UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-2499
CORNERSTONE PROPANE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 77-0439862
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
432 Westridge Drive\Watsonville, California 95076
(Address of principal executive officers (Zip Code)
Registrant's telephone number, including area code: (408) 724-1921
NONE
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of November 10, 1997: 10,761,157 - Common Units
CORNERSTONE PROPANE PARTNERS, L.P.
TABLE OF CONTENTS
PAGES
Part I. Financial Information
Item 1. Financial Statements
Cornerstone Propane Partners, L.P.
Consolidated Balance Sheets as of June 30, 1997
and September 30, 1997
Consolidated Statement of Operations for the
Three Months Ended September 30, 1997
Consolidated Statement of Cash Flows for the
Three Months Ended September 30, 1997
Consolidated Statement of Partners' Capital
for the Three Months Ended September 30, 1997
Notes to Consolidated Financial Statements
Cornerstone Propane Partners, L.P. (Pro Forma)
Consolidated Statement of Operations for the
Three Months Ended September 30, 1996
Notes to Pro Forma Consolidated Financial Information
SYN, Inc. (Predecessor)
Consolidated Statement of Operations for
the Three Months Ended September 30, 1996
Consolidated Statement of Stockholders' Equity
for the Three Months Ended September 30, 1996
Consolidated Statement of Cash Flows for Three Months
Ended September 30, 1996
Notes to Consolidated Financial Statements
CORNERSTONE PROPANE PARTNERS, L.P.
TABLE OF CONTENTS (Continued)
PAGES
Part I. Financial Information
Empire Energy Corporation (Predecessor)
Consolidated Statements of Operations for the One Month
Ended July 31, 1996 and the Two Months Ended
September 30, 1996
Consolidated Statements of Stockholders' Equity for the
One Month Ended July 31, 1996 and the Two Months
Ended September 30, 1996
Consolidated Statements of Cash Flows for the One Month
Ended July 31, 1996, and the Two Months Ended
September 30, 1996
Notes to Consolidated Financial Statements
CGI Holdings, Inc. (Predecessor)
Consolidated Statement of Operations for the Three
Months Ended October 31, 1996
Consolidated Statement of Stockholders' Equity for the
Three Months Ended October 31, 1996
Consolidated Statement of Cash Flows for the Three
Months Ended October 31, 1996
Notes to Consolidated Financial Statements
Item 2.
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) and the
Three Months Ended September 30, 1996 (Pro Forma)
Part II. Other Information
Item 6 Exhibits and Reports on Form 8-K
Signature
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.
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.
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.
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(Dollars in thousands, except unit data)
(Unaudited)
Number of Units Total
--------------------- General Partners'
Common Subordinated Common Subordinated Partner Capital
--------- ------------ -------- ----------- ------- ---------
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
========== ============ ========= ========== ======= =========
The accompanying notes are an integral part of this consolidated financial
statement.
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.
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.
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.
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 taxe (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.
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.
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.
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.
SYN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In Thousands)
(Unaudited)
Common Stock
---------------
Paid-in Accumulated Stockholders
Shares Amount Shares Amount Capital Deficit Equity
------ ------ ------ ------ ------- ----------- ------------
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
======= ======= ======= ====== ======= =========== ============
The accompanying notes are an integral part of this consolidated financial
statement.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
CORNERSTONE PROPANE PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 Partnership
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.
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.
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.
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.
CORNERSTONE PROPANE PARTNERS, L.P.
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
a) Exhibits:
(27) Financial Data Schedule
b) Reports on Form 8-K:
None
SIGNATURE
Pursuant to the requirements of Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cornerstone Propane Partners, L.P.
----------------------------------
(Registrant)
By: Cornerstone Propane GP, Inc.
as Managing General Partner
Date: November 14, 1997 By: /s/ Ronald J. Goedde
----------------------------------
Name: Ronald J. Goedde
Title: Executive Vice President
and Chief Financial Officer
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