RGC Resources Inc. Reports Operating Results (10-Q)

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Feb 11, 2011
RGC Resources Inc. (RGCO, Financial) filed Quarterly Report for the period ended 2010-12-31.

Rgc Resources Inc. has a market cap of $68.8 million; its shares were traded at around $31.122 with a P/E ratio of 15.3 and P/S ratio of 0.9. The dividend yield of Rgc Resources Inc. stocks is 4.6%. Rgc Resources Inc. had an annual average earning growth of 1.1% over the past 5 years.Mutual Fund and Other Gurus that owns RGCO: Mario Gabelli of GAMCO Investors.

Highlight of Business Operations:

The commodity price of natural gas has continued its downward trend that began in July 2008 when prices peaked at more than $13.00 per decatherm. Prices declined to under $4.00 per decatherm at September 30, 2010 and have only increased to approximately $4.50 per decatherm through the first half of the current heating season. The low commodity price of natural gas has reduced the gas cost component of the Companys billing rates making natural gas an attractive low cost fuel source as evidenced by the 119 customers who converted from other heating sources to natural gas during the quarter. Currently, futures prices for natural gas on the NYMEX (New York Mercantile Exchange) do not exceed $5.50 per decatherm over the next 24 months, implying relative price stability for 2011 and 2012.

base rate increase effective for service rendered on and after November 1, 2010. Residential and commercial volumes rose by 14% over last years levels as the total number of heating degree days increased by 16%. Industrial volumes, which tend to be less weather sensitive than residential and commercial volumes, increased by 10% in part due to improving economic activity. As a result of the rate increase and the completion of several master meter conversions during the prior year, the Company realized approximately $110,000 in additional margin from customer base charges, which is a flat monthly fee billed to each natural gas customer. During 2010, the Company converted six apartment complexes from a single master meter for each building to individual meters located at each apartment. As discussed above, carrying cost revenues associated with natural gas inventories declined by $79,000 from last year corresponding with the continuing decline in the cost of gas in storage and are expected to continue to trend below prior year levels during the second and third quarters. Also, as discussed in more detail above, the prior year included an accrual of approximately $145,000 in WNA revenues for weather that was more than 3% warmer than the 30-year average.

Operations expenses increased by $177,964, or 6%, over the same period last year. Total employee benefit costs increased by approximately $76,000 over the same period last year due to a combination of higher pension and postretirement medical costs related to the amortization of a higher actuarial loss and higher health insurance premiums. The Company also capitalized approximately $87,000 less in overheads related to less capital and production activities during the quarter.

Improvement in investment performance of the plans assets in 2010 has partially mitigated the effect the declining discount rate has had in valuing the pension plan and postretirement plan liabilities. However, the lower discount rate (5.25% on the pension plan and 5.00% on the post-retirement medical plan) combined with an increase in the medical trend rate has resulted in an increase in the negative funded position of both plans and an increase in the retirement plan expense during the current year. The funded status of both the pension plan and postretirement plan has resulted in continuing higher expected funding levels for the next several years. The Company currently expects to fund the pension plan for the current fiscal year at $1,000,000 and the postretirement medical plan at $700,000, including the $300,000 contribution to the pension plan in the current quarter. The Company will continue to evaluate its benefit plan funding

Investing activities are generally composed of expenditures under the Companys construction program, which involves a combination of replacing aging bare steel and cast iron pipe with new plastic or coated steel pipe and expansion of its natural gas system to meet the demands of customer growth. Cash flows used in investing activities decreased by approximately $163,000 due to a reduced level of capital expenditures. Total capital expenditures were $1,489,582 and $1,652,870 for the three-month periods ended December 31, 2010 and 2009, respectively. The prior year includes expenditures for improvements to the liquefied natural gas facility. Roanoke Gas total capital budget for the current fiscal year exceeds $7,500,000, a $1,500,000 increase over the amounts expended in either fiscal 2010 or 2009. The higher projected level of capital expenditures is associated with a focus on its pipeline renewal program including the renewal of a significant portion of the distribution system in downtown Roanoke. Depreciation cash flow is expected to provide between 55% and 60% of the current years projected capital expenditures, with the balance of funding being dependent on other sources including net income and corporate borrowing activity.

arrangement to fund seasonal working capital needs as well as provide temporary financing for capital projects. Cash flow used in financing activities declined by approximately $88,000, from $556,000 to $468,000 due to approximately 4,000 more shares of common stock issued this year compared to the same period last year. The impact of lower natural gas prices and their effect on reducing inventory and accounts receivable levels have generated sufficient levels of cash to avoid accessing the line-of-credit during the current quarter. With natural gas commodity prices projected to remain stable over the next 12 months, the Company expects to return to a more historical pattern of borrowing under the line-of-credit next winter.

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