August 18-22, 2008 ICPA Heating Oil Retailer Survey for SBDC

June 28, 2008 Analysis By ICPA

The average 2.5 million gallon company that had to capitalize $1,150,000 for wholesale oil in 1998/1999 is looking at $9,125,000 in 2008/2009 based on current prices.That same company sells 20% of their annual volume in January [500,000 gals], and will need $2 million in credit to purchase oil on 10 or 30 day terms and wait 30-45-60 days to be paid by consumers, or longer. $2 million in credit for one month. Ten years before that January credit need was$430,000. The capitalization needs of this average company have increased 460% in 10 years. While their borrowing needs have increased, and the costs of borrowing that go with those needs, their DOE/EIA average reported retail sales margin has remained essentially the same over this same period.

In January of 2008 the DOE/EIA survey average wholesale heating oil cost was $2.66, so that 2.5 million gallon company that sold 20% of that volume, or 500,000 gallons, had to capitalize $1,330,000 to purchase wholesale oil for just that one month. If nothing changes between today and January of 2009, given current wholesale prices at New Haven terminals of $4.0314 [OPIS, 6/28/08], that 2.5 million gallon company that sells 20% of that 2.5 million gallon annual volume in January, or 500,000 gallons,will haveto capitalize $2,015,700 to purchase wholesale oil for just that one month. In the span ofone heating season the average 2.5 million gallon company will need $700,000 in additional capital [Jan 2008 v Jan 2009] for just that one month of January, 2009.

August 25, 2008 Analysis By ICPA

NYMEX Commodity prices for heating oil peaked during the second week of July, as did heating oil wholesale prices at $4.12 a gallon. Wholesale prices rose from $4.03 on 6/28/08 to $4.12 by 4/14/08. From this peak of $4.12, wholesale prices have fall by $1.00 a gallon to $3.12 average at New Haven Harbor, following the more than $33 per barrel fall in crude oil futures prices between mid-July [$147] to mid-August [$114.59] The September, 2008 NYMEX Heating Oil contact closed at $3.1311 on 8/22/08.

The December, 2008 NYMEX Heating Oil contract crossed the $4.16 a gallon level [translating into approximately $4.22 a gallon wholesale average at New Haven, and approximately $5.15 a gallon average retail.] The December, 2008 NYMEX Heating Oil contract closed on 8/22/08 at $3.8969

While the near-term month [September] and forward month [December], have seen significant decreases in prices since their highs of mid-July, we are still looking at historically higher prices versus 2007 and therefore still substantially greater capitalization requirements for retailers.

ICPA knew that many companies had difficulty with capitalizing their wholesale purchases last year, at wholesale price levels significantly less than today.Wholesale suppliers and private lending institutions will not be able to extend the levels of credit necessary to facilitate the wholesale buying needs of many retailers.

August 18-22, 2008 Survey By ICPA

In order to assist the SBDC with planning for the resources it would need to assist heating oil retailers with preparing for bank loan financing and the SBA [7-a] or CDA [URBANK] loan guarantees that are available now, ICPA conducted a survey of retailers based on questions SBDC needed answered.

The total population of retailers involved is 235. The survey was taken using third-party, online electronic software that ensured anonymity among respondents and security against tampering. No company names were collected, nor was any question asked or answered that would allow anyone to discern the identity of any respondent[s].

Question One. The average heating oil retailer in CT sells about 2.5 million gallons of heating oil in a year. Assuming an average wholesale price of $3.50 per gallon, this average retailer would need to capitalize almost $9 million. Of this, approximately $3.5 million may be needed in a combination of credit lines from wholesalers and bank credit lines. Based on this rough outline, and your own company's position and borrowing needs, approximately how large of A PRIVATE LENDER/BANK credit line do you think you will need for the coming heating season?

Percent / Of 235 retailers
None, wholesaler credit lines will be enough / 10.00% / 24
$50,000 to $150,000 / 2.00% / 5
$150,000 to $250,000 / 14.00% / 33
$250,000 to $500,000 / 20.00% / 47
$500,000 to $750,000 / 4.00% / 9
$750,000 to $1,000,000 / 8.00% / 19
$1,000,000 to $1,500,000 / 16.00% / 38
$1,500,000 to $2,000,000 / 8.00% / 19
more than $2,000,000 / 18.00% / 42

Question Two. What type of internal accounting system or program do you use?

What type of internal accounting system or program do you use?
Percent / Of 235 retailers
Quickbooks / 53.06% / 125
Peachtree / 8.16% / 19
SageBusiness Vision / 2.04% / 5
SimplyAccounting / 0.00% / 0
Other / 36.73% / 86

/Other included MSFT Great Plains and ADDs [http://www.addsys.com/products/pams.htm]

Question Three. Do you have a business plan?

Do you have a business plan?
Percent / Of 235 retailers
Yes / 64.58% / 152
No / 35.42% / 83

Question Four. Do you have an accountant?

Do you have an accountant?
Percent / Of 235 retailers
Yes / 97.96% / 230
No / 2.04% / 5

Question Five. If you have an accountant, for what purposes do you use your accountant? [select all that apply]

If you have an accountant, for what purposes do you use your accountant? [select all that apply]
Percent / Of 235 retailers
Taxes / 30.34% / 71
Monthly and Quarterly Financials / 20.00% / 47
Annual audit / 17.93% / 42
Annual review / 25.52% / 60
Other / 6.21% / 15

/Other included budgeting, cost anaylsis, monthly P&Ls, consulting

Question Six. Based on your capitalization needs, and your introduction to what the SBDC is and how helpful it can be to assisting you with preparing to secure bank financing and loan guarantees, do you think you will need to take advantage of the SBDC's services?

Based on your capitalization needs, and your introduction to what the SBDC is and how helpful it can be to assisting you with preparing to secure bank financing and loan guarantees, do you think you will need to take advantage of the SBDCs services?
Percent / Of 235 retailers
Yes / 59.18% / 139
No / 40.82% / 96

Question Seven. If you DO think you will want to take advantage of the SBDC's services, there are four SBDC regions within Connecticut. See the map here > http://www.ccsu.edu/sbdc/offices.htm Based on the four regions [Southern/Western/Eastern/Central], which of the regional offices would you MOST LIKELY use?

If you DO think you will want to take advantage of the SBDCs services, there are four SBDC regions within Connecticut. See the map here > <a href=http://www.ccsu.edu/sbdc/offices.htm target=_blank>http://www.ccsu.edu/sbdc/offices.htm</a>Based on the four regions [Southern/Western/Eastern/Central], which of the regional offices would you MOST LIKELY use?
Percent / Of 139 retailers
Southern / 33.33% / 46
Western / 11.11% / 15
Central / 30.56% / 42
Eastern / 25.00% / 35

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