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.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual shareholder meeting on July 16, 2001. The only matter presented for a vote was the re-election of Jim J. Shoemake as director. Mr. Shoemake was re-elected with 1,586,915 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., Kristin L. Lindsey, Jim J. Shoemake, and Bruce M. Withers, Jr.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
As of September 24, 2001, the Company's Common Stock was held of record by 8 shareholders. There is currently no active trading market in the Company's Common Stock.
As of September 24, 2001, there are outstanding warrants to purchase 175,536 shares of the Company's Common Stock. Each warrant represents the right to purchase one share of the Company's Common Stock of $.01 per warrant. The warrants are exercisable currently and will expire July 15, 2004.
As of September 24, 2001, there are 435,700 outstanding stock options to purchase Company stock. The options have a weighted-average remaining contractual life of approximately seven years with 313,680 options currently exercisable.
No dividends on the Common Stock of the Company were paid during the Company's 2000 or 2001 fiscal years. The indenture relating to the 11% Senior Secured Notes due 2003 contains 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.
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, 2001. The financial data of the Company as of and for each of the years in the five-year period ended June 30, 2001, 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.
(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, 2001.
(3) EBITDA consists of earnings before depreciation, amortization, interest, income taxes, and other non-recurring expenses. EBITDA is presented here because it is a widely accepted financial indicator of a highly leveraged company's ability to service and/or incur indebtedness. However, EBITDA should not be construed as an alternative either (i) to operating income (determined in accordance with generally accepted accounting principles) or (ii) to cash flows from operating activities (determined in accordance with generally accepted accounting principles).
Item 7.
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.
Results of Operations
Fiscal Years Ended June 30, 2001 and June 30, 2000
Operating Revenues. Operating revenues decreased $23.5 million, or 29.2% to $57.1 million in fiscal year 2001 as compared to $80.6 million in fiscal 2000. Propane sales decreased $18.7 million in fiscal 2001 compared to fiscal 2000. Propane sales prices increased approximately $.20 per gallon or 22.7% over fiscal 2000. However, the Company experienced a 34.8% decrease in gallons sold from fiscal 2000 due to the divestiture of retail service centers during fiscal 2000. Comparing stores that were operated by the Company during both 2001 and 2000, volumes increased 17.9% due to the colder winter weather experienced. Heating degree days experienced by the Company during fiscal year 2001 increased 25% from fiscal year 2000. Other sales, including gas systems, appliances and other fuels, had no significant impact on the change in revenues.
During the fiscal years 2001 and 2000, the Company completed forward purchase and sale contracts which resulted in buying and selling 43.4 million gallons and 12.9 million gallons, respectively, of propane to other suppliers.
Cost of products sold. Cost of products sold decreased $6.3 million, or 13.6% to $40.1 million in fiscal year 2001 as compared to $46.4 million in fiscal year 2000. This was due to the divestitures of retail service centers during fiscal year 2000 offset by the costs per gallon that increased approximately $.28 or 53.9% over fiscal year 2000.
Gross Profit. The Company's gross profit decreased $17.3 million or 50.6% to $16.9 million in fiscal year 2001 as compared to $34.2 million in fiscal year 2000. This is due to the decrease in gallons sold due to divestitures of retail service centers during fiscal year 2000. Average propane margins decreased approximately $.08 per gallon or 22.7% due to the Company's financial inability at appropriate times to hedge product purchases for the fixed price, pre-buy and budget plan agreements with customers and, due to an anomaly in the propane market, to pass along higher product gas costs as rapidly as they were incurred.
General and administrative expense. General and administrative expense decreased $16.7 million to $16.4 million in fiscal year 2001 as compared to $33.1 million in fiscal year 2000. In general, expenses decreased as a result of the divestiture of 66 retail service centers and Tres Hombres, Inc. during fiscal year 2000. The fiscal year 2001 effect from the sales of the retail service centers affected salaries and employee benefits which decreased $7.2 million, office expense and other taxes which decreased $1.7 million and rent and maintenance costs on premises and equipment which decreased $1.2 million. Insurance and liability claims decreased $2.9 million mainly due to the Company settling several claims and reaching the stop-loss limit on one specific claim during fiscal year 2001. No other significant changes occurred in any individual expense category other than those associated with the divestiture of the retail service centers and Tres Hombres, Inc.
Provision for doubtful accounts. The provision for doubtful accounts decreased $123,000 from $464,000 in fiscal year 2000 to $341,000 in fiscal year 2001 due to the decreased charge-offs as a percentage of accounts receivable compared to fiscal 2000. A decrease in the provision was deemed necessary in order to bring the allowance for doubtful accounts to a level considered adequate by the Company to provide for potential losses.
Depreciation and amortization. Depreciation and amortization expense decreased $4.1 million from $8.2 million in fiscal year 2000 to $4.1 million in fiscal year 2001. The decrease is mainly due to the divestiture of 66 retail service centers during fiscal year 2000.
Forward and futures contracts. Loss on forward and futures contracts for fiscal year 2001 was $506,000. The loss is the result of the decrease in fair value of the Company's derivative instruments during fiscal year 2001. At July 1, 2000, the initial adoption of SFAS Nos. 133 and 138 resulted in recognition of derivative financial instruments as assets and liabilities in the amounts of $3.1 million and $1.6 million, respectively, and a cumulative effect adjustment of $940,000, net of applicable of income taxes.
Interest expense. Interest expense decreased $12.6 million to $5.5 million in fiscal year 2001 from $18.1 million in fiscal year 2000. The decrease is primarily due to payment in full on the revolving credit facility in February 2000, the partial redemption of the Company's Senior Secured Notes in May 2000 and the elimination of various mortgages related to the divestiture of 66 retail service centers during fiscal year 2000.
Fiscal Years Ended June 30, 2000 and June 30, 1999
Operating Revenue. Operating revenue decreased $3.0 million, or 3.5% to $80.6 million in fiscal year 2000 as compared to $83.6 million in fiscal year 1999. The disposition of Tres Hombres, Inc. accounted for a $2.2 million decrease in operating revenue in fiscal 2000 compared to fiscal 1999. Propane sales decreased $340,000 in fiscal 2000 compared to fiscal 1999. Propane sales prices increased an average of $.21 per gallon over fiscal 1999. However, the Company experienced an 18% decrease in gallons sold from fiscal 1999. The decrease in gallons sold is primarily due to the divestiture of retail service centers during fiscal 2000. Comparing stores that were operated by the Company during both 2000 and 1999, volumes decreased 3%. Also, a warmer than normal heating season was experienced by the Company in its marketing territories. Heating degree days experienced by the Company during fiscal year 2000 decreased 6% from fiscal 1999.
Cost of products sold. Costs of products sold increased $8.5 million or 22.3% to $46.4 million in fiscal year 2000 as compared to $37.9 million in fiscal year 1999. This was primarily due to substantially higher propane product costs experienced throughout the year. Propane costs increased an average of $.20 per gallon over fiscal 1999.
Gross Profit. The Company's gross profit decreased $11.4 million to $34.2 million in fiscal year 2000 as compared to $45.6 million in fiscal year 1999. This decrease is primarily due to the decrease in gallons sold due to divestitures of retail service centers and the significantly warmer than normal heating season in the Company's marketing territories. Average propane margins decreased 8% due to the inability to pass along higher product costs as rapidly as they were incurred.
General and administrative expenses. General and administrative expenses increased $705,000 to $33.1 million in fiscal year 2000 as compared to $32.4 million in fiscal year 1999. Insurance and liability claims increased $2.1 million due to increased costs on outstanding claims including a significant increase in the Company's self-insurance reserve to cover anticipated losses on two specific claims. Professional fees increased $734,000 mainly due to costs associated with the sale of retail service centers, debt restructuring issues and the Company's downsizing program during the year. Offsetting these increases, salaries and employee benefit costs decreased $3.0 million due to the divestiture of 66 retail service centers and the continued downsizing of the Company's corporate office staffing levels.
Provision for doubtful accounts. The provision for doubtful accounts increased $237,000 from $227,000 in fiscal year 1999 to $464,000 in fiscal year 2000 due to the increased charge-offs as a percentage of accounts receivable compared to fiscal 1999. An increase in the provision was deemed necessary in order to bring the allowance for doubtful accounts to a level considered adequate by the Company to provide for potential losses.
Depreciation and amortization. Depreciation and amortization expense decreased $1.6 million from $9.8 million in fiscal year 1999 to $8.2 million in fiscal year 2000. The decrease is mainly due to divestiture of 66 retail service centers during fiscal 2000.
Interest expense. Interest expense increased $6.1 million to $18.1 million in fiscal year 2000 from $12.0 million in fiscal year 1999. The increase is primarily due to effect of the interest rate increase under the terms of the Company's 12 7/8% Senior Secured Notes, due 2004.
Liquidity and Capital Resources
The Company's liquidity requirements have arisen primarily from funding its working capital needs, capital expenditures, and debt service requirements. Historically, the Company has met these requirements from cash flows generated by operations, borrowings under notes payable to banks and advances from its principal shareholder.
Cash flow used in operating activities was $1.0 million in fiscal year 2001 compared to cash flow used in operating activities of $18.1 million in fiscal year 2000. This change was due to a number of factors. First, operating income increased $3.1 million (excluding gains on sales of assets) from fiscal year 2000 to fiscal year 2001 mainly due to the $20.9 million decrease in operating costs and expenses which is the result of the significant disposition of retail service centers during fiscal year 2000. This decrease in operating costs and expenses was offset by the $17.3 million decrease in gross profit mainly due to the significant disposition of retail service centers during fiscal year 2000 and the inability of the Company to pass along higher product costs as rapidly as they were incurred. Secondly, the Company has decreased its levels of inventory and decreased accounts payable and certain accrued liabilities. Thirdly, the Company's prepaid product program allows customers to prebuy product at an established price, reducing their risk of winter price fluctuations brought about by changes in demand and allowing the Company to improve its seasonal cash flow and further enhance its hedging of product purchases and marketing programs to its customers. The balance of customer prepayments related to the program, increased to $10.2 million as of June 30, 2001 compared to $5.0 million as of June 30, 2000.
Cash flow provided by investing activities was $804,000 in fiscal year 2001 compared to cash flow provided by investing activities of $85.5 in fiscal year 2000. This change is primarily due to the $88.7 million decrease in proceeds from sales of retail service centers and other assets during fiscal 2001.
Cash flow provided by financing activities was $291,000 in fiscal year 2001 compared to cash flow used in financing activities of $68.3 million in fiscal year 2000. This change is mainly due to the $4.8 million in repayments on the working capital facility and the $60 million principal payment made on the Company's Senior Secured Notes, due 2004, during fiscal 2000.
Due to the nonpayment of interest, the Company is in default with respect to the $9,729,000 principal balance of the 9% Subordinated Debentures due 2007 (the "Subordinated Debentures"). The Company is prohibited under the terms of the Subordinated Debentures from making any interest payments if such payment shall create a default in the payment of amounts due on any Senior indebtedness. As a result of the defaults, the holders of the Subordinated Debentures have the right to accelerate the balance due and require immediate payment in full. Accordingly, the entire balance of the obligations under the Subordinated Debentures is included in current liabilities at June 30, 2001 and 2000.
In the event that the Company continues to fail to make any interest payment otherwise payable pursuant to the Subordinated Debentures, the trustee and the holders of such indebtedness may choose to pursue any and all remedies contained in the indenture or at law relating to such indebtedness. If the holders of the Subordinated Debentures accelerate the Company's obligations under such indebtedness, such events would have a material adverse effect on the Company's liquidity and financial position. Under these circumstances, the Company's financial position would necessitate the development of an alternative financial structure. Considering the limited financial resources and the existence of certain defaults, there can be no assurances that the Company would succeed in formulating and consummating an acceptable alternative financial structure.
On February 23, 2001, the Company exchanged an aggregate principal amount of $53,063,600 of its 11% Senior Secured Notes due 2003 (the "Senior Notes") for all of the issued and outstanding $50,880,000 principal amount of its Senior Secured Notes, due 2004 (the "Old Senior Notes") from the registered holders thereof. The additional principal amount of the Senior Notes includes the amount of interest accrued from August 1, 2000 to November 30, 2000 and was distributed to the registered holders on a pro-rata basis.
The Senior Notes bear interest beginning December 1, 2000 at the rate of 11% per annum payable quarterly on each March 30, June 30, September 30 and December 30 until maturity. Except for certain purchase money secured equipment financing and lease obligations of the Company incurred in the ordinary course of its business, the Senior Notes are secured obligations of the Company, and rank pari passu with all existing and future secured and senior indebtedness of the Company. The Senior Notes are secured by a pledge of certain outstanding shares of stock of the Company and all of the outstanding shares of stock of certain subsidiaries of the Company. The Senior Notes are also secured by a lien on certain tangible and intangible assets of All Star Gas Inc. of Colorado and the right to obtain a lien on certain of the remaining current and future assets of the Company and its subsidiaries.
The Company may, at its option, redeem the Senior Notes at any time, in whole or from time to time in part, until maturity, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount of the Senior Notes being redeemed) plus accrued and unpaid interest thereon to the redemption date:
On or prior to Redemption Percentage -------------- ---------------------
December 31, 2001 90.38% June 30, 2002 93.59% December 31, 2002 96.79% June 30, 2003 100.00%
The Senior Notes evidence the same class of debt as the Old Senior Notes and were issued pursuant to, and are entitled to the benefits of, an indenture, which the Company and State Street Bank and Trust Company, as trustee, executed.
As a result of the Company's significant disposition of retail service centers during fiscal 2000, the Company has incurred a $7.7 million federal tax liability that was due September 15, 2000. The Company was unable to pay the obligation when due. The Internal Revenue Service ("IRS") has placed liens on Company assets. The Company has agreed to a workout plan with the IRS to pay the current tax obligation in monthly installments that commenced in October 2000 and will continue until paid in full. At September 24, 2001, the current federal tax obligation due is approximately $3.4 million.
Impact of Recent Accounting Pronouncements
The Financial Accounting Standard Board (FASB) recently issued Statement of Financial Accounting Standards (SFAS) 141, Business Combinations. This Statement addresses financial accounting and reporting for business combinations. It eliminates the pooling-of-interests method and requires that all business combinations be accounted for using the purchase method. The provisions of this Statement apply to all business combinations initiated after June 30, 2001 and to all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001, or later. Adoption of the new standard will have no initial effect on the Company's financial statements.
The FASB also recently issued SFAS 142, Goodwill and Other Intangible Assets. This Statement establishes accounting and reporting standards for acquired goodwill and other intangible assets. The Statement addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. It also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. Under the new standard, amortization of existing goodwill ceases upon adoption of SFAS 142 and is replaced by periodic evaluation for impairment using specified methodology. SFAS 142 is effective for fiscal years beginning after December 15, 2001. Early adoption is permitted for entities with fiscal years beginning after March 15, 2001. The Company will apply SFAS 142 beginning with the first quarter of its fiscal year ending June 30, 2003, on a prospective basis. The effects of adoption of SFAS 142 on the Company's financial statements are not determinable currently.
Item 8.
Item 8. Financial Statements and Supplementary Data.
See the Consolidated Financial Statements included elsewhere herein.
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
The directors and executive officers of the Company are as follows:
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, Ms. Lindsey and Ms. Schall who are employed pursuant to Employment Agreements that expire June 24, 2004, September 24, 2004 and September 24, 2004, respectively.
Item 11.
Item 11. Executive Compensation
The following table provides compensation information for each of the years ended June 30, 2001, 2000 and 1999, 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 only two) 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
Employment Agreement
On June 24, 1999, 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 $400,000 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 2001 and no unexercised options held by him as of the end of the 2001 fiscal year.
Compensation Committee Interlocks and Insider Participation
A compensation committee was formed in July 1994, consisting of Messrs. Withers and Shoemake. 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.
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 28, 2001, 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) 1,546,548 97.5 Kristin L. Lindsey (2) 762,125 48.0 All directors and executive Officers as a group (5 persons)(3) 1,580,592 99.6
-----------------
(1) The address of each of the beneficial owners is c/o All Star Gas Corporation, P.O. Box 303, 119 W. Commercial Street, Lebanon, Missouri 65536. (2) Mr. Lindsey's shares consist of 784,423 shares owned by the Paul S. Lindsey, Jr. Trust established January 24, 1992 and 762,125 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 34,044 shares owned by other executive officers.
Item 13.
Item 13. Certain Relationships and Related Transactions.
Mrs. Kristin L. Lindsey, who beneficially owns approximately 36.9% of the Company's outstanding Common Stock and is a Director of the Company, 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 $172,500 in fiscal year 2001 and $225,000 in fiscal year 2000.
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.
Over the past fiscal year, the Company received advances bearing interest at a rate of 12% from its Chief Executive Officer in the amount of $2.5 million which have a remaining balance at August 31, 2001, of $656,362.
PART IV
Item 14.
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, 2001 and Consolidated Statement of Operations for the Years Ended June 30, 2001, 2000, and 1999 Consolidated Statements of the Stockholders' Equity (Deficit) for the Years Ended June 30, 2001, 2000, and 1999 Consolidated Statements of Cash Flows for the Years Ended June 30, 2001, 2000, and 1999
(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 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)
10.4 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)
10.5 Management Agreement between All Star Gas Company, Northwestern Growth Corporation and SYN, Inc. dated May 17, 1995 (incorporated herein by reference to Exhibit 10.13 to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1995)
10.6 Agreement Among Initial Stockholders and SYN, Inc. dated May 17, 1995 (incorporated herein by reference to Exhibit 10.14 to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1995).
10.7 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).
10.8 7/1/96 Agreement Amending Amended and Restated Agreement Among Initial Stockholders and Syn Inc. (incorporated herein by reference to Exhibit 10.22 to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1997).
10.9 11/3/95 Agreement Among Initial Stockholders and Mac Inc. (incorporated herein by reference to Exhibit 10.25 to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1996).
10.10 11/3/95 Management Agreement between NWPS, Myers Acquisition Company and Empire (incorporated herein by reference to Exhibit 10.26 to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1996)
10.11 7/31/95 Agreement Amending Management Agreement (incorporated herein by reference to Exhibit 10.28 to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1996).
10.12 7/31/95 Agreement Amending and Reinstating Agreement Among Initial Stockholders and Syn Inc. (incorporated herein by reference to Exhibit 10.29 to the Registrant's Annual Report on Form 10(k) for the year ended June 30, 1996).
10.13 2/16/01 Indenture between the Company and State Street Bank and Trust Company relating to the 11% Senior Secured Notes due 2003
21.1 Subsidiaries of the Company
+ 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 July 31, 2000 August 31, 2000 September 29, 2000 November 30, 2000 December 4, 2000 December 15, 2000 December 28, 2000 January 3, 2001 January 17, 2001 January 31, 2001 February 2, 2001 February 20, 2001 February 28, 2001 March 30, 2001
(c) Exhibits See (a)(3) above.
(d) Financial Statements See (a)(1) above.
SIGNATURES
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.
Dated: September 26, 2001
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 --------- ------------------------
/s/ Paul S. Lindsey, Jr. Chief Executive Officer and --------------------------------- Chairman of the Board Paul S. Lindsey, Jr.
/s/ Willis D. Green Vice President, Principal --------------------------------- Financial Accounting Officer Willis D. Green
/s/ Kristin L. Lindsey Director --------------------------------- Kristin L. Lindsey
/s/ Bruce M. Withers, Jr. Director --------------------------------- Bruce M. Withers, Jr.
/s/ Jim J. Shoemake Director --------------------------------- Jim J. Shoemake
All Star Gas Corporation
Accountants' Report and Consolidated Financial Statements
June 30, 2001, 2000 and 1999
ALL STAR GAS CORPORATION
JUNE 30, 2001, 2000 AND 1999
Page ---- INDEPENDENT ACCOUNTANTS' REPORT.......................................1
CONSOLIDATED FINANCIAL STATEMENTS Balance Sheets.....................................................3 Statements of Operations ..........................................4 Statements of Stockholders' Equity (Deficit).......................6 Statements of Cash Flows...........................................7 Notes to Financial Statements......................................8
INDEPENDENT ACCOUNTANTS' REPORT ON SUPPLEMENTARY INFORMATION.........................................28
SUPPLEMENTARY INFORMATION Consolidated Schedules of Sales and Gross Profit..................29 Consolidated Schedules of General and Administrative Expenses..........................................30
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 as of June 30, 2001 and 2000, 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, 2001. 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 auditing standards generally accepted in the United States of America. 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, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2001, in conformity with accounting principles generally accepted in the United States of America.
Board of Directors and Stockholders All Star Gas Corporation
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2, the Company has previously suffered recurring losses from operations and has net working capital and stockholders' equity deficiencies at June 30, 2001. As also discussed in Note 2, the Company is in default with respect to its 9% Subordinated Debentures due 2007 and has incurred a significant federal tax liability as a result of retail service center dispositions in fiscal 2000 that it was unable to pay when due. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
As discussed in Note 13, the Company changed its method of accounting for derivative instruments in 2001.
/s/BKD, LLP
Springfield, Missouri August 10, 2001, except for Note 5 as to which the date is August 24, 2001
ALL STAR GAS CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND 2000 (In Thousands, Except Share Amounts)
ASSETS
See Notes to Consolidated Financial Statements.
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
See Notes to Consolidated Financial Statements.
ALL STAR GAS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999 (In Thousands, Except Per Share Amounts)
See Notes to Consolidated Financial Statements.
ALL STAR GAS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
YEARS ENDED JUNE 30, 2001, 2000 AND 1999 (In Thousands, Except Per Share Amounts)
2001 2000 1999 ---- ---- ----
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ (6.74) $ 5.94 $ (6.79)
BASIC AND DILUTED INCOME PER COMMON SHARE ON EXTRAORDINARY ITEM -- 5.02 --
BASIC AND DILUTED INCOME PER COMMON SHARE ON CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE .59 -- -- -------- ------- -------
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE $ (6.15) $ 10.96 $ (6.79) ======== ======= =======
See Notes to Consolidated Financial Statements.
ALL STAR GAS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED JUNE 30, 2001, 2000 AND 1999 (In Thousands)
See Notes to Consolidated Financial Statements.
ALL STAR GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999 (In Thousands)
See Notes to Consolidated Financial Statements.
ALL STAR GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company's principal operation is the sale of liquefied propane (LP) gas to residential, agricultural and commercial customers. Such customers are located throughout the United States with the larger number concentrated in the central states.
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 and its wholly owned 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:
ALL STAR GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventories (Continued)
2001 2000 ---- ---- (In Thousands)
Gas and other petroleum products $ 1,529 $ 2,832 Gas distribution parts, appliances and equipment 1,254 1,289 ------- -------
$ 2,783 $ 4,121 ======= =======
Property and Equipment
Depreciation is provided on property and equipment on the straight-line method over estimated useful lives of 3 to 33 years.
Income Taxes
Deferred tax liabilities and assets are recognized for the tax effects of differences between the financial statement and tax bases of assets and liabilities. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized.
Amortization
Debt acquisition costs are being amortized on a straight-line basis over the terms of the debt to which the costs are related as follows: the 1994 senior secured note costs (originally $5,143,000) were amortized over ten years; the costs of the 1999 revolving credit facility (originally $1,279,000) were amortized over three years; and the 2001 senior secured note costs (originally $1,369,000) are amortized over 28 months.
Amortization of discounts on debentures and notes (Note 5) is on the effective interest, bonds outstanding method.
The majority of the excess of cost over fair value of net assets acquired relates to a transaction originating prior to July 1, 1994, and is being amortized on the straight-line basis over 25 years. Excess of cost over fair value of net assets on subsequent acquisitions is amortized on the straight-line basis over five years.
ALL STAR GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 1,586,915 for each of the periods ended June 30, 2001, 2000 and 1999. Common stock warrants and options outstanding were excluded from the June 30, 2001, 2000 and 1999, calculations of the weighted average number of common shares outstanding used in the computation of earnings per share as they were anti-dilutive.
Impact of Recent Accounting Pronouncements
The Financial Accounting Standard Board (FASB) recently issued Statement of Financial Accounting Standards (SFAS) 141, Business Combinations. This Statement addresses financial accounting and reporting for business combinations. It eliminates the pooling-of-interests method and requires that all business combinations be accounted for using the purchase method. The provisions of this Statement apply to all business combinations initiated after June 30, 2001, and to all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001, or later. Adoption of the new standard will have no initial effect on the Company's financial statements.
The FASB also recently issued SFAS 142, Goodwill and Other Intangible Assets. This Statement establishes accounting and reporting standards for acquired goodwill and other intangible assets. The Statement addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. It also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. Under the new standard, amortization of existing goodwill ceases upon adoption of SFAS 142 and is replaced by periodic evaluation for impairment using specified methodology. SFAS 142 is effective for fiscal years beginning after December 15, 2001. Early adoption is permitted for entities with fiscal years beginning after March 15, 2001. The Company will apply SFAS 142 beginning with the first quarter of its fiscal year ending June 30, 2003, on a prospective basis. The effects of adoption of SFAS 142 on the Company's financial statements are not determinable currently.
ALL STAR GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Segment Information
The principal business of the Company is the sale of LP gas. During the first half of 2000, the Company also operated a restaurant chain (Note 17). The Company has no significant assets other than those used in its principal business. The LP gas operation is the Company's only reportable segment. Selected information is not presented separately for the Company's reportable segment, as there is no material difference between that information and the corresponding information in the consolidated financial statements.
Delivery Costs
The costs related to the delivery of the product to the customer is included in operating expenses.
NOTE 2: MANAGEMENT'S CONSIDERATION OF GOING CONCERN MATTERS
The Company reported income from operations during fiscal 2000 primarily due to the gains recognized on the sale of certain retail service centers (Note 16). The Company has otherwise suffered recurring losses from operations, continues to have net working capital and net stockholders' equity deficiencies, which have existed since June 30, 1994, and is in default with respect to its 9% Subordinated Debentures due 2007 (Note 5).
Also, as a result of the Company's significant disposition of retail service centers during fiscal 2000, the Company has incurred a $7.7 million federal tax liability that was due September 15, 2000. The Company was unable to pay the obligation when due. The Internal Revenue Service (the "IRS") has placed liens on Company assets. The Company has entered into a workout plan with the IRS for payment of the tax obligation.
The financial statements have been prepared assuming the Company will continue as a going concern, realizing assets and liquidating liabilities in the ordinary course of business. Management is exploring several strategies involving additional debt and equity restructurings for mitigating these conditions during the coming year. Although not currently planned, realization of assets in other than the ordinary course of business to meet liquidity needs could incur losses not reflected in these financial statements.
ALL STAR GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 3: RELATED PARTY TRANSACTIONS
During 2001, 2000 and 1999, the Company has purchased $172,500, $225,000 and $250,000, respectively, of paint from a corporation owned by the spouse of the Company's principal stockholder.
In December 1996, the Company acquired a 10% ownership interest in Propane Resources Transportation, Inc. (PRT). PRT provides transport services for a portion of the Company's propane delivery needs resulting in freight charges paid to PRT during 2001, 2000 and 1999 of $856,000, $1,157,000 and $773,000, respectively.
During the year ended June 30, 1997, the Company acquired a 39% interest in Propane Resources Supply and Marketing, LLC (PRSM) for $263,000. The Company's investment is stated at amortized cost plus equity in the affiliate's undistributed net income since acquisition. The Company enters into purchase and sale commitments under supply contracts with PRSM. In 2001, the Company completed forward purchase and sale contracts with PRSM which resulted in buying and selling $4.3 million and $4.8 million, respectively, of LP gas inventory. This information was not determinable until the Company's adoption of SFAS No.'s 133 and 138 in 2001 (Note 13). The Company paid consulting fees of $0, $250,000 and $150,000 to PRSM during 2001, 2000 and 1999, respectively.
At June 30, 2001 and 2000, the Company has invested $1,265,000 and $134,000, respectively, along with certain key employees in real estate partnerships as special limited partners for tax credit allocation purposes.
In 1998, the Company entered into an operating lease with the principal stockholder for an aircraft. The lease required $95,000 in annual payments for a term of three years that began in January 1998. In April 2000, the lease agreement was terminated. The lease agreement required the Company to maintain the aircraft in its condition at lease inception with normal wear and tear excepted. The Company incurred expenses of $225,000 at the termination of the lease to comply with this requirement.
In 2001 and 2000, the principal stockholder loaned the Company amounts totaling $2.5 million and $3.8 million, respectively, bearing interest at a rate of 12%, with terms ranging from seven days to six months. At June 30, 2001 and 2000, the balance of these obligations was $394,000 and $0, respectively.
In 2001, the Company's principal stockholder pledged as collateral his stock in the Company to the Senior Secured Notes, due 2003 (Note 5) and guaranteed various notes payable (Note 6).
ALL STAR GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 3: RELATED PARTY TRANSACTIONS (Continued)
In February 2001, the principal stockholder assumed a note payable to the Company with a balance of $942,000 (Note 4). The note principal is due in August 2012 and interest is payable monthly.
NOTE 4: NOTE RECEIVABLE
The note receivable is secured primarily by three deeds of trust on real property located in the counties of Laclede, Camden and Crawford in the state of Missouri. In 2000, the note was due in monthly installments of $11,000, including interest at 9.3745%, until August 2012. In February 2001, the note receivable was assumed by the principal shareholder (Note 3). The note principal is now due in August 2012 and interest is payable monthly.
NOTE 5: LONG-TERM DEBT
Long-term debt at June 30 consisted of (in thousands):
2001 2000 ---- ----
11% Senior Secured Notes, due 2003 (A) $ 66,197 $ -- 12 7/8% Senior Secured Notes, due 2004 (B) -- 50,880 9% Subordinated Debentures, due 2007 (C) 9,729 9,729 Purchase contract obligations and capital leases (D) 4,589 4,643 -------- -------- 80,515 65,252 Less unamortized discounts 9,296 4,178 -------- -------- 71,219 61,074 Less current maturities 14,493 57,897 -------- --------
$ 56,726 $ 3,177 ======== ========
(A) The notes were issued in conjunction with an exchange offer for the Company's Senior Secured notes, due 2004 (see item (B)). The notes were issued February 2001 at a discount and require interest payments at 11%. The notes are due June 30, 2003, and are redeemable at the Company's option, in whole or from time to time in part, until maturity, upon not less than 30 nor more than 60 days' notice, at a reduced redemption price of the principal amount of the notes being redeemed equal to a predetermined percentage at specific future dates, plus accrued and unpaid interest thereon to the redemption date:
ALL STAR GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 5: LONG-TERM DEBT (Continued)
On or prior to Redemption Percentage -------------- ---------------------
December 31, 2001 90.38% June 30, 2002 93.59% December 31, 2002 96.79% June 30, 2003 100.00%
The balance outstanding of the Senior Notes includes the original principal amount of the notes issued ($53,064,000) plus the amount of interest accrued from August 1, 2000, to November 30, 2000, on the remaining 40% of the Senior Secured Notes, due 2004 (see item (B)). The original principal amount was adjusted to give effect for the original issue discount and accrued interest at February 23, 2001, on the Senior Secured Notes, due 2004 (effective interest rate of 4.42%). The discount on these notes is being amortized over the remaining life of the notes using the effective interest method.
The balance outstanding of the notes as of June 30, 2001, is as follows:
11% Senior Secured Notes, due 2003 $ 53,064,000 Accrued interest capitalized prior to debt restructuring 7,395,000 ------------
$ 60,459,000 ============
The notes are guaranteed by the restricted subsidiaries of the Company and secured by the common stock of the restricted subsidiaries and the Company's principal stockholder's common stock in the Company. 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.
(B) The notes were issued June 1994 at a discount and required interest payments at 7% through July 15, 1999, and at 127/8% thereafter. The notes were redeemable at the Company's option. The original principal issued may have been redeemed, as a whole or in part, at 106.438% of the principal amount through July 15, 2000, and at declining percentages thereafter.
ALL STAR GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 5: LONG-TERM DEBT (Continued)
The original principal amount of the notes issued ($127,200,000) was adjusted 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 was being amortized over the remaining life of the notes using the effective interest method.
The notes were guaranteed by the restricted subsidiaries of the Company and were secured by the common stock of the restricted subsidiaries of the Company. Separate financial statements of the guarantor subsidiaries were not included because such subsidiaries had jointly and severally guaranteed the notes on a full and unconditional basis; the aggregate assets and liabilities of the guarantor subsidiaries were 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 were not deemed to be material.
In May 2000, the Company received consent from the outstanding note holders to amend the indenture and the notes. Pursuant to the amendments, the Company redeemed 60% of the principal balance of the notes in the ratio of $786 per $1,000 principal. The aggregate amount paid was $60 million and was generated through the proceeds from the sales of various retail service centers. The redemption resulted in the Company recording an extraordinary gain of approximately $12.6 million, less income taxes of $4.6 million.
The remaining balance was to have been paid at the same discounted ratio at July 31, 2000, without any further accrual of interest since the last interest period that ended January 15, 2000. Proceeds from additional sales of service centers were to be used to generate the funds for the payment.
On July 31, 2000, the Company defaulted with respect to the balance of the notes which, consequently, also caused the Company to be in default with respect to its 9% Subordinated Debentures, due 2007 (see item (C)). On February 23, 2001, the Company completed an exchange offer to restructure the notes and new senior notes were issued (see item (A)).
(C) The debentures, issued June 1983, are redeemable at the Company's option, as a whole or in part, at par value.
The original principal amount of debentures issued 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 method.
ALL STAR GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 5: LONG-TERM DEBT (Continued)
Due to the nonpayment of interest due since June 30, 2000, the Company is in default with respect to the debentures. As a result of the default, the debenture holders have the right to accelerate the balance due and require immediate payment in full. Accordingly, the entire balance of the obligation is included in current liabilities at June 30, 2001 and 2000. The debenture holders have not accelerated the balance due under the notes as of August 24, 2001.
(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 trucks and data processing equipment. At June 30, 2001 and 2000, these obligations carried interest rates from 7% to 11% and are due periodically through 2008.
Aggregate annual maturities (in thousands) of the long-term debt outstanding at June 30, 2001, are:
2002 $ 14,493 2003 54,014 2004 696 2005 659 2006 967 Thereafter 390 --------
$ 71,219 ========
NOTE 6: NOTES PAYABLE TO BANKS
Notes payable to banks aggregating $3,979,000 at June 30, 2001, are comprised of short-term borrowings secured by accounts receivable, inventory and property and equipment. The borrowings bear interest at a weighted average interest rate of approximately 9.6% and are due periodically in 2002.
ALL STAR GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 7: INCOME TAXES
The provision (credit) for income taxes on income before extraordinary item and cumulative effect of change in accounting principle includes these components:
2001 2000 1999 ---- ---- ---- (In Thousands)
Taxes currently payable (refundable) $ (2,667) $ 5,748 $ (1,098) Deferred income taxes 2,354 2,144 (4,099) -------- ------- --------
$ (313) $ 7,892 $ (5,197) ======== ======= ========
The tax effects of temporary differences at June 30, 2001 and 2000, related to deferred taxes were:
2001 2000 ---- ---- (In Thousands) Deferred Tax Assets
Allowance for doubtful accounts $ 92 $ 110 Self-insurance liabilities and contingencies 866 1,472 Original issue discount 4,058 4,041 Unrealized loss on derivative financial instruments 31 -- -------- ------- 5,047 5,623 Deferred Tax Liability
Accumulated depreciation and tax cost differences (10,585) (8,261) -------- --------
Net deferred tax liability $ (5,538) $ (2,638) ======== ========
ALL STAR GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 7: INCOME TAXES (Continued)
The above net deferred tax liability is presented on the June 30 balance sheets as follows:
2001 2000 ---- ---- (In Thousands)
Deferred Tax Assets (Liabilities)
Deferred tax asset - current $ 200 $ 150 Deferred tax liability - long-term (5,738) (2,788) -------- --------
Net deferred tax liability $ (5,538) $ (2,638) ======== ========
A reconciliation of income tax expense (credit) at the statutory rate to the Company's actual income tax expense (credit) is shown below:
ALL STAR GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 8: SELF-INSURANCE AND CONTINGENCIES
Under the Company's current insurance program, the Company's comprehensive general, auto and employer's liability coverage and excess liability policy provides for losses of up to $75.0 million. The general liability coverage has a $250,000 self-insured retention with a $1 million cap on total claims. The Company's combined auto and workers' compensation coverage is insured through participation in a captive insurance program. The Company obtains excess coverage on occurrence basis policies. Provisions for self-insured losses are recorded based upon the Company's estimates of the aggregate self-insured liability for claims incurred, resulting in a retention for a portion of these expected losses.
The ending accrued liability includes $150,000 for incurred but not reported claims at June 30, 2001 and 2000. The current portion of the ending liability of $400,000 at June 30, 2001 and 2000, is included in accrued expenses in the consolidated balance sheets. The noncurrent portion at the end of each period is included in accrued self-insurance liability.
The Company and its subsidiaries are also defendants in various lawsuits related to the self-insurance program, which are not expected to have a material adverse effect on the Company's financial position or results of operations.
The Company currently self-insures health benefits provided to the employees of the Company and its subsidiaries subject to a $75,000 cap per claim. Provisions for losses expected under this program are recorded based upon the Company's estimate of the aggregate liability for claims incurred. The aggregate cost of providing the health benefits was $770,000, $1,079,000 and $816,000 for the years ended June 30, 2001, 2000 and 1999, respectively.
In conjunction with a restructuring transaction involving the Company and Empire Energy Corporation, the parties 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 Empire Energy Corporation assuming the remaining 47.7%.
The Company and its subsidiaries are presently involved in other various federal and state tax audits, which are not expected to have a material adverse effect on the Company's financial position or results of operations.
ALL STAR GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 9: STOCK OPTIONS AND WARRANTS
Stock Options
The Company has established a Stock Option Plan for the benefit of its employees and directors. Stock options may be either incentive stock options or nonqualified stock options, with an option price no less than the fair value of the Company's common stock on the date of the grant. Options are granted for no more than a 10-year term and are exercisable based on a written agreement between the administrator and optionee.
The table below summarizes transactions under the Company's stock option plan:
Number of Shares ----------------
Balance, June 30, 1998 584,026 Granted ($1.00 per share) 154,404 Forfeited (237,730) --------- Balance, June 30, 1999 500,700 Granted ($1.00 per share) 10,000 Forfeited (75,000) --------- Balance, June 30, 2000 435,700 Granted ($1.00 per share) 74,000 Forfeited (35,000) ---------
Balance, June 30, 2001 474,700 =========
Options outstanding at June 30, 2001, have a weighted-average remaining contractual life of approximately seven years with 336,920 options currently exercisable. The exercise price was $7.00 per share until May 2000 when it was reduced to $1.00 per share.
The Company applies Accounting Principles Board Opinion 25 and related Interpretations in accounting for the plan, and no compensation cost has been recognized. No fair value disclosures with respect to stock options are presented because, in the opinion of management, such values do not have a material effect.
ALL STAR GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 9: STOCK OPTIONS AND WARRANTS (Continued)
Common Stock Purchase Warrants
The Company issued detachable warrants to purchase common stock in connection with the issuance of 127/8% Senior Secured Notes in 1994. Each warrant represents the right to purchase one share of the Company's common stock for $.01 per warrant. The warrants are exercisable currently and will expire on July 15, 2004. No warrants were issued or exercised in 2001, 2000 and 1999. Warrants to purchase 175,536 shares were outstanding at June 30, 2001 and 2000.
NOTE 10: ADDITIONAL CASH FLOW INFORMATION
2001 2000 1999 ---- ---- ---- (In Thousands)
Noncash Investing and Financing Activities
Notes receivable from sale of retail service centers and Tres Hombres, Inc. -- $1,350 $207 Purchase contract obligations incurred for business acquisitions $591 $389 $75 Capital lease obligations incurred for property and equipment $326 $332 $232 Long-term obligations incurred for investment in Missouri Investment Partner I, LLC, a purchaser of Missouri low-income housing tax credits $870 -- --
Additional Cash Payment Information
Interest paid $2,529 $14,199 $11,762 Income taxes paid $3,633 $552 -- Income taxes refunded $417 $869 $1,486
ALL STAR GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 11: EMPLOYEE BENEFIT PLAN
The Company has a defined contribution retirement plan covering 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, 2001, 2000 or 1999.
NOTE 12: OPERATING LEASES
Noncancelable operating leases, which cover office space and various equipment, expire in various years through 2012. These leases generally contain renewal options for periods ranging from one to five years and require the Company to pay all executory costs (property taxes, maintenance and insurance).
Future minimum lease payments (in thousands) at June 30, 2001, were:
2002 $ 531 2003 468 2004 453 2005 452 2006 429 Thereafter 2,284 -------
Future minimum lease payments $ 4,617 =======
NOTE 13: FUTURES AND FORWARD CONTRACTS AND CHANGE IN ACCOUNTING PRINCIPLE
The Company enters into purchase and sale commitments under supply contracts and similar agreements with other parties that typically have a term of less than one year. As of June 30, 2001 and 2000, the Company had approximately $5.5 million and $11.9 million, respectively, in outstanding commitments to purchase LP gas for inventory. The Company also had outstanding commitments to sell approximately 2.1 million gallons and 31.5 million gallons of LP gas at June 30, 2001 and 2000, respectively.
ALL STAR GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 13: FUTURES AND FORWARD CONTRACTS AND CHANGE IN ACCOUNTING PRINCIPLE (Continued)
The Company also uses commodity futures contracts to reduce the risk of price fluctuations for liquefied propane (LP) gas purchase and sale commitments. As of June 30, 2001 and 2000, the Company's open positions on commodity futures contracts for LP gas consisted of 0 gallons and 210,000 gallons, respectively, and had a fair value of approximately $0 and $13,000, respectively. Net unrealized gains and losses on open positions in commodity futures contracts were immaterial at June 30, 2001 and 2000.
On July 1, 2000, the Company adopted the provisions of Financial Accounting Standards Board Statements (SFAS) Nos. 133 and 138, which establish accounting and reporting standards for derivative instruments. SFAS 133 and 138 require most derivative instruments to be reflected as assets or liabilities in the balance sheet at their fair values with changes in fair values reflected in net income (or accumulated other comprehensive income if the criteria for cash flow hedge accounting are met). An exception to application of the requirements is provided for derivative instruments that meet the criteria of normal purchases/normal sales set forth in the new standards and are, therefore, not recognized.
Derivative financial instruments held by the Company consist of the forward purchase and sales contracts and the commodity futures contracts discussed above. Certain of the forward purchase and sales contracts meet the normal purchases/normal sales criteria and are not recognized in the financial statements. The remainder of the forward purchase and sales contracts and all of the commodity futures contracts are recognized in the financial statements as the Company has elected not to apply the hedge accounting provisions of the new standards to those instruments.
At July 1, 2000, initial adoption of the new standards resulted in recognition of derivative financial instruments as assets and liabilities in the amounts of $3.1 million and $1.6 million, respectively, and a cumulative effect adjustment of $940,000, net of applicable income taxes. No disclosure of the pro forma effects as if the new standards had been applied retroactively to prior periods is made as such effects are immaterial. Application of the new standards resulted in recognition of a loss on forward and futures contracts of $506,000 during the year ended June 30, 2001.
ALL STAR GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
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:
Estimates
Significant estimates related to self-insurance, goodwill amortization, litigation, collectibility of receivables and income tax assessments are discussed in Notes 1 and 8. Actual losses related to these items could vary materially in the near term from amounts reflected in the financial statements.
NOTE 15: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods were used to estimate the fair value of financial instruments:
Note Receivable
Fair value is estimated by discounting the future cash flows using the rates at which similar notes would be written for the same remaining maturities.
Forward Purchase and Forward Sale Contracts
Fair value is based on quoted market prices.
Notes Payable to Banks and Long-Term Debt
Fair value of the Senior Secured Notes is estimated based on the trading prices of this debt issuance. The fair value of the Subordinated Debentures is estimated by discounting the future cash flows using the rates at which similar notes would be written for the same remaining maturities. The fair value of notes payable to banks and other debt approximates carrying value as other debt consists of obligations with interest rates approximating rates currently available to the Company.
ALL STAR GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 15: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Notes Payable to Banks and Long-Term Debt (Continued)
The following table presents estimated fair values of the Company's financial instruments. The fair values of certain of these instruments were calculated by discounting expected cash flows, which method involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be acquired or sold individually or in the aggregate.
NOTE 16: ACQUISITIONS AND DISPOSITIONS OF RETAIL SERVICE CENTERS
During the year ended June 30, 2001, the Company acquired one LP gas operation through an asset purchase transaction for a total of $600,000, of which $110,000 was paid in cash with the remainder in mortgage obligations and the assumption of certain liabilities. During the year ended June 30, 2000, the Company acquired one LP gas operation through an asset
ALL STAR GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 16: ACQUISITIONS AND DISPOSITIONS OF RETAIL SERVICE CENTERS (Continued)
purchase transaction for a total of $545,000, of which $5,500 was paid in cash with the remainder in mortgage obligations and the assumption of certain liabilities. Each of these acquisitions has been accounted for as a purchase by recording the assets acquired and the liabilities assumed at their estimated fair values at the acquisition date. Amounts paid above these fair values are recorded as excess of cost over fair value of net assets acquired. The consolidated operations of the Company include the operations of the acquirees from the acquisition dates. The pro forma effects of the acquisitions as if they had been completed at the beginning of the year would not be materially different from actual results.
During the year ended June 30, 2001, the Company sold three retail service centers. The Company received $929,000 in cash from the sale. The pro forma effects of the disposition as if it had been completed at the beginning of the year would not be materially different from actual results.
During the year ended June 30, 2000, the Company sold 66 retail service centers. The Company received $91.1 million in cash from these sales. Unaudited pro forma consolidated operations, assuming the dispositions were made at the beginning of the current and previous years, are shown below:
2001 2000 ---- ---- (In Millions)
Operating revenue $57.1 $55.7 Net income (loss) $(9.8) $14.9
The pro forma results are not necessarily indicative of what would have occurred had the retail service center dispositions been on those dates, nor are they necessarily indicative of future operations.
NOTE 17: BUSINESS ACQUISITION AND DISPOSITION
On July 2, 1999, the Company acquired Tres Hombres, Inc., a restaurant chain controlled by the Company's principal stockholder, in a transaction that was accounted for in a manner similar to a pooling of interests. The Company issued 22,865 shares of stock previously held in treasury in exchange for all of the outstanding common stock of Tres Hombres, Inc.
ALL STAR GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
NOTE 17: BUSINESS ACQUISITION AND DISPOSITION (Continued)
Due to covenant requirements established by its then working capital lender, the Company sold Tres Hombres, Inc. in December 1999, recognizing a loss of approximately $363,000. The sale was consummated through receipt of a promissory note and assumption of certain liabilities by the buyer. Unaudited pro forma consolidated operations, assuming the disposition was made at the beginning of the current and previous years, are shown below:
2001 2000 ---- ---- (In Millions)
Operating revenue $57.1 $78.7 Net income (loss) $(9.8) $18.3
NOTE 18: SUBSEQUENT EVENT - DISPOSITION OF RETAIL SERVICE CENTER
In August 2001, the Company sold for cash and notes three retail service centers in Missouri at a gain. The retail service centers disposed of accounted for approximately 7%, 4% and 4% of sales volume for the years ended June 30, 2001, 2000 and 1999, respectively. At June 30, 2001, the carrying value of the retail service center disposed of was approximately 9% of total assets.
Independent Accountants' Report on Supplementary Information
Board of Directors and Stockholders All Star Gas Corporation Lebanon, Missouri
Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The nature of our audit procedures is more fully described in our report on the basic consolidated financial statements. Our report on the basic consolidated financial statements includes an emphasis paragraph discussing substantial doubt about the Company's ability to continue as a going concern. The accompanying supplementary information is presented for purposes of additional analysis and is not a required part of the basic consolidated financial statements. Such information has been subjected to the procedures applied in the audits of the basic consolidated financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic consolidated financial statements taken as a whole.
BKD, LLP
Springfield, Missouri August 10, 2001
ALL STAR GAS CORPORATION
CONSOLIDATED SCHEDULES OF SALES AND GROSS PROFIT
YEARS ENDED JUNE 30, 2001 AND 2000 (In Thousands)
ALL STAR GAS CORPORATION
CONSOLIDATED SCHEDULES OF GENERAL AND ADMINISTRATIVE EXPENSES
YEARS ENDED JUNE 30, 2001 AND 2000 (In Thousands)
2001 2000 ---- ----
Salaries and commissions $ 8,520 $ 14,692 Transportation 1,372 2,593
Office, telephone and utilities 813 1,930 Taxes and licenses other than payroll and income 444 1,010
Rent and maintenance of building and equipment 1,456 2,657 Payroll taxes and employee benefits 1,539 2,604
Insurance and liability claims 901 3,773 Travel and entertainment 372 525
Professional fees 366 1,600 Advertising 269 369 Miscellaneous 317 1,329 -------- --------
$ 16,369 $ 33,082 ======== ========
Independent Accountants' Report on Financial Statement Schedule
Board of Directors and Stockholders All Star Gas Corporation Lebanon, Missouri
In connection with our audit of the consolidated financial statements of ALL STAR GAS CORPORATION for each of the three years in the period ended June 30, 2001, we have also audited the accompanying financial statement schedule of valuation and qualifying accounts. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits of the basic consolidated financial statements. The schedule is presented for purposes of complying with the Securities and Exchange Commission's rules and regulations and is not a required part of the consolidated financial statements.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
/s/BKD, LLP
Springfield, Missouri August 10, 2001
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 2001, 2000 AND 1999 (In Thousands)
(A) Allowance for doubtful accounts receivable established with respect to the acquisition of retail service centers.
(B) Related to accounts receivable which were sold in conjunction with the disposition of retail service centers.