<PAGE>
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, 1998
--------------
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: 1-9358
------
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, 1998 there were 23,954,560 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
PAGE
PART 1 FINANCIAL INFORMATION:
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Operations for the
Three Months Ended
March 31, 1998 and March 31, 1997 4
Condensed Consolidated Statement of Changes in
Stockholders' Equity (Deficiency) for the
Three Months Ended March 31, 1998 5
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended
March 31, 1998 and March 31, 1997 6
Notes to Condensed Consolidated Financial Statements 7 - 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 11
PART 2 OTHER INFORMATION:
Item 6 - Exhibits and reports on Form 8-K 12
Signature 13
<PAGE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands, except per share data) (UNAUDITED)
MARCH 31, DECEMBER 31,
ASSETS 1998 1997
- ------ --------- --------
Current assets:
<S> <C> <C>
Cash $ 12,891 $ 2,390
Accounts receivable (net of allowance of $1,783 and $980) 81,003 78,987
Inventories 12,379 16,285
Prepaid expenses 5,608 6,203
Notes receivable and other current assets 687 1,259
------- -------
Total current assets 112,568 105,124
------- -------
Property, plant and equipment - net 29,780 30,615
Intangible assets (net of accumulated amortization
of $291,417 and $285,850)
Customer lists 64,829 69,265
Deferred charges 23,791 24,924
------- -------
88,620 94,189
Investment in and advances to the Star Gas Partnership 27,409 27,499
Deferred gain on Star Gas Transaction (19,964) (19,964)
------- -------
7,445 7,535
Cash collateral account 9,350 9,350
Other assets 1,014 1,033
------- -------
$ 248,777 $ 247,846
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Working capital borrowings $ - $ 3,000
Current debt 2,391 2,391
Current maturities of redeemable preferred stock 4,167 4,167
Accounts payable 9,463 14,759
Customer credit balances 13,233 20,767
Unearned service contract revenue 12,729 15,321
Accrued expenses and other liabilities 29,932 32,283
------- -------
Total current liabilities 71,915 92,688
------- -------
Supplemental benefits and other long-term liabilities 5,032 5,043
Pension plan obligation 5,696 5,702
Notes payable and other long-term debt 14,269 16,507
Senior notes payable 62,050 63,100
Subordinated notes payable 208,300 209,350
Redeemable and exchangeable preferred stock 32,652 32,489
Common stock redeemable at option of stockholder (83 Class A and
21 Class C shares) 656 656
Note receivable from stockholder (656) (656)
Stockholders' equity (deficiency):
Class A common stock-par value $.10 per share; 40,000 shares
authorized, 23,871 and 23,606 shares issued and outstanding 2,388 2,361
Class B common stock-par value $.10 per share; 6,500 shares
authorized, 11 shares issued and outstanding 1 1
Class C common stock-par value $.10 per share; 5,000 shares
authorized, 2,577 shares issued and outstanding 258 258
Additional paid-in capital 81,812 81,358
Deficit (230,950) (256,365)
Minimum pension liability adjustment (4,646) (4,646)
------- -------
Total stockholders' equity (deficiency) (151,137) (177,033)
------- -------
$ 248,777 $ 247,846
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
- 3 -
<PAGE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except per share data) THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $183,139 $248,095
Cost of sales 109,619 163,505
------- -------
GROSS PROFIT 73,520 84,590
Selling, general and administrative expenses 22,750 25,296
Direct delivery expense 10,037 12,147
Restructuring charges 535 -
Corporate identity expenses 152 -
Amortization of customer lists 4,435 4,500
Depreciation of plant and equipment 1,848 1,721
Amortization of deferred charges 1,132 1,130
Provision for supplemental benefits 89 141
------- -------
OPERATING INCOME 32,542 39,655
Other income (expense):
Interest expense (8,275) (8,805)
Interest income 461 410
Other 33 25
------- -------
Income before income taxes and equity interest 24,761 31,285
Income taxes 375 375
------- -------
Income before equity interest 24,386 30,910
Share of earnings of Star Gas Partnership 2,592 2,478
------- -------
NET INCOME $ 26,978 $ 33,388
======= =======
Preferred Stock dividends (1,563) (896)
------- -------
NET INCOME APPLICABLE TO COMMON STOCK $ 25,415 $ 32,492
======= =======
Basic earnings per Class A and Class C Common Stock $ .96 $ 1.26
Diluted earnings per Class A and Class C Common Stock $ .95 $ 1.26
</TABLE>
See accompanying notes to condensed consolidated financial statements.
- 4 -
<PAGE>
<TABLE>
<CAPTION>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
COMMON STOCK MINIMUM
----------------------------------------------------------
CLASS A CLASS B CLASS C 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, 1997 23,606 $2,361 11 $1 2,577 $258 $81,358 $(256,365) $(4,646) $(177,033)
NET INCOME 26,978 26,978
CASH DIVIDENDS
DECLARED AND PAID (1,563) (1,563)
CLASS A COMMON
STOCK ISSUED
UNDER THE DIVIDEND
REINVESTMENT PLAN 265 27 576 603
OTHER (122) (122)
BALANCE AT
========= ========= ========= ========= ========= ========= ============ ============== =========== ==========
MARCH 31, 1998 23,871 $2,388 11 $1 2,577 $258 $81,812 $(230,950) $(4,646) $(151,137)
========= ========= ========= ========= ========= ========= ============ ============== =========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
- 5 -
<PAGE>
<TABLE>
<CAPTION>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
(In thousands) MARCH 31,
-----------------------------
1998 1997
--------- --------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 26,978 $ 33,388
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Amortization of customer lists 4,435 4,500
Depreciation of plant and equipment 1,848 1,721
Amortization of deferred charges 1,132 1,130
Share of income of Star Gas (2,592) (2,478)
Provision for losses on accounts receivable 456 476
Provision for supplemental benefits 89 141
Other (39) (31)
Change in Operating Assets and Liabilities, net of effects of acquisitions and
dispositions:
Increase in accounts receivable (2,472) (26,084)
Decrease in inventory 3,906 8,359
Decrease in other current assets 1,167 481
Decrease (increase) in other assets 19 (175)
Decrease in accounts payable (5,296) (4,462)
Decrease in customer credit balances (7,534) (10,282)
Decrease in unearned service contract revenue (2,592) (2,513)
Decrease in accrued expenses (388) (566)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 19,117 3,605
------- -------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Minimum quarterly distributions from Star Gas Partnership 1,421 1,377
Acquisitions - (775)
Capital expenditures (1,014) (480)
Net proceeds from sales of fixed assets 34 177
------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES 441 299
------- --------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net proceeds from sale of Star Gas Units 1,271 -
Net proceeds from issuance of common stock 603 584
Net proceeds from issuance of preferred stock - 28,375
Repayment of senior notes payable (1,050) (1,050)
Repayment of subordinated notes payable (1,050) (1,050)
Credit facility borrowings 5,000 13,000
Credit facility repayments (8,000) (29,000)
Cash dividends paid (3,526) (4,753)
Other (2,305) (2,093)
------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (9,057) 4,013
------- --------
NET INCREASE IN CASH 10,501 7,917
CASH AT BEGINNING OF YEAR 2,390 3,257
------- --------
CASH AT END OF PERIOD $ 12,891 $ 11,174
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 9,569 $ 10,055
Income taxes $ 27 $ 99
</TABLE>
See accompanying notes to condensed 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 financial condition and results for the interim periods.
The results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for the full year.
2. ACCOUNTING CHANGES
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130 - "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting
comprehensive income and its components in financial statements and notes
thereto. This statement is effective for fiscal years beginning after
December 15, 1997. SFAS No. 130 was adopted and the Company's comprehensive
income consists of net income and the minimum pension liability adjustment.
Comprehensive income for the quarters ended March 31, 1998 and 1997, was
$26,978 and $33,388, respectively. Accumulated other comprehensive income
at March 31, 1998 and December 31, 1997 was $(4,646). The Company
calculates its minimum pension liability adjustment annually in the fourth
quarter in accordance with SFAS No. 87 - "Employers' Accounting for
Pensions" and no adjustment is reflected in quarterly comprehensive income
until such time.
In June 1997 the FASB issued SFAS No. 131 - "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 requires disclosures
about segments of an enterprise and related information such as the
different types of business activities and economic environments in which a
business operates. This statement is effective for fiscal years beginning
after December 15, 1997. The Company is still assessing the disclosure
requirements of this statement and as permitted will implement the
reporting requirements of this SFAS in its year-end financial statements.
3. EARNINGS PER SHARE
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1998 1997
---- ----
BASIC EARNINGS PER SHARE:
<S> <C> <C>
Net income $ 26,978 $ 33,388
Less: Preferred stock dividends (1,563) (896)
------ ------
Income available to common stockholders (Numerator) $ 25,415 $ 32,492
====== ======
Class A Common Stock 23,955 23,150
Class B Common Stock 11 11
Class C Common Stock 2,598 2,598
------ ------
Weighted average shares outstanding (Denominator) 26,564 25,759
====== ======
Basic earnings per share $ .96 $ 1.26
====== ======
DILUTED EARNINGS PER SHARE:
Effect of dilutive securities $ - $ -
------- ------
Income available to common stockholders (Numerator) $ 25,415 $ 32,492
====== ======
Weighted average shares outstanding 26,564 25,759
Effect of dilutive securities - Stock Grants 200 25
------ ------
Adjusted weighted average shares (Denominator) 26,764 25,784
====== ======
Diluted earnings per share $ .95 $ 1.26
====== ======
</TABLE>
- 7 -
<PAGE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. DEFERRED GAIN ON THE 1995 STAR GAS TRANSACTION
In accordance with the Company's accounting policies, the Company deferred
the gain of approximately $20.0 million on the 1995 Star Gas transaction
because the Company received subordinate units which do not have a readily
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,
1998, these funds were no longer restricted at the Star Gas level because
they had been released to Petro since the 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. 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.
- 8 -
<PAGE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
In analyzing Petro's results for the three-month period ended March 31, 1998,
one should consider the seasonal nature of the Company's business, which results
in the sale by the Company of approximately 50% of its annual volume of fuel oil
in the first quarter, 30% in the fourth quarter, and 20% in the second and third
quarters combined. Unlike this pattern of distribution, however, many of the
Company's costs are incurred evenly throughout the year, resulting in
non-heating season operating and net losses.
THREE MONTHS ENDED MARCH 31, 1998
COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
VOLUME. Volume decreased 18.7% to 156.5 million gallons of home heating oil for
the three months ended March 31, 1998, as compared to 192.5 million gallons for
the three months ended March 31, 1997. This decrease was largely due to 13.4%
warmer weather than the prior year, as temperatures were dramatically impacted
in the first quarter of 1998 by the effects of the climatic phenomenon known as
"El Nino" resulting in 19.8% warmer than normal temperatures. In addition to the
fewer degree days in 1998 than in 1997, volume was negatively impacted by net
account attrition and the sale of the Company's Hartford, CT operations in
November 1997, partially offset by the impact of the ten individually
insignificant heating oil acquisitions completed after the first quarter of
1997.
NET SALES. Net sales decreased 26.2% to $183.1 million for the three months
ended March 31, 1998, as compared to $248.1 million for the three months ended
March 31, 1997. This decline was greater than the volume decline due to lower
selling prices associated with lower wholesale costs.
GROSS PROFIT. Gross profit decreased 13.1% to $73.5 million for the three months
ended March 31, 1998, as compared to $84.6 million for the three months ended
March 31, 1997 due to the decreased volume described above. This decline was
less than the volume decline due to a 3.7 cents per gallon increase in home
heating oil margins in 1998 as compared to 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased 10.1% to $22.8 million for the three months
ended March 31, 1998, as compared to $25.3 million for the three months ended
March 31, 1997. This decline was due both to reductions in certain expenses
resulting from the Company's operational restructuring programs and to the
Company's ability to reduce certain costs in response to a decline in volume.
Also contributing to this decline were significant reductions of corporate staff
which were completed in December 1997 as part of the corporate restructuring
programs.
DIRECT DELIVERY EXPENSES. Direct delivery expenses decreased 17.4% to $10.0
million for the three months ended March 31, 1998, as compared to $12.1 million
for the three months ended March 31, 1997, reflecting the Company's ability to
reduce costs in connection with weather related lower volume and by productivity
improvement.
RESTRUCTURING CHARGES. Restructuring charges of $0.5 million for the three
months ended March 31, 1998 represent the continuation in the first quarter of
1998 of corporate staff reductions.
AMORTIZATION OF CUSTOMER LISTS. Amortization of customer lists decreased 1.4% to
$4.4 million for the three months ended March 31, 1998, as compared to $4.5
million for the three months ended March 31, 1997 as the impact of the company's
recent acquisitions was largely offset by the effect of certain customer lists
becoming fully amortized.
DEPRECIATION AND AMORTIZATION OF PLANT AND EQUIPMENT. Depreciation and
amortization of plant and equipment increased 7.4% to $1.8 million for the three
months ended March 31, 1998, as compared to $1.7 million for the three months
ended March 31, 1997, as the Company's recent fixed asset additions slightly
exceeded the impact of certain assets which became fully depreciated.
AMORTIZATION OF DEFERRED CHARGES. Amortization of deferred charges remained
virtually unchanged at $1.1 million for the three months ended March 31, 1998,
as compared to the three months ended March 31, 1997, as the impact of certain
deferred charges becoming fully amortized were equal to the impact of deferred
charges incurred in the Company's 1997 acquisitions.
- 9 -
<PAGE>
OPERATING INCOME. Operating income decreased 17.9% to $32.5 million for the
three months ended March 31, 1998, as compared to $39.7 million for the three
months ended March 31, 1997. 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 and expense
reductions resulting from the Company's operational restructuring programs.
NET INTEREST EXPENSE. Net interest expense decreased 6.9% to $7.8 million for
the three months ended March 31, 1998 as compared to $8.4 million for the three
months ended March 31, 1997. This decline was due to lower working capital
borrowings and to a slight decline in average borrowings outstanding.
EQUITY IN EARNINGS OF STAR GAS PARTNERSHIP. Equity in the earnings of Star Gas
Partnership increased 4.6% to $2.6 million for the three months ended March 31,
1998 as compared to $2.5 million for the three months ended March 31, 1997.
Equity in earnings of Star remained virtually unchanged as the impact of Star's
Pearl Gas acquisition largely offset the effect of warm weather on Star's
operations.
NET INCOME. Net income decreased 19.2% to $27.0 million for the three months
ended March 31, 1998, as compared to $33.4 million for the three months ended
March 31, 1997. This decline was largely due to the impact of the extremely warm
first quarter weather on the Company's volume, partially offset by decreased
operating expenses and by lower net interest expense.
EBITDA. EBITDA decreased 15.1% to $40.0 million for the three months ended March
31, 1998, as compared to $47.1 million for the three months ended March 31,
1997. This decline resulted primarily from reduced volume caused by the warmer
first quarter 1998 weather, partially offset by the margin improvement, the
Company's ability to control certain overhead costs in response to the decline
in volume and expense reductions resulting from the Company's operational
restructuring program.
* 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 is a non-GAAP measure that may not be
comparable to measures of the same title reported by other companies and 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.
YEAR 2000. The Company has conducted a comprehensive review of its computer
systems to identify the systems that could be affected by the "Year 2000"
issue and is developing an implementation plan to resolve the issue. The Year
2000 problem is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations. The Company presently believes that, with
modifications to existing software and converting to new software, which the
Company expects to implement on a timely basis, the Year 2000 problem will
not pose significant operational problems for the Company's computer systems
as so modified and converted. Estimated costs associated with this conversion
is anticipated to be less then two hundred thousand dollars. However, if such
modifications and conversions are not completed timely, the Year 2000 problem
may have a material adverse impact on the operations of the Company.
- 10 -
<PAGE>
LIQUIDITY AND FINANCIAL CONDITION
Net cash provided by operating activities of $19.1 million combined with the
$1.3 million net proceeds from the sale of Star Gas units amounted to $20.4
million. These funds were utilized in investing activities for the purchase of
fixed assets of $1.0 million; and in financing activities to repay notes payable
of $1.05 million, repurchase subordinated notes of $1.05 million, repay net
credit facility borrowings of $3.0 million, pay cash dividends of $3.5 million,
and other financing activities of $2.3 million, which is comprised mainly of the
redemption of $2.2 million of Notes Payables issued in connection with the
purchase of fuel oil dealers. These financing activities were partially offset
by cash provided from the Star Gas minimum quarterly distribution of $1.4
million, and proceeds from dividend reinvestments of $0.6 million. As a result
of the above activities, the Company's cash balance increased by $10.5 million.
The Company currently has available a $47.0 million working capital revolving
credit facility which expires June 30, 1998. At March 31, 1998 no amount was
outstanding under this credit facility, and the Company had $40.7 million of
working capital.
For the remainder of 1998 the Company anticipates repaying $0.2 million of long
term debt, repaying $4.2 million of redeemable preferred stock and paying $3.5
million of preferred dividends. Furthermore, the Company currently has no
material commitments for capital expenditures.
The Company expects to renew the working capital revolving credit facility and
based on this and the Company's current working capital position and expected
net cash provided by operating activities, the Company expects to be able to
meet all its other current obligations as they become due.
RESTRUCTURING CHARGES
Late in 1995 the Company completed a study engaged with a leading consulting
firm to help provide a structure for superior customer service, a brand image,
and reduced operating costs. Over the last few years the Company has dedicated a
large amount of effort toward defining the best organizational structure, and
has implemented various initiatives toward achieving this objective.
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 fiscal 1996, for costs associated with
the initial implementation of the restructuring program.
In 1997 the Company continued with its restructuring program and combined its
three New York City branches into one new central depot that specialized in
delivery, installation, maintenance, and service functions, and like the Long
Island depots, is supported by the Port Washington facility. The Company also
proceeded with its commitment to define the best possible organizational
structure, by restructuring select branch and corporate responsibilities to
eliminate redundant functions and locate responsibilities where they can best
serve customers and the Company. Toward achieving these strategic intentions the
Company incurred $2.9 million in restructuring expenses in fiscal 1997, which
comprised of $2.0 million in termination benefit arrangements with certain
branch and corporate employees and $0.9 million for continuing lease obligations
for unused, non-cancelable, non-strategic facilities.
The Company continued its restructuring and cost reduction initiative, incurring
$0.5 million in termination benefit arrangements with certain corporate
employees in the first quarter of 1998.
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 represent
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.
- 11 -
<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.
- 12 -
<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
/s/ Irik P. Sevin Chairman of the Board, Chief May 15, 1998
- ----------------- Executive Officer, and
Irik P. Sevin Chief Financial and Accounting
Officer and Director
- 13 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDUL 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, 1998 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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 12,891
<SECURITIES> 0
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32,652
0
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</TABLE>