FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1998
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 (I.R.S. Employer
incorporation or organization) Identification No.)
1595 Mendon Road 02864
Cumberland, Rhode Island (Zip Code)
(Address of principal executive offices)
(401) 334-1188
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X . No ___.
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Outstanding at
Class of Common Stock May 31, 1998
--------------------- ------------
1 Par Value 4,978,247
<PAGE>
VALLEY RESOURCES, INC.
FORM 10-Q
MAY 31, 1998
Page of
Form 10-Q
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Income--for
the three and nine months ended May 31, 1998
and 1997................................................ 3
Consolidated Condensed Balance Sheets--May 31,
1998 and August 31, 1997................................ 4 & 5
Consolidated Condensed Statements of Cash Flows--for
the nine months ended May 31, 1998 and 1997............. 6
Notes to Consolidated Condensed Financial Statements.... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 8
Item 6(a) Exhibits................................................ 10
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................ 11
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
VALLEY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
May 31, May 31, May 31, May 31,
1998 1997 1998 1997
(in thousands except share and per share numbers)
<S> <C> <C> <C> <C>
Operating Revenues:
Utility Gas Revenues $ 17,207 $ 21,289 $ 52,120 $ 57,412
Nonutility Revenues 5,380 4,992 16,719 16,141
--------- --------- --------- ---------
Total 22,587 26,281 68,839 73,553
--------- --------- --------- ---------
Operating Expenses:
Cost of Gas Sold 8,726 12,568 28,008 33,146
Cost of Sales - Nonutility 3,786 3,414 11,613 11,134
Operations 4,309 4,405 13,842 13,659
Maintenance 431 426 1,246 1,253
Depreciation and Amortization 826 778 2,476 2,333
Taxes - Other Than Federal Income 1,120 1,176 3,340 3,400
- Federal Income 870 847 1,938 1,969
--------- --------- --------- ---------
Total 20,068 23,614 62,463 66,894
--------- --------- --------- ---------
Operating Income 2,519 2,667 6,376 6,659
Other Income - Net of Tax 36 111 158 268
--------- --------- --------- ---------
Total Income 2,555 2,778 6,534 6,927
--------- --------- --------- ---------
Interest Charges:
Long-Term Debt 629 492 1,862 1,457
Other 97 330 373 1,026
--------- --------- --------- ---------
Total 726 822 2,235 2,483
--------- --------- --------- ---------
Net Income $ 1,829 $ 1,956 $ 4,299 $ 4,444
========= ========= ========= =========
Average Number of Common
Shares Outstanding 4,976,848 4,264,660 4,962,375 4,262,679
Basic Earnings Per Average Common
Share Outstanding $0.37 $0.46 $0.87 $1.04
Dividends Declared on Common Stock $0.1875 $0.185 $0.5575 $0.55
</TABLE>
The accompanying Notes are an integral part of these statements.
<PAGE>
VALLEY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
May 31, Aug. 31,
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
ASSETS
Utility Plant - Net $ 50,936 $50,447
-------- -------
Leased Property - Net 1,901 2,377
-------- -------
Nonutility Property-Net 4,090 3,712
-------- -------
Other Investments 1,615 1,592
-------- -------
Current Assets:
Cash 2,707 820
Accounts Receivable - Net 12,414 11,183
Deferred Unbilled Gas Costs 525 440
Fuel and Other Inventories (Note 3) 4,866 6,120
Prepayments 592 1,290
Common Stock held for Dividend Reinvestment-amounting
to 14,781 and 31,179 shares respectively (Note 4) 180 352
-------- -------
Total 21,284 20,205
-------- -------
Deferred Debits:
Recoverable Postretirement Benefits 289 462
Recoverable Vacations Accrued 827 596
Unamortized Debt Discount and Expense 1,729 1,745
Prepaid Pensions 8,392 7,095
Recoverable Deferred FIT 6,034 6,044
Recoverable Transition Obligation 373 373
Other 3,058 3,049
-------- -------
20,702 19,364
-------- -------
Total $100,528 $97,697
======== =======
</TABLE>
The accompanying Notes are an integral part of these statements.
<PAGE>
VALLEY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets (Cont'd)
<TABLE>
<CAPTION>
(Unaudited)
May 31, Aug. 31,
1998 1997
--------- --------
(in thousands)
<S> <C> <C>
CAPITALIZATION & LIABILITIES
Capitalization:
Common Stock $ 4,993 $ 4,900
Paid In Capital 24,819 24,035
Retained Earnings 9,792 8,279
Less: Accounts Receivable from ESOP (2,813) (2,907)
-------- -------
Total Common Stock Equity 36,791 34,307
-------- -------
Long-Term Debt (Less Current Maturities):
8% First Mortgage Bonds, Series Due 2022 20,039 20,090
7.7% Debentures, Due 2027 7,000 7,000
9% Notes Payable, Due 1999 2,139 2,139
Notes Payable 2,636 2,757
-------- -------
Total Long-Term Debt 31,814 31,986
-------- -------
Total Capitalization 68,605 66,293
-------- -------
Revolving Credit Arrangement 2,400 2,300
-------- -------
Obligation Under Capital Lease 1,256 1,541
-------- -------
Current Liabilities:
Current Maturities of Long-Term Debt 150 150
Obligation Under Capital Lease 645 836
Notes Payable -0- 1,900
Accounts Payable 4,375 4,298
Security Deposits & Refund Obligations 991 1,035
Taxes Accrued 2,260 362
Deferred Fuel Costs 658 793
Accrued Interest 1,032 541
Other 927 697
-------- -------
Total 11,038 10,612
-------- -------
Deferred Credits 5,005 5,130
-------- -------
Deferred Federal Income Taxes 12,224 11,821
-------- -------
$100,528 $97,697
======== =======
</TABLE>
The accompanying Notes are an integral part of these statements.
<PAGE>
VALLEY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For the 9 Months
Ended
May 31, May 31,
1998 1997
------- -------
(in thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 4,299 $ 4,444
Adjustments to Reconcile Net Income to Net Cash provided by
Operating Activities:
Depreciation and Amortization 2,476 2,333
Provision for Uncollectibles 1,553 1,159
Deferred Federal Income Taxes 404 108
Amortization of ITC (36) -0-
Change in Assets and Liabilities:
Accounts Receivable (2,783) (6,011)
Deferred Fuel Costs (135) 2,131
Unbilled Gas Costs (85) (57)
Fuel and Other Inventories 1,254 1,950
Other Current Assets (427) 103
Accounts Payable, Accrued Expenses and Current Liabilities 1,931 1,590
Other - Net 685 809
------- -------
Net Cash Provided by Operating Activities 9,136 8,559
------- -------
Cash Flows from Investing Activities:
Utility Capital Expenditures (2,519) (2,457)
Nonutility Capital Expenditures (825) (530)
Other Investments (24) (67)
------- -------
Net Cash Used in Investing Activities (3,368) (3,054)
------- -------
Cash Flows from Financing Activities:
Dividends Paid (2,786) (2,344)
Capital Stock Transactions 877 (45)
Issuance of Long Term Debt 100 100
Retirement of Long-Term Debt (172) (82)
Decrease in Notes Payable (1,900) (2,900)
------- -------
Net Cash Used in Financing Activities (3,881) (5,271)
------- -------
Net Increase in Cash 1,887 234
Cash - Beginning 820 507
------- -------
Cash - Ending $ 2,707 $ 741
======= =======
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Period for:
Interest $ 1,744 $ 2,092
======= =======
Federal Income Taxes $ -0- $ 386
======= =======
Capital Lease Obligations Incurred $ 224 $ 314
======= =======
</TABLE>
The accompanying Notes are an integral part of these statements.
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1
- ------
The Corporation computes basic earnings per average common share in
accordance with SFAS 128, based on the weighted average number of shares
outstanding during the period.
Note 2
- ------
In the opinion of the Corporation, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals and matters discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations") necessary to present
fairly the financial position as of May 31, 1998 the results of operations for
the three and nine months ended May 31, 1998 and 1997 and Statements of Cash
Flows for the nine months ended May 31, 1998 and 1997.
The results of operations for the three- and nine-month periods ended May
31, 1998 and 1997 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)
May 31, August 31,
1998 1997
----------- ----------
<S> <C> <C>
Fuels (at average cost) $2,465 $3,809
Merchandise and Other (at average cost) 1,189 1,253
Merchandise (at LIFO) 1,212 1,058
------ ------
$4,866 $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.
<PAGE>
PART I - ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
For the three months ended May 31, 1998 versus 1997
Utility gas revenues for the three months ended May 31, 1998, the third
fiscal quarter, totaled $17,207,000, a decrease of 19.2 percent from the same
period in fiscal 1997. The revenue decrease resulted from a decline in base
revenues, lower collections through the PGPA and lower seasonal revenues, offset
slightly by an increase in transportation revenues. Warmer weather and the
transfer of sales customers to transportation are responsible for a 10.5 percent
decrease in revenues generated from regulated base tariffs when compared to the
same quarter last year. The majority of the PGPA decline was due to the lower
cost of gas the Utilities recovered from customers when compared to last year.
Revenues generated from the PGPA rate do not impact the profitability of the
company. Seasonal revenues are dependent on the availability of natural gas
supplies and the price of alternate fuels.
Total firm gas throughput, firm gas sales and firm transportation, during
the third fiscal quarter totaled 2,267,200 Mcf, a decrease of 9.0 percent from
the prior year third quarter. The decrease in gas throughput is the result of a
decline in usage by all categories of firm gas sales. Weather during the third
quarter, as measured by degree days, was 14.6 percent warmer than the same
period last year. The weather during the third fiscal quarter does not have the
same impact on gas sales as the second fiscal quarter, the winter period.
Valley Gas transports natural gas owned by customers on both an
interruptible and firm basis if delivered to Valley Gas's gate station.
Transportation revenues for the quarter increased $75,300 over the same period
in fiscal 1997 due to the transfer of firm sales customers to firm
transportation. The firm transportation tariffs, which became effective during
the first fiscal quarter of 1998, generate approximately the same margin as firm
gas sales tariffs. From a margin perspective, this makes the Utilities
indifferent to whether a customer buys gas or just transports it.
Nonutility revenues totaled $5,380,000 for the three months ended May 31,
1998, an increase of 7.8 percent over the third quarter in fiscal 1997. During
the third quarter, increased wholesale and AEC sales were responsible for the
improvement over the prior fiscal year. Wholesale operations continued to
improve due to the expansion of an existing product line. AEC revenues increased
as a result of natural gas vehicle conversions. Retail merchandise sales were
impacted by the warm weather as it experienced declines of heating equipment
sales in the replacement market. Propane revenues decreased also due to warm
weather impact on volumes of propane sold. However, propane margins remained
strong as a result of pricing strategies developed in fiscal 1997.
The primary contributor to the decrease in operating expenses during the
third fiscal quarter was a 30.6 percent decrease in the cost of gas sold. The
average cost of gas distributed to firm customers during the quarter was $3.92
per Mcf for the three months ended May 31, 1998 versus $3.38 per Mcf during the
third quarter of fiscal 1997. Changes in gas costs, both increases and
decreases, are recovered from customers through the PGPA in subsequent periods.
The increase in nonutility sales is responsible for the 10.9 percent increase in
cost of sales. Other operation and maintenance expenses remained flat when
compared to the prior fiscal year.
Other income decreased $74,600 for the quarter compared to the same quarter
last year. The decrease is the result of a decline in interest associated with
the PGPA and a decline in income associated with other investments.
<PAGE>
For the three months ended May 31, 1998, interest expense decreased 11.6
percent from the same quarter last year. A reduction in short-term borrowings
continues to be responsible for the decrease in interest expense. Interest
expense for the third fiscal quarter of 1998 continues to be positively impacted
by the corporate refinancing and equity offering completed at the end of fiscal
1997.
For the nine months ended May 31, 1998 versus 1997
For the nine months ended May 31, 1998, utility gas revenues were
$52,120,200, a decrease of 9.2 percent from the same period in fiscal 1997. A
decrease in base revenues generated from firm gas sales customers, a decline in
the collections through the PGPA, and lower seasonal revenues, offset slightly
by an increase in transportation revenues, were responsible for the revenue
decrease.
Base revenues generated from the regulated tariffs declined 4.8 percent as
a result of decreased natural gas sales resulting from warmer than normal
weather. PGPA revenues decreased $1,902,300 over the prior year's nine month
period due to decreased firm gas sales and a reduction in the PGPA rate charged
to customers.
Decreased demand for natural gas from customers with alternate fuel
capabilities produced a decrease of 43 percent in seasonal revenues versus 1997.
Sales to seasonal customers are dependent upon the availability of natural gas
and the price of alternate fuels. Margins earned from seasonal sales are
returned to firm customers through the PGPA and do not impact the profitability
of the company.
Firm gas throughput to sales and transportation customers decreased 3.0
percent from the prior year from the affect of warmer than normal weather which
was slightly offset by an increase in customers. Weather, as measured by degree
days, was 5.2 percent warmer than the prior nine month period and 12.3 percent
warmer than normal for the nine months ended May 31. At May 31, 1998 there were
62,684 utility customers versus 62,181 at May 31, 1997.
Transportation revenues for the nine month period increased $168,900 over
the same period in fiscal 1997. The increase in transportation revenues
continues to be the result of large commercial and industrial customers choosing
their own natural gas supplier under the Utilities firm transportation tariff.
Nonutility revenues for the nine months ended May 31, 1998 totaled
$16,719,000 an increase of 3.6 percent over fiscal 1997. The increase in
nonutility revenues was the result of increases in retail and wholesale
merchandise sales, offset by revenue declines from propane and AEC operations.
Conversions from electric heating, sales in the commercial markets and increases
in the wholesale operation contributed to the increased revenues. Propane
revenues for the nine month period decreased from the prior year period, as a
result of weather despite increased gallons sold. The propane operations
benefited by offering customers fixed price contracts which generated the
increased gallons sold.
Operating expenses for the 1998 nine month period were primarily impacted
by decreases in the cost of gas sold when compared to the prior year. The cost
of gas sold decreased when compared to the same period last year as a result of
a decline in natural gas and peak shave usage during the warmer winter. The
average cost of gas distributed to firm customers was $3.90 per Mcf for the nine
months ended May 31, 1998 compared to $3.98 per Mcf in the prior year period.
Nonutility cost of sales increased 4.3 percent which is directly attributable to
the increase in nonutility revenues.
Other income decreased $110,900 for the nine month period when compared to
last year. The decrease is the result of a decline in interest associated with
the PGPA and a decline in income associated with other investments.
Interest expense decreased 10.0 percent for the nine month period. The
primary contributor to the decrease was a decline in short-term borrowings
offset slightly by increased long-term debt resulting from the debt and equity
offering which was completed at the end of the prior fiscal year.
<PAGE>
Liquidity and Capital Resources
- -------------------------------
During the third fiscal quarter the liquidity position of the Corporation
improved over the second quarter as a result of the collection of accounts
receivable and the timing of tax payments . Management believes the available
financing arrangements are sufficient to meet cash requirements for the
foreseeable future. The available borrowings under lines of credit at May 31,
1998, were $37,000,000.
Cash flows were favorably impacted during the third quarter due to the
collection of accounts receivable from winter heating sales. Sales during the
third quarter were less than anticipated due to warmer than normal weather which
negatively impacted liquidity. Additionally, the warmer weather resulted in the
holding of supplemental fuel inventories which were anticipated to be sold.
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 third fiscal quarter, as
planned, due to more favorable weather, thereby adversely affecting liquidity.
The liquidity position of the Corporation will be seasonally affected
during the fourth quarter when gas inventories are replenished for use during
winter months and revenues decline as a result of the lack of heat-sensitive
sales in the utility companies.
Planned cash expenditures on the construction program will increase during
the fourth fiscal quarter and will also negatively impact cash flow.
PART I - ITEM 6(a)
Item 6(a) - Exhibits
- --------------------
27. Financial Data Schedule (in electronic format only)
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) The Company did not file a Form 8-K.
<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
July 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> MAY-31-1998
<CASH> 2,707
<SECURITIES> 0
<RECEIVABLES> 13,270
<ALLOWANCES> (856)
<INVENTORY> 4,866
<CURRENT-ASSETS> 21,284
<PP&E> 90,882
<DEPRECIATION> (35,856)
<TOTAL-ASSETS> 100,528
<CURRENT-LIABILITIES> 11,038
<BONDS> 20,039
0
0
<COMMON> 4,993
<OTHER-SE> 31,798
<TOTAL-LIABILITY-AND-EQUITY> 100,528
<SALES> 68,839
<TOTAL-REVENUES> 68,839
<CGS> 39,621
<TOTAL-COSTS> 62,463
<OTHER-EXPENSES> 22,842
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,235
<INCOME-PRETAX> 6,222
<INCOME-TAX> 1,923
<INCOME-CONTINUING> 4,299
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,299
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.87
</TABLE>
