UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
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, CT 06902
- --------------------------------------- ----------------
(Address of principal executive Offices) (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 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, 1997 there were 23,149,769 shares of the Registrant's Class A
Common Stock, 11,228 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/A
Page
----
Part 1 Financial Information:
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets March 31, 1997
and December 31, 1996 3
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1997 and March 31, 1996 4
Condensed Consolidated Statement of Changes in
Stockholders' Equity (Deficiency) for the Three Months
Ended March 31, 1997 5
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and March 31, 1996 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial
Conditions and Results of Operations 8 - 13
Part 2 Other Information:
Item 6 - Exhibits and reports on Form 8-K 14
Signature 15
<PAGE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
March 31, December 31,
Assets 1997 1996
- ------ --------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 11,174 $ 3,257
Restricted cash 3,000 3,000
Accounts receivable (net of allowance of $1,904 and $1,088) 118,970 93,362
Inventories 13,725 22,084
Prepaid expenses 6,343 7,008
Notes receivable and other current assets 1,483 1,299
--------- ---------
Total current assets 154,695 130,010
--------- ---------
Property, plant and equipment - net 29,339 30,666
Intangible assets (net of accumulated amortization
of $289,116 and $283,486)
Customer lists 73,955 77,778
Deferred charges and pension costs 26,220 25,718
--------- ---------
100,175 103,496
--------- ---------
Investment in and advances to the Star Gas Partnership 31,008 29,907
Deferred gain on Star Gas Transaction (19,964) (19,964)
--------- ---------
11,044 9,943
Other assets 1,085 910
--------- ---------
$ 296,338 $ 275,025
========= =========
Liabilities and Stockholders' Equity (Deficiency)
- -------------------------------------------------
Current liabilities:
Working capital borrowings $ 6,000 $ 22,000
Current debt 3,030 3,047
Current maturities of cumulative redeemable preferred stock 4,167 4,167
Accounts payable 14,526 18,988
Customer credit balances 7,186 17,468
Unearned service contract revenue 12,875 15,388
Accrued expenses and other liabilities 28,367 30,859
--------- ---------
Total current liabilities 76,151 111,917
--------- ---------
Supplemental benefits and other liabilities 1,573 1,584
Pension plan obligation 7,581 7,587
Notes payable and other long-term debt 16,408 16,787
Senior notes payable 63,100 34,150
Subordinated notes payable 209,350 240,400
Cumulative redeemable preferred stock 38,333 8,333
Common stock redeemable at option of stockholder (124 Class A
and 31 Class C shares) 984 984
Note receivable from stockholder (984) (984)
Stockholders' equity (deficiency):
Class A common stock-par value $.10 per share; 40,000 shares
authorized, 23,026 and 22,931 shares outstanding 2,304 2,294
Class B common stock-par value $.10 per share; 6,500 shares
authorized, 11 shares outstanding 1 1
Class C common stock-par value $.10 per share; 5,000 shares
authorized, 2,567 sharesoutstanding 257 257
Additional paid-in capital 77,808 78,804
Deficit (190,463) (221,024)
Minimum pension liability adjustment (6,065) (6,065)
--------- ---------
Total stockholders' equity (deficiency) (116,158) (145,733)
--------- ---------
$296,338 $275,025
======== ========
</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,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
Net sales $ 248,095 $ 279,655
Cost of sales 163,505 178,817
--------- ---------
Gross profit 84,590 100,838
Selling, general and administrative expenses 25,296 27,422
Direct delivery expense 12,147 14,486
Amortization of customer lists 4,500 4,789
Depreciation of plant and equipment 1,721 1,657
Amortization of deferred charges 1,130 1,352
Provision for supplemental benefits 141 192
--------- ---------
Operating income 39,655 50,940
Other income (expense):
Interest expense (8,805) (9,114)
Interest income 410 629
Other 25 35
--------- ---------
Income before income taxes, equity interest
and extraordinary item 31,285 42,490
Income taxes 375 400
--------- ---------
Income before equity interest and extraordinary item 30,910 42,090
Equity in earnings of Star Gas Partnership 2,478 3,365
--------- ---------
Income before extraordinary item 33,388 45,455
Extraordinary item-loss on early extinguishment of debt -- (6,414)
--------- ---------
Net income $ 33,388 $ 39,041
========= =========
Preferred Stock dividends (896) (1,194)
--------- ---------
Net income applicable to common stock $ 32,492 $ 37,847
========= =========
Income before extraordinary item per common share:
Class A Common Stock $ 1.26 $ 1.74
Class B Common Stock -- --
Class C Common Stock 1.26 1.74
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 $ 1.26 $ 1.49
Class B Common Stock -- --
Class C Common Stock 1.26 1.49
Cash dividends declared per common share:
Class A Common Stock $ .075 $ .15
Class B Common Stock -- --
Class C Common Stock .075 .15
Weighted average number of common shares outstanding:
Class A Common Stock 23,150 22,862
Class B Common Stock 11 13
Class C Common Stock 2,598 2,598
</TABLE>
See accompanying notes to consolidated financial statements
-4-
<PAGE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity (Deficiency)
(Unaudited)
Three Months Ended March 31, 1997
(In thousands)
<TABLE>
<CAPTION>
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 Adj. Total
------ ------ ------ ------ ------ ------ --------- --------- --------- ---------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 22,931 $2,294 11 $1 2,567 $257 $78,804 $(221,024) $(6,065) $(145,733)
Net income 33,388 33,388
Cash dividends
declared and paid (896) (896)
Cash dividends
payable (1,931) (1,931)
Class A Common
Stock issued
under the Dividend
Reinvestment Plan 95 10 574 584
Preferred stock
offering costs (1,625) (1,625)
Other 55 55
Balance at ------------------------------------------------------------------------------------------------------------
March 31, 1997 23,026 $2,304 11 $1 2,567 $257 $77,808 $(190,463) $(6,065) $(116,158)
============================================================================================================
</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
March 31,
---------------------
(In thousands) 1997 1996
--------- ---------
Cash flows from (used in) operating activities:
<S> <C> <C>
Net income $ 33,388 $ 39,041
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Amortization of customer lists 4,500 4,789
Depreciation of plant and equipment 1,721 1,657
Amortization of deferred charges 1,130 1,352
Share of income of Star Gas (2,478) (3,365)
Provision for losses on accounts receivable 476 430
Provision for supplemental benefits 141 192
Loss on early extinguishment of debt -- 6,414
Other (31) (41)
Change in Operating Assets and Liabilities, net of
effects of acquisitions and dispositions:
Increase in accounts receivable (26,084) (39,327)
Decrease in inventory 8,359 6,416
Decrease (increase) in other current assets 481 (1,182)
Decrease (increase) in other assets (175) 33
Decrease in accounts payable (4,462) (4,315)
Decrease in customer credit balances (10,282) (13,298)
Decrease in unearned service contract revenue (2,513) (2,638)
Decrease in accrued expenses (566) (3,112)
--------- ---------
Net cash provided by (used in) operating activities 3,605 (6,954)
--------- ---------
Cash flows from (used in) investing activities:
Minimum quarterly distributions from Star Gas Partnership 1,377 --
Acquisitions (775) (17,460)
Capital expenditures (480) (951)
Net proceeds from sales of fixed assets 177 40
--------- ---------
Net cash provided by (used in) investing activities 299 (18,371)
--------- ---------
Cash flows from (used in) financing activities:
Net proceeds from issuance of common stock 584 359
Net proceeds from issuance of preferred stock 28,375 --
Repayment of notes payable (1,050) (1,050)
Repurchase of common stock -- (13)
Repurchase of subordinated notes (1,050) (49,612)
Credit facility borrowings 13,000 29,000
Credit facility repayments (29,000) (10,000)
Cash dividends paid (4,753) (5,016)
Other (2,093) 2,191
--------- ---------
Net cash provided by (used in) financing activities 4,013 (34,141)
--------- ---------
Net increase (decrease) in cash 7,917 (59,466)
Cash at beginning of year 3,257 78,285
--------- ---------
Cash at end of year $ 11,174 $ 18,819
========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest 10,055 $ 12,581
Income taxes 99 120
</TABLE>
See accompanying notes to consolidated financial statements
-6-
<PAGE>
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, 1997 are not
necessarily indicative of the results to be expected for the full year.
2. Accounting Changes
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128 - "Earnings Per
Share." SFAS No. 128 requires presentation of "basic" and "diluted"
earnings per share for periods ending after December 15, 1997. The impact
of adopting SFAS No. 128 will be immaterial.
3. Per Share Data
The Company computes net income per common share 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 $896,000 and $1,194,000 for the three months
ended March 31, 1997 and 1996 respectively. Diluted net income per common
shares are not presented because the effect is not material.
4. Acquisitions / Sale
During the three month period ending March 31, 1997 the Company acquired
the customer lists and equipment of one unaffiliated fuel oil dealer. The
aggregate consideration for this acquisition, accounted for by the purchase
method, was approximately $0.7 million. Sales and net income of the
acquired company is included in the consolidated statement of income from
the respective dates of acquisition.
Had this acquisition occurred at the beginning of the period, the pro forma
unaudited results of operations for the three months ended March 31, 1997
would have been as follows:
(In thousands, Except Per Share)
--------------------------------
Net sales $ 248,288
Net income 33,438
Net income per common share:
Class A Common Stock $ 1.26
Class B Common Stock -
Class C Common Stock $ 1.26
5. Deferred Gain on Star Gas Transaction
In accordance with the Company's accounting policies, the Company deferred
the gain of approximately $20.0 million for this transaction because the
Company received subordinate units which do not readily have an
ascertainable market price creating an uncertainty regarding realization,
and due to the fact that Star Gas as general partner had a $6.0 million
additional capital contribution obligation to enhance the Partnership's
ability to make quarterly distributions on the common units (at March 31,
1997, $3.0 million of these funds were restricted at the Star Gas level,
with $3.0 million having been released to Petro in 1996 as certain
quarterly guarantee provisions were fulfilled). The Company will recognize
the gain from this transaction when the Company's subordinated units
convert into common units in accordance with the terms of the partnership
agreement and when the funds from the Company's capital contribution
obligaton have all been released. In general, full conversion of
subordinated units to common units will take place no earlier than the
first day of any Quarter beginning on or after January 1, 2001, based upon
the satisfaction of certain performance criteria for a period of at least
three non-overlapping consecutive four-Quarter periods immediately
preceding the conversion date.
-7-
<PAGE>
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, 1997
Compared to Three Months Ended March 31, 1996
Volume Volume declined 17.0% to 192.5 million gallons of home heating oil for
the three months ended March 31, 1997, as compared to 232.0 million gallons for
the three months ended March 31, 1996. This decrease was largely due to 11.8%
warmer weather, as temperatures were significantly warmer than normal (8.4%) in
the first quarter of 1997, in contrast to the slightly colder than normal
weather experienced during the first quarter of 1996; a substantial shift in
deliveries from the first quarter of 1997 into the second quarter of 1997, as
the Company reduced variable operating expenses in the first quarter of 1997 in
response to the significantly warmer weather; and net account attrition.
Partially offsetting these negative factors was the acquisition by the Company
of fourteen individually insignificant heating oil companies since the beginning
of the first quarter of the year.
Net sales Net sales decreased 11.3% to $248.1 million for the three months
ended March 31, 1997, as compared to $279.7 million for the three months ended
March 31, 1996. This decline was due to decreased volume, partially offset by
higher selling prices associated with a rise in wholesale costs.
Gross profit Gross profit decreased 16.1% to $84.6 million for the three months
ended March 31, 1997, as compared to $100.8 million for the three months ended
March 31, 1996 due to the decreased volume described above. Gross profit did not
decline to the same extent as volume due to a one cent per gallon increase in
home heating oil margins in 1997 as compared to 1996, and the impact on service
costs, which are included in the calculation of the Company's gross profit, of
the record winter storms in the first quarter of 1996.
Selling, general and administrative expenses (SG&A) Selling, general and
administrative expenses decreased 7.8% to $25.3 million for the three months
ended March 31, 1997, as compared to $27.4 million for the three months ended
March 31, 1996. This decrease was due both to the Company's ability to reduce
certain overhead costs in response to the warm weather and the associated
decline in volume and to reductions in branch-level expenses resulting from the
Company's operational programs.
Direct delivery expenses Direct delivery expenses decreased 16.1% to $12.1
million for the three months ended March 31, 1997, as compared to $14.5 million
for the three months ended March 31, 1996. This decreased was due to the
reduction in volume, as the Company responded to warmer weather by reducing its
variable operating costs, and to the presence in the first quarter of 1996, of
severe winter storms which increased the Company's delivery expenses.
-8-
<PAGE>
Amortization of customer lists Amortization of customer lists decreased 6.0% to
$4.5 million for the three months ended March 31,1997, as compared to $4.8
million for the three months ended March 31,1996 as the impact of the Company's
recent acquisitions largely offset the effect of certain customer lists becoming
fully amortized.
Depreciation and amortization of plant and equipment Depreciation and
amortization of plant and equipment remained virtually unchanged at $1.7 million
for the three months ended March 31,1997, as compared to the three months ended
March 31, 1996, as the Company's recent acquisitions kept pace with the impact
of certain assets which became fully depreciated.
Amortization of deferred charges Amortization of deferred charges declined
16.4% to $1.1 million for the three months ended March 31, 1997, as compared to
$1.4 million for the three months ended March 31, 1996, as the impact of certain
deferred charges fully amortized exceeded the impact of the Company's
acquisition.
Provision for supplemental benefits Provision for supplemental benefits declined
to $ 0.1 million for the three months ended March 31,1997, as compared to $0.2
million for the three months ended March 31, 1996. 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 Operating income decreased 22.2% to $39.7 million for the three
months ended March 31, 1997, as compared to $50.9 million for the three months
ended March 31,1996. This decrease was largely a result of the weather-related
decline in volume, partially offset by the Company's ability to contain certain
overhead costs in response to the decline in volume.
Net interest expense Net interest expense remained relatively unchanged at $8.4
million for the three months ended March 31, 1997, as compared to $8.5 million
for the three months ended March 31, 1996, as a $0.3 million decline in gross
interest expense resulting from both a slight decline in average borrowings
outstanding and average rate was offset by a $0.2 million decline in interest
income.
Equity in earnings of Star Gas Partnership The Company's interest in Star Gas
has been accounted for on an equity basis since the Star Gas Transaction (as
described in the Company's 1996 annual report on form 10K) in December of 1995.
Equity in earnings of Star Gas Partnership declined 26.4% to $2.5 million for
the three months ended March 31, 1997, as compared to $3.4 million for the three
months ended March 31, 1996. This declined was due to the impact of warm weather
on Star Gas' propane volume and net income.
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 14.5% to $33.4 million for the three months
ended March 31, 1997, as compared to $39.0 million for the three months ended
March 31, 1996. This decline was largely due to the impact of warm first quarter
weather on both the Company's and Star's volume, partially offset by the
absence, in 1997, of the extraordinary item described above.
-9-
<PAGE>
EBITDA* EBITDA decreased 20.0% to $47.1 million for the three months ended March
31, 1997, as compared to $58.9 million for the three months ended March 31,
1996. This decline resulted primarily from reduced volume caused by warm first
quarter 1997 weather.
NIDA** NIDA declined 21.4% to $38.9 million for the three months ended March 31,
1997, as compared to $49.5 million for the three months ended March 31, 1996.
This decrease was directly the result of the weather-related reduction in
EBITDA (described above).
* EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is
defined as operating income before depreciation, amortization, non-cash charges
relating to the grant of stock options to executives of the Company, non-cash
charges associated with deferred compensation plans and other non-cash charges
of a similar nature, if any. EBITDA should not be considered as an alternative
to net income (as an indicator of operating performance) or as an alternative to
cash flow (as a measure of liquidity or availability to service debt
obligations), but provides additional significant information in that EBITDA is
a principal basis upon which the Company assesses its financial performance.
** NIDA (Net Income (Loss) Before Extraordinary Item, Depreciation and
Amortization) is defined as net income (loss) before extraordinary item, 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, plus any cash dividends received
by the Company from these investments. NIDA should not be considered as an
alternative to net income (as an indicator of operating performance) or as an
alternative to cash flow (as a measure of liquidity or ability to service debt
obligations) but provides additional information in that NIDA is a principal
basis upon which the Company assesses its financial performance.
-10-
<PAGE>
Liquidity and Financial Condition
In February 1997 the Company entered into agreements ("Private Debt
Modifications") to among other things, exchange the remaining $30.0 million of
its $60.0 million 11.85%, 12.17%, and 12.18% notes ("11.96% Notes") ranked as
subordinated debt to senior debt, and to extend the maturity date of the $60.0
million 11.96% Notes from October 1, 1998 to October 1, 2002 with $15.0 million
sinking fund payments due on October 1, 2000 and October 1, 2001 and the
remaining $30.0 million balance due on October 1, 2002.
Also in February 1997 the Company issued $30.0 million of 12 7/8% Exchangeable
Preferred Stock due February 15, 2009. The intended use of this offering's net
proceeds of $28.4 million is for general corporate purposes, as well as funding
the Company's operational restructuring and acquisition programs.
Net cash provided by operating activities of $3.6 million combined with the
$28.4 million net proceeds from the 12 7/8% Exchangeable Preferred Stock
offering described in the previous paragraph, amounted to $32.0 million. These
funds were utilized in investing activities for an acquisition and the purchase
of fixed assets of $1.3 million; and in financing activities to repay notes
payable of $1.1 million, repurchase subordinated notes of $1.1 million, repay
net credit facility borrowings of $16.0 million, pay cash dividends of $4.8
million, and other financing activities of $2.0 million, which includes $1.2
million associated with the Private Debt Modification of the 11.96% Notes. These
financing activities were partially offset by cash provided from the Star Gas
minimum quarterly distribution of $1.4 million, proceeds from the sale of fixed
assets of $0.2 million, and proceeds from dividend reinvestments of $0.6
million. As a result of the above activities, the Company's cash balance
increased by $7.9 million.
The Company currently has available a $60.0 million working capital revolving
credit facility. At March 31, 1997, $6.0 million was outstanding under this
credit facility, and the Company had $78.5 million of working capital.
For the remainder of 1997, the Company anticipates paying dividends on its
Common Stock before dividend reinvestment of approximately $5.8 million,
redeeming $4.2 million of Redeemable Preferred Stock, and paying $3.8 million in
preferred stock dividends.
In addition, as a result of the December 1995 Star Gas Transaction, Star Gas
Corporation, a wholly-owned subsidiary of the Company, as general partner
remains contingently liable for the Partnership's obligations. These contingent
liabilities are limited to Star Gas Corporation. Furthermore, to enhance the
Partnership's ability to pay a minimum quarterly distribution on its common
units, Star Gas agreed, subject to certain limitations, to contribute up to $6.0
million in additional capital to the Partnership if, and to the extent that, the
amount of available cash constituting operating surplus with respect to any
quarter is less than the amount necessary to distribute the minimum quarterly
distribution on all outstanding common units for such quarter. At March 31, 1997
$3.0 million of these funds were restricted at the Star Gas level, with $3.0
million having been released to Petro in 1996 as certain quarterly guarantee
provisions were fulfilled.
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.
-11-
<PAGE>
Restructuring Charges
Over the past two years Petro has dedicated a large amount of effort toward
defining the best possible organizational structure for the Company. The
objective has been to structure the Company to provide superior service to its
customers, build a brand image, and reduce operating costs.
As part of the initial implementation of this program, Petro undertook certain
business improvement strategies in its Long Island, New York region. These steps
included 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 consolidated accounting, credit, customer service and the sales
function into a single new facility in Port Washington, Long Island. All
external communications and marketing previously undertaken in the five branches
were 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 Company incurred
$1.2 million in restructuring expenses in the second quarter of 1996, for costs
associated with the initial implementation of the restructuring program.
In April 1997, based on the success experienced in Long Island, the Company
informed its employees of the intentions to continue the restructuring activity.
Such activity includes combining the Company's three New York City branches into
one new central depot specializing in delivery, installation, maintenance, and
service functions only, and like the Long Island depots, support it with the
Port Washington facility. It is anticipated that the restructuring costs will
include termination benefit arrangements with employees and continuing lease
obligations for unused non-cancelable non-strategic facilities. The Company
estimates that restructuring expenses associated with this stage of the
restructuring plan will be between $1.5 million and $2.0 million. Since all
aspects of the plan were formalized and communicated to the employees in April
1997, and it was possible to reasonably estimate the costs associated with the
plan, the Company reflected these restructuring expenses in the second quarter
of 1997.
Corporate Identity Expenses
Concurrently with the Company's initial restructuring efforts to increase
productivity and customer responsiveness, it implemented a corporate identity
program to increase the brand awareness of the "Petro" name among heating oil
customers. The implementation of this program began in April 1996 with its Long
Island region, where the new "Petro" identity and image was established while
the region was being restructured. Under this program, the Company began
servicing its approximate 100,000 Long Island customers using the "Petro" brand
name, rather than the twelve previously in use. As of December 31, 1996, the
Company expended $2.7 million for corporate identity expenses, which represent
the costs associated with repainting the fleet, issuing new uniforms and
advertising the new "Petro" brand name.
As the Company continues its restructuring program, it will also proceed with
the corporate identity program. The Company expects to incur an additional $1.5
million in corporate identity expenses when it combines and restructures its
three New York City branches, and an additional $3.0 million when it establishes
the Mid-Atlantic region.
-12-
<PAGE>
Statement Regarding Forward-Looking Disclosure
This report includes "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act which represents
the Company's expectations or beliefs concerning future events that involve
risks and uncertainties, including those associated with the effect of weather
conditions on the company's financial performance, the price and supply of home
heating oil, the ability of the Company to obtain new accounts and retain
existing accounts and the ability of the Company to realize cost reductions from
its operational restructuring program. All statements other than statements of
historical facts included in this Report including, without limitation, the
statements under "Management's Discussion and Analysis of Results of Operations
and Financial Condition" and elsewhere herein, are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct.
-13-
<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
Registrant filed a report on Form 8-K on January 22, 1997, to report
under Item 5., "Other Events," a copy of the Press Release issued on
January 22, 1997 announcing the sale of $30.0 million of Exchangeable
Preferred Stock to institutional investors, the reduction of dividends
from an annual rate of $0.60 per share to $0.30 per share, the
extension in the maturity of its $60.0 million Senior and Subordinated
Notes, and the announcement of the promotion of Thomas M. Isola to
President.
-14-
<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 Chairman of the Board, Chief May 14, 1997
- ------------- Executive Officer, and
Irik P. Sevin Chief Financial and Accounting
Officer and Director
-15-
<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, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 11,174
<SECURITIES> 0
<RECEIVABLES> 120,874
<ALLOWANCES> 1,904
<INVENTORY> 13,725
<CURRENT-ASSETS> 154,695
<PP&E> 72,501
<DEPRECIATION> 43,162
<TOTAL-ASSETS> 296,338
<CURRENT-LIABILITIES> 76,151
<BONDS> 288,858
38,333
0
<COMMON> 2,562
<OTHER-SE> (118,720)
<TOTAL-LIABILITY-AND-EQUITY> 296,338
<SALES> 237,784
<TOTAL-REVENUES> 248,095
<CGS> 143,072
<TOTAL-COSTS> 163,505
<OTHER-EXPENSES> 44,459
<LOSS-PROVISION> 476
<INTEREST-EXPENSE> 8,805
<INCOME-PRETAX> 31,285
<INCOME-TAX> 375
<INCOME-CONTINUING> 30,910
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,388
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.26
</TABLE>
