SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 20, 1995
Petroleum Heat and Power Co., Inc.
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(Exact name of registrant as specified in its charter)
Minnesota 2-88526 06-1183025
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
2187 Atlantic Street, Stamford, CT 06902
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 325-5400
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Not Applicable
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(Former name or former address, if changed since last report.)
Item 2. Acquisition or Disposition of Assets
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On December 20, 1995, Petroleum Heat and Power Co.,
Inc., a Minnesota corporation ("Petro") conveyed all of its
propane assets and related liabilities to its wholly-owned
subsidiary, Star Gas Corporation, a Delaware corporation ("Star
Gas" or the "General Partner").
Concurrently therewith, the General Partner issued
$85.0 million in first mortgage notes (the "First Mortgage
Notes") to certain institutional investors. The First Mortgage
Notes bear interest at the rate of 8.04% per annum, mature in
2009 and require semiannual prepayments, without premium, of the
principal thereof commencing in 2001.
The General Partner and its subsidiaries then conveyed
substantially all of their assets (other than $83.7 million in
cash from the proceeds of the First Mortgage Notes and certain
non-operating assets) to Star Gas Propane, L.P., a Delaware
limited partnership (the "Operating Partnership") (the "Star Gas
Conveyance") in exchange for general and limited partner
interests in the Operating Partnership and the assumption by the
Operating Partnership of substantially all of the liabilities of
the General Partner (excluding certain income tax liabilities and
certain other long-term obligations of the General Partner that
were assumed by Petro), including the First Mortgage Notes and
approximately $51.0 million in outstanding indebtedness of the
General Partner to Petro (the "Intercompany Debt").
The Intercompany Debt has a weighted average interest
rate of 10.4%. Of the $83.7 million in cash retained by the
General Partner, $35.0 million was paid to Petro in satisfaction
of certain additional indebtedness, $8.6 million was paid in
redemption of certain preferred stock of the General Partner held
by Petro, $12.0 million was loaned to Petro (at an annual rate of
11.0%) and $6.0 million has been retained to be available to fund
the General Partner's Additional Capital Contribution Obligation
(as defined below). The remaining $22.1 million was paid as
dividends to Petro (of which $4.9 million was previously declared
and payable).
Immediately after the Star Gas Conveyance, the General
Partner and its subsidiaries conveyed their respective limited
partner interests in the Operating Partnership to Star Gas
Partners, L.P., a Delaware limited partnership (the
"Partnership") in exchange for an aggregate of 2,396,078
Subordinated Units of limited partner interest in the
Partnership. The General Partner owns an aggregate 2% combined
general partner interest in the Partnership and the Operating
Partnership and (together with its subsidiaries) a 47.0% limited
partner interest in the Partnership (approximately 43.6% if an
underwriters' over-allotment option is exercised in full).
Concurrently with the closing of the Star Gas
Conveyance, the Partnership completed an initial public offering
(the "Offering") of 2,600,000 common units (the "Common Units")
of limited partner interest at an initial public offering price
of $22.00 per unit.
The Partnership contributed the net proceeds from the
sale of the Common Units (which was approximately $51.0 million)
to the Operating Partnership, which used such proceeds to repay
to Petro all of the Intercompany Debt assumed by the Operating
Partnership in the Star Gas Conveyance.
2
In order that the Partnership will commence operations
with net working capital of $6.2 million, the amount of the
Intercompany Debt will be adjusted upwards or downwards to the
extent that the net working capital of Star Gas and its
subsidiaries exceeds or is less than $6.2 million as of December
20, 1995.
In connection with the Offering, the General Partner
agreed, subject to certain limitations, to make up to $6.0
million of additional capital contributions (the "Additional
Capital Contributions Obligation") to the Partnership to enhance
the ability of the Partnership to make the minimum quarterly
distributions on the Common Units. Such funds were obtained by
the General Partner from the proceeds of the First Mortgage
Notes.
The assets which were conveyed to the Operating
Partnership in connection with the Star Gas Conveyance
constituted approximately 41.4% of Petro's consolidated assets
and produced 17.8% of Petro's consolidated revenues as of and for
the nine months ended September 30, 1995.
Item 7. Financial Statements and Exhibits
(a) Not Applicable
(b) See the Pro Forma Financial Information attached
hereto as Appendix A
(c) (i) Conveyance and Contribution
Agreement between Petro and Star Gas
(ii) Conveyance and Contribution
Agreement among Star Gas, its subsidiaries,
the Partnership and the Operating
Partnership.
Item 8. Changes in fiscal year
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None
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
PETROLEUM HEAT AND POWER CO., INC.
(Registrant)
By: Irik P. Sevin
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Name: Irik P. Sevin
Title: President, Chairman of the
Board, Chief Financial and
Accounting Officer and Director
4
Appendix A
Petroleum Heat and Power Co., Inc. and Subsidiaries
Pro Forma Condensed Balance Sheet (Unaudited)
September 30, 1995
(In thousands)
Pro Forma
Petroleum Petroleum
Heat and Pro Heat and
Power Forma Power
ASSETS Co., Inc. Adjustments Co., Inc.
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Current assets:
Cash $ 16,240 $ 77,687 (A) $ 71,684
(727)(B)
51,046 (C)
(72,562)(D)
Restricted cash - 6,000 (A) 6,000
Accounts receivable 50,996 (6,436)(B) 44,560
Inventories 22,720 (6,154)(B) 16,566
Other current assets 11,983 (949)(B) 11,034
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Total current assets 101,939 47,905 149,844
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Property, plant and equipment - net 128,226 (98,687)(B) 29,539
Intangibles - net 142,898 1,313 (A) 98,808
(43,753)(B)
(1,650)(D)
Other assets 2,028 - 2,028
Investment in Star Gas Partnership - 62,954 (B) 11,908
(51,046)(C)
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$ 375,091 $ (82,964) $ 292,127
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of preferred stock and
long-term debt $ 7,287 $ - $ 7,287
Accounts payable 10,484 (2,824)(B) 7,660
Customer credit balances 34,132 (3,305)(B) 30,827
Unearned service contract revenue 13,978 - 13,978
Accrued expenses 28,317 (2,303)(B) 26,014
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Total current liabilities 94,198 (8,432) 85,766
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Long-term debt and notes payable 77,252 85,000 (A) 53,252
(85,000)(B)
(24,000)(D)
Supplemental benefits payable and other liabilities 1,966 (320)(B) 1,646
Pension plan obligation 9,010 - 9,010
Subordinated notes payable 285,200 (43,750)(D) 241,450
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Total liabilities 467,626 (76,502) 391,124
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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) (105,035) (6,462)(D) (111,497)
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$ 375,091 $ (82,964) $ 292,127
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P - 1
SEE NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS.
Petroleum Heat and Power Co., Inc. and Subsidiaries
Pro Forma Condensed Statement of Operations (Unaudited)
for the Year-Ended December 31, 1994
(In thousands, except per share amounts)
Pro Forma
Petroleum Petroleum
Heat and (E) Pro Heat and
Power Star Gas Forma Power
Co., Inc. Conveyance Adjustments Co., Inc.
--------- ---------- ----------- ---------
Net sales $ 546,677 $ (18,520) $ - $ 528,157
Cost of sales 362,981 (8,305) 354,676
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Gross profit 183,696 (10,215) - 173,481
Operating expenses 128,310 (6,042) 122,268
Amortization of customer lists and
deferred charges 25,925 (877) 25,048
Depreciation and amortization of
plant and equipment 6,469 (1,230) 5,239
Provision for supplemental benefits 373 - 373
--------- ---------- ----------- ---------
Operating income 22,619 (2,066) - 20,553
Interest expense-net (23,766) 634 (10,451)(F) (22,765)
10,818 (G)
Other income (expense) 110 - 110
Income (loss) before income taxes,
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equity interest and extraordinary item (1,037) (1,432) 367 (2,102)
Income taxes 600 (150) 450
Income (loss) before equity interest
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and extraordinary item (1,637) (1,282) 367 (2,552)
Share of income (loss) of the Partnership (1,973) - 282 (H) (1,691)
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Income (loss) before extraordinary item $ (3,610) $ (1,282) $ 649 $ (4,243)
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Income (loss) before extraordinary item per common share:
Class A Common Stock $ -0.34 $ -0.37
Class B Common Stock 1.10 1.10
Class C Common Stock -0.34 -0.37
Cash dividends declared per Common Stock:
Class A Common Stock $ 0.55 $ 0.55
Class B Common Stock 1.10 1.10
Class C Common Stock 0.55 0.55
Weighted average number of common shares:
Class A Common Stock 19,195 19,195
Class B Common Stock 152 152
Class C Common Stock 2,550 2,550
SEE NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS.
P - 2
Petroleum Heat and Power Co., Inc. and Subsidiaries
Pro Forma Condensed Statement of Operations (Unaudited)
for the Nine Months Ended September 30, 1995
(In thousands, except per share amounts)
Pro Forma
Petroleum Petroleum
Heat and (E) Pro Heat and
Power Star Gas Forma Power
Co., Inc. Conveyance Adjustments Co., Inc.
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Net sales $ 404,917 $ (71,892) $ - $ 333,025
Cost of sales 256,342 (33,341) 223,001
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Gross profit 148,575 (38,551) - 110,024
Operating expenses 118,638 (29,993) 88,645
Amortization of customer lists and
Deferred charges 20,198 (2,446) 17,752
Depreciation and amortization of
plant and equipment 9,003 (4,719) 4,284
Provision for supplemental benefits 1,039 - 1,039
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Operating income (loss) (303) (1,393) - (1,696)
Interest expense-net (28,451) 966 (1,161)(F) (20,532)
8,114 (G)
Other income (expense) 743 - 743
Income (loss) before income taxes,
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equity interest and extraordinary item (28,011) (427) 6,953 (21,485)
Income taxes 300 (100) 200
Income (loss) before equity interest
------------- ------------- ------------- -------------
and extraordinary item (28,311) (327) 6,953 (21,685)
Share of income (loss) of the Partnership - - (3,320)(H) (3,320)
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Income (loss) before extraordinary item $ (28,311) $ (327) $ 3,633 $ (25,005)
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Income (loss) before extraordinary item per common share:
Class A Common Stock $ (1.25) $ (1.11)
Class B Common Stock - -
Class C Common Stock (1.25) (1.11)
Cash dividends declared per Common Stock:
Class A Common Stock $ 0.45 $ 0.45
Class B Common Stock - -
Class C Common Stock 0.45 0.45
Weighted average number of common shares:
Class A Common Stock 22,656 22,656
Class B Common Stock 16 16
Class C Common Stock 2,598 2,598
SEE NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS.
P - 3
Petroleum Heat and Power Co., Inc. and Subsidiaries
Notes to Pro Forma Condensed Financial Statements
(In thousands)
The Pro Forma Statement of Operations for the year ended December 31, 1994
is derived from the Company's audited consolidated financial statements for
the year ended December 31, 1994. The Pro Forma Balance Sheet and
Statement of Operations as of and for the nine months ended September 30,
1995 are derived from the unaudited financial statements of the Company at
and for the nine months ended September 30, 1995, which include all
adjustments (consisting of only normal recurring adjustments) that, in the
opinion of management, are necessary for a fair presentation of such data.
The pro forma adjustments are based upon currently available information
and certain estimates and assumptions, and therefore the actual results may
differ from the pro forma results. The Pro Forma Financial Statements do
not purport to represent what the Company's financial position or results
of operations would have been if the events described therein had occurred
on September 30, 1995 in the case of the Pro Forma Balance Sheet, or as of
January 1, 1994, in the case of the Pro Forma Statements of Operations for
the year-ended December 31, 1994 and for the nine months ended September
30, 1995, nor are they intended to project the Company's financial position
or results of operations for any future period. However, management
believes that the assumptions provide a reasonable basis for presenting the
significant effects of the transaction and that the pro forma adjustments
give appropriate effect to those assumptions as if they occurred on
September 30, 1995, in the case of the Pro Forma Balance Sheet, or as of
January 1, 1994 in the case of the Pro Forma Statements of Operations for
the year-ended December 31, 1994 and the nine months ended September 30,
1995 and are properly applied in the pro forma financial information. The
Pro Forma Financial Statements should be read in conjunction with the
Consolidated Financial Statements, and the Notes thereto, which were filed
as part of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and Quarterly Report on Form 10-Q for the nine
months ended September 30, 1994 and 1995.
(A) Reflects the $85,000 First Mortgage Notes issued by the General
Partner, net of $1,313 of issuance costs.
(B) Reflects the Star Gas Conveyance including the $85,000 First Mortgage
Notes assumed by the Operating Partnership, in exchange for general and
limited partner interests in the Operating Partnership.
(C) Reflects the net proceeds from the 2,600 Common Units issued by the
Partnership, the contribution of these net proceeds to the Operating
Partnership, and the use of such proceeds to repay Petro the $51,046
Intercompany Debt assumed by the Operating Partnership during the Star
Gas Conveyance.
(D) Reflects Petro's use of the proceeds to repay $24,000 of long term
debt and to repay $43,750 of 12 1/4% subordinated debentures at an 11%
premium. In addition, Petro will incur an extraordinary loss on the
repurchase of the subordinated debentures of $6,462 representing the
premium paid of $4,812 and the write-off of $1,650 of deferred financing
costs associated with such debt.
P-4
(E) Reflects the actual results of the Petro and Star Gas propane
operations which were conveyed to the Partnership.
(F) Reflects increased interest applicable to the Star Gas acquisition, as
a result of the purchase of $65,350 of Star Gas debt and $19,966 of Star
Gas preferred stock from a portion of the proceeds of Petro's $125,000
12 1/4% Subordinated Debenture offering in February 1995.
(G) Represents the pro forma adjustments to reflect decreased interest
expense as a result of (i) the repayment of $43,750 of subordinated
debentures, (ii) the repayment of $24,000 of notes payable, and (iii) the
remaining unapplied proceeds of $62,171 which were assumed to be invested
in Treasury Notes at an assumed rate of 5.5%.
(H) Adjustment to reflect Petro's share of the net loss of the Partnership
based upon its 49% ownership percentage using the equity method of
accounting.
P-5