UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 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, CT 06902
- --------------------------------------- ----------------------------
(Address of principal executive Offices) (Zip Code)
Registrant's telephone number, including area code: (203) 325-5400
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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 Section 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) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of March 31, 1996 there were 22,863,204 shares of the Registrant's Class A
Common Stock, 13,173 shares of the Registrant's Class B Common Stock and
2,597,519 shares of the Registrant's Class C Common Stock outstanding.
<PAGE>
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
March 31, 1996 and December 31, 1995 3
Consolidated Statements of Operations for the
Three Months Ended
March 31, 1996 and March 31, 1995 4
Consolidated Statements of Changes in Stockholders'
Equity (Deficiency) for the Three Months Ended
March 31, 1996 5
Consolidated Statements of Cash Flows for the
Three Months Ended
March 31, 1996 and March 31, 1995 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 - 15
Part 2 Other Information:
Item 6 - Exhibits and reports on Form 8-K 16
Signature 17
<PAGE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<TABLE><CAPTION>
(In thousands)
March 31, December 31,
Assets 1996 1995
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 18,819 $ 78,285
Restricted cash 6,000 6,000
Accounts receivable (net of allowance of $1,452 and $969) 134,258 95,361
Inventories 13,997 20,413
Prepaid expenses 7,560 6,115
Notes receivable and other current assets 1,354 1,617
---------- ---------
Total current assets 181,988 207,791
---------- ---------
Property, plant and equipment - net 30,914 30,263
---------- ---------
Intangible assets (net of accumulated amortization
of $270,597 and $264,456)
Customer lists 85,731 76,419
Deferred charges and pension costs 26,340 27,296
---------- ---------
112,071 103,715
---------- ---------
Investment in and advances to the Star Gas Partnership 15,336 14,648
---------- ---------
Other assets 791 824
---------- ---------
$ 341,100 $ 357,241
========== =========
Liabilities and Stockholders' Equity (Deficiency)
Current liabilities:
Working capital borrowings $ 19,000 $ -
Current debt 3,183 47,001
Current maturities of cumulative redeemable
exchangeable preferred stock 4,167 4,167
Accounts payable 18,509 22,824
Customer credit balances 6,312 19,610
Unearned service contract revenue 12,897 15,535
Accrued expenses and other liabilities 30,131 33,246
---------- ---------
Total current liabilities 94,199 142,383
---------- ---------
Supplemental benefits and other liabilities 1,681 1,658
----------- ---------
Pension plan obligation 7,168 7,174
---------- ---------
Notes payable and other long-term debt 17,410 17,779
---------- ---------
Senior notes payable 34,150 35,200
---------- ---------
Subordinated notes payable 240,400 241,450
---------- ---------
Cumulative redeemable exchangeable preferred stock 12,500 12,500
---------- ---------
Common stock redeemable at option of stockholder 1,280 1,280
---------- ---------
Note receivable from stockholder (1,280) (1,280)
---------- ---------
Stockholders' equity (deficiency):
Class A common stock-par value $.10 per share; 40,000 shares
authorized, 22,702 and 22,653 shares outstanding 2,270 2,266
Class B common stock-par value $.10 per share; 6,500 shares
authorized, 13 and 14 shares outstanding 1 1
Class C common stock-par value $.10 per share; 5,000 shares
authorized, 2,558 shares outstanding 256 256
Additional paid-in capital 76,881 76,418
Deficit (140,944) (174,972)
Minimum pension liability adjustment (4,872) (4,872)
----------- ---------
Total stockholders' equity (deficiency) (66,408) (100,903)
----------- ----------
$ 341,100 $ 357,241
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
- 3 -
<PAGE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE><CAPTION>
(In thousands, except per share data) Three Months Ended
March 31,
---------------------
1996 1995
--------- ---------
<S> <C> <C>
Net sales $279,655 $253,737
Cost of sales 178,817 147,332
-------- --------
Gross profit 100,838 106,405
Selling, general and administrative expenses 27,422 31,076
Direct delivery expense 14,486 14,608
Amortization of customer lists 4,789 5,452
Depreciation of plant and equipment 1,657 2,803
Amortization of deferred charges 1,352 1,477
Provision for supplemental benefits 192 335
-------- --------
Operating income 50,940 50,654
Other income (expense):
Interest expense (9,114) (9,760)
Interest income 629 522
Other 35 858
-------- --------
Income before income taxes, equity interest
and extraordinary item 42,490 42,274
Income taxes 400 400
-------- --------
Income before equity interest and extraordinary item 42,090 41,874
Equity in earnings of Star Gas Partnership 3,365 -
-------- ---------
Income before extraordinary item 45,455 41,874
Extraordinary item-loss on early extinguishment of debt (6,414) -_
-------- ---------
Net income $ 39,041 $ 41,874
======== ========
Net income applicable to common stock $ 37,847 $ 40,104
Income before extraordinary item per common share:
Class A Common Stock $ 1.74 $ 1.61
Class B Common Stock - -
Class C Common Stock 1.74 1.61
Extraordinary (loss) per common share:
Class A Common Stock $ (.25) $ -
Class B Common Stock - -
Class C Common Stock (.25) -
Net income per common share:
Class A Common Stock $ 1.49 $ 1.61
Class B Common Stock - -
Class C Common Stock 1.49 1.61
Cash dividends declared per common share:
Class A Common Stock $ .15 $ .15
Class B Common Stock - -
Class C Common Stock .15 .15
Weighted average number of common shares outstanding:
Class A Common Stock 22,862 22,253
Class B Common Stock 13 18
Class C Common Stock 2,598 2,598
See accompanying notes to consolidated financial statements.
</TABLE>
- 4 -
<PAGE>
<TABLE><CAPTION>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity (Deficiency)
(Unaudited)
Three Months Ended March 31, 1996
(In thousands)
Common Stock
---------------------------------------------------------
Class A Class B Class C Minimum
--------------------------------------------------------- Additional Pension
No. Of No. Of No. Of Paid-In Liability
Shares Amount Shares Amount Shares Amount Capital Deficit Adjustment Total
------ ------ ------ ------ ------ ------ ------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 22,653 $2,266 14 $1 2,558 $256 $76,418 ($174,972) ($4,872) ($100,903)
Net income 39,041 39,041
Cash dividends
declared and paid (1,194) (1,194)
Cash dividends
payable (3,819) (3,819)
Repurchase of
Class B Common
Stock (1) (-) (13) (13)
Class A shares
issued under
the Dividend
Reinvestment Plan 49 4 355 359
Stock option
compensation 121 121
------ ------ -- -- ----- ---- ------- --------- ------ ---------
Balance at
March 31, 1996 22,702 $2,270 13 $1 2,558 $256 $76,881 ($140,944) ($4,872) ($66,408)
====== ====== == == ===== ==== ======= ========= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
- 5 -
<PAGE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE><CAPTION>
Three Months Ended
(In thousands) March 31,
------------------
1996 1995
---- ----
Cash flows from (used in) operating activities:
<S> <C> <C>
Net income $ 39,041 $ 41,874
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Amortization of customer lists 4,789 5,452
Depreciation of plant and equipment 1,657 2,803
Amortization of deferred charges 1,352 1,477
Equity in earnings of Star Gas Partnership (3,365) -
Provision for losses on accounts receivable 430 460
Provision for supplemental benefits 192 335
Loss on early extinguishment of debt 6,414 -
Gain on sale of business - (832)
Other (41) (32)
Change in Operating Assets and Liabilities,
net of effects of acquisitions and dispositions:
Increase in accounts receivable (39,327) (12,279)
Decrease in inventory 6,416 2,811
Increase in current assets (1,182) (2,061)
Decrease (increase) in other assets 33 (565)
Decrease in accounts payable (4,315) (6,018)
Decrease in customer credit balances (13,298) (15,913)
Decrease in unearned service contract revenue (2,638) (2,411)
Decrease in accrued expenses (3,112) (3,972)
----------- --------
Net cash provided by (used in) operating activities (6,954) 11,129
----------- --------
Cash flows from (used in) investing activities:
Acquisitions (17,460) (8,533)
Capital expenditures (951) (2,716)
Proceeds from sale of business - 1,477
Net proceeds from sales of fixed assets 40 70
---------- ---------
Net cash used in investing activities (18,371) (9,702)
----------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
- 6 -
<PAGE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
(In thousands) March 31,
----------------
1996 1995
---- ----
Cash flows from (used in) financing activities:
Net proceeds from issuance of common stock 359 18,516
Net proceeds from issuance of subordinated notes - 120,350
Repayment of notes payable (1,050) (65,612)
Redemption of preferred stock - (19,966)
Repurchase of common stock (13) (13,681)
Repurchase of subordinated notes (49,612) -
Credit facility borrowings 29,000 -
Credit facility repayments (10,000) (5,100)
Cash dividends paid (5,016) (5,253)
Other 2,191 (312)
-------- -------
Net cash provided by (used in) financing activities (34,141) 28,942
-------- -------
Net increase (decrease) in cash (59,466) 30,369
Cash at beginning of year 78,285 15,474
-------- -------
Cash at end of period $ 18,819 $45,843
======== =======
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 12,581 $ 6,792
Income taxes 120 60
See accompanying notes to consolidated financial statements
- 7 -
<PAGE>
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 three months ended March 31, 1996 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 $1,194,000 and $1,770,000 for the three months ended March
31, 1996 and 1995 respectively. Fully diluted net income (loss) per
common shares are not presented because the effect is not material.
3. Acquisitions
------------
During the three month period ending March 31, 1996, the Company acquired
the customer lists and equipment of three unaffiliated fuel oil/propane
dealers. The aggregate consideration for these acquisitions, accounted
for by the purchase method, was approximately $16.9 million. Sales and
net income of the acquired companies are included in the consolidated
statement of income from the respective dates of acquisition.
Had these acquisitions occurred at the beginning of the period, the pro
forma unaudited results of operations for the three months ended March
31, 1996 would have been as follows:
(In thousands, Except Per Share)
--------------------------------
Net sales $ 283,035
Net income before extraordinary loss 46,377
Net income 39,963
Net income per common share:
Class A Common Stock $ 1.52
Class B Common Stock -
Class C Common Stock $ 1.52
- 8 -
<PAGE>
Petroleum Heat and Power Co., Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
4. Segment Information
-------------------
From December 8, 1994 to December 19, 1995, while Star Gas was a wholly
owned subsidiary of Petro, Star Gas operations, assets and liabilities
were included in the consolidated financial statements of the Company.
Accordingly, for the quarter ended March 31, 1995, the Company's
operations were classified into two business segments: Home Heating Oil
and Propane. However, as a result of the Star Gas MLP transaction in
December 1995 and the corresponding conveyance of the Company's propane
operations to Star Gas, for the quarter ended March 31, 1996 the Company
had no propane revenue or expenses.
<TABLE><CAPTION>
Quarter Ended March 31, 1996 Quarter Ended March 31, 1995
----------------------------- -----------------------------
Home Home
Heating Heating
Oil Propane* Consolidated Oil Propane Consolidated
------- -------- ------------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $279,655 $ - $279,655 $215,401 $ 38,336 $253,737
Gross Profit 100,838 - 100,838 85,746 20,659 106,405
Operating Expenses 41,908 - 41,908 35,031 10,653 45,684
Depreciation and
Amortization 7,990 - 7,990 7,780 2,287 10,067
Operating Income 50,940 - 50,940 42,935 7,719 50,654
Assets 341,100 - 341,100 297,602 147,393 444,995
Capital Expenditures 951 - 951 1,020 1,696 2,716
</TABLE>
* For the quarter ended March 31, 1996 the Propane segment had equity income,
which is presented in the Statement of Operations as non-operating income, of
approximately $3.4 million representing the Company's share of income of the
Star Gas Partnership.
- 9 -
<PAGE>
Petroleum Heat and Power Co., Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
-------------------------
Overview
As more fully described in the "Investment In Star Gas" section of the
Company's 1995 10-K, in December 1995 Petro transferred all of its propane
assets to Star Gas Partners, L.P. and its operating subsidiary, which were then
converted to master limited partnership format. As a result of this transaction
(the "Star MLP"), the Company received approximately $138 million, in addition
to retaining a 46.5% interest in the partnership, and becoming the general
partner. Due to the Star MLP, Petro's first quarter 1996 results account for
Star's performance on an equity basis and do not consolidate Star's activities
with Petro's. In contrast, Petro's first quarter 1995 results include what had
historically been the Company's propane operations, including Star Gas, on a
consolidated basis. In an effort to make the following discussion more
meaningful, the analysis of operating results primarily compares home heating
oil results for the two periods.
Three Months Ended March 31, 1996
Compared to Three Months Ended March 31, 1995
- ---------------------------------------------
Volume. Home heating oil volume increased 20.6% to 232.0 million gallons for
- ------
the three months ended March 31, 1996, as compared to 192.4 million gallons for
the three months ended March 31, 1995. This increase was largely due to 14.9%
colder weather, as temperatures were slightly colder than normal (3.1%) in early
1996 in contrast to the warm weather experienced during the first quarter of
1995. In addition, the Company has acquired thirteen heating oil companies
since the beginning of the first quarter of last year, further contributing to
the increase in heating oil volume. Total retail gallons of heating oil and
propane increased only 2.8% from the first quarter of 1995 to the first quarter
of 1996, as propane volume, which amounted to 33.2 million gallons in the first
quarter of 1995, was not included in Petro's 1996 financials as a result of the
Star MLP.
Net sales. Home heating oil net sales increased 29.8% to $279.7 million for the
- ---------
three months ended March 31, 1996, as compared to $215.4 million for the three
months ended March 31, 1995. This growth was due both to increased volume and
to higher selling prices associated with a significant rise in wholesale costs.
Total sales of heating oil and propane increased only 10.2% from the first
quarter of 1995 to the first quarter of 1996, as propane sales, which amounted
to $38.3 million in the first quarter of 1995, were eliminated from Petro's 1996
financials as a result of the Star MLP.
Gross profit. Home heating oil gross profit increased 17.6% to $100.8 million
- ------------
for the three months ended March 31, 1996, as compared to $85.7 million for the
three months ended March 31, 1995 due to the increased volume described above.
Gross profit did not increase to the same extent as volume due to a) an
unexpected 1.3 cent per gallon decline in home heating oil margins, caused by a
significant and rapid increase in supply costs, and b) the effect of record
winter storms on service expense, which is included in the Company's calculation
of gross profit. While in previous years the Company has been able to respond
to supply cost increases by increasing selling prices, the sudden spike
occurring in the first quarter of 1996 outpaced the Company's ability to raise
selling prices in the immediate term. Based on first quarter 1996 volumes, the
impact of this unusual
- 10 -
<PAGE>
margin decline on gross profit is over $3.0 million. In addition, the heavy
snow storms of January and February 1996 resulted in an estimated additional
$0.5 million increase in service expense. Total heating oil and propane gross
profit declined 5.2% from the first quarter of 1995 to the first quarter of
1996, as propane gross profit, which amounted to $20.7 in the first quarter of
1995, was not included in Petro's 1996 financials as a result of the Star MLP.
Selling, general and administrative expenses (S,G&A). Home heating oil selling,
- ----------------------------------------------------
general and administrative expenses increased 15.4% to $27.4 million for the
three months ended March 31, 1996, as compared to $23.8 million for the three
months ended March 31, 1995. This increase was below the increase in volume
despite the effect of the winter storms, reflecting lower per gallon costs. It
is estimated that the impact of the storms on branch expenses in the first
quarter of 1996 was approximately $0.5 million, and that, excluding the effect
of the storms, per gallon costs were 6.1% lower than the prior year period. This
improvement was due to the Company's efforts to take advantage of operational
economies. As an example of these economies, while the Company's customer base
increased by 9.0% from the first quarter of 1995 to the first quarter of 1996,
S,G&A personnel required to service and maintain this growing customer base
increased only 3.2%. Total selling, general and administrative expenses
decreased 11.8% from the first quarter of 1995 to the first quarter of 1996, as
propane expenses, which amounted to $7.3 million in the first quarter of 1995,
were eliminated from Petro's 1996 financials as a result of the Star MLP.
Direct delivery expenses. Home heating oil direct delivery expenses increased
- ------------------------
28.5% to $14.5 million for the three months ended March 31, 1996, as compared to
$11.3 million for the three months ended March 31, 1995. This increase was
larger than the comparable gain in volume delivered as a result of the severe
winter snow storms in the first quarter of 1996, which impacted delivery
productivity and required the Company to pay additional overtime and retain
temporary personnel. Excluding the estimated $1.0 million effect of the storms,
delivery expenses declined by 3.0% on a per gallon basis as a result of the
Company's efforts in 1995 and 1996 to improve delivery efficiency. Total direct
delivery expenses decreased 0.8% from the first quarter of 1995 to the first
quarter of 1996, as propane delivery expenses, which amounted to $3.3 million in
the first quarter of 1995, were not included in Petro's 1996 financials as a
result of the Star MLP.
Amortization of customer lists. Home heating oil amortization of customer lists
- ------------------------------
increased 3.5% to $4.8 million for the three months ended March 31, 1996, as
compared to $4.6 million for the three months ended March 31, 1995 as the impact
of the Company's recent acquisitions exceeded the effect of certain customer
lists becoming fully amortized. Total amortization of customer lists decreased
12.2% from the first quarter of 1995 to the first quarter of 1996, as propane
customer list amortization, which amounted to $0.8 million in the first quarter
of 1995, was eliminated from Petro's 1996 financials as a result of the Star
MLP.
Depreciation and amortization of plant and equipment. Home heating oil
- ----------------------------------------------------
depreciation and amortization of plant and equipment increased 18.8% to $1.7
million for the three months ended March 31, 1996, as compared to $1.4 million
for the three months ended March 31, 1995 as a result of the Company's recent
acquisitions, which outpaced the impact of certain assets becoming fully
depreciated. Total depreciation and amortization of plant and equipment
decreased 40.9% from the first quarter of 1995 to the first quarter of 1996, as
propane-related depreciation, which amounted to $1.4 million in the first
quarter of 1995, was eliminated from Petro's 1996 financials as a result of the
Star MLP.
- 11 -
<PAGE>
Amortization of deferred charges. Home heating oil amortization of deferred
- --------------------------------
charges remained virtually unchanged at $1.4 million for the three months ended
March 31, 1996. Total amortization of deferred charges decreased from $1.5
million in the first quarter of 1995 to $1.4 million in the first quarter of
1996, as the impact of propane-related amortization of deferred charges, which
amounted to $0.1 million of in the first quarter of 1995, was not included in
Petro's 1996 financials as a result of the Star MLP.
Provision for supplemental benefits. Provision for supplemental benefits
- -----------------------------------
declined to $0.2 million for the three months ended March 31, 1996, as compared
to $0.3 million for the three months ended March 31, 1995. These supplemental
benefits reflect the extension of the exercise date of certain options
previously issued, and the change in provision is due to a reduction of the
accrual required under the vesting schedule of those options.
Operating income. Home heating oil operating income increased 18.6% to $50.9
- ----------------
million for the three months ended March 31, 1996, as compared to $42.9 million
for the three months ended March 31, 1995. This increase was largely a result of
higher volume and improved operating costs, and was despite the unusual decline
in gross profit margins and the effect of the record storms. Total operating
income increased only $0.3 million, however, as the $8.0 million increase in
home heating oil operating income was offset by the nonconsolidation of Star
which, for the first quarter of 1995, contributed $7.7 million.
Net interest expense. Net interest expense declined 8.2% to $8.5 million for
- --------------------
the three months ended March 31, 1996, as compared to $9.2 million for the three
months ended March 31, 1995. This decline was due to the fact that while total
debt outstanding as of March 31, 1996 declined $74.7 million, or 20.2%, versus
March 31, 1995, average borrowings over the quarters decreased only $28.5
million due to the fact that a significant portion of the debt repayment
occurred during the middle of the first quarter of 1996. This significant
reduction in debt occurred largely as a result of the application of proceeds
from the Star MLP. In addition to retirement of debt, the Star MLP proceeds were
also used to fund acquisitions and provide for the growth in first quarter
working capital required by the increase in volume, selling prices and cost of
goods.
Other income. Other income declined from an $0.9 million for the three months
- ------------
ended March 31, 1995 to less than $0.1 million for the three months ended March
31, 1996, reflecting the unusual sale of the Company's non-strategic New
Hampshire heating oil operations during the first quarter of 1995.
Equity in earnings of Star Gas Partnership. Equity in earnings of Star Gas
- ------------------------------------------
Partnership were $3.4 million for the three months ended March 31, 1996. For
the three months ended March 31, 1995, Star Gas' results were consolidated with
the Company's.
Income before extraordinary items. Income before extraordinary items increased
- ---------------------------------
8.6% to $45.5 million for the three months ended March 31, 1996, as compared to
$41.9 million for the three months ended March 31, 1995 as the $8.0 million
increase in heating oil operating income was only slightly offset by the decline
of $0.9 million in gain on the sale of heating oil businesses. In contrast,
the elimination of Star's operating income, which was $7.7 million in the first
quarter of 1995 was only partially recouped through the recorded equity in
earnings of Star Gas Corporation of $3.4 million and the $0.8 reduction in
interest expense. As noted above, however, this reduction in interest expense
did not fully reflect the impact of debt reduction due to the timing of the
repayment.
- 12 -
<PAGE>
Extraordinary item - loss on early extinguishment of debt. In February 1996,
- ---------------------------------------------------------
the Company recorded an extraordinary charge of $6.4 million in connection with
the retirement of $43.8 million of 12.25% debt due 2005. This amount includes
both a prepayment premium of $4.8 million and a write-off of deferred charges of
$1.6 million associated with the issuance of that debt.
Net income. Net income declined 6.8% to $39.0 million for the three months
- ----------
ended March 31, 1996, as compared to $41.9 million for the three months ended
March 31, 1995 as a result of the extraordinary item described above.
EBITDA*. Home heating oil EBITDA increased 16.2% to $58.9 million for the three
- -------
months ended March 31, 1996, as compared to $50.7 million for the three months
ended March 31, 1995. This gain resulted from increased volume and improved
operating expense performance, and was despite the impact of the margin decline
and the storm related expenses. Total EBITDA decreased 2.9% the first quarter of
1995 to the first quarter of 1996, as the impact of propane EBITDA, which
amounted to $10.0 million in the first quarter of 1995, was eliminated from
Petro's 1996 financials as a result of the Star MLP.
NIDA**. While home heating oil EBITDA increased $8.2 million, NIDA declined
- ------
2.8% due to the nonconsolidation of Star Gas, which contributed $10.0 million of
EBITDA in the first quarter of 1995. While proceeds from the Star MLP were used
to reduce debt, the resulting impact on interest expense was not fully reflected
in the first quarter of 1996 as a result of the timing of the repayment.
Furthermore, while Petro will receive distributions from Star reflecting its
ownership interest for the first three months of 1996, this distribution will
not occur until mid-May, 1996.
__________________________
* EBITDA is defined as operating income before depreciation and amortization,
non-cash charges relating to the grant of stock options to executives of the
Company, and the amount of non-cash expenses associated with key employees'
deferred compensation plans.
** NIDA is defined as net income (loss) before extraordinary items, 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.
- 13 -
<PAGE>
Liquidity and Financial Condition
- ----------------------------------
In December 1995, the Company received net proceeds from the transfer of its
propane assets to the Star Gas Partnership of $134.7 million, $83.7 million from
Star Gas Corporation's First Mortgage Notes and $51.0 million from the Star Gas
MLP equity offering. Approximately $30.0 million of these funds were used in
1995, $24.0 million to repay long-term debt and $6.0 million reserved to
guarantee the Star Gas Partnership's minimum quarterly distribution. In
February 1996, $48.6 million of these funds were used to retire $43.8 million of
the Company's $125.0 million 12 1/4% Subordinated Debentures due 2005 at an
eleven percent premium. Overall, the transaction had the effect of enabling
Petro to recoup virtually its entire investment in Star Gas, while allowing
Petro to retain operational control as general partner and a continuing equity
ownership interest of 46.5%. Furthermore, the net proceeds of $134.7 million
allowed Petro to reduce its outstanding debt by approximately $70.0 million by
the first quarter of 1996, and provided the Company with a significant amount of
additional working capital to fund future expansion.
For 1996, net cash provided by credit facility borrowings of $19.0 million,
partially offset by the use of cash for operating activities (resulting from the
weather related increase in accounts receivable) of $7.0 million, amounted to
$12.0 million. These funds were utilized in investing activities for
acquisitions and purchase of fixed assets of $18.4 million; and in financing
activities to pay dividends of $5.0 million, to repay notes payable of $2.1
million, and to repurchase subordinated notes of $48.6 million (as described in
the preceding paragraph). These financing activities were partially offset by
cash provided by financing activities of $2.6 million, which includes $0.4
million of dividend reinvestment proceeds. As a result of the above activities,
the Company's cash balance decreased by $59.5 million to $18.8 million at March
31, 1996.
The Company currently has available a $60.0 million working capital revolving
credit facility. At March 31, 1996, $19.0 million was outstanding under this
credit facility, and the Company had $87.8 million of working capital.
For the remainder of 1996, the Company anticipates paying dividends on its
Common Stock before dividend reinvestment of approximately $11.5 million,
redeeming $4.2 million of Redeemable Preferred Stock, and paying $1.2 million in
preferred stock dividends. Based on the Company's current cash and working
capital position, and bank credit facility, the Company expects to be able to
meet all of the above mentioned obligations, as well as meet all of its other
current obligations as they become due.
- 14 -
<PAGE>
Restructuring Charges
- ---------------------
Under the guidance of the Chief Operating Officer and a leading consulting firm,
a major strategic study aimed at improving the Company's organizational and
marketing effectiveness and financial performance was completed in late 1995.
The study provided management with certain recommendations regarding
improvements in structure, training and technology. The Company is utilizing
the relatively less operationally demanding non-heating season period from April
to September to begin implementation of the study's recommendations.
As part of the implementation program, Petro began undertaking certain business
improvement strategies in its Long Island, New York region. These steps include
the consolidation of the region's five home heating oil branches into one
central customer service center and three depots. The regional customer service
center will consolidate accounting, credit, customer service and sales functions
into a single, new facility in central Long Island. All external communications
and marketing previously undertaken in the five branches will be centralized
into this one location freeing the three newly configured depots to focus on oil
delivery and heating equipment repair, maintenance and installation, in mutually
exclusive operating territories. The preliminary stage of this plan is expected
to be implemented in the third quarter of 1996.
In April 1996, after finalizing all aspects of this plan the Company formally
announced to the employees its intention to restructure certain aspects of its
Long Island, New York operations. It is anticipated that the restructuring costs
will include termination benefit arrangements with employees, continuing lease
obligations for unused facilities, and certain other restructuring expenses
currently estimated to be between $1.5 million and $2.0 million in total. Now
that all aspects of the plan have been formalized and communicated to the
employees, and the costs associated with the plan can be reasonably estimated,
the Company will reflect these expenses in April 1996's results.
- 15 -
<PAGE>
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.
- 16 -
<PAGE>
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 9, 1996
- -------------
Irik P. Sevin Board, Chief Executive Officer,
and Chief Financial and
Accounting Officer and Director
- 17 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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, 1996 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-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 18,819
<SECURITIES> 0
<RECEIVABLES> 135,710
<ALLOWANCES> 1,452
<INVENTORY> 13,997
<CURRENT-ASSETS> 181,988
<PP&E> 70,555
<DEPRECIATION> 39,641
<TOTAL-ASSETS> 341,100
<CURRENT-LIABILITIES> 94,199
<BONDS> 291,960
12,500
0
<COMMON> 2,527
<OTHER-SE> (68,935)
<TOTAL-LIABILITY-AND-EQUITY> 341,100
<SALES> 268,534
<TOTAL-REVENUES> 279,655
<CGS> 156,848
<TOTAL-COSTS> 178,817
<OTHER-EXPENSES> 49,468
<LOSS-PROVISION> 430
<INTEREST-EXPENSE> 9,114
<INCOME-PRETAX> 42,490
<INCOME-TAX> 400
<INCOME-CONTINUING> 45,455
<DISCONTINUED> 0
<EXTRAORDINARY> (6,414)
<CHANGES> 0
<NET-INCOME> 39,041
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.49
</TABLE>
