<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------------------------
FORM 8-K / A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 24, 1997
STAR GAS PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware
--------
(State or other jurisdiction of incorporation)
33-98490
--------
(Commission File Number)
06-1437793
----------
(I.R.S. Employer Identification No.)
2187 Atlantic Street
Stamford, Connecticut, 06902
(Address of principal executive office)
(203) 328-7300
(Registrant's telephone number, including area code)
<PAGE>
ITEM 1. CHANGE IN CONTROL OF REGISTRANT
None.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Star Gas Partners, L.P. ("the Partnership") is a Master Limited
Partnership and through its subsidiary, Star Gas Propane ("the OLP"), markets
and distributes propane in the Midwest and Northeast sections of the United
States. Star Gas Corporation, a Delaware Corporation, ("Star Gas") is the
general partner of both the Partnership and the OLP.
On October 22, 1997, pursuant to a purchase agreement ("Stock Purchase
Agreement") dated as of October 20, 1997, Star Gas purchased 240 shares of
Common Stock ($100 par value) of Pearl Gas Co. ("Pearl"), an Ohio Corporation,
representing all of the issued and outstanding capital stock of Pearl. Pearl
markets and distributes propane in Ohio and Michigan through a storage and
distribution system consisting of five offices, fifteen bulk storage plants,
fifty employees and over forty-five vehicles. For the twelve months ended
September 30, 1997, Pearl sold 14.3 million gallons of propane, primarily to
higher margin residential customers. Pearl currently serves over 12 thousand
active customers.
The purchase price for said stock was $22.6 million and was paid in
cash. The purchase price included estimated working capital of $1.9 million.
This amount will be adjusted upward or downward based on actual working capital
as of October 21, 1997. The amount of consideration for the Pearl Common Stock
was determined by arms length bargaining between Star Gas and the Sellers.
Funding for the stock purchase and related transaction expenses of $0.4 million
was provided by a $23.0 million bank acquisition facility. Subsequent to the
acquisition of the common stock of Pearl, Pearl was merged into Star Gas in a
tax-free liquidation.
On October 22, 1997, a Conveyance and Contribution Agreement was entered
into by, and among, the Partnership, the OLP and Star Gas. Star Gas contributed
to the OLP all of the Pearl assets it obtained in the stock purchase of Pearl
Gas and the subsequent merger of Pearl into Star Gas. In exchange, Star Gas
received a 2.7 percent limited partnership interest in the OLP and a 0.00028
percent general partnership interest in the OLP. In addition, the OLP assumed
all of the liabilities associated with the Pearl stock purchase prior and
subsequent to the merger, including the $23.0 million of bank debt. The
aggregate value of the interests transferred to Star Gas from the OLP is
$3.5 million.
The issuance of the additional partnership interests to Star Gas is
intended to compensate Star Gas for additional significant income tax
liabilities which would be reflected in the consolidated federal income tax
return of Star Gas' parent corporation, Petroleum Heat and Power Co., Inc.
("Petro"). The issuance of such partnership interests was approved by the Audit
Committee of Star Gas and the Executive Committee of Petro.
Star Gas then exchanged the above described interest in the OLP for a
0.00027 percent general partnership interest in the Partnership and 147,727
common units in the Partnership, at a per unit price based upon the average
closing price of the Partnership's common units ten days prior to the execution
of the Stock Purchase Agreement. The OLP then repaid the $23.0 million
acquisition facility with $2.0 million of available cash and $21.0 million
borrowed under the OLP's own acquisition facility.
The OLP intends to utilize the conveyed assets in the conduct of its
propane business.
<PAGE>
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
None.
ITEM 4. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
None.
ITEM 5. OTHER EVENTS
None.
ITEM 6. REGISTRATION OF REGISTRANT'S DIRECTORS
None.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Item 7 is amended from the prior filing of October 23, 1997 to include
the financial statements of the Pearl Gas Co.
ITEM 8. CHANGES IN FISCAL YEAR
None.
<PAGE>
PEARL GAS CO.
Financial Statements
December 31, 1995 and 1996
(With Independent Auditors' Report Thereon)
<PAGE>
PEARL GAS CO.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report 2
Balance Sheets as of December 31, 1995 and 1996 3
Statements of Income for the Years ended December 31, 1995 and 1996 4
Statements of Shareholders' Equity for the Years ended
December 31, 1995 and 1996 5
Statements of Cash Flows for the Years ended
December 31, 1995 and 1996 6
Notes to Financial Statements 7-11
Balance Sheets as of December 31, 1996 and
September 30, 1997 (unaudited) 12
Statements of Income for the Nine Months ended September 30, 1996
(unaudited) and September 30, 1997 (unaudited) 13
Statements of Cash Flows for the Nine Months ended September 30,
1996 (unaudited) and September 30, 1997 (unaudited) 14
Notes to unaudited Financial Statements 15
Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1997 (unaudited) 17
Pro Forma Condensed Consolidated Statement of Income for the
Year ended September 30, 1997 (unaudited) 18
1
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Pearl Gas Co.:
We have audited the accompanying balance sheets of Pearl Gas Co. as of December
31, 1995 and 1996, and the related statements of income, shareholders' equity,
and cash flows for the years then ended. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Pearl Gas Co. as of December
31, 1995 and 1996, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Detroit, Michigan
October 22, 1997
2
<PAGE>
PEARL GAS CO.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 1,040,748 $2,183,738
Accounts receivable (less allowance
for doubtful accounts of $64,706 for
1995 and 1996, respectively) 1,137,328 1,977,564
Other non-trade receivables 44,856 25,048
Inventories (Note 3) 301,597 400,647
Prepaid expenses 431,536 480,264
----------- ----------
Total current assets 2,956,065 5,067,261
----------- ----------
Property and equipment, net (Note 4) 2,996,345 2,707,537
Investments - stock 2,951 2,951
----------- ----------
$ 5,955,361 $7,777,749
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Deferred revenue $ 278,182 $ 272,171
Contract payable (Note 5) 375,501 437,000
Current portion of long-term debt
(Note 6) 200,000 -
Accounts payable 594,435 821,766
Customer deposits 8,110 7,510
Accrued liabilities:
Employee benefits 108,499 108,367
Interest 23,351 3,369
Payroll taxes 46,055 38,133
Federal income tax - 16,080
State and local taxes 117,826 144,668
----------- ----------
295,731 310,617
----------- ----------
Total current liabilities 1,751,959 1,849,064
----------- ----------
Long-term debt excluding current
portion (Note 6) 1,000,002 -
Deferred Federal Income Tax (Note 7) 461,000 444,920
Shareholders' Equity
Common stock, $100 par value, 750 shares
authorized, 240 shares outstanding 24,000 24,000
Retained earnings 4,708,065 6,132,042
Notes receivable - shareholders
(Note 2) (1,989,665) (672,277)
----------- ----------
Total shareholders' equity 2,742,400 5,483,765
Commitments (Note 9)
----------- ----------
$ 5,955,361 $7,777,749
=========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
PEARL GAS CO.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Sales $11,611,082 $14,910,109
Cost of goods sold 5,683,973 8,353,916
----------- -----------
GROSS PROFIT 5,927,109 6,556,193
Depreciation and amortization 437,743 422,912
Operating expenses 3,298,270 3,393,819
Gain on disposal of equipment 13,822 45,880
----------- -----------
OPERATING INCOME 2,204,918 2,785,342
Other income (expense):
Interest income 260,423 169,703
Other 19,843 4,346
Interest expense (183,436) (35,414)
----------- -----------
96,830 138,635
----------- -----------
NET INCOME $ 2,301,748 $ 2,923,977
=========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
PEARL GAS CO.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK NOTES TOTAL
------------ RETAINED RECEIVABLE SHAREHOLDERS'
SHARES AMOUNT EARNINGS SHAREHOLDERS EQUITY
------ ------ -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 330 $33,000 $ 4,115,499 $(2,802,101) $ 1,346,398
Dividends paid -- -- (600,000) -- (600,000)
Loans made -- -- -- (220,301) (220,301)
Collections on loans -- -- -- 1,032,737 1,032,737
Stock redemption (90) (9,000) (1,109,182) -- (1,118,182)
Net income -- -- 2,301,748 -- 2,301,748
--- ------- ----------- ----------- -----------
Balance, December 31, 1995 240 24,000 4,708,065 (1,989,665) 2,742,400
Dividends paid -- -- (1,500,000) -- (1,500,000)
Loans made -- -- -- (94,602) (94,602)
Collections on loans -- -- -- 1,411,990 1,411,990
Net income -- -- 2,923,977 -- 2,923,977
--- ------- ----------- ----------- -----------
Balance, December 31, 1996 240 $24,000 $ 6,132,042 $ (672,277) $ 5,483,765
=== ======= =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
PEARL GAS CO.
STATEMENTS OF CASH FLOWS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,301,748 $ 2,923,977
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 437,743 422,912
Deferred income tax -- (16,080)
Gain on disposal of property and
equipment (13,822) (45,880)
Changes in operating assets and
liabilities:
Accounts receivable (660,675) (840,236)
Other non-trade receivables (23,278) 19,808
Inventory (43,320) (99,050)
Prepaid expenses (11,318) 12,771
Prepaid taxes 2,310 --
Accounts payable 160,485 227,331
Customer deposits 150 (600)
Accrued liabilities (56,631) 14,886
Deferred Revenue 7,517 (6,011)
----------- -----------
Net cash provided by operating
activities 2,100,909 2,613,828
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (277,541) (134,859)
Proceeds from sale of property and
equipment 13,822 46,635
Loans made to shareholders (220,301) (94,602)
Collections on notes receivable -
shareholders 1,032,737 1,411,990
----------- -----------
Net cash provided by investing
activities 548,717 1,229,164
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock redemption (1,118,182) --
Principal payments of long-term debt (799,998) (1,200,002)
Dividends paid (600,000) (1,500,000)
----------- -----------
Net cash used in financing
activities (2,518,180) (2,700,002)
Net increase in cash and cash
equivalents 131,446 1,142,990
Cash and cash equivalents at beginning
of year 909,302 1,040,748
----------- -----------
Cash and cash equivalents at end of year $ 1,040,748 $ 2,183,738
=========== ===========
Supplemental disclosures of cash flow
information:
Interest paid $ 177,591 $ 55,396
</TABLE>
Non-cash disclosure:
- -------------------
On September 1, 1996, the remaining balance of notes receivable shareholders of
$821,926 were converted into new notes.
See accompanying notes to financial statements.
6
<PAGE>
PEARL GAS CO.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(1) DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
-----------------------
The primary business of Pearl Gas Co. (the Company), is the sale and
distribution of propane gas. The Company's primary customers are businesses
and individuals in the Northwest Ohio, Southeast Michigan and Northeast
Indiana areas.
Accounts Receivable
-------------------
The Company enters into "budget payment plans" with several, principally
residential customers, which allow for pre-established set monthly payments
regardless of actual usage. This may result with a customer in a pre-payment
situation in low usage months. It is the Company's practice to net the pre-
payments with accounts receivable for financial statement presentation.
Inventories
-----------
Inventories are stated at the lower of cost determined by first-in, first-out
method or market value (net realizable value).
Property and Equipment
----------------------
Property and equipment are carried at cost. Expenditures for additions and
improvements that add materially to productive capacity or extend the life of
an asset are capitalized, and expenditures for maintenance and repairs are
charged to operations. When machinery and equipment items are retired or
otherwise disposed of, the related accounts for cost and depreciation are
relieved.
The Company provides depreciation on property and equipment for reporting
purposes by the straight-line method over their estimated useful lives, which
range from 10 to 25 years for buildings, building components and land
improvements, 5 to 10 years for automotive vehicles, and 10 to 20 years for
office and operating equipment and tanks.
Cash Equivalents
----------------
For purposes of the statement of cash flows, the Company considers all highly
liquid short-term investments with original maturities of three months or
less to be cash equivalents.
Environmental
-------------
Environmental expenditures that relate to current operations are expensed or
capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations, and which do not contribute to current
or future revenue generation, are expensed.
(continued)
7
<PAGE>
PEARL GAS CO.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
Contract Payable
----------------
In order to guarantee the supply of propane, the Company enters into take or
pay supply contracts with certain propane suppliers. At the time the
Contract is entered into, a prepaid asset and corresponding contract payable
is recorded on the balance sheet. The asset and liability are reduced as the
Company takes delivery of the propane.
Deferred Revenue
----------------
The Company bills customers annually for propane tank rental. The rental
revenue is deferred and recognized ratably over the twelve month period of
the rental agreement.
Use of Estimates
----------------
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and disclosures of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
(2) NOTES RECEIVABLES - SHAREHOLDERS
Notes receivable from shareholders, which is reflected as a reduction to
shareholders' equity on the accompanying balance sheet, consists of the
following:
<TABLE>
<CAPTION>
1995 1996
---------- ---------
<S> <C> <C>
Notes receivable due from shareholder,
due January 10, 1996, interest payable
monthly at prime plus one percent $1,989,665 $ --
Notes receivable due from shareholder,
due August 31, 1999, interest payable
quarterly at prime rate (8 1/4% at
December 31, 1996) -- 672,277
---------- --------
Total $1,989,665 $672,277
========== ========
</TABLE>
(3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Propane gas $229,293 $324,942
Appliances and equipment 72,304 75,705
-------- --------
$301,597 $400,647
======== ========
</TABLE>
(continued)
8
<PAGE>
PEARL GAS CO.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
Land $ 624,064 $ 624,064
Land improvements 33,375 33,375
Buildings 727,900 727,900
Office furniture and equipment 68,408 70,665
Equipment 3,126,162 3,133,302
Delivery equipment 1,483,287 1,607,577
Bulk propane plant 272,525 272,525
---------- ----------
6,335,721 6,469,408
Less accumulated depreciation 3,339,376 3,761,871
---------- ----------
Net property and equipment $2,996,345 $2,707,537
========== ==========
</TABLE>
(5) CONTRACT PAYABLE
At December 31, 1995 and 1996, the Company had two outstanding purchase
commitments with a supplier under take or pay contracts, for terms of three
months. The outstanding contracts at December 31, 1995 and 1996 were
$375,501 and $437,000, respectively, with interest payable monthly at prime
plus 1%. Interest paid for the period ended December 31, 1995 and 1996,
respectively, was $12,319 and $12,497. The December 31, 1995 and 1996
interest rate was 9.50% and 9.25%, respectively.
(6) LONG-TERM DEBT
The Company has a $500,000 line of credit agreement with its bank under a
year-to-year agreement. There were no borrowings under the line of credit
agreement at December 31, 1995 and 1996.
The Company's long-term debt at December 31, 1995 consisted of:
<TABLE>
<CAPTION>
1995
---------
<S> <C>
Term notes payable to bank, interest at
prime plus 1% (9.25% at December 31,
1995). From January to June of each
year, monthly payments of $33,333 are
required. From July to December of
each year, only interest is due on the
unpaid balance. The final maturity date
on this note is June 1, 1999. $1,200,002
Less current portion 200,000
----------
Long-term debt $ 1,000,002
===========
</TABLE>
(continued)
9
<PAGE>
PEARL GAS CO.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(7) FEDERAL INCOME TAXES
An election has been filed by the Company to be treated as an S Corporation
effective July 1, 1994. As a result of this election, Pearl Gas Co. changed
its fiscal year end of June 30 to a calendar year end. In lieu of
corporation income taxes, the shareholder of an S Corporation is taxed on a
proportionate share of the Company's taxable income. Therefore, no
provision or liability for federal income taxes has been included in the
financial statements for the years ended December 31, 1995 and 1996. Income
that has been taxed to the shareholders but not distributed (Accumulated
Adjustments Account) was $1,790,652 and $3,262,548 as of December 31, 1995
and 1996, respectively.
The Company records depreciation on property and equipment for tax purposes
using the accelerated cost recovery system and the modified accelerated
cost recovery system. Deferred income taxes have been recorded for the
excess of tax depreciation over book depreciation for the period prior
to S-election.
(8) RELATED PARTY TRANSACTIONS
The Company entered into a lease with an officer of the Company for the use
of a fleet garage. The lease is renewable on a year-to-year basis and
currently provides for a payment of $14,400 per year.
(9) LEASES
The Company has several non-cancelable operating leases primarily for land
for bulk plants that expires May 21, 2002. Rental expense for these
operating leases (excluding the fleet garage lease noted in footnote 8) was
$6,100 for 1995 and 1996, respectively. Future minimum lease payments under
non-cancelable leases as of December 31, 1996 are: 1997, $6,100; 1998,
$3,600; 1999, $3,600; 2000, $3,600; 2001, $3,600.
(10) PROFIT SHARING PLAN
The Board of Directors annually determines the contribution to the
Company's profit-sharing plan. All employees who work in excess of 1,000
hours per year are eligible to participate and receive allocations based on
total payroll excluding bonuses. The amounts contributed in the years ended
December 31, 1995 and 1996 were $125,000 and $140,000, respectively.
(continued)
10
<PAGE>
PEARL GAS CO.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(11) SUBSEQUENT EVENTS
On October 22, 1997, pursuant to a purchase agreement dated as of October
20, 1997, all of the issued and outstanding capital stock of the Company
was sold by the holders of such stock to Star Gas Corporation ("Star
Gas").
The purchase price for said stock was $22,552,000 and was paid in cash.
Subsequent to the acquisition of the common stock of Pearl, Pearl was
merged into Star Gas in a tax-free liquidation.
11
<PAGE>
PEARL GAS CO.
BALANCE SHEETS
DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
DECEMBER 31, 1996 (UNAUDITED)
------------------- -------------------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $2,183,738 $ 880,840
Accounts receivable 1,977,564 514,230
(less allowance for
doubtful accounts at
December 31, 1996 and
September 30, 1997 of $64,706)
Other non-trade receivables 25,048 762
Inventories 400,647 302,217
Prepaid expenses 480,264 662,878
---------- ----------
Total current assets 5,067,261 2,360,927
---------- ----------
Property and equipment, net 2,707,537 2,385,789
Investments - stock 2,951 --
---------- ----------
$7,777,749 $4,746,716
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Deferred revenue $ 272,171 $ 196,848
Contract payable 437,000 633,377
Accounts payable 821,766 187,580
Customer deposits 7,510 7,435
Accrued liabilities:
Employee benefits 108,367 39,700
Interest 3,369 --
Payroll taxes 38,133 --
Federal income tax 16,080 --
State and local taxes 144,668 43,406
---------- ----------
310,617 83,106
---------- ----------
Total current liabilities 1,849,064 1,108,346
---------- ----------
Deferred Federal Income Tax 444,920 444,920
Shareholders' Equity
Common stock, $100 par value, 750
shares authorized, 240 shares outstanding 24,000 24,000
Retained earnings 6,132,042 3,776,310
Notes receivable - shareholders (672,277) (606,860)
---------- ----------
Total shareholders' equity 5,483,765 3,193,450
---------- ----------
$7,777,749 $4,746,716
========== ==========
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
PEARL GAS CO.
STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Sales $9,486,871 $9,101,130
Cost of goods sold 4,981,107 4,786,676
---------- ----------
GROSS PROFIT 4,505,764 4,314,454
Depreciation and amortization 270,000 270,000
Operating expenses 2,364,312 2,406,273
Gain on disposal of equipment 45,930 30,478
---------- ----------
OPERATING INCOME 1,917,382 1,668,659
Other income (expense):
Interest income 189,291 140,953
Other 2,735 2,837
Interest expense (45,281) (5,632)
---------- ----------
146,745 138,158
---------- ----------
NET INCOME $2,064,127 $1,806,817
========== ==========
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
PEARL GAS CO.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,064,127 $ 1,806,817
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 270,000 270,000
Gain on disposal of property and
equipment (45,930) (30,478)
Changes in operating assets and
liabilities:
Accounts receivable 495,046 1,463,334
Investments - stock -- 2,951
Other non-trade receivables 16,947 24,286
Inventory (27,517) 98,430
Prepaid expenses 11,144 13,763
Accounts payable (320,439) (634,186)
Customer deposits (750) (75)
Accrued liabilities (187,871) (227,511)
Deferred revenue (81,887) (75,323)
----------- -----------
Net cash provided by operating 2,192,870 2,712,008
activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (98,146) (17,521)
Proceeds from sale of property and
equipment 45,929 99,747
Loans made to shareholders (84,181) (123,483)
Collections on loans to shareholders 1,246,346 188,900
----------- -----------
Net cash provided by investing 1,109,948 147,643
activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt (1,200,002) --
Dividends paid (1,500,000) (4,162,549)
----------- -----------
Net cash used in financing
activities (2,700,002) (4,162,549)
Net increase (decrease) in cash and
cash equivalents 602,816 (1,302,898)
Cash and cash equivalents at beginning
of period 1,040,748 2,183,738
----------- -----------
Cash and cash equivalents at end of
period $ 1,643,564 $ 880,840
=========== ===========
Supplemental disclosures of cash flow
information:
Interest paid $ 68,632 --
Taxes paid -- $ 16,080
</TABLE>
Non-cash disclosure:
-------------------
On September 1, 1996, the remaining balance of notes receivable shareholders
of $821,926 were converted into new notes.
See accompanying notes to financial statements.
14
<PAGE>
PEARL GAS CO.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying financial statements have been prepared by management, and
in the opinion of management, contain all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the financial position of
the Company as of December 31, 1996 and September 30, 1997, and the results
of its operations and cash flows for the nine months ended September 30, 1996
and 1997. The financial statements should be read in conjunction with the
financial statements and notes thereto included elsewhere herein. Results
for interim periods are not necessarily indicative of those to be expected
for the entire year.
(2) INVENTORIES
The major classes of inventory are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Propane gas $324,942 $226,512
Appliances and equipment 75,705 75,705
-------- --------
$400,647 $302,217
======== ========
</TABLE>
(3) SUBSEQUENT EVENTS
On October 22, 1997, pursuant to a purchase agreement dated as of October 20,
1997, all of the issued and outstanding capital stock of the Company was sold
by the holders of such stock to Star Gas Corporation ("Star Gas").
The purchase price for said stock was $22,552,000 and was paid in cash.
Subsequent to the acquisition of the common stock of Pearl, Pearl was merged
into Star Gas in a tax-free liquidation.
15
<PAGE>
STAR GAS PARTNERS, L.P.
PRO FORMA FINANCIAL STATEMENTS
The following Pro Forma Condensed Statement of Operations for the year ended
September 30, 1997 is derived from the Partnership's audited consolidated
financial statements for the year ended September 30, 1997. The Pro Forma
Condensed Balance Sheet as of September 30, 1997 is derived from the audited
financial statements of the Company which include all adjustments (consisting of
only normal recurring accruals) that, in the opinion of management, are
necessary for a fair presentation of such data. The Pro Forma Financial
Statements do not purport to represent what the Company's financial position or
results of operations would have been if the events described therein had
occurred on the dates specified, nor are they intended to project the Company's
financial position or results of operations for any future period. The Pro
Forma Financial Statements should be read in conjunction with the Consolidated
Financial Statements of Star Gas Partners, L.P. as filed on Report 10-K for the
year ended September 30, 1997, and the Notes thereto.
The unaudited pro forma financial information gives effect to the Pearl Gas
Conveyance which was effected as part of the Pearl Gas acquisition. The
acquisition is being accounted for as a purchase.
The unaudited pro financial information has been prepared on the following
basis:
. The unaudited pro forma combined statement of income assumes that the
acquisition was completed as of the beginning of the period presented.
. The unaudited pro forma combined balance sheet assumes that the
acquisition was completed as of the balance sheet date.
<PAGE>
STAR GAS PARTNERS, L.P. AND SUBSIDIARY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
STAR GAS PEARL GAS CO. PRO FORMA PRO FORMA
-------- ------------- --------- ---------
PARTNERS, L.P. CONVEYANCE/(A)/ ADJUSTMENTS COMBINED
-------------- --------------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
- ------
Current assets:
Cash $ 889 $ 1,853 $ 21,000 /(b)/ $ 742
(23,000)/(c)/
Notes and accounts receivables 5,720 515 6,235
Inventories 6,597 302 6,899
Prepaid expenses and other current assets 959 663 1,622
-------- ------- -------- --------
Total current assets 14,165 3,333 (2,000) 15,498
-------- ------- -------- --------
Property and equipment, net 95,282 13,585 108,867
Intangibles and other assets, net 38,022 10,990 49,012
-------- ------- --------
Total assets $147,469 $27,908 $ (2,000) $173,377
======== ======= ======== ========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Current liabilities:
Deferred revenue $ -- $ 197 $ 197
Contract payable -- 633 633
Accounts payable 3,178 188 3,366
Accrued expenses and other
liabilities 3,325 423 3,748
Customer credit balances 4,343 -- 4,343
-------- ------- --------
Total current liabilities 10,846 1,441 12,287
-------- ------- --------
Long-term debt 85,000 23,000 21,000 /(b)(d)/ 106,000
(23,000)/(c)/
Other long-term liabilities 45 -- 45
Partners' Capital:
Common unitholders 47,573 3,397 50,970
Subordinated unitholder 4,034 -- 4,034
General partner (29) 70 41
-------- ------- --------
Total Partners' Capital 51,578 3,467 55,045
-------- ------- --------
Total Liabilities and Partners'
Capital $147,469 $27,908 $ (2,000) $173,377
======== ======= ======== ========
</TABLE>
/(a)/ Reflects the Conveyance of assets and liabilities to the Partnership by
Star Gas Corporation, including $23.0 million in long-term debt, in
exchange for 148 Common Units valued at $3.4 million and an aggregate
general partner interest of .00055 percent valued at $70 thousand. Upon
purchase of Pearl Gas by Star Gas, the assets were written up to the fair
market value through an adjustment to property, plant and equipment of
$11.2 million and an adjustment to intangible assets of $11.0 million.
In addition, cash and accrued expenses have been increased by $1.0
million and $0.3 million to reflect the estimated working capital as of
October 21, 1997.
/(b)/ Reflects the net proceeds to the Partnership of $21.0 million borrowed
under its bank Acquisition Facility.
/(c)/ Reflects the use of $23.0 million in cash to retire $23.0 million of debt
assumed in the Star Gas Conveyance.
/(d)/ The partnership intends to file a registration statement to issue and
sell 0.7 million of Common Units to the public. A portion of the
proceeds, estimated at $13.8 million, will be used to repay $10.0 million
of the Bank Acquisition Facility and the balance will be used for general
partnership purposes.
17
<PAGE>
STAR GAS PARTNERS, L.P. AND SUBSIDIARY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
STAR GAS PRO FORMA PRO FORMA
-------- --------- ---------
PARTNERS, L.P. PEARL GAS CO. ADJUSTMENTS COMBINED
-------------- ------------- ----------- --------
<S> <C> <C> <C> <C>
Sales $135,159 $14,607 $149,766
Cost of sales 72,211 8,159 80,370
-------- ------- --------
Gross profit 62,948 6,448 69,396
Operating expenses 43,245 3,436 $ (273)/(a)/ 46,408
Depreciation and amortization 10,405 423 667 /(b)/ 11,495
Net gain (loss) on sales of assets (295) 30 (265)
-------- ------- ------- --------
Operating income 9,003 2,619 (394) 11,228
Interest income (expense), net (6,966) 48 (1,527)/(c)/ (8,493)
-------- ------- (48)/(c)/ --------
-------
Income (loss) before income taxes 2,037 2,667 (1,969) 2,735
Income tax expense 25 -- -- 25
-------- ------- ------- --------
Net income $ 2,012 $ 2,667 $(1,969) $ 2,710
======== ======= ====== ========
General Partner's interest in net income $ 40 $ 54
======== ========
Limited Partners' interest in net income $ 1,972 $ 2,656
======== ========
Net Income per Limited Partner unit $0.37 $0.49
======== ========
Weighted average number of Limited
Partner units outstanding 5,271 5,419 /(d)/
======== ========
</TABLE>
/(a)/ Adjustment for certain cost savings primarily salary and benefit expenses
of certain selling shareholders.
/(b)/ Reflects the incremental depreciation and amortization expense
attributable to the Pearl assets conveyed.
/(c)/ Reflects the adjustment to interest expense resulting from $21.0 million
in bank borrowings at 7.27%, and the elimination of $48 thousand of
interest income generated on cash balances during the twelve months ended
September 30, 1997.
/(d)/ Reflects the additional units issued to Star Gas Corporation as described
in the Conveyance Agreement.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf of the undersigned
thereunto duly authorized:
Star Gas Partners, L.P.
By: Star Gas Corporation (General Partner)
William G. Powers, Jr.
----------------------
By: /s/ William G. Powers, Jr.
William G. Powers, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the date
indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ William G. Powers, Jr. President November 24, 1997
--------------------- Star Gas Corporation
William G. Powers, Jr. (Principal Executive Officer)
/s/ Richard F. Ambury Vice President - Finance November 24, 1997
--------------------- Star Gas Corporation
Richard F. Ambury (Principal Financial and
Accounting Officer)
</TABLE>
19
