FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 1OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1999
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 Dec. 31, 1999
--------------------- -------------
$1 Par Value 4,982,097
<PAGE>
VALLEY RESOURCES, INC.
FORM 10-Q
NOVEMBER 30, 1999
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, 1999
and 1998...................................................... 3
Consolidated Condensed Balance Sheets--November 30,
1999 and August 31, 1999.................................. 4 & 5
Consolidated Condensed Statements of Cash Flows--for
the three-months ended November 30, 1999 and 1998............. 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,
1999 1998
-------- --------
(in thousands except
share and per share
numbers)
<S> <C> <C>
Operating Revenues:
Utility Gas Revenues $10,280 $ 9,824
Nonutility Revenues 6,118 5,446
------- -------
Total 16,398 15,270
------- -------
Operating Expenses:
Cost of Gas Sold 5,627 5,142
Cost of Sales - Nonutility 4,253 3,788
Operations 4,332 4,611
Maintenance 448 409
Depreciation and Amortization 914 857
Taxes - Other Than Federal Income 892 866
- Federal Income (308) (449)
------- -------
Total 16,158 15,224
------- -------
Operating Income 240 46
Other Income - Net 84 68
Merger -related (Expenses) (400) -0-
------- -------
Total Income (Loss) (76) 114
------- -------
Interest Charges:
Long-Term Debt 569 619
Other 178 132
------- -------
Total 747 751
------- -------
Net Loss $ (823) $ (637)
======= =======
Weighted Average Number of Common Shares Outstanding 4,979,447 4,984,431
Basic Loss Per Average Common Share Outstanding $ (0.17) $ (0.13)
Dividends Declared on Common Stock $0.1875 $0.1875
</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,
1999 1999
-------- --------
(in thousands)
<S> <C> <C>
ASSETS
Utility Plant - Net $ 52,767 $ 52,334
-------- --------
Leased Property - Net 1,360 1,556
-------- --------
Nonutility Property-Net 4,182 4,163
-------- --------
Other Investments 1,744 1,740
-------- --------
Current Assets:
Cash 436 750
Accounts Receivable - Net 11,096 9,817
Deferred Fuel Costs 377 -0-
Deferred Unbilled Gas Costs 1,361 432
Fuel and Other Inventories (Note 3) 6,912 5,959
Prepayments 1,204 1,511
Common Stock held for Dividend Reinvestment-amounting
to 5,659 and 10,019 shares, respectively (Note 4) 81 143
-------- --------
Total 21,467 18,612
-------- --------
Deferred Debits:
Recoverable Vacations Accrued 620 611
Unamortized Debt Discount and Expense 1,626 1,643
Prepaid Pensions 10,827 10,388
Recoverable Deferred FIT 5,950 6,062
Recoverable Transition Obligation 11 11
Other 3,898 3,103
-------- --------
22,932 21,818
-------- --------
Total $104,452 $100,223
======== ========
</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)
Nov. 30, Aug. 31,
1999 1999
--------- ---------
(in thousands)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization:
Common Stock $ 4,993 $ 4,993
Paid In Capital 24,740 24,756
Retained Earnings 6,894 8,650
Less: Accounts Receivable from ESOP (2,537) (2,594)
-------- --------
Total Common Stock Equity 34,090 35,805
-------- --------
Long-Term Debt (Less Current Maturities):
8% First Mortgage Bonds, Due 2022 20,029 20,029
7.7% Debentures, Due 2027 7,000 7,000
Note Payable 2,387 2,444
-------- --------
Total Long-Term Debt 29,416 29,473
-------- --------
Total Capitalization 63,506 65,278
-------- --------
Revolving Credit Arrangement 2,400 2,400
-------- --------
Obligation Under Capital Lease 621 775
-------- --------
Current Liabilities:
Current Maturities of Long-Term Debt 150 150
Obligation Under Capital Lease 739 781
Notes Payable 10,100 4,800
Accounts Payable 6,589 5,386
Security Deposits & Refund Obligations 1,029 968
Taxes Accrued (Debit) (251) 609
Deferred Fuel Costs -0- 427
Accrued Interest 1,088 761
Other 651 716
-------- --------
Total 20,095 14,598
-------- --------
Commitments and Contingencies
Deferred Credits 4,477 4,304
-------- --------
Deferred Federal Income Taxes 13,353 12,868
-------- --------
$104,452 $100,223
======== ========
</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,
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss $ (823) $ (637)
Adjustments to Reconcile Net Loss to Net Cash used in
Operating Activities:
Depreciation and Amortization 914 857
Provision for Uncollectibles 313 312
Deferred Federal Income Taxes 485 570
Amortization of ITC (12) (12)
Change in Assets and Liabilities:
Accounts Receivable (1,592) (1,148)
Deferred Fuel Costs (804) (525)
Unbilled Gas Costs (929) (865)
Fuel and Other Inventories (953) (468)
Other Current Assets (71) (247)
Accounts Payable, Accrued Expenses and Current Liabilities 404 657
Other - Net (172) 294
-------- --------
Net Cash Used in Operating Activities (3,240) (1,212)
-------- --------
Cash Flows from Investing Activities:
Utility Capital Expenditures (1,189) (1,206)
Nonutility Capital Expenditures (176) (160)
Other Investments (4) (4)
-------- --------
Net Cash Used in Investing Activities (1,369) (1,370)
-------- --------
Cash Flows from Financing Activities:
Dividends Paid (932) (935)
Capital Stock Transactions (16) (20)
Retirement of Long-Term Debt (57) (38)
Increase in Notes Payable 5,300 3,700
-------- --------
Net Cash Provided by Financing Activities 4,295 2,707
-------- --------
Net (Decrease) Increase in Cash (314) 125
Cash - Beginning 750 813
-------- --------
Cash - Ending $ 436 $ 938
======== ========
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Period for:
Interest $ 421 $ 456
======== ========
Federal Income Taxes $ 125 $ -0-
======== ========
Capital Lease Obligations Incurred $ -0- $ 4
======== ========
</TABLE>
The accompanying Notes are an integral part of these statements.
6
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1
- ------
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, 1999, the results of operations
for the three-months ended November 30, 1999 and 1998 and Statements of Cash
Flows for the three-months ended November 30, 1999 and 1998.
The results of operations for the three-month periods ended November 30,
1999 and 1998 are not necessarily indicative of the results to be expected for
the full year.
Note 2
- ------
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,
1999 1998
------------ ------------
<S> <C> <C>
Net Loss $ (823,489) $ (636,615)
Weighted average shares outstanding 4,979,447 4,984,431
Basic and diluted losses per share $(0.17) $(0.13)
</TABLE>
Note 3
- ------
Inventories - Fuel and Other Inventories:
(in Thousands)
<TABLE>
<CAPTION>
(Unaudited)
November 30, August 31,
1999 1999
------------ ----------
<S> <C> <C>
Fuels (at average cost) $4,382 $3,462
Merchandise and Other (at average cost) 1,160 1,234
Merchandise (at LIFO) 1,370 1,263
------ ------
$6,912 $5,959
====== ======
</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.
Note 5
- ------
On December 1, 1999, Southern Union Company and Valley Resources Inc.
announced that they have signed a definitive merger agreement under which Valley
Resources will ultimately merge into Southern Union Company in a transaction
which is valued at approximately $160 million, including assumption of our debt.
See the section in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" entitled "Valley Resources Inc./Southern Union
Company Merger" for further details.
7
<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, 1999 as compared to the three months
ended November 30, 1998
For the first quarter of fiscal 2000, the consolidated net loss for Valley
Resources was $823,500 or $0.17 per share as compared to a net loss of $636,600
or $0.13 per share in the year earlier quarter. The utility operations loss was
$696,700 as compared to $748,700 in fiscal 1999's first quarter. The nonutility
operations loss was $126,800 in the first quarter of fiscal 2000 as compared to
net income of $112,100 in the prior year's first quarter. The nonutility
operations loss, in the fiscal 2000 period, was primarily attributable to
merger-related expenses of $400,000 or $0.08 per share.
Utility Gas Operations
- ----------------------
Utility gas revenues and volumes for the first quarter of fiscal 2000 and
fiscal 1999 were as follows:
<TABLE>
<CAPTION>
Revenues Volumes (Mcf's)
-------- ---------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Base Firm Sales Service $ 8,558,800 $8,563,800 1,103,300 1,118,900
Base Firm Transportation 160,900 157,700 129,800 134,000
----------- ---------- --------- ---------
Subtotal 8,719,700 8,721,500 1,233,100 1,252,900
Interruptible service 1,055,700 718,000 1,417,600 1,462,200
PGPA Revenues 514,900 333,400 -- --
Other Revenues (10,600) 51,400 -- --
----------- ---------- --------- ---------
Total Utility Gas Revenues $10,279,700 $9,824,300 2,650,700 2,715,100
=========== ========== ========= =========
</TABLE>
Base firm sales service and transportation are provided to customers under
regulated tariff schedules. Base firm revenues declined slightly due to lower
volumes of firm Mcf sales and transportation to industrial customers during the
period. Weather was 3.2 percent warmer than the prior year and 11.9 percent
warmer than a normal year.
Interruptible service is provided on both a bundled sales basis as well as
a transportation only service. Interruptible sales service revenues increased
$314,400 over the prior year's quarter, resulting from an increase of 6.1
percent in volume sold and the rising price of competitive fuels, primarily fuel
oil. Interruptible transportation revenues increased slightly, despite a decline
in volume transported, as a result of a downward billing adjustment included in
the first quarter of the prior year. The margin on interruptible sales is passed
through to firm customers through the PGPA and has no impact on operating
income.
Cost of gas sold increased 9.4 percent over the prior year period as a
result of increased wholesale natural gas prices from wellhead suppliers. The
average cost per Mcf of gas distributed was $4.37 during the first quarter of
fiscal 2000 as compared to $3.94 during the first quarter of fiscal 1999.
Other operating expenses declined 9.6 percent from the prior year period,
primarily due to decreased expenses relating to funding of post-retirement
benefits, rate case amortization and general operating expenses.
Interest expense increased 8.7 percent over the prior year stemming from
increased short-term borrowings and higher interest rates.
8
<PAGE>
Nonutility Operations
- ---------------------
The nonutility operations are comprised of the sales and cost of
sales-nonutility for the Corporation's other subsidiaries. They consist of
wholesale operations which are included in the Contract Sales section and
Retail, propane, AEC and Corporate operations which are included in the All
Other Operations section.
Contract Sales
- --------------
Contract revenues totaled $3,716,200, a decrease of 6 percent from the
prior year period. Lower unit sales accounted for the revenue decline. Customers
building inventory during the end of fiscal 1999 in anticipation of fall demands
for heating equipment and supplies caused the decline in unit sales.
Cost of sales - nonutility declined 7 percent from fiscal 1999 first
quarter levels, as a direct result of the decline in unit sales mentioned above.
Other operating expenses decreased 3.2 percent resulting from lower
commission and sales expenses when compared with the prior year period.
All Other Operations
- --------------------
The nonutility revenues associated with this segment totaled $2,402,200 for
the three months ended November 30, 1999, as compared with $1,493,900 for the
first quarter in fiscal 1999. Retail sales and AEC sales were primarily
responsible for the increase over the prior fiscal year period. Retail
merchandise sales improved as a result of increased unit sales of residential
home heating equipment and installations, fostered by an aggressive marketing
campaign and a strong regional economy. Revenues associated with AEC increased
due to the sale of its first natural gas fuel cell in the State of Rhode Island.
Propane revenues and gallons sold increased over the prior year period, despite
a slight decline in gross margin in the face of product price competition.
Cost of sales - nonutility for retail, AEC and propane operations were
$1,302,400 as compared to $616,700 for the prior year period. This increase was
the direct result of the increased sales and costs related to the fuel-cell sale
mentioned above.
Other operating expenses totaled $673,900, an 11.2 percent increase over
the first fiscal quarter of 1999. An increase in labor cost was responsible for
the increase over the prior year period.
Merger-Related Expenses
- -----------------------
In the first fiscal quarter ended November 30, 1999, the Corporation
recorded $400,000 of merger-related expenses comprised of legal and investment
banking fees. See section entitled "Valley Resources Inc./Southern Union Company
Merger", below for further details.
Liquidity and Capital Resources
- -------------------------------
Operations during the first fiscal quarter typically do not generate
sufficient cash to meet gas costs and construction requirements. Management
believes available financing is sufficient to meet cash requirements for the
foreseeable future. The available borrowings under lines of credit at November
30, 1999, were $18,900,000; there were $10,100,000 of short term borrowings
outstanding.
Cash flow was negatively impacted during the first quarter by increased
natural gas prices and 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. The accrual and payment of merger-related
expenses, referred to above, also negatively impacted liquidity.
9
<PAGE>
A receivable lag that is generally experienced during the first fiscal
quarter is expected to be reversed in the second fiscal quarter and revenues are
expected to increase with colder weather. Cash flow should be favorably affected
by a reduction in construction expenditures which normally accompanies winter
weather conditions in the second fiscal quarter.
In the first fiscal quarter, the Corporation purchased a weather insurance
product which applies to the winter heating season from November 1999 through
March 2000. This product provides insurance against unfavorable shifts in
weather conditions. 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 policy acts like a "collar" in that
payments are due the insurer when weather conditions positively impact revenues
above a predetermined limit. The measurement period occurs at the expiration of
the policy.
Valley Resources, Inc./Southern Union Company Merger
- ----------------------------------------------------
On December 1, 1999, the Southern Union Company and Valley Resources Inc.
announced that they have signed a definitive merger agreement under which Valley
Resources will ultimately merge into Southern Union Company in a transaction
which is valued at approximately $160 million, including assumption of our debt.
Under the terms of the agreement, Valley Resources shareholders will receive
$25.00 in cash per share of Valley Resources common stock. The business
combination will be accounted for under the purchase method of accounting.
This transaction requires the approval of the holders of a majority of the
outstanding Valley Resources shares, the Rhode Island Legislature, regulators in
Rhode Island, as well as regulators in Missouri, Pennsylvania and Florida where
Southern Union currently has operations. The merger is expected to be completed
by September 2000.
Year 2000 Issues
- ----------------
As of January 10, 2000, the Corporation can report that the transition
rollover to the Year 2000 was completed according to normal operating procedures
with no interruption to business services. The Corporation's software
applications, hardware and embedded chips have experienced no problems. The
interaction with third parties has also proceeded according to normal business
schedules without difficulties.
Software applications currently in use by the Corporation were certified to
be Year 2000 compliant by the software vendors from whom the applications were
purchased. The Corporation had modified, replaced or upgraded those applications
which were not Year 2000 compliant and based on its testing of its systems,
management believed its systems were Year 2000 compliant. The Corporation
compiled cost estimates of the effort involved to perform those modifications,
replacements and upgrades and to date Year 2000 related costs have not been
material to the Corporation.
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.
10
<PAGE>
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 14, 1999, for the purpose of electing a class of directors to its
Board. 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 4,435,255 61,913
Don A. DeAngelis 4,441,557 54,611
Virginia Roberts 4,427,838 68,330
</TABLE>
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) 27. Financial Data Schedule.
(b) Reports on Form 8-K
On December 6, 1999, the Corporation filed a Current Report on Form
8-K dated December 6, 1999 Reporting in Item 5 an Agreement and
Plan of Merger between Valley Resources Inc. and Southern Union
Company.
11
<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/S. Partridge
----------------------------------------
S. Partridge
Vice President, Chief Financial Officer,
Treasurer and Secretary
January 14, 2000
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-END> NOV-30-1999
<CASH> 436
<SECURITIES> 0
<RECEIVABLES> 14,241
<ALLOWANCES> (1,407)
<INVENTORY> 6,912
<CURRENT-ASSETS> 21,467
<PP&E> 96,506
<DEPRECIATION> (39,557)
<TOTAL-ASSETS> 104,452
<CURRENT-LIABILITIES> 20,095
<BONDS> 20,029
0
0
<COMMON> 4,993
<OTHER-SE> 29,097
<TOTAL-LIABILITY-AND-EQUITY> 104,452
<SALES> 16,398
<TOTAL-REVENUES> 16,398
<CGS> 9,880
<TOTAL-COSTS> 16,158
<OTHER-EXPENSES> 6,278
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 747
<INCOME-PRETAX> (1,131)
<INCOME-TAX> (308)
<INCOME-CONTINUING> (823)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (823)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
