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, 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)
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
--- --
As of March 31, 1995 there were 22,855,097 shares of the Registrant's Class
A Common Stock, 15,503 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 13 pages.
<PAGE>
-2-
Petroleum Heat and Power Co., Inc. and Subsidiaries
Index to Form 10-Q
Page
------
Part 1 - Financial Information:
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1995 and December 31, 1994 3
Consolidated Statements of Operations for the
Quarter Ended -
March 31, 1995 and March 31, 1994 4
Consolidated Statements of Cash Flows
Quarter Ended -
March 31, 1995 and March 31, 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 - 11
Part 2 - Other Information:
Item 6 - Exhibits and Reports on Form 8-K 12
Signature 13
<PAGE>
-3-
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(In thousands)
Assets
- ------
March 31, December
31,
1995 1994
----------- -----------
Current Assets:
Cash $ 45,843 $ 15,474
Accounts receivable (net of allowance of
$2,185 and $1,769) 99,065 87,246
Inventories 18,935 21,746
Prepaid expenses 8,381 7,382
Notes receivable and other current assets 2,341 1,279
----------- -----------
Total current assets 174,565 133,127
----------- -----------
Property, plant and equipment - net 128,387 127,174
----------- -----------
Intangible assets (net of accumulated amortization
of $250,044 and $243,115)
Customer lists 101,595 102,636
Deferred charges and pension costs 38,338 32,692
----------- -----------
139,933 135,328
----------- -----------
Other assets 2,110 1,545
----------- -----------
$ 444,995 $ 397,174
=========== ===========
Liabilities and Stockholders' Equity (Deficiency)
Current liabilities:
Current debt $ 15,399 $ 5,617
Current maturities of cumulative redeemable
preferred stock 4,167 4,167
Accounts payable 13,768 19,786
Customer credit balances 10,990 26,903
Unearned service contract revenue 11,923 14,334
Accrued expenses and other liabilities 30,488 33,975
----------- -----------
Total current liabilities 86,735 104,782
----------- -----------
Supplemental benefits and other liabilities 2,908 2,961
----------- -----------
Pension plan obligation 9,023 9,029
----------- -----------
Notes payable and other long-term debt 34,051 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 16,667 16,667
----------- -----------
Stockholders' equity (deficiency):
Common stock - par value $.10 per share 2,547 2,412
Additional paid-in capital 77,262 72,296
Deficit (96,667) (132,953)
Minimum pension liability adjustment (6,651) (6,651)
----------- -----------
(23,509) (64,896)
Note receivable from stockholder (1,280) (1,280)
----------- -----------
Total stockholders' equity (deficiency) (24,789) (66,176)
----------- -----------
$ 444,995 $ 397,174
=========== ===========
See accompanying notes to consolidated financial statements.
<PAGE>
-4-
Petroleum Heat and Power Co., Inc.
and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
-------------------------
1995 1994
---------- ----------
(In thousands, except per share data)
Net sales $ 253,737 $ 266,793
Cost of sales 147,332 163,263
---------- ----------
Gross profit 106,405 103,530
Selling, general and administrative expenses 31,076 24,927
Direct delivery expense 14,608 14,714
Amortization of customer lists 5,452 4,876
Depreciation and amortization of plant and
equipment 2,803 1,365
Amortization of deferred charges 1,477 1,496
Provision for supplemental benefits 335 70
---------- ----------
Operating income 50,654 56,082
Other income (expense):
Interest expense (9,760) (6,000)
Interest income 522 315
Other 858 20
---------- ----------
Income before income taxes, equity interest
and extraordinary item 42,274 50,417
Income taxes 400 601
---------- ----------
Income before equity interest and
extraordinary item 41,874 49,816
Equity in earnings of Star Gas Corporation - 2,263
---------- ----------
Income before extraordinary item 41,874 52,079
Extraordinary item - loss on early
extinguishment of debt - (654)
---------- ----------
Net Income $ 41,874 $ 51,425
========== ==========
Net income applicable to common stock $ 40,104 $ 49,626
Income before extraordinary item per common share
Class A Common Stock $ 1.61 $ 2.33
Class B Common Stock - .41
Class C Common Stock 1.61 2.33
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 $ 1.61 $ 2.30
Class B Common Stock - .41
Class C Common Stock 1.61 2.30
Cash dividends declared per common share
Class A Common Stock $ .15 $ .14
Class B Common Stock - .41
Class C Common Stock .15 .14
Weighted average number of common shares outstanding
Class A Common Stock 22,253 18,993
Class B Common Stock 18 217
Class C Common Stock 2,598 2,545
See accompanying notes to condensed consolidated
financial statements.
<PAGE>
-5-
Petroleum Heat and Power Co., Inc.
and Subsidiaries
Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended
March 31,
------------------------
1995 1994
---------- ---------
Cash flows from operating activities:
Net income $ 41,874 $ 51,425
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of customer lists 5,452 4,876
Equity in earnings of Star Gas Corporation - (2,263)
Depreciation and amortization of
plant and equipment 2,803 1,365
Amortization of deferred charges 1,477 1,496
Provision for losses on accounts
receivable 460 487
Provision for supplemental benefits 335 70
Loss on early extinguishment of debt - 654
Gain on sale of business (832) -
Other (32) (28)
Increase in accounts receivable (12,279) (29,267)
Decrease in inventory 2,811 1,436
Increase in prepaid expenses, notes
receivable and other current assets (2,061) (244)
Decrease (increase) in other assets (565) 15
Decrease in accounts payable (6,018) (5,697)
Decrease in customer credit balances (15,913) (15,947)
Decrease in unearned service contract
revenue (2,411) (2,474)
Increase (decrease) in accrued expenses (3,972) 3,342
--------- ---------
Net cash provided by
operating activities 11,129 9,246
--------- ---------
Cash flows from (used for) investing
activities:
Acquisitions (8,533) (594)
Capital expenditures (2,716) (337)
Proceeds from sale of business 1,477 -
Proceeds from sales of fixed assets 70 44
--------- ---------
Net cash used for investing
activities (9,702) (887)
--------- ---------
<PAGE>
-6-
Petroleum Heat and Power Co., Inc.
and Subsidiaries
Consolidated Statement of Cash Flows
(Continued)
(In thousands)
Three Months Ended
March 31,
------------------------------
1995 1994
---------- ---------
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 (65,612) (50,654)
Credit facility borrowings - 21,000
Credit facility repayments (5,100) (49,000)
Repurchase of common stock (13,681) -
Release of cash collateral account - 20,000
Redemption of preferred stock (19,966) -
Restricted cash held as collateral for
payment of a long-term note payable - (1,663)
Cash dividends paid (5,253) (4,862)
Other (312) (1,390)
---------- ---------
Net cash from financing
activities 28,942 4,518
---------- ---------
Net increase in cash 30,369 12,877
Cash at beginning of year 15,474 4,613
---------- ---------
Cash at the end of period $ 45,843 $ 17,490
========== =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $ 6,792 $ 2,694
Income taxes 60 68
Non-cash investing activity:
Acquisitions - (1,630)
Non-cash financing activity: -
Issuance of note payable 1,630
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,
1995 are not necessarily indicative of the results to be expected for
the full year.
2- Per Share Data
--------------
Net income 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 aggregating $1,770,000 and $1,799,000 for the three months
ended March 31, 1995 and 1994, respectively. Fully diluted net income
per common shares are not presented because the effect is not
material.
3- Acquisitions/Sale
-----------------
During the three month period ending March 31, 1995, the Company
acquired the customer lists and equipment of an unaffiliated fuel oil
dealer. The aggregate consideration for this acquisition, accounted
for by the purchase method, was approximately $8.5 million. Sales and
net income of the acquired company is included in the consolidated
statement of income from the date 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 this acquisition and disposal occurred at the beginning of the
period, the pro forma unaudited results of operations for the three
months ended March 31, 1995 would have been as follows:
(Thousands, Except Per Share)
-----------------------------
Net Sales $256,146
Net Income $ 41,380
Net Income Per Common Share:
Class A Common Stock $1.59
Class B Common Stock -
Class C Common Stock $1.59
<PAGE>
-8-
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, 1995
Compared to Three Months Ended March 31, 1994
- ---------------------------------------------
Net sales declined 4.9% for the first quarter 1995, from $266.8
million for the three months ended March 31, 1994 to $253.7 million for the
comparable period in 1995. While the December 1994 acquisition of Star Gas
Corporation ("Star Gas"), the country's 10th largest retail propane
distributor, generated an additional $35.9 million of sales in the first
quarter of 1995 this was offset by a $48.9 million decline in home heating
oil sales caused by the first three months of 1995 being 17.7% warmer than
the first quarter 1994.
Despite the 17.7% warmer first quarter weather, volume declined only
6.4% as the gallonage resulting from the acquisition of Star Gas and nine
other home heating oil acquisitions offset, to a certain extent, the warmer
temperatures. Total retail heating oil and propane volume declined 15.5
million gallons to 225.6 million gallons, as a result of a 46.4 million
gallon decline in home heating oil volume only partially offset by 30.9
million gallons of retail propane sold by Star Gas. The decrease in home
heating oil volume was due not only to the direct impact of the 17.7%
warmer temperatures, but also to lower consumption rates associated with
the warmer weather, as well as account attrition, which was only partially
offset by the increased volume associated with nine heating oil
acquisitions made in 1994.
Gross profit grew 2.8% to $106.4 million, despite the volume decline,
due to $19.3 million of additional gross profit from Star Gas which more
than offset a $16.4 million decline in heating oil gross profit. While
lower home heating oil volume was the major cause for this gross profit
decline, its effect was mitigated by a 1.8 cents per gallon increase in home
heating oil gross profit margins and the Company's ability to reduce the
cost of providing heating equipment repair and maintenance costs with the
decline in heating oil volume.
Direct delivery expense decreased 0.7% to $14.6 million in the first
quarter of 1995, despite approximately $3.0 million of additional delivery
expenses associated with Star Gas, due to a 20.8% reduction in these costs
at the home heating oil division. The Company's ability to reduce home
heating oil delivery expenses resulted from the improved operating expense
control program begun in the summer of 1994, which both improved delivery
efficiency generally and enabled the Company to react better to the
unexpected reduction in first quarter volumes.
Selling, general and administrative expenses increased $6.2 million to
$31.1 million for the first quarter of 1995. This represents an additional
$6.9 million of expenses associated with Star Gas and a reduction of
approximately $.8 million of heating oil division costs.
This improvement was primarily the result of a $2.7 million reduction in
marketing and local branch operating expenses offset only to a certain
extent by additional costs associated with the Company's operations in
three new markets.
<PAGE>
-9-
Depreciation expense increased from $1.4 million in the first quarter
of 1994 to $2.8 million in the first quarter of 1995. This increase of
$1.4 million was primarily due to $1.2 million of depreciation relating to
Star Gas as well as a $.2 million increase in the heating oil division
associated with the Company's increased size and asset base.
Amortization of customer lists, deferred charges and other non-cash
items increased $0.8 million to $7.3 million for the first quarter of 1995.
These non-cash expenses increased primarily due to the $0.7 million
amortization of intangible assets associated with the Star Gas acquisition.
In the heating oil division, these expenses increased $.1 million to $6.6
million in the first quarter of 1995.
Operating Income declined $5.4 million to $50.7 million in the first
quarter of 1995 due to a weather related $3.2 million decline in EBITDA*
and an increase of $2.2 million in non-cash expenses. While Star Gas
accounted for an approximate $7.5 million increase in first quarter 1995
Operating Income, this was offset by a $12.9 million decline at the heating
oil division, as increased acquisition volume, improved gross profit
margins and reduced operating expenses could not offset the weather's
impact on volume.
Net interest expense increased by $3.6 million for the first quarter
of 1995 due to increased borrowings associated with the Company's 1994
acquisition program and a prefunding of its 1995 capital requirements.
Average debt outstanding increased approximately $131.1 million from the
previous year's first quarter as a result of financing the Star Gas
acquisition, as well as debt incurred to provide a portion of the funds to
finance the nine heating oil acquisitions made in 1994. In addition, this
additional debt, combined with other sources of cash flow, resulted in an
increase in the Company's working capital to $87.8 million, and its cash
balance to $45.8 million, as of March 31, 1995.
Other income of $0.9 million for the first quarter of 1995 represents
the gain associated with the sale of certain customer lists and other
assets of a non-strategic home heating oil business located in New
Hampshire.
Income taxes were $0.4 million for the first quarter of 1995 compared
to $0.6 million for the first quarter of 1994. These taxes represent
certain state taxes since the Company has not provided for any Federal
Income Taxes for the three months ended March 31, 1995 due to the
availability of Federal Income Tax net operating loss carryforwards.
In the first quarter of 1994, the Company recorded an extraordinary
loss of $0.7 million which represents the premium paid in connection with
the February 1994 refinancing of $50.0 million in long term notes that were
scheduled to mature in June 1994.
*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>
-10-
Net income declined from $51.4 million for the first quarter of 1994
to $41.9 million for the first quarter of 1995. This represented an 18.6%
decline due to the 5.0% decline in EBITDA, as well as increased non-cash
and interest expenses associated with the Company's larger size
and the elimination of Petro's first quarter 1994 equity interest in Star's
income of $2.3 million. Until December 1994, when Petro completed its
acquisition of Star, its holdings was accounted for as an unconsolidated
equity investment.
Despite temperatures in the first quarter of 1995 being 17.7% warmer
than in the comparable 1994 quarter, EBITDA declined only 5.0% to $60.7
million from $63.9 million in the first quarter of 1994 as acquisition
related volume growth, a 1.8 cents per gallon improvement in home heating oil
gross profit margins and a 9.7% reduction in home heating oil operating
expenses were offset by the abnormally warm weather. This $3.2 million
EBITDA decline was a result of a $12.6 million decrease in the heating oil
division EBITDA, partially offset by $9.4 million of additional EBITDA
generated by Star Gas.
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. In February 1995,
$98.9 million of the proceeds were used to purchase $85.4 million of long
term debt and preferred stock of Star Gas Corporation and to retire
approximately 1.5 million shares of Class A Common Stock issued as part of
the Star Gas acquisition in December 1994. The Company applied $14.2
million of the proceeds in April 1995, to repay approximately $12.8 million
of long-term debt due in March 2000. The balance of the net proceeds,
approximately $25.8 million, has yet to be applied for long-term purposes.
Net cash provided by operating activities of $11.1 million, along with
$40.0 million of unapplied net proceeds from the above mentioned public
offerings amounted to $51.1 million for the three months ended March 31,
1995. These funds were utilized in investing activities for acquisitions
and the purchase of fixed assets ($11.2 million) and in financing
activities to pay dividends of $5.3 million, to repay working
capital borrowings of $5.1 million, to make principal payments on other
long-term obligations of $0.3 million and for other long-term financing
requirements of $0.3 million. In addition, the sale of the Company's New
Hampshire operations generated $1.5 million of proceeds. As result of the
above activity, the Company's cash balance increased by $30.4 million.
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 March 31, 1995 there were no
outstanding working capital borrowings, $16.0 million remained available
under the acquisition facility and the Company had $87.8 million of working
capital.
<PAGE>
-11-
For the remainder of 1995, the Company anticipates paying dividends on
its Common Stock of approximately $11.5 million, redeeming $4.2 million of
Redeemable Preferred Stock and paying $1.5 million in preferred dividends.
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
- ----------------------------------
During the first quarter of 1995, the Company generated $50.9 million
in NIDA* compared to $56.1 million for the first quarter of 1994. This
$5.2 million decrease (9.3%) was primarily due to the effects of the
abnormally warm temperatures which more than offset the NIDA contribution
from the propane division.
*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>
-12-
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>
-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 May 10, 1995
- ----------------
Irik P. Sevin Board, Chief Executive Officer,
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 March 31, 1995 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> $ 45,843
<SECURITIES> 0
<RECEIVABLES> 101,250
<ALLOWANCES> 2,185
<INVENTORY> 18,935
<CURRENT-ASSETS> 174,565
<PP&E> 166,747
<DEPRECIATION> 38,360
<TOTAL-ASSETS> 444,995
<CURRENT-LIABILITIES> 86,735
<BONDS> 354,451
<COMMON> 2,547
20,834
0
<OTHER-SE> (27,336)
<TOTAL-LIABILITY-AND-EQUITY> 444,995
<SALES> 243,786
<TOTAL-REVENUES> 253,737
<CGS> 127,746
<TOTAL-COSTS> 147,332
<OTHER-EXPENSES> 55,309
<LOSS-PROVISION> 442
<INTEREST-EXPENSE> 9,760
<INCOME-PRETAX> 42,274
<INCOME-TAX> 400
<INCOME-CONTINUING> 41,874
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,874
<EPS-PRIMARY> 1.61
<EPS-DILUTED> 1.61
</TABLE>
