UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-00643
Corning Natural Gas Holding Corporation
(Exact name of registrant as specified in its charter)
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New York |
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46-3235589 |
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(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
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330 W. William St. |
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Corning, New York 14830 |
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(Address of principal executive offices, including zip code) |
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(607) 936-3755 |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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None |
N/A |
N/A |
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Securities registered pursuant to Section 12(g) of the Act: |
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Common Stock, par value $0.01 per share |
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(Title of class) |
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated Filer ☐ Accelerated Filer ☐ Non-Accelerated Filer ☐ Smaller Reporting Company ☒ Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepares or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b2 of the Act). Yes ☐ No ☒
The aggregate market value of the 1,234,434 million shares of the registrant’s common stock held by non-affiliates of the registrant was $28,787,001 at the $23.32 average of bid and asked prices on March 31, 2021.
Number of shares of Common Stock outstanding as of the close of business on December 17, 2021: 3,083,577
DOCUMENTS INCORPORATED BY REFERENCE
In accordance with General Instruction G(3) of Form 10-K, certain information required by Part III will either be incorporated by reference to the definitive proxy statement for Corning Natural Gas Holding Corporation’s Annual Meeting of Shareholders filed within 120 days after September 30, 2021, or will be included in an amendment to this Form 10-K filed within that period.
Information contained in this Form 10-K for the fiscal 2021 period which is incorporated by reference contains certain forward looking statements which may be impacted by factors beyond the control of the Company, including but not limited to natural gas supplies, regulatory actions and customer demand. As a result, actual conditions and results may differ from present expectations. See “Cautionary Statement Regarding Forward-Looking Statements” below.
Table of Contents
For the Fiscal Year Ended September 30, 2021
EXPLANATORY NOTE
Corning Natural Gas Holding Corporation (the “Holding
Company”) is a successor issuer to Corning Natural Gas Corporation (“Corning Gas” or the “Gas Company”)
as of November 12, 2013 as a result of a share-for-share exchange, creating a holding company structure. As of November 12, 2013, the
Gas Company became a wholly-owned subsidiary of Holding Company.
As used in this Form 10-K, the term “Company”,
“we”, or “us”, refers to the consolidated companies, the terms “Gas Company” and “Corning Gas”
mean Corning Natural Gas Corporation, the term “Pike” means Pike County Light & Power Company, and the term “Leatherstocking
Companies” means the combination of Leatherstocking Gas Company, LLC (“Leatherstocking Gas”) and Leatherstocking Pipeline
Company, LLC (“Leatherstocking Pipeline”), unless the context clearly indicates otherwise. Except as otherwise stated, the
information contained in this Form 10-K is as of September 30, 2021.
PART I
ITEM 1 – BUSINESS
General
The Holding Company was incorporated in New York in
July 2013 to serve as a holding company for the Gas Company and its dormant subsidiary Corning Natural Gas Appliance Corporation (the
“Appliance Company”), Pike, Leatherstocking Gas Company, LLC, and Leatherstocking Pipeline Company, LLC. The Holding Company
also owns 50% of Leatherstocking Gas of New York, Inc. (“Leatherstocking NY”). As used in this document, the term “the
Company” refers to the consolidated operations of the Holding Company, Gas Company, Pike and (from July 1, 2020) the Leatherstocking
Companies.
The Company’s principal executive offices are
located at 330 W. William Street, Corning New York, 14830, the telephone number is (607) 936-3755, and our website is www.corninggas.com.
Business
The Company’s primary business, through its
subsidiaries Corning Gas, Pike and the Leatherstocking Companies, is natural gas and electric distribution. Corning Gas serves approximately
15,000 residential, commercial, industrial and municipal customers in the Corning, Hammondsport and Virgil, New York, areas and two other
gas utilities which serve the Elmira and Bath, New York areas. It is franchised to supply gas service in all the political subdivisions
in which it operates. The Gas Company is under the jurisdiction of the New York Public Service Commission (“NYPSC”) which
oversees and sets rates for New York gas distribution companies. In addition, the Gas Company has contracts with Corning Incorporated
and Woodhull Municipal Gas Company, a small local utility, to provide maintenance service on their gas lines. Pike is an electric and
gas utility regulated by the Pennsylvania Public Utility Commission (“PAPUC”). Pike provides electric service to approximately
4,900 customers in the Townships of Westfall, Milford, the northern part of Dingman, and in the Boroughs of Milford and Matamoras. Pike
provides natural gas service to 1,300 customers in Westfall Township and the Borough of Matamoras. All these communities are located in
Pike County, Pennsylvania. Additionally, Leatherstocking Gas is also regulated by the PAPUC and distributes gas in Susquehanna and Bradford
Counties, Pennsylvania. Leatherstocking Pipeline, an unregulated company, has served one customer in Lawton, Pennsylvania and has had
no revenues since 2018. Leatherstocking NY has an application pending before the NYPSC for authority to provide gas distribution services
in Broome County, New York.
Pending Merger
On January 12, 2021, Holding Company entered into
an Agreement and Plan of Merger (the “Merger Agreement”) by and among Holding Company, affiliates of Argo Infrastructure partners,
LP named ACP Crotona Corp. (“Parent”), and ACP Crotona Merger Sub Corp. (“Merger Sub”), pursuant to which Merger
Sub will merge with and into Holding Company, and Holding Company will continue as the surviving corporation and a wholly owned subsidiary
of Parent (the “Merger” or the “Argo Merger”). As a result of the Merger, shareholders of Holding Company will
receive consideration for their shares in the following amounts: (i) $24.75 in cash, per share of common stock (the “Merger Consideration”);
(ii) $25 per share of Series A preferred stock; (iii) $29.70 per share of Series B preferred stock; and (iv) $25 per share of Series C
preferred stock. Amounts payable to all shareholders will include cash for any unpaid dividends.
The Merger is subject to, among other customary
closing conditions, the approvals of the NYPSC and the PAPUC. In addition, the Merger requires the approval of the Company’s shareholders
and the expiration of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvement Act. The Merger Agreement also includes
certain termination rights for both the Company and Parent and provides that, in connection with the termination of the Merger Agreement
under specified circumstances, termination fees may be owed by the Company to Parent, depending on the circumstances surrounding a termination.
The Merger Agreement provided for a 45-day “Go
Shop” period which expired on February 26, 2021. During the “Go Shop” period, the Company received no competing offers
or alternative acquisition proposals. The Company is now subject to a customary “No Shop” provision that restricts the Company’s
ability to solicit acquisition proposals from third parties and to provide non-public information and to negotiate with third parties
regarding unsolicited acquisition proposals that is reasonably expected to lead to a superior proposal. On April 30, 2021, the Company
and Argo filed with the NYPSC and PAPUC joint petitions requesting approval to conclude the merger. Decisions from the commissions on
the merger petitions are not expected until the first half of 2022. The Merger was voted on and approved by the Company’s shareholders
at its annual shareholder meeting on May 27, 2021.
In connection with the execution of the Merger Agreement,
the Company has suspended its dividend reinvestment plan.
Upon consummation of the Merger, the Company’s
common stock will be delisted from the OTCQX and deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”) as soon as practicable.
Gas and Electric Supply
Corning Gas has contracted with various sources to
provide natural gas to our distribution system. The Gas Company contracts for pipeline capacity, as well as storage capacity of approximately
736,000 dekatherms (“Dth”). The Company manages its transportation and storage capacity with internal resources. Pike has
contracted with Orange and Rockland Utilities, Inc. (“O&R”) to provide electricity and natural gas according to agreements
until August 2022, subject to renewal. Leatherstocking Gas has a supply agreement with Cabot Oil and Gas that expires in August of 2026.
Corning Gas secured the NYPSC-required fixed price
and storage gas supply for the 2021-2022 winter season and is managing its storage and gas supply contracts following its gas supply and
acquisition plan. Assuming no extraordinary conditions for the winter season, gas supply, flowing and storage will be adequate to serve
its customers.
Corning Gas does not expect a shortage of natural
gas to impact our business over the next five to ten years. Natural gas supply over the last several years has been positive, and domestic
reserves and production have increased. This is especially true in proximity to our distribution network. We likewise anticipate no shortages
of the necessary pipes and valves for safe distribution of natural gas and continue to receive material inventory from various reliable
sources. We also have confidence that our agreement with O&R will enable Pike to meet all our electric and gas needs for Pike’s
customers and that Cabot Oil and Gas will be able to continue reliably supplying Leatherstocking Gas.
Seasonality
The Company’s business is seasonal in nature,
and sales for each quarter of the year vary and are not comparable. Sales vary depending on seasonal variations in temperature. Gas sales
peak in the winter, while Pike’s electric sales peak in the summer.
Significant Customers
The Gas Company has three major customers, Corning
Incorporated, New York State Electric & Gas, and Bath Electric, Gas & Water Systems. In total, these customers accounted for approximately
14.98% of the Gas Company’s revenues in the fiscal year ended September 30, 2021 (“FY 2021”) and 14.32% in the fiscal
year ended September 30, 2020 (“FY 2020”). The loss of any of these customers would have an adverse impact on our financial
results.
Human Capital
The Company had 73 employees as of September 30, 2021,
and 72 as of September 30, 2020. Of this total, approximately one third are union labor working under a union contract effective until
April 3, 2023. Our people work primarily at three business locations in New York and Pennsylvania. The Company offers its employees competitive
salaries and wages, excellent health and welfare benefit plans, including a 401(k) plan with a company match, and at the Gas Company,
a qualified defined benefit pension plan. Our employees enjoy eleven paid holidays, paid vacation and personal days, paid sick leave,
and Company sponsored group term life insurance benefits.
We offer employee training programs that enable our
employees to obtain and maintain industry certifications required to assist customers with gas and electric service issues. We promote
safety in the workplace by requiring our people to receive training on sexual
harassment in the workplace, alcohol and substance
abuse, and we offer free training on interpersonal skills. We also offer our employees access to professional counseling to help them
deal with personal and family issues.
Competition
Historically, the competition in the Gas Company’s
residential market and Pike’s and Leatherstocking Gas’s gas franchise territories has been primarily from electricity for
water heating and clothes drying, and to a small degree, fuel oil and propane for heating. The price of gas remains low in comparison
to that of alternative fuels in our service territories and our competitive position in the residential, commercial and industrial markets
continues to be strong. When we expand our distribution system to attract new customers, our principal competition is oil and propane.
Natural gas enjoys a price advantage over these fuels today. Pike electric has not faced significant competition to date. Although not
material today, we could experience competition from customer owned solar in the future.
Environmental Regulation
We believe we are in compliance with present federal,
state and local provisions relating to the protection of the environment. We do not expect that continued compliance with these requirements
will have any material adverse effect on our capital expenditures, earnings and financial position. The Company has no former manufactured
gas plant sites (MGP) and is not a party to any environmental proceedings, litigation or complaints.
Regulatory Matters
On May 19, 2021, the NYPSC issued a rate order establishing
rates and a rate plan for the Gas Company for a one-year period ending January 31, 2022. The rate order reduced customer rates by $766,000,
but it eliminated a $1.3 million tax sur-credit related to income tax rate reductions in the 2017 Tax Cuts and Jobs Act. The rate order
was retroactive to February 1, 2021.
On July 16, 2021, the Gas Company filed a three-year
rate plan with the NYPSC for rate years ending on June 30, 2023, 2024, and 2025. The rate increases requested for the three-year rate
plan are $6,555,000, $1,030,000, and $843,000, respectively.
On June 25, 2021, the PAPUC issued a rate order approving
Pike’s gas rate increase of $225,000 per year, and on July 15, 2021, the PAPUC issued a rate order approving an electric rate increase
in the amount of $1.4 million per year. Both rate increases took effect on July 28, 2021.
For additional information see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Regulatory Matters”.
ITEM 1A. RISK FACTORS
Failure to consummate the Argo Merger
The Argo Merger is subject to approval by, among
others, both the New York and Pennsylvania public utility commissions, and the United States Justice Department. In the event that regulators
fail to approve the Merger, the Company could experience difficulty in obtaining financing for capital projects required by its regulators,
and the Company would realize a significant cash loss related to costs incurred in pursuit of the merger transaction.
Our operations could be adversely affected
by fluctuations in the price of natural gas and electricity.
Prices for natural gas and electricity are subject
to volatile fluctuations in response to changes in supply and other market conditions. While these costs are usually passed on to customers
of the Gas Company pursuant to natural gas adjustment clauses, and to customers of Pike and Leatherstocking Gas through the gas rate cost,
and therefore do not pose a direct risk to earnings, we are unable to predict what effect a sharp increase in natural gas and electricity
prices may have on our customers’ energy consumption or ability to pay. Higher prices to customers can lead to higher bad debt expense
and customer conservation. Higher prices may also have an adverse effect on our cash flow as we are typically required to pay for our
natural gas and electricity prior to receiving payments for the natural gas or electricity from our customers.
Operational issues beyond our control could
have an adverse effect on our business.
Pike, Leatherstocking Gas, and the Gas Company’s
ability to provide natural gas and electricity depends both on our own operations and facilities and that of third parties, including
local gas producers, natural gas pipeline operators, and our electric supplier from whom we receive our natural gas and electric supplies.
The loss of use or destruction of our facilities or the facilities of third parties due to extreme weather conditions, breakdowns, war,
acts of terrorism or other occurrences could greatly reduce potential earnings and cash flows and increase our costs of repairs and replacement
of assets. Although we carry property insurance to protect our assets, and regulatory policies of the NYPSC and PAPUC provide the opportunity
for deferral and recovery of extraordinary incremental costs associated with losses for such incidents, our losses may not be fully recoverable
through insurance or customer rates. Additionally, the effect of the coronavirus pandemic could adversely affect our ability to maintain
our gas and electric distribution systems and serve our customer base.
Environmental regulations can significantly
affect the Company’s business.
The Company’s business operations are subject
to federal, state, and local laws and regulations relating to environmental protection. Costs of compliance and liabilities could negatively
affect the Company’s results. In addition, compliance with environmental laws, regulations or permit conditions could require unexpected
capital expenditures at the Company’s facilities. Because the costs of such compliance could be significant, additional regulation
could negatively affect the Company’s business. Climate change, and the regulatory and legislative developments related to climate
change, may adversely affect operations and financial results. If there were to be any impacts from climate change to the Company’s
operations and financial results, the Company expects that they would likely occur over a long period of time and thus are difficult to
quantify with any degree of specificity. Extreme weather events may result in adverse physical effects on portions of the Company’s
gas and electric infrastructure, which could disrupt the Company’s supply chain, and ultimately its operations. Disruption of transportation
and distribution systems activities could result in reduced operational efficiency, and customer service interruption. Climate change,
and the laws, regulations and other initiatives to address climate change, may impact the Company’s financial results. Federal,
state and local legislative and regulatory initiatives proposed or adopted in recent years in an attempt to limit the effects of climate
change, including greenhouse gas emissions, could have significant impacts on the energy industry including government-imposed limitations,
prohibitions or moratoriums on the use of gas. A number of states have adopted energy strategies or plans with goals that include the
reduction of greenhouse gas emissions. New York passed the Climate Leadership and Community Protection Act (“CLCPA”), which
created emission reduction and electric generation mandates, and could ultimately impact the Company’s customer base. Legislation
or regulation that aims to reduce greenhouse gas emissions could also include greenhouse gas emissions limits and reporting requirements,
carbon taxes, restrictive permitting, increased efficiency standards, and incentives or mandates to conserve energy, or to use renewable
energy sources. Additionally, the trend toward increased conservation, competition from renewable energy sources, and technological advances
to address climate change may reduce the demand for natural gas and electricity. For further discussion of the risks associated with environmental
regulation to address climate change, refer Management’s Discussion and
Analysis under the heading “Environmental Matters”.
Significantly warmer than normal weather
conditions may affect the sale of natural gas and significantly cooler than normal weather could affect our electric sales. Either could
adversely impact our financial position and the results of our operations.
The demand for natural gas and electricity are
directly affected by weather conditions. Significantly warmer than normal weather conditions in the winter in our service areas could
reduce our earnings and cash flows as a result of lower gas sales. Cooler summer weather would result in lower electricity sales for air
conditioning. Corning Gas mitigates the risk of warmer winter weather through the weather normalization and revenue decoupling clauses
in our tariffs. These clauses allow the Gas Company to surcharge customers for under-recovery of revenue. Pike and Leatherstocking Gas
do not have weather normalization or revenue decoupling to mitigate the risk of warmer weather in the winter or cooler weather in the
summer.
Information Technology
Cyber-attacks or acts of cyber-terrorism could
disrupt our business operations and information technology systems or result in the loss or exposure of confidential or sensitive customer,
employee or Company information. In FY 2020, the Company experienced cyber-attacks that were intended to extract ransom payments. The
attacks were resolved without paying a ransom and did not result in the loss of data or an interruption of customer service. Since the
attacks, the Company has taken steps to harden its defenses against future attacks.
There are inherent risks associated with
storing and transporting natural gas and distribution of electricity, which could cause us to incur significant financial losses.
There are inherent hazards and operation risks in
gas transportation and distribution activities, such as leaks, accidental explosions and mechanical problems that could cause substantial
financial losses. There are also risks associated with the distribution of electricity. These risks could, if they occur, result in the
loss of human life, significant damage to property, environmental pollution, impairment of operations and substantial losses. The location
of pipelines, storage facilities and electric distribution near populated areas, including
residential areas, commercial business centers and
industrial sites, could increase the level of damages resulting from these risks. These activities may subject us to litigation and administrative
proceedings that could result in substantial monetary judgments, fines or penalties. To the extent that the occurrence of any of these
events is not fully covered by insurance, they could adversely affect our financial position and results of operations.
Changes in regional economic conditions
could reduce the demand for natural gas and electricity.
The Gas Company’s business follows the economic
cycle of the customers in our service regions: Corning, Bath, Virgil, Elmira, and Hammondsport, New York. A falling, slow or sluggish
economy that would reduce the demand for natural gas in the areas in which we are doing business by forcing temporary plant shutdowns,
closing operations or slow economic growth would reduce our earnings potential. Pike and Leatherstocking Gas are less likely to be affected
by a sluggish economy as they presently have no large industrial customers.
Many of our commercial and industrial gas customers
use natural gas in the production of their products. During economic downturns, these customers may see a decrease in demand for
their products, which in turn may lead to a decrease in the amount of natural gas they require for production. During any economic slowdown,
there is typically an increase in individual and corporate customer bankruptcies. Pike and Leatherstocking Gas have limited industrial
customers and are therefore less vulnerable to economic conditions in their service territories. An increase in customer bankruptcies
would increase our bad debt expenses and reduce our cash flows.
Our earnings may decrease in the event of adverse
regulatory actions.
Most of our operations are subject to the jurisdiction
of the NYPSC or the PAPUC. The NYPSC and PAPUC approve the rates that we may charge to our customers. If we are required in a rate proceeding
to reduce the rates we charge our customers, or if we are unable to obtain approval for rate relief, particularly when necessary to cover
increased costs, including costs that may be incurred in connection with mandated infrastructure improvements, our earnings would decrease.
Our success depends in large part upon the continued
services of a number of significant employees, the loss of which could adversely affect our business, financial condition, and results
of operation.
Our success depends in large part upon the continued
services of our senior executives and other key employees. Although we have entered into an employment agreement with Michael I. German,
our president and chief executive officer, he can terminate his agreement on ninety days’ notice. Other significant officers may
terminate their employment at any time. The loss of the services of any significant employee could have a material adverse effect on our
business.
Concentration of share ownership among our largest
shareholders may prevent other shareholders from influencing significant corporate decisions.
The four largest holders of our common stock own approximately
52% of the outstanding common stock. As a result, if any chose to act together, they would have the ability to exert substantial influence
over all matters requiring approval by our shareholders, including the election and removal of directors, any proposed merger, consolidation
or sale of all or substantially all of our assets and other corporate transactions. This concentration of ownership could be disadvantageous
to other shareholders with differing interests from these shareholders.
Our cash flows from operations may not be sufficient
to fund our capital expenditures.
Our cash flows from operations are largely dependent
on allowed revenues subject to the approval of the NYPSC and PAPUC, and may not be sufficient to meet all of our cash needs. The
Company has a pending rate case before the NYPSC, the outcomes of which is uncertain. We estimate capital expenditures in fiscal 2022
for the Gas Company, Pike, and Leatherstocking Gas to be $7.0 million, $3.3 million and $0.94 million, respectively. If cash flows from
operations are not sufficient to fund these capital expenditures, we will need to rely on new debt or equity financing which may be difficult
to obtain.
We will require additional financing which may
be difficult or costly to obtain.
In order to fund our capital expenditures, we may
need to obtain additional debt and/or equity financing. The incurrence of debt would result in increased debt service obligations and
could result in operating and financing covenants that would restrict our operations. Additional financing for the Gas Company requires
NYPSC approval, and for Pike and Leatherstocking Gas requires PAPUC approval. Additional financing may have unacceptable terms or may
not be available at all for various reasons including:
| * |
Limits placed on us by our current
lenders in our loan agreements, |
| * |
Our future results of operations,
financial condition, and cash flows, |
| * |
Our inability to meet our business
plan, |
| * |
Lenders’ or investors’
perception of, and demand for, securities of natural gas utilities, and |
| * |
Conditions of the capital markets
in which we may seek to raise funds. |
If we cannot raise additional capital on acceptable
terms, we may not be able to finance the expansion and mandated upgrading of our distribution system, take advantage of future opportunities
or respond to competitive pressures, or respond to unanticipated capital requirements.
The Company’s profitability may be
adversely affected by increased competition.
Corning Gas is in a geographical area with a number
of interstate pipelines and local production sources. If a major customer decided to connect directly to either an interstate pipeline
or a local producer, our earnings and revenues would decrease. At Pike, electric customers could construct solar facilities at their homes
or businesses reducing electric demand.
The Companies face risks related to health
epidemics and other outbreaks, including the COVID-19 pandemic.
The COVID-19 pandemic has impacted, and continues
to impact, countries, communities, supply chains and markets. As a result of the COVID-19 pandemic, we may face an extended economic slowdown
in our service territories that could have a material impact on our liquidity, financial condition, and results of operations.
We will continue to monitor developments relating
to the COVID-19 pandemic; however, we cannot predict the extent to which COVID-19 may have a material impact on our business operations,
liquidity, financial condition, and financial results. The extent to which COVID-19 may impact these matters will depend on future developments
that are highly uncertain and cannot be predicted, including new information concerning the severity of COVID-19 and possible variants,
actions that federal, state and local governmental or regulatory agencies may take in response to COVID-19, and other actions taken to
contain it or treat its impact, among others.
ITEM 2 – PROPERTIES
Corning Gas and the Holding Company’s headquarters
are located at 330 West William Street, Corning, New York. This structure is physically connected to the operations center. Pike’s
headquarters and operation center are in Westfall, Pennsylvania. The Leatherstocking Companies’ headquarters and operations center
is in Montrose, Pennsylvania.
The Gas Company’s pipeline system is surveyed
each year as required for compliance with federal and state regulations. Any deficiencies found are corrected as mandated. Approximately
434 miles of distribution main, 15,000 services, and 86 regulating stations, along with various other properties, are owned by the Gas
Company. Pike owns approximately 160 miles of electric distribution wire, poles and services and 20 miles of gas distribution pipeline.
The Leatherstocking Companies own four gate stations and approximately 18 miles of pipe in Susquehanna and Bradford Counties, Pennsylvania.
All of the property owned by the Company is adequately insured and is subject to various liens typical of corporate debt.
ITEM 3 - LEGAL PROCEEDINGS
The Company has litigation pending of the type incurred
in the normal course of business and the Company believes that any potential losses should be covered by insurance and will not have a
material impact on the business.
ITEM 4 – MINE SAFETY
DISCLOSURES
Not applicable.
PART II
ITEM 5 - MARKET FOR THE
REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The principal market on which the Holding Company’s
common stock is traded is the OTCQX Best Marketplace, under the symbol CNIG. Trading in the common stock is limited and sporadic. The
following table sets forth the high and low closing sale prices as reported on the OTCQX for the Holding Company’s common stock
for each quarter within the Holding Company’s last two fiscal years. Because the Holding Company’s stock is traded on the
OTCQX, these quotations reflect inter-dealer prices, without retail markup, markdown or commission and may not represent actual transactions.
The number of shareholders of record of the Holding Company’s common stock was 943 at September 30, 2021.
| MARKET PRICE - (OTCQX) |
| |
|
|
|
|
| Quarter
Ended |
|
High |
|
Low |
| December 31, 2019 |
|
22.50 |
|
18.05 |
| March 31, 2020 |
|
21.50 |
|
13.06 |
| June 30, 2020 |
|
17.69 |
|
14.00 |
| September 30, 2020 |
|
17.69 |
|
15.25 |
| December 31, 2020 |
|
17.00 |
|
14.67 |
| March 31, 2021 |
|
23.95 |
|
15.00 |
| June 30, 2021 |
|
23.88 |
|
23.08 |
| September 30, 2021 |
|
24.65 |
|
23.00 |
COMMON STOCK, PREFERRED STOCK, AND DIVIDENDS
For FY 2021, there were a total of 11,030 shares of
common stock issued for $78,711 of services and $51,749 in connection with the DRIP (dividend reinvestment program). There were 3,150
shares issued to directors, 4,500 shares issued to officers, and 3,380 shares issued to various investors under the DRIP.
For FY 2020, there were a total of 25,487 shares of
common stock issued for $177,675 of services and $201,940 in connection with the DRIP (dividend reinvestment program). There were 12,600
shares issued to directors, 600 shares sold to Leatherstocking Gas, which used the shares to compensate its independent director, Carl
Hayden, and 12,287 shares issued to various investors under the DRIP.
Dividends on shares of common stock are accrued when
declared by the board of directors. Dividend on common shares were declared and paid quarterly during the years ended September 30, 2021
and 2020. For FY 2021 dividends declared totaled $0.61 per common share. For the quarter ended September 30, 2021, $469,230 was accrued
for dividends paid on October 15, 2021 to stockholders of record on September 30, 2021. For FY 2020 dividends declared totaled $0.603
per common share. For the quarter ended September 30, 2020, $468,235 was accrued for dividends paid on October 15, 2020 to stockholders
of record on September 30, 2020.
Series A Cumulative Preferred Stock accrues cumulative
dividends at a rate of 6.0% of the liquidation preference per share ($25.00) and are expected to be paid on or about the 14th day of April,
July, October and January of each year. For the quarter ended September 30, 2021, $97,725 was accrued for dividends paid on October 15,
2021. Dividends on the Series A Preferred Stock are reported as interest expense.
Series B Convertible Preferred Stock accrues cumulative
dividends at a rate of 4.8% of the liquidation preference per share ($20.75) and are expected to be paid on or about the 14th day of April,
July, October and January of each year. For the quarter ended September 30, 2021, $61,066 was accrued for dividends paid on October 15,
2021.
Series C Cumulative Preferred Stock accrues cumulative
dividends at a rate of 6.0% of the liquidation preference per share ($25.00) and are expected to be paid on or about the 14th day of April,
July, October and January of each year and began July 15, 2020. For the quarter ended September 30, 2021, $67,500 was accrued for dividends
paid on October 15, 2021. Dividends on the Series C Preferred Stock are reported as interest expense.
ITEM 7 - MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
New York and Pennsylvania government authorities,
in response to the COVID-19 pandemic, imposed restrictions on social activities, closed schools and placed operating restrictions on commercial
operations in our franchise areas beginning in March of 2020. Many
pandemic related restrictions have been lifted and
businesses have re-opened. The Company is now focused on completing work on inspecting and remediating interior property/customer services
that were restricted during the pandemic, most of which require work done on customer premises. Our customer service specialists are working
with customers to bring them current on their utility bills. We are assisting pandemic affected customers to access government funding
designed to help customers pay current and past due utility bills. The Company has limited service termination options in New York and
in Pennsylvania. The Company is still recovering from the impact of lost revenues, mostly from commercial customers, due to the pandemic.
On May 19, 2021, the NYPSC issued a rate order (Case
20-G-0101) establishing rates and a rate plan for the Gas Company for a one year period ending January 31, 2022, denying the Gas Company’s
request for a rate increase of approximately $6.2 million and instead ordered a base rate decrease of $766,000, offset by the termination
of an existing tax sur-credit customer refund of approximately $1.3 million, resulting in an overall rate increase of approximately $500,000.
The order was lower than the rate increase recommended by the NYPSC staff. The NYPSC cited pandemic austerity issues in support of its
order. The Gas Company is appealing this order under Article 78 of the Civil Practice Law and Rules asking the New York Supreme Court
to set aside the order and to remand the case to the NYPSC for further proceedings. In addition, on July 16, 2021, the Gas Company filed
a three year rate plan with the NYPSC seeking levelized rate increases of approximately $3,761,000 per year. The results in Case 20-G-0101
adversely impacted the Company’s earnings for fiscal 2021.
In June and July of 2021, the PAPUC issued rate orders
approving Pike gas rate increases of $225,000 and electric rate increases of $1.4 million, beginning on July 28, 2021. These rate increases
occurred late in the Company’s fiscal year and did not materially impact our financial results for fiscal 2021.
We believe our key performance indicators are net
income, stockholders’ equity and the safety and reliability of our systems. Net income decreased by $1,676,455 for FY 2021 compared
to FY 2020. Because the Holding Company’s principal operations are conducted through Corning Gas and Pike, both regulated utility
companies, stockholders’ equity is an important performance indicator. The NYPSC and PAPUC allow the Company the opportunity to
earn a just and reasonable return on stockholders’ equity as determined under applicable regulations. Stockholders’ equity
is, therefore, a precursor of future earnings potential. As of September 30, 2021, compared to September 30, 2020, stockholders’
equity decreased slightly from $35,933,515 to $35,472,550. We plan to continue our focus on building stockholders’ equity. Safety
and efficiency indicators include leak repair, main and service replacements and customer service metrics.
For FY 2021, our net income decreased due to transaction
costs associated with the pending Argo merger, higher depreciation expense, increased interest expense, increased operating costs, and
non-recurring income items recognized in FY 2020, partially offset by the forgiveness of our Paycheck Protection Program loans in the
third quarter of FY 2021. We continue to focus on improving the efficiency of our operations and making capital investments to improve
our infrastructure. Corning Gas’s infrastructure improvement program concentrates on the replacement of older distribution mains
and customer service lines. In FY 2021 the Gas Company repaired 110 leaks, replaced 9.0 miles of bare steel main and replaced 176 bare
steel services. In FY 2020 the Gas Company repaired 184 leaks, replaced 8.6 miles of bare steel main and replaced 229 bare steel services.
Pike replaced approximately 82 utility poles in FY 2021, 150 utility poles in FY 2020, and did extensive tree trimming to maintain our
electric infrastructure. On January 18, 2019 Pike filed a Long-Term Infrastructure Improvement Plan (“LTIIP”) to accelerate
replacement of cast iron, wrought iron and bare steel pipe over 11 years. The PAPUC approved the LTIIP plan on June 13, 2019.
Key financial performance indicators:
| |
|
Year Ended September 30, |
|
| |
|
2021 |
|
|
2020 |
|
| Net income |
|
$ |
1,524,903 |
|
|
$ |
3,201,358 |
|
| Stockholders' equity |
|
$ |
35,472,550 |
|
|
$ |
35,933,515 |
|
| Stockholders' equity per outstanding share |
|
$ |
11.50 |
|
|
$ |
11.70 |
|
Gas Revenue and Margin
Gas retail operating revenues increased $1,317,197,
during FY 2021 compared to FY 2020. Gas costs increased $0.25 per one thousand cubic feet (Mcf) year over year. The higher gas costs increased
revenues by $464,385. Firm sales increased by 299,998.6 Mcf which resulted in higher gas cost revenues of $929,681, However, this increase
was offset by a Corning Gas rate decrease net of the pass back to customers for the federal income tax benefit related to the 2017 Tax
Act amounting to a net decrease of $76,869. Purchased gas costs are subject to a NYPSC approved reconciliation that permits recovery of
all prudently incurred costs. Therefore, the higher gas cost revenues does not impact net income.
Other gas revenues increased $159,009 during FY 2021
compared to FY 2020. The components of this increase are detailed in the tables below:
| Retail gas revenue: |
|
September 30, 2021 |
|
|
September 30, 2020 |
|
| Residential |
|
$ |
16,230,268 |
|
|
$ |
15,814,929 |
|
| Commercial |
|
|
2,832,210 |
|
|
|
2,420,930 |
|
| Transportation |
|
|
4,770,464 |
|
|
|
4,407,991 |
|
| Wholesale |
|
|
1,859,538 |
|
|
|
1,731,433 |
|
| Total retail gas revenue |
|
|
25,692,480 |
|
|
|
24,375,283 |
|
| |
|
|
|
|
|
|
|
|
| Other gas revenue: |
|
|
|
|
|
|
|
|
| Local production |
|
|
509,933 |
|
|
|
694,237 |
|
| Customer discounts forfeited |
|
|
35 |
|
|
|
40,288 |
|
| Reconnect fees |
|
|
514 |
|
|
|
1,374 |
|
| Surcharges |
|
|
(829 |
) |
|
|
3,480 |
|
| All other |
|
|
659,291 |
|
|
|
270,556 |
|
| Total other gas revenue |
|
|
1,168,944 |
|
|
|
1,009,935 |
|
| |
|
|
|
|
|
|
|
|
| Total gas operating revenue |
|
$ |
26,861,424 |
|
|
$ |
25,385,218 |
|
The
following tables further summarize all other income in the other gas revenue table above:
| |
|
September 30, 2021 |
|
|
September 30, 2020 |
|
| Other gas & electric revenues: |
|
|
|
|
|
|
|
|
| 2017 Tax Act FIT reconciliation |
|
$ |
868,544 |
|
|
$ |
492,641 |
|
| RDM amortizations net |
|
|
316,212 |
|
|
|
(278,600 |
) |
| Contract customer reconciliation |
|
|
(59,532 |
) |
|
|
(80,928 |
) |
| Regulatory liability reserve |
|
|
(512,839 |
) |
|
|
— |
|
| Local production revenues |
|
|
36,043 |
|
|
|
61,305 |
|
| Capacity release revenues |
|
|
35,246 |
|
|
|
41,187 |
|
| Customer performance incentive |
|
|
— |
|
|
|
32,000 |
|
| Delivery rate adjustment carrying costs |
|
|
5,367 |
|
|
|
6,038 |
|
| All Other |
|
|
(29,750 |
) |
|
|
(3,087 |
) |
| |
|
$ |
659,291 |
|
|
$ |
270,556 |
|
Gas purchases are our largest expenses. Purchased
gas expense increased $1,158,756 for FY 2021 compared to FY 2020. The increase in costs is due primarily to higher gas costs of $338,655
and increased fuel deferral of $792,104, offset by a decrease in prior period customer pass back of $22,003.
We anticipate that the cost of natural gas is likely
to increase in the near term due to the post pandemic demand for energy and current economic conditions. Increases in the cost of gas
should be tempered by our access to low cost local production gas.
Gas Margin (the excess of utility gas revenues over
the cost of natural gas purchased) for FY 2021 was up $317,450 or approximately 1.60%. Gas margin percentage decreased 3.12% for FY 2021
compared to FY 2020. Gas revenues increased 5.82% and purchased gas expense increased 21.06%. The gas margin percentages were negatively
impacted by the higher gas costs of $1,158,756.
| Gas Margin: |
|
September 30, 2021 |
|
|
September 30, 2020 |
|
| Utility Gas Revenues |
|
$ |
26,861,424 |
|
|
$ |
25,385,218 |
|
| Natural Gas Purchased |
|
|
6,659,993 |
|
|
|
5,501,237 |
|
| Gas Margin |
|
$ |
20,201,431 |
|
|
$ |
19,883,981 |
|
| Gas Margin Percentage |
|
|
75.21 |
% |
|
|
78.33 |
% |
Electric Revenue and Margin
Utility electric retail operating revenues increased
$1,307,351 during FY 2021 compared to FY 2020. This increase was mainly attributable to increased purchased power costs of $954,392 and
increased customer usage of $352,959. The purchased electricity costs increased by $0.015 per Kilowatt hour when compared to FY 2020.
Purchased electricity costs are subject to a PAPUC approved reconciliation that permits recovery of all prudently incurred costs. Accordingly,
higher purchased electricity costs does not impact net income.
Other electric revenues increased $66,103 during FY
2021 compared to FY 2020. The components of this increase are detailed in the tables below:
| Retail electric revenue: |
|
September 30, 2021 |
|
|
September 30, 2020 |
|
| Residential |
|
|
4,136,041 |
|
|
|
3,449,851 |
|
| Commercial |
|
|
3,900,393 |
|
|
|
3,288,582 |
|
| Street lights |
|
|
132,405 |
|
|
|
123,055 |
|
| Total retail electric revenue |
|
|
8,168,839 |
|
|
|
6,861,488 |
|
| |
|
|
|
|
|
|
|
|
| Other electric revenue: |
|
|
|
|
|
|
|
|
| Customer discounts forfeited |
|
|
35,942 |
|
|
|
2,658 |
|
| Third party billings |
|
|
— |
|
|
|
176,645 |
|
| All other |
|
|
169,340 |
|
|
|
(40,124 |
) |
| Total other electric revenues |
|
|
205,282 |
|
|
|
139,179 |
|
| |
|
|
|
|
|
|
|
|
| Total electric operating revenues |
|
$ |
8,374,121 |
|
|
$ |
7,000,667 |
|
Electricity costs increased by $1,047,718 for FY 2021
compared to FY 2020. The increase in costs for FY 2021 is due primarily to an increase in the price of purchased electricity of $998,256
and increased fuel deferral of $49,493.
The cost of electricity is likely to increase in the
near term as electricity prices generally follow the prices of natural gas.
Electric Margin (the excess of electric revenues over
the cost) was up $325,736 for FY 2021 compared to FY 2020. Electric margin percentage decreased 8.74% for FY 2021 compared to FY 2020.
The electric margin was negatively impacted by the higher purchased power costs of $1,047,718.
| |
|
September 30, 2021 |
|
|
September 30, 2020 |
|
| Utility Electric Revenues |
|
$ |
8,374,121 |
|
|
$ |
7,000,667 |
|
| Electricity Purchased |
|
|
2,657,032 |
|
|
|
1,609,314 |
|
| Margin |
|
$ |
5,717,089 |
|
|
$ |
5,391,353 |
|
| |
|
|
68.27 |
% |
|
|
77.01 |
% |
Operating and Interest Expenses
Operating and maintenance expense
for FY 2021 increased by $2,861,412 compared to FY 2020. The increase in expenses was due primarily to merger related costs of $667,585
additional expenses associated with 100% ownership of Leatherstocking Gas Company of $420,284, leak repair reserve write down of $174,773,
liability reserve of $490,052, insurance costs of $244,663, wages of $200,000, outside services of $370,598 and all other costs, including
pandemic related costs, in the amount of $293,457.
Taxes other than income taxes increased
$51,698 for FY 2021 compared to FY 2020. The increase results from a property tax increase of $25,222 and gross receipts tax increase
of $37,680 net of decrease in payroll taxes of $11,204.
Depreciation expense for FY 2021 compared
to FY 2020 increased by $717,384 primarily due to reduced depreciable lives of certain Pike assets from 11 years to 5 years, increased
depreciable utility plant placed in service, as well as a full year’s depreciation expense for the Leatherstocking Companies.
Interest expense for FY 2021 compared
to FY 2020 increased by $866,315 mainly due to additional interest costs associated with higher levels of outstanding debt attributed
to capital expenditures, the Leatherstocking acquisition, write down of fixed interest regulatory asset
in the amount of $231,000 and additional dividends
associated with outstanding Preferred Series A and C shares which are recorded as interest expense.
Effective Tax Rate
Our effective income tax rate was
23.3% for FY 2021 and 23.1% for FY 2020. The increase in the effective tax rate was impacted by higher non deductible dividends on preferred
stock that are reflected as interest expense on our income statement, offset by the tax free forgiveness of our PPP loans. See Note 11
“Income Taxes” in the notes to the consolidated financial statements.
Paycheck Protection Program Loans
On various dates in the second and
third quarters of FY 2021, the Company’s Paycheck Protection Program Loans (“PPP loans”) were forgiven by the United
States Small Business Administration in the following amounts:
| Gas Company |
|
$ |
970,900 |
|
| Pike |
|
$ |
137,200 |
|
| Leatherstocking Gas |
|
$ |
64,691 |
|
The Company recorded these debt forgiveness amounts
as other income in the quarters in which the loans were forgiven. In response to a NYPSC order to show cause as to why the Gas Company
loan forgiveness amount should not be refunded to its customers, in addition to responding to the show cause order, the Gas Company recorded
a reserve in the third quarter of FY 2021 for approximately $490,000. While this issue remains unresolved, NYPSC staff in its direct testimony
in Case 20-G-0394 recommended that the Company’s reserve be refunded to customers over a five year amortization period beginning
in 2022.
Liquidity and Capital Resources
Internally generated cash from operating activities
consists of net income, adjusted for non-cash expenses and changes in operating assets and liabilities. Non-cash items include depreciation
and amortization, gain or loss on sale of securities and deferred income taxes. Over or under recovered gas costs could significantly
impact cash flow. In addition, there are significant year-to-year changes in regulatory assets that impact cash flow. Cash flows used
in investing activities typically consist primarily of capital expenditures and investments in our joint ventures. For FY 2020 the acquisition
of our partner’s 50% interests in the Leatherstocking Companies added approximately $1.9 million to cash used in investing activities.
We estimate capital expenditures to upgrade our distribution system of approximately $11.3 million in fiscal 2022. We expect to finance
these planned capital expenditures with a combination of cash provided by operations and issuance of additional long-term debt and equity.
The earnings sharing mechanism approved by the NYPSC
in the June 2017 Order provided for sharing between Corning Gas stockholders and customers of the earned return on equity (ROE) above
certain levels. Under the earnings sharing mechanism, Corning Gas is allowed to retain all earnings up to and including a 9.5% ROE level,
50% of earnings above 9.5% up to and including 10%, 25% of earnings above 10% up to and including 10.5%, and 10.0% of earnings above 10.5%.
We believe that these limits do not have a significant effect on our liquidity because even at those limits we have sufficient cash collected
from our earnings to support operations.
Cash flows from financing activities consist of dividends
paid, repayment of long-term debt, net proceeds from new debt, net proceeds from sales of preferred shares and changes in the outstanding
balances of our lines-of-credit.
On September 30, 2021, we had approximately $52.6
million in long-term debt outstanding. We made principal payments on outstanding debt during FY 2021 consistent with the requirements
of our debt instruments and refinancing activities.
On January 15, 2021, Corning Gas obtained a short
term loan from M&T Bank in the amount of $850,000 to be used to finance merger transaction costs, and for general operating expenses
and working capital. The loan had an interest rate of 2.6% plus the one month LIBOR interest rate, with a combined floor of 3.1%. This
loan was repaid in full as part of the Gas Company’s June 25, 2021 multiple disbursement term loan.
On June 25, 2021, Corning Gas secured a $4.665 million
multiple disbursement term loan (“Term Loan”) from M&T Bank. Corning Gas used $850,000 of the Term Loan to repay the January
15, 2021 M&T Bank short term loan, and used the remainder of the loan proceeds for capital expenditures and pipeline repairs. The
Term Loan allowed for multiple draws until October 31, 2021, at which time the loan converted into a ten-year term loan. The Term loan
bore interest at a variable rate equal to 2.9% plus the one-month LIBOR rate, with a floor of 3.4%, converting into a 10 year term loan
at a variable interest rate.
On June 25, 2021, Corning Gas obtained a $1.9 million
bridge loan (“Bridge loan”) from M&T Bank, the proceeds of which were used for general operating purposes, and to fund
merger related costs. The Bridge loan is a demand note that bears interest at a variable rate equal to 3.0% plus the one-month LIBOR rate,
with a 3.5% floor.
On September 30, 2021, Corning Gas secured a $3 million
demand loan from M&T Bank, the proceeds of which were used for working capital purposes. The demand loan bears interest at a variable
rate equal to 2.90% plus the greater of the applicable daily simple Secured Overnight Financing rate (SOFR) or 0.50%.
On October 13, 2020, Pike secured a $1.315 million
multiple disbursement loan from M&T Bank, the proceeds of which were used to fund capital construction projects. The loan allowed
for multiple draws until it converted into a 10 year long term loan at a fixed interest rate of 3.4%. The Holding Company guarantees the
Pike loan.
On August 19, 2021, Pike obtained a $2.21 million
multiple disbursement loan (“Pike Loan”) from M&T Bank. The Pike Loan was used for capital expenditures and for pipeline
repairs. The Pike Loan allowed for multiple draws until October 31, 2021, at which time the loan converted into a ten year term loan at
a variable interest rate. The Pike Loan bore interest at 2.9% plus the one month LIBOR rate with a floor of 3.4%. At October 31, 2021,
the Pike note converted into a ten year term loan at a variable interest rate. The Holding Company guarantees the Pike Loan.
On February 12, 2021, Leatherstocking Gas obtained
an $800,000 multiple disbursement loan (“Leatherstocking Loan”) from Wayne Bank. The Leatherstocking Loan was used for capital
expenditures and for gas pipeline repairs. The Leatherstocking Loan converted into a ten year term loan on October 31, 2021, at a fixed
interest rate of 4.75%. The Holding Company guarantees the Leatherstocking Loan.
Corning Gas, Pike and Leatherstocking Gas have revolving
lines of credit of $8.5 million, $2.0 million and $1.5 million, respectively. The Company primarily utilizes these lines of credit to
purchase gas and electricity. The Company believes these lines of credit are sufficient to fund our short term purchasing needs.
The Gas Company is responsible for managing its gas
supply assets. At September 30, 2021, the Gas Company had 586,455 Dth at a cost of $1,366,341 in storage. We anticipate that the Gas Company
will have sufficient gas to supply our customers for the 2021-2022 winter heating season. The contract with O&R should provide for
sufficient electricity and natural gas to supply Pike for the 2021-2022 winter heating and summer cooling demand. M&T has issued to
O&R a letter of credit in the amount of $1 million as security for the obligations of Pike under Pike’s electric and the gas
supply and gas transportation agreement. The agreements provide for three years of electric and gas supply for the customers of Pike,
with up to three one-year extensions. Leatherstocking Gas purchases its gas from Cabot Oil on an as needed basis and therefore has no
gas in storage. We anticipate that Leatherstocking will have sufficient gas to supply its customers for the 2021-2022 winter heating season.
As of September 30, 2021, we believe that cash flow
from operating activities and borrowings under our lines of credit will be sufficient to satisfy debt service requirements over the next
twelve months. We believe new debt and proceeds from equity will be required to satisfy our capital expenditures to finance our internal
growth needs for the next twelve months.
Off Balance Sheet Arrangements
We have no off balance sheet arrangements.
Contractual Obligations
The following tables summarize the Company’s
expected future contractual cash obligations as of September 30, 2021, and the twelve-month periods over which they occur.
| The aggregate maturities of long-term debt for each of the five years subsequent to September
30, 2021 are as follows: |
| 2022 |
|
$ |
6,407,545 |
|
| 2023 |
|
$ |
6,624,807 |
|
| 2024 |
|
$ |
6,836,192 |
|
| 2025 |
|
$ |
7,081,604 |
|
| 2026 |
|
$ |
7,379,639 |
|
| |
|
|
|
|
| The estimated interest payments on the above debts are as follows: |
|
| 2022 |
|
$ |
1,839,209 |
|
| 2023 |
|
$ |
1,562,298 |
|
| 2024 |
|
$ |
1,276,022 |
|
| 2025 |
|
$ |
979,873 |
|
| 2026 |
|
$ |
671,760 |
|
| |
|
|
|
|
| The estimated pension plan benefit payments are as follows: |
|
|
|
|
| 2022 |
|
$ |
1,485,220 |
|
| 2023 |
|
$ |
1,493,007 |
|
| 2024 |
|
$ |
1,529,429 |
|
| 2025 |
|
$ |
1,599,886 |
|
| 2026 |
|
$ |
1,596,310 |
|
The projected benefit obligation of the benefit
plan has been calculated based on the census and plan provisions, as well as a number of economic and demographic assumptions. The discount
rate for the period ending September 30, 2021 is 3.64% and is assumed to be the rate going forward. A decrease in the discount rate of
1% could increase the projected benefit obligation by $4.3 million and an increase in the discount rate of 1% could decrease the obligation
by $3.4 million. Either change would impact the estimated pension plan payment for future periods.
Regulatory Matters
Holding Company
The Holding Company’s primary business, through
its subsidiaries Corning Gas, Pike, and Leatherstocking Gas, is regulated by the NYPSC and PAPUC, among other agencies.
On April 30, 2021, the Company and Argo filed with
the NYPSC a Verified Joint Petition seeking approval, pursuant to Section 70 of the New York Public Service Law for its merger. This case
is pending approval by the Commission and there is no statutory timeline for the NYPSC to decide this matter.
Also on April 30, 2021, the Company and Argo filed
with the PAPUC a Joint Application requesting certificates of public convenience from the PAPUC and seeking all other PAPUC approvals
necessary for the merger. This case is pending approval by the Commission and there is no statutory deadline for the PAPUC to decide this
matter.
Gas Company
On August 9, 2018, The NYSPSC issued an order
in Case 17-M-0815 that required Corning Gas to return to customers the difference between the federal income tax allowance in base rates
and the new statutory rate of 21% under the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The refund to customers began on
October 1, 2018. The customers experienced a decrease of 3.87% on their overall bill in the year starting October 1, 2018 and experienced
a decrease of 3.72% on their overall bill in the year starting October 1, 2019. The amount estimated to be returned to customers was $980,964
during FY 2019 and was $1,004,563 during FY 2020. These refunds will not impact the Gas Company’s allowed earnings. The impact of
the change in the Tax Act on deferred regulatory balances was deferred until the Gas Company’s base rate case (Case 20-G-0101).
The Gas Company has recorded those amounts as Regulatory Liabilities on the consolidated balance sheets. The lower tax rate of 21% was
included in base rates in Case 20-G-0101 therefore the pass back to customers ceased on February 1, 2021. The impact of the change in
the Tax Act on deferred regulatory balances was reflected in customer rates in Case 20-G-0101 effective February 1, 2021.
On May 19, 2021, the NYPSC issued a rate order
in Case 20-G-0101, establishing rates and a rate plan for the Gas Company for a one-year period ending on January 31,2022 (“Rate
Year”). The rate order disallowed the Company’s request for an increase in required revenue of $6,223,603, and instead ordered
a reduction of $766,000 from current rates. In the current rate order, the existing $1.3 million tax sur-credit (an adjustment to rates
to refund to customers an amount owing them due to income tax rate reductions in the 2017 Tax Cuts and Jobs Act) expired, along with a
$30,000 reduction to the annual Delivery Rate Adjustment. In addition, the NYPSC denied recovery of the Gas Company’s approximately
$350,000 leak repair and survey cost reserve established in FY 2016. The denial of recovery of this reserve resulted in a FY 2021 charge
of approximately $180,000 (pre tax), as the Company had previously established a reserve for this matter in the amount of $170,000 (pre-tax).
The net impact on the Gas Company’s customers was an increase of $505,000 for the Rate Year, retroactive to February 1, 2021.
The Gas Company, on July 15, 2021, filed a petition
with the State of New York Supreme Court in Albany County pursuant to Article 78 of the Civil Practice Law and Rules to review and set
aside the NYPSC May 19, 2021 Order that was issued in PSC cases 20-G-0101 and 16_G-0204 involving the Gas Company’s rates for gas
service. The Gas Company’s petition claims that the NYPSC’s decision was arbitrary and capricious and an abuse of discretion,
affected by errors of law, and in violation of established regulatory procedure. The Gas Company’s petition requests a judgment:
(1) annulling and setting aside the Order as arbitrary and capricious and an abuse of discretion, affected by errors of law, in violation
of lawful regulatory procedure, and unsupported by substantial evidence in the record, insofar as the Order implements four areas of “austerity”
adjustments and denies recovery of leak survey and repair costs; (2) remanding this matter to the NYPSC for further proceedings consistent
with the Court’s judgment; and (3) granting such other and further relief as may be just and proper. The resolution of this matter
is pending judicial review.
On July 16, 2021, the Gas Company filed a three-year
rate plan (Case 20-G-0394) with the NYPSC for rate years ending on June 30, 2023, 2024, and 2025. The rate increases requested for the
three year rate plan (as amended) are $6,555,000, $1,030,000, and $843,000, respectively. In its filing, the gas Company proposes a rate
plan with levelized increases over three years in the amount of $3,761,000 per year. These rates, if implemented, would impact customer
bills by 11.14% in each year.
In March of 2021, the NYPSC issued a “Show
Cause” order instructing Corning Gas to show cause why its PPP loan in the amount of $970,000 should not be refunded to its customers
if and when the loan is forgiven. On May 13, 2021, the Gas Company responded to the “Show Cause” order supporting its position
that it will use the PPP loan proceeds to fund COVID operating costs, lost commercial revenues, and customer bad debt increases. On May
21, 2021, the Corning Gas PPP loan was forgiven. This matter is pending with the NYPSC. The NYPSC Staff has filed testimony on November
12, 2021 in Case 20-G-0394 on how to resolve the issues raised in the NYPSC “Show Cause” order. The Company expects that the
issue will be adjudicated in the pending rate case.
By petition dated September 3, 2020 in Case 20-G-0442,
Corning Gas requested authority under Public Service Law Section 69 to issue approximately $29.5 million of long term debt through December
31, 2024. The proceeds are to be used principally to fund NYPSC mandated system safety and reliability measures, including replacement
of older pipe and regulator stations; and purchase equipment, computer software and other supplies as necessary to maintain the distribution
system. The NYPSC issued a financing order in April of 2021 permitting the Gas Company to issue long term debt in the amount of $19.1
million, along with certain reporting requirements.
Pike
The PAPUC issued an order in Case M-2018-2641242
that requires Pike to return to customers the difference between the federal income tax allowance in base rates and the new statutory
rate of 21%. Pike’s electric customers received a refund of $73,923 or decrease of 0.67% on their overall bill effective October
1, 2018. No refunds were ordered for Pike’s gas operation because amounts were not material. The impact of the change in the Tax
Act on deferred regulatory balances will be deferred until Pike’s next base rate case. Pike has recorded those amounts as Regulatory
Liabilities on the consolidated balance sheets. The lower tax rate of 21%, as well as deferred regulatory balances, was included in customer
rates in Case R-2020-302235.
On October 24, 2020, Pike filed separate rate
cases with the PAPUC for an increase in revenues for its electric services in the amount of $1,933,600 (Case R-2020-302235) and for an
increase in revenues for its gas services in the amount of $262,200 (Case R-2020-3022134). Pike’s current rates have been in effect
since 2014. The rate increase would impact residential customer bills by 17.3% for electric customers, and by 19.7% for gas customers.
The base period (test year) for this filing is the 12 month period ended June 30, 2020. The filings with the PAPUC reflect returns on
equity of 9.75% and pro forma equity ratios of 48.3% for each case. The primary reasons for the requested rate increases are PAPUC mandated
initiatives including the replacement of gas distribution equipment, replacement of electric poles and wires, the recovery of deferred
storm related costs, new safety, training, and cyber security requirement, and increased employee health and welfare benefits costs.
On June 25, 2021, the PAPUC issued a rate order
approving a gas rate increase of $225,000 and on July 15, 2021, the PAPUC issued a rate order approving an electric rate increase in the
amount of $1.4 million. Both rate increases took effect on July 28, 2021.
On July 15, 2021, the PAPUC issued a securities
certificate authorizing Pike to borrow up to $8,973,695 in long term debt, commencing on the date of issuance of the securities certificate
through December 31, 2025. The securities certificate requires Pike to file notice of long term borrowings with the PAPUC within 60 days
of borrowings.
Leatherstocking
Gas
On September 15, 2021, the PAPUC issued a securities
certificate to Leatherstocking Gas permitting Leatherstocking Gas to issue debt securities in an aggregate principal amount not to exceed
$5,348,850. The certificate was issued in order to allow Leatherstocking to
restructure two existing long-term loans owed to Wayne
Bank. On October 5, 2021, Leatherstocking Gas and Wayne Bank restructured two promissory notes due in March and August of 2029, locking
in each loan’s interest rate at its current interest rate of 4.75% for the remaining loan terms, and cancelling provisions calling
for a redetermination of the interest rate on the 5th anniversary of the loans. The Holding Company provided a guarantee of
both restructured loans. Leatherstocking Gas provided notice of this debt restructuring on October 12, 2021.
Environmental Matters
The Company is subject to various federal, state and
local laws and regulations relating to the protection of the environment. The effect (material or not) on the Company of any new legislative
or regulatory measures will depend on the particular provisions that are ultimately adopted. Environmental regulation legislative and
regulatory measures to address climate change and greenhouse gas emissions are in various phases of discussion or implementation. Legislation
or regulation that aims to reduce greenhouse gas emissions could also include greenhouse gas emissions limits and reporting requirements,
carbon taxes, restrictive permitting, increased efficiency standards, and incentives or mandates to conserve energy or use renewable energy
sources. Federal, state or local governments may provide tax advantages and other subsidies to support alternative energy sources, mandate
the use of specific fuels or technologies, or promote research into new technologies to reduce the cost and increase the scalability of
alternative energy sources. New York State, for example, passed the CLCPA that mandates reduced greenhouse gas emissions to 60% of 1990
levels by 2030, and 15% of 1990 levels by 2050, with the remaining emission reduction achieved by controlled offsets. The CLCPA also requires
electric generators to meet 70% of demand with renewable energy by 2030. These climate change and greenhouse gas initiatives could impact
the Company's customer base and assets depending on regulatory treatment afforded in the process. The initiatives could also increase
the Company’s cost of environmental compliance by increasing reporting requirements and requiring the Company to replace all leak
prone pipe. They could also delay or otherwise negatively affect efforts to obtain permits and other regulatory approvals with regard
to existing and new facilities and impose additional monitoring and reporting requirements. Changing market conditions and new regulatory
requirements, as well as unanticipated or inconsistent application of existing laws and regulations by administrative agencies, make it
difficult to predict a long-term business impact across twenty or more years.
Critical Accounting Policies
Our significant accounting policies are described
in the notes to the accompanying Consolidated Financial Statements of this Form 10-K. The application of generally accepted accounting
principles involves certain assumptions, judgments and estimates that affect reported amounts of assets, liabilities, revenues and expenses.
Thus, the application of these principles can result in varying results from company to company. The principles and policies that most
significantly impact us are discussed below.
Accounting for Utility Revenue and Cost of Gas
Recognition
Corning Gas records revenues from residential
and commercial customers based on meters read on a cycle basis throughout each month, while certain large industrial and utility customers’
meters are read at the end of each month. Corning Gas does not accrue revenue for gas delivered but not yet billed, as the NYPSC requires
that such accounting be adopted during a rate proceeding, which we have not done. Currently Corning Gas does not anticipate adopting unbilled
revenue recognition nor does it believe it would have a material impact on financial results. Our tariffs contain mechanisms that provide
for the recovery of the cost of gas applicable to firm customers, which includes estimates. Under these mechanisms, we periodically adjust
rates to reflect increases and decreases in the cost of gas and electricity. Annually, we reconcile the difference between the total gas
costs collected from customers and the cost of gas. We defer any excess or deficiency and subsequently either recover it from, or refund
it to, customers over the following twelve-month period or possibly longer based on the amounts if the cost for gas significantly exceeds
the total gas costs collected from customers. Quarterly, we reconcile the difference between electric costs collected from customers and
the cost of electricity. The default service charges for electricity are adjusted every quarter. To the extent estimates are inaccurate,
a regulatory asset on the balance sheet is increased or decreased. Pike and Leatherstocking Gas read all meters at the end of the month
and therefore have no unbilled revenue. As gas and electricity are immediately available for use upon delivery to the customer, the gas
or electricity and its delivery are identifiable as a single performance obligation. The Company recognizes revenues as this performance
obligation is satisfied over time as the Company delivers, and its customers simultaneously receive and consume, the gas or electricity.
Accounting for Regulated Operations - Regulatory
Assets and Liabilities
Corning Gas is subject to regulation by NYPSC,
and Pike and Leatherstocking are subject to regulation by the PAPUC. We record the results of our regulated activities in accordance with
Financial Accounting Standards Board (FASB) ASC No. 980, which results in differences in the application of generally accepted accounting
principles between regulated and non-regulated businesses. ASC No. 980 requires the recording of regulatory assets and liabilities for
certain transactions that would have been treated as revenue and expense in
non-regulated businesses. In certain circumstances,
FASB ASC No. 980 allows entities whose rates are determined by third-party regulators to defer costs as regulatory assets in the balance
sheet to the extent that the entity expects to recover these costs in future rates. Management believes that currently available facts
support the continued application of ASC No. 980 and that all regulatory assets and liabilities are recoverable or refundable through
the regulatory environment.
Accounting for Income Taxes
The Holding Company uses the asset and liability method
to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis
of the Holding Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or
settled. Such deferred tax assets and liabilities will be adjusted for the effects of enacted changes in tax laws and rates.
Accounting for Joint Ventures
Investments in joint ventures have been recognized
in the consolidated financial statements using the equity method of accounting based on the guidelines established in FASB ASC 323. In
applying this guidance, the Holding Company recognizes investments in joint ventures as assets at cost. Investments fluctuate in future
periods based on the Holding Company’s allocable share of earnings or losses from the joint ventures which is recognized through
earnings.
Pension and Post-Retirement Benefits
The amounts reported in our consolidated financial
statements related to pension and other post-retirement benefits are determined on an actuarial basis, which requires the use of many
assumptions in the calculation of such amounts. These assumptions include the discount rate, the expected return on plan assets, the rate
of compensation increase and, for other post-retirement benefits, the expected annual rate of increase in per capita cost of covered medical
and prescription benefits. Changes in actuarial assumptions and actuarial experience could have a material impact on the amount of our
pension and post-retirement benefit costs and funding requirements. In FY 2020, the mortality assumption was revised to the sex-distinct
Amount-Weighted Pri-2012 Mortality Tables for employees, healthy annuitants, and contingent survivors with mortality improvements projected
using Scale MP-2019 on a generational basis. The decrease in discount rate from 3.96% to 3.64% as of September 2020 increased the benefit
obligation. The net effect of changes to the assumptions and discount rate is an increase of approximately $1.6 million to the pension
benefit obligation. However, we expect to recover substantially all our net periodic pension and other post-retirement benefit costs attributed
to employees in accordance with NYPSC authorization. For financial reporting purposes, the difference between the amounts of such costs
as determined under applicable accounting principles is recorded as either a regulatory asset or liability.
For FY 2021, the Pension Plan mortality assumption
was revised to the sex-distinct Amount-Weighted Pri-2012 Mortality Tables for employees, health annuitants, and contingent survivors with
mortality improvements projected using Scale MP-2020 on a generational basis. The discount rate remained at 3.64% as of September 30,
2021. The net effect of changes to the assumptions, demographics and plan experience is an increase of approximately $18,000 to the pension
benefit obligation. However, we expect to recover substantially all of our net periodic pension and other post-retirement benefit costs
attributed to employees in accordance with NYPSC authorization. For financial reporting purposes, the difference between the amounts of
such costs as determined under applicable accounting principles is recorded as a regulatory asset or a regulatory liability.
In FY 2021, the Retiree Group Health Benefits Plan
mortality assumption was revised to the sex-distinct Headcount Weighted Pri-2012 Mortality Tables for employees, healthy annuitants, and
contingent survivors with mortality improvements projected using Scale MP-2020 on a generational basis. The discount rate increased from
2.21% to 2.53% as of September 2021 which resulted in a decrease in the benefit obligation. The net effect of changes to the assumptions,
demographics and plan experience is an increase of approximately $14,000 to the retiree group health benefit obligation.
Preferred Stock and Temporary Equity
The Holding Company classifies conditionally redeemable
convertible preferred shares, which includes preferred shares subject to redemption upon the occurrence of uncertain events not solely
within control of the Holding Company, as temporary equity in the mezzanine section of the consolidated balance sheets, in accordance
with the guidance enumerated in ASC No. 480 "Distinguishing Liabilities from Equity". The Company also analyzes the embedded conversion
feature for bifurcation, based on whether the host instrument has more equity-like or debt-like characteristics. Dividends are recorded
as a reduction to retained earnings and issuance costs reduce the initial proceeds and are then accreted over the life of the instrument
to the redemption amount.
The Holding Company records mandatorily redeemable
stock as a liability in accordance with FASB ASC No. 480. Dividends are recorded as interest expense and issuance costs are treated the
same way as debt issuance costs.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
This report contains statements which, to the extent
they are not recitations of historical facts, constitute "forward-looking statements" within the meaning of the Securities Litigation
Reform Act of 1995 (“Reform Act”). The words "estimate", "project", "anticipate", "expect",
"intend", "believe", "could" and similar expressions are intended to identify forward-looking statements. All
such forward-looking statements are intended to be subject to the safe harbor protection provided by the Reform Act. Although we believe
that the expectations reflected in these forward-looking statements are based on reasonable assumptions, we can give no assurance that
our expectations will be achieved. As forward-looking statements, these statements involve risks, uncertainties and other factors that
could cause actual results to differ materially from the expected results. Accordingly, actual results may differ materially from those
expressed in any forward-looking statements. Factors that could cause results to differ materially from our management's expectations
include, but are not limited to, those listed under Item 1A - "Risk Factors" of this Annual Report on Form 10-K for the fiscal
year ended September 30, 2021, in addition to:
| * |
The impact of the COVID-19 pandemic, |
| * |
Completion of the pending merger with Argo, |
| * |
The effect of an interruption in our supply of natural
gas or electricity or a substantial increase in the price of natural gas or electricity, |
| * |
Our ability to successfully negotiate new supply agreements
for natural gas as they expire, on terms favorable to us, or at all, |
| * |
The effect on our operations of any action by the NYPSC
or PAPUC, |
| * |
The effect of litigation, |
| * |
The effect on our operations of unexpected changes in
other applicable legal or regulatory requirements, |
| * |
The amount of natural gas produced and directed through
our pipeline by producers, |
| * |
The effect of weather on our utility infrastructure, |
| * |
Our ability to obtain additional equity or debt financing
to fund our capital expenditure plans and for general corporate purposes, |
| * |
The impact of New York State’s Climate Leadership
and Community Protection Act legislation on the Company’s ability to recover in cost of service through depreciation expense its
investment in utility plant, |
| * |
Our successful completion of various capital projects and
the use of pipeline, compressor stations and storage by customers and
counterparties at levels consistent with our expectations, |
| * |
Our ability to retain the services of our senior executives
and other key employees, |
| * |
Our vulnerability to adverse general economic and industry
conditions generally and particularly the effect of those conditions on
our major customers, |
| * |
The effect of events in our transportation and delivery
facilities, |
| * |
Competition to our gas supply and transportation business
from other pipelines, and |
| * |
The possibility of cyber and malware attacks. |
Forward-looking statements speak only as of the date
they are made, and we undertake no obligation to update any forward-looking statement in light of new information or future events.
ITEM 8 - FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
The following financial statements are filed with
this Form 10-K:
Report of Freed Maxick CPAs,
P.C., Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Consolidated Balance Sheets
as of September 30, 2021 and 2020
Consolidated Statements of
Income for the years ended September 30, 2021 and 2020
Consolidated Statements of
Comprehensive Income for the years ended September 30, 2021 and 2020
Consolidated Statements of
Changes in Stockholders’ Equity for the years ended September 30, 2021 and 2020
Consolidated Statements of
Cash Flows for the years ended September 30, 2021 and 2020
Notes to Consolidated Financial
Statements
ITEM 9. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS
AND PROCEDURES
Evaluation of Disclosure Controls
and Procedures
As of September 30, 2021, the Company’s
management, with the participation of the Company’s chief executive officer and chief financial officer, evaluated the effectiveness
of the design and operation of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange
Act of 1934, as amended. Based upon the Company’s evaluation, the Company’s chief executive officer and chief financial officer
concluded that the Company’s disclosure controls and procedures are effective as of September 30, 2021.
Management’s Report on Internal
Controls over Financial Reporting
The management of the Company is responsible
for establishing and maintaining adequate internal controls over financial reporting as such term is defined in Exchange Act Rule 13a-15(f)
and 15d-15(f). The Company’s internal controls over financial reporting are designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the consolidated financial statements. Our internal controls over financial
reporting is supported by appropriate reviews by management, written policies and guidelines, careful selection and training of qualified
personnel, and a written Code of Conduct adopted by our Company’s Board of Directors, applicable to all Company Directors and all
officers and employees of our Company.
The Audit Committee of our Company’s
Board of Directors meets with the independent public accountants and management periodically to discuss internal controls over financial
reporting and auditing and financial reporting matters. The Audit Committee reviews with the independent public accountants the scope
and results of the audit effort.
The Company’s management, including
the Company’s chief executive officer and chief financial officer, assessed the effectiveness of the Company’s internal controls
over financial reporting as of September 30, 2021. In making this assessment, management used the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework from 2013. Based
upon that evaluation, our chief executive officer and chief financial officer concluded that our internal controls over financial reporting
was effective as of September 30, 2021.
Changes in Internal Control over
Financial Reporting
There were no changes in our internal
control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or
15d-15 that was conducted during the last fiscal quarter for the Company that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
ITEM 9B. OTHER
INFORMATION
None
PART III
Item 10. Directors, Executive Officers
and Corporate Governance.
Board of Directors
The name, age, position, business experience,
and principal occupation and employment of each of our directors is provided below, including service as directors of our wholly owned
subsidiary, Corning Gas.
|
Name |
|
Age |
|
Position |
|
Director
of the
Company Since |
|
Director
of
Corning Gas Since |
| Henry B. Cook, Jr. |
|
74 |
|
Chairman of the Board |
|
2013 |
|
2007 |
| Michael I. German |
|
71 |
|
Chief Executive Officer, President and Director |
|
2013 |
|
2006 |
| Ted W. Gibson |
|
79 |
|
Director |
|
2013 |
|
2006 |
| Robert B. Johnston |
|
56 |
|
Director |
|
2014 |
|
2014 |
| Joseph P. Mirabito |
|
63 |
|
Director |
|
2013 |
|
2010 |
| William Mirabito |
|
61 |
|
Director |
|
2013 |
|
2010 |
| George J. Welch |
|
76 |
|
Director |
|
2013 |
|
2007 |
| John B. Williamson III |
|
67 |
|
Director |
|
2013 |
|
2010 |
Henry B. Cook, Jr. is our chairman
of the board of directors and has served as a director since May 2007. He has served as the president of Triple Cities Acquisition, LLC,
a heavy truck parts and vehicle dealer, and Roadwolf Transportation Products, LLC, an importer of heavy-duty truck parts, since 2001.
Mr. Cook has exhibited his expertise in the development and management of the business of those two companies. This business experience,
together with the expertise about our business and operations derived from his years of service on the board of the Company and leadership
as chairman of the board, led the board of directors to conclude that Mr. Cook has the judgment and skills desired for continued
service on the board. He is not related to Matthew J. Cook, our chief operations officer.
Michael I. German has served as
our chief executive officer, president, and a director since December 2006. Mr. German serves as president of Corning Gas, Corning
Appliance, Pike County Light & Power Company, Leatherstocking Gas and Leatherstocking Pipeline. He also serves on the boards of Leatherstocking
Gas, Leatherstocking Pipeline, Leatherstocking New York and Pike. Prior to joining the Company, he was senior vice president, utility
operations for Southern Union Company where he was responsible for gas utility operations in Missouri, Pennsylvania, Rhode Island, and
Massachusetts. From 1994 to 2005, Mr. German held several senior positions at Energy East Corporation, a publicly held energy services
and delivery company, including president of several utilities. From 1978 to 1994, Mr. German worked at the American Gas Association,
finishing as senior vice president. From 1976 to 1978, Mr. German worked for the US Energy Research and Development Administration.
Mr. German is a board member of the Northeast Gas Association, Ampco Pittsburgh Corporation, and several non-profit organizations.
Mr. German’s role as president and chief executive officer, responsibility for the day-to-day operations and significant strategic
initiatives, as well as his extensive experience in utility and public company operations, led the board to conclude that Mr. German
should continue to serve as a director.
Ted W. Gibson has been a director
since November 2006. He has served as the chief executive officer of Classic City Mechanical, an underground utility business, since 1979.
Mr. Gibson is also a corrosion specialist in the National Association of Corrosion Engineers and a graduate of the Georgia Institute
of Technology — Mechanical Engineer. Mr. Gibson previously served as a United States Marine Corps Captain and is a Vietnam
veteran. He is also an inspector for the Nevada State Boxing Commission. Mr. Gibson’s professional background and extensive
experience with pipelines and other underground utilities, his business and management expertise in his service as chief executive officer
of Classic City Mechanical, his knowledge of our business, and contributions during his years of service on the board of directors led
the board of the Company to conclude that Mr. Gibson has the skills desired for continued service on the board.
Robert B. Johnston has been a director
since July 2014. He has served as the executive vice president and chief strategy officer for The InterTech Group, Inc. since 2008. In
this capacity, he is responsible for merger and acquisition activities, investments and communications, as well as oversight of a number
of InterTech operating companies. He currently serves as chairman of the board of directors of Colabor Inc. Additionally, he serves on
the board of directors of the South Carolina Community Loan Fund, Supremex Inc., FIH Group PLC, Circa Enterprises, and Swiss Water Decaffeinated,
Inc. Mr. Johnston previously served as the president, chief executive officer, and deputy governor of the Hudson’s Bay Company,
and on the boards of the Hudson’s Bay Company, Gas Natural Inc., Pacific Northern Gas, Central Vermont Public Service Corporation,
Produce Investments PLC, Fyffes PLC, Galvanic Applied Sciences, Span America Medical Products, Experiences Canada, Carolina Youth Development
Center, and Canada’s National History Society. He was also a member of the advisory board of the McGill University Executive Institute.
Mr. Johnston completed the University of Oxford Advanced Management and Leadership Program and received an MBA from the John Molson
School of Business, an MA in Public Policy & Public Administration, and a BA in Political Science from Concordia University. Additionally,
he holds the ICD.D Designation from the Institute of Corporate Directors (Canada). Mr. Johnston’s extensive financial and operational
experience coupled with his corporate governance and regulated utility experience led the board to conclude that he should continue to
serve as a director.
Joseph P. Mirabito has been a director
since November 2010. He was president of Mirabito Fuel Group from 1986 to 1998. He has also served as president of Granite Capital Holdings,
Inc. from 1998 to 2009. He is currently chairman and chief executive officer of Mirabito Holdings, Inc. and Mirabito Regulated Industries,
LLC. He serves as a director on several professional and civic boards in the central New York region. He and William Mirabito are cousins.
Mr. Mirabito’s business and corporate management experience in the energy delivery businesses where he serves as the president
and chief executive officer, his knowledge of the local communities in Central New York served by those businesses, and commitment to
the growth of our business as a significant shareholder, as well as his prior experience in advising and serving on the board and
committees of Wilber Bank. led the board
of directors to conclude that Mr. Mirabito has the skills, connections, and experience desired for continued service on the board.
William Mirabito has served as a
director since November 2010. He was president of Mang Insurance Agency from 2008 to 2015 and has served as vice chairman and treasurer
of Mirabito Holdings, Inc. and Mirabito Regulated Industries, LLC since 2014. He is also the chairperson of the audit committee for Mirabito
Holdings. He previously served on the board and finance committee of Fox Hospital in Oneonta, New York. He is also a board member of Springbrook,
New York, and serves on its executive committee. He and Joseph Mirabito are cousins. Mr. Mirabito’s business and management
experience as president of Mang Insurance Agency and vice chairman and treasurer of Mirabito Holdings and Mirabito Regulated Industries,
his commitment to the growth of our business as a significant shareholder, as well as his experience in advising and serving on the board
and committees of Fox Hospital and Springbrook led the board of directors to conclude that Mr. Mirabito has the skills and experience
desired for continued service on the board.
George J. Welch has served as a
director since May 2007. He is the senior partner in Welch Law LLP in Corning, New York, concentrating on real estate and business transactions.
He has served as a director of many regional organizations, including a regional economic development organization, and PaneLogic, Inc.,
a provider of control system integration services. Mr. Welch serves on the Alfred State College Council, an advisory group to the
president of the college. Mr. Welch’s extensive experience in legal matters and economic development, and as a community leader
led the board to conclude that he should continue to serve as a director.
John B. Williamson III has served
as a director since November 2010. Since 2004, Mr. Williamson has served as chairman of RGC Resources, Inc., a $230 million energy
distribution and services holding company, and as director, president, and chief executive officer from 1999 to 2013. He currently serves
as a director of Bank of Botetourt, Optical Cable Corporation, and Lawrence Transportation Company, an ESOP. He previously served as a
director on the board of Luna Innovations Corporation. Mr. Williamson received an MBA from the College of William and Mary, and a
BS from Virginia Commonwealth University. Mr. Williamson’s experience as the chairman, president, and chief executive officer
of an energy distribution and services company, as well as his experience in advising and serving on the board and committees of other
corporations has resulted in his broad understanding of the operational, financial, and strategic issues that businesses and utilities
face. This led the board to conclude that he should continue to serve as a director.
All of our directors were elected by our
shareholders in 2021 to serve for a one-year term and will hold office until the earlier of their removal or resignation or until their
successors are chosen and qualified.
Executive Officers
The names, ages, positions, and certain
other information concerning our current executive officers and significant employees is provided below. Biographical information for
Mr. German can be found under Board of Directors.
| Name |
|
Age |
|
Position |
| Michael I. German |
|
71 |
|
Chief Executive Officer,
President and Director |
| Charles A. Lenns |
|
68 |
|
Senior Vice President, Chief Financial
Officer and Treasurer |
| Matthew J. Cook |
|
60 |
|
Senior Vice President and Chief Operations
Officer |
| Russell S. Miller |
|
58 |
|
Senior Vice President and Chief Information
Officer |
Charles A. Lenns joined the Company
in July 2020 as vice president, chief financial officer and treasurer and was promoted to senior vice president, chief financial officer
and treasurer on October 19, 2021. Mr. Lenns began his professional career with Ernst & Young, LLP, and became a partner with
the firm in 1989, primarily serving clients in the power and utilities industry group. He later became a transaction advisory services
tax partner, advising power and utility industry clients on the tax consequences of business combination transactions. In 2012, Mr. Lenns
retired from E&Y and became the vice president — tax at Consolidated Edison Corporation in New York City, where he was responsible
for the financial accounting for income taxes, and all other tax affairs of the company. Mr. Lenns retired from Consolidated Edison
in 2018 and formed his own business and tax consulting firm. He is an adjunct instructor at the University of Scranton, in Scranton, Pennsylvania,
where he also serves on the university’s business advisory council. He serves as a director of Brayman Corporation, a closely held
construction company. Mr. Lenns also serves as a director on the boards of Leatherstocking Gas and Pike.
Matthew J. Cook joined Corning Gas
in February 2008 as vice president — operations and was promoted to senior vice president and chief operations officer on October
19, 2021. Mr. Cook has more than three decades of natural gas utility experience. In addition to the operations department, Mr. Cook
manages the customer service department and our facilities. From 2000 until joining Corning Gas, Mr. Cook was employed by Mulcare
Pipeline Solutions, a supplier of products and services to the natural gas industry, in various positions including sales manager and
technical specialist. Previously, Mr. Cook served as operations engineer and gas engineer for New York State Electric and Gas. He
holds a B.S. in mechanical engineering
from Rochester Institute of Technology. Mr. Cook also serves as a director on the boards of Leatherstocking Gas and Pike. He is not
related to our director, Henry B. Cook, Jr.
Russell S. Miller rejoined Corning
Gas as director of gas supply and marketing in June 2008, was appointed as vice president — gas supply and marketing, in December
2009, and promoted to senior vice president and chief information officer on October 19, 2021. From 1987 through 2004 he was employed
by us in various positions including vice president — operations, gas supply manager and mapping technician. From 2006 until rejoining
Corning Gas, he was employed by IBM, as energy distribution manager where he managed a team of energy buyers. From 2004 through 2006,
he was employed as an industrial account manager for Sprague Energy Corp. located in Portsmouth, New Hampshire. He has an A.A.S. in computer
aided design from Corning Community College and a B.S. in telecommunications technology from Empire State College. Mr. Miller also
serves as a director on the boards of Leatherstocking Gas and Pike.
Executive officers are generally chosen
or elected to their positions annually and hold office until the earlier of their removal or resignation or until their successors are
chosen and qualified.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Securities Exchange
Act requires our directors and executive officers and persons who own more than 10% of our common stock to file with the United States
Securities and Exchange Commission (the “SEC”) initial reports of ownership and reports of changes in ownership of our common
stock. Our officers, directors, and greater than 10% shareholders are required by the SEC to furnish us with copies of all Section 16(a)
forms they file. Based solely on review of copies of reports furnished to us or written representations that no reports were required,
we believe that all Section 16(a) filing requirements were met in the last fiscal year.
Code of Business Conduct and Ethics
We have adopted a code of business conduct
and ethics that applies to all employees, including our chief executive officer and our chief financial officer, who also serves as our
principal accounting officer. This code is available on our website at www.CorningGas.com. Any amendments or waivers to the code that
apply to our chief executive officer or chief financial officer will be promptly disclosed to our shareholders by posting that information
on our website.
Audit Committee Report
Our board of directors has a separately
designated standing audit committee. In accordance with its written charter, which was approved and adopted by our board, our audit committee
assists the board in fulfilling its responsibility of overseeing the quality and integrity of our accounting, auditing and financial reporting
practices. A copy of the audit committee charter is available on our website at www.CorningGas.com. The audit committee is directly responsible
for the appointment of our independent registered public accounting firm, currently Freed Maxick CPA’s, P.C.(“Freed Maxick”),
and is charged with reviewing and approving all services performed for us by Freed Maxick and for reviewing the firm’s fees. The
audit committee reviews Freed Maxick’s internal quality control procedures, reviews all relationships between Freed Maxick and the
Company and its subsidiaries in order to assess the firm’s independence, and monitors compliance with our policy regarding non-audit
services, if any, rendered by Freed Maxick. In addition, the audit committee ensures the regular rotation of the lead audit partner and
concurring partner. The audit committee reviews management’s programs to monitor compliance with our policies on business ethics
and risk management.
The audit committee is currently comprised
of Mr. Welch, the committee’s chairman, Mr. Cook, Mr. William Mirabito and Mr. Williamson. Mr. Mirabito
is an officer, director, and shareholder of a company that has entered into a joint venture with the Company (Leatherstocking New York).
The committee met three times in the last fiscal year. Mr. Welch, Mr. Cook, Mr. Mirabito, and Mr. Williamson are “independent
directors” as defined in the New York Stock Exchange listing standards. In addition, each member of the audit committee is able
to read and understand financial statements, including balance sheets, income statements, and cash flow statements. Our board has determined
that Mr. Williamson meets the qualifications for designation as a financial expert as defined in SEC rules through his experience
as the chief executive officer of RGC Resources, Inc., a publicly-held company. The audit committee reviews and reassesses its charter
as needed from time to time and will obtain the approval of the board for any proposed changes to its charter.
Our audit committee oversees management’s
implementation of internal controls and procedures for financial reporting which are designed to ensure the integrity and accuracy of
our financial statements and our ability to timely record, process, and report the information required for public disclosure. In fulfilling
its oversight responsibilities, the audit committee reviewed and discussed the financial statements with management and Freed Maxick.
The audit committee reviewed and discussed with Freed Maxick the audited financial statements of the Company for the years ended September
30, 2021 and 2020. The audit committee also discussed with Freed Maxick the matters required by AU Section 380, “Communication with
Audit Committees” . The audit committee reviewed with Freed Maxick, which is responsible for expressing an opinion on the conformity
of our audited financial statements with accounting principles generally accepted in the United States, its judgment
as to the quality, not just the acceptability,
of our accounting principles and other matters as are required to be discussed with the audit committee pursuant to generally accepted
auditing standards.
In discharging its oversight responsibility
as to the audit process, our audit committee obtained from Freed Maxick a formal written statement describing all relationships between
Fred Maxick and the Company that might bear on Freed Maxick’s independence consistent with the requirements of the Public Company
Accounting Oversight Board, and discussed with Freed Maxick any relationships that may impact its objectivity and independence. In considering
Freed Maxick’s independence, the audit committee also considered whether the non-audit services performed by Freed Maxick on our
behalf were compatible with maintaining the independence of Freed Maxick.
In reliance upon (1) the audit committee’s
reviews and discussions with management and Freed Maxick, (2) management’s assessment of the effectiveness of our internal control
over financial reporting, and (3) the receipt of an opinion from Freed Maxick dated December 17, 2021 stating that the Company’s
financial statements for the fiscal year ended September 30, 2021 are presented fairly, in all material respects, in conformity with U.S.
generally accepted accounting principles, the audit committee recommended to our board that these audited financial statements be included
in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021, for filing with the SEC.
Audit Committee
George J. Welch, Chairman
Henry B. Cook, Jr.
William Mirabito
John B. Williamson III
Item 11. Executive
Compensation.
Nominating and Compensation Committee
Our nominating and compensation committee
is comprised of Mr. Joseph Mirabito, the committee’s chairman, Mr. Gibson, Mr. Cook, Mr. Johnston and Mr. Williamson.
The nominating and compensation committee oversees our executive compensation program. In this role, the committee reviews and approves,
or recommends for approval by the full board, the compensation that is paid or awarded to our executive officers. The goal of our nominating
and compensation committee is to ensure that the total compensation paid to our executive officers and significant employees is fair,
reasonable, and competitive.
No officers or employees of the Company
or its subsidiaries served on the nominating and compensation committee. Mr. German meets with the committee at their request and
makes recommendations with respect to the compensation of other officers. Mr. Joseph Mirabito is an officer, director, and shareholder
of a company that has entered into a joint venture with the Company (Leatherstocking New York). There are no interlocks between our nominating
and compensation committee, our officers, and those of any other company.
The nominating and compensation committee
also administers our stock compensation plan. On January 12, 2021, we discontinued the issuance of stock compensation for our directors
in connection with the proposed merger with companies affiliated with Argo Infrastructure Partners, LP. The nominating and compensation
committee met three times in the last fiscal year to recommend salaries and report those recommendations to the full board of directors
for approval and to nominate directors. Our board has approved the charter of the nominating and compensation committee, which is available
on our website at www.CorningGas.com.
Executive Compensation
Summary Compensation Table
The following table summarizes the compensation
paid to our chief executive officer, chief financial officer and our most highly compensated executive officers.
| Name and Principal Position |
|
Year |
|
|
Salary |
|
|
Bonus |
|
|
Change in
Pension
Value |
|
|
Stock
Awards
(1) |
|
|
Option
Awards
(2) |
|
|
All Other
(3) |
|
|
Total |
|
Michael I. German
|
|
|
2021 |
|
|
$ |
190,740 |
|
|
|
— |
|
|
$ |
84,266 |
|
|
|
— |
|
|
|
— |
|
|
$ |
6,930 |
|
|
$ |
281,936 |
|
| President & CEO |
|
|
2020 |
|
|
|
186,293 |
|
|
|
— |
|
|
|
45,357 |
|
|
|
— |
|
|
|
— |
|
|
|
6,315 |
|
|
|
237,965 |
|
Charles A. Lenns
|
|
|
2021 |
|
|
|
181,500 |
|
|
$ |
35,588 |
|
|
|
— |
|
|
|
— |
|
|
$ |
17,500 |
|
|
|
13,466 |
|
|
|
248,054 |
|
| SVP & CFO (4) |
|
|
2020 |
|
|
|
37,019 |
|
|
|
— |
|
|
|
— |
|
|
$ |
74,250 |
|
|
|
19,505 |
|
|
|
19,557 |
|
|
|
150,331 |
|
Matthew J. Cook
|
|
|
2021 |
|
|
|
165,360 |
|
|
|
19,882 |
|
|
|
51,091 |
|
|
|
— |
|
|
|
— |
|
|
|
5,741 |
|
|
|
242,074 |
|
| SVP & COO |
|
|
2020 |
|
|
|
158,788 |
|
|
|
15,900 |
|
|
|
50,544 |
|
|
|
— |
|
|
|
— |
|
|
|
4,763 |
|
|
|
229,995 |
|
| Name and Principal Position |
|
Year |
|
|
Salary |
|
|
Bonus |
|
|
Change in
Pension
Value |
|
|
Stock
Awards
(1) |
|
|
Option
Awards
(2) |
|
|
All Other
(3) |
|
|
Total |
|
Russell S. Miller
|
|
|
2021 |
|
|
|
156,000 |
|
|
|
16,076 |
|
|
|
62,636 |
|
|
|
— |
|
|
|
— |
|
|
|
4,837 |
|
|
|
239,549 |
|
| SVP & CIO |
|
|
2020 |
|
|
|
149,790 |
|
|
|
10,875 |
|
|
|
62,350 |
|
|
|
— |
|
|
|
— |
|
|
|
4,127 |
|
|
|
227,142 |
|
|
(1) |
The amounts reported reflect restricted stock grants to Mr. Lenns of 4,500 shares in fiscal 2020. These
shares will vest immediately upon a “change in control” (as defined in our 2018 employee long-term incentive plan) or in accordance
with the following schedule: 1,125 shares on each of June 1, 2021, December 1, 2021, June 1, 2022 and December 1, 2022. We value stock
awards in accordance with FASB ASC No. 718. For more information about the assumptions underlying our valuation, please see note 9 Stockholders’
Equity and Stock-based Compensation of the notes to our consolidated financial statements for the year ended September 30, 2021. |
|
(2) |
The amount reported reflects stock options grants to Mr. Lenns to acquire 10,000 common shares in each
of fiscal 2021 and 2020. The 2021 options have a purchase price of $23.00 a share and the 2020 options $16.50. Both options are incentive
stock options and are exercisable immediately for a period of ten years. We value stock option awards in accordance with FASB ASC No.
718. For more information about the assumptions underlying our valuation, please see note 9 Stockholders’ Equity and Stock-based
Compensation of the notes to our consolidated financial statements for the year ended September 30, 2021. |
|
(3) |
The amounts reported include 401(k) matching contributions by the Company in fiscal 2021 of $994 for Mr. German,
$1,466 for Mr. Lenns, $5,741 for Mr. Cook and $4,435 for Mr. Miller, and in fiscal 2020 of $5,607 for Mr. German,
$4,763 for Mr. Cook and $4,127 for Mr. Miller. The amount reported for Mr. German includes an automobile benefit of $5,936
in fiscal 2021. The amount reported for Mr. Lenns in fiscal 2021 includes $12,000 for a housing allowance, and in fiscal 2020 $6,000
for a housing allowance provided to Mr. Lenns from July to December 2020 and $13,557 paid to Lenns Consulting Group for June 2020
before he became our chief financial officer. |
|
(4) |
Mr. Lenns was appointed chief financial officer on July 1, 2020. |
Employment Agreements
Pursuant to his employment agreement dated
November 30, 2006, as amended effective December 31, 2008, Mr. German continued to serve as president and chief executive officer
of Corning Gas for 2021 under the automatic renewal provisions of his contract. The employment agreement provides for termination payments
to Mr. German as follows:
|
· |
If Mr. German terminates his employment for “good reason” (as defined in the employment agreement
— generally a decrease in title, position or responsibilities, a decrease in salary or bonus or a reduction in benefits), then he
will receive compensation and benefits until the effective date of his termination, plus a severance package equal to his then current
annual salary. |
|
· |
If Mr. German’s employment is terminated without “cause” (as defined in the employment
agreement), then he will receive compensation and benefits until the effective date of his termination, plus a severance package equal
to his then current annual salary. |
|
· |
If Mr. German’s employment is terminated for a “change in control” (as defined in the
employment agreement), then he will receive compensation and benefits until the effective date of his termination, plus a severance package
equal to three times his then current annual salary. |
The employment agreement also contains
standard confidentiality, non-competition and non-solicitation provisions for a period including Mr. German’s employment and
the twelve months immediately following the date of the termination of his employment.
On April 17, 2012, Corning Gas entered
into change of control agreements with all executive officers other than Mr. German. None of our other executive officers have employment
agreements.
Change of Control Agreements
On April 27, 2017, we entered into change
of control agreements with Mr. Cook and Mr. Miller. On August 31, 2020, we entered into a change of control agreement with Mr. Lenns.
The Cook and Miller agreements terminate on the first to occur of: (i) termination of the executive’s employment with the Company
prior to a “change of control” (as defined in the agreements); (ii) one year from the date of a change of control; or (iii)
May 1, 2022, but only if no change of control has occurred as of that date. The agreement with Mr. Lenns is identical to the agreements
with Messrs. Cook and Miller, except its termination date is October 1, 2025.
Under each agreement, upon termination
of the executive’s employment with the Company within twelve months following a change of control, unless termination is because
of the executive’s death, or by the Company for “cause” or “disability” (each as defined in the agreements)
or by the executive other than for “good reason” (as defined in the agreements), we will be required to pay to the executive
the following: (i) the executive’s full salary through the date of termination and all other unpaid amounts to which the executive
is entitled as of the date of termination
under any plan or other arrangement of
the Company, at the time such payments are due (and in any event within 90 days after the executive’s separation of service from
the Company); and (ii) an amount equal to the executive’s annualized includable compensation for the base period (within the meaning
of Section 280G of the tax code), subject to reduction if the payment is or will be subject to the excise tax imposed by Section 4999
of the tax code, which payment must be made in a lump sum within 90 days after the executive’s separation from service.
The executives are not required to mitigate
the amount of any payment under the change of control agreements by seeking employment or otherwise. We also agreed to pay to each of
the executives all legal fees and related expenses incurred by the executive in connection with enforcing the agreement, whether or not
the executive prevails (subject to certain conditions with respect to Mr. Cook).
Executive Employee Incentive Program
Each year, our board of directors approves
the performance goals and terms of an executive employee incentive program. The program is designed to attract and retain high caliber
executives who can optimize the Company’s performance and to reward our executive officers for the achievement of annual corporate
and operational goals. Performance bonuses, if earned, are paid in cash during the first calendar quarter of the calendar year following
the calendar year for which performance was measured and are based upon the board’s determination of the percentage of the goals
that were met. Eligible employees include each of our executive officers listed in the summary compensation table who are officers on
the date of payment of the awards, other than Mr. German. Awards under the program are at the discretion of our board and may be
modified or discontinued at any time.
Benefit Plans
We provide competitive welfare and retirement
benefits to our executive officers as an important element of their compensation packages. Our executives receive medical and dental coverage,
life insurance, disability coverage and other benefits on the same basis as our other employees. Our executives are also eligible to participate
in our employee savings and pension plans.
Corning Natural Gas Corporation Employees
Savings Plan. All employees of Corning Gas who work for more than 1,000 hours per year and who have completed one year of service
may enroll in the savings plan at the beginning of each calendar quarter. Under the savings plan, participants may contribute up to 50%
of their wages. Corning Gas matches one-half of the participant’s contributions up to a total of 3% of the participant’s wages.
Matching contributions vest in the participants’ accounts at a rate of 20% per year and become fully vested after five years. All
participants may select one or a combination of ten investment plans for their account. Distribution of amounts accumulated under the
savings plan occurs upon the termination of employment or death of the participant. The savings plan also contains loan and hardship withdrawal
provisions.
Pension Plan. We maintain a defined
benefit pension plan, the retirement plan for salaried and non-union employees of Corning Gas that covers substantially all our employees.
We make annual contributions to the plan equal to amounts determined in accordance with the funding requirements of the Employee Retirement
Security Act of 1974. The benefit payable under the pension plan is calculated based upon the employee’s average salary for the
four years immediately preceding his or her retirement. As defined in the plan, the normal retirement age is 62. The compensation covered
by the pension plan includes only base salary, identified in the summary compensation table as “salary.”
Outstanding Equity Awards at Fiscal
Year End
In fiscal 2021 and 2020, we issued restricted
shares and options to our chief financial officer, Charles Lenns. The following table summarizes Mr. Lenns’ grants at September
30, 2021. There were no other outstanding equity grants at year-end.
| |
|
Option
Awards (1) |
|
|
Stock
Awards (2) |
|
| |
|
Shares
Underlying
Unexercised Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Name |
|
Exercisable |
|
|
Unexercisable |
|
|
Option
Exercise
Price |
|
|
Option
Expiration
Date |
|
|
Shares
of
Unvested
Stock |
|
|
Market
Value
of Unvested
Stock |
|
| Charles A. Lenns |
|
|
10,000 |
|
|
|
— |
|
|
$ |
23.00 |
|
|
|
9/22/2031 |
|
|
|
3,375 |
|
|
$ |
81,675 |
|
| SVP & CFO |
|
|
10,000 |
|
|
|
— |
|
|
|
16.50 |
|
|
|
8/31/2030 |
|
|
|
|
|
|
|
|
|
|
(1) |
Mr. Lenns was granted immediately exercisable incentive stock options to acquire 10,000 common shares in each
of fiscal 2021 and 2020. |
|
(2) |
Mr. Lenns was granted 4,500 restricted shares of common stock in fiscal 2020. 1,125 of these shares vested
on June 1, 2021. The remaining 3,375 unvested shares will vest immediately upon a “change in control” (as defined in our 2018
employee long-term incentive plan) or in accordance with the following schedule: 1,125 on each of December 1, 2021, June 1, 2022 and December
1, 2022. |
Director Compensation
Historically, we have paid our directors,
other than our CEO Michael I. German, with restricted stock grants of 450 shares per quarter. The shares awarded will become unrestricted
upon a director leaving the board. We issued 450 shares to each of our directors for the first quarter of fiscal 2021. In January 2021,
we discontinued the issuance of stock compensation for our directors in connection with our entry into the merger agreement with Argo.
For the remainder of fiscal 2021, we compensated our non-employee directors with deferred cash awards equal in value to 450 shares a quarter
based on the closing price of our stock on the last day of each quarter. To conserve cash, our board members have elected to defer payment
of the cash board fees until the merger with Argo is completed. Information regarding the compensation of directors Henry B. Cook, Jr.,
Ted W. Gibson, Robert B. Johnston, Joseph P. Mirabito, William Mirabito, George J. Welch and John B. Williamson III for the fiscal year
ended September 30, 2021 is summarized below. Mr. German’s compensation is described under Executive Compensation above.
| Name |
|
Fees Earned In
Cash |
|
Stock
Awards* |
|
All Other
Compensation |
|
Total |
|
All directors other than
CEO Michael I. German |
|
$32,099 |
|
$5,211 |
|
— |
|
$37,310 |
|
|
|
|
|
|
|
|
|
|
|
* |
The value of restricted stock awards is listed at the amount recognized for financial statement reporting purposes in accordance with
FASB ASC 718. |
Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Stock Ownership of Management and Other Major
Shareholders
The following table summarizes information
about ownership of our stock by each of our directors and senior executive officers, all of our directors and executive officers as a
group, and each other person we know beneficially owns more than 5% of our stock. We have determined beneficial ownership in accordance
with the rules of the SEC. The information is as of December 1, 2021. On December 1, there were 3,083,577 shares of common stock outstanding,
260,600 shares of Series A Preferred Stock, 244,263 shares of Series B Preferred Stock, and 180,000 shares of Series C Preferred Stock.
Each share of the Series B Preferred Stock is convertible into 1.2 shares of common stock at the option of the holder. [The table does
not include 5,000 shares of 1.5% Series D Cumulative Redeemable Preferred Stock purchased by an Argo affiliate for $5.0 million on December
6, 2021. The Series D Preferred Stock is not convertible into shares of our common stock and is not registered with the SEC. None of our
directors or officers own any shares of Series D Preferred Stock. For more information about the Series D Preferred Stock, please turn
to “Subsequent Events”, Note 17.
| |
|
|
|
|
Preferred Stock |
|
| |
|
Common Stock (2) |
|
|
Series A |
|
|
Series B |
|
|
Series C |
|
| Name and Address (1) |
|
Shares |
|
|
Percent |
|
|
Shares |
|
|
Percent |
|
|
Shares |
|
|
Percent |
|
|
Shares |
|
|
Percent |
|
| The Gabelli Group (3) |
|
|
527,745 |
|
|
|
17.1% |
|
|
|
— |
|
|
|
— |
|
|
|
73,298 |
|
|
|
30.0% |
|
|
|
16,200 |
|
|
|
9.0% |
|
| The Zucker Marital Trust (4) |
|
|
347,341 |
|
|
|
11.3% |
|
|
|
26,736 |
|
|
|
10.6% |
|
|
|
— |
|
|
|
— |
|
|
|
30,000 |
|
|
|
16.7% |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Henry B. Cook, Jr. (5) |
|
|
41,595 |
|
|
|
1.4% |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Michael I. German (6) |
|
|
570,675 |
|
|
|
18.5% |
|
|
|
5,129 |
|
|
|
2.0% |
|
|
|
57,936 |
|
|
|
23.7% |
|
|
|
— |
|
|
|
— |
|
| Ted W. Gibson (7) |
|
|
157,489 |
|
|
|
5.1% |
|
|
|
43,047 |
|
|
|
16.5% |
|
|
|
— |
|
|
|
— |
|
|
|
51,000 |
|
|
|
28.3% |
|
| Robert B. Johnston (8) |
|
|
18,980 |
|
|
|
0.6% |
|
|
|
15,000 |
|
|
|
5.8% |
|
|
|
— |
|
|
|
— |
|
|
|
10,000 |
|
|
|
5.6% |
|
| Joseph P. Mirabito (9) |
|
|
66,528 |
|
|
|
2.2% |
|
|
|
10,900 |
|
|
|
4.2% |
|
|
|
102 |
|
|
|
<0.1% |
|
|
|
— |
|
|
|
— |
|
| William Mirabito (10) |
|
|
75,689 |
|
|
|
2.5% |
|
|
|
17,868 |
|
|
|
6.9% |
|
|
|
1,039 |
|
|
|
0.4% |
|
|
|
4,000 |
|
|
|
2.2% |
|
| George J. Welch (11) |
|
|
27,708 |
|
|
|
0.9% |
|
|
|
10,600 |
|
|
|
4.1% |
|
|
|
912 |
|
|
|
0.4% |
|
|
|
— |
|
|
|
— |
|
| John B. Williamson III (12) |
|
|
22,464 |
|
|
|
0.7% |
|
|
|
1,052 |
|
|
|
0.4% |
|
|
|
1,416 |
|
|
|
0.6% |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Officers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Matthew J. Cook (13) |
|
|
2,169 |
|
|
|
0.1% |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Russell S. Miller (14) |
|
|
2,016 |
|
|
|
0.1% |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Charles A. Lenns (15) |
|
|
24,500 |
|
|
|
0.8% |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| All directors and officers as a group (eleven individuals) |
|
|
1,009,813 |
|
|
|
32.5% |
|
|
|
103,596 |
|
|
|
39.8% |
|
|
|
61,405 |
|
|
|
25.1% |
|
|
|
65,000 |
|
|
|
36.1% |
|
|
1. |
Unless otherwise indicated, we believe that each person named in the table has sole investment and voting
power over the shares of stock owned. Unless otherwise indicated, the address of each person is c/o Corning Natural Gas Holding Corporation,
330 West William Street, Corning, New York 14830. |
|
2. |
Does not include shares of our common stock issuable upon conversion of any shares of Series B Preferred Stock
held. |
|
3. |
The address of the Gabelli Group is One Corporate Center, Rye, New York 10580. Includes 513,086 shares of
common stock and 73,298 shares of Series B Preferred Stock held by Gabelli Funds, LLC. Includes 105,664 shares of common stock held by
Teton Advisors, Inc. The Series C Cumulative Preferred Stock is held by the Gabelli Foundation. Each of Gabelli Funds, Teton Advisors
and Gabelli Foundation has sole voting and dispositive power over the shares of stock held by it. Based primarily on information in Amendment
No. 17 to Schedule 13D filed with the SEC on June 28, 2016. |
|
4. |
The address of The Article 6 Marital Trust Under the First Amended and Restated Jerry Zucker Revocable Trust
is 4838 Jenkins Avenue, North Charleston, South Carolina 29405. Based primarily on information in Amendment No. 2 to Schedule 13D filed
with the SEC on April 23, 2014. |
|
5. |
Common stock includes 21,450 shares of restricted stock and 2,762 shares of common stock acquired through
the Company’s dividend reinvestment program, or DRP. |
|
6. |
Includes 9,382 shares of common stock owned by Mr. German’s son, of which Mr. German disclaims
beneficial ownership, and 50,023 shares of common stock acquired by Mr. German through the DRP. |
|
7. |
Common stock includes 48,837 shares of restricted stock. The Series C Preferred Stock includes 8,000 shares
held by the Gibson Family Trust. |
|
8. |
Common stock includes 16,650 shares of restricted stock. |
|
9. |
Common stock includes 21,450 shares of restricted stock. Includes 4,791 common shares 102 shares of Series
B Preferred Stock held by Mr. Mirabito’s wife. Mr. Mirabito disclaims beneficial ownership of the shares owned by his
wife except to the extent of his pecuniary interest in them. |
|
10. |
Common stock includes 17,696 shares of restricted stock and 1,775 shares acquired through the DRP. |
|
11. |
Common stock includes 21,450 shares of restricted stock and 4,791 shares acquired through the DRP. |
|
12. |
Common stock includes 17,696 shares of restricted stock. Includes 1,687 common shares and 1,416 shares of
Series B Preferred Stock and owned jointly with his spouse. |
|
13. |
Includes 720 shares of common stock acquired through the DRP. |
|
14. |
Includes 79 shares owned by Mr. Miller’s wife, 142 shares held jointly with his wife and 274 shares
acquired through DRP. Mr. Miller disclaims beneficial ownership of the shares owned by his wife except to the extent of his pecuniary
interest in them. |
|
15. |
Include 4,500 shares of restricted stock and options to acquire 20,000 shares that are currently exercisable. |
Pending Merger with Argo
On January 12, 2021, we entered into an
agreement and plan of merger with companies affiliated with Argo Infrastructure Partners, LP, an independent investment firm registered
with the SEC with a focus on utilities and other long duration infrastructure assets. Subject to the terms and conditions of the merger
agreement, Argo will acquire the Company and pay our shareholders $24.75 for each share of common stock they own immediately prior to
completion of the merger without interest and less any applicable withholding taxes. See Note 1, Summary of Significant Accounting Policies,
for the impact of the merger on preferred shares. The merger will result in a change of control of the Company. Our shareholders approved
the merger on May 27, 2021. We expect to obtain the necessary regulatory approvals and complete the merger in 2022, but the exact timing
of the merger cannot be predicted.
Voting Agreement
On January 12, 2021, we entered a merger
agreement with companies affiliated with Argo. In connection with the merger agreement with Argo, our directors entered into a voting
agreement pursuant to which each director agreed to vote in favor of the merger and the approval of the merger agreement as a shareholder
of the Company, subject to the limitations included in the voting agreement. The obligations under the voting agreement will terminate
if, among other reasons, the merger agreement is terminated in accordance with its terms.
Equity Compensation Plan Information
At the annual meeting held on April 24,
2018, our shareholders approved the Company’s 2018 long-term incentive plan. The 2018 incentive plan provides for grants of incentive
stock options, nonqualified stock options, stock appreciation rights, restricted stock, and dividend equivalent
units to officers, employees, and directors
of the Company and its subsidiaries. There are a total of 350,000 shares authorized for grant under the 2018 plan. The following table
summarizes information about our equity compensation plans at September 30, 2021.
| Plan Category |
|
Shares to Be Issued
Upon Exercise of
Outstanding
Options |
|
|
Weighted-Average
Exercise Price of
Outstanding
Options |
|
|
Securities Remaining
Available for Future
Issuance Under Equity
Compensation Plans |
|
| Equity compensation plans approved by security holders |
|
|
20,000 |
|
|
$ |
19.75 |
|
|
|
307,350 |
|
| Equity compensation plans not approved by security holders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Total |
|
|
20,000 |
|
|
$ |
19.75 |
|
|
|
307,350 |
|
Item 13. Certain
Relationships and Related Transactions, and Director Independence.
Certain Relationships and Related Transactions
On July 1, 2020, we completed the acquisition
of the 50% interests in Leatherstocking Gas and Leatherstocking Pipeline held by Mirabito Regulated Industries, LLC. Immediately before
the acquisition, Leatherstocking Gas distributed to its members franchises, engineering and gas pipeline assets located in New York having
a book value of $532,000. These assets were then contributed to the equity of the newly-formed Leatherstocking Gas Company of New York,
Inc. The Company and Mirabito Regulated Industries each own 50% of Leatherstocking New York. Joseph Mirabito and William Mirabito are
officers, directors and are 20% and 21% shareholders, respectively, of Mirabito Holdings, Incorporated, a sister company of Mirabito Regulated
Industries. Together they hold approximately 5% of our outstanding common stock and are also directors of the Company, Corning Gas, Corning
Appliance, Leatherstocking Gas and Leatherstocking Pipeline. In fiscal 2021, we paid $120,705 to US Bank Voyager Fleet System for purchase
of gas for our service vehicles. Mirabito Holdings dba Mirabito Energy Products is a Voyager Network Partner. For coverage of emergency
services in the Town of Virgil in fiscal 2021, we paid Mirabito Holdings dba Mirabito Energy, Vestal, $28,783
We paid a total of $23,572 to the law firm
of Welch Law LLP for legal services performed during fiscal 2021. Director George Welch is the managing partner of Welch Law.
We paid $8,478 to Cook Brothers Truck Parts
in fiscal 2021. Director Henry Cook is the majority owner of Cook Brothers Truck Parts.
Director Independence
The board of directors has determined and
confirmed that each of Mr. Cook, Mr. Gibson, Mr. Johnston, Mr. Joseph Mirabito, Mr. William Mirabito, Mr. Welch,
and Mr. Williamson do not have a material relationship with the Company or any of its subsidiaries that would interfere with the
exercise of independent judgment and are, therefore, independent as defined by applicable laws and regulations and the listing standards
of the New York Stock Exchange. In making the determination that each of the members of our board and our board’s committees is
independent, the board considered that Mr. Joseph Mirabito and Mr. William Mirabito are officers of Mirabito Regulated Industries,
LLC. The Company and Mirabito Regulated Industries are each 50% owners of Leatherstocking New York.
Item 14. Principal
Accountant Fees and Services.
The following is a summary of the aggregate
fees for the fiscal years ended September 30, 2021 and 2020, by our independent registered public accounting firm, Freed Maxick CPA’s,
P.C.
| |
|
2021 |
|
|
2020 |
|
| Audit Fees |
|
$ |
171,400 |
|
|
$ |
171,000 |
|
| Audit-Related Fees |
|
|
10,500 |
|
|
|
10,000 |
|
| Tax Fees |
|
|
35,000 |
|
|
|
32,400 |
|
| All Other Fees |
|
|
21,400 |
|
|
|
11,400 |
|
| Total |
|
$ |
238,300 |
|
|
$ |
224,800 |
|
Audit Fees. These are fees for professional
services for the audit of our annual consolidated financial statements, the review of financial statements included in our quarterly reports
on Form 10-Q, and services that are typically rendered in connection with statutory and regulatory filings or engagements.
Audit-Related Fees. These are fees
related to our employee benefit plan audit.
Tax Fees. These are fees for professional
services rendered with respect to tax compliance, tax advice and tax planning. These services include the review of tax returns and consulting
on tax planning matters.
All Other Fees. These are fees related
to the due diligence process in connection with our proposed merger with companies affiliated with Argo.
Our audit committee’s charter requires
that all audit and permissible non-audit services provided by Freed Maxick to the Company must be pre-approved by the audit committee.
The audit committee pre-approved all of the services provided by Freed Maxick in fiscal 2021 and the payment by us of the fees listed
in the table above. The decision to engage Freed Maxick was approved by our audit committee and in making that decisions the audit committee
considered whether the provision of non-audit services is compatible with maintaining independence. In fiscal 2021 and 2020, Freed Maxick
had no direct or indirect financial interest in the Company in the capacity of promoter, underwriter, voting director, officer or employee.
We used the following defined terms in Part III of
the September 30, 2021 Form 10-K:
“Argo” means Argo Infrastructure Partners,
LP, an independent investment firm, and its affiliated companies.
“ASC” means a FASB Accounting Standards
Codification.
“Company,” “we” or “us”
means Corning Natural Gas Holding Corporation, a New York corporation.
“Corning Gas” means Corning Natural Gas
Corporation, a New York corporation and our wholly-owned subsidiary that provides natural gas service to customers primarily in Corning,
Hammondsport and Virgil, New York.
“Corning Appliance” means Corning Natural
Gas Appliance Corporation, a New York corporation and our wholly-owned subsidiary that is inactive.
“DRP” means the Company’s dividend
reinvestment program.
The “Exchange Act” means the Securities
Exchange Act of 1934, as amended.
“FASB” means the Financial Accounting
Standards Board.
“Fiscal 2021” and “fiscal 2020”
mean the Company’s fiscal years ended September 30, 2021 and 2020.
“Freed Maxick” means Freed Maxick CPA’s,
P.C., our independent registered public accounting firm.
“Leatherstocking Gas” means Leatherstocking
Gas Company LLC, a New York limited liability company and our wholly-owned subsidiary that provides natural gas service to customers in
Bradford and Susquehanna Counties, Pennsylvania.
“Leatherstocking New York” means Leatherstocking
Gas Company of New York, Inc., a New York corporation that we own with Mirabito Regulated Industries, LLC.
“Leatherstocking Pipeline” means Leatherstocking
Pipeline Company LLC, a Pennsylvania limited liability company and our wholly-owned subsidiary.
“Pike” means Pike County Light & Power
Company, a Pennsylvania corporation and our wholly-owned subsidiary that provides natural gas and electric service to customers in Pike
County, Pennsylvania.
The “SEC” means the United States Securities
and Exchange Commission.
The “Securities Act” means the Securities
Act of 1933, as amended.
“Series A Preferred Stock” means the Company’s
6% Series A Cumulative Preferred Stock.
“Series B Preferred Stock” means the Company’s
Series B Convertible Preferred Stock.
“Series C Preferred Stock” means the Company’s
6% Series C Cumulative Preferred Stock.
The “tax code” means the Internal Revenue
Code of 1986, as amended.
PART IV
ITEM 15. EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
(a)
Financial Statement Schedules (see Item 8 Financial Statements and Supplementary Data)
(b)
Exhibits
Exhibits
incorporated by reference for filings made before January 1, 1995 may be found in the Company's Commission File 0-643
| |
Exhibit
No. |
Description |
| |
3.1 |
The
Holding Company’s Certificate of Incorporation, (included as Exhibit B to the Proxy Statement/Prospectus forming portion of the
Form S-4) |
| |
3.2 |
Second
Amended and Restated By-laws of Corning Natural Gas Holding Corporation, effective February 6, 2018 (incorporated by reference to Exhibit
3.2 of the Company’s Current Report on Form 8-K dated February 6, 2018) |
| |
3.7 |
Certificate
of Amendment to the Certificate of Incorporation with respect to the number of shares of common stock and preferred stock filed with the
Department of State of the State of New York on May 1, 2018 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report
on Form 8-K dated May 1, 2018) |
| |
3.8 |
Certificate
of Amendment of the Certificate of Incorporation of Corning Natural Gas Holding Corporation authorizing 261,500 Shares of 6% Series A
Cumulative Preferred Stock Filed with the Department of State of the State of New York on June 29, 2020 (incorporated by reference to
Exhibit 3.1 of the Company’s Current Report on Form 8-K dated June 29, 2020) |
| |
3.9 |
Certificate
of Amendment to the Certificate of Incorporation of Corning Natural Gas Holding Corporation authorizing 5,000 Shares of 1.5% Series D
Cumulative Redeemable Preferred Stock Filed with the Department of State of the State of New York on December 3, 2021 (incorporated by
reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K dated December 3, 2021) |
| |
4.4* |
Corning
Natural Gas Holding Corporation 2018 Employee Long-Term Incentive Plan (incorporated by reference to Appendix 1 of the Company’s
definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on March 22, 2018) |
| |
10.1* |
Employment
Agreement dated November 30, 2006 between Michael German and the Company (incorporated by reference to Exhibit 10.2 of the Company’s
Current Report on Form 8-K dated November 30, 2006) |
| |
10.3* |
First
Amendment to Employment Agreement between Michael I. German and the Company dated December 31, 2008 (incorporated by reference to Exhibit
10.1 of the Company’s Current Report on Form 10-Q dated August 12, 2009) |
| |
10. 4 |
Amended
and Restated 2007 Stock Plan (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 10-Q dated August
12, 2009) |
| |
10.16 |
Operating
Agreement of the Leatherstocking Gas Company, LLC (incorporated by reference to Exhibit 10.32 of the Company’s Registration Statement
on Form S-1 (No. 333-182386), originally filed with the Securities and Exchange Commission on June 28, 2012) |
| |
10.22* |
Form
of Restricted Stock Agreement – Non-employee Directors under the Corning Natural Gas Corporation’s Amended and Restated 2007
Stock Plan (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K dated December 11, 2012) |
| |
10.35 |
Stock
Purchase Agreement between the Holding Company and Cold Spring Construction Profit Sharing Plan with QCI Asset Management, Inc., as Registered
Investment Advisor dated April 14, 2014 |
| |
10.48 |
Pledge
and Security Agreement between Corning Natural Gas Holding Corporation and Mirabito Regulated Industries, LLC with Wayne Bank dated January
31, 2019 (incorporated by reference to Exhibit 10.6 of the March 2019 8-K) |
| |
10.49 |
Pledge
and Security Agreement between Corning Natural Gas Holding Corporation and Mirabito Regulated Industries, LLC with Wayne dated January
31, 2019 (incorporated by reference to Exhibit 10.7 of the March 2019 8-K) |
| |
10.72 |
Loan
Agreement between Leatherstocking Gas (Borrower) and Leatherstocking Pipeline (Guarantor) and Five Star Bank, dated July 11, 2016 (incorporated
by reference to Exhibit 10.2 of the June 2016 10-Q) |
| |
10.73 |
General
Security Agreement between Leatherstocking Gas and Five Star Bank dated July 11, 2016 (incorporated by reference to Exhibit 10.3 of the
June 2016 10-Q) |
| |
10.74 |
General
Security Agreement between Leatherstocking Pipeline and Five Star Bank dated July 11, 2016 (incorporated by reference to Exhibit 10.4
of the June 2016 10-Q) |
| |
10.79 |
Continuing
Guaranty, dated August 31, 2016, from Corning Natural Gas Holding Corporation to M&T Bank with respect to the obligations of Pike
County Light & Power Company to M&T Bank (incorporated by reference to Exhibit 10.5 on the September 2016 8-K) |
| |
10.87 |
Credit
Agreement, dated August 31, 2020, between Corning Natural Gas Company and M&T Bank (incorporated by reference to Exhibit 10.1 of the
Company’s Current Report on Form 8-K dated August 31, 2020) |
| |
10.88 |
Multiple
Disbursement Term Note, dated August 15, 2018, from Corning Natural Gas Corporation to M&T Bank in the maximum principal amount of
$3,600,000 (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K dated August 31, 2020) |
| |
10.89 |
General
Security Agreement, dated August 31, 2020, from Corning Natural Gas Corporation to M&T Bank (incorporated by reference to Exhibit
10.3 of the Company’s Current Report on Form 8-K dated August 31, 2020) |
| |
10.90 |
Replacement
Credit Agreement, dated June 27, 2019, between Pike Light & Power Company and M&T Bank (incorporated by reference to Exhibit 10.1
of the Company’s Current Report on Form 8-K dated May 23, 2019) |
| |
10.91 |
Replacement
Term Note, dated May 23, 2018, from Pike Light & Power Company to M&T Bank in the initial principal amount of $11,200,000 (incorporated
by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K dated May 23, 2018) |
| |
10.92 |
Continuing
Guaranty, dated June 27, 2019, between Pike Light & Power Company and M&T Bank (incorporated by reference to Exhibit 10.3 of the
Company’s Current Report on Form 8-K dated May 23, 2019) |
| |
10.93 |
General
Security Agreement, dated June 27, 2019, between Pike Light & Power Company and M&T Bank (incorporated by reference to Exhibit
10.4 of the Company’s Current Report on Form 8-K dated May 23, 2019) |
| |
10.94 |
Multiple
Disbursement Term Note, dated June 27, 2019, from Corning Natural Gas Corporation to M&T Bank in the maximum principal amount of $3,127,000,
with Prepayment Premium Rider. (incorporated by reference to Exhibit 10.1 on the December, 31 2019 10-Q) |
| |
10.95 |
Multiple
Disbursement Term Note, dated June 27, 2019 from Pike Light & Power Company to M&T Bank in the maximum principal amount of $2,072,000,
with Prepayment Premium Rider. (incorporated by reference to Exhibit 10.2 on the December, 31 2019 10-Q) |
| |
10.96 |
Form
of Series C Preferred Stock Purchase Agreement dated March 27, 2020 between Corning Natural Gas Holding Corporation and the Series C Preferred
Stock Purchasers (incorporated by reference to Exhibit 10.1 on the March, 31 2020 10-Q) |
| |
10.97 |
Term
Note under the U.S. Small Business Administration Paycheck Protection Program issued by Corning Natural Gas Holding Corporation on April
17, 2020 to M&T Bank in the principal amount of $970,900 (incorporated by reference to Exhibit 10.2 on the March, 31 2020 10-Q) |
| |
10.98 |
Term
Note under the U.S. Small Business Administration Paycheck Protection Program issued by Pike County Light & Power Company on April
22, 2020 to M&T Bank in the principal amount of $137,200 (incorporated by reference to Exhibit 10.3 on the March, 31 2020 10-Q) |
| |
10.99 |
Agreement
and Plan of Merger, dated as of January 12, 2021, by and among Corning Natural Gas Holding Corporation, ACP Crotona Corp., and ACP Crotona
Merger Sub Corp. (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated January 12, 2021)
|
| |
10.100 |
Credit
Agreement, dated January 15, 2021, between Corning Natural Gas Company and M&T Bank (incorporated by reference to Exhibit 10.1 of
the Company’s Current Report on Form 8-K dated January 15, 2021) |
| |
10.101 |
Term
Note, dated January 15, 2021, from Corning Natural Gas Corporation to M&T Bank in the principal amount of $850,000 (incorporated by
reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K dated January 15, 2021) |
| |
10.102 |
Replacement
Credit Agreement, dated October 13, 2020, between Pike Light & Power Company and M&T Bank (incorporated by reference to Exhibit
10.1 of the Company’s Quarterly Report on Form 10-Q for the Quarter ended December 31, 2020) |
| |
10.103 |
Multiple
Disbursement Term Note, dated October 13, 2020, from Pike Light & Power Company to M&T Bank in the maximum principal amount of
$1,315,000 (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the Quarter ended December
31, 2020) |
| |
10.104 |
Fifth
Amended Replacement and Restated Credit Agreement, dated June 25, 2021, between Corning Natural Gas Company and M&T Bank (incorporated
by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated June 25, 2021) |
| |
10.105 |
Replacement
Daily Adjusting LIBOR Revolving Line Note, dated June 25, 2021, from Corning Natural Gas Corporation to M&T Bank in the principal
amount of $8.0 million (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K dated June 25, 2021)
|
| |
10.106 |
Multiple
Disbursement Term Note, dated June 25, 2021, from Corning Natural Gas Corporation to M&T Bank in the principal amount of $4.665 million
(incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K dated June 25, 2021) |
| |
10.107 |
LIBOR
Demand Note, dated June 25, 2021, from Corning Natural Gas Corporation to M&T Bank in the principal amount of $1.9 million (incorporated
by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K dated June 25, 2021) |
| |
10.108 |
General
Security Agreement, dated June 25, 2021, between Corning Natural Gas Company and M&T Bank (incorporated by reference to Exhibit 10.5
of the Company’s Current Report on Form 8-K dated June 25, 2021) |
| |
1.109 |
Fifth
Amended Replacement and Restated Credit Agreement, dated August 19, 2021, between Pike County Light & Power Company and M&T Bank
(incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated August 19, 2021) |
| |
1.110 |
Multiple
Disbursement Term Note, dated August 19, 2021, from Pike County Light & Power Company to M&T Bank in the principal amount of $2.21
million (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K dated August 19, 2021) |
| |
1.111 |
General
Security Agreement, dated August 19, 2021, between Pike County Light & Power Company and M&T Bank (incorporated by reference to
Exhibit 10.3 of the Company’s Current Report on Form 8-K dated August 19, 2021) |
| |
1.112 |
Continuing
Guaranty, dated August 19, 2021, by Corning Natural Gas Holding Corporation to M&T Bank (incorporated by reference to Exhibit 10.4
of the Company’s Current Report on Form 8-K dated August 19, 2021) |
| |
1.113 |
Demand
Note, dated September 30, 2021, from Corning Natural Gas Corporation to M&T Bank in the principal amount of $3 million (incorporated
by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated September 30, 2021) |
| |
1.114 |
General
Security Agreement, dated September 30, 2021, between Corning Natural Gas Company and M&T Bank (incorporated by reference to Exhibit
10.2 of the Company’s Current Report on Form 8-K dated September 30, 2021) |
| |
1.115 |
Purchase
Agreement, dated December 8, 2021, by and between Corning Natural Gas Holding Corporation and ACP Crotona Corp. (incorporated by reference
to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated December 3, 2021) |
| |
21** |
Subsidiary of Company |
| |
23.1** |
Consent
of Freed Maxick CPA's, P.C. |
| |
24 |
Power of Attorney |
| |
31.1** |
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act - Michael I. German |
| |
31.2** |
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act - Charles A. Lenns |
| |
32.1*** |
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act |
| |
101*** |
The following materials
from the Corning Natural Gas Corporation Annual Report on Form 10-K for the period ended September 30, 2020, formatted in XBRL (eXtensible
Business Reporting Language): |
| |
|
(i) the
Consolidated Balance Sheets at September 30, 2021 and 2020 |
| |
|
(ii) the
Consolidated Statements of Income for the years ended September 30, 2021 and 2020 |
| |
|
(iii) the Comprehensive
Income Statements for the years ended September 30, 2021 and 2020 |
| |
|
(iv) the Consolidated
Statements of Changes in Stockholders' Equity for the years ended September 30, 2021 and 2020 |
| |
|
(v) the Consolidated
Statements of Cash Flows for the years ended September 30, 2021 and 2020 |
| |
|
(vi) related
notes to the Consolidated Financial Statements |
| |
|
|
| |
* |
Indicates management
contract or compensatory plan or arrangement |
| |
** |
Filed herewith |
| |
*** |
Furnished herewith |
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
| |
CORNING NATURAL GAS HOLDING CORPORATION |
| |
|
| Date: December 17, 2021 |
/s/ Michael
I. German |
| |
Michael I. German |
| |
President and Chief Executive Officer
|
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
| Date:
December 17, 2021 |
/s/
Charles A. Lenns |
| |
Charles A.
Lenns, Chief Financial Officer |
| |
(Principal
Financial and Accounting Officer) |
| |
|
| Date:
December 17, 2021 |
/s/
Michael I. German |
| |
Michael I.
German, President and Chief Executive Officer and Director |
| |
(Principal
Executive Officer) |
| |
|
| Date:
December 17, 2021 |
* |
| |
Henry B. Cook,
Chairman of the Board of Directors |
| |
|
| Date:
December 17, 2021 |
* |
| |
Ted W. Gibson,
Director |
| |
|
| Date:
December 17, 2021 |
* |
| |
Robert B.
Johnston, Director |
| |
|
| Date:
December 17, 2021 |
* |
| |
Joseph P.
Mirabito, Director |
| |
|
| Date:
December 17, 2021 |
* |
| |
William Mirabito,
Director |
| |
|
| Date:
December 17, 2021 |
* |
| |
George J.
Welch, Director |
| |
|
| Date:
December 17, 2021 |
* |
| |
John B. Williamson
III, Director |
*By: /s/ [Attorney-in-fact]
[Attorney-in-fact]
Attorney-in-fact
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Corning Natural Gas Holding Corporation and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Corning Natural Gas Holding Corporation and Subsidiaries (the "Company") as of September 30, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively referred to as the "financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
As discussed in Notes 1 and 5 to the consolidated financial statements, certain amounts are deferred and recognized as expenses or revenue when they are reflected in rates and recognized by customers in accordance with ASC 980. These items are recorded as regulatory assets or liabilities. We have identified this item as a critical audit matter because certain estimates and assumptions used by the Company in determining whether amounts are recoverable from or owed to customers in future rates is subjective and required auditor judgment.
Addressing the matter involved performing subjective procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. The primary procedures we performed include: reviewing and testing how management determined the amount of regulatory assets and liabilities by tracing appropriate amounts to current rate cases, auditing material regulatory assets and liabilities being deferred until the next rate case by reviewing and testing management's support, and reviewing filings with the New York and Pennsylvania Public Service Commissions and Orders from the New York and Pennsylvania Public Service Commissions, as necessary.
/s/ Freed Maxick CPAs, P.C.
We have served as the Company’s auditor since 2013.
Rochester, New York
December 17, 2021
CORNING NATURAL GAS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets as of September 30,
|
Assets |
|
2021 |
|
|
2020 |
|
|
|
|
|
|
|
|
|
|
Plant: |
|
|
|
|
|
|
|
|
|
Utility property, plant and equipment |
|
$ |
150,540,525 |
|
|
$ |
139,743,289 |
|
|
Less: accumulated depreciation |
|
|
(34,001,558 |
) |
|
|
(30,853,644 |
) |
|
Total plant, net |
|
|
116,538,967 |
|
|
|
108,889,645 |
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
Marketable securities at fair value |
|
|
2,337,330 |
|
|
|
2,193,112 |
|
|
Investment in joint ventures |
|
|
261,180 |
|
|
|
264,640 |
|
|
|
|
|
2,598,510 |
|
|
|
2,457,752 |
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
333,846 |
|
|
|
411,700 |
|
|
Customer accounts receivable (net of allowance for uncollectible accounts of $82,040 and $42,263, respectively) |
|
|
2,481,456 |
|
|
|
2,330,342 |
|
|
Other accounts receivable |
|
|
748,655 |
|
|
|
527,280 |
|
|
Related party receivables |
|
|
— |
|
|
|
9,032 |
|
|
Gas stored underground |
|
|
1,366,341 |
|
|
|
995,341 |
|
|
Materials and supplies inventories |
|
|
3,605,300 |
|
|
|
3,156,345 |
|
|
Prepaid expenses |
|
|
1,746,336 |
|
|
|
1,801,883 |
|
|
Total current assets |
|
|
10,281,934 |
|
|
|
9,231,923 |
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory and other assets: |
|
|
|
|
|
|
|
|
|
Regulatory assets: |
|
|
|
|
|
|
|
|
|
Unrecovered electric and gas costs |
|
|
1,986,198 |
|
|
|
1,966,184 |
|
|
Deferred regulatory costs |
|
|
6,112,370 |
|
|
|
4,894,434 |
|
|
Deferred pension |
|
|
4,902,666 |
|
|
|
7,352,839 |
|
|
Goodwill |
|
|
918,121 |
|
|
|
918,121 |
|
|
Other |
|
|
715,981 |
|
|
|
748,408 |
|
|
Total regulatory and other assets |
|
|
14,635,336 |
|
|
|
15,879,986 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
144,054,747 |
|
|
$ |
136,459,306 |
|
See accompanying notes to consolidated financial statements.
CORNING NATURAL GAS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets as of September 30,
|
|
|
2021 |
|
|
2020 |
|
|
Liabilities and capitalization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current installments |
|
$ |
46,145,319 |
|
|
$ |
44,291,626 |
|
|
Less: debt issuance costs |
|
|
(237,162 |
) |
|
|
(241,057 |
) |
|
Total long-term debt |
|
|
45,908,157 |
|
|
|
44,050,569 |
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable preferred stock - Series A |
|
|
6,494,697 |
|
|
|
6,484,545 |
|
|
(Authorized 261,500 shares. Issued and outstanding: |
|
|
|
|
|
|
|
|
|
260,600 shares at September 30, 2021 and at September 30, 2020, |
|
|
|
|
|
|
|
|
|
less issuance costs of $20,303 and $30,455, respectively) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable preferred stock - Series C |
|
|
4,498,723 |
|
|
|
4,498,476 |
|
|
(Authorized 180,000 shares. Issued and outstanding: |
|
|
|
|
|
|
|
|
|
180,000 shares at September 30, 2021 and at September 30, 2020, |
|
|
|
|
|
|
|
|
|
less issuance costs of $1,277 and $1,524, respectively) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
|
6,407,545 |
|
|
|
6,271,068 |
|
|
Demand notes payable |
|
|
5,397,294 |
|
|
|
— |
|
|
Borrowings under lines-of-credit |
|
|
7,668,557 |
|
|
|
7,698,269 |
|
|
Accounts payable |
|
|
3,844,210 |
|
|
|
2,293,980 |
|
|
Accrued expenses |
|
|
271,461 |
|
|
|
339,809 |
|
|
Customer deposits and accrued interest |
|
|
1,519,576 |
|
|
|
1,617,976 |
|
|
Dividends declared |
|
|
530,296 |
|
|
|
529,301 |
|
|
Total current liabilities |
|
|
25,638,939 |
|
|
|
18,750,403 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred credits and other liabilities: |
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
8,149,853 |
|
|
|
7,575,832 |
|
|
Regulatory liabilities |
|
|
2,969,076 |
|
|
|
3,243,054 |
|
|
Deferred compensation |
|
|
1,417,686 |
|
|
|
1,366,256 |
|
|
Pension costs and post-retirement benefits |
|
|
7,180,088 |
|
|
|
9,407,774 |
|
|
Other |
|
|
1,344,416 |
|
|
|
193,945 |
|
|
Total deferred credits and other liabilities |
|
|
21,061,119 |
|
|
|
21,786,861 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (see Note 14) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Temporary equity: |
|
|
|
|
|
|
|
|
|
Redeemable convertible preferred stock - Series B |
|
|
|
|
|
|
|
|
|
(Authorized 244,500 shares. Issued and outstanding:
244,263 shares at September 30, 2021 and 2020) |
|
|
4,980,562 |
|
|
|
4,954,937 |
|
|
|
|
|
|
|
|
|
|
|
|
Common stockholders' equity: |
|
|
|
|
|
|
|
|
|
Common stock |
|
|
30,836 |
|
|
|
30,725 |
|
|
($.01 par value per share. Authorized 4,500,000 shares. Issued and outstanding:
3,083,577 shares at September 30, 2021 and 3,072,547 shares at September 30, 2020) |
|
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
28,292,551 |
|
|
|
28,144,702 |
|
|
Retained earnings |
|
|
7,148,246 |
|
|
|
7,747,197 |
|
|
Accumulated other comprehensive income |
|
|
917 |
|
|
|
10,891 |
|
|
Total common stockholders' equity |
|
|
35,472,550 |
|
|
|
35,933,515 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and capitalization |
|
$ |
144,054,747 |
|
|
$ |
136,459,306 |
|
See accompanying notes to consolidated financial statements.
CORNING NATURAL GAS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income for the years ended September 30,
|
|
|
2021 |
|
|
2020 |
|
|
Utility operating revenues: |
|
|
|
|
|
|
|
|
|
Gas operating revenues |
|
$ |
26,861,424 |
|
|
$ |
25,385,218 |
|
|
Electric operating revenues |
|
|
8,374,121 |
|
|
|
7,000,667 |
|
|
Total utility operating revenues |
|
|
35,235,545 |
|
|
|
32,385,885 |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales: |
|
|
|
|
|
|
|
|
|
Gas purchased |
|
|
6,659,993 |
|
|
|
5,501,237 |
|
|
Electricity purchased |
|
|
2,657,032 |
|
|
|
1,609,314 |
|
|
Total cost of sales |
|
|
9,317,025 |
|
|
|
7,110,551 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
25,918,520 |
|
|
|
25,275,334 |
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expense: |
|
|
|
|
|
|
|
|
|
Operating and maintenance expense |
|
|
14,138,983 |
|
|
|
11,277,571 |
|
|
Taxes other than income taxes |
|
|
3,695,526 |
|
|
|
3,643,828 |
|
|
Depreciation |
|
|
3,338,769 |
|
|
|
2,621,385 |
|
|
Other deductions, net |
|
|
386,513 |
|
|
|
507,633 |
|
|
Total costs and expenses |
|
|
21,559,791 |
|
|
|
18,050,417 |
|
|
|
|
|
|
|
|
|
|
|
|
Utility operating income |
|
|
4,358,729 |
|
|
|
7,224,917 |
|
|
|
|
|
|
|
|
|
|
|
|
Other income and (expense): |
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(3,433,379 |
) |
|
|
(2,567,064 |
) |
|
Other income (expense), net |
|
|
644,436 |
|
|
|
(656,892 |
) |
|
Investment income |
|
|
391,019 |
|
|
|
182,111 |
|
|
Loss from joint ventures |
|
|
(2,652 |
) |
|
|
(51,928 |
) |
|
Rental income |
|
|
30,552 |
|
|
|
30,552 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from utility operations before income taxes |
|
|
1,988,705 |
|
|
|
4,161,696 |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
(463,802 |
) |
|
|
(960,338 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
1,524,903 |
|
|
|
3,201,358 |
|
|
Less Series B Preferred Stock Dividends |
|
|
244,263 |
|
|
|
244,263 |
|
|
Net income attributable to common stockholders |
|
|
1,280,640 |
|
|
|
2,957,095 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average earnings per share- |
|
|
|
|
|
|
|
|
|
basic |
|
$ |
0.42 |
|
|
$ |
0.97 |
|
|
diluted |
|
$ |
0.42 |
|
|
$ |
0.95 |
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding - basic |
|
|
3,082,702 |
|
|
|
3,060,233 |
|
|
Average shares outstanding - diluted |
|
|
3,085,013 |
|
|
|
3,353,349 |
|
See accompanying notes to consolidated financial statements.
CORNING NATURAL GAS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income for the years ended September 30,
|
|
|
2021 |
|
|
2020 |
|
|
Net income |
|
$ |
1,524,903 |
|
|
$ |
3,201,358 |
|
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
Net unrealized (loss) gain on securities available for sale
net of tax of ($3,521) and $1,212, respectively |
|
|
(9,974 |
) |
|
|
3,578 |
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
1,514,929 |
|
|
$ |
3,204,936 |
|
See accompanying notes to consolidated financial statements.
CORNING NATURAL GAS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity For the Years Ended September 30, 2021 and 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
Number of |
|
|
Common |
|
|
Paid in |
|
|
Retained |
|
|
Comprehensive |
|
|
|
|
|
|
|
Shares |
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
Income |
|
|
Total |
|
|
Balances at September 30, 2019 |
|
|
3,047,060 |
|
|
$ |
30,470 |
|
|
$ |
27,745,837 |
|
|
$ |
6,634,085 |
|
|
$ |
7,313 |
|
|
$ |
34,417,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
25,487 |
|
|
|
255 |
|
|
|
379,360 |
|
|
|
— |
|
|
|
— |
|
|
|
379,615 |
|
|
Stock option expense |
|
|
— |
|
|
|
— |
|
|
|
19,505 |
|
|
|
— |
|
|
|
— |
|
|
|
19,505 |
|
|
Dividends declared on common ($0.603 per share) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,843,983 |
) |
|
|
— |
|
|
|
(1,843,983 |
) |
|
Dividends declared on Series B Preferred Stock ($1.00 per share) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(244,263 |
) |
|
|
— |
|
|
|
(244,263 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain on securities available for sale, net of income taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,578 |
|
|
|
3,578 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,201,358 |
|
|
|
— |
|
|
|
3,201,358 |
|
|
Balances at September 30, 2020 |
|
|
3,072,547 |
|
|
|
30,725 |
|
|
|
28,144,702 |
|
|
|
7,747,197 |
|
|
|
10,891 |
|
|
|
35,933,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
11,030 |
|
|
|
111 |
|
|
|
130,349 |
|
|
|
— |
|
|
|
— |
|
|
|
130,460 |
|
|
Stock option expense |
|
|
— |
|
|
|
— |
|
|
|
17,500 |
|
|
|
— |
|
|
|
— |
|
|
|
17,500 |
|
|
Dividends declared on common ($0.610 per share) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,879,591 |
) |
|
|
— |
|
|
|
(1,879,591 |
) |
|
Dividends declared on Series B Preferred Stock ($1.00 per share) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(244,263 |
) |
|
|
— |
|
|
|
(244,263 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized loss on securities available for sale, net of income taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,974 |
) |
|
|
(9,974 |
) |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,524,903 |
|
|
|
— |
|
|
|
1,524,903 |
|
|
Balances at September 30, 2021 |
|
|
3,083,577 |
|
|
$ |
30,836 |
|
|
$ |
28,292,551 |
|
|
$ |
7,148,246 |
|
|
$ |
917 |
|
|
$ |
35,472,550 |
|
See accompanying notes to consolidated financial statements.
CORNING NATURAL GAS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows for the years ended September 30,
|
|
|
2021 |
|
|
2020 |
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,524,903 |
|
|
$ |
3,201,358 |
|
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
3,338,769 |
|
|
|
2,621,385 |
|
|
Amortization of debt issuance costs |
|
|
105,879 |
|
|
|
109,512 |
|
|
Non-cash pension expenses |
|
|
941,428 |
|
|
|
933,454 |
|
|
Regulatory asset amortizations |
|
|
575,673 |
|
|
|
621,679 |
|
|
Stock issued for services and stock option expense |
|
|
96,211 |
|
|
|
197,180 |
|
|
Gain on forgiveness of debt |
|
|
(1,173,594 |
) |
|
|
— |
|
|
Gain on sale of marketable securities |
|
|
(233,681 |
) |
|
|
(49,823 |
) |
|
Unrealized gain |
|
|
(134,897 |
) |
|
|
(139,865 |
) |
|
Deferred income taxes |
|
|
446,070 |
|
|
|
1,232,417 |
|
|
Bad debt expense |
|
|
107,489 |
|
|
|
103,000 |
|
|
Loss from joint ventures |
|
|
2,652 |
|
|
|
51,928 |
|
|
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
(Increase) decrease in: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(479,978 |
) |
|
|
(113,216 |
) |
|
Gas stored underground |
|
|
(371,000 |
) |
|
|
243,485 |
|
|
Materials and supplies inventories |
|
|
(448,955 |
) |
|
|
(129,402 |
) |
|
Prepaid expenses |
|
|
55,547 |
|
|
|
(63,856 |
) |
|
Unrecovered gas and electric costs |
|
|
(20,014 |
) |
|
|
(843,725 |
) |
|
Deferred regulatory costs |
|
|
(1,842,728 |
) |
|
|
(1,243,599 |
) |
|
Other |
|
|
32,001 |
|
|
|
(185,705 |
) |
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
1,550,230 |
|
|
|
370,452 |
|
|
Accrued expenses |
|
|
(68,348 |
) |
|
|
(76,839 |
) |
|
Customer deposits and accrued interest |
|
|
(98,400 |
) |
|
|
214,837 |
|
|
Deferred compensation |
|
|
51,430 |
|
|
|
(25,668 |
) |
|
Deferred pension costs & post-retirement benefits |
|
|
(718,941 |
) |
|
|
(1,267,271 |
) |
|
Other liabilities and deferred credits |
|
|
1,005,679 |
|
|
|
(223,361 |
) |
|
Net cash provided by operating activities |
|
|
4,243,425 |
|
|
|
5,538,357 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Sale of securities, net |
|
|
214,386 |
|
|
|
184,324 |
|
|
Amount received from (paid to) related parties |
|
|
9,032 |
|
|
|
(3,214 |
) |
|
Acquisition of business, net of cash acquired |
|
|
— |
|
|
|
(1,893,081 |
) |
|
Capital expenditures |
|
|
(10,988,091 |
) |
|
|
(8,672,162 |
) |
|
Net cash used in investing activities |
|
|
(10,764,673 |
) |
|
|
(10,384,133 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Net proceeds under lines-of-credit |
|
|
(29,712 |
) |
|
|
(72,126 |
) |
|
Debt issuance costs paid |
|
|
(16,842 |
) |
|
|
— |
|
|
Cash received from sale of Series C preferred stock Net |
|
|
— |
|
|
|
4,498,394 |
|
|
Dividends paid |
|
|
(2,071,110 |
) |
|
|
(1,859,564 |
) |
|
Proceeds under demand note |
|
|
5,397,294 |
|
|
|
— |
|
|
Proceeds under long-term debt |
|
|
8,702,349 |
|
|
|
6,929,922 |
|
|
Repayment of long-term debt |
|
|
(5,538,585 |
) |
|
|
(4,553,491 |
) |
|
Net cash provided by financing activities |
|
|
6,443,394 |
|
|
|
4,943,135 |
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(77,854 |
) |
|
|
97,359 |
|
|
Cash and cash equivalents at beginning of year |
|
|
411,700 |
|
|
|
314,341 |
|
|
Cash and cash equivalents at end of year |
|
$ |
333,846 |
|
|
$ |
411,700 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
2,601,808 |
|
|
$ |
2,829,244 |
|
|
Income taxes (refunded) paid |
|
$ |
12,500 |
|
|
$ |
(341,777 |
) |
|
Non-cash financing activities: |
|
|
|
|
|
|
|
|
|
Dividends paid with shares |
|
$ |
51,749 |
|
|
$ |
201,940 |
|
|
Number of shares issued as dividends |
|
|
3,380 |
|
|
|
12,287 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
Assumption of liabilities in business acquisition |
|
$ |
— |
|
|
$ |
6,971,290 |
|
|
Issuance of Series A preferred stock as consideration for business acquisition |
|
$ |
— |
|
|
$ |
1,250,000 |
|
See accompanying notes to consolidated financial statements.
CORNING NATURAL GAS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Corning Natural Gas Holding Corporation’s (the “Holding Company”) primary business, through its subsidiaries, Corning Natural Gas Corporation (“Corning Gas” or “Gas Company”), Pike County Light & Power Company (“Pike”), Leatherstocking Gas Company, LLC (“Leatherstocking Gas”) and Leatherstocking Pipeline, LLC (“Leatherstocking Pipeline”), is natural gas and electric distribution. Corning Gas provides gas on a commodity and transportation basis to its customers in the Southern Tier of New York State. Pike provides electric and gas service to customers in Pike County, Pennsylvania. As used in these notes, the term “the Company” refers to the consolidated operations of the Holding Company, the Gas Company and its dormant subsidiary Corning Natural Gas Appliance Corporation (the “Appliance Company”), Pike, and (from July 1, 2020) Leatherstocking Gas and Leatherstocking Pipeline. The Company follows the Uniform System of Accounts prescribed by the Public Service Commission of the State of New York (“NYPSC”) which has jurisdiction over and sets rates for New York State gas distribution companies and the Pennsylvania Public Utility Commission (“PAPUC”) which has jurisdiction over and sets rates for Pennsylvania gas and electric distribution companies. The Company’s regulated operations meet the criteria to and, accordingly, follow the accounting and reporting of the Financial Accounting Standard Board (“FASB”) ASC No. 980 “Regulated Operations”. The Company’s consolidated financial statements contain the use of estimates and assumptions for reporting certain assets, liabilities, revenue and expenses and actual results could differ from the estimates. The more significant accounting policies of the Company are summarized below.
On January 12, 2021, Holding Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among Holding Company, ACP Crotona Corp. (“Parent”), and ACP Crotona Merger Sub Corp. (“Merger Sub”), pursuant to which Merger Sub will merge with and into Holding Company, and Holding Company will continue as the surviving corporation and a wholly owned subsidiary of Parent (the “Merger”). As a result of the Merger, shareholders of Holding Company will receive consideration for their shares in the following amounts: (i) $24.75 in cash, per share of common stock (the “Merger Consideration”); (ii) $25 per share of Series A preferred stock; (iii) $29.70 per share of Series B preferred stock; and (iv) $25 per share of Series C preferred stock. Amounts payable to all shareholders will include cash for any unpaid dividends. Parent and Merger Sub are affiliates of Argo Infrastructure Partners LP (“Argo”) and were formed by Argo in order to complete the Merger.
The Merger is subject to, among other customary closing conditions, the approvals of the NYPSC and the PAPUC. In addition, the Merger requires the approval of the Company’s shareholders and the expiration of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvement Act. The Merger Agreement also includes certain termination rights for both the Company and Parent and provides that, in connection with the termination of the Merger Agreement under specified circumstances, termination fees may be owed by the Company to Parent, depending on the circumstances surrounding a termination.
The Merger Agreement provided for a 45-day “Go Shop” period which expired on February 26, 2021. During the “Go Shop” period, the Company received no competing offers or alternative acquisition proposals. The Company is now subject to a customary “No Shop” provision that restricts the Company’s ability to solicit acquisition proposals from third parties and to provide non-public information and to negotiate with third parties regarding unsolicited acquisition proposals that is reasonably expected to lead to a superior proposal. On April 30, 2021, the Company and Argo filed with the NYPSC and PAPUC joint petitions requesting approval to conclude the merger. Decisions from the commissions on the merger petitions are not expected until the first half of 2022. The Merger was voted on and approved by the Company’s shareholders at its annual shareholder meeting on May 27, 2021.
In connection with the execution of the Merger Agreement, the Company has suspended its dividend reinvestment plan.
Upon consummation of the Merger, the Company’s common stock will be delisted from the OTCQX and deregistered under the Exchange Act as soon as practicable.
(a) Principles of Consolidation and Presentation
The consolidated financial statements include the Holding Company and its wholly owned subsidiaries, Corning Gas, Pike, the Appliance Company and (from July 1, 2020) Leatherstocking Gas and Leatherstocking Pipeline. All intercompany accounts and balances have been eliminated.
It is the Company’s policy to reclassify amounts in the prior year financial statements to conform to the current year presentation.
(b) Utility Property, Plant and Equipment
Utility property, plant and equipment are stated at the historical cost of construction or acquisition. These costs include payroll, fringe benefits, materials and supplies and transportation costs. The Company charges normal repairs to maintenance expense.
(c) Depreciation
The Company provides for depreciation for accounting purposes using a straight-line method based on the estimated economic lives of property and equipment as determined by the current rate plan based on the latest depreciation study. At the time utility properties are retired, costs of removal less any salvage are charged to accumulated depreciation.
The depreciation rate used for Corning Gas utility plant, expressed as an annual percentage of depreciable property, was 1.9% for the fiscal year ended September 30, 2021 (“FY 2021”) and 1.9% for the fiscal year ended September 30, 2020 (“FY 2020”). The NYPSC allows the Gas Company recovery in revenues to offset costs of building certain projects.
The depreciation rate used for Pike, expressed as an annual percentage of depreciable property, was 3.8% for FY 2021 and 2.5% for FY 2020.
The depreciation rate used for the Leatherstocking Companies, expressed as an annual percentage of depreciable property, was 4.1% for FY 2021 and 3.4% for FY 2020. The PAPUC allows Leatherstocking Gas to collect revenues from customers to offset cost of gas distribution system build out.
(d) Accounting for Impairment
FASB ASC No. 360-10-15, “Accounting for the Impairment or Disposal of Long-Lived Assets” establishes accounting standards to account for the impairment of long-lived assets, and certain identifiable intangibles. Under FASB ASC No. 360-10-15, the Company reviews assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. FASB ASC No. 360-10-15 also requires that a rate regulated enterprise recognize an impairment when regulatory assets are no longer probable of recovery. No impairment losses were incurred for FY 2021 and FY 2020.
(e) Marketable Securities
Marketable securities are intended to fund the Gas Company’s deferred compensation plan obligations. Such securities are reported at fair value based on quoted market prices. Unrealized gains and losses on debt securities classified as available for sale, net of the related income tax effect, are excluded from income, and reported as a component of accumulated other comprehensive income in stockholders’ equity until realized. Unrealized gains and losses on equity securities are included as a component of investment income in the consolidated statement of income. The cost of securities sold was determined using the specific identification method. For all investments in the unrealized loss position, none have been in an unrealized loss position for more than 12 months. None are other than temporary impairments based on management’s analysis of available market research. In FY 2021 and FY 2020, the Gas Company sold equity securities for realized gains included in earnings of $233,681 and $49,823, respectively.
(f) Fair Value of Financial Instruments
The Company has determined the fair value of debt and other financial instruments using a valuation hierarchy. The hierarchy, which prioritizes the inputs used in measuring fair value, consists of three levels. Level 1 uses observable inputs such as quoted prices in active markets; Level 2 uses inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, which is defined as unobservable inputs in which little or no market data exists, requires the Company to develop its own assumptions. The carrying amount of debt on the Consolidated Balance Sheets approximates fair value as a result of instruments bearing interest rates that approximate current market rates for similar instruments, and the carrying amounts for cash, accounts receivable and accounts payable approximate fair value due to their short-term nature. The assets used to fund the pension plan and marketable securities, which fund the Gas Company’s deferred compensation plan, are valued based on Level 1 inputs.
The Company has determined the fair value of certain assets through application of FASB ASC 820 “Fair Value Measurements and Disclosures”.
Fair value of assets and liabilities measured on a recurring basis at September 30, 2021 and 2020 are as follows:
|
Fair Value Measurements at Reporting Date Using: |
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
Quoted Prices in Active Markets for
Identical Assets/Liabilities (Level 1) |
|
|
Level 2 |
|
|
Level 3 |
|
|
September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities |
|
$ |
2,337,330 |
|
|
|
$ |
2,337,330 |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities |
|
$ |
2,193,112 |
|
|
|
$ |
2,193,112 |
|
|
|
$ |
— |
|
|
$ |
— |
|
Financial assets and liabilities valued using level 1 inputs are based on unadjusted quoted market prices within active markets.
The pension assets in Note 12 are valued using level 1 inputs.
(g) Cash and Cash Equivalents
Cash and cash equivalents include time deposits, certificates of deposit, and all highly liquid debt instruments with original maturities of three months or less. Cash and cash equivalents at financial institutions may periodically exceed federally insured limits.
(h) Accounts Receivable
Accounts receivable are stated net of an allowance for doubtful accounts. The Company estimates the allowance based on its analysis of specific balances, taking into consideration the age of past due accounts and relying on rules and guidelines established by the NYPSC and PAPUC regarding customer disconnects.
(i) Gas Stored Underground
Gas stored underground is carried at an average unit cost method as prescribed by the NYPSC. Pike and Leatherstocking Gas do not have any gas storage.
(j) Materials and Supplies Inventories
Materials and supplies inventories are stated at the lower of cost or net realizable value, cost being determined on an average unit price basis.
(k) Debt Issuance Costs
Debt issuance costs are presented as a direct deduction from the associated debt. Costs associated with the issuance of debt by the Company are amortized over the lives of the related debt.
(l) Regulatory Matters
Certain costs of the Company are deferred and recognized as expenses when they are reflected in rates and recovered from customers as permitted by FASB ASC No. 980. These costs are shown as regulatory assets. Such costs arise from the traditional cost-of-service rate setting approach whereby all prudently incurred costs are generally recoverable through rates. Deferral of these costs is appropriate while the Company’s rates are regulated under a cost-of-service approach of the NYPSC and PAPUC for utilities (see Note 5 - Regulatory Matters).
As regulated utilities, the Company defers certain costs for future recovery. In a purely competitive environment, such costs might have been currently expensed. Accordingly, if the Company’s rate settings were changed from a cost-of-service approach and the Gas Company, Pike and Leatherstocking Gas were no longer allowed to defer these costs under FASB ASC No. 980, certain of these assets might not be fully recoverable. However, the Company cannot predict the impact, if any, of competition and continues to operate in a cost-of-service based regulatory environment. Accordingly, the Company believes that accounting under FASB ASC No. 980 is appropriate.
(m) Revenue Recognition
The Company has the obligation to deliver gas and electricity to its customers. As gas and electricity are immediately available for use upon delivery to the customer, the gas or electricity and its delivery are identifiable as a single performance obligation. The Company recognizes revenues as this performance obligation is satisfied over time as the Company delivers, and its customers simultaneously receive and consume, the gas or electricity. The amount of revenues recognized reflects the consideration the Company expects to receive in exchange for delivering the gas or electricity. Under their tariffs, the transaction price for full-service customers includes the Company’s energy cost and for all customers includes delivery charges determined based on customer class and in accordance with established tariffs and guidelines of the NYPSC or the PAPUC, as applicable. Accordingly, there is no unsatisfied performance obligation associated with these customers. The transaction price is applied to the Company’s revenue generating activities through the customer billing process. Because gas and electricity are delivered over time, the Company uses output methods that recognize revenue based on direct measurement of the value transferred, such as units delivered, which provides an accurate measure of value for the gas or electricity delivered.
The Gas Company records revenues from residential and commercial customers based on meters read on a cyclical basis throughout each month, while certain large industrial and utility customers’ meters are read at the end of each month. Several meters are read at the end of each month to calculate local production revenues. The Gas Company does not accrue revenue for gas delivered but not yet billed, as the NYPSC requires that such accounting must be adopted during a rate proceeding which the Gas Company has not done. The Gas Company, as part of its currently effective rate plan, has a weather normalization clause as protection against severe weather fluctuations. This affects space heating customers and is activated when degree days are 2.2% greater or less than the 30-year average. As a result, the effect on revenue fluctuations of weather related gas sales is somewhat moderated.
Pike recognizes revenues for electric and gas service on a monthly billing cycle basis. Pike does not record unbilled revenues. Pike does not have a weather normalization clause as protection against severe weather.
Leatherstocking Gas recognizes revenues for gas service on a monthly billing cycle basis. Leatherstocking Gas does not record unbilled revenues. Leatherstocking Gas does not have a weather normalization clause as protection against severe weather.
In addition to weather normalization, the Gas Company has implemented a revenue decoupling mechanism (“RDM”). The RDM reconciles actual delivery service revenues to allowed delivery service revenues (which are based on the annual customer and volume forecasts in the last rate case) for certain residential customers. The Gas Company will refund or surcharge customers for differences between actual and allowed revenues. The shortfall or excess after the annual reconciliation will be surcharged or refunded to customers over a twelve-month period starting September 1st each year. Pike and Leatherstocking Gas do not have a revenue decoupling mechanism as part of their rate structure.
Revenues are recorded as energy is delivered, generated, or services are provided and billed to customers. Amounts billed are recorded in customer accounts receivable, with payment generally due the following month.
For additional disclosures required by ASC 606, see Note 2.
(n) Cost of Sales
Cost of sales consists only of the costs of purchasing gas and electricity sold during the period presented.
Gas purchases are recorded on readings of suppliers’ meters as of the end of each month. The Company’s rate tariffs include a Gas Adjustment Clause (“GAC”) or Gas Rate Clause (“GRC”) which adjusts rates to reflect changes in gas costs from levels established in the rate setting process. In order to match such costs and revenue, the NYPSC and PAPUC have provided for an annual reconciliation of recoverable GAC and GRC costs with applicable revenue billed. Any excess or deficiency in GAC and GRC revenue billed is deferred and the balance at the reconciliation date is either refunded to or recovered from customers over a subsequent twelve-month period.
As part of its rate structure for electric sales, Pike is required to file semi-annually a Statement of Default Services Charges. The Default Service Charges are separated into two components: (1) the Market Price of Electric Supply which is based on the forecast of electric supply costs applied to service classification-specific factors to reflect each service classification’s load characteristics, forecast sales and applicable losses, and (2) an Electric Supply Adjustment Charge to reconcile differences between default service revenues and costs. The new electric rates go into effect on the first day of the month after the filing is accepted.
(o) Operating and Maintenance Expense
Operating and maintenance expense includes all personnel, administrative, and marketing expenses of the Company, as well as expenses incurred in the maintenance of the Company’s utility property, plant and equipment.
(p) Federal Income Tax
The Company uses the asset and liability method to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the Holding Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. In addition, such deferred tax assets and liabilities will be adjusted for the effects of enacted changes in tax laws and rates.
(q) Revenue Taxes
The Gas Company collects state revenue taxes on residential delivery rates. The amount included in Revenue and Taxes other than Income Taxes was $280,777 and $300,286 in FY 2021 and FY 2020, respectively. Pike collects state taxes on total revenue. The amounts collected were $486,456 and $409,266 in FY 2021 and FY 2020, respectively.
(r) Stock Based Compensation
The Holding Company accounts for stock based awarded in accordance with FASB ASC No. 718. The Holding Company awarded restricted shares as compensation to our directors. The shares awarded become unrestricted upon a director leaving the board. Directors who also serve as officers of Corning Gas are not compensated for their service as directors. Since these shares are restricted, in recording compensation expense, the expense incurred is recorded at 25% less than the closing price of the stock on the day the stock was awarded. The fair value of stock options is determined using the Black Scholes option pricing model and expense recognition is based on the vesting provisions of the options granted.
(s) Earnings Per Share
Basic earnings per share are computed by dividing income available for common stock (net income less dividends declared on Series B Preferred Stock) by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
For FY 2021, the impact of 10,000 of the stock options outstanding as of September 30, 2021 and the impact of Preferred B shares were determined to be anti-dilutive and were not included in diluted shares. For FY 2020, the impact of 10,000 stock options outstanding as of September 30, 2020 was determined to be anti-dilutive and were not included in diluted shares. The net income and average shares outstanding used to compute basic and diluted earnings per share for FY 2021 and FY 2020 are as follows:
|
|
|
FY 2021 |
|
|
Net income attributable to common stockholders |
|
$ |
1,280,640 |
|
|
Average shares outstanding - basic |
|
|
3,082,702 |
|
|
Dilutive option shares |
|
|
2,311 |
|
|
Average shares outstanding - diluted |
|
|
3,085,013 |
|
|
|
|
FY 2020 |
|
|
Net income attributable to common stockholders |
|
$ |
2,957,095 |
|
|
Add Preferred B Dividends |
|
|
244,263 |
|
|
Net income |
|
$ |
3,201,358 |
|
|
|
|
|
|
|
|
Average shares outstanding - basic |
|
|
3,060,233 |
|
|
Effect of Preferred B Shares |
|
|
293,116 |
|
|
Average shares outstanding - diluted |
|
|
3,353,349 |
|
(t) Collective Bargaining Agreement
The Company had 73 employees as of September 30, 2021, and 72 employees as of September 30, 2020. Of this total, approximately one third are members of the International Brotherhood of Electrical Workers Local 139 labor union working under an agreement effective until April 3, 2023.
(u) Joint Ventures
Through June 30, 2020, the Holding Company had a 50% investment in Leatherstocking Gas Company, LLC and Leatherstocking Pipeline Company, LLC. The investment and equity in both companies (collectively, “Joint Ventures”) has been recognized in the consolidated financial statements. On July 1, 2020, Leatherstocking Gas Company, LLC distributed it’s New York assets into a new joint venture of which the Holding Company owns 50% and the Holding Company acquired the remaining 50% interests in Leatherstocking Gas, LLC’s Pennsylvania assets and the remaining 50% interests in Leatherstocking Pipeline Company, LLC. See Note 16. The Holding Company has accounted for its equity investments using the equity method of accounting based on the guidelines established in FASB ASC No. 323. In applying the guidance of FASB ASC 323, the Holding Company recognized the investment in the Joint Ventures as an asset at cost. The investment will fluctuate in future periods based on the Holding Company’s allocable share of earnings or losses from the remaining Joint Venture which is recognized through earnings. The Company’s Joint Venture interest was under contract for sale subsequent to September 30, 2021. See Note 17.
(v) Preferred Stock and Temporary Equity
The Holding Company classifies conditionally redeemable convertible preferred shares, which includes preferred shares subject to redemption upon the occurrence of uncertain events not solely within control of the Holding Company, as temporary equity in the mezzanine section of the consolidated balance sheets, in accordance with the guidance enumerated in FASB ASC No. 480-10 "Distinguishing Liabilities from Equity". The Company also analyzes the embedded conversion feature for bifurcation, based on whether the host instrument has more equity-like or debt-like characteristics. Dividends are recorded as a reduction to retained earnings and issuance costs reduce the initial proceeds and are then accreted over the life of the instrument to the redemption amount.
The Holding Company records mandatorily redeemable stock as a liability in accordance with FASB ASC No. 480. Dividends are recorded as interest expense and issuance costs are treated the same way as debt issuance costs.
(w) Adoption of New Accounting Guidance
On October 1, 2019, we adopted Accounting Standards Update (“ASU”) 2016-02 “Leases” (Accounting Standards Codification (“ASC”) Topic 842), including the amendments thereto, using a modified retrospective transition method of adoption that required no prior period adjustments or charges to retained earnings for cumulative impact. From a lessee standpoint, on December 13, 2019 the Company purchased the only material item for $280,000, which had been previously leased, a section of 10” gas main. Prior to purchase, the Company paid a nominal fee annually for the use of this 10“ gas main. The Company did not change how this lease was accounted for prior to purchase. From a lessor standpoint, the only material lease is the lease of space in the Company’s headquarters to a local appliance company. This lease is an operating lease for which the Company receives less than $50,000 annually. The accounting for the lease did not change upon adoption of the new standard and there was no significant impact on these consolidated financial statements as a result of adoption of the new standard.
On October 1, 2020, we adopted ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans, which amends the existing guidance relating to the disclosure requirements for Defined Benefit Plans. The adoption of this standard did not have a significant impact on the Company’s consolidated financial statements and related disclosures.
(x) New Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), which provides a model, known as the current expected credit loss model, to estimate the expected lifetime credit loss on financial assets, including trade and other receivables, rather than incurred losses over the remaining life of most financial assets measured at amortized cost. The guidance also requires use of an allowance to record estimated credit losses on available-for-sale debt securities. The new standard is effective for annual and interim periods beginning after December 15, 2022. The Company is currently evaluating the impact of the guidance on their consolidated financial statements and related disclosures.
In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The new standard is effective for annual and interim periods beginning after December 15, 2021. The Company is currently evaluating the impact of the guidance on their consolidated financial statements and related disclosures.
(2) Revenue from Contracts with Customers
The following tables present revenue from contracts with customers as defined in ASC 606, as well as additional revenue from sources other than contracts with customers, disaggregated by major source.
|
|
|
For the year ended September 30, 2021 |
|
|
|
Revenues from
contracts with
customers |
|
|
Other
revenues (a) |
|
|
Total utility
operating revenues |
|
|
Corning Gas: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential gas |
|
$ |
14,369,001 |
|
|
$ |
760,395 |
|
|
$ |
15,129,396 |
|
|
Commercial gas |
|
|
1,892,109 |
|
|
|
— |
|
|
|
1,892,109 |
|
|
Transportation |
|
|
4,435,578 |
|
|
|
(98,697 |
) |
|
|
4,336,881 |
|
|
Street lights gas |
|
|
493 |
|
|
|
— |
|
|
|
493 |
|
|
Wholesale |
|
|
1,859,538 |
|
|
|
— |
|
|
|
1,859,538 |
|
|
Local production |
|
|
509,933 |
|
|
|
— |
|
|
|
509,933 |
|
|
Total Corning Gas |
|
|
23,066,652 |
|
|
|
661,698 |
|
|
|
23,728,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pike: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential gas |
|
|
1,437,506 |
|
|
|
(2,688 |
) |
|
|
1,434,818 |
|
|
Commercial gas |
|
|
434,417 |
|
|
|
— |
|
|
|
434,417 |
|
|
Total Pike retail gas |
|
|
1,871,923 |
|
|
|
(2,688 |
) |
|
|
1,869,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential electric |
|
|
4,136,041 |
|
|
|
205,282 |
|
|
|
4,341,323 |
|
|
Commercial electric |
|
|
3,900,393 |
|
|
|
— |
|
|
|
3,900,393 |
|
|
Electric – street lights |
|
|
132,405 |
|
|
|
— |
|
|
|
132,405 |
|
|
Total Pike retail electric |
|
|
8,168,839 |
|
|
|
205,282 |
|
|
|
8,374,121 |
|
|
Total Pike |
|
|
10,040,762 |
|
|
|
202,594 |
|
|
|
10,243,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leatherstocking Companies (acquired July 1, 2020): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential gas |
|
|
423,269 |
|
|
|
— |
|
|
|
423,269 |
|
|
Commercial gas |
|
|
364,235 |
|
|
|
— |
|
|
|
364,235 |
|
|
Industrial Sales |
|
|
476,335 |
|
|
|
— |
|
|
|
476,335 |
|
|
Total Leatherstocking Companies |
|
|
1,263,839 |
|
|
|
— |
|
|
|
1,263,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated utility operating revenue |
|
$ |
34,371,253 |
|
|
$ |
864,292 |
|
|
$ |
35,235,545 |
|
|
|
|
For the year ended September 30, 2020 |
|
|
|
Revenues from
contracts with
customers |
|
|
Other
revenues (a) |
|
|
Total utility
operating revenues |
|
|
Corning Gas: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential gas |
|
$ |
14,627,661 |
|
|
$ |
134,775 |
|
|
$ |
14,762,436 |
|
|
Commercial gas |
|
|
2,081,125 |
|
|
|
— |
|
|
|
2,081,125 |
|
|
Transportation |
|
|
4,359,621 |
|
|
|
177,991 |
|
|
|
4,537,612 |
|
|
Street lights gas |
|
|
390 |
|
|
|
— |
|
|
|
390 |
|
|
Wholesale |
|
|
1,731,433 |
|
|
|
— |
|
|
|
1,731,433 |
|
|
Local production |
|
|
694,237 |
|
|
|
— |
|
|
|
694,237 |
|
|
Total Corning Gas |
|
|
23,494,467 |
|
|
|
312,766 |
|
|
|
23,807,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pike: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential gas |
|
|
1,139,761 |
|
|
|
2,932 |
|
|
|
1,142,693 |
|
|
Commercial gas |
|
|
303,961 |
|
|
|
— |
|
|
|
303,961 |
|
|
Total Pike retail gas |
|
|
1,443,722 |
|
|
|
2,932 |
|
|
|
1,446,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential electric |
|
|
3,449,852 |
|
|
|
139,178 |
|
|
|
3,589,030 |
|
|
Commercial electric |
|
|
3,288,582 |
|
|
|
— |
|
|
|
3,288,582 |
|
|
Electric – street lights |
|
|
123,055 |
|
|
|
— |
|
|
|
123,055 |
|
|
Total Pike retail electric |
|
|
6,861,489 |
|
|
|
139,178 |
|
|
|
7,000,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Pike |
|
|
8,305,211 |
|
|
|
142,110 |
|
|
|
8,447,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leatherstocking Companies (from July 1, 2020): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential gas |
|
|
47,117 |
|
|
|
— |
|
|
|
47,117 |
|
|
Commercial gas |
|
|
31,031 |
|
|
|
— |
|
|
|
31,031 |
|
|
Industrial Sales |
|
|
53,183 |
|
|
|
— |
|
|
|
53,183 |
|
|
Total Leatherstocking Companies |
|
|
131,331 |
|
|
|
— |
|
|
|
131,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated utility operating revenue |
|
$ |
31,931,009 |
|
|
$ |
454,876 |
|
|
$ |
32,385,885 |
|
(a) Other revenues include revenue from alternative revenue programs, such as revenue decoupling mechanisms under New York gas rate plans and weather normalization clauses. This also reflects reductions in revenues resulting from the deferral as regulatory liabilities of the net benefits of the federal Tax Act of 2017.
The Gas Company has three major customers, Corning Incorporated, New York State Electric & Gas, and Bath Electric, Gas & Water Systems. Although no customer represents at least 10% of our total revenue, the loss of any of these customers could have a significant impact on the Company’s financial results.
(3) Utility Property, Plant and Equipment
The following table summarizes fixed assets included in utility property, plant and equipment on the Holding Company’s Consolidated Balance Sheets at September 30, 2021 and 2020:
|
|
|
2021 |
|
|
2020 |
|
|
Utility Plant |
|
$ |
5,228,063 |
|
|
$ |
5,071,273 |
|
|
Poles & Line |
|
|
16,925,822 |
|
|
|
16,747,567 |
|
|
Pipeline |
|
|
67,353,865 |
|
|
|
62,778,752 |
|
|
Structures |
|
|
43,685,341 |
|
|
|
40,492,351 |
|
|
Land |
|
|
1,597,660 |
|
|
|
1,825,453 |
|
|
Construction Work in Progress |
|
|
8,044,993 |
|
|
|
5,208,487 |
|
|
All Other |
|
|
7,704,781 |
|
|
|
7,619,406 |
|
|
|
|
$ |
150,540,525 |
|
|
$ |
139,743,289 |
|
Useful lives for the above assets range from 35 to 55 years for utility plant, 30 to 65 years for poles and line, 66 years for pipeline, from 45 to 47 years for structures, 50 to 65 years for land rights and 5 to 25 years for all other and corporate fixed assets. Utility plant includes station equipment, services, meters, regulators including all costs to install those assets. Poles and line include poles, line and conductors. Total mains installed are represented in pipeline. Structures include both regulator station buildings and office and operations buildings. All other plant includes all general plant except for buildings and land and land rights. Accumulated depreciation as of September 30, 2021 and 2020 was $34,001,558 and $30,853,644 respectively. Depreciation expense for FY 2021 and FY 2020 was $3,338,769 and $2,621,385 respectively.
(4) Marketable Securities
A summary of the marketable securities at September 30, 2021 and 2020 is as follows:
|
|
|
Cost Basis |
|
Unrealized Gain |
|
Unrealized Loss |
|
Market Value |
|
|
September 30, 2021: |
|
|
|
|
|
|
|
|
|
|
Cash and equivalents |
|
$ |
148,327 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
148,327 |
|
|
Metlife stock value |
|
|
53,855 |
|
|
|
— |
|
|
|
2,496 |
|
|
|
51,359 |
|
|
Government and agency bonds |
|
|
15,072 |
|
|
|
1,243 |
|
|
|
— |
|
|
|
16,315 |
|
|
Corning Preferred A Stock |
|
|
197,875 |
|
|
|
400,207 |
|
|
|
— |
|
|
|
598,082 |
|
|
Equity securities |
|
|
1,122,826 |
|
|
|
367,741 |
|
|
|
— |
|
|
|
1,490,567 |
|
|
Commodities |
|
|
33,420 |
|
|
|
— |
|
|
|
740 |
|
|
|
32,680 |
|
|
Total securities |
|
$ |
1,571,375 |
|
|
$ |
769,191 |
|
|
$ |
3,236 |
|
|
$ |
2,337,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents |
|
$ |
120,559 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
120,559 |
|
|
Metlife stock value |
|
|
30,701 |
|
|
|
— |
|
|
|
— |
|
|
|
30,701 |
|
|
Government and agency bonds |
|
|
143,960 |
|
|
|
9,312 |
|
|
|
— |
|
|
|
153,272 |
|
|
Corporate bonds |
|
|
143,196 |
|
|
|
3,951 |
|
|
|
— |
|
|
|
147,147 |
|
|
Mutual funds |
|
|
42,664 |
|
|
|
2,414 |
|
|
|
— |
|
|
|
45,078 |
|
|
Corning Preferred A Stock |
|
|
572,875 |
|
|
|
45,830 |
|
|
|
— |
|
|
|
618,705 |
|
|
Equity securities |
|
|
788,793 |
|
|
|
265,654 |
|
|
|
|
|
|
|
1,054,447 |
|
|
Commodities |
|
|
21,881 |
|
|
|
1,322 |
|
|
|
— |
|
|
|
23,203 |
|
|
Total securities |
|
$ |
1,864,629 |
|
|
$ |
328,483 |
|
|
$ |
— |
|
|
$ |
2,193,112 |
|
Government and agency bonds have contractual maturity dates of March 15, 2027.
(5) Regulatory Matters
Below is a summary of the Gas Company’s deferred regulatory assets as of September 30, 2021 and 2020:
|
|
|
2021 |
|
|
2020 |
|
|
Unrecovered gas and electric costs |
|
$ |
1,986,198 |
|
|
$ |
1,966,184 |
|
|
Deferred regulatory costs |
|
|
6,112,370 |
|
|
|
4,894,434 |
|
|
Deferred pension costs |
|
|
4,902,666 |
|
|
|
7,352,839 |
|
|
Total regulatory assets |
|
$ |
13,001,234 |
|
|
$ |
14,213,457 |
|
Unrecovered gas costs arise from an annual reconciliation of certain gas revenue and costs (as described in Note 1) and are recoverable in customer rates in the year following the reconciliation.
The following table summarizes deferred regulatory costs at September 30, 2021 and 2020:
|
|
|
2021 |
|
|
2020 |
|
|
2016 rate case costs |
|
$ |
118,241 |
|
|
$ |
158,353 |
|
|
2020 rate case costs |
|
|
1,001,411 |
|
|
|
443,597 |
|
|
2021 rate case costs |
|
|
204,365 |
|
|
|
- |
|
|
Deferred interest costs |
|
|
557,950 |
|
|
|
740,612 |
|
|
Income tax assets and reconciliation |
|
|
2,000,510 |
|
|
|
1,448,365 |
|
|
Storm costs |
|
|
932,977 |
|
|
|
1,086,215 |
|
|
Leak repair costs |
|
|
174,774 |
|
|
|
349,547 |
|
|
Delivery rate deferral |
|
|
244,260 |
|
|
|
513,605 |
|
|
Revenue decoupling |
|
|
467,449 |
|
|
|
(153,061 |
) |
|
All other regulatory costs, net |
|
|
410,433 |
|
|
|
307,201 |
|
|
Total |
|
$ |
6,112,370 |
|
|
$ |
4,894,434 |
|
Deferred rate case costs are costs that were incurred to litigate prior base rate cases. These costs are recovered in rates over a period determined by the NYPSC or PAPUC. All other deferred costs result from reconciliations approved by the regulators in the last base rate case or by specific Commission directives. Recovery of these costs will be determined by the NYPSC and PAPUC either through Delivery Rate Adjustment or the next rate case.
In fiscal year 2015 the Gas Company determined that it met the criteria to record the minimum pension liability as a regulatory asset in accordance with FASB ASC 980-715-25-5. As a result of this change in estimate, amounts previously recorded as Accumulated Other Comprehensive Income, net of tax has been recorded as regulatory assets in the current year in accordance with ASC 980-715-25-8, as well as a related deferred tax liability. The amount of the regulatory asset was $3,645,340 as of September 30, 2021 and $6,307,265 as of September 30, 2020. For periods after the fiscal year ended September 30, 2015, there will be no change to Other Comprehensive Income because of the change in estimate. Factors considered included: (1) consistent recovery of the pension costs on an accrual basis historically and in the current rate case, (2) no indication of expected changes to recovery, and (3) the existence of a reconciliation process to track the recovery of these costs. For these reasons management determined the Gas Company met the criteria as set forth in ASC 980-725-25-5.
Also included in pension costs and post-retirement benefits is approximately $1,257,326 and $1,045,574 for FY 2021 and FY 2020, respectively, for regulatory assets and (liabilities) related to pension and post-retirement costs. These amounts include both amounts approved to be amortized in the previous rate case and amounts being accumulated for the next rate case.
The Company expects to recover the cost of its regulatory assets. The Company expects that regulatory assets other than deferred unrecovered gas costs and deferred pension costs related to minimum pension liability will be fully recoverable from customers by the end of its next rate case.
Total Regulatory Assets on the Consolidated Balance Sheets as of September 30, 2021 amount to $13,001,234 compared to $14,213,457 at September 30, 2020. The Regulatory Assets include $174,774 at September 30, 2021 and $1,435,762 at September 30, 2020 that is subject to Deferred Accounting Petitions. The remaining items in regulatory assets are either approved in rates, part of annual reconciliations approved by the NYSPSC and PAPUC or approved through various commission directives.
(6) Long-term Debt
Long-term debt, including the current portion, was as follows at September 30, 2021 and 2020:
|
|
|
2021 |
|
|
2020 |
|
|
|
|
|
|
|
|
|
|
(a) Note Payable - fixed interest rate of 4.16% with monthly installments through November 2027 |
|
$ |
19,293,736 |
|
|
$ |
21,978,316 |
|
|
(b) Note Payable - fixed interest rate of 4.92% with monthly installments through May 2028 |
|
|
8,068,356 |
|
|
|
9,064,012 |
|
|
(c) Multiple Disbursement Note – fixed interest rate of 4.74% with monthly installments through November 2028 |
|
|
2,719,487 |
|
|
|
3,035,067 |
|
|
(d) Multiple Disbursement Note – fixed interest rate of 3.64% with monthly installments through November 2028 |
|
|
2,614,859 |
|
|
|
2,887,401 |
|
|
(e) Multiple Disbursement Note – fixed interest rate of 3.53% with monthly installments through November 2029 |
|
|
1,775,970 |
|
|
|
1,955,778 |
|
|
(f) Multiple Disbursement Note – fixed interest rate of 3.40% with monthly installments through November 2029 |
|
|
3,504,771 |
|
|
|
3,687,741 |
|
|
(g) Multiple Disbursement Note – fixed interest rate of 3.40% with monthly installments through March 2031 |
|
|
1,204,530 |
|
|
|
— |
|
|
(h) Multiple Disbursement Note – variable interest rate through October 2021, fixed at 3.40% thereafter, with monthly installments through November 2031 |
|
|
4,665,000 |
|
|
|
— |
|
|
(i) Multiple Disbursement Note – variable interest rate through October 2021, fixed at 3.40% thereafter, with monthly installments through November 2031 |
|
|
1,966,823 |
|
|
|
— |
|
|
(j) Multiple Disbursement Note – variable interest rate through October 2021, fixed at 4.75% thereafter, with monthly installments through November 2031 |
|
|
653,934 |
|
|
|
— |
|
|
(k) Note Payable – fixed interest rate of 4.89% with monthly installments through February 2029 |
|
|
386,138 |
|
|
|
431,485 |
|
|
(l) Note Payable – fixed interest rate of 4.75% with monthly installments through February 2029 |
|
|
4,751,148 |
|
|
|
5,223,833 |
|
|
(m) Note Payable – fixed interest rate of 4.75% with monthly installments through February 2029 |
|
|
501,566 |
|
|
|
560,752 |
|
|
(n) Paycheck Protection Program loans – forgiven in FY 2021 |
|
|
— |
|
|
|
1,173,591 |
|
|
Vehicle loans - variable interest rate ranging from 3.30% to 5.83% |
|
|
446,546 |
|
|
|
564,718 |
|
|
Total long-term debt |
|
|
52,552,864 |
|
|
|
50,562,694 |
|
|
Less current installments |
|
|
6,407,545 |
|
|
|
6,271,068 |
|
|
Long-term debt less current installments |
|
$ |
46,145,319 |
|
|
$ |
44,291,626 |
|
The aggregate maturities of long-term debt for each of the five years subsequent to September 30, 2021 are as follows:
|
2022 |
|
$ |
6,407,545 |
|
|
2023 |
|
$ |
6,624,807 |
|
|
2024 |
|
$ |
6,836,192 |
|
|
2025 |
|
$ |
7,081,604 |
|
|
2026 |
|
$ |
7,379,639 |
|
(a) On August 31, 2020, the Gas Company entered into a fourth amended replacement and restated credit agreement (“the August 2020 Credit Agreement”) with M&T Bank (“M&T”). The August 2020 Credit Agreement governs the Gas Company’s term note from November 2017 with an original principal of $29,000,000, the Gas Company’s multiple disbursement notes, and the Gas Company’s $8.0 million line of credit loan is subject to customary debt covenants. On November 30, 2017, the Gas Company entered into a long-term debt agreement with M&T for $29 million at a fixed rate of 4.16% with a ten year maturity. Principal and interest payments on this term note commenced on December 30, 2017, with 120 consecutive monthly payments of $296,651 due on the last day of each month, with the unpaid principal and any unpaid interest due and payable in full on November 30, 2027. This term note may be prepaid upon payment of a prepayment premium equal to the greater of 1% of the amount prepaid or the present value of the spread between the 4.16% fixed interest rate and the then current “market rate” based on the most recent U.S. Treasury Obligations with a term corresponding to the remaining period to the maturity date. This term note is subject to the terms of the August 2020 Credit Agreement.
(b) On May 23, 2018, Pike entered into a credit agreement (the “May 2018 Credit Agreement”) with M&T and refinanced its outstanding loan with M&T, issuing an $11.2 million term note pursuant to the May 2018 Credit Agreement. The note bears interest at 4.92%. The note is payable in 119 consecutive monthly payments of $118,763 plus accrued interest, beginning on June 23, 2018 with a final payment of unpaid principal and interest on the maturity date of May 23, 2028. The note is secured by all personal property of Pike. Pike will owe a pre-payment penalty of 1% on any pre-paid principal made in advance of the maturity date. This loan is subject to customary debt covenants.
(c) On August 15, 2018, the Gas Company entered into a $3.6 million multiple disbursement term note with M&T which permitted draws from time to time in accordance with its terms until October 31, 2018 at which time amounts outstanding under the note totaling $3.6 million converted to a ten year term loan to be payable in 119 equal monthly installments with an additional final installment of unpaid principal and interest due on November 30, 2028. Before converting to a term loan, the note bore interest at the one-month LIBOR rate plus 3%. After October 31, 2018, the interest rate was fixed at 4.71%. This term note is subject to the terms of the August 2020 Credit Agreement.
(d) On June 27, 2019, the Gas Company entered into a $3.127 million multiple disbursement term note with Manufactures and Traders Trust Company Bank (“M&T”) which permitted draws from time to time for capital expenditures in accordance with its terms until October 31, 2019 at which time amounts outstanding under the note totaling $3.127 million converted to a ten year term loan, payable in 119 equal monthly installments with an additional final installment of unpaid principal and interest due on November 30, 2029. Before converting to a term loan, borrowings on the note had a variable interest rate of the one-month LIBOR rate plus 3%. After October 31, 2019, the interest rate was fixed at 3.51%. This term note is subject to the terms of the August 2020 Credit Agreement.
(e) On June 27, 2019, Pike entered into a $2.072 million multiple disbursement term note with M&T which permitted draws from time to time for capital expenditures in accordance with its terms until October 31, 2019 at which time amounts outstanding under the note totaling $2.072 million converted to a ten year term loan, payable in 119 equal monthly installments with an additional final installment of unpaid principal and interest due on November 30, 2029. Before converting to a term loan, borrowings on the note had a variable interest rate of the one-month LIBOR rate plus 3%. After October 31, 2019, the interest rate was fixed at 3.51%. This term note is subject to the terms of the August 2020 Credit Agreement.
(f) On August 31, 2020, Corning Gas entered into a $3.718 million multiple disbursement term note with M&T which permitted draws from time to time to pay down $250,000 of existing M&T debt and for capital expenditures in accordance with its terms until October 31, 2020 at which time amounts outstanding under the note totaling $3.718 million converted to a ten year term loan, payable in 119 equal monthly installments with an additional final installment of unpaid principal and interest due on November 30, 2030. Before converting to a term loan, borrowings on the note had a variable interest rate of 3.0% plus the greater of one-month LIBOR or 0.5%. After October 31, 2020, the interest rate was fixed at 3.5%. This term note is subject to the terms of the June 2021 Credit Agreement.
(g) On October 13, 2020, Pike entered into a $1.315 million multiple disbursement term note with M&T which permitted draws from time to time for capital expenditures until it converted into a 10 year term loan, payable in 119 equal monthly installments with an additional final installment of unpaid principal and interest due on March 15, 2021. At March 31, 2021, the interest rate was fixed at 3.4%.
(h) On June 25, 2021, Corning Gas entered into a $4.665 million multiple disbursement term note with M&T Bank to retire $850,000 of existing short term debt and which permitted draws from time to time for capital expenditures in accordance with its terms until October 31, 2021 at which time amounts outstanding under the note converted to a ten year term loan, with the final installment of unpaid principal and interest due on October 31, 2031. Before converting to a term loan, borrowings on the note had a variable interest rate of 2.9% plus one-month LIBOR with a floor of 3.4%. After October 31, 2021, the interest rate was fixed at 3.40%. This term note is subject to the terms of the August 2020 Credit Agreement.
(i) On August 19, 2021, Pike entered into a $2.21 million multiple disbursement term loan with M&T Bank for capital expenditures and pipeline repairs which permitted draws from time to time until October 31, 2021, at which time amounts outstanding under the loan converted to a ten-year term, loan with the final installment of unpaid principal and interest due on October 31, 2031. The Note bears interest at a variable rate equal to 2.9% plus the one-month LIBOR rate, with a floor of 3.4%. After October 31, 2021, the interest rate is fixed at 3.40%. In connection with the Loan, Pike entered into a fifth amended replacement and restated credit agreement with M&T Bank (the “Credit Agreement”). The Credit Agreement contains various affirmative and negative covenants including, among others: (i) Pike must maintain a “Total Funded Debt to Tangible Net Worth” ratio of not greater than 1.40 to 1.0, a “Total Funded Debt to EBITDA” ratio of not greater than 3.75 to 1.0, and a minimum “Minimum Debt Service Coverage Ratio” of not less than 1.10 to 1.0, in each case measured quarterly based on Pike’s trailing twelve month operating performance; (ii) Pike must deliver to M&T Bank quarterly and annual financial statements, compliance and other documents; and (iii) Pike may not sell all or substantially all of its assets, acquire substantially all of the asset of any other entity, do business under any assumed name, materially change its business, purposes, structure or operations which could materially adversely affect Pike, or engage in any merger, consolidation or other similar transaction.
(j) On April 14, 2021, Leatherstocking entered into a $0.800 million multiple disbursement term loan with Wayne Bank which permitted draws from time to time for capital expenditures until it converted into a term loan payable in 119 monthly installments with an additional final installment of unpaid principal and interest due on October 31, 2031. The loan balance at September 30, 2021, was $653,934. At October 31, 2021, the loan balance was $800,000. The interest rate is 4.75% for the entire term of the loan.
(k) On December 4, 2018, Pike entered into a demand note with M&T for $510,000, payable in 364 days unless otherwise converted into a term note. On February 1, 2019 Pike converted the $510,000 demand note to a 10 year term loan with a fixed interest rate of 4.89% and monthly principal and interest payments of $5,397.
(l) On March 11, 2019, Leatherstocking Gas received a $6,000,000 10 year term loan from Wayne Bank. Most of the borrowed funds were used to retire debt from a predecessor lender. The interest rate for the first five years of the loan is a fixed rate of 4.75%. For years six through ten, the rate will be equal to the five year U.S. Treasury rate plus 2.25%. Prepayment penalties apply. The loan is secured by Leatherstocking Gas and Leatherstocking Pipeline assets, and is guaranteed by Leatherstocking Pipeline. The monthly principal and interest payment for this loan is $ 63,108. The term loan is subject to the terms of a March 2019 Credit Agreement. In October of 2021, this loan was restructured to lock in the interest rate at 4.75% for the remaining term of the loan. See Note 17, Subsequent Events.
(m) On August 30, 2019, Leatherstocking Gas received a $615,000 9.5 year term loan from Wayne Bank. This loan was designed to mirror the $6 million term loan described above. The interest rate for the first 5 years of the loan is a fixed rate of 4.75%. For the remaining 5 years, , the rate will be equal to the five-year U.S. Treasury rate plus 2.25%. Prepayment penalties apply. The loan is secured by Leatherstocking Gas and Leatherstocking Pipeline assets and is guaranteed by Leatherstocking Pipeline. The monthly principal and interest payment for this loan is $ 6,745. The term loan is subject to the term of an August 2019 credit agreement. In October of 2021, this loan was restructured to lock in the interest rate at 4.75% for the remaining term of the loan. See Note 17, Subsequent Events.
(n) On May 6, 2020, Corning Gas received a $970,900 loan under the U.S. Small Business Administration’s Paycheck Protection Program (“PPP Loan”). On April 28, 2020, Pike received a $137,200 PPP Loan. On July 7, 2020, Leatherstocking received a $65,491 PPP Loan. During FY 2021, all the PPP Loan amounts received were forgiven by the U.S. Small Business Administration. Income from PPP Loan forgiveness for all three loans is included in Other income (expense) in the consolidated statements of income. On March 18, 2021, the NYPSC issued an order requesting information designed to determine the proper disposition of the Corning Gas PPP Loan proceeds. This order was issued prior to the date that the PPP Loans were forgiven. On May 13, 2021, the Company responded to the order by supporting its position that the Company intended to use the entire amount of loan proceeds to fund lost commercial revenues caused by the pandemic, COVID related operating costs, and increased customer uncollectible accounts. The NYPSC has not responded to the Company’s submission. The Company has recorded a regulatory liability of approximately $490,000, pending the outcome of the Company’s response to the NYPSC order.
On January 15 2021, Corning Gas borrowed $850,000 from M&T for a three-month period ending on April 15, 2021. The loan was used primarily to pay for transaction costs incurred in connection with our planned merger with Argo, and to pay pension and other operating expenses. The note bears an interest rate of 2.6% plus the one-month LIBOR rate with a floor of 3.1%. This note was repaid in full from the proceeds of the Company’s construction loan with M&T that was signed on June 25, 2021.
In March of 2021, the Company applied for a $1 million loan from the U.S. Department of Agriculture under the Rural Energy Services Program (RESP). The RESP program is designed to provide low cost loans to rural customers who will use borrowed funds to purchase energy efficient gas furnaces, hot water heaters, and gas services. The loan, if approved by the Department of Agriculture, would be interest free to the Company, and must be repaid over a period not to exceed 20 years. Customers who borrow funds from Corning would pay a nominal rate of interest to the Company, which funds will be used to administer the program. Customer loans must be repaid over a period not to exceed 10 years. The Company’s loan application is pending approval with the U.S. Department of Agriculture.
On various dates in 2021, PPP Loans in the amount of $1,173,591 were forgiven by the United States Small Business Administration and were recorded as cancellation of debt income.
The Company was in compliance with all of its loan covenants as of September 30, 2021.
(7) Lines of Credit
The Gas Company has a revolving line of credit of $8.0 million with M&T subject to the August 2020 Credit Agreement. Outstanding amounts bear interest at a variable rate determined by the Gas Company’s funded debt to EBITDA ratio calculated ninety days after the end of each quarter added to the daily LIBOR rate. This line was renewed under the same terms with no expiration date. The amount outstanding under this line on September 30, 2021 was approximately $4.7 million with an interest rate of 3.1%. The maximum amount outstanding during FY 2021 was $8 million.
On August 31, 2016, Pike entered into an agreement with M&T for a $2.0 million revolving line of credit at an interest rate equal to LIBOR plus 2.75% with principal repayable on demand by the lender. This line was renewed under the same terms with no expiration date. The amount outstanding under this line on September 30, 2021 was approximately $1.7 million with an interest rate of 3.25%. The maximum amount outstanding during FY 2021 was $1,956,169. The agreement contains various affirmative and negative covenants of Pike including, (i) a total funded debt to tangible net worth ratio of not greater than 1.4 to 1.0, (ii) a total funded debt to EBITDA ratio of not greater than 3.75 to 1.0, and (iii) a minimum cash flow overage of not less than 1.1 to 1.0, with each of the financial covenants measured quarterly based on Pike’s trailing twelve month operating performance and fiscal quarterly financial statements commencing with the period ended September 30, 2017; compliance, accounting, and financial statement requirements, and prohibitions on changes in management or control, any sale of all or substantially all of its assets, acquisitions of substantially all the asset of any other entity, or other material changes to its business, purposes, structure or operations which could materially adversely affect Pike.
On March 11, 2019, Leatherstocking Gas extended an existing $1.0 million line of credit from Wayne Bank to a maximum amount of $1.5 million. The line of credit is for an indefinite period, is guaranteed by Leatherstocking Pipeline, and is secured by Leatherstocking Gas and Leatherstocking Pipeline assets. The interest rate on funds borrowed under the line of credit is the prime rate (3.25% at September 30, 2021). The amount outstanding under this line on September 30, 2021 was approximately $1.3 million. The line of credit is subject to a March 2019 credit agreement.
(8) Preferred Stock
Series A Cumulative Preferred Stock accrues cumulative dividends at a rate of 6.0% of the liquidation preference per share ($25.00) and are expected to be paid on or about the 14th day of April, July, October and January of each year starting October 14, 2016. The dates of record for the dividends, if any, will be March 31, June 30, September 30 and December 31, immediately preceding the relevant dividend payment date. On September 30, 2023, outstanding shares of Series A Cumulative Preferred Stock will mature and be redeemed solely in cash at a redemption price equal to the liquidation preference per share plus an amount equal to all accrued but unpaid dividends subject to our having funds legally available for redemption under New York law. In the event of a fundamental change as defined on the Certificate of Amendment to the Certificate of Incorporation, holders of Series A Cumulative Preferred Stock have the right to redeem their shares at a redemption price equal to the liquidation preference per share plus an amount equal to all accrued but unpaid dividends prior to the effective date of the fundamental change subject to our having funds legally available for such redemption under New York law. A fundamental change is generally defined as a change of control of the Holding Company. The holders of Series A Cumulative Preferred Stock will have no voting rights except as specifically required by New York laws or by the Charter, as amended by the Certificate of Amendment, which allows voting rights under specific circumstances. If dividends on shares of Series A Cumulative Preferred Stock have not been declared and paid for eight or more consecutive dividend periods, the holders of Series A Cumulative Preferred Stock and Series B Convertible Preferred Stock, voting together as a single class with holders of all other preferred stock of equal rank having similar voting rights, will be entitled at our next special or annual meeting of shareholders to vote for the election of a total of one additional member of our Board of Directors, subject to certain limitations. On July 1, 2020, 50,000 shares of the Company’s 6% Series A Cumulative Preferred Stock valued at $1.25 million were issued in conjunction with the Company’s acquisition of the previously unowned interests in the Leatherstocking Companies.
The Series A Cumulative Preferred Stock will, with respect to both dividend rights and rights upon liquidation, winding-up or dissolution of the Corporation, rank: (i) senior to all classes or series of the Corporation’s Common Stock; (ii) senior to any other class or series of the Corporation’s capital stock issued in the future, unless the terms of that capital stock expressly provide that it ranks senior to, or on parity with, the Series A Cumulative Preferred Stock; (iii) on parity with any class or series of the Corporation’s capital stock, the terms of which expressly provide that it will rank on parity with the Series A Cumulative Preferred Stock, including without limitation, the Series B Convertible Preferred Stock and the Series C Cumulative Preferred Stock; and (iv) junior to any other class of series of the Corporation’s capital stock, the terms of which expressly provide that it will rank senior to the Series A Cumulative Preferred Stock, none of which exists on the date hereof, and the issue of which would be subject to the approval of a majority of the outstanding shares of Preferred Stock voting as a class; and (v) subject to funds legally available and payment of or provision for the Corporation’s debts and other liabilities.
In accordance with FASB ASC No. 480, because of the mandatory redemption feature, Series A Cumulative Preferred Stock is treated as a liability. The issuance costs are treated as debt issuance costs and will be amortized over the life of the instrument and a direct reduction of the Preferred A shares on the balance sheet. Unamortized debt issuance costs were $20,303 and $30,455 at September 30, 2021 and 2020, respectively. Dividends are recorded as interest expense. As of September 30, 2021, $97,725 was accrued for the dividend paid on October 15, 2021. As of September 30, 2020, $97,725 was accrued for the dividend paid on October 15, 2020. Preferred A dividends recorded as interest expense for FY 2021 and FY 2020 were $390,900 and $334,650, respectively.
Series B Convertible Preferred Stock accrues cumulative dividends at a rate of 4.8% of the liquidation preference per share ($20.75) and are expected to be paid on or about the 14th day of April, July, October and January of each year commencing October 14, 2016. The dates of record for the dividends, if any, will be March 31, June 30, September 30 and December 31, immediately preceding the relevant dividend payment date. At any time and from time to time after issuance, the shares of Series B Convertible Preferred Stock are convertible, in whole or in part, at the option of the holder into shares of common stock at the rate of one-and-two-tenths (1.2) shares of our common stock for each one (1) share of Series B Convertible Preferred Stock, subject to adjustment for standard anti-dilution adjustments such as stock dividends or stock distributions; subdivisions or combinations of our common stock; and certain tender or exchange offers by us or one of our subsidiaries for our common stock, in each case subject to certain exceptions. In the event a holder of shares of the Series B Convertible Preferred Stock elects to convert any shares of Series B Convertible Preferred Stock that would result in such shareholder owning more than 10% of the capital stock of the Gas Company under the provisions of Section 70 of the New York Public Service Law, that holder would be unable to exercise the conversion right without prior consent of the NYPSC. The Holding Company will not pay any cash to a holder in respect of such conversion or otherwise settle any such conversion in cash, other than the right of the holder to receive payment in lieu of any fraction of a share in exchange therefor. The NYPSC approved the exercise of conversion rights on any Series B Convertible Preferred Stock by our three existing shareholders of 10% or more of our common stock.
On September 30, 2026, outstanding shares of Series B Cumulative Preferred Stock will mature and be redeemed solely in cash at a redemption price equal to the liquidation preference per share plus an amount equal to all accrued but unpaid dividends subject to our having funds legally available under New York law. In the event of a fundamental change as defined on the Certificate of Amendment to the Certificate of Incorporation, holders of Series B Convertible Preferred Stock have the right to redeem their shares at a redemption price equal to the liquidation preference per share plus an amount equal to all accrued but unpaid dividends prior to the effective date of the fundamental change subject to our having funds legally available for such redemption under New York law. A fundamental change is generally defined as a change of control of the Holding Company.
The holders of Series B Convertible Preferred Stock will have no voting rights except as specifically required by New York laws or by the Holding Company’s Charter, as amended by the Certificate of Amendment, which allows voting rights under specific circumstances as described in the Certificate of Amendment. If dividends on shares of Series B Convertible Preferred Stock have not been declared and paid for eight or more consecutive dividend periods, the holders of Series B Convertible Preferred Stock and the Series A Cumulative Preferred Stock, voting together as a single class with holders of all other preferred stock of equal rank having similar voting rights, will be entitled at our next special or annual meeting of shareholders to vote for the election of a total of one additional member of our Board of Directors, subject to certain limitations.
The Series B Convertible Preferred Stock will, with respect to both dividend rights and rights upon liquidation, winding-up or dissolution of the Corporation, rank: (i) senior to all classes or series of the Corporation’s Common Stock; (ii) senior to any other class or series of the Corporation’s capital stock issued in the future, unless the terms of that capital stock expressly provide that it ranks senior to, or on parity with, the Series B Convertible Preferred Stock; (iii) on parity with any class or series of the Corporation’s capital stock, the terms of which expressly provide that it will rank on parity with the Series B Convertible Preferred Stock, including without limitation, the Series A Cumulative Preferred Stock and the Series C Cumulative Preferred Stock; and (iv) junior to any other class of series of the Corporation’s capital stock, the terms of which expressly provide that it will rank senior to the Series B Convertible Preferred Stock, none of which exists on the date hereof, and the issue of which would be subject to the approval of a majority of the outstanding shares of Preferred Stock voting as a class; and (v) subject to funds legally available and payment of or provision for the Corporation’s debts and other liabilities.
In accordance with FASB ASC No. 480, Series B Cumulative Preferred Stock is not considered mandatorily redeemable as a result of the conversion feature presenting a contingency related to the redemption dates. Accordingly, this is not considered a liability. However, as a result of the decision related to conversion and not reaching redemption resting with the holder, this instrument has been classified as temporary equity in accordance with ASC 480. The Company determined that bifurcation of the embedded conversion option feature was not required. Upon conversion, the instrument would be reclassified as permanent equity. Dividends will be recorded each period in the consolidated statement of changes in stockholders’ equity and began to accrue July 1, 2016. As of September 30, 2021, $61,066 was accrued for dividends paid on October 15, 2021. As of September 30, 2020, $61,066 was accrued for dividends paid on October 15, 2020. The issuance costs of approximately $150,000 reduce the initial proceeds and will be accreted until redemption or conversion.
Effective March 27, 2020, the Holding Company issued 180,000 shares of newly authorized 6% Series C Cumulative Preferred Stock at $25.00 per share, for gross proceeds of $4,500,000. Series C Cumulative Preferred Stock accrues cumulative dividends at a rate of 6.0% of the liquidation preference per share ($25.00) and are expected to be paid on or about the 14th day of April, July, October and January of each year starting July 14, 2020. The dates of record for the dividends, if any, will be March 31, June 30, September 30 and December 31, immediately preceding the relevant dividend payment date. On September 30, 2026, outstanding shares of Series C Cumulative Preferred Stock will mature and be redeemed solely in cash at a redemption price equal to the liquidation preference per share plus an amount equal to all accrued but unpaid dividends subject to our having funds legally available for redemption under New York law. In the event of a fundamental change as defined on the Certificate of Amendment to the Certificate of Incorporation, holders of Series C Cumulative Preferred Stock have the right to redeem their shares at a redemption price equal to the liquidation preference per share plus an amount equal to all accrued but unpaid dividends prior to the effective date of the fundamental change subject to our having funds legally available for such redemption under New York law. A fundamental change is generally defined as a change of control of the Holding Company. The holders of Series C Cumulative Preferred Stock will have no voting rights except as specifically required by New York laws or by the Charter, as amended by the Certificate of Amendment, which allows voting rights under specific circumstances. The proceeds of this issuance were used to buy the previously unowned interests in the Leatherstocking Companies and to finance capital improvement projects at Pike and Corning.
The Series C Cumulative Preferred Stock will, with respect to both dividend rights and rights upon liquidation, winding-up or dissolution of the Corporation, rank: (i) senior to all classes or series of the Corporation’s Common Stock; (ii) senior to any other class or series of the Corporation’s capital stock issued in the future, unless the terms of that capital stock expressly provide that it ranks senior to, or on parity with, the Series C Cumulative Preferred Stock; (iii) on parity with any class or series of the Corporation’s capital stock, the terms of which expressly provide that it will rank on parity with the Series C Cumulative Preferred Stock, including without limitation, the Series A Cumulative Preferred Stock and the Series B Convertible Preferred Stock; and (iv) junior to any other class of series of the Corporation’s capital stock, the terms of which expressly provide that it will rank senior to the Series C Cumulative Preferred Stock, none of which exists on the date hereof, and the issue of which would be subject to the approval of a majority of the outstanding shares of Preferred Stock voting as a class; and (v) subject to funds legally available and payment of or provision for the Corporation’s debts and other liabilities.
In accordance with FASB ASC No. 480, because of the mandatory redemption feature, Series C Cumulative Preferred Stock is treated as a liability. The issuance costs are treated as debt issuance costs and will be amortized over the life of the instrument and a direct reduction of the Preferred C shares on the balance sheet. Unamortized debt issuance costs were $1,277 and $1,524 at September 30, 2021 and 2020, respectively. Dividends are recorded as interest expense. As of September 30, 2021, $67,500 was accrued for the dividend paid on October 15, 2021. As of September 30, 2020, $67,500 was accrued for the dividend paid on October 15, 2020. Preferred C dividends recorded as interest expense for FY 2021 and FY 2020 were $270,000 and $141,750, respectively.
(9) Stockholders’ Equity and Stock-based Compensation
For FY 2021, there were a total of 11,030 shares of common stock issued for $78,711 of services and $51,749 in connection with the DRIP (dividend reinvestment program). For FY 2020, there were a total of 25,487 shares of common stock issued for $177,675 of services and $201,940 in connection with the DRIP (dividend reinvestment program). Shares issued were as follows:
|
|
|
Year ended September 30, 2021 |
|
Year ended September 30, 2020 |
|
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Dividend reinvestment program (DRIP) |
|
|
3,380 |
|
|
$ |
51,749 |
|
|
|
12,287 |
|
|
$ |
201,940 |
|
|
Directors |
|
|
3,150 |
|
|
|
40,163 |
|
|
|
12,600 |
|
|
|
167,041 |
|
|
Leatherstocking Gas Company |
|
|
— |
|
|
|
— |
|
|
|
600 |
|
|
|
10,634 |
|
|
Officers |
|
|
4,500 |
|
|
|
38,548 |
|
|
|
— |
|
|
|
— |
|
|
Total |
|
|
11,030 |
|
|
$ |
130,460 |
|
|
|
25,487 |
|
|
$ |
379,615 |
|
Stock Options:
On each of September 22, 2021 and August 31, 2020, immediately vested options to purchase 10,000 shares of the Company’s common stock were issued to the Company’s CFO. There were no stock options outstanding as of October 1, 2019. The following table summarizes this activity:
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
Average |
|
|
|
|
Number of |
|
Average |
|
Remaining |
|
|
|
|
Options |
|
Exercise Price |
|
Life (years) |
|
|
Outstanding at September 30, 2019 |
|
|
— |
|
|
|
— |
|
|
— |
|
|
Granted |
|
|
10,000 |
|
|
$ |
16.50 |
|
|
— |
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
— |
|
|
Expired or Forfeited |
|
|
— |
|
|
|
— |
|
|
— |
|
|
Outstanding at September 30, 2020 |
|
|
10,000 |
|
|
$ |
16.50 |
|
|
9.92 |
|
|
Granted |
|
|
10,000 |
|
|
$ |
23.50 |
|
|
— |
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
— |
|
|
Expired or Forfeited |
|
|
— |
|
|
|
— |
|
|
— |
|
|
Outstanding at September 30, 2021 |
|
|
20,000 |
|
|
$ |
19.75 |
|
|
9.45 |
|
The Black-Scholes-Merton option pricing model was used to estimate the fair value of share-based awards under FASB ASC Topic 718. The Black-Scholes-Merton option pricing model incorporates various and highly subjective assumptions, including expected term and share price volatility.
The expected term of options granted was estimated to be the average of the vesting term, historical exercise and forfeiture rates, and the contractual life of the option. The share price volatility at the grant date is estimated using historical stock prices based upon the expected term of the options granted. The risk-free interest rate assumption is determined using the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued.
The following table summarizes the assumptions used to compute the fair value of the stock options granted:
|
|
Year ended |
|
Year ended |
|
|
|
September 30, 2021 |
|
September 30, 2020 |
|
|
Assumptions for Black-Scholes: |
|
|
|
|
|
|
|
Expected term in years |
|
0.75 |
|
|
5.0 |
|
|
Volatility |
|
29.54% |
|
|
22.55% |
|
|
Risk-free interest rate |
|
0.08% |
|
|
0.28% |
|
|
Dividend yield |
|
2.66% |
|
|
3.52% |
|
|
|
|
|
|
|
|
|
|
Value of options granted: |
|
|
|
|
|
|
|
Weighted average fair value per option |
$ |
1.75 |
|
$ |
1.95 |
|
|
Fair value of options granted |
$ |
17,500 |
|
$ |
19,505 |
|
Dividends:
Dividends on shares of common stock are accrued when declared by the board of directors. As of September 30, 2021, $469,230 was accrued for dividends paid on October 15, 2021 to stockholders of record on September 30, 2021. As of September 30, 2020, $468,235 was accrued for dividends paid on October 15, 2020 to stockholders of record on September 30, 2020. Total dividends for FY 2021 and FY 2020 were $1,879,591 and $1,843,983, respectively.
(10) Investment in Joint Ventures
The Holding Company had an interest in Leatherstocking Gas and Leatherstocking Pipeline, each of which was a joint venture with Mirabito Regulated Industries, LLC (“Mirabito”), accounted for by the equity method. On July 1, 2020, Leatherstocking Gas Company, LLC distributed to its members franchises, engineering and gas pipeline assets located in New York having a book value of $0.532 million. These assets were then contributed to the equity of Leatherstocking Gas Company of New York, Inc. The Company owns 50% of the common shares of the newly formed Leatherstocking Gas Company of New York, Inc. and accounts for this investment using the equity method of accounting. Mirabito has the option to acquire the Company’s interests in Leatherstocking Gas Company of New York, Inc., for a purchase price of $100,000, beginning on the earlier of a change in control of the Company, or July 1, 2021, and ending on June 30, 2023. On October 5, 2021, Mirabito notified the Company that it has exercised its option to acquire the Company’s interest in Leatherstocking Gas Company of New York. This transaction has not yet been consummated. Also on July 1, 2020, the Company completed the acquisition of its partner’s 50% interests in Leatherstocking Gas Company, LLC, and Leatherstocking Pipeline Company, LLC. See Note 16.
The following table represents the Holding Company’s investment activity in the Joint Ventures at September 30, 2021 and September 30, 2020:
|
|
|
2021 |
|
2020 |
|
|
Beginning balance in investment in joint ventures |
|
$ |
264,640 |
|
|
$ |
2,597,919 |
|
|
Acquisition of previously unowned 50% interest in the Leatherstocking Companies |
|
|
— |
|
|
|
(2,281,351 |
) |
|
Cost adjustment |
|
|
(808 |
) |
|
|
— |
|
|
Loss in joint ventures during year |
|
|
(2,652 |
) |
|
|
(51,928 |
) |
|
Ending balance in joint ventures |
|
$ |
261,180 |
|
|
$ |
264,640 |
|
As of and for the year ended September 30, 2021, the Joint Venture had assets of $0.528 million, liabilities of $0 million and a net loss of approximately ($5,000). As of and for the year ended September 30, 2020, the Joint Venture had assets of $0.527 million, liabilities of $0 million and combined net losses of approximately ($104,000).
(11) Income Taxes
Income tax expense for the years ended September 30 is as follows:
|
|
|
2021 |
|
|
2020 |
|
|
Current |
|
$ |
17,732 |
|
|
$ |
(272,079 |
) |
|
Deferred |
|
|
446,070 |
|
|
|
1,232,417 |
|
|
Total |
|
$ |
463,802 |
|
|
$ |
960,338 |
|
Actual income tax expense differs from the expected tax expense computed at the statuary rate of 21.00% for the years ended September 30, 2021 and September 30, 2020 as follows:
|
|
|
2021 |
|
|
2020 |
|
|
Expected federal tax expense |
|
$ |
417,628 |
|
|
$ |
873,956 |
|
|
PPP Forgiveness |
|
|
(246,454 |
) |
|
|
— |
|
|
AMT credit refund |
|
|
— |
|
|
|
(272,079 |
) |
|
Preferred dividends |
|
|
146,302 |
|
|
|
100,566 |
|
|
State tax expense (net of federal) |
|
|
145,538 |
|
|
|
291,388 |
|
|
Other, net |
|
|
788 |
|
|
|
(33,493 |
) |
|
Actual tax expense |
|
$ |
463,802 |
|
|
$ |
960,338 |
|
The tax effects of temporary differences that result in deferred income tax assets and liabilities at September 30 are as follows:
|
|
|
2021 |
|
|
2020 |
|
|
Deferred income tax assets: |
|
|
|
|
|
|
|
|
|
NOL carryforwards |
|
$ |
2,592,109 |
|
|
$ |
2,116,346 |
|
|
Post-retirement benefit obligations |
|
|
1,709,186 |
|
|
|
2,592,958 |
|
|
Customer contribution |
|
|
1,339,331 |
|
|
|
1,290,631 |
|
|
Deferred compensation reserve |
|
|
389,864 |
|
|
|
375,720 |
|
|
Regulatory reconciliation tax assets |
|
|
51,501 |
|
|
|
434,833 |
|
|
Total deferred income tax assets |
|
|
6,081,991 |
|
|
|
6,810,488 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities: |
|
|
|
|
|
|
|
|
|
Property, plant and equipment, principally due to differences in depreciation |
|
|
10,602,097 |
|
|
|
9,653,332 |
|
|
Pension benefit obligations |
|
|
1,434,480 |
|
|
|
2,119,400 |
|
|
Regulatory reconciliation tax liabilities |
|
|
671,802 |
|
|
|
1,120,246 |
|
|
Bargain purchase |
|
|
665,456 |
|
|
|
665,456 |
|
|
Recoverable fuel costs |
|
|
508,801 |
|
|
|
428,093 |
|
|
Storm costs |
|
|
289,130 |
|
|
|
336,618 |
|
|
Unbilled revenue |
|
|
60,078 |
|
|
|
63,175 |
|
|
Total deferred income tax liabilities |
|
|
14,231,844 |
|
|
|
14,386,320 |
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax liabilities |
|
$ |
8,149,853 |
|
|
$ |
7,575,832 |
|
As of September 30, 2021,the Company has a federal net operating loss carryforward of $4.9 million, of which $3.39 million will expire if unused in FY 2032 through 2037, and New York and Pennsylvania state tax net operating loss carry forwards of approximately $12.1 million, which will expire if unused in FY 2034 through 2040 as of September 30, 2021 that begin to expire in 2032. As of September 30, 2020, the net operating loss carry forwards were $3.8 million for federal and $7.9 million for state. The Company paid state income tax in FY 2021 in the amount of $12,500.
The alternate minimum tax (“AMT”) credit carryover of $0.3 million along with estimated tax payments of $69,698, were refunded in the third quarter of fiscal 2020. The Company paid no income taxes during FY 2020.
The NYSPSC issued an order in Case 17-M-0815 that required the Company to quantify the amount of the deferred taxes that are due customers as a result of the 2017 Tax Act. The PAPUC issued a similar order in Case M-2018-2641242. The estimated amount due customers has been recorded as regulatory liability in the amount of $3,243,054, at 2020. The impact of the change in the Tax Act on deferred regulatory balances per Case 17-M-0815 was reflected in customer rates effective February 1, 2021. The impact of the change in the Tax Act on deferred regulatory balances per Case M-2018-2641242 was reflected in customer rates effective July 28, 2021.
The accounting rules for uncertain taxes provide for the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recognized in the financial statements. The Holding Company has evaluated its tax positions and has not identified any significant uncertain tax positions. The Holding Company’s policy is to classify interest associated with uncertain tax positions as interest expense in the financial statements. Penalties are classified under other expense. The Holding Company files a consolidated federal income tax return and a consolidated New York State tax return. The Holding Company and Pike file separate company Pennsylvania state income tax returns.
(12) Pension and Other Post-Retirement Benefit Plans
There are currently three covered participants related to the deferred compensation obligation that are all former officers. The liability on the consolidated balance sheets represents the present value of the future obligation. In 1997, the Gas Company established a trust (the Rabbi Trust) to fund a deferred compensation plan for certain officers. The fair market value of assets in the trust was $2,285,971 (plus $51,359 in additional stock) and $2,162,421 (plus $30,700 in additional stock) at September 30, 2021 and 2020, respectively, and the plan liability, which is labeled as deferred compensation on the consolidated balance sheets, was $1,417,686 and $1,366,256 at September 30, 2021 and 2020, respectively. The assets of the trust are available to general creditors in the event of insolvency. In 2021, the mortality assumption was based on the 2008 VBT Primary Male Smoker tables with generational improvements using scale MP-2020 for two of the covered participants which resulted in an increase in the liabilities of $51,430.
The Gas Company has defined benefit pension plans covering substantially all of its employees. The benefits are based on years of service and the employee’s highest average compensation during a specified period. The Gas Company makes annual contributions to the plans equal to amounts determined in accordance with the funding requirements of the Employee Retirement Security Act of 1974. Contributions are intended to provide for benefits attributed for service to date, and those expected to be earned in the future.
In addition to the Gas Company’s defined benefit pension plans, the Gas Company offers post-retirement benefits comprised of medical and life coverage to its employees who meet certain age and service criteria. For union participants who retire on or after September 2, 1992, the Gas Company cost for post-retirement benefits is contractually limited and will not exceed $150 per month. This contract is in effect until April 3, 2023. The monthly benefit for all non-union employees, who retire between the ages of 62 and 65, will be the lesser of 40% of the retiree’s plan premium or $150. After age 65, the Gas Company pays up to $150 a month for the cost of the retiree’s supplemental plan. In addition, the Gas Company offers limited life insurance coverage to active employees and retirees. The post-retirement benefit plan is not funded. The Gas Company accrues the cost of providing post-retirement benefits during the active service period of the employee.
The following table shows reconciliations of the Gas Company’s pension and post-retirement plan benefits as of September 30:
|
|
|
Pension Benefits |
|
Post-retirement Benefits |
|
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
|
Change in benefit obligations: |
|
Benefit obligation at beginning of year |
|
$ |
27,235,928 |
|
|
$ |
25,599,774 |
|
|
$ |
1,299,366 |
|
|
$ |
1,334,577 |
|
|
Service cost (excluding expected expenses) |
|
|
695,490 |
|
|
|
649,444 |
|
|
|
18,957 |
|
|
|
18,533 |
|
|
Interest cost |
|
|
963,834 |
|
|
|
985,296 |
|
|
|
27,891 |
|
|
|
37,021 |
|
|
Participant contributions |
|
|
— |
|
|
|
— |
|
|
|
116,848 |
|
|
|
101,339 |
|
|
Actuarial gain (loss) |
|
|
(303,614 |
) |
|
|
1,265,309 |
|
|
|
41,303 |
|
|
|
(10,472 |
) |
|
Benefits paid |
|
|
(1,337,900 |
) |
|
|
(1,263,895 |
) |
|
|
(191,498 |
) |
|
|
(181,632 |
) |
|
Curtailments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Benefit obligation at end of year |
|
|
27,253,738 |
|
|
|
27,235,928 |
|
|
|
1,312,867 |
|
|
|
1,299,366 |
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
|
19,460,425 |
|
|
|
17,540,516 |
|
|
|
— |
|
|
|
— |
|
|
Actual return on plan assets |
|
|
2,859,830 |
|
|
|
1,859,129 |
|
|
|
— |
|
|
|
— |
|
|
Company contributions |
|
|
511,266 |
|
|
|
1,423,285 |
|
|
|
74,650 |
|
|
|
80,293 |
|
|
Participant contributions |
|
|
— |
|
|
|
— |
|
|
|
116,848 |
|
|
|
101,339 |
|
|
Benefits paid |
|
|
(1,445,004 |
) |
|
|
(1,362,505 |
) |
|
|
(191,498 |
) |
|
|
(181,632 |
) |
|
Fair value of plan assets at end of year |
|
|
21,386,517 |
|
|
|
19,460,425 |
|
|
|
— |
|
|
|
— |
|
|
Funded status |
|
|
(5,867,221 |
) |
|
|
(7,775,503 |
) |
|
|
(1,312,867 |
) |
|
|
(1,299,366 |
) |
|
Unrecognized net actuarial loss/(gain) |
|
|
3,475,499 |
|
|
|
6,161,807 |
|
|
|
63,168 |
|
|
|
23,547 |
|
|
Unrecognized prior service cost |
|
|
— |
|
|
|
— |
|
|
|
106,673 |
|
|
|
121,911 |
|
|
(Accrued) prepaid benefit cost |
|
|
(2,391,722 |
) |
|
|
(1,613,696 |
) |
|
|
(1,143,026 |
) |
|
|
(1,153,908 |
) |
|
Accrued contribution |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets consists of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accrued benefit liability |
|
|
(5,867,221 |
) |
|
|
(7,775,503 |
) |
|
|
(1,312,867 |
) |
|
|
(1,299,366 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the balance sheets consist of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued pension cost as of beginning of fiscal year |
|
|
(1,613,696 |
) |
|
|
(1,710,951 |
) |
|
|
(1,153,908 |
) |
|
|
(1,162,051 |
) |
|
Pension (cost) |
|
|
(1,187,753 |
) |
|
|
(1,289,292 |
) |
|
|
(63,768 |
) |
|
|
(72,150 |
) |
|
Contributions |
|
|
511,266 |
|
|
|
1,423,285 |
|
|
|
— |
|
|
|
— |
|
|
Change in receivable contribution |
|
|
(101,539 |
) |
|
|
(36,738 |
) |
|
|
— |
|
|
|
— |
|
|
Net benefits paid |
|
|
— |
|
|
|
— |
|
|
|
74,650 |
|
|
|
80,293 |
|
|
Accrued pension cost as of end of fiscal year |
|
|
(2,391,722 |
) |
|
|
(1,613,696 |
) |
|
|
(1,143,026 |
) |
|
|
(1,153,908 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents |
|
$ |
416,726 |
|
|
$ |
1,958,521 |
|
|
|
— |
|
|
|
— |
|
|
Government and agency issues |
|
|
4,120,431 |
|
|
|
2,610,037 |
|
|
|
— |
|
|
|
— |
|
|
Corporate bonds |
|
|
3,455,460 |
|
|
|
3,241,935 |
|
|
|
— |
|
|
|
— |
|
|
Fixed index funds |
|
|
— |
|
|
|
764,720 |
|
|
|
— |
|
|
|
— |
|
|
Fixed income |
|
|
1,545,879 |
|
|
|
1,625,944 |
|
|
|
— |
|
|
|
— |
|
|
Equity securities |
|
|
10,845,308 |
|
|
|
9,259,268 |
|
|
|
— |
|
|
|
— |
|
|
Other assets |
|
|
1,002,713 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
$ |
21,386,517 |
|
|
$ |
19,460,425 |
|
|
|
— |
|
|
|
— |
|
The funded status of both plans totaling a deficiency of approximately $7.2 million and $9.1 million at September 30, 2021 and 2020, respectively, are included in pension costs and post-retirement benefits on the consolidated balance sheets along with an additional pension regulatory liability of approximately $341,000 and $333,000 as of September 30, 2021 and September 30, 2020, respectively for amounts owed to customers. In the fourth quarter of fiscal 2015 the Gas Company determined that it meets the criteria to record these items as a regulatory asset in accordance with FASB ASC No. 980-715-25-5.
Amortization of unrecognized net loss for the Retirement Plan for the fiscal year ending September 30, 2021:
|
1 |
|
Projected benefit obligation as of September 30, 2021 |
|
$ |
27,253,738 |
|
|
2 |
|
Plan assets at September 30, 2021 |
|
$ |
21,386,517 |
|
|
3 |
|
Unrecognized loss as of September 30, 2021 |
|
$ |
3,475,499 |
|
|
4 |
|
Ten percent of greater of (1) or (2) |
|
$ |
2,725,374 |
|
|
5 |
|
Unamortized loss subject to amortization - (3) minus (4) |
|
$ |
750,125 |
|
|
6 |
|
Active future service of active plan participants expected to receive benefits |
|
|
13.23 |
|
|
7 |
|
Minimum amortization of unamortized net loss - (5)/(6) |
|
$ |
56,716 |
|
|
8 |
|
Amortization of loss for 2021-2022 |
|
$ |
699,451 |
|
Amortization of unrecognized net loss for the Post-Retirement Plan for the fiscal year ended September 30, 2021:
|
Unrecognized net loss at October 1, 2020 subject to amortization |
|
$ |
106,673 |
|
|
|
|
|
|
|
|
Amortization period |
|
|
14.9 years |
|
|
Amortization for 2021 - 2022 (loss divided by period) |
|
$ |
7,159 |
|
The service cost component of our pension and other postretirement plans, net of amounts capitalized, are reflected in “Operating and maintenance expense” on the Consolidated Statements of Income. The non-service cost components, net of amounts capitalized as a regulatory asset, are reflected in “Other expense” on the Consolidated Statements of Income. Net periodic benefit cost includes the following components:
|
|
|
Pension Benefits |
|
|
Post-retirement Benefits |
|
|
|
|
FY 2021 |
|
|
FY 2020 |
|
|
FY 2021 |
|
|
FY 2020 |
|
|
Components of net period benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
794,490 |
|
|
$ |
744,444 |
|
|
$ |
18,957 |
|
|
$ |
18,533 |
|
|
Interest cost |
|
|
963,834 |
|
|
|
985,296 |
|
|
|
27,891 |
|
|
|
37,021 |
|
|
Expected return on plan assets |
|
|
(1,445,657 |
) |
|
|
(1,300,997 |
) |
|
|
— |
|
|
|
— |
|
|
Amortization of prior service |
|
|
— |
|
|
|
— |
|
|
|
15,238 |
|
|
|
13,979 |
|
|
Amortization of unrecognized actuarial loss |
|
|
976,625 |
|
|
|
897,287 |
|
|
|
1,682 |
|
|
|
2,617 |
|
|
Net periodic benefit cost |
|
$ |
1,289,292 |
|
|
$ |
1,326,030 |
|
|
$ |
63,768 |
|
|
$ |
72,150 |
|
For ratemaking and financial statement purposes, pension and post-retirement represents the amount approved by the NYPSC in the Gas Company’s most recently approved rate case. Pension and post retirement expense (benefit) for ratemaking and financial statement purposes was $941,428 and $933,454 for FY 2021 and FY 2020, respectively. The difference between the pension expense (benefit) for ratemaking and financial statement purposes, and the amount computed above has been deferred as regulatory assets and are not included in the prepaid pension cost noted above. The cumulative amounts deferred equal $1,257,326 and $1,045,574 as of September 30, 2021 and 2020, respectively.
|
|
|
Pension Benefits |
|
|
Post-retirement Benefits |
|
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
Weighted average assumptions used to determine net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period cost at September 30: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
3.64% |
|
|
|
3.64% |
|
|
|
2.53% |
|
|
|
2.21% |
|
|
Salary increases |
|
|
3.50% |
|
|
|
3.50% |
|
|
|
N/A |
|
|
|
N/A |
|
|
Expected return on assets |
|
|
6.50% |
|
|
|
7.50% |
|
|
|
N/A |
|
|
|
N/A |
|
For FY 2021 and FY 2020, the discount rate was prepared by utilizing an analysis of the plan’s expected future cash flows and high-quality fixed-income investments currently available and expected to be available during the period to maturity of the pension benefits. The discount rate used is an estimate of the rate at which a defined benefit pension plan could settle its obligations. Rather than using a rate and curve developed using a bond portfolio, this method selects individual bonds to match to the expected cash flows of the Plan. Management feels this provides a more accurate depiction of the true cost to the Plan to settle the obligations as the Plan could theoretically go into the marketplace and purchase the specific bonds used in the analysis in order to settle the obligations of the Plan.
The expected returns on plan assets of the Retirement Plan and Post-Retirement Plan are applied to the market-related value of plan assets of the respective plans. For the Retirement Plan, the market-related value of assets recognizes the performance of its portfolio over five years and reduces the effects of short-term market fluctuations. The Gas Company’s Retirement Plan assets are invested by a manager that reports at least annually to the Gas Company’s Investment Committee for review and evaluation. The manager has been given the objective to achieve modest capital appreciation with a secondary objective of achieving a relatively high level of current income using a mix of cash equivalents, fixed income securities and equities to structure a balanced investment portfolio. The Investment Committee does not reserve control over investment decisions, with the exception of certain limitations, and holds the manager responsible and accountable to achieve the stated objectives. The market-related value of Post-Retirement Plan assets is set equal to market value.
For measurement purposes, an annual rate of increase in the per capita cost of covered benefits (health care cost trend rate) of 6.75% for pre-65 year old medical, 4.40% for post 65 year old medical, and 6.75% for prescription drug benefits was assumed for FY 2022.
The Gas Company contributed $511,266 and $1,423,285 to the Retirement Plan during FY 2021 and FY 2020, respectively.
The estimated pension plan benefit payments are as follows:
|
2022 |
|
$ |
1,485,220 |
|
|
2023 |
|
$ |
1,493,007 |
|
|
2024 |
|
$ |
1,529,429 |
|
|
2025 |
|
$ |
1,599,886 |
|
|
2026 |
|
$ |
1,596,310 |
|
|
2027+ |
|
$ |
7,684,137 |
|
The Gas Company also maintains the Corning Natural Gas Corporation Employee Savings Plan (the “Savings Plan”). All employees of the Gas Company who work for more than 1,000 hours per year and who have completed one year of service may enroll in the Savings Plan at the beginning of each calendar quarter. Under the Savings Plan, participants may contribute up to 50% of their wages subject to limits imposed by ERISA and federal tax law. For all employees, the Gas Company matches one-half of the participant’s contribution up to a total of 6% of the participant’s wages. The plan is subject to the federal limitation. The Gas Company contribution to the plan were $114,463 in FY 2021 and $105,225 in FY 2020.
(13) Segment Reporting
The Company’s reportable segments have been determined based upon the nature of the products and services offered, customer base, availability of discrete internal financial information, homogeneity of products, delivery channel and other factors.
The Corning Natural Gas Corporation (the “Gas Company”) is a gas distribution company providing gas on a commodity and transportation basis to its customers in the Southern Tier of New York State. Pike County Light & Power Company (“Pike”) provides electricity and natural gas to Pike County, Pennsylvania. The Holding Company is the parent company of all subsidiaries and has a 50% ownership in Leatherstocking New York. Leatherstocking Gas and Leatherstocking Pipeline are presented together as the Leatherstocking Companies in the table below. Leatherstocking Gas provides natural gas service to customers in northeast Pennsylvania. Leatherstocking pipeline has had no revenues since 2018. Corning Natural Gas Appliance Corporation’s (the “Appliance Company”) information is presented with the Holding Company as it is has little activity.
The following table reflects the results of the segments consistent with the Holding Company’s internal financial reporting process. The following results are used in part, by management, both in evaluating the performance of, and in allocating resources to, each of the segments.
|
For the year ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Company |
|
|
Pike |
|
|
Leatherstocking Companies* |
|
|
Holding Company |
|
|
Total Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total electric utility revenue |
|
$ |
— |
|
|
$ |
8,374,121 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
8,374,121 |
|
|
Total gas utility revenue |
|
$ |
23,728,350 |
|
|
$ |
1,869,235 |
|
|
$ |
1,263,839 |
|
|
$ |
— |
|
|
$ |
26,861,424 |
|
|
Investment income |
|
$ |
390,952 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
67 |
|
|
$ |
391,019 |
|
|
Equity investment (loss) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(2,652 |
) |
|
$ |
(2,652 |
) |
|
Net income (loss) |
|
$ |
2,482,074 |
|
|
$ |
564,361 |
|
|
$ |
(306,420 |
) |
|
$ |
(1,215,112 |
) |
|
$ |
1,524,903 |
|
|
Income tax expense (benefit) |
|
$ |
551,322 |
|
|
$ |
210,772 |
|
|
$ |
(115,379 |
) |
|
$ |
(182,913 |
) |
|
$ |
463,802 |
|
|
Interest expense |
|
$ |
1,758,821 |
|
|
$ |
638,890 |
|
|
$ |
326,744 |
|
|
$ |
708,924 |
|
|
$ |
3,433,379 |
|
|
Depreciation expense |
|
$ |
1,944,330 |
|
|
$ |
956,294 |
|
|
$ |
434,485 |
|
|
$ |
3,660 |
|
|
$ |
3,338,769 |
|
|
Amortization expense |
|
$ |
262,598 |
|
|
$ |
358,765 |
|
|
$ |
12,166 |
|
|
$ |
48,024 |
|
|
$ |
681,553 |
|
|
Total assets |
|
$ |
98,563,008 |
|
|
$ |
32,070,853 |
|
|
$ |
12,646,747 |
|
|
$ |
774,139 |
|
|
$ |
144,054,747 |
|
|
Capital expenditures |
|
$ |
7,176,122 |
|
|
$ |
3,051,225 |
|
|
$ |
760,744 |
|
|
$ |
— |
|
|
$ |
10,988,091 |
|
|
* acquired July 1, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Company |
|
|
Pike |
|
|
Leatherstocking Companies* |
|
|
Holding Company |
|
|
Total Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total electric utility revenue |
|
$ |
— |
|
|
$ |
7,000,667 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
7,000,667 |
|
|
Total gas utility revenue |
|
$ |
23,807,233 |
|
|
$ |
1,446,654 |
|
|
$ |
131,331 |
|
|
$ |
— |
|
|
$ |
25,385,218 |
|
|
Investment income |
|
$ |
181,978 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
133 |
|
|
$ |
182,111 |
|
|
Equity investment (loss) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(51,928 |
) |
|
$ |
(51,928 |
) |
|
Net income (loss) |
|
$ |
3,198,642 |
|
|
$ |
295,258 |
|
|
$ |
(124,639 |
) |
|
$ |
(167,903 |
) |
|
$ |
3,201,358 |
|
|
Income tax expense (benefit) |
|
$ |
1,236,697 |
|
|
$ |
156,769 |
|
|
$ |
(54,597 |
) |
|
$ |
(378,531 |
) |
|
$ |
960,338 |
|
|
Interest expense |
|
$ |
1,284,074 |
|
|
$ |
669,002 |
|
|
$ |
89,729 |
|
|
$ |
524,259 |
|
|
$ |
2,567,064 |
|
|
Depreciation expense |
|
$ |
1,880,619 |
|
|
$ |
658,667 |
|
|
$ |
78,439 |
|
|
$ |
3,660 |
|
|
$ |
2,621,385 |
|
|
Amortization expense |
|
$ |
278,408 |
|
|
$ |
401,882 |
|
|
$ |
3,042 |
|
|
$ |
47,859 |
|
|
$ |
731,191 |
|
|
Total assets |
|
$ |
94,147,736 |
|
|
$ |
29,165,796 |
|
|
$ |
12,326,387 |
|
|
$ |
819,387 |
|
|
$ |
136,459,306 |
|
|
Capital expenditures |
|
$ |
6,686,081 |
|
|
$ |
1,986,081 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
8,672,162 |
|
|
*from July 1, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14) Commitments and Contingencies
The Gas Company is a local distribution company and has contracted for gas supply from various sources to provide the commodity to the city gates. The city gate is the transfer point at which we take ownership of the gas supply from local producers and interstate pipelines and billing metering starts. The Gas Company maintains storage capacity of approximately 736,000 dekatherms. The Gas Company is responsible for managing its gas supply assets. At September 30, 2021, the Gas Company had 586,655 dekatherms at a cost of $1,366,341 in storage. As the result of these actions, we anticipate that the Gas Company will have sufficient gas to supply our customers for the 2021-2022 winter heating season. At September 30, 2020, the Gas Company had 573,609 dekatherms at a cost of $995,341 in storage. The contract with O&R should provide sufficient electricity and natural gas to supply Pike for the 2021-2022 winter heating and summer cooling. Leatherstocking Gas has a supply agreement with Cabot Oil and Gas that expires in August of 2026.
The Gas Company has secured the NYPSC required fixed price and storage gas supply for the winter season and is managing its gas storage and gas contracts to assure that the Gas Company follows its gas supply and acquisition plan. The gas supply plan is a formal document that defines how we acquire natural gas to supply our customers. The plan is submitted to the NYPSC every year and adherence to the plan is a regulatory mandate. Assuming no extraordinary conditions for the winter season, gas supply, both flowing and storage, will be adequate to serve our customers.
Environmental Considerations: The Company is subject to various federal, state and local environments laws and regulations. The Company has established procedures for the ongoing evaluation of its operations to identify potential environmental exposures and assure compliance with regulatory policies and procedures. Management believes the Company is in compliance with all applicable regulations.
(15) Related Party Transactions
Related party receivables are expenditures paid on behalf of the Holding Company’s joint venture investments. The outstanding receivable as of September 30, 2021 and September 30, 2020 was $- and $9,032 respectively.
(16) Business Acquisition
On July 1, 2020, the Company completed the acquisition of its partner’s 50% interests in Leatherstocking Gas Company, LLC, and Leatherstocking Pipeline Company, LLC. Immediately before the acquisition, on July 1, 2020, Leatherstocking Gas Company, LLC distributed to its members franchises, engineering and gas pipeline assets located in New York having a book value of $0.532 million. These assets were then contributed to the equity of Leatherstocking Gas Company of New York, Inc. The Company owns 50% of the common shares of the newly formed Leatherstocking Gas Company of New York, Inc. and accounts for this investment using the equity method of accounting. In October of 2021, the Company’s joint venture partner notified the Company of its decision to exercise its option to acquire the Company’s 50% joint venture interest in Leatherstocking Gas Company of New York, Inc. (See Subsequent Events at Note 17). The acquisition of the Company’s partner’s 50% interest in the Leatherstocking Companies fits the Company’s goal of expanding its service offerings in northeast Pennsylvania.
The Company applies the acquisition method of accounting for business acquisitions. Under the acquisition method, the purchase price of an acquisition is assigned to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair values at the date of acquisition. The book value of the assets acquires was determined to approximate their fair value on the acquisition date. Amortization of goodwill related to the Leatherstocking Companies acquisition is deductible for tax purposes. Goodwill is included in the total assets of the Leatherstocking Companies segment for segment reporting. The goodwill is primarily attributable to expected synergies and the assembled workforce.
Total consideration paid for the acquisition of the interests in the Leatherstocking Companies was $3.2 million, consisting of cash of $1.95 million and 50,000 shares of the Company’s 6% Series A Cumulative Preferred Stock valued at $1.25 million. The Company’s equity in the Leatherstocking Companies prior to the acquisition transaction approximated the fair value of that investment. There were no significant acquisition costs. The following is a summary of the purchase price allocation to the fair value of the Leatherstocking Companies assets and liabilities acquired.
|
Consideration paid: |
|
|
|
|
Cash |
|
$ |
1,950,000 |
|
|
Series A Cumulative Preferred Stock |
|
|
1,250,000 |
|
|
|
|
|
3,200,000 |
|
|
Fair value of previously held interest |
|
|
2,281,351 |
|
|
Total |
|
|
5,481,351 |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
Goodwill |
|
|
918,121 |
|
|
Utility property, plant and equipment |
|
|
11,060,742 |
|
|
Deferred debits |
|
|
49,732 |
|
|
Cash |
|
|
56,919 |
|
|
Other current assets |
|
|
367,127 |
|
|
Total assets acquired |
|
|
12,452,641 |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
Long term debt |
|
|
5,985,631 |
|
|
Short term notes |
|
|
894,644 |
|
|
Current liabilities |
|
|
91,015 |
|
|
Total liabilities assumed |
|
|
6,971,290 |
|
|
|
|
|
|
|
|
Total |
|
$ |
5,481,351 |
|
The results of the Leatherstocking Companies are included in the Company’s consolidated operating results as of the date the acquisition was completed. The following unaudited pro forma information presents the Company’s consolidated operating results as if the Leatherstocking Companies had occurred at the beginning of FY 2020. The pro forma results do not purport to represent what the Company’s consolidated operating results actually would have been if the transaction had occurred at the beginning of FY 2020 or what the Company’s consolidated operating results will be in the future.
|
|
|
Fiscal Year Ended September 30, |
|
|
|
|
2020 |
|
|
Total Revenue |
|
$ |
33,516,435 |
|
|
Net Income |
|
$ |
3,161,114 |
|
(17) Subsequent Events
On December 17, 2021, the Gas Company increased its line of credit with M&T Bank from $8 million to $8.5 million. The line of credit is secured by the Gas Company’s utility assets.
On December 8, 2021, the Holding Company issued to ACP Crotona Corp. 5,000 shares of newly authorized Series D Cumulative Preferred Stock at a per share price of $1,000 for an aggregate purchase price of $5,000,000. Series D Preferred shares pay a dividend of 1.5%. The Company intends to use the proceeds of the preferred stock issuance to pay down short term debt and to fund capital projects, primarily at Pike and at Leatherstocking. In the event that the Argo merger is not consummated, and at the shareholder’s election, the Company must redeem these shares at an amount equal to the issuance price plus any unpaid dividends.
On November 12, 2021, the NYPSC Staff filed its testimony in the Company’s 2021 rate case (20-G-0394), recommending a rate increase of approximately $2.9 million for a one year case, plus reconciliations of several costs and expenses. The Staff position may modified, rejected or accepted by the NYPSC in its final order in Case 20-GT-0394. The NYPSC has been notified that settlement discussions among the parties in this case are scheduled to begin on December 16, 2021.
On October 12, 2021, Mirabito Regulated Industries, LLC, the 50% joint venture partner of Holding Company in Leatherstocking Gas Company of New York, Inc., notified the Holding Company that it intends to exercise its option to acquire the Holding Company’s 50% joint venture interest in Leatherstocking Gas Company of New York, Inc. for an amount equal to its option price of $100,000. The transaction is scheduled to close on or before December 31, 2021. The Company expects to realize a pre tax loss on this transaction of approximately $158,000.
On October 5, 2021, Leatherstocking Gas Company amended two term loans with Wayne Bank whose balances on that date totaled $5,348,850. The loans are scheduled to be fully paid in March of 2029 and in August of 2029. The amendment locked in the current interest rate of 4.75% for the remaining term of the loans, and the Holding Company guaranteed these loans. Prior to amendment, these loans provided for a redetermination of interest rates in March and August of 2024, respectively.
