U.S. Securities and Exchange Commission
Washington, D.C. 20549
(X) ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 (Fee Required)
For the twelve month period ended September 30, 1997
Commission file number 0-643
Corning Natural Gas Corporation
(Name of small business issuer in its charter)
New York 16-0397420
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
330 W. William St., Corning NY 14830
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (607) 936-3755
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock - $5.00 par value
(Title of class)
Check whether the issurer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-ISV. (X)
Revenues for 12 month period ended September 30, 1997 $17,835,687
The aggregate market value of the 331,362 shares of the Common Stock held by
non-affiliates of the Registrant at the $20 average of bid and asked prices as
of November 1, 1997 was $6,627,240.
Number of shares of Common Stock outstanding as of the close of business on
November 1, 1997 - 460,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Shareholders for the twelve month
period ended September 30, 1997, and definitive proxy statement and notice of
annual meeting of shareholders, dated February 15, 1998, are incorporated by
reference into Part I, Part II and Part II hereof.
Information contained in this Form 10-KSB and the Annual Report to
shareholders for fiscal 1997 period which is incorporated by reference
contains certain forward looking comments which may be impacted by factors
beyond the control of the Company, including but not limited to natural gas
supplies, regulatory actions and customer demand. As a result, actual
conditions and results may differ from present expectations.
CORNING NATURAL GAS CORPORATION
FORM 10-KSB
For the 12 Month Period Ended September 30, 1997
Part I
ITEM 1 - DESCRIPTION OF BUSINESS
(a) Business Development
Corning Natural Gas Corporation (the "Company" or "Registrant"), incorporated
in 1904, is a natural gas utility. The Company purchases its entire supply of
gas, and distributes it through its own pipeline distribution and transmission
systems to residential, commercial, industrial and municipal customers in the
Corning, New York area and to two other gas utilities which service the Elmira
and Bath, New York areas. The Company is under the jurisdiction of the Public
Service Commission of New York State which oversees and sets rates for New
York gas distribution companies. The Company also sells, leases and services
appliances, primarily gas burning, through its wholly owned subsidiary,
Corning Natural Gas Appliance Corporation.
(b) Business of Issuer
(1) The Company maintains a gas supply portfolio of numerous contracts
and is not dependent on a single supplier. Additionally, the Company has
capabilities for storing 793,000 Mcf through storage operations with two of
its suppliers. The Company had no curtailments during fiscal 1997 and expects
to have an adequate supply available for its customers during fiscal 1998
providing that no abnormal conditions or actions occur.
(2) The Company is franchised to supply gas service in all the
political subdivisions in which it operates.
(3) Since the Company's business is seasonal by quarters, sales for
each quarter of the year vary and are not comparable. Sales for different
periods vary depending on variations in temperature, but the Company's Weather
Normalization Clause (WNC) serves to stabilize net revenue from the effects of
temperature variations. The WNC allows the Company to adjust customer
billings to compensate for fluctuations in net revenue caused by temperatures
which are higher or lower than the thirty year average temperature for the
period. Degree days, which represent the number of degrees that the average
daily temperature falls below 65 degrees Fahrenheit, totaled 6,831 for the
period October 1, 1996 through September 30, 1997 and 7,076 for the same
period ended September 30, 1996.
(4) The Company has three major customers, Corning Incorporated, New
York State Electric & Gas (NYSEG), and Bath Electric, Gas & Water Systems
(BEGWS). The loss of any of these customers could have a significant impact
on the Company's financial results.
(5) Historically, the Company's competition in the residential market
has been primarily from electricity in cooking, water heating and clothes
drying, and to a very small degree, in heating. The price of gas remains low
in comparison to that of electricity in the Company's service territory and
the Company's competitive position in the residential market continues to be
very strong. Approximately 99% of the Company's general service customers
heat with gas.
In recent years competition from oil has developed in the industrial
market. The Company has been able to counteract much of this competition, to
date, through the transportation of customer owned gas for a transportation
charge. The customer arranges for their own gas supply, then moves it through
the Company's facilities for a transportation fee. The Company's
transportation rate is equal to the lowest unit rate of the appropriate rate
classification, exclusive of gas costs, hence the profit margin is maintained.
Additionally, under an increasingly deregulated environment there is
opportunity for the Company to increase revenue by selling its upstream
pipeline capacity to transportation customers. The Company is authorized to
retain 15% of such revenue and 85% is returned to firm customers in the form
of lower gas costs. Transportation customers that pay for this capacity are
virtually assured that their supply will not be interrupted. Revenues derived
from the resale of this capacity were $242,289 for 12 months ended September
30, 1997 and $181,681 for the 12 months ended September 30, 1996.
For those willing to bear some risk, the Company has an interruptible
transportation rate for its large industrial customers whereby the customer
may elect to avoid payment of demand charges but bears the risk of partial or
total upstream interruption of service during certain periods. To maintain
industrial load in the event that oil prices temporarily drop below the
equivalent gas price, the Company continues to maintain a flexible
transportation rate schedule. This flexible rate has been used infrequently
since its inception.
In September 1995 the Company purchased the assets of a local gas
distribution company, Finger Lakes Gas Company, through the Federal Bankruptcy
Court. Finger Lakes Gas served customers in the Hammondsport, NY area and had
a customer base of approximately 320 customers. The Company was able to
purchase this all plastic system with a bid of $560,000. The Company was
pleased to purchase these assets that originally cost over $1.5 million to
construct for its relatively low bid. The nearly new, all plastic, system was
already connected and serving 320 customers with a potential to add 200 more
in the near future. On a per customer basis, this represents a very low
investment. The capital to purchase these assets was obtained through short
term debt. The Company has not found it necessary to apply for an increase in
rates on this part of our system which means the original rates made effective
in 1990 remain in effect currently.
Shortly after the Company took possession of the system, Mercury
Aircraft, Inc. announced it would purchase the former Taylor Wine Company
facilities and centralize their other plants. The reopening of this major
facility will most certainly contribute toward the stability and future
viability of the new gas system which is now part of the Company. The former
Finger Lakes Gas Company's operations contributed in excess of $150,000 to
gross margin for the period ended September 30, 1996, and in excess of
$218,000 for the 12 months ended September 30, 1997.
In December, 1994 the New York Public Service Commission instituted a
proceeding to address issues related to the merging competitive natural gas
market. This proceeding is intended to provide a framework whereby access to
facilities on upstream pipelines made available by FERC Order 636 would be
available to end use customers on the Local Distribution Company level. New
tariff filings were approved and became effective September 1, 1996. The
Company considers this a transitional step towards full unbundling of services
with future changes made as circumstances warrant.
In 1997 the PSC instituted another proceeding designed to assess the
issues associated with the future of the natural gas industry and the role of
the local gas utility. The staff of the PSC has made certain proposals which,
if instituted, will effectively separate the structure of the industry into
four distinct segments. Under the proposed structure, production,
transportation, marketing and distribution will become distinct businesses.
Gas utilities would no longer sell natural gas, they would merely provide the
distribution facilities to get gas to the burnertip. The PSC staff proposal
indicates that this change should be complete within five years.
Such a drastic change will obviously require much effort in working out
the details to ensure that customers are provided with the same safe,
reliable service that has historically been provided. This company has taken
the position that it does not oppose this transition to a fully competitive
market but that it must be allowed to evolve naturally. In order to minimize
the potential for unintended consequences which could have a negative effect
on the customer, arbitrary deadlines and regulations designed to accelerate
the process need to be avoided. If, in fact, marketers can provide a more
economic product than the gas utility, customers will be quick to respond.
(6) The Company believes compliance with present federal, state and
local provisions relating to the protection of the environment will not have
any material adverse effect on capital expenditures, earnings and financial
position of the Company and its subsidiary.
(7) Sixty-nine persons were employed on a full-time basis and seven on
a part-time basis by the Company in 1997 and 67 full-time and six part-time in
fiscal 1996.
(8) The Company's labor-management relationship is good. Typical labor
negotiations are completed in one to two days. The current labor contract
was signed September 1, 1995 for a three year period.
ITEM 2 - DESCRIPTION OF PROPERTY
The Company completed the construction of a new office building at 330
West William Street, Corning, NY in the fall of 1991. This structure is
physically connected to the operations center built three years earlier. The
Company had outgrown its general offices at 27 East Denison Parkway. The
property has been sold, and the gain on the sale was returned to ratepayers.
The Company's pipeline system is thoroughly surveyed each year. Any
necessary replacements are included in the construction budget. Approximately
105 miles of transmission main, 284 miles of distribution main, 13,800
services and 86 measuring and regulating stations, along with various other
property are distributed throughout the service area. All of the above
described property is owned by the Company, except for one short section of
10" gas main which is under a long-term lease and is used primarily to serve
Corning Incorporated. All of the above described property which is owned by
the Company is adequately insured, and is subject to the lien of the Company's
first mortgage indenture.
ITEM 3 - LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings,
nor is the Company aware of any problems of any consequence which it
anticipates may result in legal proceedings.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the third
quarter of 1997.
Additional Item
Executive Officers of the Registrant
(Including Certain Significant Employees)
Business Experience Years Served
Name Age During Past 5 Years In This Office
Thomas K. Barry 52 Chairman of the Board of Directors 4
President & C.E.O.
13
Edgar F. Lewis 60 Senior Vice President - Operations 17
Kenneth J. Robinson 53 Executive Vice President 6
Phyllis J. Groeger 57 Secretary 10
Thomas S. Roye 44 Vice President - Administration 6
Gary K. Earley 43 Treasurer
6
Term of office is for one year. (Normally from April to April)
Part II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The principal market on which the Registrant's common stock is traded,
the range of high and low bid quotations for each quarterly period during the
past two years, the amount and frequency of dividends, and a description of
restrictions upon the Registrant's ability to pay dividends, appear in the
table below. The number of stockholders of record of the Registrant's Common
Stock was 372 at September 30, 1997. The high and low bid quotations reflect
inter-dealer prices, without retail markup, markdown or commission and may not
represent actual transactions.
MARKET PRICE - (OTC)
Dividend
Quarter Ended High Low Paid
March 31, 1996 $ 23 $ 22 $ .315
June 30, 1996 23 22 .315
September 30, 1996 22 21 1/2 .315
December 31, 1996 22 21 1/2 .32
March 31, 1997 22 21 1/2 .32
June 30, 1997 21 1/4 20 .32
September 30, 1997 21 1/4 20 .32
The Company incurred $4,700,000 in new long-term debt in 1997. The
proceeds of this new issue were used to pay off $3.1 million in short-term
debt and retire a 10% First Mortgage Bond with a balance of $1.6 million. The
new debt is an unsecured senior note at 7.9 percent interest with a maturity
date of September 25, 2017. Canada Life Assurance Company of Toronto is the
debt holder; interest payments are made quarterly with sinking fund payments
as follows: $355,000 annually starting September, 2006 with a $795,000
payment due September 1, 2017.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion of financial condition and results of operations
of the Company appears in the 1997 Annual Report to Shareholders which is
incorporated by reference.
ITEM 7 - FINANCIAL STATEMENTS
The consolidated financial statements, together with the independent
auditors' report thereon of KPMG Peat Marwick LLP dated November 7, 1997 are
included in the 1997 Annual Report to Shareholders attached hereto, and are
incorporated in this Form 10-KSB by reference thereto.
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
Part III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The information required regarding the executive officers of the
Registrant is included in Part 1 under "Additional Item".
ITEM 10 - EXECUTIVE COMPENSATION
The information required regarding the compensation of the executive
officers appears in the Definitive Proxy Statement attached hereto.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required regarding the security ownership of certain
beneficial owners and management appears in the Definitive Proxy Statement
attached hereto.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required regarding certain relationships and related
transactions appears in the Definitive Proxy Statement attached hereto.
Part IV
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed with this Form 10-KSB or incorporated
herein by reference: (Exhibit numbers correspond to numbers assigned to
exhibits in Item 601 of Regulation S-B)
Exhibit Name of Exhibit Page
3 A copy of the Corporation's Articles of Incorporation,
as currently in effect, including all amendments, was
filed with the Company's Form 10-K for December 31, 1987.
3 A copy of the Corporation's complete by-laws, as
currently in effect, was filed with the Corporation's
report on Form 10-Q for the quarter ended March 31, 1984.
10 A copy of the "Agreement Between Corning Natural Gas
Corporation and Local 139", dated September 1, 1995
was filed with Form 10-KSB for December 31, 1995.
10 Consulting Agreement and Employment Contracts with
three executive officers were filed with the Company's
Form 10-K for December 31, 1987.
10 A copy of the Service Agreement with CNG
Transmission Corporation was filed with the Company's
Form 10-KSB for December 31, 1993.
10 A copy of the Sales Agreement with Bath Electric, Gas
and Water was filed with the Company's Form 10-K for
December 31, 1989.
10 A copy of the Transportation Agreement between the Company
and New York State Electric and Gas Corporation was filed
with the Company's Form 10-KSB for December 31, 1992.
10 A copy of the Transportation Agreement between the
Company and Corning Incorporated was filed with the
Company's Form 10-KSB for December 31, 1992.
10 A copy of the Service Agreement with Columbia Gas
Transmission Co. was filed with the Company's
10-KSB for December 31, 1993.
13 A copy of the Corporation's Annual Report to
Shareholders for 1997, is filed herewith.
22 Information regarding the Company's sole subsidiary was
filed as Exhibit 22 with the Company's Form 10-K for
the period ended December 31, 1981.
28 Corning Natural Gas Corporation Proxy Statement is
filed herewith.
99 Order from the U.S. Bankruptcy Court, Northern District of
New York re: Approval of Acquisition of Finger Lakes Gas Company was
filed
with the Company's 10-KSB for the period ended December 31, 1995.
99 Order from the Public Service Commission of New York State
re: Approval of Acquisition of Finger Lakes Gas Company was
filed with the Company's 10-KSB for the period ended December 31, 1995.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the three month period
ended September 30, 1997.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CORNING NATURAL GAS CORPORATION
(R
egistrant)
Date December 19 1997 THOMAS K. BARRY
Thomas K. Barry, Chairman of the Board, President and
C.E.O.
Date December 19, 1997 GARY K. EARLEY
Gary K. Earley, Treasurer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Date December 19, 1997 J.E. BARRY
J.E. Barry, Director
Date December 19, 1997 DONALD R. PATNODE
Donald R. Patnode, Director
Date December 19, 1997 J.A. FINLEY
J.A. Finley, Director
Letter to Shareholders
It appears that New York State has turned the economic corner and is finally
headed uphill again. A new, energized state government with a revised view
of business and taxes has made real strides to improve the state's economic
climate. Taxes and worker's compensation insurance costs have been cut,
business expansion and job development is the order of the day while
unemployment and welfare costs have declined. The City of Corning and the
Southern Finger Lakes region in general are participants in this revival.
In the past several years the region surrounding Corning has developed into
a major shopping hub and tourist center. Major initiatives are underway to
vastly enrich and expand the tourist market. Equally as important to our
Company are the many sizable business expansion projects that are now in
various stages of construction and development. So much is going on, in
fact, that two sections of this report are devoted to outlining these
developments. While the economy of our service territory has been some-
what stagnant in the past decade, we have been relatively successful in ex-
panding our markets by building pipelines to adjacent villages, connecting
to schools, residences and businesses. These major new local developments
will bring new plants, businesses and residential construction into our
back yard without major construction expenditures on our part.
As difficult as it has been for the Company to develop new revenue sources,
we have been able to sustain a moderate level of growth in our customer
base and in net earnings while maintaining a stable, reasonable rate
structure. The year ended September 30, 1997 proved to be our most
successful year to date, producing earnings of $1.64 per share. Dividends
paid of $1.28 per share brought our payout ratio down to a more favorable
78 percent allowing for an increase in equity to $11.32 per share. It is
important to note the Company has been able to capitalize on various in-
centive mechanisms along with continued good performance by the Appliance
subsidiary to achieve this level of earnings. For example, the Company
increased its capacity assignment revenues by one third in the past year to
$1.6 million thus returning nearly $1.4 million to customers through
reduced rates while improving pre-tax earnings by $242,000.
Serious ongoing efforts have been made throughout the past several years to
reduce the gas lost on the system which can create large expenses. We have
aggressively been upgrading electronic gas measurement equipment at all
major delivery points and have completed a program to install temperature
correcting meters wherever meters are located outdoors. During the year we
purchased a computerized, electronic meter tester which will allow us to
adjust our meters with pinpoint accuracy. We have stepped up our progam
to detect leakage and ititiate repairs. These efforts have resulted in lower
level of gas lost on the system. Additionally, this accomplishment has
also increased gross earnings due to an incentive mechanism that the state
initiated several years ago.
The Company's wholly owned Appliance Subsidiary also contributed $222,000
to consolidated net earnings. While this is not quite up to the level of the
prior year, we are well positioned for growth in 1998. Freestanding gas
fireplace units and insert fireplace units are extremely popular with our
customers. All three of our stores' display areas have been recently
redesigned to emphasize gas fired fireplaces. The rental business remains
strong with continued growth in the rental of water treatment equipment.
Utility companies in New York State remain a prime source of tax revenue
collection. In fiscal 1997 the Company paid a total of $2,400,000 in
various state and federal taxes. Taxes on property and the gross revenue
tax are the primary sources of the overall burden. The good news is that
the state has finally agreed to gradually reduce the 3.5 percent gross
revenue tax down to 2.5 percent by January 1, 2000. There are ongoing
discussions at the state capital that this reduction is not as progressive
as it should be if the state is toachieve its goal of significantly
reducing energy costs in order to improve its business development agenda.
Legislation has also been enacted which will eventually result in a
decrease in property taxes.
Late in September, 1997, the Company completed a long-term debt financing
in the amount of $4.7 million. These funds were obtained as a senior note
with interest at 7.9 percent over a 20 year term. This financing allowed
the Company to reduce short-term debt in the amount of $3.1 million and to
retire a 10 percent bond with a balance of $1.6 million. Savings of over
$200,000 were achieved on the bond retirement while the entire package
served to strengthen the capitalization structure.
While legislators, politicians and consumers across the nation and
particularly in New York voice their concern regarding energy costs, our
rates continue to be competitive. It is true that regulated energy utility
rates are generally high in New York State, particularly electric costs,
and that affirmative action needs to be taken to reduce these costs. This
is not necessarily true for natural gas rates charged by many of the New
York utility companies. According to a recent American Gas Association
study, retail prices for natural gas for all consuming sectors were on
average 18 percent lower in 1996 than in 1987, when the effects of
wellhead price deregulation began to appear. The wellhead price of natural
gas increased only slightly during the past decade, from $2.21 per thousand
cubic feet in 1987 to $2.24 in 1996, although volatility during that period
was significant. The average retail price for the typical residential
consumer in Corning's service territory was $6.15 per Mcf five years ago,
in December 1992, compared with rates of only $5.99 per Mcf going into
the winter of 1997-8. The Company's rate structure positions us to compete
for our residential and commercial business and to maintain our industrial
loads in this new arena of deregulation.
Our record of paying dividends to shareholders extends to 45 years of
consecutive quarterly payments with the February, 1998 dividend. This
payment of 32.5 cents per common share brings the annualized payout to
$1.30 per share. Once again, we recognize and appreciate the work and
dedication of our team of employees who pull together each day to produce
quality results and satisfied customers. We all look forward with
enthusiasm toward the completion of the many exciting projects underway in
the Corning area which will provide our Company with an increased and more
viable base upon which we will build our future.
Thomas K. Barry
Chairman of the Board,
President & CEO
April 2000
Corning Incorporated's $58 million investment in an all new Corning Glass
Center inspired the community to plan for numerous changes to prepare
itself to welcome 650,000 visitors to the area annually. Approximately
1,500 people, representing a cross-section of the community, have
participated in the planning process. Dozens of task forces and
sub-committees were established to carry out the plan. While many of the
projects are already underway and funded or partially funded, some are
more long-term, lower-priority, programs that may be completed in the future.
The following is a partial review of the April 2000 initiatives.
One of the major goals is to provide quality attractions, services and
facilities to make tourists feel welcome and to stay longer in the area.
The Corning Glass Center will be a prime magnet for visitors but there are
many other things to see and do in the region. The major attractions are
the Finger Lakes, wineries, Watkins Glen race track, Rockwell (Western Art)
Museum, National Warplane Museum and airshow, Soarplane Museum and soaring
activities, Curtiss Museum (historic aviation), and the fall foliage. The
number one priority of April 2000 was to establish a regional marketing
plan to maximize the utilization of all the region has to offer. This
rather extensive plan is progressing rapidly.
The following is a brief listing of the major capital projects currently
scheduled for completion by April 2000:
* Comprehensive Intown Signage System including information signs and
community directories
* Visitor Center Parking Lot
* Visitor Center Pavilion
* Intown Streetscape Enhancements including a floral festival on Market and
Bridge Streets
* Bridge Street Bridge Reconstruction - rebuild and enhance the bridge,
a $6 million project
* River Loop hiking and bike trail
* Market Street Visitors Center
* Reconstruction of Denison Parkway - widen the sidewalks, improve street
lighting and beautify the parkway - a major project funded and underway
* Market Street trolley shuttle
* Transportation Center - tour bus parking
* Civic Center Plaza Upgrade
Additionally, this is a listing of a few of the other major long-term
projects that hopefully will be highlighted in future reports as they
become realities:
* Steuben Conference Center
* Glass Pavilion/Museum on Centerway pedestrian bridge
* Corning Intown Lake/Dam Project
* Executive hotel and riverfront residential development
* Boathouse
* Redevelopment of current firehouse and construction of a new fire station
* Construction of a new post office center
* Development of an intown business park
As you can imagine, this is an exciting time for this community as it
looks towards significant growth, capital additions, job development and
numerous enhancements unmatched in the City's history. In the Erwin area
alone there are over 500 new housing units scheduled for construction over
the next three years. Corning Natural Gas Corporation looks forward to
providing its services and participating in this new era.
New Business Development
The area's largest employer and globally renowned Fortune 500
organization, Corning Incorporated, is having a revival of its own. It is
obviously important that we follow and understand the progress of this ever
expanding organization due to the tremendous impact it has upon the economy
and well being of the citizens and businesses that make up the City of
Corning. In the next few years to come, culminating in the spring of 2000,
Corning Incorporated will be investing approximately $250 million in new and
expanded manufacturing facilities, research facilities and its famous Museum
of Glass. Several years ago Corning Incorporated decided to totally renovate
the Glass Museum by year 2000 to celebrate its 50th anniversary and the 150th
anniversary of Corning Incorporated. This massive renovation represents an
investment of $58 million and is expected to draw 650,000 visitors annually,
nearly double the current figure. In order to welcome these visitors and
benefit from these resources, the entire community needed to make numerous
physical and promotional changes. This undertaking was carefully put together
as the project came to be known as April 2000. This project encompasses so
many facets that it is reviewed as a separate section in this report.
Without a doubt, the most important economic development to occur in the
past several years was the announcement that Corning Incorporated would
construct a 400,000 square foot, $40 million manufacturing facility in Erwin
to produce products for its Opto-Electronic Components Division. This plant
will provide up to 1,000 new manufacturing jobs and will be partially operable
by year end, 1997. The plant will produce products that combine with fiber
optic cable to upgrade the system, amplify optical signals, couple optic
systems, etc. Corning Incorporated will also expend $4 million to enlarge its
center for fiber optic testing.
Perhaps the most ambitious of Corning Incorporated's many projects is
the expansion of its impressive Sullivan Science Research Center located
adjacent to the new components plant. This $125 million expansion will double
the size of the research center. These additional buildings, totaling 328,000
square feet, will provide additional laboratories to create and test products,
conference space and a five story draw tower for specialty optic fibers. 500
additional employees will be needed, many who will have advanced scientific,
engineering and mathematics degrees.
The expansion-minded company, which earned $487 million on $3.7 billion
in sales in 1996 is also investing $20 million to add to its recently
constructed world headquarters building in the center of the city. The new
west wing will house some 350 workers in the Telecommunications Products and
Photonics Technologies Divisions. All of these major projects will eventually
have a significant impact in terms of new job opportunities, local tax
revenues, tourist related businesses and new housing developments to name a
few.
Industry Restructuring
Beginning around 1984 the Federal Energy Regulatory Commission (FERC)
began a long process of changing the way the natural gas industry operates all
the way from the wellhead to the burnertip. The change at the federal level
was gradual, beginning with very large customer access to the transportation
market in 1984 and leading to the complete withdrawal of the pipelines from
the merchant function in 1992. The purpose of the change in FERC policy was
to promote competition in the market which was expected to produce savings to
the consumer. Throughout this time the New York Public Service Commission
(PSC) and the gas utilities have worked together to adapt to a new
environment.
In 1994 the PSC instituted a proceeding to address issues associated
with the restructuring of the emerging competitive natural gas market in New
York State. As a result of this proceeding, Corning, as well as other gas
utilities in the state, filed tariffs which essentially allowed customers of
any size, including residential customers, access to the transportation
market. In other words, all customers now have the ability to purchase their
gas requirements from a marketer rather than the gas utility. Those that
choose to do so pay the utility for the use of their distribution system but
pay a marketer for the cost of the gas consumed. Acceptance of this program
by both marketers and customers has been slow to catch on, primarily due to a
lack of profitability for marketers and savings for customers that are
generated at current levels.
In 1997 the PSC instituted another proceeding designed to assess the
issues associated with the future of the natural gas industry and the role of
the local gas utility. The staff of the PSC has made certain proposals which,
if instituted, will effectively separate the structure of the industry into
four distinct segments. Under the proposed structure, production,
transportation, marketing and distribution will become distinct businesses.
Gas utilities would no longer sell natural gas, they would merely provide the
distribution facilities to get gas to the burnertip. The PSC staff proposal
indicates that this change should be complete within five years.
Such a drastic change will obviously require much effort in working out
the details to ensure that customers are provided with the same safe, reliable
service that has historically been provided. This company has taken the
position that it does not oppose this transition to a fully competitive market
but that it must be allowed to evolve naturally. In order to minimize the
potential for unintended consequences which could have a negative effect on
the customer, arbitrary deadlines and regulations designed to accelerate the
process need to be avoided. If, in fact, marketers can provide a more
economic product than the gas utility, customers will be quick to respond.
Since gas utilities do not currently earn a profit from the sale of gas,
earnings derived from the use of the distribution facilities will tend to
remain neutral. This company has effectively adapted to the changes to date
and, in fact, has been able to provide financial benefits to both customers
and shareholders as a result of some of the changes that have been instituted.
Management is confident that the company will continue to successfully adapt
to the transition and will attempt to seek out new opportunities as we move
toward a fully competitive market.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The twelve months ended September 30, 1997 was the first full year completed
by the Company since its change in fiscal year. In 1996 the Company
changed its fiscal year end from December 31 to September 30. The adjacent
table compares the operating results for the twelve months ended
September 30, 1997 to the unaudited results for the twelve months ended
September 30, 1996. The discussion of operating results will focus on
these periods.
Twelve
Months Ended
Sept. 30, 1996
Sept. 30, 1997
Unaudited
Operating revenues $ 17,835,687 $ 19,578,138
Operating expenses and taxes:
Natural gas purchased 10,448,308 12,317,462
Operating and maintenance 3,529,373 3,331,860
Taxes other than federal
income taxes 1,668,049 1,834,810
Depreciation 548,614
510,382
Federal income taxes 245,887
220,873
Total operating expenses and taxes 16,440,231 18,215,387
Income from utility operations 1,395,456 1,362,751
Income from unregulated operations 221,856 229,278
Other income 22,977
23,424
Income before interest expense 1,640,289 1,615,453
Interest expense 884,538
877,379
Net income $ 755,751 $
738,074
Earnings per common share $ 1.64 $ 1.60
EARNINGS
Consolidated net income amounted to $756,000 or $1.64 per share in 1997,
compared to $738,000 or $1.60 per share in 1996. Significant factors
affecting the results of operations are discussed below.
OPERATING REVENUE
Operating revenue of $17,836,000 declined nine percent in 1997 due
primarily to a reduction in gas cost billings. The Company's billing rates
are adjusted to reflect changes in gas costs (which include current costs as
well as prior period deferred amounts) so that changes in these costs are
accompanied by corresponding changes in revenue and, therefore, have no impact
on the Company's earnings.
Also contributing to the reduction in operating revenue was a decline in
the volumes of gas delivered, due to milder weather. Total gas delivered to
customers amounted to 7,897,615 Mcf in 1997 compared to 8,233,106 Mcf in 1996.
However, the Company's weather normalization billing mechanism (briefly
discussed in note 1 to the financial statements) mitigates the impact of
weather on revenue. As the result of a warmer 1997 the Company billed
$152,000 more than the previous year through this mechanism.
There were a couple items serving to increase the Company's operating
revenue. Capacity assignment revenue increased $61,000 to $242,300 in 1997.
This is derived from success in marketing the Company's unused pipeline
capacity and a regulatory incentive that allows the Company to retain 15
percent of the proceeds. Additionally, a small revenue increase was achieved
through the implementation of a rate increase in the amount of $124,000 on
September 1, 1996.
OPERATING EXPENSE
Purchase gas expense of $10,400,000 decreased 15% in 1997 due to lower
prior period deferred amounts and decreased deliveries noted above. Also,
contributing to the decrease was a substantial benefit from the Company's lost
and unaccounted for gas incentive mechanism. The Company was able to
capitalize on the incentive, realizing a benefit of $120,000 in 1997, a
considerable increase from $65,000 the previous year. The Company experienced
an increase in operating and maintenance expenses in 1997 primarily due to
flood damage to the distribution system. Additional expense was also incurred
in the area of leak detection and repair as well as increases in costs for
health insurance, pension expense and uniforms.
Taxes other than federal income tax decreased nine percent due to a
reduction in gross revenue taxes resulting primarily from the gas cost billing
reduction noted previously. The Company is subject to the New York public
utilities gross receipts tax which is levied on all revenue.
UNREGULATED OPERATIONS
The Appliance Corporation subsidiary earnings remained stable at
$221,900 in 1997 compared to $229,000 in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company utilized internally generated funds and short-term borrowing
to finance capital expenditures of approximately $1 million in 1997. In
September, 1997 the Company completed a long-term debt issue in the form of a
twenty year senior note at 7.9 percent interest. The Company utilized the
proceeds to retire a $1.6 million ten percent bond, and paid down $3.1 million
of short-term debt.
The Company has unsecured bank lines of credit totaling $5,500,000, the
terms of which are disclosed in note 5 to the financial statements. It is
expected that the Company's current capital resources will be sufficient for
1998 planned operations.
INDUSTRY RESTRUCTURING
The natural gas industry continues to change. In 1997 the New York
Public Service Commission instituted another proceeding designed to address
the future of the industry. A detailed discussion of industry restructuring
appears on page 6 of this report.
YEAR 2000
During 1997 the Company took steps to make its computer systems year
2000 compliant. This process is almost entirely complete, and the balance
will be completed in 1998 at nominal cost.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains statements which, to the extent they are not
recitations of historical fact, constitute "forward-looking statements" within
the meaning of the Securities Litigation Reform Act of 1995 (Reform Act). In
this respect, the words "estimate," "project," "anticipate," "expect,"
"intend," "believe" and similar expressions are intended to identify forward-
looking statements. All such forward-looking statements are intended to be
subject to the safe harbor protection provided by the Reform Act. A number of
important factors affecting the Company's business and financial results could
cause actual results to differ materially from those stated in the forward-
looking statements.
The natural gas industry continues to change. In 1997 the New York
Public Service Commission instituted another proceeding designated to address
the future of the industry. A detailed discussion of industry restructuring
appears on page 6 of this report.
CORNING NATURAL GAS CORPORATION AND SUBSIDIARY
Financial Statements
Year Ended September 30, 1997
and Nine Months Ended September 30, 1996
(With Independent Auditor's Report Thereon)
Independent Auditors' Report
The Board of Directors and Stockholders
Corning Natural Gas Corporation:
We have audited the accompanying consolidated balance sheets of Corning Natural
Gas Corporation and Subsidiary (the Company) as of September 30, 1997 and
1996, and the related consolidated statements of income and retained
earnings, and cash flows for the year ended September 30, 1997 and the
nine months ended September 30, 1996. 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 upon 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 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
presently fairly, in all material respects, the financial position of
Corning Natural Gas Corporation and Subsidiary at September 30, 1997 and
1996, and the results of their operations and their cash flows for the year
ended September 30, 1997 and the nine months ended September 30, 1996 in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK
November 7, 1997
CORNING NATURAL GAS CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 1997 and 1996
Assets 1997 1996
Property, plant and equipment, at original cost:
Utility $ 20,378,449
19
,616,872
Non-utility - principally rented gas appliances 2,533,498
2,451
,396
22,911,947
22,068,268
Less accumulated depreciation (8,478,446)
(7
,846,128)
14,433,501
14
,222,140
Current assets:
Cash 262,752
180,595
Marketable securities available for sale,
at fair value (cost of $574,842 in 1997) 641,899
-
Accounts receivable, less allowance for uncollectible
accounts of $97,000 in 1997 and 1996 995,215
789,677
Gas stored underground, at average cost 1,347,682
1,
347,099
Gas and appliance inventories, at
lower of average cost or market 641,716
653,030
Prepaid income taxes 465,786
334,485
Deferred income tax assets 62,000
27,000
Prepaid expenses 580,896
432,1
63
4,997,946
3,764,049
Deferred charges:
Long-term debt issuance costs, net of amortization 374,564
243,401
Unrecovered gas costs 32,933
- -
Deferred debits - accounting for income taxes 1,016,661
1,
016,661
Other deferred debits 434,770
58
4,809
1,858,928
1,844,871
Other assets 405,131
389,5
02
$ 21,695,506
20,220,562
See accompanying notes to consolidated financial statements.
CORNING NATURAL GAS CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets, Continued
September 30, 1997 and 1996
Capitalization and Liabilities 1997 1996
Common stock, $5.00 par value per share. Authorized
1,000,000 shares; issued and outstanding 460,000
shares $ 2,300,000
2,30
0,000
Additional paid-in capital 653,346
653,
346
Net unrealized gain on securities
available for sale (net of income tax
benefit of $22,799) 44,258
-
Retained earnings 2,211,833 2,194,
382
5,209,437
5,147,728
Long-term debt, less current installments 9,400,000
6,30
0,000
Total capitalization 14,609,437
11,447,728
Current liabilities:
Current installments of long-term debt -
100,
000
Notes payable 775,000 2,725,
000
Accounts payable 1,680,840 1,146,
190
Dividends payable 149,500
-
Customers' deposits and accrued interest 673,114
73
5,398
Accrued general taxes 112,367
14
1,598
Supplier refunds due customers 380,994
53
2,009
Accrued expenses 222,970
30
4,332
Other 20,826
48,369
Total current liabilities 4,015,611
5,732,896
Deferred credits:
Deferred income tax liabilities 2,444,966
2,28
0,213
Refundable gas costs -
232,
769
Other 625,492
526,956
3,070,458
3,039,938
$ 21,695,506
20,220,562
Commitments (note 11)
See accompanying notes to consolidated financial statements.
CORNING NATURAL GAS CORPORATION AND SUBSIDIARY
Consolidated Statements of Income and Retained Earnings
For the Year Ended September 30, 1997
and the Nine Months Ended September 30, 1996
Utility Operations 1997 1996
Operating revenue:
Residential, commercial and industrial $ 13,824,008 12,192
,896
Transportation 3,769,390 2,757,286
Capacity assignment 242,289 131,95
3
Total operating revenue 17,835,687
15,08
2,135
Operating expenses and taxes:
Natural gas purchased 10,448,308 9,538,
759
Operating and maintenance 3,529,373 2,573,
873
Taxes other than federal income taxes 1,668,049 1,428,
476
Depreciation 548,614
395,7
58
Federal income taxes 245,887
185,5
70
Total operating expenses and taxes 16,440,231 14,122
,436
Income from utility operations 1,395,456
959,699
Unregulated Operations
Unregulated revenue:
Appliance rental 736,762
548,7
18
Service and merchandising 1,509,250
957,8
16
Interest income 21,307
15,5
69
Total unregulated revenue 2,267,319
1,522
,103
Unregulated expenses 2,045,463 1,390,
168
Income from unregulated operations 221,856
13
1,935
Other income (including net realized gains on
marketable securities of $20,997 in 1997) 22,977
10,4
47
Income before interest expense 1,640,289
1,
102,081
Interest expense 884,538 618,69
5
Net income 755,751
483,386
Retained earnings, beginning of period 2,194,382 2,145,
697
Less cash dividends 738,300 434,70
1
Retained earnings, end of period $ 2,211,833 2,194,382
Weighted average number of shares outstanding 460,000 460,00
0
Earnings per common share $ 1.64
1.05
See accompanying notes to consolidated financial statements.
CORNING NATURAL GAS CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Year Ended September 30, 1997
and the Nine Months Ended September 30, 1996
1997 1996
Cash flows from operating activities:
Net income $ 755,751
483,3
86
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 788,368
57
0,088
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (205,538)
1,435,529
Gas stored underground (583)
(
508,782)
Gas and appliance inventories 11,314
(52,503)
Prepaid expenses (148,733)
(
79,800)
Unrecovered/refundable gas costs (265,702)
1,
390,151
Other deferred charges 18,876
114,731
Other assets (15,629)
(
57,123)
Increase (decrease) in:
Accounts payable 534,650
(59,944)
Accrued general taxes (29,231)
34,011
Accrued/prepaid federal income taxes (131,301)
(425,548)
Supplier refunds due customers (151,015)
(237,597)
Deferred federal income taxes 129,753
(196,190)
Other liabilities and deferred credits (95,452)
(2
12,824)
Net cash provided by operating activities 1,195,528
2,197,585
Cash flows from investing activities:
Proceeds from sale of marketable securities 598,801
-
Purchases of marketable securities (1,173,643)
-
Capital expenditures, net of minor disposals (999,729) (635,1
94)
Net cash used in investing activities (1,574,571)
(635,194)
(Continued)
CORNING NATURAL GAS CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
For the Year Ended September 30, 1997
and the Nine Months Ended September 30, 1996
1997 1996
Cash flows from financing activities:
Net repayments under line-of-credit
agreements (1,950,000) (1,090
,000)
Dividends paid (588,800) (434,701)
Borrowings under long-term debt agreements 4,700,000
- -
Repayment of long-term debt (1,700,000)
- -
Net cash provided by (used in)
financing activities 461,20
0 (1,524,701)
Net increase in cash 82,157
37,690
Cash at beginning of period 180,595 142,90
5
Cash at end of period $ 262,752 180,59
5
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 883,281
51
5,132
Income taxes $ 732,246
899,7
54
See accompanying notes to consolidated financial statements.
CORNING NATURAL GAS CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Year Ended September 30, 1997
and the Nine Months Ended September 30, 1996
(1) Summary of Significant Accounting Policies
Corning Natural Gas Corporation (the Company) is a gas distribution company
providing gas on a commodity and transportation basis to its customers in
the Southern Tier of New York State. The Company follows the Uniform
System of Accounts prescribed by the Public Service Commission of the
State of New York (PSC) which has jurisdiction over and sets rates for New
York State gas distribution companies. The Company's regulated operations
meet the criteria and accordingly, follow the accounting and reporting of
Statement of Financial Accounting Standards No. 71 (SFAS 71) "Accounting
for the Effects of Certain Types of Regulation. The Company's financial
statements contain the use of estimates and assumptions for reporting
certain assets, liabilities, revenue and expenses and actual results could
differ from the estimates. The more significant accounting policies are
summarized below.
(a) Principles of Consolidation and Presentation
The consolidated financial statements include the Company and its wholly
owned subsidiary, the Corning Natural Gas Appliance Corporation (Appliance
Corporation). All significant intercompany accounts and transactions have
been eliminated in consolidation. The results of the Appliance Corporation
are reported separately as unregulated operations in the consolidated
statements of income and retained earnings. Shared expenses are allocated
to the Appliance Corporation.
It is the Company's policy to reclassify amounts in the prior year's
financial statements to conform with the current year's presentation.
(b) Utility Plant and Rented Gas Appliances
Utility plant is stated at the historical cost of construction. These costs
include payroll, fringe benefits, materials and supplies, and transportation
costs. The Company charges normal repairs to maintenance expense. The
Appliance Corporation capitalizes the cost of appliances and the original
installation to rented gas appliances. Subsequent repairs are expensed.
1 (Continued)
CORNING NATURAL GAS CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
(c) Depreciation
The Company provides for depreciation for accounting purposes using a
composite straight-line method based on the estimated economic lives of
property. The depreciation rate used for utility plant, expressed as an
annual percentage of depreciable property, was 2.7% in 1997 and 1996. At
the time utility properties are retired, the original cost plus costs of
removal less salvage, are charged to accumulated depreciation.
Rented gas appliances are depreciated on a straight-line basis at rates
ranging from 10% to 20% per year.
(d) Revenue and Natural Gas Purchased
The Company records revenues from residential and commercial customers based
on meters read on a cycle basis throughout each month, while certain large
industrial and utility customers' meters are read through the end of each
month. The Company secured a weather normalization clause in the last
major rate filing as protection against severe weather fluctuations. This
affects space heating customers and is activated when degree days are 2%
greater or less than a 30 year average. As a result, the effect on revenue
fluctuations in weather related gas sales is somewhat neutralized.
Gas purchases are recorded based on readings of suppliers' meters as of the
end of the month. The Company's rate tariffs include a Gas Adjustment
Clause (GAC) which adjusts rates to reflect changes in gas costs from
levels established in the rate setting process. In order to match such
costs and revenue, the PSC has provided for an annual reconciliation of
recoverable GAC costs with applicable revenue billed. Any excess or
deficiency in GAC revenue billed is deferred and the balance at the
reconciliation date is either refunded to or recovered from customers over
a subsequent 12 month period.
(e) Marketable Securities
Marketable securities, which are intended to fund the Company's supplemental
pension plan, are classified as available for sale at September 30, 1997.
Such securities are reported at fair value based on quoted market prices,
with unrealized gains and losses, net of the related income tax effect,
excluded from earnings, and reported as a separate component of
stockholders' equity until realized. The cost of securities sold was
determined using the specific identification method.
2 (Continued)
CORNING NATURAL GAS CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
(e) Marketable Securities (continued)
A summary of the marketable securities at September 30, 1997 is presented
in the following table:
Net
Market Cost Unrealized Unrealized Unrealized
Value Basis Gains Losses Gains
$ 641,899 574,842 71,876 (4,819)
67,05
7
(f) Federal Income Tax
The Company uses the asset and liability method to establish deferred tax
assets and liabilities for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities
at enacted tax rates expected to be in effect when such amounts are
realized or settled. In addition, such deferred tax assets and liabilities
will be adjusted for the effects of enacted changes in tax laws and rates.
(g) Dividends
Dividends are accrued when declared by the Board of Directors. Dividends
declared were $738,300 and $1.61 per share in 1997, and $434,701 and $0.95
per share in 1996. Dividends paid were $588,800 and $1.28 per share in
1997, and $434,701 and $0.95 per share in 1996.
(2) Information About Operating Segments
Selected financial information for the Company's identifiable operating
segments follows:
Identifiable Assets
1997 1996
Regulated operations $ 19,380,485 18,045,249
Unregulated operations 2,315,021 2,175,313
$ 21,695,506
20,22
0,562
3 (Continued)
CORNING NATURAL GAS CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(2) Information About Operating Segments, Continued
Capital Expenditures
1997 1996
Regulated operations $ 762,254 427,839
Unregulated operations 237,475 207,355
$ 999,729 635,194
Depreciation
1997 1996
Regulated operations $ 548,614 395,758
Unregulated operations 239,754 174,330
$ 788,368 570,088
The Company's regulated operations have no significant assets which are
excluded from recoverability under rate filings.
(3) Regulatory Matters
Certain costs are deferred and recognized as expenses when they are
reflected in rates and recovered from customers as permitted by SFAS 71.
These costs are shown as Deferred Charges. Such costs arise from the
traditional cost-of-service rate setting approach whereby all prudently
incurred costs are generally recoverable through rates. Deferral of these
costs is appropriate while the Company's rates are regulated under a
cost-of-service approach.
In a purely competitive environment, such costs might not have been
incurred or deferred. Accordingly, if the Company's rate setting were
changed from a cost-of-service approach and it was not longer allowed to
defer these costs under SFAS 71, certain of these assets may not be fully
recoverable. However, the Company cannot predict the impact, if any, of
competition and continues to operate in a cost-of-service based regulatory
environment. Accordingly, the Company believes that accounting under SFAS
71 is still appropriate.
4 (Continued)
CORNING NATURAL GAS CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) Regulatory Matters, Continued
Below is a summarization of the Company's regulatory assets as of
September 30, 1997 and 1996:
1997 1996
Unrecovered gas costs $ 32,933 -
Deferred debits - accounting for income
taxes 1,016,661 1,016,
661
Other deferred debits 434,770 584,809
Total - regulatory assets $ 1,484,364 1,601,470
Unrecovered gas costs These costs are recoverable over future years and
arise from an annual reconciliation of certain gas revenue and costs
(as described in Note 1).
Deferred debits - accounting This amount represents the expected future
recovery from for income taxes ratepayers of the tax consequences of
temporary differences between the financial reporting basis and tax basis
of assets and liabilities.
Other deferred debits The majority of this amount represents pension and
postretirement benefit costs in excess of the amounts currently
recoverable through rates. The PSC requires such excess costs to be
deferred.
The Company expects that its regulatory assets will be fully recoverable
from customers.
5 (Continued)
CORNING NATURAL GAS CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(4) Long-Term Debt
A summary of long-term debt at September 30, 1997 and 1996 follows:
1997 1996
First mortgage bonds - 10%
retired in 1997 $ - 1,700,000
First mortgage bonds - 8 1/4%
series all due 2018 3,100,000 3,100,000
Unsecured senior note - 9.83%
due serially as described below 1,600,000 1,600,000
Unsecured senior note - 7.9%
due serially as described below 4,700,000 -
Total long-term debt 9,400,000 6,400,000
Less current installments - 100,000
Long-term debt less
current installments $ 9,400,000 6,300,000
The Company will redeem long-term debt as follows:
9.83% Senior Note - $100,000 annually from 2007 through 2015 with $700,000
due 2016.
7.9% Senior Note - $355,000 annually from 2006 through 2016 with $795,000
due 2017.
Under the Company's bond indenture, retained earnings as of September 30,
1997 in the amount of $796,654 are restricted as to the payment of
dividends. The 8 1/4% first mortgage bond is secured by substantially all
utility plant.
(5) Lines of Credit
The Company has lines of credit with local banks to borrow up to $5,500,000
on a short-term basis. Borrowings outstanding under these lines were
$775,000 at September 30, 1997 and $2,725,000 at September 30, 1996. The
maximum amount outstanding during the year ended September 30, 1997 and the
nine months ended September 30, 1996 was $3,445,000 and $3,815,000,
respectively. The lines of credit are unsecured and payable on demand
with interest at the prime rate (8.50% at September 30, 1997) less 1/8
to 1/2 %.
6 (Continued)
CORNING NATURAL GAS CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(6) Federal Income Taxes
Federal income tax expense (benefit) recorded in the accompanying
consolidated statements of income and retained earnings is as follows:
1997 1996
Utility Operations:
Current $ 122,335 392,304
Deferred 133,681 (196,063)
Investment Tax Credits (10,129) (10,671)
245,887 185,570
Unregulated Operations:
Current 122,665 97,095
Deferred (3,928) (127)
118,737 96,968
Total federal income tax expense $ 364,624 282,538
Actual federal income tax expense differs from the expected federal income
tax expense (computed by applying the federal corporate tax rate of 34% to
income before federal income tax expense) as follows:
1997 1996
Expected tax expense $ 380,928 260,414
Investment tax credits (10,129) (10,671)
Other, net (6,175) 32,795
$ 364,624 282,53
8
The Company is exempt from state income taxes.
7 (Continued)
CORNING NATURAL GAS CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(6) Federal Income Taxes, Continued
The tax effects of temporary differences that result in deferred income
tax assets and deferred income tax liabilities at September 30, 1997 and
1996 are as follows:
1997 1996
Deferred income tax assets:
Unbilled revenue $ 27,000 29,000
Supplemental pension reserve 188,000 151,000
Postretirement benefit obligations 102,000 106,000
Allowance for uncollectible accounts 33,000 33,000
Inventories 49,000 -
Other 43,000 45,000
Total deferred income tax assets $ 442,000 364,000
1997 1996
Deferred income tax liabilities:
Property, plant and equipment,
principally due to differences in
depreciation $ 2,110,000 2,075,000
Pension benefit obligations 358,000 294,000
Deficiency of GAC revenue billed 90,000 80,000
FERC Order 636 transition costs - 10,000
Other 266,966 158,21
3
Total deferred income tax liabilities 2,824,966 2,617,213
Net deferred income tax liability $ 2,382,966 2,253,
213
There was no change in the valuation allowance for deferred income tax
assets during the year ended September 30, 1997 and the nine months ended
September 30, 1996.
8 (Continued)
CORNING NATURAL GAS CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(7) Pension Plan
Since 1990 the Company has been accruing a liability with respect to the
Supplemental Pension Plan for certain officers. In 1997, the company estab-
lished a deferred compensation trust to provide for the future financing of
the plan. The fair market value of assets in the trust was $641,899 at
September 30, 1997 and the plan liability, which is included in other
deferred credits on the balance sheet, was $554,000 and $444,000 at
September 30, 1997 and 1996 respectively. The assets of the trust are
available to general creditors in the event of insolvency.
The Company has defined benefit pension plans covering substantially all of
its employees. The benefits are based on years of service and the
employee's highest average compensation during a specified period. The
Company makes annual contributions to the plans equal to amounts determined
in accordance with the funding requirements of the Employee Retirement
Security Act of 1974. Contributions are intended to provide not only for
benefits attributed for service to date, but also for those expected to be
earned in the future.
The following table sets forth the plan's funded status and amounts
recognized on the Company's balance sheet under Statement of Financial
Accounting Standards No. 87 (SFAS 87), Employers' Accounting for Pensions,
at September 30, 1997 and 1996.
1997 1996
Actuarial present value of accumulated
benefit obligation (including vested
benefits of $5,707,256 in 1997 and
$5,154,703 in 1996 $ 5,817,980
5,268
,331
Plan assets at fair value, primarily listed
stocks and bonds $ 9,102,282
7,41
1,741
Projected benefit obligation 7,159,528
6,517
,723
Excess of plan assets over projected
benefit obligation 1,942,754
89
4,018
Unrecognized net gain being recognized
over 10 years in accordance with PSC
policy (1,945,687)
(6
76,625)
Unrecognized prior service cost 809,624 801,57
8
Unrecognized net transition amount 8,456
(44
4,486)
Prepaid pension cost recognized on
the balance sheet $ 815,14
7 574,485
The year ended year change in the unassigned transaction amount is due to a
reclassification of prior unrecognized gains or losses.
9 (Continued)
CORNING NATURAL GAS CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(7) Pension Plan, Continued
The components of net periodic pension expense under SFAS 87 for the year
ended September 30, 1997 and the nine months ended September 30, 1996
are as follows:
1997 1996
Service cost of benefit earned during the
period $ 217,401 154,71
3
Interest on projected benefit obligation 466,981 335,492
Actual return on plan assets (1,823,855) (572,699)
Net amortization and deferrals 1,162,387 116,004
Net periodic pension expense $ 22,914
33,51
0
For ratemaking purposes, pension expense represents the amount approved by
the PSC in the Company's most recently approved rate case. Pension
expense for ratemaking purposes was approximately $39,000 for the year
ended September 30, 1997 and for the nine months ended September 30, 1996
there was a pension benefit of $45,000. The difference between the pension
expense (benefit) for ratemaking and financial statement purposes, and the
amount computed under SFAS 87 has been deferred and is not included in
the prepaid pension cost noted above. Such balances equal $286,000 and
$305,000 as of September 30, 1997 and 1996, respectively.
The assumptions used to determine the pension obligations and pension costs
for 1997 and 1996 were 7.25% for weighted average discount rate, 5.0% for
rate of compensation increase, and 8.0% for weighted average rate of
return on plan assets.
10 (Continued)
CORNING NATURAL GAS CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(8) Major Customers
The Company has three major customers, Corning Incorporated, New York State
Electric & Gas (NYSEG), and Bath Electric Gas & Water Systems (BEGWS).
The loss of any of these customers could have a significant impact on the
Company's financial results. In addition, a significant portion of
capacity assignment revenue is generated from Corning Inc. Total revenue
and deliveries to these customers were as follows:
Deliveries
Revenue
Mcf % of Total Amount
% of Total
Corning, Inc.
Year ended September 30, 1997 2,048,748 26 $ 729,350
4
Nine months ended Sept. 30, 1996 1,580,243 26 549,527
4
NYSEG
Year ended September 30, 1997 2,135,122 27 $ 266,371
1
Nine months ended Sept. 30, 1996 1,575,679 26 197,586
1
BEGWS
Year ended September 30, 1997 808,929 10 $ 2,049,
792 11
Nine months ended Sept. 30, 1996 544,200 9 1,503,239
10
(9) Postretirement Employee Benefits
In addition to the Company's defined benefit pension plans, the Company
offers postretirement benefits to its employees who meet certain age and
service criteria. Currently, the retirees under age 65 pay 60% of their
health care premium until Medicare benefits commence at age 65. After age
65, Medicare supplemental coverage is offered with Company payment of the
premium. For participants who retire on or after September 2, 1992, the
Company cost, as stated above, shall not exceed $150 per month. In addition
the Company offers limited life insurance coverage to active employees and
retirees. The postretirement benefit plan is not funded. The Company
accrues the cost of providing postretirement benefits, including medical
and life insurance coverage, during the active service period of the
employee. The following table presents the Company's postretirement
benefit plan's status reconciled with amounts recognized in the Company's
consolidated balance sheets under SFAS 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions at September 30, 1997 and 1996.
11 (Continued)
CORNING NATURAL GAS CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(9) Postretirement Employee Benefits, Continued
Actuarial present value of accumulated postretirement benefit obligation:
1997 1996
Current retirees $ (541,000) (670,000)
Future retirees (401,000) (347,0
00)
(942,000)
(1
,017,000)
Unrecognized transition obligation at
January 1, 1993 being recognized over
20 years 916,000 973,000
Unrecognized net gain being recognized
over 10 years in accordance with PSC
policy (315,000)
(258,
000)
Accrued postretirement benefit cost
recognized on the balance sheet $ (341,000) (302,0
00)
The PSC has allowed the Company to recover incremental SFAS 106 cost through
rates on a current basis. Due to the timing differences between the
Company's rate case filings and financial reporting period, a regulatory
asset has been recognized in the amount of approximately $26,000 to be
recovered from ratepayers in the future.
Net periodic postretirement benefit cost for the year ended
September 30, 1997, for the nine months ended September 30, 1996
under SFAS 106 includes the following components:
1997 1996
Service costs $ 13,000 10,000
Interest cost 65,000 53,000
Net amortized and deferrals 22,000 22,000
Net periodic postretirement
benefit cost $ 100,000 85,000
12 (Continued)
CORNING NATURAL GAS CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(9) Postretirement Employee Benefits, Continued
For measurement purposes, a 9% annual rate of increase in the per capita
cost of covered benefits (health care cost trend rate) was assumed for
1998. The rate is assumed to decrease gradually to 6% by the year 2012
and remain at that level thereafter. A 1% increase in the actual health
care cost trend would result in approximately a 3.0% increase in the
service and interest cost components of the annual net periodic
postretirement benefit cost and a 3.5% increase in the accumulated
postretirement benefit obligation. The weighted average discount rate used
in determining the actuarial present value of the accumulated
postretirement benefit obligation was 7.25%.
(10) Commitments
The Company has agreements with seven pipeline companies providing for
pipeline capacity for terms that extend through 2001. These agreements
require the payment of a demand charge for contracted capacity at Federal
Energy Regulatory Commission approved rates. Purchased gas costs incurred
under these pipelines capacity agreements during 1997 and 1996 amounted
to $3,363,429 and $3,139,258, respectively. The Company also has
short-term gas purchase agreements averaging three months in length, with
prices to various indices. The Company does not anticipate these agreements
to be in excess of normal capacity requirements.
13
CORNING NATURAL GAS CORPORATION AND SUBSIDIARY
SELECTED FINANCIAL DATA
1997 1996(2) 1995
1994 1993
TOTAL ASSETS $22,075,506 20,557,562 22,219,715 22,439,379 22,428
,120
LONG-TERM DEBT,LESS
CURRENT
INSTALLMENTS $ 9,400,000 6,300,000 6,300,000 6,400,000
6,500,000
SUMMARY OF EARNINGS:
OPERATING
REVENUE $17,835,687 15,082,135 16,614,726 16,559,167
17,9
53,457
TOTAL OPERATING
EXPENSES AND
TAXES 16,440,231 14,122,436 15,352,924 15,302,491 16,895
,327
NET OPERATING
INCOME 1,385,327 959,699 1,261,802 1,256,676 1,058,130
OTHER INCOME 22,977 10,447 29,356 32,968 65,874
APPLIANCE CORP
EARNINGS 221,856 131,935 203,381 220,211 223,000
INTEREST
EXPENSE 884,538 618,695 873,810 853,375 768,231
NET INCOME 755,751 483,386 620,729 656,480
578,773
NUMBER OF
COMMON SHARES 460,000 460,000 460,000 460,000 460,000
EARNINGS PER
COMMON SHARE $ 1.64 1.05 1.35 1.43
1.26
DIVIDENDS PAID
PER COMMON SHARE $ 1.28 0.95 1.25 1.23 1.21
STATISTICS (UNAUDITED) -
GAS DELIVERED (MMCF):
RESIDENTIAL 1,673 1,403 1,603 1,747
1,707
COMMERCIAL 343 309 330 377
364
INDUSTRIAL 29 20 28 31
56
MUNICIPAL 80 63 76 88
81
OTHER UTILITIES 369 267 362 359 385
TRANSPORT 5,404 3,971 5,265 5,187 4,660
TOTAL DELIVERIES 7,898 6,033 7,664 7,789 7,253
NUMBER OF CUSTOMERS
END OF PERIOD 13,837 13,753 13,910 13,486 13,342
AVERAGE MCF USE PER
RESIDENTIAL CUSTOMER 129.4 108.3 126.6 140.3 139.3
AVERAGE REVENUE PER
RESIDENTIAL CUSTOMER 851.45 743.16 812.29 814.23 857.46
NUMBER OF
DEGREE DAYS 6,831 4,577 6,772 7,008 6,946
PERCENT (WARMER)
COLDER THAN AVERAGE ( 3.6) 7.0 2.9 5.7 4.2
PEAK DAY
DELIVERIES (MCF) 55,190 53,328 48,919 52,770 46,904
NUMBER OF RENTAL
APPLIANCES IN
SERVICE 6,568 6,615 6,604 6,577 6,508
MILES OF MAIN 388.7 384.3 383.7 371.9
371.2
INVESTMENT IN GAS
PLANT (AT COST) 20,378,449 19,616,872 19,309,418 18,144,174 17,416,708
STOCKHOLDER'S EQUITY
PER SHARE 11.32 11.19 11.08 10.98 10.78
(1) FIFTEEN YEAR AVERAGE DEGREE DAYS : 6,591
(2) THE COMPANY CHANGED ITS YEAR END FROM DECEMBER 31 TO SEPTEMBER 30
EFFECTIVE JANUARY 1, 1996. THE AMOUNTS SHOWN IN 1996 ARE AS OF SEPTEMBER
30, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996.
Corning Natural Gas Corporation
330 W. William Street
P.O. Box 58
Corning, New York 14830
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held on Thursday, February 12, 1998
Corning, New York
January 15, 1998
To the Common Stockholders of
Corning Natural Gas Corporation
Notice is hereby given that the Annual Meeting of Stockholders of Corning
Natural Gas Corporation will be held at the office of the Company,
330 W. William Street, in the City of Corning, New York, on Thursday,
February 12, 1998 at 10:30 A.M., local time, for the following purposes:
(1) To fix the number of Directors at seven and to elect a Board of
Directors for the ensuing year.
(2) To transact such other business as may properly come before the
meeting.
The stock transfer books will not be closed, but only common stockholders
of record at the close of business on January 8, 1998 will be entitled to
vote at the meeting or any adjournment thereof.
You are cordially invited to attend the meeting and vote your shares. In
the event that you cannot attend, please date, sign and mail the enclosed
proxy in the enclosed self-addressed envelope. A stockholder who executes
and returns a proxy in the accompanying form has the power to revoke such
proxy at any time prior to the exercise thereof.
By Order of the Board of Directors
PHYLLIS J. GROEGER, Secretary
CORNING NATURAL GAS CORPORATION
PROXY STATEMENT
January 15, 1998
By Whom Proxy Solicited and Solicitation Expenses. The accompanying proxy
is solicited by the Board of Directors of the Company for use at the Annual
Meeting of Stockholders to be held on Thursday, February 12, 1998. Proxies
in substantially the accompanying form, properly executed and received
prior to or delivered at the meeting and not revoked, will be voted in
accordance with the specification made. The expense of soliciting proxies
will be borne by the Company.
The approximate date upon which this proxy statement and the accompanying
proxy will first be mailed to stockholders is January 15, 1998.
Right to Revoke Proxy. Any stockholder giving the proxy enclosed with
this statement has the power to revoke it at any time prior to the
exercise thereof. Such revocation may be by writing (which may include a
later dated proxy) received by the Office of the Secretary, Corning
Natural Gas Corporation, 330 W. William Street, P.O. Box 58, Corning,
New York, 14830, no later than February 11, 1998 if by mail, or prior to
the exercise thereof if delivered by hand. Such revocation may also be
effected orally at the meeting prior to the exercise of the proxy.
Proposals of Stockholders. Stockholders' proposals intended to be
presented at the 1999 Annual Meeting of Stockholders must be received by
the Office of the Secretary, Corning Natural Gas Corporation, 330 W.
William Street, P.O. Box 58, Corning, New York 14830, by September 17, 1998.
Voting Securities Outstanding. There were 460,000 shares of common stock
outstanding and entitled to vote on January 8, 1998 (the "Record Date").
Each share of common stock is entitled to one vote. Only stockholders of
record on the Record Date are entitled to notice of and to vote at the
meeting or any adjournment thereof.
Abstentions and broker non-votes are each included in calculating the
number of shares present and voting for purposes of determining quorum
requirements. However, each is tabulated separately. Abstentions are
counted in tabulating the votes cast on proposals presented to
shareholders, whereas broker non-votes are not counted for purposes of
determining whether a proposal has been approved.
The following table sets forth the shares of the Company's common stock,
and the percent of total outstanding shares represented thereby,
beneficially owned* by the nominees for director of the Company, the Chief
Executive Officer of the Company, all directors and officers as a group,
and all persons or groups known to the Company to beneficially own more
than 5% of such stock.
* As used in this Proxy Statement, "beneficial ownership" includes direct
or indirect, sole or shared power to vote, or to direct the voting of,
and/or investment power to dispose of, or to direct the disposition of,
shares of the common stock of the Company. Except as otherwise indicated
in the footnotes below, the listed beneficial owners held direct and sole
voting and investment power with respect to the stated shares.
Shares of Stock
Beneficially Owned
Directly or Indirectly
Percent
Beneficial Owners as of September 30, 1997 of Class
J. Edward Barry (Director) 45,999(1)
10.0%
330 W. William Street
Corning, New York
Thomas K. Barry (Director and 15,300(2)
3.3%
Chief Executive Officer)
330 W. William Street
Corning, New York
Thomas H. Bilodeau (Director) 3,788(3)
0.8%
1648 Jupiter Cove Dr., Apt. 312
Jupiter, Florida
Bradford J. Faxon (Director) 27,210(4) 5.9%
225 Hix Bridge Road
Westport, Massachusetts
Jay A. Finley (Director) 15,900(5) 3.5%
27 Spring Terrace
Corning, New York
Liselotte R. Lull and 45,029(6)
9.8%
Robert E. Lull
231 Watauga Avenue
Corning, New York
Jack R. McCormick (Director) 1,969(7) 0.4%
2560 Riverside Avenue
Somerset, Massachusetts
Donald R. Patnode (Director) 14,194(8) 3.1%
91 Stage Harbor Road
Chatham, Massachusetts
All directors and officers 128,638(9) 28.0%
of the Company, twelve persons
as a group
(1) Includes 25,066 shares held in trust, with respect to which J. Edward
Barry has shared voting and investment power, and 20,933 shares
beneficially owned and held in trust on behalf of Virginia S. Barry, with
respect to which J. Edward Barry also has shared voting and investment
power. Percentage reflects rounding; actual percentage is less than 10
percent.
(2) Includes indirect beneficial ownership of 1,100 shares owned by children
of Thomas K. Barry, and as to which Thomas K. Barry has shared voting and
investment power. Also includes 1,200 shares owned by two daughters of
Thomas K. Barry, as to which shares Mr. Barry disclaims beneficial
ownership.
(3) All shares are held in trusts and Mr. Bilodeau is a beneficiary or
contingent beneficiary of such trusts.
(4) Includes indirect beneficial ownership of 5,431 shares owned by children
of Bradford J. Faxon, and as to which Bradford J. Faxon has shared voting
and investment power.
(5) Includes indirect beneficial ownership of 7,900 shares owned by Gertrude
C. Finley, who has sole voting and investment power over such shares.
(6) Includes 23,378 shares owned by Liselotte R. Lull and 21,651 shares
owned by Robert E. Lull.
(7) All shares are owned jointly with Madeline McCormick.
(8) Includes 2,000 shares owned by spouse, who has sole voting and
investment power over such shares. Also includes 6,994 shares held in two
trusts, of which Donald R. Patnode is co-trustee.
(9) Aggregate record or imputed beneficial ownership, with sole or shared
voting or investment power.
Election of Directors. (Proposal No. 1) It is the intention of the
persons named in the enclosed proxy to vote the shares represented by the
proxy to fix the number of directors at seven and to elect the nominees
listed below to serve until the next Annual Meeting of Stockholders and
until their successors are duly elected and qualified. In the event of a
vacancy in the list of nominees, an event which the Board of Directors does
not anticipate, the holders of the proxies will vote for the election of a
nominee acceptable to the remiaining nominees. The directors must be
elected by a plurality of votes cast. The following is a brief description
of each nominee, including his principal employment or professional
experience for the past five years.
J. Edward Barry, 85, Consultant to the Company. Former Chairman of
the Board of Directors 1975 - 1993; former Chief Executive Officer,
President, Executive Vice President, Vice President and Secretary of the
Company. A Director since 1953 and Chairman of the Executive and Pension
Fund Committees. Father of Thomas K. Barry, Chairman of the Board, Chief
Executive Officer and President of the Company.
Thomas K. Barry, 52, Chairman of the Board of Directors since 1993,
President of the Company since 1983, Chief Executive Officer since 1984. A
Director since 1983 and a member of the Executive and Pension Fund
Committees. A Director of Fall River Gas Company. Son of J. Edward Barry,
Consultant to the Company.
Thomas H. Bilodeau, 55, Vice President - Finance, Medical &
Environmental Coolers, Inc. since 1990. A Director since 1984 and a
member of the Compensation and Audit Committees. A Director of Fall River
Gas Company.
Bradford J. Faxon, 59, Chairman of the Board of Directors, President
and Director of Fall River Gas Company since 1986. A Director since 1984,
Chairman of the Compensation Committee and a member of the Pension Fund
Committee.
Jay A. Finley, 82, Retired; former President of the Company,
1977-1983. A Director since 1975 and a member of the Executive Committee.
Jack R. McCormick, 73, Utility Consultant; current Director and former
President (1974-1986) of Fall River Gas Company. A Director since 1985 and
a member of the Audit Committee.
Donald R. Patnode, 69, Retired; former President of Industrial Filters
and Equipment Corporation 1989-1994. A Director since 1964, Chairman of the
Audit Committee and a member of the Compensation Committee. Director also
of Fall River Gas Company.
The Board of Directors does not have a standing nominating committee, or
any committee performing similar functions. The Board of Directors has a
standing Audit Committee, of which Messrs. D.R. Patnode, J.R. McCormick and
T.H. Bilodeau are the members, the function of which is to recommend the
selection of independent auditors, review the plan and results of the
independent audit and approve each professional service provided by the
independent auditors. The Audit Committee had one meeting in 1997. The
Board of Directors also has a standing compensation committee, of which
Messrs. D. R. Patnode, B. J. Faxon and T.H. Bilodeau are the members. This
committee met once during 1997. This committee reviews officer performance
and duties and decides upon appropriate remuneration. The Board of
Directors met five times in 1997. Each Director attended more than 75% of
the aggregate number of meetings of the Board and committees on which he
served during the year.
At the most recent annual meeting of stockholders of the Company, held on
February 13, 1997, out of a total of 460,000 shares entitled to vote at the
meeting, 404,457 shares (87.9% of the total) were actually voted at the
meeting with respect to the election of Directors. Nominees proposed for
election by the Board of Directors were elected by requisite vote at such
meeting. Each nominee received an affirmative vote of over 99% of the
votes cast.
Cash Compensation of Executive Officers. The following table sets forth
the compensation paid or accrued by the Company and its subsidiary during
the fiscal years ended December 31, 1995, September 30, 1996 and
September 30, 1997 to the Company's Chief Executive Officer. Other than
the Chief Executive Officer, no other executive officer of the Company was
paid an annual salary and bonus in 1997 that aggregated $100,000. Although
only principal capacities are listed, the compensation figures include all
compensation received in any capacity, including directorships, for services
rendered during the fiscal years indicated.
SUMMARY COMPENSATION TABLE
Annual Compensation(1)
Name and
Other Annual
Principal Position Year Salary Bonus
Compensation
Thomas K. Barry 1997 $150,167 --- $ 4,220
President and Chief 1996 106,800(2) --- 2,970(2)
Executive Officer 1995 134,967 --- 3,721
(1) The Company did not pay any long-term compensation to its Chief
Executive Officer or to its other executive officers during the fiscal
years ended December 31, 1995, September 30, 1996 and September 30, 1997.
(2) 1996 amounts reflect compensation received with respect to the Company's
nine month 1996 fiscal year (ended September 30, 1996) that result from
the adoption by the Company of a fiscal year end of September 30 instead
of December 31 each year.
A description of the executive officers, other than Mr. Thomas K. Barry,
for whom a description is provided above, is set forth below.
Kenneth J. Robinson (age 53) is Executive Vice President. Mr. Robinson
joined the Company in 1978 as an accountant. Most recently he served as
Financial Vice President and Treasurer for 4 years and in his current
position for 6 years.
Edgar F. Lewis (age 60) is Senior Vice President - Operations. Mr. Lewis'
career with the Company dates back to 1956. He has been in charge of
operations for the past 25 years; 17 years in his current position.
Thomas S. Roye (age 44) is Vice President - Administration. Mr. Roye has
served 6 years in his current position and was previously Assistant
Treasurer & Assistant Secretary. He has prior utility experience and
accounting education and has been employed since 1978.
Gary K. Earley (age 43) is Treasurer. Mr. Earley has been a practicing
accountant since 1976. He joined the firm in 1987 as an accountant in the
rates and regulations department and has served as Treasurer for the past
6 years.
Phyllis J. Groeger (age 57) is Corporate Secretary. Mrs. Groeger has been
employed since 1973 in a number of positions advancing to Assistant
Secretary in 1986 and has been Secretary of the Company for the past
10 years.
Compensation Pursuant to Plans. The Company has entered into separate
supplemental benefits agreements with Thomas K. Barry and one other
executive officer (collectively, the "Supplemental Benefits Agreements"),
which provide that the officer covered thereby and retiring after the age
of 62 is entitled to receive monthly payments equal to 35% of such
officer's monthly salary at retirement for either life or 180 months,
whichever is longer. Such amount payable shall increase by 4% annually on
the anniversary date of such officer's retirement. Retirement benefits
otherwise available upon retirement at age 62 under the Supplemental Benefit
Agreements are reduced cumulatively by 4% for each year prior to age 60 in
which the covered officer retires; provided, however, that an officer
covered under a Supplemental Benefits Agreement receives no retirement
benefits thereunder in the event that such officer retires before age 55.
Furthermore, the Supplemental Benefits Agreements provide that in the event
that an officer covered by a Supplemental Benefits Agreement dies prior to
retirement, such officer's designated beneficiary is entitled to receive
monthly payments equal to 50% of such officer's monthly salary at death
for 180 months.
The Company has also entered into an additional, more limited, Supplemental
Benefits Agreement with one other employee, which contains terms similar to
the foregoing agreements. However, such limited Supplemental Benefits
Agreement provides for monthly payments equal to 20% of the subject
employee's monthly salary in the event of retirement, monthly payments
equal to 35% of his monthly salary in the event of his death prior to
retirement, and does not include an annual escalator.
Eligibility to enter into a Supplemental Benefits Agreement, or equivalent
thereof, is based upon employee performance, service and value to the
Company; such eligibility is determined on an individual basis by the Board
of Directors. Currently, Mr. Thomas K. Barry and two other executive
officers (as discussed, above) are the only employees of the Company
covered by a Supplemental Benefits Agreement, and no payments have been
made to date under such agreements. The Supplemental Benefits Agreements
are in addition to the amounts shown in the Summary Compensation Table and
are not subject to limitation. As of September 30, 1997, the estimated
annual benefits payable under a Supplemental Benefits Agreement upon
retirement at the normal retirement age for Mr. Thomas K. Barry are $ 51,800.
The Company also maintains the Corning Natural Gas Corporation Employees
Savings Plan (the "Savings Plan"). All employees of the Company
who work for more than 1,000 hours per year and who have completed one year
of service may participate in the Savings Plan as of the following
January 1 or July 1. Under the Savings Plan, participants may contribute
up to 15% of their wages. For non-union employees, the Company will match
one-half of the participant's contributions up to a total of 3% of the
participant's wages.
Company matching contributions vest in the participants account at a rate
of 20% per year and become fully vested after five years. All participants
may select one of five investment plans, or a combination thereof, for their
account. Distribution of amounts accumulated under the Savings Plan occurs
upon termination of employment or death of the participant. The Savings
Plan also contains loan and hardship withdrawal provisions. During the
fiscal year ended September 30, 1997 no amounts were distributed to executive
officers under the Savings Plan. Mr. Thomas K. Barry had $4,220 accrued
to his account under the Savings Plan during said period. This accrual is
included in the figures appearing in the summary compensation table on page
4.
Compensation of Directors. The current annual Director's compensation is
$5,000. In addition, Directors are paid $300 for each Board meeting
attended. Additionally, the chairmen of the Board's Executive, Audit,
Compensation and Pension Fund committees and those directors who serve on
more than one committee receive an annual fee of $1,500 for such services.
Committee members other than the chairmen are paid $1,000 annually for
their services, subject to the limitation that no committee chairman or
member may receive than $1,500 annually for such services regardless of
the number of committees on which he serves.
As allowed by New York law, the Company currently has in effect an
insurance policy, with an effective date of June 1, 1997, with National
Union Fire Insurance Company for the indemnification of officers and
directors at an annual premium cost of $ 43,000.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements. In January of 1992, the Company entered into an employment
contract with its President and Chief Executive Officer, Mr. Thomas K.
Barry. Under the terms of such employment contract, Mr. Barry is
compensated for his duties as an officer and director with such salary as
is determined from time to time by the Board of Directors. The term of Mr.
Barry's employment contract is five years, unless earlier terminated by an
act of either the Company or Mr. Barry. Beginning in 1994, however, Mr.
Barry's employment contract is automatically extended for an additional
one-year period. Mr. Barry's employment contract further provides that
upon any change in control of the Company leading to the termination of
Mr. Barry's employment with the Company, the Company shall pay Mr. Barry
three times his then-present annual salary, or such lesser amount as may
be required to comply with certain provisions of the Internal Revenue Code.
Selection of Auditors. KPMG Peat Marwick, Certified Public Accountants of
Rochester, New York, have been selected as auditors for the Company for
the ensuing year. KPMG Peat Marwick, who served as principal accountants
for the Company for the past fiscal year, have no direct or indirect
financial interest in the Company or its subsidiaries in the capacity of
promoter, underwriter, voting director, officer or employee. A
representative of KPMG Peat Marwick will be present at the meeting, with
the opportunity to make a statement if such representative desires to do
so, and will be available to respond to appropriate questions.
Other Matters. Except for the matters set forth above, the Board of
Directors knows of no matters which may be presented to the meeting, but
if any other matters properly come before the meeting, it is the intention
of the persons named in the accompanying form of proxy to vote such proxy
in accordance with their judgment in such matters.
PLEASE DATE, SIGN AND RETURN THE ENCLOSED PROXY.
By Order of the Board of Directors,
PHYLLIS J. GROEGER, Secretary
Persons whose proxies are solicited by the Board of Directors of the Company
may obtain, without charge, a copy of the Company's Annual Report on
Form 10-KSB, including the financial statements and schedules thereto,
required to be filed with the Securities and Exchange Commission for the
Company's most recent fiscal year. The report will be furnished upon
request made in writing to:
Thomas K. Barry
Chairman of the Board of Directors
Corning Natural Gas Corporation
330 W. William Street
P.O. Box 58
Corning, New York 14830
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