PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED OCTOBER 31, 1997
CORNERSTONE PROPANE PARTNERS, L.P.
On November 14, 1997, the Company filed with the Securities
and Exchange Commission its Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1997 (the "10-Q"). This Prospectus
Supplement contains the financial statements and management's
discussion and analysis of financial condition and results of
operations for the fiscal quarter ended September 30, 1997 contained
in the 10-Q.
The date of this Prospectus Supplement is December 9, 1997.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P.
TABLE OF CONTENTS
Page
----
FINANCIAL STATEMENTS
Cornerstone Propane Partners, L.P.
----------------------------------
Consolidated Balance Sheets as of June 30, 1997 and
September 30, 1997 . . . . . . . . . . . . . . . . . . . . . S-4
Consolidated Statement of Operations for the three
months ended September 30, 1997 . . . . . . . . . . . . . . S-5
Consolidated Statement of Cash Flows for the three
months ended September 30, 1997 . . . . . . . . . . . . . . S-6
Consolidated Statement of Partners' Capital for the
three months ended September 30, 1997 . . . . . . . . . . . S-7
Notes to Consolidated Financial Statements . . . . . . . . . S-8
Cornerstone Propane Partners, L.P. (Pro Forma)
----------------------------------------------
Consolidated Statements of Operations for three months
ended September 30, 1996 (pro forma) and the three months
ended September 30, 1997 (actual) . . . . . . . . . . . . . S-11
Notes to Pro Forma Consolidated Financial Information . . . S-12
SYN Inc. (Predecessor)
----------------------
Consolidated Statements of Operations for the three
months ended September 30, 1996 . . . . . . . . . . . . . . S-14
Consolidated Statement of Stockholders' Equity for
the three months ended September 30, 1996 . . . . . . . . . S-15
Consolidated Statement of Cash Flows for the three
months ended September 30, 1996 . . . . . . . . . . . . . . S-16
Notes to Consolidated Financial Statements . . . . . . . . . S-17
S-2
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P.
TABLE OF CONTENTS (Continued)
Page
----
Empire Energy Corporation (Predecessor)
---------------------------------------
Consolidated Statements of Operations for the one
month ended July 31, 1996 and the two months ended
September 30, 1996 . . . . . . . . . . . . . . . . . . . . . S-18
Consolidated Statement of Stockholders' Equity for
the one month ended July 31, 1996 and the two months
ended September 30, 1996 . . . . . . . . . . . . . . . . . . S-19
Consolidated Statement of Cash Flows for the one
month ended July 31, 1996 and the two months ended
September 30, 1996 . . . . . . . . . . . . . . . . . . . . S-20
Notes to Consolidated Financial Statements . . . . . . . . . S-21
CGI Holdings, Inc. (Predecessor)
--------------------------------
Consolidated Statements of Operations for the three
months ended October 31, 1996 . . . . . . . . . . . . . . . S-22
Consolidated Statement of Stockholders' Equity for
the three months ended October 31, 1996 . . . . . . . . . . S-23
Consolidated Statement of Cash Flows for the three
months ended October 31, 1996 . . . . . . . . . . . . . . . S-24
Notes to Consolidated Financial Statements . . . . . . . . . S-25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF CORNERSTONE PROPANE PARTNERS,
L.P. FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 (ACTUAL)
TO THE THREE MONTHS ENDED SEPTEMBER 30, 1996 (PRO FORMA) . . . . S-26
S-3
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except unit data)
(Unaudited)
ASSETS
September 30, June 30,
1997 1997
----------------------------
Current assets:
Cash and cash equivalents $ 8,593 $ 8,406
Trade receivables, net 46,391 41,924
Inventories 15,908 15,538
Prepaid expenses and other
current assets 4,225 4,393
------------ -------------
Total current assets 75,117 70,261
Property, plant and equipment, net 250,300 247,943
Goodwill and other intangible
assets, net 220,963 221,748
Other assets 2,404 1,041
------------ -------------
Total assets $ 548,784 $ 540,993
============ =============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current portion of long-term
debt $ 5,010 $ 5,736
Trade accounts payable 42,351 42,334
Accrued expenses 16,827 12,672
------------ -------------
Total current liabilities 64,188 60,742
Long-term debt 251,155 231,532
Due to related party 740 740
Other noncurrent liabilities 5,895 4,050
------------ -------------
Total liabilities 321,978 297,064
------------ -------------
Commitments and contingencies
Partners' capital:
Common unitholders (10,512,805
units issued and outstanding) 136,542 146,851
Subordinated unitholders
(6,597,619 units issued and
outstanding) 85,636 92,106
General partners 4,628 4,972
------------ -------------
Total partners' capital 226,806 243,929
------------ -------------
Total liabilities and
partners' capital $ 548,784 $ 540,993
============ =============
The accompanying notes are an integral part of these
consolidated balance sheets.
S-4
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per unit data)
(Unaudited)
Three Months
Ended
September 30, 1997
------------------
Revenues $ 152,157
Cost of sales 127,855
----------
Gross profit 24,302
Expenses:
Operating, general and administrative 22,602
Depreciation and amortization 4,592
----------
27,194
----------
Operating loss (2,892)
Interest expense (4,782)
----------
Income before provision for income taxes (7,674)
Provision for income taxes 20
----------
Net loss $ (7,694)
==========
General partner's interest in net loss $ (155)
==========
Limited partners' interest in net loss $(7,539)
==========
Net loss per unit $ (.46)
==========
Weighted average number of units outstanding 16,712
==========
The accompanying notes are an integral part of this
consolidated financial statement.
S-5
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months
Ended
September 30, 1997
------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,694)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 4,592
Changes in assets and liabilities,
net of effect of acquisitions:
Trade receivables (4,467)
Inventories (370)
Prepaid expenses and other current assets 268
Trade accounts payable and accrued liabilities 3,658
-------------
Net cash used in operating activities (4,013)
-------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (4,522)
Acquisitions, net of cash received (1,472)
-------------
Net cash used in investing activities (5,994)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on Working Capital Facility 19,600
Additional borrowings on purchase obligations 553
Payments on purchase obligations (530)
Partnership distributions (9,429)
-------------
Net cash provided by financing activities 10,194
-------------
INCREASE IN CASH AND CASH EQUIVALENTS 187
CASH AND CASH EQUIVALENTS, Beginning of Period 8,406
-------------
CASH AND CASH EQUIVALENTS, End Of Period $ 8,593
=============
CASH PAID DURING THE PERIOD FOR:
Interest $ 944
=============
The accompanying notes are an integral part of this consolidated
financial statement.
S-6<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(Dollars in thousands, except unit data)
(Unaudited)
<TABLE>
<CAPTION>
Number of Units Total
--------------------------- General Partners'
Common Subordinated Common Subordinated Partner Capital
--------- ------------ -------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance,
June 30,
1997 10,512,805 6,597,619 $146,851 $92,106 $4,972 $243,929
Quarterly
Distribution - - (5,677) (3,563) (189) (9,429)
Net loss - - (4,632) (2,907) (155) (7,694)
---------- --------- --------- --------- ---------- ----------
Balance,
September 30,
1997 10,512,805 6,597,619 $136,542 $85,636 $4,628 $226,806
========== ========= ========= ========= ======== =========
</TABLE>
The accompanying notes are an integral part of this consolidated
financial statement.
S-7<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Dollars in thousands, except unit data)
(Unaudited)
1. BASIS OF PRESENTATION
---------------------------
The consolidated financial statements include the accounts of
Cornerstone Propane Partners, L.P. ("Cornerstone Partners") and its
subsidiary, Cornerstone Propane L.P. (the "Operating Partnership") and
the Operating Partnership's corporate subsidiary, Cornerstone Sales
and Service Corporation ("Sales and Service"), after elimination of
all material intercompany balances and transactions. Cornerstone
Partners, the Operating Partnership and Sales and Service are
collectively referred to as the "Partnership."
The accompanying interim consolidated financial statements of the
Partnership are unaudited, however, in the opinion of management, all
adjustments necessary for a fair presentation of such consolidated
financial statements have been reflected in the interim periods
presented. Such adjustments consisted only of normal recurring items.
The Partnership's business is seasonal and accordingly, interim
results are not indicative of results for a full year. The
significant accounting policies and certain financial information
which are normally included in the financial statements prepared in
accordance with generally accepted accounting principles, but which
are not required for interim reporting purposes, have been condensed
or omitted. The accompanying consolidated financial statements of the
Partnership should be read in conjunction with the consolidated
financial statements and related notes included in the Partnership's
Annual Report on Form 10-K for the fiscal year ended June 30, 1997.
2. DISTRIBUTIONS OF AVAILABLE CASH
------------------------------------
The Partnership will make distributions to its partners with
respect to each fiscal quarter of the Partnership within 45 days after
the end of each fiscal quarter in an aggregate amount equal to its
available cash, as defined, for such quarter (the Minimum Quarterly
Distribution).
The Partnership will distribute 100% of its Available Cash (98%
to all Unitholders and 2% to the General Partners) until the Minimum
Quarterly Distribution ($.54 per unit) for such quarter has been made.
During the Subordination Period, to the extent there is sufficient
Available Cash, the holders of Common Units have the right to receive
the Minimum Quarterly Distribution, plus any arrearages, prior to the
distribution of Available Cash to holders of Subordinated Units. The
Minimum Quarterly Distribution for the period from April 1, 1997 to
June 30, 1997, of $.54 per Common and Subordinated Unit totaling
$9,429 was paid on August 15, 1997.
S-8
<PAGE>
On October 23, 1997, the Minimum Quarterly Distribution in the
amount of $9,429 for the period July 1, 1997 to September 30, 1997, of
$.54 per Common and Subordinated Unit was declared. This distribution
is to be paid prior to November 14, 1997.
3. ACQUISITIONS
-----------------
The Partnership consummated one acquisition during the quarter
ended September 30, 1997, for the total consideration of approximately
$1.7 million which was paid primarily through the issuance of debt.
No additional common units were issued in the transaction. The
acquisition has been accounted for using the purchase method of
accounting and had no significant effect on operating results for the
period ended September 30, 1997.
4. NET LOSS PER UNIT
----------------------
Net loss per unit is computed by dividing net loss, after
deducting the General Partners' 2% interest, by the weighted average
number of outstanding common and subordinated units.
5. RECENTLY ISSUED ACCOUNTING STANDARDS
-----------------------------------------
Financial Accounting Standards Board Statement No. 128, "Earnings
per Share" ("Statement No. 128"), issued in February 1997 and
effective for fiscal years ending after December 15, 1997, establishes
and simplifies standards for computing and presenting earnings per
share. Implementation of Statement No. 128 will not have a material
impact on the Partnership's computation or presentation of earnings
per unit, as the Partnership's common unit equivalents have had no
material effect on earnings per unit amounts.
Financial Accounting Standards Board Statement No. 130,
"Reporting Comprehensive Income," issued in June 1997 and effective
for fiscal years beginning after December 15, 1997, established
standards for reporting and display of the total of net income and all
other nonowner changes in partners' capital, or comprehensive income,
either below net income (loss) in the statement of operations, in a
separate statement of comprehensive income (loss) or within the
statement of partners' capital. The Partnership has had no
significant items of other comprehensive income.
S-9
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Dollars in thousands, except unit data)
(Unaudited)
6. SUBSEQUENT EVENT
---------------------
Effective October 31, 1997, the Partnership registered 3,000,000
additional units which are available to be used for future
acquisitions. On November 1, 1997, the Partnership consummated the
acquisition of substantially all of the assets of Graves Butane
Company of Arizona, Inc. The total consideration for this acquisition
was approximately $9.0 million of which $6.2 million was in the form
of Common Units.
S-10
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30
(Dollars in thousands, except per Unit data)
(Unaudited)
1996 1997
(Pro Forma) (Actual)
-----------------------
Revenues $141,756 $152,157
Cost of sales 117,519 127,855
-------- --------
Gross profit 24,237 24,302
-------- --------
Expenses:
Operating, general and administrative 20,858 22,602
Depreciation and amortization 3,738 4,592
-------- --------
24,596 27,194
Operating loss (359) (2,892)
Interest expense 4,467 4,782
Loss before provision for income taxes (4,826) (7,674)
Provision for income taxes 25 20
--------- ---------
Net loss $ (4,851) $ (7,694)
========= =========
General partners' interest in net loss $ (97) $ (155)
========= =========
Limited partners' interest in net loss $ (4,754) $ (7,539)
========= =========
Net loss per unit $ (.29) $ (.46)
========= =========
Weighted average number of units outstanding 16,419 16,712
========= =========
The accompanying notes are an integral part of
these consolidated financial statements.
S-11
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
NOTES TO PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Dollars in thousands)
(Unaudited)
1. Basis of Presentation
--------------------------
The unaudited pro forma consolidated statement of operations for the
three months ended September 30, 1996, was derived from the
historical statements of operations of Empire Energy Corporation
(Empire Energy) for the periods July 1 through September 30, 1996;
of SYN Inc. (Synergy) for the period July 1 through September 30,
1996, and of CGI Holdings, Inc. (Coast) for the period August 1
through October 31, 1996. Empire Energy, Synergy and Coast are
collectively referred to as the "Predecessor Companies." The pro
forma consolidated statement of operations was prepared to reflect
the effects of the Initial Public Offering (IPO) as if it had been
completed in its entirety as of July 1, 1996. However, this
statement does not purport to present the results of operations of
the Partnership had the IPO actually been completed as of July 1,
1996. In addition, the pro forma consolidated statement of
operations is not necessarily indicative of the results of future
operations of the Partnership and should therefore be read in
conjunction with the historical consolidated financial statements of
the Predecessor Companies and the Partnership appearing elsewhere in
this Quarterly Report on Form 10-Q.
2. Pro Forma Adjustments
--------------------------
Significant pro forma adjustments for the three-month period ended
September 30, 1996, reflected in the pro forma consolidated
statements of operations include the following:
Adjustments to reflect the full period effect of operating expense
savings resulting from the consolidation of certain operations that
occurred subsequent to July 1, 1996, as well as the elimination of
certain operating, general and administrative expenses associated
with the operation of the Partnership.
General and administrative adjustments of $433 relating to corporate
overhead consolidation, the consolidation of certain retail
locations and, the elimination of bank and consulting fees.
An adjustment of $78 to reflect the additional depreciation and
amortization expense due to the increase in property and intangibles
that result from applying the purchase method of accounting to the
Empire Energy and Coast acquisitions.
S-12
<PAGE>
An adjustment to reduce interest expense by $273 to reflect interest
expense applicable to the Partnership. These adjustments include
interest expense for the $220,000 senior notes at a rate of 7.53%
per annum, expense attributable to the working capital facility
based on an average outstanding principal balance of $2,000 at 6.5%
per annum, expense attributable to debt assumed based on an average
outstanding principal balance of $9,500 at 8.5% per annum and debt
expense amortization based on $5,050 estimated debt issuance costs.
Adjustments to reflect the elimination of income tax related
accounts because income taxes will not be borne by the Partnership,
except for income taxes applicable to operations to be conducted by
the Partnership's wholly-owned corporate subsidiary.
S-13
<PAGE>
SYN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands)
(Unaudited)
For the
Three
Months
Ended
September 30, 1996
------------------
REVENUE $ 17,883
COST OF SALES 8,940
---------------
GROSS PROFIT 8,943
---------------
OPERATING EXPENSES:
Salaries and commissions 3,865
General and administrative 3,083
Depreciation and amortization 1,000
Related-party corporate administration and
management fees 965
---------------
Total operating expenses 8,913
---------------
Operating income 30
INTEREST EXPENSE, including $1,204 to related party 1,665
---------------
LOSS BEFORE INCOME TAXES (1,635)
INCOME TAX BENEFIT (550)
---------------
NET LOSS (1,085)
DIVIDENDS ON CUMULATIVE PREFERRED STOCK (2,073)
--------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (3,158)
==============
The accompanying notes are an integral part of this
consolidated financial statement.
S-14
<PAGE>
SYN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
------------
Paid-in Accumulated Stockholders
Shares Amount Shares Amount Capital Deficit Equity
------ ------- ------ ------ ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
July 1,
1996 55,312 $55,312 100,000 $ 1 $ 99 $ (1,999) $ 53,413
Dividends on
preferred
stock - - - - - (2,073) (2,073)
Net loss - - - - - (1,085) (1,085)
------- ------- ------- ------ ------- ---------- ---------
Balance,
September 30,
1996 55,312 $55,312 100,000 $ 1 $ 99 $ (5,157) $ 50,255
======= ======= ======= ====== ======= =========== =========
</TABLE>
The accompanying notes are an integral part of
this consolidated financial statement.
S-15
<PAGE>
SYN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months
Ended
September 30, 1996
------------------
OPERATING ACTIVITIES:
Net loss $ (1,085)
Items not requiring (providing) cash:
Depreciation and amortization 1,000
Deferred income taxes (550)
Changes in operating items:
Trade receivables 1,270
Inventories (1,253)
Prepaid expenses and other (311)
Accounts payable 4,665
Accrued expenses 206
------
Net cash provided by operating activities 3,942
INVESTING ACTIVITIES:
Purchases of property and equipment (1,571)
Proceeds from sale of assets 973
------
Net cash used in investing activities (598)
------
FINANCING ACTIVITIES:
Increase in credit facility 90
Borrowings from related party 90
Payment on long-term debt (21)
Preferred stock dividends paid (2,073)
------
Net cash used in financing activities (1,914)
-------
INCREASE IN CASH 1,430
CASH, BEGINNING OF PERIOD 14
-------
CASH, END OF PERIOD $ 1,444
=======
CASH PAID DURING THE PERIOD FOR:
Interest $ 1,665
=======
Income taxes $ 119
=======
The accompanying notes are an integral part of
this consolidated financial statement.
S-16
<PAGE>
SYN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(In thousands)
(Unaudited)
1. Basis of Presentation
--------------------------
The consolidated financial statements include the accounts of SYN
Inc. and its subsidiaries ("Synergy") after elimination of all
material intercompany balances and transactions.
The accompanying interim consolidated financial statements of
Synergy are unaudited; however, in the opinion of management, all
adjustments necessary for a fair presentation of such
consolidated financial statements have been reflected in the
interim periods presented. Such adjustments consisted only of
normal recurring items. Synergy's business is seasonal and
accordingly, interim results are not indicative of results for a
full year. The significant accounting policies and certain
financial information which are normally included in financial
statements prepared in accordance with generally accepted
accounting principles, but which are not required for interim
reporting purposes, have been condensed or omitted. The
accompanying consolidated financial statements of Synergy should
be read in conjunction with the consolidated financial statements
and related notes included in the Annual Report of Cornerstone
Propane Partners L.P. on Form 10-K for the fiscal year ended June
30, 1997.
S-17<PAGE>
EMPIRE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
One Month Two Months
Ended Ended
July 31, September 30,
1996 1996
----------- -------------
(New Basis)
OPERATING REVENUE $2,596 $12,439
COST OF SALES 1,439 6,471
----------- -----------
GROSS PROFIT 1,157 5,968
----------- -----------
OPERATING COSTS AND EXPENSES:
General and administrative 2,480 4,528
Depreciation and amortization 499 1,087
----------- -----------
OPERATING INCOME (LOSS) (1,822) 353
INTEREST EXPENSE 217 1,487
----------- ----------
LOSS BEFORE INCOME TAXES (2,039) (1,134)
INCOME TAX BENEFIT (765) (400)
----------- ----------
NET LOSS $ (1,274) $ (734)
=========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
S-18
<PAGE>
EMPIRE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ONE MONTH ENDED JULY 31, 1996 AND
TWO MONTHS ENDED SEPTEMBER 30, 1996
(In thousands)
(Unaudited)
Additional Retained Total
Common Paid-in Earnings Treasury
Stockholders'
Stock Stock (Deficit) Stock Equity
------- --------- -------- -------- ------------
-
BALANCE,
JULY 1, 1996 $ 12 $ 46,099 $ 4,143 $ (21) $ 50,233
NET LOSS - - (1,274) - (1,274)
------- -------- -------- -------- -----------
BALANCE,
JULY 31, 1996 12 46,099 2,869 (21) 48,959
PURCHASE OF
COMPANY STOCK (11) (70,744) - - (70,755)
EFFECT OF PURCHASE
ACCOUNTING - 26,966 (2,869) 21 24,118
NET LOSS - - (734) - (734)
------- -------- -------- -------- -----------
BALANCE,
SEPTEMBER 30,
1996 $ 1 $ 2,321 $ (734) $ - $ 1,588
======= ========= ======== ======== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
S-19
<PAGE>
EMPIRE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
One Month Two Months
Ended Ended
July 31, September 30,
1996 1996
----------- -------------
(New Basis)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,274) $ (734)
Items not requiring (providing) cash:
Depreciation 474 1,002
Amortization 25 85
Loss (gain) on sale of assets 8 (4)
Changes in:
Trade receivables 222 (2,485)
Inventories (340) (3,896)
Accounts payable and accrued
expenses 330 1,447
Prepaid expenses and other (100) (536)
Income taxes payable (768) 209
----------- -------------
Net cash used in operating
activities (1,423) (4,912)
----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets 14 18
Purchases of property and equipment (487) (861)
----------- -------------
Net cash used in investing
activities (473) (843)
----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in credit facilities - 4,800
Principal payments on purchase
obligations (15) (35)
Checks in process of collection - 37
Proceeds from management buyout loan - 94,000
Repayment of acquisition
credit facility - (31,100)
Purchase of company stock in
management buyout - (59,000)
Payment of debt acquisition costs - (3,100)
----------- -------------
Net cash provided by (used in)
financing activities (15) 5,602
----------- -------------
DECREASE IN CASH (1,911) (153)
CASH:
Beginning of period 2,064 153
----------- -------------
End of period $ 153 $ 0
=========== =============
CASH PAID DURING THE PERIOD FOR:
Interest $ 106 $ 804
=========== =============
Income taxes $ 0 $ (609)
=========== =============
The accompanying notes are an integral part of
these consolidated financial statements.
S-20<PAGE>
EMPIRE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996 AND SEPTEMBER 30, 1996
(In thousands)
(Unaudited)
1. Basis of Presentation
The consolidated financial statements include the accounts of Empire
Energy Corporation and its subsidiaries ("Empire Energy") after
elimination of all material intercompany balances and transactions.
The accompanying interim consolidated financial statements of Empire
Energy are unaudited; however, in the opinion of management, all
adjustments necessary for a fair presentation of such consolidated
financial statements have been reflected in the interim periods
presented. Such adjustments consisted only of normal recurring items.
Empire Energy's business is seasonal and accordingly, interim results
are not indicative of results for a full year. The significant
accounting policies and certain financial information which are
normally included in financial statements prepared in accordance with
generally accepted accounting principles, but which are not required
for interim reporting purposes, have been condensed or omitted. The
accompanying consolidated financial statements of Empire Energy should
be read in conjunction with the consolidated financial statements and
related notes included in the Annual Report of Cornerstone Propane
Partners L.P. on Form 10-K for the fiscal year ended June 30, 1997.
2. Management Buy Out
On August 1, 1996, members of management of Empire Energy purchased the
ownership (92.7% of the Common Stock) of Empire Energy from the primary
stockholder and certain other stockholders. Because of the change in
control of Empire Energy, the balance sheet accounts were adjusted at
the acquisition date to reflect new basis determined using the
principles of purchase accounting.
S-21
<PAGE>
CGI HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands)
(Unaudited)
Three
Months
Ended
October 31,
1996
-----------
Sales and other revenue $108,175
Costs and expenses:
Cost of sales, except for depreciation
and amortization 100,266
Operating, general and administrative 6,292
Depreciation and amortization 1,067
Interest expense 1,294
Loss on sale of partnership interest 660
-----------
109,579
-----------
Loss before income taxes (1,404)
Income tax benefit (491)
-----------
Net loss $ (913)
===========
The accompanying notes are an integral part of
this consolidated financial statement.
S-22
<PAGE>
CGI HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
Additional
Common Paid-In Accumulated
Stock Warrants Capital Deficit
------ -------- ---------- -----------
BALANCE, AUGUST 1, 1996 $ 42 $ 2,134 $ 8,945 $ (5,023)
NET LOSS - - - (913)
ACCRUED DIVIDENDS ON
REDEEMABLE AND
EXCHANGEABLE
PREFERRED STOCK - - - (116)
------ -------- ---------- -----------
BALANCE, OCTOBER 31, 1996 $ 42 $ 2,134 $ 8,945 $ (6,052)
====== ======== ========== ===========
The accompanying notes are an integral part of
this consolidated financial statement.
S-23
<PAGE>
CGI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months
Ended
October 31,
1996
------------
CASH FLOWS FROM (USED FOR)
OPERATING ACTIVITIES:
Net loss $ (913)
Adjustments to reconcile net loss to net cash
from operating activities
Depreciation and amortization 1,067
Sale of partnership interest 202
Deferred income taxes (472)
Changes in assets and liabilities net of acquisitions:
Accounts and notes receivable 2,198
Inventories 565
Prepaid expenses and deposits 472
Other assets (91)
Accounts payable (3,460)
Accrued liabilities 676
------------
244
------------
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 20
Purchases of and investments in property and equipment (594)
------------
(574)
------------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Repayments of long-term debt (562)
Repayment of other notes payable (104)
Principal payments under capital lease obligations (345)
Borrowings under acquisition line 4,575
------------
3,564
------------
NET INCREASE IN CASH 3,234
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,519
------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 4,753
------------
CASH PAID DURING THE PERIOD FOR:
Interest $ 936
============
Income taxes $ 10
============
The accompanying notes are an integral part of
this consolidated financial statement.
S-24
<PAGE>
CGI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of CGI
Holdings, Inc. ("Coast") and its wholly-owned subsidiary, Coast Gas,
Inc., and its wholly-owned subsidiary Coast Energy Group, Inc. ("CEG").
In 1989, the Coast formed CEG, headquartered in Houston, Texas, to
conduct its wholesale procurement and distribution operations. All
significant intercompany transactions have been eliminated in
consolidation.
The accompanying interim consolidated financial statements of Coast are
unaudited; however, in the opinion of management, all adjustments
necessary for a fair presentation of such consolidated financial
statements have been reflected in the interim periods presented. Such
adjustments consisted only of normal recurring items. Coast's business
is seasonal and accordingly, interim results are not indicative of
results for a full year. The significant accounting policies and
certain financial information which are normally included in financial
statements prepared in accordance with generally accepted accounting
principles, but which are not required for interim reporting purposes,
have been condensed or omitted. The accompanying consolidated financial
statements of Coast should be read in conjunction with the consolidated
financial statements and related notes included in the Annual Report of
Cornerstone Propane Partners L.P. on Form 10-K for the fiscal year ended
June 30, 1997.
2. SALE OF PARTNERSHIP INTEREST
Effective October 1, 1996, Coast terminated its participation and
interest in Coast Energy Investments, Inc., a limited partnership in
which CEG was a 50% limited partner. The original partnership agreement
provided for a minimum investment term through December 1997. The
termination resulted in the sale of Coast's partnership interest to its
50% partner and an employee of the limited partnership. Coast recorded
a net loss on the disposition of the partnership interest of $660,000.
This amount consisted of a $202,000 loss on the partnership investment
and $458,000 of termination costs consisting of salary, consulting, non-
compete agreements and other related expenses.
S-25
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the historical financial condition and results
of operations for the Partnership should be read in conjunction with the
historical and pro forma financial statements and notes thereto included
elsewhere in this Quarterly Report on Form 10-Q.
General
The Partnership is a Delaware limited partnership initially formed to own
and operate the propane business and assets of Synergy, Empire Energy and
Coast. The Partnership's management believes that it is the fifth largest
retail marketer of propane in the United States, serving more than 380,000
residential, commercial, industrial and agricultural customers from 296
customer service centers in 26 states.
Because a substantial portion of the Partnership's propane is sold for use
in the weather-sensitive residential markets, the heating degree days in
the Partnership's area of operations, particularly during the six-month
peak heating season, have a significant effect on the financial performance
of the Partnership.
Although the Partnership believes that comparing temperature information
for a given period of time to "normal" temperatures is helpful for an
understanding of the Partnership's results of operations, when comparing
variations in weather to changes in total revenues or operating profit,
attention is drawn to the fact that a portion of the Partnership's total
revenues is not weather-sensitive, and other factors such as price,
competition, product supply costs and customer mix also affect the results
of operations. Furthermore, actual weather conditions in the Partnership's
regions can vary substantially from historical experience.
Gross profit margins are not only affected by weather patterns but also by
changes in the composition of the Partnership's customer base. For
example, sales to residential customers ordinarily generate higher margins
than sales to other customer groups, such as commercial or agricultural
customers. In addition, gross profit margins vary by geographic region.
Accordingly, profit margins could vary significantly from year to year in a
period of identical sales volumes.
S-26
<PAGE>
The average heating degree days, in the markets served by the Partnership,
for the first fiscal quarter of 1998 were approximately 36% warmer than
normal and approximately 25% warmer than last year, respectively. These
milder temperatures, while not in the peak of the heating season,
adversely affected the Partnership's residential sales volume. The
first fiscal quarter historically accounts for approximately 17% and
7% of the Partnership's retail sales volume and EBITDA, respectively.
The Partnership generally purchases its propane pursuant to agreements
with terms of less than one year at market prices. The balance of its
propane needs for the year are satisfied in the spot market. The Partner-
ship generally does not enter into supply contracts containing "take or
pay" provisions.
The Partnership engages in hedging of product cost and supply through
common hedging practices. These practices are monitored and maintained by
management for the Partnership on a daily basis. Hedging of product cost
and supply does not always result in increased margins and the Partnership
does not consider it to be material to operations or liquidity for the
three-month period ended September 30, 1997.
Analysis of Historical Results of Operations
The following discussion compares the results of operations and other data
of the Partnership for the three-month period ended September 30, 1997, to
the pro forma three-month period ended September 30, 1996.
Volume. During the three months ended September 30, 1997, the Partnership
sold 41.3 million retail propane gallons, an increase of 2.8 million
gallons or 7.3% from the 38.5 million retail propane gallons sold during
the pro forma three months ended September 30, 1996. Wholesale volumes were
140.9 million gallons and 109.1 million gallons, respectively, for the
quarters ended September 30, 1997 and 1996, which represents an increase of
31.8 million gallons or 29.2%. A majority of the increase in retail
volume- approximately 79%, or 2.2 million gallons- is attributable to the
addition of retail customer service centers obtained through the
acquisition of new propane businesses since December 17, 1996.
Revenues. Revenues increased by $10.4 million or 7.3% to $152.2 million
for the three months ended September 30, 1997, as compared to $141.8
million for the pro forma three months ended September 30, 1996. This
increase was attributable to an increase in wholesale revenues of $10.5
million or 7.4% to $110.3 million for the three months ended September 30,
1997, as compared to $99.8 million for the pro forma three months ended
September 30, 1996. This increase was due primarily to the increase in
wholesale volume mentioned above. The revenues for the retail business
also increased by $.4 million or 9.6% to $41.7 million for the three months
ended September 30, 1997, as compared to $41.3 million for the pro forma
three months ended September 30, 1996. This increase was a result of the
increase in volume described above offset by a decrease in the average
sales price per gallon of propane.
S-27
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cost of Product Sold. Cost of product sold increased by $10.4 million or
8.9% to $127.9 million for the three months ended September 30, 1997, as
compared to $117.5 million for the pro forma three months ended September
30, 1996. The increase in cost of product sold was primarily due to the
increased sales volume described above. As a percentage of revenues, cost
of product sold increased to 84.0% for the three months ended September 30,
1997, as compared to 82.9% for the pro forma three months ended September
30, 1996.
Gross Profit. Gross profit of $24.3 million for the three months ended
September 30, 1997, is consistent with the gross profit of $24.2 million
for the pro forma three months ended September 30, 1996. Retail per gallon
margins for the three months ended September 30, 1997 were slightly lower
than for the pro forma period. This is partially attributable to the fact
that the pro forma three months ended September 30, 1996, includes the
results of operations for Coast from August 1, 1996 to October 31, 1996.
More heating degree days were recorded for October 1996 than for July 1997
in the markets served by Coast, causing the pro forma per gallon margins to
be higher. As a percentage of revenues, gross profit decreased to 16.0%
for the three months ended September 30, 1997, as compared to 17.1% for the
pro forma three months ended September 30, 1996. Gross profit from propane
businesses acquired since December 17, 1996 was $.8 million for the three
months ended September 30, 1997.
Operating, General and Administrative Expenses. Operating, general and
administrative expenses increased by $1.7 million or 8.1% to $22.6 million
for the three months ended September 30, 1997, as compared to the pro forma
three months ended September 30, 1996. Approximately $1.2 million, or 71%,
of this increase was attributable to increases in salaries and other
operating expenses resulting from the acquisitions of new businesses and
the correspondingly increased sales volumes discussed above. As a
percentage of revenues, operating, general and administrative expenses
remained consistent at 14.8% for the three months ended September 30, 1997,
as compared to 14.7% for the pro forma three months ended September 30,
1996.
The Partnership utilizes software and related technologies throughout its
businesses that will be affected by the date change in the year 2000. An
internal study is currently under way to determine the full scope and
related costs to insure that the Partnership's systems continue to meet its
internal needs and those of its customers. The Partnership will begin to
incur expenses in 1998 to resolve this issue. These expenses may continue
through the year 1999.
Recently Issued Accounting Standards. Financial Accounting Standards Board
Statement No. 128, "Earnings per Share" ("Statement No. 128"), issued in
February 1997 and effective for fiscal years ending after December 15,
1997, establishes and simplifies standards for computing and presenting
earnings per share. Implementation of Statement No. 128 will not have a
material impact on the Partnership's computation or presentation of
earnings per unit, as the Partnership's common stock equivalents have had
no material effect on earnings per unit amounts.
S-28
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Accounting Standards Board Statement No. 130, "Reporting
Comprehensive Income", issued in June 1997 and effective for fiscal years
beginning after December 15, 1997, establishes standards for reporting and
display of the total of net income and the components of all other nonowner
changes in partners' capital, or comprehensive income, either below net
income (loss) or within the statement of partners' capital. The
Partnership has had no significant items of other comprehensive income.
Liquidity and Capital Resources
Cash Flows
Cash used in operating activities during the three-month period ended
September 30, 1997 was $4.0 million. Cash flow from operations included a
net loss of $7.7 million and non-cash charges of $4.6 million for
depreciation and amortization expense. The impact of working capital
changes decreased cash flow by approximately $.9 million.
Cash used in investment activities for the three-month period ended
September 30, 1997 totaled $6.0 million, which was principally used for
purchases of property and equipment. Cash provided by financing activities
was $10.2 million for the three months ended September 30, 1997, which
principally reflects additional borrowings on the working capital facility,
net of a distribution to Unitholders of $9.4 million.
Financing and Sources of Liquidity
The Operating Partnership's obligations under the Note Agreement under
which its Senior Notes were issued and its Bank Credit Agreement are
secured by a security interest in the Operating Partnership's inventory,
accounts receivable and certain customer storage tanks. The Note and Bank
Credit Agreements contain various terms and covenants including financial
ratio covenants with respect to debt and interest coverage and limitations,
among others, on the ability of the Operating Partnership and its
subsidiary to incur additional indebtedness, create liens, make investments
and loans, enter into mergers, consolidations or sales of all or
substantially all assets and make asset sales. Generally, so long as no
default exists or would result, the Partnership is permitted to make
distributions during each fiscal quarter in an amount not in excess of
Available Cash with respect to the immediately preceding quarter. The
Operating Partnership was in compliance with all terms and covenants at
September 30, 1997.
S-29
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. There
are certain important factors discussed below that could cause results to
differ materially from those anticipated by some of the statements made
herein. Investors are cautioned that all forward-looking statements
involve risks and uncertainty. Among the factors that could cause actual
results to differ materially are the following: pricing strategies of
competitors, the Partnership's ability to continue to receive adequate
product from its vendors on acceptable credit terms and to obtain
sufficient financing to meet its liquidity needs, effects of weather and
overall economic conditions, including inflation, consumer confidence,
spending habits and disposable income.
S-30
