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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NO. 000-29226
VALLEY NATIONAL GASES INCORPORATED
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2888240
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
67 43RD STREET
WHEELING, WEST VIRGINIA 26003
(Address of principal executive offices)
(304) 232-1541
(Registrant's telephone number, including area code)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 12, 1999
----- --------------------------------
Common stock, $0.001 par value 9,347,584
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Valley National Gases Incorporated
TABLE OF CONTENTS
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Page
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PART I FINANCIAL INFORMATION
ITEM 1 Condensed Consolidated Balance Sheets as of June 30, 1999
and September 30, 1999 3
Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 1998 and 1999 5
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1998 and 1999 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K 14
SIGNATURES 15
EXHIBIT INDEX 16
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
VALLEY NATIONAL GASES INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
A S S E T S
June 30, September 30,
1999 1999
------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 224,708 $ 376,012
Accounts receivable, net of allowance for
doubtful accounts of $454,981 11,960,059 12,068,153
Inventory 11,173,995 11,423,288
Prepaids and other 1,965,966 1,911,917
------------- -------------
Total current assets 25,324,728 25,779,370
------------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Land 49,786 49,786
Buildings and improvements 4,413,900 4,458,130
Equipment 56,906,554 57,536,917
Transportation equipment 10,172,945 10,422,155
Furniture and fixtures 4,102,422 4,150,194
------------- -------------
Total property, plant and equipment 75,645,607 76,617,182
Accumulated depreciation (29,857,130) (30,901,872)
------------- -------------
Net property, plant and equipment 45,788,477 45,715,310
------------- -------------
OTHER ASSETS:
Intangibles, net of amortization of
$10,268,270 and $11,351,429, respectively 35,773,717 34,723,804
Deposits and other assets 1,638,801 1,603,347
------------- -------------
Total other assets 37,412,518 36,327,151
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TOTAL ASSETS $ 108,525,723 $ 107,821,831
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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VALLEY NATIONAL GASES INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, September 30,
1999 1999
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 6,294,130 $ 6,258,978
Bank overdraft -- 1,285,473
Accounts payable, trade 4,418,974 3,460,446
Accrued compensation and employee benefits 3,198,918 1,975,460
Other current liabilities 1,799,297 1,805,472
------------ ------------
Total current liabilities 15,711,319 14,785,829
LONG-TERM DEBT, less current maturities 56,242,003 55,841,155
DEFERRED TAX LIABILITY 7,864,661 7,864,661
OTHER LONG-TERM LIABILITIES 1,663,096 1,630,793
------------ ------------
Total liabilities 81,481,079 80,122,438
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, par value, $.001 per share-
Authorized, 30,000,000 shares
Issued, 9,620,084 shares 9,620 9,620
Paid-in-capital 19,269,338 19,269,338
Retained earnings 10,029,114 10,683,863
Treasury stock at cost, 272,500 shares (2,263,428) (2,263,428)
------------ ------------
Total stockholders' equity 27,044,644 27,699,393
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $108,525,723 $107,821,831
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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VALLEY NATIONAL GASES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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<CAPTION>
Three Months Ended
September 30,
--------------------------------
1998 1999
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NET SALES $23,208,917 $26,447,077
COST OF PRODUCTS SOLD, excluding depreciation
and amortization 10,270,048 12,579,421
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Gross profit 12,938,869 13,867,656
----------- -----------
EXPENSES:
Operating and administrative 8,652,495 9,519,643
Depreciation and amortization 1,972,662 2,178,323
----------- -----------
Total expenses 10,625,157 11,697,966
----------- -----------
Income from operations 2,313,712 2,169,690
INTEREST EXPENSE 968,888 1,116,958
OTHER INCOME (EXPENSE) NET 80,340 76,146
----------- -----------
EARNINGS BEFORE INCOME TAXES 1,425,164 1,128,878
PROVISION FOR INCOME TAXES 584,317 474,129
----------- -----------
NET EARNINGS $ 840,847 $ 654,749
=========== ===========
BASIC EARNINGS PER SHARE $ 0.09 $ 0.07
DILUTED EARNINGS PER SHARE 0.09 0.07
WEIGHTED AVERAGE SHARES:
Basic 9,620,084 9,347,584
Diluted 9,631,620 9,347,584
</TABLE>
The accompanying notes are an integral part of these financial statements.
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VALLEY NATIONAL GASES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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<CAPTION>
Three Months Ended
September 30,
---------------------------------
1998 1999
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<S> <C> <C>
Net cash provided by operating activities $ 1,374,996 $ 1,607,985
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Cash flows from investing activities:
Proceeds from disposal of assets -- 12,050
Purchases of property and equipment (908,371) (1,032,731)
Business acquisitions, net of cash acquired (1,806,626) --
----------- -----------
Net cash used by investing activities
(2,714,997) (1,020,681)
Cash flows from financing activities:
Proceeds from borrowings 4,113,901 3,713,793
Principal payments on loans (3,154,894) (4,149,793)
----------- -----------
Net cash provided (used) by financing
activities 959,007 (436,000)
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (380,994) 151,304
CASH AND CASH EQUIVALENTS, beginning of period 589,170 224,708
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 208,176 $ 376,012
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for interest $ 856,794 $ 976,597
=========== ===========
Cash payments for income taxes $ 58,676 $ 162,902
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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Valley National Gases Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The financial statements of Valley National Gases Incorporated (the Company)
presented herein are unaudited. Certain information and footnote disclosures
normally prepared in accordance with generally accepted accounting principles
have been either condensed or omitted pursuant to the rules and regulations of
the Securities and Exchange Commission. Although the Company believes that all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation have been made, interim periods are not necessarily indicative
of the financial results of operations for a full year. As such, these financial
statements should be read in conjunction with the financial statements and notes
thereto included or incorporated by reference in the Company's audited financial
statements for the period ending June 30, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORY
Inventory is carried at the lower of cost or market using the first-in,
first-out (FIFO) method.
The components of inventory are as follows:
<TABLE>
<CAPTION>
June 30, September 30,
1999 1999
----------- ------------
(Unaudited)
<S> <C> <C>
Hardgoods $ 9,753,794 $ 10,547,148
Gases 1,420,201 876,140
----------- ------------
$11,173,995 $ 11,423,288
=========== ============
</TABLE>
PLANT AND EQUIPMENT
Plant and equipment are stated at cost. Depreciation is provided on the
straight-line basis over the estimated useful lives of the related assets.
Effective July 1, 1998, the Company changed its estimate of the useful lives
of its cylinders and tanks from 12 to 30 years. This change was made to better
reflect the estimated periods during which these assets will remain in service.
The Company changed the estimated useful life of cylinders as a result of
thorough studies and analyses. The studies considered technological advances in
cylinders, empirical data obtained from cylinder manufacturers and other
industry experts and experience gained from the Company's maintenance of a
cylinder population of approximately 400,000 cylinders.
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3. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, September 30,
1999 1999
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(Unaudited)
<S> <C> <C>
Revolving note, interest at LIBOR plus 1.875% payable monthly through January
2001. Secured by the assets of the Company $36,756,726 $37,825,569
Termnote, interest at LIBOR plus 1.875% payable monthly through October 2003
Secured by the assets of the Company 10,872,905 10,233,323
Note payable, interest at 6.6% payable annually through October 2003. Secured by
certain assets of the Company 3,415,372 3,415,372
Individuals and corporations, mortgages and notes, interest at 3.7% to 10.00%,
payable at various dates through 2010 11,648,116 10,777,161
----------- -----------
62,693,119 62,251,425
Original issue discount (156,986) (151,292)
Current maturities (6,294,130) (6,258,978)
----------- -----------
Total long-term debt $56,242,003 $55,841,155
=========== ===========
</TABLE>
Prime rate was 8.25% and LIBOR was 5.38% at September 30, 1999.
On February 5, 1998 the Company entered into an amended and restated credit
facility with Bank One, as agent. The new credit facility increased the maximum
revolving note borrowings to $75.3 million, including a letter of credit
sublimit of $25.0 million, and refinanced the term note at the existing balance
of $14.7 million. The new scheduled maturity date of the term note is October 4,
2003. The new scheduled maturity date of the revolving note is January 16, 2001.
The Company pays a fee for the unused portion of the revolving loan. The
revolving loan is used primarily to fund acquisitions. The Company is not
required to make principal payments on outstanding balances of the revolving
loan as long as certain covenants are satisfied. Interest is charged on both the
term loan and the revolving loan at either the lender's prime rate or various
LIBOR rates, at the Company's discretion, plus an applicable spread. The
weighted average interest rate for substantially all of the borrowings under the
credit facility was 7.3% as of September 30, 1999. As of September 30, 1999,
availability under the revolving loan was approximately $29.0 million, with
outstanding borrowings of approximately $37.8 million and outstanding letters of
credit of approximately $8.5 million. The credit facility is secured by all of
the Company's assets.
The loan agreement for the credit facility contains various financial
covenants applicable to the Company, including covenants requiring minimum fixed
charge coverage, maximum funded debt to EBITDA, and minimum net worth. The
Company is in compliance with these covenants and believes that it will continue
to be in compliance through at least the next twelve months.
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4. EARNINGS PER SHARE
Basic earnings per share were computed based on the weighted average number
of common shares issued and outstanding during the relevant periods. Diluted
earnings per common share were computed based on the weighted average number of
common shares issued and outstanding plus additional shares assumed to be
outstanding to reflect the dilutive effect of common stock equivalents using the
treasury stock method.
Options to purchase 232,400 shares of common stock were outstanding during
the quarter ended September 30, 1999, but were not included in the computation
of diluted earnings per common share as the options' exercise price was greater
than the average market price of the common stock for the period.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------------
1998 1999
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<S> <C> <C>
Net earnings available for common stock $ 840,847 $ 654,749
========== ==========
Basic earnings per common share:
Weighted average common shares 9,620,084 9,347,584
========== ==========
Basic earnings per common share $ 0.09 $ 0.07
========== ==========
Diluted earnings per common share:
Weighted average common shares 9,620,084 9,347,584
Shares issuable from assumed conversion of
common stock equivalents 11,536 --
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Weighted average common and common equivalent shares
9,631,620 9,347,584
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Diluted earnings per common share
$ 0.09 $ 0.07
========== ==========
</TABLE>
5. SUBSEQUENT EVENTS
On October 12, 1999 the Company acquired American Air Gases, Inc. and
American Cryogenic Equipment and Services, Inc., welding supply distributors,
combined, having approximately $2 million in annualized sales. Both transactions
were financed through the Company's credit facility.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with, and is qualified
in its entirety by, the Financial Statements and the Notes thereto.
OVERVIEW
The Company is a leading packager and distributor of industrial, medical and
specialty gases, welding equipment and supplies, and propane in eleven states in
the mid-Atlantic and midwestern regions of the United States. The Company's net
sales have grown, primarily as a result of acquisitions, at a compound annual
rate of approximately 17% per year since the Company started business in 1958,
increasing from $190,000 in that year to $103.8 million for the last twelve
months. In fiscal 1999, gases accounted for approximately 40% of net sales,
welding equipment and supplies accounted for approximately 45% of net sales, and
cylinder and tank rental accounted for approximately 15% of net sales.
The Company believes it has been successful in executing its strategy of
growth through acquisitions, having completed 41 acquisitions since 1990. Some
acquisitions have had, and the Company expects some future acquisitions may
have, a dilutive effect upon the Company's income from operations and net income
before tax for a short period following consummation. This temporary dilution
occurs because some of the benefits of acquisitions, such as leveraging of
operating and administrative expenses, improved product gross margins and real
sales growth, occur over a period ranging from two to eight quarters, depending
upon the complexity of integrating each acquisition into the Company's existing
operations. The consideration for most acquisitions includes a combination of a
cash payment at closing, seller financing and payments under covenants not to
compete and consulting agreements. In most cases, operating cash flow of an
acquired business is positive in a relatively short period of time. For many
acquisitions, the Company believes that projections of future cash flows justify
payment of amounts in excess of the book or market value of the assets acquired,
resulting in goodwill being recorded.
The Company's results are subject to moderate seasonality, primarily due to
fluctuations in the demand for propane, which is highest during winter months
falling in the Company's second and third fiscal quarters. Seasonality of total
sales has increased as propane sales as a percentage of total sales have
increased.
Operating and administrative expenses are comprised primarily of salaries,
benefits, transportation equipment operating costs, facility lease expenses and
general office expenses. These expenses are generally fixed on a quarter-
to-quarter basis. The Company believes that changes in these expenses as a
percentage of sales should be evaluated over the long term rather than on a
quarter-to-quarter basis due to the seasonality of sales mentioned above and the
generally fixed nature of these expenses.
Historically, the Company's gross profit margins as a percentage of sales
have been higher on the sale of gases than on the sale of welding equipment and
supplies ("hard goods"). As a result of recent acquisitions of some distributors
with a higher proportion of hard goods to gas sales, the Company's average gross
profit as a percentage of sales, in some cases, has decreased in comparison to
prior years. Future acquisitions may affect this pattern depending upon the
product mix of the acquired businesses.
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RESULTS OF OPERATIONS
Comparison of Three Months Ended September 30, 1999 and 1998
Net sales increased 14.0%, or $3.2 million, to $26.4 million from $23.2
million for the three months ended September 30, 1999 and 1998, respectively.
Acquisitions made during the preceeding twelve months contributed $2.0 million
of the increase in net sales, while same store sales increased $1.2 million.
Same store sales increased 5.4% versus the same quarter last year. Gases and
cylinder revenue represented 52.7% of net sales for the three months ended
September 30, 1999, with hard goods representing 47.3%. In comparison, net sales
for the three months ended September 30, 1998 reflected gases and cylinder
revenue as 54.6% and hard goods as 45.4%. The increase in hard goods as a
percentage of total net sales reflects, primarily, the improvement in same store
sales and the impact of the product mix of acquisitions made over the last
twelve months.
Gross profit, which excludes depreciation and amortization, increased 7.2%,
or $0.9 million, to $13.9 million from $13.0 million for the three months ended
September 30, 1999 and 1998, respectively. This change is attributable,
primarily, to the effect of acquisitions made during the past twelve months.
Gross profit as a percentage of net sales was 52.4% for the three months ended
September 30, 1999, compared to 55.7% for the three months ended September 30,
1998. This reflects a change in product mix as well as the effect of an increase
in the cost of propane, which was approximately 40% higher than for the same
period last year.
Operating and administrative expenses increased 10.0%, or $.8 million, to
$9.5 million from $8.7 million for the three months ended September 30, 1999 and
1998, respectively. Of this increase, $0.7 million was related to acquired
businesses while base business increased $0.1 million. Operating and
administrative expenses as a percentage of sales was 36.0% for the three months
ended September 30, 1999, as compared to 37.3% for the same quarter in 1998,
reflecting the effect of leveraging acquisitions made during the last twelve
months and the Company's cost containment efforts.
Depreciation and amortization expense increased $0.2 million for the three
months ended September 30, 1999 compared to the same period in 1998, reflecting
the increase from acquisitions made during the last twelve months.
Interest expense increased $0.1 million for the quarter, reflecting the
financing of acquisitions made during the last twelve months.
Net earnings decreased 22.1% to $655,000 for the three months ended
September 30, 1999 compared to $841,000 for the prior year quarter.
YEAR 2000 COMPLIANCE
The Company's work on the Year 2000 ("Y2K") computer compliance issue began
in 1996. The Company's Y2K compliance program consists of five parts: inventory,
assessment, renovation, testing and implementation. The Company completed its
testing of its business-critical information technology applications during the
quarter ended June 30, 1999. The Company also completed a Company-wide
inventory, assessment and remediation project plans for business-critical
personal computers and software, user applications and embedded-chip systems.
The Company continues to investigate the Y2K compliance status of its
vendors, suppliers and affiliates via the Company's own internal vendor
compliance effort. The Company will carry out this task through a Company-wide
effort to address internal issues, and jointly with industry trade groups, to
address issues related to third parties which are common to the industry.
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The Company estimates that expenses incurred for programming, internal staff
costs and other expenses related to its Y2K efforts were less than $100,000 and
expects no significant additional costs related to these efforts.
While the Company believes it is taking all appropriate steps to achieve Y2K
compliance, its Y2K issues and any potential future business interruptions,
costs, damages or losses related thereto, are dependent, to a significant
degree, upon the Y2K compliance of third parties, both domestic and
international, such as government agencies, customers, vendors and suppliers.
The Y2K problem is pervasive and complex, as virtually every computer operation
will be affected in some way. Consequently, no assurance can be given that Y2K
compliance can be achieved without significant additional costs.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations, capital expenditures
and debt service with funds provided from operating activities. Acquisitions
have been financed by a combination of seller financing, bank borrowings and
funds generated from operations.
At September 30, 1999, the Company had working capital of approximately $11.0
million. Funds provided by operations for the three months ended September 30,
1999 were approximately $1.6 million. Funds used for investing activities were
approximately $1.0 million for the three months ended September 30, 1999,
consisting primarily of capital spending. Uses of funds from financing
activities for the three months ended September 30, 1999 were approximately $0.4
million from net principal payments. The Company's cash balance increased $0.2
million during the three months to $0.4 million.
On February 5, 1998 the Company entered into an amended and restated credit
facility with Bank One, as agent. The new credit facility increased the maximum
revolving note borrowings to $75.3 million, including a letter of credit
sublimit of $25.0 million, and refinanced the term note at the existing balance
of $14.7 million. The new scheduled maturity date of the term note is October 4,
2003. The new scheduled maturity date of the revolving note is January 16, 2001.
The Company pays a fee for the unused portion of the revolving loan. The
revolving loan is used primarily to fund acquisitions. The Company is not
required to make principal payments on outstanding balances of the revolving
loan as long as certain covenants are satisfied. Interest is charged on both the
term loan and the revolving loan at either the lender's prime rate or various
LIBOR rates, at the Company's discretion, plus an applicable spread. The
weighted average interest rate for substantially all of the borrowings under the
credit facility was 6.8% as of September 30, 1999. As of September 30, 1999,
availability under the revolving loan was approximately $30.0 million, with
outstanding borrowings of approximately $37.8 million and outstanding letters of
credit of approximately $7.5 million. The credit facility is secured by all of
the Company's assets.
The loan agreement for the credit facility contains various financial
covenants applicable to the Company, including covenants requiring minimum fixed
charge coverage, maximum funded debt to EBITDA, and minimum net worth. The
Company is in compliance with these covenants and believes that it will continue
to be in compliance through at least the next twelve months.
The Company is obligated under various promissory notes related to the
financing of acquisitions that have various rates of interest, ranging from 3.7%
to 10.0% per annum, and maturities through 2010. The outstanding balance of
these notes as of September 30, 1999 was $14.2 million. Some of these notes are
secured by assets related to the applicable acquisition, some are unsecured, and
some are backed by bank letters of credit issued under the Company's credit
facility.
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On December 23, 1997, the Company entered into two interest rate swap
agreements with Bank One to reduce the impact of changes in interest rates. The
first agreement was for a period of seven years, cancelable by the bank at the
end of five years, whereby the Company agreed to pay the bank a fixed rate of
5.90% per annum on the notional principal amount of $5.0 million and the bank
agreed to pay the Company the one month LIBOR rate on the same notional amount.
The second agreement was for a period of five years, cancelable by the bank at
the end of three years, whereby the Company agreed to pay the bank a fixed rate
of 5.80% per annum on the notional principal amount of $5.0 million and the bank
agreed to pay the Company the one month LIBOR rate on the same notional amount.
On January 15, 1998, the Company entered into two interest rate swap agreements
with Bank One to reduce the impact of changes in interest rates. The first
agreement was for a period of seven years, cancelable by the bank at the end of
five years, whereby, the Company agreed to pay the bank a fixed rate of 5.43%
per annum on the notional principal amount of $10.0 million and the bank agreed
to pay the Company the one month LIBOR rate on the same notional amount. The
second agreement was for a period of five years, cancelable by the bank at the
end of three years, whereby, the Company agreed to pay the bank a fixed rate of
5.29% per annum on the notional principal amount of $10.0 million and the bank
agreed to pay the Company the one month LIBOR rate on the same notional amount.
On August 28, 1998, the Company entered into an interest rate swap agreement
with Bank One to reduce the impact of changes in interest rates. This agreement
was for a period of five years, cancelable by the bank at the end of three
years, whereby, the Company agreed to pay the bank a fixed rate of 5.40% per
annum on the notional principal amount of $5.0 million and the bank agreed to
pay the Company the one month LIBOR rate on the same notional amount. The
Company is exposed to credit loss in the event of nonperformance by the bank.
However, the Company does not anticipate nonperformance by the bank.
The Company has entered into a put/call option agreement with an independent
distributor for the purchase of its business. This option becomes exercisable
beginning in the year 2002 and ending in the year 2008. The Company believes
that it will have adequate capital resources available to fund this acquisition
at such time that the option is exercised.
INTEREST RATE SENSITIVITY
There was no change to the composition of the Company's fixed and variable
rate long term debt during the quarter ended September 30, 1999. As of September
30, 1999 the Company's average pay rate for these swaps was 5.51% compared to
its average receive rate of 5.27%.
FLUCTUATIONS IN QUARTERLY RESULTS
The Company generally has experienced higher sales activity during its second
and third quarters as a result of seasonal sales of propane, with corresponding
lower sales for the first and fourth quarters. As a result, income from
operations and net income typically are higher for the second and third quarters
than for the first and fourth quarters of the fiscal year.
INFLATION
The impact of inflation on the Company's operating results has been moderate
in recent years, reflecting generally low rates of inflation in the economy and
the Company's historical ability to pass purchase price increases to its
customers in the form of sales price increases. While inflation has not had, and
the Company does not expect that it will have, a material impact upon operating
results, there is no assurance that the Company's business will not be affected
by inflation in the future.
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SUBSEQUENT EVENTS
On October 12, 1999 the Company acquired American Air Gases, Inc. and
American Cryogenic Equipment and Services, Inc., welding supply distributors,
combined, having approximately $2 million in annualized sales. Both transactions
were financed through the Company's credit facility.
RECENT ACCOUNTING PRONOUNCEMENTS
On June 15, 1998, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met.
In June 1999, the FASB issued Financial Accounting Standards No. 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
effective date of SFAS No 133." Both statements are effective for years
beginning after June 15, 2000.
The Company has not yet quantified the impacts of adopting Statement 133 on
our financial statements and have not determined the timing of or method of our
adoption of Statement 133. However, the Statement could increase volatility in
earnings and other comprehensive income.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
See the Exhibit Index on page 16.
(b) Reports on Form 8-K:
No reports on Form 8-K were made during the quarter.
-14-
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VALLEY NATIONAL GASES INCORPORATED
November 15, 1999 /s/ Robert D. Scherich
-----------------------------------
Robert D. Scherich
Chief Financial Officer
-15-
<PAGE> 16
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------------------------------------------------------
3.1 Articles of Amendment of the Company, incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-1 under the Securities Act of 1933, as
amended, (File No. 333-19973)
3.2 Bylaws of the Company, incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on
Form S-1 under the Securities Act of 1933, as amended,
(File No. 333-19973)
27.1 Financial Data Schedule (provided for the information of the
U.S. Securities and Exchange Commission only)
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR VALLEY NATIONAL GASES INCORPORATED AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001030715
<NAME> VALLEY NATIONAL GASES INCORPORATED
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 376,012
<SECURITIES> 0
<RECEIVABLES> 12,523,134
<ALLOWANCES> 454,981
<INVENTORY> 11,423,288
<CURRENT-ASSETS> 25,779,370
<PP&E> 76,617,183
<DEPRECIATION> 30,901,872
<TOTAL-ASSETS> 107,821,831
<CURRENT-LIABILITIES> 14,785,829
<BONDS> 55,841,155
0
0
<COMMON> 9,620
<OTHER-SE> 27,689,773
<TOTAL-LIABILITY-AND-EQUITY> 107,821,831
<SALES> 26,447,077
<TOTAL-REVENUES> 26,447,077
<CGS> 12,579,421
<TOTAL-COSTS> 12,579,421
<OTHER-EXPENSES> 11,697,966
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,116,958
<INCOME-PRETAX> 1,128,878
<INCOME-TAX> 474,129
<INCOME-CONTINUING> 654,749
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 654,749
<EPS-BASIC> .07
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