##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended December 31, 2005
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File No. 000-15191
 Valley National Gases Incorporated
  \Pennsylvania
    
    
    
    23-2888240(State or other jurisdiction of
    
    
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 200 West Beau Street, Suite 200
Washington, Pennsylvania 15301
 (724) 228-3000
  Yes þ
    
    No o
  o o þ
  Yes o
    
    No þ
  Class
    
    Outstanding at February 9, 2006Common stock, $0.001 par value
    
    9,641,999




---



##### 



TABLE OF CONTENTS
 PagePART I            FINANCIAL INFORMATIONItem 1Financial StatementsCondensed Consolidated Balance Sheets as of June 30, 2005
and December 31, 2005 (unaudited)
    
    
    3Condensed Consolidated Statements of Operations for the
Three Months Ended December 31, 2004 and 2005 (unaudited)
    
    
    5Condensed Consolidated Statements of Operations for the
Six Months Ended December 31, 2004 and 2005 (unaudited)
    
    
    6Consolidated Statements of Changes in Stockholders Equity
for the Periods Ended June 30, 2005 and December 31, 2005
(unaudited)
    
    
    7Condensed Consolidated Statements of Cash Flows for the Six
Months Ended December 31, 2004 and 2005 (unaudited)
    
    
    8Notes to Unaudited Condensed Consolidated Financial
Statements
    
    
    9Item 2Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    24Item 3Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 4Controls and Procedures
    
    
    34PART II            OTHER INFORMATIONItem 6 Exhibits
    
    
    35Signatures
    
    
    36EX-10.1EX-31.1EX-31.2EX-32.1EX-32.2
  - 2 -




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM I. FINANCIAL STATEMENTS
 VALLEY NATIONAL GASES INCORPORATED
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 ASSETS
 June 30,
    
    
    December 31,2005
    
    
    2005(unaudited)CURRENT ASSETS:Cash and cash equivalents
    
    $
    1,322,397
    
    
    $
    3,504,278Accounts receivable, net of allowance for
doubtful accounts of $672,822 and
$962,213, respectively
    
    
    16,956,510
    
    
    
    27,742,640Inventory
    
    
    9,868,974
    
    
    
    11,741,902Prepaids and other
    
    
    1,036,410
    
    
    
    1,473,399Current deferred tax asset
    
    
    1,774,379
    
    
    
    1,722,153Prepaid and refundable taxes
    
    
    1,471,519
    
    
    
    Total current assets
    
    
    32,430,189
    
    
    
    46,184,372PROPERTY, PLANT AND EQUIPMENT:Land
    
    
    2,099,915
    
    
    
    2,197,415Buildings and improvements
    
    
    21,416,658
    
    
    
    22,886,914Equipment
    
    
    100,332,506
    
    
    
    116,212,516Transportation equipment
    
    
    19,249,082
    
    
    
    21,269,917Furniture and fixtures
    
    
    8,756,310
    
    
    
    9,261,143Total property, plant and equipment
    
    
    151,854,471
    
    
    
    171,827,905Accumulated depreciation
    
    
    (57,737,096
    )
    
    
    (60,895,772
    )Net property, plant and equipment
    
    
    94,117,375
    
    
    
    110,932,133OTHER ASSETS:Intangible assets, net of accumulated amortization of
$7,329,315 and $7,787,752, respectively
    
    
    2,607,058
    
    
    
    4,203,651Goodwill
    
    
    45,482,910
    
    
    
    55,260,652Deposits and other assets
    
    
    448,429
    
    
    
    550,989Total other assets
    
    
    48,538,397
    
    
    
    60,015,292TOTAL ASSETS
    
    $
    175,085,961
    
    
    $
    217,131,797
  - 3 -




---



##### Table of Contents



VALLEY NATIONAL GASES INCORPORATED
 CONDENSED CONSOLIDATED BALANCE SHEETS
 LIABILITIES AND STOCKHOLDERS EQUITY
 June 30,
    
    
    December 31,2005
    
    
    2005(unaudited)CURRENT LIABILITIES:Current maturities of long-term debt
    
    $
    3,674,444
    
    
    $
    4,197,702Bank overdraft
    
    
    
    
    
    
    100,992Accounts payable
    
    
    8,679,057
    
    
    
    12,914,253Accrued compensation and employee benefits
    
    
    4,181,792
    
    
    
    4,108,641Interest rate derivatives
    
    
    196,741
    
    
    
    Other current liabilities
    
    
    4,840,217
    
    
    
    7,102,302Total current liabilities
    
    
    21,572,251
    
    
    
    28,423,890LONG-TERM DEBT, less current maturities
    
    
    60,925,763
    
    
    
    83,859,216DEFERRED TAX LIABILITY
    
    
    26,935,848
    
    
    
    33,198,411OTHER LONG-TERM LIABILITIES
    
    
    670,615
    
    
    
    731,381Total liabilities
    
    
    110,104,477
    
    
    
    146,212,898MINORITY INTEREST IN VARIABLE INTEREST ENTITIES
    
    
    5,118,999
    
    
    
    4,802,529COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Preferred stock, par value, $.01 per share
Authorized, 5,000,000 shares, none Issued or
Outstanding
    
    
    
    
    
    
    Common stock, par value, $.001 per share-
Authorized, 30,000,000 shares;
Issued, 9,620,084 shares, Outstanding,
9,574,999 and 9,617,674 shares,
respectively
    
    
    9,620
    
    
    
    9,620Paid-in-capital
    
    
    19,160,327
    
    
    
    19,302,562Retained earnings
    
    
    41,185,428
    
    
    
    46,650,576Accumulated other comprehensive (loss) income
    
    
    (118,806
    )
    
    
    173,608Treasury stock at cost, 45,085 and 2,410
shares, respectively
    
    
    (374,084
    )
    
    
    (19,996
    )Total stockholders equity
    
    
    59,862,485
    
    
    
    66,116,370TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    175,085,961
    
    
    $
    217,131,797
  - 4 -




---



##### Table of Contents



VALLEY NATIONAL GASES INCORPORATED
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  Three Months EndedDecember 31,2004
    
    
    2005NET SALES
    
    $
    43,203,376
    
    
    $
    56,418,116COSTS AND EXPENSESCost of products sold, excluding depreciation
    
    
    20,635,179
    
    
    
    28,426,906Operating, distribution and administrative
    
    
    13,672,585
    
    
    
    17,443,236Depreciation
    
    
    1,751,240
    
    
    
    2,005,534Amortization of intangibles
    
    
    278,559
    
    
    
    219,580Loss (gain) on disposal of assets
    
    
    43,113
    
    
    
    (27,557
    )Total costs and expenses
    
    
    36,380,676
    
    
    
    48,067,699INCOME FROM OPERATIONS
    
    
    6,822,700
    
    
    
    8,350,417INTEREST EXPENSE
    
    
    1,148,207
    
    
    
    1,181,615OTHER INCOME, NET
    
    
    138,364
    
    
    
    115,348EARNINGS BEFORE MINORITY INTEREST
    
    
    5,812,857
    
    
    
    7,284,150MINORITY INTEREST
    
    
    178,895
    
    
    
    187,338NET EARNINGS BEFORE TAXES
    
    
    5,633,962
    
    
    
    7,096,812PROVISION FOR INCOME TAXES
    
    
    2,140,905
    
    
    
    2,706,102NET EARNINGS
    
    $
    3,493,057
    
    
    $
    4,390,710BASIC EARNINGS PER SHARE
    
    $
    0.37
    
    
    $
    0.46DILUTED EARNINGS PER SHARE
    
    $
    0.36
    
    
    $
    0.45WEIGHTED AVERAGE SHARES:Basic
    
    
    9,492,746
    
    
    
    9,596,067Diluted
    
    
    9,655,223
    
    
    
    9,752,787
  - 5 -




---



##### Table of Contents



VALLEY NATIONAL GASES INCORPORATED
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  Six Months EndedDecember 31,2004
    
    
    2005NET SALES
    
    $
    79,403,892
    
    
    $
    98,081,347COSTS AND EXPENSESCost of products sold, excluding depreciation
    
    
    37,549,164
    
    
    
    48,378,808Operating, distribution and administrative
    
    
    27,208,373
    
    
    
    32,880,477Depreciation
    
    
    3,323,367
    
    
    
    3,797,916Amortization of intangibles
    
    
    622,277
    
    
    
    458,437Loss (gain) on disposal of assets
    
    
    61,272
    
    
    
    (65,015
    )Total costs and expenses
    
    
    68,764,453
    
    
    
    85,450,623INCOME FROM OPERATIONS
    
    
    10,639,439
    
    
    
    12,630,724INTEREST EXPENSE
    
    
    2,348,198
    
    
    
    2,072,571OTHER INCOME, NET
    
    
    241,136
    
    
    
    320,541EARNINGS BEFORE MINORITY INTEREST
    
    
    8,532,377
    
    
    
    10,878,694MINORITY INTEREST
    
    
    376,844
    
    
    
    444,479NET EARNINGS BEFORE TAXES
    
    
    8,155,533
    
    
    
    10,434,215PROVISION FOR INCOME TAXES
    
    
    3,099,102
    
    
    
    4,007,690NET EARNINGS
    
    $
    5,056,431
    
    
    $
    6,426,525BASIC EARNINGS PER SHARE
    
    $
    0.53
    
    
    $
    0.67DILUTED EARNINGS PER SHARE
    
    $
    0.53
    
    
    $
    0.66WEIGHTED AVERAGE SHARES:Basic
    
    
    9,489,221
    
    
    
    9,586,274Diluted
    
    
    9,631,073
    
    
    
    9,737,515
  - 6 -




---



##### Table of Contents



VALLEY NATIONAL GASES INCORPORATED
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
  AccumulatedOther
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Treasury Stock
    
    
    Paid-in-
    
    
    Comprehensive
    
    
    Retained
    
    
    Stockholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Income (Loss)
    
    
    Earnings
    
    
    Equity
    
    
    IncomeBALANCE, June 30, 2004
    
    
    9,620,084
    
    
    
    9,620
    
    
    
    155,500
    
    
    
    (1,291,633
    )
    
    
    18,905,761
    
    
    
    (1,184,309
    )
    
    
    29,668,686
    
    
    
    46,108,125
    
    
    
    Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,370,670
    
    
    
    12,370,670
    
    
    $
    12,370,670Dividend paid, per share $0.09
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (853,928
    )
    
    
    (853,928
    )
    
    
    Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    (110,415
    )
    
    
    917,549
    
    
    
    (142,575
    )
    
    
    
    
    
    
    
    
    
    
    774,974
    
    
    
    Tax benefit from exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    397,141
    
    
    
    
    
    
    
    
    
    
    
    397,141
    
    
    
    Unrealized gains on derivatives
designated and qualified as cash flow
hedges, net of tax provision of $665,159
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    997,739
    
    
    
    
    
    
    
    997,739
    
    
    
    997,739Reclassification of unrealized gains on
derivatives, net of tax provision of $45,176
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,764
    
    
    
    
    
    
    
    67,764
    
    
    
    67,764BALANCE, June 30, 2005
    
    
    9,620,084
    
    
    
    9,620
    
    
    
    45,085
    
    
    
    (374,084
    )
    
    
    19,160,327
    
    
    
    (118,806
    )
    
    $
    41,185,428
    
    
    $
    59,862,485
    
    
    
    13,436,173Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,426,525
    
    
    
    6,426,525
    
    
    
    6,426,525Dividend paid, per share $0.10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (961,377
    )
    
    
    (961,377
    )
    
    
    Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    (42,675
    )
    
    
    354,088
    
    
    
    (80,111
    )
    
    
    
    
    
    
    
    
    
    
    273,977
    
    
    
    Tax benefit from exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124,098
    
    
    
    
    
    
    
    
    
    
    
    124,098
    
    
    
    Non-cash stock compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98,248
    
    
    
    
    
    
    
    
    
    
    
    98,248
    
    
    
    Unrealized gains on derivatives
designated and qualified as cash flow
hedges, net of tax provision of $194,436
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    291,654
    
    
    
    
    
    
    
    291,654
    
    
    
    291,654Reclassification of unrealized gains on
derivatives, net of tax provision of $507
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    760
    
    
    
    
    
    
    
    760
    
    
    
    760BALANCE, December 31, 2005
(unaudited)
    
    
    9,620,084
    
    
    $
    9,620
    
    
    
    2,410
    
    
    $
    (19,996
    )
    
    $
    19,302,562
    
    
    $
    173,608
    
    
    $
    46,650,576
    
    
    $
    66,116,370
    
    
    $
    6,718,939
 The accompanying notes are an integral part of these consolidated financial statements.
 - 7 -




---



##### Table of Contents



VALLEY NATIONAL GASES INCORPORATED
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months EndedDecember 31,2004
    
    
    2005NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    $
    7,011,247
    
    
    $
    7,790,976CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from disposal of assets
    
    
    47,420
    
    
    
    122,882Purchases of property and equipment
    
    
    (5,783,471
    )
    
    
    (4,937,688
    )Business acquisitions, net of cash acquired
    
    
    ___
    
    
    
    (23,715,018
    )Net cash used by investing activities
    
    
    (5,736,051
    )
    
    
    (28,529,824
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from borrowings
    
    
    30,800,455
    
    
    
    50,914,568Principal payments on borrowings
    
    
    (29,139,337
    )
    
    
    (27,607,858
    )Proceeds (repayment) of bank overdraft
    
    
    (668,046
    )
    
    
    100,992Dividend paid
    
    
    (853,928
    )
    
    
    ___Proceeds from exercise of stock options
    
    
    218,024
    
    
    
    273,977Variable interest entity distribution
    
    
    (802,107
    )
    
    
    (760,950
    )Net cash provided (used) by financing activities
    
    
    (444,939
    )
    
    
    22,920,729NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    830,257
    
    
    
    2,181,881CASH AND CASH EQUIVALENTS, beginning of period
    
    
    549,002
    
    
    
    1,322,397CASH AND CASH EQUIVALENTS, end of period
    
    $
    1,379,259
    
    
    $
    3,504,278
  - 8 -




---



##### Table of Contents



VALLEY NATIONAL GASES INCORPORATED
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 BASIS OF PRESENTATION:
   ORGANIZATION
  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    - 9 -




---



##### Table of Contents



2004
    
    
    2005Balance, June 30
    
    $
    747,309
    
    
    $
    672,822Write-off of doubtful accounts
    
    
    (185,025
    )
    
    
    (178,732
    )Provision for doubtful accounts
    
    
    299,187
    
    
    
    468,123Balance, December 31
    
    $
    861,471
    
    
    $
    962,213
    June 30,
    
    
    December 31,2005
    
    
    2005(Unaudited)Hard goods
    
    $
    8,258,169
    
    
    $
    10,196,437Gases
    
    
    2,010,299
    
    
    
    2,538,361Reserves
    
    
    (399,494
    )
    
    
    (992,896
    )$
    9,868,974
    
    
    $
    11,741,902
         - 10 -




---



##### Table of Contents



- 11 -




---



##### Table of Contents



For the Six Months EndedDecember 31,2004
    
    
    2005Non-cash financing activity and investing activity __Dividend payable
    
    
    
    
    
    
    961,377Non-cash adjustment to goodwill
    
    
    
    
    
    
    570,221Fixed asset purchases in accounts payable
    
    
    159,505
    
    
    
    270,656
   ACQUISITIONS:
  - 12 -




---



##### Table of Contents



Cash and cash equivalents
    
    $
    424Accounts receivable
    
    
    2,724Inventory
    
    
    2,374Fixed assets including cylinders, bulk
tanks and other equipment
    
    
    15,273Non-compete agreements
    
    
    374Customer relationships
    
    
    1,682Goodwill
    
    
    9,201Accounts payable
    
    
    (842
    )Accrued compensation
    
    
    (167
    )Other liabilities
    
    
    (1,440
    )Deferred income taxes
    
    
    (5,012
    )Debt
    
    
    (374
    )Net assets acquired
    
    $
    24,217Professional fees paid
    
    
    (78
    )Cash acquired
    
    
    (424
    )Total purchase price
    
    $
    23,715
   - 13 -




---



##### Table of Contents



Six Months EndedDecember 31,2005
    
    
    2004Net sales
    
    $
    106,361,000
    
    
    $
    90,427,000Net earnings before income taxes
    
    
    10,340,000
    
    
    
    8,453,000Pro forma net earnings
    
    
    6,368,000
    
    
    
    5,338,000Pro forma diluted earnings per share
    
    $
    0.65
    
    
    $
    0.55
 GOODWILL AND INTANGIBLE ASSETS:
  Accumulated
    
    
    
    
    
    
    AccumulatedGross
    
    
    Amortization
    
    
    
    
    
    
    Amortization
    
    
    WeightedAmount
    
    
    as of
    
    
    Gross Amount as of
    
    
    as of
    
    
    Averageas of
    
    
    June 30,
    
    
    December 31, 2005
    
    
    December 31, 2005
    
    
    Amortization PeriodJune 30, 2005
    
    
    2005
    
    
    (unaudited)
    
    
    (unaudited)
    
    
    (years)Non-competition
agreements
    
    $
    8,443,480
    
    
    $
    7,196,332
    
    
    $
    8,816,980
    
    
    $
    7,579,234
    
    
    
    9.0Consulting
agreements
    
    
    150,000
    
    
    
    70,833
    
    
    
    150,000
    
    
    
    95,833
    
    
    
    3.0Customer
relationships
    
    
    1,342,893
    
    
    
    62,150
    
    
    
    3,024,423
    
    
    
    112,685
    
    
    
    17.5Total
    
    $
    9,936,373
    
    
    $
    7,329,315
    
    
    $
    11,991,403
    
    
    $
    7,787,752
  Fiscal year EndingJune 30,Remainder of 2006
    
    $
    315,4612007
    
    $
    610,0892008
    
    $
    568,8392009
    
    $
    297,6252010
    
    $
    188,5882011
    
    $
    188,588
  Balance as of June 30, 2005
    
    $
    45,482,910Goodwill acquired and final purchase
price adjustments
    
    
    9,777,742Balance as of December 31, 2005
    
    $
    55,260,652
  - 14 -




---



##### Table of Contents



EARNINGS PER SHARE
  Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2005
    
    
    2004
    
    
    2005Net earnings available for common stock
    
    $
    3,493,057
    
    
    $
    4,390,710
    
    
    $
    5,056,431
    
    
    $
    6,426,525Basic earnings per common share:Weighted average common shares
    
    
    9,492,746
    
    
    
    9,596,067
    
    
    
    9,489,221
    
    
    
    9,586,274Basic earnings per common share
    
    $
    0.37
    
    
    $
    0.46
    
    
    $
    0.53
    
    
    $
    0.67Diluted earnings per common share:Weighted average common shares
    
    
    9,492,746
    
    
    
    9,596,067
    
    
    
    9,489,221
    
    
    
    9,586,274Shares issuable from assumed
conversion of common stock equivalents
    
    
    162,477
    
    
    
    156,720
    
    
    
    141,852
    
    
    
    151,241Weighted average common and common
equivalent shares
    
    
    9,655,223
    
    
    
    9,752,787
    
    
    
    9,631,073
    
    
    
    9,737,515Diluted earnings per common share
    
    $
    0.36
    
    
    $
    0.45
    
    
    $
    0.53
    
    
    $
    0.66
  LEASE OBLIGATIONS
    - 15 -




---



##### Table of Contents



Fiscal year ending
    
    
    
    
    
    
    
    
    
    
    
    
    
    Elimination
    
    
    FinalJune 30,
    
    Real Estate
    
    
    Equipment
    
    
    Subtotal
    
    
    (1)
    
    
    TotalRemainder of 2006
    
    $
    2,063,266
    
    
    $
    25,350
    
    
    $
    2,088,616
    
    
    $
    1,231,843
    
    
    $
    856,7732007
    
    
    4,172,887
    
    
    
    26,100
    
    
    
    4,198,987
    
    
    
    2,499,433
    
    
    
    1,699,5542008
    
    
    4,277,210
    
    
    
    
    
    
    
    4,277,210
    
    
    
    2,561,919
    
    
    
    1,715,2912009
    
    
    4,384,140
    
    
    
    
    
    
    
    4,384,140
    
    
    
    2,625,967
    
    
    
    1,758,1732010
    
    
    4,493,743
    
    
    
    
    
    
    
    4,493,743
    
    
    
    2,691,616
    
    
    
    1,802,1272011
    
    
    4,606,087
    
    
    
    
    
    
    
    4,606,087
    
    
    
    2,758,907
    
    
    
    1,847,180Totals
    
    $
    23,997,333
    
    
    $
    51,450
    
    
    $
    24,048,783
    
    
    $
    14,369,685
    
    
    $
    9,679,098
 
 (1)
    
    Reflects the elimination of intercompany rent as a result of FIN 46R, Consolidation of
Variable Interest Entities. COMMITMENTS AND CONTINGENCIES
    - 16 -




---



##### Table of Contents



VARIABLE INTEREST ENTITIES
    - 17 -




---



##### Table of Contents



A S S E T S
 As of December 31, 2005(unaudited)VariableInterestValley
    
    
    EntitiesSegment
    
    
    Segment
    
    
    Eliminations
    
    
    CompanyCURRENT ASSETS:Cash and cash equivalents
    
    $
    2,621,427
    
    
    $
    882,851
    
    
    $
    
    
    
    $
    3,504,278Accounts receivable, net of
allowance for doubtful accounts
of $962,213
    
    
    27,610,264
    
    
    
    250,072
    
    
    
    (117,696
    )
    
    
    27,742,640Inventory
    
    
    11,741,902
    
    
    
    
    
    
    
    
    
    
    
    11,741,902Prepaids and other
    
    
    1,462,135
    
    
    
    11,264
    
    
    
    
    
    
    
    1,473,399Current deferred tax asset
    
    
    1,722,153
    
    
    
    
    
    
    
    
    
    
    
    1,722,153Refundable taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total current assets
    
    
    45,157,881
    
    
    
    1,144,187
    
    
    
    (117,696
    )
    
    
    46,184,372PROPERTY, PLANT AND EQUIPMENT:Land
    
    
    175,000
    
    
    
    2,022,415
    
    
    
    
    
    
    
    2,197,415Buildings and improvements
    
    
    8,400,643
    
    
    
    14,486,271
    
    
    
    
    
    
    
    22,886,914Equipment
    
    
    114,814,863
    
    
    
    1,397,653
    
    
    
    
    
    
    
    116,212,516Transportation equipment
    
    
    21,096,668
    
    
    
    173,249
    
    
    
    
    
    
    
    21,269,917Furniture and fixtures
    
    
    9,078,487
    
    
    
    182,656
    
    
    
    
    
    
    
    9,261,143Total property, plant and
equipment
    
    
    153,565,661
    
    
    
    18,262,244
    
    
    
    
    
    
    
    171,827,905Accumulated depreciation
    
    
    (55,968,756
    )
    
    
    (4,927,016
    )
    
    
    
    
    
    
    (60,895,772
    )Net property, plant and
equipment
    
    
    97,596,905
    
    
    
    13,335,228
    
    
    
    
    
    
    
    110,932,133OTHER ASSETS:Intangible assets, net of
accumulated amortization of   $7,787,752
    
    
    4,203,651
    
    
    
    
    
    
    
    
    
    
    
    4,203,651Goodwill
    
    
    55,260,652
    
    
    
    
    
    
    
    
    
    
    
    55,260,652Deposits and other assets
    
    
    537,247
    
    
    
    13,742
    
    
    
    
    
    
    
    550,989Total other assets
    
    
    60,001,550
    
    
    
    13,742
    
    
    
    
    
    
    
    60,015,292TOTAL ASSETS
    
    $
    202,756,336
    
    
    $
    14,493,157
    
    
    $
    (117,696
    )
    
    $
    217,131,797
 - 18 -




---



##### Table of Contents



LIABILITIES AND STOCKHOLDERS EQUITY
 As of December 31, 2005(unaudited)Variable InterestValley
    
    
    EntitiesSegment
    
    
    Segment
    
    
    Eliminations
    
    
    CompanyCURRENT LIABILITIES:Current maturities of long-term
debt
    
    $
    927,660
    
    
    $
    3,270,042
    
    
    $
    
    
    
    $
    4,197,702Bank overdraft
    
    
    
    
    
    
    100,992
    
    
    
    
    
    
    
    100,992Accounts payable
    
    
    12,603,623
    
    
    
    310,630
    
    
    
    
    
    
    
    12,914,253Accrued compensation and employee
benefits
    
    
    4,106,160
    
    
    
    2,481
    
    
    
    
    
    
    
    4,108,641Other current liabilities
    
    
    7,032,616
    
    
    
    187,382
    
    
    
    (117,696
    )
    
    
    7,102,302Total current
liabilities
    
    
    24,670,059
    
    
    
    3,871,527
    
    
    
    (117,696
    )
    
    
    28,423,890LONG-TERM DEBT, less current maturities
    
    
    78,040,115
    
    
    
    5,819,101
    
    
    
    
    
    
    
    83,859,216DEFERRED TAX LIABILITY
    
    
    33,198,411
    
    
    
    
    
    
    
    
    
    
    
    33,198,411OTHER LONG-TERM LIABILITIES
    
    
    731,381
    
    
    
    
    
    
    
    
    
    
    
    731,381Total liabilities
    
    
    136,639,966
    
    
    
    9,690,628
    
    
    
    (117,696
    )
    
    
    146,212,898MINORITY INTEREST IN VARIABLE INTEREST
ENTITIES
    
    
    
    
    
    
    
    
    
    
    4,802,529
    
    
    
    4,802,529COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Preferred stock, par value, $.01
per share Authorized, 5,000,000 shares,
none Issued or OutstandingCommon stock, par value, $.001 per
share Authorized, 30,000,000 shares;
Issued, 9,620,084 shares,
Outstanding, 9,617,674 shares
    
    
    9,620
    
    
    
    3,800
    
    
    
    (3,800
    )
    
    
    9,620Paid-in-capital
    
    
    19,302,562
    
    
    
    335,985
    
    
    
    (335,985
    )
    
    
    19,302,562Retained earnings
    
    
    46,650,576
    
    
    
    4,462,744
    
    
    
    (4,462,744
    )
    
    
    46,650,576Accumulated other comprehensive
income (loss)
    
    
    173,608
    
    
    
    
    
    
    
    
    
    
    
    173,608Treasury stock at cost, 2,410
shares
    
    
    (19,996
    )
    
    
    
    
    
    
    
    
    
    
    (19,996
    )Total stockholders
equity
    
    
    66,116,370
    
    
    
    4,802,529
    
    
    
    (4,802,529
    )
    
    
    66,116,370TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    202,756,336
    
    
    $
    14,493,157
    
    
    $
    (117,696
    )
    
    $
    217,131,797
 - 19 -




---



##### Table of Contents



A S S E T S
 As of June 30, 2005VariableInterestValley
    
    
    EntitiesSegment
    
    
    Segment
    
    
    Eliminations
    
    
    CompanyCURRENT ASSETS:Cash and cash equivalents
    
    $
    548,925
    
    
    $
    773,472
    
    
    $
    
    
    
    $
    1,322,397Accounts receivable, net of
allowance for doubtful accounts
of $672,822
    
    
    16,825,355
    
    
    
    248,851
    
    
    
    (117,696
    )
    
    
    16,956,510Inventory
    
    
    9,868,974
    
    
    
    
    
    
    
    
    
    
    
    9,868,974Prepaids and other
    
    
    1,026,410
    
    
    
    10,000
    
    
    
    
    
    
    
    1,036,410Current deferred tax asset
    
    
    1,774,379
    
    
    
    
    
    
    
    
    
    
    
    1,774,379Refundable taxes
    
    
    1,471,519
    
    
    
    
    
    
    
    
    
    
    
    1,471,519Total current assets
    
    
    31,515,562
    
    
    
    1,032,323
    
    
    
    (117,696
    )
    
    
    32,430,189PROPERTY, PLANT AND EQUIPMENT:Land
    
    
    75,000
    
    
    
    2,024,915
    
    
    
    
    
    
    
    2,099,915Buildings and improvements
    
    
    7,512,593
    
    
    
    13,904,065
    
    
    
    
    
    
    
    21,416,658Equipment
    
    
    99,138,620
    
    
    
    1,193,886
    
    
    
    
    
    
    
    100,332,506Transportation equipment
    
    
    19,075,833
    
    
    
    173,249
    
    
    
    
    
    
    
    19,249,082Furniture and fixtures
    
    
    8,581,988
    
    
    
    174,322
    
    
    
    
    
    
    
    8,756,310Total property, plant and
equipment
    
    
    134,384,034
    
    
    
    17,470,437
    
    
    
    
    
    
    
    151,854,471Accumulated depreciation
    
    
    (53,073,285
    )
    
    
    (4,663,811
    )
    
    
    
    
    
    
    (57,737,096
    )Net property, plant and
equipment
    
    
    81,310,749
    
    
    
    12,806,626
    
    
    
    
    
    
    
    94,117,375OTHER ASSETS:Intangible assets, net of
accumulated amortization of
$7,329,315
    
    
    2,607,058
    
    
    
    
    
    
    
    
    
    
    
    2,607,058Goodwill
    
    
    45,482,910
    
    
    
    
    
    
    
    
    
    
    
    45,482,910Deposits and other assets
    
    
    434,687
    
    
    
    13,742
    
    
    
    
    
    
    
    448,429Total other assets
    
    
    48,524,655
    
    
    
    13,742
    
    
    
    
    
    
    
    48,538,397TOTAL ASSETS
    
    $
    161,350,966
    
    
    $
    13,852,691
    
    
    $
    (117,696
    )
    
    $
    175,085,961
 - 20 -




---



##### Table of Contents



As of June 30, 2005VariableInterestValley
    
    
    EntitiesSegment
    
    
    Segment
    
    
    Eliminations
    
    
    CompanyCURRENT LIABILITIES:Current maturities of
long-term debt
    
    $
    1,434,427
    
    
    $
    2,240,017
    
    
    $
    
    
    
    $
    3,674,444Accounts payable
    
    
    8,390,239
    
    
    
    288,818
    
    
    
    
    
    
    
    8,679,057Accrued compensation and
employee benefits
    
    
    4,181,792
    
    
    
    
    
    
    
    
    
    
    
    4,181,792Interest rate derivatives
    
    
    196,741
    
    
    
    
    
    
    
    
    
    
    
    196,741Other current liabilities
    
    
    4,846,043
    
    
    
    111,870
    
    
    
    (117,696
    )
    
    
    4,840,217Total current liabilities
    
    
    19,049,242
    
    
    
    2,640,705
    
    
    
    (117,696
    )
    
    
    21,572,251LONG-TERM DEBT, less current
maturities
    
    
    54,832,776
    
    
    
    6,092,987
    
    
    
    
    
    
    
    60,925,763DEFERRED TAX LIABILITY
    
    
    26,935,848
    
    
    
    
    
    
    
    
    
    
    
    26,935,848OTHER LONG-TERM LIABILITIES
    
    
    670,615
    
    
    
    
    
    
    
    
    
    
    
    670,615Total liabilities
    
    
    101,488,481
    
    
    
    8,733,692
    
    
    
    (117,696
    )
    
    
    110,104,477MINORITY INTEREST IN VARIABLE
INTEREST ENTITIES
    
    
    
    
    
    
    
    
    
    
    5,118,999
    
    
    
    5,118,999COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Preferred stock, par value,
$.01 per share Authorized, 5,000,000 shares,
none Issued or OutstandingCommon stock, par value, $.001
Per share- Authorized, 30,000,000 shares;Issued, 9,620,084 shares,
Outstanding, 9,574,999 shares
    
    
    9,620
    
    
    
    3,800
    
    
    
    (3,800
    )
    
    
    9,620Paid-in-capital
    
    
    19,160,327
    
    
    
    335,985
    
    
    
    (335,985
    )
    
    
    19,160,327Retained earnings
    
    
    41,185,428
    
    
    
    4,779,214
    
    
    
    (4,779,214
    )
    
    
    41,185,428Accumulated other
comprehensive income (loss)
    
    
    (118,806
    )
    
    
    
    
    
    
    
    
    
    
    (118,806
    )Treasury stock at cost, 45,085
shares
    
    
    (374,084
    )
    
    
    
    
    
    
    
    
    
    
    (374,084
    )Total stockholders equity
    
    
    59,862,485
    
    
    
    5,118,999
    
    
    
    (5,118,999
    )
    
    
    59,862,485TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY
    
    $
    161,350,966
    
    
    $
    13,852,691
    
    
    $
    (117,696
    )
    
    $
    175,085,961
 -21-




---



##### Table of Contents



VariableInterestValley
    
    
    EntitiesSegment
    
    
    Segment
    
    
    Eliminations
    
    CompanyNET SALES
    
    $
    98,081,347
    
    
    $
    1,187,890
    
    
    $
    (1,187,890
    )
    
    $
    98,081,347COSTS AND EXPENSESCost of products sold,
excluding depreciation
    
    
    48,378,808
    
    
    
    
    
    
    
    
    
    
    
    48,378,808Operating, distribution and
administrative
    
    
    33,647,716
    
    
    
    420,651
    
    
    
    (1,187,890
    )
    
    
    32,880,477Depreciation
    
    
    3,507,919
    
    
    
    289,997
    
    
    
    
    
    
    
    3,797,916Amortization of intangibles
    
    
    458,437
    
    
    
    
    
    
    
    
    
    
    
    458,437Gain on disposal of assets
    
    
    (36,332
    )
    
    
    (28,683
    )
    
    
    
    
    
    
    (65,015
    )Total costs and expenses
    
    
    85,956,548
    
    
    
    681,965
    
    
    
    (1,187,890
    )
    
    
    85,450,623INCOME FROM OPERATIONS
    
    
    12,124,799
    
    
    
    505,925
    
    
    
    
    
    
    
    12,630,724INTEREST EXPENSE
    
    
    1,898,323
    
    
    
    174,248
    
    
    
    
    
    
    
    2,072,571OTHER INCOME, NET
    
    
    207,739
    
    
    
    112,802
    
    
    
    
    
    
    
    320,541EARNINGS BEFORE MINORITY INTEREST
    
    
    10,434,215
    
    
    
    444,479
    
    
    
    
    
    
    
    10,878,694MINORITY INTEREST
    
    
    
    
    
    
    444,479
    
    
    
    
    
    
    
    444,479NET EARNINGS BEFORE TAXES
    
    
    10,434,215
    
    
    
    
    
    
    
    
    
    
    
    10,434,215PROVISION FOR INCOME TAXES
    
    
    4,007,690
    
    
    
    
    
    
    
    
    
    
    
    4,007,690NET EARNINGS
    
    $
    6,426,525
    
    
    $
    
    
    
    $
    
    
    
    $
    6,426,525
  VariableInterestValley
    
    
    EntitiesSegment
    
    
    Segment
    
    
    Eliminations
    
    
    CompanyNET SALES
    
    $
    79,403,892
    
    
    $
    1,024,797
    
    
    $
    (1,024,797
    )
    
    $
    79,403,892COSTS AND EXPENSESCost of products sold, excluding
Depreciation
    
    
    37,549,164
    
    
    
    
    
    
    
    
    
    
    
    37,549,164Operating, distribution and
Administrative
    
    
    27,839,849
    
    
    
    393,321
    
    
    
    (1,024,797
    )
    
    
    27,208,373Depreciation
    
    
    3,060,000
    
    
    
    263,367
    
    
    
    
    
    
    
    3,323,367Amortization of intangibles
    
    
    622,221
    
    
    
    56
    
    
    
    
    
    
    
    622,277Loss on disposal of assets
    
    
    61,272
    
    
    
    
    
    
    
    
    
    
    
    61,272Total costs and expenses
    
    
    69,132,506
    
    
    
    656,744
    
    
    
    (1,024,797
    )
    
    
    68,764,453INCOME FROM OPERATIONS
    
    
    10,271,386
    
    
    
    368,053
    
    
    
    
    
    
    
    10,639,439INTEREST EXPENSE
    
    
    2,241,782
    
    
    
    106,416
    
    
    
    
    
    
    
    2,348,198OTHER INCOME, NET
    
    
    125,929
    
    
    
    115,207
    
    
    
    
    
    
    
    241,136EARNINGS BEFORE MINORITY INTEREST
    
    
    8,155,533
    
    
    
    376,844
    
    
    
    
    
    
    
    8,532,377MINORITY INTEREST
    
    
    
    
    
    
    376,844
    
    
    
    
    
    
    
    376,844NET EARNINGS BEFORE TAXES
    
    
    8,155,533
    
    
    
    
    
    
    
    
    
    
    
    8,155,533PROVISION FOR INCOME TAXES
    
    
    3,099,102
    
    
    
    
    
    
    
    
    
    
    
    3,099,102NET EARNINGS
    
    $
    5,056,431
    
    
    
    
    
    
    
    
    
    
    $
    5,056,431
 - 22 -




---



##### Table of Contents



Variable InterestValley
    
    
    EntitiesSegment
    
    
    Segment
    
    
    Eliminations
    
    
    CompanyNET SALES
    
    $
    56,418,116
    
    
    $
    600,896
    
    
    $
    (600,896
    )
    
    $
    56,418,116COSTS AND EXPENSESCost of products sold, excluding
depreciation
    
    
    28,426,906
    
    
    
    
    
    
    
    
    
    
    
    28,426,906Operating, distribution and
administrative
    
    
    17,845,061
    
    
    
    199,071
    
    
    
    (600,896
    )
    
    
    17,443,236Depreciation
    
    
    1,854,519
    
    
    
    151,015
    
    
    
    
    
    
    
    2,005,534Amortization of intangibles
    
    
    219,580
    
    
    
    
    
    
    
    
    
    
    
    219,580Loss on disposal of assets
    
    
    (27,557
    )
    
    
    
    
    
    
    
    
    
    
    (27,557
    )Total costs and expenses
    
    
    48,318,509
    
    
    
    350,086
    
    
    
    (600,896
    )
    
    
    48,067,699INCOME FROM OPERATIONS
    
    
    8,099,607
    
    
    
    250,810
    
    
    
    
    
    
    
    8,350,417INTEREST EXPENSE
    
    
    1,081,301
    
    
    
    100,314
    
    
    
    
    
    
    
    1,181,615OTHER INCOME, NET
    
    
    78,506
    
    
    
    36,842
    
    
    


    
    
    
    115,348EARNINGS BEFORE MINORITY INTEREST
    
    
    7,096,812
    
    
    
    187,338
    
    
    
    
    
    
    
    7,284,150MINORITY INTEREST
    
    
    
    
    
    
    187,338
    
    
    
    
    
    
    
    187,338NET EARNINGS BEFORE TAXES
    
    
    7,096,812
    
    
    
    
    
    
    
    
    
    
    
    7,096,812PROVISION FOR INCOME TAXES
    
    
    2,706,102
    
    
    
    
    
    
    
    
    
    
    
    2,706,102NET EARNINGS
    
    $
    4,390,710
    
    
    
    
    
    
    
    
    
    
    $
    4,390,710
  Variable InterestValley
    
    
    EntitiesSegment
    
    
    Segment
    
    
    Eliminations
    
    
    CompanyNET SALES
    
    $
    43,203,376
    
    
    $
    524,947
    
    
    $
    (524,947
    )
    
    $
    43,203,376COSTS AND EXPENSESCost of products sold, excluding
Depreciation
    
    
    20,635,179
    
    
    
    
    
    
    
    
    
    
    
    20,635,179Operating, distribution and
Administrative
    
    
    14,006,145
    
    
    
    191,387
    
    
    
    (524,947
    )
    
    
    13,672,585Depreciation
    
    
    1,590,000
    
    
    
    161,240
    
    
    
    
    
    
    
    1,751,240Amortization of intangibles
    
    
    278,531
    
    
    
    28
    
    
    
    
    
    
    
    278,559Loss on disposal of assets
    
    
    43,113
    
    
    
    
    
    
    
    
    
    
    
    43,113Total costs and expenses
    
    
    36,532,968
    
    
    
    352,655
    
    
    
    (524,947
    )
    
    
    36,380,676INCOME FROM OPERATIONS
    
    
    6,650,408
    
    
    
    172,292
    
    
    
    
    
    
    
    6,822,700INTEREST EXPENSE
    
    
    1,091,122
    
    
    
    57,085
    
    
    
    
    
    
    
    1,148,207OTHER INCOME, NET
    
    
    74,676
    
    
    
    63,688
    
    
    
    
    
    
    
    138,364EARNINGS BEFORE MINORITY INTEREST
    
    
    5,633,962
    
    
    
    178,895
    
    
    
    
    
    
    
    5,812,857MINORITY INTEREST
    
    
    
    
    
    
    178,895
    
    
    
    
    
    
    
    178,895NET EARNINGS BEFORE TAXES
    
    
    5,633,962
    
    
    
    
    
    
    
    
    
    
    
    5,633,962PROVISION FOR INCOME TAXES
    
    
    2,140,905
    
    
    
    
    
    
    
    
    
    
    
    2,140,905NET EARNINGS
    
    $
    3,493,057
    
    
    
    
    
    
    
    
    
    
    $
    3,493,057
 SEGMENT DATA
   - 23 -




---



##### Table of Contents



June 30,
    
    
    December 31,2005
    
    
    2005Valley
    
    $
    161,350,966
    
    
    $
    202,756,336Variable Interest Entities
    
    
    13,734,995
    
    
    
    14,375,461Total assets
    
    $
    175,085,961
    
    
    $
    217,131,797
  
 Item 2.
    
    Managements Discussion and Analysis of
Financial Condition and Results of Operations
  Forward-Looking Statements
       - 24 -




---



##### Table of Contents



- 25 -




---



##### Table of Contents



TRADE RECEIVABLES
  INVENTORIES
  - 26 -




---



##### Table of Contents



GOODWILL AND OTHER INTANGIBLE ASSETS
  EMPLOYEE HEALTH CARE BENEFITS RESERVES
  VALUATION OF LONG-LIVED ASSETS
  INCOME TAXES
  - 27 -




---



##### Table of Contents



VARIABLE INTEREST ENTITIES
    Three Months Ended
    
    Six Months EndedDecember 31,
    
    December 31,2005
    
    2004
    
    2005
    
    2004Net Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of products sold, excluding
depreciation
    
    
    50.4
    
    
    
    47.8
    
    
    
    49.3
    
    
    
    47.3Operating, distribution and
administrative
    
    
    30.8
    
    
    
    31.6
    
    
    
    33.5
    
    
    
    34.3Depreciation
    
    
    3.6
    
    
    
    4.1
    
    
    
    3.8
    
    
    
    4.1Amortization of intangibles
    
    
    0.4
    
    
    
    0.6
    
    
    
    0.5
    
    
    
    0.8Total costs and expenses
    
    
    85.2
    
    
    
    84.1
    
    
    
    87.1
    
    
    
    86.5Income from operations
    
    
    14.8
    
    
    
    15.9
    
    
    
    12.9
    
    
    
    13.5Interest expense
    
    
    2.1
    
    
    
    2.7
    
    
    
    2.1
    
    
    
    2.9Other income, net
    
    
    0.3
    
    
    
    0.2
    
    
    
    0.4
    
    
    
    0.2Earnings before minority interest
    
    
    13.0
    
    
    
    13.4
    
    
    
    11.2
    
    
    
    10.8Minority interest
    
    
    0.3
    
    
    
    0.4
    
    
    
    0.5
    
    
    
    0.5Net earnings before taxes
    
    
    12.7
    
    
    
    13.0
    
    
    
    10.7
    
    
    
    10.3Provision for income taxes
    
    
    4.8
    
    
    
    5.0
    
    
    
    4.1
    
    
    
    3.9Net earnings
    
    
    7.9
    %
    
    
    8.0
    %
    
    
    6.6
    %
    
    
    6.4
    %
  Comparison of Three Months Ended December 31, 2005 and 2004
  - 28 -




---



##### Table of Contents



Comparison of Six Months Ended December 31, 2005 and 2004
  - 29 -




---



##### Table of Contents



- 30 -




---



##### Table of Contents



Payments Due By Period (In Thousands)Less Than
    
    
    1-3
    
    
    4-5
    
    
    More ThanContractual Obligations
    
    Total
    
    
    6 Months
    
    
    Years
    
    
    Years
    
    
    5 YearsLong-Term Debt Including
Current Maturities
    
    $
    88,057
    
    
    $
    3,315
    
    
    $
    81,002
    
    
    $
    1,548
    
    
    $
    2,192Estimated Interest Payments
    
    
    15,767
    
    
    
    2,519
    
    
    
    12,841
    
    
    
    314
    
    
    
    93Interest Rate Swap Payments
    
    
    2,645
    
    
    
    575
    
    
    
    2,070
    
    
    
    ___
    
    
    
    ___Interest Rate Swap Receipts
    
    
    (2,530
    )
    
    
    (550
    )
    
    
    (1,980
    )
    
    
    ___
    
    
    
    ___Operating Leases, Net of
Intercompany Eliminations
    
    
    9,679
    
    
    
    857
    
    
    
    5,173
    
    
    
    3,649
    
    
    
    ___Purchase Obligations
    
    
    2,668
    
    
    
    1,334
    
    
    
    1,334
    
    
    
    ___
    
    
    
    ___Total Obligations
    
    $
    116,286
    
    
    $
    8,050
    
    
    $
    100,440
    
    
    $
    5,511
    
    
    $
    2,285
    - 31 -




---



##### Table of Contents



Variable InterestFiscal year ending June 30,
    
    Valley
    
    
    Entities
    
    
    CompanyRemainder of 2006
    
    $
    459,268
    
    
    $
    2,855,784
    
    
    $
    3,315,0522007
    
    $
    710,798
    
    
    $
    834,090
    
    
    $
    1,544,8882008
    
    $
    299,613
    
    
    $
    861,339
    
    
    $
    1,160,9522009
    
    $
    77,404,365
    
    
    $
    891,801
    
    
    $
    78,296,1662010
    
    $
    61,708
    
    
    $
    823,940
    
    
    $
    885,6482011
    
    $
    32,024
    
    
    $
    630,710
    
    
    $
    662,734Thereafter
    
    $
    ___
    
    
    $
    2,191,478
    
    
    $
    2,191,478Total
    
    $
    78,967,776
    
    
    $
    9,089,142
    
    
    $
    88,056,918
     - 32 -




---



##### Table of Contents



New Accounting Standards
     
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  - 33 -




---



##### Table of Contents



Balance of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    There
    
    
    
    
    
    
    Fair2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    After
    
    
    Total
    
    
    Value(In Thousands)LiabilitiesLong term
debt - ValleyFixed rate
    
    $
    459
    
    
    $
    711
    
    
    $
    300
    
    
    $
    189
    
    
    $
    62
    
    
    $
    32
    
    
    $
    1,752
    
    
    $
    1,554Average interest rate
    
    
    8.86
    %
    
    
    6.43
    %
    
    
    6.37
    %
    
    
    4.55
    %
    
    
    4.82
    %
    
    
    4.90
    %Variable rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    77,216
    
    
    
    
    
    
    
    
    
    
    $
    77,216
    
    
    $
    77,216Average interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.43
    %Long term
debt - Variable InterestEntities mortgage debtFixed rate
    
    $
    2,856
    
    
    $
    834
    
    
    $
    861
    
    
    $
    892
    
    
    $
    824
    
    
    $
    2,822
    
    
    $
    9,089
    
    
    $
    7,521Average interest rate
    
    
    7.60
    %
    
    
    5.74
    %
    
    
    4.71
    %
    
    
    4.75
    %
    
    
    4.79
    %
    
    
    4.72
    %Interest rate swapsVariable to fixed
    
    $
    40,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    289Average pay rate
    
    
    4.6
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Average receive rate
    
    
    4.4
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commitments
    
    
    
    
    
    
    
    
    
    
    
    
    
    $Operating leases
    
    $
    2,089
    
    
    $
    4,199
    
    
    $
    4,277
    
    
    $
    4,384
    
    
    $
    4,494
    
    
    $
    4,606
    
    
    $
    24,049Intercompany
elimination (1)
    
    
    1,232
    
    
    
    2,499
    
    
    
    2,562
    
    
    
    2,626
    
    
    
    2,692
    
    
    
    2,759
    
    
    
    14,370Company total
    
    $
    857
    
    
    $
    1,700
    
    
    $
    1,715
    
    
    $
    1,758
    
    
    $
    1,802
    
    
    $
    1,847
    
    
    $
    9,679
 
 (1)
    
    Reflects the elimination of intercompany rent as a result of FIN 46R,
Consolidation of Variable Interest Entities at December 31, 2005. 
 Item 4. Controls and Procedures
     - 34 -




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 6. Exhibit Index
 10.1
    
    Second Amendment to Third Amended
and Restated Credit Agreement31.1
    
    Certification of the Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of the Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of the Chief Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of the Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
 - 35 -




---



##### Table of Contents



SIGNATURES
  VALLEY NATIONAL GASES INCORPORATEDFebruary 14, 2006
    
    /s/ James P. Hart

James P. HartChief Financial Officer andDuly Authorized Officer
 - 36 -