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, 1996
Commission file Number 1-6537
ALL STAR GAS CORPORATION
(formerly known as Empire Gas Corporation)
(Exact Name of Registrant as Specified in Its Charter)
Missouri 43-1494323
(State or other jurisdiction (IRS Employer
of Incorporation 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:
Title of Each Class
9% Subordinated Debentures due 2007
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 19, 1996 is: $116,480
Shares of Common Stock, $0.001 par value, outstanding as of close of
business on September 19, 1996: 1,579,225.
Upon request, All Star Gas Corporation will furnish a copy of an 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.
PART 1
Items 1 and 2. Business and Properties
Introduction
All Star Gas Corporation (formerly known as Empire Gas
Corporation) ("All Star Gas" or the "Company") was founded in 1963 and
through its subsidiaries has been in operation for over 33 years. The
Company is engaged primarily in (a) the retail marketing of propane to
residential, agricultural, and commercial customers, (b) the retail
marketing of propane-related appliances, supplies, and equipment, and (c)
the rent of consumer propane storage tanks to residential and commercial
customers under various brand names, including All Star, Empiregas, and the
names of numerous predecessors. During the fiscal year which ended 6/30/96,
All Star Gas supplied propane to approximately 112,000 customers in 20
states from 127 retail service centers and sold approximately 88.9 million
gallons.
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 $30,000, 30% of the common stock of SYN, Inc. ("Synergy"), the
acquisition entity. The Company has entered into a Management Agreement
pursuant to which the Company provides all management of the retail
facilities and accounting services at the central office. In exchange for
those services, the Company receives a $500,000 annual base management fee,
an incentive management fee, and $3.25 million annual overhead cost
reimbursement (adjusted annually for inflation). Unless specifically
referenced, all information contained herein excludes information
pertaining to the Synergy operations.
On December 7, 1995, the Company entered into a joint venture with
Northwestern Growth Corporation, a subsidiary of Northwestern Public
Service Company to acquire the stock of Myers Propane Gas Company, a large
Ohio LP gas distributor. The Company has acquired 49% of the common stock
of Acquisition Company (Myers), the acquisition entity. The Company entered
into a Management Agreement pursuant to which the Company provides all
management and administrative services. In exchange for these services,
the Company is entitled a management fee upon the attainment of certain
performance goals.
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 recognized for it's
transportability and ease of use relative to other forms of stand alone
energy. 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, such as
over-the-road vehicles, forklifts, and stationary engines. Agricultural
uses include brooder heating, stock tank heating, crop drying, tobacco
curing, and weed control, as well as use as a motor fuel for farm equipment
and vehicles.
Propane is recognized as a clean alternative transportation fuel
"ATF" by the Federal and state governments and is the most widely used ATF
in the United States. The Federal government has enacted certain mandates
for use of ATF's by government and private fleets under the Clean Air Act
of 1990 and Energy Act of 1992. Federal and state governments have also
provided various economic incentives for use of ATF's which will positively
impact propane demand.
The retail propane business is a "margin-based" business in which
gross profits depend on the excess of sales price over propane supply
costs. 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 65.5% of the Company's aggregate
propane sales revenue and 72.2% of its aggregate gross margin from propane
sales in fiscal year 1996. Historically, this market has provided higher
margins than other retail propane sales. Based on fiscal year 1996 propane
sales revenue, the customer base consisted of 22.6% commercial and 11.9%
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 1.2% of
revenue from sales.
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.
Sources of Supply. During 1996, approximately 80% of the Company's
propane purchases of its propane supply were on a contractual basis
(generally, one year agreements subject to annual renewal). The Company's
two largest suppliers provide 20.0% and 11.0% of the total supply purchased
by the Company. Supply contracts do not, generally, lock in prices, but
rather provide for pricing in accordance with posted prices at the time of
delivery or established by current major storage points, such as Mont
Belvieu, TX, and Conway, KS. The Company has established relationships with
a number of suppliers 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 from its two major 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 is a shipper
on all major interstate LPG pipeline systems. The retail service
centers have an aggregate storage capacity of approximately 16.1
million gallons of propane, and each service center has equipment for
transferring the gas into and from the bulk storage tanks. The Company
operates 11 over-the-road tractors and 7 transport trailers to deliver
propane and consumer tanks to its retail service centers and also relies on
common carriers to deliver propane to its retail service centers.
Deliveries to customers are made by means of 346 propane delivery
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 excellent service to its
customers and to achieve maximum operating efficiencies. The Company's
retail propane distribution business is organized into 15 regions which
include the 122 service centers managed, pursuant to the Management
Agreements relating to Synergy and Myers. Each region is supervised by a
Regional Manager. The regions are grouped into four divisions, which are
supervised by Divisional Vice Presidents, or Managers. 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 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
connected to the central management information system in the Company's
corporate headquarters. 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 general operations
of its numerous retail service centers and to plan accordingly to improve
the operations of the Company. 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.
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. Propane competes primarily with natural gas, electricity and
fuel oil principally on the basis of price, availability and portability.
The Company also competes with suppliers of electricity. Generally
speaking, the cost of propane compares favorably to electricity allowing the
Company to enjoy a competitive advantage due to the higher costs of elec-
tricity. Fuel oil does not present a significant competitive threat in the
Company'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.
Although propane is generally more expensive than natural gas on
an equivalent BTU basis comparison, propane serves as an alternative to
natural gas in rural areas where natural gas is not available. Propane is
also utilized by natural gas customers on a stand-by basis during peak
demand periods. The costs involved in building or connecting to a natural
gas distribution system have tempered natural gas growth in most of the
Company's trade territory.
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 an
exception for multi-state acquisition, 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.
Effective June 30, 1996, the Company's comprehensive general and excess
liability policy provides for losses of up to $101.0 million with a
$250,000 self insured retention. Above the SIR is a corridor deductible of
$750,000 per occurrence and $1,250,000 in the aggregate. The aggregate is
shared between All Star and Synergy.
From July 1994 until July 1996 the Company had obtained workers'
compensation coverage from carriers and state insurance pools. Beginning
with July 1996 the company's combined auto and workers' compensation
coverage has a $250,000 deductible per occurrence. There is a $2 million
stop loss aggregate on the combined auto and workers' compensation losses
for Synergy and All Star Gas jointly.
The deductibles on the comprehensive general, auto and worker's
compensation mean that the Company is effectively self insured 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.
All Star 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, 1996, the Company had approximately 617
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.
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 July 16, 1996.
The only matter presented for a vote was the re-election of Kristin L.
Lindsey and Bruce M. Withers, Jr. as directors. Mrs. Lindsey and Mr.
Withers were 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, Jim J. Shoemake, and Bruce M. Withers, Jr.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
As of September 19, 1996, 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 19, 1996, 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 1995 or 1996 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 All Star Gas as of and for each of the years in the
five-year period ended June 30, 1996. The financial data of the Company as
of and for each of the years in the five-year period ended June 30, 1996
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, 1996.
Year Ended June 30,
-------------------------------------------------------------------
1992 1993 1994 1995 1996
----- ----- ---- ---- ----
(In thousands except ratios and per share amounts)
Operating data:
Operating revenue $111,322 $128,556 $124,452 $74,090 $82,702
Gross profit (1) 61,107 68,199 66,632 39,028 39,384
Operating expenses 40,052 41,845 44,966 29,694 28,382
Depreciation & amortization. 10,062 10,351 10,150 6,166 6,770
Operating income 10,993 16,003 11,516 3,168 4,232
Interest expense:
Cash interest 10,721 9,826 8,542 10,681 10,657
Amortization of debt discount & expenses 1,006 1,686 2,016 4,889 5,476
Total interest expense 11,727 11,512 10,558 15,570 16,133
Net income (loss) before extraordinary items (2) (1,474) 2,228 (1,190) (8,726) (7,897)
Other operating data:
Capital expenditures 6,703 4,358 20,015 11,874 8,838
Cash from sale of retail service centers
and other assets 3,062 1,088 366 2,956 6,177
EBITDA (3) 20,297 26,509 21,566 8,784 11,302
Income (loss) per share before extraordinary
items $(.11) $.16 $(0.08) $(5.53) $(5.00)
Year Ended June 30,
-------------------------------------------------------------------
1992 1993 1994 1995 1996
----- ----- ---- ---- ----
Balance sheet data:
Total assets $151,471 $148,020 $104,644 $105,128 $102,002
Long-term debt (including current maturities) 78,958 79,249 105,612 115,647 122,858
Stockholders' equity (deficit) 24,901 25,913 (28,220) (36,946) (44,843)
(1) Represents operating revenue less the cost of products sold.
(2) All Star Gas did not declare or pay dividends on its common stock
during the five-year period ending June 30, 1996.
(3) EBITDA consists of earning 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).
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 All Star Gas and
the notes thereto included in this Report.
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 the products sold, 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.
Results of Operations
General
All Star Gas' primary source of revenue is retail propane sales,
which accounted for approximately 91% of its revenue in fiscal year 1996.
Other sources of revenue include sales of service labor, 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. Therefore,
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.
The severity of the weather will affect the volume sold because a substan-
tial amount of the propane sold by the Company to residential and commercial
customers is used for heating. 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 expense and, to a much lesser extent,
depreciation, amortization and interest expense. Purchases of propane
inventory account for the 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 amortization of original issue discount.
Fiscal Years Ended June 30, 1996 and June 30, 1995
Operating Revenue. Operating revenue increased $8.6 million, or
11.6%, to $82.7 million in fiscal year 1996 as compared to $74.1 million in
fiscal year 1995. The increase was due to a $9.2 million increase in gas
sales and the addition of the SYN, Inc. management fee of $400,000 (prorated
for a 10 month period), offset by decreases of $500,000 in gas systems and
appliance sales, $200,000 in service labor, and $300,000 in service charges.
The increase in gas sales was due to an approximate $.06 per gallon increase
in the average net sales price of propane and a net increase of approximately
2.0 million gallons, or 2.3%. Taking into account the acquisitions and dis-
posals of stores in fiscal year 1996, gallonage increased 6.5 million
gallons, or 8.1% on a same store basis, as a result of increased demand due
to a colder winter than in fiscal year 1995 and new customer growth.
Decreases in gas systems and appliance sales and the related service labor
were due primarily to divestures of retail outlets. The decrease in
service charges results from improved collection efforts and more stringent
credit policies and procedures.
Cost of products sold. Cost of products sold increased $7.7
million, or 21.7%, to $43.3 million in fiscal year 1996 as compared to
$35.6 million in fiscal year 1995. This increase was due to an increase of
approximately $8.0 million in cost of gas sales due to the net 2.0 million
gallon volume increase and an approximate $.05 per gallon rise in the
wholesale cost of propane offset by a decrease of approximately $300,000
in the cost of gas systems and appliance sales due to the decrease in sales
volume.
Gross profit. The Company's gross profit for the year increased
$900,000, or 2.3%, to $39.4 million in fiscal year 1996 as compared to
$38.5 million in fiscal year 1995. The Company's gross project per gallon
increased approximately $.01 to approximately $.39 per gallon in fiscal
year 1996, as a result of the increase in sales price of approximately $.06
per gallon offset by the $.05 increase in the cost of propane. The
resulting increase in gross profit of $1.2 million from gas sales was
offset by a decrease in gross profit of approximately $200,000 from gas
systems and appliances due to the decrease in sales volume and the decrease
in other revenues of approximately $100,000.
General and administrative expense. General and administrative
expenses decreased $1.1 million, or 3.8%, to $27.5 million in fiscal year
1996 compared to $28.6 million in fiscal year 1995. This decrease is due
primarily to a decrease in insurance and liability claims of $300,000, an
increase of $400,000 in rent and maintenance and the net effect of the
Management Agreement with SYN, Inc.
The decrease in insurance and liability claims was due to improved
claim history. The increase in rent and maintenance was due primarily to
the addition of new rental agreements entered into as a part of retail
service centers acquired during fiscal years 1995 and 1996 and increased
tank painting and building maintenance related both to the conversion to a
new identity for acquired retail service centers and as part of the
Company's Modernization program.
The decrease that occurred because of the SYN, Inc. Management
Agreement is due to the impact of increased costs in the other general and
administrative cost centers offset by the annual overhead reimbursement
made, which was $2.8 million in fiscal year 1996, and an additional one
time $1.1 million payment related to the SYN, Inc. acquisition. These
reimbursements were made to offset the increased costs required for the
management of SYN, Inc. including additional home office employee salaries
and related other costs.
Provision for doubtful accounts. The provision for doubtful
accounts decreased approximately $250,000, or 22.0%, from approximately
$1.1 million in fiscal year 1995 to approximately $900,000 in fiscal year
1996. The decrease is due to the final determination of management
regarding an appropriate estimate for the allowance based on historical
trends, the aging of accounts receivable, and the enhanced credit and
collection efforts in place.
Depreciation and amortization. Depreciation and amortization
increased by $600,000, or 9.7%, to $6.8 million in fiscal year 1996 from
$6.2 million in fiscal year 1995. The increase is due to an increase in
amortization of approximately $100,000 due to newly acquired goodwill and
intangibles related to the acquisition of certain retail service centers.
The remaining increase of $500,000 is due to the effect of increasing
depreciable fixed assets through capital expenditures and acquisitions
while disposing of partially or fully depreciated assets through disposals
of retail service centers and other sales.
Interest expense. Interest expense was relatively unchanged from
fiscal year 1995 to 1996.
Fiscal Years Ended June 30, 1995 and June 30, 1994
Operating revenue. Operating revenue decreased $50.3 million to
$74.1 million in fiscal year 1995 as compared to $124.4 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 $600,000, or .5%, 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, 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 gallon volume increase
due to the addition of retail service centers through five acquisitions and
ten new startups during the fiscal year 1995. 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
$28.0 million to $38.5 million in fiscal year 1995 as compared to $66.5
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 $1.1
million, or 1.7%, was caused by the .5% 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 saving
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.
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 to support the Company's emphasis on enhanced sales
efforts. The increase in professional fees is due to fees related to the
formation of a 401(k) Plan, a state income tax audit, and 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 retail 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 expense 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 reduction in the level of accounts receivable as a result
of the Transaction.
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 non-compete 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.
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 $300,000 in
fiscal year 1996 as compared to $3.1 million in fiscal year 1995, related
primarily to an increase in interest paid over the prior year amounting to
$3.0 million.
Cash flow used in investing activities declined to a net $1.9
million in 1996 from $8.2 million in 1995. The Company's capital additions
in fiscal year 1996 was $8.1 million as compared to $11.2 million in the
preceding year. The Company expended $1.1 million in fiscal year 1996 in
acquisitions of retail service centers whereas in 1995 the purchase of four
service centers and the addition of several new start-ups amount to $7.0
million. This decrease was offset by an increase of $2.9 million due
primarily to increased asset purchases in conjunction with the Company's
modernization plan for providing better equipment and transportation for
its retail service centers. The Company raised $6.2 million and $2.9
million from the sale of marginally profitable service centers in 1996 and
1995 respectively, the proceeds of which were used to partially fund the
acquisitions noted above.
Pursuant to the indenture for the 12 7/8% Senior Secured Notes,
the Company is required to make a $4.5 million, semi-annual interest
payment on each July 15 and January 15. Beginning in fiscal year 2000, the
semi-annual cash interest payment on the Senior Secured Notes will increase
to $8.2 million. The Company met the July, 1996, interest payment through
the use of operating cash flows and available borrowings on its working
capital facility. Cash flow was further increased by the proceeds from
planned sales of retail service centers geographically remote from its
primary market areas.
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
comparable to fiscal year 1996, it will be able to fund its debt service
obligations from funds generated from operations and funds available under
its working capital facility. The Company's credit facility will mature on
June 29, 1997, at which time the Company will have to refinance or replace
the facility, and may be required to pay some portion of any outstanding
balance. The credit facility will be necessary to fund the Company's
seasonal operations and debt service requirements. 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.
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 this 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 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
subject to borrowing availability covenants. The Company intends to fund
acquisitions from sales of marginally profitable and geographically remote
existing service centers, seller financing, to the extent feasible and
allowable under the Senior Secured Note agreement, and with cash from
operations or bank financing.
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, as amended, restrict the acquisition
activity of the Company based on the availability of working capital
borrowing, earnings and certain proceeds less required debt service and
capital and certain other expenditures or approval from the lenders.
Acquisitions are further restricted to use no more than $3.0 million
in cash in a twelve month period without prior approval.
At June 30, 1996, the Company was not in compliance with the
capital expenditures, interest coverage ratio and tangible net worth
covenants. These covenants have been waived or amended, and the Company is
in compliance with the covenants as amended.
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
PART III
Item 10. Directors and Executive Officers of the Registrant.
The directors and executive officers of the Company are as
follows:
Position Held with the Company
Name Age and Principal Occupation
-------------------------------------- ----------- ------------------------------------------------
Paul S. Lindsey, Jr. 51 Chairman of the Board, Chief Executive Officer, and President
since June 1994; previously Vice Chairman of the Board (since
February 1987) and Chief Operating Office (since March 1988);
term as director expires 1997
Douglas A. Brown 36 Director since July 1994; member Holding Capital Group, Inc.
(since 1989); term as director expires 1997
Kristin L. Lindsey 48 Director/Vice President since June 1994; previously pursued
charitable and other personal interest; term as director
expires 1999
Bruce M. Withers, Jr. 69 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 1999
Jim J. Shoemake 58 Director since July 1994; partner of Guilfoil, Petzall &
Shoemake (since 1970); term as director expires 1998
Valeria Schall 42 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 32 Vice President Finance and Administration since August 1995;
previously Controller of Skelgas Propane since 1991 and an
accountant at Deloitte & Touche since 1986
Kenneth J. DePrinzio 49 Vice President-Corporate Development since June 1996;
previously Divisional Vice President since June 1993 and
Regional Manager since May 1992. From 1990 to 1991 Area Vice
President for Petrolane.
Mark W. Buettner 54 Divisional Vice President since June 1993; previously Regional
Manager since April 1989.
J. Greg House, Sr. 40 Vice President - Management Information Systems since June 1996;
previously Director-MIS since September 1994 and Manager-MIS,
Paul Mueller Co. since 1987.
Robert C. Heagerty 49 Divisional Vice President since June 1993; previously Regional
Manager since December 1986.
Daniel P. Binning 39 Divisional Vice President since June 1996; previously
Divisional Manager since August 1995 and Regional Manager since
August 1996 and Marketing Representative with Ferrell Gas
Corporation since December 1990.
James M. Trickett 46 Divisional Manager since June 1996 and Regional Manager since
August 1995. Divisional Manager with Synergy Gas Corporation
since 1990.
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 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, 1996, 1995, and 1994 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
Name and Principal
Position at End of Fiscal Fiscal Other Annual All Other
Year 1996 Year Salary Bonus Compensation Compensation
--------- ---- ------ ----- ------------ ------------
Paul S. Lindsey, Jr. 1996 $350,000 --- --- ---
Chief Executive Officer, 1995 350,000 --- --- ---
Chairman of the Board 1994 300,000 $5,000 --- ---
and President
Employment Agreement
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 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 1996 and no unexercised options held by him as of
the end of the 1996 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 All Star
Gas received an annual fee of $25,000, payable quarterly, for their
services.
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 19, 1996, 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 (1) Beneficially Owned Percent
- ---------------------------- ------------------ -------
Paul S. Lindsey, Jr. (2) 1,507,610 74.7
Kristin L. Lindsey (2) 753,805 37.3
Douglas A. Brown 122,830 6.1
Bruce M. Withers, Jr. 17,548 0.9
Jim J. Shoemake 17,548 0.9
All directors and executive
officers as a group (8 persons)(3) 1,905,843 94.4
- -----------------
(1) The address of each of the beneficial owners is c/o
All Star Gas Corporation, P.O. Box 303, 1700 South
Jefferson Street, Lebanon, Missouri 65536.
(2) 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. (3) The
amounts shown include the shares beneficially owned by
Mr. Lindsey and Mrs. Lindsey as set forth above, and
240,307 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 and labels to the Company. The Company's
purchases of paint and labels from this company totaled $202,598 in fiscal
year 1996 and $157,842 in fiscal year 1995.
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.
In addition to purchased product at refineries, gas processing
plants, underground storage facilities, and pipeline terminals for use by
the Company, the Company also purchases product for use at the Synergy
retail locations and Myers. From time to time, the Company has also
purchased product which has been sold to Red Top Gas, a retail propane
distributor owned by a party related to the Chief Executive Officer of the
Company. At June 30, 1996, the Company had a receivable balance due from
Red Top Gas in the amount of $176,000.
During 1996, the Company sold its Cheyenne III aircraft. At the
time, the Company entered into an operating lease with its Chief Executive
Officer to lease a jet aircraft for use in Company travel. The lease
requires $282,981 in annual payments for a term of 3 years beginning in
June, 1996, and had a requirement for a $200,000 deposit.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets as of June 30,
1996 and 1995 Consolidated Statement of
Operations for the Years Ended
June 30, 1996, 1995, and 1994
Consolidated Statements of the Stockholders'
Equity (Deficit) for the Years Ended
June 30, 1996, 1995, and 1994
Consolidated Statements of Cash Flows for the Years
Ended June 30, 1996, 1995, and 1994
(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 All Star 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
All Star Incorporated and Exco Acquisition Corp.
(Commission File No. 2-83683) Registration Statement on
Form S-14 with the Commission on May 11, 1983); and First
Supplemental Indenture thereto between All Star 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 All Star 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 All Star 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; 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 Rein; Dan Weatherly;
Nina Irene Craighead; Joyce Sue Kinnett; Edwin H.
McMahon; Paul Stahlman; Ralph Wilson; Alan Simer; Ferrell
Stamper; and All Star 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 All Star Gas Company
(incorporated herein by reference to Exhibit 10.2
to the Registrant's Annual Report on Form 10-K for
the year ended June 30, 1995)
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 All Star
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 All Star Service Corporation (incorporated
herein by reference to Exhibit G of Exhibit 10.1 to the
All Star 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 All Star 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, All
Star 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. 33-533343))
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))
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 10.11 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 10.12 to the Company's Registration
Statement on Form S-1 (No. 33-53343))
10.13 Management Agreement between All Star Gas Corporation,
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 All
Star Gas Corporation, SYN Inc., Paul S. Lindsey, Jr.
Northwestern Growth Corporation, All Star Energy
Corporation, Robert W. Plaster, and Stephen R. Plaster
(incorporated herein by reference to Exhibit 10.15
to the Registrant's Annual Report on Form 10-K for
the year ended June 30, 1995)
10.16+ Propane Sales Agreement dated August 24, 1995, between
All Star Gas Corporation and Warren Petroleum Company
(incorporated herein by reference to Exhibit 10.16
to the Registrant's Annual Report on Form 10-K for
the year ended June 30, 1995)
10.17+ Supply Contract dated April 27, 1995, between All Star
Gas Corporation and Phillips 66 Company (incorporated
herein by reference to Exhibit 10.17 to the Registrant's
Annual Report on Form 10-K for the year ended June 30,
1995)
10.18+ Dealer Sale Contract dated January 20, 1995, between All
Star Gas Corporation and Conoco Inc. (incorporated herein
by reference to Exhibit 10.18 to the Registrant's Annual
Report on Form 10-K for the year ended June 30, 1995)
10.19+ Supply Contract dated April 24, 1995 between All Star Gas
Corporation and Enron Gas Liquids, Inc. (incorporated
herein by reference to Exhibit 10.19 to the Registrant's
Annual Report on Form 10-K for the year ended June 30,
1995)
10.20+ Amendment No. 1 to Supplement A to Loan and Securities
Agreement dated June 29, 1995 between All Star Gas
Corporation and Bank of America Illinois (incorporated
herein by reference to Exhibit 10.20 to the Registrant's
Annual Report on Form 10-K for the year ended June 30,
1995)
10.21 9/9/96 Waiver, Amendment No. 2 to Loan and Security
Agreement and Amendment No. 4 to Supplement A to Loan and
Security Agreement with Bank of America Illinois
10.22 7/1/96 Agreement Amending Amended and Restated Agreement
Among Initial Stockholders and Syn Inc.
10.23 5/15/96 Waiver between Bank of America Illinois and All
Star Gas Corporation
10.24 2/13/96 Amendment No. 3 to Supplement A to Loan and
Security Agreement with Bank of America Illinois
10.25 11/3/95 Agreement Among Initial Stockholders and Mac Inc.
10.26 11/3/95 Management Agreement among NWPS, Myers
Acquisition Company and Empire
10.27 9/28/95 Amendment No. 1 to Loan and Security Agreement
and Amendment No. 2 to Supplement A to Loan and Security
Agreement with Bank of America Illinois
10.28 7/31/95 Agreement Amending Management Agreement
10.29 7/31/95 Agreement Amending and Restating Agreement
Among Initial Stockholders and Syn Inc.
10.30+ Propane Sales Agreement dated April 9, 1996, between All
Star Gas Corporation and Warren Petroleum Company
10.31+ Amendment to Supply Contract dated August 15, 1994, between
All Star Gas Corporation and Phillips 66 Company
10.32+ Supply Contract dated April 1, 1996, between All Star Gas
Corporation and Conoco Inc.
10.33 June 1, 1996 Lease of Aircraft between Paul S. Lindsey
Limited Liability Company and All Star Gas Corporation
21.1 Subsidiaries of the Company
27.1 Financial Data Schedules
+ Confidential treatment has been requested. The copy filed
as an exhibit omits the information subject to the
confidentiality request.
(b) Reports on Form 8-K
None
(c) Exhibits
See (a)(3) above.
(d) Financial Statements
See (a)(1) above.
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.
All Star 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, 1996
- ----------------------------- Chairman of the Board of
Paul S. Lindsey, Jr. All Star Gas Corporation
(principal executive officer)
/s/ Mark Castaneda Vice President Finance and September 27, 1996
- --------------------------- Administration
Mark Castaneda (principal financial/
accounting officer)
/s/ Douglas A. Brown Director of All Star Gas September 27, 1996
- -------------------------- Corporation
Douglas A. Brown
/s/ Kristin L. Lindsey Director of All Star Gas September 27, 1996
- -------------------------- Corporation
Kristin L. Lindsey
/s/ Bruce M. Withers, Jr. Director of All Star Gas September 27, 1996
- -------------------------- Corporation
Bruce M. Withers, Jr.
/s/ Jim J. Shoemake Director of All Star Gas September 27, 1996
- --------------------------- Corporation
Jim J. Shoemake
ALL STAR GAS CORPORATION
(FORMERLY EMPIRE GAS CORPORATION)
Accountants' Report and
Consolidated Financial Statements
June 30, 1996
Independent Accountants' Report
Board of Directors and Stockholders
All Star Gas Corporation
Lebanon, Missouri
We have audited the accompanying consolidated balance sheets of ALL STAR
GAS CORPORATION (FORMERLY EMPIRE GAS CORPORATION) as of June 30, 1996 and
1995, 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, 1996. 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 ALL STAR
GAS CORPORATION as of June 30, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1996, in conformity with generally accepted accounting principles.
BAIRD KURTZ DOBSON
Springfield, Missouri
August 30, 1996
ALL STAR GAS CORPORATION
(FORMERLY EMPIRE GAS CORPORATION)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
1996 1995
---- ----
CURRENT ASSETS
Cash $ 898 $ 821
Trade receivables, less allowance
for doubtful accounts; 1996 - $722,
1995 - $800 4,308 4,571
Receivable from sale of retail locations 2,390 --
Inventories 6,039 5,686
Prepaid expenses 276 521
Due from related parties 1,261 --
Refundable income taxes -- 1,567
Deferred income taxes 995 1,350
---------- ---------
Total Current Assets 16,167 14,516
---------- ---------
PROPERTY AND EQUIPMENT, AT COST
Land and buildings 8,868 9,496
Storage and consumer service facilities 66,336 68,706
Transportation, office and other equipment 22,203 20,015
---------- ---------
97,407 98,217
Less accumulated depreciation 29,497 27,111
---------- ---------
67,910 71,106
---------- ---------
OTHER ASSETS
Debt acquisition costs, net of amortization 4,228 4,856
Excess of cost over fair value of net assets
acquired, at amortized cost 11,536 12,992
Other 2,161 1,658
---------- ---------
17,925 19,506
---------- ---------
$ 102,002 $ 105,128
========== =========
See Notes to Consolidated Financial Statements
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
1996 1995
---- ----
CURRENT LIABILITIES
Checks in process of collection $ 2,794 $ 1,585
Current maturities of long-term debt 7,358 504
Accounts payable 5,036 4,328
Accrued salaries 1,051 1,233
Accrued interest 4,553 4,100
Accrued expenses 897 1,130
Income taxes payable 181 --
--------- ---------
Total Current Liabilities 21,870 12,880
--------- ---------
LONG-TERM DEBT 115,500 115,143
--------- ---------
DEFERRED INCOME TAXES 8,935 13,140
--------- ---------
ACCRUED SELF-INSURANCE LIABILITY 540 911
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
Common; $.001 par value; authorized 20,000,000
shares; issued June 30, 1996 and 1995 -
14,291,020 shares 14 14
Common stock purchase warrants 1,227 1,227
Additional paid-in capital 27,279 27,279
Retained earnings 14,612 22,509
---------- ---------
43,132 51,029
Treasury stock, at cost
June 30, 1996 and 1995 - 12,711,795 shares (87,975) (87,975)
---------- ---------
(44,843) (36,946)
---------- ---------
$ 102,002 $ 105,128
========== =========
See Notes to Consolidated Financial Statements
ALL STAR GAS CORPORATION
(FORMERLY EMPIRE GAS CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996 1995 1994
---- ---- ----
OPERATING REVENUE $82,702 $74,090 $124,452
COST OF PRODUCT SOLD 43,318 35,612 57,920
------------ ------------ ------------
GROSS PROFIT 39,384 38,478 66,532
------------ ------------ ------------
OPERATING COSTS AND EXPENSES
Provision for doubtful accounts 889 1,136 1,056
General and administrative 27,493 28,558 43,910
Depreciation and amortization 6,770 6,166 10,150
------------ ------------ ------------
35,152 35,860 55,116
------------ ------------ ------------
OPERATING INCOME 4,232 2,618 11,416
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (10,657) (10,681) (8,542)
Amortization of debt discount and expense (5,476) (4,889) (2,016)
Restructuring proposal costs -- -- (398)
Gain on sale of assets 395 550 100
Write off of carrying value of underground
storage facility and closing costs (200) (924) (1,400)
------------ ------------ ------------
(15,938) (15,944) (12,256)
------------ ------------ ------------
LOSS BEFORE EQUITY IN NET INCOME
OF AFFILIATES (11,706) (13,326) (840)
EQUITY IN NET INCOME OF AFFILIATES 59 -- --
------------ ------------ ------------
LOSS BEFORE INCOME TAXES (11,647) (13,326) (840)
PROVISION (CREDIT) FOR
INCOME TAXES (3,750) (4,600) 350
------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEMS (7,897) (8,726) (1,190)
EXTRAORDINARY ITEMS
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) $ (7,897) $ (8,726) $ 31,125
============ ============ ============
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996 1995 1994
---- ---- ----
LOSS BEFORE EXTRAORDINARY
ITEMS PER COMMON SHARE $ (5.00) $ (5.53) $ (.08)
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 $ (5.00) $ (5.53) $ 2.23
======== ========= ==========
ALL STAR GAS CORPORATION
(FORMERLY EMPIRE GAS CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS)
Common Total
Stock Additional Stockholders'
Common Purchase Paid-in Retained Treasury Equity
Stock Warrants Stock Earnings Stock (Deficit)
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)
NET LOSS -- -- -- (7,897) -- (7,897)
------ ------- ------- ------ ------ ------
BALANCE, JUNE 30, 1996 $ 14 $ 1,227 $ 27,279 $14,612 $(87,975) $(44,843)
===== ======= ======= ====== ======= =======
ALL STAR GAS CORPORATION
(FORMERLY EMPIRE GAS CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS)
1996 1995 1994
---- ---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $ (7,897) $ (8,726) $ 31,125
Items not requiring (providing) cash:
Depreciation 5,427 4,971 8,973
Amortization 6,819 6,084 3,193
Gain on sale of assets (395) (550) (100)
Loss on underground storage facility 200 924 1,400
Undistributed earnings of affiliate (59) -- --
Extraordinary loss -- -- 5,555
Extraordinary gain -- -- (37,870)
Deferred income taxes (3,850) (3,000) (3,166)
Changes in:
Trade receivables 191 1,075 (130)
Inventories (896) (383) 1,170
Due from related parties (599) -- --
Accounts payable 508 289 (254)
Accrued expenses and self insurance 1,243 4,682 1,377
Prepaid expenses and other (375) (2,262) (1,617)
-------- -------- --------
Net cash provided by operating activities 317 3,104 9,656
-------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES
Proceeds from sales of retail service
centers and other assets 6,177 2,956 366
Acquisition of retail service centers (1,087) (7,047) (12,923)
Purchases of property and equipment (7,033) (4,154) (7,665)
-------- -------- --------
Net cash used in investing activities (1,943) (8,245) 20,222)
-------- -------- --------
ALL STAR GAS CORPORATION
(FORMERLY EMPIRE GAS CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS)
1996 1995 1994
---- ---- ----
CASH FLOWS FROM FINANCING
ACTIVITIES
Increase (decrease) in working capital
facility $ 1,331 $ 5,058 $ (3,200)
Principal payments on purchase obligations (837) (346) (203)
Checks in process of collection 1,209 (1,677) 3,262
Debenture sinking fund payments -- -- (2,023)
Purchase of treasury stock -- -- (2,274)
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 financing activities 1,703 3,035 13,131
-------- -------- --------
INCREASE (DECREASE) IN CASH 77 (2,106) 2,565
CASH, BEGINNING OF YEAR 821 2,927 362
-------- -------- --------
CASH, END OF YEAR $ 898 $ 821 $ 2,927
======== ======== ========
ALL STAR GAS CORPORATION
(FORMERLY EMPIRE GAS CORPORATION)
ALL STAR GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company's principal operation is the sale of wholesale and retail LP
gas. 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 June 30,
1994, the Company's ownership and management was changed. See Note 2 for a
description of this restructuring transaction.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of All Star Gas
Corporation (Formerly 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:
1996 1995
(In Thousands)
Gas and other petroleum products $ 2,835 $ 2,116
Gas distribution parts, appliances and equipment 3,204 3,570
--------- ---------
$ 6,039 $ 5,686
========= =========
PROPERTY AND EQUIPMENT
Depreciation is provided on all property and equipment on the straight-line
method over estimated useful lives of 3 to 33 years.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At June 30, 1996, the Company's only financial instruments are cash,
long-term debt and related accrued interest. It was not practicable to
estimate the fair value of long-term debt.
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 1994
senior secured note costs (originally $5,143,000) are amortized over ten
years; and the 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 25 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, 1,579,225 and 13,961,520 for each of the
fiscal years ended June 30, 1996, 1995 and 1994, respectively.
RECLASSIFICATION
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 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 owned 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.
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 purchase, 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.
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 the acquisition have been included in the statement of
operations for the year ended June 30, 1994.
North
Empire Gas Carolina
Corporation Acquisition Pro Forma
(After Giving (Unaudited)
Effect to (In Thousands)
Restructuring
Transaction)
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
=========== ========== ==========
NOTE 3: RELATED-PARTY TRANSACTIONS
During 1996, 1995 and 1994, the Company has purchased $202,598, $157,842
and $210,400, respectively, of paint from a corporation owned by the spouse of
the Principal Shareholder of the Company. During the year the Company also
advanced $251,000 to this related party which is outstanding at June 30, 1996.
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 for a subsidiary of Energy to provide data processing and management
information services to the Company. 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
years ended June 30, 1996 and 1995, total expenses related to this services
agreement were $622,060 and $1.1 million, respectively.
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.
In 1996 the Company entered into an operating lease with the Principal
Shareholder for a jet aircraft. The lease requires $282,981 in annual payments
for a term of 3 years beginning in June 1996. The lease also requires a
deposit of $200,000 which was paid in June 1996.
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 acquired 30% of the common stock
of SYN Inc., the acquisition entity, for $30,000 and entered into a Management
Agreement pursuant to which the Company provides management services for SYN
Inc. 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. During
1996 the Company received total payments of $3,281,000 related to management
fees and overhead reimbursement. In addition, $1,103,000 was reimbursed to the
Company for initial costs incurred related to the Synergy acquisition. The net
loss of SYN Inc. was $2.0 million after considering preferred dividends for
1996. The Company's 1996 equity share of the SYN Inc. loss was limited to its
basis of $30,000.
During 1996, the Company purchased on behalf of SYN, Inc. $42.0 million of
LP gas which was then transferred to them. A receivable of $116,000 has been
recorded primarily related to amounts owed the Company for purchases of
inventory and service provided on behalf of SYN Inc.
During 1996, the Company exchanged real and personal property of four of
its locations for three of SYN Inc.'s retail locations. The value of the
Company's locations exchanged was approximately $1,713,000 with the value of
SYN Inc.'s locations received of approximately $1,615,000 resulting in a
difference of $98,000 which was paid to the Company. In June 1996 the Company
sold to SYN Inc. one retail service center for $662,000 which is recorded as a
receivable at June 30, 1996.
During 1996 the Company acquired 49% of the common stock of Myers
Acquisition Company (Myers) through a joint venture with Northwestern Growth
Corporation. Myers acquired the stock of a retail LP distributor in Ohio. At
June 30, 1996, the Company has a receivable balance due from this related
party in the amount of $49,000. The Company's equity share in the net income
of Myers was $89,000 for the year ended June 30, 1996.
During 1996 the Company entered into lease agreements, under operating
leases, for the lease of transportation equipment to Propane Resources
Transportation, Inc. (PRT) of which SYN Inc. is a 15% shareholder. PRT
transports LP gas to the Company's and SYN Inc.'s retail locations. The
Company received $23,000 in lease income during 1996 from these leases. At
June 30, 1996, the Company has a receivable balance due from this related
party in the amount of $7,000.
The Company sells LP gas to Red Top Gas, a retail LP distributor owned by a
party related to the Principal Shareholder. At June 30, 1996, the Company has
a receivable balance due from this related party in the amount of $176,000.
Prior to the Restructuring Transaction described in Note 2, the Company had
various related party transactions with its Former Shareholder as described
below.
The Company leased its corporate home office, land, buildings and equipment
from a corporation principally owned by the Former Shareholder. The Company
paid $200,000 during the year ended June 30, 1994, 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, 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 the Company leased a jet aircraft and an airport hanger from a
corporation owned by the Former Shareholder. The 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 operating costs of the
aircraft and the hanger. During the year ended June 30, 1994, the Company
paid direct rent of $75,000. This lease was terminated effective June 30,
1994, at no additional expense to the Company.
The Company paid $150,000 in the year ended June 30, 1994, 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.
NOTE 4: LONG-TERM DEBT
Long-term debt at June 30 consisted of (In Thousands):
1996 1995
---- ----
Working capital facility (A) $ 6,389 $ 5,058
12_% Senior Secured Notes, due 2004 (B) 107,758 103,019
9% Subordinated Debentures, due 2007 (C) 5,203 5,094
Purchase contract obligations and
capital leases (D) 3,508 2,476
---------- -----------
122,858 115,647
Less current maturities 7,358 504
----------- -----------
$ 115,500 $ 115,143
=========== ===========
(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, 1996,
the Company was not in compliance with the original capital
expenditures, tangible net worth and interest coverage ratio
covenants. At June 30, 1995, the Company was not in compliance with
the capital expenditures and interest coverage covenants. The bank
has waived and 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
52% of eligible inventory. In addition, the Company can borrow an
additional $1.5 million during the period September 9, 1996, to
December 31, 1996. The facility bears interest at either 1.5% over
prime or 3.0% 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
$1,793,000 at June 30, 1996, after considering $1,603,000 of
outstanding letters of credit. The letters of credit are principally
related to the Company's self-insurance program (Note 6). The working
capital facility is due on June 29, 1997 (see Note 14).
(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,
1996 and 1995, is $127,200,000.
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 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, 1996 and 1995, is $23,215,000 of which $13,469,200 are registered
in the name of the Company.
(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. Capital leases include leases
covering data processing equipment for years expiring 1998. At June 30,
1996 and 1995, these obligations carried interest rates from 7% to 10%
and are due periodically through 2005.
Aggregate annual debt service requirements (in thousands) of the
long-term debt outstanding at June 30, 1996, are:
Total
Principal Interest Debt Service
1997 $ 7,358 * $ 10,023 $ 17,381
1998 980 9,945 10,925
1999 511 9,885 10,396
2000 244 17,328 17,572
2001 231 17,309 17,540
Thereafter 137,518 54,394 191,912
------------ ---------- -----------
$ 146,842 $ 118,884 $ 265,726
============ ========== ===========
* Includes the working capital facility which the Company intends to
refinance See Note 14).
NOTE 5: INCOME TAXES
The provision for income taxes includes these components.
1996 1995 1994
---- ---- ----
(In Thousands)
Taxes currently payable
(refundable) $ 100 $ (1,600) $ 2,887
Deferred income taxes (3,850) (3,000) (2,537)
-------- --------- ---------
$ (3,750) $ (4,600) $ 350
======== ========= =========
The tax effects of temporary differences at June 30 related to deferred
taxes were:
1996 1995
---- ----
(In Thousands)
Deferred Tax Assets
Allowance for doubtful accounts $ 271 $ 300
Accounts receivable advance collections 380 347
Self-insurance liabilities and contingencies 534 604
Original issue discount 3,341 1,564
Net operating loss carryforwards 1,769 --
Alternative minimum tax credit 1,200 1,300
------------ ------------
7,495 4,115
Deferred Tax Liability
Accumulated depreciation and tax cost differences (15,435) (15,905)
------- -------
Net deferred tax liability $ (7,940) $ (11,790)
============ ============
The above net deferred tax asset (liability) is presented on the June 30
balance sheets as follows:
1996 1995
---- ----
(In Thousands)
Deferred Tax Assets
Deferred tax asset - current $ 995 $ 1,350
Deferred tax liability - long-term (8,935) (13,140)
------------ ------------
Net deferred tax liability $ (7,940) $ (11,790)
============ ============
A reconciliation of income tax expense at the statutory rate to the
Company's actual income tax expense is shown below:
1996 1995 1994
---- ---- ----
(In Thousands)
Computed at the statutory rate (34%) $ (3,960) $ (4,531) $ (285)
Increase (decrease) resulting from:
Amortization of excess of cost over
fair value of assets acquired 279 303 393
State income taxes - net of federal
tax benefit (347) (411) 150
Nondeductible travel costs and
other expenses 112 39 56
Other (84) 36
Additional accruals 250
Actual tax provision $ (3,750) $ (4,600) $ 350
============ ========= =======
At June 30, 1996, the Company had approximately $1.2 million of alternative
minimum tax credits available to offset future federal income taxes which
expire in the year 2010. The Company also has operating loss carryforwards of
$4.7 million which expire in the year 2011.
NOTE 6: SELF-INSURANCE AND RELATED CONTINGENCIES
Under the Company's current insurance program, coverage for comprehensive
general liability, workers' compensation and vehicle liability is obtained for
catastrophic exposures as well as those risks required to be insured by law or
contract. The Company retains a significant portion of certain expected losses
related primarily to comprehensive general and vehicle liability. The Company
has a $500,000 deductible for each and every general liability incident. In
addition, the Company self-insures the first $500,000 of coverage above the
deductibles up to $1 million in aggregate losses. For the vehicle liability
program, the Company self-insures the first $500,000 of coverage (per
incident). The Company obtains excess coverage from carriers for these
programs on claims-made basis policies.
Prior to July 1, 1995, the Company's excess coverage for comprehensive
general liability provided a loss limitation that limits the Company's
aggregate of self-insured losses to $1 million per policy period. 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 l, 1994, through June
30, 1995, and July 1, 1995, through June 30, 1996, will not reach the $1
million loss limits and has provided accordingly.
Effective July 1, 1993, the Company self-insured 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 $856,000
is outstanding at June 30, 1996. 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, 1996,
1995 and 1994, are:
Beginning Self- Ending
Self- Self- Insured Restructuring Self-
Insurance Insurance Claims Transaction Insurance
Liability Expenses Paid (Note 2) Liability
--------- -------- -------- ------------ ---------
June 30, 1994 $2,334 $3,709 $2,464 $1,707 $1,872
June 30, 1995 $1,872 $668 $1,129 $1,411
June 30, 1996 $1,411 $252 $623 $1,040
The ending accrued liability includes $175,000 for incurred but not
reported claims at June 30, 1996, $350,000 at June 30, 1995, and $125,000 at
June 30, 1994. The current portion of the ending liability of $500,000 at June
30, 1996, 1995 and 1994, 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 and other business related lawsuits
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 $547,000, $240,000 and $979,000 for the years ended June
30, 1996, 1995 and 1994, 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
and other business related lawsuits 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%.
NOTE 7: CONTINGENCIES
The State of Missouri has assessed the Company approximately $1,400,000 for
additional state income tax for the years ended June 30, 1992 and 1993. An
amount approximating one-half of the above assessment could be at issue for
the year ended June 30, 1994. The Company has protested these assessments and
is currently waiting for a response from the Missouri Department of Revenue.
It is likely that this matter will have to be settled in litigation. The
Company believes that it has a strong position on this matter and intends to
vigorously contest the assessment.
The Internal Revenue Service (IRS) has begun a federal income tax audit of
the Company for the year ended June 30, 1994. While the audit is still in
process, the audit has principally focused on the deductibility of certain
professional fees and travel and entertainment expenses as well as in the
tax-free treatment of the restructuring transaction (See Note 2).
In conjunction with the restructuring transaction, the Company and Energy
agreed to share on a percentage basis amounts incurred related to federal and
state tax audits for fiscal years June 30, 1994, and prior.
The restructuring transaction was structured with the intent of qualifying
for tax-free treatment under Section 355 of the Internal Revenue Code and the
Company obtained a private letter ruling (the "Letter Ruling") from the IRS
confirming such treatment, subject to certain representations and conditions
specified in the Letter Ruling. The IRS is currently conducting an audit of
the Company for the year in which the restructuring transaction occurred. If
the IRS were to reverse the position it took in the Letter Ruling and prevail
on a challenge to the tax-free treatment of the restructuring transaction, the
Company would be liable along with Energy for a portion of any taxes, interest
and penalties due. The Company's liability could exceed the percentage under
the tax indemnity agreement with Energy if Energy were unable to fund its
percentage share under that agreement. If the Company were held liable for any
taxes, interest or penalties in connection with the above restructuring
transaction, the amount of this liability could be substantial and could
adversely effect the Company's financial position.
The Company and its subsidiaries are presently involved in other various
state tax audits which are not expected to have a material adverse effect on
the Company's financial position or results of operations.
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, 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 $7.00
Issued 66,000 $7.00
-----------
Balance June 30, 1996 443,926
===========
In June 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.
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, 1996
and 1995 175,536 $.01
========
NOTE 9: ADDITIONAL CASH FLOW INFORMATION (IN THOUSANDS)
1996 1995 1994
---- ---- ----
NONCASH INVESTING AND FINANCING ACTIVITIES
Related party receivable from sale
of retail service center $662 -- --
Note receivable from sale of retail
service center $148 -- --
Receivable from sale of retail
service centers $2,390 -- --
Purchase contract obligations incurred $(1,111) $(1,433) $(1,015)
Capitalization of leases $(757) -- --
Debt acquisition costs in accounts payable -- -- $(746)
Purchase of treasury stock, net of option
exercise price, in accounts payable -- -- $(180)
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
1996 1995 1994
---- ---- ----
ADDITIONAL CASH PAYMENT INFORMATION
Interest paid $10,216 $7,196 $9,191
Income taxes paid (net of refunds) $(1,647) $(2,321) $2,620
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
years ended June 30, 1995 or 1996.
NOTE 11: OPERATING LEASES
Noncancellable operating leases for the Company expire in various years
through 2004. These leases generally contain renewal options for periods
ranging from 1 to 5 years and require the Company to pay all executory costs
(property taxes, maintenance and insurance).
Future minimum lease payments (in thousands) at June 30, 1996, were:
1997 $ 547
1998 514
1999 420
2000 209
2001 200
Thereafter 135
--------------
Future minimum lease payments $ 2,025
==============
NOTE 12: RESTRUCTURING PROPOSAL COSTS
During the year ended June 30, 1994, the Company was considering a proposal
to restructure the debt and equity of the Company. The Company abandoned the
proposal and expensed the related costs of $398,000.
NOTE 13: 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.
During 1995 and 1994, charges of $924,000 and $1.4 million, respectively,
were taken against earnings to reduce the carrying value of the facilities to
zero. As of June 30, 1996, the Company has pursued the abandonment of the
facilities at an estimated cost of $200,000 which has been charged against the
current year's earnings.
NOTE 14: SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerabilities due to certain
concentrations. Those matters include the following:
DEPENDENCE ON PRINCIPAL SUPPLIERS
One supplier, Warren Petroleum, accounts for approximately 20% of the
Company's volume of propane purchases.
ESTIMATES
Significant estimates related to self-insurance, goodwill amortization,
litigation, collectibility of receivables and income tax assessments are
discussed in Notes 3, 6 and 7. Actual losses related to these items could vary
materially from amounts reflected in the financial statements.
WORKING CAPITAL FACILITY
The Company's working capital facility is due on June 29, 1997. Although
the Company believes that the facility can be refinanced or replaced, in the
event that the Company is unable to refinance or replace this facility, the
failure to obtain alternate sources of financing for the Company's seasonal
working capital and debt service requirements would have a material adverse
effect on the Company.
NOTE 15: FUTURE ACCOUNTING PRONOUNCEMENTS
IMPACT OF SFAS NO. 121
In 1995 the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for the Impairment of Long-Lived Assets to be
Disposed of." The Company must adopt this standard effective July 1, 1996. The
Company does not expect that the adoption of this standard will have a
material impact on its financial position or results of operations.
IMPACT OF SFAS NO. 123
The Financial Accounting Standards Board recently adopted Financial
Accounting Standards Statement No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). This statement establishes a fair value based method
of accounting for stock-based compensation plans. It encourages entities to
adopt that method in place of the provisions of APB Opinion No. 25,
"Accounting for Stock Issued to Employees", for all arrangements under which
employees receive shares of stock or other equity instruments of the employer
or the employer incurs liabilities to employees in amounts based on the price
of its stock. This statement applies to financial statements for fiscal 1997.
Management expects to continue to account for stock-based compensation in
accordance with the provisions of APB No. 25. Therefore, SFAS 123 is not
expected to have a significant impact on the Company's consolidated financial
statements.
NOTE 16: SUBSEQUENT SALES OF SUBSIDIARIES
Subsequent to year end, the Company sold five retail service centers for
sales prices totaling approximately $1.5 million in cash. Fiscal year 1996
summary data of the facilities sold were as follows:
In Thousands
Operating revenue $ 1,532
Cost of sales 959
-----------
Gross profit $ 573
===========
Working capital $ 214
===========
Net property, plant and equipment $ 1,197
===========
Independent Accountants' Report on Financial Statement Schedules
Board of Directors and Stockholders
All Star Gas Corporation
Lebanon, Missouri
In connection with our audit of the financial statements of ALL STAR GAS
CORPORATION (FORMERLY EMPIRE GAS CORPORATION) for each of the three years in
the period ended June 30, 1996, 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 30, 1996
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(In Thousands)
Balance at Charges 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, 1996 $800 $889 $820 $(147)(D) $722
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)
(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.
(D) Related to accounts receivable which were sold in conjunction with the
disposition of retail service centers.