United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended June 30, 1995
Commission file Number 1-6537
EMPIRE GAS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Missouri 43-1494323
____________________________ _______________________
(State or other jurisdiction of Incorporation (IRS Employer
or Organization) Identification No.)
P.O. Box 303
1700 South Jefferson Street, Lebanon, Missouri 65536
________________________________________________ ______________________
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (417) 532-3103
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
_____________________________ ______________________
9% Subordinated Debentures due 2007 Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part II of this Form 10-K or any
amendment to this Form 10-K. (X)
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 ___
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of close of business on September 15, 1995 is: $116,480
Shares of Common Stock, $0.001 par value, outstanding as of close of
business on September 15, 1995: 1,579,225.
Upon request, Empire Gas Corporation will furnish a copy of any exhibit
listed but not contained herein. A fee of $.05 per page, to cover the
Company's costs in furnishing exhibits requested will be charged. Please
direct all requests to: Corporate Secretary, 1700 South Jefferson, Lebanon,
Missouri 65536; Telephone (417) 532-3103.
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PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES.
Introduction
Prior to June 29, 1994, Empire Gas Corporation ("Empire Gas"
or the "Company") was the owner of 100% of the outstanding common stock of
Empire Gas Operating Corporation ("EGOC") and had no other assets or
operations. Prior to a name change on April 26, 1994, EGOC had been known
as Empire Gas Corporation, and filed reports under the Securities Exchange
Act of 1934 under that name. On June 29, 1994, EGOC merged with and into
the Company, with the Company as the surviving corporation. All references
to the Company in this report refer to Empire Gas Corporation and its
consolidated subsidiaries, which prior to June 29, 1994 included EGOC.
On June 30, 1994, the Company engaged in a series of
transactions (the "Transaction") including the transfer of all of the shares
of common stock of Empire Energy Corporation ("Energy") to the Company's
former chairman, Robert W. Plaster, and certain departing directors,
officers and employees. Energy held the common stock of 136 subsidiaries of
the Company that carried on the business of the Company in ten states,
primarily in the Southeast. As part of the Transaction, the Company also
acquired the assets of PSNC Propane Corporation ("PSNC"). Except where
noted otherwise, all financial information in this report and the financial
statements included with this report include the results of operations of
Energy through June 30, 1994 and exclude the results of operations of PSNC,
but balance sheet data for June 30, 1994 and all financial information from
periods beginning thereafter exclude the assets of Energy and include the
assets of PSNC.
On August 15, 1995, the Company entered into a joint venture
with Northwestern Growth Corporation, a subsidiary of Northwestern Public
Service Corporation, to acquire the assets of Synergy Group Incorporated,
the nation's fifth largest LP gas distributor. The Company has acquired for
$10,000 10% of the common stock of SYN, Inc., the acquisition entity, and
has an option to acquire an additional 20% of the common stock of SYN, Inc.
for $20,000. The Company has entered into a Management Agreement pursuant
to which the Company manages the joint entity. Under the terms of the
Management Agreement, 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
$3.25 million annual overhead cost reimbursement, both paid on a monthly
basis. Unless specifically referenced, all information contained herein
excludes information pertaining to the Synergy operations.
Propane Operations
The Company is engaged in the business of the retail
distribution of propane and has been in operation since 1963. In addition,
the Company sells related gas-burning appliances and equipment and rents
customer storage tanks. The Company's operations consist of 156 retail
service centers with 18 additional bulk storage facilities. Since August
15, 1995 the Company has operated an additional 107 service centers pursuant
to the Management Agreement relating to SYN, Inc. During the fiscal year
ended June 30, 1995, the Company sold approximately 86.7 million gallons of
propane to approximately 112,000 customers in 21 states, which (based on
retail gallons sold) makes it one of the 11 largest retail distributors of
propane in the United States. The Company's operations are geographically
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diversified with retail service centers located in the west, the southwest,
Colorado, the upper midwest, the Mississippi Valley and the southeast. This
diversification reduces the potential impact of fluctuations of weather in a
particular region.
Propane, a hydrocarbon with properties similar to natural
gas, is separated from natural gas at gas processing plants and refined from
crude oil at refineries. It is stored and transported in a liquid state and
vaporizes into a clean-burning energy source that is used for a variety of
residential, commercial, and agricultural purposes. Residential and
commercial uses include heating, cooking, water heating, refrigeration,
clothes drying, and incineration. Commercial uses also include metal
cutting, drying, container pressurization, and charring, as well as use as a
fuel for internal combustion engines. Agricultural uses include brooder
heating, stock tank heating, crop drying, and weed control, as well as use
as a motor fuel for farm equipment and vehicles. Propane is also used for a
number of other purposes.
Sales of propane to residential and commercial customers,
which account for the vast majority of the Company's revenue, have provided
a relatively stable source of revenue for the Company. Sales to residential
customers accounted for approximately 66.0% of the Company's aggregate
propane sales revenue and 70.7% of its aggregate gross margin from propane
sales in fiscal year 1995. Historically, this market has provided higher
margins than other retail propane sales. Based on fiscal year 1995 propane
sales revenue, the customer base consisted of 23.9% commercial and 10.1%
agricultural and other customers. While commercial propane sales are
generally less profitable than residential retail sales, the Company has
traditionally relied on this customer base to provide a steady, noncyclical
source of revenues. No single customer accounts for more than 1.1% of
revenue from sales.
Sources of Supply. Propane is derived from the refining of
crude oil or is extracted in the processing of natural gas. The Company
obtains its supply of propane primarily from oil refineries and natural gas
plants located in the south, west and midwest. Most of the Company's
propane inventory is purchased under supply contracts with major oil
companies which typically have a one-year term, at the suppliers' daily
posted prices or a negotiated discount. During fiscal 1995, contract
suppliers sold nearly 73% of the propane purchased by the Company, and the
two largest suppliers sold 17.6% and 12%, respectively, of the total volume
purchased by Empire Gas. The Company has established relationships with a
number of suppliers over the past few years and believes it would have ample
sources of supply under comparable terms to draw upon to meet its propane
requirements if it were to discontinue purchasing propane from its two
largest suppliers. The Company takes advantage of the spot market as
appropriate. The Company has not experienced a shortage that has prevented
it from satisfying its customer's needs and does not foresee any significant
shortage in the supply of propane.
Distribution. The Company purchases propane at refineries,
gas processing plants, underground storage facilities and pipeline terminals
and transports the propane by railroad tank cars and tank trailer trucks to
the Company's retail service centers, each of which has bulk storage
capacity ranging from 16,000 to 180,000 gallons. The Company has retail
service centers with an aggregate storage capacity of approximately 9.0
million gallons of propane, and each service center has equipment for
transferring the gas into and from the bulk storage tanks. The Company
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operates 13 over-the-road tractors and 18 transport trailers to deliver
propane to its retail service centers and also relies on common carriers to
deliver propane to its retail service centers. The Company also owns an
underground storage facility with a capacity of approximately 1 million
barrels. This facility is not currently being used and cannot be used until
a new disposal well is constructed, and the system is tested and brought up
to industry standards. The Company can meet its storage needs from existing
capacity and third-party sources, but is considering making the necessary
modifications to provide storage that it may use for its own purposes or
lease or sell to third parties. The Company is exploring the possibility of
making modifications to its underground storage facility, and has obtained
from an engineering and construction company a study of the costs of
rehabilitating and opening the facilities, which range from $500,000 to
$3,000,000. If the rehabilitation work is not performed and the facilities
cannot be sold, then the Company would be required to close the facilities
at a cost which the Company believes will not exceed $500,000.
Deliveries to customers are made by means of 400 bulk
delivery tank trucks owned by the Company. Propane is stored by the
customers on their premises in stationary steel tanks generally ranging in
capacity from 25 to 1,000 gallons, with large users having tanks with a
capacity of up to 30,000 gallons. Most of the propane storage tanks used by
the Company's residential and commercial customers are owned by the Company
and leased, rented, or loaned to customers.
Operations. The Company has organized its operations in a
manner that the Company believes enables it to provide superior service to
its customers and to achieve maximum operating efficiencies. The Company's
retail propane distribution business is organized into eighteen regions,
which include 107 service centers managed since August 1995 pursuant to the
Management Agreement relating to SYN, Inc. Each region is supervised by a
regional manager. The regions are grouped into four divisions, and the
regional managers report to their respective divisional vice president or
manager. Personnel located at the retail service centers in the various
regions are primarily responsible for customer service and sales.
A number of functions are centralized at the Company's
corporate headquarters in order to achieve certain operating efficiencies as
well as to enable the personnel located in the retail service centers to
focus on customer service and sales. The Company makes centralized
purchases of propane through its corporate headquarters for resale to the
retail service centers enabling the Company to achieve certain advantages,
including price advantages, because of its status as a large volume buyer.
The functions of cash management, accounting, taxes, payroll, permits,
licensing, asset control, employee benefits, human resources, and strategic
planning are also performed on a centralized basis.
The corporate headquarters and the retail service centers
are linked via a computer system. Each of the Company's primary retail
service centers is equipped with a computer that is connected to a central
data processing department in the Company's corporate headquarters. Empire
Service Corporation ("Service Corp."), a wholly owned subsidiary of Energy,
provides data processing and management information services to the Company
pursuant to a services agreement. See "Introduction," above. This computer
network system provides retail company personnel with accurate and timely
information on pricing, inventory, and customer accounts. In addition, this
system enables management to monitor pricing, sales, delivery, and the
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general operations of its numerous retail service centers and to plan
accordingly to improve the operations of the Company as a whole.
Factors Influencing Demand. Because a substantial amount of
propane is sold for heating purposes, the severity of winter weather and
resulting residential and commercial heating usage have an important impact
on the Company's earnings. Approximately two-thirds of the Company's retail
propane sales usually occur during the five months of November through
March. Sales and profits are subject to variation from month to month and
from year to year, depending on temperature fluctuations.
Competition. The Company encounters competition from a
number of other propane distributors in each geographic region in which it
operates. The Company competes with these distributors primarily on the
basis of service, stability of supply, availability of consumer storage
equipment, and price. The propane distribution industry is composed of two
types of participants: larger multi-state marketers, including the Company,
and smaller intrastate marketers. Most of the Company's retail service
centers face competition from a number of other marketers.
Empire Gas also competes with suppliers of other energy
sources, including suppliers of electricity for sales to residential and
commercial customers. Empire Gas believes growth can be achieved by the
conversion to propane of homes that currently use either electricity or fuel
oil products. Propane has advantages over electricity and fuel oil. The
Company currently enjoys, and historically has enjoyed, a competitive
advantage because of the higher cost of electricity. Fuel oil does not
present a significant competitive threat in Empire Gas's primary service
areas due to the following factors: (i) propane is a residue-free, cleaner
energy source, (ii) environmental concerns make fuel oil relatively
unattractive, and (iii) fuel oil appliances are not as efficient as propane
appliances.
Conservation measures or technological advances, including
the development of more efficient gas appliances, could slow the growth of
demand for propane by retail propane customers. The Company believes that
decreases in oil and gas prices in recent years have decreased the incentive
to conserve and that the gas appliances used today are already operating at
high levels of efficiency. The Company can predict neither the impact of
future conservation measures nor the effect that any technological advances
might have on the Company's operations.
Empire Gas generally does not attempt to sell propane in
areas served by natural gas distribution systems, except sales for
specialized industrial applications, because the price per equivalent energy
unit of propane is, and has historically been, higher than that of natural
gas. To use natural gas, however, a retail customer must be connected to a
distribution system provided by a local utility. Because of the costs
involved in building or connecting to a natural gas distribution system,
natural gas does not create significant competition for the Company in areas
that are not currently served by natural gas distribution systems.
The Company believes the highly fragmented retail propane
market presents substantial opportunities for growth through acquisitions.
The Company's ability to compete through acquisitions will be limited in
certain geographic areas as a result of a non-competition agreement signed
in connection with the Transaction, and amended in April 1995. Subject to
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an exception for multi-state acquisitions, the non-competition agreement as
amended restricts the Company from making acquisitions in certain
territories in two states (southeastern Missouri and northern Arkansas) and
an area within a 50-mile radius of an Energy operation in any state east of
the Mississippi River until June 30, 1997. Reciprocal restrictions apply to
Energy under the agreement.
Risks of Business. The Company's propane operations are
subject to all the operating hazards and risks normally incident to
handling, storing, and transporting combustible liquids, such as the risk of
personal injury and property damages caused by accident or fire. The
Company's current comprehensive general and automobile liability policy
provides coverage for losses of up to $101.0 million with a $500,000
deductible per occurrence. The excess coverage for comprehensive general
liability provides a loss limitation that limits the Company's aggregate of
self-insured losses to $1 million per policy period. During the year ended
July 1994, workers compensation coverage had a $500,000 deductible per
incident. Since July 1994 (and prior to July 1993) the Company has obtained
workers' compensation coverage from carriers and state insurance pools. The
deductibles on comprehensive general and automobile liability and for
workers' compensation for the year ended July 1994 mean that the Company is
effectively self-insured for liability up to these deductibles.
Regulation
The Company's operations are subject to various federal,
state, and local laws governing the transportation, storage and distribution
of propane, occupational health and safety, and other matters. All states
in which the Company operates have adopted fire safety codes that regulate
the storage and distribution of propane. In some states these laws are
administered by state agencies, and in others they are administered on a
municipal level. Certain municipalities prohibit the below ground
installation of propane furnaces and appliances, and certain states are
considering the adoption of similar regulations. The Company cannot predict
the extent to which any such regulations might affect the Company, but does
not believe that any such effect would be material. It is not anticipated
that the Company will be required to expend material amounts by reason of
environmental and safety laws and regulations, but inasmuch as such laws and
regulations are constantly being changed, the Company is unable to predict
the ultimate cost to the Company of complying with environmental and safety
laws and regulations.
Empire Gas currently meets and exceeds Federal regulations
requiring that all persons employed in the handling of propane gas be
trained in proper handling and operating procedures. All employees have
participated, or will participate within 90 days of their employment date,
in hazardous materials training. The Company has established ongoing
training programs in all phases of product knowledge and safety including
participation in the National Propane Gas Association's ("NPGA") Certified
Employee Training Program.
Employees
As of September 15, 1995, the Company had approximately 600
employees, none of whom was represented by unions. The Company has never
experienced any significant work stoppage or other significant labor
problems and believes it has good relations with its employees.
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ITEM 3. LEGAL PROCEEDINGS.
The Company and its subsidiaries are defendants in various
routine litigation incident to its business, none of which is expected to
have a material adverse effect on the Company's financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its annual shareholder meeting on June 26,
1995. The only matter presented for a vote was the re-election of Jim J.
Shoemake as a director. Mr. Shoemake was re-elected with 1,579,225 votes
cast in favor and no votes cast against, withheld or abstaining. The term
of office of the following directors continued after the meeting: Paul S.
Lindsey, Jr., Douglas A. Brown, Kristin L. Lindsey, and Bruce M. Withers,
Jr.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
As of September 15, 1995, the Company's Common Stock was
held of record by 9 shareholders. There is currently no active trading
market in the Company's Common Stock.
As of September 15, 1995, there are outstanding warrants to
purchase 175,536 shares of the Company's Common Stock.
No dividends on the Common Stock of the Company were paid
during the Company's 1994 or 1995 fiscal years. The indenture relating to
the 12 7/8% Senior Secured Notes due 2004 and the terms of the Company's
revolving credit facility each contain dividend restrictions that prohibit
the Company from paying common stock cash dividends. As a result, the
Company has no current intention of paying cash dividends on the Common
Stock.
ITEM 6. SELECTED FINANCIAL DATA.
The following table presents selected consolidated operating
and balance sheet data of Empire Gas as of and for each of the years in the
five-year period ended June 30, 1995. The financial data of the Company as
of and for each of the years in the five-year period ended June 30, 1995
were derived from the Company's audited consolidated financial statements.
The financial and other data set forth below should be read in conjunction
with the Company's consolidated financial statements, including the notes
thereto, included with this report. Because the operating data for the
period ending June 30, 1994 do not take into account the effects of the
Transaction on the Company, the data for that period are not comparable to
the data for the year ended June 30, 1995.
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Year Ended June 30,
___________________________________________________________________________
1991 1992 1993 1994 1995
____ ____ ____ ____ ____
(in thousands except ratios and per share amounts)
Operating data:
Operating revenue $121,758 $112,080 $128,401 $124,522 $74,640
Gross profit <F1> 61,787 61,107 68,199 66,632 39,028
Operating expenses 44,772 40,052 41,845 44,966 29,694
Depreciation and amortization 9,552 10,062 10,351 10,150 6,166
Operating income 7,463 10,993 16,003 11,516 3,168
Interest expense:
Cash interest 12,038 10,721 9,826 8,542 10,681
Amortization of debt discount
and expenses 890 1,006 1,686 2,016 4,889
Total interest expense 12,928 11,727 11,512 10,558 15,570
Net income (loss) before extraordinary
items <F2> (4,557) (1,474) 2,228 (1,190) (8,726)
Other operating data:
Capital expenditures 8,813 6,703 4,358 20,015 11,874
Cash from sale of retail service
centers and other assets 497 3,062 1,088 366 2,956
EBITDA <F3> 17,015 21,055 26,354 21,666 9,334
Income (loss) per share before
extraordinary items $(.33) $(.11) $.16 $(0.08) $(5.53)
/TABLE
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As of June 30,
____________________________________________________________________________
1991 1992 1993 1994 1995
____ ____ ____ ____ ____
Balance sheet data:
Total assets $158,383 $151,471 $148,020 $104,644 $105,128
Long-term debt (including current
maturities) 84,289 78,958 79,249 105,612 115,647
Stockholders' equity (deficit) 26,438 24,901 25,913 (28,220) (36,946)
___________
<FN>
<F1> Represents operating revenue less the cost of products sold.
<F2> Empire Gas did not declare or pay dividends on its common stock during the five-year period ending June 30, 1995.
<F3> EBITDA consists of earnings before depreciation, amortization, interest, income taxes, and other non-recurring expenses.
EBITDA is presented here because it is a widely accepted financial indicator of a highly leveraged company's ability to
service and/or incur indebtedness. However, EBITDA should not be construed as an alternative either (i) to operating
income (determined in accordance with generally accepted accounting principles) or (ii) to cash flows from operating
activities (determined in accordance with generally accepted accounting principles).
</FN>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis of the Company's
results of operations, financial condition and liquidity should be read in
conjunction with the historical consolidated financial statements of Empire
Gas and the notes thereto included in this Report.
Results of Operations
General
Empire Gas' primary source of revenue is retail propane
sales, which accounted for approximately 89% of its revenue in fiscal year
1995. Other sources of revenue include sales of gas appliances and rental
of customer tanks.
The Company's operating revenue is subject to both price and
volume fluctuations. Price fluctuations are generally caused by changes in
the wholesale cost of propane. The Company is not materially affected by
these price fluctuations, inasmuch as it can generally recover any cost
increase through a corresponding increase in retail prices. Consequently,
the Company's gross profit per retail gallon is relatively stable from year
to year within each customer class. Volume fluctuations from year to year
are generally caused by variations in the winter weather from year to year.
Because a substantial amount of the propane sold by the Company to
residential and commercial customers is used for heating, the severity of
the weather will affect the volume sold. Volume fluctuations do materially
affect the Company's operations because lower volume produces less revenue
to cover the Company's fixed costs, including any debt service costs.
The Company's expenses consist primarily of cost of products
sold, general and administrative expenses and, to a much lesser extent,
depreciation and amortization and interest expense. Purchases of propane
inventory account for the vast majority of the cost of products sold. The
Company's general and administrative expenses consist mainly of salaries and
related employee benefits, vehicle expenses, and insurance. The Company's
interest expense consists primarily of interest on its existing credit
facility and the 12 7/8% Senior Secured Notes due 2004 (the "Senior Secured
Notes"). Interest expense increased significantly between 1994 and 1995 as
a result of issuance of the Senior Secured Notes at the end of June, 1994.
Through 1999 a significant portion of the increase will be non-cash interest
expense.
Historical financial data for years ended prior to June 30,
1994 do not reflect either the transfer of Energy or the acquisition of the
assets of PSNC in the Transaction and therefore historical data for those
periods are not comparable to results for the periods subsequent to June 30,
1994. In general, these transactions have resulted in a net reduction in
the number of gallons sold, and thus in results (including operating
revenue, cost of products sold, gross profit, and provisions for doubtful
accounts) that are related to the number of gallons sold. General and
administrative expenses have also declined as a result of the elimination of
salaries and related expenses of departing officers, the termination of
certain agreements between the Company and its former principal shareholder
or entities controlled by him, and the elimination of costs related to
service centers that are no longer part of the Company.
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Fiscal Years Ended June 30, 1995 and June 30, 1994
Operating revenue. Operating revenue decreased $49.9
million to $74.6 million in fiscal year 1995 as compared to $124.5 million
in fiscal year 1994. The decrease was primarily due to the disposition of
service centers in the Transaction, offset by increases due to the
acquisition of service centers from PSNC in the Transaction. Operating
revenue from service centers retained in the Transaction and acquired from
PSNC was $74.8 million in fiscal year 1994. The decrease of $200,000, or
.3%, in fiscal year 1995 was due to a $1.9 million decrease in gas sales
offset by increases of $1.0 million in gas systems and appliances, $400,000
in miscellaneous income, and $300,000 in service labor. The decrease in gas
sales was due to an approximately $.06 per gallon decrease in the average
net sales price of propane created by competitive pressures resulting from
decreased demand due to warm weather. The decrease was partially offset by
a 3.9 million gallons volume increase due to the addition of retail service
centers through five acquisitions and ten new startups during fiscal year
1995. The increase in miscellaneous income was due primarily to the gain on
assets sold including six retail service centers. The increase in service
labor is due to the increased installations from greater appliance sales and
the increased service market created by the acquisitions discussed above.
Cost of products sold. Cost of products sold decreased
$22.3 million to $35.6 million in fiscal year 1995 as compared to $57.9
million in fiscal year 1994, primarily as a result of the Transaction. Cost
of product sold from service centers retained in the Transaction and
acquired from PSNC was $35.1 million in fiscal year 1994. The increase of
$500,000, or 1.4%, is the result of the 3.9 million gallon volume increase,
partially offset by a $.01 reduction in the cost of propane and an increase
in gas systems and appliances cost due to the volume of sales.
Gross profit. The Company's gross profit for the year
decreased $27.6 million to $39.0 million in fiscal year 1995 as compared to
$66.6 million in fiscal year 1994, primarily as a result of the Transaction.
Gross profit from service centers retained in the Transaction and acquired
from PSNC was $39.7 million in fiscal year 1994. The decrease of $700,000,
or 1.8%, was caused by the .3% decrease in operating revenue and the 1.4%
increase in cost of products sold. The Company's gross profit per gallon
decreased from $.43 in 1994 for service centers retained in the Transaction
and acquired from PSNC to $.38 in fiscal year 1995, as a result of the
decrease in sales price of $.06 per gallon offset by the $.01 reduction in
the cost of propane.
General and administrative expense. General and
administrative expenses decreased $15.4 million to $28.6 million in fiscal
year 1995 from $43.9 million in fiscal year 1994, primarily as a result of
savings resulting from the reduction of personnel in connection with the
Transaction. As a percentage of total revenues, general and administrative
expenses increased to 38.3% in fiscal year 1995 from 35.3% in fiscal year
1994. The increase is due primarily to increases as a percent of total
revenues of 2.2% in salaries and commissions, .6% in professional fees, .3%
in both rent and maintenance and taxes and licenses, and .4% in office
expenses. These increases were partially offset by a decrease of .5% in
vehicle fuel and maintenance and .4% in insurance and liability claims.
Other smaller increases were incurred in miscellaneous expenses and travel
and entertainment and advertising.
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The increase in salaries and commissions was due to several
factors including 1) increased retail salary expense due primarily to
additional employees as a result of acquisitions and startups and increased
commissions as a result of increased emphasis on new customers and tank sets
and 2) increased home office salary expense as a result primarily of
additional operational employees due to acquisitions and additional
marketing employees as a result of the Company's emphasis on enhanced sales
efforts. The increase in professional fees is due to fees related to the
formation of a 401k plan, fees resulting from a state income tax audit, and
fees for a supply purchase consulting agreement. The increase in rent and
maintenance of buildings is primarily due to increased tank painting,
building and maintenance in converting certain rental facilities to a new
identity in connection with the restructuring and an increase in the rental
of facilities primarily related to the six retail service centers acquired
in June 1994. The increase in taxes and licenses relates primarily to
property taxes paid for six retail service centers acquired in June 1994.
The increase in office expenses is primarily due to additional spending
required for the change of identity for several retail sites and additional
mailings to customers. The decrease in insurance and liability claims is
due to a reduction in liability claims expense as a result of reduced
claims. The decrease in vehicle fuel and maintenance is due to the
replacement of older vehicles occurring at the end of fiscal year 1994 and
in early fiscal year 1995 resulting in lower maintenance expenses.
Provision for doubtful accounts. The provision for doubtful
accounts increased approximately $80,000 to a little over $1.1 million in
fiscal year 1995 from a little under $1.1 million in 1994. The increase is
due to the final determination of management regarding the aged balances of
accounts after substantial collection efforts during fiscal year 1995 offset
in part by a reduction in the level of accounts receivable as a result of
the transfer of Energy.
Depreciation and amortization. Depreciation and
amortization costs decreased by $4.0 million to $6.2 million from $10.2
million primarily as a result of the reduction in assets as a result of the
Transaction. Depreciation and amortization on assets retained in the
Transaction or acquired from PSNC increased by $700,000, or 12.7%, from $5.5
million for the year ended June 30, 1994 due to amortization of noncompete
agreements acquired with new service centers and depreciation of the related
assets purchased in June 1994 and fiscal 1995.
Interest expense. Interest expense increased by
approximately $2.4 million, or 25.9%, to $10.7 million in fiscal year 1995
as compared to $8.5 million in 1994, due to the approximately $45 million
face value of additional long-term debt outstanding as compared to the same
period of the prior year, partially offset by an overall lower rate of
interest, principally on the new senior secured notes issued in June 1994,
as compared to the higher rates on debt repaid with the June 1994 offering.
Fiscal Years Ended June 30, 1994 and June 30, 1993
Operating revenue. Operating revenue decreased $3.8 million
or 3.0%, from $128.4 million in fiscal year 1993 to $124.6 million in fiscal
year 1994. This decrease was the result of a $4.0 million decrease in
propane sales and a $300,000 decrease in other revenue, offset by a $500,000
increase in sales of parts and gas appliances. The decrease in propane
sales was caused by a 1.9% decrease in gallons sold and a 1.1% decrease in
13 of 55
the average gross sales price per gallon. The decreased volume reflects the
results of slightly warmer winter weather.
Cost of products sold. Cost of products sold decreased $2.3
million, or 3.8%, from $60.2 million in fiscal year 1993 to $57.9 million in
fiscal year 1994. The decrease resulted from the 1.9% decrease in gallons
sold, which reflects the slightly warmer winter weather, and a 3.7% decrease
in the wholesale cost of propane.
Gross profit. The Company's gross profit for the year
decreased $1.6 million, or 2.3%. The decrease was caused by the 3.0%
decrease in operating revenue partially offset by the 3.8% decrease in cost
of products sold. The Company's gross profit per gallon was relatively
constant at $.430 in fiscal year 1994 and $.429 in fiscal year 1993.
General and administrative expense. General and
administrative expenses increased $3.0 million, or 7.5% from $40.4 million
in fiscal year 1993 to $43.5 million in fiscal year 1994. The increase was
due primarily to increases of $1.0 million in insurance and liability
claims, $800,000 in salaries and commissions, and $400,000 in professional
fees. The increase in insurance and liability claims was due primarily to
increased claims. The increase in salaries and commissions was due to
annual pay increases combined with a slight decrease in the total number of
employees. The increase in professional fees was due to increased
litigation fees relating to liability claims and increased accounting and
other fees related to the Transaction that were not capitalized. Other
smaller increases were incurred in transportation, office expenses, taxes
and licenses, rent and maintenance, payroll taxes and employee benefits,
travel and entertainment, and advertising.
Provision for doubtful accounts. The provision for doubtful
accounts increased $100,000 from $960,000 in fiscal year 1993 to $1.1
million in fiscal year 1994. This increase was the result of a slightly
older aging of accounts receivable at June 30, 1994, compared to June 30,
1993.
Depreciation and amortization. Depreciation and
amortization remained relatively constant, decreasing by $200,000, or 1.9%,
from $10.4 million in fiscal year 1993 to $10.2 million in fiscal year 1994.
Interest expense. Cash interest expense decreased by
approximately $1.3 million, or 13.1%, from $9.8 million in fiscal year 1993
to $8.5 million in fiscal year 1994. This decrease was the result of lower
interest rates and reduced borrowing levels as compared to the prior year.
Amortization of debt discount and expense increased $300,000, or 19.6%, from
$1.7 million in 1993 to $2.0 million in 1994. This increase related to
increased amortization of the discounts on the Company's 1998 9%
Subordinated Debentures, 2007 9% Subordinated Debentures, and 12% Senior
Subordinated Debentures, as well as amortization of expenses related to the
Company's credit facility.
Recapitalization costs. During fiscal years 1994 and 1993,
the Company incurred $398,000 and $223,000, respectively, in expenses
relating to proposed recapitalizations that the Company later decided not to
pursue.
Income taxes. The effective tax rate for the fiscal year
14 of 55
ended June 30, 1994, was approximately 41.7% compared to 47.8% for the
fiscal year ended June 30, 1993. The Company had a positive effective tax
rate in 1994 despite its reported loss primarily because of the amortization
of the excess of cost over fair value of assets sold and state income taxes
imposed on operations that were profitable in individual states.
Liquidity and Capital Resources
The Company's liquidity requirements have arisen primarily
from funding its working capital needs, capital expenditures and debt
service obligations. Historically, the Company has met these requirements
from cash flows generated by operations and from borrowings under its
working capital facility.
Cash flow provided from operating activities was $1.4
million in fiscal year 1995 as compared to $12.9 million in fiscal year
1994. This reduction in cash flow resulted from the $8.3 million decrease
in operating income which was caused by the Transaction occurring at June
30, 1994 and the negative sales impact of warmer winter weather in fiscal
1995. In addition to the reduction in operating income, cash flow provided
by operations was affected by the following factors: (i) inventories and
accounts receivable decreased $700,000 in 1995 and (ii) accounts payable and
accrued expenses increased by $5.0 million, primarily due to accrued
interest on the senior secured notes, offset by (iii) a decrease in checks
in process of collection of $1.7 million and (iv) an increase in refundable
income taxes and prepaid expenses of $2.3 million. The working capital
items noted above that increased cash flow by $1.7 million in 1995
contributed to an increase in cash flow of $3.8 million in 1994.
Pursuant to the indenture for the 12 7/8% Senior Secured
Notes, the Company was required to make a $4.5 million, semi-annual interest
payment on July 15, 1995. (The July 15 payment was not required in 1994
because the Senior Secured Notes were not issued until shortly before that
date.) The Company met this interest payment requirement and funding for
its acquisition program through operating cash flows, the proceeds of
previously planned sales of marginally profitable retail service centers and
properties pursuant to its long-range business plan, expanding its customer
advance purchase program for future retail propane deliveries and scheduling
its payments for equipment purchases in the fall of 1995. After the
interest payment was made the Company continued its long-range plan by
divesting an additional five marginally profitable retail service centers
for approximately $1.6 million.
In August 1995, the Company acquired a minority interest in
another propane retailer, SYN, Inc. As part of this acquisition, the
Company contracted to provide administrative and related services to the
retail operations of SYN, Inc. in exchange for an annual management fee
payment of $500,000 and overhead cost reimbursement of $3.25 million.
The Company's high degree of leverage makes it vulnerable to
adverse changes in the weather and could limit its ability to respond to
market conditions, to capitalize on business opportunities, and to meet its
contractual and financial obligations. Fluctuations in interest rates will
affect the Company's financial condition inasmuch as the Company's working
capital facility bears interest at a floating rate. The Company believes
that, based on current levels of operations and assuming winter weather that
is not substantially warmer in the various regions in which it operates than
15 of 55
the historical average of winter temperatures for those regions, it will be
able to fund its debt service obligations from funds generated from
operations including the additional funds from the SYN, Inc. Management
Agreement discussed above, proceeds of potential sales of service centers
and funds available under its working capital facility.
The seasonal nature of the Company's business will require
it to rely on borrowings under its $15.0 million credit facility as well as
cash from operations, particularly during the summer and fall months when
the Company is building its inventory in preparation for the winter heating
season. While approximately two-thirds of the Company's operating revenue
is earned in the second and third quarters of its fiscal year, certain
expense items such as general and administrative expense are recognized on a
more annualized basis. Interest expense also tends to be higher during the
summer and fall months because the Company relies in part on increased
borrowings on its revolving credit line to finance inventory purchases in
preparation for the Company's winter heating season.
The Company's capital expenditures consist of routine
expenditures for existing operations as well as non-recurring expenditures,
purchases of assets for the start-up of new retail service centers, and
acquisition costs (including costs of acquiring retail service centers).
Routine expenditures usually consist of expenditures relating to the
Company's bulk delivery trucks, customer tanks, and costs associated with
the installation of new tanks.
The Company's capital expenditures in fiscal year 1995, were
$11.9 million which decreased approximately $8.1 million from the preceding
year. The decrease was due primarily to a decrease of $4.6 million, from
$12.3 million in fiscal year 1994 to $7.7 million in fiscal year 1995, in
acquisitions of retail service centers resulting from the 1994 purchases of
PSNC Propane Corporation and an additional service center in Colorado
compared to the 1995 purchases of four service centers and the addition of
several new start-ups. The remaining decrease of $3.5 million is due
primarily to the reduced size of the Company as a result of the Transaction
and the large amount of new transportation equipment purchased in 1994.
During fiscal year 1995, the Company raised $3.0 million from the planned
sale of marginally profitable service centers, and raised an additional $4.5
million since June 30, 1995.
The Company intends to fund its routine capital expenditures
and the purchase of assets for new retail service centers with cash from
operations, borrowings under its credit facility, or other bank financing.
The Company intends to fund acquisitions with seller financing, to the
extent feasible, and with cash from operations or bank financing. The
Company is exploring the possibility of making modifications to its
underground storage facility, and has obtained from an engineering and
construction company a study of the costs of rehabilitating and opening the
facilities, which range from $500,000 to $3,000,000. The Company is
currently exploring options for financing these modifications, and there is
no assurance that such financing will be available. If the rehabilitation
work is not performed and the facilities cannot be sold, then the Company
would be required to close the facilities at a cost which the Company
believes will not exceed $500,000.
16 of 55
The Company's credit facility and the indenture for the
Senior Secured Notes impose restrictions on the Company's ability to incur
additional indebtedness. Such restrictions, together with the highly
leveraged position of the Company, could restrict the ability of the Company
to acquire financing for capital expenditures and other corporate
activities. These restrictions permit additional indebtedness of $6 million
for the current fiscal year for the purpose of financing acquisitions but
allow additional indebtedness to be incurred by subsidiaries formed for the
purpose of making acquisitions as long as the Company does not transfer over
$3,000,000 (in the aggregate) of assets to such subsidiaries. The credit
facility also contains tangible net worth, capital expenditures, interest
coverage and debt restrictions. At June 30, 1995, the Company was not in
compliance with the original capital expenditures and interest coverage
ratio covenants. The bank has amended the covenants, and the company is now
in compliance with the amended covenants.
The Company's $15.0 million credit facility will mature on
or about July, 1997, at which time the Company will have to refinance or
replace some portion of the facility and may be required to pay some portion
of any outstanding balance. There can be no assurance that the Company will
be able to refinance or replace the credit facility, or the terms upon which
any such financing may occur. Beginning in fiscal year 1999, the cash
interest rate on the Senior Secured Notes will increase to 12 7/8%. The
Company believes cash from operations will be sufficient to meet the
increased interest payments.
Change in Accounting Principle
Effective July 1, 1993, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"). As a result of this change, there was no
material effect upon the Company's financial statements. SFAS 109 requires
recognition of deferred tax liabilities and assets for the difference
between the financial statement and tax basis of assets and liabilities.
Under this new standard, a valuation allowance is established to reduce
deferred tax assets if it is more likely than not that a deferred tax asset
will not be realized. Prior to fiscal year 1994, deferred taxes were
determined using the Statement of Financial Accounting Standards No. 96.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Consolidated Financial Statements included elsewhere
herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
17 of 55
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of the Company are as
follows:
Name Age Position Held with the Company
____ ___ ______________________________
and Principal Occupation
________________________
Paul S. Lindsey, Jr. 50 Chairman of the Board, Chief Executive
Officer, and President since June 1994;
previously Vice Chairman of the Board
(since February 1987) and Chief Operating
Officer (since March 1988); term as
director expires 1997
Douglas A. Brown 35 Director since July 1994; member Holding
Capital Group, Inc. (since 1989); term as
director expires 1997
Kristin L. Lindsey 47 Director/Vice President since June 1994;
previously pursued charitable and other
personal interests; term as director
expires 1996
Bruce M. Withers, Jr. 68 Director since July 1994; Chairman and
Chief Executive Officer of Trident NGL
Holding, Inc. (since August 1991) and
President of the Transmission and
Processing Division of Mitchell Energy
Corporation (1979 to 1991); term as
director expires 1996
Jim J. Shoemake 57 Director since July 1994; partner of
Guilfoil, Petzall & Shoemake (since
1970); term as director expires 1998
Valeria Schall 41 Vice President since 1992; Corporate
Secretary since 1985 and Assistant to the
Chairman (Assistant to the Vice Chairman
prior to June 1994) since 1987
Mark Castaneda 31 Vice President Finance and Administration
since August 1995; previously Controller
of Skelgas Propane since 1991 and an
accountant at Deloitte & Touche since
1986.
Willis D. Green 58 Controller since 1989
After expiration of the initial terms of directors as set
forth above, each director will serve for a term of three years. Officers
of the Company are elected by the Board of Directors of the Company and will
18 of 55
serve at the discretion of the Board, except for Mr. Lindsey who is employed
pursuant to an employment agreement that expires June 24, 1999 (subject to
extension).
ITEM 11. EXECUTIVE COMPENSATION.
Executive Compensation
The following table provides compensation information for
each of the years ended June 30, 1995, 1994, and 1993 for (i) the Chief
Executive Officer of the Company, (ii) the four other executive officers of
the Company who are most highly compensated and whose total compensation
exceeded $100,000 for the most recent fiscal year (of which there were none)
and (iii) those persons who are no longer executive officers of the Company
but were among the four most highly compensated and whose total compensation
exceeded $100,000 for the most recent year (of which there were none).
Summary Compensation Table
Annual Compensation
______________________________________________________
All
Other Other
Name and Principal Position Fiscal Annual Compensation
At End of Fiscal Year 1995 Year Salary Bonus Compensation <F1>
___________________________ ______ ______ _____ ____________ ____
Paul S. Lindsey, Jr. 1995 $350,000 - - -
Chief Executive Officer, 1994 300,000 $5,000 - -
Chairman of the Board, 1993 230,000 5,000 - $1,648
and President
___________
<FN>
<F1> This amount includes the allocation of a portion of the forfeitures under the Company's profit sharing plan (the
"Profit Sharing Plan") to the named officer in the amount of $1,296. This amount also includes the allocation of
a portion of the forfeitures under the Company's stock bonus plan (the "Stock Bonus Plan") to the named officer
in the amount of $352. The Company made no contributions to either plan in fiscal year 1993. In September 1992,
the Company terminated both plans and filed with the Internal Revenue Service ("IRS") for determination that the
plans were qualified at termination. The IRS issued favorable determination letters for both plans in December
1992. The Company liquidated the assets of both plans and paid out the plan accounts to participants on March
31, 1993.
</FN>
Employment Agreements
On June 24, 1994, the Company entered into an employment
agreement with Mr. Lindsey. The agreement has a five-year term and provides
for the payment of an annual salary of $350,000 and reimbursement for
reasonable travel and business expenses. The agreement requires Mr. Lindsey
to devote substantially all of his time to the Company's business. The
agreement is for a term of five years, but is automatically renewed for one
year unless either party elects to terminate the agreement at least four
19 of 55
months prior to the end of the term or any extension. The agreement may be
terminated by Mr. Lindsey or the Company, but if the agreement is terminated
by the Company and without cause, the Company must pay one year's salary as
severance pay.
Incentive Stock Option Plan
There were no options granted to the named officer nor
exercised by him during fiscal year 1995 and no unexercised options held by
him as of the end of the 1995 fiscal year.
Compensation Committee Interlocks and Insider Participation
A compensation committee was formed in July 1994, consisting
of Messrs. Withers, Shoemake and Brown. Mr. Lindsey makes the initial
recommendation concerning executive compensation for the executive officers
of the Company, other than recommendations concerning his own and his wife's
compensation, which are then approved by the compensation committee. The
compensation committee determines the compensation of Mr. Lindsey's wife
and, subject to the employment agreement described above, Mr. Lindsey.
Director Compensation
During the last completed fiscal year, the directors of
Empire Gas received an annual fee of $25,000, payable quarterly, for their
services. In addition, directors other than Mr. Lindsey and Kristin L.
Lindsey received options pursuant to the Company's stock option plan, with
Mr. Brown receiving options for 122,830 shares and Messrs. Shoemake and
Withers each receiving options for 17,548 shares. Each of the options is
exercisable at a price of $7.00 per share, and the options are exercisable
until January 23, 2005.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The table below sets forth information with respect to the
beneficial ownership of shares of Common Stock of the Company as of
September 15, 1995, by persons owning more than five percent of any class,
by all directors of the Company, by the individuals named in the Summary
Compensation Table owning shares, and by all directors and executive
officers of the Company as a group.
Number of Shares
Name of Beneficial Owner<F1> Beneficially Owned Percent
____________________________ __________________ _______
Paul S. Lindsey, Jr.<F2> 1,507,610 95.5%
Kristin L. Lindsey<F2> 753,805 47.7
Douglas A. Brown 122,830 7.2
Bruce M. Withers, Jr. 17,548 1.1
Jim J. Shoemake 17,548 1.1
All directors and executive officers as a
group (8 persons)<F3> 1,689,939 97.3
20 of 55
_________________
[FN]
<F1> The address of each of the beneficial owners is c/o Empire Gas
Corporation, P. O. Box 303, 1700 South Jefferson Street, Lebanon,
Missouri 65536.
<F2> Mr. Lindsey's shares consist of 753,805 shares owned by the Paul S.
Lindsey, Jr. Trust established January 24, 1992 and 753,805 shares
owned by the Kristin L. Lindsey Trust established January 24, 1992.
Mr. Lindsey has the power to vote and to dispose of the shares held
in the Kristin L. Lindsey Trust. Mrs. Lindsey's shares consist of
the shares owned by the Kristin L. Lindsey Trust. Mrs. Lindsey
disclaims ownership of the shares held by her husband in the Paul S.
Lindsey, Jr. Trust.
<F3> The amounts shown include the shares beneficially owned by Mr.
Lindsey and Acreman, and Mrs. Lindsey as set forth above, and 30,132
shares owned by other executive officers.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Mrs. Kristin L. Lindsey, who beneficially owns approximately
47.7% of the Company's outstanding Common Stock and became a director of the
Company upon consummation of the Transaction, is the majority stockholder in
a company that supplies paint to the Company. The Company's purchases of
paint from this company totalled $157,842 in Fiscal year 1995 and $210,400
in fiscal year 1994.
The Company has entered into an agreement with each
shareholder (all of whom are directors or employees of the Company)
providing the Company with a right of first refusal with respect to the sale
of any shares by such shareholders. In addition, the Company has the right
to purchase from such shareholders all shares they hold at the time of their
termination of employment with the Company at the then current fair market
value of the shares. The fair market value is determined in the first
instance by the Board of Directors and by an independent appraisal (the cost
of which is split between the Company and the departing shareholder) if the
departing shareholder disputes the board's determination.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(i) Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets as of June 30, 1995 and 1994
Consolidated Statement of Operations for the Years Ended
June 30, 1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended June 30, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1995, 1994 and 1993
21 of 55
(a)(2) Financial Statement Schedules
Schedule II Valuation and qualifying accounts
(a)(3) Exhibits
Exhibit
No. Description
___ ___________
3.1 Articles of Incorporation of the Company (incorporated
herein by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (No. 33-53343))
3.2 Certificate of Amendment of the Certificate of Incorporation
of the Company, dated April 26, 1994, relating to the change
of name (incorporated herein by reference to Exhibit 3.2 to
the Company's Registration Statement on Form S-1 (No. 33-
53343))
3.3 By-laws of the Company (incorporated herein by reference to
Exhibit 3.3 to the Company's Registration Statement on Form
S-1 (No. 33-53343))
4.1 Indenture between Empire Gas Corporation and J. Henry
Schroder Bank & Trust Company, Trustee, relating to the 9%
Subordinated Debentures due December 31, 2007 and the form
of 9% Subordinated Debentures due December 31, 2007
(incorporated herein by reference to Exhibit 4(a) to the
Empire Incorporated and Exco Acquisition Corp. (Commission
File No. 2-83683) Registration Statement on Form S-14 filed
with the Commission on May 11, 1983); and First Supplemental
Indenture thereto between Empire Gas Corporation (now known
as EGOC) and IBJ Schroder Bank & Trust Co., dated as of
December 13, 1989 (incorporated herein by reference to
Exhibit 4(c) to Empire Gas Corporation (now known as EGOC)
Registration Statement on Form 8-B filed with the Commission
on February 1, 1990)
4.2 Indenture between the Company and Shawmut Bank Connecticut,
National Association, Trustee, relating to the 12 7/8%
Senior Secured Notes due 2004, including the 12 7/8% Senior
Secured Notes due 2004, the Guarantee and the Pledge
Agreement (incorporated herein by reference to Exhibit 4.2
to the Registrant's Annual Report on Form 10-K for the year
ended June 30, 1994)
4.3 Warrant Agreement (incorporated herein by reference to
Exhibit 4.3 to the Registrant's Annual Report on Form 10-K
for the year ended June 30, 1994)
10.1 Shareholder Agreement, dated as of October 28, 1988, by and
among Empire Gas Acquisition Corporation and Robert W.
Plaster Trust, Robert W. Plaster, Trustee; Paul S. Lindsey,
Jr.; Stephen R. Plaster Trust, Lynn C. Hoover, Trustee;
Cheryl Plaster Schaefer Trust, Lynn C. Hoover, Trustee;
22 of 55
Robert L. Wooldridge; Gwendolyn B. VanDerhoef; Dwight
Gilpin; Luther Henry Gill; Valeria Schall; Floyd J.
Waterman; Larry W. Bisig; Larry Weis; Robert Heagerty; Murl
J. Waterman; Earl L. Noe; Thomas Flak; Michael Kent St.
John; James E. Acreman; Carolyn S. Rein; Dan Weatherly; Nina
Irene Craighead; Joyce Sue Kinnett; Edwin H. McMahon; Paul
Stahlman; Ralph Wilson; Alan Simer; Ferrell Stamper; and
Empire Gas Corporation Employee Stock Ownership Plan, Robert
W. Plaster, Trustee (incorporated herein by reference to
Exhibit 10.1 to the Company's Registration Statement on Form
S-1 (No. 33-53343))
10.2 1995 Stock Option Plan of Empire Gas Company
10.3 Credit Agreement between the Company and Continental Bank,
as agent (incorporated herein by reference to Exhibit 10.3
to the Registrant's Annual Report on Form 10-K for the year
ended June 30, 1994)
10.4 Lease Agreement, dated May 7, 1994, between the Company and
Evergreen National Corporation (incorporated herein by
reference to Exhibit F of Exhibit 10.1 to the Empire Gas
Operating Corporation (Commission File No. 1-6537-3)
Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1994)
10.5 Services Agreement, dated May 7, 1994, between the Company
and Empire Service Corporation (incorporated herein by
reference to Exhibit G of Exhibit 10.1 to the Empire Gas
Operating Corporation (Commission File No. 1-6537-3)
Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1994)
10.6 Non-Competition Agreement, dated May 7, 1994, by and among
the Company, Energy, Robert W. Plaster, Stephen R. Plaster,
Joseph L. Schaefer, Paul S. Lindsey, Jr. (incorporated
herein by reference to Exhibit E of Exhibit 10.1 to the
Empire Gas Operating Corporation (Commission File No.
1-6537-3) Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1994)
10.7 Employment Agreement between the Company and Paul S.
Lindsey, Jr. (incorporated herein by reference to Exhibit
10.7 to the Company's Registration Statement on Form S-1
(No. 33-53343))
10.8 Asset Purchase Agreement by and among the Company, Empire
Gas, Inc. of North Carolina, PSNC Propane Corporation, and
Public Service Company of North Carolina, Incorporated
(incorporated herein by reference to Exhibit 10.8 to the
Company's Registration Statement on Form S-1 (No. 33-53343))
10.9 Indemnification Agreement between the Company and Douglas A.
Brown (incorporated herein by reference to Exhibit 10.9 to
the Company's Registration Statement on Form S-1 (No. 33-
53343))
23 of 55
10.10 Tax Indemnification Agreement between the Company and Energy
(incorporated herein by reference to Exhibit 10.10 to the
Company's Registration Statement on Form S-1 (No. 33-53343))
10.11 Supply Contract No. 1, dated June 1, 1993, between EGOC and
Warren Petroleum Company (incorporated herein by reference
to Exhibit 10.20 to the Company's Registration Statement on
Form S-1 (No. 33-53343))
10.12 Supply Contract No. 2, dated June 1, 1993, between EGOC and
Warren Petroleum Company (incorporated herein by reference
to Exhibit 10.21 to the Company's Registration Statement on
Form S-1 (No. 33-53343))
10.13 Management Agreement between Empire Gas Company,
Northwestern Growth Corporation and SYN, Inc. dated May 17,
1995
10.14 Agreement Among Initial Stockholders and SYN, Inc. dated May
17, 1995
10.15 Waiver Agreement dated April 29, 1995 by and among Empire
Gas Corporation, SYN, Inc., Paul S. Lindsey, Jr.,
Northwestern Growth Corporation, Empire Energy Corporation,
Robert W. Plaster and Stephen R. Plaster
10.16+ Propane Sales Agreement dated August 24, 1995 between Empire
Gas Corporation and Warren Petroleum Company
10.17+ Supply Contract dated April 27, 1995 between Empire Gas
Corporation and Phillips 66 Company
10.18+ Dealer Sale Contract dated January 20, 1995 between Empire
Gas Corporation and Conoco Inc.
10.19+ Supply Contract dated April 24, 1995 between Empire Gas
Corporation and Enron Gas Liquids, Inc.
10.20 Amendment No. 1 to Supplement A to Loan and Securities
Agreement dated June 29, 1995 between Empire Gas Corporation
and Bank of America Illinois
21.1 Subsidiaries of the Company
27.1 Financial Data Schedules
(b) Reports on Form 8-K
None
(c) Exhibits
See (a)(2) above.
24 of 55
(d) Financial Statements
See (a)(2) above.
+ Confidential treatment has been requested. The copy filed as an
exhibit omits the information subject to the confidentially request.
25 of 55
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ Paul S. Lindsey, Jr.
_________________________
Paul S. Lindsey, Jr.
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Signature Capacity in which Signed Date
_________ ________________________ ____
/s/ Paul S. Lindsey, Jr. Chief Executive Officer and September 27, 1995
_____________________________ Chairman of the Board of
Paul S. Lindsey, Jr. Empire Gas Corporation
(principal executive officer)
/s/ Mark Castaneda Vice President Finance and September 27, 1995
_____________________________ Administration
Mark Castaneda (principal financial officer)
/s/ Willis D. Green Vice President/Controller of September 27, 1995
_____________________________ Empire Gas Corporation
Willis D. Green (principal accounting officer)
/s/ Douglas A. Brown Director of Empire Gas September 27, 1995
_____________________________ Corporation
Douglas A. Brown
/s/ Kristin L. Lindsey Director of Empire Gas September 27, 1995
_____________________________ Corporation
Kristin L. Lindsey
/s/ Bruce M. Withers, Jr. Director of Empire Gas September 27, 1995
_____________________________ Corporation
Bruce M. Withers, Jr.
/s/ Jim J. Shoemake Director of Empire Gas September 27, 1995
_____________________________ Corporation
Jim J. Shoemake
26 of 55
FINANCIAL STATEMENT INDEX
_________________________
Empire Gas Corporation - Consolidated Financial Statements for
June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Independent Accountants' Report . . . . . . . . . . . . . . . . . . . . . 27
Consolidated Balance Sheets as of June 30, 1995 and 1994. . . . . . . . . 28
Consolidated Statements of Operations - Years Ended June 30, 1995,
1994, and 1993. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Consolidated Statements of Stockholder's Equity - Years Ended
June 30, 1995, 1994, and 1993 . . . . . . . . . . . . . . . . . . . . . 33
Consolidated Statements of Cash Flows - Years Ended June 30, 1995,
1994, and 1993. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . 36
FINANCIAL STATEMENT SCHEDULE INDEX
__________________________________
Independent Accountants' Report . . . . . . . . . . . . . . . . . . . . . 54
Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . . . . 55
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Independent Accountants' Report
_______________________________
Board of Directors and Stockholders
Empire Gas Corporation
Lebanon, Missouri
We have audited the accompanying consolidated balance sheets of EMPIRE
GAS CORPORATION as of June 30, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for
each of the three years in the period ended June 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of EMPIRE
GAS CORPORATION as of June 30, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period
ended June 30, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 5, the Company changed its method of accounting for
income taxes in 1994.
Baird, Kurtz & Dobson
Springfield, Missouri
August 25, 1995
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CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1994
(Dollars In Thousands, Except Per Share Amounts)
ASSETS
______
1995 1994
____ ____
CURRENT ASSETS
Cash $ 821 $ 2,927
Trade receivables, less allowance
for doubtful accounts; 1995 - $800,
1994 - $1,620 (Note 4) 4,571 5,454
Inventories (Note 4) 5,686 5,179
Prepaid expenses 521 619
Refundable income taxes 1,567 2,254
Deferred income taxes (Note 5) 1,350 631
______ ______
Total Current Assets 14,516 17,064
PROPERTY AND EQUIPMENT, At Cost (Notes 4 and 12)
Land and buildings 9,496 8,732
Storage and consumer service facilities 68,706 68,223
Transportation, office and other equipment 20,015 16,165
______ ______
98,217 93,120
Less accumulated depreciation 27,111 25,847
______ ______
71,106 67,273
______ ______
OTHER ASSETS
Debt acquisition costs, net of amortization 4,856 5,406
Excess of cost over fair value of net assets
acquired, at amortized cost 12,992 14,027
Other 1,658 874
______ ______
19,506 20,307
______ ______
$ 105,128 $ 104,644
_______ _______
_______ _______
See Notes to Consolidated Financial Statements
/TABLE
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
______________________________________________
1995 1994
____ ____
CURRENT LIABILITIES
Checks in process of collection $ 1,585 $ 3,262
Current maturities of long-term debt (Note 4) 504 292
Accounts payable 4,252 4,039
Accrued salaries 1,233 1,249
Accrued interest 4,100 500
Accrued expenses 1,206 912
Due to Empire Energy Corporation (Note 2) 497
_____ ___
Total Current Liabilities 12,880 10,751
______ ______
LONG-TERM DEBT (Note 4) 115,143 105,320
_______ _______
DEFERRED INCOME TAXES (Note 5) 13,140 15,421
ACCRUED SELF-INSURANCE LIABILITY (Note 6) 911 1,372
___ _____
STOCKHOLDERS' EQUITY (DEFICIT)
Common; $.001 par value; authorized 20,000,000
shares; issued June 30, 1995 and 1994
- 14,291,020 shares 14 14
Common stock purchase warrants (Note 8) 1,227 1,227
Additional paid-in capital 27,279 27,279
Retained earnings 22,509 31,235
______ ______
51,029 59,755
Treasury stock, at cost
June 30, 1995 and 1994
- 12,711,795 shares (87,975) (87,975)
________ ________
(36,946) (28,220)
$ 105,128 $ 104,644
_______ _______
_______ _______
See Notes to Consolidated Financial Statements
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EMPIRE GAS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(In Thousands, Except Per Share Amounts)
1995 1994 1993
____ ____ ____
OPERATING REVENUE $ 74,640 $ 124,552 $ 128,401
COST OF PRODUCT SOLD 35,612 57,920 60,202
______ ______ ______
GROSS PROFIT 39,028 66,632 68,199
______ ______ ______
OPERATING COSTS AND EXPENSES
Provision for doubtful accounts 1,136 1,056 958
General and administrative 28,558 43,910 40,887
Depreciation and amortization 6,166 10,150 10,351
______ ______ ______
35,860 55,116 52,196
______ ______ ______
OPERATING INCOME 3,168 11,516 16,003
_____ ______ ______
OTHER EXPENSE
Interest expense (10,681) (8,542) (8,877)
Interest expense to related party (Note 3) -- -- (949)
Amortization of debt discount and expense (4,889) (2,016) (1,686)
Restructuring proposal costs (Note 11) -- (398) (223)
Reduction in carrying value of underground
storage facility (Note 12) (924) (1,400) --
_____ _______ ___________
(16,494) (12,356) (11,735)
INCOME (LOSS) BEFORE INCOME TAXES (13,326) (840) 4,268
PROVISION (CREDIT) FOR INCOME TAXES (4,600) 350 2,040
_______ ___ _____
(Note 5)
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS (8,726) (1,190) 2,228
EXTRAORDINARY ITEMS (Note 2)
Loss on extinguishment
of debt, net of income taxes (5,555) --
Excess of fair value over book
value of Energy net assets,
net of income taxes 37,870 --
______ __
NET INCOME (LOSS) $ (8,726) $ 31,125 $ 2,228
_______ ______ _____
_______ ______ _____
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See Notes to Consolidated Financial Statements
32 of 55
EMPIRE GAS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(In Thousands, Except Per Share Amounts)
1995 1994 1993
____ ____ ____
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS PER
COMMON SHARE $ (5.53) $ (.08) $ .16
EXTRAORDINARY ITEMS PER
COMMON SHARE
Loss on extinguishment
of debt, net of income taxes -- (.40) --
Excess of fair value over book
value of Energy net assets,
net of income taxes -- 2.71 --
__ _____ __
NET INCOME (LOSS) PER COMMON
SHARE (Note 1) $ (5.53) $ 2.23 $ .16
______ ____ ___
______ ____ ___
See Notes to Consolidated Financial Statements
33 of 55
EMPIRE GAS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(In Thousands)
Common Total
Stock Additional Stockholders'
Common Purchase Paid-in Retained Treasury Equity
Stock Warrants Stock Earnings Stock (Deficit)
______ ________ _________ ________ ________ _____________
BALANCE, JUNE 30, 1992 14 -- 27,133 (2,118) (128) 24,901
STOCK OPTIONS
EXERCISED -- -- 225 -- -- 225
NET INCOME -- -- -- 2,228 -- 2,228
SALE OF TREASURY
STOCK -- -- (270) -- 270 --
PURCHASE OF
TREASURY STOCK -- -- -- -- (1,441) (1,441)
__ __ __ __ _______ _______
BALANCE, JUNE 30, 1993 14 -- 27,088 110 (1,299) 25,913
STOCK OPTIONS EXERCISED -- -- 191 -- -- 191
COMMON STOCK
PURCHASE WARRANTS -- 1,227 -- -- -- 1,227
PURCHASE OF
TREASURY STOCK -- -- -- -- (2,645) (2,645)
EXCHANGE OF SUBSIDIARY
STOCK FOR COMPANY
COMMON STOCK -- -- -- -- (84,031) (84,031)
NET INCOME -- -- -- 31,125 -- 31,125
__ __ __ ______ __ ______
BALANCE, JUNE 30, 1994 $ 14 $ 1,227 $ 27,279 $ 31,235 $(87,975) $ (28,220)
_____ ______ _______ _______ ________ ________
NET LOSS _____ ______ ______ (8,726) _______ (8,726)
BALANCE, JUNE 30, 1995 $ 14 $ 1,227 $ 27,279 $ 22,509 $(87,975) $ (36,946)
_____ ______ _______ _______ ________ ________
_____ ______ _______ _______ ________ ________
See Notes to Consolidated Financial Statements
/TABLE
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EMPIRE GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(In Thousands)
1995 1994 1993
____ ____ ____
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $ (8,726) $ 31,125 $ 2,228
Items not requiring (providing) cash:
Depreciation 4,971 8,973 9,004
Amortization 6,084 3,193 3,033
(Gain) loss on sale of assets (550) (100) 155
Loss on underground
storage facility 924 1,400 --
Extraordinary loss -- 5,555 --
Extraordinary gain -- (37,870) --
Deferred income taxes (3,000) (3,166) (860)
Changes in:
Checks in process of collection (1,677) 3,262 --
Trade receivables 1,075 (130) (1,691)
Inventories (383) 1,170 (1,886)
Accounts payable 213 (254) (856)
Accrued expenses and self insurance 4,758 1,377 (3,158)
Prepaid expenses and other (2,262) (1,617) 272
_______ _______ ___
Net cash provided by operating activities 1,427 12,918 6,241
_____ ______ _____
CASH FLOWS FROM INVESTING
ACTIVITIES
Proceeds from sale of assets 2,956 366 1,088
Acquisition of retail service centers (7,047) (12,923) --
Purchases of property and equipment (4,154) (7,665) (4,358)
_______ _______ _______
Net cash used in investing activities (8,245) (20,222) (3,270)
_______ ________ _______
See Notes to Consolidated Financial Statements
/TABLE
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EMPIRE GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(In Thousands)
1995 1994 1993
____ ____ ____
CASH FLOWS FROM FINANCING
ACTIVITIES
Increase (decrease) in working capital
facility $ 5,058 $ (3,200) $ (1,875)
Principal payments on notes payable
to related party -- -- (2,996)
Principal payments on acquisition
credit facility -- -- (13,250)
Principal payments on purchase obligation (346) (203) (182)
Debenture sinking fund payments -- (2,023) (528)
Purchase of debentures from employee
benefit plan -- -- (778)
Proceeds from issuance of term credit
facility -- -- 18,000
Stock options exercised -- -- 173
Purchase of treasury stock -- (2,274) (1,441)
Sale of treasury stock -- -- 52
Proceeds from new debt offering -- 96,573 --
Retirement of debt with proceeds of
new debt offering -- (77,897) --
Cash distributed with Empire Energy
Corporation -- (1,107) --
__ _______ __
Net cash provided by (used in)
financing activities 4,712 9,869 (2,825)
_____ _______
INCREASE (DECREASE) IN CASH (2,106) 2,565 146
CASH, BEGINNING OF PERIOD 2,927 362 216
_________ _________ ________
CASH, END OF PERIOD $ 821 $ 2,927 $ 362
_________ __________ _________
_________ __________ _________
See Notes to Consolidated Financial Statements
of 55
EMPIRE GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
__________________
The Company's principal operations are the sale of LP gas at
retail and wholesale. Most of the Company's customers are owners of
residential single or multi-family dwellings who make periodic purchases on
credit. Such customers are located throughout the United States with the
larger number concentrated in the central and western states and along the
Pacific coast. At acquisition date, asset and liability values were
recorded at their market values with respect to the purchase price. At June
30, 1994, the Company's ownership and management was changed. See Note 2
for a description of this restructuring transaction.
Principles of Consolidation
___________________________
The consolidated financial statements include the accounts of
Empire Gas Corporation and its subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
Revenue Recognition Policy
__________________________
Sales and related cost of product sold are recognized upon
delivery of the product or service.
Inventories
___________
Inventories are valued at the lower of cost or market. Cost
is determined by the first-in, first-out method for retail operations and
specific identification method for wholesale operations. At June 30 the
inventories were:
1995 1994
____ ____
(In Thousands)
Gas and other petroleum products $ 2,116 $ 2,385
Gas distribution parts, appliances and equipment 3,570 2,794
_____ _____
$ 5,686 $ 5,179
_____ _____
_____ _____
/TABLE
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EMPIRE GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Property and Equipment
______________________
Depreciation is provided on all property and equipment on the
straight-line method over estimated useful lives of 5 to 33 years.
Income Taxes
____________
Deferred tax liabilities and assets are recognized for the tax
effects of differences between the financial statement and tax bases of
assets and liabilities. A valuation allowance is established to reduce
deferred tax assets if it is more likely than not that a deferred tax asset
will not be realized.
Amortization
____________
Debt acquisition costs are being amortized on a straight-line
basis over the terms of the debt to which the costs are related as follows:
the revolving credit facility and term credit facility costs (originally
$525,000) were amortized over an original five-year period ending in fiscal
1994; the 1994 senior secured note costs (originally $5,143,000) are
amortized over ten years; and the new revolving credit facility costs
(originally $341,000) are amortized over three years.
Amortization of discounts on debentures and notes (Note 4) is
on the effective interest, bonds outstanding method.
The excess of cost over fair value of net assets acquired
($20,750,000) is being amortized on the straight-line basis over 20 years.
Income (Loss) Per Common Share
______________________________
Income (loss) per common share is computed by dividing net
income (loss) by the weighted average number of common shares and, except
where anti-dilutive, common share equivalents outstanding, if any. The
weighted average number of common shares outstanding used in the computation
of earnings per share was 1,579,225, 13,961,520 and 14,055,407 for each of
the fiscal years ended June 30, 1995, 1994 and 1993, respectively.
38 of 55
EMPIRE GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Reclassification
________________
Certain reclassifications have been made to the 1994 and 1993
financial statements to conform to the 1995 financial statement
presentation. These reclassifications had no effect on net earnings.
NOTE 2: RESTRUCTURING TRANSACTION
On June 30, 1994, the Company implemented a change in
ownership and management by repurchasing 12,004,430 shares of Company common
stock from its former principal shareholder (Former Shareholder) and certain
other departing officers in exchange for all of the shares of a subsidiary,
Empire Energy Corporation (Energy) that owns 133 retail service centers
located principally in the Southeast plus certain home office assets and
liabilities. Certain departing officers and employees received $7.00 per
share net of the stock option exercise price for the remaining 377,865
shares of common stock that they held. The Company retained ownership of
158 retail service centers located in 20 states plus certain home office
assets and liabilities. A payable to Energy of $497,031 was recorded at
June 30, 1994, to reflect the settlement of this transaction.
In connection with the stock purchase, the Former Shareholder
terminated his employment with the Company as well as terminated certain
lease and use agreements with the Company (see Note 3). Following the stock
repurchase, the Company's previous chief operating officer became the
Company's president, chairman of the board and principal shareholder
(Principal Shareholder).
The Company has received a private letter ruling from the
Internal Revenue Service which provides that, based on certain
representations contained in the ruling, neither income nor gain for federal
income tax purposes will be recognized by the Company as a result of the
stock purchase.
In connection with the stock purchase, the Company issued
$127.2 million of new debentures (with proceeds of $100.1 million before
expenses of $3.5 million) which was used to retire $77.9 million of existing
debt. The remaining net proceeds were used to finance a $12.9 million
acquisition of six retail service centers in North Carolina, $2.5 million to
repurchase treasury stock and $3.3 million for working capital.
The retirement of existing debt (described in Note 4) resulted
in an extraordinary loss of $8,655,000, including net unamortized debt
acquisition costs of $420,000 related to the debt retired. These amounts
were expensed in June 1994 net of $3,100,000 of tax benefit.
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EMPIRE GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 2: RESTRUCTURING TRANSACTION (Continued)
The excess of fair value of net assets of Energy ($84,031,000)
over book value ($46,111,000) was an extraordinary credit to income
($37,870,000) in June 1994, net of $50,000 of income tax expense.
The following table sets forth selected aggregate operating
data for the retail service centers of the Company which were retained after
the restructuring transaction and for the six retail service centers the
Company acquired in North Carolina. This acquisition was consummated June
30, 1994, and was accounted for as a purchase of assets; accordingly, no
revenues or expenses related to this acquisition have been included in the
statement of operations for the year ended June 30, 1994.
Empire Gas
Corporation
(after giving effect North
to the Restructuring Carolina
Transaction) Acquisition Pro Forma
____________ ___________ _________
(Unaudited)
(In thousands)
June 30, 1994
Operating revenue $ 64,336 $ 10,501 $ 74,837
Cost of product sold 29,891 5,215 35,106
______ _____ ______
Gross profit $ 34,445 $ 5,286 $ 39,731
______ _____ ______
______ _____ ______
June 30, 1993
Operating revenue $ 67,344 $ 9,587 $ 76,931
Cost of product sold 31,045 4,643 35,688
______ _____ ______
Gross profit $ 36,299 $ 4,944 $ 41,243
______ _____ ______
______ _____ ______
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EMPIRE GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 3: RELATED-PARTY TRANSACTIONS
During 1995, 1994 and 1993, the Company has purchased
$157,842, $210,400, and $68,900, respectively, of paint from a corporation
owned by the spouse of the Principal Shareholder of the Company.
During fiscal year 1994, the Company paid an investment
banking firm affiliated with a director of the Company $400,000 in return
for services rendered in connection with the negotiation of the Company's
revolving credit facility and with the Restructuring Transaction.
Beginning July 1, 1994, the Company entered into a seven-year
services agreement with a subsidiary of Energy to provide data processing
and management information services. The services agreement provides for
payments by the Company to be based on an allocation of the subsidiary's
actual costs based on the gallons of LP gas sold by the Company as a
percentage of the gallons of LP gas sold by the Company and Energy. For the
year ended June 30, 1995, total expenses related to this services agreement
were $1.1 million.
Beginning July 1, 1994, the Company entered into a new lease
agreement with a corporation owned principally by the Former Shareholder to
lease its corporate office space. The new lease requires annual rent
payments of $75,000 for a period of seven years, with two three-year renewal
options.
Prior to the Restructuring described in Note 2, the Company
had various related party transactions with its Former Shareholder as
described below.
The Company leased the corporate home office, land, buildings
and equipment from a corporation principally owned by the Former
Shareholder. The Company paid $200,000 during each of the years ended June
30, 1994 and 1993, related to this lease. This lease was terminated
effective June 30, 1994, at no additional expense to the Company.
In connection with the stock purchase described in Note 2, the
Company repurchased, at face value, $4.7 million principal amount of the
Company's 2007 9% Subordinated Debentures from the Former Shareholder and
purchased, at face value, $285,000 principal amount of the Company's 2007 9%
Subordinated Debentures from certain departing officers and employees of the
Company.
During 1994 and 1993, the Company provided data processing,
office rent and other clerical services to two corporations owned
principally by the Former Shareholder and was being reimbursed $7,000 per
month for these services. The Company has discontinued providing these
services as of June 30, 1994.
In 1994 and 1993, the Company leased a jet aircraft and an
airport hanger from a corporation owned by the Former Shareholder. The
41 of 55
lease required annual rent payments of $100,000 beginning April 1, 1992. In
addition to direct lease payments, the Company was also responsible for the
EMPIRE GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995
NOTE 3: RELATED-PARTY TRANSACTIONS (Continued)
operating costs of the aircraft and the hanger. During the years ended June
30, 1994 and 1993, the Company paid direct rent of $75,000 and $100,000,
respectively. This lease was terminated effective June 30, 1994, at no
additional expense to the Company.
The Company paid $150,000 in each of the years ended June 30,
1994 and 1993, to a corporation owned by the Former Shareholder pursuant to
an agreement providing the Company the right to use business guest
facilities owned by the corporation. This agreement was terminated
effective June 30, 1994, at no additional expense to the Company.
The Company borrowed funds from its Former Shareholder and
from individuals and corporations related to the Former Shareholder during
the year ended June 30, 1994. The maximum amounts borrowed during this
period was $3,000,000. The interest rate on this borrowing was equal to or
below the rates available through the working capital facility. Interest
expense incurred on this related-party borrowing was $200,000. During
November 1992 the Former Shareholder loaned under a separate agreement
$13.25 million to the Company to repay the acquisition credit facility.
Interest expense incurred on this related-party borrowing for the year ended
June 30, 1993, was $749,000. In June 1993, all outstanding borrowings from
the Former Shareholder were repaid using the proceeds from the term credit
facility.
NOTE 4: LONG-TERM DEBT
Long-term debt at June 30 consisted of (In Thousands): 1995 1994
____ ____
Working capital facility (A) $ 5,058 $ --
12 7/8% Senior Secured Notes, due 2004 (B) 103,019 99,220
9% Subordinated Debentures, due 2007 (C) 5,094 5,003
Purchase contract obligations (D) 2,476 1,389
_____ _____
115,647 105,612
Less current maturities 504 292
___ ___
___ ___
$ 115,143 $ 105,320
_______ _______
42 of 55
EMPIRE GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 4: LONG-TERM DEBT (Continued)
(A) The working capital facility was provided to the Company in
June 1994 in conjunction with the offering of the 12 7/8%
Senior Secured Notes, due 2004. All of the Company's
receivables and inventories are pledged to the
agreement,which contains tangible net worth, capital
expenditures, interest coverage ratio, debt and certain
dividend restrictions. These dividend restrictions prohibit
the Company from paying common stock cash dividends. At June
30, 1995, the Company was not in compliance with the original
capital expenditures and interest coverage ratio covenants.
The bank has amended the covenants, and the Company is in
compliance with the amended covenants.
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 55% of eligible inventory.
In addition, the Company can borrow an additional $1.5
million during the period July 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 $334,000 at June
30, 1995, after considering $1,501,000 of outstanding letters
of credit. The letters of credit are principally related to
the Company's self-insurance program (Note 6).
(B) The notes were issued June 1994 at a discount and bear
interest at 7% through July 15, 1999, and at 12 7/8%
thereafter. The notes are redeemable at the Company's
option. Prior to July 15, 1999, only 35% of the original
principal issued may be redeemed, as a whole or in part, at
110% of the principal amount through July 15, 1997, and at
declining percentages thereafter. The notes are guaranteed
by the subsidiaries of the Company and secured by the common
stock of the subsidiaries of the Company.
The original principal amount of the notes issued
($127,200,000) was adjusted ($27,980,000) to give effect for
the original issue discount and the common stock purchase
warrants (effective interest rate of 13.0%). The discount on
these notes is being amortized over the remaining life of the
notes using the effective interest, bonds outstanding method.
The face value of notes outstanding at June 30, 1995 and
1994, is $127,200,000.
43 of 55
The proceeds from this new offering were used to repay
existing debt; fund an acquisition; repurchase Company stock
and for working capital (Note 2).
Separate financial statements of the guarantor subsidiaries
are not included because such subsidiaries have jointly and
severally guaranteed the notes on a full and unconditional
basis, the aggregate assets and liabilities of the guarantor
EMPIRE GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 4: LONG-TERM DEBT (Continued)
subsidiaries are substantially equivalent to the assets and
liabilities of the parent on a consolidated basis and the
separate financial statements and other disclosures
concerning the subsidiary guarantors are not deemed to be
material.
The guarantor subsidiaries are restricted from paying
dividends to the Company during any periods of default under
the respective debt agreements or in periods where the
Company has borrowed under the overadvance option described
above.
(C) The debentures, issued June 1983, are redeemable at the
Company's option, as a whole or in part, at par value. A
sinking fund payment sufficient to retire $191,000 of
principal outstanding is required on December 31, 2005. In
June 1994, the Company used proceeds from the issuance of the
12 7/8% Senior Secured Notes, due 2004, to repurchase
$16,201,200 face value of these debentures at a discount
which resulted in an extraordinary charge (Note 2).
The original principal amount of debentures issued
($27,313,000) was adjusted to market at issuance (effective
interest rate of 16.5%). The remaining discount on these
debentures is being amortized over the remaining life of the
debentures using the effective interest, bonds outstanding
method. The face value of debentures outstanding at June 30,
1995 and 1994, is $9,745,800.
(D) Purchase contract obligations arise from the purchase of
operating businesses and are collateralized by the equipment
and real estate acquired in the respective acquisitions. At
June 30, 1995 and 1994, these obligations carried interest
rates from 7% to 10% and are due periodically through 1999.
44 of 55
EMPIRE GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 4: LONG-TERM DEBT (Continued)
Aggregate annual maturities and sinking fund requirements (in
thousands) of the long-term debt outstanding at June 30, 1995, are:
1996 $ 504
1997 5,568
1998 658
1999 357
2000 83
Thereafter 108,477
________
$115,647
________
________
NOTE 5: INCOME TAXES
Effective July 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). As a result of the change, there was no effect on income
tax expense, and the effect on current-noncurrent classification of deferred
tax assets and liabilities was not material.
SFAS 109 requires recognition of deferred tax liabilities and
assets for the difference between the financial statement and tax basis of
assets and liabilities. Under this new standard, a valuation allowance is
established to reduce deferred tax assets if it is more likely than not that
a deferred tax asset will not be realized.
Prior to July 1, 1993, deferred taxes were determined using
the Statement of Financial Accounting Standards No. 96.
45 of 55
EMPIRE GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 5: INCOME TAXES (Continued)
The provision for income taxes includes these components:
1995 1994 1993
____ ____ ____
(In Thousands)
Taxes currently payable (refundable) $ (1,600) $ 2,887 $ 2,900
Deferred income taxes (3,000) (2,537) (860)
_______ _______ _____
$ (4,600) $ 350 $ 2,040
_______ ___ _____
_______ ___ _____
The tax effects of temporary differences related to deferred taxes were:
June 30, June 30,
1995 1994
________ ________
(In Thousands)
Deferred Tax Assets
___________________
Allowance for doubtful accounts $ 300 $ 566
Accounts receivable advance collections 347 201
Self-insurance liabilities and contingencies 2,168 638
Alternative minimum tax credit 1,300 100
_____ ___
4,115 1,505
_____ _____
Deferred Tax Liability
______________________
Accumulated depreciation $ (15,905) $ (16,295)
________ ________
and tax cost differences
Net deferred tax liability $ (11,790) $ (14,790)
________ ________
________ ________
46 of 55
EMPIRE GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 5: INCOME TAXES (Continued)
The above net deferred tax asset (liability) is presented on the June 30
balance sheet as follows:
1995 1994
____ ____
(In Thousands)
Deferred Tax Assets
___________________
Deferred tax asset - current $ 1,350 $ 631
Deferred tax liability - long-term (13,140) (15,421)
________ ________
Net deferred tax liability $ (11,790) $ (14,790)
________ ________
A reconciliation of income tax expense at the statutory rate to the
Company's actual income tax expense is shown below:
1995 1994 1993
____ ____ ____
(In Thousands)
Computed at the statutory rate (34%) $ (4,531) $ (285) $ 1,451
Increase (decrease) resulting from:
Amortization of excess of cost over
fair value of assets acquired 303 393 422
State income taxes - net of federal tax benefit (411) 150 158
Nondeductible travel costs and other expenses 39 56 11
Other -- 36 (2)
_______ _____ _____
Actual tax provision $ (4,600) $ 350 $ 2,040
_______ _____ _____
_______ _____ _____
NOTE 6: SELF INSURANCE AND RELATED CONTINGENCIES
Under the Company's current insurance program, coverage for comprehensive
general liability 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. Under these
47 of 55
current insurance programs, the Company self-insures the first $500,000 of
coverage (per incident). Effective July 1994, the Company reduced its
EMPIRE GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 6: SELF INSURANCE AND RELATED CONTINGENCIES (Continued)
self-insured retention for vehicle liability to $250,000 per incident.
Effective July 1995, the Company returned its self-insured retention for
vehicle liability to $500,000 per incident. The Company obtains excess
coverage from carriers for these programs on occurrence and claims-made
basis policies. The excess coverage for comprehensive general liability
provides a loss limitation that limits the Company's aggregate of self-
insured losses to $1 million per policy period. The aggregate cost of
obtaining this excess coverage from carriers for the years ended June 30,
1995, 1994 and 1993, was $1,237,000, $1,634,000 and $1,441,000,
respectively.
For the policy periods prior to July 1, 1991, July 1, 1992, through June
30, 1993, and July 1, 1993, through June 30, 1994, the Company has provided
for aggregate comprehensive general liability losses through the policies'
$1 million loss limit. Additional losses, if any, are insured by the excess
carrier and should not result in additional expense to the Company. As of
June 30, 1995, the Company estimates losses for the comprehensive general
liability policy periods July 1, 1991, through June 30, 1992, and July 1,
1994, through June 30, 1995, will not reach the $1 million loss limits and
has provided accordingly.
During the year ended June 30, 1993, the Company had obtained workers'
compensation coverage from carriers and state insurance pools at an annual
cost of $1,743,000. Effective July 1, 1993, the Company changed its policy
to self-insure the first $500,000 of workers' compensation coverage (per
incident). The Company purchased excess coverage from carriers for workers'
compensation claims in excess of the self-insured coverage. Provisions for
losses expected under this program were recorded based upon the Company's
estimates of the aggregate liability for claims incurred. The Company
provided letters of credit aggregating approximately $2.3 million in
connection with this program of which $1,141,400 is outstanding at June 30,
1995. Effective July 16, 1994, the Company changed its policy so that it
will obtain workers' compensation coverage from carriers and state insurance
pools.
Provisions for self-insured losses are recorded based upon the Company's
estimates of the aggregate self-insured liability for claims incurred. A
summary of the self-insurance liability, general, vehicle and workers'
compensation liabilities (in thousands) for the years ended June 30, 1995,
1994 and 1993, are:
48 of 55
EMPIRE GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 6: SELF INSURANCE AND RELATED CONTINGENCIES (Continued)
Beginning Self Ending
Self Self Insured Restructuring Self
Insurance Insurance Claims Transaction Insurance
Liability Expenses Paid (Note 2) Liability
_________ ________ ________ ___________ _________
June 30, 1993 $2,666 $1,148 $1,480 $2,334
June 30, 1994 $2,334 $3,709 $2,464 $1,707 $1,872
June 30, 1995 $1,872 $ 668 $1,129 $1,411
The ending accrued liability includes $400,000 for incurred but not
reported claims at June 30, 1995, $125,000 at June 30, 1994, and $500,000 at
June 30, 1993. The current portion of the ending liability of $500,000,
$500,000, and $460,000 at June 30, 1995, 1994 and 1993, respectively, is
included in accrued expenses in the consolidated balance sheets. The
noncurrent portion at the end of each period is included in accrued self-
insurance liability.
The Company and its subsidiaries are also 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. Provisions for losses
expected under this program are recorded based upon the Company's estimate
of the aggregate liability for claims incurred. The aggregate cost of
providing the health benefits was $240,000, $979,000 and $873,000 for the
years ended June 30, 1995, 1994 and 1993, respectively.
In conjunction with the restructuring transaction (Note 2) the Company
and Energy have agreed to share on a percentage basis the self-insured
liabilities incurred prior to June 30, 1994, including both reported and
unreported claims. The self-insured liabilities included under this
agreement include general, vehicle, workers' compensation and health
insurance liabilities. Under the agreement, the Company assumed 52.3% of
the liability with Energy assuming the remaining 47.7%.
49 of 55
EMPIRE GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 7: LITIGATION CONTINGENCIES
The Company's federal income tax returns have been settled through June
30, 1991. The Company has no federal income tax audits in process at June
30, 1995.
The Company and its subsidiaries are presently involved in two 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 (Note 2) the Company
and Energy have agreed to share on a percentage basis amounts incurred
related to federal and state audits and other business related lawsuits
incurred prior to June 30, 1994. The liability recorded at June 30, 1995
and 1994, in the Company's financial statements related to these
contingencies represents its 52.3% portion of the total liability as of that
date.
NOTE 8: STOCK OPTIONS AND WARRANTS
Stock Options
_____________
The table below summarizes transactions under the Company's stock option
plan:
Number
of Shares Option Price
_________ _____________
Balance June 30, 1992 467,929 $ .377 - 1.50
Exercised (338,679) .377 - 1.50
_________
Balance June 30, 1993 129,250 1.12 - 1.50
Exercised (129,250) 1.12 - 1.50
_________
Balance June 30, 1994 -0-
Issued 377,926 $ 7.00
_______
Balance June 30, 1995 377,926
_______
_______
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EMPIRE GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 8: STOCK OPTIONS AND WARRANTS (Continued)
At June 30, 1994, all outstanding stock options were exercised in
connection with the restructuring transaction (see Note 2). During the year
ended June 30, 1995, a new stock option plan was approved resulting in the
issuance of additional options. These options consist of 220,000 shares
issued to employees, of which one-fifth become exercisable in January 1996
and each year thereafter. The remaining 157,926 shares were issued to
directors of the Company and are exercisable at June 30, 1995.
Common Stock Purchase Warrants
______________________________
In connection with the Company's restructuring, the Company attached
warrants to purchase common stock to the new issuance of 12 7/8% Senior
Secured Notes, due 2004. Each warrant represents the right to purchase one
share of the Company's common stock for $.01 per warrant. The warrants are
exercisable after January 15, 1995, and will expire on July 15, 2004.
The table below summarizes warrant activity of the Company:
Number
of Shares Exercise Price
_________ ______________
Issued 175,536 $.01
_______
Balance at June 30, 1995 175,536 $.01
_______
_______
NOTE 9: ADDITIONAL CASH FLOW INFORMATION (In Thousands)
1995 1994
____ ____
Noncash Investing and Financing Activities
__________________________________________
Purchase contract obligations incurred $ 1,433 $ 1,015
Debt acquisition costs in accounts payable -- $ 746
Purchase of treasury stock, net of option
exercise price, in accounts payable -- $ 180
51 of 55
EMPIRE GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 9: ADDITIONAL CASH FLOW INFORMATION (In Thousands) (Continued)
Distribution of operating assets other than cash with Empire Energy
Corporation:
1994
____
Current assets 8,185
Fixed assets, net 51,620
Other assets 3,822
Current liabilities (2,697)
Long-term liabilities (15,926)
________
$ 45,004
________
________
1995 1994 1993
____ ____ ____
Additional Cash Payment Information
___________________________________
Interest paid $ 7,196 $ 9,191 $ 12,185
Income taxes paid (net of refunds) $ -- $ 2,620 $ 3,434
NOTE 10: EMPLOYEE BENEFIT PLAN
The Company formed in fiscal year 1995 a defined contribution retirement
plan eligible to substantially all employees. Employees who elect to
participate may contribute a percentage of their salaries to the plan. The
Company may make contributions to the plan at the discretion of its Board of
Directors. No contributions to the plan were made by the Company during the
year ended June 30, 1995.
NOTE 11: RESTRUCTURING PROPOSAL COSTS
During the years ended June 30, 1994 and 1993, the Company was
considering proposals to restructure the debt and equity of the Company.
The Company abandoned the proposals and expensed the related costs of
$398,000 and $223,000 in 1994 and 1993, respectively.
52 of 55
EMPIRE GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 12: UNDERGROUND STORAGE FACILITY
The Company owns salt cavern LPG underground storage facilities which are
not in use and are subject to a consent agreement with the state of Kansas.
Under the agreement, the Company was to submit a plan to the state for
resuming use of the facilities or permanently closing them. The due date of
the plan was initially January 1, 1994. The state has granted a final
extension to December 1, 1995.
The Company has obtained from an engineering and construction company a
study of the costs of rehabilitating and opening the facilities, which range
from $500,000 to $3.0 million.
Management is presently evaluating several options after rehabilitation
of the facility, including use as expanded storage for company inventories,
use as leased storage to customers and other distributors and the sale of
the facility. If the rehabilitation work is not performed and the
facilities cannot be sold, then the Company would be required to close the
facilities at a cost which the Company believes will not exceed $500,000.
Due to the uncertainties outlined above, the Company has taken a charge
of $924,000 and $1.4 million against 1995 and 1994 earnings, respectively,
thereby eliminating the carrying value of the facilities.
NOTE 13: SUBSEQUENT SALES OF SUBSIDIARIES
Subsequent to year end, the Company sold eleven retail service centers
for sales prices totaling approximately $4.5 million. Fiscal year 1995
summary data of the facilities sold were as follows:
53 of 55
EMPIRE GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 13: SUBSEQUENT SALES OF SUBSIDIARIES (Continued)
In Thousands
____________
Operating revenue $ 3,268
Cost of sales 1,811
Gross profit $ 1,457
_____
Working capital $ 391
___
Net property, plant and equipment $ 2,494
_____
_____
NOTE 14: SUBSEQUENT EVENT
On August 15, 1995, the Company entered into a joint venture with
Northwestern Growth Corporation, a subsidiary of Northwestern Public Service
Corporation, to acquire the assets of Synergy Group Incorporated, the
nation's fifth largest LP gas distributor. The Company has acquired for
$10,000 10% of the common stock of SYN, Inc., the acquisition entity, and
has an option to acquire an additional 20% of the common stock of SYN, Inc.
for $20,000. The Company has entered into a Management Agreement pursuant
to which the Company manages the joint entity. Under the terms of the
Management Agreement, 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
$3.25 million annual overhead cost reimbursement, both paid on a monthly
basis.
54 of 55
Independent Accountants' Report on Financial Statement Schedules
________________________________________________________________
Board of Directors and Stockholders
Empire Gas Corporation
Lebanon, Missouri
In connection with our audit of the financial statements of EMPIRE GAS
CORPORATION for each of the three years in the period ended June 30, 1995,
we have also audited the following financial statement schedules. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits of the basic financial statements.
The schedules are presented for purposes of complying with the Securities
and Exchange Commission's rules and regulations and are not a required part
of the consolidated financial statements.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
Baird, Kurtz & Dobson
Springfield, Missouri
August 25, 1995
55 of 55
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1995, 1994, AND 1993
(In Thousands)
Balance at Charges to Amount Balance at
Beginning Costs and Written End of
Description of Year Expenses Off Other Year
___________ __________ ___________ _______ _____ __________
Valuation accounts
deducted from
assets to which
they apply - for
doubtful accounts
receivable:
June 30, 1995 $1,620 $1,136 $1,973 $17(C) $800
June 30, 1994 $2,657 $1,056 $520 $(1,684)(A) $1,620
$111(B)
June 30, 1993 $2,720 $958 $1,021 $2,657
(A) Related to assets which were distributed in the Restructuring Transaction described in
Note 2 of the consolidated financial statements.
(B) Allowance for doubtful accounts receivable established with respect to the acquisition
described in Note 2 of the consolidated financial statements.
(C) Allowance for doubtful accounts receivable established with respect to the acquisition
of retail service centers.