0 41.2 RATIOS (%) - ------------------------------------------------------------------------------------ Payout Ratio 98% 130% 106% 122% 112% Market-to-Book Ratio 122 108 117 139 133 Return on Average Common Equity 9.1 6.8 9.7 8.4 9.5 PROPERTY ($000) - ------------------------------------------------------------------------------------ Capital Expenditures $5,165 $4,245 $6,438 $12,308 $9,778 Pipeline Construction 1,539 4,526 6,475 0 0 Gross Utility Plant 79,942 76,404 71,805 65,657 55,310 Net Utility Plant 64,840 63,277 60,558 55,991 46,576 Net Non-Utility Plant 8,965 10,627 8,119 2,882 2,616 Total Assets 92,124 95,971 83,680 65,240 56,886 GAS SALES (MCF-000s) - ------------------------------------------------------------------------------------ Residential 2,639 2,347 2,545 2,547 2,428 Commercial & Industrial 2,703 2,480 2,778 2,702 2,564 Interruptible 1,468 1,092 1,163 1,026 893 - ------------------------------------------------------------------------------------ Total Natural Gas Sales 6,810 5,919 6,486 6,275 5,885 - ------------------------------------------------------------------------------------ GAS TRANSPORTED (MCF-000s) - ------------------------------------------------------------------------------------ Firm Transportation 0 0 0 0 0 Interruptible Transportation 0 0 169 118 31 - ------------------------------------------------------------------------------------ Total Gas Sold and Transported 6,810 5,919 6,655 6,393 5,916 - ------------------------------------------------------------------------------------ Propane Gallons Sold 3,158 2,927 2,789 2,588 2,293 OTHER STATISTICS - ------------------------------------------------------------------------------------ Customer Meters 30,507 30,641 30,395 29,733 28,684 Maximum Daily MCF Sendout 38,237 37,095 38,012 37,480 38,917 Minimum Daily MCF Sendout 8,060 6,855 7,294 7,228 6,603 Degree Days 7,210 6,261 7,045 7,581 7,471 20-Year Average Degree Days 7,348 7,432 7,474 7,474 7,479 Number of Employees 180 185 191 194 182
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------- (Dollars in Thousands Except Share and Per Share Amounts) An Overview of 1997 - ------------------------------------------------------------------------------- The Company reported Earnings Available for Common Stock of $3,316 or $1.52 per share as compared to $3,521, or $1.65 in 1996. Despite approximately 5% warmer than normal weather this year, the impact on earnings was reduced due to management's debt restructuring program and the growth of the unbundled gas transportation segment of the business. The number of degree days in 1997 was 6,953, a 6% decrease from the prior year and 5% less that the 20-year average. Earnings in 1997 represent a return on average common equity of 10.9%, confirming the Company's commitment to provide a fair return to shareholders. The book value per share rose to $14.18 from $13.75 in 1996. The Company's Board of Directors voted to increase the quarterly dividend paid on Common Stock to $.285 per share or $1.14 on an annual basis, indicating confidence in the Company's current and future performance. The Company has completed a debt restructuring program which replaced higher cost debt and Preferred Stock resulting in lower interest costs and taxes. Net Utility Plant increased to approximately $73,640, a 3.4% increase from 1996, reflecting capital expenditures of $7,393. These expenditures represent automation of the meter reading system as well as continued expansion and enhancement of the distribution system. Results of Operations - ------------------------------------------------------------------------------- 1997 vs. 1996 Earnings available for Common Stock were $3,316 for 1997 as compared to $3,521 for 1996; Earnings Per Share of Common Stock based on the average number of shares outstanding for the same periods were $1.52 and $1.65, respectively. The $.13 or 7.9% decrease in per share earnings from 1996 is due primarily to 9% warmer weather during the heating season. This decrease was offset in part by lower costs through debt restructuring and increased transportation revenues. Berkshire Gas Company 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 ("CGAC"). Consequently, changes in the cost of gas will affect revenue levels, but do not have a corresponding effect on income. Additionally, margins earned on interruptible gas sold and transported are flowed back to the firm customers and therefore are not included in income. Accordingly, the discussion below pertains to Operating Margin. Operating Margin decreased $582 or 2.3% as compared with 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, particularly during the winter heating season when temperatures averaged 9% warmer than 1996, partially offset by higher transportation revenues and an increase in the number of customers.
1997 1996 ------- ------- Firm MCF Sold and Transported 6,428 6,513 Operating Margin $25,253 $25,835 Average Operating Margin Per Firm MCF $ 3.93 $ 3.97
Other Operating Expenses consisted of the following:
1997 1996 ------- ------- Transmission and Distribution $ 3,420 $ 3,304 Customer Accounts 3,029 3,172 Administrative and General 4,382 3,814 Other 1,231 1,192 ------------------ Total $12,062 $11,482 ==================
Other Operating Expenses increased $580 or 5.1% from 1996 levels. The increase reflects higher Administrative and General Costs of $568 due to higher professional fees. These costs reflect the Company's development of a strategic plan as the gas industry deregulates, the implementation of an early retirement program and higher workers compensation insurance. Other Operating Expenses also reflects increased Transmission and Distribution expense of $116 offset by lower Customer Accounts expense of $143, a result of meter reading automation. Depreciation Expense increased by $174 in 1997 over 1996 due to an increase in depreciable assets. Other Income increased $821 or 53.5% from 1996. The increase was primarily due to higher interest of $379 on the undercollection of prior period gas costs through the CGAC, higher Propane revenue of $296 due to increased gross margin and customer growth, and an increase in jobbing revenues of $149 due to increased activity. Interest Expense increased $505 or 14.5% due to the increase in long-term debt used to retire the $8,000, 8.4% Preferred Stock series and the cost of short-term debt to finance undercollected gas costs. Income Taxes decreased $420 from 1996 due to lower taxable earnings. Dividends declared on Preferred Stock decreased $452 due to the retirement of the 8.4% Preferred Stock in the second quarter of fiscal 1997. Overall cost of capital, which includes long-term and short-term interest, CGAC interest and dividends on Preferred Stock, decreased due to the Company's debt restructuring. Common Stock dividends increased $104 due to additional shares outstanding through the Company's Dividend Reinvestment Program ("DRIP") over the twelve-month period and, to a lesser extent, an increase in quarterly dividends to $.285 per share, from $.28 per share, effective the fourth quarter of 1997. 1996 vs. 1995 Earnings available for Common Stock were $3,521 for 1996 as compared to $1,835 for 1995. Earnings Per Share of Common Stock based on the average number of shares outstanding for the same periods were $1.65 and $.92, respectively. The $.73 or 79.3% increase in per share earnings from 1995 is due primarily to more normal weather during the heating season, lower interest costs through the initial stages of debt restructuring and increased operating efficiencies. Operating Margin increased $2,721 or 11.8% as compared with 1995. Operating Margin is primarily affected by the change in the level of firm gas sold and transported. Interruptible gas sold and transported has no effect on Operating Margin since those margins are flowed back to the firm customer. The 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 9.7% colder weather than 1995, particularly during the winter heating season when temperatures averaged 16.6% colder than the 1995 season.
1996 1995 ------- ------- Firm MCF Sold and Transported 6,513 5,948 Operating Margin $25,835 $23,114 Average Operating Margin Per Firm MCF $ 3.97 $ 3.89
Other Operating Expenses consisted of the following:
1996 1995 ------- ------- Transmission and Distribution $ 3,304 $ 3,400 Customer Accounts 3,172 2,740 Administrative and General 3,814 4,173 Other 1,192 1,276 ------------------- Total $11,482 $11,589 ===================
Other Operating Expenses decreased $107 or .9% from 1995 levels. The Company's efforts in cost containment measures improved efficiency and reduced the work force. Decreased Transmission and Distribution expense of $96 reflects reductions in maintenance costs, and lower Administrative and General expense of $359 is due to lower medical costs, legal fees, and other employee benefits. Also contributing to the decrease was lower Other costs, reflecting savings in gas supply expenses and personnel reductions. Partially offsetting these reductions was an increase in Customer Accounts expense, which is primarily reflective of $482 of additional provision for bad debts. Depreciation Expense increased by $223 in 1996 over 1995 due to an increase in the amount of depreciable assets. Other Income increased $19 from 1995. Propane revenues increased $196 from 1995 due to colder winter weather. Partially offsetting the increase was lower jobbing revenue, appliance rentals and reduced interest income resulting from changes in the balance of the overcollection of prior period gas costs through the CGAC. Interest Expense decreased $186 due to the retirement of long-term debt and favorable borrowing rates. The Company called the 9 1/8% Debentures and First Mortgage Bonds (Series K and M) and temporarily financed this through lower-cost, short-term bank loans. Income Taxes increased $1,117 from 1995 due to higher earnings in 1996. Dividends declared on Common Stock increased $141 due to additional shares outstanding, 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 - ------------------------------------------------------------------------------- Cash flows from operating activities have increased over the twelve months ended June 30, 1997, primarily due to refunds from gas suppliers. Capital requirements have been generally funded by both internal and external sources. The issuance of long-term financing is dependent on management's evaluation of need, financial market conditions and other factors. Short-term financing is used to meet seasonal cash requirements. 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 Senior Note at 7.8% due 2021. At June 30, 1996, in accordance with SFAS No. 6, the Company had classified $7,999 of Notes Payable to Banks as Long-Term Debt in anticipation of the Senior Note transaction. During fiscal 1995, the Company sold 295,000 shares of Common Stock, netting proceeds of $4,213 to repay short-term bank borrowings. The Company's capital expenditures were $7,393 in 1997, $6,507 in 1996, and $7,746 in 1995. These construction expenditures primarily represent investments in new and replacement mains and services, and the conversion to automated meter reading. The Company expects fiscal 1998 capital expenditures to total approximately $8,000. Construction expenditures will be financed initially through short-term borrowings and refinanced by issuing long-term debt and/or equity, to the extent that internally generated funds are not available. Beginning June 15, 1993, the Company's Share Owner Dividend Reinvestment and Stock Purchase Plan allowed for the sale of Common Stock shares at a 3.0% discount to plan participants to increase cash flow to support current construction expenditures. As of June 30, 1997, the Company had lines of credit aggregating $22,500, of which $16,020 remained unused. 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 future 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 June 30, 1997, (which are not included in the above estimate of future costs), were $819 and should be recovered over a seven year period through the CGAC. Capitalization at June 30, 1997, excluding current redemption requirements of long-term debt (of which there are currently none), consisted of 55.8% long-term debt, 43.7% common equity, and 0.5% preferred stock. 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. Inflation - ------------------------------------------------------------------------------- The accompanying financial statements reflect the historical cost of events and transactions, regardless of the purchasing power of the dollar at the time. Due to the capital intensive nature of the Company's business, the most significant impact of inflation is on the Company's depreciation of utility plant. Rate regulation, to which the Company is subject, allows recovery through its rates of only the historical cost of utility plant as depreciation. The Company expects that any higher costs experienced upon replacement of existing facilities will be recovered through the normal regulatory process. New Accounting Pronouncement - ------------------------------------------------------------------------------- Statement of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings Per Share," 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 128 been effective for the June 30, 1997, financial statements, computation and presentation of EPS would not change because the earnings per share as reported are consistent with "basic earnings per share" as defined in SFAS 128 and the Company has no dilutive securities. STATEMENTS OF INCOME - ------------------------------------------------------------------------------- (In Thousands)
Years Ended June 30, 1997 1996 1995 - ------------------------------------------------------------------------------ Operating Revenues $48,463 46,050 $47,934 Cost of Gas Sold 23,210 20,215 24,820 - ------------------------------------------------------------------------------ Operating Margin 25,253 25,835 23,114 - ------------------------------------------------------------------------------ Other Operating Expenses 12,062 11,482 11,589 Depreciation 4,020 3,846 3,623 - ------------------------------------------------------------------------------ Total 16,082 15,328 15,212 - ------------------------------------------------------------------------------ Utility Operating Income 9,171 10,507 7,902 Other Income - Net 2,356 1,535 1,516 - ------------------------------------------------------------------------------ Operating and Other Income 11,527 12,042 9,418 Interest Expense 3,978 3,473 3,667 Other Taxes 1,771 1,714 1,697 - ------------------------------------------------------------------------------ Pre-tax Income 5,778 6,855 4,054 Income Taxes 2,222 2,642 1,525 - ------------------------------------------------------------------------------ NET INCOME $3,556 $4,213 $2,529 ============================================================================== Earnings Available for Common Stock $3,316 $3,521 $1,835 ============================================================================== Average Shares of Common Stock Outstanding 2,181.5 2,129.2 1,990.5 - ------------------------------------------------------------------------------ Earnings Per Share of Common Stock $1.52 $1.65 $0.92 ==============================================================================
Reference should be made to Notes to Financial Statements. BALANCE SHEETS - -------------------------------------------------------------------------------
(In Thousands) June 30, 1997 1996 1995 - ---------------------------------------------------------------------------------------- ASSETS Utility Plant: Utility Plant-at original cost $101,983 $96,571 $91,863 Less: Accumulated Depreciation 28,343 25,356 22,537 - ---------------------------------------------------------------------------------------- Utility Plant-Net 73,640 71,215 69,326 - ---------------------------------------------------------------------------------------- Other Property: Other Property-at original cost 11,983 11,229 10,766 Less: Accumulated Depreciation 5,887 5,280 4,804 - ---------------------------------------------------------------------------------------- Other Property-Net 6,096 5,949 5,962 - ---------------------------------------------------------------------------------------- Current Assets: Cash and Cash Equivalents 356 196 492 Accounts Receivable 7,255 6,466 6,612 Other Receivables 332 347 234 Inventories 3,665 3,070 3,236 Prepayments and Other 689 307 178 Prepaid Taxes 96 249 (125) Recoverable(Refundable) Gas Costs 1,404 (831) (4,117) - ---------------------------------------------------------------------------------------- Total Current Assets 13,797 9,804 6,510 - ---------------------------------------------------------------------------------------- Deferred Debits: Unamortized Debt Expense - Net 2,302 729 578 Capital Stock Expense - Net 319 508 638 Environmental Cleanup Costs 819 973 1,046 Other 1,425 1,192 787 - ---------------------------------------------------------------------------------------- Total Deferred Debits 4,865 3,402 3,049 - ---------------------------------------------------------------------------------------- Recoverable Environmental Cleanup Costs 3,290 3,290 2,894 - ---------------------------------------------------------------------------------------- TOTAL ASSETS $101,688 $93,660 $87,741 ======================================================================================== CAPITALIZATION AND LIABILITIES Common Shareholders' Equity: Common Stock $ 5,529 $ 5,382 $ 5,259 Premium on Common Stock 17,097 16,330 15,711 Retained Earnings 8,739 7,883 6,718 - ---------------------------------------------------------------------------------------- Total Common Shareholders' Equity 31,365 29,595 27,688 - ---------------------------------------------------------------------------------------- Redeemable Cumulative Preferred Stock 363 8,406 8,448 - ---------------------------------------------------------------------------------------- Long-Term Debt (less current maturities) 40,000 31,999 30,983 - ---------------------------------------------------------------------------------------- Current Liabilities: Notes Payable to Banks 6,480 3,636 0 Current Maturities of Long-Term Debt 0 0 900 Accounts Payable 3,513 3,176 3,091 Other Current Liabilities 4,621 2,453 4,557 - ---------------------------------------------------------------------------------------- Total Current Liabilities 14,614 9,265 8,548 - ---------------------------------------------------------------------------------------- Other Liabilities 1,561 1,159 961 - ---------------------------------------------------------------------------------------- Unamortized Investment Tax Credit 1,209 1,280 1,355 - ---------------------------------------------------------------------------------------- Deferred Income Taxes 9,286 8,666 6,864 - ---------------------------------------------------------------------------------------- Reserve for Recoverable Environmental Cleanup Costs 3,290 3,290 2,894 - ---------------------------------------------------------------------------------------- TOTAL LIABILITIES AND OTHER CREDITS $101,688 $93,660 $87,741 ========================================================================================
Reference should be made to Notes to Financial Statements. STATEMENTS OF SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------- (In Thousands, Except Share Amounts)
Redeemable Common Stock Cumulative Preferred ----------------------------------------- -------------------- Par Retained Shares Value Premium Earnings Shares Cost - ------------------------------------------------------------------------------------------------- Balance at June 30, 1994 1,766,909 $4,417 $11,431 $7,098 84,906 $ 8,491 Public Offering 295,000 738 3,756 Issuance through Dividend Reinvestment Program 41,523 104 524 Net Income 2,529 Dividends on Preferred Stock (694) Dividends on Common Stock (2,215) Redemption of Preferred Stock (428) (43) - ------------------------------------------------------------------------------------------------- Balance at June 30, 1995 2,103,432 $5,259 $15,711 $6,718 84,478 $ 8,448 Issuance through Dividend Reinvestment Program 49,160 123 619 Net Income 4,213 Dividends on Preferred Stock (692) Dividends on Common Stock (2,356) Redemption of Preferred Stock (423) (42) - -------------------------------------------------------------------------------------------------- Balance at June 30, 1996 2,152,592 $5,382 $16,330 $ 7,883 84,055 $ 8,406 Issuance through Dividend Reinvestment Program 59,059 147 767 Net Income 3,556 Dividends on Preferred Stock (240) Dividends on Common Stock (2,460) Redemption of Preferred Stock (80,423) (8,043) - -------------------------------------------------------------------------------------------------- Balance at June 30, 1997 2,211,651 $5,529 $17,097 $ 8,739 3,632 $ 363 ==================================================================================================
Reference should be made to Notes to Financial Statements. STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------
(In Thousands) Years Ended June 30, 1997 1996 1995 - --------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net Income.......................................... $3,556 $4,213 $2,529 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization....................... 4,897 4,732 4,477 Provision for Losses on Accounts Receivable......... 973 1,225 741 (Recoverable) Refundable Gas Costs.................. (2,235) (3,286) 3,615 Deferred Income Taxes............................... 620 1,802 (1,419) Changes in Assets and Liabilities Which Provided (Used) Cash: Accounts and Other Receivables...................... (1,747) (1,192) 1,233 Inventories......................................... (595) 166 393 Unamortized Debt Expense............................ (169) (196) 0 Unamortized Capital Stock Expense................... 0 0 (155) Accounts Payable.................................... 337 85 315 Taxes Accrued....................................... 153 (374) 280 Consumer Rebates and Other.......................... 2,108 (2,368) 960 - --------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities........... 7,898 4,807 12,969 - --------------------------------------------------------------------------------------- Cash Flows from Investing Activities: Capital Expenditures and Disposal Costs............. (7,393) (6,507) (7,746) - --------------------------------------------------------------------------------------- Net Cash Used in Investing Activities............... (7,393) (6,507) (7,746) - --------------------------------------------------------------------------------------- Cash Flows from Financing Activities: Dividends Paid..................................... (2,700) (3,048) (2,909) Current Maturities of Long-Term Debt............... 0 (900) 0 Proceeds from (Principal Payments on) Issuance of Long-Term Debt.................................... 16,000 (6,983) (100) Proceeds from (Principal Payments on) Notes Payable Borrowings-Net.................................... (5,155) 11,635 (6,580) Proceeds from Issuance of Common Stock-Net.......... 0 0 4,213 Redemption of Preferred Stock (Including Call Premium)........................................... (9,360) 0 0 Proceeds from Other Stock Transactions-Net.......... 870 700 580 - --------------------------------------------------------------------------------------- Net Cash (Used in) Provided by Financing Activities (345) 1,404 (4,796) - --------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents.. 160 (296) 427 Cash and Cash Equivalents at Beginning of Year........ 196 492 65 - --------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year.............. $356 $196 $492 ======================================================================================= Supplemental Disclosures of Cash Flow Information: Cash Paid During the Year for: Interest (net of amount capitalized)............... $3,974 $3,336 $3,452 Income Taxes (net of refund)....................... 1,527 1,281 3,027 ======================================================================================= Supplemental Disclosures of Financing Activities: In 1996, the Company reclassified $7,999 from Short-Term Notes Payable to Long-Term Debt. (See footnote on Long-Term Debt) =======================================================================================
Reference should be made to Notes to Financial Statements. NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- (Dollars in Thousands, Except Share and Per-Share Amounts) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ------------------------------------------------------------------------------- The Berkshire Gas Company ("the Company") is a publicly owned utility engaged in the distribution and sale of natural gas for residential, commercial and industrial use, as well as the transportation of natural gas for larger industrial users. The Company also sells and leases gas burning equipment, and markets liquefied petroleum gas through its Berkshire Propane operations. The Company's utility service territory encompasses portions of three counties in western Massachusetts. It also markets propane throughout the western portion of Massachusetts, eastern New York and southern Vermont. The Company is subject to regulation by the Massachusetts Department of Public Utilities ("MDPU") as it relates to utility service. The Company's accounting policies conform to Generally Accepted Accounting Principles ("GAAP") as applied to public utilities giving effect to the accounting practices and policies of the MDPU. Income Taxes - ------------------------------------------------------------------------------- The Company uses the liability method in calculating deferred income taxes. The Company records deferred income tax liabilities for temporary differences between the basis of assets and liabilities for financial reporting and income tax purposes at tax rates expected to be in effect during the periods the temporary differences reverse. The Company has excess deferred taxes which has resulted in the recording of a regulatory liability. The regulatory liability reflects amounts due to the ratepayers which will be refunded through the regulatory process. Depreciation - ------------------------------------------------------------------------------- The Company depreciates its utility plant at straight line rates approved by the MDPU. The current composite depreciable rate is 4.04% and has been in effect since April 1, 1993. Depreciable non-utility property consists of rental equipment, propane tanks and related equipment used in the Company's liquefied petroleum gas operations, and is depreciated at annual rates ranging from 2.5% to 20.0%. Revenues - ------------------------------------------------------------------------------- Customer meters are read or estimated on a cycle basis throughout each month. After the reading or estimation is prepared, customers are billed for their gas usage and any applicable monthly rental fee. At the time of billing, revenues are recorded. Pursuant to the MDPU, the Company is required to recover increases in gas costs and to refund any decreases in gas costs by way of the Cost of Gas Adjustment Clause ("CGAC"). A gas adjustment charge or refund for estimated gas costs as compared with actual gas costs and any profit on the sale of interruptible volumes are included in the monthly customer billings via the CGAC. Any difference between actual and estimated gas costs plus interest is accrued or deferred and is recorded in the month the related revenue is billed. Unamortized Debt Expense - ------------------------------------------------------------------------------- The issuance costs associated with long-term debt are deferred and amortized over the life of the issue. Investment Tax Credit - ------------------------------------------------------------------------------- The unamortized balance of the Investment Tax Credit ("ITC") relating to machinery and equipment acquisitions up through 1986 is deducted from federal income taxes and is deferred on the balance sheet, as prescribed by the MDPU, and is being amortized over the expected lives of the applicable assets. The unamortized balance of the ITC for the years ended June 30, 1997, 1996 and 1995, was $1,209, $1,280 and $1,355, respectively. The amortized portion for the years ended June 30, 1997, 1996 and 1995, was $71, $75 and $75. Utility Plant - ------------------------------------------------------------------------------- The cost of maintenance, repairs and the renewal of items determined to be less than full units of plant property are charged to maintenance expense accounts. The cost of betterments and the renewal of full units of plant property are charged to plant property accounts. Costs include materials, labor and indirect charges for engineering, general and administrative and supervisory services. The book value of plant property replaced, retired or sold is concurrently removed from such plant property accounts and charged to accumulated depreciation along with its associated removal costs, less any salvage value. A functional classification for the cost of utility plant at June 30 is as follows:
1997 1996 1995 ---------------------------------------------------------------------------- Transmission and Distribution Plant....... $ 87,206 $82,255 $77,128 General Plant............................. 9,387 9,498 9,549 Manufactured Gas Production Plant......... 4,518 4,485 4,455 Construction in Progress.................. 872 333 731 ---------------------------------------------------------------------------- Total..................................... $101,983 $96,571 $91,863 ============================================================================
Transmission and Distribution Plant consists of mains, services and meters, the cost for their installation, land and rights of way, and measuring and regulating station equipment which is used to deliver and monitor gas used by the customer. General Plant consists of structures and their improvements, office furniture and equipment, including computers, and transportation equipment. The Manufactured Gas Production Plant consists of land, gas mixing equipment and liquefied petroleum gas equipment used to supplement natural gas volumes during the peak season in order to meet customer demand. Earnings per Share - ------------------------------------------------------------------------------- Earnings per Common Share have been computed by dividing earnings applicable to Common Stock by the weighted average number of shares of Common Stock outstanding during each year. Estimates - ------------------------------------------------------------------------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Long-Lived Assets - ------------------------------------------------------------------------------- In fiscal 1997, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The statement requires entities to review long-lived assets and intangible assets in certain circumstances, and if the value of the assets is impaired, an impairment loss shall be recognized. Due to the Company's previous accounting policies, this pronouncement had no material effect on the Company's financial position or results of operations. New Accounting Pronouncement - ------------------------------------------------------------------------------- Statement of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings Per Share," 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 128 been effective for the June 30, 1997, financial statements, computation and presentation of EPS would not change because the earnings per share as reported are consistent with "basic earnings per share" as defined in SFAS 128 and the Company has no dilutive securities. ACCOUNTS RECEIVABLE - ------------------------------------------------------------------------------- Details of accounts receivable, net of allowance for doubtful accounts, as of June 30 were as follows:
1997 1996 1995 ------------------------------------------------------------ Utility Service............... $6,386 $5,781 $6,103 Merchandise and Jobbing....... 103 117 118 Liquefied Petroleum........... 766 568 391 ------------------------------------------------------------ Total - Net................... $7,255 $6,466 $6,612 ============================================================
The allowance for doubtful accounts as of June 30, 1997, 1996 and 1995, respectively, was: Utility - $900, $720, and $832; Merchandise - $43, $33 and $44; Liquefied Petroleum - $78, $63 and $74. INVENTORIES - ------------------------------------------------------------------------------- Materials, supplies and liquefied petroleum used in the non-utility operations are valued at the lower of average cost or market value; liquefied petroleum used in the utility operations is valued at cost; and natural gas is recorded at cost. The details of these inventories as of June 30 were as follows:
1997 1996 1995 - ----------------------------------------------------------- Materials and Supplies........ $1,675 $1,492 $1,284 Natural Gas................... 1,844 1,330 1,702 Liquefied Petroleum........... 146 248 250 - ----------------------------------------------------------- TOTAL - Net................ $3,665 $3,070 $3,236 ===========================================================
RECLASSIFICATION - ------------------------------------------------------------------------------- The Company has reclassified certain amounts for prior years to conform with the 1997 presentation. COMMON STOCK - ------------------------------------------------------------------------------- The Company offers a plan for the purchase of Common Stock whereby all participants in the plan are eligible to purchase shares at a 3% discount of the average of the daily high and low prices for the five consecutive trading days ending on and including the day of purchase. Participants can purchase shares by reinvesting dividends on Common Stock already held and/or through optional cash payments. During the current fiscal year, the Company received approval from the MDPU for an additional 200,000 shares to be issued through the DRIP. During fiscal 1995, the Company sold 295,000 shares of Common Stock in a public offering. The Charter provisions applicable to the 4.8% Cumulative Preferred Stock, the First Mortgage Indenture and the 7.8% Senior Note contain restrictions on the use of retained earnings for the payment of cash dividends on, or purchases of, Common Stock. At June 30, 1997, the Company's retained earnings were $8,739. At such date, under the most restrictive of these provisions, $4,966 of the retained earnings were unrestricted. REDEEMABLE CUMULATIVE PREFERRED STOCK - ------------------------------------------------------------------------------- (Actual Shares and Dollars) The Company has one series of 4.8% Cumulative Preferred Stock authorized. The redemption price per share (as well as the amount due on voluntary liquidation) is $100.00. The provisions of the 4.8% Cumulative Preferred Stock require the Company to offer to purchase up to 450 shares at par annually on September 15. Pursuant thereto, the Company purchased 423 shares during 1997, 423 shares during the 1996 fiscal year, and 428 shares during 1995. During the second quarter of fiscal 1997, the Company repurchased the 80,000 shares of the 8.4% Preferred Stock at $117 per share (see Long-Term Debt footnote). LONG-TERM DEBT - ------------------------------------------------------------------------------- Details regarding the Company's First Mortgage Bonds, Debentures, Senior and Medium-Term Notes Payable, and sinking funds (due after one year) as of June 30 were as follows:
Interest Final Description Rate Maturity 1997 1996 1995 - --------------------------------------------------------------------------- First Mortgage Bonds: Series K 7.875 1997 $ 0 $ 0 $ 520 M 9.375 1998 0 0 720 P 10.060 2019 10,000 10,000 10,000 Debenture: 9.125 2006 0 0 5,743 Senior Note: 9.600 2020 8,000 8,000 8,000 Medium-Term Note: 6.922 1999 6,000 6,000 6,000 Senior Note: 7.800 2021 16,000 7,999 0 - --------------------------------------------------------------------------- TOTAL.................................... $40,000 $31,999 $30,983 ===========================================================================
All interest rates are fixed except the Medium-Term Note, which is variable based upon the LIBOR six month rate and which is convertible at the option of the Company to a fixed rate based upon the lender's cost of funds rate. The aggregate amount of maturities due are: 1998 - $0; 1999 - $6,000; 2000 - $0; 2001 - $0, 2002 - 0; and $34,000 maturing thereafter per the dates in the table above. The First Mortgage Bonds are collateralized by substantially all of the utility plant. During 1997, in conjunction with the Company's cost containment incentives, the Company revised its capital structure to lower its borrowing costs. The Company issued a $16,000, 7.8% Senior Note and used the proceeds to redeem 80,000 shares of the 8.4% Preferred Stock and to refinance $7,999 of short-term bank debt. At June 30, 1996, for financial reporting purposes, the Company had classified the $7,999 of short-term bank debt as long-term in anticipation of the issuance of the 7.8% Senior Note. The Indentures of the Series P Mortgage Bonds and 7.8% Senior Note contain certain restrictive and financial covenants, principally calculation of a fixed charge ratio, return on equity, and limitation on funded debt. As of June 30, 1997, the Company was not in violation of any such covenants. SHORT-TERM LOANS AND COMPENSATING BALANCES - ------------------------------------------------------------------------------- The Company has lines of credit aggregating $22,500 with various banks, of which $16,020 remained unused as of June 30, 1997. The lines of credit are reviewed periodically with various banks and may be renewed or cancelled. In connection with these lines of credit, the Company borrows at less than the prime rate. In lieu of compensating balance requirements, the Company pays commitment fees on a portion of its credit lines equating to 3/8 of 1% on $4,000 with the various banks. Information as to short-term borrowings is as follows:
1997 1996 1995 - ---------------------------------------------------------------------------------- Balance Outstanding at June 30..................... $ 6,480 $ 3,636 $ 0 Maximum Amount of Borrowings at Any Month-End...... 19,190 10,410 10,470 Average Borrowings During the Year................. 12,434 6,561 5,604 Average Interest Rate at End of Year............... 6.72% 6.40% 7.31% Weighted Average Interest Rate During the Year..... 6.44% 6.46% 6.60%
OTHER CURRENT LIABILITIES - ------------------------------------------------------------------------------- Details of other current liabilities as of June 30 were as follows:
1997 1996 1995 - ------------------------------------------------------------ Accrued Interest................ $ 927 $ 769 $ 839 Insured Retirement Plan......... 192 292 377 Dividends Declared.............. 635 776 752 Accrued Consumer Rebates........ 2,251 139 2,044 Other........................... 616 477 545 - ------------------------------------------------------------ TOTAL........................ $4,621 $2,453 $4,557 ============================================================
Accrued consumer rebates represent refunds received from a major supplier of natural gas to the Company. The refunds are associated with the suppliers' rate case before FERC, and are to be refunded to the ratepayer during the next fiscal year. LEASE COMMITMENTS - ------------------------------------------------------------------------------- The Company is committed under operating leases having an initial lease term of one year or more expiring on various dates. Rental expense under all long-term operating leases aggregated $695, $204 and $88 in fiscal 1997, 1996 and 1995, respectively. The minimum future obligations under long-term noncancelable leases in effect at June 30, 1997, were as follows: 1998 $ 813 1999 681 2000 362 2001 166 2002 95 ------ Total $2,117 ======
INCOME TAXES - ------------------------------------------------------------------------------- The difference in the effective tax rate compared with the statutory tax rate is shown in the following table:
1997 1996 1995 - ---------------------------------------------------------------------- Tax at Statutory Rate...................... 34% 34% 34% State Taxes (Net of Federal Benefit)....... 4.5 4.4 4.5 Investment Tax Credit...................... (1.2) (1.1) (1.9) Permanent Differences...................... 1.2 1.2 1.0 - ---------------------------------------------------------------------- Effective Tax Rate......................... 38.5% 38.5% 37.6% ======================================================================
A summary of the tax provision is as follows:
1997 1996 1995 - ---------------------------------------------------------------- Federal Income - Current........... $1,393 $ 790 $2,169 Federal Income - Deferred.......... 437 1,391 (923) State - Current.................... 285 190 512 State - Deferred................... 107 271 (233) - ---------------------------------------------------------------- TOTAL........................... $2,222 $2,642 $1,525 ================================================================
The components of the net deferred income tax liability at June 30 are as follows:
1997 1996 1995 - ---------------------------------------------------------------------------- Deferred Liabilities: Investment Tax Credit...................... $ 467 $ 512 $ 558 Excess Tax over Book Depreciation.......... 8,837 8,802 8,731 Recoverable (Refundable) Gas Costs......... 301 (545) (1,789) Environmental Response Costs............... 228 225 207 - ---------------------------------------------------------------------------- Total Deferred Liabilities............. 9,833 8,994 7,707 - ---------------------------------------------------------------------------- Deferred Assets: Other.................................... (547) (328) (843) - ---------------------------------------------------------------------------- Total Deferred Assets.................. (547) (328) (843) - ---------------------------------------------------------------------------- Total Net Deferred Income Taxes.............. $9,286 $8,666 $ 6,864 ============================================================================
CONTINGENCIES - ------------------------------------------------------------------------------- Federal, state and local laws and regulations establishing standards and requirements for the protection of the environment have increased in number and scope in recent years. The Company cannot predict the future impact of such standards and requirements, which are subject to change and can be retroactively applied. During fiscal 1990, the MDPU issued a generic ruling on cost recovery for environmental cleanup with respect to former gas manufacturing sites. Under the ruling, the Company will recover annual cleanup costs, excluding carrying costs, over a seven-year period through the 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 year ended June 30, 1997, 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 one site, the investigative activities are continuing, while at the second site, the investigative work is near completion and remedial alternatives are being examined. 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 2012 the level of future expenditures for the sites will range from $3,290 to $12,302. The Company has recorded the most likely cost of $3,290 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 June 30, 1997 (which are not included in the above estimate of future costs), were $819 and should be recovered using the formula discussed above. FERC Order 636 provides for 100% recovery by pipelines of any "Transition Costs" prudently incurred as a result of industry restructuring. As these costs have been and may be approved in the future, they have been and will be passed through to the Company as demand charges associated with the transportation of gas through the pipeline. Under current rate structures, these costs are recovered through the CGAC. Legal Matters - ------------------------------------------------------------------------------- The Company is involved with other legal proceedings incidental to its business. At the present time the Company cannot predict the outcome of these proceedings and also believes that the outcomes will not have a material adverse impact on its overall financial position or results of operations. OTHER INCOME - ------------------------------------------------------------------------------- A condensed summary of the Company's non-utility operations before income tax (included in the "Statements of Income under "Other Income - Net") as of June 30 is as follows:
1997 1996 1995 - ---------------------------------------------------------------- Merchandise and Jobbing: Sales............................ $1,064 $ 892 $1,068 Cost of Sales and Expenses....... 730 718 862 - ---------------------------------------------------------------- Net............................... 334 174 206 - ---------------------------------------------------------------- Appliance Rentals: Revenues......................... 1,410 1,404 1,380 Expenses......................... 797 774 671 - ---------------------------------------------------------------- Net............................... 613 630 709 - ---------------------------------------------------------------- Liquefied Petroleum Gas: Sales............................ 5,469 4,634 4,022 Cost of Sales and Expenses....... 4,657 4,118 3,703 - ---------------------------------------------------------------- Net............................... 812 516 319 - ---------------------------------------------------------------- Miscellaneous Net................. 597 215 282 - ---------------------------------------------------------------- TOTAL.......................... $2,356 $1,535 $1,516 ================================================================ POST-RETIREMENT BENEFITS - ------------------------------------------------------------------------------- The Company has non-contributory funded retirement income plans covering substantially all employees. The cost of the plans is actuarially determined, and it is the Company's policy to fund accrued pension costs. The net pension cost in 1997, 1996 and 1995, is summarized as follows:
1997 1996 1995 - ---------------------------------------------------------------------- Service Cost............................. $ 556 $ 608 $ 634 Interest Cost............................ 1,242 1,222 1,135 Return on Plan Assets: Actual.................................. (2,019) (3,491) (1,009) Deferred................................ 447 1,955 (397) - ---------------------------------------------------------------------- Net Recognized Return on Plan Assets... (1,572) (1,536) (1,406) Other.................................... 283 218 259 - ---------------------------------------------------------------------- Net Pension Cost....................... $ 509 $ 512 $ 622 ======================================================================
The funded status and accrued pension cost for the defined benefit plans at June 30 are as follows:
1997 1996 1995 - -------------------------------------------------------------------------------- Fair Value of Plan Assets........................ $22,281 $20,593 $17,267 Projected Benefit Obligation..................... 17,146 16,946 16,647 - -------------------------------------------------------------------------------- Excess of Fair Value of Plan Assets Over Projected Benefit Obligation.................... 5,135 3,647 620 Unrecognized Net Gain............................ (7,674) (6,213) (3,315) Unrecognized Prior Service Cost.................. 1,000 953 930 Unrecognized Net Obligation (at transition)...... 1,110 1,290 1,469 - -------------------------------------------------------------------------------- Accrued Pension Cost............................. $ (429) $ (323) $ (296) ================================================================================ Accumulated Benefit Obligation................... $14,597 $14,240 $13,314 ================================================================================ Vested Benefit Obligation........................ $14,577 $14,151 $13,293 ================================================================================ Assumed Discount Rate............................ 7.75% 7.5% 7.00% Assumed Rate of Compensation Increase............ 4.125% 4.125% 5.625% Expected Rate of Return on Plan Assets........... 8.75% 9.25% 9.25% - --------------------------------------------------------------------------------
Plan assets are invested in equity securities, debt securities and cash equivalents, and the balance is in other investments, principally real estate. The benefit formula is based either on the number of years of service or the employee's average base salary for the five years yielding the highest average. The Company maintains a 401(k) Post-Retirement Plan for all Company employees. The Company matches up to 3.5% of a participating employee's annual salary. The expense for the years ended June 30, 1997, 1996 and 1995, related to the 401(k) Plan was $219, $222 and $223, respectively. Fair Value of Financial Instruments - ------------------------------------------------------------------------------- Because of the short maturity of certain assets, which include Cash, Cash Equivalents and Accounts Receivable, and certain liabilities, which include Accounts Payable, these instruments are stated at amounts which approximate fair value. Long-Term Debt: Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair values of existing debt. As of June 30, 1997, the estimated fair values of the Series P Mortgage Bonds, the 9.6% Senior Note, and the 7.8% Senior Note were $12,281, $9,052 and $15,704, respectively. The Medium-Term Note carries a variable interest rate and matures within two years. As such, the carrying value approximates fair value. Redeemable Preferred Stock: It was not practicable to estimate the fair value of the 4.8% Redeemable Preferred Stock, as any resultant difference between the fair value and its carrying value is immaterial. INDEPENDENT AUDITORS' REPORT Deloitte & Touche LLP - ------------- -------------------------------------------- City Place Telephone:(860)280-3000 185 Asylum Street Facsimile:(860)280-3051 Hartford, Connecticut 06103-3402 To the Shareholders of The Berkshire Gas Company: We have audited the accompanying balance sheets of The Berkshire Gas Company for the years ended June 30, 1997, 1996 and 1995, and the related statements of income, shareholders' equity and of cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company at June 30, 1997, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP Deloitte & Touche LLP August 15, 1997 QUARTERLY FINANCIAL INFORMATION - ------------------------------- A comparison of unaudited quarterly financial information is presented on page 31. ANNUAL MEETING - -------------- The annual meeting of shareholders will be held in Pittsfield, Massachusetts, at the Crowne Plaza Pittsfield Hotel (formerly the Berkshire Hilton Inn), on Friday, November 7, 1997, at 10:00 A.M. SHARE OWNER DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN - --------------------------------------------------------- The Company has a program which allows for the reinvestment of dividends and optional cash payments to purchase additional shares of the Company's Common Stock at a 3% discount. The Plan is available to all shareholders of 10 or more shares and provides a convenient method to acquire additional shares without fees or other charges. Shareholders who wish to take advantage of the Plan or want additional information may do so by contacting: The Berkshire Gas Company Attn.: Secretary of the Share Owner Dividend Reinvestment and Stock Purchase Plan Committee 115 Cheshire Road Pittsfield, Massachusetts 01201-1879 (413) 442-1511 TRANSFER AGENT - -------------- State Street Bank and Trust Company P.O. Box 8200 Boston, Massachusetts 02266-8200 STOCK LISTING - ------------- The Common Stock of The Berkshire Gas Company is traded on the National Over-the-Counter Market and is quoted through the NASDAQ System under the symbol BGAS. FORM 10-K INFORMATION - --------------------- Upon written request to the Company at 115 Cheshire Road, Pittsfield, Massachusetts 01201-1879, a copy of the Company's current Form 10-K Annual Report, as filed with the Securities and Exchange Commission, will be provided to any shareholder without charge. This report has been prepared for the purposes of information and record only and not in connection with the sale or offer for sale of securities, or any solicitation of an offer to buy securities. QUARTERLY FINANCIAL INFORMATION - ------------------------------------------------------------------------------- For the Fiscal Year Ended June 30, (In Thousands, Except Per-Share Amounts) (Unaudited)
1997 First Second Third Fourth - ----------------------------------------------------------------------------- Operating Revenues $4,117 $12,109 $21,803 $10,434 Operating and Other Income (165) 3,298 6,834 1,560 Income (Loss) Before Income Taxes (1,143) 1,826 4,932 163 Net Income (Loss) (708) 1,124 3,042 98 Earnings (Loss) Per Share (0.41) 0.48 1.38 0.06 Dividends Declared Per Share 0.28 0.28 0.28 0.285 Prices of Common Shares: High 16 3/4 18 17 1/2 16 Low 14 7/8 15 1/4 15 1/4 15 1996 - ----------------------------------------------------------------------------- Operating Revenues $4,153 $11,952 $21,059 $8,886 Operating and Other Income 133 3,163 7,198 1,547 Income (Loss) Before Income Taxes (925) 1,849 5,495 436 Net Income (Loss) (574) 1,138 3,387 262 Earnings (Loss) Per Share (0.35) 0.45 1.50 0.04 Dividends Declared Per Share 0.275 0.275 0.275 0.28 Prices of Common Shares: High 15 1/2 17 16 3/4 16 Low 14 15 15 14 3/4 1995 - ----------------------------------------------------------------------------- Operating Revenues $4,832 $12,086 $21,615 $9,401 Operating and Other Income (Loss) (124) 2,378 5,869 1,295 Income (Loss) Before Income Taxes (1,258) 1,036 4,180 96 Net Income (Loss) (766) 656 2,556 83 Earnings (Loss) Per Share (0.53) 0.23 1.14 (0.04) Dividends Declared Per Share 0.275 0.275 0.275 0.275 Prices of Common Shares: High 17 3/4 16 3/4 16 15 3/4 Low 16 14 1/4 14 3/4 14
The Common Stock of The Berkshire Gas Company is traded on the National Over-the-Counter Market and is quoted through the NASDAQ System (BGAS). Primarily because of the relatively small number of shareholders and the infrequency of trading, the average bid and asked prices noted above do not necessarily reflect actual transactions. Earnings per Common Share have been computed based on average Common Shares outstanding in each period after recognition of Preferred Stock dividends. It is currently the policy of the Board of Directors to declare cash dividends payable in July, October, January and April. The dividend rate is reassessed regularly in light of existing conditions, the needs of the Company and the interests of shareholders. The sum of the quarterly earnings (loss) per share amounts may not equal the annual income per share due to the issuance of Common Stock and rounding. Officers - -------- SCOTT S. ROBINSON President and Chief Executive Officer MICHAEL J. MARRONE Vice President, Treasurer and Chief Financial Officer LES H. HOTMAN Vice President, Supply, Rates and Planning ROBERT M. ALLESSIO Vice President, Marketing and Distribution DONALD P. ATWATER Vice President, Customer Services CHERYL M. CLARK Clerk of the Corporation Directors - --------- GEORGE R. BALDWIN** Area Chairman, Arthur J. Gallagher & Co., a national insurance brokerage firm JOHN W. BOND* ** President, Kimbell Financial, Inc., a financial services company PAUL L. GIOIA** Of Counsel, LeBoeuf, Lamb, Greene & MacRae, a law firm FRANKLIN M. HUNDLEY* Chairman of the Board, The Berkshire Gas Company Member and a Managing Director, Rich, May, Bilodeau & Flaherty, P.C., a law firm JAMES R. KEYS President, J.R. Keys & Assoc. Inc., a marketing and government relations consulting firm SCOTT S. ROBINSON* President and Chief Executive Officer, The Berkshire Gas Company ROBERT B. TRASK** President, The Fitzpatrick Companies, formerly Country Curtains, Inc., a mail order/retail firm dealing in household window treatments and accessories - -------------------- * Executive Committee ** Audit Committee EX-27 3 FINANCIAL DATA SCHEDULE - ARTICLE UT
UT 12-MOS JUN-30-1997 JUN-30-1997 PER-BOOK 73,640 6,096 13,797 4,865 3,290 101,688 5,529 17,097 8,739 31,365 0 363 40,000 6,480 0 0 0 0 0 0 23,480 101,688 48,463 2,222 12,062 16,082 9,171 2,356 11,527 3,978 3,556 240 3,316 2,460 0 7,898 1.52 0
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