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CONFORMED COPY
UNITED STATES
SECURITES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
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: 1-11867
-------------
NATIONAL PROPANE PARTNERS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-------------
DELAWARE 42-1453040
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
200 FIRST STREET S.E., IES TOWER, SUITE 1700, 52401-1409
CEDAR RAPIDS, IA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(319) 365-1550
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(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 last 90 days. Yes [X] No [ ]
There were 6,301,550 Common Units and 4,533,638 Subordinated Units
outstanding as of October 31, 1996.
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NATIONAL PROPANE PARTNERS, L.P.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I-FINANCIAL INFORMATION
Item I - Financial Statements - National Propane Partners, L.P. and National Propane Corporation
and Subsidiaries (Predecessor):
Condensed Consolidated Balance Sheets - December 31, 1995 (Predecessor)
and September 30, 1996..........................................................................................2
Condensed Consolidated Statements of Operations - Three months
ended September 30, 1995 (Predecessor) and September 30, 1996, nine months ended September 30,
1995 (Predecessor) and six months ended June 30, 1996 (Predecessor).............................................3
Condensed Consolidated Statements of Cash Flows - Nine months ended
September 30, 1995 (Predecessor) and six months ended June 30, 1996 (Predecessor)
and three months ended September 30, 1996........................................................................4
Notes to Condensed Consolidated Financial Statements...............................................................5
Item II - Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................................................... 9
PART II-OTHER INFORMATION
Item 5 - Other Events.................................................................................................13
Item 6 - Exhibits and Reports on Form 8-K.............................................................................13
Signature.............................................................................................................15
</TABLE>
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NATIONAL PROPANE PARTNERS, L.P. AND NATIONAL PROPANE CORPORATION
AND SUBSIDIARIES (PREDECESSOR)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1995 (A) 1996
------------- -------------
(Predecessor)
(In thousands)
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,825 $ 4,671
Receivables, net 16,391 10,258
Finished goods inventories 10,543 14,197
Other current assets 4,340 1,526
-------- --------
Total current assets 34,099 30,652
Due from Triarc Companies, Inc. -- 42,070
Properties, net 83,214 81,178
Unamortized costs in excess of net assets of acquired companies 15,161 14,760
Other assets 6,638 7,015
-------- --------
$139,112 $175,675
======== ========
LIABILITIES AND PARTNERS' CAPITAL/ PREDECESSOR'S DEFICIT
Current liabilities:
Current portion of long-term debt $ 11,278 $ 315
Accounts payable 7,836 6,986
Due to Triarc Companies, Inc. and another affiliate 9,972 --
Accrued expenses 9,370 12,838
-------- --------
Total current liabilities 38,456 20,139
Long-term debt 124,266 126,968
Deferred income taxes 22,878 --
Customer deposits 2,112 2,026
Commitments and contingencies
Partners' capital/Predecessor's deficit:
Predecessor's deficit (48,600) --
Common unitholders' capital -- 14,816
General partners' capital - including subordinated units -- 11,726
-------- --------
Total Partners' capital/Predecessor's deficit (48,600) 26,542
-------- --------
$139,112 $175,675
======== ========
(A) Derived from the audited consolidated financial statements as of December 31, 1995
</TABLE>
See accompanying notes to condensed consolidated financial statements
2
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NATIONAL PROPANE PARTNERS, L.P. AND NATIONAL PROPANE CORPORATION
AND SUBSIDIARIES (PREDECESSOR)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Six Months Ended
September 30, September 30, June 30,
1995 1996 1995 1996
------------- ----------- ------------- -------------
(Predecessor) (Predecessor) (Predecessor)
(In thousands, except unit amounts)
(Unaudited)
<S> <C> <C> <C> <C>
Revenues $25,736 $ 27,720 $102,461 $88,298
------- ----------- -------- -------
Cost of sales:
Cost of product - propane and appliances 10,961 13,253 43,814 41,813
Other operating expenses applicable to revenues 10,419 11,578 33,727 22,453
------- ----------- -------- -------
Gross profit 4,356 2,889 24,920 24,032
Selling, general and administrative 5,626 4,756 15,506 12,253
Management fees 750 -- 2,250 1,500
------- ----------- -------- -------
Operating income (loss) (2,020) (1,867) 7,164 10,279
------- ----------- -------- -------
Other income (expense):
Interest expense (2,906) (2,825) (8,731) (6,242)
Interest income from Triarc Companies, Inc. -- 1,370 -- --
Other income, net 209 152 698 510
------- ----------- -------- -------
(2,697) (1,303) (8,033) (5,732)
------- ----------- -------- -------
Income (loss) before income taxes (4,717) (3,170) (869) 4,547
Provision for (benefit from) income taxes (1,839) -- (264) 1,922
------- ----------- -------- -------
Net income (loss) $(2,878) $ (3,170) $ (605) $ 2,625
======= =========== ======== =======
General partners' unsubordinated interest in net loss $ (127)
===========
Limited partners' interest (including managing general
partner's subordinated units) in net loss $ (3,043)
===========
Net loss per limited partner unit $ (0.28)
===========
Weighted average number of units outstanding 10,809,834
===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
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NATIONAL PROPANE PARTNERS, L.P. AND NATIONAL PROPANE CORPORATION
AND SUBSIDIARIES (PREDECESSOR)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended Six Months Ended Three Months Ended
September 30, June 30, September 30,
1995 1996 1996
----------------- ---------------- ------------------
(Predecessor) (Predecessor)
(In thousands)
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (605) $ 2,625 $ (3,170)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities
Depreciation and amortization of properties 6,070 5,015 2,474
Amortization of costs in excess of net assets of acquired companies 373 359 181
Amortization of deferred financing costs 958 597 113
Other amortization 245 110 160
Provision for doubtful accounts 577 734 218
Deferred income tax benefit (1,222) (800) --
(Gain)/loss on sales of properties (135) (52) 13
Other, net (568) (87) (70)
Changes in operating assets and liabilities:
Decrease in receivables 7,271 2,354 2,833
(Increase) decrease in inventories (3,938) 1,102 (4,738)
(Increase) decrease in prepaid expenses and other current assets 611 538 (434)
Increase (decrease) in accounts payable and accrued expenses (2,171) (4,112) 7,266
-------- ------- ---------
Net cash provided by operating activities 7,466 8,383 4,846
-------- ------- ---------
Cash flows from investing activities:
Capital expenditures (6,615) (2,691) (2,306)
Business acquisitions (290) (37) (993)
Proceeds from sales of properties 426 227 10
-------- ------- ---------
Net cash used in investing activities (6,479) (2,501) (3,289)
-------- ------- ---------
Cash flows from financing activities:
Repayments of long-term debt (13,157) (8,820) (128,482)
Proceeds from long-term debt 8,500 3,000 800
Transfer from Predecessor representing proceeds of First Mortgage Notes
($125,000), net of payment of dividend to Triarc ($59,300) -- -- 65,700
Proceeds of initial public offering -- -- 117,933
(Increase) decrease in due to/from Triarc Companies, Inc. and another
affilate 1,244 2,877 (53,488)
Deferred financing costs (812) (1,201) (3,886)
Other -- (2) (24)
-------- ------- ---------
Net cash used in financing activities (4,225) (4,146) (1,447)
-------- ------- ---------
Net increase (decrease) in cash (3,238) 1,736 110
Cash and cash equivalents at beginning of period 3,983 2,825 --
Conveyance of cash and cash equivalents from Predecessor to the Partnership -- -- 4,561
-------- ------- ---------
Cash and cash equivalents at end of period $ 745 $ 4,561 $ 4,671
======== ======= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
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NATIONAL PROPANE PARTNERS, L.P. AND NATIONAL PROPANE CORPORATION
AND SUBSIDIARIES (PREDECESSOR)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1-ORGANIZATION
National Propane Partners, L.P. (the "Partnership") was formed on March 13,
1996 as a Delaware limited partnership. The Partnership and its subsidiary
partnership National Propane, L.P (the "Operating Partnership") were formed to
acquire, own and operate the propane business and substantially all the assets
and liabilities (principally all assets and liabilities other than amounts due
from a parent, deferred financing costs and income tax liabilities) of National
Propane Corporation and subsidiaries (the "Predecessor Company", and referred to
subsequent to the initial public offering (described below) as the "Managing
General Partner"), a wholly-owned subsidiary of Triarc Companies, Inc.
("Triarc"). In addition, National Sales & Service, Inc. ("NSSI"), a subsidiary
of the Operating Partnership, was formed to acquire and operate the service work
and appliance and parts sales business of the Predecessor Company. The
Partnership, the Operating Partnership and NSSI are collectively referred to
hereinafter as the "Partnership Entities". The Partnership Entities consummated
in July, 1996, an initial public offering, (the "Offering"), of 6,301,550 common
units representing limited partner interests in the Partnership (the "Common
Units") for an offering price of $21.00 per Common Unit aggregating $132,333,000
before $14,400,000 of underwriting discounts and commissions and other expenses
related to the Offering. On July 2, 1996 the Managing General Partner issued in
a private placement $125,000,000 of 8.54% First Mortgage Notes due June 30, 2010
(the "First Mortgage Notes"). The Operating Partnership assumed the Managing
General Partner's obligation under the First Mortgage Notes in connection with
the conveyance on July 2, 1996 effective June 30, 1996 (the "Partnership
Conveyance") by the Managing General Partner and National Propane SGP Inc. (the
"Special General Partner" and, together with the Managing General Partner,
referred to as the "General Partners"), of substantially all of their assets
(which assets did not include the existing intercompany note from Triarc,
approximately $59.3 million of the net proceeds from the issuance of the First
Mortgage Notes and certain other assets of the General Partners). On November 6,
1996 the Partnership sold an additional 400,000 Common Units through a private
placement at a price of $21.00 per Common Unit aggregating $8,400,000 before
fees of $588,000, resulting in net proceeds to the Partnership of $7,812,000.
The General Partners own general partner interests representing an
aggregate 4% unsubordinated general partner interest in the Partnership and the
Operating Partnership on a combined basis. In addition, the Managing General
Partner owns 4,533,638 subordinated units (the "Subordinated Units")
representing a 40.2% (38.7% after the November 6, 1996 sale of 400,000 Common
Units) subordinated general partner interest in the Partnership Entities. The
Common Units and the Subordinated Units together represent the limited partners'
interest (the "Limited Partners' Interest").
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
presented herein represent those of the Predecessor Company through June 30,
1996, the effective date of the Partnership Conveyance, and of the Partnership
subsequent thereto. Such condensed consolidated financial statements of the
Partnership and the Predecessor Company have been prepared in accordance with
Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange
Commission and, therefore, do not include all information and footnotes
necessary for a fair presentation of financial position, results of operations
and cash flows in conformity with generally accepted accounting principles. In
the opinion of the Partnership, however, the accompanying condensed consolidated
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the Partnership's and the
Predecessor Company's financial position, results of operations and cash flows.
The condensed consolidated financial statements including the nine months
ended September 30, 1995 reflect the effects of the June 1995 merger (the
"Merger") of Public Gas Company with and into the Predecessor Company. Prior
thereto Public Gas was an indirect wholly-owned subsidiary of Triarc. Because
the Merger was a transfer of assets and liabilities in exchange for shares among
a controlled group of companies, it has been accounted for in a manner similar
to
5
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a pooling of interests and, accordingly, the aforementioned 1995 period has been
restated to reflect the Merger.
NOTE 3 - PROPERTIES
The following is a summary of the components of properties, net:
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
---- ----
(Predecessor)
(In Thousands)
<S> <C> <C>
Properties, at cost..................... $165,216 $170,441
Less accumulated depreciation........... 82,002 89,263
-------- --------
$ 83,214 $ 81,178
======== ========
</TABLE>
NOTE 4 - LONG TERM DEBT
First Mortgage Notes-Concurrent with the Offering the Managing General
Partner issued $125,000,000 of First Mortgage Notes in a private placement,
which have been assumed by the Operating Partnership in connection with the
Partnership Conveyance. The First Mortgage Notes bear interest at a fixed annual
rate of 8.54% payable semi-annually in arrears and amortize in eight equal
annual installments of $15,625,000 beginning June 30, 2003 through June 30,
2010.
Bank Credit Facility-Concurrent with the Offering, the Operating
Partnership entered into a $55 million bank credit facility (the "Bank Credit
Facility") with a group of banks. The Bank Credit Facility includes a $15
million working capital facility (the "Working Capital Facility") and a $40
million acquisition facility (the "Acquisition Facility"), the use of which is
restricted to business acquisitions and capital expenditures for growth. The
Bank Credit Facility bears interest, at the Operating Partnership's option, at
either (i) the 30, 60, 90 or 180-day London Interbank Offered Rate plus a margin
generally ranging from 1% to 1.75% or (ii) the higher of (a) the prime rate and
(b) the Federal funds rate plus 0.5%, in either case, plus a margin of up to
0.25%. The Working Capital Faciilty matures in full in July 1999. However, the
Operating Partnership must reduce the borrowings under the Working Capital
Facility to zero for a period of at least 30 consecutive days in each year
between March 1 and August 31. The Acquisition Facility converts to a term loan
in July 1998 and amortizes thereafter in equal quarterly installments through
July 2001.
The Company's Bank Credit Facility and the First Mortgage Notes contain
certain restrictive covenants which, among other items, (i) require meeting
certain financial amount and ratio tests, (ii) limit the incurrence of certain
other additional indebtedness and certain investments, asset dispositions and
transactions with affiliates other than in the normal course of business and
(iii) restrict the payment of distributions by the Operating Partnership if
certain other covenants are not met.
The Operating Partnership's obligations under both the First Mortgage Notes
and the Bank Credit Facility are secured on an equal and ratable basis by
substantially all of the assets of the Operating Partnership and are guaranteed
by the Managing General Partner.
NOTE 5 - INCOME TAXES
The Predecessor Company's provision for (benefit from) income taxes for
each of the periods presented varies from the Federal statutory income tax rate
of 35% principally due to state income taxes and the effect of goodwill
amortization. As discussed in Note 1, the Partnership Entities consist of two
limited partnerships, the Partnership and the Operating Partnership, and one
corporate entity, NSSI. For federal and state income tax purposes, the earnings
attributed to the Partnership and Operating Partnership are included in the tax
returns of the individual partners. As a result, no recognition of income tax
expense has been reflected in the Partnership's consolidated financial
statements relating to the earnings of the Partnership and Operating
Partnership. The earnings attributed to NSSI are subject to federal and state
income taxes. Accordingly, the Partnership's consolidated financial statements
will reflect income tax expense related to NSSI's earnings,
6
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if any. There was no income tax provision or benefit relating to NSSI in the
three months ended September 30, 1996 since any provision or benefit would be
immaterial to NSSI or the Partnership for this three month period.
NOTE 6 - ACQUISITIONS
During the third quarter of 1996 the Operating Partnership acquired the
assets of two unaffiliated propane distributors for aggregate cash consideration
of $993,000.
NOTE 7 - CONTINGENCIES
In May 1994 the Predecessor Company was informed of coal tar contamination
which was discovered at one of its properties in Wisconsin. The Predecessor
Company purchased the property from a company which had purchased the assets of
a utility which had previously owned the property. The Predecessor Company
believes that the contamination occurred during the use of the property as a
coal gasification plant by such utility. In order to assess the extent of the
problem the Predecessor Company engaged environmental consultants who began work
in August 1994. In February 1996, the Predecessor Company's environmental
consultants provided a report which presented the two most likely remediation
methods and estimates of the costs of such methods. The range of estimated costs
for the first method, which involves treatment of groundwater and excavation,
treatment and disposal of contaminated soil, is from $1,600,000 to $3,300,000.
The range for the second method, which involves only treatment of groundwater
and the building of a soil containment wall, is from $432,000 to $750,000. Based
on discussion with the Predecessor Company's environmental consultants both
methods are acceptable remediation plans. The Predecessor Company, however, will
have to agree on a final plan with the State of Wisconsin. Since receiving
notice of the contamination, the Predecessor Company has engaged in discussions
of a general nature concerning remediation with the State of Wisconsin. The
discussions are ongoing and there is no indication as yet of the time frame for
a decision by the State of Wisconsin on the method of remediation. Accordingly,
it is unknown which remediation method will be used. Since no amount within the
ranges can be determined to be a better estimate, the Predecessor Company has
accrued $432,000 at December 31, 1995 in order to provide for the minimum costs
estimated for the second remediation method and incurred legal fees and other
professional costs. The Predecessor Company is also engaged in ongoing
discussions of a general nature with such successor to the utility that operated
a coal gasification plant on the property. There is as yet no indication that
the prior owner will share the costs of remediation. The Predecessor Company, if
found liable for any such costs, would attempt to recover such costs from the
prior owner. Pursuant to a lease with the Predecessor Company relating to this
facility, the Operating Partnership has agreed to be liable for any costs of
remediation in excess of amounts recovered from such prior owner or from
insurance. At September 30, 1996, the Partnership has an accrual of $432,000 for
this matter which was transferred from the Predecessor Company as part of the
Partnership Conveyance. The ultimate outcome of this matter cannot presently be
determined and, depending on the cost of remediation required, may have a
material adverse effect on the Partnership's consolidated financial position or
results of operations.
The Partnership is involved in ordinary claims, litigation and
administrative proceedings and investigations of various types in several
jurisdictions incidental to its business. In the opinion of management, the
outcome of any such matter, or all of them combined, will not have a material
adverse effect on the Partnership's consolidated financial condition or results
of operations.
NOTE 8 - UNAUDITED PRO FORMA SUMMARIZED OPERATING RESULTS
The following unaudited supplemental pro forma information sets forth the
combined operating results of the Predecessor Company for the six months ended
June 30, 1996 and of the Partnership for the three months ended September 30,
1996 and has been adjusted as if the Partnership had been formed as of January
1, 1996 to give effect to (i) the elimination of management fees paid to Triarc,
(ii) the addition of the estimated stand-alone general and administrative costs
associated with the Partnership, (iii) a decrease to interest expense to reflect
the interest expense associated with the First Mortgage Notes and eliminate
interest expense on the refinanced debt of the Predecessor Company and (iv) the
elimination of the provision for income taxes, as income taxes will be borne by
the partners and not the Partnership, except for corporate income taxes relative
to NSSI. Such following pro forma supplemental financial information does not
purport to be
7
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indicative of the actual results of operations that would have resulted had the
Partnership been formed on January 1, 1996 or of the future results of
operations of the Partnership.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1996
------------------
(In thousands, except per unit amount)
<S> <C>
Revenues $116,018
Operating income 9,162
Income before income taxes 5,450
Net income 5,300
General partners' unsubordinated interest in
net income 212
Limited partners'interest (including managing
general partner's subordinated units)
in net income 5,088
Limited partners' net income per unit 0.47
</TABLE>
NOTE 9 - UNIT OPTION PLAN
Effective July 2, 1996, the Managing General Partner adopted the National
Propane Corporation 1996 Unit Option Plan (the "Option Plan"), which permits the
grant of options to purchase Common Units and Subordinated Units and the grant
of Unit appreciation rights ("UARs") covering up to an aggregate of 1,250,000
Common Units and Subordinated Units (subject to adjustment in certain
circumstances) plus an additional number of Units equal to 1% of the number of
Units outstanding as of each December 31 following the Option Plan's effective
date which will be added to the total number of units that may be issued
thereafter. No options or UARS have been granted under the Option Plan as of
September 30, 1996.
NOTE 10 - RELATED PARTY TRANSACTIONS
Concurrent with the closing of the Offering, the Operating Partnership made
a $40,700,000 loan to Triarc. The loan bears interest at 13.5% per annum,
amortizes $5,087,500 per year commencing 2003 and is secured by a pledge by
Triarc of all the shares of capital stock of the Managing General Partner that
are owned by Triarc. Interest is payable semi-annually in arrears on each June
30 and December 30. Accrued interest of $1,370,000 at September 30, 1996 is
included in the amount due from Triarc Companies, Inc.
NOTE 11 - SUBSEQUENT EVENTS
On November 14, 1996 the Partnership paid its initial quarterly
distribution of $.525 per Common and Subordinated Unit with an equivalent amount
for the 4% unsubordinated general partner interest, or an aggregate of
$5,924,000, to unitholders of record on November 1, 1996, including $2,616,000
paid to the Predecessor Company related to the Subordinated Units and the
unsubordinated general partner interest.
On November 6, 1996, the Partnership sold 400,000 Common Units through a
private placement at a price of $21.00 per Common Unit aggregating
$8,400,000 before fees of $588,000 resulting in net proceeds to the Partnership
of $7,812,000.
8
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NATIONAL PROPANE PARTNERS, L.P. AND NATIONAL PROPANE CORPORATION
AND SUBSIDIARIES (PREDECESSOR)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements under this caption may constitute "forward-looking
statements" under the Private Securities Litigation Reform Act of 1995. See
"Part II. Other Information."
INTRODUCTION
National Propane Partners, L.P. (the "Partnership" and together with
National Propane Corporation, the predecessor corporation of the Partnership,
"National Propane") is primarily engaged in (i) the retail marketing of propane
to residential customers, commercial and industrial customers, agricultural
customers and to dealers (located primarily in the Northeast) that resell
propane to residential and commercial customers, and (ii) the retail marketing
of propane-related supplies and equipment, including home and commercial
appliances. National Propane believes it is the fifth largest retail marketer
of propane in terms of retail volume in the United States, supplying
approximately 250,000 retail and wholesale customers in 25 states through its
166 service centers. National Propane's operations are concentrated in the
Midwest, Northeast, Southeast and Southwest regions of the United States.
National Propane's residential and commercial customers use propane
primarily for space heating, water heating, clothes drying and cooking. In the
industrial market propane is used as a motor fuel for over-the-road vehicles,
forklifts and stationary engines, to fire furnaces, as a cutting gas and in
other process applications. Agriculture customers use propane for tobacco
curing, crop drying, poultry brooding and weed control. Dealers re-market
propane in small quantities, primarily in cylinders, for residential and
commercial uses.
The retail propane sales volumes are very dependent on weather conditions.
National Propane sells approximately 66% of its retail volume during the first
and fourth quarters, which are the winter heating season. As a result, cash flow
is greatest during the first and fourth quarters as customers pay for their
purchases. Propane sales are also dependent on climatic conditions which may
affect agricultural regions. National Propane believes that its exposure to
regional weather patterns is lessened because of the geographic diversity of its
areas of operations and through sales to commercial and industrial markets,
which are not as sensitive to variations in weather conditions.
Gross profit margins are not only affected by weather patterns but also by
changes in customer mix. In addition, gross profit margins vary by geographical
region. Accordingly, profit margins could vary significantly from year to year
in a period of identical sales volumes.
National Propane reports on a calendar year basis; accordingly its results
are affected by two different winter heating seasons: the end of the first
year's heating season, National Propane's first fiscal quarter, and the
beginning of the second heating season, National Propane's fourth fiscal
quarter.
Profitability is also affected by the price and availability of propane.
Worldwide availability of both gas liquids and oil affects the supply of propane
in domestic markets. National Propane does not believe it is overly dependent on
any one supplier. National Propane primarily buys propane on both one year
contracts and the spot market and does not enter into any fixed price
take-or-pay contracts. Furthermore, National Propane purchases propane from a
wide variety of sources. In 1995 and in the first three quarters of 1996, no
provider supplied over 15% of National Propane's propane needs.
Based on demand and weather conditions the price of propane can change
quickly over a short period of time; in most cases the increased cost of propane
is passed on to the customer. However, in cases where increases cannot be passed
on or when the price of propane escalates faster than National Propane's ability
to raise customer prices, margins will be negatively affected.
9
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The propane industry is very competitive. National Propane competes against
other major propane companies as well as local marketers in most of its markets,
with the most competition in the Midwest United States. Propane also competes
against other energy sources, primarily natural gas, oil and electricity.
The following discussion compares the results of operations for the nine
months ended September 30, 1996 with the nine months ended September 30, 1995 of
the Predecessor Company, and the three months ended September 30, 1996 of the
Partnership with the three months ended September 30, 1995 of the Predecessor
Company. The nine month period ended September 30, 1996 is derived by combining
the three months ended September 30, 1996 of the Partnership with the six months
ended June 30, 1996 of the Predecessor Company. The 1995 periods reflect the
effects of the June 1995 merger (the "Merger") of Public Gas Company with and
into National Propane Corporation. Prior thereto Public Gas was an indirect
wholly-owned subsidiary of Triarc Companies, Inc., ("Triarc"), the parent
company of National Propane Corporation. Because the Merger was a transfer of
assets and liabilities in exchange for shares among a controlled group of
companies, it has been accounted for in a manner similar to a pooling of
interests and, accordingly, the nine month period ended September 30, 1995 has
been restated to reflect the Merger.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 (COMBINED) COMPARED WITH
NINE MONTHS ENDED SEPTEMBER 30, 1995 (PREDECESSOR)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
1996 1995
----- ----
(Combined) (Predecessor)
(In Thousands)
<S> <C> <C>
Revenues $ 116,018 $ 102,461
Gross profit 26,921 24,920
Selling, general and administrative 17,009 15,506
Management fees 1,500 2,250
Interest expense 9,067 8,731
Interest income from Triarc 1,370 ----
Other income, net 662 698
Income (loss) before income taxes 1,377 (869)
Provision for (benefit from) income taxes 1,922 (264)
Net loss (545) (605)
</TABLE>
Revenues increased $13.6 million, or 13.2%, to $116.0 million in the nine
months ended September 30, 1996 as compared to $102.5 million for the nine
months ended September 30, 1995 with propane revenues increasing $14.0 million,
or 14.9% to $107.8 million in 1996 compared with $93.9 million in 1995. The
increase is principally due to increased propane sales volume as retail
gallons sold for 1996 increased 8.8 million, or 8.7%, to 110.6 million in 1996
compared to 101.8 million in 1995. Based on Degree Days data (the "Degree Days
Data"), published by the National Climatic Data Center, as applied to the
geographical regions of National Propane's operations, the nine month period
ended September 30, 1996 was 8.7% colder than the nine months ended September
30, 1995. The $14.0 million increased propane revenue is due to volume
increases ($8.1 million) and increased selling price due to increased costs
($7.7 million), partially offset by a decrease due to a shift in customer
mix toward lower-margin commercial accounts ($1.8 million). National
Propane's other lines of revenue, primarily appliance sales and tank and
equipment rental income, did not change significantly from period to
period.
Gross profit increased $2.0 million, or 8.0%, to $26.9 million in 1996
compared with $24.9 million in 1995 due principally to higher propane sales
volume ($4.5 million) in 1996 compared with 1995 offset by lower margins due to
(i) increased product costs which could not be fully passed on to certain
customers in the form of higher selling prices and (ii) a shift in the customer
mix toward lower-margin commercial accounts ($1.8 million), slightly higher
operating expenses included in cost of sales ($0.3 million) and lower margins on
other product lines ($0.4 million). The increase in operating expenses is due to
the Partnership beginning operations at five new propane plants during the last
quarter of 1995 and the
10
<PAGE>
<PAGE>
first half of 1996. These plants have not yet achieved sales volumes to make a
positive contribution to gross profit.
Selling, general and administrative expenses increased $1.5 million or 9.7%
to $17.0 million in 1996 compared with $15.5 million in 1995 due principally to
increases in bad debt expense, insurance costs, rent expense and business taxes,
as well as stand-alone costs associated with the Partnership effective
July 2, 1996.
Management fees decreased $0.8 million to $1.5 million in 1996 compared to
$2.3 million in 1995 due to management fees being eliminated with the beginning
of the operations of the Partnership.
Interest expense increased $0.3 million, or 3.9%, to $9.0 million in
1996 compared to $8.7 million in 1995. This increase was due to higher average
borrowings partially offset by lower average interest rates.
Interest income from Triarc in 1996 is due to interest on the July 2, 1996
$40.7 million partnership loan to Triarc.
Other income, net remained constant in 1996 and 1995.
The provision for income taxes in 1996 and 1995 is related to the
Predecessor Company as the Partnership is not a tax paying entity except for
NSSI, its wholly-owned corporate subsidiary. As such, the 1996 period does not
include a tax benefit on the third quarter loss, a seasonally weak quarter.
THREE MONTHS ENDED SEPTEMBER 30, 1996 (PARTNERSHIP) COMPARED WITH THREE MONTHS
ENDED SEPTEMBER 30, 1995 (PREDECESSOR)
Revenues increased $2.0 million, or 7.7%, to $27.7 million in the three
months ended September 30, 1996 as compared to $25.7 million for the three
months ended September 30, 1995 with propane revenues increasing $2.2 million,
or 9.4% to $25.1 for the three months ended September 30, 1996 compared with
$22.9 million in 1995. Propane retail gallons sold increased 1.1 million, or
4.3%, to 26.8 million gallons in 1996, compared to 25.7 million gallons in 1995
as a result of niche business acquisitions. The $2.2 million increase in propane
revenue is due to volume increases ($1.0 million) as a result of niche business
acquisitions and increased selling prices due to increased product costs ($1.7
million), offset by a decrease due to a shift toward lower-margin commercial
accounts ($0.6 million).
Gross profit decreased $1.5 million, or 33.7%, to $2.9 million for the
three months ended September 30, 1996 compared with $4.4 million in 1995 as
increased gross profit attributable to volumes ($0.5 million) was more than
offset by the impact of lower average margins per gallon ($0.6 million), lower
margins on other revenue lines ($0.2 million) and higher operating costs
included in cost of sales ($1.2 million). The lower average propane margins were
due to increased product costs which could not be fully passed on to certain
customers and a shift in the customer mix toward lower-margin commercial
accounts.
Selling, general and administrative expenses decreased $0.9 million or 15%
to $4.7 million for the three months ended September 30, 1996 as compared to
$5.6 million for the three months ended September 30, 1995 despite the
incurrence of stand-alone costs associated with the Partnership in the 1996
period. This decrease was attributable primarily to reduced payroll expense
and reduced advertising expense.
Management fees have been eliminated effective with the beginning of the
operations of the Partnership.
Interest expense decreased $0.1 million, or 2.8%, to $2.8 million in 1996
compared to $2.9 million in 1995. This decrease was due to lower average
interest rates and lower amortization of deferred financing costs partially
offset by higher average borrowings.
Interest income from Triarc in the three months ended September 30, 1996 is
due to interest on the July 2, 1996 $40.7 million loan to Triarc.
Other income, net remained constant in 1996 and 1995.
The provision for income taxes in 1995 is related to the Predecessor
Company as the Partnership is not a tax paying entity except for NSSI, its
wholly-owned corporate subsidiary.
11
<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1996 1995
---- ----
(COMBINED) (PREDECESSOR)
<S> <C> <C>
Net cash provided by operating activities $ 13,229 $ 7,466
Net cash used in investing activities (5,790) (6,479)
Net cash used in financing activities (5,593) (4,225)
-------- --------
Net increase (decrease) in cash and cash equivalents$ $ 1,846 $ (3,238)
======== ========
</TABLE>
National Propane's cash balances increased $1.8 million during the nine
month period ended September 30, 1996. This increase reflected cash provided by
operating activities of $13.2 million offset by cash used in financing
activities of $5.6 million and cash used in investing activities of
$5.8 million.
The cash flows from operating activities of $13.2 million in the 1996
period consisted of a net loss of $0.5 million offset by non cash charges of
$9.0 million, principally depreciation and amortization, and a $4.7 million
decrease in working capital. The change in working capital is primarily made up
of a seasonal decrease in receivables ($5.2 million) offset by a seasonal
increase in inventories ($3.6 million) and an increase in accounts payable and
accrued expenses ($3.1 million). The increase in accounts payable and accrued
expenses is primarily due to accrued interest on the First Mortgage Notes and an
increase in accrued casualty insurance reserves.
Cash used in investing activities during the nine month period ended
September 30, 1996 included capital expenditures of $5.0 million and
acquisitions of $1.0 million, excluding capital leases, aggregating $6.0
million. Of the capital expenditure amount for 1996, $2.3 million was for
recurring maintenance and $2.7 million was to support growth of operations.
The Partnership has budgeted maintenance capital expenditures and growth capital
expenditures for the remainder of 1996 of approximately $1.0 million and
$0.8 million, respectively, subject to the availability of cash and other
financing sources. The Partnership ha s outstanding commitments amounting
to $1.2 million for such capital expenditures as of September 30, 1996, which
consists of $0.6 million for growth capital expenditures and $0.6 million for
maintenance capital expenditures.
Cash provided by financing activities during the nine month period ended
September 30, 1996 primarily reflects the Offering and the private placement of
First Mortgage Notes.
In July 1996, the Predecessor Company issued through a private placement
and conveyed to National Propane, L.P. $125 million of 8.54% First Mortgage
Notes due June 30, 2010. A portion of the proceeds were used by the Predecessor
Company to pay a $59.3 million dividend to Triarc with the remainder being
conveyed to National Propane, L.P.
Also, in July 1996, National Propane Partners, L.P. issued 6,301,550 Common
Units at $21.00 per unit which provided net cash of $117.9 million after
deducting the underwriting discounts, commissions and other expenses. These
proceeds were used (i) to repay $64.4 million under the Predecessor Company's
existing credit facility, (ii) to loan Triarc $40.7 million and (iii) to pay
$12.8 million of intercompany indebtedness consisting principally of accrued
management fees and tax sharing payments due to Triarc. On November 6, 1996 the
Partnership sold 400,000 Common Units through a private placement at a price
of $21.00 per Common Unit aggregating $8.4 million before fees of $0.6 million.
In July 1996, the Operating Partnership entered into a new $55 million Bank
Credit Facility which includes a $15 million Working Capital Facility to be used
for working capital and other general partnership purposes and a $40 million
Acquisition Facility the use of which is restricted to acquisitions and capital
expenditures for growth.
Based on the Partnership's current cash on hand, available borrowings under
the Bank Credit Facility and expected cash flows from operations, the
Partnership expects to be able to meet all of its cash requirements for the
remainder of 1996.
To the extent the Partnership has net positive cash flows, it will make
quarterly distributions of its cash balances in excess of reserve requirements,
as defined, to holders of the Common Units and the Subordinated Units within 45
days after
12
<PAGE>
<PAGE>
the end of each fiscal quarter. On November 14, 1996 the Partnership paid its
initial quarterly distribution of $.525 per Common and Subordinated Unit with
an equivalent amount for the 4% unsubordinated general partner interest, or
an aggregate of $5.9 million, to unitholders of record on November 1, 1996,
including $2.6 million payable to the Predecessor Company related to the
Subordinated Units and the unsubordinated general partner interest.
CONTINGENCIES
The Partnership has a contingent liability in connection with an
environmental matter described in Note 7 to the accompanying condensed
consolidated financial statements of the Partnership. The ultimate outcome of
this matter cannot presently be determined and, depending on the cost of
remediation required, may have a material adverse effect on the Partnership's
consolidated financial position or results of operations. The Partnership is
also involved in ordinary claims, litigation and administrative proceedings and
investigations of various types in several jurisdictions incidental to its
business. In the opinion of management, the outcome of any such matter, or all
of them combined, will not have a material adverse effect on the Partnership's
consolidated financial position or results of operations.
OTHER INFORMATION
PART II.
The statements in this Quarterly Report on Form 10-Q (this "Form 10-Q")
that are not historical facts constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"), that involve risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Partnership and its related
entities to be materially different from any future results, performance or
achievements express or implied by such forward-looking statements. Such factors
include, but are not limited to, the following: general economic and business
conditions; competition; success of operating initiatives; operating costs;
advertising and promotional efforts; the existence or absence of adverse
publicity; availability and locations and terms of opportunities for business
growth and development; changes in business strategy or development plans;
quality of management; availability, terms and deployment of capital; business
abilities and judgment of personnel; availability of qualified personnel; labor
and employee benefit costs; availability and cost of raw materials and supplies;
changes in, or failure to comply with, government regulations; regional weather
conditions; and other risks and uncertainties detailed in the Partnership's
Registration Statement on Form S-1 (No.333-2768) and in the Partnership other
current and periodic filings with the Securities and Exchange Commission.
ITEM 5. OTHER EVENTS
On November 7, 1996, the Partnership sold 400,000 of its common units
(representing approximately 6% of the Partnership's common units) to an
institutional accredited investor through a private placement pursuant to
Section 4(2) of the Securities Act of 1933, as amended. The units were sold at a
price of $21.00 each, before deducting fees, resulting in net proceeds to the
Partnership of $7,812,000. The Partnership completed its initial public offering
on July 2, 1996. As a result of the initial public offering and after taking
into account the shares issued in the private placement, National Propane
Corporation, the Partnership's managing general partner, holds approximately 43%
of the Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
13
<PAGE>
<PAGE>
3.1 Amendment No. 1 to the amended and Restated Agreement of Limited
Partnership of National Propane, L.P., dated November 1, 1996 incorporated
herein by reference to Exhibit 3.1 to the Partnership's report on Form 8- K
dated November 14, 1996
10.1 Purchase Agreement, dated November 7, 1996 incorporated herein by reference
to Exhibit 10.1 to the Partnership's report on Form 8-K dated November 14,
1996.
10.2 Registration Agreement, dated November 7, 1996 incorporated herein by
reference to Exhibit 10.2 th the Partnership report on Form 8-K dated
November 14, 1996.
27. Financial Data Schedule for the nine month period ended September 30, 1996,
submitted to the Securities and Exchange Commission in electronic format.
99.1 National Propane Partners, L.P. Press Release, dated October 22, 1996,
regarding quarterly distribution incorporated herein by reference to
Exhibit 99.1 to the Partnership's report on Form 8-K dated November 14,
1996
99.2 National Propane Partners, L.P. Press Release, dated November 7, 1996
regarding sale of 400,000 common units incorporated herein by reference to
Exhibit 99.2 to the Partnership's report on Form 8-K dated November 14,
1996.
(b) Reports on Form 8-K.
The Partnership filed a Form 8-K on November 14, 1996 pursuant to which
the Partnership filed certain exhibits required to be filed in connection with
its quarterly report on Form 10-Q for the quarter ended September 30, 1996.
14
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
SIGNATURE
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 thereunto duly authorized.
NATIONAL PROPANE PARTNERS, L.P.
BY: NATIONAL PROPANE CORPORATION
AS MANAGING GENERAL PARTNER
DATE: November 19, 1996 By: /s/ RONALD R. ROMINIECKI
-----------------------------------
Ronald R. Rominiecki
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
National Propane Partners, L.P. condensed consolidated Balance Sheet
as of September 30, 1996 and the condensed consolidated Statement of
Operations for the interim period July 1, 1996 through September 30,
1996 (the initial three month period of operations for the Partnership)
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-START> JUL-1-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,671
<SECURITIES> 0
<RECEIVABLES> 10,258
<ALLOWANCES> 0
<INVENTORY> 14,197
<CURRENT-ASSETS> 30,652
<PP&E> 170,441
<DEPRECIATION> 89,263
<TOTAL-ASSETS> 175,675
<CURRENT-LIABILITIES> 20,139
<BONDS> 126,968
<COMMON> 0
0
0
<OTHER-SE> 26,542
<TOTAL-LIABILITY-AND-EQUITY> 175,675
<SALES> 27,720
<TOTAL-REVENUES> 27,720
<CGS> 24,831
<TOTAL-COSTS> 24,831
<OTHER-EXPENSES> 4,756
<LOSS-PROVISION> 218
<INTEREST-EXPENSE> 2,825
<INCOME-PRETAX> (3,170)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,170)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,170)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
<FN>
Allowances - Receivables are shown net of an allowance of $1,180.
Total receivable balance is $11,438.
</FN>
</TABLE>
