SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1999
Commission File Number 0-643
Corning Natural Gas Corporation
(Exact name of registrant as specified in its charter)
New York 16-0397420
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
330 W. William Street, PO Box 58, Corning, New York 14830
607-936-3755
(Registrant's telephone number, including area code)
Former name, former address and former fiscal year, if change since
last report)
Indicate by check mark whether the registrant (1) has filed all
reports required 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.
As the Company's business is seasonal by quarters, results for the
first six 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.
Net income for the quarter ended March 31, 1999 was $481,700,
a $123,259 reduction from the same quarter the previous year.
The reduction results primarily from a decline in subsidiary
earnings due to a typically slow quarter in the real estate
market. In addition, capacity assignment revenues of $51,339
were down 27 percent from the previous year due to an increasingly
competitive market.
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 secured 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. aquired 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 opportunities in non-traditional areas.
On January 1, 1999 the Company adopted Financial Accounting
Standards Board Statement No. 130, Reporting Comprehensive
Income (Statement 130). Statement 130 established standards
for reporting and presentation of comprehensive income and its
components in a full set of financial statements. Comprehensive
income consists of net income and net unrealized gains on
marketable securities and is presented in a statement of
comprehensive income. The Statement requires only additional
disclosures in the consolidated financial statements; it does
not affect the Company's financial position or results of
operations.
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 believed to be 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 significant problems with compliance in this area.
2. Telemetering System
The telemetering system has been evaluated and is deemed to be
Y2K ready and we do not anticipate interruptions in the flow of
gas to our customers due to our computer system.
3. Phone System
The internal telephone system has been evaluated and is deemed to be
Y2K ready. 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
It is not possible at this time to quantify the total costs
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, 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 information. 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 March 31, 1999.
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 notes 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 quarter ending March 31, 1999.
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 May 6, 1999 THOMAS K. BARRY
Thomas K. Barry, Chairman of
the Board, President and C.E.O.
Date May 6, 1999 GARY K. EARLEY
Gary K. Earley, Treasurer
CORNING NATURAL GAS CORPORATION
Consolidated Condensed Statements of Income
Unaudited
Form 10 QSB
Quarter Ended Six Months Ended
03/31/99 03/31/98 03/31/99 03/31/98
Operating Revenues $7,521,905 $7,173,161 $11,649,203 $11,841,189
------------------------------------------------
Cost and Expense
Operating Expense 6,431,452 6,047,059 10,256,977 10,309,802
Interest Expense 244,109 240,779 498,952 477,121
Income Tax 284,483 319,729 266,871 361,511
Other Deductions, Net (4,056) 2,635 986 5,157
------------------------------------------------
Total Costs and Expenses 6,955,988 6,610,202 11,023,786 11,153,591
Operating Income 565,917 562,959 625,417 687,598
-----------------------------------------------
Other Income (8,522) 100 (7,712) 100
Corning Natural Gas Appliance Corp.
Operating Revenues 488,999 555,028 1,151,913 1,272,707
Depreciation 59,050 59,870 117,471 121,035
Operating Expense 387,984 440,052 897,931 940,685
Federal Income Tax 16,570 13,206 49,749 81,017
Equity in Assoc. Cos. (93,943) 0 (52,297) 0
-----------------------------------------------
Net Income of
Appliance Corp (68,548) 41,900 34,465 129,970
----------------------------------------------
Net Income $488,847 $604,959 $652,170 $817,668
Earnings Per Share-
Basic & diluted $ 1.047 $1.315 $1.402 $1.778
Dividends Per Share $ 0.000 $0.000 $0.650 $0.330
Dividends Declared $ 0 $ 0 $299,000 $149,501
CORNING NATURAL GAS CORPORATION
Consolidated Balance Sheets
Form 10-QSB
Unaudited
March 31, 1999 September 30, 1998
Assets
Property, plant and
equipment, at
original cost:
Utility $21,723,618 21,396,130
Non-Utility-
principally rented
appl and plaza 4,040,502 3,782,327
------------------------------
25,764,120 25,178,457
Less accum depr (9,270,919) (9,079,776)
-------------------------------
16,493,201 16,098,681
-------------------------------
Current assets:
Cash 338,593 284,426
Marketable securities
available for sale, at
fair value 976,580 785,361
Accounts receivable, less
allowance for uncoll 2,515,476 1,038,524
Gas stored underground 577,192 1,539,727
Gas and appliance inventories 566,514 581,765
Prepaid income taxes 44,531 55,534
Deferred income tax assets 499,617 57,000
Prepaid expenses 693,357 511,638
-------------------------------
6,211,860 4,853,975
-------------------------------
Deferred charges:
Pension and other 1,800,516 1,509,695
Deferred debits-acctg for 1,016,661 1,016,661
income taxes
Unrecovered gas costs 0 191,819
Long-term debt issuance costs,
net of amort 382,096 392,875
------------------------------
3,199,273 3,111,050
Goodwill, net of amortization 1,713,052 348,235
Other assets 431,562 412,817
-----------------------------
$28,048,948 24,824,758
==============================
Capitalization and Liabilities
Common stock 2,300,000 2,300,000
Additional paid-in capital 653,346 653,346
Accumulated Comprehensive Income
Net unrealized gain on securities
available for sale(net of income
taxes of $51,145 as of 3/31/99 and
$20,422 as of 9/30/98) 114,643 39,644
Retained earnings 2,756,659 2,403,489
------------------------------
5,824,648 5,396,479
Long-term debt, less current
installments 11,933,176 10,459,351
--------------------------------
Total capitalization 17,757,824 15,855,830
-------------------------------
Current liabilities:
Notes payable 2,210,000 2,325,000
Accounts payable 1,214,707 1,266,918
Current installments of
long-term debt 35,450 36,830
Customers' deposits and acc int 234,434 728,645
Accrued general taxes 345,282 145,170
Supplier refunds due customers 0 70,731
Accrued expenses 4,206 502,755
Other 1,336,251 29,035
---------------------------
Total current liabilities 5,380,330 5,105,084
----------------------------
Deferred credits:
Deferred income tax liabilities 2,819,509 2,353,665
Deferred compensation, post-
retirement benefits, other 2,091,285 1,510,179
-------------------------------
4,910,794 3,863,844
-------------------------------
$28,048,948 24,824,758
===============================
CORNING NATURAL GAS CORPORATION
Consolidated Statements of Cash Flows
For Six Months Ended March 31, 1999 and 1998
Form 10-QSB-Unaudited
March 31, 1999 March 31, 1998
Cash flows from operating activities:
Net Income $ 652,170 817,668
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 414,778 369,347
Gain on Sale of marketable
securities 11,704 (20,997)
Changes in assets and liabilities:
(Increase)decreae in:
Accounts receivable (1,476,952) (1,452,551)
Gas stored underground 962,535 1,027,934
Gas and appliance inventories 15,251 (187,339)
Prepaid expenses (181,719) 87,856
Unrecovered gas costs 191,819 (227,221)
Prepaid income taxes 11,003 175,712
Deferred charges-pension and other (290,821) 291,924
Other assets (7,966) (6,895)
Increase(decrease)in:
Accounts payable (52,211) 40,570
Accrued general taxes 200,112 72,358
Supplier refunds due customers (70,731) 75,853
Deferred income taxes 23,227 (81,263)
Other liabilities and def credits 895,563 (189,463)
------------------------------
Net cash provided by operating
activities 1,297,762 793,493
Cash flows from investing activities:
Purchase of marketable securities, net (77,584) (59,173)
Acquisitions of businesses, net of
cash acquired (468,334) 0
Capital expenditures, net of minor
disposals (699,456) (481,815)
------------------------------
Net cash used in investing
activities (1,245,374) (540,988)
Cash flows from financing activities:
Net borrowings(repayments)under line-
of-credit agreements (115,000) 100,000
Dividends paid (299,000) (149,500)
Borrowings under long-term debt
agreements 415,779 0
Repayment of long-term debt -- --
------------------------------
Net cash provided by
financing activities 1,779 (49,500)
Net increase in cash 54,167 203,005
Cash at beginning of period 284,426 262,752
---------------------------------
Cash at end of period $ 338,593 465,757
---------------------------------
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest $ 561,935 442,524
Income taxes 56,357 110,000
Non cash investing and financing activities:
Acquisition of business
financed by seller $ 1,056,666 0
CORNING NATURAL GAS CORPORATION
Statement of Comprehensive Income
Unaudited
Form 10 QSB Quarter Ended Six Months Ended
03/31/99 03/31/98 03/31/99 03/31/98
Net Income $488,847 604,959 652,170 817,668
Other comprehensive
income, net of tax:
Unrealized gains
(losses) on securities: 19,312 0 74,999 19,238
-------------------------------------------
Comprehensive Income $508,159 604,959 727,169 836,906
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