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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 March 31, 1997
COMMISSION FILE NUMBER 1-6537-3
ALL STAR 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
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(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 April
30, 1997 was 1,564,050.
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PART I - - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALL STAR GAS CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands, Except Per Share Amounts)
MARCH 31, 1997 JUNE 30,
(UNAUDITED) 1996
-------------- ----------
Assets
Current Assets
Cash and cash equivalents $ 1,665 $ 898
Trade receivables - Net 9,450 4,308
Inventories 7,112 6,039
Prepaid Expense 594 276
Receivable from sale of Retail
Locations --- 2,390
Due from Related Parties 38 1,261
Deferred Income Taxes 700 995
------ -------
Total Current Assets 19,559 16,167
------ ------
Property, Plant and Equipment 104,232 97,407
Less Accumulated Depreciation 31,316 29,497
-------- ------
Fixed Assets - Net 72,916 67,910
------- ------
Other Assets
Debt Acquisition Costs - Net 3,762 4,228
Excess of Cost Over Fair Value
of Assets Acquired - Net 13,479 12,357
Other 2,779 1,340
------- -------
Total Other Assets 20,020 17,925
------ ------
Total Assets $112,495 $102,002
======== ========
ALL STAR GAS CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands, Except Per Share Amount)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
MARCH 31, 1997 JUNE 30,
(UNAUDITED) 1996
-------------- ----------
Current Liabilities
Current Maturities of Long-Term Debt $ 1,750 $ 7,358
Accounts Payable and Accrued Expenses 13,302 14,512
------- -------
Total Current Liabilities 15,052 21,870
Long-Term Debt 125,317 115,500
Deferred Income Taxes 9,090 8,935
Accrued Self Insurance Liability 352 540
-------- ---------
Total Liabilities 149,811 146,845
------- -------
Stockholders' Equity (Deficit)
Common; $.001 Par Value; Authorized
20,000,000 Shares, Issued March
31, 1997 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 22,238 14,612
------ ------
50,758 43,132
Treasury Stock at Cost
March 31, 1997 12,726,970 shares
and June 30, 1996 12,711,795 Shares (88,074) (87,975)
-------- --------
Total Stockholders' Equity (Deficit) (37,316) (44,843)
-------- --------
Total Liabilities and Stockholders' Equity $112,495 $102,002
======== ========
See Notes to Condensed Consolidated Financial Statements
ALL STAR GAS CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
(Dollars In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
-------- --------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
---- ---- ---- ----
Operating Revenue $34,135 $34,214 $81,411 $70,137
Cost of Product Sold 18,942 18,077 46,296 35,901
------- ------ ------ ------
Gross Profit 15,193 16,137 35,115 34,236
------ ------ ------ ------
Operating Costs and Expenses
General and Administrative 7,162 7,335 20,801 21,388
Depreciation and Amortization 1,813 1,706 4,947 4,769
------- ----- ------- -----
8,975 9,041 25,748 26,157
------- ----- ------ ------
Operating Income 6,218 7,096 9,367 8,079
----- ----- ----- -----
Other Income (Expense)
Interest Expense, Net (2,622) (2,671) (8,054) (7,921)
Amortization of Debt
Discount and Expense (1,579) (1,488) (4,561) (4,149)
Gain (Loss) on Sale of
Assets (215) (119) (580) 736
Gain (Loss) on SYN/Myers
Transaction (899) --- 16,954 ---
------- ------- ------ -------
(5,315) (4,278) 3,759 (11,334)
-------- ------- ------- --------
Income (Loss) Before Income Taxes 903 2,818 13,126 (3,255)
Provision (Credit) for Income Taxes 600 1,100 5,500 ( 900)
----- ----- ------ -------
Net Income (Loss) $ 303 $1,718 $ 7,626 $(2,355)
======= ====== ======= ========
Income (Loss) Per Common Share $ 0.19 $ 1.09 $ 4.88 $ (1.49)
======= ======= ======= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
ALL STAR GAS CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
(Dollars In Thousands)
1997 1996
---- ----
Cash Flows From Operating Activities
Net Income (Loss) $ 7,626 $ (2,355)
Items not requiring (providing) cash
Depreciation 3,908 4,034
Amortization 5,599 4,884
Gain on sale of assets & investments (16,375) (736)
Deferred income taxes 450 (2,100)
Changes In:
Trade receivables (5,363) (6,198)
Inventories (1,113) ( 582)
Prepaid expense & other (306) ( 396)
Accounts payable & accrued expenses (211) 3,519
----- -----
Net cash provided by (used in)
operating activities (5,785) 70
------- -------
Cash Flows From Investing Activities
Purchase of property & equipment (6,179) (4,302)
Acquisition of retail service centers (4,334) (2,450)
Receipts on sales of retail outlets
previously accrued 3,002 ------
Proceeds from sales of property &
equipment 537 603
Disposal of retail service centers 1,540 4,273
Proceeds from sale of investment in
SYN Inc. 18,000 -------
------ -------
Net cash provided by (used in)
investing activities 12,566 (1,876)
------ -------
Cash Flows From Financing Activities
Checks in process of collection (1,671) ------
Increase (decrease) in working
capital financing (3,389) 2,929
Purchase of treasury stock ( 99) -------
Principal payments on other
long-term debt (855) (503)
----- -------
Net cash provided by (used in)
financing activities (6,014) 2,426
-------- ------
INCREASE IN CASH AND CASH EQUIVALENTS 767 620
CASH, & CASH EQUIVALENTS BEGINNING OF
PERIOD 898 821
------ ------
CASH, & CASH EQUIVALENTS END OF PERIOD $. 1,665 $ 1,441
======== ========
See Notes to Condensed Consolidated Financial Statements
ALL STAR GAS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1997 AND 1996
(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 condensed consolidated
financial position as of March 31, 1997, and the condensed
consolidated results of its operations and cash flows for the periods
ended March 31, 1997 and 1996. 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.
In December, 1996 the Company and Northwestern Growth Corporation
(NGC), completed an agreement for the sale of various interests of the
Company in SYN Inc. (SYN) and Myers Propane Gas (Myers) 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 terminated the management agreements pursuant to which the
Company provided management activities for SYN and Myers effective
December, 1996. The agreement resulted in a payment of $18 million to
the Company resulting in a gain reflected on the Statement of
Operations of $17 million which is net of transaction and other costs
and fees. The Company may be entitled to an additional amount based
on a third party's indemnification obligations to SYN.
The results of operations for the three and nine months ended March
31, 1997, 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 statements represent 52.3% of the
total liability as of the respective balance sheet dates. In December
1996, Cornerstone Propane Partners, L.P. (Cornerstone), a master
limited partnership, was established from the consolidation of Energy,
SYN, Myers and other interests, which as the successor entity of these
companies, assumes the liabilities and obligations of the
predecessors.
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
portion of certain expected losses related primarily to comprehensive
general and vehicle liability. Effective fiscal 1997, the Company and
SYN pooled their risks and acquired joint coverage. Premiums were
dramatically reduced from the prior year due to a significantly
improved claims record, and the benefits of pooled coverage. The
Company self insures the first $250,000 for each and every general
liability incident, which is reduced from $500,000 per incident in the
prior year. Above this retention is a corridor deductible of $750,000
per occurrence, $1.25 million in aggregate for the combined companies
compared to $1 million for the Company in the prior year. For the
vehicle and workers' compensation programs, the Company has a $250,000
deductible per occurrence with a $2.0 million aggregate stop loss for
the combined companies. 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 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 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 1.7 cents per gallon
sold compared to 2.9 cents per gallon in fiscal year 1996.
The Company currently self insures health benefits provided to the
employees of the Company and its subsidiaries subject to a $75,000 cap
per claim. 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) is in the process of 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. Subsequent to the end of the quarter, the IRS has proposed
adjustments indicating a potential exposure of approximately $130,000
related to these issues.
The State of Missouri has assessed the Company approximately $1.4
million 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
Cornerstone 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 it 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. The Company has no open positions
as of March 31, 1997.
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 require interest payments at
7% through July 15, 1999, and at 12 7/8% thereafter.
The Company's receivables and inventories are pledged under a
revolving credit facility agreement with a lender, 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 1.0%
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 has received an amendment to the loan
agreement to (i) increase the maximum amount of aggregate cash
consideration that may be paid in any twelve month period in
connection with acquisitions to $15 million from $6 million, (ii)
permit a certain stock repurchase transaction and (iii) lower
applicable interest rates and Letter of Credit fees. 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 $8.7 million at March 31, 1997.
5) Additional Cash Flow Information (In Thousands)
Additional Cash Payment Information 1997 1996
----------------------------------- ---- ----
Interest Paid $10,541 $9,908
Income Taxes Paid (net of refunds) $ 2,935 $(1,649)
Noncash Investing and Financing Activities
------------------------------------------
Mortgage obligations incurred on the
acquisition of retail service centers $3,008 $ 992
Other mortgage obligations incurred $1,355 $----
Capitalized lease on the acquisition
of computer equipment $----- $ 283
Note 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.
<TABLE>
<CAPTION>
MARCH 31 JUNE 30
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total long-term debt (including
current maturities) $127,067 $123,027 $122,858 $115,647
Working Capital $4,507 $2,708 $(5,703) $1,636
Current Ratio 1.30 1.15 .74 1.13
</TABLE>
During the nine months ended March 31, 1997, the Company's working capital
increased by approximately $10.2 million. The increase was due primarily to
increases in cash and trade receivables which were financed by operating
cash flows and receipts from the sale of the Company's interest in SYN.
Working capital was further increased by the reduction of current
maturities of long-term debt from $7.4 million to $1.8 million resulting
from the payoff of the majority of the working capital facility discussed
below.
The increase in long-term debt (including current maturities) of
approximately $4.2 million from June 30, 1996, to March 31, 1997, is
primarily the result of the amortization of original issue discount on the
Company's senior secured notes of $4.1 million and debt incurred on the
purchase of five retail service centers and certain other assets of $4.4
million. These increases were offset by decreases to long-term debt from
receipts from the sale of the Company's interest in SYN which were used to
pay down the working capital facility which had a balance of $6.4 million
at June 30, 1996, and $3.0 million at March 31, 1997. Additionally, the
increase in long-term debt was offset by principal payments of $900,000 on
existing mortgage obligations. Interim borrowings on the working capital
facility along with cash generated from earnings and the sale of SYN
interests were used to meet interest needs of approximately $10.5 million.
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 July 15, 1997. The Company intends to meet the interest payment
requirement through operating cash flows and available borrowings on its
working capital facility.
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 and third quarters. Operating revenues for a particular
quarter or for nine months are not necessarily indicative of a full fiscal
year's operations because of the seasonal element in the Company's
operations. 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 the increase working capital borrowings used to finance
inventory purchases in preparation for the Company's principal sales
months.
During the third quarter of fiscal 1997, the Company acquired two retail
service centers and exchanged one existing retail service center which
represent a net addition of 3 million gallons of projected sales on an
annual basis. During the first nine months of fiscal 1997, the Company
divested itself of 7 marginally profitable retail service centers for
approximately $1.5 million in cash with $75,000 held in escrow until the
completion of certain contract requirements.
Operating revenues for the nine months ended March 31, 1997, increased by
$11.3 million as compared to the same period of the prior year. The
increase is due primarily to increases of $10.9 million in propane sales
which results from an increase of approximately 18 cents in retail prices
brought about by an increase of approximately 14.5 cents in wholesale
product cost. Total gallons sold decreased 6.5% compared to the same period
of the prior year primarily due to significantly warmer winter weather in
the regions served by the Company most sensitive to winter weather
variances. Wholesale sales which are made to both related and unrelated
parties accounted for $2.0 million of additional revenue primarily from a
significant increase in the wholesale price and to a lesser extent, the
expansion of the wholesale sales program.
Gross profit for the nine months ended March 31, 1997, increased by
$900,000 compared to the same period of the prior year. The increase is due
to an increase of approximately $400,000 from propane sales, with the
balance from other revenues. The increase from propane sales is due to an
approximate 3.5 cent increase in the average net margin per gallon coupled
with a decrease in total gallons sold as compared to the same period of the
prior year as noted above.
General and administrative expenses declined approximately $600,000 for the
nine months ended March 31, 1997, as compared to the same period of the
prior year. This decrease is due primarily to a reduction of $1.3 million
in insurance premiums and liability claims expense from the benefits
previously discussed and $300,000 in travel and entertainment expenses
as a result of a reduction in costs related to the SYN management
agreement. The decreases were offset by a $1.1 million reduction in the
amount of reimbursement from SYN as a result of the transaction with SYN
previously discussed. Additionally, decreases in airplane, office, rent
and maintenance, provision for doubtful accounts and miscellaneous expenses
were offset by slight increases in vehicle fuel and maintenance, salaries,
professional fees, taxes and licenses and advertising.
Operating revenues for the three months ended March 31, 1997, decreased by
$100,000 as compared to the same period of the prior year. The decrease
is due to a decrease of $400,000 in other sales and revenues offset by
a $300,000 increase in propane sales. The increase in propane sales is
primarily due to an increase in retail prices of approximately 20 cents for
the three months brought about by an increase of approximately 15 cents in
wholesale product cost. Total gallons sold decreased approximately 17%
compared to the same period of the prior year primarily due to significantly
warmer winter weather in regions served by the Company most sensitive to
winter weather variances.
Gross profit for the three months ended March 31, 1997, decreased by
$900,000 as compared to the same period of the prior year. The decrease is
due to a decrease of approximately $700,000 from propane and gas system
and appliance sales and $200,000 from other revenues for primarily the same
reasons as discussed for the nine month period.
General and administrative expenses for the three months ended March 31,
1997, decreased approximately $200,000 as compared to the prior year
primarily due to insurance and salary expenses as previously described,
offset by the loss of the SYN overhead reimbursement fees.
Interest expense for both the three and nine months ended March 31, 1997,
as compared to the same periods of the prior year were similar with slight
increases in the current year as a result of the changing balance of the
working capital facility and interest expense related to new mortgages
acquired subsequent to March 31, 1996.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
(27) Financial Data Schedule
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: May 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,665,000
<SECURITIES> 0
<RECEIVABLES> 10,566,000
<ALLOWANCES> 1,116,000
<INVENTORY> 7,112,000
<CURRENT-ASSETS> 19,559,000
<PP&E> 104,232,000
<DEPRECIATION> 31,316,000
<TOTAL-ASSETS> 112,495,000
<CURRENT-LIABILITIES> 15,052,000
<BONDS> 125,317,000
<COMMON> 14,000
0
0
<OTHER-SE> (37,316,000)
<TOTAL-LIABILITY-AND-EQUITY> 112,495,000
<SALES> 78,188,000
<TOTAL-REVENUES> 81,411,000
<CGS> 46,296,000
<TOTAL-COSTS> 46,296,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 340,000
<INTEREST-EXPENSE> 12,615,000
<INCOME-PRETAX> 13,126,000
<INCOME-TAX> 5,500,000
<INCOME-CONTINUING> 7,626,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,626,000
<EPS-PRIMARY> 4.88
<EPS-DILUTED> 4.88
</TABLE>
