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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 16 OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-11867
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NATIONAL PROPANE PARTNERS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 42-1453040
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
SUITE 1700 52401-1409
200 1ST STREET S.E. (ZIP CODE)
CEDAR RAPIDS, IA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE): (319) 365-1550
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Units New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for each shorter period that the
Registrant was required to file such reports), and (2) had been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. [ ]
The aggregate market value as of March 31, 1999 of the Registrant's Common
Units held by non-affiliates of the Registrant, based on the reported closing
price of such units on the New York Stock Exchange on such date, was
approximately $43,560,000. At March 31, 1999 there were outstanding 6,701,550
Common Units and 4,533,638 Subordinated Units.
DOCUMENTS INCORPORATED BY REFERENCE:
None
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NATIONAL PROPANE PARTNERS, L.P.
INDEX TO ANNUAL REPORT ON FORM 10-K
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PART I
PAGE
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Item 1. Business................................................................................... 1
Item 2. Properties................................................................................. 10
Item 3. Legal Proceedings.......................................................................... 11
Item 4. Submission of Matters to a Vote of Security Holders........................................ 11
PART II
Item 5. Market for the Registrant's Units and Related Unitholder Matters........................... 12
Item 6. Selected Historical Consolidated Financial and Operating Data.............................. 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................................. 25
Item 8. Financial Statements and Supplementary Data................................................ 26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....... 49
PART III
Item 10. Directors and Executive Officers of the Registrant......................................... 49
Item 11. Executive Compensation..................................................................... 52
Item 12. Security Ownership of Certain Beneficial Owners and Management............................. 57
Item 13. Certain Relationships and Related Transactions............................................. 59
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................ 61
Signatures........................................................................................... 65
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PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS
Certain statements in this Annual Report on Form 10-K (this 'Form 10-K'),
including statements under 'Item 1. Business' and 'Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations', and
elsewhere in this Form 10-K that are not historical facts, including most
importantly, statements relating to the proposed transaction between National
Propane Partners, L.P. (the 'Partnership') and Columbia Propane Corporation (and
affiliates thereof), 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'
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
'Reform Act'). 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. 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 ability and judgement 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
(including accounting standards, environmental laws and taxation requirements);
the costs, uncertainties and other effects of legal and administrative
proceedings and other risks and uncertainties referred to in this Form 10-K and
other current and periodic filings by the Partnership. The Partnership 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 anticipated or unanticipated events. In addition, it is the
Partnership's policy generally not to make any specific projections as to future
earnings, and the Partnership does not endorse any projections regarding future
performance that may be made by third parties.
Cash distributions on the Partnership'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. Cash distributions on
the Common Units were suspended in January 1999 with respect to the fourth
quarter of 1998 and are currently prohibited under the terms of the
Partnership's debt agreements until all bank indebtedness is repaid in full.
Under the terms of the Purchase Agreement (as defined below in 'Item 1.
Business -- Recent Developments'), the Partnership is prohibited from paying any
further distributions to holders of Common Units without the prior written
consent of the Purchaser General Partner (as defined below).
ITEM 1. BUSINESS
INTRODUCTION
National Propane Partners, L.P., a master limited partnership (the
'Partnership' or the 'MLP'), is a Delaware limited partnership formed in March
1996 to acquire, own and operate the business and assets of National Propane
Corporation ('National Propane' or the 'Managing General Partner'), an indirect
wholly-owned subsidiary of Triarc Companies, Inc. ('Triarc'), through National
Propane, L.P. (the 'Operating Partnership'), and is engaged primarily in (i) the
retail marketing of propane to residential, commercial and industrial, and
agricultural customers and to dealers that resell propane to residential and
commercial customers and (ii) the retail marketing of propane-related supplies
and equipment, including home and commercial appliances. The Partnership
believes it is the seventh largest retail marketer of propane in terms of volume
in the United States, supplying over 210,000 active
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retail and wholesale customers in 24 states through its 155 full service centers
located in 23 states. The Partnership's operations are concentrated in the
Midwest, Northeast, Southeast and West regions of the United States. The retail
propane sales volume of the Partnership was approximately 144.3 million gallons
in 1998. In 1998, approximately 41.9% of the Partnership's retail sales volume
was to residential customers, 42.3% was to commercial and industrial customers,
6.9% was to agricultural customers, and 8.9% was to dealers. Sales to
residential customers in 1998 accounted for approximately 61% of the
Partnership's gross profit on propane sales, reflecting the higher-margin nature
of this segment of the market.
RECENT DEVELOPMENTS
As has been previously announced, the Partnership's Managing General
Partner had been considering various strategic alternatives to maximize the
value of the Partnership and had been in active discussions with several third
parties concerning a sale or merger of the Partnership. In January 1999, the
Managing General Partner established a Special Committee (which retained
financial and legal advisors) to evaluate and make a recommendation on behalf of
the Partnership's Common Unitholders with respect to any transaction.
On April 5, 1999, the Partnership, the Managing General Partner, National
Propane SGP, Inc. ('SGP') and Triarc and Columbia Propane Corporation ('Columbia
Propane'), a subsidiary of Columbia Energy Group, Columbia Propane, L.P.
('Purchaser') and CP Holdings Inc., a subsidiary of Columbia Propane and the
general partner of the Purchaser (the 'Purchaser General Partner') signed a
definitive purchase agreement (the 'Purchase Agreement') pursuant to which the
Purchaser would acquire all of the 6,701,550 outstanding common units of the
Partnership for $12.00 in cash per common unit pursuant to a tender offer (the
'Partnership Sale'). On April 9, 1999, the Purchaser commenced the tender offer.
The offer for the common units is subject to certain conditions, including there
being validly tendered by the expiration date, and not withdrawn, at least a
majority of the outstanding common units on a fully diluted basis. The offer
will be made only upon and subject to the terms and conditions of the Offer to
Purchase and the related Letter of Transmittal.
The tender offer is the first step of a two-step cash transaction. In the
second step, subject to the terms and conditions of the Purchase Agreement,
Columbia Propane would indirectly acquire the general partner interests and
subordinated unit interests of the Partnership from its general partners and the
Partnership would merge into the Purchaser. As part of the second step, any
remaining common unitholders of the Partnership would receive, in cash, the same
per unit price as that paid to common unitholders who tender their shares
pursuant to the tender offer. Triarc would receive $17.9 million for its
acquired interests in the Partnership and the Operating Partnership -- $2.1
million in cash and $15.8 million in the form of the forgiveness of a portion of
the indebtedness owed by Triarc to the Operating Partnership. Simultaneously,
and as a condition of the closing, Triarc will prepay $14.9 million of such
indebtedness. Following the closing, Triarc, through the Managing General
Partner, would retain a 1.0% limited partner interest in the Purchaser.
Approximately $141 million of the Operating Partnership's outstanding
indebtedness is expected to be refinanced in connection with the Partnership
Sale.
The Board of Directors of the Managing General Partner, acting on the
recommendation of its Special Committee, unanimously approved the Partnership
Sale and unanimously recommended that the Partnership's Common Unitholders
tender their common units pursuant to the offer. The Special Committee received
an opinion of Lehman Brothers Inc. ('Lehman Brothers') that, from a financial
point of view, the consideration to be received by the Partnership's Common
Unitholders in the Partnership Sale is fair to the holders of the Common Units.
There can be no assurance that the Partnership Sale will be consummated.
In connection with the Partnership Sale, the Operating Partnership, the
Managing General Partner, the SGP and the holders of the First Mortgage Notes
(the 'Noteholders') amended the Note Agreements governing the Operating
Partnership's $125,000,000 aggregate principal amount of 8.54% first mortgage
notes due 2010 (the 'First Mortgage Notes') to provide for, among other things,
modifications to the premium payable to such noteholders in connection with the
prepayment of the First Mortgage Notes pursuant to the Partnership Sale.
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At December 31, 1998 the Operating Partnership was not in compliance with a
covenant under its bank credit facility (the 'Bank Facility') and is forecasting
non-compliance with the same covenant as of March 31, 1999 (the 'Forecasted
Non-Compliance'). Pursuant to a waiver letter dated as of February 20, 1999, the
Operating Partnership received an unconditional waiver from the lenders under
its Bank Facility (the 'Lenders'), with respect to the non-compliance as of
December 31, 1998, and a conditional waiver with respect to future
non-compliance with such covenant through August 31, 1999 (the 'February
Waiver'). A number of the conditions to the February Waiver of future
noncompliance are directly related to the Partnership Sale. Should the
conditions not be met or the February Waiver expire, and the Partnership be in
default of its Bank Facility, the Partnership would also be in default of its
First Mortgage Notes by virtue of cross-default provisions. As a result of the
Forecasted Non-Compliance, the conditions of the February Waiver, and the
cross-default provisions of the First Mortgage Notes, the Partnership has
classified all of the debt under the Operating Partnership bank credit facility
($15,997,000) and the First Mortgage Notes ($125,000,000) as a current liability
as of December 31, 1998. In addition, as a result of the Forecasted
Non-Compliance, the conditional nature of the February Waiver of future
non-compliance, and the fact that the Partnership Sale may not be consummated,
the Partnership's independent auditors' report on the Partnership's financial
statements for the year ended December 31, 1998 contains an explanatory
paragraph concerning substantial doubt as to the Partnership's ability to
continue as a going concern. If the Partnership Sale is not consummated and the
Lenders are unwilling to extend or modify the February waiver, (i) the
Partnership could seek to otherwise refinance its indebtedness, (ii) the
Managing General Partner might consider buying the banks' loans to the Operating
Partnership ($16.0 million principal amount outstanding at December 31, 1998),
(iii) the Partnership could pursue other potential purchasers of the Partnership
or (iv) the Partnership could be forced to seek protection under Federal
bankruptcy laws. In such latter event, the Managing General Partner may be
required to honor its guarantee of the Partnership's debt under the Bank
Facility and the First Mortgage Notes.
INITIAL PUBLIC OFFERING
In July 1996 the MLP completed its initial public offering (the 'IPO') of
approximately 6.3 million common units representing limited partner interests
(together with subsequently issued common units the 'Common Units'). Both
National Propane and SGP contributed substantially all of their assets to the
Operating Partnership (the 'Partnership Conveyance') as a capital contribution
and the Operating Partnership assumed substantially all of their liabilities.
National Propane and SGP then conveyed their limited partner interests in the
Operating Partnership to the Partnership. As a result of such contributions,
each of National Propane and SGP has a 1.0% general partner interest in the
Partnership and a 1.0101% general partner interest in the Operating Partnership.
In addition, National Propane received in exchange for its contribution to the
Partnership 4,533,638 subordinated units (the 'Subordinated Units') and the
right to receive certain incentive distributions. Also immediately prior to the
closing of the IPO, National Propane issued $125 million aggregate principal
amount of First Mortgage Notes to certain institutional investors in a private
placement (the 'Private Placement'). Concurrently with the closing of the IPO,
the Operating Partnership also entered into the Bank Facility which includes a
revolving credit facility to be used for working capital and other general
partnership purposes and an acquisition facility. On November 7, 1996, the
Partnership issued and sold an additional 400,000 Common Units in a private
placement.
INDUSTRY BACKGROUND
Propane, a by-product of natural gas processing and petroleum refining, is
a clean-burning energy source recognized for its transportability and ease of
use relative to alternative stand-alone energy sources. Propane is extracted
from natural gas or oil wellhead gas at processing plants or separated from
crude oil during the refining process. Propane is normally transported and
stored in a liquid state under moderate pressure or refrigeration for economy
and ease of handling in shipping and distribution. When the pressure is released
or the temperature is increased, it is useable as a flammable gas. Propane is
colorless and odorless; an odorant is added to allow its detection. Propane is
clean-burning, producing negligible amounts of pollutants when consumed.
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The Partnership's retail customers fall into four broad categories:
residential customers, commercial and industrial customers, agricultural
customers and dealers that resell propane to residential and commercial
customers. Residential customers use propane primarily for space heating, water
heating, cooking and clothes drying. Commercial and industrial customers use
propane for commercial applications such as cooking and clothes drying and
industrial uses such as fueling over-the-road vehicles, forklifts and stationary
engines, firing furnaces, as a cutting gas and in other process applications.
Agricultural customers use propane for tobacco curing, crop drying, poultry
brooding and weed control.
Based upon information provided by the National Propane Gas Association
(the 'NPGA'), a propane trade association, propane accounts for approximately 3%
to 4% of total energy consumption in the United States, an average level that
has remained relatively constant for the past ten years. In addition, propane is
now the world's most widely used alternative fuel for automobiles with
approximately 350,000 and 3.5 million vehicles running on propane in the United
States and worldwide, respectively (according to the NPGA). The Partnership
believes, based on industry publications, that the domestic retail market for
propane is approximately 9.4 billion gallons annually.
PRODUCTS, SERVICES AND MARKETING
The Partnership distributes its propane through a nationwide distribution
network integrating 155 full service centers in 23 states. The Partnership's
operations are located primarily in the Midwest, Northeast, Southeast and West
regions of the United States. Typically, service centers are found in suburban
and rural areas where natural gas is not readily available. Generally, such
locations consist of an office and a warehouse and service facility, with one or
more 18,000 to 30,000 gallon storage tanks on the premises. Each service center
is managed by a district or branch manager and also typically employs a customer
service representative, a service technician and one or two bulk truck drivers.
In 1998 the Partnership served over 210,000 active customers. No single
customer accounted for 10% or more of the Partnership's revenues in 1997 or
1998. Generally, the number of customers increases during the fall and winter
and decreases during the spring and summer. Historically, approximately 64% of
the Partnership's retail propane volume has been sold during the six-month
season from October through March, as many customers use propane for heating
purposes. Consequently, sales, gross profits and cash flows from operations are
concentrated in the Partnership's first and fourth fiscal quarters.
Year-to-year demand for propane is affected by the relative severity of the
winter and other climatic conditions. The Partnership believes, however, that
the geographic diversity of its areas of operations can help to reduce its
exposure to regional weather patterns. In addition, retail sales to the
commercial and industrial markets, while affected by economic patterns, are not
as sensitive to variations in weather conditions as sales to residential and
agricultural markets. For information on the impact of annual variations in
weather on the operations of the Partnership, see Item 7. 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- General'.
Retail deliveries of propane are usually made to customers by means of bulk
and cylinder trucks. Propane is pumped from the bulk truck, which generally
holds 2,800 gallons of propane, into a stationary storage tank on the customer's
premises. The capacity of these tanks usually ranges from approximately 50 to
approximately 1,000 gallons, with a typical tank having a capacity of 250 to 500
gallons. Typically, service centers deliver propane to most of their residential
customers at regular intervals, based on estimates of such customers' usage,
thereby eliminating the customers' need to make affirmative purchase decisions.
The Partnership also delivers propane to retail customers in portable cylinders,
which typically have a capacity of 23.5 gallons. When these cylinders are
delivered to customers, empty cylinders are picked up for replenishment at the
Partnership's distribution locations or are refilled in place. The Partnership
also delivers propane to certain other retail customers, primarily dealers and
large commercial accounts, in larger trucks known as transports, which have an
average capacity of approximately 9,000 gallons. Propane is generally
transported from refineries, pipeline terminals and storage facilities
(including the Partnership's underground storage facilities in Hutchinson,
Kansas and Loco Hills, New Mexico) to the Partnership's bulk plants by a
combination of common
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carriers, owner-operators, railroad tank cars and, in certain circumstances, the
Partnership's own highway transport fleet.
The Partnership also sells, leases and services equipment related to its
propane distribution business. In the residential market, the Partnership sells
household appliances such as cooking ranges, water heaters, space heaters,
central furnaces and clothes dryers, as well as barbecue equipment and gas logs.
In the industrial market, the Partnership sells propane for use as forklift
truck fuel, in metal cutting and atmospheric furnaces and for portable heating
for construction. In the agricultural market, propane is sold for use as engine
fuel and for chicken brooding and crop drying. The sale of specialized
equipment, service income and rental income represented less than 10% of the
Partnership's gross income during fiscal 1998. Parts and appliance sales,
installation and service activities are conducted through National Sales &
Service, Inc. ('NSSI'), a wholly-owned corporate subsidiary of the Operating
Partnership.
PROPANE SUPPLY AND STORAGE
The profitability of the Partnership is dependent upon the price and
availability of propane as well as seasonal and climatic factors. Contracts for
propane are typically made on a year-to-year basis, but the price of the propane
to be delivered depends upon market conditions at the time of delivery.
Worldwide availability of both gas liquids and oil affects the supply of propane
in domestic markets, and from time to time the ability to obtain propane at
attractive prices may be limited as a result of market conditions, thus
affecting price levels to all distributors of propane. The Partnership utilizes
a hedging program which is designed to protect margins on fixed price retail
sales and to mitigate the potential impact of sudden wholesale propane price
increases. See 'Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- General'.
The Partnership purchased propane from over 50 domestic and Canadian
suppliers during 1998, primarily major oil companies and independent producers
of both gas liquids and oil. The Partnership purchases propane under both term
and spot contracts. In 1998, the Partnership purchased approximately 77% and 23%
of its propane supplies from domestic and Canadian suppliers, respectively.
Approximately 95% of propane purchases by the Partnership in 1998 were on a
contractual basis (generally, under one year agreements subject to annual
renewal), but the percentage of contract purchases may vary from year to year as
determined by the Partnership. Supply contracts generally do not lock in prices
but rather provide for pricing in accordance with posted prices at the time of
delivery or the current prices established at major storage points, such as Mont
Belvieu, Texas and Conway, Kansas. The Partnership is not currently a party to
any supply contracts containing 'take or pay' provisions.
Dynegy Liquids Marketing and Trade ('Dynegy') and Conoco Inc. ('Conoco')
each supplied approximately 11% of the Partnership's propane in 1998 and Amoco
Oil Company ('Amoco') supplied approximately 10%. The Partnership believes that
if supplies from Dynegy, Conoco or Amoco were interrupted, it would be able to
secure adequate propane supplies from other sources without a material
disruption of its operations; however, the Partnership believes that the cost of
procuring replacement supplies might be significantly higher, at least on a
short-term basis, which could negatively affect the Partnership's margins. No
other single supplier provided 10% or more of the Partnership's total propane
supply during 1998. Although the Partnership has long-standing relations with a
number of its important suppliers and has generally been able to secure
sufficient propane to meet its customers' needs, no assurance can be given that
supplies of propane will be readily available in the future. The Partnership
expects a sufficient supply to continue to be available during 1999. However,
increased demand for propane in periods of severe cold weather, or otherwise,
could cause future propane supply interruptions or significant volatility in the
price of propane. See 'Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations -- General'.
The Partnership owns underground storage facilities in Hutchinson, Kansas
and Loco Hills, New Mexico (the Partnership owns the underground storage space
and leases the real property on which it is located from the state of New
Mexico), leases above ground storage facilities in Crandon, Wisconsin and
Orlando, Florida, and owns or leases smaller storage facilities in other
locations throughout the United States. As of December 31, 1998, the
Partnership's total storage capacity was approximately 33.1
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million gallons (including approximately one million gallons of storage capacity
currently leased to third parties).
TRADEMARKS AND TRADENAMES
The Partnership utilizes several trademarks and tradenames which it owns in
the marketing of its products.
COMPETITION
Propane competes primarily with natural gas, electricity and fuel oil as an
energy source, principally on the basis of price, availability and portability.
Propane serves as an alternative to natural gas in rural and suburban areas
where natural gas is unavailable or portability of product is required. Propane
is generally more expensive than natural gas on an equivalent BTU basis in
locations served by natural gas, although propane is sold in such areas as a
standby fuel for use during peak demand periods and during interruptions in
natural gas service. The expansion of natural gas into traditional propane
markets has historically been inhibited by the capital costs required to expand
distribution and pipeline systems. Although the extension of natural gas
pipelines tends to displace propane distribution in the areas affected, the
Partnership believes that new opportunities for propane sales arise as more
geographically remote neighborhoods are developed.
Propane is generally less expensive to use than electricity for space
heating, water heating, clothes drying and cooking. Although propane is similar
to fuel oil in certain applications, as well as in market demand and price,
propane and fuel oil have generally developed their own distinct geographic
markets, reducing competition between such fuels. Because furnaces and
appliances that burn propane will not operate on fuel oil and vice versa, a
conversion from one fuel to the other requires the installation of new
equipment.
In addition to competing with alternative energy sources, the Partnership
competes with other companies engaged in the retail propane distribution
business. Competition in the propane industry is highly fragmented and generally
occurs on a local basis with other large full-service multi-state propane
marketers, thousands of smaller local independent marketers and farm
cooperatives. Based on industry publications, the Partnership believes that the
domestic retail market for propane is approximately 9.4 billion gallons
annually, that the 10 largest retailers, including the Partnership, account for
approximately 34% of the total retail sales of propane in the United States, and
that no single marketer has a greater than 10% share of the total retail market
in the United States. Most of the Partnership's service centers compete with
several marketers or distributors and certain service centers compete with a
large number of marketers or distributors. Each service center operates in its
own competitive environment because retail marketers tend to locate in close
proximity to customers in order to lower the cost of providing service. The
Partnership's typical service center has an effective marketing radius of
approximately 50 miles. The ability to compete effectively further depends on
the reliability of service, responsiveness to customers and the ability to
maintain competitive prices.
WORKING CAPITAL
Working capital requirements for the Operating Partnership fluctuate due to
the seasonal nature of its business. Typically, in late summer and fall,
inventories are built up in anticipation of the heating season and are depleted
over the winter months. During the spring and early summer, inventories are at
low levels due to lower demand. Accounts receivable reach their highest levels
in the middle of the winter and are gradually reduced as the volume of propane
sold declines during the spring and summer. Accounts receivable are generally
due within 30 days of delivery. Working capital requirements have generally been
met through cash flow from operations supplemented by advances under a revolving
working capital facility. Pursuant to the February Waiver, the Operating
Partnership is precluded from borrowing additional amounts under the Bank
Facility without the consent of each bank lender. (See also 'Recent
Developments'.)
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GOVERNMENT REGULATION
The Partnership is subject to various federal, state and local
environmental, health and safety laws and regulations. Generally, these laws
impose limitations on the discharge of pollutants and establish standards for
the handling of solid and hazardous wastes. These laws include the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act ('CERCLA'), the Clean Air Act, the Occupational
Safety and Health Act, the Emergency Planning and Community Right to Know Act,
the Clean Water Act and comparable state statutes. CERCLA, also known as the
'Superfund' law, imposes joint and several liability without regard to fault or
the legality of the original conduct on certain classes of persons that are
considered to have contributed to the release or threatened release of a
'hazardous substance' into the environment. Propane is not a hazardous substance
within the meaning of CERCLA. However, automotive waste products, such as waste
oil, generated by the Partnership's truck fleet, as well as 'hazardous
substances' disposed of during past operations by third parties on the
Partnership's properties, could subject the Partnership to CERCLA. Such laws and
regulations could result in civil or criminal penalties in cases of
non-compliance or impose liability for remediation costs. Also, third parties
may make claims against owners or operators of properties for personal injuries
and property damage associated with releases of hazardous or toxic substances.
National Fire Protection Association Pamphlets No. 54 and No. 58, which
establish rules and procedures governing the safe handling of propane, or
comparable regulations, have been adopted as the industry standard in all of the
states in which the Partnership operates. In some states these laws are
administered by state agencies, and in others they are administered on a
municipal level. With respect to the transportation of propane by truck, the
Partnership is subject to regulations promulgated under the Federal Motor
Carrier Safety Act. These regulations cover the transportation of hazardous
materials and are administered by the United States Department of
Transportation. The Partnership conducts ongoing training programs to help
ensure that its operations are in compliance with applicable regulations. The
Partnership maintains various permits that are necessary to operate some of its
facilities, some of which may be material to its operations. The Partnership
believes that the procedures currently in effect at all of its facilities for
the handling, storage and distribution of propane are consistent with industry
standards and are in compliance in all material respects with applicable laws
and regulations.
National Propane and the Operating Partnership are subject to various
federal, state and local laws and regulations governing the transportation,
storage and distribution of propane, and the health and safety of workers, the
latter of which are primarily governed by the Occupational Safety and Health Act
and the regulations promulgated thereunder. On August 18, 1997 the U.S.
Department of Transportation (the 'DOT') published its Final Rule for Continued
Operation of the Present Propane Trucks (the 'Final Rule'). The Final Rule is
intended to address perceived risks during the transfer of propane. As initially
proposed, the Final Rule required certain immediate changes in the Partnership's
operating procedures including retrofitting the Operating Partnership's cargo
tanks. The Partnership believes that, as a result of the substantially completed
negotiated rulemaking involving the DOT, the propane industry and other
interested parties, that it will not incur material increases to its cost of
operations in complying with the Final Rule.
In May 1994, National Propane was informed of coal tar contamination which
was discovered at one of its properties in Wisconsin. National Propane purchased
the property from a company (the 'Successor') which had purchased the assets of
a utility that had previously owned the property. National Propane believes that
the contamination occurred during the use of the property as a coal gasification
plant by such utility. To assess the extent of the problem, National Propane
engaged environmental consultants in 1994. Based upon the information compiled
to date, which is not yet complete, it appears the likely remedy will involve
treatment of groundwater and the soil, including installation of a soil cap and,
if necessary, excavation, treatment and disposal of contaminated soil. The
environmental consultants' current range of estimated costs for remediation is
from $0.5 million to $1.7 million. National Propane will have to agree upon the
final remediation plan with the State of Wisconsin. Accordingly, the precise
remediation method to be used is unknown. Based on the preliminary results of
the ongoing investigation, there is a potential that the contaminant plume may
7
<PAGE>
<PAGE>
extend to locations down gradient from the original site. If it is ultimately
confirmed that the contaminant plume extends under such properties and if such
plume is attributable to the contaminants emanating from the Wisconsin property,
there is the potential for future third-party claims. National Propane has
engaged in discussions of a general nature with the Successor who has denied any
liability for the costs of remediation of the Wisconsin property or of
satisfying any related claims. However, National Propane, if found liable for
any of such costs, would still attempt to recover such costs from the Successor.
National Propane has notified its insurance carriers of the contamination and
the likely incurrence of costs to undertake remediation and the possibility of
related claims. Pursuant to a lease related to the Wisconsin facility, the
ownership of which was not transferred by National Propane to the Operating
Partnership at the time of the closing of the Offering, the Partnership has
agreed to be liable for any costs of remediation in excess of amounts received
from the Successor and from insurance. Because the remediation method to be used
is unknown, no amount within the cost ranges provided by the environmental
consultants can be determined to be a better estimate. Thus National has a
remaining accrual of approximately $0.7 million as of December 31, 1998, all of
which was provided in prior years, for the minimum costs estimated for the
anticipated remediation method. See Item 7. 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Contingencies'. The
ultimate outcome of this matter cannot presently be determined and the costs of
remediation and third-party claims, if any, may have a material adverse effect
on the Partnership's financial position, results of operations or ability to
make the distributions to the holders of its Common Units and Subordinated
Units.
EMPLOYEES
As of December 31, 1998, the Managing General Partner had approximately 961
full time employees, of whom 83 were general and administrative (including fleet
maintenance personnel), 26 were sales, 394 were transportation and product
supply and the balance were district employees. In addition, at December 31,
1998, the Managing General Partner had 20 temporary and part-time employees.
Approximately 145 of such full-time employees are covered by collective
bargaining agreements that expire on various dates in 1999, 2000 and 2001. The
Managing General Partner believes that its relations with both its union and
non-union employees are satisfactory.
The Partnership has no employees; however, for certain purposes, such as
workers' compensation claims, employees of the Managing General Partner who are
providing services for the benefit of the Partnership may also be considered to
be employees of the Partnership under applicable state law. The Managing General
Partner is reimbursed by the Partnership entities at cost for all direct and
indirect expenses incurred on behalf of the Partnership entities, including the
costs of compensation and employee benefit plans. See Note 19 of the
Partnership's Consolidated Financial Statements.
8
<PAGE>
<PAGE>
ORGANIZATIONAL STRUCTURE
The following chart depicts the organization and ownership of the
Partnership, the Operating Partnership and the Operating Partnership's corporate
subsidiary. The percentages reflected in the following chart represent the
approximate ownership interest in each of the Partnership and the Operating
Partnership, individually, and not on an aggregate basis.
[ORGANIZATION CHART]
9
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<PAGE>
ITEM 2. PROPERTIES
The Partnership maintains a large number of diverse properties, including
appliance showrooms, maintenance facilities, bulk plants, warehousing space,
garages, storage depots and related distribution
equipment and underground space for gas storage. The Partnership believes that
these properties, taken as a whole, are adequate for its current and foreseeable
business needs. The majority of these properties are owned by the Partnership.
Certain information about the properties of the Partnership as of December
31, 1998 is set forth in the following table.
<TABLE>
<CAPTION>
STORAGE CAPACITY
NUMBER OF ----------------
DESCRIPTION OF FACILITIES FACILITIES
- ---------------------------------------------------------------------------------- --------------- (IN THOUSANDS
OF GALLONS)
<S> <C> <C> <C>
Service Centers located throughout the United States.............................. 124 owned
31 leased
---
155 7,723
Remote Storage Facilities......................................................... 69 owned
31 leased
---
100 2,201
Above Ground Storage Facilities
Crandon, Wisconsin(1)........................................................ 1 leased 241
Orlando, Florida(2).......................................................... 1 leased 1,020
--- -------
2 1,261
Underground Storage Facilities:
Hutchinson, Kansas(3)........................................................ 1 owned 12,000
Loco Hills, New Mexico(4).................................................... 1 leased 10,000
--- -------
2 22,000
-------
Total................................................................... 33,185
-------
-------
</TABLE>
- ------------
(1) The Partnership leases the real property from a third party on a
year-to-year basis, and the lease is terminable by either party upon 30
days' notice.
(2) The Partnership leases the real property from a third party pursuant to a
ground lease that terminates on October 31, 2006. The Partnership owns the
storage facility located at such property and leases it to Dynegy Liquids
Marketing and Trade pursuant to an agreement that terminates October 31,
1999 and may be canceled by the Partnership upon 60 days' notice under
certain circumstances.
(3) The Partnership owns the underground storage facility, which, pursuant to an
operating agreement, is operated by a third party that owns the equipment
necessary to use the facility for propane storage. Such operating agreement
may be terminated by either party at the end of any calendar year upon
thirty days' notice.
(4) The Partnership leases the real property from the State of New Mexico
pursuant to a ground lease with a termination date of November 10, 2000,
subject to the Partnership's option to extend the lease for an additional
5-year term.
------------------------
The transportation of propane requires specialized equipment. The trucks
utilized for this purpose carry specialized steel tanks that maintain the
propane in a liquefied state. As of December 31, 1998, the Partnership had a
fleet of 6 transport truck tractors, all of which are owned by the Partnership,
approximately 350 bulk delivery trucks and 369 service and light duty trucks
which are owned by the Partnership and 35 bulk delivery trucks and 37 service
and light duty trucks under operating leases. In addition, as of December 31,
1998, the Partnership owned approximately 126 cylinder delivery vehicles and 34
automobiles and leased approximately 10 cylinder delivery vehicles and 13
automobiles under
10
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<PAGE>
operating leases. As of December 31, 1998, the Partnership owned approximately
210,000 customer storage tanks with typical capacities of 250 to 500 gallons.
The Partnership believes that it has satisfactory title to or valid rights
to use all of its material properties. Substantially all of the Partnership's
assets (other than the assets of NSSI) are pledged to secure the First Mortgage
Notes and indebtedness under the Bank Credit Facility. In addition, some of the
Partnership's properties are subject to liabilities and leases and immaterial
encumbrances, easements and restrictions, although the Partnership does not
believe that any such burdens will materially interfere with the continued use
by the Partnership of its properties, taken as a whole.
ITEM 3. LEGAL PROCEEDINGS
There are a number of lawsuits pending or threatened against National. In
general, these lawsuits have arisen in the ordinary course of National's
business and involve claims for actual damages, and in some cases punitive
damages, arising from the alleged negligence of National 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 and the claims made 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 results of operations or its
financial condition. Notwithstanding the foregoing, any one of the matters
discussed above or all of these matters taken together may adversely affect the
Partnership's quarterly or annual results of operations and may limit the
Partnership's ability to make distributions to its Unitholders.
In addition, certain contingent liabilities related to National Propane's
operations were assumed by the Partnership in connection with the Partnership
Conveyance. These contingent liabilities include potential environmental
remediation costs and related claims (primarily costs and claims related to the
coal tar contamination at the Managing General Partner's Marshfield, Wisconsin
facility). The ultimate outcome of the Marshfield matter cannot presently be
determined and the costs of remediation and third party claims, if any, may have
a material adverse effect on the Partnership's financial position, results of
operations or ability to make the distributions to the holders of its Common
Units and Subordinated Units. See 'Item 1. Business -- Government Regulations'.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders of the
Partnership during the fiscal year ended December 31, 1998.
11
<PAGE>
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS AND RELATED UNITHOLDER MATTERS
The Common Units, representing limited partner interests in the
Partnership, are listed and traded on The New York Stock Exchange under the
symbol NPL. As of March 31, 1999 there were approximately 12,000 registered
Common Unitholders of record. On March 31, 1999, the closing price of the Common
Units was $6.50. The following table sets forth, for the periods indicated, the
high and low sale prices per Common Unit, as reported on The New York Stock
Exchange, and the amount of cash distributions paid per Common Unit.
<TABLE>
<CAPTION>
1998 HIGH LOW CASH DISTRIBUTION PAID PER UNIT
- -------------------------------------------------- ------- ------- ---------------------------------
<S> <C> <C> <C>
First Quarter..................................... $23.125 $18.500 $0.525 (paid May 15, 1998)
Second Quarter.................................... 20.437 14.750 $0.525 (paid August 14, 1998)
Third Quarter..................................... 16.312 9.187 $0.2625 (paid November 13, 1998)
Fourth Quarter.................................... 13.500 4.500 $0.000
<CAPTION>
1997
- --------------------------------------------------
<S> <C> <C> <C>
First Quarter..................................... $21.000 $19.250 $0.525 (paid May 15, 1997)
Second Quarter.................................... 20.500 18.875 $0.525 (paid August 14, 1997)
Third Quarter..................................... 22.000 20.125 $0.525 (paid November 14, 1997)
Fourth Quarter.................................... 22.437 21.000 $0.525 (paid February 13, 1998)
</TABLE>
The Partnership has also issued Subordinated Units, all of which are held
by the Managing General Partner, for which there is no established public
trading market. Under the Amended and Restated Agreement of Limited Partnership
of National Propane Partners, L.P. (the 'Partnership Agreement'), the
Partnership distributes to its partners on a quarterly basis, all of its
Available Cash in the manner described herein. Available Cash 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 are necessary or appropriate
in the reasonable 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 Partner in respect of any
one or more of the next four quarters. Available Cash is more fully defined in
the Partnership Agreement which is filed as an exhibit to this Report. The
Partnership Agreement defines Minimum Quarterly Distributions as $.525 per Unit
for each full fiscal quarter. In accordance with the Partnership Agreement, the
Partnership reduced the quarterly distribution to Common Unitholders by one-half
of the of the Minimum Quarterly Distribution with respect to the third quarter
of 1998 and eliminated the quarterly distribution to Common Unitholders with
respect to the fourth quarter of 1998. Furthermore, pursuant to the February
Waiver the Operating Partnership agreed not to make any distributions on the
Partnership's publicly traded Common Units until all outstanding indebtedness
under the Bank Facility has been repaid in full. In addition, under the terms of
the Purchase Agreement, the Partnership is prohibited from paying any further
distributions to unitholders without the prior written consent of the Purchaser
General Partner. The Common Units have arrearages of $1,759,000 and $3,518,000
with respect to the third and fourth quarters of 1998, respectively.
Distributions of Available Cash to the holder of the Subordinated Units are
subject to the prior rights of the holders of Common Units to receive Minimum
Quarterly Distributions for each quarter during the subordination period, and
any arrearages in the distribution of Minimum Quarterly Distributions on the
Common Units for prior quarters during the subordination period. For a
discussion of the Partnership's cash distributions, see Note 11 to the
accompanying consolidated financial statements. Restrictions on the
Partnership's distributions are incorporated herein by reference to Notes 3 and
10 to the accompanying consolidated financial statements, and to 'Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations'.
12
<PAGE>
<PAGE>
ITEM 6. SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
In connection with the Partnership Conveyance, the Partnership became the
successor to the businesses of National Propane. Because the Partnership
Conveyance was a transfer (as described in Note 1 to the accompanying
consolidated financial statements) of assets and liabilities in exchange for
partnership interests among a controlled group of companies, it has been
accounted for in a manner similar to a pooling of interests, resulting in the
presentation of the Partnership as the successor to the continuing businesses of
National Propane. The entity representative of both the operations of (1)
National Propane prior to the Partnership Conveyance and (2) the Partnership and
the Operating Partnership and its subsidiary subsequent to the Partnership
Conveyance, is referred to as 'National'. Further, the selected financial data
reflect the effects of the June 1995 merger of Public Gas with and into
National.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1994(A)(B) 1995(A)(B) 1996(A) 1997 1998
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT UNIT DATA)
<S> <C> <C> <C> <C> <C>
Revenues......................................... $151,651 $148,983 $173,260 $165,169 $133,982
Operating income................................. 18,750 14,501 16,188 9,843 6,179
Income (loss) before extraordinary charges....... 12,021 (605) 5,747 3,848 (1,578)
Extraordinary charges(c)......................... (2,116) -- (2,631) -- --
Net income (loss)................................ 9,905 (605) 3,116 3,848 (1,578)
Income (loss) before extraordinary charge per
unit -- basic and diluted(d)................... .27 .33 (.13)
Total assets..................................... 137,581 139,112 196,408 182,509 161,037
Long-term debt................................... 98,711 124,266 128,044 138,131 177
Partners' capital (deficit)/Stockholders'
(deficit)(e)................................... (19,502) (48,600) 34,063 13,454 (3,018)
Operating Data:
EBITDA(f)................................... 28,774 25,146 27,321 22,121 18,293
Capital expenditures(g)..................... 12,593 11,013 7,868 11,546 8,543
Retail propane gallons sold................. 152,335 150,141 160,484 155,287 144,341
Weighted average number of units outstanding..... 10,954,753 11,235,188 11,235,188
</TABLE>
- ------------
(a) Reflects the results of National Propane Corporation and subsidiaries
('National Propane') through June 30, 1996 and of National Propane
Partners, L.P. (the 'Partnership'), National Propane, L.P. and subsidiary,
as successor to the continuing business of National Propane, thereafter. On
July 2, 1996 (effective July 1, 1996), National Propane and a subsidiary
conveyed substantially all of their assets and liabilities in exchange for
partnership interests among a controlled group of companies, which has been
accounted for in a manner similar to a pooling of interests. In July 1996
the Partnership consummated an initial public offering (the 'Offering') of
6,301,550 common units representing limited partner interests in the
Partnership (the 'Common Units') and in November 1996 the Partnership sold
an additional 400,000 Common Units through a private placement (the 'Equity
Private Placement'). See Note 1 to the consolidated financial statements
included elsewhere herein for a further discussion of the basis of
presentation of the consolidated financial statements, the Partnership
Conveyance, the Offering and the Equity Private Placement. See Note 4 to
the consolidated financial statements included elsewhere herein for the
unaudited proforma operating results for the year ended December 31, 1996
adjusted as if the Partnership had been formed and the Partnership
Conveyance, the Offering and the Equity Private Placement had been
completed as of January 1, 1996.
(b) All of the periods presented above prior to June 29, 1995 have been
restated to reflect the effects of the June 29, 1995 merger (the 'Merger')
of Public Gas Company with and into National Propane. Because the Merger
was a transfer of assets and liabilities in exchange for shares among a
(footnotes continued on next page)
13
<PAGE>
<PAGE>
(footnotes continued from previous page)
controlled group of companies, it has been accounted for in a manner
similar to a pooling of interests.
(c) The extraordinary charges primarily represent the write-off of unamortized
deferred financing costs and original issue discount (in the 1994 period),
net of income taxes, associated with the early extinguishment of debt.
(d) Net income per Unit was computed by dividing net income (before an
extraordinary charge for the period July 1, 1996 (see Note (c) above) to
December 31, 1996), after deducting the general partners' interest (100%
through June 30, 1996 and 4% thereafter), by the weighted average number of
units outstanding. Basic and diluted income per unit are the same in 1996
since there were no dilutive securities outstanding and in 1997 and 1998
since potentially dilutive unit options had no effect.
(e) In November 1994, National reclassified its receivable from Triarc as a
component of stockholders' equity which was not conveyed to the Partnership
as part of the July 2, 1996 Partnership Conveyance. Receivables from SEPSCO
were classified as a component of stockholders' equity though June 1995 at
which time the aggregate receivables were dividended to SEPSCO.
(f) EBITDA is defined as operating income plus depreciation and amortization
(excluding amortization of deferred financing costs). EBITDA should not be
considered as an alternative to net income (as an indicator of operating
performance) or as an alternative to cash flow (as a measure of liquidity
or ability to service debt obligations) and is not a measure of performance
or financial condition under generally accepted accounting principles, but
provides additional information for evaluating the Partnership's ability to
distribute the Minimum Quarterly Distribution. Cash flows in accordance
with generally accepted accounting principles consist of cash flows from
(i) operating, (ii) investing and (iii) financing activities. Cash flows
from operating activities reflect net income (loss) (including charges for
interest and income taxes not reflected in EBITDA), adjusted for (i) all
non-cash charges or income (including, but not limited to, depreciation and
amortization) and (ii) changes in operating assets and liabilities (not
reflected in EBITDA). Further, cash flows from investing and financing
activities are not included in EBITDA. For a discussion of National's
operating performance and cash flows provided by (used in) operating,
investing and financing activities, see 'Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations.'
(g) National's capital expenditures fall generally into three categories: (i)
maintenance capital expenditures, which include expenditures for
replacement of property, plant and equipment, (ii) growth capital
expenditures for the expansion of existing operations and (iii) acquisition
capital expenditures, which include expenditures related to the acquisition
of retail propane operations. An analysis by category for the years ended
December 31, 1995, 1996, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997 1998
------- ------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Maintenance................................................ $ 4,030(1) $3,108 $ 2,806 $3,176
Growth..................................................... 4,936 3,922 4,987 5,243..
Acquisition................................................ 2,047(2) 838 3,753 115
------- ------ ------- ------
Total................................................. $11,013 $7,868 $11,546 $8,534
------- ------ ------- ------
------- ------ ------- ------
</TABLE>
- ------------
(1) Includes the purchase of an airplane for $590,000.
(2) Includes $1,864,000 of assets purchased and contributed by Triarc.
14
<PAGE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CERTAIN STATEMENTS SET FORTH BELOW UNDER THIS CAPTION CONSTITUTE
'FORWARD-LOOKING STATEMENTS' WITHIN THE MEANING OF THE REFORM ACT. SEE 'SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS' ON PAGE ONE FOR
ADDITIONAL FACTORS RELATING TO SUCH STATEMENTS.
This 'Management's Discussion and Analysis of Financial Condition and
Results of Operations' reflects the results of National Propane Corporation and
subsidiaries ('National Propane') through June 30, 1996 and of National Propane
Partners, L.P. (the 'Partnership'), its subsidiary partnership National Propane
L.P. (the 'Operating Partnership') and a subsidiary National Sales & Service,
Inc. ('NSSI' and together with the Partnership and the Operating Partnership,
the 'Partnership Entities'), as successor to the continuing business of National
Propane, thereafter. The Partnership was formed on March 13, 1996 to acquire,
own and operate National Propane's propane business and substantially all of the
related assets of National Propane. The Partnership's activities are conducted
through the Operating Partnership and NSSI. The entity representative of both
the operations of (i) National Propane prior to the Partnership Conveyance and
(ii) the Partnership Entities subsequent to the Partnership Conveyance is
referred to herein as 'National'. On July 2, 1996 (effective July 1, 1996),
National Propane and a subsidiary conveyed substantially all of their propane
related assets and liabilities (other than amounts due from a parent, deferred
financing costs and income tax liabilities) to the Operating Partnership.
Because such conveyance was a transfer of assets and liabilities in exchange for
partnership interests among a controlled group of companies, it has been
accounted for in a manner similar to a pooling of interests. Further, results of
operations of National Propane prior to June 29, 1995 have been restated to
reflect the effects of the June 29, 1995 merger (the 'Merger') of Public Gas
Company ('Public Gas') with and into National Propane. 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. See Note 1 to the consolidated financial statements included
elsewhere herein for a further discussion of the basis of presentation of the
consolidated financial statements and the Partnership Conveyance. See also
'Item 1. Business -- Recent Developments' and ' -- Liquidity and Capital
Resources' for information regarding the Partnership Sale and the Partnership's
recent non-compliance with a covenant under its Bank Facility.
GENERAL
National is primarily engaged in (i) the retail marketing of propane to
residential customers, commercial and industrial customers, agricultural
customers and to dealers 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 believes it is the
seventh largest retail marketer of propane in terms of retail volume in the
United States, supplying over 210,000 active retail and wholesale customers in
24 states through its 155 full service centers. National's operations are
concentrated in the Midwest, Northeast, Southeast and West regions of the United
States.
National'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. Agricultural 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 dependent on weather conditions.
National sells approximately 64% of its retail volume during the first and
fourth quarters, which represent 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 believes that its exposure to regional
weather patterns can be 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.
15
<PAGE>
<PAGE>
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 similar sales volumes.
National 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's first fiscal quarter, and the beginning of the second
heating season, National'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 does not believe it is overly dependent on any one
supplier. National primarily buys propane on both one-year contracts and the
spot market and generally does not enter into any fixed price take-or-pay
contracts. Furthermore, National purchases propane from a wide variety of
sources. In 1998, no provider supplied over 11% of National'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 the Partnership's ability
to raise customer prices, margins will be negatively affected. In 1998, however,
propane costs declined and these decreases were passed on to customers to
maintain the Partnership's market share and attract new customers.
The propane industry is very competitive. National competes against other
major propane companies as well as local marketers in most of its markets, with
the highest concentration of competitors 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 year
ended December 31, 1998 with the year ended December 31, 1997, and the year
ended December 31, 1997 with the year ended December 31, 1996.
RESULTS OF OPERATIONS FOR YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED
DECEMBER 31, 1997
Revenues. Revenues declined $31.2 million, or 18.9% to $134.0 million for
the year ended December 31, 1998 as compared with $165.2 million for the year
ended December 31, 1997. This decrease consists of a $31.5 million, or 20.4%,
decrease in propane revenues partially offset by a $0.3 million, or 3.4%,
increase in revenues from other product lines. The $31.5 million decrease in
propane revenues was due to decreased selling prices ($20.6 million) and volume
decreases ($10.9 million). National's propane sales volume decreased 11.0
million gallons, or 7.1% in 1998 to 144.3 million gallons compared with 155.3
million gallons in 1997 reflecting a decrease of 13.4 million gallons sold to
existing customers. This decrease in sales to existing customers was partially
offset by an increase of 2.4 million gallons due to the acquisition of a propane
distributor in 1998 and the full year effect of six acquisitions in 1997. This
decrease in gallons sold is primarily attributable to a decrease in sales to
residential customers for heating purposes in 1998 due to the fact that the year
ended December 31, 1998 was 14.4% warmer than the year ended December 31, 1997
according to Degree Day data, published by the National Climatic Data Center, as
applied to the geographic regions of National's operations and to a lesser
extent, the loss of customers.
Gross Profit. Gross profit declined $2.1 million, or 6.1%, to $32.4 million
in 1998 compared with $34.5 million in 1997. The gross profit decrease is
attributable to lower propane sales volume in 1998 compared with 1997 ($5.2
million), partially offset by an increase in average margin per gallon (the
spread between the sales price and the direct product cost) ($0.2 million) and a
decrease in operating expenses attributable to revenues ($2.9 million). The
increase in the average margin per gallon is primarily the result of more
favorable supply costs during 1998. Operating expenses attributable to revenues
decreased $2.9 million, or 6.1%, to $44.4 million in 1998 compared to $47.3
million in 1997 due to a non-recurring charge of $1.1 million for severance
benefits in the fourth quarter of 1997, and decreased (i) insurance costs in
1998 due to better experience ($0.8 million), (ii) depreciation expense in 1998
due to sales of properties and assets becoming fully depreciated ($0.7 million),
(iii) expenditures
16
<PAGE>
<PAGE>
for equipment repairs in 1998 ($0.5 million), (iv) vehicle fuel costs in 1998
due to lower fuel prices ($0.5 million), and (v) vehicle repairs and maintenance
costs in 1998 due to a newer fleet ($0.5 million) partially offset by higher
1998 payroll and employee benefit expenses ($1.2 million).
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.6 million, or 6.5%, to $26.2 million in
1998 compared with $24.6 million in 1997. The increase is primarily attributable
to the 1998 full period effect of 1997 acquisitions of propane distributorships,
increased legal fees, and vehicle operating lease expense for 1998 fleet
additions.
Interest Expense. Interest expense increased $1.2 million, or 9.5%, to
$13.8 million in 1998 compared with $12.6 million in 1997. This increase was due
to the amortization of fees incurred in connection with the execution of
amendments to the Partnership's Bank Facility and First Mortgage Notes in 1998
($0.9 million) in addition to higher average borrowings in 1998, partially
offset by lower average interest rates.
Interest Income from Triarc. Interest income from Triarc decreased $0.5
million, or 9.0%, to $5.0 million in 1998 compared with $5.5 million in 1997 due
to the receipt of $10.0 million of principal prepayments on the Triarc Note
received in the third quarter of 1998 (see 'Liquidity and Capital Resources').
Other Income, Net. Other income, net increased $0.1 million due to an
increase in gains on the sale of properties in 1998 partially offset by lower
rent and investment income and increased non-operating expenses.
Provision for Income Taxes. The provision for income taxes, which relates
primarily to the pre-tax income of NSSI, increased $0.2 million due to higher
NSSI taxable income.
RESULTS OF OPERATIONS FOR YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED
DECEMBER 31, 1996
Revenues. Revenues declined $8.1 million, or 4.7%, to $165.2 million for
the year ended December 31, 1997 as compared with $173.3 million for the year
ended December 31, 1996. This decrease consists of a $7.0 million, or 4.3%,
decrease in propane revenues and a $1.1 million, or 9.1%, decrease in revenues
from other product lines. The $7.0 million decrease in propane revenues was due
to volume decreases ($5.2 million) and decreased selling prices ($1.8 million).
National's propane sales volume decreased 5.2 million gallons, or 3.2% in 1997
to 155.3 million gallons compared with 160.5 million gallons in 1996 reflecting
a decrease of 10.4 million gallons sold to existing customers, primarily
residential. This decrease in sales to existing customers was partially offset
by an increase of 5.2 million gallons sold due to the acquisition of six propane
distributorships in 1997 and the full-year effect of two acquisitions in the
second half of 1996 (3.8 million gallons) and the opening of five new service
centers in 1997 (1.4 million gallons). This propane sales volume decrease to
residential customers is a result of the winter season in the first half of 1997
being 6.8% warmer than the winter season in the first half of 1996 according to
Degree Day data, published by the National Climatic Data Center, as applied to
the geographic regions of National's operations. In addition, record high
product cost caused customers to conserve in their use of propane and to shop
for lower prices, resulting in some residential customer turnover and losses.
The decrease in selling prices is due to a shift in the customer mix toward
lower-priced non-residential accounts and lower product cost. Revenues from
other product lines decreased $1.1 million due to (i) decreased terminal
sublease income due to the warm winter season, (ii) decreased equipment rental
charges in certain market areas due to competitive conditions and (iii)
decreased appliance sales.
Gross Profit. Gross profit declined $6.1 million, or 15.0%, to $34.5
million in 1997 compared with $40.6 million in 1996. The gross profit decrease
is attributable to (i) lower propane sales volume in 1997 compared with 1996
($2.5 million), (ii) a decrease in average margin per gallon (the spread between
the sales price and the direct product cost) ($0.2 million), (iii) an increase
in operating expenses attributable to revenues ($2.6 million) and (iv) a
decrease in other gross profit from other product lines ($0.8 million). The
decrease in the average margin per gallon is due to a shift in the customer mix
toward lower-margin non-residential customers ($1.9 million) partially offset by
increased average margin per gallon as the cost of propane declined during 1997
($1.7 million). Operating expenses attributable to
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revenues increased $2.6 million, or 5.8%, to $47.3 million in 1997 compared to
$44.7 million in 1996 due to a non-recurring charge of $1.1 million for
severance benefits in the fourth quarter of 1997 and increases in payroll,
vehicle and depreciation expenses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.7 million, or 7.4%, to $24.6 million in
1997 compared with $22.9 million in 1996. The increase is primarily a result of
increased professional fees, amortization of intangibles due to the six propane
distributorships acquired during 1997 and the 1997 full year effect of the
stand-alone operating costs incurred by the Partnership partially offset by
decreases in advertising and provision for doubtful accounts.
Management Fees. Management fees formerly paid to Triarc were eliminated
upon the commencement of the operations of the Partnership and the Partnership
Conveyance on July 2, 1996.
Interest Expense. Interest expense increased $0.5 million, or 4.2%, to
$12.6 million in 1997 compared with $12.1 million in 1996. This increase was due
to higher average borrowings, primarily for acquisitions, partially offset by
lower average interest rates.
Interest Income from Triarc. Interest income from Triarc increased $2.7
million, or 99.5%, to $5.5 million in 1997 compared with $2.8 million in 1996
due to the full year effect of interest on the Partnership Loan.
Other Income, Net. Other income, net increased $0.4 million due to an
increase in gains on asset sales.
Provision for Income Taxes. The Partnership Entities are not tax paying
entities except for NSSI. As such, the 1996 provision for income taxes relates
primarily to National's operations prior to the Partnership Conveyance. The
provision for income taxes for the second half of 1996 and the year ended
December 31, 1997 does not reflect a tax provision relating to the earnings of
the Partnership and the Operating Partnership.
Extraordinary Charge. The extraordinary charge of $2.6 million in 1996 is
the result of the early extinguishment of $128.5 million of existing
indebtedness and consists of the write-off of deferred financing costs of $4.1
million and prepayment penalties of $0.2 million, net of income tax benefit of
$1.7 million.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities of $17.1 million in 1998 consisted of
(i) non-cash charges of $12.3 million, principally depreciation and amortization
and (ii) a net $6.4 million decrease in cash flows from changes in operating
assets and liabilities, partially offset by a net loss of $1.6 million. The
decrease in net operating assets and liabilities is primarily due to lower
propane sales volumes and lower prices which caused decreased levels of accounts
receivable and inventories.
Cash provided by investing activities for 1998 of $3.5 million included
$10.0 million of principal prepayments received on the Triarc Note discussed
below and $2.3 million in proceeds from the sale of properties partially offset
by capital expenditures of $8.4 million and business acquisitions of $0.4
million. Of the capital expenditures amount, $5.2 million was to support the
growth of operations, and $3.2 million was for recurring maintenance capital to
support current business levels. National expects to have total capital
expenditures in 1999 of approximately $4.8 million consisting of $1.8 million
for maintenance and $3.0 million for growth. Such capital expenditures will be
funded by cash flow from operations and interest income on the Triarc Note. At
December 31, 1998 National had outstanding commitments of $0.4 million for such
capital expenditures. During 1998 National acquired the assets of a propane
distributor for an aggregate of $0.4 million of cash.
Cash used in financing activities of $20.7 million in 1998 consisted of
distributions paid to unitholders of $15.3 million and net repayments of
long-term debt of $5.4 million.
Total partners' deficit at December 31, 1998 was $3.0 million as compared
with total partners' capital of $13.5 million at December 31, 1997. The decrease
of $16.5 million principally reflects distributions paid of $15.3 million and
net loss of the Partnership of $1.6 million partially offset by $0.4 million of
amortization of unearned compensation on below market unit options.
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On April 5, 1999, the Partnership, the Managing General Partner, National
Propane SGP, Inc. ('SGP') and Triarc and Columbia Propane Corporation ('Columbia
Propane'), a subsidiary of Columbia Energy Group, Columbia Propane, L.P.
('Purchaser') and CP Holdings Inc., a subsidiary of Columbia Propane and the
general partner of the Purchaser (the 'Purchaser General Partner') signed a
definitive purchase agreement (the 'Purchase Agreement') pursuant to which the
Purchaser would acquire all of the 6,701,550 outstanding Common Units of the
Partnership for $12.00 in cash per Common Unit pursuant to a tender offer, (the
'Partnership Sale'). On April 9, 1999, the Purchaser commenced the tender offer.
The offer for the Common Units is subject to certain conditions, including there
being validly tendered by the expiration date, and not withdrawn, at least a
majority of the outstanding Common Units on a fully diluted basis. The offer
will be made only upon and subject to the terms and conditions of the Offer to
Purchase and the related Letter of Transmittal.
The tender offer is the first step of a two-step cash transaction. In the
second step, subject to the terms and conditions of the Purchase Agreement,
Columbia Propane would indirectly acquire the general partner interests and
subordinated unit interests of the Partnership from its general partners and the
Partnership would merge into the Purchaser. As part of the second step, any
remaining common unitholders of the Partnership would receive, in cash, the same
per unit price as that paid to common unitholders who tender their shares
pursuant to the tender offer. Triarc would receive approximately $17.9 million
for its acquired interests in the Partnership and the Operating
Partnership -- $2.1 million in cash and $15.8 million payable in the form of the
forgiveness of indebtedness owed by Triarc to the Operating Partnership.
Simultaneously, and as a condition of the closing, Triarc will prepay
approximately $14.9 million of such indebtedness. Following the closing, Triarc,
through the Managing General Partner, would retain a 1.0% limited partner
interest in the Purchaser. Approximately $141 million of the Operating
Partnership's outstanding indebtedness is expected to be refinanced in
connection with the Partnership Sale. There can be no assurance that the
Partnership Sale will be consummated.
In connection with the Partnership Sale, the Operating Partnership, the
Managing General Partner, the SGP and the Noteholders amended the Note
Agreements governing the Operating Partnership's $125.0 million 8.54% First
Mortgage Notes to provide for, among other things, modifications to the
premium payable to such noteholders in connection with the prepayment of
the First Mortgage Notes pursuant to the Partnership Sale. Also in connection
with the Partnership Sale, the Partnership will incur certain financial
advisory, legal and other fees and expenses of up to $2.0 million in the first
half of 1999, which will be expensed as incurred.
At December 31, 1998 the Operating Partnership was not in compliance with a
covenant under its bank credit facility (the 'Bank Facility') and is forecasting
non-compliance with the same covenant as of March 31, 1999 (the 'Forecasted
Non-Compliance'). Pursuant to a waiver letter dated as of February 20, 1999, the
Operating Partnership received an unconditional waiver of such non-compliance
from the lenders under its Bank Facility (the 'Lenders') with respect to the
non-compliance as of December 31, 1998, and a conditional waiver with respect to
future non-compliance with such covenant through August 31, 1999 (the 'February
Waiver'). A number of the conditions to the February Waiver of future
noncompliance are directly related to the Partnership Sale. Should the
conditions not be met or the February Waiver expire, and the Partnership be in
default of its Bank Facility, the Partnership would also be in default of its
First Mortgage Notes by virtue of cross-default provisions. As a result of the
Forecasted Non-Compliance, the conditions of the February Waiver, and the
cross-default provisions of the First Mortgage Notes, the Partnership has
classified all of the debt under the Bank Facility ($16.0 million) and the First
Mortgage Notes ($125.0 million) as a current liability as of December 31, 1998.
In addition, as a result of the Forecasted Non-Compliance, the conditional
nature of the February Waiver of future non-compliance, and the fact that the
Partnership Sale may not be consummated, the Partnership's independent auditors'
report on the Partnership's financial statements for the year ended December 31,
1998 contains an explanatory paragraph concerning substantial doubt as to the
Partnership's ability to continue as a going concern. If the Partnership Sale is
not consummated and the Lenders are unwilling to extend or modify the February
Waiver, (i) the Partnership could seek to otherwise refinance its indebtedness,
(ii) the Managing General Partner might consider buying the banks' loans to the
Operating Partnership ($16.0 million principal amount outstanding at December
31,
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1998), (iii) the Partnership could pursue other potential purchasers of the
Partnership or (iv) the Partnership could be forced to seek protection under
Federal bankruptcy laws. In such latter event, the Managing General Partner may
be required to honor its guarantee of the Partnership's debt under the Bank
Facility and the First Mortgage Notes.
Effective with amendments executed effective June 30, 1998, the
Partnership's Bank Facility provided for a $10.0 million (reduced from $15.0
million) working capital facility (the 'Working Capital Facility') to be used
for working capital and other general partnership purposes. At December 31,
1998, $3.0 million was outstanding under the Working Capital Facility. Further,
in accordance with the amendments, the $20.0 million 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 approximately $13.0 million outstanding as of June 30, 1998. As
described above, all amounts outstanding under the Bank Facility are classified
as current liabilities in accordance with terms of the February Waivers and no
additional borrowings under the Bank Facility are available to the Partnership
without the consent of each bank lender. The original repayment terms of the
Acquisition Facility, as amended, were approximately $1.1 million per quarter
beginning in the third quarter of 1999. Original repayment terms of the First
Mortgage Notes required equal annual installments of approximately $15.6 million
commencing 2003 through 2010.
As of June 30, 1998, the Partnership was not in compliance with certain
covenants of its Bank Facility agreement (the 'Agreement'). The Agreement was
amended (the 'Agreement Amendment') as of such date to, among other things,
permit principal prepayment (the 'Triarc Note Prepayments') of up to $10.0
million by Triarc through February 14, 1999 on a note receivable from Triarc
(the 'Triarc Note') with an original principal amount of $40.7 million 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 ('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 First 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 $6.0 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. (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 and
contractual restrictions under the Purchase Agreement.) 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 approximately $3.3 million was included as
Consolidated Cash Flow under the Agreement in order to retroactively cure the
noncompliance with the Agreement at June 30, 1998, and approximately $3.7
million 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 $3.0 million. The
remaining principal balance of the Triarc Note of $30.7 million is due
approximately $0.2 million in 2004 and six equal annual installments of
approximately $5.1 million commencing in 2005 through 2010. A portion of the
Triarc Note (approximately $14.9 million) is to be repaid and the balance
(approximately $15.8 million) forgiven in connection with the Partnership Sale.
(See 'Recent Developments'). The original terms of the Bank Facility, the First
Mortgage Notes and the Triarc Note are further described in Notes 10 and 13 to
the consolidated financial statements contained in this Form 10-K.
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The Partnership incurred fees of approximately $0.9 million in connection
with the execution of the Amendments. Such fees were amortized to interest
expense ratably over the third and fourth quarters of 1998.
The Operating Partnership's obligations under both the First Mortgage Notes
and the Bank 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.
Other than any possible payments that may be required on the First Mortgage
Notes and the Bank Facility as discussed above, the Partnership's principal cash
requirements for 1999 are maintenance capital expenditures (currently budgeted
at $1.8 million for the year ending December 31, 1999), funds for growth capital
expenditures (currently budgeted at $3.0 million for the year ending December
31, 1999), and payments required under the Bank Facility. The Partnership
expects to meet such requirements through a combination of cash flows from
operations and the $4.1 million of interest income on the Partnership Loan.
Prior to the execution of the February Waiver discussed above which
prohibits the payment of any distributions to the Unitholders until all
outstanding indebtedness under the Bank Facility is repaid in full, partnership
distributions were 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 11 to the consolidated financial statements contained in the Form 10-K for
a more detailed discussion of Available Cash). Under the Agreement Amendment
executed effective June 30, 1998, 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, 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 approximately $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 paid on November 13, 1998, with a
proportionate amount for the General Partner's Interest, or an aggregate of
approximately $1.8 million including approximately $0.1 million to the General
Partners related to the General Partners' Interest. This distribution
represented a 50% reduction from previous quarters. After a careful evaluation
of the Partnership's recent financial results, the Managing General Partner's
Board of Directors concluded that a reduced distribution was necessary to
maintain financial flexibility in future quarters. With respect to the fourth
quarter of 1998, the Partnership was in violation of certain of its debt
covenants under the Bank Facility as previously discussed and as such, was
prohibited under its debt agreement from making any distribution in respect of
the fourth quarter of 1998. Furthermore, the February Waiver prohibits any
further distributions to Unitholders until all outstanding indebtedness under
the Bank Facility has been repaid in full. In addition, under the terms of the
Purchase Agreement, prior to the closing of the Partnership Sale, the
Partnership must obtain the prior written consent of the Purchaser General
Partner before taking certain specified actions, including the following: (a)
the payment of distributions to any unitholders, (b) incurring indebtedness,
except for working capital borrowings of up to $1.0 million or (c) making
capital expenditures in excess of $1.0 million in the aggregate. Under the terms
of the Partnership Agreement, the Common Units have arrearages of $0.2625 and
$0.525 per Common Unit related to the third and fourth quarter distributions,
respectively for an aggregate of approximately
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$5.3 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 of approximately $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 any quarter 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
compliance with the 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. 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 in the event the Partnership Sale is not consummated.
CONTINGENCIES
In May 1994, National Propane was informed of coal tar contamination which
was discovered at one of its properties in Wisconsin. National Propane purchased
the property from a company (the 'Successor') which had purchased the assets of
a utility that had previously owned the property. National Propane believes that
the contamination occurred during the use of the property as a coal gasification
plant by such utility. To assess the extent of the problem, National Propane
engaged environmental consultants in 1994. Based upon the information compiled
to date, which is not yet complete, it appears the likely remedy will involve
treatment of groundwater and the soil, including installation of a soil cap and,
if necessary, excavation, treatment and disposal of contaminated soil. The
environmental consultants' current range of estimated costs for remediation is
from $0.5 million to $1.7 million. National Propane will have to agree upon the
final remediation plan with the State of Wisconsin. Accordingly, the precise
remediation method to be used is unknown. Based on the preliminary results of
the ongoing investigation, there is a potential that the contaminant plume may
extend to locations down gradient from the original site. If it is ultimately
confirmed that the contaminant plume extends under such properties and if such
plume is attributable to the contaminants emanating from the Wisconsin property,
there is the potential for future third-party claims. National Propane has
engaged in discussions of a general nature with the Successor who has denied any
liability for the costs of remediation of the Wisconsin property or of
satisfying any related claims. However, National Propane, if found liable for
any of such costs, would still attempt to recover such costs from the Successor.
National Propane has notified its insurance carriers of the contamination and
the likely incurrence of costs to undertake remediation and the possibility of
related claims. Pursuant to a lease related to the Wisconsin facility, the
ownership of which was not transferred by National Propane to the Operating
Partnership at the time of the closing of the Offering, the Partnership has
agreed to be liable for any costs of remediation in excess of amounts received
from the Successor and from insurance. Because the remediation method to be used
is unknown, no amount within the cost ranges provided by the environmental
consultants can be determined to be a better estimate. Thus National has a
remaining accrual of approximately $0.7 million as of December 31, 1998, all of
which was provided in prior years, for the minimum costs estimated for the
anticipated remediation method. The ultimate outcome of this matter cannot
presently be determined and the costs of remediation and third-party claims, if
any, may have a material adverse effect on the Partnership's financial position,
results of operations or ability to make the distributions to the holders of its
Common Units and Subordinated Units.
The Partnership is subject to various federal, state and local laws and
regulations governing the transportation, storage and distribution of propane,
and the health and safety of workers, the latter of which are primarily governed
by the Occupational Safety and Health Act and the regulations promulgated
thereunder. On August 18, 1997, the U.S. Department of Transportation ('the
DOT') published its Final Rule for Continued Operation of the Present Propane
Trucks (the 'Final Rule'). The Final Rule is intended to address perceived risks
during the transfer of propane. As initially proposed, the Final Rule required
certain immediate changes in the Partnership's operating procedures
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including retrofitting the Partnership's cargo tanks. The Partnership believes
that, as a result of the substantially completed negotiated rulemaking involving
the DOT, the propane industry and other interested parties, that it will not
incur material increases to its cost of operations in complying with the Final
Rule.
There are a number of lawsuits pending or threatened against National. In
general, these lawsuits have arisen in the ordinary course of National's
business and involve claims for actual damages, and in some cases punitive
damages, arising from the alleged negligence of National 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, and the claims made 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 results of operations or its
financial condition. 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 to its Unitholders.
INFLATION AND CHANGING PRICES
In general, inflation has not had any significant impact on National in
recent years since inflation rates generally remained at relatively low levels
and changes in propane prices, in particular, have been dependent on factors
generally more significant than inflation, such as weather and availability of
supply. However, to the extent inflation affects the amounts National pays for
propane as well as operating and administrative expenses, National attempts to
limit the effects of inflation through passing on propane cost increases to
customers in the form of higher selling prices to the extent it can do so as
well as cost controls and productivity improvements. As such, inflation has not
had a material adverse effect on National's profitability and National does not
believe normal inflationary pressures will have a material adverse effect on
future results of operations of National.
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 embedded 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 a
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 posting 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
approximately $0.1 million and the current estimated cost to complete such
remediation is expected to be approximately $0.1 million. Such costs are being
expensed as incurred except for the direct purchase costs of software and
hardware, which are being capitalized.
An assessment of the readiness of Year 2000 compliance of third-party
entities with which the Partnership has relationships, such as its suppliers,
banking institutions, customers, payroll processors
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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 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 has begun
detailed evaluations of these Third Party Entities, as well as those that could
not satisfactorily respond, 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 1998, no single supplier provided over 11% of the Partnership's
propane needs with the Partnership purchasing approximately 64% of its propane
from 10 suppliers with the balance purchased from over 40 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
Effective for the fourth quarter of 1998, National has adopted Statement of
Financial Accounting Standards ('SFAS') No. 131 ('SFAS 131') 'Disclosures about
Segments of an Enterprise and Related Information' which supersedes SFAS No. 14
'Financial Reporting for Segments of a Business Enterprise'. SFAS 131
establishes new standards for disclosure of financial and descriptive
information by operating segment in National's consolidated financial
statements. SFAS 131 utilizes a management approach to define operating segments
along the lines used by management internally for evaluating segment performance
and deciding resource allocations to segments. The Company manages and
internally reports its operations as one business segment which, under the
criteria of SFAS 131, is the retail marketing of propane and propane-related
supplies and equipment. As a result, the adoption of SFAS 131 had no impact on
National's consolidated financial statement disclosures.
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 December 31, 1998, the adoption of SOP
98-5 did not have a material impact on its consolidated results of operations or
financial position.
In June 1998, the Financial Accounting Standards Board (the 'FASB') issued
SFAS 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 the 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
24
<PAGE>
<PAGE>
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
COMMODITY PRICE RISK
As of December 31, 1998, the Partnership was party to simultaneous put and
call contracts for propane ('Propane Contracts') with three third parties. All
of the Propane Contracts expired on or before March 31, 1999. Such contracts
require monthly settlements with counterparties through cash exchange of a net
amount equal to the difference between the monthly index average price and the
fixed contract price. The contracts are entered into for purposes other than
trading and are entered into in order to protect the Partnership's gross profit
on its fixed price sales commitments.
In order to hedge the risk of higher prices for the anticipated propane
purchases required to fulfill these sales commitments, the Partnership enters
into the Propane Contracts. At December 31, 1998, the Partnership had open
Propane Contracts at fair values of $2.6 million and unrealized losses of $0.6
million on such contracts. These Propane Contracts covered a notional volume of
12.6 million gallons of propane. Assuming an instantaneous 10% decrease in the
monthly average index price of propane from the December 31, 1998 level, this
would increase the unrealized pretax losses related to these contracts by
approximately $0.3 million. It should be noted, however, that any change in the
value of these contracts, real or hypothetical, would be significantly offset by
an inverse change in the cost of purchased propane and these estimates are not
necessarily indicative of the actual results which may occur.
INTEREST RATE RISK
The Partnership has interest rate risk exposure due to the variable
interest rate terms of its Bank Facility. The Bank Facility terms are such that
the interest rate fluctuates with changes in the prime rate of interest and/or
LIBOR. Assuming an instantaneous increase in interest rates of one percentage
point from their levels at December 31, 1998, the Partnership would incur
additional annual interest expense of approximately $0.2 million due to the
variable interest rate feature of the Bank Facility.
CREDIT RISK
The Partnership is subject to credit risk with the Propane Contracts to the
extent the counterparties do not perform. The Partnership evaluates the
financial condition of each counterparty with which it conducts business to
reduce exposure to credit risk of non-performance and only executes Propane
Contracts with third parties it believes to be well-capitalized.
25
<PAGE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................................................... 27
Consolidated Balance Sheets -- December 31, 1997 and 1998.................................................. 28
Consolidated Statements of Operations -- Years ended December 31, 1996, 1997, and 1998..................... 29
Consolidated Statements of Partners' Capital (Deficit)/Stockholders' (Deficit) -- Years ended December 31,
1996, 1997, and 1998..................................................................................... 30
Consolidated Statements of Cash Flows -- Years ended December 31, 1996, 1997, and 1998..................... 31
Notes to Consolidated Financial Statements................................................................. 32
</TABLE>
26
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Partners of
NATIONAL PROPANE PARTNERS, L.P.:
We have audited the accompanying consolidated balance sheets of National
Propane Partners, L.P. and subsidiaries (successor to National Propane
Corporation and subsidiaries) ('National') as of December 31, 1997 and 1998, and
the related consolidated statements of operations, partners' capital
(deficit)/stockholders' (deficit) and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of National Propane Partners, L.P.
and subsidiaries (successor to National Propane Corporation and subsidiaries) at
December 31, 1997 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
National will continue as a going concern. As discussed in Note 3 to the
financial statements, at December 31, 1998, National was not in compliance with
a certain covenant of its loan agreements and received from its lenders an
unconditional waiver of compliance with the covenant as of December 31, 1998 and
a conditional waiver with respect to future covenant non-compliance through
August 31, 1999. National's difficulties in meeting its loan agreement
covenants, the lack of adequate financing to fund its operations beyond the
waiver period and its negative working capital discussed in Note 3 raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regards to these matters are also described in Note 3. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
DELOITTE & TOUCHE LLP
Cedar Rapids, Iowa
February 20, 1999
(April 9, 1999 as to Note 3)
27
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets (Note 10):
Cash and cash equivalents............................................................ $ 4,616 $ 4,448
Receivables, net of allowance for doubtful accounts (Note 5)......................... 19,227 14,455
Finished goods inventories........................................................... 9,599 7,879
Other current assets................................................................. 1,990 2,110
-------- --------
Total current assets............................................................ 35,432 28,892
Note receivable from Triarc Companies, Inc. (Notes 10 and 13)............................. 40,700 30,700
Properties, net (Notes 6 and 10).......................................................... 80,346 77,653
Unamortized costs in excess of net assets of acquired companies (Notes 7, 18, and 19)..... 17,616 16,862
Other assets (Notes 8 and 10)............................................................. 8,415 6,930
-------- --------
$182,509 $161,037
-------- --------
-------- --------
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Current portion of long-term debt (Notes 3 and 10)................................... $ 9,235 $141,687
Accounts payable..................................................................... 5,877 7,492
Accrued expenses (Note 9)............................................................ 7,866 6,347
Customer credit balances............................................................. 5,272 6,008
-------- --------
Total current liabilities....................................................... 28,250 161,534
Long-term debt (Notes 3 and 10)........................................................... 138,131 177
Customer deposits and other long-term liabilities......................................... 2,674 2,344
Commitments and contingencies (Notes 2, 11, 16, and 17)
Partners' capital (deficit) (Notes 10, 11, and 20):
Common partners' capital (6,701,550 units outstanding in 1997 and 1998).............. 10,362 --
General partners' capital (deficit) (including 4,533,638 subordinated units
outstanding in 1997 and 1998)....................................................... 3,092 (3,018)
-------- --------
Total partners' capital (deficit)............................................... 13,454 (3,018)
-------- --------
$182,509 $161,037
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1997 1998
---------- ---------- ----------
(IN THOUSANDS EXCEPT FOR UNIT DATA)
<S> <C> <C> <C>
Revenues................................................................ $ 173,260 $ 165,169 $ 133,982
---------- ---------- ----------
Cost of sales:
Cost of product -- propane and appliances.......................... 87,973 83,429 57,228
Other operating expenses applicable to revenues.................... 44,705 47,251 44,353
---------- ---------- ----------
132,678 130,680 101,581
---------- ---------- ----------
Gross profit.................................................. 40,582 34,489 32,401
Selling, general and administrative expenses............................ 22,894 24,646 26,222
Management fees (Note 19)............................................... 1,500 -- --
---------- ---------- ----------
Operating income.............................................. 16,188 9,843 6,179
---------- ---------- ----------
Other income (expense):
Interest expense................................................... (12,076) (12,579) (13,771)
Interest income from Triarc Companies, Inc. (Note 13).............. 2,755 5,495 5,011
Other income, net.................................................. 817 1,216 1,301
---------- ---------- ----------
(8,504) (5,868) (7,459)
---------- ---------- ----------
Income (loss) before income taxes and extraordinary charge.... 7,684 3,975 (1,280)
Provision for income taxes (Note 12).................................... 1,937 127 298
---------- ---------- ----------
Income (loss) before extraordinary charge..................... 5,747 3,848 (1,578)
Extraordinary charge (Note 14).......................................... (2,631) -- --
---------- ---------- ----------
Net income (loss).................................................. $ 3,116 $ 3,848 $ (1,578)
---------- ---------- ----------
---------- ---------- ----------
General partners' interest in:
Income (loss) before extraordinary charge.......................... $ 2,751 $ 154 $ (63)
Extraordinary charge............................................... (2,631) -- --
---------- ---------- ----------
Net income (loss)............................................. $ 120 $ 154 $ (63)
---------- ---------- ----------
---------- ---------- ----------
Unitholders' interest (common and subordinated) in net income (loss).... $ 2,996 $ 3,694 $ (1,515)
---------- ---------- ----------
---------- ---------- ----------
Net income (loss) per unit -- basic and diluted (Note 1)................ $ .27 $ .33 $ (.13)
---------- ---------- ----------
---------- ---------- ----------
Weighted average number of units outstanding............................ 10,954,753 11,235,188 11,235,188
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)/STOCKHOLDERS' (DEFICIT)
<TABLE>
<CAPTION>
RETAINED TOTAL
EARNINGS PARTNERS'
(ACCUMULATED CAPITAL
ADDITIONAL DEFICIT) GENERAL COMMON (DEFICIT)/
COMMON PAID-IN DUE FROM PARTNERS' PARTNERS' STOCKHOLDERS'
STOCK CAPITAL PARENTS CAPITAL (DEFICIT) CAPITAL (DEFICIT)
------ ---------- -------- ------------------ ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995....................... $ 1 $ 36,270 $(81,392) $ (3,479) $ -- $ (48,600)
Net income:
January 1, 1996 to June 30, 1996......... -- -- -- 2,625 -- 2,625
July 1, 1996 to December 31, 1996:
Income before extraordinary
charge............................ -- -- -- 1,293 1,829 3,122
Extraordinary charge................ -- -- -- (2,631) -- (2,631)
Assets/(liabilities) retained by the Managing
General Partner (Notes 1 and 13)............ (1) (36,270) 81,392 (25,413) -- 19,708
Dividends paid (including $59,300 in cash)
(Note 1).................................... -- -- -- (59,324) -- (59,324)
Capital contribution from General Partners.... -- -- -- 338 -- 338
Net proceeds of initial public offering (Note
1).......................................... -- -- -- 101,105 16,277 117,382
Net proceeds of private equity placement
(Note 1).................................... -- -- -- -- 7,367 7,367
Cash distributions paid....................... -- -- -- (2,616) (3,308) (5,924)
------ ---------- -------- ------------------ ---------- -------------
Balance at December 31, 1996....................... -- -- -- 11,898 22,165 34,063
Net income.................................... -- -- -- 1,644 2,204 3,848
Cash distributions paid (Note 11)............. -- -- -- (10,499) (14,073) (24,572)
Amortization of unearned compensation on below
market unit options (Note 20)............... -- -- -- 49 66 115
------ ---------- -------- ------------------ ---------- -------------
Balance at December 31, 1997....................... -- -- -- 3,092 10,362 13,454
Net loss...................................... -- -- -- (674) (904) (1,578)
Reallocation of Partnership loss (Note 1)..... -- -- -- (2,622) 2,622 --
Cash distributions paid (Note 11)............. -- -- -- (2,989) (12,314) (15,303)
Amortization of unearned compensation on below
market unit options (Note 20)............... -- -- -- 175 234 409
------ ---------- -------- ------------------ ---------- -------------
Balance at December 31, 1998....................... $-- $ -- $ -- $ (3,018) $ -- $ (3,018)
------ ---------- -------- ------------------ ---------- -------------
------ ---------- -------- ------------------ ---------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................................................... $ 3,116 $ 3,848 $ (1,578)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of properties........................................ 10,016 10,594 9,913
Amortization of deferred financing costs........................................... 841 854 727
Amortization of costs in excess of net assets of acquired companies................ 722 874 959
Other amortization................................................................. 395 811 1,241
Write-off of deferred financing costs.............................................. 4,126 -- --
Provision for (benefit from) deferred income taxes................................. (870) (52) (46)
Gain on sale of properties, net.................................................... (28) (351) (1,016)
Provision for doubtful accounts.................................................... 1,347 1,147 849
Other, net......................................................................... 97 592 (300)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable and customer credit balances....... (9,028) 9,378 4,693
Decrease (increase) in inventories............................................ (3,475) 4,665 1,722
Decrease (increase) in other current assets................................... (2,283) 281 (179)
Increase (decrease) in accounts payable and accrued expenses.................. 9,294 (12,229) 96
--------- -------- --------
Net cash provided by operating activities................................ 14,270 20,412 17,081
--------- -------- --------
Cash flows from investing activities:
Payments received on note receivable from Triarc Companies, Inc. ....................... -- -- 10,000
Capital expenditures.................................................................... (6,740) (7,793) (8,419)
Business acquisitions................................................................... (2,046) (8,480) (420)
Proceeds from sales of properties....................................................... 317 1,591 2,330
--------- -------- --------
Net cash provided by (used in) investing activities...................... (8,469) (14,682) 3,491
--------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt............................................................ 12,685 12,612 1,000
Repayments of long-term debt............................................................ (139,114) (341) (6,437)
Payments of distributions............................................................... (5,924) (24,572) (15,303)
Payments of dividends to Triarc Companies, Inc. ........................................ (59,300) -- --
Proceeds of First Mortgage Notes........................................................ 125,000 -- --
Net proceeds of initial public offering................................................. 117,382 -- --
Net proceeds of private placement of equity............................................. 7,367 -- --
Capital contribution from General Partners.............................................. 338 -- --
Advances to and repayments of obligations to Triarc Companies, Inc. .................... (49,246) -- --
Payment of deferred financing costs..................................................... (6,600) -- --
Other................................................................................... (27) -- --
--------- -------- --------
Net cash provided by (used in) financing activities...................... 2,561 (12,301) (20,740)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents......................................... 8,362 (6,571) (168)
Cash and cash equivalents at beginning of year............................................... 2,825 11,187 4,616
--------- -------- --------
Cash and cash equivalents at end of year..................................................... $ 11,187 $ 4,616 $ 4,448
--------- -------- --------
--------- -------- --------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest........................................................................... $ 13,337 $ 11,647 $ 13,639
--------- -------- --------
--------- -------- --------
Income taxes (net of refunds)...................................................... $ (258) $ 189 $ 51
--------- -------- --------
--------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 ('National Propane', 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 National Propane. 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
$14,951,000 of underwriting discounts and commissions and other expenses related
to the Offering. On November 6, 1996 the Partnership sold an additional 400,000
Common Units through a private placement (the 'Equity Private Placement') at a
price of $21.00 per Common Unit aggregating $8,400,000 before $1,033,000 of fees
and expenses. 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 (the 'Partnership Conveyance') by the Managing
General Partner and National Propane SGP Inc., a subsidiary of the Managing
General Partner (the 'Special General Partner' and, together with the Managing
General Partner, the 'General Partners'), of substantially all of their assets
and liabilities (excluding an existing $81,392,000 intercompany note from
Triarc, $59,300,000 of the net proceeds from the issuance of the First Mortgage
Notes which was used to pay a dividend to Triarc and certain net liabilities of
the General Partners).
The General Partners own general partner interests representing an
aggregate 4% unsubordinated general partner interest (the 'General Partners'
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 38.7% subordinated general partner interest
in the Partnership Entities.
BASIS OF PRESENTATION
The accompanying consolidated financial statements presented herein reflect
the effects of the Partnership Conveyance, in which the Partnership Entities
became the successor to the businesses of National Propane. As such, the
consolidated financial statements represent National Propane prior to the
Partnership Conveyance and the Partnership Entities subsequent to the
Partnership Conveyance. Because the Partnership Conveyance was a transfer of
assets and liabilities in exchange for partnership interests among a controlled
group of companies, it has been accounted for in a manner similar to a pooling
of interests, resulting in the presentation of the Partnership Entities as the
successor to the continuing businesses of National Propane. The entity
representative of both the operations of (i) National Propane prior to the
Partnership Conveyance, and (ii) the Partnership Entities subsequent to the
Partnership Conveyance, is referred to herein as 'National'. Those assets and
liabilities not conveyed to the Partnership were retained by the Managing
General Partner. All significant intercompany balances and transactions have
been eliminated in consolidation.
32
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
National records sales of liquefied petroleum gas ('propane') when
inventory is delivered to the customer.
CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less when
acquired are considered cash equivalents.
INVENTORIES
Inventories, all of which are classified as finished goods, are stated at
the lower of cost or market using an average cost basis.
PROPERTIES AND DEPRECIATION
Properties are carried at cost less accumulated depreciation. Depreciation
of properties is computed on the straight-line method over their estimated
useful lives of 20 to 45 years for buildings and improvements, 4 to 30 years for
equipment and customer installation costs, 3 to 10 years for office furniture
and fixtures and 3 to 8 years for automotive and transportation equipment. Gains
and losses arising from disposals are included in current operations.
AMORTIZATION OF INTANGIBLES
Costs in excess of net assets of acquired companies ('Goodwill') arising
after November 1, 1970 are being amortized on the straight-line basis
principally over 15 to 30 years; Goodwill of $3,560,000 arising prior to that
date is not being amortized. Non-compete agreements are being amortized on the
straight-line basis over five years. Deferred financing costs are being
amortized as interest expense over the lives of the respective debt using the
interest rate method.
IMPAIRMENT
Intangible Assets
The amount of impairment, if any, in unamortized Goodwill is measured based
on projected future operating performance of those acquired companies to which
the goodwill relates. To the extent future results of operations through the
period such Goodwill is being amortized are sufficient to absorb the related
amortization, the Company has deemed there to be no impairment of Goodwill.
Long-Lived Assets
National's policy is to review long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. National determines that the carrying values of
long-lived assets are recoverable over their remaining estimated lives through
undiscounted future cash flow analysis. If such a review should indicate that
the carrying amount of the long-lived assets is not recoverable, it is
National's policy to reduce the carrying amount of such assets to fair value.
CUSTOMER CREDIT BALANCES
Customer credit balances represent pre-payments received from customers.
These payments relate primarily to a budget payment plan whereby customers pay
their estimated annual propane gas charges on a fixed monthly basis and the
payments made have exceeded the charges for the deliveries.
33
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACCRUED INSURANCE
Accrued insurance includes reserves for incurred but not reported claims.
Such reserves are based on actuarial studies using historical loss experience.
Adjustments to recorded estimates resulting from subsequent actuarial
evaluations or ultimate payments are reflected in the operations of the periods
in which such adjustments become known.
INCOME TAXES
The earnings of the Partnership and Operating Partnership are included in
the Federal and state income tax returns of the individual partners. As a
result, no income tax expense has been reflected in National's consolidated
financial statements relating to the earnings of the Partnership and Operating
Partnership. Federal and state income taxes are, however, provided on the
earnings of NSSI. The Partnership Entities provide deferred income taxes to
recognize the effect of temporary differences between NSSI's basis of assets and
liabilities for tax and financial statement purposes. Federal and state income
tax expense for periods prior to the Partnership Conveyance relate to National
Propane, which is included in the consolidated Federal income tax return of
Triarc. Under a tax sharing agreement with Triarc, National Propane provided
income taxes on the same basis as if it filed a separate consolidated return.
National Propane provided deferred income taxes to recognize the effect of
temporary differences between the basis of assets and liabilities for tax and
financial statement purposes. In connection with the Partnership Conveyance, all
income tax liabilities of National Propane were retained by the Managing General
Partner.
UNIT OPTIONS
In 1996 National adopted SFAS No. 123, 'Accounting for Stock-Based
Compensation' ('SFAS 123'). SFAS 123 defines a fair value based method of
accounting for employee unit-based compensation and encourages adoption of that
method of accounting but permits accounting under the intrinsic value method
prescribed by an accounting pronouncement prior to SFAS 123. National has
elected to continue to measure compensation costs for its employee unit-based
compensation under the intrinsic value method. Accordingly, compensation cost
for National's unit options is measured as the excess, if any, of the market
price of National's units at the date of grant over the amount an employee must
pay to exercise the options.
NET INCOME (LOSS) PER UNIT
In the fourth quarter of 1997 the Company adopted SFAS No. 128 'Earnings
Per Share' ('SFAS 128'). This standard requires the presentation of 'basic' and
'diluted' earnings per share, which replace the 'primary' and 'fully diluted'
earnings per share measures required under prior accounting pronouncements.
Basic and diluted income per share are the same for 1996, 1997, and 1998 since
the only potentially dilutive securities are the unit options granted in 1997
which had no impact on net income per unit in 1997 or 1998. The income per unit
has been computed by dividing the net income, after deducting the General
Partners' 4% interest, by the weighted average number of outstanding Common
Units and Subordinated Units during the period. Although SFAS 128 requires
restatement of all prior periods, the standard has had no effect on the
Partnership's reported income per unit for 1996 since there were no potentially
dilutive securities. The extraordinary item in 1996 was allocated entirely to
the Managing General Partner.
PROPANE CONTRACTS
National uses propane contracts to reduce the risk of future price
fluctuations for propane inventories and contracts. Gains and losses on propane
contracts purchased as hedges are deferred and recognized in cost of sales as a
component of the product cost for the related hedged transaction. In the
34
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statement of cash flows, cash flows from qualifying hedges are classified in the
same category as the cash flows of the items being hedged.
REALLOCATION OF PARTNERSHIP LOSS
The reallocation of Partnership loss on the Consolidated Statements of
Partners' Capital (Deficit)/Stockholders' (Deficit) is required under the terms
of the partnership agreement in order that the Common 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
$2,622,000 reallocation to the extent the Common Unitholders' interest in future
earnings exceeds distributions to Common Unitholders.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
(2) SIGNIFICANT RISKS AND UNCERTAINTIES
NATURE OF OPERATIONS
National is engaged primarily in the retail marketing of propane to
residential customers, commercial and industrial customers, agricultural
customers and resellers. National also markets propane-related supplies and
equipment including home and commercial appliances. National's operations are
concentrated in the Midwest, Northeast, Southeast and West regions of the United
States.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
SIGNIFICANT ESTIMATES
National's significant estimates are for costs related to (i) insurance
loss reserves (see Note 1) and (ii) an environmental contingency (see Note 17).
CERTAIN RISK CONCENTRATIONS
National's significant risk concentration arises from propane being its
principal product. Both sales levels and costs of propane are sensitive to
weather conditions, particularly in the residential home heating market.
National's profitability depends on the spread between its cost for propane and
the selling price. National generally is able to pass on cost increases to the
customer in the form of higher selling prices. However, where increases cannot
be passed on, margins can be adversely affected. National is also impacted by
the competitive nature of the propane industry, as well as by competition from
alternative energy sources such as natural gas, oil and electricity.
Dynegy Liquids Marketing and Trade ('Dynegy') and Conoco Inc. ('Conoco')
each supplied approximately 11% of National's propane in 1998 and Amoco Oil
Company ('Amoco') supplied approximately 10%. National believes that if supplies
from Dynegy, Conoco or Amoco were interrupted, it would be able to secure
adequate propane supplies from other sources without a material disruption of
its operations; however, National believes that the cost of procuring
replacement supplies might be significantly higher, at least on a short-term
basis, which could negatively affect National's
35
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
margins. No other single supplier provided 10% or more of National's total
propane purchases during 1998.
(3) PARTNERSHIP SALE AND MANAGEMENT'S PLANS AND INTENTIONS
On April 5, 1999, the Partnership, the Managing General Partner, National
Propane SGP, Inc. ('SGP') and Triarc and Columbia Propane Corporation ('Columbia
Propane'), a subsidiary of Columbia Energy Group, Columbia Propane, L.P. (the
'Purchaser') and CP Holdings Inc., a subsidiary of Columbia Propane and the
general partner of the Purchaser (the 'Purchaser General Partner') signed a
definitive purchase agreement (the 'Purchase Agreement') pursuant to which the
Purchaser would acquire all of the 6,701,550 outstanding common units of the
Partnership for $12.00 in cash per common unit pursuant to a tender offer (the
'Partnership Sale'). On April 9, 1999, the Purchaser commenced the tender offer.
The offer for the common units is subject to certain conditions, including there
being validly tendered by the expiration date, and not withdrawn, at least a
majority of the outstanding common units on a fully diluted basis. The offer
will be made only upon and subject to the terms and conditions of the Offer to
Purchase and the related Letter of Transmittal.
The tender offer is the first step of a two-step cash transaction. In the
second step, subject to the terms and conditions of the Purchase Agreement,
Columbia Propane would indirectly acquire the general partner interests and
subordinated unit interests of the Partnership and the Operating Partnership. As
part of the second step, any remaining common unitholders of the Partnership
would receive, in cash, the same per unit price as that paid to common
unitholders who tender their shares pursuant to the tender offer. Triarc would
receive approximately $17,900,000 for its acquired interests in the Partnership
and the Operating Partnership, consisting of $2,100,000 in cash and $15,800,000
in the form of the forgiveness of a portion of a note receivable from Triarc
(the 'Triarc Note') by the Operating Partnership. Simultaneously, and as a
condition of the closing, Triarc will prepay approximately $14,900,000 of such
indebtedness. Following the closing, Triarc, through the Managing General
Partner, would retain a 1.0% limited partner interest in the Purchaser.
Approximately $141,000,000 of the Operating Partnership's outstanding
indebtedness is expected to be refinanced in connection with the Partnership
Sale. There can be no assurance that the Partnership Sale will be consummated.
In connection with the Partnership Sale, the Operating Partnership, the
Managing General Partner, the SGP and the Noteholders amended the note
agreements governing the Operating Partnership's First Mortgage Notes to provide
for, among other things, modifications to the premium payable to such
noteholders in connection with the prepayment of the First Mortgage Notes
pursuant to the Partnership Sale. In addition, under the terms of the Purchase
Agreement, prior to the closing of the Partnership Sale, the Partnership must
obtain the prior written consent of the Purchaser General Partner before taking
certain specified actions, including the following: (a) payment of distributions
to any unitholders, (b) incurring greater than $1.0 million of indebtedness or
(c) making capital expenditures in excess of $1.0 million in the aggregate.
The accompanying Consolidated Financial Statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in the
Consolidated Financial Statements, during the years ended December 31, 1996,
1997 and 1998, National has reported net income (loss) before extraordinary
charge of $5,747,000, $3,848,000 and ($1,578,000), respectively and paid
distributions of $5,924,000, $24,572,000 and $15,303,000, respectively. Also, as
described in Note 10, the Operating Partnership was not in compliance with the
Total Funded Debt to Consolidated Cash Flow ratio ('Leverage Ratio') provision
of its bank facility (the 'Bank Facility') at December 31, 1998 and is
forecasting non-compliance with the same covenant as of March 31, 1999 (the
'Forecasted Non-Compliance'). The Operating Partnership has received an
unconditional waiver dated as of February 20, 1999 of such non-compliance from
the Bank Facility lenders as of December 31, 1998 and a conditional waiver with
respect to future
36
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
non-compliance with such covenant through August 31, 1999 (the 'February
Waiver'). There are certain conditions to this conditional February Waiver,
including, among others, consummation of the Partnership Sale and the repayment
of all amounts outstanding under the Bank Facility, both by September 30, 1999.
In addition, the February Waiver prohibits the Partnership from making any
future distributions to all unitholders until all outstanding indebtedness under
the Bank Facility is repaid in full. Should the conditions not be met, or the
February Waiver expire and the Operating Partnership be in default of the Bank
Facility, the Operating Partnership would also be in default of the First
Mortgage Notes by virtue of cross-default provisions. As a result of the
Forecasted Non-Compliance, the conditions of the February Waiver and the
cross-default provisions of the First Mortgage Notes, the Partnership has
classified all of the debt under the Bank Facility and the First Mortgage Notes
as current liabilities as of December 31, 1998. Further, in accordance with the
terms of the February waiver, no additional borrowings are available to the
Operating Partnership under the Bank Facility. As a result of the Forecasted
Non-Compliance and the conditions surrounding the conditional February Waiver,
the independent auditors' report on the Partnership's financial statements for
the year ended December 31, 1998 contains an explanatory paragraph concerning
substantial doubt as to the Partnership's ability to continue as a going
concern.
The Partnership's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a timely
basis, to comply with the terms and covenants of its debt agreements, to obtain
additional financing or refinancing as may be required, and ultimately to attain
successful operations. To successfully achieve these objectives, the Partnership
believes the Partnership Sale is the most viable alternative. If the Partnership
Sale is not consummated and the Lenders are unwilling to extend or modify the
February waiver, (i) the Partnership could seek to otherwise refinance its
indebtedness, (ii) the Managing General Partner might consider buying the banks'
loans to the Operating Partnership ($15,997,000 principal amount outstanding at
December 31, 1998), (iii) the Partnership could pursue other potential
purchasers of the Partnership or (iv) the Partnership could be forced to seek
protection under Federal bankruptcy laws.
(4) UNAUDITED PRO FORMA SUPPLEMENTAL FINANCIAL INFORMATION
The following unaudited pro forma supplemental financial information sets
forth the operating results of National for the year ended December 31, 1996 and
has been adjusted as if the Partnership had been formed and the Partnership
Conveyance, the Offering, the Equity Private Placement and related transactions
had been completed 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 National's
operation as a partnership, (iii) a net decrease to interest expense to reflect
the interest expense associated with the First Mortgage Notes and to eliminate
interest expense on the refinanced debt and (iv) the elimination of the
provision for income taxes, as income taxes will be borne by the partners and
not the Partnership or the Operating Partnership, except for corporate income
taxes relative to NSSI. Such following pro forma supplemental financial
information does not purport to be indicative of the actual results of
operations that would have resulted had the Partnership been formed and the
Partnership Conveyance, the Offering, the Equity Private Placement and related
transactions been consummated as of January 1, 1996 or of the future results of
operations of National.
37
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, 1996
---------------------
(IN THOUSANDS,
EXCEPT FOR UNIT DATA)
<S> <C>
Revenues............................................................... $ 173,260
Operating income....................................................... 16,938
Income before income taxes and extraordinary charge.................... 11,731
Income before extraordinary charge..................................... 11,616
General partners' interest in income before extraordinary charge....... 465
Unitholders' interest (common and subordinated) in income before
extraordinary charge................................................. 11,151
Unitholders' income before extraordinary charge per unit -- basic and
diluted.............................................................. .99
Weighted average number of units outstanding........................... 11,235,188
</TABLE>
(5) RECEIVABLES
The following is a summary of the components of receivables:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Receivables:
Trade.............................................................. $20,164 $15,062
Other.............................................................. 242 155
------- -------
20,406 15,217
Less allowance for doubtful accounts (trade)............................ 1,179 772
------- -------
$19,227 $14,455
------- -------
------- -------
</TABLE>
The following is an analysis of doubtful accounts for the years ended
December 31, 1996, 1997, and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997 1998
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year............................................. $ 980 $ 1,437 $ 1,179
Provision for doubtful accounts.......................................... 1,347 1,147 849
Uncollectible accounts written off....................................... (890) (1,405) (1,256)
------ ------- -------
Balance at end of year................................................... $1,437 $ 1,179 $ 772
------ ------- -------
------ ------- -------
</TABLE>
(6) PROPERTIES
The following is a summary of the components of properties:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land................................................................ $ 5,742 $ 5,629
Buildings and improvements.......................................... 12,369 12,161
Equipment and customer installation costs........................... 120,494 126,169
Office furniture and fixtures....................................... 6,669 6,994
Automotive and transportation equipment............................. 23,597 23,217
-------- --------
168,871 174,170
Less accumulated depreciation....................................... 88,525 96,517
-------- --------
$ 80,346 $ 77,653
-------- --------
-------- --------
</TABLE>
38
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) UNAMORTIZED COSTS IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES
The following is a summary of the components of unamortized costs in excess
of net assets of acquired companies:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Costs in excess of net assets of acquired companies.................... $20,764 $20,969
Less accumulated amortization.......................................... 3,148 4,107
------- -------
$17,616 $16,862
------- -------
------- -------
</TABLE>
(8) OTHER ASSETS
The following is a summary of the components of other assets:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred financing costs............................................... $ 6,600 $ 6,600
Non-compete agreements................................................. 3,558 3,606
Other.................................................................. 1,314 1,224
------- -------
11,472 11,430
------- -------
Less accumulated amortization:
Deferred financing costs.......................................... 1,089 1,816
Non-compete agreements............................................ 1,630 2,263
Other............................................................. 338 421
------- -------
3,057 4,500
------- -------
$ 8,415 $ 6,930
------- -------
------- -------
</TABLE>
(9) ACCRUED EXPENSES
The following is a summary of the components of accrued expenses:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------ ------
(IN THOUSANDS)
<S> <C> <C>
Accrued compensation and related benefits................................ $3,215 $2,784
Accrued insurance........................................................ 2,682 1,617
Other accrued expenses................................................... 1,969 1,946
------ ------
$7,866 $6,347
------ ------
------ ------
</TABLE>
(10) LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
8.54% First Mortgage Notes.................................................... $125,000 $125,000
Bank Facility:
Working capital facility, weighted average interest rate of 7.25% at
December 31, 1998...................................................... 8,500 3,000
Acquisition facility, weighted average interest rate of 6.97% at December
31, 1998............................................................... 11,997 12,997
Acquisition notes, bearing interest at rates of 6% to 7%, due through 2001.... 1,869 867
-------- --------
Total debt.......................................................... 147,366 141,864
Less current portion of long-term debt........................................ 9,235 141,687
-------- --------
$138,131 $ 177
-------- --------
-------- --------
</TABLE>
39
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate annual maturities of long-term debt are as follows as of
December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- --------------------------------------------------------------
<S> <C>
1999....................................................... $141,687
2000....................................................... 86
2001....................................................... 91
2002....................................................... --
2003....................................................... --
--------
$141,864
--------
--------
</TABLE>
As discussed in Note 3 to the consolidated financial statements, as of
December 31, 1998, the Operating Partnership was not in compliance with its
Leverage Ratio covenant required under terms of its Bank Facility. In addition,
the Operating Partnership is predicting the Forecasted Non-Compliance as of
March 31, 1999. The Operating Partnership has received an unconditional waiver
from its lenders for such non-compliance as of December 31, 1998 and has
received the February Waiver with respect to future covenant non-compliance
through August 31, 1999. Should the conditions of the February Waiver not be
met, or the February Waiver expire and National be in default of the Bank
Facility, the Operating Partnership would also be in default of the First
Mortgage Notes by virtue of cross-default provisions. In the event of a default
under the First Mortgage Notes, the Operating Partnership may become liable to
pay immediately all unpaid principal and accrued interest plus, under certain
circumstances, a premium. As a result of the Forecasted Non-Compliance, the
conditions of the February Waiver and the cross-default provisions of the First
Mortgage Notes, the Partnership has classified all of the debt under the Bank
Facility ($15,997,000) and the First Mortgage Notes as current liabilities as of
December 31, 1998.
As of June 30, 1998, the Operating Partnership was also not in compliance
with certain covenants of its Bank Facility agreement (the 'Agreement'). The
Agreement was amended (the 'Agreement Amendment') as of such date to, among
other things, permit principal prepayment (the 'Triarc Note Prepayments') of up
to $10,000,000, by Triarc through February 14, 1999 on the Triarc Note with an
original principal amount of $40,700,000 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
('Consolidated Cash Flow'), for purposes of determining compliance with certain
leverage and interest coverage ratio requirements for a period of twelve
consecutive months commencing June 30, 1998 for the initial $7,000,000 Triarc
Note Prepayments and from the date of payment on the $3,000,000 Triarc Note
Prepayment (see below). Further, the Operating Partnership must have sufficient
interest coverage through consolidated cash flow, as defined under the indenture
(the 'Indenture') pursuant to which the First 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 Operating Partnership on
the Triarc Note through December 31, 1998 for interest coverage purposes thereby
facilitating the Partnership's ability to pay distributions. (See Note 11
regarding future Partnership distributions.) The Triarc Note was amended to,
among other things, permit Triarc 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
40
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
quarter ended June 30, 1998 (see further discussion below). On September 30,
1998, Triarc prepaid the remaining permitted principal of $3,000,000.
The Operating Partnership incurred fees of $908,000 in connection with the
execution of the Amendments. Such fees were amortized to interest expense
ratably over the third and fourth quarters of 1998.
Effective with amendments executed effective June 30, 1998, the Operating
Partnership's Bank Facility provided for a $10,000,000 (reduced from
$15,000,000) working capital facility (the 'Working Capital Facility') to be
used for working capital and other general partnership purposes. At December 31,
1998, $3,000,000 was outstanding under the Working Capital Facility. Further, in
accordance with the amendments, the $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 outstanding as of June 30, 1998. As described above,
all amounts outstanding under the Bank Facility are classified as current
liabilities in accordance with terms of the February Waiver and no additional
borrowings under the Bank Facility are available to the Operating Partnership.
The original repayment terms of the Acquisition Facility, as amended, were
approximately $1,100,000 per quarter beginning in the third quarter of 1999.
Original repayment terms of the First Mortgage Notes required equal annual
installments of $15,625,000 commencing 2003 through 2010.
The Operating Partnership's obligations under both the First Mortgage Notes
and the Bank 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.
The estimated fair value of the First Mortgage Notes as of December 31,
1997 and December 31, 1998 was $133,050,000 and $113,125,000, respectively. The
fair value at December 31, 1997 was determined using a discounted cash flow
analysis based on an estimate of the Operating Partnership's then current
borrowing rate for similar securities. The fair value at December 31, 1998 was
estimated based on discussion with an investment banking firm considering the
current interest rate environment and the Partnership Entities' current overall
creditworthiness. The fair value of the revolving loans and the acquisition
loans under the Bank Facility approximated their carrying values due to their
floating interest rates. The fair values of all other long-term debt were
assumed to reasonably approximate their carrying amounts since the interest
rates approximate current levels.
(11) QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH
Prior to the execution of the February Waiver discussed above which
prohibits the payment of any distributions to the Unitholders until all
outstanding indebtedness under the Bank Facility is repaid in full, partnership
distributions were 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. Under
the Agreement Amendment executed effective June 30, 1998, 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 Operating Partnership to be in
compliance with the Agreement. However, under the Indenture Amendment, which is
more restrictive as to the
41
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
determination of Available Cash, 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 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 Partner's Interest, or an aggregate of
$1,832,000 including $73,000 to the General Partners related to the General
Partners' Interest. This distribution represented a 50% reduction from previous
quarters. After a careful evaluation of the Partnership's recent financial
results, the Managing General Partner's Board of Directors concluded that a
reduced distribution was necessary to maintain financial flexibility in future
quarters. With respect to the fourth quarter of 1998, the Operating Partnership
was in violation of certain of its debt covenants under the Bank Facility as
previously discussed and as such, was prohibited under its Bank Facility from
making any distribution with respect to the fourth quarter of 1998. Under the
terms of the Partnership Agreement, each Common Unit will have an arrearage of
$0.2625 and $0.525 per Common Unit related to the third and fourth quarter
distributions, respectively, for an aggregate of $5,277,000. 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 any quarter 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 compliance with the 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.
Subsequently, the February Waiver prohibits any future distributions to all
unitholders until all outstanding indebtedness under the Bank Facility is repaid
in full. 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. (See
Note 3 -- Partnership Sale and Management's Plans and Intentions.)
Available Cash is generally distributed 96% to the unitholders (including
the Managing General Partner as the holder of Subordinated Units) and 4% to the
General Partners, pro rata, except that if distributions of Available Cash
exceed target distribution levels, as defined, above $0.525 quarterly per unit
(the 'Minimum Quarterly Distribution'), the General Partners will receive an
additional percentage of such excess distributions that will increase to up to
50% of the distributions above the highest target distribution level.
With respect to each quarter to the extent there is sufficient Available
Cash, the holders of Common Units will have the right to receive the Minimum
Quarterly Distribution, plus any common unit arrearages, prior to any
distribution of Available Cash to the holders of Subordinated Units.
Subordinated Units do not have any arrearages with respect to distributions for
any quarter.
On November 14, 1996 the Partnership paid a distribution of $0.525 per
Common and Subordinated Unit with a proportionate amount for the General
Partners' Interest, or an aggregate $5,924,000, including $2,616,000 to the
General Partners. On February 14, 1997, May 15, 1997, August 14, 1997 and
November 14, 1997 the Partnership paid quarterly distributions for the quarters
ended December 31, 1996, March 31, 1997, June 30, 1997 and September 30, 1997 to
all unitholders of record on February 5, 1997, May 8, 1997, August 7, 1997 and
November 6, 1997, respectively, each
42
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consisting of $0.525 per Common and Subordinated unit with a proportionate
amount for the General Partners' Interest, or an aggregate of $6,143,000 each
including $2,625,000 to the General Partners related to the Subordinated Units
and the General Partners' Interest.
(12) INCOME TAXES
The provision for income taxes prior to the Partnership Conveyance in 1996
relate to National Propane and subsequent to the Partnership Conveyance relate
only to NSSI since generally no taxes are provided on the earnings of the
Partnership and the Operating Partnership.
The provision for income taxes before extraordinary charge for the years
ended December 31, 1996, 1997 and 1998 consists of the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1997 1998
------ ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal...................................................... $2,309 $ 44 $133
State........................................................ 498 135 211
------ ---- ----
2,807 179 344
Deferred
Federal...................................................... (716) (42) (38)
State........................................................ (154) (10) (8)
------ ---- ----
(870) (52) (46)
------ ---- ----
$1,937 $127 $298
------ ---- ----
------ ---- ----
</TABLE>
The difference between the reported tax provision and a computed tax
provision based on income before income taxes and extraordinary charge at the
statutory Federal income tax rate of 35% is reconciled as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1997 1998
------- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes computed at Federal statutory tax rate....................... $ 2,690 $ 1,391 $(448)
Increase (decrease) in taxes resulting from:
Partnership (income) loss taxable directly to the partners........... (1,085) (1,347) 618
State income taxes, net of Federal income tax benefit................ 223 81 132
Amortization of non-deductible Goodwill.............................. 98 -- --
Other, net........................................................... 11 2 (4)
------- ------- -----
$ 1,937 $ 127 $ 298
------- ------- -----
------- ------- -----
</TABLE>
(13) DUE FROM PARENT
Concurrent with the closing of the Offering, the Partnership made a
$40,700,000 loan to Triarc. On August 7, 1998, Triarc made a principal
prepayment of $7,000,000 and on September 30, 1998, Triarc made an additional
principal prepayment of $3,000,000 (see Note 10). The remaining $30,700,000 note
bears interest at 13.5% per annum, is due $175,000 in 2004 and in six equal
annual installments thereafter commencing in 2005 through 2010 and is secured by
a pledge by Triarc of the 75.7% of the shares of capital stock of the Managing
General Partner that are owned by Triarc directly. Interest is payable quarterly
on March 30, June 30, September 30 and December 30. The estimated fair value of
the Triarc Note as of December 31, 1997 and 1998 was $43,321,000 and
$25,500,000, respectively. The
43
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fair value as of December 31, 1997 was determined by discounting the future
scheduled payments using an interest rate assuming the same original issuance
spread over a current Treasury bond yield for securities with similar durations.
The fair value as of December 31, 1998 was determined from an independent
valuation by an investment banking firm.
As of January 1, 1996, National Propane had $81,392,000 of interest-bearing
advances to Triarc which were not conveyed to the Partnership as part of the
Partnership Conveyance (see Note 1).
(14) EXTRAORDINARY CHARGE
In connection with the early extinguishment of debt in the year ended
December 31, 1996, National recognized a $2,631,000 extraordinary charge
consisting of the write-off of unamortized deferred financing costs of
$4,126,000 and the payment of prepayment penalties and fees of $225,000 less an
income tax benefit of $1,720,000. In accordance with the Partnership Conveyance,
the extraordinary charge was allocated entirely to the General Partners.
(15) RETIREMENT PLANS
As discussed in Note 19, following the Partnership Conveyance and the
Offering, the management and employees of the Managing General Partner manage
and operate the propane business and assets owned by National. The Managing
General Partner is reimbursed for all such costs incurred on behalf of National
including the cost of retirement plans.
The Managing General Partner maintains a 401(k) defined contribution plan
(the 'Plan') which covers all employees meeting certain eligibility
requirements. The Plan allows eligible employees to contribute up to 15% of
their compensation and the Managing General Partner makes matching contributions
of 25% of employee contributions up to the first 5% of an employee's
contribution. The Managing General Partner also makes an annual contribution
equal to 1/4 of 1% of employee's compensation. In connection with these employer
contributions, National provided $143,000, $135,000 and $157,000 in 1996, 1997
and 1998 respectively.
Under certain union contracts, the Managing General Partner is required to
make payments to the unions' pension funds based upon hours worked by the
eligible employees. In connection with these union plans, National provided
$669,000, $614,000 and $774,000 in 1996, 1997 and 1998, respectively.
Information from the administrators of the union plans is not available to
permit National to determine its proportionate share of unfunded vested
benefits, if any.
(16) LEASE COMMITMENTS
National has entered into certain operating leases for office space, trucks
and other equipment.
The future minimum rental commitments at December 31, 1998 under operating
leases having an initial or remaining noncancellable term of one year or more
are as follows (in thousands):
<TABLE>
<CAPTION>
1999....................................................................... $2,225
<S> <C>
2000....................................................................... 1,449
2001....................................................................... 392
2002....................................................................... 222
2003....................................................................... 164
Thereafter................................................................. 330
------
Total minimum lease payments.......................................... $4,782
------
------
</TABLE>
National incurred rent expense under operating leases of $935,000,
$1,008,000 and $1,531,000 in 1996, 1997 and 1998, respectively.
44
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(17) LEGAL MATTERS
In May 1994, National Propane was informed of coal tar contamination which
was discovered at one of its properties in Wisconsin. National Propane purchased
the property from a company (the 'Successor') which had purchased the assets of
a utility that had previously owned the property. National Propane believes that
the contamination occurred during the use of the property as a coal gasification
plant by such utility. To assess the extent of the problem, National Propane
engaged environmental consultants in 1994. Based upon the information compiled
to date, which is not yet complete, it appears the likely remedy will involve
treatment of groundwater and the soil, including installation of a soil cap and,
if necessary, excavation, treatment and disposal of contaminated soil. The
environmental consultants' current range of estimated costs for remediation is
from $520,000 to $1,700,000. National Propane will have to agree upon the final
remediation plan with the State of Wisconsin. Accordingly, the precise
remediation method to be used is unknown. Based on the preliminary results of
the ongoing investigation, there is a potential that the contaminant plume may
extend to locations down gradient from the original site. If it is ultimately
confirmed that the contaminant plume extends under such properties and if such
plume is attributable to the contaminants emanating from the Wisconsin property,
there is the potential for future third-party claims. National Propane has
engaged in discussions of a general nature with the Successor who has denied any
liability for the costs of remediation of the Wisconsin property or of
satisfying any related claims. However, National Propane, if found liable for
any of such costs, would still attempt to recover such costs from the Successor.
National Propane has notified its insurance carriers of the contamination and
the likely incurrence of costs to undertake remediation and the possibility of
related claims. Pursuant to a lease related to the Wisconsin facility, the
ownership of which was not transferred by National Propane to the Operating
Partnership at the time of the closing of the Offering, the Partnership has
agreed to be liable for any costs of remediation in excess of amounts received
from the Successor and from insurance. Because the remediation method to be used
is unknown, no amount within the cost ranges provided by the environmental
consultants can be determined to be a better estimate. Thus National has a
remaining accrual of approximately $700,000 as of December 31, 1998, all of
which was provided in prior years, for the minimum costs estimated for the
anticipated remediation method. The ultimate outcome of this matter cannot
presently be determined and the costs of remediation and third-party claims, if
any, may have a material adverse effect on National's financial position,
results of operations or ability to make the distributions to the holders of its
Common Units and Subordinated Units.
National is subject to various federal, state and local laws and
regulations governing the transportation, storage and distribution of propane,
and the health and safety of workers, the latter of which are primarily governed
by the Occupational Safety and Health Act and the regulations promulgated
thereunder. On August 18, 1997, the U.S. Department of Transportation (the
'DOT') published its Final Rule for Continued Operation of the Present Propane
Trucks (the 'Final Rule'). The Final Rule is intended to address perceived risks
during the transfer of propane. As initially proposed, the Final Rule required
certain immediate changes in National's operating procedures including
retrofitting National's cargo tanks. National believes that, as a result of the
substantially completed negotiated rulemaking involving the DOT, the propane
industry and other interested parties, that it will not incur material increases
to its cost of operations in complying with the Final Rule.
There are a number of lawsuits pending or threatened against National. In
general, these lawsuits have arisen in the ordinary course of National's
business and involve claims for actual damages, and in some cases punitive
damages, arising from the alleged negligence of National 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 and the claims made 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, National does not believe
that the pending or threatened litigation of which National is aware
45
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
will have a material adverse effect on its results of operations or its
financial condition. Notwithstanding the foregoing, any one of the matters
discussed above or all of them taken together may adversely affect National's
financial position, results of operations or its ability to make distributions
to its Unitholders.
(18) ACQUISITIONS
During 1996, 1997 and 1998 National acquired several companies engaged in
the sale of propane and related merchandise. The purchase prices (including debt
issued and assumed) aggregated $2,045,000, $9,237,000 and $420,000 and resulted
in increases in Goodwill of $162,000, $3,889,000 and $205,000 in 1996, 1997 and
1998, respectively.
(19) TRANSACTIONS WITH AFFILIATES
Following the Partnership Conveyance and the Offering, the management and
employees of the Managing General Partner manage and operate the propane
business and assets owned by the Partnership Entities. The Partnership Entities
do not have any officers or employees of their own. The Managing General Partner
is reimbursed by the Partnership Entities at cost for all direct and indirect
expenses incurred on behalf of the Partnership Entities, including the costs of
compensation and employee benefit plans described herein that are properly
allocable to the Partnership Entities, and all other expenses necessary or
appropriate to the conduct of the business of, and allocable to, the Partnership
Entities. The Partnership Agreement provides that the Managing General Partner
will determine the expenses that are allocable to the Partnership Entities in
any reasonable manner determined by the Managing General Partner in its sole
discretion. The Partnership Entities reimbursed the Managing General Partner
$15,429,000, $34,099,000 and $34,627,000 during the period from the Partnership
Conveyance through December 31, 1996 and for the years ended December 31, 1997
and 1998, respectively. Affiliates of the General Partners (including Triarc)
provide administrative services for the General Partners on behalf of the
Partnership Entities and are reimbursed for all expenses incurred in connection
therewith. Such charges aggregated $103,000 and $105,000 from Triarc for 1997
and 1998, respectively. There were no similar charges for the period from the
Partnership Conveyance through December 31, 1996. In addition, the General
Partners and their Affiliates (including Triarc) may provide additional services
to the Partnership Entities, for which National will be charged reasonable fees
as determined by the Managing General Partner.
Prior to the Partnership Conveyance and the Offering, National Propane
received from Triarc certain management services including legal, accounting,
tax, insurance, financial and other management services. Under a management
services agreement such costs were allocated based upon the greater of (i) the
sum of earnings before income taxes, depreciation and amortization and (ii) 10%
of revenues, as a percentage of Triarc's corresponding consolidated amount.
Management of National believes that such allocation method is reasonable. Costs
charged to National under the management services agreement with Triarc were
$1,500,000 for the six months ended June 30, 1996. National understands Triarc
is predominately a holding company and substantially all of the expenses it
incurs are for services or purchases made on behalf of its affiliated companies
and, accordingly, are chargeable to such companies in accordance with management
services and other agreements. However, National believes that the costs
allocated prior to the Partnership Conveyance and the Offering exceed those
which would have been, and are being, incurred by National on a standalone
basis. Such costs for services provided by Triarc would have approximated
amounts not in excess of $750,000 for the six months ended June 30, 1996. See
also Notes 1, 4, 10, 11, 12 and 13 for discussion of other transactions with
related parties.
(20) UNIT OPTION PLAN
Prior to the Offering and effective July 2, 1996, the Managing General
Partner adopted the National Propane Corporation 1996 Unit Option Plan (the
'Option Plan'), which provides for the grant
46
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of (i) options ('Unit Options') to purchase Common Units and Subordinated Units
and (ii) Common Unit appreciation rights ('UARs') to National's directors,
officers and employees. The Unit Options have maximum terms of ten years.
Expenses recognized resulting from grants under the Option Plan are allocated to
the Partnership in accordance with an agreement between the Managing General
Partner and the Partnership. As of December 31, 1998 there were an aggregate of
1,086,031 Common Units and Subordinated Units available for grant.
During 1997, the Managing General Partner granted 315,000 Unit Options at
an option price of $17.30 which was below the fair market value of the Common
Units of $21.625 at the date of grant. Such difference resulted in aggregate
unearned compensation for the Partnership of $1,362,000; such amount was
recognized as 'Partners' Capital' with an equal amount recognized as an offset
to 'Partners' Capital.' Such unearned compensation is being amortized over the
applicable service period of five years. During 1997 and 1998, $115,000 and
$409,000 was amortized to compensation expense, resulting in a remaining
unamortized balance of $838,000 at December 31, 1998. Of the unit options
granted in 1997, 60% of the options vest one-third per year over the three-year
period commencing two years from date of grant and 40% of the options vest upon,
and in the same proportion as, the conversion of the outstanding Subordinated
Units into Common Units in accordance with the terms of the Partnership
Agreement (for further description of the timing of the conversion of the
Subordinated Units, see Note 11) but, in any event, no later than March 2007.
As of December 31, 1998 there were 298,000 unit options outstanding, none
of which were exercisable, each with (i) an option price of $17.30, (ii) a
remaining contractual life of 8.7 years and (iii) a fair value (see below) of
$2.27. The Partnership accounts for stock-based compensation using the intrinsic
value method. Had compensation cost for Unit Options granted in 1997 been (i)
determined based on the fair value method as provided for in SFAS 123, (ii)
reduced for compensation expense recorded in accordance with the intrinsic value
method by eliminating the amortization of unearned compensation and (iii) income
tax effected, the Partnership's 1997 and 1998 net income and earnings per unit
would have been increased by $74,000 and $277,000 or $.01 and $.02 per Common
and Subordinated Unit, respectively. The fair value of the options granted
during 1997 was determined using the Black-Scholes option pricing model with the
following assumptions: (i) distribution amount of $.525 per unit per quarter,
(ii) average Common Unit price volatility of 19.4% (also used as an estimate of
Subordinated Unit volatility), (iii) risk-free interest rate of 6% and (iv)
expected option life of 7 years.
<TABLE>
<CAPTION>
NUMBER OF UNITS EXERCISE PRICE FAIR VALUE
--------------- -------------- ----------
<S> <C> <C> <C>
Outstanding at January 1, 1997............................ -- $-- $--
Granted................................................... 315,000 17.30 2.27
---------------
Outstanding at December 31, 1997.......................... 315,000 17.30 2.27
Forfeited................................................. (17,000) 17.30 2.27
--------------- ------- ----------
Outstanding at December 31, 1998.......................... 298,000 $17.30 $ 2.27
--------------- ------- ----------
--------------- ------- ----------
Options exercisable at December 31, 1998.................. 0
---------------
---------------
Option prices at end of year.............................. $17.30
Remaining contractual life................................ 8.7 years
</TABLE>
(21) PROPANE CONTRACTS
National is party to simultaneous put and call contracts ('Propane
Contracts') with three third parties. All of the Propane Contracts expire on or
before March 31, 1999. Such contracts require monthly settlement with
counterparties through cash exchange of a net amount equal to the difference
between the monthly index average price and the fixed contract price. The
Propane Contracts are
47
<PAGE>
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
entered into for purposes other than trading and are entered into in order to
protect National's gross profit on its fixed price sales commitments.
In order to hedge the risk of higher prices for the anticipated propane
purchases required to fulfill fixed price sales commitments, National enters
into the Propane Contracts. Firm price commitments associated with these Propane
Contracts do not extend beyond March 31, 1999. Hedging gains and losses are
included in 'Cost of product -- propane and appliances' in the consolidated
statement of operations concurrently with the recognition of hedged sales.
Unrealized gains and losses related to open Propane Contracts are not reflected
in the consolidated statements of operations and are approximately $200,000 and
$600,000 at December 31, 1997 and 1998. At December 31, 1997 and 1998, National
had open Propane Contracts at fair values of approximately $1,000,000 and
$2,600,000, respectively, and contract values of approximately $1,200,000 and
$3,200,000, respectively, on such contracts. These contracts covered a notional
volume of 3,150,000 and 12,600,000 gallons of propane at December 31, 1997 and
1998, respectively. The fair value of the Propane Contracts was determined using
the posted market prices of propane as of December 31, 1997 and 1998.
The Partnership is subject to credit risk with the Propane Contracts to the
extent the counterparties do not perform. The Partnership evaluates the
financial condition of each counterparty with which it conducts business to
reduce exposure to credit risk of non-performance and only executes Propane
Contracts with third parties it believes to be well-capitalized.
48
<PAGE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
PARTNERSHIP MANAGEMENT
The Managing General Partner manages and operates the business activities
of the Partnership. Unitholders do not directly or indirectly participate in the
management or operation of the Partnership and have no actual or apparent
authority to enter into contracts on behalf of, or to otherwise bind, the
Partnership. The Managing General Partner owes a fiduciary duty to the
Unitholders. Notwithstanding any limitation on obligations or duties, the
Managing General Partner and the Special General Partner are liable, as the
general partners of the Partnership, for all debts of the Partnership (to the
extent not paid by the Partnership), except to the extent that indebtedness or
other obligations incurred by the Partnership are made specifically non-recourse
to either or both of the General Partners. Whenever possible, the Managing
General Partner intends to make any such indebtedness or other obligations
non-recourse to it and the Special General Partner. However, if the Operating
Partnership defaults under the First Mortgage Notes or the Bank Credit Facility,
the Managing General Partner will be liable for any deficiency remaining after
foreclosure on the Operating Partnership's assets.
In September 1996 the Managing General Partner appointed Frederick W.
McCarthy and Willis G. Ryckman III, who are neither officers nor employees of
the General Partners or any affiliate of the General Partners, to its Board of
Directors. Such directors serve on the Audit Committee with the authority to
review, at the request of the Managing General Partner, specific matters as to
which the Managing General Partner believes there may be a conflict of interest
in order to determine if the resolution of such conflict proposed by the
Managing General Partner is fair and reasonable to the Partnership. Absent
specific delegation from the Board of Directors of the Managing General Partner,
determinations of the Audit Committee are advisory and do not bind the Managing
General Partner. Any matters approved by the Audit Committee will be
conclusively deemed to be fair and reasonable to the Partnership, approved by
all partners of the Partnership and not a breach by the Managing General Partner
of any duties it may owe the Partnership or the Unitholders. In addition, the
Audit Committee reviews external financial reporting of the Partnership,
recommends engagement of the Partnership's independent accountants and reviews
the Partnership's procedures for internal auditing and the adequacy of the
Partnership's internal accounting controls. With respect to such additional
matters, the Audit Committee may act on its own initiative to question the
Managing General Partner and, absent the delegation of specific authority by the
entire Board of Directors, its recommendations will be advisory.
The Special General Partner, a wholly owned subsidiary of the Managing
General Partner, is a non-managing general partner of the Partnership and the
Operating Partnership with no operations or business other than acting as a
general partner of the Partnership and the Operating Partnership. In the event
that the Managing General Partner is merged with and into Triarc, the Audit
Committee of the Special General Partner will perform the functions described
above previously performed by the Audit Committee of the Managing General
Partner. The Audit Committee of the Special General Partner is composed of the
same directors that serve on the Audit Committee of the Managing General
Partner. In addition, if following a merger of the Managing General Partner with
and into Triarc, a bankruptcy event involving Triarc occurs, the Special General
Partner will become the managing general partner of the Partnership, continue
the business of the Partnership and have all the rights, authority and powers of
the Managing General Partner described in the partnership agreement.
As is commonly the case with publicly traded limited partnerships, the
Partnership does not directly employ any of the persons responsible for managing
or operating the Partnership. In general, the management of National Propane
continues to manage and operate the Partnership's business as officers and
employees of the Managing General Partner and its affiliates. See Item 1.
'Business -- Employees'.
49
<PAGE>
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE MANAGING GENERAL PARTNER
The following table sets forth certain information with respect to the
current directors and executive officers of the Managing General Partner.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE MANAGING GENERAL PARTNER
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Nelson Peltz......................................... 56 Director and Chairman
Peter W. May......................................... 56 Director and Vice Chairman
Frederick W. McCarthy................................ 57 Director
Ronald D. Paliughi................................... 55 Director
Willis G. Ryckman III................................ 54 Director
Ronald R. Rominiecki................................. 45 President and Chief Operating Officer
C. David Watson...................................... 40 Senior Vice President, Administration, General
Counsel, and Assistant Secretary
R. Brooks Sherman, Jr................................ 33 Vice President and Chief Financial Officer
Martin A. Woods...................................... 40 Vice President of Supply and Distribution
</TABLE>
Nelson Peltz has been a director of the Managing General Partner and a
director and Chairman of the Board and Chief Executive Officer of Triarc
Companies, Inc. since April 23, 1993, and Chairman of the Board of the Managing
General Partner since April 1997. Since April 1993, he has also been a director
and Chairman of the Board and Chief Executive Officer of certain of Triarc's
other subsidiaries, including RC/Arby's Corporation ('RCAC'). He is also a
general partner of DWG Acquisition Group, L.P. ('DWG Acquisition'), whose
principal business is ownership of securities of Triarc. From its formation in
January 1989 until April 23, 1993, Mr. Peltz was Chairman and Chief Executive
Officer of Trian Group, Limited Partnership ('Trian'), which provided investment
banking and management services for entities controlled by Mr. Peltz and Mr.
May. From 1983 to December 1988, he was Chairman and Chief Executive Officer and
a director of Triangle Industries, Inc. ('Triangle'), which, through
wholly-owned subsidiaries, was, at that time, a manufacturer of packaging
products, copper electrical wire and cable and steel conduit and currency and
coin handling products.
Peter W. May has been a director of the Managing General Partner and a
director and President and Chief Operating Officer of Triarc since April 23,
1993, and Vice Chairman of the Board of the Managing General Partner since April
1997. Since April 1993, he has also been a director and President and Chief
Operating Officer of certain of Triarc's other subsidiaries, including RCAC. He
is also a general partner of DWG Acquisition. From its formation in January 1989
until April 23, 1993, Mr. May was President and Chief Operating Officer of
Trian. He was President and Chief Operating Officer and a director of Triangle
from 1983 until December 1988.
Frederick W. McCarthy has been a director of the Managing General Partner
since September 25, 1996. Mr. McCarthy has been Chairman of Triumph Capital
Group, Inc., an investment management firm, since 1990. Mr. McCarthy was
formerly a Managing Director of Drexel Burnham Lambert where he was employed
from 1974 until 1990. Mr. McCarthy serves as a director of Tutor Time Learning
Systems, Inc., an operator and franchisor of educational child care centers, and
of Paragon Acceptance Corporation, an automotive finance company.
Ronald D. Paliughi is a director of the Managing General Partner and was
President and Chief Executive Officer of the Managing General Partner from April
29, 1993 until his retirement effective January 2, 1998. From 1987 to 1990, Mr.
Paliughi was Senior Vice President -- Western Operations of AmeriGas Propane,
Inc. (then a subsidiary of UGI Corporation). During 1986, Mr. Paliughi was
Director of Retail Operations of CalGas Corporation. For more than 14 years
prior, he held various positions with VanGas, Inc. ('VanGas'), the western
subsidiary of Suburban Propane Gas (then a division of Quantum Chemical
Corporation). He last served as Senior Vice President/General Manager at VanGas.
Willis G. Ryckman III has been a director of the Managing General Partner
since September 25, 1996. Mr. Ryckman has served as the Chairman of Tri-Tech
Labs, Inc., a holding company, since June 1992, Chairman of Irma Shorell, Inc.,
a cosmetics company, since April 1993, and Chairman of Omni Capital, a finance
company, since January 1996. Mr. Ryckman is a director of Banyan Hotel
Management Corporation and Krasdale Foods, Inc.
50
<PAGE>
<PAGE>
Ronald R. Rominiecki has served as President and Chief Operating Officer of
the Managing General Partner since November 1, 1997. Prior to November 1, 1997,
Mr. Rominiecki served as Senior Vice President and Chief Financial Officer after
joining the Managing General Partner on December 1, 1995. From April 1994 to
November 1995, he served as Vice President and Chief Financial Officer of
O'Brien Environmental Energy, Inc. ('O'Brien'), a publicly-owned company engaged
in cogeneration and other energy related businesses. In September 1994 O'Brien
filed a petition in bankruptcy under Chapter 11 of the United States Code. From
June 1988 to March 1994, Mr. Rominiecki was Corporate Controller at Westmoreland
Coal Company, a NYSE listed company.
C. David Watson has been Senior Vice President, Administration, General
Counsel and Assistant Secretary of the Managing General Partner since December
19, 1996. From December 2, 1996 to December 18, 1996 he was Senior Vice
President. He is responsible for legal matters, real estate, fleet management,
plant engineering, safety, risk management, human resources, insurance and
public relations. Prior to his employment with the Managing General Partner, he
was with the law firm of Jenner & Block in Chicago, Illinois, as a partner from
January 1, 1993 to November 30, 1996, and as an associate from September 25,
1986 to December 31, 1992.
R. Brooks Sherman, Jr. has served as Vice President, Chief Financial
Officer of the Managing General Partner since November 1, 1997. Prior to
November 1, 1997, Mr. Sherman served as Controller and Chief Accounting Officer
after joining the Managing General Partner on November 12, 1996. From August 12,
1995 to November 11, 1996, he served as Chief Financial Officer of Berthel
Fisher & Company Leasing, Inc, the General Partner of two publicly-owned
equipment leasing limited partnerships. From October, 1990 to August 12, 1995 he
served in various audit capacities with Ernst & Young, LLP, lastly as an Audit
Manager.
Martin A. Woods has served as Vice President, Supply and Distribution of
the Managing General Partner since June 30, 1997. From 1996 to June, 1997, he
was Sales Coordinator, Northeast for Conoco, Inc. and more than 13 years prior
he held various other positions with Conoco, Inc.
Each director has been elected to serve until the Managing General
Partner's next annual meeting of stockholders and until such director's
successor is duly elected and qualified or until his death, resignation or
removal. The term of office of each executive officer is until the next annual
meeting of the Board of Directors of the Managing General Partner and until his
successor is elected and qualified or until his death, resignation or removal.
REIMBURSEMENT OF EXPENSES OF THE MANAGING GENERAL PARTNER
In general, the management and employees of National Propane who managed
and operated the propane business and assets of National Propane prior to the
IPO continue to manage and operate the Partnership's business as officers and
employees of the Managing General Partner and its Affiliates. The Partnership
does not have any officers or employees of its own. The Operating Partnership's
corporate subsidiary, NSSI, does, however, have its own employees to manage and
operate its business. The Managing General Partner does not receive any
management fee or other compensation in connection with its management of the
Partnership, but is reimbursed at cost for all direct and indirect expenses
incurred on behalf of the Partnership, including the costs of compensation and
employee benefit plans described herein properly allocable to the Partnership,
and all other expenses necessary or appropriate to the conduct of the business
of, and allocable to, the Partnership. The Partnership Agreement provides that
the Managing General Partner shall determine the expenses that are allocable to
the Partnership in any reasonable manner determined by the Managing General
Partner in its sole discretion. Affiliates of the Managing General Partner
(including Triarc) may perform certain administrative services for the Managing
General Partner on behalf of the Partnership. Such Affiliates will not receive a
fee for such services performed for or on behalf of the Partnership, but will be
reimbursed for all direct and indirect expenses incurred in connection
therewith. In addition, the General Partners and their Affiliates may provide
additional services to the Partnership, for which the Partnership will be
charged reasonable fees as determined by the Managing General Partner.
In addition, in connection with the Partnership Conveyance, the Managing
General Partner received an aggregate 2% unsubordinated General Partner Interest
and a 40.6% interest (at that date)
51
<PAGE>
<PAGE>
as holder of the Subordinated Units as consideration for its contribution to the
Partnership of its limited partner interest in the Operating Partnership, which
was received as consideration for its contribution to the Operating Partnership
of the propane business of National Propane. Such Subordinated Units currently
represent a 38.7% interest in the Partnership. The Managing General Partner will
be entitled to distributions on such Units, and the Managing General Partner
will be entitled to incentive distributions as holder of the Incentive
Distribution rights.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Managing General Partner's directors, executive officers, and persons who
own more than ten percent of the Partnership's common units, to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission (the 'SEC') and the New York Stock Exchange. Directors,
executive officers and greater than ten percent stockholders are required by the
SEC regulations to furnish the Partnership with copies of all Forms 3, 4 and 5
they file.
Based solely on the Partnership's review of the copies of such forms it has
received, or written representations from certain reporting persons that no Form
5s were required for these persons, the Partnership believes that all its
directors, executive officers, and greater than ten percent beneficial owners
complied with all filing requirements applicable to them with respect to 1998
except for the following inadvertent omissions: (1) Mr. Woods did not file a
Statement of Changes in Beneficial Ownership for his September 1, 1998 purchase
on a timely basis; when this inadvertent omission was discovered, Mr. Woods
promptly filed the statement; (2) Mr. Sherman did not file a Statement of
Changes in Beneficial Ownership for his June 6, 1998 purchase on a timely basis;
when this inadvertent omission was discovered, Mr. Sherman promptly filed the
statement; (3) Mr. Steve Schuring, the Managing General Partner's Controller and
Chief Accounting Officer did not file a Statement of Changes in Beneficial
Ownership for his December 26, 1998 purchase on a timely basis; when this
inadvertent omission was discovered, Mr. Schuring promptly filed the statement.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the annual salaries, bonuses and all other
compensation awards and payouts earned by the President and Chief Operating
Officer and by certain named executive officers of the Managing General Partner
(collectively, the 'Named Officers') for services rendered to the Managing
General Partner and its subsidiaries during the fiscal years ended December 31,
1998, 1997 and 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------
OTHER
ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)
- ------------------------------ ---- --------- -------- ---------------
<S> <C> <C> <C> <C>
Ronald R. Rominiecki ......... 1998 215,000 10,000 --
President and Chief 1997 173,333 45,000 102
Operating Officer 1996 165,000 100,000 (6) 571
C. David Watson .............. 1998 125,000 10,125 --
Senior Vice President 1997 125,000 15,000 66
Administration, General 1996 10,417(2) -- --
Counsel and Assistant
Secretary
R. Brooks Sherman, Jr ........ 1998 100,000 5,000 --
Vice President, Chief 1997 75,461 10,000 50
Financial Officer 1996 7,808(3) -- --
Martin A. Woods .............. 1998 130,000 29,250 --
Vice President, Supply 1997 77,000(4) 15,000 --
and Distribution 1996 -- -- --
Ronald D. Paliughi ........... 1998 210,000(5) -- --
Former Chief Executive 1997 300,000 51,784 288
Officer 1996 277,083 500,000 (6) 5,621
<CAPTION>
LONG-TERM COMPENSATION AWARDS
--------------------------------------------------------
NUMBER OF
RESTRICTED SECURITIES LTIP
STOCK UNDERLYING PAYOUTS ALL OTHER
NAME AND PRINCIPAL POSITION AWARD(S)(#) OPTIONS/SARS(#)(1) ($) COMPENSATION($)
- ----------------------------------------- ------------------ ------- ---------------
<S> <C> <C> <C> <C>
Ronald R. Rominiecki ......... -- -- -- --
President and Chief -- 40,000(7) -- 54,380(11)
Operating Officer -- -- -- 63,000(12)
C. David Watson .............. -- -- -- 5,667(13)
Senior Vice President -- 27,000(7) -- 39,520(14)
Administration, General -- 18,000(8) -- --
Counsel and Assistant
Secretary
R. Brooks Sherman, Jr ........ -- -- -- --
Vice President, Chief -- 16,000(7) -- --
Financial Officer -- -- -- --
Martin A. Woods .............. -- -- -- --
Vice President, Supply -- 18,000(7) -- 8,244(15)
and Distribution -- -- -- --
Ronald D. Paliughi ........... -- -- -- --
Former Chief Executive -- -- -- --
Officer -- 30,000(9) 57,500(10) --
</TABLE>
(footnotes on next page)
52
<PAGE>
<PAGE>
(footnotes from previous page)
(1) All option grants were made either pursuant to Triarc's 1993 Equity
Participation Plan (described below) (the 'Triarc Plan') or pursuant to
National's 1996 Unit Option Plan (described below) (the 'Unit Option
Plan'), as noted.
(2) Mr. Watson began his employment with the Managing General Partner on
December 2, 1996. The amount reported was based on his 1996 annual salary
of $125,000.
(3) Mr. Sherman began his employment with the Managing General Partner on
November 12, 1996. The amount reported is based on his 1996 annual salary
of $70,000.
(4) Mr. Woods began his employment with the Managing General Partner on June
30, 1997. The amount reported is based on an annual salary of $130,000.
(5) Mr. Paliughi retired from the Managing General Partner effective January 2,
1998. Pursuant to his employment contract with the Managing General
Partner, Mr. Paliughi is entitled to severance benefits of $210,000 per
year for five years.
(6) Paid by Triarc in connection with activities related to the monetization of
its propane business.
(7) Represents unit option grants made pursuant to the Unit Option Plan: 60% of
the options vest one-third per year over the three-year period commencing
two years from date of grant and 40% of the options vest upon, and in the
same proportion as, the conversion of the outstanding Subordinated Units of
the Partnership into Common Units in accordance with the terms of the
Partnership Agreement but, in any event, no later than March 2007 and the
options will be exercisable at any time between the date of vesting and the
tenth anniversary of the date of grant. The unit option grants were
initially issued with an exercise price of $17.30 (80% of the closing price
on September 17, 1997).
(8) Represents stock option grants made pursuant to the Triarc Plan: one-third
of the options granted will vest on each of the first, second and third
anniversaries of the date of grant and the options will be exercisable at
any time between the date of vesting and the tenth anniversary of the date
of grant.
(9) Represents Mr. Paliughi's options to acquire Triarc Class A Common Stock.
Such options vested as of January 2, 1998 and were exercised during 1998.
(10) On January 16, 1996, the restrictions on all previously granted restricted
stock award of Triarc Class A Common Stock, par value $.10 per share, made
pursuant to Triarc's 1993 Equity Participation Plan, lapsed.
(11) Includes $54,380 of reimbursed moving expenses in connection with Mr.
Rominiecki's relocation to Cedar Rapids, Iowa.
(12) Represents a one-time bonus payable in connection with Mr. Rominiecki's
employment by the Managing General Partner.
(13) Includes $5,667 of reimbursed moving expenses in connection with Mr.
Watson's relocation to Cedar Rapids, Iowa.
(14) Includes $39,520 of reimbursed moving expenses in connection with Mr.
Watson's relocation to Cedar Rapids, Iowa.
(15) Includes $8,244 of reimbursed moving expenses in connection with Mr. Woods'
relocation to Cedar Rapids, Iowa.
CASH INCENTIVE PLANS
National Propane has implemented an annual cash incentive plan (the 'Annual
Incentive Plan') and a mid-term cash incentive plan (the 'Mid-Term Incentive
Plan') for executive officers and key employees of National Propane.
The Annual Incentive Plan is designed to provide annual incentive awards to
participants which are based on (i) whether National Propane has met certain
pre-determined financial goals and (ii) the performance of the participant
during the preceding year. Under the Annual Incentive Plan, participants may
receive awards of a specified percentage of their then current base salaries,
which percentage varies depending upon the level of seniority and responsibility
of the participant. Such
53
<PAGE>
<PAGE>
percentage is set by National Propane's management in consultation with the
Compensation Committee of the Board of Directors of National Propane (the
'Compensation Committee'). The Compensation Committee may elect to adjust awards
on a discretionary basis to reflect the relative individual contribution of the
executive or key employee, to evaluate the 'quality' of National Propane's
earnings or to take into account external factors that affect performance
results. The Compensation Committee also may decide that multiple performance
objectives related to National Propane's and/or the individual's performance may
be appropriate and, in such event, such factors would be weighted in order to
determine the amount of the annual incentive awards. The Annual Incentive Plan
is administered by the Compensation Committee and may be amended or terminated
by such Compensation Committee at any time. Amounts paid to Named Officers under
the Annual Incentive Plan are included in the Compensation Chart.
Under the Mid-Term Incentive Plan, incentive awards will be granted to
participants if National Propane achieves an agreed upon profit over a three
year performance cycle. During each plan year, an amount will be accrued for
each participant based upon the amount by which National Propane's profit for
such year exceeds a certain minimum return. A new three-year performance cycle
begins each year, such that after the third year the annual cash amount paid to
participants pursuant to the Mid-Term Incentive Plan should equal the target
award if National Propane's profit goals have been achieved for the full
three-year cycle. Except as may otherwise be set forth in a participant's
employment agreement, the Compensation Committee may adjust, upward or downward,
an individual's award based upon an assessment of the individual's relative
contribution to National Propane's longer-term profit performance. The
Compensation Committee may amend or terminate the Mid-Term Incentive Plan at any
time.
TRIARC'S 1993 EQUITY PARTICIPATION PLAN
Certain executive officers of the Managing General Partner have
participated in the Triarc Companies, Inc. 1993 Equity Participation Plan which
was adopted on April 24, 1993, and which provided that awards might be made
thereunder until April 24, 1998. The plan provides for, among other things, the
grant of options to purchase Triarc's Class A Common Stock, Stock Appreciation
Rights ('SARs') and restricted shares of Class A Common Stock. Directors,
selected officers and key employees of, and key consultants to, Triarc and its
subsidiaries, including the Managing General Partner, are eligible to
participate in the plan. The plan is being administered by the Performance
Compensation Subcommittee of the Triarc Board of Directors, which may determine
from time to time to grant options, SARs and restricted stock.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR, INDIVIDUAL GRANTS
No options to purchase shares of Triarc Class A Common Stock or SARs have
been granted to any of the Named Officers in respect of 1998.
OPTION/SAR EXERCISES IN 1998 AND YEAR-END OPTION/SAR VALUES
The following table sets forth certain information concerning options to
purchase shares of Triarc Class A Common Stock, and the values at the end of
1998 of unexercised in-the-money options to purchase shares of Triarc Class A
Common Stock granted to the Named Officers outstanding as of the end of 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS AT
SHARES FISCAL 1998 YEAR-END FISCAL 1998 YEAR-END(1)
ACQUIRED ON VALUE -------------------------------- --------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- ----------- -------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Ronald R. Rominiecki......... -- -- 20,000 -- $115,000 --
C. David Watson.............. -- -- 6,000 12,000 -- --
R. Brooks Sherman, Jr........ -- -- -- -- -- --
Martin A. Woods.............. -- -- -- -- -- --
Ronald D. Paliughi(2)........ 56,000 $645,788 -- -- -- --
</TABLE>
- ------------
(1) On December 31, 1998, the last day of Fiscal 1998, the closing price of the
Triarc Class A Common Stock was $15.875 per share.
(2) All Mr. Paliughi's options vested as of January 2, 1998 and were exercised
during 1998.
54
<PAGE>
<PAGE>
NATIONAL PROPANE CORPORATION 1996 UNIT OPTION PLAN
Effective upon the closing of the IPO, the Managing General Partner adopted
the National Propane Corporation 1996 Unit Option Plan (the 'Option Plan'),
which permits the issuance of options (the 'Options') and Unit appreciation
rights ('UARs') to eligible persons. An aggregate of 1,250,000 Common Units and
Subordinated Units are initially reserved for issuance as of the Option Plan's
effective date. Pursuant to the terms of the Option Plan, 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 will be added to the total number of
Units that may be issued thereafter. Accordingly, as of December 31, 1998, an
additional 201,046 Units have been made available for issuance under the Option
Plan. As of December 31, 1998, a total of 315,000 Options have been granted
under the Option Plan. The number of Units available for issuance pursuant to
the Option Plan is subject to adjustment in certain circumstances.
UNIT OPTION PLAN GRANTS IN LAST FISCAL YEAR, INDIVIDUAL GRANTS
No options to purchase units of the Partnership or UARs have been granted
to any of the Named Officers in respect of 1998.
UNIT OPTION PLAN EXERCISES IN 1998 AND YEAR-END OPTION VALUES
The following table sets forth certain information concerning Options to
purchase Units, and the values at the end of 1998 of unexercised in-the money
Options to purchase Units granted to the Named Officers outstanding at the end
of 1998. No named Officers exercised any Options to purchase Units in 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE- MONEY
UNEXERCISED OPTIONS/SARS AT FISCAL OPTIONS/SARS AT FISCAL 1998
1998 YEAR-END YEAR-END(1)
---------------------------------- ----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Ronald R. Rominiecki........................ -- 40,000 -- --
C. David Watson............................. -- 27,000 -- --
R. Brooks Sherman, Jr....................... -- 16,000 -- --
Martin A. Woods............................. -- 18,000 -- --
Ronald D. Paliughi.......................... -- -- -- --
</TABLE>
- ------------
(1) On September 17, 1997, the Units were initially issued at an exercise price
of $17.30, which was 80% of the closing price on September 17, 1997. On
December 31, 1998, the last day of Fiscal 1998, the closing price of the
Units was $5.5625 per Unit.
COMPENSATION OF DIRECTORS
The Managing General Partner pays no additional remuneration to its
employees (or employees of any of its Affiliates) for serving as directors. The
Partnership currently compensates directors who are not employees of the
Managing General Partner or its Affiliates for serving as such with a $15,000
annual stipend and a $750 per meeting fee and reimburses them for out-of-pocket
expenses. Such directors are also eligible to participate in the Unit Option
Plan.
In addition, the Managing General Partner has agreed to pay Willis G.
Ryckman III a $50,000 stipend and a $750 per committee meeting fee, and to
reimburse him for out-of-pocket expenses, for serving on the Special Committee
of the Board of Directors appointed to evaluate third party offers to purchase
all or substantially all of the Common Units and other ownership interests in
the Partnership.
EMPLOYMENT ARRANGEMENTS WITH EXECUTIVE OFFICERS
Mr. Rominiecki has an employment contract with the Managing General
Partner, dated as of March 11, 1997, as amended, pursuant to which (i) the
Managing General Partner agrees to employ Mr. Rominiecki as President and Chief
Operating Officer, (ii) Mr. Rominiecki receives a base salary of
55
<PAGE>
<PAGE>
$215,000 per annum during his employment (subject to increase at the discretion
of the Board of Directors), (iii) Mr. Rominiecki is eligible to participate in
the Annual Incentive Plan, enabling him to receive an annual cash bonus of up to
75% of his base salary based upon the achievement of certain individual and
Partnership performance objectives, (iv) Mr. Rominiecki is eligible to
participate in the Mid-Term Incentive Plan, enabling him to receive an annual
bonus award at least equal to 40% of his base salary based upon the achievement
by the Partnership of certain financial performance objectives over a three-year
performance cycle, (v) Mr. Rominiecki is entitled to severance benefits
generally equal to one year's base salary and bonuses in the event he is
terminated other than for good cause (as defined) during the term of his
employment agreement, and (vi) Mr. Rominiecki is entitled to participate in
other generally available compensation plans and receive various other benefits,
including reimbursement of certain expenses. The agreement also restricts Mr.
Rominiecki from competing with the General Partner for 18 months after the
termination of the agreement if such termination results from Mr. Rominiecki's
voluntary resignation or the Managing General Partner's termination of Mr.
Rominiecki's employment for good cause (as defined in the agreement). In
connection with the proposed Partnership Sale, Mr. Rominiecki entered into a
letter agreement dated March 15, 1999 with the Managing General Partner which
provides that if a change of control (as defined) occurs prior to December 31,
1999 he will be entitled to receive a lump-sum payment of $750,000, and six
months of continued salary commencing six months after the closing subject to
mitigation, in lieu of the severance benefits described above.
Mr. Watson has an employment agreement with the Managing General Partner
pursuant to which (i) Mr. Watson is employed as Senior Vice
President -- Administration and General Counsel effective December 19, 1996,
(ii) Mr. Watson receives a base salary of $125,000 per annum, (iii) Mr. Watson
is eligible to participate in the Annual Incentive Plan, enabling him to receive
an annual cash bonus of up to 50% of his base salary, based upon the achievement
of certain individual and Partnership performance objectives, (iv) Mr. Watson is
eligible to participate in the Mid-Term Incentive Plan, enabling him to receive
an annual bonus award equal to 40% of his base salary, based upon the
achievement by the Partnership of certain financial performance objectives over
a three-year performance cycle, (v) Mr. Watson is entitled to severance benefits
generally equal to one year's base salary and bonuses in the event he is
terminated other than for cause (as defined) during the term of his employment
agreement, and (vi) Mr. Watson is entitled to participate in other generally
available compensation plans and receive various other benefits, including
reimbursement of certain expenses. In connection with the proposed Partnership
Sale, Mr. Watson entered into a letter agreement dated March 15, 1999 with the
Managing General Partner which provides that if a change of control (as defined)
occurs prior to December 31, 1999 he will be entitled to receive a lump-sum
payment of $115,000 in addition to any other amounts that may otherwise be
payable under his employment agreement.
Mr. Sherman has an employment agreement with the Managing General Partner
pursuant to which (i) Mr. Sherman is employed as Vice President -- Chief
Financial Officer effective November 1, 1997, (ii) Mr. Sherman receives a base
salary of $100,000 per annum, (iii) Mr. Sherman is eligible to participate in
the Annual Incentive Plan, enabling him to receive an annual cash bonus of up to
50% of his base salary, based upon the achievement of certain individual and
Partnership performance objectives, (iv) Mr. Sherman is eligible to participate
in the Mid-Term Incentive Plan, enabling him to receive an annual bonus award
equal to 40% of his base salary, based upon the achievement by the Partnership
of certain financial performance objectives over a three-year performance cycle,
(v) Mr. Sherman is entitled to severance benefits generally equal to one year's
base salary and bonuses in the event he is terminated other than for cause (as
defined) during the term of his employment agreement, and (vi) Mr. Sherman is
entitled to participate in other generally available compensation plans and
receive various other benefits, including reimbursement of certain expenses. In
connection with the proposed Partnership Sale, Mr. Sherman entered into a letter
agreement dated March 15, 1999 with the Managing General Partner which provides
that if a change of control (as defined) occurs prior to December 31, 1999 he
will be entitled to receive a lump-sum payment of $115,000 in addition to any
other amounts that may otherwise be payable under his employment agreement.
Mr. Woods has an employment agreement with the Managing General Partner
pursuant to which (i) Mr. Woods is employed as Vice President -- Supply and
Distribution effective June 30, 1997, (ii) Mr.
56
<PAGE>
<PAGE>
Woods receives a base salary of $130,000 per annum, (iii) Mr. Woods is eligible
to participate in the Annual Incentive Plan, enabling him to receive an annual
cash bonus of up to 50% of his base salary, based upon the achievement of
certain individual and Partnership performance objectives, (iv) Mr. Woods is
eligible to participate in the Mid-Term Incentive Plan, enabling him to receive
an annual bonus award equal to 40% of his base salary, based upon the
achievement by the Partnership of certain financial performance objectives over
a three-year performance cycle, (v) Mr. Woods is entitled to severance benefits
generally equal to one year's base salary and bonuses in the event he is
terminated other than for cause (as defined) during the term of his employment
agreement, and (vi) Mr. Woods is entitled to participate in other generally
available compensation plans and receive various other benefits, including
reimbursement of certain expenses.
Mr. Paliughi retired from the Managing General Partner effective January 2,
1998. Pursuant to his employment contract with the Managing General Partner, Mr.
Paliughi is entitled to severance benefits of $210,000 per year for five years.
Mr. Paliughi's Triarc options vested as of January 2, 1998 and were exercised
during 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OWNERSHIP OF PARTNERSHIP UNITS BY THE DIRECTORS AND EXECUTIVE OFFICERS OF THE
MANAGING GENERAL PARTNER AND THE SELLING UNITHOLDER
The table below sets forth the beneficial ownership as of March 20, 1999,
by each person known by the Managing General Partner to be the beneficial owner
of more than 5% of any class of Units of the Partnership, each director and each
Named Officer of the Managing General Partner and the executive officers and
directors of the Managing General Partner as a group. The Common Units are
traded on the NYSE under the symbol 'NPL'.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER CLASS OF UNITS OWNERSHIP(1) PERCENT OF CLASS
- -------------------------------------------------------------- -------------- -------------- ----------------
<S> <C> <C> <C>
National Propane Corporation ................................. Subordinated 4,533,638 100%
Suite 1700
200 First Street, S.E.
Cedar Rapids, IA 52401
Nelson Peltz.................................................. Common 1,235(2) *
Peter W. May.................................................. Common 30,000 *
Frederick W. McCarthy......................................... -- -- *
Willis G. Ryckman III......................................... -- -- *
Ronald D. Paliughi............................................ -- -- *
Ronald R. Rominiecki.......................................... Common 1,200 *
C. David Watson............................................... -- -- *
R. Brooks Sherman, Jr......................................... Common 670 *
Martin A. Woods............................................... Common 4,000 *
All executive officers and directors as a group
(9 persons)................................................. Common 37,105 *
</TABLE>
- ------------
* Less than 1%.
(1) Except as otherwise indicated, each person has sole voting and dispositive
power with respect to such Units.
(2) All of such Units are owned by minor children of Mr. Peltz. Mr. Peltz
disclaims beneficial ownership of these Units.
57
<PAGE>
<PAGE>
OWNERSHIP OF TRIARC COMMON STOCK BY THE DIRECTORS AND EXECUTIVE OFFICERS OF THE
MANAGING GENERAL PARTNER AND CERTAIN BENEFICIAL OWNERS
All of the issued and outstanding shares of common stock of the General
Partner are indirectly owned by Triarc. The table below sets forth the
beneficial ownership as of March 20, 1999, by each person known by the Managing
General Partner to be the beneficial owner of more than 5% of the outstanding
shares of Triarc Class A Common Stock (constituting the only class of voting
capital stock of Triarc), each director and each Named Officer of the Managing
General Partner and the executive officers and directors of the Managing General
Partner as a group. Triarc's Class A Common Stock is traded on the NYSE under
the symbol 'TRY'.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OF OWNERSHIP(1) CLASS
- ----------------------------------------------------------------------- ----------------- ----------
<S> <C> <C>
DWG Acquisition Group, L.P. ........................................... 5,982,867(2) 25.7%
1201 North Market Street
Wilmington, DE 19801
Nelson Peltz .......................................................... 7,265,033(2)(3)(4)(5) 29.6%
280 Park Avenue
New York, NY 10017
Peter W. May .......................................................... 6,856,334(2)(3)(6) 28.4%
280 Park Avenue
New York, NY 10017
William Ehrman......................................................... 1,809,622(7) 7.8%
Frederick Ketcher...................................................... -- *
Jonas Gerstl........................................................... -- *
Frederic Greenberg..................................................... -- *
James McLaren.......................................................... -- *
William D. Lautman .................................................... -- *
300 Park Avenue
New York, NY 10022
Harris Associates, L.P................................................. 1,290,000(8) 5.5%
Harris Associates, Inc.
Harris Associates Investment Trust
Two North LaSalle Street
Suite 500
Chicago, IL 60502-3790
Frederick W. McCarthy.................................................. -- *
Willis G. Ryckman III.................................................. -- *
Ronald D. Paliughi..................................................... 10,000 *
Ronald R. Rominiecki................................................... 20,000(9) *
C. David Watson........................................................ 6,000(10) *
R. Brooks Sherman, Jr.................................................. -- *
Martin A. Woods........................................................ -- *
All executive officers and directors as a group (9 persons)............ 8,174,500 32.2%
</TABLE>
- ------------
* Less than 1%.
(1) Except as otherwise indicated, each person has sole voting and dispositive
power with respect to such shares.
(2) The Partnership is informed that DWG Acquisition Group, L.P. has pledged
such shares to a financial institution on behalf of Messrs. Peltz and May
to secure loans made to them.
(3) Includes 5,982,867 shares held by DWG Acquisition Group, L.P., of which Mr.
Peltz and Mr. May are the sole general partners.
(4) Includes 21,200 shares owned by a family trust of which Mr. Peltz is a
general partner and 2,400 shares owned by minor children of Mr. Peltz. Mr.
Peltz disclaims beneficial ownership.
(footnotes continued on next page)
58
<PAGE>
<PAGE>
(footnotes continued from previous page)
(5) Includes options to purchase 1,231,666 shares of Class A Common Stock which
have vested or will vest within 60 days of March 20, 1999.
(6) Includes options to purchase 826,667 shares of Class A Common Stock which
have vested or will vest within 60 days of March 20, 1999.
(7) The information set forth herein with respect to Messrs. Ehrman, Greenberg,
Ketcher, Gerstl, McLaren and Lautman is based solely on information
contained in a Schedule 13D/A, dated June 26, 1998, filed pursuant to the
Exchange Act. The shares reflected include an aggregate of 1,673,645 shares
of Class A Common Stock that Messrs. Ehrman, Ketcher, Gerstl, Greenberg,
McLaren and Lautman may be deemed to beneficially own as general partners
of EGS Associates, L.P., a Delaware limited partnership, EGS Partners,
L.L.C., a Delaware limited liability company, Bev Partners, L.P., a
Delaware limited partnership, and Jonas Partners, L.P., a Delaware limited
partnership. Also includes (i) 56,650 shares of Class A Common Stock owned
directly by Mr. Ehrman and 55,927 shares of Class A Common Stock owned by
members of Mr. Ehrman's immediate family and sister-in-law; (ii) 8,400
shares of Class A Common Stock owned directly by Mr. Ketcher (iii) 1,500
shares of Class A Common Stock owned directly by Mr. Gerstl and 4,500
shares of Class A Common Stock owned by a member of Mr. Gerstl's immediate
family; and (iv) 6,000 shares of Class A Common Stock owned directly by Mr.
Greenberg and 3,000 shares of Class A Common Stock owned by a member of Mr.
Greenberg's immediate family.
(8) The information set forth herein with respect to Harris Associates, L.P.
('Harris'), Harris Associates, Inc. (the sole general partner of Harris),
and Harris Associates Investment Trust, Series Designated The Oakmark
Smallcap Fund (the 'Trust') is based solely on information contained in
their Schedules 13G/A dated February 11, 1999 filed pursuant to the
Exchange Act. Harris is an investment adviser, and serves as an investment
adviser to the Trust. The Oakmark Smallcap Fund, a series of the Trust,
beneficially owned 1,250,000 shares of Class A Common Stock as of December
31, 1998. These shares are included as shares over which Harris has shared
voting and dispositive power because of Harris' power to manage the Trust's
investments. In addition, Harris serves as investment adviser to other
clients who may own shares of Class A Common Stock but for which Harris
does not have discretionary authority. Such shares have also been included
as shares over which Harris has shared voting and dispositive power.
(9) Represents options to purchase 20,000 shares of Class A Common Stock which
have vested.
(10) Represents options to purchase 6,000 shares of Class A Common Stock which
have vested.
------------------------
The foregoing table does not include 5,997,622 shares of Triarc's
non-voting Class B Common Stock owned by Victor Posner ('Posner') and an entity
controlled by Posner (together with Posner, the 'Posner Entities'). All such
shares of Class B Common Stock can be converted without restriction into an
equal number of shares of Class A Common Stock if they are sold to a third party
unaffiliated with the Posner Entities. Triarc, or its designee, has certain
rights of first refusal if such shares are sold to an unaffiliated third party.
If the 5,997,622 currently outstanding shares of the Class B Common Stock were
converted into shares of Class A Common Stock, such shares would constitute
approximately 20.5% of the then outstanding shares of Class A Common Stock as of
March 20, 1999. None of the directors of Triarc or the Named Officers
beneficially owned any Class B Common Stock as of March 20, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RIGHTS OF THE GENERAL PARTNERS
The Partnership and the Managing General Partner have extensive ongoing
relationships with Triarc and its Affiliates. Affiliates of the Managing General
Partner, including Triarc, perform certain administrative services for the
Managing General Partner on behalf of the Partnership. Such Affiliates do not
receive a fee for such services, but are reimbursed for all direct and indirect
expenses incurred in connection therewith. See Item 10. 'Directors and Executive
Officers of the Registrant -- Partnership
59
<PAGE>
<PAGE>
Management.' Effective December 28, 1997 certain amendments to the partnership
agreements of the Partnership and the Operating Partnership were adopted such
that Triarc no longer has substantial control over the Partnership to the point
where it now exercises only significant influence.
TRANSACTIONS INVOLVING TRIARC AND ITS AFFILIATES
The Managing General Partner receives from Triarc certain management
services including legal, accounting, tax, insurance, financial and other
management services. Effective April 23, 1993 the Managing General Partner
entered into a management services agreement with Triarc, which was amended as
of July 2, 1996 (as so amended, the 'Management Services Agreement'), pursuant
to which Triarc is entitled to certain management fees from the Managing General
Partner for services which do not relate to the business or operations of the
Partnership or its subsidiaries and to (i) reimbursement of expenses incurred by
it from the Partnership or the Operating Partnership regarding administrative
services performed with respect to the business or operations of the Partnership
and its subsidiaries and (ii) such reasonable fees as may be agreed to by Triarc
and the Partnership for the performance by Triarc of any other services provided
by it that relate to the business of the Partnership and its subsidiaries. For
further discussion, see Note 19 to the accompanying consolidated financial
statements included elsewhere herein.
A subsidiary of the Managing General Partner holds an intercompany note of
Triarc's in the aggregate principal amount of $30.0 million as of December 31,
1998. The note is payable on demand, and bears interest, semi-annually, at the
rate of 13.5% per annum.
On April 5, 1999, the Partnership, the Managing General Partner, SGP and
Triarc and Columbia Propane, a subsidiary of Columbia Energy Group, Purchaser
and Purchaser General Partner signed the Purchase Agreement pursuant to which
the Purchaser would acquire all of the 6,701,550 outstanding common units of the
Partnership for $12.00 in cash per common unit pursuant to a tender offer. On
April 9, 1999, the Purchaser commenced the tender offer. The offer for the
common units is subject to certain conditions, including there being validly
tendered by the expiration date, and not withdrawn, at least a majority of the
outstanding common units on a fully diluted basis. The offer will be made only
upon and subject to the terms and conditions of the Offer to Purchase and the
related Letter of Transmittal.
The tender offer is the first step of a two-step cash transaction. In the
second step, subject to the terms and conditions of the Purchase Agreement,
Columbia Propane would indirectly acquire the general partner interests and
subordinated unit interests of the Partnership from its general partners and the
Partnership would merge into the Purchaser. As part of the second step, any
remaining common unitholders of the Partnership would receive, in cash, the same
per unit price as that paid to common unitholders who tender their shares
pursuant to the tender offer. Triarc would receive approximately $17.9 million
for its acquired interests in the Partnership and the Operating
Partnership -- $2.1 million in cash and $15.8 million payable in the form of the
forgiveness of indebtedness owed by Triarc to the Operating Partnership.
Simultaneously, and as a condition of the closing, Triarc will prepay
approximately $14.9 million of such indebtedness. Following the closing, Triarc,
through the Managing General Partner, would retain a 1% limited partner interest
in the Purchaser. Approximately $141 million of the Operating Partnership's
outstanding indebtedness is expected to be refinanced in connection with the
Partnership Sale.
The Board of Directors of the Managing General Partner, acting on the
recommendation of its Special Committee, unanimously approved the Partnership
Sale and unanimously recommended that the Partnership's Common Unitholders
tender their common units pursuant to the offer. The Special Committee received
an opinion of Lehman Brothers Inc. that, from a financial point of view, the
consideration to be received by the Partnership's Common Unitholders in the
Partnership Sale is fair to the holders of the Common Units.
There can be no assurance that the Partnership Sale will be consummated.
60
<PAGE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) 1. Financial Statements:
See Index to Financial Statements (Item 8)
2. Financial Statement Schedules:
None -- all schedules have been omitted since they are either not
applicable or the information is contained elsewhere in 'Item 8 -- Financial
Statements and Supplementary Data.'
3. Exhibits:
Copies of the following exhibits are available at a charge of $.25 per page
upon written request to the Assistant Secretary of National Propane Corporation
at Suite 1700, 200 1st St. SE, Cedar Rapids, Iowa 52401-1409.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------------------------------------------------------------------------------------------------
<C> <C> <S>
3.1 (1) -- Amended and Restated Agreement of Limited Partnership of National Propane Partners, L.P. dated as of
July 2, 1996
3.2 (1) -- Amended and Restated Agreement of Limited Partnership of National Propane, L.P. dated as of July 2,
1996
3.3 (3) -- Amendment No. 1 dated November 1, 1996 to the Amended and Restated Agreement of Limited Partnership
of National Propane, L.P. dated as of July 2, 1996
10.1 (3) -- Purchase Agreement, dated as of November 7, 1996, among National Propane Corporation, National
Propane SGP, Inc., National Propane Partners, L.P., National Propane, L.P. and Merrill Lynch & Co.
10.2 (3) -- Registration Agreement, dated as of November 7, 1996, between National Propane Partners, L.P. and
Merrill Lynch & Co.
10.3 (1) -- Credit Agreement, dated as of June 26, 1996, among National Propane, L.P., The First National Bank of
Boston, as administrative agent and a lender, Bank of America NT & SA, as a lender, and BA
Securities, Inc., as syndication agent
10.4 (1) -- Note Purchase Agreement, dated as of June 26, 1996, among National Propane, L.P. and each of the
Purchasers listed in Schedule A thereto relating to $125 million aggregate principal amount of 8.54%
First Mortgage Notes due June 30, 2010
10.5 (1) -- Conveyance, Contribution and Assumption Agreement, dated as of July 2, 1996, by and among National
Propane, L.P., National Propane Partners, L.P., National Propane Corporation and National Propane
SGP, Inc.
10.6 (1) -- Contribution and Assumption Agreement, dated as of July 2, 1996, by and among National Propane, L.P.,
National Propane Corporation, National Propane SGP, Inc. and National Sales & Service, Inc.
10.7 (1) -- Note, in the principal amount of $40.7 million, issued by Triarc Companies, Inc. to National Propane,
L.P.
10.8 (1) -- National Propane 1996 Unit Option Plan
10.9 (1) -- Amendment to Employment Agreement of Ronald D. Paliughi, dated as of June 10, 1996
10.10(2) -- Employment Agreement, dated as of April 24, 1993, between National Propane Corporation and Ronald D.
Paliughi (including Amendment No. 1, dated as of December 7, 1994 and Amendment No. 2, dated as of
March 27, 1995)
10.11(2) -- Severance Agreement, dated as of December 1, 1995, between National Propane Corporation and Ronald R.
Rominiecki
10.12(2) -- Severance Agreement, dated as of March 27, 1997, between National Propane Corporation and Laurie B.
Crawford
10.13(4) -- Employment Agreement, dated November 20, 1996, between National Propane Corporation and C. David
Watson
10.13(2) -- Triarc's 1993 Equity Participation Plan
10.14(2) -- Form of Non-Incentive Stock Option Agreement under Triarc's 1993 Equity Participation Plan
</TABLE>
61
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------------------------------------------------------------------------------------------------
<C> <C> <S>
10.15(6) -- Consent, waiver and amendment dated November 5, 1996 with respect to (1) the Credit Agreement dated
as of June 26, 1996 among National Propane, L.P., The First National Bank of Boston, as
administrative agent and as a lender, Bank of America NT & SA, as a lender, and BA Securities, Inc.,
as syndication agent and (2) the Note Purchase Agreement, dated as of June 26, 1996, among National
Propane, L.P. and each of the Purchasers listed in Schedule A thereto relating to $125 million
aggregate principal amount of 8.54% First Mortgage Notes due June 30, 2010.
10.16(6) -- Second consent, waiver and amendment dated January 14, 1997 with respect to (1) the Credit Agreement
dated as of June 26, 1996 among National Propane, L.P., The First National Bank of Boston, as
administrative agent and a lender, Bank of America NT & SA, as a lender, and BA Securities, Inc., as
syndication agent and (2) the Note Purchase Agreement, dated as of June 26, 1996, among National
Propane, L.P. and each of the Purchasers listed in Schedule A thereto relating to $125 million
aggregate principal amount of 8.54% First Mortgage Notes due June 30, 2010.
10.17(6) -- First Amendment dated as of March 27, 1997 to the Credit Agreement dated as of June 26, 1996 among
National Propane, L.P., The First National Bank of Boston, as administrative agent and a lender, Bank
of America NT & SA, as a lender, and BA Securities, Inc. as syndication agent.
10.18(7) -- Employment Agreement, dated as of June 17, 1997, between National Propane Corporation and Martin A.
Woods.
10.19(7) -- Amendment to Employment Agreement between National Propane Corporation and Ronald R. Rominiecki,
dated as of March 11, 1997.
10.20(9) -- Employment Agreement, dated as of December 10, 1997, between National Propane Corporation and R.
Brooks Sherman.
10.21(9) -- Amendment No. 1 dated December 28, 1997 to the Amended and Restated Agreement of Limited Partnership
of National Propane Partners, L.P., dated as of July 2, 1996.
10.22(9) -- Amendment No. 2 dated December 28, 1997 to the Amended and Restated Agreement of Limited Partnership
of National Propane, L.P., dated as of July 2, 1996.
10.23 -- Second Amendment dated as of April 22, 1997 to the National Propane Credit Agreement among National
Propane, L.P., the Lenders (as defined therein), The First National Bank of Boston, as Administrative
Agent and a Lender, Bank of America NT&SA, as a Lender, and BA Securities, Inc. as Syndication Agent,
incorporated herein by reference to Exhibit 10.1 to National Propane Partners, L.P.'s Current Report
on Form 8-K dated May 15, 1997.
10.24(8) -- Third Amendment dated as of March 23, 1998 to the National Propane Credit Agreement among National
Propane, L.P., the Lenders (as defined therein), BankBoston, N.A., as Administrative Agent and a
Lender, and BancAmerica Robertson Stephens, as Syndication Agent.
10.25(8) -- Agreement dated as of March 23, 1998 among National Propane Corporation, National Propane Partners,
L.P., Triarc Companies, Inc., the Lenders (as defined therein), BankBoston, N.A., as Administrative
Agent and a Lender, and BancAmerica Robertson Stephens, as Syndication Agent.
10.26(9) -- Amendment to Employment Agreement between National Propane Corporation and Ronald R. Rominiecki,
dated as of March 19, 1998.
10.27(9) -- Fourth Amendment dated as of March 30, 1998 to the National Propane Credit Agreement among National
Propane, L.P., the Lenders (as defined therein), BankBoston, N.A., as Administrative Agent and a
Lender, and BancAmerica Robertson Stephens, as Syndication Agent.
10.28(10) -- Amendment No. 1 to Note Agreement and Limited Consent, dated as of June 30, 1998, among National
Propane Corporation, National Propane SGP, Inc., National Propane, L.P. and the holders of the
Company's 8.54% First Mortgage Notes.
10.29(10) -- Amendment No. 1 to 8.54% First Mortgage Notes, dated June 30, 1998 among National Propane, L.P. and
the holders of the Company's 8.54% First Mortgage Notes.
10.30(10) -- Fifth Amendment to National Propane Credit Agreement, dated June 30, 1998, among National Propane,
L.P., the lenders (as defined therein), and BankBoston, N.A., as Administrative Agent and a lender.
10.31(10) -- Allonge Amendment dated as of June 30, 1998 attached to 13.5% Senior Secured Note, dated July 2,
1996, issued by Triarc Companies, Inc., payable to the order of National Propane, L.P.
</TABLE>
62
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------------------------------------------------------------------------------------------------
<C> <C> <S>
10.32(11) -- Letter Agreement, dated as of June 6, 1996, between Ronald D. Paliughi and National Propane
Corporation.
10.33(11) -- Corporate Services Agreement dated as of July 2, 1996, between National Sales & Service, Inc. and
National Propane Corporation.
10.34(11) -- Letter Agreement dated as of February 20, 1999, among National Propane, L.P., the Lenders (as defined
therein) and BankBoston, N.A., as Administrative Agent and a Lender.
10.35(11) -- Amendment No. 2 to Note Agreements, dated as of April 5, 1999, among National Propane Corporation,
National Propane SGP, Inc., National Propane, L.P. and the holders of the Company's 8.54% First
Mortgage Notes due 2010.
10.36(11) -- Purchase Agreement dated as of April 5, 1999, by and among Columbia Propane, L.P., CP Holdings, Inc.,
Columbia Propane Corporation, National Propane Partners, L.P., National Propane Corporation, National
Propane SGP, Inc. and Triarc Companies, Inc.
10.37(11) -- Payment Guaranty dated April 5, 1999, of Columbia Energy Group in favor of National Propane
Corporation.
10.38(11) -- Letter Agreement dated as of March 15, 1999 between Ronald R. Rominiecki and National Propane
Corporation.
10.39(11) -- Letter Agreement dated as of March 15, 1999 between R. Brooks Sherman and National Propane
Corporation.
10.40(11) -- Letter Agreement dated as of March 15, 1999 between C. David Watson and National Propane Corporation.
10.41(11) -- Indemnification Agreement, made effective as of April 24, 1993, between National Propane Corporation
and Nelson Peltz.
10.42(11) -- Indemnification Agreement, made effective as of April 24, 1993, between National Propane Corporation
and Peter W. May.
10.43(11) -- Indemnification Agreement, made effective as of September 25, 1996, between National Propane
Corporation and Frederick W. McCarthy.
10.44(11) -- Indemnification Agreement, made effective as of September 25, 1996, between National Propane
Corporation and Willis G. Ryckman.
10.45(11) -- Indemnification Agreement, made effective as of April 24, 1993 between National Propane Corporation
and Ronald D. Paliughi.
*21.1 -- List of Subsidiaries
*24.1 -- Powers of Attorney (included on signature page)
*27.1 -- Financial Data Schedule for the year ended December 31, 1998, submitted to the Securities and
Exchange Commission in electronic format.
</TABLE>
- ------------
* Filed herewith
(1) Filed with the Partnership's Current Report on Form 8-K dated August 16,
1996 and incorporated herein by reference.
(2) Filed with the Partnership's Registration Statement of Form S-1 filed March
26, 1996 (Registration No. 333-2768) and incorporated herein by reference.
(3) Filed with the Partnership's Current Report on Form 8-K dated November 14,
1996 and incorporated herein by reference.
(4) Filed with the Partnership's Registration Statement on Form S-1 filed
January 10, 1997 (Registration No. 333-19599) and incorporated herein by
reference.
(5) Filed with the Partnership's Current Report on Form 8-K dated January 29,
1997 and incorporated herein by reference.
(6) Filed with the Partnership's Current Report on Form 8-K dated March 31,
1997 and incorporated herein by reference.
(7) Filed with the Partnership's Current Report on Form 8-K dated June 13, 1997
and incorporated herein by reference.
(footnotes continued on next page)
63
<PAGE>
<PAGE>
(footnotes continued from previous page)
(8) Filed with the Partnership's Current Report on Form 8-K dated March 25,
1998 and incorporated herein by reference.
(9) Filed with the Partnership's Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference.
(10) Filed with the Partnership's Report on Form 10-Q for the quarterly period
ended June 30, 1998 and incorporated herein by reference.
(11) Filed with the Partnership's Current Report on Form 8-K dated April 14,
1999 and incorporated herein by reference.
(B) 1. Reports on Form 8-K:
During the period from October 1, 1998 to December 31, 1998, the Registrant
did not file any reports on Form 8-K.
64
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ RONALD R. ROMINIECKI
...
PRESIDENT AND CHIEF OPERATING
OFFICER
Dated: April 15, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below on April 15, 1999 by the following persons
on behalf of the Registrant in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLES
- ------------------------------------------ ------------------------------------------------------
<C> <S>
/s/ RONALD R. ROMINIECKI President and Chief Operating Officer
.........................................
(RONALD R. ROMINIECKI)
/s/ R. BROOKS SHERMAN, JR. Vice President and Chief Financial Officer (Principal
......................................... Financial Officer)
(R. BROOKS SHERMAN, JR.)
/s/ STEVEN T. SCHURING Controller (Principal Accounting Officer)
.........................................
(STEVEN T. SCHURING)
/s/ NELSON PELTZ Director
.........................................
(NELSON PELTZ)
/s/ PETER W. MAY Director
.........................................
(PETER W. MAY)
/s/ FREDERICK W. MCCARTHY Director
.........................................
(FREDERICK W. MCCARTHY)
/s/ WILLIS G. RYCKMAN III Director
.........................................
(WILLIS G. RYCKMAN III)
/s/ RONALD D. PALIUGHI Director
.........................................
(RONALD D. PALIUGHI)
</TABLE>
65
<PAGE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE PARTNERSHIP
<TABLE>
<CAPTION>
STATE OF
SUBSIDIARY ORGANIZATION
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
National Propane, L.P.......................................................................... Delaware
National Sales & Service, Inc.................................................................. Delaware
Carib Gas Corporation of St. Croix............................................................. Delaware
Carib Gas Corporation of St. Thomas............................................................ Delaware
</TABLE>
60
<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 December 31, 1998 and the condensed consolidated Statement of
Operations for the period January 1, 1998 through December 31, 1998
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,448
<SECURITIES> 0
<RECEIVABLES> 14,455
<ALLOWANCES> 0
<INVENTORY> 7,879
<CURRENT-ASSETS> 28,892
<PP&E> 174,170
<DEPRECIATION> 96,517
<TOTAL-ASSETS> 161,037
<CURRENT-LIABILITIES> 161,534
<BONDS> 177
<COMMON> 0
0
0
<OTHER-SE> (3,018)
<TOTAL-LIABILITY-AND-EQUITY> 161,037
<SALES> 133,982
<TOTAL-REVENUES> 133,982
<CGS> 101,581
<TOTAL-COSTS> 101,581
<OTHER-EXPENSES> 26,222
<LOSS-PROVISION> 849
<INTEREST-EXPENSE> 13,771
<INCOME-PRETAX> (1,280)
<INCOME-TAX> 298
<INCOME-CONTINUING> (1,578)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,578)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
<FN>
Allowances - Receivables are shown net of an allowance of $772.
Total receivable balance is $15,217.
</FN>
</TABLE>
