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 December 31, 1995
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) 532-3103
(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
January 31, 1996 was 1,579,225.
PART 1 - - FINANCIAL INFORMATION
Item 1. Financial Statements
EMPIRE GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands, Except Per Share Amounts)
December 31, 1995 June 30, 1995
----------------- -------------
(Unaudited)
ASSETS
Current Assets
Cash $ 1,539 $ 821
Trade receivables - Net 10,639 4,571
Inventories 7,341 5,686
Prepaid Expense 1,442 521
Refundable Income Tax -- 1,567
Deferred Income Taxes 2,000 1,350
Due from SYN Inc. 1,565 --
------- ---------
Total Current Assets 24,526 14,516
------ ------
Property, Plant and Equipment 97,460 98,217
Less Accumulated Depreciation 27,961 27,111
------ ------
Fixed Assets - Net 69,499 71,106
------ ------
Other Assets
Debt Acquisition Costs - Net 4,542 4,856
Excess of Cost Over Fair Value
of Net Assets Acquired - Net 12,100 12,992
Other 1,876 1,658
-------- --------
Total Other Assets 18,518 19,506
------- -------
Total Assets $112,543 $105,128
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31, 1995 June 30, 1995
(Unaudited)
Current Liabilities
Current Maturities of Long-Term Debt 3,500 $ 504
Accounts Payable and Accrued Expenses 19,200 12,376
-------- --------
Total Current Liabilities 22,700 12,880
Long-Term Debt (Note 3) 118,379 115,143
Deferred Income Taxes 11,790 13,140
Accrued Self Insurance Liability (Note 2) 693 911
---------- ---------
Total Liabilities 153,562 142,074
------- -------
Stockholders' Equity (Deficit)
Common; $.001 Par Value; Authorized
20,000,000 shares, Issued
December 31, 1995
and June 30, 1995 - - 14,291,020 Shares 14 14
Common Stock Purchase Warrants 1,227 1,227
Additional Paid-In Capital 27,279 27,279
Retained Earnings 18,436 22,509
-------- --------
46,956 51,029
Treasury Stock at Cost
December 31, 1995 and June 30, 1995
12,711,795 Shares (87,975) (87,975)
--------- --------
Total Stockholders' Equity (Deficit) (41,019) (36,946)
-------- --------
Total Liabilities and Stockholders'
Equity
(Deficit) $112,543 $105,128
======== ========
See Notes to Condensed Consolidated Financial Statements
EMPIRE GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(Unaudited)
(Dollars In Thousands, Except Per Share Amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
----------- -----------
1995 1994 1995 1994
---- ---- ---- ----
Operating Revenue $ 24,295 $ 23,398 $ 36,778 $ 35,431
Cost of Product Sold 12,167 11,611 17,824 17,227
--------- -------- -------- -------
Gross Profit 12,128 11,787 18,954 18,204
--------- -------- -------- -------
Operating Costs and Expenses
General & Administrative 7,784 7,659 14,053 13,915
Depreciation & Amortization 1,536 1,412 3,063 2,778
--------- --------- -------- --------
9,320 9,071 17,116 16,693
--------- ---------- -------- -------
Operating Income 2,808 2,716 1,838 1,511
--------- --------- -------- --------
Other Expense
Interest Expense, Net (2,625) (2,579) (5,250) (5,284)
Amortization of Debt
Discount and Expense (1,331) (1,185) (2,661) (2,370)
---------- --------- --------- ---------
(3,956) (3,764) (7,911) (7,654)
---------- --------- --------- ---------
Loss Before Income Taxes (1,148) (1,048) (6,073) (6,143)
Credit for Income Taxes (300) (300) (2,000) (2,100)
---------- ---------- --------- ---------
Net Loss $ (848) (748) (4,073) (4,043)
=========== ========= ========= =========
Loss Per Common Share $ (.54) $ (.47) $ (2.58) $ (2.56)
============ ======== ========== ==========
See Notes to Condensed Consolidated Financial Statements
EMPIRE GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(Unaudited)
(In Thousands)
1995 1994
---- ----
Cash Flows From Operating Activities
Net Loss $ (4,073) $ (4,043)
Items not requiring (providing) cash
Depreciation 2,561 2,312
Amortization 3,163 2,836
Gain on sale of assets (855) (59)
Deferred income taxes (2,000) (2,100)
Changes In:
Trade receivables (7,610) (3,699)
Inventories (1,905) (3,227)
Prepaid expense & other (1,028) (898)
Accounts payable & accrued expenses 8,166 6,104
-------- ----------
Net cash used in operating activities (3,584) (2,774)
--------- ----------
Cash Flows From Investing Activities
Purchase of property & equipment (3,344) (6,272)
Acquisition of retail service centers (419) (1,431)
Proceeds from sales of property & equip. 365 374
Disposal of retail service centers 4,498 ______
--------
Net cash provided by (used in) investing 1,100 (7,329)
-------- ---------
activities
Cash Flows From Financing Activities
Increase in working capital financing 3,545 8,268
Principal payments on other long-term debt (343) (86)
--------- ----------
Net cash provided by financing activities 3,202 8,182
-------- -------
INCREASE (DECREASE) IN CASH 718 (1,921)
CASH, BEGINNING OF PERIOD 821 2,927
--------- -------
CASH, END OF PERIOD $ 1,539 $1,006
-------- ------
See Notes to Condensed Consolidated Financial Statements
EMPIRE GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(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, 1995, and the condensed
consolidated results of its operations and cash flows for the periods
ended December 31, 1995 and 1994. 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 1995 Annual
Report on Form 10-K.
On August 15, 1995, the Company entered into a joint venture with
Northwestern Growth Corporation, a subsidiary of Northwestern Public
Service Company, to acquire the assets of Synergy Group Incorporated,
the nation's fifth largest LP gas distributor. The Company has
acquired, for $30,000, 30% of the common stock of SYN Inc., the
acquisition entity. The Company has entered into a Management Agreement
pursuant to which the Company provides all management of the retail
facilities and accounting services at the central office. In exchange
for those services, the Company receives a $500,000 annual management
fee and a $3.25 million annual overhead cost reimbursement both accrued
on a pro rata basis during the year and collected on a monthly basis.
On December 7, 1995, the Company entered into a joint venture with
Northwestern Growth Corporation, a subsidiary of Northwestern Public
Service Company to acquire the stock of Myers Propane Gas, a large Ohio
LP gas distributor. The Company has acquired 49% of the common stock of
Myers Propane Gas Company. The Company will enter into a management
agreement pursuant to which the Company provides all management of
retail operations and administrative services at the central office. In
exchange for these services, the Company may receive a management fee
subject to attainment of performance goals.
The results of operations for the three-month and six-month periods
ended December 31, 1995, 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 1995 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 losses related primarily to
comprehensive general and vehicle liability. Under the current general
liability insurance program, the Company self-insures the first $1
million of coverage. For the current vehicle liability program, the
Company self-insures the first $500,000 of coverage (per incident). The
Company obtains excess coverage from insurance carriers for these
programs on claims-made basis policies. After the Company's general
liability losses have exceeded $1 million aggregate, the Company has a
$500,000 deductible per incident. Provisions for self-insured losses
are recorded based upon the Company's estimates of the aggregate
self-insured liability for claims incurred.
Prior to July 1, 1995, the Company self-insured $500,000 per incident
under its comprehensive general liability insurance program. Also, the
deductible for losses in excess of the $1 million aggregate was
previously $100,000 per incident. Under the Company's previous vehicle
liability insurance program, the self-insured retention was $250,000
per incident.
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.
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 December 31,
1995. The State of Missouri is presently auditing the Company for the
years ended June 30, 1992 and 1993. Missouri has assessed the Company
for additional state income taxes for which no accrual has been made
for the proposed deficiency. The Company believes that it has properly
reported its income and paid its taxes in accordance with applicable
laws and intends to contest the proposed adjustments vigorously. 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 prior to June
30, 1994. 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
represent 52.3% of the total liability as of the respective balance
sheet dates.
(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 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
54% of eligible inventory. In addition, the Company can borrow an
additional $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
$4.9 million at December 31, 1995, after considering $1.2 million of
outstanding net letters of credit.
At December 31, 1995, the Company was not in compliance with the
amended interest coverage ratio covenant. The bank has amended this
covenant and the Company is in compliance with the amended covenant.
(4) Additional Cash Flow Information (In Thousands)
Additional Cash Payment Information 1995 1994
----------------------------------- ---- ----
Interest Paid $ 4,797 $ 770
Income Taxes Paid (net of refunds) $(1,633) $ (2,186)
Noncash Investing and Financing Activities
Mortgage obligations incurred on the
acquisition of retail service centers $ 400 $ 1,703
Capitalized lease on the acquisition of
computer equipment $ 283 $ --
Net receivable generated by the disposal
of a retail service center $ 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.
(Dollars in Thousands)
December 31 June 30
----------- -------
1995 1994 1995 1994
---- ---- ---- ----
Total long-term debt (including $ 121,879 $117,266 $115,647 $105,612
current maturities)
Working Capital $ 1,826 $ 642 $ 1,636 $ 6,313
Current Ratio 1.08 1.03 1.13 1.59
During the six months ended December 31, 1995, the Company's working capital
increased by approximately $200,000. 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 in the amount of $2.8 million. This increase was offset by
approximately $2.6 million due to the sales of current assets related to the
sale of retail service centers described below and the reclassification of
additional long-term debt to current maturities.
The increase in long-term debt of approximately $6.2 million from June 30, 1995
to December 31, 1995, was attributable to $2.8 million of increased working
capital described above plus the Company financed its approximate $1.5 million
loss before income taxes (after adjustment for noncash expenses and gains) with
borrowings on this revolving credit facility. In addition, the Company increased
long-term debt by $2.3 million due to the amortization of original issue
discount on the Company's Senior Secured Notes.
The above increases in long-term debt were offset by the sale of 12 retail
service centers and other assets generating cash of $4.9 million offset by the
purchase of one retail service center and other purchases of property and
equipment which used cash and increased long-term debt by $4.5 million.
Subsequent to the end of the quarter, and pursuant to the terms of the Indenture
for the 12 7/8% Senior Secured Notes due July 15, 2004, the Company made an
interest payment of approximately $4.5 million on January 16, 1996. Funds
generated from operating cash flows plus available borrowing on the revolving
credit facility were sufficient to cover this payment. The Company is required
to make another semi-annual interest payment on July 15, 1996, in the same
amount. Historically, operating cash flows improve during the third and fourth
quarters as accounts receivable from winter sales are collected. Based upon
current management projections, which assumes normal winter weather through the
third quarter, the Company believes that operating cash flows should be
sufficient to meet interest requirements.
Results of Operations
Due to the seasonal nature of the Company's business, the Company usually
realizes a net operating loss the first quarter and net operating 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, generally
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.
During the first quarter of fiscal 1996, the Company completed the acquisition
of one retail service center located in Michigan. This service center was
purchased for $419,000 in cash and $400,000 in new mortgages.
During the first quarter of fiscal 1996, the Company divested itself of 12
retail service centers primarily located in Iowa and Wisconsin for approximately
$4.5 million in cash and $148,000 in promissory notes. The following table sets
forth, for the three months and six months ending December 31, 1994, selected
aggregate operating data for the retail service centers that were divested.
3 Months Ended 6 Months Ended
December 31, 1994 December 31, 1994
(Unaudited)
(In thousands)
Operating Income $ 76 $ 48
Operating Revenue $ 1,757 $ 2,552
Gross Margin $ 666 $ 1,059
Retail Gallons Sold 2,278 3,319
Operating revenues for the six months ended December 31, 1995, increased by $1.3
million as compared to the same period of the prior year. The increase is due to
increases of approximately $1.2 million in propane sales and $700,000 in other
revenues. These increases were partially offset by an approximate decrease of
$600,000 in other sales. The increase in propane revenues is due to approximate
increases of $700,000 in retail propane sales and $500,000 in industrial propane
sales. The increase in retail propane sales is due to an increase of
approximately 4% in the average net sales price partially offset by an
approximate decrease of 2% in gallons sold. Taking into consideration the
divested companies, the gallons sold would have increased by approximately 2% as
compared to the same pro forma period of the prior year. The increase in other
revenues is due to gains realized on the sales of the retail service centers
described above. The decrease in other sales is due to reduced sales of
appliances and parts as a result of decreased sales emphasis and sales
promotions from suppliers.
The gross profit for the six months ended December 31, 1995, increased by
approximately $700,000. The increase is due to increases of approximately
$700,000 in gains realized on the sales of retail service centers and $200,000
from propane sales, partially offset by a decrease of approximately $200,000
from other sales. The increase in margin from propane sales is due to an
approximate $.01 per gallon increase in the average net margin per gallon
partially offset by the approximate 2% decrease in gallons sold.
Operating revenues for the second quarter ended December 31, 1995, increased
approximately $900,000 as compared to the same period of the prior year. The
increase is due to an increase of approximately $1.3 million in propane sales
partially offset by a decrease of approximately $400,000 in other sales. The
increase in propane sales is due to an approximate 5% increase in the average
net sales price with similar gallons sold as compared to the same period of the
prior year. The increase in the sales price is the result of rising commodity
prices resulting from colder weather as compared to the same period of the prior
year. Gallons sold remained similar as a result of gallons lost due to the
divested retail service centers offset by an increase in gallons sold due to
colder weather.
The gross profit for the three months ended December 31, 1995, increased
approximately $300,000 as compared to the same period of the prior year. The
increase is due to an increase of approximately $400,000 from propane sales
partially offset by a decrease of approximately $100,000 from other sales. The
increase from propane sales is due to an approximate $.01 increase in average
net margin per gallon with similar gallons sold as compared to the same period
of the prior year as noted above.
General and administrative expenses for the six months ended December 31, 1995,
were virtually unchanged.
General and administrative expenses for the second quarter ended December 31,
1995, were virtually unchanged.
Interest expense was similar when compared to the same six month and three month
periods of the prior year.
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
None
Reviewed by Independent Certified Public Accountants
The December 31, 1995 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/Mark Castaneda
________________________
MARK CASTANEDA
VICE PRESIDENT/FINANCE
AND ADMINISTRATION
DATE: February 14, 1996
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 as of December 31, 1995, and the related
condensed consolidated statements of operations and cash
flows for the three-month and six-month periods ended
December 31, 1995 and 1994. 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, 1995, 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
25, 1995, 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, 1995, 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
January 31, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 1,539
<SECURITIES> 0
<RECEIVABLES> 13,320
<ALLOWANCES> 1,116
<INVENTORY> 7,341
<CURRENT-ASSETS> 24,526
<PP&E> 97,460
<DEPRECIATION> 27,961
<TOTAL-ASSETS> 112,543
<CURRENT-LIABILITIES> 22,700
<BONDS> 121,879
0
0
<COMMON> 14
<OTHER-SE> (41,033)
<TOTAL-LIABILITY-AND-EQUITY> 112,543
<SALES> 34,035
<TOTAL-REVENUES> 36,778
<CGS> 17,824
<TOTAL-COSTS> 17,824
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 394
<INTEREST-EXPENSE> 7,911
<INCOME-PRETAX> (6,073)
<INCOME-TAX> (2,000)
<INCOME-CONTINUING> (4,073)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,073)
<EPS-PRIMARY> (2.58)
<EPS-DILUTED> (2.58)
</TABLE>
