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 May 31, 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 May 31, 1997
$1 Par Value 4,264,346
VALLEY RESOURCES, INC.
FORM 10-Q
MAY 31, 1997
Page of
Form 10-Q
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Income--for
the three and nine months ended May 31, 1997
and 1996..................................................... 3
Consolidated Condensed Balance Sheets--May 31,
1997 and August 31, 1996...................................4 & 5
Consolidated Condensed Statements of Cash Flows--for
the nine months ended May 31, 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..................................................... 10
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..............................11
PART I: FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
VALLEY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Income
(Unaudited)
3 Months Ended 9 Months Ended
May 31, May 31, May 31, May 31,
1997 1996 1997 1996
(in thousands except share and per share numbers)
Operating Revenues:
Utility Gas Revenues $ 21,289 $ 19,126 $ 57,412 $ 53,088
Nonutility Revenues 4,992 4,539 16,141 14,923
---------- ---------- ---------- ----------
Total 26,281 23,665 73,553 68,011
---------- ---------- ---------- ----------
Operating Expenses:
Cost of Gas Sold 12,568 10,152 33,146 27,950
Cost of Sales - Nonutility 3,414 3,095 11,134 10,372
Operations 4,405 4,488 13,659 13,470
Maintenance 426 430 1,253 1,232
Depreciation and Amortization 778 750 2,333 2,212
Taxes - Other Than Federal Income 1,176 1,121 3,400 3,273
- Federal Income 847 920 1,969 2,330
---------- ---------- ---------- ----------
Total 23,614 20,956 66,894 60,839
---------- ---------- ---------- ----------
Operating Income 2,667 2,709 6,659 7,172
Other Income - Net of Tax 111 61 268 332
---------- ---------- ---------- ----------
Total Income 2,778 2,770 6,927 7,504
---------- ---------- ---------- ----------
Interest Charges:
Long-Term Debt 492 489 1,457 1,438
Other 330 286 1,026 991
---------- ---------- ---------- ----------
Total 822 775 2,483 2,429
---------- ---------- ---------- ----------
Net Income $ 1,956 $ 1,995 $ 4,444 $ 5,075
========== ========== ========== ==========
Average Number of Common
Shares Outstanding 4,264,660 4,262,970 4,262,679 4,255,017
Earnings Per Average Common Share
Outstanding $0.46 $0.47 $1.04 $1.19
Dividends Declared on Common Stock $0.185 $0.1825 $0.55 $0.5425
The accompanying Notes are an integral part of these statements.
3
VALLEY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited)
May 31, Aug. 31,
1997 1996
---- ----
(in thousands)
ASSETS
Utility Plant - Net $49,987 $49,442
------- -------
Leased Property - Net 2,505 2,945
------- -------
Nonutility Property-Net 3,677 3,568
------- -------
Other Investments 1,577 1,510
------- -------
Current Assets:
Cash 741 507
Accounts Receivable - Net 14,797 9,946
Deferred Fuel Costs -0- 827
Deferred Unbilled Gas Costs 496 439
Fuel and Other Inventories (Note 3) 4,098 6,048
Prepayments 557 1,409
Common Stock held for Dividend Reinvestment-amounting
to 15,682 and 10,813 shares respectively (Note 4) 187 131
------- -------
Total 20,876 19,307
------- -------
Deferred Debits:
Recoverable Postretirement Benefits 520 693
Recoverable Vacations Accrued 795 633
Unamortized Debt Discount and Expense 1,480 1,523
Prepaid Pensions 6,864 6,171
Recoverable Deferred FIT 6,070 5,970
Recoverable Transition Obligation 1,700 1,700
Other 3,209 3,227
------- -------
20,638 19,917
------- -------
Total $99,260 $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)
May 31, Aug. 31,
1997 1996
---- ----
(in thousands)
CAPITALIZATION & LIABILITIES
Capitalization:
Common Stock $ 4,280 $ 4,280
Paid In Capital 18,159 18,204
Retained Earnings 9,851 7,750
Less: Accounts Receivable from ESOP (2,951) (3,142)
-------- --------
Total Common Stock Equity 29,339 27,092
-------- --------
Long-Term Debt (Less Current Maturities):
8% First Mortgage Bonds, Series Due 2022 20,130 20,212
9% Notes Payable, Due 1999 2,139 2,139
Notes Payable 905 905
-------- --------
Total Long-Term Debt 23,174 23,256
-------- --------
Total Capitalization 52,513 50,348
-------- --------
Revolving Under Capital Lease 2,300 2,200
-------- --------
Obligation Under Capital Lease 1,636 2,134
-------- --------
Current Liabilities:
Current Maturities of Long-Term Debt 500 500
Obligation Under Capital Lease 869 811
Notes Payable 12,000 14,900
Accounts Payable 4,799 5,243
Deferred Fuel Costs 1,304 -0-
Security Deposits & Refund Obligations 1,075 1,097
Taxes Accrued 2,246 190
Accrued Interest 939 552
Other 911 712
-------- --------
Total 24,643 24,005
-------- --------
Commitments and Contingencies
Deferred Credits 6,682 6,740
-------- --------
Deferred Federal Income Taxes 11,486 11,262
-------- --------
$ 99,260 $ 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 9 Months
Ended
May 31, May 31,
1997 1996
---- ----
(in thousands)
Cash Flows from Operating Activities:
Net Income $ 4,444 $ 5,075
Adjustments to Reconcile Net Income to Net Cash provided by
Operating Activities:
Depreciation and Amortization 2,333 2,212
Provision for Uncollectibles 1,159 1,087
Deferred Federal Income Taxes 108 434
Change in Assets and Liabilities:
Accounts Receivable (6,011) (3,516)
Deferred Fuel Costs 2,131 (1,858)
Unbilled Gas Costs (57) (49)
Fuel and Other Inventories 1,950 1,668
Other Current Assets 103 319
Accounts Payable, Accrued Expenses and Current Liabilities 1,590 1,966
Other - Net 809 130
------ ------
Net Cash Provided by Operating Activities 8,559 7,468
------ ------
Cash Flows from Investing Activities:
Utility Capital Expenditures (2,457) (3,248)
Nonutility Capital Expenditures (530) (460)
Other Investments (67) (55)
------ ------
Net Cash Used in Investing Activities (3,054) (3,763)
------ ------
Cash Flows from Financing Activities:
Dividends Paid (2,344) (2,305)
Capital Stock Transactions (45) 130
Issuance of Long Term Debt 100 2,200
Retirement of Long-Term Debt (82) (825)
Decrease in Notes Payable (2,900) (2,600)
------ ------
Net Cash Used in Financing Activities (5,271) (3,400)
Net Increase in Cash 234 305
Cash - Beginning 507 455
------- -------
Cash - Ending $ 741 $ 760
======= =======
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Period for:
Interest $ 2,092 $ 2,136
======= =======
Federal Income Taxes $ 386 $ 725
======= =======
Capital Lease Obligations Incurred $ 314 $ 1,804
======= =======
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 May 31, 1997 the results of operations for
the three and nine months ended May 31, 1997 and 1996 and Statement of Cash
Flows for the nine months ended May 31, 1997 and 1996.
The results of operations for the three- and nine-month periods ended May
31, 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)
May 31, August 31,
1997 1996
---- ----
Fuels (at average cost) $1,582 $3,623
Merchandise and Other (at average cost) 1,183 1,199
Merchandise (at LIFO) 1,333 1,226
------ ------
$4,098 $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 May 31, 1997 versus 1996
Utility gas revenues for the three months ended May 31, 1997, the third
fiscal quarter, totaled $21,288,900, an increase of 11.3 percent over the same
period in fiscal 1996. Revenues increased due to higher collections through the
PGPA and increased transportation and seasonal revenue. PGPA revenues increased
as a result of an increase in the PGPA rate charged to firm customers; this
increase resulted from prior period underrecoveries being collected in the
quarter and higher estimated gas costs for fiscal 1997. PGPA revenues do not
impact operating margin. Revenues generated from regulated base tariffs
decreased 3.2 percent when compared to the prior year as a result of decreased
natural gas sales resulting from warmer weather in the quarter when compared to
the same quarter last year.
Gas sales to firm customers during the third fiscal quarter totaled
2,492,200 Mcf, a decrease of 3.0 percent from the prior year third quarter. The
decrease in gas sales is the result of a decline in usage by all firm customer
categories. Weather during the third quarter, as measured by degree days, was
1.6 percent warmer than the same period last year. The weather during the third
fiscal quarter does not have the same impact on gas sales as the second fiscal
quarter, the winter period.
Valley Gas transports natural gas owned by customers if delivered to Valley
Gas's gate station. Transportation revenues for the quarter increased $94,700
over the same period in fiscal 1996 due to increased volumes transported.
Nonutility revenues totaled $4,992,400 for the three months ended May 31,
1997, an increase of 10.0 percent over the third quarter in fiscal 1996. During
the third quarter, except for the propane operations, all the nonutility
subsidiaries generated increased revenues. The retail merchandising operations
are continuing to be positively impacted by the focus on the commercial markets
and electric heating conversions. The Corporation's subsidiary, AEC completed
the installation and upgrade of two natural gas refueling stations, which
contributed to increased third quarter revenues. Propane revenues decreased due
to a decline in volumes of propane sold.
The primary contributor to the increase in operating expenses during the
third fiscal quarter was a 23.7 percent increase in the cost of gas sold. The
average cost of gas distributed to firm customers during the quarter was $3.38
per Mcf for the three months ended May 31, 1997 versus $3.90 per Mcf during the
third quarter of fiscal 1996. Changes in gas costs, both increases and
decreases, are recovered from customers through the PGPA in subsequent periods.
The increase in nonutility sales is responsible for the 10.3 percent
increase in cost of sales. Other operation and maintenance expenses decreased
slightly during the period due to cost controls implemented by the utilities.
Other income increased $49,300 for the quarter compared to last year. The
increase is the result of the receipt of income associated with other
investments.
8
For the three months ended May 31, 1997, interest expense increased 6.0
percent over the same quarter last year. The increase in interest expense was
the result of increases in short-term borrowings, slightly offset by decreased
PGPA interest.
For the nine months ended May 31, 1997 versus 1996
For the nine months ended May 31, 1997, utility gas revenues were
$57,412,200, an increase of 8.1 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 and transportation revenues.
Base revenues generated from the regulated tariffs declined 3.5 percent as
a result of decreased natural gas sales resulting from warmer than normal
weather. PGPA revenues increased $5,543,700 over the prior year's nine month
period due to an increase in the PGPA rate charged to firm customers.
Seasonal revenues during the nine month period were 18.8 percent higher
than the same period in fiscal 1996 but the volume of seasonal gas sales
increased only 13.4 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.
Valley Gas transports natural gas owned by customers if delivered to Valley
Gas's gate station. Transportation revenues for the nine month period increased
$180,100 over the same period in fiscal 1996 due to increased volumes
transported.
Gas sold to firm customers decreased 4.3 percent to 7,110,200 Mcf for the
nine months ended May 31, 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 4.6 percent warmer than the
prior year nine month period. At May 31, 1997 there were 62,181 utility
customers versus 61,979 at May 31, 1996.
Nonutility revenues for the nine months ended May 31, 1997 totaled
$16,141,400, an increase of 8.2 percent over fiscal 1996. The increase in
nonutility revenues was the result of increases in retail and wholesale
merchandise sales, revenues generated from propane operations and sales made by
AEC. Conversions from electric heating, sales in the commercial markets and
increases in the wholesale operation contributed to the increased revenues.
Propane revenues for the nine month period increased over the prior year period,
despite weather related decreases in gallons sold, due to price increases in the
cost of propane being passed along to customers.
Operating expenses for the 1997 nine month period were impacted by
increases in the cost of gas sold and nonutility cost of sales. The cost of gas
sold increased when compared to the same period last year as a result of both
the purchase price of natural gas and the increased gas cost related to the PGPA
revenue reconciliation. The average cost of gas distributed to firm customers
was $3.98 per Mcf for the nine months ended May 31, 1997 compared to $3.61 per
Mcf in the prior year period. Nonutility cost of sales increased 7.3 percent
which is directly attributable to the increase in nonutility revenues.
The decrease in other income of $63,600 for the nine month period was the
direct result of the decline in off-system sales. The decrease in other income
was offset by increased interest income and the recognition of income on other
investments.
9
Interest expense increased 2.3 percent for the nine month period. Interest
on increased short-term borrowings were slightly offset by a reduction in
interest accrued on deferred fuel costs and lower borrowing rates.
Liquidity and Capital Resources
During the third fiscal quarter the liquidity position of the Corporation
improved over the second quarter as a result of the collection of accounts
receivable, the timing of tax payments and the receipt of a natural gas supplier
refund. Management believes the available financing are sufficient to meet cash
requirements for the foreseeable future. The available borrowings under lines of
credit at May 31, 1997, were $17,000,000.
Cash flows were impacted during the third quarter by the receipt of a
natural gas supplier refund in the amount of $1,700,000. This refund was
credited to the PGPA which had a positive impact on liquidity during the
quarter. Sales during the third quarter were less than anticipated due to warmer
than normal weather which impacted liquidity.
On June 26, 1997, Valley Resources, Inc. filed a registration statement
with the Securities and Exchange Commission, to issue, in a public offering,
620,000 shares of common stock and $7,000,000 of debentures due 2027. The net
proceeds to the Corporation are expected to provide approximately $13,313,000,
of cash. The Corporation intends to contribute $6,663,100 of the net proceeds of
the offering to the Utilities as a capital contribution, subject to the approval
of the Rhode Island Division of Public Utilities, and the remainder will be used
to make loans to its other subsidiaries and to repay short-term debt and for
working capital requirements.
Construction expenditures increased during the third fiscal quarter, as
planned, due to more favorable weather, thereby adversely effecting liquidity.
The liquidity position of the Corporation will be seasonally affected
during the fourth quarter when gas inventories are replenished for use during
winter months and revenues decline as a result of the lack of heat-sensitive
sales in the utility companies.
Cash expended on the construction program will increase during the fourth
fiscal quarter which also impacts cash flows.
PART I - ITEM 6(a)
Item 6(a) - Exhibits
- --------------------
27. Financial Data Schedule
10
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a)
10) Loan Agreement between Valley Resources, Inc. and Fleet National Bank
dated June 30, 1997.
(b) The Company did not file a Form 8-K.
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
July 11, 1997
11