FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________to ____________
Commission File number 1-7924
VALLEY RESOURCES, INC.
(Exact name of Registrant as specified in its charter)
Rhode Island 05-0384723
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1595 Mendon Road 02864
Cumberland, Rhode Island (Zip Code)
(Address of principal executive offices)
(401) 334-1188
(Registrant's telephone number, including area code)
Not Applicable
(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, 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 latest practicable date.
Outstanding at
Class of Common Stock February 28, 1997
$1 Par Value 4,265,606
VALLEY RESOURCES, INC.
FORM 10-Q
FEBRUARY 28, 1997
Page of
Form 10-Q
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Operations--for
the three- and six-months ended February 28, 1997
and 1996....................................................... 3
Consolidated Condensed Balance Sheets--February 28,
1997 and August 31, 1996................................... 4 & 5
Consolidated Condensed Statements of Cash Flows--for
the six-months ended February 28, 1997 and 1996................ 6
Notes to Consolidated Condensed Financial Statements........... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 8
Item 6(a) Exhibits....................................................... 9
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 9
PART I: FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
VALLEY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited)
3 Months Ended 6 Months Ended
Feb. 28, Feb. 29, Feb. 28, Feb. 29,
1997 1996 1997 1996
(in thousands except share and per share numbers)
Operating Revenues:
Utility Gas Revenues $ 25,177 $ 24,563 $ 36,123 $ 33,962
Nonutility Revenues 5,755 5,687 11,149 10,383
---------- ---------- ---------- ----------
Total 30,932 30,250 47,272 44,345
---------- ---------- ---------- ----------
Operating Expenses:
Cost of Gas Sold 14,175 12,746 20,578 17,798
Cost of Sales - Nonutility 3,894 3,961 7,720 7,277
Operations 4,698 4,713 9,255 8,981
Maintenance 388 414 826 803
Depreciation and Amortization 778 750 1,555 1,462
Taxes - Other Than Federal Income 1,352 1,321 2,224 2,153
- Federal Income 1,631 1,889 1,122 1,409
---------- ---------- ---------- ----------
Total 26,916 25,794 43,280 39,883
---------- ---------- ---------- ----------
Operating Income 4,016 4,456 3,992 4,462
Other Income - Net of Tax 93 233 158 271
---------- ---------- ---------- ----------
Total Income 4,109 4,689 4,150 4,733
---------- ---------- ---------- ----------
Interest Charges:
Long-Term Debt 477 479 964 948
Other 372 355 698 706
---------- ---------- ---------- ----------
Total 849 834 1,662 1,654
---------- ---------- ---------- ----------
Net Income $ 3,260 $ 3,855 $ 2,488 $ 3,079
========== ========== ========== ==========
Average Number of Common
Shares Outstanding 4,261,726 4,258,330 4,261,672 4,250,996
Earnings Per Average Common Share
Outstanding $ 0.76 $ 0.91 $ 0.58 $ 0.72
Dividends Declared on Common Stock $ 0.1825 $ 0.18 $ 0.365 $ 0.36
The accompanying Notes are an integral part of these statements.
3
VALLEY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited)
Feb. 28, Aug. 31,
1997 1996
-------- --------
(in thousands)
ASSETS
Utility Plant - Net $ 49,876 $ 49,442
-------- --------
Leased Property - Net 2,638 2,945
-------- --------
Nonutility Property-Net 3,657 3,568
-------- --------
Other Investments 1,531 1,510
-------- --------
Current Assets:
Cash 692 507
Accounts Receivable - Net 16,746 9,946
Deferred Fuel Costs 3,208 827
Deferred Unbilled Gas Costs 1,603 439
Fuel and Other Inventories (Note 3) 4,716 6,048
Prepayments 701 1,409
Common Stock held for Dividend Reinvestment-amounting
to 14,422 and 10,813 shares respectively (Note 4) 177 131
-------- --------
Total 27,843 19,307
-------- --------
Deferred Debits:
Recoverable Postretirement Benefits 577 693
Recoverable Vacations Accrued 723 633
Unamortized Debt Discount and Expense 1,494 1,523
Prepaid Pensions 6,633 6,171
Recoverable Deferred FIT 6,183 5,970
Recoverable Transition Obligation 1,700 1,700
Other 3,007 3,227
-------- --------
20,317 19,917
-------- --------
Total $105,862 $ 96,689
======== ========
The accompanying Notes are an integral part of these statements.
4
VALLEY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets (Cont'd)
(Unaudited)
Feb. 28, Aug. 31,
1997 1996
-------- --------
(in thousands)
CAPITALIZATION & LIABILITIES
Capitalization:
Common Stock $ 4,280 $ 4,280
Paid In Capital 18,170 18,204
Retained Earnings 8,683 7,750
Less: Accounts Receivable from ESOP (3,142) (3,142)
--------- ---------
Total Common Stock Equity 27,991 27,092
--------- ---------
Long-Term Debt (Less Current Maturities):
8% First Mortgage Bonds, Series Due 2022 20,155 20,212
9% Notes Payable, Due 1999 2,139 2,139
Notes Payable 905 905
--------- ---------
Total Long-Term Debt 23,199 23,256
--------- ---------
Total Capitalization 51,190 50,348
--------- ---------
Revolving Credit Arrangement 2,300 2,200
--------- ---------
Obligation Under Capital Lease 1,760 2,134
--------- ---------
Current Liabilities:
Current Maturities of Long-Term Debt 500 500
Obligation Under Capital Lease 878 811
Notes Payable 20,700 14,900
Accounts Payable 5,943 5,243
Security Deposits & Refund Obligations 1,091 1,097
Taxes Accrued 494 190
Accrued Interest 556 552
Other 906 712
--------- ---------
Total 31,068 24,005
--------- ---------
Commitments and Contingencies
Deferred Credits 6,756 6,740
--------- ---------
Deferred Federal Income Taxes 12,788 11,262
--------- ---------
$ 105,862 $ 96,689
========= =========
The accompanying Notes are an integral part of these statements.
5
VALLEY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited)
For the 6 Months
Ended
Feb. 28, Feb. 29,
1997 1996
-------- --------
(in thousands)
Cash Flows from Operating Activities:
Net Income $ 2,488 $ 3,079
Adjustments to Reconcile Net Income to Net Cash used in
Operating Activities:
Depreciation and Amortization 1,555 1,462
Provision for Uncollectibles 778 672
Deferred Federal Income Taxes 1,410 774
Change in Assets and Liabilities:
Accounts Receivable (7,578) (6,269)
Deferred Fuel Costs (2,381) (1,304)
Unbilled Gas Costs (1,164) (1,381)
Fuel and Other Inventories 1,332 1,874
Other Current Assets 200 679
Accounts Payable, Accrued Expenses and Current Liabilities 998 2,550
Other - Net 392 (54)
------- -------
Net Cash (Used) Provided by Operating Activities (1,970) 2,082
------- -------
Cash Flows from Investing Activities:
Utility Capital Expenditures (1,708) (2,435)
Nonutility Capital Expenditures (371) (298)
Other Investments (20) (12)
------- -------
Net Cash (Used) by Investing Activities (2,099) (2,745)
------- -------
Cash Flows from Financing Activities:
Dividends Paid (1,555) (1,527)
Capital Stock Transactions (34) 56
Issuance of Long Term Debt 100 2,200
Retirement of Long-Term Debt (57) (825)
Increase in Notes Payable 5,800 1,400
------- -------
Net Cash Provided by Financing Activities 4,254 1,304
------- -------
Net Increase in Cash 185 641
Cash - Beginning 507 455
------- -------
Cash - Ending $ 692 $ 1,096
======= =======
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Period for:
Interest $ 1,658 $ 1,732
======= =======
Federal Income Taxes $ -0- $ -0-
======= =======
Capital Lease Obligations Incurred $ 201 $ 99
======= =======
The accompanying Notes are an integral part of these statements.
6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1
- ------
The Corporation computes earnings per average common share based on the
weighted average number of shares outstanding during the period.
Note 2
- ------
In the opinion of the Corporation, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals and matters discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations") necessary to present
fairly the financial position as of February 28, 1997 the results of operations
for the three- and six-months ended February 28, 1997 and 1996 and Statement of
Cash Flows for the six-months ended February 28, 1997 and 1996.
The results of operations for the three- and six-month periods ended
February 28, 1997 and 1996 are not necessarily indicative of the results to be
expected for the full year.
Note 3
- ------
Inventories - Fuel and Other Inventories:
(in Thousands)
(Unaudited)
February 28, August 31,
1997 1996
------------ ----------
Fuels (at average cost) $2,140 $3,623
Merchandise and Other (at average cost) 1,106 1,199
Merchandise (at LIFO) 1,470 1,226
------ ------
$4,716 $6,048
====== ======
Note 4
- ------
Pursuant to the dividend reinvestment plan, stockholders can reinvest
dividends and make limited additional investments in shares of Common Stock.
Shares issued through dividend reinvestment can be acquired on the open market
or original issue.
7
PART I - ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
For the three months ended February 28, 1997 vs 1996
Utility gas revenues for the three months ended February 28, 1997, the
second fiscal quarter, totaled $25,177,300, an increase of 3 percent over the
same period in fiscal 1996. The revenue increase is primarily the result of
collections through the PGPA and increased transportation revenues offset by a
decrease in base revenues. PGPA revenues increased due to increases in the cost
of natural gas paid by the utilities; this increase does not impact the
profitability of the company because it is a pass-through of gas cost changes.
Revenues generated from the regulated base tariffs declined 8 percent when
compared to the prior year as a result of decreased natural gas sales.
Gas sales to firm customers during the second fiscal quarter totaled
3,367,400 Mcf, a decrease of 8 percent from the prior year. The decrease in gas
sales is the result of warmer weather. Weather during the second quarter, as
measured by degree days, was 10 percent warmer than the same period last year.
Valley Gas transports natural gas owned by customers if delivered to Valley
Gas's gate station. Transportation revenues for the quarter increased $42,600
over the same period in fiscal 1996 due to increased volumes transported.
Nonutility revenues totaled $5,755,400 for the three months ended February
28, 1997, an increase of 1 percent over the second quarter in fiscal 1996.
During the second quarter the operations of all nonutility subsidiaries
generated increased revenues, except retail merchandise. The continuing
strategic focus toward commercial and industrial markets, as well as on electric
heating conversions, which generate higher margins, resulted in increased
profitability despite decreased retail merchandise sales. Propane revenues
increased due to price increases, despite a decline in volume of propane sold
resulting from the warmer weather.
The primary contributor to the increase in operating expenses during the
second fiscal quarter was an 11 percent increase in the cost of gas sold. The
average cost of gas distributed to firm customers was $4.46 per Mcf for the
three months ended February 28, 1997 versus $3.54 per Mcf during the second
quarter of fiscal 1996. Changes in gas costs are recovered from customers
through the PGPA.
The decrease in merchandise retail sales is responsible for the decrease in
nonutility cost of sales. Other operation expenses decreased slightly during the
period as a result of a reduction in costs associated with the propane
operations due to the warmer weather.
Other income decreased $140,800 for the quarter compared to last year. The
second quarter of fiscal 1996 included other income of $275,000 generated by
off-system sales. This was offset slightly by increased interest income. Off
- -system sales are natural gas sales arranged by the utility to customers outside
the franchise area at market clearing prices. Gas becomes available for sale
through acquisition rights available to the utility and from supplies not
required to meet firm market demand. This market did not materialize this winter
and as a result the company was unable to generate revenues from off-system
sales.
For the three months ended February 28, 1997, interest expense increased 2
percent over the same quarter last year. The increase in interest expense was
the result of increases in short-term borrowings.
8
For the six months ended February 28, 1997 vs 1996
For the six months ended February 28, 1997, utility gas revenues were
$36,123,400, an increase of 6 percent over the same period in fiscal 1996. A
decrease in base revenues generated from firm customers was offset by increased
collections through the PGPA and seasonal revenues. Base revenues generated from
the regulated tariffs declined 4 percent as a result of decreased natural gas
sales. PGPA revenues increased $2,971,300 over the prior six month period.
Seasonal revenues increased by 27 percent but the volume of seasonal gas
sales increased only 5 percent. Sales to seasonal customers are dependent upon
the availability of natural gas and the price of alternate fuels. Margins earned
from seasonal sales are returned to firm customers through the PGPA and do not
impact the profitability of the company.
Gas sold to firm customers decreased 5 percent to 4,617,900 Mcf for the six
months ended February 28, 1997. The decrease in gas sales is the result of
warmer weather which was partially offset by an increase in the number of
customers. Weather, as measured by degree days, was 4 percent warmer than the
prior year six month period. At February 28, 1997 there were 62,603 utility
customers versus 62,149 at February 29, 1996.
Nonutility revenues for the six months ended February 28, 1997 totaled
$11,148,900, an increase of 7 percent over fiscal 1996. The increase in
nonutility revenues is the result of increases in retail and wholesale
merchandise sales, revenues generated from propane operations and the addition
of revenues generated by AEC. Conversions of electric heating , sales in the
commercial markets and increases in the wholesale operation contributed to the
increased revenues. Propane revenues increased despite a drop in volume
resulting from the warmer weather due to price increases in the cost of propane
being passed along to customers.
Operating expenses for the six month period were impacted by increases in
the cost of gas sold and nonutility cost of sales. The cost of gas sold
increased 16 percent when compared to the same period last year. Increases in
the purchase price of natural gas was the primary contributor to the increase in
cost of gas sold. The average cost of gas distributed to firm customers was
$4.43 per Mcf for the six months ended February 28, 1997 versus $3.63 per Mcf in
the prior year. Nonutility cost of sales increased 6 percent which is
directly attributable to the increase in nonutility revenues.
The decrease in other income of $112,900 for the six month period was the
direct result of the decline in off-system sales. The decrease in other income
was offset by increased interest income.
Interest expense remained flat for the six month period. Increased
short-term borrowings were offset by a reduction in interest accrued on deferred
fuel costs and lower borrowing rates. The PGPA requires a reconciliation of
actual gas costs and the amount collected through the PGPA clause. This
reconciliation results in either a deferred fuel cost liability (amounts owed to
customers) or a deferred fuel cost receivable (amounts owed by customers to the
company). If there is a liability to customers, interest expense is accrued by
the company, if there is a receivable interest income is recorded. For most of
the first six months of fiscal 1997, the deferred fuel cost was a receivable
from the customer, versus a liability in fiscal 1996. This situation resulted
from the rapid, unanticipated rise in natural gas prices this year.
Liquidity and Capital Resources
During the second fiscal quarter the liquidity position of the Corporation
improved over the first quarter as a result of increased revenues from winter
period sales, increased PGPA collections and increased nonutility sales.
Management believes the available financings are sufficient to meet cash
requirements for the foreseeable future. The available borrowings under lines of
credit at February 28, 1997, were $8,300,000.
9
Cash flows were negatively impacted during the second quarter by increases
in the cost of natural gas and propane. Sales during the second quarter, despite
being greater than the first quarter, were less than anticipated due to warmer
than normal winter weather which also negatively impacted liquidity.
Additionally, the warmer weather resulted in the holding of supplemental fuel
inventories which were anticipated to be sold.
Construction expenditures declined during the second fiscal quarter, as
planned, due to constraints caused by the weather, thereby adding favorably to
liquidity.
The liquidity position of the Corporation is anticipated to improve in the
third quarter as winter bills are collected and increased gas costs will be
recovered through the PGPA. In addition, the company anticipates a gas supplier
refund in the third quarter which will reduce the deferred fuel cost account,
which will positively impact liquidity.
Cash expended on the construction program will increase during the third
fiscal quarter which will negatively impact cash flows; however, this increased
cash requirement should be offset by the improved cash flows.
PART I - ITEM 6(a)
Item 6(a) - Exhibits
- --------------------
27. Financial Data Schedule
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) None.
(b) The Company did not file a Form 8-K.
10
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.
VALLEY RESOURCES, INC. AND SUBSIDIARIES
S/K. W. Hogan
---------------------------------------
K. W. Hogan
Senior Vice President,
Chief Financial Officer and Secretary
April 14, 1997
11