FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended May 31, 1996
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 1-11727
HERITAGE PROPANE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 73-1493906
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8801 South Yale Avenue, Suite 310
Tulsa, Oklahoma 74137
(Address of principal
executive offices
and zip code)
(918) 492-7272
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes /x/ No
As of August 9, 1996, there were 4,339,977 common units representing limited
partner interests of Heritage Propane Partners, L.P. outstanding.
FORM 10-Q
HERITAGE PROPANE PARTNERS, L.P.
TABLE OF CONTENTS
Pages
Part I Financial Information
Item 1. Financial Statements
Heritage Propane Partners, L.P.
Balance Sheet as of May 31, 1996 1
Notes to Balance Sheet 2
Heritage Holdings, Inc. (Predecessor)
Consolidated Balance Sheets as of May 31, 1996,
August 31, 1995 and May 31, 1995 5
Consolidated Statements of Operations for the three
and nine months ended May 31, 1996 and 1995 6
Consolidated Statements of Cash Flows for nine
months ended May 31, 1996 and 1995 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II Other Information
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
- i -
FORM 10-Q
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
HERITAGE PROPANE PARTNERS, L.P.
BALANCE SHEET
MAY 31, 1996
(unaudited)
ASSETS
CASH $ 1,000
---------
Total assets $ 1,000
---------
PARTNERS' CAPITAL
GENERAL PARTNER $ 10
LIMITED PARTNER 990
---------
Total partners' capital $ 1,000
---------
The accompanying notes are an integral
part of this financial statement.
- 1 -
HERITAGE PROPANE PARTNERS, L.P.
NOTES TO BALANCE SHEET
MAY 31, 1996
(unaudited)
1. ORGANIZATION:
Heritage Propane Partners, L.P. (the Partnership) was formed April 17,
1996 as a Delaware limited partnership. The Partnership was formed to
acquire, own and operate substantially all of the assets of Heritage
Holdings, Inc. through Heritage Operating, L.P. (the Operating
Partnership) in which the Partnership will hold a 98.9899% limited
partner interest and Heritage Holdings, Inc. (the Company or General
Partner) holds a 1.0101% general partner interest. The Company will
convey substantially all of its assets (other than approximately $79.3
million in proceeds from issuance of senior notes) to the Operating
Partnership and substantially all of the liabilities associated with
such assets. The Partnership intends to offer Common Units,
representing limited partner interests in the Partnership, to the
public and to concurrently issue Subordinated Units, representing
additional limited partner interests in the Partnership, to the
General Partner of the Partnership, as well as a two percent general
partner interest in the Partnership and the Operating Partnership, on
a combined basis.
Heritage Holdings, Inc., as general partner, contributed $10 and the
organizational limited partner contributed $990 to the Partnership on
April 23, 1996. As of May 31, 1996, the Partnership had not commenced
operations and there have been no other transactions involving the
Partnership.
2. SUBSEQUENT EVENT:
On June 28, 1996, the Partnership completed its initial public
offering (IPO) of 4,025,000 Common Units, representing limited partner
interests in the Partnership, to the public at a price of $20.25 a
unit. Concurrent with the IPO, the Company issued $120 million
principal amount of notes payable to certain institutional investors.
The Company conveyed substantially all of its assets (other than
approximately $79.3 million in proceeds from the issuance of the notes
payable) to the Operating Partnership in exchange for a general
partner interest and all of the limited partner interests in the
Operating Partnership and the assumption by the Operating Partnership
of substantially all of the liabilities of the Company. The Company
conveyed all of its limited partner interests in the Operating
Partnership to the Partnership in exchange for 3,702,943 Subordinated
Units and a general partner interest in the Partnership. As a result,
the Company owns an aggregate 47.0% limited partner interest, and an
aggregate 2% general partner interest, in the Partnership and the
Operating Partnership.
In contemplation of the offering, the Company entered into a letter
agreement dated as of April 24, 1996 with its nonmanagement
shareholders. Pursuant to the terms of the agreement and the
additional agreements required thereby, the Company used approximately
$60.6 million of the proceeds of the notes payable to finance the
repurchase of equity interests and the preferred stock in the Company.
- 2 -
The Partnership contributed the net proceeds of approximately $73.7
million from the sale of Common Units to the Operating Partnership. The
Operating Partnership applied the net proceeds, together with
approximately $40.7 million in cash contributed by the Company from the
proceeds of the notes payable, to finance the repayment of all of the
indebtedness of the Company to the Prudential Insurance Company of
America (Prudential). The Company paid a premium in the amount of $3.5
million in connection with the early retirement of the Prudential debt.
In addition, the Operating Partnership entered into a Bank Credit
Facility, which includes a Working Capital Facility, providing for up
to $15 million of borrowings to be used for working capital and other
general partnership purposes, and an Acquisition Facility, providing
for up to $25 million of borrowings to be used for acquisitions and
improvements. The Partnership drew on the Bank Credit Facility in order
to repay amounts borrowed in connection with its recent acquisitions
and other bank debt outstanding at the time of the closing of the IPO.
On July 26, 1996, the underwriters exercised their option to purchase
an additional 260,000 Common Units and the Partnership received
proceeds of approximately $4.9 million in exchange therefor. These
Common Units were issued on July 29, 1996.
The following unaudited pro forma condensed consolidated financial
information of the Partnership was derived from the historical
financial information of the Company as of May 31, 1996 and the nine
months ended May 31, 1996, and was prepared to reflect the effects of
the above transactions, including the effects of the underwriters'
exercise of their overallotment option. The following unaudited pro
forma condensed consolidated financial information does not purport to
present the financial position or results of operations of the
Partnership had the transactions above actually been completed as of
May 31, 1996 in the case of the pro forma condensed consolidated
balance sheet or as of the beginning of the period presented in the
case of the pro forma condensed consolidated income statements. In
addition, the unaudited pro forma condensed consolidated financial
information is not necessarily indicative of results to be expected in
the future.
- 3 -
HERITAGE PROPANE PARTNERS, L.P.
NOTES TO BALANCE SHEET (continued)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME DATA:
Nine Months
Ended May 31,
1996
----
($000's, except
per unit)
Revenues $ 142,717
Depreciation and amortization 7,168
Other costs and expenses 118,994
Operating income 16,555
Interest expense 8,245
Equity in earnings of investees 429
Other income 388
------------------
Net income $ 9,127
==================
Net income per limited partnership unit $ 1.12
==================
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET DATA
MAY 31, 1996
------------
($000's)
Current assets $ 19,970
Property, plant and equipment, net 106,160
Intangibles and other assets, net 45,362
Investment in affiliates 5,158
------------------
Total assets $ 176,650
==================
Current liabilities (excluding debt) $ 15,111
Total debt 126,475
Partners' capital 35,064
------------------
Total liabilities and partners' capital $ 176,650
==================
- 4 -
HERITAGE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
May 31, August 31, May 31,
1996 1995 1995
(unaudited) (unaudited)
CURRENT ASSETS:
Cash and cash equivalents........................................ 2,725 1,237 $ 2,060
Accounts receivable, net......................................... 10,188 8,085 9,829
Inventories...................................................... 5,686 10,131 6,747
Prepaid expenses................................................. 2,426 835 1,158
Deferred income taxes............................................ 984 1,005 813
----------- ----------- -----------
Total current assets.......................................... 22,009 21,293 20,607
PROPERTY, PLANT AND EQUIPMENT, net.................................. 103,258 100,104 96,425
INVESTMENT IN AFFILIATES............................................ 5,158 991 1,036
INTANGIBLES AND OTHER ASSETS, net................................... 42,497 41,035 40,853
----------- ----------- -----------
Total assets.................................................. $ 172,922 $ 163,423 $ 158,921
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Working capital facilities....................................... $ 9,800 $ 7,000 $ 2,500
Accounts payable................................................. 8,742 8,550 7,577
Accrued and other current liabilities............................ 5,555 5,470 4,813
Current maturities of long-term debt............................. 115,214 14,805 10,488
----------- ----------- -----------
Total current liabilities..................................... 139,311 35,825 25,378
LONG-TERM DEBT...................................................... 1,983 103,412 103,886
DEFERRED INCOME TAXES............................................... 22,081 18,824 20,452
----------- ----------- -----------
Total liabilities............................................. 163,375 158,061 149,716
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
5% CUMULATIVE REDEEMABLE PREFERRED STOCK,
$.01 par value, 19,262 shares authorized, 9,487 issued........... 12,806 12,337 12,185
----------- ----------- -----------
STOCKHOLDERS' DEFICIT, per accompanying statements:
Class A common stock, $.01 par value, 2,648,517 shares authorized, 1,288,105,
1,284,105 and 1,285,105 shares issued at
May 31, 1996, August 31, 1995 and May 31, 1995, respectively.. 13 13 13
Class B common stock, $.01 par value, 441,419 shares authorized,
357,500 issued................................................ 3 3 3
Additional paid-in capital....................................... 4,279 4,040 4,025
Accumulated deficit.............................................. (7,554) (11,031) (7,021)
------------ ------------ ------------
Total stockholders' deficit................................ (3,259) (6,975) (2,980)
------------ ------------ ------------
Total liabilities and stockholders' deficit................ $ 172,922 $ 163,423 $ 158,921
=========== =========== ===========
The accompanying notes are an integral part
of these consolidated balance sheets.
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HERITAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)
(Unaudited)
Three Months Ended May 31, Nine Months Ended May 31,
1996 1995 1996 1995
REVENUES
Retail $ 24,800 $ 22,331 $ 90,729 $ 76,211
Wholesale 8,334 5,475 36,365 20,456
Other 3,317 2,863 12,410 10,882
------------ ------------ -------------- --------------
Total Revenues 36,451 30,669 139,504 107,549
------------ ------------ -------------- --------------
COSTS AND EXPENSES
Cost of products sold 21,739 17,907 85,550 60,553
Depreciation and amortization 2,373 1,839 6,969 6,344
Selling, general and administrative 1,174 1,116 2,543 2,569
Operating expenses 8,645 7,698 28,044 23,838
------------ ------------ -------------- --------------
Total Operating Expenses 33,931 28,560 123,106 93.304
------------ ------------ -------------- --------------
OPERATING INCOME 2,520 2,109 16,398 14,245
------------ ------------ -------------- --------------
OTHER INCOME/(EXPENSES) 134 45 426 510
EQUITY IN EARNINGS (LOSS) OF INVESTEES 41 (35) 409 70
INTEREST EXPENSE (3,195) (3,087) (9,974) (8,745)
------------- ------------- --------------- ---------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES (500) (968) 7,259 6,080
PROVISION (BENEFIT) FOR INCOME TAXES (228) (436) 3,313 2,433
------------- ------------- -------------- --------------
NET INCOME (LOSS) $ (272) $ (532) $ 3,946 $ 3,647
============= ============= ============== ==============
PREFERRED STOCK DIVIDENDS 161 153 469 448
------------ ------------ -------------- --------------
INCOME (LOSS) APPLICABLE TO COMMON
STOCK $ (433) $ (685) $ 3,477 $ 3,199
============= ============= ============== ==============
EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE $ (.24) $ (.38) $ 1.92 $ 1.80
============= ============= ============== ==============
WEIGHTED AVERAGE SHARES OUTSTANDING 1,815 1,782 1,815 1,782
============ ============ ============== ==============
AND COMMON SHARE EQUIVALENTS
The accompanying notes are an integral part of these
consolidated statements.
- 6 -
HERITAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
For the Nine Months Ended May 31,
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.................................................. $ 3,946 $ 3,647
Reconciliation of net income to net cash provided
by operating activities--
Depreciation and amortization............................. 6,969 6,344
Provision for losses on accounts receivable............... 216 146
Gain on disposal of assets................................ (146) (351)
Issuance of stock for services rendered................... 93 ---
Compensatory appreciation in stock warrants............... 80 30
Undistributed earnings of investees....................... (417) (61)
Increase in deferred income taxes......................... 3,278 2,383
Changes in assets and liabilities, net of effect of
acquisitions:
Increase in accounts receivable........................ (2,304) (2,429)
Decrease in inventories................................ 4,445 2,178
(Increase) decrease in prepaid expenses................ (1,591) 203
Increase in intangibles and other assets............... (655) (1,637)
Increase in accounts payable........................... 143 469
Increase in accrued and other current liabilities...... 74 123
-------------- --------------
Net cash provided by operating activities............ 14,131 11,045
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash acquired............ (8,367) (26,041)
Capital expenditures........................................ (5,842) (4,937)
Proceeds from asset sales................................... 258 229
-------------- --------------
Net cash used in investing activities................ (13,951) (30,749)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings.................................... 36,745 49,248
Principal payments on debt.................................. (35,465) (28,612)
Issuance of common stock.................................... 76 62
Repurchase of common stock.................................. (48) ---
--------------- --------------
Net cash provided by financing activities............ 1,308 20,698
-------------- --------------
INCREASE IN CASH AND CASH EQUIVALENTS.......................... 1,488 994
CASH AND CASH EQUIVALENTS, beginning of period 1,237 1,066
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period....................... $ 2,725 $ 2,060
============== ==============
NONCASH FINANCING ACTIVITIES:
Notes payable incurred on noncompete agreements............. $ 500 $ 5,744
Issuance of Company stock for note receivables.............. 38 31
5% preferred stock dividend................................. 469 448
SUPPLEMENTAL DISCLOSURE OF CASH FLOW $ 10,140 $ 8,490
INFORMATION:
Cash paid during the period for--
Interest..................................................
The accompanying notes are an integral part of these
consolidated statements.
- 7 -
HERITAGE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL:
The accompanying unaudited consolidated financial statements have been prepared
by Heritage Holdings, Inc. (the Company) and should be read in conjunction with
the Company's consolidated financial statements as of August 31, 1995 and the
notes thereto included in the Company's consolidated financial statements
included in Form S-1 as filed with the Securities and Exchange Commission on
June 25, 1996. The foregoing financial statements include only normal recurring
accruals and all adjustments which the Company considers necessary for a fair
presentation.
2. DETAILS TO CONSOLIDATED BALANCE SHEETS:
Inventories are valued at the lower of cost or market. The cost of fuel
inventories is determined using average cost while the cost of appliances, parts
and fittings is determined by the first-in, first-out method. Inventories
consist of the following:
May 31, August 31, May 31,
1996 1995 1995
------------ ------------- --------
Fuel.............................................$ 2,588 $ 6,727 $ 3,526
Appliances, parts and fittings................... 3,098 3,404 3,221
----------- ----------- -----------
$ 5,686 $ 10,131 6,747
=========== =========== ===========
3. EARNINGS PER COMMON SHARE:
Earnings per share has been computed by dividing net income by the weighted
average number of common shares and common share equivalents outstanding. Common
share equivalents included in the computation represent shares issuable upon
assumed exercise of stock options and stock warrants which would have a dilutive
effect.
- 8 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ANALYSIS OF UNAUDITED HISTORICAL RESULTS OF OPERATIONS
On June 28, 1996, Heritage Propane Partners, L.P. (the Partnership)
acquired certain assets of Heritage Holdings, Inc. (the Company) and completed
an initial public offering. Refer to Note 2 of the Partnership's financial
statements contained elsewhere herein. The following discussion reflects for the
periods indicated the results of operations and operating data for the
Partnership and its predecessor, the Company. Most of the increases in the line
items discussed below result from the acquisitions made by the Company during
the periods discussed. In the first nine months of 1995, the Company consummated
seven acquisitions for an aggregate purchase price of $30.5 million. In the
first nine months of fiscal year 1996, the Company consummated four acquisitions
for $11.2 million. These acquisitions affect the comparability of prior period
financial matters. Amounts discussed below reflect 100% of the results of
operations of M-P Oils Partnership, a general partnership in which the Company
owns a 60% interest. Because M-P Oils Partnership is primarily engaged in
lower-margin wholesale propane distribution, its contribution to the
Partnership's net income and EBITDA is not significant.
Three Months Ended May 31, 1996 Compared to Three Months Ended May 31,
1995.
Volume. During the three months ended May 31, 1996, the Company sold
27.3 million retail gallons, an increase of 4.2 million retail gallons or 18.2%
from the 23.1 million retail gallons sold in the three months ended May 31,
1995. This increase was primarily attributable both to the effect of
acquisitions made after September 1, 1994 and to weather that was significantly
colder than in the prior period and, to a lesser extent, internal growth.
The Company also sold approximately 21.0 million wholesale gallons in
the three months ended May 31,1996, a .8 million gallon or 3.7% decrease from
the 21.8 million wholesale gallons sold in the prior three-month period. The
increase in wholesale volumes was largely attributable to M-P Oils Partnership's
increased wholesale volumes in Canada.
Revenues. Total revenues increased $5.8 million or 18.9% to $36.5
million for the three months ended May 31, 1996, as compared to $30.7 million
for the prior three-month period. Domestic revenues increased $3.5 million or
13.1% to $30.3 million for the three months ended May 31, 1996, as compared to
$26.8 million for the three-month period ended May 31, 1995. Foreign revenues
increased $2.3 million or 59.0% to $6.2 million for the three months ended May
31, 1996, as compared to $3.9 million for the three month period ended May 31,
1995. The increase was attributable to low-margin wholesale revenues that may or
may not recur in future periods, volumes associated with acquisitions, more
favorable weather conditions and internal growth.
Cost of Sales. Total cost of sales increased $3.8 million or 21.2% to
$21.7 million for the three months ended May 31, 1996, as compared to $17.9
million for the three months ended May 31, 1995. Domestic cost of sales
increased $1.6 million or 11.3% to $15.7 million for the three months ended May
31, 1996, as compared to $14.1 million for the three-month period ended May 31,
1995. Foreign cost of sales increased $2.2 million or 57.9% to $6.0 million for
the three months ended May 31, 1996, as compared to $3.8 million for the
three-month period ended May 31, 1995. The increase was attributable to higher
wholesale volumes, higher propane costs and increased volumes sold.
Gross Profit. Gross profit increased $1.9 million or 14.8% to $14.7
million for the three months ended May 31, 1996, as compared to $12.8 million
for the prior three-month period. This increase is attributable to an increase
in volumes sold, partially offset by a margin decline caused primarily by
pricing pressures exerted by one of the Company's larger competitors.
Operating Expenses. Operating expenses increased $.9 million or 11.7%
to $8.6 million in the three months ended May 31, 1996, as compared to $7.7
million in the three months ended May 31, 1995. The majority of this increase
was attributable to acquisition-related volumes.
- 9 -
Selling, General and Administrative. Selling, general and
administrative ("SG&A") expenses were $1.2 million for the three months ended
May 31, 1996, an increase from $1.1 million for the prior three-month period, as
the Partnership was able to integrate acquisitions without significantly
increasing SG&A expenses.
Depreciation and Amortization. Depreciation and amortization increased
approximately $.6 million or 33.3% to $2.4 million in the three months ended May
31, 1996, as compared to $1.8 million for the three months ended May 31, 1995.
This increase was the result of additional depreciation associated with
acquisitions.
Operating Income. Operating income increased $.4 million or 19.0% to
$2.5 million for the three months ended May 31, 1996, as compared to $2.1
million for the prior three-month period. This increase was due primarily to
increased volumes, partially offset by a decline in margins.
Net Income. The Partnership's net loss was approximately $.3 million
for the three months ended May 31, 1996 and $.5 million for the three months
ended May 31, 1995, as higher operating income for the three months ended May
31, 1996 was partially offset by an increase in interest expense associated with
additional borrowings for acquisitions.
EBITDA. EBITDA increased $1.1 million or 28.2% to $5.0 million in the
three months ended May 31, 1996, as compared to $3.9 million for the prior
three-month period. This increase was due to an increase in volumes attributable
to acquisitions, favorable weather conditions and internal growth, partially
offset by a decrease in gross margins.
Nine Months Ended May 31, 1996 Compared to Nine Months Ended May
31,1995
Volume. During the nine months ended May 31, 1996, the Company sold
100.9 million retail gallons, an increase of 18.1 million retail gallons or
21.9% from the 82.8 million retail gallons sold in the nine months ended May 31,
1995. This increase was primarily attributable both to the effect of
acquisitions made after September 1, 1994 and to weather that was significantly
colder than in the prior period and, to a lesser extent, internal growth.
The Company also sold approximately 94.7 million wholesale gallons in
the nine months ended May 31, 1996, a 26.1 million gallon or 38.0% increase from
the 68.6 million wholesale gallons sold in the prior nine-month period. The
increase in wholesale volumes was largely attributable to M-P Oils Partnership's
increased wholesale volumes in Canada.
Revenues. Total revenues increased $32.0 million or 29.8% to $139.5
million for the nine months ended May 31, 1996, as compared to $107.5 million
for the prior nine-month period. Domestic revenues increased $18.6 million or
20.0% to $111.6 million for the nine months ended May 31, 1996, as compared to
$93.0 million for the nine-month period ended May 31, 1995. Foreign revenues
increased $13.4 million or 92.4% to $27.9 million for the nine months ended May
31, 1996, as compared to $14.5 million for the nine-month period ended May 31,
1995. The increase was attributable to low-margin wholesale revenues, volumes
associated with acquisitions, more favorable weather conditions and internal
growth.
Cost of Sales. Total cost of sales increased $25.0 million or 41.9% to
$85.6 million for the nine months ended May 31, 1996, as compared to $60.6
million for the nine months ended May 31, 1995. Domestic cost of sales increased
$11.8 million or 25.3% to $58.5 million for the nine months ended May 31, 1996,
as compared to $46.7 million for the nine-month period ended May 31, 1995.
Foreign cost of sales increased $13.2 million or 95.0% to $27.1 million for the
nine months ended May 31, 1996, as compared to $13.9 million for the nine-month
period ended May 31, 1995. The increase was attributable to higher wholesale
volumes, higher propane costs and increased volumes sold.
Gross Profit. Gross profit increased $7.0 million or 14.9% to $54.0
million for the nine months ended May 31, 1996, as compared to $47.0 million for
the prior nine-month period. This increase is attributable to an increase in
- 10 -
volumes sold, partially offset by a margin decline caused primarily by pricing
pressures exerted by one of the Partnership's larger competitors.
Operating Expenses. Operating expenses increased $4.2 million or 17.6%
to $28.0 million in the nine months ended May 31, 1996, as compared to $23.8
million in the nine months ended May 31, 1995. The majority of this increase was
attributable to acquisition-related volumes.
Selling, General and Administrative. Selling, general and
administrative ("SG&A") expenses were $2.5 million for the nine months ended May
31, 1996, a decrease from $2.6 million for the prior nine-month period, as the
Partnership was able to integrate acquisitions without increasing SG&A expenses.
Depreciation and Amortization. Depreciation and amortization increased
approximately $.6 million or 9.4% to $7.0 million in the nine months ended May
31, 1996, as compared to $6.4 million for the nine months ended May 31, 1995.
This increase was the result of additional depreciation and amortization
associated with acquisitions partially offset by a reduction in amortization
expense of certain non-compete agreements that expired in the first six months
of fiscal 1995.
Operating Income. Operating income increased $2.2 million or 15.5% to
$16.4 million for the nine months ended May 31, 1996, as compared to $14.2
million for the prior nine-month period. This increase was due primarily to
increased volumes, partially offset by a decline in margins.
Net Income. The Company's net income was approximately $3.9 million for
the nine months ended May 31, 1996, an increase of $.3 million as compared to
$3.6 million for the nine months ended May 31, 1995, as higher operating income
was offset by an increase in interest expense associated with additional
borrowings for acquisitions.
EBITDA. EBITDA increased $3.3 million or 15.9% to $24.0 million in the
nine months ended May 31, 1996, as compared to $20.7 million for the prior
nine-month period. This increase was due to an increase in volumes attributable
to acquisitions, favorable weather conditions and internal growth, partially
offset by a decrease in gross margins.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Cash provided by operating activities during the nine months ended May
31, 1996 was $14.1 million compared with $11.0 million during the nine months
ended May 31, 1995. The cash flows from operations during the nine months ended
May 31, 1996 consisted primarily of net income of $3.9 million and noncash
charges of $10.1 million, principally depreciation and amortization.
Cash used in investing activities during the nine months ended May 31,
1996 included capital expenditures for acquisitions amounting to $8.4 million.
An additional $5.8 million was spent for remaining maintenance needed to sustain
operations at current levels, new customer tanks to support growth of operations
and other miscellaneous capitalized items.
Cash provided by financing activities during the nine months ended May
31, 1996 of $1.3 million primarily reflects net borrowings under the credit
facilities available to the Company.
Financing and Sources of Liquidity
In June 1996, the Partnership entered into a Bank Credit Facility,
which includes a Working Capital Facility, a revolving credit facility providing
for up to $15.0 million of borrowings to be used for working capital and
- 11 -
other general partnership purposes, and an Acquisition Facility, a revolving
credit facility providing for up to $25.0 million of borrowings to be used for
acquisitions and improvements. The Partnership borrowed approximately $6.4
million under the Bank Credit Facility in order to repay amounts borrowed in
connection with its recent acquisitions as well as other bank debt outstanding
at the time of the closing of the offering.
The Partnership uses almost all of its cash provided by operating and
financing activities to fund acquisition, maintenance and growth capital
expenditures. Acquisition capital expenditures, which include expenditures
related to the acquisition of retail propane operations and a portion of the
purchase price allocated to intangibles associated with such acquired
businesses, were $8.4 million for the nine months ended May 31, 1996, as
compared to $26.0 million during the nine months ended May 31, 1995. Subsequent
to May 31, 1996, the Partnership has made additional acquisitions for $6.2
million.
In excess of 80% of the Partnership's EBITDA is attributable to sales
during the six-month peak heating season of October through March. Net working
capital requirements are financed with internally generated cash flow, and
working capital borrowings are not necessary during this portion of its annual
cycle. During the spring it generally becomes necessary to draw upon the working
capital lines to fund operations. By late fall, the working capital borrowings
are at their peak as propane inventories are at their highest levels in
preparation for the coming winter.
The assets utilized in the propane business do not typically require
lengthy manufacturing process time nor complicated, high technology components.
Accordingly, Heritage does not have any significant financial commitments for
capital expenditures. In addition, Heritage has not experienced any significant
increases attributable to inflation in the cost of these assets.
The ability of the Partnership to satisfy its obligations will depend
on its future performance, which will be subject to prevailing economic,
financial, business and weather conditions and other factors, many of which are
beyond its control. Future capital needs of the Partnership are expected to be
provided by future operations, existing cash balances and the Working Capital
Facility. The Partnership may incur additional indebtedness or issue additional
Units in order to fund possible future acquisitions.
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FORM 10-Q
PART II -- OTHER INFORMATION
ITEM 1 - Legal Proceedings
A number of personal injury, property damage and product liability
suits are pending or threatened against the Partnership and its predecessor. In
general, these lawsuits have arisen in the ordinary course of the Partnership or
its predecessor's business since the formation of Heritage and involve claims
for actual damages, and in some cases, punitive damages, arising from the
alleged negligence of the Partnership or its predecessor 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. In addition, the
Partnership's predecessor has been named as a defendant in a suit alleging that
it negligently hired an employee who was convicted of a felony. Although any
litigation is inherently uncertain, based on past experience, the information
currently available to it and the availability of insurance coverage, the
Partnership does not believe that these pending or threatened litigation matters
will have a material adverse effect on its results of operations or its
financial condition.
ITEM 5 - Other Information
Subsequent to the initial public offering on June 25, 1996, the
Partnership has completed the acquisitions of three retail propane companies
located in Kingston, Massachusetts, St. Albans, Vermont and Spring Lake, North
Carolina that in the aggregate will add approximately 5,750,000 gallons and
11,400 customers to the Partnership's operations. Moreover, pursuant to the
partial exercise on July 26, 1996 of the over-allotment option granted to the
underwriters of the initial public offering, the Partnership issued 260,000
additional Common Units in exchange for an additional $4.9 million in net
proceeds to the Partnership. Such proceeds were used to repay existing
indebtedness.
ITEM 6 - Exhibits and Reports of Form 8-K
(a) No exhibits are required to be filed by the registrant.
(b) No reports on Form 8-K have been filed by the registrant for the quarter for
which this report is filed.
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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.
HERITAGE PROPANE PARTNERS, L.P.
By: Heritage Holdings, Inc.,
General Partner
Date: August 9, 1996 By: /s/ H. Michael Krimbill
H. Michael Krimbill
(Chief Accounting Officer and
officer duly authorized to sign
on behalf of the registrant)
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