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, 2006 

  

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 if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act YES [X] NO [ ]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [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]
  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.

Large accelerated filer [ ]Accelerated Filer [ ]Non-Acccelerated Filer   [X]
Indicate by check mark whether registrant is a shell company YES [ ] NO [X]

 

 

  
Revenues for 12 month period ended September 30, 2006 $29,063,000

The aggregate market value of the 431,852 shares of the Common Stock held by non-affiliates of the Registrant at the $16.30 average of bid and asked prices as of December 1, 2006 was $6,477,780.

Number of shares of Common Stock outstanding as of the close of business on December 1, 2006 - 506,918.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's Annual Report to Shareholders for the twelve month period ended September 30, 2006, and definitive proxy statement and notice of annual meeting of shareholders, dated March 2007 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 2006 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>

**Table of Contents
For the Fiscal Year Ended September 30, 2006**Contents**Part I
Page
Item 1
Description of Business
2
Business Development
2
Business of Issuer
3
Item 2
Description of Property
4
Item 3
Legal Proceedings
4
Item 4
Submission of Matters to a Vote of Security Holders
4**Part II
Item 5
Market for the Registrant's Common Equity and Related 
Stockholder Matters
6
Item 6
Selected Financial Data
7
Item 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations
8
Item 7A
Quantitative and Qualitative Disclosures about Market Risk
15
Item 8
Financial Statements
15
Item 9
Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure
15
Item 9A
Controls and Procedures
16
Item 9B
Other Information
19**Part III
Item 10
Directors, Executive Officers of the Registrant
12
Item 11
Executive Compensation
20
Item 12
Security Ownership of Certain Beneficial Owners and Management
20
Item 13
Certain Relationships and Related Transactions
20
Item 14
Principal Accountant Fees and Services
20**Part IV
Item 15
Exhibits 
21
Signatures
23
<PAGE 2>

CORNING NATURAL GAS CORPORATION

FORM 10-K

For the 12 Month Period Ended September 30, 2006

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 distributes through its own distribution and transmission network 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. 

Discontinued Operations

Corning Natural Gas Appliance Corporation, "The Company," in August 2006, executed an Asset Purchase Agreement to transfer ownership of the Prudential Ambrose & Shoemaker Real Estate Company to Better Living, Inc. The company will continue to be operated by the new owner as Prudential Ambrose & Shoemaker Real Estate and as a Prudential franchise. 

The sale of the company was the result of long negotiations between the Company and two other potential buyers. The final agreement with Better Living, Inc. was determined to be in the best interest of the Company when considering the restrictions placed on the Company. 

The sale of the real estate company resulted in all of the assets, furniture, fixtures, receivables and pending contracts being transferred to the new owner. The sale price for the real estate company was $825,000 cash. Other potential purchasers had tied the sale price to potential future earnings of the company as well as a requirement that "The Company" carry a note for a portion of the purchase price.

During the negotiations for the sale of the real estate company, the successful buyer expressed no interest in ownership of the Corning Mortgage Company, which was a mortgage banking company owned by Corning Natural Gas Appliance Corporation as a subsidiary. Since the mortgage company was not currently conducting any business and existed as a name only, it was determined to have no value in the sale and was excluded from the transaction. It was subsequently dissolved as a company.

<PAGE 3>

(b) Business of Issuer

 The Company is a local distribution company and has contracted for a gas supply portfolio from various sources to provide the commodity to the city gates. The Company maintains storage capacity of approximately 586,000 Dth. The Company has a contract with Virginia Power Energy Marketing (VPEM) to manage our capacity and storage assets. The contract is in place from April 2006 through March 2007 with some fixed price contracts for gas with Virginia Power Energy Marketing, Inc. that extend into the fall of 2007. 
The Company has secured the required fixed price and storage gas supply for the winter season and is managing our forecasting process to assure that we follow our gas supply and acquisition plan. Assuming no extraordinary conditions for the winter season, gas supply, flowing and storage will be adequate to serve our approximately 14,500 customers.

 

	(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 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 changes in net revenue caused by weather. 

	(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.

	Limited competition from oil still exists in the industrial market. The Gas Company has been able to counteract this competition through several mechanisms, including providing customers the option of transporting their own gas. 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. 

<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) Forty-eight persons were employed by the Company in 2006 and sixty in 2005.

	(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 in compliance with federal and state regulations. Any deficits found are corrected as mandated. Approximately 325 miles of distribution main, 15000 services, and 86 regulating station, along with various other properties are owned by the Gas Company, except for one short section of 10" gas main that is under 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.	 

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 2006.

<PAGE 5>

Additional Item

Executive Officers of the Registrant 

(Including Certain Significant Employees)

			 	

Name
Age
Business Experience 
Michael German
56
President & C.E.O.
Joel Moore
49
Vice President of Operation
Fi Sarhangi 
48
Chief Financial Officer & Treasurer
Stanley G. Sleve 
56
Vice President-Administrations 
& Corporate Secretary 
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, is the NASDQ. 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, 2006. 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, 2004
14.00
9.50
0.00
March 31, 2005
13.00
10.60
0.00
June 30, 2005
16.00
10.80
0.00
September 30, 2005
16.00
14.45
0.00
December 31, 2005
18.00
14.25
0.00
March 31, 2006
15.50
13.54
0.00
June 30, 2006
15.00
13.26
0.00
September 30, 2006
16.95
14.00
0.00
<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

2006
2005 
2004 
2003 
2002 
Total assets 
$ 27,337,692 
$ 31,881,286 
$ 28,945,311 
$ 30,735,916 
$ 28,853,981 
Long-term debt, less current installments 
$ 8,646,842 
$ 9,259,857 
9,670,263 
10,539,867 
10,593,738 
Summary of earnings: 
Utility operating revenue 
$ 26,921,164 
$ 22,877,858 
$ 21,995,505 
$ 20,561,927 
$ 17,241,615 
Total operating expenses and taxes 
28,512,146 
21,177,838 
20,660,186 
19,598,325 
16,120,931 
Net utility operating income 
(1,590,982) 
1,700,020 
1,335,319 
963,602 
1,120,684 
Other income 
205,090 
88,083 
124,967 
17,853 
24,696 
Interest expense-regulated 
1,594,678 
1,294,782 
1,185,000 
1,189,816 
926,868 
Income from discontinued Ops
(635,382)
133,209
337,583
116,849
307,641
Net Income 
$(3,615,952) 
$ 626,530 
$ 612,869 
$(91,512) 
$ 526,153 
Number of common shares 
506,918 
506,918 
506,918 
482,900 
460,000 
Earnings per common share 
$ (7.12) 
$ 1.25 
$ 1.22 
$(0.19) 
$ 1.14 
Dividends paid per common share 
$ 0 
$ 0 
$ 0 
$ 0 
$ 0.65 
Statistics (unaudited)-
Gas delivered (MMcf ) 
Residential 
945
1,115 
1,116 
1,179 
997 
Commercial 
247
270 
298 
325 
263 
Other utilities 
276
313 
340 
404 
300 
Transportation deliveries 
6,388
7,450 
6,947 
6,364 
5,978 
Total deliveries 
7,856
9,148 
8,701 
8,272 
7,538 
Number of customers-end of period 
14,345 
14,344 
14,378 
14,316 
14,388 
Average Mcf use per residential customer 
90.6
107.0 
109.2 
119.3 
93.8 
Average revenue per residential customer 
$ 1,508.42 
$ 1,242.03 
$ 1,167.69 
$ 1,158.90 
$ 897.71 
Number of degree days (1) 
6,882
7,109
6,918 
7,434 
5,629 
Percent (warmer) colder than avg. 
(1.0)
3.2
1.7 
8.3 
(13.1) 
Peak day deliveries (Mcf ) 
50,963
58,327
53,922 
52,753 
52,467 
Number of rental appliances in service 
0 
0 
0 
0 
6,179 
Miles of mains 
406.0 
404.7 
404.3 
403.9 
402.3 
Investment in gas plant (at cost) 
$ 28,480,707 
$ 26,826,478************************