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, 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
--------------
(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, 1997 was 1,564,050.
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)
SEPTEMBER 30, 1997 JUNE 30,
(UNAUDITED) 1997
---------- ----
Assets
Current Assets
Cash $ 1,178 $ 965
Trade receivables - Net 5,895 5,101
Inventories 7,553 6,924
Prepaid Expense 678 401
Due from Related Parties ----- 98
Refundable Income Taxes ------- 630
------- ------
Total Current Assets 15,304 14,119
------ ------
Property, Plant and Equipment 110,818 105,344
Less Accumulated Depreciation 33,505 32,118
------- -------
Fixed Assets - Net 77,313 73,226
------- -------
Other Assets
Debt Acquisition Costs - Net 3,451 3,605
Excess of Cost Over Fair Value
of Assets Acquired - Net 14,611 14,101
Other 2,482 2,781
------- --------
Total Other Assets 20,544 20,487
------- --------
Total Assets $113,161 $107,832
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
SEPTEMBER 30, 1997 JUNE 30,
(UNAUDITED) 1997
---------- ----
Current Liabilities
Current Maturities of
Long-Term Debt $ 7,100 $ 2,385
Accounts Payable and
Accrued Expenses 20,084 16,332
------ ------
Total Current Liabilities 27,184 18,717
Long-Term Debt 128,455 124,247
Deferred Income Taxes 5,090 7,190
Accrued Self-Insurance Liability 287 398
------- -------
Total Liabilities 161,016 150,552
------- -------
Stockholders' Equity (Deficit)
Common; $.001 Par Value;
Authorized 20,000,000 Shares,
Issued Sept. 30, 1997 and
June 30, 1997 -- 14,291,020
Shares 14 14
Common Stock Purchase Warrants 1,227 1,227
Additional Paid-In Capital 27,279 27,279
Retained Earnings 11,699 16,834
------ ------
40,219 45,354
Treasury Stock at Cost
September 30, 1997 and
June 30, 1997
12,726,970 Shares (88,074) (88,074)
------- -------
Total Stockholders' Equity (Deficit) (47,855) (42,720)
------- --------
Total Liabilities and
Stockholders' Equity (Deficit) $113,161 $107,832
======== ========
See Notes to Condensed Consolidated Financial Statements
ALL STAR GAS CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
(Dollars In Thousands, Except Per Share Amounts)
1997 1996
---- ----
Operating Revenue $13,078 $13,119
Cost of Product Sold 6,651 7,060
------- -------
Gross Profit 6,427 6,059
------- -------
Operating Costs and Expenses
General and Administrative 6,766 5,827
Depreciation and Amortization 2,292 1,445
(Gain) Loss on Sale of Assets (88) 314
------ -----
8,970 7,586
------ -----
Operating Loss (2,543) (1,527)
------ -------
Other Income (Expense)
Interest Expense, Net (2,651) (2,629)
Amortization of Debt
Discount and Expense (1,673) (1,491)
Restructuring Proposal Costs (368) ------
------ -------
(4,692) (4,120)
------ -------
Loss Before Income Taxes (7,235) (5,647)
Provision (Credit) for Income Taxes (2,100) (2,000)
Net Loss $(5,135) $(3,647)
======== ========
Loss Per Common Share $(3.28) $(2.31)
======== ========
See Notes to Condensed Consolidated Financial Statements
ALL STAR GAS CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
(Dollars In Thousands)
1997 1996
---- ----
Cash Flows From Operating Activities
Net Loss $(5,135) $(3,647)
Items not requiring (providing) cash
Depreciation 1,836 1,217
Amortization 2,129 1,719
Loss (Gain) on sale of assets (88) 314
Deferred income taxes (2,100) (2,000)
Changes In:
Trade receivables (647) (1,502)
Inventories (446) (1,113)
Prepaid expense & other 170 (330)
Accounts payable & accrued expenses 4,481 2,708
----- ------
Net cash provided by (used in)
operating activities 200 (2,634)
----- -------
Cash Flows From Investing Activities
Purchase of property & equipment (2,088) (1,453)
Acquisitions of retail service centers (2,697) ----
Receipts on sales of retail outlets
previously accrued ------ 3,002
Proceeds from sales of property &
equipment 189 66
Disposal of retail service centers 550 1,212
------ -----
Net cash provided by (used in)
investing activities (4,046) 2,827
------- -----
Cash Flows From Financing Activities
Checks in process of collection (373) (751)
Increase in working capital financing 4,683 668
Principal payments on other long-term
debt (251) (139)
----- -----
Net cash provided by (used in)
financing activities 4,059 (222)
----- -----
INCREASE (DECREASE) IN CASH 213 (29)
CASH, BEGINNING OF PERIOD 965 898
------ -----
CASH, END OF PERIOD $1,178 $ 869
====== =====
See Notes to Condensed Consolidated Financial Statements
ALL STAR GAS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
1) BASIS OF PRESENTATION
All Star Gas Corporation (the Company) was founded in 1963
and through its subsidiaries has been in operation for over
34 years. The Company is engaged primarily in the retail
marketing of propane and propane related appliances,
supplies and equipment to residential agricultural and
commercial customers. As of the last fiscal year, the
Company provided service to approximately 115,000 customers
in 21 states through 130 retail service centers.
The accompanying unaudited condensed consolidated financial
statements contain, in the opinion of management, all
adjustments necessary to present fairly the Company's
condensed consolidated financial position as of September
30, 1997, and the condensed consolidated results of its
operations and cash flows for the periods ended September
30, 1997 and 1996. All such adjustments are of a normal
recurring nature.
These financial statements should be read in conjunction
with the Company's audited consolidated financial statements
as of June 30, 1997, and the notes thereto included in the
Form 10-K as filed with the United States Securities and
Exchange Commission as disclosure which would substantially
duplicate the disclosure contained in that registration has
been omitted.
Due to the seasonal nature of the Company's business, the
results of operations for the three months ended September
30, 1997, are not necessarily indicative of the results to
be expected for the full year.
2) SELF-INSURANCE AND CONTINGENCIES
Under the Company's fiscal 1998 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 self-insures the first $200,000 for
each and every general liability incident. For the vehicle
and workers' compensation programs, the Company has a
$250,000 deductible per occurrence. 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, resulting in a retention for a portion
of these expected losses.
The fiscal 1998 insurance program reduced the self-insurance
of general liability incidents from $250,000 per incident in
fiscal 1997 (under joint coverage with SYN, Inc., a former
related party) and $500,000 per incident in fiscal 1996,
while maintaining similar premium costs to 1997 and reducing
premium costs from 1996.
The Company and its subsidiaries are defendants in various
lawsuits related to the self-insurance program, which are
not expected to have a material adverse effect on the
Company's financial position or results of operations.
The Company currently self-insures health benefits provided
to the employees of the Company and its subsidiaries,
subject to a $75,000 maximum per claim. Provisions for
losses expected under this program are recorded based upon
the Company's estimate of the aggregate liability for claims
incurred.
As previously reported, the State of Missouri has made an
assessment of state income tax for the years ended June 30,
1992 and 1993, the nature and magnitude of which has not
changed. The Company continues to believe that it has a
strong position on this matter and intends to vigorously
contest the assessment. It is likely that this matter will
have to be settled in litigation.
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) ACCOUNTING FOR DERIVATIVES
There has been no change since June 30, 1997 in the
Company's treatment of commodity futures contracts. As of
September 30, 1997, the Company's open positions on future
contracts are immaterial.
4) ACQUISITIONS AND DISPOSITIONS OF RETAIL SERVICE CENTERS
The Company continues to pursue growth and improved results
through the acquisition of retail service centers in its
market area and the disposition of service centers in
accordance with its overall marketing plan. During the
three months ended September 30, 1997, the Company acquired
three businesses, consisting of six retail service centers
and disposed of one retail service center. The Company
expended $2.7 million in cash and incurred $3.0 million in
mortgage obligations and noncompete agreements to acquire
these businesses and received $550,000 for the service
center disposition. Pro forma results of these operations
as if the transactions had been completed at the beginning
of the period would not be materially different from actual
results due to the timing of the transactions and the seasonal
nature of the business.
5) ADDITIONAL CASH FLOW INFORMATION (IN THOUSANDS)
Additional Cash Payment Information 1997 1996
---- ----
Interest Paid $4,658 $5,074
Income Taxes Paid (net of refunds) $ (874) $ 36
Noncash Investing and Financing Activities
Mortgage obligations incurred on
the acquisition of retail
service centers $2,975 $-----
Note receivable generated by the
disposal of a retail service
center $----- $ 24
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 (in thousands.)
SEPTEMBER 30 JUNE 30
1997 1996 1997 1996
---- ---- ---- ----
Total long-term debt
(including current
maturities) $135,555 $124,721 $126,632 $122,858
Working Capital $(11,880) $ (1,406) $ (4,598) $ (5,703)
Current Ratio .56 .92 .75 .74
During the three months ended September 30, 1997, the Company
incurred $3.0 million of additional debt related to the
acquisition of retail service centers. The remainder of the
increase in long-term debt is related to the $1.5 million of
amortization of original issue discount on the Company's 12-7/8%
Senior Secured Notes, due 2004 and the increase in the revolving
credit facility of $4.7 million offset by mortgage obligation
principal payments.
The significant change in working capital and the resulting
effect on the current ratio is primarily due to three factors:
(1) the classification of the revolving credit facility as
current, (2) the significant increase in the Company's prepaid
product program, and (3) the levels of accounts receivables and
inventories and the timing of certain accruals and payables.
Current maturities of long-term debt increased approximately $6.0
million relating primarily to the classification of the revolving
credit facility as current at September 30, 1997, compared to its
treatment as long-term at September 30, 1996. The revolving
credit facility had a balance of $5.2 million and $7.1 million as
of September 30, 1997 and 1996, respectively. The Company
intends, however, to refinance this obligation at its due date of
June 29, 1998.
Customer prepayments, primarily related to the Company's prepaid
product program, increased to $10.9 million as of September 30,
1997 compared to $4.5 million as of September 30, 1996. The
Company experienced much greater interest from its customers in
the program's second year. The program allows customers to
prebuy product at an established price, reducing their risk of
winter price fluctuations brought about by changes in demand and
allowing the Company to improve its seasonal cash flow.
Cash flows from operations, a federal income tax refund, customer
prepayments and the increase in the revolving credit facility
allowed the Company to increase its inventory levels and support
increased accounts receivable while reducing certain payables and
accruals and meeting certain cash payment requirements, including
the $4.5 million interest payment made on July 15, 1997 pursuant
to the terms of the 12-7/8% Senior Secured Notes, due 2004.
Pursuant to these Notes, the Company is required to make a $4.5
million interest payment on January 15, 1998. Historically,
operating income increases during the second quarter as the
winter selling season begins. The Company intends to meet the
interest payment requirement through cash flows and available
borrowings on its revolving credit facility.
RESULTS OF OPERATIONS
Due to the seasonal nature of its 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
elements. 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 the increased working capital
borrowings used to finance inventory purchases in preparation for
the Company's principal sales months.
The following table presents additional operating data for the
periods ended September 30, 1997 and 1996 and the year ended June
30, 1997 (in thousands).
THREE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED
9/30/97 9/30/96 6/30/97
Propane gallons sold 14,480 13,755 85,006
Revenues:
Propane 11,529 11,465 86,816
Gas systems, appliances,
and other fuels 800 835 3,759
Other 749 819 3,968
Gross Margins:
Propane 5,414 4,983 36,292
Gas systems and
appliances 264 257 1,208
Volumes. Retail volumes of propane sold increased in the three
months ended September 30, 1997 compared to the same period ended
September 30, 1996. Due to the seasonal nature of the sales of
propane, there are relatively fewer temperature sensitive sales
in the first quarter. The primary reason for the increase in
volume is due to the net effect of the Company's acquisitions and
dispositions during the current quarter and prior fiscal year.
Revenues. Operating revenues remained relatively consistent
between the quarters ended September 30, 1997 and 1996. As
indicated in the table above, propane revenues increased due
primarily to increased volume offset slightly by changes in the
retail prices charged. Gas system, appliance, other fuels and
other revenues also fell slightly due to the removal of the
Company's other fuel sales through retail service center
dispositions and the elimination of the SYN Inc. management fee.
Cost of product and gross margins. Gross margins increased from
$6.1 million to $6.4 million from September 30, 1996 to 1997
respectively. The increase in the gross margin is related
primarily to the increase in volume of propane sales as costs
during both periods remained relatively stable.
General and administrative expense. General and administrative
expense increased significantly from $5.8 million during the
three months ended September 30, 1996 compared to $6.8 million
during the same period ended September 30, 1997. This increase
is related primarily to increased retail costs associated with
the acquisition of retail service centers in the current period
and the prior fiscal year. General and administrative expense
was also affected by the removal of the SYN Inc. overhead
reimbursement of approximately $800,000 that was offset by the
reduction of expense related to the management of SYN Inc.
Depreciation and amortization. Depreciation and amortization
increased from $1.4 million in the three months ended September
30, 1996 to $2.3 million in the same period ended September 30,
1997. This increase is due primarily to the increased
depreciable basis of fixed assets acquired through the
acquisition of retail service centers occurring in the 1997
fiscal year and the current quarter. Depreciation expense on
Modernization expenditures and other asset purchases also
contributed to the increase in fiscal 1998. Amortization
increased related to the amortization of noncompete agreements
incurred through retail service center acquisitions.
Interest expense. Interest expense remained relatively unchanged
for the three month periods ended September 30, 1997 and 1996.
Restructuring proposal costs. As discussed in Note 12 of the
June 30, 1997 financial statements referred to above, the Company
abandoned a proposal to restructure its debt and equity as of
June 30, 1997. These expenses at September 30, 1997 consist of
residual expenses related to the abandonment of this proposal.
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
Reviewed by Independent Certified Public Accountants
The September 30, 1997 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/Paul S. Lindsey
_________________________
PAUL S. LINDSEY
PRESIDENT
DATE: November 14, 1997
Independent Accountants' Report
Board of Directors and Stockholders
All Star Gas Corporation
Springfield, Missouri
We have reviewed the accompanying condensed consolidated balance
sheet of All Star Gas Corporation as of September 30, 1997, and the
related condensed consolidated statements of operations and cash flows
for the three-month periods ended September 30, 1997 and 1996. 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 Accounts. 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 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, 1997, 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 14, 1997, 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, 1997, is fairly
stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
Springfield, Missouri
November 3, 1997
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<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,178,000
<SECURITIES> 0
<RECEIVABLES> 7,037,000
<ALLOWANCES> 1,142,000
<INVENTORY> 7,553,000
<CURRENT-ASSETS> 15,304,000
<PP&E> 110,818,000
<DEPRECIATION> 33,505,000
<TOTAL-ASSETS> 113,161,000
<CURRENT-LIABILITIES> 27,184,000
<BONDS> 128,455,000
<COMMON> 14,000
0
0
<OTHER-SE> (47,869,000)
<TOTAL-LIABILITY-AND-EQUITY> 113,161,000
<SALES> 12,329,000
<TOTAL-REVENUES> 13,078,000
<CGS> 6,651,000
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<LOSS-PROVISION> 124,000
<INTEREST-EXPENSE> 4,324,000
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<INCOME-TAX> (2,100,000)
<INCOME-CONTINUING> (5,135,000)
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