SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2000
Commission File Number 000-26591
RGC Resources, Inc.
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(Exact name of Registrant as Specified in its Charter)
VIRGINIA 54-1909697
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
519 Kimball Ave., N.E., Roanoke, VA 24016
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(Address of Principal Executive Offices) (Zip Code)
(540) 777-4427
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(Registrant's Telephone Number, Including Area Code)
None
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(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the period covered by this report.
Class Outstanding at June 30, 2000
-------------------------------- -------------------------------
Common Stock, $5 Par Value 1,875,578
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<TABLE>
<CAPTION>
RGC RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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UNAUDITED
June 30, September 30,
ASSETS 2000 1999
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<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 230,925 $ 139,501
Accounts receivable - (less allowance for
uncollectibles of $853,886 and $229,238,
respectively) 6,358,556 6,306,117
Inventories 7,527,316 8,363,199
Prepaid income taxes - 430,992
Deferred income taxes 2,433,248 1,962,448
Other 344,781 572,154
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Total current assets 16,894,826 17,774,411
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Property, Plant And Equipment:
Utility plant in service 77,924,463 74,710,899
Accumulated depreciation (28,421,039) (26,499,546)
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Utility plant in service, net 49,503,424 48,211,353
Construction work-in-progress 1,377,449 1,425,918
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Utility Plant, Net 50,880,873 49,637,271
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Nonutility property 16,021,084 13,463,990
Accumulated depreciation (4,829,456) (3,984,241)
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Nonutility property, net 11,191,628 9,479,749
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Total property, plant and equipment 62,072,501 59,117,020
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Other Assets 1,459,200 898,551
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Total Assets $ 80,426,527 $ 77,789,982
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</TABLE>
See notes to condensed consolidated financial statements.
2
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<TABLE>
<CAPTION>
RGC RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
-----------------------------------------------------------------------------------
UNAUDITED
June 30, September 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
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<S> <C> <C> <C> <C> <C> <C>
Current Liabilities:
Accounts payable $ 8,691,009 $ 9,206,173
Current maturities of long-term debt 25,628 24,282
Short-term debt 6,146,000 6,363,000
Dividends payable 516,554 495,055
Income taxes payable 936,930 -
Customers' deposits 523,433 546,364
Accrued expenses 3,585,251 4,605,376
Refunds due customers 246,578 26,062
Purchased gas adjustments 933,362 684,155
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Total Current Liabilities 21,604,745 21,950,467
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Long-term Debt 23,317,222 23,336,614
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Deferred Credits and Other Liabilities:
Deferred income taxes 4,079,260 3,934,489
Deferred investment tax credits 384,644 413,489
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Total deferred credits and other liabilities 4,463,904 4,347,978
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Stockholders' Equity:
Common stock, $5 par value; authorized,
10,000,000 shares; issued and outstanding
1,875,578 and 1,832,771 shares, respectively 9,377,890 9,163,855
Preferred stock, no par, authorized, 5,000,000
shares; 0 shares issued and outstanding in
both 2000 and 1999 - -
Capital in excess of par value 10,181,315 9,489,551
Retained earnings 11,481,451 9,501,517
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Total stockholders' equity 31,040,656 28,154,923
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Total Liabilities and Stockholders' Equity $ 80,426,527 $ 77,789,982
=========== ==============
</TABLE>
See notes to condensed consolidated financial statements.
3
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<TABLE>
<CAPTION>
RGC RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE-MONTH AND
NINE-MONTH PERIODS
ENDED JUNE 30, 2000 AND 1999
----------------------------------------------------- - ---------- - ------------------------
UNAUDITED
Three Months Ended Nine Months Ended
June 30, June 30,
2000 1999 2000 1999
------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues:
Gas utilities $ 10,421,581 $ 8,450,212 $ 46,679,985 $ 41,572,017
Propane operations 1,370,414 979,760 9,653,389 7,329,956
Other 2,921,152 1,330,768 7,471,366 4,016,601
------------- ---------- ----------- -----------
Total operating revenues 14,713,147 10,760,740 63,804,740 52,918,574
------------- ---------- ----------- -----------
Cost of Sales:
Gas utilities 6,619,117 4,833,718 29,973,618 25,597,380
Propane operations 803,347 470,238 4,896,869 3,267,107
Other 2,676,299 1,291,932 6,983,962 3,909,947
------------- ---------- ----------- -----------
Total cost of sales 10,098,763 6,595,888 41,854,449 32,774,434
------------- ---------- ----------- -----------
Operating Margin 4,614,384 4,164,852 21,950,291 20,144,140
------------- ---------- ----------- -----------
Other Operating Expenses:
Other operations 2,544,436 2,085,253 8,234,541 7,349,810
Maintenance 302,613 266,812 930,646 808,345
Taxes - other than income 580,469 475,121 2,216,194 1,974,327
Depreciation and amortization 1,135,206 1,008,937 3,388,089 2,992,396
Total other operating expenses 4,562,724 3,836,123 14,769,470 13,124,878
------------- ---------- ----------- -----------
Operating Income 51,660 328,729 7,180,821 7,019,262
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Other Income, Net 23,616 19,957 81,303 73,628
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Earnings Before Interest and Income Taxes 75,276 348,686 7,262,124 7,092,890
------------- ---------- ----------- -----------
Interest Charges 557,788 485,066 1,784,476 1,565,126
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Earnings (Loss) Before Income Taxes (482,512) (136,380) 5,477,648 5,527,764
------------- ---------- ----------- -----------
Income Taxes (182,407) (63,065) 1,954,881 1,953,383
------------- ---------- ----------- -----------
Net Earnings (Loss) $ (300,105) $ (73,315) $ 3,522,767 $ 3,574,381
============= ========== =========== ===========
Basic Earnings (Loss) Per Common Share $ (0.16) $ (0.04) $ 1.90 $ 1.97
============= ========== =========== ===========
Diluted Earnings (Loss) Per Common Share $ (0.16) $ (0.04) $ 1.89 $ 1.97
============= ========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
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<TABLE>
<CAPTION>
RGC RESOURCES, INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE-MONTH AND NINE-MONTH
PERIODS ENDED JUNE 30, 2000 AND 1999
UNAUDITED
Three Months Ended Nine Months Ended
June 30, June 30,
2000 1999 2000 1999
----------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings(loss) $ (300,105) $ (73,315) $ 3,522,767 $ 3,574,381
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,155,719 1,039,473 3,464,204 3,085,686
(Gain) loss on disposal of property 6,765 (1,738) 24,015 (4,247)
Deferred taxes and investment tax credits 408,554 304,122 (354,873) (426,043)
Changes in assets and liabilities which provided cash,
exclusive of changes and noncash transactions shown
separately 846,967 1,634,150 1,236,177 2,861,129
----------------- -------------- ------------- -------------
Net cash provided by operating activities 2,117,900 2,902,692 7,892,290 9,090,906
----------------- -------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant and nonutility property (1,658,325) (1,723,385) (5,966,975) (6,474,600)
Cost of removal of utility plant, net (22,173) (20,913) (41,293) (51,123)
Proceeds from disposal of equipment 24,291 6,009 42,793 27,818
Net cash used in investing activities (1,656,207) (1,738,289) (5,965,475) (6,497,905)
----------------- -------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of long-term debt and capital leases (6,125) - (524,631) -
Net repayments under lines of credit (64,000) (181,000) (217,000) (552,000)
Cash dividends paid (514,314) (490,150) (1,521,334) (1,453,643)
Proceeds from issuance of stock 134,834 196,699 427,574 565,177
Net cash used in financing activities (449,605) (474,451) (1,835,391) (1,440,466)
----------------- -------------- ------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 12,088 689,952 91,424 1,152,535
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 218,837 546,620 139,501 84,037
----------------- -------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 230,925 $ 1,236,572 $ 230,925 $ 1,236,572
================= ============== ============= =============
SUPPLEMENTAL INFORMATION:
Interest paid $ 694,531 $ 654,922 $ 2,111,227 $ 1,715,086
Income taxes paid, net $ 12,824 $ 612,955 $ 541,829 $ 503,996
NONCASH TRANSACTIONS:
A capital lease obligation of $170,510 was incurred when the Company entered
into an equipment lease in February 1999.
The assets of a heating and air conditioning company were acquired in exchange
for 22,243 shares of stock valued at $478,225 in January 2000.Subsequent to
the acquisition, the Company retired $506,583 in debt associated with the
heating and air conditioning company
</TABLE>
See notes to condensed consolidated financial statements.
5
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RGC RESOURCES, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly RGC Resources,
Inc.'s financial position as of June 30, 2000 and the results of its
operations and its cash flows for the three and nine months ended June 30,
2000 and 1999. The results of operations for the nine months ended June 30,
2000 are not indicative of the results to be expected for the fiscal year
ending September 30, 2000.
2. The condensed consolidated financial statements and condensed notes are
presented as permitted by Form 10-Q and do not contain certain information
included in the Company's annual consolidated financial statements and
notes thereto.
3. Reclassifications were made to prior year financial statements to place
them on a basis consistent with current year presentation.
4. Quarterly earnings are affected by the highly seasonal nature of the
business as variations in weather conditions generally result in greater
earnings during the winter months.
5. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. In June 1999,
the FASB issued SFAS No. 137 which deferred the effective date of SFAS No
133 to all fiscal quarters of fiscal years beginning after June 15, 2000.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires the recognition of all
derivative instruments as assets or liabilities in the Company's balance
sheet and measurement of those instruments at fair value. The accounting
treatment of changes in fair value is dependent upon whether or not a
derivative instrument is designated as a hedge and if so, the type of
hedge. The Company has entered from time to time into arrangements for
hedging the price of natural gas and propane gas for the purpose of
providing price stability during the winter months. The Company has not
fully analyzed the impact of the provisions of FAS No. 133 on the Company's
financial statements.
6. On January 14, 2000, the Company acquired Cox Heating and Cooling, Inc., a
provider of sales, installation and service for heating, ventilation and
air conditioning equipment in West Virginia. The acquisition was accounted
for by the purchase method of accounting with a total purchase price of
approximately $985,000 in stock and cash, with an additional earn out
provision. Goodwill is being amortized over a 15 year period.
7. Earnings per common share are based on the weighted average number of
shares outstanding during each period. The weighted average number of
shares outstanding for the three-month and nine-month periods ended June
30, 2000 were 1,873,076 and 1,857,796 compared to 1,819,693 and 1,809,997
for the same periods last year. The weighted average number of shares
outstanding assuming dilution were 1,873,076 and 1,862,035 for the
three-month and nine-month periods ended June 30, 2000 compared to
1,823,668 and 1,813,573 for the same periods last year. The difference
between the weighted average number of shares for the calculation of basic
and diluted earnings per share relates to the dilutive effect associated
with the assumed issuance of stock options as calculated using the Treasury
Stock method.
6
<PAGE>
RGC RESOURCES, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
8. Both Roanoke Gas Company and Bluefield Gas Company, subsidiaries of RGC
Resources, Inc., operated manufactured gas plants (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 on-site tar waste
contaminants at the former plant sites. The extent of contaminants at these
sites, if any, is unknown at this time. An analysis at the Bluefield Gas
Company site indicates some soil contamination. The Company, with
concurrence of legal counsel, does not believe any events have occurred
requiring regulatory reporting. Further, the Company has not received any
notices of violation or liabilities associated with environmental
regulations related to the MGP sites and is not aware of any off-site
contamination or pollution as a result of prior operations. Therefore, the
Company has no plans for subsurface remediation at the MGP sites. Should
the Company eventually be required to remediate either site, the Company
will pursue all prudent and reasonable means to recover any related costs,
including insurance claims and regulatory approval for rate case
recognition of expenses associated with any work required. A stipulated
rate case agreement between the Company and the West Virginia Public
Service Commission recognized the Company's right to defer MGP clean-up
costs, should any be incurred, and to seek rate relief for such costs. If
the Company eventually incurs costs associated with a required clean-up of
either MGP site, the Company anticipates recording a regulatory asset for
such clean-up costs to be recovered in future rates. Based on anticipated
regulatory actions and current practices, management believes that any
costs incurred related to this matter will not have a material effect on
the Company's financial condition or results of operations.
7
<PAGE>
RGC RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
Consolidated net earnings (loss) for the three-month period and nine-month
periods ended June 30, 2000 were ($300,105) and $3,522,767, respectively,
compared to ($73,315) and $3,574,381 for the same period last year.
Total operating margin for the three months ended June 30, 2000 increased
$449,532, or 10.8 percent, over the same period last year due to increases in
natural gas and propane sales volumes and margins related to Highland/Cox
Heating and Cooling, Incorporated (Highland/Cox) in its first year of operation.
Total natural gas deliveries increased by 163,196 dekatherms (DTH), or more than
9 percent, due to the current quarter having 19 percent more heating degree
days, primarily occurring in the month of April. Propane deliveries increased by
159,387 gallons, or approximately 13 percent, mainly due to customer growth.
Propane deliveries were negatively impacted by an approximately 50 percent
increase in the average price of propane compared to the same quarter last year.
The rise in propane prices have mirrored the price volatility of the gasoline
market, resulting in reduced demand during the period. In order to increase
demand, the Company set propane prices at a level resulting in unit margins on
propane remaining flat with last year. Total propane customer base is
approximately 16 percent higher than last June. The remainder of the margin
increase results from the Company's acquisition of Highland/Cox in January.
Other operations expenses for the current quarter increased $459,183 from the
same period last year as the Company incurred higher contractor charges for its
gas pipeline location services, greater costs as a result current
diversification efforts and higher bad debt expense due to increases in gross
customer billings associated with significantly higher gas costs. In addition,
other operations expenses included $160,138 in Highland/Cox operation expenses
for the current quarter. Maintenance expenses increased $35,801, due to
increased maintenance activity on the natural gas distribution pipelines and
increased propane tank maintenance related to the significant growth in the
number of propane tanks added to non-utility plant in the last few years.
General taxes increased $105,348 for the current quarter compared to the same
period last year, with most of the increase attributed to increases in the
revenue-sensitive gross receipts taxes. Gross receipts taxes increased because
of significant increases in natural gas revenues due to higher gas costs and
because of an increase in the valuation tax rate. The remainder of the increase
in general taxes resulted from increases in property taxes related to growth in
assets and increases in payroll taxes associated with the addition of
Highland/Cox employees. Gross utility plant increased by more than 6 percent and
non-utility property grew by approximately 26 percent over last year's balances,
resulting in a $126,269 increase in depreciation expense. The significant growth
in the non-utility property reflects the acquisition of Highland/Cox and the
continued strong growth in the propane business. Interest charges increased
$72,722 from the same period last year due to an increase of more than
$3,000,000 in the Company's average daily debt balance and an increase in the
effective interest rate by greater than 1 percentage point on short-term debt
because of the recent increases in interest rates by the Federal Reserve. The
higher average debt balance resulted from growth in both the utility and
non-utility plant assets and the acquisition of Highland/Cox. The increase in
income tax benefit resulted from the increase in pretax loss for the quarter.
For the nine-month period ended June 30, 2000, total operating margin increased
$1,806,151 or 8.9 percent, from the same period last year. The natural gas
margin increased $731,730 as natural gas deliveries grew by 339,526 DTH, or 3.6
percent, from the same period last year, despite weather that was approximately
1 percent warmer. The remainder of the natural gas increase derived from the
increase in customer base charges related to customer growth and the rate
increase placed into effect in March of 1999. During the same period, propane
margins
8
<PAGE>
RGC RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
increased $693,671 on 604,706 additional gallons, or 7.8 percent. An increase of
8.6 percent in the average unit margin realized on propane sales accounted for
the remainder of the higher propane margin. The remaining increase in margin is
attributable to the margins generated by Highland/Cox since the acquisition in
January 2000. Consecutive warm winters in the last two years have negatively
impacted the Company's margin for both years. For the nine months ended June 30,
2000 and June 30, 1999, the heating seasons were approximately 13 percent and 12
percent warmer than normal, respectively.
For the nine-month period ended June 30, 2000, other operations expense
increased $884,731 from the same period last year. This increase corresponds to
the same items discussed above for the quarter ended June 30, 2000. Furthermore,
$287,532 of the increase relates to the operations of Highland/Cox. Maintenance
expenses increased $122,301 as pipeline and system maintenance returned to a
more normal pattern after last year's reductions in all nonessential maintenance
and a focus on replacement instead of repair. The current year continues to have
a focus on replacement rather than repair where prudent; however, some of the
nonessential maintenance deferred from last year could no longer be delayed,
resulting in much of the increase in maintenance costs. General taxes increased
$241,867 from the same period last year as revenue-sensitive taxes increased on
higher natural gas revenues due mostly to increases in gas cost and a
valuation-tax rate increase. Property taxes also increased on greater plant
balances. Likewise, depreciation increased $395,693 on these greater plant
balances. Interest charges increased $219,350 from the same period last year due
to an increase of more than $3,200,000 in the Company's average daily debt
balance and an increase in the effective interest rate of 0.68 percentage point
on short-term debt as a result of the recent increases in interest rates by the
Federal Reserve. The higher average debt balance resulted from growth of the
Company.
The nine-month earnings presented herein should not be considered as reflective
of the Company's consolidated financial results for the fiscal year ending
September 30, 2000. The total revenues during the first nine months reflect
higher billings due to the weather sensitive nature of the gas business. The
last three months of the fiscal year are generally loss months as process fuel
and not heating is the primary demand during this time.
Energy Costs
Since August 1999, crude oil NYMEX (New York Mercantile Exchange) contract
prices have increased from $19.37 to $31.40 a barrel, or approximately 62
percent. In addition, propane prices have increased approximately 43 percent,
fuel oil prices approximately 55 percent and natural gas prices approximately 60
percent during the same time period.
The higher energy prices for propane and fuel oil have resulted from OPEC's
efforts to reduce production of crude oil while continued demand forced the
price of oil higher. Furthermore, low energy prices for natural gas during 1998
and the first part of 1999 resulted in a reduction in the drilling efforts of
natural gas production companies. The resulting decline in supply coupled with
the increasing demand for natural gas in electric cogeneration plants during the
Summer have driven the price of natural gas higher. Increases in natural gas
prices are passed through to customers and do not affect the Company's margins.
Propane prices, in a competitive environment, may impact the Company's margin if
the full increase is not recoverable by increased rates.
The duration of these higher energy prices will depend on future production
efforts by OPEC and by domestic energy producers. As long as demand remains
strong and supply is restricted, energy prices will likely remain at these
higher levels.
9
<PAGE>
RGC RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Regulatory Affairs
The Virginia State Corporation Commission (SCC) authorized Roanoke Gas Company
to convert its billing method from volumetric to thermal value billing beginning
in October 1999. Therm billing has become the standard throughout the natural
gas industry because it provides consistent billing units as gas flows from the
production well to the individual customer's meter. Therm billing allows Roanoke
Gas Company to bill customers for the energy value consumed and helps to
eliminate fluctuations caused by the chemical makeup of the gas supply. As a
result of the change to therm billing for Roanoke Gas Company, RGC Resources,
Inc. began reporting natural gas sales and purchases activities in DTH. All
prior year sales data has been restated from MCFs to DTHs for purposes of
comparing years.
On May 26, 2000, the SCC issued a final order establishing new codes of conduct
for both electric and natural gas companies for conducting retail access pilot
programs. The rules govern the relationship between utilities, independent
energy marketers, affiliated energy marketers customers and regulators during
the customer choice pilot programs in the state. These programs would serve to
test deregulation by providing customers with the choice of purchasing their
energy from sources other than the local utility. The utility would still
provide the means of delivering the energy to the customers.
In addition, the SCC has held hearings, required filings or initiated rule
making proceedings in which the Company is involved for: new rate case rules;
codes of conduct for rural electric cooperatives; affiliated company transaction
rules; underground utility damage prevention rules; functional separation of
electric generation, transmission and distribution rules; competitive metering
and billing services rules; and conversion from a utility gross receipts tax
program to a customer consumption tax coupled with a state corporate income tax.
Likewise, the Company has been involved with West Virginia Public Service
Commission proceedings for new rate case rules, new gas recovery rules, code of
conduct rules and transportation pooling rules for delivery of competitive
marketer supplies.
Acquisitions
On January 14, 2000, RGC Resources, Inc., through its wholly owned subsidiary
RGC Ventures, Inc., acquired Cox Heating and Cooling, Incorporated, a provider
of sales, installation and service for heating, ventilation and air conditioning
equipment in West Virginia. The newly- acquired entity is doing business as
Highland/Cox Heating and Cooling, Incorporated. The acquisition was accounted
for by the purchase method of accounting with a total purchase price of
approximately $985,000 in stock and cash, with an additional earn out provision.
Goodwill is being amortized over a 15 year period.
RGC Resources, Inc. continues to look for new business opportunities either
through acquisition of existing businesses or the start-up of new operations
that will fit into the Company's core business of energy distribution or serve
to complement the Company's core business and provide diversification into other
areas that are less weather sensitive.
10
<PAGE>
RGC RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Environmental Issues
Both Roanoke Gas Company and Bluefield Gas Company, subsidiaries of RGC
Resources, Inc., operated manufactured gas plants (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 on-site tar waste contaminants at the
former plant sites. The extent of contaminants at these sites, if any, is
unknown at this time. An analysis at the Bluefield Gas Company site indicates
some soil contamination. The Company, with concurrence of legal counsel, does
not believe any events have occurred requiring regulatory reporting. Further,
the Company has not received any notices of violation or liabilities associated
with environmental regulations related to the MGP sites and is not aware of any
off-site contamination or pollution as a result of prior operations. Therefore,
the Company has no plans for subsurface remediation at the MGP sites. Should the
Company eventually be required to remediate either site, the Company will pursue
all prudent and reasonable means to recover any related costs, including
insurance claims and regulatory approval for rate case recognition of expenses
associated with any work required. A stipulated rate case agreement between the
Company and the West Virginia Public Service Commission recognized the Company's
right to defer MGP clean-up costs, should any be incurred, and to seek rate
relief for such costs. If the Company eventually incurs costs associated with a
required clean-up of either MGP site, the Company anticipates recording a
regulatory asset for such clean-up costs to be recovered in future rates. Based
on anticipated regulatory actions and current practices, management believes
that any costs incurred related to this matter will not have a material effect
on the Company's financial condition or results of operations.
Forward-Looking Statements
From time to time, the Company may publish forward-looking statements relating
to such matters as anticipated financial performance, business prospects,
technological developments, new products, research and development activities
and similar matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order to comply with
the terms of the safe harbor, the Company notes that a variety of factors could
cause the Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of the Company's business
include the following ones: (i) temporary rate freezes in both regulated
jurisdictions; (ii) failure to earn on a consistent basis an adequate return on
invested capital; (iii) increasing expenses and labor costs and labor
availability; (iv) price competition from alternative fuels; (v) volatility in
the price of natural gas and propane; (vi) uncertainty in the projected rate of
growth of natural gas and propane requirements in the Company's service area;
(vii) general economic conditions both locally and nationally; (viii) increases
in interest rates; and (ix) developments in electricity and natural gas
deregulation and associated industry restructuring. In addition, the Company's
business is seasonal in character and strongly influenced by weather conditions.
Substantial changes in winter heating degree days from normal or mean can have
significant short-term impacts on revenues and gross margin.
11
<PAGE>
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months
ended June 30, 2000.
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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 there unto duly authorized.
RGC Resources, Inc.
Date: August 10, 2000 By: s/Roger L. Baumgardner
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Roger L. Baumgardner
Vice President/Secretary and
Treasurer
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