UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
November 14, 2016
(Date of Report)
Corning Natural Gas Holding Corporation
(Exact name of registrant as specified in its charter)
New York | 000-00643 | 46-3235589 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
330 West William Street, Corning, New York | 14830 |
(Address of principal executive offices) | (Zip Code) |
(607) 936-3755
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (71 CFR 240.13e-4(c))
Explanatory Note
As used in this Form 8-K/A, the terms “Company,” “Holding Company,” “we,” “us,” and “our” mean Corning Natural Gas Holding Corporation, unless the context clearly indicates otherwise.
This Amendment No. 1 on Form 8-K/A (this (“Form 8-K/A”) amends and supplements the Current Report of Corning Natural Gas Holding Corporation, dated September 7, 2016 (the Original Form 8-K). The Original Form 8-K reported the closing of the purchase by the Holding Company of all the outstanding capital stock of Pike County Light & Power Company, a Pennsylvania regulated electric and gas utility, and certain financing transactions. This Form 8-K/A is being filed to provide the certain historical financial statements of the business acquired and pro forma financial information as required under Item 9.01(a) and Item 9.01(b) of the Original Form 8-K within the time provided in Item 9.01(a)(4).
Item 9.01 Financial Statements and Exhibits.
(a) | Financial Statements of Business Acquired |
The audited financial statements of Pike County Light & Power Company (“PCL&PC”) for the most recent fiscal year ended December 31, 2015, and the unaudited interim financial statements for the three months and six months ended June 30, 2016 and June 30, 2015 are filed herewith as exhibits. These financial statements were prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”) and the financial statements for the period ended December 31, 2015 were audited in accordance with Generally Accepted Auditing Standards in the United States of America (“U.S. GAAS”). The financial statements for the year ended December 31, 2015 were audited by PricewaterhouseCoopers LLP. Based on the review of the financial statements for the three months and six months ended June 30, 2016 and June 30, 2015, and the due diligence performed by the Company, we are not aware of any material differences requiring adjustment in the financials presented.
(b) | Pro Forma Financial Information |
The unaudited pro forma financial information required by this item is presented below, the financial information for PCL&PC in the Pro Forma Financial Information has been recast based on unaudited financial statements provided by Orange and Rockland Utilities, Inc. (the former parent company of PCL&PC) to be consistent with the Company’s fiscal year ended September 30, 2015.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements are based on our historical consolidated financial statements and PCL&PC’s recasted historical financial statements, as adjusted to give effect to the Company’s acquisition of PCL&PC. The unaudited pro forma condensed combined statement of comprehensive income for the twelve months ended September 30, 2015 gives effect to the transaction as if it had occurred on October 1, 2014. The unaudited condensed combined balance sheet as of September 30, 2015 gives effect to the transaction as if it had occurred on October 1, 2014.
The assumptions and estimates underlying the unaudited adjustments to the pro forma condensed combined financial statements are described in the accompanying notes, which should be read together with the pro forma combined financial statements.
The unaudited pro forma combined financial statements should be read together with the Company’s historical financial statements, which are included in the Company’s latest report on Form 10-K, and PCL&PC’s historical information included herein. The financial information provided for PCL&PC in the unaudited pro forma combined financial statements has been recast based on unaudited financial statements provided by
Orange and Rockland Utilities, Inc. (the former parent company of PCL&PC) to be consistent with the Company’s fiscal year ended September 30, 2015.
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The pro forma condensed combined financial information is presented for illustrative purposes only, as required by Item 9.01(b) of Form 8-K and Item 8-05 of Regulation S-X. Such information does not purport to be indicative of the results of operations and financial position that actually would have resulted had the acquisition of PCL&P had occurred on the date indicated, nor is it indicative of the results that may be expected in future periods. The pro forma adjustments are based upon information and assumptions available to the Holding Company at the time of filing this Form 8-K. See Note 1.
Unaudited Pro Forma Condensed Combined Balance Sheets | ||||||||||||||||||
September 30, 2015 | ||||||||||||||||||
(In Thousands, Except Per Share Information) | ||||||||||||||||||
Holding Company Historical | Pike County Light & Power Historical |
Adjustments |
Notes |
Pro Forma Combined | ||||||||||||||
Assets | ||||||||||||||||||
Plant: | ||||||||||||||||||
Total plant utility and non-utility, net | $53,313 | $18,604 | ($215 | ) | c | $71,702 | ||||||||||||
Investments: | ||||||||||||||||||
Marketable securities available-for-sale | ||||||||||||||||||
at fair value | 2,154 | 900 | 3,054 | |||||||||||||||
Investment in joint ventures | 2,293 | 0 | 2,293 | |||||||||||||||
4,447 | 900 | 0 | 5,347 | |||||||||||||||
Current assets: | ||||||||||||||||||
Cash and cash equivalents | 75 | 1,575 | 4,413 | a, e | 6,063 | |||||||||||||
Customer accounts receivable, net of | ||||||||||||||||||
allowance for bad debt | 1,586 | 1,882 | 3,468 | |||||||||||||||
Related party receivables | 526 | 41 | (41 | ) | b | 526 | ||||||||||||
Gas stored underground, at average cost | 1,183 | 0 | 1,183 | |||||||||||||||
Materials and supplies inventory | 1,295 | 243 | 1,538 | |||||||||||||||
Prepaid expenses | 1,203 | 39 | 1,242 | |||||||||||||||
Total current assets | 5,868 | 3,780 | 4,372 | 14,020 | ||||||||||||||
Deferred debits and other assets: | ||||||||||||||||||
Regulatory assets: | ||||||||||||||||||
Unrecovered gas costs | 37 | 0 | 37 | |||||||||||||||
Deferred regulatory costs | 2,751 | 955 | 3,706 | |||||||||||||||
Deferred pension | 4,518 | 129 | 4,647 | |||||||||||||||
Deferred taxes | 0 | 2,659 | (2,659 | ) | b | 0 | ||||||||||||
Unamortized debt issuance cost | 288 | 24 | 312 | |||||||||||||||
Other | 193 | 120 | 313 | |||||||||||||||
Total deferred debits and other assets | 7,787 | 3,887 | (2,659 | ) | 9,015 | |||||||||||||
Intangible assets | 0 | 0 | 311 | c | 311 | |||||||||||||
Total assets | $71,415 | $27,171 | $1,809 | $100,395 | ||||||||||||||
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Liabilities and capitalization: | ||||||||||||||||||
Long-term debt, less current installments | $12,554 | $3,200 | $12,000 | a | $27,754 | |||||||||||||
Current liabilities: | ||||||||||||||||||
Current portion of long-term debt | 2,923 | 0 | 2,923 | |||||||||||||||
Borrowings under lines-of-credit | 9,004 | 0 | 9,004 | |||||||||||||||
Accounts payable | 1,722 | 424 | 2,146 | |||||||||||||||
Accounts payable to related parties | 0 | 11,077 | (11,077 | ) | b | 0 | ||||||||||||
Accrued expenses | 418 | 631 | 1,049 | |||||||||||||||
Customer deposits and accrued interest | 1,357 | 148 | 1,505 | |||||||||||||||
Dividends declared | 355 | 0 | 355 | |||||||||||||||
Deferred income taxes | 386 | 153 | 539 | |||||||||||||||
Total current liabilities | 16,165 | 12,433 | (11,077 | ) | 17,521 | |||||||||||||
Deferred credits and other liabilities: | ||||||||||||||||||
Deferred income taxes | 3,208 | 5,478 | (4,569 | ) | b, d | 4,117 | ||||||||||||
Deferred compensation | 1,492 | 0 | 1,492 | |||||||||||||||
Pension costs and post-retirement benefits | 6,857 | 0 | 6,857 | |||||||||||||||
Series A cumulative preferred stock | 0 | 0 | 2,600 | e | 2,600 | |||||||||||||
Other | 1,410 | 242 | 1,652 | |||||||||||||||
Total deferred credits and liabilities | 12,967 | 5,720 | (1,969 | ) | 16,718 | |||||||||||||
Temporary equity: | ||||||||||||||||||
Series B convertible preferred stock | 0 | 0 | 4,900 | e | 4,900 | |||||||||||||
Common stockholders' equity: | ||||||||||||||||||
Common stock issued | 25 | 137 | 162 | |||||||||||||||
Other paid-in capital | 26,362 | 500 | 26,862 | |||||||||||||||
Retained earnings | 3,313 | 5,181 | (2,045 | ) | f | 6,449 | ||||||||||||
Accumulated other comprehensive loss | 29 | 0 | 29 | |||||||||||||||
Total common stockholders' equity | 29,729 | 5,818 | (2,045 | ) | 33,502 | |||||||||||||
Total liabilities and capitalization | $71,415 | $27,171 | $1,809 | $100,395 | ||||||||||||||
See accompanying notes to unaudited pro forma condensed combined financial statements.
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Unaudited Pro Forma Condensed Combined Statement of Operations | ||||||||||||||||||||
Year Ended September 30, 2015 | ||||||||||||||||||||
(In Thousands, Except Per Share Information) | ||||||||||||||||||||
Holding Company
Historical | Pike County Light & Power Historical | Pro Forma Adjustments | Notes |
Pro Forma Combined | ||||||||||||||||
Utility operating revenues | $22,503 | $11,218 | $33,721 | |||||||||||||||||
Purchased gas and electricity | 7,107 | 4,853 | 11,960 | |||||||||||||||||
Gross margin | 15,396 | 6,365 | 21,761 | |||||||||||||||||
Cost and expense | ||||||||||||||||||||
Operating and maintenance expense | 7,807 | 3,600 | 11,407 | |||||||||||||||||
Taxes other than income taxes | 1,981 | 607 | 2,588 | |||||||||||||||||
Depreciation | 1,621 | 628 | 2,249 | |||||||||||||||||
Other deductions, net | 284 | 0 | 284 | |||||||||||||||||
Total costs and expenses | 11,693 | 4,835 | 16,528 | |||||||||||||||||
Utility operating income | 3,703 | 1,530 | 5,233 | |||||||||||||||||
Other income and (expense) | ||||||||||||||||||||
Interest expense | (918 | ) | (610 | ) | (158 | ) | g | (1,686 | ) | |||||||||||
Other expense | (58 | ) | (28 | ) | (86 | ) | ||||||||||||||
Other income | 60 | 0 | 60 | |||||||||||||||||
Investment income | 134 | 2 | 136 | |||||||||||||||||
Bargain purchase | 0 | 0 | 2,272 | a | 2,272 | |||||||||||||||
(Loss) from joint ventures | (117 | ) | 0 | (117 | ) | |||||||||||||||
Rental income | 48 | 0 | 48 | |||||||||||||||||
Net income from utility operations, | ||||||||||||||||||||
before income taxes | 2,852 | 894 | 2,114 | 5,860 | ||||||||||||||||
Income taxes | ||||||||||||||||||||
Income tax (expense), current | (78 | ) | (565 | ) | 63 | g | (580 | ) | ||||||||||||
Income tax (expense), deferred | (992 | ) | 138 | (909 | ) | d | (1,763 | ) | ||||||||||||
Total income taxes | (1,070 | ) | (427 | ) | (846 | ) | (2,343 | ) | ||||||||||||
Net income | 1,782 | 467 | 1,268 | 3,517 | ||||||||||||||||
Weighted average earnings per share- | ||||||||||||||||||||
basic: | $0.73 | $0.19 | $0.42 | h | $1.34 | |||||||||||||||
diluted: | $0.73 | $0.19 | $0.42 | h | $1.31 | |||||||||||||||
Average shares outstanding - basic | 2,440,932 | 2,440,932 | 2,440,932 | 2,440,932 | ||||||||||||||||
Average shares outstanding - diluted | 2,444,934 | 2,444,934 | 2,689,197 | h | 2,689,197 | |||||||||||||||
See accompanying notes to the unaudited pro forma condensed combined financial statements
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Notes to the Unaudited Pro Forma Condensed Combined Financial Information
(In thousands, except per share information)
Note 1 – Basis of Presentation
The pro forma condensed combined financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and certain footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such rules and regulations; however, management believes that the disclosures are adequate to make the information presented not misleading.
The historical consolidated financial statements have been adjusted in the pro forma condensed combined financial statements to give effect to the pro forma events that are (1) directly attributable to the business combination, (2) factually supportable, and (3) with respect to the pro forma condensed combined statement of comprehensive income, expected to have a continuing impact on the combined results following the business combination.
The business combination was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. As an acquirer for accounting purposes, the Company has estimated the fair value of PCL&PC’s assets and liabilities assumed and ensured that the accounting policies of PCL&PC were consistent with that of the Company.
The pro forma condensed combined financial statements do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operation of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
The combined proforma financial information does not reflect the realization of any expected cost savings or other synergies from the acquisition of PCL&PC as a result of restructuring activities, other cost savings initiatives or sales synergies following the completion of the business combination.
Note 2 – Funding Transaction
The purchase price for the stock of PCL&P was $13.117 million, with a closing date working capital adjustment of $2.5 million and was subject to adjustment. As part of the purchase, PCL&P’s outstanding $3.2 million in bonds were assumed. The acquisition was financed by agreements with Manufacturers and Traders Trust Company for a $12.0 million term loan and $2.0 million line of credit to complete this acquisition as well as funds received from the Company’s June 2016 sale of shares of its 6% Series A Cumulative Preferred Stock and its 4.8% Series B Convertible Preferred Stock pursuant to its subscription rights offering to its shareholders.
Note 3 – Preliminary Purchase Price Allocation
PCL&PC’s assets and liabilities were adjusted fair value to identify, value and assign estimated useful lives to intangible assets and to determine goodwill. As provided in the Stock Purchase Agreement, dated October 13, 2015, the working capital adjustment was decreased by approximately $530,000 to $1,970,000. The resulting valuation analysis is considered preliminary as it has not been audited by the Company’s independent registered public accounting firm, Freed Maxick CPA’s, P.C., at the time of this filing. The following table summarizes the allocation of the preliminary purchase price as of the acquisition date (in thousands):
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Total Consideration | Fair Market Value | |||
Total cash payment | $13,117 | |||
Working capital adjustment | 1,970 | |||
Current liabilities assumed | 1,463 | |||
Debt assumed | 3,200 | |||
Other long-term liabilities assumed | 253 | |||
Total allocable basis | $20,003 | |||
Assets Acquired | Fair Market Value | |||
Cash and cash equivalents | $501 | |||
Accounts receivable | 1,346 | |||
Inventory | 20 | |||
Other current assets | 392 | |||
Property, plant and equipment, net | 18,754 | |||
Other long-term assets | 951 | |||
Intangible assets | 311 | |||
Total Assets | $22,275 | |||
Goodwill (bargain purchase) | (2,272 | ) | ||
Total consideration | $20,003 |
The preliminary purchase price allocation has been used to prepare pro forma adjustments in the pro forma balance sheet and income statement. This allocation recognizes the liabilities and debt acquired as part of the acquisition totaling $4.916 million (the difference between final purchase price of $15.087 million and the consideration of $20.003 million). The final purchase price allocation will be determined when the Company’s allocation is audited. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. The final audited allocation may include (1) changes to allocations to intangible assets (fair value of trade name), (2) changes in allocations to deferred taxes, and (3) other changes to assets and liabilities.
Note 4 – Pro Forma Adjustments
The pro forma adjustments are based on our preliminary estimates and assumption that are subject to change. The following adjustments have been reflected in the unaudited pro forma combined financial information:
(a) | Represents the cash consideration at the time of the acquisition accordingly: |
Cash | $501 | |
Accounts receivable | 1,346 | |
Inventory | 20 | |
Other current assets | 392 | |
Property, plant & equipment | 18,754 | |
Other regulatory assets | 779 | |
Other long-term assets | 172 | |
Net intangible assets | 311 | |
Current liabilities | (1,463) | |
Bonds | (3,200) | |
Long-term debt | (12,000) | |
Regulatory liabilities | (21) | |
Other long-term liabilities | (232) | |
Bargain purchase adjustment | (2,272) | |
Total consideration | $3,087 |
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(b) | Reflects intercompany receivables and payables that were not acquired with the acquisition as well as deferred taxes that were not acquired. |
(c) | Reflects adjustments to property, plant and equipment and intangible assets as a result of adjustments to fair value. |
(d) | Recognizes the expected deferred tax liabilities that result from the bargain purchase adjustment at an assumed combined tax rate of 40%. |
(e) | Recognizes funds received from the Company’s June 2016 sale of shares of its 6% Series A Cumulative Preferred Stock and its 4.8% Series B Convertible Preferred Stock pursuant to its subscription rights offering to its shareholders of which $7.5 million was used to finance the transaction. |
(f) | Represents the adjustment to eliminate shareholder’s equity of Pike County Light & Power in accordance with purchase accounting for the acquisition. |
(g) Recognizes dividends on shares of 6% Series A Cumulative Preferred Stock and estimated tax effect.
(h) Basic earnings per share was calculated as net income less dividends on 4.8% Series B Convertible Preferred Stock (“Series B Preferred Stock”) shares of $247,194 divided by basic average shares for the pro forma adjustments and combined columns. Diluted earnings per share was calculated as net income divided by average diluted shares which included 244,263 shares of Series B Preferred Stock for the pro forma adjustments and combined columns. It was determined that these shares were anti-dilutive for the pro forma adjustments column.
(c) Exhibits
23.1 | Consent of PricewaterhouseCooper, LLP |
99.1 | Historical Audited Financial Statements for Pike County Light & Power for the year ended December 31, 2015 |
99.2 | Historical Unaudited Interim Financial Statements for Pike County Light & Power for the three and six months ended June 30, 2016 and June 30, 2015 |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Corning Natural Gas Holding Corporation
By: /s/ Firouzeh Sarhangi
Chief Financial Officer
Dated: November 11, 2016
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INDEX TO EXHIBITS | ||
Exhibit No. | Description | Location |
Exhibit 23.1 | Consent of PricewaterhouseCooper, LLP | filed herewith |
Exhibit 99.1 | Historical Audited Financial Statements for Pike County Light & Power for the year ended December 31, 2015 | filed herewith |
Exhibit 99.2 | Historical Unaudited Interim Financial Statements for Pike County Light & Power for the three and six months ended June 30, 2016 and June 30, 2015 | filed herewith |
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