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 December 31, 1996
-----------------
Commission File No. 0-367
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ROANOKE GAS COMPANY
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(Exact name of Registrant as Specified in its Charter)
VIRGINIA 54-0359895
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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) 983-3800
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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 December 31, 1996
-------------------------- --------------------------------
Common Stock, $5 Par Value 1,484,926 Shares
<PAGE>
<TABLE>
<CAPTION>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
UNAUDITED
- ---------
December 31, September 30,
1996 1996
------------ -------------
<S> <C> <C>
ASSETS
- ------
UTILITY PLANT:
Utility Plant in Service $61,873,751 $60,454,905
Accumulated Depreciation 21,249,090 20,822,398
----------- -----------
Utility Plant in Service, Net 40,624,661 39,632,507
Construction Work-In-Progress 1,143,572 1,277,999
----------- -----------
Utility Plant, Net 41,768,233 40,910,506
----------- -----------
NONUTILITY PROPERTY:
Propane 5,273,144 4,403,630
Accumulated Depreciation 2,195,394 2,070,405
----------- -----------
Nonutility Property, Net 3,077,750 2,333,225
----------- -----------
CURRENT ASSETS:
Cash and Cash Equivalents 189,061 633,322
Accounts Receivable - (Less Allowance
for Uncollectibles of $555,970
and $279,316, Respectively) 13,827,416 3,857,407
Inventories 6,503,390 7,402,586
Prepaid Income Taxes - 297,521
Deferred Income Taxes 867,728 379,356
Purchased Gas Adjustments 778,396 1,782,590
Other 644,183 479,926
----------- -----------
Total Current Assets 22,810,174 14,832,708
----------- -----------
OTHER ASSETS 724,604 844,660
----------- -----------
TOTAL $68,380,761 $58,921,099
=========== ===========
</TABLE>
See condensed notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
UNAUDITED
- --------- December 31, September 30,
1996 1996
------------ -------------
<S> <C> <C>
LIABILITIES
- -----------
CAPITALIZATION:
Stockholders' Equity:
Common Stock - Par Value $5; Authorized,
3,000,000 Shares; Issued and Outstanding
1,484,926 and 1,475,843 Shares, Respectively $ 7,424,630 $ 7,379,215
Capital in Excess of Par Value 4,761,070 4,647,163
Retained Earnings 7,893,154 6,948,623
----------- -----------
Total Stockholders' Equity 20,078,854 18,975,001
Long-Term Debt (Less Current Maturities) 20,200,973 20,222,124
----------- -----------
Total Capitalization 40,279,827 39,197,125
----------- -----------
CURRENT LIABILITIES:
Current Maturities of Long-Term Debt 682,587 669,423
Notes Payable 10,514,000 6,652,500
Dividends Payable 386,746 376,795
Accounts Payable 8,699,893 4,931,467
Income Taxes Payable 914,884 -
Customers' Deposits 472,691 362,384
Accrued Expenses 2,895,968 3,214,953
Refunds From Suppliers - Due Customers - 23,865
----------- -----------
Total Current Liabilities 24,566,769 16,231,387
----------- -----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred Income Taxes 3,011,794 2,960,795
Deferred Investment Tax Credits 522,371 531,792
----------- -----------
Total Deferred Credits and Other Liabilities 3,534,165 3,492,587
----------- -----------
TOTAL $68,380,761 $58,921,099
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Roanoke Gas Company and Subsidiaries
- ------------------------------------
Condensed Consolidated Statements Of Earnings For The Three Month Periods
Ended December 31, 1996 and 1995
Unaudited
- ---------
Three Months Ended
December 31,
1996 1995
------------ -------------
<S> <C> <C>
OPERATING REVENUES:
Gas utilities $19,827,967 $16,283,931
Propane operations 2,584,457 1,709,828
----------- -----------
Total operating revenues 22,412,424 17,993,759
----------- -----------
COST OF GAS:
Gas utilities 13,956,481 10,382,425
Propane operations 1,559,831 816,143
----------- -----------
Total cost of gas 15,516,312 11,198,568
----------- -----------
OPERATING MARGIN 6,896,112 6,795,191
----------- -----------
OTHER OPERATING EXPENSES:
Gas utilities:
Other operations 1,973,081 1,899,760
Maintenance 367,142 431,149
Taxes - general 740,789 676,163
Taxes - income 566,452 647,764
Depreciation and amortization 633,782 584,311
Propane operations (including taxes -
income of $147,180 and $129,982
respectively) 774,336 690,543
----------- -----------
Total other operating expenses 5,055,582 4,929,690
----------- -----------
OPERATING EARNINGS 1,840,530 1,865,501
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OTHER INCOME AND DEDUCTIONS:
Gas utilities:
Interest Income 7,071 -
Merchandising and jobbing, net 39,914 23,645
Other deductions (18,998) (19,774)
Taxes - income (10,693) (1,518)
Propane operations, net 39,454 40,842
----------- -----------
Total other income and deductions 56,748 43,195
----------- -----------
EARNINGS BEFORE INTEREST CHARGES 1,897,278 1,908,696
----------- -----------
<PAGE>
INTEREST CHARGES:
Gas utilities:
Long-term debt 361,317 413,795
Other interest 200,366 59,474
Propane operations 4,319 655
----------- -----------
Total interest charges 566,002 473,924
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NET EARNINGS $ 1,331,276 $ 1,434,772
=========== ===========
EARNINGS PER COMMON SHARE $ 0.90 $ 1.00
=========== ===========
CASH DIVIDENDS PER SHARE $ 0.260 $ 0.255
=========== ===========
</TABLE>
See consolidated notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Roanoke Gas Company And Subsidiaries
- ------------------------------------
Condensed Consolidated Statements Of Cash Flows For The Three-Month Periods
Ended December 31, 1996 and 1995
Unaudited Three Months Ended
- --------- December 31
1996 1995
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,331,276 $ 1,434,772
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization 793,667 709,021
(Gain) loss from disposal of property (1,831) 245
Changes in assets and liabilities which used
cash, exclusive of changes and noncash
transactions shown separately (3,809,326) (3,244,495)
----------- -----------
Net cash used in operating activities (1,686,214) (1,100,457)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant in service and under
construction and nonutility property (2,344,813) (1,177,581)
Cost of removal of utility plant, net (58,115) (27,750)
Proceeds from disposal of equipment 8,841 6,752
----------- -----------
Net cash used in investing activities (2,394,087) (1,198,579)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of long-term debt and payments on
obligations under capital leases (7,987) (19,880)
Net borrowings under lines of credit 3,861,500 2,739,000
Cash dividends paid (376,795) (358,743)
Proceeds from issuance of stock 159,322 155,426
----------- -----------
Net cash provided by financing activities 3,636,040 2,515,803
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (444,261) 216,767
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 633,322 502,895
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 189,061 $ 719,662
=========== ===========
SUPPLEMENTAL INFORMATION:
Interest paid $ 717,075 $ 258,710
Income taxes paid (refunded), net (41,690) 330,700
</TABLE>
See condensed notes to condensed consolidated financial statements
<PAGE>
ROANOKE GAS COMPANY AND SUBSIDIARIES
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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 Roanoke Gas Company
and subsidiaries' consolidated financial position as of December 31, 1996 and
September 30, 1996 and the results of its operations and its cash flows for
the three months ended December 31, 1996 and 1995. The results of operations
for the three months ended December 31, 1996 are not necessarily indicative
of the results to be expected for the fiscal year ending September 30, 1997.
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.
2. 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.
3. Net earnings per share are based on the weighted average number of
shares outstanding during each period (1,481,990 and 1,439,633 for the three
months ended December 31, 1996 and 1995, respectively). The calculation of
weighted average shares outstanding for 1996 and 1995 does not include the
effect of common stock equivalents (CSEs), since the impact of including CSEs
in the weighted average shares outstanding is less than three percent.
4. Both Roanoke Gas Company and Bluefield Gas Company operated
manufactured gas plants (MGPs) as a source of fuel for lighting and heating
until the early 1950's. The process involved heating coal in a low-oxygen
environment to produce a manufactured gas that could be distributed through
the Company's pipeline system to customers. A by-product of the process was
coal tar, and the potential exists for on-site tar waste contaminants at both
former plant sites. The extent of contaminants at these sites, if any, is
unknown at this time, and the Company has not performed formal analysis at
the Roanoke Gas Company MGP site. 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 these prior operations. Therefore, the Company has no plans for
subsurface remediation at either of the MGP sites. Should the Company be
required to remediate either of the MGP sites, 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. Based upon prior orders of the
State Corporation Commission of Virginia related to environmental matters at
other companies, the Company believes it will be able to recover prudently
incurred costs. Additionally, a stipulated rate case agreement between the
Company and the West Virginia Public Service Commission recognizes the
Company's right to defer MGP clean-up costs, should any be incurred, and to
<PAGE>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------
UNAUDITED
- ---------
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 which are
anticipated to be recoverable in future rates. Based on anticipated
regulatory actions and current practices, management believes that any costs
incurred related to the previously-mentioned environmental matters will not
have a material effect on the Company's consolidated financial position.
<PAGE>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------------------------------------
Consolidated net earnings for the three months ended December 31, 1996 were
$1,331,276 compared to $1,434,772 for the same period last year.
Operating revenues and operating margin increased over last year even though
the current quarter had 6% fewer heating degree days than the same period a
year ago. Natural gas deliveries mirrored degree days as total MCFs
delivered declined 83,925 MCFs or 2.3% from last year. Firm customer
volumes, which correlate more directly with temperature fluctuations,
declined by 4.7 % while the interruptible volumes increased by 7.5% due to a
reduction in service interruptions from last year. The decline in natural
gas margins was more than offset by increases in propane deliveries. Propane
deliveries for the quarter increased 419,670 gallons or nearly 23% over the
same period last year. The sharp increase in propane volumes is attributable
to the strong customer growth in the propane division. The number of propane
customers has increased by 25% over last December's level due to an
aggressive marketing campaign.
Other operations expenses increased $73,321 over the same period last year
due to increased bad debt expense accruals attributable to increased billings
due to the significant increase in gas cost and increased costs for
performing natural gas line locations resulting from greater state regulatory
requirements. Maintenance expense declined $64,007 from last year due to
reductions in clearing of right-of-ways for the Company's natural gas
transmission lines and the absence of corporate office renovation costs
included in the same quarter last year. The transmission line clearing
program was started in September this year resulting in some costs being
included in the prior fiscal year. The increase in general taxes is
attributable to increases in revenue sensitive taxes. Natural gas revenues
increased 21.8% while general taxes increased 8.9%. Furthermore, the revenue
sensitive gross receipts tax increased 20.2% over the same period last year.
Depreciation expense increased due to the implementation of new depreciation
rates associated with the results of a depreciation study and the addition of
plant for new customers and the renewal of older existing facilities.
Propane operations increased due to greater expenses associated with
delivering 23% more propane and increasing customer growth. Total interest
expense increased $92,078 as the Company's total debt position rose by more
than $8 million. The Company's total debt has increased due to the temporary
financing of significantly higher accounts receivable, gas inventories and
under collected gas costs resulting from significant increases in the cost of
gas over last year.
On December 2, 1996 Roanoke Gas Company filed an expedited rate increase
application for a $959,277 rate increase. The rates were placed into effect
on January 1, 1997 under bond and subject to refund pending the State
Corporation Commission's full review and hearing on the application. As part
of the allowance of placing the rates into effect 30 days after filing,
rather than waiting 150 days, Roanoke Gas Company agreed to delay filing of a
proposed application for consideration of performance based ratemaking
methodology until after 1997. The Company is continuing to evaluate the
potential use of a performance based ratemaking plan for its Virginia natural
gas operations.
<PAGE>
ROANOKE GAS COMPANY AND SUBSIDIARIES
- ------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------------------------------------
Both Roanoke Gas Company and Bluefield Gas Company operated manufactured gas
plants (MGPs) as a source of fuel for lighting and heating until the early
1950's. The process involved heating coal in a low-oxygen environment to
produce a manufactured gas that could be distributed through the Company's
pipeline system to customers. A by-product of the process was coal tar, and
the potential exists for on-site tar waste contaminants at both former plant
sites. The extent of contaminants at these sites, if any, is unknown at this
time, and the Company has not performed formal analysis at the Roanoke Gas
Company MGP site. 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 these prior
operations. Therefore, the Company has no plans for subsurface remediation
at either of the MGP sites. Should the Company be required to remediate
either of the MGP sites, 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. Based upon prior orders of the State Corporation Commission of
Virginia related to environmental matters at other companies, the Company
believes it will be able to recover prudently incurred costs. Additionally,
a stipulated rate case agreement between the Company and the West Virginia
Public Service Commission recognizes 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 which are anticipated to be recoverable in
future rates. Based on anticipated regulatory actions and current practices,
management believes that any costs incurred related to the previously-
mentioned environmental matters will not have a material effect on the
Company's consolidated financial position.
The three month earnings presented herein should not be considered as
reflective of the Company's consolidated financial results for the fiscal
year ending September 30, 1997. The total revenues during the first three
months reflect higher billings due to the weather sensitive nature of the gas
business. Any improvement or decline in earnings depends primarily on
temperature and weather conditions during the remaining winter months.
<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 December 31, 1996.
<PAGE>
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.
ROANOKE GAS COMPANY
Date: February 13, 1997 By: /s/Roger L. Baumgardner
-----------------------
Roger L. Baumgardner
Vice President/Secretary,
Treasurer and Principal
Accounting Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ROANOKE GAS
COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT FOR THE QUARTER
ENDED DECEMBER 31, 1996, AS SET FORTH IN THE COMPANY'S QUARTERLY REPORT ON FORM
10-Q, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 41,768,233
<OTHER-PROPERTY-AND-INVEST> 3,077,750
<TOTAL-CURRENT-ASSETS> 22,810,174
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 724,604
<TOTAL-ASSETS> 68,380,761
<COMMON> 7,424,630
<CAPITAL-SURPLUS-PAID-IN> 4,761,070
<RETAINED-EARNINGS> 7,893,154
<TOTAL-COMMON-STOCKHOLDERS-EQ> 20,078,854
0
0
<LONG-TERM-DEBT-NET> 20,200,973
<SHORT-TERM-NOTES> 10,514,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 682,587
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 16,904,347
<TOT-CAPITALIZATION-AND-LIAB> 68,380,761
<GROSS-OPERATING-REVENUE> 22,412,424
<INCOME-TAX-EXPENSE> 566,452
<OTHER-OPERATING-EXPENSES> 20,005,442
<TOTAL-OPERATING-EXPENSES> 20,571,894
<OPERATING-INCOME-LOSS> 1,840,530
<OTHER-INCOME-NET> 56,748
<INCOME-BEFORE-INTEREST-EXPEN> 1,897,278
<TOTAL-INTEREST-EXPENSE> 566,002
<NET-INCOME> 1,331,276
0
<EARNINGS-AVAILABLE-FOR-COMM> 1,331,276
<COMMON-STOCK-DIVIDENDS> 386,746
<TOTAL-INTEREST-ON-BONDS> 109,421
<CASH-FLOW-OPERATIONS> (1,686,214)
<EPS-PRIMARY> .90
<EPS-DILUTED> .90
</TABLE>
