UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549 

  

  

FORM 10-K 

  

[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF 

THE SECURITIES EXCHANGE ACT OF 1934 

  

For the fiscal year ended September 30, 2005 

  

OR 

  

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF 

THE SECURITIES EXCHANGE ACT OF 1934 

  

Commission file number: 0-643 

  

  

Corning Natural Gas Corporation 

(Exact name of registrant as specified in its charter) 

  

 
 
 **New York
  **16-0397420**(State or other jurisdiction of 

incorporation or organization) 
  **(I.R.S. employer 

identification no.) 

  
**330 W. William St. 

Corning, New York 14830 

(Address of principal executive offices, including zip code) 

  
**(607) 936-3755 

(Registrant's telephone number, including area code) 

  
**Securities registered pursuant to Section 12(b) of the Act: 

None 

  
**Securities registered pursuant to Section 12(g) of the Act: 

Common Stock, par value $5.00 per share 

(Title of class) 

  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES **[X]** NO **[  ]**
  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  **[X]**
  

  

 

Revenues for 12 month period ended September 30, 2005 $26,631,000

The aggregate market value of the 431,852 shares of the Common Stock held by non-affiliates of the Registrant at the $15.00 average of bid and asked prices as of December 1, 2005 was

$6,477,780.

Number of shares of Common Stock outstanding as of the close of business on December 1, 2005 - 506,918.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's Annual Report to Shareholders for the twelve month period ended September 30, 2005, and definitive proxy statement and notice of annual meeting of shareholders, dated January 3, 2006 are incorporated by reference into Part I, Part II and Part III hereof.

Information contained in this Form 10-K and the Annual Report to 

shareholders for fiscal 2005 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.

<PAGE 1>

 

 

For the Fiscal Year Ended September 30, 2005**Contents**Part I
Page
Item 1
Description of Business
3
Business Development
3
Business of Issuer
4
Item 2
Description of Property
5
Item 3
Legal Proceedings
5
Item 4
Submission of Matters to a Vote of Security Holders
5**Part II
Item 5
Market for the Registrant's Common Equity and Related 
Stockholder Matters
7
Item 6
Selected Financial Data
8
Item 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations
9
Item 7A
Quantitative and Qualitative Disclosures about Market Risk
Item 8
Financial Statements
9
Item 9
Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure
9
Item 9A
Controls and Procedures
10
Item 9B
Other Information
13**Part III
Item 10
Directors, Executive Officers of the Registrant
13
Item 11
Executive Compensation
14
Item 12
Security Ownership of Certain Beneficial Owners and Management
14
Item 13
Certain Relationships and Related Transactions
14
Item 14
Principal Accountant Fees and Services
14**Part IV
Item 15
Signatures
16
Exhibits
 

<Page 2>

CORNING NATURAL GAS CORPORATION

FORM 10-K

For the 12 Month Period Ended September 30, 2005

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 Gas 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 Gas 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 operates as three operating segments, the Gas Company, Corning Mortgage and Corning Realty. Corning Realty is a residential and commercial real estate business with approximately 70 agents operating in three neighboring counties. An equal joint venture between Elmira Savings & Loan(a local commercial bank) and Corning Mortgage Company, LLC has been formed to start a mortgage lending services company, Choice One Lending LLC.

Discontinued Operations

On July 8, 2004 the Company sold the assets of Foodmart Plaza LLC. Proceeds from the sale of $1.3 million were used to pay expenses and pay off the mortgage. A pre-tax gain of $133,020 was recognized on the sale of the assets. 

The assets of the Appliance Company were sold in mid-September 2003 to a small group of primarily local investors. The assets, which consisted primarily of rented appliances in service, inventory, displays, equipment and vehicles, were sold for $1,992,400 including the $240,000 discussed below. The Company received $1,152,400 in cash and loaned the new Company $600,000 with interest at the rate of 6.25% which will be amortized and paid within five years. The remaining $240,000 will be paid in $80,000 increments at the conclusion of each of three years if the newly formed Company attains specific revenue levels during each of those three periods. The Company experienced a pre-tax profit of $364,740 on the sale of this business of which $124,740 was earned during fiscal 2003 and $80,000 was earned in 2004. An additional $80,000 will be earned in each of the years 2005 and 2006 if revenue levels meet expectations. 

	In October 2004, the Company discontinued operations of Tax Center International. The Company was unsuccessful in locating a buyer in the limited marketplace, and remaining assets will be transferred to the parent company. 

<PAGE 3>

(b) Business of Issuer

	(1) The Gas Company maintains a gas supply portfolio of numerous contracts and is not dependent on a single supplier. Additionally, the Gas Company has capabilities for storing 662,050 Dt through storage operations with two of its suppliers. The Gas Company had no curtailments during fiscal 2005 and expects to have an adequate supply available for its customers during fiscal 2005 providing that no abnormal conditions or actions occur.

	(2) The Gas Company is franchised to supply gas service in all of the political subdivisions in which it operates.

	(3) Since the Gas 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 7,109 for the period October 1, 2004 through September 30, 2005 and 6,918 for the same period ended September 30, 2004.

	(4) The Gas 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 Gas Company's financial results.

	(5) Historically, the Gas 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 Gas Company's service territory and the Gas Company's competitive position in the residential market continues to be very strong. Approximately 99% of the Gas Company's general service customers heat with gas.

	Competition from oil still exists in the industrial market. The Gas 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 Gas 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. 

		The real estate business is a highly competitive market in which Corning Realty is well positioned. Prudential Ambrose & Shoemaker Real Estate maintains approximately 42% of the local market. Local economy and interest rates play a factor in the outcome of the market, however, Corning Realty continues to hold strong. Corning Realty is the areas largest residential real estate business that is involved in over 1,000 real estate closings annually.

There is a considerable amount of competition in the mortgage lending business, however, the business plan for Choice One Lending was compiled recognizing that this company will utilize the relationships with Corning Realty. 

<PAGE 4>

	(6) The Gas 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 persons were employed by the Company in 2005 and seventy-one in 2004.

	(8)	The Gas Company expects no shortage of raw materials to impact our business over the next 5 - 10 years. The Energy Information Administration indicates an increase in the efficiency of gas exploration, and development is expected to result in increased gas productive capacity. As for the availability of the necessary pipes and valves for safe distribution of natural gas, the Gas Company likewise anticipates no shortages and continues to receive both gas supply and material inventory from various reliable sources.

 

ITEM 2 - DESCRIPTION OF PROPERTY

	The Company's headquarters are located at 330 West William Street, Corning, NY. This structure is physically connected to the operations center.

	The Gas Company's pipeline system is thoroughly surveyed each year. Any necessary replacements are included in the construction budget. Approximately 105 miles of transmission main, 299 miles of distribution main, 13,833 services and 89 measuring and regulating stations, along with various other property are owned by the Gas 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 Gas Company, is adequately insured and is subject to the lien of the Company's first mortgage indenture.

	The Realty businesses are operated out of the Company's West William Street complex in combination with rented office space in various locations. 

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 fourth quarter of fiscal 2005.

<PAGE 5>

Additional Item

Executive Officers of the Registrant

(Including Certain Significant Employees)

Name 
Age 
Business Experience
Years Served
During Past 5 Years
In This Office
Thomas K. Barry 
60
Chairman of the Board 
of Directors
12
President & C.E.O.
21
Firouzeh Sarhangi 
47
Vice President - Finance
2
Kenneth J. Robinson
61
Executive Vice President 
14
Gary K. Earley 
51
Secretary & Treasurer 
3
Treasurer 
13
Stanley G. Sleve 
55
Vice President-Business Dev
7
Vice President-Administration
1
 

Term of office is one year.(Normally from February to February)

 

<PAGE 6>

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 271 at September 30, 2005. 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
Declared
December 31, 2003
13.25
12.00
0
March 31, 2004
13.00
10.10
0
June 30, 2004
20.00
13.30
0
September 30, 2004
17.40
9.50
0
December 31, 2004
14.00
9.50
0
March 31, 2005
13.00
10.60
0
June 30, 2005
16.00
10.80
0
September 30, 2005
16.00
14.45
0
 

<PAGE 7>

Under the terms of a $4,700,000 senior note issued September 5, 1997, the Company may not declare or pay any dividend, or cause any other payment from retained earnings except to the extent that consolidated tangible net worth of the Company exceeds $2,000,000.

ITEM 6 - SELECTED FINANCIAL DATA

2005
2004
2003
2002
2001
Total assets 
$31,881,286 
$28,945,311 
$30,735,916 
$28,853,981 
$29,330,254 
Long-term debt, less current installments 
$9,196,060
9,786,528
10,539,867
10,593,738
10,905,093
Summary of earnings: 
Utility operating revenue 
$22,877,858 
$21,995,505 
$20,561,927 
$17,241,615 
$24,121,238 
Total operating expenses and taxes 
21,177,838
20,660,186
19,598,325
16,120,931
22,879,305
Net utility operating income 
1,700,020
1,335,319
963,602
1,120,684
1,241,933
Other income 
88,083
124,967
17,853
24,696
34,614
Non-utility Earnings 
133,209
337,583
116,849
307,641
290,678
Interest expense-regulated 
1,294,782
1,185,000
1,189,816
926,868
960,675
Net Income 
$626,530 
$612,869 
($91,512)
$526,153 
$606,550 
Number of common shares 
506,918
506,918
482,900
460,000
460,000
Earnings per common share 
$1.24
$1.21
-$0.19
$1.14
$1.32
Dividends paid per common share 
$0.00 
$0.00 
$0.00 
$0.65 
$1.30 
Statistics (unaudited)-
Gas delivered (MMcf ) 
Residential 
1,115
1,116
1,179
997
1,507
Commercial 
270
298
325
263
307
Other utilities 
313
340
404
300
339
Transportation deliveries 
7,450
6,947
6,364
5,978
6,392
Total deliveries 
9,148
8,701
8,272
7,538
8,545
Number of customers-end of period 
14,344
14,378
14,316
14,388
14,454
Average Mcf use per residential customer 
107
109.2
119.3
93.8
119.1
Average revenue per residential customer 
$1,242.03 
$1,167.69 
$1,158.90 
$897.71 
$1,250.44 
Number of degree days (1) 
7,109
6,918
7,434
5,629
6,809
Percent (warmer) colder than avg. 
3.2
1.7
8.3
(13.1)
5 
Peak day deliveries (Mcf ) 
58,327
53,922
52,753
52,467
53,523
Number of rental appliances in service 
0
0
0
6,179**************************