UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
---------------------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- ----------
Commission file number 2-88526
PETROLEUM HEAT AND POWER CO., INC.
----------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 06-1183025
---------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
2187 Atlantic Street, Stamford, Connecticut 06902
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(Address of principal executive office) (Zip Code)
Registrant's telephone number,
including area code: (203) 325-5400
Former name, former address and former fiscal year, if changed since
last report.
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports)
and (2) had been subject to such filing requirements for the past 90
days.
Yes X No
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This Report contains a total of 13 pages.
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Petroleum Heat and Power Co., Inc.
Index to Form 10-Q
Page
------
Part 1 - Financial Information:
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1994 and December 31, 1993 3
Consolidated Statements of Operations for the
Quarter Ended
March 31, 1994 and March 31, 1993 4
Consolidated Statements of Cash Flows
Quarter Ended
March 31, 1994 and March 31, 1993 5-6
Notes to Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Financial Conditions and Results
of Operations 8-11
Part 2 - Other Information:
Item 6 - Exhibits and Reports on Form 8-K 12
Signature 13
<PAGE>
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Petroleum Heat and Power Co., Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE><CAPTION>
Assets
------
March 31, December 31,
1994 1993
------------- -----------
<S> <C> <C>
Current assets:
Cash $ 17,490,259 $ 4,613,546
U.S. Treasury Notes held in a Cash Collateral Account - 20,000,000
Accounts receivable (net of allowance of $1,785,538
and $1,026,202) 103,598,807 74,818,503
Inventories 12,555,933 13,992,928
Prepaid expenses 5,575,472 5,230,865
Notes receivable and other current assets 1,614,647 1,715,329
------------ -----------
Total current assets 140,835,118 120,371,171
------------ -----------
Property, plant and equipment 62,910,326 62,643,562
Less accumulated depreciation and amortization 32,273,957 31,103,032
------------ -----------
30,636,369 31,540,530
------------ -----------
Intangible assets (net of accumulated amortization
of $223,562,010 and $217,190,143)
Customer lists 69,902,330 73,177,198
Deferred charges 17,916,577 13,717,281
Deferred pension costs 1,332,616 1,332,616
------------ -----------
89,151,523 88,227,095
------------ -----------
Investment in Star Gas Corporation 18,263,000 16,000,000
------------ -----------
Restricted cash 1,663,000 -
------------ -----------
Other assets 435,000 450,000
------------ -----------
$280,984,010 $256,588,796
============ ============
Liabilities and Stockholders' Equity (Deficiency)
-------------------------------------------------
Current liabilities:
Working capital borrowings $ - $ 28,000,000
Current maturities of other long-term debt 33,345 33,345
Current maturities of cumulative redeemable exchangeable
preferred stock 4,166,667 4,166,667
Accounts payable 10,967,121 16,664,026
Customer credit balances 6,376,131 22,324,023
Unearned service contract revenue 10,544,186 13,018,983
Accrued expenses 22,799,028 19,469,875
------------ ------------
Total current liabilities 54,886,478 103,676,919
------------ ------------
Long-term notes payable 42,631,832 50,000,000
------------ ------------
Other long-term debt 1,668,723 47,059
------------ ------------
Supplemental benefits payable 1,647,182 1,652,314
------------ ------------
Pension plan obligation 7,072,906 7,079,494
------------ ------------
Subordinated notes payable 167,631,831 135,263,663
------------ ------------
Cumulative redeemable exchangeable preferred stock, par value
$.10 per share; 409,722 shares authorized, 250,000 shares
outstanding of which 41,667 are reflected as current 20,833,333 20,883,333
------------ ------------
Stockholders' equity (deficiency):
Preferred stock - par value $.10 per share; 5,000,000 shares
authorized, none outstanding
Class A common stock - par value $.10 per share; 40,000,000
shares authorized, 18,992,579 shares outstanding 1,899,258 1,899,258
Class B common stock - par value $.10 per share; 6,500,000
shares authorized, 216,901 shares outstanding 21,690 21,690
Class C common stock - par value $.10 per share; 5,000,000
shares authorized, 2,545,139 shares outstanding 254,514 254,514
Additional paid-in capital 54,416,259 54,416,259
Deficit (66,165,961) (112,741,672)
Minimum pension liability adjustment (4,534,035) (4,534,035)
------------ ------------
(14,108,275) (60,683,986)
Note receivable from stockholder (1,280,000) (1,280,000)
------------ ------------
Total stockholders' equity (deficiency) (15,388,275) (61,963,986)
------------ ------------
$280,984,010 $256,588,796
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
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Petroleum Heat and Power Co., Inc.
and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE><CAPTION>
Three Months Ended
March 31,
--------------------------------
1994 1993
------------ ------------
<S> <C> <C>
Net sales $266,792,921 $251,271,152
Cost of sales 163,262,806 161,676,022
------------ ------------
Gross profit 103,530,115 89,595,130
Selling, general and administrative expenses 24,926,522 23,877,814
Direct delivery expense 14,714,579 12,317,978
Amortization of customer lists 4,876,051 6,397,188
Depreciation and amortization of plant and equipment 1,365,190 1,439,563
Amortization of deferred charges 1,495,816 1,337,816
Provision for supplemental benefits 69,867 43,061
------------ ------------
Operating income 56,082,090 44,181,710
Other income (expense):
Interest expense (5,999,989) (5,247,561)
Interest income 314,855 376,230
Gain (loss) on sales of fixed assets 20,317 (41,644)
------------ ------------
Income before income taxes, equity interest
and extraordinary item 50,417,273 39,268,735
Income taxes 601,000 331,000
------------ ------------
Income before equity interest and extraordinary item 49,816,273 38,937,735
Equity in earnings of Star Gas Corporation 2,263,000 -
------------ ------------
Income before extraordinary item 52,079,273 38,937,735
Extraordinary item - loss on early extinguishment of debt (654,500) -
------------ ------------
Net Income $ 51,424,773 $ 38,937,735
============ ============
Net income applicable to common stock $ 49,626,077 $ 37,112,459
Income before extraordinary item per common share
Class A Common Stock $ 2.33 $ 1.72
Class B Common Stock .41 .47
Class C Common Stock 2.33 1.72
Extraordinary loss per common share
Class A Common Stock $ (.03) $ -
Class B Common Stock - -
Class C Common Stock (.03) -
Net income per common share
Class A Common Stock $ 2.30 $ 1.72
Class B Common Stock .41 .47
Class C Common Stock 2.30 1.72
Cash dividends declared per common stock
Class A Common Stock $ .14 $ .11
Class B Common Stock .41 .47
Class C Common Stock .14 .11
Weighted average number of common stock outstanding
Class A Common Stock 18,992,579 18,992,579
Class B Common Stock 216,901 216,901
Class C Common Stock 2,545,139 2,545,139
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
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Petroleum Heat and Power Co., Inc.
and Subsidiaries
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE><CAPTION>
Three Months Ended
March 31,
-------------------------------------
1994 1993
------------ --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 51,424,773 $ 38,937,735
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of customer lists 4,876,051 6,397,188
Equity in earnings of Star Gas Corporation (2,263,000) -
Depreciation and amortization of
plant and equipment 1,365,190 1,439,563
Amortization of deferred charges
and debt discount 1,495,816 1,344,782
Provision for losses on accounts
receivable 486,618 535,955
Provision for supplemental benefits 69,867 43,061
Loss on early extinguishment of debt 654,500 -
Loss (gain) on sales of fixed assets (20,317) 41,644
Amortization of pension plan obligation (6,588) (6,643)
Increase in accounts receivable (29,266,922) (28,385,548)
Decrease in inventory 1,436,995 626,126
Increase in prepaid expenses, notes
receivable and other current assets (243,925) (288,765)
Decrease in other assets 15,000 15,000
Increase (decrease) in accounts payable (5,696,905) 1,502,724
Decrease in customer credit balances (15,947,892) (12,847,576)
Decrease in unearned service contract
revenue (2,474,797) (2,513,444)
Increase in accrued expenses 3,342,167 1,069,980
------------ ------------
Net cash provided by
operating activities 9,246,631 7,911,782
------------ ------------
Cash flows from (used for) investing
activities:
Acquisition of customer lists (142,383) (1,414,535)
Capital expenditures (484,943) (928,573)
Increase in deferred charges (1,611,412) (872,998)
Proceeds from sales of fixed assets 44,231 39,238
------------ ------------
Net cash used for investing
activities (2,194,507) (3,176,868)
------------ ------------
</TABLE>
<PAGE>
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Petroleum Heat and Power Co., Inc.
and Subsidiaries
Consolidated Statement of Cash Flows
(Continued)
<TABLE><CAPTION>
Three Months Ended
March 31,
------------------------------------------
1994 1993
------------- --------------
<S> <C> <C>
Cash flows from (used for) financing
activities:
Net reductions in working capital
borrowings $(28,000,000) $(24,000,000)
Proceeds from issuance of notes payable - 25,000,000
Net proceeds from issuance of
subordinated notes 71,087,500 -
Repayment of notes payable (50,654,500)
Release of Cash Collateral Account 20,000,000 -
Restricted cash held as collateral for
payment of a long-term note payable (1,663,000) -
Decrease in other debt and
supplemental benefits (83,335) (83,336)
Cash dividends paid (4,862,076) (4,386,838)
Principal payments under capital
lease obligation - (51,999)
------------ ------------
Net cash from (used for)
financing activities 5,824,589 (3,522,173)
------------ ------------
Net increase in cash 12,876,713 1,212,741
Cash at beginning of year 4,613,546 3,859,557
------------ ------------
Cash at the end of period $ 17,490,259 $ 5,072,298
============ ============
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $ 2,693,946 $ 3,006,986
Income taxes 67,894 71,600
Non-cash investing activity:
Acquisition of customer lists and
deferred charges (1,630,000) -
Non-cash financing activity:
Issuance of note payable 1,630,000 -
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
-7-
Petroleum Heat and Power Co., Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1- Basis of Presentation
---------------------
The financial information included herein is unaudited; however,
such information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management,
necessary for the fair statement of results for the interim periods.
The results of operations for the three months ended March 31,
1994 are not necessarily indicative of the results to be expected for
the full year.
2- Per Share Data
--------------
Earnings per common shares are computed utilizing the three class
method based upon the weighted average number of shares of Class A
Common Stock, Class B Common Stock and Class C Common Stock
outstanding after adjusting net income for preferred dividends
declared and preferred stock accretion aggregating $1,799,000 and
$1,825,000 for the three months ended March 31, 1994 and 1993,
respectively. Fully diluted earnings per common shares are not
presented because the effect is not material.
3- Acquisitions
------------
During the three month period ending March 31, 1994, the company
acquired the customer lists and equipment of two unaffiliated fuel oil
dealers. The aggregate consideration for these acquisitions,
accounted for by the purchase method, was approximately $1.9 million.
Sales and net income of the acquired companies is included in the
consolidated statement of income from the respective dates of
acquisition.
Had these acquisitions occurred at the beginning of the period,
the pro forma estimated unaudited results of operations for the three
months ended March 31, 1994 would have been as follows:
(Thousands, Except Per Share)
-----------------------------
Net Sales $268,122
Net Income $ 51,629
Earnings Per Common Share:
Class A Common Stock $2.31
Class B Common Stock $ .41
Class C Common Stock $2.31
<PAGE>
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Petroleum Heat and Power Co., Inc.
and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
-------------------------
Three Months Ended March 31 1994
Compared to Three Months Ended March 31, 1993
---------------------------------------------
During the first quarter of 1994, the Company achieved record
levels of home heating oil volume, EBITDA and net income. The Company
sold 241.0 million gallons of home heating oil and propane, 8.6% more
than in the first quarter of 1993, EBITDA* increased 19.6% to $63.9
million, a $10.5 million improvement, and net income increased to
$51.4 million, a 32.1% increase compared to the first quarter of 1993.
Net income included for the first time, the Company's $2.3 million
share in the net earnings of Star Gas. However, as the Company's
investment in Star is accounted for under the equity method of
accounting, Star's volume, sales and operating income are not
reflected in the Company's financial statements.
Net sales increased 6.2% to $266.8 million in the first quarter
of 1994 from $251.3 million during the first quarter of 1993. This
$15.5 million increase was attributable to volume growth associated
with colder weather ($23.8 million or 9.5%) and acquisitions ($10.4
million or 4.1%), offset by attrition in the Company's customer base
and slightly lower selling prices, reflecting a lower wholesale cost
of product.
Home heating oil volume, including propane delivered by the
Company's branches, increased 8.6% to 241.0 million gallons during the
first quarter of 1994 due to colder temperatures of approximately
10.5% and the impact of the nine acquisitions completed in 1993 whose
entire first quarter volume is first reflected in 1994 and to a lesser
extent, two 1994 acquisitions. The positive impact of the colder
temperatures and the acquisition volume growth was partially offset by
attrition in the Company's customer base, including lower volumes
associated with the bid and non-automatic delivery segments of the
Company's business.
Gross profit increased 15.6% or $13.9 million from $89.6 million
(40.4 cents per gallon) for the first quarter of 1993 to $103.5
million (43.0 cents per gallon) for the first quarter of 1994. While
home heating oil margins increased 3.1 cents per gallon, this increase
was partially offset by the higher cost of providing heating
equipment repair and maintenance services to customers in response
to the severe Northeast winter experienced during the first quarter of
1994.
*EBITDA is defined as operating income before depreciation and
amortization and non-cash expenses associated with key employees'
deferred compensation plans.
<PAGE>
-9-
Direct delivery expense increased $2.4 million, from $12.3
million, (5.6 cents per gallon) for 1993, to $14.7 million
(6.1 cents per gallon) for the first quarter of 1994, an increase
of 10.0% per gallon. While temperatures were colder than normal
and led to an increase in volume and gross profits, the per gallon
increase in direct delivery expense was greater than expected
due to the additional costs associated with temporary delivery
inefficiencies created by the severe winter weather conditions,
which produced numerous winter snow and ice storms in the Company's
delivery area.
Selling, general and administrative expenses increased $1.0
million, (4.4%) from $23.9 million in 1993 to $24.9 million in 1994.
This increase was primarily due to higher vehicle maintenance and
repair costs arising from the severity of the winter weather
conditions. On a per gallon basis, these expenses declined from 10.8
cents to 10.3 cents due to economies of scale associated with the
acquisitions and the volume increase.
Depreciation of fixed assets and amortization of customer lists
and deferred charges decreased $1.4 million, (15.7%) to $7.7 million.
These non-cash expenses declined as certain customer lists and
deferred charges became fully amortized.
Operating income increased $11.9 million, (26.9%) to $56.1
million for the first quarter of 1994 from $44.2 million in the first
quarter of 1993. This significant improvement was due to the increase
in volume and an expansion in home heating oil margins that led to an
increase in home heating oil gross profits which were partially offset
by weather related increases in service, delivery and operating
expenses.
Net interest expense increased $0.8 million, (16.7%) to $5.7
million. A reduction in the average long-term borrowing rate was
offset by a $52.1 million increase in long-term borrowings from $148.9
million, at an average interest rate of 12.1%, to $201.1 million, at
an average interest rate of 10.9%. This increase in long-term
borrowings was due to the conversion in March 1993 of $12.8 million of
Redeemable Preferred Stock into Subordinated Notes due in 2000, the
issuance in April 1993 of $50.0 million of 10 1/8% public notes due in
2003 and the issuance in February 1994 of $75 million of 9 3/8% public
debentures due 2006. The proceeds of these public issues were used to
repay $75.0 million in debt maturing in 1993, 1994 and 1995 and to
finance the Company's ongoing acquisition program. While short-term
interest rates were approximately the same in both periods, average
short-term borrowings were reduced from $34.7 million for the first
quarter of 1993 to $14.7 million for the first quarter of 1994 as part
of the proceeds of the $75 million Subordinated Debentures, pending
use of these funds for the acquisition program, were used to repay
working capital borrowings.
Income before income taxes, extraordinary item and equity in
earnings of Star Gas Corporation increased to $50.4 million, $11.1
million (28.4%) greater than in 1993 due to the increase in operating
income of $11.9 million offset by the $0.8 million increase in
interest expense.
Income taxes were approximately $0.6 million for the first
quarter of 1994 compared to $0.3 million for the first quarter of 1993
representing certain state income taxes. The Company has not provided
for any Federal income taxes for the three months ended March 31, 1994
<PAGE>
-10-
due to the availability and expected utilization of Federal income tax
net operating loss carryforwards.
In February 1994, the Company refinanced $50.0 million of long-
term Notes maturing in June 1994 with a portion of the $75.0 million
9 3/8% Subordinated Debenture issue. The Company paid a cash premium in
connection with this refinancing and has recorded an extraordinary
charge against earnings of $0.7 million as a result of the early
repayment of the long-term Notes.
Equity income represents the Company's share of Star's net income
for the three months ended March 31, 1994. In late December 1993, the
Company invested $16.0 million in Star, the nation's tenth largest
retail distributor of propane gas and acquired an approximate 30%
equity interest. With this investment the Company assumed operating
management of Star's business and obtained the option, exercisable
beginning late in 1994, to acquire the remaining Star equity. To
concentrate on its core businesses, Star sold its Texas operations in
December 1993 and has a contract to sell a non propane related
business. The results for Star, exclusive of these operations for the
three months ended March 31, 1994, have exceeded expectations with
retail propane volume of 39.3 million gallons, EBITDA of $12.8
million, and net income of $7.8 million. Based on the Petro's equity
percentage, $2.3 million was recorded as equity in earnings of Star.
Net income for the first quarter of 1994 increased by $12.5
million, 32.1%, due to the $11.9 million increase in operating income,
$2.3 million of equity income from Star Gas, offset by the
extraordinary loss and an increase in interest expense.
EBITDA increased 19.7% to $63.9 million in 1994 from $53.4
million for 1993. This significant improvement was due to an increase
in home heating oil gross profits partially offset by weather related
increases in operating expenses.
Liquidity and Financial Condition
---------------------------------
In February 1994, the Company completed a public offering of
$75.0 million of 9 3/8% Subordinated Debentures due in 2006. A portion
of the net proceeds from the sale of the debentures was used to
repurchase $50.0 million of the Company's 9% Notes due June 1, 1994,
at a purchase price equal to 101.33% of the principal amount. As a
result of the repayment of the Notes, the $20.0 million cash
collateral account securing these notes was released to the Company.
This Offering has provided the Company with excess working capital of
approximately $40.4 million, which has yet to be applied for long term
purposes.
Net cash provided by operating activities, $9.2 million, along
with the $40.4 million of net proceeds from the issuance and
refinancing of debt in February 1994 as mentioned above, less
repayments of $28.0 million of working capital borrowing, amounted to
$21.6 million for the three months ended March 31, 1994. These funds
were utilized in
<PAGE>
-11
investing activities for acquisitions and the purchase of fixed assets
($2.2 million) and in financing activities to pay dividends of $4.9
million, to deposit $1.7 million as security for the repayment of a
note payable and to make principal payments on other long-term
obligations of $0.1 million. As a result of the above activity, the
Company's cash balance increased by $12.9 million.
A consortium of banks has historically provided the Company with
credit facilities, currently consisting of a $75 million credit line
pursuant to an amended and restated credit agreement. As of March 31,
1994, there were no borrowings outstanding under the credit agreement,
primarily due to the application of the proceeds from the February
1994 offering and due to the cash provided from operations in the
first quarter of 1994. At March 31, 1994 the Company had $85.9
million of net working capital.
For the remainder of 1994, the Company's financing obligations
include the redemption of $4.2 million of Redeemable Preferred Stock,
Redeemable Preferred Stock Dividends of approximately $1.8 million,
principal payments on other long-term obligations of $0.2 million and
paying Common Stock dividends, anticipated to be approximately $9.2
million. Based on the Company's current cash position, bank credit
availability and expected net cash to be provided by operations during
1994, the Company expects to be able to meet all of the above-
mentioned obligations in 1994, as well as meet all of its other
current obligations as they become due.
Supplemental Financial Information
----------------------------------
During the first quarter of 1994, the Company generated $56.1
million in NIDA* compared to $47.1 million for the first quarter of
1993. This $9.0 million increase (19.0%) was primarily due to the
8.6% volume increase and expansion in home heating oil gross profit
margins offset by weather related operating expenses and additional
interest expense.
*NIDA is defined as the sum of consolidated net income (loss), plus
depreciation and amortization of plant and equipment and amortization
of customer lists and deferred charges, plus non-cash expenses
associated with key employees' deferred compensation plans, less
dividends accrued on preferred stock, excluding net income (loss)
derived from investments accounted for by the equity method, except to
the extent of any cash dividends received by the Company.
<PAGE>
-12-
PART II OTHER INFORMATION
-------------------------
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Reports on Form 8-K
-------------------
Registrant filed a report on Form 8-K on January 4, 1994, to
report under Item 2, "Acquisition or Disposition of Assets", the
investment made by the Company in Star Gas Corporation.
<PAGE>
-13-
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized:
Signature Title Date
--------- ----- ----
Irik P. Sevin President, Chairman of the April 26, 1994
----------------
Irik P. Sevin Board, Chief Executive Officer,
and Chief Financial and Accounting
Officer and Director
