VALLEY NATIONAL GASES (VLG)

 

We believe that we have been successful in executing our strategy of growth through acquisitions, having completed over 33 acquisitions since fiscal 1997, the year of our initial public offering. The consideration for most acquisitions includes a combination of a cash payment at closing, seller financing and payments under covenants not to compete and consulting agreements. For many acquisitions, we believe that projections of future cash flows justify payment of amounts in excess of the book or market value of the identifiable tangible and intangible assets acquired, resulting in goodwill being recorded. Some acquisitions have had, and we expect that some future acquisitions could have, a dilutive effect upon our income from operations and income before tax for a period following their consummation. This dilution can occur because some of the benefits of acquisitions, such as leveraging of operating and administrative expenses, improved product gross margins and expected sales growth, occur over time. In most cases, the operating cash flow of an acquired business has been positive in a relatively short period of time after consummation of the acquisition.

 

In part to manage our operations independent of the effect of acquisitions, we monitor the results of each of our 75 locations separately. Although each location is therefore a separate operating segment, because no single store generates an amount of revenue or income, or maintains assets, in excess of the thresholds in accounting releases that would require us to report them as separate reportable segments, and because all stores offer similar products and services, we reported their results on an aggregate basis. On June 30, 2006, Valley adopted the Emerging Issues Task Force (EITF) No. 04-10 “Determining Whether to Aggregate Segments That Do Not Meet the Quantitative Thresholds”. The adoption resulted in Valley refining its aggregation of operating segments as defined in SFAS No. 131 into four reportable segments: Hard Goods, Packaged Gases, Propane and Variable Interest Entities.

 

We maintain records of “same store sales,” which are sales from those stores that have been operated by us for the full two-year comparison period. The value of sales increase related to acquisitions is determined by the specific sales of each acquired location. New stores would be considered in same store sales once we have operated them for the entire comparison period.