SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997 Commission file number 0-367
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ROANOKE GAS COMPANY
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(Exact name of registrant as specified in its charter)
Virginia 54-0359895
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
519 Kimball Ave., N.E., Roanoke, VA 24016
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (540) 983-3800
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
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OTC (Nasdaq
Common Stock, $5 Par Value National Market)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by nonaffiliates
of the registrant as of November 21, 1997. $27,636,246
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<PAGE>
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Class Outstanding at November 21, 1997
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COMMON STOCK, $5 PAR VALUE 1,535,347 SHARES
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DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the 1997 Annual Report to Stockholders are incorporated by
reference into Parts II and IV hereof.
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be
held on January 26, 1998 are incorporated by reference into Part III hereof.
<PAGE>
PART I
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Item 1. Business.
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Historical Development
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Roanoke Gas Company ("Roanoke Gas") was organized as a public
service corporation under the laws of the Commonwealth of
Virginia in 1912. The principal service of Roanoke Gas was, and
continues to be, the distribution and sale of natural gas.
Commencing in 1972, the distribution and sale of propane gas was
added to Roanoke Gas' line of business. The propane business
was transferred to Diversified Energy Company, d/b/a Highland
Propane Company ("Highland"), in January 1979. Highland, which
is not a public utility, distributes and sells propane in
Southwestern Virginia and Southern West Virginia.
On May 15, 1987, Roanoke Gas, through a series of merger
transactions, acquired 100 percent of the outstanding stock of
Bluefield Gas Company ("Bluefield"), a public service
corporation, organized in 1944 under the laws of the State of
West Virginia and principally engaged in the distribution of
natural gas in Bluefield, West Virginia and surrounding areas,
and Gas Service, Inc. ("Gas Service"), a nonpublic utility
affiliate (through common directors and shareholders) of
Bluefield, which was engaged in the sale of propane in
southwestern Virginia and southern West Virginia. After
obtaining requisite shareholder approval and the approvals of
the Virginia State Corporation Commission ("Virginia
Commission") and the West Virginia Public Service Commission
("West Virginia Commission"), Gas Service was merged into
Highland, and Bluefield became a wholly-owned subsidiary of
Roanoke Gas. Bluefield owns all of the issued and outstanding
stock of Commonwealth Public Service Corporation
("Commonwealth"), a small Virginia public service corporation
organized in 1930 as the subsidiary of a predecessor corporation
to Bluefield.
In March 1994, the gas marketing division of Highland Propane
was established to broker natural gas to several industrial
transportation customers of Roanoke Gas and Bluefield Gas.
Services
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Roanoke Gas Company and its subsidiaries (together "Company")
maintain an integrated natural gas distribution system. Natural
gas is purchased from suppliers and distributed to residential,
commercial and large industrial users through underground mains
and services. Approximately 90.1 percent of the Company's
customers are residential, approximately 9.8 percent are small
commercial users, and the remaining percentage is made up of
large industrial customers, who received approximately 27
percent of the Company's total annual delivered volume under the
Company's interruptible tariff and transportation gas services.
<PAGE>
Item 1. Business. (continued)
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Services (continued)
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The Company's natural gas distribution business accounted for 89
percent of the total revenues generated by the Company in fiscal
1997, and 92 percent and 91 percent of the Company's total
revenues in fiscals 1996 and 1995, respectively. The Company's
revenues are affected by the cost of natural gas, economic
conditions in the areas that the Company serves and weather
conditions. Higher gas costs, which the Company is generally
able to pass through to customers, may cause customers to
conserve, or in the case of industrial customers, to use
alternative energy sources. In recent years, however,
regulatory changes at the federal level and excess supply in the
natural gas industry have led to a national spot market for
natural gas and an increase in the number of suppliers of
natural gas.
The Company's retail sales are seasonal and temperature-
sensitive as the majority of the gas sold by the Company is used
for heating. For the fiscal year ended September 30, 1997, more
than 50 percent of the Company's total MCF of natural gas sales
were made in the four-month period of December through March.
Retail gas deliveries for fiscal 1997 were 10,804,045 MCF, as
compared to 11,169,948 MCF and 9,961,877 MCF in fiscals 1996 and
1995, respectively. The Company's actual heating degree days in
fiscal 1997 were approximately 102 percent of normal, as
compared with approximately 111 percent of normal in fiscal 1996
and approximately 90 percent of normal in fiscal 1995.
In prior years, the Company and its public service subsidiaries
sold and installed gas appliances and parts and offered
servicing of such appliances. These unregulated activities did
not contribute materially to the Company's consolidated gross
revenues. Management's analysis during 1995 indicated that it
is more cost effective to outsource gas appliance sales.
Accordingly, the Company discontinued general merchandising
operations during the fourth quarter of fiscal 1995.
The risks and uncertainties that may affect the operations,
performance, development and results of the Company's business
include the following: (i) obtaining adequate rate relief from
regulatory authorities on a timely basis; (ii) earning on a
consistent basis an adequate return on invested capital;
(iii) increasing expenses and labor costs and availability;
(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) general
economic conditions both locally and nationally. In addition,
the Company's business is seasonal in character and strongly
influenced by weather conditions. Extreme changes in winter
heating degree days from the normal or mean can have significant
short-term impacts on revenues and gross margin. Management of
the Company believes that the Company has the resources to deal
successfully with these and other issues.
<PAGE>
Item 1. Business. (continued)
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Suppliers
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Effective November 1, 1993, the natural gas transportation
pipelines supplying the Company, including Columbia Gas
Transmission Corporation and Columbia Gulf Transmission
Corporation (together "Columbia") and East Tennessee Natural Gas
Company and Tennessee Gas Pipeline (together "East Tennessee"),
have operated under Federal Energy Regulatory Commission
("FERC") Order 636. This Order 636 restructuring was the start
of a new era in the natural gas industry when the responsibility
of gas supply procurement and management was shifted from the
pipeline companies to the local distribution companies and to
other "shippers" of natural gas.
The cornerstone of Order 636 is the "unbundling" of pipeline
services to provide a number of choices to shippers. The
Company can now elect to choose who it buys its gas from, how
much storage gas to purchase, how much transportation capacity
to keep and how much to release. The Company constantly
monitors its gas requirements to minimize exposure to pipeline
penalties for insufficient supplies or excessive gas injections.
The Company's new "shipper" responsibilities are expected to
bring increased scrutiny from the state commissions as they
monitor the Company's gas purchasing practices to assure that a
"least cost with adequate reliability" policy is followed.
Accordingly, the Company has worked diligently to ensure its
customers will have an economical and reliable gas supply.
Management believes the relationships the Company has built with
its suppliers as it constructed a supply portfolio will allow it
to continue to attain this goal.
The Company currently uses long-term (multi-year), mid-term
(seasonal) and short-term (spot) gas purchases to meet its
system requirements. The Company has entered into, or is in the
process of entering into, long-term supply agreements to cover
the majority of its firm transportation needs. Long-term
suppliers currently include Amoco Energy Trading, Columbia
Energy Services, and L,G&E Natural Gas. The Company has also
entered into nine short-term contracts with seven natural gas
suppliers to purchase approximately 2,149,000 DTH of natural gas
at varying prices during the period October 1, 1997 through
September 30, 1998. The Company has also provided notice of bid
awards to two natural gas suppliers, and anticipates these
notices to result in contracts to purchase an additional
1,703,000 DTH of natural gas at varying prices during fiscal
year 1998.
With the growth of the spot gas market, gas prices have
developed a pronounced seasonal pattern, with summer to winter
price swings of as much as 40 percent. The Company tries to
take advantage of this opportunity by injecting lower-priced
summer gas into its liquefied natural gas storage facility,
which is capable of storing 220,000 DTH for use during peak
winter periods. In addition, the Company has contracted for
extensive storage reserves from Columbia, Tennessee Gas Pipeline
and Virginia Gas Storage Company, with a combined total of
<PAGE>
Item 1. Business. (continued)
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Suppliers (continued)
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4,358,631 DTH of underground storage capacity for Roanoke and
Bluefield. These reserves were available for summer 1997
storage injections using spot market supply. This increased
storage capacity provides supply security with reduced exposure
to potential supply interruptions. It also offers the Company
the flexibility to balance supply with its highly-variable,
weather-sensitive customer consumption patterns. In addition,
the Company participates in pipeline capacity release programs
to further minimize the cost of firm service to its customers by
reselling pipeline capacity not needed during the warmer months.
Columbia continues to be the Company's primary transporter of
natural gas. Columbia historically has delivered two-thirds of
Roanoke Gas' gas supply and 100 percent of Bluefield's gas
supply. East Tennessee continues to be the Company's other
major source of supply. Historically, East Tennessee has
delivered one-third of the Company's natural gas supply. The
rates paid for natural gas transportation and storage services
purchased from Columbia and East Tennessee are established by
tariffs approved by the FERC. These tariffs contain flexible
pricing provisions which, in some instances, authorize these
suppliers to reduce rates and charges to meet price competition.
Having two major pipeline transporters, an adequate peak shaving
facility and a number of underground storage options, the
Company believes that it is well positioned to provide adequate
gas supply for future customer growth. The Company has been,
and will continue to be, flexible and creative as it markets its
own transportation capacity and makes its gas purchasing
decisions. The Company believes that Order 636 provides
regulatory stability. Additionally, the increased opportunities
available in a deregulated natural gas supply environment may
result in additional market forces that establish gas prices and
help keep them more consistent and competitive.
Highland has entered into storage and purchase contracts for a
substantial portion of its winter supply of propane. At
September 30, 1997, Highland has three short-term contracts with
propane suppliers for the purchase of 2,952,500 gallons of
propane at varying prices per gallon during the period October
1, 1997 through September 30, 1998. Management believes these
storage and purchase contracts will help control the effects of
wholesale price swings during peak sales months and provide
added supply security.
In addition to storage contracts, Highland Propane has nine
storage facilities, providing a combined total storage of
384,000 gallons. Management believes its propane supply
strategies have made Highland well positioned to provide an
adequate propane supply to current customers and allow for
future customer growth.
<PAGE>
Item 1. Business. (continued)
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Competition
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The Company competes with other energy sources such as fuel oil,
electricity and coal. Competition is intense among the
competing energy sources and is based primarily on price. This
is particularly true for industrial applications where sales are
at risk to price competition in markets which may swing to
residual and other fuel oils.
Roanoke Gas and Commonwealth 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 multi-year periods
and are renewable by the municipalities. Certificates of public
convenience and necessity, which are issued by the Virginia
Commission, are of perpetual duration, subject to compliance
with regulatory standards.
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 when they expire. 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.
Supervision and Regulation
--------------------------
Roanoke Gas and its public service subsidiaries are subject to
regulation at federal and state levels. Federally, the
interstate gas transmission between Bluefield and Commonwealth
is regulated by the FERC. At the state level, Roanoke Gas and
its public service subsidiaries are regulated by the Virginia
and West Virginia Commissions. Such regulation includes the
prescription of rates and charges at which natural gas is sold
to customers and the approval of agreements between or among
affiliated companies involving the provision of goods and
services and other corporate activities of the Company,
including mergers, acquisitions and the issuance of securities.
The Virginia Commission also grants certificates of public
convenience and necessity to distribute natural gas in counties
in the Commonwealth of Virginia. Bluefield's West Virginia
operations are regulated by the West Virginia Commission, which
regulates the rates at which natural gas may be sold, certain
corporate activities of Bluefield and pipeline safety.
<PAGE>
Item 1. Business. (continued)
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Supervision and Regulation (continued)
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Roanoke Gas' and its public service subsidiaries' Virginia and
West Virginia operations are further supervised by
municipalities and localities which grant franchises for the
placement of gas distribution pipelines and the operation of a
gas distribution network.
Both Roanoke Gas and Bluefield 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 Roanoke Gas' and Bluefield's pipeline
systems 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 MGP site. An analysis at the
Bluefield 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 Virginia Commission related to
environmental matters at other companies, Roanoke Gas believes
it will be able to recover prudently incurred costs.
Additionally, a stipulated rate case agreement between Bluefield
and the West Virginia Commission recognizes Bluefield'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 futur
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.
<PAGE>
Item 1. Business. (continued)
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Employees
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At September 30, 1997, the Company had 155 full-time employees.
As of that date, approximately 35 percent of the Company's full-
time employees belonged to the Oil, Chemical and Atomic Workers
International Union, AFL-CIO Local No. 3-515, which has entered
into a collective bargaining agreement with the Company. The
union has been in place at the Company since 1952. A new
collective bargaining agreement became effective on August 1,
1997. That agreement will expire on July 31, 1998. The Company
considers its employee relations to be satisfactory.
Item 2. Properties.
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Roanoke Gas owns and operates five metering stations through
which it measures and regulates the gas being delivered by its
suppliers. The location and physical description of the
properties are as follows:
Plantation Station - Parcel on Virginia Highway #601 near point
of intersection of Hershberger Road (Rt. 623) and Rt. 601 -
1.590 acres.
J. M. Mason Station - S/E corner of Lakeside Circle and east of
Lot #4 of Mill Road subdivision just east of Kessler Mill Road -
.842 acres.
Sugarloaf Station - Parcel fronting on S/L of Rt. 686 and W/L of
Lynnson Drive - .111 acres.
Clearbrook Station - Parcel 356' west of Rt. 675 and 0.2 mile
south of Rt. 220 - .255 acres.
Cave Spring Station - N/L Route 221 just west of Route 688 -
3.93 acres.
The network of distribution lines includes the cities of Roanoke
and Salem, the Town of Vinton, and the counties of Roanoke,
Montgomery, Botetourt and Bedford.
Located in Botetourt County is a liquefied natural gas storage
facility which has the capacity to hold 220,000 DTH of natural
gas. The County issued Industrial Revenue Bonds to finance this
facility. Roanoke Gas had a twenty-year lease on the facility
with the option to purchase for a nominal amount. The lease
expired May 1, 1991, and the facility was purchased by Roanoke
Gas.
<PAGE>
Item 2. Properties. (continued)
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Roanoke Gas' general and business offices and the maintenance
and service departments are located in Roanoke, Virginia on an
irregularly shaped parcel of land running from H. L. Lawson and
Son, Inc. south to Norfolk Southern Computer Center fronting on
Kimball Avenue to the west to the Norfolk Southern Railway yard.
The land area is 8.3 acres.
Bluefield Gas Company's main corporate office and warehouse is
located on 6.09 acres at 4699 East Cumberland Road and consists
of a one-story metal building with brick front. Bluefield owns
a lot at 800 Pulaski Street, Bluefield, West Virginia. In
addition, Bluefield owns two lots in the City of Bluefield, West
Virginia, comprising approximately 1.23 acres, upon which its
high pressure regulator stations are located.
In West Virginia, Highland Propane owns an office, loading
platform, garage and storage tank facility in Rainelle. The
storage facility consists of two 18,000 gallon tanks, pumps and
related equipment. A 30,000 gallon storage facility is also
located in Ansted.
Another storage facility, comprising two 30,000 gallon tanks,
one 18,000 gallon tank, pumps and related equipment, is located
on Bluefield Gas Company's property at 800 Pulaski Street,
Bluefield, West Virginia.
In Virginia, Highland Propane owns and operates six storage
facilities. A facility at Thirlane Road, N.W. in Roanoke
consists of two 30,000 gallon tanks. A second facility at Fort
Chiswell, Virginia consists of two 30,000 gallon tanks. The
third facility is located on the property of Consolidated Glass
in Galax, Virginia and consists of one 30,000 gallon tank. A
fourth storage facility is located in Craig County, Virginia,
near the town of New Castle, and also consists of one 30,000
gallon tank. A fifth facility located in Floyd County, Virginia
consists of one 30,000 gallon tank. A sixth facility is located
on the property of Virginia Forging in Botetourt County, near
the town of Buchanan, and consists of one 30,000 gallon tank.
The Company considers present properties adequate. Additional
distribution lines will be constructed as communities develop.
Item 3. Legal Proceedings.
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Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
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There were no matters submitted to a vote of security holders
during the fourth quarter of the year ended September 30, 1997.
<PAGE>
Executive Officers of the Registrant
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Pursuant to General Instruction G(3) of Form 10-K, the following
list is included as an unnumbered Item in Part I of this report
in lieu of being included in the Proxy Statement for the Annual
Meeting of Stockholders to be held on January 26, 1998.
The names, ages and positions of all of the executive officers
of Roanoke Gas as of September 30, 1997 are listed below with
their business experience for the past five years. Officers are
appointed annually by the Board of Directors at the meeting of
directors immediately following the Annual Meeting of
Stockholders. There are no family relationships among these
officers, nor any agreement or understanding between any officer
and any other person pursuant to which the officer was selected.
Previous and present duties and responsibilities:
<TABLE>
<CAPTION>
Position and Business
Name and Age Experience for Past Five Years
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<S> <C> <C>
Frank A. Farmer, Jr., 65 January 1991 to present Director, President
and Chief Executive
Officer
Roger L. Baumgardner, 55 January 1986 to present Vice President,
Secretary and
Treasurer
Arthur L. Pendleton, 46 January 1991 to present Vice President -
Operations
John B. Williamson, III, 43 January 1993 to present Vice President -
Rates and Finance
April 1992 to January 1993 Director of Rates and
Finance
Prior to April 1992 County Administrator
of Botetourt County,
Virginia
J. David Anderson, 50 January 1986 to present Assistant Secretary
and Assistant
Treasurer
</TABLE>
<PAGE>
PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder
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Matters.
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The information set forth under the caption "Market Price and
Dividend Information" on page 6 of the 1997 Annual Report to
Stockholders is incorporated herein by reference.
Item 6. Selected Financial Data.
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The information set forth under the caption "Selected Financial
Data" on page 7 of the 1997 Annual Report to Stockholders is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations.
---------------------
The information set forth under the captions "Review of
Operations" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 3 through
12 of the 1997 Annual Report to Stockholders is incorporated
herein by reference.
Item 8. Financial Statements and Supplementary Data.
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The following consolidated financial statements of the registrant
and the Independent Auditors' Report set forth on pages 13
through 31 of the 1997 Annual Report to Stockholders are
incorporated herein by reference:
1. Independent Auditors' Report
2. Consolidated Balance Sheets as of September 30, 1997 and 1996
3. Consolidated Statements of Earnings for the Years Ended
September 30, 1997, 1996 and 1995
4. Consolidated Statements of Stockholders' Equity for the Years
Ended September 30, 1997, 1996 and 1995
5. Consolidated Statements of Cash Flows for the Years Ended
September 30, 1997, 1996 and 1995
6. Notes to Consolidated Financial Statements as of September 30,
1997 and 1996 and Years Ended September 30, 1997, 1996 and
1995
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosure.
--------------------
At its meeting on July 28, 1997, the Board of Directors of
Roanoke Gas Company (the "Company"), upon recommendation of the
Audit Committee, appointed Deloitte & Touche LLP as independent
accountants to audit the financial statements of the Company and
its subsidiaries for the years ending September 30, 1998, 1999
and 2000. KPMG Peat Marwick LLP ("KPMG") previously had served
as the Company's certifying accountants since 1990. The Board of
Directors solicited competitive bids from accountants interested
in serving as the Company's auditor. From the bids received, the
Audit Committee recommended Deloitte & Touche LLP to the Board of
Directors.
KPMG's auditors' report on the Company's financial statements for
the past two fiscal years ended September 30, 1997 contained no
adverse opinion or a disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope, or
accounting principles. During the Company's two most recent
fiscal years and the subsequent interim period through December
19, 1997, there were no disagreements with KPMG on any matter of
accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved
to the satisfaction of KPMG, would have caused it to make a
reference to the subject matter of the disagreement in connection
with its auditors' report.
PART III
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Item 10. Directors and Executive Officers of the Registrant.
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For information with respect to the executive officers of the
registrant, see "Executive Officers of the Registrant" at the end
of Part I of this report. For information with respect to the
Directors of the registrant, see "Election of Directors" at pages
3 and 4 of the Proxy Statement for the Annual Meeting of
Stockholders to be held January 26, 1998, which information is
incorporated herein by reference. The information with respect
to compliance with Section 16(a) of the Exchange Act, which is
set forth under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" at page 10 of the Proxy Statement for the
Annual Meeting of Stockholders to be held January 26, 1998, is
incorporated herein by reference.
Item 11. Executive Compensation.
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The information set forth under the captions "Executive
Compensation," "Report of the Compensation Committee of the Board
of Directors," and "Performance Graph" at pages 5 through 8 of
the Proxy Statement for the Annual Meeting of Stockholders to be
held January 26, 1998, is incorporated herein by reference.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
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The information pertaining to stockholders beneficially owning
more than five percent of the registrant's common stock and the
security ownership of management, which is set forth under the
captions "Voting Securities" and "Security Ownership of
Management" on pages 2 and 3 of the Proxy Statement for the
Annual Meeting of Stockholders to be held January 26, 1998, is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
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The information with respect to certain transactions with
management of the registrant, which is set forth under the
caption "Transactions with Management" at page 9 of the Proxy
Statement for the Annual Meeting of Stockholders to be held on
January 26, 1998, is incorporated herein by reference.
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
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(a) List of documents filed as part of this report:
1. Financial statements:
All financial statements of the registrant as set forth
under Item 8 of this Report on Form 10-K.
2. Financial statement schedules:
All schedules are omitted, as the required information
is inapplicable or the information is presented in the
consolidated financial statements or related notes
thereto.
3. Exhibits to this Form 10-K are as follows:
Exhibit No. Description
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3 (a) Articles of Incorporation, as amended, of Roanoke
Gas Company
3 (b) Bylaws, as amended, of Roanoke Gas Company
4 (a) Specimen copy of certificate for Roanoke Gas
Company common stock, $5.00 par value
(incorporated herein by reference to Exhibit 4(a)
of the Annual Report on Form 10-K for the fiscal
year ended September 30, 1992)
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on
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Form 8-K. (continued)
--------
Exhibit No. Description
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4 (b) Article I of the Bylaws of Roanoke Gas Company
(included in Exhibit 3(a) hereto)
4 (c) Instruments defining the rights of holders of
long-term debt (incorporated herein by reference
to Exhibit 4(c) of the Annual Report on Form 10-K
for the fiscal year ended September 30, 1991)
10(a) Firm Transportation Agreement between East
Tennessee Natural Gas Company and Roanoke Gas
Company dated November 1, 1993 (incorporated
herein by reference to Exhibit 10(a) of the Annual
Report on Form 10-K for the fiscal year ended
September 30, 1994)
10(b) Interruptible Transportation Agreement between
East Tennessee Natural Gas Company and Roanoke Gas
Company dated July 1, 1991 (incorporated herein by
reference to Exhibit 10(b) of the Annual Report on
Form 10-K for the fiscal year ended September 30,
1994)
10(c) NTS Service Agreement between Columbia Gas
Transmission Corporation and Roanoke Gas Company
dated October 25, 1994 (incorporated herein by
reference to Exhibit 10(c) of the Annual Report on
Form 10-K for the fiscal year ended September 30,
10(d) SIT Service Agreement between Columbia Gas
Transmission Corporation and Roanoke Gas Company
dated November 30, 1993 (incorporated herein by
reference to Exhibit 10(d) of the Annual Report on
Form 10-K for the fiscal year ended September 30,
1994)
10(e) FSS Service Agreement between Columbia Gas
Transmission Corporation and Roanoke Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(e) of the Annual Report on
Form 10-K for the fiscal year ended September 30,
1994)
10(f) FTS Service Agreement between Columbia Gas
Transmission Corporation and Roanoke Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(f) of the Annual Report on
Form 10-K for the fiscal year ended September 30,
1994)
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on
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Form 8-K. (continued)
--------
Exhibit No. Description
---------- -----------
10(g) SST Service Agreement between Columbia Gas
Transmission Corporation and Roanoke Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(g) of the Annual Report on
Form 10-K for the fiscal year ended September 30,
1994)
10(h) ITS Service Agreement between Columbia Gas
Transmission Corporation and Roanoke Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(h) of the Annual Report on
Form 10-K for the fiscal year ended September 30,
1994)
10(i) FTS-1 Service Agreement between Columbia Gulf
Transmission Company and Roanoke Gas Company dated
November 1, 1993 (incorporated herein by reference
to Exhibit 10(i) of the Annual Report on Form 10-K
for the fiscal year ended September 30, 1994)
10(j) ITS-1 Service Agreement between Columbia Gulf
Transmission Company and Roanoke Gas Company dated
November 1, 1993 (incorporated herein by reference
to Exhibit 10(j) of the Annual Report on Form 10-K
10(k) Gas Transportation Agreement, for use under FT-A
rate schedule, between Tennessee Gas Pipeline
Company and Roanoke Gas Company dated November 1,
1993 (incorporated herein by reference to
Exhibit 10(k) of the Annual Report on Form 10-K
for the fiscal year ended September 30, 1994)
10(l) Gas Transportation Agreement, for use under IT
rate schedule, between Tennessee Gas Pipeline
Company and Roanoke Gas Company dated September 1,
1993 (incorporated herein by reference to
Exhibit 10(l) of the Annual Report on Form 10-K
for the fiscal year ended September 30, 1994)
10(m) Gas Storage Contract under rate schedule FS
(Production Area) Bear Creek II between Tennessee
Gas Pipeline Company and Roanoke Gas Company dated
November 1, 1993 (incorporated herein by reference
to Exhibit 10(m) of the Annual Report on Form 10-K
for the fiscal year ended September 30, 1994)
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on
- ------- ------------------------------------------------------
Form 8-K. (continued)
--------
Exhibit No. Description
---------- -----------
10(n) Gas Storage Contract under rate schedule FS
(Production Area) Bear Creek I between Tennessee
Gas Pipeline Company and Roanoke Gas Company dated
September 1, 1993 (incorporated herein by
reference to Exhibit 10(n) of the Annual Report on
Form 10-K for the fiscal year ended September 30,
1994)
10(o) Certificate of Public Convenience and Necessity
for Bedford County dated February 21, 1966
(incorporated herein by reference to Exhibit 10(o)
of Registration Statement No. 33-36605, on
Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with
the Commission on September 19, 1990)
10(p) Certificate of Public Convenience and Necessity
for Roanoke County dated October 19, 1965
(incorporated herein by reference to Exhibit 10(p)
of Registration Statement No. 33-36605, on
Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with
the Commission on September 19, 1990)
10(q) Certificate of Public Convenience and Necessity
for Botetourt County dated August 30, 1966
(incorporated herein by reference to Exhibit 10(q)
of Registration Statement No. 33-36605, on
Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with
the Commission on September 19, 1990)
10(r) Certificate of Public Convenience and Necessity
for Montgomery County dated July 8, 1985
(incorporated herein by reference to Exhibit 10(r)
of Registration Statement No. 33-36605, on
Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with
the Commission on September 19, 1990)
10(s) Certificate of Public Convenience and Necessity
for Tazewell County dated March 25, 1968
(incorporated herein by reference to Exhibit 10(s)
of Registration Statement No. 33-36605, on
Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with
the Commission on September 19, 1990)
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on
- ------- ------------------------------------------------------
Form 8-K. (continued)
--------
Exhibit No. Description
---------- -----------
10(t) Certificate of Public Convenience and Necessity
for Franklin County dated September 8, 1964
(incorporated herein by reference to Exhibit 10(t)
of Registration Statement No. 33-36605, on
Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with
the Commission on September 19, 1990)
10(u) Ordinance of the Town of Bluefield, Virginia dated
August 25, 1986 (incorporated herein by reference
to Exhibit 10(u) of Registration Statement
No. 33-36605, on Form S-2, filed with the
Commission on August 29, 1990, and amended by
Amendment No. 1, filed with the Commission on
September 19, 1990)
10(v) Ordinance of the City of Bluefield, West Virginia
dated as of August 23, 1979 (incorporated herein
by reference to Exhibit 10(v) of Registration
Statement No. 33-36605, on Form S-2, filed with
the Commission on August 29, 1990, and amended by
Amendment No. 1, filed with the Commission on
September 19, 1990)
10(w) Resolution of the Council for the Town of
Fincastle, Virginia dated June 8, 1970
(incorporated herein by reference to Exhibit 10(f)
of Registration Statement No. 33-11383, on
Form S-4, filed with the Commission on January 16,
1987)
10(x) Resolution of the Council for the Town of
Troutville, Virginia dated November 4, 1968
(incorporated herein by reference to Exhibit 10(g)
of Registration Statement No. 33-11383, on
Form S-4, filed with the Commission on January 16,
1987)
10(y)* Consulting Agreement between Albert W. Buckley and
Roanoke Gas Company dated February 20, 1992
(incorporated herein by reference to
Exhibit 10(b)(b) of the Annual Report on Form 10-K
for the fiscal year ended September 30, 1992)
10(z)* Consulting Contract between A. Anson Jamison and
Roanoke Gas Company dated March 27, 1990
(incorporated herein by reference to
Exhibit 10(c)(c) of Registration Statement
No. 33-36605, on Form S-2, filed with the
Commission on August 29, 1990, and amended by
Amendment No. 1, filed with the Commission on
September 19, 1990)
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on
- ------- ------------------------------------------------------
Form 8-K. (continued)
--------
Exhibit No. Description
---------- -----------
10(a) (a) Contract between Roanoke Gas Company and
Diversified Energy Services, Inc. dated
December 18, 1978 (incorporated herein by
reference to Exhibit 10(e)(e) of Registration
Statement No. 33-36605, on Form S-2, filed with
the Commission on August 29, 1990, and amended by
Amendment No. 1, filed with the Commission on
September 19, 1990)
10(b) (b) Service Agreement between Bluefield Gas Company
and Commonwealth Public Service Corporation dated
January 1, 1981 (incorporated herein by reference
to Exhibit 10(f)(f) of Registration Statement
No. 33-36605, on Form S-2, filed with the
Commission on August 29, 1990, and amended by
Amendment No. 1, filed with the Commission on
September 19, 1990)
10(c) (c)* Retirement Payment Agreement between Arthur T.
Ellett and Roanoke Gas Company dated April 6, 1972
(incorporated herein by reference to Exhibit
10(g)(g) of Registration Statement No. 33-36605,
on Form S-2, filed with the Commission on
August 29, 1990, and amended by Amendment No. 1,
filed with the Commission on September 19, 1990)
10(d) (d)* Consulting Services Agreement between Edward C.
Dunbar and Roanoke Gas Company dated February 25,
1991 (incorporated herein by reference to Exhibit
10(h)(h) of the Annual Report on Form 10-K for the
fiscal year ended September 30, 1991)
10(e) (e)* Consultation Contract between Gordon C. Willis and
Roanoke Gas Company dated April 29, 1991
(incorporated herein by reference to
Exhibit 10(i)(i) of the Annual Report on Form 10-K
for the fiscal year ended September 30, 1991)
10(f) (f) Gas Storage Contract under rate schedule FS
(Market Area) Portland between Tennessee Gas
Pipeline Company and Roanoke Gas Company dated
November 1, 1993 (incorporated herein by reference
to Exhibit 10(k)(k) of the Annual Report on Form
10-K for the fiscal year ended September 30, 1994)
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on
- ------- ------------------------------------------------------
Form 8-K. (continued)
--------
Exhibit No. Description
---------- -----------
10(g) (g) FTS Service Agreement between Columbia Gas
Transmission Corporation and Bluefield Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(l)(l) of the Annual Report
on Form 10-K for the fiscal year ended
September 30, 1994)
10(h) (h) ITS Service Agreement between Columbia Gas
Transmission Corporation and Bluefield Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(m)(m) of the Annual Report
on Form 10-K for the fiscal year ended
September 30, 1994)
10(i) (i) FSS Service Agreement between Columbia Gas
Transmission Corporation and Bluefield Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(n)(n) of the Annual Report
on Form 10-K for the fiscal year ended
September 30, 1994)
10(j) (j) SST Service Agreement between Columbia Gas
Transmission Corporation and Bluefield Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(o)(o) of the Annual Report
on Form 10-K for the fiscal year ended
September 30, 1994)
10(k) (k) FTS-1 Service Agreement between Columbia Gulf
Transmission Company and Bluefield Gas Company
dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(p)(p) of the Annual Report
on Form 10-K for the fiscal year ended
September 30, 1994)
10(l) (l)* Roanoke Gas Company Key Employee Stock Option Plan
(incorporated herein by reference to Exhibit
10(q)(q) of the Annual Report on Form 10-K for the
fiscal year ended September 30, 1995)
10(m) (m)* Roanoke Gas Company Stock Bonus Plan (incorporated
herein by reference to Exhibit 10(r)(r) of the
Annual Report on Form 10-K for the fiscal year
ended September 30, 1995)
10(n) (n) Gas Franchise Agreement between the Town of
Vinton, Virginia, and Roanoke Gas Company dated
July 2, 1996 (incorporated herein by reference to
Exhibit 10(n)(n) of Annual Report on Form 10-K for
the fiscal year ended September 30, 1996)
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on
- ------- ------------------------------------------------------
Form 8-K. (continued)
--------
Exhibit No. Description
---------- -----------
10(o) (o) Gas Franchise Agreement between the City of Salem,
Virginia, and Roanoke Gas Company dated July 9,
1996 (incorporated herein by reference to Exhibit
10(o)(o) of Annual Report on Form 10-K for the
fiscal year ended September 30, 1996)
10(p) (p) Gas Franchise Agreement between the City of
Roanoke, Virginia, and Roanoke Gas Company dated
July 12, 1996 (incorporated herein by reference to
Exhibit 10(p)(p) of Annual Report on Form 10-K for
the fiscal year ended September 30, 1996)
10(q) (q)* Consulting Agreement between W. Bolling Izard and
Roanoke Gas Company dated January 27, 1997
10(r) (r)* Roanoke Gas Company Restricted Stock Plan for
Outside Directors
13 1997 Annual Report to Stockholders (such report,
except to the extent incorporated herein by
reference, is being furnished for the information
of the Commission only and is not to be deemed
filed as part of this Annual Report on Form 10-K)
21 Subsidiaries of the Company (incorporated herein
by reference to Exhibit (22) of Registration
Statement No. 33-36605, on Form S-2, filed with
the Commission on August 29, 1990, and amended by
Amendment No. 1, filed with the Commission on
September 19, 1990)
23 Accountants' Consent
27 Financial Data Schedule
99 Letter of KPMG Peat Marwick
---------------------
*Management contract or compensatory plan or agreement required
to be filed as an Exhibit to this Form 10-K pursuant to Item
14(c).
(b) Reports on Form 8-K:
Form 8-K dated July 28, 1997 reporting a change in the
Company's principal accountants for fiscal years 1998, 1999
and 2000.
Form 8-K dated September 8, 1997 reporting the acquisition of
assets of U.S. Gas, Inc.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ROANOKE GAS COMPANY
By: /s/ Roger L. Baumgardner 12/19/97
---------------------------- --------
Roger L. Baumgardner Date
Vice President, Secretary and
Treasurer
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/F. A. Farmer, Jr. 12/19/97 President, Chief Executive Officer and
- -----------------------------------
Frank A. Farmer, Jr. Date Director
/s/John B. Williamson, III 12/19/97 Vice President - Rates and Finance
- ------------------------------------
John B. Williamson, III Date (Principal Financial Officer)
/s/Roger L. Baumgardner 12/19/97 Vice President, Secretary and
- ------------------------------------
Roger L. Baumgardner Date Treasurer (Principal Accounting
Officer)
/s/Lynn D. Avis 12/19/97 Director
- ------------------------------------
Lynn D. Avis Date
/s/Abney S. Boxley, III 12/19/97 Director
- ------------------------------------
Abney S. Boxley, III Date
/s/Frank T. Ellett 12/19/97 Director
- ------------------------------------
Frank T. Ellett Date
/s/Wilbur L. Hazlegrove 12/19/97 Director
- ------------------------------------
Wilbur L. Hazlegrove Date
/s/J. Allen Layman 12/19/97 Director
- ------------------------------------
J. Allen Layman Date
/s/John H. Parrott 12/19/97 Director
- ------------------------------------
John H. Parrott Date
/s/Thomas L. Robertson 12/19/97 Director
- ------------------------------------
Thomas L. Robertson Date
/s/S. Frank Smith 12/19/97 Director
- ------------------------------------
S. Frank Smith Date
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit No. Description
- ----------- -----------
3 (a) Articles of Incorporation, as amended, of
Roanoke Gas Company
3 (b) Bylaws, as amended, of Roanoke Gas Company
4 (a) Specimen copy of certificate for Roanoke Gas Company common
stock, $5.00 par value (incorporated herein by reference to
Exhibit 4(a) of the Annual Report on Form 10-K for the fiscal
year ended September 30, 1992)
4 (b) Article I of the Bylaws of Roanoke Gas Company (included in
Exhibit 3(a) hereto)
4 (c) Instruments defining the rights of holders of long-term debt
(incorporated herein by reference to Exhibit 4(c) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1991)
10 (a) Firm Transportation Agreement between East Tennessee Natural
Gas Company and Roanoke Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(a) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10 (b) Interruptible Transportation Agreement between East Tennessee
Natural Gas Company and Roanoke Gas Company dated July 1, 1991
(incorporated herein by reference to Exhibit 10(b) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10 (c) NTS Service Agreement between Columbia Gas Transmission
Corporation and Roanoke Gas Company dated October 25, 1994
(incorporated herein by reference to Exhibit 10(c) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10 (d) SIT Service Agreement between Columbia Gas Transmission
Corporation and Roanoke Gas Company dated November 30, 1993
(incorporated herein by reference to Exhibit 10(d) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10 (e) FSS Service Agreement between Columbia Gas Transmission
Corporation and Roanoke Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(e) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
<PAGE>
10 (f) FTS Service Agreement between Columbia Gas Transmission
Corporation and Roanoke Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(f) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10 (g) SST Service Agreement between Columbia Gas Transmission
Corporation and Roanoke Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(g) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10 (h) ITS Service Agreement between Columbia Gas Transmission
Corporation and Roanoke Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(h) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10 (i) FTS-1 Service Agreement between Columbia Gulf Transmission
Company and Roanoke Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(i) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10 (j) ITS-1 Service Agreement between Columbia Gulf Transmission
Company and Roanoke Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(j) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10 (k) Gas Transportation Agreement, for use under FT-A rate
schedule, between Tennessee Gas Pipeline Company and Roanoke
Gas Company dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(k) of the Annual Report on Form 10-K
for the fiscal year ended September 30, 1994)
10 (l) Gas Transportation Agreement, for use under IT rate schedule,
between Tennessee Gas Pipeline Company and Roanoke Gas Company
dated September 1, 1993 (incorporated herein by reference to
Exhibit 10(l) of the Annual Report on Form 10-K for the fiscal
year ended September 30, 1994)
10 (m) Gas Storage Contract under rate schedule FS (Production Area)
Bear Creek II between Tennessee Gas Pipeline Company and
Roanoke Gas Company dated November 1, 1993 (incorporated
herein by reference to Exhibit 10(m) of the Annual Report on
Form 10-K for the fiscal year ended September 30, 1994)
10 (n) Gas Storage Contract under rate schedule FS (Production Area)
Bear Creek I between Tennessee Gas Pipeline Company and
Roanoke Gas Company dated September 1, 1993 (incorporated
herein by reference to Exhibit 10(n) of the Annual Report on
Form 10-K for the fiscal year ended September 30, 1994)
<PAGE>
10 (o) Certificate of Public Convenience and Necessity for Bedford
County dated February 21, 1966 (incorporated herein by
reference to Exhibit 10(o) of Registration Statement No.
33-36605, on Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with the
Commission on September 19, 1990)
10 (p) Certificate of Public Convenience and Necessity for Roanoke
County dated October 19, 1965 (incorporated herein by
reference to Exhibit 10(p) of Registration Statement
No. 33-36605, on Form S-2, filed with the Commission on August
29, 1990, and amended by Amendment No. 1, filed with the
Commission on September 19, 1990)
10 (q) Certificate of Public Convenience and Necessity for Botetourt
County dated August 30, 1966 (incorporated herein by reference
to Exhibit 10(q) of Registration Statement No. 33-36605, on
Form S-2, filed with the Commission on August 29, 1990, and
amended by Amendment No. 1, filed with the Commission on
September 19, 1990)
10 (r) Certificate of Public Convenience and Necessity for Montgomery
County dated July 8, 1985 (incorporated herein by reference to
Exhibit 10(r) of Registration Statement No. 33-36605, on Form
S-2, filed with the Commission on August 29, 1990, and amended
by Amendment No. 1, filed with the Commission on September 19,
1990)
10 (s) Certificate of Public Convenience and Necessity for Tazewell
County dated March 25, 1968 (incorporated herein by reference
to Exhibit 10(s) of Registration Statement No. 33-36605, on
Form S-2, filed with the Commission on August 29, 1990, and
amended by Amendment No. 1, filed with the Commission on
September 19, 1990)
10 (t) Certificate of Public Convenience and Necessity for Franklin
County dated September 8, 1964 (incorporated herein by
reference to Exhibit 10(t) of Registration Statement
No. 33-36605, on Form S-2, filed with the Commission on August
29, 1990, and amended by Amendment No. 1, filed with the
Commission on September 19, 1990)
10 (u) Ordinance of the Town of Bluefield, Virginia dated August 25,
1986 (incorporated herein by reference to Exhibit 10(u) of
Registration Statement No. 33-36605, on Form S-2, filed with
the Commission on August 29, 1990, and amended by Amendment
No. 1, filed with the Commission on September 19, 1990)
10 (v) Ordinance of the City of Bluefield, West Virginia dated as of
August 23, 1979 (incorporated herein by reference to
Exhibit 10(v) of Registration Statement No. 33-36605, on Form
S-2, filed with the Commission on August 29, 1990, and amended
by Amendment No. 1, filed with the Commission on September 19,
1990)
<PAGE>
10 (w) Resolution of the Council for the Town of Fincastle, Virginia
dated June 8, 1970 (incorporated herein by reference to
Exhibit 10(f) of Registration Statement No. 33-11383, on Form
S-4, filed with the Commission on January 16, 1987)
10 (x) Resolution of the Council for the Town of Troutville, Virginia
dated November 4, 1968 (incorporated herein by reference to
Exhibit 10(g) of Registration Statement No. 33-11383, on Form
S-4, filed with the Commission on January 16, 1987)
10 (y)* Consulting Agreement between Albert W. Buckley and Roanoke Gas
Company dated February 20, 1992 (incorporated herein by
reference to Exhibit 10(b)(b) of the Annual Report on
Form 10-K for the fiscal year ended September 30, 1992)
10 (z)* Consulting Contract between A. Anson Jamison and Roanoke Gas
Company dated March 27, 1990 (incorporated herein by reference
to Exhibit 10(c)(c) of Registration Statement No. 33-36605, on
Form S-2, filed with the Commission on August 29, 1990, and
amended by Amendment No. 1, filed with the Commission on
September 19, 1990)
10 (a) (a) Contract between Roanoke Gas Company and Diversified Energy
Services, Inc. dated December 18, 1978 (incorporated herein by
reference to Exhibit 10(e)(e) of Registration Statement No.
33-36605, on Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with the
Commission on September 19, 1990)
10 (b) (b) Service Agreement between Bluefield Gas Company and
Commonwealth Public Service Corporation dated January 1, 1981
(incorporated herein by reference to Exhibit 10(f)(f) of
Registration Statement No. 33-36605, on Form S-2, filed with
the Commission on August 29, 1990, and amended by Amendment
No. 1, filed with the Commission on September 19, 1990)
10 (c) (c)* Retirement Payment Agreement between Arthur T. Ellett and
Roanoke Gas Company dated April 6, 1972 (incorporated herein
by reference to Exhibit 10(g)(g) of Registration Statement
No. 33-36605, on Form S-2, filed with the Commission on August
29, 1990, and amended by Amendment No. 1, filed with the
Commission on September 19, 1990)
10 (d) (d)* Consulting Services Agreement between Edward C. Dunbar and
Roanoke Gas Company dated February 25, 1991 (incorporated
herein by reference to Exhibit 10(h)(h) of the Annual Report
on Form 10-K for the fiscal year ended September 30, 1991)
10 (e) (e)* Consultation Contract between Gordon C. Willis and Roanoke Gas
Company dated April 29, 1991 (incorporated herein by reference
to Exhibit 10(i)(i) of the Annual Report on Form 10-K for the
fiscal year ended September 30, 1991)
<PAGE>
10 (f) (f) Gas Storage Contract under rate schedule FS (Market Area)
Portland between Tennessee Gas Pipeline Company and Roanoke
Gas Company dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(k)(k) of the Annual Report on Form 10-
K for the fiscal year ended September 30, 1994)
10 (g) (g) FTS Service Agreement between Columbia Gas Transmission
Corporation and Bluefield Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(l)(l) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10 (h) (h) ITS Service Agreement between Columbia Gas Transmission
Corporation and Bluefield Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(m)(m) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10 (i) (i) FSS Service Agreement between Columbia Gas Transmission
Corporation and Bluefield Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(n)(n) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10 (j) (j) SST Service Agreement between Columbia Gas Transmission
Corporation and Bluefield Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(o)(o) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10 (k) (k) FTS-1 Service Agreement between Columbia Gulf Transmission
Company and Bluefield Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(p)(p) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10 (l) (l)* Roanoke Gas Company Key Employee Stock Option Plan
(incorporated herein by reference to Exhibit 10(q)(q) of the
Annual Report on Form 10-K for the fiscal year ended
September 30, 1995)
10 (m) (m)* Roanoke Gas Company Stock Bonus Plan (incorporated herein by
reference to Exhibit 10(r)(r) of the Annual Report on Form 10-
K for the fiscal year ended September 30, 1995)
10 (n) (n) Gas Franchise Agreement between the Town of Vinton, Virginia,
and Roanoke Gas Company dated July 2, 1996 (incorporated
herein by reference to Exhibit 10(n)(n) of Annual Report on
Form 10-K for the fiscal year ended September 30, 1996)
<PAGE>
10 (o) (o) Gas Franchise Agreement between the City of Salem, Virginia,
and Roanoke Gas Company dated July 9, 1996 (incorporated
herein by reference to Exhibit 10(o)(o) of Annual Report on
Form 10-K for the fiscal year ended September 30, 1996)
10 (p) (p) Gas Franchise Agreement between the City of Roanoke, Virginia,
and Roanoke Gas Company dated July 12, 1996 (incorporated
herein by reference to Exhibit 10(p)(p) of Annual Report on
Form 10-K for the fiscal year ended September 30, 1996)
10 (q) (q)* Consulting Agreement between W. Bolling Izard and Roanoke Gas
Company dated January 27, 1997
10 (r) (r)* Roanoke Gas Company Restricted Stock Plan for Outside
Directors
13 1997 Annual Report to Stockholders (such report, except to the
extent incorporated herein by reference, is being furnished
for the information of the Commission only and is not to be
deemed filed as part of this Report on Form 10-K)
21 Subsidiaries of the Company (incorporated herein by reference
to Exhibit (22) of Registration Statement No. 33-36605, on
Form S-2, filed with the Commission on August 29, 1990, and
amended by Amendment No. 1, filed with the Commission on
September 19, 1990)
23 Accountants' Consent
27 Financial Data Schedule
99 Letter of KPMG Peat Marwick LLP
- -----------------------------
*Management contract or compensatory plan or agreement required to be filed
as an Exhibit to this Form 10-K pursuant to Item 14(c).
<PAGE>
ARTICLES OF AMENDMENT
----------------------
OF THE ARTICLES OF INCORPORATION
--------------------------------
OF ROANOKE GAS COMPANY
----------------------
Pursuant to Section 13.1-710 of the Code of Virginia, the Articles of
Amendment of the Articles of Incorporation of Roanoke Gas Company are hereby
set forth as follows:
A. The name of the Corporation is Roanoke Gas Company.
B. The Amendment of the Articles of Incorporation is as follows:
Article Fourth of the Articles of Incorporation is amended by deleting
existing Article Fourth and substituting in lieu thereof:
"Fourth: (a) The number of directors of the
Corporation, not less than seven nor more than eleven,
shall be fixed by the Bylaws and, in the absence of a
Bylaw fixing the number, shall be nine. Upon the
adoption of this Article Fourth, the directors shall
be divided into three classes (A, B and C) as nearly
equal in number as possible. The initial term of
office for members of Class A shall expire at the
annual meeting of shareholders in 1998; the initial
term of office for members of Class B shall expire at
the annual meeting of shareholders in 1999; and the
initial term of office for members of Class C shall
expire at the annual meeting of shareholders in 2000.
At each annual meeting of shareholders following such
initial classification and election, directors elected
to succeed those directors whose terms expire shall be
elected for a term of office to expire at the third
succeeding annual meeting of shareholders after their
election and shall continue to hold office until their
respective successors are elected and qualify. In the
event of any increase or decrease in the number of
directors fixed by the Bylaws, any newly-created
directorships or any decrease in directorships shall
be so apportioned among the classes by the Board of
Directors so as to make all classes as nearly equal in
number as possible.
(b) Newly-created directorships resulting from an
increase in the number of directors or any vacancies
in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal
from office, or other cause shall be filled by the
affirmative vote of a majority of the directors then
in office, whether or not a quorum. No decrease in
the number of directors constituting the Board of
Directors shall shorten the term of any incumbent
director. A director may be removed from office only
for cause."
<PAGE>
C. The Amendment was adopted at the Annual Meeting of Shareholders
held on January 27, 1997.
D. The Amendment was proposed by the Board of Directors of the
Corporation and submitted to the shareholders in accordance with the
requirements of the Virginia Stock Corporation Act.
E. The only voting group entitled to vote on the Amendment is the
holders of the Corporation's common stock. As of November 22, 1996, the
record date for the Annual Meeting, there were 1,483,462 shares of common
stock of the Corporation issued and outstanding and entitled to vote.
1,035,254 votes were cast "for" the Amendment, and 16,931 votes were withheld
or cast "against" such Amendment. The number of votes cast "for" the
Amendment was sufficient for approval of the Amendment by the shareholders.
EXECUTED this 29th day of January, 1997, on behalf of Roanoke Gas
Company, by its President.
ROANOKE GAS COMPANY
By: s/Frank A. Farmer
---------------------------------
Frank A. Farmer, Jr., President
<PAGE>
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
February 5, 1997
The State Corporation Commission has found the accompanying articles submitted
on behalf of
ROANOKE GAS COMPANY
to comply with the requirements of law, and confirms payment of all related
fees.
Therefore, it is ORDERED that this
CERTIFICATE OF AMENDMENT
be issued and admitted to record with the articles of amendment in the Office
of the Clerk of the Commission, effective February 5, 1997 at 12:30 PM.
The corporation is granted the authority conferred on it by law in accordance
with the articles, subject to the conditions and restrictions imposed by law.
STATE CORPORATION COMMISSION
By T. V. Morrison, Jr.
-------------------------
Commissioner
AMENACPT
CIS20318
97-02-03-0198
<PAGE>
ARTICLES OF AMENDMENT
OF THE ARTICLES OF INCORPORATION
OF ROANOKE GAS COMPANY
Pursuant to Section 13.1-710 of the Code of Virginia, the Articles of
Amendment of the Articles of Incorporation of Roanoke Gas Company are hereby
set forth as follows:
(a) The name of the Corporation is ROANOKE GAS COMPANY.
(b) Paragraph "Third" of the Articles of Incorporation, as amended,
shall be amended to read in its entirety as follows:
"Third: The aggregate number of shares which the
corporation shall have the authority to issue and the par value
per share are as follows:
Par Value
Class Number of Shares Per Share
----- ---------------- ---------
Common 3,000,000 $5.00"
(c) New paragraph "Fifth" shall be added to the Articles of
Incorporation, as amended, to read as follows:
"Fifth: No shareholder shall have any
preemptive or preferential right to subscribe for or
acquire unissued shares of the corporation's capital
stock, or any security convertible into or carrying a
right to subscribe for or acquire shares of the
corporation's capital stock, when issued."
(d) Both of the amendments were adopted at a Special Meeting of the
Corporation's shareholders held on March 23, 1992.
(e) Each amendment was proposed by the Board of Directors of the
Corporation and submitted to the shareholders in accordance with the
requirements of the Virginia Stock Corporation Act.
(f) The only voting group entitled to vote on the amendments is the
holders of the Corporation's common stock. As of February 7, 1992, the record
date for the Special Meeting, there were 631,551 shares of common stock of the
Corporation issued and outstanding. 499,092 votes were cast "For" the
amendment to paragraph "Third" increasing the Corporation's authorized common
stock, and 34,818 votes were withheld or cast "Against" that amendment.
473,597 votes were cast "For" the amendment adding paragraph "Fifth" to delete
preemptive rights of shareholders, and 37,975 votes were withheld or cast
"Against" that amendment. The number of votes cast "For" each amendment was
sufficient for approval of the amendment by the shareholders.
EXECUTED this 23rd day of March, 1992, on behalf of Roanoke Gas Company,
by its President.
ROANOKE GAS COMPANY
By: s/Frank A. Farmer, Jr.
-------------------------
Frank A. Farmer, Jr.
President<PAGE>
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
March 24, 1992
The State Corporation Commission has found the accompanying articles submitted
on behalf of
ROANOKE GAS COMPANY
to comply with the requirements of law, and confirms payment of all related
fees.
Therefore, it is ORDERED that this
CERTIFICATE OF AMENDMENT
be issued and admitted to record with the articles of amendment in the Office
of the Clerk of the Commission, effective March 24, 1992.
The corporation is granted the authority conferred on it by law in accordance
with the articles, subject to the conditions and restrictions imposed by law.
STATE CORPORATION COMMISSION
By s/[illegible signature]
-------------------------
Commissioner
AMENACPT
CIS20436
92-03-24-0506
<PAGE>
ARTICLES OF AMENDMENT
OF
THE ARTICLES OF INCORPORATION
OF
ROANOKE GAS COMPANY
a. The name of the corporation is Roanoke Gas Company.
b. Paragraph "THIRD" of the Articles of Incorporation of the
corporation, as amended, reads in its entirety as follows:
"THIRD: The aggregate number of shares which the
Corporation shall have the authority to issue and the
par value per share are as follows:
Par Value
Class Number of Shares Per Share
----- ---------------- ---------
Common 1,000,000 $5.00"
c. The Board of Directors of Roanoke Gas Company at a meeting
held on August 22, 1977, found the foregoing amendment of its Articles of
Incorporation to be in the best interests of the corporation and directed that
it be submitted to a vote of the stockholders of the corporation at a Special
Meeting called on October 19, 1977. Notice of the Special Meeting of
Stockholders was given to each stockholder of record entitled to vote on
September 16, 1977, in the manner and within the time provided by the Virginia
Stock Corporation Act, which notice included a copy of the amendment, and the
amendment was adopted by requisite vote of the stockholders at the Special
Meeting of Stockholders of the corporation held on October 19, 1977.
d. The number of shares of the one class of common stock of the
corporation outstanding and entitled to vote on the amendment was 188,057.
e. The number of shares voted for adoption of the amendment was
161,882 and against such amendment was 1,199.
f. The foregoing amendment increases the aggregate number of
shares authorized for issue from 200,000 to 1,000,000, but does not effect a
change in the amount of the stated capital of the corporation.
g. The foregoing amendment does not effect a restatement of the
Articles of Incorporation.
ROANOKE GAS COMPANY
By s/A. N. Buckley
-----------------------
Its President
and
By s/E. C. Dunbar
-----------------------
Its Vice President - Finance
and Secretary
<PAGE>
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
AT RICHMOND,
December 6, 1977
The accompanying articles having been delivered to the State Corporation
Commission on behalf of
Roanoke Gas Company
and the Commission having found that the articles comply with the requirements
of law and that all required fees have been paid, it is
ORDERED that this CERTIFICATE OF AMENDMENT
be issued, and that this order together with the articles, be admitted to
record in the office of the Commission; and that the corporation have the
authority conferred on it by law in accordance with the articles, subject to
the conditions and restrictions imposed by law.
Upon the completion of such recordation, this order and the articles
shall be forwarded for recordation in the office of the clerk of the
Circuit Court City of Roanoke
STATE CORPORATION COMMISSION
By s/[illegible signature]
-----------------------
Commissioner
VIRGINIA:
In the Clerk's Office of the Circuit Court City of Roanoke
The foregoing certificate (including the accompanying articles) has been
duly recorded in my office this 19th day of December, 1977 and is now returned
---- --------------
to the State Corporation Commission by certified mail.
s/WALKER R. CARTER, JR., Clerk
------------------------------------
By: s/Brenda Scott Clerk
<PAGE>
ARTICLES OF AMENDMENT
OF
ROANOKE GAS COMPANY
A. The name of the corporation is ROANOKE GAS COMPANY.
B. The amendments so adopted are as follows:
RESOLVED that it is in the best interests of Roanoke Gas
Company that its Articles of Incorporation (Association) be
amended and restated so that they shall read in their entirety as
follows:
First: The name of the corporation is ROANOKE GAS COMPANY.
Second: The purpose or purposes for which the corporation is
organized and is authorized to pursue shall be to acquire, own, manage,
control and conduct in the State of Virginia properties, systems and
plants for the manufacture, storage, transmission, sale and delivery to
the public, as a public service company, of gas, whether natural,
manufactured or mixed, for power, heat, light and all other uses under
such Certificates of Convenience and Necessity as have been or may in
the future from time to time be granted to it by the State Corporation
Commission of Virginia. In addition, the corporation may conduct in the
State of Virginia any other business so far as the same may be related
or incidental to its herein-stated business and purposes, and may
further conduct in any other state such business as may be authorized or
permitted by the laws thereof.
Third: The aggregate number of shares which the corporation
shall have authority to issue and the par value per share are as
follows:
Number Par Value
Class Of Shares Per Share
----- --------- ---------
Common 200,000 $5.00
Fourth: The number of directors, not less than three, shall be
fixed by the bylaws, and, in the absence of such a bylaw fixing the
same, the number shall be eight.
C. The Board of Directors of the corporation at its meeting held
February 25, 1965, found the foregoing amendments in the best interests of the
corporation and directed them to be submitted to a vote at the annual meeting
of the stockholders of the corporation to be held April 6, 1965; written
notice of the stockholders' meeting was given to each stockholder of record
entitled to vote at said meeting on March 8, 1965 (more than 25 days prior to
the April 6, 1965 meeting date); the foregoing notice was given in the manner
provided by the Virginia Stock Corporation Act and was accompanied by a copy
of the proposed amendments; and said amendments were adopted by the
stockholders of the corporation on April 6, 1965.
D. The number of shares of the corporation outstanding and the number
of shares entitled to vote thereon is 155,697 shares of common stock. No
other class of shares of the corporation is outstanding.
<PAGE>
E. 125,593 shares of common stock of the corporation voted for the
amendments; and no shares of the common stock voted against the amendments.
F. The amendments do not effect a change in the amount of stated
capital of the corporation.
G. The amendments do effect a restatement in their entirety of the
Articles of Incorporation of the corporation, and the amount of stated capital
of the corporation on the effective date of such amendments is and will be
$778,485.00
WITNESS the signature of Roanoke Gas Company by its President and its
corporate seal affixed hereto and attested by its Secretary, this 6th day of
April, 1965.
ROANOKE GAS COMPANY
By s/John C. Parrott
-----------------------
President
ATTEST:
s/E. C. Dunbar
- --------------------
Secretary
[Company seal appears here]
<PAGE>
STATE OF VIRGINIA)
)to wit:
CITY OF ROANOKE )
I, Ruth T. Murphy, a Notary Public in and for the City of Roanoke,
Virginia, do hereby certify that John C. Parrott, President of Roanoke Gas
Company, whose name is signed to the foregoing Articles of Amendment bearing
date the 6th day of April, 1965, has personally appeared before me and
acknowledged the same in my City and State aforesaid.
GIVEN under my hand this 6th day of April.
s/Ruth T. Murphy
-------------------------------------------
Notary Public
My commission expires:
My Commission Expires August 3, 1967
- ------------------------------------
<PAGE>
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
AT RICHMOND, April 9, 1965
The accompanying articles having been delivered to the State Corporation
Commission on behalf of
Roanoke Gas Company
and the Commission having found that the articles comply with the requirements
of law and that all required fees have been paid, it is
ORDERED that this CERTIFICATE OF AMENDMENT AND RESTATEMENT
be issued, and that this order, together with the articles, be admitted to
record in the office of the Commission; and that the corporation have the
authority conferred on it by law in accordance with the articles, subject to
the conditions and restrictions imposed by law.
Upon the completion of such recordation, this order and the articles
shall be forwarded for recordation in the office of the clerk of the Hustings
Court of the City of Roanoke.
STATE CORPORATION COMMISSION
By: s/Jessee Dillon
-------------------------
Chairman
VIRGINIA:
In the Clerk's Office of the Hustings Court of the City of Roanoke
The foregoing certificate (including the accompanying articles) has been duly
recorded in my office this 20th day of April, 1965 and is now returned to the
State Corporation Commission by certified mail.
WALKER R. CARTER JR., CLERK
---------------------------------
By: s/Ruth Keith Deputy Clerk
<PAGE>
ARTICLES OF ASSOCIATION
of
ROANOKE GAS LIGHT COMPANY
--0--
KNOW ALL MEN BY THESE PRESENTS, That we do hereby make and sign these
Articles of Association for the purpose of forming a corporation under and by
virtue of the provisions of an Act of the General Assembly of Virginia,
entitled "An Act Concerning Corporations", which became a law on the
twenty-first day of May, 1903, and the several supplements thereto and acts
amendatory thereof, for the purpose of purchasing, leasing or constructing,
maintaining and operating works for the manufacture and sale of gas for light,
heat or power, or for any and all other purposes, and to that end we do set
forth, as follows:
I.
The name of this Corporation shall be Roanoke Gas Company.
II.
The nature and character of the works to be purchased, leased,
constructed and otherwise acquired maintained, sold or otherwise disposed of
is a plant or plants with machinery, equipment and appliances for the
manufacture, production, receipt, storage and transmission of gas, including
natural gas and mixed gases of all kinds, gas products, coke, coal tar, coal
tar products and by-products, to be sold and supplied in Roanoke, Virginia,
Roanoke County, Virginia, Botetourt County, Virginia, Montgomery County,
Virginia, and Bedford County, Virginia, and all towns, cities, municipalities
and settlements located in said counties, and to the public generally, for
power, heat, light and all other uses, including, but not being limited to,
domestic, commercial, industrial and governmental uses; the purposes being to
manufacture, transmit, receive, store, sell, distribute and supply gas,
natural gas and mixed gases of all kinds in Roanoke, Virginia, Roanoke County,
Virginia, Botetourt County, Virginia, Montgomery County, Virginia, and Bedford
County, Virginia, and towns, cities, municipalities and settlements located in
said counties, and to operate a gas plant or plants at Roanoke, Virginia, or
its vicinity; also to construct, maintain and operate works for receiving,
holding, transmitting and distributing gas, natural gas and mixed gases of all
kinds, and the incidental products of gas production; also to manufacture,
buy, transmit, receive, sell and generally deal in gas, natural gas, mixed
gases of all kinds, coke, coal tar, coal tar products and by-products, gas
meters, pipes, stoves, burners and other appliances, machinery and fixtures
pertaining to the production of and the use of gas, natural gas and mixed
gases of all kinds, coke, coal tar, coal tar products and by-products; also to
purchase and obtain, by any and all means, supplies of natural gas and mixed
gases of all kinds, and to that end to acquire construct, maintain, operate,
lease, sell and otherwise dispose of gas lines, including gas transmission
lines and other fixtures, appliances and works necessary and convenient for
procuring, carrying and distributing natural gas and mixed gases of all kinds;
also to acquire, hold, use and dispose of all necessary lands, interests in
lands, pipe lines, transmission lines, and all necessary and convenient
facilities for the conduct of the purposes and objects above mentioned, with
full power to mortgage, lease, sell or encumber any part or all of the
property, works and franchises for the said objects and purposes; likewise to
purchase, lease, sell or otherwise acquire the property, works and franchises
or other corporations or companies of like or similar purposes, and generally
to do all things relating to the control, operation, management and conduct of
said purposes and objects.
<PAGE>
The said works are not local to any one city but are to be confined to
the corporate limits of the City of Roanoke, Virginia, and the limits of
Roanoke County, Virginia, Botetourt County, Virginia, Montgomery County,
Virginia, and Bedford County, Virginia.
III.
The principal terminal places to and from which it is proposed to
construct, purchase or otherwise acquire, maintain and operate said works are:
the corporate limits of the City of Roanoke, Virginia, and limits of Roanoke
County, Virginia, Botetourt County, Virginia, Montgomery County, Virginia, and
Bedford County, Virginia, and all towns, cities, municipalities and
settlements located in said counties, with the main or chief producing plant
or plants and the main or chief receiving station or stations at the City of
Roanoke, Virginia, or its vicinity, with auxiliary or supplemental producing,
receiving or storing plants or stations and other integral parts of its plant
or system at such other places as may become necessary or advantageous in the
conduct of the affairs of the Company.
IV.
The proposed works are estimated and intended to be sufficient to
furnish gas, natural gas and mixed gases of all kinds for heating, lighting,
power and all other uses to the City of Roanoke, Virginia, and its inhabitants
and residents tributary to the pipe lines which the Company owns and may
construct within the said city, as well as to Roanoke County, Virginia,
Botetourt County, Virginia, Montgomery County, Virginia, and Bedford County,
Virginia, the inhabitants and residents therein, and all towns, cities,
municipalities and settlements located in said counties, into which the
Company has and may extend its pipe lines and facilities.
V.
The period for the duration of the corporation is unlimited.
VI.
The maximum amount of the capital stock of the corporation is to be
200,000 shares and the minimum amount of the capital stock is to be 10,000
shares, all of which shall be common stock divided into shares of the par
value of $5.00 each.
VII.
The names and places of residence of the officers and directors, who,
unless others are sooner chosen by the stockholders to act in their places,
shall manage the affairs of the corporation for the first year, are as
follows:
OFFICERS.
---------
Name. Office. Residence.
---- ------ ---------
Clarence H. Geist President Philadelphia, Pa.
W. H. Lewis Vice President Roanoke, Va.
Joseph A. Slattery Secretary & Treasurer Philadelphia, Pa.
<PAGE>
DIRECTORS.
Name. Residence.
---- ---------
Clarence H. Geist Philadelphia, Pa.
W. H. Lewis Roanoke, Va.
Joseph A. Slattery Philadelphia, Pa.
Canton Geist Atlantic City, N.J.
H.S. Schutt Wilmington, Del.
VIII.
The place in this State, in which its principal office will be located,
is City of Roanoke, Virginia.
IX.
The Board of Directors of the said "Roanoke Gas Light Company" shall
have the power to name and appoint any executive committee or other committees
to be chosen from its membership, and may appoint within or without its
membership, managers and agents for the corporation; and may vest in such
agents, managers or committees, such authority as may be deemed advisable and
advantageous to the said corporation; not, however, in conflict with the laws
of this State.
For the conduct or the business of the corporation and in providing for
its financial organization, the said corporation:
(a) May merge or consolidate its franchises, property or works with
those of any corporation created for like purposes, as provided for in Chapter
5 of said "Act Concerning Corporations", or as may be hereafter allowed by law
to similar corporations, and may purchase or lease the franchises, property
and works, or any portion thereof, of such other corporation, or may sell or
lease its franchises, property and works, or any part thereof, to any such
other corporation;
(b) May borrow money and make and issue bonds payable to bearer, or
otherwise, with or without interest coupons attached; may make and issue notes
or drafts for loans or for any other debts or obligations incurred by it for
any of the purposes of the corporation; and may secure such loans by mortgage,
or deed of trust, upon all or any part of its property, works and franchises.
(c) The said Board of Directors may, whenever they deem proper,
increase the issue of the capital stock of the corporation to the maximum
limit hereinabove set out, or the limit of any amendment thereof, and may
dispose of the additional issues at such prices, or for such consideration,
and on such terms and conditions as they may deem best, having, however, fully
complied with the provisions of Section 167 of the Constitution of this State,
so far as applicable thereto.
(d) And the said corporation may have and exercise all the general
powers and be subject to all the restrictions conferred generally by Chapter 5
of said "Act Concerning Corporations" and the laws of this State so far as
they are relative thereto; and shall have and may exercise all the special
powers conferred upon corporations of like character by Chapter 3 of said "Act
Concerning Corporations", and by the laws of this State, so far as not in
conflict with this Act, and by all acts hereinafter passed supplementary
thereto or amendatory thereof.
<PAGE>
GIVEN under our hands this 22nd day of March, 1912.
CLARENCE H. GEIST
W. H. LEWIS
JOSEPH A. SLATTERY
CARLTON GEIST
H.S. SCHUTT
<PAGE>
STATE OF VIRGINIA)
TO-WIT:
CITY OF ROANOKE )
I, J. A. Martin, a notary Public in and for the City of Roanoke, in the
State of Virginia, do certify that Clarence H. Geist, W.H. Lewis, Joseph A.
Slattery, Carlton Geist and H.S. Schutt, whose names are signed to the
foregoing writing, bearing date the 22nd day of March, 1912, have each
acknowledged the same before me in my City aforesaid.
GIVEN under my hand this 22nd day of March, 1912.
J.A. Martin,
Notary Public
My commission expires July 11, 1914.
<PAGE>
BYLAWS
OF
ROANOKE GAS COMPANY
<PAGE>
BYLAWS
OF
ROANOKE GAS COMPANY
ARTICLE I
---------
STOCKHOLDERS
- ------------
Sec. 1. The stockholders of this corporation shall be those who
appear on the books of the corporation as holders of one or more shares of any
class of stock of the corporation.
Sec. 2. The annual meeting of the stockholders shall be held
annually on the fourth Monday in January of each year, if not a legal holiday,
and if a legal holiday, then on the next succeeding day not a legal holiday,
at such place and at such hour as may be provided by the Board of Directors or
in the stated notice of the meeting.
At such annual meetings there shall be an election of the Board of
Directors for the ensuing year and the transaction of any business which may
properly come before the meeting.
If in any year the annual meeting shall not be held at the time
designated herein, a meeting shall be held as soon as practicable after the
time designated for the holding of the annual meeting and upon the same notice
as required for an annual meeting, at which time the Board of Directors shall
be elected and such other business may be transacted as might have been
transacted at the annual meeting.
Notice of meetings of stockholders shall be given to the extent and in
the manner required by the Virginia Stock Corporation Act adopted in 1956, or
as it may be amended from time to time hereafter (said Act being hereinafter
sometimes called "Act"), and notice of either stockholders' meetings or
directors' meetings may be waived to the extent and in the manner provided in
said Act.
Sec. 3. Special meetings of the stockholders may be called by the
President, the Board of Directors, or by holders of not less than one-tenth of
all the shares entitled to vote at the meeting, or otherwise as may be
required by the Certificate of Incorporation.
Sec. 4. Any action required under the law of Virginia to be taken at
a meeting of the stockholders of the corporation, or any action which may be
taken at a meeting of the stockholders, may be taken without a meeting if a
consent in writing setting forth the action so taken shall be signed by all
the stockholders entitled to vote with respect to the subject matter thereof.
Such consent shall have the same force and effect as a unanimous vote of
stockholders and may be stated as such in any article or document filed with
the State Corporation Commission or others.
<PAGE>
Sec. 5. For the purpose of determining stockholders entitled to
notice of or to vote at any meeting of stockholders, or any adjournment
thereof, or entitled to receive payment of any dividend, or in order to make a
determination of stockholders for any other proper purpose, the Board of
Directors may provide that the stock transfer books shall be closed for a
stated period, but not to exceed in any case seventy days. In lieu of closing
the stock transfer books, the Board of Directors may fix in advance a date as
the record date for any such determination of stockholders, such date in any
case to be not more than seventy days prior to the date on which the
particular action requiring such determination of stockholders is to be taken.
Sec. 6. Unless otherwise provided in the Articles of Incorporation,
a majority of the shares entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of the stockholders. If a quorum is
present, the affirmative vote of a majority of the shares represented at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless the vote of a greater number or voting by classes is
required under the applicable law of Virginia or the Articles of
Incorporation, and except that in elections of directors those receiving the
greatest numbers of votes shall be deemed elected, even though not receiving a
majority. Less than a quorum may adjourn.
Sec. 7. Each outstanding share, regardless of class, shall be
entitled to one vote on each matter submitted to a vote at a meeting of the
stockholders, except to the extent that the voting rights of the shares of any
class or classes are limited or denied by the Articles of Incorporation as
permitted by the Act, and except as the Articles of Incorporation may confer
on the holders of shares of any particular class or series the right to more
than one vote per share, either generally or on particular matters. Where the
Articles of Incorporation confer the right to more or less than one vote per
share, any requirement in the Act for the affirmative vote of a specified
proportion of the shares shall be deemed to refer to a like proportion of the
votes eligible to be cast.
A stockholder may vote either in person or by proxy executed in writing
by the stockholder or by his duly authorized attorney in fact and shall have
one vote for each share of stock which he is entitled to vote at such meeting.
At each election for directors, every stockholder entitled to vote at such
election shall have the right to vote in person or by proxy the number of
shares owned by him for as many persons as there are directors to be elected
at that time and for whose election he has a right to vote.
Shares of stock of other corporations owned by this corporation may be
voted in person by the President or a Vice President or by proxy executed by
the President or a Vice President; provided, however, the Board of Directors
may by resolution revoke such authority from time to time and thereby
designate some other agent, attorney-in-fact, or proxy to vote such shares.
Sec. 8. All meetings of the stockholders shall be presided over by
the Chairman of the Board of Directors, if such office is filled, or, if there
is no such officer or in the absence or inability to act of the Chairman of
the Board, by the President, or, if the Chairman of the Board, if any, and the
President are absent or unable to act, by the most senior Vice President
present at the meeting, but if none of the foregoing are present and able to
act, a Chairman shall be elected by the meeting. Such meetings shall be
attended by the Secretary of the corporation, who shall act as Secretary of
all such meetings if present. If the Secretary is absent at any meeting, the
Chairman shall appoint a Secretary of the meeting. The proceedings of all
such meetings shall be verified by the signature of the Secretary of the
meeting and approved by the Chairman.
<PAGE>
ARTICLE II
-----------
DIRECTORS
- ---------
Sec. 1. The business and affairs of the corporation shall be managed
by the Board of Directors, subject to any requirement of stockholder action
made by the Act or the Articles of Incorporation.
Sec. 2. The Board of Directors shall consist of nine members. The
number of directors may be increased or decreased from time to time within the
variable range established by the Articles. At each Annual Meeting of
Stockholders, the number of directors equal to the number of the class whose
term expires at the time of such meeting shall be elected to hold office until
the third succeding annual meeting, and until their successors shall have been
elected and qualified. No decrease in the number of directors shall have the
effect of shortening the term of any incumbent director. The normal retirement
date for directors shall be the date of the Annual Meeting of Stockholders
succeeding the director's 70th birthday.
Sec. 3. Any vacancy occurring in the Board of Directors, including a
vacancy resulting from an increase in the number of directors, shall be filled
by the affirmative vote of a majority of the remaining directors, whether or
not a quorum.
Sec. 4. A majority of the number of directors fixed by the Bylaws
shall constitute a quorum for the transaction of business. The act of the
majority of the directors present at a meeting, at which a quorum is present,
shall be the act of the Board of Directors.
Sec. 5. A meeting of the Board of Directors shall be held
immediately after each annual meeting of the stockholders without other notice
than is given by these Bylaws, at which meeting there shall be elected at
least a President, a Treasurer and a Secretary, who shall hold such offices
until the first meeting of the Board following the next annual meeting of the
stockholders and until their successors are elected and qualify, unless sooner
removed by the Board of Directors.
The Board shall also annually (or from time to time as may be deemed
desirable) elect one or more Vice Presidents and any other officers, agents or
factors or fill any vacancy as it may deem necessary, who shall hold office
until others are elected and qualify in their stead, subject to removal by the
Board at any time with or without cause.
The same person may hold one or more offices, except that the same
person may not serve as both President and Secretary.
Sec. 6. Meetings of the Board of Directors, regular or special, may
be held at such times and places as it may designate.
A special meeting may be called at any time by the President or by any
three elected directors.
Regular meetings of the Board of Directors may be held with or without
notice. Notice of special meetings of the Board of Directors shall be mailed
or telegraphed to each director at least three days prior to the date of the
meeting, or notice may be waived in writing before, at or subsequent to any
<PAGE>
such meeting, and the presence of any director at a meeting shall be deemed a
waiver of notice of such meeting. Neither the business to be transacted at
nor the purpose of any regular or special meeting of the Board of Directors
need be specified in the notice or waiver of notice of such meeting.
Members of the Board of Directors and all committees designated by said
Board of Directors may participate in meetings of such Board or committees by
means of a conference telephone or similar communications equipment whereby
all persons participating in the meeting can hear each other, and
participation by such means shall constitute presence in person at such
meeting. When such a meeting is conducted by means of a conference telephone
or similar communications equipment, a written record shall be made of the
action taken at such meeting.
Sec. 7. The Board of Directors may, by resolution adopted by a
majority of the number of directors fixed by these Bylaws, designate two or
more directors to constitute an Executive Committee, which shall have and may
exercise all of the authority of the Board of Directors, except to approve an
amendment to the Articles of Incorporation or a plan of merger or
consolidation.
Other committees with limited authority may be designated by a
resolution adopted by a majority of the directors present at a meeting at
which a quorum is present.
Sec. 8. The Board of Directors may appoint a Transfer Agent or a
Transfer Agent and Registrar of Transfer and may require all certificates for
each applicable class of stock to be authenticated by the Transfer Agent or by
the Transfer Agent and Registrar, as the case may be, or as the Board may
otherwise direct.
Sec. 9. A director may be removed from office only for cause.
Sec. 10. Unless otherwise provided by the Articles of Incorporation
of this corporation, any action required by the laws of Virginia to be taken
at a meeting of the directors, or any action which may be taken at a meeting
of the directors or of a committee, may be taken without a meeting if a
consent in writing, setting forth the action, shall be signed either before or
after such action by all of the directors, or all of the members of the
committee, as the case may be. Such consent shall have the same force and
effect as a unanimous vote.
ARTICLE III
------------
OFFICERS - DUTIES AND POWERS
- ----------------------------
Sec. 1. The President shall be elected by the Board of Directors and
shall preside at all meetings of the Board of Directors, unless there shall be
a Chairman of the Board and such officer shall be present, in which event such
Chairman shall so preside. In the absence of the Chairman of the Board of
Directors, if any, the President and all Vice Presidents, a Chairman of the
meeting shall be elected by the meeting.
The President shall ex officio be a member of all committees, shall sign
all certificates of stock and conveyances of real estate and other instruments
in writing by law requiring the President's signature, and perform such other
duties as may be required of him from time to time by the directors, and shall
have the authority, powers and duties that are usually given such officer.<PAGE>
Sec. 2. In the case of the absence of the President or of his
inability to act, his duties shall be performed by any Vice President (in the
event of more than one Vice President, the senior Vice President present and
able to act shall be entitled to do so), who, in that event, shall execute any
of the above powers of the President.
Sec. 3. The Secretary or Secretary-Treasurer shall attend all
meetings of the stockholders and directors and Executive Committee of the
corporation and keep a full and accurate account of their proceedings in a
book to be kept for that purpose.
He shall, unless and until the Board of Directors appoints another
person or corporation the Transfer Agent as hereinabove provided, act as the
Transfer Agent of the corporation and maintain the stock books and addresses
of the stockholders of the corporation. He shall be the custodian of the
corporate seal of the corporation and shall fix and attest the seal, as
authorized by the Board of Directors or the Bylaws of this corporation, to all
certificates of stock and such other instruments requiring the seal. He shall
also keep such other books, deeds, contracts and other valuable papers
belonging to the corporation and perform such other duties as may be required
of him by the President, the Board of Directors, or the Executive Committee.
Sec. 4. The Treasurer or Secretary-Treasurer shall have the custody
of all monies and securities of the corporation and shall deposit the same in
the name and to the credit of the corporation in such depositories as may be
designated by the Board of Directors. He shall keep a full and accurate
account of the receipts and disbursements of the corporation in books
belonging to the corporation, and shall disburse the funds of the corporation
by check or other warrant to be signed as prescribed by resolution of the
Board of Directors. All books and papers in his care shall be always open to
the inspection of the President or any director, as well as of any person whom
the President or Board of Directors may appoint to examine such books and
papers. He shall render such reports to the President or Board of Directors
as may be required of him and shall perform such other duties as may be
incident to his office or as may be required of him by the Board of Directors.
He may be required by the directors at any time to give bond as the
directors may designate.
Sec. 5. Any person elected by the Board of Directors as an assistant
to an officer, for example, an Assistant Secretary, shall, unless otherwise
restricted by the Board of Directors and in all cases subordinate to the
officer himself, have and exercise all of the rights, duties, functions and
powers of such officer.
Sec. 6. In the event of the absence of any officer of the
corporation or his disqualification or inability to act where provision
therefore is not expressly made by these Bylaws, the President may by written
order, or the Board of Directors may by resolution, delegate the powers of
such officer to any other officer or employee of the corporation.
Sec. 7. Any officer or agent may be removed, with or without cause,
at any time whenever the Board of Directors in its absolute discretion shall
consider that the best interests of the corporation would be served thereby.
Any officer or agent appointed otherwise than by the Board of Directors may be
removed, with or without cause, at any time either by the Board of Directors
or by any officer having authority to appoint whenever the Board of Directors
of such appointing officer in its or his absolute discretion shall consider
that the best interests of the corporation will be served thereby.
<PAGE>
ARTICLE IV
----------
INDEMNIFICATION OF OFFICERS AND DIRECTORS
- -----------------------------------------
Sec. 1. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) , judgements, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in the manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgement, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful.
Sec. 2. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgement in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim. Issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only
to the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
Sec. 3. To the extent that a director, officer, employee or agent of
this corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Sections 1 and 2, or in defense
of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him
in connection therewith.
<PAGE>
Sec. 4. Any indemnification under Sections 1 and 2 (unless ordered
by a court) shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met
the applicable standard of conduct set forth in Sections 1 and 2. Such
determination shall be made (a) by the Board of Directors by a majority vote
of a quorum consisting of directors who were not parties to such action, suit
or proceeding, or (b) if such a quorum is not obtainable, or, even if
obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (c) by the shareholders.
Sec. 5. Expenses (including attorneys' fees) incurred in defending
an action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative, may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding as authorized in the
manner provided in Section 4 upon receipt of an undertaking by or on behalf of
the director, officer, employee or agent to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
corporation as authorized in this article.
Sec. 6. The corporation shall have power to make any other or
further indemnity, including criminal proceedings, to any person referred to
in this section that may be authorized by the Articles of Incorporation or by
any Bylaw made by the stockholders or any resolution adopted, before or after
the event, by the stockholders, except an indemnity against his gross
negligence or willful misconduct. Each such indemnity may continue as to a
person who has ceased to have the capacity referred to above and may inure to
the benefit of the heirs, executors and administrators of such a person.
Sec. 7. The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out
of his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this article.
Sec. 8. For the purposes of this article, references to
"corporation" include all constituent corporations absorbed in a consolidation
or merger, as well as the resulting or surviving corporation, so that any
person who is or was a director, officer, employee or agent of such a
constituent corporation or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise shall stand
in the same position under the provisions of this article with respect to the
resulting or surviving corporation as he would if he had served the resulting
or surviving corporation in the same capacity.
ARTICLE V
---------
SEAL
- ----
Sec. 1. The seal of this corporation shall be as the impression made
below:
<PAGE>
ARTICLE VI
----------
CHECKS, DRAFTS, NOTES, ETC.
- ---------------------------
Sec. 1. All checks, drafts, notes and orders for the payment of
money issued by the corporation shall be signed by such person or persons as
the Board of Directors may from time to time designate, and any endorsement of
such paper in the ordinary course of business shall be similarly made.
ARTICLE VII
-----------
NOTICE
- ------
Sec. 1. Any notice mailed by the corporation to any director or
stockholder shall be sufficient service of such notice when deposited in the
United States mail, addressed to such stockholder or director at the address
furnished by such stockholder or director to the corporation or its Transfer
Agent, in the event an outside Transfer Agent has been appointed, with postage
thereon prepaid.
ARTICLE VIII
------------
STOCK, NOTES, BONDS AND DEBENTURES
- ----------------------------------
Sec. 1. The shares of the corporation shall be evidenced by
certificates of each class of stock issued in numerical order, signed by the
President or a Vice President and the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer, or any other officer authorized by
these Bylaws or a resolution of the Board of Directors, and may (but need not)
be sealed with the seal of the corporation or a facsimile thereof. The
signatures of the officers upon a certificate may be facsimiles if the
certificate is countersigned by a Transfer Agent or registered by a Registrar
other than the corporation itself or an employee of the corporation.
Sec. 2. On any bond, note or debenture issued by the corporation
which is countersigned or otherwise authenticated by the signature of a
trustee, the signatures of the officers of the corporation and its seal may be
facsimiles.
Sec. 3. In case any officer who has signed or whose facsimile
signature has been placed upon a stock certificate or a bond, note or
debenture shall have ceased to be such officer before such certificate or
other such document is issued, it may be issued by the corporation with the
same effect as if he were such officer at the date of its issue.
Sec. 4. Transfers of stock shall be made only upon the books of the
corporation (whether maintained by the corporation or by a Transfer Agent, in
the event one is appointed) and only by the person named in the certificate or
by attorney lawfully constituted in writing and, subject to the provisions of
Section 6 hereof, only upon surrender of the certificate therefore. The Board
of Directors may by resolution make reasonable regulations for the transfer of
stock.<PAGE>
Sec. 5. Registered stockholders only shall be entitled to be treated
by the corporation as the holders in fact of the stock standing in their
respective names, and the corporation shall not be bound to recognize any
equitable or other claim to or interest in any shares on the part of any other
person whether or not it shall have express or other notice thereof, except as
expressly provided by the laws of Virginia.
Sec. 6. In case of loss or destruction of any certificate of stock,
another may be issued in its place upon proof of such loss or destruction, and
upon the giving of a satisfactory bond of indemnity to the corporation in such
sum as the directors may provide, not exceeding double the value of the stock.
ARTICLE IX
-----------
BOOKS AND RECORDS
- -----------------
Sec. 1. The Board of Directors shall determine from time to time
whether, and, if allowed, when and under what conditions and regulations, the
accounts and books of the corporation (except such as may by statute be
specifically open to inspection), or any of them, shall be open to the
inspection of the stockholders, and the stockholders' rights in this respect
are and shall be restricted and limited accordingly.
ARTICLE X
---------
AMENDMENT OF BYLAWS
- -------------------
Sec. 1. These Bylaws may be altered, amended or repealed and new
Bylaws may be adopted by the Board of Directors; but Bylaws made or adopted by
the Board of Directors may be repealed or changed and new Bylaws made by the
stockholders, and the stockholders may prescribe that any Bylaw made by them
shall not be altered, amended or repealed by the directors.
Effective: Oct. 1, 1979
Amended: Feb. 28, 1983 - Article 2, Section 2
Amended: Oct. 22, 1984 - Article 2, Section 2
Amended: Jun. 23, 1986 - Article 2, Section 2
Amended: Oct. 31, 1990 - Article 1, Section 5
Amended: Nov. 25, 1996 - Article 2, Section 2
Amended: May 19, 1997 - Article 2, Section 2, 3, 9 and Article 3, Section 1
<PAGE>
CONSULTATION CONTRACT
This is an agreement signed this 27th day of January, 1997, between
Roanoke Gas Company ("Company") and W. Bolling Izard ("Retired Director").
In consideration of the premises and the mutual promises and covenants
of the parties to this contract, it is agreed as follows:
1. Engagement: The Company agrees to engage the Retired Director
and the Retired Director agrees to serve the Company as a
consultant.
2. Term: The term of this agreement shall commence on February 1,
1997 and shall continue for ten years until January 31, 2007.
3. Services: The Retired Director shall use his best efforts on a
strictly part-time basis to consult with the Company and help the
Company on such matters as the Company deems reasonably
appropriate. By example, the Company may request the Retired
Director to help the Company improve a business relationship with
another business in the operating area of the Company, etc.
4. Compensation: As compensation for the services to be rendered by
the Retired Director, the Company shall pay the Retired Director
compensation at the rate of $7,200.00 per year for each year this
agreement is in effect, such compensation to be paid on a monthly
basis on the first day of each month this agreement is in effect.
5. Expenses: The Retired Director shall also be entitled to
reimbursement for all reasonable expenses necessarily incurred by
him in the performance of his duties upon presentation of a
voucher indicating the amount and business purposes. Such
expenses must normally be approved in advance by a person or
persons designated by the Company.
6. Termination: Either party may terminate this agreement upon any
annual, anniversary date of signing of this agreement. Further,
this agreement shall be terminated upon the death or complete
disability of the Retired Director. The foregoing
notwithstanding, this agreement shall be terminated upon the
expiration of ten years from the anniversary date of signing of
this agreement, whether or not the Retired Director is deceased
or permanently disabled at that time. Finally, this agreement is
immediately terminable by the Company, if the Retired Director
directly or indirectly competes with the Company or reveals
confidential information of the Company to an organization,
person or entity which is directly or indirectly competing with
the Company. Upon any termination under this agreement, the
Retired Director shall be entitled to compensation through the
date of termination.
7. Successors and Assigns: This agreement shall inure to the
benefit of and be binding upon the parties hereto; their
successors and heirs.
<PAGE>
8. Applicable Law: This agreement shall be governed by the laws of
Virginia.
ROANOKE GAS COMPANY
s/Frank A. Farmer
----------------------------------
President
s/W. Bolling Izard
---------------------------------
Retired Director
<PAGE>
ROANOKE GAS COMPANY
RESTRICTED STOCK PLAN
FOR OUTSIDE DIRECTORS
1. Purpose
The Roanoke Gas Company Restricted Stock Plan for Outside Directors
(the "Plan") is intended to advance the interests of Roanoke Gas Company, its
shareholders, and its affiliates by encouraging and enabling outside
directors upon whose judgment, initiative and effort the Company relies for
the successful conduct of its business, to acquire and retain a proprietary
interest in the Company by ownership of its stock.
2. Definitions
The following definitions apply to this Plan and to the Election Forms:
(a) Beneficiary or Beneficiaries means a person or persons or other
entity designated on a Beneficiary Designation Form by a
Participant to receive Company Stock under this Plan if the
Participant dies. If there is no valid designation by the
Participant, or if the designated Beneficiary or Beneficiaries
fail to survive the Participant, the Participant's Beneficiary is
the first of the following who survives the Participant: the
Participant's spouse (the person legally married to the
Participant when the Participant dies); the Participant's
children in equal shares; the Participant's other surviving
issue, per stirpes; the Participant's parents; and the
Participant's estate.
(b) Beneficiary Designation Form means a form acceptable to the
Chairman of the Committee or his designee used by a Participant
according to this Plan to name the Beneficiary or Beneficiaries
who will receive all the Company Stock under this Plan if the
Participant dies.
(c) Board means the Board of Directors of the Company.
(d) Change in Control means a change in control of a nature that
would be required to be reported (assuming such event has not
been "previously reported") in response to Item 1(a) of the
Current Report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended ("Exchange Act"); provided that, notwithstanding
the foregoing and without limitation, such a change in control
shall be deemed to have occurred at such time as (i) any Person
is or becomes the "beneficial owner" (as defined in Rule 13d-3 or
Rule 13d-5 under the Exchange Act as in effect on the date
hereof), directly or indirectly, of 20% or more of the combined
voting power of the Company's voting securities; (ii) the
incumbent Board ceases for any reason to constitute at least the
majority of the Board, provided that any person becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was
approved by a vote of at least 75% of the directors comprising
<PAGE>
the incumbent Board (either by a specific vote or by approval of
the proxy statement of the Company in which such person is named
as a nominee for director, without objection to such nomination)
shall be, for purposes of this clause (ii), considered as though
such person were a member of the incumbent Board; (iii) all or
substantially all of the assets of the Company are sold,
transferred or conveyed by any means, including, but not limited
to, direct purchase or merger, if the transferee is not
controlled by the Company, control meaning the ownership of more
than 50% of the combined voting power of such entity's voting
securities; or (iv) the Company is merged or consolidated with
another corporation or entity and as a result of such merger or
consolidation less than 75% of the outstanding voting securities
of the surviving or resulting corporation or entity shall be
owned in the aggregate by the former shareholders of the Company.
Notwithstanding anything in the foregoing to the contrary, no
Change in Control shall be deemed to have occurred for purposes
of the Plan by virtue of any transaction (i) which results in a
Participant or a group of Persons which includes the Participant,
acquiring, directly or indirectly, 20% or more of the combined
voting power of the Company's voting securities; or (ii) which
results in the Company, any affiliate of the Company or any
profit-sharing plan, employee stock ownership plan or employee
benefit plan of the Company or any of its affiliates (or any
trustee of or fiduciary with respect to any such plan acting in
such capacity) acquiring, directly or indirectly, 20% or more of
the combined voting power of the Company's voting securities.
(e) Committee means the Compensation Committee of the Board.
(f) Company means Roanoke Gas Company.
(g) Company Stock means the common stock, $5 par value of the
Company.
(h) Compensation means a Member's Retainer Fee for the Deferral Year.
(i) Election Form means a document governed by the provisions of
Section 4 of this Plan, including the portion that is the related
Beneficiary Designation Form, that applies to all of that
Participant's shares of Restricted Stock under the Plan.
(j) Directors means those duly named members of the Board.
(k) Election Date means the date established by this Plan as the date
before which a Member must submit a valid Election Form to the
Committee. For each Plan Year, the Election Date is July 31.
However, for an individual who becomes a Member during a Plan
Year, the Election Date is the thirtieth day following the date
that he becomes a Member. Despite the two preceding sentences,
the Committee may set an earlier date as the Election Date for
any Plan Year.
(l) Employee means an individual with whom either the Company or its
affiliates has an employer-employee relationship as determined
for Federal Insurance Contribution Act purposes and Federal
Unemployment Tax Act purposes, including subsection 3401(c) of
the Internal Revenue Code and regulations promulgated under that
subsection.
<PAGE>
(m) Members means Directors who are not simultaneously Employees.
(n) Participant means a Member during the Plan Year.
(o) Plan means the Company's Restricted Stock Plan for Outside
Directors.
(p) Plan Year means a fiscal year ending September 30 during which
the Plan is in effect and during which a Member receives a
portion or all of his Compensation in Restricted Stock hereunder.
(q) Person means person within the meaning of Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934.
(r) Restricted Stock means Company Stock issued to Participants under
the Plan and subject to the vesting and nontransferability
provision of the Plan.
(s) Retainer Fee means that portion of a Director's Compensation that
is fixed and paid without regard to his attendance at meetings.
3. Restricted Stock Payments
On the first day of each month during each Plan Year, forty percent
(40%) of a Participant's Compensation for the month shall be paid in shares
of Restricted Stock of the Company. In determining the number of shares to
be issued pursuant to the preceding sentence, the Fair Market Value of the
Restricted Stock under the Plan shall, for each calendar month, be calculated
based on the closing sales price of the Company's common stock on the Nasdaq-
NMS on the first day of the month, if the first day of the month is a trading
day, or if not, the first trading day prior to the first day of the month.
4. Additional Restricted Stock Election
(a) Before each Plan Year's Election Date, each Member will be
provided with an Election Form and a Beneficiary Designation
Form. Subject to approval of the Board or the Committee, a
Member may elect to receive up to 100% of his Compensation for
the Plan Year in Restricted Stock.
(b) An additional Restricted Stock election is valid when an Election
Form is completed, signed by the electing Member, received by the
Committee Chairman and approved by the Board or the Committee on
or before the Election Date.
(c) A Member may not revoke or amend an Election Form after the
Election Date for the Plan Year. Any revocation before an
Election Date is the same as a failure to submit an Election
Form. Any writing signed by a Member expressing an intention to
revoke his Election Form and delivered to a member of the
Committee before the close of business on the relevant Election
Date is a revocation.
5. Vesting
The shares of Restricted Stock of the Company issued under Section 3
and Section 4 of this Plan shall vest only in the case of a Participant's
death, disability, retirement (including not standing for reelection to the
Board), or in the event of a Change in Control of the Company. There shall
be no option to take cash in lieu of stock upon vesting of shares under this
Plan.<PAGE>
6. Nontransferability
No share of Restricted Stock issued hereunder may be sold, transferred,
assigned, or pledged by the Participant until such share has vested in
accordance of the terms of this Plan. At the time the Restricted Stock
vests, and, if the Participant has been issued legended certificates of
Restricted Stock, upon the return of such certificates to the Company, a
certificate for such vested shares shall be delivered to the Participant (or
the Beneficiary designated by the Participant in the event of death), free of
restrictive legend (other than any required by applicable securities laws).
Notwithstanding the foregoing, no vested shares may be sold, transferred,
assigned or pledged by the Participant (or the Beneficiary) unless six months
have elapsed between the date of grant of the shares of Restricted Stock
which have vested and the date of the sale, transfer, assignment or pledge of
such vested shares.
7. Forfeiture
The shares of Restricted Stock issued under Section 3 and Section 4 of
this Plan shall be forfeited to the Company upon a Member's voluntary
resignation during his term on the Board, or removal for cause as a Director.
8. Stock Certificates
Stock certificates representing the Restricted Stock, together with
stock powers or other instruments of assignment, each endorsed in blank,
which will permit transfer to the Company of all or any portion of the
Restricted Stock evidenced by such certificate in the event it is forfeited,
shall be deposited by the recipient with the Company.
9. Rights as Shareholder
Subject to the terms of this Plan, the Participant, as the owner of the
Restricted Stock, shall have all rights of a shareholder including, but not
limited to, voting rights, the right to receive cash or stock dividends
thereon, and the right to participate in any capital adjustment of the
Company. Any distribution with the respect to shares of Restricted Stock
other than in the form of cash shall be held by the Company, and shall be
subject to the same restrictions as the shares with respect to which such
distributions were made. The Committee may require that any or all dividends
or other distributions paid on shares of Restricted Stock shall be
automatically sequestered and may be reinvested on an immediate or deferred
basis in additional shares of Company stock, which may be subject to the same
restrictions as the Restricted Stock or such other restrictions as the
Committee may determine.
10. Claims against Participant's Restricted Stock
The shares of Restricted Stock issued pursuant to this Plan are not
subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, or charge, and any attempt to do so is void.
Moreover, the shares are not subject to attachment or legal process for a
Participant's debts or other obligations. Nothing contained in this Plan
gives any Participant any interest, lien, or claim against any specific asset
of the Company.
<PAGE>
11. Amendment or Termination
The Board may at any time suspend or terminate the Plan or may amend it
from time to time in such respects as the Board may deem advisable in order
that the Restricted Stock issued hereunder may conform to any changes in the
law or any other respect with which the Board may deem to be in the best
interests of the Company. No such suspension, termination or amendment of
the Plan shall require approval of the shareholders unless shareholder
approval is required by applicable law or stock exchange requirements.
12. Notices
Notices and elections under this Plan must be in writing. A notice or
election is deemed delivered if it is delivered personally or if it is mailed
by registered or certified mail to the person at his last known business
address.
13. Waiver
The waiver of a breach of any provision in this Plan does not operate
as and may not be construed as a waiver of any later breach.
14. Construction
This Plan is created, adopted, and maintained according to the laws of
the Commonwealth of Virginia (except its choice-of-law rules). It is
governed by those laws in all respects. Headings and captions are only for
convenience; they do not have substantive meaning. If a provision of this
Plan is not valid or not enforceable, that fact in no way affects the
validity or enforceability of any other provision. Use of the one gender
includes all, and the singular and plural include each other.
15. Adjustments For Changes in Capitalization
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, rights offer, liquidation, dissolution,
merger, consolidation, spin off, sale of assets, payment of an extraordinary
cash dividend, or any other change in or affecting the corporate structure or
capitalization of the Company, the Committee shall make appropriate
adjustments in the number, price or kind of shares of Restricted Stock
authorized to be issued under this Plan, and in any outstanding shares of
Restricted Stock issued hereunder.
16. Withholding Taxes
Whenever the Company is required to issue or transfer shares of
Restricted Stock under this Plan, the Company shall have the right to require
the recipient of such Restricted Stock to remit to the Company an amount
sufficient to satisfy any federal, state or local withholding tax liability
prior to the delivery of any certificate for such shares. Whenever under the
Plan payments are to be made in cash, such payments shall be net of an amount
sufficient to satisfy any federal, state or local withholding tax liability.
17. Indemnification
The Company shall indemnify and hold harmless each person who is or has
been a member of the Committee, or of the Board of Directors, against and
from any and all loss, expense, liability, or costs (including reasonable
<PAGE>
attorneys' fees) that may be imposed upon or reasonably incurred by him in
connection with or resulting from any claim, action, suit or proceedings to
which he may be a party or in which he may be involved by reason of any
action taken or failure to act under the Plan, and against and from any and
all amounts paid by him in settlement thereof with the Company's approval or
paid by him in satisfaction of a final judgment against him in such action,
suit, or proceedings, provided he shall give the Company an opportunity, at
its own expense to handle and defend the same before he undertakes to handle
defense on his own behalf. The right of indemnification herein set forth
shall not be exclusive of any other rights of indemnification to which such
person may be entitled under the Company's Articles of Incorporation, or code
or regulations, as a matter of law, or otherwise, or any power that the
Company may have to indemnify him or to hold him harmless. It is the
Company's intention that all expenses incurred in connection with the
administration of the Plan shall be borne by the Company rather than by any
member of the Committee or the Board of Directors.
18. Effective Date of the Plan
The Plan is subject to approval by the shareholders of the Company.
The Plan will become effective on the date so approved.
19. Shares Subject to the Plan
The aggregate number of shares of Company Stock which may be issued in
respect to Restricted Stock shall not exceed 50,000 shares. All shares
distributed pursuant to the Plan shall consist of authorized but unissued
shares of the Company.
20. Power of the Committee
The Committee shall have authority to interpret conclusively the
provisions of the Plan, to adopt such rules and regulations for carrying out
the Plan as it may deem advisable, to decide conclusively all questions of
fact arising in the application of the Plan, and to make all other
determinations necessary or advisable for the administration of the Plan.
All decisions and acts of the Committee shall be final and binding upon all
affected Plan Participants.
21. Miscellaneous
Transactions under this Plan are intended to comply with Rule 16b-3 (or
its successor), as amended from time to time, promulgated pursuant to the
Securities Exchange Act of 1934. Therefore, to the extent any provision of
the Plan or action by a person administering the Plan fails to so comply, it
shall be deemed null and void ab initio to the extent permitted by law and
deemed advisable by the Committee.
As evidence of its adoption and approval of this Plan and approval of
the terms and conditions of each Participant transaction hereunder, the Board
has caused this document to be executed on its behalf, and on behalf of the
Company, this 23 day of September, 1996.
By s/F. A. Farmer
----------------------
Chairman of the Board
and President of
Roanoke Gas Company
<PAGE>
RGCO
[Graphic: Roanoke Gas Company Logo Flame]
Roanoke Gas Company
1997 Annual Report
[GRAPHIC: Depicted are illustrations of Roanoke Gas Company's liquified
natural gas facility in Botetourt County, Virginia, one of Highland Propane
Company's bulk storage facilities, and Bluefield Gas Company's office in
Bluefield, West Virginia.]
<PAGE>
Contents
1 Letter To Stockholders
2 A Message From John Williamson -President
Elect
3 Review Of Operations
7 Management's Discussion & Analysis
12 1997 Financial Highlights
13 Independent Auditors' Report
14 Consolidated Balance Sheets
16 Consolidated Statements Of Earnings
17 Consolidated Statements Of Stockholders'
Equity
18 Consolidated Statements Of Cash Flows
20 Notes To Consolidated Financial
Statements
32 Summary Of Gas Sales & Statistics
33 Summary Of Capitalization Statistics
35 A Tribute To Frank Farmer
36 Corporate Mission Statement
Notice Of Annual Meeting - Back Cover
Depicted on the front of the report are illustrations by Karen Kessler of
Roanoke Gas Company's liquified natural gas facility in Botetourt County,
Virginia, one of Highland Propane Company's bulk storage facilities, and
Bluefield Gas Company's office in Bluefield, West Virginia.
<PAGE>
Letter To Stockholders
Dear Stockholder:
I am pleased to say that the year ended September 30, 1997 was one of
new records for Roanoke Gas Company. We set records for earnings, customer
growth and gallons of propane sold. Earnings were $2.3 million, 5 percent
higher than last year despite 8 percent warmer weather. Earnings per share
increased to $1.54 from $1.51, while the number of shares outstanding
increased by 3 percent.
Our number of customers increased over 4,000, a 7 percent growth rate
overall, with natural gas customers increasing 3 percent and the number of
propane customers increasing by an exciting 38 percent. Despite the warmer
weather, propane volumes increased by 10 percent, associated with customer
growth occurring throughout the year. Natural gas volumes were down by 3
percent, associated with fewer space heating sales during the milder winter,
particularly January and February.
Our dividend reinvestment and stock purchase plan remains attractive
for investors, and over 50,000 shares were sold to existing stockholders
during the year. Approximately 20 percent of dividends paid in 1997 were
reinvested through the plan. Our dividend record remains strong, with 53
years of consecutive quarterly dividends, and 1997 marked our second
consecutive yearly dividend increase.
We are particularly pleased with our marketing efforts and the
resulting customer growth. Our 3 percent annual growth rate in natural gas
customers is well above the national average of 1.9 percent published by the
American Gas Association. Our 38 percent propane customer growth rate is
outstanding and reflects our commitment to growth through service territory
expansion, market saturation and acquisition of available propane
distributorships. Propane is clearly becoming the fuel of choice for home
space and hot water heating in areas where extending natural gas lines is not
economically practical.
We are very active in the regulatory arena, as we have rate cases
pending for Roanoke Gas Company, Bluefield Gas Company and Commonwealth
Public Service Corporation. The rate cases are necessary to both keep
returns on the capital invested in the public utility systems up-to-date with
current interest rate costs and ensure timely recovery of the added capital
and depreciation costs for replacement of the older portions of the
distribution plant. We remain committed to our long-term plan to replace all
bare steel and cast iron piping in the natural gas distribution systems, and
we replaced 8.1 miles of bare steel and cast iron mains in 1997.
We continued our efforts at streamlining operations to control costs
through increased investment in technology, increased employee training and
continued use of outsourcing where economies of scale indicated savings were
available. Our customer-to-employee ratio at September 30, 1997 was over 397
compared to 285 in 1991 when I became President of Roanoke Gas Company.
I plan to retire at the end of January 1998, but I will be leaving the
Company in good hands with a strong management team in place and ready to
take over. John B. Williamson, III will become President and Chief Executive
Officer, and I have every confidence in his leadership abilities and
knowledge. Arthur L. Pendleton will become Executive Vice President and
Chief Operating Officer, and he has worked closely with me for the last 20
years as we have grown and improved our operations. I plan to stay active in
the Company and the industry. I will remain as Chairman of the Board of
Roanoke Gas Company, and I will continue to be Chairman of the Coordinating
Council for Smaller Company Programs of the American Gas Association (AGA)
and will continue on the Board of Directors of the AGA.
<PAGE>
On behalf of the Board of Directors of Roanoke Gas Company and our
management, I once again invite you to join us for a stockholders breakfast
and social hour prior to our Annual Meeting on January 26, 1998. Also on
behalf of the Board and Management, I extend our continuing appreciation to
you for your investment as a stockholder of Roanoke Gas Company.
Sincerely,
s/F. A. Farmer
Frank A. Farmer, Jr.
Chairman of the Board, President & CEO
Graphic: Photograph of Photo Caption: Frank A. Farmer, Jr.
Frank Farmer Chairman, President &
CEO Roanoke Gas Company
<PAGE>
A Message From John Williamson -
President Elect
I am very pleased to have the opportunity to lead Roanoke Gas Company
following Mr. Farmer's retirement, and I am most appreciative of the Board of
Directors' vote of confidence. I will strive to continue earning that
confidence year after year.
I come to the position with a strong management team in place. Art
Pendleton as Chief Operating Officer will ensure that the skill and knowledge
built by Mr. Farmer over the years in Company operations will continue.
Roger Baumgardner has been Vice President, Secretary and Treasurer for 15
years and will continue to provide his talents and stable influence in
Company activities.
We also have a staff of managers with industry experience ranging from
5 to 20 years. Jane O'Keeffe, our Assistant Vice President for Human
Resources, has 6 years with Roanoke Gas Company and 20 years of human
resource management experience. John D'Orazio runs our Marketing and New
Construction Department and is the engine behind our outstanding customer
growth. He has been with the Company for 5 years and has 15 years of
industry experience. Robert Wells, our Director of Information Systems, has
14 years with the Company and is the guiding force in our expanding
utilization of state-of-the-art technology.
David Anderson, our Assistant Secretary and Assistant Treasurer, who
has been with the Company 18 years, will continue his work in regulatory and
rate case affairs. Our Controller, Howard Lyon, has been with the Company 10
years. He has prior experience with a national accounting firm and gives
unparalleled commitment in his role with the Company. Richard Pevarski, our
Director of Distribution Service, has 12 years with the Company and 13 years
of industry experience. He is the steady hand on the natural gas
distribution system in Roanoke. James Devens, who directs our propane
operations, has been with us 6 years and has great enthusiasm for the growth
opportunity that the propane market holds.
Jim Shockley has been with us 13 years and has risen up through the
ranks, starting as an entry-level employee in distribution, to become Manager
of Bluefield Gas Company. Ed Painter, with 10 years of experience, oversees
our Customer Service Department. Ann Miller has 7 years with the Company and
oversees our materials purchasing and warehousing. Mike Gagnet, who manages
the acquisition and shipment of over 12 million MCFs of natural gas and 6
million gallons of propane, has 13 years with the Company. In addition,
there are several employees in our management development program with great
promise, and we have a number of experienced supervisors in all major areas
of the Company to help guide the efforts of a dedicated and well-trained
workforce. (We also have a very strong Board of Directors, many of whom are
CEOs of regional businesses in areas ranging from health care to public
utilities.)
I am excited about leading this committed and talented team. I believe
we have the right combination of creativity, experience and drive to carry
Roanoke Gas Company into the next millennium and to respond aggressively to
the changing energy market and the opportunities that these changes will
bring. We look forward to growing and diversifying Roanoke Gas Company to
help ensure that we remain an attractive and rewarding investment for our
stockholders. We plan to make Roanoke Gas into the premier locally owned and
operated Company in our region, known as an exciting place to work and as an
outstanding investment for its owners.
<PAGE>
I thank you for being a stockholder of Roanoke Gas Company. I hope you
not only will continue, but increase, your level of interest and ownership in
this growing Company, which I believe is located in one of the best regions
in the country in which to live and work.
s/John B. Williamson, III
John B. Williamson, III
President Elect
Graphic: Photograph of Photo Caption: John B. Williamson, III
John Williamson President Elect
Roanoke Gas Company
<PAGE>
Review Of Operations
Financial
The Company established a new benchmark as it surpassed the record
earnings of fiscal 1996 to post net income for fiscal 1997 of $2,309,880 or
$1.54 per share. The previous record was $2,196,672 or $1.51 per share. The
stockholders' investment in the Company grew by $1,621,950 to $20,596,951,
which amounts to $13.48 per share. At September 30, 1997, the market value
of the Company's stock was $18.00 per share, or 134% of book value.
In November 1996, the directors voted to increase the regular quarterly
dividend to $.26 per share from $.255 per share effective February 1997. The
current annual dividend of $1.04 per share is a 5.8% yield on the current
market value of the Company's stock and represents a payout of 67.5% based on
earnings for fiscal 1997.
In December 1996, the Company issued $8,000,000 unsecured senior notes
payable by Roanoke Gas Company and $1,300,000 unsecured notes payable by
Bluefield Gas Company. The Company increased its equity capitalization by
issuing $882,719 in stock through its Dividend Reinvestment and Stock
Purchase Plan and its Restricted Stock Plan For Outside Directors.
The Company has unsecured lines of credit through its cash management
system totaling $20,000,000 at interest rates of prime or less. These lines
are subject to annual renewal and do not require compensating balances. The
average month-end balance of short-term debt in 1997 was approximately
$8,098,000, at an average interest rate of approximately 5.97%. The month-
end balance at September 30, 1997 was $7,129,000, at an average interest rate
of 6.14%.
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
Weather patterns brought unseasonably cool weather in late fall and
early winter to the Company's service areas. Roanoke recorded 712 heating
degree days for the month of November, which was 33% more heating degree days
than the long-term norm for the month. In late January the pattern shifted,
bringing warmer than normal weather to the service area. Roanoke recorded 611
heating degree days for the month of February, which was 17.5% fewer heating
degree days than the long-term norm for the month.
One consequence of the early cold weather was an unusually early and
sharp increase in natural gas supply acquisition costs. However, the
unseasonably warm weather in February resulted in a dramatic decline in
natural gas commodity prices. Tempered by the warm weather in late winter,
commodity indexes relevant to Roanoke Gas Company purchases averaged only
around 6% higher than the previous fiscal year.
Roanoke Gas Company continues to use a mixture of long-term (multi-
year), mid-term (seasonal) and short-term (spot) gas purchase contracts. Our
objective is to create a reliable and economical mixture of
gas supply contracts with terms that will not prohibit our ability to adapt
to changing market conditions or further unbundling. We were extremely
pleased with the performance of our natural gas suppliers. Long-term
suppliers currently include Amoco Energy Trading, Cabot Oil and Gas, Engage
Energy, Columbia Energy Services, LG&E Natural Gas and Duke Energy Company.
<PAGE>
[This pulled quote appears in a box: "The Company established a new
benchmark as it surpassed the record earnings of fiscal 1996 to post net
income for fiscal 1997 of $2,309,880 or $1.54 per share."]
Roanoke Gas Company continues to regard storage supplies as an integral
component of our gas supply portfolio. The Roanoke and Bluefield operations
combined hold the rights to about 2.9 billion cubic feet (BCF) of natural gas
storage space, up about 0.1 BCF from last year. This storage includes
pipeline and third party underground facilities in both the Gulf Coast and
Appalachian areas, as well as our own liquefied natural gas (LNG) storage in
Botetourt County, Virginia.
Having storage space allows Roanoke Gas Company to minimize gas costs
by purchasing and injecting natural gas in the summer when the commodity
prices are traditionally lower. When withdrawn in the winter, storage
supplies are generally relatively economical, as well as highly reliable. The
Company participates in pipeline capacity release programs to further
minimize the cost of firm service to our customers.
Nonutility Operations
Total sales by Diversified Energy Company, trading as Highland Propane
Company, for fiscal year 1997 were 6,568,066 gallons, an increase of 10% from
1996 levels on 8% warmer weather. The increased volume is attributed to
customer growth resulting from service territory expansion, increased sales
efforts in existing territories and the leasing of certain of the assets of
U.S. Gas, Inc.
On September 5, 1997, the Company executed an agreement with U.S. Gas,
Inc. located in Moneta, Virginia to acquire certain of the propane assets of
U.S. Gas, Inc., which Highland Propane is currently leasing, in exchange for
approximately 35,000 shares of Roanoke Gas common stock. The Company is
currently serving the customers of U.S. Gas, Inc., and expects to complete
the final purchase in November 1997. The pending acquisition accounted for
approximately 500 of the 2,419 customer increase by Highland in 1997 and
established a service
1997 Annual Report
<PAGE>
Review Of Operations
presence for the Company around Smith Mountain Lake.
The Company continued its geographic expansions into Bedford,
Rockbridge and Alleghany counties in Virginia and Fayette, Summers and
Raleigh counties in West Virginia and established four new bulk storage
plants, including a pending acquisition in Bedford with the purchase of
certain of the assets of U.S. Gas, Inc. Propane operations are organized
into geographic divisions based on market concentrations and location of bulk
propane storage facilities. Current divisions include Roanoke, Southwest
Virginia, Bluefield, Beckley, Rainelle, Bedford and Rockbridge. The Company
continuously evaluates potential areas for expansion or acquisition and
believes that new propane territories and customer additions offer
significant growth opportunities.
Diversified Energy Company, trading as Highland Gas Marketing, sold
1,154,834 decatherms of natural gas in 1997, an increase of 14% over 1996.
Highland Gas Marketing buys interruptible supplies of spot gas and temporary
interstate pipeline transportation services, and resells them to large
industrial customers that contract with the local utility for delivery from
the interstate pipeline to the customer's meter. The natural gas marketing
business is highly competitive with relatively low margins; however, it also
has a low cost of operation with minimal facility and personnel requirements.
[This pulled quote appears in a box: "Roanoke Gas Company, Bluefield Gas
Company and Highland Propane Company experienced record customer growth in
1997. The Company's total combined customer base increased from
approximately 57,000 customers to over 61,000."]
Plant Additions
Capital additions for fiscal 1997 totaled $8,052,801 for the
consolidated companies, substantially greater than the $5,522,977 total for
last year. The increase was driven by record setting growth, primarily for
Highland Propane Company. Bluefield Gas accounted for 7.6% of the total
capital spending or $608,106, Highland Propane additions were 28.9% of the
total or $2,326,222 and Roanoke Gas added $5,118,473 in capital or 63.5% of
total capital additions. New business expenditures, including mains, meters,
new service lines and new propane installations, totaled $5,072,000, compared
to last year's $2,773,000. The natural gas companies installed 1,667 new
service lines and 19.9 miles of new mains compared to 1,563 new service lines
and 18.1 miles of new mains last year. Highland Propane Company installed
2,280 new tank sets compared to 1,075 last year, a 112% increase.
Main replacement and service renewal expenditures totaled $1,384,000,
just under the $1,508,000 spent last year. During the year the Company
replaced 598 service lines and 8.14 miles of main compared to previous year
totals of 800 service lines and 8.7 miles of main. The Company continues 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 and 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.
Other major increases in plant additions included: $151,000 for
facility relocations due to road construction projects, $536,000 for new
equipment, including replacement vehicles, and $486,000 to add new support
services equipment, including a new local area computer network in Roanoke
and a wide area network in our Bluefield and Rainelle, West Virginia offices.
<PAGE>
For fiscal year 1998, the Company has budgeted $7,667,000 for capital
expenditures. Major items will include $2.1 million to support Highland
Propane customer growth, $3.1 million in new natural gas customer additions,
$1.3 million to replace existing mains and services, $175,000 for relocations
due to road construction projects, $400,000 for new equipment, including
automotive replacements, and $460,000 for support services, including
computer software and an upgrade of our central processing system.
Marketing & Sales
Roanoke Gas Company, Bluefield Gas Company and Highland Propane Company
experienced record customer growth in 1997. Customer growth was
approximately 3% at Roanoke Gas Company, 3% at Bluefield Gas Company and 38%
at Highland Propane Company. Combined, over 4,000 new customers were added
in 1997, with an overall growth rate of 7%, more than three times the
national average. The Company's total combined customer base increased from
approximately 57,000 customers to over 61,000. On the natural gas side,
conversions represented approximately 50% of the new customer growth for
Roanoke Gas Company and 64% for Bluefield Gas Company.
Highland Propane surpassed 2,000 tank installations in a single year
for the first time in the Company's history. This represented a 112% increase
over last year's tank installations. Tank installations were up in all
divisions of Highland Propane with Southwest Virginia up 190% from fiscal
1996, followed by Rainelle, West Virginia up 135%, Roanoke, Virginia up 84%
and Bluefield, West Virginia up 63%. Highland has expanded its marketing
efforts over the past year to include Beckley, West Virginia and Rockbridge
County, Alleghany County, and Bedford County, Virginia.
The marketing strategy for both propane and natural gas is centered
around strong trade ally relationships, one-on-one contacts with members of
the sales team and providing superior, real-time
Roanoke Gas Company
<PAGE>
customer service. This program has been extremely successful, and the number
of trade allies has grown and expanded into Beckley, West Virginia and
Alleghany County, Rockbridge County and Bedford County, Virginia. 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.
Commission sales representatives, whose primary goal is the addition of
new gas customers along existing gas mains or the addition of new propane
customers, have proven to be highly successful. Natural gas conversion
customers exceeded the 650 customer mark for the second year in a row, and
the number of new propane tank sets more than doubled compared to the number
of new tank sets last year. Highland Propane Company has added commissioned
sales personnel to cover Bedford County and Montgomery County, Virginia,
which are two of the fastest growing areas in our propane service territory.
The Company has been working closely with prospective industrial and
commercial (I/C) customers and regional economic development groups. In
1997, we added several new I/C customers to our system, including R.R.
Donnelley, Towers Automotive, Dynax Corporation and Virginia Forging.
The Company remains actively involved in various leadership positions
within the community, including, but not limited to, the Roanoke Regional
Chamber of Commerce, The Arts Council of the Blue Ridge, Junior Achievement,
The New Century Council, United Way, The Salvation Army, Community School and
the Roanoke Regional and New River Valley Homebuilders Associations. The
Company takes its community responsibilities seriously and encourages
employees to become involved in community affairs.
[Pulled quote appears in a box: "Roanoke Gas Company is responding to its
growth by improving employee efficiency through enhancing the end user's day-
to-day work environment with better user interfaces, desktop functionality,
system integration, and user training."]
Customer Service
Roanoke Gas Company is committed to providing quality customer service
for all of its customers via its Customer Service Department, a blend of
human resources and technology. The Company utilizes an automated attendant
answering system to direct callers to their appropriate area of interest.
During the winter of 1996, as customers responded to rising gas costs
brought on by the natural gas market reaction to an unusually cold November,
the telephone call volumes exceeded the capacity of the Department to respond
in a timely fashion and, accordingly, an answering service was employed to
assist with the problem. Customer calls are automatically forwarded by the
automated attendant to the answering service after the caller has been on
hold one minute and thirty seconds. The answering service takes messages
from customers, and Company personnel then return calls in non-peak calling
times. This method functioned well and is anticipated to provide relief
during the busy fall furnace light-up season.
Roanoke Gas Company is exploring other technological advances, such as
integrated voice response units which will allow customers to call the
Company and obtain account balances, date of last payments and other
information without having to speak directly with a Customer Service
Representative. As the customer base continues to grow, the Company will
diligently search for new technology to better serve its customers, while
always offering a human contact for those needing it.
The Company again conducted its annual HeatShare Program, designed to
provide monetary assistance to low income customers having difficulty paying
their winter bills. Now in its sixteenth season, the program has helped more
than 6,000 families with nearly $850,000 donated by the Company, employees,
customers and concerned individuals. The program is administered each year
by The Salvation Army. In addition, customer service employees provide
information to the needy families on additional sources of financial
assistance.<PAGE>
Information Systems
Customer growth, while controlling costs, requires improved employee
efficiency and reliable systems that can be scaled to meet the increasing
needs of the business. Roanoke Gas Company is responding to its growth by
improving employee efficiency through enhancing the end user's day-to-day
work environment with better user interfaces, desktop functionality, system
integration, and user training. To help assure system reliability and
stability, considerable progress has been made on the Year 2000 situation.
With the installation of a new Local Area Network (LAN) and Wide Area
Network (WAN), employees use a graphical user interface (GUI) that provides a
seamless environment between IBM AS/400 applications and PC applications.
The environment utilizes a standardized PC application suite on the network
that provides consistency for both the end user and technical support.
Structured training for our PC applications has been outsourced to a vendor
that is focused on user training. This provides uniform training for end
users and allows technical human resources to be committed to technology.
The functionality and integration built into the PC applications and the IBM
AS/400 reduces the efforts required by the end user.
The implementation of our Purchase Requisition and Electronic
Authorization Systems continued our progress toward the goal of complete
system integration. The Purchase Requisition System assists the
1997 Annual Report
<PAGE>
Review Of Operations
authorized end user to request the purchase of materials, equipment and other
supplies electronically. The Electronic Authorization System receives end
user requisitions and routes them for proper approval. Once a requisition
has been completely approved, a purchase order is automatically created for
the items to be ordered. These systems have reduced paperwork and the time
required to process a requisition and have increased control through system
authority. On-line inquiry and reports can be executed to provide current
and historical information on requisitions.
New technology and efficiencies gained through the use of new systems
is no more important than the reliability and stability of existing systems.
With this commitment, significant progress is being made on the Year 2000
Project. Critical financial applications, such as General Ledger, Payroll
and Budgeting, have all been converted to handle the turn of the century.
All new systems such as LAN, WAN, and Purchase Requisitions, were required to
be Year 2000 compliant prior to installation. All remaining IBM AS/400
systems, such as Customer Information, Work Orders, and Inventory, are to be
Year 2000 compliant by December 31, 1997.
To help ensure adequate system performance, to enable the continued
application system growth, and to facilitate the maintenance of existing
systems, the IBM AS/400 was upgraded subsequent to fiscal year end.
Market Price & Dividend Information
The Company's common stock is listed on the Nasdaq National Market
under the trading symbol RGCO. This provides stockholders, brokers and
others with immediate access to the latest bid and ask prices and creates
greater liquidity in the Company's stock. The table below sets forth the
range of bid prices for shares of the Company's common stock, as reported in
the Nasdaq National Market.
Although the Company has paid continuous quarterly dividends to its
stockholders since August 1, 1944, and has increased dividends for the past
two years, the Company has not established a formal policy with respect to
dividends. Payment of dividends is within the discretion of the Company's
Board of Directors and will depend upon, among other factors, earnings,
capital requirements and the operating and financial condition of the
Company. There can be no assurance that these or other conditions will not
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, 1997 and 1996, respectively, the Company had 1,853 and 1,713
common shareholders of record in conjunction with 1,527,486 and 1,475,843
common shares outstanding.
<PAGE>
<TABLE>
<CAPTION>
Range of Cash
Bid Prices Dividends
Declared
Fiscal Year Ended High Low
September 30,
<S> <C> <C> <C>
1997
First Quarter $18.000 $16.750 $.26
Second Quarter 18.250 17.000 .26
Third Quarter 17.750 15.750 .26
Fourth Quarter 18.125 16.000 .26
1996
First Quarter $16.250 $14.250 $.255
Second Quarter 18.500 15.000 .255
Third Quarter 18.250 16.500 .255
Fourth Quarter 17.250 14.750 .255
</TABLE>
Roanoke Gas Company
<PAGE>
Management's Discussion & Analysis
Of Financial Condition And Results Of Operations
<TABLE>
<CAPTION>
Roanoke Gas Company and Subsidiaries
SELECTED FINANCIAL DATA
Years Ended September 30,
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Revenues $ 65,047,826 $ 65,770,873 $ 48,611,147 $ 58,195,857 $ 57,715,679
Operating Margin 22,464,921 22,030,795 19,435,864 19,902,497 18,297,030
Operating Earnings 4,403,423 4,035,304 3,522,258 3,537,267 3,235,269
Earnings Before Interest Charges 4,550,333 4,113,044 3,701,907 3,592,351 3,264,713
Net Earnings 2,309,880 2,196,672 1,777,240 1,677,098 1,441,336
Net Earnings Per Share 1.54 1.51 1.26 1.25 1.13
Cash Dividends Declared
Per Share 1.04 1.02 1.00 1.00 1.00
Book Value Per Share 13.48 12.86 12.25 11.88 11.36
Average Shares Outstanding 1,503,388 1,455,999 1,408,659 1,339,402 1,280,176
Total Assets 62,593,258 58,921,099 51,614,667 49,579,447 48,758,728
Long-Term Debt
(Less Current Installments) 17,079,000 20,222,124 17,504,047 16,414,900 16,530,499
Stockholders' Equity 20,596,951 18,975,001 17,555,172 16,424,919 14,652,663
Shares Outstanding At September 30, 1,527,486 1,475,843 1,432,512 1,382,343 1,289,302
</TABLE>
General
The core business of Roanoke Gas Company and its public utility
affiliates, collectively, the Company, is the distribution of natural gas to
approximately 53,000 active 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 help 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 also serves
approximately 8,800 active propane accounts in southwestern Virginia and
southern West Virginia and serves natural gas industrial transportation
customers by brokerage of natural gas supplies through its subsidiary,
Diversified Energy Company, which trades as Highland Propane Company and
Highland Gas Marketing. Propane sales are becoming an increasingly important
aspect of the Company's operations, with the annual growth in propane
customers now exceeding the annual growth in natural gas customers.
Continued public acceptance and a growing preference for natural gas
and propane 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
<PAGE>
continue to result in a slight decline in annual weather normalized per
capita residential usage. The effect of such per capita declines, unless
offset by new customer growth, abnormally cold weather, or requested 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 alternative fuels and/or suppliers could also impact the
Company's profitability levels.
Forward-Looking Statements
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, research and development
activities and similar matters. The Private Securities Litigation Reform Act
of 1995 provides a safe harbor for forward-looking statements. In order to
comply with the terms of the safe harbor, the Company notes that a variety of
factors could cause the Company's actual results and experience to differ
materially from the anticipated results or other expectations expressed in
the Company's forward-looking statements. The risks and uncertainties that
may affect the operations, performance, development and results of the
Company's business include the following: (i) obtaining adequate rate relief
from regulatory authorities on a timely basis; (ii) earning on a consistent
basis an adequate return on invested capital; (iii) increasing expenses and
labor costs and availability; (iv) price competition from alternative fuels;
(v) volatility in the price of natural gas and propane; (vi) some uncertainty
in the projected rate of growth of natural gas and propane requirements in
the Company's service area; and (vii) general economic conditions both
locally and nationally. In addition, the Company's business is seasonal in
character and strongly influenced by weather conditions. Extreme changes in
winter heating
1997 Annual Report
<PAGE>
Management's Discussion & Analysis
Of Financial Condition And Results Of Operations
[Graph Appears here: NATURAL GAS CUSTOMERS]
<TABLE>
<CAPTION>
NATURAL GAS
CUSTOMERS
<S> <C> <C> <C> <C> <C>
Year 1993 1994 1995 1996 1997
Customers 46,788 48,544 49,813 51,094 52,763
</TABLE>
degree days from the normal or mean can have significant short-term impacts
on revenues and gross margin.
Capital Resources & Liquidity
Roanoke Gas Company's primary capital needs are the funding of its
continuing construction program and the seasonal funding of its stored gas
inventories. The Company's capital expenditures for the year were a
combination of replacements and expansions, reflecting the need to replace
older cast iron and bare steel pipe with plastic pipe, while continuing to
meet the demands of customer growth. Total capital expenditures for the
period were approximately $8.05 million, allocated as follows: $5.12 million
for Roanoke Gas Company, $.61 million for Bluefield Gas Company and $2.32
million for Highland Propane Company. Depreciation cash flow provided
approximately $3.2 million in support of capital expenditures, or
approximately 40% of total investment. Historically, consolidated capital
expenditures were $5.5 million in 1996 and $5.6 million in 1995. It is
anticipated that future capital expenditures will be funded with the
combination of depreciation cash flow, retained earnings, sale of Company
equity securities and issuance of debt.
At September 30, 1997, the Company had available lines of credit
totaling $20 million for its short-term borrowing needs, of which $7,129,000
was outstanding. Short-term borrowing, in addition to providing limited
capital project bridge financing, is used to finance summer and fall gas
purchases, which are stored in the underground facilities of Columbia Gas
Transmission Corporation, Tennessee Gas Pipeline Company and Virginia Gas
Storage Company, as well as in the Company's above-ground LNG storage
facility, to help ensure adequate winter supplies to meet customer demand.
At September 30, 1997, the Company had $6,485,028 in inventoried natural gas
supplies.
Short-term borrowings, together with internally-generated funds, long-
term debt and the sale of common stock through the Company's Dividend
Reinvestment and Stock Purchase Plan (the Plan), 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 5.97% in
1997, 5.84% in 1996 and 6.07% in 1995. The lines do not require compensating
balances. The Company utilizes a cash management program, which provides for
daily balancing of the Company's temporary investment and short-term
borrowing needs with interest rates indexed to the 30-day LIBOR interest rate
plus a premium. The program allows the Company to maximize returns on
temporary investments and minimize the cost of short-term borrowings.
Stockholders' equity increased by $1,621,950, reflecting an increase of
$739,231 in retained earnings and proceeds of $882,719 of new common stock
purchases through the Plan and the Restricted Stock Plan For Outside
Directors for the period. The purchase price of Company common stock under
these plans is based upon the fair market value of such common stock,
<PAGE>
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.
At September 30, 1997, the Company's consolidated capitalization was
50% equity and 50% debt, compared to 48% equity and 52% debt at September 30,
1996.
Regulatory & Rate Case Proceedings
The Company has three rate case applications pending before regulatory
bodies. A Bluefield Gas Company rate case application was filed with the
West Virginia Commission in April 1997 with a decision expected in February
1998.
Roanoke Gas Company filed an application with the Virginia Commission
in December 1996 with rates placed into effect, subject to refund, on January
1, 1997. A hearing was held on the application in June 1997, and an order in
the case is not expected until sometime early in 1998. The Company has
established reserves for an estimated level of refund in the case, and
management believes the reserves are adequate to cover any refunds ordered by
the Virginia Commission.
Commonwealth Public Service Corporation, the Virginia portion of
Bluefield Gas Company, filed a rate case with the Virginia Commission in June
1997, and expects to put the rates into effect, subject to refund, in
December 1997. The hearing and final order are not expected until sometime
in 1998.
The Company filed a stipulated settlement with Virginia Gas Company and
the Virginia Commission in the contested certificated territory applications
for Tazewell County, Virginia. The settlement provides for Commonwealth
Public Service Corporation to expand its certificated service territory for
several miles around Bluefield, Virginia in eastern Tazewell County and
provides for Virginia Gas Company to serve the other areas of Tazewell
County. The Company believes this is a reasonable settlement which allows
Commonwealth Public Service Corporation adequate opportunity for future
growth. Management expects the Virginia Commission to approve the
settlement.
Roanoke Gas Company
<PAGE>
Results Of Operations
Fiscal Year 1997 Compared With Fiscal Year 1996
OPERATING REVENUES - Operating revenues for the natural gas utilities
decreased $2,225,226 to $57,842,181 in 1997 from $60,067,407 in 1996. The
decrease in revenues is attributed to weather that was approximately 8%
warmer in 1997 than in 1996. Operating revenues for propane increased
$1,502,179 to $7,205,645 in 1997 from $5,703,466 in 1996 due to the
tremendous growth in the number of customer additions and higher billing
rates impacted by propane cost.
ENERGY VOLUMES - The volume of natural gas delivered to customers was down
365,903 MCF to 10,804,045 MCF in 1997 from 11,169,948 MCF in 1996, primarily
attributable to weather that was approximately 8% warmer than the weather in
1996. While customer growth was on par for the period, sales were down in
all categories, with the exception of transportation volumes, due to warmer
weather. Propane sales volumes for 1997 were 6,568,066 gallons compared to
5,997,912 gallons in 1996, an increase of 570,154 gallons; again, indicative
of the increase in customer growth.
COST OF ENERGY - The cost of natural gas was $38,675,337 in 1997 compared to
$40,763,104 in 1996. The $2,087,767 decrease was due to a 3% decline in
volume and a 2% decrease in unit cost, both of which were impacted by weather
that was approximately 8% warmer in 1997 than in 1996. The cost of propane
was up $930,594 due to an increase in sales volume of 570,154 gallons
associated with customer growth and a 20% increase in unit cost.
OTHER OPERATING EXPENSES - Other operations and maintenance expenses
decreased $411,894, or 4.15%, to $9,512,597 in 1997 from $9,924,491 in 1996.
Although the Company had modest increases in expenses associated with health
insurance and bad debt accruals, legal expenses and the write-off of
regulatory assets, these were more than offset by reductions in FAS 106
accruals and maintenance expenses.
General taxes increased $54,631 to $2,456,399 in 1997 from $2,401,768
in 1996. While there were decreases in the revenue-sensitive taxes (gross
receipts and occupation taxes), the business license and merchants taxes,
franchise taxes and property taxes increased.
Income taxes were down $105,931 to $857,964 in 1997 from $963,895 in
1996. See note 5 of the notes to consolidated financial statements for
information on income taxes.
Depreciation and amortization expenses increased $239,465 to $2,533,912
in 1997 from $2,294,447 in 1996 due to depreciation on normal additions to
plant in service.
Other operating expenses - propane operations includes the operating
and maintenance expenses, taxes and depreciation of Highland Propane Company.
These costs increased $289,736 to $2,700,626 in 1997 from $2,410,890 in 1996.
The increase was mainly due to depreciation on increased plant associated
with customer growth and increased income taxes associated with higher
taxable income.
OTHER INCOME - Other income, net of other deductions, increased $69,170 to
$146,910 in 1997 from $77,740 in 1996. The increase was primarily due to
jobbing revenues and interest income and the elimination of a write-down of
nonutility property which occurred in 1996.
[Graph appears here: COMPARISON MCF to HDD (Heating Degree Days)]
<PAGE>
<TABLE>
<CAPTION>
COMPARISON
MCF to HDD (Heating Degree Days)
Year 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
MCFs Delivered 9,820,345 10,267,038 9,961,877 11,169,948 10,804,045
HDD 4,356 4,416 3,791 4,696 4,298
</TABLE>
[Graph appears here: COMPARISON Gallons Delivered to HDD (Heating Degree
Days)]
<TABLE>
<CAPTION>
COMPARISON
Gallons Delivered to HDD (Heating Degree Days)
Year 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Gallons Propane 4,586,334 5,012,830 4,822,277 5,997,912 6,568,066
HDD 4,356 4,416 3,791 4,696 4,298
</TABLE>
INTEREST CHARGES - Total interest charges increased $324,081 to $2,240,453 in
1997 from $1,916,372 in 1996. The increase was associated with higher
borrowings under lines of credit due to under-collections of gas costs in the
early winter months, higher receivable balances, higher inventories,
increases in capital additions and interest on rate refund reserve.
NET EARNINGS AND DIVIDENDS - Net earnings for 1997 were $2,309,880 as
compared to $2,196,672 for 1996. Earnings per share of common stock were
$1.54 in 1997 compared to $1.51 in 1996. Dividends per share of common stock
were $1.04 in 1997 compared to $1.02 in 1996. The $113,208 increase in net
earnings can be attributed to cost containment and customer growth.
1997 Annual Report
<PAGE>
Management's Discussion & Analysis
Of Financial Condition And Results Of Operations
[Graph appears here: COMPARISON Net Income to HDD (Heating Degree Days)]
<TABLE>
<CAPTION>
COMPARISON
Net Income to HDD (Heating Degree Days)
Year 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Net Income $1,441,336 $1,677,098 $1,777,240 $2,196,672 $2,309,880
HDD 4,356 4,416 3,791 4,696 4,298
</TABLE>
Fiscal Year 1996 Compared With Fiscal Year 1995
OPERATING REVENUES - Operating revenues for the natural gas utilities
increased $16,005,670 to $60,067,407 in 1996 from $44,061,737 in 1995. The
increase in revenues is attributed to weather that was approximately 24%
colder in 1996 than in 1995 and a 34% increase in the unit cost of gas.
Operating revenues for propane increased $1,154,056 to $5,703,466 in 1996
from $4,549,410 in 1995. The increase in revenues is also attributed to the
colder weather and customer growth.
ENERGY VOLUMES - The volume of natural gas delivered to customers was up
1,208,071 MCF or approximately 12% in 1996. The interruptible and
transportation volumes were down due to curtailments but the firm volumes
were up 21% due to the colder weather. Propane sales volumes in 1996 were up
1,175,635 gallons, or 24%, due to the colder weather and an increase in
customer growth.
COST OF ENERGY - The cost of natural gas was $40,763,104 in 1996 compared to
$27,027,507 in 1995. The $13,735,597 increase was due to a 12% increase in
the volume of gas delivered to customers and a 34% increase in the unit cost
of gas. Both the volume and price increases in 1996 were impacted by the
weather that was 11% colder than normal. Likewise, the cost of propane in
1996 was up $829,198 due to a 24% increase in sales volume associated with
the colder weather and customer growth, and an 11% increase in the unit cost
of propane.
OTHER OPERATING EXPENSES - Other operations and maintenance expenses
increased 11% to $9,924,491 in 1996 from $8,959,677 in 1995. The largest
increases were in bad debt accruals (associated with higher billings),
collection and billing expenses, legal expenses, general office renovations
and maintenance of distribution system.
General taxes increased 15% to $2,401,768 in 1996 from $2,082,896 in
1995, due primarily to revenue-sensitive taxes (gross receipts and business
and occupation taxes).
Income taxes on the natural gas utilities increased $252,458 to
$963,895 in 1996 from $711,437 in 1995, primarily due to increased taxable
income. See note 5 of the notes to consolidated financial statements for
additional information on income taxes.
Depreciation and amortization expenses increased $160,959 to $2,294,447
in 1996 from $2,133,488 in 1995 due to depreciation on normal additions to
plant in service.
<PAGE>
Other operating expenses - propane operations consist of the operating
and maintenance expenses, taxes and depreciation of Highland Propane. These
costs increased to $2,410,890 in 1996 from $2,026,108 in 1995. The $384,782
increase was mainly attributable to (1) tank sets in regard to customer
growth, (2) additional delivery costs associated with
increased volumes and foul weather, (3) additional sales expense associated
with market area expansion and the resulting customer growth and sales
commissions, (4) tank maintenance, and (5) greater depreciation on additional
customer tanks and delivery vehicles.
OTHER INCOME - Other income, net of other deductions, decreased significantly
in 1996 to $77,740 from $179,649 in 1995. The decrease was primarily due to
Roanoke Gas Company being in a borrowing mode instead of an investment mode
on the cash management system, a reduction in net jobbing revenues, and the
elimination of interest income and a capital gain on the sale of investment
property of Highland Propane.
INTEREST CHARGES - Total interest charges were down $8,295 for 1996 versus
1995 due to the liquidity of Highland Propane Company.
NET EARNINGS AND DIVIDENDS - Net earnings for fiscal 1996 were $2,196,672 as
compared to $1,777,240 for fiscal 1995. The $419,432 increase in net
earnings can be attributed to weather that was 11% colder than normal and 24%
colder than fiscal 1995 and increased sales from
[Graph appears here: GROSS UTILITY PLANT]
<TABLE>
<CAPTION>
GROSS UTILITY PLANT
(Including Construction Work-In-Progress)
Millions Of Dollars: 1997 - $66,678,107
Year 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$33,034,999 $36,013,885 $39,346,347 $41,586,792 $45,100,044 $48,258,419 $52,729,927 $57,369,281 $61,732,904 $66,678,107
</TABLE>
Roanoke Gas Company
<PAGE>
customer growth. Earnings per share of common stock were $1.51 in 1996
compared to $1.26 in 1995. Dividends per share of common stock were $1.02 in
1996 and $1.00 in 1995.
Accounting Changes
The Company adopted the provisions of 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), on October 1, 1996.
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. The adoption of Statement 121 in 1997 did not have a material
impact on the Company's consolidated financial position, results of
operations or liquidity.
Prior to October 1, 1996, the Company accounted for its stock options
in accordance with the provisions of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense was recorded on the date of
grant only if the current market price of the underlying stock exceeded the
option price. On October 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation
(Statement 123), which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of grant.
Alternatively, Statement 123 allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net earnings and pro
forma net earnings per share disclosures for stock option grants made in 1996
and future years as if the fair-value-based method defined in Statement 123
had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of Statement 123.
Recent Accounting Developments
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share
(Statement 128). Statement 128 supersedes APB Opinion No. 15, Earnings Per
Share, and specifies the computation, presentation and disclosure
requirements for earnings per share (EPS) for entities with publicly-held
common stock or potential common stock. The Company is required to adopt the
provisions of Statement 128 on October 1, 1997. The Company believes the
adoption of Statement 128 will not have a material impact on its EPS
calculations.
The Financial Accounting Standards Board has also issued Statement of
Financial Accounting Standards (SFAS) No. 129, Disclosure of Information
about Capital Structure, SFAS No. 130, Reporting Comprehensive Income, and
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. These Statements are effective for fiscal years beginning after
December 15, 1997. The Company does not anticipate the adoption of these
Statements will have a material impact on its consolidated financial
position, results of operations or liquidity.
[Graph appears here: GAS SALES]
<PAGE>
<TABLE>
<CAPTION>
GAS SALES
Volume (Millions)
1997 - 10,804,045 MCF
Year 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volume 9,212,194 9,316,868 9,066,558 8,335,292 9,339,521 9,820,345 10,267,038 9,961,877 11,169,948 10,804,045
</TABLE>
Impact Of Inflation
The cost of natural gas represented approximately 72% for fiscals 1997
and 1996 and 66% for fiscal 1995 of the total operating expenses of the
Company's gas utilities' operations. However, under the present regulatory
Purchased Gas Adjustment mechanisms, the increases and decreases in the cost
of gas are passed through to the Company's customers.
Inflation impacts the Company through increases in non-gas costs such
as insurance, labor costs, supplies and services used in operations and
maintenance and on the replacement cost of plant and equipment. The margin
charged to natural gas customers to cover these costs can only be increased
through the regulatory process via a rate increase application. In addition
to stressing performance improvements and higher gas sales volumes to offset
inflation, management must continually review operations and economic
conditions to assess the need for filing and receiving adequate and timely
rate relief from the state commissions.
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 multi-year periods and are renewable by the municipalities.
Certificates of public convenience and necessity, which are issued by the
Virginia Commission, are exclusive and of perpetual duration, subject to
compliance with regulatory standards.
1997 Annual Report
<PAGE>
Management's Discussion & Analysis
Of Financial Condition And Results Of Operations
In July 1996, Roanoke Gas signed new 20-year franchise agreements with
the cities of Roanoke and Salem and the Town of Vinton effective as of
January 1, 1996. 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 when they expire. 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, attempt to impose certain
restrictions or conditions that could adversely affect the Company's business
operations or financial condition.
Environmental Issues
Both Roanoke Gas Company and Bluefield Gas Company operated
manufactured gas plants (MGPs) as a source of fuel for lighting and heating
until the early 1950s. The process involved heating coal in a low-oxygen
environment to produce a manufactured gas that could be distributed through
the Company's pipeline system to customers. A by-product of the process was
coal tar, and the potential exists for on-site tar waste contaminants at both
former plant sites. The extent of contaminants at these sites is unknown at
this time, and the Company has not performed formal analysis at the Roanoke
Gas Company MGP site. An analysis at the Bluefield Gas Company site
indicates some soil contamination. The Company, 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.
[Graph appears here: Roanoke Gas Company & Subsidiaries - HOW 1997 REVENUE
DOLLARS WERE SPENT]
<PAGE>
<TABLE>
<CAPTION>
Roanoke Gas Company & Subsidiaries
HOW 1997 REVENUE DOLLARS WERE SPENT
Year Ended September 30, 1997
Gross Revenues - $68,494,365
Amount
<S> <C>
Cost Of Gas & Propane $42,582,905
Salaries & Wages $ 5,057,225
All Other Expenses $ 9,290,285
Taxes $ 3,766,602
Interest Charges $ 2,240,453
Depreciation & Amortization $ 3,247,015
Dividends Declared To Owners $ 1,570,649
Earnings Retained In Business $ 739,231
</TABLE>
[Graph appears here: Roanoke Gas Company & Subsidiaries - 1997 FINANCIAL
HIGHLIGHTS]
<TABLE>
<CAPTION>
Roanoke Gas Company & Subsidiaries
1997 FINANCIAL HIGHLIGHTS
<S> <C>
Operating Revenues - Gas $ 57,842,181
Propane Revenues - Propane $ 7,205,645
Other Revenues - Gas Marketing $ 2,869,514
Merchandising And Jobbing $ 567,128
Interest Income $ 9,897
Gross Revenues $ 68,494,365
Net Earnings $ 2,309,880
Net Earnings Per Share $ 1.54
Dividends Per Share - Cash $ 1.04
Total Customers - Natural Gas 52,763
Total Customers - Propane 8,829
Total Natural Gas Deliveries - MCF 10,804,045
Total Propane Sales - Gallons 6,568,066
Number Of Full-Time Employees 155
Total Payroll Chargeable To
Operations & Construction $ 5,820,863
Total Additions To Plant $ 8,052,801
</TABLE>
Roanoke Gas Company
<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, 1997 and 1996, 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,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Roanoke
Gas Company and subsidiaries as of September 30, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1997, in conformity with generally
accepted accounting principles.
s/KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Roanoke, Virginia
October 17, 1997
1997 Annual Report
<PAGE>
<TABLE>
<CAPTION>
Roanoke Gas Company and Subsidiaries
Consolidated Balance Sheets
September 30, 1997 and 1996
Assets 1997 1996
- ------------------------------------------------------============-------===========-
<S> <C> <C>
Utility Plant:
In service $ 65,590,024 60,454,905
Accumulated depreciation and amortization (22,612,963) (20,822,398)
- --------------------------------------------------------------------------------------
In service, net 42,977,061 39,632,507
Construction work-in-progress 1,088,083 1,277,999
- --------------------------------------------------------------------------------------
Utility plant, net 44,065,144 40,910,506
- --------------------------------------------------------------------------------------
Nonutility Property:
Propane 6,634,369 4,403,630
Accumulated depreciation and amortization (2,540,274) (2,070,405)
- --------------------------------------------------------------------------------------
Nonutility property, net 4,094,095 2,333,225
- --------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 116,045 633,322
Accounts receivable, less allowance for
doubtful accounts of $368,345 in
1997 and $279,316 in 1996 4,188,984 3,857,407
Inventories 7,427,581 7,402,586
Prepaid income taxes 7,368 297,521
Deferred income taxes 1,206,995 379,356
Purchased gas adjustments 587,457 1,782,590
Other 420,674 479,926
- --------------------------------------------------------------------------------------
Total current assets 13,955,104 14,832,708
- --------------------------------------------------------------------------------------
Other Assets 478,915 844,660
- --------------------------------------------------------------------------------------
$ 62,593,258 58,921,099
======================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
Roanoke Gas Company
<PAGE>
<TABLE>
<CAPTION>
Liabilities And Stockholders' Equity 1997 1996
- ------------------------------------------------------============------============--
<S> <C> <C>
Capitalization:
Stockholders' equity:
Common stock, $5 par value. Authorized
3,000,000 shares; issued and outstanding
1,527,486 and 1,475,843 shares in 1997
and 1996, respectively $ 7,637,430 7,379,215
Capital in excess of par value 5,271,667 4,647,163
Retained earnings 7,687,854 6,948,623
- --------------------------------------------------------------------------------------
Total stockholders' equity 20,596,951 18,975,001
Long-term debt, excluding current installments 17,079,000 20,222,124
- --------------------------------------------------------------------------------------
Total capitalization 37,675,951 39,197,125
- --------------------------------------------------------------------------------------
Current Liabilities:
Current installments of long-term debt 3,143,124 669,423
Borrowings under lines of credit 7,129,000 6,652,500
Dividends payable 397,530 376,795
Accounts payable 5,512,348 4,931,467
Customer deposits 427,895 362,384
Accrued expenses 4,233,860 3,214,953
Refunds from suppliers - due customers 425,860 23,865
- --------------------------------------------------------------------------------------
Total current liabilities 21,269,617 16,231,387
- --------------------------------------------------------------------------------------
Deferred Credits And Other Liabilities:
Deferred income taxes 3,145,932 2,960,795
Deferred investment tax credits 492,357 531,792
Other deferred credits 9,401 -
- --------------------------------------------------------------------------------------
Total deferred credits and other liabilities 3,647,690 3,492,587
- --------------------------------------------------------------------------------------
$ 62,593,258 58,921,099
======================================================================================
</TABLE>
1997 Annual Report
<PAGE>
<TABLE>
<CAPTION>
Roanoke Gas Company and Subsidiaries
Consolidated Statements Of Earnings
Years Ended September 30, 1997, 1996 and 1995
1997 1996 1995
- ------------------------------------------------------============------============-----============-
<S> <C> <C> <C>
Operating Revenues:
Gas utilities $ 57,842,181 60,067,407 44,061,737
Propane operations 7,205,645 5,703,466 4,549,410
- ------------------------------------------------------------------------------------------------------
Total operating revenues 65,047,826 65,770,873 48,611,147
- ------------------------------------------------------------------------------------------------------
Cost Of Gas:
Gas utilities 38,675,337 40,763,104 27,027,507
Propane operations 3,907,568 2,976,974 2,147,776
- ------------------------------------------------------------------------------------------------------
Total cost of gas 42,582,905 43,740,078 29,175,283
- ------------------------------------------------------------------------------------------------------
Operating Margin 22,464,921 22,030,795 19,435,864
- ------------------------------------------------------------------------------------------------------
Other Operating Expenses:
Gas utilities:
Other operations 8,049,833 8,056,211 7,726,611
Maintenance 1,462,764 1,868,280 1,233,066
Taxes - general 2,456,399 2,401,768 2,082,896
Taxes - income 857,964 963,895 711,437
Depreciation and amortization 2,533,912 2,294,447 2,133,488
Propane operations (including taxes - income
of $309,137, $177,059 and $224,017
in 1997, 1996 and 1995, respectively) 2,700,626 2,410,890 2,026,108
- ------------------------------------------------------------------------------------------------------
Total other operating expenses 18,061,498 17,995,491 15,913,606
- ------------------------------------------------------------------------------------------------------
Operating Earnings 4,403,423 4,035,304 3,522,258
- ------------------------------------------------------------------------------------------------------
Other Income (Deductions):
Gas utilities:
Interest income 8,204 274 26,652
Merchandising and jobbing, net 147,522 99,334 120,475
Other deductions (87,486) (120,539) (142,389)
Taxes - income (37,552) (22,486) (14,547)
Propane operations, net 116,222 121,157 189,458
- ------------------------------------------------------------------------------------------------------
Total other income (deductions) 146,910 77,740 179,649
- ------------------------------------------------------------------------------------------------------
Earnings Before Interest Charges 4,550,333 4,113,044 3,701,907
- ------------------------------------------------------------------------------------------------------
<PAGE>
Interest Charges:
Gas utilities:
Long-term debt 1,740,998 1,621,661 1,680,078
Other 441,444 292,301 231,142
Propane operations 58,011 2,410 13,447
- ------------------------------------------------------------------------------------------------------
Total interest charges 2,240,453 1,916,372 1,924,667
- ------------------------------------------------------------------------------------------------------
Net Earnings $ 2,309,880 2,196,672 1,777,240
- ------------------------------------------------------------------------------------------------------
Net Earnings Per Share $ 1.54 1.51 1.26
======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
Roanoke Gas Company
<PAGE>
<TABLE>
<CAPTION>
Roanoke Gas Company and Subsidiaries
Consolidated Statements Of Stockholders' Equity
Years Ended September 30, 1997, 1996 and 1995
Capital In Total
Common Excess Of Retained Stockholders'
Stock Par Value Earnings Equity
- -------------------------------------------------===========-------===========-----============------=============--
<S> <C> <C> <C> <C>
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
Net earnings - - 2,196,672 2,196,672
Cash dividends ($1.02 per share) - - (1,491,077) (1,491,077)
Issuance of common stock (43,331 shares) 216,655 497,579 - 714,234
- --------------------------------------------------------------------------------------------------------------------
Balances, September 30, 1996 7,379,215 4,647,163 6,948,623 18,975,001
Net earnings - - 2,309,880 2,309,880
Cash dividends ($1.04 per share) - - (1,570,649) (1,570,649)
Issuance of common stock (51,643 shares) 258,215 624,504 - 882,719
- --------------------------------------------------------------------------------------------------------------------
Balances, September 30, 1997 $ 7,637,430 5,271,667 7,687,854 20,596,951
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
1997 Annual Report
<PAGE>
<TABLE>
<CAPTION>
Roanoke Gas Company and Subsidiaries
Consolidated Statements Of Cash Flows
Years Ended September 30, 1997, 1996 and 1995
1997 1996 1995
- ------------------------------------------------------------=============------============-----============--
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 2,309,880 2,196,672 1,777,240
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,247,015 2,810,314 2,563,128
Loss (gain) on disposal of utility plant and
nonutility property (961) (4,202) 4,823
Loss (gain) on sale of other asset 3,293 - (67,556)
Write-down of other asset 4,230 - -
Write-off of regulatory assets 132,523 - -
Decrease (increase) in purchased gas adjustments 1,195,133 (2,019,589) 931,422
Changes in assets and liabilities which provided
(used) cash, exclusive of changes and noncash
transactions shown separately 1,471,321 (3,608,875) 3,139,960
- --------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 8,362,434 (625,680) 8,349,017
- --------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Additions to utility plant in service and under
construction and nonutility property (8,052,801) (5,522,977) (5,609,292)
Proceeds from disposal of property 50,094 42,511 70,403
Cost of removal of utility plant, net (158,855) (423,221) (122,523)
Proceeds from sale of other asset 141,969 - -
Proceeds from collection of note receivable - - 490,000
- --------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (8,019,593) (5,903,687) (5,171,412)
- --------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt - - 2,700,000
Retirement of long-term debt and payments on
obligations under capital leases (669,423) (1,179,415) (1,124,703)
Net borrowings (repayments) under lines of credit 476,500 8,598,000 (3,793,000)
Proceeds from issuance of common stock 882,719 714,234 773,544
Common stock issuance costs - - (4,450)
Cash dividends paid (1,549,914) (1,473,025) (1,403,370)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (860,118) 6,659,794 (2,851,979)
- --------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (517,277) 130,427 325,626
Cash and Cash Equivalents, Beginning of Year 633,322 502,895 177,269
- --------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 116,045 633,322 502,895
==============================================================================================================
continued
</TABLE>
Roanoke Gas Company
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------=============------============-----============--
<S> <C> <C> <C>
Changes in Assets and Liabilities Which Provided (Used)
Cash, Exclusive of Changes and Noncash Transactions
Shown Separately:
Accounts receivable and customer deposits, net $ (266,066) (346,566) (304,927)
Inventories (24,995) (2,054,592) 1,028,359
Prepaid income taxes 290,153 (297,521) 260,609
Other noncurrent assets 83,730 160,936 (277,339)
Accounts payable 580,881 (613,180) 224,166
Income taxes payable - (476,410) 476,410
Accrued expenses and other current assets, net 1,078,159 (111,608) 2,011,166
Refunds from suppliers - due customers 401,995 (658,986) 183,953
Deferred taxes, including amortization of deferred
investment tax credits (681,937) 789,052 (350,121)
Other deferred credits 9,401 - (112,316)
- --------------------------------------------------------------------------------------------------------------
$ 1,471,321 (3,608,875) 3,139,960
==============================================================================================================
Supplemental Disclosures Of Cash Flows Information:
Cash paid during the year for:
Interest $ 2,065,893 1,493,801 1,867,816
==============================================================================================================
Income taxes, net of refunds $ 1,575,952 1,148,319 675,418
==============================================================================================================
Noncash Transactions:
The Company refinanced $9,300,000 of current
installments of long-term debt and borrowings
under lines of credit as long-term debt in 1996.
A capital lease obligation of $21,119 was incurred in
1995 when the Company entered into an equipment lease.
- --------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
1997 Annual Report
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
General
The consolidated financial statements include the accounts of Roanoke
Gas Company and its wholly-owned subsidiaries (the Company), Bluefield Gas
Company and Diversified Energy Company, trading as Highland Propane Company
and Highland Gas Marketing. Roanoke Gas Company and Bluefield Gas Company
are gas utilities, which distribute and sell natural gas to residential,
commercial and industrial customers within their service areas. 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. Highland Gas Marketing
brokers natural gas to several industrial transportation customers of Roanoke
Gas Company and Bluefield 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 (Statement 71). Statement 71 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:
<PAGE>
<TABLE>
<CAPTION>
September 30,
- --------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Regulatory Assets:
Early retirement incentive plan costs $ 33,481 246,768
Statement 106 implementation cost - 18,884
Rate case costs 6,598 20,879
Franchise negotiation costs - 41,846
LNG tank painting costs - 25,720
Union organization costs - 29,325
Purchased gas adjustments 587,457 1,782,590
Statement 109 implementation - 20,484
Other - 12,938
- --------------------------------------------------------------------------
$ 627,536 2,199,434
==========================================================================
Regulatory Liabilities:
Refunds from suppliers - due customers 425,860 23,865
- --------------------------------------------------------------------------
$ 425,860 23,865
==========================================================================
</TABLE>
During 1997, the Company wrote off regulatory assets totaling $132,523
upon management's determination that, for rate-making purposes, recovery of
these costs in future revenues was no longer probable.
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.
Roanoke Gas Company
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(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 1997
and 1996 were $915,192 and $863,480, respectively.
Income Taxes
Income taxes are accounted for using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in earnings
in the period that includes the enactment date.
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 Benefit 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. Postretirement
benefit costs are computed based upon the provisions of Statement of
Financial Accounting Standards No. 106.
<PAGE>
Net Earnings Per Share
Net earnings per share are based on the weighted average number of
shares outstanding during the year (1,503,388 shares in 1997, 1,455,999
shares in 1996 and 1,408,659 shares in 1995). The calculations of weighted
average shares outstanding for 1997 and 1996 do not include the effect of
common stock equivalents (CSEs), since the impact of including CSEs in the
weighted average shares outstanding is less than three percent.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Stock Options
Prior to October 1, 1996, the Company accounted for its stock options
in accordance with the provisions of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense was recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. On October 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (Statement 123), which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date
of grant. Alternatively, Statement 123 allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net earnings and
pro forma net earnings per share disclosures for stock option grants made in
1996 and future years as if the fair-value-based method defined in Statement
123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of Statement 123.
1997 Annual Report
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies (continued)
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of 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), on October 1, 1996.
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. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted net cash
flows expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell. Adoption of Statement 121 in 1997 did not
have a material impact on the Company's consolidated financial position,
results of operations or liquidity.
(2) Allowance for Doubtful Accounts
A summary of the changes in the allowance for doubtful accounts
follows:
<TABLE>
<CAPTION>
Years Ended September 30,
- --------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Balances, beginning of year $ 279,316 171,947 318,834
Provision for doubtful accounts 660,400 550,777 345,585
Recoveries of accounts written off 125,035 131,499 91,941
Accounts written off (696,406) (574,907) (584,413)
- --------------------------------------------------------------------------
Balances, end of year $ 368,345 279,316 171,947
==========================================================================
</TABLE>
(3) Borrowings Under Lines of Credit
The Company had total short-term lines of credit of $20,000,000 in
1997, $18,000,000 in 1996 and $13,000,000 in 1995. The balances outstanding
under these lines of credit at September 30, 1997, 1996 and 1995 were
$7,129,000, $6,652,500 and $1,442,000, respectively. The highest month-end
balances outstanding under these lines of credit were $15,896,000, $7,587,000
and $7,186,000 in 1997, 1996 and 1995, respectively. The average month-end
balances outstanding were approximately $8,098,000, $4,453,000 and $2,809,000
in 1997, 1996 and 1995, respectively. The average interest rates on the
lines of credit were approximately 5.97 percent, 5.84 percent and 6.07
percent for 1997, 1996 and 1995, respectively. The lines are subject to
annual renewal and do not require compensating balances. The average
interest rates were 6.14 percent, 5.71 percent and 6.27 percent on balances
outstanding at September 30, 1997, 1996 and 1995, respectively.
<PAGE>
(4) Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30,
- ----------------------------------------------------------------------------------------------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <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 $1,350,000 1,615,000
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 2,328,000 2,662,000
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% 7,200,000 7,200,000
Unsecured senior notes payable, with interest rate fixed at 7.66%,
with provision for retirement of $1,600,000 for each year beginning
December 1, 2014 through 2018 8,000,000 8,000,000
Obligations under capital leases, due in aggregate monthly payments
of $3,076, including imputed interest, through August 1998 31,624 64,547
</TABLE>
Roanoke Gas Company
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(4) Long-term Debt (continued)
<TABLE>
<CAPTION>
September 30,
- ----------------------------------------------------------------------------------------------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bluefield Gas Company:
Unsecured installment loan, with interest rate based on prime
(8.75% and 8.25% at September 30, 1997 and 1996, respectively),
with provision for retirement of $50,000 for each year through
1997 and a final payment of $12,500 on October 31, 1997 $ 12,500 50,000
Unsecured note payable, with interest rate fixed at 7.28%,
with provision for retirement of $25,000 quarterly beginning January 1,
2002 and a final payment of $1,000,000 on October 1, 2003 1,300,000 1,300,000
- ----------------------------------------------------------------------------------------------------------------------
Total long-term debt 20,222,124 20,891,547
Less current installments of long-term debt (3,143,124) (669,423)
- ----------------------------------------------------------------------------------------------------------------------
Total long-term debt, excluding current installments $ 17,079,000 20,222,124
======================================================================================================================
</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, 1997, approximately $4,400,000
of retained earnings was available for dividends.
The aggregate annual maturities of long-term debt, including
obligations under capital leases, subsequent to September 30, 1997 are as
follows:
<TABLE>
<CAPTION>
Years Ending September 30,
- --------------------------------------------------------------
<S> <C>
1998 $ 3,143,124
1999 599,000
2000 599,000
2001 599,000
2002 1,399,000
Thereafter 13,883,000
- --------------------------------------------------------------
Total $ 20,222,124
==============================================================
</TABLE>
1997 Annual Report
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(5) Income Taxes
The details of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
- ---------------------------------------------------------------------------------------------------------
1997 1996 1995
=========================================================================================================
<S> <C> <C> <C>
Charged to other operating expenses - gas utilities:
Current:
Federal $ 1,561,779 206,399 1,104,505
State (15,946) (40,248) 48,649
- ---------------------------------------------------------------------------------------------------------
Total current 1,545,833 166,151 1,153,154
- ---------------------------------------------------------------------------------------------------------
Deferred:
Federal (668,660) 777,772 (370,870)
State 20,226 58,621 (32,198)
- ---------------------------------------------------------------------------------------------------------
Total deferred (648,434) 836,393 (403,068)
- ---------------------------------------------------------------------------------------------------------
Investment tax credits, net (39,435) (38,649) (38,649)
- ---------------------------------------------------------------------------------------------------------
Total charged to other operating expenses - gas utilities 857,964 963,895 711,437
- ---------------------------------------------------------------------------------------------------------
Charged to other income and deductions - gas utilities:
Current:
Federal 37,787 22,195 14,587
State 105 665 (40)
- ---------------------------------------------------------------------------------------------------------
Total current 37,892 22,860 14,547
- ---------------------------------------------------------------------------------------------------------
Deferred:
Federal (340) (374) -
State - - -
- ---------------------------------------------------------------------------------------------------------
Total deferred (340) (374) -
- ---------------------------------------------------------------------------------------------------------
Total charged to other income and deductions - gas utilities 37,552 22,486 14,547
- ---------------------------------------------------------------------------------------------------------
Charged to other operating expenses - propane operations:
Current:
Federal 233,323 153,044 200,022
State 49,057 32,333 44,715
- ---------------------------------------------------------------------------------------------------------
Total current 282,380 185,377 244,737
- ---------------------------------------------------------------------------------------------------------
<PAGE>
Deferred:
Federal 21,832 (6,052) (15,528)
State 4,925 (2,266) (5,192)
- ---------------------------------------------------------------------------------------------------------
Total deferred 26,757 (8,318) (20,720)
- ---------------------------------------------------------------------------------------------------------
Total charged to other operating expenses - propane operations 309,137 177,059 224,017
- ---------------------------------------------------------------------------------------------------------
Total income tax expense $ 1,204,653 1,163,440 950,001
=========================================================================================================
</TABLE>
Roanoke Gas Company
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(5) Income Taxes (continued)
Income tax expense for the years ended September 30, 1997, 1996 and
1995 differed from amounts computed by applying the U.S. Federal income tax
rate of 34 percent to earnings before income taxes as a result of the
following:
<TABLE>
<CAPTION>
Years Ended September 30,
- ---------------------------------------------------------------------------------------------------------
1997 1996 1995
=========================================================================================================
<S> <C> <C> <C>
Net earnings $ 2,309,880 2,196,672 1,777,240
Income tax expense 1,204,653 1,163,440 950,001
- ---------------------------------------------------------------------------------------------------------
Earnings before income taxes $ 3,514,533 3,360,112 2,727,241
=========================================================================================================
Computed "expected" income tax expense 1,194,941 1,142,438 927,262
Increase (reduction) in income tax expense resulting from:
Amortization of deferred investment tax credits (39,435) (38,649) (38,649)
Other, net 49,147 59,651 61,388
- ---------------------------------------------------------------------------------------------------------
Total income tax expense $ 1,204,653 1,163,440 950,001
=========================================================================================================
</TABLE>
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
September 30,
- ---------------------------------------------------------------------------------------------------------
1997 1996
=========================================================================================================
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts $ 132,818 105,602
Accrued pension and medical benefits, due to accrual for
financial reporting purposes in excess of actual contributions 803,852 682,471
Accrued vacation and bonuses, due to accrual for financial reporting
purposes 173,731 164,542
Purchased gas adjustments, due to accrual for financial reporting
purposes in excess of actual payments to customers 176,972 -
Other 213,976 92,456
- ---------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 1,501,349 1,045,071
Less valuation allowance - -
- ---------------------------------------------------------------------------------------------------------
Net deferred tax assets 1,501,349 1,045,071
- ---------------------------------------------------------------------------------------------------------
<PAGE>
Deferred tax liabilities:
Utility plant, due to differences in depreciation 3,154,190 2,912,432
Purchased gas adjustments, due to actual payments to
customers in excess of accrual for financial reporting purposes 225,309 620,788
Prepaid expenses and other assets, due to capitalization for financial
reporting purposes 60,787 93,290
- ---------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 3,440,286 3,626,510
- ---------------------------------------------------------------------------------------------------------
Net deferred tax liability $ 1,938,937 2,581,439
=========================================================================================================
</TABLE>
The Company has determined that a valuation allowance for the gross
deferred tax assets was not necessary at September 30, 1997 and 1996, 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.
1997 Annual Report
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(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,
- ---------------------------------------------------------------------------------------------------------
1997 1996 1995
=========================================================================================================
<S> <C> <C> <C>
Service cost for the current year $ 142,467 148,465 127,908
Interest cost on the projected benefit obligation 419,474 397,458 376,147
Actual return on assets held in the plan (1,030,919) (717,703) (988,813)
Net amortization and deferral of unrecognized gains and losses 647,436 372,234 727,706
Special termination benefits cost related to the early retirement
incentive plan - - 168,730
- ---------------------------------------------------------------------------------------------------------
Net pension expense $ 178,458 200,454 411,678
=========================================================================================================
</TABLE>
The Plan's funded status is as follows:
<TABLE>
<CAPTION>
September 30,
- ---------------------------------------------------------------------------------------------------------
1997 1996
=========================================================================================================
<S> <C> <C>
Actuarial present value of accumulated benefit obligation:
Vested $ (4,285,717) (4,241,528)
Nonvested (143,901) (30,872)
- ---------------------------------------------------------------------------------------------------------
Accumulated benefit obligation (4,429,618) (4,272,400)
Effect of anticipated future compensation levels and other events (1,510,433) (1,343,289)
- ---------------------------------------------------------------------------------------------------------
Projected benefit obligation (5,940,051) (5,615,689)
Fair value of assets held in the plan 6,324,249 5,498,868
- ---------------------------------------------------------------------------------------------------------
Excess (deficiency) of plan assets over projected benefit obligation $ 384,198 (116,821)
=========================================================================================================
</TABLE>
The excess (deficiency) of plan assets over the projected benefit
obligation consists of the following:
<PAGE>
<TABLE>
<CAPTION>
September 30,
- ---------------------------------------------------------------------------------------------------------
1997 1996
=========================================================================================================
<S> <C> <C>
Net unrecognized gain from past experience different than assumed $ 1,709,103 1,283,944
Unamortized transition liability (329,977) (435,421)
Unrecognized prior service cost (75,503) (94,377)
Accrued pension cost included in the consolidated balance sheets (919,425) (870,967)
- ---------------------------------------------------------------------------------------------------------
Total $ 384,198 (116,821)
=========================================================================================================
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.75 percent for 1997,
1996 and 1995. The rates of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation
were 5 percent in 1997 and 4 percent for compensation increases through
December 31, 1996 and 5 percent for compensation increases thereafter in 1996
and 1995. The assumed long-term rate of return on assets was 8.5 percent for
1997, 1996 and 1995.
In addition to pension benefits, the Company has a postretirement
benefits plan which provides certain health care, supplemental retirement and
life insurance benefits to active and retired employees who meet specific age
and service requirements. The plan is contributory. The Company has elected
to fund the plan over future years. Approximately 67 percent of the
consolidated annual cost of the plan is recovered from the Company's
customers through rates.
Roanoke Gas Company
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(6) Employee Benefit Plans (continued)
The following table presents the plan's funded status reconciled with
the amounts recognized in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
September 30,
- ---------------------------------------------------------------------------------------------------------
1997 1996
=========================================================================================================
<S> <C> <C>
Accumulated postretirement benefits obligation:
Retirees $ 2,846,193 2,448,483
Fully eligible active plan participants 712,308 646,587
Other active plan participants 1,262,063 1,202,667
- ---------------------------------------------------------------------------------------------------------
Total accumulated postretirement benefits obligation 4,820,564 4,297,737
Plan assets at fair value, principally cash equivalents and mutual funds (995,411) (971,630)
- ---------------------------------------------------------------------------------------------------------
Accumulated postretirement benefits obligation in excess of plan assets 3,825,153 3,326,107
Unrecognized net gain 938,540 1,322,715
Unrecognized transition obligation (3,796,800) (4,034,100)
- ---------------------------------------------------------------------------------------------------------
Postretirement benefits cost included in accrued expenses $ 966,893 614,722
=========================================================================================================
</TABLE>
Net periodic postretirement benefits cost includes the following components:
<TABLE>
<CAPTION>
Years Ended September 30,
- ---------------------------------------------------------------------------------------------------------
1997 1996 1995
=========================================================================================================
<S> <C> <C> <C>
Service cost for the current year $ 96,255 89,000 86,613
Interest cost on the accumulated postretirement
benefits obligation 325,036 363,000 320,992
Return on assets held in the plan (89,542) (40,000) (35,000)
Amortization of transition obligation 237,300 237,300 237,300
Net total of other components (25,201) (16,000) (7,583)
Special termination benefits cost related to the early
retirement incentive plan - - 242,319
- ---------------------------------------------------------------------------------------------------------
Net periodic postretirement benefits cost $ 543,848 633,300 844,641
=========================================================================================================
</TABLE>
<PAGE>
For measurement purposes, 10 percent, 10.5 percent and 11 percent
annual rates of increase in the per capita cost of covered benefits (i.e.,
medical trend rate) were assumed for 1997, 1996 and 1995, 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, 1997 by approximately $577,834, or 12 percent, and the aggregate of the
service and interest cost components of net postretirement benefits cost by
approximately $68,513, or 16 percent.
The weighted average discount rate used in determining the accumulated
postretirement benefits obligation was 7.75 percent at September 30, 1997,
1996 and 1995.
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 of 1995 and $318,463 was established as a regulatory
asset, with amortization beginning in fiscal year 1996 when rates were placed
into effect to allow recovery of the capitalized costs. The costs expensed
during the third quarter of 1995 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 provided for plan cost
recovery, in fiscal year 1996. The Company recorded $139,482 and $71,695 of
amortization expense related to this regulatory asset during the years ended
September 30, 1997 and 1996. The unamortized balance of the regulatory asset
of $73,805, excluding the balance relative to Bluefield Gas Company, was
written off in 1997 (see note 1).
The Company also has a defined contribution plan covering all of its
employees who elect to participate. The Company made annual matching
contributions to the plan based on 70 percent in 1997 and 50 percent in 1996
and 1995 of the net participants' basic contributions (from 1 percent to 6
percent of their total compensation). The annual cost of the plan was
$217,466, $134,188 and $132,261 for 1997, 1996 and 1995, respectively.
1997 Annual Report
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(7) Common Stock Options
During 1996, the Company's stockholders approved the Roanoke Gas
Company Key Employee Stock Option Plan. The plan provides for the issuance
of common stock options to officers and certain other full-time salaried
employees to acquire a maximum of 50,000 shares of the Company's common
stock. The plan requires each option's exercise price per share to equal the
fair value of the Company's common stock as of the date of grant.
The aggregate number of shares under option pursuant to the Roanoke Gas
Company Key Employee Stock Option Plan are as follows:
<TABLE>
<CAPTION>
Number Of Weighted Average Option Price
Shares Exercise Price Per Share
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding, September 30, 1996 13,000 15.500 15.500
Options granted 21,500 16.875 16.875
- -------------------------------------------------------------------------------------------------
Options outstanding, September 30, 1997 34,500 16.357 15.500-16.875
=================================================================================================
</TABLE>
Under the terms of the plan, the options become exercisable six months
from the grant date and expire ten years subsequent to the grant date. All
options outstanding were fully vested and exercisable at September 30, 1997.
The per share weighted-average fair values of stock options granted
during 1997 and 1996 were $1.08 and $1.63 on the dates of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: 1997-expected dividend yield of 5.78 percent, risk-free
interest rate of 6.29 percent, expected volatility of 10 percent and an
expected life of 10 years; 1996-expected dividend yield of 5.83 percent,
risk-free interest rate of 6.44 percent, expected volatility of 42 percent
and an expected life of 10 years.
The Company uses the intrinsic value method of APB Opinion No. 25 for
recognizing stock-based compensation in the consolidated financial
statements. Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under the provisions of
Statement 123, the Company's net earnings and net earnings per share would
have been decreased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Years Ended September 30,
- ---------------------------------------------------------------------------
1997 1996
===========================================================================
<S> <C> <C>
Net earnings:
As reported $ 2,309,880 2,196,672
Pro forma 2,278,093 2,182,681
Net earnings per share:
As reported $ 1.54 1.51
Pro forma $ 1.52 1.50
===========================================================================
/TABLE
<PAGE>
(8) Related Party Transactions
Certain of the Company's directors render business services or sell
products to the Company. The significant services included legal fees of
approximately $182,000, $69,000 and $173,000 in 1997, 1996 and 1995,
respectively. The products included natural gas purchases of approximately
$3,052,000, $1,950,000 and $1,250,000 in 1997, 1996 and 1995, respectively.
It is anticipated that similar services and products will be provided to the
Company in 1998.
Roanoke Gas Company
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(9) Quarterly Financial Information (Unaudited)
Quarterly financial data as previously reported for the years ended
September 30, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues $ 22,412,424 24,580,783 9,894,442 8,160,177
===========================================================================================
Operating earnings (loss) $ 1,840,530 2,394,999 261,537 (93,643)
===========================================================================================
Net earnings (loss) $ 1,331,276 1,831,756 (247,734) (605,418)
===========================================================================================
Net earnings (loss) per share $ 0.90 1.22 (.16) (.42)
===========================================================================================
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues $ 17,993,759 29,625,390 10,435,031 7,716,693
===========================================================================================
Operating earnings (loss) $ 1,865,501 2,412,749 38,336 (281,282)
===========================================================================================
Net earnings (loss) $ 1,434,772 1,954,256 (407,940) (784,416)
===========================================================================================
Net earnings (loss) per share $ 1.00 1.35 (.28) (.56)
===========================================================================================
</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.
<PAGE>
During 1997, 1996 and 1995, 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, 1997 and 1996.
(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 multi-year periods 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.
Management anticipates that the Company will be able to renew all of
its franchises when they expire. 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 1950s. The process involved heating coal in a low-oxygen
environment to produce a manufactured gas that could be distributed through
the Company's pipeline system to customers. A by-product of the process was
coal tar, and the potential exists for on-site tar waste contaminants at both
former plant sites. The extent of contaminants at these sites is unknown at
this time, and the Company has not performed a 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
1997 Annual Report
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(12) Environmental Matters (continued)
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 nine short-term contracts with seven natural gas
suppliers requiring the purchase of approximately 2,149,000 DTH of natural
gas at varying prices during the period October 1, 1997 through September 30,
1998. The Company has also provided notice of bid awards to two natural gas
suppliers, and anticipates these notices to result in contracts to purchase
an additional 1,703,000 DTH of natural gas at varying prices during fiscal
year 1998. In addition, the Company has short-term contracts with three
propane suppliers requiring the purchase of 2,952,500 gallons of propane
during the period October 1, 1997 through September 30, 1998. Management
does not anticipate that these contracts will have a material impact on the
Company's fiscal year 1998 consolidated results of operations.
During 1997, the Company entered into a purchase commitment to acquire
certain net assets of an area propane company. The total purchase price
under this commitment will be satisfied through the issuance of 35,097 shares
of Company common stock. The acquisition, which is expected to be
consummated in November 1997, will be accounted for under the purchase method
of accounting.
(14) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, Disclosures About
Fair Value of Financial Instruments (Statement 107), requires the Company to
disclose estimated fair values of certain of its financial instruments.
Statement 107 defines the fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current transaction between
willing parties.
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it is practicable to
estimate fair value.
Cash and Cash Equivalents
The carrying amount is a reasonable estimate of fair value.
Long-term Debt
The fair value of long-term debt is estimated by discounting the future
cash flows of each instrument at rates currently offered to the Company for
similar debt instruments of comparable maturities.
<PAGE>
Borrowings Under Lines of Credit
The carrying amount is a reasonable estimate of fair value since the
rates of interest paid on borrowings under lines of credit approximate market
rates.
The carrying amounts and approximate fair values of the Company's
financial instruments requiring disclosure under Statement 107 at September
30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
September 30,
- --------------------------------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------------------
Carrying Approximate Carrying Approximate
Amounts Fair Values Amounts Fair Values
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 116,045 116,045 633,322 633,322
- --------------------------------------------------------------------------------------------------------------
Total financial assets $ 116,045 116,045 633,322 633,322
==============================================================================================================
Financial Liabilities:
Long-term debt $ 20,222,124 21,384,604 20,891,547 22,057,130
Borrowings under lines of credit 7,129,000 7,129,000 6,652,500 6,652,500
- --------------------------------------------------------------------------------------------------------------
Total financial liabilities $ 27,351,124 28,513,604 27,544,047 28,709,630
==============================================================================================================
</TABLE>
Roanoke Gas Company
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(14) Fair Value of Financial Instruments (continued)
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of
the Company's financial instruments, fair value estimates are based on
judgments regarding current economic conditions, risk characteristics of
various financial instruments and other factors. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment, and therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Fair value estimates are based on existing financial instruments
without attempting to estimate the value of anticipated future business and
the value of assets and liabilities that are not considered financial
instruments. Significant assets that are not considered financial assets
include utility plant, nonutility property, current deferred income taxes,
purchased gas adjustments and other assets; significant liabilities that are
not considered financial liabilities are refunds from suppliers - due
customers, noncurrent deferred income taxes and deferred investment tax
credits. In addition, the tax ramifications related to the realization of
the unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in the estimates.
1997 Annual Report
<PAGE>
Roanoke Gas Company and Subsidiaries
Summary Of Gas Sales And Statistics
Years Ended September 30,
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Revenues: 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
Residential Sales $ 32,595,261 $ 33,981,835 $ 25,078,211 $ 29,844,636 $ 27,841,933
Commercial Sales 19,879,180 20,219,289 14,313,723 16,979,230 16,005,765
Interruptible Sales 3,892,301 4,569,766 3,513,181 5,607,002 9,262,947
Transportation Gas Sales 1,107,922 943,215 909,515 610,682 53,611
Backup Services 173,655 190,310 107,652 222,025 -
Late Payment Charges 157,369 135,838 115,130 194,156 147,814
Miscellaneous 36,493 27,154 24,325 67,576 193,449
Propane 7,205,645 5,703,466 4,549,410 4,670,550 4,210,160
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 65,047,826 $ 65,770,873 $ 48,611,147 $ 58,195,857 $ 57,715,679
- ---------------------------------------------------------------------------------------------------------------------------
Net Income $ 2,309,880 $ 2,196,672 $ 1,777,240 $ 1,677,098 $ 1,441,336
===========================================================================================================================
MCF's Delivered:
- ---------------------------------------------------------------------------------------------------------------------------
Residential 4,651,819 5,108,553 4,204,222 4,701,703 4,508,694
Commercial 3,230,714 3,385,962 2,834,884 2,981,888 2,853,079
Interruptible 959,146 1,088,921 1,240,658 1,521,663 2,377,236
Transportation Gas 1,933,236 1,549,854 1,660,504 1,022,892 81,336
Backup Service 29,130 36,658 21,609 38,892 -
- ---------------------------------------------------------------------------------------------------------------------------
Total 10,804,045 11,169,948 9,961,877 10,267,038 9,820,345
===========================================================================================================================
Gallons Delivered (Propane) 6,568,066 5,997,912 4,822,277 5,012,830 4,586,334
===========================================================================================================================
Heating Degree Days 4,298 4,696 3,791 4,416 4,356
===========================================================================================================================
Number Of Customers:
- ---------------------------------------------------------------------------------------------------------------------------
Residential 47,539 46,007 44,873 43,734 42,232
Commercial 5,181 5,043 4,896 4,767 4,512
Interruptible And Interruptible
Transportation Service 43 44 44 43 44
- ---------------------------------------------------------------------------------------------------------------------------
Total 52,763 51,094 49,813 48,544 46,788
===========================================================================================================================
<PAGE>
Gas Account (MCF):
Natural Gas Purchases And
Storage 11,406,613 11,756,089 10,453,696 10,795,928 10,430,635
Gas Made - Propane - - - 14,008 -
- ---------------------------------------------------------------------------------------------------------------------------
Total Available 11,406,613 11,756,089 10,453,696 10,809,936 10,430,635
===========================================================================================================================
Natural Gas Deliveries 10,804,045 11,169,948 9,961,877 10,267,038 9,820,345
Storage - LNG 106,892 142,297 118,393 134,893 153,478
Company Use And
Miscellaneous 49,444 54,140 46,532 50,356 66,211
System Loss 446,232 389,704 326,894 357,649 390,601
- ---------------------------------------------------------------------------------------------------------------------------
Total Gas Available 11,406,613 11,756,089 10,453,696 10,809,936 10,430,635
===========================================================================================================================
Total Assets $ 62,593,258 $ 58,921,099 $ 51,614,667 $ 49,579,447 $ 48,758,728
===========================================================================================================================
Long-Term Obligations $ 17,079,000 $ 20,222,124 $ 17,504,047 $ 16,414,900 $ 16,530,499
===========================================================================================================================
</TABLE>
Roanoke Gas Company
<PAGE>
Roanoke Gas Company and Subsidiaries
Summary Of Capitalization Statistics
Years Ended September 30,
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Common Stock: 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
Shares Issued 1,527,486 1,475,843 1,432,512 1,382,343 1,289,302
Net Earnings Per Share $ 1.54 $ 1.51 $ 1.26 $ 1.25 $ 1.13
Dividends Paid Per Share
(Cash) $ 1.04 $ 1.02 $ 1.00 $ 1.00 $ 1.00
Dividends Paid Out Ratio 67.5% 67.5% 79.4% 80.0% 88.9%
Number Of Shareholders 1,853 1,713 1,699 1,625 901
- ---------------------------------------------------------------------------------------------------------------------------
Capitalization Ratios:
- ---------------------------------------------------------------------------------------------------------------------------
Long-Term Debt, Including
Current Installments 49.5 52.4 51.6 51.0 54.5
Stockholders' Equity 50.5 47.6 48.4 49.0 45.5
- ---------------------------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0 100.0 100.0
- ---------------------------------------------------------------------------------------------------------------------------
Long-Term Debt, Including
Current Installments $ 20,222,124 $ 20,891,547 $ 18,683,462 $ 17,087,046 $ 17,549,817
Stockholders' Equity 20,596,951 18,975,001 17,555,172 16,424,919 14,652,663
- ---------------------------------------------------------------------------------------------------------------------------
Total Capitalization
Plus Current Installments $ 40,819,075 $ 39,866,548 $ 36,238,634 $ 33,511,965 $ 32,202,480
===========================================================================================================================
</TABLE>
1997 Annual Report
<PAGE>
Roanoke Gas Company
Board Of Directors
Lynn D. Avis
Avis Construction Company
President
Abney S. Boxley, III
W. W. Boxley Company
President
Frank T. Ellett
Virginia Truck Center, Inc.
President
Frank A. Farmer, Jr.
Chairman Of The Board, President & CEO
Wilbur L. Hazlegrove
Law Firm Of Woods, Rogers & Hazlegrove,
P.L.C. Member
J. Allen Layman
R & B Communications, Inc.
President & CEO
John H. Parrott
John H. Parrott Associates
President
Thomas L. Robertson
Carilion Health System &
Carilion Medical Center
President
S. Frank Smith
Coastal Coal Sales Inc.
Executive Vice President
Officers
Frank A. Farmer, Jr.
Chairman Of The Board, President & CEO
Roger L. Baumgardner
Vice President, Secretary & Treasurer
Arthur L. Pendleton
Vice President - Operations
John B. Williamson, III
Vice President - Rates & Finance
Jane N. O'Keeffe
Assistant Vice President - Human Resources
J. David Anderson
Assistant Secretary & Assistant Treasurer
<PAGE>
Bluefield Gas Company
Board Of Directors
Roger L. Baumgardner
Roanoke Gas Company
Vice President, Secretary & Treasurer
Frank A. Farmer, Jr.
Roanoke Gas Company
Chairman Of The Board, President & CEO
John H. Parrott
John H. Parrott Associates
President
Arthur L. Pendleton
Roanoke Gas Company
Vice President - Operations
John C. Shott
Paper Supply Company
President
Scott H. Shott
Paper Supply Company
Secretary & Treasurer
Officers
Frank A. Farmer
President
Arthur L. Pendleton
Vice President - Operations
John B. Williamson, III
Vice President - Rates & Finance
Roger L. Baumgardner
Secretary & Treasurer
Diversified Energy Company
T/A Highland Propane Company & Highland Gas Marketing
Board Of Directors
Roger L. Baumgardner
Roanoke Gas Company
Vice President, Secretary & Treasurer
Frank T. Ellett
Virginia Truck Center, Inc.
President
Frank A. Farmer, Jr.
Roanoke Gas Company
Chairman Of The Board, President & CEO
<PAGE>
Arthur L. Pendleton
Roanoke Gas Company
Vice President - Operations
S. Frank Smith
Coastal Coal Sales, Inc.
Executive Vice President
Officers
Frank A. Farmer
President
Arthur L. Pendleton
Vice President - Operations
John B. Williamson, III
Vice President - Rates & Finance
Roger L. Baumgardner
Secretary & Treasurer
<PAGE>
A Tribute To Frank Farmer
[Photograph of Frank Farmer appears here]
When Frank Farmer joined Roanoke Gas as construction superintendent in
1964, the Company had 22,000 customers. When he retires January 31, 1998,
the Company will have more than 60,000 customers. However, that is only part
of a story of innovation and change that has characterized Frank's tenure at
Roanoke Gas Company.
One of Frank's first jobs was overseeing the interconnection of
Roanoke's distribution facilities to the new interstate transmission pipeline
from East Tennessee Natural Gas Company. That enabled Roanoke Gas to be one
of the first small companies to receive gas from two major national
suppliers, helping to ensure a steady and economical supply to its customers.
As operations manager in the early 70s, he oversaw construction of the
liquefied natural gas (LNG) plant. Roanoke Gas Company was perhaps the
smallest gas company to install a complete LNG processing plant capable of
liquefying and storing natural gas in the summer for use during extreme cold
weather in the winter months.
When the gas shortage occurred in the 1970s, the Company was frustrated
because it could not add new natural gas customers during a state-imposed
moratorium. Even though earnings became stagnant, no employee was
furloughed.
Roanoke Gas Company responded to the no-growth period of the moratorium
and developed a new market alternative by selling propane, a decision which
has proven to have significant consequences for the Company's growth.
Propane sales growth accelerated after the purchase of Gas Services, Inc. of
West Virginia and the Company's decision to market propane as a rural and
suburban home and hot water heating alternative where natural gas lines did
not exist.
Deregulation began in the 1980s, which would significantly impact the
entire industry. Roanoke Gas went from a simple distribution utility with
the price of natural gas controlled by federal agencies to a company that had
to find natural gas suppliers and arrange for interstate pipeline delivery at
competitive prices. The evolution of deregulation led to one of the most
significant events in the natural gas industry, passage of the National Gas
Policy Act, which continues to bring changes to the industry.
As president in the 90s, Frank led innovations at Roanoke Gas which
characterized the Company's success in the new era including the installation
of automated meter reading in Bluefield, reading large volume gas meters via
telephone lines, upgrading all of the Company's computer and communications
systems, electronic monitoring and remote control of distribution system
operating pressure, implementing an early retirement program to reduce costs,
and outsourcing of repetitive functions to realize efficiencies through
economics of scale.
For more than 33 years, Frank Farmer has seen and participated in
significant changes in the natural gas industry. He has helped steer the
Company's responses to those changes to the benefit of customers, employees
and stockholders. He retires after the Company's best year of performance
with the directors and management's best wishes for a long, healthy and
prosperous retirement.
<PAGE>
Corporate Mission
Statement
Roanoke Gas Company provides superior customer and
stockholder value by being the preferred choice for
safe, dependable, efficient, economical energy and
services in the market it serves.
Key Business
Strategies
[ ] Saturation Program
[ ] Trade Ally Relations
[ ] The Propane Alternative
[ ] Acquisition and Geographic Expansion
[ ] Positioning for Deregulation
[ ] Diversification
Access up-to-date information on Roanoke Gas Company and its subsidiaries at
http://www.roanokegas.com
<PAGE>
Southwest Virginia And Southern West Virginia's
Choice For Comfort And Economy
Proudly Serving:
Beckley New Castle
Bedford Princeton
Blacksburg Pulaski
Bluefield Radford
Bramwell Rainelle
Buchanan Roanoke
Christiansburg Rocky Mount
Clifton Forge Rupert
Covington Salem
Fincastle Smith Mountain Lake
Floyd Tazewell
Fort Chiswell Troutville
Galax Vinton
Hillsville White Sulphur Springs
Hinton Wytheville
Lewisburg and other area communities
Lexington
Marion
Natural Bridge
[Map of Roanoke Gas Company's Service Area appears here]
<PAGE>
[The following text appear in a box]
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 26, 1998.
[Roanoke Gas Company Logo Mark (Flame) appears here]
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
Roanoke Gas Company trades on Nasdaq as RGCO.
<PAGE>
Accountants' Consent
--------------------
The Board of Directors
Roanoke Gas Company
We consent to incorporation by reference in Registration Statements No.
33-69902 on Form S-2, as amended, and No. 333-02455 on Form S-8 of Roanoke Gas
Company of our report dated October 17, 1997, relating to the consolidated
balance sheets of Roanoke Gas Company and subsidiaries as of September 30,
1997 and 1996, 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, 1997, which report is incorporated by reference in
the September 30, 1997 Annual Report on Form 10-K of Roanoke Gas Company.
s/KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Roanoke, Virginia
December 19, 1997
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ROANOKE GAS
COMPANY'S ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30, 1997, AS
SET FORTH IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 44,065,144
<OTHER-PROPERTY-AND-INVEST> 4,094,095
<TOTAL-CURRENT-ASSETS> 13,955,104
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 478,915
<TOTAL-ASSETS> 62,593,258
<COMMON> 7,637,430
<CAPITAL-SURPLUS-PAID-IN> 5,271,667
<RETAINED-EARNINGS> 7,687,854
<TOTAL-COMMON-STOCKHOLDERS-EQ> 20,596,951
0
0
<LONG-TERM-DEBT-NET> 17,079,000
<SHORT-TERM-NOTES> 7,129,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 3,143,124
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 14,645,183
<TOT-CAPITALIZATION-AND-LIAB> 62,593,258
<GROSS-OPERATING-REVENUE> 65,047,826
<INCOME-TAX-EXPENSE> 857,964
<OTHER-OPERATING-EXPENSES> 59,786,439
<TOTAL-OPERATING-EXPENSES> 60,644,403
<OPERATING-INCOME-LOSS> 4,403,423
<OTHER-INCOME-NET> 146,910
<INCOME-BEFORE-INTEREST-EXPEN> 4,550,333
<TOTAL-INTEREST-EXPENSE> 2,240,453
<NET-INCOME> 2,309,880
0
<EARNINGS-AVAILABLE-FOR-COMM> 2,309,880
<COMMON-STOCK-DIVIDENDS> 1,570,649
<TOTAL-INTEREST-ON-BONDS> 1,094,981
<CASH-FLOW-OPERATIONS> 8,362,434
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 1.54
</TABLE>
[KPMG Peat Marwick LLP Letterhead]
KPMG PEAT MARWICK LLP
10 S. Jefferson Street, Suite 1710 Telephone 540 982 0505 Fax 540 983 8877
Roanoke, VA 24011-1331
December 19, 1997
Securities and Exchange Commission
Washington, D.C. 20549
Ladies and Gentlemen:
We were previously principal accountants for Roanoke Gas Company and,
under the date of October 17, 1997, we reported on the consolidated financial
statements of Roanoke Gas Company and subsidiaries as of September 30, 1997
and 1996 and for each of the years in the three-year period ended September
30, 1997. On July 30, 1997, we were informed that our appointment as
principal accountants would be terminated upon the completion of the September
30, 1997 audit. We have read Roanoke Gas Company's statements included under
Item 4 of its Form 8-K dated December 19, 1997, and we agree with such
statements, except that we are not in a position to agree or disagree with
Roanoke Gas Company's statements that the change was recommended by the audit
committee of the board of directors and approved by the board of directors or
their reason for changing principal accountants.
Very truly yours,
s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
<PAGE>
