-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D/bMosKeb2dk+S4YbuUWrshYFNXOWIGEf5qJWRJpU6pBrmGrigJknUZKKQX2PRY0 rlTK2+4yDYPaakdcHmlrqg== 0000024751-98-000001.txt : 19980116 0000024751-98-000001.hdr.sgml : 19980116 ACCESSION NUMBER: 0000024751-98-000001 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19980115 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORNING NATURAL GAS CORP CENTRAL INDEX KEY: 0000024751 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION & DISTRIBUTION [4923] IRS NUMBER: 160397420 STATE OF INCORPORATION: NY FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: SEC FILE NUMBER: 000-00643 FILM NUMBER: 98507851 BUSINESS ADDRESS: STREET 1: 330 W WILLIAM ST STREET 2: P O BOX 58 CITY: CORNING STATE: NY ZIP: 14830 BUSINESS PHONE: 6079363755 MAIL ADDRESS: STREET 1: 330 W WILLIAM STREET STREET 2: P O BOX 58 CITY: CORNING STATE: NY ZIP: 14830 10KSB/A 1 U.S. Securities and Exchange Commission Washington, D.C. 20549 (X) ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 (Fee Required) For the twelve month period ended September 30, 1997 Commission file number 0-643 Corning Natural Gas Corporation (Name of small business issuer in its charter) New York 16-0397420 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 330 W. William St., Corning NY 14830 (Address of principal executive offices) (Zip Code) Issuer's telephone number (607) 936-3755 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Common Stock - $5.00 par value (Title of class) Check whether the issurer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10- KSB or any amendment to this Form 10-ISV. (X) Revenues for 12 month period ended September 30, 1997 $17,835,687 The aggregate market value of the 331,362 shares of the Common Stock held by non-affiliates of the Registrant at the $20 average of bid and asked prices as of November 1, 1997 was $6,627,240. Number of shares of Common Stock outstanding as of the close of business on November 1, 1997 - 460,000. DOCUMENTS INCORPORATED BY REFERENCE Portions of Registrant's Annual Report to Shareholders for the twelve month period ended September 30, 1997, and definitive proxy statement and notice of annual meeting of shareholders, dated February 15, 1998, are incorporated by reference into Part I, Part II and Part II hereof. Information contained in this Form 10-KSB and the Annual Report to shareholders for fiscal 1997 period which is incorporated by reference contains certain forward looking comments 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. CORNING NATURAL GAS CORPORATION FORM 10-KSB For the 12 Month Period Ended September 30, 1997 Part I ITEM 1 - DESCRIPTION OF BUSINESS (a) Business Development Corning Natural Gas Corporation (the "Company" or "Registrant"), incorporated in 1904, is a natural gas utility. The Company purchases its entire supply of gas, and distributes it through its own pipeline distribution and transmission systems to residential, commercial, industrial and municipal customers in the Corning, New York area and to two other gas utilities which service the Elmira and Bath, New York areas. The Company is under the jurisdiction of the Public Service Commission of New York State which oversees and sets rates for New York gas distribution companies. The Company also sells, leases and services appliances, primarily gas burning, through its wholly owned subsidiary, Corning Natural Gas Appliance Corporation. (b) Business of Issuer (1) The Company maintains a gas supply portfolio of numerous contracts and is not dependent on a single supplier. Additionally, the Company has capabilities for storing 793,000 Mcf through storage operations with two of its suppliers. The Company had no curtailments during fiscal 1997 and expects to have an adequate supply available for its customers during fiscal 1998 providing that no abnormal conditions or actions occur. (2) The Company is franchised to supply gas service in all the political subdivisions in which it operates. (3) Since the Company's business is seasonal by quarters, sales for each quarter of the year vary and are not comparable. Sales for different periods vary depending on variations in temperature, but the Company's Weather Normalization Clause (WNC) serves to stabilize net revenue from the effects of temperature variations. The WNC allows the Company to adjust customer billings to compensate for fluctuations in net revenue caused by temperatures which are higher or lower than the thirty year average temperature for the period. Degree days, which represent the number of degrees that the average daily temperature falls below 65 degrees Fahrenheit, totaled 6,831 for the period October 1, 1996 through September 30, 1997 and 7,076 for the same period ended September 30, 1996. (4) The Company has three major customers, Corning Incorporated, New York State Electric & Gas (NYSEG), and Bath Electric, Gas & Water Systems (BEGWS). The loss of any of these customers could have a significant impact on the Company's financial results. (5) Historically, the Company's competition in the residential market has been primarily from electricity in cooking, water heating and clothes drying, and to a very small degree, in heating. The price of gas remains low in comparison to that of electricity in the Company's service territory and the Company's competitive position in the residential market continues to be very strong. Approximately 99% of the Company's general service customers heat with gas. In recent years competition from oil has developed in the industrial market. The Company has been able to counteract much of this competition, to date, through the transportation of customer owned gas for a transportation charge. The customer arranges for their own gas supply, then moves it through the Company's facilities for a transportation fee. The Company's transportation rate is equal to the lowest unit rate of the appropriate rate classification, exclusive of gas costs, hence the profit margin is maintained. Additionally, under an increasingly deregulated environment there is opportunity for the Company to increase revenue by selling its upstream pipeline capacity to transportation customers. The Company is authorized to retain 15% of such revenue and 85% is returned to firm customers in the form of lower gas costs. Transportation customers that pay for this capacity are virtually assured that their supply will not be interrupted. Revenues derived from the resale of this capacity were $242,289 for 12 months ended September 30, 1997 and $181,681 for the 12 months ended September 30, 1996. For those willing to bear some risk, the Company has an interruptible transportation rate for its large industrial customers whereby the customer may elect to avoid payment of demand charges but bears the risk of partial or total upstream interruption of service during certain periods. To maintain industrial load in the event that oil prices temporarily drop below the equivalent gas price, the Company continues to maintain a flexible transportation rate schedule. This flexible rate has been used infrequently since its inception. In September 1995 the Company purchased the assets of a local gas distribution company, Finger Lakes Gas Company, through the Federal Bankruptcy Court. Finger Lakes Gas served customers in the Hammondsport, NY area and had a customer base of approximately 320 customers. The Company was able to purchase this all plastic system with a bid of $560,000. The Company was pleased to purchase these assets that originally cost over $1.5 million to construct for its relatively low bid. The nearly new, all plastic, system was already connected and serving 320 customers with a potential to add 200 more in the near future. On a per customer basis, this represents a very low investment. The capital to purchase these assets was obtained through short term debt. The Company has not found it necessary to apply for an increase in rates on this part of our system which means the original rates made effective in 1990 remain in effect currently. Shortly after the Company took possession of the system, Mercury Aircraft, Inc. announced it would purchase the former Taylor Wine Company facilities and centralize their other plants. The reopening of this major facility will most certainly contribute toward the stability and future viability of the new gas system which is now part of the Company. The former Finger Lakes Gas Company's operations contributed in excess of $150,000 to gross margin for the period ended September 30, 1996, and in excess of $218,000 for the 12 months ended September 30, 1997. In December, 1994 the New York Public Service Commission instituted a proceeding to address issues related to the merging competitive natural gas market. This proceeding is intended to provide a framework whereby access to facilities on upstream pipelines made available by FERC Order 636 would be available to end use customers on the Local Distribution Company level. New tariff filings were approved and became effective September 1, 1996. The Company considers this a transitional step towards full unbundling of services with future changes made as circumstances warrant. In 1997 the PSC instituted another proceeding designed to assess the issues associated with the future of the natural gas industry and the role of the local gas utility. The staff of the PSC has made certain proposals which, if instituted, will effectively separate the structure of the industry into four distinct segments. Under the proposed structure, production, transportation, marketing and distribution will become distinct businesses. Gas utilities would no longer sell natural gas, they would merely provide the distribution facilities to get gas to the burnertip. The PSC staff proposal indicates that this change should be complete within five years. Such a drastic change will obviously require much effort in working out the details to ensure that customers are provided with the same safe, reliable service that has historically been provided. This company has taken the position that it does not oppose this transition to a fully competitive market but that it must be allowed to evolve naturally. In order to minimize the potential for unintended consequences which could have a negative effect on the customer, arbitrary deadlines and regulations designed to accelerate the process need to be avoided. If, in fact, marketers can provide a more economic product than the gas utility, customers will be quick to respond. (6) The Company believes compliance with present federal, state and local provisions relating to the protection of the environment will not have any material adverse effect on capital expenditures, earnings and financial position of the Company and its subsidiary. (7) Sixty-nine persons were employed on a full-time basis and seven on a part-time basis by the Company in 1997 and 67 full-time and six part-time in fiscal 1996. (8) The Company's labor-management relationship is good. Typical labor negotiations are completed in one to two days. The current labor contract was signed September 1, 1995 for a three year period. ITEM 2 - DESCRIPTION OF PROPERTY The Company completed the construction of a new office building at 330 West William Street, Corning, NY in the fall of 1991. This structure is physically connected to the operations center built three years earlier. The Company had outgrown its general offices at 27 East Denison Parkway. The property has been sold, and the gain on the sale was returned to ratepayers. The Company's pipeline system is thoroughly surveyed each year. Any necessary replacements are included in the construction budget. Approximately 105 miles of transmission main, 284 miles of distribution main, 13,800 services and 86 measuring and regulating stations, along with various other property are distributed throughout the service area. All of the above described property is owned by the Company, except for one short section of 10" gas main which is under a long-term lease and is used primarily to serve Corning Incorporated. All of the above described property which is owned by the Company is adequately insured, and is subject to the lien of the Company's first mortgage indenture. ITEM 3 - LEGAL PROCEEDINGS The Company is not a party to any material pending legal proceedings, nor is the Company aware of any problems of any consequence which it anticipates may result in legal proceedings. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the third quarter of 1997. Additional Item Executive Officers of the Registrant (Including Certain Significant Employees) Business Experience Years Served Name Age During Past 5 Years In This Office Thomas K. Barry 52 Chairman of the Board of Directors 4 President & C.E.O. 13 Edgar F. Lewis 60 Senior Vice President - Operations 17 Kenneth J. Robinson 53 Executive Vice President 6 Phyllis J. Groeger 57 Secretary 10 Thomas S. Roye 44 Vice President - Administration 6 Gary K. Earley 43 Treasurer 6 Term of office is for one year. (Normally from April to April) Part II ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The principal market on which the Registrant's common stock is traded, the range of high and low bid quotations for each quarterly period during the past two years, the amount and frequency of dividends, and a description of restrictions upon the Registrant's ability to pay dividends, appear in the table below. The number of stockholders of record of the Registrant's Common Stock was 372 at September 30, 1997. The high and low bid quotations reflect inter-dealer prices, without retail markup, markdown or commission and may not represent actual transactions. MARKET PRICE - (OTC) Dividend Quarter Ended High Low Paid March 31, 1996 $ 23 $ 22 $ .315 June 30, 1996 23 22 .315 September 30, 1996 22 21 1/2 .315 December 31, 1996 22 21 1/2 .32 March 31, 1997 22 21 1/2 .32 June 30, 1997 21 1/4 20 .32 September 30, 1997 21 1/4 20 .32 The Company incurred $4,700,000 in new long-term debt in 1997. The proceeds of this new issue were used to pay off $3.1 million in short-term debt and retire a 10% First Mortgage Bond with a balance of $1.6 million. The new debt is an unsecured senior note at 7.9 percent interest with a maturity date of September 25, 2017. Canada Life Assurance Company of Toronto is the debt holder; interest payments are made quarterly with sinking fund payments as follows: $355,000 annually starting September, 2006 with a $795,000 payment due September 1, 2017. ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion of financial condition and results of operations of the Company appears in the 1997 Annual Report to Shareholders which is incorporated by reference. ITEM 7 - FINANCIAL STATEMENTS The consolidated financial statements, together with the independent auditors' report thereon of KPMG Peat Marwick LLP dated November 7, 1997 are included in the 1997 Annual Report to Shareholders attached hereto, and are incorporated in this Form 10-KSB by reference thereto. ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None Part III ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS The information required regarding the executive officers of the Registrant is included in Part 1 under "Additional Item". ITEM 10 - EXECUTIVE COMPENSATION The information required regarding the compensation of the executive officers appears in the Definitive Proxy Statement attached hereto. ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required regarding the security ownership of certain beneficial owners and management appears in the Definitive Proxy Statement attached hereto. ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required regarding certain relationships and related transactions appears in the Definitive Proxy Statement attached hereto. Part IV ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The following exhibits are filed with this Form 10-KSB or incorporated herein by reference: (Exhibit numbers correspond to numbers assigned to exhibits in Item 601 of Regulation S-B) Exhibit Name of Exhibit Page 3 A copy of the Corporation's Articles of Incorporation, as currently in effect, including all amendments, was filed with the Company's Form 10-K for December 31, 1987. 3 A copy of the Corporation's complete by-laws, as currently in effect, was filed with the Corporation's report on Form 10-Q for the quarter ended March 31, 1984. 10 A copy of the "Agreement Between Corning Natural Gas Corporation and Local 139", dated September 1, 1995 was filed with Form 10-KSB for December 31, 1995. 10 Consulting Agreement and Employment Contracts with three executive officers were filed with the Company's Form 10-K for December 31, 1987. 10 A copy of the Service Agreement with CNG Transmission Corporation was filed with the Company's Form 10-KSB for December 31, 1993. 10 A copy of the Sales Agreement with Bath Electric, Gas and Water was filed with the Company's Form 10-K for December 31, 1989. 10 A copy of the Transportation Agreement between the Company and New York State Electric and Gas Corporation was filed with the Company's Form 10-KSB for December 31, 1992. 10 A copy of the Transportation Agreement between the Company and Corning Incorporated was filed with the Company's Form 10-KSB for December 31, 1992. 10 A copy of the Service Agreement with Columbia Gas Transmission Co. was filed with the Company's 10-KSB for December 31, 1993. 13 A copy of the Corporation's Annual Report to Shareholders for 1997, is filed herewith. 22 Information regarding the Company's sole subsidiary was filed as Exhibit 22 with the Company's Form 10-K for the period ended December 31, 1981. 28 Corning Natural Gas Corporation Proxy Statement is filed herewith. 99 Order from the U.S. Bankruptcy Court, Northern District of New York re: Approval of Acquisition of Finger Lakes Gas Company was filed with the Company's 10-KSB for the period ended December 31, 1995. 99 Order from the Public Service Commission of New York State re: Approval of Acquisition of Finger Lakes Gas Company was filed with the Company's 10-KSB for the period ended December 31, 1995. (b) Reports on Form 8-K The Company filed no reports on Form 8-K during the three month period ended September 30, 1997. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CORNING NATURAL GAS CORPORATION (R egistrant) Date December 19 1997 THOMAS K. BARRY Thomas K. Barry, Chairman of the Board, President and C.E.O. Date December 19, 1997 GARY K. EARLEY Gary K. Earley, Treasurer In accordance with the Exchange Act, 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 19, 1997 J.E. BARRY J.E. Barry, Director Date December 19, 1997 DONALD R. PATNODE Donald R. Patnode, Director Date December 19, 1997 J.A. FINLEY J.A. Finley, Director EX-13 2 Letter to Shareholders It appears that New York State has turned the economic corner and is finally headed uphill again. A new, energized state government with a revised view of business and taxes has made real strides to improve the state's economic climate. Taxes and worker's compensation insurance costs have been cut, business expansion and job development is the order of the day while unemployment and welfare costs have declined. The City of Corning and the Southern Finger Lakes region in general are participants in this revival. In the past several years the region surrounding Corning has developed into a major shopping hub and tourist center. Major initiatives are underway to vastly enrich and expand the tourist market. Equally as important to our Company are the many sizable business expansion projects that are now in various stages of construction and development. So much is going on, in fact, that two sections of this report are devoted to outlining these developments. While the economy of our service territory has been some- what stagnant in the past decade, we have been relatively successful in ex- panding our markets by building pipelines to adjacent villages, connecting to schools, residences and businesses. These major new local developments will bring new plants, businesses and residential construction into our back yard without major construction expenditures on our part. As difficult as it has been for the Company to develop new revenue sources, we have been able to sustain a moderate level of growth in our customer base and in net earnings while maintaining a stable, reasonable rate structure. The year ended September 30, 1997 proved to be our most successful year to date, producing earnings of $1.64 per share. Dividends paid of $1.28 per share brought our payout ratio down to a more favorable 78 percent allowing for an increase in equity to $11.32 per share. It is important to note the Company has been able to capitalize on various in- centive mechanisms along with continued good performance by the Appliance subsidiary to achieve this level of earnings. For example, the Company increased its capacity assignment revenues by one third in the past year to $1.6 million thus returning nearly $1.4 million to customers through reduced rates while improving pre-tax earnings by $242,000. Serious ongoing efforts have been made throughout the past several years to reduce the gas lost on the system which can create large expenses. We have aggressively been upgrading electronic gas measurement equipment at all major delivery points and have completed a program to install temperature correcting meters wherever meters are located outdoors. During the year we purchased a computerized, electronic meter tester which will allow us to adjust our meters with pinpoint accuracy. We have stepped up our progam to detect leakage and ititiate repairs. These efforts have resulted in lower level of gas lost on the system. Additionally, this accomplishment has also increased gross earnings due to an incentive mechanism that the state initiated several years ago. The Company's wholly owned Appliance Subsidiary also contributed $222,000 to consolidated net earnings. While this is not quite up to the level of the prior year, we are well positioned for growth in 1998. Freestanding gas fireplace units and insert fireplace units are extremely popular with our customers. All three of our stores' display areas have been recently redesigned to emphasize gas fired fireplaces. The rental business remains strong with continued growth in the rental of water treatment equipment. Utility companies in New York State remain a prime source of tax revenue collection. In fiscal 1997 the Company paid a total of $2,400,000 in various state and federal taxes. Taxes on property and the gross revenue tax are the primary sources of the overall burden. The good news is that the state has finally agreed to gradually reduce the 3.5 percent gross revenue tax down to 2.5 percent by January 1, 2000. There are ongoing discussions at the state capital that this reduction is not as progressive as it should be if the state is toachieve its goal of significantly reducing energy costs in order to improve its business development agenda. Legislation has also been enacted which will eventually result in a decrease in property taxes. Late in September, 1997, the Company completed a long-term debt financing in the amount of $4.7 million. These funds were obtained as a senior note with interest at 7.9 percent over a 20 year term. This financing allowed the Company to reduce short-term debt in the amount of $3.1 million and to retire a 10 percent bond with a balance of $1.6 million. Savings of over $200,000 were achieved on the bond retirement while the entire package served to strengthen the capitalization structure. While legislators, politicians and consumers across the nation and particularly in New York voice their concern regarding energy costs, our rates continue to be competitive. It is true that regulated energy utility rates are generally high in New York State, particularly electric costs, and that affirmative action needs to be taken to reduce these costs. This is not necessarily true for natural gas rates charged by many of the New York utility companies. According to a recent American Gas Association study, retail prices for natural gas for all consuming sectors were on average 18 percent lower in 1996 than in 1987, when the effects of wellhead price deregulation began to appear. The wellhead price of natural gas increased only slightly during the past decade, from $2.21 per thousand cubic feet in 1987 to $2.24 in 1996, although volatility during that period was significant. The average retail price for the typical residential consumer in Corning's service territory was $6.15 per Mcf five years ago, in December 1992, compared with rates of only $5.99 per Mcf going into the winter of 1997-8. The Company's rate structure positions us to compete for our residential and commercial business and to maintain our industrial loads in this new arena of deregulation. Our record of paying dividends to shareholders extends to 45 years of consecutive quarterly payments with the February, 1998 dividend. This payment of 32.5 cents per common share brings the annualized payout to $1.30 per share. Once again, we recognize and appreciate the work and dedication of our team of employees who pull together each day to produce quality results and satisfied customers. We all look forward with enthusiasm toward the completion of the many exciting projects underway in the Corning area which will provide our Company with an increased and more viable base upon which we will build our future. Thomas K. Barry Chairman of the Board, President & CEO EX-13 3 April 2000 Corning Incorporated's $58 million investment in an all new Corning Glass Center inspired the community to plan for numerous changes to prepare itself to welcome 650,000 visitors to the area annually. Approximately 1,500 people, representing a cross-section of the community, have participated in the planning process. Dozens of task forces and sub-committees were established to carry out the plan. While many of the projects are already underway and funded or partially funded, some are more long-term, lower-priority, programs that may be completed in the future. The following is a partial review of the April 2000 initiatives. One of the major goals is to provide quality attractions, services and facilities to make tourists feel welcome and to stay longer in the area. The Corning Glass Center will be a prime magnet for visitors but there are many other things to see and do in the region. The major attractions are the Finger Lakes, wineries, Watkins Glen race track, Rockwell (Western Art) Museum, National Warplane Museum and airshow, Soarplane Museum and soaring activities, Curtiss Museum (historic aviation), and the fall foliage. The number one priority of April 2000 was to establish a regional marketing plan to maximize the utilization of all the region has to offer. This rather extensive plan is progressing rapidly. The following is a brief listing of the major capital projects currently scheduled for completion by April 2000: * Comprehensive Intown Signage System including information signs and community directories * Visitor Center Parking Lot * Visitor Center Pavilion * Intown Streetscape Enhancements including a floral festival on Market and Bridge Streets * Bridge Street Bridge Reconstruction - rebuild and enhance the bridge, a $6 million project * River Loop hiking and bike trail * Market Street Visitors Center * Reconstruction of Denison Parkway - widen the sidewalks, improve street lighting and beautify the parkway - a major project funded and underway * Market Street trolley shuttle * Transportation Center - tour bus parking * Civic Center Plaza Upgrade Additionally, this is a listing of a few of the other major long-term projects that hopefully will be highlighted in future reports as they become realities: * Steuben Conference Center * Glass Pavilion/Museum on Centerway pedestrian bridge * Corning Intown Lake/Dam Project * Executive hotel and riverfront residential development * Boathouse * Redevelopment of current firehouse and construction of a new fire station * Construction of a new post office center * Development of an intown business park As you can imagine, this is an exciting time for this community as it looks towards significant growth, capital additions, job development and numerous enhancements unmatched in the City's history. In the Erwin area alone there are over 500 new housing units scheduled for construction over the next three years. Corning Natural Gas Corporation looks forward to providing its services and participating in this new era. EX-13 4 New Business Development The area's largest employer and globally renowned Fortune 500 organization, Corning Incorporated, is having a revival of its own. It is obviously important that we follow and understand the progress of this ever expanding organization due to the tremendous impact it has upon the economy and well being of the citizens and businesses that make up the City of Corning. In the next few years to come, culminating in the spring of 2000, Corning Incorporated will be investing approximately $250 million in new and expanded manufacturing facilities, research facilities and its famous Museum of Glass. Several years ago Corning Incorporated decided to totally renovate the Glass Museum by year 2000 to celebrate its 50th anniversary and the 150th anniversary of Corning Incorporated. This massive renovation represents an investment of $58 million and is expected to draw 650,000 visitors annually, nearly double the current figure. In order to welcome these visitors and benefit from these resources, the entire community needed to make numerous physical and promotional changes. This undertaking was carefully put together as the project came to be known as April 2000. This project encompasses so many facets that it is reviewed as a separate section in this report. Without a doubt, the most important economic development to occur in the past several years was the announcement that Corning Incorporated would construct a 400,000 square foot, $40 million manufacturing facility in Erwin to produce products for its Opto-Electronic Components Division. This plant will provide up to 1,000 new manufacturing jobs and will be partially operable by year end, 1997. The plant will produce products that combine with fiber optic cable to upgrade the system, amplify optical signals, couple optic systems, etc. Corning Incorporated will also expend $4 million to enlarge its center for fiber optic testing. Perhaps the most ambitious of Corning Incorporated's many projects is the expansion of its impressive Sullivan Science Research Center located adjacent to the new components plant. This $125 million expansion will double the size of the research center. These additional buildings, totaling 328,000 square feet, will provide additional laboratories to create and test products, conference space and a five story draw tower for specialty optic fibers. 500 additional employees will be needed, many who will have advanced scientific, engineering and mathematics degrees. The expansion-minded company, which earned $487 million on $3.7 billion in sales in 1996 is also investing $20 million to add to its recently constructed world headquarters building in the center of the city. The new west wing will house some 350 workers in the Telecommunications Products and Photonics Technologies Divisions. All of these major projects will eventually have a significant impact in terms of new job opportunities, local tax revenues, tourist related businesses and new housing developments to name a few. EX-13 5 Industry Restructuring Beginning around 1984 the Federal Energy Regulatory Commission (FERC) began a long process of changing the way the natural gas industry operates all the way from the wellhead to the burnertip. The change at the federal level was gradual, beginning with very large customer access to the transportation market in 1984 and leading to the complete withdrawal of the pipelines from the merchant function in 1992. The purpose of the change in FERC policy was to promote competition in the market which was expected to produce savings to the consumer. Throughout this time the New York Public Service Commission (PSC) and the gas utilities have worked together to adapt to a new environment. In 1994 the PSC instituted a proceeding to address issues associated with the restructuring of the emerging competitive natural gas market in New York State. As a result of this proceeding, Corning, as well as other gas utilities in the state, filed tariffs which essentially allowed customers of any size, including residential customers, access to the transportation market. In other words, all customers now have the ability to purchase their gas requirements from a marketer rather than the gas utility. Those that choose to do so pay the utility for the use of their distribution system but pay a marketer for the cost of the gas consumed. Acceptance of this program by both marketers and customers has been slow to catch on, primarily due to a lack of profitability for marketers and savings for customers that are generated at current levels. In 1997 the PSC instituted another proceeding designed to assess the issues associated with the future of the natural gas industry and the role of the local gas utility. The staff of the PSC has made certain proposals which, if instituted, will effectively separate the structure of the industry into four distinct segments. Under the proposed structure, production, transportation, marketing and distribution will become distinct businesses. Gas utilities would no longer sell natural gas, they would merely provide the distribution facilities to get gas to the burnertip. The PSC staff proposal indicates that this change should be complete within five years. Such a drastic change will obviously require much effort in working out the details to ensure that customers are provided with the same safe, reliable service that has historically been provided. This company has taken the position that it does not oppose this transition to a fully competitive market but that it must be allowed to evolve naturally. In order to minimize the potential for unintended consequences which could have a negative effect on the customer, arbitrary deadlines and regulations designed to accelerate the process need to be avoided. If, in fact, marketers can provide a more economic product than the gas utility, customers will be quick to respond. Since gas utilities do not currently earn a profit from the sale of gas, earnings derived from the use of the distribution facilities will tend to remain neutral. This company has effectively adapted to the changes to date and, in fact, has been able to provide financial benefits to both customers and shareholders as a result of some of the changes that have been instituted. Management is confident that the company will continue to successfully adapt to the transition and will attempt to seek out new opportunities as we move toward a fully competitive market. EX-13 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The twelve months ended September 30, 1997 was the first full year completed by the Company since its change in fiscal year. In 1996 the Company changed its fiscal year end from December 31 to September 30. The adjacent table compares the operating results for the twelve months ended September 30, 1997 to the unaudited results for the twelve months ended September 30, 1996. The discussion of operating results will focus on these periods. Twelve Months Ended Sept. 30, 1996 Sept. 30, 1997 Unaudited Operating revenues $ 17,835,687 $ 19,578,138 Operating expenses and taxes: Natural gas purchased 10,448,308 12,317,462 Operating and maintenance 3,529,373 3,331,860 Taxes other than federal income taxes 1,668,049 1,834,810 Depreciation 548,614 510,382 Federal income taxes 245,887 220,873 Total operating expenses and taxes 16,440,231 18,215,387 Income from utility operations 1,395,456 1,362,751 Income from unregulated operations 221,856 229,278 Other income 22,977 23,424 Income before interest expense 1,640,289 1,615,453 Interest expense 884,538 877,379 Net income $ 755,751 $ 738,074 Earnings per common share $ 1.64 $ 1.60 EARNINGS Consolidated net income amounted to $756,000 or $1.64 per share in 1997, compared to $738,000 or $1.60 per share in 1996. Significant factors affecting the results of operations are discussed below. OPERATING REVENUE Operating revenue of $17,836,000 declined nine percent in 1997 due primarily to a reduction in gas cost billings. The Company's billing rates are adjusted to reflect changes in gas costs (which include current costs as well as prior period deferred amounts) so that changes in these costs are accompanied by corresponding changes in revenue and, therefore, have no impact on the Company's earnings. Also contributing to the reduction in operating revenue was a decline in the volumes of gas delivered, due to milder weather. Total gas delivered to customers amounted to 7,897,615 Mcf in 1997 compared to 8,233,106 Mcf in 1996. However, the Company's weather normalization billing mechanism (briefly discussed in note 1 to the financial statements) mitigates the impact of weather on revenue. As the result of a warmer 1997 the Company billed $152,000 more than the previous year through this mechanism. There were a couple items serving to increase the Company's operating revenue. Capacity assignment revenue increased $61,000 to $242,300 in 1997. This is derived from success in marketing the Company's unused pipeline capacity and a regulatory incentive that allows the Company to retain 15 percent of the proceeds. Additionally, a small revenue increase was achieved through the implementation of a rate increase in the amount of $124,000 on September 1, 1996. OPERATING EXPENSE Purchase gas expense of $10,400,000 decreased 15% in 1997 due to lower prior period deferred amounts and decreased deliveries noted above. Also, contributing to the decrease was a substantial benefit from the Company's lost and unaccounted for gas incentive mechanism. The Company was able to capitalize on the incentive, realizing a benefit of $120,000 in 1997, a considerable increase from $65,000 the previous year. The Company experienced an increase in operating and maintenance expenses in 1997 primarily due to flood damage to the distribution system. Additional expense was also incurred in the area of leak detection and repair as well as increases in costs for health insurance, pension expense and uniforms. Taxes other than federal income tax decreased nine percent due to a reduction in gross revenue taxes resulting primarily from the gas cost billing reduction noted previously. The Company is subject to the New York public utilities gross receipts tax which is levied on all revenue. UNREGULATED OPERATIONS The Appliance Corporation subsidiary earnings remained stable at $221,900 in 1997 compared to $229,000 in 1996. LIQUIDITY AND CAPITAL RESOURCES The Company utilized internally generated funds and short-term borrowing to finance capital expenditures of approximately $1 million in 1997. In September, 1997 the Company completed a long-term debt issue in the form of a twenty year senior note at 7.9 percent interest. The Company utilized the proceeds to retire a $1.6 million ten percent bond, and paid down $3.1 million of short-term debt. The Company has unsecured bank lines of credit totaling $5,500,000, the terms of which are disclosed in note 5 to the financial statements. It is expected that the Company's current capital resources will be sufficient for 1998 planned operations. INDUSTRY RESTRUCTURING The natural gas industry continues to change. In 1997 the New York Public Service Commission instituted another proceeding designed to address the future of the industry. A detailed discussion of industry restructuring appears on page 6 of this report. YEAR 2000 During 1997 the Company took steps to make its computer systems year 2000 compliant. This process is almost entirely complete, and the balance will be completed in 1998 at nominal cost. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This report contains statements which, to the extent they are not recitations of historical fact, constitute "forward-looking statements" within the meaning of the Securities Litigation Reform Act of 1995 (Reform Act). In this respect, the words "estimate," "project," "anticipate," "expect," "intend," "believe" 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. A number of important factors affecting the Company's business and financial results could cause actual results to differ materially from those stated in the forward- looking statements. The natural gas industry continues to change. In 1997 the New York Public Service Commission instituted another proceeding designated to address the future of the industry. A detailed discussion of industry restructuring appears on page 6 of this report. EX-13 7 CORNING NATURAL GAS CORPORATION AND SUBSIDIARY Financial Statements Year Ended September 30, 1997 and Nine Months Ended September 30, 1996 (With Independent Auditor's Report Thereon) Independent Auditors' Report The Board of Directors and Stockholders Corning Natural Gas Corporation: We have audited the accompanying consolidated balance sheets of Corning Natural Gas Corporation and Subsidiary (the Company) as of September 30, 1997 and 1996, and the related consolidated statements of income and retained earnings, and cash flows for the year ended September 30, 1997 and the nine months ended September 30, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based upon our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above presently fairly, in all material respects, the financial position of Corning Natural Gas Corporation and Subsidiary at September 30, 1997 and 1996, and the results of their operations and their cash flows for the year ended September 30, 1997 and the nine months ended September 30, 1996 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK November 7, 1997 CORNING NATURAL GAS CORPORATION AND SUBSIDIARY Consolidated Balance Sheets September 30, 1997 and 1996 Assets 1997 1996 Property, plant and equipment, at original cost: Utility $ 20,378,449 19 ,616,872 Non-utility - principally rented gas appliances 2,533,498 2,451 ,396 22,911,947 22,068,268 Less accumulated depreciation (8,478,446) (7 ,846,128) 14,433,501 14 ,222,140 Current assets: Cash 262,752 180,595 Marketable securities available for sale, at fair value (cost of $574,842 in 1997) 641,899 - Accounts receivable, less allowance for uncollectible accounts of $97,000 in 1997 and 1996 995,215 789,677 Gas stored underground, at average cost 1,347,682 1, 347,099 Gas and appliance inventories, at lower of average cost or market 641,716 653,030 Prepaid income taxes 465,786 334,485 Deferred income tax assets 62,000 27,000 Prepaid expenses 580,896 432,1 63 4,997,946 3,764,049 Deferred charges: Long-term debt issuance costs, net of amortization 374,564 243,401 Unrecovered gas costs 32,933 - - Deferred debits - accounting for income taxes 1,016,661 1, 016,661 Other deferred debits 434,770 58 4,809 1,858,928 1,844,871 Other assets 405,131 389,5 02 $ 21,695,506 20,220,562 See accompanying notes to consolidated financial statements. CORNING NATURAL GAS CORPORATION AND SUBSIDIARY Consolidated Balance Sheets, Continued September 30, 1997 and 1996 Capitalization and Liabilities 1997 1996 Common stock, $5.00 par value per share. Authorized 1,000,000 shares; issued and outstanding 460,000 shares $ 2,300,000 2,30 0,000 Additional paid-in capital 653,346 653, 346 Net unrealized gain on securities available for sale (net of income tax benefit of $22,799) 44,258 - Retained earnings 2,211,833 2,194, 382 5,209,437 5,147,728 Long-term debt, less current installments 9,400,000 6,30 0,000 Total capitalization 14,609,437 11,447,728 Current liabilities: Current installments of long-term debt - 100, 000 Notes payable 775,000 2,725, 000 Accounts payable 1,680,840 1,146, 190 Dividends payable 149,500 - Customers' deposits and accrued interest 673,114 73 5,398 Accrued general taxes 112,367 14 1,598 Supplier refunds due customers 380,994 53 2,009 Accrued expenses 222,970 30 4,332 Other 20,826 48,369 Total current liabilities 4,015,611 5,732,896 Deferred credits: Deferred income tax liabilities 2,444,966 2,28 0,213 Refundable gas costs - 232, 769 Other 625,492 526,956 3,070,458 3,039,938 $ 21,695,506 20,220,562 Commitments (note 11) See accompanying notes to consolidated financial statements. CORNING NATURAL GAS CORPORATION AND SUBSIDIARY Consolidated Statements of Income and Retained Earnings For the Year Ended September 30, 1997 and the Nine Months Ended September 30, 1996 Utility Operations 1997 1996 Operating revenue: Residential, commercial and industrial $ 13,824,008 12,192 ,896 Transportation 3,769,390 2,757,286 Capacity assignment 242,289 131,95 3 Total operating revenue 17,835,687 15,08 2,135 Operating expenses and taxes: Natural gas purchased 10,448,308 9,538, 759 Operating and maintenance 3,529,373 2,573, 873 Taxes other than federal income taxes 1,668,049 1,428, 476 Depreciation 548,614 395,7 58 Federal income taxes 245,887 185,5 70 Total operating expenses and taxes 16,440,231 14,122 ,436 Income from utility operations 1,395,456 959,699 Unregulated Operations Unregulated revenue: Appliance rental 736,762 548,7 18 Service and merchandising 1,509,250 957,8 16 Interest income 21,307 15,5 69 Total unregulated revenue 2,267,319 1,522 ,103 Unregulated expenses 2,045,463 1,390, 168 Income from unregulated operations 221,856 13 1,935 Other income (including net realized gains on marketable securities of $20,997 in 1997) 22,977 10,4 47 Income before interest expense 1,640,289 1, 102,081 Interest expense 884,538 618,69 5 Net income 755,751 483,386 Retained earnings, beginning of period 2,194,382 2,145, 697 Less cash dividends 738,300 434,70 1 Retained earnings, end of period $ 2,211,833 2,194,382 Weighted average number of shares outstanding 460,000 460,00 0 Earnings per common share $ 1.64 1.05 See accompanying notes to consolidated financial statements. CORNING NATURAL GAS CORPORATION AND SUBSIDIARY Consolidated Statements of Cash Flows For the Year Ended September 30, 1997 and the Nine Months Ended September 30, 1996 1997 1996 Cash flows from operating activities: Net income $ 755,751 483,3 86 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 788,368 57 0,088 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable (205,538) 1,435,529 Gas stored underground (583) ( 508,782) Gas and appliance inventories 11,314 (52,503) Prepaid expenses (148,733) ( 79,800) Unrecovered/refundable gas costs (265,702) 1, 390,151 Other deferred charges 18,876 114,731 Other assets (15,629) ( 57,123) Increase (decrease) in: Accounts payable 534,650 (59,944) Accrued general taxes (29,231) 34,011 Accrued/prepaid federal income taxes (131,301) (425,548) Supplier refunds due customers (151,015) (237,597) Deferred federal income taxes 129,753 (196,190) Other liabilities and deferred credits (95,452) (2 12,824) Net cash provided by operating activities 1,195,528 2,197,585 Cash flows from investing activities: Proceeds from sale of marketable securities 598,801 - Purchases of marketable securities (1,173,643) - Capital expenditures, net of minor disposals (999,729) (635,1 94) Net cash used in investing activities (1,574,571) (635,194) (Continued) CORNING NATURAL GAS CORPORATION AND SUBSIDIARY Consolidated Statements of Cash Flows, Continued For the Year Ended September 30, 1997 and the Nine Months Ended September 30, 1996 1997 1996 Cash flows from financing activities: Net repayments under line-of-credit agreements (1,950,000) (1,090 ,000) Dividends paid (588,800) (434,701) Borrowings under long-term debt agreements 4,700,000 - - Repayment of long-term debt (1,700,000) - - Net cash provided by (used in) financing activities 461,20 0 (1,524,701) Net increase in cash 82,157 37,690 Cash at beginning of period 180,595 142,90 5 Cash at end of period $ 262,752 180,59 5 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 883,281 51 5,132 Income taxes $ 732,246 899,7 54 See accompanying notes to consolidated financial statements. CORNING NATURAL GAS CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements For the Year Ended September 30, 1997 and the Nine Months Ended September 30, 1996 (1) Summary of Significant Accounting Policies Corning Natural Gas Corporation (the 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. The Company follows the Uniform System of Accounts prescribed by the Public Service Commission of the State of New York (PSC) which has jurisdiction over and sets rates for New York State gas distribution companies. The Company's regulated operations meet the criteria and accordingly, follow the accounting and reporting of Statement of Financial Accounting Standards No. 71 (SFAS 71) "Accounting for the Effects of Certain Types of Regulation. The Company's 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 are summarized below. (a) Principles of Consolidation and Presentation The consolidated financial statements include the Company and its wholly owned subsidiary, the Corning Natural Gas Appliance Corporation (Appliance Corporation). All significant intercompany accounts and transactions have been eliminated in consolidation. The results of the Appliance Corporation are reported separately as unregulated operations in the consolidated statements of income and retained earnings. Shared expenses are allocated to the Appliance Corporation. It is the Company's policy to reclassify amounts in the prior year's financial statements to conform with the current year's presentation. (b) Utility Plant and Rented Gas Appliances Utility plant is stated at the historical cost of construction. These costs include payroll, fringe benefits, materials and supplies, and transportation costs. The Company charges normal repairs to maintenance expense. The Appliance Corporation capitalizes the cost of appliances and the original installation to rented gas appliances. Subsequent repairs are expensed. 1 (Continued) CORNING NATURAL GAS CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements (1) Summary of Significant Accounting Policies, Continued (c) Depreciation The Company provides for depreciation for accounting purposes using a composite straight-line method based on the estimated economic lives of property. The depreciation rate used for utility plant, expressed as an annual percentage of depreciable property, was 2.7% in 1997 and 1996. At the time utility properties are retired, the original cost plus costs of removal less salvage, are charged to accumulated depreciation. Rented gas appliances are depreciated on a straight-line basis at rates ranging from 10% to 20% per year. (d) Revenue and Natural Gas Purchased The Company 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 through the end of each month. The Company secured a weather normalization clause in the last major rate filing as protection against severe weather fluctuations. This affects space heating customers and is activated when degree days are 2% greater or less than a 30 year average. As a result, the effect on revenue fluctuations in weather related gas sales is somewhat neutralized. Gas purchases are recorded based on readings of suppliers' meters as of the end of the month. The Company's rate tariffs include a Gas Adjustment Clause (GAC) 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 PSC has provided for an annual reconciliation of recoverable GAC costs with applicable revenue billed. Any excess or deficiency in GAC revenue billed is deferred and the balance at the reconciliation date is either refunded to or recovered from customers over a subsequent 12 month period. (e) Marketable Securities Marketable securities, which are intended to fund the Company's supplemental pension plan, are classified as available for sale at September 30, 1997. Such securities are reported at fair value based on quoted market prices, with unrealized gains and losses, net of the related income tax effect, excluded from earnings, and reported as a separate component of stockholders' equity until realized. The cost of securities sold was determined using the specific identification method. 2 (Continued) CORNING NATURAL GAS CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements (1) Summary of Significant Accounting Policies, Continued (e) Marketable Securities (continued) A summary of the marketable securities at September 30, 1997 is presented in the following table: Net Market Cost Unrealized Unrealized Unrealized Value Basis Gains Losses Gains $ 641,899 574,842 71,876 (4,819) 67,05 7 (f) 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 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. (g) Dividends Dividends are accrued when declared by the Board of Directors. Dividends declared were $738,300 and $1.61 per share in 1997, and $434,701 and $0.95 per share in 1996. Dividends paid were $588,800 and $1.28 per share in 1997, and $434,701 and $0.95 per share in 1996. (2) Information About Operating Segments Selected financial information for the Company's identifiable operating segments follows: Identifiable Assets 1997 1996 Regulated operations $ 19,380,485 18,045,249 Unregulated operations 2,315,021 2,175,313 $ 21,695,506 20,22 0,562 3 (Continued) CORNING NATURAL GAS CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements (2) Information About Operating Segments, Continued Capital Expenditures 1997 1996 Regulated operations $ 762,254 427,839 Unregulated operations 237,475 207,355 $ 999,729 635,194 Depreciation 1997 1996 Regulated operations $ 548,614 395,758 Unregulated operations 239,754 174,330 $ 788,368 570,088 The Company's regulated operations have no significant assets which are excluded from recoverability under rate filings. (3) Regulatory Matters Certain costs are deferred and recognized as expenses when they are reflected in rates and recovered from customers as permitted by SFAS 71. These costs are shown as Deferred Charges. 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. In a purely competitive environment, such costs might not have been incurred or deferred. Accordingly, if the Company's rate setting were changed from a cost-of-service approach and it was not longer allowed to defer these costs under SFAS 71, certain of these assets may 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 SFAS 71 is still appropriate. 4 (Continued) CORNING NATURAL GAS CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements (3) Regulatory Matters, Continued Below is a summarization of the Company's regulatory assets as of September 30, 1997 and 1996: 1997 1996 Unrecovered gas costs $ 32,933 - Deferred debits - accounting for income taxes 1,016,661 1,016, 661 Other deferred debits 434,770 584,809 Total - regulatory assets $ 1,484,364 1,601,470 Unrecovered gas costs These costs are recoverable over future years and arise from an annual reconciliation of certain gas revenue and costs (as described in Note 1). Deferred debits - accounting This amount represents the expected future recovery from for income taxes ratepayers of the tax consequences of temporary differences between the financial reporting basis and tax basis of assets and liabilities. Other deferred debits The majority of this amount represents pension and postretirement benefit costs in excess of the amounts currently recoverable through rates. The PSC requires such excess costs to be deferred. The Company expects that its regulatory assets will be fully recoverable from customers. 5 (Continued) CORNING NATURAL GAS CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements (4) Long-Term Debt A summary of long-term debt at September 30, 1997 and 1996 follows: 1997 1996 First mortgage bonds - 10% retired in 1997 $ - 1,700,000 First mortgage bonds - 8 1/4% series all due 2018 3,100,000 3,100,000 Unsecured senior note - 9.83% due serially as described below 1,600,000 1,600,000 Unsecured senior note - 7.9% due serially as described below 4,700,000 - Total long-term debt 9,400,000 6,400,000 Less current installments - 100,000 Long-term debt less current installments $ 9,400,000 6,300,000 The Company will redeem long-term debt as follows: 9.83% Senior Note - $100,000 annually from 2007 through 2015 with $700,000 due 2016. 7.9% Senior Note - $355,000 annually from 2006 through 2016 with $795,000 due 2017. Under the Company's bond indenture, retained earnings as of September 30, 1997 in the amount of $796,654 are restricted as to the payment of dividends. The 8 1/4% first mortgage bond is secured by substantially all utility plant. (5) Lines of Credit The Company has lines of credit with local banks to borrow up to $5,500,000 on a short-term basis. Borrowings outstanding under these lines were $775,000 at September 30, 1997 and $2,725,000 at September 30, 1996. The maximum amount outstanding during the year ended September 30, 1997 and the nine months ended September 30, 1996 was $3,445,000 and $3,815,000, respectively. The lines of credit are unsecured and payable on demand with interest at the prime rate (8.50% at September 30, 1997) less 1/8 to 1/2 %. 6 (Continued) CORNING NATURAL GAS CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements (6) Federal Income Taxes Federal income tax expense (benefit) recorded in the accompanying consolidated statements of income and retained earnings is as follows: 1997 1996 Utility Operations: Current $ 122,335 392,304 Deferred 133,681 (196,063) Investment Tax Credits (10,129) (10,671) 245,887 185,570 Unregulated Operations: Current 122,665 97,095 Deferred (3,928) (127) 118,737 96,968 Total federal income tax expense $ 364,624 282,538 Actual federal income tax expense differs from the expected federal income tax expense (computed by applying the federal corporate tax rate of 34% to income before federal income tax expense) as follows: 1997 1996 Expected tax expense $ 380,928 260,414 Investment tax credits (10,129) (10,671) Other, net (6,175) 32,795 $ 364,624 282,53 8 The Company is exempt from state income taxes. 7 (Continued) CORNING NATURAL GAS CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements (6) Federal Income Taxes, Continued The tax effects of temporary differences that result in deferred income tax assets and deferred income tax liabilities at September 30, 1997 and 1996 are as follows: 1997 1996 Deferred income tax assets: Unbilled revenue $ 27,000 29,000 Supplemental pension reserve 188,000 151,000 Postretirement benefit obligations 102,000 106,000 Allowance for uncollectible accounts 33,000 33,000 Inventories 49,000 - Other 43,000 45,000 Total deferred income tax assets $ 442,000 364,000 1997 1996 Deferred income tax liabilities: Property, plant and equipment, principally due to differences in depreciation $ 2,110,000 2,075,000 Pension benefit obligations 358,000 294,000 Deficiency of GAC revenue billed 90,000 80,000 FERC Order 636 transition costs - 10,000 Other 266,966 158,21 3 Total deferred income tax liabilities 2,824,966 2,617,213 Net deferred income tax liability $ 2,382,966 2,253, 213 There was no change in the valuation allowance for deferred income tax assets during the year ended September 30, 1997 and the nine months ended September 30, 1996. 8 (Continued) CORNING NATURAL GAS CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements (7) Pension Plan Since 1990 the Company has been accruing a liability with respect to the Supplemental Pension Plan for certain officers. In 1997, the company estab- lished a deferred compensation trust to provide for the future financing of the plan. The fair market value of assets in the trust was $641,899 at September 30, 1997 and the plan liability, which is included in other deferred credits on the balance sheet, was $554,000 and $444,000 at September 30, 1997 and 1996 respectively. The assets of the trust are available to general creditors in the event of insolvency. The 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 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 not only for benefits attributed for service to date, but also for those expected to be earned in the future. The following table sets forth the plan's funded status and amounts recognized on the Company's balance sheet under Statement of Financial Accounting Standards No. 87 (SFAS 87), Employers' Accounting for Pensions, at September 30, 1997 and 1996. 1997 1996 Actuarial present value of accumulated benefit obligation (including vested benefits of $5,707,256 in 1997 and $5,154,703 in 1996 $ 5,817,980 5,268 ,331 Plan assets at fair value, primarily listed stocks and bonds $ 9,102,282 7,41 1,741 Projected benefit obligation 7,159,528 6,517 ,723 Excess of plan assets over projected benefit obligation 1,942,754 89 4,018 Unrecognized net gain being recognized over 10 years in accordance with PSC policy (1,945,687) (6 76,625) Unrecognized prior service cost 809,624 801,57 8 Unrecognized net transition amount 8,456 (44 4,486) Prepaid pension cost recognized on the balance sheet $ 815,14 7 574,485 The year ended year change in the unassigned transaction amount is due to a reclassification of prior unrecognized gains or losses. 9 (Continued) CORNING NATURAL GAS CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements (7) Pension Plan, Continued The components of net periodic pension expense under SFAS 87 for the year ended September 30, 1997 and the nine months ended September 30, 1996 are as follows: 1997 1996 Service cost of benefit earned during the period $ 217,401 154,71 3 Interest on projected benefit obligation 466,981 335,492 Actual return on plan assets (1,823,855) (572,699) Net amortization and deferrals 1,162,387 116,004 Net periodic pension expense $ 22,914 33,51 0 For ratemaking purposes, pension expense represents the amount approved by the PSC in the Company's most recently approved rate case. Pension expense for ratemaking purposes was approximately $39,000 for the year ended September 30, 1997 and for the nine months ended September 30, 1996 there was a pension benefit of $45,000. The difference between the pension expense (benefit) for ratemaking and financial statement purposes, and the amount computed under SFAS 87 has been deferred and is not included in the prepaid pension cost noted above. Such balances equal $286,000 and $305,000 as of September 30, 1997 and 1996, respectively. The assumptions used to determine the pension obligations and pension costs for 1997 and 1996 were 7.25% for weighted average discount rate, 5.0% for rate of compensation increase, and 8.0% for weighted average rate of return on plan assets. 10 (Continued) CORNING NATURAL GAS CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements (8) Major Customers The Company has three major customers, Corning Incorporated, New York State Electric & Gas (NYSEG), and Bath Electric Gas & Water Systems (BEGWS). The loss of any of these customers could have a significant impact on the Company's financial results. In addition, a significant portion of capacity assignment revenue is generated from Corning Inc. Total revenue and deliveries to these customers were as follows: Deliveries Revenue Mcf % of Total Amount % of Total Corning, Inc. Year ended September 30, 1997 2,048,748 26 $ 729,350 4 Nine months ended Sept. 30, 1996 1,580,243 26 549,527 4 NYSEG Year ended September 30, 1997 2,135,122 27 $ 266,371 1 Nine months ended Sept. 30, 1996 1,575,679 26 197,586 1 BEGWS Year ended September 30, 1997 808,929 10 $ 2,049, 792 11 Nine months ended Sept. 30, 1996 544,200 9 1,503,239 10 (9) Postretirement Employee Benefits In addition to the Company's defined benefit pension plans, the Company offers postretirement benefits to its employees who meet certain age and service criteria. Currently, the retirees under age 65 pay 60% of their health care premium until Medicare benefits commence at age 65. After age 65, Medicare supplemental coverage is offered with Company payment of the premium. For participants who retire on or after September 2, 1992, the Company cost, as stated above, shall not exceed $150 per month. In addition the Company offers limited life insurance coverage to active employees and retirees. The postretirement benefit plan is not funded. The Company accrues the cost of providing postretirement benefits, including medical and life insurance coverage, during the active service period of the employee. The following table presents the Company's postretirement benefit plan's status reconciled with amounts recognized in the Company's consolidated balance sheets under SFAS 106, Employers' Accounting for Postretirement Benefits Other Than Pensions at September 30, 1997 and 1996. 11 (Continued) CORNING NATURAL GAS CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements (9) Postretirement Employee Benefits, Continued Actuarial present value of accumulated postretirement benefit obligation: 1997 1996 Current retirees $ (541,000) (670,000) Future retirees (401,000) (347,0 00) (942,000) (1 ,017,000) Unrecognized transition obligation at January 1, 1993 being recognized over 20 years 916,000 973,000 Unrecognized net gain being recognized over 10 years in accordance with PSC policy (315,000) (258, 000) Accrued postretirement benefit cost recognized on the balance sheet $ (341,000) (302,0 00) The PSC has allowed the Company to recover incremental SFAS 106 cost through rates on a current basis. Due to the timing differences between the Company's rate case filings and financial reporting period, a regulatory asset has been recognized in the amount of approximately $26,000 to be recovered from ratepayers in the future. Net periodic postretirement benefit cost for the year ended September 30, 1997, for the nine months ended September 30, 1996 under SFAS 106 includes the following components: 1997 1996 Service costs $ 13,000 10,000 Interest cost 65,000 53,000 Net amortized and deferrals 22,000 22,000 Net periodic postretirement benefit cost $ 100,000 85,000 12 (Continued) CORNING NATURAL GAS CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements (9) Postretirement Employee Benefits, Continued For measurement purposes, a 9% annual rate of increase in the per capita cost of covered benefits (health care cost trend rate) was assumed for 1998. The rate is assumed to decrease gradually to 6% by the year 2012 and remain at that level thereafter. A 1% increase in the actual health care cost trend would result in approximately a 3.0% increase in the service and interest cost components of the annual net periodic postretirement benefit cost and a 3.5% increase in the accumulated postretirement benefit obligation. The weighted average discount rate used in determining the actuarial present value of the accumulated postretirement benefit obligation was 7.25%. (10) Commitments The Company has agreements with seven pipeline companies providing for pipeline capacity for terms that extend through 2001. These agreements require the payment of a demand charge for contracted capacity at Federal Energy Regulatory Commission approved rates. Purchased gas costs incurred under these pipelines capacity agreements during 1997 and 1996 amounted to $3,363,429 and $3,139,258, respectively. The Company also has short-term gas purchase agreements averaging three months in length, with prices to various indices. The Company does not anticipate these agreements to be in excess of normal capacity requirements. 13 EX-13 8 CORNING NATURAL GAS CORPORATION AND SUBSIDIARY SELECTED FINANCIAL DATA 1997 1996(2) 1995 1994 1993 TOTAL ASSETS $22,075,506 20,557,562 22,219,715 22,439,379 22,428 ,120 LONG-TERM DEBT,LESS CURRENT INSTALLMENTS $ 9,400,000 6,300,000 6,300,000 6,400,000 6,500,000 SUMMARY OF EARNINGS: OPERATING REVENUE $17,835,687 15,082,135 16,614,726 16,559,167 17,9 53,457 TOTAL OPERATING EXPENSES AND TAXES 16,440,231 14,122,436 15,352,924 15,302,491 16,895 ,327 NET OPERATING INCOME 1,385,327 959,699 1,261,802 1,256,676 1,058,130 OTHER INCOME 22,977 10,447 29,356 32,968 65,874 APPLIANCE CORP EARNINGS 221,856 131,935 203,381 220,211 223,000 INTEREST EXPENSE 884,538 618,695 873,810 853,375 768,231 NET INCOME 755,751 483,386 620,729 656,480 578,773 NUMBER OF COMMON SHARES 460,000 460,000 460,000 460,000 460,000 EARNINGS PER COMMON SHARE $ 1.64 1.05 1.35 1.43 1.26 DIVIDENDS PAID PER COMMON SHARE $ 1.28 0.95 1.25 1.23 1.21 STATISTICS (UNAUDITED) - GAS DELIVERED (MMCF): RESIDENTIAL 1,673 1,403 1,603 1,747 1,707 COMMERCIAL 343 309 330 377 364 INDUSTRIAL 29 20 28 31 56 MUNICIPAL 80 63 76 88 81 OTHER UTILITIES 369 267 362 359 385 TRANSPORT 5,404 3,971 5,265 5,187 4,660 TOTAL DELIVERIES 7,898 6,033 7,664 7,789 7,253 NUMBER OF CUSTOMERS END OF PERIOD 13,837 13,753 13,910 13,486 13,342 AVERAGE MCF USE PER RESIDENTIAL CUSTOMER 129.4 108.3 126.6 140.3 139.3 AVERAGE REVENUE PER RESIDENTIAL CUSTOMER 851.45 743.16 812.29 814.23 857.46 NUMBER OF DEGREE DAYS 6,831 4,577 6,772 7,008 6,946 PERCENT (WARMER) COLDER THAN AVERAGE ( 3.6) 7.0 2.9 5.7 4.2 PEAK DAY DELIVERIES (MCF) 55,190 53,328 48,919 52,770 46,904 NUMBER OF RENTAL APPLIANCES IN SERVICE 6,568 6,615 6,604 6,577 6,508 MILES OF MAIN 388.7 384.3 383.7 371.9 371.2 INVESTMENT IN GAS PLANT (AT COST) 20,378,449 19,616,872 19,309,418 18,144,174 17,416,708 STOCKHOLDER'S EQUITY PER SHARE 11.32 11.19 11.08 10.98 10.78 (1) FIFTEEN YEAR AVERAGE DEGREE DAYS : 6,591 (2) THE COMPANY CHANGED ITS YEAR END FROM DECEMBER 31 TO SEPTEMBER 30 EFFECTIVE JANUARY 1, 1996. THE AMOUNTS SHOWN IN 1996 ARE AS OF SEPTEMBER 30, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996. EX-28 9 Corning Natural Gas Corporation 330 W. William Street P.O. Box 58 Corning, New York 14830 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS to be held on Thursday, February 12, 1998 Corning, New York January 15, 1998 To the Common Stockholders of Corning Natural Gas Corporation Notice is hereby given that the Annual Meeting of Stockholders of Corning Natural Gas Corporation will be held at the office of the Company, 330 W. William Street, in the City of Corning, New York, on Thursday, February 12, 1998 at 10:30 A.M., local time, for the following purposes: (1) To fix the number of Directors at seven and to elect a Board of Directors for the ensuing year. (2) To transact such other business as may properly come before the meeting. The stock transfer books will not be closed, but only common stockholders of record at the close of business on January 8, 1998 will be entitled to vote at the meeting or any adjournment thereof. You are cordially invited to attend the meeting and vote your shares. In the event that you cannot attend, please date, sign and mail the enclosed proxy in the enclosed self-addressed envelope. A stockholder who executes and returns a proxy in the accompanying form has the power to revoke such proxy at any time prior to the exercise thereof. By Order of the Board of Directors PHYLLIS J. GROEGER, Secretary CORNING NATURAL GAS CORPORATION PROXY STATEMENT January 15, 1998 By Whom Proxy Solicited and Solicitation Expenses. The accompanying proxy is solicited by the Board of Directors of the Company for use at the Annual Meeting of Stockholders to be held on Thursday, February 12, 1998. Proxies in substantially the accompanying form, properly executed and received prior to or delivered at the meeting and not revoked, will be voted in accordance with the specification made. The expense of soliciting proxies will be borne by the Company. The approximate date upon which this proxy statement and the accompanying proxy will first be mailed to stockholders is January 15, 1998. Right to Revoke Proxy. Any stockholder giving the proxy enclosed with this statement has the power to revoke it at any time prior to the exercise thereof. Such revocation may be by writing (which may include a later dated proxy) received by the Office of the Secretary, Corning Natural Gas Corporation, 330 W. William Street, P.O. Box 58, Corning, New York, 14830, no later than February 11, 1998 if by mail, or prior to the exercise thereof if delivered by hand. Such revocation may also be effected orally at the meeting prior to the exercise of the proxy. Proposals of Stockholders. Stockholders' proposals intended to be presented at the 1999 Annual Meeting of Stockholders must be received by the Office of the Secretary, Corning Natural Gas Corporation, 330 W. William Street, P.O. Box 58, Corning, New York 14830, by September 17, 1998. Voting Securities Outstanding. There were 460,000 shares of common stock outstanding and entitled to vote on January 8, 1998 (the "Record Date"). Each share of common stock is entitled to one vote. Only stockholders of record on the Record Date are entitled to notice of and to vote at the meeting or any adjournment thereof. Abstentions and broker non-votes are each included in calculating the number of shares present and voting for purposes of determining quorum requirements. However, each is tabulated separately. Abstentions are counted in tabulating the votes cast on proposals presented to shareholders, whereas broker non-votes are not counted for purposes of determining whether a proposal has been approved. The following table sets forth the shares of the Company's common stock, and the percent of total outstanding shares represented thereby, beneficially owned* by the nominees for director of the Company, the Chief Executive Officer of the Company, all directors and officers as a group, and all persons or groups known to the Company to beneficially own more than 5% of such stock. * As used in this Proxy Statement, "beneficial ownership" includes direct or indirect, sole or shared power to vote, or to direct the voting of, and/or investment power to dispose of, or to direct the disposition of, shares of the common stock of the Company. Except as otherwise indicated in the footnotes below, the listed beneficial owners held direct and sole voting and investment power with respect to the stated shares. Shares of Stock Beneficially Owned Directly or Indirectly Percent Beneficial Owners as of September 30, 1997 of Class J. Edward Barry (Director) 45,999(1) 10.0% 330 W. William Street Corning, New York Thomas K. Barry (Director and 15,300(2) 3.3% Chief Executive Officer) 330 W. William Street Corning, New York Thomas H. Bilodeau (Director) 3,788(3) 0.8% 1648 Jupiter Cove Dr., Apt. 312 Jupiter, Florida Bradford J. Faxon (Director) 27,210(4) 5.9% 225 Hix Bridge Road Westport, Massachusetts Jay A. Finley (Director) 15,900(5) 3.5% 27 Spring Terrace Corning, New York Liselotte R. Lull and 45,029(6) 9.8% Robert E. Lull 231 Watauga Avenue Corning, New York Jack R. McCormick (Director) 1,969(7) 0.4% 2560 Riverside Avenue Somerset, Massachusetts Donald R. Patnode (Director) 14,194(8) 3.1% 91 Stage Harbor Road Chatham, Massachusetts All directors and officers 128,638(9) 28.0% of the Company, twelve persons as a group (1) Includes 25,066 shares held in trust, with respect to which J. Edward Barry has shared voting and investment power, and 20,933 shares beneficially owned and held in trust on behalf of Virginia S. Barry, with respect to which J. Edward Barry also has shared voting and investment power. Percentage reflects rounding; actual percentage is less than 10 percent. (2) Includes indirect beneficial ownership of 1,100 shares owned by children of Thomas K. Barry, and as to which Thomas K. Barry has shared voting and investment power. Also includes 1,200 shares owned by two daughters of Thomas K. Barry, as to which shares Mr. Barry disclaims beneficial ownership. (3) All shares are held in trusts and Mr. Bilodeau is a beneficiary or contingent beneficiary of such trusts. (4) Includes indirect beneficial ownership of 5,431 shares owned by children of Bradford J. Faxon, and as to which Bradford J. Faxon has shared voting and investment power. (5) Includes indirect beneficial ownership of 7,900 shares owned by Gertrude C. Finley, who has sole voting and investment power over such shares. (6) Includes 23,378 shares owned by Liselotte R. Lull and 21,651 shares owned by Robert E. Lull. (7) All shares are owned jointly with Madeline McCormick. (8) Includes 2,000 shares owned by spouse, who has sole voting and investment power over such shares. Also includes 6,994 shares held in two trusts, of which Donald R. Patnode is co-trustee. (9) Aggregate record or imputed beneficial ownership, with sole or shared voting or investment power. Election of Directors. (Proposal No. 1) It is the intention of the persons named in the enclosed proxy to vote the shares represented by the proxy to fix the number of directors at seven and to elect the nominees listed below to serve until the next Annual Meeting of Stockholders and until their successors are duly elected and qualified. In the event of a vacancy in the list of nominees, an event which the Board of Directors does not anticipate, the holders of the proxies will vote for the election of a nominee acceptable to the remiaining nominees. The directors must be elected by a plurality of votes cast. The following is a brief description of each nominee, including his principal employment or professional experience for the past five years. J. Edward Barry, 85, Consultant to the Company. Former Chairman of the Board of Directors 1975 - 1993; former Chief Executive Officer, President, Executive Vice President, Vice President and Secretary of the Company. A Director since 1953 and Chairman of the Executive and Pension Fund Committees. Father of Thomas K. Barry, Chairman of the Board, Chief Executive Officer and President of the Company. Thomas K. Barry, 52, Chairman of the Board of Directors since 1993, President of the Company since 1983, Chief Executive Officer since 1984. A Director since 1983 and a member of the Executive and Pension Fund Committees. A Director of Fall River Gas Company. Son of J. Edward Barry, Consultant to the Company. Thomas H. Bilodeau, 55, Vice President - Finance, Medical & Environmental Coolers, Inc. since 1990. A Director since 1984 and a member of the Compensation and Audit Committees. A Director of Fall River Gas Company. Bradford J. Faxon, 59, Chairman of the Board of Directors, President and Director of Fall River Gas Company since 1986. A Director since 1984, Chairman of the Compensation Committee and a member of the Pension Fund Committee. Jay A. Finley, 82, Retired; former President of the Company, 1977-1983. A Director since 1975 and a member of the Executive Committee. Jack R. McCormick, 73, Utility Consultant; current Director and former President (1974-1986) of Fall River Gas Company. A Director since 1985 and a member of the Audit Committee. Donald R. Patnode, 69, Retired; former President of Industrial Filters and Equipment Corporation 1989-1994. A Director since 1964, Chairman of the Audit Committee and a member of the Compensation Committee. Director also of Fall River Gas Company. The Board of Directors does not have a standing nominating committee, or any committee performing similar functions. The Board of Directors has a standing Audit Committee, of which Messrs. D.R. Patnode, J.R. McCormick and T.H. Bilodeau are the members, the function of which is to recommend the selection of independent auditors, review the plan and results of the independent audit and approve each professional service provided by the independent auditors. The Audit Committee had one meeting in 1997. The Board of Directors also has a standing compensation committee, of which Messrs. D. R. Patnode, B. J. Faxon and T.H. Bilodeau are the members. This committee met once during 1997. This committee reviews officer performance and duties and decides upon appropriate remuneration. The Board of Directors met five times in 1997. Each Director attended more than 75% of the aggregate number of meetings of the Board and committees on which he served during the year. At the most recent annual meeting of stockholders of the Company, held on February 13, 1997, out of a total of 460,000 shares entitled to vote at the meeting, 404,457 shares (87.9% of the total) were actually voted at the meeting with respect to the election of Directors. Nominees proposed for election by the Board of Directors were elected by requisite vote at such meeting. Each nominee received an affirmative vote of over 99% of the votes cast. Cash Compensation of Executive Officers. The following table sets forth the compensation paid or accrued by the Company and its subsidiary during the fiscal years ended December 31, 1995, September 30, 1996 and September 30, 1997 to the Company's Chief Executive Officer. Other than the Chief Executive Officer, no other executive officer of the Company was paid an annual salary and bonus in 1997 that aggregated $100,000. Although only principal capacities are listed, the compensation figures include all compensation received in any capacity, including directorships, for services rendered during the fiscal years indicated. SUMMARY COMPENSATION TABLE Annual Compensation(1) Name and Other Annual Principal Position Year Salary Bonus Compensation Thomas K. Barry 1997 $150,167 --- $ 4,220 President and Chief 1996 106,800(2) --- 2,970(2) Executive Officer 1995 134,967 --- 3,721 (1) The Company did not pay any long-term compensation to its Chief Executive Officer or to its other executive officers during the fiscal years ended December 31, 1995, September 30, 1996 and September 30, 1997. (2) 1996 amounts reflect compensation received with respect to the Company's nine month 1996 fiscal year (ended September 30, 1996) that result from the adoption by the Company of a fiscal year end of September 30 instead of December 31 each year. A description of the executive officers, other than Mr. Thomas K. Barry, for whom a description is provided above, is set forth below. Kenneth J. Robinson (age 53) is Executive Vice President. Mr. Robinson joined the Company in 1978 as an accountant. Most recently he served as Financial Vice President and Treasurer for 4 years and in his current position for 6 years. Edgar F. Lewis (age 60) is Senior Vice President - Operations. Mr. Lewis' career with the Company dates back to 1956. He has been in charge of operations for the past 25 years; 17 years in his current position. Thomas S. Roye (age 44) is Vice President - Administration. Mr. Roye has served 6 years in his current position and was previously Assistant Treasurer & Assistant Secretary. He has prior utility experience and accounting education and has been employed since 1978. Gary K. Earley (age 43) is Treasurer. Mr. Earley has been a practicing accountant since 1976. He joined the firm in 1987 as an accountant in the rates and regulations department and has served as Treasurer for the past 6 years. Phyllis J. Groeger (age 57) is Corporate Secretary. Mrs. Groeger has been employed since 1973 in a number of positions advancing to Assistant Secretary in 1986 and has been Secretary of the Company for the past 10 years. Compensation Pursuant to Plans. The Company has entered into separate supplemental benefits agreements with Thomas K. Barry and one other executive officer (collectively, the "Supplemental Benefits Agreements"), which provide that the officer covered thereby and retiring after the age of 62 is entitled to receive monthly payments equal to 35% of such officer's monthly salary at retirement for either life or 180 months, whichever is longer. Such amount payable shall increase by 4% annually on the anniversary date of such officer's retirement. Retirement benefits otherwise available upon retirement at age 62 under the Supplemental Benefit Agreements are reduced cumulatively by 4% for each year prior to age 60 in which the covered officer retires; provided, however, that an officer covered under a Supplemental Benefits Agreement receives no retirement benefits thereunder in the event that such officer retires before age 55. Furthermore, the Supplemental Benefits Agreements provide that in the event that an officer covered by a Supplemental Benefits Agreement dies prior to retirement, such officer's designated beneficiary is entitled to receive monthly payments equal to 50% of such officer's monthly salary at death for 180 months. The Company has also entered into an additional, more limited, Supplemental Benefits Agreement with one other employee, which contains terms similar to the foregoing agreements. However, such limited Supplemental Benefits Agreement provides for monthly payments equal to 20% of the subject employee's monthly salary in the event of retirement, monthly payments equal to 35% of his monthly salary in the event of his death prior to retirement, and does not include an annual escalator. Eligibility to enter into a Supplemental Benefits Agreement, or equivalent thereof, is based upon employee performance, service and value to the Company; such eligibility is determined on an individual basis by the Board of Directors. Currently, Mr. Thomas K. Barry and two other executive officers (as discussed, above) are the only employees of the Company covered by a Supplemental Benefits Agreement, and no payments have been made to date under such agreements. The Supplemental Benefits Agreements are in addition to the amounts shown in the Summary Compensation Table and are not subject to limitation. As of September 30, 1997, the estimated annual benefits payable under a Supplemental Benefits Agreement upon retirement at the normal retirement age for Mr. Thomas K. Barry are $ 51,800. The Company also maintains the Corning Natural Gas Corporation Employees Savings Plan (the "Savings Plan"). All employees of the Company who work for more than 1,000 hours per year and who have completed one year of service may participate in the Savings Plan as of the following January 1 or July 1. Under the Savings Plan, participants may contribute up to 15% of their wages. For non-union employees, the Company will match one-half of the participant's contributions up to a total of 3% of the participant's wages. Company matching contributions vest in the participants account at a rate of 20% per year and become fully vested after five years. All participants may select one of five investment plans, or a combination thereof, for their account. Distribution of amounts accumulated under the Savings Plan occurs upon termination of employment or death of the participant. The Savings Plan also contains loan and hardship withdrawal provisions. During the fiscal year ended September 30, 1997 no amounts were distributed to executive officers under the Savings Plan. Mr. Thomas K. Barry had $4,220 accrued to his account under the Savings Plan during said period. This accrual is included in the figures appearing in the summary compensation table on page 4. Compensation of Directors. The current annual Director's compensation is $5,000. In addition, Directors are paid $300 for each Board meeting attended. Additionally, the chairmen of the Board's Executive, Audit, Compensation and Pension Fund committees and those directors who serve on more than one committee receive an annual fee of $1,500 for such services. Committee members other than the chairmen are paid $1,000 annually for their services, subject to the limitation that no committee chairman or member may receive than $1,500 annually for such services regardless of the number of committees on which he serves. As allowed by New York law, the Company currently has in effect an insurance policy, with an effective date of June 1, 1997, with National Union Fire Insurance Company for the indemnification of officers and directors at an annual premium cost of $ 43,000. Employment Contracts and Termination of Employment and Change-in-Control Arrangements. In January of 1992, the Company entered into an employment contract with its President and Chief Executive Officer, Mr. Thomas K. Barry. Under the terms of such employment contract, Mr. Barry is compensated for his duties as an officer and director with such salary as is determined from time to time by the Board of Directors. The term of Mr. Barry's employment contract is five years, unless earlier terminated by an act of either the Company or Mr. Barry. Beginning in 1994, however, Mr. Barry's employment contract is automatically extended for an additional one-year period. Mr. Barry's employment contract further provides that upon any change in control of the Company leading to the termination of Mr. Barry's employment with the Company, the Company shall pay Mr. Barry three times his then-present annual salary, or such lesser amount as may be required to comply with certain provisions of the Internal Revenue Code. Selection of Auditors. KPMG Peat Marwick, Certified Public Accountants of Rochester, New York, have been selected as auditors for the Company for the ensuing year. KPMG Peat Marwick, who served as principal accountants for the Company for the past fiscal year, have no direct or indirect financial interest in the Company or its subsidiaries in the capacity of promoter, underwriter, voting director, officer or employee. A representative of KPMG Peat Marwick will be present at the meeting, with the opportunity to make a statement if such representative desires to do so, and will be available to respond to appropriate questions. Other Matters. Except for the matters set forth above, the Board of Directors knows of no matters which may be presented to the meeting, but if any other matters properly come before the meeting, it is the intention of the persons named in the accompanying form of proxy to vote such proxy in accordance with their judgment in such matters. PLEASE DATE, SIGN AND RETURN THE ENCLOSED PROXY. By Order of the Board of Directors, PHYLLIS J. GROEGER, Secretary Persons whose proxies are solicited by the Board of Directors of the Company may obtain, without charge, a copy of the Company's Annual Report on Form 10-KSB, including the financial statements and schedules thereto, required to be filed with the Securities and Exchange Commission for the Company's most recent fiscal year. The report will be furnished upon request made in writing to: Thomas K. Barry Chairman of the Board of Directors Corning Natural Gas Corporation 330 W. William Street P.O. Box 58 Corning, New York 14830 EX-27 10
UT 12-MOS 9-MOS SEP-30-1997 SEP-30-1996 SEP-30-1997 SEP-30-1996 PER-BOOK PER-BOOK 13378436 13140883 1055065 1081257 4997946 3844049 1858928 2101871 405131 389502 21695506 20557562 2300000 2300000 653346 653346 2211833 2194382 5209437 5147728 0 0 0 0 9400000 6300000 775000 2275000 0 0 0 0 0 100000 0 0 0 0 0 0 7086069 6734834 21695506 20557562 17835687 15082135 245887 185570 16194344 13936866 16440231 14122436 1395456 959699 244833 142382 1640289 1102081 884538 618695 755751 483386 0 0 755751 483386 738300 434701 579595 437273 1195528 2158227 1.64 1.05 0 0
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