RGC Resources(RGCO) - 2021 Q4 - Annual Report

Part I Business RGC Resources, Inc. operates Roanoke Gas, a regulated natural gas utility, with revenue dominated by utility operations and a focus on residential customers - RGC Resources, Inc. is a holding company primarily operating Roanoke Gas, a regulated natural gas utility, and holds an investment in the Mountain Valley Pipeline (MVP)[21][22][23] Customer and Margin Mix (FY 2021) | Customer Category | % of Customers | % of Volume | % of Revenue | % of Margin | | :--- | :--- | :--- | :--- | :--- | | Residential | 91.3% | 37% | 58% | 63% | | Commercial | 8.6% | 31% | 34% | 25% | | Industrial | 0.1% | 32% | 7% | 11% | - The company's business is seasonal, with approximately 63% of natural gas deliveries occurring between November and March[28] - Roanoke Gas relies on two main interstate pipelines and operates an LNG facility with 200,000 DTH of storage capacity for peak demand[29][30] - The company holds exclusive, long-term franchise agreements in its primary service areas, renewed until December 31, 2035[33] - As of September 30, 2021, the company had 99 full-time employees, with 17% unionized under an agreement expiring July 31, 2022[40] Risk Factors The company faces significant operational, regulatory, and financial risks, notably dependence on pipelines, cyber threats, and MVP investment delays - Operational risks include 100% reliance on two interstate pipelines for gas transport, system failures, and cyber-attack vulnerability[46][47][49] - Regulatory risks include new environmental laws, increased pipeline safety requirements, and the need for timely rate relief from the Virginia SCC[60][61][62] - The Mountain Valley Pipeline (MVP) investment poses a major financial risk due to significant delays and cost overruns impacting financial position and dividend capacity[65][66][67] - The company faces financial risks from pandemics like COVID-19, potentially reducing demand, increasing bad debt, and straining liquidity[73][74][75] - Costs and funding obligations for defined benefit pension and retiree medical plans depend on market returns and actuarial assumptions, posing financial risk[79] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - No unresolved staff comments[84] Properties The company's properties include approximately 1,157 miles of pipelines and an LNG storage facility with 200,000 DTH capacity - The company's utility property includes approximately 1,157 miles of transmission and distribution pipeline, representing 89% of total utility plant investment[85] - The company owns an LNG storage facility with a capacity to store up to 200,000 DTH of natural gas[86] Legal Proceedings The company is not known to be a party to any pending legal proceedings - The Company is not known to be a party to any pending legal proceedings[88] Mine Safety Disclosures This item is not applicable to the company - Not applicable[89] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ under RGCO, with FY2021 dividends totaling $0.74 per share, up from $0.70 in FY2020 - The company's common stock is listed on the NASDAQ Global Market under the trading symbol RGCO[92] Quarterly Stock Price and Dividends | Year Ending Sep 30 | Quarter | High Price ($) | Low Price ($) | Dividends Declared ($) | | :--- | :--- | :--- | :--- | :--- | | 2021 | First | $27.40 | $22.82 | $0.185 | | | Second | $25.60 | $22.08 | $0.185 | | | Third | $25.60 | $21.32 | $0.185 | | | Fourth | $26.02 | $22.33 | $0.185 | | 2020 | First | $30.00 | $27.53 | $0.175 | | | Second | $31.98 | $24.55 | $0.175 | | | Third | $28.85 | $23.15 | $0.175 | | | Fourth | $24.86 | $22.58 | $0.175 | Equity Compensation Plan Information (as of Sep 30, 2021) | Plan Category | Securities to be issued upon exercise | Weighted-average exercise price ($) | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Approved by security holders | 45,250 | $19.34 | 457,079 | Selected Financial Data This item is not applicable as the company is a smaller reporting company - Not applicable[94] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, noting increased revenues from higher gas prices but decreased net income due to lower MVP equity earnings and ongoing investment in infrastructure Results of Operations (FY2021 vs. FY2020) FY2021 operating revenues increased 19% to $75.2 million, but net income decreased to $10.1 million due to a $3.1 million reduction in MVP equity earnings Operating Revenues and Delivered Volumes | Year Ended September 30, | 2021 ($) | 2020 ($) | Change ($) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $75,174,779 | $63,075,391 | $12,099,388 | 19% | | Total Delivered Volumes (DTH) | 9,909,529 | 10,357,174 | (447,645) | (4)% | Gross Utility Margin | Year Ended September 30, | 2021 ($) | 2020 ($) | Change ($) | % Change | | :--- | :--- | :--- | :--- | :--- | | Gas Utility Revenues | $75,045,103 | $62,408,925 | $12,636,178 | 20% | | Cost of Gas - Utility | $35,179,842 | $23,949,481 | $11,230,361 | 47% | | Gross Utility Margin | $39,865,261 | $38,459,444 | $1,405,817 | 4% | - Equity in earnings from the MVP decreased by $3.1 million in FY2021 due to temporary cessation of AFUDC activity[124] Net Income and Earnings Per Share | Metric | FY 2021 ($) | FY 2020 ($) | | :--- | :--- | :--- | | Net Income | $10,102,062 | $10,564,534 | | Basic & Diluted EPS | $1.22 | $1.30 | Capital Resources and Liquidity Liquidity is managed through cash flow, debt, and equity, with FY2021 operating cash decreasing to $11.6 million and $25.8 million used in investing activities Summary of Cash Flows | Cash Flow Summary (Years Ended Sep 30) | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Net cash provided by operating activities | $11,568,108 | $12,823,903 | | Net cash used in investing activities | ($25,849,237) | ($30,721,011) | | Net cash provided by financing activities | $15,508,380 | $16,556,826 | | Net increase (decrease) in cash | $1,227,251 | ($1,340,282) | - Capital expenditures for Roanoke Gas's utility plant were approximately $20 million in FY2021, primarily for pipe replacement and customer growth[139] - Midstream's cash investment in the MVP was $6.0 million in FY2021, with total expected funding increasing to between $60 million and $62 million[141] - The company issued 142,726 shares through its At-the-Market (ATM) stock offering program during fiscal 2021[149] Equity Investment in Mountain Valley Pipeline The MVP project faces ongoing legal and regulatory challenges, targeting a summer 2022 in-service date at a $6.2 billion cost, with AFUDC accrual temporarily suspended - The MVP project targets a full in-service date in summer 2022 at an estimated total cost of approximately $6.2 billion (excluding AFUDC)[154] - The LLC temporarily suspended AFUDC accrual from January 1, 2021, through March 31, 2021, significantly reducing equity earnings from the MVP investment[156] - Management, with a third-party valuation, concluded the MVP investment was not impaired as of September 30, 2021[157] Critical Accounting Policies and Estimates Critical accounting policies involve significant estimates for regulatory accounting, revenue recognition, doubtful accounts, pension and postretirement benefits, and derivative instruments - Critical accounting policies include Regulatory Accounting (ASC 980), Revenue Recognition, Allowance for Doubtful Accounts, Pension and Postretirement Benefits, and Derivatives[169][170][172][177][179] Pension and Postretirement Plan Funded Status (as of Sep 30) | Plan | Funded Status 2021 ($) | Funded Status 2020 ($) | | :--- | :--- | :--- | | Pension | $1,259,639 (103% funded) | ($2,340,371) (94% funded) | | Postretirement | ($914,507) | ($3,809,156) | - The company shifted its pension plan asset allocation to 30% equity / 70% fixed income and adopted a Liability Driven Investment (LDI) approach[183] Quantitative and Qualitative Disclosures About Market Risk This item is not applicable as the company is a smaller reporting company - Not applicable[191] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for FY2021 and FY2020, including the independent auditor's report and detailed notes Consolidated Balance Sheet Summary (as of Sep 30) | Metric | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Total Assets | $310,109,193 | $281,679,507 | | Total Liabilities | $210,407,484 | $192,791,530 | | Total Stockholders' Equity | $99,701,709 | $88,887,977 | Consolidated Income Statement Summary (Years Ended Sep 30) | Metric | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Total Operating Revenues | $75,174,779 | $63,075,391 | | Operating Income | $14,778,309 | $12,518,182 | | Net Income | $10,102,062 | $10,564,534 | | Diluted EPS | $1.22 | $1.30 | Consolidated Cash Flow Summary (Years Ended Sep 30) | Metric | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Net Cash from Operations | $11,568,108 | $12,823,903 | | Net Cash from Investing | ($25,849,237) | ($30,721,011) | | Net Cash from Financing | $15,508,380 | $16,556,826 | - The independent auditor identified the valuation of the equity method investment in Mountain Valley Pipeline, LLC (MVP) as a Critical Audit Matter due to significant judgment required for fair value determination[199][200][201] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure[375] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of September 30, 2021, with no material changes - Management concluded the Company's disclosure controls and procedures were effective as of September 30, 2021[377] - Management concluded the Company's internal control over financial reporting was effective as of September 30, 2021, based on the COSO 2013 framework[381] Other Information The company reports no other information for this item - No other information is reported for this item[383] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement - Information for this item is incorporated by reference from the RGC Resources, Inc. Proxy Statement for the 2022 Annual Meeting of Shareholders[385][386][387] Executive Compensation Executive and director compensation information is incorporated by reference from the 2022 Proxy Statement - Information for this item is incorporated by reference from the Proxy Statement for the 2022 Annual Meeting of Shareholders[389] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information for beneficial owners and management is incorporated by reference from the 2022 Proxy Statement - Security ownership information is incorporated by reference from the Proxy Statement for the 2022 Annual Meeting of Shareholders[391] Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2022 Proxy Statement - Information for this item is incorporated by reference from the Proxy Statement for the 2022 Annual Meeting of Shareholders[392] Principal Accounting Fees and Services Principal accounting fees and services information is incorporated by reference from the 2022 Proxy Statement - Information for this item is incorporated by reference from the Proxy Statement for the 2022 Annual Meeting of Shareholders[393] Part IV Exhibits and Financial Statement Schedules This section lists financial statements, schedules, and exhibits filed with the Form 10-K, with financial statements under Item 8 - All financial statements of the registrant are filed as part of Item 8 of the report[396] - Financial statement schedules are either inapplicable or the information is included within the consolidated financial statements and related notes[396] Form 10-K Summary This item is not applicable - Not applicable[414]