<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
The Quarterly Period Ended December 31, 1993
Commission File Number 1-6537-3
EMPIRE GAS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
MISSOURI 43-1501508
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
1700 S. Jefferson Street, Lebanon, Missouri 65536
(Address of Principal Executive Offices and Zip Code)
(417) 532-3101
(Registrant's Telephone Number, Including Area Code)
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 ____
Number of Shares of outstanding common stock (one class only) as of December
31, 1993 was 10,448,162.
<PAGE>
EMPIRE GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
December 31 June 30,
ASSETS 1993 1993
<S> <C> <C>
Current Assets
Cash $ 1,657 $ 352
Trade Receivables - Net 16,984 8,198
Inventories 9,744 9,691
Prepaid Expense 299 305
Deferred Income Taxes 593 --
__________ _________
Total Current Assets 29,277 18,546
__________ _________
Property, Plant and Equipment 154,030 151,586
Less Accumulated Depreciation 60,230 57,239
_________ _________
Fixed Assets - Net 93,800 94,347
_________ _________
Other Assets
Debt Acquisition Costs - Net 1,837 1,910
Excess of Cost Over Fair Value of Net
Assets Acquired - Net 9,814 10,167
Other 439 465
_________ _________
Total Other Assets 12,090 12,542
_________ _________
Total Assets $ 135,167 $ 125,435
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Current Maturities of Long-Term Debt $ 6,242 $ 5,181
Accounts Payable and Accrued Expenses 12,462 8,303
Income Taxes Payable 2,333 165
_________ _________
Total Current Liabilities 21,037 13,649
Long-Term Debt (Note 3) 75,613 74,068
Deferred Income Taxes 27,022 27,545
Accrued Self Insurance Liability (Note 2) 1,832 1,874
_________ _________
Total Liabilities 125,504 117,136
_________ _________
Stockholder's Equity
Capital Stock
Preferred, Class A Non-Voting; 10% Cumulative;
Arrearage At December 31, 1993 $1,339
June 30, 1993 $1,189; No Par Value; $30
Per Share Liquidation Preference; Authorized,
issued, and outstanding 100,000 Shares 3,000 3,000
Preferred, Class B Non-Voting; No Par Value;
Non-Dividend Paying; $40 Per Share
Liquidation Preference After Class A;
Authorized, issued, and outstanding
100,000 Shares 4,000 4,000
Common: $.001 Par Value; Authorized 25,000,000
Shares; issued and outstanding December 31,
1993 and June 30, 1993 10,448,162 Shares 10 10
Additional Paid-In Capital 4,325 4,325
Retained Earnings (Deficit) (373) (1,737)
_________ _________
10,962 9,598
Investment in Parent Company Stock, at cost
(Note 4) (1,299) (1,299)
_________ _________
Total Stockholder's Equity 9,663 8,299
_________ _________
Total Liabilities and Stockholder's Equity $ 135,167 $ 125,435
========= =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
EMPIRE GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1993 AND 1992
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
___________________________ __________________________
1993 1992 1993 1992
<S> <C> <C> <C> <C>
Operating Revenue $ 43,934 $ 42,897 $ 63,986 $ 62,343
________ ________ ________ ________
Operating Costs and Expenses
Cost of Products Sold 20,400 20,113 30,653 29,111
General and Administrative 11,699 11,395 21,001 20,392
Depreciation and Amortization 2,097 2,260 4,214 4,377
________ ________ ________ ________
34,196 33,768 55,868 53,880
________ ________ ________ ________
Operating Income 9,738 9,129 8,118 8,463
________ ________ ________ ________
Other Expense
Interest Expense, Net (2,180) (2,575) (4,364) (5,161)
Amortization of Debt Discount
and Expense (472) (314) (992) (595)
Restructuring Proposal Costs
(Note 6) (398) -- (398) --
________ ________ ________ ________
(3,050) (2,889) (5,754) (5,756)
________ ________ ________ ________
Income Before Income Taxes 6,688 6,240 2,364 2,707
Provision for Income Taxes 2,500 2,400 1,000 1,100
________ ________ ________ ________
Net Income $ 4,188 $ 3,840 $ 1,364 $ 1,607
======== ======== ======== ========
Income Per Common Share $ 0.39 $ 0.36 $ 0.12 $ 0.14
======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
EMPIRE GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1993 AND 1992
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Cash Flows From Operating Activities
Net Income $ 1,364 $ 1,607
Items not requiring (providing) cash
Depreciation 3,835 3,980
Amortization 1,371 992
Deferred income taxes (1,116) (700)
Gain on sale of assets (4) (99)
Changes In:
Trade Receivables (8,786) (8,432)
Inventories (53) (2,998)
Accounts Payable and Accrued Expenses 6,285 3,356
Prepaid expense & other (44) (1,281)
________ ________
Net Cash Provided By (Used In) Operating Activities 2,852 (3,575)
________ ________
Cash Flows from Investing Activities
Purchase of property & equipment (3,424) (2,414)
Proceeds from sales of property & equipment 129 374
________ ________
Net Cash Used In Investing Activities (3,295) (2,040)
________ ________
Cash Flows From Financing Activities
Working Capital borrowings 4,500 7,104
Principal Payments on other long-term debt (130) (97)
Principal Payments on term credit facility (1,300) --
Debenture sinking fund payments (1,322) (537)
________ ________
Net Cash Provided By Financing Activities 1,748 6,470
________ ________
Increase in Cash 1,305 855
Cash, Beginning of Period 352 209
________ ________
Cash, End of Period $ 1,657 $ 1,064
======== ========
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
EMPIRE GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1993 AND 1992
(Unaudited)
(1) In the opinion of Management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly Empire Gas Corporation's condensed consolidated
financial position as of December 31, 1993, and the condensed
consolidated results of its operations and changes in its financial
position for the periods ended December 31, 1993 and 1992. All such
adjustments are of a normal recurring nature.
The accounting policies followed by the Company are set forth in Note
1 to the Company's consolidated financial statements in the 1993
Annual Report on Form 10-K.
The results of operations for the three month and six month periods
ended December 31, 1993 are not necessarily indicative of the results
to be expected for the full year due to the seasonal nature of the
Company's business.
The Company is the wholly owned subsidiary of Empire Gas Acquisition
Corporation (EGAC).
(2) The Company reports the following contingencies. Except as noted,
there have been no significant changes in these items as reported in
the Company's 1993 Annual Report on Form 10-K.
Under the Company's current insurance program, coverage for
comprehensive general liability, workers' compensation and vehicle
liability is obtained for catastrophic exposures as well as those
risks required to be insured by law or contract. The Company retains
a significant portion of certain expected losses primarily related to
comprehensive general liability, workers' compensation, and vehicle
liability. Under these current insurance programs, the Company
self-insures the first $500,000 of coverage (per incident). The
Company obtains excess coverage from carriers for these programs on
claims-made basis policies. The excess coverage for comprehensive
general liability provides a loss limitation that limits the Company's
aggregate of self-insured losses to $1 million per policy period.
Provisions for self-insured losses are recorded based upon the
Company's estimates of the aggregate self-insured liability for claims
incurred.
For the policy periods July 1, 1989 through December 30, 1989, and
December 31, 1989 through June 30, 1991, the Company has incurred
aggregate comprehensive general liability losses in excess of the
policies' $1 million loss limit. Additional losses (except for
punitive damages), if any, are insured by the excess carrier and
should not result in additional expense to the Company. As of
December 31, 1993, the Company has not exceeded the $1 million loss
limit for the comprehensive general liability policy periods July 1,
1991 through June 30, 1992, July 1, 1992 through June 30, 1993, and
July 1, 1993 through June 30, 1994.
<PAGE>
EMPIRE GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1993 AND 1992
(Unaudited)
Effective July 1, 1993, the Company changed its policy so that it will
retain $500,000 of expected losses related to workers' compensation.
Previously the Company obtained coverage from carriers and state
insurance pools. Provisions for losses expected under this program
will be recorded based upon the Company's estimates of the aggregate
liability for claims incurred. The Company will provide letters of
credit aggregating approximately $2.3 million in connection with this
program of which $1,747,000 was already provided at December 31, 1993.
The Company and its subsidiaries are defendants in various lawsuits
related to the self-insurance program which are not expected to have a
material adverse effect on the Company's financial position or results
of operations.
The Company currently self insures health benefits provided to the
employees of the Company and its subsidiaries. Provisions for losses
expected under this program are recorded based upon the Company's
estimate of the aggregate liability for claims incurred.
Interim accruals for the cost of self insurance are based on an
estimate of the related annual costs compared to the estimated total
gallons of propane to be sold during the same period. Presently, the
resulting accrual rate of expense recognizing self insurance is 3.5
cents per gallon sold.
The Company's federal income tax returns for the fiscal years 1979 and
1980 were audited by the IRS. During August 1992, the Company paid
$2.4 million which represented interest on previously paid income
taxes. This payment settled all outstanding federal tax audits. The
Company has no federal income tax audits in process at December 31,
1993.
The Company and its subsidiaries are also defendants in various state
income tax audits and other business-related lawsuits which are not
expected to have a material adverse effect on the Company's financial
position or results of operations.
(3) The term credit facility and revolving credit facility are provided to
the Company by the same lender under one agreement. In June 1993, the
proceeds from these new loans were used to repay the acquisition
credit facility, working capital facility, and notes payable to
shareholder. Substantially all of the Company's assets are pledged to
the agreement which contains working capital, debt and certain
dividend restrictions. These dividend restrictions prohibit the
Company from paying common stock cash dividends.
The term credit facility bears interest at either 1.125% over prime or
2.625% over the Eurodollar rate. The agreement requires quarterly
principal payments of $650,000.<PAGE>
<PAGE>
EMPIRE GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1993 AND 1992
(Unaudited)
The revolving credit facility provides for borrowings up to $22
million and bears interest at either 1% over prime or 2.5% over the
Eurodollar rate. The agreement provides for a commitment fee of .5%
per annum of the unadvanced portion of the commitment. The Company's
unused revolving credit line amounted to $7,783,000 at December 31,
1993, after considering $2,417,000 of letters of credit.
(4) In December 1992, the Company purchased from the employee stock bonus
plan 329,500 common shares of EGAC stock for $1.3 million. The plan's
assets were being liquidated due to termination of the plan. The
shares purchased are classified as a reduction in equity because EGAC
has no significant assets other than its investment in the Company.
(5) Additional Cash Flow Information (In Thousands)
<TABLE>
<CAPTION>
Non Cash Investing and Financing Activities 1993 1992
<S> <C> <C>
Short term note payable issued for repurchase
of debentures from employee benefit plan -- $ 778
Short term note payable issued for purchase of
EGAC stock from employee benefit plan -- $ 1,299
Additional Cash Payment Information 1993 1992
Interest Paid $ 4,182 $ 7,592
Income Taxes Paid (net of refunds) $ (52) $ 437
</TABLE>
(6) Restructuring proposal costs consist of legal and accounting expenses
incurred in connection with a proposed restructuring of the Company's
debt and equity. The Company is still considering various
alternatives for such a restructuring and has not made any final
determinations at this time.
<PAGE>
EMPIRE GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1993 AND 1992
(Unaudited)
FINANCIAL CONDITION AND LIQUIDITY
The following table is presented as a measure of the Company's liquidity and
financial condition.
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
____________________ _____________________
1993 1992 1993 1992
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
Total long-term debt
(including current maturities) $ 81,855 $ 85,175 $ 79,249 $ 78,958
Short-term notes payable -- $ 2,077 -- --
Working Capital $ 8,240 $(13,742) $ 4,897 $(13,924)
Current Ratio 1.39 .68 1.36 .52
</TABLE>
During the six months ended December 31, 1993, the Company's working capital
increased by approximately $3.3 million. The increase was due primarily to
$6.6 million of net income (after adjustment for non-cash expenses). This
increase was offset by a net usage of $1.5 million in working capital to
purchase property and equipment, the reclassification of $1.1 million of long-
term debt to current maturities related to increased sinking fund requirements,
and the reclassification of $.7 million of deferred income taxes to current
income taxes payable.
During the six months ended December 31, 1992, the Company's working capital
increased by approximately $.2 million. The increase was due primarily to $7.1
million of income before income taxes (after adjustment for non-cash expenses)
and the reclassification of $.8 million from current accrued expenses to
accrued self insurance liability. This increase was offset by a net movement
of $1.8 million of long-term debt into the current portion of long-term debt,
the use of $2.0 million in working capital for the purchase of property and
equipment, the use of $2.1 million in working capital for the repurchase of
debentures and stock from the employee benefit plans, $1.1 million in current
income taxes accrued and the reclassification of $.7 million of deferred income
tax to current income tax payable.
The net movement of $1.8 million of long-term debt into the current portion of
long-term debt was a result of the movement of $4.3 million of long-term debt
into the current portion of long-term debt (this reclassification relates to
borrowings from a related party which were due in July 1993, and the current
portion of debenture sinking fund payments which were due December 1993). This
increase was offset by the reclassification of $2.5 million from the current
portion of long-term debt into long-term debt (this reduction of current
maturities relates to the Company's refinancing pursuant to the loan agreement
of the Reliance debt obligation of which $6.8 million was included in current
maturities of long-term debt at June 30, 1992).<PAGE>
<PAGE>
EMPIRE GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1993 AND 1992
(Unaudited)
RESULTS OF OPERATIONS
Due to the seasonal nature of the Company's business, the Company usually
realizes a net loss the first quarter and net income for the second quarter.
Operating revenues are not indicative of a full fiscal year's operations
because of the seasonal element. Other expense items such as depreciation and
general and administrative expenses, however, continue on a more annualized
basis. Interest expense also continues on a more level basis although interest
expense is generally somewhat higher during the summer and fall months due to
increased working capital borrowings used to finance inventory purchases in
preparation for the Company's principal sales months.
Operating revenues for the six months ended December 31, 1993, increased by
approximately $1.6 million as compared to the same period for the prior year,
due to increases of $1.2 million in propane sales and $400,000 in sales of
parts and appliances. The increase in propane sales was due to an approximate
2.0 cent increase in the average net sales price per gallon on similar gallons
sold as compared to the prior year. The increase in parts and appliance sales
were due to increased sales efforts by the Company. Cost of sales increased
$1.5 million due to increases of $1.2 million in the cost of propane and
$300,000 in the cost of parts and appliances. The increase in the cost of
propane is due to a 1.7 cent increase in the average net cost per gallon. The
increase in the cost of parts and appliances is due to the increased sales
activity.
Operating revenues for the second quarter of fiscal year 1994 increased by $1.0
million as compared to the same period for the previous year due to a $700,000
increase in propane sales and a $400,000 increase in parts and appliances sales
offset by a $100,000 decrease in other revenues. The increase in propane sales
was due to an approximate 1.1 cent increase in the average net sales price per
gallon on similar gallons sold as compared to the prior year. The increase in
parts and appliances sales was due to increased sales efforts by the Company.
Cost of sales increased $300,000 due to an increase in the cost of parts and
appliances which resulted from increased sales activity. The cost of propane
sales was similar compared to the same period of the prior year due to similar
average net cost per gallon and gallons sold as compared to the prior year.
General and administrative expenses for the six months ended December 31, 1993,
increased approximately $600,000 due to increases of $700,000 in insurance and
liability claims expense, $200,000 in salaries and commissions, and $100,000 in
office expenses. These increases were offset by decreases of $100,000 each in
vehicle fuel and maintenance, rent and maintenance, travel and entertainment,
and professional fees. The increase in insurance and liability claims was due
primarily to increased claims. The increase in salaries and commissions was
due to normal pay increases offset slightly by an overall average reduction in
the total number of employees. The increase in office expenses was due
primarily to increased postage costs as the result of more informational and
advertising mailings to customers. The decrease in vehicle fuel and
maintenance was due to reduced vehicle maintenance as a result of the purchase
of new vehicles to replace some of the older vehicles. The decrease in rent
and maintenance was due to reduced building maintenance. The decrease <PAGE>
EMPIRE GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1993 AND 1992
(Unaudited)
in travel and entertainment was due to reduced travel by retail employees for
training, as most Company-wide training was performed in May and June 1993.
The decrease in professional fees was due to reduced fees incurred for tax and
business planning.
General and administrative expenses for the second quarter ended December 31,
1993, increased approximately $300,000 due to increases of $700,000 in
insurance and liability claims and $300,000 in salaries and commissions. These
increases were offset by decreases of $200,000 in vehicle fuel and maintenance,
$300,000 in professional fees, and $100,000 each in rent and maintenance, and
travel and entertainment. The increase in insurance and liability claims was
due primarily to increased claims. The increase in salaries and commissions
was due to normal pay raises. The decrease in vehicle fuel and maintenance was
due to the purchase of new vehicles to replace some of the older vehicles. The
decrease in professional fees was due to reduced fees incurred for tax and
business planning and reduced legal fees incurred related to resolving certain
tax-related disputes. The decrease in rent and maintenance was due to reduced
building maintenance. The decrease in travel and entertainment was due to
reduced travel by retail employees for training, as most Company-wide training
was performed in May and June 1993.
Interest expense decreased $800,000 for the six months ended December 31, 1993,
and $400,000 for the second quarter of fiscal year 1994 as compared to the same
periods of the prior year. Both decreases were the result of lower interest
rates and reduced borrowing levels as compared to the prior year.
Restructuring proposal costs of $398,000 for the three months and six months
ended December 31, 1993 consisted of legal and accounting expenses incurred in
connection with a proposed restructuring of the Company's debt and equity. The
Company is still considering various alternatives for such a restructuring and
has not made any final determinations at this time.
<PAGE>
EMPIRE GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1993 AND 1992
(Unaudited)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Note 2 of the Condensed Consolidated Financial Statements.
Item 3. Defaults Upon Senior Securities
During the period August 1, 1993 through November 15, 1993, the Company did not
comply with the working capital covenant contained in its credit facility with
the First National Bank of Boston ("FNBB"), which credit facility consists of a
term credit facility and a revolving credit facility and provides for the
issuance of letters of credit on the Company's behalf. FNBB waived the
noncompliance with this covenant.
Items 2, 4, 5, and 6
No information is reportable under these sections.
<PAGE>
Reviewed by Independent Certified Public Accountants
The December 31, 1993 financial statements included in this filing on Form 10-Q
have been reviewed by Baird, Kurtz & Dobson, Independent Certified Public
Accountants, in accordance with established professional standards and
procedures for such a review. The report of Baird, Kurtz & Dobson commenting
upon their review is appended hereto.
SIGNATURE
Pursuant to the requirements of the Exchange Act, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
EMPIRE GAS CORPORATION
Registrant
/s/ Willis D. Green
WILLIS D. GREEN
VICE PRESIDENT/CONTROLLER
DATE: February 11, 1994
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Empire Gas Corporation
Lebanon, Missouri
We have reviewed the accompanying condensed consolidated balance sheet
of EMPIRE GAS CORPORATION AND SUBSIDIARIES (a wholly-owned subsidiary of Empire
Gas Acquisition Corporation) as of December 31, 1993, and the related condensed
consolidated statements of operations and cash flows for the three-month and
six-month periods ended December 31, 1993 and 1992. These condensed
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the condensed consolidated
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of June 30, 1993, and the
related consolidated statements of operations, stockholder's equity and cash
flows for the year then ended (not presented herein); and in our report dated
July 30, 1993, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of June 30, 1993, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
/s/ Baird, Kurtz and Dobson
Springfield, Missouri
January 14, 1994
