<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ to __________
COMMISSION FILE NUMBER 1-11727
HERITAGE PROPANE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 73-1493906
(state or other jurisdiction or (I.R.S. Employer
incorporation or organization) Identification No.)
8801 SOUTH YALE AVENUE, SUITE 310
TULSA, OKLAHOMA 74137
(Address of principal
executive offices
and zip code)
(918) 492-7272
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
At April 2, 1999, the registrant had units outstanding as follows:
Heritage Propane Partners, L.P. 4,876,725 Common Units
3,702,943 Subordinated Units
<PAGE> 2
FORM 10-Q
HERITAGE PROPANE PARTNERS, L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Pages
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<S> <C> <C>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
Consolidated Balance Sheets as of February 28, 1999 and August 31, 1998 1
Consolidated Statements of Operations for the three months and six months ended
February 28, 1999 and 1998 2
Consolidated Statement of Partners' Capital for the six months ended
February 28, 1999 3
Consolidated Statements of Cash Flows for the six months ended
February 28, 1999 and 1998 4
Notes to Unaudited Consolidated Financial Statements 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 6
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 12
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURE
</TABLE>
i
<PAGE> 3
PART I - FINANCIAL INFORMATION
HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
February 28, August 31,
ASSETS 1999 1998
------ ---------- ----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,622 $ 1,837
Accounts receivable, net of allowance for doubtful accounts 20,120 10,444
Inventories 8,822 12,545
Prepaid expenses 1,500 1,359
---------- ----------
Total current assets 33,064 26,185
PROPERTY, PLANT AND EQUIPMENT, net 145,507 139,490
INVESTMENT IN AFFILIATES 5,292 4,739
INTANGIBLES AND OTHER ASSETS, net 68,971 69,550
---------- ----------
Total assets $ 252,834 $ 239,964
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Working capital facility $ 10,300 $ 10,600
Accounts payable 14,875 13,952
Accrued and other current liabilities 8,049 9,689
Current maturities of long-term debt 1,115 1,203
---------- ----------
Total current liabilities 34,339 35,444
LONG-TERM DEBT, less current maturities 184,383 177,431
---------- ----------
Total liabilities 218,722 212,875
---------- ----------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL PER ACCOMPANYING
STATEMENTS:
Common unitholders 24,727 20,775
Subordinated unitholders 9,042 6,041
General partner 343 273
---------- ----------
Total partners' capital 34,112 27,089
---------- ----------
Total liabilities and partners' capital $ 252,834 $ 239,964
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 4
HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit and unit data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28, February 28,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Retail $ 54,902 $ 56,776 $ 84,243 $ 87,815
Wholesale 7,767 9,704 13,522 19,100
Other 5,829 5,176 12,291 10,647
------------ ------------ ------------ ------------
Total revenues 68,498 71,656 110,056 117,562
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of products sold 31,738 36,761 51,669 63,585
Operating expenses 13,358 12,481 25,536 23,233
Depreciation and amortization 3,647 3,198 7,192 6,254
Selling, general and administrative 1,685 1,284 3,026 2,559
------------ ------------ ------------ ------------
Total costs and expenses 50,428 53,724 87,423 95,631
------------ ------------ ------------ ------------
OPERATING INCOME 18,070 17,932 22,633 21,931
OTHER INCOME (EXPENSE):
Interest expense (3,963) (3,708) (7,859) (7,205)
Equity in earnings of affiliates 643 493 821 552
Gain on disposal of assets 13 320 515 391
Other (70) (98) (101) (116)
------------ ------------ ------------ ------------
INCOME BEFORE MINORITY INTEREST 14,693 14,939 16,009 15,553
Minority interest (289) (312) (390) (432)
------------ ------------ ------------ ------------
NET INCOME 14,404 14,627 15,619 15,121
GENERAL PARTNER'S INTEREST IN NET INCOME 144 146 156 151
------------ ------------ ------------ ------------
LIMITED PARTNERS' INTEREST IN NET INCOME $ 14,260 $ 14,481 $ 15,463 $ 14,970
============ ============ ============ ============
BASIC NET INCOME PER LIMITED PARTNER UNIT $ 1.66 $ 1.74 $ 1.80 $ 1.82
============ ============ ============ ============
BASIC WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING 8,579,668 8,335,055 8,579,668 8,228,289
============ ============ ============ ============
DILUTED NET INCOME PER LIMITED
PARTNER UNIT $ 1.65 $ 1.73 $ 1.79 $ 1.81
============ ============ ============ ============
DILUTED WEIGHTED AVERAGE NUMBER OF UNITS
OUTSTANDING 8,634,168 8,365,255 8,634,168 8,258,489
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE> 5
HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(in thousands, except unit data)
(unaudited)
<TABLE>
<CAPTION>
Total
NUMBER OF UNITS Common Subordinated General Partners'
Common Subordinated Unitholders Unitholders Partner Capital
--------- ------------ ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, AUGUST 31, 1998 4,876,725 3,702,943 $ 20,775 $ 6,041 $ 273 $ 27,089
Unit distribution -- -- (4,937) (3,749) (88) (8,774)
Other -- -- 100 76 2 178
Net income -- -- 8,789 6,674 156 15,619
--------- --------- --------- --------- --------- ---------
BALANCE, FEBRUARY 28, 1999 4,876,725 3,702,943 $ 24,727 $ 9,042 $ 343 $ 34,112
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 6
HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended February 28,
----------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,619 $ 15,121
Reconciliation of net income to net cash provided by
operating activities-
Depreciation and amortization 7,192 6,254
Provision for losses on accounts receivable 92 257
Gain on disposal of assets (515) (391)
Deferred compensation on restricted units 178 103
Undistributed earnings of affiliates (553) (582)
Minority interest (52) 1
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable (9,641) (10,761)
Inventories 3,975 6,276
Prepaid expenses (129) 195
Intangibles and other assets 690 81
Accounts payable 846 556
Accrued and other current liabilities (1,621) (76)
-------- --------
Net cash provided by operating activities 16,081 17,034
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash acquired (5,914) (16,934)
Capital expenditures (6,894) (5,203)
Proceeds from asset sales 1,521 5,144
-------- --------
Net cash used in investing activities (11,287) (16,993)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 35,449 92,372
Principal payments on debt (30,684) (83,476)
Unit distribution (8,774) (8,252)
Capital contribution from General Partner -- 88
-------- --------
Net cash provided by (used in) financing activities (4,009) 732
-------- --------
INCREASE IN CASH 785 773
CASH, beginning of period 1,837 2,025
-------- --------
CASH, end of period $ 2,622 $ 2,798
======== ========
NONCASH FINANCING ACTIVITIES:
Notes payable incurred on noncompete agreements $ 1,799 $ 4,380
Issuance of restricted common units in connection with certain
acquisitions $ -- $ 8,645
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 7,838 $ 6,354
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 7
HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except unit data)
1. GENERAL:
The accompanying unaudited consolidated financial statements have been prepared
by Heritage Propane Partners, L.P. (the Partnership) and include the accounts of
the Partnership and its subsidiaries, including Heritage Operating Partnership,
and a majority owned partnership. The Partnership accounts for its 50 percent
partnership interest in another propane retailer under the equity method. All
significant intercompany transactions and accounts have been eliminated in
consolidation. The General Partner's 1.0101 percent interest in the Operating
Partnership is accounted for in the consolidated financial statements as a
minority interest. The accompanying financial statements should be read in
conjunction with the Partnership's consolidated financial statements as of
August 31, 1998, and the notes thereto included in the Partnership's
consolidated financial statements included in Form 10-K as filed with the
Securities and Exchange Commission on November 24, 1998. The accompanying
financial statements include only normal recurring accruals and all adjustments
that the Partnership considers necessary for a fair presentation. Due to the
seasonal nature of the Partnership's business, the results of operations for
interim periods are not necessarily indicative of the results to be expected for
a full year.
2. DETAILS TO CONSOLIDATED BALANCE SHEETS:
Inventories are valued at the lower of cost or market. The cost of fuel
inventories is determined using average cost while the cost of appliances, parts
and fittings is determined by the first-in, first-out method. Inventories
consist of the following:
<TABLE>
<CAPTION>
February 28, August 31,
1999 1998
---------- ----------
<S> <C> <C>
Fuel $ 3,896 $ 7,939
Appliances, parts and fittings 4,926 4,606
---------- ----------
$ 8,822 $ 12,545
========== ==========
</TABLE>
3. NET INCOME PER LIMITED PARTNER UNIT:
Basic net income per limited partner unit is computed by dividing net income,
after considering the General Partner's one percent interest, by the weighted
average number of Common and Subordinated Units outstanding. Diluted net income
per limited partner unit is computed by dividing net income, after considering
the General Partner's one percent interest, by the weighted average number of
Common and Subordinated Units outstanding and the weighted average number of
Restricted Units ("Phantom Units") granted under the Restricted Unit Plan. A
reconciliation of net income and weighted average units used in computing basic
and diluted earnings per unit is as follows:
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended February 28, Ended February 28,
------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BASIC NET INCOME PER LIMITED PARTNER UNIT:
Basic limited partner's interest in net income $ 14,260 $ 14,481 $ 15,463 $ 14,970
========== ========== ========== ==========
Weighted average limited partner units 8,579,668 8,335,055 8,579,668 8,228,289
========== ========== ========== ==========
Basic net income per limited partner unit $ 1.66 $ 1.74 $ 1.80 $ 1.82
========== ========== ========== ==========
DILUTED NET INCOME PER LIMITED PARTNER UNIT:
Limited partner's interest in net income $ 14,260 $ 14,481 $ 15,463 $ 14,970
========== ========== ========== ==========
Weighted average limited partner units 8,579,668 8,335,055 8,579,668 8,228,289
Dilutive effect of Phantom Units 54,500 30,200 54,500 30,200
---------- ---------- ---------- ----------
Weighted average limited partner units, assuming
dilutive effect of Phantom Units 8,634,168 8,365,255 8,634,168 8,258,489
---------- ---------- ---------- ----------
Dilutive net income per limited partner unit $ 1.65 $ 1.73 $ 1.79 $ 1.81
========== ========== ========== ==========
</TABLE>
5
<PAGE> 8
CASH DISTRIBUTIONS:
The Minimum Quarterly Distribution (MQD) of $4,290, or $.50 per Common and
Subordinated Unit, was paid on October 15, 1998, to Unitholders of record on
October 5, 1998, and $87 was distributed to the General Partner for its
cumulative two percent interest. On January 14, 1999 a quarterly distribution of
$4,397, or $.5125 per Common and Subordinated Unit, was paid to Unitholders of
record on January 4, 1999, and $90 was distributed to the General Partner for
its cumulative two percent interest. On March 26, 1999, the Partnership declared
a $.5625 per unit distribution ($2.25 annually) payable on April 14, 1999 to
Unitholders of record at the close of business on April 5, 1999. This $.5625
quarterly distribution represents a 9.8% increase over the first quarter's
distribution, is the second increase in the quarterly distribution this fiscal
year and will include incentive distributions payable to the General Partner.
The decision to increase the amount of the distribution resulted from a review
of the Board of Directors of Heritage's past financial performance and current
projections for available cash.
4. FOOTNOTES INCORPORATED BY REFERENCE:
Certain footnotes are applicable to the consolidated financial statements but
would be substantially unchanged from those presented on Form 10-K filed with
the Securities and Exchange Commission on November 24, 1998. Accordingly,
reference should be made to the Company's Annual Report filed with the
Securities and Exchange Commission on Form 10-K for the following:
<TABLE>
<CAPTION>
NOTE DESCRIPTION
---- -----------
<S> <C>
1 OPERATIONS AND ORGANIZATION
2 SIGNIFICANT ACCOUNTING POLICIES AND BALANCE SHEET DETAIL
4 WORKING CAPITAL FACILITIES AND LONG-TERM DEBT
5 COMMITMENTS AND CONTINGENCIES
6 PARTNERS' CAPITAL
7 REGISTRATION STATEMENT
8 PROFIT SHARING AND 401(k) SAVINGS PLAN
9 RELATED PARTY TRANSACTIONS
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Since its formation in 1989, Heritage has grown primarily through
acquisitions of retail propane operations and, to a lesser extent, through
internal growth. Through February 28, 1999, Heritage and the Partnership
completed 49 acquisitions for an aggregate purchase price of approximately $209
million. The Partnership has completed 20 of these acquisitions since going
public on June 25, 1996. The Partnership engages in the sale, distribution and
marketing of propane and other related products. The Partnership derives its
revenue primarily from the retail propane marketing business. The General
Partner believes that the Partnership is the sixth largest retail marketer of
propane in the United States, based on retail gallons sold, serving more than
240,000 residential, industrial/commercial and agricultural customers in 26
states through 146 retail outlets.
The retail propane business of the Partnership consists principally of
transporting propane purchased in the contract and spot markets, primarily from
major oil companies, to its retail distribution outlets and then to tanks
located on the customers' premises, as well as to portable propane cylinders. In
the residential and commercial markets, propane is primarily used for space
heating, water heating and cooking. In the agricultural market, propane is
primarily used for crop drying, tobacco curing, poultry brooding and weed
control. In addition, propane is used for certain industrial applications,
including use as an engine fuel that burns in internal combustion engines that
power vehicles and forklifts and as a heating source in manufacturing and mining
processes.
The retail propane distribution business is largely seasonal due to
propane's use as a heating source in residential and commercial buildings.
Historically, approximately two-thirds of the Partnership's retail propane
volume and in excess of 80% of the Partnership's EBITDA is attributable to sales
during the six-month peak heating season of October through March. Consequently,
sales and operating profits are concentrated in the Partnership's first and
second fiscal quarters. Cash Flow from operations, however, is greatest during
the second and third fiscal quarters when customers pay for propane purchased
during the six-month peak-heating season.
6
<PAGE> 9
A substantial portion of the Partnership's propane is used in the
heating-sensitive residential and commercial markets causing the temperatures
realized in the Partnership's areas of operations, particularly during the
six-month peak heating season, to have a significant effect on the financial
performance of the Partnership. In any given area, sustained warmer-than-normal
temperatures will tend to result in reduced propane use, while sustained
colder-than-normal temperatures will tend to result in greater propane use. The
Partnership therefore uses information on normal temperatures in understanding
how temperatures that are colder or warmer than normal affect historical results
of operations and in preparing forecasts of future operations, which assumes
that normal weather will prevail in each of the Partnership's regions.
The retail propane business is a "margin-based" business in which gross
profits depend on the excess of sales price over propane supply costs. The
market price of propane is often subject to volatile changes as a result of
supply or other market conditions over which the Partnership will have no
control. Product supply contracts are one-year agreements subject to annual
renewal and generally permit suppliers to charge posted prices (plus
transportation costs) at the time of delivery or the current prices established
at major delivery points. Since rapid increases in the wholesale cost of propane
may not be immediately passed on to retail customers, such increases could
reduce the Partnership's gross profits. In the past, the Partnership generally
attempted to reduce price risk by purchasing propane on a short-term basis. The
Partnership has on occasion purchased significant volumes of propane during
periods of low demand, which generally occur during the summer months, at the
then current market price, for storage both at its service centers and in major
storage facilities for future resale.
Gross profit margins vary according to customer mix. For example, sales
to residential customers generate higher margins than sales to certain other
customer groups, such as agricultural customers. Wholesale margins are
substantially lower than retail margins. In addition, gross profit margins vary
by geographical region. Accordingly, a change in customer or geographic mix can
affect gross profit without necessarily affecting total revenues.
ANALYSIS OF UNAUDITED HISTORICAL RESULTS OF OPERATIONS
The following discussion reflects for the periods indicated the results
of operations and operating data for the Partnership. Most of the increases in
the line items discussed below result from the acquisitions made by the
Partnership subsequent to the prior period discussed. These acquisitions affect
the comparability of prior period financial matters, as the volumes are not
included in the prior period's results of operations. Amounts discussed below
reflect 100% of the results of M-P Energy Partnership, a general partnership in
which the Partnership owns a 60% interest. Because M-P Energy Partnership is
primarily engaged in lower-margin wholesale distribution, its contribution to
the Partnership's net income and EBITDA is not significant.
THREE MONTHS ENDED FEBRUARY 28, 1999 COMPARED TO THE THREE MONTHS ENDED
FEBRUARY 28, 1998.
Volume. The Partnership sold 62.7 million retail gallons in the three
months ended February 28, 1999, an increase of 4.8 million gallons or 8.3% over
the 57.9 million gallons sold in the three months ended February 28, 1998. This
increase was primarily attributable to acquisition related volumes offset by the
negative effects of warmer than normal weather.
The Partnership also sold approximately 25.4 million wholesale gallons
in the second quarter, a decrease of 1.5 million gallons or 5.6% from the 26.9
million wholesale gallons sold in the second quarter of fiscal 1998. The
decrease in wholesale volumes was attributable to a decline of .5 million
gallons in the foreign operations of M-P Energy Partnership and a decline of 1.0
million gallons in U.S. wholesale operations, both primarily due to warmer than
normal weather.
Revenues. Total revenues for the Partnership decreased $3.2 million or
4.5% to $68.5 million for the three months ended February 28, 1999 as compared
to $71.7 million for the same three-month period last year. For the three months
ended February 28, 1999, domestic retail propane revenues decreased $1.9 million
or 3.3% to $54.9 million and U.S. wholesale revenues decreased $.7 million to
$1.5 million as a result of the decline in the related volumes and lower selling
prices. Other domestic revenues increased $.6 million or 11.5% to $5.8 million
as a result of acquisitions and to a lesser degree internal growth. Foreign
revenues decreased $1.2 million for the three months ended February 28, 1999, to
$6.3 million as compared to $7.5 million for the three months ended February 28,
1998, primarily as a result of lower selling prices. A significant part of the
decrease in overall revenues is attributed to the Partnership lowering the
selling prices to customers as a result of favorable product costs.
7
<PAGE> 10
Cost of Sales. Total cost of sales decreased $5.0 million or 13.6% to
$31.8 million for the three months ended February 28, 1999, as compared to $36.8
million for the three months ended February 28, 1998. U.S. cost of sales
decreased $3.5 million or 11.8% to $26.2 million in the second quarter of fiscal
1999, compared to $29.7 million in the second quarter of fiscal 1998. Foreign
cost of sales decreased $1.5 million or 21.1% to $5.6 million in this second
quarter as compared to last year's second quarter results of $7.1 million.
Product costs have remained soft during the second quarter of fiscal 1999 due to
reduced demand from an unseasonably warm heating season and high levels of
inventory in the market.
Gross Profit. Total gross profit increased $1.8 million or 5.2% to
$36.7 million for the three months ended February 28, 1999, as compared to $34.9
million for the three months ended February 28, 1998 due to acquisition related
sales. First quarter increased margins were negatively affected somewhat during
the second quarter due to market pressures as all marketers struggled to find
new volumes during the weather shortfall.
Operating Expenses. Operating expense increased $.8 million or 6.4% to
$13.3 million in the second quarter of fiscal 1999 as compared to $12.5 million
in the second quarter of fiscal 1998 primarily due to acquisition related
operating expenses.
Selling, General and Administrative. Selling, general and
administrative expenses were $1.7 million for the three months ended February
28, 1999, an increase of $.4 million from the $1.3 million reported the same
three month period last year.
Depreciation and Amortization. Depreciation and amortization increased
approximately $.5 million or 15.6% to $3.7 million for the three months ended
February 28, 1999, as compared to $3.2 million for the three months ended
February 28, 1998. This increase was the result of additional depreciation and
amortization associated with the increase in property, plant, and equipment
along with intangible assets from the acquisitions the Partnership has made
subsequent to February 28, 1998.
Operating Income. Operating income for the three months ended February
28, 1999, increased $.1 million to $18.0 million as compared to $17.9 million
for the same three month period last fiscal year. Increased gross profit and
cost containment offset by the acquisition related increases in operating
expenses and depreciation and amortization has enabled the Partnership to attain
operating income comparable to last year during this three month period despite
adverse weather conditions.
Net Income. Second quarter net income decreased $.2 million to $14.4
million as compared to fiscal 1998's second quarter net income of $14.6 million.
This decrease is the result of comparable operating income for the second
quarter periods, offset by an increase in interest expense due to acquisition
related debt.
EBITDA. Earnings before interest, taxes, depreciation and amortization
increased $.8 million or 3.7 % to $22.4 million for the second quarter ended
February 28, 1999, as compared to $21.6 million for the second quarter of fiscal
1998. 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), but provides
additional information for evaluating the Partnership's ability to make the
Minimum Quarterly Distribution.
SIX MONTHS ENDED FEBRUARY 28, 1999 COMPARED TO THE SIX MONTHS ENDED
FEBRUARY 28, 1998.
Volume. The Partnership sold 98.4 million retail gallons in the six
months ended February 28, 1999, an increase of 7.7 million gallons or 8.5% over
the 90.7 million gallons sold in the six months ended February 28, 1998. This
increase was primarily attributable to acquisition related volumes.
The Partnership also sold approximately 45.7 million wholesale gallons
in the six months ended February 28, 1999, a decrease of 4.0 million gallons or
8.0% from the 49.7 million wholesale gallons sold in the same period of fiscal
1998. The decrease in wholesale volumes was attributable to a decline of 1.9
million gallons in the foreign operations of M-P Energy Partnership and a
decline of 2.1 million gallons in U.S. wholesale operations, both primarily due
to weather factors mentioned herein.
Revenues. Total revenues for the Partnership decreased $7.6 million or
6.5% to $110.0 million for the six months ended February 28, 1999 as compared to
$117.6 million for the same six-month period last year. For the six months ended
February 28, 1999, domestic retail propane revenues decreased $3.6 million or
4.1% to $84.2 million. U.S. wholesale revenues decreased $1.3 million to $2.2
million and foreign revenues decreased $4.2 million to $11.4 million for the six
months ended February 28, 1999. The U.S. and foreign wholesale revenue decreases
were primarily a result of lower selling prices and decreased volumes. Other
domestic revenues increased $1.5 million or
8
<PAGE> 11
14.0% to $12.2 million as a result of acquisitions and to a lesser degree
internal growth. A significant part of the decrease in overall revenues is that
the Partnership reacted to the reduced demand for propane, market pressure and
favorable product costs by lowering the selling prices to customers.
Cost of Sales. Total cost of sales decreased $11.9 million or 18.7% to
$51.7 million for the six months ended February 28, 1999, as compared to $63.6
million for the six months ended February 28, 1998. U.S. cost of sales decreased
$7.6 million or 15.6% to $41.2 million in the six months ended February 28, 1999
compared to $48.8 million in the six-month period of fiscal 1998. Foreign cost
of sales decreased $4.3 million or 29.1% to $10.5 million in this six-month
period as compared to last year's six-month results of $14.8 million. Product
costs have been soft during fiscal 1999 due to reduced demand from an
unseasonably warm heating season and high levels of inventory in the market.
Gross Profit. Total gross profit increased $4.3 million or 8.0% to
$58.3 million for the six months ended February 28, 1999, as compared to $54.0
million for the six months ended February 28, 1998. Strong first quarter margins
coupled with acquisition related volumes offset the negative affect to the
margins during the second quarter as management kept pace with market pressure
and looked for new volumes.
Operating Expenses. Operating expenses increased by $2.3 million or
9.9% to $25.5 million in the six months ended February 28, 1999 as compared to
$23.2 million in the six months ended February 28, 1998. Management has
continued its efforts for cost containment during this period of warm weather
and the resulting increase in operating expenses was primarily due to
acquisition related operating expenses.
Selling, General and Administrative. Selling, general and
administrative expenses were $3.0 million for the six months ended February 28,
1999, an increase of $.4 million or 15.4% from the $2.6 million reported the
same six month period last year.
Depreciation and Amortization. Depreciation and amortization increased
approximately $.9 million or 14.3% to $7.2 million for the six months ended
February 28, 1999, as compared to $6.3 million for the six months ended February
28, 1998. This increase was the primarily the result of additional depreciation
and amortization associated with the increase in property, plant, and equipment
along with intangible assets from the acquisitions the Partnership has made
subsequent to February 28, 1998.
Operating Income. Operating income for the six months ended February
28, 1999, increased $.7 million to $22.6 million or 3.2% as compared to $21.9
million for the same six month period last fiscal year. Increased gross profit
and continued efforts for cost containment, partially offset by acquisition
related increases in operating expenses and depreciation and amortization, has
enabled the Partnership to attain operating income above last year's during this
six month period despite an unseasonably warm heating season.
Net Income. Year to date net income increased $.5 million or 3.3% to
$15.6 million as compared to fiscal 1998's year to date net income of $15.1
million. This increase is the result of higher operating income for the current
six month period, offset by an increase in interest expense due to acquisition
related debt.
EBITDA. Earnings before interest, taxes, depreciation and amortization
increased $2.1 million or 7.3% to $30.8 million for the six months ended
February 28, 1999, as compared to $28.7 million for the six months ended
February 28, 1998. EBITDA is defined as operating income plus depreciation and
amortization (including the EBITDA of investees). 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), but provides additional information for
evaluating the Partnership's ability to make the Minimum Quarterly Distribution.
LIQUIDITY AND CAPITAL RESOURCES
The ability of the Partnership to satisfy its obligations will depend
on its future performance, which will be subject to prevailing economic,
financial, business and weather conditions and other factors, many of which are
beyond its control. Future capital needs of the Partnership are expected to be
provided by various sources as follows:
a) increases in working capital will be financed on the working capital line
of credit and repaid from subsequent seasonal reductions in inventory and
accounts receivable
b) payment of interest costs, and other debt services, will be provided by the
annual cash flow from operations
9
<PAGE> 12
c) required maintenance capital, predominantly vehicle replacement, will also
be provided by the annual cash flow from operations
d) growth capital, mainly for customer tanks, expended will be financed by the
revolving acquisition bank line of credit
e) acquisition capital expenditures will be financed with additional
indebtedness on the revolving acquisition bank line of credit, other lines
of credit, issues of additional Common Units or a combination thereof.
CASH FLOWS
Operating Activities. Cash provided by operating activities during the six
months ended February 28, 1999, was $16.1 million compared to $17.0 million
during the six months ended February 28, 1998. The cash flows from operations
during the six months ended February 28, 1999, consisted primarily of net income
of $15.6 million and non-cash activity of $6.4 million, principally depreciation
and amortization, offset by a non-recurring gain from the sale of certain idle
property. The impact of working capital changes decreased operating cash flow by
approximately $5.9 million.
Investing Activities. Cash used in investing activities during the six
months ended February 28, 1999 included capital expenditures for acquisitions
amounting to $5.9 million, net of cash acquired plus $6.9 million spent for
maintenance needed to sustain operations at current levels, as well as customer
tanks to support growth of operations and other miscellaneous capitalized items.
These investing activities were offset by proceeds from asset sales of $1.5
million, which was principally from the non-recurring sale of certain idle
property. The proceeds from asset sales were used to purchase property in
certain areas of the Partnership's operations that were previously under lease
arrangements plus fund other maintenance and growth capital expenditures
incurred.
Financing Activities. Cash used by financing activities during the six
months ended February 28, 1999 of $4.0 million is the combination of the net
reduction of $.3 million of working capital, $5.1 million of net additional debt
incurred to fund acquisitions and the payment of quarterly distributions to
unitholders of $8.8 million.
FINANCING AND SOURCES OF LIQUIDITY
The Partnership has a Bank Credit Facility, which includes a Working
Capital Facility, a revolving credit facility providing for up to $20 million of
borrowings to be used for working capital and other general partnership
purposes, and an Acquisition Facility, a revolving credit facility providing for
up to $30 million of borrowings to be used for acquisitions and improvements. As
of February 28, 1999 the Acquisition Facility had $22.9 million available to
fund future acquisitions and the Working Capital Facility had $9.7 million
available for borrowings.
The Partnership also has a Medium Term Note Program that provides for
the issuance of up to $100 million of senior secured promissory notes if certain
conditions are met. As of February 28, 1999 the Partnership had issued $47
million of these notes. The Partnership has a registration statement filed on
Form S-4 registering 2,000,000 additional Common Units which may be issued from
time to time by the Partnership by means of a prospectus delivered in connection
with its negotiations for acquisitions or other businesses, properties or
securities in business combination transactions. As of the date of the filing of
this Form 10-Q, 60,606 units have been issued utilizing this Registration
Statement No. 333-40407 on Form S-4 in connection with a prior acquisition.
The Partnership uses its cash provided by operating and financing
activities to provide distributions to unitholders and to fund acquisitions,
maintenance and growth capital expenditures. Acquisition capital expenditures,
which include expenditures related to the acquisition of retail propane
operations and intangibles associated with such acquired businesses, were $5.9
million for the six months ended February 28, 1999 compared to $16.9 million for
the six months ended February 28, 1998.
The Partnership has increased its distribution to Unitholders two times
during the current fiscal year to a current annual level of $2.25 per unit. On
March 26, 1999, the Partnership declared the second increased quarterly
distribution of $.5625, an increase of 9.8% over the first quarter's increased
distribution of $.5125. Under the Partnership Agreement of Heritage, the
Partnership will distribute to its partners, 45 days after the end of each
fiscal quarter an amount equal to all of its Available Cash for such quarter.
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
established by the General Partner in its reasonable discretion that is
necessary or appropriate to provide for future
10
<PAGE> 13
cash requirements. The Partnership's commitment to our unitholders is to
distribute the increase in our cash flow while maintaining prudent reserves for
the Partnership's operations. The decision to increase the quarterly
distribution resulted from a review of Heritage's past financial performance and
current projections for available cash. This second increase in the distribution
level will include incentive distributions payable to the General Partner.
The assets utilized in the propane business do not typically require
lengthy manufacturing process time nor complicated, high technology components.
Accordingly, the Partnership does not have any significant financial commitments
for capital expenditures. In addition, the Partnership has not experienced any
significant increases attributable to inflation in the cost of these assets or
in its operations.
YEAR 2000 MATTERS
The Year 2000 issue arose because many computer programs use only the
last two digits to indicate the year; hence, they may not correctly interpret
dates beyond the year 1999. The Partnership has recognized the potential impact
of this problem that could cause computer applications to fail or create
erroneous results disrupting business operations. The Partnership along with
outside consultants has conducted a detailed assessment of its Year 2000 (Y2K)
compliance and readiness issues. The Partnership has put a comprehensive program
in place to prepare for its Y2K readiness and designates the following
information as our "Year 2000 Readiness Disclosure".
The scope of the Partnership's program includes the review and
evaluation of (1) our information technology ("IT") such as hardware and
software utilized in the Partnership's operations; (2) non-IT systems or
embedded technology such as micro-controllers contained in various equipment,
facilities and vehicles; and (3) the readiness of third parties which includes
key fuel suppliers, vendors and banking facilities. A complete and detailed
inventory list of the Partnership's hardware and software systems has been
completed enabling us to evaluate the state of readiness of these systems.
The Partnership's district operations use a variety of external software that
has been evaluated for Year 2000 compliance. The upgrade to the Y2K software at
these district locations is approximately 45% complete. The hardware necessary
to accommodate the software upgrades has been replaced as needed. Completion of
upgrading the remaining district locations is anticipated between May and July
1999. The Partnership's central accounting software, which encompasses general
ledger, financial reporting, and accounts payable, has been upgraded and
successfully tested as Y2K compliant. The Partnership's payroll, fixed asset and
wholesale fuel supply and distribution systems are completed. Miscellaneous
applications have also been evaluated and management anticipates completing by
May 1999. The non-IT systems such as telephones, fax machines, and photocopiers
will be investigated for the date critical Year 2000 and will be replaced or
updated as needed for operation and will be completed by January 2000.
The Partnership has identified major vendors and suppliers on whom it
depends upon for services and products to assess their Year 2000 readiness to
assure there are no interruptions in operations. A Year 2000 compliance letter
and questionnaire was sent to these third parties and our evaluation of these
key third parties is ninety percent complete. While none of the Partnership's
products are directly date sensitive, interruption of the supply and delivery of
gas products or other services could have a material adverse effect on the
operations of the Partnership. By contacting these third parties to assess their
state of readiness and developing an appropriate contingency plan if necessary,
the Partnership is hoping to minimize these risks. The Partnership's banking
facilities were also contacted to ensure that the collection and transfer of
funds will not be interrupted and that extension of working capital will be
available as needed. Acquisition candidates are supplied with a compliance
letter and questionnaire also to assess the potential needs of their systems.
The Partnership does not have any customers that accounted for 5% or more of the
Partnership's revenues during fiscal 1998 thus reducing the risk if some but not
all customers are not Y2K compliant.
The Partnership does not expect the costs to modify its computer-based
systems to have a material effect on the Partnership's results of operations.
The current estimates of the amount of time, personnel, and costs to modify the
current systems to be Year 2000 compliant is less than $.5 million. A portion of
these costs is expected to be capitalized as they relate to adding new software
and hardware to enhance current operations. Costs related directly to becoming
Year 2000 compliant are expensed as incurred. Estimated costs to date have not
been specifically tracked but are estimated to be immaterial.
The Partnership expects that its IT and non-IT systems will be
compliant by the target dates listed. A contingency plan is being developed to
deal with system failures and disruptions of service arising from third party
Y2K failures. The contingency plan for the Partnership's district operations is
primarily focused on one system that
11
<PAGE> 14
already has been successfully tested and is Y2K compliant. This system affects
two-thirds of our district operations and if other systems fail during the
testing, they will be upgraded to this compliant system. The success the
Partnership has with dealing with the issues of the Year 2000 and its vendor and
supplier's success in the matter will affect the Partnership's future
operations. Interruptions in the Partnership's operations or those of its major
suppliers and vendors due to Year 2000 failures could have a material adverse
affect on its operations and cash flows. In addition to the business risks noted
above there are other Y2K risks, which include but are not limited to utility
and telecommunication systems failure to provide service, which are beyond the
Partnership's control and could have adverse affects on our operations.
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this report, excluding historical information,
include certain forward-looking statements. Although the Partnership believes
such forward-looking statements are based on reasonable assumptions, no
assurance can be given that every objective will be reached. Such statements are
made in reliance on the "safe-harbor" protections provided under the Private
Securities Litigation Reform Act of 1995.
As required by that law, the Partnership hereby identifies the following
important factors that could cause actual results to differ materially from any
results projected, forecasted, estimated or budgeted by the Partnership in
forward-looking statements.
o Risks and uncertainties impacting the Partnership as a whole relate to
changes in general economic conditions in the United States; the
availability and cost of capital; changes in laws and regulations to
which the Partnership is subject, including tax, environmental and
employment laws and regulations; the cost and effects of legal and
administrative claims and proceedings against the Partnership or which
may be brought against the Partnership and changes in general and
economic and currencies in foreign countries.
o The uncertainty of the ability of the Partnership to sustain its rate
of internal sales growth and its ability to locate and acquire other
propane companies at prices that are accretive to the Partnership's
EBITDA (earnings before interest, taxes, depreciation and
amortization).
o Risks and uncertainties related to energy prices and the ability of
the Partnership to develop expanded markets and products offerings as
well as their ability to maintain existing markets. In addition,
future sales will depend on the cost of propane compared to other
fuels, competition from other propane retailers and alternate fuels,
the general level of petroleum product demand, and weather conditions,
among other things.
o The Partnership's success in dealing with the Year 2000 issues and
those of its vendors, suppliers and other third parties, many of which
are beyond the Partnership's control.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership has no cash flow exposure due to rate changes for
long-term debt obligations. The Company primarily enters into debt obligations
to support general corporate purposes including capital expenditures and working
capital needs. The Partnership's long-term debt instruments are typically issued
at fixed interest rates. When these debt obligations mature, the Partnership may
refinance all or a portion of such debt at then-existing market interest rates
which may be more or less than the interest rates on the maturing debt.
12
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
(a) The following exhibits are filed as part of this Report.
Exhibits required by Item 601 of Regulation S-K, but which are
not listed below, are not applicable.
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C> <C>
(1) 3.1 Agreement of Limited Partnership of Heritage Propane Partners, L.P.
(1) 10.1 Form of Bank Credit Facility
(3) 10.1.1 Amendment of Bank Credit Facility dated as of July 9, 1996
(4) 10.1.2 Amendment of Bank Credit Facility dated as of February 28, 1997
(5) 10.1.3 Third Amendment to Credit Agreement dated as of September 30, 1997
(6) 10.1.4 Fourth Amendment to Credit Agreement dated as of November 18, 1997.
(9) 10.1.5 Fifth Amendment to Credit Agreement dated as of November 13, 1998.
(1) 10.2 Form of Note Purchase Agreement (June 25, 1996)
(3) 10.2.1 Amendment of Note Purchase Agreement (June 25, 1996) dated as of July 25, 1996
(4) 10.2.2 Amendment of Note Purchase Agreement (June 25, 1996) dated as of March 11, 1997
(8) 10.2.3 Amendment of Note Purchase Agreement (June 25, 1996) dated as of October 15, 1998
(1) 10.3 Form of Contribution, Conveyance and Assumption Agreement among Heritage Holdings,
Inc., Heritage Propane Partners, L.P. and Heritage Operating L.P.
(1) 10.4 1989 Stock Option Plan
(1) 10.5 1995 Stock Option Plan
(1) 10.6 Restricted Unit Plan
(4) 10.6.1 Amendment of Restricted Unit Plan dated as of October 17, 1996
(2) 10.7 Employment Agreement for James E. Bertelsmeyer
(1) 10.8 Employment Agreement for R.C. Mills
(1) 10.9 Employment Agreement for G.A. Darr
(1) 10.10 Employment Agreement for H. Michael Krimbill
(8) 10.11 Employment Agreement for Bradley K. Atkinson
(7) 10.16 Note Purchase Agreement dated as of November 19, 1997
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C> <C>
(8) 10.16.1 Amendment dated as of October 15, 1998 to November 19, 1997 Note Purchase Agreement
(8) 21.1 List of Subsidiaries
(8) 23.3 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule - Filed with EDGAR version only
</TABLE>
- - -------------------------------------------------------------------------------
(1) Incorporated by reference to the same numbered Exhibit to
Registrant's Registration Statement of Form S-3, File No.
333-4018, filed with the Commission on June 21, 1996.
(2) Incorporated by reference to Exhibit 10.11 to Registrant's
Registration Statement on Form S-1, File No. 333-4018, filed
with the Commission on June 21, 1996.
(3) Incorporated by reference to the same numbered Exhibit to
Registrant's Form 10-Q for the quarter ended November 30,
1996.
(4) Incorporated by reference to the same numbered Exhibit to
Registrant's Form 10-Q for the quarter ended February 28,
1997.
(5) Incorporated by reference to the same numbered Exhibit to
Registrant's Form 10-K for the year ended August 31, 1997.
(6) Incorporated by reference to the same numbered Exhibit to
Registrant's Form 10-Q for the quarter ended November 30,
1997.
(7) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-Q for the quarter ended May 31, 1998.
(8) Incorporated by reference to the same numbered Exhibit to
Registrant's Form 10-K for the year ended August 31, 1998.
(9) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-Q for the quarter ended November 30,
1998.
- - -------------------------------------------------------------------------------
(b) Reports of Form 8-K.
The registrant has filed no reports on Form 8-K for the quarter for
which this report is filed.
14
<PAGE> 17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HERITAGE PROPANE PARTNERS, L.P.
By: Heritage Holdings, Inc., General Partner
Date: April 8, 1999 By: /s/ H. Michael Krimbill
------------------------------------------
H. Michael Krimbill
(President and Chief Financial Officer and
officer duly authorized to sign on behalf
of the registrant)
<PAGE> 18
HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C> <C>
(1) 3.1 Agreement of Limited Partnership of Heritage Propane Partners, L.P.
(1) 10.1 Form of Bank Credit Facility
(3) 10.1.1 Amendment of Bank Credit Facility dated as of July 9, 1996
(4) 10.1.2 Amendment of Bank Credit Facility dated as of February 28, 1997
(5) 10.1.3 Third Amendment to Credit Agreement dated as of September 30, 1997
(6) 10.1.4 Fourth Amendment to Credit Agreement dated as of November 18, 1997.
(9) 10.1.5 Fifth Amendment to Credit Agreement dated as of November 13, 1998.
(1) 10.2 Form of Note Purchase Agreement (June 25, 1996)
(3) 10.2.1 Amendment of Note Purchase Agreement (June 25, 1996) dated as of July 25, 1996
(4) 10.2.2 Amendment of Note Purchase Agreement (June 25, 1996) dated as of March 11, 1997
(8) 10.2.3 Amendment of Note Purchase Agreement (June 25, 1996) dated as of October 15, 1998
(1) 10.3 Form of Contribution, Conveyance and Assumption Agreement among Heritage Holdings,
Inc., Heritage Propane Partners, L.P. and Heritage Operating L.P.
(1) 10.4 1989 Stock Option Plan
(1) 10.5 1995 Stock Option Plan
(1) 10.6 Restricted Unit Plan
(4) 10.6.1 Amendment of Restricted Unit Plan dated as of October 17, 1996
(2) 10.7 Employment Agreement for James E. Bertelsmeyer
(1) 10.8 Employment Agreement for R.C. Mills
(1) 10.9 Employment Agreement for G.A. Darr
(1) 10.10 Employment Agreement for H. Michael Krimbill
(8) 10.11 Employment Agreement for Bradley K. Atkinson
(7) 10.16 Note Purchase Agreement dated as of November 19, 1997
</TABLE>
<PAGE> 19
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C> <C>
(8) 10.16.1 Amendment dated as of October 15, 1998 to November 19, 1997 Note Purchase Agreement
(8) 21.1 List of Subsidiaries
(8) 23.3 Consent of Arthur Andersen LLP
27.2 Financial Data Schedule - Filed with EDGAR version only
</TABLE>
- - -------------------------------------------------------------------------------
(1) Incorporated by reference to the same numbered Exhibit to
Registrant's Registration Statement of Form S-3, File No.
333-4018, filed with the Commission on June 21, 1996.
(2) Incorporated by reference to Exhibit 10.11 to Registrant's
Registration Statement on Form S-1, File No. 333-4018, filed
with the Commission on June 21, 1996.
(3) Incorporated by reference to the same numbered Exhibit to
Registrant's Form 10-Q for the quarter ended November 30,
1996.
(4) Incorporated by reference to the same numbered Exhibit to
Registrant's Form 10-Q for the quarter ended February 28,
1997.
(5) Incorporated by reference to the same numbered Exhibit to
Registrant's Form 10-K for the year ended August 31, 1997.
(6) Incorporated by reference to the same numbered Exhibit to
Registrant's Form 10-Q for the quarter ended November 30,
1997.
(7) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-Q for the quarter ended May 31, 1998.
(8) Incorporated by reference to the same numbered Exhibit to
Registrant's Form 10-K for the year ended August 31, 1998.
(9) Incorporated by reference to the same numbered Exhibit to the
Registrant's Form 10-Q for the quarter ended November 30,
1998.
- - -------------------------------------------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> AUG-31-1999 AUG-31-1999
<PERIOD-START> SEP-01-1998 DEC-01-1998
<PERIOD-END> FEB-28-1999 FEB-28-1999
<CASH> 2,622 2,622
<SECURITIES> 0 0
<RECEIVABLES> 20,590 20,590
<ALLOWANCES> 470 470
<INVENTORY> 8,822 8,822
<CURRENT-ASSETS> 33,064 33,064
<PP&E> 184,823 184,823
<DEPRECIATION> 39,316 39,316
<TOTAL-ASSETS> 252,834 252,834
<CURRENT-LIABILITIES> 34,339 34,339
<BONDS> 184,383 184,383
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 34,112 34,112
<TOTAL-LIABILITY-AND-EQUITY> 252,834 252,834
<SALES> 110,056 68,498
<TOTAL-REVENUES> 110,056 68,498
<CGS> 51,669 31,738
<TOTAL-COSTS> 87,423 50,428
<OTHER-EXPENSES> (1,235) (586)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 7,859 3,963
<INCOME-PRETAX> 16,009 14,693
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 15,619 14,404
<EPS-PRIMARY> 1.80 1.66
<EPS-DILUTED> 1.79 1.65
</TABLE>
