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, 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 Nov. 30, 1998
$1 Par Value 4,974,975
<PAGE>
VALLEY RESOURCES, INC.
FORM 10-Q
NOVEMBER 30, 1998
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, 1998
and 1997................................................... 3
Consolidated Condensed Balance Sheets--November 30,
1998 and August 31, 1998................................... 4 & 5
Consolidated Condensed Statements of Cash Flows--for
the three-months ended November 30, 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
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders........ 10
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,
1998 1997
(in thousands except
share and per share
numbers)
<S> <C> <C>
Operating Revenues:
Utility Gas Revenues $ 9,824 $ 10,084
Nonutility Revenues 5,446 5,741
--------- ---------
Total 15,270 15,825
--------- ---------
Operating Expenses:
Cost of Gas Sold 5,142 5,594
Cost of Sales - Nonutility 3,788 4,027
Operations 4,611 4,715
Maintenance 409 398
Depreciation and Amortization 857 825
Taxes - Other Than Federal Income 866 852
- Federal Income (449) (525)
--------- ---------
Total 15,224 15,886
--------- ---------
Operating Income (Loss) 46 (61)
Other Income - Net of Tax 68 49
--------- ---------
Total Income (Loss) 114 (12)
--------- ---------
Interest Charges:
Long-Term Debt 619 622
Other 132 127
--------- ---------
Total 751 749
--------- ---------
Net Loss $ (637) $ (761)
========= =========
Average Number of Common Shares Outstanding 4,984,431 4,939,253
Basic Loss Per Average Common Share Outstanding $(0.13) $(0.15)
Dividends Declared on Common Stock $0.1875 $0.185
</TABLE>
The accompanying Notes are an integral part of these statements.
<PAGE>
VALLEY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
Nov. 30, Aug. 31,
1998 1998
-------- --------
(in thousands)
<S> <C> <C>
ASSETS
Utility Plant - Net $ 51,808 $ 51,310
-------- --------
Leased Property - Net 2,113 2,303
-------- --------
Nonutility Property-Net 4,117 4,106
-------- --------
Other Investments 1,641 1,637
-------- --------
Current Assets:
Cash 938 813
Accounts Receivable - Net 10,521 9,684
Deferred Fuel Costs 1,009 485
Deferred Unbilled Gas Costs 1,303 438
Fuel and Other Inventories (Note 3) 6,287 5,819
Prepayments 1,100 1,353
Common Stock held for Dividend Reinvestment-amounting
to 18,053 and 10,116 shares respectively (Note 4) 229 121
-------- --------
Total 21,387 18,713
-------- --------
Deferred Debits:
Recoverable Postretirement Benefits 173 231
Recoverable Vacations Accrued 638 633
Unamortized Debt Discount and Expense 1,695 1,712
Prepaid Pensions 9,215 8,824
Recoverable Deferred FIT 5,997 6,109
Recoverable Transition Obligation 21 21
Other 3,132 2,882
-------- --------
20,871 20,412
-------- --------
Total $101,937 $ 98,481
======== ========
</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)
Nov. 30, Aug. 31,
1998 1998
--------- --------
(in thousands)
<S> <C> <C>
CAPITALIZATION & LIABILITIES
Capitalization:
Common Stock $ 4,993 $ 4,993
Paid In Capital 24,791 24,811
Retained Earnings 6,616 8,187
Less: Accounts Receivable from ESOP (2,726) (2,768)
-------- -------
Total Common Stock Equity 33,674 35,223
-------- -------
Long-Term Debt (Less Current Maturities):
8% First Mortgage Bonds, Due 2022 20,039 20,039
7.7% Debentures, Due 2027 7,000 7,000
Note Payable 2,561 2,599
-------- -------
Total Long-Term Debt 29,600 29,638
-------- -------
Total Capitalization 63,274 64,861
-------- -------
Revolving Credit Arrangement 2,400 2,400
-------- -------
Obligation Under Capital Lease 1,336 1,528
-------- -------
Current Liabilities:
Current Maturities of Long-Term Debt 2,289 2,289
Obligation Under Capital Lease 777 775
Notes Payable 6,000 2,300
Accounts Payable 5,914 4,275
Security Deposits & Refund Obligations 991 977
Taxes Accrued (Debit) (560) 435
Accrued Interest 1,088 794
Other 715 741
-------- -------
Total 17,214 12,586
-------- -------
Commitments and Contingencies
Deferred Credits 4,550 4,513
-------- -------
Deferred Federal Income Taxes 13,163 12,593
-------- ------
$101,937 $98,481
======== =======
</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 3 Months
Ended
Nov. 30, Nov. 30,
1998 1997
(in thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss $ (637) $ (761)
Adjustments to Reconcile Net Loss to Net Cash used in
Operating Activities:
Depreciation and Amortization 857 825
Provision for Uncollectibles 312 573
Deferred Federal Income Taxes 570 671
Amortization of ITC (12) (12)
Change in Assets and Liabilities:
Accounts Receivable (1,148) (350)
Deferred Fuel Costs (525) (1,389)
Unbilled Gas Costs (865) (1,472)
Fuel and Other Inventories (468) (363)
Other Current Assets (247) (114)
Accounts Payable, Accrued Expenses and Current Liabilities 657 628
Other - Net 294 404
------- -------
Net Cash (Used) by Operating Activities (1,212) (1,360)
------- -------
Cash Flows from Investing Activities:
Utility Capital Expenditures (1,206) (1,212)
Nonutility Capital Expenditures (160) (349)
Other Investments (4) (7)
------- -------
Net Cash (Used) by Investing Activities (1,370) (1,568)
------- -------
Cash Flows from Financing Activities:
Dividends Paid (935) (917)
Capital Stock Transactions (20) 962
Retirement of Long-Term Debt (38) (46)
Increase in Notes Payable 3,700 3,000
------- -------
Net Cash Provided by Financing Activities 2,707 2,999
------- -------
Net Increase in Cash 125 71
Cash - Beginning 813 820
------- -------
Cash - Ending $ 938 $ 891
======= =======
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Period for:
Interest $ 456 $ 179
======= =======
Federal Income Taxes $ -0- $ -0-
======= =======
Capital Lease Obligations Incurred $ 4 $ 139
======= =======
</TABLE>
The accompanying Notes are an integral part of these statements.
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1
- ------
The Corporation computes basic and diluted earnings and loss per average
common share in accordance with SFAS 128, based on the weighted average number
of shares outstanding during the period.
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
November 30,
1998 1997
---------- ----------
<S> <C> <C>
Net Loss $(636,615) $(761,081)
Weighted average shares outstanding 4,984,431 4,939,253
Basic and diluted losses per share $ (0.13) $ (0.15)
</TABLE>
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, 1998, the results of operations
for the three-months ended November 30, 1998 and 1997 and Statements of Cash
Flows for the three-months ended November 30, 1998 and 1997.
The results of operations for the three-month periods ended November 30,
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)
November 30, August 31,
1998 1998
----------- ---------
<S> <C> <C>
Fuels (at average cost) $3,851 $3,543
Merchandise and Other (at average cost) 1,195 1,241
Merchandise (at LIFO) 1,241 1,035
------ ------
$6,287 $5,819
====== ======
</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 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
- ---------------------
For the three months ended November 30, 1998 versus 1997
For the first quarter of fiscal 1999, the consolidated net loss for Valley
Resources was $636,600 or $0.13 per share versus a net loss of $761,100 or $0.15
per share in the year earlier quarter. The utility operations lost $748,700
versus $1,005,400 in fiscal 1998's first quarter. Nonutility operations provided
net income of $112,100 in the first quarter of fiscal 1999 versus $244,300 in
the prior year's first quarter.
Utility gas revenues and volumes for the first quarter of fiscal 1999 and
fiscal 1998 were as follows:
<TABLE>
<CAPTION>
Revenues Volumes (Mcf's)
-------- ---------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Base Firm Sales Service $8,563,800 $ 8,842,900 1,118,900 1,188,000
Base Firm Transportation 157,700 73,100 134,000 58,800
---------- ----------- --------- ---------
Subtotal 8,721,500 8,916,000 1,252,900 1,246,800
Seasonal/dual fuel service 718,000 746,600 1,462,200 1,550,000
PGPA Revenues 333,400 354,500 -- --
Other Revenues 51,400 66,500 -- --
---------- ----------- --------- ---------
Total Utility Gas Revenues $9,824,300 $10,083,600 2,715,100 2,796,800
========== =========== ========= =========
</TABLE>
Base firm sales service, utility service to the traditional utility
customer that purchases a bundled service, declined primarily as some commercial
and industrial customers elected to take service under the firm transportation
service option. Although not significant in the first quarter, weather was 10.4
percent warmer than the prior year and depressed firm sales in all categories in
the month of November.
Increased firm transportation from the above-mentioned customers and
increased usage of natural gas by existing firm transportation customers brought
this service level increased revenues and volumes as compared to the year
earlier first quarter.
Interruptible service is provided on both a bundled sales basis as well as
transportation only service. Interruptible sales service revenues declined
$78,800 from the quarter earlier level inspite of a 21.2 percent increase in
volumes sold. The revenue decline relates directly to the falling price of
competitive fuels, primarily fuel oil. Interruptible transportation revenues
increased on a comparative basis as a result of downward billing adjustments
included in the first quarter of the prior year. The margin on seasonal sales is
passed through to firm customers through the PGPA and has no impact on operating
income.
Nonutility revenues totaled $5,446,000 for the three months ended November
30, 1998, a decrease of 5.1 percent from the first quarter in fiscal 1998. A
decline in retail sales was responsible for the decrease from the prior fiscal
year. Retail merchandise sales experienced declines as a result of lower unit
sales of residential home heating equipment and installations due to a milder
than normal fall season. Revenues from all other nonutility operations,
wholesale, propane and AEC, improved as a result of increased units and volumes
sold. Wholesale revenues benefited from a stronger regional economy which
increased sales of existing product lines. Although the company continues to
operate at a loss due to start up costs, AEC revenues increased as a result of
natural gas vehicle conversions. Propane revenues increased as a result of
offering fixed price contracts to customers which increased volumes of propane
sold.
<PAGE>
Cost of gas sold decreased 8.1 percent from the prior year for the three
months ended November 30, 1998 as a result of decreased usage of firm natural
gas and lower natural gas prices. The average cost per Mcf of gas distributed
was $3.94 versus $4.53 during the first quarter of fiscal 1998.
The decline in nonutility sales was responsible for the 5.9 percent
decrease in cost of sales-nonutility. The slight decline in other operation
expense versus fiscal 1998 was attributable to decreased uncollectible expenses,
while maintenance expenses remained flat when compared to the prior fiscal year.
Other income increased $18,700 for the quarter compared to last year,
driven by an increase in income associated with other investments.
For the three months ended November 30, 1998, interest expense remained
flat when compared to the same quarter last year. Interest expense for both
periods was impacted by the corporate refinancing and equity offering completed
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, 1998,
were $31,000,000; there were $6,000,000 of short term borrowings outstanding.
Cash flow was negatively impacted during the first quarter by the
requirement to increase inventories of supplemental fuels to meet winter
requirements. Construction expenditures continued during the first fiscal
quarter, as planned, due to more favorable weather conditions, thereby adversely
effecting liquidity.
A receivable lag that is generally experienced during the first fiscal
quarter is expected to be reversed in the second fiscal quarter and revenues
should increase with colder weather. Cash flow should be favorable affected by a
reduction in construction expenditures which normally accompanies winter weather
conditions in the fiscal second quarter.
In the first fiscal quarter, the Corporation purchased a weather insurance
product which applies to the winter heating season from November 1998 through
March 1999. This product provides insurance against extreme shifts in weather
conditions on both a colder than and warmer than normal basis as determined by
degree days. The insurance coverage either pays to or receives from the
Corporation cash when degree days for the measurement period fall outside the
predetermined variance from normal. The measurement period occurs at the
expiration of the policy. The Corporation will not be able to determine the
impact on earnings or cash flow until the expiration of the policy period in
March 1999.
Year 2000 Issues
- ----------------
Certain of the software applications currently in use by the Corporation
are certified to be Year 2000 compliant by the software vendors from whom the
applications were purchased.
Certain other software applications currently in use by the Corporation are
not Year 2000 compliant. The Corporation has made plans to modify, replace or
upgrade those applications which are not Year 2000 compliant before January 1,
2000. The Corporation has conducted a survey and is compiling cost estimates of
the effort involved to perform those modifications, replacements and upgrades.
Currently, management believes that the cost to bring all of its software
applications into Year 2000 compliance will not have a material adverse effect
on the Corporation's results of operations, and involves a remaining capital
outlay of approximately $50,000 to $100,000. The Corporation is surveying its
significant vendors as to their year 2000 compliance. Based on the nature of
their responses, the Corporation will develop contingency plans as appropriate.
There can be no guarantee that the systems of other companies on which the
Corporation's systems rely will be timely converted, or that a failure to
<PAGE>
convert by another company, or a conversion that is incompatible with the
Corporation's systems, would not have a material adverse impact on the
Corporation.
The costs of the project and the date on which the Corporation plans to
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third-party modification plans and
other factors. However, there can be no guarantee that these estimates will be
achieved; actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer programs and microprocessors, and
similar uncertainties.
Forward Looking Statements; Risk and Uncertainties
- --------------------------------------------------
Statements contained in this report that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. In addition, words such as
"believes," "anticipates," "expects" and similar expressions are intended to
identify forward looking statements. Certain factors that could cause the actual
results to differ materially from those projected in these forward-looking
statements include, but are not limited to: variations in weather, changes in
the regulatory environment, customers' preferences on energy sources, general
economic conditions, increased competition and other uncertainties, all of which
are difficult to predict, and many of which are beyond the control of the
Corporation.
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 8, 1998, 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:
Shares Shares
Voted Voted
"For" "Withheld"
------ ----------
James M. Dillon 4,410,675 62,263
Jonathan K. Farnum 4,417,194 55,744
John F. Guthrie, Jr. 4,413,878 59,060
Item 6 - Exhibits and Reports on Form 8-K
(a) 27. Financial Data Schedule.
(b) 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
January 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> NOV-30-1998
<CASH> 938
<SECURITIES> 0
<RECEIVABLES> 11,485
<ALLOWANCES> (964)
<INVENTORY> 1,303
<CURRENT-ASSETS> 21,387
<PP&E> 92,472
<DEPRECIATION> (36,547)
<TOTAL-ASSETS> 101,937
<CURRENT-LIABILITIES> 17,214
<BONDS> 20,039
0
0
<COMMON> 4,993
<OTHER-SE> 28,681
<TOTAL-LIABILITY-AND-EQUITY> 101,937
<SALES> 15,270
<TOTAL-REVENUES> 15,270
<CGS> 8,930
<TOTAL-COSTS> 15,224
<OTHER-EXPENSES> 6,294
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 751
<INCOME-PRETAX> (1,086)
<INCOME-TAX> (449)
<INCOME-CONTINUING> (637)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (637)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
