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, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________to ____________
Commission File number 1-7924
VALLEY RESOURCES, INC.
(Exact name of Registrant as specified in its charter)
Rhode Island 05-0384723
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1595 Mendon Road 02864
Cumberland, Rhode Island (Zip Code)
(Address of principal executive offices)
(401) 334-1188
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X . No ___.
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Outstanding at
Class of Common Stock Nov. 30, 1997
--------------------- -------------
$1 Par Value 4,965,557
<PAGE>
VALLEY RESOURCES, INC.
FORM 10-Q
NOVEMBER 30, 1997
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, 1997
and 1996................................................... 3
Consolidated Condensed Balance Sheets--November 30,
1997 and August 31, 1997................................... 4 & 5
Consolidated Condensed Statements of Cash Flows--for
the three-months ended November 30, 1997 and 1996.......... 6
Notes to Consolidated Condensed Financial Statements....... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 8
Item 6(a) Exhibits................................................... 9
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders........ 9
Item 6. Exhibits and Reports on Form 8-K........................... 10
<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,
1997 1996
---- ----
(in thousands)
(except share and
per share numbers)
<S> <C> <C>
Operating Revenues:
Utility Gas Revenues $ 10,084 $ 10,946
Nonutility Revenues 5,741 5,394
--------- ---------
Total 15,825 16,340
--------- ---------
Operating Expenses:
Cost of Gas Sold 5,594 6,403
Cost of Sales - Nonutility 4,027 3,826
Operations 4,715 4,557
Maintenance 398 438
Depreciation and Amortization 825 778
Taxes - Other Than Federal Income 852 871
- Federal Income (525) (509)
--------- ---------
Total 15,886 16,364
--------- ---------
Operating Income (Loss) (61) (24)
Other Income - Net of Tax 49 65
--------- ---------
Total Income (Loss) (12) 41
--------- ---------
Interest Charges:
Long-Term Debt 622 487
Other 127 326
--------- ---------
Total 749 813
--------- ---------
Net Loss $ (761) $ (772)
========= =========
Average Number of Common Shares Outstanding 4,939,253 4,261,618
Loss Per Average Common Share Outstanding ($0.15) ($0.18)
Dividends Declared on Common Stock $0.185 $0.1825
</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,
1997 1997
---- ----
(in thousands)
<S> <C> <C>
ASSETS
Utility Plant - Net $ 50,982 $50,447
-------- -------
Leased Property - Net 2,288 2,377
-------- -------
Nonutility Property-Net 3,913 3,712
-------- -------
Other Investments 1,598 1,592
-------- -------
Current Assets:
Cash 891 820
Accounts Receivable - Net 10,961 11,183
Deferred Fuel Costs 596 -0-
Deferred Unbilled Gas Costs 1,912 440
Fuel and Other Inventories (Note 3) 6,484 6,120
Prepayments 1,017 1,290
Common Stock held for Dividend Reinvestment-
amounting to 27,471 and 31,179 shares
respectively (Note 4) 306 352
-------- -------
Total 22,167 20,205
-------- -------
Deferred Debits:
Recoverable Postretirement Benefits 404 462
Recoverable Vacations Accrued 608 596
Unamortized Debt Discount and Expense 1,728 1,745
Prepaid Pensions 7,528 7,095
Recoverable Deferred FIT 6,034 6,044
Recoverable Transition Obligation 373 373
Other 3,369 3,049
-------- -------
20,044 19,364
-------- -------
Total $100,992 $97,697
======== =======
</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,
1997 1997
---- ----
(in thousands)
<S> <C> <C>
CAPITALIZATION & LIABILITIES
Capitalization:
Common Stock $ 4,993 $ 4,900
Paid In Capital 24,903 24,035
Retained Earnings 6,602 8,279
Less: Accounts Receivable from ESOP (2,878) (2,907)
-------- -------
Total Common Stock Equity 33,620 34,307
-------- -------
Long-Term Debt (Less Current Maturities):
8% First Mortgage Bonds, Series Due 2022 20,090 20,090
7.7% Debentures, Due 2027 7,000 7,000
9% Notes Payable, Due 1999 2,139 2,139
Note Payable 2,711 2,757
-------- -------
Total Long-Term Debt 31,940 31,986
-------- -------
Total Capitalization 65,560 66,293
-------- -------
Revolving Credit Arrangement 2,300 2,300
-------- -------
Obligation Under Capital Lease 1,532 1,541
-------- -------
Current Liabilities:
Current Maturities of Long-Term Debt 150 150
Obligation Under Capital Lease 756 836
Notes Payable 4,900 1,900
Accounts Payable 6,090 4,298
Security Deposits & Refund Obligations 1,037 1,035
Taxes Accrued (Debit) (804) 362
Deferred Fuel Costs -0- 793
Accrued Interest 1,111 541
Other 754 697
-------- -------
Total 13,994 10,612
-------- -------
Commitments and Contingencies
Deferred Credits 5,115 5,130
-------- -------
Deferred Federal Income Taxes 12,491 11,821
-------- -------
$100,992 $97,697
======== =======
</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,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss $ (761) $ (772)
Adjustments to Reconcile Net Loss to Net Cash used in
Operating Activities:
Depreciation and Amortization 825 778
Provision for Uncollectibles 573 377
Deferred Federal Income Taxes 671 983
Amortization of ITC (12) -0-
Change in Assets and Liabilities:
Accounts Receivable (350) (949)
Deferred Fuel Costs (1,389) (1,202)
Unbilled Gas Costs (1,472) (1,386)
Fuel and Other Inventories (363) (739)
Other Current Assets (114) 44
Accounts Payable, Accrued Expenses and Current
Liabilities 628 (164)
Other - Net 404 483
------- -------
Net Cash (Used) by Operating Activities (1,360) (2,547)
------- -------
Cash Flows from Investing Activities:
Utility Capital Expenditures (1,212) (1,051)
Nonutility Capital Expenditures (349) (186)
Other Investments (7) (13)
------- -------
Net Cash (Used) by Investing Activities (1,568) (1,250)
------- -------
Cash Flows from Financing Activities:
Dividends Paid (917) (778)
Capital Stock Transactions 962 (2)
Insurance of Revolving Credit Arrangement -0- 100
Retirement of Long-Term Debt (46) (18)
Increase in Notes Payable 3,000 4,600
------- -------
Net Cash Provided by Financing Activities 2,999 3,902
------- -------
Net Increase in Cash 71 105
Cash - Beginning 820 507
------- -------
Cash - Ending $ 891 $ 612
======= =======
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Period for:
Interest $ 179 $ 371
======= =======
Federal Income Taxes $ -0- $ -0-
======= =======
Capital Lease Obligations Incurred $ 139 $ 101
======= =======
</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, 1997, the results of operations
for the three-months ended November 30, 1997 and 1996 and Statements of Cash
Flows for the three-months ended November 30, 1997 and 1996.
The results of operations for the three-month periods ended November 30,
1997 and 1996 are not necessarily indicative of the results to be expected for
the full year.
Note 3
- ------
Inventories - Fuel and Other Inventories:
(in Thousands)
<TABLE>
<CAPTION>
(Unaudited)
November 30, August 31,
1997 1997
---- ----
<S> <C> <C>
Fuels (at average cost) $4,053 $3,809
Merchandise and Other (at average cost) 1,151 1,253
Merchandise (at LIFO) 1,280 1,058
------ ------
$6,484 $6,120
====== ======
</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
- ---------------------
Utility gas revenues for the three months ended November 30 1997, the first
fiscal quarter, totaled $10,083,600, a decrease of 7.9 percent from the same
period in fiscal 1997. Revenues decreased due to a decline in interruptible
sales and transportation and lower revenues generated from regulated base
tariffs offset slightly by increased PGPA revenues.
Interruptible sales revenues decreased by $756,400 for the three months
ended November 30, 1997, when compared to the prior year as a result of a 56.9
percent decrease in gas sales. The level of interruptible sales is dependent on
availability of gas and the price of the customer's alternate fuel. The margin
on seasonal sales is passed through to firm customers through the PGPA and has
no impact on operating income.
Valley Gas transports natural gas owned by customers if delivered to Valley
Gas's gate station on both an interruptible and firm basis. Transportation
revenue declined by $1,400 in the first quarter of fiscal 1998. Interruptible
transportation revenues declined by $74,500 during the first quarter from the
same period in fiscal 1997. Interruptible transportation is used by customers
when their alternate fuel price is above natural gas. During the first quarter,
large commercial and industrial sales customers were allowed to choose their gas
supplier under the Utilities firm transportation tariffs. These transportation
revenues generate approximately the same margin as firm gas sales to this class
of customer. A total of $73,100 of revenues was recorded under these firm
transportation tariffs.
Revenues generated from base tariffs decreased 3.9 percent when compared to
the prior year as a result of lower firm natural gas sales primarily due to a
transfer of sales customers to transportation as mentioned earlier. Offsetting
the base revenue decline was an increase in PGPA revenues. An increase in the
PGPA rate charged to firm customers due to higher estimated gas costs for fiscal
1998 was responsible for the PGPA revenue increase. PGPA revenues do not impact
operating margin.
Total firm gas throughput, firm gas sales and firm transportation, for the
first quarter totaled 1,246,800 Mcf compared to 1,250,600 Mcf during the first
quarter of fiscal 1997. Gas sales to firm customers during the first fiscal
quarter totaled 1,188,000 Mcf, a decrease of 5.0 percent from the prior year
first quarter. The decrease in gas sales is the result of commercial and
industrial customers transferring to firm transportation. Weather during the
first quarter, as measured by degree days, was 2.7 percent colder than the same
period last year. The colder weather during the first fiscal quarter does not
have the same impact on gas sales as the second fiscal quarter, the winter
heating period. At November 30, 1997, there were 61,971 utility customers versus
61,445 at November 30, 1996.
Nonutility revenues totaled $5,740,800 for the three months ended November
30, 1997, an increase of 6.4 percent over the first quarter in fiscal 1997. The
increase in nonutility revenues is attributable to increased retail merchandise
sales. Retail merchandise revenues increased as a result of commercial and
industrial sales of gas-fueled products and the sale of heating systems to
customers converting to natural gas and propane. The Corporation's subsidiary,
AEC experienced a decline in revenues due to the timing of projects currently
being completed.
Cost of gas sold decreased 12.6 percent when compared with the prior year
resulting from a decline in seasonal and firm gas sales offset slightly by
decreased expenses related to the reconciliation of the PGPA. The average cost
per Mcf of gas distributed was $4.53 versus $3.96 during the first quarter of
fiscal 1997.
8
<PAGE>
The increase in nonutility sales is responsible for the 5.2 percent
increase in cost of sales-nonutility. Other operation expenses increased during
the period primarily due to normal salary increases. Maintenance expenses
declined slightly due to decreased repairs on the LNG and propane peak shaving
facilities.
Interest expense totaled $748,700 for the three months ended November 30,
1997, a 7.8 percent decrease from the prior year. A decrease in short-term
interest expense was only partially offset by increased long-term debt interest
associated with the corporate refinancing and equity offering done at the end of
fiscal 1997.
Liquidity and Capital Resources
- -------------------------------
Operations during the first quarter typically do not generate sufficient
cash to meet gas costs and construction requirements. Management believes the
available financing are sufficient to meet cash requirements for the foreseeable
future. The available borrowings under lines of credit at November 30, 1997,
were $32,100,000.
Cash flows were negatively impacted during the first quarter by the
requirement to increase inventories of supplemental fuels to meet winter
requirements and the unexpected increases in the price of natural gas.
On September 24, 1997, Valley Resources issued 93,000 additional shares of
common stock in fulfillment of the over-allotment option exercised in connection
with the August 1997 offering. This common stock issuance favorably impacted
liquidity.
Construction expenditures increased during the first fiscal quarter, as
planned, adversely effecting liquidity.
A receivable lag that is generally experienced during the first fiscal
quarter should be reversed in the second fiscal quarter and revenues should
increase with colder weather. Cash flow should be favorably affected by a
reduction in construction expenditures which normally accompanies winter weather
conditions in the fiscal second quarter.
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 9, 1997, 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.
9
<PAGE>
All of management's nominees for directors were elected by the following
vote:
Shares Shares
Voted Voted
"For" "Withheld"
----- ----------
Melvin G. Alperin 4,193,521 59,093
Alfred P. Degen 4,194,976 57,638
C. Hamilton Davison 4,187,143 65,471
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) None.
(b) The Company did not file a Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amendment 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, 1998
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> NOV-30-1997
<CASH> 891
<SECURITIES> 0
<RECEIVABLES> 12,596
<ALLOWANCES> (1,039)
<INVENTORY> 6,484
<CURRENT-ASSETS> 22,167
<PP&E> 88,907
<DEPRECIATION> (34,012)
<TOTAL-ASSETS> 100,992
<CURRENT-LIABILITIES> 13,994
<BONDS> 20,090
0
0
<COMMON> 4,993
<OTHER-SE> 28,627
<TOTAL-LIABILITY-AND-EQUITY> 100,992
<SALES> 15,825
<TOTAL-REVENUES> 15,825
<CGS> 9,621
<TOTAL-COSTS> 15,886
<OTHER-EXPENSES> 6,265
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 749
<INCOME-PRETAX> (234)
<INCOME-TAX> (527)
<INCOME-CONTINUING> (761)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (761)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
