What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2020-12-03 compared with 2019-12-03 · 383 added, 369 removed, 810 unchanged (48% of the section changed)

3 unchanged sentences

Consolidated Financial Statements

for the Years Ended September 30, 2019 , 2018

and 2017 , and Report of Independent

for the Years Ended September 30, 2020 and 2019

and Report of Independent

Registered Public Accounting Firm

15 unchanged sentences

We have audited the accompanying consolidated balance sheets of RGC Resources, Inc.

and Subsidiaries (“the Company”) as of September 30, 2019 and 2018 , and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the years in the three-year period ended September 30, 2019 , and the related notes (collectively referred to as the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2019 and 2018 , and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2019 , in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of September 30, 2019 , based on criteria established in Internal Control-Integrated Framework - 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated December 3, 2019, expressed an unqualified opinion.

and Subsidiaries (“the Company”) as of September 30, 2020 and 2019, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the years in the two-year period ended September 30, 2020, and the related notes (collectively referred to as the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended September 30, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

1 unchanged sentence

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the Public Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

1 unchanged sentence

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

17 unchanged sentences

Regulatory assets 2,503,314 1,521,939

Interest rate swap

Other 854,562 733,525

Total current assets 14,436,561 16,385,192

UTILITY PROPERTY:

In service 258,342,372 237,786,964

Accumulated depreciation and amortization ( 71,386,537 ) ( 67,207,334 )

4 unchanged sentences

Regulatory assets 10,970,094 12,178,853

Investment in unconsolidated affiliate

Interest rate swap

Investment in unconsolidated affiliates 57,542,805 47,375,459

Other 284,954 411,236

Total other assets 68,797,853 59,965,548

TOTAL ASSETS $ 281,679,507 $ 258,353,696

RGC RESOURCES, INC.

10 unchanged sentences

Accrued expenses 3,565,210 3,448,000

Interest rate swap

Interest rate swaps 533,795 147,556

Regulatory liabilities 890,313 4,877,603

6 unchanged sentences

DEFERRED CREDITS AND OTHER LIABILITIES:

Interest rate swap

Interest rate swaps 1,689,761 746,785

Asset retirement obligations 7,180,982 6,788,683

8 unchanged sentences

Common Stock, $ 5 par value;

authorized 10,000,000 shares;

authorized 20,000,000 and 10,000,000 shares;

issued and outstanding 8,160,058 and 8,073,264 shares in 2020 and 2019, respectively

40,800,290 40,366,320

Preferred stock, no par;

13 unchanged sentences

Gas utilities $ 62,408,925 $ 67,306,260

Other 666,466 720,265

Total operating revenues 63,075,391 68,026,525

8 unchanged sentences

Equity in earnings of unconsolidated affiliate 4,814,874 3,020,348

Other income (expense), net

Other income, net 636,296 351,882

Interest expense 4,099,158 3,618,551

1 unchanged sentence

INCOME TAX EXPENSE 3,305,660 2,650,731

NET INCOME $ 10,564,534 $ 8,698,412

EARNINGS PER COMMON SHARE:

Basic $ 1.30 $ 1.08

Diluted $ 1.30 $ 1.08

WEIGHTED AVERAGE SHARES OUTSTANDING:

Basic 8,125,938 8,039,484

Diluted 8,146,666 8,078,950

See notes to consolidated financial statements.

3 unchanged sentences

YEARS ENDED SEPTEMBER 30, 2020 AND 2019

Other comprehensive income, net of tax:

NET INCOME $ 10,564,534 $ 8,698,412

Other comprehensive loss, net of tax:

Interest rate swaps ( 987,076 ) ( 894,761 )

Defined benefit plans 28,049 ( 722,488 )

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

OTHER COMPREHENSIVE LOSS, NET OF TAX ( 959,027 ) ( 1,617,249 )

COMPREHENSIVE INCOME $ 9,605,507 $ 7,081,163

4 unchanged sentences

YEARS ENDED SEPTEMBER 30, 2020 AND 2019

Stock Capital in

Par Value Retained

Earnings Accumulated

Comprehensive

Income (Loss)

Stockholders’

Balance - September 30, 2018 $ 39,973,075 $ 13,043,656 $ 27,438,049 $ ( 871,668 ) $ 79,583,112

Other comprehensive income

Exercise of stock options (11,225 shares)

Stock option grants

Cash dividends declared ($0.58 per share)

Issuance costs

Issuance of common stock (47,187 shares)

Balance - September 30, 2017

Other comprehensive income

Net income — — 8,698,412 — 8,698,412

Other comprehensive loss — — — ( 1,617,249 ) ( 1,617,249 )

Exercise of stock options ( 31,508 shares)

157,540 254,639 — — 412,179

Cash dividends declared ($ 0.66 per share)

Issuance costs

— — ( 5,314,544 ) — ( 5,314,544 )

Issuance of common stock ( 47,141 shares)

Reclassification adjustment for effect of change in tax law

235,705 1,098,777 — — 1,334,482

Balance - September 30, 2019 $ 40,366,320 $ 14,397,072 $ 30,821,917 $ ( 2,488,917 ) $ 83,096,392

Net income — — 10,564,534 — 10,564,534

Other comprehensive loss — — — ( 959,027 ) ( 959,027 )

Exercise of stock options ( 29,992 shares)

149,960 289,548 — — 439,508

Stock option grants — 81,380 — — 81,380

Cash dividends declared ($ 0.70 per share)

— — ( 5,697,941 ) — ( 5,697,941 )

Issuance costs — ( 147,517 ) — — ( 147,517 )

Issuance of common stock ( 56,802 shares)

284,010 1,226,638 — — 1,510,648

Balance - September 30, 2020 $ 40,800,290 $ 15,847,121 $ 35,688,510 $ ( 3,447,944 ) $ 88,887,977

5 unchanged sentences

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 10,564,534 $ 8,698,412

Adjustments to reconcile net income to net cash provided by operations:

3 unchanged sentences

Equity in earnings of unconsolidated affiliate ( 4,814,874 ) ( 3,020,348 )

Allowance for funds used during construction ( 330,208 ) —

Deferred income taxes 1,122,303 684,028

26 unchanged sentences

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid (refunded) during the year for:

Cash paid during the year for:

Interest $ 3,845,382 $ 3,328,130

Income taxes 1,673,000 2,287,000

See notes to consolidated financial statements.

14 unchanged sentences

The Company follows accounting and reporting standards established by the FASB and the SEC.

On June 28, 2018, the SEC adopted amendments to the definition of a "smaller reporting company" that became effective on September 10, 2018.

Under the rules for smaller reporting companies, certain disclosures required of larger public business entities are reduced or eliminated.

As it has met the qualifications under the definition of smaller reporting company, the Company has used the smaller reporting company exception on a limited basis, but in most instances, disclosures have been consistent with the prior year.

Under the rules for smaller reporting companies, certain disclosures previously required are reduced or eliminated.

As it has met the qualifications under the definition of smaller reporting company, the Company has used the smaller reporting company exceptions.

Rate Regulated Basis of Accounting —The Company’s regulated operations follow the accounting and reporting requirements of FASB ASC No.

11 unchanged sentences

Under-recovery of gas costs 1,733,718 —

Under-recovery of SAVE Plan revenues 108,550 —

ESAC assets — 265,392

Accrued pension and postretirement medical 576,731 602,674

2 unchanged sentences

Utility Property:

Other 11,945 11,945

Construction work in progress:

AFUDC 330,208 —

Other Assets:

2 unchanged sentences

Accrued pension and postretirement medical 9,156,546 9,414,695

ESAC assets — 756,803

Other deferred expenses 214,928 294,547

5 unchanged sentences

Over-recovery of gas costs $ — $ 161,837

WNA 601,784 —

Over-recovery of SAVE Plan revenues — 574,181

Rate refund — 3,827,588

Excess deferred income taxes 205,353 205,353

8 unchanged sentences

Total regulatory liabilities $ 31,478,420 $ 34,493,072

Amortization of regulatory assets of $ 1,106,511 and $ 368,011 for the years ended September 30, 2020 and 2019, respectively, is included in operations and maintenance expense on the consolidated statements of income.

See Note 3 for information on accelerated ESAC amortization.

As of September 30, 2020, the Company had regulatory assets in the amount of $ 13,803,616 on which the Company did not earn a return during the recovery period.

3 unchanged sentences

Expenditures for maintenance, repairs, and minor renewals and betterments are expensed as incurred.

The original cost of depreciable property retired is removed from utility plant and charged to

accumulated depreciation.

The original cost of depreciable property retired is removed from utility plant and charged to accumulated depreciation.

The cost of asset removals, less salvage, is charged to “regulatory cost of retirement obligations” or “asset retirement obligations” as explained under Asset Retirement Obligations below.

1 unchanged sentence

Distribution and transmission $ 227,753,620 $ 209,171,339

LNG storage 14,798,453 13,417,077

General and miscellaneous 15,790,299 15,198,548

Total utility plant in service $ 258,342,372 $ 237,786,964

Provisions for depreciation are computed principally at composite straight-line rates over periods ranging from 5 to 76 years .

Provisions for depreciation are computed principally at composite straight-line rates over a range of periods.

Rates are determined by depreciation studies which are required to be performed at least every 5 years on the regulated utility assets of Roanoke Gas.

1 unchanged sentence

The SCC directed the Company to implement the new rates retroactive to October 1, 2018.

As a result of the new rates, the composite weighted-average depreciation rate was 3.31% for the year ended September 30, 2019 as compared to 3.32% and 3.29% for fiscal years ended September 30, 2018 and 2017, respectively.

As a result of the new rates, the composite weighted-average depreciation rate was 3.30 % and 3.31 % for the years ended September 30, 2020 and 2019, respectively.

The implementation of the new depreciation rates reduced total depreciation expense by $ 32,570 for fiscal 2019 and increased net income by $ 24,187 or less than $ 0.01 per share.

5 unchanged sentences

These reviews have not identified any impairments which would have a material effect on the results of operations or financial condition.

In fiscal 2020, Roanoke Gas implemented the application of AFUDC related to infrastructure investments associated with two gate stations that will interconnect with the MVP.

This treatment allows capitalizing both the equity and debt financing costs during the construction phases.

For the year ended September 30, 2020, the Company capitalized $ 81,629 of debt financing costs and $ 248,579 of equity financing costs, thereby affecting the interest expense and other income, net lines, respectively, of the related consolidated statements of income.

See Note 3 for further information.

Asset Retirement Obligations —FASB ASC No.

13 unchanged sentences

Liabilities settled ( 150,345 ) ( 177,755 )

Revisions to estimated cash flows

Accretion 377,120 370,844

Ending balance $ 7,180,982 $ 6,788,683

Cash, Cash Equivalents and Short-Term Investments —From time to time, the Company will have balances on deposit at banks in excess of the amount insured by the FDIC.

The Company has not experienced any losses on these

accounts and does not consider these amounts to be at credit risk.

The Company has not experienced any losses on these accounts and does not consider these amounts to be at credit risk.

As of September 30, 2020, the Company did not have any bank deposits in excess of the FDIC insurance limits.

10 unchanged sentences

Ending balance $ 703,140 $ 110,743

Due to the impact of COVID-19 on businesses and individuals, both bad debt expense and associated allowance for doubtful accounts increased significantly over prior years.

See Note 3 for additional information, including regulatory restrictions, that contributed to the increase.

Financing Receivables —Financing receivables represent a contractual right to receive money either on demand, or on fixed or determinable dates, and are recognized as assets on the entity’s balance sheet.

20 unchanged sentences

Any difference between actual costs incurred and costs recovered through the application of the PGA is recorded as a regulatory asset or liability.

At the end of the deferral period, the balance of the net deferred charge or credit is amortized over an ensuing 12 -month period as amounts are reflected in customer bill.

Fair Value —Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

At the end of the deferral period, the balance of the net deferred charge or credit is amortized over an ensuing 12 -month period as amounts are reflected in customer bills.

Fair Value —Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date.

The Company determines fair value based on the following fair value hierarchy which prioritizes each input to the valuation methods into one of the following three broad levels:

14 unchanged sentences

Years Ended September 30

Net Income $ 10,564,534 $ 8,698,412

Weighted-average common shares 8,125,938 8,039,484

3 unchanged sentences

Earnings Per Share of Common Stock:

Basic $ 1.30 $ 1.08

Diluted $ 1.30 $ 1.08

Business and Credit Concentrations — The primary business of the Company is the distribution of natural gas to residential, commercial and industrial customers in its service territories.

18 unchanged sentences

All swaps qualify as a cash flow hedge with changes in fair value reported in other comprehensive income.

Any cash flows from interest rate swaps are classified as interest expense.

No portion of the swaps were deemed ineffective during the period.

See Notes 7 and 13 for additional information on the swaps and fair value.

Non-Cash Activity — A non-cash decrease in unconsolidated affiliate and corresponding decrease in capital contributions payable of $5,117,942 occurred for the fiscal year ended September 30, 2019, while an increase in investment in unconsolidated affiliate and corresponding increase in capital contributions payable of $9,087,262 and $767,710 occurred for the fiscal years ended September 30, 2018 and 2017, respectively.

Stock Issue — In March 2018, the Company issued 700,000 shares of common stock resulting in proceeds of $15,109,541 net of underwriting and other expenses.

The Company issued the common shares to strengthen its balance sheet by increasing the equity component of its total capitalization ratio.

The net proceeds were invested in Roanoke Gas to supplement the funding of its infrastructure improvement and replacement programs.

Non-Cash Activity — A non-cash decrease in unconsolidated affiliate and corresponding decrease in capital contributions payable of $ 2,512,387 and $ 5,117,942 occurred for the fiscal years ended September 30, 2020 and 2019, respectively.

Other Comprehensive Income (Loss) — A summary of other comprehensive income is provided below:

or Benefit Net of Tax

Year Ended September 30, 2020:

Interest rate swap:

Interest rate swaps:

Unrealized losses $ ( 1,594,126 ) $ 410,328 $ ( 1,183,798 )

Transfer of realized gains to interest expense

Net interest rate swap

Transfer of realized losses to interest expense 264,911 ( 68,189 ) 196,722

Net interest rate swaps ( 1,329,215 ) 342,139 ( 987,076 )

Defined benefit plans:

Net loss arising during period $ ( 52,669 ) $ 13,557 $ ( 39,112 )

Amortization of actuarial gains

Amortization of actuarial losses 90,441 ( 23,280 ) 67,161

Net defined benefit plans 37,772 ( 9,723 ) 28,049

1 unchanged sentence

Year Ended September 30, 2019:

Interest rate swap:

Unrealized gains

Transfer of realized gains to interest expense

Net interest rate swap

Defined benefit plans:

Net gain arising during period

Amortization of actuarial gains

Net defined benefit plans

Other comprehensive income

Year Ended September 30, 2017:

Interest rate swaps:

Unrealized gains

Unrealized losses $ ( 1,117,595 ) $ 287,669 $ ( 829,926 )

Transfer of realized gains to interest expense ( 87,309 ) 22,474 ( 64,835 )

Net interest rate swaps ( 1,204,904 ) 310,143 ( 894,761 )

Defined benefit plans:

Net gain arising during period

Amortization of actuarial losses

Net loss arising during period $ ( 962,612 ) $ 247,777 $ ( 714,835 )

Amortization of actuarial gains ( 10,305 ) 2,652 ( 7,653 )

Net defined benefit plans ( 972,917 ) 250,429 ( 722,488 )

Other comprehensive income

The amortization of actuarial gains or losses are included as a component of net periodic pension and postretirement benefit costs under other income (expense), net.

Other comprehensive loss $ ( 2,177,821 ) $ 560,572 $ ( 1,617,249 )

The amortization of actuarial gains or losses are included as a component of net periodic pension and postretirement benefit costs under other income, net.

Composition of AOCI:

Interest Rate

Defined Benefit

Swaps Defined Benefit

Plans Accumulated

Comprehensive

1 unchanged sentence

Balance September 30, 2018 230,624 ( 1,102,292 ) ( 871,668 )

Other comprehensive income (loss)

Balance September 30, 2017

Other comprehensive income (loss)

Reclassification adjustment for the effect of change in tax law

Other comprehensive loss ( 894,761 ) ( 722,488 ) ( 1,617,249 )

Balance September 30, 2019 ( 664,137 ) ( 1,824,780 ) ( 2,488,917 )

2 unchanged sentences

The reclassification related to the interest rate swap was charged to regulatory liability to offset the adjustment made when revaluing the deferred tax liability of the interest rate swap for the reduction in corporate income tax rates.

See recently adopted accounting standards for more information on the reclassification from AOCI.

Financial Statement Reclassifications

Reclassifications to certain line items of the prior years' consolidated balance sheet and consolidated income statements were made to place them on a comparable basis with the current year.

The changes to the consolidated income statements are associated with the adoption of ASU 2017-07, Compensation - Retirement Benefits, which changed the income statement location of the components of net periodic benefit costs other than service cost.

The changes to the consolidated income statements for the years ended September 30, 2018 and 2017 are reflected below and discussed in more detail under the recently adopted accounting standards section.

Year Ended September 30, 2018

As Previously Reported

Effect of Change

Operation and maintenance

Total operating expenses

Operating income

Other income (expense), net

Income before income taxes

Year Ended September 30, 2017

As Previously Reported

Effect of Change

Operation and maintenance

Total operating expenses

Operating income

Other income (expense), net

Income before income taxes

The changes to the balance sheet relate to aggregating regulatory assets and liabilities that had been previously included in other financial statement line items into their own financial statement line item.

This change allows for better presentation in the financial statements.

September 30, 2018

As Previously Reported

Effect of Change

Current Assets:

Accounts receivable, net

Under-recovery of gas cost

Regulatory assets

Current Liabilities:

Accrued expenses

Regulatory liabilities

Recently Adopted Accounting Standards

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) that affects any entity that enters into contracts with customers for the transfer of goods or services or transfer of non-financial assets.

This guidance supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance.

The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

To achieve that core principle, an entity should apply the following steps:

(1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when, or as, the entity satisfies the performance obligation.

Subsequently issued ASUs provided additional guidance to assist in the implementation of the new revenue standard.

The Company adopted ASU 2014-09 and all amendments beginning in fiscal 2019.

Consistent with the modified retrospective adoption method, prior reporting period results remain unchanged and reported in accordance with ASC 605.

As it relates to the Company’s contracts to deliver natural gas to customers, the guidance in ASC 606 is consistent with the guidance in ASC 605;

therefore, the modified retrospective approach resulted in no cumulative catch-up to retained earnings.

Furthermore, there was no significant impact to revenues recognized and no significant changes to the Company’s related business processes, systems or internal controls over financial reporting because of the new guidance.

See Note 2 for additional information.

In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits .

The primary objective of this guidance is to improve the financial statement presentation of net periodic pension and postretirement benefit costs;

however, it also changes which cost components are eligible for capitalization.

The amendments in the ASU require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the employees during the period.

The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and, if a subtotal for income from operations is presented, outside of income from operations.

In addition, the ASU allows only the service cost component of periodic benefit cost to be eligible for capitalization when applicable.

This change to capitalization eligibility differs from the treatment currently applied by the Company and from allowed regulatory accounting.

The Company adopted the new guidance in fiscal 2019 and has reclassified the other components of net periodic benefit costs for prior years to other income (deductions) in the non-operating section of the consolidated income statements.

The impact to the income statement for the adoption of this ASU is reflected under the Financial Statement Reclassifications section above.

The Company also implemented the change in capitalization costs on a prospective basis.

This change did not have a significant impact on the Company's consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall:

Recognition and Measurement of Financial Assets and Financial Liabilities .

The ASU enhances the reporting model for financial instruments to provide users of the financial statements with more useful information through several provisions, including the following:

(1) requires equity investments, excluding investments accounted for under the equity method, be measured at fair value with changes in fair value recognized in net income, (2) simplifies the impairment assessment of equity investments without readily determinable fair values, (3) eliminates the requirement to disclose the method(s) and significant

assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (4) requires entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, and (5) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements.

The Company adopted the ASU in fiscal 2019.

The new guidance did not have a material effect on its financial position, results of operations or cash flows.

See Note 13 for more information on fair value.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income .

The ASU provides the option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effects of the change in the U.S.

federal corporate income tax rate, per the TCJA, is recorded.

The new guidance is effective for the Company for the annual reporting period ending September 30, 2020 and interim periods within that annual period.

Early adoption is permitted.

Management completed its evaluation and adopted the new guidance in the fourth quarter of fiscal 2018.

As a result, the Company reclassified $234,337 in stranded tax expense out of AOCI to retained earnings related to pension and postretirement plans for the unregulated operations of Resources.

In addition, the Company also reclassified $20,285 out of AOCI to the regulatory liability for the stranded tax expense related to the interest rate swap.

See the Other Comprehensive Income section above and Note 3 below for more information.

Recently Issued Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases.

The ASU leaves the accounting for leases mostly unchanged for lessors, with the exception of targeted improvements for consistency;

This ASU leaves the accounting for leases mostly unchanged for lessors, with the exception of targeted improvements for consistency;

however, the new guidance requires lessees to recognize assets and liabilities for leases with terms of more than 12 months.

The ASU also revises the definition of a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration.

Consistent with current GAAP, the presentation and cash flows arising from a lease by a lessee will primarily depend on its classification as a finance or operating lease.

In contrast, the new ASU requires both types of leases to be recognized on the balance sheet.

Under prior GAAP, the presentation and cash flows arising from a lease by a lessee primarily depended on its classification as a finance or operating lease.

The new ASU requires both types of leases to be recognized on the balance sheet.

In addition, the new guidance includes quantitative and qualitative disclosure requirements to aid financial statement users in better understanding the amount, timing and uncertainty of cash flows arising from leases.

In January 2018, the FASB issued ASU 2018-01, which provides a practical expedient that allows entities the option of not evaluating existing land easements under the new lease standard for those easements that were entered into prior to adoption.

New or modified land easements will require evaluation on a prospective basis.

The new guidance is effective for the Company for the annual reporting period ending September 30, 2020 and interim periods within that annual period.

Early adoption is permitted.

The Company has completed its inventory of leases and does not currently expect the new guidance to have a material effect on its financial position, results of operations or cash flows.

The Company adopted ASU 2016-02 and related guidance effective October 1, 2019.

At the time of adoption, the Company had one operating lease.

This lease calls for quarterly payments in the amount of $ 3,240 and is set to expire in September 2021.

As the value of this lease obligation was determined to be de minimis and the Company has not entered into any additional lease obligations, this new guidance does not have a material effect on the Company's financial position, results of operations or cash flows.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging:

2 unchanged sentences

This is achieved through changes to both the designation and measurement guidance for qualifying hedging relationships, as well as changes to the presentation of hedge results.

The new guidance is effective for the Company for the annual reporting period ending September 30, 2020 and interim periods within that annual period.

Early adoption is permitted.

Management has not completed its evaluation of the new guidance;

however, it does not currently expect the new guidance to have a material effect on its financial position, results of operations or cash flows.

The Company adopted the new guidance effective October 1, 2019.

As the Company currently has only cash flow hedges and no portion of these hedges were deemed ineffective during the periods presented, this new guidance does not have a material effect on the Company's financial position, results of operations or cash flows.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40):

Customer's Accounting for Implementation Costs incurred in a Cloud Computing Arrangement that is a Service Contract .

This ASU reduces the complexity of accounting for costs of implementing a cloud computing service arrangement and aligns the following requirements to capitalize implementation costs:

1) those incurred in a hosting arrangement that is a service contract, and 2) those incurred to develop or obtain internal-use software, including hosting arrangements that include an internal software license.

The Company adopted the new guidance effective October 1, 2019.

The new guidance did not have a material effect on the Company's consolidated financial statements.

Recently Issued Accounting Standards

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) - Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans .

4 unchanged sentences

however, the ASU only modifies disclosure requirements and will not affect financial position, results of operations or cash flows.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40):

Customer's Accounting for Implementation Costs incurred in a Cloud Computing Arrangement that is a Service Contract .

This ASU reduces the complexity of accounting for costs of implementing a cloud computing service arrangement and aligns the following requirements to capitalize implementation costs:

The new guidance is effective for the Company for the annual reporting period beginning October 1, 2020.

Management has not completed its evaluation of the new guidance;

however, it believes the new guidance will change the future treatment of certain contracts by

allowing related implementation costs to be capitalized and amortized over time, rather than directly expensed.

Management does not currently expect the new guidance to have a material effect on its financial position, results of operations or cash flows.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

This ASU provides temporary optional guidance to ease the potential burden in accounting for and recognizing the effects of reference rate change on financial reporting.

The new guidance applies specifically to contracts and hedging relationships that reference LIBOR, or any other referenced rate that is expected to be discontinued due to reference rate reform.

The new guidance is effective for the Company through December 31, 2022.

Management has not yet completed its evaluation of the new guidance;

however, as the Company has several contracts and hedging relationships that currently reference LIBOR, this new guidance could impact the Company's financial position, results of operations, or cash flows for the period through which the ASU is effective.

Other accounting standards that have been issued or proposed by the FASB or other standard–setting bodies are not currently applicable to the Company or are not expected to have a significant impact on the Company’s financial position, results of operations and cash flows.

3 unchanged sentences

The following tables summarize revenue by customer, product and income statement classification for the years ended September 30:

Total operating revenues

Gas utility Non-utility Total operating revenues

Natural Gas (Billed and Unbilled):

Residential $ 37,022,219 $ — $ 37,022,219

Commercial 18,387,674 — 18,387,674

Industrial and Transportation 5,188,069 — 5,188,069

Revenue reductions (TCJA) (1)

Other 489,943 666,466 1,156,409

Total contracts with customers 61,087,905 666,466 61,754,371

1 unchanged sentence

Total operating revenues $ 62,408,925 $ 666,466 $ 63,075,391

Total operating revenues

Gas utility Non-utility Total operating revenues

Natural Gas (Billed and Unbilled):

Residential $ 39,519,618 $ — $ 39,519,618

Commercial 22,562,265 — 22,562,265

Industrial and Transportation 4,770,657 — 4,770,657

Revenue reductions (TCJA) (1)

Total contracts with customers

Alternative Revenue Programs

Total operating revenues

Natural Gas (Billed and Unbilled):

Industrial and Transportation

( 523,881 ) — ( 523,881 )

Other 592,156 720,265 1,312,421

Total contracts with customers 66,920,815 720,265 67,641,080

2 unchanged sentences

(1) Accrued refund associated with excess revenue collected in tariff rates associated with the reduction in federal income tax rates.

See Note 3 for more information.

Gas utility revenues

Substantially all of Roanoke Gas’ revenues are derived from rates authorized by the SCC as reflected in its tariffs.

Substantially all of Roanoke Gas’ revenues are derived from rates authorized by the SCC through its tariffs.

Based on its evaluation, the Company has concluded that these tariff-based revenues fall within the scope of ASC 606.

1 unchanged sentence

Performance obligations created under these tariff-based sales include commodity (the cost of natural gas sold to customers) and delivery (transporting natural gas through the Company’s distribution system to customers).

The sale and/or delivery of natural gas to customers result in the satisfaction of the Company’s performance obligation over time as natural gas is delivered.

The delivery of natural gas to customers results in the satisfaction of the Company’s respective performance obligations over time.

All customers are billed monthly based on consumption as measured by metered usage.

4 unchanged sentences

Natural gas consumption is estimated for the period subsequent to the last billed date and up through the last day of the month.

Estimated volumes and approved tariff rates are utilized to calculate unbilled revenue.

Estimated volumes and approved

tariff rates are utilized to calculate unbilled revenue.

The following month, the unbilled estimate is reversed, the actual usage is billed and a new unbilled estimate is calculated.

9 unchanged sentences

ARPs, which fall outside the scope of ASC 606, are SCC approved mechanisms that allow for the adjustment of revenues for certain broad, external factors, or for additional billings if the entity achieves certain performance targets.

The Company's ARPs include its WNA, which adjusts revenues for the effects of weather temperature variations as compared to the 30-year average, and the SAVE Plan over/under collection mechanism, which adjusts revenues for the differences between SAVE Plan revenues billed to customers in the current tariff rates and the revenues earned, as calculated based on the timing and extent of infrastructure replacement completed during the period.

These amounts are ultimately collected from, or returned to, customers through future changes to tariff rates.

The Company's ARPs include its WNA, which adjusts revenues for the effects of weather temperature variations as compared to the 30-year average, and the SAVE Plan over/under collection mechanism, which adjusts revenues for the differences between SAVE Plan revenues billed to customers and the revenues earned, as calculated based on the timing and extent of infrastructure replacement completed during the period.

These amounts are ultimately collected from, or returned to, customers through future rate changes approved by the SCC.

Customer Accounts Receivable

1 unchanged sentence

The balances of customer receivables are provided below:

Current Assets

Current Liabilities

Current Assets Current Liabilities

Trade accounts receivable (1)

Unbilled revenue (1)

Customer credit balances

Customer deposits

Customer credit balances Customer deposits

September 30, 2019 $ 2,590,702 $ 1,236,384 $ 880,295 $ 1,432,031

1 unchanged sentence

Increase (decrease) $ ( 247,210 ) $ ( 194,866 ) $ 706,766 $ 179,445

(1) Included in "Accounts receivable, net" in the condensed consolidated balance sheet.

(1) Included in "Accounts receivable, net" in the consolidated balance sheet.

Amounts shown net of reserve for bad debts.

3 unchanged sentences

The SCC exercises regulatory authority over the natural gas operations of Roanoke Gas.

Such regulation encompasses terms, conditions and rates to be charged to customers for natural gas service, safety standards, service extension, accounting and depreciation.

On October 10, 2018, Roanoke Gas filed a general rate case application requesting an increase in annual customer non-gas rates of $10.5 million.

This application incorporated into the non-gas rate the impact of tax reform, non-SAVE utility plant investment, increased operating costs, recovery of regulatory assets associated with eligible safety activity costs and SAVE Plan investments and related costs that were previously recovered through the SAVE Rider.

The new non-gas rates were placed in effect for service rendered on or after January 1, 2019, subject to refund pending audit and final order by the SCC.

On June 28, 2019, the SCC staff issued their report including a recommendation for an annual non-gas rate increase of approximately $6.5 million .

Management reviewed the SCC staff report and submitted rebuttal testimony in preparation for the hearing on the rate application.

On August 14th and 15th, the SCC conducted a hearing on the rate application.

The hearing examiner's report was not expected until December 2019 with a final order from the SCC not expected until early 2020.

As a result of the assessment of the SCC staff report, in addition to the rebuttal testimony and positions taken by the Company, management has accrued an estimate for a refund for the difference between the rates placed into effect on January 1, 2019 and management's estimate of the non-gas rates that will be approved by the SCC.

The amount reflected in the financial statements is an estimate and the final order could result in a higher or lower refund.

On November 19, 2019, the hearing examiner issued his report that was subsequently revised on November 26, 2019.

See Note 15 for more information.

Such regulation encompasses terms, conditions and rates to be charged to customers for natural gas service, safety standards, service extension, and depreciation.

On October 10, 2018, Roanoke Gas filed a general rate case application requesting an increase in annual customer non-gas base rates.

The new non-gas rates were placed in effect on an interim basis for service rendered on or after January 1, 2019, subject to refund pending audit and final order by the SCC.

On January 24, 2020, the SCC issued its final order on the general rate application.

Under the provisions of this order, Roanoke Gas was granted an annualized non-gas rate increase of $ 7.25 million and provided for a 9.44 % return on equity.

In addition, the final order directed the Company to write-down a portion of the ESAC assets deemed not eligible for recovery.

As a result, ESAC regulatory assets were written down approximately $ 317,000 in the first

quarter of fiscal 2020.

In March 2020, the Company completed the refund of $ 3.8 million for revenues collected from the interim rates in excess of the final approved rates, including interest.

The final order did not provide for a return on Roanoke Gas infrastructure investments associated with two gate stations that will interconnect with the MVP;

however, the order did provide for the ability to defer financing costs related to these investments for consideration of future recovery.

The Company is deferring these costs through the application of AFUDC, which capitalizes both the equity and debt financing costs during the construction phases.

Roanoke Gas applied AFUDC treatment retroactively to January 1, 2019, the date new non-gas rates became effective.

The January 1, 2019 date was affirmed by the Commission in its October 1, 2020 order in the Company’s 2019 annual informational filing docket.

Amounts capitalized are disclosed in the Utility Plant and Depreciation section of Note 1.

In 2020, Roanoke Gas accelerated amortization of the $ 525,000 remaining balance of its ESAC assets.

This acceleration was the result of the Company's earnings test for fiscal 2020.

The SCC requires regulated utilities with certain regulatory assets to perform and submit an annual earnings test.

The Company's earnings test is required for its fiscal year ended September 30, 2020 and must be filed with the SCC in January 2021.

Specific to ESAC assets, if the results indicate that earnings exceed the mid-point of its authorized return on equity range, the Company must write-down certain regulatory assets to the point where the actual return for the period falls to the mid-point.

As Roanoke Gas' fiscal 2020 unadjusted earnings exceeded the mid-point, the Company accelerated amortization of the related ESAC assets.

On March 16, 2020, in response to the COVID-19 pandemic, the SCC issued an order applicable to all utilities operating in Virginia to suspend disconnection of service for non-payment by any customer until May 15, 2020, which was subsequently extended to October 5, 2020.

These moratorium orders prohibited utilities from disconnecting any customer for non-payment of natural gas service and also prohibited utilities from assessing late payment fees.

As a result, the amount of current receivables and future billings that may ultimately become uncollectible will likely increase.

In October 2020, during the special session of the Virginia General Assembly, HB5005 was enacted and extended the moratorium until the Governor determines that the economic and public health conditions have improved such that the prohibition does not need to be in place, or until at least 60 days after such declared state of emergency ends, whichever is sooner.

Therefore, the Company has increased its provision for uncollectible accounts, based on information currently available and the expected continued aging of its accounts receivable at September 30, 2020.

These estimates are subject to revision as the financial impact of COVID-19 continues to ripple through the economy.

As referenced in Note 8, the TCJA reduced the federal corporate tax rate to 21%.

2 unchanged sentences

For rate regulated entities such as Roanoke Gas, these excess deferred taxes were originally recovered from its customers based on billing rates derived using a federal income tax rate of 34%.

Therefore, the adjustment to the net deferred tax liabilities of Roanoke Gas, to the extent such net deferred tax liabilities are attributable to rate base or cost of service for customers, are refundable to customers.

Therefore, the adjustment to the net deferred tax liabilities of Roanoke Gas, to the extent such net deferred tax liabilities are attributable to rate base or cost of service, are refundable to customers.

Roanoke Gas began accounting for the refund of these excess deferred taxes in fiscal 2018 along with reflecting a corresponding reduction in income tax expense.

As of September 30, 2019, Roanoke Gas had approximately $11,100,000 remaining in the net regulatory liability related to these excess deferred income taxes, most of which will be refunded over a 28 year period per IRS normalization requirements.

The SCC staff report on the general rate case application had no significant changes to the provision for and refund timing of the excess deferred taxes included in regulatory liabilities.

The Company has transitioned to a corporate federal income tax rate of 21% and a combined 25.74% state and federal tax rate in fiscal 2019.

In January 2018, the SCC issued a directive requiring the accrual of a regulatory liability for excess revenues collected from customers attributable to the higher federal income tax rate, included as a component of customer billing rates, until such time as the SCC approves revised billing rates incorporating the lower tax rate.

Effective with January 2019 customer billings, the Company began refunding the excess revenues to customers.

The SCC staff report on the general rate case application had no significant changes to the provision for and refund timing of the excess deferred taxes or the refund amount for excess revenues included in regulatory liabilities.

The remaining balance of excess revenues related to the reduction in the federal income tax rate and the estimated accrued rate refund

associated with the non-gas general rate application are reflected in the rate refund line item under the regulatory liabilities as detailed in Note 1.

As of September 30, 2020, Roanoke Gas had approximately $ 11,000,000 remaining in the net regulatory liability related to these excess deferred income taxes, the majority of which will be refunded over a 28 year period per IRS normalization requirements.

The Company transitioned to a corporate federal income tax rate of 21% and a combined 25.74% state and federal tax rate in fiscal 2019.

In January 2018, the SCC issued a directive requiring the accrual of a regulatory liability for excess revenues collected from customers attributable to the higher federal income tax rate, included as a component of customer billing rates, until such time as the SCC approved revised billing rates incorporating the lower tax rate.

The Company refunded the excess revenues associated with the change in the tax rate over a 12-month period ended December 2019.

In June 2019, the Company submitted its updated depreciation study with the SCC staff.

The depreciation study, which is based on average remaining service life, resulted in an overall composite weighted-average depreciation rate of 3.31% .

The depreciation study, which is based on average remaining service life, resulted in an overall composite weighted-average depreciation rate of 3.31 % for fiscal 2019.

In September 2019, the SCC staff approved the depreciation study filing and instructed the Company to implement the new rates retroactive to October 1, 2018.

3 unchanged sentences

The SAVE Plan provides a mechanism for the Company to recover the related depreciation and expenses and return on rate base of its infrastructure replacement program.

The updated SAVE filing continues the replacement of first generation plastic main and related services and includes the replacement of a natural gas transfer station.

The filing also proposes to extend the Company's SAVE Plan to September 30, 2024.

In September 2019, the SCC issued a final order on the SAVE Plan approving the extension of the SAVE Plan through September 30, 2024 and authorizing a SAVE Rider that provides up to $1.1 million in revenue in fiscal 2020 for SAVE Plan investment since January 1, 2019 and proposed fiscal 2020 SAVE investment.

In addition to the continued renewal of first generation plastic mains and related services, coated steel tubing services and specifically identified gate stations, the application proposes that the SAVE Plan be amended to include the renewal or removal of certain regulator stations and the renewal of pre-1971 coated steel mains and coated steel services.

In September 2020, the SCC issued a final order on the SAVE Plan authorizing a SAVE Rider that provides up to $ 2.3 million in revenue in fiscal 2021 for SAVE Plan investment since January 1, 2019 and proposed fiscal 2021 SAVE investment.

The SCC also approved the true-up factor to provide for the refund of approximately $ 73,000 in over-collected balance from the 2019 SAVE Plan.

8 unchanged sentences

Information related to the segments of the Company are provided below:

Investment in Affiliates

Parent and Other

Consolidated Total

For the Year Ended September 30, 2019:

Operating revenues

Operating income (loss)

Equity in earnings

Interest expense

Income before income taxes

As of September 30, 2019:

Gross additions to utility property

Gross investment in MVP and Southgate

Investment in Affiliates

Parent and Other

Consolidated Total

Gas Utility Investment in Affiliates Parent and Other Consolidated Total

For the Year Ended September 30, 2020:

Operating revenues $ 62,408,925 $ — $ 666,466 $ 63,075,391

Depreciation 7,890,725 — — 7,890,725

Operating income (loss) 12,429,613 ( 220,194 ) 308,763 12,518,182

3 unchanged sentences

As of September 30, 2020:

Total assets $ 211,994,364 $ 57,660,105 $ 12,025,038 $ 281,679,507

Gross additions to utility property 22,916,339 — — 22,916,339

Gross investment in MVP and Southgate — 7,864,859 — 7,864,859

Gas Utility Investment in Affiliates Parent and Other Consolidated Total

For the Year Ended September 30, 2019:

Operating revenues $ 67,306,260 $ — $ 720,265 $ 68,026,525

Depreciation 7,454,274 — — 7,454,274

Operating income (loss) 11,458,679 ( 153,149 ) 289,934 11,595,464

3 unchanged sentences

As of September 30, 2019:

Total assets $ 195,969,019 $ 47,429,368 $ 14,955,309 $ 258,353,696

Gross additions to utility property 21,884,317 — — 21,884,317

1 unchanged sentence

OTHER INVESTMENTS

In October 2015, Midstream, acquired a 1% equity interest in the Mountain Valley Pipeline, LLC.

The LLC was established to construct and operate a natural gas pipeline originating in northern West Virginia and extending through south central Virginia.

The proposed pipeline will have the capacity to transport approximately 2 million dths of natural gas per day.

According to the LLC's managing partner, the anticipated project in-service date has been extended to late calendar 2020.

The latest delay is due to a FERC issued project-wide stop order on October 15th, which halted construction in response to the Fourth Circuit granting a stay on a permit issued by the U.S.

Fish and Wildlife Service in November 2017.

The FERC order directed activity on the pipeline to be focused on restoration and stabilization activities along the pipeline.

As a result of this recent FERC action and other judicial and regulatory actions, the estimated total project cost has grown to between $5.3 and $5.5 billion, thereby increasing Midstream's estimated total cash contributions to between $53 and $55 million.

See Note 15 regarding an increase in the Company's participation in MVP.

In April 2018, the LLC announced the MVP Southgate project, which is a planned 70 mile pipeline extending from the MVP mainline in Virginia to delivery points in North Carolina.

Midstream is a less than 1% investor in this project, which will be accounted for under the cost method.

Total estimated project cost is between $350 and $500 million of which Midstream's portion is approximately $1.8 to $2.5 million.

The Southgate in-service date is currently targeted for the end of calendar 2020, subject to any further delays in the completion of the MVP mainline.

Midstream held an approximate $47.4 million investment in the MVP and Southgate projects at September 30, 2019 .

Funding for Midstream's investment is provided through unsecured Promissory Notes as further described in Note 7 below.

In October 2015, Midstream, acquired a 1 % equity interest in the LLC.

In November 2019, the Company's Board of Directors approved a pro-rata increase in Midstream's participation that will increase its equity interest to approximately 1.03 % at the MVP's completion.

Once in service, the MVP will transport approximately 2 million dth of natural gas per day.

Pipeline construction has been delayed due to regulatory and legal challenges that have restricted the recent focus to maintenance and restoration activities.

As a result, the projected cost is expected to range from $ 5.8 to $ 6.0 billion, with Midstream's total cash contributions expected to range from $ 60 and $ 62 million.

The managing partner extended the estimated in-service date to the second half of calendar 2021.

The Company is utilizing the equity method to account for the transactions related to the MVP investment and recognizes earnings in proportion to its investment.

In April 2018, the LLC announced the MVP Southgate project, which is an approximately 75 mile pipeline extending from the MVP mainline in Virginia to delivery points in North Carolina.

Midstream is a less than 1 % investor in the project, which is being accounted for under the cost method.

Total project cost is estimated to be nearly $ 500 million, of which Midstream's portion is estimated to be approximately $ 2.1 million.

The Southgate in-service date is currently targeted for calendar year 2022.

Funding for Midstream's investments in the LLC for both the MVP and Southgate projects is being provided through two variable rate unsecured promissory notes, under a non-revolving credit agreement maturing in December 2022, and two additional notes issued in June 2019.

See Note 7 for a schedule of debt instruments.

The Company will participate in the earnings generated from the transportation of natural gas through both pipelines proportionate to its level of investment once the pipelines are placed in service.

The financial statement locations of the investments by Midstream are as follows:

Balance Sheet Location of Other Investments:

The investments in the LLC are included in the consolidated financial statements as follows:

Balance Sheet location:

Other Assets:

Investment in unconsolidated affiliate

MVP $ 57,183,063 $ 47,055,426

Southgate 359,742 320,033

Investment in unconsolidated affiliates $ 57,542,805 $ 47,375,459

Current Liabilities:

MVP $ 2,501,883 $ 4,958,260

Southgate 10,554 66,564

Capital contributions payable $ 2,512,437 $ 5,024,824

Years ended September 30

Income Statement Location of Other Investments:

Income Statement location:

Equity in earnings of unconsolidated affiliate $ 4,814,874 $ 3,020,348

Undistributed earnings, net of income taxes, of MVP in retained earnings $ 6,842,702 $ 3,267,176

The change in the investment in unconsolidated affiliate is provided below:

The change in the investment in unconsolidated affiliates is provided below:

Cash investment $ 7,864,859 $ 20,965,907

Change in accrued capital calls ( 2,512,387 ) ( 5,117,942 )

Equity in earnings of unconsolidated affiliates

Equity in earnings of unconsolidated affiliate 4,814,874 3,020,348

Change in investment in unconsolidated affiliates $ 10,167,346 $ 18,868,313

Summary unaudited financial statements of Mountain Valley Pipeline are presented below.

Southgate financial statements, which is accounted for under the cost method, are not included:

Income Statement

Summary unaudited financial statements of MVP are presented below.

Southgate financial statements, which are accounted for under the cost method, are not included:

Income Statements

Years Ended September 30,

AFUDC $ 479,586,911 $ 295,430,776

Net Other Income 714,128 5,655,644

Balance Sheet

Net Income $ 480,301,039 $ 301,086,420

Balance Sheets

Current Assets $ 513,713,429 $ 485,323,892

1,237,237,542

Construction Work in Progress 5,536,248,668 4,675,267,389

4,675,267,389

2,301,591,079

5,173,782,097

3,556,994,477

Other Assets 4,597,441 13,190,816

Total Assets $ 6,054,559,538 $ 5,173,782,097

Liabilities and Equity:

Current Liabilities $ 187,581,804 $ 466,776,233

4,707,005,864

2,841,114,822

Noncurrent Liabilities 245,000 —

Capital 5,866,732,734 4,707,005,864

Total Liabilities and Equity $ 6,054,559,538 $ 5,173,782,097

5,173,782,097

3,556,994,477

LINE-OF-CREDIT

On March 26, 2019, Roanoke Gas entered into a new unsecured line-of-credit agreement.

This agreement replaced the prior line-of-credit agreement scheduled to expire March 31, 2020 .

The new agreement is for a 2 -year term expiring March 31, 2021 with a maximum borrowing limit of $30,000,000 .

Amounts drawn against the new agreement are considered to be non-current, as the balance under the line-of-credit is not subject to repayment within the next 12-month period.

The new agreement maintains the same variable interest rate based on 30-day LIBOR plus 100 basis points and availability fee of 15 basis points and provides multi-tiered borrowing limits to accommodate seasonal borrowing demands and minimize borrowing costs.

The Company's total available borrowing limits under this agreement for the remaining term are as follows:

In March 2020, Roanoke Gas renewed its unsecured line-of-credit agreement, which was scheduled to expire March 31, 2021.

The new agreement is for a two-year term expiring March 31, 2022 with a maximum borrowing limit of $ 28,000,000 .

Amounts drawn against the agreement are considered to be non-current, as the balance under the line-of-credit is not subject to repayment within the next 12-month period.

The agreement has a variable interest rate based on 30-day LIBOR plus 100 basis points, an availability fee of 15 basis points and provides multi-tiered borrowing limits associated with the seasonal borrowing demands of the Company.

The Company's total available borrowing limits for the remaining term are as follows:

As of Available

Line-of-Credit

September 30, 2020 $ 19,000,000

April 1, 2020

March 1, 2021 15,000,000

July 20, 2021 20,000,000

10 unchanged sentences

LONG-TERM DEBT

In June 2019, Midstream entered into two unsecured promissory notes and loan agreements.

On June 12, 2019, Midstream entered into a 7 -year unsecured note in the aggregate principal amount of $14,000,000 at an interest rate of 30-day LIBOR plus 115 basis points.

Midstream also entered into an interest rate swap agreement that converts the note's variable interest rate to a 3.24% fixed rate.

On June 13, 2019, Midstream entered into a 5 -year unsecured note in the aggregate principal amount of $10,000,000 at an interest rate of 30-day LIBOR plus 120 basis points.

Beginning in July 2022, the second note's terms require monthly principal repayments with the remaining unpaid balance due on June 1, 2024.

In addition, Midstream entered into a second interest rate swap agreement that converts the second note's variable interest rate to a 3.14% fixed rate.

The proceeds from the notes issued in June 2019 were used to pay down Midstream's notes under the existing non-revolving credit agreement as amended in February 2019.

As a result, the corresponding available balances on the prior notes declined by $24,000,000 , thereby reducing the previously amended available balance from $50,000,000 to $26,000,000 .

On June 5, 2019, Roanoke Gas entered into an agreement to issue notes in the aggregate principal amount of $10,000,000 .

These notes are scheduled to be issued on the day of closing currently proposed for December 6, 2019.

These notes will have a 10 -year term from the date of issue at a fixed interest rate of 3.60% .

The proceeds from these notes will be used to finance a portion of Roanoke Gas' capital budget.

On March 28, 2019, Roanoke Gas entered into 12 -year unsecured notes in the total principal amount of $10,000,000 with a fixed interest rate of 4.41% per annum.

Proceeds from these notes were used to refinance a portion of Roanoke Gas' debt under the line-of-credit.

In December 2019, Midstream entered into the Third Amendment to its Credit Agreement ("Amendment") and amendments to the related Promissory Notes ("Notes") with the corresponding banks.

The Amendment modified the original Credit Agreement and prior amendments between Midstream and the banks by increasing the total borrowing capacity to $ 41,000,000 from its previous limit of $ 26,000,000 and extending the maturity date to December 29, 2022.

The Amendment retained all of the other provisions contained in the previous credit agreements and amendments including the interest rate on the Notes based on 30-day LIBOR plus 1.35 %.

The additional limits under the Amendment provide additional financing for the investment in the MVP.

In December 2019, Roanoke Gas entered into unsecured notes in the aggregate principal amount of $ 10,000,000 .

These notes have a 10-year term with a fixed interest rate of 3.60 %.

Proceeds from these notes provided funding for Roanoke Gas' capital budget.

Roanoke Gas also has other unsecured notes at varying fixed interest rates as well as a variable-rate note with interest based on 30-day LIBOR plus 90 basis points.

The variable rate note is hedged by a swap agreement, which converts the debt into a fixed-rate instrument with an annual interest rate of 2.30 %.

Midstream has two other variable rate notes in the amounts of $ 14,000,000 and $ 10,000,000 that are hedged by swap agreements, which effectively convert the interest rates to 3.24 % and 3.14 %, respectively.

Long-term debt consists of the following:

Unamortized Debt Issuance Costs

Principal Unamortized Debt Issuance Costs Principal Unamortized Debt Issuance Costs

Unsecured senior notes payable, at 4.26 %, due on September 18, 2034

$ 30,500,000 $ 135,157 $ 30,500,000 $ 144,811

Unsecured term note payable, at 30-day LIBOR plus 0.90 %, November 1, 2021

7,000,000 3,613 7,000,000 6,948

Unsecured term notes payable, at 3.58 % due on October 2, 2027

8,000,000 33,712 8,000,000 38,528

Unsecured term notes payable at 4.41 %, due on March 28, 2031

10,000,000 32,892 10,000,000 36,272

Unsecured term notes payable at 3.60 %, due on December 6, 2029

10,000,000 32,585 — —

Unsecured term notes payable, at 30-day LIBOR plus 1.35 % due December 29, 2022

25,475,200 38,728 16,012,200 59,504

Unsecured term note payable, at 30-day LIBOR plus 1.15 %, due June 12, 2026

14,000,000 13,844 14,000,000 16,252

Unsecured term note payable, at 30-day LIBOR plus 1.20 %, due June 1, 2024

10,000,000 8,644 10,000,000 11,000

Total notes payable $ 114,975,200 $ 299,175 $ 95,512,200 $ 313,315

Line-of-credit, at 30-day LIBOR plus 1.00 %, due March 31, 2022

9,143,606 — 8,172,473 —

Total long-term debt $ 124,118,806 $ 299,175 $ 103,684,673 $ 313,315

3 unchanged sentences

All of the debt agreements except for the line-of-credit provide for priority indebtedness to not exceed 15 % of consolidated total assets.

The Company was in compliance with all debt covenants as of September 30, 2020 and September 30, 2019.

The aggregate annual maturities of long-term debt for the next five years ending after September 30, 2020 are as follows:

Year Ending September 30

On December 22, 2017, the President signed into law the TCJA, which enacted significant changes to the Internal Revenue Code, including the reduction in the maximum federal corporate income tax rate from 35% to 21% effective January 1, 2018.

As a result, the Company's statutory federal income tax rate transitioned from 34% in fiscal 2017 to 24.3% in fiscal 2018 and 21% in fiscal 2019.

With a fiscal tax year ending in September, the Company applied a blended federal tax rate of 24.3% for the fiscal year ended September 30, 2018 as determined on the number of days of the Company's fiscal year at 34% and the number of days at 21% .

Year Ending September 30 Maturities

2022 16,268,606

2023 25,975,200

2024 9,375,000

Thereafter 72,500,000

Total $ 124,118,806

As a result of the TCJA enacted in January 2018, the Company's statutory federal income tax rate is 21 % in fiscal 2020 and 2019, respectively.

Under the provisions of ASC 740 - Income Taxes , the deferred tax assets and liabilities of the Company were revalued in fiscal 2018 to reflect the reduction in the corporate federal income tax rate.

2 unchanged sentences

The excess deferred taxes related to the depreciable property is being returned to customers through reduced billings over the remaining weighted average useful life of the property with a corresponding reduction in income tax expense.

The excess deferred taxes related to the other regulatory basis differences are being collected from customers over a five year period.

The details of income tax expense are as follows:

1 unchanged sentence

Current income taxes:

Federal $ 1,841,124 $ 1,698,215

State 342,233 268,488

Total current income taxes 2,183,357 1,966,703

Deferred income taxes:

Federal 644,682 272,079

State 477,621 411,949

Total deferred income taxes 1,122,303 684,028

7 unchanged sentences

State income taxes, net of federal income tax benefit 647,685 537,545

Revaluation of unregulated deferred taxes to 21%

Net amortization of excess deferred taxes on regulated operations ( 162,228 ) ( 212,896 )

Tax benefit recognized on stock compensation ( 114,984 ) ( 96,499 )

Other, net 22,446 39,261

Total income tax expense $ 3,305,660 $ 2,650,731

8 unchanged sentences

Deferred compensation 992,605 803,979

Interest rate swap

Interest rate swaps 572,343 230,204

Rate refund — 130,063

Other 97,564 261,125

Total gross deferred tax assets 6,054,976 5,869,205

1 unchanged sentence

Utility plant 18,310,474 18,132,022

Under-recovery of gas costs

MVP investment 1,693,075 705,193

Other 25,189 10,513

Total gross deferred tax liabilities 20,028,738 18,847,728

3 unchanged sentences

The Company’s policy is to classify interest associated with uncertain tax positions as interest expense in the financial statements.

Penalties are classified under other expense.

Penalties are netted against other income.

The Company files a consolidated federal income tax return and state income tax returns in Virginia and West Virginia.

2 unchanged sentences

The Company sponsors both a noncontributory pension plan and a postretirement plan.

The pension plan covers substantially all employees and benefits fully vest after 5 years of credited service.

The pension plan covers all employees hired prior to January 2017 and benefits fully vest after 5 years of credited service.

Benefits paid to retirees are based on age at retirement, years of service and average compensation.

Effective January 1, 2017, a "soft freeze" to the pension plan was implemented, and employees hired on or after that date are no longer eligible to participate.

Employees hired prior to January 1, 2017 will continue to participate in the plan and accrue benefits.

Commensurate with the "soft freeze" in the pension plan, the Company amended its 401(k) Plan, allowing management to authorize a discretionary contribution to the 401(k) account for those employees hired on or after January 1, 2017.

8 unchanged sentences

The Company established a regulatory asset for the portion of the obligation expected to be recovered in rates in future periods.

The regulatory asset is adjusted for the amortization of the transition obligation and recognition of actuarial gains and losses.

The regulatory asset is adjusted for the recognition of actuarial gains and losses.

The portion of the obligation attributable to the unregulated operations of the holding company is recognized in other comprehensive income.

The following tables set forth the benefit obligation, fair value of plan assets, the funded status of the plans, amounts recognized in the Company’s consolidated financial statements and the assumptions used:

Postretirement Plan

Pension Plan Postretirement Plan

2020 2019 2020 2019

Accumulated benefit obligation $ 34,821,069 $ 30,927,973 $ 17,925,409 $ 18,030,399

1 unchanged sentence

Benefit obligation at beginning of year $ 35,550,987 $ 28,850,299 $ 18,030,399 $ 16,207,322

Service cost 691,602 537,268 167,879 132,882

Interest cost 1,062,227 1,166,728 531,480 648,944

Actuarial (gain) loss

Actuarial loss (gain) 3,620,400 5,901,915 ( 325,269 ) 1,530,522

Benefit payments, net of retiree contributions ( 927,214 ) ( 905,223 ) ( 479,080 ) ( 489,271 )

7 unchanged sentences

Funded status $ ( 2,340,371 ) $ ( 1,964,316 ) $ ( 3,809,156 ) $ ( 4,947,789 )

Amounts recognized in the balance sheet consist of:

Amounts recognized in the consolidated balance sheet consist of:

Noncurrent liabilities $ ( 2,340,371 ) $ ( 1,964,316 ) $ ( 3,809,156 ) $ ( 4,947,789 )

6 unchanged sentences

The Company expects that approximately $ 80,000 before tax, of AOCI will be recognized in net periodic benefit costs in fiscal 2021 and approximately $ 577,000 of amounts deferred as regulatory assets will be amortized and recognized in net periodic benefit costs in fiscal 2021.

The following table details the actuarial assumptions used in determining the projected benefit obligations and net benefit cost of the pension and the accumulated benefit obligations and net benefit cost of the postretirement plan for 2019 , 2018 and 2017 :

Postretirement Plan

Pension Plan Postretirement Plan

2020 2019 2020 2019

Assumptions used to determine benefit obligations:

Discount rate 2.47 % 3.03 % 2.44 % 3.00 %

Expected rate of compensation increase

Expected rate of compensation increase 4.00 % 4.00 % N/A N/A

Assumptions used to determine benefit costs:

1 unchanged sentence

Expected long-term rate of return on plan assets 5.50 % 5.50 % 4.26 % 4.30 %

Expected rate of compensation increase

Expected rate of compensation increase 4.00 % 4.00 % N/A N/A

To develop the expected long-term rate of return on assets assumption, the Company, with input from the Plans' actuaries and investment advisors, considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of each plan’s portfolio.

Components of net periodic benefit cost are as follows:

Postretirement Plan

Pension Plan Postretirement Plan

2020 2019 2020 2019

Service cost $ 691,602 $ 537,268 $ 167,879 $ 132,882

Interest cost 1,062,227 1,166,728 531,480 648,944

3 unchanged sentences

Service cost is included in operation and maintenance expense of the consolidated income statement.

All other components of net periodic benefit costs are included in the other income (expense), net line.

The assumed health care cost trend rates used in measuring the accumulated benefit obligation for the postretirement plan as of September 30, 2019 , 2018 and 2017 are presented below:

All other components of net periodic benefit costs are included in the other income, net line.

The assumed health care cost trend rates used in measuring the accumulated benefit obligation for the postretirement plan are presented below:

Pre 65 Post 65

2020 2019 2020 2019

Health care cost trend rate assumed for next year 7.00 % 7.00 % 5.20 % 5.20 %

3 unchanged sentences

A change of 1% would have the following effects:

1% Increase 1% Decrease

Effect on total service and interest cost components $ 132,000 $ ( 105,000 )

2 unchanged sentences

In 2020, the Company revised its targeted pension plan investment allocation by rebalancing the assets from a 40 % equity allocation to a 30 % equity allocation.

This change in investment strategy was in response to the pension plan's improved funded position and the implementation of a "soft freeze", which will limit future growth in liabilities as no new employees will enter the plan.

The change in investment allocation will allow the opportunity to reduce investment risk and volatility in asset performance while providing for asset growth through the reduced equity exposure.

As a result, the Company's assumed long-term rate of return on pension and postretirement plan assets for fiscal 2019 was adjusted down to 5.5%

and 4.3% , respectively.

This change in investment allocation corresponds with the Company's strategy to continue to match the duration of the pension plan's assets with its liabilities.

This change in investment allocation will continue to reduce investment risk and volatility in asset performance while providing for some asset growth.

As a result, the Company's assumed long-

term rate of return on pension assets for fiscal 2021 was adjusted down to 5.4 %.

The investment policy continues to provide for a range of investment allocations to allow for continued flexibility in responding to market conditions.

The Company’s target and actual asset allocation in the pension and postretirement plans as of September 30, 2020 and 2019 were:

Postretirement Plan

Pension Plan Postretirement Plan

Target 2020 2019 Target 2020 2019

Asset category:

1 unchanged sentence

Debt securities 70 % 69 % 59 % 50 % 48 % 50 %

Cash — % 1 % 1 % — % 1 % 1 %

Other — % — % — % — % — % — %

The assets of the plans are invested in mutual funds.

1 unchanged sentence

The mutual funds are included under Level 1 in the fair value hierarchy as their fair values are determined based on individual prices for each security that comprises the mutual funds.

Most of the individual investments are determined based on quoted market prices for each security;

however, certain fixed income securities and other investments are not actively traded and are valued based on similar investments.

The common and collective trust funds are included under Level 2.

The following tables contains the fair value classifications of the plans' assets:

Fair Value Measurements - September 30, 2020

Fair Value Level 1 Level 2 Level 3

Cash $ 339,287 $ 339,287 $ — $ —

Common and Collective Trust and Pooled Funds:

7 unchanged sentences

Foreign Large Cap Value 279,137 279,137 — —

Total $ 37,657,631 $ 1,665,698 $ 35,991,933 $ —

Fair Value Measurements - September 30, 2019

Fair Value Level 1 Level 2 Level 3

Cash $ 371,780 $ 371,780 $ — $ —

Common and Collective Trust and Pooled Funds:

7 unchanged sentences

Foreign Large Cap Value 343,560 343,560 — —

Total $ 33,586,671 $ 1,943,321 $ 31,643,350 $ —

Postretirement Plan

Fair Value Measurements - September 30, 2020

Fair Value Level 1 Level 2 Level 3

Cash $ 73,908 $ 73,908 $ — $ —

Domestic Fixed Income 6,163,808 6,163,808 — —

8 unchanged sentences

Foreign Large Cap Core 77,471 77,471 — —

Other 21,149 — 21,149 —

Total $ 14,116,253 $ 14,095,104 $ 21,149 $ —

Postretirement Plan

Fair Value Measurements - September 30, 2019

Fair Value Level 1 Level 2 Level 3

Cash $ 66,860 $ 66,860 $ — $ —

Domestic Fixed Income 5,987,248 5,987,248 — —

8 unchanged sentences

Foreign Large Cap Core 70,782 70,782 — —

Each mutual fund has been categorized based on its primary investment strategy.

Management has re-evaluated the fair value classifications for the investments in the pension and postretirement plans.

The investments in mutual funds fit more closely to the Level 1 definition and have been reassigned accordingly.

Prior year balances in mutual funds have been reclassified from Level 2 to Level 1 to place them on a basis consistent with the current year.

All other investments remain at Level 2.

Other 27,984 — 27,984 —

Total $ 13,082,610 $ 13,054,626 $ 27,984 $ —

Each mutual fund or common collective trust fund has been categorized based on its primary investment strategy.

The Company expects to contribute $ 500,000 to its pension plan and $ 400,000 to its postretirement plan in fiscal 2021.

The following table reflects expected future benefit payments:

Fiscal year ending September 30

Postretirement

Fiscal year ending September 30 Pension

Plan Postretirement

2021 $ 1,043,787 $ 568,170

2022 1,133,470 605,966

2023 1,221,341 666,049

2024 1,320,157 678,659

2025 1,416,485 684,989

2026-2030 8,355,472 3,637,984

The Company sponsors a 401k Plan covering all employees who elect to participate.

1 unchanged sentence

The Company matches 100 % of the participant’s first 4 % of contributions and 50 % on the next 2 % of contributions.

Company matching contributions were $348,369 , $338,066 and $361,702 for 2019 , 2018 and 2017 , respectively.

The Company also provided for $21,829 and $9,637 in discretionary contributions in 2019 and 2018 for those employees hired on or after January 1, 2017.

The Company also provided discretionary contributions for those employees hired on or after January 1, 2017.

The following table reflects the Company's contributions:

Years Ended September 30,

Matching contribution $ 364,773 $ 348,369

Discretionary contribution 18,313 21,829

COMMON STOCK OPTIONS

5 unchanged sentences

Pursuant to the plan, the options vest over a six-month period and are exercisable over a ten-year period from the date of issuance.

No options were granted in fiscal 2019 or 2018.

As the Company's stock options are not traded on the open market, the fair value of each grant is estimated on the date of grant using the Black-Scholes option pricing model including the following assumptions:

Years Ended September 30,

Expected volatility

Expected dividends

Expected exercise term (years)

Risk-free interest rate

Expected volatility 31.53 % N/A

Expected dividends 2.74 % N/A

Expected exercise term (years) 7.00 N/A

Risk-free interest rate 0.51 % N/A

The underlying methods regarding each assumption are as follows:

Expected volatility is based on the historical volatilities of the daily closing price of the Company's common stock.

Expected volatility is based on the historical volatility of the daily closing price of the Company's common stock.

Expected dividend rate is based on historical dividend payout trends.

2 unchanged sentences

Forfeitures are recognized when they occur.

Stock option transactions under the Company's plans for the years ended September 30, 2019 , 2018 and 2017 are summarized below.

Number of Shares

Weighted- Average Exercise Price

Weighted- Average Remaining Contractual Terms (years)

Aggregate Intrinsic Value 1

Options outstanding, September 30, 2016

Options granted

Options exercised

Options expired

Options forfeited

Stock option transactions under the Company's plans are summarized below.

Number of Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Terms (years) Aggregate Intrinsic Value 1

Options outstanding, September 30, 2018 100,000 14.34 6.6 1,237,286

28 unchanged sentences

The Director Restricted Stock may not be sold, transferred, assigned or pledged by the participant until the shares have vested under the terms of the Plan.

The shares of Director Restricted Stock will be

forfeited to Resources by a participant's voluntary resignation during his or her term on the Board or removal for cause as a director.

The shares of Director Restricted Stock will be forfeited to Resources by a participant's voluntary resignation during his or her term on the Board or removal for cause as a director.

The Company assumes all directors will complete their term and there will be no forfeiture of the Director Restricted Stock.

2 unchanged sentences

The following table reflects the director compensation activity pursuant to the Plan:

Weighted-Average Fair Value on Date of Grant

Shares Weighted-Average Fair Value on Date of Grant Shares Weighted-Average Fair Value on Date of Grant

Beginning of year balance 104,680 $ 12.51 98,302 $ 11.51

Granted 9,193 26.28 6,378 27.93

Vested ( 14,803 ) 10.68 — —

Forfeited — — — —

End of year balance 99,070 $ 14.06 104,680 $ 12.51

The fair market value of the Director Restricted Stock included in compensation during fiscal 2019 , 2018 and 2017 was $178,100 , $177,800 and $99,400 .

The fair market value of the Director Restricted Stock included in compensation during fiscal 2020 and 2019 was $ 241,617 and $ 178,100 , respectively.

No Director Restricted Stock was forfeited during fiscal 2020 or 2019.

2 unchanged sentences

Restricted Stock Plan

The Board of Directors of the Company implemented the RSPO in 2017 following approval by the shareholders at the Company's annual meeting held on February 6, 2017.

The Board of Directors of the Company implemented the RSPO in 2017 following approval by the shareholders at the Company's annual meeting held in February 2017.

Under the RSPO, the Compensation Committee of the Board of Directors may grant shares of common stock ("Officer Restricted Stock") that vest over time to key employees and officers for the purpose of attracting and retaining those individuals essential to the operation and growth of the Company.

3 unchanged sentences

The following table reflects the officer compensation activity pursuant to the RSPO:

Weighted-Average Fair Value on Date of Grant

Shares Weighted-Average Fair Value on Date of Grant Shares Weighted-Average Fair Value on Date of Grant

Beginning of year balance 10,185 $ 28.65 6,734 $ 26.33

Granted 14,951 28.17 10,227 29.80

Vested ( 18,321 ) 28.30 ( 6,776 ) 28.08

Forfeited — — — —

End of year balance 6,815 $ 28.55 10,185 $ 28.65

The fair market value of the Officer Restricted Stock included as compensation during fiscal 2019 and 2018 was $282,365 and $188,388 .

The fair market value of the Officer Restricted Stock included as compensation during fiscal 2020 and 2019 was $ 450,677 and $ 282,365 , respectively.

As of September 30, 2020, the Company had 413,718 shares available for issuance under the RSPO.

1 unchanged sentence

Shares from the Stock Bonus Plan may be issued to certain employees and management personnel in recognition of their performance and service.

Under the Stock Bonus Plan, the Company issued no shares in 2019 and 2018 and 1,628 shares valued at $30,154 in 2017 .

Under the Stock Bonus Plan, the Company issued no shares in 2020 and 2019.

As of September 30, 2020 the Company had 4,785 shares of stock available for issuance under the Stock Bonus Plan.

The Stock Bonus Plan is currently inactive and has been currently replaced by the Restricted Stock Plan.

The Stock Bonus Plan is currently inactive.

COMMITMENTS AND CONTINGENCIES

7 unchanged sentences

The table below details the volumetric obligations as of September 30, 2020 for the remainder of the contract period.

The current asset management contract was renewed in April 2018 for a three year period which will expire in March 2021.

The new contract was renewed at essentially the same terms and conditions as the prior agreement.

Natural Gas Contracts

The current asset management contract was renewed in July 2020 for a one year period which will expire in March 2022.

The contract was renewed at essentially the same terms and conditions as the prior agreement, except the utilization fee retained by Roanoke Gas was reduced.

Year Natural Gas Contracts

2020-2021 2,090,972

2021-2022 295,866

Total 2,386,838

In addition to the volumetric commitment above, the Company also has a fixed price agreement to purchase approximately 1.3 million dth, from October 2020 to March 2021, at prices ranging from $ 2.17 to $ 2.62 per dth.

Roanoke Gas also has contracts for pipeline and storage capacity which extend for various periods.

2 unchanged sentences

Roanoke Gas expended approximately $ 21,881,000 and $ 30,317,000 under the asset management, pipeline and storage contracts in fiscal years 2020 and 2019, respectively.

The table below details the pipeline and storage capacity obligations as of September 30, 2019 for the remainder of the contract period.

The table below details the pipeline and storage capacity commitments as of September 30, 2020 for the remainder of the contract period.

Year Pipeline and

Storage Capacity

2020-2021 $ 11,048,798

2021-2022 10,284,092

2022-2023 7,403,271

2023-2024 5,743,826

2024-2025 3,167,937

Thereafter 888,426

Total $ 38,536,350

Roanoke Gas maintains franchise agreements granted by the local cities and towns served by the Company.

Roanoke Gas renewed it's franchise agreements with the City of Roanoke, the City of Salem and the Town of Vinton in 2016 for 20 -year terms to expire in December 2035.

Roanoke Gas renewed its franchise agreements with the City of Roanoke, the City of Salem and the Town of Vinton in 2016 for 20 -year terms to expire in December 2035.

Per these agreements, franchise fees increase at a rate of 3 % annually throughout the term of the agreements.

6 unchanged sentences

Environmental Matters

Both Roanoke Gas and a previously owned gas subsidiary operated MGPs as a source of fuel for lighting and heating until the early 1950’s.

A by-product of operating MGPs was coal tar, and the potential exists for tar waste contaminants at the former plant sites.

While the Company does not currently recognize any commitments or contingencies related to environmental costs at either site, should the Company ever be required to remediate either site, it will pursue all prudent and reasonable means to recover any related costs, including the use of insurance claims and regulatory approval for rate case recognition of expenses associated with any work required.

Roanoke Gas operated an MGP as a source of fuel for lighting and heating until the early 1950’s.

A by-product of operating the MGP was coal tar, and the potential exists for tar waste contaminants at the former plant site.

While the Company does not currently recognize any commitments or contingencies related to environmental costs, should the Company ever be required to remediate the site, it will pursue all prudent and reasonable means to recover any related costs, including the use of insurance claims and regulatory approval for rate case recognition of expenses associated with any work required.

FAIR VALUE MEASUREMENTS

1 unchanged sentence

Fair Value Measurements - September 30, 2020

Quoted Prices in

Fair Value Quoted Prices in

Active Markets

Significant Other

Level 1 Significant Other

Level 2 Significant

Natural gas purchases $ 470,755 $ — $ 470,755 $ —

Interest rate swaps 2,223,556 — 2,223,556 —

Total $ 2,694,311 $ — $ 2,694,311 $ —

Fair Value Measurements - September 30, 2019

Quoted Prices in

Fair Value Quoted Prices in

Active Markets

Significant Other

Interest rate swap

Level 1 Significant Other

Level 2 Significant

Natural gas purchases $ 397,757 $ — $ 397,757 $ —

Interest rate swaps 894,341 — 894,341 —

Total $ 1,292,098 $ — $ 1,292,098 $ —

Under the asset management contract, a timing difference can exist between the payment for natural gas purchases and the actual receipt of such purchases.

4 unchanged sentences

The carrying value of cash and cash equivalents, accounts receivable, borrowings under line-of-credit, accounts payable (with the exception of the timing difference under the asset management contract), customer credit balances and customer deposits is a reasonable estimate of fair value due to the shorter-term nature of these financial instruments.

The following table summarizes the fair value of the Company’s financial assets and liabilities that are not adjusted to fair value in the financial statements as of September 30, 2019 and 2018 .

The following table summarizes the fair value of the Company’s financial assets and liabilities that are not adjusted to fair value in the consolidated financial statements as of September 30, 2020 and 2019.

Fair Value Measurements - September 30, 2020

Quoted Prices in

Amount Quoted Prices in

Active Markets

Significant Other

Level 1 Significant Other

Observable Inputs

Level 2 Significant

Notes payable $ 114,975,200 $ — $ — $ 124,740,970

Total $ 114,975,200 $ — $ — $ 124,740,970

Fair Value Measurements - September 30, 2019

Quoted Prices in

Amount Quoted Prices in

Active Markets

Significant Other

Level 1 Significant Other

Observable Inputs

Level 2 Significant

Notes payable $ 95,512,200 $ — $ — $ 100,900,952

Total $ 95,512,200 $ — $ — $ 100,900,952

The fair value of long-term debt is estimated by discounting the future cash flows of the fixed rate debt based on the underlying 20 -year Treasury rate or other Treasury instrument with a corresponding maturity period and estimated credit spread extrapolated based on market conditions since the issuance of the debt.

The decline in interest rates during fiscal 2019 resulted in an increase in the fair value of the Company's outstanding debt.

FASB ASC 825 – Financial Instruments requires disclosures regarding concentrations of credit risk from financial instruments.

4 unchanged sentences

Quarterly financial data for the years ended September 30, 2020 and 2019 is summarized as follows:

Quarter Second

Quarter Third

Quarter Fourth

Operating revenues $ 19,785,453 $ 22,437,731 $ 11,071,918 $ 9,780,289

Operating income

Earnings per share of common stock:

Operating income (loss) $ 5,081,979 $ 6,999,616 $ 1,335,663 $ ( 899,076 )

Net income (loss) $ 4,006,936 $ 5,680,316 $ 1,206,578 $ ( 329,296 )

Earnings (loss) per share of common stock:

Basic $ 0.50 $ 0.70 $ 0.15 $ ( 0.04 )

Diluted $ 0.49 $ 0.70 $ 0.15 $ ( 0.04 )

Quarter Second

Quarter Third

Quarter Fourth

Operating revenues $ 21,216,747 $ 25,274,959 $ 11,682,950 $ 9,851,869

Operating income $ 3,264,222 $ 6,203,483 $ 1,637,057 $ 490,702

Net income $ 2,434,162 $ 4,670,090 $ 1,138,555 $ 455,605

Earnings per share of common stock:

Basic $ 0.30 $ 0.58 $ 0.14 $ 0.06

Diluted $ 0.30 $ 0.58 $ 0.14 $ 0.06

SUBSEQUENT EVENTS

On November 8, 2019, the Company's Board of Directors approved a pro rata increase in its participation in MVP which will result in an estimated additional $1.6 million investment above the current projected levels.

As a result of this additional investment, Midstream's equity interest will increase from 1.00% to approximately 1.03% by the time the pipeline is placed in service.

On November 19, 2019, the Company received the Hearing Examiner's report on Roanoke Gas' non-gas base rate application.

The estimated rate refund included in the consolidated financial statements was consistent with the findings reflected in the hearing examiner's report.

On November 26, 2019, the hearing examiner issued a revised report that currently would indicate a more favorable result to the Company.

However, the final order is pending from the SCC, which may result in a different outcome than recommended in the hearing examiner's revised report.

Accordingly, the final non-gas rate award and corresponding rate refund may be more or less than management's estimate reflected in the September 30, 2019 consolidated financial statements.

The Company has evaluated subsequent events through the date the financial statements were issued.

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data