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, 1996
Commission File Number 1-6537-3
ALL STAR GAS CORPORATION
(formerly 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) 532-3103
(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 October
31, 1996 was 1,579,225.
PART I - - FINANCIAL INFORMATION
Item 1. Financial Statements
ALL STAR GAS CORPORATION
(formerly EMPIRE GAS CORPORATION) AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands, Except Per Share Amounts)
September 30, 1996 June 30,
(Unaudited) 1996
__________________ ________
ASSETS
Current Assets
Cash $ 869 $ 898
Trade receivables - Net 5,215 4,308
Inventories 7,028 6,039
Prepaid Expense 1,016 276
Receivable from sale of Retail Locations ---- 2,390
Due from Related Parties 1,173 1,261
Deferred Income Taxes 760 995
------- -------
Total Current Assets 16,061 16,167
------ ------
Property, Plant and Equipment 96,648 97,407
Less Accumulated Depreciation 29,602 29,497
------ ------
Fixed Assets - Net 67,046 67,910
------ ------
Other Assets
Debt Acquisition Costs - Net 4,071 4,228
Excess of Cost Over Fair Value
Assets Acquired - Net 10,964 11,536
Other 1,720 2,161
----- -----
Total Other Assets 16,755 17,925
------ ------
Total Assets $99,862 $102,002
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
September 30, 1996 June 30,
(Unaudited) 1996
_________________ ________
Current Liabilities
Current Maturities of Long-Term Debt $ 1,075 $ 7,358
Accounts Payable and Accrued Expenses 16,393 14,512
------- -------
Total Current Liabilities 17,468 21,870
Long-Term Debt (Note 4) 123,646 115,500
Deferred Income Taxes 6,700 8,935
Accrued Self Insurance Liability (Note 2) 538 540
--------- ---------
Total Liabilities 148,352 146,845
------- -------
Stockholders' Equity (Deficit)
Common; $.001 Par Value; Authorized
20,000,000 Shares, Issued Sept. 30, 1996 and
June 30, 1996 - - 14,291,020 Shares 14 14
Common Stock Purchase Warrants 1,227 1,227
Additional Paid-In Capital 27,279 27,279
Retained Earnings 10,965 14,612
------ ------
39,485 43,132
Treasury Stock at Cost
September 30, 1996 and June 30, 1996 (87,975) (87,975)
12,711,795 Shares -------- --------
Total Stockholders' Equity (Deficit) (48,490) (44,843)
-------- --------
Total Liabilities and Stockholders' Equity $99,862 $102,002
(Deficit) ======= ========
See Notes to Condensed Consolidated Financial Statements
ALL STAR GAS CORPORATION
(formerly EMPIRE GAS CORPORATION) AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
(Dollars In Thousands, Except Per Share Amounts)
1996 1995
---- ----
Operating Revenue $13,119 $11,726
Cost of Product Sold 7,060 5,657
-------- --------
Gross Profit 6,059 6,069
-------- --------
Operating Costs and Expenses
General and Administrative 5,827 6,269
Depreciation and Amortization 1,445 1,527
------- -------
7,272 7,796
------- -------
Operating Loss (1,213) (1,727)
------- -------
Other Income (Expense)
Interest Expense, Net (2,629) (2,625)
Amortization of Debt (1,491) (1,330)
Discount and Expense
Gain (Loss) on Sale of Assets (314) 757
-------- -------
(4,434) (3,198)
Income (Loss) Before
Income Taxes (5,647) (4,925)
Provision (Credit) for
Income Taxes (2,000) (1,700)
-------- --------
Net Income (Loss) $(3,647) $(3,225)
======== ========
Income (Loss) Per Common Share $ (2.31) $ (2.04)
========== ==========
See Notes to Condensed Consolidated Financial Statements
ALL STAR GAS CORPORATION
(formerly EMPIRE GAS CORPORATION) AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
(Dollars In Thousands)
1996 1995
---- ----
Cash Flows From Operating Activities
Net Loss $ (3,647) $ (3,225)
Items not requiring (providing) cash
Depreciation 1,217 1,268
Amortization 1,719 1,589
Loss (Gain) on sale of assets 314 (757)
Deferred income taxes (2,000) (2,400)
Changes In:
Trade receivables (1,502) (1,344)
Inventories (1,113) (1,963)
Prepaid expense & other (330) (706)
Accounts payable & accrued expenses 2,708 2,453
------- -------
Net cash used in operating activities (2,634) (5,085)
-------- --------
Cash Flows From Investing Activities
Purchase of property & equipment (1,453) (1,266)
Acquisitions and start-ups of retail
service centers ------ (349)
Receipts on sale of retail outlets previously
accrued 3,002 ------
Proceeds from sales of property & equipment 66 254
Disposal of retail service centers 1,212 4,498
------ ------
Net cash provided by investing activities 2,827 3,137
------ ------
Cash Flows From Financing Activities
Checks in process of collection (751) 19
Increase in working capital financing 668 2,155
Principal payments on other long-term debt (139) (67)
----- ----
Net cash provided by (used in)
financing activities (222) 2,107
------- ------
INCREASE (DECREASE) IN CASH (29) 159
CASH, BEGINNING OF PERIOD 898 821
-------- --------
CASH, END OF PERIOD $ 869 $ 980
========= =========
See Notes to Condensed Consolidated Financial Statements
ALL STAR GAS CORPORATION
(FORMERLY EMPIRE GAS CORPORATION) AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
1) In the opinion of Management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly All Star Gas Corporation's (formerly Empire Gas
Corporation) condensed consolidated financial position as of September
30, 1996, and the condensed consolidated results of its operations and
cash flows for the periods ended September 30, 1996 and 1995.
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 1996 Annual
Report on Form 10-K.
On September 28, 1996 the Company, Northwestern Growth Corporation (NGC),
SYN Inc. (SYN) and Myers Propane Gas (Myers) entered into an agreement
for the sale of various interests of the Company and the modification and
termination of certain agreements between NGC, SYN and Myers on the one
hand and the Company on the other hand. The agreement, among other
things, provides that NGC will pay to the Company at least $15 million
for all of the Company's interests in SYN and Myers upon the consummation
of certain events, or if not sooner on December 31, 1997. Payment to the
Company increases to $20 million if an underwritten public offering
including SYN occurs. The initial registration statement for this
offering was filed in October 1996. The Company may be entitled to an
additional amount based on a third party's indemnification obligations to
SYN. The agreement will also terminate the management agreements pursuant
to which the Company provided management activities for SYN and Myers.
During a transitional period, which is anticipated to conclude in
December 1996, the Company has agreed to continue to provide liquefied
petroleum, storage and management services to SYN.
The results of operations for the three months ended September 30, 1996,
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 1996 Annual Report on Form 10-K.
In conjunction with the restructuring transaction that occurred in June
1994 between the Company and Empire Energy Corporation (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
prior to and including the year ended June 30, 1994. Under the agreement,
the Company will assume 52.3% of the liability with Energy assuming the
remaining 47.7%. Those liabilities which are included in the Company's
financial statement represent 52.3% of the total liability as of the
respective balance sheet dates.
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 related primarily to comprehensive general and
vehicle liability. Effective fiscal 1997, the Company and SYN have pooled
their risks and acquired joint coverage at a reduced premium cost for
each entity. The Company and SYN self insure the first $250,000 for each
and every general liability incident. Above this retention is a corridor
deductible of $750,000 per occurrence, $1.25 million in aggregate. For
the vehicle and workers' compensation programs, the Company and SYN have
a $250,000 deductible per occurrence with a $2.0 million aggregate stop
loss. The Company obtains excess coverage on claims-made basis policies.
Provisions for self-insured losses are recorded based upon the Company's
estimates of the aggregate self-insured liability for claims incurred.
The Company and SYN will continue this program through fiscal 1997
notwithstanding the sale and termination agreement described in Note 1.
Previously, the Company had a $500,000 deductible for each and every
general liability incident. There was a $500,000 self insurance retention
above the deductibles up to $1 million in aggregate losses. For the
previous vehicle liability program the Company self insured the first
$500,000 of coverage (per incident).
The Company and certain of its subsidiaries are defendants in a lawsuit
arising from an accident at a former customer's location which is not
provided for in the financial statements of the Company. Although the
extent, if any, of liability under the Company's self-insurance programs
is not currently estimatable, the Company's insurance policies limit the
potential exposure to $1 million in actual damages. Additionally, it is
not determinable to what extent this liability may be shared under the
indemnification agreement with Energy.
The Company and its subsidiaries are defendants in various other 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 insurance expense, which include both
self insurance and policy premium costs, are based on an estimate of the
related annual costs compared to the estimated gallons of propane to be
sold during the same period. Presently, the resulting accrual rate of
expense recognizing self insurance is 2.2 cents per gallon sold compared
to 2.9 cents per gallon in fiscal year 1996 due, in part, to the premium
savings from acquiring joint policies as discussed above.
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 Internal Revenue Service (IRS) has begun a federal income tax audit
of the Company for the year ended June 30, 1994. While the audit is still
in process, the audit has principally focused on the deductibility of
certain fees and travel and entertainment expenses as well as in the
tax-free treatment of the restructuring transaction.
The restructuring transaction was structured with the intent of
qualifying for tax-free treatment under Section 355 of the Internal
Revenue Code and the Company obtained a private letter ruling (the
"Letter Ruling") from the IRS confirming such treatment, subject to
certain representations and conditions specified in the Letter Ruling.
The IRS is currently conducting an audit of the Company for the year in
which the restructuring transaction occurred. If the IRS were to reverse
the position it took in the Letter Ruling and prevail on a challenge to
the tax-free treatment of the restructuring transaction, the Company
would be liable along with Energy for any taxes, interest and penalties
due. If the Company were held liable for any taxes, interest or penalties
in connection with the above restructuring transaction, the amount of
this liability could be substantial and could adversely effect the
Company's financial position.
The State of Missouri has assessed the Company approximately $1,400,000
for additional state income tax for the years ended June 30, 1992 and
1993. An amount approximating one-half of the above assessment could be
at issue for the year ended June 30, 1994. In conjunction with the
restructuring transaction, the Company and Energy would share on a
percentage basis any assessments made. The Company has protested these
assessments and is currently waiting for a response from the Missouri
Department of Revenue. It is likely that this matter will have to be
settled in litigation. The Company believes that is has a strong position
on this matter and intends to vigorously contest the assessment.
The Company and its subsidiaries are presently involved in other various
state tax audits which are not expected to have a material adverse effect
on the Company's financial position or results of operations.
3) The Company uses commodity futures contracts to reduce the risk of future
price fluctuations for LPG inventories and contracts. Gains and losses on
futures contracts purchased as hedges are deferred and recognized in cost
of sales as a component of the product cost for the related hedged
transaction. In the statement of cash flows, cash flows from qualifying
hedges are classified in the same category as the cash flows from the
items being hedged. Contracts, if any, which do not qualify as hedges are
marked to market, with the resulting gains and losses charged to current
operations. Net realized gains and losses for the quarter and unrealized
gains, losses on outstanding positions and open positions as of September
30, 1996, are not material.
4) 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 under the
credit facility agreement, which contains 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 52%
of eligible inventory. The facility bears interest at either 3% over
prime or 1.5% over the LIBOR rate. The agreement provides for a
commitment fee of .375% per annum of the unadvanced portion of the
commitment. The Company has received an amendment to the loan agreement
extending the due date of the facility to June 28, 1998, and the entire
facility has therefore been classified as long-term debt. On September 30,
1996, the Company was not in compliance with the acquisition availability
covenant, which the lender has waived. After considering $1,074,231
outstanding net letters of credit and current outstanding borrowings, the
Company's available borrowing under the revolving credit line amounts to
$2.5 million at September 30, 1996.
5) Additional Cash Flow Information (In Thousands)
Additional Cash Payment Information 1996 1995
----------------------------------- ---- ----
Interest Paid $ 5,074 $ 4,552
Income Taxes Paid (net of refunds) $ 36 $ 29
Noncash Investing and Financing Activities
Mortgage obligations incurred on the
acquisition of retail service centers $ $ 400
Note receivable generated by the disposal
of a retail service center $ 24 $ 148
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,
1996 1995 1996 1995
---- ---- ---- ----
Total long-term debt
(including current maturities) $124,721 $119,308 $122,858 $115,647
Working Capital $(1,407) $3,260 $(5,703) $1,636
Current Ratio .92 1.22 .74 1.13
During the nine months ended September 30, 1996, the Company's working capital
increased by $4.3 million. The increase was due primarily to the renewal of
the credit facility, as discussed previously, resulting in a $6.3 million
reduction in current maturities. This increase was offset by approximately
$2.0 million in increases in accounts payable and other accruals net of other
changes in accounts receivable, inventories and prepaids.
The increase in long-term debt of approximately $1.9 million from June 30,
1996 to September 30, 1996, is due primarily to $1.3 million of amortization
of original issue discount on the Company's Senior Secured Notes and
additional revolver borrowing to meet interest needs of approximately $5.1
million offset by the net effect of cash flows from operations and changes in
working capital.
Pursuant to the terms of the Indenture for the 12 7/8% Senior Secured Notes
due July 15, 2004, the Company is required to make a $4.5 million interest
payment on January 15,1997. Historically, operating income increases during
the second quarter as the winter selling season begins. The Company intends to
meet the interest payment requirement through operating cash flows and
available borrowings on its working capital facility. As discussed earlier,
cash flow will be significantly impacted by the cash payment to be received
from the sale of the Company's interest in SYN and Myers.
Results Of Operations
Due to the seasonal nature of it's business, the Company usually realizes a
net operating loss the first quarter. Operating revenues for a particular
quarter are not necessarily 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 interest expense is generally 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.
During the first quarter of fiscal 1997, the Company divested itself of 5
marginally profitable retail service centers for approximately $1.2 million in
cash and $24,000 in promissory notes with $75,000 held in escrow until the
completion of certain contract requirements.
Operating revenues for the first quarter of fiscal 1997 increased
approximately $1.4 million as compared to the same period of the prior year.
The increase was due to an increase of approximately $1.3 million in propane
sales with only a slight increase in other sales. The increase in propane
sales is due to a 6 cent increase in the average net sales price per gallon
partially offset by a 5% decrease in gallons sold resulting primarily from the
divestiture of retail centers noted above and five retail centers divested at
the end of fiscal year 1996. The gross profit for the three months ended
September 30, 1996, decreased only slightly.
General and administrative expenses decreased by approximately $450,000 as
compared to the same period of the prior year. The decrease was due primarily
to a $180,000 reduction in travel and entertainment expense, a $260,000
decrease in insurance and liability claims expense, and a $100,000 increase in
overhead reimbursement from SYN offset by slight variations in other general
and administrative expenses. Travel and entertainment expense declined due to
significant travel required related to the SYN transaction during the same
period of the prior year that wasn't experienced during the first quarter of
the current year.
As discussed previously, insurance costs decreased due to the joint policies
acquired for fiscal year 1997 resulting in an estimated annual savings of over
$1.0 million each for both the Company and SYN. The increase in overhead
reimbursement from SYN was due to a contractual inflation adjustment plus a
full three months of overhead reimbursement in 1996 compared to one and a half
months in 1995. In the prior year, the company also received a one time
reimbursement for initial costs incurred related to the transaction of
approximately $200,000.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Note 2 of the Condensed Consolidated Financial
Statements.
ITEM 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
On October 10, 1996 the Company filed a Current Report on Form
8-K.
REVIEWED BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The September 30, 1996 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.
ALL STAR GAS CORPORATION
Registrant
/s/Mark Castaneda
_________________________
MARK CASTANEDA
VICE PRESIDENT - FINANCE
DATE: November 14, 1996
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders
All Star Gas Corporation (formerly Empire Gas Corporation)
Lebanon, Missouri
We have reviewed the accompanying condensed consolidated balance
sheet of ALL STAR GAS CORPORATION AND SUBSIDIARIES (formerly Empire Gas
Corporation) as of September 30, 1996, and the related condensed
consolidated statements of operations and cash flows for the three-
month periods ended September 30, 1996 and 1995. 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, 1996, 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 30, 1996, 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,
1996, is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.
/s/ BAIRD, KURTZ & DOBSON
Springfield, Missouri
October 1, 1996
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<ARTICLE> 5
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 869,000
<SECURITIES> 0
<RECEIVABLES> 6,051,000
<ALLOWANCES> 836,000
<INVENTORY> 7,028,000
<CURRENT-ASSETS> 16,061,000
<PP&E> 96,648,000
<DEPRECIATION> 29,602,000
<TOTAL-ASSETS> 99,862,000
<CURRENT-LIABILITIES> 17,468,000
<BONDS> 124,721,000
<COMMON> 14,000
0
0
<OTHER-SE> (48,504,000)
<TOTAL-LIABILITY-AND-EQUITY> 99,862,000
<SALES> 12,300,000
<TOTAL-REVENUES> 13,119,000
<CGS> 7,060,000
<TOTAL-COSTS> 7,060,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 162,000
<INTEREST-EXPENSE> 4,120,000
<INCOME-PRETAX> (5,647,000)
<INCOME-TAX> (2,000,000)
<INCOME-CONTINUING> (3,647,000)
<DISCONTINUED> 0
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