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 March 31, 1998
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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 March 31, 1998
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Common Stock, $5 Par Value 1,763,725 Shares
ROANOKE GAS COMPANY AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS
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UNAUDITED
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March 31, September 30,
1998 1997
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ASSETS
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UTILITY PLANT:
Utility Plant in Service $ 67,047,666 $ 65,590,024
Accumulated Depreciation (23,619,772) (22,612,963)
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Utility Plant in Service, Net 43,427,894 42,977,061
Construction Work-In-Progress 1,354,240 1,088,083
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Utility Plant, Net 44,782,134 44,065,144
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NONUTILITY PROPERTY:
Propane 8,858,979 6,634,369
Accumulated Depreciation (2,802,446) (2,540,274)
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Nonutility Property, Net 6,056,533 4,094,095
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CURRENT ASSETS:
Cash and Cash Equivalents 500,192 116,045
Accounts Receivable - (Less Allowance
for Uncollectibles of $1,021,733
and $368,345, Respectively) 11,211,483 4,188,984
Inventories 3,226,829 7,427,581
Prepaid Income Taxes 0 7,368
Deferred Income Taxes 3,019,279 1,206,995
Purchased Gas Adjustments 0 587,457
Other 569,417 420,674
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Total Current Assets 18,527,200 13,955,104
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OTHER ASSETS 860,048 478,915
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TOTAL $ 70,225,915 $ 62,593,258
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See condensed notes to condensed consolidated financial statements.
ROANOKE GAS COMPANY AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS
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UNAUDITED
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March 31, September 30,
1998 1997
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LIABILITIES
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CAPITALIZATION:
Stockholders' Equity:
Common Stock - Par Value $5; Authorized,
3,000,000 Shares; Issued and Outstanding
1,763,725 and 1,527,486 Shares, Respectively $ 8,818,625 $ 7,637,430
Capital in Excess of Par Value 8,487,092 5,271,667
Retained Earnings 10,470,354 7,687,854
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Total Stockholders' Equity 27,776,071 20,596,951
Long-Term Debt (Less Current Maturities) 18,445,000 17,079,000
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Total Capitalization 46,221,071 37,675,951
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CURRENT LIABILITIES:
Current Maturities of Long-Term Debt 613,146 3,143,124
Notes Payable 2,080,000 7,129,000
Dividends Payable 467,977 397,530
Accounts Payable 4,838,334 5,512,348
Income Taxes Payable 2,492,828 0
Customers' Deposits 490,644 427,895
Accrued Expenses 5,065,700 4,233,860
Refunds From Suppliers - Due Customers 128,367 425,860
Purchased Gas Adjustments 4,112,588 0
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Total Current Liabilities 20,289,584 21,269,617
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DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred Income Taxes 3,241,743 3,145,932
Deferred Investment Tax Credits 473,517 492,357
Other Deferred Credits 0 9,401
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Total Deferred Credits and Other Liabilities 3,715,260 3,647,690
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TOTAL $ 70,225,915 $ 62,593,258
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ROANOKE GAS COMPANY AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE-MONTH AND SIX-MONTH PERIODS
ENDED MARCH 31, 1998 AND 1997
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UNAUDITED
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Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
------------ ------------ ------------ -------------
OPERATING REVENUES:
Gas utilities $ 18,619,490 $ 21,796,469 $ 36,702,651 $ 41,624,436
Propane operations 3,130,843 2,784,314 5,843,703 5,368,771
----------- ----------- ----------- -----------
Total operating revenues 21,750,333 24,580,783 42,546,354 46,993,207
----------- ----------- ----------- -----------
COST OF GAS:
Gas utilities 11,763,128 15,047,006 23,744,016 29,003,487
Propane operations 1,482,679 1,420,611 2,832,533 2,980,442
----------- ----------- ----------- -----------
Total cost of gas 13,245,807 16,467,617 26,576,549 31,983,929
----------- ----------- ----------- -----------
OPERATING MARGIN 8,504,526 8,113,166 15,969,805 15,009,278
----------- ----------- ----------- -----------
OTHER OPERATING EXPENSES:
Gas utilities:
Other operations 2,058,056 2,160,397 3,997,279 4,133,478
Maintenance 330,660 385,473 642,713 752,615
Taxes - general 803,052 816,095 1,542,443 1,556,884
Taxes - income 846,912 749,574 1,485,085 1,316,026
Depreciation and amortization 713,802 656,430 1,425,682 1,290,212
Propane operations (including taxes -
income of $320,812, $252,299, $533,156
and $399,479, respectively) 1,089,463 950,198 2,142,077 1,724,534
----------- ----------- ----------- -----------
Total other operating expenses 5,841,945 5,718,167 11,235,279 10,773,749
----------- ----------- ----------- -----------
OPERATING EARNINGS 2,662,581 2,394,999 4,734,526 4,235,529
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OTHER INCOME AND DEDUCTIONS:
Gas utilities:
Interest Income 919 0 919 7,071
Merchandising and jobbing, net 41,915 23,415 72,103 63,329
Other deductions (25,071) (18,243) (51,713) (37,241)
Taxes - income (6,031) (1,701) (7,265) (12,394)
Propane operations, net 4,908 31,320 68,416 70,774
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Total other income and deductions 16,640 34,791 82,460 91,539
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EARNINGS BEFORE INTEREST CHARGES 2,679,221 2,429,790 4,816,986 4,327,068
----------- ----------- ----------- -----------
INTEREST CHARGES:
Gas utilities:
Long-term debt 388,602 471,734 777,947 833,051
Other interest 125,183 107,750 304,615 308,116
Propane operations 41,972 18,550 66,726 22,869
----------- ----------- ----------- -----------
Total interest charges 555,757 598,034 1,149,288 1,164,036
----------- ----------- ----------- -----------
NET EARNINGS $ 2,123,464 $ 1,831,756 $ 3,667,698 $ 3,163,032
=========== =========== =========== ===========
BASIC EARNINGS PER COMMON SHARE $ 1.24 $ 1.22 $ 2.26 $ 2.12
=========== =========== =========== ===========
DILUTED EARNINGS PER COMMON SHARE $ 1.24 $ 1.22 $ 2.25 $ 2.12
=========== =========== =========== ===========
CASH DIVIDENDS PER COMMON SHARE $ 0.265 $ 0.260 $ 0.530 $ 0.520
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See condensed notes to condensed consolidated financial statements.
ROANOKE GAS COMPANY AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE-MONTH AND SIX-MONTH PERIODS
ENDED MARCH 31, 1998 AND 1997
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UNAUDITED
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Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,123,464 $ 1,831,756 $ 3,667,698 $ 3,163,032
Adjustments to reconcile net earnings
to net cash provided by (used) in
operating activities:
Depreciation and amortization 830,432 819,028 1,776,583 1,612,695
(Gain) loss on disposal of utility and
nonutility property 8,109 (2,338) 8,109 (4,169)
Loss on sale of other asset 0 0 566 0
Decrease in Deferred taxes and investment
tax credits (987,196) (691,550) (1,735,313) (1,138,343)
Changes in assets and liabilities which
provided cash, exclusive of changes and
noncash transactions shown separately 7,207,029 4,539,408 3,861,058 1,176,875
----------- ----------- ----------- -----------
Net cash provided by operating activities 9,181,838 6,496,304 7,578,701 4,810,090
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant in service and
under construction and nonutility
property (1,850,975) (2,330,528) (4,108,272) (4,675,341)
Cost of removal of utility plant, net (11,815) (34,875) (32,418) (92,990)
Proceeds from disposal of equipment 8,147 10,103 21,617 18,944
Proceeds from sale of other asset 0 0 173,334 0
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Net cash used in investing activities (1,854,643) (2,355,300) (3,945,739) (4,749,387)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 0 0 1,700,000 0
Retirement of long-term debt and payments
on obligations under capital leases (342,811) (351,913) (2,863,977) (359,900)
Net borrowings (repayments) under lines
of credit (9,767,000) (3,739,000) (5,049,000) 122,500
Cash dividends paid (417,226) (386,746) (814,753) (763,541)
Proceeds from issuance of stock 3,847,461 314,904 4,024,629 474,226
Capital stock expense (238,572) 0 (245,714) 0
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Net cash used in financing activities (6,918,148) (4,162,755) (3,248,815) (526,715)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 409,047 (21,751) 384,147 (466,012)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 91,145 189,061 116,045 633,322
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 500,192 $ 167,310 $ 500,192 $ 167,310
=========== =========== =========== ===========
SUPPLEMENTAL INFORMATION:
Interest paid $ 656,044 $ 317,964 $ 1,454,052 $ 1,035,039
Income taxes paid $ 1,161,620 $ 951,590 $ 1,260,623 $ 909,900
NONCASH TRANSACTION:
The assets of a propane company were acquired in 1997 in exchange for 34,317 shares of stock for a
total value of $617,706.
ROANOKE GAS COMPANY AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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Consolidated net earnings for the three-month period and six-month periods
ended March 31, 1998 were $2,123,464 and $3,667,698 compared to $1,831,756
and $3,163,032 for the same period last year.
Operating margin for the three months ended March 31, 1998 increased
$391,360, or 4.8 percent, over the same period last year due to increases in
delivered gas volumes and the effect of a rate increase for Bluefield Gas
Company placed into effect during the quarter. Total natural gas deliveries
increased by 216,811 MCF, or 5 percent, with two thirds of the increased
volume generated from large volume interruptible customers. Firm volumes,
which comprise the weather sensitive residential and commercial customers,
accounted for the remaining volume increase. The weather sensitive volumes
increased 2 percent as total heating degree days for the quarter were almost
identical to the same period last year. Propane deliveries increased by
711,759 gallons, or 30 percent, due to an ongoing aggressive marketing
campaign that continues to add new customers in the propane division and from
the addition of customers resulting from the propane acquisition completed in
December 1997. Total propane customer base has increased by 37 percent over
last March.
Other operations expenses for the current quarter declined from the same
period last year due to the absence of amortization of regulatory assets
included in last year's expenses and reduced labor and benefit costs.
Furthermore, maintenance expenses experienced a decline due to an emphasis on
replacement of underground facilities instead of repair. General taxes are
comparable to prior year, with decreases in revenue-sensitive taxes
offsetting increases in property and other taxes. Capital expenditures for
adding new customers to the distribution system and renewing older facilities
have increased depreciation expense over last year's levels. Propane
operations reflected the greatest expense category increase over the same
period last year with increases in propane delivery costs and marketing
expenses resulting from the exceptional growth in customers in the Company's
propane subsidiary. Interest charges declined as the proceeds from the stock
issue completed in January reduced the Company's outstanding average total
debt position for the quarter.
For the six-month period ended March 31, 1998, operating margins increased
$960,527, or 6.4 percent, over the same period last year. Approximately one
third of the increased margin was generated from a 4 percent increase in
natural gas deliveries for the period resulting from weather that averaged 2
percent colder than the previous year. A 24 percent increase in propane
deliveries accounted for the remainder of the margin increase. As discussed
above, growth in the propane division continues to be a significant factor in
the Company's performance. The expense fluctuations for the six-month period
ended March 31, 1998 as compared to the same period last year, are consistent
with differences defined for the quarter.
ROANOKE GAS COMPANY AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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The six-month earnings presented herein should not be considered as
reflective of the Company's consolidated financial results for the fiscal
year ending September 30, 1998. The total revenues during the first six
months reflect higher billings due to the weather sensitive nature of the gas
business. Improvement or decline in earnings depends primarily on
temperature and weather conditions during the remaining winter months.
The Company currently has one rate case application pending before regulatory
bodies. Roanoke Gas Company filed an application with the Virginia State
Corporation Commission in December 1996 with rates placed into effect,
subject to refund, on January 1, 1997. A hearing was held on the application
in June 1997, and an order in the case is not expected until sometime later
in 1998. The Company has established reserves for an estimated level of
refund in the case, and management believes the reserves are adequate to
cover any refund ordered by the Virginia Commission. In January 1998,
Bluefield Gas Company received a final order associated with the rate
application filed with the West Virginia Public Service Commission
authorizing a rate increase of $132,800 effective for bills rendered on and
after March 2, 1998. In March 1998, Commonwealth Public Service Corporation,
the Virginia portion of Bluefield Gas Company, received a final order
associated with the rate case filed with the Virginia Commission authorizing
a rate increase of $65,917 for service rendered on and after November 28,
1997. The Company is currently in the process of implementing a small refund
for collections on interim rates that have been in effect since November
1997. Adequate reserves have been recorded to handle the refund.
The Company is in the process of evaluating the Year 2000 Issue and
implementing corrective actions. The Company has developed an inventory of
major financial, informational and operational systems that will require
modification to ensure Year 2000 Compliance. Both internal and external
resources are being used to make the necessary modifications and test the
results. The Company has already converted many of the accounting, billing
and operations systems to Year 2000 Compliant. The Company expects to
complete the remaining conversions and testing by the spring of 1999. The
total cost of converting all internal information systems, equipment and
operations for Year 2000 has not been fully quantified, but is not expected
to be a material cost to the Company. All costs incurred to date have been
expensed.
In addition, the Company is communicating with its significant suppliers and
large customers to determine their Year 2000 readiness and to attempt to
identify potential areas of risk in this regard. There can be no guarantee
that the systems of other companies on which the Company's systems rely will
be timely converted, or that a failure to convert by a supplier, customer or
other third party, or a conversion that is incompatible with the Company's
systems, would not have a material adverse effect on the Company and its
operations.
ROANOKE GAS COMPANY AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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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 is unknown at this time,
and the Company has not performed formal analyses of any environmental media
at the Roanoke Gas Company MGP site. An analysis at the Bluefield Gas
Company site indicates some 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 statutes or 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
eventually 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,
although there can be no assurance this will be the case.
ROANOKE GAS COMPANY AND SUBSIDIARIES
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CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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UNAUDITED
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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's financial position as of March 31, 1998 and September 30,
1997, and the results of its operations and its cash flows for the
three months and six months ended March 31, 1998 and 1997. The results
of operations for the six months ended March 31, 1998 are not
indicative of the results to be expected for the fiscal year ending
September 30, 1998.
2. The condensed consolidated financial statements 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. 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.
4. The Company issued 181,500 shares of common stock at an issue price of
$20.00 a share on January 27, 1998. The stock proceeds are being used
to fund capital expansion in the natural gas system.
5. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share
(Statement 128). Statement 128 supersedes APB Opinion No. 15, Earnings
Per Share, and specifies the computation, presentation and disclosure
requirements for basic and diluted earnings per share (EPS) for
entities with publicly-held common stock. Prior period EPS has been
restated to conform to the new statement.
ROANOKE GAS COMPANY AND SUBSIDIARIES
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CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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UNAUDITED
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Income Shares Per Share
(Numerator) (Denominator) Amount
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Three Months Ended March 31, 1998:
Basic EPS
Net Income $2,123,464 1,708,016 $1.24
Effect of dilutive securities (options) 8,299
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Diluted EPS
Net Income $2,123,464 1,716,315 $1.24
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Three Months Ended March 31, 1997:
Basic EPS
Net Income $1,831,756 1,495,958 $1.22
Effect of dilutive securities (options) 2,177
---------
Diluted EPS
Net Income $1,831,756 1,498,135 $1.22
---------
Six Months Ended March 31, 1998:
Basic EPS
Net Income $3,667,698 1,624,307 $2.26
Effect of dilutive securities (options) 6,388
---------
Diluted EPS
Net Income $3,667,698 1,630,695 $2.25
---------
Six Months Ended March 31, 1997:
Basic EPS
Net Income $3,163,032 1,488,897 $2.12
Effect of dilutive securities (options) 2,047
---------
Diluted EPS
Net Income $1,831,756 1,490,944 $2.12
---------
ROANOKE GAS COMPANY AND SUBSIDIARIES
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CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------
UNAUDITED
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6. 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 is unknown at this time, and the Company
has not performed formal analyses of any environmental media at the
Roanoke Gas Company MGP site. An analysis at the Bluefield Gas Company
site indicates some 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
statutes or 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 eventually
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, although there can be no assurance
this will be the case.
Part II - Other Information
Item 2. Changes in Securities.
Pursuant to the Roanoke Gas Company Restricted Stock Plan for Outside
Directors (the "Restricted Stock Plan"), 40% of the monthly retainer fee of
each non-employee director of the Company is paid in shares of unregistered
common stock and is subject to vesting and transferability restrictions
("restricted stock"). A participant can, subject to approval of the Board,
elect to receive up to 100% of his retainer fee in restricted stock. The
number of shares of restricted stock is calculated each month based on the
closing sales price of the Company's common stock on the Nasdaq-NMS on the
first day of the month. The shares of restricted stock are issued in
reliance on the Section 3(a)(11) and the Section 4(2) exemptions under the
Securities Act of 1933 (the "Act") and will vest only in the case of the
participant's death, disability, retirement or in the event of a change in
control of the Company. Shares of restricted stock will be forfeited to the
Company by the participant's voluntary resignation during his term on the
Board or removal for cause as a director. During the quarter ended March 31,
1998, the Company issued a total of 425 shares of restricted stock pursuant
to the Restricted Stock Plan as follows:
Investment Date Price Number of Shares
--------------- ----- ----------------
1-1-98 $20.750 149
2-1-98 $19.875 145
3-1-98 $21.500 131
On March 1, 1998, the Company issued an additional 114 shares of
Company common stock to certain of its employees as bonuses for attendance.
The 114 shares were not issued in a transaction constituting a "sale" within
the meaning of Section 2(3) of the Act.
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 March 31, 1998.
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: May 12, 1998 By: /s/Roger L. Baumgardner
-----------------------
Roger L. Baumgardner
Vice President/Secretary,
Treasurer and Principal
Accounting Officer