UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
---
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
---
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
- --------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
(203) 325-5400
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(Registrant's telephone number, including area code)
- --------------------------------------------------------------------
(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
-- --
As of September 30, 1995 there were 22,855,097 shares of the Registrant's Class
A Common Stock, 13,903 shares of the Registrant's Class B Common Stock and
2,597,519 shares of the Registrant's Class C Common Stock outstanding.
This Report contains a total of 19 pages.
<PAGE>
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PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q/A
Page
PART 1 FINANCIAL INFORMATION: ----
Item 1 - Financial Statements
Consolidated Balance Sheets
September 30, 1995 and December 31, 1994 3
Consolidated Statements of Operations for the
Three Months Ended
September 30, 1995 and September 30, 1994
and the Nine Months Ended
September 30, 1995 and September 30, 1994 4
Consolidated Statement of Changes in Stockholders'
Equity (Deficiency) for the Nine Months Ended
September 30, 1995 5
Consolidated Statements of Cash Flows for the
Nine Months Ended
September 30, 1995 and September 30, 1994 6 - 7
Notes to Condensed Consolidated Financial
Statements 8 - 9
Item 2 - Management's Discussion and Analysis of
Financial Conditions and Results of Operations 10 - 17
PART 2 OTHER INFORMATION:
Item 4 - Submission of Matters to a Vote of Security
Holders 18
Item 6 - Exhibits and Reports on Form 8-K 18
Signature 19
<PAGE>
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<TABLE><CAPTION>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands) SEPTEMBER 30, DECEMBER 31,
ASSETS 1995 1994
------------- ------------
<S> <C> <C>
Current Assets:
Cash $ 16,240 $ 15,474
Accounts receivable (net of allowance of
$2,701 and $1,769) 50,996 87,246
Inventories 22,720 21,746
Prepaid expenses 9,730 7,382
Notes receivable and other current assets 2,253 1,279
--------- ---------
Total current assets 101,939 133,127
--------- ---------
Property, plant and equipment - net 128,226 127,174
--------- ---------
Intangible assets (net of accumulated amortization
of $263,313 and $243,115)
Customer lists 102,433 102,636
Deferred charges and pension costs 40,465 32,692
--------- ---------
142,898 135,328
--------- ---------
Other assets 2,028 1,545
--------- ---------
$ 375,091 $ 397,174
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current debt $ 3,120 $ 5,617
Current maturities of cumulative redeemable
preferred stock 4,167 4,167
Accounts payable 10,484 19,786
=========
Customer credit balances 34,132 26,903
Unearned service contract revenue 13,978 14,334
Accrued expenses and other liabilities 28,317 33,975
--------- ---------
Total current liabilities 94,198 104,782
--------- ---------
Supplemental benefits and other liabilities 1,966 2,961
--------- ---------
Pension plan obligation 9,010 9,029
--------- ---------
Notes payable and other long-term debt 42,052 99,681
--------- ---------
Senior notes payable 35,200 42,632
--------- ---------
Subordinated notes payable 285,200 167,632
--------- ---------
Star Gas preferred stock -- 19,966
Cumulative redeemable exchangeable preferred stock 12,500 16,667
--------- ---------
Common stock redeemable at option of stockholder 1,280 1,280
--------- ---------
Note receivable from stockholder
(1,280) (1,280)
--------- ---------
Stockholders' equity (deficiency):
Common stock - par value $.10 per share 2,527 2,392
Additional paid-in capital 76,506 71,036
Deficit (177,417) (132,953)
Minimum pension liability adjustment (6,651) (6,651)
--------- ---------
Total stockholders' equity (deficiency) (105,035) (66,176)
--------- ---------
$ 375,091 $ 397,174
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
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PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE><CAPTION>
(In thousands, except per share data) THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $ 63,541 $ 49,231 $ 404,917 $ 385,291
Cost of sales 47,768 42,326 256,342 257,240
GROSS PROFIT 15,773 6,905 148,575 128,051
Selling, general and administrative expenses 31,426 21,932 93,503 68,570
Direct delivery expense 4,964 3,528 25,135 23,337
Amortization of customer lists 4,843 5,117 15,539 14,802
Depreciation and amortization of plant and
equipment 3,281 1,540 9,003 4,307
Amortization of deferred charges 1,631 1,612 4,659 4,665
Provision for supplemental benefits 368 70 1,039 210
OPERATING INCOME (LOSS) (30,740) (26,894) (303) 12,160
Other income (expense):
Interest expense (10,318) (6,191) (30,434) (18,056)
Interest income 577 397 1,983 1,335
Other 20 10 743 83
Loss before income taxes, equity interest
and extraordinary item (40,461) (32,678) (28,011) (4,478)
Income taxes (benefit) (75) (125) 300 425
Loss before equity interest and
extraordinary item (40,386) (32,553) (28,311) (4,903)
Equity in losses of Star Gas Corporation -- (1,911) -- (1,243)
-------- ------- --------- --------
Loss before extraordinary item (40,386) (34,464) (28,311) (6,146)
Extraordinary item - loss on early
extinguishment of debt -- -- (1,436) (654)
NET LOSS $(40,386) $(34,464) $ (29,747) $ (6,800)
========= ======== =====================
NET LOSS APPLICABLE TO COMMON STOCK $(41,879) $(36,006) $ (33,010) $ (10,141)
Loss before extraordinary item per
common share
Class A Common Stock $ (1.65) $ (1.67) $ (1.25) $ (.45)
Class B Common Stock -- .28 -- 1.10
Class C Common Stock (1.65) (1.67) (1.25) (.45)
Extraordinary loss per common share
Class A Common Stock -- -- $ (.06) $ (.03)
Class B Common Stock -- -- -- --
Class C Common Stock -- -- (.06) (.03)
Net loss per common share
Class A Common Stock $ (1.65) $ (1.67) $ (1.31) $ (.48)
Class B Common Stock -- .28 -- 1.10
Class C Common Stock (1.65) (1.67) (1.31) (.48)
Cash dividends declared per common stock
Class A Common Stock $ .15 $ .14 $ .45 $ .41
Class B Common Stock -- .28 -- 1.10
Class C Common Stock .15 .14 .15 .41
Weighted average number of common stock
outstanding
Class A Common Stock 22,855 18,993 22,656 18,993
Class B Common Stock 15 155 16 196
Class C Common Stock 2,598 2,545 2,598 2,545
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
-5-
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE><CAPTION>
(In Thousands)
COMMON STOCK
-------------------------------------------------------------
CLASS A CLASS B CLASS C ADDITIONAL
-------------------------------------------------------------
NO. OF NO. OF NO. OF PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------- -------- ------- -------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1994 21,340 $ 2,134 21 $ 2 2,558 $ 256 $71,036
Net loss
Cash dividends
declared and paid
Cash dividends payable
Repurchase of Class B
Common Stock (7) (1) (118)
Repurchase of Class A
Common Stock (1,521) (152) (13,439)
Class A Common Stock Issued 2,875 288 18,229
Stock Option
Compensation ______ _____ ___ ___ _____ ___ 798
Balance at
September 30, 1995 22,694 $ 2,270 14 $ 1 2,558 $ 256 $76,506
======= ======== ======= ======== ====== ======= =======
<CAPTION>
(In Thousands)
MINIMUM
PENSION
LIABILITY
DEFICIT ADJUSTMENT TOTAL
---------- ----------- ---------
<S> <C> <C> <C>
Balance at December
31, 1994 ($ 132,953) ($ 6,651) ($ 66,176)
Net loss (29,747) (29,747)
Cash dividends
declared and paid (10,899) (10,899)
Cash dividends payable (3,818) (3,818)
Repurchase of Class B
Common Stock (119)
Repurchase of Class A
Common Stock (13,591)
Class A Common Stock Issued 18,517
Stock Option
Compensation 798
---------- ----------- ---------
Balance at
September 30, 1995 ($ 177,417) ($ 6,651) ($105,035)
========== =========== =========
</TABLE>
<PAGE>
-6-
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
NINE MONTHS ENDED
SEPTEMBER 30
1995 1994
Cash flows from operating activities:
Net loss $(29,747) $ (6,800)
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of customer lists 15,539 14,802
Equity in loss of Star Gas Corporation -- 1,243
Depreciation and amortization of plant and
equipment
9,003 4,307
Amortization of deferred charges 4,659 4,665
Provision for losses on accounts receivable 1,575 1,491
Provision for supplemental benefits 1,039 210
Loss on early extinguishment of debt 1,436 654
Gain on sale of business (788) --
Other 26 (104)
Decrease in accounts receivable 34,675 29,640
Increase in inventory (974) (205)
Increase in prepaid expenses, notes
receivable and other current assets (3,322) (729)
Decrease (increase) in other assets (553) 25
Decrease in accounts payable (8,256) (8,113)
Increase in customer credit balances 7,229 4,767
Increase (Decrease)in unearned service
contract revenue (356) 152
Increase (decrease) in accrued expenses (6,187) 1,878
------- -------
Net cash provided by operating
activities
24,998 47,883
------- -------
Cash flows from (used for) investing activities:
Acquisitions (17,516) (24,451)
Capital expenditures (8,106) (2,042)
Proceeds from sale of business 1,477 --
Proceeds from sales of fixed assets 308 291
------- -------
Net cash used for investing activities (23,837) (26,202)
------- -------
<PAGE>
-7-
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(CONTINUED)
<TABLE><CAPTION>
(In thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
1995 1994
---- ----
<S> <C> <C>
Cash flows from (used for) financing activities:
Net proceeds from issuance of common stock $ 18,516 $ -
Net proceeds from issuance of subordinated notes 120,350 71,087
Repayment of notes payable (80,372) (50,655)
Credit facility borrowings - 21,000
Credit facility repayments (5,100) (49,000)
Repurchase of common stock (13,709) (3,341)
Release of cash collateral account - 20,000
Redemption of preferred stock (24,133) (4,167)
Cash dividends paid (14,382) (12,564)
Other (1,565) (1,600)
---------- -------
Net cash used in financing activities (395) (9,240)
---------- -------
Net increase in cash 766 12,441
Cash at beginning of year 15,474 4,614
--------- -----
Cash at end of period $ 16,240 $ 17,055
========= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 27,131 $ 14,934
Income taxes 3,142 297
Non-cash investing activity:
Acquisitions (8,000) (8,799)
Non-cash financing activity:
Issuance of note payable 8,000 8,799
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
-8-
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
NOTES TO 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 nine months ended September 30,
1995 are not necessarily indicative of the results to be expected
for the full year.
2. Per Share Data
--------------
Net income (loss) 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 (loss) for preferred
dividends declared aggregating $3,263,000 and $3,341,000 for the
nine months ended September 30, 1995 and 1994 respectively. Fully
diluted net income (loss) per common shares are not presented
because the effect is not material.
3. Acquisitions/Sale
-----------------
During the nine month period ending September 30, 1995, the Company
acquired the customer lists and equipment of eight unaffiliated
fuel oil/propane dealers. The aggregate consideration for these
acquisitions, accounted for by the purchase method, was
approximately $25.5 million. Sales and net income of the acquired
companies are included in the consolidated statement of income from
the respective dates of acquisition.
The Company sold its New Hampshire operations in March 1995 to an
unaffiliated fuel oil dealer. The Company received proceeds of
approximately $1.5 million and realized a gain on this transaction
of approximately $0.8 million.
Had these acquisitions and disposal occurred at the beginning of
the period, the pro forma unaudited results of operations for the
nine months ended September 30, 1995 would have been as follows:
(In thousands, Except Per Share)
--------------------------------
Net Sales $420,002
Net Loss before extraordinary loss (28,112)
Net Loss (29,548)
Net Loss Per Common Share:
Class A Common Stock $ (1.30)
Class B Common Stock --
Class C Common Stock $ (1.30)
<PAGE>
-9-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Litigation
----------
A lawsuit had been threatened against the Company based upon a June
1994 incident in the Midwest. In August 1995, the Company was able to
settle this claim prior to the commencement of litigation, without a
material adverse effect on the Company.
<PAGE>
-10-
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
-------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1995
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1994
- ------------------------------------------------
Despite an abnormally warm first quarter of 1995, which was 17.7% warmer than
the first quarter of 1994, the Company was able to largely offset the effect of
weather on the nine months ended September 30, 1995 through the growth provided
by its acquisition program and through a reduction in branch level operating
costs.
Total retail home heating oil and propane volume increased 2.5% to 330.3 million
gallons during the nine months ended September 30, 1995, as compared to 322.3
million gallons for the nine months ended September 30, 1994. This increase was
due to the Company's ongoing acquisition program, which, in 1994 and 1995,
included Star Gas, the nation's ninth largest retail distributor of propane, and
seventeen other home heating oil and propane companies. This growth served to
more than offset the impact of the unusually warm weather, which negatively
impacted volume by an estimated 40 million gallons.
Net sales. Net sales increased 5.1% to $404.9 million for the nine months ended
- ---------
September 30, 1995, as compared to $385.3 million for the nine months ended
September 30, 1994. The $19.6 million increase was attributable primarily to
volume growth associated with acquisitions, which resulted in increased net
sales of $91.8 million, and which was partially offset by the impact of the warm
weather.
Gross profit. Gross profit increased 16.0% to $148.6 million for the nine months
- ------------
ended September 30, 1995, as compared to $128.1 million for the nine months
ended September 30, 1994. This increase was greater than the comparable growth
in volume due primarily to higher gross profit margins associated with the
Company's acquisitions, as well as to a 1.3 cent per gallon increase in home
heating oil gross profit margins.
Direct delivery expense. Direct delivery expense increased to $25.1 million for
- -----------------------
the nine months ended September 30, 1995, as compared to $23.3 million for the
nine months ended September 30, 1994. This increase of only $1.8 million was
despite $5.1 million of additional direct delivery expense associated with Star
Gas, as the Company's new operating expense control programs both increased
efficiency and enabled the Company to reduce direct delivery expense in the home
heating oil division by $3.3 million in response to lower volume.
Selling, general and administrative expenses. Selling, general, and
- --------------------------------------------
administrative expenses(S,G&A) increased to $93.5 million for the nine months
ended September 30, 1995, as compared to $68.6 million for the nine months ended
September 30, 1994, due largely to the additional expenses associated with the
newly acquired Star Gas propane division, which
<PAGE>
-11-
accounted for $23.3 million, or 93.4%, of the increase. As expected, at the
Company's home heating oil division, S,G&A experienced a net increase of 2.4%
for the nine months ended September 30, 1995, due to costs associated with (i)
the Company's heating oil acquisitions and related expansion into three new
geographic markets, which aggregated $5.2 million, and (ii) implementation of a
long-term program designed to reduce operating expenses and improve customer
satisfaction by capitalizing on efficiencies created by the Company's size.
These costs were almost entirely offset by a $5.7 million reduction in branch
related S,G&A at those home heating oil branches which were operated in both
1994 and 1995.
Amortization of customer lists. Amortization of customer lists increased 5.0% to
- ------------------------------
$15.5 million for the nine months ended September 30, 1995, as compared to $14.8
million for the nine months ended September 30, 1994. This increase was
primarily due to customer list amortization associated with acquisitions, and
was partially offset by a decline resulting from certain previously acquired
customer lists which have been fully amortized.
Depreciation and amortization of plant and equipment. Depreciation and
- ----------------------------------------------------
amortization of plant and equipment increased to $9.0 million for the nine
months ended September 30, 1995, as compared to $4.3 million for the nine months
ended September 30, 1994. This increase of $4.7 million was due to the Company's
recent acquisitions, which resulted in a significant growth in the Company's
asset base.
Amortization of deferred charges. Amortization of deferred charges, including
- --------------------------------
goodwill and restrictive covenants, remained unchanged from the prior fiscal
year at $4.7 million for the nine months ended September 30, 1995, as the
amortization associated with the Company's 1994 and 1995 acquisitions was fully
offset by certain deferred charges associated with prior acquisitions which have
been fully amortized.
Provision for supplemental benefits. Provision for supplemental benefits
- -----------------------------------
increased to $1.0 million for the nine months ended September 30, 1995, as
compared to $0.2 million for the nine months ended September 30, 1994. This
non-cash increase was due to the extension of the exercise date related to
certain options previously issued. This event occurred late in fiscal year 1994;
accordingly, the full year impact is first reflected in fiscal year 1995.
Operating income/(loss). Operating income/(loss) declined $12.5 million for the
- -----------------------
nine months ended September 30, 1995, as compared to the nine months ended
September 30, 1994. This decrease was primarily due to the impact of an
abnormally warm first quarter winter on home heating oil volume and an
acquisition-related increase in non-cash charges, which were not fully offset by
volume growth attributable to acquisitions, an increase in gross profit margins
and a reduction in heating oil branch level operating expenses.
Interest expense and Interest income. Net interest expense increased to $28.5
- ------------------------------------
million for the nine months ended September 30, 1995, as compared to $16.7
million for the nine months ended September 30, 1994, due primarily to an
increase in average debt outstanding. The funds from these increased borrowings
were used to finance a portion of the Company's 1994 and 1995 acquisitions, as
well as to provide capital for future acquisitions.
<PAGE>
-12-
Other income. Other income was $0.7 million for the nine months ended September
- ------------
30, 1995, and primarily represented the net gain recorded on the sale of certain
customer lists and other assets of a non-strategic, underperforming home heating
oil business located in New Hampshire.
Income taxes. Income taxes were $0.3 million for the nine months ended September
- ------------
30, 1995, as compared to $0.4 million for the nine months ended September 30,
1994, and represented certain state taxes. The Company did not provide for any
Federal income taxes for the nine months ended September 30, 1995, due to the
availability of Federal income tax net operating loss carryforwards which, as of
December 31, 1994, amounted to $55.3 million.
Equity in loss of Star Gas Corporation. For the nine months ended September 30,
- --------------------------------------
1994, the Company recorded equity in loss of Star Gas of $1.2 million. This
amount represented the share of Star's loss associated with the Company's
minority interest at the time. For the nine months ended September 30, 1995, the
Company owned 100% of Star Gas and consolidated its results into the Company's
financial statements.
Extraordinary item - loss on early extinguishment of debt. In April 1995, the
- ---------------------------------------------------------
Company recorded an extraordinary charge of $1.4 million in connection with the
refinancing of $12.8 million of debt maturing in March 2000. For the nine months
ended September 30, 1994, the Company also recorded an extraordinary charge of
$0.7 million, when $50.0 million in long-term notes that were scheduled to
mature in June 1994 were refinanced.
Net loss. Net loss increased to $29.7 million for the nine months ended
- --------
September 30, 1995, as compared to $6.8 million for the nine months ended
September 30, 1994. This increase was primarily due to the impact of the
weather, as well as to higher interest expense associated with the Company's
continuing growth and increased non-cash expenses relating to acquisitions.
These factors were somewhat offset by acquisition related volume, an increase in
gross profit margins, and the success of the Company's efforts to reduce heating
oil branch and delivery costs.
EBITDA* EBITDA declined approximately $6.2 million for the nine months ended
- -------
September 30, 1995, as compared to the nine months ended September 30, 1994.
This decline was primarily due to the approximately 40 million gallon impact of
abnormally warm first quarter weather, which could not be offset by the volume
provided by acquisitions, improved gross profit margins and a reduction in
branch and delivery related expenses.
- ----------------
* EBITDA is defined as operating income before depreciation, amortization,
non-cash charges relating to the grant of stock options to executives of the
Company, non-cash charges associated with deferred compensation plans and other
non-cash charges of a similar nature, if any. EBITDA should not be considered as
an alternative to net income (or an indicator of operating performance) or as an
alternative to cash flow (as a meausre of liquidity or ability to service debt
obligations), but provides additional information in that EBITDA is a component
of the ratio of EBITDA to interest expense, net. This is a significant ratio in
that the Company's ability to incur additional debt under various lending
arrangements is dependent upon achieving at least a 2.0 to 1 EBITDA to interest
expense, net ratio.
<PAGE>
-13-
THREE MONTHS ENDED SEPTEMBER 30, 1995
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1994
- -------------------------------------------------
During the three months ended September 30, 1995, volume, sales, and gross
profit all showed strong increases, due primarily to the Company's acquisition
program and improved gross profit margins. In addition, the Company was
successful in reducing its branch related delivery and operating costs. As
expected, however, the Company's larger size resulted in increased operating and
net losses during the third quarter, a non-heating period for which the Company
traditionally reports losses.
Total retail volume of home heating oil and propane increased 37.0% to 40.1
million gallons for the three months ended September 30, 1995, as compared to
29.2 million gallons for the three months ended September 30, 1994. This
increase was due to the Company's ongoing acquisition program, which, for the
period since the third quarter of 1994, included acquisition of Star Gas, the
country's ninth largest retail propane distributor, as well as twelve other home
heating oil and propane companies.
Net sales. Net sales increased 29.1% to $63.5 million for the three months ended
- ---------
September 30, 1995, as compared to $49.2 million for the three months ended
September 30, 1994, due primarily to the additional volume generated by
acquisitions which resulted in net sales of $17.2 million. The increase in third
quarter sales was less than the corresponding increase in retail volume due to
the proportional growth of propane volume, which generally has lower per gallon
selling prices than heating oil volume and generates less additional service
revenue.
Gross profit. Gross profit increased 128.5% to $15.8 million for the three
- ------------
months ended September 30, 1995, as compared to $6.9 million for the three
months ended September 30, 1994. Gross profit increased more significantly than
volume due to the greater proportional impact of propane, which, despite having
lower selling prices, has higher per gallon gross profit margins than heating
oil. In addition, home heating oil gross profit grew by approximately 9.3%, due
primarily to an increase in per gallon gross profit margins.
Direct delivery expense. Direct delivery expense increased to $5.0 million for
- -----------------------
the three months ended September 30, 1995, as compared to $3.5 million for the
three months ended September 30, 1994. This increase was primarily due to $1.6
million of direct delivery expense related to Star Gas, and was partially offset
by a reduction of direct delivery expense in the heating oil division.
Selling, general and administrative expenses. Selling, general and
- --------------------------------------------
administrative expenses (S,G&A) increased to $31.4 million for the three months
ended September 30, 1995, as compared to $21.9 million for the three months
ended September 30, 1994. This increase was primarily due to an additional $7.9
million of expenses associated with servicing the Star Gas
customer base. As expected, S,G&A at the home heating oil division also
<PAGE>
-14-
increased in the third quarter of 1995, primarily due to (i) the Company's
heating oil acquisitions and related expansion into three new geographic
markets, which aggregated $1.3 million, and (ii) the Company's long-term program
to reduce operating expenses and improve customer satisfaction, which, in the
third quarter of 1995, included consummation of a management consulting study
which identified areas of additional operating improvements. These corporate
expenses were largely offset by a 5.9% decline in operating expenses at those
heating oil branches which were operated by the Company in the third quarters of
both 1994 and 1995.
Amortization of customer lists. Amortization of customer lists decreased 5.4% to
- ------------------------------
$4.8 million for the three months ended September 30, 1995, as compared to $5.1
million for the three months ended September 30, 1994. The net decrease was the
result of certain previously acquired customer lists which became fully
amortized.
Depreciation and amortization of plant and equipment. Depreciation and
- ----------------------------------------------------
amortization of plant and equipment increased to $3.3 million for the three
months ended September 30, 1995, as compared to $1.5 million for the three
months ended September 30, 1994. This increase was due to $1.7 million of
depreciation relating to acquisitions which increased the Company's base of
assets.
Amortization of deferred charges. Amortization of deferred charges remained
- --------------------------------
unchanged from the previous year at $1.6 million for the three months ended
September 30, 1995, as $0.4 million of amortization of deferred charges
associated with acquisitions was offset by a decrease in amortization resulting
from certain deferred charges which became fully amortized.
Operating loss. Since the third quarter is a non-heating period for which the
- --------------
Company traditionally reports operating losses, the Company's larger size
resulted in an increased operating loss of $30.7 million for the three months
ended September 30, 1995, as compared to $26.9 million for the three months
ended September 30, 1994. This increase was primarily due to the cost of
servicing the Company's larger customer base during the non-heating season,
acquisition-related non-cash expenses, and an increase in corporate level
expenses, partially offset by improved gross profit margins and lower heating
oil branch level operating expenses.
Interest expense and Interest income. Net interest expense increased to $9.7
- ------------------------------------
million for the three months ended September 30, 1995, as compared to $5.8
million for the three months ended September 30, 1994. This increase was due to
borrowings associated with the Company's acquisition of Star Gas and twelve
other home heating oil and propane companies since the third quarter of 1994.
Equity in loss of Star Gas Corporation. For the three months ended September 30,
- --------------------------------------
1994, the Company recorded equity in loss of Star Gas of $1.9 million. This
amount represented the share of Star's net loss associated with the Company's
minority interest at the time. For the three months ended September 30, 1995,
the Company owned 100% of Star Gas and consolidated its results into the
Company's financial statements.
<PAGE>
-15-
Net loss. As expected, net loss increased to $40.4 million for the three months
- --------
ended September 30, 1995, as compared to a net loss of $34.5 million for the
three months ended September 30, 1994. This increase was due to the normal
non-heating season impact of servicing a larger customer base, higher interest
expense associated with the Company's acquisitions, and investments in the
Company's long-term operating programs.
EBITDA. The seasonally related EBITDA loss increased 11.1% to $20.6 million for
- ------
the three months ended September 30, 1995 as compared to $18.6 million for the
three months ended September 30, 1994. While the increase in volume of 37.0%
over these periods would typically imply a commensurate increase in non-heating
season EBITDA loss, the third quarter 1995 impact on EBITDA was partially offset
by the Company's acquisition of higher operating margin businesses, an increase
in home heating oil gross profit margins, and 5.9% lower heating oil branch
operating costs.
LIQUIDITY AND FINANCIAL CONDITION
- ---------------------------------
In February 1995, the Company completed public offerings of $125.0 million of
its 12 1/4% Subordinated Debentures due February 1, 2005 and approximately 2.9
million shares of Class A Common Stock. The net proceeds of the two offerings
were approximately $138.9 million, and were used to purchase $85.4 million of
long-term debt and preferred stock of Star Gas Corporation; to retire
approximately 1.5 million shares of Class A Common Stock issued as part of the
Star Gas acquisition in December 1994; and to repurchase, for $14.2 million,
$12.8 million of long-term debt due in March 2000. The balance of the net
proceeds, approximately $25.8 million, became available to finance the Company's
ongoing acquisition program.
Net cash provided by operating activities of $25.0 million, along with $25.8
million of unapplied net proceeds from the above mentioned public offerings,
amounted to $50.8 million for the nine months ended September 30, 1995. These
funds were utilized in investing activities for acquisitions and purchase of
fixed assets of $33.3 million; and in financing activities to pay dividends of
$14.4 million, to repay working capital borrowings of $5.1 million, to
repurchase mandatorily redeemable preferred stock of $4.2 million, to make
principal payments of $1.0 million on other long-term obligations and for other
long-term financing requirements of $1.5 million. The Company partially financed
its acquisitions with notes payable of $8.0 million. In addition, the sale of
the Company's New Hampshire operations generated $1.5 million of proceeds. As a
result of the above activity, the Company's cash balance increased by $0.8
million to $16.2 million at September 30, 1995.
The Company currently has available a $140 million credit facility consisting of
a $75 million working capital commitment, a $50 million acquisition facility and
a $15 million letter of credit commitment to secure certain insurance
requirements. At September 30, 1995 there were no outstanding working capital
borrowings and the Company had $7.7 million of working capital. Upon completion
of the Master Limited Partnership transaction described above, the Company
intends to reduce the working capital and acquisition facilities to $60 million
and $17 million, respectively.
<PAGE>
-16-
For the remainder of 1995, the Company anticipates paying dividends on its
Common Stock of approximately $3.8 million. Based on the Company's current cash
position, bank credit availability, expected net cash provided by operating
activities and the $25.8 million of available proceeds from the February 1995
public offerings, the Company expects to be able to meet all of the above
mentioned obligations in 1995, as well as meet all of its other current
obligations as they become due.
RECENT DEVELOPMENTS
- -------------------
In October 1995, the Company announced its intention to transfer substantially
all of the propane operating assets and related liabilities of its wholly owned
subsidiary, Star Gas Corporation (including Petro's propane operations), to a
newly formed partnership (the "Partnership"), Star Gas Partners, L.P., and sell
a majority of that Partnership to the public, while retaining a sizeable
minority interest. The total value of the assets expected to be conveyed to the
Partnership is $156.7 million, representing 41.4% of Petro's total assets as of
September 30, 1995. In addition, the Company expects to convey $8.7 million in
liabilities to the Partnership. In consideration, Petro will receive an equity
interest in the Partnership with a book value of $12.5 million, as well as an
estimated $135.4 million in cash. The Company expects to use the proceeds for
repayment of debt, including, where permitted, public debt, as well as for
funding its ongoing acquisition program in the home heating oil distribution
industry.
For the nine months ended September 30, 1995, the impact of the assets to be
transferred to the Partnership on Petro's total retail volume was 59.0 million
gallons. The impact of the assets on net sales was $72.0 million or 17.8% of
Petro's total net sales, producing $38.6 million of gross profit. Operating
expenses related to the transferred assets were $29.9 million, with depreciation
and amortization at $7.3 million, yielding operating income of $1.5 million.
Assuming the conveyance of the assets, and giving no effect to the proceeds from
the transaction, the impact of the transfer would be to increase Petro's net
loss for the nine months ended September 30, 1995 by $0.4 million, or 1.4%.
For the three months ended September 30, 1995, the impact of the assets to be
transferred to the Partnership on Petro's total retail volume was 13.2 million
gallons. The impact of the assets on net sales was $16.8 million or 26.5% of
Petro's total net sales, producing $8.8 million of gross profit. Operating
expenses related to the transferred assets were $9.9 million, with depreciation
and amortization at $2.5 million, yielding operating loss of $3.6 million.
Assuming the conveyance of the assets, and giving no effect to the proceeds from
the transaction, the impact of the transfer would be to reduce Petro's net loss
for the three months ended September 30, 1995 by $3.6 million, or 9.0%.
<PAGE>
-17-
SUPPLEMENTAL FINANCIAL INFORMATION
- ----------------------------------
NIDA** declined to a loss of $1.9 million for the nine months ended September
30, 1995, as compared to positive NIDA of $15.9 million for the nine months
ended September 30, 1994. This decline was primarily due to a weather-related
decline in EBITDA and an increase in interest expense associated with the
Company's acquisition program, partially offset by the additional EBITDA
provided by acquisitions.
** NIDA is defined as net income (loss), plus depreciation, amortization,
non-cash charges relating to the grant of stock options to executives of the
Company, non-cash charges associated with deferred compensation plans and other
non-cash charges of a similar nature, if any, 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. NIDA should not be considered as an alternative to net income (as
an indicator of operating performance) or as an alternative to cash flow (as a
measure of liquidity or ability to service debt obligations) but provides
additional information in that NIDA is the principal basis upon which the
Company compensates executives and establishes dividends.
<PAGE>
-18-
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) Annual Meeting of Shareholders
June 26, 1995
(c) Proposals
<TABLE><CAPTION>
Broker
Election of Directors For Against Withheld Abstain Nonvotes
--------------------- ---------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Irik P. Sevin 34,416,817 * 64,142 * -
Audrey L. Sevin 34,417,294 * 63,665 * -
Phillip Ean Cohen 34,415,294 * 65,665 * -
Thomas J. Edelman 34,417,294 * 63,665 * -
Richard O'Connell 34,417,294 * 63,665 * -
Wolfgang Traber 34,417,294 * 63,665 * -
Max M. Warburg 34,417,294 * 63,665 * -
Paul Biddelman 34,417,294 * 63,665 * -
Ratification of Appointment
of KPMG Peat Marwick LLP as
the Company's Independent
Auditors 34,458,426 10,553 * 12,000 -
*Not Applicable
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits Included Within:
------------------------
(27) Financial Data Schedule
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
<PAGE>
-19-
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 December 13, 1995
- -------------
Irik P. Sevin Board, Chief Executive Officer,
and Chief Financial and
Accounting Officer and Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Petroleum Heat and Power Co., Inc. and Subsidiaries
This schedule contains summary financial information (in thousands except per
share data) extracted from Petroleum Heat and Power Co., Inc. and Subsidiaries
financial statements as of September 30, 1995 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 16,240
<SECURITIES> 0
<RECEIVABLES> 53,697
<ALLOWANCES> 2,701
<INVENTORY> 22,720
<CURRENT-ASSETS> 101,939
<PP&E> 171,006
<DEPRECIATION> 42,780
<TOTAL-ASSETS> 375,091
<CURRENT-LIABILITIES> 94,198
<BONDS> 362,452
<COMMON> 12,500
0
2,527
<OTHER-SE> (107,562)
<TOTAL-LIABILITY-AND-EQUITY> 375,091
<SALES> 377,303
<TOTAL-REVENUES> 404,917
<CGS> 204,030
<TOTAL-COSTS> 256,342
<OTHER-EXPENSES> 145,224
<LOSS-PROVISION> 928
<INTEREST-EXPENSE> 30,434
<INCOME-PRETAX> (28,011)
<INCOME-TAX> 300
<INCOME-CONTINUING> (28,311)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (1,436)
<NET-INCOME> (29,747)
<EPS-PRIMARY> (1.31)
<EPS-DILUTED> (1.31)
</TABLE>
