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
For the quarterly period ended September 30, 1994
Commission File Number 1-6537-3
EMPIRE GAS CORPORATION
________________________________________________________
(Exact Name of Registrant as Specified in its Charter)
MISSOURI 43-1494323
____________________________ ____________________
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
P.O. Box 303, 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
September 30, 1994 was 1,579,225.
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
______________________________
EMPIRE GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars In Thousands, Except Per Share Amounts)
September 30, June 30,
1994 1994
_____________ ____________
ASSETS
______
Current Assets
Cash $ 2 $ 2,927
Trade receivables - Net 6,121 5,454
Inventories 8,843 5,179
Prepaid Expense 1,036 619
Refundable Income Tax 1,659 2,254
Deferred Income Taxes 1,183 631
____________ __________
Total Current Assets 18,844 17,064
____________ __________
Due From Related Party 65 ---
____________ __________
Property, Plant and Equipment 96,930 93,120
Less Accumulated Depreciation 26,723 25,847
____________ __________
Fixed Assets -- Net 70,207 67,273
____________ __________
Other Assets
Debt Acquisition Costs - Net 5,275 5,406
Excess of Cost Over Fair Value of Net
Assets Acquired - Net 13,864 14,027
Other 960 874
____________ __________
Total Other Assets 20,099 20,307
____________ __________
Total Assets $ 109,215 $ 104,644
____________ __________
____________ __________
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
______________________________________________
Current Liabilities
Current Maturities of Long-Term Debt $ 277 $ 292
Accounts Payable and Accrued Expenses 10,157 9,962
Due to Empire Energy 499 497
____________ __________
Total Current Liabilities 10,933 10,751
Long-Term Debt (Note 3) 113,543 105,320
Deferred Income Taxes 14,973 15,421
Accrued Self Insurance Liability (Note 2) 1,280 1,372
____________ __________
Total Liabilities 140,729 132,864
____________ __________
<PAGE>
Stockholders' Equity (Deficit)
Common; $.001 Par Value; Authorized 20,000,000
Shares, Issued September 30, 1994 and June 30,
1994 -- 14,291,020 Shares 14 14
Common Stock Purchase Warrants 1,227 1,227
Additional Paid-In Capital 27,279 27,279
Retained Earnings 27,941 31,235
____________ _________
56,461 59,755
Treasury Stock at Cost
September 30, 1994 and June 30, 1994
12,711,795 Shares (87,975) (87,975)
_____________ ___________
Total Stockholders' Equity (Deficit) (31,514) (28,220)
_____________ ___________
Total Liabilities and Stockholders' Equity
(Deficit) $ 109,215 $ 104,644
_____________ ___________
_____________ ___________
See Notes to Condensed Consolidated Financial Statements
<PAGE>
EMPIRE GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(Unaudited)
(In Thousands, Except Per Share Amounts)
1994 1993
__________ ___________
Operating Revenue $ 12,033 $ 20,052
Cost of Product Sold 5,616 10,253
__________ _________
Gross Profit 6,417 9,799
__________ _________
Operating Costs and Expenses
General and Administrative 6,256 9,302
Depreciation and Amortization 1,366 2,481
__________ _________
7,622 11,783
__________ _________
Operating Loss (1,205) (1,984)
___________ __________
Other Expense
Interest Expense, Net (2,705) (2,184)
Amortization of Debt Discount
and Expense (1,185) (520)
___________ __________
(3,890) (2,704)
___________ __________
Loss Before Income Taxes (5,095) (4,688)
Credit for Income Taxes (1,800) (1,590)
___________ __________
Net Loss $ (3,295) $ (3,098)
___________ __________
___________ __________
Loss Per Common Share $ (2.09) $ (0.22)
___________ __________
___________ __________
See Notes to Condensed Consolidated Financial Statements
<PAGE>
EMPIRE GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(Unaudited)
(In Thousands)
1994 1993
__________ ___________
Cash Flows From Operating Activities
Net loss $ (3,295) $ (3,098)
Items not requiring (providing) cash
Depreciation 1,132 2,159
Amortization 1,419 842
Gain on sale of assets (68) --
Deferred income taxes (1,000) (555)
Changes In:
Trade receivables (667) (2,323)
Inventories (3,664) (712)
Prepaid expense & other (639) (278)
Accounts payable & accrued expenses 3,963 1,910
Checks in process of collection (3,262) --
__________ __
Net cash used in operating activities (6,081) (2,055)
_______ _______
Cash Flows From Investing Activities
Purchase of property & equipment (3,960) (2,255)
Proceeds from sales of property & equipment 252 39
___ __
Net cash used in investing activities (3,708) (2,216)
_______ _______
Cash Flows From Financing Activities
Increase in working capital financing 6,890 4,800
Principal payments on other long-term debt (26) (90)
Principal payments on term credit facilities -- (650)
Repurchase of debentures for sinking
fund repayment -- (95)
__ ____
Net cash provided by financing activities 6,864 3,965
_____ _____
DECREASE IN CASH (2,925) (306)
_______ _____
CASH, BEGINNING OF PERIOD 2,927 352
_____ ___
CASH, END OF PERIOD $ 2 $ 46
_ __
_ __
See Notes to Condensed Consolidated Financial Statements
<PAGE>
EMPIRE GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(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 September 30, 1994, and the condensed
consolidated results of its operations and changes in its financial
position for the periods ended September 30, 1994 and 1993. 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 1994 Annual
Report on Form 10-K.
The results of operations for the three-month period ended
September 30, 1994, are not necessarily indicative of the results to be
expected for the full year due to the seasonal nature of the Company's
business.
(2) The Company reports the following contingencies. Except as noted,
there have been no significant changes in these items since reports in
the Company's 1994 Annual Report on Form 10-K.
Under the Company's current insurance program, coverage for
comprehensive general liability, worker's 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 related primarily to
comprehensive general liability, worker's compensation and vehicle
liability. Under these current insurance programs, the Company self-
insures the first $500,000 of coverage (per incident). Effective July
1994, the Company reduced its self-insured retention for vehicle
liability to $250,000 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,
December 31, 1989 through June 30, 1991, and July 1, 1993 through
June 30, 1994, the Company has provided for comprehensive general
liability losses up to 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 September 30, 1994, the Company has not exceeded the $1 million loss
limit for the comprehensive general liability policy periods July 1,
1991 through June 30, 1992, and July 1, 1992 through June 30, 1993.
<PAGE>
EMPIRE GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(Unaudited)
Effective July 1994, the Company changed its policy so that it will
obtain workers' compensation coverage from carriers and state insurance
pools.
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.
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 4.0
cents per gallon sold.
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.
The Company has no federal income tax audits in process at
September 30, 1994. The Company and its subsidiaries are presently
involved in various state income tax audits and are also defendants in
other business-related lawsuits which are not expected to have a
material adverse effect on the Company's financial position or results
of operations.
In conjunction with the restructuring transaction that occurred in June
1994 between the Company and Empire Energy, the two companies have
agreed to share on a percentage basis the self-insured liabilities and
amounts incurred related to federal and state tax audits. Under the
agreement, the Company will assume 52.3% of the liability with Empire
Energy assuming the remaining 47.7%. These liabilities, which are
included in the Company's financial statements at September 30, 1994,
represent 52.3% of the total liability as of that date.
(3) In June 1994 the Company repaid its existing term credit facility and
revolving credit facility with the proceeds from the issuance of
$127,200,000 face value 12 7/8% Senior Secured Notes, due 2004. These
debentures were issued at a discount and bear interest at 7% through
July 15, 1999, and at 12 7/8% thereafter.
The Company entered into a new revolving credit facility with a lender.
All of the Company's receivables and inventories are pledged to the
agreement which contain working capital, capital expenditure, debt and
certain dividend restrictions. These dividend restrictions prohibit
the Company from paying common stock cash dividends.
The facility provides for borrowings up to $15 million, subject to a
sufficient borrowing base. The borrowing base generally limits the
Company's total borrowings to 85% of eligible accounts receivable and
<PAGE>
EMPIRE GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(Unaudited)
60% of eligible inventory. In addition, the Company can borrow an
additional $3 million during the period August 1, 1994, to January 31,
1995, and $1.5 million during the period August 1, 1995, to January 31,
1996 (overadvance option). The facility bears interest at either 1%
over prime or 2.5% over the LIBOR rate. The agreement provides for a
commitment fee of .375% per annum of the unadvanced portion of the
commitment. The Company's available revolving credit line amounted to
$3,185,000 at September 30, 1994, after considering $2,057,000 of
outstanding letters of credit.
(4) Additional Cash Flow Information (In Thousands)
Additional Cash Payment Information 1994 1993
___________________________________ ____ ____
Interest paid $741 $1,352
Income taxes paid (net of refunds) $(1,395) $249
Noncash Investing and Financing Activities
__________________________________________
Mortgage obligations incurred on the
acquisition of retail service centers $315 --
(5) Underground Storage Facility
The Company owns salt cavern LPG underground storage facilities which
are not in use and are subject to a consent agreement with the state of
Kansas. Under the agreement, the Company was to submit a plan to the
state for resuming use of the facilities or permanently closing them.
The due date of the plan was initially January 1, 1994. The state has
verbally extended the due date until October 1, 1994.
The Company has requested an additional extension of time from the
state of Kansas to evaluate its options for rehabilitation of the
facility. The state of Kansas is reviewing the Company's request and
has not yet given a response to the request.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition and Liquidity
_________________________________
The following table is presented as a measure of the Company's liquidity and
financial condition.
September 30, June 30,
____________________ ________________
1994 1993 1994 1993
__________ _________ _________ ______
(In thousands except ratio)
Total long-term debt $113,820 $83,649 $105,612 $79,249
(including current
maturities)
Working capital $7,911 $5,802 $6,313 $4,897
Current ratio 1.72 1.34 1.59 1.36
During the three months ended September 30, 1994, the Company's working
capital increased by approximately $1.6 million. The increase was due
primarily to increases in inventories, accounts receivable, and prepaid
expenses which were financed with borrowing on the Company's revolving
credit facility which is classified as long-term debt.
The increase in long-term debt of approximately $8.2 million from June 30,
1994, to September 30, 1994, was attributable to the $1.6 million of
increased working capital described above plus $4.0 million for purchases of
property and equipment (net of the cash received from the sales of property
and equipment) which consisted of $700,000 for two new retail service
centers, $2.2 million for transportation equipment, and $1.1 million for
normal replacement and new start up retail service centers. In addition the
Company financed its approximate $2.5 million loss before income taxes
(after adjustment for noncash expenses) with borrowings on its revolving
credit facility.
During the three months ended September 30, 1993, the Company's working
capital increased by approximately $900,000. The increase was due to the
reclassification of $300,000 from deferred income tax liabilities to future
income tax benefit and net advances on the Company's revolving credit
facility of $1.7 million used to finance seasonal increases in inventories
and accounts receivable which is included in long-term debt. This increase
was offset by the reclassification of $400,000 from accrued self insurance
liability to current accrued expenses, and a $700,000 loss (after adjustment
for depreciation, amortization, deferred income taxes and other non-working
capital items).
Results of Operations
_____________________
Due to the seasonal nature of the Company's business, the Company usually
realizes a net operating loss the first 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, generally continue on a more annualized
basis. Interest expense also continues on a more level basis although
<PAGE>
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.
On June 30, 1994, the Company implemented a change in ownership and
management by repurchasing shares of Company common stock from its former
principal shareholder and certain other departing officers in exchange for
all of the shares of a subsidiary (Empire Energy Corporation) that owned 133
retail service centers located principally in the Southeast plus certain
home office assets and liabilities. At the same time, the Company acquired
six retail service centers in North Carolina. The analysis below compares
the actual current year information for operating revenue and gross profit
to pro forma historical for the same period of the previous year. General
and administrative expenses for the current year are compared to historical
data as it relates to operating revenues as these items generally are more
closely related to revenues.
The following table sets forth, for the three months ending September 30,
1993, selected aggregate operating data for the retail service centers of
the Company that were retained after the disposition of Empire Energy and
for the retail service centers the Company acquired in North Carolina.
Three Months Ended September 30,
________________________________
1994 1993
________ ________
Pro Forma
(Unaudited)
(In thousands except per gallon amounts)
Operating revenue $12,033 $12,173
Gross margin $6,417 $6,046
Retail gallons sold 15,005 13,907
Weighted average gross profit
per gallon $.370 $.356
During the first quarter of fiscal 1995, the Company completed the
acquisitions of two retail service centers. Subsequent to September 30,
1994, the Company completed acquisitions of two additional retail service
centers. The service centers acquired prior to September 30, 1994, were
purchased for $400,000 in cash and $300,000 in new mortgages. The service
centers acquired after September 30, 1994, were purchased for $700,000 in
cash and $1.1 million in new mortgages. The service centers acquired are
located in Arkansas, Missouri, South Carolina, and Wyoming. The aggregate
historical gallons, for the most recent year, of the four service centers
acquired was approximately 3.3 million gallons.
Operating revenues for the first quarter of fiscal 1995 were comparable to
the same pro forma period of the prior year. Retail gallons sold increased
approximately 8% (1.1 million gallons) which was offset by an approximately
$.06 per gallon decrease in the average net sales price.
The gross profit for the quarter increased by approximately $400,000, as
compared to the same pro forma period of the prior year, due to an
approximate 8% increase in gallons sold combined with an approximate net
margin increase of $.01 per gallon as the average cost of propane decreased
approximately $.07 per gallon.
<PAGE>
General and administrative expenses for the three months ended September 30,
1994, increased to 52% of operating revenues from 46.4% of operating
revenues for the three months ended September 30, 1993. The increase was
mainly due to an increase of 3.1% in salaries and commissions, 1.2% in
payroll taxes and employee benefits and .9% in insurance. The increase in
salaries and commissions was due to several factors including 1) increased
pay rates for existing retail personnel, 2) an increase in home office
salaries as a percentage of sales due to pay rate increases as well as the
employment of additional home office operational and administrative staff,
3) an increase in accrued vacation, and 4) an increase in the salaries of
the six retail service centers acquired in June 1994 as a percentage of the
subsidiaries' sales when compared to the existing retail subsidiaries. This
increase was offset by a decrease in salaries as a percentage of sales
resulting from the elimination of certain home office employees who are
presently employed by Empire Energy. The increase in payroll taxes and
employee benefits was due to the increase in taxes related to the increased
payroll and an increase in health insurance expenses. The percentage
increase in insurance was due to the reduction of the cost of obtaining
coverage on the Company's remaining retail service centers (after the
disposition of the Empire Energy subsidiaries) which did not decrease as
much proportionately as sales revenues.
In addition to the increases described above, the Company had various other
expense category fluctuations which in total netted to an immaterial amount.
These expense fluctuations included an increase in travel and entertainment
due to a Company-wide effort to meet with all employees to explain the
change in ownership which occurred in June 1994. Rent and maintenance of
buildings increased due to expenses incurred in tank painting and related
building maintenance in converting certain retail facilities to a new
identity. Vehicle maintenance decreased due to the increased amount of new
trucks purchased in the last six months resulting in less required
maintenance to existing vehicles. Other expenses decreased resulting from
the termination of certain agreements between the Company and its previous
controlling shareholder.
Interest expense increased approximately $500,000 during the first quarter
of fiscal year 1995, as compared to the same period of the prior year, due
to approximately $45 million face value additional long-term debt
outstanding as compared to the same period of the prior year partially
offset by an overall lower rate of interest, principally the new senior
secured notes issued in June 1994, as compared to the higher rates of debt
repaid with this new debt offering.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
___________________________
Reference is made to Note 2 of the Condensed Consolidated Financial
Statements.
Items 2, 3, 4 and 5.
____________________
No information is reportable under these sections.
Item 6. Exhibits and Reports on Form 8-K
__________________________________________
(a) Exhibits
Exhibit
No. Description
_______ ______________________________
(27) Financial Data Schedule
(b) Reports on Form 8-K.
None
<PAGE>
Reviewed by Independent Certified Public Accounts
_________________________________________________
The September 30, 1994, 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 Securities Exchange Act of 1934, 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: November 14, 1994
<PAGE>
<PAGE>
Independent Accountants' Report
_______________________________
Board of Directors and Stockholders
Empire Gas Corporation
Lebanon, Missouri
We have reviewed the accompanying condensed consolidated balance sheet
of EMPIRE GAS CORPORATION AND SUBSIDIARIES (formerly Empire Gas Acquisition
Corporation) as of September 30, 1994, and the related condensed
consolidated statements of operations and cash flows for the three-month
periods ended September 30, 1994 and 1993. 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, 1994, and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the year then ended (not presented herein); and
in our report dated August 26, 1994, 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, 1994, is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.
BAIRD, KURTZ & DOBSON
Springfield, Missouri
November 9, 1994
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> SEP-30-1994
<CASH> 2
<SECURITIES> 0
<RECEIVABLES> 7,898
<ALLOWANCES> 1,777
<INVENTORY> 8,843
<CURRENT-ASSETS> 18,844
<PP&E> 96,930
<DEPRECIATION> 26,723
<TOTAL-ASSETS> 109,215
<CURRENT-LIABILITIES> 10,933
<BONDS> 113,543
<COMMON> 14
0
0
<OTHER-SE> (31,528)
<TOTAL-LIABILITY-AND-EQUITY> 109,215
<SALES> 11,285
<TOTAL-REVENUES> 12,033
<CGS> 5,616
<TOTAL-COSTS> 5,616
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 172
<INTEREST-EXPENSE> 3,890
<INCOME-PRETAX> (5,095)
<INCOME-TAX> (1,800)
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (3,295)
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