-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JrkStFzJOY2/AjPu1ugW0r6ELV4aaFRmdmHYB2o4Y642yXLO/SHwsvXsE0LPXrDi eS7enZoR9S4jcAt52w8loQ== 0000102710-95-000022.txt : 19951208 0000102710-95-000022.hdr.sgml : 19951208 ACCESSION NUMBER: 0000102710-95-000022 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950831 FILED AS OF DATE: 19951129 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: VALLEY RESOURCES INC /RI/ CENTRAL INDEX KEY: 0000102710 STANDARD INDUSTRIAL CLASSIFICATION: 4924 IRS NUMBER: 050384723 STATE OF INCORPORATION: RI FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07924 FILM NUMBER: 95596996 BUSINESS ADDRESS: STREET 1: 1595 MENDON RD CITY: CUMBERLAND STATE: RI ZIP: 02864 BUSINESS PHONE: 4013341188 MAIL ADDRESS: STREET 1: PO BOX 7900 CITY: CUMBERLAND STATE: RI ZIP: 02864-7900 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (MARK ONE) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the Fiscal Year Ended August 31, 1995 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) 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 of Incorporation or Organization) (IRS Employer Identification No.) 1595 Mendon Road, Cumberland, Rhode Island 02864 (Address of principal executive offices) Registrant's Telephone Number, Including Area Code (401) 334-1188 Securities Registered Pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered Common Stock American Stock Exchange Securities Registered Pursuant to Section 12(g) of the Act: None 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No ___. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. [__] The aggregate market value of the common stock held by non-affiliates, computed on the basis of $11.125 per share (the closing price of such stock on October 24, 1995 on the American Stock Exchange) was $47,401,367. As of October 24, 1995 there were 4,260,797 shares of Valley Resources, Inc. Common Stock, $1 par value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE The Consolidated Financial Statements, Notes to Consolidated Financial Statements, Report of Independent Certified Public Accountants, Management's Discussion and Analysis, Summary of Consolidated Operations, Dividends and Market Data and Stockholder Statistics of the Registrant's Annual Report to Stockholders for the fiscal year ended August 31, 1995 are incorporated by reference in Parts I, II and IV. Portions of the Proxy Statement dated November 7, 1995 as filed with the Securities and Exchange Commission are incorporated by reference in Part III. PART I Item 1 Business Valley Resources, Inc. (the "Corporation") is a holding company organized in 1979 and incorporated in the State of Rhode Island. The Corporation has six wholly-owned active subsidiaries: Valley Gas Company ("Valley Gas") and Bristol & Warren Gas Company ("Bristol")--regulated natural gas distribution companies; Valley Appliance and Merchandising Company ("VAMCO")--a merchandising and appliance rental company; Valley Propane, Inc. ("Valley Propane") and The New England Gas Company ("New England Gas")--retail propane companies; and Morris Merchants, Inc. (d/b/a "The Walter F. Morris Company")--a wholesale distributor of franchised lines in plumbing and heating contractor supply and other energy related business. The headquarters for the Corporation and the sales and service offices of Valley Gas, VAMCO and Valley Propane are located in Cumberland, Rhode Island. Morris Merchants, Inc.'s sales and warehouse facilities are located in Canton, Massachusetts. The operation center of Bristol and New England Gas is located in Bristol, Rhode Island. Bristol, acquired by the Corporation on April 1, 1992, was incorporated in the State of Rhode Island in 1953 to distribute natural gas to customers in Bristol & Warren, Rhode Island. New England Gas, also acquired by the Corporation in April 1992, was incorporated in the State of Rhode Island in 1992. New England Gas markets propane at retail in Rhode Island. Effective September 1995, all propane sales and service will be consolidated into a single operation under the name Valley Propane. The New England Gas Company became inactive. Financial information about industry segments appearing on page 28 of the Annual Report to Stockholders for the year ended August 31, 1995 is incorporated herein by reference. The Corporation does not expect any material effects on its business as a result of compliance with environmental regulations. The Corporation and its subsidiaries had 237 employees at August 31, 1995, of which 60 were covered by a collective bargaining agreement with the Utility Workers Union of America, AFL-CIO, Local No. 472 expiring March 31, 1997 and 8 were covered by a collective bargaining agreement with the Service Employee International Union, AFL-CIO, Local No. 134 expiring May 31, 1996. Utility Operations Gas Sales and Transportation The Corporation's utility operations are conducted through Valley Gas and Bristol (the "utilities"). They had an average of 60,698 customers during the twelve months ended August 31, 1995, of which approximately 91% were residential and 9% were commercial and industrial. The utilities provide natural gas service to residential, commercial and industrial customers. Valley Gas' service territory is approximately 92 square miles located in the Blackstone Valley region in northeastern Rhode Island with a population of approximately 250,000. Bristol's service territory is approximately 15 square miles in eastern Rhode Island with a population of approximately 35,000. The following table shows the distribution of gas sold during the years since 1991 in millions of cubic feet ("MMcf"): For the year ended August 31, (1)
1995 1994 1993 1992 1991 Residential 4,078 4,517 4,439 3,965 3,398 Commercial 1,953 2,078 1,978 1,680 1,394 Industrial-firm 1,338 1,299 1,185 1,152 1,014 Industrial-seasonal 1,298 996 818 1,010 1,053 TOTAL 8,667 8,890 8,420 7,807 6,859 (1) The operations of Bristol are included since April 1992.
Firm customers of the utilities use gas for cooking, heating, water heating, drying and commercial/industrial processing. Certain industrial customers use additional gas in the summer months when it is available at lower prices. These customers are subject to having their service interrupted at the discretion of the utilities with very little notice. This use is classified as seasonal use. As discussed further below, the margin on the Valley Gas seasonal use is passed through the Purchased Gas Price Adjustment ("PGPA") to lower the cost of gas to all categories of firm customers. The primary source of utility revenues is firm use customers under tariffs which are designed to recover a base cost of gas, administrative and operating expenses and provide sufficient return to cover interest and profit. Valley Gas also services dual fuel, interruptible and transportation customers under rates approved by the Rhode Island Public Utilities Commission ("RIPUC"). Additionally, Valley Gas services two cogeneration customers (one firm use customer and the other a firm off-peak transportation customer) under separate contract rates that were individually approved by the RIPUC. Bristol also has approved interruptible tariffs. The utilities tariffs include a PGPA which allows an adjustment of rates charged to customers in order to recover all changes in gas costs from stipulated base gas costs. The PGPA provides for an annual reconciliation of total gas costs billed with the actual cost of gas incurred. Any excess or deficiency in amounts collected as compared to costs incurred is deferred and either reduces the PGPA or is billed to customers over subsequent periods. All margins from Valley Gas interruptible customers are returned to firm customers through the workings of the PGPA. Effective with the new rate structure approved by the RIPUC, (see "Rates and Regulation"), Bristol will return all seasonal margins through the PGPA. The utility revenues of Valley Gas include a surcharge on firm gas consumption to collect a portion of the costs to fund postretirement medical and life insurance benefits above the pay-as-you-go costs included in base tariffs. The surcharge was authorized by the RIPUC in a generic rate proceeding and are being phased in over a ten-year period which commenced September 1, 1993. Effective November 1995, the current year funding of postretirement medical and life insurance benefits will be included in base tariffs. Any funding shortages from the first two years of the phase-in will be recovered through a surcharge in the last seven years. The prices of alternative sources of energy impact the interruptible and dual fuel markets. The utilities serve these customers in the nonpeak periods of the year or when competitively priced gas supplies are available. These customers are subject to service discontinuance on short notice as system firm requirements may demand. Prices for these customers are based on the price of the customers' alternative fuel. In order to mitigate the volatility of earnings from interruptible and dual fuel sales Valley Gas rolls into the PGPA the margin earned on these interruptible sales and all margins in excess of $1 per thousand cubic feet ("Mcf") of gas sold to dual fuel customers. This margin credit reduces rates to the Company's firm customers. This means of margin treatment alleviates the negative impact that swings in sales can have on earnings in the highly competitive industrial interruptible market. Rates and Regulation The utilities are subject to regulation by the RIPUC with respect to rates, adequacy of service, issuance of securities, accounting and other matters. On January 19, 1995, Valley Gas and Bristol filed revised tariffs with the RIPUC to consolidate their rate structure and to increase their combined annual revenues. On October 18, 1995, the RIPUC authorized the companies to adjust their tariffs to collect $1.2 million or 2.0%. These rates became effective November 21, 1995. Gas Supply and Storage The Federal Energy Regulatory Commission ("FERC") in 1992 issued its order No. 636, the primary purpose of which was to promote competition in the natural gas industry by requiring all interstate pipelines to separate or "unbundle" their all-encompassing firm gas sales service to public utilities into its five component parts: production, sales, aggregation, storage and transportation. As a result, local utility companies converted from firm pipeline sales to firm pipeline transportation, and began purchasing their gas directly from producers and marketers in a highly competitive free marketplace. In order to facilitate the procurement of this supply, Valley Gas became a charter member of the Mansfield Consortium (the "Consortium"). The Consortium is a group of five New England gas distribution companies which purchases natural gas from producers and marketers based upon the combined demand and marketpower of its members. The Consortium members believe that the most significant benefits to its firm sales customers are reduced gas costs and enhanced security of supply. Tennessee Gas Pipeline Company is the major natural gas transporter for Valley Gas under long-term contracts. Bristol's principal gas transporters are Algonquin Gas Transmission Company and Texas Eastern Transmission Corporation. The utilities purchase natural gas from several suppliers on a long-term firm basis, as well as on the spot market whenever available. Valley Gas has entered into firm contracts with four domestic and two Canadian suppliers for the purchase of 21,402 dekatherms per day; Bristol has contracted for 3,000 dekatherms per day. Valley Gas is an investor in Boundary Gas, Inc. and a customer of Alberta Northeast, Limited, both of which were founded by groups of gas distribution companies in the northeast to import gas from Canada. Supplementing their firm and spot gas supplies, the utilities have contracted for firm long-term availability and delivery of underground storage gas. Both utilities store natural gas with Consolidated Natural Gas Company and National Fuel Gas Supply Corporation. Natural gas is injected into storage facilities in Pennsylvania and New York during the non-winter months when supply and pipeline capacity exceed customer demand, and this gas is used in the cold weather months when customer demand is high. In addition to gas delivered by the interstate pipelines, both utilities have on-site storage facilities for liquid propane gas ("LPG"). Valley Gas also has on-site storage for liquefied natural gas ("LNG"), and both utilities backhaul LNG from Distrigas of Massachusetts Corporation. The LPG and LNG from storage are vaporized into the companies' distribution systems during periods of peak demand. Valley Gas also leases additional space for LNG from Algonquin LNG, Inc. in Providence, Rhode Island. Valley Gas' contract with a transportation customer allows Valley to access up to 527 Mcf per hour of additional natural gas supply during periods of peak demand. Competition and Marketing The primary competition faced by the utilities is from other energy sources, primarily heating oil. The principal considerations affecting a customer's selection among competing energy sources include price, equipment cost, reliability, ease of delivery and service. In addition, the type of equipment already installed in businesses and residences significantly affects the customer's choice of energy. However, where previously installed equipment is not an issue, households in recent years have consistently preferred the installation of gas heat. For example, Valley Gas' statistics indicate that approximately 90% of the new homes built on or near Valley Gas' service mains in recent years have selected gas as their energy source. The utilities are pursuing new markets believed to have the potential to provide both growth and/or lessen sales sensitivity to weather: industrial processing, cogeneration, natural gas vehicles and conversions from oil to gas. Valley Gas received approval from the RIPUC for two rates which promote economic development in its service territory. These rates provide incentives for companies that add industrial processing load, make a substantial investment in new natural gas equipment and hire additional employees. The cogeneration market is addressed through sales contacts with customers who have applications suitable to use waste heat through the cogeneration process. Valley Gas established rate tariffs to specifically address the requirements of the cogeneration market. In addition, Valley Gas has a 50 kilowatt demonstration facility at its Cumberland location which provides electricity for computer facilities and hot water requirements. Valley Gas installed a compressed natural gas ("CNG ") fueling station at its Cumberland headquarters. The use of natural gas in vehicles will be promoted through conversion of its own fleet and the CNG rate approved by the RIPUC. The focus of the residential marketing department to increase conversions from oil to natural gas is in the installations of conversion burners and a continuous effort in the replacement market of housing developments that did not choose natural gas. Additional efforts are spent to convert homes with inactive natural gas service. Seasonality The bulk of firm sales are made during the months of November through March. As a result, the highest levels of earnings and cash flow are generated from the quarters ending in February and May. The bulk of the capital expenditure programs are undertaken during the months of May through October, causing cash flow to be at its lowest during the quarters ending in November and August. Short-term borrowing requirements vary according to the seasonal nature of sales and expense activities of the utilities, creating greater need for short-term borrowings during periods when internally generated funds are not sufficient to cover all capital and operating requirements, particularly in the summer and fall. Short-term borrowings utilized for construction expenditures generally are replaced by permanent financing when it becomes economical and practical to do so and where appropriate to maintain an acceptable relationship between borrowed and equity resources. Gas Distribution System Valley Gas' distribution system consists of approximately 900 miles of gas mains and service lines. Bristol's gas distribution system consists of approximately 100 miles of gas mains. The aggregate maximum daily quantity of gas that may be distributed through the utilities from its own facilities and under existing supply and transportation contracts is approximately 100 MMcf, and the maximum daily gas sendouts for all sales customers of the utilities during the last five fiscal years were 66 MMcf in 1995, 77 MMcf in 1994, 69 MMcf in 1993, 67 MMcf in 1992, and 55 MMcf in 1991. Appliance Contract Sales and Rentals The Corporation conducts appliance, contract sales and rentals through its subsidiaries VAMCO and Morris Merchants. VAMCO's revenues are generated through retail appliance sales, service contract sales and through the rental of gas-fired appliances. Morris Merchants sells at wholesale gas- and oil-fired equipment and plumbing and heating supplies. Morris Merchants has contracts for the distribution of certain lines that it wholesales. At this time the Corporation has no reason to believe it will lose any of its existing lines. Morris Merchants is not dependent on any one of the existing lines. Propane Operations The propane operations are conducted through Valley Propane and New England Gas. Both companies sell, at retail, liquid propane gas to residential and commercial customers in Rhode Island and nearby Massachusetts. At August 31, 1995, the propane companies had 2,310 customers. Valley Propane also supplies propane to holding customers of Valley Gas; these customers are serviced by Valley Propane until Valley Gas can connect mains and service lines. The propane subsidiaries are also impacted by weather, as a large percentage of their customers use propane as a primary source of heat. Valley Propane and New England Gas increase and decrease the selling price of their gas depending upon supply and competition. Item 2 Properties 1595 Mendon Road, Cumberland, Rhode Island Office, Sales, and Service Center This location comprises the headquarters, sales and service operation of the Corporation, Valley Gas, VAMCO and Valley Propane; and includes accounting, billing, credit, engineering, garage, maintenance, service, storeroom and construction. The facilities are considered suitable and adequate for the Corporation. 425 Turnpike Street Canton, Massachusetts Office and Warehouse Facilities Morris Merchants, Inc. conducts its business at this leased warehouse and office building in Canton, MA. Its business does not require any special facilities and, therefore, its leased facilities are not significant to its operation. The total lease payments are less than 1 percent of corporate assets. Walter F. Morris, previously a member of the Board of Directors, owns 50 percent of a corporation which leases warehouse and office facilities to Morris Merchants, Inc., a subsidiary of the Corporation, at an annual rental of $153,300. Scott Road, Cumberland, Rhode Island LNG Storage Plant Propane Storage Plant This facility is used for the storage of LNG and propane used in the peak-shaving operations of Valley Gas. Its daily delivery capacity of LNG and LPG is 1,500 Mcf's and 12,000 Mcf's, respectively. Facility improvements which will be completed during the fall of fiscal 1996 will double the delivery capacity for LNG. 25 Gooding Avenue Bristol, Rhode Island Office, Sales and Service Center This leased location comprises the office, sales and service operation of Bristol and New England Gas and includes construction, credit, engineering, garage, maintenance, service, and storeroom. The leased facilities are not significant to its operations and the total lease payments are less than 1 percent of corporate assets. In December 1995, Bristol will relocate its operations to a newly constructed facility at 100 Broad Common Road, Bristol, Rhode Island. The new facility will comprise the office, sales and service operation which include construction, credit, garage, service and storeroom. Brown Street Warren, Rhode Island Propane Storage This facility is used for the storage of propane used in peak-shaving operations of Bristol. Its daily delivery capacity of LPG is 1,600 Mcf's. The Corporation believes its storage facilities are adequate to meet the needs of the utilities for the foreseeable future. All of the storage facilities are owned. All Valley Gas properties, except leased property, are held in fee. See item 1 for discussion of gas supply. Item 3 Legal Proceedings There were no material legal proceedings pending to which the registrant or any of its subsidiaries is a party, or of which any of their property is the subject, except two claims that were asserted against Valley Gas Company as referred to in Note H, page 27, of the 1995 Annual Report to Stockholders which is incorporated by reference. Item 4 Submission of Matters to a Vote of Security Holders None Executive Officers of the Registrant The names, ages, and position of all the executive officers of the registrant on October 15, 1995 are listed below together with their business experience during the past five years. All officers of Valley Resources, Inc. are elected or appointed annually by the board of directors at the directors' first meeting following the Annual Meeting of Stockholders. Business Experience Name Age Position During Last Five Years Alfred P. Degen 48 President and President since July Chief Executive 1994 and Chief Executive Officer Officer since March 1995; Executive Vice President- Acting President of Philadelphia Gas Works prior to July 1994. Kenneth W. Hogan 50 Senior Vice President, Senior Vice President Chief Financial Officer since July 1994; Vice and Secretary President since August 1984; Chief Financial Officer since December 1994 and Secretary since April 1977. PART II Item 5 Market for the Registrant's Securities and Related Stockholder Matters Common stock market prices, number of common stockholders, dividends declared and dividend restrictions appearing on pages 14 and 23 of the Annual Report to Stockholders for the fiscal year ended August 31, 1995 are incorporated herein by reference. The common stock of Valley Resources, Inc. is listed on the American Stock Exchange under the symbol VR. Item 6 Selected Financial Data The selected financial data (Summary of Consolidated Operations) appearing on page 34 of the Annual Report to Stockholders for the fiscal year ended August 31, 1995 is incorporated herein by reference. Item 7 Management's Discussion and Analysis Management's discussion and analysis of the results of operations, liquidity and capital resources appearing on pages 30 through 33 of the Annual Report to Stockholders for the fiscal year ended August 31, 1995 are incorporated herein by reference. Item 8 Financial Statements and Supplementary Data The following consolidated financial statements of the registrant and its subsidiaries appearing on pages 16 through 29 in the Annual Report to Stockholders for the fiscal year ended August 31, 1995 are incorporated herein by reference: Consolidated Statements of Earnings for each of the three years in the period ended August 31, 1995 Consolidated Balance Sheets - August 31, 1995 and 1994 Consolidated Statements of Cash Flows for each of the three years in the period ended August 31, 1995 Consolidated Statements of Changes in Common Stock Equity for each of the three years in the period ended August 31, 1995 Consolidated Statements of Capitalization - August 31, 1995 and 1994 Notes to Consolidated Financial Statements Report of Independent Certified Public Accountants Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10 Directors and Executive Officers of the Registrant For information with respect to the executive officers of the registrant, see "Executive Officers of the Registrant" at the end of Part I of this report. Information regarding the directors of the registrant appearing on pages 2 through 6 of the Proxy Statement filed with the Securities and Exchange Commission on November 7, 1995 is incorporated herein by reference. Based solely upon a review of copies of Forms 3, 4 and 5 furnished to the Corporation pursuant to Rule 16a-3(e), the Corporation believes that each of the Corporation's directors, officers and beneficial owners of more than 10% of any class of equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 (the "Exchange Act") have timely filed all reports required by Section 16(a) of the Exchange Act during the most recent two fiscal years. Item 11 Executive Compensation Information regarding management compensation appearing on pages 7 through 11 of the Proxy Statement filed with the Securities and Exchange Commission on November 7, 1995 is incorporated herein by reference. Item 12 Security Ownership of Certain Beneficial Owners and Management Information regarding the beneficial owners of more than 5 percent of the outstanding Common Stock of the Corporation, being the only class of equity security issued and outstanding, and the security ownership of management appearing on pages 1 and 2 of the Proxy Statement filed with the Securities and Exchange Commission on November 7, 1995 is incorporated herein by reference. Item 13 Certain Relationships and Related Transactions None. PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. The following consolidated financial statements of Valley Resources, Inc. and subsidiaries appearing on pages 16 through 29 in the Annual Report to Stockholders for the year ended August 31, 1995 are incorporated by reference in Item 8: Consolidated Statements of Earnings for each of the three years in the period ended August 31, 1995 Consolidated Balance Sheets - August 31, 1995 and 1994 Consolidated Statements of Cash Flows for each of the three years in the period ended August 31, 1995 Consolidated Statements of Changes in Common Stock Equity for each of the three years in the period ended August 31, 1995 Consolidated Statements of Capitalization - August 31, 1995 and 1994 Notes to Consolidated Financial Statements Report of Independent Certified Public Accountants (a) 2. Consolidated Financial Schedule Schedule VIII - Valuation and Qualifying Accounts Schedules I, II, III, IV, V, VI, VII, IX, X, XI, XII, XIII and XIV are either inapplicable or not required or the required information is shown in the financial statements or notes thereto under the instructions and have been omitted. Report of Independent Certified Public Accountants on Consolidated Financial Schedule (a) 3. Exhibits 3. Articles of Incorporation and Bylaws (Exhibit 3 to the Corporation's Annual Report on Form 10-K for the year ended August 31, 1988 is incorporated herein by reference.) 4. Indenture of First Mortgage dated as of December 15, 1992 between Valley Gas Company, Valley Resources, Inc. as guarantor and State Street Bank and Trust Company, Trustee (Exhibit 4 to the Corporation's Annual Report on Form 10-K for the year-ended August 31, 1993 is hereby incorporated by reference.) 10. Compensation Contracts or Arrangements 10. (a) Valley Gas Company Supplemental Retirement Plan (Exhibit 10 to the Corporation's Annual Report on Form 10-K for the year ended August 31, 1989 is hereby incorporated by reference.) 10. (b) Valley Resources, Inc. 1988 Executive Incentive Plan (Exhibit 10 to the Corporation's Annual Report on Form 10-K for the year ended August 31, 1989 is hereby incorporated by reference.) 10. (c) Termination agreement between Valley Resources, Inc. and Kenneth W. Hogan (Exhibit 10 to the Corporation's Registration Statement on Form S-2 (File No. 2-99315) is hereby incorporated by reference.) 10. (d) Valley Resources, Inc. Directors Retirement Plan. (Exhibit 10 to the Corporation's Annual Report on Form 10-K for the year ended August 31, 1992 is hereby incorporated by reference.) 10. (e) Termination agreement dated June 21, 1995 between Valley Resources, Inc. and Alfred P. Degen. 10. Other Material Contracts 10. (f) Firm Storage Service Transportation contract between Valley Gas and Tennessee Gas Pipeline Company, dated December 15, 1985 (Exhibit 10 to the Corporation's Annual Report on Form 10-K for the year ended August 31, 1986 is hereby incorporated by reference.) 10. (g) Storage Service Agreement dated July 3, 1985 between Valley Gas Company and Consolidated Gas Transmission Corporation (Exhibit 10 to the Corporation's Registration Statement on Form S-2 (File No. 2-99315) is hereby incorporated by reference.) 10. (h) Underground Storage Service Agreement dated October 3, 1984 between Valley Gas Company and Penn-York Energy Corporation (Exhibit 10 to the Corporation's Registration Statement on Form S-2 (File No. 2-99315) is hereby incorporated by reference.) 10. (i) Underground storage service agreement dated August 19, 1983 between Valley Gas Company and Penn-York Energy Corporation (Exhibit 10 to the Corporation's Annual Report on Form 10-K for the year ended August 31, 1983 is hereby incorporated by reference. 10. (j) Service agreement for storage of LNG dated June 30, 1982 between Valley Gas Company and Algonquin LNG, Inc. (Exhibit 10 to the Corporation's Annual Report on Form 10-K for the year ended August 31, 1982 is hereby incorporated by reference.) 10. (k) Contract for the purchase of natural gas dated March 1, 1981, between Valley Gas Company and Tennessee Gas Pipeline Company (Exhibit 10 to the Corporation's Annual Report on Form 10-K for the year ended August 31, 1981 is hereby incorporated by reference.) 10. (l) Storage Service Transportation contract dated May 15, 1981, between Valley Gas Company and Tennessee Gas Pipeline Company (Exhibit 10 to the Corporation's Annual Report on Form 10-K for the year ended August 31, 1981 is hereby incorporated by reference.) 10. (m) Storage Service Transportation contract dated May 26, 1981, between Valley Gas Company and Tennessee Gas Pipeline Company (Exhibit 10 to the Corporation's Annual Report on Form 10-K for the year ended August 31, 1981 is hereby incorporated by reference.) 10. (n) Storage Service Agreement dated February 18, 1980, between Valley Gas Company and Consolidated Gas Supply Corporation (Exhibit 10 to the Corporation's Annual Report on Form 10-K for the year ended August 31, 1981 is hereby incorporated by reference.) 10. (o) Loan Agreement dated July 18, 1991 between Valley Resources, Inc. and Fleet National Bank (Exhibit 10 to the Corporation's Annual Report on Form 10-K for the year ended August 31, 1991 is hereby incorporated by reference.) 10. (p) Gas Sales Agreement dated June 15, 1992 between Aquila Energy Marketing Corporation and Valley Gas Company. (Exhibit 10 to the Corporation's Annual Report on Form 10-K for the year ended August 31, 1992 is incorporated herein by reference.) 10. (q) Gas Sales Agreement dated June 8, 1992 between Natural Gas Clearinghouse and Valley Gas Company. (Exhibit 10 to the Corporation's Annual Report on Form 10-K for the year ended August 31, 1992 is incorporated herein by reference). 13. Annual Report to Stockholders. 21. Subsidiaries of the Registrant. (Exhibit 21 to the Corporation's Annual Report on Form 10-K for the year ended August 31, 1993 is incorporated herein by reference.) 23. Consent of Grant Thornton LLP. 27. Financial Data Schedule. (b) Form 8-K was not required to be filed for the last quarter of the period covered by this report. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 Date: November 27, 1995 By S\K. W. Hogan Kenneth W. Hogan Senior Vice President, Chief Financial Officer & Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: November 27, 1995 S/A. P. Degen Alfred P. Degen, President and Chief Executive Officer Date: November 27, 1995 S\K. W. Hogan Kenneth W. Hogan, Senior Vice President, Chief Financial Officer & Secretary Date: November 27, 1995 S\E. N. Agresti Ernest N. Agresti, Director Date: November 27, 1995 Melvin G. Alperin, Director Date: November 27, 1995 C. Hamilton Davison, Director Date: November 27, 1995 S\D. A. DeAngelis Don A. DeAngelis, Director Date: November 27, 1995 James M. Dillon, Director Date: November 27, 1995 S\J. K. Farnum Jonathan K. Farnum, Director Date: November 27, 1995 S\J. F. Guthrie, Jr. John F. Guthrie, Jr., Director Date: November 27, 1995 Eleanor M. McMahon, Director VALLEY RESOURCES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS SCHEDULE VIII Fiscal Years Ended August 31, 1995, 1994 and 1993
Column A Column B Column C Column D Column E Additions Balance at (1) (2) Deductions Balance at Beginning of Charged to Costs Charged to from End of Description Period and Expenses Other Accounts Reserves Period 1995 Allowance for doubtful accounts $653,927 $1,274,238 $104,176 (a) $1,376,390 (b) $655,951 1994 Allowance for doubtful accounts $592,504 $ 959,404 $ 66,073 (a) $964,054 (b) $653,927 1993 Allowance for doubtful accounts $409,351 $1,074,391 $ 87,702 (a) $978,940 (b) $592,504 Notes: (a) Collections on accounts previously charged off. (b) Accounts charged off.
Report of Independent Certified Public Accountants on Consolidated Financial Schedule To the Shareholders of Valley Resources, Inc. In connection with our audit of the consolidated financial statements of Valley Resources, Inc. and subsidiaries referred to in our report dated September 22, 1995 (except for Note G, as to which the date is October 18, 1995), which is included in the Annual Report to Stockholders and incorporated by reference in Part II of this form, we have also examined the schedule listed in the index at Part IV, Item 14(a)2. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein. GRANT THORNTON LLP Boston, Massachusetts September 22, 1995 (Except for Note G, as to which date is October 18, 1995) EX-10 2 June 1, 1995 Mr. Alfred P. Degen, President and Chief Executive Officer Valley Resources, Inc. 1595 Mendon Road Cumberland, RI 02864 Dear Mr. Degen: Valley Resources, Inc. (which, together with its subsidiaries, is hereinafter called "the Company") considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel. In connection, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control may exist that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company. In order to induce you to remain in the employ of the Company and in consideration of your agreeing to remain in the employ of the Company subject to the terms and conditions set forth below, this letter agreement sets forth the severance benefits which the Company agrees will be provided to you in the event your employment with the Company is terminated subsequent to a "change in control of the Company" (as defined in Section 2 hereof) under the circumstances described below. 1. Term of Agreement. This Agreement shall commence on January 1, 1995 and shall continue in effect through December 31, 1995; provided, however, that commencing on January 1, 1996 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one (1) additional year unless, not later than August 31 of the preceding year, the Company shall have given notice that it does not wish to extend this Agreement; provided, further, that notwithstanding any such notice by the Company not to extend, if a change in control of the Company shall have occurred during the original or extended term of this Agreement, this Agreement shall continue in effect for a period of twenty-four (24) months from the occurrence of such change in control. Notwithstanding the foregoing, the Company may terminate your employment at any time, whether before or after a change in control, subject to providing such benefits as shall be hereinafter specified. 2. Change in Control. (i) No benefits shall be payable hereunder unless there shall have been a change in control of the Company, as set forth below and your employment by the Company shall thereafter have been terminated in accordance with Section 3 below. For purposes of this Agreement, a "change in control of the Company" shall mean a change in control of a nature that would be required to be reported in response to Item 5(f) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Company is then subject to such reporting requirement; provided that, without limitation, such a change in control shall be deemed to have occurred if (a) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (b) during any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (c) the business or businesses of the Company for which your services are principally performed are disposed of by the Company pursuant to a partial or complete liquidation of the Company, a sale of assets (including stock of a subsidiary) of the Company, or otherwise. (ii) For purposes of this Agreement, a "potential change in control of the Company" shall be deemed to have occurred if (A) the Company enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Company, (B) any person publicly announces (including an announcement by the Company) an intention to take actions which if consummated would constitute a change in control of the Company; (C) any person publicly announces (including an announcement by the Company) that it has become the beneficial owner, directly or indirectly, of securities of the Company representing 9.5% or more of the combined voting power of the Company's then outstanding securities; or (D) the Board adopts a resolution to the effect that, for purposes of this Agreement, a potential change in control of the Company has occurred. You agree that, subject to the terms and conditions of this Agreement, in the event of a potential change in control of the Company, you will remain in the employ of the Company for a period of six (6) months from the occurrence of such potential change in control of the Company. 3. Termination Following Change in Control. If any of the events described in Subsection 2(i) hereof constituting a change in control of the Company shall have occurred, you shall be entitled to the benefits provided in Subsection 4 (iii) hereof upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death, Retirement or Disability, (B) by the Company for Cause or (C) by you other than for Good Reason. (i) Disability; Retirement. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Company for six (6) consecutive months, your employment may be terminated for "Disability." Termination of your employment based on "Retirement" shall mean termination in accordance with the Company's retirement policy generally applicable to its salaried employees or in accordance with any retirement arrangement established with your consent with respect to you. (ii) Cause. Termination by the Company of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or any such actual or anticipated failure after the occurrence of circumstances giving rise to a Notice of Termination by you for Good Reason) after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. For purposes of this Subsection, no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this Subsection and specifying the particulars thereof in detail. (iii) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, any of the following: (A) the assignment to you of any duties inconsistent with your status as President and Chief Executive Officer of the Company or a substantial alteration in the nature or status of your responsibilities from those in effect immediately prior to a change in control of the Company; (B) a reduction by the Company in your annual base salary as in effect on the date of the occurrence of a change in control of the Company or as the same may be increased from time to time except for across-the-board salary reductions similarly affecting all executives of the Company and all executives of any person in control of the Company; or the failure of the Company to grant increases in salary in accordance with the Company's regular practices; (C) the relocation of the Company's principal executive offices to a location more than twenty-five (25) miles from your present office location or the Company's requiring you to be based anywhere other than the Company's principal executive offices except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations; (D) the failure by the Company to continue in effect any compensation plan in which you participate, or any plan adopted prior to the change in control of the Company, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan in connection with the change in control of the Company, or the failure by the Company to continue your participation therein on substantially the same basis, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed at the time of the change in control; (E) the failure by the Company to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Company's pension, life insurance, medical, health and accident, or disability plans in which you were participating at the time of a change in control of the Company, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the change in control of the Company, or the failure by the Company to provide you with the number of paid vacation days to which you are entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect at the time of the change in control; (F) the failure by the Company without your consent to pay to you any portion of your current compensation or to pay to you any installment of deferred compensation at the time such installment is due under any deferred compensation program of the Company; (G) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; or (H) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection (iv) below (and, if applicable, the requirements of Subsection (ii) above); for purposes of this Agreement, no such purported termination shall be effective. In addition to your right to terminate for Good Reason as stated above, and not in substitution therefor, you shall have the option at your discretion to terminate your employment at any time within fifteen (15) months after the later of (a) a change in control of the Company or (b) the expiration of the six (6) months period during which you agree to remain in the employ of the company under paragraph 2(ii) of this Agreement. Such termination shall be conclusively deemed to be a termination for good Reason, but shall not affect your right to terminate for Good Reason under any of the provisions of subsection (iii) above. Your right to terminate your employment pursuant to this Subsection shall not be affected by your incapacity due to physical or mental illness. (iv) Notice of Termination. Any purported termination by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination, Etc. "Date of Termination" shall mean (A) if your employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that you have not returned to the full-time performance of your duties during such period) (B) if your employment is terminated pursuant to Subsection (ii) or (iii) above or for any other reason (other than Disability), the date specified in the Notice of Termination (which shall not be less than thirty (30) days, and in the case of a termination pursuant to Subsection (iii) above shall not be less than thirty (30) nor more than sixty (60) days, respectively, from the date such Notice of Termination is given); provided that if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or the time for appeal therefrom having expired and no appeal having been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection. Amounts paid under this Subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement except as otherwise provided in paragraph (C) of Subsection 4 (iii). 4. Compensation Upon Termination. Following a change in control of the Company, as defined by Subsection 2(i), upon termination of your employment you shall be entitled to the following benefits: (i) If your employment shall be terminated by the Company for Cause or by you other than for Good Reason, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given plus any other amounts to which you are entitled under any compensation plan of the Company, at the time such payments are due, and the Company shall have no further obligations to you under this Agreement. (ii) If your employment shall be terminated by the Company or by you for Retirement, or by reason of your death or for Disability, your benefits shall be determined in accordance with the Company's retirement and insurance program then in effect. (iii) If your employment by the Company shall be terminated (a) by the Company other than for Cause, Retirement or Disability or (b) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus any other amounts to which you are entitled under any compensation plan of the Company, at the times such payments are due; (B) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Company shall pay as a severance payment to you, not later than the fifth day following the Date of Termination, a lump sum severance payment (the "Severance Payment") equal to the base salary paid to you during the twelve (12) months immediately prior to the issuance of the Notice of Termination (provided, however, that in the case of a termination at your option under that portion of Section 3 (iii) giving you an option to terminate at your discretion, the severance payment under this paragraph shall be in an amount equal to your base salary for the twelve (12) months immediately prior to the issuance of the Notice of Termination); (C) For a period after such termination equal to the period actually used in calculating severance pay due to you under Section 4 (iii)(B), the Company shall provide you with life, disability, accident and health insurance benefits substantially similar to those which you are receiving immediately prior to the Notice of Termination. Benefits otherwise receivable by you pursuant to this Section 4(iii)(C) shall be reduced to the extent comparable benefits are actually received by you during such period following your termination, and any such benefits actually received by you shall be reported to the Company; (D) In addition to the retirement benefits to which you are entitled under the Retirement Plan or any successor plan thereto, the Company shall pay you in one lump sum in cash on the fifth day following the Date of Termination, a sum equal to the actuarial equivalent of the excess of (x) the retirement pension (determined as a straight life annuity commencing at age 65) which you would have accrued under the terms of the Retirement Plan (without regard to any amendment to the Retirement Plan made subsequent to a change in control of the Company and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder), determined as if you were fully vested thereunder and had accumulated (after the Date of Termination) that number of additional months of service credit thereunder equal to the number of months for which severance pay shall be due to you under Section 4 (iii) (B) hereof, at your highest annual rate of compensation during the twelve (12) months immediately preceding the Date of Termination (but in no event shall you be deemed to have accumulated additional months of service credit after your sixty-fifth (65th) birthday), and (y) the retirement pension (determined as a straight-life annuity commencing at age 65) which you had then accrued pursuant to the provisions of the Retirement Plan. For purposes of clause (x), the term "compensation" shall include amounts payable pursuant to Section 4 (iii) (B) hereof. For purposes of this Subsection, "actuarial equivalent" shall be determined using the same methods and assumptions utilized under the Retirement Plan immediately prior to the change in control of the Company; (E) In the event that any payment or benefit received or to be received by you in connection with a change in control of the Company or the termination of your employment (whether payable pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a change in control of the Company or any person affiliated with the Company or such person) (the "Total Payments") would not be deductible (in whole or in part) as a result of Section 280G of the Internal Revenue Code of 1954. as amended (the "Code"), the benefits provided under this Section 4(iii) shall be reduced or eliminated in the following order, viz., first, Subsection D; then, Subsection C; then, Subsection B; and finally, Subsection A, but only to the extent necessary so that no portion of the Total Payments is not deductible as a result of Section 280G of the Code. For purposes of this limitation (i) no portion of the Total Payments the receipt or enjoyment of which you shall have effectively waived in writing prior to the date of payment shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which, in the opinion of tax counsel selected by the Company's independent auditors and acceptable to you, does not constitute a "parachute payment" within the meaning of Section 280G of the Code, (iii) the Total Payments shall be reduced only to the extent necessary so that the Total Payments (other than those referred to in clause (i) or clause (ii) of this paragraph) in their entirety constitute reasonable compensation for services actually rendered within the meaning of Section 280G of the Code, in the opinion of the tax counsel referred to in clause (ii); and (iv) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G of the Code; (F) The Company shall also pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such right of benefit provided by this Agreement) except to the extent that the payment of such fees and expenses would not be, or would cause any other portion of the Total Payments not to be, deductible by reason of Section 280G of the Code. (iv) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer except as expressly provided herein. (v) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all benefits payable to you under the Retirement Plan and any other plan or agreement relating to retirement benefits. 5. Successors; Binding Agreement. (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled hereunder if you terminate your employment for Good Reason following a change in control of the Company, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, assigns, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisees, legatees, or other designee or if there is no such designee, to your estate. 6. Notice. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 7. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Rhode Island. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. 8. Validity. The invalidity or unenforceability or any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Providence, Rhode Island, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, VALLEY RESOURCES, INC. By S/D. A. DeAngelis Name: Don A. DeAngelis Title: Chairman, Compensation Committee Agreed to this 21st day of June, 1995. S/Alfred P. Degen Alfred P. Degen EX-13 3 1995 Annual Report Valley Resources, Inc. Valley Resources, Inc. Nineteen Hundred and Ninety-Five Fiscal 1995 has been a year of change and challenge for Valley Resources and subsidiaries. Under experienced leadership, Valley Resources has continued its long tradition of prudent management - a course which enabled it to rise to the challenge of the warm winter's financial impact while aggressively anticipating customer needs and preparing for the future. Charles H. Goss 1930-1995 Chairman & Chief Executive Officer Valley Resources, Inc. (Photo of Charles H. Goss appears here) Valley Resources' Chairman & Chief Executive Officer Charles H. Goss passed away on February 22, 1995. Mr. Goss joined the former Blackstone Valley Gas & Electric Company in 1956 and held various management and executive positions throughout his 39-year career with the Corporation. Under his leadership, Valley Resources grew from a local natural gas distribution company to a diversified energy products and services company encompassing distribution utilities, propane companies and retail and wholesale merchandising subsidiaries. Mr. Goss was widely recognized as an active civic and business leader and served in various capacities in many local, state, regional and national organizations. One of the endeavors most dear to Mr. Goss was making investor relations presentations to existing and prospective shareholders around the country, and he loved sharing experiences with the many friends he made in the process. Valley Resources and the community will miss his guidance and support. Cover Photo: View of the Mt. Hope Bridge and Aquidneck Island from water's edge at Roger Williams University in the Bristol & Warren service area. Corporate Overview Valley Resources, Inc. is a public utility holding company. The Corporation has six active wholly-owned subsidiaries: Valley Gas Company (Valley Gas or the Company) and Bristol & Warren Gas Company (Bristol), regulated natural gas distribution companies; Valley Appliance and Merchandising Company (VAMCO), a merchandising, appliance rental, sales and service company; Valley Propane, Inc. and The New England Gas Company, retail propane sales companies; and Morris Merchants, Inc. (Morris) d/b/a the Walter F. Morris Company, a representative distributor of franchised lines. Rhode Island Development and Exploration Company is currently inactive. Financial Highlights
For the year ended August 31 (in thousands) 1995 1994 1993 Operating revenues ............................. $ 74,870 $ 83,553 $ 77,286 Operation expenses, maintenance and depreciation 64,392 71,275 65,729 Operating income before taxes .................. 10,478 12,278 11,557 Taxes -- other than Federal income ............. 4,002 4,464 4,073 Taxes -- Federal income ........................ 732 1,313 1,400 Other income - net of taxes .................... 115 227 253 Interest charges ............................... 3,304 2,902 2,610 Net income ..................................... $ 2,555 $ 3,826 $ 3,727 Earnings per average common share outstanding .. $ 0.61 $ 0.91 $ 0.89 Dividends declared per common share ............ $ 0.71 $ 0.69 $ 0.66 Net utility plant (thousands) .................. $ 47,411 $ 44,207 $ 42,313 Capital expenditures (thousands) ............... $ 5,916 $ 4,553 $ 5,340 Average number of common shares outstanding .... 4,222,662 4,205,760 4,203,398 Number of stockholders ......................... 2,887 2,847 2,834
Message to Stockholders The Corporation continues to invest in system improvements to ensure the safety and reliability of utility operations, such as the major upgrade to the LNG vaporization facilities which will be completed prior to the 1995-1996 heating season. (Photo of LNG Vaporization facility appears here) The Corporation's fiscal 1995 financial performance was affected by the second warmest year in company history and a static regional economy. Warmer than normal temperatures, especially during the prime heating season, impacted utility and propane sales and earnings. Additionally, the merchandising subsidiaries found themselves in the throes of a sluggish economic climate. VAMCO, however, was able to improve earnings through the application of new technology. While we are not pleased with the 1995 financial results, we think it is important to focus on the very positive long-term prospects for Valley Resources and its subsidiaries. Fiscal 1995 saw significant change in the Corporation's senior management team. The untimely passing of Charles H. Goss, Chairman and Chief Executive Officer, and the planned retirements of Senior Vice Presidents Francis G. Chicoine and John H. St. Sauveur, and Assistant Vice President and Chief Engineer Robert S. Carlson, after many years of devoted service to the Corporation, resulted in the need to reorganize and realign management responsibilities. Valley Resources used this opportunity to improve the organizational structure, resulting in a 5.5% reduction in personnel. Through a planned development process, experienced and qualified employees were prepared to assume additional management responsibilities. As part of the Corporate-wide reorganization, significant work has been completed in developing a strategic plan for Valley Resources. The implementation of Message to Stockholders Construction of the Highland Corporate Park Expansion Project is underway. This development, which includes sites in both Woonsocket and Cumberland, is expected to generate over 5,000 jobs during the next ten years providing a significant stimulus to the local economy. Valley Gas has installed approximately 8,000 feet of new main in anticipation of serving the new customer load at Highland Park. (Photo of Construction Crew working on Highland Corporate Park Expansion Projects appears here.) this plan will provide an effective blueprint to successfully move the Corporation forward. The natural gas industry also continues its transition to a less regulated, more competitive environment. Valley Gas Company and Bristol & Warren Gas Company, our utility subsidiaries, have dealt effectively with the evolving challenges and opportunities resulting from the industry transition. We continue to work as a member of the Mansfield Consortium to cost effectively procure gas supply requirements. The Consortium, a group of New England gas utilities, is also exploring other opportunities where a consolidation of efforts could be beneficial. Our gas utilities are committed to remaining low-cost, efficient, customer-focused energy providers, determined to compete effectively to supply the energy needs of northern Rhode Island and the Bristol and Warren area. The Corporation continues to invest in system improvements to ensure the safety and reliability of utility operations, such as the major upgrade to the LNG vaporization facilities which will be completed prior to the 1995 - 1996 heating season. While economic growth in our service area is not as strong as we would like to see it, there are positive signs for the future. Construction of the Highland Corporate Park Expansion Project is underway. This development, which includes sites in both Woonsocket and Cumberland, is expected to generate over 5,000 jobs during the next ten years Message to Stockholders Morris Merchants, Inc. is well positioned to improve effectiveness and profitability. A new information processing system will allow Morris to direct marketing activities more productively. (Photo of Employees discussing the implementation of the new information processing system appears here) providing a significant stimulus to the local economy. Valley Gas has installed approximately 8,000 feet of new main in anticipation of serving the new customer load at Highland Park. We expect steady growth from our utility operations as we supply new construction and conversions from alternate fuels. To assist that growth effort, the rate design approved in October 1995 provides for a commercial and industrial rate structure designed to foster economic development and to support growth in regional employment. Our nonutility operations, although more volatile than our utility businesses, do provide more opportunities for growth. Morris Merchants, Inc. is well positioned to improve effectiveness and profitability. A new information processing system will allow Morris to direct marketing activities more productively. VAMCO, in addition to its traditional markets of appliance sales, service and rentals, primarily directed at the residential sector, is expanding efforts in the commercial and industrial area. Improved results in this area are expected in fiscal 1996. Recognizing the long-term outlook of the Corporation and its ongoing earnings potential, the Board of Directors increased the dividend in March 1995 for the 17th consecutive year. The indicated annual dividend rate is 72 cents per share. During fiscal 1995, corporate executives made investor relations presentations in Milwaukee, Wisconsin; Portland, Maine; and Peoria, Illinois. The purpose of these presentations Message to Stockholders is to increase investor knowledge and interest in the Corporation and to develop and enhance the investment base for future equity or public debt offerings. The Corporation's message was well received in each of these locations. In December 1994, Walter F. Morris retired from the Board of Directors. Mr. Morris was previously Chairman and Chief Executive Officer of Morris Merchants, Inc. and brought a wealth of experience and knowledge to the Board. His service to the Corporation will be greatly missed. The Board of Directors elected C. Hamilton Davison, President of Paramount Cards, Inc., to fill a Board vacancy effective September 19, 1995. On behalf of the Board of Directors, I would like to express our appreciation to all employees for their dedication and commitment to the Corporation, to our shareholders for their ongoing support, and to our customers for their confidence in Valley Resources and our products. Fiscal 1995 was a year of change and challenge for the Corporation but we believe that Valley Resources is well positioned to prosper and grow during the second half of this decade and beyond. Sincerely, Alfred P. Degen President & Chief Executive Officer (Photo of Alfred P. Degen, President & Chief Executive Officer appears here) Summary of Annual Earnings and Dividends Consolidated net income is derived from the earnings of the Corporation's six active subsidiaries: Valley Gas Company, Bristol & Warren Gas Company, Valley Appliance and Merchandising Company, Valley Propane, Inc., The New England Gas Company and Morris Merchants, Inc. Consolidated net income for fiscal 1995 was $2,554,900 or $0.61 per average common share outstanding, as compared to $3,826,000 or $0.91 per share in fiscal 1994. Our utility subsidiaries, Valley Gas and Bristol, contributed $1,665,400 to consolidated net income, down from $2,914,300 in fiscal 1994. The significant decline in earnings was due primarily to the impact of weather. The weather in fiscal 1995, which was the second warmest in the Corporation's history, was approximately 9.9 percent warmer than last year and 8.2 percent warmer than normal. The critical winter period was 15.5 percent warmer than last year and 9.8 percent warmer than normal. Also affecting utility earnings were a static regional economy and higher interest costs due to increased interest rates. The contribution of nonutility operating companies to consolidated earnings was $889,500, as compared to $911,700 for fiscal 1994. This decrease is a reflection of the regional economy on wholesale operations and the impact of the warmer weather on the propane operations; both of which were partially offset by the improved performance of retail merchandising operations. In April 1995, the Board of Directors increased the dividend 2.9 percent to an indicated annual rate of $0.72 per share. The 10-year and 5-year compounded growth rates in dividends are 6 percent and 4.1 percent, respectively. This is the seventeenth consecutive year of dividend increases. The Board's continuing philosophy and policy is to pay a reasonable percentage of sustainable corporate earnings in the form of dividends. Sales Degree Days
1991 1992 1993 1994 1995 Actual 5003 5887 6341 6459 5820 Normal 6409 6406 6406 6406 6339
Dividends Per Share
1991 1992 1993 1994 1995 0.61 0.63 0.66 0.69 0.71
Year in Review (Photo of new LNG vaporizer appears here) The efficient new LNG vaporizers at Valley Gas' peak shaving facility will increase capacity, operational flexibility and supply security. Year in Review Fiscal 1995 has brought change and challenge to the Corporation. On March 2, 1995, Alfred P. Degen was elected Chief Executive Officer of the Corporation after the death of Charles H. Goss. Mr. Degen had joined the Corporation, as President & Chief Operating Officer, in July 1994, in anticipation of Mr. Goss' planned retirement in June, 1995. He brings to the Corporation 27 years of experience in the natural gas industry and a commitment to the Corporation's tradition of prudent management and vigorous pursuit of economic opportunity. This approach served the Corporation well in the face of the unusually warm winter and a static regional economic climate. The Corporation's subsidiaries were able to maintain the marketing momentum of last year by identifying and meeting customer needs. The well-known advantages of natural gas as a clean-burning, efficient fuel continue to answer the needs of the growing number of residential and commercial customers who converted from oil or electric energy this fiscal year. The Woonsocket Health Center, a large residential nursing facility, and the Cumberland Housing Authority's complex for the elderly are examples of electric-to-gas heating conversions which resulted in significant fuel cost savings for the customers as well as additional firm gas sales for Valley Gas. Specific concerns with environmental issues provided the subsidiaries with a particularly effective tool for marketing not only conversion to gas but also gas-fired equipment. Increasing awareness of the environmental hazards and regulatory burdens of underground oil tanks led to conversions to gas by such customers in the Valley Gas service area as the Woonsocket Industrial Complex, the Pawtucket Boys and Girls Club and the Pawtucket YMCA and, in Bristol's region, the American Tourister plant. Similarly, air quality regulations provided market impetus for installations of gas-fueled air emissions equipment for commercial customers of both Valley Gas and Bristol. Marketing efforts are not limited to only new accounts. Careful attention to the needs of existing customers is a critical component of the Corporation's marketing strategy. In addition, Valley Resources' subsidiary operations work together to maximize opportunities. The Corporation's close ties to the communities served by its subsidiaries continue to result in successful participation in the Year in Review (Photo of Pawtucket Boys & Girls Club appears here) Concern for the future of the environment led the Pawtucket Boys & Girls Club to Valley Resources' subsidiaries for conversion to gas and gas-fired equipment. Year in Review expansion and new development of existing customers such as Super Stop & Shop, a regional supermarket chain with stores in Pawtucket and Cumberland, and two condominium developments in the Bristol area which have requested gas conversion. The condominium conversions will also lead to additional appliance sales and rentals. The growth in customer base and new load achieved by the utility subsidiaries was offset in fiscal 1995 by increased interest expense and by the effect of the warmer than normal winter temperatures. The negative impact of the weather on revenues was mitigated by continued cost-cutting measures in all appropriate areas. The Corporation continues to invest in projects which are vital to the operational health and competitiveness of the subsidiaries. One such undertaking is the improvement of the Brown Street regulator station to enhance safety and increase the system deliverability in the Bristol service area. The Valley Gas LNG peak shaving facility is also being upgraded. The new LNG vaporizers will increase the plant's peaking capacity by 50 percent, thereby providing the Company with operational flexibility as well as enhanced security of supply. In June 1995, the Company acquired the franchise rights to provide gas service to a portion of the Town of Burrillville in rural Northwestern Rhode Island. Valley Gas now has the right to serve the eastern portion of the town, an area which is contiguous with the western boundary of Valley Gas' service area. While growth in Burrillville will have to be managed carefully, it holds promise for the future. Valley Gas continues to benefit from its membership in the Mansfield Consortium, a collaboration of several New England local distribution companies served by Tennessee Gas Pipeline. Through group participation, the Company renegotiated long-term contracts with two major suppliers which increased gas supply flexibility while avoiding any increase in costs. Valley Gas also obtained two new winter supply protections negotiated by the members of the Consortium. First is a long-term peaking arrangement with very favorable pricing provisions. The second is a mandatory mutual assistance pact among the Consortium members in the event of supply emergencies. Recently negotiated settlements with Tennessee Gas and Algonquin Gas Year in Review (Photo of Cumberland Housing Authority's Riverside Village appears here) The conversion from electric to gas heating at the Cumberland Housing Authority's Riverside Village brought a satisfied new customer on line. Year in Review pipelines have enabled both Valley Gas and Bristol to utilize their existing transportation capacity to move gas from underground storage to virtually any location on the interstate pipeline network. This development enhances both supply security and gas cost control. It also positions the companies to participate in the off-system sales market. Notwithstanding the static regional economy in fiscal 1995, long-awaited local industrial development is moving ahead as predicted. The Highland Corporate Park Expansion Project, centerpiece of the Blackstone Valley regional business development initiative, is under construction, and the first phase of gas main installation is complete. Another Valley Gas customer, Amica Insurance, has broken ground for plant expansion at its Lincoln facility. New construction of student residence units is also underway at Roger Williams University, one of Bristol's largest commercial customers. In January 1995, Valley Gas and Bristol filed a joint request with the Rhode Island Public Utilities Commission to adopt a single rate structure and to increase their combined operating revenues. The RIPUC authorized an increase in consolidated revenues of $1.2 million. It is expected the increased revenues will become effective in November 1995. Even in this year of decreased residential construction, VAMCO, the Corporation's merchandising subsidiary, was able to record gains by careful attention to the opportunities afforded by conversions to gas and by expanding its efforts to focus on the commercial and industrial heating equipment market. Morris Merchants, Inc., operates in seven northeastern states as a representative distributor of franchised plumbing and heating lines from manufacturers across the United States and Europe. Morris, located in Canton, Massachusetts, faced a regional decline in new construction which adversely affected sales and margins. In response to market conditions, Morris has restructured its sales efforts, and segments of the market have been identified for strategic expansion. The implementation of a new computer system is providing more information to support field representatives and is supplying management with critical data to improve productivity and responsiveness to customer needs. This information system enhancement is an example Year in Review (Photo of Roger Williams University appears here) Bristol & Warren will be supplying gas to the new student residences at Roger Williams University, one of Bristol's largest customers. Year in Review of the Corporation's ability to bring together the talents of its subsidiary units to improve overall corporate capabilities. The propane subsidiaries also experienced sales declines as a result of the warm heating season. Additionally, competitive pressures from large, national propane companies adversely affected the residential markets. Increasing focus on the commercial and industrial section partially offset residential declines. Valley Resources, Inc., is well positioned to maximize opportunities in both its regulated and non-regulated businesses. The Corporation's management team is committed to pursue reasonable growth opportunities and is strategically planning the movement of Valley Resources into the 21st century. Dividends and Market Data
CASH MARKET PRICE 1995 DIVIDEND HIGH LOW First Quarter ......... $ .175 $ 13.25 $ 12.00 Second Quarter ........ .175 12.63 10.75 Third Quarter ......... .18 11.38 10.50 Fourth Quarter ........ .18 11.50 10.38 1994 First Quarter ......... $ .17 $ 16.13 $ 14.13 Second Quarter ........ .17 15.25 13.50 Third Quarter ......... .175 14.00 11.50 Fourth Quarter ........ .175 12.63 10.63
Stockholder Statistics
STATE SHARES STOCKHOLDERS Number Percent Number Percent Rhode Island .................. 1,368,442 32.1 724 25.1 New York ...................... 765,006 18.0 124 4.3 Massachusetts ................. 672,822 15.8 553 19.2 Florida ....................... 398,310 9.3 134 4.6 Missouri ...................... 348,969 8.2 37 1.3 Illinois ...................... 83,052 1.9 117 4.1 California .................... 66,460 1.6 119 4.1 Connecticut ................... 62,805 1.5 144 5.0 Texas ......................... 46,459 1.1 69 2.4 Michigan ...................... 45,641 1.1 74 2.6 Other ......................... 402,831 9.4 792 27.3 4,260,797 100.0 2,887 100.0
Financial Information Consolidated Statements of Earnings ................................... 16 Consolidated Statements of Cash Flows ................................. 17 Consolidated Balance Sheets ........................................... 18-19 Consolidated Statements of Changes in Common Stock Equity ............. 20 Consolidated Statements of Capitalization ............................. 20 Notes to Consolidated Financial Statements ............................ 21-29 Report of Independent Certified Public Accountants..................... 29 Management's Discussion and Analysis................................... 30-33 Summary of Consolidated Operations..................................... 34 Gas Operating Statistics............................................... 35 Directors.............................................................. 36 Officers............................................................... 36 Corporate Information........................................ Inside Back Cover Consolidated Statements of Earnings
For the year ended August 31 1995 1994 1993 Operating revenues: Utility gas revenues ......................................... $56,012,913 $65,323,556 $59,293,553 Nonutility revenues .......................................... 18,857,277 18,229,362 17,992,577 Total ........................................................... 74,870,190 83,552,918 77,286,130 Operating expenses: Cost of gas sold ............................................. 30,229,359 38,233,511 33,410,402 Cost of sales - nonutility ................................... 13,189,797 12,783,575 12,715,014 Operations ................................................... 16,752,501 16,299,527 15,801,722 Maintenance .................................................. 1,535,206 1,485,279 1,497,409 Depreciation (Note A) ........................................ 2,684,755 2,473,467 2,304,420 Taxes - other than Federal income ........................... 4,002,076 4,463,406 4,073,357 - Federal income (Notes A and F) ...................... 731,947 1,313,227 1,399,641 Total ...................................................... 69,125,641 77,051,992 71,201,965 Operating income ................................................ 5,744,549 6,500,926 6,084,165 Other income - net of tax (Notes A and F) ....................... 115,032 227,450 252,666 Total income before interest ............................... 5,859,581 6,728,376 6,336,831 Interest charges: Long-term debt ............................................... 1,947,205 2,037,760 1,753,803 Other ........................................................ 1,357,451 864,590 855,798 Total ...................................................... 3,304,656 2,902,350 2,609,601 Net income available for common stock............................ $2,554,925 3,826,026 $3,727,230 Average number of common shares outstanding...................... 4,222,662 4,205,760 4,203,398 Earnings per average common share outstanding ................... $ 0.61 $ 0.91 $ 0.89 The accompanying Notes are an integral part of these statements.
Consolidated Statements of Cash Flows
For the year ended August 31 1995 1994 1993 Increase (decrease) in cash: Cash flows from operating activities: Net income ........................................................... $ 2,554,925 $ 3,826,026 $ 3,727,230 Adjustments to reconcile net income to net cash: Depreciation ....................................................... 2,684,755 2,473,467 2,304,420 Provision for uncollectibles ....................................... 1,274,238 959,404 1,074,391 Deferred Federal income taxes ...................................... 619,918 1,040,691 444,275 Amortization of investment tax credits ............................. (50,144) (44,940) (44,940) Change in assets and liabilities: Accounts receivable ................................................ (1,612,297) (492,220) (1,684,361) Unbilled gas costs ................................................. (4,617) (5,256) (11,872) Fuel and other inventories ......................................... 502,202 331,499 318,707 Prepayments ........................................................ (72,088) (31,177) 174,081 Common stock held for dividend reinvestment plan ................... (271,315) 23,530 66,941 Prepaid pensions ................................................... (572,320) (784,454) (689,842) Accounts payable ................................................... (275,189) (323,061) 858,419 Security deposits .................................................. 30,945 47,803 20,742 Taxes accrued ...................................................... (131,917) 69,422 62,415 Deferred fuel costs ................................................ 2,629,056 1,752,484 (702,669) Other .............................................................. (578,144) (500,288) 52,127 Total adjustments .............................................. 4,173,083 4,516,904 2,242,834 Net cash provided by operating activities .......................... 6,728,008 8,342,930 5,970,064 Cash flows from investing activities: Utility capital expenditures ....................................... (5,335,159) (3,953,702) (4,786,946) Nonutility capital expenditures .................................... (580,772) (599,725) (552,924) Other investments .................................................. (13,400) (51,262) (24,917) Net cash used by investing activities .............................. (5,929,331) (4,604,689) (5,364,787) Cash flows from financing activities: Dividends paid ..................................................... (2,989,702) (2,900,408) (2,775,027) Common stock transactions .......................................... 391,278 (95,418) (27,406) Issuance of long-term debt, net of issuance costs .................. -0- -0- 21,313,000 Retirement of long-term debt, including premium (1,333,000) (95,000) (10,830,100) Increase (decrease) in notes payable 3,000,000 (1,000,000) (8,900,000) Net cash used by financing activities .............................. (931,424) (4,090,826) (1,219,533) Net decrease in cash .................................................. (132,747) (352,585) (614,256) Cash, beginning ....................................................... 587,342 939,927 1,554,183 Cash, ending .......................................................... $ 454,595 $ 587,342 $ 939,927 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest ......................................................... $ 3,265,612 $ 2,895,752 $ 2,277,359 Federal income taxes ............................................. $ 380,000 $ 637,000 $ 1,102,000 Supplemental disclosures of noncash activity: Capital lease obligations incurred ................................. $ 300,972 $ 956,973 $ 618,739 The accompanying Notes are an integral part of these statements.
Consolidated Balance Sheets
August 31 1995 1994 Assets: Utility plant, at cost (Notes A and D).......................................... $72,759,666 $67,679,919 Less: Accumulated provision for depreciation (Note A).......................... 25,348,673 23,472,766 Net utility plant............................................................... 47,410,993 44,207,153 Leased property-less accumulated amortization of $2,088,737 and $1,532,967...... 2,013,647 2,436,429 Nonutility property-less accumulated provision for depreciation of $3,434,784... and $3,485,334 (Note A)...................................................... 3,546,543 3,519,208 Other investments............................................................... 1,461,100 1,465,992 Current assets: Cash......................................................................... 454,595 587,342 Accounts receivable-less allowance for uncollectibles of $655,951 and $653,927...................................................... 10,686,414 10,348,353 Deferred unbilled gas costs (Note A)......................................... 434,291 429,674 Fuel and other inventories (Note A).......................................... 5,384,483 5,886,685 Prepayments.................................................................. 1,159,331 1,087,243 Common stock held for dividend reinvestment plan (Note B).................... 289,695 18,380 Total current assets..................................................... 18,408,809 18,357,677 Deferred debits: Recoverable postretirement benefit (Note H).................................. 692,922 440,557 Recoverable vacations accrued................................................ 846,825 803,306 Recoverable deferred Federal income taxes (Note F)........................... 5,713,177 5,743,664 Recoverable transition obligation (Note H)................................... 1,325,000 3,172,000 Unamortized debt discount and expense........................................ 1,581,023 1,638,953 Prepaid pensions (Note H).................................................... 5,545,463 4,973,143 Other........................................................................ 3,792,004 4,311,115 Total deferred debits.................................................... 19,496,414 21,082,738 Total assets............................................................. $92,337,506 $91,069,197 The accompanying Notes are an integral part of these statements.
Consolidated Balance Sheets
August 31 1995 1994 Capitalization and liabilities: Capitalization (see Consolidated Statements of Capitalization)... $50,608,628 $53,070,950 Obligations under capital leases (Note D)........................ 1,254,778 1,746,756 Current liabilities: Current maturities of long-term debt (Note D)................. 500,000 450,000 Obligations under capital leases (Note D)..................... 758,870 689,674 Notes payable (Note C)........................................ 11,900,000 8,900,000 Accounts payable.............................................. 4,321,315 4,596,504 Security deposits............................................. 1,162,005 1,131,060 Taxes accrued................................................. 507,816 639,733 Deferred fuel costs (Note A).................................. 3,150,767 521,711 Accrued interest.............................................. 655,045 631,038 Other......................................................... 976,138 970,178 Total current liabilities................................. 23,931,956 18,529,898 Commitments and contingencies (Note H) Deferred credits: Unamortized investment tax credit (Note A).................... 773,141 823,285 Transition obligation (Note H)................................ 1,325,000 3,172,000 Unfunded deferred Federal income taxes (Note F)............... 1,930,375 1,914,850 Postretirement benefit obligation (Note H).................... 692,922 440,557 Other ........................................................ 1,729,504 1,853,603 Total deferred credits.................................... 6,450,942 8,204,295 Deferred Federal income taxes (Notes A and F)................. 10,091,202 9,517,298 Total liabilities......................................... 41,728,878 37,998,247 Total capitalization and liabilities...................... $92,337,506 $91,069,197 The accompanying Notes are an integral part of these statements.
Consolidated Statements of Changes in Common Stock Equity
Common Shares Issued Paid in Retained & Outstanding Capital Earnings Number Amount Balance, August 31, 1992 ............. 4,213,043 $ 4,213,043 $17,817,979 $ 5,392,371 Add (deduct): Net income ........................ 3,727,230 Cash dividends on common stock .... (2,775,027) Other ............................. (27,406) Balance, August 31, 1993 ............. 4,213,043 4,213,043 17,790,573 6,344,574 Add (deduct): Net income ........................ 3,826,026 Cash dividends on common stock .... (2,900,408) Other ............................. (95,418) Balance, August 31, 1994 ............. 4,213,043 4,213,043 17,695,155 7,270,192 Add (deduct): Net income ........................ 2,554,925 Cash dividends on common stock .... (2,989,702) Dividend reinvestment plan (Note B) 47,754 47,754 465,376 Other ............................. (121,852) Balance, August 31, 1995 ............. 4,260,797 $ 4,260,797 $18,038,679 $ 6,835,415
Consolidated Statements of Capitalization
August 31 1995 1994 Common stock equity: Common stock, $1 par value (Note B) Authorized 20,000,000 shares Issued and outstanding 4,260,797 and 4,213,043 shares $ 4,260,797 $ 4,213,043 Paid in capital (Note B) .............................. 18,038,679 17,695,155 Retained earnings (Notes B and E) ..................... 6,835,415 7,270,192 29,134,891 29,178,390 Less: Accounts receivable from Valley Gas Employee Stock Ownership Plan (Note D) .............. 3,142,200 3,142,200 Total common stock equity ....................... 25,992,691 26,036,190 Long-term debt (Note D): 8% First Mortgage Bonds, due 2022 ..................... 21,072,000 22,405,000 9% Notes Payable, due 1999 ............................ 2,138,937 2,724,760 Note payable .......................................... 1,905,000 2,355,000 Total ........................................... 25,115,937 27,484,760 Less: Current maturities .............................. 500,000 450,000 Total long-term debt ............................ 24,615,937 27,034,760 Total capitalization ............................ $50,608,628 $53,070,950 The accompanying Notes are an integral part of these statements.
Notes to Consolidated Financial Statements NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION - The consolidated financial statements include the accounts of Valley Resources, Inc. and its wholly-owned subsidiaries (the Corporation) Valley Gas Company (Valley Gas or the Company), Valley Appliance and Merchandising Company (VAMCO), Rhode Island Development and Exploration Company (RIDEC), Valley Propane, Inc. (Valley Propane), Morris Merchants, Inc. (Morris Merchants) (d/b/a the Walter F. Morris Company), Bristol & Warren Gas Company (Bristol), and The New England Gas Company. All significant intercompany transactions have been eliminated where required. REGULATION - The utility operations of Valley Gas and Bristol are subject to regulation by the Rhode Island Public Utilities Commission (RIPUC). Accounting policies conform with generally accepted accounting principles, as applied in the case of regulated public utilities, and are in accordance with the accounting requirements and rate making practices of the RIPUC. DEPRECIATION - Annual provisions for depreciation for Valley Gas are determined on a composite straight-line basis. The composite rate for fiscal 1995, 1994 and 1993 was 2.72%. Depreciation provisions for other subsidiary companies are provided on the straight-line and accelerated methods at rates ranging from 2.86% to 34%. DEFERRED FUEL COSTS - Valley Gas and Bristol tariffs include a Purchased Gas Price Adjustment (PGPA) which allows an adjustment of rates charged to customers in order to recover all changes in gas costs from stipulated base gas costs. The PGPA provides for an annual reconciliation of total gas costs billed with the actual cost of gas incurred. Any excess or deficiency in amounts collected as compared to costs incurred is deferred and either reduces the PGPA or is billed to customers over subsequent periods. DEFERRED UNBILLED GAS COSTS - Revenue is recorded on the basis of bills rendered on a cycle basis throughout the month. The Company defers to the following month that portion of the base cost of gas delivered but not yet billed under the cycle billing system. ACCOUNTING FOR INCOME TAXES - Income tax regulations allow recognition of certain transactions for tax purposes in time periods other than the period during which these transactions will be recognized in the determination of net income for financial reporting purposes. As required by generally accepted accounting principles, deferred income taxes are provided to reflect the tax effect of these timing differences in the proper accounting periods. In accordance with Financial Accounting Standards Board Statement No. 109 Accounting for Income Taxes, deferred income taxes are recorded for all book and tax temporary timing differences. Investment tax credits relating to Valley Gas and Bristol property have been deferred and will be amortized to income over the productive lives of the related assets. Investment tax credits earned by the Corporation's other subsidiary companies were recognized as a reduction of Federal income tax expense in the year utilized. PENSION PLANS - The Company maintains two non-contributory defined benefit pension plans covering substantially all of the Company's employees. The plans provide benefits based on compensation and years of service. The Company's policy is to fund pension costs that are deductible for Federal income tax purposes (see Note H). Additionally, the Company maintains a 401(k) plan covering substantially all of the Company's employees. In fiscal 1995, 1994 and 1993, plan expense was $122,400, $112,900 and $124,700, respectively. Morris Merchants maintains an employee profit sharing plan covering substantially all of the employees who have completed one year of service. Contributions to the plan are at the discretion of the Board of Directors. In fiscal 1995, 1994 and 1993 profit sharing expense was $68,400, $73,700 and $77,700, respectively. Notes to Consolidated Financial Statements Bristol maintains a non-contributory defined contribution pension plan covering substantially all of its employees. The plan provides benefits based on hours worked and rate of pay. In fiscal 1995, 1994 and 1993 plan expense was $27,500, $23,100 and $26,400, respectively. INVENTORIES - Fuel and other inventories at August 31, are as follows:
1995 1994 Fuels (at average cost) ............... $3,254,439 $3,812,655 Merchandise and other (at average cost) 1,051,585 1,074,957 Merchandise (at LIFO) ................. 1,078,459 999,073 $5,384,483 $5,886,685
Merchandise (at LIFO), if valued at current cost, would have been greater by $255,400 in 1995 and $270,000 in 1994. RECLASSIFICATIONS - Certain amounts in the consolidated financial statements for fiscal 1994 and 1993 have been reclassified to conform with the presentation for fiscal 1995. NOTE B: COMMON STOCK AND RIGHTS Pursuant to the Corporation's dividend reinvestment plan, stockholders can reinvest dividends and make limited additional cash investments. Shares issued through dividend reinvestment can be acquired on the open market or original issue. In fiscal 1995, the Corporation issued 47,754 shares of common stock under provisions of the dividend reinvestment plan. All shares issued pursuant to the plan in fiscal 1994 and 1993 were open-market purchases. At August 31, 1995 and 1994, 26,190 and 1,496 shares, respectively, were held by the Corporation for issuance to the plan. On August 31, 1995, except as mentioned above, no shares of common stock of the Corporation were held by or for the account of the Corporation or were reserved for officers or employees or for options, warrants or other rights, except 60,356 shares of common stock reserved subject to sale under the Corporation's dividend reinvestment plan. Each share of common stock of the Corporation includes one preferred stock purchase Right which entitles the holder to purchase one one-hundredth of a share of Cumulative Participating Junior Preferred Stock, par value $100, at a price of $35 per one one-hundredth of a share subject to adjustment. Initially the Rights will not be exercisable, and the Rights will trade automatically with common stock. The Rights will generally become exercisable, and separate certificates representing the Rights will be distributed, upon occurrence of certain events in excess of a stipulated percentage of ownership. The Rights should not interfere with any merger or business combination approved by the Board of Directors because, prior to the Rights becoming exercisable, the Rights may be redeemed by the Corporation at $0.01 per Right. The Rights have no dilutive effect and will not affect reported earnings per share. NOTE C: SHORT-TERM DEBT The Corporation borrows on bank lines of credit at the prevailing interest rate available at the time of borrowing. The Corporation either pays commitment fees or maintains compensating balances in connection with these lines of credit. Commitment fees paid in fiscal 1995, 1994 and 1993 amounted to $94,500, $64,900, and $57,800, respectively. There are no legal restrictions on withdrawal of compensating balances. Notes to Consolidated Financial Statements A detail of short-term borrowings for fiscal 1995, 1994 and 1993 is as follows:
1995 1994 1993 At year end Weighted average interest rate... 5.9% 5.2% 3.6% Unused lines of credit .......... $15,100,000 $14,600,000 $10,100,000 For the year ended Weighted average interest rate... 6.2% 3.9% 4.3% Average borrowings .............. $11,283,300 $10,991,700 $13,162,500 Maximum month-end borrowings .... $16,000,000 $14,900,000 $23,100,000 Month of maximum borrowings ..... December January November
NOTE D: LONG-TERM DEBT The composition of long-term debt is included in these financial statements in the separate Consolidated Statements of Capitalization. The aggregate amount of maturities and sinking fund requirements for each of the five fiscal years following fiscal 1995 are: 1996, $1,258,900; 1997, $2,068,300; 1998, $388,000; 1999, $2,230,300; and 2000, $57,100, inclusive of capitalized lease obligations. Valley Gas utility plant and equipment have been pledged as collateral to secure its long-term debt. In accordance with the redemption provisions of the Valley Gas 8% First Mortgage Bonds, $1,333,000 and $95,000 of the bonds were redeemed by holders in fiscal 1995 and fiscal 1994, respectively. The fair market value of the Corporation's long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Corporation for debt of the same remaining maturities. Management believes the carrying value of the debt approximates the fair value at August 31, 1995. Regulatory treatment allows payments under capital leases to be recorded as rental expenses. Rental expenses for all leases in fiscal 1995, 1994 and 1993 were $1,179,800, $1,235,200, and $1,059,300, respectively. Valley Resources, Inc. borrowed funds under a line of credit, due September 30, 1996, at rates less than the prevailing prime rate, which are restricted in their use to being loaned to the Company's Employee Stock Ownership Plan (ESOP). The receivable from the ESOP has been shown as a reduction of common stock equity. The financing by the ESOP is secured by the common stock of two unregulated subsidiaries and the unallocated shares held by the ESOP. The Valley Resources common stock purchased by the ESOP with the borrowed money is held by the ESOP trustee in a suspense account. As the Company makes contributions to the plan, a portion of the common stock is released from the suspense account and allocated to participating employees. Any dividends on unallocated shares are used to pay loan interest. There was no ESOP expense recorded in fiscal 1995 nor 1994. ESOP expense in fiscal 1993 was $262,800. NOTE E: RESTRICTION ON RETAINED EARNINGS At August 31, 1995, $949,000 of the retained earnings of Valley Gas were available for the payment of cash dividends to Valley Resources, Inc. under the most restrictive provisions of the Company's first mortgage bonds. There are no restrictions as to the payment of dividends for the other companies. Notes to Consolidated Financial Statements NOTE F: INCOME TAXES In fiscal 1994, the Corporation adopted Statement of Financial Accounting Standards No. 109 Accounting for Income Taxes (SFAS 109). The adoption of SFAS 109 had no significant impact on the Corporation's financial statements. SFAS 109 requires, among other things, the recording of cumulative deferred income taxes on all temporary timing differences. As approved by the RIPUC, the utilities did not fully record deferred income taxes but, rather, flowed through certain tax benefits to utility customers. At August 31, 1995, the Corporation has a liability of $5,713,200 on the Consolidated Balance Sheets as recoverable deferred income taxes and a corresponding recoverable deferred charge. The liability represents the tax effect of timing differences for which deferred income taxes had not been provided, increased in accordance with SFAS 109 for the tax effect of future revenue requirements. The utilities are recovering unfunded deferred taxes from utility customers over the remaining book life of utility property. Federal income tax expense has been calculated based on filing a consolidated corporate tax return and is comprised of the following:
1995 1994 1993 Current income tax expense: Operating expense ............... $ 112,029 $ 272,536 $ 955,366 Nonoperating expense ............ 71,230 82,678 90,235 183,259 355,214 1,045,601 Deferred income tax expense: Accelerated depreciation ........ 194,537 269,823 222,363 Pensions ........................ 194,588 266,715 234,547 Uncollectibles .................. 2,142 (32,289) (49,726) Accrued vacations ............... 1,658 1,112 1,415 Directors' fees and interest .... (8,744) (46,169) (29,997) Unbilled revenues ............... (2,807) (3,328) 59,205 Bond premium .................... (6,242) 176,387 -0- Unbilled gas costs .............. 1,569 1,787 4,036 Rate case expenses .............. 174,290 (43,785) 8,141 Capitalization of inventory costs (2,079) 45,977 (5,709) Consulting contracts ............ 64,389 150,111 -0- Software amortization ........... 140,856 254,350 -0- Alternative minimum tax ......... (180,000) -0- -0- Other ........................... 45,761 -0- -0- 619,918 1,040,691 444,275 Total ........................... $ 803,177 $ 1,395,905 $ 1,489,876
The Federal income tax amounts included in the Consolidated Statements of Earnings differ from the amounts which result from applying the statutory Federal income tax rate to income from operations before income tax. The reasons, with related percentage effects, are shown below:
1995 1994 1993 Statutory Federal rate ........................... 34% 34% 34% Maintenance costs capitalized for book purposes (4) (4) (2) Cost of removal ............................... (1) (1) (1) ESOP dividends ................................ (2) (1) (1) Prior year over accrual ....................... (2) -0- -0- Other ......................................... (1) (1) (1) Total ......................................... 24% 27% 29%
Notes to Consolidated Financial Statements Temporary differences which gave rise to the following deferred tax assets and liabilities at August 31, 1995 and 1994 are:
1995 1994 Unbilled revenues ................................................ $ 264,144 $ 261,337 Other ............................................................ 684,269 495,588 Total deferred tax assets ..................................... 948,413 756,925 Accelerated depreciation ......................................... (7,905,673) (7,757,148) Pensions ......................................................... (1,904,144) (1,709,556) Software amortization (395,206) (254,350) Other ............................................................ (834,592) (553,169) Total deferred tax liabilities ................................ (11,039,615) (10,274,223) Total deferred taxes ............................................. $(10,091,202) $ (9,517,298)
The Corporation's nonutility operations are subject to state income taxes. For 1995, 1994 and 1993, state income taxes totaled $131,800, $125,300 and $160,300, respectively. NOTE G: REGULATORY MATTERS In January 1995, Valley Gas and Bristol filed revised tariffs with the RIPUC to consolidate their rate structure and to increase their combined annual revenues. On October 18, 1995, the RIPUC authorized the companies to adjust their tariffs to collect $1.2 million. NOTE H: COMMITMENTS AND CONTINGENCIES PENSION PLANS - The Company has two non-contributory defined benefit pension plans covering substantially all of the Company's employees and a supplemental pension plan covering certain officers of the Corporation. Net periodic pension income for 1995, 1994 and 1993 included the following components:
1995 1994 1993 Service cost - benefits earned during the period $ 470,907 $ 472,621 $ 413,795 Interest cost on projected benefit obligation .. 1,232,168 1,153,139 1,044,699 Actual return on plan assets ................... (3,448,848) (251,149) (3,698,844) Net amortization and deferral .................. 1,173,453 (2,159,065) 1,550,508 Net periodic pension income .................... $ (572,320) $ (784,454) $ (689,842)
Plans Funded Status - July 31 1995 1994 Projected benefit obligations: Vested ........................................... $ 15,143,093 $ 13,930,948 Nonvested ........................................ 140,275 125,089 Accumulated ...................................... 15,283,368 14,056,037 Due to recognition of future salary increases .... 3,685,361 4,037,572 Total .......................................... (18,968,729) (18,093,609) Plan assets at fair value ........................... 26,885,983 24,312,009 Plan assets in excess of projected benefit obligation 7,917,254 6,218,400 Unrecognized transition amount ...................... (971,756) (1,119,280) Unrecognized net gains .............................. (1,400,035) (125,977) Prepaid pension costs ............................... $ 5,545,463 $ 4,973,143
Notes to Consolidated Financial Statements Plan assets are invested in common stock, short-term investments and various other fixed income securities. The weighted-average discount rate and rate of increase in future compensation levels used in determining the projected benefit obligation were 7 1/2 percent and 5 1/2 percent, respectively, as of July 31, 1995 and 1994. The expected long-term rate of return on assets was 9 percent for all years presented. POSTRETIREMENT LIFE AND HEALTH BENEFIT PLAN - The Company sponsors a postretirement benefit plan that covers substantially all of the Company's employees. The plan provides medical, dental and life insurance benefits. The plan is non-contributory. During 1994, the Company adopted Statement of Financial Accounting Standards No. 106 Employers' Accounting for Postretirement Benefits Other Than Pensions (SFAS 106). Prior to 1994, expense was recognized when benefits were paid, which was $205,000 in 1993. In accordance with SFAS 106, the Company began recording the cost for this plan on an accrual basis for 1994. As permitted by SFAS 106, the Company will record the transition obligation over a twenty-year period. The Company's cost under this plan for 1995 and 1994 was $815,100 and $841,500, respectively. A regulatory asset of $252,400 has been recorded, leaving a net expense of $562,700. This regulatory asset represents the excess of postretirement benefits on the accrual basis over amounts authorized to be recovered in rates. In fiscal 1994, the RIPUC allowed the Company a phase-in recovery of the tax deductible portion of these postretirement benefits, if funded. The Company has funded a portion of these costs through trusts established under Section 501(c)(9) of the Internal Revenue Code for the bargaining and nonbargaining plans. The Company is currently funding the amount recovered through rates. The following table sets forth the Plans funded status reconciled with the amounts recognized in the Company's financial statements at August 31:
1995 1994 Accumulated postretirement benefit obligation: Retirees ..................................................... $(2,719,221) $(2,725,648) Fully eligible active plan participants ...................... (849,327) (852,056) Other active plan participants ............................... (2,156,452) (2,176,417) (5,725,000) (5,754,121) Plan assets at fair value ....................................... 481,494 162,210 Accumulated postretirement benefit obligation in excess of plan assets ............................................... (5,243,506) (5,591,911) Unrecognized transition obligation .............................. 4,999,920 5,277,694 Unrecognized net (gain) from past experience different from that assumed and from changes in assumptions ............ (449,336) (126,340) Accrued postretirement benefit cost ............................. $ (692,922) $ (440,557)
Net periodic postretirement benefit cost consisted of the following: 1995 1994 Service cost - benefits attributable to service during the period $ 140,882 $ 148,014 Interest cost on accumulated postretirement benefit obligation .. 420,725 424,964 Actual return (loss) on plan assets ............................. (10,575) -0- Net amortization and deferral ................................... 264,026 268,511 Net periodic postretirement benefit cost ........................ 815,058 841,489 Regulatory asset ................................................ 252,365 440,557 Net expense ..................................................... $ 562,693 $ 400,932
Notes to Consolidated Financial Statements For measurement purposes, a 13% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1994; the rate was assumed to decrease gradually to 5% by fiscal 2002 and to remain at that level thereafter. The rates of increase assumed for post-age 65 medical benefits were slightly lower. The health care cost trend rate assumption has a significant effect on the amounts reported. To illustrate, increasing the assumed health care cost trend rates by 1% in each year would increase the accumulated postretirement benefit obligation at August 31, 1995 by $468,000 and the aggregate of the service and the interest cost components of net periodic postretirement benefit cost (NPPBC) for the year by $73,000. The discount rate was 7 1/2% for the development of the NPPBC. The trend rates were set by the RIPUC. LONG-TERM OBLIGATIONS - Valley Gas and Bristol have contracts which expire at various dates through the year 2012 for the purchase, delivery and storage of natural gas and supplemental gas supplies. Certain contracts for the purchase of the supplemental gas supplies contain minimum purchase obligations which approximate 2 percent of total system requirements. FERC ORDER NO. 636 TRANSITION COSTS - As a result of FERC Order 636, the utilities' interstate pipeline service providers have been required to unbundle their supply, storage and transportation services. This unbundling has caused the interstate pipeline companies to incur substantial costs in order to comply with Order 636. These transition costs include four types: (1) unrecovered gas costs (gas costs that have been incurred but not yet recovered by the pipelines when they were providing bundled service to local distribution companies); (2) gas supply realignment costs (the cost of renegotiating existing gas supply contracts with producers); (3) stranded costs (unrecovered costs of assets that cannot be assigned to customers of unbundled services); and (4) new facilities costs (costs of new facilities required to physically implement Order 636). Pipelines are expected to be allowed to recover prudently incurred transition costs from customers primarily through a demand charge, after approval by FERC. The utilities' pipeline suppliers began direct billing these costs in fiscal 1994 as a component of demand charges. The utilities estimate their remaining portion of transition costs to be $1,325,000 and have recognized a liability for these costs as of August 31, 1995. The RIPUC has allowed the recovery of transition costs through the PGPA. Under the provisions of SFAS 71, regulatory assets totaling $1,325,000 were recorded for the expected future recovery of the transition obligations. Actual transition costs to be incurred depend on various factors, and, therefore, future costs may differ from the amounts discussed above. CONTINGENT LIABILITY - In January 1994, a lawsuit was filed against Valley Gas and other parties by Blackstone Valley Electric Company (Blackstone), the former owners of the utility assets acquired by Valley Gas in 1961. The claim is for contribution towards a judgment against Blackstone's share of total clean up costs of approximately $6 million of a site to which oxide waste was transported in the 1930's (the Mendon Road site), prior to the incorporation of Valley Gas, and for related declaratory relief concerning potential liability for the site of the former Tidewater plant. Blackstone and the former Mendon Road site owner have been held jointly and severally liable for the cost of the clean up by the Massachusetts Department of Environmental Quality Engineering as a result of its suit of Blackstone and the former Mendon Road site owner. The management of Valley Gas is of the opinion the Company will prevail as a result of an indemnification which is part of the agreement signed at the time the Company acquired the utility assets. Legal fees associated with this claim are expected to be recovered in rates. In a recent decision of the U.S. Court of Appeals for the First Circuit, Blackstone's appeal of the judgment against it was sustained and the case was remanded for further proceedings, including a referral of the case to the EPA to determine if the substance in question (FFC) is hazardous. In September 1995, Valley Gas received a letter of responsibility from the Rhode Island Department of Environmental Management (DEM) with respect to releases from manufactured coal waste on its property that is the site of the former Tidewater plant. The DEM has requested Valley Gas and Blackstone to submit a remedial action work plan to address certain releases on the site. It is too early in the process to determine the extent of any liability of Valley Gas. Management takes the position that it is indemnified by Blackstone for any such expenses. Valley Gas will seek recovery from Blackstone and any insurance carriers deemed to be at risk during the relevant period. Notes to Consolidated Financial Statements NOTE I: SEGMENT INFORMATION In accordance with SFAS 14, the following information is presented relative to the gas, merchandising and other operations of the Corporation.
1995 1994 1993 Gas Operations Operating revenues ................................. $ 56,012,913 $ 65,323,556 $ 59,293,553 Operating income before Federal income taxes ....... 5,157,534 6,412,020 6,098,057 Identifiable assets at August 31 ................... 83,952,630 83,070,742 74,616,274 Depreciation ....................................... 2,131,425 2,060,071 1,893,748 Capital expenditures ............................... 5,335,159 3,953,702 4,786,946 Appliance & Contract Sales & Rentals Operating revenues ................................. $ 17,216,397 $ 16,506,364 $ 16,222,518 Operating income before Federal income taxes ....... 1,111,530 1,183,132 1,076,531 Identifiable assets at August 31 ................... 8,148,961 8,060,902 7,857,467 Depreciation ....................................... 475,456 339,068 338,070 Capital expenditures ............................... 521,345 549,067 447,234 Other Operations, including Corporate & Eliminations Operating revenues ................................. $ 1,640,880 $ 1,722,998 $ 1,770,059 Operating income before Federal income taxes ....... 207,432 219,001 309,218 Identifiable assets at August 31 ................... 235,915 (62,447) (1,678,952) Depreciation ....................................... 77,874 74,328 72,602 Capital expenditures ............................... 59,427 50,658 105,690 Total Corporation Operating revenues ................................. $ 74,870,190 $ 83,552,918 $ 77,286,130 Operating income before Federal income taxes ....... 6,476,496 7,814,153 7,483,806 Federal income tax expense ......................... (731,947) (1,313,227) (1,399,641) Nonoperating income-net ............................ 115,032 227,450 252,666 Interest expense ................................... (3,304,656) (2,902,350) (2,609,601) Net income ......................................... 2,554,925 3,826,026 3,727,230 Identifiable assets at August 31 ................... 92,337,506 91,069,197 80,794,789 Depreciation ....................................... 2,684,755 2,473,467 2,304,420 Capital expenditures ............................... 5,915,931 4,553,427 5,339,870
Expenses used to determine operating income before Federal income taxes are charged directly to each segment or are allocated based on time studies. Assets allocated to each segment are based on specific identification of such assets as provided by Corporate records. Notes to Consolidated Financial Statements NOTE J: SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
Three months ended (in thousands, except as to earnings (loss) per average share) November February May August Fiscal 1995 Total operating revenues ................ $ 14,774 $ 26,965 $ 21,438 $ 11,693 Income (loss) before Federal income taxes $ (1,186) $ 3,602 $ 2,242 $ (1,300) Net income (loss) ....................... $ (735) $ 2,382 $ 1,586 $ (678) Earnings (loss) per average share ....... $ (.17) $ .56 $ .38 $ (.16) Fiscal 1994 Total operating revenues ................ $ 15,756 $ 31,585 $ 23,568 $ 12,644 Income (loss) before Federal income taxes $ (690) $ 5,037 $ 2,210 $ (1,334) Net income (loss) ....................... $ (377) $ 3,408 $ 1,558 $ (763) Earnings (loss) per average share ....... $ (.09) $ .81 $ .37 $ (.18)
Report of Independent Certified Public Accountants To the Stockholders of Valley Resources, Inc. We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of Valley Resources, Inc. (a Rhode Island corporation) and subsidiaries as of August 31, 1995 and 1994 and the related consolidated statements of earnings, cash flows and changes in common stock equity for each of the three years in the period ended August 31, 1995. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Valley Resources, Inc. and subsidiaries as of August 31, 1995 and 1994 and the consolidated results of their operations and their cash flows for each of the three years in the period ended August 31, 1995, in conformity with generally accepted accounting principles. As discussed in Notes F and H, respectively, to the consolidated financial statements, in 1994 the Corporation changed its method of accounting for income taxes and postretirement benefits other than pensions. Grant Thornton LLP Boston, Massachusetts September 22, 1995 (Except for Note G, as to which the date is October 18, 1995) Management's Discussion and Analysis of the Results of Operations and Financial Condition OVERVIEW The following discussion and analysis reflect the operations of the Corporation and its six active wholly-owned subsidiaries: Valley Gas Company and Bristol & Warren Gas Company, regulated natural gas distribution companies; VAMCO, a merchandising, appliance rental, and service company; Valley Propane, Inc. and The New England Gas Company, retail propane sales and service companies; and Morris Merchants, Inc., a representative distributor of franchised lines. Operating results are generated from two major classifications - utility and nonutility. Utility earnings are generated from the operations of the regulated natural gas distribution companies which include sales of natural gas to firm and seasonal customers and charges for the transportation of customer-owned natural gas through the Valley Gas distribution system. Nonutility revenues are a consolidation of the revenues of VAMCO, Valley Propane, The New England Gas Company and Morris Merchants. Firm utility revenues are generated from customers who use natural gas on a year-round basis for heating, water heating, cooking and processing. Firm customers can be residential, commercial or industrial. Revenues from firm customers are generated through regulated tariff schedules and through RIPUC-approved commodity charge factors. These factors include the PGPA, which collects from or returns to customers changes in gas costs from those included in the regulated tariff, and an adjustment to collect postretirement benefits. Seasonal sales are made, at the discretion of the utilities, when gas supplies are available and gas prices are competitive with alternate fuel markets. Margins generated from seasonal sales for Valley Gas are returned to customers through the PGPA. Bristol retains all margins on seasonal sales. Morris Merchants and VAMCO generate nonutility revenues through the wholesale and retail sales of plumbing and heating supplies and appliances. VAMCO also generates revenues from appliance rentals and a service contract repair program. The propane operations conducted through Valley Propane and The New England Gas Company also contribute to nonutility revenues. These operations sell propane at retail and provide service to propane customers in Rhode Island and southeastern Massachusetts. Earnings per common share for fiscal 1995 was $0.61 compared with $0.91 per common share in fiscal 1994 and $0.89 per common share in fiscal 1993. Fiscal 1995 net income was $2,554,900. This compares with net income of $3,826,000 in fiscal 1994 and $3,727,200 in fiscal 1993. RESULTS OF OPERATIONS Fiscal 1995 versus Fiscal 1994 In fiscal 1995 utility gas revenues totaled $56,012,900, a 14.3 percent decrease from fiscal 1994. Firm revenues in fiscal 1995 decreased 16.1 percent from fiscal 1994 due to a $6,457,700 reduction in gas costs recovered through the PGPA and decreased gas sales. Gas sales to firm customers were 7,368,700 Mcf in fiscal 1995, a decrease of 6.7 percent from the prior year. The primary contributor to the sales decrease was warmer weather. Weather, as measured by degree days, in fiscal 1995 was 8.2 percent warmer than normal and 9.9 percent warmer than fiscal 1994. Weather during the critical heating period, December through February, was 15.5 percent warmer than the prior year. In fiscal 1995 sales to seasonal customers increased 30.3 percent over the prior fiscal year. The warm weather made gas supplies available at competitive prices which is the primary reason for the sales increase. The profits from these sales for Valley Gas are returned to firm customers through the PGPA. Bristol's margin accrues to the benefit of stockholders. Valley Gas transports customer-owned natural gas if delivered to its gate station. Transportation revenues increased by $134,800 in fiscal 1995. Management's Discussion and Analysis of the Results of Operations and Financial Condition Nonutility revenues in fiscal 1995 were $18,857,200, an increase of 3.4 percent over fiscal 1994. VAMCO has focused its retail merchandising attention to the commercial and industrial equipment market in response to the effects of the sluggish economy on the residential market. This has led to increases in retail sales of equipment to this market and improvements in the gross margin of the retail operations. The rental and service contract programs continue to positively impact earnings. Wholesale operations are experiencing slight improvements in sales levels and gross margin as they continue their focus on higher margin lines. However, profitability decreased in the wholesale business due to expenses incurred from changes in management and the implementation of a reporting system to improve communications between the customers and the sales force. Propane operations also are included in nonutility revenues. A 4.8 percent decrease in propane revenues was the result of a 10.0 percent decrease in gallons sold offset by increases in the wholesale price of propane. The warm weather was the major contributor to the decreased propane volumes sold. Price competition continues to be a critical factor in the ability to expand these operations. The utility operations distribute natural gas, underground storage gas, liquefied natural gas and a limited amount of liquid propane gas to meet customer demands; the utility expense for these fuels are included in the cost of gas sold. The average cost per Mcf of gas distributed in fiscal 1995 was $3.21 versus $4.01 in fiscal 1994. All changes in gas costs are passed through to firm customers through the workings of the PGPA. Cost of sales - nonutility includes the cost of sales for the retail merchandising operation, the wholesale merchandising operation and the propane operation. Cost of merchandising goods sold increased 3.4 percent in fiscal 1995 over fiscal 1994 which is directly attributable to the increase in merchandise sales. The average cost of propane for the retail propane operations, included in cost of sales, was $0.44 in fiscal 1995 versus $0.40 in fiscal 1994. Operations expenses increased 2.7 percent over fiscal 1995. Normal wage increases, benefits and uncollectible expenses offset slightly by cost controls and decreased use of peak shaving facilities are responsible for the increase. Maintenance expense in fiscal 1995 was $1,535,200, an increase of 3.4 percent over fiscal 1994. Expenses related to the distribution system are responsible for the increase. Operation and maintenance expenses are impacted by wages and general inflation. Taxes - other than Federal income were $4,002,100, a decrease of $461,300 from the prior year. A reduction in gross receipts taxes as a result of decreased revenues and the lowering of the gross receipts tax rate for manufacturing customers are responsible for the decrease. The effective Federal income taxes rates for the years ended August 31, 1995 and 1994 were 24 percent and 27 percent, respectively. Fiscal 1995 other income - net decreased $112,400 from the prior year. A decrease in funds available for overnight investments was responsible for the decrease in other income. Interest expense in fiscal 1995 totaled $3,304,600, an increase of 13.8 percent over fiscal 1994. Increased short-term borrowing rates are responsible for the increase in interest expense. Fiscal 1994 versus Fiscal 1993 Utility gas revenues in fiscal 1994 totaled $65,323,600, an increase of 10.2 percent over fiscal 1993. Revenues from sales to firm customers increased 10.5 percent over the prior fiscal year as the result of increased recoveries through the PGPA, increased gas sales and the recovery of post-retirement costs. Recoveries through the PGPA were $7,474,000 in fiscal 1994 versus $3,725,200 in fiscal 1993. In fiscal 1994, firm gas sales were 7,894,000 Mcf versus 7,602,100 Mcf in fiscal 1993. The increase in firm gas sales resulted from colder weather which, measured on a degree day basis, was 1.9 percent colder than the prior year. The addition of new load, through the implementation of an economic development rate, also contributed to the increase in sales. Management's Discussion and Analysis of the Results of Operations and Financial Condition The RIPUC, in a generic rate proceeding, authorized utilities in Rhode Island to recover, through a surcharge on firm customers' bills, the amount used to fund postretirement medical and life benefits above the pay-as-you-go costs included in base rates. The recovery is phased in over a 10-year period with any shortages in the first two years to be recovered in the last seven years. Valley Gas recovered $187,000 of these costs in fiscal 1994. Seasonal revenues were $2,945,200, an increase of 6.6 percent over the prior fiscal year. Mcf sales to seasonal customers increased 21.8 percent over the prior year as a result of the availability of natural gas at competitive prices. Valley Gas transports customer-owned natural gas through its distribution system if delivered to its gate station. In fiscal 1994, transportation revenues totaled $372,400 as compared with $408,000 in fiscal 1993. Nonutility revenues in fiscal 1994 were $18,229,400, an increase of 1.3 percent over fiscal 1993. Merchandising sales, inclusive of rental and service program revenues, increased 1.7 percent over the prior fiscal year. Retail merchandising operations experienced improvement in all segments of its business through increases in sales volumes and rates charged for the rental and service programs. The increase in retail operations were offset slightly by decreased sales in the wholesale operation. The decrease was due to the loss of customers that switched to direct purchases from manufacturers. However, wholesale operations were able to increase profitability through focus on higher margin sales and cost controls. Nonutility revenues also include revenues generated from propane operations. Propane revenues decreased 2.7 percent from the prior year. The decrease was due to the reduction in retail rates to customers as a result of reductions in the wholesale price of propane. Gallons sold increased 11.7 percent over the prior year due to colder weather and competitive pricing. Price competition continues to be an important factor in the expansion of the retail propane operations. Cost of gas sold includes the cost of fuel to serve utility customers. The utility operations distribute natural gas, underground storage gas, liquefied natural gas and, to a limited extent, liquid propane gas to meet the demands of its customers. The average cost per Mcf of gas for utility operations in fiscal 1994 and 1993 was $4.01 and $3.97, respectively. All changes in fuel costs are passed through to firm customers through the workings of the PGPA. Cost of sales - nonutility increased 0.5 percent over the prior fiscal year as a result of the increased sales in the retail merchandising operation offset by decreases in the cost of propane. The average cost of propane distributed for the retail propane operations was $0.40 in fiscal 1994 versus $0.48 in fiscal 1993. Other operation expenses increased 3.3 percent in fiscal 1994. Wages and customer service expenses were primarily responsible for the increase in other operation expenses. Maintenance expense in fiscal 1994 decreased 0.8 percent from the prior year. An increase in the demand for capital projects required the Company to shift resources from noncritical maintenance which resulted in the decrease. Operation and maintenance expenses are impacted by general inflation and wages. Taxes - other than Federal income increased 9.6 percent in fiscal 1994 to $4,463,400. Gross receipts taxes on increased utility revenues and property taxes are responsible for the increase. The effective Federal income tax rates for the years ended August 31, 1994 and 1993 were 27 percent and 29 percent, respectively. Other income - net of tax totaled $227,500 in fiscal 1994 and $252,700 in fiscal 1993. Interest on temporary cash investments decreased in fiscal 1994 as a result of decreases in the availability of funds to invest. A decrease in the finance charge rate on installment merchandising sales also contributed to the decrease. Fiscal 1994 interest expense was $2,902,400, an increase of 11.2 percent over fiscal 1993. The increase is a result of a full year of interest charges on the December 1992 issue of 8% First Mortgage Bonds at Valley Gas. The bonds were used to retire existing long-term debt and a portion of short-term debt. Management's Discussion and Analysis of the Results of Operations and Financial Condition LIQUIDITY AND CAPITAL RESOURCES Cash requirements are met through the generation of cash flows from the sale of natural gas, propane and merchandise and from revenues collected through the rental and service contract programs. Operations, external financings and investments are used to meet corporate cash needs. Long-term and intermediate financings are used to refinance short-term debt when deemed appropriate by management. The cash position of the Corporation is impacted by the requirement to inventory supplemental gas supplies to meet peak winter demand of the utilities. Supplemental gas inventories are filled in the summer period for use during the winter period which has a negative impact on cash flows. In 1995, Valley Gas received approximately $1,900,000 from Tennessee Gas Pipeline Company for overcharges of gas-related costs. This refund was returned to customers primarily through a credit on their bills which favorably impacted cash flows. During fiscal 1995 actual gas costs were less than expected which resulted in the utilities' over-recovery of gas costs through the PGPA, favorably impacting liquidity. However, this over-recovery will be returned to customers through a reduction in the PGPA in fiscal 1996 which will have a negative impact on fiscal 1996 cash flows. Interest costs and the timing of Federal and state tax payments also impact liquidity. Funding requirements are met through short-term borrowings under existing lines of credit. At August 31, 1995, the Corporation had $15,100,000 of available borrowings under its lines of credit. These lines are reviewed annually by the lending banks, and management believes they will be renewed or replaced. In October 1995, the RIPUC authorized Valley Gas and Bristol to consolidate their rate structures and increase operating revenues by $1.2 million which should favorably impact liquidity in fiscal 1996. A lawsuit has been filed against Valley Gas and other parties by Blackstone Valley Electric Company (Blackstone) seeking contribution towards a judgment against Blackstone's share of total clean-up costs of approximately $6 million and for related declaratory relief concerning potential liability for the site of the former Tidewater plant. The expenses relate to the Mendon Road site to which oxide waste was transported in the 1930's prior to the incorporation of Valley Gas. Management is of the opinion the Company will prevail as a result of the indemnification provisions included in the agreement entered into when the Company acquired the utility assets from Blackstone. Management cannot determine the future cash flow impact, if any, of this claim and related legal fees. In a recent decision of the U.S. Court of Appeals for the First Circuit, Blackstone's appeal of the judgment against it was sustained and the case was remanded for further proceedings, including a referral of the case to the EPA to determine if the substance in question (FFC) is hazardous. In September 1995, Valley Gas received a letter of responsibility from the Rhode Island Department of Environmental Management (DEM) with respect to releases from manufactured coal waste on its property that is the site of the former Tidewater plant. The DEM has requested Valley Gas and Blackstone to submit a remedial action work plan to address certain releases on the site. It is too early in the process to determine the extent of any liability of Valley Gas. Management takes the position that it is indemnified by Blackstone for any such expenses. Valley Gas intends to seek recovery from Blackstone and any insurance carriers deemed to be at risk during the relevant period. The Corporation's net cash generated from operating activities in fiscal 1995 was $6,728,000 versus $8,342,900 in fiscal 1994 and $5,970,100 in fiscal 1993. Cash from investing activities in the amount of $5,929,300 in fiscal 1995, $4,604,900 in fiscal 1994 and $5,364,800 in fiscal 1993 was used primarily for capital expenditures. In fiscal 1995, financing activities used cash for the payment of dividends of $2,989,700 and the retirement of long term debt of $1,333,000, partially offsetting these uses was short-term borrowings of $3,000,000 and $391,300 generated through the dividend reinvestment program. Financing activities used cash of $4,090,800 in fiscal 1994 and $1,219,500 in fiscal 1993. Capital expenditures are primarily for the expansion and improvement of the gas utility plant and for the purchase of rental and propane equipment. In fiscal 1995, capital expenditures were $5,915,900 versus $4,553,400 in fiscal 1994 and $5,339,900 in fiscal 1993. Fiscal 1996 capital expenditures are estimated to be $6,686,900 and will be primarily for the expansion and improvements of gas utility property. It is anticipated that such expenditures will be financed through funds generated from operations and short-term borrowings. Information on the sources and uses of cash flows for the past three years is included on the Consolidated Statements of Cash Flows on page 17 of this report. Summary of Consolidated Operations
August 31 (in thousands) 1995 1994 1993 1992 1991 Assets Utility plant - net ............. $ 47,411 $ 44,207 $ 42,313 $ 38,838 $ 31,981 Leased property - net ........... 2,014 2,436 2,395 3,343 2,336 Nonutility plant - net .......... 3,547 3,519 3,334 2,180 2,255 Current assets .................. 18,409 18,358 20,727 20,908 16,442 Other assets .................... 20,957 22,549 12,026 10,594 7,151 Total ................... $ 92,338 $ 91,069 $ 80,795 $ 75,863 $ 60,165 Capitalization and liabilities Capitalization Common equity ............... $ 25,993 $ 26,036 $ 24,943 $ 24,018 $ 23,600 Long-term debt (less current maturities) . 24,616 27,035 27,580 15,795 13,600 Total ................... 50,609 53,071 52,523 39,813 37,200 Obligations under capital leases . 1,255 1,747 1,847 1,790 1,909 Current liabilities .............. 23,932 18,530 18,982 26,922 15,658 Other liabilities ................ 16,542 17,721 7,443 7,338 5,398 Total ............................ $ 92,338 $ 91,069 $ 80,795 $ 75,863 $ 60,165
For the year ended August 31, (in thousands, except as to share and per share data) 1995 1994 1993 1992 1991 Operating revenues ............... $ 74,870 $ 83,553 $ 77,286 $ 67,144 $ 59,990 Operating expenses: Cost of gas sold .............. 30,229 38,234 33,410 28,963 26,095 Cost of sales - nonutility .... 13,190 12,784 12,715 11,893 10,848 Other operation and maintenance 18,288 17,784 17,300 15,107 13,792 Depreciation ..................... 2,685 2,474 2,304 1,770 1,594 Taxes - other than Federal income 4,002 4,463 4,073 3,557 3,218 - - - - - - - Federal income ................. 732 1,313 1,400 955 652 Total ............................ 69,126 77,052 71,202 62,245 56,199 Operating income ................. 5,744 6,501 6,084 4,899 3,791 Other income - net ............... 115 227 253 267 380 Total interest charges ........... 3,304 2,902 2,610 2,051 1,813 Net income ....................... $ 2,555 $ 3,826 $ 3,727 $ 3,115 $ 2,358 Shares outstanding - average ..... 4,222,662 4,205,760 4,203,398 4,201,105 4,199,809 Shares outstanding - year-end .... 4,260,797 4,213,043 4,213,043 4,213,043 4,213,043 Earnings per share ............... $ 0.61 $ 0.91 $ 0.89 $ 0.74 $ 0.56 Dividends declared per share ..... $ 0.71 $ 0.69 $ 0.66 $ 0.63 $ 0.61 Year-end book value per share .... $ 6.10 $ 6.18 $ 5.92 $ 5.77 $ 5.60
Gas Operating Statistics
For the year ended August 31 1995 1994 1993 1992 1991 Gas utility revenues (in thousands): Residential ..................... $30,606 $37,065 $34,250 $28,732 $25,105 Commercial ...................... 13,212 15,633 13,964 11,314 9,503 Industrial - firm ............... 8,011 9,057 7,683 6,979 6,253 Industrial - seasonal ........... 3,507 2,945 2,762 2,916 3,372 Transportation .................. 507 372 408 287 206 Other ........................... 170 252 227 345 336 Total ................... $56,013 $65,324 $59,294 $50,573 $44,775 Sales-MMcf: Residential ..................... 4,078 4,517 4,439 3,965 3,398 Commercial ...................... 1,953 2,078 1,978 1,680 1,394 Industrial - firm ............... 1,338 1,299 1,185 1,152 1,014 Industrial - seasonal ........... 1,298 996 818 1,010 1,053 Total ................... 8,667 8,890 8,420 7,807 6,859 Company use and losses........... 128 176 194 130 209 Transportation................... 4,419 3,624 4,031 2,851 1,804 Total sendout ........... 13,214 12,690 12,645 10,788 8,872 Gas purchased and transported-MMcf: Liquid propane gas .............. -0- -0- 158 141 97 Liquefied natural gas ........... 378 574 206 580 257 Natural gas stored underground .. 1,156 1,075 1,494 1,116 856 Pipeline natural gas ............ 7,261 7,417 6,756 6,100 5,858 Transportation .................. 4,419 3,624 4,031 2,851 1,804 Total ................... 13,214 12,690 12,645 10,788 8,872 Average number of customers: Residential ..................... 55,186 54,715 54,541 54,336 48,603 Commercial ...................... 5,212 5,111 5,077 5,034 4,293 Industrial - firm ............... 241 249 253 265 244 Industrial - seasonal ........... 59 58 58 46 44 Transportation .................. 2 2 2 2 2 Total ................... 60,700 60,135 59,931 59,683 53,186 Average revenue per residential customer ............ $ 555 $ 677 $ 628 $ 529 $ 516 Average use per residential customer-Mcf ........ 74 83 81 73 70 Maximum daily throughput-Mcf ....... 65,619 76,910 69,003 67,037 55,144 Sales degree days .................. 5,820 6,459 6,341 5,887 5,003
Directors Ernest N. Agresti Retired Partner, Edwards & Angell, Providence, Rhode Island Melvin G. Alperin President, Brewster Industries, Pawtucket, Rhode Island C. Hamilton Davison President, Paramount Cards, Inc. Pawtucket, Rhode Island Effective September 19, 1995 Don A. DeAngelis Vice Chairman & Chief Executive Officer, Murdock Webbing Company, Inc., Central Falls, Rhode Island Alfred P. Degen President & Chief Executive Officer, Valley Resources, Inc., Cumberland, Rhode Island James M. Dillon Retired Director of Development, The Roman Catholic Diocese, Bridgeport, Connecticut Jonathan K. Farnum President, Wardwell Braiding Machine Company, Central Falls, Rhode Island John F. Guthrie, Jr. Executive Vice President, Boylston Capital Advisors, Boston, Massachusetts Eleanor M. McMahon, Ed. D. Distinguished Visiting Professor, A. Alfred Taubman Center for Public Policy, Brown University, Providence, Rhode Island Officers of the Corporation Alfred P. Degen President & Chief Executive Officer Kenneth W. Hogan Senior Vice President, Chief Financial Officer & Secretary Richard G. Drolet Vice President, Information Systems & Corporate Planning Charles K. Meunier Vice President, Operations Jeffrey P. Polucha Vice President, Marketing & Development James P. Carney Assistant Vice President, Human Resources Sharon Partridge Assistant Vice President, Finance & Treasurer Alan H. Roy Assistant Vice President, Gas Supply Robert A. Young Assistant Vice President & Chief Engineer Clement W. Bethel Assistant Treasurer Patricia A. Morrison Assistant Secretary; Clerk, Morris Merchants, Inc. Other Officers David L. Hickerson President of Morris Merchants, Inc. Richard C. Hadfield Executive Vice President of Morris Merchants, Inc. Rosemary Platt Controller of Morris Merchants, Inc. Corporate Information ANNUAL MEETING AND PROXIES The Annual Meeting of Stockholders will be held in Cumberland, Rhode Island, on December 12, 1995. Notice of the meeting and form of proxy along with this report are being mailed by the management to each holder of record of common stock on October 24, 1995. FORM 10-K The Corporation is required to file an annual report on Form 10-K with the Securities and Exchange Commission which includes additional information concerning the Corporation and its operations. A copy of this report will be forwarded to you upon written request to Mr. K. W. Hogan, Senior Vice President, Chief Financial Officer & Secretary, Valley Resources, Inc., P. O. Box 7900, 1595 Mendon Road, Cumberland, Rhode Island 02864-0700. Telephone: (401) 334-1188 CERTIFIED PUBLIC ACCOUNTANTS Grant Thornton LLP 98 North Washington Street Boston, Massachusetts 02114 REGISTRAR & TRANSFER AGENT The Bank of New York Shareholder Relations - Department 11E P. O. Box 11258 Church Street Station New York, NY 10286 Telephone: 1-800-524-4458 STOCK LISTING The common stock of Valley Resources, Inc. is listed on the American Stock Exchange under the symbol VR. Quotes of Valley Resources, Inc. common stock are listed in The Wall Street Journal and many daily newspapers among the AMEX stocks traded for the day. PRINTED ON RECYCLED PAPER Valley Resources, Inc. 1595 Mendon Road P. O. Box 7900 Cumberland, Rhode Island 02864-0700 (401) 334-1188 EX-23 4 Exhibit 23 Consent of Independent Certified Public Accountants We have issued our reports dated September 22, 1995 (except Note G, as to which the date is October 18, 1995), accompanying the consolidated financial statements and schedules incorporated by reference or included in the Annual Report of Valley Resources, Inc. and subsidiaries on Form 10-K for the year ended August 31, 1995. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Valley Resources, Inc. and subsidiaries on Form S-3 (File No. 33-32837); Form S-8/S-3 (File No. 33-20770); Form S-8/S-3 (File No. 33-33574) and Form S-8 (File No. 33-33575). GRANT THORNTON LLP Boston, Massachusetts November 27, 1995 EX-27 5
UT YEAR AUG-31-1995 AUG-31-1995 PER-BOOK 47,410,993 7,021,290 18,408,809 19,496,414 0 92,337,506 4,260,797 18,038,679 6,835,415 25,992,691 0 0 21,072,000 11,900,000 4,043,937 0 500,000 0 1,254,778 758,870 26,815,230 92,337,506 74,870,190 731,947 68,393,694 69,125,641 5,744,549 115,032 5,859,581 3,304,656 2,554,925 0 2,554,925 2,989,702 1,947,205 6,728,008 0.61 0.61
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