FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________to ____________
Commission File number 1-7924
VALLEY RESOURCES, INC.
(Exact name of Registrant as specified in its charter)
Rhode Island 05-0384723
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1595 Mendon Road 02864
Cumberland, Rhode Island (Zip Code)
(Address of principal executive offices)
(401) 334-1188
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X . No .
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of the latest practicable date.
Outstanding at
Class of Common Stock Nov. 30, 1996
--------------------- --------------
$1 Par Value 4,261,618
<PAGE>
VALLEY RESOURCES, INC.
FORM 10-Q
NOVEMBER 30, 1996
Page of
Form 10-Q
---------
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Operations--for
the three-months ended November 30, 1996
and 1995.................................................. 3
Consolidated Condensed Balance Sheets--November 30,
1996 and August 31, 1996................................4 & 5
Consolidated Condensed Statements of Cash Flows--for
the three-months ended November 30, 1996 and 1995......... 6
Notes to Consolidated Condensed Financial Statements...... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 8
Item 6(a) Exhibits.................................................. 9
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ....... 9
Item 6. Exhibits and Reports on Form 8-K........................... 9
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
VALLEY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the 3 Months Ended
Nov. 30, Nov. 30,
1996 1995
--------- ---------
(in thousands
except share and
per share numbers)
<S> <C> <C>
Operating Revenues:
Utility Gas Revenues $ 10,946 $ 9,398
Nonutility Revenues 5,394 4,697
-------- --------
Total 16,340 14,095
-------- --------
Operating Expenses:
Cost of Gas Sold 6,403 5,052
Cost of Sales - Nonutility 3,826 3,316
Operations 4,557 4,268
Maintenance 438 389
Depreciation and Amortization 778 712
Taxes - Other Than Federal Income 871 831
- Federal Income (509) (480)
-------- --------
Total 16,364 14,088
-------- --------
Operating Income (Loss) (24) 7
Other Income - Net of Tax 65 37
-------- --------
Total Income 41 44
-------- --------
Interest Charges:
Long-Term Debt 487 469
Other 326 350
-------- --------
Total 813 819
-------- --------
Net Loss $ (772) $ (775)
======== ========
Average Number of Common Shares Outstanding 4,261,618 4,243,663
Loss Per Average Common Share Outstanding ($ 0.18) ($ 0.18)
Dividends Declared on Common Stock $ 0.1825 $ 0.18
</TABLE>
The accompanying Notes are an integral part of these statements.
3
<PAGE>
VALLEY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
Nov. 30, Aug. 31,
1996 1996
-------- --------
(in thousands)
<S> <C> <C>
ASSETS
Utility Plant - Net $ 49,856 $ 49,442
-------- --------
Leased Property - Net 2,815 2,945
-------- --------
Nonutility Property-Net 3,613 3,568
-------- --------
Other Investments 1,523 1,510
-------- --------
Current Assets:
Cash 612 507
Accounts Receivable - Net 10,518 9,946
Deferred Fuel Costs 2,029 827
Deferred Unbilled Gas Costs 1,825 439
Fuel and Other Inventories (Note 3) 6,788 6,048
Prepayments 949 1,409
Common Stock held for Dividend Reinvestment-amounting
to 24,610 and 10,813 shares respectively (Note 4) 316 131
-------- --------
Total 23,037 19,307
-------- --------
Deferred Debits:
Recoverable Postretirement Benefits 514 693
Recoverable Vacations Accrued 656 633
Unamortized Debt Discount and Expense 1,509 1,523
Prepaid Pensions 6,402 6,171
Recoverable Deferred FIT 6,127 5,970
Recoverable Transition Obligation 1,700 1,700
Other 3,127 3,227
-------- -------
Total 20,035 19,917
-------- --------
$100,879 $ 96,689
======== ========
</TABLE>
The accompanying Notes are an integral part of these statements.
4
<PAGE>
VALLEY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
Nov. 30, Aug. 31,
1996 1996
-------- --------
(in thousands)
<S> <C> <C>
CAPITALIZATION & LIABILITIES
Capitalization:
Common Stock $ 4,280 $ 4,280
Paid In Capital 18,202 18,204
Retained Earnings 6,200 7,750
Less: Accounts Receivable from ESOP (3,142) (3,142)
--------- ---------
Total Common Stock Equity 25,540 27,092
--------- ---------
Long-Term Debt (Less Current Maturities):
8% First Mortgage Bonds, Series Due 2022 20,194 20,212
9% Notes Payable, Due 1999 2,139 2,139
Note Payable 905 905
--------- ---------
Total Long-Term Debt 23,238 23,256
--------- ---------
Total Capitalization 48,778 50,348
--------- ---------
Revolving Credit Arrangement 2,300 2,200
--------- ---------
Obligation Under Capital Lease 2,002 2,134
--------- ---------
Current Liabilities:
Current Maturities of Long-Term Debt 500 500
Obligation Under Capital Lease 813 811
Notes Payable 19,500 14,900
Accounts Payable 6,502 5,243
Security Deposits & Refund Obligations 1,116 1,097
Taxes Accrued (Debit) (1,251) 190
Accrued Interest 993 552
Other 765 712
--------- ---------
Total 28,938 24,005
--------- ---------
Commitments and Contingencies
Deferred Credits 6,556 6,740
--------- ---------
Deferred Federal Income Taxes 12,305 11,262
--------- ---------
$ 100,879 $ 96,689
========= =========
</TABLE>
The accompanying Notes are an integral part of these statements.
5
<PAGE>
VALLEY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For the 3 Months
Ended
Nov. 30, Nov. 30,
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss $ (772) $ (775)
Adjustments to Reconcile Net Loss to Net Cash used in
Operating Activities:
Depreciation and Amortization 778 712
Provision for Uncollectibles 377 337
Deferred Federal Income Taxes 983 521
Change in Assets and Liabilities:
Accounts Receivable (949) 454
Deferred Fuel Costs (1,202) (553)
Unbilled Gas Costs (1,386) (1,151)
Fuel and Other Inventories (739) (405)
Other Current Assets 44 489
Accounts Payable, Accrued Expenses and Current Liabilities (164) (849)
Other - Net 483 256
------- -------
Net Cash (Used) by Operating Activities (2,547) (964)
------- -------
Cash Flows from Investing Activities:
Utility Capital Expenditures (1,051) (1,760)
Nonutility Capital Expenditures (186) (148)
Other Investments (13) (3)
------- -------
Net Cash (Used) by Investing Activities (1,250) (1,911)
------- -------
Cash Flows from Financing Activities:
Dividends Paid (778) (762)
Capital Stock Transactions (2) (9)
Insurance of Revolving Credit Arrangement 10 -0-
Retirement of Long-Term Debt (18) (15)
Increase in Notes Payable 4,600 4,100
------- -------
Net Cash Provided by Financing Activities 3,902 3,314
------- -------
Net Increase in Cash 105 439
Cash - Beginning 507 455
------- -------
Cash - Ending $ 612 $ 894
======= =======
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Period for:
Interest $ 371 $ 355
======= =======
Federal Income Taxes $ -0- $ -0-
======= =======
Capital Lease Obligations Incurred $ 101 $ -0-
======= =======
</TABLE>
The accompanying Notes are an integral part of these statements.
6
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1
- ------
The Corporation computes its loss per average common share based on the
weighted average number of shares outstanding during the period.
Note 2
- ------
In the opinion of the Corporation, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals and matters discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations") necessary to present
fairly the financial position at November 30, 1996, the results of operations
for the three-months ended November 30, 1996 and 1995 and Statements of Cash
Flows for the three-months ended November 30, 1996 and 1995.
The results of operations for the three-month periods ended November 30,
1996 and 1995 are not necessarily indicative of the results to be expected for
the full year.
Note 3
- ------
Inventories - Fuel and Other Inventories:
(in Thousands)
<TABLE>
<CAPTION>
November 30, August 31,
1996 1996
------------ ----------
<S> <C> <C>
Fuels (at average cost) $4,402 $3,623
Merchandise and Other (at average cost) 1,115 1,199
Merchandise (at LIFO) 1,271 1,226
------ ------
$6,788 $6,048
====== ======
</TABLE>
Note 4
- ------
Pursuant to the dividend reinvestment plan, stockholders can reinvest
dividends and make limited additional investments in shares of Common Stock.
Shares issued through dividend reinvestment can be acquired on the open market
or original issue.
7
<PAGE>
PART I - ITEM 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
- ---------------------
Base revenues from firm customers, exclusive of the PGPA, increased 8
percent over the prior year as a result of increased gas sales and the rate
relief granted to the company in fiscal 1996. Sales to firm customers totaled
1,250,600 Mcf, an increase of 6 percent when compared to fiscal 1996. The
primary contributors to this increase are colder weather and increased
customers. Weather, as measured by degree days, was 10 percent colder than the
prior year. At November 30, 1996, there were 61,445 utility customers versus
60,919 at November 30, 1995.
PGPA revenues, which collect from or return to customers changes in gas
costs, increased for the three month period. The increase is the result of
increased gas costs passed through to customers through the PGPA which does not
impact the profitability of the company.
Seasonal gas sales increased 8 percent for the three months ended November
30, 1996 when compared to the prior year. Seasonal sales increase and decrease
depending on availability of gas and the price of competitive fuels. The margin
on seasonal sales is passed through to firm customers through the PGPA and has
no impact on operating income.
Transportation revenues increased $42,900 for the three-months ended
November 30, 1996, when compared with the results from the prior year.
The above factors resulted in utility gas revenues for the three months
ended November 30, 1996, totaling $10,946,100, a 16 percent increase when
compared to the same period in fiscal 1996.
Nonutility revenues totaled $5,393,500 for the three months ended November
30, 1996, an increase of 15 percent when compared to the prior year. The
increase in nonutility revenues is the result of retail and wholesale
merchandise sales, propane sales and revenues generated by the Corporation's
newest subsidiary Alternate Energy Corporation (AEC). Retail merchandise revenue
improved due to the sale and installation of commercial equipment and
conversions to gas in the residential electric heating market. Wholesale
revenues improved as a result of increased unit sales due to a slightly stronger
regional economy and focus on market specific opportunities. An increase in
gallons of propane sold and price increases contributed to the increase in
propane revenues. Sales made by AEC also contributed to the increase in
nonutility revenues.
Operating expenses for the three-month period were affected primarily by
the cost of gas sold and operation expenses. The cost of gas sold increased 27
percent when compared with the prior year both as a result of an increase in the
commodity price of natural gas and an increase in the volume of gas sold. The
increase in the price of natural gas is recovered from utility customers through
the PGPA and, therefore, does not impact the profit margins of the utilities.
The cost of sales for nonutility operations increased 15 percent over the prior
year with the increase directly attributable to increased sales.
Other operation expenses increased 7 percent when compared to fiscal 1996.
Normal wage and salary increases and increased uncollectible and employee
welfare expenses were responsible for the increase. Maintenance expense
increased $49,200 over the prior year as a result of repairs to the LNG storage
facilities.
Interest expense totaled $812,500 for the three-months ended November 30,
1996, a slight decrease from the prior year. The shift of the deferred fuel
cost, which reconciles PGPA revenues and gas costs, from a payable to customers
to a receivable from customers resulted in a decrease in interest expense. This
decrease was slightly offset by an increase in short-term debt.
8
<PAGE>
Liquidity and Capital Resources
- -------------------------------
Operations during the first quarter typically do not generate sufficient
cash to meet gas costs and construction requirements. Management believes its
current borrowing capacity under the present financial structure is sufficient
to meet cash requirements. The available borrowings under lines of credit at
November 30, 1996 were $9,500,000.
Cash flow during the period was negatively impacted by the requirement to
increase inventories of supplemental fuels to meet winter requirements and the
unexpected increases in the price of natural gas. Actual gas costs, which were
greater than expected, also resulted in the utilities underrecovery of gas costs
through the PGPA. This negatively impacted liquidity during the first fiscal
quarter.
A receivable lag that is generally experienced during the first fiscal
quarter should be reversed in the second fiscal quarter and revenues should
increase as a result of colder weather. Also, construction expenditures should
be reduced during the second fiscal quarter due to restraints caused by weather
having a favorable effect upon cash flow.
PART I - ITEM 6(a)
Item 6 (a) - Exhibits
- ---------------------
27. Financial Data Schedule
PART II: OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The Annual Meeting of Stockholders of Valley Resources, Inc. was held on
December 10, 1996, for the purpose of electing a board of directors. Proxies for
the meeting were solicited pursuant to Section 14(a) of the Securities Exchange
Act of 1934 and there was no solicitation in opposition to management's
solicitations.
All of management's nominees for directors were elected by the following
vote:
<TABLE>
<CAPTION>
Shares Shares
Voted Voted
"For" "Withheld"
----- ----------
<S> <C> <C>
Ernest N. Agresti 3,356,425 55,273
Don A. DeAngelis 3,354,647 57,051
Eleanor M. McMahon 3,348,532 63,166
</TABLE>
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) None.
(b) The Company did not file a Form 8-K.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VALLEY RESOURCES, INC. AND SUBSIDIARIES
S/K. W. Hogan
--------------------------------------------------
K. W. Hogan
Senior Vice President, Chief Financial Officer and
Secretary
January 14, 1997
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> NOV-30-1996
<CASH> 612
<SECURITIES> 0
<RECEIVABLES> 11,202
<ALLOWANCES> 684
<INVENTORY> 6,788
<CURRENT-ASSETS> 23,037
<PP&E> 85,011
<DEPRECIATION> 31,542
<TOTAL-ASSETS> 100,879
<CURRENT-LIABILITIES> 28,938
<BONDS> 20,194
0
0
<COMMON> 4,280
<OTHER-SE> 21,260
<TOTAL-LIABILITY-AND-EQUITY> 100,879
<SALES> 16,340
<TOTAL-REVENUES> 16,340
<CGS> 10,229
<TOTAL-COSTS> 16,364
<OTHER-EXPENSES> 6,135
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 813
<INCOME-PRETAX> (1,263)
<INCOME-TAX> (491)
<INCOME-CONTINUING> (772)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (772)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
