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 March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-12499
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
incorporation or organization) Identification 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 May 14, 1998: 13,234,411 - Common Units.
<PAGE>
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 March 31, 1998 and
1997, and June 30, 1997 1
Consolidated Statements of Income for the Three Months
Ended March 31, 1998 and 1997, the Nine Months Ended
March 31,1998 and the Period from Commencement of
Operations on December 17, 1996 to March 31, 1997 2
Consolidated Statements of Cash Flows for the Nine Months
Ended March 31, 1998, and the Period from Commencement
of Operations on December 17, 1996 to March 31, 1997 3
Notes to Consolidated Financial Statements 5
CORNERSTONE PROPANE PARTNERS, L.P. (PRO FORMA)
Consolidated Statements of Income for the Nine Months
Ended March 31, 1998 and 1997 8
Notes to Pro Forma Consolidated Financial Statements 9
SYN, INC. (PREDECESSOR)
Consolidated Statement of Operations for the Period
July 1, 1996 to December 16, 1996 11
Consolidated Statement of Cash Flows for the Period
July 1, 1996 to December 16, 1996 12
Notes to Consolidated Financial Statements 13
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P.
TABLE OF CONTENTS (Continued)
PAGES
Part I. Financial Information
EMPIRE ENERGY CORPORATION (PREDECESSOR)
Consolidated Statement of Operations for the Period
July 1, 1996 to December 16, 1996 14
Consolidated Statement of Cash Flows for the Period
July 1, 1996 to December 16, 1996 15
Notes to Consolidated Financial Statements 16
CGI HOLDING, INC. (PREDECESSOR)
Consolidated Statement of Operations for the Period
August 1, 1996 to December 16, 1996 17
Consolidated Statement of Cash Flows for the Period
August 1, 1996 to December 16, 1996 18
Notes to Consolidated Financial Statements 19
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 March
31, 1998 and 1997 and for the Nine Months Ended March
31, 1998 and March 31,1997 (Pro Forma ) 21
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 28
Signature 29
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands, except unit data)
ASSETS
<TABLE>
<CAPTION>
March 31,
--------------- June 30,
1998 1997 1997
-------- -------- ---------
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 6,025 $ 23,115 $ 8,406
Trade receivables, net 34,729 40,557 41,924
Inventories 16,031 19,539 15,538
Prepaid expenses and other
current assets 7,120 6,350 4,393
--------- --------- ---------
Total current assets
63,905 89,561 70,261
Property, plant and
equipment, net 271,256 240,550 247,943
Goodwill and other intangible
assets, net 243,337 201,876 221,748
Other assets 1,726 11,572 1,041
--------- --------- --------
Total assets $ 580,224 $ 543,559 $ 540,993
========= ========= =========
</TABLE>
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Current liabilities:
<S> <C> <C> <C>
Current portion of long-term
debt $ 4,184 $ 5,406 $ 5,736
Trade accounts payable 20,202 33,444 42,334
Accrued expenses 22,774 15,925 12,672
--------- --------- --------
Total current liabilities 47,160 54,775 60,742
Long-term debt 232,905 224,135 231,532
Due to related party 1,621 2,353 740
Other noncurrent liabilities 4,254 14,663 4,050
-------- -------- -------
Total liabilities 285,940 295,926 297,064
--------- --------- --------
Commitments and contingencies
Partners' capital:
Common unitholders (13,234,411
units issued and outstanding
at March 31, 1998; 9,821,000
units issued and
outstanding at March 31,
1997; and 10,512,805 units
issued and outstanding at
June 30, 1997) 197,776 143,232 146,851
Subordinated unitholders
(6,597,619 units issued
and outstanding) 90,538 99,351 92,106
General partners 5,970 5,050 4,972
--------- --------- --------
Total partners' capital 294,284 247,633 243,929
--------- --------- --------
Total liabilities and
partners' capital $ 580,224 $ 543,559 $ 540,993
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands, except per unit data)
<TABLE>
<CAPTION>
Period From
Commencement
Three Months Three Months Nine Months of Operations
Ended Ended Ended on December 17,
March 31, March 31, March 31, 1996 to
1998 1997 1998 March 31, 1997
------------- ------------ --------- -------------
<S> <C> <C> <C> <C>
Revenue $ 229,332 $ 220,566 $ 623,267 $ 260,936
Cost of sales 179,362 178,050 505,302 209,391
--------- --------- -------- ---------
Gross profit 49,970 42,516 117,965 51,545
--------- --------- -------- --------
Expenses:
Operating, general and
administrative 25,340 23,590 72,757 27,968
Depreciation and
amortization 4,714 3,819 13,615 4,394
--------- -------- ------- -------
30,054 27,409 86,372 32,362
--------- -------- ------- -------
Operating income 19,916 15,107 31,593 19,183
Interest expense 4,824 4,450 14,641 5,228
-------- -------- -------- -------
Income before provision
for income taxes 15,092 10,657 16,952 13,955
Provision for income
taxes 43 20 95 25
-------- -------- -------- -------
Net income $ 15,049 $ 10,637 $ 16,857 $ 13,930
======== ======== ======== ========
General partners interest
in net income $ 301 $ 213 $ 337 $ 376
======== ======== ======= =======
Limited partners'
interest in net income $ 14,748 $ 10,424 $ 16,520 $ 13,554
======= ======= ======== ========
Basic and diluted net
income per limited
partner unit $ .76 $ .63 $ .92 $ .82
======= ======== ====== ========
Weighted average number
of units outstanding 19,407 16,513 17,962 16,513
======= ======== ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Period From
Commencement
of Operations on
Nine Months December 17,
Ended 1996 to
March 31, March 31,
1998 1997
------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 16,857 $ 13,930
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 13,615 4,394
(Gain) loss on sale of assets (676) 26
Changes in assets and liabilities,
net of effect of acquisitions:
Trade receivables 8,181 37,922
Inventories (2,004) 6,754
Prepaid expenses and other assets (5,380) (3,583)
Trade accounts payable and accrued
expenses (19,028) (41,347)
--------- ---------
Net cash provided by operating
activities 11,565 18,096
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant
and equipment (11,916) (1,710)
Acquisitions, net of cash received (13,162) _
-------- -------
Net cash used in investing
activities (25,078) (1,710)
-------- -------
</TABLE>
<TABLE>
<CAPTION>
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C>
Net repayments on Working Capital
Facility (122) (12,800)
Financing costs (2,420) _
Borrowings on purchase obligations _ 1,141
Payments on purchase obligations (3,117) (683)
Advances from general partner 881 _
Proceeds from issuance of common
units (net of costs) 40,795 _
General partners contribution 1,185 _
Partnership distributions (26,070) _
--------- ---------
Net cash provided by (used in)
financing activities 11,132 (12,342)
-------- ---------
</TABLE>
<TABLE>
<CAPTION>
PARTNERSHIP FORMATION TRANSACTIONS:
<S> <C> <C>
Net proceeds from issuance
of Common and Subordinated
Units _ 191,804
Borrowings on Working Capital
Facility _ 12,800
Issuance of long-term debt _ 220,000
Cash transfers from Predecessor
Companies _ 22,418
Repayment of long-term debt and
related interest _ (337,631)
Distribution to Special General
Partner for the redemption
of preferred stock _ (61,196)
Distribution to Special General
Partner _ (15,500)
Other fees and expenses _ (13,626)
--------- ---------
Net cash provided by partnership
formation transactions _ 19,069
--------- ---------
</TABLE>
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Period From
Commencement
of Operations on
Nine Months December 17,
Ended 1996 to
March 31, March 31,
1998 1997
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ (2,381) $ 23,113
CASH AND CASH EQUIVALENTS, Beginning of
Period 8,406 2
--------- --------
CASH AND CASH EQUIVALENTS, End Of Period $ 6,025 $ 23,115
========= =========
CASH PAID DURING THE PERIOD FOR:
Interest $ 10,429 $ 5,228
======== =========
ASSETS ACQUIRED IN EXCHANGE FOR COMMON
UNITS $ 17,588 _
======== =========
ASSETS ACQUIRED IN EXCHANGE FOR DEBT $ 6,054 _
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
(Dollars in thousands, except unit data)
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
subsidiaries, Cornerstone Sales and Service Corporation ('Sales
and Service') and Flame, Inc. (acquired in November 1997), after
elimination of all material intercompany balances and
transactions. Cornerstone Partners, the Operating Partnership,
Sales and Service and Flame, Inc. 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 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 makes 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 for such quarter. Distributions by the
Partnership in an amount equal to 100% of it's Available Cash will generally
be made 98% to the Common and Subordinated Unitholders and 2% to the General
Partners, subject to the payment of incentive distributions in the event
Available Cash exceeds the Minimum Quarterly Distribution of $.54 on all units.
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. Subordinated Units do
not accrue arrearages with respect to distribution for any quarter.
The Minimum Quarterly Distributions for the six-month period
from April 1, 1997 to September 30, 1997, of $.54 per Common and
Subordinated Unit totaling $18,858 were paid during the six
months ended December 31, 1997. For the period from October 1,
1997 to December 31, 1997, distributions of $.54 per Common Unit
totaling $7,212 were paid on February 13, 1998. On April 28, 1998,
the Minimum Quarterly Distribution for the period January 1, 1998
to March 31, 1998, was declared in the amount of $7,293
representing in the aggregate distributions to the general
partner and $.54 per Common Unit. This distribution will be paid
on or prior to May 15, 1998. No distributions were declared on
the Subordinated Units for the period from October 1, 1997 to
March 31, 1998.
3. ACQUISITIONS
The Partnership consummated four acquisitions during the quarter
ended March 31, 1998. The total consideration for the acquisitions was
approximately $10.8 million of which approximately $3.0 million was in
the form of approximately 148,000 Common Units, $5.7 million was paid in cash
and $2.1 million was for liabilities assumed. Effective October 31, 1997,
the Partnership registered 3,000,000 additional units which are
available to be used for future acquisitions. The Partnership
consummated seven acquisitions during the nine months ended March 31,
1998. The total consideration for the acquisitions was approximately $36.8
million of which approximately $17.6 million was in the form of
approximately 762,000 Common Units, $13.2 million was paid in cash and
$6.1 million was for liabilities assumed. All acquisitions have been accounted
for using the purchase method of accounting.
4. NET INCOME PER LIMITED PARTNER UNIT
Financial Accounting Standards Board Statement No. 128,
'Earnings per Share' ('Statement No. 128'), issued in February
1997 and effective for financial statements for periods ending
after December 15, 1997, establishes and simplifies standards for
computing and presenting earnings per share. Statement No. 128
requires restatement of all prior-period earnings per share data
presented. Basic net income per limited partner unit is computed
by dividing net income, after considering the General Partners
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 Partners interest, by the weighted
average number of Common and Subordinated Units outstanding and
the weighted average number of Restricted Units granted under the
Restricted Unit Plan.
5. PARTNERS' CAPITAL
In January 1998, the Partnership sold an aggregate of 1,960,000
Common Units at $22.125 per unit pursuant to an underwritten
public offering. Net proceeds to the Partnership were
approximately $40.8 million. The Partnership used approximately
$10.0 million of the net proceeds for general business purposes
and the balance to repay amounts outstanding under the Bank
Credit Facility.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
PRO FORMA
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
MARCH 31, 1998
(Dollars in thousands, except per unit data)
Nine Nine
Months Months
Ended Ended
March 31, March 31,
1998 1997
-------- --------
(Actual) (Pro Forma)
Revenue $ 623,267 $ 535,503
Cost of sales 505,302 428,959
--------- ---------
Gross profit 117,965 106,544
--------- ---------
Expenses:
Operating, general and administrative 72,757 66,209
Depreciation and amortization 13,615 10,948
--------- ---------
86,372 77,157
--------- ---------
Operating income 31,593 29,387
Interest expense 14,641 13,499
--------- ---------
Income before provision for income taxes 16,952 15,888
Provision for income taxes 95 70
--------- ---------
$ 16,857 $ 15,818
====== ======
General partners interest in net income $ 337 $ 317
==== ====
Limited partners'interest in net income $ 16,520 $ 15,501
====== ======
Basic and diluted net income per limited
partner unit $ .92 $ .94
====== ======
Weighted average number of
units outstanding 17,962 16,513
====== ======
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
(Dollars in thousands)
1. BASIS OF PRESENTATION
The unaudited pro forma consolidated statement of income for
the nine months ended March 31, 1997, was derived from the
historical statements of operations of Empire Energy Corporation
(Empire Energy) for the period July 1 through December 16, 1996,
of SYN Inc. (Synergy) for the period July 1 through December 16,
1996, and of CGI Holdings, Inc. (Coast) for the period August 1
through December 16, 1996, and the consolidated statement of
operations of the Partnership from December 17, 1996 through
March 31, 1997. Empire Energy, Synergy and Coast are
collectively referred to as the 'Predecessor Companies.' The pro
forma consolidated statement of income was prepared to reflect
the effects of the Partnership's December 17, 1996, 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 reflected in the pro forma
consolidated statement of income included 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 $1,254 relating
to corporate overhead consolidation, the consolidation of
certain retail locations and the elimination of bank and
consulting fees.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
(Dollars in thousands)
Adjustments of $60 to reflect the additional depreciation and
amortization expense due to the increase in property and
intangibles that resulted from applying the purchase method of
accounting to the Empire Energy and Coast acquisitions.
Adjustments to reduce interest expense by $270 to reflect
interest expense applicable to the Partnership for the nine-
month period ended March 31, 1997. 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 $5,500
estimated debt issuance costs.
Adjustments to reflect the elimination of income tax
related accounts because income taxes are not borne by the
Partnership, except for income taxes applicable to operations
conducted by the Partnership's wholly-owned corporate
subsidiary.
<PAGE>
SYN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(In Thousands)
For the
Period
July 1,
1996 to
December 16,
1996
--------------
REVENUE $ 44,066
COST OF SALES 23,322
-------
GROSS PROFIT 20,744
-------
OPERATING EXPENSES
Salaries and commissions 7,252
General and administrative 6,151
Depreciation and amortization 1,904
Related-party corporate administration and
management fees 1,668
-------
Total operating expenses 16,975
-------
OPERATING INCOME 3,769
INTEREST EXPENSE, including $2,214 to
related party 3,311
-------
INCOME BEFORE INCOME TAXES 458
INCOME TAX EXPENSE
298
-------
NET INCOME 160
DIVIDENDS ON CUMULATIVE PREFERRED STOCK (3,878)
--------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
$ (3,718)
=========
The accompanying notes are an integral part of this
consolidated financial statement.
<PAGE>
SYN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(In Thousands)
For the Period
July 1, 1996
to
December 16,
1996
-----------------
OPERATING ACTIVITIES:
Net income $ 160
Items not requiring (providing) cash:
Depreciation and amortization 1,904
Gain on sale of assets 233
Deferred income taxes 298
Changes in operating items:
Trade receivables (1,991)
Inventories (1,873)
Prepaid expenses and other (569)
Accounts payable 2,549
Accrued expenses 3,602
--------
Net cash provided by operating
activities 4,313
--------
INVESTING ACTIVITIES:
Purchases of property and equipment (4,240)
Proceeds from sale of assets 489
--------
Net cash used in investing activities (3,751)
--------
FINANCING ACTIVITIES:
Increase in credit facility 20,367
Payments on credit facility (16,532)
Payment on long-term debt (242)
Preferred stock dividends paid (3,878)
-------
Net cash used in financing activities (285)
-------
INCREASE IN CASH 277
CASH, BEGINNING OF PERIOD 14
-------
CASH, END OF PERIOD $ 291
=======
CASH PAID DURING THE PERIOD FOR:
Interest $3,339
=====
Income taxes $190
===
The accompanying notes are an integral part of this
consolidated financial statement.
<PAGE>
SYN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In Thousands)
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.
1. SUBSEQUENT EVENTS
On December 17, 1996, substantially all of the assets and
liabilities of Synergy were contributed to Cornerstone
Propane, L.P., a subsidiary of Cornerstone Propane Partners,
L.P.
<PAGE>
EMPIRE ENERGY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(In Thousands)
For the
Period
July 1,
1996 to
December 16,
1996
-------------
REVENUE $ 43,201
COST OF SALES 23,310
---------
GROSS PROFIT 19,891
---------
OPERATING COSTS AND EXPENSES:
General and administrative 13,394
Depreciation and amortization 2,930
---------
16,324
---------
OPERATING INCOME 3,567
INTEREST EXPENSE 3,621
---------
LOSS BEFORE INCOME TAXES (54)
INCOME TAX EXPENSE 32
---------
NET LOSS $(86)
=====
The accompanying notes are an integral part of this consolidated
financial statement.
<PAGE>
EMPIRE ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(In Thousands)
For the Period
July 1, 1996
to
December 16,
1996
-------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (86)
Items not requiring (providing) cash:
Depreciation 2,671
Amortization 258
Loss on sale of assets 4
Deferred income taxes (126)
Changes in:
Trade receivables (8,352)
Inventories (4,383)
Accounts payable and accrued expenses 4,889
Prepaid expenses and other (2,313)
Income taxes payable 457
Due from SYN Inc. (1,863)
---------
Net cash used in operating activities (8,844)
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets 57
Purchases of property and equipment (2,823)
Capitalized costs (242)
--------
Net cash used in investing activities (3,008)
--------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in credit facilities 9,606
Principal payments on purchase obligations (114)
Proceeds from management buyout loan 94,000
Repayments 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 financing activities 10,292
---------
DECREASE IN CASH (1,560)
CASH:
Beginning of period 2,064
--------
End of Period $ 504
====
CASH PAID (RECEIVED) DURING THE PERIOD FOR:
Interest $910
====
Income taxes $(609)
======
The accompanying notes are an integral part of this consolidated
financial statement.
<PAGE>
EMPIRE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In Thousands)
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. CHANGES OF CONTROL
On August 1, 1996, members of management of Empire Energy
purchased the ownership (92.7% of the Common Stock) of Empire
Energy from the principal stockholder and certain other
stockholders. On October 7, 1996, the new ownership of Empire
Energy sold 100% of the common stock to Northwestern Growth
Corporation. Because of the changes in control of Empire
Energy, these acquisitions were accounted for using the
principles of purchase accounting.
3. SUBSEQUENT EVENTS
On December 17, 1996, substantially all of the assets and
liabilities of Empire Energy were contributed to Cornerstone
Propane, L.P., a subsidiary of Cornerstone Propane Partners,
L.P.
<PAGE>
CGI HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(In Thousands)
August 1,
1996
to
December
16,
1996
---------
Sales and other revenue $ 185,460
--------
Costs and expenses:
Cost of sales, except for depreciation and
amortization 173,155
Operating, general and administrative 9,919
Depreciation and amortization 1,604
Interest expense 2,238
Loss on sale of partnership interest 660
--------
Loss before income taxes (2,116)
Income tax benefit (748)
--------
Net loss $ (1,368)
=========
The accompanying notes are an integral part of this consolidated
financial statement.
<PAGE>
CGI HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(In Thousands)
August 1,
1996
to
December 16,
1996
--------------
CASH FLOWS FROM (USED FOR)
OPERATING ACTIVITIES:
Net loss $ (1,368)
Adjustments to reconcile net loss to net
cash from operating activities
Depreciation and amortization 1,604
Sale of partnership interest 202
Deferred income taxes (732)
Changes in assets and liabilities net of
acquisitions:
Accounts and notes receivable (11,532)
Inventories 4,257
Prepaid expenses and deposits (729)
Other assets (154)
Accounts payable 11,082
Accrued liabilities (1,007)
-------
1,623
-------
CASH FLOWS FROM (USED FOR) INVESTING
ACTIVITIES:
Proceeds from sale of property and
equipment 57
Purchases of and investments in property
and equipment (1,503)
-------
(1,446)
-------
CASH FLOWS FROM (USED FOR) FINANCING
ACTIVITIES:
Repayment of long-term debt (562)
Repayment of other notes payable (252)
Principal payments under capital lease obligations (506)
Borrowings under acquisition line 5,999
------
4,679
------
NET INCREASE IN CASH 4,856
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,519
------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 6,375
=======
The accompanying notes are an integral part of this consolidated
financial statement.
<PAGE>
CGI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of CGI
Holdings, Inc. (the 'Company') and its wholly-owned subsidiary, Coast
Gas, Inc., and its wholly-owned subsidiary Coast Energy Group,Inc.
('CEG'). In 1989, the Company 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 consolidated financial statements are
unaudited and have been prepared in accordance with the rules
and regulations of the Securities and Exchange Commission.
They include all adjustments which the Company considers
necessary for a fair statement of the results for the interim
periods presented. Such adjustments consisted only of normal
recurring items unless otherwise disclosed. Certain notes and
other information have been condensed or omitted from the
interim financial statements presented in this Quarterly
Report on Form 10-Q. Due to the seasonal nature of the
Company's propane business, the results of operations for
interim periods are not necessarily indicative of the results
to be expected for a full year. These financial statements
should be read in conjunction with the financial statements
contained in the Annual Report of Cornerstone Propane
Partners, L.P. on Form 10-K for the fiscal year ended June 30,
1997.
2. COMMITMENTS AND CONTINGENCIES
The Company has contracts with various suppliers to purchase a
portion of its supply needs of LPG for future deliveries with
terms ranging from one to twelve months. The contracted
quantities are not significant with respect to the Company's
anticipated total sales requirements and will generally be
acquired at prevailing market prices at the time of shipment.
Outstanding letters of credit issued in conjunction with
product supply contracts are a normal business requirement.
There were no outstanding letters of credit issued on behalf
of the Company as of December 16, 1996 other than the $13.0
million drawn against its credit guidance line.
The Company is engaged in certain legal actions related to the
normal conduct of business. In the opinion of management, any
possible liability arising from such actions will be
adequately covered by insurance or will not have a material
adverse effect on the Company's financial position or results
of operations.
3. SALE OF PARTNERSHIP INTEREST
Effective October 1, 1996, the Company 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 the Company's partnership interest to
its 50% partner and an employee of the limited partnership.
The Company 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.
4. SUBSEQUENT EVENTS
On December 17, 1996, substantially all of the assets and
liabilities of the Company were contributed to Cornerstone
Propane, L.P., a subsidiary of Cornerstone Propane Partners,
L.P.
<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 301
customer service centers in 27 states.
Because a substantial portion of the Partnership's propane is
used in the weather-sensitive residential markets, the
temperatures in the Partnership's areas of operations,
particularly during the six-month peak-heating season, have a
significant effect on the financial performance of the
Partnership. In any given area, 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. Therefore, information on normal temperatures is
used by the Partnership in understanding how historical results
of operations are affected by temperatures that are colder or
warmer than normal and in preparing forecasts of future
operations, which are based on the assumption that normal weather
will prevail in each of the Partnership's regions.
Gross profit margins are not only affected by weather patterns
but also by changes in customer mix. 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.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Analysis of Results of Operations
The following discussion compares the results of operations and
other data of the Partnership for the three-months ended March
31, 1998, to the three-months ended March 31, 1997, and the nine-
months ended March 31, 1998, to the pro forma nine-months ended
March 31, 1997, which has been prepared assuming that the
Partnership had been in existence at July 1, 1996.
Three months ended March 31, 1998, compared to the three months
ended March 31, 1997:
Volume. During the three months ended March 31, 1998, the
Partnership sold 83.5 million retail propane gallons; an increase
of 8.5 million gallons or 11.3% over the 75.0 million retail
propane gallons sold during the three months ended March 31,
1997. Wholesale volumes were 191.0 million gallons and 81.4
million gallons, for the three months ended March 31, 1998 and
1997, respectively, which represents an increase of 109.6 million
gallons or 134.6%. The increase in wholesale volume is primarily
attributable to the expansion of the wholesale business since
the formation of the Partnership in December 1996. Acquisitions
of new propane businesses since March 31, 1997, accounted for 9.1
million retail gallons during the three months ended March 31,
1998.
Based on the average number of heating degree days in the markets served
by the Partnership, for the three months ended March 31, 1998, temperatures
were approximately 7.0% warmer than normal. While this indicator generally
measures the impact of temperatures on the Partnership's business, other
factors such as geographic mix, magnitude and duration of
temperature and weather conditions can also impact sales volumes.
The overall impact of weather is believed by management to have had an adverse
impact on the Partnership's retail sales volume (excluding
acquisitions) and earnings compared to normal levels for the
three months ended March 31, 1998. The three months ended
March 31, historically accounts for approximately 48% of the
Partnership's annual EBITDA.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues. Revenues increased by $8.8 million or 4.0% to $229.3
million for the three months ended March 31, 1998, as compared to
$220.5 million for the three months ended March 31, 1997. This
increase was primarily attributable to an increase in wholesale
Natural Gas Liquids (NGL's) revenue of $10.5 million or 8.0% to
$142.5 million for the three months ended March 31, 1998, as
compared to $132.0 million for the three months ended March 31,
1997. This increase was due to the significant increase in
wholesale volumes mentioned above offset by a significant
reduction in the average cost and average sales price per gallon
of wholesale NGL. Revenues for the retail Liquid Propane Gas
(LPG) business decreased by $3.4 million, or 4.1%, to $79.2
million for the three months ended March 31, 1998, as compared to
$82.6 million for the three months ended March 31, 1997. This
decrease was a result of a reduction in both the average cost and
average sales price per gallon of LPG offset to some extent by the
increase in sales volume described above.
Cost of Product Sold. Cost of product sold increased by $1.3
million, or .7%, to $179.4 million for the three months ended
March 31, 1998, as compared to $178.1 million for the three
months ended March 31, 1997. The increase in cost of product
sold was primarily due to the increased wholesale sales volume
described above. As a percentage of revenues, cost of product
sold decreased to 78.2% for the three months ended March 31,
1998, as compared to 80.7% for the three months ended March 31,
1997.
Gross Profit. Gross profit increased by $7.5 million, or 17.5%,
to $50.0 million for the three months ended March 31, 1998, as
compared to $42.5 million for the three months ended March 31,
1997. Retail LPG per gallon margins for the three months ended
March 31, 1998, were slightly smaller than for the same period
last year, primarily due to reductions in the higher margin residential
sales due to the mild heating season as a result of El Nino weather
patterns and competitive pressures. As a percentage of revenues, gross
profit increased to 21.8% for the three months ended March 31, 1998, as
compared to 19.3% for the three months ended March 31, 1997, due
to higher retail volumes that have higher margins. Gross profit
from propane businesses acquired since March 31, 1997, was $5.1
million for the three months ended March 31, 1998.
Operating, General and Administrative Expenses. Operating,
general and administrative expense increased by $1.7 million, or
7.4%, to $25.3 million for the three months ended March 31, 1998,
as compared to $23.6 million for the three months ended March 31,
1997. Approximately $1.3 million of this increase was
attributable to increases in operating expenses resulting from
the acquisitions of new businesses since March 31, 1997, and the
correspondingly increased sales volumes discussed above. As a
percentage of revenues, operating, general and administrative
expenses increased to 11.0% for the three months ended March 31,
1998, as compared to 10.7% for the three months ended March 31,
1997.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine months ended March 31, 1998, compared to the nine months
ended March 31, 1997 (pro forma):
Volume. During the nine months ended March 31, 1998, the
Partnership sold 199.7 million retail propane gallons, an
increase of 16.6 million gallons, or 9.1%, from the 183.1 million
retail propane gallons sold during the pro forma nine months
ended March 31, 1997. Wholesale volumes were 520.9 million
gallons and 244.0 million gallons for the nine months ended March
31, 1998 and 1997 respectively, which represents an increase of 276.9
million gallons or 113.5%. The increase in wholesale volume is primarily
attributable to the expansion of the wholesale business since
the formation of the Partnership in December 1996. Acquisitions
of new propane businesses since March 31, 1997, accounted for
17.1 million retail gallons during the nine months ended March
31, 1998. For the nine months ended March 31,1998, the impact of the
recent El Nino winter adversely impacted average customer sales due to
the reduced heating degree days during the winter months in the markets
served by the Partnership. While heating degree days generally measures
the impact of temperatures on the Partnership's business, other
factors such as geographic mix, magnitude and duration of
temperature and other weather conditions can also impact sales
volumes. The overall impact of weather is believed by management to have
had an adverse impact on the Partnership's retail sales volume
(excluding acquisitions) and earnings compared to both normal and
year ago levels for the nine months ended March 31, 1998. The
nine months ended March 31 historically accounts for
approximately 96% of the Partnership's EBITDA.
Revenues. Revenues increased by $87.8 million, or 16.4%, to
$623.3 million for the nine months ended March 31, 1998, as
compared to $535.5 million for the pro forma nine months ended
March 31, 1997. This increase was attributable to an increase in
wholesale NGL revenues of $175.2 million or 74.6% to $409.9
million for the nine months ended March 31, 1998, as compared to
$234.7 million for the pro forma nine months ended March 31,
1997, reflecting the increase in wholesale volume mentioned
above. The revenues for the retail LPG business decreased by
$4.2 million, or 2.2%, to $185.9 million for the nine months
ended March 31, 1998, as compared to $190.1 million for the pro
forma nine months ended March 31, 1997. This decrease was a
result of a reduction in both the average cost and average sales
price per gallon of propane offset to some extent by the increase
in sales volume described above.
<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 $76.3
million, or 17.8%, to $505.3 million for the nine months ended
March 31, 1998, as compared to $429.0 million for the pro forma
nine months ended March 31, 1997. The increase in cost of
product sold was primarily due to the increased wholesale sales
volume described above. As a percentage of revenues, cost of
product sold increased to 81.1% for the nine months ended March
31, 1998, as compared to 80.1% for the pro forma nine months
ended March 31, 1997.
Gross Profit. Gross profit increased by $11.4 million, or 10.7%,
to $118.0 million for the nine months ended March 31, 1998, as
compared to $106.5 million for the pro forma nine months ended
March 31, 1997. Retail per gallon margins for the nine months
ended March 31, 1998, were slightly smaller than for the same
period last year, primarily due to reductions in the higher margin
residential sales volumes due to the mild winter heating season.
As a percentage of revenues, gross profit decreased to 18.9% for the
nine months ended March 31, 1998, as compared to 19.9% for the
pro forma nine months ended March 31, 1997. The decrease was
caused by higher wholesale volumes which have lower margins.
Gross profit from propane businesses acquired since March 31,
1997, was $9.5 million for the nine months ended March 31, 1998.
Operating, General and Administrative Expenses. Operating,
general and administrative expense increased by $6.5 million, or
9.9%, to $72.8 million for the nine months ended March 31, 1998,
as compared to $66.2 for the pro forma nine months ended March
31, 1997. Approximately $4.3 million of this increase was
attributable to increases in operating expenses resulting from
the acquisitions of new businesses since March 31, 1997, and the
correspondingly increased sales volumes discussed above. As a
percentage of revenues, operating, general and administrative
expenses decreased to 11.7% for the nine months ended March 31,
1998, as compared to 12.4% for the pro forma nine months ended
March 31, 1997.
The partnership utilizes software and various technologies
throughout its business 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 the
needs of its customers. The Partnership has began to incur
expenses in 1998 to resolve this issue. The expenses will
continue through the year 1999 but are not expected to be
material to the Partnership's operations.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Operating Activities. Cash provided by operating activities
during the nine-month period ended March 31, 1998, was $11.6
million. Cash flow from operations included net income of $16.9
million, and noncash charges of $12.9 million for the period,
principally comprised of depreciation and amortization expense.
The impact of working capital changes decreased cash flow by
approximately $18.2 million.
Investing Activities. Cash used in investment activities for the
nine month period ended March 31, 1998, totaled $25.1 million,
which was primarily related to Partnership acquisitions and for purchases
of property, plant and equipment.
Financing Activities. Cash provided by financing activities was
$11.1 million for the nine months ended March 31, 1998, which
principally reflects the $40.8 million net proceeds received from
the issuance of 1,960,000 additional Common Units, offset by
repayments of purchase contract obligations of $3.1 million,
payment of financing costs of $2.4 million and cash distributions
paid to Unitholders of $26.1 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 March 31, 1998.
In January 1998, the Partnership sold an aggregate of 1,960,000
Common Units at $22.125 per unit in pursuant to an underwritten
public offering. Net proceeds to the Partnership were
approximately $40.8 million. The Partnership used approximately
$10.0 million of net proceeds for general business purposes and
the balance to repay amounts outstanding under the Bank Credit
Facility.
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.
<PAGE>
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:
On January 12, 1998, the Company filed a report on Form 8-
K noting the Underwriting Agreement for the January 1998, public
offering of 1,960,000 Common Units of the Company.
<PAGE>
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.
Managing General Partner
Date: May 14, 1998 By: /s/ Ronald J. Goedde
---------------------
Name: Ronald J. Goedde
Title: Executive Vice President
and Chief Financial Officer
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<PERIOD-START> JUL-1-1997
<PERIOD-END> MAR-31-1998
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<TOTAL-ASSETS> 580,224
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0
0
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