<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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) March 26, 1999
--------------
Star Gas Partners, L.P.
----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-98490 06-1437793
- ------------------------------------------------------------------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
2187 Atlantic Street, Stamford, CT 06902
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 328-7300
--------------
Not Applicable
- ------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
Item 7. Financial Statements and Exhibits
(b) Pro Forma Financial Information
Star Gas Partners, L.P. condensed consolidated pro forma financial
statements including:
. the unaudited pro forma condensed consolidated balance sheet
as of December 31, 1998;
. the unaudited pro forma condensed consolidated statement of
operations for the twelve months ended September 30, 1998;
. the unaudited pro forma condensed consolidated statement
of operations for the three months ended December 31,
1998.
2
<PAGE>
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial information
gives effect to the acquisition of Petro by Star Gas Partners, the transaction,
including the equity offering after giving effect to the partial exercise of the
over-allotment option, the debt offering and the application of the net proceeds
from these offerings. The information presented is derived from, should be read
in conjunction with, and is qualified in its entirety by, reference to the
historical financial statements, and related notes, contained in the annual and
quarterly reports and other information that Star Gas Partners has filed with
the SEC.
The unaudited pro forma condensed consolidated balance sheet was prepared as
if the transaction had occurred on December 31, 1998. The unaudited pro forma
condensed consolidated statement of operations for the twelve months ended
September 30, 1998 was prepared as if the transaction had occurred on October 1,
1997. The unaudited pro forma condensed consolidated statement of operations for
the three months ended December 31, 1998 was prepared as if the transaction had
occurred on October 1, 1998.
The pro forma adjustments are based upon the events that transpired as a
result of the Star Gas / Petro Transaction. Management believes that the pro
forma adjustments provide a reasonable basis for representing the significant
effects of the transaction and are properly applied in the unaudited pro forma
condensed consolidated financial information. The unaudited pro forma condensed
consolidated balance sheet and statement of operations are not necessarily
indicative of the financial position or results of operations of Star Gas
Partners if the transaction had actually occurred on the dates indicated above.
Likewise, the unaudited pro forma condensed consolidated financial information
is not necessarily indicative of future financial combined position or future
results of combined operations of Star Gas Partners.
3
<PAGE>
Star Gas Partners, L.P. and Subsidiaries
Pro Forma Condensed Consolidated Balance Sheet
(unaudited)
December 31, 1998
(In thousands)
<TABLE>
<CAPTION> Star Gas
Star Gas Partners, L.P.
Partners Pro Forma Pro Forma The Adjusted
L.P. Petro Adjustments Combined Offerings Pro Forma
-------- --------- ----------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash............................... $ 5,831 $ 2,004 $ 7,835 $ 87,678 (g) $ 17,366
119,229 (h)
(209,176)(o)
11,800 (o)
Restricted cash.................... 4,900 4,900 (4,900)(o)
Accounts receivable................ 9,153 56,845 65,998 65,998
Inventories........................ 9,898 17,534 27,432 27,432
Prepaid expenses and other current
assets............................ 632 7,023 7,655 7,655
-------- --------- -------- --------- --------
Total current assets............. 25,514 88,306 113,820 4,631 118,451
-------- --------- -------- --------- --------
Cash collateral account............ 6,900 6,900 (6,900)(o)
Property and equipment, net........ 109,475 28,124 $ 11,985 (f) 149,584 149,584
Intangible and other assets, net... 50,414 76,201 227,663 (f) 354,278 2,322 (g) 356,600
-------- --------- -------- -------- --------- --------
Total assets..................... $185,403 $ 199,531 $239,648 $624,582 $ 53 $624,635
======== ========= ======== ======== ========= ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current debt and preferred stock... $ 1,384 $ 12,188 $ 13,572 $ (9,726)(o) $ 3,846
Bank credit facility borrowings.... 10,720 -- 10,720 10,720
Accounts payable................... 3,608 10,129 13,737 13,737
Unearned service contract revenue.. 15,430 15,430 15,430
Accrued expenses and income taxes.. 2,500 31,652 $ 4,600 (d) 42,479 (3,727)(o) 38,752
3,727 (e)
Accrued interest and dividends..... 2,390 -- 648 (a) 3,038 3,038
Customer credit balances........... 4,684 27,884 32,568 32,568
-------- --------- -------- -------- --------- --------
Total current liabilities........ 25,286 97,283 8,975 131,544 (13,453) 118,091
-------- --------- -------- -------- --------- --------
Long-term debt..................... 103,616 278,731 (6,499)(b) 375,848 90,000 (g) 277,555
(188,293)(o)
Deferred income taxes.............. -- 40,000 (d) 40,000 40,000
Other long-term liabilities........ 53 10,764 (3,500)(d) 7,317 7,317
Redeemable and exchangeable
preferred stock................... 28,578 (15,750)(b) 12,828 (7,430)(o) --
Partners' capital (5,398)(p)
Common unitholders................ 57,347 1,459 (c) 46,454 119,229 (h) 171,081
(12,352)(e) 5,398 (p)
Subordinated unitholders.......... (962) 19,252 (f) 9,888 9,888
(8,402)(f)
General partner................... 63 1,570 (f) 703 703
(930)(f)
Petro's stockholders' deficiency.. (215,825) (648)(a)
22,249 (b)
(1,459)(c)
(41,100)(d)
(3,727)(e)
240,510 (f)
-------- --------- -------- -------- --------- --------
Total partners' capital........... 56,448 (215,825) 216,422 57,045 124,627 181,672
-------- --------- -------- -------- --------- --------
Total liabilities and partners'
capital.......................... $185,403 $ 199,531 $239,648 $624,582 $ 53 $624,635
======== ========= ======== ======== ========= ========
</TABLE>
4
<PAGE>
Star Gas Partners, L.P. and Subsidiaries
Pro Forma Condensed Consolidated Statement of Operations
(unaudited)
Twelve Months Ended September 30, 1998
(In thousands, except per unit data)
<TABLE>
<CAPTION>
Star Gas Combined
Partners Propans Propans Pro Forma Pro Forma The
L.P. Acquisitions Operations Petro (j) Adjustments Combined Offerings
-------- ------------ ---------- --------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales................ $ 111,685 $ 4,386 $ 116,071 $ 452,765 $ (2,681)(k) $ 566,155
Costs and expenses:
Cost of sales...... 49,498 1,972 51,470 299,987 (1,985)(k) 349,472
Operating expenses. 43,281 1,090 44,371 117,849 (669)(k) 161,551
Restructuring
charges.......... 2,085 2,085
Transaction ex-
penses........... 1,029 1,029
Corporate identity
expenses.........
1,100 1,100
Provision for
supplemental
benefits 409 409
Depreciation and
amortization..... 11,462 548 12,010 27,514 (87)(k) 34,719
(4,718)(l)
Net gain (loss) on
sales of assets... (271) (271) 11,507 (11,284)(k) (48) --
--------- -------- -------- --------- -------- --------- ---------
Operating income..... 7,173 776 7,949 14,299 (6,506) 15,742
Interest (income)
expense, net........ 7,927 427 8,354 30,803 39,157 $ (16,444)(q)
Amortization of debt
issuance costs...... 176 -- 176 1,432 -- 1,608 (1,160)(n)
--------- -------- -------- --------- -------- --------- ---------
Income (loss) before
income taxes........ (930) 349 (581) (17,936) (6,506) (25,023) 17,604
Income tax expense... 25 25 475 500
---------
Income before equity
interest in Star Gas
Corporation......... (18,411)
Share of income
(loss) of
Star Gas
Corporation......... (317) 317 (m)
--------- -------- -------- --------- -------- --------- --------
Net income (loss).... $ (955) $ 349 $ (606) $ (18,728) $ (6,189) $ (25,523) $ 17,604
========= ======== ======== ========= ======== ========= ========
General partner's
interest in net income
income (loss)....... $ (19)
=========
Limited partners'
interest in net
income (loss)....... $ (936)
=========
Basic and diluted net
income (loss) per
limited partner
unit................ $ (0.16)
=========
Weighted average
number of limited
partner units
outstanding......... 6,035 220 6,255 103 (c) 6,723 8,950 (h)
(2,396)(f) 401 (p)
345 (f)
2,477 (f)
(61)(f)
<CAPTION>
Star Gas
Partners, L.P.
Adjusted
Pro Forma
--------------
<S> <C>
Sales................ $ 566,155
Costs and expenses:
Cost of sales...... 349,472
Operating expenses. 161,551
Restructuring
charges.......... 2,085
Transaction ex-
penses........... 1,029
Corporate identity
expenses.........
1,100
Provision for
supplemental
benefits 409
Depreciation and
amortization..... 34,719
Net gain (loss) on
sales of assets... (48)
Operating income..... 15,742
Interest (income)
expense, net........ 22,713
Amortization of debt
issuance costs...... 448
Income (loss) before
income taxes........ (7,419)
Income tax expense... 500
Income before equity
interest in Star Gas
Corporation.........
Share of income
(loss) of
Star Gas
Corporation......... --
---------
Net income (loss).... $ (7,919)
=========
General partner's
interest in net income
income (loss)....... $ (158)
=========
Limited partners'
interest in net
income (loss)....... $ (7,761)
=========
Basic and diluted net
income (loss) per
limited partner
unit................ $ (0.48)(r)
==========
Weighted average
number of limited
partner units
outstanding......... 16,074 (r)
</TABLE>
5
<PAGE>
Star Gas Partners, L.P. and Subsidiaries
Pro Forma Condensed Consolidated Statement of Operations
(unaudited)
Three Months Ended December 31, 1998
(In thousands, except per unit data)
<TABLE>
<CAPTION>
Star Gas
Star Gas Partners, L.P.
Partners, Pro Forma Pro Forma The Adjusted
L.P. Petro(j) Adjustments Combined Offerings Pro Forma
--------- -------- ----------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Sales................... $30,237 $116,540 $146,777 $146,777
Costs and expenses:
Cost of sales......... 11,978 74,018 85,996 85,996
Operating expenses.... 11,724 30,123 41,847 41,847
Transaction expenses.. -- 3,794 3,794 3,794
Provision for
supplemental benefits 90 90 90
Depreciation and
amortization......... 3,008 6,166 $ (489)(l) 8,685 8,685
Net gain (loss) on
sales of assets...... (4) (15) (19) (19)
------- -------- ------- -------- ------- --------
Operating income 3,523 2,334 489 6,346 6,346
Interest expense, net... 2,178 7,820 9,998 $(3,945)(q) 6,053
Amortization of debt
issuance costs......... 45 335 380 (268)(n) 112
------- -------- ------- -------- ------- --------
Income (loss) before
income taxes........... 1,300 (5,821) 489 (4,032) 4,213 181
------- -------- ------- -------- ------- --------
Income tax expense...... 6 75 81 81
--------
Income before equity
interest in Star Gas
Corporation............ (5,896)
Share of income (loss)
of Star Gas Corporation 770 (770)(m)
------- -------- ------- -------- ------- --------
Net income (loss)....... $ 1,294 $ (5,126) $ (281) $ (4,113) $ 4,213 $ 100
======= ======== ======= ======== ======= ========
General partner's
interest in net income
(loss)................. $ 26 $ 2
======= ========
Limited partners'
interest in net income
(loss)................. $ 1,268 $ 98
======= ========
Basic and diluted net
income (loss) per
limited partner unit... $ 0.20 $ --
======= ========
Weighted average number
of limited partner
units outstanding...... 6,255 103 (c) 6,723 8,950 (h) 16,074
(2,396)(f) 401 (p)
345 (f)
2,477 (f)
(61)(f)
</TABLE>
6
<PAGE>
Star Gas Partners, L.P. and Subsidiaries
Notes to Pro Forma Condensed Consolidated Financial Information
The following pro forma adjustments give effect to:
(1) the offering of 809,000 common units by Star Gas Partners on December 16,
1997;
(2) the acquisition of Petro;
(3) the debt offering; and
(4) the equity offering, including the sale of 230,000 common units upon the
partial exercise of the underwriters' over-allotment option as if each
transaction had taken place on December 31, 1998, in the case of the pro forma
condensed consolidated balance sheet, or as of October 1, 1997, in the case of
the pro forma condensed consolidated statement of operations for the twelve
months ended September 30, 1998, or as of October 1, 1998, in the case of the
pro forma condensed consolidated statement of operations for the three months
ended December 31, 1998.
The pro forma adjustments are based upon currently available information,
estimates and assumptions and a preliminary determination and allocation of the
total purchase price for Petro and therefore the actual results may differ from
the pro forma results. However, management believes that the assumptions provide
a reasonable basis for presenting the significant effects of the transactions as
contemplated, and that the pro forma adjustments give appropriate effect to
those assumptions and are properly applied in the proforma financial
information.
Transaction Related Adjustments
(a) Reflects the accrued dividends payable on Petro's 1989 preferred stock and
12 7/8% preferred stock.
(b) Reflects the negotiated discount of approximately $15.8 million to redeem
Petro's 12 7/8% preferred stock, the negotiated discount of approximately $9.4
million to refinance Petro's public debt and the negotiated premium to refinance
Petro's private debt of approximately $2.9 million.
(c) Reflects the issue of 0.8 million shares of junior preferred stock of Petro,
which was converted into 103,000 common units upon completion of the transaction
at an assumed value of $14.1875 per unit. The junior preferred stock was issued
to the holders of Petro's 9 3/8% subordinated debentures, 10 1/8% subordinated
notes, and 12% subordinated debentures, and 12 7/8% preferred stock as
consideration for consenting to the early redemption of those securities.
The Transaction (Merger and Exchange)
(d) Represents:
(1) the estimated amount of current federal and state taxes to be incurred of
$4.6 million;
(2) the estimated amount of deferred federal and state income taxes to be
recognized of $40.0 million; and
(3) the elimination of the tax liability associated with the Pearl Gas
conveyance of $3.5 million.
(e) Reflects the estimated additional amount of $3.7 million to be recorded by
Petro for legal, professional and advisory fees incurred by Petro and Star Gas
Partners in the transaction. Total estimated expenses are $8.5 million. As of
September 30, 1998 Petro has recorded $1.1 million in transaction expenses. For
the three months December 31, 1998, Petro has recorded $3.8 million in
transaction expenses.
(f) Represents the exchange of 26.2 million shares of Petro's Class A common
stock and Class C common stock valued at $20.8 million for 2.5 million Star Gas
Partners senior subordinated units, 0.3 million Star Gas Partners junior
subordinated units and 0.3 million general partner units. The 2.4 million Star
Gas Partners subordinated units outstanding prior to the transaction will be
contributed to Star Gas Partners by Petro. As a result of the transaction,
61,000 common units owned by Petro will be treated as treasury stock.
7
<PAGE>
The following table summarizes the preliminary allocation by Star Gas Partners
of the excess of purchase price over book value related to the acquisition of
Petro. The allocation of the purchase price is based on the results of a
preliminary appraisal of property, plant and equipment, customer lists and the
December 31, 1998 recorded values for tangible assets and liabilities. The
closing date of the transaction was March 26, 1999. This purchase price
allocation will be updated for changes in current assets and liabilities based
on Petro's operating results from January 1, 1999 to March 26, 1999. From
January 1, 1999 to the closing date, it is expected that Petro will generate net
income and positive cash flows and that working capital will increase. As a
result, the amount of goodwill to be recorded on the closing date will decrease.
Subject to Petro's operating results which could be impacted by weather, among
other factors, it is estimated that the increase in working capital for Petro
from January 1, 1999 to the closing date will range between $35 million to $40
million.
The preliminary allocation is as follows: (In thousands)
Consideration given for the exchange of Petro shares............. $ 20,822
Transaction expenses (1)......................................... 8,547
------------
Total consideration.......................................... 29,369
------------
Fair market value of Petro's assets and liabilities as of
December 31, 1998:
Current assets................................................. (93,126)
Cash collateral account........................................ (6,900)
Property, plant and equipment (2).............................. (40,109)
Value of Petro's investment in Star Gas........................ (21,684)
Current liabilities............................................ 97,283
Accrued income taxes........................................... 4,600
Accrued preferred dividends.................................... 648
Long-term debt................................................. 272,232
Deferred income taxes.......................................... 40,000
Other liabilities.............................................. 7,264
Preferred stock................................................ 12,828
Junior preferred stock......................................... 1,459
------------
Subtotal..................................................... 274,495
------------
Total value assigned to intangibles and other assets............. 303,864
Carrying amount of intangibles and other assets.................. (76,201)
------------
Allocation of excess purchase price to intangibles............... $ 227,663
============
Consisting of:
Customer lists................................................. $ 94,000
Goodwill....................................................... 208,899
Other assets................................................... 965
------------
Total intangibles and other assets........................... $ 303,864
============
- ---------
(1) Transaction expenses include legal, accounting, investment advisory and
asset appraisal costs.
(2) Includes fair market value adjustment of $12.0 million.
The fair market value for property plant and equipment, excluding real estate,
was established using the cost approach method. The market approach was used in
valuing the real estate. The value assigned to customer lists was derived using
a discounted cash flow analysis. The cash flows attributable to the customer
lists were discounted back at an equity risk adjusted cost of capital to the net
present value. Any excess was attributable to goodwill.
8
<PAGE>
The Debt Offering and The Equity Offering
(g) Reflects the net proceeds to Petro of approximately $87.7 million from the
$90.0 million debt offering, net of underwriting discounts and commissions of
approximately $1.4 million and offering expenses of approximately $0.9 million.
These costs are being amortized over the term of the related debt which is 8.5
years.
(h) Reflects the net proceeds to Star Gas Partners of approximately $119.2
million from the issuance and sale of 8.9 million common units in the equity
offering, including the over-allotment option, at an offering price of $14.1875
per common unit, net of underwriting discounts and commissions of approximately
$6.3 million and offering expenses of approximately $1.4 million.
The Propane Acquisitions
(i) Represents the results of certain propane distributors acquired by Star Gas
Partners in fiscal 1998 from October 1, 1997 to their dates of acquisition.
Results of these distributors from the dates of acquisition to September 30,
1998 are included in Star Gas Partners' twelve months ended September 30, 1998
results adjusted for:
(1) cost savings of $0.3 million, primarily executive compensation and legal
expenses relating to selling shareholders;
(2) additional depreciation and amortization of $0.5 million; and
(3) additional interest expense of $0.4 million.
There were no propane acquisitions completed in the three months ended December
31, 1998.
The Transaction (Acquisition of Petro)
(j) Represents the results of operations of Petro for the twelve months ended
September 30, 1998 or the three months ended December 31, 1998. Approximate
expenses of $8.5 million to be incurred by Petro as a direct result of its
acquisition by Star Gas Partners will be included in Petro's actual statement of
operations. For the twelve months ended September 30, 1998, Petro has recorded
$1.1 million of these expenses. For the three months ended December 31, 1998,
Petro has recorded $3.8 million of these expenses.
(k) Adjustment to reflect the disposition of Petro's Hartford, Connecticut
operations in November 1997. Petro received cash proceeds of $15.6 million and
recorded a gain of $11.3 million. The carrying value of these assets at the time
of sale was $4.3 million.
(l) Adjustment to depreciation and amortization expense attributable to the
acquisition of Petro.
9
<PAGE>
Star Gas Partners believes that the amortization periods assigned to the assets
below are appropriate. However, if the final amortization periods assigned to
the tangible and intangible assets were of shorter duration, the amount of
depreciation and amortization would increase and reduce net income. For the
twelve months ended September 30, 1998, the following table summarizes the
effect on depreciation and amortization of the acquisition of Petro.
<TABLE>
<CAPTION>
Net Book Value Amount per
Petro's Financials Amount per Appraisal Difference
--------------------------------------- --------------------------------------- ------------
Property and
equipment, net Asset(1) Life Depreciation(2) Asset(1) Life Depreciation(2) Depreciation
- --------------- -------- -------------- --------------- -------- -------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Land.................. $ 2,092 $ -- $ 3,300 $ -- $ --
Buildings............. 4,788 20-45 years 419 4,300 30 years 143 (276)
Fleet................. 5,908 5 to 7 years 2,866 12,800 6 years 2,135 (731)
Leasehold............. 4,270 term of leases 562 5,900 term of leases 457 (105)
Computer, furniture
and fixtures......... 7,377 5 to 7 years 2,491 9,700 5 to 7 years 1,661 (830)
Service & other
equipment............ 3,689 5 to 13 years 692 4,109 5 to 13 years 557 (135)
------- ------- -------- ------- -------
Total property and
equipment............ $28,124 $ 7,030 $ 40,109 $ 4,953 $(2,077)
======= ======= ======== ======= =======
Intangible and other
assets, net Asset(1) Life Depreciation(2) Asset(1) Life Amortization(2) Amortization
- - -------------------- -------- -------------- --------------- -------- -------------- --------------- ------------
Customer list......... $52,596 6.5 years $17,364 $ 94,000 10 years $ 9,400 $(7,964)
Goodwill.............. 9,013 25 years 1,129 208,899 25 years 8,356 7,227
Covenants not to
compete.............. 2,855 5 to 7 years 1,904 -- -- (1,904)
Other assets.......... 965 -- 965 -- --
------- ------- -------- ------- -------
Total intangible and
other assets......... $65,429 $20,397 $303,864 $17,756 $(2,641)
======= ------- ======== ------- -------
Totals................ $27,427 $22,709 $(4,718)
======= ======= =======
</TABLE>
- --------
(1) As of December 31, 1998.
(2) For the twelve months ended September 30, 1998.
Petro's property, plant and equipment is being depreciated using a historical
cost which is approximately $80 million. The fair market value of these assets
is $40.1 million. When depreciation expense is calculated based on the fair
market value, this expense is $2.1 million lower than historical depreciation.
Pro forma depreciation is less than historical depreciation due to decline in
the asset base being depreciated and an extension of the useful lives of those
assets. The remaining lives assigned to property, plant and equipment were
determined by an independent appraisal firm. All property, plant and equipment
is depreciated using the straight-line method.
Pro forma customer list amortization is less than historical amortization due to
a longer life and a lower amortization asset. The original cost used to amortize
historical customer list was approximately $120 million. The longer life
represents Petro's improved retention rate as well as the retention of customers
obtained through internal marketing, which have a higher retention rate than for
customers acquired through acquisition. Petro's previous acquisitions
represented the acquisition of customers. The acquisition of Petro by Star Gas
Partners is an acquisition of an on-going business. The appraisal assigned a
greater allocation to goodwill than what was previously allocated by Petro in
their purchase of a 188 relatively small fuel oil dealers. This resulted in
approximately $7.8 million of additional amortization, largely offsetting the
$7.9 million of less customer list amortization. Restrictive covenants were not
assigned a value under the pro forma intangibles due to the minimal amount of
the asset value expected at closing. Intangibles are amortized on a straight-
line basis.
10
<PAGE>
For the three months ended December 31, 1998, the following table summarizes the
effect on depreciation and amortization of the acquisition of Petro.
<TABLE>
<CAPTION>
Net Book Value Amount per
Petro's Financials Amount per Appraisal Difference
--------------------------------------- --------------------------------------- ------------
Property and
equipment, net Asset(1) Life Depreciation(2) Asset(1) Life Depreciation(2) Depreciation
- -------------- -------- -------------- --------------- -------- -------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Land.................. $ 2,092 $ -- $ 3,300 $ -- $ --
Buildings............. 4,788 20-45 years 76 4,300 30 years 36 (40)
Fleet................. 5,908 5 to 7 years 676 12,800 6 years 534 (142)
Leasehold............. 4,270 term of leases 148 5,900 term of leases 114 (34)
Computer, furniture
and fixtures......... 7,377 5 to 7 years 655 9,700 5 to 7 years 415 (240)
Service & other
equipment............ 3,689 5 to 13 years 219 4,109 5 to 13 years 139 (80)
------- ------ -------- ------ -------
Total property and
equipment............ $28,124 $1,774 $ 40,109 $1,238 $ (536)
======= ====== ======== ====== =======
Intangible and other
assets, net Asset(1) Life Amortization(2) Asset(1) Life Amortization(2) Amortization
- -------------------- -------- -------------- --------------- -------- -------------- --------------- ------------
Customer list......... $52,596 6.5 years $3,703 $ 94,000 10 years $2,350 $(1,353)
Goodwill.............. 9,013 25 years 248 208,899 25 years 2,089 1,841
Covenants not to
compete.............. 2,855 5 to 7 years 441 -- -- (441)
Other assets.......... 965 -- 965 -- --
------- ------ -------- ------ -------
Total intangible and
other assets......... $65,429 $4,392 $303,864 $4,439 $ 47
======= ------ ======== ------ -------
Totals................ $6,166 $5,677 $ (489)
====== ====== =======
</TABLE>
- --------
(1) As of December 31, 1998.
(2) For the three months ended December 31, 1998.
(m) Reflects the elimination of Petro's equity interest in Star Gas Partners.
The Offerings
(n) Reflects the net adjustment for the twelve months ended September 30, 1998
to amortization of debt issuance costs of $1.2 million attributable to the debt
offering and the acquisition of Petro. Amortization of debt issuance costs is
decreased by $1.4 million relating to the repayment of Petro debt and is
increased by $0.3 million relating to the 7.92% notes. For the three months
ended December 31, 1998, amortization of debt issuance costs is decreased by
$0.3 million relating to the repayment of Petro debt and is increased by $0.1
million relating to the 7.92% notes.
(o) Reflects the use of the net proceeds from the equity offering, including the
partial exercise of the over-allotment option, and, the debt offering to repay
$79.5 million of Petro's 12 1/4% Senior Subordinated Debentures due 2005 to
repay $46.1 million of Petro's 10 1/8% Senior Subordinated Notes due 2003, to
repay $68.3 million of Petro's 9 3/8% Senior Subordinated Debentures due 2006,
to retire $7.4 million of Petro's 12 7/8% Exchangeable Preferred Stock, to
retire $4.2 million of Petro's 14.33% Exchangeable Preferred Stock and to pay
$3.7 million of transaction expenses. As of December 31, 1998 Petro had paid
$4.9 million in transaction expenses. As a result of the transaction, both
Petro's current and long-term restricted cash balances become available for
general business purposes. In addition, Petro has entered into private debt
agreements with the private noteholders of:
(i) its outstanding senior notes in the aggregate principal amount of $60
million; and
(ii) its Petro private debt in the aggregate principal amount of $4.1 million
(after payment of the January 1999 installment).
Under the private debt agreements at the effective time of the transaction:
(i) the holders of the senior notes exchanged those notes for $62.7 million
aggregate principal amount of new 9% notes; and
(ii) the holders of the 14.1% notes exchanged those notes for $4.2 million
aggregate principal amount of 10 1/4% notes. The new private notes have been
guaranteed by Star Gas Partners and Petro Holdings.
(p) Reflects the exchange of $5.4 million of Petro's 12 7/8% exchangeable
preferred stock for 0.4 million common units in lieu of cash.
(q) Reflects the net reduction to interest expense of $16.4 million for the
twelve months ended September 30, 1998. This amount reflects $7.1 million of
additional interest expense annually on the $90.0 million in principal amount of
the notes at an interest rate of 7.92%. This amount also reflects an annual
reduction in interest expense of $21.9 million due to the repayment of $203.2
million of Petro public debt, excluding negotiated discounts, with the proceeds
of this offering and the debt offering and a reduction in the interest rate
attributable to the private debt agreements described above. In addition
interest expense is reduced by $0.1 million, as $2.3 million of Petro's cash is
used to finance the transaction.
11
<PAGE>
The following table summarizes the effect on interest expense of the transaction
for the twelve months ended September 30, 1998:
<TABLE>
<CAPTION>
Interest Interest
Amount Rate Expense
------- -------- --------
<S> <C> <C> <C>
Debt Repaid or Modified
Petro 12 1/4% senior subordinated debentures(1).... $80,155 12.25% $ 9,819
Petro 10 1/8% senior subordinated notes............ 48,739 10.125% 4,934
Petro 9 3/8% senior subordinated debentures........ 74,334 9.375% 6,968
Petro 11.96% notes(2).............................. 60,000 11.96% 7,176
Petro 14.10% notes(2).............................. 6,884 14.10% 971
Lower letter of credit fees on acquisition notes... 191
-------
Total reductions to interest expense............. $30,059
Interest
Amount Rate
------- --------
New Debt Issued and Cash Balance Reduction
Petro 7.92% notes.................................. $90,000 7.92% $(7,128)
Petro 9.0% senior notes(2)......................... 62,697 9.0% (5,643)
Petro 10.25% senior and subordinated notes(2)...... 7,064 10.25% (724)
Lower invested cash balances....................... 2,269 5.31% (120)
-------
Net reduction to interest expense.................. $16,444
=======
</TABLE>
- ---------
(1) Excludes prepayment premium of $2.8 million.
(2) Notes exchanged under the private debt agreement.
The following table summarizes the effect on interest expense of the transaction
for the three months ended December 31, 1998:
<TABLE>
<CAPTION>
Interest Interest
Amount Rate Expense
------- -------- --------
<S> <C> <C> <C>
Debt Repaid or Modified
Petro 12 1/4% senior subordinated debentures(1).... $80,155 12.25% $ 2,455
Petro 10 1/8% senior subordinated notes............ 48,739 10.125% 1,234
Petro 9 3/8% senior subordinated debentures........ 74,334 9.375% 1,742
Petro 10.90% notes(2).............................. 60,000 10.90% 1,635
Petro 14.10% notes(2).............................. 6,200 14.10% 219
Lower letter of credit fees on acquisition notes... 48
-------
Total reductions to interest expense............. $ 7,333
Interest
Amount Rate
------- --------
New Debt Issued and Cash Balance Reduction
Petro 7.92% notes.................................. $90,000 7.92% $(1,783)
Petro 9.0% senior notes(2)......................... 62,697 9.0% (1,412)
Petro 10.25% senior and subordinated notes(2)...... 6,380 10.25% (163)
Lower invested cash balances....................... 2,269 5.31% (30)
-------
Net reduction to interest expense.................. $ 3,945
=======
</TABLE>
- ---------
(1) Excludes prepayment premium of $2.8 million.
(2) Notes exchanged under the private debt agreement.
(r) The partnership agreement provides that for each non-overlapping four
quarter period that occurs after the first anniversary of the transaction, but
before the fifth anniversary of the transaction, in which the dollar amount of
Petro Adjusted Operating Surplus per Petro Unit equals or exceeds $2.90. Star
Gas Partners will issue 303,000 senior subordinated units, pro rata, or 303,000
Class B common units, pro rata, if such issuance occurs after the end of the
subordination period. These additional senior subordinated units will be issued
to the current holders of the senior subordinated units, junior subordinated
units and the general partner units. Star Gas Partners may not issue more than
an aggregate of 909,000 senior subordinated units or Class B common units under
this provision. In addition, Star Gas Partners has agreed to issue to the
holders of Petro's 12 7/8% exchangeable preferred stock 175,000 senior
subordinated units contingent upon Star Gas Partners earning $2.40 per unit in
distributable cash flow over four consecutive quarters during this period
commencing on January 1, 2000 and ending on December 31, 2002. The issuance of
these senior subordinated units will not generate any additional proceeds to
Star Gas Partners. When these units are issued, an additional amount of goodwill
will be recorded. Assuming 303,000 senior subordinated units are issued, the
amount of goodwill to be recorded will be $4.9 million. As a result, annual
amortization expense would increase by $0.2 million and would decrease net
income per limited partner unit by $0.01 per unit. If these senior subordinated
units are issued and they are converted into Class B common units,
the Class A common units would be diluted in terms of available cash to be used
for payment of the quarterly distributions.
12
<PAGE>
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:
Signature Title Date
- --------- ----- ----
/s/ Irik P. Sevin Chairman of the Board and May 26, 1999
- ------------------ Chief Executive Officer
Irik P. Sevin Star Gas LLC
(Principal Executive, Financial
and Accounting Officer)
13
