UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended August 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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 of Incorporation or Organization) (IRS Employer Identification No.)
1595 Mendon Road, Cumberland, Rhode Island 02864
(Address of principal executive offices)
Registrant's Telephone Number, Including Area Code (401) 334-1188
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock American Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No ___.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [__]
The aggregate market value of the common stock held by non-affiliates,
computed on the basis of $11.125 per share (the closing price of such stock on
October 24, 1995 on the American Stock Exchange) was $47,401,367.
As of October 24, 1995 there were 4,260,797 shares of Valley Resources,
Inc. Common Stock, $1 par value, outstanding.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The Consolidated Financial Statements, Notes to Consolidated Financial
Statements, Report of Independent Certified Public Accountants, Management's
Discussion and Analysis, Summary of Consolidated Operations, Dividends and
Market Data and Stockholder Statistics of the Registrant's Annual Report to
Stockholders for the fiscal year ended August 31, 1995 are incorporated by
reference in Parts I, II and IV.
Portions of the Proxy Statement dated November 7, 1995 as filed with the
Securities and Exchange Commission are incorporated by reference in Part III.
<PAGE>
PART I
Item 1 Business
Valley Resources, Inc. (the "Corporation") is a holding company organized
in 1979 and incorporated in the State of Rhode Island. The Corporation has six
wholly-owned active subsidiaries: Valley Gas Company ("Valley Gas") and Bristol
& Warren Gas Company ("Bristol")--regulated natural gas distribution companies;
Valley Appliance and Merchandising Company ("VAMCO")--a merchandising and
appliance rental company; Valley Propane, Inc. ("Valley Propane") and The New
England Gas Company ("New England Gas")--retail propane companies; and Morris
Merchants, Inc. (d/b/a "The Walter F. Morris Company")--a wholesale distributor
of franchised lines in plumbing and heating contractor supply and other energy
related business.
The headquarters for the Corporation and the sales and service offices of
Valley Gas, VAMCO and Valley Propane are located in Cumberland, Rhode Island.
Morris Merchants, Inc.'s sales and warehouse facilities are located in Canton,
Massachusetts. The operation center of Bristol and New England Gas is located in
Bristol, Rhode Island.
Bristol, acquired by the Corporation on April 1, 1992, was incorporated in
the State of Rhode Island in 1953 to distribute natural gas to customers in
Bristol & Warren, Rhode Island. New England Gas, also acquired by the
Corporation in April 1992, was incorporated in the State of Rhode Island in
1992. New England Gas markets propane at retail in Rhode Island.
Effective September 1995, all propane sales and service will be
consolidated into a single operation under the name Valley Propane. The New
England Gas Company became inactive.
Financial information about industry segments appearing on page 28 of the
Annual Report to Stockholders for the year ended August 31, 1995 is incorporated
herein by reference.
The Corporation does not expect any material effects on its business as a
result of compliance with environmental regulations.
The Corporation and its subsidiaries had 237 employees at August 31, 1995,
of which 60 were covered by a collective bargaining agreement with the Utility
Workers Union of America, AFL-CIO, Local No. 472 expiring March 31, 1997 and 8
were covered by a collective bargaining agreement with the Service Employee
International Union, AFL-CIO, Local No. 134 expiring May 31, 1996.
Utility Operations
Gas Sales and Transportation
The Corporation's utility operations are conducted through Valley Gas and
Bristol (the "utilities"). They had an average of 60,698 customers during the
twelve months ended August 31, 1995, of which approximately 91% were residential
and 9% were commercial and industrial.
The utilities provide natural gas service to residential, commercial and
industrial customers. Valley Gas' service territory is approximately 92 square
miles located in the Blackstone Valley region in northeastern Rhode Island with
a population of approximately 250,000. Bristol's service territory is
approximately 15 square miles in eastern Rhode Island with a population of
approximately 35,000.
<PAGE>
The following table shows the distribution of gas sold during the years
since 1991 in millions of cubic feet ("MMcf"):
<TABLE>
For the year ended August 31, (1)
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Residential 4,078 4,517 4,439 3,965 3,398
Commercial 1,953 2,078 1,978 1,680 1,394
Industrial-firm 1,338 1,299 1,185 1,152 1,014
Industrial-seasonal 1,298 996 818 1,010 1,053
TOTAL 8,667 8,890 8,420 7,807 6,859
(1) The operations of Bristol are included since April 1992.
</TABLE>
Firm customers of the utilities use gas for cooking, heating, water
heating, drying and commercial/industrial processing. Certain industrial
customers use additional gas in the summer months when it is available at lower
prices. These customers are subject to having their service interrupted at the
discretion of the utilities with very little notice. This use is classified as
seasonal use. As discussed further below, the margin on the Valley Gas seasonal
use is passed through the Purchased Gas Price Adjustment ("PGPA") to lower the
cost of gas to all categories of firm customers.
The primary source of utility revenues is firm use customers under tariffs
which are designed to recover a base cost of gas, administrative and operating
expenses and provide sufficient return to cover interest and profit. Valley Gas
also services dual fuel, interruptible and transportation customers under rates
approved by the Rhode Island Public Utilities Commission ("RIPUC").
Additionally, Valley Gas services two cogeneration customers (one firm use
customer and the other a firm off-peak transportation customer) under separate
contract rates that were individually approved by the RIPUC. Bristol also has
approved interruptible tariffs.
The utilities tariffs include a PGPA which allows an adjustment of rates
charged to customers in order to recover all changes in gas costs from
stipulated base gas costs. The PGPA provides for an annual reconciliation of
total gas costs billed with the actual cost of gas incurred. Any excess or
deficiency in amounts collected as compared to costs incurred is deferred and
either reduces the PGPA or is billed to customers over subsequent periods. All
margins from Valley Gas interruptible customers are returned to firm customers
through the workings of the PGPA. Effective with the new rate structure approved
by the RIPUC, (see "Rates and Regulation"), Bristol will return all seasonal
margins through the PGPA.
The utility revenues of Valley Gas include a surcharge on firm gas
consumption to collect a portion of the costs to fund postretirement medical and
life insurance benefits above the pay-as-you-go costs included in base tariffs.
The surcharge was authorized by the RIPUC in a generic rate proceeding and are
being phased in over a ten-year period which commenced September 1, 1993.
Effective November 1995, the current year funding of postretirement medical and
life insurance benefits will be included in base tariffs. Any funding shortages
from the first two years of the phase-in will be recovered through a surcharge
in the last seven years.
The prices of alternative sources of energy impact the interruptible and
dual fuel markets. The utilities serve these customers in the nonpeak periods of
the year or when competitively priced gas supplies are available. These
customers are subject to service discontinuance on short notice as system firm
requirements may demand. Prices for these customers are based on the price of
the customers' alternative fuel. In order to mitigate the volatility of earnings
from interruptible and dual fuel sales Valley Gas rolls into the PGPA the margin
earned on these interruptible sales and all margins in excess of $1 per thousand
cubic feet ("Mcf") of gas sold to dual fuel customers. This margin credit
reduces rates to the Company's firm customers. This means of margin treatment
<PAGE>
alleviates the negative impact that swings in sales can have on earnings in the
highly competitive industrial interruptible market.
Rates and Regulation
The utilities are subject to regulation by the RIPUC with respect to rates,
adequacy of service, issuance of securities, accounting and other matters.
On January 19, 1995, Valley Gas and Bristol filed revised tariffs with the
RIPUC to consolidate their rate structure and to increase their combined annual
revenues. On October 18, 1995, the RIPUC authorized the companies to adjust
their tariffs to collect $1.2 million or 2.0%. These rates became effective
November 21, 1995.
Gas Supply and Storage
The Federal Energy Regulatory Commission ("FERC") in 1992 issued its order
No. 636, the primary purpose of which was to promote competition in the natural
gas industry by requiring all interstate pipelines to separate or "unbundle"
their all-encompassing firm gas sales service to public utilities into its five
component parts: production, sales, aggregation, storage and transportation.
As a result, local utility companies converted from firm pipeline sales to
firm pipeline transportation, and began purchasing their gas directly from
producers and marketers in a highly competitive free marketplace. In order to
facilitate the procurement of this supply, Valley Gas became a charter member of
the Mansfield Consortium (the "Consortium"). The Consortium is a group of five
New England gas distribution companies which purchases natural gas from
producers and marketers based upon the combined demand and marketpower of its
members. The Consortium members believe that the most significant benefits to
its firm sales customers are reduced gas costs and enhanced security of supply.
Tennessee Gas Pipeline Company is the major natural gas transporter for
Valley Gas under long-term contracts. Bristol's principal gas transporters are
Algonquin Gas Transmission Company and Texas Eastern Transmission Corporation.
The utilities purchase natural gas from several suppliers on a long-term firm
basis, as well as on the spot market whenever available. Valley Gas has entered
into firm contracts with four domestic and two Canadian suppliers for the
purchase of 21,402 dekatherms per day; Bristol has contracted for 3,000
dekatherms per day.
Valley Gas is an investor in Boundary Gas, Inc. and a customer of Alberta
Northeast, Limited, both of which were founded by groups of gas distribution
companies in the northeast to import gas from Canada.
Supplementing their firm and spot gas supplies, the utilities have
contracted for firm long-term availability and delivery of underground storage
gas. Both utilities store natural gas with Consolidated Natural Gas Company and
National Fuel Gas Supply Corporation. Natural gas is injected into storage
facilities in Pennsylvania and New York during the non-winter months when supply
and pipeline capacity exceed customer demand, and this gas is used in the cold
weather months when customer demand is high.
In addition to gas delivered by the interstate pipelines, both utilities
have on-site storage facilities for liquid propane gas ("LPG"). Valley Gas also
has on-site storage for liquefied natural gas ("LNG"), and both utilities
backhaul LNG from Distrigas of Massachusetts Corporation. The LPG and LNG from
storage are vaporized into the companies' distribution systems during periods of
peak demand. Valley Gas also leases additional space for LNG from Algonquin LNG,
Inc. in Providence, Rhode Island. Valley Gas' contract with a transportation
customer allows Valley to access up to 527 Mcf per hour of additional natural
gas supply during periods of peak demand.
<PAGE>
Competition and Marketing
The primary competition faced by the utilities is from other energy
sources, primarily heating oil. The principal considerations affecting a
customer's selection among competing energy sources include price, equipment
cost, reliability, ease of delivery and service. In addition, the type of
equipment already installed in businesses and residences significantly affects
the customer's choice of energy. However, where previously installed equipment
is not an issue, households in recent years have consistently preferred the
installation of gas heat. For example, Valley Gas' statistics indicate that
approximately 90% of the new homes built on or near Valley Gas' service mains in
recent years have selected gas as their energy source.
The utilities are pursuing new markets believed to have the potential to
provide both growth and/or lessen sales sensitivity to weather: industrial
processing, cogeneration, natural gas vehicles and conversions from oil to gas.
Valley Gas received approval from the RIPUC for two rates which promote
economic development in its service territory. These rates provide incentives
for companies that add industrial processing load, make a substantial investment
in new natural gas equipment and hire additional employees.
The cogeneration market is addressed through sales contacts with customers
who have applications suitable to use waste heat through the cogeneration
process. Valley Gas established rate tariffs to specifically address the
requirements of the cogeneration market. In addition, Valley Gas has a 50
kilowatt demonstration facility at its Cumberland location which provides
electricity for computer facilities and hot water requirements.
Valley Gas installed a compressed natural gas ("CNG ") fueling station at
its Cumberland headquarters. The use of natural gas in vehicles will be promoted
through conversion of its own fleet and the CNG rate approved by the RIPUC.
The focus of the residential marketing department to increase conversions
from oil to natural gas is in the installations of conversion burners and a
continuous effort in the replacement market of housing developments that did not
choose natural gas. Additional efforts are spent to convert homes with inactive
natural gas service.
Seasonality
The bulk of firm sales are made during the months of November through
March. As a result, the highest levels of earnings and cash flow are generated
from the quarters ending in February and May. The bulk of the capital
expenditure programs are undertaken during the months of May through October,
causing cash flow to be at its lowest during the quarters ending in November and
August.
Short-term borrowing requirements vary according to the seasonal nature of
sales and expense activities of the utilities, creating greater need for
short-term borrowings during periods when internally generated funds are not
sufficient to cover all capital and operating requirements, particularly in the
summer and fall. Short-term borrowings utilized for construction expenditures
generally are replaced by permanent financing when it becomes economical and
practical to do so and where appropriate to maintain an acceptable relationship
between borrowed and equity resources.
<PAGE>
Gas Distribution System
Valley Gas' distribution system consists of approximately 900 miles of gas
mains and service lines. Bristol's gas distribution system consists of
approximately 100 miles of gas mains. The aggregate maximum daily quantity of
gas that may be distributed through the utilities from its own facilities and
under existing supply and transportation contracts is approximately 100 MMcf,
and the maximum daily gas sendouts for all sales customers of the utilities
during the last five fiscal years were 66 MMcf in 1995, 77 MMcf in 1994, 69 MMcf
in 1993, 67 MMcf in 1992, and 55 MMcf in 1991.
Appliance Contract Sales and Rentals
The Corporation conducts appliance, contract sales and rentals through its
subsidiaries VAMCO and Morris Merchants. VAMCO's revenues are generated through
retail appliance sales, service contract sales and through the rental of
gas-fired appliances. Morris Merchants sells at wholesale gas- and oil-fired
equipment and plumbing and heating supplies.
Morris Merchants has contracts for the distribution of certain lines that
it wholesales. At this time the Corporation has no reason to believe it will
lose any of its existing lines. Morris Merchants is not dependent on any one of
the existing lines.
Propane Operations
The propane operations are conducted through Valley Propane and New England
Gas. Both companies sell, at retail, liquid propane gas to residential and
commercial customers in Rhode Island and nearby Massachusetts. At August 31,
1995, the propane companies had 2,310 customers. Valley Propane also supplies
propane to holding customers of Valley Gas; these customers are serviced by
Valley Propane until Valley Gas can connect mains and service lines. The propane
subsidiaries are also impacted by weather, as a large percentage of their
customers use propane as a primary source of heat. Valley Propane and New
England Gas increase and decrease the selling price of their gas depending upon
supply and competition.
Item 2 Properties
1595 Mendon Road, Cumberland, Rhode Island
Office, Sales, and Service Center
This location comprises the headquarters, sales and service operation of
the Corporation, Valley Gas, VAMCO and Valley Propane; and includes accounting,
billing, credit, engineering, garage, maintenance, service, storeroom and
construction. The facilities are considered suitable and adequate for the
Corporation.
425 Turnpike Street
Canton, Massachusetts
Office and Warehouse Facilities
Morris Merchants, Inc. conducts its business at this leased warehouse and
office building in Canton, MA. Its business does not require any special
facilities and, therefore, its leased facilities are not significant to its
operation. The total lease payments are less than 1 percent of corporate assets.
Walter F. Morris, previously a member of the Board of Directors, owns 50 percent
of a corporation which leases warehouse and office facilities to Morris
Merchants, Inc., a subsidiary of the Corporation, at an annual rental of
$153,300.
<PAGE>
Scott Road, Cumberland, Rhode Island
LNG Storage Plant
Propane Storage Plant
This facility is used for the storage of LNG and propane used in the
peak-shaving operations of Valley Gas. Its daily delivery capacity of LNG and
LPG is 1,500 Mcf's and 12,000 Mcf's, respectively. Facility improvements which
will be completed during the fall of fiscal 1996 will double the delivery
capacity for LNG.
25 Gooding Avenue
Bristol, Rhode Island
Office, Sales and Service Center
This leased location comprises the office, sales and service operation of
Bristol and New England Gas and includes construction, credit, engineering,
garage, maintenance, service, and storeroom. The leased facilities are not
significant to its operations and the total lease payments are less than 1
percent of corporate assets. In December 1995, Bristol will relocate its
operations to a newly constructed facility at 100 Broad Common Road, Bristol,
Rhode Island. The new facility will comprise the office, sales and service
operation which include construction, credit, garage, service and storeroom.
Brown Street
Warren, Rhode Island
Propane Storage
This facility is used for the storage of propane used in peak-shaving
operations of Bristol. Its daily delivery capacity of LPG is 1,600 Mcf's.
The Corporation believes its storage facilities are adequate to meet the
needs of the utilities for the foreseeable future.
All of the storage facilities are owned. All Valley Gas properties, except
leased property, are held in fee.
See item 1 for discussion of gas supply.
Item 3 Legal Proceedings
There were no material legal proceedings pending to which the registrant or
any of its subsidiaries is a party, or of which any of their property is the
subject, except two claims that were asserted against Valley Gas Company as
referred to in Note H, page 27, of the 1995 Annual Report to Stockholders which
is incorporated by reference.
Item 4 Submission of Matters to a
Vote of Security Holders
None
<PAGE>
Executive Officers of the Registrant
The names, ages, and position of all the executive officers of the
registrant on October 15, 1995 are listed below together with their business
experience during the past five years. All officers of Valley Resources, Inc.
are elected or appointed annually by the board of directors at the directors'
first meeting following the Annual Meeting of Stockholders.
Business Experience
Name Age Position During Last Five Years
Alfred P. Degen 48 President and President since July
Chief Executive 1994 and Chief Executive
Officer Officer since March 1995;
Executive Vice President-
Acting President of
Philadelphia Gas Works
prior to July 1994.
Kenneth W. Hogan 50 Senior Vice President, Senior Vice President
Chief Financial Officer since July 1994; Vice
and Secretary President since August
1984; Chief Financial
Officer since December
1994 and Secretary
since April 1977.
<PAGE>
PART II
Item 5 Market for the Registrant's Securities
and Related Stockholder Matters
Common stock market prices, number of common stockholders, dividends
declared and dividend restrictions appearing on pages 14 and 23 of the Annual
Report to Stockholders for the fiscal year ended August 31, 1995 are
incorporated herein by reference. The common stock of Valley Resources, Inc. is
listed on the American Stock Exchange under the symbol VR.
Item 6 Selected Financial Data
The selected financial data (Summary of Consolidated Operations) appearing
on page 34 of the Annual Report to Stockholders for the fiscal year ended August
31, 1995 is incorporated herein by reference.
Item 7 Management's Discussion and Analysis
Management's discussion and analysis of the results of operations,
liquidity and capital resources appearing on pages 30 through 33 of the Annual
Report to Stockholders for the fiscal year ended August 31, 1995 are
incorporated herein by reference.
Item 8 Financial Statements and Supplementary Data
The following consolidated financial statements of the registrant and its
subsidiaries appearing on pages 16 through 29 in the Annual Report to
Stockholders for the fiscal year ended August 31, 1995 are incorporated herein
by reference:
Consolidated Statements of Earnings for each of the
three years in the period ended August 31, 1995
Consolidated Balance Sheets - August 31, 1995 and 1994
Consolidated Statements of Cash Flows for each of the
three years in the period ended August 31, 1995
Consolidated Statements of Changes in Common Stock
Equity for each of the three years in the period ended
August 31, 1995
Consolidated Statements of Capitalization - August 31, 1995
and 1994
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
<PAGE>
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
<PAGE>
PART III
Item 10 Directors and Executive Officers of the Registrant
For information with respect to the executive officers of the registrant,
see "Executive Officers of the Registrant" at the end of Part I of this report.
Information regarding the directors of the registrant appearing on pages 2
through 6 of the Proxy Statement filed with the Securities and Exchange
Commission on November 7, 1995 is incorporated herein by reference.
Based solely upon a review of copies of Forms 3, 4 and 5 furnished to the
Corporation pursuant to Rule 16a-3(e), the Corporation believes that each of the
Corporation's directors, officers and beneficial owners of more than 10% of any
class of equity securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934 (the "Exchange Act") have timely filed all reports required
by Section 16(a) of the Exchange Act during the most recent two fiscal years.
Item 11 Executive Compensation
Information regarding management compensation appearing on pages 7 through
11 of the Proxy Statement filed with the Securities and Exchange Commission on
November 7, 1995 is incorporated herein by reference.
Item 12 Security Ownership of Certain
Beneficial Owners and Management
Information regarding the beneficial owners of more than 5 percent of the
outstanding Common Stock of the Corporation, being the only class of equity
security issued and outstanding, and the security ownership of management
appearing on pages 1 and 2 of the Proxy Statement filed with the Securities and
Exchange Commission on November 7, 1995 is incorporated herein by reference.
Item 13 Certain Relationships and Related Transactions
None.
<PAGE>
PART IV
Item 14 Exhibits, Financial Statement
Schedules and Reports on Form 8-K
(a) 1. The following consolidated financial statements of Valley
Resources, Inc. and subsidiaries appearing on pages 16 through 29 in
the Annual Report to Stockholders for the year ended August 31, 1995
are incorporated by reference in Item 8:
Consolidated Statements of Earnings for each of the three years in the
period ended August 31, 1995
Consolidated Balance Sheets - August 31, 1995 and 1994
Consolidated Statements of Cash Flows for each of the three years in the
period ended August 31, 1995
Consolidated Statements of Changes in Common Stock Equity for each of
the three years in the period ended August 31, 1995
Consolidated Statements of Capitalization - August 31, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
(a) 2. Consolidated Financial Schedule
Schedule VIII - Valuation and Qualifying Accounts
Schedules I, II, III, IV, V, VI, VII, IX, X, XI, XII, XIII and XIV are
either inapplicable or not required or the required information is shown
in the financial statements or notes thereto under the instructions and
have been omitted.
Report of Independent Certified Public Accountants on Consolidated
Financial Schedule
(a) 3. Exhibits
3. Articles of Incorporation and Bylaws (Exhibit 3 to the Corporation's
Annual Report on Form 10-K for the year ended August 31, 1988 is
incorporated herein by reference.)
4. Indenture of First Mortgage dated as of December 15, 1992 between Valley
Gas Company, Valley Resources, Inc. as guarantor and State Street Bank
and Trust Company, Trustee (Exhibit 4 to the Corporation's Annual Report
on Form 10-K for the year-ended August 31, 1993 is hereby incorporated
by reference.)
10. Compensation Contracts or Arrangements
<PAGE>
10. (a) Valley Gas Company Supplemental Retirement Plan (Exhibit 10 to the
Corporation's Annual Report on Form 10-K for the year ended August 31,
1989 is hereby incorporated by reference.)
10. (b) Valley Resources, Inc. 1988 Executive Incentive Plan (Exhibit 10 to
the Corporation's Annual Report on Form 10-K for the year ended August
31, 1989 is hereby incorporated by reference.)
10. (c) Termination agreement between Valley Resources, Inc. and Kenneth W.
Hogan (Exhibit 10 to the Corporation's Registration Statement on Form
S-2 (File No. 2-99315) is hereby incorporated by reference.)
10. (d) Valley Resources, Inc. Directors Retirement Plan. (Exhibit 10 to the
Corporation's Annual Report on Form 10-K for the year ended August 31,
1992 is hereby incorporated by reference.)
10. (e) Termination agreement dated June 21, 1995 between Valley Resources, Inc.
and Alfred P. Degen.
10. Other Material Contracts
10. (f) Firm Storage Service Transportation contract between Valley Gas and
Tennessee Gas Pipeline Company, dated December 15, 1985 (Exhibit 10 to
the Corporation's Annual Report on Form 10-K for the year ended August
31, 1986 is hereby incorporated by reference.)
10. (g) Storage Service Agreement dated July 3, 1985 between Valley Gas
Company and Consolidated Gas Transmission Corporation (Exhibit 10 to
the Corporation's Registration Statement on Form S-2
(File No. 2-99315) is hereby incorporated by reference.)
10. (h) Underground Storage Service Agreement dated October 3, 1984 between
Valley Gas Company and Penn-York Energy Corporation (Exhibit 10 to the
Corporation's Registration Statement on Form S-2 (File No. 2-99315) is
hereby incorporated by reference.)
10. (i) Underground storage service agreement dated August 19, 1983 between
Valley Gas Company and Penn-York Energy Corporation (Exhibit 10 to the
Corporation's Annual Report on Form 10-K for the year ended August 31,
1983 is hereby incorporated by reference.
10. (j) Service agreement for storage of LNG dated June 30, 1982 between
Valley Gas Company and Algonquin LNG, Inc. (Exhibit 10 to the
Corporation's Annual Report on Form 10-K for the year ended August 31,
1982 is hereby incorporated by reference.)
10. (k) Contract for the purchase of natural gas dated March 1, 1981,
between Valley Gas Company and Tennessee Gas Pipeline Company (Exhibit
10 to the Corporation's Annual Report on Form 10-K for the year ended
August 31, 1981 is hereby incorporated by reference.)
10. (l) Storage Service Transportation contract dated May 15, 1981, between
Valley Gas Company and Tennessee Gas Pipeline Company (Exhibit 10 to
the Corporation's Annual Report on Form 10-K for the year ended
August 31, 1981 is hereby incorporated by reference.)
<PAGE>
10. (m) Storage Service Transportation contract dated May 26, 1981, between
Valley Gas Company and Tennessee Gas Pipeline Company (Exhibit 10 to
the Corporation's Annual Report on Form 10-K for the year ended August
31, 1981 is hereby incorporated by reference.)
10. (n) Storage Service Agreement dated February 18, 1980, between Valley
Gas Company and Consolidated Gas Supply Corporation (Exhibit 10 to the
Corporation's Annual Report on Form 10-K for the year ended August 31,
1981 is hereby incorporated by reference.)
10. (o) Loan Agreement dated July 18, 1991 between Valley Resources, Inc.
and Fleet National Bank (Exhibit 10 to the Corporation's Annual Report
on Form 10-K for the year ended August 31, 1991 is hereby incorporated
by reference.)
10. (p) Gas Sales Agreement dated June 15, 1992 between Aquila Energy
Marketing Corporation and Valley Gas Company. (Exhibit 10 to the
Corporation's Annual Report on Form 10-K for the year ended August 31,
1992 is incorporated herein by reference.)
10. (q) Gas Sales Agreement dated June 8, 1992 between Natural Gas
Clearinghouse and Valley Gas Company. (Exhibit 10 to the Corporation's
Annual Report on Form 10-K for the year ended August 31, 1992 is
incorporated herein by reference).
13. Annual Report to Stockholders.
21. Subsidiaries of the Registrant. (Exhibit 21 to the Corporation's Annual
Report on Form 10-K for the year ended August 31, 1993 is incorporated
herein by reference.)
23. Consent of Grant Thornton LLP.
27. Financial Data Schedule.
(b) Form 8-K was not required to be filed for the last quarter of the period
covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: November 27, 1995 By S\K. W. Hogan
Kenneth W. Hogan
Senior Vice President, Chief Financial Officer
& Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: November 27, 1995 S/A. P. Degen
Alfred P. Degen, President and
Chief Executive Officer
Date: November 27, 1995 S\K. W. Hogan
Kenneth W. Hogan, Senior Vice President,
Chief Financial Officer & Secretary
Date: November 27, 1995 S\E. N. Agresti
Ernest N. Agresti, Director
Date: November 27, 1995
Melvin G. Alperin, Director
Date: November 27, 1995
C. Hamilton Davison, Director
Date: November 27, 1995 S\D. A. DeAngelis
Don A. DeAngelis, Director
Date: November 27, 1995
James M. Dillon, Director
Date: November 27, 1995 S\J. K. Farnum
Jonathan K. Farnum, Director
Date: November 27, 1995 S\J. F. Guthrie, Jr.
John F. Guthrie, Jr., Director
Date: November 27, 1995
Eleanor M. McMahon, Director
<PAGE>
VALLEY RESOURCES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE VIII
Fiscal Years Ended August 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
Balance at (1) (2) Deductions Balance at
Beginning of Charged to Costs Charged to from End of
Description Period and Expenses Other Accounts Reserves Period
<S> <C> <C> <C> <C> <C>
1995
Allowance for doubtful accounts $653,927 $1,274,238 $104,176 (a) $1,376,390 (b) $655,951
1994
Allowance for doubtful accounts $592,504 $ 959,404 $ 66,073 (a) $964,054 (b) $653,927
1993
Allowance for doubtful accounts $409,351 $1,074,391 $ 87,702 (a) $978,940 (b) $592,504
Notes: (a) Collections on accounts previously charged off.
(b) Accounts charged off.
</TABLE>
<PAGE>
Report of Independent Certified Public Accountants
on Consolidated Financial Schedule
To the Shareholders of
Valley Resources, Inc.
In connection with our audit of the consolidated financial statements of
Valley Resources, Inc. and subsidiaries referred to in our report dated
September 22, 1995 (except for Note G, as to which the date is October 18,
1995), which is included in the Annual Report to Stockholders and incorporated
by reference in Part II of this form, we have also examined the schedule listed
in the index at Part IV, Item 14(a)2. In our opinion, this schedule presents
fairly, in all material respects, the information required to be set forth
therein.
GRANT THORNTON LLP
Boston, Massachusetts
September 22, 1995
(Except for Note G, as to
which date is October 18, 1995)
June 1, 1995
Mr. Alfred P. Degen, President and
Chief Executive Officer
Valley Resources, Inc.
1595 Mendon Road
Cumberland, RI 02864
Dear Mr. Degen:
Valley Resources, Inc. (which, together with its subsidiaries, is
hereinafter called "the Company") considers it essential to the best interests
of its stockholders to foster the continuous employment of key management
personnel. In connection, the Board of Directors of the Company (the "Board")
recognizes that, as is the case with many publicly held corporations, the
possibility of a change in control may exist that such possibility, and the
uncertainty and questions which it may raise among management, may result in the
departure or distraction of management personnel to the detriment of the Company
and its stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a change in control of the Company.
In order to induce you to remain in the employ of the Company and in
consideration of your agreeing to remain in the employ of the Company subject to
the terms and conditions set forth below, this letter agreement sets forth the
severance benefits which the Company agrees will be provided to you in the event
your employment with the Company is terminated subsequent to a "change in
control of the Company" (as defined in Section 2 hereof) under the circumstances
described below.
<PAGE>
1. Term of Agreement. This Agreement shall commence on January 1, 1995 and
shall continue in effect through December 31, 1995; provided, however, that
commencing on January 1, 1996 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one (1) additional year unless,
not later than August 31 of the preceding year, the Company shall have given
notice that it does not wish to extend this Agreement; provided, further, that
notwithstanding any such notice by the Company not to extend, if a change in
control of the Company shall have occurred during the original or extended term
of this Agreement, this Agreement shall continue in effect for a period of
twenty-four (24) months from the occurrence of such change in control.
Notwithstanding the foregoing, the Company may terminate your employment at any
time, whether before or after a change in control, subject to providing such
benefits as shall be hereinafter specified.
2. Change in Control. (i) No benefits shall be payable hereunder unless
there shall have been a change in control of the Company, as set forth below and
your employment by the Company shall thereafter have been terminated in
accordance with Section 3 below. For purposes of this Agreement, a "change in
control of the Company" shall mean a change in control of a nature that would be
required to be reported in response to Item 5(f) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Company is then subject to such reporting
requirement; provided that, without limitation, such a change in control shall
be deemed to have occurred if (a) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 20% or more of
the combined voting power
<PAGE>
of the Company's then outstanding securities; (b) during any period of two (2)
consecutive years (not including any period prior to the execution of this
Agreement), individuals who at the beginning of such period constitute the Board
and any new director whose election by the Board or nomination for election by
the Company's stockholders was approved by a vote of at least two thirds (2/3)
of the directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; or (c) the
business or businesses of the Company for which your services are principally
performed are disposed of by the Company pursuant to a partial or complete
liquidation of the Company, a sale of assets (including stock of a subsidiary)
of the Company, or otherwise.
(ii) For purposes of this Agreement, a "potential change in control of the
Company" shall be deemed to have occurred if (A) the Company enters into an
agreement, the consummation of which would result in the occurrence of a change
in control of the Company, (B) any person publicly announces (including an
announcement by the Company) an intention to take actions which if consummated
would constitute a change in control of the Company; (C) any person publicly
announces (including an announcement by the Company) that it has become the
beneficial owner, directly or indirectly, of securities of the Company
representing 9.5% or more of the combined voting power of the Company's then
outstanding securities; or (D) the Board adopts a resolution to the effect that,
for purposes of this Agreement, a potential change in control of the Company has
occurred. You agree that, subject to the terms and conditions of this Agreement,
in the event of a potential change in control of the Company, you will remain in
the employ of the Company for a period of six (6) months from the occurrence of
such potential change in control of the Company.
<PAGE>
3. Termination Following Change in Control. If any of the events described
in Subsection 2(i) hereof constituting a change in control of the Company shall
have occurred, you shall be entitled to the benefits provided in Subsection 4
(iii) hereof upon the subsequent termination of your employment during the term
of this Agreement unless such termination is (A) because of your death,
Retirement or Disability, (B) by the Company for Cause or (C) by you other than
for Good Reason.
(i) Disability; Retirement. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Company for six (6) consecutive months,
your employment may be terminated for "Disability." Termination of your
employment based on "Retirement" shall mean termination in accordance with
the Company's retirement policy generally applicable to its salaried
employees or in accordance with any retirement arrangement established with
your consent with respect to you.
(ii) Cause. Termination by the Company of your employment for "Cause"
shall mean termination upon (A) the willful and continued failure by you to
substantially perform your duties with the Company (other than any such
failure resulting from your incapacity due to physical or mental illness or
any such actual or anticipated failure after the occurrence of
circumstances giving rise to a Notice of Termination by you for Good
Reason) after a written demand for substantial performance is delivered to
you by the Board, which demand specifically identifies the manner in which
the Board believes that you have not substantially performed your duties,
or (B) the willful engaging by you in conduct which is demonstrably and
materially injurious to the Company, monetarily or otherwise. For purposes
of
<PAGE>
this Subsection, no act, or failure to act, on your part shall be deemed
"willful" unless done, or omitted to be done, by you not in good faith and
without reasonable belief that your action or omission was in the best
interest of the Company. Notwithstanding the foregoing, you shall not be
deemed to have been terminated for Cause unless and until there shall have
been delivered to you a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice to you and an opportunity for you,
together with your counsel, to be heard before the Board), finding that in
the good faith opinion of the Board you were guilty of conduct set forth
above in clauses (A) or (B) of the first sentence of this Subsection and
specifying the particulars thereof in detail.
(iii) Good Reason. You shall be entitled to terminate your employment
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean,
without your express written consent, any of the following:
(A) the assignment to you of any duties inconsistent with your
status as President and Chief Executive Officer of the Company or a
substantial alteration in the nature or status of your
responsibilities from those in effect immediately prior to a change in
control of the Company;
(B) a reduction by the Company in your annual base salary as in
effect on the date of the occurrence of a change in control of the
Company or as the same may be increased from time to time
<PAGE>
except for across-the-board salary reductions similarly affecting all
executives of the Company and all executives of any person in control
of the Company; or the failure of the Company to grant increases in
salary in accordance with the Company's regular practices;
(C) the relocation of the Company's principal executive offices
to a location more than twenty-five (25) miles from your present
office location or the Company's requiring you to be based anywhere
other than the Company's principal executive offices except for
required travel on the Company's business to an extent substantially
consistent with your present business travel obligations;
(D) the failure by the Company to continue in effect any
compensation plan in which you participate, or any plan adopted prior
to the change in control of the Company, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan in connection with the change
in control of the Company, or the failure by the Company to continue
your participation therein on substantially the same basis, both in
terms of the amount of benefits provided and the level of your
participation relative to other participants, as existed at the time
of the change in control;
<PAGE>
(E) the failure by the Company to continue to provide you with
benefits substantially similar to those enjoyed by you under any of
the Company's pension, life insurance, medical, health and accident,
or disability plans in which you were participating at the time of a
change in control of the Company, the taking of any action by the
Company which would directly or indirectly materially reduce any of
such benefits or deprive you of any material fringe benefit enjoyed by
you at the time of the change in control of the Company, or the
failure by the Company to provide you with the number of paid vacation
days to which you are entitled on the basis of years of service with
the Company in accordance with the Company's normal vacation policy in
effect at the time of the change in control;
(F) the failure by the Company without your consent to pay to you
any portion of your current compensation or to pay to you any
installment of deferred compensation at the time such installment is
due under any deferred compensation program of the Company;
(G) the failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 5 hereof; or
(H) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the
<PAGE>
requirements of Subsection (iv) below (and, if applicable, the
requirements of Subsection (ii) above); for purposes of this
Agreement, no such purported termination shall be effective.
In addition to your right to terminate for Good Reason as stated above, and
not in substitution therefor, you shall have the option at your discretion to
terminate your employment at any time within fifteen (15) months after the later
of (a) a change in control of the Company or (b) the expiration of the six (6)
months period during which you agree to remain in the employ of the company
under paragraph 2(ii) of this Agreement. Such termination shall be conclusively
deemed to be a termination for good Reason, but shall not affect your right to
terminate for Good Reason under any of the provisions of subsection (iii) above.
Your right to terminate your employment pursuant to this Subsection shall
not be affected by your incapacity due to physical or mental illness.
(iv) Notice of Termination. Any purported termination by the Company
or by you shall be communicated by written Notice of Termination to the
other party hereto in accordance with Section 6 hereof. For purposes of
this Agreement, a "Notice of Termination" shall mean a notice which shall
indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of your employment under the
provision so indicated.
(v) Date of Termination, Etc. "Date of Termination" shall mean (A) if
your employment is terminated for Disability, thirty (30) days after Notice
of Termination is given (provided that you have not returned to the
full-time performance of your duties during such period) (B) if your
employment is
<PAGE>
terminated pursuant to Subsection (ii) or (iii) above or for
any other reason (other than Disability), the date specified in the Notice
of Termination (which shall not be less than thirty (30) days, and in the
case of a termination pursuant to Subsection (iii) above shall not be less
than thirty (30) nor more than sixty (60) days, respectively, from the date
such Notice of Termination is given); provided that if within thirty (30)
days after any Notice of Termination is given the party receiving such
Notice of Termination notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be the date on
which the dispute is finally determined, either by mutual written agreement
of the parties, by a binding arbitration award, or by a final judgment,
order or decree of a court of competent jurisdiction (which is not
appealable or the time for appeal therefrom having expired and no appeal
having been perfected); provided further that the Date of Termination shall
be extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such
dispute with reasonable diligence. Notwithstanding the pendency of any such
dispute, the Company will continue to pay you your full compensation in
effect when the notice giving rise to the dispute was given (including, but
not limited to, base salary) and continue you as a participant in all
compensation, benefit and insurance plans in which you were participating
when the notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Subsection. Amounts paid under
this Subsection are in addition to all other amounts due under this
Agreement and shall not be offset against or reduce any other amounts due
under this Agreement except as otherwise provided in paragraph (C) of
Subsection 4 (iii).
<PAGE>
4. Compensation Upon Termination. Following a change in
control of the Company, as defined by Subsection 2(i), upon termination of
your employment you shall be entitled to the following benefits:
(i) If your employment shall be terminated by the Company for Cause or
by you other than for Good Reason, the Company shall pay you your full base
salary through the Date of Termination at the rate in effect at the time
Notice of Termination is given plus any other amounts to which you are
entitled under any compensation plan of the Company, at the time such
payments are due, and the Company shall have no further obligations to you
under this Agreement.
(ii) If your employment shall be terminated by the Company or by you
for Retirement, or by reason of your death or for Disability, your benefits
shall be determined in accordance with the Company's retirement and
insurance program then in effect.
(iii) If your employment by the Company shall be terminated (a) by the
Company other than for Cause, Retirement or Disability or (b) by you for
Good Reason, then you shall be entitled to the benefits provided below:
(A) The Company shall pay you your full base salary through the
Date of Termination at the rate in effect at the time Notice of
Termination is given, plus any other amounts to which you are entitled
under any compensation plan of the Company, at the times such payments
are due;
(B) In lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay as a
<PAGE>
severance payment to you, not later than the fifth day following the
Date of Termination, a lump sum severance payment (the "Severance
Payment") equal to the base salary paid to you during the twelve (12)
months immediately prior to the issuance of the Notice of Termination
(provided, however, that in the case of a termination at your option
under that portion of Section 3 (iii) giving you an option to
terminate at your discretion, the severance payment under this
paragraph shall be in an amount equal to your base salary for the
twelve (12) months immediately prior to the issuance of the Notice of
Termination);
(C) For a period after such termination equal to the period
actually used in calculating severance pay due to you under Section 4
(iii)(B), the Company shall provide you with life, disability,
accident and health insurance benefits substantially similar to those
which you are receiving immediately prior to the Notice of
Termination. Benefits otherwise receivable by you pursuant to this
Section 4(iii)(C) shall be reduced to the extent comparable benefits
are actually received by you during such period following your
termination, and any such benefits actually received by you shall be
reported to the Company;
(D) In addition to the retirement benefits to which you are
entitled under the Retirement Plan or any successor plan thereto, the
Company shall pay you in one lump sum in cash on the fifth day
<PAGE>
following the Date of Termination, a sum equal to the actuarial
equivalent of the excess of (x) the retirement pension (determined as
a straight life annuity commencing at age 65) which you would have
accrued under the terms of the Retirement Plan (without regard to any
amendment to the Retirement Plan made subsequent to a change in
control of the Company and on or prior to the Date of Termination,
which amendment adversely affects in any manner the computation of
retirement benefits thereunder), determined as if you were fully
vested thereunder and had accumulated (after the Date of Termination)
that number of additional months of service credit thereunder equal to
the number of months for which severance pay shall be due to you under
Section 4 (iii) (B) hereof, at your highest annual rate of
compensation during the twelve (12) months immediately preceding the
Date of Termination (but in no event shall you be deemed to have
accumulated additional months of service credit after your sixty-fifth
(65th) birthday), and (y) the retirement pension (determined as a
straight-life annuity commencing at age 65) which you had then accrued
pursuant to the provisions of the Retirement Plan. For purposes of
clause (x), the term "compensation" shall include amounts payable
pursuant to Section 4 (iii) (B) hereof. For purposes of this
Subsection, "actuarial equivalent" shall be determined using the same
methods
<PAGE>
and assumptions utilized under the Retirement Plan immediately
prior to the change in control of the Company;
(E) In the event that any payment or benefit received or to be
received by you in connection with a change in control of the Company
or the termination of your employment (whether payable pursuant to the
terms of this Agreement or any other plan, arrangement or agreement
with the Company, any person whose actions result in a change in
control of the Company or any person affiliated with the Company or
such person) (the "Total Payments") would not be deductible (in whole
or in part) as a result of Section 280G of the Internal Revenue Code
of 1954. as amended (the "Code"), the benefits provided under this
Section 4(iii) shall be reduced or eliminated in the following order,
viz., first, Subsection D; then, Subsection C; then, Subsection B; and
finally, Subsection A, but only to the extent necessary so that no
portion of the Total Payments is not deductible as a result of Section
280G of the Code. For purposes of this limitation (i) no portion of
the Total Payments the receipt or enjoyment of which you shall have
effectively waived in writing prior to the date of payment shall be
taken into account, (ii) no portion of the Total Payments shall be
taken into account which, in the opinion of tax counsel selected by
the Company's independent auditors and acceptable to you, does not
constitute a "parachute payment" within the meaning of Section 280G of
the
<PAGE>
Code, (iii) the Total Payments shall be reduced only to the extent
necessary so that the Total Payments (other than those referred to in
clause (i) or clause (ii) of this paragraph) in their entirety
constitute reasonable compensation for services actually rendered
within the meaning of Section 280G of the Code, in the opinion of the
tax counsel referred to in clause (ii); and (iv) the value of any
non-cash benefit or any deferred payment or benefit included in the
Total Payments shall be determined by the Company's independent
auditors in accordance with the principles of Sections 280G of the
Code;
(F) The Company shall also pay to you all legal fees and expenses
incurred by you as a result of such termination (including all such
fees and expenses, if any, incurred in contesting or disputing any
such right of benefit provided by this Agreement) except to the extent
that the payment of such fees and expenses would not be, or would
cause any other portion of the Total Payments not to be, deductible by
reason of Section 280G of the Code.
(iv) You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for in this Section
4 be reduced by any compensation earned by you as the result of employment
by another employer except as expressly provided herein.
<PAGE>
(v) In addition to all other amounts payable to you under this Section
4, you shall be entitled to receive all benefits payable to you under the
Retirement Plan and any other plan or agreement relating to retirement
benefits.
5. Successors; Binding Agreement. (i) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle you to compensation from the
Company in the same amount and on the same terms as you would be entitled
hereunder if you terminate your employment for Good Reason following a change in
control of the Company, except that for purposes of implementing the foregoing,
the date on which any such succession becomes effective shall be deemed the Date
of Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of law
or otherwise.
(ii) This Agreement shall inure to the benefit of and be enforceable
by your personal or legal representatives, executors, administrators,
successors, assigns, heirs, distributees, devisees and legatees. If you
should die while any amount would still be payable to you hereunder if you
had continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to your
devisees, legatees, or other designee or if there is no such designee, to
your estate.
<PAGE>
6. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
7. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by you and such officer as may be specifically designated by the
Board. No waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Rhode Island. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections.
8. Validity. The invalidity or unenforceability or any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
<PAGE>
9. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
10. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Providence,
Rhode Island, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction; provided, however, that you shall be entitled to
seek specific performance of your right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
VALLEY RESOURCES, INC.
By S/D. A. DeAngelis
Name: Don A. DeAngelis
Title: Chairman, Compensation Committee
Agreed to this 21st day
of June, 1995.
S/Alfred P. Degen
Alfred P. Degen
1995 Annual Report
Valley Resources, Inc.
<PAGE>
Valley Resources, Inc.
Nineteen Hundred and Ninety-Five
Fiscal 1995 has been a year of change and challenge for Valley Resources
and subsidiaries.
Under experienced leadership, Valley Resources has continued
its long tradition of prudent management - a course which enabled it to rise to
the challenge of the warm winter's financial impact while aggressively
anticipating customer needs and preparing for the future.
Charles H. Goss
1930-1995
Chairman & Chief Executive Officer
Valley Resources, Inc.
(Photo of Charles H. Goss appears here)
Valley Resources' Chairman & Chief Executive Officer Charles H. Goss passed
away on February 22, 1995. Mr. Goss joined the former Blackstone Valley Gas &
Electric Company in 1956 and held various management and executive positions
throughout his 39-year career with the Corporation. Under his leadership, Valley
Resources grew from a local natural gas distribution company to a diversified
energy products and services company encompassing distribution utilities,
propane companies and retail and wholesale merchandising subsidiaries. Mr. Goss
was widely recognized as an active civic and business leader and served in
various capacities in many local, state, regional and national organizations.
One of the endeavors most dear to Mr. Goss was making investor relations
presentations to existing and prospective shareholders around the country, and
he loved sharing experiences with the many friends he made in the process.
Valley Resources and the community will miss his guidance and support.
Cover Photo: View of the Mt. Hope Bridge and Aquidneck Island from water's edge
at Roger Williams University in the Bristol & Warren service area.
<PAGE>
Corporate
Overview
Valley Resources, Inc. is a public utility holding company. The Corporation
has six active wholly-owned subsidiaries: Valley Gas Company (Valley Gas or the
Company) and Bristol & Warren Gas Company (Bristol), regulated natural gas
distribution companies; Valley Appliance and Merchandising Company (VAMCO), a
merchandising, appliance rental, sales and service company; Valley Propane, Inc.
and The New England Gas Company, retail propane sales companies; and Morris
Merchants, Inc. (Morris) d/b/a the Walter F. Morris Company, a representative
distributor of franchised lines. Rhode Island Development and Exploration
Company is currently inactive.
<TABLE>
Financial
Highlights
<CAPTION>
For the year ended August 31 (in thousands) 1995 1994 1993
<S> <C> <C> <C>
Operating revenues ............................. $ 74,870 $ 83,553 $ 77,286
Operation expenses, maintenance and depreciation 64,392 71,275 65,729
Operating income before taxes .................. 10,478 12,278 11,557
Taxes -- other than Federal income ............. 4,002 4,464 4,073
Taxes -- Federal income ........................ 732 1,313 1,400
Other income - net of taxes .................... 115 227 253
Interest charges ............................... 3,304 2,902 2,610
Net income ..................................... $ 2,555 $ 3,826 $ 3,727
Earnings per average common share outstanding .. $ 0.61 $ 0.91 $ 0.89
Dividends declared per common share ............ $ 0.71 $ 0.69 $ 0.66
Net utility plant (thousands) .................. $ 47,411 $ 44,207 $ 42,313
Capital expenditures (thousands) ............... $ 5,916 $ 4,553 $ 5,340
Average number of common shares outstanding .... 4,222,662 4,205,760 4,203,398
Number of stockholders ......................... 2,887 2,847 2,834
</TABLE>
<PAGE>
Message to
Stockholders
The Corporation continues to invest in system improvements to ensure the
safety and reliability of utility operations, such as the major upgrade to the
LNG vaporization facilities which will be completed prior to the 1995-1996
heating season.
(Photo of LNG Vaporization facility appears here)
The Corporation's fiscal 1995 financial performance was affected by the
second warmest year in company history and a static regional economy. Warmer
than normal temperatures, especially during the prime heating season, impacted
utility and propane sales and earnings. Additionally, the merchandising
subsidiaries found themselves in the throes of a sluggish economic climate.
VAMCO, however, was able to improve earnings through the application of new
technology. While we are not pleased with the 1995 financial results, we think
it is important to focus on the very positive long-term prospects for Valley
Resources and its subsidiaries. Fiscal 1995 saw significant change in the
Corporation's senior management team. The untimely passing of Charles H. Goss,
Chairman and Chief Executive Officer, and the planned retirements of Senior Vice
Presidents Francis G. Chicoine and John H. St. Sauveur, and Assistant Vice
President and Chief Engineer Robert S. Carlson, after many years of devoted
service to the Corporation, resulted in the need to reorganize and realign
management responsibilities. Valley Resources used this opportunity to improve
the organizational structure, resulting in a 5.5% reduction in personnel.
Through a planned development process, experienced and qualified employees were
prepared to assume additional management responsibilities. As part of the
Corporate-wide reorganization, significant work has been completed in developing
a strategic plan for Valley Resources. The implementation of
<PAGE>
Message to
Stockholders
Construction of the Highland Corporate Park Expansion Project
is underway. This development, which includes sites in both Woonsocket and
Cumberland, is expected to generate over 5,000 jobs during the next ten years
providing a significant stimulus to the local economy. Valley Gas has installed
approximately 8,000 feet of new main in anticipation of serving the new customer
load at Highland Park.
(Photo of Construction Crew working on Highland Corporate Park Expansion
Projects appears here.)
this plan will provide an effective blueprint to successfully move the
Corporation forward.
The natural gas industry also continues its transition to a less regulated,
more competitive environment. Valley Gas Company and Bristol & Warren Gas
Company, our utility subsidiaries, have dealt effectively with the evolving
challenges and opportunities resulting from the industry transition. We continue
to work as a member of the Mansfield Consortium to cost effectively procure gas
supply requirements. The Consortium, a group of New England gas utilities, is
also exploring other opportunities where a consolidation of efforts could be
beneficial. Our gas utilities are committed to remaining low-cost, efficient,
customer-focused energy providers, determined to compete effectively to supply
the energy needs of northern Rhode Island and the Bristol and Warren area. The
Corporation continues to invest in system improvements to ensure the safety and
reliability of utility operations, such as the major upgrade to the LNG
vaporization facilities which will be completed prior to the 1995 - 1996 heating
season.
While economic growth in our service area is not as strong as we would like
to see it, there are positive signs for the future. Construction of the Highland
Corporate Park Expansion Project is underway. This development, which includes
sites in both Woonsocket and Cumberland, is expected to generate over 5,000 jobs
during the next ten years
<PAGE>
Message to
Stockholders
Morris Merchants, Inc. is well positioned to improve
effectiveness and profitability. A new information processing system will allow
Morris to direct marketing activities more productively.
(Photo of Employees discussing the implementation of the new information
processing system appears here)
providing a significant stimulus to the local economy. Valley Gas has
installed approximately 8,000 feet of new main in anticipation of serving the
new customer load at Highland Park. We expect steady growth from our utility
operations as we supply new construction and conversions from alternate fuels.
To assist that growth effort, the rate design approved in October 1995 provides
for a commercial and industrial rate structure designed to foster economic
development and to support growth in regional employment.
Our nonutility operations, although more volatile than our utility
businesses, do provide more opportunities for growth. Morris Merchants, Inc. is
well positioned to improve effectiveness and profitability. A new information
processing system will allow Morris to direct marketing activities more
productively. VAMCO, in addition to its traditional markets of appliance sales,
service and rentals, primarily directed at the residential sector, is expanding
efforts in the commercial and industrial area. Improved results in this area are
expected in fiscal 1996.
Recognizing the long-term outlook of the Corporation and its ongoing
earnings potential, the Board of Directors increased the dividend in March 1995
for the 17th consecutive year. The indicated annual dividend rate is 72 cents
per share. During fiscal 1995, corporate executives made investor relations
presentations in Milwaukee, Wisconsin; Portland, Maine; and Peoria, Illinois.
The purpose of these presentations
<PAGE>
Message to
Stockholders
is to increase investor knowledge and interest in the Corporation and to develop
and enhance the investment base for future equity or public debt offerings. The
Corporation's message was well received in each of these locations.
In December 1994, Walter F. Morris retired from the Board of Directors. Mr.
Morris was previously Chairman and Chief Executive Officer of Morris Merchants,
Inc. and brought a wealth of experience and knowledge to the Board. His service
to the Corporation will be greatly missed. The Board of Directors elected C.
Hamilton Davison, President of Paramount Cards, Inc., to fill a Board vacancy
effective September 19, 1995. On behalf of the Board of Directors, I would like
to express our appreciation to all employees for their dedication and commitment
to the Corporation, to our shareholders for their ongoing support, and to our
customers for their confidence in Valley Resources and our products. Fiscal 1995
was a year of change and challenge for the Corporation but we believe that
Valley Resources is well positioned to prosper and grow during the second half
of this decade and beyond.
Sincerely,
Alfred P. Degen
President &
Chief Executive Officer
(Photo of Alfred P. Degen, President & Chief Executive Officer appears here)
<PAGE>
Summary of Annual
Earnings and Dividends
Consolidated net income is derived from the earnings of the Corporation's
six active subsidiaries: Valley Gas Company, Bristol & Warren Gas Company,
Valley Appliance and Merchandising Company, Valley Propane, Inc., The New
England Gas Company and Morris Merchants, Inc. Consolidated net income for
fiscal 1995 was $2,554,900 or $0.61 per average common share outstanding, as
compared to $3,826,000 or $0.91 per share in fiscal 1994.
Our utility subsidiaries, Valley Gas and Bristol, contributed $1,665,400 to
consolidated net income, down from $2,914,300 in fiscal 1994. The significant
decline in earnings was due primarily to the impact of weather. The weather in
fiscal 1995, which was the second warmest in the Corporation's history, was
approximately 9.9 percent warmer than last year and 8.2 percent warmer than
normal. The critical winter period was 15.5 percent warmer than last year and
9.8 percent warmer than normal. Also affecting utility earnings were a static
regional economy and higher interest costs due to increased interest rates.
The contribution of nonutility operating companies to consolidated earnings
was $889,500, as compared to $911,700 for fiscal 1994. This decrease is a
reflection of the regional economy on wholesale operations and the impact of the
warmer weather on the propane operations; both of which were partially offset by
the improved performance of retail merchandising operations.
In April 1995, the Board of Directors increased the dividend 2.9 percent to
an indicated annual rate of $0.72 per share. The 10-year and 5-year compounded
growth rates in dividends are 6 percent and 4.1 percent, respectively. This is
the seventeenth consecutive year of dividend increases. The Board's continuing
philosophy and policy is to pay a reasonable percentage of sustainable corporate
earnings in the form of dividends.
<TABLE>
Sales
Degree Days
<CAPTION>
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
Actual 5003 5887 6341 6459 5820
Normal 6409 6406 6406 6406 6339
</TABLE>
<TABLE>
Dividends
Per Share
<CAPTION>
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
0.61 0.63 0.66 0.69 0.71
</TABLE>
<PAGE>
Year in Review
(Photo of new LNG vaporizer appears here)
The efficient new LNG vaporizers at Valley Gas' peak shaving facility will
increase capacity, operational flexibility and supply security.
<PAGE>
Year in Review
Fiscal 1995 has brought change and challenge to the Corporation. On March
2, 1995, Alfred P. Degen was elected Chief Executive Officer of the Corporation
after the death of Charles H. Goss. Mr. Degen had joined the Corporation, as
President & Chief Operating Officer, in July 1994, in anticipation of Mr. Goss'
planned retirement in June, 1995. He brings to the Corporation 27 years of
experience in the natural gas industry and a commitment to the Corporation's
tradition of prudent management and vigorous pursuit of economic opportunity.
This approach served the Corporation well in the face of the unusually warm
winter and a static regional economic climate.
The Corporation's subsidiaries were able to maintain the marketing momentum
of last year by identifying and meeting customer needs. The well-known
advantages of natural gas as a clean-burning, efficient fuel continue to answer
the needs of the growing number of residential and commercial customers who
converted from oil or electric energy this fiscal year. The Woonsocket Health
Center, a large residential nursing facility, and the Cumberland Housing
Authority's complex for the elderly are examples of electric-to-gas heating
conversions which resulted in significant fuel cost savings for the customers as
well as additional firm gas sales for Valley Gas.
Specific concerns with environmental issues provided the subsidiaries with
a particularly effective tool for marketing not only conversion to gas but also
gas-fired equipment. Increasing awareness of the environmental hazards and
regulatory burdens of underground oil tanks led to conversions to gas by such
customers in the Valley Gas service area as the Woonsocket Industrial Complex,
the Pawtucket Boys and Girls Club and the Pawtucket YMCA and, in Bristol's
region, the American Tourister plant. Similarly, air quality regulations
provided market impetus for installations of gas-fueled air emissions equipment
for commercial customers of both Valley Gas and Bristol.
Marketing efforts are not limited to only new accounts. Careful attention
to the needs of existing customers is a critical component of the Corporation's
marketing strategy. In addition, Valley Resources' subsidiary operations work
together to maximize opportunities. The Corporation's close ties to the
communities served by its subsidiaries continue to result in successful
participation in the
<PAGE>
Year in Review
(Photo of Pawtucket Boys & Girls Club appears here)
Concern for the future of the environment led the Pawtucket Boys & Girls
Club to Valley Resources' subsidiaries for conversion to gas and gas-fired
equipment.
<PAGE>
Year in Review
expansion and new development of existing customers such as Super Stop & Shop, a
regional supermarket chain with stores in Pawtucket and Cumberland, and two
condominium developments in the Bristol area which have requested gas
conversion. The condominium conversions will also lead to additional appliance
sales and rentals.
The growth in customer base and new load achieved by the utility
subsidiaries was offset in fiscal 1995 by increased interest expense and by the
effect of the warmer than normal winter temperatures. The negative impact of the
weather on revenues was mitigated by continued cost-cutting measures in all
appropriate areas.
The Corporation continues to invest in projects which are vital to the
operational health and competitiveness of the subsidiaries. One such undertaking
is the improvement of the Brown Street regulator station to enhance safety and
increase the system deliverability in the Bristol service area. The Valley Gas
LNG peak shaving facility is also being upgraded. The new LNG vaporizers will
increase the plant's peaking capacity by 50 percent, thereby providing the
Company with operational flexibility as well as enhanced security of supply.
In June 1995, the Company acquired the franchise rights to provide gas
service to a portion of the Town of Burrillville in rural Northwestern Rhode
Island. Valley Gas now has the right to serve the eastern portion of the town,
an area which is contiguous with the western boundary of Valley Gas' service
area. While growth in Burrillville will have to be managed carefully, it holds
promise for the future.
Valley Gas continues to benefit from its membership in the Mansfield
Consortium, a collaboration of several New England local distribution companies
served by Tennessee Gas Pipeline. Through group participation, the Company
renegotiated long-term contracts with two major suppliers which increased gas
supply flexibility while avoiding any increase in costs.
Valley Gas also obtained two new winter supply protections negotiated by
the members of the Consortium. First is a long-term peaking arrangement with
very favorable pricing provisions. The second is a mandatory mutual assistance
pact among the Consortium members in the event of supply emergencies.
Recently negotiated settlements with Tennessee Gas and Algonquin Gas
<PAGE>
Year in Review
(Photo of Cumberland Housing Authority's Riverside Village appears here)
The conversion from electric to gas heating at the Cumberland Housing
Authority's Riverside Village brought a satisfied new customer on line.
<PAGE>
Year in Review
pipelines have enabled both Valley Gas and Bristol to utilize their existing
transportation capacity to move gas from underground storage to virtually any
location on the interstate pipeline network. This development enhances both
supply security and gas cost control. It also positions the companies to
participate in the off-system sales market.
Notwithstanding the static regional economy in fiscal 1995, long-awaited
local industrial development is moving ahead as predicted. The Highland
Corporate Park Expansion Project, centerpiece of the Blackstone Valley regional
business development initiative, is under construction, and the first phase of
gas main installation is complete. Another Valley Gas customer, Amica Insurance,
has broken ground for plant expansion at its Lincoln facility. New construction
of student residence units is also underway at Roger Williams University, one of
Bristol's largest commercial customers.
In January 1995, Valley Gas and Bristol filed a joint request with the
Rhode Island Public Utilities Commission to adopt a single rate structure and to
increase their combined operating revenues. The RIPUC authorized an increase in
consolidated revenues of $1.2 million. It is expected the increased revenues
will become effective in November 1995.
Even in this year of decreased residential construction, VAMCO, the
Corporation's merchandising subsidiary, was able to record gains by careful
attention to the opportunities afforded by conversions to gas and by expanding
its efforts to focus on the commercial and industrial heating equipment market.
Morris Merchants, Inc., operates in seven northeastern states as a
representative distributor of franchised plumbing and heating lines from
manufacturers across the United States and Europe. Morris, located in Canton,
Massachusetts, faced a regional decline in new construction which adversely
affected sales and margins. In response to market conditions, Morris has
restructured its sales efforts, and segments of the market have been identified
for strategic expansion. The implementation of a new computer system is
providing more information to support field representatives and is supplying
management with critical data to improve productivity and responsiveness to
customer needs. This information system enhancement is an example
<PAGE>
Year in Review
(Photo of Roger Williams University appears here)
Bristol & Warren will be supplying gas to the new student residences at
Roger Williams University, one of Bristol's largest customers.
<PAGE>
Year in Review
of the Corporation's ability to bring together the talents of its subsidiary
units to improve overall corporate capabilities.
The propane subsidiaries also experienced sales declines as a result of the
warm heating season. Additionally, competitive pressures from large, national
propane companies adversely affected the residential markets. Increasing focus
on the commercial and industrial section partially offset residential declines.
Valley Resources, Inc., is well positioned to maximize opportunities in
both its regulated and non-regulated businesses. The Corporation's management
team is committed to pursue reasonable growth opportunities and is strategically
planning the movement of Valley Resources into the 21st century.
<TABLE>
Dividends and
Market Data
<CAPTION>
CASH MARKET PRICE
1995 DIVIDEND HIGH LOW
<S> <C> <C> <C>
First Quarter ......... $ .175 $ 13.25 $ 12.00
Second Quarter ........ .175 12.63 10.75
Third Quarter ......... .18 11.38 10.50
Fourth Quarter ........ .18 11.50 10.38
1994
First Quarter ......... $ .17 $ 16.13 $ 14.13
Second Quarter ........ .17 15.25 13.50
Third Quarter ......... .175 14.00 11.50
Fourth Quarter ........ .175 12.63 10.63
</TABLE>
<TABLE>
Stockholder Statistics
<CAPTION>
STATE SHARES STOCKHOLDERS
Number Percent Number Percent
<S> <C> <C> <C> <C>
Rhode Island .................. 1,368,442 32.1 724 25.1
New York ...................... 765,006 18.0 124 4.3
Massachusetts ................. 672,822 15.8 553 19.2
Florida ....................... 398,310 9.3 134 4.6
Missouri ...................... 348,969 8.2 37 1.3
Illinois ...................... 83,052 1.9 117 4.1
California .................... 66,460 1.6 119 4.1
Connecticut ................... 62,805 1.5 144 5.0
Texas ......................... 46,459 1.1 69 2.4
Michigan ...................... 45,641 1.1 74 2.6
Other ......................... 402,831 9.4 792 27.3
4,260,797 100.0 2,887 100.0
</TABLE>
<PAGE>
Financial
Information
Consolidated Statements of Earnings ................................... 16
Consolidated Statements of Cash Flows ................................. 17
Consolidated Balance Sheets ........................................... 18-19
Consolidated Statements of Changes in Common Stock Equity ............. 20
Consolidated Statements of Capitalization ............................. 20
Notes to Consolidated Financial Statements ............................ 21-29
Report of Independent Certified Public Accountants..................... 29
Management's Discussion and Analysis................................... 30-33
Summary of Consolidated Operations..................................... 34
Gas Operating Statistics............................................... 35
Directors.............................................................. 36
Officers............................................................... 36
Corporate Information........................................ Inside Back Cover
<PAGE>
<TABLE>
Consolidated
Statements of Earnings
<CAPTION>
For the year ended August 31 1995 1994 1993
<S> <C> <C> <C>
Operating revenues:
Utility gas revenues ......................................... $56,012,913 $65,323,556 $59,293,553
Nonutility revenues .......................................... 18,857,277 18,229,362 17,992,577
Total ........................................................... 74,870,190 83,552,918 77,286,130
Operating expenses:
Cost of gas sold ............................................. 30,229,359 38,233,511 33,410,402
Cost of sales - nonutility ................................... 13,189,797 12,783,575 12,715,014
Operations ................................................... 16,752,501 16,299,527 15,801,722
Maintenance .................................................. 1,535,206 1,485,279 1,497,409
Depreciation (Note A) ........................................ 2,684,755 2,473,467 2,304,420
Taxes - other than Federal income ........................... 4,002,076 4,463,406 4,073,357
- Federal income (Notes A and F) ...................... 731,947 1,313,227 1,399,641
Total ...................................................... 69,125,641 77,051,992 71,201,965
Operating income ................................................ 5,744,549 6,500,926 6,084,165
Other income - net of tax (Notes A and F) ....................... 115,032 227,450 252,666
Total income before interest ............................... 5,859,581 6,728,376 6,336,831
Interest charges:
Long-term debt ............................................... 1,947,205 2,037,760 1,753,803
Other ........................................................ 1,357,451 864,590 855,798
Total ...................................................... 3,304,656 2,902,350 2,609,601
Net income available for common stock............................ $2,554,925 3,826,026 $3,727,230
Average number of common shares outstanding...................... 4,222,662 4,205,760 4,203,398
Earnings per average common share outstanding ................... $ 0.61 $ 0.91 $ 0.89
The accompanying Notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated
Statements of Cash Flows
<CAPTION>
For the year ended August 31 1995 1994 1993
<S> <C> <C> <C>
Increase (decrease) in cash:
Cash flows from operating activities:
Net income ........................................................... $ 2,554,925 $ 3,826,026 $ 3,727,230
Adjustments to reconcile net income to net cash:
Depreciation ....................................................... 2,684,755 2,473,467 2,304,420
Provision for uncollectibles ....................................... 1,274,238 959,404 1,074,391
Deferred Federal income taxes ...................................... 619,918 1,040,691 444,275
Amortization of investment tax credits ............................. (50,144) (44,940) (44,940)
Change in assets and liabilities:
Accounts receivable ................................................ (1,612,297) (492,220) (1,684,361)
Unbilled gas costs ................................................. (4,617) (5,256) (11,872)
Fuel and other inventories ......................................... 502,202 331,499 318,707
Prepayments ........................................................ (72,088) (31,177) 174,081
Common stock held for dividend reinvestment plan ................... (271,315) 23,530 66,941
Prepaid pensions ................................................... (572,320) (784,454) (689,842)
Accounts payable ................................................... (275,189) (323,061) 858,419
Security deposits .................................................. 30,945 47,803 20,742
Taxes accrued ...................................................... (131,917) 69,422 62,415
Deferred fuel costs ................................................ 2,629,056 1,752,484 (702,669)
Other .............................................................. (578,144) (500,288) 52,127
Total adjustments .............................................. 4,173,083 4,516,904 2,242,834
Net cash provided by operating activities .......................... 6,728,008 8,342,930 5,970,064
Cash flows from investing activities:
Utility capital expenditures ....................................... (5,335,159) (3,953,702) (4,786,946)
Nonutility capital expenditures .................................... (580,772) (599,725) (552,924)
Other investments .................................................. (13,400) (51,262) (24,917)
Net cash used by investing activities .............................. (5,929,331) (4,604,689) (5,364,787)
Cash flows from financing activities:
Dividends paid ..................................................... (2,989,702) (2,900,408) (2,775,027)
Common stock transactions .......................................... 391,278 (95,418) (27,406)
Issuance of long-term debt, net of issuance costs .................. -0- -0- 21,313,000
Retirement of long-term debt, including premium (1,333,000) (95,000) (10,830,100)
Increase (decrease) in notes payable 3,000,000 (1,000,000) (8,900,000)
Net cash used by financing activities .............................. (931,424) (4,090,826) (1,219,533)
Net decrease in cash .................................................. (132,747) (352,585) (614,256)
Cash, beginning ....................................................... 587,342 939,927 1,554,183
Cash, ending .......................................................... $ 454,595 $ 587,342 $ 939,927
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ......................................................... $ 3,265,612 $ 2,895,752 $ 2,277,359
Federal income taxes ............................................. $ 380,000 $ 637,000 $ 1,102,000
Supplemental disclosures of noncash activity:
Capital lease obligations incurred ................................. $ 300,972 $ 956,973 $ 618,739
The accompanying Notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated
Balance Sheets
<CAPTION>
August 31 1995 1994
<S> <C> <C>
Assets:
Utility plant, at cost (Notes A and D).......................................... $72,759,666 $67,679,919
Less: Accumulated provision for depreciation (Note A).......................... 25,348,673 23,472,766
Net utility plant............................................................... 47,410,993 44,207,153
Leased property-less accumulated amortization of $2,088,737 and $1,532,967...... 2,013,647 2,436,429
Nonutility property-less accumulated provision for depreciation of $3,434,784...
and $3,485,334 (Note A)...................................................... 3,546,543 3,519,208
Other investments............................................................... 1,461,100 1,465,992
Current assets:
Cash......................................................................... 454,595 587,342
Accounts receivable-less allowance for uncollectibles of
$655,951 and $653,927...................................................... 10,686,414 10,348,353
Deferred unbilled gas costs (Note A)......................................... 434,291 429,674
Fuel and other inventories (Note A).......................................... 5,384,483 5,886,685
Prepayments.................................................................. 1,159,331 1,087,243
Common stock held for dividend reinvestment plan (Note B).................... 289,695 18,380
Total current assets..................................................... 18,408,809 18,357,677
Deferred debits:
Recoverable postretirement benefit (Note H).................................. 692,922 440,557
Recoverable vacations accrued................................................ 846,825 803,306
Recoverable deferred Federal income taxes (Note F)........................... 5,713,177 5,743,664
Recoverable transition obligation (Note H)................................... 1,325,000 3,172,000
Unamortized debt discount and expense........................................ 1,581,023 1,638,953
Prepaid pensions (Note H).................................................... 5,545,463 4,973,143
Other........................................................................ 3,792,004 4,311,115
Total deferred debits.................................................... 19,496,414 21,082,738
Total assets............................................................. $92,337,506 $91,069,197
The accompanying Notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated
Balance Sheets
<CAPTION>
August 31 1995 1994
<S> <C> <C>
Capitalization and liabilities:
Capitalization (see Consolidated Statements of Capitalization)... $50,608,628 $53,070,950
Obligations under capital leases (Note D)........................ 1,254,778 1,746,756
Current liabilities:
Current maturities of long-term debt (Note D)................. 500,000 450,000
Obligations under capital leases (Note D)..................... 758,870 689,674
Notes payable (Note C)........................................ 11,900,000 8,900,000
Accounts payable.............................................. 4,321,315 4,596,504
Security deposits............................................. 1,162,005 1,131,060
Taxes accrued................................................. 507,816 639,733
Deferred fuel costs (Note A).................................. 3,150,767 521,711
Accrued interest.............................................. 655,045 631,038
Other......................................................... 976,138 970,178
Total current liabilities................................. 23,931,956 18,529,898
Commitments and contingencies (Note H)
Deferred credits:
Unamortized investment tax credit (Note A).................... 773,141 823,285
Transition obligation (Note H)................................ 1,325,000 3,172,000
Unfunded deferred Federal income taxes (Note F)............... 1,930,375 1,914,850
Postretirement benefit obligation (Note H).................... 692,922 440,557
Other ........................................................ 1,729,504 1,853,603
Total deferred credits.................................... 6,450,942 8,204,295
Deferred Federal income taxes (Notes A and F)................. 10,091,202 9,517,298
Total liabilities......................................... 41,728,878 37,998,247
Total capitalization and liabilities...................... $92,337,506 $91,069,197
The accompanying Notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Changes in
Common Stock Equity
<CAPTION>
Common Shares Issued Paid in Retained
& Outstanding Capital Earnings
Number Amount
<S> <C> <C> <C> <C>
Balance, August 31, 1992 ............. 4,213,043 $ 4,213,043 $17,817,979 $ 5,392,371
Add (deduct):
Net income ........................ 3,727,230
Cash dividends on common stock .... (2,775,027)
Other ............................. (27,406)
Balance, August 31, 1993 ............. 4,213,043 4,213,043 17,790,573 6,344,574
Add (deduct):
Net income ........................ 3,826,026
Cash dividends on common stock .... (2,900,408)
Other ............................. (95,418)
Balance, August 31, 1994 ............. 4,213,043 4,213,043 17,695,155 7,270,192
Add (deduct):
Net income ........................ 2,554,925
Cash dividends on common stock .... (2,989,702)
Dividend reinvestment plan (Note B) 47,754 47,754 465,376
Other ............................. (121,852)
Balance, August 31, 1995 ............. 4,260,797 $ 4,260,797 $18,038,679 $ 6,835,415
</TABLE>
<TABLE>
Consolidated Statements
of Capitalization
<CAPTION>
August 31 1995 1994
<S> <C> <C>
Common stock equity:
Common stock, $1 par value (Note B)
Authorized 20,000,000 shares
Issued and outstanding 4,260,797 and 4,213,043 shares $ 4,260,797 $ 4,213,043
Paid in capital (Note B) .............................. 18,038,679 17,695,155
Retained earnings (Notes B and E) ..................... 6,835,415 7,270,192
29,134,891 29,178,390
Less: Accounts receivable from Valley Gas
Employee Stock Ownership Plan (Note D) .............. 3,142,200 3,142,200
Total common stock equity ....................... 25,992,691 26,036,190
Long-term debt (Note D):
8% First Mortgage Bonds, due 2022 ..................... 21,072,000 22,405,000
9% Notes Payable, due 1999 ............................ 2,138,937 2,724,760
Note payable .......................................... 1,905,000 2,355,000
Total ........................................... 25,115,937 27,484,760
Less: Current maturities .............................. 500,000 450,000
Total long-term debt ............................ 24,615,937 27,034,760
Total capitalization ............................ $50,608,628 $53,070,950
The accompanying Notes are an integral part of these statements.
</TABLE>
<PAGE>
Notes to Consolidated
Financial Statements
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements include the accounts of
Valley Resources, Inc. and its wholly-owned subsidiaries (the
Corporation) Valley Gas Company (Valley Gas or the Company), Valley Appliance
and Merchandising Company (VAMCO), Rhode Island Development and Exploration
Company (RIDEC), Valley Propane, Inc. (Valley Propane), Morris Merchants, Inc.
(Morris Merchants) (d/b/a the Walter F. Morris Company), Bristol & Warren Gas
Company (Bristol), and The New England Gas Company. All significant intercompany
transactions have been eliminated where required.
REGULATION - The utility operations of Valley Gas and Bristol are subject to
regulation by the Rhode Island Public Utilities Commission (RIPUC). Accounting
policies conform with generally accepted accounting principles, as applied in
the case of regulated public utilities, and are in accordance with the
accounting requirements and rate making practices of the RIPUC.
DEPRECIATION - Annual provisions for depreciation for Valley Gas are determined
on a composite straight-line basis. The composite rate for fiscal 1995, 1994 and
1993 was 2.72%.
Depreciation provisions for other subsidiary companies are provided on the
straight-line and accelerated methods at rates ranging from 2.86% to 34%.
DEFERRED FUEL COSTS - Valley Gas and Bristol tariffs include a Purchased Gas
Price Adjustment (PGPA) which allows an adjustment of rates charged to customers
in order to recover all changes in gas costs from stipulated base gas costs. The
PGPA provides for an annual reconciliation of total gas costs billed with the
actual cost of gas incurred. Any excess or deficiency in amounts collected as
compared to costs incurred is deferred and either reduces the PGPA or is billed
to customers over subsequent periods.
DEFERRED UNBILLED GAS COSTS - Revenue is recorded on the basis of bills rendered
on a cycle basis throughout the month. The Company defers to the following month
that portion of the base cost of gas delivered but not yet billed under the
cycle billing system.
ACCOUNTING FOR INCOME TAXES - Income tax regulations allow recognition of
certain transactions for tax purposes in time periods other than the period
during which these transactions will be recognized in the determination of net
income for financial reporting purposes. As required by generally accepted
accounting principles, deferred income taxes are provided to reflect the tax
effect of these timing differences in the proper accounting periods.
In accordance with Financial Accounting Standards Board Statement No. 109
Accounting for Income Taxes, deferred income taxes are recorded for all book
and tax temporary timing differences.
Investment tax credits relating to Valley Gas and Bristol property have
been deferred and will be amortized to income over the productive lives of the
related assets. Investment tax credits earned by the Corporation's other
subsidiary companies were recognized as a reduction of Federal income tax
expense in the year utilized.
PENSION PLANS - The Company maintains two non-contributory defined benefit
pension plans covering substantially all of the Company's employees. The plans
provide benefits based on compensation and years of service. The Company's
policy is to fund pension costs that are deductible for Federal income tax
purposes (see Note H). Additionally, the Company maintains a 401(k) plan
covering substantially all of the Company's employees. In fiscal 1995, 1994 and
1993, plan expense was $122,400, $112,900 and $124,700, respectively.
Morris Merchants maintains an employee profit sharing plan covering
substantially all of the employees who have completed one year of service.
Contributions to the plan are at the discretion of the Board of Directors. In
fiscal 1995, 1994 and 1993 profit sharing expense was $68,400, $73,700 and
$77,700, respectively.
<PAGE>
Notes to Consolidated
Financial Statements
Bristol maintains a non-contributory defined contribution pension plan
covering substantially all of its employees. The plan provides benefits based on
hours worked and rate of pay. In fiscal 1995, 1994 and 1993 plan expense was
$27,500, $23,100 and $26,400, respectively.
<TABLE>
INVENTORIES - Fuel and other inventories at August 31, are as follows:
<CAPTION>
1995 1994
<S> <C> <C>
Fuels (at average cost) ............... $3,254,439 $3,812,655
Merchandise and other (at average cost) 1,051,585 1,074,957
Merchandise (at LIFO) ................. 1,078,459 999,073
$5,384,483 $5,886,685
</TABLE>
Merchandise (at LIFO), if valued at current cost, would have been greater by
$255,400 in 1995 and $270,000 in 1994.
RECLASSIFICATIONS - Certain amounts in the consolidated financial statements for
fiscal 1994 and 1993 have been reclassified to conform with the presentation for
fiscal 1995.
NOTE B: COMMON STOCK AND RIGHTS
Pursuant to the Corporation's dividend reinvestment plan, stockholders can
reinvest dividends and make limited additional cash investments. Shares issued
through dividend reinvestment can be acquired on the open market or original
issue. In fiscal 1995, the Corporation issued 47,754 shares of common stock
under provisions of the dividend reinvestment plan. All shares issued pursuant
to the plan in fiscal 1994 and 1993 were open-market purchases. At August 31,
1995 and 1994, 26,190 and 1,496 shares, respectively, were held by the
Corporation for issuance to the plan.
On August 31, 1995, except as mentioned above, no shares of common stock of
the Corporation were held by or for the account of the Corporation or were
reserved for officers or employees or for options, warrants or other rights,
except 60,356 shares of common stock reserved subject to sale under the
Corporation's dividend reinvestment plan.
Each share of common stock of the Corporation includes one preferred stock
purchase Right which entitles the holder to purchase one one-hundredth of a
share of Cumulative Participating Junior Preferred Stock, par value $100, at a
price of $35 per one one-hundredth of a share subject to adjustment. Initially
the Rights will not be exercisable, and the Rights will trade automatically with
common stock. The Rights will generally become exercisable, and separate
certificates representing the Rights will be distributed, upon occurrence of
certain events in excess of a stipulated percentage of ownership.
The Rights should not interfere with any merger or business combination
approved by the Board of Directors because, prior to the Rights becoming
exercisable, the Rights may be redeemed by the Corporation at $0.01 per Right.
The Rights have no dilutive effect and will not affect reported earnings per
share.
NOTE C: SHORT-TERM DEBT
The Corporation borrows on bank lines of credit at the prevailing interest
rate available at the time of borrowing. The Corporation either pays commitment
fees or maintains compensating balances in connection with these lines of
credit. Commitment fees paid in fiscal 1995, 1994 and 1993 amounted to $94,500,
$64,900, and $57,800, respectively. There are no legal restrictions on
withdrawal of compensating balances.
<PAGE>
Notes to Consolidated
Financial Statements
A detail of short-term borrowings for fiscal 1995, 1994 and 1993 is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
At year end
Weighted average interest rate... 5.9% 5.2% 3.6%
Unused lines of credit .......... $15,100,000 $14,600,000 $10,100,000
For the year ended
Weighted average interest rate... 6.2% 3.9% 4.3%
Average borrowings .............. $11,283,300 $10,991,700 $13,162,500
Maximum month-end borrowings .... $16,000,000 $14,900,000 $23,100,000
Month of maximum borrowings ..... December January November
</TABLE>
NOTE D: LONG-TERM DEBT
The composition of long-term debt is included in these financial statements
in the separate Consolidated Statements of Capitalization. The aggregate amount
of maturities and sinking fund requirements for each of the five fiscal years
following fiscal 1995 are: 1996, $1,258,900; 1997, $2,068,300; 1998, $388,000;
1999, $2,230,300; and 2000, $57,100, inclusive of capitalized lease obligations.
Valley Gas utility plant and equipment have been pledged as collateral to
secure its long-term debt. In accordance with the redemption provisions of the
Valley Gas 8% First Mortgage Bonds, $1,333,000 and $95,000 of the bonds were
redeemed by holders in fiscal 1995 and fiscal 1994, respectively.
The fair market value of the Corporation's long-term debt is estimated
based on the quoted market prices for the same or similar issues or on the
current rates offered to the Corporation for debt of the same remaining
maturities. Management believes the carrying value of the debt approximates the
fair value at August 31, 1995.
Regulatory treatment allows payments under capital leases to be recorded as
rental expenses. Rental expenses for all leases in fiscal 1995, 1994 and 1993
were $1,179,800, $1,235,200, and $1,059,300, respectively.
Valley Resources, Inc. borrowed funds under a line of credit, due September
30, 1996, at rates less than the prevailing prime rate, which are restricted in
their use to being loaned to the Company's Employee Stock Ownership Plan (ESOP).
The receivable from the ESOP has been shown as a reduction of common stock
equity. The financing by the ESOP is secured by the common stock of two
unregulated subsidiaries and the unallocated shares held by the ESOP.
The Valley Resources common stock purchased by the ESOP with the borrowed
money is held by the ESOP trustee in a suspense account. As the Company makes
contributions to the plan, a portion of the common stock is released from the
suspense account and allocated to participating employees. Any dividends on
unallocated shares are used to pay loan interest. There was no ESOP expense
recorded in fiscal 1995 nor 1994. ESOP expense in fiscal 1993 was $262,800.
NOTE E: RESTRICTION ON RETAINED EARNINGS
At August 31, 1995, $949,000 of the retained earnings of Valley Gas were
available for the payment of cash dividends to Valley Resources, Inc. under the
most restrictive provisions of the Company's first mortgage bonds. There are no
restrictions as to the payment of dividends for the other companies.
<PAGE>
Notes to Consolidated
Financial Statements
NOTE F: INCOME TAXES
In fiscal 1994, the Corporation adopted Statement of Financial Accounting
Standards No. 109 Accounting for Income Taxes (SFAS 109). The adoption of SFAS
109 had no significant impact on the Corporation's financial statements. SFAS
109 requires, among other things, the recording of cumulative deferred income
taxes on all temporary timing differences. As approved by the RIPUC, the
utilities did not fully record deferred income taxes but, rather, flowed
through certain tax benefits to utility customers. At August 31, 1995, the
Corporation has a liability of $5,713,200 on the Consolidated Balance Sheets as
recoverable deferred income taxes and a corresponding recoverable deferred
charge. The liability represents the tax effect of timing differences for which
deferred income taxes had not been provided, increased in accordance with SFAS
109 for the tax effect of future revenue requirements. The utilities are
recovering unfunded deferred taxes from utility customers over the remaining
book life of utility property.
Federal income tax expense has been calculated based on filing a
consolidated corporate tax return and is comprised of the following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current income tax expense:
Operating expense ............... $ 112,029 $ 272,536 $ 955,366
Nonoperating expense ............ 71,230 82,678 90,235
183,259 355,214 1,045,601
Deferred income tax expense:
Accelerated depreciation ........ 194,537 269,823 222,363
Pensions ........................ 194,588 266,715 234,547
Uncollectibles .................. 2,142 (32,289) (49,726)
Accrued vacations ............... 1,658 1,112 1,415
Directors' fees and interest .... (8,744) (46,169) (29,997)
Unbilled revenues ............... (2,807) (3,328) 59,205
Bond premium .................... (6,242) 176,387 -0-
Unbilled gas costs .............. 1,569 1,787 4,036
Rate case expenses .............. 174,290 (43,785) 8,141
Capitalization of inventory costs (2,079) 45,977 (5,709)
Consulting contracts ............ 64,389 150,111 -0-
Software amortization ........... 140,856 254,350 -0-
Alternative minimum tax ......... (180,000) -0- -0-
Other ........................... 45,761 -0- -0-
619,918 1,040,691 444,275
Total ........................... $ 803,177 $ 1,395,905 $ 1,489,876
</TABLE>
The Federal income tax amounts included in the Consolidated Statements of
Earnings differ from the amounts which result from applying the statutory
Federal income tax rate to income from operations before income tax. The
reasons, with related percentage effects, are shown below:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Statutory Federal rate ........................... 34% 34% 34%
Maintenance costs capitalized for book purposes (4) (4) (2)
Cost of removal ............................... (1) (1) (1)
ESOP dividends ................................ (2) (1) (1)
Prior year over accrual ....................... (2) -0- -0-
Other ......................................... (1) (1) (1)
Total ......................................... 24% 27% 29%
</TABLE>
<PAGE>
Notes to Consolidated
Financial Statements
<TABLE>
Temporary differences which gave rise to the following deferred tax assets
and liabilities at August 31, 1995 and 1994 are:
<CAPTION>
1995 1994
<S> <C> <C>
Unbilled revenues ................................................ $ 264,144 $ 261,337
Other ............................................................ 684,269 495,588
Total deferred tax assets ..................................... 948,413 756,925
Accelerated depreciation ......................................... (7,905,673) (7,757,148)
Pensions ......................................................... (1,904,144) (1,709,556)
Software amortization (395,206) (254,350)
Other ............................................................ (834,592) (553,169)
Total deferred tax liabilities ................................ (11,039,615) (10,274,223)
Total deferred taxes ............................................. $(10,091,202) $ (9,517,298)
</TABLE>
The Corporation's nonutility operations are subject to state income taxes.
For 1995, 1994 and 1993, state income taxes totaled $131,800, $125,300 and
$160,300, respectively.
NOTE G: REGULATORY MATTERS
In January 1995, Valley Gas and Bristol filed revised tariffs with the
RIPUC to consolidate their rate structure and to increase their combined annual
revenues. On October 18, 1995, the RIPUC authorized the companies to adjust
their tariffs to collect $1.2 million.
NOTE H: COMMITMENTS AND CONTINGENCIES
PENSION PLANS - The Company has two non-contributory defined benefit
pension plans covering substantially all of the Company's employees and a
supplemental pension plan covering certain officers of the Corporation.
Net periodic pension income for 1995, 1994 and 1993 included the following
components:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 470,907 $ 472,621 $ 413,795
Interest cost on projected benefit obligation .. 1,232,168 1,153,139 1,044,699
Actual return on plan assets ................... (3,448,848) (251,149) (3,698,844)
Net amortization and deferral .................. 1,173,453 (2,159,065) 1,550,508
Net periodic pension income .................... $ (572,320) $ (784,454) $ (689,842)
</TABLE>
<TABLE>
<CAPTION>
Plans Funded Status - July 31 1995 1994
<S> <C> <C>
Projected benefit obligations:
Vested ........................................... $ 15,143,093 $ 13,930,948
Nonvested ........................................ 140,275 125,089
Accumulated ...................................... 15,283,368 14,056,037
Due to recognition of future salary increases .... 3,685,361 4,037,572
Total .......................................... (18,968,729) (18,093,609)
Plan assets at fair value ........................... 26,885,983 24,312,009
Plan assets in excess of projected benefit obligation 7,917,254 6,218,400
Unrecognized transition amount ...................... (971,756) (1,119,280)
Unrecognized net gains .............................. (1,400,035) (125,977)
Prepaid pension costs ............................... $ 5,545,463 $ 4,973,143
</TABLE>
<PAGE>
Notes to Consolidated
Financial Statements
Plan assets are invested in common stock, short-term investments and
various other fixed income securities.
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the projected benefit obligation were 7
1/2 percent and 5 1/2 percent, respectively, as of July 31, 1995 and 1994. The
expected long-term rate of return on assets was 9 percent for all years
presented.
POSTRETIREMENT LIFE AND HEALTH BENEFIT PLAN - The Company sponsors a
postretirement benefit plan that covers substantially all of the Company's
employees. The plan provides medical, dental and life insurance benefits. The
plan is non-contributory.
During 1994, the Company adopted Statement of Financial Accounting
Standards No. 106 Employers' Accounting for Postretirement Benefits Other Than
Pensions (SFAS 106). Prior to 1994, expense was recognized when benefits were
paid, which was $205,000 in 1993. In accordance with SFAS 106, the Company began
recording the cost for this plan on an accrual basis for 1994. As permitted by
SFAS 106, the Company will record the transition obligation over a twenty-year
period. The Company's cost under this plan for 1995 and 1994 was $815,100 and
$841,500, respectively. A regulatory asset of $252,400 has been recorded,
leaving a net expense of $562,700. This regulatory asset represents the excess
of postretirement benefits on the accrual basis over amounts authorized to be
recovered in rates. In fiscal 1994, the RIPUC allowed the Company a phase-in
recovery of the tax deductible portion of these postretirement benefits, if
funded.
The Company has funded a portion of these costs through trusts established
under Section 501(c)(9) of the Internal Revenue Code for the bargaining and
nonbargaining plans. The Company is currently funding the amount recovered
through rates.
The following table sets forth the Plans funded status reconciled with the
amounts recognized in the Company's financial statements at August 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees ..................................................... $(2,719,221) $(2,725,648)
Fully eligible active plan participants ...................... (849,327) (852,056)
Other active plan participants ............................... (2,156,452) (2,176,417)
(5,725,000) (5,754,121)
Plan assets at fair value ....................................... 481,494 162,210
Accumulated postretirement benefit obligation in excess
of plan assets ............................................... (5,243,506) (5,591,911)
Unrecognized transition obligation .............................. 4,999,920 5,277,694
Unrecognized net (gain) from past experience different
from that assumed and from changes in assumptions ............ (449,336) (126,340)
Accrued postretirement benefit cost ............................. $ (692,922) $ (440,557)
</TABLE>
<TABLE>
<CAPTION>
Net periodic postretirement benefit cost consisted of the following: 1995 1994
<S> <C> <C>
Service cost - benefits attributable to service during the period $ 140,882 $ 148,014
Interest cost on accumulated postretirement benefit obligation .. 420,725 424,964
Actual return (loss) on plan assets ............................. (10,575) -0-
Net amortization and deferral ................................... 264,026 268,511
Net periodic postretirement benefit cost ........................ 815,058 841,489
Regulatory asset ................................................ 252,365 440,557
Net expense ..................................................... $ 562,693 $ 400,932
</TABLE>
<PAGE>
Notes to Consolidated
Financial Statements
For measurement purposes, a 13% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1994; the rate was assumed
to decrease gradually to 5% by fiscal 2002 and to remain at that level
thereafter. The rates of increase assumed for post-age 65 medical benefits were
slightly lower. The health care cost trend rate assumption has a significant
effect on the amounts reported. To illustrate, increasing the assumed health
care cost trend rates by 1% in each year would increase the accumulated
postretirement benefit obligation at August 31, 1995 by $468,000 and the
aggregate of the service and the interest cost components of net periodic
postretirement benefit cost (NPPBC) for the year by $73,000. The discount rate
was 7 1/2% for the development of the NPPBC. The trend rates were set by the
RIPUC.
LONG-TERM OBLIGATIONS - Valley Gas and Bristol have contracts which expire at
various dates through the year 2012 for the purchase, delivery and storage of
natural gas and supplemental gas supplies. Certain contracts for the purchase of
the supplemental gas supplies contain minimum purchase obligations which
approximate 2 percent of total system requirements.
FERC ORDER NO. 636 TRANSITION COSTS - As a result of FERC Order 636, the
utilities' interstate pipeline service providers have been required to unbundle
their supply, storage and transportation services. This unbundling has caused
the interstate pipeline companies to incur substantial costs in order to comply
with Order 636. These transition costs include four types: (1) unrecovered gas
costs (gas costs that have been incurred but not yet recovered by the pipelines
when they were providing bundled service to local distribution companies); (2)
gas supply realignment costs (the cost of renegotiating existing gas supply
contracts with producers); (3) stranded costs (unrecovered costs of assets that
cannot be assigned to customers of unbundled services); and (4) new facilities
costs (costs of new facilities required to physically implement Order 636).
Pipelines are expected to be allowed to recover prudently incurred
transition costs from customers primarily through a demand charge, after
approval by FERC. The utilities' pipeline suppliers began direct billing these
costs in fiscal 1994 as a component of demand charges. The utilities estimate
their remaining portion of transition costs to be $1,325,000 and have recognized
a liability for these costs as of August 31, 1995. The RIPUC has allowed the
recovery of transition costs through the PGPA. Under the provisions of SFAS 71,
regulatory assets totaling $1,325,000 were recorded for the expected future
recovery of the transition obligations. Actual transition costs to be incurred
depend on various factors, and, therefore, future costs may differ from the
amounts discussed above.
CONTINGENT LIABILITY - In January 1994, a lawsuit was filed against Valley Gas
and other parties by Blackstone Valley Electric Company (Blackstone), the former
owners of the utility assets acquired by Valley Gas in 1961. The claim is for
contribution towards a judgment against Blackstone's share of total clean up
costs of approximately $6 million of a site to which oxide waste was transported
in the 1930's (the Mendon Road site), prior to the incorporation of Valley
Gas, and for related declaratory relief concerning potential liability for the
site of the former Tidewater plant. Blackstone and the former Mendon Road site
owner have been held jointly and severally liable for the cost of the clean up
by the Massachusetts Department of Environmental Quality Engineering as a result
of its suit of Blackstone and the former Mendon Road site owner. The management
of Valley Gas is of the opinion the Company will prevail as a result of an
indemnification which is part of the agreement signed at the time the Company
acquired the utility assets. Legal fees associated with this claim are expected
to be recovered in rates. In a recent decision of the U.S. Court of Appeals for
the First Circuit, Blackstone's appeal of the judgment against it was sustained
and the case was remanded for further proceedings, including a referral of the
case to the EPA to determine if the substance in question (FFC) is hazardous.
In September 1995, Valley Gas received a letter of responsibility from the
Rhode Island Department of Environmental Management (DEM) with respect to
releases from manufactured coal waste on its property that is the site of the
former Tidewater plant. The DEM has requested Valley Gas and Blackstone to
submit a remedial action work plan to address certain releases on the site. It
is too early in the process to determine the extent of any liability of Valley
Gas. Management takes the position that it is indemnified by Blackstone for any
such expenses. Valley Gas will seek recovery from Blackstone and any insurance
carriers deemed to be at risk during the relevant period.
<PAGE>
Notes to Consolidated
Financial Statements
NOTE I: SEGMENT INFORMATION
<TABLE>
In accordance with SFAS 14, the following information is presented relative
to the gas, merchandising and other operations of the Corporation.
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Gas Operations
Operating revenues ................................. $ 56,012,913 $ 65,323,556 $ 59,293,553
Operating income before Federal income taxes ....... 5,157,534 6,412,020 6,098,057
Identifiable assets at August 31 ................... 83,952,630 83,070,742 74,616,274
Depreciation ....................................... 2,131,425 2,060,071 1,893,748
Capital expenditures ............................... 5,335,159 3,953,702 4,786,946
Appliance & Contract Sales & Rentals
Operating revenues ................................. $ 17,216,397 $ 16,506,364 $ 16,222,518
Operating income before Federal income taxes ....... 1,111,530 1,183,132 1,076,531
Identifiable assets at August 31 ................... 8,148,961 8,060,902 7,857,467
Depreciation ....................................... 475,456 339,068 338,070
Capital expenditures ............................... 521,345 549,067 447,234
Other Operations, including Corporate & Eliminations
Operating revenues ................................. $ 1,640,880 $ 1,722,998 $ 1,770,059
Operating income before Federal income taxes ....... 207,432 219,001 309,218
Identifiable assets at August 31 ................... 235,915 (62,447) (1,678,952)
Depreciation ....................................... 77,874 74,328 72,602
Capital expenditures ............................... 59,427 50,658 105,690
Total Corporation
Operating revenues ................................. $ 74,870,190 $ 83,552,918 $ 77,286,130
Operating income before Federal income taxes ....... 6,476,496 7,814,153 7,483,806
Federal income tax expense ......................... (731,947) (1,313,227) (1,399,641)
Nonoperating income-net ............................ 115,032 227,450 252,666
Interest expense ................................... (3,304,656) (2,902,350) (2,609,601)
Net income ......................................... 2,554,925 3,826,026 3,727,230
Identifiable assets at August 31 ................... 92,337,506 91,069,197 80,794,789
Depreciation ....................................... 2,684,755 2,473,467 2,304,420
Capital expenditures ............................... 5,915,931 4,553,427 5,339,870
</TABLE>
Expenses used to determine operating income before Federal income taxes are
charged directly to each segment or are allocated based on time studies. Assets
allocated to each segment are based on specific identification of such assets as
provided by Corporate records.
<PAGE>
Notes to Consolidated
Financial Statements
NOTE J: SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
(in thousands, except as to earnings (loss)
per average share) November February May August
Fiscal 1995
<S> <C> <C> <C> <C>
Total operating revenues ................ $ 14,774 $ 26,965 $ 21,438 $ 11,693
Income (loss) before Federal income taxes $ (1,186) $ 3,602 $ 2,242 $ (1,300)
Net income (loss) ....................... $ (735) $ 2,382 $ 1,586 $ (678)
Earnings (loss) per average share ....... $ (.17) $ .56 $ .38 $ (.16)
Fiscal 1994
Total operating revenues ................ $ 15,756 $ 31,585 $ 23,568 $ 12,644
Income (loss) before Federal income taxes $ (690) $ 5,037 $ 2,210 $ (1,334)
Net income (loss) ....................... $ (377) $ 3,408 $ 1,558 $ (763)
Earnings (loss) per average share ....... $ (.09) $ .81 $ .37 $ (.18)
</TABLE>
Report of Independent Certified
Public Accountants
To the Stockholders of Valley Resources, Inc.
We have audited the accompanying consolidated balance sheets and
consolidated statements of capitalization of Valley Resources, Inc. (a Rhode
Island corporation) and subsidiaries as of August 31, 1995 and 1994 and the
related consolidated statements of earnings, cash flows and changes in common
stock equity for each of the three years in the period ended August 31, 1995.
These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Valley Resources, Inc. and subsidiaries as of August 31, 1995 and 1994 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended August 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Notes F and H, respectively, to the consolidated financial
statements, in 1994 the Corporation changed its method of accounting for income
taxes and postretirement benefits other than pensions.
Grant Thornton LLP
Boston, Massachusetts
September 22, 1995
(Except for Note G, as to
which the date is October 18, 1995)
<PAGE>
Management's Discussion and Analysis of the
Results of Operations and Financial Condition
OVERVIEW
The following discussion and analysis reflect the operations of the
Corporation and its six active wholly-owned subsidiaries: Valley Gas Company and
Bristol & Warren Gas Company, regulated natural gas distribution companies;
VAMCO, a merchandising, appliance rental, and service company; Valley Propane,
Inc. and The New England Gas Company, retail propane sales and service
companies; and Morris Merchants, Inc., a representative distributor of
franchised lines.
Operating results are generated from two major classifications - utility
and nonutility. Utility earnings are generated from the operations of the
regulated natural gas distribution companies which include sales of natural gas
to firm and seasonal customers and charges for the transportation of
customer-owned natural gas through the Valley Gas distribution system.
Nonutility revenues are a consolidation of the revenues of VAMCO, Valley
Propane, The New England Gas Company and Morris Merchants.
Firm utility revenues are generated from customers who use natural gas on a
year-round basis for heating, water heating, cooking and processing. Firm
customers can be residential, commercial or industrial. Revenues from firm
customers are generated through regulated tariff schedules and through
RIPUC-approved commodity charge factors. These factors include the PGPA, which
collects from or returns to customers changes in gas costs from those included
in the regulated tariff, and an adjustment to collect postretirement benefits.
Seasonal sales are made, at the discretion of the utilities, when gas
supplies are available and gas prices are competitive with alternate fuel
markets. Margins generated from seasonal sales for Valley Gas are returned to
customers through the PGPA. Bristol retains all margins on seasonal sales.
Morris Merchants and VAMCO generate nonutility revenues through the
wholesale and retail sales of plumbing and heating supplies and appliances.
VAMCO also generates revenues from appliance rentals and a service contract
repair program.
The propane operations conducted through Valley Propane and The New England
Gas Company also contribute to nonutility revenues. These operations sell
propane at retail and provide service to propane customers in Rhode Island and
southeastern Massachusetts.
Earnings per common share for fiscal 1995 was $0.61 compared with $0.91 per
common share in fiscal 1994 and $0.89 per common share in fiscal 1993. Fiscal
1995 net income was $2,554,900. This compares with net income of $3,826,000 in
fiscal 1994 and $3,727,200 in fiscal 1993.
RESULTS OF OPERATIONS
Fiscal 1995 versus Fiscal 1994
In fiscal 1995 utility gas revenues totaled $56,012,900, a 14.3 percent
decrease from fiscal 1994. Firm revenues in fiscal 1995 decreased 16.1 percent
from fiscal 1994 due to a $6,457,700 reduction in gas costs recovered through
the PGPA and decreased gas sales.
Gas sales to firm customers were 7,368,700 Mcf in fiscal 1995, a decrease
of 6.7 percent from the prior year. The primary contributor to the sales
decrease was warmer weather. Weather, as measured by degree days, in fiscal 1995
was 8.2 percent warmer than normal and 9.9 percent warmer than fiscal 1994.
Weather during the critical heating period, December through February, was 15.5
percent warmer than the prior year.
In fiscal 1995 sales to seasonal customers increased 30.3 percent over the
prior fiscal year. The warm weather made gas supplies available at competitive
prices which is the primary reason for the sales increase. The profits from
these sales for Valley Gas are returned to firm customers through the PGPA.
Bristol's margin accrues to the benefit of stockholders.
Valley Gas transports customer-owned natural gas if delivered to its gate
station. Transportation revenues increased by $134,800 in fiscal 1995.
<PAGE>
Management's Discussion and Analysis
of the Results of Operations and Financial Condition
Nonutility revenues in fiscal 1995 were $18,857,200, an increase of 3.4
percent over fiscal 1994. VAMCO has focused its retail merchandising
attention to the commercial and industrial equipment market in response to the
effects of the sluggish economy on the residential market. This has led to
increases in retail sales of equipment to this market and improvements in the
gross margin of the retail operations. The rental and service contract programs
continue to positively impact earnings. Wholesale operations are experiencing
slight improvements in sales levels and gross margin as they continue their
focus on higher margin lines. However, profitability decreased in the wholesale
business due to expenses incurred from changes in management and the
implementation of a reporting system to improve communications between the
customers and the sales force.
Propane operations also are included in nonutility revenues. A 4.8 percent
decrease in propane revenues was the result of a 10.0 percent decrease in
gallons sold offset by increases in the wholesale price of propane. The warm
weather was the major contributor to the decreased propane volumes sold. Price
competition continues to be a critical factor in the ability to expand these
operations.
The utility operations distribute natural gas, underground storage gas,
liquefied natural gas and a limited amount of liquid propane gas to meet
customer demands; the utility expense for these fuels are included in the cost
of gas sold. The average cost per Mcf of gas distributed in fiscal 1995 was
$3.21 versus $4.01 in fiscal 1994. All changes in gas costs are passed through
to firm customers through the workings of the PGPA.
Cost of sales - nonutility includes the cost of sales for the retail
merchandising operation, the wholesale merchandising operation and the propane
operation. Cost of merchandising goods sold increased 3.4 percent in fiscal 1995
over fiscal 1994 which is directly attributable to the increase in merchandise
sales. The average cost of propane for the retail propane operations, included
in cost of sales, was $0.44 in fiscal 1995 versus $0.40 in fiscal 1994.
Operations expenses increased 2.7 percent over fiscal 1995. Normal wage
increases, benefits and uncollectible expenses offset slightly by cost controls
and decreased use of peak shaving facilities are responsible for the increase.
Maintenance expense in fiscal 1995 was $1,535,200, an increase of 3.4
percent over fiscal 1994. Expenses related to the distribution system are
responsible for the increase. Operation and maintenance expenses are impacted by
wages and general inflation.
Taxes - other than Federal income were $4,002,100, a decrease of $461,300
from the prior year. A reduction in gross receipts taxes as a result of
decreased revenues and the lowering of the gross receipts tax rate for
manufacturing customers are responsible for the decrease. The effective Federal
income taxes rates for the years ended August 31, 1995 and 1994 were 24 percent
and 27 percent, respectively.
Fiscal 1995 other income - net decreased $112,400 from the prior year. A
decrease in funds available for overnight investments was responsible for the
decrease in other income.
Interest expense in fiscal 1995 totaled $3,304,600, an increase of 13.8
percent over fiscal 1994. Increased short-term borrowing rates are responsible
for the increase in interest expense.
Fiscal 1994 versus Fiscal 1993
Utility gas revenues in fiscal 1994 totaled $65,323,600, an increase of
10.2 percent over fiscal 1993. Revenues from sales to firm customers increased
10.5 percent over the prior fiscal year as the result of increased recoveries
through the PGPA, increased gas sales and the recovery of post-retirement costs.
Recoveries through the PGPA were $7,474,000 in fiscal 1994 versus $3,725,200 in
fiscal 1993.
In fiscal 1994, firm gas sales were 7,894,000 Mcf versus 7,602,100 Mcf in
fiscal 1993. The increase in firm gas sales resulted from colder weather which,
measured on a degree day basis, was 1.9 percent colder than the prior year. The
addition of new load, through the implementation of an economic development
rate, also contributed to the increase in sales.
<PAGE>
Management's Discussion and Analysis of the
Results of Operations and Financial Condition
The RIPUC, in a generic rate proceeding, authorized utilities in Rhode
Island to recover, through a surcharge on firm customers' bills, the amount used
to fund postretirement medical and life benefits above the pay-as-you-go costs
included in base rates. The recovery is phased in over a 10-year period with
any shortages in the first two years to be recovered in the last seven years.
Valley Gas recovered $187,000 of these costs in fiscal 1994.
Seasonal revenues were $2,945,200, an increase of 6.6 percent over the
prior fiscal year. Mcf sales to seasonal customers increased 21.8 percent over
the prior year as a result of the availability of natural gas at competitive
prices. Valley Gas transports customer-owned natural gas through its
distribution system if delivered to its gate station. In fiscal 1994,
transportation revenues totaled $372,400 as compared with $408,000 in fiscal
1993.
Nonutility revenues in fiscal 1994 were $18,229,400, an increase of 1.3
percent over fiscal 1993. Merchandising sales, inclusive of rental and service
program revenues, increased 1.7 percent over the prior fiscal year. Retail
merchandising operations experienced improvement in all segments of its business
through increases in sales volumes and rates charged for the rental and service
programs. The increase in retail operations were offset slightly by decreased
sales in the wholesale operation. The decrease was due to the loss of customers
that switched to direct purchases from manufacturers. However, wholesale
operations were able to increase profitability through focus on higher margin
sales and cost controls.
Nonutility revenues also include revenues generated from propane
operations. Propane revenues decreased 2.7 percent from the prior year. The
decrease was due to the reduction in retail rates to customers as a result of
reductions in the wholesale price of propane. Gallons sold increased 11.7
percent over the prior year due to colder weather and competitive pricing. Price
competition continues to be an important factor in the expansion of the retail
propane operations.
Cost of gas sold includes the cost of fuel to serve utility customers. The
utility operations distribute natural gas, underground storage gas, liquefied
natural gas and, to a limited extent, liquid propane gas to meet the demands of
its customers. The average cost per Mcf of gas for utility operations in fiscal
1994 and 1993 was $4.01 and $3.97, respectively. All changes in fuel costs are
passed through to firm customers through the workings of the PGPA.
Cost of sales - nonutility increased 0.5 percent over the prior fiscal year
as a result of the increased sales in the retail merchandising operation offset
by decreases in the cost of propane. The average cost of propane distributed for
the retail propane operations was $0.40 in fiscal 1994 versus $0.48 in fiscal
1993.
Other operation expenses increased 3.3 percent in fiscal 1994. Wages and
customer service expenses were primarily responsible for the increase in other
operation expenses.
Maintenance expense in fiscal 1994 decreased 0.8 percent from the prior
year. An increase in the demand for capital projects required the Company to
shift resources from noncritical maintenance which resulted in the decrease.
Operation and maintenance expenses are impacted by general inflation and wages.
Taxes - other than Federal income increased 9.6 percent in fiscal 1994 to
$4,463,400. Gross receipts taxes on increased utility revenues and property
taxes are responsible for the increase.
The effective Federal income tax rates for the years ended August 31, 1994
and 1993 were 27 percent and 29 percent, respectively.
Other income - net of tax totaled $227,500 in fiscal 1994 and $252,700 in
fiscal 1993. Interest on temporary cash investments decreased in fiscal 1994 as
a result of decreases in the availability of funds to invest. A decrease in the
finance charge rate on installment merchandising sales also contributed to the
decrease.
Fiscal 1994 interest expense was $2,902,400, an increase of 11.2 percent
over fiscal 1993. The increase is a result of a full year of interest charges on
the December 1992 issue of 8% First Mortgage Bonds at Valley Gas. The bonds were
used to retire existing long-term debt and a portion of short-term debt.
<PAGE>
Management's Discussion and Analysis of the
Results of Operations and Financial Condition
LIQUIDITY AND CAPITAL RESOURCES
Cash requirements are met through the generation of cash flows from the
sale of natural gas, propane and merchandise and from revenues collected through
the rental and service contract programs. Operations, external financings and
investments are used to meet corporate cash needs. Long-term and intermediate
financings are used to refinance short-term debt when deemed appropriate by
management.
The cash position of the Corporation is impacted by the requirement to
inventory supplemental gas supplies to meet peak winter demand of the utilities.
Supplemental gas inventories are filled in the summer period for use during the
winter period which has a negative impact on cash flows.
In 1995, Valley Gas received approximately $1,900,000 from Tennessee Gas
Pipeline Company for overcharges of gas-related costs. This refund was returned
to customers primarily through a credit on their bills which favorably impacted
cash flows.
During fiscal 1995 actual gas costs were less than expected which resulted
in the utilities' over-recovery of gas costs through the PGPA, favorably
impacting liquidity. However, this over-recovery will be returned to customers
through a reduction in the PGPA in fiscal 1996 which will have a negative impact
on fiscal 1996 cash flows. Interest costs and the timing of Federal and state
tax payments also impact liquidity. Funding requirements are met through
short-term borrowings under existing lines of credit. At August 31, 1995, the
Corporation had $15,100,000 of available borrowings under its lines of credit.
These lines are reviewed annually by the lending banks, and management believes
they will be renewed or replaced.
In October 1995, the RIPUC authorized Valley Gas and Bristol to consolidate
their rate structures and increase operating revenues by $1.2 million which
should favorably impact liquidity in fiscal 1996.
A lawsuit has been filed against Valley Gas and other parties by Blackstone
Valley Electric Company (Blackstone) seeking contribution towards a judgment
against Blackstone's share of total clean-up costs of approximately $6 million
and for related declaratory relief concerning potential liability for the site
of the former Tidewater plant. The expenses relate to the Mendon Road site to
which oxide waste was transported in the 1930's prior to the incorporation of
Valley Gas. Management is of the opinion the Company will prevail as a result of
the indemnification provisions included in the agreement entered into when the
Company acquired the utility assets from Blackstone. Management cannot determine
the future cash flow impact, if any, of this claim and related legal fees. In a
recent decision of the U.S. Court of Appeals for the First Circuit, Blackstone's
appeal of the judgment against it was sustained and the case was remanded for
further proceedings, including a referral of the case to the EPA to determine if
the substance in question (FFC) is hazardous.
In September 1995, Valley Gas received a letter of responsibility from the
Rhode Island Department of Environmental Management (DEM) with respect to
releases from manufactured coal waste on its property that is the site of the
former Tidewater plant. The DEM has requested Valley Gas and Blackstone to
submit a remedial action work plan to address certain releases on the site. It
is too early in the process to determine the extent of any liability of Valley
Gas. Management takes the position that it is indemnified by Blackstone for any
such expenses. Valley Gas intends to seek recovery from Blackstone and any
insurance carriers deemed to be at risk during the relevant period.
The Corporation's net cash generated from operating activities in fiscal
1995 was $6,728,000 versus $8,342,900 in fiscal 1994 and $5,970,100 in fiscal
1993. Cash from investing activities in the amount of $5,929,300 in fiscal 1995,
$4,604,900 in fiscal 1994 and $5,364,800 in fiscal 1993 was used primarily for
capital expenditures. In fiscal 1995, financing activities used cash for the
payment of dividends of $2,989,700 and the retirement of long term debt of
$1,333,000, partially offsetting these uses was short-term borrowings of
$3,000,000 and $391,300 generated through the dividend reinvestment program.
Financing activities used cash of $4,090,800 in fiscal 1994 and $1,219,500 in
fiscal 1993.
Capital expenditures are primarily for the expansion and improvement of the
gas utility plant and for the purchase of rental and propane equipment. In
fiscal 1995, capital expenditures were $5,915,900 versus $4,553,400 in fiscal
1994 and $5,339,900 in fiscal 1993. Fiscal 1996 capital expenditures are
estimated to be $6,686,900 and will be primarily for the expansion and
improvements of gas utility property. It is anticipated that such expenditures
will be financed through funds generated from operations and short-term
borrowings.
Information on the sources and uses of cash flows for the past three years
is included on the Consolidated Statements of Cash Flows on page 17 of this
report.
<PAGE>
Summary of
Consolidated Operations
<TABLE>
<CAPTION>
August 31 (in thousands) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Assets
Utility plant - net ............. $ 47,411 $ 44,207 $ 42,313 $ 38,838 $ 31,981
Leased property - net ........... 2,014 2,436 2,395 3,343 2,336
Nonutility plant - net .......... 3,547 3,519 3,334 2,180 2,255
Current assets .................. 18,409 18,358 20,727 20,908 16,442
Other assets .................... 20,957 22,549 12,026 10,594 7,151
Total ................... $ 92,338 $ 91,069 $ 80,795 $ 75,863 $ 60,165
Capitalization and liabilities
Capitalization
Common equity ............... $ 25,993 $ 26,036 $ 24,943 $ 24,018 $ 23,600
Long-term debt
(less current maturities) . 24,616 27,035 27,580 15,795 13,600
Total ................... 50,609 53,071 52,523 39,813 37,200
Obligations under capital leases . 1,255 1,747 1,847 1,790 1,909
Current liabilities .............. 23,932 18,530 18,982 26,922 15,658
Other liabilities ................ 16,542 17,721 7,443 7,338 5,398
Total ............................ $ 92,338 $ 91,069 $ 80,795 $ 75,863 $ 60,165
</TABLE>
<TABLE>
<CAPTION>
For the year ended August 31,
(in thousands, except as to share
and per share data) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Operating revenues ............... $ 74,870 $ 83,553 $ 77,286 $ 67,144 $ 59,990
Operating expenses:
Cost of gas sold .............. 30,229 38,234 33,410 28,963 26,095
Cost of sales - nonutility .... 13,190 12,784 12,715 11,893 10,848
Other operation and maintenance 18,288 17,784 17,300 15,107 13,792
Depreciation ..................... 2,685 2,474 2,304 1,770 1,594
Taxes - other than Federal income 4,002 4,463 4,073 3,557 3,218
- - - - - - - Federal income ................. 732 1,313 1,400 955 652
Total ............................ 69,126 77,052 71,202 62,245 56,199
Operating income ................. 5,744 6,501 6,084 4,899 3,791
Other income - net ............... 115 227 253 267 380
Total interest charges ........... 3,304 2,902 2,610 2,051 1,813
Net income ....................... $ 2,555 $ 3,826 $ 3,727 $ 3,115 $ 2,358
Shares outstanding - average ..... 4,222,662 4,205,760 4,203,398 4,201,105 4,199,809
Shares outstanding - year-end .... 4,260,797 4,213,043 4,213,043 4,213,043 4,213,043
Earnings per share ............... $ 0.61 $ 0.91 $ 0.89 $ 0.74 $ 0.56
Dividends declared per share ..... $ 0.71 $ 0.69 $ 0.66 $ 0.63 $ 0.61
Year-end book value per share .... $ 6.10 $ 6.18 $ 5.92 $ 5.77 $ 5.60
</TABLE>
<PAGE>
Gas Operating
Statistics
<TABLE>
<CAPTION>
For the year ended August 31 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Gas utility revenues (in thousands):
Residential ..................... $30,606 $37,065 $34,250 $28,732 $25,105
Commercial ...................... 13,212 15,633 13,964 11,314 9,503
Industrial - firm ............... 8,011 9,057 7,683 6,979 6,253
Industrial - seasonal ........... 3,507 2,945 2,762 2,916 3,372
Transportation .................. 507 372 408 287 206
Other ........................... 170 252 227 345 336
Total ................... $56,013 $65,324 $59,294 $50,573 $44,775
Sales-MMcf:
Residential ..................... 4,078 4,517 4,439 3,965 3,398
Commercial ...................... 1,953 2,078 1,978 1,680 1,394
Industrial - firm ............... 1,338 1,299 1,185 1,152 1,014
Industrial - seasonal ........... 1,298 996 818 1,010 1,053
Total ................... 8,667 8,890 8,420 7,807 6,859
Company use and losses........... 128 176 194 130 209
Transportation................... 4,419 3,624 4,031 2,851 1,804
Total sendout ........... 13,214 12,690 12,645 10,788 8,872
Gas purchased and transported-MMcf:
Liquid propane gas .............. -0- -0- 158 141 97
Liquefied natural gas ........... 378 574 206 580 257
Natural gas stored underground .. 1,156 1,075 1,494 1,116 856
Pipeline natural gas ............ 7,261 7,417 6,756 6,100 5,858
Transportation .................. 4,419 3,624 4,031 2,851 1,804
Total ................... 13,214 12,690 12,645 10,788 8,872
Average number of customers:
Residential ..................... 55,186 54,715 54,541 54,336 48,603
Commercial ...................... 5,212 5,111 5,077 5,034 4,293
Industrial - firm ............... 241 249 253 265 244
Industrial - seasonal ........... 59 58 58 46 44
Transportation .................. 2 2 2 2 2
Total ................... 60,700 60,135 59,931 59,683 53,186
Average revenue per
residential customer ............ $ 555 $ 677 $ 628 $ 529 $ 516
Average use per
residential customer-Mcf ........ 74 83 81 73 70
Maximum daily throughput-Mcf ....... 65,619 76,910 69,003 67,037 55,144
Sales degree days .................. 5,820 6,459 6,341 5,887 5,003
</TABLE>
<PAGE>
Directors
Ernest N. Agresti
Retired Partner,
Edwards & Angell,
Providence, Rhode Island
Melvin G. Alperin
President,
Brewster Industries,
Pawtucket, Rhode Island
C. Hamilton Davison
President,
Paramount Cards, Inc.
Pawtucket, Rhode Island
Effective September 19, 1995
Don A. DeAngelis
Vice Chairman & Chief Executive Officer,
Murdock Webbing Company, Inc.,
Central Falls, Rhode Island
Alfred P. Degen
President & Chief Executive Officer,
Valley Resources, Inc.,
Cumberland, Rhode Island
James M. Dillon
Retired Director of Development,
The Roman Catholic Diocese,
Bridgeport, Connecticut
Jonathan K. Farnum
President,
Wardwell Braiding Machine Company,
Central Falls, Rhode Island
John F. Guthrie, Jr.
Executive Vice President,
Boylston Capital Advisors,
Boston, Massachusetts
Eleanor M. McMahon, Ed. D.
Distinguished Visiting Professor,
A. Alfred Taubman Center for Public Policy,
Brown University,
Providence, Rhode Island
Officers of the
Corporation
Alfred P. Degen
President & Chief Executive Officer
Kenneth W. Hogan
Senior Vice President,
Chief Financial Officer & Secretary
Richard G. Drolet
Vice President, Information Systems
& Corporate Planning
Charles K. Meunier
Vice President, Operations
Jeffrey P. Polucha
Vice President, Marketing & Development
James P. Carney
Assistant Vice President, Human Resources
Sharon Partridge
Assistant Vice President,
Finance & Treasurer
Alan H. Roy
Assistant Vice President, Gas Supply
Robert A. Young
Assistant Vice President & Chief Engineer
Clement W. Bethel
Assistant Treasurer
Patricia A. Morrison
Assistant Secretary;
Clerk, Morris Merchants, Inc.
Other Officers
David L. Hickerson
President of
Morris Merchants, Inc.
Richard C. Hadfield
Executive Vice President of
Morris Merchants, Inc.
Rosemary Platt
Controller of
Morris Merchants, Inc.
<PAGE>
Corporate
Information
ANNUAL MEETING AND PROXIES
The Annual Meeting of Stockholders will be held in Cumberland, Rhode
Island, on December 12, 1995. Notice of the meeting and form of proxy along with
this report are being mailed by the management to each holder of record of
common stock on October 24, 1995.
FORM 10-K
The Corporation is required to file an annual report on Form 10-K with the
Securities and Exchange Commission which includes additional information
concerning the Corporation and its operations. A copy of this report will be
forwarded to you upon written request to Mr. K. W. Hogan, Senior Vice President,
Chief Financial Officer & Secretary, Valley Resources, Inc., P. O. Box 7900,
1595 Mendon Road, Cumberland, Rhode Island 02864-0700. Telephone: (401) 334-1188
CERTIFIED PUBLIC ACCOUNTANTS
Grant Thornton LLP
98 North Washington Street
Boston, Massachusetts 02114
REGISTRAR & TRANSFER AGENT
The Bank of New York
Shareholder Relations - Department 11E
P. O. Box 11258
Church Street Station
New York, NY 10286
Telephone: 1-800-524-4458
STOCK LISTING
The common stock of Valley Resources, Inc. is listed on the American Stock
Exchange under the symbol VR. Quotes of Valley Resources, Inc. common stock are
listed in The Wall Street Journal and many daily newspapers among the AMEX
stocks traded for the day.
PRINTED ON RECYCLED PAPER
<PAGE>
Valley Resources, Inc.
1595 Mendon Road
P. O. Box 7900
Cumberland, Rhode Island 02864-0700
(401) 334-1188
Exhibit 23
Consent of Independent Certified Public Accountants
We have issued our reports dated September 22, 1995 (except Note G, as to
which the date is October 18, 1995), accompanying the consolidated financial
statements and schedules incorporated by reference or included in the Annual
Report of Valley Resources, Inc. and subsidiaries on Form 10-K for the year
ended August 31, 1995. We hereby consent to the incorporation by reference of
said reports in the Registration Statements of Valley Resources, Inc. and
subsidiaries on Form S-3 (File No. 33-32837); Form S-8/S-3 (File No. 33-20770);
Form S-8/S-3 (File No. 33-33574) and Form S-8 (File No. 33-33575).
GRANT THORNTON LLP
Boston, Massachusetts
November 27, 1995
<TABLE> <S> <C>
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 47,410,993
<OTHER-PROPERTY-AND-INVEST> 7,021,290
<TOTAL-CURRENT-ASSETS> 18,408,809
<TOTAL-DEFERRED-CHARGES> 19,496,414
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 92,337,506
<COMMON> 4,260,797
<CAPITAL-SURPLUS-PAID-IN> 18,038,679
<RETAINED-EARNINGS> 6,835,415
<TOTAL-COMMON-STOCKHOLDERS-EQ> 25,992,691
0
0
<LONG-TERM-DEBT-NET> 21,072,000
<SHORT-TERM-NOTES> 11,900,000
<LONG-TERM-NOTES-PAYABLE> 4,043,937
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 500,000
0
<CAPITAL-LEASE-OBLIGATIONS> 1,254,778
<LEASES-CURRENT> 758,870
<OTHER-ITEMS-CAPITAL-AND-LIAB> 26,815,230
<TOT-CAPITALIZATION-AND-LIAB> 92,337,506
<GROSS-OPERATING-REVENUE> 74,870,190
<INCOME-TAX-EXPENSE> 731,947
<OTHER-OPERATING-EXPENSES> 68,393,694
<TOTAL-OPERATING-EXPENSES> 69,125,641
<OPERATING-INCOME-LOSS> 5,744,549
<OTHER-INCOME-NET> 115,032
<INCOME-BEFORE-INTEREST-EXPEN> 5,859,581
<TOTAL-INTEREST-EXPENSE> 3,304,656
<NET-INCOME> 2,554,925
0
<EARNINGS-AVAILABLE-FOR-COMM> 2,554,925
<COMMON-STOCK-DIVIDENDS> 2,989,702
<TOTAL-INTEREST-ON-BONDS> 1,947,205
<CASH-FLOW-OPERATIONS> 6,728,008
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.61
</TABLE>
