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
