<PAGE>
<PAGE>
CONFORMED COPY
________________________________________________________________________________
UNITED STATES
SECURITIES 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, 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: 1-11867
NATIONAL PROPANE PARTNERS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 42-1453040
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
200 FIRST STREET S.E., SUITE 1700, 52401-1409
CEDAR RAPIDS, IA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
(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 6,701,550 Common Units and 4,533,638 Subordinated Units
outstanding as of October 31, 1998.
________________________________________________________________________________
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I -- Financial Information
Item 1 -- Financial Statements:
Condensed Consolidated Balance Sheets -- December 31, 1997 and
September 30, 1998............................................................................. 3
Condensed Consolidated Statements of Operations -- Three months ended September 30, 1997 and 1998
and nine months ended September 30,
1997 and 1998.................................................................................. 4
Condensed Consolidated Statements of Cash Flows -- Nine months ended September 30, 1997 and
1998............................................................................................. 5
Notes to Condensed Consolidated Financial Statements............................................. 6
Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations....... 10
Item 3 -- Quantitative and Qualitative Disclosures About Market Risk.................................. 16
Part II -- Other Information
Item 6 -- Exhibits and Reports on Form 8-K............................................................ 17
Signatures............................................................................................ 18
</TABLE>
2
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997(A) 1998
------------ -------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 4,616 $ 6,142
Receivables, net.............................................................. 13,955 3,835
Finished goods inventories.................................................... 9,599 8,334
Other current assets.......................................................... 1,990 1,726
------------ -------------
Total current assets..................................................... 30,160 20,037
Note receivable from Triarc Companies, Inc. (Note 6)............................... 40,700 30,700
Properties, net.................................................................... 80,346 77,205
Unamortized costs in excess of net assets of acquired companies.................... 17,616 16,887
Other assets....................................................................... 8,415 7,770
------------ -------------
$177,237 $ 152,599
------------ -------------
------------ -------------
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Current portion of long-term debt............................................. $ 9,235 $ 1,834
Accounts payable.............................................................. 5,877 4,607
Accrued expenses.............................................................. 7,866 9,429
------------ -------------
Total current liabilities................................................ 22,978 15,870
Long-term debt..................................................................... 138,131 137,321
Customer deposits and other long-term liabilities.................................. 2,674 2,407
Partners' capital (deficit):
Common partners' capital...................................................... 10,362 --
General partners' capital (deficit), including subordinated units............. 3,092 (2,999)
------------ -------------
Total partners' capital (deficit)........................................ 13,454 (2,999)
------------ -------------
$177,237 $ 152,599
------------ -------------
------------ -------------
</TABLE>
- ------------
(A) Derived from the audited consolidated financial statements as of December
31, 1997.
See accompanying notes to condensed consolidated financial statements
3
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
THREE MONTHS ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
1997 1998 1997 1998
------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues............................................................. $29,300 $24,443 $117,987 $95,858
------- ------- -------- -------
Cost of sales:
Cost of product -- propane and appliances....................... 13,588 9,701 59,817 41,153
Other operating expenses applicable to revenues................. 11,403 10,866 33,982 33,427
------- ------- -------- -------
24,991 20,567 93,799 74,580
------- ------- -------- -------
Gross profit............................................... 4,309 3,876 24,188 21,278
Selling, general and administrative expenses......................... 5,971 6,375 17,568 19,204
------- ------- -------- -------
Operating income (loss).................................... (1,662) (2,499) 6,620 2,074
Interest expense..................................................... (3,234) (3,734) (9,306) (10,245)
Interest income from Triarc Companies, Inc........................... 1,370 1,245 4,079 3,970
Other income, net.................................................... 174 302 910 1,055
------- ------- -------- -------
Income (loss) before income taxes.......................... (3,352) (4,686) 2,303 (3,146)
Provision for income taxes........................................... (48) (50) (165) (146)
------- ------- -------- -------
Net income (loss).......................................... $(3,400) $(4,736) $ 2,138 $(3,292)
------- ------- -------- -------
------- ------- -------- -------
General partners' interest in net income (loss)...................... $ (136) $ (189) $ 86 $ (132)
------- ------- -------- -------
------- ------- -------- -------
Unitholders' interest (common and subordinated) in net income
(loss)............................................................. $(3,264) $(4,547) $ 2,052 $(3,160)
------- ------- -------- -------
------- ------- -------- -------
Net income (loss) per unit........................................... $ (.29) $ (.40) $ .18 $ (.28)
------- ------- -------- -------
------- ------- -------- -------
Weighted average number of units outstanding......................... 11,235 11,235 11,235 11,235
------- ------- -------- -------
------- ------- -------- -------
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1997 1998
------------ ------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).............................................................. $ 2,138 $ (3,292)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization of properties............................... 8,049 7,563
Amortization of costs in excess of net assets of acquired companies....... 630 946
Amortization of deferred financing costs.................................. 608 545
Other amortization........................................................ 505 941
Provision for doubtful accounts........................................... 782 605
Gain on sale of properties, net........................................... (191) (690)
Other, net................................................................ (72) (750)
Changes in operating assets and liabilities:
Decrease in accounts receivable...................................... 16,210 9,549
Increase in due from Triarc Companies, Inc........................... (1,370) --
Decrease in inventories.............................................. 800 1,267
Decrease in prepaid expenses and other current assets................ 532 264
Increase (decrease) in accounts payable and accrued expenses......... (11,356) 293
------------ ------------
Net cash provided by operating activities................................. 17,265 17,241
------------ ------------
Cash flows from investing activities:
Payments received on note receivable from Triarc Companies, Inc................ -- 10,000
Capital expenditures........................................................... (4,894) (5,346)
Business acquisitions.......................................................... (7,568) (416)
Proceeds from sale of properties............................................... 737 1,729
------------ ------------
Net cash provided by (used in) investing activities....................... (11,725) 5,967
------------ ------------
Cash flows from financing activities:
Proceeds from long-term debt................................................... 10,112 1,000
Repayments of long-term debt................................................... (6,328) (9,211)
Distributions.................................................................. (18,429) (13,471)
------------ ------------
Net cash used in financing activities..................................... (14,645) (21,682)
------------ ------------
Net increase (decrease) in cash..................................................... (9,105) 1,526
Cash and cash equivalents at beginning of period.................................... 11,187 4,616
------------ ------------
Cash and cash equivalents at end of period.......................................... $ 2,082 $ 6,142
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- ORGANIZATION
The consolidated financial statements of National Propane Partners, L.P.
(the 'Partnership') include the accounts of the Partnership and its subsidiaries
National Propane, L.P. (the 'Operating Partnership') and National Sales &
Service, Inc. ('NSSI') which, collectively with the Partnership and Operating
Partnership, are referred to as the 'Partnership Entities'. The Partnership has
limited partner interests consisting of 6,701,550 common units (the 'Common
Units') and subordinated general partner interests consisting of 4,533,638
subordinated units (the 'Subordinated Units' and together with the Common Units,
the 'Units') outstanding. National Propane Corporation (the 'Managing General
Partner'), a wholly-owned subsidiary of Triarc Companies, Inc. ('Triarc'), and
its subsidiary, National Propane SGP Inc., own general partner interests
representing an aggregate 4% unsubordinated general partners' interest (the
'General Partners' Interest') in the Partnership Entities and the Managing
General Partner owns all of the subordinated units representing a 38.7%
subordinated general partner interest in the Partnership. Certain statements
in these notes to the condensed consolidated financial statements constitute
'forward-looking statements' under the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Partnership to be materially different from any future results, performance or
achievements express or implied by such forward-looking statements. See 'Part
II -- Other Information.'
NOTE 2 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
the Partnership 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 financial position as of December 31, 1997 and
September 30, 1998, its results of operations for the three-month and nine-month
periods ended September 30, 1997 and 1998 and its cash flows for the nine-month
periods ended September 30, 1997 and 1998. This information should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1997 (the 'Form 10-K').
NOTE 3 -- PROPERTIES
The following is a summary of the components of properties, net:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Properties, at cost............................................ $168,871 $ 171,795
Less accumulated depreciation.................................. 88,525 94,590
------------ -------------
$ 80,346 $ 77,205
------------ -------------
------------ -------------
</TABLE>
NOTE 4 -- INCOME TAXES
Income taxes have been provided only on the pre-tax income of NSSI, which
is subject to Federal and state income taxes. Since the earnings attributed to
the Partnership and the Operating Partnership are included in the tax returns of
the individual partners and not those of the Partnership, no income taxes have
been provided thereon.
6
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE 5 -- CONTINGENCIES
The Partnership continues to have an environmental contingency of the same
nature and general magnitude as described in Note 17 to the consolidated
financial statements in the Form 10-K. The costs of remediation and third party
claims, if any, associated with this environmental contingency may have a
material adverse effect on the Partnership's financial position, results of
operations or its ability to make distributions (see Note 6).
The Partnership continues to have a contingency with respect to the Final
Rule for Continued Operation of the Present Propane Trucks (the 'Final Rule')
published by the U.S. Department of Transportation ('DOT') of the same nature as
described in Note 17 to the consolidated financial statements in the Form 10-K.
However, the DOT has abandoned its appeal of the United States District Court's
preliminary injunction, and is involved with the propane industry in negotiated
rulemaking to promulgate a revised final rule. The Partnership continues to be
unable to determine what the ultimate long-term costs of compliance with the
Final Rule or revised final rule, if any, will be.
There are a number of lawsuits pending or threatened against the
Partnership. In general, these lawsuits have arisen in the ordinary course of
the Partnership's business and involve claims for actual damages, and in some
cases punitive damages, arising from the alleged negligence of the Partnership
or as a result of product defects, business disputes with competitors or similar
matters. Of the pending or threatened matters, a number involve property damage,
and several involve serious personal injuries or deaths. The claims made in
certain cases are for relatively large amounts. Although any litigation is
inherently uncertain, based on past experience, the information currently
available to it and the availability of insurance coverage in certain matters,
the Partnership does not believe that the pending or threatened litigation of
which the Partnership is aware will have a material adverse effect on its
financial position or its results of operations.
Notwithstanding the foregoing, any one of the matters discussed above or
all of them taken together may adversely affect the Partnership's financial
position, results of operations or its ability to make distributions.
NOTE 6 -- LONG-TERM DEBT AND QUARTERLY DISTRIBUTIONS
The Partnership maintains a bank facility (the 'Bank Facility') with a
group of banks which, as amended effective June 30, 1998, provides for a
$10,000,000 (a reduction from $15,000,000, subject to reinstatement under
certain limited conditions, in accordance with the amendment discussed below)
working capital facility (the 'Working Capital Facility') to be used for working
capital and other general partnership purposes of which all $10,000,000 was
available as of September 30, 1998. Further, the banks' commitment under a
previously existing $20,000,000 acquisition facility (the 'Acquisition
Facility') under the Bank Facility, the use of which was restricted to business
acquisitions and capital expenditures for growth, was permanently reduced to the
$12,997,000 of outstanding borrowings as of June 30, 1998. In connection
therewith, the Partnership has agreed that it may not reborrow any amounts
repaid under the Acquisition Facility. The balance as of September 30, 1998
remains at $12,997,000. The Working Capital Facility, the Acquisition Facility
and the $125 million of 8.54% first mortgage notes due June 20, 2010 (the
'Mortgage Notes') do not require any principal payments during the fourth
quarter of 1998. Availability under the Working Capital Facility expires June
30, 1999 while the Acquisition Facility requires quarterly repayments of
approximately $1,100,000 per quarter beginning in the third quarter of 1999. The
Mortgage Notes amortize beginning in 2003.
As of June 30, 1998, the Partnership was not in compliance with certain
covenants of its Bank Facility agreement (the 'Agreement'). Subsequently, the
Agreement was amended (the 'Agreement Amendment') retroactive to June 30, 1998
to, among other things, permit principal prepayments (the 'Triarc Note
Prepayments') of up to $10,000,000, by Triarc through February 14, 1999 on a
note receivable from Triarc (the 'Triarc Note') with an original principal
amount of $40,700,000 and, to the
7
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
extent not utilized for distributions (see below), to permit any such
prepayments to be included in the determination of consolidated cash flow, as
defined under the Agreement ('Consolidated Cash Flow') for purposes of
compliance with certain leverage and interest coverage ratio requirements for a
period of twelve consecutive months commencing June 30, 1998 for the initial
$7.0 million Triarc Note Prepayments and from the date of payment on the $3.0
million Triarc Note Prepayment (see below). Further, the Partnership must have
sufficient interest coverage through consolidated cash flow, as defined under
the indenture (the 'Indenture') pursuant to which the Mortgage Notes were
issued, in order to pay distributions. Effective June 30, 1998 the Indenture was
amended (the 'Indenture Amendment' and collectively with the Agreement
Amendment, the 'Amendments') to, among other things, (i) permit the Triarc Note
Prepayments, (ii) effectively permit up to $6,000,000 of any such prepayments to
be utilized to pay distributions to Common Unitholders with a proportionate
amount for the General Partners' Interest with respect to distributions for the
second, third and fourth quarters of 1998 only and (iii) amend the definition
of consolidated cash flow to include interest income received by the Partnership
on the Triarc Note through December 31, 1998 for interest coverage purposes
thereby facilitating the Partnership's ability to pay distributions. The
Partnership currently expects to remain in compliance with its debt agreements
(as amended) at least through September 30, 1999. (See further discussion below
regarding future Partnership distributions, including the Partnership's ability
to reduce Available Cash by making appropriate reserves having the effect of
reducing the amount of distributions to Unitholders - see subsequent
discussion.) The Triarc Note was amended to, among other things, permit Triarc,
at its option, to make Triarc Note Prepayments up to $10,000,000 of the
principal thereof through February 14, 1999. On August 7, 1998, Triarc made a
principal prepayment of $7,000,000 on the Triarc Note of which $3,336,000 was
included as Consolidated Cash Flow under the Agreement in order to retroactively
cure the noncompliance with the Agreement at June 30, 1998, and $3,664,000 was
used to permit the Partnership to declare its distribution for the quarter ended
June 30, 1998 (see further discussion below). On September 30, 1998, Triarc
prepaid the remaining permitted principal of $3,000,000. The remaining principal
balance of the Triarc Note of $30,700,000 is due $175,000 in 2004 and six equal
annual installments of $5,087,500 commencing in 2005 through 2010. The original
terms of the Bank Facility, the Mortgage Notes and the Triarc Note are further
described in Notes 11 and 13 to the consolidated financial statements contained
in the Form 10-K.
The Partnership incurred fees of $908,000 in connection with the execution
of the Amendments. Such fees are being amortized to interest expense ratably
over the third and fourth quarters of 1998.
Partnership distributions are made from available cash ('Available Cash')
as defined in the Partnership Agreement, the Agreement and the Indenture and as
amended by the Agreement Amendment and the Indenture Amendment. Under the terms
of the Partnership agreement, the Partnership must distribute 100% of its
Available Cash within 45 days of the end of each fiscal quarter. Available Cash
under the Partnership Agreement generally means with respect to any quarter of
the Partnership, all cash on hand at the end of such quarter less the amount of
cash reserves that is necessary or appropriate in the discretion of the Managing
General Partner to (i) provide for the proper conduct of the Partnership's
business, (ii) comply with applicable law or any Partnership debt instrument or
other agreement, or (iii) provide funds for distributions to Unitholders and the
General Partners in respect of any one or more of the next four quarters (see
Note 5 to the consolidated financial statements contained in the Form 10-K for a
more detailed discussion of Available Cash). Under the Agreement Amendment,
Available Cash is supplemented by any Triarc Note Prepayments and may be
utilized to pay distributions to the extent such Triarc Note Prepayments are not
required to be included in Consolidated Cash Flow for the Partnership to be in
compliance with the Agreement. However, under the Indenture Amendment, which is
more restrictive as to the determination of Available Cash as of September 30,
1998, Available Cash is supplemented by up to only $6,000,000 of Triarc Note
Prepayments. The Partnership declared and paid quarterly distributions of $0.525
per
8
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
common unit with a proportionate amount for the 4% General Partners' Interest
during each of the first three quarters of 1998, aggregating $3,664,000 for each
distribution. The distribution during the third quarter paid with respect to the
second quarter utilized the aforementioned $3,664,000 of the August 7, 1998
Triarc Note Prepayment. On October 21, 1998 the Partnership declared a quarterly
distribution for the quarter ended September 30, 1998 of $0.2625 per Common Unit
to Common Unitholders of record on November 6, 1998 paid on November 13, 1998,
with a proportionate amount for the General Partners' Interest, or an aggregate
of $1,832,000 including $73,000 to the General Partners related to the General
Partners' Interest. This distribution represents a reduction from previous
quarters. After a careful evaluation of the Partnership's recent financial
results, the Partnership's Board of Directors concluded that a reduced
distribution was necessary to maintain financial flexibility in future quarters.
Under the terms of the Partnership agreement, each Common Unit will accrue an
arrearage of $0.2625 per Common Unit related to this distribution for an
aggregate of $1,759,000. The last distribution for subordinated units was a
quarterly distribution of $0.525 per subordinated unit with a proportionate
amount for the 4% General Partners' Interest, or an aggregate of $2,479,000,
declared and paid during the first quarter of 1998 with respect to the fourth
quarter of 1997. No distributions were declared on the Subordinated Units with
respect to the first three quarters of 1998 since subsequent to the distribution
with respect to the quarter ended December 31, 1997, the Managing General
Partner agreed to forego any distributions on the Subordinated Units in order to
facilitate the Partnership's compliance with debt covenant restrictions in the
Agreement and, effective June 30, 1998 pursuant to the Amendments, the
Partnership agreed not to pay distributions on the Subordinated Units with
respect to the second, third and fourth quarters of 1998. Commencing with
distributions with respect to the fourth quarter of 1998, the Partnership will
pay distributions to the Common Unitholders with a proportionate amount for the
General Partners' Interest only if the Partnership is able to generate
sufficient Available Cash through cash flows from operations and the Partnership
maintains compliance with the restrictions embodied in the covenants in the
Amended Agreements and there can be no assurance that the Partnership will be
able to pay any future distributions to the Common Unitholders. Distributions
will only be made with respect to the Subordinated Unitholders if the
Partnership achieves compliance with the original restrictions embodied in the
covenants in the Agreement and such payment would not impact compliance with
covenant restrictions and all Common Unit arrearages ($1,759,000 after the
distribution payable November 13, 1998) have been paid in full (although, as
previously indicated, the Amendments prohibit any distributions on the
Subordinated Units with respect to the remainder of 1998). Cash distributions
on the Partnership's Common and Subordinated Units and the General Partners'
Interest are not guaranteed, will depend on future Partnership operating
performance and will be affected by among other things, the funding of
reserves, operating and capital expenditures and requirements under the
Partnership's debt agreements. Accordingly, there can be no assurance that the
Partnership will be able to pay any such future distributions.
NOTE 7 -- RELATED PARTY TRANSACTIONS
The Partnership continues to have related party transactions of the same
nature and general magnitude as those described in Note 19 to the consolidated
financial statements contained in the Form 10-K.
9
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE 8 -- STATEMENT OF PARTNERS' CAPITAL
The following is a summary of the changes in partners' capital (deficit):
<TABLE>
<CAPTION>
GENERAL GENERAL TOTAL
PARTNERS' PARTNERS' GENERAL TOTAL
COMMON SUBORDINATED INTEREST PARTNERS' PARTNERS'
PARTNERS' UNIT CAPITAL CAPITAL CAPITAL
CAPITAL CAPITAL (DEFICIT) (DEFICIT) (DEFICIT)
-------- ------------ --------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997.................. $ 10,362 $ 2,532 $ 560 $ 3,092 $ 13,454
Net loss...................................... (1,886) (1,274) (132) (1,406) (3,292)
Reallocation of Partnership loss.............. 1,901 996 (2,897) (1,901) --
Cash distributions paid....................... (10,555) (2,380) (536) (2,916) (13,471)
Amortization of unearned compensation on below
market unit options......................... 178 126 6 132 310
-------- ------------ --------- ----------- ---------
Balance at September 30, 1998................. $ -- $ -- $(2,999) $ (2,999) $ (2,999)
-------- ------------ --------- ----------- ---------
-------- ------------ --------- ----------- ---------
</TABLE>
The reallocation of Partnership loss is required under the terms of the
partnership agreement in order that the Unitholders' capital account balances
are not reduced below zero. In accordance with the terms of the partnership
agreement, the General Partners' Interest will recover such $2,897,000
reallocation to the extent the Unitholders' interest in future earnings exceed
distributions to Unitholders.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
This 'Management's Discussion and Analysis of Financial Condition and
Results of Operations' should be read in conjunction with 'Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations' in the
Annual Report on Form 10-K for the year ended December 31, 1997 of the
Partnership. A general description of the Partnership's industry and a
discussion of recent trends affecting that industry are contained therein.
Certain statements under this caption may constitute 'forward-looking
statements' under the Private Securities Litigation Reform Act of 1995 (the
'Reform Act'). Such forward-looking statements involve risks, uncertainties and
other factors which may cause the actual results, performance, or achievements
of the Partnership Entities to be materially different from any future results,
performance or achievements express or implied by such forward-looking
statements. For these statements the Partnership claims the protection of the
safe harbor for forward-looking statements contained in the Reform Act. See
'Part II -- Other Information.'
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1997
Revenues decreased $22.1 million, or 18.8%, to $95.9 million in the nine
months ended September 30, 1998 as compared to $118.0 million for the nine
months ended September 30, 1997 with propane revenues decreasing $22.4 million,
or 20.2%, to $88.5 million for the nine months ended September 30, 1998 compared
with $110.9 million in the 1997 period and revenues from appliance and other
product lines increasing $0.3 million. The $22.4 million decrease in propane
revenues is a result of decreased average selling prices ($15.8 million) due to
lower product costs along with decreased volumes ($6.6 million). Propane retail
gallons sold decreased 6.3 million gallons, or 5.9%, to 100.7 million gallons in
the nine months ended September 30, 1998, compared to 107.0 million gallons in
1997. This decrease in gallons sold is primarily attributable to a decrease in
sales to residential customers for heating purposes due to the fact that the
nine months ended September 30, 1998 were 15.2% warmer than the same period in
1997 according to Degree Day data published by the National Climatic Data
10
<PAGE>
<PAGE>
Center as applied to the geographic regions of the Partnership's operations and
to a lesser extent, the loss of customers.
Gross profit declined $2.9 million, or 12.0%, to $21.3 million in the nine
months ended September 30, 1998 as compared to $24.2 million in 1997. The gross
profit decrease is attributable to (i) lower propane sales volumes in the 1998
period ($3.1 million), (ii) a 0.6% decrease in the average dollar margin per
gallon (the spread between the sales price and the direct product cost) ($0.3
million) and (iii) a decrease in other gross profit from other product lines
($0.1 million), partially offset by a decrease in other operating expenses
applicable to revenues ($0.6 million). The increase in gross profit as a
percentage of sales, to 22.2% from 20.5%, is primarily the result of the average
dollar margin per gallon decreasing only 0.6% from period to period while the
average sales price per gallon decreased $0.16 per gallon, or 15.2%, due to
lower product costs.
Selling, general and administrative expenses increased $1.6 million, or
9.3%, to $19.2 million in the nine months ended September 30, 1998, from $17.6
million in the 1997 period. The increase is primarily attributable to the 1998
full period effect of 1997 acquisitions of propane distributorships and, to a
lesser extent, increased legal and professional fees.
Interest expense increased $0.9 million, or 10.1%, to $10.2 million in the
nine months ended September 30, 1998 due to amortization of fees incurred in
connection with the execution of the Amendments and due to higher average
outstanding borrowings.
Interest income from Triarc decreased $0.1 million, or 2.7%, to $4.0
million in the nine months ended September 30, 1998 due to principal payments
received on the Triarc Note in the third quarter of 1998 (see 'Liquidity and
Capital Resources').
Other income increased $0.1 million to $1.1 million due to higher gains on
the sales of properties in the 1998 period.
The provision for income taxes, which relates only to the pre-tax income of
NSSI, was relatively unchanged at $0.1 million in the nine months ended
September 30, 1998.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1997
Revenues decreased $4.9 million, or 16.6%, to $24.4 million in the three
months ended September 30, 1998 as compared to $29.3 million for the three
months ended September 30, 1997 with propane revenues decreasing $4.8 million,
or 18.0% to $21.7 million for the three months ended September 30, 1998 compared
with $26.5 million in 1997 and revenues from appliance and other product lines
decreasing $0.1 million. The $4.8 million decrease in propane revenues is a
result of decreased average selling prices ($3.0 million) due to lower product
costs along with decreased volumes ($1.8 million). Propane retail gallons sold
decreased 2.0 million gallons, or 6.9%, to 26.9 million gallons in 1998,
compared to 28.9 million gallons in 1997. This decrease in gallons sold is due
to two factors: (i) the carryover effect of the unusually warm previous winter
which resulted in delayed delivery schedules and (ii) the loss of customers in
prior quarters.
Gross profit declined $0.4 million, or 10.0%, to $3.9 million in the three
months ended September 30, 1998 as compared to $4.3 million in the comparable
three months of 1997. The gross profit decrease is attributable to lower propane
sales volumes in the 1998 period ($0.9 million) and a decrease in other gross
profit from other profit lines ($0.1 million), partially offset by a decrease in
operating expenses applicable to revenues ($0.5 million) and a 1.1% increase in
the average margin per gallon (the spread between the sales price and the direct
product cost) ($0.1 million). The increase in gross profit as a percentage of
sales, from 14.7%, to 15.9%, is primarily the result of the average dollar
margin per gallon increasing 1.1% from period to period while the average sales
price per gallon decreased $.11 per gallon or 12.0%, due to lower product costs
and due to lower operating expenses applicable to revenues.
Selling, general and administrative expenses increased $0.4 million, or
6.8%, to $6.4 million in the three months ended September 30, 1998 from $6.0
million in 1997. The increase is primarily attributable
11
<PAGE>
<PAGE>
to the 1998 full period effect of 1997 acquisitions of propane distributorships
and, to a lesser extent, increases in legal and professional fees.
Interest expense increased $0.5 million, or 15.5%, to $3.7 million in the
three months ended September 30, 1998 as compared to $3.2 million in the
comparable three months of 1997 due to amortization of fees incurred in
connection with the execution of the Amendments.
Interest income from Triarc decreased $0.1 million, or 9.1%, to $1.2
million in the three months ended September 30, 1998 due to principal payments
on the Triarc Note received in the third quarter of 1998.
Other income, net increased $0.1 million to $0.3 million in the three
months ended September 30, 1998 as compared to $0.2 million during the same
period in 1997 due primarily to higher gains on the sales of properties in the
1998 third quarter.
The provision for income taxes, which relates only to the pre-tax income of
NSSI, was relatively unchanged.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's cash and cash equivalents (collectively 'cash') increased
$1.5 million during the nine month period ended September 30, 1998. This
increase reflected cash provided by operating activities of $17.2 million and
cash provided by investing activities of $6.0 million partially offset by cash
used in financing activities of $21.7 million.
Cash flows provided by operating activities of $17.2 million in the 1998
period consisted of net non-cash charges of $9.1 million, principally
depreciation and amortization, and $11.4 million from working capital sources
partially offset by a net loss of $3.3 million. The change in working capital is
primarily made up of seasonal decreases in receivables of $9.5 million and
inventories of $1.3 million.
Cash provided by investing activities of $6.0 million during the nine month
period ended September 30, 1998 included $10.0 million of principal prepayments
received on the Triarc Note discussed below and $1.7 million in proceeds from
the sale of properties partially offset by capital expenditures of $5.3 million
and business acquisitions of $0.4 million. Of the capital expenditure amount for
1998, $2.3 million was for recurring maintenance and $3.0 million was to support
growth of operations. The Partnership has forecasted maintenance capital
expenditures and growth capital expenditures for the remainder of 1998 of
approximately $0.5 million and $0.7 million, respectively, subject to the
availability of cash and other financing sources. The Partnership has
outstanding commitments amounting to $1.0 million for such capital expenditures
as of September 30, 1998 which consists of $0.3 million for maintenance capital
expenditures and $0.7 for growth capital expenditures. During the first nine
months of 1998 the Partnership acquired the assets of three propane distributors
for an aggregate $0.4 million in cash. As discussed below, effective June 30,
1998 the Partnership effectively no longer has an acquisition facility and does
not expect to make acquisitions through at least the remainder of 1998.
Cash used in financing activities during the nine-month period ending
September 30, 1998 reflects net repayments of $8.5 million on the Working
Capital Facility (see below), other debt repayments of $0.7 million and
distributions to Unitholders of $13.5 million, partially reduced by borrowings
of $1.0 million on the Acquisition Facility (see below).
The Partnership maintains a Bank Facility with a group of banks which, as
amended effective June 30, 1998, provides for a $10.0 million (a reduction from
$15.0 million, subject to reinstatement under certain limited conditions, in
accordance with the amendment discussed below) Working Capital Facility to be
used for working capital and other general partnership purposes of which all
$10.0 million was available as of September 30, 1998. Further, the banks'
commitments under a previously existing $20.0 million Acquisition Facility under
the Bank Facility, the use of which was restricted to business acquisitions and
capital expenditures for growth, were permanently reduced to the $13.0 million
of outstanding borrowings at June 30, 1998. In that connection, the Partnership
has agreed that it may not reborrow any amounts repaid under the Acquisition
Facility. The balance as of September 30, 1998 remains at $13.0 million. The
Working Capital Facility expires June 30, 1999 and any borrowings (none
12
<PAGE>
<PAGE>
at September 30, 1998) thereunder are due at that date. The Partnership has not
yet entered into formal discussions with its lenders to renew or extend the
Working Capital Facility beyond June 30, 1999. The Partnership believes,
however, that the Working Capital Facility can be renewed or extended or that a
new working capital line of credit can be established, although there can be no
assurance that any new working capital line of credit will have terms that are
similar to those currently in place. Should the Partnership not be successful in
its efforts to renew or extend the Working Capital Facility or obtain a new
working capital line-of-credit, the Partnership has the ability and may be
required to further reduce or eliminate its distributions in order to provide
the working capital necessary for its operations. The Working Capital Facility,
the Acquisition Facility and the Mortgage Notes do not require any principal
payments during the fourth quarter of 1998.
As of June 30, 1998 the Partnership was not in compliance with certain
covenants of its Bank Facility Agreement. Subsequently, the Partnership entered
into the Agreement Amendment retroactive to June 30, 1998 to, among other
things, permit Triarc Note Prepayments of up to $10.0 million by Triarc through
February 14, 1999 on the Triarc Note and, to the extent not utilized for
distributions (see below), to permit any such prepayments to be included in the
determination of Consolidated Cash Flow, as defined under the Agreement for
purposes of compliance with certain leverage and interest coverage ratio
requirements for a period of twelve consecutive months commencing June 30, 1998.
Further, the Partnership must have sufficient interest coverage through
consolidated cash flow, as defined under the Indenture pursuant to which the
Mortgage Notes were issued, in order to pay distributions. Effective June 30,
1998 the Partnership entered into the Indenture Amendment to, among other
things, (i) permit the Triarc Note Prepayments, (ii) effectively permit up to
$6.0 million of any such prepayments to be utilized to pay distributions to
Common Unitholders with a proportionate amount for the General Partners'
Interest with respect to distributions for the second, third and fourth quarters
of 1998 only and (iii) amend the definition of consolidated cash flow to include
interest income received by the Partnership on the Triarc Note through December
31, 1998 for interest coverage purposes thereby facilitating the Partnership's
ability to pay distributions. The Partnership currently expects to
remain in compliance with its debt agreements (as amended) at least through
September 30, 1999. (See further discussion below regarding future Partnership
distributions, including the Partnership's ability to reduce Available Cash by
making appropriate reserves having the effect of reducing the amount of
distributions to Unitholders -- see subsequent discussion. The Triarc Note was
amended to, among other things, permit Triarc, at its option, to make Triarc
Note Prepayments up to $10.0 million of the principal thereof through
February 14, 1999. On August 7, 1998, Triarc made a principal prepayment of
$7.0 million on the Triarc Note of which $3.3 million was included as
Consolidated Cash Flow under the Agreement to retroactively cure the
non-compliance with the Agreement as of June 30, 1998 and $3.7 million was
used to permit the Partnership to declare its distribution for the quarter
ended June 30, 1998. On September 30, 1998, Triarc prepaid the remaining
permitted principal of $3.0 million. The remaining principal balance of the
Triarc Note of $30.7 million is due $0.2 million in 2004 and six equal annual
installments of approximately $5.1 million in 2005 through 2010.
The Partnership incurred fees of $0.9 million in connection with executing
the Amendments. Such fees are being amortized to interest expense ratably over
the third and fourth quarters of 1998.
Partnership distributions are made from Available Cash as defined in the
Partnership Agreement, the Agreement and the Indenture and as amended by the
Agreement Amendment and the Indenture Amendment. Under the terms of the
Partnership Agreement, the Partnership must distribute 100% of its Available
Cash within 45 days of the end of each fiscal quarter. Available Cash under the
Partnership Agreement generally means with respect to any quarter of the
Partnership, all cash on hand at the end of such quarter less the amount of cash
reserves that is necessary or appropriate in the discretion of the Managing
General Partner to (i) provide for the proper conduct of the Partnership's
business, (ii) comply with applicable law or any Partnership debt instrument or
other agreement, or (iii) provide funds for distributions to Unitholders and the
General Partners in respect of any one or more of the next four quarters (see
Note 5 to the consolidated financial statements contained in the Form 10-K for a
more detailed discussion of Available Cash). Under the Agreement Amendment,
Available Cash is supplemented by any Triarc Note Prepayments and may be
utilized to pay distributions to the extent such Triarc Note Prepayments are not
required to be included in Consolidated Cash Flow for the
13
<PAGE>
<PAGE>
Partnership to be in compliance with the Agreement. However, under the Indenture
Amendment which is more restrictive as to the determination of Available Cash as
of September 30, 1998, Available Cash is supplemented by up to only $6.0 million
of Triarc Note Prepayments. The Partnership declared and paid quarterly
distributions of $0.525 per common unit with a proportionate amount for the 4%
General Partners' Interest during each of the first three quarters of 1998,
aggregating $3.7 million for each distribution. The distribution during the
third quarter paid with respect to the second quarter utilized the
aforementioned $3.7 million of the August 7, 1998 Triarc Note Prepayment. On
October 21, 1998 the Partnership declared a quarterly distribution for the
quarter ended September 30, 1998 of $0.2625 per Common Unit to Common
Unitholders of record on November 6, 1998 payable November 13, 1998, with a
proportionate amount for the General Partners' Interest, or an aggregate of $1.8
million including $0.1 million to the General Partners related to the General
Partners' Interest. This distribution represents a reduction from previous
quarters. After a careful evaluation of the Partnership's recent financial
results, the Partnership's Board of Directors concluded that a reduced
distribution was necessary to maintain financial flexibility in future quarters.
Under the terms of the Partnership agreement, each Common Unit will accrue an
arrearage of $0.2625 per Common Unit related to this distribution for an
aggregate of $1.7 million. The last distribution for subordinated units was a
quarterly distribution of $0.525 per subordinated unit with a proportionate
amount for the 4% General Partners' Interest, or an aggregate $2.5 million,
declared and paid during the first quarter of 1998 with respect to the fourth
quarter of 1997. No distributions were declared on the Subordinated Units with
respect to the first three quarters of 1998 since subsequent to the distribution
with respect to the quarter ended December 31, 1997, the Managing General
Partner agreed to forego any distributions on the Subordinated Units in order to
facilitate the Partnership's compliance with debt covenant restrictions in the
Agreement and, effective June 30, 1998 pursuant to the Amendments, the
Partnership agreed not to pay distributions on the Subordinated Units with
respect to the second, third and fourth quarters of 1998. Commencing with
distributions with respect to the fourth quarter of 1998, the Partnership will
pay distributions to the Common Unitholders with a proportionate amount for the
General Partners' Interest only if the Partnership is able to generate
sufficient Available Cash through cash flows from operations and the Partnership
maintains compliance with the restrictions embodied in the covenants in the
Amended Agreements and there can be no assurance that the Partnership will be
able to pay any future distributions to the Common Unitholders. Distributions
will only be made with respect to the Subordinated Unitholders if the
Partnership achieves compliance with the original restrictions embodied in the
covenants in the Agreement and such payment would not impact compliance with
such covenant restrictions and all Common Unit arrearages ($1.7 million after
the distribution payable November 13, 1998) have been paid in full (although,
as previously indicated, the Amendments prohibit any distributions on the
Subordinated Units with respect to the remainder of 1998.) Cash distributions
on the Partnership's Common and Subordinated Units and the General Partners'
Interest are not guaranteed, will depend on future Partnership operating
performance and will be affected by among other things, the funding of reserves,
operating and capital expenditures and requirements under the Partnership's
debt agreement. Accordingly, there can be no assurance that the Partnership
will be able to pay any such future distributions.
Based on the Partnership's current cash on hand, borrowing availability
under the Bank Facility and cash flows from operations, the Partnership expects
to be able to meet all of its cash requirements for the remainder of 1998,
primarily the aforementioned capital expenditures and distributions with respect
to the quarter ending September 30, 1998 payable during the fourth quarter of
1998.
CONTINGENCIES
The Partnership continues to have an environmental contingency of the same
nature and general magnitude as described in Note 17 to the consolidated
financial statements in the Form 10-K. The costs of remediation and third party
claims, if any, associated with this environmental contingency may have a
material adverse effect on the Partnership's financial position, results of
operations or its ability to make distributions.
The Partnership continues to have a contingency with respect to the Final
Rule for Continued Operation of the Present Propane Trucks (the 'Final Rule')
published by the U.S. Department of
14
<PAGE>
<PAGE>
Transportation ('DOT') of the same nature as described in Note 17 to the
consolidated financial statements in the Form 10-K. However, the DOT has
abandoned its appeal of the United States District Court's preliminary
injunction, and is involved with the propane industry in negotiated rulemaking
to promulgate a revised final rule. The Partnership continues to be unable to
determine what the ultimate long-term costs of compliance with the Final Rule or
revised final rule, if any, will be.
There are a number of lawsuits pending or threatened against the
Partnership. In general, these lawsuits have arisen in the ordinary course of
the Partnership's business and involve claims for actual damages, and in some
cases punitive damages, arising from the alleged negligence of the Partnership
or as a result of product defects, business disputes with competitors or similar
matters. Of the pending or threatened matters, a number involve property damage,
and several involve serious personal injuries or deaths. The claims made in
certain cases are for relatively large amounts. Although any litigation is
inherently uncertain, based on past experience, the information currently
available to it and the availability of insurance coverage in certain matters,
the Partnership does not believe that the pending or threatened litigation of
which the Partnership is aware will have a material adverse effect on its
financial position or its results of operations.
Notwithstanding the foregoing, any one of the matters discussed above or
all of them taken together may adversely affect the Partnership's financial
position, results of operations or its ability to make distributions.
YEAR 2000
The Partnership has undertaken a study of its internal functional
application systems to determine their compliance with Year 2000 issues and, to
the extent of noncompliance, the required remediation. The Partnership's study
consisted of an eight-step methodology to: (1) obtain an awareness of the
issues; (2) perform an inventory of its software and hardware systems; (3)
identify its systems and computer programs with year 2000 exposure; (4) assess
the impact on its operations by each mission critical application; (5) consider
solution alternatives; (6) initiate remediation; (7) perform validation and
confirmation testing; and (8) implement. The Partnership has completed steps one
through five and expects to complete steps six through eight by August, 1999.
Such study addressed both information technology ('IT') and non-IT systems,
including imbedded technology such as micro controllers in telephones and the
Partnership's application programs and communication devices associated with its
financial reporting systems in place at each of its retail locations and its
corporate headquarters. As a result of such study, the Partnership believes the
majority of its systems are presently year 2000 compliant. Certain other
systems, however, will require further remediation. If such remediation is not
completed on a timely basis, the most reasonably likely worst case scenario is
that the Partnership may experience delays in its postings of sales and cash
receipts in its general ledger. The Partnership does not believe these delays
would have a material adverse effect on its results of operations. In such case,
the Partnership's contingency plan would be to revert to a manual system in
order to perform the required functions without any significant disruption of
business. To date, the expenses incurred by the Partnership in order to become
year 2000 compliant, including software and hardware costs, have been less than
$0.1 million and the current estimated cost to complete such remediation is
expected to be less than $0.1 million. Such costs are being expensed as incurred
except for the direct purchase costs of software and hardware, which are being
capitalized in accordance with the provisions of Statement of Positions ('SOP')
98-1 described below.
An assessment of the readinesss of Year 2000 compliance of third party
entities with which the Partnership has relationships, such as its suppliers,
banking institutions, customers, payroll processors and others ('Third Party
Entities') is ongoing. The Partnership has inquired, or is in the process of
inquiring, of the significant aforementioned Third Party Entities as to their
readiness with respect to year 2000 compliance and to date has received
indications that many of them are either compliant or in the process of
remediation. The Partnership is, however, subject to certain risks with respect
to these Third Party Entities' potential year 2000 non-compliance. The
Partnership believes that these risks are primarily associated with its banks
and propane suppliers. At present, the Partnership cannot determine the impact
on its results of operations in the event of year 2000 non-compliance by these
Third Party Entities. In the most reasonably likely worst-case scenario, such
year 2000 non-compliance might result
15
<PAGE>
<PAGE>
in a disruption of business and loss of revenues, including the effects of any
lost customers. The Partnership will continue to monitor these Third Party
Entities to determine the impact on the business of the Partnership and the
actions the Partnership must take, if any, in the event of non-compliance by any
of these Third Party Entities. The Partnership is in the process of collecting
additional information from Third Party Entities that disclosed that remediation
is required and will begin detailed evaluations of these Third Party Entities,
as well as those that could not satisfactorily respond, by the first quarter of
1999 in order to develop its contingency plans in conjunction therewith. The
Partnership believes there are multiple vendors of the goods and services it
receives from its suppliers and thus the risk of non-compliance with year 2000
by any of its suppliers is mitigated by this factor. In 1997, no single supplier
provided over 16% of the Partnership's propane needs with the Partnership
purchasing approximately 70% of its propane from 15 suppliers with the balance
purchased from over 35 other suppliers. With respect to its customer base, the
Partnership believes the majority of its residential customers do not rely upon
any systems that are at risk of year 2000 non-compliance and, in addition, no
single customer accounts for more than 10% of the Partnership's revenues, thus
mitigating the adverse risk to the Partnership's business if some customers are
not year 2000 compliant.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
'Reporting on the Costs of Start-Up Activities' ('SOP 98-5'). SOP 98-5 requires
that costs of start-up activities and organization costs be expensed as incurred
and is effective no later than for the first quarter of the Partnership's fiscal
year commencing January 1, 1999. Since the Partnership does not have any
significant deferred start-up costs as of September 30, 1998, the Partnership
does not believe the adoption of SOP 98-5 will have a material impact on its
consolidated results of operations or financial position unless it incurs
significant deferred start-up costs during the fourth quarter of 1998.
In June 1998, the Financial Accounting Standards Board (the 'FASB') issued
Statement of Financial Accounting Standards No. 133 ('SFAS 133') 'Accounting for
Derivative Instruments and Hedging Activities'. SFAS 133 provides a
comprehensive standard for the recognition and measurement of derivatives and
hedging activities. The standard requires all derivatives to be recorded on the
balance sheet at fair value and establishes special accounting for three types
of hedges. The accounting treatment for each of these three types of hedges is
unique but results in including the offsetting changes in fair values or cash
flows of both the hedge and hedged item in results of operations in the same
period. Changes in fair value of derivatives that do not meet the criteria of
one of the aforementioned categories of hedges are included in results of
operations. SFAS 133 is effective for the Partnership's fiscal year beginning
January 1, 2000. The provisions of SFAS 133 are complex and the Partnership is
only beginning its evaluation of the implementation requirements of SFAS 133
and, accordingly, is unable to determine at this time the impact it will have on
the Partnership's financial position and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
16
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<PAGE>
PART II. OTHER INFORMATION
The statements in this Quarterly Report on Form 10-Q that are not
historical facts, including most importantly, information concerning possible or
assumed future results of operations of the Partnership and statements preceded
by, followed by, or that include the words 'may', 'believes', 'expects',
'anticipates' or the negation thereof, or similar expressions, constitute
'forward-looking statements.' All statements which address operating
performance, events or developments that are expected or anticipated to occur in
the future, including statements relating to volume and revenue growth, or
statements expressing general optimism about future operating results, are
forward-looking statements. Such forward-looking statements involve risks,
uncertainties and other factors which may cause actual results, performance or
achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. For those statements, National Propane claims the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995. Such factors include, but are
not limited to, the following: changes in wholesale propane prices; regional
weather conditions; the ability to attract and retain customers; general
economic conditions where the Partnership operates; competition from other
energy sources and within the propane industry; success of operating
initiatives; development and operating costs; advertising and promotional
efforts; the existence or absence of adverse publicity; change 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; the
success of the Partnership in identifying systems and programs that are not yet
Year 2000 compliant; unexpected costs associated with Year 2000 compliance or
the business risk associated with Year 2000 non-compliance by customers and/or
suppliers; changes in, or failure to comply with, government regulations; the
costs, uncertainties and other effects of legal and administrative proceedings
and other risks and uncertainties detailed in National Propane's Securities and
Exchange Commission filings. National Propane will not undertake and
specifically declines any obligation to publicly release the result of any
revisions to any forward-looking statements to reflect events or circumstances
after the date of such statements to reflect events or circumstances after
anticipated or unanticipated events.
Cash distributions on National Propane's common units are not guaranteed,
will depend on future Partnership operating performance and will be affected by,
among other things, the funding of reserves, operating and capital expenditures
and requirements under the Partnership's debt agreements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
27.1 -- Financial Data Schedule for the nine month period ended September 30, 1998 submitted to the Securities and
Exchange Commission in electronic format.
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the three month period ended
September 30, 1998.
17
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P., AND SUBSIDIARIES
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 thereunto duly authorized.
NATIONAL PROPANE PARTNERS, L.P.
BY: NATIONAL PROPANE CORPORATION
as Managing General Partner
By: /s/ R. BROOKS SHERMAN, JR.
...................................
R. BROOKS SHERMAN, JR.
VICE-PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
By: /s/ STEVEN T. SCHURING
...................................
STEVEN T. SCHURING
CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
Date: November 16, 1998
<PAGE>
18
<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,
1998 and the condensed consolidated Statement of Operations for the interim
period January 1, 1998 through September 30, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,142
<SECURITIES> 0
<RECEIVABLES> 3,835
<ALLOWANCES> 0
<INVENTORY> 8,334
<CURRENT-ASSETS> 20,037
<PP&E> 171,795
<DEPRECIATION> 94,590
<TOTAL-ASSETS> 152,599
<CURRENT-LIABILITIES> 15,870
<BONDS> 137,321
<COMMON> 0
0
0
<OTHER-SE> (2,999)
<TOTAL-LIABILITY-AND-EQUITY> 152,599
<SALES> 95,858
<TOTAL-REVENUES> 95,858
<CGS> 74,580
<TOTAL-COSTS> 74,580
<OTHER-EXPENSES> 19,204
<LOSS-PROVISION> 605
<INTEREST-EXPENSE> 10,245
<INCOME-PRETAX> (3,146)
<INCOME-TAX> 146
<INCOME-CONTINUING> (3,292)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,292)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
<FN>
Allowances - Receivables are shown net of an allowance of $605.
Total receivable balance is $4,440.
</FN>
</TABLE>
