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 February 28, 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 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 February 28, 1998
--------------------- -----------------
$1 Par Value 4,972,822
<PAGE>
VALLEY RESOURCES, INC.
FORM 10-Q
FEBRUARY 28, 1998
Page of
Form 10-Q
---------
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Operations--for
the three- and six-months ended February 28, 1998
and 1997...................................................... 3
Consolidated Condensed Balance Sheets--February 28,
1998 and August 31, 1997...................................... 4 & 5
Consolidated Condensed Statements of Cash Flows--for
the six-months ended February 28, 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.............................. 10
- 2 -
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
VALLEY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended
Feb. 28, Feb. 28, Feb. 28, Feb. 28,
1998 1997 1998 1997
(in thousands except share and per share numbers)
<S> <C> <C> <C> <C>
Operating Revenues:
Utility Gas Revenues $ 24,830 $ 25,177 $ 34,913 $ 36,123
Nonutility Revenues 5,598 5,755 11,339 11,149
--------- --------- --------- ---------
Total 30,428 30,932 46,252 47,272
--------- --------- --------- ---------
Operating Expenses:
Cost of Gas Sold 13,688 14,175 19,281 20,578
Cost of Sales - Nonutility 3,800 3,894 7,827 7,720
Operations 4,818 4,698 9,533 9,255
Maintenance 417 388 815 826
Depreciation and Amortization 825 778 1,651 1,555
Taxes - Other Than Federal Income 1,368 1,352 2,220 2,224
- Federal Income 1,593 1,631 1,068 1,122
--------- --------- --------- ---------
Total 26,509 26,916 42,395 43,280
--------- --------- --------- ---------
Operating Income 3,919 4,016 3,857 3,992
Other Income - Net of Tax 72 93 122 158
--------- --------- --------- ---------
Total Income 3,991 4,109 3,979 4,150
--------- --------- --------- ---------
Interest Charges:
Long-Term Debt 611 477 1,233 964
Other 149 372 276 698
--------- --------- --------- ---------
Total 760 849 1,509 1,662
--------- --------- --------- ---------
Net Income $ 3,231 $ 3,260 $ 2,470 $ 2,488
========= ========= ========= =========
Average Number of Common
Shares Outstanding 4,970,959 4,261,726 4,955,018 4,261,672
Basic Earnings Per Average Common
Share Outstanding $0.65 $0.76 $0.50 $0.58
Dividends Declared on Common Stock $0.185 $0.1825 $0.37 $0.365
</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)
Feb. 28, Aug. 31,
1998 1997
--------- --------
(in thousands)
<S> <C> <C>
ASSETS
Utility Plant - Net $ 51,109 $50,447
-------- -------
Leased Property - Net 2,046 2,377
-------- -------
Nonutility Property-Net 4,056 3,712
-------- -------
Other Investments 1,609 1,592
-------- -------
Current Assets:
Cash 966 820
Accounts Receivable - Net 16,515 11,183
Deferred Unbilled Gas Costs 1,414 440
Fuel and Other Inventories (Note 3) 4,565 6,120
Prepayments 722 1,290
Common Stock held for Dividend Reinvestment-amounting
to 20,206 and 31,179 shares respectively (Note 4) 229 352
-------- -------
Total 24,411 20,205
-------- -------
Deferred Debits:
Recoverable Postretirement Benefits 346 462
Recoverable Vacations Accrued 754 596
Unamortized Debt Discount and Expense 1,746 1,745
Prepaid Pensions 7,960 7,095
Recoverable Deferred FIT 6,034 6,044
Recoverable Transition Obligation 373 373
Other 2,980 3,049
-------- -------
20,193 19,364
-------- -------
Total $103,424 $97,697
======== =======
</TABLE>
The accompanying Notes are an integral part of these statements.
- 4 -
<PAGE>
VALLEY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets (Cont'd)
<TABLE>
<CAPTION>
(Unaudited)
Feb. 28, 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 8,900 8,279
Less: Accounts Receivable from ESOP (2,856) (2,907)
-------- -------
Total Common Stock Equity 35,856 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 2,674 2,757
-------- --------
Total Long-Term Debt 31,852 31,986
-------- --------
Total Capitalization 67,708 66,293
-------- --------
Revolving Credit Arrangement 2,300 2,300
-------- -------
Obligation Under Capital Lease 1,402 1,541
-------- -------
Current Liabilities:
Current Maturities of Long-Term Debt 150 150
Obligation Under Capital Lease 644 836
Notes Payable 3,900 1,900
Accounts Payable 5,066 4,298
Security Deposits & Refund Obligations 1,007 1,035
Taxes Accrued 1,377 362
Deferred Fuel Costs 729 793
Accrued Interest 788 541
Other 867 697
-------- -------
Total 14,528 10,612
-------- -------
Deferred Credits 5,089 5,130
-------- -------
Deferred Federal Income Taxes 12,397 11,821
-------- -------
$103,424 $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 6 Months
Ended
Feb. 28, Feb. 28,
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 2,470 $ 2,488
Adjustments to Reconcile Net Income to Net Cash used in
Operating Activities:
Depreciation and Amortization 1,651 1,555
Provision for Uncollectibles 1,081 778
Deferred Federal Income Taxes 578 1,410
Amortization of ITC (24) -0-
Change in Assets and Liabilities:
Accounts Receivable (6,412) (7,578)
Deferred Fuel Costs (64) (2,381)
Unbilled Gas Costs (974) (1,164)
Fuel and Other Inventories 1,555 1,332
Other Current Assets (174) 200
Accounts Payable, Accrued Expenses and Current Liabilities 1,755 998
Other - Net 485 392
------- -------
Net Cash Provided (Used) by Operating Activities 1,927 (1,970)
------- -------
Cash Flows from Investing Activities:
Utility Capital Expenditures (2,016) (1,708)
Nonutility Capital Expenditures (641) (371)
Other Investments (17) (20)
------- -------
Net Cash (Used) by Investing Activities (2,674) (2,099)
------- -------
Cash Flows from Financing Activities:
Dividends Paid (1,850) (1,555)
Capital Stock Transactions 877 (34)
Issuance of Long Term Debt -0- 100
Retirement of Long-Term Debt (134) (57)
Increase in Notes Payable 2,000 5,800
------- -------
Net Cash Provided by Financing Activities 893 4,254
------- -------
Net Increase in Cash 146 185
Cash - Beginning 820 507
------- -------
Cash - Ending $ 966 $ 692
======= =======
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Period for:
Interest $ 1,262 $ 1,658
======= =======
Federal Income Taxes $ -0- $ -0-
======= =======
Capital Lease Obligations Incurred $ 177 $ 201
======= =======
</TABLE>
The accompanying Notes are an integral part of these statements.
- 6 -
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1
- ------
New Accounting Standard
- -----------------------
The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS 128"), effective quarter ended February 28,
1998 and has reflected basic earnings per share on the face of the consolidated
condensed statements of operations. Accordingly, EPS data for all periods
presented reflects the computation of EPS in accordance with the provisions of
SFAS 128. The adoption of SFAS 128 had no effect on earnings per share.
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 February 28, 1998 the results of operations
for the three- and six-months ended February 28, 1998 and 1997 and Statement of
Cash Flows for the six-months ended February 28, 1998 and 1997.
The results of operations for the three- and six-month periods ended
February 28, 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)
February 28, August 31,
1998 1997
------------ ----------
<S> <C> <C>
Fuels (at average cost) $2,042 $3,809
Merchandise and Other (at average cost) 1,141 1,253
Merchandise (at LIFO) 1,382 1,058
------ ------
$4,565 $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 II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
For the three months ended February 28, 1998 vs. 1997
Utility gas revenues for the three months ended February 28, 1998, the
second fiscal quarter, totaled $24,829,600, a decrease of one percent from the
same period in fiscal 1997. The revenue decrease is primarily the result of
lower collections through the PGPA and a decrease in base revenues only
partially offset by increased transportation revenues. PGPA revenues decreased
due to lower firm gas sales; this decrease does not impact the profitability of
the company because it is a pass-through of gas cost changes. Revenues generated
from the regulated base tariffs declined less than one percent when compared to
the prior year as a result of the transfer of industrial firm sales customers to
firm transportation.
Total firm gas throughput, firm gas sales and firm transportation, for the
second quarter totaled 3,385,600 Mcf compared to 3,367,400 Mcf during the second
quarter of fiscal 1997. Throughput increased as a result of increased gas usage
by commercial and industrial customers, primarily for non-heating purposes.
Weather during the second quarter, as measured by degree days, was 2 percent
warmer than the same period last year and 8 percent warmer than a normal year.
Valley Gas transports natural gas owned by customers if delivered to Valley
Gas' gate station on both an interruptible and firm basis. Transportation
revenues for the quarter increased $95,000 over the same period in fiscal 1997
due to the availability of a firm transportation tariff for large commercial and
industrial customers. The firm transportation tariffs, which became effective
during the first fiscal quarter of 1998, generate approximately the same margin
as firm gas sales customers.
Nonutility revenues totaled $5,598,200 for the three months ended February
28, 1998, a decrease of 3 percent from the second quarter in fiscal 1997. The
decrease in nonutility revenues was spread across all nonutility subsidiaries,
except wholesale operations. Wholesale revenues were positively effected by the
expansion of an existing product line and a stronger regional economy. Retail
merchandising sales declined due to the warm winter weather and its impact on
the replacement heating market. Propane revenues were also reduced by the warm
winter weather but margins and gallons sold continued to be strong as a result
of pricing strategies developed in fiscal 1997.
The average cost of gas distributed to firm customers was $3.54 per Mcf
versus $4.46 per Mcf during the second fiscal quarter of 1997. Changes in gas
costs are recovered from customers through the PGPA.
The reduction in nonutility revenues gave rise to decreases in the cost of
sales. Other operation and maintenance expenses increased during the period as a
result of normal wage increases.
For the three months ended February 28, 1998, interest expense decreased 11
percent from the same quarter last year. A reduction in short-term borrowings is
responsible for the decrease in interest expense. Interest expense during the
second fiscal quarter of 1998 continues to be positively impacted by the
corporate refinancing and equity offering completed at the end of fiscal 1997.
- 8 -
<PAGE>
For the six months ended February 28, 1998 Vs 1997
For the six months ended February 28, 1998, utility gas revenues were
$34,913,200, a decrease of 4 percent from the same period in fiscal 1997.
Utility gas revenues decreased due to lower revenues generated from regulated
base tariffs, a reduction in PGPA revenues and a decline in interruptible
revenues, slightly offset by an increase in transportation revenues.
Base revenues generated from regulated tariffs declined 2 percent as a
result of decreased natural gas sales. The reduction in gas sales was primarily
due to the transfer of sales customers to transportation. The PGPA revenue
reduction is the result of decreased gas sales to firm customers and a lower
average PGPA factor than in the prior year.
Decreased demand for natural gas from customers with alternate fuel
capabilities produced a decrease of 39% in interruptible revenues versus 1997.
Sales to interruptible 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 increased
slightly less than one percent over the prior year despite warmer weather. The
increased throughput is due to an increase in the number of customers. Weather,
as measured by degree days, was one percent warmer than the prior year six month
period, but 5 percent warmer than a normal period. At February 28, 1998 there
were 63,069 utility customers versus 62,603 at February 28, 1997.
Transportation revenues increased $93,600 for the six months ended February
28, 1998 when compared to the same period in fiscal 1997. The increase in
transportation revenues is a direct result of large commercial and industrial
customers choosing their own natural gas supplier under the Utilities firm
transportation tariff.
Nonutility revenues for the six months ended February 28, 1998 totaled
$11,339,000, an increase of 2 percent over fiscal 1997. The increase in
nonutility revenues came from an increase in retail and wholesale merchandise
sales, moderated by a decline in propane and AEC revenues. Sales in the
commercial retail market and the wholesale operations contributed to the
increased revenues. Propane revenues decreased despite an increase in gallons
sold as a result of offering customers fixed price contracts and lower product
pricing due to the warm winter weather.
Operating expenses for the six month period were impacted by decreases in
the cost of gas sold and nonutility cost of sales. Decreases in the demand for
natural gas and a decline in supplemental fuel use were the contributors to the
decrease in the cost of gas sold. The average cost of gas distributed to firm
customers was $3.90 per Mcf for the six months ended February 28, 1998 versus
$4.43 per Mcf in the prior year. Nonutility cost of sales decreased, despite an
increase in nonutility revenues, due to reductions in the cost of propane.
Interest expense decreased $153,000 for the six month period when compared
to the prior year. 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.
Liquidity and Capital Resources
- -------------------------------
During the second fiscal quarter the liquidity position of the Corporation
improved over the first quarter as a result of increased revenues from winter
period sales. Management believes the available financing are sufficient to meet
cash requirements for the foreseeable future. The available borrowings under
lines of credit at February 28, 1998, were $33,100,000.
- 9 -
<PAGE>
Cash flows were negatively impacted during the second quarter by increases
in the cost of natural gas. Sales during the second quarter, despite being
greater than the first quarter, were less than anticipated due to warmer than
normal winter weather which also 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 declined during the second fiscal quarter, as
planned, due to constraints caused by winter period weather, thereby adding
favorably to liquidity.
The liquidity position of the Corporation is anticipated to improve in the
third quarter as winter bills are collected.
Cash expended on the construction program will increase during the third
fiscal quarter which will negatively impact cash flows; however, this increased
cash requirement should be offset by the improved cash flows.
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) None.
(b) The Company did not file a Form 8-K.
- 10 -
<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
April 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<CASH> 966
<SECURITIES> 0
<RECEIVABLES> 17,403
<ALLOWANCES> (888)
<INVENTORY> 4,565
<CURRENT-ASSETS> 24,411
<PP&E> 86,137
<DEPRECIATION> (35,028)
<TOTAL-ASSETS> 103,424
<CURRENT-LIABILITIES> 14,528
<BONDS> 20,039
0
0
<COMMON> 4,993
<OTHER-SE> 30,863
<TOTAL-LIABILITY-AND-EQUITY> 103,424
<SALES> 46,252
<TOTAL-REVENUES> 46,252
<CGS> 27,108
<TOTAL-COSTS> 42,395
<OTHER-EXPENSES> 15,287
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,509
<INCOME-PRETAX> 3,538
<INCOME-TAX> 1,068
<INCOME-CONTINUING> 2,470
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,470
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
</TABLE>
