________________________________________________________________________________

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K

[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 16 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 1-11867

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NATIONAL PROPANE PARTNERS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 42-1453040
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

SUITE 1700, IES TOWER 52401-1409
200 1ST STREET S.E. (ZIP CODE)
CEDAR RAPIDS, IA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)

(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE): (319) 365-1550

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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

TITLE OF EACH
CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------- -------------------------------------------

Common Units New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for each shorter period that the
Registrant was required to file such reports), and (2) had been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K [ ].

The aggregate market value as of March 27, 1997 of the Registrant's Common
Units held by non-affiliates of the Registrant, based on the reported closing
price of such units on the New York Stock Exchange on such date, was
approximately $134,031,000. At March 27, 1997 there were outstanding 6,701,550
Common Units and 4,533,638 Subordinated Units.

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DOCUMENTS INCORPORATED BY REFERENCE:
None

________________________________________________________________________________

NATIONAL PROPANE PARTNERS, L.P.
INDEX TO ANNUAL REPORT
ON FORM 10-K

PART 1

PAGE
----

Item 1. Business........................................................................................ 2
Item 2. Properties...................................................................................... 11
Item 3. Legal Proceedings............................................................................... 12
Item 4. Submission of Matters to a Vote of Security Holders............................................. 12

PART II
Item 5. Market for the Registrant's Units and Related Unitholder Matters................................ 13
Item 6. Selected Historical Consolidated Financial and Operating Data................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 16
Item 8. Financial Statements and Supplementary Data..................................................... 24
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............ 49

PART III
Item 10. Directors and Executive Officers of the Registrant.............................................. 49
Item 11. Executive Compensation.......................................................................... 52
Item 12. Security Ownership of Certain Beneficial Owners and Management.................................. 57
Item 13. Certain Relationships and Related Transactions.................................................. 60

PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................ 63
Signatures................................................................................................. 65

PART I.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report on Form 10-K (this 'Form 10-K'),
including statements under 'Item 1. Business' and 'Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations', and
elsewhere in this Form 10-K constitute 'forward-looking statements' within the
meaning of the Private Securities Litigation Reform Act of 1995 (the 'Reform
Act') concerning, among other things, the prospects, developments and business
strategies of National Propane Partners, L.P. (the 'Partnership') for its
operations, all of which are subject to risks and uncertainties. These
forward-looking statements are identified by their use of forms of such terms
and phrases as 'intends', 'goals', 'estimates', 'expects', 'projects', 'plans',
'anticipates', 'should', 'future', 'believes' and 'scheduled'. When a
forward-looking statement includes a statement of the assumptions or basis
underlying the forward-looking statement, the Partnership cautions that, while
it believes such assumptions or basis to be reasonable and makes them in good
faith, assumed facts or basis almost always vary from actual results, and the
differences between assumed facts or basis and actual results can be material,
depending upon the circumstances. Where, in any forward-looking statement, the
Partnership or its management expresses an expectation or belief as to future
results, such expectation or belief is expressed in good faith and believed to
have a reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Partnership to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors with respect to the Partnership include, among others, weather
conditions, which affect the demand for propane; changes in wholesale propane
prices, which may affect the Partnership's gross profits and the demand for the
Partnership's products; competition from others in the propane distribution
industry and from alternative energy sources, which may affect the Partnership's
ability to generate revenues; the mature nature of the retail propane industry
and the national trend toward increased conservation and technological advances,
which may affect demand for the Partnership's products; the Partnership being
subject to the operating hazards and risks associated with handling, storing and
delivering combustible liquids such as propane, which may subject the
Partnership to claims for which the Partnership is not insured; the amount of
the Partnership's available cash being dependent on a number of factors which
may be beyond the control of the Partnership, including, without limitation,
that a portion of the Partnership's annual cash receipts is derived from
interest payments from Triarc Companies, Inc. ('Triarc'), which may affect the
amount of the Partnership's cash distributions; the Partnership being
significantly leveraged, which may limit the Partnership's ability to make cash
distributions and may affect the Partnership's results of operations; the
Partnership's assumptions concerning future operations and weather conditions
may not be realized, which may affect the amount of the Partnership's cash
distributions and results of operations; the Partnership's reimbursements and
funds due to its managing general partner National Propane Corporation (the
'Managing General Partner') may be substantial, which may adversely affect the
Partnership's ability to make cash distributions; changes in business strategy,
which may, among other things, prolong the time it takes to achieve the
performance results included herein; changes in, or the failure to comply with,
government regulations; the Partnership may be unsuccessful in its attempts to
acquire other business in the industry; and other risks, uncertainties and
factors referenced in this Form 10-K and in the Partnership's current and
periodic filings with the Securities and Exchange Commission.

ITEM 1. BUSINESS

INTRODUCTION

National Propane Partners, L.P., a master limited partnership (the
'Partnership' or the 'MLP'), is a Delaware limited partnership formed in March
1996 to acquire, own and operate the business and assets of National Propane
Corporation ('National Propane') through National Propane, L.P. (the 'Operating
Partnership'), and is engaged primarily in (i) the retail marketing of propane
to residential, commercial and industrial, and agricultural customers and to
dealers that resell propane to residential and commercial customers and (ii) the
retail marketing of propane-related supplies and equipment, including home and
commercial appliances. The Partnership believes it is the sixth largest retail
marketer of propane in terms of volume in the United States, supplying
approximately 250,000 active retail and wholesale customers in 25 states through
its 166 service centers located in 24 states. The Partnership's operations are
concentrated in the Midwest, Northeast, Southeast and Southwest regions of the
United States. The retail propane sales volume of the Partnership was
approximately 160.5 million gallons in 1996. In 1996, approximately 45.6% of the
Partnership's retail sales volume was to residential customers, 36.2% was to
commercial and industrial customers, 7.7% was to agricultural customers, and
10.5% was to dealers. Sales to residential customers in 1996 accounted for
approximately 64% of the Partnership's gross profit on propane sales, reflecting
the higher-margin nature of this segment of the market.

ACQUISITION BY TRIARC

National Propane was incorporated in 1953 under the name Conservative Gas
Corporation. During the period that National Propane was controlled by DWG
Corporation, Triarc's predecessor, National Propane's business was conducted
through nine regionally branded companies without central management or
coordinated pricing or distribution strategies. In April 1993, a partnership,
the sole general partners of which are Nelson Peltz and Peter W. May, acquired
approximately 28.6% of the then outstanding shares of Triarc's common stock (the
'Acquisition'). Since the Acquisition, the Partnership's new management team,
headed by Ronald D. Paliughi, who became President and Chief Executive Officer
of National Propane in April 1993, has implemented an operating plan designed to
make the Partnership more efficient, profitable and competitive.

Since 1993, National Propane's management has: (i) consolidated nine
separately branded businesses into a single company with a new, national brand
and logo; (ii) consolidated eight regional offices into one national
headquarters; (iii) installed a system-wide data processing system; (iv)
implemented system-wide pricing, marketing and purchasing strategies, thereby
reducing the cost duplication and purchasing and pricing inefficiencies
associated with the formerly decentralized structure; and (v) centralized and
standardized accounting, administrative and other corporate services. As a
result of these initiatives, National Propane has become more efficient and
competitive, and believes it is now positioned to capitalize on opportunities
for business growth, both internally and through acquisitions.

INITIAL PUBLIC OFFERING

In July 1996 the MLP completed an initial public offering (the 'IPO') of
approximately 6.3 million common units representing limited partner interests
(together with subsequently issued common units the 'Common Units') and received
therefrom net proceeds aggregating approximately $117.4 million.

Concurrently with the closing of the IPO, both National Propane and
National Propane SGP Inc. ('SGP') contributed substantially all of their assets
to the Operating Partnership (the 'Partnership Conveyance') as a capital
contribution and the Operating Partnership assumed substantially all of their
liabilities. National Propane and SGP then conveyed their limited partner
interests in the Operating Partnership to the Partnership. As a result of such
contributions, each of National Propane and SGP have a 1.0% general partner
interest in the Partnership and a 1.0101% general partner interest in the
Operating Partnership. In addition, National Propane received in exchange for
its contribution to the Partnership 4,533,638 subordinated units (the
'Subordinated Units') and the right to receive certain incentive distributions.

Also immediately prior to the closing of the IPO, National Propane issued
$125 million aggregate principal amount of 8.54% first mortgage notes due 2010
(the 'First Mortgage Notes') to certain institutional investors in a private
placement (the 'Private Placement'). Approximately $59.3 million of the net
proceeds from the sale of the First Mortgage Notes (the entire net proceeds of
which were approximately $118.4 million) were used by National Propane to pay a
dividend to Triarc Companies, Inc. The remainder of the net proceeds from the
sale of the First Mortgage Notes (approximately $59.1 million) were contributed
by National Propane to the Operating Partnership to repay a portion of National
Propane's then existing bank debt and other indebtedness of National Propane and
certain of its subsidiaries.

After the repayment of the indebtedness described above, the net proceeds
of the IPO were contributed to the Operating Partnership which used such
proceeds to repay all remaining indebtedness under National Propane's then
existing bank debt, to make a $40.7 million loan to Triarc (the 'Partnership
Loan') and to pay certain accrued management fees and tax sharing payments due
to Triarc from National Propane.

Concurrently with the closing of the IPO, the Operating Partnership also
entered into a bank credit facility, which includes a $15 million revolving
credit facility to be used for working capital and other general partnership
purposes and a $40 million acquisition facility.

On November 7, 1996, the Partnership issued and sold an additional 400,000
common units in a private placement resulting in net proceeds of $7.4 million.

BUSINESS STRATEGY

The Partnership's operating strategy is to increase its efficiency,
profitability and competitiveness, while better serving its customers, by
building on the efforts it has already undertaken to improve pricing management,
marketing and purchasing and to consolidate its operations. During 1996 the
Partnership continued to develop its $1.4 million pricing system which provides
central management and local managers with current, system-wide supply, demand
and competitive pricing information. The Partnership also began equipping
several of its delivery personnel with hand-held computer terminals that
simplify customer billing and the collection of price and volume information.

The Partnership continued to look for opportunities to consolidate its
operations, reducing its workforce by approximately 15%, from 1,228 in July 1993
to 1,045 full-time employees as of December 31, 1996.

The Partnership's strategies for growth involve expanding its operations
and increasing its market share through strategic acquisitions and internal
growth, including the opening of new service centers. The Partnership intends to
increase its revenues by acquiring smaller, independent competitors, funding
such acquisitions by either drawing on its $40 million acquisition facility or
issuing additional Common Units. The Partnership intends to take two approaches
to acquisitions: (i) primarily, to build on its broad geographic base by
acquiring smaller, independent competitors that operate within the Partnership's
existing geographic areas and incorporating them into the Partnership's
distribution network and (ii) to acquire propane businesses in areas in the
United States outside of its current geographic base where it believes there is
growth potential and where an attractive return on its investment can be
achieved. The Partnership continues to evaluate a number of propane distribution
companies, including regional and national firms, as part of its ongoing
acquisition program, and as of March 15, 1997, the Partnership has present
agreements or commitments with respect to purchasing three propane businesses
for an aggregate purchase price of approximately $7.1 million. During 1996, the
Partnership acquired the assets of five smaller retail propane marketers for an
aggregate purchase price of approximately $2.0 million. In January 1997, the
Partnership acquired the assets of another small retail propane marketer for a
purchase price of approximately $1.0 million.

In addition to pursuing expansion through acquisitions, the Partnership
intends to pursue internal growth at its existing service centers and to expand
its business by opening new service centers. The Partnership has attempted to
leverage its position as a reliable, full service propane company to attract new
customers, particularly in those locations where the Partnership competes
against smaller, independent distributors. In addition, the Partnership has
marketing programs such as its Water Heater

Program pursuant to which the Partnership offers to users of electric or fuel
oil water heaters a free propane water heater (excluding installation) in return
for signing a five-year propane purchase agreement. Furthermore, the Partnership
operates in several growth areas of the United States, including western
Colorado, a rapidly growing market in which the Partnership believes it is one
of the leading retail marketers, and in central Arizona, an area that has
experienced a significant rate of population growth in recent years.

The Partnership also intends to continue to expand its business by opening
new service centers, known as 'scratch-starts,' in areas where there is
relatively little competition. Scratch starts are newly opened service centers
generally staffed with one or two employees, which typically involve minimal
start up costs because the infrastructure of the new service center is developed
as the customer base expands and the Partnership can, in many circumstances,
transfer existing assets, such as storage tanks and vehicles, to the new service
center. Under its 'scratch-start' program, the Partnership intends to open new
service centers in specific types of markets, such as resorts and new
residential developments, which have been targeted because of the unavailability
of natural gas, the limited number of competitors and the potential number of
relatively high margin residential accounts. Under this program, by December 31,
1996 the Partnership had opened three new service centers in California and one
in each of Idaho, Georgia and South Carolina. The Partnership is developing
plans for several new 'scratch-starts' in 1997.

INDUSTRY BACKGROUND

Propane, a by-product of natural gas processing and petroleum refining, is
a clean-burning energy source recognized for its transportability and ease of
use relative to alternative stand-alone energy sources. Propane is extracted
from natural gas or oil wellhead gas at processing plants or separated from
crude oil during the refining process. Propane is normally transported and
stored in a liquid state under moderate pressure or refrigeration for economy
and ease of handling in shipping and distribution. When the pressure is released
or the temperature is increased, it is useable as a flammable gas. Propane is
colorless and odorless; an odorant is added to allow its detection. Propane is
clean-burning, producing negligible amounts of pollutants when consumed.

The Partnership's retail customers fall into four broad categories:
residential customers, commercial and industrial customers, agricultural
customers and dealers that resell propane to residential and commercial
customers. Residential customers use propane primarily for space heating, water
heating, cooking and clothes drying. Commercial and industrial customers use
propane for commercial applications such as cooking and clothes drying and
industrial uses such as fueling over-the-road vehicles, forklifts and stationary
engines, firing furnaces, as a cutting gas and in other process applications.
Agricultural customers use propane for tobacco curing, crop drying, poultry
brooding and week control.

Based upon information provided by the NPGA, propane accounts for
approximately 3.0% to 4.0% of total energy consumption in the United States, an
average level that has remained relatively constant for the past ten years. In
addition, propane is now the world's most widely used alternative fuel for
automobiles with approximately 350,000 and 3.5 million vehicles running on
propane in the United States and worldwide, respectively (according to the
NPGA). The Partnership believes, based on industry publications, that the
domestic retail market for propane is approximately 9.4 billion gallons
annually.

PRODUCTS, SERVICES AND MARKETING

The Partnership distributes its propane through a nationwide distribution
network integrating 166 service centers in 24 states. The Partnership's
operations are located primarily in the Midwest, Northeast, Southeast and
Southwest regions of the United States. Typically, service centers are found in
suburban and rural areas where natural gas is not readily available. Generally,
such locations consist of an office and a warehouse and service facility, with
one or more 18,000 to 30,000 gallon storage tanks on the premises. Each service
center is managed by a district manager and also typically employs a customer
service representative, a service technician and one or two bulk truck drivers.
However, new

service centers established under the Partnership's 'scratch start' program
generally do not have offices, warehouses or service facilities and are
typically staffed initially by one or two employees.

In 1996 the Partnership served approximately 250,000 active customers. No
single customer accounted for 10% or more of the Partnership's revenues in 1995
or 1996. Generally, the number of customers increases during the fall and winter
and decreases during the spring and summer. Historically, approximately 67% of
the Partnership's retail propane volume has been sold during the six-month
season from October through March, as many customers use propane for heating
purposes. Consequently, sales, gross profits and cash flows from operations are
concentrated in the Partnership's first and fourth fiscal quarters.

Year-to-year demand for propane is affected by the relative severity of the
winter and other climatic conditions. For example, while the frigid temperatures
that were experienced by the United States in January and February of 1994
significantly increased the overall demand for propane, the warm weather during
the winter of 1994 - 1995 significantly reduced such demand. The Partnership
believes, however, that the geographic diversity of its areas of operations
helps to reduce its exposure to regional weather patterns. In addition, retail
sales to the commercial and industrial markets, while affected by economic
patterns, are not as sensitive to variations in weather conditions as sales to
residential and agricultural markets. For information on the impact of annual
variations in weather on the operations of the Partnership, see Item 7.
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General'.

Retail deliveries of propane are usually made to customers by means of
bobtail and rack trucks. Propane is pumped from the bobtail truck, which
generally holds 2,800 gallons of propane, into a stationary storage tank on the
customer's premises. The capacity of these tanks usually ranges from
approximately 50 to approximately 1,000 gallons, with a typical tank having a
capacity of 250 to 500 gallons. Typically, service centers deliver propane to
most of their residential customers at regular intervals, based on estimates of
such customers' usage, thereby eliminating the customers' need to make
affirmative purchase decisions. The Partnership also delivers propane to retail
customers in portable cylinders, which typically have a capacity of 23.5
gallons. When these cylinders are delivered to customers, empty cylinders are
picked up for replenishment at the Partnership's distribution locations or are
refilled in place. The Partnership also delivers propane to certain other retail
customers, primarily dealers and large commercial accounts, in larger trucks
known as transports, which have an average capacity of approximately 9,000
gallons. Propane is generally transported from refineries, pipeline terminals
and storage facilities (including the Partnership's underground storage
facilities in Hutchinson, Kansas and Loco Hills, New Mexico) to the
Partnership's bulk plants by a combination of common carriers, owner-operators,
railroad tank cars and, in certain circumstances, the Partnership's own highway
transport fleet.

The Partnership also sells, leases and services equipment related to its
propane distribution business. In the residential market, the Partnership sells
household appliances such as cooking ranges, water heaters, space heaters,
central furnaces and clothes dryers, as well as less traditional products such
as barbecue equipment and gas logs. In the industrial market, the Partnership
sells or leases specialized equipment for the use of propane as fork lift truck
fuel, in metal cutting and atmospheric furnaces and for portable heating for
construction. In the agricultural market, specialized equipment is leased or
sold for the use of propane as engine fuel and for chicken brooding and crop
drying. The sale of specialized equipment, service income and rental income
represented less than 10% of the Partnership's operating revenues during fiscal
1996. Parts and appliance sales, installation and service activities are
conducted through National Sales & Service, Inc. ('NSSI'), a wholly-owned
corporate subsidiary of the Operating Partnership.

PROPANE SUPPLY AND STORAGE

The profitability of the Partnership is dependent upon the price and
availability of propane as well as seasonal and climatic factors. Contracts for
propane are typically made on a year-to-year basis, but the price of the propane
to be delivered depends upon market conditions at the time of delivery.
Worldwide availability of both gas liquids and oil affects the supply of propane
in domestic markets, and from time to time the ability to obtain propane at
attractive prices may be limited as a result of market

conditions, thus affecting price levels to all distributors of propane.
Generally, when the wholesale cost of propane declines, the Partnership believes
that its margins on its retail propane distribution business will increase in
the short-term because retail prices tend to change less rapidly than wholesale
prices. Conversely, when the wholesale cost of propane increases, retail
marketing profitability will likely be reduced at least for the short-term until
retail prices can be increased. Except for occasional opportunistic buying and
storage of propane, the Partnership has not engaged in any significant hedging
activities with respect to its propane supply requirements, although it may do
so from time to time in the future. See 'Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General'.

The Partnership purchased propane from over 35 domestic and Canadian
suppliers during 1996, primarily major oil companies and independent producers
of both gas liquids and oil, and it also purchased propane on the spot market.
In 1996, the Partnership purchased approximately 82% and 18% of its propane
supplies from domestic and Canadian suppliers, respectively. Approximately 95%
of propane purchases by the Partnership in 1996 were on a contractual basis
(generally, under one year agreements subject to annual renewal), but the
percentage of contract purchases may vary from year to year as determined by the
Managing General Partner. Supply contracts generally do not lock in prices but
rather provide for pricing in accordance with posted prices at the time of
delivery or the current prices established at major storage points, such as Mont
Belvieu, Texas and Conway, Kansas. The Partnership is not currently a party to
any supply contracts containing 'take or pay' provisions.

Warren Petroleum Company ('Warren') supplied approximately 16% of the
Partnership's propane in 1996 and Amoco and Conoco each supplied approximately
10%. The Partnership believes that if supplies from Warren, Amoco or Conoco were
interrupted, it would be able to secure adequate propane supplies from other
sources without a material disruption of its operations; however, the
Partnership believes that the cost of procuring replacement supplies might be
significantly higher, at least on a short-term basis, which could negatively
affect the Partnership's margins. No other single supplier provided more than
10% of the Partnership's total propane supply during 1996. Although the
Partnership has long-standing relations with a number of its important suppliers
and has generally been able to secure sufficient propane to meet its customers'
needs, no assurance can be given that supplies of propane will be readily
available in the future. The Partnership expects a sufficient supply to continue
to be available during 1997. However, increased demand for propane in periods
of severe cold weather, or otherwise, could cause future propane supply
interruptions or significant volatility in the price of propane. See 'Item 7.
Management's Discussion and Analysis of Financial Conditions and Results of
Operations -- General'.

The Partnership owns underground storage facilities in Hutchinson, Kansas
and Loco Hills, New Mexico, leases above ground storage facilities in Crandon,
Wisconsin and Orlando, Florida, and owns or leases smaller storage facilities in
other locations throughout the United States. As of December 31, 1996, the
Partnership's total storage capacity was approximately 33.1 million gallons
(including approximately one million gallons of storage capacity currently
leased to third parties).

PRICING POLICY

The Partnership believes that its pricing policy is an essential element in
the marketing of propane. The pricing system installed in substantially all of
the Partnership's service centers provides central management with current,
system-wide supply, demand and competitive pricing information. Based on that
information, pricing managers located in Cedar Rapids, Iowa monitor the prices
to be charged to the Partnership's existing residential customers. With respect
to commercial and industrial customers, agricultural customers and new
residential customers, management and managers work together to determine prices
based on recommendations from management and local conditions. The Partnership
believes that this flexible, joint pricing management system enables the
Partnership to react more effectively to cost increases, and will permit it, in
most situations, to respond to changes in supply costs in a manner that protects
its gross margins, to the extent possible.

To further enhance its price management, the Partnership is in the process
of equipping its delivery personnel with hand-held computer terminals ('HHTs')
that simplify customer billing and the collection of customer data, including
price and volume information. The HHTs are also able to print

accurate customer delivery statements that can be provided to the customer by
the Partnership's delivery personnel. The Partnership began testing the HHTs in
a limited number of service centers in the Midwest in March 1996. The results of
these tests have been successful to date, and the Partnership deployed the HHTs
at eight additional locations during 1996.

TRADEMARKS AND TRADENAMES

The Partnership utilizes a number of trademarks and tradenames which it
owns (including 'National PropaneTM'), some of which have a significant value in
the marketing of its products.

COMPETITION

Propane competes primarily with natural gas, electricity and fuel oil as an
energy source, principally on the basis of price, availability and portability.
Propane serves as an alternative to natural gas in rural and suburban areas
where natural gas is unavailable or portability of product is required. Propane
is generally more expensive than natural gas on an equivalent BTU basis in
locations served by natural gas, although propane is sold in such areas as a
standby fuel for use during peak demand periods and during interruptions in
natural gas service. The expansion of natural gas into traditional propane
markets has historically been inhibited by the capital costs required to expand
distribution and pipeline systems. Although the extension of natural gas
pipelines tends to displace propane distribution in the areas affected, the
Partnership believes that new opportunities for propane sales arise as more
geographically remote neighborhoods are developed.

Propane is generally less expensive to use than electricity for space
heating, water heating, clothes drying and cooking. Although propane is similar
to fuel oil in certain applications, as well as in market demand and price,
propane and fuel oil have generally developed their own distinct geographic
markets, reducing competition between such fuels. Because furnaces and
appliances that burn propane will not operate on fuel oil and vice versa, a
conversion from one fuel to the other requires the installation of new
equipment.

In addition to competing with alternative energy sources, the Partnership
competes with other companies engaged in the retail propane distribution
business. Competition in the propane industry is highly fragmented and generally
occurs on a local basis with other large full-service multi-state propane
marketers, thousands of smaller local independent marketers and farm
cooperatives. Based on industry publications, the Partnership believes that the
domestic retail market for propane is approximately 9.4 billion gallons
annually, that the 10 largest retailers, including the Partnership, account for
approximately 32% of the total retail sales of propane in the United States, and
that no single marketer has a greater than 10% share of the total retail market
in the United States. Most of the Partnership's service centers compete with
several marketers or distributors and certain service centers compete with a
large number of marketers or distributors. Each service center operates in its
own competitive environment because retail marketers tend to locate in close
proximity to customers in order to lower the cost of providing service. The
Partnership's typical service center has an effective marketing radius of
approximately 50 miles. The ability to compete effectively further depends on
the reliability of service, responsiveness to customers and the ability to
maintain competitive prices.

WORKING CAPITAL

Working capital requirements for the Operating Partnership fluctuate due to
the seasonal nature of its business. Typically, in late summer and fall,
inventories are built up in anticipation of the heating season and are depleted
over the winter months. During the spring and early summer, inventories are at
low levels due to lower demand. Accounts receivable reach their highest levels
in the middle of the winter and are gradually reduced as the volume of LP gas
sold declines during the spring and summer. Working capital requirements are
generally met through cash flow from operations supplemented by advances under a
revolving working capital facility which provides the Operating Partnership with
a $15 million line of credit (of which $ 8.3 million was available at March 1,
1997). Accounts receivable are generally due within 30 days of delivery.

GOVERNMENT REGULATION

The Partnership is subject to various federal, state and local
environmental, health and safety laws and regulations. Generally, these laws
impose limitations on the discharge of pollutants and establish standards for
the handling of solid and hazardous wastes. These laws include the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act ('CERCLA'), the Clean Air Act, the Occupational
Safety and Health Act, the Emergency Planning and Community Right to Know Act,
the Clean Water Act and comparable state statutes. CERCLA, also known as the
'Superfund' law, imposes joint and several liability without regard to fault or
the legality of the original conduct on certain classes of persons that are
considered to have contributed to the release or threatened release of a
'hazardous substance' into the environment. Propane is not a hazardous substance
within the meaning of CERCLA. However, automotive waste products, such as waste
oil, generated by the Partnership's truck fleet, as well as 'hazardous
substances' disposed of during past operations by third parties on the
Partnership's properties, could subject the Partnership to CERCLA. Such laws and
regulations could result in civil or criminal penalties in cases of
non-compliance or impose liability for remediation costs. Also, third parties
may make claims against owners or operators of properties for personal injuries
and property damage associated with releases of hazardous or toxic substances.

National Fire Protection Association Pamphlets No. 54 and No. 58, which
establish rules and procedures governing the safe handling of propane, or
comparable regulations, have been adopted as the industry standard in all of the
states in which the Partnership operates. In some states these laws are
administered by state agencies, and in others they are administered on a
municipal level. With respect to the transportation of propane by truck, the
Partnership is subject to regulations promulgated under the Federal Motor
Carrier Safety Act. These regulations cover the transportation of hazardous
materials and are administered by the United States Department of
Transportation. The Partnership conducts ongoing training programs to help
ensure that its operations are in compliance with applicable regulations. The
Partnership maintains various permits that are necessary to operate some of its
facilities, some of which may be material to its operations. The Partnership
believes that the procedures currently in effect at all of its facilities for
the handling, storage and distribution of propane are consistent with industry
standards and are in compliance in all material respects with applicable laws
and regulations.

On February 19, 1997, the U.S. Department of Transportation published its
Interim Final Rule for Continued Operation of Present Propane Trucks (49 CFR
171.5) (the 'Interim Rule'). The Interim Rule is intended to address perceived
risks during the transfer of propane. The Interim Rule required certain
immediate changes in the Partnership's operating procedures, and in the next 6
to 12 months may require (1) some or all of the Partnership's cargo tanks to be
retrofitted and (2) some modifications to the Partnership's bulk plants. The
Partnership, as well as the National Propane Gas Association and the propane
industry in general, is in the process of studying the Interim Rule and the
appropriate response thereto. At this time, the Partnership is not in a position
to determine what the ultimate long-term cost of compliance with the Interim
Rule will be.

involves treatment of ground water and building a containment wall, was from
$0.4 million to $0.8 million. As of March 1, 1997, National Propane's
environmental consultants have begun but have not completed additional testing.
Based upon the new information compiled to date, which is not yet complete, it
appears that the containment wall remedy is no longer appropriate, and the
likely remedy will involve treatment of ground water and treatment by soil-vapor
extraction of certain contaminated 'hot spots' in the soil, installation of a
soil cap and, if necessary, excavation, treatment and disposal of contaminated
soil. As a result, the environmental consultants have revised the range of
estimated costs for the remediation to be from $0.8 million to $1.6 million.
Based on discussions with National Propane's environmental consultants, an
acceptable remediation plan should fall within this range. National Propane will
have to agree upon the final plan with the State of Wisconsin. Since receiving
notice of the contamination, National Propane has engaged in discussions of a
general nature concerning remediation with the State of Wisconsin. These
discussions are ongoing and there is no indication as yet of the time frame for
a decision by the State of Wisconsin on the method of remediation. Accordingly,
it is unknown what remediation method will be used. Based on the preliminary
results of the ongoing investigation, there is a potential that the contaminant
plume may extend to locations downgradient from the original site. If it is
ultimately confirmed that the contaminant plume extends under such properties
and if such plume is attributable to the contaminant plume emanating from the
Marshfield property, there is the potential for future third-party claims.
National Propane is also engaged in ongoing discussions of a general nature with
the successor to the utility that operated a coal gasification plant on the
property. The successor has denied any liability for the costs of remediation of
the Marshfield property or of satisfying any related claims. If National
Propane is found liable for any of such costs, it will attempt to recover them
from the successor owner. National Propane has notified its insurance carriers
of the contamination and the likely incurrence of costs to undertake remediation
and the possibility of related claims. Pursuant to a lease relating to the
Marshfield facility, the ownership of which was not transferred to the Operating
Partnership in connection with the Partnership Conveyance, the Partnership has
agreed to be liable for any costs of remediation in excess of amounts recovered
from such successor or from insurance. Since no amount within the ranges of
remediation costs could be determined to be a better estimate, National had
accrued $0.8 million at December 31, 1996 in order to provide for the minimum
costs estimated for the anticipated remediation method, incurred legal fees and
other professional costs. See Item 7. 'Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Contingencies'. The ultimate
outcome of this matter cannot presently be determined and the costs of
remediation and third-party claims, if any, may have a material adverse effect
on the Partnership's financial position, results of operations or ability to
make the distributions to the holders of its Common Units and Subordinated
Units.

EMPLOYEES

As of December 31, 1996, the Managing General Partner had 1,045 full time
employees, of whom 85 were general and administrative (including fleet
maintenance personnel), 18 were sales, 439 were transportation and product
supply and 503 were district employees. In addition, at December 31, 1996, the
Managing General Partner had 46 temporary and part-time employees. Approximately
172 of such full-time employees are covered by collective bargaining agreements
that expire on various dates in 1997, 1998, and 1999. The Managing General
Partner believes that its relations with both its union and non-union employees
are satisfactory.

The Partnership has no employees; however, for certain purposes, such as
workers' compensation claims, employees of the Managing General Partner who are
providing services for the benefit of the Partnership may also be considered to
be employees of the Partnership under applicable state law. The Managing General
Partner is reimbursed by the Partnership entities at cost for all direct and
indirect expenses incurred on behalf of the Partnership entities, including the
costs of compensation and employee benefit plans. See Note 21 of the
Partnership's Consolidated Financial Statements.

ORGANIZATIONAL STRUCTURE

The following chart depicts the organization and ownership of the
Partnership, the Operating Partnership and the Operating Partnership's corporate
subsidiary. The percentages reflected in the following chart represent the
approximate ownership interest in each of the Partnership and the Operating
Partnership, individually, and not on an aggregate basis.

[ORGANIZATION CHART]

ITEM 2. PROPERTIES

The Partnership maintains a large number of diverse properties, including
appliance showrooms, maintenance facilities, bulk plants, warehousing space,
garages, storage depots or large gas tanks and related distribution equipment
and underground space for gas storage. The Partnership believes that these
properties, taken as a whole, are generally well-maintained and adequate for
current and foreseeable business needs. The majority of these properties are
owned by the Partnership.

Certain information about the major properties of the Partnership as of
December 31, 1996, is set forth in the following table.

NUMBER OF
DESCRIPTION OF FACILITIES FACILITIES
- -------------------------------------------------------------------------- ------------------ STORAGE CAPACITY
----------------
(IN THOUSANDS
OF GALLONS)

Service Centers located throughout the United States(1)................... 127 owned
39 leased
---
166 7,678

Remote Storage Facilities................................................. 58 owned
23 leased
---
81 2,201
Above Ground Storage Facilities:
Crandon, Wisconsin(2)................................................ 1 leased 241
Orlando, Florida(3).................................................. 1 leased 1,020
--- -------
2 1,261
Underground Storage Facilities:
Hutchinson, Kansas(4)................................................ 1 owned 12,000
Loco Hills, New Mexico............................................... 1 owned 10,000
--- -------
2 22,000
-------
Total................................................................ 33,140

- ------------

(1) Includes six service centers recently established under the Partnership's
'scratch start' program.

(2) The facility is leased on a year-to-year basis, and the lease is terminable
by either party upon 30 days' notice.

(3) The Partnership leases the real property from a third party pursuant to a
ground lease that terminates on October 31, 2006.

The Partnership owns the storage facility located at such property and
leases it to Warren Petroleum pursuant to an agreement that terminates
October 31, 1999 and may be canceled by the Partnership upon 60 days' notice
under certain circumstances.

(4) The Partnership owns the underground storage facility, which, pursuant to an
operating agreement, is operated by a third party that owns the equipment
necessary to use the facility for propane storage. Such operating agreement
may be terminated by either party at the end of any calendar year upon
thirty days' notice.

------------------------
The transportation of propane requires specialized equipment. The trucks
utilized for this purpose carry specialized steel tanks that maintain the
propane in a liquefied state. As of December 31, 1996, the Partnership had a
fleet of 7 transport truck tractors, all of which are owned by the Partnership
and approximately 400 bulk delivery trucks and 400 service and light trucks, all
of which are owned by the Partnership. In addition, as of December 31, 1996, the
Partnership had approximately 150 cylinder delivery vehicles and 55 automobiles.
As of December 31, 1996, the Partnership owned approximately 210,000 customer
storage tanks with typical capacities of 250 to 500 gallons.

The Partnership believes that it has satisfactory title to or valid rights
to use all of its material properties. Substantially all of the Partnership's
assets (other than the assets of NSSI) are pledged to

secure the First Mortgage Notes and indebtedness under the Bank Credit Facility.
In addition, some of the Partnership's properties are subject to liabilities and
leases and immaterial encumbrances, easements and restrictions, although the
Partnership does not believe that any such burdens will materially interfere
with the continued use by the Partnership of its properties, taken as a whole.

ITEM 3. LEGAL PROCEEDINGS

There are a number of lawsuits pending or threatened against the
Partnership and/or National Propane. In general, these lawsuits have arisen in
the ordinary course of the Partnership's business and involve claims for actual
damages, and in some cases punitive damages, arising from the alleged negligence
of the Partnership or as a result of product defects or similar matters. Of the
pending or threatened matters, a number involve property damage, and several
involve serious personal injuries or deaths and the claims made are for
relatively large amounts. Although any litigation is inherently uncertain, based
on past experience, the information currently available to it and the
availability of insurance coverage in certain matters, the Partnership does not
believe that the pending or threatened litigation of which the Partnership is
aware will have a material adverse effect on its results of operations or its
financial condition. However, any one or all of these matters taken together may
adversely affect the Partnership's quarterly or annual results of operations and
may limit the Partnership's ability to make distributions to its Unitholders.

In addition, certain contingent liabilities related to National Propane's
operations were assumed by the Partnership in connection with the Partnership
Conveyance. These contingent liabilities include potential environmental
remediation costs and related claims (primarily costs and claims related to the
coal tar contamination at the Managing General Partner's Marshfield, Wisconsin
facility). There can be no assurance that the ultimate liability relating to
this matter will not exceed the amount reserved or that such matter will not
have a material adverse effect on the Partnership's results of operations,
financial condition or its ability to make distributions to its Unitholders. See
'Item 1. Business -- Government Regulations'.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders of the
Partnership during the fiscal year ended December 31, 1996.

PART II.

ITEM 5. MARKET FOR THE REGISTRANT'S UNITS AND RELATED UNITHOLDER MATTERS

The Common Units, representing limited partner interests in the
Partnership, are listed and traded on The New York Stock Exchange under the
symbol NPL. The Common Units began trading on June 26, 1996, at an initial
public offering price of $21.00 per Common Unit. As of March 1, 1997 there were
approximately 10,000 registered Common Unitholders of record. The following
table sets forth, for the periods indicated, the high and low sale prices per
Common Unit, as reported on The New York Stock Exchange, and the amount of cash
distributions paid per Common Unit.

COMMON UNIT
PRICE RANGE
-------------------
1996 FISCAL YEAR HIGH LOW CASH DISTRIBUTION PAID PER UNIT
- ---------------------------------------------------- ------- ------- --------------------------------

Third Quarter (beginning June 26, 1996)............. $21.000 $18.625 $0.525 (paid November 15, 1996)
Fourth Quarter...................................... $20.750 $19.250 $0.525 (paid February 14, 1997)

The Partnership has also issued Subordinated Units, all of which are held
by the Managing General Partner for which there is no established public trading
market. The Partnership will distribute to its partners on a quarterly basis,
all of its Available Cash in the manner described herein. Available Cash
generally means, with respect to any quarter of the Partnership, all cash on
hand at the end of such quarter less the amount of cash reserves that are
necessary or appropriate in the reasonable discretion of the Managing General
Partner to (i) provide for the proper conduct of the Partnership's business,
(ii) comply with applicable law or any Partnership debt instrument or other
agreement, or (iii) provide funds for distributions to Unitholders and the
General Partner in respect of any one or more of the next four quarters.
Available Cash is more fully defined in the Amended and Restated Agreement of
Limited Partnership of National Propane Partners, L.P. listed as an exhibit to
this Report. The Partnership made a cash distribution on November 15, 1996 in
respect to its Common Units and its Subordinated Units for the quarter ended
September 30, 1996 in the amount of $5.9 million. The Partnership also made a
cash distribution on February 14, 1997 in respect to its Common Units and
Subordinated Units for the quarter ended December 31, 1996 in the amount of $6.1
million. Both distributions represented a payment of $.525 per Unit. The
Partnership Agreement defines Minimum Quarterly Distributions as $.525 per Unit
for each full fiscal quarter. Distributions of Available Cash to the holder of
the Subordinated Units are subject to the prior rights of the holders of Common
Units to receive Minimum Quarterly Distributions for each quarter during the
subordination period, and to receive any arrearages in the distribution of
Minimum Quarterly Distributions on the Common Units for prior quarters during
the subordination period. The subordination period will not end earlier than
June 30, 2001. Restrictions on the Partnership's distributions required by Item
5 is incorporated herein by reference to Note 11 to the accompanying
consolidated financial statements, and to 'Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Descriptions of
Indebtedness'.

ITEM 6. SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA

In connection with the Partnership Conveyance, the Partnership became the
successor to the businesses of National Propane. Because the Partnership
Conveyance was a transfer (as described in Note 1 to the accompanying
consolidated financial statements) of assets and liabilities in exchange for
partnership interests among a controlled group of companies, it has been
accounted for in a manner similar to a pooling of interests, resulting in the
presentation of the Partnership as the successor to the continuing businesses of
National Propane. The entity representative of both the operations of (1)
National Propane prior to the Partnership Conveyance and (2) the Partnership
subsequent to the Partnership Conveyance, is referred to as 'National'. Further
the selected financial data reflect the effects of the June 1995 merger of
Public Gas with and into National which is further described in Note 3 to the
accompanying consolidated financial statements.

FISCAL YEAR TEN MONTHS
ENDED APRIL ENDED YEAR ENDED DECEMBER 31,
30, DECEMBER 31, ---------------------------------------
1993(A)(B)(C) 1993(B)(C) 1994(A)(B) 1995(A)(B) 1996(A)
------------- ------------ ---------- ---------- -----------
(IN THOUSANDS, EXCEPT UNIT DATA)

Revenues.................................... $ 151,931 $119,249 $ 151,651 $ 148,983 $ 173,260
Operating profit (loss)..................... 5,012(d) (1,467)(d) 18,750 14,501 16,188
Income (loss) before extraordinary charges
and cumulative effect of change in
accounting principles..................... 2,876 (347) 12,021 (605) 5,747
Extraordinary charges(e).................... -- -- (2,116) -- (2,631)
Cumulative effect of change in accounting
principles(f)............................. 6,259 -- -- -- --
Net income (loss)........................... 9,135 (347) 9,905 (605) 3,116
Income before extraordinary charges per
Unit(g)................................... 0.27
Weighted average number of units
outstanding............................... 10,954,753
Total assets................................ 218,095 191,955 137,581 139,112 196,408
Long-term debt.............................. 67,511 51,851 98,711 124,266 128,044
Partners' capital/Stockholders' equity
(deficit)(h).............................. 88,063 88,971 (19,502) (48,600) 34,063
Operating Data:
EBITDA(i).............................. 13,087 5,483 28,774 25,146 27,321
Capital expenditures(j)................ 8,290 11,260 12,593 11,013 7,868
Retail propane gallons sold............ 154,839 117,415 152,335 150,141 160,484

- ------------

(a) Reflects the results of National Propane Corporation and subsidiaries
('National Propane') through June 30, 1996 and of National Propane
Partners, L.P. (the 'Partnership'), National Propane, L.P. and subsidiary,
as successor to the continuing business of National Propane, thereafter. On
July 2, 1996 (effective June 30, 1996), National Propane and a subsidiary
conveyed substantially all of their assets and liabilities in exchange for
partnership interests among a controlled group of companies, which has been
accounted for in a manner similar to a pooling of interests. In July 1996
the Partnership consummated an initial public offering (the 'Offering') of
6,301,550 common units representing limited partnership interests in the
Partnership (the 'Common Units') and in November 1996 the Partnership sold
an additional 400,000 Common Units through a private placement (the 'Equity
Private Placement'). See Note 1 to the consolidated financial statements
included elsewhere herein for a further discussion of the basis of
presentation of the consolidated financial statements, the Partnership
Conveyance, the Offering and the Equity Private Placement. See Note 4 to
the consolidated financial statements included elsewhere herein for the
unaudited proforma operating results for the year ended December 31, 1996
adjusted as if the Partnership had been formed and the Partnership
Conveyance, the Offering and the Equity Private Placement had been
completed as of January 1, 1996.

(footnotes continued on next page)

(footnotes continued from previous page)

(b) All of the periods presented above prior to June 29, 1995 have been
restated to reflect the effects of the June 29, 1995 merger (the 'Merger')
of Public Gas Company with and into National Propane. Because the Merger
was a transfer of assets and liabilities in exchange for shares among a
controlled group of companies, it has been accounted for in a manner
similar to a pooling of interests.

(c) In October 1993 National Propane's fiscal year ending April 30 and Public
Gas' fiscal year ending February 28 were changed to a calendar year ending
December 31. In order to conform the reporting periods of the combined
entities and to select a period deemed to meet the Securities and Exchange
Commission requirement for filing financial statements for a period of one
year, the ten-month period ending December 31, 1993 ('Transition 1993') has
been presented above and in the accompanying consolidated financial
statements. The selected financial data as of and for the fiscal year
ending April 30, 1993 ('Fiscal 1993'), however, reflects the former
year-ends of both National and Public Gas. Accordingly, Fiscal 1993 and
Transition 1993 each include the results of National Propane for the
two-month period ended April 30, 1993 as follows: Revenues -- $28,266;
Operating loss -- $(5,190); Net loss -- $(3,375) (see Note (d) below).

(d) Includes certain significant pretax charges recorded in April 1993
affecting Fiscal 1993 and Transition 1993 operating profit consisting of
(i) $8.4 million of facilities relocation and corporate restructuring
charges ($7.6 million of which affected both Fiscal 1993 and Transition
1993 due to National Propane's April 1993 being included in both periods
and $0.8 million of which affected only Transition 1993) and (ii) $0.5
million of allocated costs of a payment to the special committee of
Triarc's Board of Directors ($0.4 million of which affected both Fiscal
1993 and Transition 1993).

(e) The extraordinary charges primarily represent the write-off of unamortized
deferred financing costs and original issue discount (in the 1994 period),
net of income taxes, associated with the early extinguishment of debt.

(f) Represents the cumulative effect of change in accounting principles
resulting from the adoption of Statement of Financial Accounting Standards
No. 109 'Accounting for Income Taxes' effective May 1, 1992.

(g) Net income per Unit was computed by dividing net income before an
extraordinary charge for the period July 1, 1996 (see Note (e) above) to
December 31, 1996, after deducting the general partners' 4% interest, by
the weighted average number of units outstanding.

(h) In November, 1994, National reclassified its receivable from Triarc as a
component of stockholders' equity. Receivables from SEPSCO are classified
as a component of stockholders' equity for all of the above periods except
for the year ending December 31, 1996. (See Note 13 to the accompanying
consolidated financial statements).

(i) EBITDA is defined as operating profit (loss) plus depreciation and
amortization (excluding amortization of deferred financing costs). EBITDA
should not be considered as an alternative to net income (as an indicator
of operating performance) or as an alternative to cash flow (as a measure
of liquidity or ability to service debt obligations) and is not a measure
of performance or financial condition under generally accepted accounting
principles, but provides additional information for evaluating National's
ability to distribute the Minimum Quarterly Distribution. Cash flows in
accordance with generally accepted accounting principles consist of cash
flows from (i) operating, (ii) investing and (iii) financing activities.
Cash flows from operating activities reflect net income (loss) (including
charges for interest and income taxes not reflected in EBITDA), adjusted
for (i) all non-cash charges or income (including, but not limited to,
depreciation and amortization) and (ii) changes in operating assets and
liabilities (not reflected in EBITDA). Further, cash flows from investing
and financing activities are not included in EBITDA. For a discussion of
National's operating performance and cash flows provided by (used in)
operating, investing and financing activities, see 'Management's Discussion
and Analysis of Financial Condition and Results of Operations.'

(footnotes continued on next page)

(footnotes continued from previous page)

(j) National's capital expenditures, including capital leases, fall generally
into three categories: (i) maintenance capital expenditures, which include
expenditures for replacement of property, plant and equipment, (ii) growth
capital expenditures for the expansion of existing operations and (iii)
acquisition capital expenditures, which include expenditures related to the
acquisition of retail propane operations.

An analysis by category for the years ended December 31, 1994, 1995 and
1996 is as follows:

YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1196
------- ------- ------
(IN THOUSANDS)

Maintenance(1).............................................. $ 4,228 $ 4,030 $3,108
Growth...................................................... 3,672 4,936 3,922
Acquisition................................................. 4,693 2,047(2) 838
------- ------- ------
Total............................................. $12,593 $11,013 $7,868
------- ------- ------
------- ------- ------

- ------------

(1) Includes expenditures not expected to occur on an annual
basis as follows: 1994 -- $1,790 (primarily computer
hardware and systems installation); 1995 -- $590
(primarily the purchase of an airplane).

(2) Includes $1,864 of assets purchased and contributed by
Triarc (see Note 21 to the accompanying consolidated
financial statements).

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

CERTAIN STATEMENTS SET FORTH BELOW UNDER THIS CAPTION CONSTITUTE
'FORWARD-LOOKING STATEMENTS' WITHIN THE MEANING OF THE REFORM ACT. SEE 'SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS' ON PAGE 1 FOR ADDITIONAL FACTORS
RELATING TO SUCH STATEMENTS.

This 'Management's Discussion and Analysis of Financial Condition and
Results of Operations' reflects the results of National Propane Corporation and
subsidiaries ('National Propane') through June 30, 1996 and of National Propane
Partners, L.P. (the 'Partnership'), a subsidiary partnership National Propane
L.P. (the 'Operating Partnership') and a subsidiary National Sales & Service,
Inc. ('NSSI' and together with the Partnership and the Operating Partnership,
the 'Partnership Entities'), as successor to the continuing business of National
Propane, thereafter. The Partnership was organized on March 13, 1996 and was
formed to acquire, own and operate National Propane's propane business and
substantially all of the related assets of National Propane. The Partnership's
activities are conducted through the Operating Partnership and NSSI. The entity
representative of both the operations of (i) National Propane prior to the
Partnership Conveyance and (ii) the Partnership Entities subsequent to the
Partnership Conveyance is referred to herein as 'National'. On July 2, 1996
(effective July 1, 1996), National Propane and a subsidiary conveyed
substantially all of their propane related assets and liabilities (other than
amounts due from a parent, deferred financing costs and income tax liabilities)
to the Operating Partnership. Because such conveyance was a transfer of assets
and liabilities in exchange for partnership interests among a controlled group
of companies, it has been accounted for in a manner similar to a pooling of
interests. Further, results of operations of National Propane prior to June 29,
1995 have been restated to reflect the effects of the June 29, 1995 merger (the
'Merger') of Public Gas Company ('Public Gas') with and into National Propane.
Because the Merger was a transfer of assets and liabilities in exchange for
shares among a controlled group of companies, it has been accounted for in a
manner similar to a pooling of interests. See Note 1 to the consolidated
financial statements included elsewhere herein for a further discussion of the
basis of presentation of the consolidated financial statements and the
Partnership Conveyance and see Note 3 to the consolidated financial statements
for further discussion of the Merger.

GENERAL

National is primarily engaged in (i) the retail marketing of propane to
residential customers, commercial and industrial customers, agricultural
customers and to dealers that resell propane to residential and commercial
customers, and (ii) the retail marketing of propane-related supplies and
equipment, including home and commercial appliances. National believes it is the
sixth largest retail marketer of propane in terms of retail volume in the United
States, supplying approximately 250,000 active retail and wholesale customers in
25 states through its 166 service centers. National's operations are
concentrated in the Midwest, Northeast, Southeast and Southwest regions of the
United States.

National's residential and commercial customers use propane primarily for
space heating, water heating, clothes drying and cooking. In the industrial
market propane is used as a motor fuel for over-the-road vehicles, forklifts and
stationary engines, to fire furnaces, as a cutting gas and in other process
applications. Agricultural customers use propane for tobacco curing, crop
drying, poultry brooding and weed control. Dealers re-market propane in small
quantities, primarily in cylinders, for residential and commercial uses.

The retail propane sales volumes are very dependent on weather conditions.
National sells approximately 67% of its retail volume during the first and
fourth quarters, which are the winter heating season. As a result, cash flow is
greatest during the first and fourth quarters as customers pay for their
purchases. Propane sales are also dependent on climatic conditions which may
affect agricultural regions. National believes that its exposure to regional
weather patterns is lessened because of the geographic diversity of its areas of
operations and through sales to commercial and industrial markets, which are not
as sensitive to variations in weather conditions.

Gross profit margins are not only affected by weather patterns but also by
changes in customer mix. In addition, gross profit margins vary by geographical
region. Accordingly, profit margins could vary significantly from year to year
in a period of identical sales volumes.

National reports on a calendar year basis; accordingly its results are
affected by two different winter heating seasons: the end of the first year's
heating season, National's first fiscal quarter, and the beginning of the second
heating season, National's fourth fiscal quarter.

Profitability is also affected by the price and availability of propane.
Worldwide availability of both gas liquids and oil affects the supply of propane
in domestic markets. National does not believe it is overly dependent on any one
supplier. National primarily buys propane on both one year contracts and the
spot market and generally does not enter into any fixed price take-or-pay
contracts. Furthermore, National purchases propane from a wide variety of
sources. In 1996, no provider supplied over 20% of National's propane needs.

Based on demand and weather conditions the price of propane can change
quickly over a short period of time; in most cases the increased cost of propane
is passed on to the customer. However, in cases where increases cannot be passed
on or when the price of propane escalates faster than the Partnership's ability
to raise customer prices, margins will be negatively affected.

The propane industry is very competitive. National competes against other
major propane companies as well as local marketers in most of its markets, with
the most competition in the Midwest United States. Propane also competes against
other energy sources, primarily natural gas, oil and electricity.

The following discussion compares the results of operations for the year
ended December 31, 1996 with the year ended December 31, 1995, and the year
ended December 31, 1995 with the year ended December 31, 1994.

RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1996
COMPARED TO YEAR ENDED DECEMBER 31, 1995

Revenues. Revenues increased $24.3 million, or 16.3% to $173.3 million for
the year ended December 31, 1996 as compared with $149.0 million for the year
ended December 31, 1995. This increase consists of a $25.2 million increase in
propane revenues partially offset by a $0.9 million decrease in revenues from
other product lines. Propane revenues increased 18.5% to $161.5 million in

1996 as compared to $136.3 million in 1995. The $25.2 million increase in
propane revenues was due to increased selling prices of $15.8 million and volume
increases of $9.4 million. The increase in selling prices consisted of increases
due to increased costs ($19.0 million), partially offset by decreases due to a
shift in the customer mix toward lower-priced non-residential accounts ($3.2
million). The propane sales volume increase reflects an increase of 10.4 million
gallons, or 6.9% in 1996 to 160.5 million gallons compared with 150.1 million
gallons in 1995. The increase in gallons sold in 1996 was primarily to non-
residential customers as gallons sold to residential customers remained
relatively unchanged, in spite of the fact that Degree Day data, published by
the National Climatic Data Center, as applied to the geographic regions of
National's operations, indicated that the year ended December 31, 1996 was 5.2%
colder than 1995.

Gross Profit. Gross profit increased $0.7 million, or 1.7%, to $40.6
million in 1996 compared with $39.9 million in 1995. Higher propane sales
volumes contributed an additional $5.1 million of gross profit in 1996.
Offsetting the volume increase was a decrease in gross profit of $2.5 million
due to a decrease in the average margin per gallon (the spread between the sales
price and the direct product cost) sold in 1996 to 47.3% as compared with 54.1%
in 1995. This lower margin was due to (i) a shift in customer mix toward
lower-priced non-residential accounts and (ii) an increase in product costs
which could not be fully passed on to certain customers in the form of higher
selling prices. During 1996 the average cost per gallon of propane increased
over 27% as compared to 1995. Contributing to this unusual increase in propane
costs were lower than normal inventories at the beginning of the heating season;
higher than average use for crop drying in 1996; higher exports to Mexico due to
the shut down of a major Mexican gas plant; and heavy consumption during the
summer of 1996 by chemical companies which use propane as a raw material. Also,
offsetting the increase in gross profit due to sales volume were higher
operating expenses ($1.2 million) attributable to the cost of fuel (propane) for
delivery vehicles and the costs associated with the start up of six new propane
plants which began operations during the last quarter of 1995 and the first half
of 1996. These plants had not yet achieved sufficient sales volumes in 1996 to
make a positive contribution to gross profit. Gross profit from other product
lines also decreased $0.6 million in 1996 as compared to 1995.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 2.1% or $0.5 million to $22.9 million in 1996
compared with $22.4 million in 1995, as increases in the provision for doubtful
accounts, business taxes and rent expense as well as stand-alone costs
associated with the Partnership effective July 2, 1996 were partially offset by
decreased training costs associated with a new computer system incurred in 1995
and a decrease in advertising expenses.

Management Fees Charged By Parents. Management fees decreased $1.5 million
to $1.5 million in 1996 compared to $3.0 million in 1995 due to management fees
being eliminated upon the commencement of the operations of the Partnership and
the Partnership Conveyance on July 2, 1996.

Interest Expense. Interest expense increased $0.4 million, or 3.0%, to
$12.1 million in 1996 compared with $11.7 million in 1995. This increase was due
to higher average borrowings partially offset by lower average interest rates
and lower amortization of deferred financing costs, primarily due to a longer
commitment period.

Interest Income from Triarc. Interest income from Triarc in 1996 is due to
interest on a $40.7 million loan to Triarc (the 'Partnership Loan'), made on
July 2, 1996. See Note 14 to the consolidated financial statements included
elsewhere herein.

Other Income, Net. Other income, net decreased $0.1 million due to a
decrease in gains on asset sales.

Provision for Income Taxes. The provision for income taxes in 1996 and 1995
is related primarily to National's operations prior to the Partnership
Conveyance. The Partnership Entities are not tax paying entities except for
NSSI. As such, the 1996 provision for income taxes decreased since the second
half of 1996 excludes any tax provision relating to the earnings of the
Partnership and the Operating Partnership. See Note 12 of notes to consolidated
financial statements included elsewhere herein.

Extraordinary Charge. The extraordinary charge of $2.6 million in 1996 is
the result of the early extinguishment of $128.5 million of existing
indebtedness and consists of the write-off of deferred

financing costs of $4.1 million and prepayment penalties of $0.2 million, net of
income tax benefit of $1.7 million.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

Revenues. Revenues declined $2.7 million, or 1.8%, to $149.0 million in
1995 compared with $151.7 million in 1994 with propane revenues decreasing $2.3
million, or 1.6%, to $136.3 million in 1995 compared with $138.6 million in
1994. This decrease is principally due to reduced propane sales volume as retail
gallons sold for 1995 decreased 2.2 million, or 1.4%, to 150.1 million in 1995
compared with 152.3 million in 1994. This decrease in propane sales volume is
primarily the net effect of an unusually warm winter season in the first quarter
of 1995 partially offset by (i) the impact of acquisitions which were made in
the second half of 1994 and the second half of 1995, and (ii) a slightly colder
fourth quarter in 1995. Based on Degree Days Data, as applied to the
geographical regions of National's operations, the first quarter of 1995 was
14.4% warmer than the first quarter of 1994. During the first quarter of 1995,
excluding the positive impact of increased volumes due to acquisitions, National
sold 8.6 million fewer gallons than during the same quarter in 1994. Partially
offsetting the impact of the warmer temperatures was (i) an increase of 5.9
million gallons from businesses acquired during the second half of 1994, and
(ii) higher volume resulting from slightly colder temperatures in the fourth
quarter of 1995. A slight decrease in National's other lines of revenue,
primarily appliance sales, accounted for the remainder of the decrease in
revenues.

Gross Profit. Gross profit declined $2.0 million, or 4.8%, to $39.9 million
in 1995 compared with $41.9 million in 1994 due principally to (i) the lower
propane sales volume in 1995 compared with 1994, and (ii) lower profit margins
per gallon (54.1% in 1995 compared with 57.2% in 1994) reflecting higher product
costs. These higher product costs could be passed along only in part to
customers in the form of higher selling prices and were partially offset by
lower overhead costs.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $3.8 million, or 20.2%, to $22.4 million in
1995 compared with $18.6 million in 1994. This increase reflects higher costs
for (i) medical benefits, (ii) costs relating to new marketing programs
initiated in 1995 and (iii) increased amortization of 'Goodwill' and other
intangibles. The increased amortization of Goodwill and other intangibles
reflects (i) the full year effects of acquisitions in 1994 as well as Goodwill
'pushed down' to Public Gas in April 1994 in connection with the Southeastern
Public Service Company ('SEPSCO') Merger discussed in Note 15 to the
accompanying consolidated financial statements and (ii) the effect of
acquisitions in 1995.

Management Fees Charged by Parents. Management fees decreased $1.6 million
to $3.0 million in 1995 compared with $4.6 million in 1994. This decrease
resulted from $1.6 million of management fees charged in 1994 by SEPSCO for
services provided to Public Gas. No such fees were charged in 1995 since the
management services to Public Gas were provided by the management of National.

Interest Expense. Interest expense increased $2.0 million, or 20.5%, to
$11.7 million in 1995 compared with $9.7 million in 1994. This increase was due
to higher borrowings under National's bank facility repaid in 1996, including
the full year 1995 effect of borrowings in October 1994 to finance a $40.0
million dividend to Triarc, partially offset by lower interest rates.

Interest Income from Triarc. The interest income from Triarc of $9.8
million in 1994 did not recur in 1995 due to National's reclassification of its
receivable from Triarc as a component of stockholders' equity in November 1994.
This reclassification occurred because Triarc's liquidity position was no longer
sufficient to enable it to repay the receivable and, therefore, the receivable
was no longer expected to be repaid except through an equity transaction.
Concurrent with the reclassification, National ceased accruing interest on the
receivable. See Note 14 to the consolidated financial statements included
elsewhere herein.

Other Income, Net. Other income, net decreased $0.3 million to $0.9 million
in 1995 compared with $1.2 million in 1994 principally due to lower interest
income from finance charges on appliance sales.

Provision for Income Taxes. The provision for income taxes in 1995 and 1994
reflect effective rates of 116% and 40%, respectively. The higher 1995 rate
reflects a $2.5 million provision for income tax contingencies in 1995 relating
to proposed adjustments raised by the Internal Revenue Service for the

tax years 1989 through 1992 (see Note 12 of notes to the accompanying
consolidated financial statements included elsewhere herein).

Extraordinary Charge. In 1994, National recognized an extraordinary charge
of $2.1 million in connection with the early extinguishment of the $49.0 million
principal amount of its existing indebtedness consisting of the write-off of
previously unamortized deferred financing costs of $0.9 million and previously
unamortized original issue discount of $2.6 million, less income tax benefit of
$1.4 million.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows from operating activities of $14.3 million in 1996 consisted
primarily of net income of $3.1 million plus non-cash charges of $16.7 million,
principally depreciation and amortization and the write-off of deferred
financing costs, offset by a $5.5 million increase in net working capital. The
increase in working capital is primarily due to higher propane sales volumes and
higher prices which caused increased levels of accounts receivable and
inventories.

Cash used in investing activities for 1996 amounted to $8.5 million, which
was used for capital expenditures and business acquisitions. Capital
expenditures amounted to $6.7 million of which $3.9 million was to support the
growth of operations and $2.8 million was for recurring maintenance capital to
support current business levels. National expects to have total capital
expenditures in 1997 of approximately $6.0 million of which $3.5 million are for
maintenance and $2.5 million are projected for growth. Such capital expenditures
will be funded by cash flow from operations and existing credit lines. At
December 31, 1996 National had outstanding commitments of $0.3 million for such
capital expenditures. During 1996 National acquired the assets of five propane
distributors for an aggregate of $2.0 million of cash. In January, 1997 National
acquired the assets of another propane distributor for an aggregate of
approximately $1.0 million of cash.

Cash provided by financing activities of $2.6 million for 1996 principally
reflects $117.4 million from an initial public offering (the 'Offering') of
6,301,550 common units representing limited partnership interests in the
Partnership (the 'Common Units') (see further details below), $7.4 million from
the private placement sale of 400,000 common units (the 'Equity Private
Placement') and $125.0 million from the private placement of First Mortgage
Notes (see further detail below) substantially offset by the repayment of the
previous debt facilities of $128.5 million and the payment of a $59.3 million
dividend and $49.2 million of advances and repayments of obligations to Triarc.

Total partners' capital at December 31, 1996 was $34.1 million as compared
with a stockholders' deficit of $48.6 million at December 31, 1995. The increase
of $82.7 million reflects the combined $124.8 million net proceeds of the
Offering and the Equity Private Placement together with the retention of $19.7
million of net liabilities by the Managing General Partner, the net income of
$3.1 million for 1996 and a $0.3 million capital contribution by the General
Partners partially offset by the $59.3 million dividend to Triarc and $5.9
million in distributions paid to the partners in the Partnership.

The Operating Partnership entered into a $55 million bank facility (the
'1996 Bank Facility'), which includes a $15 million working capital facility to
be used for working capital and other general partnership purposes and a $40
million acquisition facility, the use of which is restricted to business
acquisitions and capital expenditures for growth. At December 31, 1996, $6.0
million and $1.9 million were outstanding under the working capital facility and
the acquisition facility, respectively.

National's principal cash requirements for 1997 are maintenance capital
expenditures (currently budgeted at $3.5 million for the year ending December
31, 1997), funds for growth capital expenditures (currently budgeted at $2.5
million for the year ending December 31, 1997), business acquisitions (including
approximately $1.0 million paid in January 1997) and principal paydown under the
1996 Bank Facility's working capital facility which requires that for a period
of at least 30 consecutive days in each year between March 1 and August 31, the
principal outstanding be reduced to zero. There are no scheduled principal
repayments in 1997 with respect to the First Mortgage Notes. The Partnership
expects to meet such requirements through a combination of cash flows from
operations, the availability under the 1996 Bank Facility and the interest
income on the Partnership Loan ($5.5 million annually, reflecting a 13.5%
interest rate).

The Partnership will distribute to its partners on a quarterly basis, all
of its Available Cash. Available Cash, which is defined in the Partnership
Agreement, generally means, with respect to any quarter of the Partnership, all
cash on hand at the end of such quarter less the amount of cash reserves that is
necessary or appropriate in the discretion of the Managing General Partner to
(i) provide for the proper conduct of the Partnership's business, (ii) comply
with applicable law or any Partnership debt instrument or other agreement, or
(iii) provide funds for distributions to Unitholders and the General Partners in
respect of any one or more of the next four quarters. On November 14, 1996, the
Partnership paid a quarterly distribution for the quarter ended September 30,
1996 of $0.525 per Common Unit (the 'Minimum Quarterly Distribution') and per
Subordinated Unit with a proportionate amount for the 4% unsubordinated general
partner interest, or an aggregate $5.9 million. On February 14, 1997, the
Partnership paid a quarterly distribution for the quarter ended December 31,
1996 of $0.525 per Common and Subordinated Unit with a proportionate amount for
the 4% unsubordinated general partner interest, or an aggregate $6.1 million.
Distributions of Available Cash to the holder of the Subordinated Units are
subject to the prior rights of the holders of Common Units to receive Minimum
Quarterly Distributions for each quarter during the subordination period, as
defined, and to receive any arrearages in the distribution of Minimum Quarterly
Distributions on the Common Units for prior quarters during the subordination
period. For a more detailed discussion regarding restrictions on the
Partnership's distributions see Note 11 to the consolidated financial statements
included elsewhere herein.

INITIAL PUBLIC OFFERING OF COMMON UNITS

In July 1996 the Partnership issued 6,301,580 Common Units at an offering
price of $21.00 per Common Unit, representing limited partner interests in the
Partnership, pursuant to the Offering and concurrently issued 4,533,638
Subordinated Units, representing subordinated general partner interests in the
Partnership, as well as an aggregate 4% unsubordinated general partner interest
in the Partnership and the Operating Partnership, on a combined basis, to the
Managing General Partner and the Special General Partner. On November 7, 1996
the Partnership issued and sold an additional 400,000 Common Units in a private
placement.

ISSUANCE OF INDEBTEDNESS

First Mortgage Notes. Immediately prior to the Offering, the Managing
General Partner issued $125 million aggregate principal amount of First Mortgage
Notes in a private placement, which First Mortgage Notes were assumed by the
Operating Partnership in connection with the Partnership Conveyance. The First
Mortgage Notes bear interest at 8.54% and require eight equal annual prepayments
of $15,625,000, commencing June 30, 2003 through 2010.

1996 Bank Facility. Concurrent with the Offering, the Operating Partnership
entered into the 1996 Bank Facility with a group of commercial banks. The 1996
Bank Facility consists of a $15 million Working Capital Facility and a $40
million Acquisition Facility, the use of which is restricted to business
acquisitions and capital expenditures for growth. The 1996 Bank Facility bears
interest at a rate based upon, at the Operating Partnership's option, either (i)
the 30, 60, 90 or 180 day London Interbank Offered Rate plus a margin generally
ranging from 1.00% to 1.75% or (ii) the higher of (a) the prime rate and (b) the
Federal funds rate plus 0.5%, in either case, plus a margin generally up to
0.25%. The Working Capital Facility will mature on June 30, 1999. However, the
Operating Partnership must reduce the borrowings under the Working Capital
Facility to zero for a period of at least 30 consecutive days in each year
between March 1 and August 31. The Acquisition Facility will revolve until June
30, 1998, after which time any loans outstanding will amortize in equal
quarterly installments until June 30, 2001.

The Operating Partnership's 1996 Bank Facility and the First Mortgage Notes
contain certain restrictive covenants which, among other matters, (i) require
meeting certain financial amount and ratio tests, (ii) limit the incurrence of
certain other additional indebtedness and certain investments, asset
dispositions and transactions with affiliates other than in the normal course of
business and (iii) restrict the payment of distributions by the Operating
Partnership. As of December 31, 1996 there were no restrictions on the amount of
partners' capital available for the payment of distributions.

The Operating Partnership's obligations under both the First Mortgage Notes
and the 1996 Bank Facility are secured on an equal and ratable basis by
substantially all of the assets of the Operating Partnership and are guaranteed
by the Managing General Partner.

CONTINGENCIES

In May 1994, National Propane was informed of coal tar contamination which
was discovered at one of its properties in Marshfield, Wisconsin. National
Propane purchased the property from a company which had purchased the assets of
a utility that had previously owned the property. National Propane believes that
the contamination occurred during the use of the property as a coal gasification
plant by such utility. In order to assess the extent of the problem, National
Propane engaged environmental consultants who began work in August 1994. In
December 1994, the environmental consultants issued a report to National Propane
which estimated the range of potential remediation costs to be between
approximately $0.4 million and $0.9 million depending upon the actual extent of
impacted soils, the presence and extent, if any, of impacted ground water and
the remediation method actually required to be implemented. In February 1996,
based upon new information National Propane's environmental consultants issued a
second report which presented the two most likely remediation methods and
revised estimates of the costs of such methods. The report estimated the range
of costs for the first method, which involves treatment of groundwater and
excavation, treatment and disposal of contaminated soil, to be from $1.6 million
to $3.3 million. The range for the second method, which involves only treatment
of ground water and building a soil containment wall, was from $0.4 million to
$0.8 million. As of March 1, 1997, National Propane's environmental consultants
have begun, but not completed, additional testing. Based upon the new
information compiled to date, which is not yet complete, it appears that the
containment wall remedy is no longer appropriate, and the likely remedy will
involve treatment of ground water and treatment by soil-vapor extraction of
certain contaminated 'hot spots' in the soil, installation of a soil cap and, if
necessary, excavation, treatment and disposal of contaminated soil. As a result,
the environmental consultants have revised the range of estimated costs for the
remediation to be from $0.8 million to $1.6 million. Based on discussions with
National Propane's environmental consultants, an acceptable remediation plan
should fall within this range. National Propane will have to agree upon the
final plan with the State of Wisconsin. Since receiving notice of the
contamination, National Propane has engaged in discussions of a general nature
concerning remediation with the State of Wisconsin. These discussions are
ongoing and there is no indication as yet of the time frame for a decision by
the State of Wisconsin on the method of remediation. Accordingly, it is unknown
what remediation method will be used. Based on the preliminary results of the
ongoing investigation, there is a potential that the contaminant plume may
extend to locations downgradient from the orginal site. If it is ultimately
confirmed that the contaminant plume extends under such properties and if such
plume is attributable to the contaminant plume emanating from the Marshfield
property, there is the potential for future third-party claims. National Propane
is also engaged in ongoing discussions of a general nature with the successor to
the utility that operated a coal gasification plant on the property. The
successor has denied any liability for the costs of remediation of the
Marshfield property or of satisfying any related claims. If National Propane is
found liable for any of such costs, it will attempt to recover them from the
successor owner. National Propane has notified its insurance carriers of the
contamination and the likely incurrence of costs to undertake remediation and
the possibility of related claims. Pursuant to a lease relating to the
Marshfield facility, the ownership of which was not transferred to the Operating
Partnership in connection with the Partnership Conveyance, the Partnership has
agreed to be liable for any costs of remediation in excess of amounts recovered
from such successor or from insurance. Since no amount within the ranges of
remediation costs could be determined to be a better estimate, National had
accrued $0.8 million at December 31, 1996 in order to provide for the minimum
costs estimated for the anticipated remediation method, incurred legal fees and
other professional costs. The ultimate outcome of this matter cannot presently
be determined and the cost of remediation and third-party claims, if any, may
have a material adverse effect on the Partnership's financial position, results
of operations or ability to make the distributions to the holders of its Common
Units and Subordinated Units.

There are a number of lawsuits pending or threatened against the
Partnership and/or National. In general, these lawsuits have arisen in the
ordinary course of the Partnership's business and involve claims for actual
damages, and in some cases punitive damages, arising from the alleged negligence
of the Partnership or as a result of product defects of similar matters. Of the
pending or threatened matters, a number involve property damage, and several
involve serious personal injuries or deaths and the claims made are for
relatively large amounts. Although any litigation is inherently uncertain, based
on past experience, the information currently available to it and the
availability of insurance coverage in certain matters, the Partnership does not
believe that the pending or threatened litigation of which the Partnership is
aware will have a material adverse effect on its results of operations or its
financial condition. However, any one or all of these matters taken together may
adversely affect the Partnership's quarterly or annual results of operations and
may limit the Partnership's ability to make distributions to its Unitholders.

EFFECTS OF INFLATION

In general, inflation has not had any significant impact on National in
recent years and changes in propane prices, in particular, have been dependent
on factors generally more significant than inflation, such as weather and
availability of supply. However, to the extent inflation affects the amounts
National pays for propane as well as operating and administrative expenses,
National attempts to limit the effects of inflation through passing on propane
cost increases to customers in the form of higher selling prices to the extent
it can do so as well as cost controls and productivity improvements. As such,
inflation has not had a material adverse effect on National's profitability and
National does not believe normal inflationary pressures will have a material
adverse effect on future results of operations of National.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
----

Independent Auditors' Report............................................................................... 25
Consolidated Balance Sheets -- December 31, 1995 and 1996.................................................. 26
Consolidated Statements of Operations -- Years ended December 31, 1994,
1995 and 1996............................................................................................ 27
Consolidated Statements of Partners' Capital/Stockholders' Deficit -- Years ended
December 31, 1994, 1995 and 1996......................................................................... 28
Consolidated Statements of Cash Flows -- Years ended December 31, 1994,
1995 and 1996............................................................................................ 29
Notes to Consolidated Financial Statements................................................................. 31

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Partners of
NATIONAL PROPANE PARTNERS, L.P.:

We have audited the accompanying consolidated balance sheets of National
Propane Partners, L.P. and subsidiaries (successor to National Propane
Corporation and subsidiaries) as of December 31, 1995 and 1996, and the related
consolidated statements of operations, partners' capital/stockholders' deficit
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The consolidated financial statements give retroactive effect to the
merger of Public Gas Company, which has been accounted for as a combination of
entities under common control in a manner similar to a pooling of interests as
described in Notes 1 and 3 to the consolidated financial statements.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of National Propane Partners, L.P.
and subsidiaries (successor to National Propane Corporation and subsidiaries) at
December 31, 1995 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Cedar Rapids, Iowa
March 14, 1997

NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEETS

DECEMBER 31,
--------------------
1995 1996
-------- --------
(IN THOUSANDS)

ASSETS
Current assets (Note 11):
Cash and cash equivalents............................................................ $ 2,825 $ 11,187
Receivables, net (Notes 6 and 21).................................................... 16,391 24,217
Finished goods inventories........................................................... 10,543 14,130
Other current assets (Note 12)....................................................... 4,340 2,268
-------- --------
Total current assets............................................................ 34,099 51,802
Due from Triarc Companies, Inc. (Notes 11 and 14)......................................... -- 40,700
Properties, net (Notes 7, 11 and 15)...................................................... 83,214 80,634
Unamortized costs in excess of net assets of acquired companies
(Notes 8, 13, 15, 20 and 21)............................................................ 15,161 14,601
Other assets (Notes 9 and 11)............................................................. 6,638 8,671
-------- --------
$139,112 $196,408
-------- --------
-------- --------
LIABILITIES AND PARTNERS'
CAPITAL/STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt (Note 11).......................................... $ 11,278 $ 6,312
Accounts payable..................................................................... 7,836 15,859
Due to Triarc Companies, Inc. and another affiliate (Note 12)........................ 9,972 --
Accrued expenses (Note 10)........................................................... 9,370 10,103
-------- --------
Total current liabilities....................................................... 38,456 32,274
Long-term debt (Note 11).................................................................. 124,266 128,044
Deferred income taxes (Notes 12 and 15)................................................... 22,878 --
Customer deposits......................................................................... 2,112 2,027
Commitments and contingencies (Notes 2, 5, 12, 17, 18 and 19)
Partners' capital/Stockholders' deficit (Notes 5 and 11):
Stockholders' deficit................................................................. (48,600) --
Common partners' capital (6,701,550 units outstanding in 1996)....................... -- 22,165
General partners' capital (including 4,533,638 subordinated
units outstanding in 1996)......................................................... -- 11,898
-------- --------
Total partners' capital/stockholders' deficit................................... (48,600) 34,063
-------- --------
$139,112 $196,408
-------- --------
-------- --------

See accompanying notes to consolidated financial statements.

NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
-------- -------- -----------
(IN THOUSANDS EXCEPT FOR UNIT DATA)

Revenues.................................................................. $151,651 $148,983 $ 173,260
-------- -------- -----------
Cost of sales:
Cost of product -- propane and appliances............................ 62,653 65,563 87,973
Other operating expenses applicable to revenues...................... 47,030 43,496 44,705
-------- -------- -----------
109,683 109,059 132,678
-------- -------- -----------
Gross profit.................................................... 41,968 39,924 40,582

Selling, general and administrative expenses.............................. 18,657 22,423 22,894
Management fees (Note 21)................................................. 4,561 3,000 1,500
-------- -------- -----------
Operating income................................................ 18,750 14,501 16,188
-------- -------- -----------

Other income (expense):
Interest expense..................................................... (9,726) (11,719) (12,076)
Interest income from Triarc Companies, Inc. (Note 14)................ 9,751 -- 2,755
Other income, net.................................................... 1,169 904 817
-------- -------- -----------
1,194 (10,815) (8,504)
-------- -------- -----------
Income before income taxes and extraordinary charges............ 19,944 3,686 7,684
Provision for income taxes (Note 12)...................................... 7,923 4,291 1,937
-------- -------- -----------
Income (loss) before extraordinary charges...................... 12,021 (605) 5,747
Extraordinary charges (Note 16)........................................... (2,116) -- (2,631)
-------- -------- -----------
Net income (loss).................................................... $ 9,905 $ (605) $ 3,116
-------- -------- -----------
-------- -------- -----------
General partners' interest in:
Income before extraordinary charge................................... $ 2,751
Extraordinary charge................................................. (2,631)
-----------
Net income...................................................... $ 120
-----------
-----------
Unitholders' interest (common and subordinated) in net income............. $ 2,996
-----------
-----------
Net income per unit....................................................... $ .27
-----------
-----------

Weighted average number of units outstanding.............................. 10,954,753
----------
----------

See accompanying notes to consolidated financial statements.

NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL/STOCKHOLDERS' DEFICIT
(IN THOUSANDS)

RETAINED EARNINGS
(ACCUMULATED TOTAL PARTNERS'
ADDITIONAL DEFICIT)/GENERAL COMMON CAPITAL/
PREFERRED COMMON PAID-IN DUE FROM TREASURY PARTNERS' PARTNERS' STOCKHOLDERS'
STOCK STOCK CAPITAL PARENTS STOCK CAPITAL CAPITAL DEFICIT
--------- ------ ---------- -------- -------- ----------------- ------- ---------------

Balance at December
31, 1993.......... $ 1,250 $ 1 $ 23,760 $(29,035) $ (638 ) $93,633 $ -- $88,971
Net income...... -- -- -- -- -- 9,905 -- 9,905
Dividends paid
(including
$40,030 in
cash)......... -- -- -- -- -- (41,875) -- (41,875)
Repurchases of
preferred
stock (Note
13)........... -- -- (62) -- (234 ) -- -- (296)
Cancellation of
preferred
stock (Note
13)........... (1,250) -- 378 -- 872 -- -- --
Reclassification
of due from
Triarc to
equity (Note
14)........... -- -- -- (81,392 ) -- -- -- (81,392)
Increase in
SEPSCO's basis
in Public Gas
Company
('Public Gas')
resulting from
the repurchase
of the 28.9%
minority
interest in
SEPSCO (Note
15)........... -- -- 8,088 -- -- -- -- 8,088
Increase in due
from SEPSCO
classified in
equity........ -- -- -- (2,903 ) -- -- -- (2,903)
--------- ------ ---------- -------- -------- ------- ------- -------
Balance at December
31, 1994.......... -- 1 32,164 (113,330) -- 61,663 -- (19,502)
Net loss........ -- -- -- -- -- (605) -- (605)
Cash dividends
paid.......... -- -- -- -- -- (30,000) -- (30,000)
Increase in due
from SEPSCO
classified in
equity (Note
14)........... -- -- -- (2,599 ) -- -- -- (2,599)
Dividend of due
from SEPSCO
(Note 14)..... -- -- -- 34,537 -- (34,537) -- --
Capital
contribution
(Note 21)..... -- -- 4,240 -- -- -- -- 4,240
Repurchase of
the 0.3%
minority
interest in
Public Gas
(Note 3)...... -- -- (134) -- -- -- -- (134)
--------- ------ ---------- -------- -------- ------- ------- -------
Balance at December
31, 1995.......... -- 1 36,270 (81,392 ) -- (3,479) -- (48,600)
Net income:
January 1,
1996 to June
30, 1996.... -- -- -- -- -- 2,625 -- 2,625
July 1, 1996
to December
31, 1996:
Income
before
extraordinary
charge... -- -- -- -- -- 1,293 1,829 3,122
Extraordinary
charge... -- -- -- -- -- (2,631) -- (2,631)
Assets/(liabilities)
retained by
the Managing
General
Partner (Note
1)............ -- (1 ) (36,270) 81,392 -- (25,413) -- 19,708
Dividends paid
(including
$59,300 in
cash) (Note
1)............ -- -- -- -- -- (59,324) -- (59,324)
Capital
contribution
from General
Partners...... -- -- -- -- -- 338 -- 338
Net proceeds of
initial public
offering (Note
1)............ -- -- -- -- -- 101,105 16,277 117,382
Net proceeds of
private
placement of
equity (Note
1)............ -- -- -- -- -- -- 7,367 7,367
Cash
distributions
paid (Note
5)............ -- -- -- -- -- (2,616) (3,308 ) (5,924)
--------- ------ ---------- -------- -------- ------- ------- -------
Balance at December
31, 1996.......... $ -- $-- $ -- $ -- $ -- $11,898 $22,165 $34,063
--------- ------ ---------- -------- -------- ------- ------- -------
--------- ------ ---------- -------- -------- ------- ------- -------

See accompanying notes to consolidated financial statements.

NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
------- ------- --------
(IN THOUSANDS)

Cash flows from operating activities:
Net income (loss)............................. $ 9,905 $ (605) $ 3,116
Adjustments to reconcile net income (loss) to
net cash
and equivalents provided by operating
activities:
Depreciation and amortization of
properties................................ 9,427 9,546 10,016
Amortization of original issue discount
and deferred
financing costs......................... 1,077 1,305 841
Amortization of costs in excess of net
assets of
acquired companies...................... 261 617 722
Other amortization........................ 336 482 395
Write-off of deferred financing costs and
original
issue discount.......................... 3,498 -- 4,126
Interest income from Triarc accrued and
not collected............................. (9,751) -- --
Provision for (benefit from) deferred
income taxes.............................. 1,773 1,995 (870)
Provision for doubtful accounts........... 685 848 1,347
Payments on facilities relocation and
corporate
restructuring........................... (4,115) -- --
Other, net................................ 2,061 (79) 69
Changes in operating assets and
liabilities:
Increase in accounts receivable....... (1,305) (56) (9,028)
Increase in inventories............... (1,229) (286) (3,475)
Increase in other current assets...... (1,278) (662) (2,283)
Increase (decrease) in accounts
payable and accrued expenses.......... (624) 2,823 9,294
------- ------- --------
Net cash provided by operating
activities........................ 10,721 15,928 14,270
------- ------- --------
Cash flows from investing activities:
Business acquisitions......................... (5,203) (373) (2,046)
Capital expenditures.......................... (6,436) (8,082) (6,740)
Proceeds from sales of properties............. 1,375 599 317
Decrease in finance-type lease receivables
from affiliates.............................. 1,458 32 --
Decrease in due from affiliates............... 7,754 -- --
Increase in due from parents.................. (6,007) (1,643) --
------- ------- --------
Net cash used in investing
activities........................ (7,059) (9,467) (8,469)
------- ------- --------
Cash flows from financing activities:
Proceeds from long-term debt.................. 100,781 32,729 12,685
Repayments of long-term debt.................. (60,678) (9,532) (139,114)
Payments of dividends to Triarc Companies,
Inc.......................................... (40,030) (30,000) (59,300)
Payment of distributions...................... -- -- (5,924)
Proceeds of First Mortgage Notes.............. -- -- 125,000
Net proceeds of initial public offering....... -- -- 117,382
Net proceeds of private placement of equity... -- -- 7,367
Capital contribution from General Partners.... -- -- 338
Advances to and repayments of obligations to
Triarc Companies, Inc........................ -- -- (49,246)
Repurchase of preferred stock................. (938) -- --
Payment of deferred financing costs........... (5,390) (816) (6,600)
Other......................................... -- -- (27)
------- ------- --------
Net cash provided by (used in) financing
activities................................ (6,255) (7,619) 2,561
------- ------- --------

Net increase (decrease) in cash................... (2,593) (1,158) 8,362
Cash at beginning of period....................... 6,576 3,983 2,825
------- ------- --------
Cash at end of period............................. $ 3,983 $ 2,825 $ 11,187
------- ------- --------
------- ------- --------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.................................... $11,110 $11,158 $ 13,337
------- ------- --------
------- ------- --------
Income taxes (net of refunds)............... $ 1,163 $ 1,261 $ (258)
------- ------- --------
------- ------- --------
Supplemental disclosures of noncash investing and
financing
activities:
Capital expenditures:
Total capital expenditures................ $ 7,900 $ 8,966 $ 6,981
Amounts representing capitalized leases... (1,464) (884) (241)
------- ------- --------
Capital expenditures paid in cash......... $ 6,436 $ 8,082 $ 6,740
------- ------- --------
------- ------- --------

See accompanying notes to consolidated financial statements.

NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)

Due to their non-cash nature, the following are also not reflected in the
respective consolidated statements of cash flows:

During the year ended December 31, 1994, the Company offset 'Due from
Triarc Companies, Inc.' ('Triarc') with amounts otherwise payable for (i)
$1,845,000 in dividends payable to Triarc and (ii) $790,000 in amounts due to
Triarc under a management services agreement.

In April 1994 Triarc acquired the 28.9% minority interest in its
subsidiary, Southeastern Public Service Company ('SEPSCO'), that it did not
already own through the issuance of its common stock. SEPSCO's increased basis
in Public Gas Company ('Public Gas') (its then wholly-owned subsidiary)
resulting from this transaction was 'pushed down' to Public Gas resulting in
increases to 'Unamortized costs in excess of net assets of acquired companies'
of $5,483,000, 'Properties' of $4,255,000, 'Deferred income taxes' of $1,650,000
with an offsetting increase to 'Additional paid-in capital' of $8,088,000. See
Note 15 to the consolidated financial statements for further discussion.

In connection with Public Gas' repurchase of its convertible preferred
stock in 1994, SEPSCO's increased basis in Public Gas resulting from this
transaction was 'pushed down' to Public Gas resulting in an increase of $642,000
in 'Unamortized costs in excess of net assets of acquired companies' and a
charge to 'Additional paid-in capital' of $62,000 with an offsetting increase in
receivables from SEPSCO.

In June 1995 aggregate receivables from SEPSCO of $34,537,000 were
dividended to SEPSCO prior to a merger of Public Gas with and into National
Propane Corporation (see Notes 3 and 14).

In September 1995 the stock of a subsidiary of Triarc which held the stock
of two related entities engaged in the liquefied petroleum gas distribution
business was contributed to National Propane Corporation by Triarc resulting in
an increase to 'Additional paid-in capital' of $4,240,000. See Note 21 to the
consolidated financial statements for further discussion.

NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

National Propane Partners, L.P. (the 'Partnership') was formed on March 13,
1996 as a Delaware limited partnership. The Partnership and its subsidiary
partnership National Propane, L.P. (the 'Operating Partnership') were formed to
acquire, own and operate the propane business and substantially all the assets
and liabilities (principally all assets and liabilities other than amounts due
from a parent, deferred financing costs and income tax liabilities) of National
Propane Corporation and subsidiaries ('National Propane', and referred to
subsequent to the initial public offering (described below) as the 'Managing
General Partner'), a wholly-owned subsidiary of Triarc Companies, Inc.
('Triarc'). In addition, National Sales & Service, Inc. ('NSSI'), a subsidiary
of the Operating Partnership, was formed to acquire and operate the service work
and appliance and parts sales business of National Propane. The Partnership, the
Operating Partnership and NSSI are collectively referred to hereinafter as the
'Partnership Entities'. The Partnership Entities consummated in July, 1996, an
initial public offering (the 'Offering') of 6,301,550 common units representing
limited partner interests in the Partnership (the 'Common Units') for an
offering price of $21.00 per Common Unit aggregating $132,333,000 before
$14,951,000 of underwriting discounts and commissions and other expenses related
to the Offering. On November 6, 1996 the Partnership sold an additional 400,000
Common Units through a private placement (the 'Equity Private Placement') at a
price of $21.00 per Common Unit aggregating $8,400,000 before $1,033,000 of fees
and expenses. On July 2, 1996 the Managing General Partner issued in a private
placement $125,000,000 of 8.54% First Mortgage Notes due June 30, 2010 (the
'First Mortgage Notes'). The Operating Partnership assumed the Managing General
Partner's obligation under the First Mortgage Notes in connection with the
conveyance on July 2, 1996 (the 'Partnership Conveyance') by the Managing
General Partner and National Propane SGP Inc., a subsidiary of the Managing
General Partner (the 'Special General Partner' and, together with the Managing
General Partner, referred to as the 'General Partners'), of substantially all of
their assets and liabilities (excluding an existing $81,392,000 intercompany
note from Triarc, $59,300,000 of the net proceeds from the issuance of the First
Mortgage Notes which was used to pay a dividend to Triarc and certain net
liabilities of the General Partners).

The General Partners own general partner interests representing an
aggregate 4% unsubordinated general partner interest in the Partnership and the
Operating Partnership on a combined basis. In addition, the Managing General
Partner owns 4,533,638 subordinated units (the 'Subordinated Units')
representing a 38.7% subordinated general partner interest in the Partnership
Entities.

BASIS OF PRESENTATION

The accompanying consolidated financial statements presented herein reflect
the effects of the Partnership Conveyance, in which the Partnership Entities
became the successor to the businesses of National Propane. As such, the
consolidated financial statements represent National Propane prior to the
Partnership Conveyance and the Partnership entities subsequent to the
Partnership Conveyance. Because the Partnership Conveyance was a transfer of
assets and liabilities in exchange for partnership interests among a controlled
group of companies, it has been accounted for in a manner similar to a pooling
of interests, resulting in the presentation of the Partnership Entities as the
successor to the continuing businesses of National Propane. The entity
representative of both the operations of (i) National Propane prior to the
Partnership Conveyance, and (ii) the Partnership Entities subsequent to the
Partnership Conveyance, is referred to herein as 'National'. Those assets and
liabilities not conveyed to the Partnership were retained by the Managing
General Partner. All significant intercompany balances and transactions have
been eliminated in consolidations.

The accompanying consolidated financial statements reflect the effects of
the June 1995 merger (the 'Merger') of Public Gas Company ('Public Gas') with
and into National (see Note 3). Prior thereto

NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Public Gas was an indirect wholly-owned subsidiary of Triarc. Because the Merger
was a transfer of assets and liabilities in exchange for shares among a
controlled group of companies, it has been accounted for in a manner similar to
a pooling of interests and, accordingly, all prior periods have been restated to
reflect the Merger.

REVENUE RECOGNITION

National records sales of liquefied petroleum gas ('propane') when
inventory is delivered to the customer.

CASH EQUIVALENTS

All highly liquid investments with a maturity of three months or less when
acquired are considered cash equivalents.

INVENTORIES

Inventories, all of which are classified as finished goods, are stated at
the lower of cost or market using an average cost basis which approximates the
first-in, first-out cost basis.

PROPERTIES AND DEPRECIATION

Properties are carried at cost less accumulated depreciation. Depreciation
of properties is computed on the straight-line method over their estimated
useful lives of 20 to 45 years for buildings and improvements, 4 to 30 years for
equipment and customer installation costs, 3 to 10 years for office furniture
and fixtures and 3 to 8 years for automotive and transportation equipment.
Leased assets capitalized are amortized over the shorter of their estimated
useful lives or the terms of the respective leases. Gains and losses arising
from disposals are included in current operations.

UNAMORTIZED COSTS IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES

Costs in excess of net assets of acquired companies ('Goodwill') arising
after November 1, 1970 are being amortized on the straight-line basis
principally over 15 to 30 years; Goodwill of $3,560,000 arising prior to that
date is not being amortized. The amount of impairment, if any, in unamortized
Goodwill is measured based on projected future results of operations of those
acquired companies to which the goodwill relates. To the extent future results
of operations through the period such Goodwill is being amortized are sufficient
to absorb the related amortization, the Company has deemed there to be no
impairment of Goodwill.

IMPAIRMENT OF LONG-LIVED ASSETS

National adopted Statement of Financial Accounting Standards No. 121,
'Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of' in 1995. This standard requires that long-lived assets and certain
identifiable intangibles held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The adoption of this standard had no effect on
National's consolidated results of operations or financial position.

AMORTIZATION OF DEFERRED FINANCING COSTS AND DEBT DISCOUNT

Deferred financing costs, and original issue debt discount (associated with
debt repaid in 1994), are being amortized as interest expense over the lives of
the respective debt using the interest rate method.

NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ACCRUED INSURANCE

Accrued insurance includes reserves for incurred but not reported claims.
Such reserves are based on actuarial studies using historical loss experience.
Adjustments to estimates recorded resulting from subsequent actuarial
evaluations or ultimate payments are reflected in the operations of the periods
in which such adjustments become known.

INCOME TAXES

The earnings of the Partnership and Operating Partnership are included in
the Federal and state income tax returns of the individual partners. As a
result, no income tax expense has been reflected in National's consolidated
financial statements relating to the earnings of the Partnership and Operating
Partnership. Federal and state income taxes are, however, provided on the
earnings of NSSI. The Partnership entities provide deferred income taxes to
recognize the effect of temporary differences between NSSI's basis of assets and
liabilities for tax and financial statement purposes. Federal and state income
tax expense for periods prior to the Partnership Conveyance relate to National
Propane, which is included in the consolidated Federal income tax return of
Triarc, except that prior to April 14, 1994 Public Gas was included in the
consolidated Federal income tax return of Southeastern Public Service Company
('SEPSCO'), a wholly-owned subsidiary of Triarc. Under a tax sharing agreement
with Triarc, National Propane provided income taxes on the same basis as if it
filed a separate consolidated return. National Propane provided deferred income
taxes to recognize the effect of temporary differences between the basis of
assets and liabilities for tax and financial statement purposes. In connection
with the Partnership Conveyance, all income tax liabilities of National Propane
were retained by the Managing General Partner.

NET INCOME PER UNIT

Net income per unit was computed by dividing net income before an
extraordinary item for the period from July 1, 1996 to December 31, 1996, after
deducting the General Partners' 4% interest, by the weighted average number of
Common Units and Subordinated Units outstanding. The extraordinary item was
allocated entirely to the Managing General Partner.

UNIT OPTIONS

Statement of Financial Accounting Standards No. 123 'Accounting for
Stock-Based Compensation' ('SFAS 123') defines a fair value based method of
accounting for employee unit-based compensation and encourages adoption of that
method but permits accounting for unit options under the intrinsic value method
prescribed by accounting pronouncements prior to SFAS 123. National has not yet
granted any options under its 1996 unit option plan (see Note 22). Upon any such
grant, National plans to account for the options under the intrinsic value
method. As such, compensation cost for unit options granted would be measured as
the excess, if any, of the market price of National's Units at the date of grant
over the exercise price. Accordingly, if the options are granted at fair market
value, National would not recognize any charge to operations in accordance with
the intrinsic value method.

(2) SIGNIFICANT RISKS AND UNCERTAINTIES

NATURE OF OPERATIONS

National is engaged primarily in the retail marketing of propane to
residential customers, commercial and industrial customers, agricultural
customers and resellers. National also markets propane-related supplies and
equipment including home and commercial appliances. National's

NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

operations are concentrated in the Midwest, Northeast, Southeast and Southwest
regions of the United States.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

SIGNIFICANT ESTIMATES

National's significant estimates are for costs related to (i) insurance
loss reserves (see Note 1) and (ii) an environmental contingency (see Note 19).

CERTAIN RISK CONCENTRATIONS

National's significant risk concentration arises from propane being its
principal product. Both sales levels and costs of propane are sensitive to
weather conditions, particularly in the residential home heating market.
National's profitability depends on the spread between its cost for propane and
the selling price. National generally is able to pass on cost increases to the
customer in the form of higher selling prices. However, where increases cannot
be passed on, margins can be adversely affected. National is also impacted by
the competitive nature of the propane industry, as well as by competition from
alternative energy sources such as natural gas, oil and electricity.

Warren Petroleum Company ('Warren') supplied approximately 16% of
National's propane in 1996 and Amoco and Conoco each supplied approximately
10%. National believes that if supplies from Warren, Amoco or Conoco were
interrupted, it would be able to secure adequate propane supplies from other
sources without a material disruption of its operations; however, National
believes that the cost of procuring replacement supplies might be significantly
higher, at least on a short-term basis, which could negatively affect National's
margins. No other single supplier provided more than 10% of National's total
propane supply during 1996.

(3) PUBLIC GAS MERGER

Effective June 29, 1995, Public Gas, previously a wholly-owned subsidiary
of SEPSCO engaged in the propane business, was merged with and into National
(the 'Merger'), with National continuing as the surviving corporation. In
consideration for their investments in Public Gas and National Propane, SEPSCO
received 330 shares of the merged corporation representing 24.8% of its issued
and outstanding common stock and Triarc continued to hold 1,000 shares
representing 75.2% of the stock of the merged corporation (see Note 21 for
discussion of subsequent issuance of 30 shares of National Propane). Such
percentages were based upon the relative fair values of Public Gas and National
Propane prior to the Merger. In June 1995 prior to the Merger, Public Gas
acquired the 0.3% of its common stock that SEPSCO did not own for approximately
$134,000.

NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following sets forth summary operating results of the combined
entities:

YEAR ENDED DECEMBER 31,
--------------------------------------------------
1994 1995
----------------------- -----------------------
(IN THOUSANDS)

Operating revenues:
National Propane......... $ 123,588 $ 133,456(a)
Public Gas............... 28,110 15,542(b)
Eliminations............. (47) (15)
----------- -----------
$ 151,651 $ 148,983
----------- -----------
----------- -----------
Income (loss) before
extraordinary charge:
National Propane......... $ 10,072 $ (2,287)(a)
Public Gas............... 1,949 1,682(b)
----------- -----------
$ 12,021 $ (605)
----------- -----------
----------- -----------
Net income (loss):
National Propane......... $ 7,956 $ (2,287)(a)
Public Gas............... 1,949 1,682(b)
----------- -----------
$ 9,905 $ (605)
----------- -----------
----------- -----------

- ------------

(a) Reflects the results of National Propane prior to the Merger and the
combined company after the Merger.

(b) Reflects the results of Public Gas prior to the Merger.

(4) UNAUDITED PRO FORMA SUPPLEMENTAL FINANCIAL INFORMATION

The following unaudited pro forma supplemental financial information sets
forth the operating results of National for the year ended December 31, 1996 and
has been adjusted as if the Partnership had been formed and the Partnership
Conveyance, the Offering, the Equity Private Placement and related transactions
had been completed as of January 1, 1996 to give effect to (i) the elimination
of management fees paid to Triarc, (ii) the addition of the estimated
stand-alone general and administrative costs associated with National's
operation as a partnership, (iii) a net decrease to interest expense to reflect
the interest expense associated with the First Mortgage Notes and to eliminate
interest expense on the refinanced debt and (iv) the elimination of the
provision for income taxes, as income taxes will be borne by the partners and
not the Partnership or the Operating Partnership, except for corporate income
taxes relative to NSSI. Such following pro forma supplemental financial
information does not purport to be indicative of the actual results of
operations that would have resulted had the Partnership been formed and the
Partnership Conveyance, the Offering, the Equity Private Placement and related
transactions been consummated as of January 1, 1996 or of the future results of
operations of National.

NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

YEAR ENDED
DECEMBER 31,
1996
-----------------------
(IN THOUSANDS,
EXCEPT FOR UNIT DATA)

Revenues................................................................................. $ 173,260
Operating income......................................................................... 16,938
Income before income taxes and extraordinary charge...................................... 11,731
Income before extraordinary charge....................................................... 11,616
General partners' unsubordinated interest in income before extraordinary charge.......... 465
Unitholders' interest in income before extraordinary charge.............................. 11,151
Unitholders' income before extraordinary charge per unit................................. .99
Weighted average number of units outstanding............................................. 11,235,188

(5) QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH

Subsequent to the Offering the Partnership will distribute to its partners,
on a quarterly basis, all of its 'Available Cash' which generally means, with
respect to any fiscal quarter of the Partnership, all cash on hand at the end of
such quarter less the amount of cash reserves that is necessary or appropriate
in the discretion of the Managing General Partner to (i) provide for the proper
conduct of the Partnership's business, (ii) comply with applicable law or any
Partnership debt instrument or other agreement, or (iii) provide funds for
distributions to Unitholders and the General Partners in respect of any one or
more of the next four quarters.

Available Cash will generally be distributed 96% to the Unitholders
(including the Managing General Partner as the holder of Subordinated Units) and
4% to the General Partners, pro rata, except that if distributions of Available
Cash exceed target distribution levels, as defined, above $0.525 quarterly per
unit (the 'Minimum Quarterly Distribution'), the General Partners will receive
an additional percentage of such excess distributions that will increase to up
to 50% of the distributions above the highest target distribution level.

With respect to each quarter during the subordination period (the
'Subordination Period' -- see following paragraph), to the extent there is
sufficient Available Cash, the holders of Common Units will have the right to
receive the Minimum Quarterly Distribution, plus any common unit arrearages,
prior to any distribution of Available Cash to the holders of Subordinated
Units. Subordinated Units do not accrue any arrearages with respect to
distributions for any quarter.

The Subordination Period will generally extend until the first day of any
quarter beginning after June 30, 2001 in respect of which (i) distributions of
Available Cash from operating surplus on the Common Units and the Subordinated
Units with respect to each of the three consecutive four-quarter periods (the
'Periods') immediately preceding such date equaled or exceeded the sum of the
Minimum Quarterly Distribution on all of the outstanding Common Units and
Subordinated Units during such periods, (ii) the adjusted operating surplus
generated during the Periods immediately preceding such date equaled or exceeded
the sum of the Minimum Quarterly Distribution on all of the outstanding Common
Units and Subordinated Units and the related distribution on the General Partner
Interests during such periods and (iii) there are no outstanding common unit
arrearages.

Prior to the end of the Subordination Period, a portion of the Subordinated
Units will convert into Common Units on a one-for-one basis on the first day
after the record date established for the distribution in respect of any quarter
ending on or after (a) June 30, 1999 (with respect to 1,133,410 Subordinated
Units, subject to adjustment as discussed below), and (b) June 30, 2000 (with
respect to 1,133,410 Subordinated Units, subject to adjustments as discussed
below) in respect of which (i) distributions of Available Cash from operating
surplus on the Common Units and the Subordinated

NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Units with respect to the Periods immediately preceding such date equaled or
exceeded the sum of the Minimum Quarterly Distribution on all of the outstanding
Common Units and Subordinated Units during such periods, (ii) the adjusted
operating surplus generated during each of the two consecutive four-quarter
periods immediately preceding such date equaled or exceeded the sum of the
Minimum Quarterly Distribution on all of the outstanding Common Units and
Subordinated Units and the related distribution on the General Partner Interests
during such periods, and (iii) there are no outstanding common unit arrearages;
provided, however, that the early conversion of the second tranche of
Subordinated Units may not occur until at least one year following the early
conversion of the first tranche of Subordinated Units. Such number of units
eligible for early conversion on June 30, 1999 and June 30, 2000 shall be
subject to increase in each case by a number of Subordinated Units equal to 25%
of the total Units issued upon conversion of the Special General Partner's 2%
General Partner Interest.

Upon expiration of the Subordination Period, all remaining Subordinated
Units will convert into Common Units on a one-for-one basis and will thereafter
participate, pro rata, with the other Common Units in distributions of Available
Cash. In addition, if the Managing General Partner is removed as a general
partner of the Partnership other than for cause (i) the Subordination Period
will end and all outstanding Subordinated Units will immediately convert into
Common Units on a one-for-one basis, (ii) any existing common unit arrearages
will be extinguished and (iii) the General Partners will have the right to
convert their remaining General Partner Interests (and the right to receive
incentive distributions) into Common Units or to receive cash in exchange for
such interests.

On November 14, 1996 National paid a distribution of $0.525 per Common and
Subordinated Unit with a proportionate amount for the 4% unsubordinated General
Partner interest, or an aggregate $5,924,000, including $2,616,000 to the
General Partners.

On February 14, 1997 National paid a quarterly distribution of $0.525 per
Common and Subordinated Unit to Unitholders of record on February 5, 1997, with
a proportionate amount for the 4% unsubordinated general partner interest, or an
aggregate of $6,143,000, including $2,625,000 to the General Partners related to
the Subordinated Units and the unsubordinated general partner interest.

(6) RECEIVABLES

The following is a summary of the components of receivables:

DECEMBER 31,
------------------
1995 1996
------- -------
(IN THOUSANDS)

Receivables:
Trade........................................................................ $16,939 $25,449
Other........................................................................ 432 205
------- -------
17,371 25,654
Less allowance for doubtful accounts (trade)...................................... 980 1,437
------- -------
$16,391 $24,217
------- -------
------- -------

NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is an analysis of the allowance for doubtful accounts for the
years ended December 31, 1994, 1995 and 1996:

DECEMBER 31,
--------------------------
1994 1995 1996
------ ------ ------
(IN THOUSANDS)

Balance at beginning of year............................................... $1,343 $1,072 $ 980
Provision for doubtful accounts............................................ 685 848 1,347
Uncollectible accounts written off......................................... (956) (940) (890)
------ ------ ------
Balance at end of year..................................................... $1,072 $ 980 $1,437
------ ------ ------
------ ------ ------

(7) PROPERTIES

The following is a summary of the components of properties:

DECEMBER 31,
--------------------
1995 1996
-------- --------
(IN THOUSANDS)

Land............................................................................ $ 5,303 $ 5,306
Buildings and improvements...................................................... 11,760 12,012
Equipment and customer installation costs....................................... 119,614 122,609
Office furniture and fixtures................................................... 4,947 6,991
Automotive and transportation equipment......................................... 21,937 23,806
Leased assets capitalized....................................................... 1,655 --
-------- --------
165,216 170,724
Less accumulated depreciation and amortization.................................. 82,002 90,090
-------- --------
$ 83,214 $ 80,634
-------- --------
-------- --------

(8) UNAMORTIZED COSTS IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES

The following is a summary of the components of unamortized costs in excess
of net assets of acquired companies:

DECEMBER 31,
------------------
1995 1996
------- -------
(IN THOUSANDS)

Costs in excess of net assets of acquired companies............................... $16,712 $16,875
Less accumulated amortization..................................................... 1,551 2,274
------- -------
$15,161 $14,601
------- -------
------- -------

NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(9) OTHER ASSETS

The following is a summary of the components of other assets:

DECEMBER 31,
----------------
1995 1996
------ ------
(IN THOUSANDS)

Deferred financing costs............................................................. $6,206 $6,600
Non-compete agreements............................................................... 1,929 2,718
Long-term receivables, net of unearned interest income............................... 300 196
Other................................................................................ 544 665
------ ------
8,979 10,179
------ ------
Less accumulated amortization:
Deferred financing costs........................................................ 1,509 236
Non-compete agreements.......................................................... 761 1,098
Other........................................................................... 71 174
------ ------
2,341 1,508
------ ------
$6,638 $8,671
------ ------
------ ------

(10) ACCRUED EXPENSES

The following is a summary of the components of accrued expenses:

DECEMBER 31,
-----------------
1995 1996
------ -------
(IN THOUSANDS)

Accrued insurance.................................................................. $2,961 $ 3,404
Accrued compensation and related benefits.......................................... 1,868 1,950
Accrued interest................................................................... 2,233 131
Other accrued expenses............................................................. 2,308 4,618
------ -------
$9,370 $10,103
------ -------
------ -------

NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(11) LONG-TERM DEBT

Long-term debt consisted of the following:

DECEMBER 31,
--------------------
1995 1996
-------- --------
(IN THOUSANDS)

8.54% First Mortgage Notes, due June 30, 2010 payable in equal annual installments of
$15,625,000 commencing 2003 through 2010................................................ $ -- $125,000
1996 Bank Facility:
Working capital facility, interest rate of 8.25% at December 31, 1996, due July,
1999................................................................................ -- 6,000
Acquisition facility, weighted average interest rate of 7.16% at December 31, 1996,
due July, 2001...................................................................... -- 1,885
1995 Bank Facility:
Term notes, originally due through 2003, repaid in 1996.............................. 84,083 --
Revolving loans, originally due March 31, 2000, repaid in 1996....................... 43,229 --
Acquisition notes, bearing interest at rates of 6% to 10%, due through 2004............... 4,060 1,424
Equipment notes, originally due through 2002 repaid in 1996............................... 2,917 --
Capital lease obligations................................................................. 1,255 47
-------- --------
Total debt........................................................................... 135,544 134,356
Less current portion of long-term debt.................................................... 11,278 6,312
-------- --------
$124,266 $128,044
-------- --------
-------- --------

The aggregate annual maturities of long-term debt are as follows as of
December 31, 1996:

YEAR ENDING
DECEMBER 31, (IN THOUSANDS)
- --------------------------------------------------------------------

1997................................................................ $ 6,312
1998................................................................ 720
1999................................................................ 1,224
2000................................................................ 628
2001................................................................ 472
Thereafter.......................................................... 125,000
--------------
$134,356
--------------
--------------

Concurrent with the Offering, National entered into a $55,000,000 bank
facility (the '1996 Bank Facility') with a group of banks. The 1996 Bank
Facility includes a $15,000,000 working capital facility (the 'Working Capital
Facility') and a $40,000,000 acquisition facility (the 'Acquisition Facility'),
the use of which is restricted to business acquisitions and capital expenditures
for growth. The 1996 Bank Facility bears interest, at National's option, at
either (i) the 30, 60, 90 or 180-day London Interbank Offered Rate plus a margin
generally ranging from 1% to 1.75% or (ii) the higher of (a) the prime rate and
(b) the Federal funds rate plus 0.5% in either case, plus a margin of up to
0.25%. Borrowings under the Working Capital Facility mature in full in July
1999. However, National must reduce the borrowings under the Working Capital
Facility to zero for a period of at least 30 consecutive days in each year
between March 1 and August 31. The Acquisition Facility converts to a term loan
in July 1998 and amortizes thereafter in twelve equal quarterly installments
through July 2001.

National's 1996 Bank Facility and the First Mortgage Notes contain certain
restrictive covenants which, among other matters, (i) require meeting certain
financial amount and ratio tests, (ii) limit the incurrence of certain other
additional indebtedness and certain investments, asset dispositions and
transactions with affiliates other than in the normal course of business and
(iii) restrict the payment of

NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

distributions by the Operating Partnership. As of December 31, 1996 there were
no restrictions on the amount of partners' capital available for the payment of
distributions.

National's obligations under both the First Mortgage Notes and the 1996
Bank Facility are secured on an equal and ratable basis by substantially all of
the assets of the Operating Partnership and are guaranteed by the Managing
General Partner.

The fair values of the revolving loans and the term loans under the 1996
and 1995 Bank Facilities at December 31, 1996 and 1995 approximated their
carrying values due to their floating interest rates. The fair values of all
other long-term debt were assumed to reasonably approximate their carrying
amounts since the interest rates approximate current levels.

(12) INCOME TAXES

The provision for (benefit from) income taxes for the years ended December
31, 1994 and 1995 and through the Partnership Conveyance in 1996 relate to
National Propane and subsequent to the Partnership Conveyance relate only to
NSSI since no taxes are provided on the earnings of the Partnership and the
Operating Partnership.

The provision for income taxes before extraordinary charges for the years
ended December 31, 1994, 1995 and 1996 consists of the following components:

YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
------ ------ ------
(IN THOUSANDS)

Current:
Federal............................................................... $5,099 $1,890 $2,309
State................................................................. 1,051 406 498
------ ------ ------
6,150 2,296 2,807
------ ------ ------
Deferred:
Federal............................................................... 1,456 2,114 (716)
State................................................................. 317 (119) (154)
------ ------ ------
1,773 1,995 (870)
------ ------ ------
$7,923 $4,291 $1,937
------ ------ ------
------ ------ ------

The difference between the reported tax provision and a computed tax
provision based on income before income taxes and extraordinary charges at the
statutory Federal income tax rate of 35% is reconciled as follows:

YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
------ ------ ------
(IN THOUSANDS)

Income taxes computed at Federal statutory tax rate.................................. $6,980 $1,290 $2,690
Increase (decrease) in taxes resulting from:
Partnership income taxable directly to the partners............................. -- -- (1,085)
State income taxes, net of Federal income tax benefit........................... 889 187 223
Amortization of non-deductible Goodwill......................................... 29 126 98
Provision for income tax contingencies.......................................... -- 2,500 --
Other, net...................................................................... 25 188 11
------ ------ ------
$7,923 $4,291 $1,937
------ ------ ------
------ ------ ------

NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The net current deferred income tax asset (included in 'Other current
assets') and the net noncurrent deferred income tax liability are comprised of
the following components:

DECEMBER 31,
-------------------
1995 1996
------- -------
(IN THOUSANDS)

Allowance for doubtful accounts.................................................. $ 384 $ 9
Accrued employee benefit costs................................................... 224 23
Accrued interest for income tax matters.......................................... 198 --
Accrued environmental costs...................................................... 171 --
Casualty insurance loss reserves................................................. 213 --
Other, net....................................................................... 126 36
------- -------
Net current deferred income tax asset............................................ $ 1,316 $ 68
------- -------
------- -------
Accelerated depreciation and other properties basis differences.................. $20,546 $ --
Reserve for income tax contingencies............................................. 2,500 --
Other, net....................................................................... (168) --
------- -------
Net noncurrent deferred income tax liability..................................... $22,878 $ --
------- -------
------- -------

As of December 31, 1995, accrued income taxes payable to Triarc of
$3,815,000 was included in 'Due to Triarc Companies, Inc. and another affiliate'
in the accompanying consolidated balance sheet. As of December 31, 1996 accrued
income taxes of $84,000 relating only to NSSI, are included in 'Accrued
Expenses'. As indicated above no income taxes are provided on the earnings of
the Partnership and Operating Partnership and in connection with the Partnership
Conveyance, all income tax liabilities of National Propane payable to Triarc
were retained by the Managing General Partner. The deferred income tax assets
and liabilities of National Propane were not conveyed to the Partnership. The
deferred income tax asset that exists at December 31, 1996 relates to NSSI.

The Internal Revenue Service is currently finalizing its examination of
Triarc's Federal income tax returns for the tax years 1989 through 1992 and has
issued to date notices of proposed adjustments increasing National Propane's
taxable income by approximately $22,500,000, the tax effect of which has not yet
been determined. During 1995 National Propane provided $2,500,000 included in
'Provision for income taxes', relating to the proposed adjustments. In
connection with the formation of the Partnership, the tax sharing agreement
between Triarc and National Propane was amended to provide that Triarc would be
responsible for any Federal income tax liability with respect to the proposed
adjustments and in connection with the Partnership Conveyance, the $2,500,000
reserve for the settlement of the proposed adjustments was retained by the
Managing General Partner.

(13) PREFERRED STOCK

NATIONAL

On June 20, 1994 National repurchased for treasury stock 9,206 shares of
its $21 par value preferred stock (the 'Preferred Stock') and 1,637 shares of
its $25 par value Second Preferred Stock (the 'Second Preferred Stock') at par
value aggregating $234,000 representing all of the remaining issued and
outstanding preferred shares. Such preferred shares were subsequently canceled
resulting in an increase to 'Additional paid-in capital' of $378,000.

NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the changes for 1994 in the aggregate number of issued shares
of Preferred Stock and Second Preferred Stock and the number of such shares held
in treasury is as follows:

ISSUED TREASURY
------- --------

Number of shares at beginning of year.............................................. 58,623 47,780
Repurchase of preferred stock...................................................... -- 10,843
Cancellation of preferred stock.................................................... (58,623) (58,623)
------- --------
Number of shares at end of year.................................................... -- --
------- --------
------- --------

PUBLIC GAS

On June 21, 1994 Public Gas repurchased 70,369 shares of its $1.00 par
value convertible preferred stock (the 'Public Gas Preferred Stock'),
representing all of the then issued and outstanding preferred shares of Public
Gas, for $704,000. The carrying value of the Public Gas Preferred Stock of
$62,000 was charged to 'Additional paid-in capital' and the $642,000 excess of
the purchase price over the carrying value represented the reacquisition of a
minority interest in Public Gas at SEPSCO and, as such, was 'pushed down' to
Public Gas and recorded as 'Unamortized costs in excess of net assets of
acquired companies' in the accompanying consolidated balance sheets.

(14) DUE FROM PARENTS

Concurrent with the closing of the Offering, the Partnership made a
$40,700,000 loan to Triarc. The loan bears interest at 13.5% per annum,
amortizes $5,087,500 per year commencing 2003 and is secured by a pledge by
Triarc of all the shares of capital stock of the Managing General Partner that
are owned by Triarc. Interest is payable semi-annually on June 30 and December
30.

At December 31, 1994 and 1995 due from Parents, which has been reflected as
a component of stockholders' deficit, consisted of the following:

DECEMBER 31,
-------------------
1994 1995
-------- -------
(IN THOUSANDS)

Interest-bearing advances to Triarc.............................................. $ 81,392 $81,392
Noninterest-bearing advances to SEPSCO........................................... 31,938 --
-------- -------
$113,330 $81,392
-------- -------
-------- -------

The receivables from Triarc and SEPSCO were classified as a component of
stockholders' equity because they were not expected to be repaid except through
equity transactions and with respect to Triarc, its liquidity position was not
sufficient to enable it to repay the advances. The receivable from SEPSCO
(including additional advances during 1995 of $2,599,000) was dividended to
SEPSCO prior to the Merger (see Note 3). The receivable from Triarc was
reclassified to a component of stockholders' equity at November 30, 1994 at
which time it was determined Triarc's liquidity position may not enable it to
repay the advances. Concurrent with the reclassification, National Propane
ceased accruing interest on the receivable.

Prior to November 30, 1994 interest income was recorded on the advances at
8.9% for periods subsequent to October 6, 1994 and at 16.5% prior thereto. Such
interest rates represented National Propane's cost of debt capital. Interest
income on such advances aggregated $9,751,000 during 1994. In connection with
the Partnership Conveyance, the Managing General Partner retained this
$81,392,000 receivable from Triarc (See Note 1).

NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(15) SEPSCO MERGER

On April 14, 1994, SEPSCO's shareholders other than Triarc approved an
agreement and plan of merger between Triarc and SEPSCO (the 'SEPSCO Merger')
pursuant to which on that date a subsidiary of Triarc was merged into SEPSCO
whereby each holder of shares of SEPSCO's common stock (the 'SEPSCO Common
Stock') other than Triarc, aggregating a 28.9% minority interest in SEPSCO,
received in exchange for each share of SEPSCO common stock, 0.8 shares of
Triarc's class A common stock or an aggregate of 2,691,824 shares. Following the
SEPSCO Merger, SEPSCO became a wholly-owned subsidiary of Triarc and its
subsidiaries.

The fair value as of April 14, 1994 of the 2,691,824 shares of Triarc's
class A common stock issued in the SEPSCO Merger, net of certain related costs,
aggregated $52,105,000 (the 'Merger Consideration'). Triarc had an excess of
$23,888,000 of Merger Consideration over Triarc's minority interest in SEPSCO.
The SEPSCO Merger has been accounted for by Triarc and SEPSCO in accordance with
the 'pushdown' method of accounting and in accordance therewith, $17,004,000 of
such $23,888,000 excess was 'pushed down' to SEPSCO (the remaining $6,884,000
was 'pushed down' to an affiliated subsidiary) reflecting Triarc's increased
basis in SEPSCO. SEPSCO, in turn, 'pushed down' $8,088,000 to Public Gas as an
increase in SEPSCO's basis in Public Gas. Such amount increased the 'Additional
paid-in capital' of National reflecting Triarc's and SEPSCO's increased bases in
Public Gas and was assigned as follows:

(IN THOUSANDS)

Goodwill................................................................................ $ 5,483
Properties.............................................................................. 4,255
Deferred income taxes................................................................... (1,650)
--------------
Additional paid-in capital.............................................................. $ 8,088
--------------
--------------

(16) EXTRAORDINARY CHARGES

In connection with the early extinguishment of debt in the years ended
December 31, 1994 and 1996, National recognized extraordinary charges consisting
of the following:

YEAR ENDED DECEMBER 31,
--------------------------------------------------
1994 1996
----------------------- -----------------------
(IN THOUSANDS)

Write-off of unamortized deferred financing costs......................... $ 875 $ 4,126
Write-off of unamortized original issue discount.......................... 2,623 --
Prepayment penalties and fees............................................. -- 225
-------- --------
3,498 4,351
Income tax benefit........................................................ (1,382) (1,720)
-------- --------
$ 2,116 $ 2,631
-------- --------
-------- --------

In accordance with the Partnership Conveyance, the 1996 extraordinary
charge was allocated entirely to the General Partners.

(17) RETIREMENT PLANS

As discussed in Note 21, following the Partnership Conveyance and the
Offering, the management and employees of the Managing General Partner manage
and operate the propane business and assets owned by National. The Managing
General Partner is reimbursed for all such costs incurred on behalf of National
including the cost of retirement plans.

NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Managing General Partner maintains a 401(k) defined contribution plan
(the 'Plan') which covers all employees meeting certain eligibility
requirements. The Plan allows eligible employees to contribute up to 15% of
their compensation and the Managing General Partner makes matching contributions
of 25% of employee contributions up to the first 5% of an employee's
contribution. The Managing General Partner also makes an annual contribution
equal to 1/4 of 1% of employee's compensation. In connection with these employer
contributions, National provided $157,000, $142,000 and $143,000 in 1994, 1995
and 1996, respectively.

Under certain union contracts, the Managing General Partner is required to
make payments to the unions' pension funds based upon hours worked by the
eligible employees. In connection with these union plans, National provided
$726,000, $669,000 and $669,000 in 1994, 1995 and 1996, respectively.
Information from the administrators of the union plans is not available to
permit National to determine its proportionate share of unfunded vested
benefits, if any.

(18) LEASE COMMITMENTS

National has entered into certain operating leases for office space, trucks
and other equipment.

The future minimum rental commitments at December 31, 1996 under operating
leases having an initial or remaining noncancellable term of one year or more
are as follows:

(IN THOUSANDS)

1997.................................................................................... $ 922
1998.................................................................................... 402
1999.................................................................................... 355
2000.................................................................................... 156
2001.................................................................................... 43
Thereafter.............................................................................. 62
-------
Total minimum lease payments............................................................ $1,940
-------
-------

National incurred rent expense under operating leases of $638,000, $669,000
and $935,000 in 1994, 1995 and 1996, respectively.

(19) LEGAL MATTERS

NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

no longer appropriate, and the likely remedy will involve treatment of ground
water and treatment by soil-vapor extraction of certain contaminated 'hot spots'
in the soil, installation of a soil cap and, if necessary, excavation, treatment
and disposal of contaminated soil. As a result, the environmental consultants
have revised the range of estimated costs for the remediation to be from
$764,000 to $1,600,000. Based on discussions with National Propane's
environmental consultants, an acceptable remediation plan should fall within
this range. National Propane will have to agree upon the final plan with the
State of Wisconsin. Since receiving notice of the contamination, National
Propane has engaged in discussions of a general nature concerning remediation
with the State of Wisconsin. These discussions are ongoing and there is no
indication as yet of the time frame for a decision by the State of Wisconsin on
the method of remediation. Accordingly, it is unknown what remediation method
will be used. Based on the preliminary results of the ongoing investigation,
there is a potential that the contamination plume may extend to locations
downgradient from the original site. If it is ultimately confirmed that the
contaminant plume extends under such properties and if such plume is
attributable to contaminants emanating from the Marshfield property, there is
the potential for future third-party claims. National Propane is also engaged in
ongoing discussions of a general nature with the successor to the utility that
operated a coal gasification plant on the property. The successor has denied
any liability for the costs of remediation of the Mashfield property or of
satisfying any related claims. If National Propane is found liable for any of
such costs, it will attempt to recover them from the successor owner. National
Propane has notified its insurance carriers of the contamination and the likely
incurrence of costs to undertake remediation and the possibility of related
claims. Pursuant to a lease related to the Marshfield facility, the ownership of
which was not transferred to the Operating Partnership at the closing of the
IPO, the Partnership has agreed to be liable for any costs of remediation in
excess of amounts recovered from such successor or from insurance. Since no
amount within the ranges of remediation costs could be determined to be a better
estimate, National had accrued $764,000 at December 31, 1996 in order to provide
for the minimum costs estimated for the anticipated remediation method, incurred
legal fees and other professional costs. The ultimate outcome of this matter
cannot presently be determined and the costs of remediation and third-party
claims, if any, may have a material adverse effect on the Partnership's
financial position, results of operations or ability to make distributions to
the holders of its Common Units and Subordinated Units.

(20) ACQUISITIONS

During 1994, 1995 and 1996 National acquired several companies engaged in
the sale of propane and related merchandise. The purchase prices (including debt
issued and assumed) aggregated $8,967,000, $373,000 and $2,045,000 and resulted
in increases in Goodwill of $3,096,000, $116,000 and $162,000 in 1994, 1995 and
1996, respectively. (See Note 21 for discussion of Triarc's 1995 acquisition on
behalf of National).

NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(21) TRANSACTIONS WITH AFFILIATES

In August 1995 Triarc, through a wholly owned subsidiary, acquired all of
the outstanding stock of two companies engaged in the propane distribution
business. The aggregate purchase price was $4,240,000 (including the assumption
of certain existing indebtedness). In September 1995 the stock of the subsidiary
which acquired the two companies was contributed by Triarc to NPC Holdings,
Inc., a wholly-owned subsidiary of Triarc, which in turn contributed such stock
to National. Such contribution resulted in increases in National's 'Additional
paid-in capital' of $4,240,000 and 'Goodwill' of $2,181,000. In consideration
for such contribution, Triarc received an additional 30 shares of National
Propane's common stock, increasing its ownership of National Propane to 75.7%
from 75.2%.

In the fourth quarter of 1995 National sold certain of its accounts
receivable to Triarc for cash of $3,809,000. Collections received on such
receivables by National were remitted to Triarc on a periodic basis. As of
December 31, 1996 all remittances had been made.

Following the Partnership Conveyance and the Offering, the management and
employees of the Managing General Partner manage and operate the propane
business and assets owned by the Partnership Entities. The Partnership Entities
do not have any officers or employees of their own. The Managing General Partner
is reimbursed by the Partnership Entities at cost for all direct and indirect
expenses incurred on behalf of the Partnership Entities, including the costs of
compensation and employee benefit plans described herein that are properly
allocable to the Partnership Entities, and all other expenses necessary or
appropriate to the conduct of the business of, and allocable to, the Partnership
Entities. The Partnership Agreement provides that the Managing General Partner
will determine the expenses that are allocable to the Partnership Entities in
any reasonable manner determined by the Managing General Partner in its sole
discretion. The Partnership Entities reimbursed the Managing General Partner
$15,429,000 during the period from the Partnership Conveyance through December
31, 1996. Affiliates of the General Partners (including Triarc) may provide
administrative services for the General Partners on behalf of the Partnership
Entities and will be reimbursed for all expenses incurred in connection
therewith. In addition, the General Partners and their Affiliates (including
Triarc) may provide additional services to the Partnership Entities, for which
National will be charged reasonable fees as determined by the Managing General
Partner.

Prior to the Partnership Conveyance and the Offering, National Propane
received from Triarc certain management services including legal, accounting,
tax, insurance, financial and other management services. Under a management
services agreement such costs were allocated based upon the greater of (i) the
sum of earnings before income taxes, depreciation and amortization and (ii) 10%
of revenues, as a percentage of Triarc's corresponding consolidated amount.
Prior to the Merger, Public Gas received from SEPSCO operating management
services, the costs of which were charged to Public Gas based on the relative
portion of Public Gas' revenues to SEPSCO's consolidated revenues (the 'SEPSCO
Allocation Method'). Management of National believes that the allocation methods
referred to above are reasonable. National understands Triarc is a holding
company with no independent operations of its own and substantially all of the
expenses it incurs are for services on behalf of its affiliated companies and,
accordingly, are chargeable to such companies in accordance with management
services agreements. However, National believes that the costs allocated prior
to the Partnership Conveyance and the Offering exceed those which would have
been, and are expected to be, incurred by National on a standalone basis. Such
costs for services provided by Triarc (including a portion of the charges
allocated by Triarc to SEPSCO and, in turn, from SEPSCO to National Propane)
would have approximated amounts not in excess of $1,500,000, $1,500,000 and
$750,000 for 1994, 1995 and for the six months ended June 30, 1996,
respectively. It is not practicable, however, to estimate the costs that

NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Public Gas would have incurred on a standalone basis for services provided by
SEPSCO in 1994. A summary of the costs charged to National under the management
services agreements is as follows:

YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
------ ------ ------
(IN THOUSANDS)

Costs of management services allocated by Triarc to National............... $3,000 $3,000 $1,500
Costs of management services allocated by SEPSCO to Public Gas............. 1,561 -- --
------ ------ ------
$4,561 $3,000 $1,500
------ ------ ------
------ ------ ------

See also Notes 1, 3, 5, 11, 12, 13, 14 and 15 for discussion of other
transactions with related parties.

(22) UNIT OPTION PLAN

Effective July 2, 1996, the Managing General Partner adopted the National
Propane Corporation 1996 Unit Option Plan (the 'Option Plan'), which permits the
grant of options to purchase Common Units and Subordinated Units and the grant
of Unit appreciation rights ('UARs'). As of December 31, 1996 an aggregate of
1,317,015 Common Units and Subordinated Units are available for grant and no
options or UARS have been granted. Any expenses recognized resulting from the
Unit Option Plan will be allocated to the Partnership in accordance with an
agreement between the Managing General Partner and the Partnership.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

PARTNERSHIP MANAGEMENT

The Managing General Partner manages and operates the business activities
of the Partnership. Unitholders do not directly or indirectly participate in the
management or operation of the Partnership and have no actual or apparent
authority to enter into contracts on behalf of, or to otherwise bind, the
Partnership. The Managing General Partner owes a fiduciary duty to the
Unitholders. Notwithstanding any limitation on obligations or duties, the
Managing General Partner and the Special General Partner are liable, as the
general partners of the Partnership, for all debts of the Partnership (to the
extent not paid by the Partnership), except to the extent that indebtedness or
other obligations incurred by the Partnership are made specifically non-recourse
to either or both of the General Partners. Whenever possible, the Managing
General Partner intends to make any such indebtedness or other obligations
non-recourse to it and the Special General Partner. However, if the Operating
Partnership defaults under the First Mortgage Notes or the Bank Credit Facility,
the Managing General Partner will be liable for any deficiency remaining after
foreclosure on the Operating Partnership's assets.

The Managing General Partner appointed Frederick W. McCarthy and Willis G.
Ryckman III, who are neither officers nor employees of the General Partners or
any affiliate of the General Partners, to its Board of Directors. Such directors
serve on the Audit Committee with the authority to review, at the request of the
Managing General Partner, specific matters as to which the Managing General
Partner believes there may be a conflict of interest in order to determine if
the resolution of such conflict proposed by the Managing General Partner is fair
and reasonable to the Partnership. Absent specific delegation from the Board of
Directors of the Managing General Partner, determinations of the Audit Committee
are advisory and do not bind the Managing General Partner. Any matters approved
by the Audit Committee will be conclusively deemed to be fair and reasonable to
the Partnership, approved by all partners of the Partnership and not a breach by
the Managing General Partner of any duties it may owe the Partnership or the
Unitholders. In addition, the Audit Committee reviews external financial
reporting of the Partnership, recommends engagement of the Partnership's
independent accountants and reviews the Partnership's procedures for internal
auditing and the adequacy of the Partnership's internal accounting controls.
With respect to such additional matters, the Audit Committee may act on its own
initiative to question the Managing General Partner and, absent the delegation
of specific authority by the entire Board of Directors, its recommendations will
be advisory.

The Special General Partner, a wholly owned subsidiary of the Managing
General Partner, is a non-managing general partner of the Partnership and the
Operating Partnership with no operations or business other than acting as a
general partner of the Partnership and the Operating Partnership. In the event
that the Managing General Partner is merged with and into Triarc, the Audit
Committee of the Special General Partner will perform the functions described
above previously performed by the Audit Committee of the Managing General
Partner. The Audit Committee of the Special General Partner is composed of the
same directors that serve on the Audit Committee of the Managing General
Partner. In addition, if following a merger of the Managing General Partner with
and into Triarc, a bankruptcy event involving Triarc occurs, the Special General
Partner will become the managing general partner of the Partnership, continue
the business of the Partnership and have all the rights, authority and powers of
the Managing General Partner described in the partnership agreement.

As is commonly the case with publicly traded limited partnerships, the
Partnership does not directly employ any of the persons responsible for managing
or operating the Partnership. In general, the management of National Propane
continues to manage and operate the Partnership's business as officers and
employees of the Managing General Partner and its affiliates. See Item 1.
'Business -- Employees'.

DIRECTORS AND EXECUTIVE OFFICERS OF THE MANAGING GENERAL PARTNER

The following table sets forth certain information with respect to the
current directors and executive officers of the Managing General Partner.

NAME AGE POSITION WITH THE MANAGING GENERAL PARTNER
- ------------------------------ --- -----------------------------------------------------------------

Nelson Peltz.................. 54 Director
Peter W. May.................. 54 Director
Frederick W. McCarthy......... 55 Director
Willis G. Ryckman III......... 52 Director
Ronald D. Paliughi............ 53 President, Chief Executive Officer and Director
Ronald R. Rominiecki.......... 43 Senior Vice President and Chief Financial Officer
C. David Watson............... 38 Senior Vice President, Administration, General Counsel and
Assistant Secretary

Nelson Peltz has been a director of the Managing General Partner and a
director and Chairman of the Board and Chief Executive Officer of Triarc
Companies, Inc. since April 23, 1993. Since then, he has also been a director
and Chairman of the Board and Chief Executive Officer of certain of Triarc's
other subsidiaries, including RC/Arby's Corporation formerly known as Royal
Crown Corporation ('RCAC'). He is also a general partner of DWG Acquisition
Group, L.P. ('DWG Acquisition'), whose principal business is ownership of
securities of Triarc. From its formation in January 1989 until April 23, 1993,
Mr. Peltz was Chairman and Chief Executive Officer of Trian Group, Limited
Partnership ('Trian'), which provided investment banking and management services
for entities controlled by Mr. Peltz and Mr. May. From 1983 to December 1988, he
was Chairman and Chief Executive Officer and a director of Triangle Industries,
Inc. ('Triangle'), which, through wholly-owned subsidiaries, was, at that time,
a manufacturer of packaging products, copper electrical wire and cable and steel
conduit and currency and coin handling products. From November 1989 through May
1992, Mr. Peltz was director of Mountleigh Group plc, a British property trading
and retailing company ('Mountleigh'). He served in various executive capacities,
including Executive Chairman, of Mountleigh from November 1989 until October
1991.

Peter W. May has been a director of the Managing General Partner and a
director and President and Chief Operating Officer of Triarc since April 23,
1993. Since then, he has also been a director and President and Chief Operating
Officer of certain of Triarc's other subsidiaries, including RCAC. He is also a
general partner of DWG Acquisition. From its formation in January 1989 until
April 23, 1993, Mr. May was President and Chief Operating Officer of Trian. He
was President and Chief Operating Officer and a director of Triangle from 1983
until December 1988. From November 1989 through May 1992, Mr. May was a director
of Mountleigh and served as Joint Managing Director of Mountleigh from November
1989 until October 1991. Mr. May was also named a director on April 29, 1993 of
The Leslie Fay Companies, Inc. following its filing on April 5, 1993 for
protection under Chapter 11 of the United States Bankruptcy Code.

Frederick W. McCarthy has been a director of the Managing General Partner
since September 25, 1996. Mr. McCarthy has been Chairman of Triumph Capital
Group, Inc., an investment management firm, since 1990. Mr. McCarthy was
formerly a Managing Director of Drexel Burnham Lambert where he was employed
from 1974 until 1990. Mr. McCarthy serves as a director of EnviroWorks, Inc., a
manufacturer of lawn and garden products, and of Paragon Acceptance Corporation,
an automotive finance company.

Willis G. Ryckman III has been a director of the Managing General Partner
since September 25, 1996. Mr. Ryckman has served as the Chairman of Tri-Tech
Labs, Inc., a holding company, since June 1992, Chairman of Irma Shorell, Inc.,
a cosmetics company, since April 1993, and Managing Director and Chief Operating
Officer of Associated Capital, a hedge fund, since April 1995 and Chairman of
Omni Capital, a finance company, since January 1996. Mr. Ryckman is a Director
of Banyan Hotel Management Corporation, Krasdale Foods, Inc. and Panavision Inc.

Ronald D. Paliughi has been President and Chief Executive Officer of the
Managing General Partner since April 29, 1993. From May 1992 through April 1993,
Mr. Paliughi was a temporary, full time officer in the U.S. Army National Guard,
serving as an Army Aviator. During 1991, he served on active duty as an Army
Aviator and commissioned officer in Operation Desert Shield/Storm. From 1987 to
1990, Mr. Paliughi was Senior Vice President -- Western Operations of AmeriGas
Propane, Inc. (then

a subsidiary of UGI Corporation), the largest propane company in the U.S. During
1986, Mr. Paliughi was Director of Retail Operations of CalGas Corporation. For
more than 14 years prior, he held various positions with VanGas, Inc.
('VanGas'), the western subsidiary of Suburban Propane Gas (then a division of
Quantum Chemical Corporation), the third largest U.S. propane company. He last
served as Senior Vice President/General Manager, the top executive officer at
VanGas.

Ronald R. Rominiecki joined the Managing General Partner on December 1,
1995 as Senior Vice President and Chief Financial Officer. From April 1994 to
November 1995, he served as Vice President and Chief Financial Officer of
O'Brien Environmental Energy, Inc. ('O'Brien'), a publicly-owned company engaged
in cogeneration and other energy related businesses. In September 1994 O'Brien
filed a petition in bankruptcy under Chapter 11 of the United States Code. From
June 1988 to March 1994, Mr. Rominiecki was Corporate Controller at Westmoreland
Coal Company, a NYSE listed company.

C. David Watson has been Senior Vice President, Administration, General
Counsel and Assistant Secretary of the Managing General Partner since December
19, 1996. From December 2, 1996 to December 18, 1996 he was Senior Vice
President. He is responsible for legal matters, real estate, fleet management,
plant engineering, safety, risk management, human resources, insurance and
public relations. Prior to his employment with the Managing General Partner, he
was with the law firm of Jenner & Block in Chicago, Illinois, as a partner from
January 1, 1993 to November 30, 1996, and as an associate from September 25,
1986 to December 31, 1992.

Each director has been elected to serve until the Managing General
Partner's next annual meeting of stockholders and until such director's
successor is duly elected and qualified or until his death, resignation or
removal. The term of office of each executive officer is until the next annual
meeting of the Board of Directors of the Managing General Partner and until his
successor is elected and qualified or until his death, resignation or removal.

REIMBURSEMENT OF EXPENSES OF THE MANAGING GENERAL PARTNER

In general, the management and employees of National Propane who managed
and operated the propane business and assets of National Propane prior to the
IPO continue to manage and operate the Partnership's business as officers and
employees of the Managing General Partner and its Affiliates. The Partnership
does not have any officers or employees of its own. The Operating Partnership's
corporate subsidiary, NSSI, does, however, have its own employees to manage and
operate its business. The Managing General Partner does not receive any
management fee or other compensation in connection with its management of the
Partnership, but is reimbursed at cost for all direct and indirect expenses
incurred on behalf of the Partnership, including the costs of compensation and
employee benefit plans described herein properly allocable to the Partnership,
and all other expenses necessary or appropriate to the conduct of the business
of, and allocable to, the Partnership. The Partnership Agreement provides that
the Managing General Partner shall determine the expenses that are allocable to
the Partnership in any reasonable manner determined by the Managing General
Partner in its sole discretion. Affiliates of the Managing General Partner
(including Triarc) may perform certain administrative services for the Managing
General Partner on behalf of the Partnership. Such Affiliates will not receive a
fee for such services performed for or on behalf of the Partnership, but will be
reimbursed for all direct and indirect expenses incurred in connection
therewith. In addition, the General Partners and their Affiliates may provide
additional services to the Partnership, for which the Partnership will be
charged reasonable fees as determined by the Managing General Partner.

In addition, in connection with the Partnership Conveyance, the Managing
General Partner received an aggregate 2% unsubordinated General Partner Interest
and a 40.6% interest (at that date) as holder of the Subordinated Units as
consideration for its contribution to the Partnership of its limited partner
interest in the Operating Partnership, which was received as consideration for
its contribution to the Operating Partnership of the propane business of
National Propane. Such Subordinated Units currently represent a 38.7% interest
in the Partnership. The Managing General Partner will be entitled to
distributions on such Units, and the Managing General Partner will be entitled
to incentive distributions as holder of the Incentive Distribution rights.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the annual salaries, bonuses and all other
compensation awards and payouts earned by the President and Chief Executive
Officer and by certain named executive officers of the Managing General Partner
(collectively, the 'Named Officers') for services rendered to the Managing
General Partner and its subsidiaries during the fiscal years ended December 31,
1996, 1995 and 1994.

SUMMARY COMPENSATION TABLE

ANNUAL
COMPENSATION
-----------------------------------------
OTHER
ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION
- --------------------------------------- ---- ------------ ------- ------------

Ronald D. Paliughi .................... 1996 277,083 500,000(3) 5,621
President and Chief Executive Officer 1995 250,000 -- 2,592
1994 250,000 300,000 --

Ronald R. Rominiecki .................. 1996 165,000 100,000(3) 571
Senior Vice President and Chief 1995 13,750(7) -- --
Financial Officer 1994 -- -- --

C. David Watson ....................... 1996 10,417(9) -- --
Senior Vice President, 1995 -- -- --
Administration, General Counsel and 1994 -- -- --
Assistant Secretary

Laurie B. Crawford .................... 1996 122,917 124,500 3,055
Former Senior Vice President, 1995 88,333 -- 1,579
Administration, General Counsel and 1994 78,472 20,000 1,117
Assistant Secretary

LONG-TERM COMPENSATION
AWARDS
---------------------------------------------
NUMBER OF
RESTRICTED SECURITIES LTIP
STOCK UNDERLYING PAYOUTS ALL OTHER
NAME AND PRINCIPAL POSITION AWARD(S)(#)(1) OPTIONS/SARS(#)(2) ($) COMPENSATION($)
- --------------------------------------- --------------- ------------------ ------- ---------------

Ronald D. Paliughi .................... -- -- -- --
President and Chief Executive Officer -- 30,000(4) -- --
5,000 51,000(5) -- 96,178(6)
Ronald R. Rominiecki .................. -- -- -- 54,380(11)
Senior Vice President and Chief -- 20,000(4) -- 63,000(8)
Financial Officer -- -- -- --
C. David Watson ....................... -- -- -- --
Senior Vice President, -- -- -- --
Administration, General Counsel and -- -- -- --
Assistant Secretary
Laurie B. Crawford .................... -- -- -- --
Former Senior Vice President, -- 7,500(10) -- --
Administration, General Counsel and -- 10,000(10) -- --
Assistant Secretary

- ------------

(1) All restricted stock awards were of Triarc's Class A Common Stock, par
value $.10 per share (the 'Class A Common Stock'), and were made pursuant
to Triarc's 1993 Equity Participation Plan (described below). Restrictions
on such shares lapsed prior to December 31, 1996.

(2) All stock option grants were made pursuant to Triarc's 1993 Equity
Participation Plan. The option grants are described below under 'Option/SAR
Grants in Last Fiscal Year, Individual Grants.'

(3) Paid by Triarc in connection with activities related to the monetization of
its propane business.

(4) One-third of the options granted will vest on each of the first, second and
third anniversaries of the date of grant and the options will be
exercisable at any time between the date of vesting and the tenth
anniversary of the date of grant.

(5) With respect to 26,000 of the options granted, one-third of such options
will vest on each of the first, second and third anniversary of the date of
grant. With respect to the remaining 25,000 options, one-third of such
options will vest on each of the third, fourth and fifth anniversary of the
date of grant. All of such options will be exercisable at any time between
the date of vesting and the tenth anniversary of the date of grant.

(6) Includes $33,333 for certain salary allowances and $60,829 of reimbursed
moving expenses in connection with Mr. Paliughi's relocation to Cedar
Rapids, Iowa.

(7) Mr. Rominiecki began his employment with the Managing General Partner on
December 1, 1995. The amount reported is based on an annual salary of
$165,000.

(8) Represents a one-time bonus payable in connection with Mr. Rominiecki's
employment by the Managing General Partner.

(9) Mr. Watson began his employment with the Managing General Partner on
December 2, 1996. The amount reported was based on an annual salary of
$125,000. See ' -- Employment Arrangements with Executive Officers' below.

(footnotes continued on next page)

(footnotes continued from previous page)

(10) In connection with the termination of Ms. Crawford's employment by the
Managing General Partner on December 18, 1996, all of Ms. Crawford's stock
options immediately vested and are exercisable until March 18, 1997.

(11) Includes $54,380 of reimbursed moving expenses in connection with Mr.
Rominiecki's relocation to Cedar Rapids, Iowa.

CASH INCENTIVE PLANS

Triarc has implemented an annual cash incentive plan (the 'Annual Incentive
Plan') for executive officers and key employees of National Propane and is
presently developing a mid-term cash incentive plan (the 'Mid-Term Incentive
Plan') for executive officers and key employees of National Propane.

The Annual Incentive Plan is designed to provide annual incentive awards to
participants, 50% of which are based on whether National Propane has met certain
pre-determined goals and 50% of which is based on the performance of the
participant during the preceding year. Under the Annual Incentive Plan,
participants may receive awards of a specified percentage of their then current
base salaries, which percentage varies depending upon the level of seniority and
responsibility of the participant. Such percentage is set by National Propane's
management in consultation with management of Triarc. The Board of Directors of
National Propane, in consultation with management of Triarc and the Compensation
Committee of the Triarc Board of Directors (the 'Compensation Committee'), may
elect to adjust awards on a discretionary basis to reflect the relative
individual contribution of the executive or key employee, to evaluate the
'quality' of National Propane's earnings or to take into account external
factors that affect performance results. The Board of Directors of National
Propane also may decide that multiple performance objectives related to National
Propane's and/or the individual's performance may be appropriate and, in such
event, such factors would be weighted in order to determine the amount of the
annual incentive awards. The Annual Incentive Plan is administered by National
Propane's Board of Directors and Triarc's management and may be amended or
terminated by such Board of Directors and Triarc's management at any time.

Under the Mid-Term Incentive Plan, incentive awards will be granted to
participants if National Propane achieves an agreed upon profit over a three
year performance cycle. During each plan year, an amount will be accrued for
each participant based upon the amount by which National Propane's profit for
such year exceeds a minimum return to be determined. A new three-year
performance cycle will begin each year, such that after the third year the
annual cash amount paid to participants pursuant to the Mid-Term Incentive Plan
should equal the target award if National Propane's profit goals have been
achieved for the full three-year cycle. The Board of Directors of National
Propane, together with Triarc's management and the Compensation Committee of
Triarc's Board of Directors, may adjust, upward or downward, an individual's
award based upon an assessment of the individual's relative contribution to
National Propane's longer-term profit performance. The Board of Directors of
Triarc and Triarc's management may amend or terminate the Mid-Term Incentive
Plan at any time.

TRIARC'S 1993 EQUITY PARTICIPATION PLAN

Certain executive officers of the Managing General Partner have
participated in the Triarc Companies, Inc. 1993 Equity Participation Plan which
was adopted on April 24, 1993, and which provides that awards may be made
thereunder until April 24, 1998. The plan provides for, among other things, the
grant of options to purchase Triarc's Class A Common Stock, Stock Appreciation
Rights ('SARs') and restricted shares of Class A Common Stock. Directors,
selected officers and key employees of, and key consultants to, Triarc and its
subsidiaries, including the Managing General Partner, are eligible to
participate in the plan. The plan is being administered by the Compensation
Committee of the Triarc Board of Directors, which may determine from time to
time to grant options, SARs and restricted stock.

OPTIONS/SAR GRANTS IN LAST FISCAL YEAR INDIVIDUAL GRANTS

No options to purchase shares of Triarc Class A Common Stock or SARs have
been granted to any of the Named Officers in respect of 1996.

OPTION/SAR EXERCISES IN 1996 AND YEAR-END OPTION/SAR VALUES

The following table sets forth certain information concerning options to
purchase shares of Triarc Class A Common Stock, and the values at the end of
1996 of unexercised in-the-money options to purchase shares of Triarc Class A
Common Stock granted to the Named Officers outstanding as of the end of 1996. No
Named Officer exercised any options to purchase Triarc Class A Common Stock in
1996.

NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS
FISCAL 1996 AT FISCAL 1996
YEAR-END YEAR-END(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------- ----------- ------------- ----------- -------------

Ronald D. Paliughi....................................... 40,667 80,333 $26,750 $34,000
Ronald R. Rominiecki..................................... 6,667 13,333 9,167 18,333
C. David Watson.......................................... -- -- -- --
Laurie B. Crawford....................................... 17,500 -- 14,063 --

- ------------

(1) On December 31, 1996, the last day of Fiscal 1996, the closing price of the
Triarc Class A Common Stock was $11.50 per share.

UNIT OPTION PLAN

Effective upon the closing of the IPO, the Managing General Partner adopted
the National Propane Corporation 1996 Unit Option Plan (the 'Option Plan'),
which permits the issuance of options (the 'Options') and Unit appreciation
rights ('UARs') to eligible persons. An aggregate of 1,250,000 Common Units and
Subordinated Units are initially reserved for issuance as of the Option Plan's
effective date. Pursuant to the terms of the Option Plan, an additional number
of Units equal to 1% of the number of Units outstanding as of each December 31
following the Option Plan's effective date will be added to the total number of
Units that may be issued thereafter. Accordingly, as of December 31, 1996, an
additional 67,015 Units were available for issuance under the Option Plan. The
number of Units available for issuance will also be increased by the number of
Units received by the Managing General Partner as payment of the exercise price
of Options and by the number of Units purchased by the Managing General Partner
from an amount equal to the cash proceeds received by the Managing General
Partner on the exercise of Options. The number of Units available for issuance
pursuant to the Option Plan is subject to adjustment in certain circumstances.
The following is a summary of the material terms of the Option Plan and is
qualified in its entirety by reference to the Option Plan, which is an exhibit
to the Registration Statement of which this Prospectus is a part.

The Option Plan has been designed to furnish additional incentive
compensation to selected directors, officers, employees and consultants of the
Managing General Partner and its Affiliates and to increase their personal and
proprietary interest in the future performance of the Partnership. Approximately
1,000 directors, officers, employees, and consultants will be eligible to
participate in the Option Plan. In addition, in the event that the provision
relating to disinterested administration in Rule 16b-3 under the 1934 Act (as in
effect on the Option Plan's effective date) becomes inapplicable to the Managing
General Partner and the Partnership, directors who are not employees or officers
of the Managing General Partner will be eligible to receive Options and UARs.

The Option Plan is administered by the Managing General Partner's
compensation committee (the 'Committee'). The Committee, in its sole discretion
and authority, but subject to the terms of the Option Plan, determines the
directors, officers, employees and consultants who are eligible to receive
Options and UARs and the date of grant, number of Units, exercise price, vesting
schedule, duration

(not to exceed ten years) and other terms and conditions applicable to each
Option and UAR granted under the Option Plan. The Committee may accelerate the
exercisability of Options and UARs. No Option or UAR with respect to
Subordinated Units will become exercisable before the end of the Subordination
Period.

On a change of control (as defined in the Option Plan), the Committee will
have discretion to accelerate the exercisability (and duration) of outstanding
Options and UARs or cancel outstanding Options and UARs in exchange for cash.

The exercise price of each Option may be paid in the form of cash, check
acceptable to the Managing General Partner, Units held by the participant for
such period as may be required to avoid a charge to earnings for financial
reporting purposes, or such other form of consideration permitted by the
Committee, including by assignment of a portion of the proceeds on sale of Units
deliverable upon exercise or any combination of the foregoing.

Units delivered by the Managing General Partner on exercise of an Option or
UAR may consist of Units acquired in the open market or from any person
(including Units newly issued by the Partnership), Units already owned by the
Managing General Partner, or any combination of the foregoing. Options and UARs
are generally nontransferable.

With respect to each Unit delivered upon the exercise of an Option (unless
newly issued by the Partnership), the Managing General Partner shall be entitled
to reimbursement by the Partnership for the excess, if any, of (i) the fair
market value of each such Unit (as of the date of exercise of such Option) or,
in the case of Units purchased in the open market, the price actually paid by
the Managing General Partner therefor over (ii) the exercise price of the Option
relating to such Unit. With respect to the settlement of a UAR, the Managing
General Partner shall be entitled to reimbursement by the Partnership for (i)
the amount of cash, if any, paid in connection with such settlement or (ii) the
fair market value of each such Unit delivered in connection with such settlement
(unless such Unit is newly issued by the Partnership). Thus, the cost of the
Options and UARs will be borne by the Partnership.

The Committee may grant UARs in such amounts and subject to such terms and
conditions as the Committee may determine. UARs may be granted in connection
with all or any part of, or independently of, any Option granted under the
Option Plan. The grantee of a UAR has the right to receive from the Managing
General Partner an amount equal to (a) the excess of (i) the fair market value
of a Unit on the date of exercise of the UAR over (ii) the fair market value of
a Unit on the date of grant (or over the Option exercise price if the UAR is
granted in connection with an Option), multiplied by (b) the number of Units
with respect to which the UAR is exercised. Payment to the grantee upon exercise
of a UAR will be in cash or in Units (valued at their fair market value on the
date of exercise of the UAR) or both, all as the Committee shall determine in
its sole discretion. Upon the exercise of a UAR granted in connection with an
Option, the number of Units subject to the related Option shall be reduced by
the number of Units with respect to which the UAR is exercised. Upon the
exercise of an Option in connection with which a UAR has been granted, the
number of Units subject to the related UAR shall be reduced by the number of
Units with respect to which the Option is exercised.

The Board of Directors of the Managing General Partner in its discretion
may terminate the Option Plan at any time with respect to any Units for which a
grant has not theretofore been made. The Board of Directors will also have the
right to alter or amend the Option Plan, any award made thereunder or any part
thereof from time to time; provided, that no change in any previously granted
Option or UAR may be made which would impair the rights of the grantee without
the consent of such grantee; and provided further, that to the extent necessary
to comply with Rule 16b-3 under the 1934 Act, no such amendment or alteration
will, without the requisite consent under such Rule 16b-3: (i) materially
increase the total number of Units available for Options and UARs under the
Option Plan, subject to certain exceptions; (ii) materially modify the
requirements as to eligibility for participation in the Option Plan; (iii)
extend the maximum period during which Options and UARs may be granted under the
Option Plan; or (iv) materially increase the benefits accruing to participants
under the Option Plan.

Generally, no tax is imposed on the grantee upon the grant of an Option or
UAR under the Plan and neither the Partnership nor the Managing General Partner
will be entitled to a tax deduction by reason of such a grant. Generally, upon
the exercise of an Option, the optionee will be taxable on ordinary income in
the year of exercise in an amount equal to the excess of the fair market value
of the Units on the date of exercise over the Option exercise price and the
employer will be entitled to a deduction in an equivalent amount. In general,
upon exercising a UAR, the amount of any cash received and the fair market value
on the exercise date of any Units or other property received are taxable to the
recipient as ordinary income and deductible by the employer. Insofar as the
Partnership will reimburse the Managing General Partner for the difference
between the cost incurred by the Managing General Partner in acquiring Units to
deliver to the optionee or holder of UARs upon exercise and the proceeds
received by the Managing General Partner from the optionee in connection with
such exercise, the Managing General Partner will generally be treated as
receiving income in the amount of such reimbursement and the Partnership may
claim a deduction for such payment. Upon a subsequent disposition of the Units
received upon exercise of an Option or UAR, any appreciation after the date of
exercise will generally qualify as capital gain. If the Units received upon the
exercise of an Option or UAR are transferred to the optionee subject to certain
restrictions, then the taxable income realized by the optionee, unless the
optionee elects otherwise, and the corresponding tax deduction (assuming any
federal income tax withholding requirements are satisfied) should be deferred
and should be measured at the fair market value of the Units at the time the
restrictions lapse. The restrictions imposed on certain individuals by Section
16(b) of the 1934 Act may constitute such a transfer restriction during the
period prescribed thereby with respect to Options or UARs exercised within six
months of the grant date thereof.

No Options or UARs have been granted as of March 20, 1997.

COMPENSATION OF DIRECTORS

The Managing General Partner pays no additional remuneration to its
employees (or employees of any of its Affiliates) for serving as directors or to
directors who are not employees of the Managing General Partner or any of its
Affiliates. The Managing General Partner may in the future pay remuneration to
its directors. In addition, the Partnership anticipates that directors who are
not employees of the Managing General Partner or its Affiliates will be
compensated for serving as such, will be reimbursed for out-of-pocket expenses
and will be eligible to participate in the Partnership's or Managing General
Partner's Unit purchase or option plans, if any.

EMPLOYMENT ARRANGEMENTS WITH EXECUTIVE OFFICERS

Mr. Paliughi has an employment contract with the Managing General Partner,
effective as of April 24, 1993, as amended, pursuant to which (i) the Managing
General Partner agrees to employ Mr. Paliughi as President and Chief Executive
Officer through January 2, 1998, (ii) Mr. Paliughi receives a base salary of
$300,000 per annum during his employment (subject to increase at the discretion
of the Board of Directors), (iii) Mr. Paliughi is eligible to participate in the
Annual Incentive Plan, enabling him to receive an annual cash bonus of up to 75%
of his base salary based upon the achievement of certain individual and
Partnership performance objectives, (iv) Mr. Paliughi is eligible to participate
in the Mid-Term Incentive Plan, enabling him to receive an annual bonus award at
least equal to 75% of his base salary based upon the achievement by the
Partnership of certain financial performance objectives over a three-year
performance cycle, (v) Mr. Paliughi is entitled to severance benefits generally
equal to two years base salary and bonuses (approximately $1,050,000 if such
termination occurred on December 31, 1996) and certain relocation payments in
the event he is terminated other than for cause (as defined), or if his existing
employment agreement is not renewed or extended on substantially similar terms
and (vi) Mr. Paliughi is entitled to participate in other generally available
compensation plans and receives various other benefits including reimbursement
of certain expenses. The agreement also restricts Mr. Paliughi from competing
with the General Partner for 24 months after the termination of the agreement if
such termination results from Mr. Paliughi's voluntary resignation or the
Managing General Partner's termination of Mr. Paliughi's employment for cause
(as defined in the agreement).

Mr. Rominiecki has a severance agreement with the Managing General Partner
which provides that Mr. Rominiecki is entitled to severance benefits generally
equal to one year's base salary (approximately $165,000 if such termination
occurred on January 21, 1997) and bonuses in the event he is terminated other
than for cause (as defined) during the term of his employment agreement.

Mr. Watson has an employment agreement with the Managing General Partner
pursuant to which (i) Mr. Watson is employed as Senior Vice
President -- Administration and General Counsel effective December 19, 1996,
(ii) Mr. Watson receives a base salary of $125,000 per annum, (iii) Mr. Watson
is eligible to participate in the Annual Incentive Plan, enabling him to receive
an annual cash bonus of up to 50% of his base salary, based upon the achievement
of certain individual and Partnership performance objectives, (iv) Mr. Watson is
eligible to participate in the Mid-Term Incentive Plan, enabling him to receive
an annual bonus award equal to 40% of his base salary, based upon the
achievement by the Partnership of certain financial performance objectives over
a three-year performance cycle, (v) Mr. Watson is entitled to severance benefits
generally equal to one year's base salary and bonuses in the event he is
terminated other than for cause (as defined) during the term of his employment
agreement, (vi) Mr. Watson received a relocation allowance equal to the net
amount of two months salary, which amount must be repaid if Mr. Watson
voluntarily separates from the Managing General Partner within the first year
from his date of hire, and (vii) Mr. Watson is entitled to participate in other
generally available compensation plans and receive various other benefits,
including reimbursement of certain expenses.

Ms. Crawford's employment by the Managing General Partner ended effective
December 18, 1996. In accordance with the terms of her employment agreement with
the Managing General Partner, Ms. Crawford receives (i) severance pay at the
annual base salary rate of $137,500 from January 1, 1997 through December 18,
1998, (ii) $65,625 in the first quarter of 1997 and $68,750 in the first quarter
of 1998 in lieu of bonuses which otherwise would have been paid to Ms. Crawford
with respect to 1996 and 1997 and (iii) accrued and unpaid vacation time through
the date of termination. In addition, Ms. Crawford is eligible to maintain her
current health and medical coverage for 18 months following the date of
termination at the cost of the Managing General Partner. In addition, all of Ms.
Crawford's Triarc stock options immediately vested and are exercisable until
March 18, 1997.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

OWNERSHIP OF PARTNERSHIP UNITS BY THE DIRECTORS AND EXECUTIVE OFFICERS OF THE
MANAGING GENERAL PARTNER AND THE SELLING UNITHOLDER

The table below sets forth the beneficial ownership as of March 20, 1997,
by each person known by the Managing General Partner to be the beneficial owner
of more than 5% of any class of Units of the Partnership, including the Selling
Unitholder, each director and each Named Officer of the Managing

General Partner and the executive officers and directors of the Managing General
Partner as a group. The Common Units are traded on the NYSE under the symbol
'NPL'.

AMOUNT AND
CLASS OF NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER UNITS OWNERSHIP(1) CLASS
- ----------------------------------------------------------------- ------------- ---------- ----------

National Propane Corporation .................................... Subordinated 4,533,638 100%
IES Tower, Suite 1700
200 First Street, S.E.
Cedar Rapids, I.A. 52401
Nelson Peltz .................................................... Common 1,210 (2) *
280 Park Avenue
New York, N.Y. 10017
Peter W. May .................................................... Common 30,000 *
280 Park Avenue
New York, N.Y. 10017
Frederick W. McCarthy ........................................... Common -- *
222 Lakeview Avenue
West Palm Beach, FL 33401
Willis G. Ryckman III ........................................... Common -- *
208 Dolphin Court
Stamford, CT 06902
Ronald D. Paliughi............................................... Common -- *
Ronald R. Rominiecki............................................. Common 200 *
C. David Watson.................................................. Common -- *
All executive officers and directors as a group (7 persons)...... Common 31,410 *%

- ------------

* Less than 1%

(1) Except as otherwise indicated, each person has sole voting and dispositive
power with respect to such Units.

(2) Includes 1,210 Units owned by minor children of Mr. Peltz. Mr. Peltz
disclaims beneficial ownership of these Units.

OWNERSHIP OF TRIARC COMMON STOCK BY THE DIRECTORS AND EXECUTIVE OFFICERS OF THE
MANAGING GENERAL PARTNER AND CERTAIN BENEFICIAL OWNERS

All of the issued and outstanding shares of common stock of the General
Partner are indirectly owned by Triarc. The table below sets forth the
beneficial ownership as of December 31, 1996, by each person known by the
Managing General Partner to be the beneficial owner of more than 5% of the
outstanding shares of Triarc Class A Common Stock (constituting the only class
of voting capital stock of Triarc), each director and each Named Officer of the
Managing General Partner and the executive

officers and directors of the Managing General Partner as a group. Triarc's
Class A Common Stock is traded on the NYSE under the symbol 'TRY'.

AMOUNT AND
NATURE PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OF OWNERSHIP(1) CLASS
- ------------------------------------------------------------------------ --------------- ----------

Nelson Peltz ........................................................... 6,974,967(2)(3)(4)(5) 28.1%
280 Park Avenue
New York, NY 10017
Peter W. May ........................................................... 6,653,000(2)(4)(6) 27.1%
280 Park Avenue
New York, NY 10017
DWG Acquisition Group, L.P. ............................................ 5,982,867(4) 25.1%
1201 North Market Street
Wilmington, DE 19801
William Ehrman ......................................................... 1,460,093(7)(8) 6.1%
300 Park Avenue
New York, NY 10022
Frederick Ketcher ...................................................... 1,390,493(7)(9) 5.8%
300 Park Avenue
New York, NY 10022
Jonas Gerstl ........................................................... 1,376,793(7)(10) 5.8%
300 Park Avenue
New York, NY 10022
Frederic Greenberg ..................................................... 1,370,793(7)(11) 5.7%
300 Park Avenue
New York, NY 10022
James McLaren .......................................................... 1,365,793(7)(12) 5.7%
300 Park Avenue
New York, NY 10022
Frederick W. McCarthy................................................... -- *
Willis G. Ryckman III................................................... -- *
Ronald D. Paliughi...................................................... 59,000(13) *
Ronald R. Rominiecki.................................................... 6,667(14) *
C. David Watson......................................................... -- *
All executive officers and directors as a group (7 persons)............. 7,710,767 30.2%

- ------------

* Less than 1%.

(1) Except as otherwise indicated, each person has sole voting and dispositive
power with respect to such shares.

(2) Includes 5,982,867 shares held by DWG Acquisition, of which Mr. Peltz and
Mr. May are the sole general partners.

(3) Includes 200 shares owned by a family trust of which Mr. Peltz is a general
partner. Mr. Peltz disclaims beneficial ownership of such 200 shares.

(4) The Partnership is informed that DWG Acquisition has pledged such shares to
a financial institution on behalf of Messrs. Peltz and May to secure loans
made to them.

(5) Includes options to purchase 965,000 shares of Class A Common Stock which
have vested or will vest within 60 days of December 31, 1996.

(6) Includes options to purchase 643,333 shares of Class A Common Stock which
have vested or will vest within 60 days of December 31, 1996.

(footnotes continued on next page)

(footnotes continued from previous page)

(7) The information set forth herein with respect to Messrs. Ehrman, Greenberg,
Ketcher, Gerstl and McLaren is based solely on information contained in a
Schedule 13D, dated July 16, 1996, filed pursuant to the Securities
Exchange Act of 1934, as amended.

(8) Includes 39,150 shares of Class A Common Stock owned by members of Mr.
Ehrman's immediate family and an aggregate of 1,365,793 shares of Class A
Common Stock he may be deemed to beneficially own as a general partner of
EGS Associates, L.P., a Delaware limited partnership ('EGS Associates'),
EGS Partners, L.L.C., a Delaware limited liability company ('EGS
Partners'), Bev Partners, L.P., a Delaware limited partnership ('Bev
Partners'), and Jonas Partners, L.P., a Delaware limited partnership
('Jonas Partners').

(9) Includes 1,100 shares of Class A Common Stock owned by a member of Mr.
Ketcher's immediate family and his mother-in-law and an aggregate of
1,365,793 shares of Class A Common Stock he may be deemed to beneficially
own as a general partner of EGS Associates, EGS Partners, Bev Partners and
Jonas Partners.

(10) Includes 8,500 shares of Class A Common Stock owned by a member of Mr.
Gerstl's immediate family and an aggregate of 1,365,793 shares of Class A
Common Stock he may be deemed to beneficially own as a general partner of
EGS Associates, EGS Partners, Bev Partners and Jonas Partners.

(11) Includes 3,000 shares of Class A Common Stock owned by a member of Mr.
Greenberg's immediate family and an aggregate of 1,365,793 shares of Class
A Common Stock he may be deemed to beneficially own as a general partner of
EGS Associates, EGS Partners, Bev Partners and Jonas Partners.

(12) Constitutes the shares of Class A Common Stock Mr. McLaren may be deemed to
beneficially own as a general partner of EGS Associates, EGS Partners, Bev
Partners and Jonas Partners.

(13) Includes options to purchase 49,000 shares of Class A Common Stock which
have vested or will vest within 60 days of December 31, 1996.

(14) Represents options to purchase 6,667 shares of Class A Common Stock which
have vested or will vest within 60 days of December 31, 1996.

------------------------
The foregoing table does not include 5,997,622 shares of Triarc's
non-voting Class B Common Stock owned by Victor Posner or entities related to
Victor Posner as a result of a certain Settlement Agreement dated on January 9,
1995. The shares of Class B Common Stock can be converted without restriction
into an equal number of shares of Class A Common Stock following a transfer to a
non-affiliate of Victor Posner. Triarc has certain rights of first refusal if
such shares are proposed to be sold to an unaffiliated party. If the 5,997,622
currently outstanding shares of the Class B Common Stock were converted into
shares of Class A Common Stock, such shares would constitute approximately 20.1%
of the then outstanding shares of Class A Common Stock as of December 31, 1996.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

RIGHTS OF THE GENERAL PARTNERS

The Partnership and the Managing General Partner have extensive ongoing
relationships with Triarc and its Affiliates. Affiliates of the Managing General
Partner, including Triarc, perform certain administrative services for the
Managing General Partner on behalf of the Partnership. Such Affiliates do not
receive a fee for such services, but are reimbursed for all direct and indirect
expenses incurred in connection therewith. See Item 10. 'Directors and Executive
Officers of the Registrant -- Partnership Management.' In addition, the Managing
General Partner owns all of the Subordinated Units, representing 40.4% of the
outstanding Units. Triarc indirectly owns 100% of the General Partners. Through
the Managing General Partner's ability to control the management of the
Partnership and its right to vote the Subordinated Units (effectively giving the
Managing General Partner the ability to

veto certain actions of the Partnership), the Managing General Partner and its
Affiliates have the ability to exercise substantial control over the
Partnership.

TRANSACTIONS INVOLVING TRIARC AND ITS AFFILIATES

In January 1996, the Partnership entered into a five-year lease, as lessee,
with Graniteville, then a wholly owned subsidiary of Triarc, as lessor, with
respect to certain storage facilities located in Graniteville, South Carolina.
As consideration for the use of the leased premises, the Partnership is required
to provide all of Graniteville's annual propane requirements (up to 700,000
gallons annually) at cost plus delivery expenses. Pursuant to the Graniteville
Sale, such lease was assigned to Avondale and amended to provide that it may be
terminated by either party thereto upon six months' notice.

In September 1995 Triarc, through a wholly owned subsidiary, acquired all
of the outstanding stock of two related propane distribution businesses. The
aggregate purchase price was approximately $4.2 million (including the
assumption of certain existing indebtedness). In September 1995 the stock of the
subsidiary which acquired the two companies was contributed by Triarc to NPC
Holdings, Inc. ('NPC Holdings') which, in turn, contributed such stock to the
Managing General Partner. In consideration for such contribution, NPC Holdings
received an additional 30 shares of the Managing General Partner's common stock,
increasing its ownership of the Managing General Partner to 75.7% from 75.2%.

In December 1995, National Propane borrowed $30 million under its then
existing $150 million credit facility with the Bank of New York and dividended
such amount to subsidiaries of Triarc ($22.7 million) and SEPSCO ($7.3 million)
in proportion to their respective percentage ownership in National Propane. On
February 22, 1996, the 11 7/8% senior subordinated debentures of SEPSCO were
redeemed. The cash for such redemption came from the proceeds of the $30 million
of borrowings (which, under the Former Credit Facility, were restricted to the
redemption of the 11 7/8% Debentures), liquidation of marketable securities and
existing cash balances. The indebtedness incurred in part to finance such
redemption was assumed by the Operating Partnership and repaid in connection
with the Transactions.

In the fourth quarter of 1995, the Managing General Partner sold
approximately $3.9 million face amount of its accounts receivable to Triarc for
approximately $3.8 million. As collections on such accounts receivable are
received by the Managing General Partner they are remitted to Triarc on a
periodic basis. This arrangement terminated on July 2, 1996 with a final payment
to Triarc of approximately $300,000.

The Managing General Partner receives from Triarc certain management
services including legal, accounting, tax, insurance, financial and other
management services. Effective April 23, 1993 the Managing General Partner
entered into a management services agreement with Triarc, which was amended as
of July 2, 1996 (as so amended, the 'Management Services Agreement'), pursuant
to which Triarc is entitled to certain management fees from the Managing General
Partner for services which do not relate to the business or operations of the
Partnership or its subsidiaries and to (i) reimbursement of expenses incurred by
it from the Partnership or the Operating Partnership regarding administrative
services performed with respect to the business or operations of the Partnership
and its subsidiaries and (ii) such reasonable fees as may be agreed to by Triarc
and the Partnership for the performance by Triarc of any other services provided
by it that relate to the business of the Partnership and its subsidiaries. Prior
to April 23, 1993, the costs of management services were allocated by Triarc to
its subsidiaries under a former management services agreement (the 'Former
Management Services Agreement') based first directly on the cost of the services
provided and then, for those costs which could not be directly allocated, based
upon the relative revenues and tangible assets as a percentage of Triarc's
corresponding consolidated amounts. Additionally, in Transition 1993 the
Managing General Partner was allocated certain costs representing uncollectible
amounts owed to Triarc for similar management services by certain affiliates or
former affiliates. For additional information regarding the Management Services
Agreement and the Former Management Services Agreement, see note 21 to the
accompanying consolidated financial statements.

Chesapeake Insurance Company Limited ('Chesapeake Insurance'), an indirect
subsidiary of Triarc, provided certain insurance coverage and reinsurance of
certain risks to the Managing General Partner until October 1993 at which time
Chesapeake Insurance ceased writing all insurance and

reinsurance. The net premium expense incurred was approximately $4 million in
Transition 1993. In addition, on April 1, 1995 the Managing General Partner
issued a promissory note to Chesapeake Insurance for $900,000. $125,000 of the
principal of such note was repaid on December 31, 1995 and the remaining
$775,000 was repaid on June 7, 1996.

Triarc's wholly owned leasing subsidiary, NPC Leasing Corp. ('NPC
Leasing'), leases vehicles and other equipment to companies that are or were
affiliates of the Managing General Partner under long-term lease obligations.
The Managing General Partner distributed the shares of NPC Leasing to Triarc as
a dividend on July 2, 1996. NPC Leasing had no billings with the Partnership
since the closing of the IPO.

The Managing General Partner holds an intercompany note of Triarc's in the
aggregate principal amount of approximately $30.0 million as of December 31,
1996. Concurrent with the closing of the IPO, the Managing General Partner made
a dividend of approximately $51.4 million aggregate principal amount of a then
outstanding $81.4 million intercompany note to Triarc. For additional
information regarding the intercompany note, see Note 14 to the consolidated
financial statements of National included elsewhere herein.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(A) 1. Financial Statements:

See Index to Financial Statements (Item 8)

2. Financial Statement Schedules:

None -- all schedules have been omitted since they are either not
applicable or the information is contained elsewhere in 'Item
8 -- Financial Statements and Supplementary Data.'

3. Exhibits:

Copies of the following exhibits are available at a charge of $.25
per page upon written request to the Assistant Secretary of National
Propane Corporation at Suite 1700, IES Tower, 200 1st St. SE, Cedar
Rapids, Iowa 52401-1409.

EXHIBIT
NO. DESCRIPTION
- ---------- -------------------------------------------------------------------------------------------------------

3.1(1) -- Amended and Restated Agreement of Limited Partnership of National Propane Partners, L.P. dated as of
July 2, 1996
3.2(1) -- Amended and Restated Agreement of Limited Partnership of National Propane, L.P. dated as of July 2,
1996
3.3(3) -- Amendment No. 1 dated November 1, 1996 to the Amended and Restated Agreement of Limited Partnership
of National Propane, L.P. dated as of July 2, 1996
10.1(3) -- Purchase Agreement, dated as of November 7, 1996, among National Propane Corporation, National
Propane SGP, Inc., National Propane Partners, L.P., National Propane, L.P. and Merrill Lynch & Co.
10.2(3) -- Registration Agreement, dated as of November 7, 1996, between National Propane Partners, L.P. and
Merrill Lynch & Co.
10.3(1) -- Credit Agreement, dated as of June 26, 1996, among National Propane, L.P., The First National Bank
of Boston, as administrative agent and a lender, Bank of America NT & SA, as a lender, and BA
Securities, Inc., as syndication agent
10.4(1) -- Note Purchase Agreement, dated as of June 26, 1996, among National Propane, L.P. and each of the
Purchasers listed in Schedule A thereto relating to $125 million aggregate principal amount of 8.54%
First Mortgage Notes due June 30, 2010
10.5(1) -- Conveyance, Contribution and Assumption Agreement, dated as of July 2, 1996, by and among National
Propane, L.P., National Propane Partners, L.P., National Propane Corporation and National Propane
SGP, Inc.
10.6(1) -- Contribution and Assumption Agreement, dated as of July 2, 1996, by and among National Propane,
L.P., National Propane Corporation, National Propane SGP, Inc. and National Sales & Service, Inc.
10.7(1) -- Note, in the principal amount of $40.7 million, issued by Triarc Companies, Inc. to National
Propane, L.P.
10.8(1) -- National Propane 1996 Unit Option Plan
10.9(1) -- Amendment to Employment Agreement of Ronald D. Paliughi, dated as of June 10, 1996
10.10(2) -- Employment Agreement, dated as of April 24, 1993, between National Propane Corporation and Ronald D.
Paliughi (including Amendment No. 1, dated as of December 7, 1994 and Amendment No. 2, dated as of
March 27, 1995)
10.11(2) -- Severance Agreement, dated as of December 1, 1995, between National Propane Corporation and Ronald
R. Rominiecki
10.12(2) -- Severance Agreement, dated as of March 27, 1997, between National Propane Corporation and Laurie B.
Crawford
10.13(4) -- Employment Agreement, dated November 20, 1996, between National Propane Corporation and C. David
Watson
10.13(2) -- Triarc's 1993 Equity Participation Plan
10.14(2) -- Form of Non-Incentive Stock Option Agreement under Triarc's 1993 Equity Participation Plan

EXHIBIT
NO. DESCRIPTION
- ---------- -------------------------------------------------------------------------------------------------------

10.15(6) -- Consent, waiver and amendment dated November 5, 1996 with respect to (1) the Credit Agreement dated
as of June 26, 1996 among National Propane, L.P., The First National Bank of Boston, as
administrative agent and a lender, Bank of America NT & SA, as a lender, and BA Securities, Inc., as
syndication agent and (2) the Note Purchase Agreement, dated as of June 26, 1996, among National
Propane, L.P. and each of the Purchasers listed in Schedule A thereto relating to $125 million
aggregate principal amount of 8.54% First Mortgage Notes due June 30, 2010.
10.16(6) -- Second consent, waiver and amendment dated January 14, 1997 with respect to (1) the Credit Agreement
dated as of June 26, 1996 among National Propane, L.P., The First National Bank of Boston, as
administrative agent and a lender, Bank of America NT & SA, as a lender, and BA Securities, Inc., as
syndication agent and (2) the Note Purchase Agreement, dated as of June 26, 1996, among National
Propane, L.P. and each of the Purchasers listed in Schedule A thereto relating to $125 million
aggregate principal amount of 8.54% First Mortgage Notes due June 30, 2010.
10.17(6) -- First Amendment dated as of March 27, 1997 to the Credit Agreement dated as of June 26, 1996 among
National Propane, L.P., The First National Bank of Boston, as administrative agent and a lender,
Bank of America NT & SA, as a lender, and BA Securities, Inc. as syndication agent.
*21.1 -- List of Subsidiaries
*24.1 -- Powers of Attorney (included on signature page)
*27.1 -- Financial Data Schedule for the year ended December 31, 1996, submitted to the Securities and
Exchange Commission in electronic format.
99.1(3) -- National Propane Partners, L.P. Press Release, dated October 22, 1996, regarding quarterly
distribution.
99.2(3) -- National Propane Partners, L.P. Press Release, dated November 7, 1996 regarding sale of 400,000
common units.
99.3(5) -- National Propane Partners, L.P. Press Release, dated January 27, 1997, regarding quarterly
distribution

- ------------

* Filed herewith

(1) Filed with the Partnership's Current Report on Form 8-K dated August 16,
1996 and incorporated herein by reference.

(2) Filed with the Partnership's Registration Statement of Form S-1 filed March
26, 1996 (Registration No. 333-2768) and incorporated herein by reference.

(3) Filed with the Partnership's Current Report on Form 8-K dated November 14,
1996 and incorporated herein by reference.

(4) Filed with the Partnership's Registration Statement on Form S-1 filed
January 10, 1997 (Registration No. 333-19599) and incorporated herein by
reference.

(5) Filed with the Partnership's Current Report on Form 8-K dated January 29,
1997 and incorporated herein by reference.

(6) Filed with the Partnership's Current Report on Form 8-K dated March 31, 1997
and incorporated herein by reference.

(B) 1. Reports on Form 8-K:

During the period from October 1, 1996 to December 31, 1996, the
Registrant filed the following report on Form 8-K:

The Registrant filed a report on Form 8-K on November 14, 1996, with
respect to the Registrant's sale of 400,000 common units.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

NATIONAL PROPANE PARTNERS, L.P.

By: National Propane Corporation
as Managing General Partner

By: /s/ RONALD D. PALIUGHI
.............................
PRESIDENT AND CHIEF EXECUTIVE
OFFICER

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on March 28, 1997:

SIGNATURE TITLES
- ------------------------------------------ ---------------------------------------------------------------------

/s/ RONALD D. PALIUGHI President, Chief Executive Officer
.........................................
(RONALD D. PALIUGHI)

/s/ RONALD R. ROMINIECKI Senior Vice President and Chief Financial Officer (Principal
......................................... Financial Officer)
(RONALD R. ROMINIECKI)

/s/ R. BROOKS SHERMAN Controller and Chief Accounting Officer (Principal Accounting
......................................... Officer)
(R. BROOKS SHERMAN)

/s/ NELSON PELTZ Director
.........................................
(NELSON PELTZ)

/s/ PETER W. MAY Director
.........................................
(PETER W. MAY)

/s/ FREDERICK W. MCCARTHY Director
.........................................
(FREDERICK W. MCCARTHY)

/s/ WILLIS G. RYCKMAN III Director
.........................................
(WILLIS G. RYCKMAN III)