As filed with the Securities and Exchange Commission on July 2, 1999
Registration No. 33-69902
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
Post-Effective Amendment No. 2
to
Registration Statement No. 33-69902
on Form S-2
Under
The Securities Act of 1933
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RGC RESOURCES, INC.
(Successor to Roanoke Gas Company)
Virginia 54-1909697
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
519 Kimball Avenue, N.E., Roanoke, Virginia 24016
(540) 777-3810
(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) 777-3810
(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.
10 South Jefferson Street, Suite 1400
Roanoke, Virginia 24011
(540) 983-7600
Pursuant to Rule 414(d) under the Securities Act of 1933, as amended (the
"Securities Act"), RGC Resources, Inc., as successor issuer to Roanoke Gas
Company, hereby adopts this registration statement, as amended, for all purposes
under the Securities Act and Securities Exchange Act of 1934, as amended.
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RGC Resources LOGO
519 Kimball Avenue, N.E.
Roanoke, Virginia 24016
July 9, 1999
Dear Shareholder:
Enclosed is the new Prospectus for the RGC Resources, Inc. Dividend
Reinvestment and Stock Purchase Plan, which replaces the Prospectus dated July
29, 1994 with respect to the Roanoke Gas Company Dividend Reinvestment and Stock
Purchase Plan.
Earlier this year shareholders of Roanoke Gas approved the
reorganization of Roanoke Gas into a holding company structure in which RGC
Resources, Inc. replaced Roanoke Gas as the publicly-traded corporation.
Effective July 1, 1999, each outstanding share of Roanoke Gas common stock,
$5.00 par value, including those held in the Plan, were converted into one share
of RGC Resources common stock, $5.00 par value. As part of the reorganization,
RGC Resources assumed the Plan, changed the name of the Plan to the RGC
Resources, Inc. Dividend Reinvestment and Stock Purchase Plan, and amended the
Plan to utilize RGC Resources common stock instead of Roanoke Gas common stock.
You are not required to take any action to continue your participation in the
Plan.
The new Prospectus also reflects some changes to the Plan. The Plan now
permits the purchase of shares by the Plan Agent on the open market, and
increases the maximum optional cash payment under the Plan to $30,000.
We have enclosed an Authorization Card and an Automatic Monthly
Deduction Form for your convenience. If you are already a participant in the
Plan, you are not required to take any action, unless you desire to make any
revisions to your participation in the Plan.
We appreciate your continued participation in the Plan. If you have any
questions, feel free to call First Union at 1-800-829-8432.
Sincerely,
John B. Williamson, III
President and Chief Executive Officer
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PROSPECTUS
RGC RESOURCES, INC.
519 Kimball Avenue
Roanoke, Virginia 24030
(540) 777-4427
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
400,000 Shares of Common Stock
($5.00 Par Value)
The RGC Resources, Inc. Dividend Reinvestment and Stock Purchase Plan,
(the "Plan") provides you with a simple and convenient means of purchasing
shares of Resources common stock and reinvesting cash dividends in additional
shares of common stock without fees of any kind. All shareholders of record and
all customers of Resources, including customers of Resources' affiliates, who
reside in Virginia or West Virginia, are eligible to participate in the Plan.
Family members residing with an eligible customer also may participate.
You may participate in the following ways:
o You may select a percentage of your cash dividends which you
would like to automatically reinvest in shares of common stock;
o You may invest by making optional cash payments of not less than
$25 per payment and not more than $30,000 per calendar year; and
o If you are not already a shareholder, you may participate in
the Plan by making an initial investment of at least $100.
Shares of our common stock will be purchased on your behalf directly
from the company or on the open market. The purchase price of the shares
acquired under the Plan directly from Resources will be based on the closing
price of our common stock on NASDAQ. The purchase price for stock purchased on
the open market will be based on the weighted average purchase price of shares
purchased.
Resources stock trades on NASDAQ-NMS under the symbol RGCO.
This Plan amends and replaces the Roanoke Gas Company Dividend
Reinvestment and Stock Purchase Plan, and all amendments prior to the date of
this Prospectus. Resources is the successor to Roanoke Gas Company.
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Resources will deliver or cause to be delivered with this Prospectus, to
each person to whom the Prospectus is given or sent, Roanoke Gas' latest Annual
Report to shareholders and the latest Quarterly Report on Form 10-Q for
Resources and Roanoke Gas.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR HAS PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is July 9, 1999
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TABLE OF CONTENTS
THE COMPANY................................................................6
DESCRIPTION OF THE PLAN....................................................7
Purpose............................................................7
Advantages.........................................................7
Participation......................................................8
Administration.....................................................10
Purchases..........................................................10
Reinvestment of Dividends..........................................13
Optional Cash Payments.............................................13
Costs ............................................................14
Reports to Participants............................................14
Dividends..........................................................15
Withdrawal and Termination.........................................16
Federal Tax Consequences...........................................16
Other Information..................................................17
MARKET PRICE AND DIVIDEND INFORMATION......................................20
USE OF PROCEEDS............................................................22
DESCRIPTION OF COMPANY CAPITAL STOCK.......................................22
Authorized Capital.................................................22
Shareholder Protection Statutes....................................23
LEGAL OPINION..............................................................24
EXPERTS....................................................................24
INFORMATION PROVIDED TO SHAREHOLDERS AND ELIGIBLE CUSTOMERS................25
WHERE YOU CAN FIND MORE INFORMATION........................................25
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................26
You should rely only on the information incorporated by reference or provided in
this prospectus. Resources has not authorized anyone else to provide you with
different information. You should not assume that the information in this
Prospectus is accurate as of any date other than the date on the front page of
this Prospectus.
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THE COMPANY
Effective after the close of business on July 1, 1999, RGC Resources,
Inc. became the parent holding company of Roanoke Gas Company. Pursuant to an
Amended and Restated Agreement and Plan of Merger between Resources and Roanoke
Gas, each share of common stock, $5.00 par value, of Roanoke Gas, including
those held in the Plan, were converted into an equal number of shares of
Resources common stock. As part of this reorganization:
o we replaced Roanoke Gas as the publicly-traded corporation;
o we assumed the Plan;
o the name of the Plan was changed to the RGC Resources, Inc.
Dividend Reinvestment and Stock Purchase Plan; and
o the Plan was amended to utilize our common stock instead of
Roanoke Gas common stock.
We are primarily engaged in natural gas service through our three
subsidiaries:
Roanoke Gas Company -- a public service corporation organized under the
laws of the Commonwealth of Virginia in 1912. Roanoke Gas provides natural gas
service to approximately 53,000 customers in Roanoke, Virginia and surrounding
areas of Virginia. Roanoke Gas' utility operations are subject to regulation by
the Virginia State Corporation Commission as to its rates, charges and certain
other business activities, including mergers, acquisitions and the issuance of
securities;
Bluefield Gas Company -- a West Virginia public service corporation,
provides natural gas to approximately 4,100 customers located in and around
Bluefield, West Virginia. Bluefield Gas' utility operations are subject to
regulation by the West Virginia Public Service Commission;
Diversified Energy Company (d/b/a Highland Propane Company) - a Virginia
corporation engaged in the bulk distribution of propane in southern West
Virginia and southwestern Virginia, sells propane and propane related products
to approximately 14,000 customers and maintains a natural gas marketing
business.
Resources' principal executive offices are maintained at 519 Kimball
Avenue, N.E. Roanoke, Virginia 24016, telephone number (540) 777-4427.
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DESCRIPTION OF THE PLAN
The Resources' Board of Directors adopted the Plan effective after the
close of business on July 1, 1999, as an amendment to and complete restatement
of the former Roanoke Gas Company Dividend Reinvestment and Stock Purchase Plan.
If you are a shareholder, and you do not presently participate in the Plan, you
may do so by completing an Authorization Card and returning it to First Union.
If you are not a shareholder, but you are an eligible customer, you may
participate in the Plan by completing an Authorization Card and making an
initial investment of $100. If you are a shareholder and you presently
participate in the Plan and wish to continue such participation, you do not need
to take any action. If you are not currently participating in the Plan, you are
not required to take any action, and will continue to receive cash dividends, if
and when declared, as usual.
The following is a description, in question and answer format, of the
provisions of the Plan.
Purpose
1. What is the purpose of the Plan?
The purpose of the Plan is to provide our shareholders of record
and our customers, including customers of our affiliates, who are
residents of either Virginia or West Virginia with a simple, convenient
and economical means of purchasing shares of our common stock and
reinvesting cash dividends in additional shares of common stock.
Advantages
2. What are the advantages of participation in the Plan?
o You will have a specified percentage (from 0% to 100%, in
multiples of 5%) of cash dividends paid on all shares of
common stock registered in your name automatically
reinvested in shares of common stock.
o If you are a customer of Resources or a customer of one of
our affiliates, and are a resident of Virginia or West
Virginia and are not already a shareholder, you may become
a participant in the Plan by making an initial investment
of as little as $100. Thereafter, you may invest as little
as $25 per payment.
o You may make optional cash payments (including your
initial investment) of up to $30,000 per calendar year.
Purchases may, at your option, be made monthly through
automatic deductions from your bank account.
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o You do not pay any brokerage commissions or service
charges in connection with purchases under the Plan.
o Your funds will be fully invested because the Plan permits
fractions of shares to be credited to your account.
o You may elect to deposit with First Union shares of common
stock held in your name. This relieves you of the
responsibility for the safekeeping of certificates
representing your shares.
o Regular statements of account will provide you with a
record of each transaction to simplify your recordkeeping.
Participation
3. Who is eligible to participate?
You may participate in the plan if:
o you are a holder of record of shares of our common stock;
o you are a customer of Resources or of any of Resources'
affiliates: Roanoke Gas Company, Bluefield Gas Company,
and Diversified Energy Company; you are a resident of
Virginia or West Virginia and you have either a Virginia
or West Virginia mailing address; or
o you are a member of a customer's family residing with the
customer.
If you cease to be an eligible customer, you may continue to
participate in the Plan as long as at least one whole share of common
stock is registered in your name or held through the Plan.
If your shares of common stock are registered in names other than
yours (e.g., in the names of brokers, nominees, etc.), you must either
become a holder of record by having the shares transferred into your
name or request your holder of record to participate in the Plan on your
behalf.
4. How can I participate in the Plan?
If you are a shareholder or an eligible customer, you may
participate in the Plan by completing an Authorization Card and
returning it to First Union, the Plan Agent. If the common stock is
registered in more than one name (i.e., joint tenants, trustees, etc.),
all registered holders must sign an Authorization Card.
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If you are an eligible customer, and you are not already a
shareholder, you must include an initial investment of at least $100
with your completed Authorization Card and you must acknowledge on the
Authorization Card that you are a Virginia or West Virginia resident.
You will also be asked to complete and deliver to First Union an IRS
Form W-9 certifying your taxpayer identification number.
You will become a participant in the Plan within thirty days
after First Union receives your properly completed Authorization Card.
The date you become a participant is the effective date of the
Authorization Card.
If you wish reinvestment of dividends under the Plan to begin as
of a given Investment Date, your Authorization Card must be received by
First Union no later than the record date immediately preceding the
Investment Date. (See Question 8 for timing of purchases). If your
Authorization Card is received after the record date, reinvestment of
dividends under the Plan will not begin until the Investment Date
following the next record date.
Optional cash payments and initial investments received with or
after receipt of your initial Authorization Card but prior to becoming
effective will be invested on the first Investment Date coinciding with
or immediately following the date the Authorization Card is effective.
However, if payment is received less than five business days before the
Investment Date, it will be held until the next Investment Date. (See
Question 13). No interest will be paid on and no refunds will be made of
any payments awaiting investment.
An Authorization Card may be obtained at any time by contacting
First Union. (See Question 6 for address).
IF YOU ARE ALREADY ENROLLED AND PARTICIPATING IN THE PLAN, YOU
NEED TAKE NO FURTHER ACTION AT THIS TIME.
5. What does the Authorization Card provide?
The Authorization Card authorizes First Union to do the
following:
Dividend Reinvestment - First Union will automatically reinvest
in additional shares of common stock the designated percentage (0% to
100% in multiples of 5%) of cash dividends received on all shares of
common stock registered in your name. (See Questions 7 and 12). All
dividends received on shares of common stock held in your account under
the Plan will be automatically reinvested. (See Questions 18 and 19).
Minimum Initial Investment - If you are an eligible customer who
is not already a shareholder, upon receipt of an initial investment
payment of at least $100, First Union
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will purchase common stock for your account on the first Investment Date
coinciding with or following the date the Authorization Card is
effective. (See Question 4).
Optional Cash Payments - Upon receipt of optional cash payments
of at least $25 per payment, up to a maximum (including any initial
investment payment) of $30,000 per calendar year, First Union will
purchase common stock for your account on the next appropriate
Investment Date. (See Questions 13, 14 and 15).
Safekeeping of Shares - You may elect to deposit your shares of
Resources common stock with First Union for safekeeping. (See Question
24).
Administration
6. Who administers the Plan?
All purchases under the Plan will be made by First Union, the
independent purchasing agent. First Union will establish an individual
account for you, which will reflect the number of shares of common stock
in your account, including fractions computed to three decimal places,
and cash to be invested. In addition, First Union arranges for the
custody of stock certificates, maintains ongoing records and statements
of accounts and performs other administrative duties relating to the
Plan.
All questions and correspondence regarding the Plan should be
addressed to First Union at the following address:
First Union National Bank
Shareholder Services Group
Attention: Dividend Reinvestment
1525 West WT Harris Blvd.
3C3-NC1153
Charlotte, NC 28288-1153
1-800-829-8432
Purchases
7. How can I purchase common stock under the Plan?
You may purchase common stock through:
o Automatic reinvestment of the percentage, as you
designate, of dividends received on all shares of common
stock registered in your name (less any withholding
taxes). Your designation of the percentage of dividends
to be reinvested may be from 0% to 100%, but must be in
multiples of 5%. (See
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Question 12 for information on how to change the
percentage of dividends to be reinvested). You may elect
reinvestment of 0% of the dividends received on shares of
common stock registered in your name for purposes of
making initial or optional cash payments. The percentage
of cash dividends not designated for reinvestment, if any,
will be sent directly to you. Regardless of the percentage
of dividends designated for reinvestment, with respect to
shares registered in your name, 100% of the dividends
received on Resources common stock held in your account
under the Plan will be reinvested. (See Questions 18 and
19);
o Optional cash payments of not less than $25 per payment
nor more than $30,000 per calendar year (including any
initial investment). (See Questions 13, 14 and 15 for
certain information regarding optional cash payments);
o If you are not already a shareholder of Resources, but you
are an eligible customer, you may participate in the Plan
by making an initial investment of at least $100.
(See Question 4).
All shares purchased for your account as an eligible customer
will be held in your account under the Plan in the name of First Union's
nominee (see Questions 6 and 8), and all dividends received on those
shares will be reinvested in additional shares of common stock (see
Questions 18 and 19). You may request a stock certificate for shares
held in your Plan account as described in Question 11.
8. When will purchases be made?
Purchases will be made once each calendar month on the first
business day of the month if cash has been timely received for your
account, whether through the payment of dividends to be automatically
reinvested or the receipt of an initial investment or optional cash
payment. This date is referred to as the Investment Date. (See Questions
4, 14 and 18).
All common stock purchased may be held in the name of the Plan,
First Union, or First Union's nominee. No common stock will be purchased
under the Plan at less than its par value (i.e., $5 per share). If the
purchase price is less than par value on an Investment Date, all cash
from whatever source received will be held over for investment until the
next Investment Date upon which the purchase price is at least par
value.
All dividends on shares held in your account under the Plan will
be reinvested in additional shares of common stock. (See Question 18).
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9. How many shares of common stock will be purchased for me?
The number of shares purchased for you will depend on the amount
of your reinvested dividends, optional cash payments and/or initial
investment and the purchase price of the common stock. Your account will
be credited with the number of shares, including fractions computed to
three decimal places, equal to:
o the total amount of dividends invested on an Investment
Date (less any applicable withholding taxes) divided by
the purchase price per share; plus
o the amounts of optional cash payments or initial
investment invested on your behalf on an Investment Date,
divided by the purchase price per share. Purchases will be
made directly from Resources' authorized but unissued
shares or on the open market.
10. What is the price of shares of common stock purchased under the Plan?
The purchase price for each share of common stock will not be
affected by whether the funds being invested are attributable to
dividends, optional cash payments or initial investments.
The purchase price of shares acquired directly from Resources
will be the closing price of Resources' common stock on the Investment
Date, as reported by NASDAQ- NMS. If no report is made as of the
Investment Date, the purchase price will be established based on the
closing price as reported for the nearest day immediately preceding the
Investment Date.
The purchase price of shares acquired on the open market will be
the weighted average purchase price of shares purchased for the relevant
Investment Date.
11. When will I receive a certificate for shares purchased under the Plan?
A stock certificate will be issued to you for the number of full
shares of common stock in your account after you make a written request
to First Union. No certificates will be issued between the dividend
record date and the Investment Date. Record dates are usually the Friday
falling between the 17th and the 24th days of January, April, July and
October. Upon issuance of the certificate, you will have all rights of
ownership, and neither First Union nor Resources will have any
responsibility with respect to the common stock. Withdrawal of shares in
certificate form does not terminate participation in the Plan. (See
Question 20 for instructions on issuance of certificates when your
withdraw from the Plan).
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Reinvestment of Dividends
12. How can I change the percentage of cash dividends on shares registered
in my name to be reinvested?
If you wish to change the percentage of cash dividends on shares
registered in your name to be reinvested under the Plan, you may do so
by submitting a revised Authorization Card to First Union. The revised
Authorization Card will be effective within thirty days after it is
received by First Union.
Optional Cash Payments
13. Who is eligible to make optional cash payments?
You are eligible to make optional cash payments at any time if
you are a shareholder, or if you are an eligible customer, after your
initial investment. The amounts of optional cash payments may vary as
long as they are at least $25 per payment and your total purchases
(including any initial investment) for the calendar year do not exceed
$30,000.
All checks or money orders for optional cash payments must be
made payable to "First Union National Bank." Optional cash payments must
be mailed to First Union, accompanied by a correctly completed
Authorization Card. Authorization Cards may be obtained at any time by
contacting First Union.
14. When should optional cash payments be made?
Optional cash payments can be made at any time; however, you are
encouraged to make equal monthly payments to the Plan. (See Question 15
regarding automatic monthly purchases). You may make the first optional
cash payment when enrolling by including a check or money order payable
to First Union with your Authorization Card.
All optional cash payments must be received by First Union at
least five business days before the Investment Date (see Question 8) in
order to be used to purchase common stock for your account on that
Investment Date. Payments received less than five business days before
an Investment Date will be held until the next Investment Date. No
interest will be paid on and no refunds will be made of any cash
payments awaiting investment. (See Question 4 regarding investment of
optional cash payments and initial investments received prior to the
date the Authorization Card is effective). All dividends received on
shares of common stock purchased with optional cash payments and held in
your account under the Plan will be reinvested in additional shares of
common stock. (See Questions 18 and 19).
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15. Can I make automatic monthly purchases through automatic deductions from
my bank account?
Yes. You may make automatic monthly purchases of a specified
amount (not less than $25 per payment, nor more than $30,000 in total
payments per calendar year) by electronic fund transfer from a
predesignated United States bank account. To initiate automatic monthly
deductions, you must complete and sign an Automatic Monthly Deduction
Form and return it to First Union, together with a voided blank check
for the account from which the funds are to be drawn. Automatic Monthly
Deduction Forms are available from First Union. These forms will be
processed and will become effective as promptly as practicable.
Once automatic monthly deductions commence, funds will be drawn
from your designated bank account on the sixth business day prior to the
end of each calendar month and will be invested on the next Investment
Date. You may change or terminate automatic monthly deductions by
completing and submitting to First Union a new Automatic Monthly
Deduction Form. To be effective with respect to a particular Investment
Date, the new Automatic Monthly Deduction Form must be received by First
Union no later than twenty business days prior to the end of the
calendar month preceding the Investment Date.
Costs
16. Are there any expenses to participants in connection with purchases
under the Plan?
There are no brokerage fees on newly issued shares purchased from
Resources for your account. Brokerage fees on shares purchased on the
open market will be paid by Resources, and, for tax purposes, these fees
will be considered as additional dividend income to you. All costs of
administering the Plan will be paid by Resources. (See Question 23.)
Reports to Participants
17. How often will account statements be sent to me?
First Union will provide you a statement of account no later than
twenty-five days after each Investment Date. This means that you will
receive a statement quarterly if you are simply reinvesting dividends.
If you are making purchases, you will receive a statement for the month
in which the purchase was made. The statement will show the following
information for the Investment Date:
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o the total amount invested by First Union (dividends and
cash payments less any applicable tax withheld);
o the number of shares of common stock allocated to your
account;
o the cost per share of allocated common stock;
o the number of shares of common stock for which
certificates have been issued, if any;
o the number of shares of common stock held for
safekeeping, if any; and
o the beginning and ending balances in your account.
Dividends
18. Will I be credited with dividends on shares held in my account under
the Plan?
Yes. First Union will receive dividends for all shares of common
stock held in your account under the Plan on the dividend record date
(see Question 11) and will credit the dividends to your account on the
basis of full and fractional shares held on the record date. 100% of the
dividends will be automatically reinvested in additional shares of
common stock as of the next Investment Date.
19. How can I obtain partial or no reinvestment of dividends received on
shares held in my account under the Plan?
The partial or no dividend reinvestment feature is available only
for shares registered in your name. Shares held in your account under
the Plan are held for your benefit in the name of First Union's nominee.
If you would like to obtain partial or no dividend reinvestment on
shares of common stock held in your account under the Plan, you must:
o submit a written request to First Union to issue a stock
certificate registering in your name the whole shares held
in your account under the Plan (see Questions 4 and 11);
and
o if you have not previously done so, submit an
Authorization Card requesting partial or no dividend
reinvestment of shares registered in your name (see
Question 7). Dividends received on any fractional share
remaining in your Plan account will continue to be
automatically reinvested 100%.
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Withdrawal and Termination
20. When and how may I withdraw from the Plan?
You may withdraw from the Plan at any time by giving written
notice to First Union. The withdrawal date will be no more than thirty
days after First Union's receipt of your written notice.
As soon as practicable after the withdrawal date, First Union
will issue to you a certificate for all whole shares of common stock in
your account, except that no certificate will be issued between the
dividend record date and the Investment Date. (See Question 11).
Notice of death, liquidation or other termination of your legal
existence will constitute notice of withdrawal from the Plan. Settlement
will be made with your legal representative or successor in interest and
neither First Union nor Resources will in any way be liable for
settlements made with those persons.
21. What happens to fractional shares when I withdraw from the Plan?
No fractional share will be issued to you. However, the cash
value of any fractional share in your account will be paid to you. The
fractional share will be valued as of the Investment Date immediately
preceding the withdrawal date. The value will be determined as described
in Question 10. Payment for any fractional share will be made as soon as
practicable after the withdrawal date, and any cash awaiting investment
will also be paid at that time.
22. If I withdraw from the Plan, can I rejoin?
If you withdraw from the Plan, you may rejoin at any time by
again completing and returning to First Union an Authorization Card. If
you are an eligible customer who is not already a shareholder of
Resources, the Authorization Card must be accompanied by an initial
investment of at least $100. You will once again become a participant in
the Plan within thirty days following First Union's receipt of a
properly completed Authorization Card. (See Question 4).
Federal Tax Consequences
23. What are the federal income tax consequences of participation in the
Plan?
Neither Resources nor First Union makes any representation as to
the income or other tax consequences of participation in the Plan.
Nevertheless, it is our understanding that you must report as dividend
income an amount equal to the dividends paid on stock
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purchased on your behalf plus brokerage fees paid by Resources on shares
purchased on the open market. Your federal income tax basis of the
common stock received by you under the Plan will be the purchase price
of the common stock. The holding period for shares of common stock
acquired under the Plan will begin on the Investment Date on which the
stock was purchased. A whole share resulting from the acquisition of two
or more fractional shares on different Investment Dates will have a
split holding period.
You will not realize any taxable income upon the receipt of
certificates for whole shares credited to your account under the Plan,
either upon a request for a certificate or upon withdrawal from or
termination of the Plan. However, if you receive a cash adjustment for a
fractional share credited to your account will realize a capital gain or
loss if common stock is a capital asset in your hands. Also, in the
event of a sale of a fractional share pursuant to withdrawal from the
Plan, if the consideration received exceeds fair market value as
determined by Internal Revenue Service regulations, you will have
dividend income equal to the difference. Gain or loss will also be
realized by you upon the sale or exchange of shares after you withdraw
such shares from the Plan. The amount of such gain or loss is the
difference between the amount which you receive for each whole or
fractional share and your tax basis.
NOTE: THE PRECEDING DISCUSSION CONCERNING TAX
CONSEQUENCES IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY.
YOU ARE URGED TO SEEK PROFESSIONAL ADVICE WITH RESPECT TO
YOUR PERSONAL TAX SITUATION.
Other Information
24. How do I take advantage of the Plan's stock safekeeping feature?
You may deposit with First Union shares of common stock held in
your name. This relieves you of the responsibility for safekeeping of
certificates.
If you wish to take advantage of the safekeeping feature of the
Plan, you should mail the certificates representing your shares to First
Union (see Question 6 for address). Certificates should be sent by
registered or certified mail, return receipt requested, accompanied by a
completed Authorization Card specifying that the shares are furnished
for safekeeping. First Union will confirm the receipt of any shares
which are delivered for safekeeping by reflecting the deposit of the
shares on your account statement (see Question 17 regarding statement of
account). Shares delivered for safekeeping will be held in the name of
First Union's nominee, and 100% of the dividends received on these
shares will be reinvested.
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If you withdraw from the Plan, First Union will, as soon as
practicable, return all of your shares which are then being held for
safekeeping by issuing a new certificate for the shares.
25. What happens if I sell or transfer shares of common stock or acquire
additional shares of common stock?
If you have elected to have all or a part of your cash dividends
automatically reinvested and you subsequently sell or transfer all or
any part of the common stock registered in your account, automatic
reinvestments of dividends will continue as long as there are shares of
common stock registered in your name or held for you by First Union or
until termination of enrollment. Similarly, if you acquire additional
shares of common stock and those shares are registered the same as the
participating shares, dividends (or a percentage of the dividends as
directed by you) paid on the acquired common stock will automatically be
reinvested until you terminate your enrollment.
26. What limitations are imposed on me with regard to common stock held
under the Plan?
You have no right to draw checks or drafts against your account
or to give instructions to First Union to perform any acts not expressly
provided for in the Plan. In addition, you cannot sell, pledge, assign,
encumber, or otherwise dispose of your rights in your individual
account.
27. What happens if Resources has a common stock rights offering, issues a
stock dividend, or declares a stock split?
You become the owner of the common stock purchased under the Plan
and allocated to your account as of the Investment Date on which it is
purchased. Participation in any rights offering will be based upon both
the shares registered in your name and the Plan shares (including
fractional shares) credited to your account. Any stock dividend or
shares issued pursuant to any stock split received by First Union with
respect to common stock held in your account will immediately be
credited to your account. First Union will sell any stock rights or
warrants applicable to any common stock held in your account and
reinvest the proceeds in common stock as of the next Investment Date. If
the rights or warrants have no market value, First Union may allow them
to expire.
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28. How will my Plan shares be voted at annual or special meetings of
shareholders?
You have all rights of any other holder of common stock with
respect to your shares credited to your Plan account.
Full and fractional shares held in the Plan for you will be voted
as you direct. Proxy materials will be sent to each participant of
record in connection with annual and special meetings of shareholders.
The proxy will apply to all shares owned by you, including shares held
in your Plan account. All Plan shares will be voted in accordance with
the instructions given by you on the proxy card, if properly signed and
delivered.
29. What are the responsibilities of First Union and Resources?
All notices from First Union or Resources to you will be
addressed to you at the address shown on your Authorization Card or such
new address as you provide in writing to First Union. (See Question 6
for address). The mailing of a notice to your last address of record
will satisfy First Union's or Resources' duty of giving you notice.
Therefore, you must provide prompt notification of any change of
address. Notice to First Union or Resources is effective when actually
received.
Neither First Union nor Resources will be liable for any acts
done or any omission to act, including, without limitation, any claims
of liability:
o with respect to the prices at which common stock is
purchased or sold for your account and the time at which
such purchases or sales are made;
o for any fluctuation in the market value before or after
the purchase or sale of common stock; or
o for continuation of your account until receipt by First
Union of notice in writing of your death, liquidation or
other legal dissolution.
You assume all risks inherent in the ownership of any common
stock purchased under the Plan, whether or not the actual stock
certificate has been issued to you. You have no guarantee against a
decline in the price or value of the common stock, and Resources assumes
no obligation to repurchase any shares of common stock purchased under
the Plan.
30. May the Plan be changed or discontinued?
Resources reserves the right to amend or terminate the Plan at
any time upon giving thirty days' written notice to you and First Union,
setting forth the effective date of the amendment or termination.
Resources, with the consent of First Union, also may
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terminate or amend the Plan immediately, without notice to you, in order
to correct any noncompliance of the Plan with any applicable law or to
make administrative changes which are not material.
Unless either terminated or modified, the Plan covers 400,000
shares of common stock. The number of shares covered by the Plan may be
further adjusted from time to time to prevent dilution or enlargement
caused by stock splits, stock dividends, recapitalizations, mergers,
consolidations, combinations or exchanges of shares, reorganizations and
similar corporate transactions.
31. What is the effect of termination or amendment of the Plan?
No amendment or termination will affect your interest in the Plan
which has accrued prior to the date of the amendment or termination. In
the event of the termination of the Plan, First Union will make a
distribution of common stock and cash as if you had withdrawn from the
Plan as soon as practicable, but not later than thirty days after the
termination of the Plan. You will incur no service charges or other fees
upon such termination.
32. How is the Plan to be interpreted?
Any questions of interpretation arising under the Plan will be
determined by the Dividend Reinvestment Committee, which is appointed by
the Board of Directors of Resources, and any such determination shall be
final.
MARKET PRICE AND DIVIDEND INFORMATION
Resources common stock is listed on the Nasdaq National Market under the
trading symbol RGCO. This provides shareholders and others with immediate access
to the latest bid and ask prices, and creates greater liquidity of our stock.
The table below sets forth the range of bid prices for shares of Roanoke Gas'
common stock (our predecessor), as reported in the Nasdaq National Market. The
table also sets out the frequency and amount of all cash dividends declared for
the periods presented.
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Cash
Range of Dividend
Bid Prices Declared
Fiscal Year ended September 30, High Low
1997
First Quarter $18.000 $16.750 $ .260
Second Quarter 18.250 17.000 .260
Third Quarter 17.750 15.750 .260
Fourth Quarter 18.125 16.000 .260
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
1999
First Quarter $22.250 $17.500 $.270
Second Quarter 22.000 19.375 .270
We do not currently directly conduct any revenue generating business
operations. We plan to initially obtain operating funds primarily from dividends
paid to us on the stock of our subsidiaries, and possibly from the sale of
securities or debt incurred by us. Initially, dividends on our common stock will
depend primarily upon the earnings, financial condition and capital requirements
of Roanoke Gas, and the dividends paid by Roanoke Gas to us. We presently expect
to continue Roanoke Gas' policy of paying an appropriate percentage of earnings
to shareholders. In the future, dividends from our subsidiaries other than
Roanoke Gas may be a more significant source of funds for dividend payments. In
addition, although we have no present intention to do so, we may issue preferred
stock in the future to meet our capital requirements. Such preferred stock could
have preferential dividend rights over Resources' common stock.
We presently expect to pay quarterly dividends on our 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 August 1, 1999, to holders of
record on July 16, 1999. The payment and amount of dividends, however, is in the
discretion of our Board of Directors based on financial and other factors and
cannot be assured. The amount of dividends paid by Roanoke Gas to us following
the reorganization is
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expected to be greater than the amount of dividends we pay on our common stock,
as we will need funds for our holding company activities.
USE OF PROCEEDS
We intend to add the proceeds we receive from sales under the Plan to
our general funds. These proceeds will be used for capital expenditures and for
other general corporate purposes of Resources and, in our discretion, of our
wholly owned subsidiaries, subject to any regulatory approvals. We are unable to
estimate the amount of proceeds which will be devoted to any specific purpose.
DESCRIPTION OF COMPANY CAPITAL STOCK
Authorized Capital
We are 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 July 1, 1999,
approximately 1,830,000 shares of common stock and no shares of preferred stock
will be issued and outstanding.
Resources Common Stock. Common shareholders may receive dividends when
declared by the Board of Directors. In certain cases, common shareholders may
not receive dividends until we have satisfied our obligations to any preferred
shareholders.
Each share of common stock is entitled to one vote on all matters
requiring shareholder action and in the election of directors. Common
shareholders are not entitled to preemptive, subscription or conversion rights.
All outstanding shares of our common stock are fully paid and nonassessable.
Resources Preferred Stock. Our Board of Directors can issue one or more
series of preferred stock. Our Articles do not establish voting rights,
preferences or other rights with respect to our preferred stock. The Board 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;
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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;
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 our 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 the company fixed for each series and without preference or
priority of any series over any other series. All shares of our preferred stock
will rank, with respect to dividends and liquidation rights, senior to our
common stock.
Shareholder Protection Statutes
We are a Virginia corporation subject to the Virginia Stock Corporation
Act. The Virginia Act contains two shareholder protection statutes, the
Affiliated Transactions Statute and the Control Share Acquisitions Statute. We
have summarized the key provisions below. The descriptions are not complete and
you should rely on the text of the Virginia Act.
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 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
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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.
Application of the Affiliated Transactions and Control Share
Acquisitions statutes are automatic unless a corporation takes certain steps to
"opt out" of their application. We have not "opted out" of the statutes.
LEGAL OPINION
Certain legal matters in connection with the common stock of Resources
offered hereby have been passed upon by Woods, Rogers & Hazlegrove, P.L.C.,
Roanoke, Virginia. Wilbur L. Hazlegrove, a partner of Woods, Rogers &
Hazlegrove, is a director and officer of Resources. The principals of the firm
of Woods, Rogers & Hazlegrove, P.L.C. beneficially owned, as of July 1, 1999, in
the aggregate, approximately 63,000 shares of Company common stock.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference from 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,
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have been incorporated by reference in this Prospectus and elsewhere in the
Registration Statement in reliance upon the report of KPMG LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
INFORMATION PROVIDED TO SHAREHOLDERS AND ELIGIBLE CUSTOMERS
We will deliver or cause to be delivered with this Prospectus, to each
person to whom the Prospectus is sent or given, Roanoke Gas' latest Annual
Report to Shareholders and the latest Quarterly Report on Form 10-Q for
Resources and Roanoke Gas.
WHERE YOU CAN FIND MORE INFORMATION
Resources, the successor to Roanoke Gas Company, is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
and files reports, proxy statements and other information with the Securities
and Exchange Commission. Such reports, proxy statements and other information
can be inspected and copied at the public reference rooms in Washington, D.C.,
Chicago, Illinois and New York, New York. Resources and Roanoke Gas public
filings are also available to the public from commercial document retrieval
services and the Internet World Wide Web site maintained by the SEC at
"http://www.sec.gov." Reports, proxy statements and other information concerning
Resources may also be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, Washington, D.C. 20006-1506. Resources
common stock is included for quotation on the Nasdaq National Market under the
symbol "RGCO."
Resources has filed a Post-Effective Amendment to Roanoke Gas Company's
Registration Statement on Form S-2 under the Securities Act of 1933, as amended,
as successor issuer with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in such
Post-Effective Amendment to the Registration Statement and the exhibits thereto,
as permitted by the rules and regulations of the Commission. For further
information, reference is made to such Post-Effective Amendment to the
Registration Statement and the exhibits filed therewith, copies of which may be
obtained from the Commission as specified above. Statements contained in this
Prospectus as to the contents of the Plan are not necessarily complete, and in
each instance, reference is made to the copy of the Plan filed as an exhibit to
the Registration Statement, each such statement being qualified in its entirety
by such reference.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Resources and Roanoke Gas Company with
the Commission under the Exchange Act are hereby incorporated by reference in
this Prospectus:
o Roanoke Gas Company's Annual Report on Form 10-K for the
year ended September 30, 1998;
o the Roanoke Gas Company and Resources' Quarterly Report on
Form 10- Q for the quarters ended December 31, 1998, and
March 31, 1999;
o Resources' Current Report on Form 8-K dated July 2, 1999;
and
o all documents subsequently filed by Resources pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
prior to the termination of the offering of the common
stock.
Any statement contained in a document incorporated herein by reference
shall be deemed superseded by an inconsistent statement contained herein or in
any other document incorporated herein by reference that bears a later date, to
the extent of such inconsistency.
If you are a shareholder of Resources, you can obtain the documents
incorporated by reference from us or the SEC's Internet World Wide Web site
described above. Documents incorporated by reference are available from
Resources without charge, excluding all exhibits, unless specifically
incorporated by reference as an exhibit to this Prospectus. Shareholders may
obtain exhibits not specifically incorporated by reference upon payment of a
reasonable fee which shall be limited to our reasonable expense in furnishing
such exhibit. Shareholders may obtain documents incorporated by reference in
this Prospectus by requesting them in writing, or by telephone, at the following
address and telephone number: RGC Resources, Inc., 519 Kimball Avenue, N.E.,
Roanoke, Virginia, 24016; Attention: Roger L. Baumgardner, Secretary, (540)
777-4427.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following sets forth the costs and expenses to be incurred in
connection with the offering. Each amount, except for the SEC registration fee,
is estimated.
SEC registration fee............................................. $ 0
Accounting fees and expenses...................................$2,800
Legal fees and expenses........................................$7,000
Printing, binding and postage..................................$7,000
Miscellaneous..................................................$1,000
TOTAL.........................................................$17,800
Item 15. Indemnification of Officers and Directors.
Section 13.1-692.1 of the Code of Virginia, 1950, 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 assessed 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 the company 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
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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 its request 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 the person against such
liability under the Articles of Incorporation.
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 Resources' directors and officers against losses by reason of
their wrongful acts, and/or
o Resources 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
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terms are defined in the policy and subject to the terms,
conditions and exclusions contained therein.
Item 16. Exhibits
See Exhibit Index.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(a) (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 the 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 the 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% 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 the Registration Statement or
material change to such information in the Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the Registration Statement is on Form S- 3, Form S-8 or Form F-3, and
the information required to be included in the post-effective amendment
to those paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act
that are incorporated by reference in this Registration Statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the registration statement is on Form S-3 or Form S-8 or Form F-3,
and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic
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reports filed by the registrant pursuant to section 13 or section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by
reference 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 therein, 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 which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes that, for purposes 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
Securities Exchange Act of 1934 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.
(e) 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 or Rule 14c-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.
(h) 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 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment of 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
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 Act and will
be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this
Post-Effective Amendment No. 2 to its Registration Statement No. 33- 69902 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Roanoke, Commonwealth of Virginia, on July 2, 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
Post-Effective Amendment No. 2 to Registration Statement No. 33-69902 on Form
S-2 has been signed by the following persons in the capacities indicated as of
July 2, 1999.
Signature Title
s/John B. Williamson, III President, Chief Executive
(John B. Williamson, III) Officer and Director (Chief
Executive Officer)
s/Roger L. Baumgardner Vice President, Secretary
(Roger L. Baumgardner) and Treasurer (Principal
Accounting Officer)
s/Lynn D. Avis Director
(Lynn D. Avis)
s/Abney S. Boxley, III Director
(Abney S. Boxley, III)
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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)
s/J. Allen Layman Director
(J. Allen Layman)
s/Thomas L. Robertson Director
(Thomas L. Robertson)
s/S. Frank Smith Director
(S. Frank Smith)
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EXHIBIT INDEX
Exhibit No. Description
2 Amended and Restated Agreement and Plan of Merger of
Reorganization by and among Roanoke Gas Company, RGC Acquisition
Corp., RGC Resources, Inc., Diversified Energy Company and
Commonwealth Public Service Corporation (incorporated herein by
reference to Exhibit 2 of Form 8-K filed on July 2, 1999).
4(a) Specimen copy of certificate for RGC Resources, Inc. common
stock, $5.00 par value (incorporated herein by reference to
Exhibit 4(a) of the Registration Statement on Form S-4 (No.
333-67311))
4(b) Article I of the Bylaws of RGC Resources, Inc. (incorporated
herein by reference to Exhibit 3(b) of the Registration Statement
on Form S-4 (No. 333-67311))
4(c) RGC Resources, Inc. Dividend Reinvestment and Stock Purchase Plan
5 Opinion of Woods, Rogers & Hazlegrove, P.L.C.
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
II-7
<PAGE>
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 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)
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<PAGE>
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)
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 herein 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
II-9
<PAGE>
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)
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
II-10
<PAGE>
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)
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 Gulf 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)
II-11
<PAGE>
10(l)(l) RGC Resources, Inc. Key Employee Stock Option Plan
(incorporated herein by reference to Exhibit 4(c) of the
Post-Effective Amendment to the Registration Statement on Form
S-8 (No. 333-02455))
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)
10(q)(q) Consulting Agreement between W. Bolling Izard and Roanoke Gas
Company dated January 27, 1997 (incorporated herein by reference
to Exhibit 10(q)(q) of Annual Report on Form 10-K/A for fiscal
year ended September 30, 1998)
10(r)(r) RGC Resources, Inc. 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 (incorporated herein by reference to Exhibit 10(s)(s) of
Annual Report on Form 10-K/A for fiscal year ended September 30,
1998)
10(t)(t) SST Service Agreement effective November 1, 1997, between
Columbia Gas Transmission Corporation and Roanoke Gas Company
(incorporated herein by reference to Exhibit 10(t)(t) of Annual
Report on Form 10-K/A for fiscal year ended September 30, 1998)
10(u)(u) FSS Service Agreement effective April 1, 1997, between
Columbia Gas Transmission Corporation and Roanoke Gas Company
(incorporated herein by reference to Exhibit 10(u)(u) of Annual
Report on Form 10-K/A for fiscal year ended September 30, 1998)
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<PAGE>
10(v)(v) FTS Precedent Agreement effective August 7, 1997, between
Columbia Gas Transmission Corporation and Roanoke Gas Company
(incorporated herein by reference to Exhibit 10(v)(v) of Annual
Report on Form 10-K/A for fiscal year ended September 30, 1998)
10(w)(w) Firm Storage Service Agreement effective March 19, 1997,
between Virginia Gas Storage Company and Roanoke Gas Company
(incorporated herein by reference to Exhibit 10(w)(w) of Annual
Report on Form 10-K/A for fiscal year ended September 30, 1998)
10(x)(x) FTS-2 Service Agreement effective February 1, 1994, between
Columbia Gulf Transmission Company and Bluefield Gas Company
(incorporated herein by reference to Exhibit 10(x)(x) of Annual
Report on Form 10-K/A for fiscal year ended September 30, 1998)
10(y)(y) Firm Transportation Agreement effective December 31, 1998,
between Phoenix Energy Sales Company and Bluefield Gas Company
(incorporated herein by reference to Exhibit 10(y)(y) of Annual
Report on Form 10-K/A for fiscal year ended September 30, 1998)
10(z)(z) Agreement for Consulting Services effective February 1, 1999,
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 (incorporated
herein by reference to Exhibit 10(a)(a)(a) of Annual Report on
Form 10-K/A for fiscal year ended September 30, 1998)
10 (b)(b)(b) FTS-2 Service Agreement No. 40432 effective November 1, 1994
between Columbia Gas Transmission Company and Roanoke Gas Company
10(c)(c)(c) Firm Pipeline Service Agreement entered into as of February 5,
1999 between Virginia Gas Pipeline Company and Roanoke Gas
Company
10(d)(d)(d) Firm Storage Service Agreement entered into as of
February 6, 1999 between Virginia Pipeline Company and Roanoke
Gas
10(e)(e)(e) FT-A Gas Transportation Agreement No. 26446 effective November 1,
1999 between Tennessee Gas Pipeline Company and Roanoke Gas
Company
10(f)(f)(f) FT-A Gas Transportation Agreement No. 24376 effective November 1,
1999 between Tennessee Gas Pipeline Company and Roanoke Gas
Company
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<PAGE>
10(g)(g)(g) Firm Gas Transportation Agreement No. 24377 effective November 1,
1999 between Midwestern Gas Transmission Company and Roanoke Gas
10 (h)(h)(h) FTS Service Agreement No. 57449 effective November 1, 1999
between Columbia Gas Transmission Corporation and Roanoke Gas
Company
13 (a) Roanoke Gas Company 1998 Annual Report to Shareholders
13 (b) Roanoke Gas Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1998
13 (c) Roanoke Gas Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999
13(d) RGC Resources, Inc. Quarterly Report on Form 10-Q for the quarter
ended December 31, 1998
13(e) RGC Resources, Inc. Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999.
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 Woods, Rogers & Hazlegrove, P.L.C. (included in
Exhibit (5))
23 (b) Consent of Deloitte & Touche LLP
23 (c) Consent of KPMG LLP
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II-14
Exhibit 4(c)
RGC RESOURCES, INC.
DIVIDEND REINVESTMENT AND
STOCK PURCHASE PLAN
1. Establishment of Plan. RGC Resources, Inc. (the "Company") hereby
adopts the RGC Resources, Inc. Dividend Reinvestment and Stock Purchase Plan
(the "Plan") as an amendment to, restatement of and successor to the former
Roanoke Gas Company Dividend Reinvestment and Stock Purchase Plan, effective on
the effective date of the merger under the Agreement and Plan of Merger dated
September 28, 1998, through which Roanoke Gas Company shareholders will become
shareholders of the Company, or as soon thereafter as the Company can reasonably
obtain required regulatory approvals and complete registration under federal and
state securities laws of shares of its common stock for offer and sale under the
Plan.
2. Purpose. The purpose of the Plan is to provide the holders of the
Company's common stock, $5 par value (the "Common Stock"), and certain of the
Company's customers and certain customers of its affiliates, Roanoke Gas
Company, Bluefield Gas Company and Diversified Energy Company (the
"Affiliates"), with a simple, convenient and economical means of purchasing
shares of the Company's Common Stock and reinvesting cash dividends in
additional shares of the Common Stock without any associated brokerage
commissions or service charges. Unless sooner terminated or modified as
hereinafter provided, the Plan will cover 400,000 shares of Common Stock (as
adjusted to reflect a 100% share dividend on Roanoke Gas Company's common stock
paid July 1, 1994), which number shall be adjusted from time to time to prevent
a dilution or enlargement caused by stock dividends, stock splits,
recapitalizations,
<PAGE>
mergers, consolidations, combinations or exchanges of shares,
reorganizations and similar corporate transactions.
3. Eligibility and Participation. Any holder of Common Stock
("Shareholder") may participate in the Plan by completing and returning to the
Company or its designated representative an authorization card or form in a
format approved from time to time by the Company (the "Authorization Card"). Any
customer of the Company or its Affiliates who is a resident of Virginia or West
Virginia and who has either a Virginia or West Virginia mailing address may
participate in the Plan. In addition, if the customer described in the previous
sentence is an individual, any member of his family residing with such customer
is also eligible to participate in the Plan. Any such person or entity shall be
referred to herein as an "Eligible Customer." An Eligible Customer may
participate in the Plan by completing and returning to the Company, or its
designated representative, an Authorization Card together with a minimum initial
investment of ONE HUNDRED AND NO/100 DOLLARS ($100.00). Any Authorization Card
from an Eligible Customer who is not a Shareholder which is not accompanied by
at least a ONE HUNDRED AND NO/100 DOLLARS ($100.00) payment will be returned.
Within thirty (30) days following receipt of the Authorization Card by the
Company, the Shareholder or Eligible Customer will become a participant in the
Plan ("Participant"), and the date each Shareholder or Eligible Customer becomes
a Participant shall be the effective date of the Authorization Card.
Authorization Cards will be available from the Company. Shareholders and
Eligible Customers are eligible to participate in the Plan with respect to all,
but not less than all, of their shares. If a Participant withdraws from the Plan
pursuant to the provisions hereof, then such former Participant may rejoin the
Plan if he is then a Shareholder by again completing and
<PAGE>
returning to the Company or its designated representative, an Authorization
Card, thereafter becoming a Participant once again within thirty (30) days
following receipt of the Authorization Card by the Company. A Participant who
ceases to be an Eligible Customer may continue to participate in the Plan as
long as at least one whole share of Common Stock is registered in the
Participant's name or held for him through the Plan. If a Participant withdraws
from the Plan pursuant to the provisions hereof, he may rejoin the Plan if he is
not then a Shareholder by again completing and returning to the Company or its
designated representative, an Authorization Card, provided that he is then an
Eligible Customer, thereafter becoming a Participant once again with thirty (30)
days following receipt of an Authorization Card accompanied by at least ONE
HUNDRED AND NO/100 DOLLARS ($100.00) by the Company. Beneficial owners of Common
Stock whose shares are registered in names other than their own (such as
brokers, nominees, trustees, etc.) must either become holders of record by
having the shares transferred into their own names or request their holders of
record to participate on their behalf in order to participate in this Plan.
4. The Agent. All purchases under the Plan will be made by First Union
National Bank of North Carolina, the independent purchasing agent ("Agent"). The
Agent hereby agrees to receive and hold funds and Common Stock in the Plan and
to administer the Plan. The Agent will establish an individual account for each
Participant ("Participant's Account"), which will reflect the number of shares
of Common Stock in said account, including fractions computed to three decimal
places, and cash to be invested. The Agent shall arrange for the custody of
stock certificates, maintain ongoing records, send statements of accounts to
Participants as hereinafter specified and perform other administrative duties
relating to the Plan. The Agent, with the
<PAGE>
consent of the Company, will have the power and authority to establish such
procedures as the Agent deems necessary to administer the Plan.
5. Stock Purchases. (a) Participants may purchase Common Stock pursuant
to the Plan in one of two ways. First, the Agent will automatically apply that
percentage of cash dividends received on all shares of Common Stock registered
in the Participant's name (less any applicable withholding taxes) as designated
by the Participant (which designation may be from 5% to 100%, but which must be
in multiples of 5%) toward the purchase of full and fractional shares of Common
Stock. Any Participant may elect to have 0% of his dividends reinvested, in
which case he shall be a Participant for purposes of making initial or optional
cash payments, as described below. Second, the Agent will apply all initial cash
payments received from Eligible Customers and all optional cash payments, as
more particularly described below, made by Participants toward the purchase of
full and fractional shares of Common Stock. For each Participant, the Agent will
receive that percentage of dividends for all shares of Common Stock held on the
dividend record date that the Participant has designated for reinvestment, if
any, and will credit such dividends to Participants' Accounts on the basis of
full and fractional shares held on the record date. Such dividends will be
automatically reinvested in additional shares of Common Stock as of the next
Investment Date. Should a Participant wish to change the percentage of cash
dividends to be reinvested, he may do so by submitting a revised Authorization
Card to the Company, and such revised Authorization Card shall become effective
within thirty (30) days after it is received by the Company.
<PAGE>
(b) Plan Purchases. Plan shares of Common Stock will, at the
Company's discretion, be purchased directly from the Company (in which event
such shares will be authorized but unissued shares) or on the open market, or by
a combination of the foregoing.
(c) Investment Date. Purchases under the Plan of shares of the
Company's authorized but unissued Common Stock will be made on the first day of
each calendar month, except that if such date is not a business day, the
purchase date will be the next business day (each such date being hereinafter
called the "Investment Date").
Purchases on the open market will begin on the Investment Date and will
be completed no later than thirty (30) days from such date, except where
completion at a later date is necessary or advisable under any applicable
federal securities laws or other government or stock exchange regulations. Such
purchases may be made on any securities exchange where such shares are traded,
in the over the counter market, or by negotiated transactions and may be subject
to such terms with respect to price, delivery and other terms as the Agent may
agree to. Neither the Company nor any Participant shall have any authority or
power to direct the time or price at which shares may be purchased, or the
selection of the broker or dealer through or from whom purchases are to be made.
If a sufficient number of shares of Common Stock is not available for purchase
for a period of thirty (30) days, the Agent will allocate , on a pro rata basis
among Participants' accounts, any shares of Common Stock purchased during the
thirty (30)-day period and thereafter will promptly mail to Participants a check
for any unapplied funds held in their Plan Accounts over thirty (30) days. No
interest will be paid on the unapplied funds.
(d) Purchase Price. The price for each purchase (the "Purchase
Price") of shares acquired directly from the Company under the Plan, will be the
closing price of the
<PAGE>
Company's Common Stock on the Investment Date as reported on the National
Association of Securities Dealers--National Market System, and if no such report
is made for the Investment Date, the Purchase Price will be established based on
the closing price of such Company Common Stock as reported on such listing for
the nearest day immediately preceding the Investment Date. The proceeds of
purchases acquired directly from the Company will be used by the Company for
general corporate purposes.
In the case of purchase of shares of Company Common Stock on the open
market, the Purchase Price under the Plan will be weighted average purchase
price of shares purchased for the relevant Investment Date.
The Purchase Price for each share of Common Stock will not be affected
by whether the funds being invested are attributable to dividends, initial
investments or optional cash payments. The Purchase Price of Common Stock
purchased with dividends, initial investments and optional cash payments will
not be less than the fair market value of the Common Stock on the Purchase Date.
It is the intention of the Company that all transactions will be at not less
than fair market value so that Participants will not have dividend income upon
reinvestment of dividends or investment of cash payments.
The Common Stock purchased under the Plan will be allocated to each
Participant's Account. All Common Stock so purchased may be purchased and held
in the name of the Plan, the Agent or the Agent's nominee.
(e) Costs. Participants will incur no brokerage commissions,
service charges or other fees with respect to purchases of Common Stock pursuant
to the Plan.
<PAGE>
(f) Number of Shares Purchased. The number of shares purchased
for a Participant's Account shall be equal to the number of shares, including
fractions computed to four decimal places, equal to (i) the amount of dividends
invested on an Investment Date (dividends less any applicable withholding taxes)
divided by the Purchase Price per share plus (ii) the amount of initial or
optional cash payments invested on an Investment Date divided by the Purchase
Price per share.
(g) Optional Cash Payments. Participants who have submitted valid
Authorization Cards and who have not withdrawn from the Plan are eligible to
make optional cash payments at any time. An initial optional cash payment may be
made by a Shareholder when enrolling by enclosing a check or money order with
the Authorization Card. Other optional cash payments shall be made by check or
money order and shall be accompanied by such Authorization Forms or Cash Payment
Forms as specified by the Company from time to time. Any optional cash payment
must not be less than TWENTY-FIVE AND NO/100 DOLLARS ($25.00) per payment, and
the total of all cash payments, including initial cash payments and optional
cash payments, on behalf of a Participant may not exceed THIRTY THOUSAND AND
NO/100 ($30,000.00) for any calendar year. Optional cash payments must be
received by the Agent at least five (5) business days before the Investment Date
in order to be used to purchase Common Stock for a Participant's Account on that
Investment Date. Payments received less than five (5) business days before an
Investment Date will be held until the next Investment Date, and no interest
will be paid on and no refund will be made of optional cash payments or initial
cash payments awaiting investment. Payments received with or after the receipt
of an Authorization Card or revised Authorization Card but prior to such
Authorization Card becoming
<PAGE>
effective will be invested on the first Investment Date coinciding with or
immediately following the date such Authorization Card is effective.
(h) Shareholders who are Participants and, after the initial
investment, Eligible Customers who are Participants, may also make automatic
monthly purchases of a specified amount (not less than TWENTY-FIVE AND NO/100
DOLLARS ($25.00) per investment nor more than THIRTY THOUSAND AND NO/100 DOLLARS
($30,000.00) per calendar year when aggregated with all other initial and
optional cash purchases) by electronic fund transfer from a predesignated United
States bank account. To initiate automatic monthly deductions, the Participant
must complete and sign an Automatic Monthly Deduction Form and return it to the
Agent, together with a voided blank check for the account from which the funds
are to be drawn. Automatic Monthly Deduction Forms shall be available from
either the Agent or the Company. Such forms will be processed and will become
effective as promptly as practicable. The Agent will make the necessary
arrangements with the Participant's bank to deduct the authorized amount on the
sixth (6th) business day prior to the end of each calendar month. Once automatic
monthly deductions commence, funds in the amount elected by the Participant will
be drawn from the Participant's designated bank account on the sixth (6th)
business day prior to the end of each calendar month and shall be invested in
Common Stock on the next Investment Date. Participants may change or terminate
automatic monthly deductions by completing and submitting to the Agent a New
Automatic Monthly Deduction Form. To be effective with respect to a particular
Investment Date, the New Automatic Monthly Deduction Form must be received by
the Agent no later than twenty (20) business days prior to the end of the
calendar month preceding the Investment Date.
<PAGE>
(i) Safekeeping. A Participant may deposit with the Agent
certificates for shares of Common Stock held in the Participant's name.
Participants who wish to avail themselves of the safekeeping feature of the Plan
should mail their certificates to the Agent by registered or certified mail,
return receipt requested, accompanied by a completed Authorization Card
specifying that the shares are furnished for safekeeping. The Agent shall cause
such deposit to be reflected on the report to the Participant required under
Paragraph 10 hereof.
If at any time a Participant withdraws from the Plan, the Agent shall
issue a new certificate for the shares held by Agent for safekeeping a soon as
practicable.
(j) Miscellaneous Considerations. No Common Stock will be
purchased under the Plan at less than par value, i.e., $5 per share. If the
Purchase Price is less than par value on an Investment Date, all cash from
whatever source received shall be held over for investment until the next
Investment Date upon which the Purchase Price is at least par value. No interest
will be paid on any dividends and initial or optional cash payments for the
period following their receipt and prior to investment on an Investment Date.
6. Custody of Stock. A Participant becomes the owner of Common Stock
purchased under the Plan and allocated to his Account as of the Investment Date
on which it is purchased. Participation in any rights offering will be based
upon both the shares registered in the Participants' names and the Plan shares
(including fractional interests) credited to Participants' Accounts. Any stock
dividends or shares issued pursuant to any stock split received by the Agent
with respect to Common Stock held in a Participant's Account will be immediately
credited to the Participant's Account. The Agent shall sell any stock rights or
warrants applicable to any Common Stock held in a Participant's Account and
reinvest the proceeds in Common Stock as of
<PAGE>
the next Investment Date. If such rights or warrants have no market value, the
Agent may allow them to expire.
7. Certificate Issuance. A stock certificate will be issued to a
Participant for the number of full shares of Common Stock in the Participant's
Account upon written notice to the Agent, except that no certificate will be
issued between the dividend record date and the Investment Date. Upon issuance
of such certificate, the Participant shall have all rights of ownership, and
neither the Agent nor the Company shall have any responsibility with respect to
such Common Stock. Automatic reinvestments of dividends will continue as long as
there are any shares of Common Stock registered in the name of the Participant
or held for him by the Agent or until termination of enrollment. Similarly, if a
Participant acquires additional shares of Common Stock registered in his name
(exactly as it appears on his Authorization Card), dividends (or a percentage
thereof as directed by the Participant) paid on the acquired Common Stock will
automatically be reinvested until termination of enrollment.
8. Voting Rights. The Agent will not vote Common Stock held for a
Participant's Account. A Participant will have all rights of a Shareholder as
soon as there are shares of Common Stock (whole or fractional) credited to his
Account. Whole and fractional shares credited to a Participant's Account will be
voted as the Participant directs. Proxy materials will be forwarded to each
Participant of record to be voted at his or her discretion, and all other
communications from the Company to its Shareholders will be forwarded to each
Participant of record.
9. Expenses. The Company will bear the expense of administering the Plan
and having the Agent purchase shares of Common Stock and hold them until
certificates are issued to
<PAGE>
the Participants, including transfer taxes and costs of transferring the Common
Stock from the Plan to the Participants.
10. Reports to Participants. The Agent will render a statement of
account to each Participant no later than twenty-five (25) days after the
Investment Date. Such statement will show the following information for the
Investment Date:
(a) Total amount invested by the Agent (dividends and initial and
optional cash payments less any applicable tax withheld);
(b) Number of shares of Common Stock allocated to the
Participant's Account;
(c) The cost per share of allocated Common Stock;
(d) The number of shares of Common Stock for which certificates
have been issued, if any;
(e) The number of shares deposited for safekeeping as described
in paragraph 5(i); and
(f) The beginning and ending balances in the Participant's
Account. 11. Withdrawal from Plan. A Participant may withdraw from the Plan by
giving written notice to the Agent. The withdrawal date shall be no more than
thirty (30) days after receipt of the notice by the Agent ("Withdrawal Date").
As soon as practicable after the Withdrawal Date, a certificate for all full
shares of Common Stock in a Participant's Account will be issued to the
Participant, except that no certificate will be issued between the dividend
record date and the Investment Date. No fractional shares will be issued to the
Participant, but the value of any fractional share in his Account will be paid
to him. Such fractional share shall
<PAGE>
be valued in proportion to the fair market value of one share of Common Stock on
the Investment Date immediately preceding the Withdrawal Date, and the fair
market value shall be determined pursuant to paragraph 5(d). Payment for any
fractional share shall be made as soon as practicable after the Withdrawal Date,
and any cash awaiting investment shall also be paid at that time. Notice of the
death, liquidation, or other termination of legal existence of a Participant
shall constitute notice of withdrawal from the Plan. Settlement will be made
with the Participant's legal representative or successor in interest, and
neither the Agent nor the Company shall be in any way liable for settlements
made with such persons.
12. Amendment and Termination of the Plan. The Company reserves the
right to amend or terminate the Plan at any time upon giving thirty (30) days'
written notice to the Participants and the Agent setting forth the effective
date of the amendment or termination. The Company, with the consent of the
Agent, may also terminate or amend the Plan immediately without notice to the
Participants in order to correct any noncompliance of the Plan with any
applicable law or to make administrative changes which are not material. No
amendment or termination will affect any Participant's interest in the Plan
which has accrued prior to the date of the amendment or termination. In the
event of the termination of the Plan, the Agent will make a distribution of
Common Stock and cash as if each Participant had withdrawn from the Plan as soon
as practicable, but not later than thirty (30) days after the termination of the
Plan. Participants will incur no service charges or other fees upon such
termination.
13. Risk of Stock Ownership. The Participant assumes all risks inherent
in the ownership of any Common Stock purchased under the Plan, whether or not
the actual stock certificate has been issued to the Participant. A Participant
has no guarantee against a decline in
<PAGE>
the price or value of the Common Stock, and the Company assumes no obligation
for repurchase of the Participant's Common Stock purchased under the Plan. A
Participant has all the rights of any other holder of Common Stock with respect
to the shares of Common Stock issued to him under the Plan.
14. Liability of the Company and Agent. Neither the Company nor the
Agent shall be liable for any acts done or any omission to act, including,
without limitation, any claims of liability (a) with respect to the prices at
which Common Stock is purchased or (in the case of a fractional share) sold for
a Participant's Account and the times and method by which such purchases or
sales are made, (b) for any fluctuation in the market value before or after
purchase or (in the case of a fractional share) sale of Common Stock, or (c) for
continuation of a Participant's Account until receipt by Agent of notice in
writing of such Participant's death, liquidation or other legal dissolution.
15. Administration of the Plan. Administration of the Plan will be
coordinated by the officer or officers from time to time designated by the
Company, and all purchases will be made by the Agent in accordance with terms
hereof. Any question of interpretation arising under the Plan will be determined
by the Company and any such determination shall be final.
16. Federal Income Taxes. Neither the Company nor the Agent makes any
representation as to the income or other tax consequences of participation in
the Plan. Nevertheless, it is the Company's understanding that Participants must
report as dividend income an amount equal to the dividends received by the Plan
on their behalf plus the Participants' share of any brokerage fees paid by the
Company on shares purchased on the open market. A Participants' federal income
tax basis in the Common Stock purchased for the Participant under
<PAGE>
the Plan will include any amount the Participant is treated as having received.
The holding period for shares of Common Stock acquired under the Plan will begin
the day after the Investment Date, and a whole share resulting from the
acquisition of two or more fractional shares on different Investment Dates will
have a split holding period. A Participant will not realize any taxable income
upon the receipt of certificates of whole shares credited to his Account under
the Plan, either upon his request for a certificate or upon withdrawal from or
termination of the Plan. However, a Participant who receives a cash adjustment
for a fractional share credited to his Account will realize a capital gain or
loss if Common Stock is a capital asset in his hands. Also, in the event of a
sale of a fractional share pursuant to withdrawal from the Plan, if the
consideration received exceeds fair market value as determined under Internal
Revenue Service regulations, the Participant will have dividend income equal to
the difference.
17. Correspondence. All correspondence and notices to the Agent
shall be sent to:
First Union National Bank
Shareholder Services Group
Attention: Dividend Reinvestment
1525 West WT Harris Blvd.
3C3-NC1153
Charlotte, NC 28288-1153
All correspondence and notices to the Company shall be sent to:
Dividend Reinvestment Plan
RGC Resources, Inc.
519 Kimball Avenue, N.E.
Roanoke, Virginia 24016
Attention: Roger L. Baumgardner
<PAGE>
All correspondence and notices to Participants shall be sent to the
address shown on the Participant's Authorization Card or such new address as the
Participant provides in writing to the Company.
Notice to the Agent or the Company shall be effective when it is
actually received. Notice to a Participant is effective when mailed, postage
pre-paid, to the address indicated above.
18. Miscellaneous. Except as expressly provided herein, a Participant
shall have no right to sell, pledge, assign, encumber or otherwise dispose of
his rights in his Account. A Participant shall have no right to draw checks or
drafts against his Account or to instruct the Agent to perform any acts not
expressly provided for herein. This Plan shall be governed by the laws of the
Commonwealth of Virginia except to the extent superseded by federal law.
IN WITNESS WHEREOF, the Company and Agent have caused this Plan to be
executed on their behalf by their officers duly authorized, this 1st day of
July, 1999.
RGC RESOURCES, INC.
By: s/John B. Williamson, III
Its: President & CEO
FIRST UNION NATIONAL BANK
By: s/Frances S. Beam
Its: Vice President
Exhibit 5
July 2, 1999
Board of Directors
RGC Resources, Inc.
519 Kimball Avenue, N.E.
Roanoke, Virginia 24016
In Re: Post-Effective Amendment to the Registration Statementon Form S-2
(Registration No. 333-69902)
Gentlemen:
Reference is made to the Post-Effective Amendment to the Registration
Statement on Form S-2 (Registration No. 333-69902) of RGC Resources, Inc. (the
"Company"), filed by the Company as successor to Roanoke Gas Company ("Roanoke
Gas") following the reorganization of Roanoke Gas into a holding company
structure (the "Reorganization") in which Roanoke Gas became a wholly-owned
subsidiary of the Company by virtue of the conversion of each outstanding share
of common stock of Roanoke Gas into one share of common stock, $5.00 par value
per share, of the Company ("Common Stock"). We have acted as your counsel with
respect to corporate proceedings in connection with the assumption by the
Company of the Roanoke Gas Company Dividend Reinvestment and Stock Purchase Plan
(the "Plan").
We are generally familiar with your corporate affairs, including your
organization and the conduct of the corporate proceedings relating thereto. We
also have examined such of your corporate records as we have deemed necessary as
the basis for this opinion. Based upon the foregoing, it is our opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the Commonwealth of Virginia.
2. The 400,000 shares of Company common stock which are the subject of
this Registration Statement have been duly and validly authorized, and upon the
due authorization and execution on the common stock, and the receipt of payment
for the stock in accordance with the provisions of the Plan, the common stock
will be legally issued, fully paid and non-assessable.
<PAGE>
Board of Directors
RGC Resources, Inc.
July 2, 1999
Page 2
The foregoing opinion is contingent upon the Registration Statement
becoming effective. We hereby consent to the filing of this opinion with the
Securities and Exchange Commission as an exhibit to the Registration Statement,
and to reference to this firm in the Prospectus, the Registration Statement and
any amendments thereto.
Very truly yours,
s/WOODS, ROGERS & HAZLEGROVE, P.L.C.
WOODS, ROGERS & HAZLEGROVE, P.L.C.
Exhibit 10(r)(r)
AMENDED AND RESTATED
RESTRICTED STOCK PLAN
FOR OUTSIDE DIRECTORS
OF RGC RESOURCES, INC.
1. Assumption of Plan by RGC Resources, Inc.; Purpose
This Amended and Restated Restricted Stock Plan for Outside Directors of
RGC Resources, Inc. (as successor to Roanoke Gas Company) (the "Plan") amends
and restates the Roanoke Gas Company Restricted Stock Plan for Outside Directors
(the "Original Plan"), which was adopted by the Board of Directors of Roanoke
Gas Company ("Roanoke Gas") on September 23, 1996, and became effective as of
such date upon approval of the Original Plan by the shareholders of Roanoke Gas
Company on Juanuary 27th, 1997. The amendment and restatement of the Original
Plan and the assumption of liabilities hereunder are undertaken by RGC
Resources, Inc. (the "Company"), as successor to Roanoke Gas, in connection with
the reorganization of Roanoke Gas into a holding company structure (the
"Reorganization") as part of which Roanoke Gas became a wholly-owned subsidiary
of RGC Resources as of July 1, 1999. The Reorganization is being effected
pursuant to an Agreement and Plan of Merger dated as of September 28, 1998 (the
"Merger Agreement"), which was approved by the stockholders of Roanoke Gas on
March 31, 1999, and pursuant to which Roanoke Gas and RGC Resources agreed that
from and afer the effective date of the Merger provided for therein, this Plan
would utilize RGC Resources common stock instead of Roanoke Gas common stock.
Accordingly, as of the effective date hereof, RGC Resources assumes the
obligations of Roanoke Gas under the Original Plan and undertakes to carry out
all responsibilities of the Company specified herein. Roanoke Gas consents and
agrees to the assumption by RGC Resources of the Roanoke Gas' responsibilities
under this Plan.
The Amended and Restated Restricted Stock Plan for Outside Directors of
RGC Resources, Inc. is intended to advance the interests of RGC Resources, Inc.,
its shareholders, and its affiliates by encouraging and enabling outside
directors upon whose judgment, initiative and effort the Company relies for the
successful conduct of its business, to acquire and retain a proprietary interest
in the Company by ownership of its stock.
2. Definitions
The following definitions apply to this Plan and to the Election Forms:
(a) Beneficiary or Beneficiaries means a person or persons or other
entity designated on a Beneficiary Designation Form by a
Participant to receive Company Stock under this Plan if the
Participant dies. If there is no valid designation by the
Participant, or if the designated Beneficiary or Beneficiaries
1
<PAGE>
fail to survive the Participant, the Participant's Beneficiary is
the first of the following who survives the Participant: the
Participant's spouse (the person legally married to the
Participant when the Participant dies); the Participant's
children in equal shares; the Participant's other surviving
issue, per stirpes; the Participant's parents; and the
Participant's estate.
(b) Beneficiary Designation Form means a form acceptable to the
Chairman of the Committee or his designee used by a Participant
according to this Plan to name the Beneficiary or Beneficiaries
who will receive all the Company Stock under this Plan if the
Participant dies.
(c) Board means the Board of Directors of the Company.
(d) Change in Control means a change in control of a nature that
would be required to be reported (assuming such event has not
been "previously reported") in response to Item 1(a) of the
Current Report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended ("Exchange Act"); provided that, notwithstanding
the foregoing and without limitation, such a change in control
shall be deemed to have occurred at such time as (i) any Person
is or becomes the "beneficial owner" (as defined in Rule 13d-3 or
Rule 13d-5 under the Exchange Act as in effect on the date
hereof), directly or indirectly, of 20% or more of the combined
voting power of the Company's voting securities; (ii) the
incumbent Board ceases for any reason to constitute at least the
majority of the Board, provided that any person becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was
approved by a vote of at least 75% of the directors comprising
the incumbent Board (either by a specific vote or by approval of
the proxy statement of the Company in which such person is named
as a nominee for director, without objection to such nomination)
shall be, for purposes of this clause (ii), considered as though
such person were a member of the incumbent Board; (iii) all or
substantially all of the assets of the Company are sold,
transferred or conveyed by any means, including, but not limited
to, direct purchase or merger, if the transferee is not
controlled by the Company, control meaning the ownership of more
than 50% of the combined voting power of such entity's voting
securities; or (iv) the Company is merged or consolidated with
another corporation or entity and as a result of such merger or
consolidation less than 75% of the outstanding voting securities
of the surviving or resulting corporation or entity shall be
owned in the aggregate by the former shareholders of the Company.
Notwithstanding anything in the foregoing to the contrary, no
Change in Control shall be deemed to have occurred for purposes
of the Plan by virtue of any transaction (i) which results in a
Participant or a group of Persons which includes the Participant,
acquiring, directly or indirectly, 20% or more of the combined
voting power of the Company's voting securities; or (ii) which
2
<PAGE>
results in the Company, any affiliate of the Company or any
profit-sharing plan, employee stock ownership plan or employee
benefit plan of the Company or any of its affiliates (or any
trustee of or fiduciary with respect to any such plan acting in
such capacity) acquiring, directly or indirectly, 20% or more of
the combined voting power of the Company's voting securities.
(e) Committee means the Compensation Committee of the Board.
(f) Company means RGC Resources, Inc.
(g) Company Stock means the common stock, $5 par value of the
Company.
(h) Compensation means a Member's Retainer Fee for the Deferral Year.
(i) Election Form means a document governed by the provisions of
Section 4 of this Plan, including the portion that is the related
Beneficiary Designation Form, that applies to all of that
Participant's shares of Restricted Stock under the Plan.
(j) Directors means those duly named members of the Board.
(k) Election Date means the date established by this Plan as the date
before which a Member must submit a valid Election Form to the
Committee. For each Plan Year, the Election Date is July 31.
However, for an individual who becomes a Member during a Plan
Year, the Election Date is the thirtieth day following the date
that he becomes a Member. Despite the two preceding sentences,
the Committee may set an earlier date as the Election Date for
any Plan Year.
(l) Employee means an individual with whom either the Company or its
affiliates has an employer-employee relationship as determined
for Federal Insurance Contribution Act purposes and Federal
Unemployment Tax Act purposes, including subsection 3401(c) of
the Internal Revenue Code and regulations promulgated under that
subsection.
(m) Members means Directors who are not simultaneously Employees.
(n) Participant means a Member during the Plan Year.
(o) Plan means the Company's Restricted Stock Plan for Outside
Directors.
(p) Plan Year means a fiscal year ending September 30 during which
the Plan is in effect and during which a Member receives a
portion or all of his Compensation in Restricted Stock hereunder.
3
<PAGE>
(q) Person means person within the meaning of Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934.
(r) Restricted Stock means Company Stock issued to Participants under
the Plan and subject to the vesting and nontransferability
provision of the Plan.
(s) Retainer Fee means that portion of a Director's Compensation that
is fixed and paid without regard to his attendance at meetings.
3. Restricted Stock Payments
On the first day of each month during each Plan Year, forty percent
(40%) of a Participant's Compensation for the month shall be paid in shares of
Restricted Stock of the Company. In determining the number of shares to be
issued pursuant to the preceding sentence, the Fair Market Value of the
Restricted Stock under the Plan shall, for each calendar month, be calculated
based on the closing sales price of the Company's common stock on the Nasdaq-NMS
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.
4. Additional Restricted Stock Election
(a) Before each Plan Year's Election Date, each Member will be
provided with an Election Form and a Beneficiary Designation
Form. Subject to approval of the Board or the Committee, a Member
may elect to receive up to 100% of his Compensation for the Plan
Year in Restricted Stock.
(b) An additional Restricted Stock election is valid when an Election
Form is completed, signed by the electing Member, received by the
Committee Chairman and approved by the Board or the Committee on
or before the Election Date.
(c) A Member may not revoke or amend an Election Form after the
Election Date for the Plan Year. Any revocation before an
Election Date is the same as a failure to submit an Election
Form. Any writing signed by a Member expressing an intention to
revoke his Election Form and delivered to a member of the
Committee before the close of business on the relevant Election
Date is a revocation.
5. Vesting
The shares of Restricted Stock of the Company issued under Section 3 and
Section 4 of this Plan shall 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 the Company. There shall be no option to
take cash in lieu of stock upon vesting of shares under this Plan.
4
<PAGE>
6. Nontransferability
No share of Restricted Stock issued hereunder may be sold, transferred,
assigned, or pledged by the Participant until such share has vested in
accordance of the terms of this Plan. At the time the Restricted Stock vests,
and, if the Participant has been issued legended certificates of Restricted
Stock, upon the return of such certificates to the Company, a certificate for
such vested shares shall be delivered to the Participant (or the Beneficiary
designated by the Participant in the event of death), free of restrictive legend
(other than any required by applicable securities laws). Notwithstanding the
foregoing, no vested shares may be sold, transferred, assigned or pledged by the
Participant (or the Beneficiary) unless six months have elapsed between the date
of grant of the shares of Restricted Stock which have vested and the date of the
sale, transfer, assignment or pledge of such vested shares.
7. Forfeiture
The shares of Restricted Stock issued under Section 3 and Section 4 of
this Plan shall be forfeited to the Company upon a Member's voluntary
resignation during his term on the Board, or removal for cause as a Director.
8. Stock Certificates
Stock certificates representing the Restricted Stock, together with
stock powers or other instruments of assignment, each endorsed in blank, which
will permit transfer to the Company of all or any portion of the Restricted
Stock evidenced by such certificate in the event it is forfeited, shall be
deposited by the recipient with the Company.
9. Rights as Shareholder
Subject to the terms of this Plan, the Participant, as the owner of the
Restricted Stock, shall have all rights of a shareholder including, but not
limited to, voting rights, the right to receive cash or stock dividends thereon,
and the right to participate in any capital adjustment of the Company. Any
distribution with the respect to shares of Restricted Stock other than in the
form of cash shall be held by the Company, and shall be subject to the same
restrictions as the shares with respect to which such distributions were made.
The Committee may require that any or all dividends or other distributions paid
on shares of Restricted Stock shall be automatically sequestered and may be
reinvested on an immediate or deferred basis in additional shares of Company
stock, which may be subject to the same restrictions as the Restricted Stock or
such other restrictions as the Committee may determine.
10. Claims against Participant's Restricted Stock
The shares of Restricted Stock issued pursuant to this Plan are not
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, or charge, and any attempt to do so is void. Moreover, the
shares are not subject to attachment or legal process for a
5
<PAGE>
Participant's debts or other obligations. Nothing contained in this Plan gives
any Participant any interest, lien, or claim against any specific asset of the
Company.
11. Amendment or Termination
The Board may at any time suspend or terminate the Plan or may amend it
from time to time in such respects as the Board may deem advisable in order that
the Restricted Stock issued hereunder may conform to any changes in the law or
any other respect with which the Board may deem to be in the best interests of
the Company. No such suspension, termination or amendment of the Plan shall
require approval of the shareholders unless shareholder approval is required by
applicable law or stock exchange requirements.
12. Notices
Notices and elections under this Plan must be in writing. A notice or
election is deemed delivered if it is delivered personally or if it is mailed by
registered or certified mail to the person at his last known business address.
13. Waiver
The waiver of a breach of any provision in this Plan does not operate as
and may not be construed as a waiver of any later breach.
14. Construction
This Plan is created, adopted, and maintained according to the laws of
the Commonwealth of Virginia (except its choice-of-law rules). It is governed by
those laws in all respects. Headings and captions are only for convenience; they
do not have substantive meaning. If a provision of this Plan is not valid or not
enforceable, that fact in no way affects the validity or enforceability of any
other provision. Use of the one gender includes all, and the singular and plural
include each other.
15. Adjustments For Changes in Capitalization
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, rights offer, liquidation, dissolution, merger,
consolidation, spin off, sale of assets, payment of an extraordinary cash
dividend, or any other change in or affecting the corporate structure or
capitalization of the Company, the Committee shall make appropriate adjustments
in the number, price or kind of shares of Restricted Stock authorized to be
issued under this Plan, and in any outstanding shares of Restricted Stock issued
hereunder.
6
<PAGE>
16. Withholding Taxes
Whenever the Company is required to issue or transfer shares of
Restricted Stock under this Plan, the Company shall have the right to require
the recipient of such Restricted Stock to remit to the Company an amount
sufficient to satisfy any federal, state or local withholding tax liability
prior to the delivery of any certificate for such shares. Whenever under the
Plan payments are to be made in cash, such payments shall be net of an amount
sufficient to satisfy any federal, state or local withholding tax liability.
17. Indemnification
The Company shall indemnify and hold harmless each person who is or has
been a member of the Committee, or of the Board of Directors, against and from
any and all loss, expense, liability, or costs (including reasonable attorneys'
fees) that may be imposed upon or reasonably incurred by him in connection with
or resulting from any claim, action, suit or proceedings to which he may be a
party or in which he may be involved by reason of any action taken or failure to
act under the Plan, and against and from any and all amounts paid by him in
settlement thereof with the Company's approval or paid by him in satisfaction of
a final judgment against him in such action, suit, or proceedings, provided he
shall give the Company an opportunity, at its own expense to handle and defend
the same before he undertakes to handle defense on his own behalf. The right of
indemnification herein set forth shall not be exclusive of any other rights of
indemnification to which such person may be entitled under the Company's
Articles of Incorporation, or code or regulations, as a matter of law, or
otherwise, or any power that the Company may have to indemnify him or to hold
him harmless. It is the Company's intention that all expenses incurred in
connection with the administration of the Plan shall be borne by the Company
rather than by any member of the Committee or the Board of Directors.
18. Effective Date of the Plan
The Plan is subject to approval by the shareholders of the Company. The
Plan will become effective on the date so approved.
19. Shares Subject to the Plan
The aggregate number of shares of Company Stock which may be issued in
respect to Restricted Stock shall not exceed 50,000 shares. All shares
distributed pursuant to the Plan shall consist of authorized but unissued shares
of the Company.
20. Power of the Committee
The Committee shall have authority to interpret conclusively the
provisions of the Plan, to adopt such rules and regulations for carrying out the
Plan as it may deem advisable, to decide conclusively all questions of fact
arising in the application of the Plan, and to make all other
7
<PAGE>
determinations necessary or advisable for the administration of the Plan. All
decisions and acts of the Committee shall be final and binding upon all affected
Plan Participants.
21. Miscellaneous
Transactions under this Plan are intended to comply with Rule 16b-3 (or
its successor), as amended from time to time, promulgated pursuant to the
Securities Exchange Act of 1934. Therefore, to the extent any provision of the
Plan or action by a person administering the Plan fails to so comply, it shall
be deemed null and void ab initio to the extent permitted by law and deemed
advisable by the Committee.
As evidence of its adoption and approval of this Plan and approval of
the terms and conditions of each Participant transaction hereunder, the Board
has caused this document to be executed on its behalf, and on behalf of the
Company, this 2nd day of July, 1999.
By s/John B. Williamson, III
Chairman of the Board and President
of RGC Resources, Inc.
8
Exhibit 10(z)(z)
AGREEMENT FOR CONSULTING SERVICES
This Agreement is made and entered into this 25th day of January, 1999,
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, 1999.
Introductory
Consultant previously has served the Company as its chief executive 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, 1999, and terminate on January 31, 2000.
1
<PAGE>
2. POSITION, AUTHORITY, AND DUTIES: It is contemplated that during the
term of this Agreement, Consultant 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 or the Company's CEO.
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 or the
Company's CEO.
4. PROVISION OF SUPPORT FACILITIES AND SERVICES AND REIMBURSEMENT
OF BUSINESS-RELATED EXPENSES:
Company will furnish Consultant office space and secretarial assistance,
a Company- owned vehicle, and will reimburse Consultant for business-related
expenses associated with the services rendered under this Agreement and
specifically will reimburse Consultant for business-related expenses associated
with his serving as immediate past president on the American Gas Association's
(AGA) Small Company Council. Company will also pay the dues and expenses related
to Consultant's continued participation in local clubs and industry
organizations and activities.
5. COMPENSATION AND LIFE AND HEALTH INSURANCE BENEFITS:
Company will pay the Consultant as compensation for his performance of
specifically assigned duties at an hourly rate of $70.00, payable monthly.
Consultant will receive this
2
<PAGE>
compensation for specified assigned services in addition to the normal fees for
serving as a member of the Board of Directors. Services performed while acting
as a member of the AGA Small Company Council shall not be considered billable
hours for compensation by the Company.
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 has retired as an employed officer of the Company
as of January 31, 1998, and thereupon assumed 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, 2000.
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.
3
<PAGE>
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.
Executed by direction of the Board of Directors this 25th day of January
1999, to be effective February 1, 2000.
By:s/Frank A. Farmer, Jr. (SEAL)
----------------------------------
Consultant
By:s/John B. Williamson, III (SEAL)
----------------------------------
Company
ATTEST:
s/Roger L. Baumgardner
- -------------------------------
Secretary
4
Exhibit 10(b)(b)(b)
Service Agreement No. 40432
Control Number931229-9
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 ROANOKE 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, 1993 and shall continue in full force and effect until June 30,
1994. Thereafter, it shall continue from year to year unless cancelled 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 Exchange; notices to Shipper shall be
addressed to it at 519 Kimball Ave., N.E., Roanoke, Virginia 24016, 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: 37380, 37381, 37383.
<PAGE>
ROANOKE GAS COMPANY COLUMBIA GULF
TRANSMISSION COMPANY
BY s/Arthur L. Pendleton By s/Paul H. Pieir
---------------------- ---------------------
Title s/VP Operations Title Vice President
---------------------- -----------------------
<PAGE>
Revision No.__________
Control No. 931229-9
Appendix A to Service Agreement No.40432
Under Rate Schedule FTS-2
between Columbia Gulf Transmission Company (Transporter)
and Roanoke Gas Company (Shipper)
Transportation Demand 10, 998 Dth/day
Primary Receipt Points
Measuring Maximum Daily
Point No. Measuring Point Name Quantity (Dth/day)
- --------- ---------------------------------------- ------------------
M.S. 433 Egan A, Acadia Parish, LA. - CGT 1,750
M.S. 512 Lake Long, LaFourche Parish, LA. - Amoco 750
M.S. 646 Lake Boudreaux, Terrebonne Parish, LA. - Amoco 750
M.S. 701 Adobe #3, S. Lake Arthur, Vermilion Parish, LA 3,000
M.S. 4041 New Iberia Parish, LA. - Texas Power 750
M.S. 4046 S. Lake Arthur, Vermilion Parish, LA - TexCon 3,998
Primary Delivery Points
Measuring Maximum Daily
Point No. Measuring Point Name Quantity (Dth/day)
- --------- ---------------------------------------- ------------------
M.S. 2700010 Raine Compressor Station, located in Acadia Parish, LA 10,998
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, 1993. With the exception of this Appendix A,
all other terms and conditions of said Service Agreement shall remain in full
force and effect.
<PAGE>
ROANOKE GAS COMPANY COLUMBIA GULF
TRANSMISSION COMPANY
By s/Arthur L. Pendleton By s/Paul H. Pieir
----------------------- ------------------------
Its s/VP Operations Its Vice President
----------------------- ------------------------
Date 1/21/94 Date 1/14/94
----------------------- ------------------------
<PAGE>
Revision No. 1
Control No. 1994-07-11-0021
Appendix A to Service Agreement No.40432
Under Rate Schedule FTS2
Between (Transporter) COLUMBIA GULF TRANSMISSION COMPANY
and (Shipper) ROANOKE GAS COMPANY
Transportation Demand 13, 998 Dth/day
<TABLE>
<CAPTION>
Primary Receipt Points
Measuring Measuring Maximum Daily
Point No. Point Name Quantity (Dth/Day)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
4041 TEJAS POWER - IBERIA 750
4046 PG&E-LAKE ARTHUR 3,998
433 CGT-EGAN A 1,750
512 BADGER-LAKE LONG 750
646 APACHE-LAKE BOUDREAU 750
701 ADOBE-LAKE ARTHUR 3,000
705 ADOBE-LAKE ARTHUR 3,000
</TABLE>
<PAGE>
Revision No. 1
Control No. 1994-07-11 - 0021
Appendix A to Service Agreement No. 40432
Under Rate Schedule FTS2
Between (Transporter) COLUMBIA GULF TRANSMISSION COMPANY
and (Shipper) ROANOKE GAS COMPANY
<TABLE>
<CAPTION>
Primary Receipt Points
Measuring Measuring Maximum Daily
Point No. Point Name Quantity (Dth/Day)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2700010 CGT - RAYNE 13,998
</TABLE>
<PAGE>
Revision No. 1
Control No.1994-07-11 - 0021
Appendix A to Service Agreement No.40432
Under Rate Schedule FTS2
Between (Transporter) COLUMBIA GULF TRANSMISSION COMPANY
and (Shipper) ROANOKE GAS COMPANY
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 become effective as of
NOVEMBER 01, 1994. This Appendix A shall cancel and supersede the previous
Appendix A effective as of FEBRUARY 01, 1994 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/Arthur L. Pendleton
-------------------------
Name: Arthur L. Pendleton
-------------------------
Title: V. P. Operations
-------------------------
Date: 8/25/94
-------------------------
COLUMBIA GULF TRANSMISSION COMPANY
By: s/Paul H. Pieir
-------------------------
Name: Paul H. Pieir
-------------------------
Title: Vice President
-------------------------
Date: 8/10/94
-------------------------
Exhibit 10(c)(c)(c)
FIRM PIPELINE SERVICE AGREEMENT
THIS AGREEMENT, made and entered into as of this 5th day of February,
1999, by and between VIRGINIA GAS PIPELINE COMPANY, a Virginia corporation,
hereinafter referred to as "Transporter," and ROANOKE GAS COMPANY, a Virginia
corporation, hereinafter referred to as "Shipper." Transporter and Shipper may
hereinafter be referred to collectively as "Parties" or singularly as "Party."
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I - DEFINITIONS
The definitions found in Section 2 of Transporter's General Terms and Conditions
as set forth in its Virginia State Corporation Commission ("VSCC") Tariff 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 is Rate Schedule FTS of Transporters
Virginia State Corporation Commission Tariff.
ARTICLE III- RECEIPT AND DELIVERY PRESSURES
Shipper shall deliver, or cause to be delivered, to Transporter the gas to be
transported hereunder at pressure 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) at a minimum pressure
of 275 pounds per square inch gauge pressure unless otherwise specified on
Exhibit A. If Shippers gas is supplied by a third party pipeline connect, the
minimum pressure of 275 pounds per square inch gauge pressure does not apply.
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 the
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
1
<PAGE>
operated by Transporter, the responsibility for operations shall be deemed
to be Shipper's.
ARTICLE V - FACILITIES
The Parties agree that Transporter shall proceed with due diligence to construct
the pipeline necessary to provide the firm pipeline service described herein,
and shall commence the firm pipeline service for Shipper at the earliest
practicable date. Shipper warrants that all gas received from Transporter and
the Virginia State Intrastate Pipeline will be ultimately consumed within the
Commonwealth of Virginia.
ARTICLE VI- RATES AND CHARGES FOR GAS TRANSPORTATION
The demand charge for the intrastate pipeline service shall be $9.50 per Dth, or
any other rates which are approved by the VSCC and authorized to be charged
pursuant to the appropriate Rate Schedule and Gas Tariff. However, regardless of
the rate approved by the VSCC, the rate set forth in this paragraph shall be the
maximum rate for the term of this contract. In the event the VSCC shall approve
a rate less than the rates specified in this paragraph, Transporter will charge,
for the term of the contract, Shipper whichever rate is lower. If during the
term of this contract VSCC shall require Transporter to lower its rates,
Transporter shall immediately reflect those changes to Shipper's rates.
ARTICLE VII- RESPONSIBILITY DURING TRANSPIRATION
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 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
12 of Transporter's General Terms and Conditions as they may be revised or
replaced from time to time. In no event shall Shipper pay for any services prior
to the facilities being completed and available for use.
ARTICLE IX - RATE SCHEDULES AND
GENERAL TERMS AND CONDITIONS
9.1 This Agreement is subject to the effective provisions of Transporter's FTS
Rate Schedule, as specified in Exhibit A, or any succeeding rate schedule and
Transporter's General Terms and
2
<PAGE>
Conditions on file with the VSCC, 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 VSCC, which Rate Schedule and
General Terms and Conditions are incorporated by reference and made a part
hereof for all purposes. However, to the extent that specific provisions
included in this contract contradict the tariff, the provisions of this contract
will apply.
9.2 Section 5.2 of the Transporter's General Terms and Conditions will not be
interpreted to require that Shipper deliver more gas into the system than
Shipper is currently taking at its delivery points or to take more gas out of
the system that it is currently delivering into the system at its receipt
points, except for making up previously incurred balances due Transporter or due
Shipper.
ARTICLE X - TERM OF CONTRACT
10.1 The Primary Term of this Agreement is for fifteen years from the
commencement of service to each delivery point as described in Exhibit A.
10.2 In addition to any other remedy Transporter may have, Transporter shall
have the right to terminate this Agreement in the event Shipper falls 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 VSCC 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 12 of Transporter's General Terms and Conditions.
10.3 In the absence of force majeure, Shipper shall have the right to terminate
this Agreement in the event that Transporter falls to deliver to Shipper's
Delivery Point(s) gas that was properly received at Shipper's Receipt Point(s).
If this event should occur, Shipper shall give Transporter thirty days notice of
termination.
10.4 Shipper shall have the right to terminate this Agreement if Transporter
fails to secure a certificate for pipeline construction to Roanoke, Virginia
from the SCC by June 30, 2000.Shipper shall further have the right to terminate
this Agreement if Transporter does not commence service by November 1, 2001.
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
3
<PAGE>
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.
ARTICLE XII- SUCCESSORS AND ASSIGNS
Any company which shall succeed by purchase, merger, or consolidation of title
to the properties, substantially as an entirety, of Shipper and Transporter, as
the case may be, shall be entitled to the rights and shall be subject to the
obligations of its predecessor under this Agreement. Any Party may, without
relieving itself of its obligations under this Agreement, assign any of its
rights hereunder to a company or companies to which it is affiliated, but
otherwise no assignment of this Agreement or any of the rights or obligation
hereunder shall be made unless there first shall have been obtained the consent
thereto in writing of the Party, which shall not be unreasonably withheld. In
the event that Transporter builds the facilities in partnership with companies
or persons with which it is not affiliated, Transporter warrants that it will at
all times retain operating control of the facilities.
ARTICLE XIII- WARRANTIES
In addition to the warranties set forth in Section 10 of Transport'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 warranty, by the
Shipper herein.
13.3 Shipper warrants that it will have title or the right to acquire title to
gas delivered to Transporter under this Agreement.
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 VSCC 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.
4
<PAGE>
ARTICLE XIV - NOTICES
Notice 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:
VIRGINIA GAS PIPELINE COMPANY
P0 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
P0 Box 13007
519 Kimball Avenue, N.E.
Roanoke, Virginia 24030
Attention: John B. Williamson
Telephone Number: (540) 983-3800
Facsimile Machine Number: (540) 983-3957
ARTICLE XV - FORCE MAJEURE
15.1 Subject to the provisions of this Article XV, 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.
15.2 Events of Force Majeure shall include, by way of illustration, but not
limitation those enumerated in Section 15, Original Sheets No.47, No.48 and
No.49 of the General Terms and Conditions.
15.3 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
5
<PAGE>
within twenty (20) days to give full particulars.
15.4 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.
15.5 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.
15.6 Transporter appoints Shipper as its sole and exclusive agent for sales of
gas transportation services to retail customers in Roanoke Gas' Virginia
territory for the life of this Agreement. Transporter recognizes that
Transporter's system is located within Shipper's certificated gas distribution
territory in the Commonwealth of Virginia (Shipper's Virginia territory) and
intends to honor all of Shipper's rights and privileges associated with said
territory in accordance with Virginia statute and/or regulation during the term
of this Agreement. Transporter warrants that it will not seek authority in its
certificate of public convenience and necessity to provide any gas storage,
distribution, or transportation service to retail customers in Shipper's
Virginia territory during the term of this Agreement. During the term of this
Agreement, Transporter further warrants that it shall not use its pipeline
facilities to directly provide gas storage, distribution or transportation
service to any retail customers in Shipper's Virginia territory, unless directed
to do so by the Virginia State Corporation Commission, or any other regulatory
agency or judicial authority. Under this Section 15.6, Transporter shall include
any company under common management or control with Transporter, including but
not limited to Virginia Gas Company, Virginia Gas Storage Company, Virginia Gas
Distribution Company or Virginia Gas Exploration Company.
ARTICLE XVI- MISCELLANEOUS
16.1 This Agreement constitutes the entire Agreement between the Parties and no
waiver by the Parties 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.
16.2 The interpretation and performance of this Agreement shall be in accordance
with the laws of the Commonwealth of Virginia.
16.3 No modification of this Agreement shall be made except by the execution of
a written instrument by the Parties.
16.4 Exhibit A attached hereto is incorporated herein by reference and made a
part of this Agreement for all purposes.
6
<PAGE>
16.5 The terms of this Agreement, including but not limited to the charges shall
be kept confidential by Shipper and Transporter, except as required by law,
regulation or order of Government Authority.
7
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly
executed as of the date first hereinabove written.
VIRGINIA GAS PIPELINE COMPANY
BY: s/M. C. Edwards
----------------------------
ITS: s/President ATTEST: s/Aryile M. Funk
--------------------------- ---------------------
ROANOKE GAS COMPANY
BY: s/John B. Williamson, III
-----------------------------
ITS: s/President & CEO ATTEST: s/Mildred V. Smith
--------------------------- ---------------------
8
<PAGE>
EXHIBIT A TO THE
FIRM PIPELINE SERVICE AGREEMENT
DATED FEBRUARY 5, 1999
Shipper: Roanoke Gas Company
Rate Schedule: FTS of Virginia Gas Pipeline Company's Virginia State
Corporation Commission Tariff
Firm Transportation Quantity: 17,500 Dth per day
Optional Transportation Quantity: 7,500 Dth per day
PRIMARY RECEIPT POINT (S):
- -------------------------
Name Meter No. Party Location (Co./State)
- ---- -------- ----- --------------------
Saltville Meter Site 759777 Roanoke Gas Co. Smyth, VA
OPTIONAL RECEIPT POINT(S) (Note 3):
- ----------------------------------
East Tennessee Natural Gas Pipeline
CNG Gathering or Transmission Lines
Columbia Gathering or Transmission Lines
FIRM DELIVERY POINT(S):
- ----------------------
<TABLE>
<CAPTION>
Volumes Service
Name Location (Co.,/State) (Dth/Day) Date Party:
- ---- -------------------- -------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Roanoke Roanoke, VA 5,000 11/1/2000 Roanoke Gas Co.
(Note 4) 3,000 11/1/2002 Roanoke Gas Co.
7,000 11/1/2004 Roanoke Gas Co.
Rocky Mount Franklin, VA 2,500 11/1/2001 Roanoke Gas Co.
-----
(via lateral; Note 1) 17,500 Dth/Day
</TABLE>
OPTIONAL VOLUME CAPACITY AND DELIVERY POINT(S):
- ----------------------------------------------
<TABLE>
<CAPTION>
Volumes Service
Name Location (Co./State) (Dth/Day) Date Party:
- ---- ------------------- ------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Rocky Mount Franklin, VA 2,500 11/1/2006 Roanoke Gas Co.
(via lateral; Note 1 & 2)
Bedford Bedford, VA 5,000 11/1/2001 Roanoke Gas Co.
(via lateral; Note 1 & 2)
</TABLE>
Note 1 - Lateral terminus to be mutually agreed between the parties. VGPC to
construct generally to within one (1) mile of corporate limits. No by-pass
language to be included in the firm pipeline service agreement.
9
<PAGE>
Note 2 - Option to expire November 1, 2001. Decision to exercise options are at
the sole discretion of the Shipper.
Note 3 - Receipt points on CNG and Columbia to be made available when Virginia
Gas Pipeline interconnects with these facilities.
Note 4 - Delivery point to be on the Roanoke Gas 8-inch loop line approximately
3 miles northeast of the ETNG Clearbrook Gate Station.
Roanoke Gas Company will have the flexibility of delivery points to the extent
that the pipeline can deliver volumes on any given day.
10
Exhibit 10(d)(d)(d)
FIRM STORAGE SERVICE AGREEMENT
THIS AGREEMENT, made and entered into as of this 5th day of February,
1999, by and between VIRGINIA GAS PIPELINE COMPANY, a Virginia corporation,
hereinafter referred to as "VGPC," and ROANOKE GAS COMPANY, a Virginia
Corporation, hereinafter referred to as "RGC."
WITNESSETH
WHEREAS, VGPC 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 frrm basis pursuant to
Rate Schedule FSS in compliance with Section 3 of VGPC's SCC Gas Tariff
contingent upon pipeline service from VGPC being made available to Roanoke Gas
Company at a delivery point on its distribution system in accordance with a firm
pipeline service agreement dated February 5, 1999; 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 2,275,000 dth (the "Maximum Storage Quantity," or
"MSQ"). VGPC'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. VGPC, 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 VGPC's operations. The MSQ is separated into
the following levels of service, on the dates specified.
1
<PAGE>
Firm Storage Service (Roanoke):
Maximum Daily Quantity Capacity Commencement Date
---------------------- -------- -----------------
5,000 Dth 650,000 Dth April 1, 2000
3,000 Dth 390,000 Dth April 1, 2002
7,000 Dth 910,000 Dth April 1, 2004
Firm Storage Service (Rocky Mount):
Maximum Daily Quantity Capacity Commencement Date
---------------------- -------- -----------------
2,500 Dth 325,000 Dth April 1, 2001
This will result in the following cumulative service levels:
Firm Storage Service (Roanoke):
Maximum Daily Quantity Capacity Commencement Date
---------------------- -------- -----------------
5,000 Dth 650,000 Dth April 1, 2000
8,000 Dth 1,040,000 Dth April 1, 2002
15,000 Dth 1,950,000 Dth April 1, 2004
Firm Storage Service (Rocky Mount):
Maximum Daily Quantity Capacity Commencement Date
---------------------- -------- -----------------
2,500 Dth 325,000 Dth April 1, 2001
1.2 VGPC shall redeliver a thermally equivalent quantity of gas to RGC
at the Delivery Points described on Exhibit A hereto. VGPC'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. VGPC, 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 VGPC's operations and such gas
is available from RGC 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 VGPC $0.05 per each dth injected and $0.05 per each
dth withdrawn. Subject to the provisions of Section 2.3, RGC will pay VGPC an
annual storage charge ("Annual Storage Charge") which shall be the product of
$0.94 multiplied by the Maximum Storage Quantity, which fee shall be payable in
twelve (12) equal monthly installments.
2
<PAGE>
2.2 VGPC 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, 2000 and each May 1 thereafter, VGPC 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:
Adjusted Annual Actual MSQ Actual MDWQ
---------- -----------
Storage Charge = Contract MSQ X Contract MDWQ X $0.94 X 2,275,000
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 VGPC at the Delivery
Points for injection meets the minimum quality specifications of East Tennessee
Natural Gas Company's FERC Tariff. VGPC 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 VGPC shall be performed by VGPC.
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:
Virginia Gas Pipeline Company
P.O. Box 2407
120 South Court Street
Abingdon, Virginia 24210
Attention: Michael L. Edwards
Telephone Number: (540) 676-2380, extension 17
Facsimile Machine Number: (540) 676-0151
3
<PAGE>
Roanoke Gas Company
P.O. Box 13007
519 Kimball Avenue NE
Roanoke, Virginia 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, VGPC
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 VGPC'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 VGPC 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, VGPC, in
addition to any other remedy it may have, may suspend further 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 VGPC such amounts as RGC concedes to be correct, and,
at any time thereafter within thirty (30) days of a demand made by VGPC,
furnishes a good and sufficient surety bond in an amount and with sureties
satisfactory to VGPC 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 VGPC
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.
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
<PAGE>
4.6 It is expressly understood that VGPC retains a landlord's lien
against the personal property of RGC 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 of 15 years from the commencement of service to each
delivery point as described in Exhibit A (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.
5.2 RGC may terminate this agreement prior to the termination date by
substituting pipeline capacity which VGPC may construct to provide
interconnections to other receipt points on other pipelines. Terminating this
agreement and substituting pipeline capacity which VGPC may construct shall be
contingent on VGPC's ability to remarket the storage service contemplated under
this agreement. VGPC will remarket this storage service on a best efforts basis
upon receiving notice from RGC requesting pipeline capacity if contemplated
pipelines are constructed.
5.3 RGC may terminate this agreement if the agreement for firm pipeline
service dated February 5, 1999 is terminated.
ARTICLE VI
INDEMNITY
6.1 RGC shall be deemed to have the exclusive control and possession of
the Gas until delivered to VGPC 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. VGPC shall be deemed to have the exclusive control and possession of the
Gas after it has been delivered to VGPC 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.
5
<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. 56 and No.
57 of the Terms and Conditions of VGPC'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. Notwithstanding any
other provision in this Agreement, the parties mutually agree that should some
cause or event, beyond the control of VGPC, make it appear to VGPC 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 VGPC, or VGPC 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 VGPC
can reasonably revitalize and stabilize such storage area to hold gas pressure
in which event VGPC 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.
6
<PAGE>
ARTICLE VIII
OPERATIONAL FLOW ORDERS
8.1 RGC may be subject to certain operational flow orders ("OFO's")
issued by VGPC: (a) to alleviate conditions that threaten the integrity of
VGPC's system; (b) to maintain pressures necessary for VGPC'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 VGPC. 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 VGPC 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.
7
<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
---------------------------
Its: s/President & CEO
---------------------------
Attest: VIRGINIA GAS PIPELINE COMPANY
By: s/M. C. Edwards
---------------------------
Its: s/President
---------------------------
8
<PAGE>
EXHIBIT A
to that certain Gas Storage Agreement dated February 5, 1999 by and between
ROANOKE GAS COMPANY
and
VIRGINIA GAS PIPELINE 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:
4,333 Dth in 2000
6,500 Dth in 2001
9,100 Dth in 2002
15,167 Dth in 2004
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 VGPC.
Maximum Daily Withdrawal Quantity, in dth:
5,000 Dth in 2000
7,500 Dth in 2001
10,500 Dth in 2002
17,500 Dth in 2004
Withdrawal Period runs from November 1 through March 31 of each year.
Withdrawals may be made before November 1 and after March 31 of each year on a
best efforts, interruptible basis.
9
Exhibit 10(e)(e)(e)
SERVICE PACKAGE NO. 26446
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under FT-A Rate Schedule)
THIS AGREEMENT is made and entered into as of the 1st day of November, 1999, by
and between TENNESSEE GAS PIPELINE COMPANY, a Delaware 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 collectively be referred to herein as the
"Parties."
ARTICLE I
DEFINITIONS
1.1 TRANSPORTATION QUANTITY (TQ) - shall mean the maximum daily quantity of
gas which Transporter agrees to receive and transport on a firm basis,
subject to Article II herein, for the account of Shipper hereunder on
each day during each year during the term hereof, which shall be 5,000
dekatherms. Any limitations of the quantities to be received from each
Point of Receipt and/or delivered to each Point of Delivery shall be as
specified on Exhibit "A" attached hereto.
1.2 EQUIVALENT QUANTITY - shall be as defined in Article I of the General
Terms and Conditions of Transporter's FERC Gas Tariff.
ARTICLE II
TRANSPORTATION
Transportation Service - Transporter agrees to accept and receive daily on a
firm basis, at the Point(s) of Receipt from Shipper or for Shipper's account
such quantity of gas as Shipper makes available up to the Transportation
Quantity, and to deliver to or for the account of Shipper to the Point(s) of
Delivery an Equivalent Quantity of gas.
ARTICLE III
POINT(S) OF RECEIPT AND DELIVERY
The Primary Point(s) of Receipt and Delivery shall be those points specified on
Exhibit "A" attached hereto.
1
<PAGE>
SERVICE PACKAGE NO. 26446
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under FT-A Rate Schedule)
ARTICLE IV
All facilities are in place to render the service provided for in this
Agreement.
ARTICLE V
QUALITY SPECIFICATIONS AND STANDARDS FOR MEASUREMENT
For all gas received, transported and delivered hereunder the Parties agree to
the Quality Specifications and Standards for Measurement as specified in the
General Terms and Conditions of Transporter's FERC Gas Tariff Volume No. 1. To
the extent that no new measurement facilities are installed to provide service
hereunder, measurement operations will continue in the manner in which they have
previously been handled. In the event that such facilities are not operated by
Transporter or a downstream pipeline, then responsibility for operations shall
be deemed to be Shipper's.
ARTICLE VI
RATES AND CHARGES FOR GAS TRANSPORTATION
6.1 TRANSPORTATION RATES - Commencing upon the effective date hereof, the
rates, charges, and surcharges to be paid by Shipper to Transporter for
the transportation service provided herein shall be in accordance with
Transporter's Rate Schedule FT-A and the General Terms and Conditions of
Transporter's FERC Gas Tariff.
6.2 INCIDENTAL CHARGES - Shipper agrees to reimburse Transporter for any
filing or similar fees, which have not been previously paid for by
Shipper, which Transporter incurs in rendering service hereunder.
6.3 CHANGES IN RATES AND CHARGES - Shipper agrees that Transporter shall
have the unilateral right to file with the appropriate regulatory
authority and make effective changes in (a) the rates and charges
applicable to service pursuant to Transporter's Rate Schedule FT-A, (b)
the rate schedule(s) pursuant to which service hereunder is rendered, or
(c) any provision of the General Terms and Conditions applicable to
those rate schedules. Transporter agrees that Shipper may protest or
contest the aforementioned
2
<PAGE>
SERVICE PACKAGE NO. 26446
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under FT-A Rate Schedule)
filings, or may seek authorization from duly constituted regulatory
authorities for such adjustment of Transporter's existing FERC Gas
Tariff as may be found necessary to assure Transporter just and
reasonable rates.
ARTICLE VII
BILLINGS AND PAYMENTS
Transporter shall bill and Shipper shall pay all rates and charges in accordance
with Articles V and VI, respectively, of the General Terms and Conditions of
Transporter's FERC Gas Tariff.
ARTICLE VIII
GENERAL TERMS AND CONDITIONS
This Agreement shall be subject to the effective provisions of Transporter's
Rate Schedule FT-A and to the General Terms and Conditions incorporated therein,
as the same may be changed or superseded from time to time in accordance with
the rules and regulations of the FERC.
ARTICLE IX
REGULATION
9.1 This Agreement shall be subject to all applicable and lawful
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. This Agreement
shall be void and of no force and effect if any necessary regulatory
approval 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.
9.2 The transportation service described herein shall be provided subject to
Subpart G, Part 284, of the FERC Regulations.
3
<PAGE>
SERVICE PACKAGE NO. 26446
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under FT-A Rate Schedule)
ARTICLE X
RESPONSIBILITY DURING TRANSPORTATION
Except as herein specified, the responsibility for gas during transportation
shall be as stated in the General Terms and Conditions of Transporter's FERC Gas
Tariff Volume No. 1.
ARTICLE XI
WARRANTIES
11.1 In addition to the warranties set forth in Article IX of the General
Terms and Conditions of Transporter's FERC Gas Tariff, Shipper warrants
the following:
(a) 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.
(b) Shipper agrees to indemnify and hold Transporter harmless from all
suits, actions, debts, accounts, damages, costs, losses and expenses
(including reasonable attorneys fees) arising from or out of breach of
any warranty by Shipper herein.
11.2 Transporter shall not be obligated to provide or continue service
hereunder in the event of any breach of warranty.
ARTICLE XII
TERM
12.1 This Agreement shall be effective as of the 1st day of November, 1999,
and shall remain in force and effect until the 31st day of October,
2019, ("Primary Term") and on a month to month basis thereafter unless
terminated by either Party upon at least thirty (30) days
4
<PAGE>
SERVICE PACKAGE NO. 26446
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under FT-A Rate Schedule)
prior written notice to the other Party; provided, however, that if the
Primary Term is one year or more, then unless Shipper elects upon one
year's prior written notice to Transporter to request a lesser extension
term, the Agreement shall automatically extend upon the expiration of
the Primary Term for a term of five years and shall automatically extend
for successive five year terms thereafter unless Shipper provides notice
described above in advance of the expiration of a succeeding term;
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.
12.2 Any portions of this Agreement necessary to resolve or cash-out
imbalances under this Agreement as required by the General Terms and
Conditions of Transporter's Tariff, shall survive the other parts of
this Agreement until such time as such balancing has been accomplished;
provided, however, that Transporter notifies Shipper of such imbalance
not later than twelve months after the termination of this Agreement.
12.3 This Agreement will terminate automatically upon written notice from
Transporter in the event Shipper fails to pay all of the amount of any
bill for service rendered by Transporter hereunder in accord with the
terms and conditions of Article VI of the General Terms and Conditions
of Transporter's FERC Gas Tariff.
ARTICLE XIII
NOTICE
Except as otherwise provided in the General Terms and Conditions applicable to
this Agreement, any notice under this Agreement shall be in writing and mailed
to the post office address of the Party intended to receive the same, as
follows:
TRANSPORTER: TENNESSEE GAS PIPELINE COMPANY
P.O. Box 2511
Houston, Texas 77252-2511
Attention: Director, Transportation Control
5
<PAGE>
SERVICE PACKAGE NO. 26446
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under FT-A Rate Schedule)
SHIPPER: ROANOKE GAS COMPANY
519 Kimball Ave., N.E.
P. 0. Box 13007
Roanoke, VA 24016
Attention: Mike Gagnet
NOTICES: ROANOKE GAS COMPANY
519 Kimball Ave., N.E.
P. 0. Box 13007
Roanoke, VA 24016
Attention: Mike Gagnet
BILLING: ROANOKE GAS COMPANY
519 Kimball Ave., N.E.
P. 0. Box 13007
Roanoke, VA 24016
Attention: Howard Lyon
or to such other address as either Party shall designate by formal written
notice to the other.
ARTICLE XIV
ASSIGNMENTS
14.1 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 which it has executed or may
execute hereafter as security for indebtedness. Either Party may,
without relieving itself of its obligation under this Agreement, assign
any of its rights hereunder to a company with which it is affiliated.
Otherwise, Shipper shall not assign this Agreement or any of its rights
hereunder, except in accord with Article III, Section 11 of the General
Terms and Conditions of Transporter's FERC Gas Tariff.
14.2 Any person which shall succeed by purchase, merger, or consolidation to
the properties, substantially 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.
6
<PAGE>
SERVICE PACKAGE NO. 26446
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under FT-A Rate Schedule)
ARTICLE XV
MISCELLANEOUS
15.1 THE INTERPRETATION AND PERFORMANCE OF THIS CONTRACT SHALL BE IN
ACCORDANCE WITH AND CONTROLLED BY THE LAWS OF THE STATE OF TEXAS,
WITHOUT REGARD TO THE DOCTRINES GOVERNING CHOICE OF LAW.
15.2 If any provisions of this Agreement is declared null and void, or
voidable, by a court of competent jurisdiction, then that provision will
be considered severable at either Party's option; and if the
severability option is exercised, the remaining provisions of the
Agreement shall remain in full force and effect.
15.3 Unless otherwise expressly provided in this Agreement or Transporter's
Gas Tariff, no modification of or supplement to the terms and provisions
stated in this agreement shall be or become effective until Shipper has
submitted a request for change through the Electronic Bulletin Board and
Shipper has been notified through the Electronic Bulletin Board of
Transporter's agreement to such change.
15.4 Exhibit "A" attached hereto is incorporated herein by reference and made
a part hereof for all purposes.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly
executed as of the date first hereinabove written.
TENNESSEE GAS PIPELINE COMPANY
BY: --------------------------
Agent and Attorney-in-Fact
DATE: --------------------------
ROANOKE GAS COMPANY
BY: s/Roger L. Baumgardner
------------------------
TITLE: VP/Sec. & Treas.
------------------------
DATE: 9/21/98
------------------------
7
<PAGE>
SERVICE PACKAGE NO. 26446
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under FT-A Rate Schedule)
GAS TRANSPORTATION AGREEMENT
(For use under FT-A Rate Schedule)
EXHIBIT "A"
AMENDMENT # 0 TO GAS TRANSPORTATION AGREEMENT
DATED NOVEMBER 1, 1999
BETWEEN
MIDWESTERN GAS TRANSMISSION COMPANY
AND
ROANOKE GAS COMPANY
ROANOKE GAS COMPANY
EFFECTIVE DATE OF AMENDMENT: NOVEMBER 1, 1999
RATE SCHEDULE: FT-A
SERVICE PACKAGE: 26446
SERVICE PACKAGE TQ: 5,000
<TABLE>
<CAPTION>
METER METER NAME INTERCONNECT PARTY NAME COUNTY ST ZONE R/D LEG METER-TO BILLABLE-TQ
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
011353 Amoco-Eugene Island Blk 322A Amoco Prod. Co. Offshore-Fed.OL OL 500 5,000 5,000
020001 Broad Run Cobb West VA m Columbia Gas Trans. Kanawha West VA 03 087 5,000 5,000
</TABLE>
NUMBER OF RECEIPT POINTS AFFECTED: 1
NUMBER OF DELIVERY POINTS AFFECTED: 1
Note: Exhibit "A" is a reflection of the contract and all amendments as of
the amendment effective date.
8
Exhibit 10(f)(f)(f)
SERVICE PACKAGE NO. 24376
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under FT-A Rate Schedule)
THIS AGREEMENT is made and entered into as of the 1st day of November, 1999, by
and between TENNESSEE GAS PIPELINE COMPANY, a Delaware Corporation, hereinafter
referred to as "Transporter" and ROANOKE GAS COMPANY, a VIRGINIA Corporation,
hereinafter referred to as "Shipper." Transporter and Shipper shall collectively
be referred to herein as the "Parties."
ARTICLE I
DEFINITIONS
1.1 TRANSPORTATION QUANTITY (TQ) - shall mean the maximum daily quantity of
gas which Transporter agrees to receive and transport on a firm basis,
subject to Article II herein, for the account of Shipper hereunder on
each day during each year during the term hereof, which shall be 5,150
dekatherms. Any limitations of the quantities to be received from each
Point of Receipt and/or delivered to each Point of Delivery shall be as
specified on Exhibit "A" attached hereto.
1.2 EQUIVALENT QUANTITY - shall be as defined in Article I of the General
Terms and Conditions of Transporter's FERC Gas Tariff.
ARTICLE II
TRANSPORTATION
Transportation Service - Transporter agrees to accept and receive daily on a
firm basis, at the Point(s) of Receipt from Shipper or for Shipper's account
such quantity of gas as Shipper makes available up to the Transportation
Quantity, and to deliver to or for the account of Shipper to the Point(s) of
Delivery an Equivalent Quantity of gas.
ARTICLE III
POINT(S) OF RECEIPT AND DELIVERY
The Primary Point(s) of Receipt and Delivery shall be those points specified on
Exhibit "A" attached hereto.
1
<PAGE>
SERVICE PACKAGE NO. 24376
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under FT-A Rate Schedule)
ARTICLE IV
All facilities are in place to render the service provided for in this
Agreement.
ARTICLE V
QUALITY SPECIFICATIONS AND STANDARDS FOR MEASUREMENT
For all gas received, transported and delivered hereunder the Parties agree to
the Quality Specifications and Standards for Measurement as specified in the
General Terms and Conditions of Transporter's FERC Gas Tariff Volume No. 1. To
the extent that no new measurement facilities are installed to provide service
hereunder, measurement operations will continue in the manner in which they have
previously been handled. In the event that such facilities are not operated by
Transporter or a downstream pipeline, then responsibility for operations shall
be deemed to be Shipper's.
ARTICLE VI
RATES AND CHARGES FOR GAS TRANSPORTATION
6.1 TRANSPORTATION RATES - Commencing upon the effective date hereof, the
rates, charges, and surcharges to be paid by Shipper to Transporter for
the transportation service provided herein shall be in accordance with
Transporter's Rate Schedule FT-A and the General Terms and Conditions of
Transporter's FERC Gas Tariff.
6.2 INCIDENTAL CHARGES - Shipper agrees to reimburse Transporter for any
filing or similar fees, which have not been previously paid for by
Shipper, which Transporter incurs in rendering service hereunder.
6.3 CHANGES IN RATES AND CHARGES - Shipper agrees that Transporter shall
have the unilateral right to file with the appropriate regulatory
authority and make effective changes in (a) the rates and charges
applicable to service pursuant to Transporter's Rate Schedule FT-A,
(b) the rate schedule(s) pursuant to which service hereunder is
rendered, or (c) any provision of the General Terms and Conditions
applicable to those rate schedules. Transporter agrees that Shipper
may protest or contest the aforementioned filings, or may seek
authorization from duly constituted regulatory authorities for such
2
<PAGE>
SERVICE PACKAGE NO. 24376
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under FT-A Rate Schedule)
adjustment of Transporter's existing FERC Gas Tariff as may be found
necessary to assure Transporter just and reasonable rates.
ARTICLE VII
BILLINGS AND PAYMENTS
Transporter shall bill and Shipper shall pay all rates and charges in accordance
with Articles V and VI, respectively, of the General Terms and Conditions of the
FERC Gas Tariff.
ARTICLE VIII
GENERAL TERMS AND CONDITIONS
This Agreement shall be subject to the effective provisions of Transporter's
Rate Schedule FT-A and to the General Terms and Conditions incorporated therein,
as the same may be changed or superseded from time to time in accordance with
the rules and regulations of the FERC.
ARTICLE IX
REGULATION
9.1 This Agreement shall be subject to all applicable and lawful
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. This
Agreement shall be void and of no force and effect if any necessary
regulatory approval 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.
9.2 The transportation service described herein shall be provided subject to
Subpart G, Part 284, of the FERC Regulations.
ARTICLE X
RESPONSIBILITY DURING TRANSPORTATION
Except as herein specified, the responsibility for gas during transportation
shall be as stated in the General Terms and Conditions of Transporter's FERC Gas
Tariff Volume No. 1.
3
<PAGE>
SERVICE PACKAGE NO. 24376
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under FT-A Rate Schedule)
ARTICLE XI
WARRANTIES
11.1 In addition to the warranties set forth in Article IX of the General
Terms and Conditions of Transporter's FERC Gas Tariff, Shipper warrants
the following:
(a) 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.
(b) Shipper agrees to indemnify and hold Transporter harmless from
all suits, actions, debts, accounts, damages, costs, losses and
expenses (including reasonable attorneys fees) arising from or
out of breach of any warranty by Shipper herein.
11.2 Transporter shall not be obligated to provide or continue service
hereunder in the event of any breach of warranty.
ARTICLE XII
TERM
12.1 This Agreement shall be effective as of the 1st day of November, 1999,
and shall remain in force and effect until the 31st day of October,
2019, ("Primary Term") and on a month to month basis thereafter unless
terminated by either Party upon at least thirty (30) days prior written
notice to the other Party; provided, however, that if the Primary Term
is one year or more, then unless Shipper elects upon one year's prior
written notice to Transporter to request a lesser extension term, the
Agreement shall automatically extend upon the expiration of the Primary
Term for a term of five years and shall automatically extend for
successive five year terms thereafter unless Shipper provides notice
described above in advance of the expiration of a succeeding term;
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.
12.2 Any portions of this Agreement necessary to resolve or cash out
imbalances under this Agreement as required by the General Terms and
Conditions of Transporter's Tariff, shall survive the other parts of
this Agreement until such time as such balancing has been accomplished;
provided, however, that Transporter notifies Shipper of such imbalance
not later than twelve months after the termination of this Agreement.
12.3 This Agreement will terminate automatically upon written notice from
Transporter in the event Shipper fails to pay all of the amount of any
bill for service rendered by Transporter
4
<PAGE>
SERVICE PACKAGE NO. 24376
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under FT-A Rate Schedule)
hereunder in accord with the terms and conditions of Article VI of the
General Terms and Conditions of Transporter's FERC Gas Tariff.
ARTICLE XIII
NOTICE
Except as otherwise provided in the General Terms and Conditions applicable to
this Agreement, any notice under this Agreement shall be in writing and mailed
to the post office address of the Party intended to receive the same, as
follows:
TRANSPORTER: TENNESSEE GAS PIPELINE COMPANY
P.O. Box 2511
Houston, Texas 77252-2511
Attention: Director, Transportation Control
SHIPPER:
NOTICES: ROANOKE GAS COMPANY
519 KIMBLE AVE., N.E.
P.O. BOX 13007
ROANOKE, VA 24016
Attention: MIKE GAGNET
BILLING: ROANOKE GAS COMPANY
519 KIMBLE AVE., N.E.
P.O. BOX 13007
ROANOKE, VA 24016
Attention: HOWARD LYON
or to such other address as either Party shall designate by formal written
notice to the other.
ARTICLE XIV
ASSIGNMENTS
14.1 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 which it has executed or may
execute hereafter as security for indebtedness. Either Party may,
without relieving itself of its obligation under this Agreement, assign
any of its rights hereunder to a company with which it is affiliated.
Otherwise, Shipper shall not assign
5
<PAGE>
SERVICE PACKAGE NO. 24376
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under FT-A Rate Schedule)
this Agreement or any of its rights hereunder, except in accord with
Article III, Section 11 of the General Terms and Conditions of
Transporter's FERC Gas Tariff.
14.2 Any person which shall succeed by purchase, merger, or consolidation to
the properties, substantially 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 XV
MISCELLANEOUS
15.1 THE INTERPRETATION AND PERFORMANCE OF THIS CONTRACT SHALL BE IN
ACCORDANCE WITH AND CONTROLLED BY THE LAWS OF THE STATE OF TEXAS,
WITHOUT REGARD TO THE DOCTRINES GOVERNING CHOICE OF LAW.
15.2 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 either Party's option; and if the
severability option is exercised, the remaining provisions of the
Agreement shall remain in full force and effect.
15.3 Unless otherwise expressly provided in this Agreement or Transporter's
Gas Tariff, no modification of or supplement to the terms and provisions
stated in this agreement shall be or become effective until Shipper has
submitted a request for change through the Electronic Bulletin Board and
Shipper has been notified through the Electronic Bulletin Board of
Transporter's agreement to such change.
15.4 Exhibit "A" attached hereto is incorporated herein by reference and made
a part hereof for all purposes.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly
executed as of the date first herein above written.
TENNESSEE GAS PIPE COMPANY
BY: s/J. P. Dickerson
----------------------
J. P. Dickerson
Agent and Attorney-in-Fact
DATE: s/J. P. Dickerson
-------------------
6
<PAGE>
SERVICE PACKAGE NO. 24376
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under FT-A Rate Schedule)
ROANOKE GAS COMPANY
BY: s/Roger L. Baumgardner
------------------------
TITLE: VP/Sec. & Treas.
---------------------
DATE: 5/13/98
---------------------
7
<PAGE>
GAS TRANSPORTATION AGREEMENT
(For use under FT-A Rate Schedule)
EXHIBIT "A"
AMENDMENT # 0 TO GAS TRANSPORTATION AGREEMENT
DATED November 1, 1999
BETWEEN
TENNESSEE GAS PIPELINE COMPANY
AND
ROANOKE GAS COMPANY
ROANOKE GAS COMPANY
EFFECTIVE DATE OF AMENDMENT: November 1, 1999
RATE SCHEDULE: FT-A
SERVICE PACKAGE: 24377
SERVICE PACKAGE TO: 5,150 Dth
<TABLE>
<CAPTION>
METER METER NAME INTERCONNECT PARTY NAME COUNTY ST ZONE R/D LEG METER-TO BILLABLE-TQ
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
012447 MGT PURCHASE (Bi 2-0852 Dual SUMNER TN 01 R 500 5,150 5,150
Total Receipt TQ: 5,150 5,150
020289 GREENBRIER TENNESSEE #2 (Dual
EAST TENNESSEE NATURAL GAS COM ROBERTSON TN 01 D 500 5,150 5,150
</TABLE>
NUMBER OF RECEIPT POINTS AFFECTED: 1
NUMBER OF DELIVERY POINTS AFFECTED: 1
Note: Exhibit "A" is a reflection of the contract and all amendments as of
the amendment effective date.
8
Exhibit 10(g)(g)(g)
SERVICE PACKAGE NO. 24377
AMENDMENT NO.
FIRM GAS TRANSPORTATION AGREEMENT (For Use Under
Rate Schedule FT-A or FT-G )
THIS AGREEMENT is made and entered into as of the 1st day of November,1999, by
and between MIDWESTERN GAS TRANSMISSION COMPANY, a Delaware Corporation,
hereinafter referred to as "Transporter" and ROANOKE GAS COMPANY, an VIRGINIA
Corporation, hereinafter referred to as "Shipper." Transporter and Shipper shall
be collectively referred to as "Parties."
WITNESSETH:
That, in consideration of the premises and of the mutual agreements herein
contained, Transporter and Shipper agree as follows:
ARTICLE I - DEFINITIONS
The definitions found in Article 1 of Transporter's General Terms and Conditions
are incorporated herein by reference.
ARTICLE II - TRANSPORTATION
Transportation Service - Transporter agrees to accept and receive daily, on a
firm basis, at Eligible Receipt Point(s), from Shipper or for Shipper's account
such quantity of gas as Shipper makes available up to the Transportation
Quantity and deliver to or for the account of Shipper to authorized Delivery
Point(s) an equivalent quantity of gas.
ARTICLE III - POINTS OF RECEIPT AND DELIVERY
AND ASSOCIATED PRESSURES
3.1 The Primary Point(s) of Receipt and Delivery shall be those points
specified on Exhibit A attached hereto. Shipper shall have access to
secondary receipt and delivery points as specified in the applicable
rate schedule (FT-A or FT-G) pursuant to which Shipper's volumes are
being transported. Priority of transportation to such secondary points
shall be determined in accord with Article III, Section 5 of the General
Terms and Conditions of Transporter's tariff.
3.2 Shipper may request a change to the Primary Points of Receipt and/or
Primary Points of Delivery provided in this Agreement by submitting to
Transporter a Service Request
1
<PAGE>
SERVICE PACKAGE NO. 24377
AMENDMENT NO.
FIRM GAS TRANSPORTATION AGREEMENT (For Use Under
Rate Schedule FT-A or FT-G )
Form in accord with Article XXV of the General Terms and Conditions of
Transporter's FERC Gas Tariff. Priority of transportation service to
such additional Points of Receipt and/or Delivery shall be determined
pursuant to Article III, Section 5 of the General Terms and Conditions.
3.3 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), provided such
pressure shall not exceed Transporter's maximum allowable operating
pressure. 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)
ARTICLE IV - FACILITIES
All facilities are in place to render the service provided for in this
Agreement.
or
(If facilities are contemplated to be constructed, a brief description of the
facilities will be included, as well as who is to construct, own and/or operate
such facilities.)
ARTICLE V - 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 the
General Terms and Conditions of Transporter's FERC Gas Tariff. Transporter shall
be responsible for the operation of measurement facilities at the Delivery
Point(s) and at the Receipt Point(s). In the event that measurement facilities
are not operated by Transporter, then the responsibility for operations shall be
deemed to be that of the Balancing Party at such point. If measurement
facilities are not operated by Transporter and there is no Balancing Party at
such point, then the responsibility for operations shall be deemed to be
Shipper's.
ARTICLE VI - RATES FOR SERVICE
6.1 Transportation Charge - Commencing on the date of the rates, charges and
surcharges to be paid by Shipper to Transporter, including compensation
for system fuel and losses, shall be in accordance with Transporter's
applicable effective Rate Schedule (FT-A or FT-G) and the General Terms
and Conditions of Transporter's Tariff.
2
<PAGE>
SERVICE PACKAGE NO. 24377
AMENDMENT NO.
FIRM GAS TRANSPORTATION AGREEMENT (For Use Under
Rate Schedule FT-A or FT-G )
6.2 Incidental Charges - Upon execution of this Agreement, Shipper agrees to
pay Transporter for all known and anticipated filing fees, reporting
fees or similar charges required for the rendition of the transportation
service provided for herein. Further, Shipper agrees to reimburse
Transporter for all such fees within thirty (30) days after receiving
proof of payment from Transporter.
6.3 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, charges, terms
and conditions applicable to service pursuant to the Rate Schedule under
which this service is rendered, (b) the Rate Schedule(s) pursuant to
which service hereunder is rendered, and (c) any provisions of the
General Terms and Conditions in Transporter's FERC Gas Tariff applicable
to those Rate Schedules, as such Tariff may be revised or replaced from
time to time. Transporter agrees that Shipper may protest or contest the
aforementioned filings, or may seek authorization from duly constituted
regulatory authorities for such 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
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.
ARTICLE VIII - BILLINGS AND PAYMENTS
Billings and payments under this Agreement shall be in accordance with the terms
and conditions of Transporter's FERC Gas Tariff as such Tariff may be revised or
replaced from time to time.
ARTICLE IX - RATE SCHEDULES AND
GENERAL TERMS AND CONDITIONS
This Agreement and all terms and provisions contained or incorporated herein are
subject to the effective provisions of Transporter's applicable Rate Schedule(s)
as set forth on Exhibit A
3
<PAGE>
SERVICE PACKAGE NO. 24377
AMENDMENT NO.
FIRM GAS TRANSPORTATION AGREEMENT (For Use Under
Rate Schedule FT-A or FT-G )
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(s) and General Terms and Conditions are incorporated
by reference. To the extent a term or condition set forth in this Contract is
inconsistent with the General Terms and Conditions, the General Terms and
Conditions shall govern. Furthermore, to the extent a term or condition set
forth in this Contract is inconsistent with the applicable Rate Schedule, the
Rate Schedule shall govern unless the relevant provision is inconsistent with
General Terms and Conditions.
ARTICLE X - REGULATION
10.1 This Agreement shall be subject to all applicable and lawful
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. 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.
10.2 The transportation service described herein shall be provided subject to
Part 284, Subpart G of the FERC regulations.
10.3 In the event the Parties are unable to obtain all necessary and
satisfactory regulatory approvals for service on facilities 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
provisions of Section 6.2 herein, shall be of no force and effect from
and after the effective date of such termination.
ARTICLE XI - WARRANTIES
Shipper agrees to indemnify and hold Transporter harmless from all suits,
actions, debts, accounts, damages, costs, losses, and expenses (including
reasonable attorneys fees) arising from
4
<PAGE>
SERVICE PACKAGE NO. 24377
AMENDMENT NO.
FIRM GAS TRANSPORTATION AGREEMENT (For Use Under
Rate Schedule FT-A or FT-G )
or out of breach of any warranty, express or implied, by the Shipper herein.
Transporter shall not be obligated to provide or continue service hereunder in
the event of any breach of warranty.
ARTICLE XII - TERM OF AGREEMENT
12.1 This Agreement shall become effective on the date of its execution, and
shall be implemented no later than the first day of the month following
the later of the date of execution or the completion of any necessary
facilities on Transporter's system and shall remain in full force and
effect until the 31st day of October, 2019, ("Primary Term")and on a
month to month basis thereafter unless terminated by either Party upon
at least thirty (30) days prior written notice to the other Party;
provided, however, that if the Primary Term is one year or more, then
unless Shipper elects upon one year's extension term, the Agreement
shall automatically extend upon the expiration of the Primary Term for a
term of five years and shall automatically extend for successive five
year terms thereafter unless Shipper provides notice described above in
advance of the expiration of a succeeding term; provided further, if the
FERC or other governmental body having jurisdiction over the service
rendered pursuant to this Agreement shall terminate on the abandonment
date permitted by the FERC or such other governmental body.
12.2 Any portions of this Agreement necessary to resolve or cash-out
imbalances under this Agreement upon its termination, as required by the
General Terms and Conditions of Transporter's FERC Gas Tariff, shall
survive the other parts of this Agreement until such time as such
balancing has been accomplished.
12.3 In addition to any other remedy Transporter may have, this Agreement
will terminate automatically in the event Shipper fails to pay all of
the amount of any bill for service rendered by Transporter hereunder
when that amount is due, provided Transporter shall give Shipper 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 the terms and conditions of Article VI
of the General Terms and Conditions of Transporter's FERC Gas Tariff.
ARTICLE XIII - NOTICES
Except when notice is required through Transporter's Electronic Bulletin Board,
any notice, request, demand, statement, or bill provided for in this Agreement
or any notice that either
5
<PAGE>
SERVICE PACKAGE NO. 24377
AMENDMENT NO.
FIRM GAS TRANSPORTATION AGREEMENT (For Use Under
Rate Schedule FT-A or FT-G )
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 follows:
TRANSPORTER: MIDWESTERN GAS TRANSMISSION COMPANY
P.O. Box 2511
Houston, Texas 77252-2511
Attention: Transportation Marketing
SHIPPER:
NOTICES: ROANOKE GAS COMPANY
529 Kimble Ave., N.E.
P.O. Box 13007
Roanoke, VA 24016
Attention: Mike Gagnet
BILLING: ROANOKE GAS COMPANY
529 Kimble Ave., N.E.
P.O. Box 13007
Roanoke, VA 24016
Attention: Howard Lyon
or to such other address as either Party may designate by written notice to
the other.
ARTICLE XIV - ASSIGNMENTS
14.1 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. Either Party, without relieving
itself of its obligations under this Agreement, may assign any of its
rights hereunder to a company with which it is affiliated. Otherwise,
Shipper shall not assign this Agreement or any of its rights and
obligations hereunder, except in accord with Article XXI of the General
Terms and Conditions of Transporter's Tariff.
14.2 Any person or entity that succeeds by purchase, merger, or consolidation
to the properties, substantially or as an entirety, of either Party
hereto shall be entitled to the
6
<PAGE>
SERVICE PACKAGE NO. 24377
AMENDMENT NO.
FIRM GAS TRANSPORTATION AGREEMENT (For Use Under
Rate Schedule FT-A or FT-G )
rights and shall be subject to the obligations of its predecessor in
interest under this Agreement.
ARTICLE XV - MISCELLANEOUS
15.1 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 Transporter's Electronic Bulletin Board and Shipper has
been notified through Transporter's Electronic Bulletin Board of
Transporter's agreement to such change.
15.2 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 defaults, whether of a
like or of a different character.
15.3 The interpretation and performance of this agreement shall be in
accordance with and controlled by the laws of the State of Texas,
without regard to Choice of Law doctrine that refers to the laws of
another jurisdiction.
15.4 Exhibit A attached hereto is incorporated herein by reference and made a
part of this Agreement for all purposes.
15.5 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 option; and if the severability
option is exercised, the remaining provisions of the Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly
executed as of the date first hereinabove written.
MIDWESTERN GAS TRANSMISSION COMPANY
BY:s/J. P. Dickerson
---------------------------
J. P. Dickerson
Agent and Attorney-in-Fact
DATE: 6/16/98
------------------------
7
<PAGE>
SERVICE PACKAGE NO. 24377
AMENDMENT NO.
FIRM GAS TRANSPORTATION AGREEMENT (For Use Under
Rate Schedule FT-A or FT-G )
ROANOKE GAS COMPANY
BY:s/Roger L. Baumgardner
---------------------------
TITLE: s/VP/Sec. & Treas.
-----------------------
DATE: 6/8/98
-----------------------
8
<PAGE>
GAS TRANSPORTATION AGREEMENT
(For use under FT-A Rate Schedule)
EXHIBIT "A"
AMENDMENT # 0 TO GAS TRANSPORTATION AGREEMENT
DATED November 1, 1999
BETWEEN
MIDWESTERN GAS TRANSMISSION COMPANY
AND
ROANOKE GAS COMPANY
ROANOKE GAS COMPANY
EFFECTIVE DATE OF AMENDMENT: November 1, 1999
RATE SCHEDULE: FT-A
SERVICE PACKAGE: 24377
SERVICE PACKAGE TO: 5,176 Dth
<TABLE>
<CAPTION>
METER METER NAME INTERCONNECT PARTY NAME COUNTY ST ZONE R/D LEG METER-TO BILL
ABL
E-TO
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
017025 NORTHERN BORDER WILL IL 01 R 5,176 5,176
Total Receipt TQ: 5,176 5,176
027086 MGT. SALES (Bi 1-7024DUAL 1-2 SUMMER TN 01 D 5,176 5,176
</TABLE>
NUMBER OF RECEIPT POINTS AFFECTED: 1
NUMBER OF DELIVERY POINTS AFFECTED: 1
Note: Exhibit "A" is a reflection of the contract and all amendments as of
the amendment effective date.
9
Exhibit 10(h)(h)(h)
SERVICE AGREEMENT NO. 57449
CONTROL NO.1997-07-31 - 0012
FTS SERVICE AGREEMENT
THIS AGREEMENT, made and entered into this 29th day of September, 1997 by and
between:
COLUMBIA GAS TRANSMISSION CORPORATION
("TRANSPORTER")
AND
ROANOKE 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 service in accordance with the provisions of the effective FTS Rate
Schedule and applicable General Terms and Conditions of Transporter'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 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
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 284.223 of
Subpart G of the Commission's regulations. Shipper warrants that service
hereunder is being provided on behalf of SHIPPER.
Section 2. Term. Service under this Agreement shall commence as of the latter of
NOVEMBER 01, 1999 or upon completion of facilities and shall continue in full
force and effect until OCTOBER 31, 2014, 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 Shipper may have under the Commission's
regulations and Transporter's Tariff.
<PAGE>
SERVICE AGREEMENT NO. 57449
CONTROL NO.1997-07-31 - 0012
FTS SERVICE AGREEMENT
Section 3. Rates. Shipper shall pay Transporter 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 Transporter under this Agreement shall be
addressed to it at Post Office Box 1273, Charleston, West Virginia 25325-1273,
Attention: Manager-Commercial Services and notices to Shipper shall be addressed
to it at:
ROANOKE GAS COMPANY
P 0 BOX 13007
ROANOKE, VA 24030
ATTN: MICHAEL GAGNET;
until changed by either party by written notice.
<PAGE>
SERVICE AGREEMENT NO. 57449
CONTROL NO.1997-07-31 - 0012
FTS SERVICE AGREEMENT
Section 5. Superseded Agreements. This Service Agreement supersedes and
cancels, as of the effective date hereof, the following Service Agreements: N/A.
COLUMBIA GAS TRANSMISSION CORPORATION
By: s/Shawn E. Casey
------------------------------
Name: Shawn E. Casey
------------------------------
Title: Manager - Commercial Services
------------------------------
Date: September 29, 1997
------------------------------
ROANOKE GAS COMPANY
By: s/John B. Williamson, III
------------------------------
Name: John B. Williamson, III
------------------------------
Title: Vice President
------------------------------
Date: September 26, 1997
------------------------------
<PAGE>
<TABLE>
<CAPTION>
Revision No.
Control No. 1997-07-31-0012
Appendix A to Service Agreement No. 57449
Under Rate Schedule F T S
Between (Transporter) COLUMBIA GAS TRANSMISSION CORPORATION
and Shipper) ROANOKE GAS COMPANY
Transportation Demand 3,425 Dth/day
Primary Receipt Points
F
O
O
T
N
O
Scheduling Scheduling Measuring T Measuring Maximum Daily
Point No. Point Name Point No. E Point Name Quantity (Dth/Day)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
B 4 KENOVA B4 3,425
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Revision No.
Control No. 1997-07-31-0012
Appendix A to Service Agreement No. 57449
Under Rate Schedule F T S
Between (Transporter) COLUMBIA GAS TRANSMISSION CORPORATION
and Shipper) ROANOKE GAS COMPANY
Transportation Demand 3,425 Dth/day
Primary Receipt Points
F
O
O
T
N
O
Scheduling Scheduling Measuring T Measuring Maximum Daily
Point No. Point Name Point No. E Point Name Quantity (Dth/Day)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
B 2 ROANOKE GAS COMPANY 802697 Gala/Roanoke 3,425
</TABLE>
<PAGE>
Revision No.
Control No. 1997-07-31-0012
Appendix A to Service Agreement No. 57449
Under Rate Schedule F T S
Between (Transporter) COLUMBIA GAS TRANSMISSION CORPORATION
and Shipper) ROANOKE GAS COMPANY
GFNT / THIS SERVICE AGREEMENT AND ITS EFFECTIVENESS ARE SUBJECT TO PRECEDENT
AGREEMENT (CONTROL NO. 970731-00111 BETWEEN BUYER AND SELLER BEING
EXECUTED CONCURRENTLY HEREWITH.
<PAGE>
Revision No.
Control No. 1997-07-31-0012
Appendix A to Service Agreement No. 57449
Under Rate Schedule F T S
Between (Transporter) COLUMBIA GAS TRANSMISSION CORPORATION
and Shipper) ROANOKE GAS COMPANY
The Master List of Interconnects (MLI) as defined in Section 1 of the General
Terms and Conditions of Transporter's Tariff is incorporated herein by reference
for the purposes of listing valid secondary interruptible receipt points and
delivery points.
Service changes pursuant to this Appendix A shall become effective as of
NOVEMBER 01, 1999, 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, III
-----------------------------------
Title: Vice President
-----------------------------------
Date: September 27, 1997
-----------------------------------
COLUMBIA GAS TRANSMISSION CORPORATION
By: s/Shawn E. Casey
-----------------------------------
Name: Shawn E. Casey
-----------------------------------
Title: Manager - Commercial Services
-----------------------------------
Date: September 29, 1997
-----------------------------------
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.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 31, 1998
Commission File No. 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)
(540) 777-4427
- ------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
None
- ------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class Outstanding at December 31, 1998
Common Stock, $5 Par Value 1,803,334 Shares
<PAGE>
<TABLE>
<CAPTION>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
UNAUDITED
- ---------
December 31, September 30,
ASSETS 1998 1998
====== --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
UTILITY PLANT:
Utility Plant in Service $ 71,489,278 $ 69,986,124
Accumulated Depreciation (25,154,260) (24,644,581)
--------------- --------------
Utility Plant in Service, Net 46,335,018 45,341,543
Construction Work-In-Progress 1,323,247 1,674,543
--------------- --------------
Utility Plant, Net 47,658,265 47,016,086
--------------- --------------
NONUTILITY PROPERTY:
Propane 11,533,716 10,188,124
Accumulated Depreciation (3,281,724) (3,059,870)
--------------- --------------
Nonutility Property, Net 8,251,992 7,128,254
--------------- --------------
CURRENT ASSETS:
Cash and Cash Equivalents 63,915 84,037
Accounts Receivable - (Less Allowance
for Uncollectibles of $489,121
and $368,345, Respectively) 9,857,172 3,051,474
Inventories 7,070,396 7,969,730
Prepaid Income Taxes - 712,687
Deferred Income Taxes 2,109,341 1,868,888
Other 518,790 451,027
--------------- --------------
Total Current Assets 19,619,614 14,137,843
--------------- --------------
OTHER ASSETS 878,171 852,737
--------------- --------------
TOTAL $ 76,408,042 $ 69,134,920
=============== ==============
See condensed notes to condensed consolidated financial statements.
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
UNAUDITED
- ---------
December 31, September 30,
LIABILITIES 1998 1998
=========== --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
CAPITALIZATION:
Stockholders' Equity:
Common Stock - Par Value $5; Authorized,
3,000,000 Shares; Issued and Outstanding
1,803,334 and 1,794,416 Shares, Respectively $ 9,016,670 $ 8,972,080
Capital in Excess of Par Value 9,039,054 8,909,145
Retained Earnings 9,052,764 8,583,356
--------------- --------------
Total Stockholders' Equity 27,108,488 26,464,581
Long-Term Debt (Less Current Maturities) 20,700,000 20,700,000
--------------- --------------
Total Capitalization 47,808,488 47,164,581
--------------- --------------
CURRENT LIABILITIES:
Notes Payable 10,174,000 4,584,000
Dividends Payable 487,352 476,140
Accounts Payable 7,856,339 6,968,594
Income Taxes Payable 22,828 -
Customers' Deposits 553,333 399,750
Accrued Expenses 4,066,983 4,224,693
Refunds From Suppliers - Due Customers 85,121 85,572
Purchased Gas Adjustments 1,353,206 1,269,829
--------------- --------------
Total Current Liabilities 24,599,162 18,008,578
--------------- --------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred Income Taxes 3,557,084 3,508,838
Deferred Investment Tax Credits 443,308 452,923
--------------- --------------
Total Deferred Credits and Other Liabilities 4,000,392 3,961,761
--------------- --------------
TOTAL $ 76,408,042 $ 69,134,920
=============== ==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE-MONTH PERIODS
ENDED DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------
UNAUDITED
- ---------
Three Months Ended
December 31,
1998 1997
--------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Gas utilities $ 14,029,259 $ 18,083,161
Propane operations 2,414,933 2,712,860
--------------- --------------
Total operating revenues 16,444,192 20,796,021
--------------- --------------
COST OF GAS:
Gas utilities 8,721,647 11,980,888
Propane operations 1,101,766 1,349,854
--------------- --------------
Total cost of gas 9,823,413 13,330,742
--------------- --------------
OPERATING MARGIN 6,620,779 7,465,279
--------------- --------------
OTHER OPERATING EXPENSES:
Gas utilities:
Other operations 1,960,828 1,939,223
Maintenance 308,721 312,053
Taxes - general 624,596 739,391
Taxes - income 405,254 638,173
Depreciation and amortization 753,718 711,880
Propane operations (including taxes - income of
$109,644 and $212,344, respectively) 1,122,948 1,052,614
--------------- --------------
Total other operating expenses 5,176,065 5,393,334
--------------- --------------
OPERATING EARNINGS 1,444,714 2,071,945
--------------- --------------
OTHER INCOME AND DEDUCTIONS:
Gas utilities:
Merchandising and jobbing, net 50,512 30,188
Other deductions (20,739) (26,642)
Taxes - income (10,449) (1,234)
Propane operations, net 39,666 63,508
--------------- --------------
Total other income and deductions 58,990 65,820
--------------- --------------
EARNINGS BEFORE INTEREST CHARGES 1,503,704 2,137,765
--------------- --------------
INTEREST CHARGES:
Gas utilities:
Long-term debt 392,160 389,345
Other interest 94,960 179,432
Propane operations 59,825 24,754
--------------- --------------
Total interest charges 546,945 593,531
--------------- --------------
NET EARNINGS 956,759 1,544,234
=============== ==============
BASIC AND DILUTED EARNINGS PER COMMON SHARE $0.53 $1.00
=============== ==============
CASH DIVIDENDS PER COMMON SHARE $0.270 $0.265
=============== ==============
See consolidated notes to condensed consolidated financial statements.
- ------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE-MONTH PERIODS
ENDED DECEMBER 31, 1998 AND 1997
- ------------------------------------------------------------------------------
UNAUDITED
- ---------
Three Months Ended
December 31,
1998 1997
--------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 956,759 $ 1,544,234
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,016,342 946,151
Gain on disposal of utility and nonutility property (1,652) -
Loss on sale of other assets - 566
Decrease in Deferred taxes and investment tax credits (201,822) (748,117)
Changes in assets and liabilities which used cash, exclusive of
changes and noncash transactions shown separately (4,297,501) (3,345,971)
--------------------- --------------------
Net cash used in operating activities (2,527,874) (1,603,137)
--------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant in service and under construction
and nonutility property (2,785,282) (2,257,297)
Cost of removal of utility plant, net (10,834) (20,603)
Proceeds from disposal of equipment 15,509 13,470
Proceeds from sale of other assets - 173,334
--------------------- --------------------
Net cash used in investing activities (2,780,607) (2,091,096)
--------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt - 1,700,000
Retirement of long-term debt and payments on obligations
under capital leases - (2,521,166)
Net borrowings under lines of credit 5,590,000 4,718,000
Cash dividends paid (476,140) (397,527)
Proceeds from issuance of stock 174,499 177,168
Capital stock expense - (7,142)
--------------------- --------------------
Net cash provided by financing activities 5,288,359 3,669,333
--------------------- --------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (20,122) (24,900)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 84,037 116,045
--------------------- --------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 63,915 91,145
===================== ====================
SUPPLEMENTAL INFORMATION:
Interest paid 890,153 798,008
Income taxes paid (refunded), net (8,346) 99,003
NONCASH TRANSACTIONS:
The assets of a propane company were acquired in 1997 in exchange for 34,317
shares of stock for a total value of $617,706 in December 1997.
See condensed notes to condensed consolidated financial statements
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------
UNAUDITED
- ---------
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly Roanoke Gas
Company's financial position as of December 31, 1998 and September 30,
1998, and the results of its operations and its cash flows for the three
months ended December 31, 1998 and 1997. The results of operations for the
three months ended December 31, 1998 are not indicative of the results to
be expected for the fiscal year ending September 30, 1999.
2. The condensed consolidated financial statements and condensed notes are
presented as permitted by Form 10-Q and do not contain certain information
included in the Company's annual consolidated financial statements and
notes thereto.
3. Quarterly earnings are affected by the highly seasonal nature of the
business as variations in weather conditions generally result in greater
earnings during the winter months.
4. In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities,
effective for all fiscal quarters of 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 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 from time to time into 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 FAS No. 133 on the Company's financial
statements.
5. The Company acquired the bulk propane assets of Four C's Enterprises,
Inc., a small propane company in West Virginia, on December 15, 1998. The
acquisition was accounted for by the purchase method of accounting with a
total purchase price of $408,000. Goodwill will be amortized on a
straight-line basis over a 15 year period.
6. Earnings per common share are based on the weighted average number of
shares outstanding during each period (1,800,690 and 1,542,418 for the
three-month periods ended December 31, 1998 and 1997, respectively) and
the weighted average number of shares outstanding assuming dilution
(1,803,582 and 1,547,476 for the three-month periods ended December 31,
1998 and 1997, respectively). The difference between the weighted average
number of shares relates to the dilutive effect of 2,892 and 5,058 shares
for the three-month periods ended December 31, 1998 and 1997 associated
with the assumed issuance of stock options as calculated using the
Treasury Stock method.
<PAGE>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------
UNAUDITED
- ---------
7. 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 is unknown at this time.
An analysis at 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 clean-up costs, 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 financial condition.
<PAGE>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
Results of Operations
Consolidated net earnings for the three-month period ended December 31,
1998 was $956,759 compared to $1,544,234 for the same period last year.
The operating margin decreased $844,500, or 11.3 percent, in the current quarter
from the same period last year due to sharply warmer weather. The weather was
unusually mild in November and December with temperatures averaging 24 percent
warmer than for the same quarter last year. As a result of the weather, total
natural gas deliveries decreased by 617,660 MCF, or 17 percent. Propane
deliveries declined by 92,444 gallons, or 3.5 percent, as the impact of the
weather was mitigated by a 29 percent increase in the number of propane
customers from the same quarter last year. The impressive customer growth has
been achieved through an aggressive marketing campaign and from the addition of
customers resulting from the propane company acquisition completed in December
1998.
Other operations expenses and maintenance expenses for the current quarter were
comparable to the same period last year. Increases in benefit costs were offset
by declines in bad debt and other expenses. General taxes declined 15.5 percent
from last year as revenue-sensitive taxes followed a 21 percent decline in
revenues. Capital expenditures for adding new customers to the natural gas
distribution system and renewing older facilities have increased depreciation
expense over last year's levels. Propane operations reflected a modest increase
in expenses of $70,334, or 6.7 percent with increases in depreciation, marketing
expenses and property taxes resulting from the exceptional growth in customers
in the Company's propane subsidiary. Interest charges decreased as the Company's
average total debt position and average effective interest rate for the quarter
decreased due to the equity issue in January 1998 and long-term debt refinancing
also completed last year.
The three-month earnings presented herein should not be considered as reflective
of the Company's consolidated financial results for the fiscal year ending
September 30, 1999. The total revenues during the first three months reflect
higher billings due to the weather sensitive nature of the gas business.
Improvement or decline in earnings depends primarily on temperature and weather
conditions during the remaining winter months. Furthermore, as the warm weather
has significantly impacted the first quarter's results of operations, management
is implementing a major expense reduction program over the remaining nine
months. All nonessential expense budgets have been reduced or eliminated with a
strong emphasis on using expense reductions to help offset the impact of
weather. Critical operations and safety will remain a top priority.
On December 15, 1998, the Company completed the acquisition of the bulk propane
assets of Four C's Enterprises, Inc., a small propane company located in West
Virginia. The acquisition, accounted for under the purchase method of
accounting, added 388 customers to the propane operations.
<PAGE>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
Regulatory Affairs
The Company has one rate case application pending before regulatory bodies.
Roanoke Gas Company filed an application with the Virginia State Corporation
Commission on September 30, 1998, requesting an annual increase in non-gas rates
of $877,000. New rates will be placed into effect on March 1, 1999, subject to
refund. A hearing on the rate case is scheduled for April 1999 with a final
order expected in late 1999.
In the federal regulatory arena, 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.
The West Virginia Public Service Commission has approved the reorganization
based upon an administrative law judge's approval on January 7, 1999. The
Virginia State Corporation Commission issued a final order on January 11, 1999
approving the requested merger and reorganization. The Securities and Exchange
Commission approved the Company's S-4 filing on January 28, 1999. The S-4 is a
required exhibit to the U-1 filing. The only remaining item required is
shareholder approval of the reorganization.
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.
<PAGE>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
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 place to upgrade the remaining
internal system applications by the spring of 1999. Most 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. 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, remains 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 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 contingency 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 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 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
<PAGE>
ROANOKE GAS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
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 on 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 year to complete its Year 2000 readiness plan.
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
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 is unknown at this time. An analysis at 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 site. 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. A stipulated rate case agreement between the Company and
the West Virginia Public Service Commission recognized the Company's right to
defer MGP clean-up costs, 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 financial condition.
<PAGE>
Part II - Other Information
Item 2. Changes in Securities.
Pursuant to the Roanoke Gas Company Restricted Stock Plan for Outside
Directors (the "Restricted Stock Plan"), 40% of the monthly retainer
fee of each non-employee director of the Company is paid in shares of
unregistered common stock and is subject to vesting and transferability
restrictions ("restricted stock"). A participant can, subject to
approval of the Board, elect to receive up to 100% of his retainer fee
in restricted stock. The number of shares of restricted stock is
calculated each month based on the closing sales price of the Company's
common stock on the Nasdaq-NMS on the first day of the month. The
shares of restricted stock are issued in reliance on section 3(a)(11)
and section 4(2) exemptions under the Securities Act of 1993 (the
"Act") and will vest only in the case of the participant's death,
disability, retirement or in the event of a change in control of the
Company. Shares of restricted stock will be forfeited to the Company by
the participant's voluntary resignation during his term on the Board or
removal for cause as a director. During the quarter ended December 31,
1998, the Company issued a total of 410 shares of restricted stock
pursuant to the Restricted Stock Plan as follows:
Investment Date Price Number of Shares
10-1-98 $20.000 135
11-1-98 $19.250 140
12-1-98 $20.063 135
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months
ended December 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
ROANOKE GAS COMPANY
Date: February 9, 1999 By: s/Roger L. Baumgardner
Roger L. Baumgardner
Vice President/Secretary, Treasurer
And Principal Accounting Officer
<PAGE>
TYPE EX-27
DESCRIPTION FDS --
TEXT
ARTICLE UT
LEGEND
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMAITON EXTRACTED FROM ROANOKE
GAS COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT FOR THE
QUARTER ENDED DECEMBER 31, 1998, AS SET FORTH IN THE COMPANY'S QUARTERLY REPORT
ON FORM 10-Q, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
/LEGEND
<TABLE>
<S> <C>
PERIOD-TYPE 3-MOS
FISCAL-YEAR-END SEP-30-1999
PERIOD-END DEC-31-1998
BOOK-VALUE PER-BOOK
TOTAL-NET-UTILITY-PLANT 47,658,265
OTHER-PROPERTY-AND-INVEST 8,251,992
TOTAL-CURRENT-ASSETS 19,619,614
TOTAL-DEFERRED-CHARGES 0
OTHER-ASSETS 878,171
TOTAL-ASSETS 76,408,042
COMMON 9,016,670
CAPITAL-SURPLUS-PAID-IN 9,039,054
RETAINED-EARNINGS 9,052,764
TOTAL-COMMON-STOCKHOLDERS-EQ 27,108,488
PREFERRED-MANDATORY 0
PREFERRED 0
LONG-TERM-DEBT-NET 20,700,000
SHORT-TERM-NOTES 10,174,000
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 18,425,554
TOT-CAPITALIZATION-AND-LIAB 76,408,042
GROSS-OPERATING-REVENUE 16,444,192
INCOME-TAX-EXPENSE 405,254
OTHER-OPERATING-EXPENSES 14,594,224
TOTAL-OPERATING-EXPENSES 14,999,478
OPERATING-INCOME-LOSS 1,444,714
OTHER-INCOME-NET 58,990
INCOME-BEFORE-INTEREST-EXPEN 1,503,704
TOTAL-INTEREST-EXPENSE 546,945
NET-INCOME 956,759
PREFERRED-STOCK-DIVIDENDS 0
EARNINGS-AVAILABLE-FOR-COMM 956,759
COMMON-STOCK-DIVIDENDS 487,352
TOTAL-INTEREST-ON-BONDS 110,938
CASH-FLOW-OPERATIONS (2,527,874)
EPS-PRIMARY 0.53
EPS-DILUTED 0.53
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1999
Commission File No. 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)
(540) 777-4427
- -------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
None
- -------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if
Changed Since Last Report)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class Outstanding at March 31, 1999
Common Stock, $5 Par Value 1,813,041 Shares
<PAGE>
<TABLE>
<CAPTION>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
UNAUDITED
March 31, September 30,
ASSETS 1999 1998
======
--------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
UTILITY PLANT:
Utility Plant in Service $72,435,457 $69,986,124
Accumulated Depreciation (25,521,967) (24,644,581)
--------------- ---------------
Utility Plant in Service, Net 46,913,490 45,341,543
Construction Work-In-Progress 1,178,485 1,674,543
--------------- ---------------
Utility Plant, Net 48,091,975 47,016,086
--------------- ---------------
NONUTILITY PROPERTY:
Propane 12,436,618 10,188,124
Accumulated Depreciation (3,504,617) (3,059,870)
--------------- ---------------
Nonutility Property, Net 8,932,001 7,128,254
--------------- ---------------
CURRENT ASSETS:
Cash and Cash Equivalents 546,620 84,037
Accounts Receivable - (Less Allowance
for Uncollectibles of $761,327
and $202,652, Respectively) 10,178,811 3,051,474
Inventories 3,068,187 7,969,730
Prepaid Income Taxes - 712,687
Deferred Income Taxes 2,676,179 1,868,888
Purchased Gas Adjustments - -
Other 433,043 451,027
--------------- ---------------
Total Current Assets 16,902,840 14,137,843
--------------- ---------------
OTHER ASSETS 1,001,513 852,737
--------------- ---------------
TOTAL $74,928,329 $69,134,920
=============== ===============
</TABLE>
See condensed notes to condensed consolidated financial statements.
- ------------------------------------------------------------------------------
2
<PAGE>
<TABLE>
<CAPTION>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------
UNAUDITED
March 31, September 30,
LIABILITIES 1999 1998
===========
------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
CAPITALIZATION:
Stockholders' Equity:
Common Stock - Par Value $5; Authorized,
3,000,000 Shares; Issued and Outstanding
1,813,041 and 1,794,416 Shares, Respectively $ 9,065,205 $ 8,972,080
Capital in Excess of Par Value 9,184,498 8,909,145
Retained Earnings 11,253,549 8,583,356
------------------ ------------------
Total Stockholders' Equity 29,503,252 26,464,581
Long-Term Debt (Less Current Maturities) 20,840,843 20,700,000
------------------ ------------------
Total Capitalization 50,344,095 47,164,581
------------------ ------------------
CURRENT LIABILITIES:
Current Maturities of Long-Term Debt 22,883 -
Notes Payable 4,213,000 4,584,000
Dividends Payable 490,152 476,140
Accounts Payable 5,215,456 6,968,594
Income Taxes Payable 2,142,885 -
Customers' Deposits 585,621 399,750
Accrued Expenses 4,936,575 4,224,693
Refunds From Suppliers - Due Customers 48,719 85,572
Purchased Gas Adjustments 2,890,056 1,269,829
------------------ ------------------
Total Current Liabilities 20,545,347 18,008,578
------------------ ------------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred Income Taxes 3,605,194 3,508,838
Deferred Investment Tax Credits 433,693 452,923
------------------ ------------------
Total Deferred Credits and Other Liabilities 4,038,887 3,961,761
------------------ ------------------
TOTAL $74,928,329 $69,134,920
================== ==================
</TABLE>
See condensed notes to condensed consolidated financial statements.
- -------------------------------------------------------------------------------
3
<PAGE>
<TABLE>
<CAPTION>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE-MONTH AND SIX-MONTH PERIODS
ENDED MARCH 31, 1999 AND 1998
- -----------------------------------------------------------------------------------------------------------------------------
UNAUDITED
Three Months Ended Six Months Ended
March 31, March 31,
1999 1998 1999 1998
----------------- ------------------ ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Gas utilities $19,092,546 $18,619,490 $33,121,805 $36,702,651
Propane operations 3,935,263 3,130,843 6,350,196 5,843,703
----------------- ------------------ ---------------- ---------------
Total operating revenues 23,027,809 21,750,333 39,472,001 42,546,354
----------------- ------------------ ---------------- ---------------
COST OF GAS:
Gas utilities 12,042,015 11,763,128 20,763,662 23,744,016
Propane operations 1,695,103 1,482,679 2,796,869 2,832,533
----------------- ------------------ ---------------- ---------------
Total cost of gas 13,737,118 13,245,807 23,560,531 26,576,549
----------------- ------------------ ---------------- ---------------
OPERATING MARGIN 9,290,691 8,504,526 15,911,470 15,969,805
----------------- ------------------ ---------------- ---------------
OTHER OPERATING EXPENSES:
Gas utilities:
Other operations 1,767,255 2,058,056 3,728,083 3,997,279
Maintenance 183,067 330,660 491,788 642,713
Taxes - general 772,998 803,052 1,397,594 1,542,443
Taxes - income 1,071,466 846,912 1,476,720 1,485,085
Depreciation and amortization 767,390 713,802 1,521,108 1,425,682
Propane operations (including taxes -
income of $416,342, $320,812, $525,986
and $533,156, respectively 1,525,555 1,089,463 2,648,503 2,142,077
----------------- ------------------ ---------------- ---------------
Total other operating expenses 6,087,731 5,841,945 11,263,796 11,235,279
----------------- ------------------ ---------------- ---------------
OPERATING EARNINGS 3,202,960 2,662,581 4,647,674 4,734,526
----------------- ------------------ ---------------- ---------------
OTHER INCOME AND DEDUCTIONS:
Gas utilities:
Interest Income 96 919 96 919
Merchandising and jobbing, net 25,322 41,915 75,834 72,103
Other deductions (22,119) (25,071) (42,858) (51,713)
Taxes - income (3,293) (6,031) (13,742) (7,265)
Propane operations, net 21,086 4,908 60,752 68,416
----------------- ------------------ ---------------- ---------------
Total other income and deductions 21,092 16,640 80,082 82,460
----------------- ------------------ ---------------- ---------------
EARNINGS BEFORE INTEREST CHARGES 3,224,052 2,679,221 4,727,756 4,816,986
----------------- ------------------ ---------------- ---------------
INTEREST CHARGES:
Gas utilities:
Long-term debt 391,635 388,602 783,795 777,947
Other interest 72,446 125,183 167,406 304,615
Propane operations 69,034 41,972 128,859 66,726
----------------- ------------------ ---------------- ---------------
Total interest charges 533,115 555,757 1,080,060 1,149,288
----------------- ------------------ ---------------- ---------------
NET EARNINGS $ 2,690,937 $ 2,123,464 $ 3,647,696 $ 3,667,698
================= ================== ================ ===============
BASIC EARNINGS PER COMMON SHARE $ 1.49 $ 1.24 $ 2.02 $ 2.26
================= ================== ================ ===============
DILUTED EARNINGS PER COMMON SHARE $ 1.48 $ 1.24 $ 2.02 $ 2.25
================= ================== ================ ===============
CASH DIVIDENDS PER COMMON SHARE $ 0.270 $ 0.265 $ 0.540 $ 0.530
================= ================== ================ ===============
</TABLE>
See condensed notes to condensed consolidated financial statements.
- ------------------------------------------------------------------------------
4
<PAGE>
<TABLE>
<CAPTION>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE-MONTH AND SIX-MONTH
PERIODS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------------------------------------------------------
UNAUDITED
Three Months Ended Six Months Ended
March 31, March 31,
1999 1998 1999 1998
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,690,937 $ 2,123,464 $ 3,647,696 $ 3,667,698
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,029,871 830,432 2,046,213 1,776,583
(Gain) loss on disposal of property (857) 8,109 (2,509) 8,109
Loss on sale of other assets - - - 566
Deferred taxes and investment tax credits (528,343) (987,196) (730,165) (1,735,313)
Changes in assets and liabilities which provided
cash, exclusive of changes and noncash
transactions shown separately 5,524,480 7,207,029 1,226,979 3,861,058
--------------- --------------- --------------- --------------
Net cash provided by operating activities 8,716,088 9,181,838 6,188,214 7,578,701
--------------- --------------- --------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant and nonutility property (1,965,933) (1,850,975) (4,751,215) (4,108,272)
Cost of removal of utility plant, net (19,376) (11,815) (30,210) (32,418)
Proceeds from disposal of equipment 6,300 8,147 21,809 21,617
Proceeds from sale of other assets - - - 173,334
--------------- --------------- --------------- --------------
Net cash used in investing activities (1,979,009) (1,854,643) (4,759,616) (3,945,739)
--------------- --------------- --------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt - - - 1,700,000
Retirement of long-term debt and capital leases - (342,811) - (2,863,977)
Net repayments under lines of credit (5,961,000) (9,767,000) (371,000) (5,049,000)
Cash dividends paid (487,353) (417,226) (963,493) (814,753)
Proceeds from issuance of stock 193,979 3,847,461 368,478 4,024,629
Capital stock expense - (238,572) - (245,714)
--------------- --------------- --------------- --------------
Net cash used in financing activities (6,254,374) (6,918,148) (966,015) (3,248,815)
--------------- --------------- --------------- --------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 482,705 409,047 462,583 384,147
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 63,915 91,145 84,037 116,045
--------------- --------------- --------------- --------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 546,620 $ 500,192 $ 546,620 $ 500,192
=============== =============== =============== ==============
SUPPLEMENTAL INFORMATION:
Interest paid $ 170,011 $ 656,044 $ 1,060,164 $ 1,454,052
Income taxes paid (refunded), net $ (100,613) $ 1,161,620 $ (108,959) $ 1,260,623
NONCASH TRANSACTIONS:
</TABLE>
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.
A capital lease obligation of $163,727 was incurred when the Company entered
into an equipment lease in February 1999.
5
<PAGE>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------
UNAUDITED
- ---------
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly Roanoke Gas
Company's (the Company) financial position as of March 31, 1999 and
September 30, 1998, and the results of its operations and its cash flows
for the three and six months ended March 31, 1999 and 1998. The results
of operations for the six months ended March 31, 1999 are not indicative
of the results to be expected for the fiscal year ending September 30,
1999.
2. The condensed consolidated financial statements and condensed notes are
presented as permitted by Form 10-Q and do not contain certain
information included in the Company's annual consolidated financial
statements and notes thereto.
3. Quarterly earnings are affected by the highly seasonal nature of the
business as variations in weather conditions generally result in greater
earnings during the winter months.
4. In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities,
effective for all fiscal quarters of 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 FAS No.
133 on the Company's financial statements.
5. Earnings per common share are based on the weighted average number of
shares outstanding during each period. The weighted average number of
shares outstanding for the three-month and six-month periods ended March
31, 1999 were 1,809,707 and 1,805,149 compared to 1,708,016 and
1,624,307 for the same periods last year. The weighted average number of
shares outstanding assuming dilution were 1,813,547 and 1,808,522 for
the three-month and six-month periods ended March 31, 1999 compared to
1,716,315 and 1,630,695 for the same periods last year. The difference
between the
6
<PAGE>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------
UNAUDITED
- ---------
weighted average number of shares for the calculation of basic and
diluted earnings per share relates to the dilutive effect associated
with the assumed issuance of stock options as calculated using the
Treasury Stock method.
6. 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 is unknown at this
time. An analysis at 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 clean-up costs,
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 financial condition.
7. See Management's Discussion and Analysis for discussion of pending
reorganization of the Company into a holding company with three
subsidiaries.
7
<PAGE>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
Results of Operations
Consolidated net earnings for the three-month period and six-month periods ended
March 31, 1999 were $2,690,937 and $3,647,696 compared to $2,123,464 and
$3,667,698 for the same period last year.
Operating margin for the three months ended March 31, 1999 increased $786,165,
or 9.2 percent, over the same period last year due to increases in delivered gas
volumes. Total natural gas deliveries increased by 94,390 MCF, or 2 percent.
Customer growth and weather that was 4 percent colder than the same period last
year accounted for the increase in volume. Propane deliveries increased by
886,354 gallons, or 29 percent, due to an ongoing aggressive marketing campaign
that continues to add new customers in the propane division and from the
addition of customers resulting from the propane acquisition completed in
December 1998. Total propane customer base has increased by 31 percent since
last March.
Other operations and maintenance expenses for the current quarter declined from
the same period last year as the Company implemented expense reductions in
response to the warm winter. Reductions occurred in non-essential areas of
operations and maintenance including office expenses, travel, professional
services and support services. Furthermore, the Company redirected its
maintenance program from repair to replacement where applicable. This change
allowed for expense reductions and served to complement the Company's renewal
program. As a result of the changes, total payroll and benefits charged to
operations and maintenance declined $194,542 from the same period last year as
more labor was utilized for capital projects and to assist propane operations.
General taxes declined for the current quarter compared to the same period last
year with most of the decrease associated with the capitalization of more
payroll taxes associated with more capital labor. Capital expenditures for
adding new customers to the distribution system and replacement of older
facilities have increased depreciation expense over last year's levels. Propane
operations expense experienced a $436,092 increase over the same period last
year with increases in propane delivery costs, marketing expenses, benefit
costs, management allocations and depreciation resulting from the exceptional
growth in customers and sales volumes in the Company's propane subsidiary.
Interest charges declined slightly from the same period last year due to the
refinancing of Series K and L First Mortgage debt last year in addition to
reductions in short-term interest rates during the current quarter.
8
<PAGE>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
For the six-month period ended March 31, 1999, operating margins decreased
$58,335, or 0.4 percent, from the same period last year. Natural gas deliveries
fell by 523,270 MCF, or 6.7 percent, from the same period last year, as weather
was 9.2 percent warmer. During the same period, propane volumes increased
793,910 gallons, or 13.8 percent. Customer growth has served to mitigate the
impact of the weather on propane gallons. As discussed above, growth in the
propane division continues to be a significant factor in the Company's
performance.
For the six-month period ended March 31, 1999, operations and maintenance
expenses declined $420,121 from the same period last year. These declines
correspond to the expense reductions discussed above. General taxes declined
$144,849 from the same period last year as revenue sensitive taxes decreased on
reduced natural gas revenues. The increase of $95,426 in depreciation
corresponds with the increases in capital additions. Propane operations expense
increased by $506,426 compared to the same period last year. The growth in the
customer base of propane has demanded more of the Company's resources to
properly serve the customers. Interest charges for the six-month period ended
March 31, 1999 as compared to the same period last year, are consistent with
differences defined above for the quarter.
The six-month earnings presented herein should not be considered as reflective
of the Company's consolidated financial results for the fiscal year ending
September 30, 1999. The total revenues during the first six months reflect
higher billings due to the weather sensitive nature of the gas business.
Improvement or decline in earnings depends primarily on temperature and weather
conditions during the remaining months. Furthermore, management will continue
with the austerity program by continuing to reduce budgets on all nonessential
operations. Critical operations and safety will remain a top priority, including
the Company's efforts to address the Year 2000 issue.
Regulatory Affairs
The Company currently has two rate case applications pending before regulatory
bodies. In Virginia, Roanoke Gas Company entered into a Stipulation with both
the Virginia State Corporation Commission Staff and the Office of the Attorney
General providing for an annual increase of approximately $433,500 in gross
revenues. All issues in the rate application were settled except for the
implementation of a surcharge to recover the carrying cost and depreciation on
non-revenue producing investment in distribution plant. The settlement is
subject to Commission approval. After the filing of the Stipulation, the Company
filed and received
9
<PAGE>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
approval of a motion to implement the settlement rates in May of 1999 and to
provide refunds dating back to February 28, 1999 when interim rates went into
effect. The Company has established reserves for the estimated refund in this
case. A final order is expected in late summer of this year.
In West Virginia, Bluefield Gas Company filed for a rate increase of $127,000.
The case is still in the early stages and testimony will be filed in April and
May with the hearing set for June. Rates from this proceeding are scheduled to
become effective on December 1, 1999.
In the federal regulatory arena, 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.
The West Virginia Public Service Commission has approved the reorganization
based upon an administrative law judge's approval on January 7, 1999. The
Virginia State Corporation Commission issued a final order on January 11, 1999
approving the requested merger and reorganization. The Securities and Exchange
Commission approved the Company's S-4 filing on January 28, 1999. The Company's
shareholders approved the reorganization at the Company's annual stockholders'
meeting held on March 31, 1999. The SEC issued its order authorizing the
acquisition of common stock of gas utility companies on April 1, 1999. The
reorganization is expected to be completed during the fourth quarter of fiscal
year 1999. Immediately following the reorganization, RGC Resources will file an
exemption statement to exempt itself and its subsidiaries from all provisions of
the Public Utility Holding Company Act, except with respect to certain
acquisitions and investments, under the "intrastate" exemption in Section
3(a)(1).
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
10
<PAGE>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
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 remediation and conversions,
system testing and contingency planning.
The Company has conducted an extensive inventory to identify and categorize all
of its internal systems that 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 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. Most systems that have been upgraded have been in
production for a minimum of ten months. There is a plan in place to upgrade the
remaining internal system applications by the spring of 1999. 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. 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, remains 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. The Company believes that most of its vendors,
suppliers and major customers are dedicated to the problem with intentions of
completing their efforts in a timely manner. Employee awareness and planning are
a top priority of the Company's Year 2000 Task Force.
11
<PAGE>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
The Company added a segregated test environment that included a second
AS/400 in 1998 and an additional network file server. This will not only help
facilitate the implementation of the new CIS system, but will also allow for
more thorough Year 2000 testing. The segregated test environment also upgrades
the Company's Disaster Recovery Planning by enabling an internal recovery
hot-site.
The Company is developing a contingency 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 contingency plans will
be developed and documented by the summer of 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 its Year 2000
compliance status. Likewise, the Company has held discussions with large-volume
customers concerning its Year 2000 issues.
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 year to complete its Year 2000 readiness plan.
12
<PAGE>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
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
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 is unknown at this time. An analysis at 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 site. 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. A stipulated rate case agreement between the Company and
the West Virginia Public Service Commission recognized the Company's right to
defer MGP clean-up costs, 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 financial condition.
13
<PAGE>
Part II - Other Information
Item 2. Changes in Securities.
Pursuant to the Roanoke Gas Company Restricted Stock Plan for Outside
Directors (the "Restricted Stock Plan"), 40% of the monthly retainer
fee of each non-employee director of the Company is paid in shares of
unregistered common stock and is subject to vesting and
transferability restrictions ("restricted stock"). A participant can,
subject to approval of the Board, elect to receive up to 100% of his
retainer fee in restricted stock. The number of shares of restricted
stock is calculated each month based on the closing sales price of
the Company's common stock on the Nasdaq-NMS on the first day of the
month. The shares of restricted stock are issued in reliance on
section 3(a)(11) and section 4(2) exemptions under the Securities Act
of 1993 (the "Act") and will vest only in the case of the
participant's death, disability, retirement or in the event of a
change in control of the Company. Shares of restricted stock will be
forfeited to the Company by the participant's voluntary resignation
during his term on the Board or removal for cause as a director.
During the quarter ended March 31, 1999, the Company issued a total
of 422 shares of restricted stock pursuant to the Restricted Stock
Plan as follows:
Investment Date Price Number of Shares
---------- ---------- ----------------
1-1-99 $19.750 136.708
2-1-99 $19.750 146.835
3-1-99 $21.000 138.098
On March 31, 1999, the Company also issued the 213.429 shares of its
common stock as bonuses to certain employees and management personnel
as rewards for perfect attendance and performance. The 213.429 shares
were not issued in a transaction constituting a "sale" within the
meaning of section 2(3) of the Act.
Item 4. Submission of Matters to a Vote of Security Holders
On March 31, 1999, the Company held its Annual Meeting of
Shareholders. At the meeting, Lynn D. Avis, J. Allen Layman and
Thomas L. Robertson were each re-elected as Class B directors until
the Annual Meeting of Shareholders to be held in 2002. For Lynn D.
Avis, 1,623,812 votes were cast in favor, and 14,031 votes were
withheld. For J. Allen Layman, 1,623,598 votes were cast in favor,
and 14,245 votes were withheld. For Thomas L. Robertson, 1,619,396
votes were cast in favor, and 18,447 votes were withheld. There were
no broker non-votes.
The shareholders also approved the terms of the Agreement and Plan of
Merger and Reorganization, as set forth in the Company's proxy
statement dated February 5,
14
<PAGE>
1999. 1,336,357 votes were cast in favor, 48,800 were voted against,
16,9191 abstained. There were 234,766 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three
months ended March 31, 1999.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROANOKE GAS COMPANY
Date: May 14, 1999 By: s/Roger L. Baumgardner
------------------------------------------
Roger L. Baumgardner
Vice President/Secretary, Treasurer
And Principal Accounting Officer
16
<PAGE>
TYPE EX-27
DESCRIPTION FDS --
TEXT
ARTICLE UT
LEGEND
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMAITON EXTRACTED FROM ROANOKE
GAS COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT FOR THE
QUARTER ENDED MARCH 31, 1999, AS SET FORTH IN THE COMPANY'S QUARTERLY REPORT
ON FORM 10-Q, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
/LEGEND
<TABLE>
<S> <C>
PERIOD-TYPE 3-MOS
FISCAL-YEAR-END SEP-30-1999
PERIOD-END MAR-31-1999
BOOK-VALUE PER-BOOK
TOTAL-NET-UTILITY-PLANT 48,091,975
OTHER-PROPERTY-AND-INVEST 8,932,001
TOTAL-CURRENT-ASSETS 16,902,840
TOTAL-DEFERRED-CHARGES 0
OTHER-ASSETS 1,001,513
TOTAL-ASSETS 74,928,329
COMMON 9,065,205
CAPITAL-SURPLUS-PAID-IN 9,184,498
RETAINED-EARNINGS 11,253,549
TOTAL-COMMON-STOCKHOLDERS-EQ 29,503,252
PREFERRED-MANDATORY 0
PREFERRED 0
LONG-TERM-DEBT-NET 20,840,843
SHORT-TERM-NOTES 4,213,000
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 22,883
OTHER-ITEMS-CAPITAL-AND-LIAB 20,348,351
TOT-CAPITALIZATION-AND-LIAB 74,928,329
GROSS-OPERATING-REVENUE 39,472,001
INCOME-TAX-EXPENSE 1,476,720
OTHER-OPERATING-EXPENSES 33,347,607
TOTAL-OPERATING-EXPENSES 34,824,327
OPERATING-INCOME-LOSS 4,647,674
OTHER-INCOME-NET 80,082
INCOME-BEFORE-INTEREST-EXPEN 4,727,756
TOTAL-INTEREST-EXPENSE 1,080,060
NET-INCOME 3,647,696
PREFERRED-STOCK-DIVIDENDS 0
EARNINGS-AVAILABLE-FOR-COMM 3,647,696
COMMON-STOCK-DIVIDENDS 977,504
TOTAL-INTEREST-ON-BONDS 221,875
CASH-FLOW-OPERATIONS 6,188,214
EPS-PRIMARY 2.02
EPS-DILUTED 2.02
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 31, 1998
Commission File Number 070-09391
RGC Resources, Inc.
- -----------------------------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
VIRGINIA 54-1909697
- ------------------------------------------------------------------------------
(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)
(540) 777-4427
- ------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
None
- ------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class Outstanding at December 31, 1998
Common Stock, $5 Par Value 10
<PAGE>
<TABLE>
<CAPTION>
RGC RESOURCES, INC.
- -------------------
CONDENSED BALANCE SHEET
- ------------------------------------------------------------------------------
UNAUDITED
- ---------
December 31, September 30,
ASSETS 1998 1998
======
---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
OTHER ASSETS $ 80,035 $ 39,989
---------------- ----------------
TOTAL $ 80,035 $ 39,989
================ ================
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30,
LIABILITIES 1998 1998
===========
---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT LIABILITIES:
Accounts Payable - Parent $ 79,985 $ 39,939
---------------- ----------------
Total Current Liabilities 79,985 39,939
---------------- ----------------
Stockholders' Equity:
Common Stock - Par Value $5;
Authorized 10,000,000 Shares; Issued
and Outstanding 10 Shares 50 50
---------------- ----------------
Total Stockholders' Equity 50 50
---------------- ----------------
TOTAL $ 80,035 $ 39,989
================ ================
</TABLE>
See condensed notes to condensed financial statements.
- -------------------------------------------------------------------------------
-1-
<PAGE>
RGC RESOURCES, INC.
- -------------------
CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS
- -------------------------------------------------
UNAUDITED
- ---------
1. Roanoke Gas Company filed a Form U-1 with the Securities and Exchange
Commission on October 16, 1998, seeking approval to reorganize Roanoke
Gas Company, Bluefield Gas Company and Diversified Energy Company into
subsidiaries of RGC Resources, Inc. Currently, Bluefield Gas Company,
Diversified Energy Company and RGC Resources, Inc. are subsidiaries of
Roanoke Gas Company. The Company expects a decision from the Securities
and Exchange Commission regarding the Form U-1 in the Spring of 1999.
The Securities and Exchange Commission approved RGC Resources, Inc.'s
S-4 filing on January 28, 1999. The West Virginia Public Service
Commission has approved the reorganization based upon an administrative
law judge's approval on January 7, 1999. The Virginia State Corporation
Commission issued a final order on January 11, 1999 approving the
requested merger and reorganization. The reorganization must be approved
by more than two-thirds of the shareholders at Roanoke Gas Company's
annual meeting on March 31, 1999.
The principal reasons for the proposed reorganization are to create a
corporate 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 additional flexibility for financing.
2. 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.
3. The only transactions incurred by RGC Resources, Inc. for the
three-month period ended December 31, 1998 relate to the costs incurred
to organize the Company. Roanoke Gas Company has paid all costs incurred
to date related to the formation of RGC Resources, Inc., with RGC
Resources, Inc. recording a payable due Roanoke Gas Company in the
amount of $79,985.
<PAGE>
RGC RESOURCES, INC.
- -------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ---------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
Results of Operations and Financial Condition
All activity of RGC Resources, Inc. pertains to the required regulatory filings
to establish the company and obtain approval for the related reorganization.
Furthermore, all costs have been paid by Roanoke Gas Company with a related
payable established by RGC Resources, Inc.
Regulatory Affairs
The Securities and Exchange Commission approved RGC Resources, Inc.'s S-4 filing
on January 28, 1999. The West Virginia Public Service Commission has approved
the reorganization based upon an administrative law judge's approval on January
7, 1999. The Virginia State Corporation Commission issued a final order on
January 11, 1999 approving the requested merger and reorganization. The
reorganization must be approved by more than two-thirds of the shareholders at
Roanoke Gas Company's annual meeting on March 31, 1999. In addition, the SEC
must approve the Form U-1 filed on October 16, 1998 seeking approval of the
reorganization.
<PAGE>
Part II - Other Information
Item 6. Exhibits and Report on Form 8-K.
(a) Exhibits
Exhibits 27 - Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three
months ended December 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RGC Resources, Inc.
Date: March 18, 1999 By: s/Roger L. Baumgardner
--------------------------------
Roger L. Baumgardner
Vice President/Secretary and
Treasurer
<PAGE>
TYPE EX-27
DESCRIPTION FDS --
TEXT
ARTICLE UT
LEGEND
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMAITON EXTRACTED FROM RGC
RESOURCES, INC. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT FOR THE
QUARTER ENDED DECEMBER 31, 1998, AS SET FORTH IN THE COMPANY'S QUARTERLY REPORT
ON FORM 10-Q, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
/LEGEND
<TABLE>
<S> <C>
PERIOD-TYPE 3-MOS
FISCAL-YEAR-END SEP-30-1999
PERIOD-END DEC-31-1998
BOOK-VALUE PER-BOOK
TOTAL-NET-UTILITY-PLANT 0
OTHER-PROPERTY-AND-INVEST 0
TOTAL-CURRENT-ASSETS 0
TOTAL-DEFERRED-CHARGES 0
OTHER-ASSETS 80,035
TOTAL-ASSETS 80,035
COMMON 50
CAPITAL-SURPLUS-PAID-IN 0
RETAINED-EARNINGS 0
TOTAL-COMMON-STOCKHOLDERS-EQ 50
PREFERRED-MANDATORY 0
PREFERRED 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
PREFERRED-STOCK-CURRENT 0
CAPITAL-LEASE-OBLIGATIONS 0
LEASES-CURRENT 0
OTHER-ITEMS-CAPITAL-AND-LIAB 79,985
TOT-CAPITALIZATION-AND-LIAB 80,035
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
PREFERRED-STOCK-DIVIDENDS 0
EARNINGS-AVAILABLE-FOR-COMM 0
COMMON-STOCK-DIVIDENDS 0
TOTAL-INTEREST-ON-BONDS 0
CASH-FLOW-OPERATIONS 0
EPS-PRIMARY 0.00
EPS-DILUTED 0.00
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1999
Commission File Number 070-09391
RGC Resources, Inc.
- ------------------------------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
VIRGINIA 54-1909697
- ------------------------------------------------------------------------------
(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)
(540) 777-4427
- ------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
None
- ------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if
Changed Since Last Report)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class Outstanding at March 31, 1999
Common Stock, $5 Par Value 10
<PAGE>
<TABLE>
<CAPTION>
RGC RESOURCES, INC.
CONDENSED BALANCE SHEET
- -----------------------------------------------------------------------------
UNAUDITED
March 31, September 30,
ASSETS 1999 1998
====== -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OTHER ASSETS $ 112,331 $ 39,989
-------------- -------------
TOTAL $ 112,331 $ 39,989
============== =============
March 31, September 30,
LIABILITIES 1999 1998
===========
-------------- -------------
CURRENT LIABILITIES:
Accounts Payable - Parent $ 112,281 $ 39,939
-------------- -------------
Total Current Liabilities 112, 281 39,939
-------------- -------------
Stockholders' Equity:
Common Stock - Par Value $5;
Authorized 10,000,000 Shares; Issued
and Outstanding 10 Shares 50 50
-------------- -------------
Total Stockholders' Equity 50 50
-------------- -------------
TOTAL $ 112,281 $ 39,989
============== =============
</TABLE>
See condensed notes to condensed financial statements.
- -----------------------------------------------------------------------------
<PAGE>
RGC RESOURCES, INC.
- -------------------
CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS
- -------------------------------------------------
UNAUDITED
- ---------
1. RGC Resources was incorporated on July 31, 1998. Roanoke Gas Company filed
a Form U-1 with the Securities and Exchange Commission on October 16,
1998, seeking approval to reorganize Roanoke Gas Company, Bluefield Gas
Company and Diversified Energy Company into subsidiaries of RGC Resources,
Inc. Currently, Bluefield Gas Company, Diversified Energy Company and RGC
Resources, Inc. are subsidiaries of Roanoke Gas Company.
RGC Resources, Inc., Roanoke Gas Company and Bluefield Gas Company have
received all required regulatory approvals to proceed with the
reorganization. The West Virginia Public Service Commission has approved
the reorganization based upon an administrative law judge's approval on
January 7, 1999. The Virginia State Corporation Commission issued a final
order on January 11, 1999 approving the requested merger and
reorganization. The Securities and Exchange Commission approved RGC
Resources, Inc.'s S-4 filing on January 28, 1999. Roanoke Gas Company
shareholders approved the reorganization at the annual meeting held on
March 31, 1999. The Securities and Exchange Commission issued its order
authorizing the acquisition of common stock of gas utility companies on
April 1, 1999. The reorganization is expected to be completed during the
fourth quarter of fiscal year 1999. Immediately following the
reorganization, RGC Resources will file an exemption statement to exempt
itself and its subsidiaries from all provisions of the Public Utility
Holding Company Act, except with respect to certain acquisitions and
investments, under the "intrastate" exemption in Section 3(a)(1).
2. The principal reasons for the proposed reorganization are to create a
corporate 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 additional flexibility for financing.
3. 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.
4. The only transactions incurred by RGC Resources, Inc. for the quarter
ended March 31, 1999 relate to the costs incurred to organize the Company.
Roanoke Gas Company has paid all costs incurred to date related to the
formation of RGC Resources, Inc., with RGC Resources, Inc. recording a
payable due Roanoke Gas Company in the amount of $112,281.
<PAGE>
RGC RESOURCES, INC.
- -------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ---------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
Results of Operations and Financial Condition
All activity of RGC Resources, Inc. pertains to the required regulatory filings
to establish the company and obtain approval for the related reorganization.
Furthermore, all costs have been paid by Roanoke Gas Company with a related
payable established by RGC Resources, Inc.
Regulatory Affairs
RGC Resources, Inc., Roanoke Gas Company and Bluefield Gas Company have
received all required regulatory approvals to proceed with the reorganization.
The West Virginia Public Service Commission has approved the reorganization
based upon an administrative law judge's approval on January 7, 1999. The
Virginia State Corporation Commission issued a final order on January 11, 1999
approving the requested merger and reorganization. The Securities and Exchange
Commission approved RGC Resources, Inc.'s S-4 filing in January 28, 1999.
Roanoke Gas Company shareholders approved the reorganization at the annual
meeting held on March 31, 1999. The Securities and Exchange Commission issued
its order authorizing the acquisition of common stock of gas utility companies
on April 1, 1999. The reorganization is expected to be completed during the
fourth quarter of fiscal year 1999. Immediately following the reorganization,
RGC Resources will file an exemption statement to exempt itself and its
subsidiaries from all provisions of the Public Utility Holding Company Act,
except with respect to certain acquisitions and investments, under the
"intrastate" exemption in Section 3(a)(1).
<PAGE>
Part II - Other Information
Item 6. Exhibits and Report on Form 8-K.
(a) Exhibits
Exhibits 27 - Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months
ended March 31, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RGC Resources, Inc.
Date: May 13, 1999 By: s/Roger L. Baumgardner
--------------------------------
Roger L. Baumgardner
Vice President/Secretary and
Treasurer
<PAGE>
TYPE EX-27
DESCRIPTION FDS --
TEXT
ARTICLE UT
LEGEND
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMAITON EXTRACTED FROM RGC
RESOURCES, INC.'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT FOR THE
QUARTER ENDED MARCH 31, 1999, AS SET FORTH IN THE COMPANY'S QUARTERLY REPORT
ON FORM 10-Q, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
/LEGEND
<TABLE>
<S> <C>
PERIOD-TYPE 6-MOS
FISCAL-YEAR-END SEP-30-1999
PERIOD-END MAR-31-1999
BOOK-VALUE PER-BOOK
TOTAL-NET-UTILITY-PLANT 0
OTHER-PROPERTY-AND-INVEST 0
TOTAL-CURRENT-ASSETS 0
TOTAL-DEFERRED-CHARGES 0
OTHER-ASSETS 112,331
TOTAL-ASSETS 112,331
COMMON 50
CAPITAL-SURPLUS-PAID-IN 0
RETAINED-EARNINGS 0
TOTAL-COMMON-STOCKHOLDERS-EQ 50
PREFERRED-MANDATORY 0
PREFERRED 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
PREFERRED-STOCK-CURRENT 0
CAPITAL-LEASE-OBLIGATIONS 0
LEASES-CURRENT 0
OTHER-ITEMS-CAPITAL-AND-LIAB 112,281
TOT-CAPITALIZATION-AND-LIAB 112,331
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
PREFERRED-STOCK-DIVIDENDS 0
EARNINGS-AVAILABLE-FOR-COMM 0
COMMON-STOCK-DIVIDENDS 0
TOTAL-INTEREST-ON-BONDS 0
CASH-FLOW-OPERATIONS 0
EPS-PRIMARY 0.00
EPS-DILUTED 0.00
</TABLE>
Exhibit 23(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 2 to Registration Statement No. 33-69902 on Form S-2 of RGC Resources, Inc.,
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, and to the reference to us under the heading "Experts" in the Prospectus,
which is part of this Registration Statement.
s/Deloitte & Touche LLP
Deloitte & Touche LLP
Charlotte, North Carolina
July 1, 1999
Exhibit 23(c)
ACCOUNTANTS' CONSENT
The Board of Directors
Roanoke Gas Company:
We consent to the use of our report, dated October 17, 1997, incorporated herein
by reference and to the reference to our firm under the heading "Experts" in the
prospectus.
s/KPMG LLP
KPMG LLP
Roanoke, Virginia
July 1, 1999
