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 September 30, 1995
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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
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Commission File Number: 2-88526
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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)
(203) 325-5400
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(Registrant's telephone number, including area code)
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(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 16 pages.
<PAGE>
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Petroleum Heat and Power Co., Inc. and Subsidiaries
Index to Form 10-Q
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 Statements of Cash Flows for the
Nine Months Ended
September 30, 1995 and September 30, 1994 5 - 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2 - Management's Discussion and Analysis of
Financial Conditions and Results of Operations 8 - 14
Part 2 Other Information:
Item 6 - Exhibits and Reports on Form 8-K 15
Signature 16
<PAGE>
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PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(In thousands) September 30, December 31
Assets 1995 1994
---------- -----------
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
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Total current liabilities 94,198 104,782
--------- ---------
Supplemental benefits and other liabilities 1,966 2,961
--------- ---------
Pension plan obligation 9,010 9,029
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Notes payable and other long-term debt 42,052 99,681
--------- ---------
Senior notes payable 35,200 42,632
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Subordinated notes payable 285,200 167,632
--------- ---------
Star Gas preferred stock - 19,966
--------- ---------
Cumulative redeemable exchangeable
preferred stock 12,500 16,667
--------- ---------
Stockholders' equity (deficiency):
Common stock - par value $.10 per share 2,547 2,412
Additional paid-in capital 77,766 72,296
Deficit (177,417) (132,953)
Minimum pension liability adjustment (6,651) (6,651)
--------- ---------
(103,755) (64,896)
Note receivable from stockholder (1,280) (1,280)
--------- ---------
Total stockholders' equity (deficiency) (105,035) (66,176)
--------- ---------
$375,091 $397,174
========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
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<TABLE><CAPTION>
Petroleum Heat and Power Co., Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
(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
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
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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>
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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>
-7-
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 (29,548)
Net Loss Per Common Share:
Class A Common Stock $ (1.30)
Class B Common Stock --
Class C Common Stock $ (1.30)
<PAGE>
-8-
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. This increase was due to retail and wholesale
volume associated with the Company's acquisitions and increased per gallon
heating oil selling prices.
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,
<PAGE>
-9-
which 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 expansion into three new geographic
markets 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
<PAGE>
-10-
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.
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.
<PAGE>
-11-
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 sales generated
by acquisitions and increased home heating oil selling prices. 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>
-12-
increased in the third quarter of 1995, primarily due to (i) the additional
cost of operating in three new geographic markets, 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
<PAGE>
-13-
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.
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.
In October 1995, the Company announced its intentions to transfer
substantially all of the propane operating assets and related liabilities
of its wholly owned subsidiary, Star Gas Corp. (including Petro's propane
<PAGE>
-14-
operations), to a newly formed Master Limited Partnership, Star Gas
Partners, L. P., and sell a majority of that Partnership to the public,
while retaining a sizable minority interest. Proceeds to the Company from
the proposed transactions are currently estimated to approximate $120
million to $130 million. 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.
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.
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.
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.
<PAGE>
-15-
PART II OTHER INFORMATION
-------------------------
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>
-16-
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 November 14, 1995
- ------------- Board, Chief Executive Officer,
Irik P. Sevin and Chief Financial and
Accounting Officer and Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
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>
<MULTIPLIER>1,000
<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> 2,547
12,500
0
<OTHER-SE> (107,582)
<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>
