SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1995
Commission file number 0-367
ROANOKE GAS COMPANY
-----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-0359895
_______________________________ __________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
519 Kimball Ave., N.E., Roanoke, VA 24016
- --------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant' telephone number, including area code (540) 983-3800
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
- ----------------------------------- -----------------
OTC (Nasdaq
Common Stock, $5 Par Value National Market)
- ----------------------------------- -----------------
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 December 15,
1995. $22,723,265
-----------
<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 December 15, 1995
- ---------------------- ---------------------------------
COMMON STOCK, $5 PAR VALUE 1,442,747 SHARES
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the 1995 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 22, 1996 are incorporated by
reference into Part III hereof.
<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 Amendment to its
Annual Report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized.
ROANOKE GAS COMPANY
By: /s/ Roger L. Baumgardner 4/28/97
------------------------------ -----------------------
Roger L. Baumgardner Date
Vice President, Secretary and
Treasurer
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Amendment to its Annual Report on Form 10-K has been signed below by the
following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
/s/ Frank A. Farmer, Jr. 4/28/97 President, Chief Executive Officer
- --------------------------------------- Director
Frank A. Farmer, Jr. Date
/s/ John B. Williamson, III 4/28/97 Vice President - Rates and Finance
- --------------------------------------- (Principal Financial Officer)
John B. Williamson, III Date
/s/ Roger L. Baumgardner 4/28/97 Vice President, Secretary and
- --------------------------------------- Treasurer (Principal Accounting
Roger L. Baumgardner Date Officer)
/s/ Lynn D. Avis 4/28/97 Director
- ---------------------------------------
Lynn D. Avis Date
/s/Abney S. Boxley, III 4/28/97 Director
- ---------------------------------------
Abney S. Boxley, III Date
/s/ Frank T. Ellett 4/28/97 Director
- ---------------------------------------
Frank T. Ellett Date
/s/ Wilbur L. Hazlegrove 4/28/97 Director
- ---------------------------------------
Wilbur L. Hazlegrove Date
Director
- ---------------------------------------
W. Bolling Izard Date
/s/ J. Allen Layman 4/28/97 Director
- ---------------------------------------
J. Allen Layman Date
/s/ John H. Parrott 4/28/97 Director
- ---------------------------------------
John H. Parrott Date
<PAGE>
/s/ Thomas L. Robertson 4/28/97 Director
- ---------------------------------------
Thomas L. Robertson Date
/s/ S. Frank Smith 4/28/97 Director
- ---------------------------------------
S. Frank Smith Date
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit No. Description Page
---------- ----------- ----
3 (a) Articles of Incorporation, as amended, of
Roanoke Gas Company (incorporated herein by
reference to Exhibit (19) of the Quarterly
Report on Form 10-Q for the quarter ended March
31, 1992)
3 (b) Bylaws, as amended, of Roanoke Gas Company
(incorporated herein by reference to Exhibit (3)(b)
of the Annual Report on Form 10-K for the fiscal
year ended September 30, 1990)
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
(incorporated herein by reference to Exhibit (19) of
the Quarterly Report on Form 10-Q for the quarter
ended March 31, 1992)
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)
<PAGE>
Exhibit No. Description (continued) Page
---------- ----------- ----
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)
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)
<PAGE>
Exhibit No. Description (continued) Page
---------- ----------- ----
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)
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)
<PAGE>
Exhibit No. Description (continued) Page
---------- ----------- ----
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)
10 (w) Ordinance of the City of Roanoke, Virginia
dated August 27, 1973 (incorporated herein
by reference to Exhibit (10)(d) of
Registration Statement No. 33-11383, on
Form S-4, filed with the Commission on
January 16, 1987)
10 (x) Ordinance of the City of Salem, Virginia
dated July 22, 1974 (incorporated herein
by reference to Exhibit (10)(e) of
Registration Statement No. 33-11383, on
Form S-4, filed with the Commission on
January 16, 1987)
10 (y) 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)
<PAGE>
Exhibit No. Description (continued) Page
---------- ----------- ----
10 (z) 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 (a) (a) Resolution of the Council for the Town of
Vinton, Virginia dated November 12, 1974
(incorporated herein by reference to
Exhibit (10)(h) of Registration Statement
No. 33-11383, on Form S-4, filed with the
Commission on January 16, 1987)
10 (b) (b) 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 (c) (c) 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 (d) (d) Consulting Contract between Robert W.
Woody and Roanoke Gas Company dated
February 1, 1985 (incorporated herein by
reference to Exhibit (10)(d)(d) 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 (e) (e) 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 (f) (f) 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)
<PAGE>
Exhibit No. Description (continued) Page
---------- ----------- ----
10 (g) (g) 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 (h) (h) 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 (i) (i) 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 (j) (j) Letter Agreement between the Company and
the City of Roanoke dated August 23, 1993
(incorporated herein by reference to
Exhibit (10)(j)(j) of Registration
Statement No. 33-69902, on Form S-2, filed
with the Commission on October 4, 1993,
and amended by Amendment No. 1, filed with
the Commission on October 28, 1993)
10 (k) (k) 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 (l) (l) 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 (m) (m) 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)
<PAGE>
Exhibit No. Description (continued) Page
---------- ----------- ----
10 (n) (n) 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 (o) (o) 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 (p) (p) 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 (q) (q) *Roanoke Gas Company Key Employee Stock
Option Plan
10 (r) (r) *Roanoke Gas Company Stock Bonus Plan
13 1995 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
- ---------------------
*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>
(Picture of fire flame) Roanoke Gas
1995 Annual Report
<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.
Strategic Goals
1. To aggressively improve marketability by providing services to meet the
needs of our existing and potential customers.
2. To optimize rate of return and shareholder value.
3. To increase productivity of human and physical resources through
visionary leadership, sound management and active employee involvement and
development giving each employee the opportunity to succeed.
4. To project a positive image of every aspect of the Company to its
customers, stakeholders and community.
5. To promote effective communications, both internal and external, to
enable success.
6. To grow the Company's markets through expansion and acquisition of
existing business units and development of new technologies and
opportunities.
<PAGE>
CONTENTS
Letter to Stockholders.............................................2
Review of Operations...............................................4
Management's Discussion and Analysis...............................7
1995 Financial Highlights..........................................13
Independent Auditors' Report.......................................14
Consolidated Balance Sheets........................................15
Consolidated Statements of Earnings................................16
Consolidated Statements of Stockholders' Equity....................17
Consolidated Statements of Cash Flows..............................18
Notes to Consolidated Financial Statements.........................19
Summary of Sales and Statistics....................................28
Summary of Capitalization Statistics...............................29
Roanoke Gas Company Board of Directors and Officers................30
Bluefield Gas Company Board of Directors and Officers..............31
Diversified Energy Company Board of Directors and Officers.........31
Notice of Annual Meeting...........................................32
<PAGE>
LETTER TO STOCKHOLDERS
Dear Stockholder:
I am pleased to say that the year ended September 30, 1995 marks the
accomplishment of one of your Company's major operational goals (to increase
earnings even in the face of significantly warmer than normal weather). Even
though the weather was 10% warmer than normal and 14% warmer than the
previous year, earnings increased by 6%. One of the major factors in this
accomplishment was the redesign of the Company's rate structure to collect a
greater portion of the revenues in monthly service charges thus reducing
volatility of revenues due to weather. Rate redesign, along with Commission
approved rate increases and a reorganization of the Company, focusing on cost
control, produced improved results even in our third warmest year on record.
Our dividend record remains strong, with 206 consecutive dividends paid. We
are very pleased with the continued success of our Dividend Reinvestment and
Stock Purchase Plan, and this year the average number of shares outstanding
increased by 5%.
Natural gas continues to be the energy of choice in the areas we serve, and
customer growth remained strong during the fiscal year. Customer growth was
approximately 3% for Roanoke Gas, 1% for Bluefield Gas and 6% for Highland
Propane.
Capital additions for the year totaled $5.6 million, including the addition
of over 21 miles of new distribution mains and the replacement of over 5
miles of bare steel and cast iron piping with plastic piping. The Company
remains committed to its long-term program to replace all bare steel and cast
iron pipe, and these improvements should reduce future maintenance expenses.
During the year we also built new office and warehouse facilities for
Bluefield Gas Company and upgraded our liquefied natural gas storage
facility.
The Company has transitioned well into the deregulated gas supply world
created by the Federal Energy Regulatory Commission (FERC) deregulation Order
636. We continue to look for and acquire new gas storage services and gas
supplies from an array of companies. Our portfolio of gas suppliers includes
small companies as well as major energy suppliers such as: Amoco, Ashland
Exploration, Coastal Gas Marketing, Columbia Energy Services, Hadson
Corporation and Mobil Natural Gas. We have been buying some gas directly
from producers and marketers since the early 1980s and have found the most
important ingredient to a supply contract is how well the Company responds to
weather emergencies and related problems. Since the implementation of FERC
Order 636 in the Fall of 1993, which removed our interstate pipelines from
the gas merchant business, we have purchased all of our gas supplies directly
from producers or marketers. We are pleased with the relations we have
enjoyed with these companies and expect to continue them during the coming
year.
We are continuing our efforts to modernize the Company with the installation
of state of the art software systems, training and cross-training of
personnel and use of up-to-date technology in metering, pipeline pressure
regulation, liquefied natural gas operations and data processing. We have
also reorganized the natural gas operation by placing marketing and new
construction activities in the same department to improve communica-
2
<PAGE>
tions and efficiency from the point of first contact with a prospective
customer to installation of facilities.
Part of the Company reorganization included an early retirement offer and a
temporary hiring freeze, which reduced full-time employee levels by
approximately 12%. We accomplished a major milestone this year by reaching
the level of 350 customers per employee, a personal efficiency goal I have
held since becoming President in 1991. We are continuing our efforts for
improved employee productivity. We believe our employees and managers are
talented and creative individuals who are constantly assessing ways to do
their jobs better. This effort is streamlining our organization and reducing
costs by helping the Company to operate more efficiently. We appreciate the
contribution that our retired employees made in helping to build a Company
that was able to take timely advantage of new technology and realize the
benefits.
<TABLE>
<CAPTION>
Roanoke Gas Company and Subsidiaries
CUSTOMERS
PER EMPLOYEE
(CHART APPEARS HERE PLOT POINTS ARE AS FOLLOWS)
<S> <C> <C> <C> <C>
1991 1992 1993 1994 1995
285 298 310 312 362
</TABLE>
We are committed to the continued growth of the Company and to improving
stockholder value. We hope our stockholders recognize this commitment to
stock value enhancement by the progress we have made over the last year and
by earnings improvement in the face of very unfavorable gas sales weather.
We will continue to position the Company to take advantage of growth
opportunities and to deal with a changing industry and energy market.
Please plan to join us again this year for a stockholders breakfast prior to
our annual meeting on January 22, 1996, at which time we will update you on
our operations.
On behalf of the Board of Directors, our management team and all Company
employees, please accept our appreciation for your continuing decision to be
a stockholder of Roanoke Gas Company.
Sincerely,
/s/ FRANK A. FARMER, JR.
Frank A. Farmer, Jr.
President and CEO
3
<PAGE>
REVIEW OF OPERATIONS
FINANCIAL
The Company achieved earnings of $1,777,240 in fiscal 1995 despite
experiencing weather that was 10% warmer than normal. The improvement in
earnings was impacted by the Virginia State Corporation Commission's order
dated September 28, 1995, granting Roanoke Gas Company an increase in gross
annual revenues of $655,347 on rates put into effect on November 13, 1994.
This increase, along with management's reorganization plan and emphasis on
cost control and containment, produced improved results for the Company.
The Company added $2,700,000 of long-term debt to its capital structure
in fiscal year 1995. Roanoke Gas Company added a total of $2,000,000 of
intermediate term debt with the issuance of $1,000,000 on both October 19,
1994 and May 19, 1995. Bluefield Gas Company issued $700,000 of intermediate
term debt on October 18, 1994. The Company increased its equity
capitalization by issuing $773,544 in stock through its Dividend Reinvestment
and Stock Purchase Plan.
The Company has unsecured lines of credit through its cash management
system totaling $13,000,000 at interest rates of prime or less. These lines
are subject to annual renewal. The average month-end balance of short-term
debt in 1995 was approximately $2,809,000, at an average interest rate of
6.07%. The month-end balance at September 30, 1995 was $1,442,000, at an
average interest rate of 6.27%. The Company may restructure its long-term
debt financing in late fiscal 1996 or early fiscal 1997 to coincide with the
maturity of several issues.
Please refer to Management's Discussion and Analysis of Financial
Condition and Results of Operations for additional information on the
Company's capital resources and for an analysis of changes in revenues and
expenses.
GAS SUPPLY
The one benefit of the warmer than normal weather in 1995 was the
reduction of natural gas supply acquisition costs. For fiscal 1995,
commodity indexes for natural gas averaged about 23% below the previous year.
Roanoke and Bluefield Gas Companies' combined cost of gas was $27,027,507
reflecting both lower gas costs and a lower total volume of gas purchases.
In addition to reductions in commodity pricing, the Company is experiencing a
reduction in the non-commodity fees associated with multi-year firm gas
supply contracts, which will reduce gas costs over the next several years.
Roanoke and Bluefield Gas Companies continue to use long-term
(multi-year), mid-term (season) and short-term (spot) gas purchase contracts.
The procurement objective is to create a reliable and economical mixture of
gas supply contracts with terms that will not inhibit the Company's ability
to adapt to changing market conditions. Long-term suppliers currently
include Amoco Energy Trading, Ashland Exploration, Coastal Gas Marketing,
Columbia Energy Services, and Mobil Natural Gas in addition to numerous other
occasional spot suppliers.
<PAGE>
To complement the Company's wellhead spot supply contracts and to
maintain reliable supplies for changing conditions, Roanoke and Bluefield Gas
Companies together hold the contract capacity to approximately 2.6 billion
cubic feet (BCF) of natural gas storage space. This storage includes
pipeline and third party underground facilities in both the Gulf coast and
Appalachian areas as well as the Company's liquefied natural gas (LNG)
storage facility in Botetourt County, Virginia.
Both Roanoke and Bluefield Gas Companies are working to decrease
customer costs. With the implementation of FERC Order 636 came the ability
for the companies to temporarily release unused capacity, normally during the
summer period, for a fee. In the current fiscal year, Roanoke and Bluefield
Gas Companies reduced costs to their customers by more than $107,000 through
participation in capacity releases.
NONUTILITY OPERATIONS
Total sales by Highland Propane Company for fiscal year 1995 were
4,822,277 gallons, a decrease of 3.8% from 1994 levels on 14% warmer weather.
Primary wholesale suppliers to Highland Propane included Exxon, Mobil,
Commonwealth Propane, EIL Petroleum and Enron Gas Liquids.
Propane operations are organized into geographic divisions based on
areas of customer concentration and location of fuel storage facilities.
Current divisions include Roanoke, Virginia; Southwest Virginia; Bluefield,
West Virginia, and Rainelle, West Virginia. The Company maintains a program
of evaluating additional areas for expansion or potential acquisition of
existing operations.
The Company's capital expenditures for propane operations have been
focused on acquisition of additional customer premises storage tanks to meet
growth, modernization and replacement of the propane delivery fleet, and
development of additional or enhancement of existing bulk storage facilities.
Total sales by Highland Gas Marketing for fiscal year 1995 were 999,504
DTHs, an increase of 88% over 1994, during which the gas marketing division
was initiated and operated for only six months. Highland Gas Marketing buys
interruptible supplies of spot gas along with interruptible interstate
pipeline transportation services and resells them to large industrial
customers that contract for local distribution line transportation service
from the local utility. The gas marketing business is highly competitive with
relatively low margins, but it is also a relatively low cost operation with
minimal facility and personnel requirements.
PLANT ADDITIONS
Capital additions for the year totaled $5,609,292 for the consolidated
companies, representing a $91,017 or 1.65% increase above last year's
$5,518,275 total. New business expenditures, which include mains, meters, new
service lines and propane installations, increased 13% to $2,843,290. The
natural gas companies installed 1,237 new service lines and 21.2 miles of new
mains compared to 1,365 new service lines and 12.3 miles of new mains last
year. Main replacement and service renewal expenditures totaled $748,821, a
decrease of 37% below the previous year. During the year the Company
replaced 484 service lines and 5.38 miles of main compared to previous year
totals of 932 services and 7.5 miles of main. The reduction in replacement
expenditures was the result of an increased demand for new facilities that
exceeded budget. The replacement budget for 1996 has been increased to
<PAGE>
maintain the 25-year program schedule to replace, by the year 2017,
approximately 12,000 bare steel services and 210 miles of cast iron or bare
steel distribution mains. This program is designed to reduce maintenance
costs and improve system integrity by reducing unaccounted for gas volumes
caused by leakage.
During the year the Company expended $774,377 to complete a $1.1 million
upgrade and refurbishment of the LNG plant. The plant's vaporization
capacity was expanded from 25,000 MCF/day to 30,000 MCF/day with the addition
of a 125 horsepower, 135 gallon/minute LNG pump and a new boiler and glycol
pump. Also included in this upgrade
4
<PAGE>
REVIEW OF OPERATIONS
was the rebuilding of the refrigerant cycle turbine to provide for increased
liquefication efficiency.
Other major increases in plant additions included $199,027 for the
construction of a new Bluefield Gas Company office and warehouse facilities,
$405,871 to add new support services equipment including additions to
mainframe computer software, and $216,108 for the relocation of gas
facilities due to road construction projects.
For fiscal year 1996, the Company has budgeted $4,505,436 for capital
expenditures. Major items will include $2.2 million for new customer
additions, $960,000 to replace existing mains and services, $150,000 for
relocations due to road construction projects and $450,000 for computer
software and other equipment.
MARKETING AND SALES
Natural gas continues to be the energy of choice in the communities
served by the Company, which enjoyed strong customer growth during the fiscal
year. Customer growth was approximately 3% at Roanoke Gas, 1% at Bluefield
Gas and 6% at Highland Propane.
In June, the marketing function was reorganized with the new department
called Marketing and New Construction and having responsibility for all new
business from the initial contact to project completion. Commission sales
representatives, whose primary goal is to focus on the conversion of electric
water heaters to gas and the addition of new gas customers along existing gas
mains, have proven to be highly successful. They achieved a total of 441
water heater conversions, which represents an increase of 137% over last
year.
The marketing strategy is centered on strong trade ally relationships
and one-on-one contacts by members of the sales team. The program has been
very successful, and the number of trade allies has grown from 5 to over 60
in the past year. The Company has been proactive in its efforts to seek
feedback from the trade allies and has made improvements to operations based
on their suggestions.
Management's analysis indicated that it is more cost effective to
outsource appliance sales. As a result, in July, the Company discontinued
general merchandising operations and opened an Appliance Referral Center to
continue to provide customers with the latest information on appliance
technology.
The Company has installed five natural gas heat pumps (York Triathlon)
in its service territory. The Triathlon, with a 126% efficiency rating, is
the most technologically advanced gas fired heating and cooling system on the
market today. Response to the Company's market surveys concerning the
Triathlon has been very positive. The Company anticipates installation of
several more units in the coming year.
The Company remains actively involved in various leadership positions
within the community, including, but not limited to, the Chambers of
Commerce, the Economic Development Partnership, Junior Achievement, the
Virginia Manufacturers Association, the Roanoke Symphony Orchestra, the Arts
Council, and the Roanoke Regional Homebuilders Association. The Company
takes its community responsibilities seriously and encourages employees and
other companies to become involved in community affairs.
<PAGE>
CUSTOMER SERVICE
The customer service reorganization plan adopted in fiscal year 1994
was further refined during 1995, particularly with regard to managing the
loss of customer service employees that took advantage of the early
retirement offer. The focus has been on providing quality customer service
with maximum productivity. Computerization, cross-training and outsourcing
have played major roles in achieving this focus.
With a year of experience using the new Customer Information System
(CIS), the customer service function has been improved by full integration
into other areas of the Company, real-time access to customer records and
enhanced credit and collections capabilities. Aided by actual on-the-job
training and experience, employees have become comfortable with the features
of the new system and productivity has increased.
All employees are now able to do multiple tasks within the customer
service group as a result of the year-long effort in cross-training and job
rotation. Outside training has been provided for customer service basics and
telephone etiquette, with a secret caller program established to allow
ongoing follow up and monitoring of employee effectiveness on the telephone.
Calls into the customer service group are taped for future training and
reference needs. A dedicated customer call group was established to improve
overall telephone response time and to take full advantage of some advanced
features of the telephone system. The Company continued to experiment with
extended office hours to suit the needs of customers and used special weekend
openings to assist customers based on the prediction of cold weather and
seasonal customer needs.
In an effort to further enhance the overall quality of customer service,
a mail survey was used to assess the effectiveness of the customer service
function in various areas, including credit, sales, service and customer
service. The results were positive, with the vast majority of respondents
describing customer service as excellent to very good. Complaints received
were followed up for customer satisfaction and employee training.
In addition to increased productivity from cross-training, a number of
job functions were outsourced to improve overall efficiency. The former
remittance processing function was outsourced to a local bank, and the second
shift of the service dispatch function was outsourced to a local telephone
answering service. Some aspects of the credit and collections functions were
outsourced to a local collections agency with a direct computer link back to
CIS software, so that collection agency employees can work real-time with the
customer records.
The Company again conducted its annual HeatShare Program, designed to
provide monetary assistance to low income customers having difficulty paying
their winter heating bills. Now in its thirteenth season, the program has
helped more than 5,300 families with nearly $750,000 donated by the Company,
employees, customers and other concerned individuals. The program is
administered each year by the local Salvation Army. In addition, customer
service employees provide information to needy families on additional sources
of financial assistance.
<PAGE>
INFORMATION SYSTEMS
With several consecutive years of aggressively implementing new
software applications in both the Accounting System and the CIS, employees
are becoming experienced users, and the Company is realizing the benefits of
improved computerization. With the reduction in employee staff, the constant
growth in the number of customers and an ever-increasing demand for more
information in every aspect of the business, employee efficiency is critical
to providing preferred services to all Company stakeholders. The focus has
been on system integration, system functionality and usability, and office
automation to enhance system usability and employee performance. In
situations where outsourcing is feasible, attention to providing seamless
interfaces to the vendor has also proved vital.
Current year implementation of integrated
5
<PAGE>
REVIEW OF OPERATIONS
systems included a new Work Order Accounting System and Continuous Property
Records and Fixed Assets System. This integrated system provides the ability
to track all labor, materials, equipment and miscellaneous expenses for a
given work order or an entire project and tracks both plant and general
assets by vintage year.
Efforts are focused on upgrading and improving all systems to increase
system functionality, while striving to make the systems easier to use.
Upgrades to all Accounting Systems have been completed and CIS will soon
follow. Company employees work with software vendors, and serve on their
advisory boards, to improve systems. Along with increased functionality and
flexibility, the new version of CIS utilizes Graphical User Interface to
simplify its usage. Employees are assisting in the design and development of
a Requisitioning System and Electronic Authorization System. These systems
will combine to allow users to create a purchase requisition, route it to the
correct management personnel for approval and generate a purchase order in
the Purchasing and Inventory System.
An office automation system is in use to improve employee communications
and employee resourcefulness. E-mail gives employees faster responses to
inquiries and a more reliable and better documented method of communicating.
In addition, employees are learning to query an extensive AS/400 database to
generate reports, inquiries and files. Output from the queries can be
imported into the Office System and/or downloaded to personal computer
spreadsheets and databases. Together, these systems provide a tool that
gives employees direct and immediate access to other employees and system
information, which is crucial to helping employees be more resourceful and
innovative.
Additional efficiency was gained by outsourcing remittance processing
and collections. An interface to the bank's mainframe allows customer
service employees to retrieve customer payment data and post it directly to
the customer's account electronically. In addition, an interface to the
collection agency allows access to past due customer accounts to assist in
contacting delinquent customers.
<TABLE>
<CAPTION>
Range of Cash Dividends
Fiscal Year Ended Bid Prices Declared
September 30, High Low
<S> <C> <C> <C>
1995
First Quarter............. $18.50 $16.00 $.25
Second Quarter............ 17.00 14.00 .25
Third Quarter............. 15.125 13.50 .25
Fourth Quarter............ 15.00 14.25 .25
1994
First Quarter............. $16.00 $15.75 $.25
Second Quarter............ 17.75 15.875 .25
Third Quarter............. 17.50 16.375 .25
Fourth Quarter............ 18.50 17.00 .25
</TABLE>
<PAGE>
HUMAN RESOURCES AND CORPORATE RESTRUCTURING
To enhance the efficiency of the Company's continuing modernization
efforts and systems redesign, the Company offered a voluntary Early
Retirement Incentive Plan for all employees over age 55 who were vested in
the Company's pension plan. Of the twenty-five eligible employees, twelve
accepted the early retirement offer effective May 1, 1995.
Following the May 1 retirements and Robert Glenn's resignation as Vice
President of Marketing, the management team was reorganized to optimize staff
resources and to better structure the Company for the realities of today's
energy markets. The Company now operates with three vice presidents; Arthur
L. Pendleton, Vice President - Operations, John B. Williamson, III, Vice
President - Rates and Finance, and Roger L. Baumgardner, Vice President -
Secretary and Treasurer. With the restructuring Jane O'Keeffe is now
Assistant Vice President for Human Resources, John D 'Orazio is Director of
Marketing and New Construction, Richard Pevarski is Director of
Distribution/Service, Robert L. Wells, II is Director of Customer Service and
Information Systems, and Michael Gagnet is Director of Energy Planning and
Procurement.
Employee count is down to levels not seen since the late 1970's, and
the Company's recent operating results, despite a 10% warmer than normal
year, are beginning to reflect the efficiencies and cost savings of the
Company's restructuring and modernization efforts.
Fiscal 1995 was the Company's first full year under a newly- designed
Employee Medical Benefits Plan, which resulted in a reduction in expenses
over the prior year and introduced managed care to the Company's employees.
In August 1995, the Company introduced a new merit-based compensation system
for all nonunion employees, more directly linking compensation to performance
on mutually-established objectives.
MARKET PRICE AND DIVIDEND INFORMATION
The Company's common stock was accepted for listing on the Nasdaq
National Market on February 1, 1994, under the trading symbol RGCO. The
Company's entry into the Nasdaq National Market provides stockholders,
brokers and others with immediate access to the latest bid and ask prices and
should create greater liquidity in the Company's stock. The accompanying
table sets forth the range of bid prices for shares of the Company's common
stock, as reported prior to February 1, 1994 in The Roanoke Times & World
News and since February 1, 1994 in the Nasdaq National Market. The
information in the table has been restated to retroactively reflect the 100%
stock dividend, accounted for as a 2 for 1 stock split, effective July 1,
1994.
Although the Company has paid continuous quarterly dividends to its
stockholders since August 1, 1944, the Company has not established a formal
policy with respect to dividends. Payment of dividends is within the
discretion of the Company's Board of Directors and will depend upon, among
other factors, earnings, capital requirements and the operating and financial
condition of the Company. There can be no assurance that these or other
conditions will not in the future negatively affect the Company's ability to
pay dividends. In addition, the Company's long-term indebtedness contains
restrictions on cumulative net earnings of the Company and dividends
previously paid. At September 30, 1995, there were 1,699 holders of record
of the Company's common stock.
6
<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,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Operating Revenues ................ $48,611,147 $58,195,857 $57,715,679 $49,147,998 $45,698,964
Operating Margin .................. 19,435,864 19,902,497 18,297,030 16,645,764 15,294,933
Operating Earnings ................ 3,522,258 3,537,267 3,235,269 2,848,130 2,412,577
Earnings Before Interest Charges
and Cumulative Effect of
Accounting Change ............. 3,701,907 3,592,351 3,264,713 3,051,031 2,293,640
Earnings Before Cumulative
Effect of Accounting Change ... 1,777,240 1,677,098 1,441,336 1,305,125 722,817
Net Earnings ...................... 1,777,240 1,677,098 1,441,336 1,305,125 1,579,757
Earnings Per Share:
Earnings before Cumulative
Effect of Accounting Change 1.26 1.25 1.13 1.03 0.58
Cumulative Effect of
Accounting Change ........ -- -- -- -- 0.69
Net Earnings ...................... 1.26 1.25 1.13 1.03 1.27
Cash Dividends Declared
Per Share ..................... 1.00 1.00 1.00 1.00 1.00
Book Value Per Share .............. 12.25 11.88 11.36 11.16 11.11
Average Shares Outstanding 1,408,659 1,339,402 1,280,176 1,264,994 1,245,932
Total Assets ...................... 51,614,667 49,579,447 48,758,728 45,325,270 40,859,083
Long-Term Debt
(Less Current Portion) ........ 17,504,047 16,414,900 16,530,499 16,936,500 9,364,500
Stockholders' Equity .............. 17,555,172 16,424,919 14,652,663 14,176,330 14,029,201
Shares Outstanding at September 30, 1,432,512 1,382,343 1,289,302 1,269,924 1,263,102
</TABLE>
GENERAL
The primary business of Roanoke Gas Company and its public utility
affiliates is the distribution of natural gas to approximately 50,000
customers in the cities of Roanoke, Salem and Bluefield, Virginia and
Bluefield, West Virginia, and the surrounding areas, at rates and charges
regulated by the State Corporation Commission in Virginia (the Virginia
Commission) and the Public Service Commission in West Virginia (the West
Virginia Commission). The Company is required, as a public utility, to
ensure that it has the capacity to adequately serve the ongoing needs of its
customers. The Company also continues to expand its facilities to keep pace
with the industrial and commercial development and residential growth in its
service areas. The Company continues to experience steady customer growth,
and anticipates continuing this trend by attracting adequate investment
capital, along with adequate and timely increases in rates when needed from
the state commissions. The Company serves approximately 6,000 propane
customers in southwestern Virginia and southern West Virginia and serves
natural gas industrial transportation customers by brokerage of natural gas
supplies through its subsidiary, Diversified Energy Company which trades as
Highland Propane and Highland Gas Marketing.
<PAGE>
Continued public acceptance and a growing preference for natural gas as
a competitively priced, clean and efficient fuel for space heating and other
residential, commercial and industrial applications have prompted the steady
increase in the number of customers served and in the cost of constructing
facilities required to serve them. Energy conservation and the availability
of modern, highly efficient furnaces and other appliances for replacement and
new services in better-insulated homes continue to result in a slight decline
in per capita residential usage. The effect of such per capita declines,
unless offset by new customer growth, abnormally cold weather, or rate
relief, could result in a decline or attrition in the Company's net operating
earnings as a percentage of the equity component of the rate base.
Competition from alternate fuels and/or supplies could also impact the
Company's profitability levels.
Industry and regulatory issues that have affected the Company's
operations from time to time and may affect the Company's operations in the
future include the following: (i) obtaining adequate rate relief from
regulatory authorities on a timely basis; (ii) earning on a consistent basis
an adequate return on invested capital; (iii) increasing expenses and the
vitality of the economy; (iv) price competition from alternate fuels; (v)
volatility in the price of natural gas and propane; (vi) some uncertainty in
the projected rate of growth of natural gas and propane requirements in the
Company's service area; and (vii) the development of natural gas and propane
as an alternative fuel. In addition, the Company's business is seasonal in
character and strongly influenced by
7
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
weather conditions. Management of the Company believes that the Company has
the resources and skills to deal successfully with these and other issues.
CAPITAL RESOURCES
AND LIQUIDITY
The Company made only minor changes to its overall capitalization
during fiscal year 1995. Long-term debt increased from $17.1 million to
$18.7 million, reflecting the net results of $1,124,703 in consolidated
retirements and the issuance of $2,700,000 in intermediate debt: $1,000,000
at 7.48%, $1,000,000 at 7.64% and $700,000 at 30-day LIBOR plus 120 basis
points. Short-term debt on a consolidated basis decreased by $3,793,000,
reflective of the impact of lower gas costs related to inventories of storage
gas and replacement by intermediate-term debt.
Stockholders' equity increased by $1,130,253, reflecting an increase
of $361,159 in retained earnings and proceeds of $769,094, net of stock
issuance costs of $4,450, of new stock purchases through the Company's
Dividend Reinvestment and Stock Purchase Plan (the Plan) for the period.
Effective November 15, 1993, the Company amended the Plan to allow customers
to buy common stock directly from the Company through participation in the
Plan and to allow existing stockholders additional flexibility in the
purchase of Company common stock through optional cash payments and for the
reinvestment of dividends. The purchase price of Company common stock under
the Plan is based upon the fair market value of such common stock, determined
by the Board of Directors based on the closing sales price of the Company's
common stock on the Nasdaq National Market on the investment date, if the
investment date is a trading day, or if not, the first trading day prior to
such day.
The Company's capital expenditures for the year were a combination of
replacements and expansions, reflecting the need to replace older cast iron
and bare steel pipe in the system, while continuing to meet the demands of
customer growth. Total capital expenditures for the period were
approximately $5.63 million, broken down to $4.49 million for Roanoke Gas
Company, $.57 million for Bluefield Gas Company and $.57 million for Highland
Propane Company. Depreciation cash flow provided approximately $2.6 million
in support of capital expenditures, or approximately 46% of total investment.
Historically, consolidated capital expenditures were $5.7 million in 1994
and $3.9 million in 1993. It is anticipated that future capital expenditures
will be funded with the combination of depreciation cash flow, retained
earnings, sale of common stock through the Plan and issuance of debt.
At September 30, 1995, the Company had available lines of credit
totaling $13.0 million for its short-term borrowing needs, of which
$1,442,000 was outstanding. Short-term borrowing, in addition to providing
limited capital project bridge financing, is used to finance summer and fall
gas purchases which are injected into storage in the underground facilities
of Columbia Gas Transmission Corporation, Tennessee Gas Pipeline Company and
Virginia Gas Storage Company, as well as in the Company's own LNG facility,
to ensure adequate winter supplies to meet customer demand. With the
implementation of the FERC Order 636 in fiscal year 1993, the Company has
seen an increase in its storage gas requirements and a corresponding need for
additional seasonal short-term borrowings in support of gas inventories.
<PAGE>
Short-term borrowings, together with internally-generated funds,
long-term debt and the sale of stock, have been adequate to cover
construction costs, debt service and dividend payments to stockholders. The
terms of short-term borrowings are negotiable, with average rates of 6.07% in
1995, 3.90% in 1994 and 3.83% in 1993. The lines do not require compensating
balances. In May of 1994, the Company implemented a cash management program,
which provides for daily balancing of the Company's temporary investment and
short-term borrowing needs with interest rates indexed to the 30-day LIBOR
rate plus a premium. The program allows the Company to maximize returns on
temporary investments and minimize cost on short-term borrowings.
At September 30, 1995 and 1994, the Company's consolidated total
capitalization was composed of 50% equity and 50% long-term debt. The sale
of stock pursuant to the Plan, the accumulation of retained earnings, and the
issuance of additional long-term debt account for the composition consistency
from 1994 to 1995.
REGULATORY AND RATE
CASE PROCEEDINGS
On September 28, 1995, the Virginia Commission issued a final order on
Roanoke Gas Company's rate increase application filed on June 15, 1994. The
Commission's order granted a general rate increase in the amount of $655,347,
with an allowed return on equity of 11.7%. The Company anticipates refunding
to customers the difference between the rates put into effect under bond on
November 13, 1994 and the final rates approved by the Virginia Commission in
the first quarter of fiscal year 1996. At September 30, 1995, the Company
has established a reserve to cover the anticipated refund to customers.
8
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The key aspects of the Roanoke Gas Company rate case application were
recovery of cost increases, improved rate design and updated terms and
conditions for providing service. The changes to rate design were intended
to recover a larger portion of the Roanoke Gas Company's costs from the fixed
monthly customer charge in order to lessen the earnings impact of swings in
weather and to provide more service options for large industrial customers.
On September 20, 1995, the Virginia Commission issued a final order
on Commonwealth Public Service Corporation's case, granting a $21,571 award
on a case filed on December 2, 1994. Commonwealth Public Service Corporation
is a subsidiary of Bluefield Gas Company and represents the portion of the
Bluefield system located on the Virginia side of the Virginia/West Virginia
jurisdictional border.
RESULTS OF OPERATIONS
Net earnings for 1995 were $1,777,240, compared to $1,677,098 in 1994
and $1,441,336 in 1993. The increase from $1,441,336 in 1993 to $1,677,098
in 1994 was the result of increased rates in the natural gas business,
improved margins in propane, plus additional sales volumes for both natural
gas and propane due to weather that was 4% colder than normal. The increase
from $1,677,098 in 1994 to $1,777,240 in 1995 can be attributed to increased
rates put into effect in November 1994 and management's restructuring and
cost containment plans. Future earnings of the Company would be positively
impacted by such factors as rate design, customer growth, colder weather and
timely and adequate rate relief. There can be no assurance, however, whether
these factors will occur or to what extent.
Operating revenues for natural gas decreased to $44,061,737 in 1995
from $53,525,307 in 1994 and $53,505,519 in 1993. Revenues for 1994 were up
only $19,798 over 1993 even though sales volumes increased 446,693 MCF, or
4.5%. This was primarily the result of a 7.3% decrease in the cost per unit
of natural gas. Revenues for 1995 were down $9,463,570 from $53,525,307 in
1994 due to a decrease of 305,161 MCF in total sales volume associated with
14% warmer weather and a 16.76% decrease in the cost per unit of natural gas.
Operating revenues for propane were $4,549,410 compared to $4,670,550 in 1994
and $4,210,160 in 1993. Propane revenues increased $460,390 in 1994 over
1993 from increased sales due to 4% colder than normal weather and a 22%
increase in the number of customers, along with a slight increase in its
operating margin. The revenues for 1995 decreased $121,140 from $4,670,550
in 1994 primarily from a decrease in volume associated with 14% warmer
weather.
The volume of natural gas delivered to customers was down to
9,961,877 MCF in 1995 from 10,267,038 MCF in 1994, but up from 9,820,345 MCF
delivered in 1993. The 1994 increase in volume over 1993 can be primarily
attributed to weather and customer growth. The decline in the 1995 volume of
305,161 MCF can be attributed to weather that was approximately 14% warmer
than the weather for 1994. While customer growth was on par for the period
and sales to interruptible customers were up, the weather had a significant
impact on sales to our residential and commercial customers. Propane sales
volumes for 1995 were 4,822,277 gallons compared to 5,012,830 gallons in 1994
and 4,586,334 gallons in 1993. The increase in the volume for 1994 over 1993
was significantly impacted by a 22% increase in the number of customers. The
current year decrease of 190,553 gallons from 1994 was primarily due to
weather that was approximately 14% warmer than the weather for 1994.
<PAGE>
The cost of natural gas was $27,027,507 in 1995 compared to
$36,109,555 in 1994 and $37,254,296 in 1993. The price of natural gas had
been on a steady decline since 1993, when the price for the current
three-year period hit its peak due to the effects of Hurricane Andrew and
colder than normal weather. The cost began to decrease with fiscal 1994 and,
after a few months of fluctuations, continued to decline in 1994 and ended
the period 7% below 1993 costs. Costs continued to decline in fiscal 1995 as
the nation experienced a very warm winter and the per unit price of natural
gas decreased approximately 17%. The cost of propane was $2,147,776 in 1995
compared to $2,183,805 in 1994 and $2,164,353 in 1993. The total cost of
propane increased in 1994 over 1993 due to increased sales volume, offset by
the decreased unit price of propane, due to an increase in the supply of
propane due to the lack of crop drying in the Midwest as a result of crop
destruction from flooding. The total cost of propane decreased in 1995 to
$2,147,776 from $2,183,805 in 1994 due to a volume decrease associated with
approximately 14% warmer weather even though the per unit price increased
approximately $.01.
Other operations and maintenance expenses were $8,959,677 in 1995
compared to $9,379,785 in 1994 and $8,603,786 in 1993. The increase of
$775,999 from 1993 to 1994 was primarily attributable to increased labor
costs and increases in medical and postretirement benefits expenses. The
decrease of $420,108 from 1994 to 1995 is the result of management's
reorganization via an early retirement incentive plan and an austerity
program placed into effect as a result of the warm weather. Also,
maintenance expenses for the last half of the year were limited to essential
or required areas and an emphasis was placed on renewal versus repair.
General taxes decreased to $2,082,896 in 1995 from $2,395,379 in 1994
9
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
GROSS UTILITY PLANT
(Including Construction Work-In-Progress)
Millions of Dollars: 1995 -- $57,369,281
(Bar graph appears here. The plot points are listed below:)
<S> <C>
1986 28,189,766
1987 30,825,843
1988 32,964,999
1989 36,013,885
1990 39,346,347
1991 41,586,792
1992 45,100,044
1993 48,258,419
1994 52,729,972
1995 57,369,281
</TABLE>
and $2,249,534 in 1993. These taxes generally increase as a result of
property taxes on additional facilities and gross receipts and business and
occupation taxes associated with increases in gross revenues. The increase
from 1993 to 1994 was also due to property tax reassessments in Botetourt
County, Virginia, the site of our LNG facility. The decrease in taxes for
1995 was primarily a result of lower gross receipts taxes on total revenues
due to lower cost of gas
Income taxes on the natural gas utilities for 1995, 1994 and 1993
were $711,437, $646,442 and $639,052, respectively. Income taxes increased
in proportion to taxable earnings for each year. See note 5 of the notes to
consolidated financial statements for additional information on income taxes.
Depreciation and amortization expenses increased to $2,133,488 in
1995 from $1,945,672 in 1994 and $1,766,096 in 1993. The increase of
$179,576 from 1993 to 1994 and $187,816 from 1994 to 1995 represents
depreciation on normal additions to plant in service.
Other operating expenses-propane operations consist of the operating
and maintenance expenses, taxes and depreciation of Highland Propane. These
costs increased to $2,026,108 in 1995 from $1,997,952 in 1994 and $1,803,293
in 1993. The $194,659 increase in 1994 expenses over 1993 was mainly
attributable to higher benefits costs, increased maintenance expenses on
customer and Company storage tanks, and increased income taxes due to higher
taxable income. The $28,156 increase in 1995 expenses over 1994 was largely
attributable to increased legal and pension benefit costs
Other income, net of other deductions, was $179,649, $55,084 and
$29,444 for 1995, 1994 and 1993, respectively. The increase of $25,640 from
1993 to 1994 was the result of increased interest income from investment
property and a newly-implemented cash management system, combined with
additional income from the brokerage of natural gas through a subsidiary.
The increase of $124,565 from 1994 to 1995 is mainly the result of improved
jobbing revenues due to enhanced service billing rates and the elimination of
the merchandise function in the natural gas utilities. In the propane
operations, a deferred gain was recognized on the sale of investment property
and revenues from the brokerage of natural gas increased.
<PAGE>
Total interest charges increased to $1,924,667 in 1995 from
$1,915,253 in 1994 and $1,823,377 in 1993. The interest charges for 1994
were up $19,876 over 1993 due to interest on supplier refunds and rate
refunds and a higher average balance of long-term debt. The total interest
charges for 1995 increased $9,414 over 1994 due to a higher average balance
of long-term debt. Short-term interest declined in 1995 due to the decrease
in interest on supplier refunds. The interest expense in the propane
operations was down significantly due to a lower average borrowing balance.
ACCOUNTING CHANGES
Effective October 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions, which establishes a new
accounting principle for the cost of retiree health care and other
postretirement benefits. Prior to October 1, 1993, the Company recognized
these benefits on the pay-as-you-go method. The cumulative effect of the
change in method of accounting for postretirement benefits other than
pensions of $4,746,000 was determined as of October 1, 1993 and is being
amortized on a straight-line basis over a 20-year period for financial
reporting purposes and over a 40-year period for regulatory accounting
treatment. The adoption of Statement 106 resulted in an increase in net
periodic postretirement benefits cost for the year ended September 30, 1994
from approximately $296,000 under the pay-as-you-go method to $649,936 under
Statement 106, with approximately 67% of the consolidated annual cost being
recovered from the Company's customers through rates. The effect of adopting
Statement 106 on net income was a decrease of $77,087, or $.06 per share.
Effective October 1, 1993, the
10
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Company also adopted the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes. Statement 109 requires a
change from the deferred method of accounting for income taxes of APB Opinion
11 to the asset and liability method of accounting for income taxes. Under
the asset and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Under Statement 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. The adoption of Statement 109 did not have a material impact
on the Company's consolidated financial statements, and accordingly, no
cumulative effect of accounting change was reported in the 1994 consolidated
statement of earnings. Prior years' consolidated financial statements have
not been restated to apply the provisions of Statement 109.
RECENT ACCOUNTING
DEVELOPMENTS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards No. 107, Disclosures About Fair Value of
Financial Instruments (Statement 107), which is required to be adopted by the
Company for the fiscal year ending September 30, 1996. Statement 107 extends
existing fair value disclosure practices for some instruments by requiring
all entities to disclose the fair value of financial instruments, both assets
and liabilities recognized and not recognized on the balance sheet, for which
it is practicable to estimate fair value. If estimating fair value is not
practicable, Statement 107 requires disclosure of descriptive information
pertinent to estimating the fair value of a financial instrument.
The FASB has issued Statement of Financial Accounting Standards No.
116, Accounting for Contributions Received and Contributions Made (Statement
116), which is required to be adopted by the Company for the fiscal year
ending September 30, 1996. Statement 116 requires the Company to record
contributions made, including unconditional promises to give, as expenses in
the period made at their fair values. Company management has determined that
the adoption of Statement 116 will not have a material impact on the
Company's consolidated financial statements.
The FASB has also issued Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of (Statement 121), which is required to be adopted by
the Company for the fiscal year ending September 30, 1997. Statement 121
requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In performing
the review for recoverability, the entity should estimate the future cash
flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the asset, an
impairment loss is recognized. Measurement of an impairment loss for
long-lived assets and identifiable intangibles should be based on the fair
<PAGE>
value of the asset. Statement 121 also requires that long-lived assets and
certain identifiable intangibles to be disposed of generally be reported at
the lower of carrying amount or fair value less cost to sell. In addition,
Statement 121 requires that a rate-regulated enterprise recognize an
impairment for the amount of costs excluded when a regulator excludes all or
part of a cost from the enterprise's rate base. The Company has not
completed its quantification of the effect of the adoption of this Statement,
but it is anticipated that the adoption of Statement 121 will not have a
material impact on the Company's consolidated financial statements.
IMPACT OF INFLATION
The cost of natural gas represented approximately 66% , 72% and 74% of
the total operating expenses of the Company's gas utilities' operations for
<TABLE>
<CAPTION>
GAS SALES
Volume (Millions)
1995 - 9,961,877 MCF
(Bar graph appears here. The plot points are listed below:)
<S> <C>
1986 7,512,622
1987 7,822,639
1988 9,212,194
1989 9,316,868
1990 9,066,558
1991 8,335,929
1992 9,338,521
1993 9,820,345
1994 10,267,038
1995 9,961,877
</TABLE>
11
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Roanoke Gas Company And Subsidiaries
Year Ended September 30, 1995
HOW 1995 REVENUE DOLLARS WERE SPENT
<TABLE>
<CAPTION>
<S> <C>
Gross
Revenues
$51,307,095
(Bar graph appears here. See the table below for the plot points)
COST OF GAS AND PROPANE $29,175,283
SALARIES AND WAGES $ 5,082,409
ALL OTHER EXPENSES $ 7,654,381
TAXES $ 3,129,987
INTEREST CHARGES $ 1,924,667
DEPRECIATION AND AMORTIZATION $ 2,563,128
DIVIDENDS DECLARED TO OWNERS $ 1,416,081
EARNINGS RETAINED IN BUSINESS $ 361,159
</TABLE>
fiscals 1995, 1994 and 1993, respectively. However, under the present
regulatory PGA mechanism, the increases and decreases in the wholesale cost
of gas are passed through to the Company's customers.
Inflation impacts the Company through increases in non-gas costs such
as insurance, labor costs, supplies and services used in operations and
maintenance and on the replacement cost of plant and equipment. Since the
Company can only recover these costs through the regulatory process via rate
application, increased costs can significantly impact the results of
operations. Therefore, it is extremely important that management continually
review operations and economic conditions to assess the need for filing and
receiving adequate and timely rate relief from the state commissions.
FRANCHISES
Roanoke Gas Company and Commonwealth Public Service Corporation, a
subsidiary of Bluefield Gas Company, currently hold the only franchises
and/or certificates of public convenience and necessity to distribute natural
gas in their respective Virginia service areas. The franchises generally
extend for a period of twenty years and are renewable by the municipalities.
Certificates of public convenience and necessity, which are issued by the
Virginia State Corporation Commission, are of perpetual duration, subject to
compliance with regulatory standards. The franchise for the City of Roanoke,
the Company's largest service area, expired on August 30, 1993. On August
23, 1993, the Board of Directors of the Company approved an agreement with
the City of Roanoke under which such franchise agreement was extended for a
term of 180 days from August 30, 1993, upon the same terms and conditions,
except that a provision of the existing franchise agreement giving the City
the option to purchase the property of the Company located within the City
was deleted. The 180-day extension period expired February 26, 1994. The
parties have not yet reached an agreement on a new multi-year franchise
agreement; however, negotiations are ongoing, and the Company continues to
<PAGE>
provide natural gas services to customers in the City of Roanoke. The
Company believes that it ultimately will secure a new franchise agreement on
terms acceptable to the Company. In addition, the franchise for the City of
Salem expired on July 22, 1994, and the franchise for the Town of Vinton
expired on December 10, 1994. Negotiations between the Company and the City
of Salem and the Town of Vinton are ongoing, and the Company continues to
provide natural gas services to customers in the City of Salem and the Town
of Vinton. The Company also believes that it will ultimately secure new
franchise agreements with the City of Salem and the Town of Vinton on terms
acceptable to the Company. Bluefield Gas Company holds the only franchise to
distribute natural gas in its West Virginia service area. Its franchise
extends for a period of thirty years from August 23, 1979.
Management anticipates that the Company will be able to renew all of
its franchises. There can be no assurance, however, that a given
jurisdiction will not refuse to renew a franchise or will not in connection
with the renewal of a franchise, impose certain restrictions or conditions
that could adversely affect the Company's business operations or financial
condition.
12
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ENVIRONMENTAL ISSUES
Both Roanoke Gas Company and Bluefield Gas Company operated
manufactured gas plants (MGPs) as a source of fuel for lighting and heating
until the early 1950's. The process involved heating coal in a low-oxygen
environment to produce a manufactured gas that could be distributed through
the Company's pipeline system to customers. A byproduct of the process was
coal tar, and the potential exists for on-site tar waste contaminants at both
former plant sites. The extent of contaminants at these sites is unknown at
this time, and the Company has not performed formal analysis at the Roanoke
Gas Company MGP site. An analysis at the Bluefield Gas Company site
indicates some soil contamination. The Company, with concurrence of legal
counsel, does not believe any events have occurred requiring regulatory
reporting. Further, the Company has not received any notices of violation or
liabilities associated with environmental regulations related to the MGP
sites and is not aware of any off-site contamination or pollution as a result
of these prior sites. Therefore, the Company has no plans for subsurface
remediation at either of the MGP sites. Should the Company eventually be
required to remediate either of the MGP sites, the Company will pursue all
prudent and reasonable means to recover any related costs, including
insurance claims and regulatory approval for rate case recognition of
expenses associated with any work required. Based upon prior orders of the
Commission related to environmental matters at other companies, the Company
believes it would be able to recover prudently incurred costs. Additionally,
a stipulated rate case agreement between the Company and the West Virginia
Commission recognizes the Company's right to defer MGP clean-up costs, should
any be incurred, and to seek rate relief for such costs. If the Company
eventually incurs costs associated with a required clean-up of either MGP
site, the Company anticipates recording a regulatory asset for such clean-up
costs which are anticipated to be recoverable in future rates. Based on
anticipated regulatory actions and current practices, management believes
that any costs incurred related to the previously- mentioned environmental
matters will not have a material effect on the Company's consolidated
financial position.
<PAGE>
<TABLE>
<CAPTION>
1995 FINANCIAL HIGHLIGHTS
ROANOKE GAS COMPANY AND SUBSIDIARIES
<S> <C>
Operating Revenues - Gas ............. $44,061,737
Operating Revenues - Propane ......... $ 4,549,410
Other Revenues - Gas Marketing ....... $ 1,892,851
Merchandising and Jobbing ............ $ 735,878
Interest Income $ .................... 67,219
Gross Revenues ....................... $51,307,095
Net Earnings ......................... $ 1,777,240
Net Earnings per Share ............... $ 1.26
Dividends per Share - Cash ........... $ 1.00
Total Customers - Natural Gas ........ 49,813
Total Customers - Propane ............ 6,006
Total Natural Gas Deliveries - MCF ... 9,961,877
Total Propane Sales - Gallons ........ 4,822,277
Number of Employees .................. 154
Total Payroll Chargeable to Operations
and Construction ........... $ 5,692,917
Total Additions to Plant ............. $ 5,630,411
</TABLE>
13
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Roanoke Gas Company:
We have audited the accompanying consolidated balance sheets of Roanoke
Gas Company and subsidiaries as of September 30, 1995 and 1994, and the
related consolidated statements of earnings, stockholders' equity and cash
flows for each of the years in the three-year period ended September 30,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Roanoke
Gas Company and subsidiaries as of September 30, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1995, in conformity with generally
accepted accounting principles.
As discussed in notes 1 and 5 to the consolidated financial statements,
the Company changed its method of accounting for income taxes in 1994 to
adopt the provisions of Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes. As discussed in notes 1 and 6 to the
consolidated financial statements, the Company also adopted the provisions of
Statement of Financial Accounting Standards No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions, in 1994.
KPMG PEAT MARWICK LLP
Roanoke, Virginia
October 20, 1995
14
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
Roanoke Gas Company And Subsidiaries
September 30, 1995 and 1994
1995 1994
<S> <C> <C>
Assets
Utility Plant:
In service $ 56,834,174 52,234,738
Accumulated depreciation (19,262,416) (17,465,598)
In service, net 37,571,758 34,769,140
Construction work-in-progress 535,107 495,234
Utility plant, net 38,106,865 35,264,374
Nonutility Property:
Propane 3,781,633 3,368,339
Accumulated depreciation (1,742,342) (1,601,137)
Nonutility property, net 2,039,291 1,767,202
Current Assets:
Cash and cash equivalents 502,895 177,269
Accounts receivable, less allowance for
doubtful accounts of $171,947 in 1995
and $318,834 in 1994 3,463,104 3,179,712
Inventories 5,347,994 6,376,353
Deferred income taxes 967,732 160,291
Prepaid income taxes - 260,609
Purchased gas adjustments - 694,423
Other 181,190 480,957
Total current assets 10,462,915 11,329,614
Other Assets 1,005,596 1,218,257
$ 51,614,667 49,579,447
<PAGE>
Liabilities and Stockholders' Equity
Capitalization:
Stockholders' equity:
Common stock, $5 par value. Authorized
3,000,000 shares; issued and outstanding
1,432,512 and 1,382,343 shares in 1995
and 1994, respectively $ 7,162,560 6,911,715
Capital in excess of par value 4,149,584 3,631,335
Retained earnings 6,243,028 5,881,869
Total stockholders' equity 17,555,172 16,424,919
Long-term debt, excluding current maturities 17,504,047 16,414,900
Total capitalization 35,059,219 32,839,819
Current Liabilities:
Current maturities of long-term debt 1,179,415 672,146
Notes payable to banks 1,442,000 5,235,000
Dividends payable 358,743 346,032
Accounts payable 5,544,647 5,320,481
Income taxes payable 476,410 -
Customer deposits 314,647 336,182
Accrued expenses 3,027,825 1,316,426
Refunds from suppliers - due customers 682,851 498,898
Purchased gas adjustments 236,999 -
Total current liabilities 13,263,537 13,725,165
Deferred Credits and Other Liabilities:
Deferred income taxes 2,721,470 2,225,501
Deferred investment tax credits 570,441 609,090
Other deferred credits - 179,872
Total deferred credits and other
liabilities 3,291,911 3,014,463
$51,614,667 49,579,447
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
Roanoke Gas Company And Subsidiaries
Years Ended September 30, 1995, 1994 and 1993
1995 1994 1993
<S> <C> <C> <C>
Operating Revenues:
Gas utilities $ 44,061,737 53,525,307 53,505,519
Propane operations 4,549,410 4,670,550 4,210,160
Total operating revenues 48,611,147 58,195,857 57,715,679
Cost of Gas:
Gas utilities 27,027,507 36,109,555 37,254,296
Propane operations 2,147,776 2,183,805 2,164,353
Total cost of gas 29,175,283 38,293,360 39,418,649
Operating Margin 19,435,864 19,902,497 18,297,030
Other Operating Expenses:
Gas utilities:
Other operations 7,726,611 7,891,993 7,126,397
Maintenance 1,233,066 1,487,792 1,477,389
Taxes - general 2,082,896 2,395,379 2,249,534
Taxes - income 711,437 646,442 639,052
Depreciation and amortization 2,133,488 1,945,672 1,766,096
Propane operations (including
taxes - income of $224,017,
$239,069 and $70,726 in 1995,
1994 and 1993, respectively) 2,026,108 1,997,952 1,803,293
Total other operating expenses 15,913,606 16,365,230 15,061,761
Operating Earnings 3,522,258 3,537,267 3,235,269
<PAGE>
Other Income (Deductions):
Gas utilities:
Interest income 26,652 22,907 4,067
Merchandising and jobbing, net 120,475 50,734 145,105
Other deductions (142,389) (124,655) (115,346)
Taxes - income (14,547) 5,608 (20,649)
Propane operations, net 189,458 100,490 16,267
Total other income (deductions) 179,649 55,084 29,444
Earnings Before Interest Charges 3,701,907 3,592,351 3,264,713
Interest Charges:
Gas utilities:
Long-term debt 1,680,078 1,615,679 1,572,876
Other 231,142 242,776 201,782
Propane operations 13,447 56,798 48,719
Total interest charges 1,924,667 1,915,253 1,823,377
Net Earnings $1,777,240 1,677,098 1,441,336
Net Earnings Per Share $ 1.26 1.25 1.13
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Roanoke Gas Company And Subsidiaries
Years Ended September 30, 1995, 1994 and 1993
Capital in Total
Common Excess of Retained Stockholders'
Stock Par Value Earnings Equity
<S> <C> <C> <C> <C>
Balances, September 30, 1992 $ 6,349,620 2,427,153 5,399,557 14,176,330
Net earnings - - 1,441,336 1,441,336
Cash dividends ($1.00 per share) - - (1,281,796) (1,281,796)
Issuance of common stock (19,378 shares) 96,890 219,903 - 316,793
Balances, September 30, 1993 6,446,510 2,647,056 5,559,097 14,652,663
Net earnings - - 1,677,098 1,677,098
Cash dividends ($1.00 per share) - - (1,354,326) (1,354,326)
Issuance of common stock (93,041 shares) 465,205 1,098,129 - 1,563,334
Common stock issuance costs - (113,850) - (113,850)
Balances, September 30, 1994 6,911,715 3,631,335 5,881,869 16,424,919
Net earnings - - 1,777,240 1,777,240
Cash dividends ($1.00 per share) - - (1,416,081) (1,416,081)
Issuance of common stock (50,169 shares) 250,845 522,699 - 773,544
Common stock issuance costs - (4,450) - (4,450)
Balances, September 30, 1995 $ 7,162,560 4,149,584 6,243,028 17,555,172
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Roanoke Gas Company And Subsidiaries
Years Ended September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 1,777,240 1,677,098 1,441,336
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 2,563,128 2,334,457 2,146,560
(Gain) loss on disposal of utility plant and nonutility
property 4,823 (364) (6,790)
Gain on sale of other asset (67,556) - -
(Increase) decrease in purchased gas adjustments 931,422 1,387,025 (342,369)
Decrease in gas cost recoverable from customers - 219,443 6,186
Decrease in gas cost payable to suppliers - (219,443) (6,186)
Changes in assets and liabilities which provided (used) cash,
exclusive of changes and noncash transactions shown
separately 3,139,960 (320,415) (250,492)
Net cash provided by operating activities 8,349,017 5,077,801 2,988,245
Cash Flows From Investing Activities:
Additions to utility plant in service and under construction
and nonutility property (5,609,292) (5,518,275) (3,795,501)
Proceeds from disposal of property 70,403 33,796 41,186
Cost of removal of utility plant, net (122,523) (184,908) (145,818)
Proceeds from collection of note receivable 490,000 - -
Net cash used in investing activities (5,171,412) (5,669,387) (3,900,133)
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt 2,700,000 2,000,000 500,000
Retirement of long-term debt and payments on obligations
under capital leases (1,124,703) (2,470,696) (1,000,637)
Net borrowings (repayments) under line of credit agreement (3,793,000) 235,000 1,300,000
Proceeds from issuance of common stock 773,544 1,563,334 316,793
Common stock issuance costs (4,450) (113,850) -
Cash dividends paid (1,403,370) (1,330,619) (1,276,952)
Net cash used in financing activities (2,851,979) (116,831) (160,796)
Net Increase (Decrease) in Cash and Cash Equivalents 325,626 (708,417) (1,072,684)
Cash and Cash Equivalents, Beginning of Year 177,269 885,686 1,958,370
Cash and Cash Equivalents, End of Year $502,895 177,269 885,686
<PAGE>
Changes in Assets and Liabilities Which Provided (Used)
Cash, Exclusive of Changes and Noncash Transactions Shown
Separately:
Accounts receivable and customer deposits, net $(304,927) 399,531 (461,318)
Inventories 1,028,359 (175,108) (2,084,697)
Prepaid income taxes 260,609 157,183 666,651
Accounts payable 224,166 437,812 1,415,015
Income taxes payable 476,410 - -
Accrued expenses and other current assets 2,011,166 (227,585) (271,008)
Refunds from suppliers - due customers 183,953 (496,605) 422,669
Other noncurrent assets (277,339) (116,050) (32,415)
Deferred taxes, including amortization of deferred investment
tax credits (350,121) (299,593) 94,611
Other deferred credits (112,316) - -
$3,139,960 (320,415) (250,492)
Supplemental Disclosures of Cash Flows Information:
Cash paid (received) during the year for:
Interest $ 1,867,816 2,306,579 1,811,318
Income taxes, net of refunds $ 675,418 1,022,314 (30,835)
Noncash transactions:
Capital lease obligations of $21,119, $7,925 and $114,954
were incurred in 1995, 1994 and 1993, respectively, when
the Company entered into equipment leases.
A note receivable of $490,000 was received in 1994 upon the
sale of a building, resulting in a deferred gain of $67,556.
The note was paid in full and the deferred gain recognized
in 1995.
A regulatory asset of $20,484 and a regulatory liability of
$112,316 were recorded in 1994 via adjustment of the deferred
income tax liability upon adoption of Statement 109 (see notes
1 and 5).
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Roanoke Gas Company And Subsidiaries
As of September 30, 1995 and 1994 and Years Ended September 30, 1995, 1994
and 1993
(1) Summary of Significant Accounting Policies.
General
The consolidated financial statements include the accounts of Roanoke Gas
Company and its wholly-owned subsidiaries (Company), Bluefield Gas Company
and Highland Propane Company (with propane and gas marketing divisions in
Roanoke and a propane division in Bluefield). Roanoke Gas Company and
Bluefield Gas Company are gas utilities, which distribute and sell natural
gas to residential, commercial and industrial customers within their service
areas. The gas utilities are subject to regulation by the Federal Energy
Regulatory Commission and their applicable state regulatory commissions.
Highland Propane Company, which is not a public utility, distributes and
sells propane in southwestern Virginia and southern West Virginia. The gas
marketing division of Highland Propane brokers natural gas to several
industrial transportation customers of Roanoke Gas Company.
The Company maintains its financial records in accordance with the accounting
policies as prescribed by its regulatory commissions and generally accepted
accounting principles. The Company's regulated operations meet the criteria
and, accordingly, follow the reporting and accounting requirements of
Statement of Financial Accounting Standards No. 71, Accounting for the
Effects of Certain Types of Regulation. This statement sets forth the
application of generally accepted accounting principles to those companies
whose rates are determined by an independent third-party regulator. The
economic effects of regulation can result in regulated companies recording
costs that have been or are expected to be allowed in the rate-setting
process in a period different from the period in which the costs would be
charged to expense by an unregulated enterprise. When this results, costs
are deferred as assets in the consolidated balance sheet (regulatory assets)
and recorded as expenses as those same amounts are reflected in rates.
Additionally, regulators can impose liabilities upon a regulated company for
amounts previously collected from customers and for recovery of costs that
are expected to be incurred in the future (regulatory liabilities).
<PAGE>
The amounts recorded by the Company as regulatory assets and regulatory
liabilities follow:
<TABLE>
<CAPTION>
September 30,
1995 1994
<S> <C> <C>
Regulatory assets:
Early retirement incentive plan costs $ 318,463 -
Statement 106 implementation costs 35,670 47,086
Rate case costs 53,797 134,285
Franchise negotiation costs 55,237 66,954
LNG tank painting costs 33,951 41,153
Union organization costs 58,651 -
Purchased gas adjustments - 694,423
Statement 109 implementation 20,484 20,484
Other 25,414 36,990
$ 601,667 1,041,375
Regulatory liabilities:
Refunds from suppliers - due customers 682,851 498,898
Purchased gas adjustments 236,999 -
Statement 109 implementation - 112,316
$ 919,850 611,214
</TABLE>
All significant intercompany transactions have been eliminated in
consolidation.
Utility Plant
Utility plant is stated at original cost. The cost of additions to utility
plant includes direct labor and overhead. The cost of depreciable property
retired, plus cost of dismantling, less salvage, is charged to accumulated
depreciation. Maintenance, repairs, and minor renewals and betterments of
property are charged to operations.
Depreciation and Amortization
Provisions for depreciation and amortization are computed principally on
composite straight-line rates for financial statement purposes and on
accelerated rates for income tax purposes. Depreciation and amortization for
financial statement purposes are provided on annual composite rates ranging
from 2 percent to 20 percent, except for propane plant and certain other
utility plant which are depreciated on a straight-line basis over the assets'
estimated useful lives. The annual composite rates are determined by
depreciation studies performed for rate-making purposes; however, these
studies provide estimated useful lives which are materially consistent with
generally accepted accounting principles, and accordingly, no significant
differences in annual depreciation and amortization expense amounts occur as
a result of regulation.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Roanoke Gas Company And Subsidiaries
As of September 30, 1995 and 1994 and Years Ended September 30, 1995, 1994
and 1993
(1) Summary of Significant Accounting Policies (Continued).
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
Inventories
Inventories, which consist primarily of propane gas and natural gas firm and
winter storage, are valued at the lower of cost (average cost) or market.
Unbilled Revenues
The Company bills most of its customers on a monthly cycle basis, although
certain large industrial customers are billed at or near the end of each
month. The Company records revenue based on service rendered to the end of
the accounting period. The amounts of unbilled revenues receivable included
in accounts receivable on the consolidated balance sheets in 1995 and 1994
were $770,735 and $703,630, respectively.
Income Taxes
Effective October 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.
Statement 109 requires a change from the deferred method of accounting for
income taxes of APB Opinion 11 to the asset and liability method of
accounting for income taxes. Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109,
the effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. The
adoption of Statement 109 did not have a material impact on the Company's
consolidated financial statements, and accordingly, no cumulative effect of
accounting change was reported in the 1994 consolidated statement of
earnings.
Pursuant to the deferred method under Accounting Principles Board Opinion No.
11, which was applied by the Company prior to October 1, 1993, deferred
income taxes were recognized for income and expense items that were reported
in different years for financial reporting purposes and income tax purposes
using the tax rate applicable in the year of the calculation. Under the
deferred method, deferred taxes are not adjusted for subsequent changes in
tax rates.
Bond Expenses
Bond expenses are being amortized over the lives of the bonds using the bonds
outstanding method.
<PAGE>
Purchased Gas Adjustments
Pursuant to the provisions of the Company's purchased gas adjustment (PGA)
clause, increases or decreases in gas costs are passed on to its customers.
Accordingly, the difference between actual costs incurred and costs recovered
through the application of the PGA is reflected as a net deferred charge or
credit. At the end of the deferral period, the balance of the net deferred
charge or credit is amortized over the next 12-month period and amounts are
reflected in customer billings.
Pension and Other Postretirement Plans
The Company has a defined benefit pension plan covering substantially all of
its employees. Generally, the Company's funding policy is to contribute
annually an amount equal to that which can be deducted for federal income tax
purposes. Pension costs are computed based upon the provisions of Statement
of Financial Accounting Standards No. 87.
The Company also provides certain health care, supplemental retirement and
life insurance benefits to active and retired employees. Effective October
1, 1993, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions, which establishes a new accounting principle
for the cost of retiree health care and other postretirement benefits (see
also note 6). Prior to October 1, 1993, the Company recognized these
benefits on the pay-as-you-go method (i.e., cash basis). The cumulative
effect of the change in method of accounting for postretirement benefits
other than pensions is being amortized on a straight-line basis over a
20-year period.
Net Earnings Per Share
Net earnings per share are based on the weighted average number of shares
outstanding during the year (1,408,659 shares in 1995, 1,339,402 shares in
1994 and 1,280,176 shares in 1993).
Reclassifications
Certain reclassifications have been made to prior years' consolidated
financial statements to place them on a basis comparable with the current
year's consolidated financial statements.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Roanoke Gas Company And Subsidiaries
As of September 30, 1995 and 1994 and Years Ended September 30, 1995, 1994
and 1993
(2) Allowance for Doubtful Accounts.
A summary of the changes in the allowance for doubtful accounts follows:
<TABLE>
Years Ended September 30,
1995 1994 1993
<S> <C> <C> <C>
Balances, beginning of year $318,834 287,189 139,383
Provision for doubtful accounts 345,585 468,183 534,953
Recoveries of accounts written off 91,941 107,117 76,712
Accounts written off (584,413) (543,655) (463,859)
Balances, end of year $171,947 318,834 287,189
</TABLE>
(3) Short-Term Borrowings.
The Company had total short-term lines of credit of $13,000,000 in 1995 and
1994 and $14,500,000 in 1993. The balances outstanding under these lines of
credit at September 30, 1995, 1994 and 1993 were $1,442,000, $5,235,000 and
$5,000,000, respectively. The highest month-end balances of short-term debt
were $7,186,000, $5,250,000 and $6,450,000 in 1995, 1994 and 1993,
respectively. The average month-end balances outstanding were approximately
$2,809,000, $2,658,000 and $4,095,000 in 1995, 1994 and 1993, respectively.
The average interest rates on the notes were approximately 6.07 percent, 3.90
percent and 3.83 percent for 1995, 1994 and 1993, respectively. The lines
are subject to annual renewal and do not require compensating balances. The
average interest rates were 6.27 percent, 5.22 percent and 3.50 percent on
notes payable outstanding at September 30, 1995, 1994 and 1993, respectively.
<PAGE>
(4) Long-Term Debt.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30,
1995 1994
<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 $1,880,000 2,145,000
Series L, 10.375%, due April 1, 2004, with provision for retirement of $334,000 each year
through 2003 with a final payment of $324,000 2,996,000 3,330,000
Term debentures, collateralized by indenture dated October 1, 1991, with
provision for retirement in varying annual payments through
October 1, 2016 and interest rates ranging from 6.75% to 9.625% 8,400,000 8,850,000
Unsecured notes payable, with interest rates ranging from 5% to 7.64%,
with provision for retirement in full on October 19, 1996 4,000,000 2,000,000
Obligations under captial leases, due in aggregate monthly payments of
$3,076, including imputed interest, through August 1998 94,962 99,546
Bluefield Gas Company:
Unsecured installment loan, with interest rate based on prime (8.75% and 7.75%
at September 30, 1995 and 1994, respectively), with provision for retirement
of $50,000 for each year through 1997 and a final payment of $12,500 on
January 31, 1998 112,500 162,500
Unsecured note payable, with interest rate fixed at 5.8%, with provision for retirement in
full in August 1996 500,000 500,000
Unsecured note payable, with interest based on 30-day LIBOR plus 120 basis
points (7.075% at September 30, 1995), with provision for retirement in full on
October 18, 1996 700,000 -
Total long-term debt 18,683,462 17,087,046
Less current maturities (1,179,415) (672,146)
Total long-term debt, excluding current maturities $ 17,504,047 16,414,900
</TABLE>
The above debt obligations contain various provisions including a minimum
interest charge coverage ratio, limitations on debt as a percentage of total
capitalization, and limitations on total liabilities as a percentage of
tangible net worth. The obligations also contain a provision restricting the
payment of dividends, primarily based on the earnings of the Company and
dividends previously paid. At September 30, 1995, the entire balance of
retained earnings was available for dividends.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Roanoke Gas Company And Subsidiaries
As of September 30, 1995 and 1994 and Years Ended September 30, 1995, 1994
and 1993
(4) Long-Term Debt (Continued).
The aggregate annual maturities of long-term debt, including obligations
under capital leases, subsequent to September 30, 1995 are as follows:
<TABLE>
<CAPTION>
Years Ending September 30,
<S> <C>
1996 $ 1,179,415
1997 6,581,923
1998 643,124
1999 599,000
2000 599,000
Thereafter 9,081,000
Total $18,683,462
</TABLE>
(5) Income Taxes.
As discussed in note 1, the Company adopted the provisions of Statement 109
as of October 1, 1993. The adoption of Statement 109 did not have a material
impact on the Company's consolidated financial statements, and accordingly,
no cumulative effect of accounting change was reported in the 1994
consolidated statement of earnings. Prior years' consolidated financial
statements have not been restated to apply the provisions of Statement 109.
<PAGE>
The details of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
1995 1994 1993
<S> <C> <C> <C>
Charged to other operating
expenses - gas utilites:
Current:
Federal $1,104,505 917,069 556,889
State 48,649 30,807 1,650
Total current 1,153,154 947,876 558,539
Deferred:
Federal (370,870) (256,945) 104,437
State (32,198) (8,457) 17,473
Total deferred (403,068) (265,402) 121,910
Investment tax credits, net (38,649) (36,032) (41,397)
Total charged to other operating
expenses - gas utilities 711,437 646,442 639,052
Charged to other income and
deductions - gas utilities:
Current:
Federal 14,587 (6,372) 959
State (40) 764 407
Total current 14,547 (5,608) 1,366
Deferred:
Federal - - 19,283
State - - -
Total deferred - - 19,283
Total charged to other income and
deductions - gas utilities 14,547 (5,608) 20,649
Charged to other operating
expenses - propane operations:
Current:
Federal 200,022 193,795 63,217
State 44,715 43,433 12,694
Total current 244,737 237,228 75,911
Deferred:
Federal (15,528) (2,443) (3,681)
State (5,192) 4,284 (1,504)
Total deferred (20,720) 1,841 (5,185)
Total charged to other operating
expenses - propane operations 224,017 239,069 70,726
Total income tax expense $ 950,001 879,903 730,427
</TABLE>
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Roanoke Gas Company And Subsidiaries
As of September 30, 1995 and 1994 and Years Ended September 30, 1995, 1994
and 1993
(5) Income Taxes (Continued).
Income tax expense for the years ended September 30, 1995, 1994 and 1993
differed from amounts computed by applying the U.S. Federal income tax rate
of 34 percent to earnings before income taxes as a result of the following:
<TABLE>
<CAPTION>
Years Ended September 30,
1995 1994 1993
<S> <C> <C> <C>
Net earnings $1,777,240 1,677,098 1,441,336
Income tax expense 950,001 879,903 730,427
Earnings before income taxes $2,727,241 2,557,001 2,171,763
Computed "expected" income
tax expense 927,262 869,380 738,399
Increase (reduction) in income
tax expense resulting from:
Amortization of deferred
investment tax credits (38,649) (36,032) (41,397)
Other, net 61,388 46,555 33,425
Total income tax expense $ 950,001 879,903 730,427
</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,
1995 1994
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance for
doubtful accounts $ 60,898 112,405
Accrued pension and medical benefits, due
to accrual for financial reporting purposes
in excess of actual contributions 687,828 277,739
Accrued vacation and bonuses, due to
accrual for financial reporting purposes 151,392 95,380
Purchased gas adjustments, due to accrual
for financial reporting purposes in excess
of actual payments to customers 100,873 -
Other 23,697 6,637
Total gross deferred tax assets 1,024,688 492,161
Less valuation allowance - -
Net deferred tax assets 1,024,688 492,161
<PAGE>
Deferred tax liabilities:
Utility plant, due to differences in
depreciation 2,653,872 2,165,388
Purchased gas adjustments, due to actual
payments to customers in excess of
accrual for financial reporting purposes - 232,052
Prepaid expenses and other assets, due to
capitalization for financial reporting
purposes 124,554 149,414
Other - 10,517
Total gross deferred tax liabilities 2,778,426 2,557,371
Net deferred tax liability $ 1,753,738 2,065,210
</TABLE>
The Company has determined that a valuation allowance for the gross deferred
tax assets was not necessary at September 30, 1995 and 1994, since
realization of the entire gross deferred tax assets can be supported by the
amount of taxes paid during the carryback period available under current tax
laws, as well as the reversal of the temporary differences which gave rise to
the deferred tax liabilities.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income and tax planning strategies in making this assessment.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Roanoke Gas Company And Subsidiaries
As of September 30, 1995 and 1994 and Years Ended September 30, 1995, 1994
and 1993
(5) Income Taxes (Continued).
For the year ended September 30, 1993, deferred tax expense of $136,008
attributable to earnings before income tax expense resulted from timing
differences in the recognition of income and expense for income tax and
financial reporting purposes. The sources and tax effects of timing
differences for the year ended September 30, 1993 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Depreciation expense $ 110,701
Purchased gas adjustments 109,757
Other (84,450)
Total $ 136,008
</TABLE>
(6) Employee Benefit Plans.
The Company has a defined benefit pension plan covering substantially all of
its employees. The benefits are based on years of service and employee
compensation. Plan assets are invested principally in cash equivalents and
corporate stocks and bonds. Company contributions are intended to provide
not only for benefits attributed to date but also for those expected to be
earned in the future.
Pension expense includes the following components:
<TABLE>
<CAPTION>
Years Ended September 30,
1995 1994 1993
<S> <C> <C> <C>
Service cost for the current year $ 127,908 146,849 132,631
Interest cost on the projected benefit
obligation 376,147 370,811 337,947
Actual return on assets held in the plan (988,813) (96,300) (489,799)
Net amortization and deferral of unrecognized
gains and losses 727,706 (182,032) 224,918
Special termination benefits cost related to
the early retirement incentive plan 168,730 - -
Net pension expense $ 411,678 239,328 205,697
</TABLE>
<PAGE>
The Plan's funded status is as follows:
<TABLE>
<CAPTION>
September 30,
1995 1994
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested $3,955,511 3,401,178
Nonvested 28,742 39,577
Accumulated benefit obligation 3,984,253 3,440,755
Effect of anticipated future compensation
levels and other events 1,292,654 1,396,502
Projected benefit obligation 5,276,907 4,837,257
Fair value of assets held in the plan (4,971,725) (4,324,047)
Unfunded excess of projected benefit
obligation over plan assets $ 305,182 513,210
</TABLE>
The unfunded excess of projected benefit obligation over plan assets consists
of the following:
<TABLE>
<CAPTION>
September 30,
1995 1994
<S> <C> <C>
Net unrecognized gain from past experience
different than assumed $(1,166,807) (844,059)
Unamortized transition liability 540,865 646,309
Unrecognized prior service cost 113,251 132,125
Accrued pension cost included in the
consolidated balance sheets 817,873 578,835
Total $ 305,182 513,210
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.75 percent for 1995, 8
percent for 1994 and 7.75 percent for 1993. The rates of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation in 1995 and 1994 were 4 percent for compensation
increases through December 31, 1996 and 5 percent for compensation increases
thereafter, and in 1993, 4 percent for compensation increases through
December 31, 1994 and 5 percent for compensation increases thereafter. The
assumed long-term rate of return on assets was 8.5 percent for 1995, 1994 and
1993.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Roanoke Gas Company And Subsidiaries
As of September 30, 1995 and 1994 and Years Ended September 30, 1995, 1994
and 1993
(6) Employee Benefit Plans (Continued).
In addition to pension benefits, the Company has a postretirement benefits
plan which provides certain health care, supplemental retirement and life
insurance benefits to active and retired employees who meet specific age and
service requirements. The plan is contributory for 1995; the plan was
noncontributory for 1994. The Company has elected to fund the plan over
future years.
As discussed in note 1, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, as of October 1, 1993. The
transition obligation resulting from this change in accounting principle of
$4,746,000 was determined as of October 1, 1993 and is being amortized on a
straight-line basis over a 20-year period. The adoption of Statement 106
resulted in an increase in net periodic postretirement benefits cost for the
year ended September 30, 1994 from approximately $296,000 under the
pay-as-you-go method to $649,936 under Statement 106, with approximately 67
percent of the consolidated annual cost being recovered from the Company's
customers through rates. The effect of adopting Statement 106 on net
earnings was a decrease of $77,087, or $.06 per share.
The following table presents the plan's funded status reconciled with the
amounts recognized in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
September 30,
1995 1994
<S> <C> <C>
Accumulated postretirement benefits
obligation:
Retirees $2,464,992 2,093,424
Fully eligible active plan
participants 1,026,018 994,189
Other active plan participants 1,319,200 1,293,080
4,810,210 4,380,693
Plan assets at fair value, principally
cash equivalents and mutual funds (651,155) (433,592)
Accumulated postretirement benefits
obligation in excess of plan assets 4,159,055 3,947,101
Unrecognized net gain 743,605 564,637
Unrecognized transition obligation (4,271,400) (4,508,700)
Postretirement benefits cost included
in accrued expenses $ 631,260 3,038
</TABLE>
The unrecognized net gain of $743,605 as of September 30, 1995 has been
reduced by the curtailment loss of $195,258 resulting from the early
retirement incentive plan offered by the Company in 1995.
<PAGE>
Net periodic postretirement benefits cost includes the following components:
<TABLE>
<CAPTION>
Years Ended September 30,
1995 1994
<S> <C> <C>
Service cost for the current year $ 86,613 79,506
Interest cost on the accumulated
postretirement benefits obligation 320,992 333,464
Return on assets held in the plan (35,000) (6,020)
Amortization of transition obligation 237,300 237,300
Net total of other components (7,583) 5,686
Special termination benefits cost
related to the early retirement
incentive plan 242,319 -
Net periodic postretirement benefits
cost $ 844,641 649,936
</TABLE>
For measurement purposes, 11 percent and 12 percent annual rates of increase
in the per capita cost of covered benefits (i.e., medical trend rate) were
assumed for 1995 and 1994, respectively; the rates were assumed to decrease
gradually to 6.25 percent by the year 2005 and remain at that level
thereafter. The medical trend rate assumption has a significant effect on
the amounts reported. For example, increasing the assumed medical cost trend
rate by one percentage point each year would increase the accumulated
postretirement benefits obligation as of September 30, 1995 by approximately
$596,000 and the aggregate of the service and interest cost components of net
postretirement benefits cost by approximately $90,000.
The weighted average discount rates used in determining the accumulated
postretirement benefits obligation were 7.75 percent and 8 percent at
September 30, 1995 and 1994, respectively, and 7 percent at October 1, 1993.
Prior to the Company's adoption of Statement 106, costs of postretirement
benefits were generally charged to expense when claims and premiums were
paid. The annual cost of providing these benefits to retired employees was
approximately $218,000 for 1993.
During 1995, the Company offered a voluntary early retirement incentive plan
to all employees over age 55 who were vested in the Company's pension plan.
Of the 25 eligible employees, 12 accepted the early retirement offer by the
April 26, 1995 deadline. The total cost of the early retirement incentive
plan was $444,367, of which $125,904 was expensed directly in the Company's
third quarter and $318,463 was established as a regulatory asset, with
amortization beginning when rates are placed into effect to allow recovery of
the capitalized costs. The costs expensed during the third quarter related
to the portion of the plan costs that would be amortized during the period
between the recognition of the plan costs and the implementation of new
rates, which provide for plan cost recovery, from the next rate filing.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Roanoke Gas Company And Subsidiaries
As of September 30, 1995 and 1994 and Years Ended September 30, 1995, 1994
and 1993
(6) Employee Benefit Plans (Continued).
The Company also has a defined contribution thrift plan covering all of its
employees who elect to participate. The Company makes annual contributions
to the plan based on 50 percent of the net participants' basic contributions
(from 1 percent to 6 percent of their total compensation). The annual cost
of the plan was $132,261, $132,683 and $124,991 for 1995, 1994 and 1993,
respectively.
(7) Common Stock Dividend.
On May 23, 1994, the Board of Directors of the Company declared a 100 percent
stock dividend on the Company's common stock, payable on July 1, 1994 to
holders of record on June 15, 1994. The 100 percent common stock dividend
has been accounted for as a stock split, effected in the form of a dividend,
and thus did not provide any capitalization of retained earnings. A total of
681,925 shares of common stock were issued in connection with the common
stock dividend, and a total of $3,409,625 was reclassified from the Company's
capital in excess of par value account to the Company's common stock account
on July 1, 1994. Corresponding prior year amounts, including share and per
share data, have been restated to retroactively reflect the 100 percent stock
dividend.
(8) Related Party Transactions.
Certain of the Company's directors render various business services or
products to the Company. The services included legal fees of approximately
$173,000, $197,000 and $39,000 in 1995, 1994 and 1993, respectively, and
construction costs of approximately $1,963,000 and $1,434,000 in 1994 and
1993, respectively. The products included natural gas purchases of
approximately $1,250,000 in 1995. It is anticipated that similar services
and products will be provided to the Company in 1996.
(9) Quarterly Financial Information (Unaudited).
Quarterly financial data as previously reported for the years ended September
30, 1995 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Operating revenues $14,115,726 18,949,627 8,995,204 6,550,590
Operating earnings $ 1,046,530 2,267,518 193,645 14,565
Net earnings (loss) $ 558,602 1,795,737 (237,891) (339,208)
Net earnings (loss)
per share $ .40 1.28 (.17) (.25)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
First Second Third Fourth
1994 Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Operating revenues $18,952,378 22,377,742 9,602,255 7,263,482
Operating earnings
(loss) $ 1,513,942 2,161,628 (10,171) (128,132)
Net earnings (loss) $ 1,036,465 1,664,904 (453,506) (570,765)
Net earnings (loss)
per share $ .80 1.25 (.33) (.47)
</TABLE>
The pattern of quarterly earnings is the result of the highly seasonal nature
of the business, as variations in weather conditions generally result in
greater earnings during the winter months.
(10) Business and Credit Concentrations.
The primary business of the Company is the distribution of natural gas to
residential, commercial and industrial customers in Roanoke, Virginia;
Bluefield, Virginia; Bluefield, West Virginia; and the surrounding areas.
The Company distributes natural gas to its customers at rates and charges
regulated by the State Corporation Commission in Virginia and the Public
Service Commission in West Virginia. The Company also serves propane
customers in southwestern Virginia and southern West Virginia through its
nonregulated subsidiary.
During 1995, 1994 and 1993, no single customer accounted for more than 5
percent of the Company's sales, and no account receivable from any customer
exceeded 5 percent of the Company's total stockholders' equity at September
30, 1995 and 1994.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Roanoke Gas Company And Subsidiaries
As of September 30, 1995 and 1994 and Years Ended September 30, 1995, 1994
and 1993
(11) Franchises.
Roanoke Gas Company (Roanoke Gas) and Commonwealth Public Service
Corporation, a subsidiary of Bluefield Gas Company, currently hold the only
franchises and/or certificates of public convenience and necessity to
distribute natural gas in their respective Virginia service areas. The
franchises generally extend for a period of 20 years and are renewable by the
municipalities. Certificates of public convenience and necessity, which are
issued by the State Corporation Commission of Virginia, are of perpetual
duration, subject to compliance with regulatory standards. The franchise for
the City of Roanoke, Roanoke Gas' largest service area, expired on August 30,
1993. On August 23, 1993, the Board of Directors of Roanoke Gas approved an
agreement with the City of Roanoke (City) under which the current franchise
agreement was extended for a term of 180 days from August 30, 1993, upon the
same terms and conditions, except that a provision of the existing franchise
agreement giving the City the option to purchase the property of Roanoke Gas
located within the City was deleted. The 180-day extension period expired
February 26, 1994. The parties have not reached an agreement on a new
multi-year franchise agreement; however, negotiations are ongoing, and the
Company continues to provide natural gas services to customers in the City of
Roanoke. The Company believes that it ultimately will secure a new franchise
agreement with the City of Roanoke on terms acceptable to the Company. In
addition, the franchise for the City of Salem expired on July 22, 1994, and
the franchise for the Town of Vinton expired on December 10, 1994.
Negotiations between the Company and the City of Salem and the Town of Vinton
are ongoing, and the Company continues to provide natural gas services to
customers in the City of Salem and the Town of Vinton. The Company also
believes that it will ultimately secure new franchise agreements with the
City of Salem and the Town of Vinton on terms acceptable to the Company.
Bluefield Gas Company holds the only franchise to distribute natural gas in
its West Virginia service area. Its franchise extends for a period of 30
years from August 23, 1979.
Management anticipates that the Company will be able to renew all of its
franchises. There can be no assurance, however, that a given jurisdiction
will not refuse to renew a franchise or will not in connection with the
renewal of a franchise, impose certain restrictions or conditions that could
adversely affect the Company's business operations or financial condition.
(12) Environmental Matters.
Both Roanoke Gas Company and Bluefield Gas Company operated manufactured gas
plants (MGPs) as a source of fuel for lighting and heating until the early
1950's. The process involved heating coal in a low-oxygen environment to
produce a manufactured gas that could be distributed through the Company's
pipeline system to customers. A by-product of the process was coal tar, and
the potential exists for on-site tar waste contaminants at both former plant
sites. The extent of contaminants at these sites is unknown at this time,
and the Company has not performed formal analysis at the Roanoke Gas Company
MGP site. An analysis at the Bluefield Gas Company site indicates some soil
contamination. The Company, with concurrence of legal counsel, does not
believe any events have occurred requiring regulatory reporting. Further,
<PAGE>
the Company has not received any notices of violation or liabilities
associated with environmental regulations related to the MGP sites and is not
aware of any off-site contamination or pollution as a result of these prior
operations. Therefore, the Company has no plans for subsurface remediation
at either of the MGP sites. Should the Company eventually be required to
remediate either of the MGP sites, the Company will pursue all prudent and
reasonable means to recover any related costs, including insurance claims and
regulatory approval for rate case recognition of expenses associated with any
work required. Based upon prior orders of the State Corporation Commission
of Virginia related to environmental matters at other companies, the Company
believes it will be able to recover prudently incurred costs. Additionally,
a stipulated rate case agreement between the Company and the West Virginia
Public Service Commission recognizes the Company's right to defer MGP
clean-up costs, should any be incurred, and to seek rate relief for such
costs. If the Company eventually incurs costs associated with a required
clean-up of either MGP site, the Company anticipates recording a regulatory
asset for such clean-up costs which are anticipated to be recoverable in
future rates. Based on anticipated regulatory actions and current practices,
management believes that any costs incurred related to the
previously-mentioned environmental matters will not have a material effect on
the Company's consolidated financial position.
(13) Commitments.
The Company has six short-term contracts with five natural gas suppliers
requiring the purchase of approximately 4,234,000 DTH of natural gas at
varying prices during the period October 1, 1995 through September 30, 1996.
The Company also has one short-term contract with a propane supplier
requiring the purchase of 817,000 gallons of propane during the period
October 1, 1995 through September 30, 1996. Management does not anticipate
that these contracts will have a material impact on the Company's fiscal year
1996 consolidated results of operations.
27
<PAGE>
SUMMARY OF SALES AND STATISTICS
Roanoke Gas Company And Subsidiaries
Years Ended September 30,
<TABLE>
<CAPTION>
Revenues: 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Residential Sales $25,078,211 $29,844,636 $27,841,933 $23,439,809 $21,615,863
Commercial Sales 14,313,723 16,979,230 16,005,765 13,683,948 12,263,378
Interruptible Sales 3,513,181 5,607,002 9,262,947 7,954,908 7,626,604
Transportation Gas Sales 909,515 610,682 53,611 - -
Backup Services 107,652 222,025 - - -
Late Payment Charges 115,130 194,156 147,814 22,893 29,245
Miscellaneous 24,325 67,576 193,449 210,818 470,964
Propane 4,549,410 4,670,550 4,210,160 3,835,622 3,692,910
Total $48,611,147 $ 58,195,857 $57,715,679 $49,147,998 $45,698,964
Net Income $ 1,777,240 $ 1,677,098 $ 1,441,336 $ 1,305,125 $ 1,579,757
MCF's Delivered:
Residential 4,204,222 4,701,703 4,508,694 4,146,456 3,654,683
Commercial 2,834,884 2,981,888 2,853,079 2,762,004 2,411,385
Interruptible 1,240,658 1,521,663 2,377,236 2,430,061 2,269,861
Transportation Gas 1,660,504 1,022,892 81,336 - -
Backup Service 21,609 38,892 - - -
Total 9,961,877 10,267,038 9,820,345 9,338,521 8,335,929
Gallons Delivered (Propane) 4,822,277 5,012,830 4,586,334 4,178,671 3,793,102
Heating Degree Days 3,791 4,416 4,356 3,986 3,458
Number of Customers:
Residential 44,873 43,734 42,232 41,695 40,535
Commercial 4,896 4,767 4,512 4,429 4,193
Interruptible and
Interruptible Transportation
Service 44 43 44 48 48
Total 49,813 48,544 46,788 46,172 44,776
Gas Account (MCF):
Natural Gas Receipts 10,453,696 10,795,928 10,430,635 9,960,017 9,002,349
Gas Made - Propane - 14,008 - - -
Total Available 10,453,696 10,809,936 10,430,635 9,960,017 9,002,349
Natural Gas Deliveries 9,961,877 10,267,038 9,820,345 9,338,521 8,335,929
Storage - LNG 118,393 134,893 153,478 168,761 151,477
Company Use and Miscellaneous
Sales 46,532 50,356 66,211 82,470 173,800
System Loss 326,894 357,649 390,601 370,265 341,143
Total Gas Available 10,453,696 10,809,936 10,430,635 9,960,017 9,002,349
Total Assets $51,614,667 $49,579,447 $48,758,728 $45,325,270 $40,859,083
Long-Term Obligations $17,504,047 $16,414,900 $16,530,499 $16,936,500 $ 9,364,500
</TABLE>
28
<PAGE>
SUMMARY OF CAPITALIZATION STATISTICS
Roanoke Gas Company And Subsidiaries
Years Ended September 30,
<TABLE>
<CAPTION>
Common Stock: 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Shares Issue 1,432,512 1,382,343 1,289,302 1,269,924 1,263,102
Earnings Per Share
Before cumulative effect
of accounting change $1.26 $1.25 $1.13 $1.03 $0.58
Cumulative effect of
accounting change - - - - 0.69
Net earnings $1.26 $1.25 $1.13 $1.03 $1.27
Dividends Paid Per Share (Cash) $1.00 $1.00 $1.00 $1.00 $1.00
Dividends Paid Out Ratio 79.4% 80.0% 88.9% 97.1% 78.7%
Number of Shareholders 1,699 1,625 901 911 901
Capitalization Ratios:
Long-Term Debt, Including Current
Maturities 51.6 51.0 54.5 55.9 42.5
Common Stock and Surplus 48.4 49.0 45.5 44.1 57.5
Total 100.0 100.0 100.0 100.0 100.0
Long-Term Debt, Including
Current Maturities $18,683,462 $17,087,046 $17,549,817 $17,935,500 $10,374,500
Common Stock and Surplus 17,555,172 16,424,919 14,652,663 14,176,330 14,029,201
Total Capitalization Plus
Current Maturities $36,238,634 $33,511,965 $32,202,480 $32,111,830 $24,403,701
</TABLE>
29
<PAGE>
ROANOKE GAS COMPANY
Board of Directors
Lynn D. Avis President, Avis Construction Company
Abney S. Boxley, III President, W. W. Boxley Company
Edward C. Dunbar Chairman of the Board
Frank T. Ellet President, Virginia Truck Center, Inc.
Frank A. Farmer, Jr. President and Chief Executive Officer
Wilbur L. Hazlegrove Partner, Law Firm of Woods, Rogers & Hazlegrove
W. Bolling Izard President, W. Bolling Izard Surety & Consulting Agency, Inc.
J. Allen Layman President and Chief Executive Officer,
Botetourt Communications, Inc.
John H. Parrott President, John H. Parrott Associates
Thomas L. Robertson President, Carilion Health System and
Roanoke Memorial Hospitals
S. Frank Smith Executive Vice President, Coastal Coal Sales, Inc.
Officers
Frank A. Farmer, Jr. President and Chief Executive Officer
Roger L. Baumgardner Vice President, Secretary and Treasurer
Arthur L. Pendleton Vice President-Operations
John B. Williamson, III Vice President-Rates and Finance
Jane N. O'Keeffe Assistant Vice President-Human Resources
J. David Anderson Assistant Secretary and Assistant Treasurer
30
<PAGE>
BLUEFIELD GAS COMPANY
Board of Directors
Roger L. Baumgardner Vice President, Secretary and
Treasurer, Roanoke Gas Company
Edward C. Dunbar Chairman of the Board, Roanoke Gas Company
Frank A. Farmer, Jr. President and Chief Executive Officer, Roanoke Gas
Company
John H. Parrott President, John H. Parrott Associates
Arthur L. Pendleton Vice President- Operations, Roanoke Gas Company
John C. Shott President, Paper Supply Company
Scott H. Shott Secretary and Treasurer, Paper Supply Company
Officers
Frank A. Farmer, Jr. President
Arthur L. Pendleton Vice President-Operations
John B. Williamson, III Vice President-Rates and Finance
Roger L. Baumgardner Secretary and Treasurer
DIVERSIFIED ENERGY COMPANY
T/A Highland Propane Company
& Highland Gas Marketing
Board of Directors
Roger L. Baumgardner Vice President, Secretary and
Treasurer, Roanoke Gas Company
Frank T. Ellett President, Virginia Truck Center, Inc.
Frank A. Farmer, Jr. President and Chief Executive Officer, Roanoke Gas
Company
Arthur L. Pendleton Vice President-Operations, Roanoke Gas Company
S. Frank Smith Executive Vice President, Coastal Coal Sales, Inc.
Officers
Frank A. Farmer, Jr. President
Arthur L. Pendleton Vice President-Operations
John B. Williamson, III Vice President-Manager
Roger L. Baumgardner Secretary and Treasurer
31
<PAGE>
NOTICE OF
ANNUAL MEETING
The annual meeting of stockholders
of Roanoke Gas Company will be
held at the Executive Offices of the
Company, 519 Kimball Avenue, N.E.,
Roanoke, Virginia at 9:00 a.m.,
Monday, January 22, 1996.
Roanoke Gas Company
P. O. Box 13007
Roanoke, VA 24030-3007
540 983-3800
Roanoke Gas Company trades on Nasdaq as RGCO.
(Recycled logo)
Printed on Recycled Paper
32
<PAGE>
(Picture of fire flame)
<PAGE>
(Picture of fire flame)
Roanoke Gas
Your Choice for Comfort and Economy
Transfer Agent and Dividend Disbursing Agent
First Union National Bank of North Carolina
Dividend Reinvestment Services
P. O. Box 1154
Charlotte, North Carolina 28288-1154
1-800-829-8432
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ROANOKE GAS
COMPANY'S AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED
SEPTEMBER 30, 1995, AS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995 AND THE 1995 ANNUAL REPORT TO
STOCKHOLDERS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 38,106,865
<OTHER-PROPERTY-AND-INVEST> 2,039,291
<TOTAL-CURRENT-ASSETS> 10,462,915
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 1,005,596
<TOTAL-ASSETS> 51,614,667
<COMMON> 7,162,560
<CAPITAL-SURPLUS-PAID-IN> 4,149,584
<RETAINED-EARNINGS> 6,243,028
<TOTAL-COMMON-STOCKHOLDERS-EQ> 17,555,172
0
0
<LONG-TERM-DEBT-NET> 17,504,047
<SHORT-TERM-NOTES> 1,442,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,179,415
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 13,934,033
<TOT-CAPITALIZATION-AND-LIAB> 51,614,667
<GROSS-OPERATING-REVENUE> 48,611,147
<INCOME-TAX-EXPENSE> 711,437
<OTHER-OPERATING-EXPENSES> 44,377,452
<TOTAL-OPERATING-EXPENSES> 45,088,889
<OPERATING-INCOME-LOSS> 3,522,258
<OTHER-INCOME-NET> 179,649
<INCOME-BEFORE-INTEREST-EXPEN> 3,701,907
<TOTAL-INTEREST-EXPENSE> 1,924,667
<NET-INCOME> 1,777,240
0
<EARNINGS-AVAILABLE-FOR-COMM> 1,777,240
<COMMON-STOCK-DIVIDENDS> 1,416,081
<TOTAL-INTEREST-ON-BONDS> 1,347,599
<CASH-FLOW-OPERATIONS> 8,349,017
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.26
</TABLE>
