(Picture of fire flame) Roanoke Gas
1995 Annual Report
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CORPORATE MISSION STATEMENT
Roanoke Gas Company provides superior customer and stockholder
value by being the preferred choice for safe, dependable, efficient,
economical energy and services in the market it serves.
Strategic Goals
1. To aggressively improve marketability by providing services to meet
the needs of our existing and potential customers.
2. To optimize rate of return and shareholder value.
3. To increase productivity of human and physical resources through
visionary leadership, sound management and active employee
involvement and development giving each employee the opportunity to
succeed.
4. To project a positive image of every aspect of the Company to its
customers, stakeholders and community.
5. To promote effective communications, both internal and external, to
enable success.
6. To grow the Company's markets through expansion and acquisition of
existing business units and development of new technologies and
opportunities.
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CONTENTS
Letter to Stockholders........................................................2
Review of Operations..........................................................4
Management's Discussion and Analysis..........................................7
1995 Financial Highlights....................................................13
Independent Auditors' Report.................................................14
Consolidated Balance Sheets..................................................15
Consolidated Statements of Earnings..........................................16
Consolidated Statements of Stockholders' Equity..............................17
Consolidated Statements of Cash Flows........................................18
Notes to Consolidated Financial Statements...................................19
Summary of Sales and Statistics..............................................28
Summary of Capitalization Statistics.........................................29
Roanoke Gas Company Board of Directors and Officers..........................30
Bluefield Gas Company Board of Directors and Officers........................31
Diversified Energy Company Board of Directors and Officers...................31
Notice of Annual Meeting.....................................................32
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LETTER TO STOCKHOLDERS
Dear Stockholder:
I am pleased to say that the year ended September 30, 1995
marks the accomplishment of one of your Company's major operational
goals (to increase earnings even in the face of significantly warmer
than normal weather). Even though the weather was 10% warmer than
normal and 14% warmer than the previous year, earnings increased by
6%. One of the major factors in this accomplishment was the redesign
of the Company's rate structure to collect a greater portion of the
revenues in monthly service charges thus reducing volatility of
revenues due to weather. Rate redesign, along with Commission
approved rate increases and a reorganization of the Company,
focusing on cost control, produced improved results even in our third
warmest year on record.
Our dividend record remains strong, with 206 consecutive dividends
paid. We are very pleased with the continued success of our
Dividend Reinvestment and Stock Purchase Plan, and this year the average
number of shares outstanding increased by 5%.
Natural gas continues to be the energy of choice in the areas we serve,
and customer growth remained strong during the fiscal year. Customer
growth was approximately 3% for Roanoke Gas, 1% for Bluefield Gas and 6%
for Highland Propane.
Capital additions for the year totaled $5.6 million, including the
addition of over 21 miles of new distribution mains and the replacement
of over 5 miles of bare steel and cast iron piping with plastic piping.
The Company remains committed to its long-term program to replace all
bare steel and cast iron pipe, and these improvements should reduce
future maintenance expenses. During the year we also built new office
and warehouse facilities for Bluefield Gas Company and upgraded our
liquefied natural gas storage facility.
The Company has transitioned well into the deregulated gas supply world
created by the Federal Energy Regulatory Commission (FERC) deregulation
Order 636. We continue to look for and acquire new gas storage
services and gas supplies from an array of companies. Our portfolio of
gas suppliers includes small companies as well as major energy
suppliers such as: Amoco, Ashland Exploration, Coastal Gas Marketing,
Columbia Energy Services, Hadson Corporation and Mobil Natural Gas. We
have been buying some gas directly from producers and marketers since
the early 1980s and have found the most important ingredient to a
supply contract is how well the Company responds to weather emergencies
and related problems. Since the implementation of FERC Order 636 in the
Fall of 1993, which removed our interstate pipelines from the gas
merchant business, we have purchased all of our gas supplies directly
from producers or marketers. We are pleased with the relations we have
enjoyed with these companies and expect to continue them during the
coming year.
We are continuing our efforts to modernize the Company with the
installation of state of the art software systems, training and
cross-training of personnel and use of up-to-date technology in
metering, pipeline pressure regulation, liquefied natural gas
operations and data processing. We have also reorganized the natural
gas operation by placing marketing and new construction activities in
the same department to improve communica-
2
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tions and efficiency from the point of first contact with a prospective
customer to installation of facilities.
Part of the Company reorganization included an early retirement
offer and a temporary hiring freeze, which reduced full-time employee
levels by approximately 12%. We accomplished a major milestone this
year by reaching the level of 350 customers per employee, a personal
efficiency goal I have held since becoming President in 1991. We are
continuing our efforts for improved employee productivity. We believe
our employees and managers are talented and creative individuals
who are constantly assessing ways to do their jobs better. This effort
is streamlining our organization and reducing costs by helping the
Company to operate more efficiently. We appreciate the contribution
that our retired employees made in helping to build a Company that was
able to take timely advantage of new technology and realize the
benefits.
Roanoke Gas Company and Subsidiaries
CUSTOMERS
PER EMPLOYEE
(CHART APPEARS HERE PLOT POINTS ARE AS FOLLOWS)
1991 1992 1993 1994 1995
285 298 310 312 362
We are committed to the continued growth of the Company and to
improving stockholder value. We hope our stockholders recognize this
commitment to stock value enhancement by the progress we have made over
the last year and by earnings improvement in the face of very
unfavorable gas sales weather. We will continue to position the Company
to take advantage of growth opportunities and to deal with a changing
industry and energy market.
Please plan to join us again this year for a
stockholders breakfast prior to our annual meeting on January 22, 1996,
at which time we will update you on our operations.
On behalf of the Board of Directors, our management
team and all Company employees, please accept our appreciation for your
continuing decision to be a stockholder of Roanoke Gas Company.
Sincerely,
/s/ FRANK A. FARMER, JR.
Frank A. Farmer, Jr.
President and CEO
3
<PAGE>
REVIEW OF OPERATIONS
FINANCIAL
The Company achieved earnings of $1,777,240 in fiscal 1995 despite
experiencing weather that was 10% warmer than normal. The
improvement in earnings was impacted by the Virginia State Corporation
Commission's order dated September 28, 1995, granting Roanoke Gas
Company an increase in gross annual revenues of $655,347 on rates put
into effect on November 13, 1994. This increase, along with
management's reorganization plan and emphasis on cost control and
containment, produced improved results for the Company.
The Company added $2,700,000 of long-term debt to its capital
structure in fiscal year 1995. Roanoke Gas Company added a total
of $2,000,000 of intermediate term debt with the issuance of
$1,000,000 on both October 19, 1994 and May 19, 1995. Bluefield Gas
Company issued $700,000 of intermediate term debt on October 18,
1994. The Company increased its equity capitalization by issuing
$773,544 in stock through its Dividend Reinvestment and Stock Purchase
Plan.
The Company has unsecured lines of credit through its cash
management system totaling $13,000,000 at interest rates of prime or
less. These lines are subject to annual renewal. The average month-end
balance of short-term debt in 1995 was approximately $2,809,000, at
an average interest rate of 6.07%. The month-end balance at September
30, 1995 was $1,442,000, at an average interest rate of 6.27%. The
Company may restructure its long-term debt financing in late fiscal 1996
or early fiscal 1997 to coincide with the maturity of several
issues.
Please refer to Management's Discussion and Analysis of Financial
Condition and Results of Operations for additional information on the
Company's capital resources and for an analysis of changes in revenues
and expenses.
GAS SUPPLY
The one benefit of the warmer than normal weather in 1995 was the
reduction of natural gas supply acquisition costs. For fiscal 1995,
commodity indexes for natural gas averaged about 23% below the
previous year. Roanoke and Bluefield Gas Companies' combined cost of
gas was $27,027,507 reflecting both lower gas costs and a lower total
volume of gas purchases. In addition to reductions in commodity
pricing, the Company is experiencing a reduction in the non-commodity
fees associated with multi-year firm gas supply contracts, which will
reduce gas costs over the next several years.
Roanoke and Bluefield Gas Companies continue to use long-term
(multi-year), mid-term (season) and short-term (spot) gas purchase
contracts. The procurement objective is to create a reliable and
economical mixture of gas supply contracts with terms that will not
inhibit the Company's ability to adapt to changing market
conditions. Long-term suppliers currently include Amoco Energy
Trading, Ashland Exploration, Coastal Gas Marketing, Columbia Energy
Services, and Mobil Natural Gas in addition to numerous other occasional
spot suppliers.
To complement the Company's wellhead spot supply contracts and to
maintain reliable supplies for changing conditions, Roanoke and
Bluefield Gas Companies together hold the contract capacity to
approximately 2.6 billion cubic feet (BCF) of natural gas storage
space. This storage includes pipeline and third party underground
facilities in both the Gulf coast and Appalachian areas as well as the
Company's liquefied natural gas (LNG) storage facility in Botetourt
County, Virginia.
Both Roanoke and Bluefield Gas Companies are working to decrease
customer costs. With the implementation of FERC Order 636 came the
ability for the companies to temporarily release unused capacity,
normally during the summer period, for a fee. In the current fiscal
year, Roanoke and Bluefield Gas Companies reduced costs to their
customers by more than $107,000 through participation in capacity
releases.
NONUTILITY OPERATIONS
Total sales by Highland Propane Company for fiscal year 1995 were
4,822,277 gallons, a decrease of 3.8% from 1994 levels on 14% warmer
weather. Primary wholesale suppliers to Highland Propane included
Exxon, Mobil, Commonwealth Propane, EIL Petroleum and Enron Gas
Liquids.
Propane operations are organized into geographic divisions based
on areas of customer concentration and location of fuel storage
facilities. Current divisions include Roanoke, Virginia; Southwest
Virginia; Bluefield, West Virginia, and Rainelle, West Virginia.
The Company maintains a program of evaluating additional areas for
expansion or potential acquisition of existing operations.
The Company's capital expenditures for propane operations have been
focused on acquisition of additional customer premises storage tanks
to meet growth, modernization and replacement of the propane delivery
fleet, and development of additional or enhancement of existing bulk
storage facilities.
Total sales by Highland Gas Marketing for fiscal year 1995 were
999,504 DTHs, an increase of 88% over 1994, during which the gas
marketing division was initiated and operated for only six months.
Highland Gas Marketing buys interruptible supplies of spot gas along
with interruptible interstate pipeline transportation services and
resells them to large industrial customers that contract for local
distribution line transportation service from the local utility. The
gas marketing business is highly competitive with relatively low
margins, but it is also a relatively low cost operation with minimal
facility and personnel requirements.
PLANT ADDITIONS
Capital additions for the year totaled $5,609,292 for the consolidated
companies, representing a $91,017 or 1.65% increase above last year's
$5,518,275 total. New business expenditures, which include mains,
meters, new service lines and propane installations, increased 13%
to $2,843,290. The natural gas companies installed 1,237 new
service lines and 21.2 miles of new mains compared to 1,365 new
service lines and 12.3 miles of new mains last year. Main replacement
and service renewal expenditures totaled $748,821, a decrease of 37%
below the previous year. During the year the Company replaced 484
service lines and 5.38 miles of main compared to previous year totals of
932 services and 7.5 miles of main. The reduction in replacement
expenditures was the result of an increased demand for new
facilities that exceeded budget. The replacement budget for 1996
has been increased to maintain the 25-year program schedule to replace,
by the year 2017, approximately 12,000 bare steel services and 210
miles of cast iron or bare steel distribution mains. This program is
designed to reduce maintenance costs and improve system integrity by
reducing unaccounted for gas volumes caused by leakage.
During the year the Company expended $774,377 to complete a $1.1
million upgrade and refurbishment of the LNG plant. The plant's
vaporization capacity was expanded from 25,000 MCF/day to 30,000
MCF/day with the addition of a 125 horsepower, 135 gallon/minute
LNG pump and a new boiler and glycol pump. Also included in this upgrade
4
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REVIEW OF OPERATIONS
was the rebuilding of the refrigerant cycle turbine to provide for
increased liquefication efficiency.
Other major increases in plant additions included $199,027
for the construction of a new Bluefield Gas Company office and
warehouse facilities, $405,871 to add new support services equipment
including additions to mainframe computer software, and $216,108 for the
relocation of gas facilities due to road construction projects.
For fiscal year 1996, the Company has budgeted $4,505,436 for
capital expenditures. Major items will include $2.2 million for new
customer additions, $960,000 to replace existing mains and services,
$150,000 for relocations due to road construction projects and
$450,000 for computer software and other equipment.
MARKETING AND SALES
Natural gas continues to be the energy of choice in the communities
served by the Company, which enjoyed strong customer growth during
the fiscal year. Customer growth was approximately 3% at Roanoke Gas,
1% at Bluefield Gas and 6% at Highland Propane.
In June, the marketing function was reorganized with the new
department called Marketing and New Construction and having
responsibility for all new business from the initial contact to
project completion. Commission sales representatives, whose primary
goal is to focus on the conversion of electric water heaters to gas
and the addition of new gas customers along existing gas mains, have
proven to be highly successful. They achieved a total of 441 water
heater conversions, which represents an increase of 137% over last year.
The marketing strategy is centered on strong trade ally
relationships and one-on-one contacts by members of the sales team.
The program has been very successful, and the number of trade allies
has grown from 5 to over 60 in the past year. The Company has been
proactive in its efforts to seek feedback from the trade allies and
has made improvements to operations based on their suggestions.
Management's analysis indicated that it is more cost effective to
outsource appliance sales. As a result, in July, the Company
discontinued general merchandising operations and opened an Appliance
Referral Center to continue to provide customers with the latest
information on appliance technology.
The Company has installed five natural gas heat pumps (York
Triathlon) in its service territory. The Triathlon, with a 126%
efficiency rating, is the most technologically advanced gas fired
heating and cooling system on the market today. Response to the
Company's market surveys concerning the Triathlon has been very
positive. The Company anticipates installation of several more units
in the coming year.
The Company remains actively involved in various leadership
positions within the community, including, but not limited to, the
Chambers of Commerce, the Economic Development Partnership, Junior
Achievement, the Virginia Manufacturers Association, the Roanoke
Symphony Orchestra, the Arts Council, and the Roanoke Regional
Homebuilders Association. The Company takes its community
responsibilities seriously and encourages employees and other
companies to become involved in community affairs.
CUSTOMER SERVICE
The customer service reorganization plan adopted in fiscal year 1994 was
further refined during 1995, particularly with regard to managing the
loss of customer service employees that took advantage of the early
retirement offer. The focus has been on providing quality customer
service with maximum productivity. Computerization, cross-training
and outsourcing have played major roles in achieving this focus.
With a year of experience using the new Customer Information
System (CIS), the customer service function has been improved by full
integration into other areas of the Company, real-time access to
customer records and enhanced credit and collections capabilities.
Aided by actual on-the-job training and experience, employees
have become comfortable with the features of the new system and
productivity has increased.
All employees are now able to do multiple tasks within the customer
service group as a result of the year-long effort in cross-training
and job rotation. Outside training has been provided for customer
service basics and telephone etiquette, with a secret caller program
established to allow ongoing follow up and monitoring of employee
effectiveness on the telephone. Calls into the customer service
group are taped for future training and reference needs. A dedicated
customer call group was established to improve overall telephone
response time and to take full advantage of some advanced features
of the telephone system. The Company continued to experiment with
extended office hours to suit the needs of customers and used special
weekend openings to assist customers based on the prediction of cold
weather and seasonal customer needs.
In an effort to further enhance the overall quality of customer
service, a mail survey was used to assess the effectiveness of
the customer service function in various areas, including credit,
sales, service and customer service. The results were positive,
with the vast majority of respondents describing customer service as
excellent to very good. Complaints received were followed up for
customer satisfaction and employee training.
In addition to increased productivity from cross-training, a
number of job functions were outsourced to improve overall efficiency.
The former remittance processing function was outsourced to a local
bank, and the second shift of the service dispatch function was
outsourced to a local telephone answering service. Some aspects of the
credit and collections functions were outsourced to a local collections
agency with a direct computer link back to CIS software, so that
collection agency employees can work real-time with the customer
records.
The Company again conducted its annual HeatShare Program,
designed to provide monetary assistance to low income customers having
difficulty paying their winter heating bills. Now in its thirteenth
season, the program has helped more than 5,300 families with nearly
$750,000 donated by the Company, employees, customers and other
concerned individuals. The program is administered each year by the
local Salvation Army. In addition, customer service employees
provide information to needy families on additional sources of financial
assistance.
INFORMATION SYSTEMS
With several consecutive years of aggressively implementing new
software applications in both the Accounting System and the CIS,
employees are becoming experienced users, and the Company is
realizing the benefits of improved computerization. With the
reduction in employee staff, the constant growth in the number of
customers and an ever-increasing demand for more information in every
aspect of the business, employee efficiency is critical to
providing preferred services to all Company stakeholders. The focus
has been on system integration, system functionality and usability,
and office automation to enhance system usability and employee
performance. In situations where outsourcing is feasible,
attention to providing seamless interfaces to the vendor has also
proved vital.
Current year implementation of integrated
5
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REVIEW OF OPERATIONS
systems included a new Work Order Accounting System and Continuous
Property Records and Fixed Assets System. This integrated system
provides the ability to track all labor, materials, equipment and
miscellaneous expenses for a given work order or an entire project and
tracks both plant and general assets by vintage year.
Efforts are focused on upgrading and improving all systems to
increase system functionality, while striving to make the systems easier
to use. Upgrades to all Accounting Systems have been completed and CIS
will soon follow. Company employees work with software vendors, and
serve on their advisory boards, to improve systems. Along with
increased functionality and flexibility, the new version of CIS
utilizes Graphical User Interface to simplify its usage.
Employees are assisting in the design and development of a
Requisitioning System and Electronic Authorization System. These
systems will combine to allow users to create a purchase requisition,
route it to the correct management personnel for approval and generate
a purchase order in the Purchasing and Inventory System.
An office automation system is in use to improve employee
communications and employee resourcefulness. E-mail gives employees
faster responses to inquiries and a more reliable and better
documented method of communicating. In addition, employees are
learning to query an extensive AS/400 database to generate reports,
inquiries and files. Output from the queries can be imported into the
Office System and/or downloaded to personal computer spreadsheets and
databases. Together, these systems provide a tool that gives employees
direct and immediate access to other employees and system information,
which is crucial to helping employees be more resourceful and
innovative.
Additional efficiency was gained by outsourcing remittance
processing and collections. An interface to the bank's mainframe
allows customer service employees to retrieve customer payment
data and post it directly to the customer's account electronically.
In addition, an interface to the collection agency allows access to
past due customer accounts to assist in contacting delinquent
customers.
Range of Cash Dividends
Fiscal Year Ended Bid Prices Declared
September 30, High Low
1995
First Quarter............. $18.50 $16.00 $.25
Second Quarter............ 17.00 14.00 .25
Third Quarter............. 15.125 13.50 .25
Fourth Quarter............ 15.00 14.25 .25
1994
First Quarter............. $16.00 $15.75 $.25
Second Quarter............ 17.75 15.875 .25
Third Quarter............. 17.50 16.375 .25
Fourth Quarter............ 18.50 17.00 .25
HUMAN RESOURCES
AND CORPORATE
RESTRUCTURING
To enhance the efficiency of the Company's continuing modernization
efforts and systems redesign, the Company offered a voluntary Early
Retirement Incentive Plan for all employees over age 55 who were
vested in the Company's pension plan. Of the twenty-five eligible
employees, twelve accepted the early retirement offer effective May
1, 1995.
Following the May 1 retirements and Robert Glenn's
resignation as Vice President of Marketing, the management team was
reorganized to optimize staff resources and to better structure the
Company for the realities of today's energy markets. The Company now
operates with three vice presidents; Arthur L. Pendleton, Vice President
- - Operations, John B. Williamson, III, Vice President - Rates and
Finance, and Roger L. Baumgardner, Vice President - Secretary and
Treasurer. With the restructuring Jane O'Keeffe is now Assistant Vice
President for Human Resources, John D 'Orazio is Director of Marketing
and New Construction, Richard Pevarski is Director of
Distribution/Service, Robert L. Wells, II is Director of Customer
Service and Information Systems, and Michael Gagnet is Director of
Energy Planning and Procurement.
Employee count is down to levels not seen since the late
1970's, and the Company's recent operating results, despite a 10%
warmer than normal year, are beginning to reflect the efficiencies
and cost savings of the Company's restructuring and modernization
efforts.
Fiscal 1995 was the Company's first full year under a newly-
designed Employee Medical Benefits Plan, which resulted in a reduction
in expenses over the prior year and introduced managed care to the
Company's employees. In August 1995, the Company introduced a new
merit-based compensation system for all nonunion employees, more
directly linking compensation to performance on mutually-established
objectives.
MARKET PRICE AND
DIVIDEND
INFORMATION
The Company's common stock was accepted for listing on the Nasdaq
National Market on February 1, 1994, under the trading symbol RGCO.
The Company's entry into the Nasdaq National Market provides
stockholders, brokers and others with immediate access to the latest
bid and ask prices and should create greater liquidity in the Company's
stock. The accompanying table sets forth the range of bid prices for
shares of the Company's common stock, as reported prior to February 1,
1994 in The Roanoke Times & World News and since February 1, 1994 in the
Nasdaq National Market. The information in the table has been restated
to retroactively reflect the 100% stock dividend, accounted for as a 2
for 1 stock split, effective July 1, 1994.
Although the Company has paid continuous quarterly
dividends to its stockholders since August 1, 1944, the Company has
not established a formal policy with respect to dividends. Payment of
dividends is within the discretion of the Company's Board of Directors
and will depend upon, among other factors, earnings, capital
requirements and the operating and financial condition of the Company.
There can be no assurance that these or other conditions will not in
the future negatively affect the Company's ability to pay
dividends. In addition, the Company's long-term indebtedness
contains restrictions on cumulative net earnings of the Company and
dividends previously paid. At September 30, 1995, there were 1,699
holders of record of the Company's common stock.
6
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MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Roanoke Gas Company And Subsidiaries
SELECTED FINANCIAL DATA
Years Ended September 30,
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues ................ $48,611,147 $58,195,857 $57,715,679 $49,147,998 $45,698,964
Operating Margin .................. 19,435,864 19,902,497 18,297,030 16,645,764 15,294,933
Operating Earnings ................ 3,522,258 3,537,267 3,235,269 2,848,130 2,412,577
Earnings Before Interest Charges
and Cumulative Effect of
Accounting Change ............. 3,701,907 3,592,351 3,264,713 3,051,031 2,293,640
Earnings Before Cumulative
Effect of Accounting Change ... 1,777,240 1,677,098 1,441,336 1,305,125 722,817
Net Earnings ...................... 1,777,240 1,677,098 1,441,336 1,305,125 1,579,757
Earnings Per Share:
Earnings before Cumulative
Effect of Accounting Change 1.26 1.25 1.13 1.03 0.58
Cumulative Effect of
Accounting Change ........ -- -- -- -- 0.69
Net Earnings ...................... 1.26 1.25 1.13 1.03 1.27
Cash Dividends Declared
Per Share ..................... 1.00 1.00 1.00 1.00 1.00
Book Value Per Share .............. 12.25 11.88 11.36 11.16 11.11
Average Shares Outstanding 1,408,659 1,339,402 1,280,176 1,264,994 1,245,932
Total Assets ...................... 51,614,667 49,579,447 48,758,728 45,325,270 40,859,083
Long-Term Debt
(Less Current Portion) ........ 17,504,047 16,414,900 16,530,499 16,936,500 9,364,500
Stockholders' Equity .............. 17,555,172 16,424,919 14,652,663 14,176,330 14,029,201
Shares Outstanding at September 30, 1,432,512 1,382,343 1,289,302 1,269,924 1,263,102
</TABLE>
General
The primary business of Roanoke Gas Company and its public utility affiliates is
the distribution of natural gas to approximately 50,000 customers in the cities
of Roanoke, Salem and Bluefield, Virginia and Bluefield, West Virginia, and the
surrounding areas, at rates and charges regulated by the State Corporation
Commission in Virginia (the Virginia Commission) and the Public Service
Commission in West Virginia (the West Virginia Commission). The Company is
required, as a public utility, to ensure that it has the capacity to adequately
serve the ongoing needs of its customers. The Company also continues to expand
its facilities to keep pace with the industrial and commercial development and
residential growth in its service areas. The Company continues to experience
steady customer growth, and anticipates continuing this trend by attracting
adequate investment capital, along with adequate and timely increases in rates
when needed from the state commissions. The Company serves approximately 6,000
propane customers in southwestern Virginia and southern West Virginia and serves
natural gas industrial transportation customers by brokerage of natural gas
supplies through its subsidiary, Diversified Energy Company which trades as
Highland Propane and Highland Gas Marketing.
Continued public acceptance and a growing preference for natural gas as
a competitively priced, clean and efficient fuel for space heating and other
residential, commercial and industrial applications have prompted the steady
increase in the number of customers served and in the cost of constructing
facilities required to serve them. Energy conservation and the availability of
modern, highly efficient furnaces and other appliances for replacement and new
services in better-insulated homes continue to result in a slight decline in per
capita residential usage. The effect of such per capita declines, unless offset
by new customer growth, abnormally cold weather, or rate relief, could result in
a decline or attrition in the Company's net operating earnings as a percentage
of the equity component of the rate base. Competition from alternate fuels
and/or supplies could also impact the Company's profitability levels.
Industry and regulatory issues that have affected the Company's
operations from time to time and may affect the Company's operations in the
future include the following: (i) obtaining adequate rate relief from regulatory
authorities on a timely basis; (ii) earning on a consistent basis an adequate
return on invested capital; (iii) increasing expenses and the vitality of the
economy; (iv) price competition from alternate fuels; (v) volatility in the
price of natural gas and propane; (vi) some uncertainty in the projected rate of
growth of natural gas and propane requirements in the Company's service area;
and (vii) the development of natural gas and propane as an alternative fuel. In
addition, the Company's business is seasonal in character and strongly
influenced by
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MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
weather conditions. Management of the Company believes that the Company has the
resources and skills to deal successfully with these and other issues.
CAPITAL RESOURCES
AND LIQUIDITY
The Company made only minor changes to its overall capitalization during fiscal
year 1995. Long-term debt increased from $17.1 million to $18.7 million,
reflecting the net results of $1,124,703 in consolidated retirements and the
issuance of $2,700,000 in intermediate debt : $1,000,000 at 7.48%, $1,000,000 at
7.64% and $700,000 at 30-day LIBOR plus 120 basis points. Short-term debt on a
consolidated basis decreased by $3,793,000, reflective of the impact of lower
gas costs related to inventories of storage gas and replacement by
intermediate-term debt.
Stockholders' equity increased by $1,130,253, reflecting an increase of
$361,159 in retained earnings and proceeds of $769,094, net of stock issuance
costs of $4,450, of new stock purchases through the Company's Dividend
Reinvestment and Stock Purchase Plan (the Plan) for the period. Effective
November 15, 1993, the Company amended the Plan to allow customers to buy common
stock directly from the Company through participation in the Plan and to allow
existing stockholders additional flexibility in the purchase of Company common
stock through optional cash payments and for the reinvestment of dividends. The
purchase price of Company common stock under the Plan is based upon the fair
market value of such common stock, determined by the Board of Directors based on
the closing sales price of the Company's common stock on the Nasdaq National
Market on the investment date, if the investment date is a trading day, or if
not, the first trading day prior to such day.
The Company's capital expenditures for the year were a combination of
replacements and expansions, reflecting the need to replace older cast iron and
bare steel pipe in the system, while continuing to meet the demands of customer
growth. Total capital expenditures for the period were approximately $5.63
million, broken down to $4.49 million for Roanoke Gas Company, $.57 million for
Bluefield Gas Company and $.57 million for Highland Propane Company.
Depreciation cash flow provided approximately $2.6 million in support of capital
expenditures, or approximately 46% of total investment. Historically,
consolidated capital expenditures were $5.7 million in 1994 and $3.9 million in
1993. It is anticipated that future capital expenditures will be funded with the
combination of depreciation cash flow, retained earnings, sale of common stock
through the Plan and issuance of debt.
At September 30, 1995, the Company had available lines of credit
totaling $13.0 million for its short-term borrowing needs, of which $1,442,000
was outstanding. Short-term borrowing, in addition to providing limited capital
project bridge financing, is used to finance summer and fall gas purchases which
are injected into storage in the underground facilities of Columbia Gas
Transmission Corporation, Tennessee Gas Pipeline Company and Virginia Gas
Storage Company, as well as in the Company's own LNG facility, to ensure
adequate winter supplies to meet customer demand. With the implementation of the
FERC Order 636 in fiscal year 1993, the Company has seen an increase in its
storage gas requirements and a corresponding need for additional seasonal
short-term borrowings in support of gas inventories.
Short-term borrowings, together with internally-generated funds,
long-term debt and the sale of stock, have been adequate to cover construction
costs, debt service and dividend payments to stockholders. The terms of
short-term borrowings are negotiable, with average rates of 6.07% in 1995, 3.90%
in 1994 and 3.83% in 1993. The lines do not require compensating balances. In
May of 1994, the Company implemented a cash management program, which provides
for daily balancing of the Company's temporary investment and short-term
borrowing needs with interest rates indexed to the 30-day LIBOR rate plus a
premium. The program allows the Company to maximize returns on temporary
investments and minimize cost on short-term borrowings.
At September 30, 1995 and 1994, the Company's consolidated total
capitalization was composed of 50% equity and 50% long-term debt. The sale of
stock pursuant to the Plan, the accumulation of retained earnings, and the
issuance of additional long-term debt account for the composition consistency
from 1994 to 1995.
REGULATORY AND RATE
CASE PROCEEDINGS
On September 28, 1995, the Virginia Commission issued a final order on Roanoke
Gas Company's rate increase application filed on June 15, 1994. The Commission's
order granted a general rate increase in the amount of $655,347, with an allowed
return on equity of 11.7%. The Company anticipates refunding to customers the
difference between the rates put into effect under bond on November 13, 1994 and
the final rates approved by the Virginia Commission in the first quarter of
fiscal year 1996. At September 30, 1995, the Company has established a reserve
to cover the anticipated refund to customers.
8
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The key aspects of the Roanoke Gas Company rate case application were
recovery of cost increases, improved rate design and updated terms and
conditions for providing service. The changes to rate design were intended to
recover a larger portion of the Roanoke Gas Company's costs from the fixed
monthly customer charge in order to lessen the earnings impact of swings in
weather and to provide more service options for large industrial customers.
On September 20, 1995, the Virginia Commission issued a final order on
Commonwealth Public Service Corporation's case, granting a $21,571 award on a
case filed on December 2, 1994. Commonwealth Public Service Corporation is a
subsidiary of Bluefield Gas Company and represents the portion of the Bluefield
system located on the Virginia side of the Virginia/West Virginia jurisdictional
border.
RESULTS OF OPERATIONS
Net earnings for 1995 were $1,777,240, compared to $1,677,098 in 1994 and
$1,441,336 in 1993. The increase from $1,441,336 in 1993 to $1,677,098 in 1994
was the result of increased rates in the natural gas business, improved margins
in propane, plus additional sales volumes for both natural gas and propane due
to weather that was 4% colder than normal. The increase from $1,677,098 in 1994
to $1,777,240 in 1995 can be attributed to increased rates put into effect in
November 1994 and management's restructuring and cost containment plans. Future
earnings of the Company would be positively impacted by such factors as rate
design, customer growth, colder weather and timely and adequate rate relief.
There can be no assurance, however, whether these factors will occur or to what
extent.
Operating revenues for natural gas decreased to $44,061,737 in 1995 from
$53,525,307 in 1994 and $53,505,519 in 1993. Revenues for 1994 were up only
$19,798 over 1993 even though sales volumes increased 446,693 MCF, or 4.5%. This
was primarily the result of a 7.3% decrease in the cost per unit of natural gas.
Revenues for 1995 were down $9,463,570 from $53,525,307 in 1994 due to a
decrease of 305,161 MCF in total sales volume associated with 14% warmer weather
and a 16.76% decrease in the cost per unit of natural gas. Operating revenues
for propane were $4,549,410 compared to $4,670,550 in 1994 and $4,210,160 in
1993. Propane revenues increased $460,390 in 1994 over 1993 from increased sales
due to 4% colder than normal weather and a 22% increase in the number of
customers, along with a slight increase in its operating margin. The revenues
for 1995 decreased $121,140 from $4,670,550 in 1994 primarily from a decrease in
volume associated with 14% warmer weather.
The volume of natural gas delivered to customers was down to 9,961,877
MCF in 1995 from 10,267,038 MCF in 1994, but up from 9,820,345 MCF delivered in
1993. The 1994 increase in volume over 1993 can be primarily attributed to
weather and customer growth. The decline in the 1995 volume of 305,161 MCF can
be attributed to weather that was approximately 14% warmer than the weather for
1994. While customer growth was on par for the period and sales to interruptible
customers were up, the weather had a significant impact on sales to our
residential and commercial customers. Propane sales volumes for 1995 were
4,822,277 gallons compared to 5,012,830 gallons in 1994 and 4,586,334 gallons in
1993. The increase in the volume for 1994 over 1993 was significantly impacted
by a 22% increase in the number of customers. The current year decrease of
190,553 gallons from 1994 was primarily due to weather that was approximately
14% warmer than the weather for 1994.
The cost of natural gas was $27,027,507 in 1995 compared to $36,109,555
in 1994 and $37,254,296 in 1993. The price of natural gas had been on a steady
decline since 1993, when the price for the current three-year period hit its
peak due to the effects of Hurricane Andrew and colder than normal weather. The
cost began to decrease with fiscal 1994 and, after a few months of fluctuations,
continued to decline in 1994 and ended the period 7% below 1993 costs. Costs
continued to decline in fiscal 1995 as the nation experienced a very warm winter
and the per unit price of natural gas decreased approximately 17%. The cost of
propane was $2,147,776 in 1995 compared to $2,183,805 in 1994 and $2,164,353 in
1993. The total cost of propane increased in 1994 over 1993 due to increased
sales volume, offset by the decreased unit price of propane, due to an increase
in the supply of propane due to the lack of crop drying in the Midwest as a
result of crop destruction from flooding. The total cost of propane decreased in
1995 to $2,147,776 from $2,183,805 in 1994 due to a volume decrease associated
with approximately 14% warmer weather even though the per unit price increased
approximately $.01.
Other operations and maintenance expenses were $8,959,677 in 1995
compared to $9,379,785 in 1994 and $8,603,786 in 1993. The increase of $775,999
from 1993 to 1994 was primarily attributable to increased labor costs and
increases in medical and postretirement benefits expenses. The decrease of
$420,108 from 1994 to 1995 is the result of management's reorganization via an
early retirement incentive plan and an austerity program placed into effect as a
result of the warm weather. Also, maintenance expenses for the last half of the
year were limited to essential or required areas and an emphasis was placed on
renewal versus repair.
General taxes decreased to $2,082,896 in 1995 from $2,395,379 in 1994
9
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GROSS UTILITY PLANT
(Including Construction Work-In-Progress)
Millions of Dollars: 1995 -- $57,369,281
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(Customer: Please fill in)
and $2,249,534 in 1993. These taxes generally increase as a result of property
taxes on additional facilities and gross receipts and business and occupation
taxes associated with increases in gross revenues. The increase from 1993 to
1994 was also due to property tax reassessments in Botetourt County, Virginia,
the site of our LNG facility. The decrease in taxes for 1995 was primarily a
result of lower gross receipts taxes on total revenues due to lower cost of gas
Income taxes on the natural gas utilities for 1995, 1994 and 1993 were
$711,437, $646,442 and $639,052, respectively. Income taxes increased in
proportion to taxable earnings for each year. See note 5 of the notes to
consolidated financial statements for additional information on income taxes.
Depreciation and amortization expenses increased to $2,133,488 in 1995
from $1,945,672 in 1994 and $1,766,096 in 1993. The increase of $179,576 from
1993 to 1994 and $187,816 from 1994 to 1995 represents depreciation on normal
additions to plant in service.
Other operating expenses-propane operations consist of the operating and
maintenance expenses, taxes and depreciation of Highland Propane. These costs
increased to $2,026,108 in 1995 from $1,997,952 in 1994 and $1,803,293 in 1993.
The $194,659 increase in 1994 expenses over 1993 was mainly attributable to
higher benefits costs, increased maintenance expenses on customer and Company
storage tanks, and increased income taxes due to higher taxable income. The
$28,156 increase in 1995 expenses over 1994 was largely attributable to
increased legal and pension benefit costs
Other income, net of other deductions, was $179,649, $55,084 and $29,444
for 1995, 1994 and 1993, respectively. The increase of $25,640 from 1993 to 1994
was the result of increased interest income from investment property and a
newly-implemented cash management system, combined with additional income from
the brokerage of natural gas through a subsidiary. The increase of $124,565 from
1994 to 1995 is mainly the result of improved jobbing revenues due to enhanced
service billing rates and the elimination of the merchandise function in the
natural gas utilities. In the propane operations, a deferred gain was recognized
on the sale of investment property and revenues from the brokerage of natural
gas increased.
Total interest charges increased to $1,924,667 in 1995 from $1,915,253
in 1994 and $1,823,377 in 1993. The interest charges for 1994 were up $19,876
over 1993 due to interest on supplier refunds and rate refunds and a higher
average balance of long-term debt. The total interest charges for 1995 increased
$9,414 over 1994 due to a higher average balance of long-term debt. Short-term
interest declined in 1995 due to the decrease in interest on supplier refunds.
The interest expense in the propane operations was down significantly due to a
lower average borrowing balance.
ACCOUNTING CHANGES
Effective October 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions, which establishes a new accounting principle for
the cost of retiree health care and other postretirement benefits. Prior to
October 1, 1993, the Company recognized these benefits on the pay-as-you-go
method. The cumulative effect of the change in method of accounting for
postretirement benefits other than pensions of $4,746,000 was determined as of
October 1, 1993 and is being amortized on a straight-line basis over a 20-year
period for financial reporting purposes and over a 40-year period for regulatory
accounting treatment. The adoption of Statement 106 resulted in an increase in
net periodic postretirement benefits cost for the year ended September 30, 1994
from approximately $296,000 under the pay-as-you-go method to $649,936 under
Statement 106, with approximately 67% of the consolidated annual cost being
recovered from the Company's customers through rates. The effect of adopting
Statement 106 on net income was a decrease of $77,087, or $.06 per share.
Effective October 1, 1993, the
10
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Company also adopted the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes. Statement 109 requires a change
from the deferred method of accounting for income taxes of APB Opinion 11 to the
asset and liability method of accounting for income taxes. Under the asset and
liability method of Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. The
adoption of Statement 109 did not have a material impact on the Company's
consolidated financial statements, and accordingly, no cumulative effect of
accounting change was reported in the 1994 consolidated statement of earnings.
Prior years' consolidated financial statements have not been restated to apply
the provisions of Statement 109.
RECENT ACCOUNTING
DEVELOPMENTS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards No. 107, Disclosures About Fair Value of
Financial Instruments (Statement 107), which is required to be adopted by the
Company for the fiscal year ending September 30, 1996. Statement 107 extends
existing fair value disclosure practices for some instruments by requiring all
entities to disclose the fair value of financial instruments, both assets and
liabilities recognized and not recognized on the balance sheet, for which it is
practicable to estimate fair value. If estimating fair value is not practicable,
Statement 107 requires disclosure of descriptive information pertinent to
estimating the fair value of a financial instrument.
The FASB has issued Statement of Financial Accounting Standards No. 116,
Accounting for Contributions Received and Contributions Made (Statement 116),
which is required to be adopted by the Company for the fiscal year ending
September 30, 1996. Statement 116 requires the Company to record contributions
made, including unconditional promises to give, as expenses in the period made
at their fair values. Company management has determined that the adoption of
Statement 116 will not have a material impact on the Company's consolidated
financial statements.
The FASB has also issued Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of (Statement 121), which is required to be adopted by the
Company for the fiscal year ending September 30, 1997. Statement 121 requires
that long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the entity should estimate the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized.
Measurement of an impairment loss for long-lived assets and identifiable
intangibles should be based on the fair value of the asset. Statement 121 also
requires that long-lived assets and certain identifiable intangibles to be
disposed of generally be reported at the lower of carrying amount or fair value
less cost to sell. In addition, Statement 121 requires that a rate-regulated
enterprise recognize an impairment for the amount of costs excluded when a
regulator excludes all or part of a cost from the enterprise's rate base. The
Company has not completed its quantification of the effect of the adoption of
this Statement, but it is anticipated that the adoption of Statement 121 will
not have a material impact on the Company's consolidated financial statements.
IMPACT OF INFLATION
The cost of natural gas represented approximately 66% , 72% and 74% of the total
operating expenses of the Company's gas utilities' operations for
GAS SALES
Volume (Millions)
1995 - 9,961,877 MCF
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11
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Roanoke Gas Company And Subsidiaries
Year Ended September 30, 1995
HOW 1995 REVENUE DOLLARS WERE SPENT
Gross
Revenues
$51,307,095
(Bar graph appears here. See the table below for the plot points)
COST OF GAS AND PROPANE $29,175,283
SALARIES AND WAGES $ 5,082,409
ALL OTHER EXPENSES $ 7,654,381
TAXES $ 3,129,987
INTEREST CHARGES $ 1,924,667
DEPRECIATION AND AMORTIZATION $ 2,563,128
DIVIDENDS DECLARED TO OWNERS $ 1,416,081
EARNINGS RETAINED IN BUSINESS $ 361,159
fiscals 1995, 1994 and 1993, respectively. However, under the present regulatory
PGA mechanism, the increases and decreases in the wholesale cost of gas are
passed through to the Company's customers.
Inflation impacts the Company through increases in non-gas costs such as
insurance, labor costs, supplies and services used in operations and maintenance
and on the replacement cost of plant and equipment. Since the Company can only
recover these costs through the regulatory process via rate application,
increased costs can significantly impact the results of operations. Therefore,
it is extremely important that management continually review operations and
economic conditions to assess the need for filing and receiving adequate and
timely rate relief from the state commissions.
FRANCHISES
Roanoke Gas Company and Commonwealth Public Service Corporation, a subsidiary of
Bluefield Gas Company, currently hold the only franchises and/or certificates of
public convenience and necessity to distribute natural gas in their respective
Virginia service areas. The franchises generally extend for a period of twenty
years and are renewable by the municipalities. Certificates of public
convenience and necessity, which are issued by the Virginia State Corporation
Commission, are of perpetual duration, subject to compliance with regulatory
standards. The franchise for the City of Roanoke, the Company's largest service
area, expired on August 30, 1993. On August 23, 1993, the Board of Directors of
the Company approved an agreement with the City of Roanoke under which such
franchise agreement was extended for a term of 180 days from August 30, 1993,
upon the same terms and conditions, except that a provision of the existing
franchise agreement giving the City the option to purchase the property of the
Company located within the City was deleted. The 180-day extension period
expired February 26, 1994. The parties have not yet reached an agreement on a
new multi-year franchise agreement; however, negotiations are ongoing, and the
Company continues to provide natural gas services to customers in the City of
Roanoke. The Company believes that it ultimately will secure a new franchise
agreement on terms acceptable to the Company. In addition, the franchise for the
City of Salem expired on July 22, 1994, and the franchise for the Town of Vinton
expired on December 10, 1994. Negotiations between the Company and the City of
Salem and the Town of Vinton are ongoing, and the Company continues to provide
natural gas services to customers in the City of Salem and the Town of Vinton.
The Company also believes that it will ultimately secure new franchise
agreements with the City of Salem and the Town of Vinton on terms acceptable to
the Company. Bluefield Gas Company holds the only franchise to distribute
natural gas in its West Virginia service area. Its franchise extends for a
period of thirty years from August 23, 1979.
Management anticipates that the Company will be able to renew all of its
franchises. There can be no assurance, however, that a given jurisdiction will
not refuse to renew a franchise or will not in connection with the renewal of a
franchise, impose certain restrictions or conditions that could adversely affect
the Company's business operations or financial condition.
12
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ENVIRONMENTAL ISSUES
Both Roanoke Gas Company and Bluefield Gas Company operated manufactured gas
plants (MGPs) as a source of fuel for lighting and heating until the early
1950's. The process involved heating coal in a low-oxygen environment to produce
a manufactured gas that could be distributed through the Company's pipeline
system to customers. A byproduct of the process was coal tar, and the potential
exists for on-site tar waste contaminants at both former plant sites. The extent
of contaminants at these sites is unknown at this time, and the Company has not
performed formal analysis at the Roanoke Gas Company MGP site. An analysis at
the Bluefield Gas Company site indicates some soil contamination. The Company,
with concurrence of legal counsel, does not believe any events have occurred
requiring regulatory reporting. Further, the Company has not received any
notices of violation or liabilities associated with environmental regulations
related to the MGP sites and is not aware of any off-site contamination or
pollution as a result of these prior sites. Therefore, the Company has no plans
for subsurface remediation at either of the MGP sites. Should the Company
eventually be required to remediate either of the MGP sites, the Company will
pursue all prudent and reasonable means to recover any related costs, including
insurance claims and regulatory approval for rate case recognition of expenses
associated with any work required. Based upon prior orders of the Commission
related to environmental matters at other companies, the Company believes it
would be able to recover prudently incurred costs. Additionally, a stipulated
rate case agreement between the Company and the West Virginia Commission
recognizes the Company's right to defer MGP clean-up costs, should any be
incurred, and to seek rate relief for such costs. If the Company eventually
incurs costs associated with a required clean-up of either MGP site, the Company
anticipates recording a regulatory asset for such clean-up costs which are
anticipated to be recoverable in future rates. Based on anticipated regulatory
actions and current practices, management believes that any costs incurred
related to the previously- mentioned environmental matters will not have a
material effect on the Company's consolidated financial position.
1995 FINANCIAL HIGHLIGHTS
ROANOKE GAS COMPANY AND SUBSIDIARIES
Operating Revenues - Gas ............. $44,061,737
Operating Revenues - Propane ......... $ 4,549,410
Other Revenues - Gas Marketing ....... $ 1,892,851
Merchandising and Jobbing ............ $ 735,878
Interest Income $ .................... 67,219
Gross Revenues ....................... $51,307,095
Net Earnings ......................... $ 1,777,240
Net Earnings per Share ............... $ 1.26
Dividends per Share - Cash ........... $ 1.00
Total Customers - Natural Gas ........ 49,813
Total Customers - Propane ............ 6,006
Total Natural Gas Deliveries - MCF ... 9,961,877
Total Propane Sales - Gallons ........ 4,822,277
Number of Employees .................. 154
Total Payroll Chargeable to Operations
and Construction ........... $ 5,692,917
Total Additions to Plant ............. $ 5,630,411
13
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Roanoke Gas Company:
We have audited the accompanying consolidated balance sheets of
Roanoke Gas Company and subsidiaries as of September 30, 1995 and
1994, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the years in the
three-year period ended September 30, 1995. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Roanoke Gas Company and subsidiaries as of September 30,
1995 and 1994, and the results of their operations and their cash
flows for each of the years in the three-year period ended September
30, 1995, in conformity with generally accepted accounting
principles.
As discussed in notes 1 and 5 to the consolidated financial
statements, the Company changed its method of accounting for income
taxes in 1994 to adopt the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. As discussed
in notes 1 and 6 to the consolidated financial statements, the Company
also adopted the provisions of Statement of Financial Accounting
Standards No. 106, Employers' Accounting for Postretirement Benefits
Other Than Pensions, in 1994.
KPMG PEAT MARWICK LLP
Roanoke, Virginia
October 20, 1995
14
<PAGE>
CONSOLIDATED BALANCE SHEETS
Roanoke Gas Company And Subsidiaries
September 30, 1995 and 1994
Assets 1995 1994
Utility Plant:
In service $ 56,834,174 52,234,738
Accumulated depreciation (19,262,416) (17,465,598)
In service, net 37,571,758 34,769,140
Construction work-in-progress 535,107 495,234
Utility plant, net 38,106,865 35,264,374
Nonutility Property:
Propane 3,781,633 3,368,339
Accumulated depreciation (1,742,342) (1,601,137)
Nonutility property, net 2,039,291 1,767,202
Current Assets:
Cash and cash equivalents 502,895 177,269
Accounts receivable, less allowance for
doubtful accounts of $171,947 in 1995
and $318,834 in 1994 3,463,104 3,179,712
Inventories 5,347,994 6,376,353
Deferred income taxes 967,732 160,291
Prepaid income taxes - 260,609
Purchased gas adjustments - 694,423
Other 181,190 480,957
Total current assets 10,462,915 11,329,614
Other Assets 1,005,596 1,218,257
$ 51,614,667 49,579,447
Liabilities and Stockholders' Equity
Capitalization:
Stockholders' equity:
Common stock, $5 par value. Authorized
3,000,000 shares; issued and outstanding
1,432,512 and 1,382,343 shares in 1995
and 1994, respectively $ 7,162,560 6,911,715
Capital in excess of par value 4,149,584 3,631,335
Retained earnings 6,243,028 5,881,869
Total stockholders' equity 17,555,172 16,424,919
Long-term debt, excluding current maturities 17,504,047 16,414,900
Total capitalization 35,059,219 32,839,819
Current Liabilities:
Current maturities of long-term debt 1,179,415 672,146
Notes payable to banks 1,442,000 5,235,000
Dividends payable 358,743 346,032
Accounts payable 5,544,647 5,320,481
Income taxes payable 476,410 -
Customer deposits 314,647 336,182
Accrued expenses 3,027,825 1,316,426
Refunds from suppliers - due customers 682,851 498,898
Purchased gas adjustments 236,999 -
Total current liabilities 13,263,537 13,725,165
Deferred Credits and Other Liabilities:
Deferred income taxes 2,721,470 2,225,501
Deferred investment tax credits 570,441 609,090
Other deferred credits - 179,872
Total deferred credits and other
liabilities 3,291,911 3,014,463
$51,614,667 49,579,447
See accompanying notes to consolidated financial statements.
15
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
Roanoke Gas Company And Subsidiaries
Years Ended September 30, 1995, 1994 and 1993
1995 1994 1993
Operating Revenues:
Gas utilities $ 44,061,737 53,525,307 53,505,519
Propane operations 4,549,410 4,670,550 4,210,160
Total operating revenues 48,611,147 58,195,857 57,715,679
Cost of Gas:
Gas utilities 27,027,507 36,109,555 37,254,296
Propane operations 2,147,776 2,183,805 2,164,353
Total cost of gas 29,175,283 38,293,360 39,418,649
Operating Margin 19,435,864 19,902,497 18,297,030
Other Operating Expenses:
Gas utilities:
Other operations 7,726,611 7,891,993 7,126,397
Maintenance 1,233,066 1,487,792 1,477,389
Taxes - general 2,082,896 2,395,379 2,249,534
Taxes - income 711,437 646,442 639,052
Depreciation and amortization 2,133,488 1,945,672 1,766,096
Propane operations (including
taxes - income of $224,017,
$239,069 and $70,726 in 1995,
1994 and 1993, respectively) 2,026,108 1,997,952 1,803,293
Total other operating expenses 15,913,606 16,365,230 15,061,761
Operating Earnings 3,522,258 3,537,267 3,235,269
Other Income (Deductions):
Gas utilities:
Interest income 26,652 22,907 4,067
Merchandising and jobbing, net 120,475 50,734 145,105
Other deductions (142,389) (124,655) (115,346)
Taxes - income (14,547) 5,608 (20,649)
Propane operations, net 189,458 100,490 16,267
Total other income (deductions) 179,649 55,084 29,444
Earnings Before Interest Charges 3,701,907 3,592,351 3,264,713
Interest Charges:
Gas utilities:
Long-term debt 1,680,078 1,615,679 1,572,876
Other 231,142 242,776 201,782
Propane operations 13,447 56,798 48,719
Total interest charges 1,924,667 1,915,253 1,823,377
Net Earnings $1,777,240 1,677,098 1,441,336
Net Earnings Per Share $ 1.26 1.25 1.13
See accompanying notes to consolidated financial statements.
16
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Roanoke Gas Company And Subsidiaries
Years Ended September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Capital in Total
Common Excess of Retained Stockholders'
Stock Par Value Earnings Equity
<S> <C> <C> <C> <C>
Balances, September 30, 1992 $ 6,349,620 2,427,153 5,399,557 14,176,330
Net earnings - - 1,441,336 1,441,336
Cash dividends ($1.00 per share) - - (1,281,796) (1,281,796)
Issuance of common stock (19,378 shares) 96,890 219,903 - 316,793
Balances, September 30, 1993 6,446,510 2,647,056 5,559,097 14,652,663
Net earnings - - 1,677,098 1,677,098
Cash dividends ($1.00 per share) - - (1,354,326) (1,354,326)
Issuance of common stock (93,041 shares) 465,205 1,098,129 - 1,563,334
Common stock issuance costs - (113,850) - (113,850)
Balances, September 30, 1994 6,911,715 3,631,335 5,881,869 16,424,919
Net earnings - - 1,777,240 1,777,240
Cash dividends ($1.00 per share) - - (1,416,081) (1,416,081)
Issuance of common stock (50,169 shares) 250,845 522,699 - 773,544
Common stock issuance costs - (4,450) - (4,450)
Balances, September 30, 1995 $ 7,162,560 4,149,584 6,243,028 17,555,172
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Roanoke Gas Company And Subsidiaries
Years Ended September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 1,777,240 1,677,098 1,441,336
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 2,563,128 2,334,457 2,146,560
(Gain) loss on disposal of utility plant and nonutility
property 4,823 (364) (6,790)
Gain on sale of other asset (67,556) - -
(Increase) decrease in purchased gas adjustments 931,422 1,387,025 (342,369)
Decrease in gas cost recoverable from customers - 219,443 6,186
Decrease in gas cost payable to suppliers - (219,443) (6,186)
Changes in assets and liabilities which provided (used) cash,
exclusive of changes and noncash transactions shown
separately 3,139,960 (320,415) (250,492)
Net cash provided by operating activities 8,349,017 5,077,801 2,988,245
Cash Flows From Investing Activities:
Additions to utility plant in service and under construction
and nonutility property (5,609,292) (5,518,275) (3,795,501)
Proceeds from disposal of property 70,403 33,796 41,186
Cost of removal of utility plant, net (122,523) (184,908) (145,818)
Proceeds from collection of note receivable 490,000 - -
Net cash used in investing activities (5,171,412) (5,669,387) (3,900,133)
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt 2,700,000 2,000,000 500,000
Retirement of long-term debt and payments on obligations
under capital leases (1,124,703) (2,470,696) (1,000,637)
Net borrowings (repayments) under line of credit agreement (3,793,000) 235,000 1,300,000
Proceeds from issuance of common stock 773,544 1,563,334 316,793
Common stock issuance costs (4,450) (113,850) -
Cash dividends paid (1,403,370) (1,330,619) (1,276,952)
Net cash used in financing activities (2,851,979) (116,831) (160,796)
Net Increase (Decrease) in Cash and Cash Equivalents 325,626 (708,417) (1,072,684)
Cash and Cash Equivalents, Beginning of Year 177,269 885,686 1,958,370
Cash and Cash Equivalents, End of Year $502,895 177,269 885,686
Changes in Assets and Liabilities Which Provided (Used)
Cash, Exclusive of Changes and Noncash Transactions Shown
Separately:
Accounts receivable and customer deposits, net $(304,927) 399,531 (461,318)
Inventories 1,028,359 (175,108) (2,084,697)
Prepaid income taxes 260,609 157,183 666,651
Accounts payable 224,166 437,812 1,415,015
Income taxes payable 476,410 - -
Accrued expenses and other current assets 2,011,166 (227,585) (271,008)
Refunds from suppliers - due customers 183,953 (496,605) 422,669
Other noncurrent assets (277,339) (116,050) (32,415)
Deferred taxes, including amortization of deferred investment
tax credits (350,121) (299,593) 94,611
Other deferred credits (112,316) - -
$3,139,960 (320,415) (250,492)
Supplemental Disclosures of Cash Flows Information:
Cash paid (received) during the year for:
Interest $ 1,867,816 2,306,579 1,811,318
Income taxes, net of refunds $ 675,418 1,022,314 (30,835)
Noncash transactions:
Capital lease obligations of $21,119, $7,925 and $114,954
were incurred in 1995, 1994 and 1993, respectively, when
the Company entered into equipment leases.
A note receivable of $490,000 was received in 1994 upon the
sale of a building, resulting in a deferred gain of $67,556.
The note was paid in full and the deferred gain recognized
in 1995.
A regulatory asset of $20,484 and a regulatory liability of
$112,316 were recorded in 1994 via adjustment of the deferred
income tax liability upon adoption of Statement 109 (see notes
1 and 5).
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Roanoke Gas Company And Subsidiaries
As of September 30, 1995 and 1994 and Years Ended September 30, 1995,
1994 and 1993
(1) Summary of Significant Accounting Policies.
General
The consolidated financial statements include the accounts of
Roanoke Gas Company and its wholly-owned subsidiaries (Company),
Bluefield Gas Company and Highland Propane Company (with propane and
gas marketing divisions in Roanoke and a propane division in
Bluefield). Roanoke Gas Company and Bluefield Gas Company are gas
utilities, which distribute and sell natural gas to residential,
commercial and industrial customers within their service areas.
The gas utilities are subject to regulation by the Federal Energy
Regulatory Commission and their applicable state regulatory
commissions. Highland Propane Company, which is not a public utility,
distributes and sells propane in southwestern Virginia and southern
West Virginia. The gas marketing division of Highland Propane
brokers natural gas to several industrial transportation customers of
Roanoke Gas Company.
The Company maintains its financial records in accordance with the
accounting policies as prescribed by its regulatory commissions and
generally accepted accounting principles. The Company's regulated
operations meet the criteria and, accordingly, follow the reporting and
accounting requirements of Statement of Financial Accounting
Standards No. 71, Accounting for the Effects of Certain Types of
Regulation. This statement sets forth the application of generally
accepted accounting principles to those companies whose rates are
determined by an independent third-party regulator. The economic
effects of regulation can result in regulated companies recording costs
that have been or are expected to be allowed in the rate-setting process
in a period different from the period in which the costs would be
charged to expense by an unregulated enterprise. When this results,
costs are deferred as assets in the consolidated balance sheet
(regulatory assets) and recorded as expenses as those same amounts are
reflected in rates. Additionally, regulators can impose liabilities
upon a regulated company for amounts previously collected from
customers and for recovery of costs that are expected to be incurred in
the future (regulatory liabilities).
The amounts recorded by the Company as regulatory assets and
regulatory liabilities follow:
September 30,
1995 1994
Regulatory assets:
Early retirement incentive plan costs $ 318,463 -
Statement 106 implementation costs 35,670 47,086
Rate case costs 53,797 134,285
Franchise negotiation costs 55,237 66,954
LNG tank painting costs 33,951 41,153
Union organization costs 58,651 -
Purchased gas adjustments - 694,423
Statement 109 implementation 20,484 20,484
Other 25,414 36,990
$ 601,667 1,041,375
Regulatory liabilities:
Refunds from suppliers - due customers 682,851 498,898
Purchased gas adjustments 236,999 -
Statement 109 implementation - 112,316
$ 919,850 611,214
All significant intercompany transactions have been eliminated in
consolidation.
Utility Plant
Utility plant is stated at original cost. The cost of additions to
utility plant includes direct labor and overhead. The cost of
depreciable property retired, plus cost of dismantling, less salvage,
is charged to accumulated depreciation. Maintenance, repairs, and minor
renewals and betterments of property are charged to operations.
Depreciation and Amortization
Provisions for depreciation and amortization are computed
principally on composite straight-line rates for financial
statement purposes and on accelerated rates for income tax purposes.
Depreciation and amortization for financial statement purposes are
provided on annual composite rates ranging from 2 percent to 20 percent,
except for propane plant and certain other utility plant which are
depreciated on a straight-line basis over the assets' estimated useful
lives. The annual composite rates are determined by depreciation
studies performed for rate-making purposes; however, these studies
provide estimated useful lives which are materially consistent with
generally accepted accounting principles, and accordingly, no
significant differences in annual depreciation and amortization expense
amounts occur as a result of regulation.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Roanoke Gas Company And Subsidiaries
As of September 30, 1995 and 1994 and Years Ended September 30, 1995,
1994 and 1993
(1) Summary of Significant Accounting Policies (Continued).
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
Inventories
Inventories, which consist primarily of propane gas and natural gas
firm and winter storage, are valued at the lower of cost (average cost)
or market.
Unbilled Revenues
The Company bills most of its customers on a monthly cycle basis,
although certain large industrial customers are billed at or near the
end of each month. The Company records revenue based on service
rendered to the end of the accounting period. The amounts of
unbilled revenues receivable included in accounts receivable on the
consolidated balance sheets in 1995 and 1994 were $770,735 and
$703,630, respectively.
Income Taxes
Effective October 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Statement 109 requires a change from the deferred method
of accounting for income taxes of APB Opinion 11 to the asset and
liability method of accounting for income taxes. Under the asset and
liability method of Statement 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences
are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment
date. The adoption of Statement 109 did not have a material impact
on the Company's consolidated financial statements, and accordingly,
no cumulative effect of accounting change was reported in the 1994
consolidated statement of earnings.
Pursuant to the deferred method under Accounting Principles Board
Opinion No. 11, which was applied by the Company prior to October 1,
1993, deferred income taxes were recognized for income and expense
items that were reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable in the
year of the calculation. Under the deferred method, deferred taxes
are not adjusted for subsequent changes in tax rates.
Bond Expenses
Bond expenses are being amortized over the lives of the bonds using
the bonds outstanding method.
Purchased Gas Adjustments
Pursuant to the provisions of the Company's purchased gas
adjustment (PGA) clause, increases or decreases in gas costs are
passed on to its customers. Accordingly, the difference between
actual costs incurred and costs recovered through the application of
the PGA is reflected as a net deferred charge or credit. At the end
of the deferral period, the balance of the net deferred charge or
credit is amortized over the next 12-month period and amounts are
reflected in customer billings.
Pension and Other Postretirement Plans
The Company has a defined benefit pension plan covering substantially
all of its employees. Generally, the Company's funding policy is to
contribute annually an amount equal to that which can be deducted for
federal income tax purposes. Pension costs are computed based upon
the provisions of Statement of Financial Accounting Standards No. 87.
The Company also provides certain health care, supplemental retirement
and life insurance benefits to active and retired employees. Effective
October 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, which establishes a new
accounting principle for the cost of retiree health care and other
postretirement benefits (see also note 6). Prior to October 1,
1993, the Company recognized these benefits on the pay-as-you-go
method (i.e., cash basis). The cumulative effect of the change in
method of accounting for postretirement benefits other than pensions is
being amortized on a straight-line basis over a 20-year period.
Net Earnings Per Share
Net earnings per share are based on the weighted average number
of shares outstanding during the year (1,408,659 shares in 1995,
1,339,402 shares in 1994 and 1,280,176 shares in 1993).
Reclassifications
Certain reclassifications have been made to prior years' consolidated
financial statements to place them on a basis comparable with the
current year's consolidated financial statements.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Roanoke Gas Company And Subsidiaries
As of September 30, 1995 and 1994 and Years Ended September 30, 1995,
1994 and 1993
(2) Allowance for Doubtful Accounts.
A summary of the changes in the allowance for doubtful accounts follows:
<TABLE>
Years Ended September 30,
1995 1994 1993
<S> <C> <C> <C>
Balances, beginning of year $318,834 287,189 139,383
Provision for doubtful accounts 345,585 468,183 534,953
Recoveries of accounts written off 91,941 107,117 76,712
Accounts written off (584,413) (543,655) (463,859)
Balances, end of year $171,947 318,834 287,189
</TABLE>
(3) Short-Term Borrowings.
The Company had total short-term lines of credit of $13,000,000 in 1995
and 1994 and $14,500,000 in 1993. The balances outstanding under these
lines of credit at September 30, 1995, 1994 and 1993 were $1,442,000,
$5,235,000 and $5,000,000, respectively. The highest month-end balances
of short-term debt were $7,186,000, $5,250,000 and $6,450,000 in 1995,
1994 and 1993, respectively. The average month-end balances
outstanding were approximately $2,809,000, $2,658,000 and $4,095,000
in 1995, 1994 and 1993, respectively. The average interest rates on
the notes were approximately 6.07 percent, 3.90 percent and 3.83
percent for 1995, 1994 and 1993, respectively. The lines are subject
to annual renewal and do not require compensating balances. The
average interest rates were 6.27 percent, 5.22 percent and 3.50
percent on notes payable outstanding at September 30, 1995, 1994 and
1993, respectively.
(4) Long-Term Debt.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30,
1995 1994
<C> <C>
Roanoke Gas Company:
First mortgage bonds, collateralized by utility plant:
Series K, 10%, due July 1, 2002, with provision for retirement of
$265,000 each year through 2001 with a final payment of $290,000 $1,880,000 2,145,000
Series L, 10.375%, due April 1, 2004, with provision for retirement of $334,000 each year
through 2003 with a final payment of $324,000 2,996,000 3,330,000
Term debentures, collateralized by indenture dated October 1, 1991, with
provision for retirement in varying annual payments through
October 1, 2016 and interest rates ranging from 6.75% to 9.625% 8,400,000 8,850,000
Unsecured notes payable, with interest rates ranging from 5% to 7.64%,
with provision for retirement in full on October 19, 1996 4,000,000 2,000,000
Obligations under captial leases, due in aggregate monthly payments of
$3,076, including imputed interest, through August 1998 94,962 99,546
Bluefield Gas Company:
Unsecured installment loan, with interest rate based on prime (8.75% and 7.75%
at September 30, 1995 and 1994, respectively), with provision for retirement
of $50,000
for each year through 1997 and a final payment of $12,500 on January 31, 1998 112,500 162,500
Unsecured note payable, with interest rate fixed at 5.8%, with provision for retirement in
full in August 1996 500,000 500,000
Unsecured note payable, with interest based on 30-day LIBOR plus 120 basis
points (7.075% at September 30, 1995), with provision for retirement in full on
October 18, 1996 700,000 -
Total long-term debt 18,683,462 17,087,046
Less current maturities (1,179,415) (672,146)
Total long-term debt, excluding current maturities $ 17,504,047 16,414,900
</TABLE>
The above debt obligations contain various provisions including a
minimum interest charge coverage ratio, limitations on debt as a
percentage of total capitalization, and limitations on total liabilities
as a percentage of tangible net worth. The obligations also contain a
provision restricting the payment of dividends, primarily based on
the earnings of the Company and dividends previously paid. At
September 30, 1995, the entire balance of retained earnings was
available for dividends.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Roanoke Gas Company And Subsidiaries
As of September 30, 1995 and 1994 and Years Ended September 30, 1995,
1994 and 1993
(4) Long-Term Debt (Continued).
The aggregate annual maturities of long-term debt, including
obligations under capital leases, subsequent to September 30, 1995 are
as follows:
Years Ending September 30,
1996 $1,179,415
1997 6,581,923
1998 643,124
1999 599,000
2000 599,000
Thereafter 9,081,000
Total $18,683,462
(5) Income Taxes.
As discussed in note 1, the Company adopted the provisions of
Statement 109 as of October 1, 1993. The adoption of Statement 109 did
not have a material impact on the Company's consolidated financial
statements, and accordingly, no cumulative effect of accounting
change was reported in the 1994 consolidated statement of earnings.
Prior years' consolidated financial statements have not been restated
to apply the provisions of Statement 109.
The details of income tax expense (benefit) are as follows:
Years Ended September 30,
1995 1994 1993
Charged to other operating
expenses - gas utilites:
Current:
Federal $1,104,505 917,069 556,889
State 48,649 30,807 1,650
Total current 1,153,154 947,876 558,539
Deferred:
Federal (370,870) (256,945) 104,437
State (32,198) (8,457) 17,473
Total deferred (403,068) (265,402) 121,910
Investment tax credits, net (38,649) (36,032) (41,397)
Total charged to other operating
expenses - gas utilities 711,437 646,442 639,052
Charged to other income and
deductions - gas utilities:
Current:
Federal 14,587 (6,372) 959
State (40) 764 407
Total current 14,547 (5,608) 1,366
Deferred:
Federal - - 19,283
State - - -
Total deferred - - 19,283
Total charged to other income and
deductions - gas utilities 14,547 (5,608) 20,649
Charged to other operating
expenses - propane operations:
Current:
Federal 200,022 193,795 63,217
State 44,715 43,433 12,694
Total current 244,737 237,228 75,911
Deferred:
Federal (15,528) (2,443) (3,681)
State (5,192) 4,284 (1,504)
Total deferred (20,720) 1,841 (5,185)
Total charged to other operating
expenses - propane operations 224,017 239,069 70,726
Total income tax expense $ 950,001 879,903 730,427
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Roanoke Gas Company And Subsidiaries
As of September 30, 1995 and 1994 and Years Ended September 30, 1995,
1994 and 1993
(5) Income Taxes (Continued).
Income tax expense for the years ended September 30, 1995, 1994
and 1993 differed from amounts computed by applying the U.S. Federal
income tax rate of 34 percent to earnings before income taxes as a
result of the following:
Years Ended September 30,
1995 1994 1993
Net earnings $1,777,240 1,677,098 1,441,336
Income tax expense 950,001 879,903 730,427
Earnings before income taxes $2,727,241 2,557,001 2,171,763
Computed "expected" income
tax expense 927,262 869,380 738,399
Increase (reduction) in income
tax expense resulting from:
Amortization of deferred
investment tax credits (38,649) (36,032) (41,397)
Other, net 61,388 46,555 33,425
Total income tax expense $ 950,001 879,903 730,427
The tax effects of temporary differences that give rise to the
deferred tax assets and deferred tax liabilities are as follows:
September 30,
1995 1994
Deferred tax assets:
Accounts receivable, due to allowance for
doubtful accounts $ 60,898 112,405
Accrued pension and medical benefits, due
to accrual for financial reporting purposes
in excess of actual contributions 687,828 277,739
Accrued vacation and bonuses, due to
accrual for financial reporting purposes 151,392 95,380
Purchased gas adjustments, due to accrual for
financial reporting purposes in excess of
actual payments to customers 100,873 -
Other 23,697 6,637
Total gross deferred tax assets 1,024,688 492,161
Less valuation allowance - -
Net deferred tax assets 1,024,688 492,161
Deferred tax liabilities:
Utility plant, due to differences in
depreciation 2,653,872 2,165,388
Purchased gas adjustments, due to actual
payments to customers in excess of
accrual for financial reporting purposes - 232,052
Prepaid expenses and other assets, due to
capitalization for financial reporting purposes 124,554 149,414
Other - 10,517
Total gross deferred tax liabilities 2,778,426 2,557,371
Net deferred tax liability $ 1,753,738 2,065,210
The Company has determined that a valuation allowance for the gross
deferred tax assets was not necessary at September 30, 1995 and 1994,
since realization of the entire gross deferred tax assets can be
supported by the amount of taxes paid during the carryback period
available under current tax laws, as well as the reversal of the
temporary differences which gave rise to the deferred tax liabilities.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Roanoke Gas Company And Subsidiaries
As of September 30, 1995 and 1994 and Years Ended September 30, 1995,
1994 and 1993
(5) Income Taxes (Continued).
For the year ended September 30, 1993, deferred tax expense of
$136,008 attributable to earnings before income tax expense
resulted from timing differences in the recognition of income and
expense for income tax and financial reporting purposes. The sources
and tax effects of timing differences for the year ended September 30,
1993 were as follows:
Depreciation expense $ 110,701
Purchased gas adjustments 109,757
Other (84,450)
Total $ 136,008
(6) Employee Benefit Plans.
The Company has a defined benefit pension plan covering substantially
all of its employees. The benefits are based on years of service and
employee compensation. Plan assets are invested principally in cash
equivalents and corporate stocks and bonds. Company contributions are
intended to provide not only for benefits attributed to date but also
for those expected to be earned in the future.
Pension expense includes the following components:
<TABLE>
<CAPTION>
Years Ended September 30,
1995 1994 1993
<S> <C> <C> <C>
Service cost for the current year $ 127,908 146,849 132,631
Interest cost on the projected benefit
obligation 376,147 370,811 337,947
Actual return on assets held in the plan (988,813) (96,300) (489,799)
Net amortization and deferral of unrecognized
gains and losses 727,706 (182,032) 224,918
Special termination benefits cost related to
the early retirement incentive plan 168,730 - -
Net pension expense $ 411,678 239,328 205,697
</TABLE>
The Plan's funded status is as follows:
September 30,
1995 1994
Actuarial present value of benefit obligation:
Vested $3,955,511 3,401,178
Nonvested 28,742 39,577
Accumulated benefit obligation 3,984,253 3,440,755
Effect of anticipated future compensation
levels and other events 1,292,654 1,396,502
Projected benefit obligation 5,276,907 4,837,257
Fair value of assets held in the plan (4,971,725) (4,324,047)
Unfunded excess of projected benefit
obligation over plan assets $ 305,182 513,210
The unfunded excess of projected benefit obligation over plan assets
consists of the following:
September 30,
1995 1994
Net unrecognized gain from past experience
different than assumed $(1,166,807) (844,059)
Unamortized transition liability 540,865 646,309
Unrecognized prior service cost 113,251 132,125
Accrued pension cost included in the
consolidated balance sheets 817,873 578,835
Total $ 305,182 513,210
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.75 percent for
1995, 8 percent for 1994 and 7.75 percent for 1993. The rates of
increase in future compensation levels used in determining the actuarial
present value of the projected benefit obligation in 1995 and 1994 were
4 percent for compensation increases through December 31, 1996 and 5
percent for compensation increases thereafter, and in 1993, 4
percent for compensation increases through December 31, 1994 and 5
percent for compensation increases thereafter. The assumed long-term
rate of return on assets was 8.5 percent for 1995, 1994 and 1993.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Roanoke Gas Company And Subsidiaries
As of September 30, 1995 and 1994 and Years Ended September 30, 1995,
1994 and 1993
(6) Employee Benefit Plans (Continued).
In addition to pension benefits, the Company has a postretirement
benefits plan which provides certain health care, supplemental
retirement and life insurance benefits to active and retired employees
who meet specific age and service requirements. The plan is
contributory for 1995; the plan was noncontributory for 1994. The
Company has elected to fund the plan over future years.
As discussed in note 1, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions, as of
October 1, 1993. The transition obligation resulting from this change
in accounting principle of $4,746,000 was determined as of October 1,
1993 and is being amortized on a straight-line basis over a 20-year
period. The adoption of Statement 106 resulted in an increase in net
periodic postretirement benefits cost for the year ended September 30,
1994 from approximately $296,000 under the pay-as-you-go method to
$649,936 under Statement 106, with approximately 67 percent of the
consolidated annual cost being recovered from the Company's
customers through rates. The effect of adopting Statement 106 on
net earnings was a decrease of $77,087, or $.06 per share.
The following table presents the plan's funded status reconciled
with the amounts recognized in the Company's consolidated balance
sheets:
September 30,
1995 1994
Accumulated postretirement benefits
obligation:
Retirees $2,464,992 2,093,424
Fully eligible active plan
participants 1,026,018 994,189
Other active plan participants 1,319,200 1,293,080
4,810,210 4,380,693
Plan assets at fair value, principally
cash equivalents and mutual funds (651,155) (433,592)
Accumulated postretirement benefits
obligation in excess of plan assets 4,159,055 3,947,101
Unrecognized net gain 743,605 564,637
Unrecognized transition obligation (4,271,400) (4,508,700)
Postretirement benefits cost included
in accrued expenses $ 631,260 3,038
The unrecognized net gain of $743,605 as of September 30, 1995 has been
reduced by the curtailment loss of $195,258 resulting from the
early retirement incentive plan offered by the Company in 1995.
Net periodic postretirement benefits cost includes the following
components:
Years Ended September 30,
1995 1994
Service cost for the current year $ 86,613 79,506
Interest cost on the accumulated
postretirement benefits obligation 320,992 333,464
Return on assets held in the plan (35,000) (6,020)
Amortization of transition obligation 237,300 237,300
Net total of other components (7,583) 5,686
Special termination benefits cost
related to the early retirement
incentive plan 242,319 -
Net periodic postretirement benefits
cost $ 844,641 649,936
For measurement purposes, 11 percent and 12 percent annual rates of
increase in the per capita cost of covered benefits (i.e., medical
trend rate) were assumed for 1995 and 1994, respectively; the rates were
assumed to decrease gradually to 6.25 percent by the year 2005 and
remain at that level thereafter. The medical trend rate assumption
has a significant effect on the amounts reported. For example,
increasing the assumed medical cost trend rate by one percentage point
each year would increase the accumulated postretirement benefits
obligation as of September 30, 1995 by approximately $596,000 and the
aggregate of the service and interest cost components of net
postretirement benefits cost by approximately $90,000.
The weighted average discount rates used in determining the
accumulated postretirement benefits obligation were 7.75 percent and 8
percent at September 30, 1995 and 1994, respectively, and 7 percent at
October 1, 1993.
Prior to the Company's adoption of Statement 106, costs of
postretirement benefits were generally charged to expense when claims
and premiums were paid. The annual cost of providing these
benefits to retired employees was approximately $218,000 for 1993.
During 1995, the Company offered a voluntary early retirement incentive
plan to all employees over age 55 who were vested in the Company's
pension plan. Of the 25 eligible employees, 12 accepted the early
retirement offer by the April 26, 1995 deadline. The total cost of
the early retirement incentive plan was $444,367, of which $125,904
was expensed directly in the Company's third quarter and $318,463 was
established as a regulatory asset, with amortization beginning when
rates are placed into effect to allow recovery of the capitalized
costs. The costs expensed during the third quarter related to the
portion of the plan costs that would be amortized during the period
between the recognition of the plan costs and the implementation of
new rates, which provide for plan cost recovery, from the next rate
filing.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Roanoke Gas Company And Subsidiaries
As of September 30, 1995 and 1994 and Years Ended September 30, 1995,
1994 and 1993
(6) Employee Benefit Plans (Continued).
The Company also has a defined contribution thrift plan covering
all of its employees who elect to participate. The Company makes annual
contributions to the plan based on 50 percent of the net participants'
basic contributions (from 1 percent to 6 percent of their total
compensation). The annual cost of the plan was $132,261, $132,683 and
$124,991 for 1995, 1994 and 1993, respectively.
(7) Common Stock Dividend.
On May 23, 1994, the Board of Directors of the Company declared a 100
percent stock dividend on the Company's common stock, payable on July 1,
1994 to holders of record on June 15, 1994. The 100 percent common
stock dividend has been accounted for as a stock split, effected in
the form of a dividend, and thus did not provide any capitalization of
retained earnings. A total of 681,925 shares of common stock were
issued in connection with the common stock dividend, and a total of
$3,409,625 was reclassified from the Company's capital in excess of par
value account to the Company's common stock account on July
1, 1994. Corresponding prior year amounts, including share and per
share data, have been restated to retroactively reflect the 100 percent
stock dividend.
(8) Related Party Transactions.
Certain of the Company's directors render various business services or
products to the Company. The services included legal fees of
approximately $173,000, $197,000 and $39,000 in 1995, 1994 and 1993,
respectively, and construction costs of approximately $1,963,000 and
$1,434,000 in 1994 and 1993, respectively. The products included natural
gas purchases of approximately $1,250,000 in 1995. It is anticipated
that similar services and products will be provided to the Company in
1996.
(9) Quarterly Financial Information (Unaudited).
Quarterly financial data as previously reported for the years ended
September 30, 1995 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Operating revenues $14,115,726 18,949,627 8,995,204 6,550,590
Operating earnings $ 1,046,530 2,267,518 193,645 14,565
Net earnings (loss) $ 558,602 1,795,737 (237,891) (339,208)
Net earnings (loss)
per share $ .40 1.28 (.17) (.25)
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
1994 Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Operating revenues $18,952,378 22,377,742 9,602,255 7,263,482
Operating earnings
(loss) $ 1,513,942 2,161,628 (10,171) (128,132)
Net earnings (loss) $ 1,036,465 1,664,904 (453,506) (570,765)
Net earnings (loss)
per share $ .80 1.25 (.33) (.47)
</TABLE>
The pattern of quarterly earnings is the result of the highly seasonal
nature of the business, as variations in weather conditions generally
result in greater earnings during the winter months.
(10) Business and Credit Concentrations.
The primary business of the Company is the distribution of natural
gas to residential, commercial and industrial customers in
Roanoke, Virginia; Bluefield, Virginia; Bluefield, West Virginia;
and the surrounding areas. The Company distributes natural gas to its
customers at rates and charges regulated by the State Corporation
Commission in Virginia and the Public Service Commission in West
Virginia. The Company also serves propane customers in southwestern
Virginia and southern West Virginia through its nonregulated
subsidiary.
During 1995, 1994 and 1993, no single customer accounted for more than 5
percent of the Company's sales, and no account receivable from any
customer exceeded 5 percent of the Company's total stockholders'
equity at September 30, 1995 and 1994.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Roanoke Gas Company And Subsidiaries
As of September 30, 1995 and 1994 and Years Ended September 30, 1995,
1994 and 1993
(11) Franchises.
Roanoke Gas Company (Roanoke Gas) and Commonwealth Public Service
Corporation, a subsidiary of Bluefield Gas Company, currently hold the
only franchises and/or certificates of public convenience and
necessity to distribute natural gas in their respective Virginia
service areas. The franchises generally extend for a period of 20 years
and are renewable by the municipalities. Certificates of public
convenience and necessity, which are issued by the State Corporation
Commission of Virginia, are of perpetual duration, subject to
compliance with regulatory standards. The franchise for the City of
Roanoke, Roanoke Gas' largest service area, expired on August 30,
1993. On August 23, 1993, the Board of Directors of Roanoke Gas
approved an agreement with the City of Roanoke (City) under which the
current franchise agreement was extended for a term of 180 days from
August 30, 1993, upon the same terms and conditions, except that a
provision of the existing franchise agreement giving the City the
option to purchase the property of Roanoke Gas located within the City
was deleted. The 180-day extension period expired February 26, 1994.
The parties have not reached an agreement on a new multi-year franchise
agreement; however, negotiations are ongoing, and the Company
continues to provide natural gas services to customers in the City of
Roanoke. The Company believes that it ultimately will secure a new
franchise agreement with the City of Roanoke on terms acceptable to
the Company. In addition, the franchise for the City of Salem expired
on July 22, 1994, and the franchise for the Town of Vinton expired
on December 10, 1994. Negotiations between the Company and the City
of Salem and the Town of Vinton are ongoing, and the Company continues
to provide natural gas services to customers in the City of Salem and
the Town of Vinton. The Company also believes that it will ultimately
secure new franchise agreements with the City of Salem and the Town of
Vinton on terms acceptable to the Company. Bluefield Gas Company holds
the only franchise to distribute natural gas in its West Virginia
service area. Its franchise extends for a period of 30 years from August
23, 1979.
Management anticipates that the Company will be able to renew
all of its franchises. There can be no assurance, however, that a
given jurisdiction will not refuse to renew a franchise or will not in
connection with the renewal of a franchise, impose certain restrictions
or conditions that could adversely affect the Company's business
operations or financial condition.
(12) Environmental Matters.
Both Roanoke Gas Company and Bluefield Gas Company operated
manufactured gas plants (MGPs) as a source of fuel for lighting and
heating until the early 1950's. The process involved heating coal in a
low-oxygen environment to produce a manufactured gas that could be
distributed through the Company's pipeline system to customers. A
by-product of the process was coal tar, and the potential exists for
on-site tar waste contaminants at both former plant sites. The extent of
contaminants at these sites is unknown at this time, and the Company has
not performed formal analysis at the Roanoke Gas Company MGP site. An
analysis at the Bluefield Gas Company site indicates some soil
contamination. The Company, with concurrence of legal counsel, does
not believe any events have occurred requiring regulatory reporting.
Further, the Company has not received any notices of violation or
liabilities associated with environmental regulations related to the
MGP sites and is not aware of any off-site contamination or
pollution as a result of these prior operations. Therefore, the
Company has no plans for subsurface remediation at either of the MGP
sites. Should the Company eventually be required to remediate either
of the MGP sites, the Company will pursue all prudent and reasonable
means to recover any related costs, including insurance claims and
regulatory approval for rate case recognition of expenses associated
with any work required. Based upon prior orders of the State
Corporation Commission of Virginia related to environmental matters
at other companies, the Company believes it will be able to recover
prudently incurred costs. Additionally, a stipulated rate case
agreement between the Company and the West Virginia Public Service
Commission recognizes the Company's right to defer MGP clean-up costs,
should any be incurred, and to seek rate relief for such costs. If the
Company eventually incurs costs associated with a required clean-up
of either MGP site, the Company anticipates recording a regulatory
asset for such clean-up costs which are anticipated to be recoverable
in future rates. Based on anticipated regulatory actions and current
practices, management believes that any costs incurred related
to the previously-mentioned environmental matters will not have a
material effect on the Company's consolidated financial position.
(13) Commitments.
The Company has six short-term contracts with five natural gas
suppliers requiring the purchase of approximately 4,234,000 DTH of
natural gas at varying prices during the period October 1, 1995 through
September 30, 1996. The Company also has one short-term contract with a
propane supplier requiring the purchase of 817,000 gallons of propane
during the period October 1, 1995 through September 30, 1996.
Management does not anticipate that these contracts will have a
material impact on the Company's fiscal year 1996 consolidated results
of operations.
27
<PAGE>
SUMMARY OF SALES AND STATISTICS
Roanoke Gas Company And Subsidiaries
Years Ended September 30,
<TABLE>
<CAPTION>
Revenues: 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Residential Sales $25,078,211 $29,844,636 $27,841,933 $23,439,809 $ 21,615,863
Commercial Sales 14,313,723 16,979,230 16,005,765 13,683,948 12,263,378
Interruptible Sales 3,513,181 5,607,002 9,262,947 7,954,908 7,626,604
Transportation Gas Sales 909,515 610,682 53,611 - -
Backup Services 107,652 222,025 - - -
Late Payment Charges 115,130 194,156 147,814 22,893 29,245
Miscellaneous 24,325 67,576 193,449 210,818 470,964
Propane 4,549,410 4,670,550 4,210,160 3,835,622 3,692,910
Total $ 48,611,147 $ 58,195,857 $57,715,679 $ 49,147,998 $ 45,698,964
Net Income $ 1,777,240 $1,677,098 $ 1,441,336 $ 1,305,125 $ 1,579,757
MCF's Delivered:
Residential 4,204,222 4,701,703 4,508,694 4,146,456 3,654,683
Commercial 2,834,884 2,981,888 2,853,079 2,762,004 2,411,385
Interruptible 1,240,658 1,521,663 2,377,236 2,430,061 2,269,861
Transportation Gas 1,660,504 1,022,892 81,336 - -
Backup Service 21,609 38,892 - - -
Total 9,961,877 10,267,038 9,820,345 9,338,521 8,335,929
Gallons Delivered (Propane) 4,822,277 5,012,830 4,586,334 4,178,671 3,793,102
Heating Degree Days 3,791 4,416 4,356 3,986 3,458
Number of Customers:
Residential 44,873 43,734 42,232 41,695 40,535
Commercial 4,896 4,767 4,512 4,429 4,193
Interruptible and
Interruptible Transportation
Service 44 43 44 48 48
Total 49,813 48,544 46,788 46,172 44,776
Gas Account (MCF):
Natural Gas Receipts 10,453,696 10,795,928 10,430,635 9,960,017 9,002,349
Gas Made - Propane - 14,008 - - -
Total Available 10,453,696 10,809,936 10,430,635 9,960,017 9,002,349
Natural Gas Deliveries 9,961,877 10,267,038 9,820,345 9,338,521 8,335,929
Storage - LNG 118,393 134,893 153,478 168,761 151,477
Company Use and Miscellaneous
Sales 46,532 50,356 66,211 82,470 173,800
System Loss 326,894 357,649 390,601 370,265 341,143
Total Gas Available 10,453,696 10,809,936 10,430,635 9,960,017 9,002,349
Total Assets $51,614,667 $49,579,447 $48,758,728 $45,325,270 $40,859,083
Long-Term Obligations $17,504,047 $16,414,900 $16,530,499 $16,936,500 $ 9,364,500
</TABLE>
28
<PAGE>
SUMMARY OF CAPITALIZATION STATISTICS
Roanoke Gas Company And Subsidiaries
Years Ended September 30,
<TABLE>
<CAPTION>
Common Stock: 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Shares Issue 1,432,512 1,382,343 1,289,302 1,269,924 1,263,102
Earnings Per Share
Before cumulative effect
of accounting change $1.26 $1.25 $1.13 $1.03 $0.58
Cumulative effect of
accounting change - - - - 0.69
Net earnings $1.26 $1.25 $1.13 $1.03 $1.27
Dividends Paid Per Share (Cash) $1.00 $1.00 $1.00 $1.00 $1.00
Dividends Paid Out Ratio 79.4% 80.0% 88.9% 97.1% 78.7%
Number of Shareholders 1,699 1,625 901 911 901
Capitalization Ratios:
Long-Term Debt, Including Current
Maturities 51.6 51.0 54.5 55.9 42.5
Common Stock and Surplus 48.4 49.0 45.5 44.1 57.5
Total 100.0 100.0 100.0 100.0 100.0
Long-Term Debt, Including
Current Maturities $18,683,462 $17,087,046 $17,549,817 $17,935,500 $10,374,500
Common Stock and Surplus 17,555,172 16,424,919 14,652,663 14,176,330 14,029,201
Total Capitalization Plus
Current Maturities $36,238,634 $33,511,965 $32,202,480 $32,111,830 $24,403,701
</TABLE>
29
<PAGE>
ROANOKE GAS COMPANY
Board of Directors
Lynn D. Avis President, Avis Construction Company
Abney S. Boxley, III President, W. W. Boxley Company
Edward C. Dunbar Chairman of the Board
Frank T. Ellet President, Virginia Truck Center, Inc.
Frank A. Farmer, Jr. President and Chief Executive Officer
Wilbur L. Hazlegrove Partner, Law Firm of Woods, Rogers & Hazlegrove
W. Bolling Izard President, W. Bolling Izard Surety & Consulting Agency, Inc.
J. Allen Layman President and Chief Executive Officer,
Botetourt Communications, Inc.
John H. Parrott President, John H. Parrott Associates
Thomas L. Robertson President, Carilion Health System and
Roanoke Memorial Hospitals
S. Frank Smith Executive Vice President, Coastal Coal Sales, Inc.
Officers
Frank A. Farmer, Jr. President and Chief Executive Officer
Roger L. Baumgardner Vice President, Secretary and Treasurer
Arthur L. Pendleton Vice President-Operations
John B. Williamson, III Vice President-Rates and Finance
Jane N. O'Keeffe Assistant Vice President-Human Resources
J. David Anderson Assistant Secretary and Assistant Treasurer
30
<PAGE>
BLUEFIELD GAS COMPANY
Board of Directors
Roger L. Baumgardner Vice President, Secretary and
Treasurer, Roanoke Gas Company
Edward C. Dunbar Chairman of the Board, Roanoke Gas Company
Frank A. Farmer, Jr. President and Chief Executive Officer, Roanoke Gas Company
John H. Parrott President, John H. Parrott Associates
Arthur L. Pendleton Vice President- Operations, Roanoke Gas Company
John C. Shott President, Paper Supply Company
Scott H. Shott Secretary and Treasurer, Paper Supply Company
Officers
Frank A. Farmer, Jr. President
Arthur L. Pendleton Vice President-Operations
John B. Williamson, III Vice President-Rates and Finance
Roger L. Baumgardner Secretary and Treasurer
DIVERSIFIED ENERGY COMPANY
T/A Highland Propane Company
& Highland Gas Marketing
Board of Directors
Roger L. Baumgardner Vice President, Secretary and
Treasurer, Roanoke Gas Company
Frank T. Ellett President, Virginia Truck Center, Inc.
Frank A. Farmer, Jr. President and Chief Executive Officer, Roanoke Gas Company
Arthur L. Pendleton Vice President-Operations, Roanoke Gas Company
S. Frank Smith Executive Vice President, Coastal Coal Sales, Inc.
Officers
Frank A. Farmer, Jr. President
Arthur L. Pendleton Vice President-Operations
John B. Williamson, III Vice President-Manager
Roger L. Baumgardner Secretary and Treasurer
31
<PAGE>
NOTICE OF
ANNUAL MEETING
The annual meeting of stockholders
of Roanoke Gas Company will be
held at the Executive Offices of the
Company, 519 Kimball Avenue, N.E.,
Roanoke, Virginia at 9:00 a.m.,
Monday, January 22, 1996.
Roanoke Gas Company
P. O. Box 13007
Roanoke, VA 24030-3007
540 983-3800
Roanoke Gas Company trades on Nasdaq as RGCO.
(Recycled logo)
Printed on Recycled Paper
32
<PAGE>
(Picture of fire flame)
<PAGE>
(Picture of fire flame)
Roanoke Gas
Your Choice for Comfort and Economy
Transfer Agent and Dividend Disbursing Agent
First Union National Bank of North Carolina
Dividend Reinvestment Services
P. O. Box 1154
Charlotte, North Carolina 28288-1154
1-800-829-8432
