U.S. Securities and Exchange Commission
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarter ended December 31, 1998
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)
Registrant's telephone number (607) 936-3755
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes __x__ No____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12,13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
Yes_____ No_____
There were 460,000 shares of Common Stock outstanding at the end of the
quarter. There is only one class of Common Stock and no Preference Stock
outstanding.
Net income (loss) for the quarter ended December 31, 1998 was $163,322, a
$49,389 reduction from the same quarter the previous year. The reduction
results from a decline in gas sales due to milder weather. Mcf deliveries
of 2,076,824 were down 4 percent from the same quarter last year. In
addition, capacity assignment revenues of $32,802 were down 39 percent from
the previous year due to an increasingly competitive market.
Subsidiary earnings were also up 17 percent for the quarter due to the
newly acquired businesses discussed below.
As the Comnpany's business is seasonal by quarters, results for the first
three months of fiscal year 1999 should not be used as an indication of
what results for the full twelve months of fiscal year 1999 may be.
Late in September, 1997, the Company completed a long-term debt financing in
the amount of $4.7 million. These funds were obtained through a private
placement of 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 estimated on the bond retirement
while the entire package served to strenghten the capitalization structure.
In April 1998 the Company's Appliance subsidiary completed the purchase of
three local existing businesses. A shopping plaza in South Corning was
purchased which has multi-year leases with eight businesses housed in
52,000 square feet of rentable space with a major grocery store as the anchor.
Also purchased was a real estate management and brokerage organization and
a tax and financial services company. The shopping plaza was purchased for
$1,175,000 and financed primarily through a $940,000 twenty year note secur-
ed by a mortgage on the shopping center real estate. The real estate and
financial service companies were purchased for $349,000, funded through a
$180,000 eight year loan agreement with the sellers and the balance through
operating funds. The real estate firm is a franchise of The Prudential
Marketplace Realty and has twenty three agents operating out of offices in
both the Corning and Elmira, New York market. The financial services
business, Tax Center International, provides tax preparation, accounting and
payroll services and currently serves over six hundred clients. On December 3,
1998 the Corning Realty Associates, LLC, a wholly owned subsidiary of Corning
Natural Gas Appliance Corp. acquired a local real estate company, Ambrose
and Shoemaker Better Homes and Gardens Real Estate. The acquisition cost
of $1,525,000 and was accounted for by the purchase method, as follows:
(a) $468,334 to be paid at closing
(b) $608,333 to be paid pursuant to a Promissory Note for a period of 60
months at an interest rate of 6.5% per annum.
(c) $448,333 to be paid over a three year period pursuant to an "earn out"
formula.
Total goodwill related to this transaction was $1,400,000. These purchases
are part of the Company's plan to aggressively explore new opportunties
in non-traditional areas.
The Company adopted Statement of FInancial Accounting Standards No. 130,
Reporting Comprehensive Income in the quarter ended December 31, 1998. Total
Comprehesive Income amounted to $219,009 for the quarter, consisting of
Net Income of $163,322 and Unrealized Gain on Marketable Securities of
$55,697.
Internal generation of funds should be sufficient to meet the needs of the
Company coupled with some intermittent short-term borrowings.
Year 2000
The year 2000 issue(Y2K) refers to the inability of certain computerized
systems and technologies to recognize and/or correctly process dates beyond
December 31, 1999. Corning Natural Gas Corporation has identified those
areas within the Company where the potential exists for computer system
failure or miscalculations by computer programs could cause a disruption
in the Company's operations or services. A Y2K Coordinator was assigned
to develop and implement a Y2K plan. The Company has developed and put in
place solutions for the following areas:
1: Computer Hardware and Software
The AS/400 Main Frame Computer Operating System and all software modules
including Customer Information Systems, Meter Reading, Billing for the Gas
and Appliance Company, Service Orders, Accounting and Financial Statements,
Inventory and Purchase Orders and Accounts Payable are now Y2K compliant
through upgrades received from our software provider and IBM.
All personal computers identified as being non compliant have been replaced.
The review of software contained on these computers is currently being
conducted and the Company anticipates no problems with compliance in this
area.
2:Telemetering System
The telemetering system is Y2K compliant and we anticipate no interruption
in the flow of gas to our customers due to our computer system.
3:Phone System
The internal telephone system for the Company is now Y2K compliant. We will
be able to receive emergency calls and generate the proper service orders for
all phases of our operations. We do not require the use of PC's in handling
our customers' calls and creating orders.
Costs of Compliance
Because the Company is still in the process of identifying and replacing
non compliant systems or problems, it is not possible at this time to
quantify the total cost incurred with the Y2K program. However, the company
expects that it will not be significant.
Risks of the Company's Y2K Issues
Since the Company has not completed all testing on some of the IT and non-IT
systems that may not be Y2K compliant, failure of these systems could have a
material adverse impact on the Company's systems. While the Company's Y2K
plan is designed to identify and remedy these systems in order to avoid
interruption of its operations, there can be no assurance that it will be
able to identify all non compliant systems or successfully remedy all those
identified.
The Company is dependent upon third party products and services, such as
utilities and programming uplinks, for the operation of its businesses. As
part of its Y2K program the Company will contact these third party product
and service providers to ascertain whether Y2K compliance issues may exist.
While many of these companies may give us assurances that they are fully
Y2K compliant, the Company does not have the ability to verify such inform-
ation. If critical third party systems fail as a result of Y2K issues, the
ability of the Company to provide services to its customers may be interrupted.
While the Company intends to consider contingency plans to address those risks
although no such plans have been identified, there can be no assurance that
any such plan would resolve such problems in a satisfactory manner. This
could result in lost revenues or the risk of actions against the Company
if the businesses of others are disrupted.
There has been no change in independent public accountants. The Company has
not filed any reports on Form 8-K for the quarter ended December 31, 1998.
The information furnished herewith reflects all adjustments which are in the
opinion of management necessary to a fair statement of the results for the
period. Certain information and footnote disclosure normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to SEC rules
and regulations, although the Company believes the disclosures which are
made are adequate to make the information presented not misleading.
The condensed financial statements should be read in conjunction with the
financial statements and noted thereto included in the Company's latest
Annual Report on Form 10-KSB.
The statements contained herein have not been examined or certified by a
firm of certified public accountants.
There were no sales of unregistered securities (debt or equity) during the
fiscal quarter ending December 31, 1998.
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
Date February 12, 1999 THOMAS K BARRY
Thomas K. Barry, Chairman of the Board,
President and C.E.O.
Date February 12, 1999 GARY K EARLEY
Gary K. Earley, Treasurer
CORNING NATURAL GAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
UNAUDITED FORM 10 QSB
FOR QUARTER ENDED
December 31, 1998 December 31, 1997
Operating Revenues $4,127,298 $4,668,028
Cost and Expense
Operating Expenses 3,825,526 4,262,742
Interest Expense 254,843 236,343
Income Tax (17,612) 41,783
Other Deductions Net 5,042 2,519
---------- -----------
Total Costs and Expenses 4,067,799 4,543,387
Operating Income 59,499 124,641
Other Income 810 0
Corning Natural Gas Appliance Corp.
Operating Revenues 662,914 717,677
Depreciation 58,421 61,166
Other Operating Expense 509,947 500,630
Federal Income Tax 33,179 67,811
Equity in Assoc Cos. 41,646 0
------- --------
Net Income of Appliance Corp 103,013 88,070
------- --------
Net Income 163,322 212,711
======= ========
Earnings Per Share-Basic & Diluted $ 0.355 $ 0.462
Dividends Per Share $ 0.650 $ 0.325
Dividends Declared $299,000 $149,500
Shares of common stock outstanding were 460,000 at December 31, 1998.
Earnings per share=Net Income as shown above divided by 460,000 shares.
Dividends per share=Dividends declared divided by shares outstanding at time.
CORNING NATURAL GAS CORPORATION
Consolidated Balance Sheets
Form 10-QSB Unaudited
12/31/98 09/30/98
--------- --------
Assets
Gas Utility Plant $21,669,419 $21,396,130
Non-Utility-Principally Rented Gas Appl 3,912,800 3,782,327
----------- -----------
25,582,219 25,178,457
Less:Accum. Provision For Depr (9,225,231) (9,079,776)
----------- -----------
$16,356,988 $16,098,681
Current Assets:
Cash and Equivalents 828,096 284,426
Marketable Securities Available for Sale 818,052 785,361
Accounts Receivable 1,812,439 1,038,524
Materials, Supplies and Inventories 1,684,201 2,121,492
Prepayments and Other 465,761 567,172
----------- ----------
Total Current Assets 5,608,549 4,796,975
Non-Current Assets
Def. Tax Assets 330,620 57,000
Def Debits-Acctg for Income Taxes 1,016,661 1,016,661
Deferred Debits 2,286,960 2,507,206
Goodwill, net of amortization 1,742,310 348,235
---------- ---------
Total Non-Current Assets 5,376,551 3,929,102
Total Assets $27,342,088 $24,824,758
=========== ===========
Capitalization & Liabilities
Capitalization:
Common Stock 2,300,000 2,300,000
Premium on Capital Stock-Common 653,346 653,346
Retained Earnings 2,267,812 2,403,489
Net Unrealized Gain on Securites
for Sale(net FIT of 51,466) 95,331 39,644
---------- ----------
5,316,489 5,396,479
Long Term Debt 12,012,014 10,459,351
---------- -----------
Total Capitalization 17,328,503 15,855,830
Current Liabilities:
Short Term Notes Payable 2,840,000 2,325,000
Accounts Payable 1,641,963 1,266,918
Customer Deposits and Accrued Interest 238,361 728,645
Other Accrued Taxes 304,083 145,170
Current Maturities of Long Term Debt 0 36,830
Other Current and Accrued Liabilities 507,382 602,521
----------- ---------
Total Current Liabilities 5,531,789 5,105,084
Accumulated Deferred FIT 2,855,022 2,353,665
Reserves and Other Liabilities 1,626,774 1,510,179
----------- ----------
Total Liab. and Capitalization $27,342,088 $24,824,758
=========== ===========
CORNING NATURAL GAS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR QUARTER ENDED DECEMBER 31, 1998
FORM 10-QSB-UNAUDITED
Dec 31, 1998 Dec 31, 1997
-------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 163,322 $ 212,710
Adjustments to Reconcile Net Income
to Net Cash
Provided by Operating Activities:
Depreciation 155,548 184,567
Allowance for Funds Used During Const. 0 0
Changes in Assets and Liabilities:
(Increase)Decrease in:
Accounts Receivable (773,915) (1,418,827)
Materials, Supplies & Appliance Inv 437,291 (664,184)
Other Deferred Charges 568,481 25,221
Prepaid and Other Assets 101,411 490,069
Increase(Decrease)in:
Accounts Payable 375,045 2,181,991
Accrued General Taxes 158,913 (104,170)
Accrued Federal Income Tax 0 (141,813)
Deferred Federal Income Tax 199,050 148,087
Other Liabilities and Def Credits (476,971) (575,785)
--------- ---------
Net Cash Provided by
Operating Activities 908,175 337,866
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of Marketable Securities 22,997 0
Capital Expenditures (2,156,165) (269,046)
Allowance for Funds Used During Const. 0 0
--------- -----------
Net Cash Used in Investing Activities (2,133,168) (269,046)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings (Repayments) Under
Line-of-Credit Agreement 515,000 275,000
Dividends Paid (299,000) (149,500)
Net Borrowing(Repay)of Long-Term Debt 1,552,663 0
--------- -----------
Net Cash Provided by
Financing Activities 1,768,663 125,500
--------- -----------
NET INC IN CASH AND CASH EQUIV. 543,670 194,320
CASH AND CASH EQUIV. AT BEG OF PERIOD 284,426 904,651
--------- ----------
CASH AND CASH EQUIV. AT END OF PERIOD $ 828,096 $ 1,098,971
========== =============
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period for:
Interest (Net of Amount Capitalized) $ 300,406 $ 238,478
Income Taxes $ 11,357 $ 0
CORNING NATURAL GAS CORPORATION
Statement of Comprehensive Income
Quarter Ended December 31,1998
Net Income $ 163,322
Other Comprehensive income, net of tax:
Unrealized gains(losses) on securities: 55,687
---------
Comprehensive Income $ 219,009
=========
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