File No. 070-09391
Filed with the Commission on February 2, 1999
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
AMENDMENT NO. 5
TO FORM U-1
Application
Under the
Public Utility Holding Company Act of 1935
-----------------------------
ROANOKE GAS COMPANY
519 Kimball Avenue, N.E., Roanoke, Virginia 24016
(540) 777-4427
and
RGC RESOURCES, INC.
519 Kimball Avenue, N.E., Roanoke, Virginia 24016
(540) 777-4427
(Names of companies filing this statement and addresses
of principal executive offices)
-----------------------------
John B. Williamson, III
President and Chief Executive Officer
Roanoke Gas Company
and
RGC Resources, Inc.
519 Kimball Avenue, N.E., Roanoke, Virginia 24016
(540) 777-3810
(Name and address of Agent for Service)
-----------------------------
Copy to:
Nicholas C. Conte, Esq.
Nicole C. Daniel, Esq.
Woods, Rogers & Hazlegrove, P.L.C.
First Union Tower, Suite 1400
10 South Jefferson Street
Roanoke, Virginia 24011
(540) 983-7600
<PAGE>
This Amendment No. 5 to Form U-1 Application of Roanoke Gas Company and RGC
Resources, Inc. is for the purpose of filing the following exhibits:
Exhibit C-3 Amended 1998 Annual Report to Shareholders of Roanoke
Gas Company (included as Exhibit 13 to Exhibit C-4 and
Exhibit H-1)
Exhibit C-4 Amendment No. 5 to Registration Statement on Form S-4
Exhibit D-1(d) Order Granting Approval of the Application of
Roanoke Gas Company, Commonwealth Public Service
Corporation and Affiliated Interests for approval of
transactions under Virginia Code, Title 56, Chapters 4 and
5 dated January 19, 1999
Exhibit D-1(e) Order Granting Approval of the Application of
Bluefield Gas Company for approval of transactions under
West Virginia Code Section 24-2-12 dated January 18, 1999
Exhibit H-5 Amendment No. 3 to Roanoke Gas Company's Annual Report on
Form 10-K for the year ended September 30, 1998
-2-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, each of the undersigned companies has duly caused this statement to be
signed on its behalf by the undersigned thereunto duly authorized.
ROANOKE GAS COMPANY
Date: February 2, 1999 By: s/John B. Williamson, III
---------------------
John B. Williamson, III
President and Chief Executive
Officer
RGC RESOURCES, INC.
Date: February 2, 1999 By: s/John B. Williamson, III
----------------------
John B. Williamson, III
President and Chief Executive
Officer
-3-
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
*A-1 Articles of Incorporation, Bylaws and a specimen stock
certificate of Roanoke Gas Company
*A-2 Articles of Incorporation, Bylaws and a specimen stock
certificate of RGC Resources, Inc.
*A-3 Articles of Incorporation, Bylaws and a specimen stock
certificate of Bluefield Gas Company
*A-4 Articles of Incorporation, Bylaws and a specimen stock
certificate of Commonwealth Public Service Corporation
*A-5 Articles of Incorporation, Bylaws and a specimen stock
certificate of RGC Acquisition Corp.
*B-1 Agreement and Plan of Merger and Reorganization
*B-2 Diagram of present and proposed corporate structure
*C-1 Draft Registration Statement on Form S-4 registering shares of
RGC Resources, Inc. common stock to be issued in the merger and
reorganization
*C-2 Prospectus/Proxy Statement of Resources and Roanoke Gas Company
C-3 Amended 1998 Annual Report to Shareholders of Roanoke Gas
Company
C-4 Amendment No. 5 to Registration Statement on Form S-4
*D-1(a) Application of Roanoke Gas Company, Commonwealth Public Service
Corporation and Affiliated Interests for approval of
transactions under Virginia Code, Title 56, Chapters 4 and 5,
with all schedules.
*D-1(b) Application of Bluefield Gas Company for approval of
transactions under West Virginia Code Section 24-2-12, with all
schedules.
*D-1(c) Order Extending Time for Review issued by the Virginia State
Corporation Commission
<PAGE>
D-1(d) Order Granting Approval of the Application of Roanoke Gas
Company, Commonwealth Public Service Corporation and Affiliated
Interests for approval of transactions under Virginia Code,
Title 56, Chapters 4 and 5 dated January 19, 1999
D-1(e) Order Granting Approval of the Application of Bluefield Gas
Company for approval of transactions under West Virginia Code
Section 24-2-12 dated January 18, 1999
*E-1 Map showing the interconnection and relationship of the
properties of Roanoke Gas, Bluefield and Commonwealth (submitted
in paper under cover of Form SE dated October 15, 1998 pursuant
to Rule 311(f) of Regulation S-T)
*F-1 Preliminary Opinion of Counsel
**F-2 "Past Tense" Opinion of Counsel
*G-1 Consolidated Balance Sheet of Roanoke Gas Company as of June 30,
1998 and proforma consolidated balance sheet of the Company as
of June 30, 1998, assuming consummation of the merger and
reorganization
*G-2 Consolidated Statement of Income of Roanoke Gas Company for the
twelve-months ended June 30, 1998
*G-3 Financial Data Schedules
*H-1 Roanoke Gas Company Annual Report on Form 10-K for the year
ended September 30, 1997
*H-2 Roanoke Gas Company Quarterly Report on Form 10-Q for the nine-
months ended June 30, 1998
*H-3 Roanoke Gas Company Form U-3A-2 dated February 23, 1998
*H-4 Bluefield Gas Company Form U-3A-2 dated February 23, 1998
H-5 Amendment No. 3 to Roanoke Gas Company's Annual Report on
Form 10-K for the year ended September 30, 1998
*I-1 Projections of natural gas demand and income availability for
diversification
*J-1 Estimated fees and expenses
<PAGE>
*K-1 Officers and directors of Roanoke Gas Company and subsidiaries
*L-1 Proposed Notice of Proceeding required by Rule 22(f)
*M-1 Supplemental Memorandum supporting claim of PUHCA Section
3(a)(1) exemption
- ---------------------
*Previously filed
**To be filed by amendment
<PAGE>
Exhibit C-4
As filed with the Securities and Exchange Commission on January 28, 1999
Registration No. 333-67311
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
AMENDMENT NO. 5 TO FORM S-4
Registration Statement
Under
The Securities Act of 1933
------------------------
RGC RESOURCES, INC.
(Exact name of Registrant as specified in its charter)
Virginia 6719 54-1909697
(State or other Jurisdiction (Primary Standard Industrial (IRS Employer
of Incorporation or Organization) Classification Code Number) Identification
No.)
------------------------
519 Kimball Avenue, N.E., Roanoke, Virginia 24016
(540) 777-4427
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
------------------------
John B. Williamson, III
President and Chief Executive Officer
RGC Resources, Inc.
519 Kimball Avenue, N.E., Roanoke, Virginia 24016
(540) 777-4427
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
------------------------
Copy to:
Nicholas C. Conte, Esq.
Nicole C. Daniel, Esq.
Woods, Rogers & Hazlegrove, P.L.C.
First Union Tower, Suite 1400
10 South Jefferson Street
Roanoke, Virginia 24011
(540) 983-7630
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<PAGE>
[ROANOKE GAS COMPANY LETTERHEAD]
February 5, 1999
Dear Shareholder:
On behalf of our Board of Directors, I cordially invite you to attend the
1999 Annual Meeting of Shareholders of Roanoke Gas Company. The meeting will be
at 9:00 a.m. on Wednesday, March 31, 1999, at the principal office of Roanoke
Gas.
An important purpose of the meeting is to vote on our holding company
proposal. As we previously announced, Roanoke Gas is proposing to reorganize its
natural gas distribution operations and subsidiaries into a holding company
structure to provide us with the organizational flexibility needed in a highly
competitive environment.
The new holding company will be named RGC Resources, Inc., and Roanoke Gas
will be its most significant subsidiary. After completion of the reorganization,
shares of Resources common stock will be traded on Nasdaq under the symbol
"RGCO."
The holding company proposal must be approved by the Securities and
Exchange Commission, the Virginia State Corporation Commission and the West
Virginia Public Service Commission. We also need your approval. The
reorganization cannot be completed unless the holders of more than two-thirds of
Roanoke Gas common stock vote in favor of the proposal. YOUR VOTE IS VERY
IMPORTANT TO US. Your Board of Directors has unanimously approved the proposal
and recommends that shareholders vote "FOR" the proposal.
The holding company reorganization will be implemented through a merger in
which Roanoke Gas shareholders will become holders of Resources common stock.
Approximately 1,850,000 shares of Resources' common stock will replace Roanoke
Gas stock. Specifically, you will receive in the merger one share of Resources
common stock for each full share of Roanoke Gas common stock that you own. If
you hold a fractional share of Roanoke Gas stock because of participation in the
stock purchase or dividend reinvestment plans, the fractional share will be
converted in your plan account to a fractional share of Resources stock. Your
proportionate ownership interest will not change as a result of the
restructuring.
This proxy statement/prospectus provides you detailed information about
the Annual Meeting and the proposed holding company structure and
reorganization. I encourage you to read this entire document carefully.
Consider carefully the "Risk Factors" section beginning on page 7.
If you have any additional questions or need assistance in voting your
shares, please call either Roanoke Gas, at (540) 777-3853, or William F. Doring
and Company, Inc., which is assisting in our proxy solicitation, at (888)
330-5111.
Thank you for your confidence in Roanoke Gas. We are very enthusiastic
about the proposal and are confident we will continue to grow and prosper after
the reorganization.
Sincerely,
John B. Williamson, III
President and Chief Executive Officer
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities to be issued under this
proxy statement/prospectus or determined if this proxy statement/prospectus is
accurate or adequate. Any representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated February 5, 1999,
and is first being mailed to shareholders on February 5, 1999
<PAGE>
ROANOKE GAS COMPANY
519 Kimball Avenue, N.E.
Roanoke, Virginia 24016
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 31, 1999
To the Holders of Common Stock of ROANOKE GAS COMPANY:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Roanoke
Gas Company will be held at the principal office of Roanoke Gas, 519 Kimball
Avenue, N.E., Roanoke, Virginia 24016, on Wednesday, March 31, 1999, at 9:00
a.m., Eastern Standard Time, for the purposes of:
1. Approving an Agreement and Plan of Merger and Reorganization dated
as of September 28, 1998 (a copy of which is attached as Appendix A
to this proxy statement/prospectus), and the transactions
contemplated thereby, to effect a reorganization of Roanoke Gas into
a holding company structure;
2. Electing three directors of Roanoke Gas, each to serve for a three-
year term; and
3. Transacting any other business properly before the Annual Meeting.
Only shareholders of record at the close of business on January 20, 1999,
will be entitled to vote at the Annual Meeting.
If the Agreement and Plan of Merger and Reorganization is approved by
Roanoke Gas shareholders and the reorganization occurs, a holder of record of
Roanoke Gas common stock on the record date who dissents and does not vote "FOR"
the reorganization is entitled to receive payment in cash if that holder follows
the procedures provided in Article 15 of the Virginia Stock Corporation Act,
attached as Appendix C to this proxy statement/prospectus. Further information
regarding voting rights and the business to be transacted at the Annual Meeting
is set forth in the proxy statement/prospectus.
By Order of the Board of Directors
Roger L. Baumgardner
Secretary
Roanoke, Virginia
February 5, 1999
Your vote is important. Even if you plan to be present at the Annual
Meeting, please sign, date and promptly return the enclosed proxy, no matter how
small your holdings, to assure that your shares are represented. No postage is
required on the enclosed proxy if mailed within the United States. If your
shares are held by a broker, bank or nominee, it is important that you give them
your voting instructions.
You should NOT send stock certificates with your Proxy Card.
<PAGE>
TABLE OF CONTENTS
PAGE
QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION...............................1
SUMMARY......................................................................3
The Companies .........................................................3
The Annual Shareholders Meeting........................................3
Record Date; Voting Power..............................................4
Shareholder Vote Required to Approve the Reorganization................4
The Present and Proposed Corporate Structures..........................4
Our Recommendations to Shareholders....................................5
Comparative Shareholders' Rights.......................................5
Statutory Dissenters' Rights...........................................5
Regulation of Resources and Roanoke Gas Resulting from the
Reorganization.......................................................5
Conditions to the Reorganization.......................................6
Amendment or Termination of the Agreement of Merger and Reorganization.6
RISK FACTORS.................................................................7
Initial Resources Common Stock Dividends Will Depend Primarily on
Dividends Paid by Roanoke Gas.......................................7
Resources May in the Future Issue Preferred Stock Which Could Have
Preferential Dividend Rights........................................7
Resources Board Empowered to Impede Takeover Attempts..................7
Business Risk from Increased Involvement in Unregulated Activities.....7
Business Activities May Be Limited as a Results of Regulatory
Changes.............................................................8
Regulation as a Public Utility Holding Company.........................8
THE ANNUAL SHAREHOLDERS MEETING..............................................8
PROPOSAL 1 - APPROVAL OF THE AGREEMENT AND PLAN OF MERGER AND
REORGANIZATION........................................................10
REASONS FOR THE HOLDING COMPANY STRUCTURE AND REORGANIZATION................10
THE REORGANIZATION..........................................................12
The Agreement.........................................................12
Vote Required.........................................................13
Regulatory Approvals..................................................13
Accounting Treatment..................................................13
Conditions to Effectiveness of the Reorganization.....................14
Exchange of Stock Certificates........................................14
Transfer of Roanoke Gas Subsidiaries to Resources.....................15
Dividend Reinvestment and Stock Purchase Plan.........................15
Roanoke Gas Stock Plans...............................................15
Amendment or Termination of the Agreement ...........................16
Listing of Resources Common Stock.....................................16
Cautionary Statement Concerning Forward-Looking Statements............16
DIVIDEND POLICY.............................................................17
FEDERAL INCOME TAX CONSEQUENCES.............................................18
DESCRIPTION OF RESOURCES CAPITAL STOCK......................................19
INDEMNIFICATION AND LIMITATION OF LIABILITY.................................22
CERTAIN DIFFERENCES IN RIGHTS OF ROANOKE GAS AND RESOURCES SHAREHOLDERS.....23
BUSINESS OF ROANOKE GAS AND RESOURCES.......................................24
REGULATION OF RESOURCES AND ROANOKE GAS AND CERTAIN SUBSIDIARIES AFTER
THE REORGANIZATION....................................................26
RIGHT OF DISSENTING SHAREHOLDERS TO RECEIVE PAYMENT FOR SHARES..............28
MANAGEMENT OF RESOURCES.....................................................30
LEGAL OPINION...............................................................30
i
<PAGE>
EXPERTS.....................................................................31
PROPOSAL 2 - ELECTION OF DIRECTORS OF ROANOKE GAS -.........................32
SECURITY OWNERSHIP OF MANAGEMENT............................................33
BOARD OF DIRECTORS AND COMMITTEES...........................................34
EXECUTIVE COMPENSATION......................................................35
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS..............37
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.................40
PERFORMANCE GRAPH...........................................................40
TRANSACTIONS WITH MANAGEMENT................................................41
REMUNERATION OF DIRECTORS...................................................41
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.....................42
INDEPENDENT PUBLIC ACCOUNTANTS..............................................42
OTHER MATTERS...............................................................43
SHAREHOLDER PROPOSALS.......................................................43
WHERE YOU CAN FIND MORE INFORMATION.........................................43
APPENDIX A
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION......................A-1
APPENDIX B
ARTICLES OF INCORPORATION OF RGC RESOURCES, INC......................B-1
APPENDIX C
ARTICLE 15 OF THE VIRGINIA STOCK CORPORATION ACT.....................C-1
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION
1. What is the holding company proposal?
Roanoke Gas proposes to reorganize into a holding company structure. Its
shareholders will become shareholders of a new holding company called RGC
Resources, Inc. As a result of the reorganization:
o Resources will be a holding company owned by the former
shareholders of Roanoke Gas;
o Resources will be the sole shareholder of Roanoke Gas,
Bluefield Gas Company and Diversified Energy Company;
o Commonwealth Public Service Corporation will be merged into
Roanoke Gas.
2. Why is Roanoke Gas proposing this reorganization?
Roanoke Gas believes the reorganization will give it the financial and
regulatory flexibility to compete more effectively in the increasingly
competitive energy industry. Roanoke Gas believes that the holding company
structure will allow it to selectively pursue nonutility businesses, and to act
more rapidly in an industry where unregulated competitors do not have the same
constraints as regulated entities. We also believe that a holding company
structure should provide greater opportunities for growth and enhanced values,
greater flexibility in developing new businesses, and greater flexibility
regarding the timing, method and amount of financing and acquisitions through
the separation of utility and nonutility businesses.
3. What will I receive in the reorganization?
You will receive one share of Resources common stock in exchange for each
share of Roanoke Gas common stock you hold on the effective date of the
reorganization. Your proportionate ownership interest will not change as a
result of the reorganization.
4. When do you expect the reorganization to be completed?
We are working to complete the reorganization in the Summer of 1999,
provided that we have received all regulatory approvals and satisfied other
closing conditions.
5. Where will Resources common stock be traded? What will be the ticker
symbol?
Resources common stock will be traded on the Nasdaq National Market. It is
anticipated that it will trade under the ticker symbol "RGCO."
Roanoke Gas is presently traded on the Nasdaq National Market under the
same symbol. After the reorganization, all of the Roanoke Gas common stock will
be owned by Resources and will no longer be eligible for trading and quotation
on the Nasdaq National Market.
1
<PAGE>
6. Who will manage the holding company?
The directors and officers of Roanoke Gas also will serve as the directors
and officers of Resources. John B. Williamson, III is the President, Chief
Executive Officer and a director of both Resources and Roanoke Gas.
7. What are the federal income tax consequences to Roanoke Gas
shareholders?
We expect the exchange of Roanoke Gas common stock for Resources common
stock to be tax-free to Roanoke Gas shareholders for federal income tax
purposes. To review the tax consequences in greater detail, see pages 18-19. You
should consult your tax advisors for a full understanding of the tax
consequences of the reorganization to you.
8. Will my dividends be affected?
No. Resources expects to continue the current Roanoke Gas practice of
paying an appropriate percentage of earnings to shareholders. However, future
dividends on Resources common stock will depend on earnings, financial condition
and capital requirements of Resources and its subsidiaries and the dividends
Roanoke Gas and other Resources' subsidiaries may pay to Resources.
9. How will my participation in the Dividend Reinvestment and Stock
Purchase Plan be affected?
The Dividend Reinvestment and Stock Purchase Plan of Roanoke Gas will be
amended to become Resources' Plan. All shares of Roanoke Gas common stock held
under the Plan will be automatically exchanged for an equal number of shares of
Resources common stock. Accounts in the Plan will be credited for fractional
shares.
10. Should I send in my stock certificates now?
No. When the reorganization is completed, you will receive written
instructions for exchanging your stock certificates.
11. If my shares are held in my broker's name, will my broker vote my
shares for me?
Yes. Your broker will request instructions from you as to how you want
your shares to be voted. The broker will then vote the shares according to your
instructions.
12. What do I need to do now?
Just indicate on your proxy card how you want to vote, and sign, date and
mail it in the enclosed postage-paid return envelope as soon as possible. The
meeting will take place at 9:00 am on Wednesday, March 31, 1999 at the Roanoke
Gas office at 519 Kimball Avenue, N.E., Roanoke, Virginia 24016.
13. Who can I call if I have any questions?
You are welcome to call Roanoke Gas at (540) 777-3800, or William F.
Doring and Company, Inc., which is assisting our proxy solicitation, toll free
at (888) 330-5111.
2
<PAGE>
SUMMARY
This summary highlights selected information about the holding company
proposal and reorganization. It does not contain all of the information that is
important to you. You should carefully read the entire proxy
statement/prospectus and the other documents to which we have referred you. See
"Where You Can Find More Information" on pages 43-44. We have included page
references in parentheses to direct you to a more complete description of the
topics presented in this summary.
The Companies (see pages 25-26)
Roanoke Gas Company
519 Kimball Avenue, N.E.
Roanoke, Virginia 24016
(540) 777-4427
Roanoke Gas, a Virginia public service corporation organized in 1912,
provides natural gas service to approximately 53,625 customers in Roanoke,
Virginia and surrounding areas of Virginia. Roanoke Gas owns 100% of the
outstanding common stock of Bluefield Gas Company, a West Virginia public
service corporation. Bluefield provides natural gas to approximately 4,100
customers located in and around Bluefield, West Virginia. Bluefield owns all of
the outstanding common stock of Commonwealth Public Service Corporation, a
Virginia public service corporation, which serves approximately 925 customers in
Bluefield, Virginia, and surrounding areas of Virginia. Roanoke Gas also owns
100% of the outstanding common stock of Diversified Energy Company, a Virginia
nonutility corporation. Diversified sells propane and propane related products
and maintains a natural gas marketing business.
RGC Resources, Inc.
519 Kimball Avenue, N.E.
Roanoke, Virginia 24016
(540) 777-4427
Resources is a wholly owned subsidiary of Roanoke Gas and was incorporated
in Virginia on July 31, 1998, for the purpose of accomplishing the proposed
holding company reorganization. Resources does not own any assets or engage in
any business.
The Annual Shareholders Meeting (See pages 9-10)
The Roanoke Gas Annual Shareholders Meeting will be held at Roanoke Gas'
principal office, 519 Kimball Avenue, N.E., Roanoke, Virginia 24016, at 9:00
a.m. on Wednesday, March 31, 1999. At the Annual Meeting, Roanoke Gas
shareholders will be asked to:
(1) approve the Agreement and Plan of Merger and Reorganization and the
transactions contemplated thereby;
(2) elect three directors of Roanoke Gas; and
(3) transact any other business properly before the meeting.
3
<PAGE>
Record Date; Voting Power (See page 9)
You are entitled to vote at the Annual Meeting if you were a shareholder
of record of Roanoke Gas common stock at the close of business on January 20,
1999, the Record Date.
On the Record Date, there were 1,805,006 shares of Roanoke Gas common
stock entitled to vote at the Annual Meeting. Roanoke Gas shareholders will be
entitled to one vote at the Annual Meeting for each share of Roanoke Gas common
stock held on the Record Date.
Shareholder Vote Required to Approve the Reorganization (See pages 9-10, 13)
More than two-thirds of the outstanding shares of Roanoke Gas common stock
must be voted "FOR" Proposal 1 at the Annual Meeting in order to approve the
holding company reorganization. For purposes of determining whether the holding
company reorganization has been approved, an abstention or broker non-vote will
not be counted in favor of adoption of the proposal and will have the effect of
a vote against the proposal.
The Present and Proposed Corporate Structures
PRESENT STRUCTURE
-------------------------------------------
Shareholders
-------------------------------------------
|
|
-------------------------------------------
Roanoke Gas
-------------------------------------------
|
|
----------------------------------------------------
| | |
| | |
| | |
---------------------- ---------------------- ----------------------
Diversified Resources Bluefield
---------------------- ---------------------- ----------------------
|
|
----------------------
Commonwealth
----------------------
PROPOSED HOLDING COMPANY STRUCTURE
--------------------------------------------
Shareholders
--------------------------------------------
|
|
--------------------------------------------
Resources
--------------------------------------------
|
|
---------------------------------------------------------
| | |
| | |
---------------------- ---------------------- ----------------------
Roanoke Gas* Bluefield Diversified
---------------------- ---------------------- ----------------------
*Commonwealth is merged into Roanoke Gas
4
<PAGE>
Our Recommendations to Shareholders (See pages 10, 32)
The Roanoke Gas Board of Directors has unanimously adopted the Agreement
and Plan of Merger and Reorganization, believes the reorganization to be in the
best interests of Roanoke Gas and its shareholders, and recommends that the
holders of Roanoke Gas common stock vote "FOR" the holding company
reorganization.
In addition, the Board of Directors of Roanoke Gas recommends a vote "FOR"
all director nominees for Class B directors.
Comparative Shareholders' Rights (See pages 23-24)
When the reorganization is completed, holders of Roanoke Gas common stock
will automatically become holders of Resources common stock, and their rights
will be governed by Resources' Articles of Incorporation and Bylaws instead of
those of Roanoke Gas.
Resources' Articles of Incorporation give Resources broad corporate powers
to engage in any lawful activity for which a corporation may be formed under
Virginia law, and include indemnification, limitation of liability and
nomination and proposal submission provisions that are not included in the
Articles of Incorporation of Roanoke Gas. In addition, the Articles of
Incorporation of Resources authorize a greater number of shares of common stock
and provide that the directors of Resources may designate the rights and
preferences of preferred stock and issue preferred stock without further
approval by Resources shareholders. Other differences between the rights of
holders of Resources common stock and those of holders of Roanoke Gas common
stock are summarized in the section of this proxy statement/prospectus entitled
"Certain Differences in Rights of Roanoke Gas and Resources Shareholders"; see
also "Description of Resources Capital Stock -- Authorized Capital -- Preferred
Stock."
Statutory Dissenters' Rights (See pages 28-30 and Appendix C to this Proxy
Statement/Prospectus)
If the proposed merger is consummated, shareholders of Roanoke Gas who
comply with the requirements of Article 15 of the Virginia Stock Corporation Act
will be entitled to dissenters' rights of appraisal with respect to their shares
of Roanoke Gas common stock. See "Right of Dissenting Shareholders to Receive
Payment for Shares" and Appendix C for a description of the procedures required
to be followed to perfect such rights.
Regulation of Resources and Roanoke Gas Resulting from the Reorganization (See
pages 13, 27-28)
Roanoke Gas and Resources have filed a joint application with the SEC
requesting approval of the holding company reorganization under Section 10 of
the federal Public Utility Holding Company Act of 1935. Following the
reorganization, Resources, as the parent holding company of Roanoke Gas and
Bluefield, will not be subject to regulation by the Virginia Commission or the
West Virginia Commission. Roanoke Gas will continue to be regulated by the
Virginia Commission, and Bluefield will continue to be regulated by the West
Virginia Commission. As a result of the reorganization, Resources will become a
"public utility holding company" within the meaning of the federal Public
Utility Holding Company Act of 1935 and will file a statement with the SEC
claiming exemption from all provisions of that Act, except for certain
provisions requiring SEC approval of certain acquisitions and investments. Even
as an exempt public utility holding company, Resources will be subject to
certain regulations and restrictions. See "Risk Factors -- Regulation as a
Public Utility Holding Company."
5
<PAGE>
Both the Virginia State Corporation Commission and the West Virginia
Public Service Commission have approved the reorganization.
Conditions to the Reorganization (See page 14)
Completion of the reorganization depends on conditions, including:
(a) receipt of all required regulatory and third party approvals and
consents on acceptable terms;
(b) shareholder approval at the Annual Meeting; and
(c) approval to list Resources on the Nasdaq National Market.
Amendment or Termination of the Agreement of Merger and Reorganization (See
page 16)
The parties generally may amend any of the terms of the Agreement and Plan
of Merger and Reorganization at any time before or after its approval by Roanoke
Gas shareholders and also after approval if the amendment does not materially
and adversely affect the rights of the shareholders of Roanoke Gas.
If the Roanoke Gas Board of Directors determines that the reorganization
would be inadvisable, or not in the best interests of Roanoke Gas or its
shareholders, the agreement may be terminated and the reorganization abandoned
at any time.
6
<PAGE>
RISK FACTORS
In addition to the other information contained in this proxy
statement/prospectus (including the matters addressed in "Cautionary Statement
Concerning Forward-Looking Statements" on pages 16-17), the matters described
below should be considered carefully in determining whether to approve the
reorganization and the transactions contemplated thereby.
Initial Resources Common Stock Dividends Will Depend Primarily on Dividends Paid
by Roanoke Gas
Initially, dividends on Resources common stock will depend primarily upon
the earnings, financial condition and capital requirements of Roanoke Gas and
the dividends that Roanoke Gas pays to Resources. Resources does not now, nor
will it immediately after the reorganization, conduct directly any business
operations that generate revenues. Resources plans to obtain operating funds
from dividends paid to Resources by its subsidiaries, and possibly from sales of
securities or debt incurred by Resources. In the future, dividends from
Resources' subsidiaries other than Roanoke Gas may be a more significant source
of funds for dividend payments by Resources.
While future dividends will depend on the earnings, financial condition
and capital requirements of Roanoke Gas and Resources' other subsidiaries,
Resources currently expects to continue a policy of paying an appropriate
percentage of its earnings to shareholders. The payment and amount of
dividends, however, is within the discretion of Resources' Board of Directors
based on financial and other factors and cannot be assured. See "Dividend
Policy."
Resources May in the Future Issue Preferred Stock Which Could Have Preferential
Dividend Rights
Although Resources has no present intention to do so, it may issue
preferred stock in the future to meet its capital requirements. Such preferred
stock could have preferential dividend rights over Resources common stock.
Resources Board Empowered to Impede Takeover Attempts
Resources' Articles of Incorporation authorize the issuance of 5,000,000
shares of Resources preferred stock. In addition, after giving effect to the
Merger, approximately 8,150,000 shares of Resources Common stock will be
authorized but unissued and not reserved for issuance. An effect of the
existence of unissued Resources Common stock and Resources preferred stock may
be to enable the Resources Board of Directors to render more difficult or
discourage a transaction to obtain control of Resources. Such shares might be
issued by the Board of Directors without shareholder approval in transactions
that might prevent or render more difficult or costly the completion of a
takeover transaction, as by diluting voting or other rights of the proposed
acquirer. In this regard, Resources' Articles grant the Board of Directors broad
power to establish the rights and preferences of the authorized and unissued
shares of Resources preferred stock, one or more classes or series of which
could be issued entitling holders to vote separately as a class on any proposed
merger or consolidation, to convert such stock into shares of Resources Common
stock or possibly other securities, to demand redemption at a specified price
under prescribed circumstances related to a change of control, or to exercise
other rights designed to impede a takeover.
Business Risk from Increased Involvement in Unregulated Activities
Resources currently intends that its subsidiaries will in the future
include, in addition to Diversified, other nonutility companies that will engage
primarily in businesses that will not be regulated as public utilities by state
or federal agencies. These unregulated businesses may encounter competition not
faced by a regulated utility like Roanoke Gas and may have greater investment
risks than those involved in the regulated natural gas utility business
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or the unregulated propane business. These businesses may not be successful and
could have a direct or indirect adverse effect on Resources. As is the case now,
any losses incurred by these unregulated businesses will not be recoverable in
utility rates of Roanoke Gas or Bluefield.
Business Activities May Be Limited as a Results of Regulatory Changes
Roanoke Gas' natural gas distribution operations and those of its utility
subsidiaries are subject to a high degree of regulation at the federal, state
and local levels. See "Business of Roanoke Gas and Resources." These regulations
can in certain circumstances impose limitations on operations. In addition,
these regulations are constantly evolving and may change significantly over
time. There can be no assurance that future regulatory changes will not have a
material adverse effect on Resources.
Regulation as a Public Utility Holding Company
Reorganization is Subject to Receipt of Satisfactory Approvals from the
SEC. Roanoke Gas and Resources have applied to the SEC for necessary approvals
for the reorganization under Section 10 of the Public Utility Act in connection
with the reorganization. There can be no assurance that such approvals will be
received or that the terms upon which such approvals may be conditioned will be
acceptable to the Board of Directors of Roanoke Gas. If such approvals are not
received, the reorganization cannot proceed. See "The Reorganization
- --Conditions to Effectiveness of the Merger" and "-- Amendment or Termination of
the Agreement."
Resources May Be Regulated as a Non-exempt Public Utility Holding
Company. Roanoke Gas is currently exempt from all provisions of the Public
Utility Act, except for provisions requiring SEC approval of certain
acquisitions and investments. Resources intends, upon consummation of the
reorganization, to file a claim of exemption from all provisions of the Public
Utility Act on the basis that Resources and its material public utility
subsidiaries are predominantly intrastate in character. This exemption is
subject to the discretion of the SEC and must be renewed annually. The SEC may
revoke the exemption at any time if it determines that there is a substantial
question of law or fact as to whether Resources is within the parameters of the
exemption, or if it appears that the exemption may be detrimental to the public
interest. If such exemption is revoked and Resources must register as a public
utility holding company under the Public Utility Act, Resources' activities will
be subject to significant additional regulatory supervision, limitations and
restrictions by the SEC. This could materially adversely affect Resources'
operations and ability to grow and diversify its nonutility businesses. See
"Regulation of Resources and Roanoke Gas and Certain Subsidiaries After the
Reorganization."
Resources May Be Limited in the Types of Investments It Can Make. The
Public Utility Act limits the extent to which Resources and its nonutility
subsidiaries can enter into nonutility businesses. Under current law, Resources
must remain engaged primarily and predominantly in the public utility business
in the Commonwealth of Virginia. These limitations may restrict the type of
investments that Resources may make. In addition, the intrastate exemption is
only available when the company's utility subsidiaries remain predominantly
intrastate. Thus, some interstate investments may be limited.
THE ANNUAL SHAREHOLDERS MEETING
This proxy statement/prospectus is furnished as a part of the
solicitation by the Board of Directors of Roanoke Gas Company of proxies for use
at the Annual Meeting of Shareholders of Roanoke Gas to be held on March 31,
1999. At that meeting, holders of Roanoke Gas common stock will be asked to
consider and vote upon a proposal to approve and adopt the Agreement and Plan of
Merger and Reorganization and the transactions
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contemplated thereby; elect directors; and consider such other matters as may
properly come before the Annual Meeting.
Only holders of record of the Roanoke Gas' common stock, par value $5.00
per share, on January 20, 1999 (the "Record Date"), are entitled to receive
notice of the Annual Meeting and to vote at the Annual Meeting or any
adjournments or postponements thereof. As of the close of business on the Record
Date, there were 1,805,006 shares of Roanoke Gas common stock outstanding. Each
share is entitled to one vote. To Roanoke Gas' knowledge, no person is the
beneficial owner of more than five percent of the issued and outstanding shares
of Roanoke Gas common stock. For beneficial ownership of management, see
"Security Ownership of Management."
Roanoke Gas' Annual Report to Shareholders for the year ended September
30, 1998, is being sent to all shareholders concurrently with this proxy
statement/prospectus.
Any shareholder entitled to vote may attend the Annual Meeting and vote,
whether or not such shareholder has submitted a signed proxy. All shares
represented by proxies which have been duly executed and returned will be voted
at the Annual Meeting and, where a choice has been specified in the proxies, the
shares will be voted per the specification so made. In the absence of
specifications to the contrary, such executed proxies will be voted "FOR"
Proposal 1 and "FOR" each director nominated in Proposal 2.
The proxy accompanying this proxy statement/prospectus, even if executed
and returned, may be revoked by the person executing it if it has not yet been
exercised. To revoke a proxy, the shareholder must file with the Secretary of
Roanoke Gas, at its principal executive offices, either a written revocation or
a duly executed proxy bearing a later date.
Roanoke Gas will bear the cost of soliciting proxies. In addition to the
use of the mails, proxies may be solicited personally or by telephone by
directors, officers and employees of Roanoke Gas. Such directors, officers and
employees of Roanoke Gas receive no compensation therefor other than their
regular remuneration. Also, Roanoke Gas will reimburse brokers, bank nominees
and other institutional holders for their reasonable out-of-pocket expenses in
forwarding proxy soliciting material to the beneficial owners of Roanoke Gas
common stock. In addition, Roanoke Gas has retained William F. Doring and
Company, Inc. to aid in the solicitation of proxies at a fee not to exceed
$3,000, plus reimbursement for out-of-pocket expenses incurred by that firm on
behalf of Roanoke Gas.
The proposal for approval of the holding company reorganization is
considered "non-discretionary," and brokers who have received no instructions
from their clients do not have the authority to vote on the proposal. All
abstentions and broker non-votes will be counted toward the establishment of a
quorum. For purposes of determining whether the reorganization has been
approved, an abstention or broker non-vote WILL NOT be counted as a vote in
favor of adoption of the reorganization and, as a result, will have the effect
of a vote AGAINST Proposal 1.
The affirmative vote of more than two-thirds of the outstanding shares of
Roanoke Gas common stock will be required to approve Proposal 1. Votes withheld
for the election of one or more of the nominees for director will not be
counted as votes cast for or against such individuals. The vote of a plurality
of the shares of Roanoke Gas common stock cast is required for the election of
directors under Proposal 2.
The Board of Directors of Roanoke Gas has unanimously adopted the
Agreement and Plan of Merger and Reorganization, believes the reorganization to
be in the best interests of Roanoke Gas and its shareholders, and recommends
that the holders of Roanoke Gas common stock vote "FOR" the reorganization as
discussed in Proposal 1.
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In addition, the Board of Directors of Roanoke Gas recommends a vote "FOR"
all director nominees named in Proposal 2.
PROPOSAL 1
APPROVAL OF THE AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
The Board of Directors of Roanoke Gas unanimously believes that it is in
the best interests of Roanoke Gas and its shareholders to reorganize the
company. To effect the reorganization, Roanoke Gas will become a separate
subsidiary of a new parent holding company. The present holders of Roanoke Gas
common stock will hold the common stock of the new parent holding company.
Bluefield Gas Company and Diversified Energy Company, which are presently
subsidiaries of Roanoke Gas, also will become subsidiaries of the new holding
company. Commonwealth Public Service Corporation, a small Virginia public
utility subsidiary of Bluefield, will be merged into Roanoke Gas as part of the
reorganization.
To carry out the reorganization, Roanoke Gas has incorporated two Virginia
corporations, RGC Resources, Inc. and RGC Acquisition Corp. Each of the
corporations has a nominal amount of stock outstanding and no present business
or properties of its own. All of the currently outstanding shares of Resources
common stock, par value $5.00 per share, are owned by Roanoke Gas, and all of
the currently outstanding shares of RGC Acquisition are owned by Resources.
The respective Boards of Directors of each of Roanoke Gas, RGC
Acquisition, Resources, Diversified, Bluefield and Commonwealth have adopted the
Agreement and Plan of Merger and Reorganization. This agreement provides for the
merger of RGC Acquisition into Roanoke Gas. Roanoke Gas shareholders must
approve the reorganization proposal, and additional conditions, including
regulatory approvals, must also be satisfied. The agreement is attached to this
proxy statement/prospectus as Appendix A and is incorporated herein by
reference. After the merger of RGC Acquisition and Roanoke Gas, Roanoke Gas
would become a subsidiary of Resources through the conversion of the outstanding
shares of Roanoke Gas common stock into shares of Resources common stock.
Roanoke Gas shareholders will receive full and fractional shares of Resources
common stock equal to and in exchange for the number of full and fractional
shares of Roanoke Gas common stock held at the effective time of the merger. See
"The Reorganization -- The Agreement."
After the merger, the existing subsidiaries of Roanoke Gas, except
Commonwealth, will be transferred to Resources and will become subsidiaries of
Resources. Commonwealth will be merged into Roanoke Gas. See "The Reorganization
- --Transfer of Roanoke Gas Subsidiaries to Resources."
REASONS FOR THE HOLDING COMPANY STRUCTURE AND REORGANIZATION
The principal reasons for the proposed reorganization are to create a
structure that can more effectively address the increased competition in the
energy industry, refocus various utility activities, facilitate selective
diversification into nonutility businesses, afford further separation between
the utility and nonutility businesses and provide additional flexibility for
financing.
Roanoke Gas' natural gas business competes with other energy sources such
as fuel oil, electricity and coal. Competition is intense among these energy
sources and is based primarily on price and availability. This is particularly
true for industrial applications, where sales are at risk to price competition
in markets that may switch to residual and other fuel oils. In addition,
deregulation in the supply of natural gas has created competition among
suppliers or brokers of natural gas. Marketers are expected to attempt to
provide increasing volumes of natural gas
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to large users within Roanoke Gas' service territories. As deregulation of the
energy industry continues, Roanoke Gas expects that competition from other fuel
sources, as well as from natural gas brokers and marketers, will intensify.
Roanoke Gas anticipates that, absent any major changes in technology, a
portion of its earnings from natural gas operations may not be required to be
reinvested in the utility business over the next ten to fifteen years. As a
regulated utility, Roanoke Gas operates under constraints of regulatory
authorities, which can limit investments by Roanoke Gas in unregulated
operations. Roanoke Gas is of the view that a holding company structure will
facilitate the deployment of a portion of its earnings that are not needed for
the utility business through investment of those earnings in nonutility
businesses. Nonutility businesses could pursue business opportunities that
potentially could enhance the financial strength and operating results of
Resources. Therefore, in the Board's view, the reorganization will increase
opportunities to broaden Roanoke Gas' financial base and thereby broaden
investment appeal by increasing access to other businesses. To the extent that
diversification succeeds in promoting employment and commerce in the areas
served by Roanoke Gas, the company and its customers and shareholders also will
benefit.
Financing of Roanoke Gas' activities is subject to approval of regulatory
authorities. After the reorganization, financing by Resources and its nonutility
subsidiaries will not require approval of regulatory authorities. This should
increase flexibility in structuring financing. Financing alternatives may also
be enhanced as a result of engaging in a greater number of businesses. The
holding company structure may also permit the structuring of loan facilities
appropriate for the individual nonutility businesses, without affecting the
capital structure of Roanoke Gas.
The holding company structure is designed to further insulate Roanoke Gas'
public utility customers and the public holders of its securities from the risks
of nonutility businesses by segregating the nonutility businesses into separate
corporations that will be direct subsidiaries of the holding company and not of
Roanoke Gas. Because nonutility businesses of the holding company will be
conducted through separate subsidiaries, any liabilities incurred by those
subsidiaries will not constitute liabilities of the utility subsidiaries. The
corporate separation also insures that all costs of a particular nonutility
subsidiary will be charged to that subsidiary and not allocated to any utility
subsidiary.
The holding company structure is intended to afford additional flexibility
for maintaining the capital ratios of Roanoke Gas at levels determined to be
appropriate by regulatory authorities. Roanoke Gas' utility rate structure is
set, from time to time, by the applicable regulatory authorities. Utility rates
are set, in part, based on allowed rates of return and cost of providing
service. A utility's capital structure may significantly influence the level of
rates of return. Therefore, the ability to adjust debt and equity levels the
components of capital structure, will help Roanoke Gas maintain stable utility
rates. One component of utility rates is cost of capital. Equity capital is the
most expensive type of capital, and if the equity component of a utility's
capital structure is too high, it may result in increased pressure to raise
rates. If the equity component is too low, it may result in increases in the
cost of debt because of increased leverage and risk, which will also tend to
increase rates. Under the holding company structure, the equity portion of the
capital ratios of the utility would be subject to adjustment from time to time
through dividends to or equity investments from the holding company. Also, under
the holding company structure, the debt portion of the capital ratios can
similarly be adjusted. Because the holding company itself is not a regulated
utility, it should have greater flexibility in making these adjustments.
Further, the holding company structure will facilitate the planning of
financings best suited to the particular needs and circumstances of the separate
businesses by enabling the capital structure of each subsidiary to be
appropriately tailored to suit its individual business.
The nonutility subsidiaries of Resources should have the flexibility to
use various financing techniques suitable for nonutility businesses without an
impact on the credit of Roanoke Gas, thus improving financing alternatives. It
is anticipated that, in the normal course:
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o Resources, in addition to receiving dividends from its subsidiaries,
may also obtain funds through debt or equity financings;
o Roanoke Gas may obtain funds through its own financings, including the
issuance of mortgage notes and other debt instruments to third parties,
and through the issuance of additional shares of common stock to the
holding company; and
o the nonutility businesses owned by Diversified may obtain funds from
Resources, from other nonutility affiliates, or from their own outside
financings.
Any financings will depend on the financial and other conditions of the entities
involved and on the market conditions.
At the present time, Roanoke Gas has no specific diversification plans
beyond expanding the propane operation. The Board of Directors of Roanoke Gas
intends that the natural gas operations of Roanoke Gas will continue to
constitute the predominant activity of Resources for the foreseeable future.
Roanoke Gas does not expect any capital impairment of its public utilities or
any adverse affect on their levels of service as a result of the restructuring.
THE REORGANIZATION
The discussion in this proxy statement/prospectus of the Agreement and
Plan of Merger and Reorganization is subject to and qualified in its entirety to
the agreement, a copy of which is attached to this proxy statement/prospectus as
Attachment A and is incorporated herein by reference. However, all material
terms of the Agreement and Plan of Merger and Reorganization are disclosed in
this proxy statement/prospectus.
The Agreement
The Boards of Directors of Roanoke Gas, RGC Acquisition, Resources,
Diversified, Bluefield and Commonwealth have unanimously adopted the Agreement
and Plan of Merger and Reorganization. The holders of more than two-thirds of
the outstanding shares of Roanoke Gas common stock must also approve the
agreement. See "Vote Required" below.
The first step in the reorganization is the merger. In the merger:
o each share of Roanoke Gas common stock outstanding immediately prior to
the effective time of the merger will be converted into an equal number
of new shares of Resources common stock;
o Resources will become the owner of all outstanding shares of Roanoke
Gas common stock; and
o the shares of Resources common stock held by Roanoke Gas immediately
prior to the merger will be canceled.
As a result, Resources will become a holding company with Roanoke Gas as its
wholly owned subsidiary. All of the Resources common stock outstanding
immediately after the merger will be owned by the former holders of Roanoke Gas
common stock outstanding immediately prior to the merger.
Immediately after completion of the merger, Commonwealth will be merged
into Roanoke Gas, and Bluefield and Diversified will be transferred to
Resources, which will then hold both as wholly owned subsidiaries.
See "Transfer of Roanoke Gas Subsidiaries to Resources" below.
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Debt of Roanoke Gas will continue as outstanding obligations of Roanoke
Gas after the reorganization. Resources may, however, be required to guarantee
Roanoke Gas' payment and performance of Roanoke Gas' outstanding mortgage notes.
Vote Required
Under Virginia law, the affirmative vote of the holders of record of more
than two-thirds of the outstanding shares of Roanoke Gas common stock on the
Record Date is required to approve the reorganization. Because the requirement
for Proposal 1 is the affirmative vote of more than two-thirds of the
outstanding shares, broker non-votes and abstentions will have the effect of a
"no" vote.
Regulatory Approvals
The reorganization cannot be consummated unless and until all federal and
state approvals, authorizations and consents are obtained on conditions
acceptable to the Board of Directors of Roanoke Gas.
The Public Utility Holding Company Act of 1935. Roanoke Gas and Resources
must obtain from the SEC Office of Public Utility Regulation an order approving
the reorganization. Roanoke Gas and Resources, filed a joint application on Form
U-1 with the SEC on October 16, 1998. That application currently is pending. As
a result of the reorganization, Resources will become a "public utility holding
company" under the Public Utility Act. Per the agreement and simultaneously
with the effectiveness of the reorganization, Resources will file with the SEC
an exemption statement to exempt itself and its subsidiaries from all provisions
of the Public Utility Act, except with respect to certain acquisitions and
investments, under the "intrastate" exemption provided by Section 3(a) (1).
Resources and its material public utility subsidiaries are predominantly
intrastate in character and carry on their business in Virginia, the state in
which Resources and every material subsidiary is organized. See "Risk Factors
- --Regulation as a Public Utility Holding Company;" and "Regulation of Resources
and Roanoke Gas and Certain Subsidiaries After the Reorganization."
Virginia Law. Under Virginia laws governing public utilities, any
transaction involving transfer of utility stock must be approved in advance by
the Virginia Commission. On October 21, 1998, Roanoke Gas submitted an
application seeking the Virginia Commission's approval of the merger and
reorganization and the affiliated interests arising therefrom. On January 19,
1999, the Virginia Commission issued an order approving Roanoke Gas'
application.
West Virginia Law. Under West Virginia law governing public utilities, any
transaction involving the transfer of utility stock must be approved by the West
Virginia Commission. On October 21, 1998, Bluefield Gas submitted information
requesting the West Virginia Commission's approval of the merger and
reorganization and the affiliated interests arising therefrom. On January 18,
1999, the West Virginia Commission issued a final order approving Bluefield Gas'
application.
Accounting Treatment
The accounting treatment for the reorganization will be based on
non-cash, non-taxable transactions, with resulting assets and liabilities
recorded at historical cost amounts. The merger of Commonwealth into Roanoke Gas
will result in a credit to plant account and debit to equity accounts on the
books of Bluefield. The related entry on Roanoke Gas' books will be a debit to
plant accounts and a credit to equity accounts.
The transfer of Diversified from Roanoke Gas to RGC Resources will result
in a debit to equity accounts on the books of Roanoke Gas and a credit to equity
accounts on the books of RGC Resources. The transfer of Bluefield to the books
of RGC Resources will likewise result in a debit to the equity accounts of
Roanoke Gas and a credit to the equity accounts of RGC Resources.
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Conditions to Effectiveness of the Reorganization
In addition to approval of the agreement by Roanoke Gas shareholders, the
reorganization is subject to the satisfaction of the following conditions:
(1) the receipt of all necessary orders, authorizations, consents,
approvals or waivers from the Virginia Commission, the West
Virginia Commission, the SEC, and any other third parties.
Such approvals must remain in full force and effect, and may
not include conditions that the Board of Directors of Roanoke
Gas deems unacceptable; and
(2) listing on the Nasdaq National Market of shares of Resources
common stock.
After each of these conditions are satisfied, the reorganization will
become effective when the Virginia Commission issues Articles of Merger under
the Virginia Stock Corporation Act (the "Effective Time"). Roanoke Gas cannot
predict if or when the conditions to effectiveness of the merger will be
satisfied, but Roanoke Gas currently is working to complete the merger and
reorganization during the Summer of 1999.
Exchange of Stock Certificates
When the reorganization becomes effective, Resources will automatically
send holders of Roanoke Gas common stock documents and instructions for the
physical exchange of their existing stock certificates for certificates of
Resources common stock. Upon the Effective Time, certificates previously
representing shares of Roanoke Gas common stock will represent only the right of
the registered holder to receive shares of Resources common stock. At the
Effective Time, Resources will issue and deliver to the transfer agent
certificates representing shares of Resources common stock into which
outstanding shares of Roanoke Gas common stock have been converted. Promptly
after the Effective Time, Resources will send to each Roanoke Gas shareholder of
record immediately prior to the Effective Time written instructions and
transmittal materials for use in surrendering Roanoke Gas stock certificates to
the transfer agent. There is no time limit to exchange the shares. Roanoke Gas
shareholders should NOT send in their stock certificates to the transfer agent
until they receive the transmittal letter after the Effective Time.
Resources also will send to brokers, banks and other nominee record
holders of Roanoke Gas common stock appropriate instructions and transmittal
materials for use in surrendering Roanoke Gas stock certificates to the transfer
agent, so that the shares held by such record holders on behalf of beneficial
owners of Roanoke Gas common stock can be exchanged for the shares of Resources
common stock.
After a former shareholder of Roanoke Gas properly surrenders the
shareholder's stock certificate along with a completed transmittal letter to
the transfer agent, the transfer agent will issue, register and deliver to the
shareholder a Resources common stock certificate. The holder of record of
Roanoke Gas common stock at the Effective Time, or someone on the holder's
behalf, must surrender the Roanoke Gas certificate representing the shares.
After the Effective Time, there will be no further transfers of Roanoke Gas
stock on the stock transfer books of Roanoke Gas nor the registration of any
transfer of a Roanoke Gas certificate.
Except as described with respect to lost or otherwise missing certificates
below, the transfer agent will not deliver a Resources common stock certificate
to any former shareholder of Roanoke Gas until the shareholder properly
surrenders the shareholder's Roanoke Gas stock certificate(s) along with a
completed transmittal letter. Furthermore, Resources will not pay dividends or
distributions payable to Resources shareholders to a former Roanoke Gas
shareholder who has not surrendered his or her Roanoke Gas stock certificates.
But, subject to state abandoned property law, when the shareholder properly
surrenders such Roanoke Gas certificate(s), the transfer agent will give the
shareholder a new certificate for the shares of Resources common stock
represented by such Roanoke Gas Certificate(s) along with the amount of any
accrued but unpaid dividends or distributions with respect
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to such shares. Neither Resources, Roanoke Gas nor the transfer agent has any
obligation to pay any interest on any dividends or distributions for any period
prior to such payment.
Any shareholder of Roanoke Gas whose certificate evidencing shares of
Roanoke Gas common stock has been lost, destroyed, stolen or otherwise is
missing will have the right to receive a certificate representing shares of
Resources common stock under any conditions imposed by the transfer agent or
Resources, which may include a requirement that the shareholder provide a lost
instrument indemnity or surety bond in form, substance and amount satisfactory
to the transfer agent and Resources.
Transfer of Roanoke Gas Subsidiaries to Resources
As part of the reorganization, Bluefield will, by noncash dividend, give
to Roanoke Gas all of the outstanding stock of Commonwealth. Commonwealth then
will be merged into Roanoke Gas. Roanoke Gas will then, by noncash dividend,
give to Resources all of the outstanding stock of Bluefield and Diversified.
After the reorganization, Resources will be the parent holding company of three
corporations: Roanoke Gas (with Commonwealth merged in), a Virginia public
utility, Bluefield, a West Virginia public utility, and Diversified, a
nonutility subsidiary. See "Business of Roanoke Gas and Resources."
Roanoke Gas is not proposing to exchange of any of its outstanding
mortgage notes, debentures and senior notes of Roanoke Gas due to the
reorganization. Immediately after the merger, Resources will have no outstanding
securities other than common stock. Resources may, however, be required to
guarantee Roanoke Gas' payment and performance of Roanoke Gas' outstanding
mortgage notes. Holders of Roanoke Gas mortgage notes, debentures and senior
notes will continue as security holders of Roanoke Gas.
Dividend Reinvestment and Stock Purchase Plan
Under the agreement, shares of Roanoke Gas common stock held in the
Roanoke Gas Dividend Reinvestment and Stock Purchase Plan at the Effective Time,
including uncertificated whole and fractional shares, will automatically be
converted into an equal number of shares of Resources common stock. At the
Effective Time, Resources will succeed to the Plan as in effect immediately
prior to the Effective Time, and shares of Resources common stock will be issued
under the Plan on and after the Effective Time. Resources will file an
post-effective amendment to the Roanoke Gas registration statement for the Plan
shortly after the Effective Time. In addition to amending the Plan to reflect
Resources as the successor to the Plan, Roanoke Gas also intends to amend the
Plan to permit purchase of shares by the plan agent in the open market and to
increase the maximum optional cash payment under the Plan to $30,000. This
discussion will serve as written notice to participants in the Plan of our
intent to amend the Plan, as described above, effective at the Effective Time of
the reorganization.
Roanoke Gas Stock Plans
The agreement also provides that the Roanoke Gas Key Employee Stock Option
Plan, the Roanoke Gas Restricted Stock Plan for Outside Directors, and all
other stock, bonus or incentive plans of Roanoke Gas will be amended to provide
for such plans to utilize Resources common stock instead of Roanoke Gas common
stock after the merger.
After the merger, all outstanding stock options under the stock option
plan will be converted into options to acquire Resources common stock. The
terms and conditions of the stock option plan will not otherwise be changed.
Future grants under the stock option plan will be made for Resources common
stock. Resources will file a post-effective amendment to Roanoke Gas'
registration statement for the stock option plan shortly after the Effective
Time.
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All shares of Roanoke Gas restricted stock held in participant accounts
under the restricted stock plan will be converted into restricted shares of
Resources common stock. The terms and conditions of the restricted stock
plan will not otherwise be changed. Future purchases under the restricted
stock plan will be of Resources common stock.
The preceding discussion will serve as written notice to participants in
the stock option plan, the restricted stock plan and all other stock,
bonus and incentive plans of Roanoke Gas of the Company's intent to amend such
plans, as described above, effective at the Effective Time.
Amendment or Termination of the Agreement
The Boards of Directors of Roanoke Gas, RGC Acquisition, Resources,
Diversified, Bluefield and Commonwealth may amend any of the terms of the
agreement at any time before or after its approval by the holders of Roanoke Gas
common stock and prior to the Effective Time. After the agreement is approved by
Roanoke Gas shareholders, however, the parties cannot amend the agreement in a
manner that would materially and adversely affect the rights of Roanoke Gas
shareholders. Regardless of this approval, if the Board of Directors of Roanoke
Gas determines, in its sole judgment, that consummation of the merger would, for
any reason, be inadvisable or not in the best interests of Roanoke Gas or its
shareholders, the agreement may be terminated and the merger abandoned at any
time prior to the Effective Time.
Listing of Resources Common Stock
Resources is applying to have its common stock listed on the Nasdaq
National Market. It is expected that the listing will be effective at the
Effective Time of the reorganization. The ticker symbol of Resources common
stock will be "RGCO," and quotations will be carried in newspapers as they have
been for Roanoke Gas common stock. Following the reorganization, Roanoke Gas
common stock will no longer be quoted or traded and will be delisted from the
Nasdaq National Market.
Cautionary Statement Concerning Forward-Looking Statements
Roanoke Gas and Resources has each made forward-looking statements in this
document, that are subject to risks and uncertainties. Roanoke Gas and
Resources have also each made forward-looking statements in certain documents
that are incorporated by reference in this proxy statement/prospectus, that are
subject to risks and uncertainties. These statements are based on the beliefs
and assumptions of Roanoke Gas and Resources management, and on information
currently available to such management. Forward-looking statements include, but
are not limited to, the information concerning possible or assumed future
results of operations of Resources, Roanoke Gas and their subsidiaries set forth
under "Questions and Answers about the Reorganization," the "Summary," "Reasons
for the Holding Company Structure and Reorganization" and "Dividend Policy" and
statements preceded by, followed by, or that include the words "believes,"
"expects," "anticipates," "intends," "plans," "estimates" or similar
expressions.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results and shareholder values
following the merger and reorganization may differ materially from those
expressed in these forward-looking statements. Many of the factors that will
determine these results and values are beyond the ability of Resources and
Roanoke Gas to control or predict. Shareholders are cautioned not to put undue
reliance on any forward-looking statements. In addition, Resources and Roanoke
Gas do not have any intention or obligation to update forward-looking statements
after they distribute this proxy statement/prospectus, even if new information,
future events or other circumstances have made them incorrect or misleading. For
those statements, Resources and Roanoke Gas claim the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
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Shareholders of Resources and Roanoke Gas should understand that the
following important factors, in addition to those discussed elsewhere in this
document and the documents that are incorporated by reference into this proxy
statement/prospectus, could affect the future results of Resources and its
subsidiaries after the merger and reorganization, and could cause results to
differ materially from those expressed in such forward-looking statements:
o fluctuations in demand for natural gas and propane attributable to
weather;
o difficulty in obtaining rate increases from regulatory authorities
in adequate amounts and on a timely basis;
o difficulty in earning on a consistent basis an adequate return on
invested capital;
o competition from alternative fuels for industrial and other
significant customers and fluctuations in the prices of oil, which
can make oil less costly than natural gas, and potential increased
future competition resulting from continuing industry deregulation;
o volatility in the supply and price of natural gas and propane;
o some uncertainty in projected rate of growth of natural gas and
propane requirements of the Roanoke Gas' customers;
o increasing expenses and labor costs and availability;
o deregulation or restructuring of the electric and natural gas
industries; and
o general economic conditions, both locally and nationally.
DIVIDEND POLICY
Resources does not now, nor will it immediately after the merger and
reorganization, conduct directly any revenue generating business operations.
Resources plans to initially obtain operating funds primarily from dividends
paid to Resources on the stock of its subsidiaries, and possibly from the sale
of securities or debt incurred by Resources. Initially, dividends on Resources
common stock will depend primarily upon the earnings, financial condition and
capital requirements of Roanoke Gas, and the dividends paid by Roanoke Gas to
Resources. Resources presently expects to continue Roanoke Gas' policy of paying
an appropriate percentage of earnings to shareholders. In the future, dividends
from Resources' subsidiaries other than Roanoke Gas may be a more significant
source of funds for dividend payments by Resources. In addition, although it has
no present intention to do so, Resources may issue preferred stock in the future
to meet its capital requirements. See "Description of Resources Capital Stock --
Authorized Capital -- Preferred Stock." Such preferred stock could have
preferential dividend rights over Resources' common stock.
Resources presently expects to pay quarterly dividends on Resources common
stock at least equal to the rate, and on approximately the same schedule as, the
dividend most recently declared by Roanoke Gas on its common stock. The
quarterly dividend most recently declared by Roanoke Gas' Board of Directors on
Roanoke Gas common stock was $.27 per share, payable February 1, 1999, to
holders of record on January 15, 1999. The payment and amount of dividends,
however, is in the discretion of Resources Board of Directors based on financial
and other factors and cannot be assured. The amount of dividends paid by Roanoke
Gas to Resources following the
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reorganization is expected to be greater than the amount of dividends Resources
pays on its common stock, as Resources will need funds for its holding company
activities.
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Woods, Rogers & Hazlegrove, P.L.C., counsel to Roanoke
Gas and Resources, the following are the material federal income tax
consequences of the reorganization based on factual representations:
(1) under Section 354(a) of the Internal Revenue Code of 1986, no
gain or loss will be recognized by a holder of Roanoke Gas common stock upon the
conversion of such holder's Roanoke Gas common stock solely into Resources
common stock;
(2) under Section 358(a) of the Internal Revenue Code of 1986, the
basis of shares of Resources common stock received by a former holder of shares
of Roanoke Gas common stock in the conversion described in (1) above, in the
aggregate, will equal the basis of such shareholder's shares of Roanoke Gas
common stock exchanged therefor, and under Section 1223(1) of the Internal
Revenue Code of 1986, the holding period for such shares of Resources common
stock will include the holding period for shares of Roanoke Gas common stock
exchanged therefor to the extent that such shares of Roanoke Gas common stock
were held as a capital asset at the Effective Time of the merger;
(3) under Section 361(a) of the Internal Revenue Code of 1986, no
gain or loss will be recognized by Resources or Roanoke Gas on account of the
merger or the issuance of shares of Resources common stock to the former holders
of shares of Roanoke Gas common stock under the agreement; and
(4) under Section 1001(a) of the Internal Revenue Code of 1986, a
holder of Roanoke Gas common stock who receives cash with the exercise of
dissenters' rights under Sections 13.1-729 through 13.1-741 of the Virginia Act
will recognize gain or loss equal to the difference, if any, between such
shareholder's basis in the shareholder's Roanoke Gas common stock and the amount
of cash received. Such gain or loss will be eligible for capital gain or loss
treatment if the Roanoke Gas common stock is held by such shareholder as a
capital asset, as defined under Section 1221 of the Internal Revenue Code of
1986^ at the Effective Time. Generally, a capital asset is an asset acquired and
held for investment.
As used in this discussion, the term "basis" means the amount of
investment in the stock for tax purposes. Generally, under Section 1012 of the
Internal Revenue Code of 1986, the basis in stock will be the amount paid for
such stock. Stock acquired by gift, however, generally will have a basis equal
to the donor's basis under Section 1015 of the Internal Revenue Code of 1986.
Further, stock acquired by inheritance generally will have a basis equal to the
fair market of the stock at the date of the decedent's death, under Section 1014
of the Internal Revenue Code of 1986.
As used in this discussion, the term "holding period" has significance in
determining whether the gain realized upon the eventual sale of stock, which
qualifies as a capital asset, is short-term or long-term capital gain. Stock
held for more than one year, when sold for a gain, will be taxed at favorable
capital gain tax rates. Stock held for more than one year when sold at a loss,
will result in a capital loss. Stock held for one year or less, when sold at a
gain, will be taxed at ordinary income tax rates. Stock held for one year or
less, when sold at a loss, will generate an ordinary loss. This reorganization
will not affect the holding period of shares of Roanoke Gas Company as each
holder's holding period in the Roanoke Gas Company stock will be "tacked on" to
the holding period for the Resources stock.
The foregoing discussion is a general summary which does not address tax
consequences that may depend on individual circumstances, and it does not cover
the tax consequences of the reorganization under
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state, local or foreign income or other tax laws. Each shareholder of Roanoke
Gas is urged to consult with such shareholder's own tax advisors with respect to
the tax effects of the reorganization on such shareholder.
DESCRIPTION OF RESOURCES CAPITAL STOCK
The following statements with respect to Resources capital stock are based
on material provisions of Resources' Articles of Incorporation and Bylaws, as
they will be in effect as of the Effective Time of the reorganization. A copy of
Resources' Articles is attached as Appendix B hereto and is incorporated herein
by reference. Resources' Bylaws are substantially similar to the Bylaws of
Roanoke Gas. The Resources' Bylaws have been filed as an exhibit to the
Registration Statement of which this proxy statement/prospectus is a part, and
are incorporated herein by reference.
Authorized Capital
Resources is authorized to issue up to 15,000,000 shares of capital stock,
consisting of 10,000,000 shares of common stock, $5.00 par value per share, and
5,000,000 shares of preferred stock, no par value per share. As of January 20,
1999, there were 10 shares of Resources common stock issued and outstanding, all
of which are owned by Roanoke Gas. No shares of Resources preferred stock are
issued and outstanding. Immediately after giving effect to the merger,
approximately 1,850,000 shares of Resources common stock and no shares of
Resources preferred stock will be issued and outstanding.
Resources Common Stock. Subject to the prior rights of the holders of any
Resources preferred stock, holders of Resources common stock are entitled to
receive such dividends as may be declared by the Board of Directors out of
legally available funds and, in the event of liquidation or dissolution, to
receive the net assets of Resources remaining after payment of all liabilities
and after payment to preferred stockholders. See "Dividend Policy."
Subject to the rights of any preferred stockholders, all voting rights are
vested in the Resources common stockholders. Each share of common stock is
entitled to one vote on all matters requiring shareholder action and in the
election of directors. Resources common stockholders have no preemptive,
subscription or conversion rights. All of the outstanding shares of Resources
common stock are fully paid and nonassessable, as will be those issued to the
shareholders of Roanoke Gas upon consummation of the merger.
Resources Preferred Stock. The Board of Directors of Resources is
authorized to issue preferred stock in series. Resources' Articles do not
establish voting rights, preferences or other rights with respect to Resources
preferred stock. Resources' Board of Directors is given full authority to
provide for the establishment and/or issuance of any series of preferred stock,
the designation of such series and the preferences, limitations, and relative
rights of the shares of such series, including the following:
o distinctive designation and number of shares comprising such series;
o voting rights, if any, which shares of that series will have;
o the rate of dividends, if any, on the shares of that series;
o whether the shares of that series will be redeemable, and, if so,
the terms and conditions of such redemption;
o whether that series will have a sinking fund for the redemption or
purchase of shares of that series;
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o the rights to which the holders of the shares of that series will
be entitled in the event of voluntary or involuntary dissolution or
liquidation;
o whether the shares of that series will be convertible into or
exchangeable for cash, shares of stock of any other class or any
other series, indebtedness or other property or rights;
o whether the issuance of any additional shares of such series, or of
any shares of any other series, will be subject to restrictions as
to issuance, or as to the powers, preferences or rights of any such
other series; and
o any other preferences, privileges and powers in relative,
participating, optional, or other special rights and
qualifications, limitations or restrictions of such series.
Each series of Resources preferred stock will rank on a parity as to
dividends and assets with all other series according to the respective dividend
rates and amounts attributable upon voluntary or involuntary liquidation,
dissolution or winding up of Resources fixed for each series and without
preference or priority of any series over any other series. All shares of
Resources preferred stock will rank, with respect to dividends and liquidation
rights, senior to the Resources common stock. The ability of the Board of
Directors to issue Resources preferred stock, while providing flexibility for
possible acquisitions and other corporate purposes, could, among other things,
adversely affect the voting power of holders of Resources common stock, and,
under certain circumstances, may discourage an attempt by others to gain control
of Resources. See "Change in Control Provisions" below.
Change in Control Provisions
It is not the intent of Resources' Board of Directors to discourage
legitimate offers to enhance shareholder value. Certain provisions of Resources'
Articles listed below, however, may have the effect of discouraging unilateral
tender offers or other attempts to acquire the business of Resources. These
provisions currently apply to Roanoke Gas shareholders.
o The Board is divided into three classes, as nearly equal in number
as possible, each of which serves for three years, with one class
being elected each year.
o Directors may be removed only for cause.
o Any vacancy on the Board of Directors or newly-created directorships
may be filled by a majority of the remaining directors then in
office, even if less than a quorum.
o The number of directors may not be less than seven nor more than
eleven.
These provisions might discourage a potentially interested purchaser from
attempting a unilateral takeover bid for Resources on terms that some
shareholders might favor. If they discourage potential takeover bids, these
provisions might limit the opportunity for Resources' shareholders to sell their
shares at a premium.
In addition, Resources' Articles, like those of Roanoke Gas, do not
provide for cumulative voting in the election of directors. Cumulative voting
permits shareholders to multiply their number of votes by the total number of
directors being elected and to cast their total number of votes for one or more
candidates.
The Bylaws of Resources also include provisions setting forth specific
conditions and restrictions under which business may be transacted at meetings
of shareholders. For example, no business may be transacted at a meeting unless:
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o such business is specified in the notice of meeting;
o otherwise brought before the meeting by or at the direction of the
Board; or
o brought before the meeting by a shareholder of record who provided
notice in writing to the President not less than 60 days nor more
than 90 days prior to the meeting.
These provisions may create an anti-takeover effect by placing restrictions on
the content of the issues to be discussed at a shareholder meeting.
In addition, the issuance of authorized but unissued shares of Resources
common stock or Resources preferred stock in certain instances may have an
anti-takeover effect. Such shares might be issued by the Board of Directors
without shareholder approval in transactions that might prevent or render more
difficult or costly the completion of a takeover transaction, such as by
diluting voting or other rights of the proposed acquirer. In this regard,
Resources' Articles grant the Board of Directors broad power to establish the
rights and preferences of the authorized and unissued preferred stock, one or
more classes or series of which could be issued entitling holders to vote
separately as a class on any proposed merger or consolidation, to convert such
stock into shares of Resources common stock or possibly other securities, to
demand redemption at a specified price under prescribed circumstances related to
a change of control, or to exercise other rights designed to impede a takeover.
See "Certain Differences in Rights of Roanoke Gas And Resources
Shareholders."
Shareholder Protection Statutes
The Virginia Act includes two shareholder protection statutes, the
Affiliated Transactions Statute and the Control Share Acquisitions Statute,
which will apply to Resources after the Effective Time.
The Affiliated Transactions Statute restricts certain transactions
between a Virginia corporation having more than 300 shareholders of record and
a beneficial owner of more than 10% of any class of voting stock. An affiliated
transaction is defined in the Virginia Act as any of the following transactions
with or proposed by an interested shareholder: a merger; a share exchange;
certain dispositions of assets or guaranties of indebtedness other than in the
ordinary course of business; certain significant securities issuances;
dissolution of the corporation; or reclassification of the corporation's
securities. Under the statute, an affiliated transaction generally requires the
approval of a majority of disinterested directors and two-thirds of the voting
shares of the corporation other than shares owned by an interested shareholder
during a three-year period commencing as of the date the interested shareholder
crosses the 10% threshold. This special voting provision does not apply if a
majority of disinterested directors approved the acquisition of the more than
10% interest in advance. After the expiration of the three-year moratorium, an
interested shareholder may engage in an affiliated transaction only if it is
approved by a majority of disinterested directors or by two-thirds of the
outstanding shares held by disinterested shareholders, or if the transaction
complies with certain fair price provisions. This special voting rule is in
addition to, and not in lieu of, other voting provisions contained in the
Virginia Act and the Articles of Resources.
The Control Share Acquisitions Statute provides that, with respect to
Virginia corporations having 300 or more shareholders of record, shares acquired
in a transaction that would cause the acquiring person's aggregate voting power
to meet or exceed any of three thresholds (20%, 33-1/3% or a majority) have no
voting rights unless such rights are granted by a majority vote of the shares
not owned by the acquiring person or any officer or employee-director of the
corporation. The statute sets out a procedure whereby the acquiring person may
call a special shareholder's meeting for the purpose of considering whether
voting rights should be conferred. Acquisitions as part of a merger or share
exchange to which the corporation is a party and acquisitions as part of a
tender or exchange offer arising out of an agreement to which the corporation is
a party are exempt from the statute.
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Application of the Affiliated Transactions and Control Share Acquisitions
statutes are automatic unless a corporation takes certain steps to "opt out" of
their application. Resources has not "opted out" of the statutes.
Transfer Agent and Registrar
The transfer agent and Registrar for Resources is First Union National
Bank of North Carolina, Corporate Trust Client Services, N.C. - 1153, 1525 West
W. T. Harris Boulevard - 3C3, Charlotte, North Carolina 28288- 1153.
After the reorganization, Resources intends to furnish to its shareholders
annual reports containing audited financial statements and quarterly reports
containing unaudited financial information.
INDEMNIFICATION AND LIMITATION OF LIABILITY
Resources' Articles contain a provision that, subject to certain
exceptions described below, eliminates the liability of a director or officer to
Resources or to its shareholders for monetary damages for any breach of duty as
a director or officer to the full extent allowed by Virginia law. This provision
does not eliminate such liability to the extent that it is proved that the
director or officer engaged in willful misconduct or a knowing violation of
criminal law or of any federal or state securities law.
Resources' Articles also require Resources to indemnify any director or
officer who is or was a party to a proceeding, including a proceeding by or in
the right of Resources, by reason of the fact that he or she is or was such a
director or officer or is or was serving at the request of Resources as a
director, officer, employee or agent of another entity. A director or officer of
Resources is entitled to be indemnified against all liabilities and expenses
incurred by the director or officer in the proceeding, except such liabilities
and expenses as are incurred because of his or her willful misconduct or knowing
violation of the criminal law. Unless a determination has been made that
indemnification is not permissible, a director or officer also is entitled to
have Resources make advances and reimbursement for expenses prior to final
disposition of the proceeding upon receipt of a written undertaking from the
director or officer to repay the amounts advanced or reimbursed if it is
ultimately determined that he or she is not entitled to indemnification. The
Board of Directors of Resources also has the authority to extend to any person
who is an employee or agent of Resources, or who is or was serving at the
request of Resources as a director, officer, employee or agent of another
entity, the same indemnification rights held by directors and officers, subject
to all of the accompanying conditions and obligations.
The Virginia Act permits a court, upon application of a director or
officer, to review Resources' determination as to a director's or officer's
request for advances, reimbursement or indemnification. If it determines that
the director or officer is entitled to such advances, reimbursement or
indemnification, the court may order Resources to make advances and/or
reimbursement for expenses or to provide indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling
Resources under the foregoing provisions, Resources has been informed that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
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CERTAIN DIFFERENCES IN RIGHTS OF ROANOKE GAS
AND RESOURCES SHAREHOLDERS
Roanoke Gas and Resources are both Virginia corporations. When the
reorganization becomes effective, holders of Roanoke Gas common stock will
become holders of Resources common stock, and their rights will be governed by
Resources' Articles and Bylaws instead of those of Roanoke Gas.
Material differences between the rights of holders of Resources common
stock and those of holders of Roanoke Gas common stock are summarized below.
This summary is qualified in its entirety by reference to the information
included in the exhibits to this proxy statement/prospectus, in exhibits to the
Registration Statement of which this proxy statement/prospectus is a part, and
in materials incorporated herein by reference.
Authorized Common Stock
The number of authorized shares of Roanoke Gas common stock and Resources
common stock is 3,000,000 and 10,000,000 shares, respectively. As of the Record
Date for the Annual Meeting, there were 1,805,006 shares of Roanoke Gas common
stock issued and outstanding and held by 1,830 shareholders of record.
Approximately 1,850,000 shares of Resources common stock may be issued in the
reorganization. The additional authorized but unissued shares of Resources
common stock will be available for issuance under existing dividend
reinvestment, stock purchase, bonus and incentive plans, as well as possibly for
stock splits, stock dividends, equity financings, and for other general
corporate purposes, including, possibly, acquisitions, none of which is under
current consideration. See "Capital Stock of Resources."
Authorized Preferred Stock
Roanoke Gas presently has no authorized preferred stock. There are
5,000,000 authorized shares of Resources preferred stock, all of which are
unissued.
Management believes that the ability to issue Resources preferred stock
will provide important flexibility, although it has no present plans to issue
preferred stock.
Director and Officer Exculpation
Resources' Articles provide for the limitation or elimination of personal
liability of directors or officers of Resources to the fullest extent permitted
by the Virginia Act. Under the Virginia Act, that limitation of liability does
not apply if the director or officer engaged in willful misconduct or a knowing
violation of criminal law or any federal or state securities law. See
"Indemnification and Limitation of Liability."
Roanoke Gas' Articles do not contain specific provisions limiting or
eliminating the personal liability of directors or officers of Roanoke Gas.
Accordingly, under the Virginia Act, the liability of a director or officer of
Roanoke Gas, as a director or officer of Roanoke Gas, would be the greater of
$100,000 or the amount of compensation received by the director or officer in
the twelve months preceding the act or omission giving rise to the liability.
Indemnification of Officers and Directors
Resources' Articles provide for indemnification of an officer, director,
employee or agent as set out under "Indemnification and Limitation of
Liability." Resources Articles prohibit indemnification in the case of willful
misconduct or a knowing violation of the criminal law, but permits
indemnification for gross negligence under certain circumstances.
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Roanoke Gas' Bylaws contain provisions indemnifying directors, officers,
employees and agents of Roanoke Gas in certain circumstances against expenses,
judgements, fines and amounts paid in settlement. The Roanoke Gas Bylaws
prohibit indemnification in the case of gross negligence or willful misconduct.
Director Nominations and Shareholder Proposals
Resources' Bylaws establish procedures in addition to the requirements
provided by statute that must be followed for shareholders to submit a proposal
to a vote of shareholders of Resources at a meeting of shareholders. Such
proposal must be made by delivering written notice to the President of Resources
not less than sixty nor more than ninety days prior to the meeting; provided,
however, that if less than seventy days' notice of the date of the meeting is
given, such written notice by the shareholder must be delivered not later than
the tenth day after the day on which such notice of the date of the meeting was
given. Notice will be deemed to have been given more than seventy days prior to
the meeting if a meeting is called on the fourth Monday of January, or if such
date falls on a legal holiday, the next business day, regardless as to when
public disclosure is made. The shareholder proposal notice must set forth:
o a brief description of the proposal and the reasons for its
submission;
o the name and address of the shareholder, as they appear on Resources'
books;
o the classes and number of shares of Resources owned by the
shareholder; and
o any material interest of the shareholder in such proposal other than
such holder's interest as a shareholder of Resources.
The chairman of the meeting will, if the facts warrant, determine that a
shareholder proposal was not made under the procedures prescribed by the
Bylaws, and the defective shareholder proposal will be disregarded.
Neither the Articles nor Bylaws of Roanoke Gas establish any procedures in
addition to the requirements provided by statute that must be followed for
shareholders to submit a proposal to a vote of the shareholders of Roanoke Gas.
BUSINESS OF ROANOKE GAS AND RESOURCES
Roanoke Gas
Roanoke Gas, a Virginia public service company, is engaged in the retail
distribution and sale of natural gas to approximately 49,000 customers in
Roanoke, Virginia and surrounding areas in Virginia. Roanoke Gas' service area
includes the cities of Roanoke and Salem, Virginia, and surrounding regions in
Virginia, including Roanoke County and portions of Bedford, Botetourt, Franklin
and Montgomery counties, Virginia. Bluefield, a West Virginia public service
corporation, is a wholly owned subsidiary of Roanoke Gas. Bluefield provides
natural gas service to approximately 4,100 customers located in and around
Bluefield, West Virginia. Bluefield's service area extends from Princeton, West
Virginia to the western most city limits of Bluefield, West Virginia. Bluefield
owns all of the issued and outstanding stock of Commonwealth, a Virginia public
service corporation, which serves approximately 925 customers in Bluefield,
Virginia and surrounding areas in Virginia. Commonwealth's service area includes
principally the Town of Bluefield, Virginia and a portion of Tazewell County,
Virginia. Unless otherwise specified, Roanoke Gas, Bluefield and Commonwealth
will be referred to in this Section as the "Natural Gas Companies." Roanoke Gas
also distributes and sells propane and propane related products to customers in
southwestern Virginia and southern West Virginia through its wholly owned
Virginia subsidiary, Diversified, which is not a regulated public utility.
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Natural Gas Distribution Operations. As of September 30, 1998, the public
utility operations of the Natural Gas Companies served approximately 53,100
natural gas customers through an operationally integrated natural gas
distribution system. Natural gas is purchased from suppliers and distributed to
residential, commercial and large industrial users through the underground
pipeline system of the Natural Gas Companies. Of revenues from regulated gas
operations during fiscal 1998, approximately 59% was derived from residential
customers and 41% was derived from commercial and industrial customers. The
utility operations of the Natural Gas Companies served approximately 48,265
residential customers and approximately 5,317 industrial and commercial
customers in fiscal 1998.
As of September 30, 1998, the consolidated utility plant account of the
Natural Gas Companies, net of accumulated depreciation, was stated at
$47,016,086, its consolidated operating revenues on that date totaled
$51,857,052 and the consolidated net capital applicable to its common stock was
$23,650,912.
Supervision and Regulation. Natural gas distribution operations are
subject to regulation at the federal and state levels. Gas transmission between
Bluefield and Commonwealth is regulated by the Federal Energy Regulatory
Commission, which regulates the prices, terms and conditions of interstate
pipeline transportation and sales of natural gas. Roanoke Gas and Bluefield are
exempt holding companies under Section 3(a)(2) of the Public Utility Act and
annually file Forms U-3A-2 with the SEC. At the state level, Roanoke Gas and
Commonwealth are regulated by the Virginia Commission, and Bluefield is
regulated by the West Virginia Commission. The Virginia Commission and the West
Virginia Commission regulate various matters, including rates charged for
services, financings, planning and safety matters. The Virginia Commission also
grants certificates of public convenience and necessity to distribute natural
gas in the Commonwealth of Virginia. In addition, certain municipalities and
localities grant franchises for the placement of natural gas distribution
pipelines and the operation of a natural gas distribution network for Roanoke
Gas, Commonwealth and Bluefield.
Roanoke Gas and Commonwealth currently hold the only franchises and
certificates of public convenience and necessity to distribute natural gas in
their respective Virginia service areas. The franchises generally extend for
multi-year periods and are renewable by the municipalities. Certificates of
public convenience and necessity, which are issued by the Virginia Commission,
are of perpetual duration, subject to compliance with regulatory standards.
Bluefield holds the only franchise to distribute natural gas in its West
Virginia service area. The West Virginia franchises will expire on August 22,
2009. The Virginia franchises will expire on December 31, 2015. Management
anticipates that it will be able to renew these franchises upon expiration.
Natural Gas Supplies and Storage. In fiscal 1998, Roanoke Gas delivered
approximately 9.8 BCF of natural gas to its customers. The Natural Gas
Companies currently use long-term (one year or longer), mid-term (one month to
one year) and spot (less than one month) gas purchase contracts to meet its
system requirements. Roanoke Gas has an estimated current peak day firm
requirement of 94,000 decatherms of natural gas. Bluefield and Commonwealth
currently have an estimated combined current peak day firm requirement of 13,500
decatherms of natural gas.
Roanoke Gas also maintains a liquefied natural gas storage facility
located in Botetourt County, Virginia. This facility is capable of storing up to
220,000 decatherms of natural gas for use during peak winter periods. In
addition, Roanoke Gas and Bluefield have contracted for storage reserves
providing a combined total of 2.7 BCF of underground storage capacity.
Columbia Gas Transmission Corporation and Columbia Gulf Transmission
Corporation (together "Columbia") are the Natural Gas Companies' primary
transporter of natural gas. Columbia historically has delivered approximately
two-thirds of Roanoke Gas' gas supply and 100% of Bluefield's gas supply. East
Tennessee Natural Gas Company and Tennessee Gas Pipeline Company (together "East
Tennessee") are the other major source of supply for the Natural Gas Companies.
Historically, East Tennessee has delivered approximately
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one-third of this natural gas supply. The rates paid for natural gas
transportation and storage services purchased from Columbia and East Tennessee
are established by tariffs approved by the Federal Energy Regulatory Commission.
These tariffs contain flexible pricing provisions which, in some instances,
authorize these suppliers to reduce rates and charges to meet price competition.
Nonutility Subsidiary. Roanoke Gas owns 100% of the voting common stock of
Diversified, a Virginia nonpublic utility corporation headquartered in Roanoke,
Virginia. Diversified serves approximately 11,000 active propane accounts in
southwestern Virginia and southern West Virginia. Diversified's propane
distribution activities are not subject to any federal or state pricing
regulation. In addition to propane operations, Diversified maintains a natural
gas marketing business which assists large industrial customers in the purchase
of natural gas.
Additional Information. Financial and additional information regarding
Roanoke Gas and its subsidiaries is included in the 1998 Annual Report to
Shareholders delivered with this proxy statement/prospectus and in the Roanoke
Gas Annual Report on Form 10-K for the fiscal year ended September 30, 1998,
which is incorporated by reference herein. See "Where You Can Find More
Information."
Resources
Resources is a wholly owned subsidiary of Roanoke Gas and was incorporated
on July 31, 1998, for the purpose of accomplishing the proposed merger and
reorganization. Resources owns all of the outstanding common stock of RGC
Acquisition, a Virginia corporation which was formed on August 12, 1998, also
for the purpose of accomplishing the merger and reorganization. Neither
Resources nor RGC Acquisition owns any utility assets or engages in any
business, or is a holding company under the Public Utility Act.
REGULATION OF RESOURCES AND ROANOKE GAS
AND CERTAIN SUBSIDIARIES AFTER THE REORGANIZATION
Regulation of Resources
As a result of the reorganization, Resources will become a "public utility
holding company" under the Public Utility Act. Simultaneously with the
effectiveness of the reorganization, Resources will file with the SEC an
exemption statement to exempt itself and its subsidiaries from all provisions of
the Public Utility Act, except with respect to certain acquisitions and
investments, under the "intrastate" exemption in Section 3 (a) (1). To maintain
this exemption, Resources will be required to file a statement annually with the
SEC. The exemption may be revoked by the SEC if a substantial question of law or
fact exists as to whether Resources is within the parameters of the exemption,
or if it appears that the exemption may be detrimental to the public interest or
the interest of investors or consumers. If such exemption is revoked and
Resources must register as a public utility holding company under the Public
Utility Act, Resources' activities will be subject to significant additional
regulatory supervision, limitations and restrictions by the SEC. This could
materially adversely affect Resources' operations and ability to grow and
diversify its nonutility businesses and to diversify its businesses outside of
the Commonwealth of Virginia. See "Risk Factors -- Regulation as a Public
Utility Holding Company."
Resources believes that it will be exempt from all provisions of the
Public Utility Act except Section 9(a) (2). Section 9(a) (2) requires SEC
approval of the direct or indirect acquisition by Resources of five percent or
more of the voting securities of any other public utility company. There are
also presently limits on the extent to which Resources and its nonutility
subsidiaries, even if exempt under the intrastate exemption, can enter into
businesses which are not "functionally related" to the public utility business
without raising potential issues about Resources' exempt status. Therefore, even
exempt companies are limited by the Public Utility Act with respect to their
ability to diversify into nonutility businesses. SEC policies regarding the
scope of permissible nonutility
26
<PAGE>
activities of an exempt public utility holding company are subject to change,
but under current law, Resources would be required to remain engaged primarily
and predominantly in the public utility business in the Commonwealth of
Virginia, which could limit other activities in which Resources might wish to
engage. Consequently, these limits on nonutility activities of a public holding
company could limit the ability of Resources to invest in other businesses and
pursue nonutility related business opportunities.
In 1994, the SEC issued a release soliciting the views of interested
parties on a study being conducted by its staff to develop recommendations
regarding certain Congressional concerns and the needs of those affected by
regulation under the Public Utility Act. In June 1995, the staff completed its
study and issued a report which concluded that significant changes were needed
in the current regulatory scheme. The SEC staff report viewed the Public Utility
Act as unnecessarily restrictive in many regards which could prevent companies
from responding effectively to changes now occurring in the utility industry.
Among the staff report's recommendations were three legislative options for the
SEC to offer to Congress: repeal of the Public Utility Act with legislation to
continue federal protection of consumers; unconditional repeal of the Public
Utility Act; or broadening of the SEC's authority to exempt holding companies
where state regulation is adequate. Pending legislative action, the staff report
recommended that the SEC act administratively to modernize and simplify holding
company regulation, reduce delays in current administration and minimize
regulatory overlap, including rulemaking proposals and significant changes in
the SEC's past interpretations under the Public Utility Act. One of these
proposals was a rule to exempt most energy-related diversification within
investment limitations. On March 24, 1997, Rule 58 under the Public Utility Act
was amended to exempt from the requirements of prior approval by the SEC under
Section 9(a) of the Public Utility Act the acquisition of securities of certain
varieties of "energy related companies" subject to aggregate investment limits
by registered companies.
Legislation to repeal the Public Utility Act has been introduced in
Congress from time to time. Neither Resources nor Roanoke Gas can predict
whether Congress will take any action to significantly modify the Public Utility
Act or whether the SEC will take action to further revise or modify
significantly its the Public Utility Act rules, decisions and interpretations.
Regulation of Roanoke Gas and Bluefield Gas
Following completion of the reorganization, the activities of Roanoke Gas
will continue to be subject to affirmative regulation by the Virginia
Commission, and the activities of Bluefield Gas will continue to be subject to
affirmative regulation by the West Virginia Commission. In particular,
transactions between Roanoke Gas and any other entity, including Resources,
which is an "affiliated interest" of Roanoke Gas within the meaning of the
applicable Virginia statutes is subject to prior approval by the Virginia
Commission. Similarly, any contract between Bluefield and an affiliate requires
the prior consent of the West Virginia Commission. These statutes enable the
state regulators effectively to delineate and control the allocation of holding
company assets to assure that such assets are not used in a fashion deemed
inappropriate or detrimental to the public utility system and its customers. The
Virginia Commission and the West Virginia Commission each has full authority to
investigate public utilities for purposes of determining efficiency and economy
of operation, to conduct continuing reviews and audits and to issue appropriate
directives. The Virginia Commission and the West Virginia Commission each
reviews cost allocations and, in every rate case, requires the public utility to
submit substantial data to support both rate-based components and cost
components between or among divisions, utility or nonutility.
27
<PAGE>
RIGHT OF DISSENTING SHAREHOLDERS TO RECEIVE PAYMENT FOR SHARES
Roanoke Gas common stockholders entitled to vote on approval of Proposal 1
will be entitled to have the fair value of their shares immediately prior to the
consummation of the merger, paid in cash, together with any interest, if any, by
complying with the provisions of Article 15 of the Virginia Act. Under Article
15, the determination of the fair value of a dissenter's shares would exclude
any appreciation or depreciation in the value of such shares in anticipation of
the merger, unless the exclusion would be inequitable.
A Roanoke Gas common stockholder who desires to exercise his or her
dissenters' rights must deliver a written notice and cannot vote FOR Proposal 1.
A written notice of such holder's intent to demand payment for his or her shares
must be delivered to Roanoke Gas before the taking of the vote on approval of
the Proposal. This written notice must be in addition to and separate from
voting against, abstaining from voting, or failing to vote on approval of
Proposal 1. Voting against, abstaining from voting or failing to vote on
approval of Proposal 1 will not constitute written notice of an intent to demand
payment within the meaning of Article 15.
A Roanoke Gas common stockholder electing to exercise dissenters' rights
under Article 15 must not vote for approval of Proposal 1. Voting for approval
of Proposal 1, or delivering a proxy for the Annual Meeting, will constitute a
waiver of such holder's dissenters' rights and will nullify any written notice
of an intent to demand payment, unless the proxy specifies a vote against, or
abstaining from voting on, approval of Proposal 1.
A holder of record of Roanoke Gas common stock may assert dissenters'
rights as to less than all of the shares registered in the holder's name only if
the holder dissents with respect to all shares beneficially owned by any one
person and notifies Roanoke Gas in writing of the name and address of each
person on whose behalf the holder is asserting dissenters' rights. The rights of
a partial dissenter under Article 15 are determined as if the dissenting shares
and the holder's other shares were registered in the names of different
shareholders.
A beneficial holder of Roanoke Gas common stock may assert dissenters'
rights as to shares held on such holder's behalf only if such holder:
o submits to Roanoke Gas the record holder's written consent to the
dissent not later than the time the beneficial holder asserts
dissenters' rights; and
o does so with respect to all shares of which such holder is the
beneficial holder or over which such holder has the power to direct
the vote.
After the merger, Roanoke Gas will, within ten days after the Effective
Time, deliver a dissenters' notice to all holders who satisfied the foregoing
requirements. The notice will:
o state where payment demand is to be sent and where and when
certificates for dissenting shares are to be deposited;
o supply a form for demanding payment that includes the date of the
first announcement to news media of the reorganization, April 27,
1998, and requires that the person asserting dissenters' rights
certify whether or not such person acquired beneficial ownership of
such person's dissenting shares before or after such date;
o set a date by which Roanoke Gas must receive the payment demand,
which date may not be less than thirty nor more than sixty days
after the date of delivery of the dissenters' notice; and
o be accompanied by a copy of Article 15.
28
<PAGE>
A shareholder sent a dissenters' notice must demand payment, certify that
such holder acquired beneficial ownership of such holder's dissenting shares
before, on or after April 27, 1998, and deposit the certificates representing
such holder's dissenting shares per the dissenters' notice. A shareholder who
deposits such holder's shares as described in the dissenters' notice retains all
other rights as a holder of Roanoke Gas common stock except to the extent such
rights are canceled or modified by the consummation of the merger. A shareholder
who does not demand payment and deposit his share certificates where required,
each by the date set forth in the dissenters' notice, is not entitled to payment
for such holder's shares under Article 15.
Except as provided below with respect to after-acquired shares, within
thirty days after receipt of a payment demand, Roanoke Gas must pay the
dissenter the amount that Roanoke Gas estimates to be the fair value of the
dissenter's shares, plus accrued interest. The obligation of Roanoke Gas to make
such payment may be enforced by the Circuit Court for the City of Roanoke,
Virginia, or, at the election of any dissenter residing or having its principal
office in Virginia, by the circuit court in the city or county where the
dissenter resides or has the office. The payment by Roanoke Gas will be
accompanied by:
o Roanoke Gas' balance sheet as of the end of a fiscal year ended not
more than sixteen months before the Effective Time, an income
statement for that year, a statement of changes in shareholders'
equity for that year and the latest available interim financial
statements, if any;
o an explanation of how Roanoke Gas estimated the fair value of the
dissenting shares and of how the interest was calculated;
o a statement of the dissenter's right to demand payment as described
below; and
o a copy of Article 15.
Roanoke Gas may elect to withhold payment from a dissenter who was not the
beneficial owner of the dissenting shares on April 27, 1998, in which case
Roanoke Gas will estimate the fair value of such after-acquired shares, plus
accrued interest, and will offer to pay such amount to each dissenter who agrees
to accept it in full satisfaction of such dissenter's demand. Roanoke Gas will
send with such offer an explanation of how it estimated the fair value of the
shares and of how the interest was calculated, and a statement of the
dissenter's right to demand payment as described below.
Within thirty days after Roanoke Gas makes or offers payment as described
above, a dissenter may notify Roanoke Gas in writing of the dissenter's own
estimate of the fair value of the dissenting shares and the amount of interest
due, and demand payment of such estimate, less any payment by Roanoke Gas, or
reject Roanoke Gas' offer and demand payment of such estimate.
If any such demand for payment remains unsettled, within sixty days after
receiving the payment demand, Roanoke Gas will petition the Circuit Court for
the City of Roanoke, Virginia, to determine the fair value of the shares and the
accrued interest and make all dissenters whose demands remain unsettled parties
to such proceeding, or pay each dissenter whose demand remains unsettled the
amount demanded. Each dissenter made a party to such proceeding is entitled to a
judgment for:
o the amount, if any, by which the court finds that the fair value of
the dissenting shares, plus interest, exceeds the amount paid by
Roanoke Gas; or
o the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which Roanoke Gas elected to withhold
payment.
29
<PAGE>
The court will determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, and assess the
costs against Roanoke Gas or against any dissenters the court finds did not act
in good faith in demanding payment.
The foregoing is only a summary of the rights of a dissenting Roanoke Gas
common stock. However, all material terms of the Articles, Bylaws and Virginia
Act relating to dissenting shareholders rights have been disclosed. Any holder
of Roanoke Gas common stock who intends to dissent from the merger and
reorganization should carefully review the text of the applicable provisions of
Article 15 of the Virginia Act set forth in Attachment C to this proxy
statement/prospectus and should also consult with the holder's attorney. The
failure of a holder of Roanoke Gas common stock to follow precisely procedures
summarized above, and set forth in Attachment C, may result in loss of
dissenters' rights. No further notice of the events giving rise to dissenters'
rights or any steps associated therewith will be furnished to holders of Roanoke
Gas common stock, except as indicated above or otherwise required by law.
In general, any dissenting shareholder who perfects such holder's right to
be paid the fair value of such holder's Roanoke Gas common stock in cash will
recognize taxable gain or loss for federal income tax purposes upon receipt of
such cash. See "Federal Income Tax Consequences."
MANAGEMENT OF RESOURCES
The Articles of Resources divide Resources' Board of Directors into three
classes in the same manner as the Board of Roanoke Gas, with directors in each
class generally being elected for a three-year term. Resources' Bylaws permit
its Board of Directors to fix from time to time the number of directors in a
range of seven to eleven. Resources' Board of Directors currently is comprised
of the same persons who serve on Roanoke Gas' Board of Directors. These same
individuals will continue as directors of Resources and Roanoke Gas after the
reorganization.
Similarly, the current officers of Roanoke Gas also serve as the officers
of Resources and will continue as officers of Roanoke Gas and Resources after
the reorganization.
For further information concerning persons who are directors and officers
of Resources, see "Proposal 2: Election of Directors of Roanoke Gas" and
"Security Ownership of Management" in this proxy statement/prospectus and
"Executive Officers of the Registrant" following Part I of the Roanoke Gas
Company's Annual Report on Form 10-K for the year ended September 30, 1998,
which is incorporated by reference herein.
LEGAL OPINION
The validity of the shares of Resources common stock to be issued in the
merger will be passed upon by Woods, Rogers & Hazlegrove, P.L.C., counsel to
Roanoke Gas and Resources, 10 South Jefferson Street, Suite 1400, Roanoke,
Virginia 24011. Wilbur L. Hazlegrove, a director of Roanoke Gas and Resources,
is Of Counsel to Woods, Rogers & Hazlegrove, P.L.C. The principals of the firm
of Woods, Rogers & Hazlegrove, P.L.C. beneficially owned, as of November 30,
1998, approximately 62,000 shares of Roanoke Gas common stock.
30
<PAGE>
EXPERTS
The 1998 consolidated financial statements incorporated in this proxy
statement/prospectus by reference from the Roanoke Gas Company's Annual Report
on Form 10-K for the year ended September 30, 1998 have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their report which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The consolidated financial statements of Roanoke Gas Company and
subsidiaries as of September 30, 1997 and for each of the years in the two-year
period ended September 30, 1997, have been included and incorporated by
reference in this Prospectus and elsewhere in the registration statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, included and incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
See "Independent Public Accountants" below.
The Board of Directors of Roanoke Gas has unanimously approved the holding
company reorganization, adopted the agreement, and believes the reorganization
to be in the best interests of Roanoke Gas and its shareholders, and recommends
that the holders of Roanoke Gas common stock vote "FOR" Proposal 1 at the Annual
Meeting.
31
<PAGE>
PROPOSAL 2
ELECTION OF DIRECTORS OF ROANOKE GAS
Increasingly in recent years, officers of the Roanoke Gas have been
approached by others to open discussions for acquisition of Roanoke Gas. The
Board of Directors does not believe that it is obligated to shareholders to
sell, hold out for sale or engage in discussions for sale of Roanoke Gas and has
formally acted to direct officers and individual directors to advise those who
may propose acquisition or discussions for acquisition that Roanoke Gas is not
now for sale under any arrangement requiring Board approval.
Roanoke Gas' Board of Directors is divided into three classes (A, B and C)
with staggered three-year terms. The current term of office of the Class B
directors expires at the 1999 Annual Meeting. The terms of the Class C and Class
A directors will expire in 2000 and 2001, respectively.
There are three management nominees for Class B directors: Lynn D. Avis,
J. Allen Layman and Thomas L. Robertson. All nominees currently serve on the
Board and are standing for reelection.
Unless authorization is withheld, the persons named as proxies will vote
for the election of the nominees named below. Each nominee has agreed to serve
if elected. In the event any nominee shall unexpectedly be unable to serve, the
proxies will be voted for such other persons as the Board may designate. The
present principal occupation or employment and employment during the past five
years and the office, if any, held with Roanoke Gas are set forth below opposite
the name of each nominee and director. Proxies cannot be voted for a greater
number of persons than the number of nominees.
The Board of Directors recommends a vote "FOR" each of the nominees for
Class B Director.
<TABLE>
<CAPTION>
Year In Year in
Which Which Director
First Elected Assumed Principal
Name and Age As Director Principal Occupation Occupation
<S> <C> <C> <C> <C> <C> <C>
NOMINEES FOR DIRECTOR
CLASS B DIRECTORS (Serving until 2002 Annual Meeting)
Lynn D. Avis 1986 President, Avis Construction Co., Inc. (Construction company) 1977
Age 64
J. Allen Layman 1991 President and Chief Executive Officer, R&B Communications, 1990
Age 46 Inc.(Telecommunications)
Thomas L. Robertson 1986 President and Chief Executive Officer, Carilion Health System 1986
Age 55 and Carilion Medical Center; Director, Roanoke Electric Steel
Corporation, 1992
32
<PAGE>
DIRECTORS CONTINUING IN OFFICE
CLASS C DIRECTORS (Serving until 2000 Annual Meeting)
Frank T. Ellett 1983 President, Virginia Truck Center, Inc. (Sale, lease and service of 1981
Age 60 heavy trucks)
F. A. Farmer, Jr. 1979 Chairman of the Board of Directors of Roanoke Gas since January 1996
Age 66 1996; President and Chief Executive Officer of Roanoke Gas,
January 1991 to February 1998
W. L. Hazlegrove 1979 Of Counsel, law firm of Woods, Rogers & Hazlegrove, P.L.C.; 1954
Age 69 Vice President and General Counsel of Roanoke Gas, 1984-1994
CLASS A DIRECTORS (Serving until 2001 Annual Meeting)
Abney S. Boxley, III 1994 President, W. W. Boxley Co. (Crushed stone supplier); Director, 1988
Age 40 Valley Financial Corporation, 1994
S. Frank Smith 1990 Vice President, Coastal Coal Co., LLC (Marketers and sellers of 1986
Age 50 coal)
John B. Williamson, III 1993 President and CEO of Roanoke Gas; Vice President-Rates 1998
Age 44 and Finance, January 1993 to February 1998; Director
of Rates and Finance, April 1992 to January 1993
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of January 20, 1999, certain
information regarding the beneficial ownership of the common stock of Roanoke
Gas by each director, nominee and named executive officer and by all directors
and executive officers as a group. Unless otherwise noted in the footnotes to
the table, the named persons have sole voting and investment power with respect
to all outstanding shares of Roanoke Gas common stock shown as beneficially
owned by them.
33
<PAGE>
<TABLE>
<CAPTION>
Shares of Common
Name of Stock Beneficially Owned
Beneficial Owner As of 1/20/99(1) Percent of Class
<S> <C> <C> <C> <C> <C> <C>
Lynn D. Avis 9,161 .5%
Abney S. Boxley, III 4,392 .2%
Frank T. Ellett 6,539 .4%
Frank A. Farmer, Jr. 42,535(2) 2.4%
Wilbur L. Hazlegrove 35,966(3) 2%
J. Allen Layman 5,293 .3%
Thomas L. Robertson 6,108 .3%
S. Frank Smith 6,328 .4%
John B. Williamson, III 12,219(4) .7%
All Directors and Executive 147,595(5) 8.2%
Officers as a Group (12
persons)
</TABLE>
----------------------
(1) Includes restricted shares purchased by directors under the Restricted Stock
Plan For Outside Directors.
(2) Includes 9,405 shares owned by spouse.
(3) Includes 11,144 shares owned by spouse.
(4) Includes 10,000 shares which Mr. Williamson has the right to acquire through
the exercise of stock options.
(5) Includes an aggregate of 25,000 shares which executive officers have the
right to acquire through the exercise of stock options.
BOARD OF DIRECTORS AND COMMITTEES
Audit Committee
The Audit Committee of the Board of Directors, composed of Messrs. Boxley,
Ellett, Layman, Robertson and Smith, meets at least annually with Roanoke Gas'
chief financial officer, the independent auditors of Roanoke Gas, and certain
appropriate officers of Roanoke Gas. The basic functions of this Committee
include reviewing significant financial information, reviewing accounting
procedures and internal controls and recommending the selection of Roanoke Gas'
independent auditors. The Audit Committee met three times during the 1998 fiscal
year.
Executive and Nominating Committee
The Executive and Nominating Committee of the Board of Directors, which is
composed of Messrs. Avis, Hazlegrove, Ellett and Layman, is empowered to
exercise all authority of the Board of Directors, except with respect to matters
reserved for the Board by Virginia law. Thus, in the absence of nominations by
the Board of Directors, this Committee may nominate persons as management's
nominees for election to the Board of Directors by the shareholders at Roanoke
Gas' annual meeting. The Board of Directors does not have a standing nominating
committee as such.
34
<PAGE>
Compensation Committee
The Compensation Committee of the Board of Directors is composed of
Messrs. Avis, Boxley, Ellett, Layman and Smith. This Committee meets as
necessary to consider and make recommendations to the Board of Directors
concerning the salaries of the Chief Executive Officer, Chief Operating Officer,
Secretary/Treasurer, Vice President - Marketing, and Assistant Vice President -
Human Resources of Roanoke Gas. This Committee met one time during the 1998
fiscal year.
Meetings of the Board and Committees
The Board of Directors met twelve times during the 1998 fiscal year. With
the exception of Mr. Robertson, the incumbent members of the Board attended in
fiscal year 1998, at least 75 percent of the aggregate of the total number of
meetings of the Board and the total number of meetings held by all Committees of
the Board on which they served. The Board held three Audit Committee meetings
and one Compensation Committee Meeting. Specifically, all Board members attended
all meetings, with the following exceptions:
o Mr. Robertson missed five Board meetings and two committee meetings.
o Mr. Hazlegrove missed three Board meetings.
o Mr. Layman missed two Board meetings.
o Mr. Smith missed one Board meeting and one committee meeting.
o Mr. Boxley missed one Board meeting.
EXECUTIVE COMPENSATION
The following table contains information with respect to the individual
compensation of the following officers for services in all capacities to Roanoke
Gas and its subsidiaries for the fiscal years ended September 30, 1998, 1997 and
1996. On February 1, 1998, Mr. Farmer retired as President and Chief Executive
Officer of Roanoke Gas. On that date, Mr. Williamson became President and Chief
Executive Officer of Roanoke Gas and Mr. Pendleton became Executive Vice
President and Chief Operating Officer of Roanoke Gas.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------ ----------------
Name and Awards All Other
Principal Position Year Salary($) Bonus($)(1) Options/SARs Compensation($)(2)
- ------------------------- ---------- -------------- -------------- ---------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Frank A. Farmer, Jr. 1998 119,022 15,000 0 1,637
President and Chief 1997 169,875 20,000 8,000 7,965
Executive Officer until 1996 158,858 11,000 5,000 5,089
February 1, 1998
John B. Williamson, III 1998 111,164 7,500 3,500 4,974
President and Chief 1997 82,773 10,000 4,000 3,888
Executive Officer as of 1996 78,935 5,000 2,500 2,515
February 1, 1998
35
<PAGE>
Arthur L. Pendleton 1998 100,332 7,500 1,500 4,519
Senior Vice President 1997 82,248 10,000 4,000 3,863
& Chief Operating 1996 79,734 5,000 2,500 2,535
Officer
</TABLE>
- -----------------
(1) Bonus paid in current year for previous year's performance.
(2) Consists entirely of Roanoke Gas' contribution under the Employees' 401(k)
Plan.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Individual Grants
------------------------------------------------------------------ Potential Realizable
% of Total Value(1) at Assumed
Number of Options Market Annual Rates of
Securities Granted to Exercise Price on Stock Price
Underlying Employees or Base Date of Appreciation for
Options in Fiscal Price Grant Expiration Option Term
------------------------
Name Granted (#) Year ($/Share)(2) ($/Share) Date 5%($) 10%($)
- ---------------------- ------------------------- -------------- ------------------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John B. Williamson, III 3,500 22.6% $20.625 $20.625 01/05/08 117,600 187,250
Arthur L. Pendleton 1,500 9.7% $20.625 $20.625 01/05/08 50,400 80,250
- --------------------
</TABLE>
(1)The dollar amounts under these columns are the result of calculations at the
5% and 10% rates set by the SEC and therefore are not intended to forecast
possible future appreciation, if any, of Roanoke Gas' stock price.
Additionally, these values do not take into consideration the provisions of
the options providing for nontransferability or termination of the options
following termination of employment. Roanoke Gas did not use an alternative
formula for a grant date valuation, as it is not aware of any formula which
will determine with reasonable accuracy a present value based on future
unknown or volatile factors.
(2)The exercise price of the options granted is equal to the closing sales price
of Roanoke Gas common stock on the Nasdaq National Market on the date of
grant. Options generally expire ten years from the date of grant.
<TABLE>
<CAPTION>
Aggregate Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Value of
Number of Unexercised
Shares Unexercised in-the-money
Acquired on Value Options at fiscal options at fiscal
Name Exercise (#) Realized ($) year-end (#) year-end ($)
- ------------------- -------------- -------------- --------------------- ---------------------
Exercisable/ Exercisable/
Unexercisable Unexercisable
--------------------- ---------------------
<S> <C> <C> <C> <C>
Frank A. Farmer, Jr. 13,000 31,250 0/0 0/0
</TABLE>
Retirement Plan
Roanoke Gas has in effect a noncontributory Retirement Plan. The costs of
benefits under the Plan, which are borne by Roanoke Gas, are computed
actuarially and defrayed by earnings from the Plan's investments and/or annual
contributions of Roanoke Gas. The Plan generally provides for the monthly
payment, at normal retirement
36
<PAGE>
age 65, of the greater of (a) the participant's accrued benefit as of December
31, 1988 under the formula then in effect or (b) one-twelfth of (1) plus (2)
minus (3) as follows:
(1) 1.2% of the participant's average compensation for his highest
consecutive sixty months of service multiplied by years of credited
service up to thirty years,
(2) .65% of the participant's average compensation for his highest
consecutive sixty months of service in excess of covered
compensation (generally defined as the average of Social Security
wage bases over a participant's assumed working lifetime) multiplied
by years of credited service up to thirty years, and
(3) the participant's balance, if any, from Roanoke Gas' former profit
sharing plan.
Early retirement with reduced monthly benefits is available at age 55 after ten
years' service. Provisions also are made for vesting of benefits after five
years of service and for disability and death benefits. All employees who have
completed one year of service to Roanoke Gas and are credited with at least
1,000 hours of service in a Plan year are eligible to participate in the Plan.
At age 65, for Plan purposes, Mr. Williamson and Mr. Pendleton will have
28 and 37 credited years of service, respectively. Upon his retirement on
February 1, 1998, Mr. Farmer, at age 65, had 34 credited years of service.
The compensation covered by the Plan includes the total of all amounts
paid to a participant by Roanoke Gas for personal services reported on the
participant's federal income tax withholding statement (Form W-2), up to certain
statutory limits. For 1998, these earnings are limited to $160,000. This limit
is indexed for cost of living after 1994.
<TABLE>
<CAPTION>
Estimated Annual Pension For
Representative Years of Credited Service(1)
-----------------------------------------------------------
Highest Sixty Months
Average Compensation 15 20 25 30 35
- -------------------- == == == == ==
<S> <C> <C> <C> <C> <C> <C>
$125,000 $ 31,800 $42,400 $ 52,900 $ 63,500 $63,500
150,000 38,700 51,600 64,500 77,400 77,400
175,000 39,300 52,300 65,400 78,500 78,500
200,000 39,300 52,300 65,400 78,500 78,500
- -----------------
</TABLE>
(1) The benefit amounts assume the employee is retiring at normal retirement age
(age 65). The benefit amounts listed in the table are computed as a straight
life annuity. No offset to pension benefits due to the Profit-Sharing Plan
(which has been converted into the 401(k) Plan) is reflected. Benefits are
not reduced by Social Security.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee, which is made up of five members of the Board
of Directors who are not officers or employees of Roanoke Gas, is responsible
for setting and administering the policies that govern the annual compensation
paid to the executive officers of Roanoke Gas, including the Chief Executive
Officer.
37
<PAGE>
In fiscal 1998, annual salary continued to be the primary component of
compensation for executive officers of Roanoke Gas. This is based in large part
on concern that external factors beyond the control of Roanoke Gas executives,
such as weather and regulatory decisions, may have a significant impact on
corporate performance.
The Compensation Committee recommends, for approval by the Board of
Directors, the annual salaries of executive officers. Salaries are based on the
respective positions held by the executive officers, including their
accomplishments, level of responsibility and experience and the relationship of
such salaries to the salaries of other Roanoke Gas managers and employees. In
this regard, the Compensation Committee reviews the Chief Executive Officer's
recommendations on compensation of the other executive officers and information
concerning executive compensation at other companies in the American Gas
Association. Such other companies are included in (but do not solely comprise)
both of the peer indices reflected in the Performance Graph below. The
Compensation Committee also considers overall corporate performance, customer
service and satisfaction, relationships with regulatory agencies and the ability
to manage and maintain a competent work force in preparing its compensation
recommendations.
Under Roanoke Gas' Stock Bonus Plan, the Compensation Committee approved
the payment in fiscal 1998 of bonuses to the Chief Executive Officer and other
executive officers of Roanoke Gas for outstanding performance during the fiscal
year 1997. The Stock Bonus Plan is intended to allow the Board of Directors to
award individual or collective superior performance that has resulted in
enhanced shareholder value or returns and to encourage increased ownership of
Roanoke Gas common stock by officers and management. The Stock Bonus Plan is
administered by the Compensation Committee, which considers recommendations from
Roanoke Gas' President. Roanoke Gas' bonus award proposals are subject to
approval of the Board of Directors. Under the Stock Bonus Plan, executive
officers of Roanoke Gas are encouraged to own a position in Roanoke Gas common
stock of at least 50% of the value of their annual salary. To promote this
policy, the Plan provides that all officers with stock ownership positions below
50% of the value of their annual salaries must, unless approved by the
Compensation Committee, receive no less than 50% of any performance bonus in the
form of Roanoke Gas common stock. Bonus amounts, if any, for a fiscal year will
generally be determined in the January following that fiscal year-end. Bonus
award determinations under the Stock Bonus Plan for performance in the 1997
fiscal year were based on the performance of Roanoke Gas, combined with an
analysis of the individual contributions of officers receiving the bonuses to
the overall performance of Roanoke Gas.
Roanoke Gas adopted a Key Employee Stock Option Plan, which became
effective January 1996. The Plan is intended to provide Roanoke Gas' executive
officers with long-term (ten-year) incentives and rewards tied to the price of
Roanoke Gas common stock. The Compensation Committee believes that stock options
will assist Roanoke Gas in attracting, maintaining and motivating officers and
other key employees of Roanoke Gas, upon whose judgment, initiative and efforts
Roanoke Gas depends, by providing such persons with the opportunity to acquire
an equity interest in Roanoke Gas. Stock options are used to provide executive
officers additional incentive to use their best efforts and superior
performances to promote the best interest of Roanoke Gas and the shareholders.
In making its recommendation regarding Mr. Williamson's 1998 compensation
as the Chief Executive Officer, the Compensation Committee considered all of the
criteria above. Specific consideration also was given to Mr. Williamson's
efforts toward cost containment, Roanoke Gas' improved earnings and shareholder
and customer growth in the preceding fiscal year. During 1998, Mr. Williamson
received a bonus of $7,500, which he elected to take in Roanoke Gas common
stock, for his performance during the fiscal year 1997. The amount of the bonus
was determined based upon Mr. Williamson's success during 1997 in monitoring
operational and capital budgets for maximum cost efficiency. The control of
costs, operational and financing, resulted in improved earnings for Roanoke Gas.
Mr. Williamson also received during fiscal 1998 an option under the Key Employee
Stock Option Plan to purchase 3,500 shares of Roanoke Gas common stock. The
number of shares subject to the option was established based on the Compensation
Committee's determination that 3,500 option shares provided a reasonable
additional incentive for the Chief Executive Officer to place added emphasis on
enhancing share value through management practices while being generally
moderate in the total grant.
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Mr. Farmer retired as Chief Executive Officer of Roanoke Gas on February
1, 1998. Mr. Farmer's fiscal 1998 compensation as Chief Executive prior to his
retirement was a continuation of his salary for fiscal 1997, which originally
was based on his performance in fiscal 1996. Mr. Farmer received a bonus of
$15,000 in fiscal 1998, for performance in fiscal 1997. The amount of the bonus
was based upon Roanoke Gas' improved earnings and significant customer growth
under Mr. Farmer's leadership in fiscal 1997.
Submitted by the Compensation Committee of the
Board of Directors of Roanoke Gas:
Lynn D. Avis, Abney S. Boxley, III, Frank T. Ellett,
J. Allen Layman, S. Frank Smith
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
John B. Williamson, III, President and Chief Executive Officer of Roanoke
Gas, serves as a director of R & B Communications, Inc. J. Allen Layman, who is
a director of Roanoke Gas and serves on the Compensation Committee of the Board
of Directors of Roanoke Gas, is President and Chief Executive Officer of R & B
Communications, Inc.
PERFORMANCE GRAPH
The following graph compares the yearly percentage change and the
cumulative total of shareholder return on Roanoke Gas common stock with the
cumulative return on the Standard and Poor's Utilities Index and the Edward
Jones Natural Gas Distribution Index for the five-year period commencing on
September 30, 1993 and ending on September 30, 1998. These comparisons assume
the investment of $100 in Roanoke Gas common stock and each of the indices on
September 30, 1993 and the reinvestment of dividends.
[PERFORMANCE GRAPHIC APPEARS HERE]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Roanoke Gas Comapny $100 115 106 129 141 161
- -------------------------------------------------------------------------------------------
S&P Utilities $100 87 111 119 136 177
- -------------------------------------------------------------------------------------------
Edward Jones Natural Gas
Distribution Index $100 87 98 117 134 150
- -------------------------------------------------------------------------------------------
</TABLE>
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TRANSACTIONS WITH MANAGEMENT
The law firm of Woods, Rogers & Hazlegrove, P.L.C., of which W. L.
Hazlegrove, a director of Roanoke Gas, is Of Counsel, rendered legal services to
Roanoke Gas during fiscal 1998, and it is anticipated that similar legal
services will be provided by that firm to Roanoke Gas in fiscal 1999.
Effective February 1, 1998, Frank A. Farmer, Jr., retired President and
Chief Executive Officer of Roanoke Gas, entered into an agreement to provide
consulting services to Roanoke Gas. Under the agreement, Mr. Farmer will serve
as Chairman of the Board of Directors of Roanoke Gas and perform such duties and
responsibilities as may be assigned to him by the Board. During the term of the
agreement, Mr. Farmer will not accept engagements for compensation by any party
that is in competition or could reasonably expect to be in competition with
Roanoke Gas. The consulting agreement provides that Roanoke Gas will pay Mr.
Farmer annual compensation in the amount of $82,500. The consulting agreement,
by its terms, terminates on January 31, 1999, unless it is extended. The
agreement also may be terminated in the event of disability of Mr. Farmer which
renders him unable to provide services as contemplated under the agreement, or
for just case.
REMUNERATION OF DIRECTORS
Directors are compensated $6,000 per year in addition to receiving fees
for meetings of Roanoke Gas' Board of Directors and of Committees of the Board
which they attend. Mr. Farmer and Mr. Williamson are not compensated for
attendance at Board and Committee meetings and do not receive $6,000 per year
for service as a Board member. The schedule of fees paid to directors for each
such meeting attended is as follows:
Board of Directors $ 400
Executive and Nominating Committee $ 400
Audit Committee $ 400
Compensation Committee $ 400
However, the fee for any Committee meetings held the same day as a Board
meeting is $250.
Restricted Stock Plan for Outside Directors
The Board of Directors of Roanoke Gas implemented the Roanoke Gas Company
Restricted Stock Plan for Outside Directors effective January 27, 1997. The Plan
is applicable to not more than 50,000 shares of Roanoke Gas common stock.
Under the plan, a minimum of 40% of the monthly retainer fee paid to each
nonemployee director of Roanoke Gas is paid in restricted shares of common
stock. The number of shares of restricted stock is calculated each month
based on the closing sales price of Roanoke Gas common stock on the Nasdaq
National Market on the first day of the month, if the first day of the month is
a trading day, or if not, the first trading day prior to the first day of the
month. Beginning in fiscal 1998, a participant could, subject to approval of the
Board, elect to receive up to 100% of his retainer fee for the fiscal year in
restricted stock. Such election cannot be revoked or amended during the fiscal
year.
The shares of restricted stock of Roanoke Gas issued under the plan
will vest only in the case of a participant's death, disability, retirement
(including not standing for reelection to the Board), or in the event of a
change in control of Roanoke Gas. There is no option to take cash in lieu of
stock upon vesting of shares under the plan. The restricted stock may not be
sold, transferred, assigned or pledged by the participant until the shares
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have vested under the terms of the plan. At the time the restricted stock
vests, a certificate for vested shares will be delivered to the participant or
the participant's beneficiary.
The shares of restricted stock will be forfeited to Roanoke Gas by a
participant's voluntary resignation during his term on the Board or removal for
cause as a director.
Subject to the terms of the plan, a participant, as owner of the
restricted stock, has all rights of a shareholder, including but not limited
to, voting rights, the right to receive cash or stock dividends, and the right
to participate in any capital adjustment of Roanoke Gas. Roanoke Gas requires
that all dividends or other distributions paid on shares of restricted stock
be automatically sequestered and reinvested on an immediate or deferred basis in
additional restricted stock.
All directors, except Mr. Farmer and Mr. Williamson, who do not qualify
as outside directors, participated in the plan in fiscal 1998. The directors
received, in the aggregate, 422.782 shares of restricted stock in fiscal 1998,
valued at approximately $8,244. This value was calculated using the closing
price of $19.50 per share of Roanoke Gas common stock on September 30, 1998.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Roanoke Gas'
executive officers and directors, and any persons who own more than 10% of
Roanoke Gas' common stock, to file reports of ownership and changes in ownership
of Roanoke Gas common stock with the SEC. Based on its review of the copies of
such forms furnished to it and written representations from certain reporting
persons that no other reports are required, Roanoke Gas believes that in fiscal
1998 one report for one transaction was filed late by John S. D'Orazio and one
report for two transactions was filed late by Frank A. Farmer.
INDEPENDENT PUBLIC ACCOUNTANTS
At its meeting on July 28, 1997, the Board of Directors of Roanoke Gas,
upon recommendation of the Audit Committee, appointed Deloitte & Touche LLP as
independent accountants to audit the financial statements of Roanoke Gas and its
subsidiaries for the years ending September 30, 1998, 1999 and 2000. KPMG LLP
previously had served as Roanoke Gas' certifying accountants since 1990. The
Board of Directors solicited competitive bids from accountants interested in
serving as Roanoke Gas' auditor. From the bids received, the Audit Committee
recommended Deloitte & Touche LLP to the Board of Directors. KPMG received
notification on July 30, 1997 that their appointment as principal accountants
would be terminated upon completion of the 1997 audit. KPMG's engagement
terminated effective December 19, 1997.
KPMG's auditors' reports on Roanoke Gas' financial statements for the two
fiscal years ended September 30, 1997, contained no adverse opinion or a
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope, or accounting principles. During Roanoke Gas' fiscal years ending
September 30, 1997 and 1996 and during the subsequent interim period through
December 19, 1997, there were no disagreements with KPMG on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to the satisfaction of KPMG, would
have caused it to make a reference to the subject matter of the disagreement in
its auditors' reports.
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OTHER MATTERS
Management does not know of any matters to be presented at the Annual
Meeting of Shareholders other than the election of directors. However, if any
other matters properly come before the meeting, proxies received under this
solicitation will be voted thereon in the discretion of the proxyholder.
SHAREHOLDER PROPOSALS
If the reorganization is consummated, shareholder proposals intended for
inclusion in the 2000 Proxy Statement of Resources should be sent to the
Secretary of Resources at 519 Kimball Avenue, N.E., Roanoke, Virginia 24016, and
must be received by August 13, 1999.
Resources' Bylaws limit the business to be transacted at a meeting of
shareholders to that specified in the notice of the meeting, those otherwise
properly presented by the Board of Directors and those presented by a
shareholder of record of Resources. Proposals not meeting the requirements of
the Bylaws will not be entertained at a shareholder's meeting.
If the reorganization is not consummated, shareholder proposals intended
for inclusion in the 2000 Proxy Statement of Roanoke Gas should be sent to the
Secretary of Roanoke Gas at 519 Kimball Avenue, N.E., Roanoke, Virginia 24016,
and must be received by August 13, 1999. If the reorganization is not
consummated, Roanoke Gas' proxies shall have discretionary authority to vote on
any shareholder proposal presented at the 2000 Annual Meeting by means other
than inclusion in Roanoke Gas' proxy statement if Roanoke Gas has not received
written notice of such proposal on or before October 27, 1999.
See the discussion under "Certain Differences in Rights of Roanoke Gas and
Resources Shareholders -- Shareholders Proposals" in this proxy
statement/prospectus.
WHERE YOU CAN FIND MORE INFORMATION
Roanoke Gas (File No. 0-367) files annual, quarterly and current reports,
proxy statements and other information with the SEC. You may read and copy any
reports, statements or other information that Roanoke Gas files at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. Roanoke Gas public filings are also available to the
public from commercial document retrieval services and at the Internet World
Wide Web site maintained by the SEC at "http://www.sec.gov." Reports, proxy
statements and other information concerning Roanoke Gas may also be inspected at
the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, Washington, D.C. 20006-1506. Roanoke Gas common stock is included for
quotation on the Nasdaq National Market under the symbol "RGCO."
Resources has filed the Registration Statement to register with the SEC
the shares of Resources common stock to be issued to Roanoke Gas shareholders in
the merger. This proxy statement/prospectus is a part of the Registration
Statement and constitutes a prospectus of Resources and a proxy statement of
Roanoke Gas for the Annual Shareholders Meeting.
As allowed by SEC rules, this proxy statement/prospectus does not contain
all the information that shareholders can find in the Registration Statement or
the exhibits to the Registration Statement.
The SEC allows Roanoke Gas to "incorporate by reference" information into
this proxy statement/prospectus, which means that Roanoke Gas can disclose
important information to you by referring you to
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another document filed separately with the SEC. The information incorporated by
reference is deemed to be part of this proxy statement/prospectus, except for
any information superseded by information contained directly in the proxy
statement/prospectus.
This proxy statement/prospectus incorporates by reference the Roanoke Gas
Annual Report on Form 10-K for the year ended September 30, 1998, which has
previously been filed with the SEC. The 1998 Annual Report to Shareholders of
Roanoke Gas, which is being delivered with this proxy statement/prospectus, also
is incorporated by reference in this proxy statement/prospectus. These documents
contain important information about Roanoke Gas and its financial condition.
Roanoke Gas also incorporates by reference into this proxy
statement/prospectus any additional documents that it may file with the SEC
between the date of this proxy statement/prospectus and the date of the Annual
Meeting. These include periodic reports, such as Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K.
If you are a shareholder of Roanoke Gas, you can obtain the documents
incorporated by reference from Roanoke Gas or the SEC or the SEC's Internet
World Wide Web site described above. Documents incorporated by reference are
available from Roanoke Gas without charge, excluding all exhibits unless
specifically incorporated by reference as an exhibit to this proxy
statement/prospectus. Shareholders may obtain exhibits not specifically
incorporated into the proxy statement/prospectus from Roanoke Gas upon payment
of a reasonable fee which shall be limited to our reasonable expenses in
furnishing such exhibit. Shareholders of Roanoke Gas may obtain documents
incorporated by reference in this proxy statement/prospectus by requesting them
in writing or by telephone from Roanoke Gas at the following address: Roanoke
Gas Company, 519 Kimball Avenue, N.E., Roanoke, Virginia 24016, Attention: Roger
L. Baumgardner.
If you would like to request documents from Roanoke Gas, please do so by
March 24, 1999, to receive them before the Annual Meeting. If you request any
incorporated documents from us, we will mail them to you by first-class mail, or
other equally prompt means, within one business day of our receipt of your
request.
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus to vote your shares at the Roanoke
Gas Annual Meeting. Roanoke Gas and Resources have not authorized anyone to
provide you with information that is different from what is contained in this
proxy statement/prospectus. This proxy statement/prospectus is dated February
5, 1999. You should not assume that the information contained in the proxy
statement/prospectus is accurate as of any date other than that date, and
neither the mailing of this proxy statement/prospectus to shareholders nor the
issuance of Resources' securities in the merger shall create any implication to
the contrary.
------------------------
Please indicate how you want to vote, and sign date and mail the enclosed
proxy promptly in the enclosed postage-paid envelope.
ROANOKE GAS COMPANY
JOHN B. WILLIAMSON, III
President and Chief Executive Officer
February 5, 1999
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Appendix A
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement") is
made as of September 28, 1998, by and among ROANOKE GAS COMPANY, a Virginia
public service corporation ("Roanoke Gas"), RGC ACQUISITION CORP., a Virginia
corporation ("Acquisition"), RGC RESOURCES, INC., a Virginia corporation
("Resources"), DIVERSIFIED ENERGY COMPANY, a Virginia corporation
("Diversified"), BLUEFIELD GAS COMPANY, a West Virginia public service
corporation ("Bluefield"), and COMMONWEALTH PUBLIC SERVICE CORPORATION, a
Virginia public service corporation ("Commonwealth"), provides as follows:
RECITALS:
A. Roanoke Gas has authorized capital stock consisting of 3,000,000
shares of common stock, $5.00 par value per share ("Roanoke Gas Common Stock"),
of which 1,794,416 shares are issued and outstanding; and
B. Acquisition has authorized capital stock consisting of 5,000 shares
of common stock ("Acquisition Common Stock"), no par value per share, of which
10 shares are issued and outstanding and owned beneficially and of record by
Resources; and
C. Resources has authorized capital stock consisting of 10,000,000
shares of common stock, $5.00 par value per share ("Resources Common Stock"), of
which 10 shares are issued and outstanding and owned beneficially and of record
by Roanoke Gas, and 5,000,000 shares of Preferred Stock, no par value per share,
none of which have been issued; and
D. Diversified has authorized capital stock consisting of 15,000 shares
of common stock, $10 par value per share ("Diversified Common Stock"), of which
11,000 shares are issued and outstanding and owned beneficially and of record by
Roanoke Gas; and
E. Bluefield has authorized capital stock consisting of 250,000 shares
of common stock, $0.20 par value per share ("Bluefield Common Stock"), of which
247,520 shares are issued and outstanding and owned beneficially and of record
by Roanoke Gas; and
F. Commonwealth has authorized capital stock consisting of 500 shares of
common stock, $100.00 par value per share ("Commonwealth Common Stock"), of
which 5 shares are issued and outstanding and owned beneficially and of record
by Bluefield; and
G. The Boards of Directors of Roanoke Gas, Acquisition and Resources
deem it advisable to merge Acquisition with and into Roanoke Gas in accordance
with the Virginia Stock Corporation Act ("Virginia Stock Corporation Act") and
this Agreement for the purpose of establishing Resources as the parent
corporation of Roanoke Gas; and
H. The Boards of Directors of the parties hereto deem it advisable to
undertake the other reorganization matters set forth herein.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and agreements
contained herein, the parties agree that (i) Roanoke Gas shall be merged with
and into Acquisition (the "Merger"), (ii) Roanoke Gas shall be the corporation
surviving the Merger, (iii) Commonwealth shall become a wholly owned subsidiary
of and then be
A-1
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merged into, Roanoke Gas, (iv) Bluefield and Diversified shall each become
wholly owned subsidiaries of Resources and (v) the terms and conditions of the
Merger and the other reorganization matters, the mode of carrying them into
effect, the manner of converting, exchanging and/or transferring shares of
capital stock of the parties hereto and other matters relating thereto shall be
as follows:
ARTICLE 1
THE MERGER
1.1 Articles of Merger. Subject to and in accordance with the provisions
of this Agreement, in the event this Agreement and Plan of Merger and
Reorganization is approved by the stockholders of Roanoke Gas in accordance with
the Virginia Stock Corporation Act, Articles of Merger of Roanoke Gas shall be
delivered to the Clerk's Office of the Virginia State Corporation Commission for
filing, all as provided by the Virginia Stock Corporation Act.
1.2 Effective Time. The Merger shall become effective at the time of
filing on the date on which the Articles of Merger are filed with the Clerk's
Office of the Virginia State Corporation Commission, as contemplated by Section
1.1 above, unless otherwise specified in such Articles of Merger (the "Effective
Time"). At the Effective Time, the separate existence of Acquisition shall cease
and Acquisition shall be merged with and into Roanoke Gas, which shall continue
its corporate existence as the surviving corporation (Roanoke Gas and
Acquisition being sometimes referred to herein as the "Constituent Corporations"
and Roanoke Gas, as the surviving corporation, being sometimes referred to
herein as the "Surviving Corporation"). Roanoke Gas shall succeed, without other
transfer, to all the rights and property of Acquisition and shall be subject to
all the debts and liabilities of Acquisition in the same manner as if Roanoke
Gas had itself incurred them. All rights of creditors and all liens upon the
property of each of Roanoke Gas and Acquisition shall be preserved unimpaired.
1.3 Appropriate Actions. Prior to and after the Effective Time,
Resources, Roanoke Gas and Acquisition, respectively, shall take all such
actions as may be necessary or appropriate in order to effectuate the Merger. In
this connection, Resources shall issue and pay the shares of Resources Common
Stock into which outstanding shares of Roanoke Gas Common Stock will be
converted on the basis and to the extent provided in Article 2 of this
Agreement, and shall take such other actions as are necessary to fulfill
Resources' obligations hereunder, including, without limitation, those specified
in Article 6 of this Agreement. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full title to all
properties, assets, privileges, rights, immunities and franchises of either of
the Constituent Corporations, the officers and directors of each of the
Constituent Corporations as of the Effective Time shall take all such further
action.
ARTICLE 2
TERMS OF CONVERSION AND EXCHANGE OF SHARES
2.1 Roanoke Gas Common Stock. At the Effective Time, shares of Roanoke
Gas Common Stock issued and outstanding immediately prior to the Merger shall be
automatically changed and converted into shares of Resources Common Stock, at
the ratio of one share of Resources Common Stock for each one share of Roanoke
Gas Common Stock, and such Resources Common Stock shall thereupon be issued and
fully-paid and non-assessable; provided, however, that such conversion shall not
affect shares of holders, if any, who perfect their rights as dissenting
stockholders under the Virginia Stock Corporation Act with respect to such
shares.
2.2 Acquisition Shares. The shares of Acquisition Common Stock issued
and outstanding immediately prior to the Merger shall be automatically changed
and converted into all of the issued and outstanding shares of Common Stock of
the Surviving Corporation, which shall thereupon be issued and fully-paid and
non-
A-2
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assessable, with the effect that the number of issued and outstanding
shares of Common Stock of the Surviving Corporation shall be the same as the
number of issued and outstanding shares of Acquisition Common Stock immediately
prior to the Effective Time.
2.3 Resources Shares. Each share of Resources Common Stock issued and
outstanding immediately prior to the Merger shall be canceled.
ARTICLE 3
ARTICLES OF INCORPORATION AND BYLAWS
3.1 Roanoke Gas Articles. From and after the Effective Time, and until
thereafter amended as provided by law, the Articles of Incorporation of Roanoke
Gas as in effect immediately prior to the Merger shall be and continue to be the
Articles of Incorporation of the Surviving Corporation.
3.2 Roanoke Gas By-Laws. From and after the Effective Time, and until
thereafter amended as provided by law, the By-Laws of Roanoke Gas as in effect
immediately prior to the Merger shall be and continue to be the By-Laws of the
Surviving Corporation.
3.3 Resources Articles and Bylaws. From and after the Effective Time,
and until thereafter amended as provided by law, the Articles of Incorporation
and Bylaws of Resources as in effect immediately prior to the Merger shall be
and continue unchanged to be the Articles of Incorporation and By-Laws of
Resources.
ARTICLE 4
DIRECTORS AND OFFICERS
4.1 Roanoke Gas Directors and Officers. The persons who are directors
and officers of Roanoke Gas immediately prior to the Merger shall continue as
directors and officers, respectively, of the Surviving Corporation and shall
continue to hold office as provided in the Articles of Incorporation and Bylaws
of the Surviving Corporation. If, at or following the Effective Time, a vacancy
shall exist in the Board of Directors or in the position of any officer of the
Surviving Corporation, such vacancy may be filled in the manner provided in the
Articles of Incorporation and Bylaws of the Surviving Corporation.
4.2 Resources Directors and Officers. The persons who are directors and
officers of Resources immediately prior to the Merger shall continue as
directors and officers, respectively, of Resources and shall continue to hold
office as provided in the Articles of Incorporation and Bylaws of Resources. If,
at or following the Effective Time, a vacancy shall exist in the Board of
Directors or in the position of any officer of Resources, such vacancy may be
filled in the manner provided in the Articles of Incorporation and Bylaws of
Resources.
ARTICLE 5
STOCK CERTIFICATES
5.1 Rights of Holders of Certificates. Following the Effective Time,
certificates representing shares of Roanoke Gas Common Stock outstanding at the
Effective Time (herein sometimes referred to as "Roanoke Gas Certificates")
shall evidence only the right of the registered holder thereof to receive, and
may be exchanged for, the shares of Resources Common Stock into which such
shares of Roanoke Gas Common Stock were converted in accordance with Section
2.1. At the Effective Time, Resources shall issue and deliver, or cause to be
issued and delivered, to the transfer agent for Resources (the "Transfer Agent")
certificates representing whole shares of Resources Stock into which outstanding
shares of Roanoke Gas Stock have been converted as provided above. As
A-3
<PAGE>
promptly as practicable following the Effective Time, Resources shall send
or cause to be sent to each former stockholder of record of Roanoke Gas
immediately prior to the Effective Time written instructions and transmittal
materials (a "Transmittal Letter") for use in surrendering Roanoke Gas
Certificates to the Transfer Agent. Upon the proper surrender and delivery to
the Transfer Agent (in accordance with Resources' instructions, and accompanied
by a properly completed Transmittal Letter) by a former stockholder of Roanoke
Gas of such stockholder's Roanoke Gas Certificate(s), and in exchange therefor,
the Transfer Agent shall as soon as practicable, issue, register and deliver to
such stockholder a certificate evidencing the number of shares of Resources
Stock to which such stockholder is entitled pursuant to Section 2.1 above.
5.2 Outstanding Certificates. Each outstanding certificate which, prior
to the Effective Time, represented Roanoke Gas Common Stock shall be deemed for
all corporate purposes to represent only the right to receive the number of
shares of Resources Common Stock into which such Roanoke Gas Common Stock was
converted.
5.3 Stock Transfer Books. The stock transfer books for Roanoke Gas
Common Stock shall be deemed to be closed at the Effective Time and no transfer
of shares of Roanoke Gas Common Stock outstanding prior to the Effective Time
shall thereafter be made on such books. As of the Effective Time, Resources
shall establish a stock register reflecting ownership of Resources Common Stock
by former holders of record of Roanoke Gas Common Stock.
5.4 Post-Merger Rights of Holders. Following the Effective Time, the
holders of certificates representing Roanoke Gas Common Stock outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to stock of the Surviving Corporation and their sole rights shall be
with respect to the Resources Common Stock into which their shares of Roanoke
Gas Common Stock shall have been converted by the Merger, subject to the rights
of any dissenting stockholders who perfect dissenters' rights under Article 13
of the Virginia Stock Corporation Act.
5.5 Unsurrendered Certificates. Subject to Section 5.6 below, no
Resources Common Stock certificate shall be delivered to any former stockholder
of Roanoke Gas unless and until such stockholder shall have properly surrendered
to the Transfer Agent the Roanoke Gas Certificate(s) formerly representing his
or her shares of Roanoke Gas Stock, together with a properly completed
Transmittal Letter in such form as shall be provided to the stockholder by
Resources for that purpose. Further, until such Roanoke Gas Certificate(s) are
so surrendered, no dividend or other distribution payable to holders of record
of Resources Stock as of any date subsequent to the Effective Time shall be
delivered to the holder of such Roanoke Gas Certificate(s). However, subject to
prior escheatment under applicable law, upon the proper surrender of such
Roanoke Gas Certificate(s), the Transfer Agent shall pay to the registered
holder of the shares of Resources Stock represented by such Roanoke Gas
Certificate(s) the amount of any such cash, dividends or distributions which
have accrued but remain unpaid with respect to such shares. Neither Resources,
Roanoke Gas nor the Transfer Agent shall have any obligation to pay any interest
on any such cash, dividends or distributions for any period prior to such
payment.
5.6 Lost, etc., Certificates. Any stockholder of Roanoke Gas whose
certificate evidencing shares of Roanoke Gas Common Stock has been lost,
destroyed, stolen or otherwise is missing shall be entitled to receive a
certificate representing the shares of Resources Common Stock to which he or she
is entitled in accordance with and upon compliance with conditions imposed by
the Transfer Agent or Resources (including, without limitation, a requirement
that the stockholder provide a lost instruments indemnity or surety bond in
form, in substance and amount satisfactory to the Transfer Agent and Resources).
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ARTICLE 6
ROANOKE GAS STOCK PLANS
Roanoke Gas and Resources shall take all actions required to provide
that, from and after the Effective Time, all director, officer, employee,
customer and other plans of Roanoke Gas or its affiliates, to the extent they
directly or indirectly utilize Roanoke Gas Common Stock, shall utilize Resources
Common Stock instead of Roanoke Gas Common Stock.
ARTICLE 7
CONDITIONS OF THE MERGER
Completion of the Merger is subject to the satisfaction of the following
conditions:
7.1 Stockholder Approval. The principal terms of this Agreement shall
have been approved by such holders of capital stock of the parties hereto as is
required by the Virginia Stock Corporation Act.
7.2 Resources Common Stock Listed. All conditions for the listing on the
NASDAQ National Market as of the Effective Time of the Resources Common Stock to
be issued and to be reserved for issuance pursuant to the Merger shall have been
satisfied.
7.3 Regulatory Approvals. All necessary orders, consents, authorization,
approvals or waivers from the Securities and Exchange Commission, the Virginia
State Corporation Commission and all other regulatory bodies, boards or
agencies, or from other third parties, shall have been received, remain in full
force and effect, and shall not include, in the sole judgment of the Board of
Directors of Roanoke Gas, unacceptable conditions.
ARTICLE 8
TRANSFER AND MERGER OF COMMONWEALTH
8.1 Dividend. Bluefield, as the holder of all of the Commonwealth Common
Stock, shall pay declares a non-cash dividend of all of the Commonwealth Common
Stock to its parent corporation, Roanoke Gas (the "Commonwealth Shares
Dividend"). The Commonwealth Shares Dividend shall, subject to receipt of all
required regulatory approvals, be paid at the Effective Time immediately
following the consummation of the Merger.
8.2 Commonwealth Merger. Immediately following the payment of the
Commonwealth Shares Dividend, Commonwealth shall be merged with and into its
parent, Roanoke Gas (the "Commonwealth Merger"), pursuant to the Articles of
Merger attached hereto as Exhibit 1.
ARTICLE 9
TRANSFER OF DIVERSIFIED AND BLUEFIELD
9.1 Dividend. Roanoke Gas, as the holder of all of the Diversified
Common Stock and as the holder of all of the Bluefield Common Stock, shall pay a
non-cash dividend of all of the Diversified Common Stock and all of Bluefield
Common Stock to Resources (the "Bluefield Shares and Diversified Shares
Dividend"). The Bluefield Shares and Diversified Shares Dividend shall, subject
to receipt of all required regulatory approvals, be paid immediately following
the payment of the Commonwealth Shares Dividend.
9.2 Effect. Immediately following the payment of the Bluefield Shares
and Diversified Shares Dividend, each of Roanoke Gas, Bluefield and Diversified
shall be wholly owned subsidiaries of Resources.
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ARTICLE 10
AMENDMENT AND TERMINATION
10.1 Amendment. The parties to this Agreement, by mutual consent of
their respective boards of directors, may amend, modify or supplement this
Agreement in such manner as may be agreed upon by them in writing at any time
before or after approval of this Agreement by the pre-Merger stockholders of
Roanoke Gas (as provided in Section 7.1 above); provided, however, that no such
amendment, modification or supplement shall, if agreed to after such approval by
the pre-Merger stockholders of Roanoke Gas, change any of the principal terms of
this Agreement in a manner which would materially and adversely affect the
rights of the stockholders of Roanoke Gas.
10.2 Termination. This Agreement may be terminated and the Merger
dividend payments and other transactions provided for by this Agreement may be
abandoned at any time, whether before or after approval of this Agreement by the
pre-Merger stockholders of Roanoke Gas, by action of the board of directors of
Roanoke Gas if such board of directors determines for any reason that the
completion of the transactions provided for herein would for any reason be
inadvisable or not in the best interests of Roanoke Gas or its stockholders.
ARTICLE 11
MISCELLANEOUS
11.1 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original hereof.
11.2 Virginia Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, Roanoke Gas, Resources, Acquisition, Bluefield,
Diversified and Commonwealth, pursuant to approval and authorization duly given
by resolutions adopted by their respective boards of directors, have each caused
this Agreement to be executed by its President or one of its Vice Presidents and
attested by its Secretary or one of its Assistant Secretaries.
Roanoke Gas:
ROANOKE GAS COMPANY, a Virginia public
service corporation
By: s/John B. Williamson, III
Its: President and CEO
Attest:
By: s/Roger L. Baumgardner
Its: Secretary
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Resources:
RGC RESOURCES, INC., a Virginia corporation
By: s/John B. Williamson, III
Its: President and CEO
Attest:
By: s/Roger L. Baumgardner
Its: Secretary
Acquisition:
RGC ACQUISITION CORP., a Virginia
corporation
By: s/John B. Williamson, III
Its: President
Attest:
By: s/Roger L. Baumgardner
Its: Secretary
Bluefield:
BLUEFIELD GAS COMPANY, a West Virginia
public service corporation
By: s/John B. Williamson, III
Its: President
Attest
By: s/Roger L. Baumgardner
Its: Secretary
Diversified:
DIVERSIFIED ENERGY COMPANY, a Virginia
corporation
By: s/John B. Williamson, III
Its: President
Attest:
By: s/Roger L. Baumgardner
Its: Secretary
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Commonwealth:
COMMONWEALTH PUBLIC SERVICE CORPORATION,
a Virginia public service corporation
By: s/John B. Williamson, III
Its: President
Attest
By: s/Roger L. Baumgardner
Its: Secretary
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<PAGE>
Exhibit 1
ARTICLES OF MERGER
OF
COMMONWEALTH PUBLIC SERVICE CORPORATION
INTO
ROANOKE GAS COMPANY
The undersigned corporations hereby execute these Articles of Merger for
the purpose of merging Commonwealth Public Service Corporation ("Commonwealth"),
a Virginia public service corporation and wholly-owned subsidiary of Roanoke Gas
Company ("Roanoke Gas"), a Virginia public service corporation, into Roanoke Gas
in accordance with Section 13.1-719 of the Virginia Stock Corporation Act.
I. PLAN OF MERGER. The following Plan of Merger was duly approved by the
Board of Directors of Roanoke Gas in the manner prescribed by law and
shareholder approval was not required under Section 13.1-719 of the Virginia
Stock Corporation Act:
PLAN OF MERGER
A. CORPORATIONS PARTICIPATING IN MERGER
Commonwealth Public Service Corporation (the "Merging
Corporation") shall merge with and into Roanoke Gas Company. Roanoke Gas
Company shall be the surviving corporation (the "Surviving
Corporation").
B. TERMS AND CONDITIONS OF THE MERGER, CONVERSION AND CANCELLATION
OF STOCK
On the Effective Date (as hereinafter defined) of the merger of
the Merging Corporation into the Surviving Corporation (the "Merger"),
the separate existence of the Merging Corporation shall cease and each
share of stock of the Merging Corporation outstanding immediately prior
thereto shall, without any action by the holder thereof, be surrendered
and extinguished. The Surviving Corporation shall succeed to all of the
properties, rights, and other assets and shall be subject to all of the
liabilities of the Merging Corporation and the Surviving Corporation.
The stock of the Surviving Corporation outstanding on the Effective Date
shall remain unchanged by reason of the Merger.
C. ARTICLES OF INCORPORATION AND BYLAWS OF SURVIVING CORPORATION
The Articles of Incorporation and the Bylaws of the Surviving
Corporation shall not be changed by the Merger and shall continue as the
Surviving Corporation's Articles of Incorporation and Bylaws.
D. THE DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
The Directors and Officers of the Surviving Corporation at the
Effective Date of the Merger shall continue to be the Directors and
Officers of the Surviving Corporation until their successors are duly
elected and qualified.
II. SHARES ENTITLED TO VOTE. Shareholder approval is not required for
the Merger pursuant to Section 13.1-719 of the Code of Virginia.
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III. EFFECTIVE DATE. This Merger shall become effective at 11:59 p.m.
on _____________, 1999 (the "Effective Date").
IN WITNESS WHEREOF, these Articles of Merger are signed by the President
of each corporation this ______ day of ___________, 1999.
COMMONWEALTH PUBLIC SERVICE CORPORATION
By____________________________
Its ____________________________
Attest:
By: _____________________
Its: Secretary
ROANOKE GAS COMPANY
By______________________________
Its_____________________________
Attest:
By: _____________________
Its: Secretary
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Appendix B
ARTICLES OF INCORPORATION
OF
RGC RESOURCES, INC.
1. The name of the Corporation is RGC Resources, Inc.
2. The purpose of the Corporation is to engage in any lawful act or
activity not required to be specifically stated in these Articles of
Incorporation ("Articles") for which corporations may be organized under the
laws of the Commonwealth of Virginia.
3. (a) The aggregate number of shares which the Corporation is authorized
to issue and the par value per share are as follows:
Class Number of Shares Par Value
Common 10,000,000 $5.00
Preferred 5,000,000 No Par Value
(b) The Board of Directors of the Corporation (the "Board of
Directors") may, by amending these Articles by filing Articles of Amendment with
the Virginia State Corporation Commission, fix in whole or in part the
preferences, limitations and rights, within the limits set by law, of (i) any
class of shares, before the issuance of any shares of that class, or (ii) one or
more series within a class, before the issuance of any shares within that
series.
(c) The preferred stock (including any shares of preferred stock
restored to the status of authorized but unissued preferred stock undesignated
as to series pursuant to this Article 3(c)) may be divided into one or more
series and issued from time to time with such preferences, privileges,
limitations, and relative rights as shall be fixed and determined by the Board
of Directors. Without limiting the generality of the foregoing, the Board of
Directors is expressly authorized to the fullest extent permitted from time to
time by law to fix:
(i) the distinctive serial designations and the division of
shares of preferred stock into one or more series and the number of shares of a
particular series, which may be increased or decreased (but not below the number
of shares thereof then outstanding);
(ii) the rate or amount (or the method of determining the rate
or amount) and times at which, the form in which, and the preferences and
conditions under which, dividends shall be payable on shares of a particular
series, the status of such dividends as cumulative, partially cumulative, or
noncumulative, the date or dates from which dividends, if cumulative, shall
accumulate, and the status of such series as participating or nonparticipating
with shares of other classes or series;
(iii) the price or prices at which, the consideration for
which, the period or periods within which and the terms and conditions, if any,
upon which the shares of a particular series may be redeemed, in whole or in
part, at the option of the Corporation or otherwise;
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(iv) the amount or amounts and rights and preferences, if any,
to which the holders of shares of a particular series are entitled or shall have
upon any involuntary or voluntary liquidation, dissolution or winding up of the
Corporation;
(v) the rights and preferences over or otherwise in relation
to any other class or series (including other series of preferred stock), as to
the right to receive dividends and/or the right to receive payments out of the
net assets of the Corporation upon any involuntary or voluntary liquidation,
dissolution or winding up of the Corporation;
(vi) the right, if any, of the holders of a particular series,
the Corporation or another person to convert or cause conversion of shares of
such series into shares of other classes or series or into other securities,
cash, indebtedness or other property, or to exchange or cause exchange of such
shares for shares of other classes or series or other securities, cash,
indebtedness or other property, and the terms and conditions, if any, including
the price or prices or the rate or rates of conversion and exchange, and the
terms and conditions or adjustments, if any, at which such conversion or
exchange may be made or caused;
(vii) the obligation, if any, of the Corporation to redeem,
purchase or otherwise acquire, in whole or in part, shares of a particular
series for a sinking fund or otherwise, the terms and conditions thereof, if
any, including the price or prices and the nature of the consideration payable
for such shares so redeemed, purchased or otherwise acquired;
(viii)the voting rights, if any, including special,
conditional or limited voting rights, of the shares of a particular series in
addition to those required by law, including the number of votes per share and
any requirement for the approval by the holders of shares of all series of
preferred stock, or of the shares of one or more series thereof, or of both, in
an amount greater than a majority, up to such amount as is in accordance with
applicable law or these Articles, as a condition to specified corporate action
or amendments to the Articles; and
(ix) any other preferences, limitations and relative rights
which may be so determined by resolution or resolutions of the Board of
Directors.
Shares of preferred stock shall rank prior or superior to the common
stock in respect of the right to receive dividends and/or the right to receive
payments out of the net assets of the Corporation upon any involuntary or
voluntary liquidation, dissolution or winding up of the Corporation. All shares
of preferred stock redeemed, purchased or otherwise acquired by the Corporation
(including shares surrendered for conversion or exchange) shall be cancelled and
thereupon restored to the status of authorized but unissued shares of preferred
stock undesignated as to series.
(d) The holders of common stock, to the exclusion of any other class
of stock of the Corporation, have sole and full power to vote for the election
of directors and for all other purposes without limitation except only (i) as
otherwise expressly provided in the serial designation of any series of
preferred stock, (ii) as otherwise expressly provided in these Articles or (iii)
as otherwise expressly provided by the then existing laws of the Commonwealth of
Virginia. The holders of common stock will have one vote for each share of
common stock held by them. The outstanding shares of common stock, upon
dissolution, liquidation or winding up of the Corporation, entitle their holders
to share, pro rata, based on the number of shares owned, in the Corporation's
assets remaining after payment or provisions for payment of all debts and
liabilities of the Corporation, and after provisions for the outstanding shares
of any class of stock or other security having senior liquidation rights to the
common stock.
(e) No holder of shares of stock of any class of the Corporation
will have any preemptive or preferential right of subscription to any shares of
any class of stock of the Corporation, whether now or hereafter authorized, or
to any obligations of the Corporation convertible into stock of the Corporation,
issued or sold, nor any right of subscription to any thereof.
4. Subject to the rights of holders of any series of preferred stock to
elect directors under specified circumstances:
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(i) The number of directors of the Corporation, not less than
seven nor more than eleven, shall be set by the Bylaws; provided that, in the
absence of a provision in the Bylaws fixing the number of directors, the number
of directors shall be nine. The directors shall be divided into three classes
as nearly equal in number as possible, with the term of office of directors of
the first class to expire at the first annual meeting of the shareholders after
their election, that of the second class to expire at the second annual meeting
after their election, and that of the third class to expire at the third annual
meeting after their election. At each annual meeting of shareholders following
such initial classification and election, directors elected to succeed those
directors, whose terms expire shall be elected for a term of office to expire
at the third succeeding annual meeting of shareholders after their election and
shall continue in office until their respective successors are elected and
qualify. In the event of any increase or decrease in the number of directors
fixed by the Bylaws, any newly-created directorships shall be so apportioned
among the classes by the Board of Directors so as to make all classes as nearly
equal in number as possible.
(ii) Newly-created directorships resulting from an increase in
the authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office, or other cause shall be filled by the affirmative vote of a majority of
the directors then in office, whether or not a quorum. No decrease in the number
of directors constituting the Board of Directors shall shorten the term of any
incumbent director. A director may be removed from office only for cause.
5. To the full extent that the laws of the Commonwealth of Virginia, as
they now or may hereafter exist, permit the limitation or elimination of the
liability of directors or officers, no director or officer of the Corporation
shall be liable to the Corporation or its shareholders for any monetary damages.
6. (a) The Corporation shall indemnify a director or officer of the
Corporation who is or was a party to any proceeding, including a proceeding by
or in the right of the Corporation, by reason of the fact that he is or was such
a director or officer or is or was serving at the request of the Corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other profit or non-profit
enterprise against all liabilities and expenses incurred in the proceeding,
except such liabilities and expenses as are incurred because of his willful
misconduct or knowing violation of the criminal law. Unless a determination has
been made that indemnification is not permissible, the Corporation shall make
advances and reimbursement for expenses incurred by a director or officer in a
proceeding upon receipt of an undertaking from him to repay the same if it is
ultimately determined that he is not entitled to indemnification. Such
undertaking shall be an unlimited unsecured general obligation of the director
or officer and shall be accepted without reference to his ability to make
repayment. The Board of Directors is hereby empowered to contract in advance to
indemnify and advance the expenses of any director or officer. The termination
of any proceeding by judgment, order, settlement, conviction or upon a plea of
nolo contendere or its equivalent shall not, by itself, create a presumption
that the director or officer did not meet the standard of conduct entitling him
to indemnity hereunder.
(b) The Board of Directors is hereby empowered to cause the
Corporation to indemnify and make advances and reimbursement for expenses (or
contract in advance for the same) incurred by any person not specified in
paragraph (a) of this Article who was or is a party to any proceeding, by reason
of the fact that he is or was an employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other profit or non-profit enterprise, to the same extent as if
such person were specified as one to whom indemnification is granted in
paragraph (a) of this Article.
(c) The Corporation may purchase and maintain insurance to indemnify
it against the whole or any portion of the liability assumed by it in accordance
with this Article and may also procure insurance, in such amounts as the Board
of Directors may determine, on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
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enterprise, against any liability asserted against or incurred by such person in
any such capacity or arising from his status as such, whether or not the
Corporation would have power to indemnify him against such liability under the
provisions of this Article.
(d) Except as hereinafter provided, all determinations as to the
permissibility of indemnification and advances and reimbursement for expenses
(including contracts with respect thereto) shall be made by a majority vote of a
quorum consisting of directors not at the time parties to the proceeding. In the
event such a quorum cannot be obtained to make any determination as to the
permissibility of indemnification and advances and reimbursement for expenses
with respect to any claim for indemnification (including contracts with respect
thereto), or in the event there has been a change in the composition of a
majority of the Board of Directors after the date of the alleged act with
respect to which indemnification is claimed, such determination shall be made by
special legal counsel agreed upon by the Board of Directors and the proposed
indemnitee. If the Board of Directors and the proposed indemnitee are unable to
agree upon such special legal counsel, the Board of Directors and the proposed
indemnitee each shall select a nominee, and the nominees shall select such
special legal counsel.
(e) The provisions of this Article shall be applicable to all
actions, claims, suits or proceedings commenced after the adoption hereof,
whether arising from any action taken or failure to act before or after such
adoption. No amendment, modification or repeal of this Article shall diminish
the rights provided hereby or diminish the right to indemnification with respect
to any claim, issue or matter in any then pending or subsequent proceeding that
is based in any material respect on any alleged action or failure to act prior
to such amendment, modification or repeal.
(f) Except to the extent inconsistent with this Article, terms used
herein shall have the same meanings assigned them in the Indemnification Article
of the Virginia Stock Corporation Act, as now in effect or hereafter amended or
replaced. Without limitation, it is expressly understood that reference herein
to directors, officers, employees or agents shall include former directors,
officers, employees and agents and their respective heirs, executors and
administrators.
7. The Corporation's initial registered office shall be located in the
City of Roanoke at 10 South Jefferson Street, Suite 1400, Roanoke, Virginia
24011. The Corporation's initial registered agent shall be Faith M. Wilson,
whose address is the same as the Corporation's registered office and who is a
resident of Virginia and a member of the Virginia State Bar.
Dated: July 29, 1998 s/Faith M. Wilson
------------------
Incorporator
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Appendix C
ARTICLE 15 OF THE VIRGINIA STOCK CORPORATION ACT
RELATING TO DISSENTERS' RIGHTS
Section 13.1-729. DEFINITIONS. - In this article:
"Corporation" means the issuer of the shares held by a dissenter before
the corporate action, except that (i) with respect to a merger, "corporation"
means the surviving domestic or foreign corporation or limited liability company
by merger of that issuer, and (ii) with respect to a share exchange,
"corporation" means the acquiring corporation by share exchange, rather than the
issuer, if the plan of share exchange places the responsibility for dissenters'
rights on the acquiring corporation.
"Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 13.1-730 and who exercises that right when and in
the manner required by Sections 13.1-732 through 13.1-739.
"Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
"Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
"Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
"Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder.
"Shareholder" means the record shareholder or the beneficial
shareholder.
Section 13.1-730. RIGHT TO DISSENT. - A. A shareholder is entitled to
dissent from, and obtain payment of the fair value of his shares in the event
of, any of the following corporate actions:
1. Consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by Section 13.1-718 or
the articles of incorporation and the shareholder is entitled to vote on the
merger or (ii) if the corporation is a subsidiary that is merged with its parent
under Section 13.1-719;
2. Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
3. Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation if the shareholder was entitled to vote on the
sale or exchange or if the sale or exchange was in furtherance of a dissolution
on which the shareholder was entitled to vote, provided that such dissenter's
rights shall not apply in the case of (i) a sale or exchange pursuant to court
order, or (ii) a sale for cash pursuant to a plan by which all or substantially
all of the net proceeds of the sale will be distributed to the shareholders
within one year after the date of sale;
4. Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
B. A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
C. Notwithstanding any other provision of this article, with respect to
a plan of merger or share exchange or a sale or exchange of property there shall
be no right of dissent in favor of holders of shares of any class or series
which, at the record date fixed to determine the shareholders entitled to
receive notice of and to vote at the meeting at which the plan of merger or
share exchange or the sale or exchange of property is to be acted on, were (i)
listed on a national securities exchange or on the National Association of
Securities Dealers Automated Quotation System (NASDAQ) or (ii) held by at least
2,000 record shareholders, unless in either case:
1. The articles of incorporation of the corporation issuing such shares
provide otherwise;
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2. In the case of a plan of merger or share exchange, the holders of the
class or series are required under the plan of merger or share exchange to
accept for such shares anything except:
a. Cash;
b. Shares or membership interests, or shares or membership interests and
cash in lieu of fractional shares (i) of the surviving or acquiring corporation
or limited liability company or (ii) of any other corporation or limited
liability company which, at the record date fixed to determine the shareholders
entitled to receive notice of and to vote at the meeting at which the plan of
merger or share exchange is to be acted on, were either listed subject to notice
of issuance on a national securities exchange or held of record by at least
2,000 record shareholders or members; or
c. A combination of cash and shares or membership interests as set forth
in subdivisions 2a and 2b of this subsection; or
3. The transaction to be voted on is an "affiliated transaction" and is
not approved by a majority of "disinterested directors" as such terms are
defined in Section 13.1-725.
D. The right of a dissenting shareholder to obtain payment of the fair
value of his shares shall terminate upon the occurrence of any one of the
following events:
1. The proposed corporate action is abandoned or rescinded;
2. A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
3. His demand for payment is withdrawn with the
written consent of the corporation.
Section 13.1-731. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. - A. A
record shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
B. A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
1. He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
2. He does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the vote.
Section 13.1-732. NOTICE OF DISSENTERS' RIGHTS. - A. If proposed
corporate action creating dissenters' rights under Section 13.1-730 is submitted
to a vote at a shareholders' meeting, the meeting notice shall state that
shareholders are or may be entitled to assert dissenters' rights under this
article and be accompanied by a copy of this article.
B. If corporate action creating dissenters' rights under Section
13.1-730 is taken without a vote of shareholders, the corporation, during the
ten-day period after the effectuation of such corporate action, shall notify in
writing all record shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Section
13.1-734.
Section 13.1-733. NOTICE OF INTENT TO DEMAND PAYMENT. - A. If proposed
corporate action creating dissenters' rights under Section 13.1-730 is submitted
to a vote at a shareholders' meeting, a shareholder who wishes to assert
dissenters' rights (i) shall deliver to the corporation before the vote is taken
written notice of his intent to demand payment for his shares if the proposed
action is effectuated and (ii) shall not vote such shares in favor of the
proposed action.
B. A shareholder who does not satisfy the requirements of subsection A
of this section is not entitled to payment for his shares under this article.
Section 13.1-734. DISSENTERS' NOTICE. - A. If proposed corporate action
creating dissenters' rights under Section 13.1-730 is authorized at a
shareholders' meeting, the corporation, during the ten-day period after the
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effectuation of such corporate action, shall deliver a dissenters' notice
in writing to all shareholders who satisfied the requirements of Section
13.1-733.
B. The dissenters' notice shall:
1. State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;
2. Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
3. Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he acquired beneficial ownership of the shares before or
after that date;
4. Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after the date
of delivery of the dissenters' notice; and
5. Be accompanied by a copy of this article.
Section 13.1-735. DUTY TO DEMAND PAYMENT. - A. A shareholder sent a
dissenters' notice described in Section 13.1-734 shall demand payment, certify
that he acquired beneficial ownership of the shares before or after the date
required to be set forth in the dissenters' notice pursuant to subdivision 3 of
subsection B of Section 13.1-734, and, in the case of certificated shares,
deposit his certificates in accordance with the terms of the notice.
B. The shareholder who deposits his shares pursuant to subsection A of
this section retains all other rights of a shareholder except to the extent that
these rights are canceled or modified by the taking of the proposed corporate
action.
C. A shareholder who does not demand payment and deposits his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
Section 13.1-736. SHARE RESTRICTIONS. - A. The corporation may restrict
the transfer of uncertificated shares from the date the demand for their payment
is received.
B. The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder except to the
extent that these rights are canceled or modified by the taking of the proposed
corporate action.
Section 13.1-737. PAYMENT. - A. Except as provided in Section 13.1-738,
within thirty days after receipt of a payment demand made pursuant to Section
13.1-735, the corporation shall pay the dissenter the amount the corporation
estimates to be the fair value of his shares, plus accrued interest. The
obligation of the corporation under this paragraph may be enforced (i) by the
circuit court in the city or county where the corporation's principal office is
located, or, if none in this Commonwealth, where its registered office is
located or (ii) at the election of any dissenter residing or having its
principal office in the Commonwealth, by the circuit court in the city or county
where the dissenter resides or has its principal office. The court shall dispose
of the complaint on an expedited basis.
B. The payment shall be accompanied by:
1. The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the effective date of the corporate action
creating dissenters' rights, an income statement for that year, a statement of
changes in shareholders' equity for that year, and the latest available interim
financial statements, if any;
2. An explanation of how the corporation estimated the fair value of the
shares and of how the interest was calculated;
3. A statement of the dissenters' right to demand payment under Section
13.1-739; and 4. A copy of this article.
Section 13.1-738. AFTER-ACQUIRED SHARES. - A. A corporation may elect to
withhold payment required by Section 13.1-737 from a dissenter unless he was the
beneficial owner of the shares on the date of the first publication by news
media or the first announcement to shareholders generally, whichever is earlier,
of the terms of the proposed corporate action, as set forth in the dissenters'
notice.
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B. To the extent the corporation elects to withhold payment under
subsection A of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
offer to pay this amount to each dissenter who agrees to accept it in full
satisfaction of his demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares and of how the
interest was calculated, and a statement of the dissenter's right to demand
payment under Section 13.1-739.
Section 13.1-739. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT
OR OFFER.- A. A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate (less any payment under Section 13.1-737), or reject the
corporation's offer under Section 13.1-738 and demand payment of the fair value
of his shares and interest due, if the dissenter believes that the amount paid
under Section 13.1-737 or offered under Section 13.1-738 is less than the fair
value of his shares or that the interest due is incorrectly calculated.
B. A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection A
of this section within thirty days after the corporation made or offered payment
for his shares.
Section 13.1-740. COURT ACTION. - A. If a demand for payment under
Section 13.1-739 remains unsettled, the corporation shall commence a proceeding
within sixty days after receiving the payment demand and petition the circuit
court in the city or county described in subsection B of this section to
determine the fair value of the shares and accrued interest. If the corporation
does not commence the proceeding within the sixty-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
B. The corporation shall commence the proceeding in the city or county
where its principal office is located, or, if none in this Commonwealth, where
its registered office is located. If the corporation is a foreign corporation
without a registered office in this Commonwealth, it shall commence the
proceeding in the city or county in this Commonwealth where the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.
C. The corporation shall make all dissenters, whether or not residents
of this Commonwealth, whose demands remain unsettled parties to the proceeding
as in an action against their shares and all parties shall be served with a copy
of the petition. Nonresidents may be served by registered or certified mail or
by publication as provided by law.
D. The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provisions of this article. If the court determines that such
shareholder has not complied with the provisions of this article, he shall be
dismissed as a party.
E. The jurisdiction of the court in which the proceeding is commenced
under subsection B of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
F. Each dissenter made a party to the proceeding is entitled to judgment
(i) for the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the corporation or (ii) for
the fair value, plus accrued interest, of his after-acquired shares for which
the corporation elected to withhold payment under Section 13.1-738.
Section 13.1-741. COURT COSTS AND COUNSEL FEES. - A. The court in an
appraisal proceeding commenced under Section 13.1-740 shall determine all costs
of the proceeding, including the reasonable compensation and expenses of
appraisers appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters did not act in good faith in demanding payment under
Section 13.1-739.
B. The court may also assess the reasonable fees and expenses of
experts, excluding those of counsel, for the respective parties, in amounts the
court finds equitable:
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1. Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of Sections 13.1-732 through 13.1-739; or
2. Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed did not act in good faith with respect to the rights provided by this
article.
C. If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, the court
may award to these counsel reasonable fees to be paid out of the amounts awarded
the dissenters who were benefitted.
D. In a proceeding commenced under subsection A of Section 13.1-737 the
court shall assess the costs against the corporation, except that the court may
assess costs against all or some of the dissenters who are parties to the
proceeding, in amounts the court finds equitable, to the extent the court finds
that such parties did not act in good faith in instituting the proceeding.
C-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors.
Section 13.1-692.1 of the Code of Virginia, as amended, places a
limitation on the liability of officers and directors of a corporation in any
proceeding brought by or in the right of the corporation or brought by or on
behalf of shareholders of the corporation. The damages asserted against an
officer or director arising out of a single transaction, occurrence, or course
of conduct shall not exceed the greater of $100,000 or the amount of cash
compensation received by the officer or director from the corporation during the
12 months immediately preceding the act or omission for which liability was
imposed. The statute also authorizes the corporation, in its articles of
incorporation or, if approved by the shareholders, in its bylaws, to provide for
a different specific monetary limit on, or to eliminate entirely, liability. The
liability of an officer or director shall not be limited if the officer or
director engaged in willful misconduct or a knowing violation of the criminal
law or any federal or state securities law. Resources' Articles of Incorporation
contain a provision which eliminates, to the full extent that the laws of the
Commonwealth of Virginia permit, the liability of an officer or director of
Resources to the corporation or its shareholders for monetary damages for any
breach of duty as a director or officer.
Resources' Articles of Incorporation also require Resources to indemnify
any director or officer who is or was a party to a proceeding, including a
proceeding by or in the right of the corporation, by reason of the fact that he
is or was such a director or officer or is or was serving at the request of
Resources as a director, officer, employee or agent of another entity. Directors
and officers of Resources are entitled to be indemnified against all liabilities
and expenses incurred by the director or officer in the proceeding, except such
liabilities and expenses as are incurred because of his or her willful
misconduct or knowing violation of the criminal law. Unless a determination has
been made that indemnification is not permissible, a director or officer also is
entitled to have Resources make advances and reimbursement for expenses prior to
final disposition of the proceeding upon receipt of a written undertaking from
the director or officer to repay the amounts advanced or reimbursed if it is
ultimately determined that he or she is not entitled to indemnification. The
Board of Directors of Resources also has the authority to extend to employees,
agents, and other persons serving at the request of Resources the same
indemnification rights held by directors and officers, subject to all of the
accompanying conditions and obligations.
Virginia Code Section 13.1-700.1 permits a court, upon application of a
director or officer, to review Resources' determination as to a director's or
officer's request for advances, reimbursement or indemnification. If it
determines that the director or officer is entitled to such advances,
reimbursement or indemnification, the court may order Resources to make advances
and/or reimbursement for expenses or to provide indemnification, in which case
the court shall also order Resources to pay the officer's or director's
reasonable expenses incurred to obtain the order. With respect to a proceeding
by or in the right of the corporation, the court may order indemnification to
the extent of the officer's or director's reasonable expenses if it determines
that, considering all the relevant circumstances, the officer or director is
entitled to indemnification even though he or she was adjudged liable, and may
also order Resources to pay the officer's and director's reasonable expenses
incurred to obtain the order.
Resources has the power to purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of Resources, or
is or was serving at the request of Resources as a director, officer, employee
or agent of another entity, against any liability asserted against or incurred
by such person, in any such capacity or arising from his or her status as such,
whether or not Resources would have the power to indemnify such person against
such liability under the Articles of Incorporation.
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<PAGE>
Roanoke Gas, the parent of Resources, maintains a directors' and officers'
legal liability insurance policy in the amount of $2,000,000, issued by the
Chubb Group Insurance Companies. The policy provides coverage up to 100% of its
face amount, subject to certain deductible or retention amounts. In general, the
policy insures:
o the Company's directors and officers against losses by reason of
their wrongful acts, and/or
o the Company against claims against the directors and officers by
reasons of their wrongful acts for which the Company is required to
indemnify or pay, all as such terms are defined in the policy and
subject to the terms, conditions and exclusions contained therein.
Item 21. Exhibits and Financial Statement Schedules.
*2 Agreement and Plan of Merger and Reorganization dated as of
September 28, 1998, by an among Roanoke Gas Company, RGC
Acquisition Corp., RGC Resources, Inc., Diversified Energy
Company and Commonwealth Public Service Corporation (attached as
Appendix A to the proxy statement/prospectus)
*3(a) Articles of Incorporation of RGC Resources, Inc. (attached as
Appendix B to the proxy statement/prospectus)
*3(b) Bylaws of RGC Resources, Inc.
*4(a) Specimen copy of certificate for RGC Resources, Inc. common
stock, $5.00 par value
*4(b) Article I of the Bylaws of Roanoke Gas Company (included in
Exhibit 3(b))
*5 Opinion of Woods, Rogers & Hazlegrove, P.L.C. with respect to the
RGC Resources, Inc. common stock
*8 Opinion of Woods, Rogers & Hazlegrove, P.L.C. with respect to
certain tax matters
*13 Roanoke Gas Company 1998 Annual Report to Shareholders
*16 Letter of KPMG Peat Marwick LLP regarding change in accountants
(incorporated herein by reference to Exhibit 99 of Form 8-K dated
December 19, 1997)
*23 (a) Consent of Deloitte & Touche LLP
*23 (b) Consent of KPMG Peat Marwick LLP
*23 (c) Consent of Woods, Rogers & Hazlegrove, P.L.C. (included in
Exhibits 5 and 8)
*99 Form of Proxy
- ------------------------
*Previously filed
II-2
<PAGE>
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in this Registration Statement or
any material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered hereby which remain unsold at
the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 under the Securities Exchange Act of 1934; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or
II-3
<PAGE>
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to request for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(g)(1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(g)(2) The undersigned registrant undertakes that every prospectus (i)
that is filed pursuant to paragraph (g)(1) immediately preceding, or (ii) that
purports to meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415 (Section 230.415
of this chapter), will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, has duly caused
this Amendment No. 5 to Registration Statement No. 333-67311 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Roanoke,
Commonwealth of Virginia on January 28, 1999.
RGC RESOURCES, INC.
By: s/John B. Williamson, III
John B. Williamson, III
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 5 to Registration Statement No. 333-67311 has been signed by the following
persons in the capacities indicated as of January 28, 1999.
Signature Title
s/John B. Williamson, III President, Chief Executive
(John B. Williamson, III) Officer and Director
(Principal Executive Officer)
s/Roger L. Baumgardner Vice President, Secretary and
(Roger L. Baumgardner) Treasurer (Principal
Accounting Officer)
(Principal Financial Officer)
s/Lynn D. Avis Director
(Lynn D. Avis)
s/Abney S. Boxley, III Director
(Abney S. Boxley, III)
s/Frank T. Ellett Director
(Frank T. Ellett)
s/Frank A. Farmer, Jr. Director
(Frank A. Farmer, Jr.)
s/Wilbur L. Hazlegrove Director
(Wilbur L. Hazlegrove)
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<PAGE>
s/J. Allen Layman Director
(J. Allen Layman)
s/Thomas L. Robertson Director
(Thomas L. Robertson)
s/S. Frank Smith Director
(S. Frank Smith)
II-6
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
*2 Agreement and Plan of Merger and Reorganization dated as of
September 28, 1998, by an among Roanoke Gas Company, RGC
Acquisition Corp., RGC Resources, Inc., Diversified Energy
Company and Commonwealth Public Service Corporation (attached as
Appendix A to the proxy statement/prospectus)
*3(a) Articles of Incorporation of RGC Resources, Inc. (attached as
Appendix B to the proxy statement/prospectus)
*3(b) Bylaws of RGC Resources, Inc.
*4(a) Specimen copy of certificate for RGC Resources, Inc. common
stock, $5.00 par value
*4(b) Article I of the Bylaws of Roanoke Gas Company (included in
Exhibit 3(b))
*5 Opinion of Woods, Rogers & Hazlegrove, P.L.C. with respect to the
RGC Resources, Inc. common stock
*8 Opinion of Woods, Rogers & Hazlegrove, P.L.C. with respect to
certain tax matters
13 Roanoke Gas Company 1998 Annual Report to Shareholders
*16 Letter of KPMG Peat Marwick LLP regarding change in accountants
(incorporated herein by reference to Exhibit 99 of Form 8-K dated
December 19, 1997)
*23 (a) Consent of Deloitte & Touche LLP
*23 (b) Consent of KPMG Peat Marwick LLP
*23 (c) Consent of Woods, Rogers & Hazlegrove, P.L.C. (included in
Exhibits 5 and 8)
*99 Form of Proxy
- ------------------------
*Previously filed
<PAGE>
Exhibit 13
Diversification
The Propane Alternative
Positioning For Deregulation
Acquisition And Geographic Expansion
Trade Ally Relations
Saturation Program
Roanoke Gas Company
1998 ANNUAL REPORT
<PAGE>
Table Of Contents
1 Letter To Stockholders
2 An Interview With John Williamson, CEO
4 Review Of Operations
10 Management's Discussion & Analysis
16 1998 Financial Highlights
17 Independent Auditors' Report
18 Consolidated Balance Sheets
20 Consolidated Statements Of Earnings
21 Consolidated Statements Of Stockholders' Equity
22 Consolidated Statements Of Cash Flows
23 Notes To Consolidated Financial Statements
34 Summary Of Gas Sales & Statistics
35 Summary Of Capitalization Statistics
36 The Company's Board Of Directors And Officers
General Corporate Information - Inside Back Cover
Notice Of Annual Meeting - Back Cover
Southwest Virginia And Southern West Virginia's
Choice For Comfort And Economy
Natural Gas
Propane
[Map of Virginia and West Virginia showing Company's market area for natural
gas and propane.]
<PAGE>
Letter To Stockholders
Dear Stockholder:
I am pleased to report that the year ended September 30, 1998
produced several new records and numerous changes. On the records side, we
achieved our BEST earnings year ever in both net income and earnings per share.
Net income was $2.7 million, up 18 percent over last year, while per share
earnings of $1.60 were approximately 5 percent greater than the prior year. In
addition, dividends to shareholders were increased from $1.04 to $1.06 per
share.
The Company enjoyed excellent customer growth again in 1998 with over 4,500
new customer additions and 2,994 net customer additions for the year, a 7
percent growth rate and a 5 percent net growth rate. Natural gas new customer
additions increased approximately 3 percent and propane customers increased by
approximately 25 percent. New records were set in propane deliveries at 7.7
million gallons, up 17 percent. Natural gas volumes were up 1 percent on 6
percent warmer weather.
There were several significant changes and highlights this year.
On January 27, 1998, we sold 181,500 shares of stock through our first public
offering since the Company was capitalized in the 1940s. The offering was very
successful and permitted us to strengthen our balance sheet and lower our cost
of debt and composite interest rate. In a milestone in employee relations, we
made permanent a previously experimental skills based compensation plan for
bargaining unit employees when we implemented a two-year labor contract
effective August 1, 1998.
There were also personnel changes. On February 1, 1998, I took over as
President and Chief Executive Officer. At the same time, Arthur L. Pendleton was
promoted to Executive Vice President and Chief Operating Officer and John S.
D'Orazio was promoted to Vice President of Marketing and New Construction. In
May, Dale P. Moore joined us as Director of Rates, Regulatory Affairs and
Financial Planning. With the other experienced and talented managers already in
place, I feel we are building a strong team with which to grow the Company.
Our most significant change underway is a proposed corporate
reorganization into a holding company structure. In July, RGC Resources, Inc.
was chartered and is in position to become the holding company in our new
corporate structure. Subject to shareholder approval at the Annual Meeting and
receipt of regulatory approvals by the Securities and Exchange Commission and
the state regulatory commissions, we will implement the new structure. I believe
this change is critical in meeting several of our key business strategies, in
particular, positioning for deregulation, acquisition, and diversification.
We have continued our employment of technology and upgrading of computer
systems and recently installed, and are in the early stages of converting to, an
enhanced Customer Information and Billing System. The new system also
complements our Year 2000 compliance activities which include a mixture of
systems tests, upgrades and replacements. We added a second IBM AS/400 computer
to facilitate our Year 2000 readiness program and to provide for an offsite
emergency back-up system to ensure continuation of operations in the event of a
major disruption, system failure, or work site dislocation. We also rolled out a
new internet home page, which can be accessed at www.roanokegas.com.
We were busy on the regulatory front and implemented final rates following
state commission orders in all three natural gas operating
companies. The most recent order was issued in July in the Roanoke Gas case. The
rate relief in the Roanoke Gas rate case was not adequate given the extent of
our renewal program for replacing older portions of the distribution system. As
a consequence, we filed a new rate case on September 30 and anticipate placing
increased rates into effect, subject to refund, in March 1999. We had an
aggressive year in the renewal program, replacing over eight miles of cast iron
or bare steel mains and approximately 650 bare steel customer service lines.
I am pleased with the results of operations and the progress we have made
this year. I am excited about the opportunities the new millennium and a new
corporate structure will offer, and I look forward to continued deregulation
efforts in the energy sector of the economy. I believe we are taking the
necessary steps to position the Company to succeed in
changing markets.
I thank you for your interest in Roanoke Gas Company and for your continuing
decision to invest in company stock.
Sincerely,
/s/ John B. Williamson III
- ----------------------------------
John B. Williamson III
President and CEO
1998 Annual Report
1
<PAGE>
An Interview With John Williamson, CEO
Regarding The Proposed Corporate Restructuring
Q: Why do you believe reorganizing Roanoke Gas Company and its subsidiaries
under a holding company is necessary?
JBW: I believe that for this Company to realize its full potential it must be
positioned to grow not only natural gas and propane operations, but also expand
into other activities that are a good fit with the Company's experience,
marketing, and service capabilities. In our current structure, all activities
are under the utility company and are subject to the restrictions placed on
regulated public service corporations. With the establishment of a new holding
company, to be called RGC Resources, Inc., activities not specifically related
to utility operations can be organized and operated without the public service
corporation restrictions. The enhanced flexibility should facilitate our growth
and diversification efforts.
Q: How will Roanoke Gas Company, Bluefield Gas Company, and Diversified Energy
Company be affected by the corporate restructuring?
JBW: Each company will continue to exist and carry out its mission. Bluefield
Gas Company and Diversified Energy Company will operate as subsidiaries of RGC
Resources, Inc. rather than as subsidiaries of Roanoke Gas Company. Commonwealth
Public Service Corporation, which is currently a subsidiary of Bluefield Gas
Company for Bluefield operations in Virginia, will be merged into Roanoke Gas
Company so that there will be only one natural gas subsidiary in each state.
Roanoke Gas will also become a subsidiary of RGC Resources, Inc. In addition,
other subsidiaries may be formed under RGC Resources to carry out other
operations. Diversified Energy Company, trading as Highland Propane Company and
Highland Gas Marketing, could expand beyond selling propane and brokering
natural gas to industrial customers.
Q: How will a shareholder of Roanoke Gas Company be affected?
JBW: A shareholder will own stock in RGC Resources, Inc., and RGC Resources,
Inc. will own 100% of the common stock equity in Roanoke Gas Company, Bluefield
Gas Company, and Diversified Energy Company. The existing shares of Roanoke Gas
Company will be exchanged for an equivalent number of shares of RGC Resources,
Inc. The assets, earnings and customer base underlying a share of stock will be
the same. After the restructuring is complete, shareholders will receive shares
of RGC Resources, Inc. in exchange for their shares of Roanoke Gas Company. The
dividends per share and earnings per share of RGC Resources, Inc. will be
determined using criteria similar to that previously used by Roanoke Gas
Company. The primary difference will be the name change and a capital and
organizational structure that will enhance opportunities for growth and
diversification. RGC Resources stock will trade on the Nasdaq National Market
under the symbol RGCO.
Of course, you need to keep in mind that I am summarizing a complex
transaction. The Company's Proxy Statement for the 1999 Annual Meeting provides
detailed information about the proposed holding company structure and its
potential effects.
To be fully informed, each shareholder should read the entire Proxy Statement
carefully.
Q: Why will RGC Resources, Inc. have more authorized shares of stock than
Roanoke Gas Company?
JBW: To significantly grow the Company, additional equity capital may be needed.
Furthermore, having a larger number of authorized shares will facilitate issuing
new equity to help fund that growth. In addition, the Company may decide to
split the stock by providing a stock dividend to existing shareholders. We had
planned to increase the number of authorized shares of Roanoke Gas Company for
these purposes, even if a corporate restructuring was not envisioned.
Establishing RGC Resources, Inc. with a greater number of authorized shares from
the start, saves the time and cost of going through a separate process to
increase the number of authorized shares.
Roanoke Gas Company
2
<PAGE>
Q: Why do the articles of incorporation for RGC Resources, Inc. provide for the
possibility of issuing preferred stock?
JBW: There are no current plans to issue preferred stock. However, having the
opportunity for the Board of Directors to issue series of preferred stock
provides the Company with an important potential tool to facilitate
acquisitions. Preferred stock can be issued without voting rights, and the
dividend rate on preferred stock can be set lower than the rate on current
common stock. This could also lessen the likelihood of any dilution of earnings
or voting strength of existing common stock shareholders.
Q: How quickly will the restructuring occur?
JBW: We have filed applications for approval with the Securities and Exchange
Commission, the State Corporation Commission in Virginia, and the Public Service
Commission in West Virginia. Both state commissions have approved the
reorganization. The proposal will be submitted for shareholder approval at the
Annual Meeting in March 1999, and we anticipate regulatory approval shortly
thereafter. We currently are working to complete the reorganization in the
third fiscal quarter of 1999.
[FLOW CHARTS]
Present Corporate Structure Planned Corporate Structure
Shareholders Shareholders
| |
---- Roanoke Gas ---- Resources
| | | | | |
Diversified Resources Bluefield Roanoke Gas | Diversified
| |
Commonwealth Bluefield
1998 Annual Report
3
<PAGE>
Review Of Operations
Business Strategies
The cover of our Annual Report reflects our key business strategies. They
have been management's focus for the past year, and we believe they will remain
important Company themes into the new millennium.
Certainly, "acquisition and geographic expansion" are important to continued
growth and enhancing shareholder value and, when combined with "the propane
alternative," we feel the two strategies create the potential for significant
market growth. We acquired the propane assets of U.S. Gas in Bedford and
Franklin counties, Virginia, in December 1997. In 1998, we established new bulk
propane storage facilities in Rockbridge and Alleghany counties in Virginia, and
we added to our sales force to facilitate expansion. We are evaluating the
potential for extending natural gas service to the town of Rocky Mount near
Roanoke. A new pipeline now under construction for an additional natural gas
supply to Bluefield will enhance expansion opportunities there.
We have continued to focus on our "saturation program", which is designed to
optimize pipeline assets already in the ground. Over 50% of our new natural gas
customers in 1998 were conversions from other energy sources to natural gas and
were either located along existing mains or were served with minor line
extensions. We also continued to focus much of our marketing effort on our
"trade ally relations" strategy, so that builders, developers and heating and
plumbing contractors see us as an energy partner who responds quickly and
professionally to their needs in meeting their customers' demands.
We believe there will be further deregulation in the energy and utility
business, requiring significant management attention. We have installed and are
in the early stages of converting to an enhanced Customer Information and
Billing System as part of our "positioning for deregulation" strategy. This
system is expected to be followed by other enhancements to enable us to manage
the complexities of working with multiple natural gas commodity retailers,
accept electronic bill payments and offer internet access with respect to
customer and billing information. Our proposal to restructure to a holding
company ties together the strategies of "diversification" and "positioning for
deregulation". While future diversification will be done prudently and in areas
of our core competence, we believe exploring new opportunities are important to
our overall growth and improved shareholder value goals.
Financial
The Company established another new benchmark as it surpassed again the
previous year's earnings and posted net income of $2,726,879, or $1.60 per
share, for fiscal 1998. The previous year was also a record year with earnings
of $2,309,880 or $1.54 per share. The shareholders' investment in the Company
grew by $5,867,630 to $26,454,581, which amounts to $14.75 per share. At
September 30, 1998, the market value of the Company's stock was $19.50 per
share, or 132% of book value.
In November 1997, the directors voted to increase the regular quarterly
dividend from $0.26 to $0.265 per share effective February 1, 1998. The current
annual dividend of $1.06 per share is a 5.44% yield on the current market value
of the Company's stock and represents a payout of 66% based on earnings for
fiscal 1998.
In June 1998, the Company issued $5,000,000, 7.804%, First Mortgage Notes,
due in 2008. The proceeds of the First Mortgage Notes were used to replace the
outstanding First Mortgage Bonds, 10.00%, Series K (principal amount:
$1,350,000) and the outstanding First Mortgage Bonds, 10.375%, Series L
(principal amount: $1,994,000). This replacement is a "blend and extend"
arrangement that replaced 50-year-old covenants with modern covenants that
mirror recent debenture debt replacement. The ten-year bullet secured note
replaces the amortizing Series K and Series L First Mortgage Bonds. The
remainder of the proceeds of the First Mortgage Notes ($1,656,000) was used for
general corporate purposes.
In October of 1998 the Company filed an application with the Virginia State
Corporation Commission seeking approval for authority to issue common stock as
part of the Company's existing dividend reinvestment plan. The Company's
authority to issue stock as part of this plan was for a five-year period ending
November 10, 1998. On October 26, 1998, the Company was granted the requested
authority.
The Company has unsecured lines of credit through its cash management
system totaling $21,000,000, at indexed interest rates. These lines are subject
to annual renewal and do not require compensating balances. The average
month-end balance of short-term debt in 1998 was approximately $5,280,000. The
average interest rate paid on unsecured lines of credit during 1998 was 6.19%.
The components of this consolidated short-term debt are $3,058,000 for Roanoke
Gas at 6.05%, $1,508,000 for Bluefield Gas at 6.22%, and $714,000 for
Diversified Energy, doing business as Highland Propane, at 6.69%. The month-end
balance at September 30, 1998 was $4,584,000, at an average interest rate of
6.18%.
Please refer to "Management's Discussion & Analysis Of Financial Condition
And Results Of Operations" for additional information on the Company's capital
resources and for an analysis of changes in revenue and expenses.
Marketing & Sales
Roanoke Gas Company, Bluefield Gas Company and Diversified Energy, doing
business as Highland Propane Company, consolidated, experienced another year of
excellent customer growth with approximately 4,500 new customer additions or
3,000 net additions. This growth represents an overall new customer additions
rate of 7% or a net customer addition rate of 5%. On an individual company
basis, new customer additions were approximately 3% for Roanoke Gas Company, 4%
for Bluefield Gas Company, and 25% for Highland Propane. Highland Propane now
serves over 11,000 propane customers, nearly doubling its customer base in a
four-year period.
Roanoke Gas Company
4
<PAGE>
[CHART]
NATURAL GASS AND PROPANE
CUSTOMER GROWTH
1994 1995 1996 1997 1998
Natural Gas Customers 48544 49813 51094 52763 53556
Propane Customers 5684 6006 6410 8829 11004
On the natural gas side, conversions represented approximately 51% of the new
customer growth for Roanoke Gas Company and 82% for Bluefield Gas Company.
Highland Propane surpassed 2,800 tank installations in a single year for the
first time in the Company's history. These installations represent a 27%
increase over last year's installations and nearly tripled the 1996
installations. Tank installations were up in most geographic areas, with
Southwest Virginia leading the way with an increase of 52% from fiscal 1997,
followed by Roanoke with a 12% increase. Diversified Energy, doing business as
Highland Propane, expanded its marketing efforts in the outlying portions of the
current service area including Bedford County, Rockbridge County and Alleghany
County, Virginia, and Raleigh, Fayette and northern Greenbrier counties, West
Virginia.
The marketing strategy for both propane and natural gas continues to center
around maintaining strong trade ally relationships, establishing one-on-one
contacts with members of the sales team and providing real-time customer
service. This strategy has been the nucleus of our success, and the number of
trade allies continues to grow as we expand into new areas in Virginia and West
Virginia. As we continue to expand our trade ally base, we seek feedback from
the trade ally group to improve our sales and service to our customers.
Our commission sales force focuses on the addition of new gas customers
along existing gas mains or the addition of new residential and commercial
propane customers. Natural gas conversions exceed the 650 customer mark for the
third year in a row, and the number of new propane tank sets increased by more
than 600 over last year. In addition, we have expanded our commissioned sales
force, and now have new representatives in Bedford County and Covington,
Virginia and Rainelle, West Virginia.
The Company has been working closely with prospective industrial and
commercial customers, regional economic development groups and local
governments. We are excited about the future economic development potential of
area industrial parks and shell buildings under development.
The Company remains actively involved in various leadership positions within
the community, including but not limited to, the Roanoke Regional Chamber of
Commerce, Hollins University, Junior Achievement, United Way, The Virginia
Western Foundation, The Salvation Army, YMCA, Community School, Boys and Girls
Club of the Roanoke Valley, and the Roanoke Regional and New River Valley
Homebuilders Associations. The Company takes its community responsibilities
seriously and encourages its employees to become involved in community affairs.
Customer Service
Providing timely and accurate information to our customers is a key
corporate objective. We perform these functions within our Customer Service
Department using a blend of human resources and technology. As in the past, we
continue to serve our customers both by telephone and in person. Customer
Service centers are available in Rainelle and Bluefield, West Virginia and our
main Roanoke office. The Roanoke office also has the ability to receive overflow
calls from Bluefield. During the year, we answered 154,488 customer calls in the
Roanoke Customer Call Center. This is an average of 594 calls per work day. In
addition to customer calls, we served approximately 23,000 walk-in customers in
the Roanoke center.
We continue to experience excellent customer participation with programs
such as bank drafts, budgets, and HeatShare. Our Customer Service Department is
also very involved in the implementation of the new Customer Information System,
and we are currently planning for upgrades to our customer call management
system.
With many banks and credit unions in the Roanoke Gas and Bluefield Gas
service areas discontinuing their collection of utility payments, we have worked
diligently to promote our automatic bank draft program. In an effort to increase
the number of customers using bank draft, we have worked with local banks and
credit unions and provided a special bill insert to inform customers of this
convenient option. As a result of the program, approximately 9% of Roanoke Gas
customers and approximately 6% of Bluefield Gas customers are using the bank
draft option.
With a renewed emphasis on the budget billing program this year, Roanoke Gas
and Bluefield Gas have experienced increased utilization of our budget billing
program by customers interested in equal monthly payments. As a result,
approximately 25% of Roanoke Gas customers and approximately 19% of Bluefield
Gas customers now take advantage of the budget billing option.
Our HeatShare Program, which helps needy customers in the Roanoke Valley pay
their gas bills, had another very successful year. Approximately $50,000 was
collected from donations by the Company, its employees and customers. During the
sixteen-year history of the program, approximately $900,000 has been donated to
assist over 6,300 families.
The Company's Credit and Collection policies were reviewed and revised in
January of 1998 in an effort to decrease aged receivables, more aggressively
resolve past delinquencies and ultimately reduce bad
1998 Annual Report
5
<PAGE>
Review Of Operations
debt write-off amounts in future years. By implementing proactive
collection procedures, customer delinquencies are quickly identified and
resolved in a professional and effective manner. Our 1998 bad debt write-off
amounts reflect an increase over the prior year as a result of these
initiatives. However, the amount of past due balances carried into the new
fiscal year is reduced. The net result is a healthier receivable portfolio going
into 1999.
To continue to attain our goal of lowering aged receivables and reducing bad
debt write-offs, we are currently utilizing telephone and computer technologies
to increase outbound contacts and timely account followup. We have strengthened
outsourcing relationships to broaden the scope of our collection efforts. We
seek to send a fair but firm message to our customers that communicates both our
willingness to cooperate in resolving past due balances amicably and our
commitment to, when necessary, take appropriate actions to recover revenues lost
to delinquencies. We believe in the long run this approach is in the best
interest of all customers by keeping bad debt cost lower and minimizing the
impact of this cost on overall service rates.
Plant Additions
Capital additions for the fiscal year 1998 totaled approximately $9,584,000
for the consolidated companies, inclusive of additional assets acquired from the
purchase of U.S. Gas Company. Total additions were up 19% compared to 1997
fiscal year expenditures of $8,053,000. Accelerated growth, primarily within the
propane company, continues to drive the increased capital spending. Bluefield
Gas accounted for 9% of all capital expenditures at $866,000. Bluefield Gas
Company's capital expenditures represent an increase over the previous year of
42%. The larger expenditures in Bluefield are partially related to the
construction of two miles of 4" coated steel pipe that will connect Bluefield's
distribution system to the Phoenix Energy Sales Pipeline. This connection will
provide Bluefield with a second source of gas supply originating from the
Consolidated Natural Gas Gathering System near Coopers, West Virginia. Bluefield
Gas installed 227 new service lines and 2.9 miles of new mains in fiscal 1998,
compared to 149 new service lines and 1.3 miles of new mains in fiscal 1997.
Diversified Energy, doing business as Highland Propane, capital additions
for fiscal 1998 were 39% of the total additions, or approximately $3,691,000,
which was an increase of 58% over last year. New propane installations totaled
$2,662,000, compared to $1,919,000 in fiscal 1997. Highland Propane installed
2,890 new tank sets in fiscal 1998, compared to 2,280 last year, a 27% increase.
Roanoke Gas invested approximately $5,026,000 in capital additions, or 52%
of the total company capital additions. New business expenditures, including
mains, meters and new service lines, totaled $2,173,000 in fiscal 1998 compared
to $2,825,000 last year. Roanoke Gas installed 1,498 new service lines and 12.2
miles of new mains in fiscal 1998, compared to 1,518 new service lines and
18.6 miles of new mains last year. The increase in the number of services per
mile of main was a direct result of successful efforts to increase customer
saturation by converting homes along existing mains to natural gas.
The Company also increased its main replacement and service renewal outlays,
investing $1,656,000 in fiscal 1998, compared to $1,384,000 last year. During
fiscal 1998, the Company replaced 756 natural gas service lines and 9.1 miles of
main compared to previous year totals of 598 service lines and 8.1 miles of
main. In 1992, Roanoke Gas Company began an extensive 25-year facility
replacement program designed to reduce maintenance costs over the long term and
improve system integrity by replacing all cast iron and bare steel mains and
services with modern coated steel or plastic piping. During recent years,
Bluefield Gas Company was also added to the program. We remain on schedule for a
year 2017 target completion date.
[PHOTO]
Jack Cassell demonstrates the new electric monitoring sensors at the Company's
Liquefied Natural Gas (LNG) Plant. This equipment is part of a planned upgrade
at the LNG plant.
Other fiscal 1998 increases in plant additions included: $142,000 for new
electronic monitoring sensors at the Company's Liquefied Natural Gas (LNG)
Plant; $331,000 for new construction equipment and vehicle purchases; and
$724,000 for new computer equipment, software additions and upgrades.
For fiscal 1999, the Company has budgeted $8,500,000 for capital additions
and replacements. Major items will include $2,600,000 to support propane
customer growth, $2,900,000 for new natural gas customer additions, $1,300,000
to replace bare steel and cast iron mains and services, $600,000 for new
transportation equipment and $400,000 for information systems and technology
applications. The anticipated sources of these funds are depreciation and
amortization cash flow, earnings, and debt.
Roanoke Gas Company
6
<PAGE>
[GRAPH]
CAPITAL ADDITIONS
1994 1995 1996 1997 1998
Roanoke 4,463,672 4,463,672 4,281,600 5,118,473 5,026,350
Bluefield 572,032 572,032 580,896 608,105 866,088
Highland 573,588 573,588 677,877 2,326,223 3,346,176
[GRAPH]
NATURAL GAS
Year Natural Propane
1994 3.906208 0.435643
1995 3.255788 0.445386
1996 4.237287 0.496335
1997 4.359843 0.594844
1998 4.032359 0.475118
[GRAPH]
PROPANE
Natural Natural
Gulf Spot Gulf Spot
1994 2.039 0.2835
1995 1.562 0.3238
1996 2.378 0.3649
1997 2.544 0.4255
1998 2.344 0.2927
Energy Supply
One of the strongest El Nino events on record delivered unseasonably warm
winter weather to the majority of the United States during fiscal 1998. Our
Roanoke service area recorded 4,054 heating degree days for the fiscal year,
which was 4% fewer heating degree days than the long-term normal.
While the entire heating season turned out to be mild, cool to normal
weather existed over most of the U.S. during the fall of 1997. Cool weather in
conjunction with abnormally low natural gas storage levels combined to cause an
unusually early peak in natural gas commodity prices. However, the unseasonably
warm weather in January and February of 1998 resulted in a significant decline
in both natural gas and propane commodity prices. Gas commodity prices for the
monthly indexes relevant to Roanoke Gas decreased almost 7.5% over the previous
fiscal year. Commodity prices for propane also declined significantly late in
fiscal 1998.
While the average commodity prices have fallen over the past fiscal year,
natural gas remains a volatile commodity. To reduce volatility and provide a
more stable gas price for customers, the company uses a variety of hedging
mechanisms, including summer storage injections. As part of this program,
Roanoke Gas Company utilitized a financial hedging pilot program during the past
heating season. In the coming heating season, Roanoke Gas will continue its
pilot program for a second year, and Bluefield Gas will begin a pilot program in
West Virginia. The Company also uses fixed price contracts and financial hedges
to manage volatility in propane prices.
Roanoke Gas continues to use a mixture of long-term (one year or more),
mid-term (seasonal) and short-term (spot) gas acquisition contracts for the
Company's natural gas and propane supplies. The Company's objective is to create
a reliable and economical mixture of gas supply contracts without limiting its
ability to adapt to changing market conditions. Long-term suppliers currently
include Coral Energy, Cabot Oil and Gas, Engage Energy, Exxon, Columbia Energy
Services, Northridge Petroleum and Southern Company Energy Marketing.
Roanoke Gas Company regards storage supplies as an integral component
of its natural gas supply portfolio. The Roanoke and Bluefield operations
combined hold the rights to about 2.9 billion cubic feet (BCF) of natural gas
storage space. This storage includes pipeline and third party underground
facilities in both the Gulf coast and Appalachian areas, as well as its own LNG
storage in Botetourt County, Virginia.
1998 Annual Report
7
<PAGE>
Review Of Operations
[MAP OF ROANOKE AREA ENERGY SUPPLY]
[MAP OF BLUEFIELD AREA ENERGY SUPPLY]
Information Systems
Company systems and processes need to correspond to business strategies,
changing conditions and opportunities. As part of our plan of positioning the
Company for deregulation and diversification, the Company researched, analyzed,
and then started the implementation of a new Customer Information System (CIS).
The goal is to complete the implementation during the summer of 1999. In
addition to aligning Company systems with long-term business strategies,
considerable progress is being made on the Year 2000 issue to assure system
reliability and stability for continuing business into the new millennium.
The CIS includes all functions related to the customer. The Service Order
subsystem is used to perform all service work, such as installing the meter or
repairing an appliance. The Customer Contact subsystem allows tracking and
monitoring of all customer conversations. The Meter Reading and Billing
subsystems work together to properly bill the customer. The Collection process
enables our users to work with customers and collection agencies to minimize
customer payment problems.
[PHOTO]
Debbie Wright, Customer Service Associate, demonstrates the information system
that allows her to access real-time data on customers when they call us with an
inquiry.
The new CIS builds on an already highly functional system. Functionality
such as on-line real-time information, an extensive relational database ranging
from billing information to tracking detail of all customer contacts, and full
integration with the financial systems are fundamental. The new CIS allows for
enhancements to provide Specialized Gas Billing for a deregulated environment
and a flexible design to further improve employee efficiency. This platform
positions the Company's systems for the future. It is highly adaptable and
prepared for additional system modules such as Internet Commerce, Marketing and
Sales Management, and Multi-Entity Communications. As of September 30, 1998,
$175,500 has been spent on the Customer Information System and $324,500 will
be spent in fiscal 1999.
8
<PAGE>
Nonregulated Operations
Fiscal year 1998 marked the second consecutive year that propane customer
growth exceeded 25%. Diversified Energy Company, doing business as Highland
Propane Company, began operation in 1979, partially as a means to provide
propane gas service to future natural gas expansion areas and for selected
commercial applications. Over the years, propane has grown in popularity. With
new high efficiency propane gas appliances providing the warmth and comfort of
gas heat, propane has become the energy of choice for many residential and
commercial customers in areas not served by natural gas pipelines. Over the last
two years, the number of new propane customer additions exceeded that of natural
gas.
Highland Propane has expanded its service territory in both Virginia and
West Virginia. Geographic expansions were made east into Bedford County, one of
the fastest growing counties in Virginia, and north into Rockbridge, Alleghany
and Bath counties in Virginia. The West Virginia markets were extended into
Summers, Fayette and Raleigh counties. Our goal is to not only expand
geographically, but to increase the saturation of propane customers within the
existing service area. Over the past several years, we have installed additional
satellite storage facilities to serve as hubs that improve our delivery
efficiencies. These satellite facilities also provide target areas for us to
concentrate our saturation sales efforts. Storage facility installations added
in fiscal 1998 include Low Moor, near Covington, Virginia; Buena Vista, east of
Lexington, Virginia; and Bedford, Virginia. We have a total of 12 bulk storage
facilities located throughout our service area.
Total sales by the propane company were 7.7 million gallons with 4,054
Roanoke heating degree days in fiscal 1998, compared to 6.6 million gallons with
4,298 heating degree days in fiscal 1997. Increased customer growth offset the
warmer weather, resulting in a 17% increase in total gallons delivered.
Management is continually evaluating ways to improve efficiencies and reduce
overall operating expense. We are in the process of implementing a computer
aided graphic dispatch system to improve overall delivery services and enhance
current marketing efforts. The dispatch system will be based on Global
Positioning Satellite (GPS) technology and will produce detailed maps for all of
our delivery routes. These maps will not only serve as a delivery tool, but will
provide valuable information to help our sales staff improve market area
saturation.
Diversified Energy Company, doing business as Highland Gas Marketing, sold
just over 2 million decatherms of natural gas in 1998, an increase of 77% over
1997. The increase in sales was partially due to warmer weather, which resulted
in fewer days of natural gas supply interruptions for large volume industrial
users who use alternative sources of energy on extremely cold days. Highland Gas
Marketing buys interruptible supplies of spot gas and temporary interstate
pipeline transportation services, and resells them to large industrial customers
that contract with the local utility for delivery from the interstate pipeline
to the customer's meter. The natural gas marketing business is highly
competitive with relatively low margins; however, it also has a low cost of
operation with minimal facility and personnel requirements.
Market Price & Dividend Information
The Company's common stock is listed on the Nasdaq National Market under the
trading symbol RGCO. This provides shareholders, brokers and others with
immediate access to the latest bid and ask prices and creates greater liquidity
in the Company's stock. The table below sets forth the range of bid prices for
shares of the Company's common stock, as reported in the Nasdaq National Market.
Additionally, the firm of Scott & Stringfellow, Inc. has experienced research
analysts who are knowledgeable about the natural gas distribution utility
industry and includes Roanoke Gas Company in its equity research database.
Although the Company has paid continuous quarterly dividends to its
shareholders since August 1, 1944, and has increased dividends for the past
three years, the Company has not established a formal policy with respect to
dividends. Payment of dividends is within the discretion of the Company's Board
of Directors and will depend upon, among other factors, earnings, capital
requirements and the operating and financial condition of the Company. There can
be no assurance that these or other conditions will not negatively affect the
Company's ability to pay dividends in the future. In addition, the Company's
long-term indebtedness contains restrictions on cumulative net earnings of the
Company and dividends previously paid. At September 30, 1998 and 1997,
respectively, the Company had 1,837 and 1,853 common shareholders of record in
conjunction with 1,794,416 and 1,527,486 common shares outstanding.
Range of Cash
Bid Prices Dividends
Declared
Fiscal Year Ended High Low
September 30,
1998
First Quarter $21.375 $17.500 $.265
Second Quarter 22.750 19.250 .265
Third Quarter 22.250 19.750 .265
Fourth Quarter 20.703 18.125 .265
1997
First Quarter $18.000 $16.750 $.26
Second Quarter 18.250 17.000 .26
Third Quarter 17.750 15.750 .26
Fourth Quarter 18.125 16.000 .26
1998 Annual Report
9
<PAGE>
Management's Discussion & Analysis
Of Financial Condition And Results Of Operations
Roanoke Gas Company and Subsidiaries
Selected Financial Data
Years Ended September 30,
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Revenues $59,387,092 $65,047,826 $65,770,873 $ 48,611,147 $ 58,195,857
Operating Margin 23,279,585 22,464,921 22,030,795 19,435,864 19,902,497
Operating Earnings 4,717,026 4,403,423 4,035,304 3,522,258 3,537,267
Earnings Before Interest Charges 4,822,590 4,550,333 4,113,044 3,701,907 3,592,351
Net Earnings 2,726,879 2,309,880 2,196,672 1,777,240 1,677,098
Net Earnings Per Share 1.60 1.54 1.51 1.26 1.25
Cash Dividends Declared
Per Share 1.06 1.04 1.02 1.00 1.00
Book Value Per Share 14.75 13.48 12.86 12.25 11.88
Average Shares Outstanding 1,701,048 1,503,388 1,455,999 1,408,659 1,339,402
Total Assets 69,134,920 62,593,258 58,921,099 51,614,667 49,579,447
Long-Term Debt
(Less Current Portion) 20,700,000 17,079,000 20,222,124 17,504,047 16,414,900
Stockholders' Equity 26,464,581 20,596,951 18,975,001 17,555,172 16,424,919
Shares Outstanding At September 30, 1,794,416 1,527,486 1,475,843 1,432,512 1,382,343
</TABLE>
General
The core business of Roanoke Gas Company and its public utility affiliates
(collectively, the Company) is the distribution of natural gas to approximately
53,500 customers in the cities of Roanoke, Salem, and Bluefield, Virginia and
Bluefield, West Virginia, and the surrounding areas. This service is provided at
rates and for the terms and conditions set forth, approved and regulated by the
State Corporation Commission in Virginia (the Virginia Commission) and the
Public Service Commission in West Virginia (the West Virginia Commission). As a
public utility, the Company is required to ensure that it has adequate capacity
to serve the ongoing needs of its customers. To meet these needs, the Company
continues to expand its facilities to keep pace with the residential,
commercial, and industrial growth in its service areas. The Company continues to
experience customer growth and plans to meet the needs of its current and future
customers by attracting adequate investment capital and by filing and receiving
timely rate increases when needed from the state commissions.
The Company also serves approximately 11,000 propane accounts in
southwestern Virginia and southern West Virginia and serves natural gas
industrial transportation customers by brokerage of natural gas supplies through
its subsidiary, Diversified Energy Company, which trades as Highland Propane
Company and Highland Gas Marketing. Propane sales have become an important
aspect of the consolidated Company's operations, with the annual growth in
propane customers now exceeding the annual growth in natural gas customers.
While the demand for natural gas and propane continues to increase in the
Roanoke Gas and Bluefield Gas service territory, the weather normalized per
capita residential usage is declining due to energy conservation,
high-efficiency furnaces and appliances, and better- insulated homes. The effect
of such per capita declines, unless offset by new customer growth, a strong
revenue stream during the winter, or requested rate relief, could result in a
decline in the Company's net operating earnings as a percentage of the common
equity investment. Competition from alternative fuels and/or suppliers could
also impact the Company's profitability levels.
Roanoke Gas Company, Commonwealth Public Service Corporation, a subsidiary
of Bluefield Gas, and Bluefield Gas Company currently hold the only franchises
and/or certificates of public convenience and necessity to distribute natural
gas in their respective Virginia and West Virginia service areas. These
franchises are for multi-year periods and are effective through January 1, 2016
in Virginia and August 23, 2009 in West Virginia. While there are no assurances,
the Company believes that it will be able to negotiate acceptable franchises
when the current agreements expire. Certificates of public convenience are of
perpetual duration.
Forward-Looking Statements
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, research and development
activities and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of the Company's business
include the following: (i) obtaining adequate rate relief from regulatory
authorities on a timely basis; (ii) earning an adequate return on invested
capital on a
Roanoke Gas Company
10
<PAGE>
consistent basis; (iii) increasing expenses and labor costs and availability;
(iv) price competition from alternative fuels; (v) volatility in the price of
natural gas and propane; (vi) some uncertainty in the projected rate of growth
of natural gas and propane requirements in the Company's service area; (vii)
general economic conditions both locally and nationally; and (viii) developments
in electricity and natural gas deregulation and associated industry
restructuring. In addition, the Company's business is seasonal in character and
strongly influenced by weather conditions. Extreme changes in winter heating
degree days from the normal or mean can have significant short-term impacts on
revenues and gross margins.
Capital Resources & Liquidity
Roanoke Gas Company's primary capital needs are the funding of its
continuing construction program and the seasonal funding of its stored gas
inventories. The Company's capital expenditures for fiscal 1998 were a
combination of replacements and expansions, reflecting the need to replace older
cast iron and bare steel pipe with plastic pipe, while continuing to meet the
demands of customer growth. Total capital expenditures for fiscal 1998 were
approximately $9.6 million allocated as follows: $5.0 million for Roanoke Gas
Company, $.9 million for Bluefield Gas Company and $3.7 million for Highland
Propane Company. Depreciation cash flow provided approximately $3.6 million in
support of capital expenditures, or approximately 37% of total investment.
Historically, consolidated capital expenditures were $8.1 million in 1997 and
$5.5 million in 1996. It is anticipated that future capital expenditures will be
funded with the combination of depreciation cash flow, retained earnings, sale
of Company equity securities and issuance of debt.
At September 30, 1998, the Company had available lines of credit for its
short-term borrowing needs totaling $21 million, of which $4,584,000 was
outstanding. Short-term borrowing, in addition to providing limited capital
project bridge financing, is used to finance summer and fall gas purchases,
which are stored in the underground facilities of Columbia Gas Transmission
Corporation, Tennessee Gas Pipeline Company and Virginia Gas Storage Company, as
well as in the Company's above-ground LNG storage facility, to ensure adequate
winter supplies to meet customer demand. At September 30, 1998, the Company has
$7,051,044 in inventoried natural gas supplies.
Short-term borrowings, together with internally generated funds, long-term
debt and the sale of common stock through the Company's Dividend Reinvestment
and Stock Purchase Plan (Plan), have been adequate to cover construction costs,
debt service and dividend payments to shareholders. The terms of short-term
borrowings are negotiable, with average rates of 6.19% in 1998, 5.97% in 1997
and 5.84% in 1996. The lines do not require compensating balances. The Company
utilizes a cash management program, which provides for daily balancing of the
Company's temporary investment and short-term borrowing needs with interest
rates indexed to the 30-day LIBOR interest rate plus a premium. The program
allows the Company to maximize returns on temporary investments and minimize the
cost of short-term borrowings.
Stockholders' equity increased for the period by $5,867,630, reflecting an
increase of $895,502 in retained earnings, the sale of 181,500 shares of stock
through a public offering in January for net proceeds of $3,387,496, the net
issuance of $613,564 of common stock for U.S. Gas, Inc., and proceeds of
$971,068 of new common stock purchases through the Plan and the Restricted Stock
Plan For Outside Directors.
At September 30, 1998, the Company's consolidated capitalization was 56%
equity and 44% debt, compared to 50% equity and 50% debt at September 30, 1997.
Regulatory Affairs
During the past fiscal year, the Company received Final Orders in three rate
increase requests and two gas cost hedging proposals. On December 29, 1997, the
West Virginia Commission issued a Final Order authorizing a rate increase of
$132,800 effective for bills rendered on and after March 2, 1998 by Bluefield
Gas Company. On March 16, 1998, the Virginia Commission issued a Final Order
authorizing a rate increase of $65,917 for service rendered on and after
November 28, 1997 by Commonwealth Public Service Corporation. On August 6, 1998,
the Virginia Commission issued a Final Order in the Roanoke Gas Company rate
increase request authorizing an increase on $237,634 for services rendered on
and after January 1, 1997. Both increases in Virginia resulted in refunds to
customers which had been reserved.
With respect to gas cost hedging, the Virginia Commission approved a
two-year extension of Roanoke Gas Company's existing gas cost hedging pilot
program. On July 7, 1998, the West Virginia Commission's Division of
Administrative Law Judges issued a decision approving a two-year pilot gas cost
hedging program for Bluefield Gas Company. This decision became final on July
27, 1998. The pilot programs proposed to employ gas costs hedges for up to 50%
of its normal winter demand not supplied from storage. Both hedging programs are
intended to help protect against supply-related price volatility adversely
impacting customer billing rates.
Roanoke Gas Company filed an application with the Virginia Commission on
September 30, 1998 seeking an annual increase in non-gas rates of $877,000. This
request represents a 1.8% increase in billing rates and a 5.1% increase to the
non-gas margins. The Company expects this increase to become effective under
bond and subject to refund on February 28, 1999. A hearing is scheduled in April
1999, with an order anticipated in the fall of 1999. The Company is permitted to
put rates into effect, under bond, prior to the receipt of the Commission's
final order. Consequently, the Company will establish adequate reserves for this
refund.
In addition to the standard rate case items, the Virginia application
includes a proposal for a Distribution System Renewal Surcharge which would
provide a mechanism that the Company would use to recover the depreciation and
carrying costs of distribution system renewal expenses on a periodic basis. The
Company is also proposing a Revenue Stabilization Surcharge that would go into
effect during any
1998 Annual Report
11
<PAGE>
Management's Discussion & Analysis
Of Financial Condition And Results Of Operations
year in which the weather was 5% warmer or colder than the long-term normal
level. This surcharge will help protect both the customer and the Company from
major swings in revenue due to abnormal weather. In the current proceeding, the
Company is also proposing to move to therm billing for all customers. The therm
billing rates will not go into effect until after the issuance of the Final
Order in this proceeding.
While not part of the rate case, the Company has begun discussions with the
Staff of the Virginia Commission regarding area specific rates which will permit
timely recovery of the depreciation and carrying charges of main extensions into
previously unserved areas. Area specific rates are something the Company intends
to pursue in the future to facilitate the timely recovery of main extension
costs in rates.
Proposed Holding Company Reorganization
The Company filed a Form U-1 with the Securities and Exchange Commission on
October 16, 1998, seeking approval to reorganize the Company into a holding
company with three separate subsidiaries. The filing provides that the holding
company will be established as RGC Resources, Inc., and the subsidiaries will be
Roanoke Gas Company, Bluefield Gas Company, and Diversified Energy Company.
Included in the application for the new structure is a request for approval to
merge Commonwealth Public Service Corporation into Roanoke Gas Company, creating
a single public utility in the state of Virginia for the distribution of natural
gas. The Company expects a decision from the SEC in the summer of 1999.
In addition to the Form U-1 filing, the Company made simultaneous state
filings on October 21, 1998 seeking state approval of the proposed holding
company structure, as well as approval of the resulting affiliate agreements.
The Company has received approvals from both the Virginia and West Virginia
Commissions. Shareholders of Roanoke Gas also must approve the proposed
reorganization.
Results Of Operations
Fiscal Year 1998 Compared With Fiscal Year 1997
Operating Revenues - Operating revenues for the natural gas
utilities decreased $5,985,129 to $51,857,052 in 1998 from $57,842,181 in 1997.
The decrease is attributed to weather that was approximately 6% warmer in 1998
than in 1997 and a 7.5% decrease in the unit cost of natural gas. Operating
revenues for propane increased $324,395 to $7,530,040 in 1998 from $7,205,645 in
1997 due to a 25% increase in net customer growth even though revenues per
gallon decreased 10.9% due to the lower price of propane.
ENERGY VOLUMES - The volume of natural gas delivered to customers increased
71,436 MCF to 10,875,481 MCF in 1998 from 10,804,045 MCF in 1997. Although the
weather was approximately 6% warmer than last year, customer growth increased
throughput for the period. Propane sales volumes increased 1,134,318 gallons to
7,702,384 gallons in 1998 from 6,568,066 gallons in 1997. The increase is
attributable to the increase in the number of customers.
COST OF ENERGY - The cost of natural gas declined $6,204,265 to $32,471,072 in
1998 from $38,675,337 in 1997. The decrease was due to a 7.5% decrease in the
unit cost of natural gas and an increase in transportation volumes of 889,620
MCF. The cost of propane decreased $271,133 to $3,636,435 in 1998 from
$3,907,568 in 1997. The decrease in the unit cost was associated with an
abundant supply of propane due to weather that was approximately 4% warmer than
normal in the Company's service area and also warmer nationally.
OTHER OPERATING EXPENSES - Other operations and maintenance expenses decreased
$496,811 or 5.2% to $9,015,786 in 1998 from $9,512,597 in 1997. The decrease was
primarily the result of reductions in bad debt accruals ($209,827) and the
absence of regulatory asset write-offs which occurred in 1997 in the amount of
$306,809.
General taxes decreased $80,172 to $2,376,227 in 1998 from $2,456,399 in
1997. Increases in business license and merchants taxes, franchise taxes and
property taxes in the amount of $7,442 were more than offset by decreases in the
revenue-sensitive taxes (gross receipts and business and occupation taxes) in
the amount of $75,571.
Income taxes increased $242,542 to $1,100,506 in 1998 from $857,964 in
1997, due to higher pre-tax income in 1998.
Depreciation and amortization expenses increased $272,366
to $2,806,278 in 1998 from $2,533,912 in 1997 due to increased depreciation
related to normal additions to plant in service.
Other operating expenses - propane operations includes the operating and
maintenance expenses, taxes and depreciation of Highland Propane Company. These
costs increased to $3,263,762 in 1998 from $2,700,626 in 1997. The $563,136
increase was primarily attributable to growth in customers and propane assets
and the associated increase in volumes delivered. Depreciation on tanks and
equipment increased by $78,022, property and related taxes increased by $33,302,
transportation and delivery costs increased by $157,039, and sales expense
increased by $65,194 and a variety of other growth driven operating costs
increased associated with billing and collecting, accounting and management
overhead.
OTHER INCOME - Other income, net of other deductions, decreased $41,346 to
$105,564 in 1998 from $146,910 in 1997. The decrease was primarily associated
with rate refund expenses ($9,365) and the write-off of obsolete and damaged
propane tanks in the amount of $30,802.
INTEREST CHARGES - Total interest charges decreased $144,742 to $2,095,711 in
1998 from $2,240,453 in 1997. Interest charges were lower due to the payoff of
$2,500,000 in long-term debt in October 1997 and the use of the proceeds from
the issuance of 181,500 shares of common stock in January 1998.
NET EARNINGS AND DIVIDENDS - Net earnings for 1998 were $2,726,879 as
compared to $2,309,880 in 1997. The $416,999 increase in earning can be
attributed to cost management which resulted in operation and maintenance
expenditures for natural gas being $496,811 less than the prior year offsetting
increased propane operations related to customer growth and increased revenue
from customer growth combined with the full annual effect of rate increases
which produced an $814,664 increase to operating margin. Basic earnings per
share of common stock were $1.60 in 1998 compared to $1.54 in 1997. Dividends
per share of common stock were $1.06 in 1998 compared to $1.04 in 1997.
Fiscal Year 1997 Compared With Fiscal Year 1996
OPERATING REVENUES - Operating revenues for the natural gas utilities decreased
$2,225,226 to $57,842,181 in 1997 from $60,067,407 in 1996. The decrease in
revenues is attributed to weather that was approximately 8% warmer in 1997 than
in 1996. Operating revenues for propane increased $1,502,179 to $7,205,645 in
1997 from $5,703,466
Roanoke Gas Company
12
<PAGE>
in 1996 due to the tremendous growth in the number of customer additions and
higher billing rates impacted by propane cost.
ENERGY VOLUMES - The volume of natural gas delivered to customers was down
365,903 MCF to 10,804,045 MCF in 1997 from 11,169,948 MCF in 1996 primarily
attributable to weather that was approximately 8% warmer than the weather in
1996. While customer growth was on par for the period, sales were down in all
categories, with the exception of transportation volumes, due to weather.
Propane sales volumes for 1997 were 6,568,066 gallons compared to 5,997,912
gallons in 1996, an increase of 570,154 gallons; again, indicative of the
increase in customer growth.
COST OF ENERGY - The cost of natural gas was $38,675,337 in 1997 compared to
$40,763,104 in 1996. The $2,087,767 decrease was due to a 3% decline in volume
and a 2% decrease in unit cost, both of which were impacted by weather that was
approximately 8% warmer in 1997 than in 1996. The cost of propane was up
$930,594 due to an increase in sales volume of 570,154 gallons associated with
customer growth and a 20% increase in unit cost.
OTHER OPERATING EXPENSES - Other operations and maintenance expenses decreased
$411,894 or 4.15% to $9,512,597 in 1997 from $9,924,491 in 1996. Although the
Company had increases in expenses associated with health insurance and bad debt
accruals and the write-off of regulatory assets in the amount of $309,716, these
were more than offset by reductions in post-retirement benefit expenses and
maintenance expenses, promotional advertising and increased capitalization of
labor and overheads associated with additional capital projects totaling
$727,789.
General taxes increased $54,631 to $2,456,399 in 1997 from $2,401,768 in
1996. While there were decreases in the revenue-sensitive taxes (gross receipts
and occupation taxes), business license and merchants taxes, franchise taxes and
property taxes increased.
Income taxes were down $105,931 to $857,964 in 1997 from $963,895 in 1996,
due to lower pre-tax income in 1997.
Depreciation and amortization expenses increased $239,465 to $2,533,912 in
1997 from $2,294,447 in 1996 due to depreciation on normal additions to plant in
service and an increase in depreciation rates associated with a depreciation
study.
Other operating expenses - propane operations includes the
operating and maintenance expenses, taxes and depreciation of Highland Propane
Company. These costs increased $289,736 to $2,700,622 in 1997 from $2,410,890 in
1996. The increase was mainly due to depreciation on increased plant associated
with customer growth and increased income taxes associated with higher taxable
income.
OTHER INCOME - Other income, net of other deductions, increased $69,170 to
$146,910 in 1997 from $77,740 in 1996. The increase was primarily due to jobbing
income of $55,448 and the elimination of a write-down on nonutility property of
$26,870 which occurred in 1996.
INTEREST CHARGES - Total interest charges increased $324,081 to $2,240,453
in 1997 from $1,916,372 in 1996. The increase was associated with increased
long-term and short-term debt financing. Additional long-term debt was acquired
to support natural gas plant growth which resulted in an increase of long-term
interest expense of $119,337. Interest expense on short-term debt increased
$204,744, which $55,601 of the increase attributable to short-term debt growth
supporting propane tank and equipment purchases. The remainder of the short-term
interest expense increased as a result of increased working capital needs for
higher gas inventories and average receivable balances coupled with interest
accruals on a rate refund reserve for the Roanoke Gas Company pending rate case.
NET EARNINGS AND DIVIDENDS - Net earnings for 1997 were $2,309,880 as
compared to $2,196,672 for 1996. Basic earnings per share of common stock were
$1.54 in 1997 compared to $1.51 in 1996. Dividends per share of common stock
were $1.04 in 1997 compared to $1.02 in 1996. The $113,208 increase in earnings
can be attributed to cost containment, customer growth and rate increases.
Maintenance expense was $405,516 less than the prior year while customer growth
and rate increases resulted in a $434,126 higher operating margin.
[GRAPH]
COMPARISON
Net Income to HDD (Heating Degree Days)
1994 1995 1996 1997 1998
Net Income 1677098 1777240 2196672 2309880 2726879
HDD 4416 3791 4696 4298 4054
Accounting Changes
The Company adopted Statement of Financial Accounting Standards No. 128,
Earnings Per Share (Statement 128) in 1998. Statement 128 supersedes APB Opinion
No. 15, Earnings Per Share, and specifies the computation, presentation and
disclosure requirements for basic and diluted earnings per share (EPS) for
entities with publicly held common stock or potential common stock.
Recent Accounting Developments
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 129, Disclosure of Information about Capital
Structure, SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. These
Statements are effective for fiscal years beginning after December 15, 1997. The
Company does not anticipate the adoption of the Statements will have a material
impact on its consolidated financial position, results of operations or
liquidity.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, effective for fiscal years beginning after
June 15, 1999. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments,
1998 Annual Report
13
<PAGE>
Management's Discussion & Analysis
Of Financial Condition And Results Of Operations
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires the recognition of all derivative instruments
as assets or liabilities in the Company's balance sheet and measurement of
those instruments at fair value. The accounting treatment of changes in fair
value is dependent upon whether or not a derivative instrument is designated
as a hedge and if so, the type of hedge.
The Company has entered into certain arrangements for hedging the price
of natural gas and propane gas for the purpose of providing price stability
during the winter months. The Company has not fully analyzed the impacts of the
provisions of SFAS No. 133 on the Company's financial statements.
Impact Of Inflation
The cost of natural gas represented approximately 68% for fiscal 1998 and
72% for fiscal 1997 and 1996 of the total operating expenses of the Company's
gas utilities operations. However, under the present regulatory Purchased Gas
Adjustment mechanisms, the increases and decreases in the cost of gas are passed
through to the Company's customers.
Inflation impacts the Company through increases in non-gas costs such as
insurance, labor costs, supplies and services used in operations and maintenance
and the replacement cost of plant and equipment. The rates charged to natural
gas customers to cover these costs can only be increased through the regulatory
process via a rate increase application. In addition to stressing performance
improvements and higher gas sales volumes to offset inflation, management must
continually review operations and economic conditions to assess the need for
filing and receiving adequate and timely rate relief from the state commissions.
[GRAPH]
MCF Delivered
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
MCF 10267038 9961877 11169948 10804045 10875481
</TABLE>
[GRAPH]
Gallons of Propane Delivered
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Gallons Delivered of Propane 5012830 4822277 5997912 6568066 7702384
</TABLE>
Year 2000
Roanoke Gas Company has made significant progress in addressing the Year
2000 issue. The Year 2000 concern is caused by the movement from 1999 to the
year 2000. Many computer-based systems rely on the last two numbers of the date
to distinguish the year, and many of these systems will not recognize "00" as an
acceptable date. Even if systems will accept "00" as an appropriate date, many
systems will not distinguish the year 2000 from year 1900. Like all other
companies that use application software and rely on a computer-based
infrastructure that includes microprocessor systems, the Year 2000 issue affects
many areas of the Company's operations. The Company has formed a Year 2000 Task
Force comprised of a comprehensive group of employees who have developed a
written plan that addresses communications, system conversions, system testing,
and contingency planning.
The Company has conducted an extensive inventory to identify and categorize
all of its internal systems which may be date sensitive. These internal systems
control, monitor, or assist in the operation of the Company, its equipment and
machinery. Generally, these systems contain microprocessor chips, integrated
circuits, or computer boards. The Company identified date-sensitive applications
in customer service, operations, financial systems, end-user applications,
storage and distribution systems, meters, telecommunications, vehicles, building
controls and other areas. With these systems identified, each system is reviewed
to determine how it can be tested. When applicable, manufacturers of each item
are contacted concerning available compliance information. An industry
consultant is assisting the Company with this phase.
The Company started upgrading internal systems in the winter of 1996
and completed the majority of the upgrades by the fall of 1997. These
systems cover the entire scope of the business, ranging from the Payroll
System to the Customer Information System. There is a plan in
14
<PAGE>
place to upgrade the remaining internal system applications by the spring
of 1999. Most of these systems have been in production for a minimum of ten
months. With baseline validation complete, testing for the Year 2000 and other
key dates has begun. In October 1998, the Company set up a training and testing
lab, and operating system testing was completed in November 1998. The Company
began performing tests on all software applications in December 1998, and such
testing is scheduled to be completed in the spring of 1999. The Company intends
to perform necessary remediation on systems that fail in March 1999. Over 70% of
the Company's systems have successfully completed testing and were found to be
Year 2000 compliant. The remaining 30%, which includes the propane system,
remain to be tested.
Roanoke Gas has made considerable progress in upgrading its information
systems to be Year 2000 compliant. Essentially, all of the core IBM AS/400
systems have been upgraded, with the exception of propane, which should be
completed by mid-1999. All Local Area Network (LAN) and Wide Area Network (WAN)
systems have been upgraded. The remaining systems are believed to be compliant
or a plan is in place to reach compliance. We believe that most of our
vendors, suppliers and major customers are dedicated to the problem with
intentions of completing their efforts in a timely manner. Though our list of
systems seems complete, management continues to search for systems throughout
the Company that may need attention. Employee awareness and contingency planning
are a top priority of the Company's Year 2000 task force.
The Company added a segregated test environment that included a second
AS/400 and an additional network file server. This should help facilitate the
implementation of the new CIS, allow thorough Year 2000 testing and improve the
test environment for all systems development. The segregated test environment
also upgrades the Company's Disaster Recovery Planning by enabling an internal
recovery hot-site.
The Company is developing a plan to identify the areas with the highest
potential risk of Year 2000 exposure and determining the functions that need
contingency plans. The Company anticipates that the resulting contingency plans
will be developed and documented by the spring of 1999.
The Virginia Commission and the West Virginia Commission are both closely
monitoring the Year 2000 conversions of all utilities in their respective
states. On July 1, 1998 the Virginia Commission Staff initiated a process which
required all utilities to file a summary of their progress toward Year 2000
compliance on July 22, 1998 with quarterly updates beginning in October 1998.
The West Virginia Commission issued General Order No. 253 on April 30, 1998 and
a Year 2000 Survey. The Order required survey responses by July 31, 1998, with
semi-annual updates beginning in January 1999.
The Company maintains emergency operating plans for problems that could
arise from both internal and external sources. With regard to internal systems,
the Company believes that it has identified and is addressing the Year 2000
compliance of the systems that pose the most significant risk to its ability to
provide safe and reliable service to customers. Externally, the Company has
initiated discussions with suppliers of interstate transportation capacity and
relies on their testing and remediation methods to continue the supply of
natural gas to its distribution system. Furthermore, the Company has received
and responded to letters from many of its customers concerning our Year 2000
compliance status. Likewise, the Company has held discussions with large-volume
customers concerning their Year 2000 concerns. The Company intends to
continually monitor any new developments.
The Company believes that it is taking reasonable measures to ensure the
safe and uninterrupted delivery of natural gas. There can be no guarantee that
the systems of other companies and external services, such as water,
electricity, and telephone, on which the Company's operations rely, will be
timely converted, or will be converted in a manner compatible with the Company's
systems. If this were to occur, it would create a significant barrier to
providing service to the Company's customers and could result in material
increases in operating expenses and lost revenues.
To date, the Company has spent approximately $35,000 on Year 2000
remediation activities. The Company projects that it will spend an additional
$109,000, over and above otherwise planned upgrades to systems and hardware,
over the course of the next two years to complete its Year 2000 readiness plan.
[PHOTO]
Michael Jones, Madeline Bowles, Nancy Sweeney, and Armell Bolden use the
new testing and training lab. Our computer lab will provide testing and
training for employees in many departments.
1998 Annual Report
15
<PAGE>
Management's Discussion & Analysis
Of Financial Condition And Results Of Operations
[PHOTO]
Don Jones, Project Engineer, fills his car with clean, efficient compressed
natural gas. Driving automobiles powered by natural gas is cleaner for our
environment.
Environmental Issues
Both Roanoke Gas Company and Bluefield Gas Company operated manufactured gas
plants (MGPs) as a source of fuel for lighting and heating until the early
1950s. The process involved heating coal in a low-oxygen environment to produce
a manufactured gas that could be distributed through the Company's pipeline
system to customers. A by-product of the process was coal tar, and the potential
exists for on-site tar waste contaminants at both former plant sites. The extent
of contaminants at these sites is unknown at this time, and the Company has not
performed formal analysis at the Roanoke Gas Company MGP site. An analysis at
the Bluefield Gas Company site indicates some soil contamination. The Company
has not received any notices of violation or liabilities associated with
environmental regulations related to the MGP sites and is not aware of any
off-site contamination or pollution as a result of these sites. Therefore, the
Company has no plans for subsurface remediation at either of the MGP sites.
Should the Company eventually be required to remediate either of the MGP sites,
the Company will pursue all prudent and reasonable means to recover any related
costs, including insurance claims and regulatory approval for rate case
recognition of expenses associated with any work required. Based upon prior
orders of the Commission related to environmental matters at other companies,
the Company believes it would be able to recover prudently incurred costs.
Additionally, a stipulated rate case agreement between the Company and the West
Virginia Commission recognized the Company's right to defer MGP cleanup costs,
should any be incurred, and to seek rate relief for such costs. If the Company
eventually incurs costs associated with a required cleanup of either MGP site,
the Company anticipates recording a regulatory asset for such cleanup costs
which are anticipated to be recovered in future rates. Based on anticipated
regulatory actions and current practices, management believes that any costs
incurred related to the previously mentioned environmental matters will not have
a material effect on the Company's consolidated financial position.
Roanoke Gas Company & Subsidiaries
1998 Financial Highlights
Operating Revenues - Gas $51,857,052
Propane Revenues - Propane $ 7,530,040
Other Revenues - Gas Marketing $ 6,519,467
Merchandising And Jobbing $ 587,030
Interest Income $ 28,872
Gross Revenues $66,522,461
Net Earnings $ 2,726,879
Net Earnings Per Share $ 1.60
Dividends Per Share - Cash $ 1.06
Total Customers - Natural Gas 53,582
Total Customers - Propane 11,004
Customers Per Employee 409
Total Natural Gas Deliveries - MCF 10,875,481
Total Propane Sales - Gallons 7,702,384
Total Payroll Chargeable To Operations & Construction $ 5,876,183
Total Additions To Plant $ 9,238,614
Roanoke Gas Company
16
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
of Roanoke Gas Company:
We have audited the accompanying consolidated balance sheet of Roanoke Gas
Company and subsidiaries (the "Company") as of September 30, 1998, and the
related statements of earnings, stockholders' equity and cash flows for the year
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 audit. The financial statements of the Company for the
years ended September 30, 1997 and 1996 were audited by other auditors whose
report, dated October 17, 1997, expressed an unqualified opinion on those
statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1998 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of September 30, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Charlotte, North Carolina
October 20, 1998
1998 Annual Report
17
<PAGE>
KPMG Peat Marwick LLP
10 S. Jefferson Street, Suite 1710
Roanoke, VA 24011-1331
Independent Auditors' Report
The Board of Directors and Stockholders
Roanoke Gas Company:
We have audited the accompanying consolidated balance sheet of Roanoke Gas
Company and subsidiaries as of September 30, 1997, and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
years in the two-year period ended September 30, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 audits to obtain
reasonable assurance about whether the consolidated 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Roanoke Gas Company
and subsidiaries as of September 30, 1997, and the results of their operations
and their cash flows for each of the years in the two-year period ended
September 30, 1997, in conformity with generally accepted accounting principles.
s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Roanoke, Virginia
October 17, 1997
<PAGE>
Roanoke Gas Company and Subsidiaries
Consolidated Balance Sheets
September 30, 1998 and 1997
<TABLE>
<CAPTION>
Assets 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Utility Plant:
In service $ 69,986,124 65,590,024
Accumulated depreciation and amortization (24,644,581) (22,612,963)
- --------------------------------------------------------------------------------------------------
In service, net 45,341,543 42,977,061
Construction work-in-progress 1,674,543 1,088,083
- --------------------------------------------------------------------------------------------------
Total utility plant, net 47,016,086 44,065,144
- --------------------------------------------------------------------------------------------------
Nonutility Property:
Propane 10,188,124 6,634,369
Accumulated depreciation and amortization (3,059,870) (2,540,274)
- --------------------------------------------------------------------------------------------------
Total nonutility property, net 7,128,254 4,094,095
- --------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 84,037 116,045
Accounts receivable, less allowance for doubtful accounts of
$202,652 in 1998 and $368,345 in 1997 3,051,474 4,188,984
Inventories 7,969,730 7,427,581
Prepaid income taxes 712,687 7,368
Deferred income taxes 1,868,888 1,206,995
Underrecovery of gas costs - 587,457
Other 451,027 420,674
- --------------------------------------------------------------------------------------------------
Total current assets 14,137,843 13,955,104
- --------------------------------------------------------------------------------------------------
Other Assets 852,737 478,915
- --------------------------------------------------------------------------------------------------
Total Assets $ 69,134,920 62,593,258
- --------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
Roanoke Gas Company
18
<PAGE>
<TABLE>
<CAPTION>
Liabilities And Stockholders' Equity 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Capitalization:
Stockholders' equity:
Common stock, $5 par value. Authorized 3,000,000 shares; issued and outstanding
1,794,416 and 1,527,486 shares in 1998 and 1997, respectively $ 8,972,080 7,637,430
Capital in excess of par value 8,909,145 5,271,667
Retained earnings 8,583,356 7,687,854
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 26,464,581 20,596,951
Long-term debt, excluding current maturities 20,700,000 17,079,000
- --------------------------------------------------------------------------------------------------------------------
Total capitalization 47,164,581 37,675,951
Current Liabilities:
Current installments of long-term debt - 3,143,124
Borrowings under lines of credit 4,584,000 7,129,000
Dividends payable 476,140 397,530
Accounts payable 6,968,594 5,512,348
Customer deposits 399,750 427,895
Accrued expenses 4,224,693 4,233,860
Refunds from suppliers - due customers 85,572 425,860
Overrecovery of gas costs 1,269,829 -
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 18,008,578 21,269,617
Deferred Credits And Other Liabilities:
Deferred income taxes 3,508,838 3,145,932
Deferred investment tax credits 452,923 492,357
Other deferred credits - 9,401
- --------------------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities 3,961,761 3,647,690
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities And Stockholders' Equity $ 69,134,920 62,593,258
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
1998 Annual Report
19
<PAGE>
Roanoke Gas Company and Subsidiaries
Consolidated Statements Of Earnings
Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues:
Gas utilities $ 51,857,052 57,842,181 60,067,407
Propane operations 7,530,040 7,205,645 5,703,466
- --------------------------------------------------------------------------------------------------
Total operating revenues 59,387,092 65,047,826 65,770,873
- --------------------------------------------------------------------------------------------------
Cost Of Gas:
Gas utilities 32,471,072 38,675,337 40,763,104
Propane operations 3,636,435 3,907,568 2,976,974
- --------------------------------------------------------------------------------------------------
Total cost of gas 36,107,507 42,582,905 43,740,078
- --------------------------------------------------------------------------------------------------
Operating Margin 23,279,585 22,464,921 22,030,795
- --------------------------------------------------------------------------------------------------
Operating Expenses:
Gas utilities:
Operations 7,583,583 8,049,833 8,056,211
Maintenance 1,432,203 1,462,764 1,868,280
Taxes - general 2,376,227 2,456,399 2,401,768
Taxes - income 1,100,506 857,964 963,895
Depreciation and amortization 2,806,278 2,533,912 2,294,447
Propane operations (including income taxes of
$326,206, $309,137 and $177,059 in 1998,
1997 and 1996, respectively) 3,263,762 2,700,626 2,410,890
- --------------------------------------------------------------------------------------------------
Total operating expenses 18,562,559 18,061,498 17,995,491
- --------------------------------------------------------------------------------------------------
Operating Earnings 4,717,026 4,403,423 4,035,304
- --------------------------------------------------------------------------------------------------
Other Income (Deductions):
Gas utilities, net 67,759 68,240 (20,931)
Propane operations, net 80,248 116,222 121,157
Taxes - income (42,443) (37,552) (22,486)
- --------------------------------------------------------------------------------------------------
Total other income (deductions) 105,564 146,910 77,740
- --------------------------------------------------------------------------------------------------
Earnings Before Interest Charges 4,822,590 4,550,333 4,113,044
- --------------------------------------------------------------------------------------------------
Interest Charges:
Gas utilities:
Long-term debt 1,550,734 1,740,998 1,621,661
Other 398,409 441,444 292,301
Propane operations 146,568 58,011 2,410
- --------------------------------------------------------------------------------------------------
Total interest charges 2,095,711 2,240,453 1,916,372
- --------------------------------------------------------------------------------------------------
Net Earnings $ 2,726,879 2,309,880 2,196,672
- --------------------------------------------------------------------------------------------------
Basic Earnings Per Share $ 1.60 1.54 1.51
- --------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding - Basic 1,701,048 1,503,388 1,455,999
- --------------------------------------------------------------------------------------------------
Diluted Earnings Per Share $ 1.60 1.53 1.51
- --------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding - Diluted 1,706,902 1,504,915 1,458,899
- --------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
Roanoke Gas Company
20
<PAGE>
Roanoke Gas Company and Subsidiaries
Consolidated Statements Of Stockholders' Equity
Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Capital In Total
Common Excess Of Retained Stockholders'
Stock Par Value Earnings Equity
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances, September 30, 1995 $ 7,162,560 4,149,584 6,243,028 17,555,172
Net earnings - - 2,196,672 2,196,672
Cash dividends ($1.02 per share) - - (1,491,077) (1,491,077)
Issuance of common stock (43,331 shares) 216,655 497,579 - 714,234
- -------------------------------------------------------------------------------------------------------
Balances, September 30, 1996 7,379,215 4,647,163 6,948,623 18,975,001
Net earnings - - 2,309,880 2,309,880
Cash dividends ($1.04 per share) - - (1,570,649) (1,570,649)
Issuance of common stock (51,643 shares) 258,215 624,504 - 882,719
- -------------------------------------------------------------------------------------------------------
Balances, September 30, 1997 7,637,430 5,271,667 7,687,854 20,596,951
Net earnings - - 2,726,879 2,726,879
Cash dividends ($1.06 per share) - - (1,831,377) (1,831,377)
Issuance of common stock (266,930 shares) 1,334,650 3,637,478 - 4,972,128
- -------------------------------------------------------------------------------------------------------
Balances, September 30, 1998 $ 8,972,080 8,909,145 8,583,356 26,464,581
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
1998 Annual Report
21
<PAGE>
Roanoke Gas Company and Subsidiaries
Consolidated Statements Of Cash Flows
Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 2,726,879 2,309,880 2,196,672
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,577,872 3,247,015 2,810,314
Loss (gain) on asset disposition 40,380 6,562 (4,202)
Write-off of regulatory assets - 132,523 -
Decrease (increase) in over/underrecovery of gas costs 1,857,286 1,195,133 (2,019,589)
Deferred taxes and investment tax credits (338,421) (681,937) 789,052
Other noncash items, net (284,466) 93,131 160,936
Changes in assets and liabilities which provided (used) cash:
Accounts receivable and customer deposits, net 1,109,365 (266,066) (346,566)
Inventories (542,149) (24,995) (2,054,592)
Prepaid income taxes and other current assets (735,672) 349,405 (596,257)
Accounts payable and accrued expenses 1,447,079 1,599,788 (902,462)
Refunds from suppliers - due customers (340,288) 401,995 (658,986)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 8,517,865 8,362,434 (625,680)
- -----------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Additions to utility plant and nonutility property (9,238,614) (8,052,801) (5,522,977)
Cost of removal of utility plant, net (70,949) (158,855) (423,221)
Proceeds from sales of assets 225,159 192,063 42,511
- ----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (9,084,404) (8,019,593) (5,903,687)
- ----------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt 3,356,000 - -
Retirement of long-term debt (2,878,124) (669,423) (1,179,415)
Net borrowings (repayments) under lines of credit (2,545,000) 476,500 8,598,000
Proceeds from issuance of common stock 4,601,069 882,719 714,234
Common stock issuance costs (246,647) - -
Cash dividends paid (1,752,767) (1,549,914) (1,473,025)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 534,531 (860,118) 6,659,794
- ----------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (32,008) (517,277) 130,427
Cash and Cash Equivalents, Beginning of Year 116,045 633,322 502,895
- ----------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 84,037 116,045 633,322
- ----------------------------------------------------------------------------------------------------------------
Supplemental Disclosures Of Cash Flows Information:
Cash paid during the year for:
Interest $ 2,148,861 2,065,893 1,493,801
- ----------------------------------------------------------------------------------------------------------------
Income taxes, net of refunds $ 2,512,897 1,575,952 1,148,319
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Noncash transactions:
The Company refinanced $9,300,000 of current installments of long-term
debt and borrowings under lines of credit as long-term debt in 1996.
The assets of a propane company were acquired in December 1997 in exchange
for 34,317 shares of stock for a total value of $617,706.
In June 1998, the Company refinanced the remaining balances of Series K
and Series L First Mortgage Bonds in the amount of $3,344,000 into a
First Mortgage Note due July 1, 2008.
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Roanoke Gas Company
22
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
Years Ended September 30, 1998, 1997 and 1996
(1) Summary Of Significant Accounting Policies
General
The consolidated financial statements include the accounts of Roanoke Gas
Company and its wholly owned subsidiaries (the "Company"), Bluefield Gas Company
and Diversified Energy Company, operating as Highland Propane Company and
Highland Gas Marketing. Roanoke Gas Company and Bluefield Gas Company are gas
utilities which distribute and sell natural gas to residential, commercial and
industrial customers within their service areas. Highland Propane Company
distributes and sells propane in southwestern Virginia and southern West
Virginia. Highland Gas Marketing brokers natural gas to several industrial
transportation customers of Roanoke Gas Company and Bluefield Gas Company.
The primary business of the Company is the distribution of natural gas to
residential, commercial and industrial customers in Roanoke, Virginia;
Bluefield, Virginia; Bluefield, West Virginia; and the surrounding areas. The
Company distributes natural gas to its customers at rates and charges regulated
by the State Corporation Commission in Virginia and the Public Service
Commission in West Virginia.
All significant intercompany transactions have been eliminated in
consolidation.
During 1998, 1997 and 1996, no single customer accounted for more than 5
percent of the Company's sales, and no account receivable from any customer
exceeded five percent of the Company's total accounts receivable at September
30, 1998 and 1997.
Regulation
The Company's regulated operations meet the criteria, and accordingly,
follow the accounting and reporting requirements of Statement of Financial
Accounting Standards ("SFAS") No. 71, Accounting for the Effects of Certain
Types of Regulation. The economic effects of regulation can result in regulated
companies recording costs that have been or are expected to be allowed in the
rate-setting process in a period different from the period in which the costs
would be charged to expense by an unregulated enterprise. When this results,
costs are deferred as assets in the consolidated balance sheet (regulatory
assets) and recorded as expenses as those same amounts are reflected in rates.
Additionally, regulators can impose liabilities upon a regulated company for
amounts previously collected from customers and for recovery of costs that are
expected to be incurred in the future (regulatory liabilities).
The amounts recorded by the Company as regulatory assets and regulatory
liabilities are as follows:
<TABLE>
<CAPTION>
September 30,
- --------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Regulatory Assets:
Early retirement incentive costs $ 20,520 33,481
Rate case costs 1,163 6,598
Underrecovery of gas costs - 587,457
Other 19,515 -
- --------------------------------------------------------------------------------------------------
Total Regulatory Assets $ 41,198 627,536
- --------------------------------------------------------------------------------------------------
Regulatory Liabilities:
Refunds from suppliers - due customers $ 85,572 425,860
Overrecovery of gas costs 1,269,829 -
- --------------------------------------------------------------------------------------------------
Total Regulatory Liabilities $ 1,355,401 425,860
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
During 1997, the Company wrote off regulatory assets totaling $132,523 upon
management's determination that, for rate-making purposes, recovery of these
costs in future revenues was no longer probable.
Utility Plant
Utility plant is stated at original cost. The cost of additions to utility
plant includes direct charges and overhead. The cost of depreciable property
retired, plus cost of removal, less salvage is charged to accumulated
depreciation. Maintenance, repairs, and minor renewals and betterments of
property are charged to operations.
Depreciation and Amortization
Provisions for depreciation are computed principally on composite
straight-line rates for financial statement purposes and on accelerated rates
for income tax purposes. Depreciation and amortization for financial statement
purposes are provided on annual composite rates ranging from 2 percent to 33
percent. The annual composite rates are determined by periodic depreciation
studies.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents.
1998 Annual Report
23
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
Years Ended September 30, 1998, 1997 and 1996
(1) Summary Of Significant Accounting Policies (continued)
Inventories
Inventories consist primarily of propane and natural gas, which are valued
at the lower of average cost or market.
Unbilled Revenues
The Company bills its natural gas customers on a monthly cycle basis,
although certain large industrial customers are billed at or near the end of
each month. The Company records revenue based on service rendered to the end of
the accounting period. The amounts of unbilled revenue receivable included in
accounts receivable on the consolidated balance sheets at September 30, 1998 and
1997 were $795,338 and $915,192, respectively.
Income Taxes
Income taxes are accounted for using the asset and liability method. Under
the asset and liability method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates in effect for the years in which those
temporary differences are expected to be recovered or settled. The Company and
its subsidiaries file a consolidated federal income tax return. Federal income
taxes have been provided by the Company on the basis of the separate company
income and deductions.
Bond Expenses
Bond expenses are being amortized over the lives of the bonds using the
bonds outstanding method.
Over/Underrecovery of Gas Costs
Pursuant to the provisions of the Company's Purchased Gas Adjustment (PGA)
clause, increases or decreases in gas costs are passed on to its customers.
Accordingly, the difference between actual costs incurred and costs recovered
through the application of the PGA is reflected as a net deferred charge or
credit. At the end of the deferral period, the balance of the net deferred
charge or credit is amortized over the next 12-month period as amounts are
reflected in customer billings.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per Share. SFAS No. 128 supersedes APB Opinion No. 15, Earnings
per Share, and specifies earnings per share (EPS) for entities with publicly
held common stock. Prior period EPS has been restated to conform to the new
statement.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Stock Options
On October 1, 1996, the Company adopted SFAS No. 123, Accounting for
Stock-Based Compensation (SFAS No. 123), which permits entities to recognize as
expense over the vesting period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 allows entities to continue to apply
the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees,
and provide pro forma net earnings and pro forma net earnings per share
disclosures for stock option grants, as if the fair-value-based method defined
in SFAS No. 123 had been applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provide the pro forma disclosures.
Reclassifications
Certain reclassifications were made to prior year balances to conform with
current year presentations.
Roanoke Gas Company
24
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
Years Ended September 30, 1998, 1997 and 1996
(2) Allowance For Doubtful Accounts
A summary of the changes in the allowance for doubtful accounts follows:
<TABLE>
<CAPTION>
Years Ended September 30,
- --------------------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balances, beginning of year $ 368,345 279,316 171,947
Provision for doubtful accounts 481,297 660,400 550,777
Recoveries of accounts written off 188,309 125,035 131,499
Accounts written off (835,299) (696,406) (574,907)
- --------------------------------------------------------------------------------------------------
Balances, end of year $ 202,652 368,345 279,316
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
(3) Borrowings Under Lines Of Credit A summary of short-term lines of credit
follows:
<TABLE>
<CAPTION>
September 30,
- --------------------------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Lines of credit $ 21,000,000 20,000,000
Outstanding balance 4,584,000 7,129,000
Highest month-end balances outstanding 12,929,000 15,896,000
Average month-end balances 5,280,000 8,098,000
Average rates of interest during year 6.19% 5.97%
Average rates of interest on balances outstanding 6.18% 6.14%
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
(4) Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30,
- --------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Roanoke Gas Company:
First Mortgage bonds, collateralized by utility plant:
Series K, 10%, due July 1, 2002, retired during 1998 $ - 1,350,000
Series L, 10.375%, due April 1, 2004, retired during 1998 - 2,328,000
Term debentures, collateralized by indenture dated
October 1, 1991, with provision for retirement in
varying annual payments through October 1, 2016 and
interest rates ranging from 6.75% to 9.625% 4,700,000 7,200,000
Unsecured senior notes payable, interest at 7.66%,
with provision for retirement of $1,600,000 for
each year beginning December 1, 2014 through 2018 8,000,000 8,000,000
Obligations under capital leases, due in aggregate
monthly payments of $3,076, including interest,
through August 1998 - 31,624
First Mortgage notes payable, interest fixed at
7.804% due July 1, 2008 5,000,000 -
- --------------------------------------------------------------------------------------------------
Bluefield Gas Company:
Unsecured installment loan, with interest rate based on
prime 8.75% at September 30, 1997, with provision for
retirement of $50,000 for each year and a final
payment of $12,500 on October 31, 1997 - 12,500
Unsecured note payable, interest at 7.28%, with provision
for retirement of $25,000 quarterly beginning
January 1, 2002 and a final payment of $1,125,000 on
October 1, 2003 1,300,000 1,300,000
- --------------------------------------------------------------------------------------------------
continued
</TABLE>
1998 Annual Report
25
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
Years Ended September 30, 1998, 1997 and 1996
(4) Long-term Debt (continued)
<TABLE>
<CAPTION>
September 30,
- --------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Highland Propane Company:
Unsecured note payable, interest at 7%, with provision
for retirement on December 31, 2007 $ 1,700,000 -
- --------------------------------------------------------------------------------------------------
Total long-term debt 20,700,000 20,222,124
Less current maturities - (3,143,124)
- --------------------------------------------------------------------------------------------------
Total long-term debt, excluding current maturities $20,700,000 17,079,000
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
The above debt obligations contain various provisions including a minimum
interest charge coverage ratio and limitations on debt as a percentage of total
capitalization. The obligations also contain a provision restricting the payment
of dividends, primarily based on the earnings of the Company and dividends
previously paid. At September 30, 1998, approximately $4,500,000 of retained
earnings were available for dividends.
The aggregate annual maturities of long-term debt, subsequent to September
30, 1998 are as follows:
Years Ending September 30,
- --------------------------------------------------------------------------------
2001 $ 775,000
2002 100,000
2003 2,125,000
Thereafter 17,700,000
- --------------------------------------------------------------------------------
Total $20,700,000
================================================================================
Roanoke Gas Company
26
<PAGE>
Roanoke Gas Company And Subsidiaries
Notes To Consolidated Financial Statements
Years Ended September 30, 1998, 1997 and 1996
(5) Income Taxes
The details of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
- ----------------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charged to operating expenses - gas utilities:
Current:
Federal $ 1,566,868 1,561,779 206,399
State 54,764 (15,946) (40,248)
- ----------------------------------------------------------------------------------------------------
Total current 1,621,632 1,545,833 166,151
- ----------------------------------------------------------------------------------------------------
Deferred:
Federal (447,054) (668,660) 777,772
State (34,638) 20,226 58,621
- ----------------------------------------------------------------------------------------------------
Total deferred (481,692) (648,434) 836,393
Investment tax credits, net (39,434) (39,435) (38,649)
Total charged to operating expenses - gas utilities 1,100,506 857,964 963,895
- ----------------------------------------------------------------------------------------------------
Charged to other operating expenses - propane operations:
Current 139,592 282,380 185,377
Deferred 186,614 26,757 (8,318)
- ----------------------------------------------------------------------------------------------------
Total charged to other operating expenses - propane operations 326,206 309,137 177,059
Charged to other income and deductions - gas utilities:
Current 46,353 37,892 22,860
Deferred (3,910) (340) (374)
- ----------------------------------------------------------------------------------------------------
Total charged to other income and deductions - gas utilities 42,443 37,552 22,486
- ----------------------------------------------------------------------------------------------------
Total income tax expense $ 1,469,155 1,204,653 1,163,440
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
Income tax expense for the years ended September 30, 1998, 1997 and 1996
differed from amounts computed by applying the U.S. Federal income tax rate of
34 percent to earnings before income taxes as a result of the following:
<TABLE>
<CAPTION>
Years Ended September 30,
- -------------------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings $ 2,726,879 2,309,880 2,196,672
Income tax expense 1,469,155 1,204,653 1,163,440
- -------------------------------------------------------------------------------------------------------
Earnings before income taxes $ 4,196,034 3,514,533 3,360,112
- -------------------------------------------------------------------------------------------------------
Computed "expected" income tax expense 1,426,652 1,194,941 1,142,438
Increase (reduction) in income tax expense
resulting from:
Amortization of deferred investment tax credits (39,434) (39,435) (38,649)
Other, net 81,937 49,147 59,651
- -------------------------------------------------------------------------------------------------------
Total income tax expense $ 1,469,155 1,204,653 1,163,440
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
1998 Annual Report
27
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
Years Ended September 30, 1998, 1997 and 1996
(5) Income Taxes (continued)
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
September 30,
- ---------------------------------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for uncollectibles $ 74,740 132,818
Accrued pension and medical benefits 909,898 803,852
Accrued vacation 172,707 173,731
Over/underrecovery of gas costs 430,529 (225,309)
Provision for rate refund - 176,972
Costs on gas held in storage 245,902 96,574
Other 35,112 48,357
- ---------------------------------------------------------------------------------------------------
Total gross deferred tax assets 1,868,888 1,206,995
- ---------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Utility plant basis differences 3,508,489 3,145,361
Other 349 571
- ---------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 3,508,838 3,145,932
- ---------------------------------------------------------------------------------------------------
Net deferred tax liability $ 1,639,950 1,938,937
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
Roanoke Gas Company
28
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
Years Ended September 30, 1998, 1997 and 1996
(6) Employee Benefit Plans
The Company has a defined benefit pension plan (the "Plan") covering
substantially all of its employees. The benefits are based on years of service
and employee compensation. Plan assets are invested principally in cash
equivalents and corporate stocks and bonds. Company contributions are intended
to provide not only for benefits attributed to date but also for those expected
to be earned in the future.
Pension expense includes the following components:
<TABLE>
<CAPTION>
Years Ended September 30,
- --------------------------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for the current year $ 157,705 142,467 148,465
Interest cost on the projected benefit obligation 444,696 419,474 397,458
Actual return on assets held in the plan (1,005,797) (1,030,919) (717,703)
Net amortization and deferral of unrecognized gains and losses 525,244 647,436 372,234
- --------------------------------------------------------------------------------------------------------
Net pension expense $ 121,848 178,458 200,454
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
The Plan's funded status is as follows:
<TABLE>
<CAPTION>
September 30,
- -----------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested $ (5,556,051) (4,285,717)
Nonvested (147,969) (143,901)
- -----------------------------------------------------------------------------------------------------
Accumulated benefit obligation (5,704,020) (4,429,618)
Effect of anticipated future compensation levels and other events (2,285,221) (1,510,433)
- -----------------------------------------------------------------------------------------------------
Projected benefit obligation (7,989,241) (5,940,051)
Fair value of assets held in the plan 7,069,755 6,324,249
- -----------------------------------------------------------------------------------------------------
Excess (deficiency) of plan assets over projected benefit obligation $ (919,486) 384,198
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
The excess (deficiency) of plan assets over the projected benefit
obligation consists of the following:
<TABLE>
<CAPTION>
September 30,
- ----------------------------------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net unrecognized gain due to past experience different than assumed $ 297,949 1,709,103
Unamortized transition liability (224,533) (329,977)
Unrecognized prior service cost (56,629) (75,503)
Accrued pension cost included in the consolidated balance sheet (936,273) (919,425)
- ----------------------------------------------------------------------------------------------------
Total $ 919,486 384,198
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 6.75 percent for 1998 and
7.75 percent for 1997 and 1996. The rates of increase in future compensation
levels used in determining the actuarial present value of the projected
obligation in 1998, 1997 and 1996 were 4 percent for compensation increases
through December 1996 and 5 percent for compensation increases thereafter. The
assumed long-term rate of return on assets was 8.5 percent for 1998, 1997 and
1996.
In addition to pension benefits, the Company has a postretirement benefits
plan which provides certain health care, supplemental retirement and life
insurance benefits to active and retired employees who meet specific age and
service requirements. The Plan is contributory. The Company has elected to fund
the Plan over future years. Approximately 74 percent of the consolidated annual
cost of the Plan is recovered from the Company's customers through rates.
1998 Annual Report
29
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
Years Ended September 30, 1998, 1997 and 1996
(6) Employee Benefit Plans (continued)
The following table presents the plan's funded status reconciled with the
amounts recognized in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
September 30,
- --------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees $ 3,141,831 2,846,193
Fully eligible active plan participants 964,981 712,308
Other active plan participants 1,662,990 1,262,063
- --------------------------------------------------------------------------------------------------
Total accumulated postretirement benefits obligation 5,769,802 4,820,564
Plan assets at fair value, principally cash equivalents and mutual
funds (1,164,820) (995,411)
- --------------------------------------------------------------------------------------------------
Accumulated postretirement benefits obligation in excess of plan
assets 4,604,982 3,825,153
Unrecognized net gain 216,562 938,540
Unrecognized transition obligation (3,559,500) (3,796,800)
- --------------------------------------------------------------------------------------------------
Postretirement benefits cost included in accrued expenses $ 1,262,044 966,893
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
Net periodic postretirement benefits cost includes the following components:
<TABLE>
<CAPTION>
Years Ended September 30,
- --------------------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for the current year $ 86,436 96,255 89,000
Interest cost on the accumulated postretirement
benefits obligation 362,179 325,036 363,000
Return on assets held in the plan (148,414) (89,542) (40,000)
Amortization of transition obligation 237,300 237,300 237,300
Net total of other components 61,882 (25,201) (16,000)
- --------------------------------------------------------------------------------------------------
Net periodic postretirement benefits cost $ 599,383 543,848 633,300
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefits obligation was 6.75 percent, 7.75 percent and 7.75
percent for 1998, 1997, and 1996, respectively.
For measurement purposes, 9 percent, 10 percent and 10.5 percent annual
rates of increase in the per capita cost of covered benefits (i.e., medical
trend rate) were assumed for 1998, 1997 and 1996, respectively; the rates were
assumed to decrease gradually to 5.25 percent by the year 2006 and remain at
that level thereafter. The medical trend rate assumption has a significant
effect on the amounts reported. For example, increasing the assumed medical cost
trend rate by one percentage point each year would increase the accumulated
postretirement benefits obligation as of September 30, 1998 by approximately
$682,946 or 12 percent, and the aggregate of the service and interest cost
components of net postretirement benefits cost by approximately $80,326, or 16
percent.
The Company also has a defined contribution plan covering all of its
employees who elect to participate. The Company made annual matching
contributions to the plan based on 70 percent in 1998 and 1997 and 50 percent in
1996 of the net participants' basic contributions (from 1 to 6 percent of their
total compensation). The annual cost of the plan was $206,766, $217,466 and
$134,188 for 1998, 1997 and 1996, respectively.
Roanoke Gas Company
30
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
Years Ended September 30, 1998, 1997 and 1996
(7) Common Stock Options
During 1996, the Company's stockholders approved the Roanoke Gas Company Key
Employee Stock Option Plan (the "Plan"). The Plan provides for the issuance of
common stock options to officers and certain other full-time salaried employees
to acquire a maximum of 50,000 shares of the Company's common stock. The Plan
requires each option's exercise price per share to equal the fair value of the
Company's common stock as of the date of grant.
The aggregate number of shares under option pursuant to the Roanoke Gas
Company Key Employee Stock Option Plan are as follows:
<TABLE>
<CAPTION>
Number Of Weighted Average Option Price
Shares Exercise Price Per Share
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding, September 30, 1996 13,000 $ 15.500
Options granted 21,500 16.875
- ----------------------------------------------------------------------------------------------------------
Options outstanding, September 30, 1997 34,500 16.357 $ 15.500-16.875
Options granted 15,500 20.625
Options exercised (13,000) 16.346
- ----------------------------------------------------------------------------------------------------------
Options outstanding, September 30, 1998 37,000 $ 18.149 $ 15.500-20.625
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Under the terms of the Plan, the options become exercisable six months
from the grant date and expire 10 years subsequent to the grant date. All
options outstanding were fully vested and exercisable at September 30, 1998 and
1997.
The per share weighted-average fair values of stock options granted during
1998, 1997 and 1996 were $2.85, $1.08 and $1.63, respectively, on the dates of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
Years Ended September 30,
- ----------------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected dividend yield 5.14% 5.78% 5.83%
Risk-free interest rate 4.33% 6.29% 6.44%
Expected volatility 21.00% 10.00% 42.00%
Expected life 10 years 10 years 10 years
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
The Company uses the intrinsic value method of APB Opinion No. 25 for
recognizing stock-based compensation in the consolidated financial statements.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under the provisions of SFAS No. 123, the
Company's 1998 net earnings and basic earnings per share would have been
$2,697,709 and $1.58; 1997 net earnings and basic earnings per share would have
been $2,278,093 and $1.52; and 1996 net earnings and basic earnings per share
would have been $2,182,681 and $1.50.
1998 Annual Report
31
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
Years Ended September 30, 1998, 1997 and 1996
(8) Related Party Transactions
Certain of the Company's directors render services or sell products to the
Company. The significant services relate to legal fees charged to the Company of
approximately $185,000, $182,000 and $69,000 in 1998, 1997 and 1996,
respectively. The products included natural gas purchases of approximately
$6,052,000, $3,052,000 and $1,950,000 in 1998, 1997 and 1996, respectively. It
is anticipated that similar services and products will be provided to the
Company in 1999.
(9) Environmental Matters
Both Roanoke Gas Company and Bluefield Gas Company operated manufactured
gas plants (MGPs) as a source of fuel for lighting and heating until the early
1950's. A by-product of operating MGPs was coal tar, and the potential exists
for on-site tar waste contaminants at the former plant sites. The extent of
contaminants at these sites, if any, is unknown at this time. An analysis of the
Bluefield Gas Company site indicates some soil contamination. The Company, with
concurrence of legal counsel, does not believe any events have occurred
requiring regulatory reporting. Further, the Company has not received any
notices of violation or liabilities associated with environmental regulations
related to the MGP sites and is not aware of any off-site contamination or
pollution as a result of prior operations. Therefore, the Company has no plans
for subsurface remediation at the MGP sites. Should the Company eventually be
required to remediate either site, the Company will pursue all prudent and
reasonable means to recover any related costs, including insurance claims and
regulatory approval for rate case recognition of expenses associated with any
work required. A stipulated rate case agreement between the Company and the West
Virginia Public Service Commission recognized the Company's right to defer MGP
cleanup costs at the Bluefield site, should any be incurred, and to seek rate
relief for such costs. If the Company eventually incurs costs associated with a
required cleanup of either MGP site, the Company anticipates recording a
regulatory asset for such cleanup costs to be recovered in future rates. Based
on anticipated regulatory actions and current practices, management believes
that any costs incurred related to this matter will not have a material effect
on the Company's financial condition.
(10) Commitments
The Company has short-term contracts with natural gas suppliers requiring
the purchase of approximately 4,420,000 dekatherms of natural gas at varying
prices during the period October 1, 1998 through September 30, 1999. In
addition, the Company has short-term contracts with propane suppliers requiring
the purchase of approximately 4,415,000 gallons of propane during the period
October 1, 1998 through September 30, 1999. Management does not anticipate that
these contracts will have a material impact on the Company's fiscal year 1999
consolidated results of operations.
(11) Fair Value Of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure of the estimated fair values of certain financial
instruments. SFAS No. 107 defines the fair value of a financial instrument as
the amount at which the instrument could be exchanged in a current transaction
between willing parties.
The carrying amount of cash and cash equivalents and borrowings under
lines of credit are a reasonable estimate of fair value due to their short-term
nature and because the rates of interest paid on borrowings under lines of
credit approximate market rates.
The fair value of long-term debt is estimated by discounting the future
cash flows of each issuance at rates currently offered to the Company for
similar debt instruments of comparable maturities. The carrying amounts and
approximate fair values are as follows:
<TABLE>
<CAPTION>
September 30,
- --------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------
Carrying Approximate Carrying Approximate
Amount Fair Value Amount Fair Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term debt 20,700,000 24,287,744 20,222,124 21,384,604
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
Judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates determined as of September
30, 1998 and 1997 are not necessarily indicative of the amounts the Company
could have realized in current market exchanges.
Roanoke Gas Company
32
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
Years Ended September 30, 1998, 1997 and 1996
(11) Fair Value Of Financial Instruments (continued)
Derivative and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, effective for
fiscal years beginning after June 15, 1999. SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
the recognition of all derivative instruments as assets or liabilities in the
Company's balance sheet and measurement of those instruments at fair value. The
accounting treatment of changes in fair value is dependent upon whether or not a
derivative instrument is designated as a hedge and if so, the type of hedge.
The Company has entered into certain arrangements for hedging the
price of natural gas and propane gas for the purpose of providing price
stability during the winter months. The Company has not fully analyzed the
impact of the provisions of SFAS No. 133 on the Company's financial statements.
(12) Quarterly Financial Information (Unaudited)
Quarterly financial data for the years ended September 30, 1998 and 1997
is summarized as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 20,796,021 21,750,333 8,982,316 7,858,422
- --------------------------------------------------------------------------------------------------
Operating earnings (loss) $ 2,071,945 2,662,581 153,192 (170,692)
- --------------------------------------------------------------------------------------------------
Net earnings (loss) $ 1,544,234 2,123,464 (281,216) (659,603)
Basic earnings (loss) per share $ 1.00 1.24 (.16) (.48)
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
<CAPTION>
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 22,412,424 24,580,783 9,894,442 8,160,177
- --------------------------------------------------------------------------------------------------
Operating earnings (loss) $ 1,840,530 2,394,999 261,537 (93,643)
- --------------------------------------------------------------------------------------------------
Net earnings (loss) $ 1,331,276 1,831,756 (247,734) (605,418)
Basic earnings (loss) per share $ .90 1.22 (.16) (.42)
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
The pattern of quarterly earnings is the result of the highly seasonal nature
of the business, as variations in weather conditions generally result in greater
earnings during the winter months.
1998 Annual Report
33
<PAGE>
Roanoke Gas Company and Subsidiaries
Summary Of Gas Sales And Statistics
Years Ended September 30,
<TABLE>
<CAPTION>
Revenues: 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Residential Sales $ 30,396,540 $ 32,595,261 $ 33,981,835 $ 25,078,211 $ 29,844,636
Commercial Sales 18,764,195 19,879,180 20,219,289 14,313,723 16,979,230
Interruptible Sales 695,279 3,892,301 4,569,766 3,513,181 5,607,002
Transportation Gas Sales 1,715,032 1,107,922 943,215 909,515 610,682
Backup Services 97,552 173,655 190,310 107,652 222,025
Late Payment Charges 156,634 157,369 135,838 115,130 194,156
Miscellaneous 31,820 36,493 27,154 24,325 67,576
Propane 7,530,040 7,205,645 5,703,466 4,549,410 4,670,550
- -------------------------------------------------------------------------------------------------------------------
Total $ 59,387,092 $ 65,047,826 $ 65,770,873 $ 48,611,147 $ 58,195,857
- -------------------------------------------------------------------------------------------------------------------
Net Income $ 2,726,879 $ 2,309,880 $ 2,196,672 $ 1,777,240 $ 1,677,098
- -------------------------------------------------------------------------------------------------------------------
MCF Delivered:
- -------------------------------------------------------------------------------------------------------------------
Residential 4,633,403 4,651,819 5,108,553 4,204,222 4,701,703
Commercial 3,228,452 3,230,714 3,385,962 2,834,884 2,981,888
Interruptible 172,270 959,146 1,088,921 1,240,658 1,521,663
Transportation Gas 2,822,856 1,933,236 1,549,854 1,660,504 1,022,892
Backup Service 18,500 29,130 36,658 21,609 38,892
- -------------------------------------------------------------------------------------------------------------------
Total 10,875,481 10,804,045 11,169,948 9,961,877 10,267,038
- -------------------------------------------------------------------------------------------------------------------
Gallons Delivered (Propane) 7,702,384 6,568,066 5,997,912 4,822,277 5,012,830
- -------------------------------------------------------------------------------------------------------------------
Heating Degree Days 4,054 4,298 4,696 3,791 4,416
- -------------------------------------------------------------------------------------------------------------------
Number Of Customers:
- -------------------------------------------------------------------------------------------------------------------
Residential 48,265 47,539 46,007 44,873 43,734
Commercial 5,272 5,181 5,043 4,896 4,767
Interruptible And Interruptible
Transportation Service 45 43 44 44 43
- -------------------------------------------------------------------------------------------------------------------
Total 53,582 52,763 51,094 49,813 48,544
- -------------------------------------------------------------------------------------------------------------------
Gas Account (MCF):
- -------------------------------------------------------------------------------------------------------------------
Natural Gas Purchases And Storage 11,316,714 11,406,613 11,756,089 10,453,696 10,795,928
Gas Made - Propane - - - - 14,008
- -------------------------------------------------------------------------------------------------------------------
Total Available 11,316,714 11,406,613 11,756,089 10,453,696 10,809,936
- -------------------------------------------------------------------------------------------------------------------
Natural Gas Deliveries 10,875,481 10,804,045 11,169,948 9,961,877 10,267,038
Storage - LNG 69,343 106,892 142,297 118,393 134,893
Company Use And Miscellaneous 37,998 49,444 54,140 46,532 50,356
System Loss 333,892 446,232 389,704 326,894 357,649
- -------------------------------------------------------------------------------------------------------------------
Total Gas Available 11,316,714 11,406,613 11,756,089 10,453,696 10,809,936
- -------------------------------------------------------------------------------------------------------------------
Total Assets $ 69,134,920 $ 62,593,258 $ 58,921,099 $ 51,614,667 $ 49,579,447
- -------------------------------------------------------------------------------------------------------------------
Long-Term Obligations $ 20,700,000 $ 17,079,000 $ 20,222,124 $ 17,504,047 $ 16,414,900
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Roanoke Gas Company
34
<PAGE>
Roanoke Gas Company and Subsidiaries
Summary Of Capitalization Statistics
Years Ended September 30,
<TABLE>
<CAPTION>
Common Stock: 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares Issued 1,794,416 1,527,486 1,475,843 1,432,512 1,382,343
Basic Earnings Per Share $1.60 $1.54 $1.51 $1.26 $1.25
Dividends Paid Per Share (Cash) $1.06 $1.04 $1.02 $1.00 $1.00
Dividends Paid Out Ratio 66.3% 67.5% 67.5% 79.4% 80.0%
Number Of Shareholders 1,836 1,853 1,713 1,699 1,625
- ------------------------------------------------------------------------------------------------------------
Capitalization Ratios:
- ------------------------------------------------------------------------------------------------------------
Long-Term Debt,
Including Current Installments 43.9 49.5 52.4 51.6 51.0
Stockholders' Equity 56.1 50.5 47.6 48.4 49.0
- ------------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0 100.0 100.0
- ------------------------------------------------------------------------------------------------------------
Long-Term Debt,
Including Current Installments $ 20,700,000 $ 20,222,124 $20,891,547 $ 18,683,462 $17,087,046
Stockholders' Equity 26,464,581 20,596,951 18,975,001 17,555,172 16,424,919
- ------------------------------------------------------------------------------------------------------------
Total Capitalization
Plus Current Installments $ 47,164,581 $ 40,819,075 $39,866,548 $ 36,238,634 $33,511,965
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
1998 Annual Report
35
<PAGE>
Roanoke Gas Company
Board Of Directors
Lynn D. Avis
Avis Construction Company
President
Abney S. Boxley III
W. W. Boxley Company
President
Frank T. Ellett
Virginia Truck Center, Inc.
President
Frank A. Farmer, Jr.
Chairman Of The Board
Wilbur L. Hazlegrove
Law Firm Of Woods, Rogers & Hazlegrove,
P.L.C. Member
J. Allen Layman
R & B Communications, Inc.
President & CEO
Thomas L. Robertson
Carilion Health System &
Carilion Medical Center
President
S. Frank Smith
Coastal Coal Co., L.L.C.
Vice President
John B. Williamson III
President & CEO
Officers
John B. Williamson III
President & CEO
Arthur L. Pendleton
Executive Vice President & COO
Roger L. Baumgardner
Vice President, Secretary & Treasurer
John S. D'Orazio
Vice President - Marketing & New Construction
Jane N. O'Keeffe
Assistant Vice President - Human Resources
J. David Anderson
Assistant Secretary & Assistant Treasurer
Bluefield Gas Company
Board of Directors
Roger L. Baumgardner
Roanoke Gas Company
Vice President, Secretary & Treasurer
Arthur L. Pendleton
Roanoke Gas Company
Executive Vice President & COO
John C. Shott
Paper Supply Company
President
Scott H. Shott
Paper Supply Company
Secretary & Treasurer
John B. Williamson III
Roanoke Gas Company
President & CEO
Officers
John B. Williamson III
President
John S. D'Orazio
Vice President - Marketing & New Construction
Arthur L. Pendleton
Vice President - Operations
Roger L. Baumgardner
Secretary & Treasurer
Diversified Energy Company
T/A Highland Propane Company & Highland Gas Marketing
Board of Directors
Roger L. Baumgardner
Roanoke Gas Company
Vice President, Secretary & Treasurer
Frank T. Ellett
Virginia Truck Center, Inc.
President
Arthur L. Pendleton
Roanoke Gas Company
Executive Vice President & COO
S. Frank Smith
Coastal Coal Co., L.L.C.
Vice President
John B. Williamson III
Roanoke Gas Company
President & CEO
Officers
John B. Williamson III
President
John S. D'Orazio
Vice President - Marketing & New Construction
Arthur L. Pendleton
Vice President - Operations
Roger L. Baumgardner
Secretary & Treasurer
36
Roanoke Gas Company
<PAGE>
Corporate Mission Statement
Roanoke Gas Company provides superior customer and stockholder value
by being the preferred choice for safe, dependable, efficient, economical energy
and services in the market it serves.
Corporate Information
Corporate Office
Roanoke Gas Company
519 Kimball Avenue, N.E.
P.O. Box 13007
Roanoke, VA 24030
(540) 777-4GAS (4427)
Fax (540) 777-2636
Auditors
Deloitte & Touche LLP
1100 Carillon
227 West Trade Street
Charlotte, NC 28202-1675
Common Stock Transfer Agent, Registrar,
Dividend Disbursing Agent & Dividend
Reinvestment Agent
First Union National Bank of North Carolina
First Union Customer Information Center
Corporate Trust Client Services NC-1153
1525 West W.T. Harris Boulevard - 3C3
Charlotte, NC 28288-1153
Common Stock
Roanoke Gas Company's common stock is listed on the Nasdaq National Market
under the trading symbol RGCO.
Direct Deposit Of Dividends &
Safekeeping Of Stock Certificates
Shareholders can have their cash dividends deposited automatically into
checking, saving or money market accounts. The shareholder's financial
institution must be a member of the Automated Clearing House. Also, Roanoke Gas
Company offers safekeeping of stock certificates for shares enrolled in the
dividend reinvestment plan. For more information about these shareholder
services, please contact the Transfer Agent, First Union National Bank of North
Carolina.
10-K Report
A copy of Roanoke Gas Company's latest annual report to the Securities and
Exchange Commission on Form 10-K will be provided without charge upon written
request to:
Roger L. Baumgardner
Vice President, Secretary & Treasurer
Roanoke Gas Company
P.O. Box 13007
Roanoke, VA 24030
Shareholder Inquiries
Questions concerning shareholder accounts, stock transfer requirements,
consolidation of accounts, lost stock certificates, safekeeping of stock
certificates, replacement of lost dividend checks, payment of dividends, direct
deposit of dividends, initial cash payments, optimal cash payments and name or
address changes should be directed to the Transfer Agent, First Union National
Bank. All other shareholder questions should be directed to:
Roger L. Baumgardner
Vice President, Secretary & Treasurer
Roanoke Gas Company
P.O. Box 13007
Roanoke, VA 24030
Financial Inquiries
All financial analysts and professional investment managers should direct
their questions and requests for financial information to:
Roger L. Baumgardner
Vice President, Secretary & Treasurer
Roanoke Gas Company
P.O. Box 13007
Roanoke, VA 24030
Access up-to-date information on Roanoke Gas Company and its subsidiaries at
www.roanokegas.com
<PAGE>
Notice Of Annual Meeting
The annual meeting of stockholders
of Roanoke Gas Company will be held
at the Executive Offices of the Company,
519 Kimball Avenue, N. E.,
Roanoke, Virginia at 9:00 a.m.,
Wednesday, March 31, 1999.
[Roanoke Gas Logo]
Your Choice for Comfort and Economy.
Transfer Agent and Dividend Disbursing Agent
First Union National Bank of North Carolina
First Union Customer Information Center
Corporate Trust Client Services NC-1153
1525 West W. T. Harris Boulevard - 3C3
Charlotte, North Carolina 28288-1153
1-800-829-8432
Roanoke Gas Company trades on Nasdaq as RGCO.
<PAGE>
Exhibit D-1(d)
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
AT RICHMOND, JANUARY 19, 1999
APPLICATION OF
CASE NO. PUA980035
ROANOKE GAS COMPANY
AND
COMMONWEALTH PUBLIC SERVICE
CORPORATION
For approval of transactions under
Chapters 4 and 5 of Title 56 of the
Code of Virginia
ORDER GRANTING APPROVAL
On October 21, 1999, Roanoke Gas Company ("Roanoke" and Commonwealth
Public Service Corporation ("Commonwealth"), collectively referred to as the
Applicants," filed an application with the Commission under the Public Utilities
Affiliates Act and the Utility Transfers Act. In the application, the Applicants
request approval to enter into certain transactions with their affiliates in
order to effect their merger, the reorganization of their corporate structure,
and the creation of a holding company.
Roanoke Gas Company is a Virginia public service company that provides
retail distribution and sale of natural gas to approximately 48,600 customers in
Roanoke, Virginia, and surrounding areas in Virginia. Bluefield Gas Company
("Bluefield") is a West Virginia public service company and is a wholly owned
subsidiary of Roanoke. Bluefield provides natural gas service to approximately
4,100 customers in and around Bluefield, West Virginia. Bluefield
1
<PAGE>
owns all of the issued and outstanding stock of Commonwealth Public Service
Corporation, a Virginia public service company that provides natural gas service
to approximately 925 customers in Bluefield, Virginia, and surrounding areas in
Virginia.
As described in the application, Roanoke owns 100% of the outstanding
common stock of Diversified Energy Company ("Diversified"), a Virginia
corporation that is not a public utility. Diversified is headquartered in
Roanoke, Virginia, and sells propane and propane related products. Diversified
serves approximately 10,500 active propane accounts in southwestern Virginia and
southern West Virginia.
Roanoke currently provides managerial and other services, labor, and
goods to Bluefield and Diversified under agreements approved by the Commission
in Case No. PUA860077 and approved by the West Virginia Commission.
RGC Resources, Inc. ("Resources"), a Virginia corporation, was
incorporated on July 31, 1998, for the purpose of accomplishing the proposed
merger and reorganization. Resources owns all of the outstanding common stock of
RGC Acquisition Corp. ("Acquisition"), a Virginia corporation formed on August
12, 1998, also for the purpose of accomplishing the proposed merger and
reorganization. Neither Resources nor Acquisition owns any utility assets or
engages in any business.
In the application filed by Roanoke and Commonwealth, authority is
requested for certain transactions under Chapters 4 and 5 of the Code of
Virginia in order to effect a merger with its affiliates and to reorganize the
corporate structure and create a holding company. Authority also is requested to
enter into certain affiliate agreements for the provision of certain services.
2
<PAGE>
Merger and Restructuring
As stated in the application, Roanoke and Commonwealth, together with
Bluefield, Diversified, Resources, and Acquisition, intend to accomplish the
proposed merger and reorganization by entering into an Agreement and Plan of
Merger and Reorganization whereby (1) Roanoke will be merged into Acquisition,
with Roanoke as the surviving corporation; (2) the common stock of Acquisition
owned by Resources will be converted into the new common stock of Roanoke; (3)
the outstanding shares of Roanoke common stock will be converted into the right
to receive, on a one-for-one basis, shares of Resources common stock on the
merger effective date; (4) Bluefield, by means of a noncash dividend, will
transfer to Roanoke all of the outstanding common stock of Commonwealth; (5)
Roanoke, by means of a non-cash dividend, will transfer to Resources all of the
outstanding common stock of Bluefield and Diversified; and (6) Commonwealth will
be merged into Roanoke Gas Company. Following the proposed merger and
reorganization, Roanoke, Bluefield, and Diversified will each be wholly owned
subsidiaries of Resources, and all of the outstanding common stock of Resources
will be owned by the former Roanoke Gas Company shareholders.
According to information contained in the application, Roanoke and
Resources have applied to the Securities and Exchange Commission (the "SEC") for
necessary approvals under Section 10 of the Public Utility Holding Company Act
of 1935 ("PUHCA"). Pursuant to 17 C.F.R.Section 250.2 under PUHCA, Resources
intends, upon consummation of the merger and reorganization, to file a claim of
exemption as a holding company under Section 3(a)( 1) of PUHCA, on the basis
that Resources and every public utility subsidiary thereof from which
3
<PAGE>
Resources derives, directly or indirectly, any material part of its income
are predominantly intrastate in character and carry on their business in
Virginia, the state in which Resources and every such material subsidiary are
organized. The attached exhibit shows the proposed merger and reorganization
with the present structure, proposed reorganization, and final configuration.
Affiliate Agreement between RGC Resources. Inc.. and Roanoke Gas Company
The Affiliate Agreement between RGC Resources, Inc., and Roanoke Gas
Company ("the Resources-Roanoke Agreement") will cover executive,
administrative, accounting, public relations, information systems, data
processing services, and other services provided by Roanoke to Resources.
Expenses of Resources incurred by it on behalf of Roanoke will be assigned to
Roanoke and recorded in accounting records of Roanoke. Expenses of Roanoke
incurred by it on behalf of Resources will be assigned to Resources and recorded
in Resources' accounting records. Roanoke will pay dividends to Resources based
on the dividend policy and capital structure targets set by the Board of
Directors of Roanoke. Either party may terminate the agreement with a sixty-day
notice to the other party.
Affiliate Agreement between Roanoke Gas Company and Bluefield Gas Company
The Affiliate Agreement between Roanoke Gas Company and Bluefield Gas
Company ("the Roanoke-Bluefield Agreement") will cover executive,
administrative, accounting, public relations, information systems, data
processing services, and other operational services provided by Roanoke to
Bluefield and administrative and operational services provided by Bluefield to
Roanoke. Expenses incurred by Roanoke on behalf of Bluefield that are
identifiable as directly assignable to Bluefield will be directly assigned to
Bluefield in the accounting records of' Roanoke and Bluefield. Expenses incurred
by Bluefield on behalf of Roanoke that are
4
<PAGE>
identifiable as directly assignable to Roanoke will be directly assigned to
Roanoke. Expenses incurred by Roanoke on behalf of Bluefield that are not
identifiable as directly assigned will be allocated to Bluefield according to
the schedule of cost allocations filed with the application. Expenses incurred
by Bluefield on behalf of Roanoke that are not identifiable as directly assigned
will be allocated to Roanoke according to the same schedule of cost allocations
previously mentioned. Either party may terminate the agreement with a sixty-day
notice to the other party.
Affiliate Agreement between Roanoke Gas Company and Diversified Energy Company
The Affiliate Agreement between Roanoke Gas Company and Diversified Energy
Company ("the Roanoke-Diversified Agreement") will cover executive,
administrative, accounting, public relations, information systems, data
processing services, and other operational services provided by Roanoke to
Diversified; and administrative and operational services provided by Diversified
to Roanoke. Expenses incurred by Roanoke on behalf of Diversified that are
identifiable as directly assignable to Diversified will be directly assigned to
Diversified in the accounting records of Roanoke and Diversified. Expenses
incurred by Diversified on behalf of Roanoke that are identifiable as directly
assignable to Roanoke will be directly assigned to Roanoke in the accounting'
records of Roanoke and Diversified. Expenses incurred by Roanoke on behalf of
Diversified that are not identifiable as directly assigned will be allocated to
Diversified in accordance with the schedule of allocations filed with the
application. Expenses incurred by Diversified on behalf of Roanoke that are not
identifiable as directly assigned will be allocated to Roanoke in accordance
with the same allocations schedule previously mentioned. Either party may
terminate the agreement with a sixty-day notice.
5
<PAGE>
In support of the restructuring, the Applicants state that the proposed
restructuring will be in the public interest because it will create a structure
that can more effectively address the increased competition in the energy
industry, refocus various utility activities, facilitate selective
diversification into non-utility businesses, afford further separation between
the utility and non-utility businesses, and provide for flexibility for
financing. The two primary reasons given in the application for restructuring
are to better position Roanoke to deal effectively with the competitive
environment developing within the energy industry and to best deploy
shareholders' capital both inside and outside of the utility industry. The
application further states that the objectives can most effectively be
accomplished through the restructuring. The restructuring provides the necessary
flexibility required to meet competitive challenges and to diversify while
further insulating the utility business from the risks of the non-utility
businesses by segregating the non-utility businesses into separate corporations
that will be direct subsidiaries of the holding company and not of Roanoke.
It is further stated in the application that because non-utility
businesses of the holding company will be conducted through separate
subsidiaries, any liabilities incurred -by those subsidiaries will not
constitute liabilities of the utility subsidiaries. As stated in the
application, the corporate separation also insures that all costs of a
particular non-utility subsidiary will be charged to that subsidiary and not
allocated to any utility subsidiary.
As indicated in the Transaction Summary filed with the application,
Roanoke and Commonwealth represent that adequate service to the public at just
and reasonable rates will not be impaired or jeopardized by the proposed merger
and reorganization.
6
<PAGE>
Customers of Roanoke and Commonwealth will see no change as a result of the
proposed transfer of control. The rates of Commonwealth will be combined with
the rates of Roanoke during the next Roanoke Gas Company rate case. Commonwealth
and Roanoke further represent that the direct benefits to customers of the
proposed merger and restructuring will be the result of economies of scale
through the elimination of separate rate filings, separate Actual Cost
Adjustment ("ACA") and Purchased Gas Adjustment ("PGA") filings, separate Annual
Information Filings, and improved gas purchasing power for the combined
companies. As further stated in the Transaction Summary, there will be no
immediate impact on rates and service, capital structure (except for the simple
merger of Roanoke and Commonwealth) or access to capital and financial markets.
It is further stated that in future rate cases, the restructuring will afford
continuing use of economies of scale and increased financial flexibility that
should result in lower rates and better service. Likewise, there should be no
immediate impacts on employee levels, facilities and other interests of the
Commonwealth of Virginia. However, as indicated by the Applicants, in the
long-term, the public interest will be served by permitting a strengthened
public utility to serve customers and by separating non-utility businesses and
permitting them increased flexibility.
Concerning the public interest aspect of the affiliate agreements, it is
stated in the application that all of the affiliate agreements discussed above
allow for economies of scale in the operation through shared management and
centralized facilities; therefore, they are in the public interest both in the
aggregate and individually. Given the nature of the services provided within the
scope of the proposed affiliate agreements, each affiliate will be providing and
purchasing services from its affiliate at cost. No profit other than return on
assets used will be
7
<PAGE>
included in cost. No services will be provided that are not already being
provided under previously existing affiliate agreements. In the Transaction
Summary filed with the application, it is represented that the regulated company
as a result of the proposed affiliate agreements will subsidize no unregulated
affiliate.
THE COMMISSION, upon consideration of the application and representation
of the Applicants and having been advised by its Staff, is of the opinion and
finds that the proposed merger and reorganization of the corporate structure of
Roanoke and its affiliates and the creation of the holding company, RGC
Resources, Inc., would neither impair nor jeopardize the provision of adequate
service to the public at just and reasonable rates by Roanoke and Commonwealth
and therefore should be approved.
The Commission is of the further opinion and finds that the
affiliate agreements proposed by the Applicants are in the public interest and
should be approved. However, the agreements contain a category of "other"
services. The Commission finds that its approval should be only for specific
categories of services described in each of the agreements and should not
include categories described as "other." In addition, the Commission notes that,
in the Resources-Roanoke Agreement, there is no provision as to -how charges to
Resources will be allocated to the benefiting subsidiaries, such as Roanoke.
Therefore, within sixty days after the date of this order, Roanoke should file
an application for approval of a proposed procedure for allocating such charges.
Furthermore, even though the majority of services provided under the
agreements would be appropriately priced at cost, certain services included in
the Roanoke-Diversified Agreement should be priced at the higher of cost or
market. Some services contained in the
8
<PAGE>
Roanoke-Diversified Agreement could conceivably be obtained from outside third
parties and, therefore, a market and a market price would exist. Such services
include customer billing services, credit and collection services, and
applications programming support services. For these services and any others for
which there might be market from which Diversified could purchase such services,
Roanoke should ascertain whether there is a market from which Diversified could
purchase such services. If so, Roanoke should compare such market prices to its
cost of providing services and charge Diversified the higher of the cost of
obtaining services from an outside party (the market) or Roanoke's cost. This
also would be the case in the Resources-Roanoke Agreement for services
benefiting Diversified exclusively and for which a market exists. Roanoke should
bear the burden, in any rate proceeding, to show that for any services provided
to or for the benefit of Diversified, for which there is a market price for such
services, Roanoke recovered the higher of cost or market. Accordingly,
IT IS ORDERED THAT:
1) Pursuant to Sections 56-89 and 56-90 of the Code of Virginia, Roanoke Gas
Company and Commonwealth Public Service Corporation are granted approval
of the proposed merger and reorganization of their corporate structure,
to include a holding company structure which would result in
Commonwealth merging into Roanoke and ceasing to exist and RGC
Resources, Inc., as the resulting holding company as described herein.
2) Pursuant to Sections 56-77 of the Code of Virginia, Roanoke Gas Company is
granted approval to enter into the affiliate agreements under the terms
and conditions and for the purposes as described herein, subject to
certain modifications.
9
<PAGE>
3) The approval granted herein shall include specific categories of
services described herein and shall not include any categories labeled
as "other."
4) Relative to the Roanoke-Diversified Agreement, certain services such as
customer billing services, credit and collection services, and
applications programming support services and any other services for
which a market might exist, Roanoke shall ascertain whether there is a
market from which Diversified could purchase such services. If so,
Roanoke shall compare such market prices to its cost of providing
services and charge Diversified the higher of the cost for obtaining
services from an outside party (the market) or Roanoke's cost.
5) Relative to the Resources-Roanoke Agreement, for any services benefiting
Diversified, and for which there is a market, such pricing shall be at
the higher of cost or market.
6) Roanoke Gas Company shall bear the burden, in any further rate
proceeding, to show that for any services provided to or for the benefit
of Diversified, for which there was a market at the time the service was
provided and therefore a market price for such services, Roanoke
recovered the higher of cost or market.
7) Should there be any changes in the terms and conditions of the affiliate
agreements from those contained herein, Commission approval shall be
required for such changes.
8) The approvals granted herein pursuant to Sections 56-77 of the Code of
Virginia shall not preclude the Commission from exercising the
provisions of Sections 56-78 and 56-80 of the Code of Virginia hereafter.
9) The approvals granted herein shall have no ratemaking implications.
10
<PAGE>
10) The Annual Information Filing requirements will remain the same for
Roanoke and Commonwealth until Roanoke files a rate case reflecting the
merger as approved by the Commission.
11) The Commission reserves the right, pursuant to Sections 56-79 of the Code
of Virginia, to examine the books and records of any affiliate of Roanoke
Gas Company in connection with the approvals granted herein pursuant to
Sections 56-77 of the Code of Virginia whether or not such affiliate is
regulated by the Commission.
12) Within sixty days from the date of this Order, Roanoke shall file an
application with the Commission for approval of an amendment to the
Resources-Roanoke Agreement to include a provision for allocating
charges back to subsidiaries.
13) The Applicants shall file a report of the action taken pursuant to the
approval granted herein under the Utility Transfers Act with the
Commission by no later than April 30, 1999, subject to extension by the
Director of Public Utility Accounting of the Commission. Such report
shall include the date the merger and reorganization were consummated,
the total number of shares of stock converted and the price per share
following the merger, and a final organization chart -showing the actual
post-reorganization structure.
14) Roanoke shall file a report with the Director of Public Utility
Accounting of the Commission on or before May I of each year, the first
of which shall be due on or before May 1, 1999, subject to extension by
the Director of Public Utility Accounting of the Commission. Such report
shall show services provided to and by Roanoke and charges for such
services for the preceding calendar year. The report shall include all
transactions
11
<PAGE>
with affiliates, and this requirement shall supersede all affiliate
reporting requirements previously ordered.
15) This matter shall be continued generally subject to the continuing review,
audit, and appropriate directive of the Commission.
AN ATTESTED COPY hereof shall be sent to Michael J. Quinan, Esquire,
Woods, Rogers & Hazlegrove, 823 East Main Street, Suite 1200, Richmond, VA
23219; and delivered to the Commission's Division's of Public Utility
Accounting, Energy Regulation, and Economics and Finance.
s/Joel H. Peck
Clerk of the
State corporation Commission
12
<PAGE>
Exhibit D-1(e)
PUBLIC SERVICE COMMISSION
OF WEST VIRGINIA
CHARLESTON
Entered: January 7, 1999
Final: January 18, 1999
CASE NO. 98-1304-G-PC
BLUEFIELD GAS COMPANY
Petition for approval of transactions
under West Virginia Code Section 24-2-12.
RECOMMENDED DECISION
On October 21, 1998, Bluefield Gas Company (Bluefield), a corporation,
filed a petition with the Public Service Commission, seeking approval under West
Virginia Code (Code) Section 24-2-12 to contract with affiliated companies in
order to create a utility holding company and to reorganize and restructure
Bluefield's assets and operations by transferring them to the utility holding
company.
On November 13, 1998, Staff Attorney C. Terry Owen, Esquire, filed the
Initial Joint Staff Memorandum in this proceeding, indicating that, once
Commission Staff had reviewed this matter, it would submit a recommendation.
On November 23, 1998, the Commission entered its Commission Referral
Order in this proceeding, referring this case to the Division of Administrative
Law Judges for decision on or before May 10, 1999.
On December 2, 1998, Staff Attorney Owen filed the Final Joint Staff
Memorandum in this proceeding, attaching the November 17, 1998 Final Staff
Memorandum from Utilities Analyst II Michael E. Dailey, Utilities Division.
Together, these Memoranda comprise Commission Staff's final recommendation.
Commission Staff reported that, currently, Roanoke Gas Company (Roanoke)
owns the following affiliated corporations: Diversified Energy Company (DEC);
Bluefield; and RGC Resources, Inc. (RGCR). In turn, Bluefield owns an affiliated
corporation, RGC Acquisitions, Inc. After reorganizing, RGCR will own Roanoke,
Bluefield and DEC. Commission Staff opined that approving the petition would
benefit the public interest because the reorganized corporate structure would
more effectively address increased competition in the energy industry, refocus
various utility activities, facilitate selective diversification into
non-utility businesses, afford further separation among the utility and the
non-utility businesses and afford greater flexibility for financing. Since the
non-utility activities will be conducted by separate
<PAGE>
subsidiaries, any liabilities incurred by those affiliates would not constitute
liability for the utility subsidiaries. The proposed separation also insures
against allocation of non-utility costs to any utility subsidiary. The
transaction involves approval of three agreements between Bluefield and its
affiliates, Roanoke, DEC and RGCR. The transaction also includes Bluefield's
transfer by a non-cash dividend of all of CPSC's common stock to Roanoke and
Roanoke's transfer to RGCR by means of a non-cash dividend of all of Bluefield's
and CPSC's common stock. Commission Staff opined that all of the proposed
transactions are reasonable and do not adversely affect the public or jeopardize
Bluefield's ability to provide reasonably adequate and efficient public natural
gas service at just and reasonable rates.
Commission Staff recommended that the Commission approve the petition
without approving the specific terms of the agreements and without a hearing,
provided that no substantial protests are filed after proper publication.
Commission Staff reserved its right, in the future ratemaking proceedings, to
challenge any adverse impact the proposed corporate restructuring may have on
Bluefield's customers.
On December 7, 1998, Bluefield filed a letter accepting Commission
Staff's recommendation, except to opine thath public notice is not required.
Bluefield expressed a desire that the Commission conclude this matter by January
15, 1999. Bluefield requested that the Commission expedite this matter.
Due to intervening holidays and the death of the ALJ's mother, the ALJ
was not aware of Bluefield's request to expedite this matter until recently.
DISCUSSION
The ALJ has considered all of the above, and, since no dispute remains
to be resolved in this proceeding, the ALJ will consider the parties to have
waived their rights under Code Section 24-1-9(b) to file proposed findings of
fact and conclusions of law, or briefs, in this proceeding, or to a hearing.
Commission Staff has recommended that the public should be notified of
the proposed corporate reorganization. Bluefield has argued that no public
notice is required. Code Section 247-2-12 is a broad statute which requires
public utilities to obtain prior Commission approval before taking certain
actions. In particular, Code Section 24-2-12(g) provides that no person or
corporation may acquire a majority of the common stock of a public utility
without first obtaining Commission approval.
Code Section 24-2-12 does not prescribe public notice for transferring
the controlling interest of a public utility; it only prescribes prior
Commission approval. Absent controlling case law to the contrary, the ALJ holds
that the Petitioner does not have to give public notice in the instant case. The
ALJ believes that to require public notice in the instant case would be
time-consuming and expensive for the Petitioner, without serving any compelling
public interest.
<PAGE>
The Commission, as a matter of course, routinely utilizes the provisions
of Code Section 24-2-12 to effectuate many significant transactions by and among
public utilities, including very large public utilities, without requiring the
utilities to give public notice, e.g., to enter into contracts to operate other
utilities; to purchase, lease or in any other manner acquire control, direct or
indirect, over the franchises, licenses, permits, plants, equipment, business or
other property of another utility; to assign, transfer, lease, sell or otherwise
dispose of franchises, licenses, permits, plants, equipment, business or other
property; to consolidate or merge the franchises, licenses, permits, plants,
equipment, business or other properties of one utility with another; and to
purchase, acquire, take or receive corporate stock, bonds or indebtedness of
another public utility. Also included within Code Section 24-2-12 is
authorization, with prior Commission approval, for utilities to enter into
contracts with affiliates for management, construction, engineering, supply or
financial services; however, Code Section 5G-1-1, et seq. may govern notice
requirements for entering into engineering contracts. No such notice
requirements exist for the transaction proposed in the instant case.
As the ALJ understands Commission Staff's position in this matter,
Commission Staff does not oppose the proposed stock transfer and corporate
reorganization; rather, it merely believes that, prior to the Commission
authorizing the stock transfer, the Commission should provide notice to the
public and an opportunity for any Protestants to be heard. The ALJ does not
believe that the proposed stock transfer materially affects the public in any
fashion.
For all the reasons discussed above, the ALJ will grant the petition
without requiring public notice and without a hearing. As recommended by
Commission Staff, the ALJ will not specifically approve the terms and conditions
of the agreements, and the ALJ will reserve to Commission Staff the right to
challenge in future ratemaking proceedings any adverse impact the restructuring
may have on Bluefield's customers.
FINDINGS OF FACT
1. Bluefield filed a petition with the Commission, pursuant to Code
Section 24-2- 12(g), requesting that the Commission permit it to enter into
certain agreements with affiliate corporations in order to create a separate
utility holding company and to reorganize the corporate structure of Bluefield's
corporate affiliates under the ownership of the holding company. (See, Petition,
filed October 21, 1998).
2. Bluefield also requested that the Commission waive the requirement,
if any, that it publish a notice of the proposed acquisition and transfer. (See,
Letter, filed December 7, 1998).
3. Roanoke currently owns the following affiliated corporations:
Diversified Energy Company; Bluefield; and RGC Resources, Inc. In turn,
Bluefield owns an affiliated corporation, Commonwealth Public Service
Corporation, and RGC R owns an affiliated corporation, RGC Acquisitions, Inc.
After reorganizing, RGCR will own Roanoke, Bluefield and DEC. (See, Final Joint
Staff Memorandum, with attachment, filed December 2, 1998).
<PAGE>
4. Commission Staff opined that approving the petition would benefit the
public interest because the reorganized corporate structure would more
effectively address increased competition in the energy industry, refocus
various utility activities, facilitate selective diversification into
non-utility businesses, afford further separation among the utility and the
non-utility business and afford greater flexibility for financing. (See, Final
Joint Staff Memorandum, with attachment, filed December 2, 1998).
5. Any liabilities incurred by those affiliates would not constitute
liability for the utility subsidiaries. (See, Final Joint Staff Memorandum, with
attachment, filed December 2, 1998).
6. The proposed separation also insures against allocation of
non-utility costs to any utility subsidiary. (See, Final Joint Staff Memorandum,
with attachment, filed December 2, 1998.)
7. The transaction involves approval of three agreements between
Bluefield and its affiliates, Roanoke, DEC and RGCR. The transaction also
includes Bluefield's transfer by a non-cash dividend of all of CPSC's common
stock to Roanoke and Roanoke's transfer to RGCR by means of a non-cash dividend
of all of Bluefield's and CPSC's common stock. (See, Final Joint Staff
Memorandum, with attachment, filed December 2, 1998).
8. Commission Staff opined that all of the proposed transactions are
reasonable and do not adversely affect the public or jeopardize Bluefield's
ability to provide reasonably adequate and efficient public natural gas service
at just and reasonable rates.
9. Commission Staff recommended that the Commission approve the petition
without approving the specific terms of the agreements and without a hearing,
provided that no substantial protests are filed after proper publication.
Commission Staff reserved its right in future ratemaking proceedings, to
challenge any adverse impact the proposed corporate restructuring may have on
Bluefield's customers. (See, Final Joint Staff Memorandum, with attachment,
filed December 2, 1998).
CONCLUSIONS OF LAW
1. Code Section 24-2-12(g) provides that no person or corporation may
acquire a majority of the common stock of a public utility without first
obtaining Commission approval.
2. Code Section 24-2-12 does not prescribe public notice for
transferring the controlling interest of a public utility; it only prescribes
prior Commission approval. Absent controlling case law to the contrary, the ALJ
holds that the Petitioner does not have to give public notice in the instant
case.
3. Requiring public notice in the instant case would be time-consuming
and
<PAGE>
expensive for the Petitioner, without serving any compelling public interest.
4. For all the reasons set forth in Finding of Fact Nos. 2 through 9,
and Conclusion of Law Nos. 1, 2 and 3, it is reasonable to waive public notice
requirements, if any, and to grant the petition without a hearing.
ORDER
IT IS THEREFORE, ORDERED that the petition filed with the Commission on
October 21, 1998, by Bluefield Gas Company, seeking approval under Code Section
24-2-12 to contract withy affiliated companies in order to create a utility
holding company and to reorganize and restructure Bluefield's assets and
operations by transferring them to the utility holding company, i.e., RGC
Resources, Inc. be, and it hereby is granted, without a hearing and without
requiring Bluefield to publish a notice.
IT IS FURTHER ORDERED that Commission Staff may assert its right, in
future ratemaking proceedings, to challenge any adverse impact the proposed
corporate restructuring may have on Bluefield's customers.
The Executive Secretary hereby is ordered to serve a copy of this
Recommended Decision upon the Commission by hand delivery, and upon all parties
of record by United States Certified Mail, return receipt requested.
Leave hereby is granted to the parties to file written exceptions
supported by a brief with the Executive Secretary of the Commission within
fifteen (15) days of the date this Recommended Decision is mailed. If exceptions
are filed, the parties filing exceptions shall certify to the Executive
Secretary that all parties of record have been served said exceptions.
If no exceptions are so filed this Recommended Decision shall become the
order of the Commission, without further action or order, five (5) days
following the expiration of the aforesaid fifteen (15) day time period, unless
it is ordered stayed or postponed by the Commission.
Any party may request waiver of the right to file exceptions to an
Administrative Law Judge's recommended decision by filing an appropriate
petition in writing with the Executive Secretary. No such waiver will be
effective until approved by order of the Commission, nor shall any such waiver
operate to make any Administrative Law Judge's recommended decision the order of
the Commission sooner than five (5) days after approval of such waiver by the
Commission.
s/Ronnie Z. McCann
Ronnie Z. McCann
Deputy Chief Administrative Law Judge
<PAGE>
Exhibit H-5
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
TO FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998 Commission file number 0-367
ROANOKE GAS COMPANY
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-0359895
- ------------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
519 Kimball Ave., N.E., Roanoke, VA 24016
- ----------------------------------------- ---------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (540) 777-4427
----------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
- ---------------------------------- ---------------------------------
OTC (Nasdaq
Common Stock, $5 Par Value National Market)
- ---------------------------------- ---------------------------------
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 (Section 229.405 of this chapter) 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. [ ]
<PAGE>
State the aggregate market value of the voting stock held by nonaffiliates
of the registrant as of January 20, 1999. $36,100,120
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Class Outstanding at January 20, 1999
- -------------------------------------- -------------------------------------
COMMON STOCK, $5 PAR VALUE 1,805,006 SHARES
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Roanoke Gas Company 1998 Annual Report to Shareholders are
incorporated by reference into Parts II and IV hereof.
<PAGE>
PART I
Item 1. Business.
Historical Development
Roanoke Gas Company ("Roanoke Gas") was organized as a public service
corporation under the laws of the Commonwealth of Virginia in 1912.
The principal service of Roanoke Gas was, and continues to be, the
distribution and sale of natural gas. Commencing in 1972, the
distribution and sale of propane gas was added to Roanoke Gas' line
of business. The propane business was transferred to Diversified
Energy Company, d/b/a Highland Propane Company ("Diversified"), in
January 1979. Diversified, which is not a public utility, distributes
and sells propane in Southwestern Virginia and Southern West
Virginia.
On May 15, 1987, Roanoke Gas, through a series of merger
transactions, acquired 100 percent of the outstanding stock of
Bluefield Gas Company ("Bluefield"), a public service corporation,
organized in 1944 under the laws of the State of West Virginia and
principally engaged in the distribution of natural gas in Bluefield,
West Virginia and surrounding areas, and Gas Service, Inc. ("Gas
Service"), a nonpublic utility affiliate (through common directors
and shareholders) of Bluefield, which was engaged in the sale of
propane in southwestern Virginia and southern West Virginia. After
obtaining requisite shareholder approval and the approvals of the
Virginia State Corporation Commission ("Virginia Commission") and the
West Virginia Public Service Commission ("West Virginia Commission"),
Gas Service was merged into Diversified, and Bluefield became a
wholly-owned subsidiary of Roanoke Gas. Bluefield owns all of the
issued and outstanding stock of Commonwealth Public Service
Corporation ("Commonwealth"), a small Virginia public service
corporation organized in 1930 as the subsidiary of a predecessor
corporation to Bluefield.
In March 1994, the Highland Gas Marketing division of Diversified was
established to broker natural gas to several industrial
transportation customers of Roanoke Gas and Bluefield Gas.
On September 28, 1998, Roanoke Gas' Board of Directors approved a
proposal to reorganize Roanoke Gas into a holding company structure
in which Roanoke Gas shareholders would become shareholders of a new
holding company called RGC Resources, Inc. ("Resources"). As a result
of the reorganization: (i) Resources would become a holding company
owned by the former shareholders of Roanoke Gas; (ii) Resources would
become the sole owner of the stock of Roanoke Gas, Bluefield and
Diversified; (iii) Commonwealth's natural gas distribution business
would be merged into Roanoke Gas; (iv) Roanoke Gas and Bluefield
would continue to carry
3
<PAGE>
Item 1. Business. (continued)
Historical Development (continued)
on a natural gas distribution business as a subsidiary of Resources;
and (v) Diversified would continue to carry on its nonutility propane
business as a subsidiary of Resources.
On October 16, 1998, Roanoke Gas and Resources have filed a joint
application with the Securities and Exchange Commission requesting
approval of the reorganization under Section 10 of the Federal Public
Utility Holding Company Act of 1935. Resources intends, upon
consummation and reorganization to file a claim of exemption from all
provisions of that Act (except with respect to certain acquisitions
and investments) on the basis that Resources and its material public
utility subsidiaries are predominantly intrastate in character. Both
the Virginia Commission and the West Virginia Commission must approve
or consent to the reorganization. On October 21, 1998, the Company
filed with the Virginia and West Virginia Commissions applications
for authorization to undertake the holding company restructuring. The
Company has since received authorizations from both the Virginia and
West Virginia Commissions. The reorganization also requires the
approval of more than two-thirds of the outstanding shares of Roanoke
Gas common stock. There can be no assurance that Roanoke Gas and
Resources will obtain all required regulatory or other approvals, or
that such approvals will be granted on terms acceptable to Roanoke
Gas. Detailed information regarding the proposed reorganization is
set out in Roanoke Gas' Proxy Statement for its 1999 Annual Meeting
of Shareholders.
Forward-Looking Statements
From time to time, Roanoke Gas and its subsidiaries (together, the
"Company") may publish forward-looking statements relating to such
matters as anticipated financial performance, business prospects,
technological developments, new products, research and development
activities and similar matters. The Private Securities Litigation
Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, the
Company notes that a variety of factors could cause the Company's
actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may
affect the operations, performance, development and results of the
Company's business include the following: (i) obtaining adequate rate
relief from regulatory authorities on a timely basis; (ii) earning an
adequate return on invested capital; (iii) increasing expenses and
labor costs and availability; (iv) price competition from alternate
fuels; (v) volatility in the price of natural gas and propane; (vi)
some uncertainty in the
4
<PAGE>
Item 1. Business. (continued)
Forward-Looking Statements (continued)
projected rate of growth of natural gas and propane requirements in
the Company's service area; (vii) general economic conditions both
locally and nationally; and (viii) developments in electricity and
natural gas deregulation and associated industry restructuring. In
addition, the Company's business is seasonal in character and
strongly influenced by weather conditions. Extreme changes in winter
heating degree days from the normal or mean can have significant
short-term impacts on revenues and gross margin. Management of the
Company believes that the Company has the resources to deal
successfully with these issues.
Services
The Company maintains an integrated natural gas distribution system.
Natural gas is purchased from suppliers and distributed to
residential, commercial and large industrial users through
underground mains and services. Approximately 90.1 percent of the
Company's customers are residential, approximately 9.8 percent are
small commercial users, and the remaining percentage is made up of
large industrial customers, who received approximately 28 percent of
the Company's total annual delivered volume in 1998 under the
Company's interruptible tariff and transportation gas services.
The Company's natural gas distribution business accounted for
approximately 87 percent of the total revenues generated by the
Company in fiscal 1998, and approximately 89 percent and
approximately 91 percent of the Company's total revenues in fiscals
1997 and 1996, respectively. The Company's revenues are affected by
the cost of natural gas, economic conditions in the areas that the
Company serves and weather conditions. Higher gas costs, which the
Company is generally able to pass through to customers, may cause
customers to conserve, or in the case of industrial customers, to use
alternative energy sources. In recent years, regulatory changes at
the federal level and excess supply in the natural gas industry
have led to a national spot market for natural gas and an increase
in the number of suppliers of natural gas.
The Company's retail sales are seasonal and temperature-sensitive as
the majority of the gas sold by the Company is used for heating. For
the fiscal year ended September 30, 1998, more than 53 percent of the
Company's total MCF of natural gas sales were made in the four-month
period of December through March. Retail gas deliveries for fiscal
1998 were 10,875,481 MCF, as compared to 10,804,045 MCF and
11,169,948 MCF in fiscals 1997 and 1996, respectively. The Company's
actual heating degree days in fiscal 1998 were approximately 96
percent of normal, as compared with
5
<PAGE>
Item 1. Business. (continued)
Services (continued)
approximately 102 percent of normal in fiscal 1997 and approximately
111 percent of normal in fiscal 1996.
Suppliers
Effective November 1, 1993, the natural gas transportation pipelines
supplying the Company, including Columbia Gas Transmission
Corporation and Columbia Gulf Transmission Corporation (together
"Columbia") and East Tennessee Natural Gas Company and Tennessee Gas
Pipeline (together "East Tennessee"), have operated under Federal
Energy Regulatory Commission ("FERC") Order 636. Order 636 was the
start of a new era in the natural gas industry when the
responsibility of gas supply procurement and management was shifted
from the pipeline companies to the local distribution companies and
to other "shippers" of natural gas.
The cornerstone of Order 636 was the "unbundling" of pipeline
services to provide a number of choices to shippers. The pipelines
retained the responsibility of transporting contracted firm volumes
for their shippers but are no longer responsible for obtaining the
natural gas supplies. The Company now chooses who it buys its gas
from, how much storage gas to purchase, how much transportation
capacity to keep and how much to release. The Company constantly
monitors its gas requirements to minimize exposure to pipeline
penalties for insufficient supplies or excessive gas injections. The
Company's "shipper" responsibilities bring increased scrutiny from
the state commissions as they monitor the Company's gas purchasing
practices to assure that a "least cost with adequate reliability"
policy is followed. Accordingly, the Company has worked diligently to
ensure that its customers will have an economical and reliable gas
supply. Management believes the relationships the Company has built
with its suppliers as it constructed a supply portfolio will allow it
to continue to attain this goal.
The post Order 636 function of the pipelines is simply to transport
natural gas volumes for their shippers in a safe and efficient
manner. The pipelines issue restrictions on secondary receipt and
delivery points during periods of heavy demand that may affect the
gas supply economics. The pipelines retained the responsibilities for
transportation, title tracking, and measurement o natural gas
deliveries.
The Company currently uses long-term (multi-year), mid-term
(seasonal) and short-term (spot) gas purchases to meet its system
requirements. The Company has entered into, or is in the process of
entering into, long-term and mid-term firm supply agreements to cover
the majority of its firm demand. Long-term and mid-term
6
<PAGE>
Item 1. Business. (continued)
Suppliers (continued)
suppliers currently include Amoco Energy Trading, Columbia Energy
Services, Cabot Oil and Gas, Coral Energy, Engage Energy and Southern
Company Energy Marketing.
The Company's firm supply agreements may supply up to 9,691,000 DTH
of natural gas at varying prices during the period October 1, 1998
through September 30, 1999.
With the growth of the spot gas market, gas prices have developed a
pronounced seasonal pattern, with summer to winter price swings of
100 percent or more. The Company tries to take advantage of this
opportunity by injecting lower-priced summer gas into its liquefied
natural gas storage facility, which is capable of storing up to
220,000 DTH for use during peak winter periods. In addition, the
Company has contracted for storage reserves from Columbia, Tennessee
Gas pipeline and Virginia Gas Storage Company, with a combined total
of 2,738,631 DTH of underground storage capacity for Roanoke and
Bluefield. These reserves were available for summer 1998 storage
injections using spot market supply. This storage capacity provides
supply security with reduced exposure to potential supply
interruptions. It also offers the Company the flexibility to balance
supply with its highly variable, weather-sensitive customer
consumption patterns. In addition, the Company participates in
pipeline capacity release programs to further minimize the cost of
firm service to its customers by reselling pipeline capacity not
needed during the warmer months.
Columbia continues to be the Company's primary transporter of natural
gas. Columbia historically has delivered approximately two-thirds of
Roanoke Gas' gas supply and 100 percent of Bluefield's gas supply.
The Company currently has another pipeline connection under
construction to serve the Bluefield location. East Tennessee
continues to be the Company's other major source of supply.
Historically, East Tennessee has delivered approximately one-third of
the Company's natural gas supply to the Roanoke location. The rates
paid for natural gas transportation and storage services purchased
from Columbia and East Tennessee are established by tariffs approved
by the FERC. These tariffs contain flexible pricing provisions,
which, in some instances, authorize these suppliers to reduce rates
and charges to meet price competition.
Having two major pipeline transporters, a shaving facility and a
number of underground storage options, the Company believes that it
is well positioned to provide adequate gas supply for future customer
growth. The Company has been, and intends to continue to be, flexible
and creative as it markets its own transportation
7
<PAGE>
Item 1. Business. (continued)
Suppliers (continued)
capacity and makes its gas purchasing decisions. The Company believes
that Order 636 provides regulatory stability. Additionally, the
increased opportunities available in a deregulated natural gas supply
environment may result in additional market forces that establish gas
prices and help keep them more consistent and competitive.
Diversified has entered into storage and purchase contracts for a
substantial portion of its winter supply of propane. At September 30,
1998, Diversified has contracts with five propane suppliers for the
purchase of up to 6,060,500 gallons of propane at varying prices per
gallon during the period October 1, 1998 through September 30, 1999.
Management believes these storage and purchase contracts will help
alleviate the effects of wholesale price swings during peak sales
months and provide added supply security.
In addition to storage contracts, Diversified has 12 storage
facilities, providing a combined total storage of 504,000 gallons.
Management believes its propane supply strategies have positioned
Diversified to provide an adequate propane supply to current
customers and allow for future customer growth.
Competition
The Company competes with other energy sources such as fuel oil,
electricity and coal. Competition is intense among the competing
energy sources and is based primarily on price. This is particularly
true for industrial applications where sales are at risk to price
competition in markets which may swing to residual and other fuel
oils.
Roanoke Gas and Commonwealth currently hold the only franchises
and/or certificates of public convenience and necessity to distribute
natural gas in their respective Virginia service areas. The
franchises generally extend for multi-year periods and are renewable
by the municipalities. Certificates of public convenience and
necessity, which are issued by the Virginia Commission, are of
perpetual duration, subject to compliance with regulatory standards.
Bluefield Gas Company holds the only franchise to distribute natural
gas in its West Virginia service area. Its franchise extends for a
period of 30 years from August 23, 1979.
8
<PAGE>
Item 1. Business. (continued)
Regulation
Management anticipates that the Company will be able to renew all of
its franchises when they expire. There can be no assurance, however,
that a given jurisdiction will not refuse to renew a franchise or
will not, in connection with the renewal of a franchise, impose
certain restrictions or conditions that could adversely affect the
Company's business operations or financial condition.
Roanoke Gas and its public service subsidiaries are subject to
regulation at federal and state levels. Federally, the interstate gas
transmission between Bluefield and Commonwealth is regulated by the
FERC. At the state level, the Virginia and West Virginia Commissions
regulate Roanoke Gas and its public service subsidiaries. Such
regulation includes the prescription of rates and charges at which
natural gas is sold to customers and the approval of agreements
between or among affiliated companies involving the provision of
goods and services and other corporate activities of the Company,
including mergers, acquisitions and the issuance of securities. The
Virginia Commission also grants certificates of public convenience
and necessity to distribute natural gas in counties in the
Commonwealth of Virginia. Bluefield's West Virginia operations are
regulated by the West Virginia Commission, which regulates the rates
at which natural gas may be sold, certain corporate activities of
Bluefield and pipeline safety.
Roanoke Gas' and its public service subsidiaries' Virginia and West
Virginia operations are further regulated by the municipalities and
localities which grant franchises for the placement of gas
distribution pipelines and the operation of a gas distribution
network.
Both Roanoke Gas and Bluefield operated manufactured gas plants
(MGPs) as a source of fuel for lighting and heating until the early
1950's. A by-product of the process was coal tar, and the potential
exists for on-site tar waste contaminants at former plant sites. The
extent of contaminants at these sites, if any, is unknown at this
time. An analysis at the Bluefield site indicates some soil
contamination. The Company, with concurrence of legal counsel, does
not believe any events have occurred requiring regulatory reporting.
Further, the Company has not received any notices of violation or
liabilities associated with environmental regulations related to the
MGP sites and is not aware of any off-site contamination or pollution
as a result of prior operations. Therefore, the Company has no plans
for subsurface remediation at the MGP sites. Should the Company
eventually be required to remediate either site, the Company will
pursue all prudent and reasonable means to recover any related costs,
including insurance claims and regulatory approval for rate case
recognition of expenses associated with any work required. A
stipulated rate case agreement
9
<PAGE>
Item 1. Business. (continued)
Regulation (continued)
between the Company and the West Virginia Public Service Commission
recognized the Company's right to defer MGP clean-up costs at the
Bluefield site, should any be incurred, and to seek rate relief for
such costs. If the Company eventually incurs costs associated with a
required clean-up of either MGP site, the Company anticipates
recording a regulatory asset for such clean-up costs to be recovered
in future rates. Based on anticipated regulatory actions and current
practices, management believes that any costs incurred related to
this matter will not have a material effect on the Company's
consolidated financial condition.
Employees
At September 30, 1998, the Company had 158 full-time employees. As of
that date, approximately 32 percent of the Company's full-time
employees belonged to the Oil, Chemical and Atomic Workers
International Union, AFL-CIO Local No. 3-515, which has entered into
a collective bargaining agreement with the Company. The union has
been in place at the Company since 1952. A new collective bargaining
agreement became effective on August 1, 1998. That agreement will
expire on July 31, 2000. The Company considers its employee relations
to be satisfactory.
Item 2. Properties.
Roanoke Gas owns and operates five metering stations through which it
measures and regulates the gas being delivered by its suppliers. The
location and physical description of the properties are as follows:
Plantation Station - Parcel on Virginia Highway #601 near point of
intersection of Hershberger Road (Rt. 623) and Rt. 601 - 1.590 acres.
J. M. Mason Station - S/E corner of Lakeside Circle and east of Lot
#4 of Mill Road subdivision just east of Kessler Mill Road - .842
acres.
Sugarloaf Station - Parcel fronting on S/L of Rt. 686 and W/L of
Lynnson Drive - 111 acres.
Clearbrook Station - Parcel 356' west of Rt. 675 and 0.2 mile south
of Rt. 220 - 255 acres.
Cave Spring Station - N/L Route 221 just west of Route 688 - 3.93
acres.
10
<PAGE>
Item 2. Properties. (continued)
The network of distribution lines includes the cities of Roanoke and
Salem, the Town of Vinton, and the counties of Roanoke, Montgomery,
Botetourt and Bedford. These distribution lines are used to
interconnect metering stations and supply and storage facilities with
customers.
Located in Botetourt County is a liquefied natural gas storage
facility which has the capacity to hold 220,000 DTH of natural gas.
The County issued Industrial Revenue Bonds to finance this facility.
Roanoke Gas had a twenty-year lease on the facility with the option
to purchase for a nominal amount. The lease expired May 1, 1991, and
the facility was purchased by Roanoke Gas.
Roanoke Gas' general and business offices and the maintenance and
service departments are located in Roanoke, Virginia on an
irregularly shaped parcel of land running from H. L. Lawson and Son,
Inc. south to Norfolk Southern Computer Center fronting on Kimball
Avenue to the west to the Norfolk Southern Railway yard. The
land area is 8.3 acres.
Bluefield Gas Company's main corporate office and warehouse is
located on 6.09 acres at 4699 East Cumberland Road and consists of a
one-story metal building with brick front. Bluefield owns a lot at
800 Pulaski Street, Bluefield, West Virginia. In addition, Bluefield
owns two lots in the City of Bluefield, West Virginia, comprising
approximately 1.23 acres, upon which its high pressure regulator
stations are located.
In West Virginia, Diversified owns an office, loading platform,
garage and storage tank facility in Rainelle. The storage facility
consists of two 18,000-gallon tanks, pumps and related equipment. A
30,000 gallon storage facility is also located in Ansted.
Another storage facility, comprising two 30,000 gallon tanks, one
18,000-gallon tank, pumps and related equipment, is located on
Bluefield Gas Company's property at 800 Pulaski Street, Bluefield,
West Virginia.
In Virginia, Diversified owns and operates nine storage facilities. A
facility at Thirlane Road, N.W. in Roanoke consists of two 30,000
gallon tanks. A second facility at Fort Chiswell, Virginia consists
of two 30,000 gallon tanks. The third facility is located on the
property of Consolidated Glass in Galax, Virginia and consists of one
30,000 gallon tank. A fourth storage facility is located in Craig
County, Virginia, near the town of New Castle, and also consists of
one 30,000 gallon tank. A fifth facility located in Floyd County,
Virginia consists of one 30,000 gallon tank. A sixth facility is
located on the property of Virginia Forging in Botetourt County, near
the town of Buchanan, and consists of one 30,000 gallon tank. A
11
<PAGE>
seventh facility is located on the property of Golden West Foods in
the City of Bedford and consists of one 30,000 gallon tank. An eighth
facility is located in the City of Buena Vista and consists of two
30,000 gallon tanks. A ninth facility is located in Allegheny County
near the town of Low Moor and consists of one 30,000 gallon tank.
The Company considers present properties adequate. The Company
intends to construct additional distribution lines as communities
develop.
Item 3. Legal Proceedings.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during
the fourth quarter of the year ended September 30, 1998.
Executive Officers of the Registrant
Pursuant to General Instruction G(3) of Form 10-K, the following list
is included as an unnumbered Item in Part I of this report in lieu of
being included in the proxy Statement for the Annual Meeting of
Stockholders to be held on March 31, 1999.
The names, ages and positions of all of the executive officers of
Roanoke Gas as of September 30, 1998 are listed below with their
business experience for the past five years. Officers are appointed
annually by the Board of Directors at the meeting of directors
immediately following the Annual Meeting of Stockholders. There are
no family relationships among these officers, nor any agreement or
understanding between any officer and any other person pursuant to
which the officer was selected.
Previous and present duties and responsibilities:
<TABLE>
<CAPTION>
Position and Business
Name and Age Experience for Past Five Years
<S> <C> <C> <C> <C> <C> <C>
John B. Williamson, III, 44 February 1998 to present President & CEO
January 1993 to January 1998 Vice President - Rates
and Finance
April 1992 to January 1993 Director of Rates and Finance
12
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
Executive Officers of the Registrant (continued)
Arthur L. Pendleton, 47 February 1998 to present Executive Vice President
& COO
January 1991 to January 1998 Vice President - Operations
Roger L. Baumgardner, 56 January 1986 to present Vice President, Secretary and
Treasurer
John S. D'Orazio, 38 February 1998 to present Vice President - Marketing
& New Construction
June 1995 to January 1998 Director - Marketing & New
Construction
February 1995 to June 1995 Service Superintendent
June 1993 to February 1995 Distribution Superintendent
</TABLE>
13
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The information set forth under the caption "Market Price and
Dividend Information" in the 1998 Annual Report to Shareholders is
incorporated herein by reference.
Item 6. Selected Financial Data.
The information set forth under the caption "Selected Financial
Data" in the 1998 Annual Report to Shareholders is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information set forth under the captions "Review of Operations"
and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the 1998 Annual Report to Shareholders is
incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
The following consolidated financial statements of the registrant
and the Independent Auditors' Report set forth in the 1998 Annual
Report to Shareholders are incorporated herein by reference:
1. Independent Auditors' Report
2. Consolidated Balance Sheets as of September 30, 1998 and 1997
3. Consolidated Statements of Earnings for the Years Ended
September 30, 1998, 1997 and 1996
4. Consolidated Statements of Stockholders' Equity for the Years
Ended September 30, 1998, 1997 and 1996
5. Consolidated Statements of Cash Flows for the Years Ended
September 30, 1998, 1997 and 1996
14
<PAGE>
6. Notes to Consolidated Financial Statements as of September 30,
1998 and 1997 and Years Ended September 30, 1998, 1997 and
1996
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
At its meeting on July 28, 1997, the Board of Directors of Roanoke
Gas Company (the "Company"), upon recommendation of the Audit
Committee, appointed Deloitte & Touche LLP as independent
accountants to audit the financial statements of the Company and its
subsidiaries for the years ending September 30, 1998, 1999 and 2000.
KPMG LLP ("KPMG") previously had served as the Company's certifying
accountants since 1990. The Board of Directors solicited competitive
bids from accountants interested in serving as the Company's
auditor. From the bids received, the Audit Committee recommended
Deloitte & Touche LLP to the Board of Directors. KPMG received
notification on July 30, 1997 that their appointment as principal
accountants would be terminated upon completion of the 1997 audit.
KPMG's engagement terminated after completion of the 1997 audit, on
December 19, 1997.
KPMG's auditors' reports on the Company's financial statements for
the two fiscal years ended September 30, 1997 contained no adverse
opinion or a disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope, or accounting principles.
During Roanoke Gas Company's fiscal years ending September 30, 1997
and 1996 and during the subsequent interim period through December
19, 1997, there were no disagreements with KPMG on any matter of
accounting principles or practices, financial statement disclosure,
or auditing scope or procedure which, if not resolved to the
satisfaction of KPMG, would have caused it to make a reference to
the subject matter of the disagreement in connection with its
auditors' reports.
PART III
Item 10. Directors and Executive Officers of the Registrant.
For information with respect to the executive officers of the
registrant, see "Executive Officers of the Registrant" at the end of
Part I of this report. For information with respect to the Directors
of the registrant, see "Election of Directors of Roanoke Gas" in the
Proxy Statement/Prospectus for the 1999 Annual Meeting of
Shareholders of Roanoke Gas Company, which information is
incorporated herein by reference. The information with respect to
compliance with Section 16(a) of the Exchange Act, which is set
forth under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Proxy
15
<PAGE>
Statement/Prospectus for the 1999 Annual Meeting of Shareholders of
Roanoke Gas Company, is incorporated herein by reference.
Item 11. Executive Compensation.
The information set forth under the captions "Executive
Compensation," "Report of the Compensation Committee of the Board of
Directors," "Compensation Committee Interlocks and Insider
Participation" and "Performance Graph" in the Proxy
Statement/Prospectus for the 1999 Annual Meeting of Shareholders of
Roanoke Gas Company, is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information pertaining to shareholders beneficially owning more
than five percent of the registrant's common stock and the security
ownership of management, which is set forth under the captions "The
Annual Shareholders Meeting" and "Security Ownership of Management"
in the Proxy Statement/Prospectus for the 1999 Annual Meeting of
Shareholders of Roanoke Gas Company, is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions.
The information with respect to certain transactions with management
of the registrant, which is set forth under the caption
"Transactions with Management" in the Proxy Statement/Prospectus for
the 1999 Annual Meeting of Shareholders of Roanoke Gas Company, is
incorporated herein by reference.
16
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) List of documents filed as part of this report:
1. Financial statements:
All financial statements of the registrant as set forth
under Item 8 of this Report on Form 10-K.
2. Financial statement schedules:
All schedules are omitted, as the required information is
inapplicable or the information is presented in the
consolidated financial statements or related notes
thereto.
3. Exhibits to this Form 10-K are as follows:
Exhibit No. Description
3 (a) Articles of Incorporation, as amended, of
Roanoke Gas Company (incorporated herein by
reference to Exhibit 3(a) of the Annual Report on
Form 10-K for the fiscal year ended September 30,
1997)
3 (b) Bylaws, as amended, of Roanoke Gas Company
(incorporated herein by reference to Exhibit 3(b)
of the Annual Report on Form 10-K for the fiscal
year ended September 30, 1997)
4 (a) Specimen copy of certificate for Roanoke Gas
Company common stock, $5.00 par value
(incorporated herein by reference to Exhibit 4(a)
of the Annual Report on Form 10-K for the fiscal
year ended September 30, 1992)
4 (b) Article I of the Bylaws of Roanoke Gas Company
(included in Exhibit 3(b) hereto)
4 (c) Instruments defining the rights of holders of
long-term debt (incorporated herein by reference
to Exhibit 4(c) of the Annual Report on Form 10-K
for the fiscal year ended September 30, 1991)
17
<PAGE>
10 (a) Firm Transportation Agreement between East
Tennessee Natural Gas Company and Roanoke Gas
Company dated November 1, 1993 (incorporated
herein by reference to Exhibit 10(a) of the
Annual Report on Form 10-K for the fiscal year
ended September 30, 1994)
10 (b) Interruptible Transportation Agreement
between East Tennessee Natural Gas Company and
Roanoke Gas Company dated July 1, 1991
(incorporated herein by reference to Exhibit
10(b) of the Annual Report on Form 10-K for the
fiscal year ended September 30, 1994)
10 (c) NTS Service Agreement between Columbia Gas
Transmission Corporation and Roanoke Gas Company
dated October 25, 1994 (incorporated herein by
reference to Exhibit 10(c) of the Annual Report
on Form 10-K for the fiscal year ended September
30, 1994)
10 (d) SIT Service Agreement between Columbia Gas
Transmission Corporation and Roanoke Gas Company
dated November 30, 1993 (incorporated herein by
reference to Exhibit 10(d) of the Annual Report
on Form 10-K for the fiscal year ended September
30, 1994)
10 (e) FSS Service Agreement between Columbia Gas
Transmission Corporation and Roanoke Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(e) of the Annual Report
on Form 10-K for the fiscal year ended September
30, 1994)
10 (f) FTS Service Agreement between Columbia Gas
Transmission Corporation and Roanoke Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(f) of the Annual Report
on Form 10-K for the fiscal year ended September
30, 1994)
10 (g) SST Service Agreement between Columbia Gas
Transmission Corporation and Roanoke Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(g) of the Annual Report
on Form 10-K for the fiscal year ended September
30, 1994)
18
<PAGE>
10 (h) ITS Service Agreement between Columbia Gas
Transmission Corporation and Roanoke Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(h) of the Annual Report
on Form 10-K for the fiscal year ended September
30, 1994)
10 (i) FTS-1 Service Agreement between Columbia Gulf
Transmission Company and Roanoke Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(i) of the Annual Report
on Form 10-K for the fiscal year ended September
30, 1994)
10 (j) ITS-1 Service Agreement between Columbia Gulf
Transmission Company and Roanoke Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(j) of the Annual Report
on Form 10-K for the fiscal year ended September
30, 1994)
10 (k) Gas Transportation Agreement, for use under
FT-A rate schedule, between Tennessee Gas
Pipeline Company and Roanoke Gas Company dated
November 1, 1993 (incorporated herein by
reference to Exhibit 10(k) of the Annual Report
on Form 10-K for the fiscal year ended September
30, 1994)
10 (l) Gas Transportation Agreement, for use under
IT rate schedule, between Tennessee Gas Pipeline
Company and Roanoke Gas Company dated September
1, 1993 (incorporated herein by reference to
Exhibit 10(l) of the Annual Report on Form 10-K
for the fiscal year ended September 30, 1994)
10 (m) Gas Storage Contract under rate schedule FS
(Production Area) Bear Creek II between Tennessee
Gas Pipeline Company and Roanoke Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(m) of the Annual Report
on Form 10-K for the fiscal year ended September
30, 1994)
10 (n) Gas Storage Contract under rate schedule FS
(Production Area) Bear Creek I between
Tennessee Gas Pipeline Company and Roanoke Gas
Company dated September 1, 1993 (incorporated
herein by reference to Exhibit 10(n) of the
Annual Report on Form 10-K for the fiscal year
ended September 30, 1994)
19
<PAGE>
10 (o) Certificate of Public Convenience and
Necessity for Bedford County dated February 21,
1966 (incorporated herein by reference to Exhibit
10(o) of Registration Statement No. 33-36605, on
Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with
the Commission on September 19, 1990)
10 (p) Certificate of Public Convenience and
Necessity for Roanoke County dated October 19,
1965 (incorporated herein by reference to Exhibit
10(p) of Registration Statement No. 33-36605, on
Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with
the Commission on September 19, 1990)
10 (q) Certificate of Public Convenience and
Necessity for Botetourt County dated August 30,
1966 (incorporated herein by reference to Exhibit
10(q) of Registration Statement No. 33-36605, on
Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with
the Commission on September 19, 1990)
10 (r) Certificate of Public Convenience and
Necessity for Montgomery County dated July 8,
1985 (incorporated herein by reference to Exhibit
10(r) of Registration Statement No. 33-36605, on
Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with
the Commission on September 19, 1990)
10 (s) Certificate of Public Convenience and
Necessity for Tazewell County dated March 25,
1968 (incorporated herein by reference to Exhibit
10(s) of Registration Statement No. 33-36605, on
Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with
the Commission on September 19, 1990)
10 (t) Certificate of Public Convenience and Necessity
for Franklin County dated September 8, 1964
(incorporated hereing by reference to Exhibit
10(t) of Registration Statement No. 33-36605, on
Form S-2, filed with the Commission on August
29, 1990, and amended by Amendment No. 1, filed
with the Commission on September 19, 1990)
20
<PAGE>
10 (u) Ordinance of the Town of Bluefield, Virginia
dated August 25, 1986 (incorporated herein by
reference to Exhibit 10(u) of Registration
Statement No. 33-36605, on Form S-2, filed with
the Commission on August 29, 1990, and amended by
Amendment No. 1, filed with the Commission on
September 19, 1990)
10 (v) Ordinance of the City of Bluefield, West
Virginia dated as of August 23, 1979
(incorporated herein by reference to Exhibit
10(v) of Registration Statement No. 33-36605, on
Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with
the Commission on September 19, 1990)
10 (w) Resolution of the Council for the Town of
Fincastle, Virginia dated June 8, 1970
(incorporated herein by reference to Exhibit
10(f) of Registration Statement No. 33-11383, on
Form S-4, filed with the Commission on January
16, 1987)
10 (x) Resolution of the Council for the Town of
Troutville, Virginia dated November 4, 1968
(incorporated herein by reference to Exhibit
10(g) of Registration Statement No. 33-11383, on
Form S-4, filed with the Commission on January
16, 1987)
10 (y)* Consulting Agreement between Albert W.
Buckley and Roanoke Gas Company dated February
20, 1992 (incorporated herein by reference to
Exhibit 10(b)(b) of the Annual Report on Form
10-K for the fiscal year ended September 30,
1992)
10 (z)* Consulting Contract between A. Anson Jamison
and Roanoke Gas Company dated March 27, 1990
(incorporated herein by reference to Exhibit
10(c)(c) of Registration Statement No. 33-36605,
on Form S-2, filed with the Commission on August
29, 1990, and amended by Amendment No. 1, filed
with the Commission on September 19, 1990)
10 (a)(a) Contract between Roanoke Gas Company
and Diversified Energy Services, Inc. dated
December 18, 1978 (incorporated herein by
reference to Exhibit 10(e)(e) of Registration
Statement No. 33-36605, on Form S-2, filed with
the Commission on August 29, 1990, and amended
by Amendment No. 1, filed with the Commission
on September 19, 1990)
21
<PAGE>
10 (b) (b) Service Agreement between Bluefield Gas Company
and Commonwealth Public Service Corporation dated
January 1, 1981 (incorporated herein by reference
to Exhibit 10(f)(f) of Registration Statement No.
33-36605, on Form S-2, filed with the Commission
on August 29, 1990, and amended by Amendment No.
1, filed with the Commission on September 19,
1990)
10 (c) (c)* Retirement Payment Agreement between Arthur T.
Ellett and Roanoke Gas Company dated April 6,
1972 (incorporated herein by reference to Exhibit
10(g)(g) of Registration Statement No. 33-36605,
on Form S-2, filed with the Commission on August
29, 1990, and amended by Amendment No. 1, filed
with the Commission on September 19, 1990)
10 (d)(d)* Consulting Services Agreement between Edward C.
Dunbar and Roanoke Gas Company dated February 25,
1991 (incorporated herein by reference to Exhibit
10(h)(h) of the Annual Report on Form 10-K for
the fiscal year ended September 30, 1991)
10 (e)(e)* Consultation Contract between Gordon C. Willis
and Roanoke Gas Company dated April 29, 1991
(incorporated herein by reference to Exhibit
10(i)(i) of the Annual Report on Form 10-K for
the fiscal year ended September 30, 1991)
10 (f)(f) Gas Storage Contract under rate schedule FS
(Market Area) Portland between Tennessee Gas
Pipeline Company and Roanoke Gas Company dated
November 1, 1993 (incorporated herein by
reference to Exhibit 10(k)(k) of the Annual
Report on Form 10-K for the fiscal year ended
September 30, 1994)
10 (g)(g) FTS Service Agreement between Columbia Gas
Transmission Corporation and Bluefield Gas
Company dated November 1, 1993 (incorporated
herein by reference to Exhibit 10(l)(l) of the
Annual Report on Form 10-K for the fiscal year
ended September 30, 1994)
10 (h)(h) ITS Service Agreement between Columbia Gas
Transmission Corporation and Bluefield Gas
Company dated November 1, 1993 (incorporated
herein by reference to Exhibit 10(m)(m) of the
Annual Report on Form 10-K for the fiscal year
ended September 30, 1994)
22
<PAGE>
10 (i)(i) FSS Service Agreement between Columbia Gas
Transmission Corporation and Bluefield Gas
Company dated November 1, 1993 (incorporated
herein by reference to Exhibit 10(n)(n) of the
Annual Report on Form 10-K for the fiscal year
ended September 30, 1994)
10 (j)(j) SST Service Agreement between Columbia Gas
Transmission Corporation and Bluefield Gas
Company dated November 1, 1993 (incorporated
herein by reference to Exhibit 10(o)(o) of the
Annual Report on Form 10-K for the fiscal year
ended September 30, 1994)
10 (k)(k) FTS-1 Service Agreement between Columbia Gas
Transmission Company and Bluefield Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(p)(p) of the Annual
Report on Form 10-K for the fiscal year ended
September 30, 1994)
10 (l) (l)* Roanoke Gas Company Key Employee Stock Option
Plan (incorporated herein by reference to Exhibit
10(q)(q) of the Annual Report on Form 10-K for
the fiscal year ended September 30, 1995)
10 (m) (m)* Roanoke Gas Company Stock Bonus Plan
(incorporated herein by reference to Exhibit
10(r)(r) of the Annual Report on Form 10-K for
the fiscal year ended September 30, 1995)
10 (n)(n) Gas Franchise Agreement between the Town of
Vinton, Virginia, and Roanoke Gas Company dated
July 2, 1996 (incorporated herein by reference to
Exhibit 10(n)(n) of Annual Report on Form 10-K
for the fiscal year ended September 30, 1996)
10 (o)(o) Gas Franchise Agreement between the City of
Salem, Virginia, and Roanoke Gas Company dated
July 9, 1996 (incorporated herein by reference to
Exhibit 10(o)(o) of Annual Report on Form 10-K
for the fiscal year ended September 30, 1996)
10 (p)(p) Gas Franchise Agreement between the City of
Roanoke, Virginia, and Roanoke Gas Company dated
July 12, 1996(incorporated herein by reference to
Exhibit 10(p)(p) of Annual Report on Form 10-K
for the fiscal year ended September 30, 1996)
23
<PAGE>
10 (q)(q)* Consulting Agreement between W. Bolling Izard and
Roanoke Gas Company dated January 27, 1997
10 (r)(r)* Roanoke Gas Company Restricted Stock Plan for
Outside Directors
10 (s)(s) FTA Gas Transportation Agreement effective
November 1, 1998, between East Tennessee Natural
Gas Company and Roanoke Gas Company
10 (t)(t) SST Service Agreement effective November 1, 1997,
between Columbia Gas Transmission Corporation and
Roanoke Gas Company
10 (u)(u) FSS Service Agreement effective April 1, 1997,
between Columbia Gas Transmission Corporation and
Roanoke Gas Company
10 (v)(v) FTS Precedent Agreement effective August 7, 1997,
between Columbia Gas Transmission Corporation and
Roanoke Gas Company
10 (w)(w) Firm Storage Service Agreement effective March
19, 1997, between Virginia Gas Storage Company
and Roanoke Gas Company
10 (x)(x) FTS-2 Service Agreement effective February 1,
1994, between Columbia Gulf Transmission Company
and Bluefield Gas Company
10 (y)(y) Firm Transportation Agreement effective December
31, 1998, between Phoenix Energy Sales Company
and Bluefield Gas Company
10 (z)(z)* Agreement for Consulting Services effective
January 26, 1998, between Frank A. Farmer, Jr.
and Roanoke Gas Company
10 (a)(a)(a)* Agreement for Consulting Services effective
January 26, 1998, between John H. Parrott and
Roanoke Gas Company
13 1998 Annual Report to Shareholders (such report,
except to the extent incorporated herein by
reference, is being furnished for the information
24
<PAGE>
of the Commission only and is not to be deemed
filed as part of this Annual Report on Form 10-K)
21 Subsidiaries of the Company (incorporated herein
by reference to Exhibit (22) of Registration
Statement No. 33-36605, on Form S-2, filed with
the Commission on August 29, 1990, and amended
by Amendment No. 1, filed with the Commission on
September 19, 1990)
23 (a) Consent of Deloitte & Touche LLP
23 (b) Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
99 Letter of KPMG Peat Marwick LLP (incorporated
herein by reference to Exhibit 99 of the Annual
Report on Form 10-K for the fiscal year ended
September 30, 1997)
* Management contract or compensatory plan or agreement required
to be filed as an Exhibit to this Form 10-K pursuant to Item
14(c).
(b) Reports on Form 8-K:
None.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 3 to its
Annual Report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized.
ROANOKE GAS COMPANY
By: s/Roger L. Baumgardner January 28, 1999
Roger L. Baumgardner Date
Vice President, Secretary and
Treasurer
26
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Amendment No. 3 to its Annual Report on Form 10-K has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
s/John B. Williamson, III January 28, 1999 President, Chief Executive
John B. Williamson, III Date Officer and Director
s/Roger L. Baumgardner January 28, 1999 Vice President, Secretary and
Roger L. Baumgardner Date Treasurer (Principal
Accounting Officer)
s/Lynn D. Avis January 28, 1999 Director
Lynn D. Avis Date
s/Abney S. Boxley, III January 28, 1999 Director
Abney S. Boxley, III Date
s/Frank T. Ellett January 28, 1999 Director
Frank T. Ellett Date
s/Frank A. Farmer, Jr. January 28, 1999 Director
Frank A. Farmer, Jr. Date
s/Wilbur L. Hazlegrove January 28, 1999 Director
Wilbur L. Hazlegrove Date
s/J. Allen Layman January 28, 1999 Director
J. Allen Layman Date
s/Thomas L. Robertson January 28, 1999 Director
Thomas L. Robertson Date
s/S. Frank Smith January 28, 1999 Director
S. Frank Smith Date
27
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
3 (a) Articles of Incorporation, as amended, of
Roanoke Gas Company (incorporated herein by
reference to Exhibit 3(a) of the Annual Report on
Form 10-K for the fiscal year ended September 30,
1997)
3 (b) Bylaws, as amended, of Roanoke Gas Company
(incorporated herein by reference to Exhibit 3(b)
of the Annual Report on Form 10-K for the fiscal
year ended September 30, 1997)
4 (a) Specimen copy of certificate for Roanoke Gas
Company common stock, $5.00 par value
(incorporated herein by reference to Exhibit 4(a)
of the Annual Report on Form 10-K for the fiscal
year ended September 30, 1992)
4 (b) Article I of the Bylaws of Roanoke Gas Company
(included in Exhibit 3(b) hereto)
4 (c) Instruments defining the rights of holders of
long-term debt (incorporated herein by reference
to Exhibit 4(c) of the Annual Report on Form 10-K
for the fiscal year ended September 30, 1991)
10 (a) Firm Transportation Agreement between East
Tennessee Natural Gas Company and Roanoke Gas
Company dated November 1, 1993 (incorporated
herein by reference to Exhibit 10(a) of the
Annual Report on Form 10-K for the fiscal year
ended September 30, 1994)
10 (b) Interruptible Transportation Agreement
between East Tennessee Natural Gas Company and
Roanoke Gas Company dated July 1, 1991
(incorporated herein by reference to Exhibit
10(b) of the Annual Report on Form 10-K for the
fiscal year ended September 30, 1994)
10 (c) NTS Service Agreement between Columbia Gas
Transmission Corporation and Roanoke Gas Company
dated October 25, 1994 (incorporated herein by
reference to Exhibit 10(c) of the Annual Report
on Form 10-K for the fiscal year ended September
30, 1994)
10 (d) SIT Service Agreement between Columbia Gas
Transmission Corporation and Roanoke Gas Company
dated November 30, 1993 (incorporated herein by
reference to Exhibit 10(d) of the Annual Report
on Form 10-K for the fiscal year ended September
30, 1994)
<PAGE>
10 (e) FSS Service Agreement between Columbia Gas
Transmission Corporation and Roanoke Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(e) of the Annual Report
on Form 10-K for the fiscal year ended September
30, 1994)
10 (f) FTS Service Agreement between Columbia Gas
Transmission Corporation and Roanoke Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(f) of the Annual Report
on Form 10-K for the fiscal year ended September
30, 1994)
10 (g) SST Service Agreement between Columbia Gas
Transmission Corporation and Roanoke Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(g) of the Annual Report
on Form 10-K for the fiscal year ended September
30, 1994)
10 (h) ITS Service Agreement between Columbia Gas
Transmission Corporation and Roanoke Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(h) of the Annual Report
on Form 10-K for the fiscal year ended September
30, 1994)
10 (i) FTS-1 Service Agreement between Columbia Gulf
Transmission Company and Roanoke Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(i) of the Annual Report
on Form 10-K for the fiscal year ended September
30, 1994)
10 (j) ITS-1 Service Agreement between Columbia Gulf
Transmission Company and Roanoke Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(j) of the Annual Report
on Form 10-K for the fiscal year ended September
30, 1994)
10 (k) Gas Transportation Agreement, for use under
FT-A rate schedule, between Tennessee Gas
Pipeline Company and
<PAGE>
Roanoke Gas Company dated
November 1, 1993 (incorporated herein by
reference to Exhibit 10(k) of the Annual Report
on Form 10-K for the fiscal year ended September
30, 1994)
10 (l) Gas Transportation Agreement, for use under
IT rate schedule, between Tennessee Gas Pipeline
Company and Roanoke Gas Company dated September
1, 1993 (incorporated herein by reference to
Exhibit 10(l) of the Annual Report on Form 10-K
for the fiscal year ended September 30, 1994)
10 (m) Gas Storage Contract under rate schedule FS
(Production Area) Bear Creek II between Tennessee
Gas Pipeline Company and Roanoke Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(m) of the Annual Report
on Form 10-K for the fiscal year ended September
30, 1994)
10 (n) Gas Storage Contract under rate schedule FS
(Production Area) Bear Creek I between
Tennessee Gas Pipeline Company and Roanoke Gas
Company dated September 1, 1993 (incorporated
herein by reference to Exhibit 10(n) of the
Annual Report on Form 10-K for the fiscal year
ended September 30, 1994)
10 (o) Certificate of Public Convenience and
Necessity for Bedford County dated February 21,
1966 (incorporated herein by reference to Exhibit
10(o) of Registration Statement No. 33-36605, on
Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with
the Commission on September 19, 1990)
10 (p) Certificate of Public Convenience and
Necessity for Roanoke County dated October 19,
1965 (incorporated herein by reference to Exhibit
10(p) of Registration Statement No. 33-36605, on
Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with
the Commission on September 19, 1990)
10 (q) Certificate of Public Convenience and
Necessity for Botetourt County dated August 30,
1966 (incorporated herein by reference to Exhibit
10(q) of Registration Statement No. 33-36605, on
Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with
the Commission on September 19, 1990)
<PAGE>
10 (r) Certificate of Public Convenience and
Necessity for Montgomery County dated July 8,
1985 (incorporated herein by reference to Exhibit
10(r) of Registration Statement No. 33-36605, on
Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with
the Commission on September 19, 1990)
10 (s) Certificate of Public Convenience and
Necessity for Tazewell County dated March 25,
1968 (incorporated herein by reference to Exhibit
10(s) of Registration Statement No. 33-36605, on
Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with
the Commission on September 19, 1990)
10 (t) Certificate of Public Convenience and Necessity
for Franklin County dated September 8, 1964
(incorporated hereing by reference to Exhibit
10(t) of Registration Statement No. 33-36605, on
Form S-2, filed with the Commission on August
29, 1990, and amended by Amendment No. 1, filed
with the Commission on September 19, 1990)
10 (u) Ordinance of the Town of Bluefield, Virginia
dated August 25, 1986 (incorporated herein by
reference to Exhibit 10(u) of Registration
Statement No. 33-36605, on Form S-2, filed with
the Commission on August 29, 1990, and amended by
Amendment No. 1, filed with the Commission on
September 19, 1990)
10 (v) Ordinance of the City of Bluefield, West
Virginia dated as of August 23, 1979
(incorporated herein by reference to Exhibit
10(v) of Registration Statement No. 33-36605, on
Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with
the Commission on September 19, 1990)
10 (w) Resolution of the Council for the Town of
Fincastle, Virginia dated June 8, 1970
(incorporated herein by reference to Exhibit
10(f) of Registration Statement No. 33-11383, on
Form S-4, filed with the Commission on January
16, 1987)
10 (x) Resolution of the Council for the Town of
Troutville, Virginia dated November 4, 1968
(incorporated herein by reference to Exhibit
10(g) of Registration Statement No. 33-11383, on
Form S-4, filed with the Commission on January
16, 1987)
<PAGE>
10 (y)* Consulting Agreement between Albert W.
Buckley and Roanoke Gas Company dated February
20, 1992 (incorporated herein by reference to
Exhibit 10(b)(b) of the Annual Report on Form
10-K for the fiscal year ended September 30,
1992)
10 (z)* Consulting Contract between A. Anson Jamison
and Roanoke Gas Company dated March 27, 1990
(incorporated herein by reference to Exhibit
10(c)(c) of Registration Statement No. 33-36605,
on Form S-2, filed with the Commission on August
29, 1990, and amended by Amendment No. 1, filed
with the Commission on September 19, 1990)
10 (a)(a) Contract between Roanoke Gas Company
and Diversified Energy Services, Inc. dated
December 18, 1978 (incorporated herein by
reference to Exhibit 10(e)(e) of Registration
Statement No. 33-36605, on Form S-2, filed with
the Commission on August 29, 1990, and amended
by Amendment No. 1, filed with the Commission
on September 19, 1990)
10 (b) (b) Service Agreement between Bluefield Gas Company
and Commonwealth Public Service Corporation dated
January 1, 1981 (incorporated herein by reference
to Exhibit 10(f)(f) of Registration Statement No.
33-36605, on Form S-2, filed with the Commission
on August 29, 1990, and amended by Amendment No.
1, filed with the Commission on September 19,
1990)
10 (c) (c)* Retirement Payment Agreement between Arthur T.
Ellett and Roanoke Gas Company dated April 6,
1972 (incorporated herein by reference to Exhibit
10(g)(g) of Registration Statement No. 33-36605,
on Form S-2, filed with the Commission on August
29, 1990, and amended by Amendment No. 1, filed
with the Commission on September 19, 1990)
10 (d)(d)* Consulting Services Agreement between Edward C.
Dunbar and Roanoke Gas Company dated February 25,
1991 (incorporated herein by reference to Exhibit
10(h)(h) of the Annual Report on Form 10-K for
the fiscal year ended September 30, 1991)
10 (e)(e)* Consultation Contract between Gordon C. Willis
and Roanoke Gas Company dated April 29, 1991
(incorporated herein by reference to Exhibit
10(i)(i) of the Annual Report on Form 10-K for
the fiscal year ended September 30, 1991)
<PAGE>
10 (f)(f) Gas Storage Contract under rate schedule FS
(Market Area) Portland between Tennessee Gas
Pipeline Company and Roanoke Gas Company dated
November 1, 1993 (incorporated herein by
reference to Exhibit 10(k)(k) of the Annual
Report on Form 10-K for the fiscal year ended
September 30, 1994)
10 (g)(g) FTS Service Agreement between Columbia Gas
Transmission Corporation and Bluefield Gas
Company dated November 1, 1993 (incorporated
herein by reference to Exhibit 10(l)(l) of the
Annual Report on Form 10-K for the fiscal year
ended September 30, 1994)
10 (h)(h) ITS Service Agreement between Columbia Gas
Transmission Corporation and Bluefield Gas
Company dated November 1, 1993 (incorporated
herein by reference to Exhibit 10(m)(m) of the
Annual Report on Form 10-K for the fiscal year
ended September 30, 1994)
10 (i)(i) FSS Service Agreement between Columbia Gas
Transmission Corporation and Bluefield Gas
Company dated November 1, 1993 (incorporated
herein by reference to Exhibit 10(n)(n) of the
Annual Report on Form 10-K for the fiscal year
ended September 30, 1994)
10 (j)(j) SST Service Agreement between Columbia Gas
Transmission Corporation and Bluefield Gas
Company dated November 1, 1993 (incorporated
herein by reference to Exhibit 10(o)(o) of the
Annual Report on Form 10-K for the fiscal year
ended September 30, 1994)
10 (k)(k) FTS-1 Service Agreement between Columbia Gas
Transmission Company and Bluefield Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(p)(p) of the Annual
Report on Form 10-K for the fiscal year ended
September 30, 1994)
10 (l) (l)* Roanoke Gas Company Key Employee Stock Option
Plan (incorporated herein by reference to Exhibit
10(q)(q) of the Annual Report on Form 10-K for
the fiscal year ended September 30, 1995)
10 (m) (m)* Roanoke Gas Company Stock Bonus Plan
(incorporated herein by reference to Exhibit
10(r)(r) of the Annual Report on Form 10-K for
the fiscal year ended September 30, 1995)
<PAGE>
10 (n)(n) Gas Franchise Agreement between the Town of
Vinton, Virginia, and Roanoke Gas Company dated
July 2, 1996 (incorporated herein by reference to
Exhibit 10(n)(n) of Annual Report on Form 10-K
for the fiscal year ended September 30, 1996)
10 (o)(o) Gas Franchise Agreement between the City of
Salem, Virginia, and Roanoke Gas Company dated
July 9, 1996 (incorporated herein by reference to
Exhibit 10(o)(o) of Annual Report on Form 10-K
for the fiscal year ended September 30, 1996)
10 (p)(p) Gas Franchise Agreement between the City of
Roanoke, Virginia, and Roanoke Gas Company dated
July 12, 1996(incorporated herein by reference to
Exhibit 10(p)(p) of Annual Report on Form 10-K
for the fiscal year ended September 30, 1996)
10 (q)(q)* Consulting Agreement between W. Bolling Izard and
Roanoke Gas Company dated January 27, 1997
10 (r)(r)* Roanoke Gas Company Restricted Stock Plan for
Outside Directors
10 (s)(s) FTA Gas Transportation Agreement effective
November 1, 1998, between East Tennessee Natural
Gas Company and Roanoke Gas Company
10 (t)(t) SST Service Agreement effective November 1, 1997,
between Columbia Gas Transmission Corporation and
Roanoke Gas Company
10 (u)(u) FSS Service Agreement effective April 1, 1997,
between Columbia Gas Transmission Corporation and
Roanoke Gas Company
10 (v)(v) FTS Precedent Agreement effective August 7, 1997,
between Columbia Gas Transmission Corporation and
Roanoke Gas Company
10 (w)(w) Firm Storage Service Agreement effective March
19, 1997, between Virginia Gas Storage Company
and Roanoke Gas Company
<PAGE>
10 (x)(x) FTS-2 Service Agreement effective February 1,
1994, between Columbia Gulf Transmission Company
and Bluefield Gas Company
10 (y)(y) Firm Transportation Agreement effective December
31, 1998, between Phoenix Energy Sales Company
and Bluefield Gas Company
10 (z)(z)* Agreement for Consulting Services effective
January 26, 1998, between Frank A. Farmer, Jr.
and Roanoke Gas Company
10 (a)(a)(a)* Agreement for Consulting Services effective
January 26, 1998, between John H. Parrott and
Roanoke Gas Company
13 1998 Annual Report to Shareholders (such report,
except to the extent incorporated herein by
reference, is being furnished for the information
of the Commission only and is not to be deemed
filed as part of this Annual Report on Form 10-K)
21 Subsidiaries of the Company (incorporated herein
by reference to Exhibit (22) of Registration
Statement No. 33-36605, on Form S-2, filed with
the Commission on August 29, 1990, and amended
by Amendment No. 1, filed with the Commission on
September 19, 1990)
23 (a) Consent of Deloitte & Touche LLP
23 (b) Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
99 Letter of KPMG Peat Marwick LLP (incorporated
herein by reference to Exhibit 99 of the Annual
Report on Form 10-K for the fiscal year ended
September 30, 1997)
* Management contract or compensatory plan or agreement required
to be filed as an Exhibit to this Form 10-K pursuant to Item
14(c).
<PAGE>
Exhibit 10(s)(s)
SERVICE PACKAGE NO. 24724
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under Rate Schedules FT-A and FT-GS)
THIS AGREEMENT is made and entered into as of the 1st day of November, 1998, by
and between EAST TENNESSEE NATURAL GAS COMPANY, a Tennessee corporation,
hereinafter referred to as "Transporter" and ROANOKE GAS COMPANY, a public
service corporation of the State of Virginia, hereinafter referred to as
"Shipper." Transporter and Shipper shall be referred to herein individually as
the "Party" and collectively as "Parties."
ARTICLE I - DEFINITIONS
The definitions found in Section 1 of Transporter's General Terms and Conditions
are incorporated herein by reference.
ARTICLE II - SCOPE OF AGREEMENT
Transporter agrees to accept and receive daily, on a firm basis, at the Receipt
Point(s) listed on Exhibit A attached hereto, from Shipper such quantity of gas
as Shipper makes available up to the applicable Transportation Quantity stated
on Exhibit A attached hereto and deliver for Shipper to the Delivery Point(s)
listed on Exhibit A attached hereto an Equivalent Quantity of gas. The Rate
Schedule applicable to this Agreement shall be stated on Exhibit A.
ARTICLE III - RECEIPT AND DELIVERY PRESSURES
Shipper shall deliver, or cause to be delivered, to Transporter the gas to be
transported hereunder at pressures sufficient to deliver such gas into
Transporter's system at the Receipt Point(s). Transporter shall deliver the gas
to be transported hereunder to or for the account of Shipper at the pressures
existing in Transporter's system at the Delivery Point(s) unless otherwise
specified on Exhibit A.
ARTICLE IV - QUALITY SPECIFICATIONS AND STANDARDS FOR
MEASUREMENTS
For all gas received, transported, and delivered hereunder, the Parties agree to
the quality specifications and standards for measurement as provided for in
Transporter's General Terms and Conditions. Transporter shall be responsible for
the operation of measurement facilities at the Delivery Point(s) and Receipt
Point(s). In the event that measurement facilities are not operated by
Transporter, the responsibility for operations shall be deemed to be Shipper's.
1
<PAGE>
SERVICE PACKAGE NO. 24724
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under Rate Schedules FT-A and FT-GS)
ARTICLE V - FACILITIES
The facilities necessary to receive, transport, and deliver gas as described
herein are in place and no new facilities are anticipated to be required.
ARTICLE VI
RATES AND CHARGES FOR GAS TRANSPORTATION
6.1 Rates and Charges - Commencing on the date of implementation of
this Agreement under Section 10.1, the compensation to be paid by
Shipper to Transporter shall be in accordance with Transporter's
effective Rate Schedule FT-A or FT-GS, as specified on Exhibit A.
Where applicable, Shipper shall also pay the Gas Research
Institute surcharge and Annual Charge Adjustment surcharge as
such rates may change from time to time.
6.2 Changes in Rates and Charges - Shipper agrees that Transporter
shall have the unilateral right to file with the appropriate
regulatory authority and make changes effective in (a) the rates
and charges stated in this Article, (b) the rates and charges
applicable to service pursuant to the Rate Schedule under which
this service is rendered and (c) any provisions of Transporter's
General Terms and Conditions as they may be revised or replaced
from time to time. Without prejudice to Shipper's right to
contest such changes, Shipper agrees to pay the effective rates
and charges for service rendered pursuant to this Agreement.
Transporter agrees that Shipper may protest or contest the
aforementioned filings, or may seek authorization from duly
constituted regulatory authorities for adjustment of
Transporter's existing FERC Gas Tariff as may be found necessary
to assure Transporter just and reasonable rates.
ARTICLE VII - RESPONSIBILITY DURING TRANSPORTATION
As between the Parties hereto, it is agreed that from the time gas is delivered
by Shipper to Transporter at the Receipt Point(s) and prior to delivery of such
gas to or for the account of Shipper at the Delivery Point(s), Transporter shall
be responsible for such gas and shall have the unqualified right to commingle
such gas with other gas in its system and shall have the unqualified right to
handle and treat such gas as its own. Prior to receipt of gas at Shipper's
Receipt Point(s) and after
2
<PAGE>
SERVICE PACKAGE NO. 24724
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under Rate Schedules FT-A and FT-GS)
delivery of gas at Shipper's Delivery Point(s), Shipper shall have sole
responsibility for such gas.
ARTICLE VIII - BILLINGS AND PAYMENTS
Billings and payments under this Agreement shall be in accordance with Section
16 of Transporter's General Terms and Conditions as they may be revised or
replaced from time to time.
ARTICLE IX - RATE SCHEDULES AND
GENERAL TERMS AND CONDITIONS
This Agreement is subject to the effective provisions of Transporter's FT-A or
FT-GS Rate Schedule, as specified in Exhibit A, or any succeeding rate schedule
and Transporter's General Terms and Conditions on file with the FERC, or other
duly constituted authorities having jurisdiction, as the same may be changed or
superseded from time to time in accordance with the rules and regulations of the
FERC, which Rate Schedule and General Terms and Conditions are incorporated by
reference and made a part hereof for all purposes.
ARTICLE X - TERM OF CONTRACT
10.1 This Agreement shall be effective as of the 1st day of November,
1998, and shall remain in force and effect until the 31st day of
October, 2018 ("Primary Term"), provided, however, that if the
Primary Term is one year or more, then the contract shall remain
in force and effect and the contract term will automatically
roll-over for additional five year increments ("Secondary Term")
unless Shipper, one year prior to the expiration of the Primary
Term or a Secondary Term, provides written notice to Transporter
of either (1) its intent to terminate the contract upon
expiration of the then current term or (2) its desire to exercise
its right-of-first-refusal in accord with Section 7.3 of
Transporter's General Terms and Conditions. Provided further, if
the FERC or other governmental body having jurisdiction over the
service rendered pursuant to this Agreement authorizes
abandonment of such service, this Agreement shall terminate on
the abandonment date permitted by the FERC or such other
governmental body.
3
<PAGE>
SERVICE PACKAGE NO. 24724
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under Rate Schedules FT-A and FT-GS)
10.2 In addition to any other remedy Transporter may have, Transporter
shall have the right to terminate this Agreement in the event
Shipper fails to pay all of the amount of any bill for services
rendered by Transporter hereunder when that amount is due,
provided Transporter shall give Shipper and the FERC thirty days
notice prior to any termination of service. Service may continue
hereunder if within the thirty day notice period satisfactory
assurance of payment is made in accord with Section 16 of
Transporter's General Terms and Conditions.
ARTICLE XI - REGULATION
11.1 This Agreement shall be subject to all applicable governmental
statutes, orders, rules, and regulations and is contingent upon
the receipt and continuation of all necessary regulatory
approvals or authorizations upon terms acceptable to Transporter
and Shipper. This Agreement shall be void and of no force and
effect if any necessary regulatory approval or authorization is
not so obtained or continued. All Parties hereto shall cooperate
to obtain or continue all necessary approvals or authorizations,
but no Party shall be liable to any other Party for failure to
obtain or continue such approvals or authorizations.
11.2 Promptly following the execution of this Agreement, the Parties
will file, or cause to be filed, and diligently prosecute, any
necessary applications or notices with all necessary regulatory
bodies for approval of the service provided for herein.
11.3 In the event the Parties are unable to obtain all necessary and
satisfactory regulatory approvals for service prior to the
expiration of two (2) years from the effective date hereof, then,
prior to receipt of such regulatory approvals, either Party may
terminate this Agreement by giving the other Party at least
thirty (30) days prior written notice, and the respective
obligations hereunder, except for the reimbursement of filing
fees herein, shall be of no force and effect from and after the
effective date of such termination.
11.4 The transportation service described herein shall be provided
subject to the provisions of the FERC Regulations shown by
Shipper on Exhibit A hereto.
4
<PAGE>
SERVICE PACKAGE NO. 24724
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under Rate Schedules FT-A and FT-GS)
ARTICLE XII - ASSIGNMENTS
12.1 Either Party may assign or pledge this Agreement and all rights
and obligations hereunder under the provisions of any mortgage,
deed of trust, indenture or other instrument that it has executed
or may execute hereafter as security for indebtedness; otherwise,
Shipper shall not assign this Agreement or any of its rights and
obligations hereunder, except as set forth in Section 17 of
Transporter's General Terms and Conditions.
12.2 Any person or entity that shall succeed by purchase, transfer,
merger, or consolidation to the properties, substantially or as
an entirety, of either Party hereto shall be entitled to the
rights and shall be subject to the obligations of its predecessor
in interest under this Agreement.
ARTICLE XIII - WARRANTIES
In addition to the warranties set forth in Section 22 of Transporter's General
Terms and Conditions, Shipper warrants the following:
13.1 Shipper warrants that all upstream and downstream transportation
arrangements are in place, or will be in place, as of the
requested effective date of service, and that it has advised the
upstream and downstream transporters of the receipt and delivery
points under this Agreement and any quantity limitations for each
point as specified on Exhibit A attached hereto. Shipper agrees
to indemnify and hold Transporter harmless for refusal to
transport gas hereunder in the event any upstream or downstream
transporter fails to receive or deliver gas as contemplated by
this Agreement.
13.2 Shipper agrees to indemnify and hold Transporter harmless from
all suit actions, debts, accounts, damages, costs, losses, and
expenses (including reasonable attorneys fees) arising from or
out of breach of any warranty, by the Shipper herein.
13.3 Shipper warrants that it will have title or the right to acquire
title to the gas delivered to Transporter under this Agreement.
5
<PAGE>
SERVICE PACKAGE NO. 24724
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under Rate Schedules FT-A and FT-GS)
13.4 Transporter shall not be obligated to provide or continue service
hereunder in the event of any breach of warranty; provided,
Transporter shall give Shipper and the FERC thirty days notice
prior to any termination of service. Service will continue if,
within the thirty day notice period, Shipper cures the breach of
warranty.
ARTICLE XIV - MISCELLANEOUS
14.1 Except for changes specifically authorized pursuant to this
Agreement, no modification of or supplement to the terms and
conditions hereof shall be or become effective until Shipper has
submitted a request for change through the TENN-SPEED 2 system
and Shipper has been notified through the TENN-SPEED 2 system of
Transporter's agreement to such change.
14.2 No waiver by any Party of any one or more defaults by the other
in the performance of any provision of this Agreement shall
operate or be construed as a waiver of any future default or
default, whether of a like or of a different character.
14.3 Except when notice is required through the TENN-SPEED 2 system,
pursuant to Transporter's FT-A or FT-GS Rate Schedule, as
applicable, or pursuant to Transporter's General Terms and
Conditions, any notice, request, demand, statement or bill
provided for in this Agreement or any notice that either Party
may desire to give to the other shall be in writing and mailed by
registered mail to the post office address of the Party intended
to receive the same, as the case may be, to the Party's address
shown on Exhibit A hereto or to such other address as either
Party shall designate by formal written notice to the other.
Routine communications, including monthly statements and
payments, may be mailed by either registered or ordinary mail.
Notice shall be deemed given when sent.
14.4 THE INTERPRETATION AND PERFORMANCE OF THIS AGREEMENT SHALL BE IN
ACCORDANCE WITH AND CONTROLLED BY THE LAWS OF THE STATE OF
TENNESSEE, WITHOUT REGARD TO CHOICE OF LAW DOCTRINE THAT REFERS
TO THE LAWS OF ANOTHER JURISDICTION.
14.5 The Exhibit(s) attached hereto is/are incorporated herein by
reference and made a part of this Agreement for all purposes.
6
<PAGE>
SERVICE PACKAGE NO. 24724
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under Rate Schedules FT-A and FT-GS)
14.6 If any provision of this Agreement is declared null and void, or
voidable, by a court of competent jurisdiction, then that
provision will be considered severable at Transporter's options;
and if the severability option is exercised, the remaining
provisions of the Agreement shall remain in full force and
effect.
14.7 This Agreement supersedes and cancels the Gas Sales and
Transportation Agreement(s) between Shipper and Transporter dated
(not applicable) and (not applicable) respectively.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly
executed as of the date first hereinabove written.
EAST TENNESSEE NATURAL GAS COMPANY
BY:____________________________
Agent and Attorney-in-Fact
DATE: ________________________
ROANOKE GAS COMPANY
BY: s/Roger L. Baumgardner
TITLE:VP/SEC & TREAS
DATE:July 1, 1998
7
<PAGE>
EXHIBIT A TO THE
FIRM TRANSPORTATION AGREEMENT
DATED NOVEMBER 1, 1998
Shipper: Roanoke Gas Company
Rate Schedule: FT-A
Service Package No.: 24724
Transportation Quantity: 5,150
Proposed Commencement Date: November 1, 1998
Termination Date: October 31, 2018
Transportation Service will be provided under Part 284, Subpart G of FERC
Regulations.
Primary Receipt Point(s):
<TABLE>
<CAPTION>
Meter Max.D. Inter. Location
Name No. Qt. Party CO., ST
<S> <C> <C> <C> <C> <C> <C>
Ridgetop Rec. 753101 5,150 Tennessee Gas Robertson, TN
Pipeline
Primary Delivery Point(s):
Meter Max.D. Inter. Location
Name No. Qt. Party CO., ST
Roanoke - Clearbrook 759004 5,150 Roanoke Gas Co. Roanoke, VA
</TABLE>
*Transporter shall not be obligated to deliver more cubic feet of gas to any
Shipper than the quantity calculated using 1.03 dth per million cubic feet.
Notices not made through the TENN-SPEED 2 system shall be made to:
Shipper Invoices
Roanoke Gas Company Roanoke Gas Company
519 Kimball Ave., N.E. 519 Kimball Ave., N.E.
P. O. Box 13007 P. O. Box 13007
Roanoke, VA 24016 Roanoke, VA 24016
Attn: Mike Gagnet Attn.: Howard Lyon
New Facilities Required: Not applicable
New Facilities Charge: Not applicable
8
<PAGE>
EXHIBIT A TO THE
FIRM TRANSPORTATION AGREEMENT
DATED NOVEMBER 1, 1998
(This Exhibit A supersedes and cancels Exhibit A dated (not applicable) to the
Firm Transportation Agreement dated (not applicable).
EAST TENNESSEE NATURAL GAS CO. ROANOKE GAS COMPANY
BY: _______________________ BY: s/Roger L. Baumgardner
TITLE: ____________________ TITLE: VP/SEC & TREAS
DATE: ____________________ DATE: July 1, 1998
9
<PAGE>
Exhibit 10(t)(t)
SERVICE AGREEMENT NO. 50420
CONTROL NO. 1995-04-30 - 0029
SST SERVICE AGREEMENT
THIS AGREEMENT, made and entered into this 11th day of December, 1995 by and
between:
COLUMBIA GAS TRANSMISSION CORPORATION
("SELLER")
AND
ROANOKE GAS COMPANY
("BUYER")
WITNESSETH: That in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Section 1. Service to be Rendered. Seller shall perform and Buyer shall receive
service in accordance with the provisions of the effective SST Rate Schedule and
applicable General Terms and Conditions of Seller's FERC Gas Tariff, Second
Revised Volume No. 1 (Tariff), on file with the Federal Energy Regulatory
Commission (Commission), as the same may be amended or superseded in accordance
with the rules and regulations of the Commission. The maximum obligation of
Seller to deliver gas hereunder to or for Buyer, the designation of the points
of delivery at which Seller shall deliver or cause gas to be delivered to or for
Buyer, and the points of receipt at which Buyer shall deliver or cause gas to be
delivered, are specified in Appendix A, as the same may be amended from time to
time by agreement between Buyer and Seller, or in accordance with the rules and
regulations of the Commission. Service hereunder shall be provided subject to
the provisions of Part 284.223 of Subpart G of the Commission's regulations.
Buyer warrants that service hereunder is being provided on behalf of BUYER.
Section 2. Term. Service under this Agreement shall commence as of the latter of
NOVEMBER 01, 1997, or upon completion of facilities and shall continue in full
force and effect until OCTOBER 31, 2012, and from YEAR - to - YEAR thereafter
unless terminated by either party upon 2 YEARS' written notice to the other
prior to the end of the initial term granted or any anniversary date thereafter.
Pre-granted abandonment shall apply upon termination of this Agreement, subject
to any right of first refusal Buyer may have under the Commission's regulations
and Seller's Tariff.
<PAGE>
Section 3. Rates. Buyer shall pay Seller the charges and furnish Retainage as
described in the above-referenced Rate Schedule, unless otherwise agreed to by
the parties in writing and specified as an amendment to this Service Agreement.
Section 4. Notices. Notices to Seller under this Agreement shall be
addressed to it at Post Office Box 1273, Charleston, West Virginia 25325-1273,
Attention: Manager - Agreements Administration and notices to Buyer shall be
addressed to it at:
ROANOKE GAS COMPANY
VP OPERATIONS
P 0 BOX 13007
ROANOKE, VA 24030
ATTN: ARTHUR PENDLETON;
until changed by either party by written notice.
<PAGE>
SERVICE AGREEMENT NO. 50420
CONTROL NO. 1995-04-30 - 0029
SST SERVICE AGREEMENT
Section 5. Superseded Agreements. This Service Agreement supersedes and
cancels, as of the effective date hereof, the following Service Agreements: N/A.
ROANOKE GAS COMPANY
By: s/John B. Williamson, III
Name: John B. Williamson
Title: Vice President Rates & Finance
Date: December 11, 1995
COLUMBIA GAS TRANSMISSION CORPORATION
By: s/S.M. Warnick
Name: S. M. Warnick
Title: Vice President
Date: February 23, 1996
<PAGE>
Revision No.
Control No. 1995 - 04- 30 - 0029
Appendix A to Service Agreement No. 50420
Under Rate Schedule S S T
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) ROANOKE GAS COMPANY
October through March Transportation Demand 5,889 Dth/day
April through September Transportation Demand 2,944 Dth/day
Primary Receipt Points
Scheduling Scheduling Maximum Daily
Point No. Point Name Quantity (Dth/Day)
STOW STORAGE WITHDRAWALS 5,889
<PAGE>
Revision No.
Control No. 1995 - 04 - 30 - 0029
Appendix A to Service Agreement No. 50420
Under Rate Schedule S S T
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) ROANOKE GAS COMPANY
<TABLE>
<CAPTION>
Primary Delivery Points
F
o
o
t Maximum S1/
n Delivery
o Maximum Daily Pressure
Scheduling Scheduling Measuring t Measuring Delivery Obligation Obligation
Point No. Point Name Point No. e Point Name (Dth/Day) (PSIG)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
62 ROANOKE GAS COMPANY 802697 Gala/Roanoke 5,889 475
</TABLE>
<PAGE>
Revision No.
Control No. 1995 - 04 - 30 - 0029
Appendix A to Service Agreement No. 50420
Under Rate Schedule S S T
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) ROANOKE GAS COMPANY
S 1 / IF A MAXIMUM PRESSURE IS NOT SPECIFICALLY STATED,
THEN SELLER'S OBLIGATION SHALL BE AS STATED IN
SECTION 13 (DELIVERY PRESSURE) OF THE GENERAL TERMS
AND CONDITIONS.
GFNT / THIS SERVICE AGREEMENT AND ITS EFFECTIVENESS ARE
SUBJECT TO A PRECEDENT AGREEMENT (#47753) BETWEEN BUYER
AND SELLER DATED APRIL 28, 1995.
UNLESS STATION SPECIFIC MDDOS ARE SPECIFIED IN A SEPARATE
FIRM SERVICE AGREEMENT BETWEEN SELLER AND BUYER, SELLER'S
AGGREGATE MAXIMUM DAILY DELIVERY OBLIGATION, UNDER THIS
AND ANY OTHER SERVICE AGREEMENT BETWEEN SELLER AND BUYER,
AT THE STATIONS LISTED ABOVE SHALL NOT EXCEED THE MDDO
QUANTITIES SET FORTH ABOVE FOR EACH STATION. ANY STATION
SPECIFIC MDDOS IN A SEPARATE FIRM SERVICE AGREEMENT
BETWEEN SELLER AND BUYER SHALL BE ADDITIVE TO THE
INDIVIDUAL STATION MDDOS SET FORTH ABOVE.
<PAGE>
Revision No.
Control No. 1995 - 04 - 30 - 0029
Appendix A to Service Agreement No. 50420
Under Rate Schedule S S T
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) ROANOKE GAS COMPANY
The Master List of Interconnects (MLI) as defined in Section 1 of the General
Terms and Conditions of Seller's Tariff is incorporated herein by reference for
the purposes of listing valid secondary receipt and delivery points.
Service changes pursuant to this Appendix A shall become effective as of
NOVEMBER 01, 1997, or upon completion of facilities. This Appendix A shall
cancel and supersede the previous Appendix A effective as of N/A , to the
Service Agreement referenced above. With the exception of this Appendix A, all
other terms and conditions of said Service Agreement shall remain in full force
and effect.
ROANOKE GAS COMPANY
By: s/John B. Williamson, III
Name: John B. Williamson
Title: Vice President Rates & Finance
Date: December 11, 1995
COLUMBIA GAS TRANSMISSION CORPORATION
By: s/S.M. Warnick
Name: S. M. Warnick
Title: Vice President
Date: February 23, 1996
<PAGE>
Exhibit 10(u)(u)
SERVICE AGREEMENT NO. 50421
CONTROL NO. 1995-04-30 - 0030
FSS SERVICE AGREEMENT
THIS AGREEMENT, made and entered into this 11th day of December, 1995 by and
between:
COLUMBIA GAS TRANSMISSION CORPORATION
(" SELLER")
AND
ROANOKE GAS COMPANY
("BUYER")
WITNESSETH: That in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Section 1. Service to be Rendered. Seller shall perform and Buyer shall receive
the service in accordance with the provisions of the effective FSS Rate Schedule
and applicable General Terms and Conditions of Seller's FERC Gas Tariff, Second
Revised Volume No. 1 (Tariff), on file with the Federal Energy Regulatory
Commission (Commission), as the same may be amended or superseded in accordance
with the rules and regulations of the Commission. Seller shall store quantities
of gas for Buyer up to but not exceeding Buyer's Storage Contract Quantity as
specified in Appendix A, as the same may be amended from time to time by
agreement between Buyer and Seller, or in accordance with the rules and
regulations of the Commission. Service hereunder shall be provided subject to
the provisions of Part 284.223 of Subpart G of the Commission's regulations.
Buyer warrants that service hereunder is being provided on behalf of BUYER.
Section 2. Term. Service under this Agreement shall commence as of the latter of
APRIL 01, 1997, or upon completion of facilities and shall continue in full
force and effect until OCTOBER 31, 2012, and from YEAR-to-YEAR thereafter unless
terminated by either party upon 2 YEARS' written notice to the other prior to
the end of the initial term granted or any anniversary date thereafter.
Pre-granted abandonment shall apply upon termination of this Agreement, subject
to any right of first refusal Buyer may have under the Commission's regulations
and Seller's Tariff.
<PAGE>
Section 3. Rates. Buyer shall pay the charges and furnish the Retainage
percentage set forth in the above-referenced Rate Schedule and specified in
Seller's currently effective Tariff, unless otherwise agreed to by the parties
in writing and specified as an amendment to this Service Agreement.
Section 4. Notices. Notices to Seller under this Agreement shall be
addressed to it at Post Office Box 1273, Charleston, West Virginia 25325-1273,
Attention: Manager - Agreements Administration and notices to Buyer shall be
addressed to it at:
ROANOKE GAS COMPANY
VP OPERATIONS
P 0 BOX 13007
ROANOKE, VA 24030
ATTN: ARTHUR PENDLETON;
until changed by either party by written notice.
<PAGE>
SERVICE AGREEMENT NO. 50421
CONTROL NO. 1995-04-30 - 0030
FSS SERVICE AGREEMENT
Section 5 Superseded Agreements. This Service Agreement supersedes and
cancels, as of the effective date hereof, the following Service Agreements: N/A.
ROANOKE GAS COMPANY
By: s/John B. Williamson, III
Name: John B. Williamson
Title: Vice President Rates & Finance
Date: December 11, 1995
COLUMBIA GAS TRANSMISSION CORPORATION
By: s/S.M. Warnick
Name: S. M. Warnick
Title: Vice President
Date: February 23, 1996
<PAGE>
Revision No.
Control No. 1995 - 04- 30 - 0030
Appendix A to Service Agreement No. 50421
Under Rate Schedule S S T
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) ROANOKE GAS COMPANY
GFNT / THIS SERVICE AGREEMENT AND ITS EFFECTIVENESS ARE SUBJECT
TO A PRECEDENT AGREEMENT (#47753) BETWEEN BUYER AND
SELLER DATED APRIL 28, 1995.
<PAGE>
Revision No.
Control No.1995-04-30 - 0030
Appendix A to Service Agreement No. 50421
Under Rate Schedule FSS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) ROANOKE GAS COMPANY
Storage Contract Quantity 441,700 Dth
Maximum Daily Storage Quantity 5,889 Dth per day
CANCELLATION OF PREVIOUS APPENDIX A
Service changes pursuant to this Appendix A shall become effective as of APRIL
01, 1997. This Appendix A shall cancel and supersede the previous Appendix A
effective as of N/A , to the Service Agreement referenced above. With the
exception of this Appendix A, all other terms and conditions of said Service
Agreement shall remain in full force and effect.
ROANOKE GAS COMPANY
By: s/John B. Williamson, III
Name: John B. Williamson
Title: Vice President Rates & Finance
Date: December 11, 1995
COLUMBIA GAS TRANSMISSION CORPORATION
By: s/S.M. Warnick
Name: S. M. Warnick
Title: Vice President
Date: February 23, 1996
<PAGE>
Exhibit 10(v)(v)
Precedent Agreement No. 57448
Control No. 970731-0011
PRECEDENT AGREEMENT
This PRECEDENT AGREEMENT ("Agreement") is made and entered into to be
effective as of this 7th day of August, 1997, by and between COLUMBIA GAS
TRANSMISSION CORPORATION ("Columbia'), and ROANOKE GAS COMPANY ("Customer").
W I T N E S S E T H:
WHEREAS , Customer requested and was allocated certain FSS/SST levels of
service as a result of Columbia's Market Expansion open season, and entered into
a Precedent Agreement (No. 47753) with respect to such services;
WHEREAS , Customer has also requested FTS service and capacity has
become available in Columbia's Market Expansion project to serve such request;
WHEREAS , both the FSS/SST and FTS levels of service are to be served by
Columbia's expansion of its interstate pipeline and/or storage facilities as
contemplated pursuant to construction already proposed and approved in
Columbia's FERC Docket No. CP96-213; and
WHEREAS , it is necessary for Customer to commit to receiving and paying
for the FTS level of service set forth herein by executing this Agreement, to
support Columbia's commitment to the overall expansion of such facilities.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, Columbia and Customer agree as follows:
1. Allocated Levels of Service. The following additional levels of
service have been allocated to Customer as part of Columbia's Market Expansion
project. By executing this Agreement, Columbia agrees to provide and Customer
agrees to accept the following additional levels of service pursuant to the
attached FTS service agreement as described in section two herein.
1
<PAGE>
Precedent Agreement No. 57448
Control No. 970731-0011
Firm Transportation Service (FTS) Service Agreement. Transportation Demand:
3,425 Dth per day.
Receipt Point Delivery Point Dth
------------- -------------- ---
Kenova Aggregation Roanoke Gas 3,425
Point (MLI-AO1) Company
(MLI-62)
2. Service Agreements. Columbia and Customer agree to execute
concurrently herewith the FTS service agreement attached hereto providing for
the foregoing level of service. The above total level of FTS service shall
commence in 1999, unless otherwise agreed by Columbia and Customer. The FTS
service agreement shall have a primary term of no less than fifteen years,
commencing with the date on which the allocated level of service is to commence.
All service under the FTS service agreement shall be provided pursuant to the
FTS Rate Schedule and at the applicable maximum rates set forth in Columbia's
Federal Energy Regulatory Commission (FERC) Gas Tariff, Second Revised Volume
No.1, as it may be amended from time to time ("Columbia's tariff"). The primary
receipt and delivery points and any other applicable terms and conditions,
including, but not limited to, delivery pressure, flow rates, etc., shall be as
set forth in the FTS service agreement.
3. Approvals. Columbia shall undertake to secure approvals necessary for
the financing, construction and operation of the expansion facilities necessary
to serve Customer as contemplated herein within the context of construction
already proposed by Columbia and approved in Columbia's FERC Docket No.
CP96-213, including, but not limited to and if deemed necessary by Columbia, the
preparation and filing of any amended application with the FERC for a
modification to certificates issued to Columbia in FERC Docket No. CP96-213
pursuant to Section 7(c) of the Natural Gas Act, 15 U.S.C. Section 717f(c).
Columbia shall not be required to prepare or file any applications with FERC
initiating any new certificate proceeding or which would create any obligation
to construct additional facilities beyond that already proposed by Columbia and
approved by FERC in Docket No. CP96-213. Customer shall cooperate with and
provide to Columbia, on a timely basis, all information and data requested by
Columbia which Columbia deems necessary to prosecute such amended application or
any other approvals or authorizations, including, but not limited to, any
information requested by the FERC or its staff.
4. Columbia's Conditions Precedent. Performance by Columbia under this
Agreement and the FTS service agreement to be executed is expressly conditioned
upon:
(a) Customer completing, executing and returning to Columbia with this
Agreement the Request for Service forms required by Columbia's tariff and
necessary for Customer to receive service under the service agreement;
2
<PAGE>
Precedent Agreement No. 57448
Control No. 970731-0011
(b) Customer satisfying the creditworthiness requirements in Columbia's
tariff;
(c) Columbia receiving all necessary final and nonappealable regulatory
approvals and authorizations for Columbia to provide the FTS service
contemplated by this Agreement within the context of construction already
proposed by Columbia and approved in Columbia's FERC Docket No. CP96-213,
including, but not limited to and if deemed necessary by Columbia, final and
nonappealable approval of any amended application Columbia will file with the
FERC for a modification to certificates issued to Columbia in FERC Docket No.
CP96-213, upon terms acceptable to Columbia;
(d) Columbia receiving all necessary final and nonappealable approvals
from the FERC to recover the costs of Columbia's expansion facilities on a
rolled-in basis in the calculation of its applicable rates, upon terms
acceptable to Columbia; and
(e) Columbia constructing and placing in service all expansion
facilities necessary for Columbia to provide service to Customer.
Columbia may waive any of the foregoing conditions.
5. Customer's Conditions Precedent. Performance by Customer under this
Agreement and the FTS service agreement attached hereto is expressly conditioned
upon:
(a) Columbia receiving an order from the FERC not subject to rehearing
on Columbia's certificate application referred to in section three herein to
charge rolled-in rates for the subject services.
Customer may waive the foregoing condition.
6. Termination. This Agreement shall only be terminated as provided in
this section. If this Agreement is terminated effective prior to the
commencement of new service under the FTS service agreement, then such FTS
service agreement shall be deemed void ab initio.
Customer, effective upon 30-days written notice to Columbia, may
terminate this Agreement if the condition precedent set forth in section 5
herein is not satisfied. Columbia, effective upon 30 days written notice to
Customer, may terminate this Agreement if any of conditions precedent set forth
in section 4 herein are not satisfied. With respect to both parties, any such
termination shall not be effective if the unsatisfied condition precedent upon
which the termination notice is based is satisfied prior to the end of the
30-day notice period.
3
<PAGE>
Precedent Agreement No. 57448
Control No. 970731-0011
If this Agreement is terminated pursuant to this section, such
termination shall be without liability, damages, costs or expenses of either
party to each other or other parties, or to any of their shareholders,
directors, officers, employees, agents, consultants or representatives; and
Columbia and Customer shall have no further rights or obligations whatsoever
pursuant to this Agreement or the service agreement.
7. Authorization. Each of the persons executing this Agreement and the
FTS service agreement attached hereto represents and warrants that it has
authority to act for and bind the entity on whose behalf he or she purports to
act and to take the actions contemplated herein.
8. Customer's Support for Expansion. Customer agrees to support and not
take any adverse action with respect to Columbia's obtaining any necessary
approvals and authorizations, including, but not limited to Columbia's filings
at the FERC with respect to its expansion.
9. Parties In Interest. Nothing in this Agreement or the FTS service
agreement whether express or implied, is intended to confer any rights or
remedies under or by reason of this Agreement or the FTS service agreement on
any persons other than the parties to them, nor is anything in this Agreement or
the FTS service agreement intended to relieve or discharge the obligation or
liability of any third persons to any party to this Agreement or the FTS service
agreement, nor shall any provision give any third persons any right of
subrogation or action over or against any party to this Agreement or the FTS
service agreement.
10. Effect of Agreement and Amendment. This Agreement shall inure to the
benefit of and be binding upon each of the undersigned parties. This Agreement
and the FTS service agreement constitute the entire agreement and understanding
between the parties hereto with respect to the subject matter herein and
therein, and supersede all prior agreements and understandings with respect
thereto. The parties agree that the execution of this Agreement and the FTS
service agreement does not supersede, and is without prejudice to any rights or
obligations the parties have to each other under separate and distinct
agreements, including, but not limited to, Precedent Agreement No.47753, its
related FSS/SST service agreements, and existing service agreement(s) between
Columbia and Customer. This Agreement can only be assigned, amended, modified,
or supplemented by the written agreement of Columbia and Customer.
11. Waivers. The waiver by any party of a breach or violation of any
provision of this Agreement shall not operate as or be construed to be a waiver
of any subsequent breach hereof.
12. Governing Law. This Agreement shall be governed by the laws of the
State of West Virginia without reference to conflicts of law provisions, and
except as to any matters subject to federal law and the exclusive jurisdiction
of the FERC.
4
<PAGE>
Precedent Agreement No. 57448
Control No. 970731-0011
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the duly authorized representatives of the parties
hereto have executed this Agreement.
COLUMBIA GAS TRANSMISSION CORPORATION
By s/Shawn E. Casey
Name Shawn E. Casey
Its Manager - Commercial Services
Date September 30, 1997
ROANOKE GAS COMPANY
By s/John B. Williamson, III
Name John B. Williamson, III
Its Vice President
Date Sept. 26, 1997
5
<PAGE>
Exhibit 10(w)(w)
FIRM STORAGE SERVICE AGREEMENT
THIS AGREEMENT, made and entered into as of this 19th day of March,
1997, by and between VIRGINIA GAS STORAGE COMPANY, a Virginia corporation,
hereinafter referred to as "VGSC," and Roanoke Gas Company, a Virginia
corporation, hereinafter referred to as "RGC".
WITNESSETH
WHEREAS, VGSC has undertaken to provide a firm storage service under the
Utility Facilities Act of Virginia, in accordance with its Gas Tariff filed with
the State Corporation Commission of Virginia ("SCC"), and under part 284 of the
Regulations of the Federal Energy Regulatory Commission ("FERC"); and
WHEREAS, RGC has requested storage service on a firm basis pursuant to
Rate Schedule FSS in compliance with Section 3 of VGSC's SCC Gas Tariff; and
WHEREAS, RGC agrees to arrange for transportation of quantities of gas
in order to deliver and receive gas to and from storage.
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I
QUANTITY OF SERVICE
1.1 Subject to the terms and provisions of this Agreement and the SCC
Gas Tariff applicable thereto, RGC has the right to maintain an aggregate
storage quantity of up to 180,000 dth (the "Maximum Storage Quantity," or
"MSQ"). VGSC's obligation to accept gas at the Delivery Points specified on
Exhibit A hereto for injection into storage on any day is limited to the Maximum
Daily Injection Quantity ("MDIQ") specified on Exhibit A hereto. VGSC, at its
sole discretion, may allow injections at rates above the MDIQ on a best efforts,
interruptible basis if such injections can be made without adverse effect upon
injections of other Customers or to VGSC's operations.
1.2 VGSC shall redeliver a thermally equivalent quantity of gas to RGC
at the Delivery Points described on Exhibit A hereto. VGSC's obligation to
withdraw gas from storage on any day is limited to the available Maximum Daily
Withdrawal Quantity ("MDWQ") specified on Exhibit A hereto. VGSC, at its sole
discretion, may allow withdrawals at rates higher than the MDWQ on a best
efforts, interruptible basis if such withdrawals can be made without adverse
effect upon withdrawals of other Customers or to VGSC's operations and such gas
is available from RGC's
1
<PAGE>
Storage Gas Balance. RGC may withdraw during the Withdrawal Period any
quantity up to the MDWQ.
ARTICLE II
CONDITIONS OF SERVICE
2.1 RGC shall pay VGSC $0.05 per each dth injected and $0.05 per each
dth withdrawn. Subject to the provisions of Section 2.3, RGC will pay VGSC an
annual storage charge ("Annual Storage Charge") which shall be the product of
$1.50 multiplied by the Maximum Storage Quantity, which fee shall be payable in
twelve (12) equal monthly installments.
2.2 VGSC shall reimburse RGC for any injected gas that cannot be
withdrawn for delivery to RGC at Inside FERC index for deliveries into Tennessee
Gas, Zone 1, plus interruptible transportation on Tennessee Gas and East
Tennessee. Any gas not withdrawn at RGC's option shall be carried over to the
following year's storage balance.
2.3 On May 1, 1997 and each May 1 thereafter, VGSC shall pro-rate the
Annual Storage Charge for the year retroactively and prospectively to reflect
any deficiencies in performance in the prior Withdrawal Period as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Adjusted Annual Actual MSQ Actual MDWQ
Storage Charge = Contract MSQ X Contract MDWQ X $1.50 X 180,000
</TABLE>
RGC's election to use the storage service at levels below the MSQ and MDWQ shall
not be considered deficiencies in performance.
2.4 RGC shall insure that the gas delivered to VGSC at the Delivery
Points for injection meets the minimum quality specifications of East Tennessee
Natural Gas Company's FERC Tariff. VGSC shall insure that gas delivered to RGC
at the Delivery Points meets the minimum quality specifications of East
Tennessee Natural Gas Company's FERC Tariff.
2.5 The measurement of quantities for billing purposes, in MMBtu,
delivered to or received from VGSC shall be performed by East Tennessee Natural
Gas Company.
ARTICLE III
NOTICES
3.1 Notices hereunder shall be given to the respective party at the
applicable address, telephone number or facsimile machine number stated below,
or such other addresses, telephone numbers or facsimile numbers as the parties
shall respectively hereafter designate in writing from time to time:
2
<PAGE>
Virginia Gas Pipeline Company
P.O. Box 2407
200 East Main Street
Abingdon, Virginia 24210
Attention: Michael L. Edwards
Telephone Number: (540) 676-2380, extension 17
Facsimile Machine Number: (540) 676-2494
Roanoke Gas Company
519 Kimball Avenue, N.E.
Roanoke, VA 24030
Attention: Mike Gagnet
Telephone Number: (540) 983-3800
Facsimile Machine Number: (540) 983-3957
ARTICLE IV
BILLING AND PAYMENT
4.1 On or before the fifteenth (15th) day of each calendar month, VGSC
shall submit to RGC an invoice for services performed during the preceding
month.
4.2 RGC shall pay the amounts invoiced by the twenty-fifth (25th) day of
each month in which said invoice is received by RGC or within ten (10) days of
RGC's receipt of VGSC's invoice.
4.3 Should RGC fail to pay all of the amount of any invoice as herein
provided when such amount is due, RGC shall pay a charge for late payment which
shall be included by VGSC on the next regular monthly invoice rendered
hereunder. Such charge for late payment shall accrue interest at an annual rate
equivalent to the then current Chase Manhattan Bank prime interest rate plus two
percent (2%), but not to exceed the maximum rate permitted by law. If such
failure to pay continues for thirty (30) days after payment is due, VGSC, in
addition to any other remedy it may have, may suspend futher injections and/or
withdrawals of gas for RGC's account until such amount is paid; provided,
however, that if RGC, in good faith, disputes the amount of any such invoice or
part thereof and pays to VGSC such amounts as RGC concedes to be correct, and,
at any time thereafter within thirty (30) days of a demand made by VGSC,
furnishes a good and sufficient surety bond in an amount and with sureties
satisfactory to VGSC conditioned upon the payment of any amounts ultimately
found due upon such invoices after a final determination, which may be reached
either by agreement or judgment of the courts, as the case may be, then VGSC
shall not be entitled to suspend further injections and/or withdrawals of gas
unless and until default be made in the conditions on such bond or there is a
subsequent default under the conditions of this agreement.
3
<PAGE>
4.4 In the event any overcharge or undercharge in any form whatsoever
shall be found within twenty four (24) months from the date a billing
discrepancy occurs, the appropriate party shall refund the amount of overcharge
or pay the amount of undercharge within thirty (30) days after the final
determination of the amount overcharged or undercharged has been made. Any
overcharge or undercharge found after such twenty four (24) months shall be
deemed waived by both parties.
4.5 Both parties hereto shall have the right, at any and all reasonable
times, to examine the books and records of the other party to the extent
necessary to verify the accuracy of any statement, charge, computation or demand
made under or pursuant to this Agreement.
4.6 It is expressly understood that VGSC retains a landlord's lien
against the personal property of RGC's stored hereunder for the recovery of any
and all amounts which may become due and payable under this agreement.
ARTICLE V
TERM
5.1 Subject to the provisions hereof, this Agreement shall become
effective as of the date first written above and shall be in full force and
effect for a primary term through April 30, 2007 (the "Termination Date") and
shall continue and remain in force and effect for successive terms of one (1)
year each hereafter unless and until canceled by either party giving 180 days
written notice to the other party prior to the end of the primary term and any
yearly extension thereof.
ARTICLE VI
INDEMNITY
6.1 RGC shall be deemed to have the exclusive control and possession of
the Gas until delivered to VGSC at the Delivery Points and after the Gas is
redelivered to RGC at the Delivery Points pursuant to Sections 1.1 and 1.2
hereof. VGSC shall be deemed to have the exclusive control and possession of the
Gas after it has been delivered to VGSC at the Delivery Points, until such time
as the Gas is redelivered to RGC at the Delivery Points pursuant to Sections 1.1
and 1.2 hereof.
6.2 The party in control of the Gas will defend, indemnify and hold the
other harmless from and against any and all claims, causes of action or
judgments (including attorney's fees and expenses) in any way arising with
respect to the Gas while in that party's control, and the other shall not be
liable for any part thereof.
4
<PAGE>
ARTICLE VII
FORCE MAJEURE
7.1 Subject to the provisions of this Article VII, no party shall be
liable to the other party for the failure to perform in conformity with this
Agreement to the extent such failure results from an event of Force Majeure
which is beyond the reasonable control of the party affected thereby, which
wholly or partially prevents the supply, transportation, sale, delivery,
injection, storage, withdrawal or redelivery of Gas.
7.2 Events of Force Majeure shall include, by way of illustration, but
not limitation those enumerated in Section 16.2, Original Sheets No. 58 and No.
59 of the Terms and Conditions of VGSC's SCC Gas Tariff.
7.3 Immediately upon becoming aware of the occurrence of an event of
Force Majeure, the party affected shall give notice thereof to the other party,
describing such event and stating the specific obligations, the performance of
which are, or are expected to be, delayed or prevented, and (either in the
original or in supplemental notices) stating the estimated period during which
performance may be suspended or reduced, including, to the extent known or
ascertainable, the estimated extent of such reduction of performance. Such
notice of an event of Force Majeure is to be first given by telephone
communication, and then shall be confirmed in writing within five (5) days,
giving particulars available to the reporting party, and being supplemented if
necessary within twenty (20) days to give full particulars. Not withstanding any
other provision in this Agreement, the parties mutually agree that should some
cause or event, beyond the control of VGSC, make it appear to VGSC that a
storage area is losing pressure and may no longer be viable for storage, it may
immediately notify RGC (by fax, phone or other means) and RGC shall immediately
start accepting the stored gas in order to drain the storage area and cut down
on the potential loss to VGSC, or VGSC may otherwise dispose of such gas and pay
RGC for the value thereof plus the value of any gas otherwise lost. Thereafter
this Agreement shall be considered of no further force and effect unless VGSC
can reasonably revitalize and stabilize such storage area to hold gas pressure
in which event VGSC shall give the thirty (30) day notice as provided in Section
3.1 and the Agreement shall thereafter continue in full force and effect.
7.4 The party relying upon an event of Force Majeure shall act prudently
and use all reasonable efforts to eliminate the effects of Force Majeure as soon
as reasonably practicable, provided that the settlement of strikes and lockouts
shall be entirely within the discretion of the party affected.
7.5 No suspension or reduction of performance by reason of an event of
Force Majeure shall invalidate this Agreement, and upon removal of the Force
Majeure, performance shall resume in this Agreement as soon as practicable.
5
<PAGE>
ARTICLE VIII
OPERATIONAL FLOW ORDERS
8.1 RGC may be subject to certain operational flow orders ("OFO's")
issued by VGSC: (a) to alleviate conditions that threaten the integrity of
VGSC's system; (b) to maintain pressures necessary for VGSC's operations; (c) to
alleviate operational problems arising from overdeliveries or underdeliveries by
RGC in violation of this Agreement; and (d) to prevent damage to a storage
field.
8.2 Upon the issuance of an OFO, RGC must take the actions set forth in
the OFO, which may include, but are not limited to, reducing its withdrawals
from storage.
ARTICLE IX
SUCCESSORS AND ASSIGNS
9.1 This Agreement shall be binding upon and inure to the benefit of the
successors, assigns and legal representatives of the parties hereto. Either
party may freely assign this Agreement to a company with which it is affiliated
or which it controls, is controlled by, or is under common control with, or any
party succeeding to substantially all the interests of RGC or VGSC. All other
assignments shall be subject to the prior written consent of the party not
assigning, such approval not to be unreasonably withheld. Either party hereto
shall have the right to pledge or mortgage its respective rights hereunder for
security of its indebtedness without the prior written consent of the other
party.
ARTICLE X
MISCELLANEOUS
10.1 This Agreement constitutes the entire Agreement between the parties
and no waiver by VGSC or RGC of any default of either party under this Agreement
shall operate as a waiver of any subsequent default whether of a like or
different character.
10.2 The laws of the Commonwealth of Virginia shall govern the validity,
construction, interpretation, and effect of this Agreement.
10.3 No modification of or supplement to the terms and provisions hereof
shall be or become effective except by execution of a supplementary written
agreement between the parties.
10.4 Exhibit A attached to this Agreement constitutes a part of this
Agreement and is incorporated herein.
6
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
written above by the parties' duly authorized officers.
Attest: ROANOKE GAS COMPANY
By: s/John B. Williamson, III
s/Michael A. Yount
Its: Vice President
Attest: VIRGINIA GAS STORAGE COMPANY
By:s/M.C. Edwards
s/Stacey D. Varney
Its: President
7
<PAGE>
EXHIBIT A
to that certain Gas Storage Agreement dated March 19, 1997 by and between
ROANOKE GAS COMPANY
and
VIRGINIA GAS STORAGE COMPANY
Delivery Points:
1. Saltville receipt/delivery point, Smyth County, Virginia. For
injections: ETNG Meter Number 759766; for withdrawals: ETNG Meter
Number 759777.
2. Early Grove receipt/delivery point, Washington County, VA. For
injections: ETNG Meter Number 759147; for withdrawals: ETNG Meter
Number 759009.
3. Dickenson #2 receipt point, Dickenson County, Virginia for
withdrawals only, ETNG Meter Number 759321.
Maximum Daily Injection Quantity, in dth:
1,200 Dth
Injection Period runs from on or about April 5 of each year to on or about
October 26 of each year (the "Summer Period"). Injections may be made from
October 27 to April 4 of each year (the "Winter Period") on a best efforts,
interruptible basis with the consent of VGSC.
Maximum Daily Withdrawal Quantity, in dth:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
857 Dth from Early Grove delivery point ETNG Meter Number 759009
1,143 Dth from Early Grove, Saltville or Dickenson #2 delivery point
ETNG Meter Number 759009
ETNG Meter Number 759777
ETNG Meter Number 759321
</TABLE>
Withdrawal Period runs from November 15 through April 15 of each year.
Withdrawals may be made from November 1 to November 15, and from April16 through
April 30 of each year on a best efforts, interruptible basis.
s/M.C. Edwards
3/19/97
8
<PAGE>
Exhibit 10(x)(x)
Service Agreement No. 40437
Control Number 931229-10
FTS-2 SERVICE AGREEMENT
THIS AGREEMENT, made and entered into this 1st day of February, 1994, by
and between COLUMBIA GULF TRANSMISSION COMPANY ("Transporter") and BLUEFIELD GAS
COMPANY ("Shipper").
WITNESSETH: That in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Section 1. Service to be Rendered. Transporter shall perform and Shipper
shall receive the service in accordance with the provisions of the effective
FTS-2 Rate Schedule and applicable General Terms and Conditions of Transporter's
FERC Gas Tariff, First Revised Volume No. 1 (Tariff), on file with the Federal
Energy Regulatory Commission (Commission), as the same may be amended or
superseded in accordance with the rules and regulations of the Commission herein
contained. The maximum obligations of Transporter to deliver gas hereunder to or
for Shipper, the designation of the points of delivery at which Transporter
shall deliver or cause gas to be delivered to or for Shipper, and the points of
receipt at which the Shipper shall deliver or cause gas to be delivered, are
specified in Appendix A, as the same may be amended from time to time by
agreement between Shipper and Transporter, or in accordance with the rules and
regulations of the Commission. Service hereunder shall be provided subject to
the provisions of Part 284.102 of Subpart B of the Commission's regulations.
Shipper warrants that service hereunder is being provided on behalf of Shipper,
a local distribution company.
Section 2. Term. Service under this Agreement shall commence as of
February 1, 1994 and shall continue in full force and effect until June 30,
1994. Thereafter, it shall continue from year to year unless canceled by either
party upon six (6) months prior written notice to the other party. Shipper and
Transporter agree to avail themselves of the Commission's pregranted abandonment
authority upon termination of this Agreement, subject to any right of first
refusal Shipper may have under the Commission's regulations and Transporter's
Tariff.
Section 3. Rates. Shipper shall pay the charges and furnish the
Retainage as described in the above-referenced Rate Schedule, unless otherwise
agreed to by the parties in writing and specified as an amendment to this
Service Agreement.
Section 4. Notices. Notices to Transporter under this Agreement shall be
addressed to it at Post Office Box 683, Houston, Texas 77001, Attention:
Director, Planning, Transportation and
<PAGE>
Exchange; notices to Shipper shall be addressed to it at P.O. Box 589,
Bluefield, West Virginia 24701-0589, Attention: Mr. Arthur L. Pendleton, until
changed by either party by written notice.
Section 5. Superseded Agreements. This Agreement supersedes and cancels, as
of the effective date hereof, the following contracts: 37602, 39119.
BLUEFIELD GAS COMPANY COLUMBIA GULF TRANSMISSION
COMPANY
By s/Arthur L. Pendleton By s/Paul H. Pieir
Title V. P. Operations Title Vice President
<PAGE>
Revision No. __________
Control No. 931229-10
Appendix A to Service Agreement No. 40437
Under Rate Schedule FTS-2
between Columbia Gulf Transmission Company (Transporter)
and Bluefield Gas Company (Shipper)
Transportation Demand 2,345 Dth/day
<TABLE>
<CAPTION>
Primary Receipt Points
Measuring Maximum Daily
Point No. Measuring Point Quantity (Dth/day)
<S> <C> <C> <C> <C> <C> <C>
M.S. 433 Egan A, Acadia Parish, LA - CGT 1,000
M.S. 434 Egan B, Acadia Parish, LA - Tennessee 345
M.S. 624 Orange Grove, Terrebonne Parish, LA - Union Texas 1,000
</TABLE>
<TABLE>
<CAPTION>
Primary Delivery Points
Measuring Maximum Daily
Point No. Measuring Point Quantity (Dth/day)
<S> <C> <C> <C> <C> <C> <C>
M.S. 2700010 Rayne Compressor Station, located in Acadia Parish, LA 2,345
</TABLE>
The Master List of Interconnects (MLI) as defined in Section 1 of the General
Terms and Conditions is incorporated herein by reference for purposes of listing
valid secondary interruptible receipt points and delivery points.
CANCELLATION OF PREVIOUS APPENDIX A
Service changes pursuant to this Appendix A shall commence as of February 1,
1994. This Appendix A shall cancel and supersede the previous Appendix A to the
Service Agreement dated November 1,
<PAGE>
1993. With the exception of this Appendix A, all other terms and conditions of
said Service Agreement shall remain in full force and effect.
BLUEFIELD GAS COMPANY COLUMBIA GULF TRANSMISSION COMPANY
By s/Arthur L. Pendleton By s/Paul H. Pieir
Its V. P. Operations Its Vice President
Date 1/21/94 Date 1/14/94
<PAGE>
Exhibit 10(y)(y)
GAS PURCHASE/SALES CONTRACT
This AGREEMENT, made as of October 27, 1997 between BLUEFIELD GAS
COMPANY ("Buyer" or "Bluefield") and PHOENIX ENERGY SALES COMPANY ("Seller" or
"PES"), Provides:
1) Pipeline Construction
PES will install, own, and operate +/- 8 miles of 6" gathering line from
the CNGT interconnect to State Route 643 at cost to PES. Bluefield Gas
will install, own and operate +/- 2 miles of 4" distribution line from
State Route 643, inclusive of road crossing, to an existing Bluefield
Gas distribution line along Route 102 at cost to Bluefield. Construction
of the 6" pipeline by PES will provide the capacity for market growth,
as well as, for winter baseload and peaking requirements. From CNGT's
standpoint, well deliverability into its gathering system can be
enhanced only if operating line pressure that the wells flow against is
significantly reduced by delivering excess supplies off-system into the
proposed PES line. Given Bluefield's load profile, 6" pipe is needed to
minimize pipeline friction losses.
2) Reservation Fee
Within that 6" pipeline owned by PES, PES will provide to Bluefield
sufficient pipeline capacity on a firm basis with which to meet a
peaking requirement of 5,000 Dth per day. As consideration, Bluefield
will agree to pay PES an initial monthly reservation fee of $3.50/Dth
for such capacity. The fee will be redetermined after initial investment
and financing charges are recovered (to be determined based on actual
pipeline costs and interest rates), based on operating expenses and a
reasonable ROE utilizing FERC guidelines for regulated pipelines.
3) Base Gas Service
PES will make available on a "firm" basis to Bluefield, for any given
month, an average daily volume up to 2500 Dth per day of gas year round.
Bluefield will nominate to PES its monthly base gas requirements (up to
the 2500 Dth per day available) 10 days before the start of each month.
Although base gas nominations will be stated in terms of flat dth/day,
actual daily usage can vary up to the maximum pipeline capacity. The
total monthly usage would be divided by the number of days in the month
to get average usage. Average usage would be used to determined base gas
and peaking gas volumes.
4) Peaking Service
PES will also provide Bluefield a peaking service whereby Bluefield will
have access to the maximum volume, which can be delivered through the
pipeline. Maximum volume available at any given time will be dictated by
the inlet pressure at the CNGT interconnect and the outlet pressure at
the Bluefield interconnect. Based on the current operating conditions
(i.e., CNG inlet - 225 psig, Bluefield outlet - 50 psig) a total +/-
5000 Dth per day would be available for delivery
<PAGE>
into the PES system. During any given month, a maximum average daily
volume up to 2500 Dth per day would be available for purchase by
Bluefield. Average daily volume during any given month in excess of that
month's base gas (as nominated by Bluefield) will be considered peaking
volume and will be made available on a best efforts basis.
5) Pricing
For base gas purchased during the summer months (i.e. April - October),
Bluefield will pay to PES the first of month CNG Transmission contract
index as published by Inside FERC. For base gas purchased during the
winter (i.e. November - March), Bluefield will agree to pay PES the
first of month CNG Transmission contract index as published by Inside
FERC, plus $0.10 per Dth. Gas supplied in any given month in excess of
the base gas volume nominated by Bluefield for first of month
deliveries, would be purchased at the monthly average Gas Daily pricing
for CNG Appalachia pool gas, plus the seasonal add-on (i.e. $0.10 per
Dth in the winter), if applicable. All prices will be adjusted for
shrinkage.
6) Nominations
Bluefield will nominate its required base gas volume from PES at least
ten days before the beginning of each month. Should an intra-month
nomination become necessary, Bluefield will so inform PES and PES will
use best efforts to accommodate Bluefield. PES will be as flexible as
the rules governing PES's transportation on the CNG system from
Appalachian pools will allow.
7) Rights-of-Way Easements
It shall be the responsibility of PES to obtain all Rights-of-Way
easements for the total 10-mile pipeline with the exception of the
Virginia Holding Company Agreement near Falls Mills, which will be
obtained by Bluefield Gas Company. All West Virginia state, local and
Federal construction and regulatory permits/licenses will be obtained by
PES. All Virginia permits and licenses will be obtained by Bluefield Gas
Company.
8) Measurement Station
PES will provide a measurement station as close as practical to the
VA/WVA state line. Bluefield will be supplied access to this equipment
for electronic data transfer and periodic meter testing. Billed volumes
will be based solely on this measurement unless otherwise mutually
agreed by both parties. Billings will be adjusted to reflect BTU content
determined by averaging periodic sample tests. In the event the parties
fail to agree on the accuracy of the testing, Marshall Miller and
Associates will be used to verify testing results.
9) Attachment
The attached Pool Transfer Gas Purchase/Sales Contract, General Terms
and Conditions will be included as a part of this Agreement.
<PAGE>
10) Term
The start up date of this Agreement shall be no later than December 31,
1998. Term of the agreement will be for 15 years with a reopener every 5
years to redetermine, if necessary, the applicable reservation fee and
gas supply pricing to be paid. These fees will be subject to
redetermination via binding arbitration in the event the parties cannot
agree on price, as per guidelines described in letter dated October 16,
1997 from Joseph C. Vanzant, Jr. in reference reservation charges.
IN WITNESS HEREOF, the parties hereby have caused this Agreement
to be duly executed as of the day and year first above written.
PHOENIX ENERGY SALES COMPANY BLUEFIELD GAS COMPANY
By: s/Joseph C. Vanzant, Jr. By: s/Arthur L. Pendleton
Joseph C. Vanzant, Jr. Arthur L. Pendleton
ITS: Vice President ITS: Vice President - Operations
DATE: 11/4/97 DATE: October 27, 1997
<PAGE>
Exhibit 10(z)(z)
AGREEMENT FOR CONSULTING SERVICES
This Agreement is made and entered into this 26th day of January, 1998,
between FRANK A. FARMER, JR. (hereinafter referred to as "Consultant"), and
ROANOKE GAS COMPANY (hereinafter referred to as "Company"), pursuant to
authorization by the Company's Board of Directors (hereinafter referred to as
"Board"), to become effective February 1, 1998.
Introductory
Consultant has served the Company as its chief executive and as a
director for over seven years and the gas industry for approximately thirty-five
years. As a result of this experience, Consultant has acquired familiarity with
and expertise in every phase of the Company's business, including those engaged
in by its various divisions and subsidiaries. Furthermore, as a result of
Consultant's activities in regional and national industry organizations,
Consultant is extremely knowledgeable in the areas of short-, medium- and
long-term industry technological and economic developments and trends. Company
therefore desires to retain for itself the availability of Consultant's
knowledge and experience. It is therefore agreed between Company and Consultant
as follows:
1. TERM: Consultant's term of engagement under this Agreement shall
commence on February 1, 1998, and terminate on January 31, 1999. The term of
engagement may be extended by written mutual consent of both parties.
2. POSITION, AUTHORITY, AND DUTIES: It is contemplated that during the
term of this Agreement, Consultant shall serve as Chairman of the Board, and in
such capacity shall have and exercise such authority and discharge such duties
and responsibilities in connection with the business of the Company as may be
assigned to him by the Board.
3. TIME TO BE DEVOTED TO COMPANY'S ACTIVITIES: Consultant agrees to
devote such time to Company's business as may be reasonably required to carry
out the duties and responsibilities assigned to him by the Board.
4. PROVISION OF SUPPORT FACILITIES AND SERVICES AND REIMBURSEMENT OF
BUSINESS-RELATED EXPENSES:
Company will furnish Consultant office space and secretarial assistance
substantially equivalent to that presently made available to Consultant, a
Company-owned vehicle equivalent to the one presently used by Consultant and
will reimburse Consultant for any commuting expenses, and also for
business-related expenses under the same terms and conditions as those effective
from time to time for Company executives. Company will also pay the dues and
1
<PAGE>
expenses related to Consultant's continued participation in local clubs and
industry organizations and activities on the same basis as for Company
executives.
5. COMPENSATION AND LIFE AND HEALTH INSURANCE BENEFITS:
Company will pay the Consultant as compensation for his services at an
annual rate of $82,500.00, payable in monthly installments, and Consultant will
receive no fees for serving as a member of the Board in addition to such
compensation.
6. CONFLICT OF INTEREST: During the term of this Agreement, Consultant
will not accept engagements for compensation by any party that is in competition
or could reasonably expect to be in competition with the Company. Consultant
will further be bound by the provision of his NonCompete Agreement as executed
on September 6, 1995 during his employment prior to retirement.
7. CONSULTANT NOT TO BE EMPLOYEE: Notwithstanding any of the
provisions of this Agreement, Consultant will retire as an employed officer of
the Company as of January 31, 1998, and will thereupon assume the status of a
retired employee for the purposes of Company's life and accidental death and
dismemberment insurance, and Company's retirement, group health, disability and
other Company plan.
8. TERMINATION: This Agreement shall terminate upon the earlier to occur
of death of Consultant or the 31st of January, 1999, unless extended, whereupon
all salaries and benefits hereunder shall cease and determine, prorated in the
case of compensation to the date of death.
This Agreement and all compensation due Consultant shall further
terminate upon the first to occur of the following: (i) the disability of the
Consultant which renders him unable to provide services as contemplated
hereunder; (ii) just cause.
9. SUCCESSORS AND ASSIGNS: This Agreement shall be binding upon the
heirs, legatees, executors and administrators of Consultant, and upon the
successors and assigns (including any person or entity that acquires assets of
the Company having a value in excess of fifty percent (50%) of the total value
of Company's assets) of Company.
2
<PAGE>
Executed by direction of the Board of Directors this 26th day of
January, l998, to be effective February 1, 1998.
By: s/Frank A. Farmer, Jr.
Consultant
(SEAL)
By: s/John B. Williamson, III
Company
(SEAL)
ATTEST:
s/Roger L. Baumgardner
Secretary
3
<PAGE>
Exhibit 10(a)(a)(a)
CONSULTATION CONTRACT
This is an agreement signed this 26th day of January, 1998 between
Roanoke Gas Company ("Company") and John H. Parrott ("Retired Director").
In consideration of the premises and the mutual promises and covenants
of the parties to this contract, it is agreed as follows:
1. Engagement: The Company agrees to engage the Retired Director
and the Retired Director agrees to serve the Company as a
consultant.
2. Term: The term of this agreement shall commence on February 1,
1998 and shall continue for ten years until January 31, 2008.
3. Services: The Retired Director shall use his best efforts on a
strictly part-time basis to consult with the Company and help the
Company on such matters as the Company deems reasonably
appropriate. By example, the Company may request the Retired
Director to help the Company improve a business relationship with
another business in the operating area of the Company, etc.
4. Compensation: As compensation for the services to be rendered by
the Retired Director, the Company shall pay the Retired Director
compensation at the rate of $7,200.00 per year for each year this
agreement is in effect, such compensation to be paid on a monthly
basis on the first day of each month this agreement is in effect.
5. Expenses: The Retired Director shall also be entitled to
reimbursement for all reasonable expenses necessarily incurred by
him in the performance of his duties upon presentation of a
voucher indicating the amount and business purposes. Such
expenses must normally be approved in advance by a person or
persons designated by the Company.
6. Termination: Either party may terminate this agreement upon any
annual, anniversary date of signing of this agreement. Further,
this agreement shall be terminated upon the death or complete
disability of the Retired Director. The foregoing
notwithstanding, this agreement shall be terminated upon the
expiration of ten years from the anniversary date of signing of
this agreement, whether or not the Retired Director is
<PAGE>
deceased or permanently disabled at that time. Finally, this
agreement is immediately terminable by the Company, if the
Retired Director directly or indirectly competes with the Company
or reveals confidential information of the Company to an
organization, person or entity which is directly or indirectly
competing with the Company. Upon any termination under this
agreement, the Retired Director shall be entitled to compensation
through the date of termination.
7. Successors and Assigns: This agreement shall inure to the benefit
of and be binding upon the parties hereto, their successors and
heirs.
8. Applicable Law: This agreement shall be governed by the laws of
Virginia.
ROANOKE GAS COMPANY
s/Frank A. Farmer
President
s/John H. Parrott
Retired Director
<PAGE>
Exhibit 13
Diversification
The Propane Alternative
Positioning For Deregulation
Acquisition And Geographic Expansion
Trade Ally Relations
Saturation Program
Roanoke Gas Company
1998 ANNUAL REPORT
<PAGE>
Table Of Contents
1 Letter To Stockholders
2 An Interview With John Williamson, CEO
4 Review Of Operations
10 Management's Discussion & Analysis
16 1998 Financial Highlights
17 Independent Auditors' Report
18 Consolidated Balance Sheets
20 Consolidated Statements Of Earnings
21 Consolidated Statements Of Stockholders' Equity
22 Consolidated Statements Of Cash Flows
23 Notes To Consolidated Financial Statements
34 Summary Of Gas Sales & Statistics
35 Summary Of Capitalization Statistics
36 The Company's Board Of Directors And Officers
General Corporate Information - Inside Back Cover
Notice Of Annual Meeting - Back Cover
Southwest Virginia And Southern West Virginia's
Choice For Comfort And Economy
Natural Gas
Propane
[Map of Virginia and West Virginia showing Company's market area for natural
gas and propane.]
<PAGE>
Letter To Stockholders
Dear Stockholder:
I am pleased to report that the year ended September 30, 1998
produced several new records and numerous changes. On the records side, we
achieved our BEST earnings year ever in both net income and earnings per share.
Net income was $2.7 million, up 18 percent over last year, while per share
earnings of $1.60 were approximately 5 percent greater than the prior year. In
addition, dividends to shareholders were increased from $1.04 to $1.06 per
share.
The Company enjoyed excellent customer growth again in 1998 with over 4,500
new customer additions and 2,994 net customer additions for the year, a 7
percent growth rate and a 5 percent net growth rate. Natural gas new customer
additions increased approximately 3 percent and propane customers increased by
approximately 25 percent. New records were set in propane deliveries at 7.7
million gallons, up 17 percent. Natural gas volumes were up 1 percent on 6
percent warmer weather.
There were several significant changes and highlights this year.
On January 27, 1998, we sold 181,500 shares of stock through our first public
offering since the Company was capitalized in the 1940s. The offering was very
successful and permitted us to strengthen our balance sheet and lower our cost
of debt and composite interest rate. In a milestone in employee relations, we
made permanent a previously experimental skills based compensation plan for
bargaining unit employees when we implemented a two-year labor contract
effective August 1, 1998.
There were also personnel changes. On February 1, 1998, I took over as
President and Chief Executive Officer. At the same time, Arthur L. Pendleton was
promoted to Executive Vice President and Chief Operating Officer and John S.
D'Orazio was promoted to Vice President of Marketing and New Construction. In
May, Dale P. Moore joined us as Director of Rates, Regulatory Affairs and
Financial Planning. With the other experienced and talented managers already in
place, I feel we are building a strong team with which to grow the Company.
Our most significant change underway is a proposed corporate
reorganization into a holding company structure. In July, RGC Resources, Inc.
was chartered and is in position to become the holding company in our new
corporate structure. Subject to shareholder approval at the Annual Meeting and
receipt of regulatory approvals by the Securities and Exchange Commission and
the state regulatory commissions, we will implement the new structure. I believe
this change is critical in meeting several of our key business strategies, in
particular, positioning for deregulation, acquisition, and diversification.
We have continued our employment of technology and upgrading of computer
systems and recently installed, and are in the early stages of converting to, an
enhanced Customer Information and Billing System. The new system also
complements our Year 2000 compliance activities which include a mixture of
systems tests, upgrades and replacements. We added a second IBM AS/400 computer
to facilitate our Year 2000 readiness program and to provide for an offsite
emergency back-up system to ensure continuation of operations in the event of a
major disruption, system failure, or work site dislocation. We also rolled out a
new internet home page, which can be accessed at www.roanokegas.com.
We were busy on the regulatory front and implemented final rates following
state commission orders in all three natural gas operating
companies. The most recent order was issued in July in the Roanoke Gas case. The
rate relief in the Roanoke Gas rate case was not adequate given the extent of
our renewal program for replacing older portions of the distribution system. As
a consequence, we filed a new rate case on September 30 and anticipate placing
increased rates into effect, subject to refund, in March 1999. We had an
aggressive year in the renewal program, replacing over eight miles of cast iron
or bare steel mains and approximately 650 bare steel customer service lines.
I am pleased with the results of operations and the progress we have made
this year. I am excited about the opportunities the new millennium and a new
corporate structure will offer, and I look forward to continued deregulation
efforts in the energy sector of the economy. I believe we are taking the
necessary steps to position the Company to succeed in
changing markets.
I thank you for your interest in Roanoke Gas Company and for your continuing
decision to invest in company stock.
Sincerely,
/s/ John B. Williamson III
- ----------------------------------
John B. Williamson III
President and CEO
1998 Annual Report
1
<PAGE>
An Interview With John Williamson, CEO
Regarding The Proposed Corporate Restructuring
Q: Why do you believe reorganizing Roanoke Gas Company and its subsidiaries
under a holding company is necessary?
JBW: I believe that for this Company to realize its full potential it must be
positioned to grow not only natural gas and propane operations, but also expand
into other activities that are a good fit with the Company's experience,
marketing, and service capabilities. In our current structure, all activities
are under the utility company and are subject to the restrictions placed on
regulated public service corporations. With the establishment of a new holding
company, to be called RGC Resources, Inc., activities not specifically related
to utility operations can be organized and operated without the public service
corporation restrictions. The enhanced flexibility should facilitate our growth
and diversification efforts.
Q: How will Roanoke Gas Company, Bluefield Gas Company, and Diversified Energy
Company be affected by the corporate restructuring?
JBW: Each company will continue to exist and carry out its mission. Bluefield
Gas Company and Diversified Energy Company will operate as subsidiaries of RGC
Resources, Inc. rather than as subsidiaries of Roanoke Gas Company. Commonwealth
Public Service Corporation, which is currently a subsidiary of Bluefield Gas
Company for Bluefield operations in Virginia, will be merged into Roanoke Gas
Company so that there will be only one natural gas subsidiary in each state.
Roanoke Gas will also become a subsidiary of RGC Resources, Inc. In addition,
other subsidiaries may be formed under RGC Resources to carry out other
operations. Diversified Energy Company, trading as Highland Propane Company and
Highland Gas Marketing, could expand beyond selling propane and brokering
natural gas to industrial customers.
Q: How will a shareholder of Roanoke Gas Company be affected?
JBW: A shareholder will own stock in RGC Resources, Inc., and RGC Resources,
Inc. will own 100% of the common stock equity in Roanoke Gas Company, Bluefield
Gas Company, and Diversified Energy Company. The existing shares of Roanoke Gas
Company will be exchanged for an equivalent number of shares of RGC Resources,
Inc. The assets, earnings and customer base underlying a share of stock will be
the same. After the restructuring is complete, shareholders will receive shares
of RGC Resources, Inc. in exchange for their shares of Roanoke Gas Company. The
dividends per share and earnings per share of RGC Resources, Inc. will be
determined using criteria similar to that previously used by Roanoke Gas
Company. The primary difference will be the name change and a capital and
organizational structure that will enhance opportunities for growth and
diversification. RGC Resources stock will trade on the Nasdaq National Market
under the symbol RGCO.
Of course, you need to keep in mind that I am summarizing a complex
transaction. The Company's Proxy Statement for the 1999 Annual Meeting provides
detailed information about the proposed holding company structure and its
potential effects.
To be fully informed, each shareholder should read the entire Proxy Statement
carefully.
Q: Why will RGC Resources, Inc. have more authorized shares of stock than
Roanoke Gas Company?
JBW: To significantly grow the Company, additional equity capital may be needed.
Furthermore, having a larger number of authorized shares will facilitate issuing
new equity to help fund that growth. In addition, the Company may decide to
split the stock by providing a stock dividend to existing shareholders. We had
planned to increase the number of authorized shares of Roanoke Gas Company for
these purposes, even if a corporate restructuring was not envisioned.
Establishing RGC Resources, Inc. with a greater number of authorized shares from
the start, saves the time and cost of going through a separate process to
increase the number of authorized shares.
Roanoke Gas Company
2
<PAGE>
Q: Why do the articles of incorporation for RGC Resources, Inc. provide for the
possibility of issuing preferred stock?
JBW: There are no current plans to issue preferred stock. However, having the
opportunity for the Board of Directors to issue series of preferred stock
provides the Company with an important potential tool to facilitate
acquisitions. Preferred stock can be issued without voting rights, and the
dividend rate on preferred stock can be set lower than the rate on current
common stock. This could also lessen the likelihood of any dilution of earnings
or voting strength of existing common stock shareholders.
Q: How quickly will the restructuring occur?
JBW: We have filed applications for approval with the Securities and Exchange
Commission, the State Corporation Commission in Virginia, and the Public Service
Commission in West Virginia. Both state commissions have approved the
reorganization. The proposal will be submitted for shareholder approval at the
Annual Meeting in March 1999, and we anticipate regulatory approval shortly
thereafter. We currently are working to complete the reorganization in the
third fiscal quarter of 1999.
[FLOW CHARTS]
Present Corporate Structure Planned Corporate Structure
Shareholders Shareholders
| |
---- Roanoke Gas ---- Resources
| | | | | |
Diversified Resources Bluefield Roanoke Gas | Diversified
| |
Commonwealth Bluefield
1998 Annual Report
3
<PAGE>
Review Of Operations
Business Strategies
The cover of our Annual Report reflects our key business strategies. They
have been management's focus for the past year, and we believe they will remain
important Company themes into the new millennium.
Certainly, "acquisition and geographic expansion" are important to continued
growth and enhancing shareholder value and, when combined with "the propane
alternative," we feel the two strategies create the potential for significant
market growth. We acquired the propane assets of U.S. Gas in Bedford and
Franklin counties, Virginia, in December 1997. In 1998, we established new bulk
propane storage facilities in Rockbridge and Alleghany counties in Virginia, and
we added to our sales force to facilitate expansion. We are evaluating the
potential for extending natural gas service to the town of Rocky Mount near
Roanoke. A new pipeline now under construction for an additional natural gas
supply to Bluefield will enhance expansion opportunities there.
We have continued to focus on our "saturation program", which is designed to
optimize pipeline assets already in the ground. Over 50% of our new natural gas
customers in 1998 were conversions from other energy sources to natural gas and
were either located along existing mains or were served with minor line
extensions. We also continued to focus much of our marketing effort on our
"trade ally relations" strategy, so that builders, developers and heating and
plumbing contractors see us as an energy partner who responds quickly and
professionally to their needs in meeting their customers' demands.
We believe there will be further deregulation in the energy and utility
business, requiring significant management attention. We have installed and are
in the early stages of converting to an enhanced Customer Information and
Billing System as part of our "positioning for deregulation" strategy. This
system is expected to be followed by other enhancements to enable us to manage
the complexities of working with multiple natural gas commodity retailers,
accept electronic bill payments and offer internet access with respect to
customer and billing information. Our proposal to restructure to a holding
company ties together the strategies of "diversification" and "positioning for
deregulation". While future diversification will be done prudently and in areas
of our core competence, we believe exploring new opportunities are important to
our overall growth and improved shareholder value goals.
Financial
The Company established another new benchmark as it surpassed again the
previous year's earnings and posted net income of $2,726,879, or $1.60 per
share, for fiscal 1998. The previous year was also a record year with earnings
of $2,309,880 or $1.54 per share. The shareholders' investment in the Company
grew by $5,867,630 to $26,454,581, which amounts to $14.75 per share. At
September 30, 1998, the market value of the Company's stock was $19.50 per
share, or 132% of book value.
In November 1997, the directors voted to increase the regular quarterly
dividend from $0.26 to $0.265 per share effective February 1, 1998. The current
annual dividend of $1.06 per share is a 5.44% yield on the current market value
of the Company's stock and represents a payout of 66% based on earnings for
fiscal 1998.
In June 1998, the Company issued $5,000,000, 7.804%, First Mortgage Notes,
due in 2008. The proceeds of the First Mortgage Notes were used to replace the
outstanding First Mortgage Bonds, 10.00%, Series K (principal amount:
$1,350,000) and the outstanding First Mortgage Bonds, 10.375%, Series L
(principal amount: $1,994,000). This replacement is a "blend and extend"
arrangement that replaced 50-year-old covenants with modern covenants that
mirror recent debenture debt replacement. The ten-year bullet secured note
replaces the amortizing Series K and Series L First Mortgage Bonds. The
remainder of the proceeds of the First Mortgage Notes ($1,656,000) was used for
general corporate purposes.
In October of 1998 the Company filed an application with the Virginia State
Corporation Commission seeking approval for authority to issue common stock as
part of the Company's existing dividend reinvestment plan. The Company's
authority to issue stock as part of this plan was for a five-year period ending
November 10, 1998. On October 26, 1998, the Company was granted the requested
authority.
The Company has unsecured lines of credit through its cash management
system totaling $21,000,000, at indexed interest rates. These lines are subject
to annual renewal and do not require compensating balances. The average
month-end balance of short-term debt in 1998 was approximately $5,280,000. The
average interest rate paid on unsecured lines of credit during 1998 was 6.19%.
The components of this consolidated short-term debt are $3,058,000 for Roanoke
Gas at 6.05%, $1,508,000 for Bluefield Gas at 6.22%, and $714,000 for
Diversified Energy, doing business as Highland Propane, at 6.69%. The month-end
balance at September 30, 1998 was $4,584,000, at an average interest rate of
6.18%.
Please refer to "Management's Discussion & Analysis Of Financial Condition
And Results Of Operations" for additional information on the Company's capital
resources and for an analysis of changes in revenue and expenses.
Marketing & Sales
Roanoke Gas Company, Bluefield Gas Company and Diversified Energy, doing
business as Highland Propane Company, consolidated, experienced another year of
excellent customer growth with approximately 4,500 new customer additions or
3,000 net additions. This growth represents an overall new customer additions
rate of 7% or a net customer addition rate of 5%. On an individual company
basis, new customer additions were approximately 3% for Roanoke Gas Company, 4%
for Bluefield Gas Company, and 25% for Highland Propane. Highland Propane now
serves over 11,000 propane customers, nearly doubling its customer base in a
four-year period.
Roanoke Gas Company
4
<PAGE>
[CHART]
NATURAL GASS AND PROPANE
CUSTOMER GROWTH
1994 1995 1996 1997 1998
Natural Gas Customers 48544 49813 51094 52763 53556
Propane Customers 5684 6006 6410 8829 11004
On the natural gas side, conversions represented approximately 51% of the new
customer growth for Roanoke Gas Company and 82% for Bluefield Gas Company.
Highland Propane surpassed 2,800 tank installations in a single year for the
first time in the Company's history. These installations represent a 27%
increase over last year's installations and nearly tripled the 1996
installations. Tank installations were up in most geographic areas, with
Southwest Virginia leading the way with an increase of 52% from fiscal 1997,
followed by Roanoke with a 12% increase. Diversified Energy, doing business as
Highland Propane, expanded its marketing efforts in the outlying portions of the
current service area including Bedford County, Rockbridge County and Alleghany
County, Virginia, and Raleigh, Fayette and northern Greenbrier counties, West
Virginia.
The marketing strategy for both propane and natural gas continues to center
around maintaining strong trade ally relationships, establishing one-on-one
contacts with members of the sales team and providing real-time customer
service. This strategy has been the nucleus of our success, and the number of
trade allies continues to grow as we expand into new areas in Virginia and West
Virginia. As we continue to expand our trade ally base, we seek feedback from
the trade ally group to improve our sales and service to our customers.
Our commission sales force focuses on the addition of new gas customers
along existing gas mains or the addition of new residential and commercial
propane customers. Natural gas conversions exceed the 650 customer mark for the
third year in a row, and the number of new propane tank sets increased by more
than 600 over last year. In addition, we have expanded our commissioned sales
force, and now have new representatives in Bedford County and Covington,
Virginia and Rainelle, West Virginia.
The Company has been working closely with prospective industrial and
commercial customers, regional economic development groups and local
governments. We are excited about the future economic development potential of
area industrial parks and shell buildings under development.
The Company remains actively involved in various leadership positions within
the community, including but not limited to, the Roanoke Regional Chamber of
Commerce, Hollins University, Junior Achievement, United Way, The Virginia
Western Foundation, The Salvation Army, YMCA, Community School, Boys and Girls
Club of the Roanoke Valley, and the Roanoke Regional and New River Valley
Homebuilders Associations. The Company takes its community responsibilities
seriously and encourages its employees to become involved in community affairs.
Customer Service
Providing timely and accurate information to our customers is a key
corporate objective. We perform these functions within our Customer Service
Department using a blend of human resources and technology. As in the past, we
continue to serve our customers both by telephone and in person. Customer
Service centers are available in Rainelle and Bluefield, West Virginia and our
main Roanoke office. The Roanoke office also has the ability to receive overflow
calls from Bluefield. During the year, we answered 154,488 customer calls in the
Roanoke Customer Call Center. This is an average of 594 calls per work day. In
addition to customer calls, we served approximately 23,000 walk-in customers in
the Roanoke center.
We continue to experience excellent customer participation with programs
such as bank drafts, budgets, and HeatShare. Our Customer Service Department is
also very involved in the implementation of the new Customer Information System,
and we are currently planning for upgrades to our customer call management
system.
With many banks and credit unions in the Roanoke Gas and Bluefield Gas
service areas discontinuing their collection of utility payments, we have worked
diligently to promote our automatic bank draft program. In an effort to increase
the number of customers using bank draft, we have worked with local banks and
credit unions and provided a special bill insert to inform customers of this
convenient option. As a result of the program, approximately 9% of Roanoke Gas
customers and approximately 6% of Bluefield Gas customers are using the bank
draft option.
With a renewed emphasis on the budget billing program this year, Roanoke Gas
and Bluefield Gas have experienced increased utilization of our budget billing
program by customers interested in equal monthly payments. As a result,
approximately 25% of Roanoke Gas customers and approximately 19% of Bluefield
Gas customers now take advantage of the budget billing option.
Our HeatShare Program, which helps needy customers in the Roanoke Valley pay
their gas bills, had another very successful year. Approximately $50,000 was
collected from donations by the Company, its employees and customers. During the
sixteen-year history of the program, approximately $900,000 has been donated to
assist over 6,300 families.
The Company's Credit and Collection policies were reviewed and revised in
January of 1998 in an effort to decrease aged receivables, more aggressively
resolve past delinquencies and ultimately reduce bad
1998 Annual Report
5
<PAGE>
Review Of Operations
debt write-off amounts in future years. By implementing proactive
collection procedures, customer delinquencies are quickly identified and
resolved in a professional and effective manner. Our 1998 bad debt write-off
amounts reflect an increase over the prior year as a result of these
initiatives. However, the amount of past due balances carried into the new
fiscal year is reduced. The net result is a healthier receivable portfolio going
into 1999.
To continue to attain our goal of lowering aged receivables and reducing bad
debt write-offs, we are currently utilizing telephone and computer technologies
to increase outbound contacts and timely account followup. We have strengthened
outsourcing relationships to broaden the scope of our collection efforts. We
seek to send a fair but firm message to our customers that communicates both our
willingness to cooperate in resolving past due balances amicably and our
commitment to, when necessary, take appropriate actions to recover revenues lost
to delinquencies. We believe in the long run this approach is in the best
interest of all customers by keeping bad debt cost lower and minimizing the
impact of this cost on overall service rates.
Plant Additions
Capital additions for the fiscal year 1998 totaled approximately $9,584,000
for the consolidated companies, inclusive of additional assets acquired from the
purchase of U.S. Gas Company. Total additions were up 19% compared to 1997
fiscal year expenditures of $8,053,000. Accelerated growth, primarily within the
propane company, continues to drive the increased capital spending. Bluefield
Gas accounted for 9% of all capital expenditures at $866,000. Bluefield Gas
Company's capital expenditures represent an increase over the previous year of
42%. The larger expenditures in Bluefield are partially related to the
construction of two miles of 4" coated steel pipe that will connect Bluefield's
distribution system to the Phoenix Energy Sales Pipeline. This connection will
provide Bluefield with a second source of gas supply originating from the
Consolidated Natural Gas Gathering System near Coopers, West Virginia. Bluefield
Gas installed 227 new service lines and 2.9 miles of new mains in fiscal 1998,
compared to 149 new service lines and 1.3 miles of new mains in fiscal 1997.
Diversified Energy, doing business as Highland Propane, capital additions
for fiscal 1998 were 39% of the total additions, or approximately $3,691,000,
which was an increase of 58% over last year. New propane installations totaled
$2,662,000, compared to $1,919,000 in fiscal 1997. Highland Propane installed
2,890 new tank sets in fiscal 1998, compared to 2,280 last year, a 27% increase.
Roanoke Gas invested approximately $5,026,000 in capital additions, or 52%
of the total company capital additions. New business expenditures, including
mains, meters and new service lines, totaled $2,173,000 in fiscal 1998 compared
to $2,825,000 last year. Roanoke Gas installed 1,498 new service lines and 12.2
miles of new mains in fiscal 1998, compared to 1,518 new service lines and
18.6 miles of new mains last year. The increase in the number of services per
mile of main was a direct result of successful efforts to increase customer
saturation by converting homes along existing mains to natural gas.
The Company also increased its main replacement and service renewal outlays,
investing $1,656,000 in fiscal 1998, compared to $1,384,000 last year. During
fiscal 1998, the Company replaced 756 natural gas service lines and 9.1 miles of
main compared to previous year totals of 598 service lines and 8.1 miles of
main. In 1992, Roanoke Gas Company began an extensive 25-year facility
replacement program designed to reduce maintenance costs over the long term and
improve system integrity by replacing all cast iron and bare steel mains and
services with modern coated steel or plastic piping. During recent years,
Bluefield Gas Company was also added to the program. We remain on schedule for a
year 2017 target completion date.
[PHOTO]
Jack Cassell demonstrates the new electric monitoring sensors at the Company's
Liquefied Natural Gas (LNG) Plant. This equipment is part of a planned upgrade
at the LNG plant.
Other fiscal 1998 increases in plant additions included: $142,000 for new
electronic monitoring sensors at the Company's Liquefied Natural Gas (LNG)
Plant; $331,000 for new construction equipment and vehicle purchases; and
$724,000 for new computer equipment, software additions and upgrades.
For fiscal 1999, the Company has budgeted $8,500,000 for capital additions
and replacements. Major items will include $2,600,000 to support propane
customer growth, $2,900,000 for new natural gas customer additions, $1,300,000
to replace bare steel and cast iron mains and services, $600,000 for new
transportation equipment and $400,000 for information systems and technology
applications. The anticipated sources of these funds are depreciation and
amortization cash flow, earnings, and debt.
Roanoke Gas Company
6
<PAGE>
[GRAPH]
CAPITAL ADDITIONS
1994 1995 1996 1997 1998
Roanoke 4,463,672 4,463,672 4,281,600 5,118,473 5,026,350
Bluefield 572,032 572,032 580,896 608,105 866,088
Highland 573,588 573,588 677,877 2,326,223 3,346,176
[GRAPH]
NATURAL GAS
Year Natural Propane
1994 3.906208 0.435643
1995 3.255788 0.445386
1996 4.237287 0.496335
1997 4.359843 0.594844
1998 4.032359 0.475118
[GRAPH]
PROPANE
Natural Natural
Gulf Spot Gulf Spot
1994 2.039 0.2835
1995 1.562 0.3238
1996 2.378 0.3649
1997 2.544 0.4255
1998 2.344 0.2927
Energy Supply
One of the strongest El Nino events on record delivered unseasonably warm
winter weather to the majority of the United States during fiscal 1998. Our
Roanoke service area recorded 4,054 heating degree days for the fiscal year,
which was 4% fewer heating degree days than the long-term normal.
While the entire heating season turned out to be mild, cool to normal
weather existed over most of the U.S. during the fall of 1997. Cool weather in
conjunction with abnormally low natural gas storage levels combined to cause an
unusually early peak in natural gas commodity prices. However, the unseasonably
warm weather in January and February of 1998 resulted in a significant decline
in both natural gas and propane commodity prices. Gas commodity prices for the
monthly indexes relevant to Roanoke Gas decreased almost 7.5% over the previous
fiscal year. Commodity prices for propane also declined significantly late in
fiscal 1998.
While the average commodity prices have fallen over the past fiscal year,
natural gas remains a volatile commodity. To reduce volatility and provide a
more stable gas price for customers, the company uses a variety of hedging
mechanisms, including summer storage injections. As part of this program,
Roanoke Gas Company utilitized a financial hedging pilot program during the past
heating season. In the coming heating season, Roanoke Gas will continue its
pilot program for a second year, and Bluefield Gas will begin a pilot program in
West Virginia. The Company also uses fixed price contracts and financial hedges
to manage volatility in propane prices.
Roanoke Gas continues to use a mixture of long-term (one year or more),
mid-term (seasonal) and short-term (spot) gas acquisition contracts for the
Company's natural gas and propane supplies. The Company's objective is to create
a reliable and economical mixture of gas supply contracts without limiting its
ability to adapt to changing market conditions. Long-term suppliers currently
include Coral Energy, Cabot Oil and Gas, Engage Energy, Exxon, Columbia Energy
Services, Northridge Petroleum and Southern Company Energy Marketing.
Roanoke Gas Company regards storage supplies as an integral component
of its natural gas supply portfolio. The Roanoke and Bluefield operations
combined hold the rights to about 2.9 billion cubic feet (BCF) of natural gas
storage space. This storage includes pipeline and third party underground
facilities in both the Gulf coast and Appalachian areas, as well as its own LNG
storage in Botetourt County, Virginia.
1998 Annual Report
7
<PAGE>
Review Of Operations
[MAP OF ROANOKE AREA ENERGY SUPPLY]
[MAP OF BLUEFIELD AREA ENERGY SUPPLY]
Information Systems
Company systems and processes need to correspond to business strategies,
changing conditions and opportunities. As part of our plan of positioning the
Company for deregulation and diversification, the Company researched, analyzed,
and then started the implementation of a new Customer Information System (CIS).
The goal is to complete the implementation during the summer of 1999. In
addition to aligning Company systems with long-term business strategies,
considerable progress is being made on the Year 2000 issue to assure system
reliability and stability for continuing business into the new millennium.
The CIS includes all functions related to the customer. The Service Order
subsystem is used to perform all service work, such as installing the meter or
repairing an appliance. The Customer Contact subsystem allows tracking and
monitoring of all customer conversations. The Meter Reading and Billing
subsystems work together to properly bill the customer. The Collection process
enables our users to work with customers and collection agencies to minimize
customer payment problems.
[PHOTO]
Debbie Wright, Customer Service Associate, demonstrates the information system
that allows her to access real-time data on customers when they call us with an
inquiry.
The new CIS builds on an already highly functional system. Functionality
such as on-line real-time information, an extensive relational database ranging
from billing information to tracking detail of all customer contacts, and full
integration with the financial systems are fundamental. The new CIS allows for
enhancements to provide Specialized Gas Billing for a deregulated environment
and a flexible design to further improve employee efficiency. This platform
positions the Company's systems for the future. It is highly adaptable and
prepared for additional system modules such as Internet Commerce, Marketing and
Sales Management, and Multi-Entity Communications. As of September 30, 1998,
$175,500 has been spent on the Customer Information System and $324,500 will
be spent in fiscal 1999.
8
<PAGE>
Nonregulated Operations
Fiscal year 1998 marked the second consecutive year that propane customer
growth exceeded 25%. Diversified Energy Company, doing business as Highland
Propane Company, began operation in 1979, partially as a means to provide
propane gas service to future natural gas expansion areas and for selected
commercial applications. Over the years, propane has grown in popularity. With
new high efficiency propane gas appliances providing the warmth and comfort of
gas heat, propane has become the energy of choice for many residential and
commercial customers in areas not served by natural gas pipelines. Over the last
two years, the number of new propane customer additions exceeded that of natural
gas.
Highland Propane has expanded its service territory in both Virginia and
West Virginia. Geographic expansions were made east into Bedford County, one of
the fastest growing counties in Virginia, and north into Rockbridge, Alleghany
and Bath counties in Virginia. The West Virginia markets were extended into
Summers, Fayette and Raleigh counties. Our goal is to not only expand
geographically, but to increase the saturation of propane customers within the
existing service area. Over the past several years, we have installed additional
satellite storage facilities to serve as hubs that improve our delivery
efficiencies. These satellite facilities also provide target areas for us to
concentrate our saturation sales efforts. Storage facility installations added
in fiscal 1998 include Low Moor, near Covington, Virginia; Buena Vista, east of
Lexington, Virginia; and Bedford, Virginia. We have a total of 12 bulk storage
facilities located throughout our service area.
Total sales by the propane company were 7.7 million gallons with 4,054
Roanoke heating degree days in fiscal 1998, compared to 6.6 million gallons with
4,298 heating degree days in fiscal 1997. Increased customer growth offset the
warmer weather, resulting in a 17% increase in total gallons delivered.
Management is continually evaluating ways to improve efficiencies and reduce
overall operating expense. We are in the process of implementing a computer
aided graphic dispatch system to improve overall delivery services and enhance
current marketing efforts. The dispatch system will be based on Global
Positioning Satellite (GPS) technology and will produce detailed maps for all of
our delivery routes. These maps will not only serve as a delivery tool, but will
provide valuable information to help our sales staff improve market area
saturation.
Diversified Energy Company, doing business as Highland Gas Marketing, sold
just over 2 million decatherms of natural gas in 1998, an increase of 77% over
1997. The increase in sales was partially due to warmer weather, which resulted
in fewer days of natural gas supply interruptions for large volume industrial
users who use alternative sources of energy on extremely cold days. Highland Gas
Marketing buys interruptible supplies of spot gas and temporary interstate
pipeline transportation services, and resells them to large industrial customers
that contract with the local utility for delivery from the interstate pipeline
to the customer's meter. The natural gas marketing business is highly
competitive with relatively low margins; however, it also has a low cost of
operation with minimal facility and personnel requirements.
Market Price & Dividend Information
The Company's common stock is listed on the Nasdaq National Market under the
trading symbol RGCO. This provides shareholders, brokers and others with
immediate access to the latest bid and ask prices and creates greater liquidity
in the Company's stock. The table below sets forth the range of bid prices for
shares of the Company's common stock, as reported in the Nasdaq National Market.
Additionally, the firm of Scott & Stringfellow, Inc. has experienced research
analysts who are knowledgeable about the natural gas distribution utility
industry and includes Roanoke Gas Company in its equity research database.
Although the Company has paid continuous quarterly dividends to its
shareholders since August 1, 1944, and has increased dividends for the past
three years, the Company has not established a formal policy with respect to
dividends. Payment of dividends is within the discretion of the Company's Board
of Directors and will depend upon, among other factors, earnings, capital
requirements and the operating and financial condition of the Company. There can
be no assurance that these or other conditions will not negatively affect the
Company's ability to pay dividends in the future. In addition, the Company's
long-term indebtedness contains restrictions on cumulative net earnings of the
Company and dividends previously paid. At September 30, 1998 and 1997,
respectively, the Company had 1,837 and 1,853 common shareholders of record in
conjunction with 1,794,416 and 1,527,486 common shares outstanding.
Range of Cash
Bid Prices Dividends
Declared
Fiscal Year Ended High Low
September 30,
1998
First Quarter $21.375 $17.500 $.265
Second Quarter 22.750 19.250 .265
Third Quarter 22.250 19.750 .265
Fourth Quarter 20.703 18.125 .265
1997
First Quarter $18.000 $16.750 $.26
Second Quarter 18.250 17.000 .26
Third Quarter 17.750 15.750 .26
Fourth Quarter 18.125 16.000 .26
1998 Annual Report
9
<PAGE>
Management's Discussion & Analysis
Of Financial Condition And Results Of Operations
Roanoke Gas Company and Subsidiaries
Selected Financial Data
Years Ended September 30,
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Revenues $59,387,092 $65,047,826 $65,770,873 $ 48,611,147 $ 58,195,857
Operating Margin 23,279,585 22,464,921 22,030,795 19,435,864 19,902,497
Operating Earnings 4,717,026 4,403,423 4,035,304 3,522,258 3,537,267
Earnings Before Interest Charges 4,822,590 4,550,333 4,113,044 3,701,907 3,592,351
Net Earnings 2,726,879 2,309,880 2,196,672 1,777,240 1,677,098
Net Earnings Per Share 1.60 1.54 1.51 1.26 1.25
Cash Dividends Declared
Per Share 1.06 1.04 1.02 1.00 1.00
Book Value Per Share 14.75 13.48 12.86 12.25 11.88
Average Shares Outstanding 1,701,048 1,503,388 1,455,999 1,408,659 1,339,402
Total Assets 69,134,920 62,593,258 58,921,099 51,614,667 49,579,447
Long-Term Debt
(Less Current Portion) 20,700,000 17,079,000 20,222,124 17,504,047 16,414,900
Stockholders' Equity 26,464,581 20,596,951 18,975,001 17,555,172 16,424,919
Shares Outstanding At September 30, 1,794,416 1,527,486 1,475,843 1,432,512 1,382,343
</TABLE>
General
The core business of Roanoke Gas Company and its public utility affiliates
(collectively, the Company) is the distribution of natural gas to approximately
53,500 customers in the cities of Roanoke, Salem, and Bluefield, Virginia and
Bluefield, West Virginia, and the surrounding areas. This service is provided at
rates and for the terms and conditions set forth, approved and regulated by the
State Corporation Commission in Virginia (the Virginia Commission) and the
Public Service Commission in West Virginia (the West Virginia Commission). As a
public utility, the Company is required to ensure that it has adequate capacity
to serve the ongoing needs of its customers. To meet these needs, the Company
continues to expand its facilities to keep pace with the residential,
commercial, and industrial growth in its service areas. The Company continues to
experience customer growth and plans to meet the needs of its current and future
customers by attracting adequate investment capital and by filing and receiving
timely rate increases when needed from the state commissions.
The Company also serves approximately 11,000 propane accounts in
southwestern Virginia and southern West Virginia and serves natural gas
industrial transportation customers by brokerage of natural gas supplies through
its subsidiary, Diversified Energy Company, which trades as Highland Propane
Company and Highland Gas Marketing. Propane sales have become an important
aspect of the consolidated Company's operations, with the annual growth in
propane customers now exceeding the annual growth in natural gas customers.
While the demand for natural gas and propane continues to increase in the
Roanoke Gas and Bluefield Gas service territory, the weather normalized per
capita residential usage is declining due to energy conservation,
high-efficiency furnaces and appliances, and better- insulated homes. The effect
of such per capita declines, unless offset by new customer growth, a strong
revenue stream during the winter, or requested rate relief, could result in a
decline in the Company's net operating earnings as a percentage of the common
equity investment. Competition from alternative fuels and/or suppliers could
also impact the Company's profitability levels.
Roanoke Gas Company, Commonwealth Public Service Corporation, a subsidiary
of Bluefield Gas, and Bluefield Gas Company currently hold the only franchises
and/or certificates of public convenience and necessity to distribute natural
gas in their respective Virginia and West Virginia service areas. These
franchises are for multi-year periods and are effective through January 1, 2016
in Virginia and August 23, 2009 in West Virginia. While there are no assurances,
the Company believes that it will be able to negotiate acceptable franchises
when the current agreements expire. Certificates of public convenience are of
perpetual duration.
Forward-Looking Statements
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, research and development
activities and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of the Company's business
include the following: (i) obtaining adequate rate relief from regulatory
authorities on a timely basis; (ii) earning an adequate return on invested
capital on a
Roanoke Gas Company
10
<PAGE>
consistent basis; (iii) increasing expenses and labor costs and availability;
(iv) price competition from alternative fuels; (v) volatility in the price of
natural gas and propane; (vi) some uncertainty in the projected rate of growth
of natural gas and propane requirements in the Company's service area; (vii)
general economic conditions both locally and nationally; and (viii) developments
in electricity and natural gas deregulation and associated industry
restructuring. In addition, the Company's business is seasonal in character and
strongly influenced by weather conditions. Extreme changes in winter heating
degree days from the normal or mean can have significant short-term impacts on
revenues and gross margins.
Capital Resources & Liquidity
Roanoke Gas Company's primary capital needs are the funding of its
continuing construction program and the seasonal funding of its stored gas
inventories. The Company's capital expenditures for fiscal 1998 were a
combination of replacements and expansions, reflecting the need to replace older
cast iron and bare steel pipe with plastic pipe, while continuing to meet the
demands of customer growth. Total capital expenditures for fiscal 1998 were
approximately $9.6 million allocated as follows: $5.0 million for Roanoke Gas
Company, $.9 million for Bluefield Gas Company and $3.7 million for Highland
Propane Company. Depreciation cash flow provided approximately $3.6 million in
support of capital expenditures, or approximately 37% of total investment.
Historically, consolidated capital expenditures were $8.1 million in 1997 and
$5.5 million in 1996. It is anticipated that future capital expenditures will be
funded with the combination of depreciation cash flow, retained earnings, sale
of Company equity securities and issuance of debt.
At September 30, 1998, the Company had available lines of credit for its
short-term borrowing needs totaling $21 million, of which $4,584,000 was
outstanding. Short-term borrowing, in addition to providing limited capital
project bridge financing, is used to finance summer and fall gas purchases,
which are stored in the underground facilities of Columbia Gas Transmission
Corporation, Tennessee Gas Pipeline Company and Virginia Gas Storage Company, as
well as in the Company's above-ground LNG storage facility, to ensure adequate
winter supplies to meet customer demand. At September 30, 1998, the Company has
$7,051,044 in inventoried natural gas supplies.
Short-term borrowings, together with internally generated funds, long-term
debt and the sale of common stock through the Company's Dividend Reinvestment
and Stock Purchase Plan (Plan), have been adequate to cover construction costs,
debt service and dividend payments to shareholders. The terms of short-term
borrowings are negotiable, with average rates of 6.19% in 1998, 5.97% in 1997
and 5.84% in 1996. The lines do not require compensating balances. The Company
utilizes a cash management program, which provides for daily balancing of the
Company's temporary investment and short-term borrowing needs with interest
rates indexed to the 30-day LIBOR interest rate plus a premium. The program
allows the Company to maximize returns on temporary investments and minimize the
cost of short-term borrowings.
Stockholders' equity increased for the period by $5,867,630, reflecting an
increase of $895,502 in retained earnings, the sale of 181,500 shares of stock
through a public offering in January for net proceeds of $3,387,496, the net
issuance of $613,564 of common stock for U.S. Gas, Inc., and proceeds of
$971,068 of new common stock purchases through the Plan and the Restricted Stock
Plan For Outside Directors.
At September 30, 1998, the Company's consolidated capitalization was 56%
equity and 44% debt, compared to 50% equity and 50% debt at September 30, 1997.
Regulatory Affairs
During the past fiscal year, the Company received Final Orders in three rate
increase requests and two gas cost hedging proposals. On December 29, 1997, the
West Virginia Commission issued a Final Order authorizing a rate increase of
$132,800 effective for bills rendered on and after March 2, 1998 by Bluefield
Gas Company. On March 16, 1998, the Virginia Commission issued a Final Order
authorizing a rate increase of $65,917 for service rendered on and after
November 28, 1997 by Commonwealth Public Service Corporation. On August 6, 1998,
the Virginia Commission issued a Final Order in the Roanoke Gas Company rate
increase request authorizing an increase on $237,634 for services rendered on
and after January 1, 1997. Both increases in Virginia resulted in refunds to
customers which had been reserved.
With respect to gas cost hedging, the Virginia Commission approved a
two-year extension of Roanoke Gas Company's existing gas cost hedging pilot
program. On July 7, 1998, the West Virginia Commission's Division of
Administrative Law Judges issued a decision approving a two-year pilot gas cost
hedging program for Bluefield Gas Company. This decision became final on July
27, 1998. The pilot programs proposed to employ gas costs hedges for up to 50%
of its normal winter demand not supplied from storage. Both hedging programs are
intended to help protect against supply-related price volatility adversely
impacting customer billing rates.
Roanoke Gas Company filed an application with the Virginia Commission on
September 30, 1998 seeking an annual increase in non-gas rates of $877,000. This
request represents a 1.8% increase in billing rates and a 5.1% increase to the
non-gas margins. The Company expects this increase to become effective under
bond and subject to refund on February 28, 1999. A hearing is scheduled in April
1999, with an order anticipated in the fall of 1999. The Company is permitted to
put rates into effect, under bond, prior to the receipt of the Commission's
final order. Consequently, the Company will establish adequate reserves for this
refund.
In addition to the standard rate case items, the Virginia application
includes a proposal for a Distribution System Renewal Surcharge which would
provide a mechanism that the Company would use to recover the depreciation and
carrying costs of distribution system renewal expenses on a periodic basis. The
Company is also proposing a Revenue Stabilization Surcharge that would go into
effect during any
1998 Annual Report
11
<PAGE>
Management's Discussion & Analysis
Of Financial Condition And Results Of Operations
year in which the weather was 5% warmer or colder than the long-term normal
level. This surcharge will help protect both the customer and the Company from
major swings in revenue due to abnormal weather. In the current proceeding, the
Company is also proposing to move to therm billing for all customers. The therm
billing rates will not go into effect until after the issuance of the Final
Order in this proceeding.
While not part of the rate case, the Company has begun discussions with the
Staff of the Virginia Commission regarding area specific rates which will permit
timely recovery of the depreciation and carrying charges of main extensions into
previously unserved areas. Area specific rates are something the Company intends
to pursue in the future to facilitate the timely recovery of main extension
costs in rates.
Proposed Holding Company Reorganization
The Company filed a Form U-1 with the Securities and Exchange Commission on
October 16, 1998, seeking approval to reorganize the Company into a holding
company with three separate subsidiaries. The filing provides that the holding
company will be established as RGC Resources, Inc., and the subsidiaries will be
Roanoke Gas Company, Bluefield Gas Company, and Diversified Energy Company.
Included in the application for the new structure is a request for approval to
merge Commonwealth Public Service Corporation into Roanoke Gas Company, creating
a single public utility in the state of Virginia for the distribution of natural
gas. The Company expects a decision from the SEC in the summer of 1999.
In addition to the Form U-1 filing, the Company made simultaneous state
filings on October 21, 1998 seeking state approval of the proposed holding
company structure, as well as approval of the resulting affiliate agreements.
The Company has received approvals from both the Virginia and West Virginia
Commissions. Shareholders of Roanoke Gas also must approve the proposed
reorganization.
Results Of Operations
Fiscal Year 1998 Compared With Fiscal Year 1997
Operating Revenues - Operating revenues for the natural gas
utilities decreased $5,985,129 to $51,857,052 in 1998 from $57,842,181 in 1997.
The decrease is attributed to weather that was approximately 6% warmer in 1998
than in 1997 and a 7.5% decrease in the unit cost of natural gas. Operating
revenues for propane increased $324,395 to $7,530,040 in 1998 from $7,205,645 in
1997 due to a 25% increase in net customer growth even though revenues per
gallon decreased 10.9% due to the lower price of propane.
ENERGY VOLUMES - The volume of natural gas delivered to customers increased
71,436 MCF to 10,875,481 MCF in 1998 from 10,804,045 MCF in 1997. Although the
weather was approximately 6% warmer than last year, customer growth increased
throughput for the period. Propane sales volumes increased 1,134,318 gallons to
7,702,384 gallons in 1998 from 6,568,066 gallons in 1997. The increase is
attributable to the increase in the number of customers.
COST OF ENERGY - The cost of natural gas declined $6,204,265 to $32,471,072 in
1998 from $38,675,337 in 1997. The decrease was due to a 7.5% decrease in the
unit cost of natural gas and an increase in transportation volumes of 889,620
MCF. The cost of propane decreased $271,133 to $3,636,435 in 1998 from
$3,907,568 in 1997. The decrease in the unit cost was associated with an
abundant supply of propane due to weather that was approximately 4% warmer than
normal in the Company's service area and also warmer nationally.
OTHER OPERATING EXPENSES - Other operations and maintenance expenses decreased
$496,811 or 5.2% to $9,015,786 in 1998 from $9,512,597 in 1997. The decrease was
primarily the result of reductions in bad debt accruals ($209,827) and the
absence of regulatory asset write-offs which occurred in 1997 in the amount of
$306,809.
General taxes decreased $80,172 to $2,376,227 in 1998 from $2,456,399 in
1997. Increases in business license and merchants taxes, franchise taxes and
property taxes in the amount of $7,442 were more than offset by decreases in the
revenue-sensitive taxes (gross receipts and business and occupation taxes) in
the amount of $75,571.
Income taxes increased $242,542 to $1,100,506 in 1998 from $857,964 in
1997, due to higher pre-tax income in 1998.
Depreciation and amortization expenses increased $272,366
to $2,806,278 in 1998 from $2,533,912 in 1997 due to increased depreciation
related to normal additions to plant in service.
Other operating expenses - propane operations includes the operating and
maintenance expenses, taxes and depreciation of Highland Propane Company. These
costs increased to $3,263,762 in 1998 from $2,700,626 in 1997. The $563,136
increase was primarily attributable to growth in customers and propane assets
and the associated increase in volumes delivered. Depreciation on tanks and
equipment increased by $78,022, property and related taxes increased by $33,302,
transportation and delivery costs increased by $157,039, and sales expense
increased by $65,194 and a variety of other growth driven operating costs
increased associated with billing and collecting, accounting and management
overhead.
OTHER INCOME - Other income, net of other deductions, decreased $41,346 to
$105,564 in 1998 from $146,910 in 1997. The decrease was primarily associated
with rate refund expenses ($9,365) and the write-off of obsolete and damaged
propane tanks in the amount of $30,802.
INTEREST CHARGES - Total interest charges decreased $144,742 to $2,095,711 in
1998 from $2,240,453 in 1997. Interest charges were lower due to the payoff of
$2,500,000 in long-term debt in October 1997 and the use of the proceeds from
the issuance of 181,500 shares of common stock in January 1998.
NET EARNINGS AND DIVIDENDS - Net earnings for 1998 were $2,726,879 as
compared to $2,309,880 in 1997. The $416,999 increase in earning can be
attributed to cost management which resulted in operation and maintenance
expenditures for natural gas being $496,811 less than the prior year offsetting
increased propane operations related to customer growth and increased revenue
from customer growth combined with the full annual effect of rate increases
which produced an $814,664 increase to operating margin. Basic earnings per
share of common stock were $1.60 in 1998 compared to $1.54 in 1997. Dividends
per share of common stock were $1.06 in 1998 compared to $1.04 in 1997.
Fiscal Year 1997 Compared With Fiscal Year 1996
OPERATING REVENUES - Operating revenues for the natural gas utilities decreased
$2,225,226 to $57,842,181 in 1997 from $60,067,407 in 1996. The decrease in
revenues is attributed to weather that was approximately 8% warmer in 1997 than
in 1996. Operating revenues for propane increased $1,502,179 to $7,205,645 in
1997 from $5,703,466
Roanoke Gas Company
12
<PAGE>
in 1996 due to the tremendous growth in the number of customer additions and
higher billing rates impacted by propane cost.
ENERGY VOLUMES - The volume of natural gas delivered to customers was down
365,903 MCF to 10,804,045 MCF in 1997 from 11,169,948 MCF in 1996 primarily
attributable to weather that was approximately 8% warmer than the weather in
1996. While customer growth was on par for the period, sales were down in all
categories, with the exception of transportation volumes, due to weather.
Propane sales volumes for 1997 were 6,568,066 gallons compared to 5,997,912
gallons in 1996, an increase of 570,154 gallons; again, indicative of the
increase in customer growth.
COST OF ENERGY - The cost of natural gas was $38,675,337 in 1997 compared to
$40,763,104 in 1996. The $2,087,767 decrease was due to a 3% decline in volume
and a 2% decrease in unit cost, both of which were impacted by weather that was
approximately 8% warmer in 1997 than in 1996. The cost of propane was up
$930,594 due to an increase in sales volume of 570,154 gallons associated with
customer growth and a 20% increase in unit cost.
OTHER OPERATING EXPENSES - Other operations and maintenance expenses decreased
$411,894 or 4.15% to $9,512,597 in 1997 from $9,924,491 in 1996. Although the
Company had increases in expenses associated with health insurance and bad debt
accruals and the write-off of regulatory assets in the amount of $309,716, these
were more than offset by reductions in post-retirement benefit expenses and
maintenance expenses, promotional advertising and increased capitalization of
labor and overheads associated with additional capital projects totaling
$727,789.
General taxes increased $54,631 to $2,456,399 in 1997 from $2,401,768 in
1996. While there were decreases in the revenue-sensitive taxes (gross receipts
and occupation taxes), business license and merchants taxes, franchise taxes and
property taxes increased.
Income taxes were down $105,931 to $857,964 in 1997 from $963,895 in 1996,
due to lower pre-tax income in 1997.
Depreciation and amortization expenses increased $239,465 to $2,533,912 in
1997 from $2,294,447 in 1996 due to depreciation on normal additions to plant in
service and an increase in depreciation rates associated with a depreciation
study.
Other operating expenses - propane operations includes the
operating and maintenance expenses, taxes and depreciation of Highland Propane
Company. These costs increased $289,736 to $2,700,622 in 1997 from $2,410,890 in
1996. The increase was mainly due to depreciation on increased plant associated
with customer growth and increased income taxes associated with higher taxable
income.
OTHER INCOME - Other income, net of other deductions, increased $69,170 to
$146,910 in 1997 from $77,740 in 1996. The increase was primarily due to jobbing
income of $55,448 and the elimination of a write-down on nonutility property of
$26,870 which occurred in 1996.
INTEREST CHARGES - Total interest charges increased $324,081 to $2,240,453
in 1997 from $1,916,372 in 1996. The increase was associated with increased
long-term and short-term debt financing. Additional long-term debt was acquired
to support natural gas plant growth which resulted in an increase of long-term
interest expense of $119,337. Interest expense on short-term debt increased
$204,744, which $55,601 of the increase attributable to short-term debt growth
supporting propane tank and equipment purchases. The remainder of the short-term
interest expense increased as a result of increased working capital needs for
higher gas inventories and average receivable balances coupled with interest
accruals on a rate refund reserve for the Roanoke Gas Company pending rate case.
NET EARNINGS AND DIVIDENDS - Net earnings for 1997 were $2,309,880 as
compared to $2,196,672 for 1996. Basic earnings per share of common stock were
$1.54 in 1997 compared to $1.51 in 1996. Dividends per share of common stock
were $1.04 in 1997 compared to $1.02 in 1996. The $113,208 increase in earnings
can be attributed to cost containment, customer growth and rate increases.
Maintenance expense was $405,516 less than the prior year while customer growth
and rate increases resulted in a $434,126 higher operating margin.
[GRAPH]
COMPARISON
Net Income to HDD (Heating Degree Days)
1994 1995 1996 1997 1998
Net Income 1677098 1777240 2196672 2309880 2726879
HDD 4416 3791 4696 4298 4054
Accounting Changes
The Company adopted Statement of Financial Accounting Standards No. 128,
Earnings Per Share (Statement 128) in 1998. Statement 128 supersedes APB Opinion
No. 15, Earnings Per Share, and specifies the computation, presentation and
disclosure requirements for basic and diluted earnings per share (EPS) for
entities with publicly held common stock or potential common stock.
Recent Accounting Developments
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 129, Disclosure of Information about Capital
Structure, SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. These
Statements are effective for fiscal years beginning after December 15, 1997. The
Company does not anticipate the adoption of the Statements will have a material
impact on its consolidated financial position, results of operations or
liquidity.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, effective for fiscal years beginning after
June 15, 1999. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments,
1998 Annual Report
13
<PAGE>
Management's Discussion & Analysis
Of Financial Condition And Results Of Operations
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires the recognition of all derivative instruments
as assets or liabilities in the Company's balance sheet and measurement of
those instruments at fair value. The accounting treatment of changes in fair
value is dependent upon whether or not a derivative instrument is designated
as a hedge and if so, the type of hedge.
The Company has entered into certain arrangements for hedging the price
of natural gas and propane gas for the purpose of providing price stability
during the winter months. The Company has not fully analyzed the impacts of the
provisions of SFAS No. 133 on the Company's financial statements.
Impact Of Inflation
The cost of natural gas represented approximately 68% for fiscal 1998 and
72% for fiscal 1997 and 1996 of the total operating expenses of the Company's
gas utilities operations. However, under the present regulatory Purchased Gas
Adjustment mechanisms, the increases and decreases in the cost of gas are passed
through to the Company's customers.
Inflation impacts the Company through increases in non-gas costs such as
insurance, labor costs, supplies and services used in operations and maintenance
and the replacement cost of plant and equipment. The rates charged to natural
gas customers to cover these costs can only be increased through the regulatory
process via a rate increase application. In addition to stressing performance
improvements and higher gas sales volumes to offset inflation, management must
continually review operations and economic conditions to assess the need for
filing and receiving adequate and timely rate relief from the state commissions.
[GRAPH]
MCF Delivered
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
MCF 10267038 9961877 11169948 10804045 10875481
</TABLE>
[GRAPH]
Gallons of Propane Delivered
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Gallons Delivered of Propane 5012830 4822277 5997912 6568066 7702384
</TABLE>
Year 2000
Roanoke Gas Company has made significant progress in addressing the Year
2000 issue. The Year 2000 concern is caused by the movement from 1999 to the
year 2000. Many computer-based systems rely on the last two numbers of the date
to distinguish the year, and many of these systems will not recognize "00" as an
acceptable date. Even if systems will accept "00" as an appropriate date, many
systems will not distinguish the year 2000 from year 1900. Like all other
companies that use application software and rely on a computer-based
infrastructure that includes microprocessor systems, the Year 2000 issue affects
many areas of the Company's operations. The Company has formed a Year 2000 Task
Force comprised of a comprehensive group of employees who have developed a
written plan that addresses communications, system conversions, system testing,
and contingency planning.
The Company has conducted an extensive inventory to identify and categorize
all of its internal systems which may be date sensitive. These internal systems
control, monitor, or assist in the operation of the Company, its equipment and
machinery. Generally, these systems contain microprocessor chips, integrated
circuits, or computer boards. The Company identified date-sensitive applications
in customer service, operations, financial systems, end-user applications,
storage and distribution systems, meters, telecommunications, vehicles, building
controls and other areas. With these systems identified, each system is reviewed
to determine how it can be tested. When applicable, manufacturers of each item
are contacted concerning available compliance information. An industry
consultant is assisting the Company with this phase.
The Company started upgrading internal systems in the winter of 1996
and completed the majority of the upgrades by the fall of 1997. These
systems cover the entire scope of the business, ranging from the Payroll
System to the Customer Information System. There is a plan in
14
<PAGE>
place to upgrade the remaining internal system applications by the spring
of 1999. Most of these systems have been in production for a minimum of ten
months. With baseline validation complete, testing for the Year 2000 and other
key dates has begun. In October 1998, the Company set up a training and testing
lab, and operating system testing was completed in November 1998. The Company
began performing tests on all software applications in December 1998, and such
testing is scheduled to be completed in the spring of 1999. The Company intends
to perform necessary remediation on systems that fail in March 1999. Over 70% of
the Company's systems have successfully completed testing and were found to be
Year 2000 compliant. The remaining 30%, which includes the propane system,
remain to be tested.
Roanoke Gas has made considerable progress in upgrading its information
systems to be Year 2000 compliant. Essentially, all of the core IBM AS/400
systems have been upgraded, with the exception of propane, which should be
completed by mid-1999. All Local Area Network (LAN) and Wide Area Network (WAN)
systems have been upgraded. The remaining systems are believed to be compliant
or a plan is in place to reach compliance. We believe that most of our
vendors, suppliers and major customers are dedicated to the problem with
intentions of completing their efforts in a timely manner. Though our list of
systems seems complete, management continues to search for systems throughout
the Company that may need attention. Employee awareness and contingency planning
are a top priority of the Company's Year 2000 task force.
The Company added a segregated test environment that included a second
AS/400 and an additional network file server. This should help facilitate the
implementation of the new CIS, allow thorough Year 2000 testing and improve the
test environment for all systems development. The segregated test environment
also upgrades the Company's Disaster Recovery Planning by enabling an internal
recovery hot-site.
The Company is developing a plan to identify the areas with the highest
potential risk of Year 2000 exposure and determining the functions that need
contingency plans. The Company anticipates that the resulting contingency plans
will be developed and documented by the spring of 1999.
The Virginia Commission and the West Virginia Commission are both closely
monitoring the Year 2000 conversions of all utilities in their respective
states. On July 1, 1998 the Virginia Commission Staff initiated a process which
required all utilities to file a summary of their progress toward Year 2000
compliance on July 22, 1998 with quarterly updates beginning in October 1998.
The West Virginia Commission issued General Order No. 253 on April 30, 1998 and
a Year 2000 Survey. The Order required survey responses by July 31, 1998, with
semi-annual updates beginning in January 1999.
The Company maintains emergency operating plans for problems that could
arise from both internal and external sources. With regard to internal systems,
the Company believes that it has identified and is addressing the Year 2000
compliance of the systems that pose the most significant risk to its ability to
provide safe and reliable service to customers. Externally, the Company has
initiated discussions with suppliers of interstate transportation capacity and
relies on their testing and remediation methods to continue the supply of
natural gas to its distribution system. Furthermore, the Company has received
and responded to letters from many of its customers concerning our Year 2000
compliance status. Likewise, the Company has held discussions with large-volume
customers concerning their Year 2000 concerns. The Company intends to
continually monitor any new developments.
The Company believes that it is taking reasonable measures to ensure the
safe and uninterrupted delivery of natural gas. There can be no guarantee that
the systems of other companies and external services, such as water,
electricity, and telephone, on which the Company's operations rely, will be
timely converted, or will be converted in a manner compatible with the Company's
systems. If this were to occur, it would create a significant barrier to
providing service to the Company's customers and could result in material
increases in operating expenses and lost revenues.
To date, the Company has spent approximately $35,000 on Year 2000
remediation activities. The Company projects that it will spend an additional
$109,000, over and above otherwise planned upgrades to systems and hardware,
over the course of the next two years to complete its Year 2000 readiness plan.
[PHOTO]
Michael Jones, Madeline Bowles, Nancy Sweeney, and Armell Bolden use the
new testing and training lab. Our computer lab will provide testing and
training for employees in many departments.
1998 Annual Report
15
<PAGE>
Management's Discussion & Analysis
Of Financial Condition And Results Of Operations
[PHOTO]
Don Jones, Project Engineer, fills his car with clean, efficient compressed
natural gas. Driving automobiles powered by natural gas is cleaner for our
environment.
Environmental Issues
Both Roanoke Gas Company and Bluefield Gas Company operated manufactured gas
plants (MGPs) as a source of fuel for lighting and heating until the early
1950s. The process involved heating coal in a low-oxygen environment to produce
a manufactured gas that could be distributed through the Company's pipeline
system to customers. A by-product of the process was coal tar, and the potential
exists for on-site tar waste contaminants at both former plant sites. The extent
of contaminants at these sites is unknown at this time, and the Company has not
performed formal analysis at the Roanoke Gas Company MGP site. An analysis at
the Bluefield Gas Company site indicates some soil contamination. The Company
has not received any notices of violation or liabilities associated with
environmental regulations related to the MGP sites and is not aware of any
off-site contamination or pollution as a result of these sites. Therefore, the
Company has no plans for subsurface remediation at either of the MGP sites.
Should the Company eventually be required to remediate either of the MGP sites,
the Company will pursue all prudent and reasonable means to recover any related
costs, including insurance claims and regulatory approval for rate case
recognition of expenses associated with any work required. Based upon prior
orders of the Commission related to environmental matters at other companies,
the Company believes it would be able to recover prudently incurred costs.
Additionally, a stipulated rate case agreement between the Company and the West
Virginia Commission recognized the Company's right to defer MGP cleanup costs,
should any be incurred, and to seek rate relief for such costs. If the Company
eventually incurs costs associated with a required cleanup of either MGP site,
the Company anticipates recording a regulatory asset for such cleanup costs
which are anticipated to be recovered in future rates. Based on anticipated
regulatory actions and current practices, management believes that any costs
incurred related to the previously mentioned environmental matters will not have
a material effect on the Company's consolidated financial position.
Roanoke Gas Company & Subsidiaries
1998 Financial Highlights
Operating Revenues - Gas $51,857,052
Propane Revenues - Propane $ 7,530,040
Other Revenues - Gas Marketing $ 6,519,467
Merchandising And Jobbing $ 587,030
Interest Income $ 28,872
Gross Revenues $66,522,461
Net Earnings $ 2,726,879
Net Earnings Per Share $ 1.60
Dividends Per Share - Cash $ 1.06
Total Customers - Natural Gas 53,582
Total Customers - Propane 11,004
Customers Per Employee 409
Total Natural Gas Deliveries - MCF 10,875,481
Total Propane Sales - Gallons 7,702,384
Total Payroll Chargeable To Operations & Construction $ 5,876,183
Total Additions To Plant $ 9,238,614
Roanoke Gas Company
16
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
of Roanoke Gas Company:
We have audited the accompanying consolidated balance sheet of Roanoke Gas
Company and subsidiaries (the "Company") as of September 30, 1998, and the
related statements of earnings, stockholders' equity and cash flows for the year
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 audit. The financial statements of the Company for the
years ended September 30, 1997 and 1996 were audited by other auditors whose
report, dated October 17, 1997, expressed an unqualified opinion on those
statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1998 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of September 30, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Charlotte, North Carolina
October 20, 1998
1998 Annual Report
17
<PAGE>
KPMG Peat Marwick LLP
10 S. Jefferson Street, Suite 1710
Roanoke, VA 24011-1331
Independent Auditors' Report
The Board of Directors and Stockholders
Roanoke Gas Company:
We have audited the accompanying consolidated balance sheet of Roanoke Gas
Company and subsidiaries as of September 30, 1997, and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
years in the two-year period ended September 30, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 audits to obtain
reasonable assurance about whether the consolidated 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Roanoke Gas Company
and subsidiaries as of September 30, 1997, and the results of their operations
and their cash flows for each of the years in the two-year period ended
September 30, 1997, in conformity with generally accepted accounting principles.
s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Roanoke, Virginia
October 17, 1997
<PAGE>
Roanoke Gas Company and Subsidiaries
Consolidated Balance Sheets
September 30, 1998 and 1997
<TABLE>
<CAPTION>
Assets 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Utility Plant:
In service $ 69,986,124 65,590,024
Accumulated depreciation and amortization (24,644,581) (22,612,963)
- --------------------------------------------------------------------------------------------------
In service, net 45,341,543 42,977,061
Construction work-in-progress 1,674,543 1,088,083
- --------------------------------------------------------------------------------------------------
Total utility plant, net 47,016,086 44,065,144
- --------------------------------------------------------------------------------------------------
Nonutility Property:
Propane 10,188,124 6,634,369
Accumulated depreciation and amortization (3,059,870) (2,540,274)
- --------------------------------------------------------------------------------------------------
Total nonutility property, net 7,128,254 4,094,095
- --------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 84,037 116,045
Accounts receivable, less allowance for doubtful accounts of
$202,652 in 1998 and $368,345 in 1997 3,051,474 4,188,984
Inventories 7,969,730 7,427,581
Prepaid income taxes 712,687 7,368
Deferred income taxes 1,868,888 1,206,995
Underrecovery of gas costs - 587,457
Other 451,027 420,674
- --------------------------------------------------------------------------------------------------
Total current assets 14,137,843 13,955,104
- --------------------------------------------------------------------------------------------------
Other Assets 852,737 478,915
- --------------------------------------------------------------------------------------------------
Total Assets $ 69,134,920 62,593,258
- --------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
Roanoke Gas Company
18
<PAGE>
<TABLE>
<CAPTION>
Liabilities And Stockholders' Equity 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Capitalization:
Stockholders' equity:
Common stock, $5 par value. Authorized 3,000,000 shares; issued and outstanding
1,794,416 and 1,527,486 shares in 1998 and 1997, respectively $ 8,972,080 7,637,430
Capital in excess of par value 8,909,145 5,271,667
Retained earnings 8,583,356 7,687,854
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 26,464,581 20,596,951
Long-term debt, excluding current maturities 20,700,000 17,079,000
- --------------------------------------------------------------------------------------------------------------------
Total capitalization 47,164,581 37,675,951
Current Liabilities:
Current installments of long-term debt - 3,143,124
Borrowings under lines of credit 4,584,000 7,129,000
Dividends payable 476,140 397,530
Accounts payable 6,968,594 5,512,348
Customer deposits 399,750 427,895
Accrued expenses 4,224,693 4,233,860
Refunds from suppliers - due customers 85,572 425,860
Overrecovery of gas costs 1,269,829 -
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 18,008,578 21,269,617
Deferred Credits And Other Liabilities:
Deferred income taxes 3,508,838 3,145,932
Deferred investment tax credits 452,923 492,357
Other deferred credits - 9,401
- --------------------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities 3,961,761 3,647,690
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities And Stockholders' Equity $ 69,134,920 62,593,258
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
1998 Annual Report
19
<PAGE>
Roanoke Gas Company and Subsidiaries
Consolidated Statements Of Earnings
Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues:
Gas utilities $ 51,857,052 57,842,181 60,067,407
Propane operations 7,530,040 7,205,645 5,703,466
- --------------------------------------------------------------------------------------------------
Total operating revenues 59,387,092 65,047,826 65,770,873
- --------------------------------------------------------------------------------------------------
Cost Of Gas:
Gas utilities 32,471,072 38,675,337 40,763,104
Propane operations 3,636,435 3,907,568 2,976,974
- --------------------------------------------------------------------------------------------------
Total cost of gas 36,107,507 42,582,905 43,740,078
- --------------------------------------------------------------------------------------------------
Operating Margin 23,279,585 22,464,921 22,030,795
- --------------------------------------------------------------------------------------------------
Operating Expenses:
Gas utilities:
Operations 7,583,583 8,049,833 8,056,211
Maintenance 1,432,203 1,462,764 1,868,280
Taxes - general 2,376,227 2,456,399 2,401,768
Taxes - income 1,100,506 857,964 963,895
Depreciation and amortization 2,806,278 2,533,912 2,294,447
Propane operations (including income taxes of
$326,206, $309,137 and $177,059 in 1998,
1997 and 1996, respectively) 3,263,762 2,700,626 2,410,890
- --------------------------------------------------------------------------------------------------
Total operating expenses 18,562,559 18,061,498 17,995,491
- --------------------------------------------------------------------------------------------------
Operating Earnings 4,717,026 4,403,423 4,035,304
- --------------------------------------------------------------------------------------------------
Other Income (Deductions):
Gas utilities, net 67,759 68,240 (20,931)
Propane operations, net 80,248 116,222 121,157
Taxes - income (42,443) (37,552) (22,486)
- --------------------------------------------------------------------------------------------------
Total other income (deductions) 105,564 146,910 77,740
- --------------------------------------------------------------------------------------------------
Earnings Before Interest Charges 4,822,590 4,550,333 4,113,044
- --------------------------------------------------------------------------------------------------
Interest Charges:
Gas utilities:
Long-term debt 1,550,734 1,740,998 1,621,661
Other 398,409 441,444 292,301
Propane operations 146,568 58,011 2,410
- --------------------------------------------------------------------------------------------------
Total interest charges 2,095,711 2,240,453 1,916,372
- --------------------------------------------------------------------------------------------------
Net Earnings $ 2,726,879 2,309,880 2,196,672
- --------------------------------------------------------------------------------------------------
Basic Earnings Per Share $ 1.60 1.54 1.51
- --------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding - Basic 1,701,048 1,503,388 1,455,999
- --------------------------------------------------------------------------------------------------
Diluted Earnings Per Share $ 1.60 1.53 1.51
- --------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding - Diluted 1,706,902 1,504,915 1,458,899
- --------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
Roanoke Gas Company
20
<PAGE>
Roanoke Gas Company and Subsidiaries
Consolidated Statements Of Stockholders' Equity
Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Capital In Total
Common Excess Of Retained Stockholders'
Stock Par Value Earnings Equity
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances, September 30, 1995 $ 7,162,560 4,149,584 6,243,028 17,555,172
Net earnings - - 2,196,672 2,196,672
Cash dividends ($1.02 per share) - - (1,491,077) (1,491,077)
Issuance of common stock (43,331 shares) 216,655 497,579 - 714,234
- -------------------------------------------------------------------------------------------------------
Balances, September 30, 1996 7,379,215 4,647,163 6,948,623 18,975,001
Net earnings - - 2,309,880 2,309,880
Cash dividends ($1.04 per share) - - (1,570,649) (1,570,649)
Issuance of common stock (51,643 shares) 258,215 624,504 - 882,719
- -------------------------------------------------------------------------------------------------------
Balances, September 30, 1997 7,637,430 5,271,667 7,687,854 20,596,951
Net earnings - - 2,726,879 2,726,879
Cash dividends ($1.06 per share) - - (1,831,377) (1,831,377)
Issuance of common stock (266,930 shares) 1,334,650 3,637,478 - 4,972,128
- -------------------------------------------------------------------------------------------------------
Balances, September 30, 1998 $ 8,972,080 8,909,145 8,583,356 26,464,581
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
1998 Annual Report
21
<PAGE>
Roanoke Gas Company and Subsidiaries
Consolidated Statements Of Cash Flows
Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 2,726,879 2,309,880 2,196,672
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,577,872 3,247,015 2,810,314
Loss (gain) on asset disposition 40,380 6,562 (4,202)
Write-off of regulatory assets - 132,523 -
Decrease (increase) in over/underrecovery of gas costs 1,857,286 1,195,133 (2,019,589)
Deferred taxes and investment tax credits (338,421) (681,937) 789,052
Other noncash items, net (284,466) 93,131 160,936
Changes in assets and liabilities which provided (used) cash:
Accounts receivable and customer deposits, net 1,109,365 (266,066) (346,566)
Inventories (542,149) (24,995) (2,054,592)
Prepaid income taxes and other current assets (735,672) 349,405 (596,257)
Accounts payable and accrued expenses 1,447,079 1,599,788 (902,462)
Refunds from suppliers - due customers (340,288) 401,995 (658,986)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 8,517,865 8,362,434 (625,680)
- -----------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Additions to utility plant and nonutility property (9,238,614) (8,052,801) (5,522,977)
Cost of removal of utility plant, net (70,949) (158,855) (423,221)
Proceeds from sales of assets 225,159 192,063 42,511
- ----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (9,084,404) (8,019,593) (5,903,687)
- ----------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt 3,356,000 - -
Retirement of long-term debt (2,878,124) (669,423) (1,179,415)
Net borrowings (repayments) under lines of credit (2,545,000) 476,500 8,598,000
Proceeds from issuance of common stock 4,601,069 882,719 714,234
Common stock issuance costs (246,647) - -
Cash dividends paid (1,752,767) (1,549,914) (1,473,025)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 534,531 (860,118) 6,659,794
- ----------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (32,008) (517,277) 130,427
Cash and Cash Equivalents, Beginning of Year 116,045 633,322 502,895
- ----------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 84,037 116,045 633,322
- ----------------------------------------------------------------------------------------------------------------
Supplemental Disclosures Of Cash Flows Information:
Cash paid during the year for:
Interest $ 2,148,861 2,065,893 1,493,801
- ----------------------------------------------------------------------------------------------------------------
Income taxes, net of refunds $ 2,512,897 1,575,952 1,148,319
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Noncash transactions:
The Company refinanced $9,300,000 of current installments of long-term
debt and borrowings under lines of credit as long-term debt in 1996.
The assets of a propane company were acquired in December 1997 in exchange
for 34,317 shares of stock for a total value of $617,706.
In June 1998, the Company refinanced the remaining balances of Series K
and Series L First Mortgage Bonds in the amount of $3,344,000 into a
First Mortgage Note due July 1, 2008.
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Roanoke Gas Company
22
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
Years Ended September 30, 1998, 1997 and 1996
(1) Summary Of Significant Accounting Policies
General
The consolidated financial statements include the accounts of Roanoke Gas
Company and its wholly owned subsidiaries (the "Company"), Bluefield Gas Company
and Diversified Energy Company, operating as Highland Propane Company and
Highland Gas Marketing. Roanoke Gas Company and Bluefield Gas Company are gas
utilities which distribute and sell natural gas to residential, commercial and
industrial customers within their service areas. Highland Propane Company
distributes and sells propane in southwestern Virginia and southern West
Virginia. Highland Gas Marketing brokers natural gas to several industrial
transportation customers of Roanoke Gas Company and Bluefield Gas Company.
The primary business of the Company is the distribution of natural gas to
residential, commercial and industrial customers in Roanoke, Virginia;
Bluefield, Virginia; Bluefield, West Virginia; and the surrounding areas. The
Company distributes natural gas to its customers at rates and charges regulated
by the State Corporation Commission in Virginia and the Public Service
Commission in West Virginia.
All significant intercompany transactions have been eliminated in
consolidation.
During 1998, 1997 and 1996, no single customer accounted for more than 5
percent of the Company's sales, and no account receivable from any customer
exceeded five percent of the Company's total accounts receivable at September
30, 1998 and 1997.
Regulation
The Company's regulated operations meet the criteria, and accordingly,
follow the accounting and reporting requirements of Statement of Financial
Accounting Standards ("SFAS") No. 71, Accounting for the Effects of Certain
Types of Regulation. The economic effects of regulation can result in regulated
companies recording costs that have been or are expected to be allowed in the
rate-setting process in a period different from the period in which the costs
would be charged to expense by an unregulated enterprise. When this results,
costs are deferred as assets in the consolidated balance sheet (regulatory
assets) and recorded as expenses as those same amounts are reflected in rates.
Additionally, regulators can impose liabilities upon a regulated company for
amounts previously collected from customers and for recovery of costs that are
expected to be incurred in the future (regulatory liabilities).
The amounts recorded by the Company as regulatory assets and regulatory
liabilities are as follows:
<TABLE>
<CAPTION>
September 30,
- --------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Regulatory Assets:
Early retirement incentive costs $ 20,520 33,481
Rate case costs 1,163 6,598
Underrecovery of gas costs - 587,457
Other 19,515 -
- --------------------------------------------------------------------------------------------------
Total Regulatory Assets $ 41,198 627,536
- --------------------------------------------------------------------------------------------------
Regulatory Liabilities:
Refunds from suppliers - due customers $ 85,572 425,860
Overrecovery of gas costs 1,269,829 -
- --------------------------------------------------------------------------------------------------
Total Regulatory Liabilities $ 1,355,401 425,860
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
During 1997, the Company wrote off regulatory assets totaling $132,523 upon
management's determination that, for rate-making purposes, recovery of these
costs in future revenues was no longer probable.
Utility Plant
Utility plant is stated at original cost. The cost of additions to utility
plant includes direct charges and overhead. The cost of depreciable property
retired, plus cost of removal, less salvage is charged to accumulated
depreciation. Maintenance, repairs, and minor renewals and betterments of
property are charged to operations.
Depreciation and Amortization
Provisions for depreciation are computed principally on composite
straight-line rates for financial statement purposes and on accelerated rates
for income tax purposes. Depreciation and amortization for financial statement
purposes are provided on annual composite rates ranging from 2 percent to 33
percent. The annual composite rates are determined by periodic depreciation
studies.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents.
1998 Annual Report
23
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
Years Ended September 30, 1998, 1997 and 1996
(1) Summary Of Significant Accounting Policies (continued)
Inventories
Inventories consist primarily of propane and natural gas, which are valued
at the lower of average cost or market.
Unbilled Revenues
The Company bills its natural gas customers on a monthly cycle basis,
although certain large industrial customers are billed at or near the end of
each month. The Company records revenue based on service rendered to the end of
the accounting period. The amounts of unbilled revenue receivable included in
accounts receivable on the consolidated balance sheets at September 30, 1998 and
1997 were $795,338 and $915,192, respectively.
Income Taxes
Income taxes are accounted for using the asset and liability method. Under
the asset and liability method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates in effect for the years in which those
temporary differences are expected to be recovered or settled. The Company and
its subsidiaries file a consolidated federal income tax return. Federal income
taxes have been provided by the Company on the basis of the separate company
income and deductions.
Bond Expenses
Bond expenses are being amortized over the lives of the bonds using the
bonds outstanding method.
Over/Underrecovery of Gas Costs
Pursuant to the provisions of the Company's Purchased Gas Adjustment (PGA)
clause, increases or decreases in gas costs are passed on to its customers.
Accordingly, the difference between actual costs incurred and costs recovered
through the application of the PGA is reflected as a net deferred charge or
credit. At the end of the deferral period, the balance of the net deferred
charge or credit is amortized over the next 12-month period as amounts are
reflected in customer billings.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per Share. SFAS No. 128 supersedes APB Opinion No. 15, Earnings
per Share, and specifies earnings per share (EPS) for entities with publicly
held common stock. Prior period EPS has been restated to conform to the new
statement.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Stock Options
On October 1, 1996, the Company adopted SFAS No. 123, Accounting for
Stock-Based Compensation (SFAS No. 123), which permits entities to recognize as
expense over the vesting period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 allows entities to continue to apply
the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees,
and provide pro forma net earnings and pro forma net earnings per share
disclosures for stock option grants, as if the fair-value-based method defined
in SFAS No. 123 had been applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provide the pro forma disclosures.
Reclassifications
Certain reclassifications were made to prior year balances to conform with
current year presentations.
Roanoke Gas Company
24
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
Years Ended September 30, 1998, 1997 and 1996
(2) Allowance For Doubtful Accounts
A summary of the changes in the allowance for doubtful accounts follows:
<TABLE>
<CAPTION>
Years Ended September 30,
- --------------------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balances, beginning of year $ 368,345 279,316 171,947
Provision for doubtful accounts 481,297 660,400 550,777
Recoveries of accounts written off 188,309 125,035 131,499
Accounts written off (835,299) (696,406) (574,907)
- --------------------------------------------------------------------------------------------------
Balances, end of year $ 202,652 368,345 279,316
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
(3) Borrowings Under Lines Of Credit A summary of short-term lines of credit
follows:
<TABLE>
<CAPTION>
September 30,
- --------------------------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Lines of credit $ 21,000,000 20,000,000
Outstanding balance 4,584,000 7,129,000
Highest month-end balances outstanding 12,929,000 15,896,000
Average month-end balances 5,280,000 8,098,000
Average rates of interest during year 6.19% 5.97%
Average rates of interest on balances outstanding 6.18% 6.14%
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
(4) Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30,
- --------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Roanoke Gas Company:
First Mortgage bonds, collateralized by utility plant:
Series K, 10%, due July 1, 2002, retired during 1998 $ - 1,350,000
Series L, 10.375%, due April 1, 2004, retired during 1998 - 2,328,000
Term debentures, collateralized by indenture dated
October 1, 1991, with provision for retirement in
varying annual payments through October 1, 2016 and
interest rates ranging from 6.75% to 9.625% 4,700,000 7,200,000
Unsecured senior notes payable, interest at 7.66%,
with provision for retirement of $1,600,000 for
each year beginning December 1, 2014 through 2018 8,000,000 8,000,000
Obligations under capital leases, due in aggregate
monthly payments of $3,076, including interest,
through August 1998 - 31,624
First Mortgage notes payable, interest fixed at
7.804% due July 1, 2008 5,000,000 -
- --------------------------------------------------------------------------------------------------
Bluefield Gas Company:
Unsecured installment loan, with interest rate based on
prime 8.75% at September 30, 1997, with provision for
retirement of $50,000 for each year and a final
payment of $12,500 on October 31, 1997 - 12,500
Unsecured note payable, interest at 7.28%, with provision
for retirement of $25,000 quarterly beginning
January 1, 2002 and a final payment of $1,125,000 on
October 1, 2003 1,300,000 1,300,000
- --------------------------------------------------------------------------------------------------
continued
</TABLE>
1998 Annual Report
25
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
Years Ended September 30, 1998, 1997 and 1996
(4) Long-term Debt (continued)
<TABLE>
<CAPTION>
September 30,
- --------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Highland Propane Company:
Unsecured note payable, interest at 7%, with provision
for retirement on December 31, 2007 $ 1,700,000 -
- --------------------------------------------------------------------------------------------------
Total long-term debt 20,700,000 20,222,124
Less current maturities - (3,143,124)
- --------------------------------------------------------------------------------------------------
Total long-term debt, excluding current maturities $20,700,000 17,079,000
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
The above debt obligations contain various provisions including a minimum
interest charge coverage ratio and limitations on debt as a percentage of total
capitalization. The obligations also contain a provision restricting the payment
of dividends, primarily based on the earnings of the Company and dividends
previously paid. At September 30, 1998, approximately $4,500,000 of retained
earnings were available for dividends.
The aggregate annual maturities of long-term debt, subsequent to September
30, 1998 are as follows:
Years Ending September 30,
- --------------------------------------------------------------------------------
2001 $ 775,000
2002 100,000
2003 2,125,000
Thereafter 17,700,000
- --------------------------------------------------------------------------------
Total $20,700,000
================================================================================
Roanoke Gas Company
26
<PAGE>
Roanoke Gas Company And Subsidiaries
Notes To Consolidated Financial Statements
Years Ended September 30, 1998, 1997 and 1996
(5) Income Taxes
The details of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
- ----------------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charged to operating expenses - gas utilities:
Current:
Federal $ 1,566,868 1,561,779 206,399
State 54,764 (15,946) (40,248)
- ----------------------------------------------------------------------------------------------------
Total current 1,621,632 1,545,833 166,151
- ----------------------------------------------------------------------------------------------------
Deferred:
Federal (447,054) (668,660) 777,772
State (34,638) 20,226 58,621
- ----------------------------------------------------------------------------------------------------
Total deferred (481,692) (648,434) 836,393
Investment tax credits, net (39,434) (39,435) (38,649)
Total charged to operating expenses - gas utilities 1,100,506 857,964 963,895
- ----------------------------------------------------------------------------------------------------
Charged to other operating expenses - propane operations:
Current 139,592 282,380 185,377
Deferred 186,614 26,757 (8,318)
- ----------------------------------------------------------------------------------------------------
Total charged to other operating expenses - propane operations 326,206 309,137 177,059
Charged to other income and deductions - gas utilities:
Current 46,353 37,892 22,860
Deferred (3,910) (340) (374)
- ----------------------------------------------------------------------------------------------------
Total charged to other income and deductions - gas utilities 42,443 37,552 22,486
- ----------------------------------------------------------------------------------------------------
Total income tax expense $ 1,469,155 1,204,653 1,163,440
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
Income tax expense for the years ended September 30, 1998, 1997 and 1996
differed from amounts computed by applying the U.S. Federal income tax rate of
34 percent to earnings before income taxes as a result of the following:
<TABLE>
<CAPTION>
Years Ended September 30,
- -------------------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings $ 2,726,879 2,309,880 2,196,672
Income tax expense 1,469,155 1,204,653 1,163,440
- -------------------------------------------------------------------------------------------------------
Earnings before income taxes $ 4,196,034 3,514,533 3,360,112
- -------------------------------------------------------------------------------------------------------
Computed "expected" income tax expense 1,426,652 1,194,941 1,142,438
Increase (reduction) in income tax expense
resulting from:
Amortization of deferred investment tax credits (39,434) (39,435) (38,649)
Other, net 81,937 49,147 59,651
- -------------------------------------------------------------------------------------------------------
Total income tax expense $ 1,469,155 1,204,653 1,163,440
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
1998 Annual Report
27
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
Years Ended September 30, 1998, 1997 and 1996
(5) Income Taxes (continued)
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
September 30,
- ---------------------------------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for uncollectibles $ 74,740 132,818
Accrued pension and medical benefits 909,898 803,852
Accrued vacation 172,707 173,731
Over/underrecovery of gas costs 430,529 (225,309)
Provision for rate refund - 176,972
Costs on gas held in storage 245,902 96,574
Other 35,112 48,357
- ---------------------------------------------------------------------------------------------------
Total gross deferred tax assets 1,868,888 1,206,995
- ---------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Utility plant basis differences 3,508,489 3,145,361
Other 349 571
- ---------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 3,508,838 3,145,932
- ---------------------------------------------------------------------------------------------------
Net deferred tax liability $ 1,639,950 1,938,937
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
Roanoke Gas Company
28
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
Years Ended September 30, 1998, 1997 and 1996
(6) Employee Benefit Plans
The Company has a defined benefit pension plan (the "Plan") covering
substantially all of its employees. The benefits are based on years of service
and employee compensation. Plan assets are invested principally in cash
equivalents and corporate stocks and bonds. Company contributions are intended
to provide not only for benefits attributed to date but also for those expected
to be earned in the future.
Pension expense includes the following components:
<TABLE>
<CAPTION>
Years Ended September 30,
- --------------------------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for the current year $ 157,705 142,467 148,465
Interest cost on the projected benefit obligation 444,696 419,474 397,458
Actual return on assets held in the plan (1,005,797) (1,030,919) (717,703)
Net amortization and deferral of unrecognized gains and losses 525,244 647,436 372,234
- --------------------------------------------------------------------------------------------------------
Net pension expense $ 121,848 178,458 200,454
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
The Plan's funded status is as follows:
<TABLE>
<CAPTION>
September 30,
- -----------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested $ (5,556,051) (4,285,717)
Nonvested (147,969) (143,901)
- -----------------------------------------------------------------------------------------------------
Accumulated benefit obligation (5,704,020) (4,429,618)
Effect of anticipated future compensation levels and other events (2,285,221) (1,510,433)
- -----------------------------------------------------------------------------------------------------
Projected benefit obligation (7,989,241) (5,940,051)
Fair value of assets held in the plan 7,069,755 6,324,249
- -----------------------------------------------------------------------------------------------------
Excess (deficiency) of plan assets over projected benefit obligation $ (919,486) 384,198
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
The excess (deficiency) of plan assets over the projected benefit
obligation consists of the following:
<TABLE>
<CAPTION>
September 30,
- ----------------------------------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net unrecognized gain due to past experience different than assumed $ 297,949 1,709,103
Unamortized transition liability (224,533) (329,977)
Unrecognized prior service cost (56,629) (75,503)
Accrued pension cost included in the consolidated balance sheet (936,273) (919,425)
- ----------------------------------------------------------------------------------------------------
Total $ 919,486 384,198
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 6.75 percent for 1998 and
7.75 percent for 1997 and 1996. The rates of increase in future compensation
levels used in determining the actuarial present value of the projected
obligation in 1998, 1997 and 1996 were 4 percent for compensation increases
through December 1996 and 5 percent for compensation increases thereafter. The
assumed long-term rate of return on assets was 8.5 percent for 1998, 1997 and
1996.
In addition to pension benefits, the Company has a postretirement benefits
plan which provides certain health care, supplemental retirement and life
insurance benefits to active and retired employees who meet specific age and
service requirements. The Plan is contributory. The Company has elected to fund
the Plan over future years. Approximately 74 percent of the consolidated annual
cost of the Plan is recovered from the Company's customers through rates.
1998 Annual Report
29
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
Years Ended September 30, 1998, 1997 and 1996
(6) Employee Benefit Plans (continued)
The following table presents the plan's funded status reconciled with the
amounts recognized in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
September 30,
- --------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees $ 3,141,831 2,846,193
Fully eligible active plan participants 964,981 712,308
Other active plan participants 1,662,990 1,262,063
- --------------------------------------------------------------------------------------------------
Total accumulated postretirement benefits obligation 5,769,802 4,820,564
Plan assets at fair value, principally cash equivalents and mutual
funds (1,164,820) (995,411)
- --------------------------------------------------------------------------------------------------
Accumulated postretirement benefits obligation in excess of plan
assets 4,604,982 3,825,153
Unrecognized net gain 216,562 938,540
Unrecognized transition obligation (3,559,500) (3,796,800)
- --------------------------------------------------------------------------------------------------
Postretirement benefits cost included in accrued expenses $ 1,262,044 966,893
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
Net periodic postretirement benefits cost includes the following components:
<TABLE>
<CAPTION>
Years Ended September 30,
- --------------------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for the current year $ 86,436 96,255 89,000
Interest cost on the accumulated postretirement
benefits obligation 362,179 325,036 363,000
Return on assets held in the plan (148,414) (89,542) (40,000)
Amortization of transition obligation 237,300 237,300 237,300
Net total of other components 61,882 (25,201) (16,000)
- --------------------------------------------------------------------------------------------------
Net periodic postretirement benefits cost $ 599,383 543,848 633,300
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefits obligation was 6.75 percent, 7.75 percent and 7.75
percent for 1998, 1997, and 1996, respectively.
For measurement purposes, 9 percent, 10 percent and 10.5 percent annual
rates of increase in the per capita cost of covered benefits (i.e., medical
trend rate) were assumed for 1998, 1997 and 1996, respectively; the rates were
assumed to decrease gradually to 5.25 percent by the year 2006 and remain at
that level thereafter. The medical trend rate assumption has a significant
effect on the amounts reported. For example, increasing the assumed medical cost
trend rate by one percentage point each year would increase the accumulated
postretirement benefits obligation as of September 30, 1998 by approximately
$682,946 or 12 percent, and the aggregate of the service and interest cost
components of net postretirement benefits cost by approximately $80,326, or 16
percent.
The Company also has a defined contribution plan covering all of its
employees who elect to participate. The Company made annual matching
contributions to the plan based on 70 percent in 1998 and 1997 and 50 percent in
1996 of the net participants' basic contributions (from 1 to 6 percent of their
total compensation). The annual cost of the plan was $206,766, $217,466 and
$134,188 for 1998, 1997 and 1996, respectively.
Roanoke Gas Company
30
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
Years Ended September 30, 1998, 1997 and 1996
(7) Common Stock Options
During 1996, the Company's stockholders approved the Roanoke Gas Company Key
Employee Stock Option Plan (the "Plan"). The Plan provides for the issuance of
common stock options to officers and certain other full-time salaried employees
to acquire a maximum of 50,000 shares of the Company's common stock. The Plan
requires each option's exercise price per share to equal the fair value of the
Company's common stock as of the date of grant.
The aggregate number of shares under option pursuant to the Roanoke Gas
Company Key Employee Stock Option Plan are as follows:
<TABLE>
<CAPTION>
Number Of Weighted Average Option Price
Shares Exercise Price Per Share
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding, September 30, 1996 13,000 $ 15.500
Options granted 21,500 16.875
- ----------------------------------------------------------------------------------------------------------
Options outstanding, September 30, 1997 34,500 16.357 $ 15.500-16.875
Options granted 15,500 20.625
Options exercised (13,000) 16.346
- ----------------------------------------------------------------------------------------------------------
Options outstanding, September 30, 1998 37,000 $ 18.149 $ 15.500-20.625
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Under the terms of the Plan, the options become exercisable six months
from the grant date and expire 10 years subsequent to the grant date. All
options outstanding were fully vested and exercisable at September 30, 1998 and
1997.
The per share weighted-average fair values of stock options granted during
1998, 1997 and 1996 were $2.85, $1.08 and $1.63, respectively, on the dates of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
Years Ended September 30,
- ----------------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected dividend yield 5.14% 5.78% 5.83%
Risk-free interest rate 4.33% 6.29% 6.44%
Expected volatility 21.00% 10.00% 42.00%
Expected life 10 years 10 years 10 years
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
The Company uses the intrinsic value method of APB Opinion No. 25 for
recognizing stock-based compensation in the consolidated financial statements.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under the provisions of SFAS No. 123, the
Company's 1998 net earnings and basic earnings per share would have been
$2,697,709 and $1.58; 1997 net earnings and basic earnings per share would have
been $2,278,093 and $1.52; and 1996 net earnings and basic earnings per share
would have been $2,182,681 and $1.50.
1998 Annual Report
31
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
Years Ended September 30, 1998, 1997 and 1996
(8) Related Party Transactions
Certain of the Company's directors render services or sell products to the
Company. The significant services relate to legal fees charged to the Company of
approximately $185,000, $182,000 and $69,000 in 1998, 1997 and 1996,
respectively. The products included natural gas purchases of approximately
$6,052,000, $3,052,000 and $1,950,000 in 1998, 1997 and 1996, respectively. It
is anticipated that similar services and products will be provided to the
Company in 1999.
(9) Environmental Matters
Both Roanoke Gas Company and Bluefield Gas Company operated manufactured
gas plants (MGPs) as a source of fuel for lighting and heating until the early
1950's. A by-product of operating MGPs was coal tar, and the potential exists
for on-site tar waste contaminants at the former plant sites. The extent of
contaminants at these sites, if any, is unknown at this time. An analysis of the
Bluefield Gas Company site indicates some soil contamination. The Company, with
concurrence of legal counsel, does not believe any events have occurred
requiring regulatory reporting. Further, the Company has not received any
notices of violation or liabilities associated with environmental regulations
related to the MGP sites and is not aware of any off-site contamination or
pollution as a result of prior operations. Therefore, the Company has no plans
for subsurface remediation at the MGP sites. Should the Company eventually be
required to remediate either site, the Company will pursue all prudent and
reasonable means to recover any related costs, including insurance claims and
regulatory approval for rate case recognition of expenses associated with any
work required. A stipulated rate case agreement between the Company and the West
Virginia Public Service Commission recognized the Company's right to defer MGP
cleanup costs at the Bluefield site, should any be incurred, and to seek rate
relief for such costs. If the Company eventually incurs costs associated with a
required cleanup of either MGP site, the Company anticipates recording a
regulatory asset for such cleanup costs to be recovered in future rates. Based
on anticipated regulatory actions and current practices, management believes
that any costs incurred related to this matter will not have a material effect
on the Company's financial condition.
(10) Commitments
The Company has short-term contracts with natural gas suppliers requiring
the purchase of approximately 4,420,000 dekatherms of natural gas at varying
prices during the period October 1, 1998 through September 30, 1999. In
addition, the Company has short-term contracts with propane suppliers requiring
the purchase of approximately 4,415,000 gallons of propane during the period
October 1, 1998 through September 30, 1999. Management does not anticipate that
these contracts will have a material impact on the Company's fiscal year 1999
consolidated results of operations.
(11) Fair Value Of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure of the estimated fair values of certain financial
instruments. SFAS No. 107 defines the fair value of a financial instrument as
the amount at which the instrument could be exchanged in a current transaction
between willing parties.
The carrying amount of cash and cash equivalents and borrowings under
lines of credit are a reasonable estimate of fair value due to their short-term
nature and because the rates of interest paid on borrowings under lines of
credit approximate market rates.
The fair value of long-term debt is estimated by discounting the future
cash flows of each issuance at rates currently offered to the Company for
similar debt instruments of comparable maturities. The carrying amounts and
approximate fair values are as follows:
<TABLE>
<CAPTION>
September 30,
- --------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------
Carrying Approximate Carrying Approximate
Amount Fair Value Amount Fair Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term debt 20,700,000 24,287,744 20,222,124 21,384,604
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
Judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates determined as of September
30, 1998 and 1997 are not necessarily indicative of the amounts the Company
could have realized in current market exchanges.
Roanoke Gas Company
32
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
Years Ended September 30, 1998, 1997 and 1996
(11) Fair Value Of Financial Instruments (continued)
Derivative and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, effective for
fiscal years beginning after June 15, 1999. SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
the recognition of all derivative instruments as assets or liabilities in the
Company's balance sheet and measurement of those instruments at fair value. The
accounting treatment of changes in fair value is dependent upon whether or not a
derivative instrument is designated as a hedge and if so, the type of hedge.
The Company has entered into certain arrangements for hedging the
price of natural gas and propane gas for the purpose of providing price
stability during the winter months. The Company has not fully analyzed the
impact of the provisions of SFAS No. 133 on the Company's financial statements.
(12) Quarterly Financial Information (Unaudited)
Quarterly financial data for the years ended September 30, 1998 and 1997
is summarized as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 20,796,021 21,750,333 8,982,316 7,858,422
- --------------------------------------------------------------------------------------------------
Operating earnings (loss) $ 2,071,945 2,662,581 153,192 (170,692)
- --------------------------------------------------------------------------------------------------
Net earnings (loss) $ 1,544,234 2,123,464 (281,216) (659,603)
Basic earnings (loss) per share $ 1.00 1.24 (.16) (.48)
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
<CAPTION>
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 22,412,424 24,580,783 9,894,442 8,160,177
- --------------------------------------------------------------------------------------------------
Operating earnings (loss) $ 1,840,530 2,394,999 261,537 (93,643)
- --------------------------------------------------------------------------------------------------
Net earnings (loss) $ 1,331,276 1,831,756 (247,734) (605,418)
Basic earnings (loss) per share $ .90 1.22 (.16) (.42)
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
The pattern of quarterly earnings is the result of the highly seasonal nature
of the business, as variations in weather conditions generally result in greater
earnings during the winter months.
1998 Annual Report
33
<PAGE>
Roanoke Gas Company and Subsidiaries
Summary Of Gas Sales And Statistics
Years Ended September 30,
<TABLE>
<CAPTION>
Revenues: 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Residential Sales $ 30,396,540 $ 32,595,261 $ 33,981,835 $ 25,078,211 $ 29,844,636
Commercial Sales 18,764,195 19,879,180 20,219,289 14,313,723 16,979,230
Interruptible Sales 695,279 3,892,301 4,569,766 3,513,181 5,607,002
Transportation Gas Sales 1,715,032 1,107,922 943,215 909,515 610,682
Backup Services 97,552 173,655 190,310 107,652 222,025
Late Payment Charges 156,634 157,369 135,838 115,130 194,156
Miscellaneous 31,820 36,493 27,154 24,325 67,576
Propane 7,530,040 7,205,645 5,703,466 4,549,410 4,670,550
- -------------------------------------------------------------------------------------------------------------------
Total $ 59,387,092 $ 65,047,826 $ 65,770,873 $ 48,611,147 $ 58,195,857
- -------------------------------------------------------------------------------------------------------------------
Net Income $ 2,726,879 $ 2,309,880 $ 2,196,672 $ 1,777,240 $ 1,677,098
- -------------------------------------------------------------------------------------------------------------------
MCF Delivered:
- -------------------------------------------------------------------------------------------------------------------
Residential 4,633,403 4,651,819 5,108,553 4,204,222 4,701,703
Commercial 3,228,452 3,230,714 3,385,962 2,834,884 2,981,888
Interruptible 172,270 959,146 1,088,921 1,240,658 1,521,663
Transportation Gas 2,822,856 1,933,236 1,549,854 1,660,504 1,022,892
Backup Service 18,500 29,130 36,658 21,609 38,892
- -------------------------------------------------------------------------------------------------------------------
Total 10,875,481 10,804,045 11,169,948 9,961,877 10,267,038
- -------------------------------------------------------------------------------------------------------------------
Gallons Delivered (Propane) 7,702,384 6,568,066 5,997,912 4,822,277 5,012,830
- -------------------------------------------------------------------------------------------------------------------
Heating Degree Days 4,054 4,298 4,696 3,791 4,416
- -------------------------------------------------------------------------------------------------------------------
Number Of Customers:
- -------------------------------------------------------------------------------------------------------------------
Residential 48,265 47,539 46,007 44,873 43,734
Commercial 5,272 5,181 5,043 4,896 4,767
Interruptible And Interruptible
Transportation Service 45 43 44 44 43
- -------------------------------------------------------------------------------------------------------------------
Total 53,582 52,763 51,094 49,813 48,544
- -------------------------------------------------------------------------------------------------------------------
Gas Account (MCF):
- -------------------------------------------------------------------------------------------------------------------
Natural Gas Purchases And Storage 11,316,714 11,406,613 11,756,089 10,453,696 10,795,928
Gas Made - Propane - - - - 14,008
- -------------------------------------------------------------------------------------------------------------------
Total Available 11,316,714 11,406,613 11,756,089 10,453,696 10,809,936
- -------------------------------------------------------------------------------------------------------------------
Natural Gas Deliveries 10,875,481 10,804,045 11,169,948 9,961,877 10,267,038
Storage - LNG 69,343 106,892 142,297 118,393 134,893
Company Use And Miscellaneous 37,998 49,444 54,140 46,532 50,356
System Loss 333,892 446,232 389,704 326,894 357,649
- -------------------------------------------------------------------------------------------------------------------
Total Gas Available 11,316,714 11,406,613 11,756,089 10,453,696 10,809,936
- -------------------------------------------------------------------------------------------------------------------
Total Assets $ 69,134,920 $ 62,593,258 $ 58,921,099 $ 51,614,667 $ 49,579,447
- -------------------------------------------------------------------------------------------------------------------
Long-Term Obligations $ 20,700,000 $ 17,079,000 $ 20,222,124 $ 17,504,047 $ 16,414,900
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Roanoke Gas Company
34
<PAGE>
Roanoke Gas Company and Subsidiaries
Summary Of Capitalization Statistics
Years Ended September 30,
<TABLE>
<CAPTION>
Common Stock: 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares Issued 1,794,416 1,527,486 1,475,843 1,432,512 1,382,343
Basic Earnings Per Share $1.60 $1.54 $1.51 $1.26 $1.25
Dividends Paid Per Share (Cash) $1.06 $1.04 $1.02 $1.00 $1.00
Dividends Paid Out Ratio 66.3% 67.5% 67.5% 79.4% 80.0%
Number Of Shareholders 1,836 1,853 1,713 1,699 1,625
- ------------------------------------------------------------------------------------------------------------
Capitalization Ratios:
- ------------------------------------------------------------------------------------------------------------
Long-Term Debt,
Including Current Installments 43.9 49.5 52.4 51.6 51.0
Stockholders' Equity 56.1 50.5 47.6 48.4 49.0
- ------------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0 100.0 100.0
- ------------------------------------------------------------------------------------------------------------
Long-Term Debt,
Including Current Installments $ 20,700,000 $ 20,222,124 $20,891,547 $ 18,683,462 $17,087,046
Stockholders' Equity 26,464,581 20,596,951 18,975,001 17,555,172 16,424,919
- ------------------------------------------------------------------------------------------------------------
Total Capitalization
Plus Current Installments $ 47,164,581 $ 40,819,075 $39,866,548 $ 36,238,634 $33,511,965
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
1998 Annual Report
35
<PAGE>
Roanoke Gas Company
Board Of Directors
Lynn D. Avis
Avis Construction Company
President
Abney S. Boxley III
W. W. Boxley Company
President
Frank T. Ellett
Virginia Truck Center, Inc.
President
Frank A. Farmer, Jr.
Chairman Of The Board
Wilbur L. Hazlegrove
Law Firm Of Woods, Rogers & Hazlegrove,
P.L.C. Member
J. Allen Layman
R & B Communications, Inc.
President & CEO
Thomas L. Robertson
Carilion Health System &
Carilion Medical Center
President
S. Frank Smith
Coastal Coal Co., L.L.C.
Vice President
John B. Williamson III
President & CEO
Officers
John B. Williamson III
President & CEO
Arthur L. Pendleton
Executive Vice President & COO
Roger L. Baumgardner
Vice President, Secretary & Treasurer
John S. D'Orazio
Vice President - Marketing & New Construction
Jane N. O'Keeffe
Assistant Vice President - Human Resources
J. David Anderson
Assistant Secretary & Assistant Treasurer
Bluefield Gas Company
Board of Directors
Roger L. Baumgardner
Roanoke Gas Company
Vice President, Secretary & Treasurer
Arthur L. Pendleton
Roanoke Gas Company
Executive Vice President & COO
John C. Shott
Paper Supply Company
President
Scott H. Shott
Paper Supply Company
Secretary & Treasurer
John B. Williamson III
Roanoke Gas Company
President & CEO
Officers
John B. Williamson III
President
John S. D'Orazio
Vice President - Marketing & New Construction
Arthur L. Pendleton
Vice President - Operations
Roger L. Baumgardner
Secretary & Treasurer
Diversified Energy Company
T/A Highland Propane Company & Highland Gas Marketing
Board of Directors
Roger L. Baumgardner
Roanoke Gas Company
Vice President, Secretary & Treasurer
Frank T. Ellett
Virginia Truck Center, Inc.
President
Arthur L. Pendleton
Roanoke Gas Company
Executive Vice President & COO
S. Frank Smith
Coastal Coal Co., L.L.C.
Vice President
John B. Williamson III
Roanoke Gas Company
President & CEO
Officers
John B. Williamson III
President
John S. D'Orazio
Vice President - Marketing & New Construction
Arthur L. Pendleton
Vice President - Operations
Roger L. Baumgardner
Secretary & Treasurer
36
Roanoke Gas Company
<PAGE>
Corporate Mission Statement
Roanoke Gas Company provides superior customer and stockholder value
by being the preferred choice for safe, dependable, efficient, economical energy
and services in the market it serves.
Corporate Information
Corporate Office
Roanoke Gas Company
519 Kimball Avenue, N.E.
P.O. Box 13007
Roanoke, VA 24030
(540) 777-4GAS (4427)
Fax (540) 777-2636
Auditors
Deloitte & Touche LLP
1100 Carillon
227 West Trade Street
Charlotte, NC 28202-1675
Common Stock Transfer Agent, Registrar,
Dividend Disbursing Agent & Dividend
Reinvestment Agent
First Union National Bank of North Carolina
First Union Customer Information Center
Corporate Trust Client Services NC-1153
1525 West W.T. Harris Boulevard - 3C3
Charlotte, NC 28288-1153
Common Stock
Roanoke Gas Company's common stock is listed on the Nasdaq National Market
under the trading symbol RGCO.
Direct Deposit Of Dividends &
Safekeeping Of Stock Certificates
Shareholders can have their cash dividends deposited automatically into
checking, saving or money market accounts. The shareholder's financial
institution must be a member of the Automated Clearing House. Also, Roanoke Gas
Company offers safekeeping of stock certificates for shares enrolled in the
dividend reinvestment plan. For more information about these shareholder
services, please contact the Transfer Agent, First Union National Bank of North
Carolina.
10-K Report
A copy of Roanoke Gas Company's latest annual report to the Securities and
Exchange Commission on Form 10-K will be provided without charge upon written
request to:
Roger L. Baumgardner
Vice President, Secretary & Treasurer
Roanoke Gas Company
P.O. Box 13007
Roanoke, VA 24030
Shareholder Inquiries
Questions concerning shareholder accounts, stock transfer requirements,
consolidation of accounts, lost stock certificates, safekeeping of stock
certificates, replacement of lost dividend checks, payment of dividends, direct
deposit of dividends, initial cash payments, optimal cash payments and name or
address changes should be directed to the Transfer Agent, First Union National
Bank. All other shareholder questions should be directed to:
Roger L. Baumgardner
Vice President, Secretary & Treasurer
Roanoke Gas Company
P.O. Box 13007
Roanoke, VA 24030
Financial Inquiries
All financial analysts and professional investment managers should direct
their questions and requests for financial information to:
Roger L. Baumgardner
Vice President, Secretary & Treasurer
Roanoke Gas Company
P.O. Box 13007
Roanoke, VA 24030
Access up-to-date information on Roanoke Gas Company and its subsidiaries at
www.roanokegas.com
<PAGE>
Notice Of Annual Meeting
The annual meeting of stockholders
of Roanoke Gas Company will be held
at the Executive Offices of the Company,
519 Kimball Avenue, N. E.,
Roanoke, Virginia at 9:00 a.m.,
Wednesday, March 31, 1999.
[Roanoke Gas Logo]
Your Choice for Comfort and Economy.
Transfer Agent and Dividend Disbursing Agent
First Union National Bank of North Carolina
First Union Customer Information Center
Corporate Trust Client Services NC-1153
1525 West W. T. Harris Boulevard - 3C3
Charlotte, North Carolina 28288-1153
1-800-829-8432
Roanoke Gas Company trades on Nasdaq as RGCO.
<PAGE>
Exhibit 23(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-69902 on Form S-2, as amended, Registration Statement No. 333-02455 on Form
S-8, and Registration No. 333-67311 on Form S-4 of Roanoke Gas Company, of our
report dated October 20, 1998, incorporated by reference in the Annual Report on
Form 10-K of Roanoke Gas Company for the year ended September 30, 1998.
s/Deloitte & Touche LLP
Deloitte & Touche LLP
Charlotte, North Carolina
January 27, 1999
<PAGE>
Exhibit 23(b)
Accountants' Consent
The Board of Directors
Roanoke Gas Company:
We consent to the incorporation by reference in Registration Statements No.
33-69902 on Form S-2, as amended, No. 333-02455 on Form S-8 and No. 333-67311 on
Form S-4 of Roanoke Gas Company of our report dated October 17, 1997, relating
to the consolidated balance sheet of Roanoke Gas Company and subsidiaries as of
September 30, 1997, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the years in the two-year period
ended September 30, 1997, which report is included in the September 30, 1998
Annual Report on Form 10-K of Roanoke Gas Company.
s/KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Roanoke, Virginia
January 27, 1999
<PAGE>
Exhibit 27
ARTICLE UT
LEGEND
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ROANOKE
GAS COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30,
1998, AS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
/LEGEND
<TABLE>
<S> <C>
PERIOD-TYPE 12-MOS
FISCAL-YEAR-END SEP-30-1998
PERIOD-END SEP-30-1998
BOOK-VALUE PER-BOOK
TOTAL-NET-UTILITY-PLANT 47,016,086
OTHER-PROPERTY-AND-INVEST 7,128,254
TOTAL-CURRENT-ASSETS 14,137,843
TOTAL-DEFERRED-CHARGES 0
OTHER-ASSETS 852,737
TOTAL-ASSETS 69,134,920
COMMON 8,972,080
CAPITAL-SURPLUS-PAID-IN 8,909,145
RETAINED-EARNINGS 8,583,356
TOTAL-COMMON-STOCKHOLDERS-EQ 26,464,581
PREFERRED-MANDATORY 0
PREFERRED 0
LONG-TERM-DEBT-NET 20,700,000
SHORT-TERM-NOTES 4,584,000
LONG-TERM-NOTES-PAYABLE 0
COMMERCIAL-PAPER-OBLIGATIONS 0
LONG-TERM-DEBT-CURRENT-PORT 0
PREFERRED-STOCK-CURRENT 0
CAPITAL-LEASE-OBLIGATIONS 0
LEASES-CURRENT 0
OTHER-ITEMS-CAPITAL-AND-LIAB 17,386,339
TOT-CAPITALIZATION-AND-LIAB 69,134,920
GROSS-OPERATING-REVENUE 59,387,092
INCOME-TAX-EXPENSE 1,100,506
OTHER-OPERATING-EXPENSES 53,569,560
TOTAL-OPERATING-EXPENSES 54,670,066
OPERATING-INCOME-LOSS 4,717,026
OTHER-INCOME-NET 105,564
INCOME-BEFORE-INTEREST-EXPEN 4,822,590
TOTAL-INTEREST-EXPENSE 2,095,711
NET-INCOME 2,726,879
PREFERRED-STOCK-DIVIDENDS 0
EARNINGS-AVAILABLE-FOR-COMM 2,726,879
COMMON-STOCK-DIVIDENDS 1,831,377
TOTAL-INTEREST-ON-BONDS 712,736
CASH-FLOW-OPERATIONS 8,517,865
EPS-PRIMARY 1.60
EPS-DILUTED 1.60
</TABLE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ROANOKE
GAS COMPANY'S AUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT FOR THE
YEAR ENDED SEPTEMBER 30, 1998, AS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON
FORM 10-K, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 001
<NAME> RGC Resources, Inc.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 47,150,086
<OTHER-PROPERTY-AND-INVEST> 7,128,254
<TOTAL-CURRENT-ASSETS> 14,137,843
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 718,737
<TOTAL-ASSETS> 69,134,920
<COMMON> 8,972,080
<CAPITAL-SURPLUS-PAID-IN> 8,909,145
<RETAINED-EARNINGS> 8,583,356
<TOTAL-COMMON-STOCKHOLDERS-EQ> 26,464,581
0
0
<LONG-TERM-DEBT-NET> 20,700,000
<SHORT-TERM-NOTES> 4,584,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 17,386,339
<TOT-CAPITALIZATION-AND-LIAB> 69,134,920
<GROSS-OPERATING-REVENUE> 59,387,092
<INCOME-TAX-EXPENSE> 1,426,712
<OTHER-OPERATING-EXPENSES> 53,243,354
<TOTAL-OPERATING-EXPENSES> 54,670,066
<OPERATING-INCOME-LOSS> 4,717,026
<OTHER-INCOME-NET> 105,564
<INCOME-BEFORE-INTEREST-EXPEN> 4,822,590
<TOTAL-INTEREST-EXPENSE> 2,095,711
<NET-INCOME> 2,726,879
0
<EARNINGS-AVAILABLE-FOR-COMM> 2,726,879
<COMMON-STOCK-DIVIDENDS> 1,831,377
<TOTAL-INTEREST-ON-BONDS> 712,736
<CASH-FLOW-OPERATIONS> 8,517,865
<EPS-PRIMARY> 1.60
<EPS-DILUTED> 1.60
</TABLE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ROANOKE
GAS COMPANY'S AUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT FOR THE
YEAR ENDED SEPTEMBER 30, 1998, AS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON
FORM 10-K, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 001
<NAME> RGC Resources, Inc.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 0
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 0
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 0
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 0
<TOTAL-COMMON-STOCKHOLDERS-EQ> 0
0
0
<LONG-TERM-DEBT-NET> 0
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 0
<TOT-CAPITALIZATION-AND-LIAB> 0
<GROSS-OPERATING-REVENUE> 0
<INCOME-TAX-EXPENSE> 0
<OTHER-OPERATING-EXPENSES> 0
<TOTAL-OPERATING-EXPENSES> 0
<OPERATING-INCOME-LOSS> 0
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> 0
<TOTAL-INTEREST-EXPENSE> 0
<NET-INCOME> 0
0
<EARNINGS-AVAILABLE-FOR-COMM> 0
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ROANOKE
GAS COMPANY'S AUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT FOR THE
YEAR ENDED SEPTEMBER 30, 1998, AS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON
FORM 10-K, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 002
<NAME> Roanoke Gas Company
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 42,229,883
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 11,780,270
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 407,576
<TOTAL-ASSETS> 54,417,729
<COMMON> 8,972,080
<CAPITAL-SURPLUS-PAID-IN> 8,909,145
<RETAINED-EARNINGS> 2,503,882
<TOTAL-COMMON-STOCKHOLDERS-EQ> 20,385,107
0
0
<LONG-TERM-DEBT-NET> 17,700,000
<SHORT-TERM-NOTES> 2,206,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 14,126,622
<TOT-CAPITALIZATION-AND-LIAB> 54,417,729
<GROSS-OPERATING-REVENUE> 45,557,772
<INCOME-TAX-EXPENSE> 960,250
<OTHER-OPERATING-EXPENSES> 40,863,081
<TOTAL-OPERATING-EXPENSES> 41,823,331
<OPERATING-INCOME-LOSS> 3,734,441
<OTHER-INCOME-NET> 29,142
<INCOME-BEFORE-INTEREST-EXPEN> 3,763,583
<TOTAL-INTEREST-EXPENSE> 1,756,786
<NET-INCOME> 2,006,797
0
<EARNINGS-AVAILABLE-FOR-COMM> 2,006,797
<COMMON-STOCK-DIVIDENDS> 1,831,377
<TOTAL-INTEREST-ON-BONDS> 712,736
<CASH-FLOW-OPERATIONS> 5,667,232
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.18
</TABLE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ROANOKE
GAS COMPANY'S AUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT FOR THE
YEAR ENDED SEPTEMBER 30, 1998, AS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON
FORM 10-K, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 002
<NAME> Roanoke Gas Company
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 42,229,883
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 11,780,270
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 6,487,050
<TOTAL-ASSETS> 60,497,203
<COMMON> 8,972,080
<CAPITAL-SURPLUS-PAID-IN> 8,909,145
<RETAINED-EARNINGS> 8,583,356
<TOTAL-COMMON-STOCKHOLDERS-EQ> 26,464,581
0
0
<LONG-TERM-DEBT-NET> 17,700,000
<SHORT-TERM-NOTES> 2,206,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 14,126,622
<TOT-CAPITALIZATION-AND-LIAB> 60,497,203
<GROSS-OPERATING-REVENUE> 45,557,772
<INCOME-TAX-EXPENSE> 960,250
<OTHER-OPERATING-EXPENSES> 40,863,081
<TOTAL-OPERATING-EXPENSES> 41,823,331
<OPERATING-INCOME-LOSS> 3,734,441
<OTHER-INCOME-NET> 749,224
<INCOME-BEFORE-INTEREST-EXPEN> 4,483,665
<TOTAL-INTEREST-EXPENSE> 1,756,786
<NET-INCOME> 2,726,879
0
<EARNINGS-AVAILABLE-FOR-COMM> 2,726,879
<COMMON-STOCK-DIVIDENDS> 1,831,377
<TOTAL-INTEREST-ON-BONDS> 712,736
<CASH-FLOW-OPERATIONS> 5,667,232
<EPS-PRIMARY> 1.60
<EPS-DILUTED> 1.60
</TABLE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ROANOKE
GAS COMPANY'S AUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT FOR THE
YEAR ENDED SEPTEMBER 30, 1998, AS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON
FORM 10-K, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 003
<NAME> Bluefield Gas Company
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 3,681,134
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 1,972,179
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 40,737
<TOTAL-ASSETS> 5,694,050
<COMMON> 49,704
<CAPITAL-SURPLUS-PAID-IN> 220,564
<RETAINED-EARNINGS> 1,433,884
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,704,152
0
0
<LONG-TERM-DEBT-NET> 1,300,000
<SHORT-TERM-NOTES> 1,619,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,070,898
<TOT-CAPITALIZATION-AND-LIAB> 5,694,050
<GROSS-OPERATING-REVENUE> 5,965,757
<INCOME-TAX-EXPENSE> 88,514
<OTHER-OPERATING-EXPENSES> 5,565,200
<TOTAL-OPERATING-EXPENSES> 5,653,714
<OPERATING-INCOME-LOSS> 312,043
<OTHER-INCOME-NET> (2,192)
<INCOME-BEFORE-INTEREST-EXPEN> 309,851
<TOTAL-INTEREST-EXPENSE> 191,777
<NET-INCOME> 118,074
0
<EARNINGS-AVAILABLE-FOR-COMM> 118,074
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 666,947
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ROANOKE
GAS COMPANY'S AUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT FOR THE
YEAR ENDED SEPTEMBER 30, 1998, AS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON
FORM 10-K, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 003
<NAME> Bluefield Gas Company
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,681,134
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 1,972,179
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 41,237
<TOTAL-ASSETS> 5,694,550
<COMMON> 49,704
<CAPITAL-SURPLUS-PAID-IN> 220,564
<RETAINED-EARNINGS> 1,434,384
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,704,652
0
0
<LONG-TERM-DEBT-NET> 1,300,000
<SHORT-TERM-NOTES> 1,619,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,070,898
<TOT-CAPITALIZATION-AND-LIAB> 5,694,550
<GROSS-OPERATING-REVENUE> 5,965,757
<INCOME-TAX-EXPENSE> 88,514
<OTHER-OPERATING-EXPENSES> 5,565,200
<TOTAL-OPERATING-EXPENSES> 5,653,714
<OPERATING-INCOME-LOSS> 312,043
<OTHER-INCOME-NET> (2,192)
<INCOME-BEFORE-INTEREST-EXPEN> 309,851
<TOTAL-INTEREST-EXPENSE> 191,777
<NET-INCOME> 118,074
0
<EARNINGS-AVAILABLE-FOR-COMM> 118,074
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 666,947
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ROANOKE
GAS COMPANY'S AUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT FOR THE
YEAR ENDED SEPTEMBER 30, 1998, AS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON
FORM 10-K, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 004
<NAME> Diversified Energy Company
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 0
<OTHER-PROPERTY-AND-INVEST> 7,073,863
<TOTAL-CURRENT-ASSETS> 1,551,197
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 384,909
<TOTAL-ASSETS> 9,009,969
<COMMON> 196,421
<CAPITAL-SURPLUS-PAID-IN> 833,663
<RETAINED-EARNINGS> 2,813,669
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,843,753
0
0
<LONG-TERM-DEBT-NET> 1,700,000
<SHORT-TERM-NOTES> 759,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,707,216
<TOT-CAPITALIZATION-AND-LIAB> 9,009,969
<GROSS-OPERATING-REVENUE> 7,530,040
<INCOME-TAX-EXPENSE> 326,206
<OTHER-OPERATING-EXPENSES> 6,632,595
<TOTAL-OPERATING-EXPENSES> 6,958,801
<OPERATING-INCOME-LOSS> 571,239
<OTHER-INCOME-NET> 72,692
<INCOME-BEFORE-INTEREST-EXPEN> 643,931
<TOTAL-INTEREST-EXPENSE> 147,689
<NET-INCOME> 496,242
0
<EARNINGS-AVAILABLE-FOR-COMM> 496,242
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 1,820,288
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
</TABLE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ROANOKE
GAS COMPANY'S AUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT FOR THE
YEAR ENDED SEPTEMBER 30, 1998, AS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON
FORM 10-K, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 004
<NAME> Diversified Energy Company
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 0
<OTHER-PROPERTY-AND-INVEST> 7,073,863
<TOTAL-CURRENT-ASSETS> 1,551,197
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 384,909
<TOTAL-ASSETS> 9,009,969
<COMMON> 196,421
<CAPITAL-SURPLUS-PAID-IN> 833,663
<RETAINED-EARNINGS> 2,813,669
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,843,753
0
0
<LONG-TERM-DEBT-NET> 1,700,000
<SHORT-TERM-NOTES> 759,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,707,216
<TOT-CAPITALIZATION-AND-LIAB> 9,009,969
<GROSS-OPERATING-REVENUE> 7,530,040
<INCOME-TAX-EXPENSE> 326,206
<OTHER-OPERATING-EXPENSES> 6,632,595
<TOTAL-OPERATING-EXPENSES> 6,958,801
<OPERATING-INCOME-LOSS> 571,239
<OTHER-INCOME-NET> 72,692
<INCOME-BEFORE-INTEREST-EXPEN> 643,931
<TOTAL-INTEREST-EXPENSE> 147,689
<NET-INCOME> 496,242
0
<EARNINGS-AVAILABLE-FOR-COMM> 496,242
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 1,820,288
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
</TABLE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ROANOKE
GAS COMPANY'S AUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT FOR THE
YEAR ENDED SEPTEMBER 30, 1998, AS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON
FORM 10-K, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 005
<NAME> Commonwealth Public Service Corporation
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 1,183,892
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> (296,164)
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 19,515
<TOTAL-ASSETS> 907,243
<COMMON> 500
<CAPITAL-SURPLUS-PAID-IN> 37,241
<RETAINED-EARNINGS> 518,260
<TOTAL-COMMON-STOCKHOLDERS-EQ> 556,001
0
0
<LONG-TERM-DEBT-NET> 0
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 351,242
<TOT-CAPITALIZATION-AND-LIAB> 907,243
<GROSS-OPERATING-REVENUE> 1,432,142
<INCOME-TAX-EXPENSE> 51,742
<OTHER-OPERATING-EXPENSES> 1,279,324
<TOTAL-OPERATING-EXPENSES> 1,331,066
<OPERATING-INCOME-LOSS> 101,076
<OTHER-INCOME-NET> (480)
<INCOME-BEFORE-INTEREST-EXPEN> 100,596
<TOTAL-INTEREST-EXPENSE> 683
<NET-INCOME> 99,913
0
<EARNINGS-AVAILABLE-FOR-COMM> 99,913
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 363,398
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ROANOKE
GAS COMPANY'S AUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT FOR THE
YEAR ENDED SEPTEMBER 30, 1998, AS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON
FORM 10-K, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 005
<NAME> Commonwealth Public Service Corporation
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,183,892
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> (296,164)
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 19,515
<TOTAL-ASSETS> 907,243
<COMMON> 500
<CAPITAL-SURPLUS-PAID-IN> 37,241
<RETAINED-EARNINGS> 518,260
<TOTAL-COMMON-STOCKHOLDERS-EQ> 556,001
0
0
<LONG-TERM-DEBT-NET> 0
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 351,242
<TOT-CAPITALIZATION-AND-LIAB> 907,243
<GROSS-OPERATING-REVENUE> 1,432,142
<INCOME-TAX-EXPENSE> 51,742
<OTHER-OPERATING-EXPENSES> 1,279,324
<TOTAL-OPERATING-EXPENSES> 1,331,066
<OPERATING-INCOME-LOSS> 101,076
<OTHER-INCOME-NET> (480)
<INCOME-BEFORE-INTEREST-EXPEN> 100,596
<TOTAL-INTEREST-EXPENSE> 683
<NET-INCOME> 99,913
0
<EARNINGS-AVAILABLE-FOR-COMM> 99,913
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 363,398
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ROANOKE
GAS COMPANY'S AUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT FOR THE
YEAR ENDED SEPTEMBER 30, 1998, AS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON
FORM 10-K, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 006
<NAME> RGC Acquisition Corp.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 0
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 0
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 0
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 0
<TOTAL-COMMON-STOCKHOLDERS-EQ> 0
0
0
<LONG-TERM-DEBT-NET> 0
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 0
<TOT-CAPITALIZATION-AND-LIAB> 0
<GROSS-OPERATING-REVENUE> 0
<INCOME-TAX-EXPENSE> 0
<OTHER-OPERATING-EXPENSES> 0
<TOTAL-OPERATING-EXPENSES> 0
<OPERATING-INCOME-LOSS> 0
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> 0
<TOTAL-INTEREST-EXPENSE> 0
<NET-INCOME> 0
0
<EARNINGS-AVAILABLE-FOR-COMM> 0
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ROANOKE
GAS COMPANY'S AUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT FOR THE
YEAR ENDED SEPTEMBER 30, 1998, AS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON
FORM 10-K, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 006
<NAME> RGC Acquisition Corp.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 0
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 0
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 0
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 0
<TOTAL-COMMON-STOCKHOLDERS-EQ> 0
0
0
<LONG-TERM-DEBT-NET> 0
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 0
<TOT-CAPITALIZATION-AND-LIAB> 0
<GROSS-OPERATING-REVENUE> 0
<INCOME-TAX-EXPENSE> 0
<OTHER-OPERATING-EXPENSES> 0
<TOTAL-OPERATING-EXPENSES> 0
<OPERATING-INCOME-LOSS> 0
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> 0
<TOTAL-INTEREST-EXPENSE> 0
<NET-INCOME> 0
0
<EARNINGS-AVAILABLE-FOR-COMM> 0
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
