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 December 31, 1997
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 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 February 9, 1998: 13,086,552 - 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 December 31, 1997 and 1996,
and June 30, 1997
Consolidated Statements of Operations for the Three Months and Six
Months Ended December 31, 1997, and the Period from Commencement
of Operations on December 17, 1996 to December 31, 1996
Consolidated Statements of Cash Flows for the Six Months Ended
December 31, 1997, and the Period from Commencement of
Operations on December 17, 1996 to December 31, 1996
Notes to Consolidated Financial Statements
Cornerstone Propane Partners, L.P. (Pro Forma)
- ------------------------------------------------
Consolidated Statements of Operations for the Three Months and
Six Months Ended December 31, 1997 and 1996
Notes to Pro Forma Consolidated Financial Information
SYN, Inc. (Predecessor)
- ------------------------
Consolidated Statements of Operations for the Periods October 1,
1996 to December 16, 1996 and July 1, 1996 to December 16, 1996
Consolidated Statement of Cash Flows for the Period July 1,
1996 to December 16, 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 Periods October 1,
1996 to December 16, 1996 and July 1, 1996 to December 16, 1996
Consolidated Statement of Cash Flows for the Period
July 1, 1996 to December 16, 1996
Notes to Consolidated Financial Statements
CGI Holdings, Inc. (Predecessor)
--------------------------------
Consolidated Statements of Operations for the Periods November 1,
1996 to December 16, 1996, and August 1, 1996 to
December 16, 1996
Consolidated Statement of Cash Flows for the Period August 1,
1996 to December 16, 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 December 31, 1997 (Actual) and the
Three Months Ended December 31, 1996 (Pro Forma) and for the
Six Months Ended December 31, 1997 (Actual) and the Six
Months Ended December 31, 1996 (Pro Forma)
Part II. Other Information
Item 6 Exhibits and Reports on Form 8-K
Signature
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands, except unit data)
ASSETS
--------
December 31, June 30,
1997 1996 1997
-------- ------- --------
Current assets:
Cash and cash equivalents $ 9,774 $ 24,050 $ 8,406
Trade receivables, net 57,819 76,204 41,924
Inventories 11,454 31,328 15,538
Prepaid expenses and other
current assets 6,328 2,942 4,393
-------- -------- --------
Total current assets 85,375 134,524 70,261
Property, plant and equipment, net 259,296 243,004 247,943
Goodwill and other intangible
assets, net 236,832 199,248 221,748
Other assets 2,260 5,810 1,041
-------- -------- --------
Total assets $583,763 $582,586 $540,993
======== ======== ========
LIABILITIES AND PARTNERS' CAPITAL
----------------------------------
Current liabilities:
Current portion of long-term
debt $ 2,244 $ 674 $ 5,736
Trade accounts payable 51,937 82,856 42,334
Accrued expenses 18,769 10,084 12,672
-------- -------- --------
Total current liabilities 72,950 93,614 60,742
-------- -------- --------
Long-term debt 264,281 230,445 231,532
Due to related party 402 2,074 740
Other noncurrent liabilities 4,555 22,590 4,050
-------- -------- --------
Total liabilities 342,188 348,723 297,064
-------- -------- --------
Commitments and contingencies
Partners' capital:
Common unitholders (11,126,552
units issued and outstanding) 151,054 137,090 146,851
Subordinated unitholders
(6,597,619 units issued
and outstanding) 85,604 92,096 92,106
General partners 4,917 4,677 4,972
-------- -------- --------
Total partners' capital 241,575 233,863 243,929
-------- -------- --------
Total liabilities and
partners' capital $583,763 $582,586 $540,993
======== ======== ========
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands, except per unit data)
Period From
Commencement
of Operations on
Three Months Six Months December 17,
Ended Ended 1996 to
December 31, December 31, December 31,
1997 1997 1996
------------ ----------- -----------
Revenue $ 241,778 $ 393,935 $ 40,370
Cost of sales 198,085 325,940 31,341
------------ ----------- -----------
Gross profit 43,693 67,995 9,029
------------ ----------- -----------
Expenses:
Operating, general and
administrative 24,817 47,417 4,378
Depreciation and amortization 4,307 8,901 575
------------ ----------- -----------
29,124 56,318 4,953
------------ ----------- -----------
Operating income 14,569 11,677 4,076
Interest expense 5,036 9,817 778
------------ ----------- -----------
Income before provision for
income taxes 9,533 1,860 3,298
Provision for income taxes 31 52 5
------------ ----------- -----------
Net income $ 9,502 $ 1,808 $ 3,293
============ =========== ===========
General partner's interest
in net income $ 190 $ 36 $ 66
============ =========== ===========
Limited partners' interest
in net income $ 9,312 $ 1,772 $ 3,227
============ =========== ===========
Net income per unit $ .54 $ .10 $ .20
============ =========== ===========
Weighted average number
of units outstanding 17,397 17,254 16,513
============ =========== ===========
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)
Period From
Commencement
of Operations on
Six Months December17,
Ended 1996 to
December 31, December 31,
1997 1996
----------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,808 $ 3,293
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 8,901 575
Changes in assets and liabilities,
net of effect of acquisitions:
Trade receivables (15,313) 2,275
Inventories 4,245 (5,035)
Prepaid expenses and other assets (2,549) (182)
Trade accounts payable and accrued
expenses 13,269 3,563
----------- ------------
Net cash provided by
operating activities 10,361 4,489
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant
and equipment (6,849) (504)
Acquisitions, net of cash received (6,411) -
----------- ------------
Net cash used in investing
activities (13,260) (504)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on Working Capital Facility 31,400 -
Payment on Working Capital Facility - (2,355)
Financing Costs (2,420) -
Payments on purchase obligations (6,143) -
General partners contribution 288 -
Partnership distributions (18,858) -
----------- ------------
Net cash provided by (used in)
financing activities 4,267 (2,355)
----------- ------------
PARTNERSHIP FORMATION TRANSACTIONS:
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 - (10,277)
----------- ------------
Net cash provided by partnership
formation transactions - 22,418
----------- ------------
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Period From
Commencement
of Operations on
Six Months December17,
Ended 1996 to
December 31, December 31,
1997 1996
----------- -------------
INCREASE IN CASH AND CASH EQUIVALENTS $ 1,368 $ 24,048
CASH AND CASH EQUIVALENTS, Beginning of Period 8,406 2
----------- -------------
CASH AND CASH EQUIVALENTS, End Of Period $ 9,774 $ 24,050
=========== =============
CASH PAID DURING THE PERIOD FOR:
Interest $ 8,959 $ 690
=========== =============
Non Cash Transactions
Assets acquired in exchange for
Common Units $ 14,408
===========
Assets acquired in exchange for
long-term debt issued $ 2,876
===========
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)
DECEMBER 31, 1997
(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 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 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.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1997
(Dollars in thousands, except unit data)
The Minimum Quarterly Distribution 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. On January 27, 1998, the Minimum Quarterly Distribution for the
period October 1, 1997 to December 31, 1997, was declared in the amount
of $7,212 representing in the aggregate distributions to the general
partner and $.54 per Common Unit. This distribution is to be paid on or
prior to February 15, 1998. No distribution was declared on the
Subordinated Units.
3.ACQUISITIONS
- ---------------
Effective October 31, 1997, the Partnership registered 3,000,000
additional units which were available to be used for future
acquisitions. The Partnership consummated four acquisitions during the
six month ended December 31, 1997. The total consideration for the
acquisitions was approximately $23.7 million of which approximately
$14.4 million was in the form of Common Units (approximately 614,000
Common Units) with the remainder paid primarily with the issuance of
debt. All acquisitions have been accounted for using the principles of
purchase accounting. Subsequent to December 31, 1997, the Partnership
issued 1,960,000 additional Common Units (See Note 6).
4.NET INCOME PER UNIT
- ----------------------
Net income per unit is computed by dividing net income, 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 did 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.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1997
(Dollars in thousands, except unit data)
6.SUBSEQUENT EVENTS
- ----------------------
On January 14 and 16, 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 $40.7 million. Pending the use of such proceeds for
internal growth and acquisitions, 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 OPERATIONS (UNAUDITED)
DECEMBER 31, 1997
(Dollars in thousands, except per unit data)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1997 1996 1997 1996
------------ ------------ ------------ ------------
(Actual) (Pro Forma) (Actual) (Pro Forma)
Revenue $ 241,778 $ 173,181 $ 393,935 $ 314,937
Cost of sales 198,085 133,390 325,940 250,909
------------ ------------ ------------ ------------
Gross profit 43,693 39,791 67,995 64,028
------------ ------------ ------------ ------------
Expenses:
Operating, general
and administrative 24,817 21,761 47,417 42,619
Depreciation and
amortization 4,307 3,391 8,901 7,129
------------ ------------ ------------ ------------
29,124 25,152 56,318 49,748
------------ ------------ ------------ ------------
Operating income 14,569 14,639 11,677 14,280
Interest expense 5,036 4,582 9,817 9,049
------------ ------------ ------------ ------------
Income before provision
for income taxes 9,533 10,057 1,860 5,231
Provision for income
taxes 31 25 52 50
------------ ------------ ------------ ------------
Net income $ 9,502 $ 10,032 $ 1,808 $ 5,181
============ ============ ============ ============
General partners'
interest in net
income $ 190 $ 195 $ 36 $ 104
============ ============ ============ ============
Limited partners'
interest in net
income $ 9,312 $ 9,547 $ 1,772 $ 5,077
============ ============ ============ ============
Net income per unit $ .54 $ .58 $ .10 $ .31
============ ============ ============ ============
Weighted average
number of
units outstanding 17,397 16,513 17,254 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)
DECEMBER 31, 1997
(Dollars in thousands)
1.Basis of Presentation
------------------------
The unaudited pro forma consolidated statement of operations for the
three and six months ended December 31, 1996, were derived from the
historical statements of operations of Empire Energy Corporation (Empire
Energy) for the periods October 1 through December 16, 1996 and July 1
through December 16, 1996, of SYN Inc. (Synergy) for the periods October 1
through December 16, 1996, and July 1 through December 16, 1996, and of CGI
Holdings, Inc. (Coast) for the period November 1 through December 16, 1996,
and August 1 through December 16, 1996, and the consolidated statement of
operations of the Partnership from December 17, 1996 through December 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 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
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 $405 and $838 relating to
corporate overhead consolidation, the consolidation of certain retail
locations and, the elimination of bank and consulting fees for the three
and six month periods ending December 31, 1996, respectively.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1997
(Dollars in thousands)
Adjustments of $20 and $40 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 for the three and six month periods ending
December 31, 1996, respectively.
Adjustments to reduce interest expense by $90 and $180 to reflect
interest expense applicable to the Partnership for the three and six
month periods ending December 31, 1996, respectively. 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 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 STATEMENTS OF OPERATIONS (UNAUDITED)
(In Thousands)
For the For the
Period Period
October 1, July 1,
1996 to 1996 to
December 16, December 16,
1996 1996
------------ ------------
REVENUE $ 26,183 $ 44,066
COST OF SALES 14,382 23,322
------------ ------------
GROSS PROFIT 11,801 20,744
------------ ------------
OPERATING EXPENSES:
Salaries and commissions 3,387 7,252
General and administrative 3,068 6,151
Depreciation and amortization 904 1,904
Related-party corporate administration
and management fees 703 1,668
------------ ------------
Total operating expenses 8,062 16,975
------------ ------------
OPERATING INCOME 3,739 3,769
INTEREST EXPENSE, including $1,010 and
$2,214 to related party, respectively 1,646 3,311
------------ ------------
INCOME BEFORE INCOME TAXES 2,093 458
INCOME TAX EXPENSE 848 298
------------ ------------
NET INCOME 1,245 160
DIVIDENDS ON CUMULATIVE PREFERRED STOCK (1,805) (3,878)
------------ ------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (560) $ (3,718)
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
<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.
2.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 STATEMENTS OF OPERATIONS (UNAUDITED)
(In Thousands)
For the For the
Period Period
October 1, July 1,
1996 to 1996 to
December 16, December 16,
1996 1996
----------- ------------
REVENUE $ 28,166 $ 43,201
COST OF SALES 15,400 23,310
----------- ------------
GROSS PROFIT 12,766 19,891
----------- ------------
OPERATING COSTS AND EXPENSES:
General and administrative 6,386 13,394
Depreciation and amortization 1,344 2,930
----------- ------------
7,730 16,324
----------- ------------
OPERATING INCOME 5,036 3,567
INTEREST EXPENSE 1,917 3,621
----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES 3,119 (54)
INCOME TAX EXPENSE 1,197 32
----------- ------------
NET INCOME (LOSS) $ 1,922 $ (86)
=========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
<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 DURING THE PERIOD FOR:
Interest $ 910
==============
Income taxes $ (609)
==============
The accompanying notes are an integral part of these consolidated financial
statements.
<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 STATEMENTS OF OPERATIONS (UNAUDITED)
(In Thousands)
November 1, August 1,
1996 1996
to to
December 16, December 16,
1996 1996
----------- -----------
Sales and other revenue $ 77,285 $ 185,460
Costs and expenses:
Cost of sales, except for depreciation
and amortization 72,889 173,155
Operating, general and administrative 3,627 9,919
Depreciation and amortization 537 1,604
Interest expense 944 2,238
Sale of partnership interest - 660
----------- -----------
Loss before income taxes (712) (2,116)
Income tax benefit (257) (748)
----------- -----------
Net loss $ (455) $ (1,368)
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
<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.
<PAGE>
CGI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 292
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 realized 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 December 31, 1997, to the pro
forma three-months ended December 31, 1996, and the six-months December 31,
1997, to the pro forma six-months ended December 31, 1996. Note all pro-
forma information has been prepared assuming that the Partnership had been
in existence at the beginning of the periods presented.
Three months ended December 31, 1997, (actual) compared to the three months
ended December 31, 1996 (pro forma):
Volume. During the three months ended December 31, 1997, the Partnership
sold 74.9 million retail propane gallons, an increase of 5.4 million
gallons or 7.8% from the 69.5 million retail propane gallons sold during
the pro forma three months ended December 31, 1996. Wholesale volumes were
200.0 million gallons and 75.6 million gallons, respectively, for the three
months ended December 31, 1997 and 1996, respectively, which represents an
increase of 124.4 million or 164.6%. The increase in wholesale volume is
primarily attributable to the expansion of the wholesale business due to
the formation of the Partnership in December 1996. Acquisition of new
propane businesses since January 1, 1997, accounted for 6.0 million retail
gallons during the three months ended December 31, 1997.
The average number of heating degree days, in the markets served by the
Partnership, for the three months ended December 31, 1997, was
approximately 7% cooler than normal and approximately 9% cooler than last
year, respectively. 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
estimated to have had a slightly adverse impact on the Partnership's retail
sales volume, (excluding acquisitions) and earnings compared to both normal
and year ago levels for the three months ended December 31, 1997. The
three months ended December 31, historically accounts for approximately 33%
and 43% of the Partnership's annual retail sales volume and EBITDA,
respectively.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues. Revenues increased by $68.6 million or 39.6% to $241.8 million
for the three months ended December 31, 1997, as compared to $173.2 million
for the pro forma three months ended December 31, 1996. This increase was
attributable to an increase in wholesale revenues of $69.9 million or 75.1%
to $163.0 million for the three months ended December 31, 1997, as compared
to $93.1 million for the pro forma three months ended December 31, 1996.
This increase was due primarily to the significant increase in wholesale
volume mentioned above. The revenues for the retail business decreased by
$1.4 million, or 1.7% to $78.8 million for the three months ended December
31, 1997, as compared to $80.2 million for the pro forma three months ended
December 31, 1996. This decrease was a result of a reduction in both the
average cost and average sales price per gallon of propane offset by the
increase in sales volume described above.
Cost of Product Sold. Cost of product sold increased by $64.7 million or
48.5%, to $198.1 million for the three months ended December 31, 1997, as
compared to $133.4 million for the pro forma three months ended December
31, 1996. 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 81.9% for the three months
ended December 31, 1997, as compared to 77.0% for the pro forma three
months ended December 31, 1996.
Gross Profit. Gross profit increased by $3.9 million, or 9.8%, to $43.7
million for the three months ended December 31, 1997, as compared to $39.8
million for the pro forma three months ended December 31, 1996. Retail per
gallon margins for the three months ended December 31, 1997, were slightly
smaller than for the same period last year, primarily due to changes in
customer mix. As a percentage of revenues, gross profit decreased to 18.1%
for the three months ended December 31, 1997, as compared to 23.0% for the
pro forma three months ended December 31, 1996. Gross profit from propane
businesses acquired since January 1, 1997, was $3.6 million for the three
months ended December 31, 1997.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating, General and Administrative Expenses. Operating, general and
administrative expense increased by $3.1 million, or 14.0% to $24.8 million
for the three months ended December 31, 1997, as compared to $21.8 million
for the pro forma three months ended December 31, 1996. Approximately $1.2
million of this increase was attributable to increases in operating
expenses resulting from the acquisitions of new businesses since January 1,
1997, and the correspondingly increased sales volumes discussed above. As
a percentage of revenues, operating, general and administrative expenses
decreased to 10.3% for the three months ended December 31, 1997, as
compared to 12.6% for the pro forma three months ended December 31, 1996.
Six months ended December 31, 1997, (actual) compared to the six months
ended December 31, 1996 (pro forma):
Volume. During the six months ended December 31, 1997, the Partnership
sold 116.2 million retail propane gallons, an increase of 7.4 million
gallons, or 6.8% from the 108.8 million retail propane gallons sold during
the pro forma six months ended December 31, 1996. Wholesale volumes were
340.9 million gallons and 184.7 million gallons, respectively, for the six
months ended December 31, 1997 and 1996, which represents an increase of
156.2 million or 84.6%. The increase in wholesale volume is primarily
attributable to the expansion of the wholesale business due to the
formation of the Partnership in December 1996. Acquisitions of new propane
businesses since January 1, 1997, accounted for 8.2 million retail gallons
during the six months ended December 31, 1997.
The average number of heating degree days, in the markets served by the
Partnership, for the six months ended December 31, 1997, was approximately
6% cooler than normal and approximately 8% cooler than last year,
respectively. 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
estimated to have had a slightly adverse impact on the Partnership's retail
sales volume (excluding acquisitions) and earnings compared to both normal
and year ago levels for the six months ended December 31, 1997. The six
months ended December 31 historically accounts for approximately 50% and
48% of the Partnership's annual retail sales volume and EBITDA,
respectively.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues. Revenues increased by $79.0 million, or 25.1%, to $393.9 million
for the six months ended December 31, 1997, as compared to $314.9 million
for the pro forma six months ended December 31, 1996. This increase was
attributable to an increase in wholesale revenues of $80.0 million or 41.4%
to $273.4 million for the six months ended December 31, 1997, as compared
to $193.4 million for the pro forma six months ended December 31, 1996,
reflecting the increase in wholesale volume mentioned above. The revenues
for the retail business decreased by $1.0 million, or .8%, to $120.5
million for the six months ended December 31, 1997, as compared to $121.5
million for the pro forma six months ended December 31, 1996. This
decrease was a result of a reduction in both the average cost and average
sales price per gallon of propane offset by the increase in sales volume
described above.
Cost of Product Sold. Cost of product sold increased by $75.0 million, or
29.9%, to $325.9 million for the six months ended December 31, 1997, as
compared to $250.9 million for the pro forma six months ended December 31,
1996. 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 82.7% for the six months ended
December 31, 1997, as compared to 79.7% for the pro forma six months ended
December 31, 1996.
Gross Profit. Gross profit increased by $4.0 million, or 6.2% to $68.0
million for the six months ended December 31, 1997, as compared to $64.0
million for the pro forma six months ended December 31, 1996. Retail per
gallon margins for the six months ended December 31, 1997, were slightly
smaller than for the same period last year, primarily due to changes in
customer mix. As a percentage of revenues, gross profit decreased to 17.3%
for the six months ended December 31, 1997, as compared to 20.3% for the
pro forma six months ended December 31, 1996. Gross profit from propane
businesses acquired since January 1, 1997 was $4.4 million for the six
months ended December 31, 1997.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating, General and Administrative Expenses. Operating, general and
administrative expense increased by $4.8 million, or 11.3%, to $47.4
million for the six months ended December 31, 1997, as compared to $42.6
for the pro forma six months ended December 31, 1996. Approximately $2.4
million of this increase was attributable to increases in operating
expenses resulting from the acquisitions of new businesses since January 1,
1997, and the correspondingly increased sales volumes discussed above. As
a percentage of revenues, operating, general and administrative expenses
decreased to 12.0% for the six months ended December 31, 1997, as compared
to 13.5% for the pro forma six months ended December 31, 1996.
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 will begin
to incur expenses in 1998 to resolve this issue. The expenses may continue
through the year 1999 but are not expected to be material to the
Partnership's operations.
Liquidity and Capital Resources
Operating Activities. Cash provided by operating activities during the six-
month period ended December 31, 1997, was $10.4 million. Cash flow from
operations included net income of $1.8 million, and noncash charges of $8.9
million for the period were comprised of depreciation and amortization
expense. The impact of working capital changes decreased cash flow by
approximately $.3 million.
Investing Activities. Cash used in investment activities for the six month
period ended December 31, 1997, totaled $13.3 million, which was
principally used for purchases of property, plant and equipment and the
Partnership's recent acquisitions.
Financing Activities. Cash provided by financing activities was $4.3
million for the six months ended December 31, 1997, which principally
reflects additional borrowings on the working capital facility of $31.4
million offset by repayments of purchase contract obligations of $6.1
million, payment of financing costs of $2.4 million and cash distributions
paid to Unitholders of $18.9 million.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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
December 31, 1997.
On January 14 and 16, 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 $40.7
million. Pending the use of such proceeds for internal growth and
acquisitions, 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.
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 did 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.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. There
are certain important factors discussed below that could cause results to
differ materially from those anticipated by some of the statements made
herein. Investors are cautioned that all forward-looking statements
involve risks and uncertainty. Among the factors that could cause actual
results to differ materially are the following: pricing strategies of
competitors, the Partnership's ability to continue to receive adequate
product from its vendors on acceptable credit terms and to obtain
sufficient financing to meet its liquidity needs, effects of weather and
overall economic conditions, including inflation, consumer confidence,
spending habits and disposable income.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P.
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
a) Exhibits:
(10.5) Form of Amended and Restated Employment Agreement
(27) Financial Data Schedule
b) Reports on Form 8-K:
None
<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: February 12, 1998 By: /s/ Ronald J. Goedde
---------------------
Name: Ronald J. Goedde
Title: Executive Vice President
and Chief Financial Officer
EXHIBIT 10.5
FORM OF AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") effective May 1, 1997 is
entered into by and between _________________, an individual ("Executive"),
and Cornerstone Propane GP, Inc., a California corporation ("Cornerstone").
RECITALS:
---------
A. The business purpose of Cornerstone is to serve as the
managing general partner of Cornerstone Propane Partners, L.P., a Delaware
limited partnership, and Cornerstone Propane, L.P., a Delaware limited
partnership (collectively the "Partnerships").
B. Executive will provide management services to Cornerstone
and the Partnerships, and, in addition, to all propane distribution and
related companies and businesses ("Additional Companies") in which
Cornerstone or the Partnerships may directly or indirectly hold a majority
voting or equity interest after the effective date of this Agreement.
C. It is contemplated, but not required, by Cornerstone and
Executive that Executive will also provide management services to propane
distribution and related companies and businesses purchased by Northwestern
Public Service Company (the "Parent") or Northwestern Growth Corporation
("NGC"), other than through Cornerstone or a Partnership.
AGREEMENT:
---------
1. Employment by Cornerstone and Duration.
--------------------------------------
a. FULL TIME AND BEST EFFORTS. Subject to the terms set forth
herein, Cornerstone agrees to employ Executive as President & Chief
Executive Officer to provide management services relating to the businesses
conducted by Cornerstone, the Partnerships and the Additional Companies,
and Executive hereby accepts such employment. During the duration of his
employment with Cornerstone, Executive will devote his best efforts and
substantially all of his business time and attention to the performance of
his duties hereunder, except for vacation periods as set forth herein and
reasonable absences due to injury or illness as permitted by Cornerstone's
general policies.
b. DUTIES. Executive shall serve as Chief Executive Officer of
Cornerstone, with management authority for Cornerstone, the Partnerships
and the Additional Companies, and shall perform such duties as are
customarily associated with his current title, consistent with the Bylaws
of Cornerstone and as required by Cornerstone's Board of Directors (the
"Board").
c. DURATION. This Agreement shall be effective on May 1, 1997,
and end on the third anniversary of such date, subject to the provisions
for termination set forth herein.
d. LOCATIONS OF PERFORMANCE. Executive shall be domiciled in
the vicinity of Watsonville, California. The parties acknowledge, however,
that Executive will be required to undertake reasonable travel to
Cornerstone's, the Partnerships' and the Additional Companies' market
areas, including Cornerstone's South Dakota facilities, in connection with
the performance of his duties hereunder.
2. Compensation and Benefits.
-------------------------
a. SALARY. Executive shall receive for services to be rendered
hereunder an annual base salary of $_____________ payable on a twice-
monthly basis, subject to increase at the sole discretion of the Board.
b. BONUS. Executive shall receive such discretionary bonuses,
if any, as the Board, in its sole discretion and from time to time, may
deem appropriate.
c. ACQUISITION MANAGEMENT FEES. Executive will be paid an
Acquisition Management Fee of $____________ per month. This amount will be
paid on the first of each month.
d. ANNUAL OPERATING PERFORMANCE INCENTIVE PLAN. Executive shall
be eligible to participate in Cornerstone's Annual Operating Performance
Incentive Plan on the terms and conditions set forth in Schedule A attached
hereto and by this reference incorporated herein.
e. NEW ACQUISITIONS INCENTIVE PLAN. Executive shall be eligible
to participate in Cornerstone's New Acquisitions Incentive Plan on the
terms and conditions set forth in Schedule B attached hereto and by this
reference incorporated herein.
f. LONG-TERM EQUITY INCENTIVE PLAN. Executive shall be eligible
to participate in Cornerstone's Long-Term Equity Incentive Plan on the
terms and conditions set forth in Schedule C attached hereto and by this
reference incorporated herein.
g. RESTRICTED UNIT PLAN. Executive shall be eligible to
participate in Cornerstone's Restricted Unit Plan.
h. PARTICIPATION IN BENEFIT PLANS. During the duration of
employment hereunder, Executive shall be entitled to participate in the
benefit plans and programs as described on the attached Exhibit E.
Cornerstone may, in its sole discretion and from time to time, establish
additional senior management benefit programs as it deems appropriate.
i. LIFE INSURANCE. Cornerstone shall maintain life insurance in
the amount of $_____________ on the life of Executive payable to such
beneficiary or beneficiaries as Executive may designate from time to time.
j. VACATION. Executive shall be entitled to an annual vacation,
but in no event to exceed four (4) weeks per year.
k. WITHHOLDING. All payments and benefits under this section 2
for which withholding is required under applicable law will be made subject
to the required withholding.
3. REASONABLE BUSINESS EXPENSES AND SUPPORT.
Executive shall be reimbursed for documented and reasonable
business expenses in connection with the performance of his duties
hereunder. Executive shall be furnished reasonable office space at 432
Westridge Drive, Watsonville, California, or successor location in
Watsonville, California, or other location as mutually agreed by Executive
and Cornerstone ("Primary Office") as well as support assistance and
facilities.
4. TERMINATION OF EMPLOYMENT.
The date on which Executive's employment by Cornerstone
ceases, under any of the following circumstances, shall be defined herein
as the "Termination Date".
a. TERMINATION WITHOUT CAUSE.
i. TERMINATION PAYMENT. Upon notice to Executive,
Cornerstone's Board may terminate Executive's employment with Cornerstone
at will at any time for any reason and without "cause", as defined below.
In the event Executive's employment is terminated by Cornerstone without
cause, Executive shall receive payment for all accrued salary, Acquisition
Management Fees and vacation time through the Termination Date, and
Cornerstone shall pay Executive as severance an amount that is equal to the
compensation of Executive under this Agreement for the remaining balance of
the duration of employment under this Agreement plus an amount equal to
Executive's salary and Acquisition Management Fee for the 12 full months
immediately preceding the Termination Date. For purposes of this paragraph
4(a)(i), the term "compensation" shall be defined to include (1) all salary
and Acquisition Management Fee provided in paragraphs 2(a) and (c) and (2)
an annual bonus equal to the most recent annual bonus provided under
paragraph 2(b) prior to the Termination Date.
ii. FUNDAMENTAL CHANGES. In the event that Cornerstone
makes a fundamental change as defined herein below, Executive may at any
time thereafter terminate his employment; provided, however that Executive
shall provide Cornerstone ten (10) days notice prior to any such
termination, and Cornerstone shall have a reasonable period of time not to
exceed thirty (30) days to cure such fundamental change. "Fundamental
change" shall be defined as any of the following:
(a) Diminution in Executive's duties, authority,
responsibility and/or compensation;
(b) Cornerstone moves Executive's primary office more
than fifty (50) miles from Watsonville, California without Executive's
consent;
(c) NGC, the Parent or an affiliate or a Partnership
or an Additional Company sells its interest, direct or indirect and whether
through the sale of equity interests, sale of assets, merger or other form
of transaction, in any business or properties conducted or owned, directly
or indirectly, by Cornerstone, the Partnerships or an Additional Company
after the effective date of this Agreement such that the total EBITDA of
the businesses and properties for which Executive remains responsible falls
below 70% of the EBITDA of the Partnerships on the effective date of this
Agreement.
(d) any one or more of the following:
(i) any person (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other
than as a trustee or other fiduciary holding securities under an employee
benefit plan of the Parent, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Parent representing 20% or more of the total voting power
represented by the Parent's then outstanding voting securities, or
(ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Parent and any new directors whose election by the Board
of Directors or nomination for election by the Parent's stockholders was
approved by a vote of at least two thirds (2/3) of the directors still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for
any reason to constitute a majority of the Board of Directors of the
Parent, or
(iii) the stockholders of the Parent approve a
merger or consolidation of the Parent with any other corporation, other
than a merger or consolidation which would result in the voting securities
of the Parent outstanding immediately prior to such a merger or
consolidation continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving entity) at least
66-2/3% of the total voting power represented by the voting securities of
the Parent or such surviving entity outstanding immediately after such
merger or consolidation, or
(iv) the stockholders of the Parent approve a plan
of complete liquidation of the Parent, an agreement for the sale or
disposition of the Parent (in one transaction or a series of transactions)
or of all or substantially all of the Parent's assets, or a plan of
reorganization pursuant to which (in one transaction or a series of
transactions) all or substantially all of the Parent's assets shall be
transferred to a person (as that term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended) not wholly owned by the
Parent, or
(v) the Parent shall no longer be the beneficial
owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934,
as amended) of at least 66-2/3% of the outstanding shares of each class of
equity securities of Cornerstone, provided that a public offering of
securities after which the Parent, directly or through one or more
subsidiaries, is the controlling entity shall not trigger this paragraph
4(a)(ii)(d)(v), or
(vi) the Parent shall, by issuing a proxy, power
or attorney, or similar authorization or entering into a contract or other
arrangement of any kind, shall no longer effectively control Cornerstone.
* * *
A termination by Executive in the event of a fundamental change
shall be treated as a Company termination without cause, and Executive
shall be entitled to the same severance payments as provided in paragraph
4(a)(i), provided Executive terminates his employment within 120 days after
he receives notice of such fundamental change.
b. TERMINATION FOR CAUSE.
i. TERMINATION PAYMENT OF ACCRUED SALARY, ACQUISITION
MANAGEMENT FEE AND VACATION. Cornerstone's Board may terminate Executive's
employment with Cornerstone at any time for "cause" as defined below,
immediately upon notice to Executive of the circumstances leading to such
termination for cause. In the event that Executive's employment is
terminated for cause, Executive shall receive payment for all accrued
salary, Acquisition Management Fee and vacation time through the
Termination Date, which in this event shall be the date upon which notice
of termination is given. Cornerstone shall have no further obligation to
pay severance of any kind nor to make any payment in lieu of notice.
ii. DEFINITION OF CAUSE. "CAUSE" means the occurrence or
existence of any of the following with respect to Executive, as determined
by a majority of the Directors of the Board: (a) any act of dishonesty,
misappropriation, embezzlement, intentional fraud or similar conduct
involving Cornerstone, any Partnership or any Additional Companies; (b) the
conviction or the plea of nolo contendere or the equivalent in respect to a
felony involving moral turpitude; (c) any intentional damage of a material
nature to any property of Cornerstone, any Partnership or any Additional
Companies; or (d) conduct by Executive which demonstrates gross unfitness
to serve in his capacity as employee of Cornerstone.
c. TERMINATION UPON DISABILITY. Cornerstone may terminate
Executive's employment in the event Executive suffers a disability that
renders Executive unable to perform the essential functions of his
position, even with reasonable accommodation, for nine (9) months within
any twelve (12) month period. Commencing on the Termination Date, which in
this event shall be the date upon which notice of termination is given,
Cornerstone shall pay Executive an amount equal to that payable upon
termination without cause under paragraph 4(a)(i).
d. BENEFITS UPON TERMINATION. All benefits provided under
paragraph 2(h) hereof shall be extended, to the extent permitted by
Cornerstone's insurance policies and benefit plans, for one (1) year after
Executive's Termination Date, except (a) as required by law (e.g., COBRA
health insurance continuation election), or (b) in the event of a
termination described in paragraph 4(b) if Cornerstone does not decide to
require the noncompetition agreement as described in section 6.
e. TERMINATION UPON DEATH. If Executive dies prior to the
expiration of the duration of employment under this Agreement, Cornerstone
shall continue coverage of Executive's dependents (if any) under all
benefit plans or programs of the type listed above in paragraph 2(h) herein
for a period of twelve (12) months.
f. INCENTIVE PLANS. In the event Executive's employment
terminates for any reason, he (or his estate or heirs) will be entitled to
the following with respect to the incentive plans referred to in paragraphs
2(d), (e), (f) and (g):
i. ANNUAL OPERATING PERFORMANCE INCENTIVE PLAN. A ratable
portion (based on the days in the fiscal year in which termination occurs
on or before its effective date and the total number of days in the fiscal
year) of the cash award to which Executive would have been entitled under
the Plan for the entire year, which shall be paid in cash no later than
ninety (90) fiscal days after the close of the fiscal year.
ii. NEW ACQUISITION INCENTIVE PLAN. The amount payable for
any addition to the propane operations as to which a letter of intent,
memorandum of understanding or similar document, or the definitive
agreements, were entered into prior to the Termination Date, which shall be
payable if and when the addition is consummated.
iii. LONG TERM EQUITY INCENTIVE PLAN. The amount payable in
accordance with the Plan's vesting provisions.
iv. RESTRICTED UNITS PLAN. The amount payable in
accordance with the Plan's vesting provisions.
5. PROPRIETARY INFORMATION OBLIGATIONS. During the duration of
employment under this Agreement, Executive will have access to and become
acquainted with Cornerstone's, the Partnerships' and Additional Companies'
confidential and proprietary information, including but not limited to
information or plans regarding customer relationships, personnel, sales,
marketing, and financial operations and methods, trade secrets, formulas,
devices, secret inventions, processes, and other compilations of
information, records, and specifications (collectively, except to the
extent it was already known from other sources, or is or becomes general
knowledge, in each case without known violation of any confidentiality
obligation, "Proprietary Information"). Executive shall not disclose any
of the Proprietary Information directly or indirectly, or use it in any
way, either during the duration of this Agreement or at any time
thereafter, except as required in the course of his employment with
Cornerstone or as authorized in writing by Cornerstone. All files,
records, documents, computer-recorded information, drawings specifications,
equipment and similar items relating to the business of Cornerstone, the
Partnerships and/or Additional Companies, whether prepared by Executive or
otherwise coming into his possession, shall remain the exclusive property
of Cornerstone, the Partnerships and/or Additional Companies, respectively,
and shall not be removed under any circumstances whatsoever without the
prior written consent of Cornerstone, except when (and only for the period)
necessary to carry out Executive's duties hereunder, and if removed shall
be immediately returned to Cornerstone upon any termination of his
employment and no copies thereof shall be kept by Executive; provided,
however, that Executive shall be entitled to retain documents that were
personally owned or acquired.
6. COVENANT NOT TO COMPETE.
Cornerstone and the Partnerships are presently engaged in
the retail business of selling and distributing propane to end-user
customers in bobtail delivery vehicles with capacities below 5,000 gallons
(the "Business"). The term "Business" shall also include the sale,
distribution, or transport of natural gas liquids, including without
limitation propane, (collectively "NGL's") in transport loads of 5,000
gallons or more, whether for end use or resale, or the rendition of any
services to persons or entities engaged in the business of selling or
distributing NGL's, or the trading, selling, hedging, processing or
otherwise dealing with NGL's or other petroleum products (or contracts for
any of the foregoing) for any purpose.
Executive agrees that for a twelve (12) month period from
the end of his employment with Cornerstone, he will not carry on the
"Business" with fifty (50) miles of any of the foregoing existing locations
of Cornerstone or the Partnerships. For purposes of this Agreement,
Executive will be deemed to be "carrying on" the Business if he does so
directly or if he is the owner or an officer or an employee of, a
consultant to or a stockholder or holder of another equity interest in, any
person engaged in the business, provided however, that Executive may own,
directly or indirectly, solely as an investment, securities of any person
traded on a national exchange or listed on the NASDAQ National Market so
long as he does not, directly or indirectly, own 5% or more of the fully
diluted interest in such person.
7. NONINTERFERENCE. While employed by Cornerstone, and during the
time any noncompetition covenant as described under section 6 is in effect,
Executive agrees not to interfere with the business of Cornerstone by
directly or indirectly soliciting, attempting to solicit, inducing, or
otherwise causing any employee of Cornerstone to terminate his or her
employment in order to become an employee, consultant or independent
contractor to or for any other employer.
8. ARBITRATION OF DISPUTES.
a. SCOPE. Any disputes of any kind regarding this Agreement,
including, but not limited to, its termination or any events occurring
during the employment relationship, shall be subject to final and binding
arbitration, to the extent permitted by law, pursuant to the Employment
Dispute Resolution Rules and Regulations of the American Arbitration
Association. Such disputes shall include, but are not limited to, claims
for breach of contract (express or implied), tort claims, claims for
discrimination, and claims for violation of any federal or state law or
regulation.
b. REQUEST. Any request for arbitration must be made in writing
within 365 calendar days of the occurrence giving rise to the dispute.
c. APPLICABLE LAW. The arbitrator shall apply the substantive
law (and the law of remedies, if applicable) of Delaware, or federal law,
or both, as applicable to the claim or claims asserted.
d. FINAL AND BINDING. The arbitration shall be final and
binding upon all of the parties and shall be enforceable to the extent
permitted by law.
9. MISCELLANEOUS.
a. NOTICES. Any notices provided hereunder must be in writing
and shall be deemed effective upon the earlier of personal delivery
(including personal delivery by fax ) or the third day after mailing by
first class mail to the recipient at the address indicated below:
To Cornerstone:
Cornerstone Propane GP, Inc.
33 Third Street, S.E.
Post Office Box 1318
Huron, South Dakota 57350-1318
Attention: Richard R. Hylland
Voice: 605-353-8294
Fax: 605-353-8286
To Executive:
-------------------------------
-------------------------------
-------------------------------
Voice: ------------------
Fax: ------------------
or to such other address or to the attention of such other person as the
recipient party shall have specified by prior written notice to the sending
party.
b. SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law
or rule in any jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision or any other
jurisdiction, but this Agreement will be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable
provisions had never been contained herein.
c. ENTIRE AGREEMENT. This document constitutes the final,
complete, and exclusive embodiment of the entire agreement and
understanding between the parties related to the subject matter hereof and
supersedes and preempts any prior or contemporaneous understandings,
agreements, or representations by or between the parties, written or oral.
d. COUNTERPARTS. This Agreement may be executed on separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
agreement.
e. SUCCESSORS AND ASSIGNS. This Agreement is intended to bind
and inure to the benefit of and be enforceable by Executive and
Cornerstone, and their respective successors and assigns, except that
Executive may not assign any of his duties hereunder and he may not assign
any of his rights under without the written consent of Cornerstone, which
shall not be withheld unreasonably.
f. ATTORNEYS' FEES. If any legal proceeding is necessary to
enforce or interpret the terms of this Agreement, or to recover damages for
breach hereof, the prevailing party shall be entitled to reasonable
attorneys' fees, as well as costs and disbursements, in addition to any
other relief to which he or it may be entitled.
g. AMENDMENTS. No amendments or other modifications to this
Agreement may be made except by a writing signed by both parties. Nothing
in this Agreement, express or implied, is intended to confer upon any third
person any rights or remedies under or by reason of this Agreement. No
amendment or waiver of this Agreement requires the consent of any
individual, partnership, corporation or other entity not a party to this
Agreement.
h. CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the
internal law, and not the law of conflicts, of the State of Delaware.
CORNERSTONE PROPANE GP, INC.
[name]
"Executive"
By
Title:
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-1-1997
<PERIOD-END> DEC-31-1997
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0
0
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