CONFORMED COPY
________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER: 1-11867
NATIONAL PROPANE PARTNERS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 42-1453040
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
200 FIRST STREET S.E., IES TOWER, SUITE 1700, 52401-1409
CEDAR RAPIDS, IA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(319) 365-1550
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the last 90 days. Yes __X__ No _______
There were 6,701,550 Common Units and 4,533,638 Subordinated Units
outstanding as of July 31, 1997.
________________________________________________________________________________
NATIONAL PROPANE PARTNERS, L.P.
INDEX TO FORM 10-Q
PAGE
----
Part I -- Financial Information
Item 1 -- Financial Statements -- National Propane Partners, L.P. (Successor to National Propane
Corporation and Subsidiaries):
Condensed Consolidated Balance Sheets -- December 31, 1996 and June 30, 1997..................... 3
Condensed Consolidated Statements of Operations -- Three months ended June 30, 1996 and 1997 and
six months ended June 30, 1996 and 1997....................................................... 4
Condensed Consolidated Statements of Cash Flows -- Six months ended June 30, 1996 and 1997....... 5
Notes to Condensed Consolidated Financial Statements............................................. 6
Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations....... 10
Part II -- Other Information
Item 6 -- Exhibits and Reports on Form 8-K............................................................ 14
Signatures............................................................................................ 15
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION
AND SUBSIDIARIES)
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30,
1996(A) 1997
------------ ---------
(IN THOUSANDS)
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 11,187 $ 5,730
Receivables, net.................................................................. 24,217 10,332
Finished goods inventories........................................................ 14,130 12,607
Prepaid expenses and other current assets......................................... 2,268 1,635
------------ ---------
Total current assets......................................................... 51,802 30,304
Due from Triarc Companies, Inc......................................................... 40,700 40,700
Properties, net........................................................................ 80,634 80,362
Unamortized costs in excess of net assets of acquired companies........................ 14,601 16,572
Deferred costs and other assets........................................................ 8,671 8,760
------------ ---------
$196,408 $ 176,698
------------ ---------
------------ ---------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current portion of long-term debt................................................. $ 6,312 $ 755
Accounts payable.................................................................. 15,859 4,221
Accrued expenses.................................................................. 10,103 7,291
------------ ---------
Total current liabilities.................................................... 32,274 12,267
Long-term debt......................................................................... 128,044 135,160
Customer deposits...................................................................... 2,027 1,956
Partners' capital:
Common partners' capital.......................................................... 22,165 18,300
General partners' capital, including subordinated units........................... 11,898 9,015
------------ ---------
Total partners' capital...................................................... 34,063 27,315
------------ ---------
$196,408 $ 176,698
------------ ---------
------------ ---------
- ------------
(A) Derived from the audited consolidated financial statements as of December
31, 1996.
See accompanying notes to condensed consolidated financial statements
3
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION
AND SUBSIDIARIES)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1996 1997 1996 1997
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)
Revenues.............................................................. $28,317 $29,503 $88,298 $88,687
------- ------- ------- -------
Cost of sales:
Cost of product -- propane and appliances........................ 12,377 13,359 41,814 46,229
Other operating expenses applicable to revenues.................. 11,332 11,115 23,049 22,579
------- ------- ------- -------
23,709 24,474 64,863 68,808
------- ------- ------- -------
Gross profit................................................ 4,608 5,029 23,435 19,879
Selling, general and administrative expenses.......................... 5,803 5,218 11,656 11,597
Management fees....................................................... 750 -- 1,500 --
------- ------- ------- -------
Operating income (loss)..................................... (1,945) (189) 10,279 8,282
Interest expense...................................................... (3,104) (3,121) (6,242) (6,072)
Interest income from Triarc Companies, Inc............................ -- 1,370 -- 2,710
Other income, net..................................................... 233 417 510 735
------- ------- ------- -------
Income (loss) before income taxes........................... (4,816) (1,523) 4,547 5,655
Benefit from (provision for) income taxes............................. 1,927 (117) (1,922) (117)
------- ------- ------- -------
Net income (loss)........................................... $(2,889) $(1,640) $ 2,625 $ 5,538
------- ------- ------- -------
------- ------- ------- -------
General partners' interest in net income (loss)....................... $ (65) $ 222
------- -------
------- -------
Unitholders' interest (common and subordinated) in net income
(loss).............................................................. $(1,575) $ 5,316
------- -------
------- -------
Net income (loss) per unit............................................ $ (0.14) $ 0.47
------- -------
------- -------
Weighted average number of units outstanding.......................... 11,235 11,235
------- -------
------- -------
See accompanying notes to condensed consolidated financial statements
4
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION
AND SUBSIDIARIES)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30,
--------------------
1996 1997
-------- --------
(IN THOUSANDS)
(UNAUDITED)
Cash flows from operating activities:
Net income............................................................................ $ 2,625 $ 5,538
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of properties...................................... 5,015 5,190
Amortization of costs in excess of net assets of acquired companies.............. 359 395
Amortization of deferred financing costs......................................... 597 363
Other amortization............................................................... 110 324
Provision for doubtful accounts.................................................. 734 650
Deferred income tax benefit...................................................... (800) --
Gain on sale of assets, net...................................................... (52) (181)
Other, net....................................................................... (87) 33
Changes in operating assets and liabilities:
Decrease in accounts receivable............................................. 2,354 13,479
Decrease in due from Triarc Companies, Inc.................................. 2,877 --
Decrease in inventories..................................................... 1,102 1,609
Decrease in prepaid expenses and other current assets....................... 538 633
Decrease in accounts payable and accrued expenses........................... (4,112) (14,449)
-------- --------
Net cash provided by operating activities........................................ 11,260 13,584
-------- --------
Cash flows from investing activities:
Business acquisitions................................................................. (37) (5,159)
Capital expenditures.................................................................. (2,691) (2,897)
Proceeds from sale of properties...................................................... 227 469
-------- --------
Net cash used in investing activities............................................ (2,501) (7,587)
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt.......................................................... 3,000 7,138
Repayments of long-term debt.......................................................... (8,822) (6,306)
Distributions......................................................................... -- (12,286)
Deferred financing costs.............................................................. (1,201) --
-------- --------
Net cash used in financing activities............................................ (7,023) (11,454)
-------- --------
Net increase (decrease) in cash............................................................ 1,736 (5,457)
Cash and cash equivalents at beginning of period........................................... 2,825 11,187
-------- --------
Cash and cash equivalents at end of period................................................. $ 4,561 $ 5,730
-------- --------
-------- --------
See accompanying notes to condensed consolidated financial statements
5
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION
AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- 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 (see 'Partnership Conveyance' below) 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'. In July, 1996, the Partnership Entities consummated 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.
NOTE 2 -- BASIS OF PRESENTATION
The accompanying unaudited 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 condensed 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 consolidation.
The accompanying unaudited condensed consolidated financial statements of
National have been prepared in accordance with Rule 10-01 of Regulation S-X
promulgated by the Securities and Exchange
6
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION
AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Commission and, therefore, do not include all information and footnotes
necessary for a fair presentation of financial position, results of operations
and cash flows in conformity with generally accepted accounting principles. In
the opinion of National, however, the accompanying condensed consolidated
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly National's financial position
as of December 31, 1996 and June 30, 1997, its results of operations for the
three-month and six-month periods ended June 30, 1996 and 1997 and its cash
flows for the six-month periods ended June 30, 1996 and 1997. This information
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1996 (the 'Form 10-K').
NOTE 3 -- PROPERTIES
The following is a summary of the components of properties, net:
DECEMBER 31, JUNE 30,
1996 1997
------------ ---------
(IN THOUSANDS)
Properties, at cost................................................ $170,724 $ 164,052
Less accumulated depreciation...................................... 90,090 83,690
------------ ---------
$ 80,634 $ 80,362
------------ ---------
------------ ---------
NOTE 4 -- INCOME TAXES
National's provision for income taxes for the three-month and six-month
periods ended June 30, 1996 relates to National Propane. For the three-month and
six-month periods ended June 30, 1997, which are subsequent to the Partnership
Conveyance, income taxes have been provided only on the pre-tax income of NSSI,
which is subject to federal and state income taxes. Since the earnings
attributed to the Partnership and the Operating Partnership are included in the
tax returns of the individual partners and not the Partnership's, no income
taxes have been provided thereon.
NOTE 5 -- ACQUISITIONS
During the first half of 1997 National acquired the assets of four propane
distributors for aggregate cash consideration of $5,150,000, the execution of a
note payable of $407,000 subject to downward adjustment and other consideration
of $325,000. On August 1, 1997 the Partnership acquired the assets of another
propane distributor for cash consideration of $2,400,000.
NOTE 6 -- CONTINGENCIES
National continues to have an environmental contingency of the same nature
and general magnitude as described in Note 19 to the consolidated financial
statements in the Form 10-K which may have a material adverse effect on the
Partnership's financial position, results of operations and its ability to make
distributions to the holders of its Common Units, the 4% unsubordinated General
Partner interest and the Subordinated Units. National does not believe that
contingencies for ordinary routine claims, litigation and administrative
proceedings and investigations incidental to its business, will have a material
adverse effect on the Partnership's consolidated financial condition or results
of operations.
7
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION
AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE 7 -- UNAUDITED PRO FORMA SUMMARIZED OPERATING RESULTS
The following unaudited pro forma summarized operating results of National
for the three and six month periods ended June 30, 1996 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 operations as a partnership,
(iii) a net decrease in interest expense to reflect the interest expense
associated with the First Mortgage Notes and to eliminate interest expense on
$128,469,000 of refinanced debt, (iv) interest income on a $40,700,000 loan to
Triarc made concurrently with the Offering and (v) the elimination of the
provision for income taxes, as income taxes are now being 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 of National that would have resulted had the Partnership been formed
and had the Partnership Conveyance, the Offering, the Equity Private Placement
and related transactions been completed as of January 1, 1996 or of the future
results of operations of National.
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1996
---------------- ------------------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNT)
Revenues............................................ $ 88,298 $ 28,317
Operating income (loss)............................. 11,029 (1,570)
Income (loss) before income taxes................... 8,537 (2,775)
Net income (loss)................................... 8,437 (2,825)
General partners' unsubordinated interest in net
income (loss)..................................... 337 (113)
Unitholders' interest (common and subordinated) in
net income (loss)................................. 8,100 (2,712)
Limited partners' net income (loss) per unit........ 0.72 (0.24)
NOTE 8 -- QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH
On February 14, 1997 and May 15, 1997 National paid quarterly distributions
for the quarters ended December 31, 1996 and March 31, 1997 to Unitholders of
record on February 5, 1997 and May 8, 1997, respectively, each consisting of
$0.525 per Common and Subordinated Unit with a proportionate amount for the 4%
unsubordinated General Partners' interest, or an aggregate of $6,143,000 each
including $2,625,000 to the General Partners related to the Subordinated Units
and the unsubordinated General Partners' interest. On July 28, 1997 National
declared a quarterly distribution for the quarter ended June 30, 1997 to
Unitholders of record on August 7, 1997 payable August 14, 1997 consisting of
$0.525 per Common and Subordinated Unit with a proportionate amount for the
4% unsubordinated General Partners' 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 Partners' interest.
NOTE 9 -- RELATED PARTY TRANSACTIONS
National continues to have related party transactions of the same nature
and general magnitude as those described in Note 21 to the consolidated
financial statements contained in the Form 10-K.
8
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION
AND SUBSIDIARIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE 10 -- STATEMENT OF PARTNERS' CAPITAL
The following is a summary of the changes in partners' capital:
GENERAL COMMON TOTAL
PARTNERS' PARTNERS' PARTNERS'
CAPITAL CAPITAL CAPITAL
--------- --------- ---------
(IN THOUSANDS)
Balance at December 31, 1996........................................... $ 11,898 $ 22,165 $ 34,063
Net income:
Allocable to General Partners..................................... 222 -- 222
Allocable to Unitholders (common and subordinated)................ 2,145 3,171 5,316
--------- --------- ---------
2,367 3,171 5,538
Cash distributions paid................................................ (5,250) (7,036) (12,286)
--------- --------- ---------
Balance at June 30, 1997............................................... $ 9,015 $ 18,300 $ 27,315
--------- --------- ---------
--------- --------- ---------
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements under this caption may constitute 'forward-looking
statements' under the Private Securities Litigation Reform Act of 1995. See
'Part II. Other Information.'
INTRODUCTION
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 retail and wholesale customers in 25
states through its 168 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 periods with 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 domestic wholesale propane prices, which
are increasingly influenced by global supply and demand factors for both natural
gas liquids and crude oil. National has diverse sources of propane supply from a
broad array of producers and accordingly, does not believe it is overly
dependent on any one supplier. In 1996 and through the first two quarters of
1997, no propane supplier provided more than 20% of National's propane
purchases. National buys propane on ever green, annual and spot contracts on a
fixed or floating price basis, but does not enter into take-or-pay contracts.
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 National'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 distributors 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 of the
Partnership for the six and three months ended June 30, 1997 with the results of
National Propane for the six and three months ended June 30, 1996, respectively.
10
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
Revenues increased $0.4 million, or 0.4%, to $88.7 million in the six
months ended June 30, 1997 as compared to $88.3 million for the six months ended
June 30, 1996 with propane revenues increasing $1.7 million, or 2.0% to $84.4
million for the six months ended June 30, 1997 compared with $82.7 million in
1996 and revenues from appliance and other product lines decreasing $1.3
million. The $1.7 million increase in propane revenues is a result of increased
selling prices due to passing on to customers a portion of the increased product
costs resulting from the record high propane costs this heating season ($7.4
million) offset by volume decreases ($5.7 million). Propane retail gallons sold
decreased 5.7 million gallons, or 6.9%, to 78.1 million gallons in 1997,
compared to 83.8 million gallons in 1996 reflecting a decrease of 7.1 million
gallons sold to existing customers, primarily residential, due to the fact that
the six months ended June 30, 1997 were approximately 3.8% warmer than the same
period in 1996 according to Degree Day data published by the National Climatic
Data Center as applied to the geographic regions of National's operations and
customer energy conservation due to the higher propane costs. Partially
offsetting this decrease were increases from the acquisitions of propane
distributorships and the opening of new service centers by National accounting
for an increase of approximately 1.4 million gallons sold. Revenues from
appliance and other product lines decreased $1.3 million, or 22%, to $4.3
million for the six months ended June 30, 1997 as compared to $5.6 million in
1996. This decrease is a result of decreases in equipment rental charges in
certain market areas due to competitive conditions.
Gross profit (revenue less cost of sales) decreased $3.5 million, or 15.2%
to $19.9 million in the six months ended June 30, 1997 as compared to $23.4
million in 1996 of which $3.1 million is attributable to propane and $0.4
million to appliances and other product lines. Lower propane sales volumes
caused $2.9 million of the $3.1 million propane gross profit decrease. The
average dollar margin (sales price less the cost of propane) declined $0.003, or
0.5%, per gallon sold in the six months ended June 30, 1997 versus the same
period in 1996. The $0.003 lower average dollar margin was due to (i) a shift in
customer mix toward lower-priced non-residential customers and (ii) a 19.8%
increase in propane costs which was not fully passed on to certain customers in
the form of higher selling prices in order to achieve maximum customer retention
during this period of high propane costs. The decrease in gross profit as a
percentage of sales, from 26.5% to 22.4%, is primarily the result of the gross
profit per gallon remaining relatively unchanged from period to period while the
average sales price per gallon increased 9.5% due to higher product costs.
Selling, general and administrative expenses amounted to $11.6 million in
the six months ended June 30, 1997, relatively unchanged from the comparable
1996 period.
Management fees formerly paid to Triarc have been eliminated effective with
the beginning of the operations of the Partnership.
Interest expense decreased $0.2 million, or 2.7%, in the first six months
of 1997 compared to 1996. This decrease was due to lower average interest rates
and lower amortization of deferred financing costs, both due to the refinancing
of debt, partially offset by higher average borrowings.
Interest income from Triarc in the six months ended June 30, 1997 is due to
interest on the July 2, 1996 $40.7 million loan to Triarc.
Other income, net increased $0.2 million to $0.7 million in the six months
ended June 30, 1997 as compared to $0.5 million during the same period in 1996
due primarily to gains on the sale of certain properties in 1997.
The provision for income taxes in 1996 is related to National's operations
prior to the Partnership Conveyance. The Partnership and the Operating
Partnership are not tax paying entities. For the six months ended June 30, 1997,
income taxes of $0.1 million have been provided on the pre-tax income of NSSI.
11
THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1996
Revenues increased $1.2 million, or 4.2%, to $29.5 million in the three
months ended June 30, 1997 as compared to $28.3 million for the three months
ended June 30, 1996 with propane revenues increasing $1.8 million, or 7.1% to
$27.3 million for the three months ended June 30, 1997 compared with $25.5
million in 1996 and revenues from appliance and other product lines decreasing
$0.6 million. The $1.8 million increase in propane revenues is a result of
volume increases ($1.4 million) and increased selling prices ($0.4 million) due
to increased product costs resulting from the record high propane costs this
heating season. Propane retail gallons sold increased 1.4 million gallons, or
5.7%, to 26.8 million gallons in 1997, compared to 25.4 million gallons in 1996.
Acquisitions of propane distributorships accounted for an increase in gallons
sold of approximately 0.9 million gallons while the opening of new service
centers by National accounted for an increase of 0.2 million gallons. Revenues
from appliance and other product lines decreased $0.6 million, or 25% to $2.1
million for the three months ended June 30, 1997 as compared to $2.7 million in
1996. This decrease is a result of decreases in equipment rental charges in
certain market areas due to competitive conditions.
Gross profit increased $0.4 million, or 2.5%, to $5.0 million in the three
months ended June 30, 1997 as compared to $4.6 million in the comparable
three months of 1996. Higher propane sales volumes accounted for a $0.8 million
propane gross profit increase while a decrease in other operating expenses
attributable to revenues accounted for an additional $0.2 million increase in
gross profit. These increases were offset by a decrease of $0.6 million in other
gross profit, primarily equipment rentals. The increase in gross profit as a
percentage of sales, from 16.3% to 17.0%, is primarily the result of a decrease
in other operating expenses applicable to revenues.
Selling, general and administrative expenses decreased $0.6 million to $5.2
million in the three months ended June 30, 1997 from $5.8 million in 1996. The
decrease is primarily attributable to decreased wages, advertising and provision
for doubtful accounts.
Management fees formerly paid to Triarc have been eliminated effective with
the beginning of the operations of the Partnership.
Interest expense was unchanged at $3.1 million.
Interest income from Triarc in the three months ended June 30, 1997 is due
to interest on the July 2, 1996 $40.7 million loan to Triarc.
Other income, net increased $0.2 million to $0.4 million in the three
months ended June 30, 1997 as compared to $0.2 million during the same period in
1996 due primarily to gains on the sales of certain properties in 1997.
The provision for income taxes in 1996 is related to National's operations
prior to the Partnership Conveyance. The Partnership and the Operating
Partnership are not tax paying entities. For the three months ended June 30,
1997, income taxes of $0.1 million have been provided on the pre-tax income of
NSSI.
LIQUIDITY AND CAPITAL RESOURCES
National's cash balances decreased $5.5 million during the six-month period
ended June 30, 1997. This decrease reflected cash provided by operating
activities of $13.6 million more than offset by cash used in investing
activities of $7.6 million and cash used in financing activities of $11.5
million.
Cash flows from operating activities of $13.6 million in the 1997 period
consisted of net income of $5.5 million, non-cash charges of $6.8 million,
principally depreciation and amortization, and $1.3 million from working capital
sources. The change in working capital is primarily made up of seasonal
decreases in receivables ($13.5 million) and inventories ($1.6 million)
partially offset by a decrease of $14.4 million in accounts payable and accrued
expenses. Accounts payable decreased $11.6 million due primarily to the seasonal
nature of the propane industry. Accrued expenses decreased $2.8 million due to a
decrease in accrued property and sales taxes due to the timing of payment due
dates and the seasonality of the business for sales taxes ($0.9 million), a
decrease in accrued financing costs associated with the 1996 issuances of the
First Mortgage Notes and the Common and Subordinated Units ($1.1 million), and
a decrease in other accrued expenses ($0.8 million).
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Cash used in investing activities during the six-month period ended June
30, 1997 included business acquisitions of $5.2 million and capital expenditures
of $2.9 million. During the first six months of 1997 National acquired the
assets of four propane distributors for $5.9 million including $5.2 million of
cash. In furtherance of National's growth strategy National will consider
selective future acquisitions as appropriate to the extent it has available
resources to do so (see 'Acquisition Facility' below). Of the capital
expenditure amount for 1997, $1.1 million was for recurring maintenance and $1.7
million was to support growth of operations. National has budgeted maintenance
capital expenditures and growth capital expenditures for the remainder of 1997
of approximately $2.4 million and $0.8 million, respectively, subject to the
availability of cash and other financing sources. National has outstanding
commitments amounting to $1.9 million for such capital expenditures as of June
30, 1997, which consists of $1.3 million for growth capital expenditures and
$0.6 million for maintenance capital expenditures.
Cash used in financing activities during the six-month period ended June
30, 1997 reflects borrowings of $7.1 million on an acquisition facility, net
repayments of $6.0 million on National's working capital line-of-credit, other
debt repayments of $0.3 million and the two distributions of $6.1 million each
on February 14, 1997 and May 15, 1997.
National has a $55 million bank credit facility (the 'Bank Credit
Facility') which includes a $15 million working capital facility (the 'Working
Capital Facility') to be used for working capital and other general partnership
purposes and a $40 million acquisition facility (the 'Acquisition Facility'),
the use of which is restricted to business acquisitions and capital expenditures
for growth. At June 30, 1997 there were no outstanding borrowings under the
Working Capital Facility and $9.0 million borrowed under the Acquisition
Facility. The Acquisition Facility and the First Mortgage Notes do not require
any principal payments in 1997.
Based on National's current cash on hand, available borrowings under the
Bank Credit Facility and cash flows from operations, National expects to be able
to meet all of its cash requirements, principally the aforementioned capital
expenditures and business acquisitions for the remainder of 1997.
To the extent National has 'Available Cash' as defined in the Partnership
Agreement, which generally means cash on hand less reserves, it will make
quarterly distributions of its cash balances in excess of reserve requirements,
as defined, to holders of the Common Units, the 4% unsubordinated General
Partner interest and the Subordinated Units within 45 days after the end of each
fiscal quarter. (See Note 5 to the December 31, 1996 audited financial
statements within the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1996 for a more detailed discussion of 'Available Cash'.) On
July 28, 1997, National announced it would pay on August 14, 1997 a quarterly
distribution of $0.525 per Common and Subordinated Unit to unitholders of record
on August 7, 1997 with a proportionate amount for the 4% unsubordinated General
Partner interest, or an aggregate of $6.1 million, including $2.6 million
payable to the General Partners related to the Subordinated Units and the
unsubordinated General Partner interest.
CONTINGENCIES
National continues to have an environmental contingency of the same nature
and general magnitude as described in Note 19 to the consolidated financial
statements in the Form 10-K which may have a material adverse effect on the
Partnership's financial position, results of operations and its ability to make
distributions to the holders of its Common Units, the 4% unsubordinated General
Partner interest and the Subordinated Units. National does not believe that
contingencies for ordinary routine claims, litigation and administrative
proceedings and investigations incidental to its business, will have a material
adverse effect on the Partnership's consolidated financial condition or results
of operations.
PART II. OTHER INFORMATION
The statements in this Quarterly Report on Form 10-Q that are not
historical facts constitute 'forward-looking statements' within the meaning of
the Private Securities Litigation Reform Act of 1995 that involve risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership and its related entities to be materially
different from any future results, performance or achievements express or
implied by such forward-looking statements. These
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forward looking statements are identified by their use of forms of such terms
and phrases as 'intends', 'goals', 'estimates', 'projects', 'plans',
'anticipates', 'should', 'future', 'believes', and 'scheduled'. The factors
which may cause differences include, but are not limited to, the following:
general economic and business conditions; competition; success of operating
initiatives; operating costs; advertising and promotional efforts; the existence
or absence of adverse publicity; availability and locations and terms of
opportunities for business growth and development; changes in business strategy
or development plans; quality of management; availability, terms and deployment
of capital; business abilities and judgment of personnel; availability of
qualified personnel; labor and employee benefit costs; availability and cost of
raw materials and supplies; changes in, or failure to comply with, government
regulations; regional weather conditions; and other risks and uncertainties
detailed in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1996 and in the Partnership's other current and periodic filings
with the Securities and Exchange Commission. National will not undertake and
specifically declines any obligation to release publicly the result of any
revisions which may be made to any forward-looking statements to reflect events
or circumstances after the date of such statements or to reflect the occurrence
of anticipated or unanticipated events.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule for the six-month period ended June 30, 1997,
submitted to the Securities and Exchange Commission in electronic
format.
(b) Reports on Form 8-K.
The Partnership filed a Form 8-K on August 14, 1997 pursuant to which
the Partnership filed employment contracts of certain officers of its
Managing General Partner.
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SIGNATURES
Pursuant to the requirements 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 R. ROMINIECKI
...................................
RONALD R. ROMINIECKI
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
By /s/ R. BROOKS SHERMAN
...................................
R. BROOKS SHERMAN
CONTROLLER AND
CHIEF ACCOUNTING OFFICER
(PRINCIPAL ACCOUNTING OFFICER)
Date: August 14, 1997
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