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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, 1998
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
--------- ---------
At June 30, 1998, the registrant had units outstanding as follows:
Heritage Propane Partners, L.P. 4,770,924 Common Units
3,702,943 Subordinated Units
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FORM 10-Q
HERITAGE PROPANE PARTNERS, L.P.
TABLE OF CONTENTS
Pages
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Heritage Propane Partners, L.P. and Subsidiaries
Consolidated Balance Sheets as of May 31, 1998 and August 31, 1997
1
Consolidated Statements of Operations for the three months and nine
months ended May 31, 1998 and 1997 2
Consolidated Statement of Partners' Capital for the nine months ended
May 31, 1998 3
Consolidated Statements of Cash Flows for the nine months ended May
31, 1998 and 1997 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 10
Item 6. Exhibits and Reports on Form 8-K 11
Signatures
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FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS May 31, August 31,
1998 1997
---- ----
(unaudited)
CURRENT ASSETS:
Cash $ 3,136 $ 2,025
Accounts receivable, net of allowance for doubtful accounts 12,913 11,170
Inventories 9,977 13,361
Prepaid expenses 1,173 1,395
-------- --------
Total current assets 27,199 27,951
PROPERTY, PLANT AND EQUIPMENT, net 135,957 117,962
INVESTMENT IN AFFILIATES 4,966 4,097
INTANGIBLES AND OTHER ASSETS, net 67,836 53,789
-------- --------
Total assets $235,958 $203,799
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Working capital facilities $ 1,200 $ 12,250
Accounts payable 13,546 14,000
Accrued and other current liabilities 9,407 7,376
Current maturities of long-term debt 1,184 800
-------- --------
Total current liabilities 25,337 34,426
LONG-TERM DEBT, less current maturities 176,631 148,453
-------- --------
Total liabilities 201,968 182,879
-------- --------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Common unitholders 22,863 11,295
Subordinated unitholders 10,786 9,417
General Partner 341 208
-------- --------
Total partners' capital 33,990 20,920
-------- --------
Total liabilities and partners' capital $235,958 $203,799
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED BALANCE SHEETS.
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HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT UNIT AND PER UNIT DATA)
(UNAUDITED)
Three Months Ended Nine Months Ended
May 31, May 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
REVENUES:
Retail $ 31,051 $ 26,438 $ 118,866 $ 113,664
Wholesale 7,200 10,898 26,300 49,080
Other 4,034 3,576 14,681 13,551
----------- ----------- ----------- -----------
Total revenues 42,285 40,912 159,847 176,295
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of products sold 21,052 24,453 84,637 113,519
Depreciation and amortization 3,736 2,848 9,990 8,165
Selling, general, and administrative 1,448 1,342 4,007 3,978
Operating expenses 12,060 9,812 35,293 31,323
----------- ----------- ----------- -----------
Total costs and expenses 38,296 38,455 133,927 156,985
----------- ----------- ----------- -----------
OPERATING INCOME 3,989 2,457 25,920 19,310
Gain (loss) on disposal of assets (62) (44) 329 267
Equity in earnings of affiliates 305 111 857 562
Other income (expense) (90) 17 (206) (34)
Interest expense (3,619) (2,961) (10,824) (8,911)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST 523 (420) 16,076 11,194
Minority interest (104) (71) (536) (493)
----------- ----------- ----------- -----------
NET INCOME (LOSS) 419 (491) 15,540 10,701
GENERAL PARTNER'S INTEREST IN NET INCOME (LOSS) 4 (5) 155 108
----------- ----------- ----------- -----------
LIMITED PARTNERS' INTEREST IN NET INCOME (LOSS) $ 415 $ (486) $ 15,385 $ 10,593
=========== =========== =========== ===========
BASIC NET INCOME (LOSS) PER LIMITED PARTNER UNIT $ .05 $.(06) $ 1.86 $ 1.33
=========== =========== =========== ===========
BASIC WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING 8,390,529 7,987,943 8,282,964 7,987,943
=========== =========== =========== ===========
DILUTED NET INCOME (LOSS) LIMITED PARTNER UNIT $ .05 $ (.06) $ 1.85 $ 1.33
=========== =========== =========== ===========
DILUTED WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING 8,423,773 7,987,943 8,314,189 7,987,943
=========== =========== =========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
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HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(in thousands, except unit data)
(unaudited)
Number of Units
-------------------------
Total
General Partners'
Common Subordinated Common Subordinated Partner Capital
-------------------------------------------------------------------------
BALANCE, AUGUST 31, 1997 4,285,000 3,702,943 $ 11,295 $ 9,417 $ 208 $20,920
Unit distribution -- -- (6,806) (5,554) (125) (12,485)
Issuance of restricted Common Units
in connection with acquisitions 418,824 -- 9,760 -- -- 9,760
Capital contribution from General
Partner in connection with
issuance of Common Units -- -- -- -- 100 100
Deferred compensation on Restricted
Units -- -- 41 111 3 155
Net Income -- -- 8,573 6,812 155 15,540
--------- --------- -------- -------- ------ -------
BALANCE, MAY 31, 1998 4,703,824 3,702,943 $ 22,863 $ 10,786 $ 341 $33,990
========= ========= ======== ======== ====== =======
The accompanying notes are an integral part
of these consolidated financial statements.
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HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Nine Months Ended
May 31,
1998 1997
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,540 $ 10,701
Reconciliation of net income to net cash provided
by operating activities-
Depreciation and amortization 9,990 8,165
Provision for losses on accounts receivable 324 492
Gain on disposal of assets (329) (267)
Deferred compensation on restricted units 155 --
Undistributed earnings of affiliates (869) (519)
Minority interest 67 --
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable (797) (775)
Inventories 4,008 2,868
Prepaid expenses 458 (26)
Intangibles and other assets (459) (301)
Accounts payable (1,145) (3,495)
Accrued and other current liabilities 1,554 3,127
--------- --------
Net cash provided by operating activities 28,497 19,970
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash acquired (23,342) (3,941)
Capital expenditures (6,607) (5,566)
Proceeds from asset sales 5,233 1,360
--------- --------
Net cash used in investing activities (24,716) (8,147)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 112,573 45,013
Principal payments on debt (102,858) (45,393)
Unit distribution (12,485) (10,917)
Capital contribution from General Partner 100 --
--------- --------
Net cash used in financing activities (2,670) (11,297)
--------- --------
INCREASE IN CASH 1,111 526
CASH, beginning of period 2,025 1,170
--------- --------
CASH, end of period $ 3,136 $ 1,696
========= ========
NONCASH FINANCING ACTIVITIES:
Notes payable incurred on noncompete agreements $ 5,722 $ 1,294
Issuance of Common Units in connection with
acquisitions $ 9,760 --
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 7,680 $ 6,561
The accompanying notes are an integral part
of these consolidated financial statements.
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HERITAGE PROPANE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except unit data)
1. GENERAL:
The accompanying unaudited consolidated financial statements have been prepared
by Heritage Propane Partners, L.P. (the Partnership), and include the accounts
of the Partnership and its subsidiaries, including Heritage Operating, L.P. (the
"Operating Partnership"), and a majority owned partnership. The partnership
accounts for its 50 percent partnership interest in another propane retailer
under the equity method. All significant intercompany transactions and accounts
have been eliminated in consolidation. The General Partner's 1.0101 percent
interest in the Operating Partnership is accounted for in the consolidated
financial statements as a minority interest. The accompanying financial
statements should be read in conjunction with the Partnership's consolidated
financial statements as of August 31, 1997, and the notes thereto included in
the Partnership's consolidated financial statements included in Form 10-K as
filed with the Securities and Exchange Commission. The accompanying financial
statements include only normal recurring accruals and all adjustments that the
Partnership considers necessary for a fair presentation. Due to the seasonal
nature of the Partnership's business, the results of operations for interim
periods are not necessarily indicative of the results to be expected for a full
year.
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,
1998 1997
-------- --------
(Unaudited)
Fuel $ 5,716 $ 9,468
Appliances, parts and fittings 4,261 3,893
-------- --------
$ 9,977 $ 13,361
======== ========
3. NET INCOME PER LIMITED PARTNER UNIT:
Financial Accounting Standards Board Statement No. 128, "Earnings per Share"
("Statement No. 128"), issued in February 1997 and effective for financial
statements for periods ending after December 15, 1997, establishes and
simplifies standards for computing and presenting earnings per share. Statement
No. 128 requires restatement of all prior-period earnings per share data
presented. Basic net income per limited partner unit is computed by dividing net
income, after considering the General Partner's one percent interest, by the
weighted average number of Common and Subordinated Units outstanding. Diluted
net income per limited partner unit is computed by dividing net income, after
considering the General Partner's one percent interest, by the weighted average
number of Common and Subordinated Units outstanding and the weighted average
number of Restricted Units ("Phantom Units") granted under the Restricted Unit
Plan.
4. CASH DISTRIBUTIONS:
The Minimum Quarterly Distribution (MQD) of $3,993, or $.50 per Common and
Subordinated Unit, was paid on October 15, 1997, to Unitholders of record on
September 30, 1998, and $82 was distributed to the General Partner. On January
14, 1998, the Partnership paid the MQD of $4,176, or $.50 per Common and
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Subordinated Unit, and $85 was distributed to the General Partner, to holders of
record on January 5, 1998. On April 14, 1998, the Partnership paid the MQD of
$4,176, or $.50 per Common and Subordinated Unit, and $85 was distributed to the
General Partner, to holders of record on April 3, 1998. On June 29, 1998, the
Partnership declared the MQD of $4,237, or $.50 per Common and Subordinated
Unit, and $86 to be distributed to the General Partner, payable on July 15,
1998, to holders of record on July 9, 1998.
5. REGISTRATION STATEMENT:
Effective November 19, 1997, the Partnership registered 2,000,000 additional
Common Units which may be issued from time to time by the Partnership by means
of a prospectus delivered in connection with its negotiations for acquisition of
other businesses, properties or securities in business combination transactions.
As of the date of the filing of this Form 10-Q, no Common Units have been issued
with respect to this registration statement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking statements
that are subject to risks and uncertainties. The factors that could cause actual
results to differ materially include those discussed herein. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
generally speak only as of the date of this Report on Form 10-Q. The General
Partner undertakes no obligation to publicly release any revision to these
forward-looking statements to reflect events or circumstances after the date of
the Report on Form 10-Q.
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. The Partnership operates 142 districts in 25 states,
serving over 240,000 customers. The Partnership has made 18 acquisitions since
the initial public offering. The following discussion reflects the results of
operations and operating data for the Partnership for the periods indicated.
Since May 31, 1997, the Partnership has consummated 7 acquisitions
which affect the comparability of prior period financial results as they are,
for the most part included in the three months ended May 31, 1998, yet the
acquisition activity was not included in the comparable period of the prior
year. These acquisitions also affect the comparability of the nine months ended
May 31, 1998, and the same period last fiscal year as there is acquisition
activity from these in the current nine month period and not in the same nine
month period of last year.
Amounts discussed below reflect 100% of the results of operations of
M-P Energy Partnership, formerly named M-P Oils Partnership, a general
partnership in which the Partnership owns a 60% interest. Because M-P Energy
Partnership is primarily engaged in lower-margin wholesale propane distribution,
its contribution to the Partnership's net income and EBITDA is not significant.
The Partnership's results of operations are dependent in a large part
on weather conditions in its service areas. Because a substantial portion of the
propane sold by the Partnership is used in the heating-sensitive residential and
commercial markets, the temperatures realized in the Partnership's areas of
operations have a significant effect on the financial performance of the
Partnership. As a result, volumes of propane sold are highest during the peak
heating season of November through March. Warmer than normal weather during this
peak season will tend to have a negative effect on the volumes of propane sold.
Thus far in fiscal 1998, the Partnership has experienced one of the warmest
heating seasons this century. The weather patterns commonly referred to as El
Nino negatively affected every operating region in the Partnership's operations.
The retail propane business is a "margin-based" business in which gross
profits depend on the excess of sales price over propane supply costs. The
market price of propane is often subject to volatile changes as a result of
supply or other market conditions over which the Partnership has no control.
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Since rapid increases in the wholesale cost of propane, as was seen during the
1996 - 1997 heating season, may not be immediately passed on to retail
customers, such increases could reduce the Partnership's gross profits.
Conversely, declining wholesale prices may not necessarily increase operating
margins.
The Partnership competes in the highly competitive propane industry.
The Partnership competes against other major propane companies as well as local
independent companies in most of its markets. The Partnership must also compete
against other energy sources such as natural gas, oil and electricity.
Three Months Ended May 31, 1998 Compared to the Three Months Ended May
31, 1997.
Volume. During the three months ended May 31, 1998, the Partnership
sold 34.6 million retail gallons, an increase of 8.0 million retail gallons or
30.1% from the 26.6 million retail gallons sold in the three months ended May
31, 1997. This increase was attributable to acquisition related volumes and to a
lesser extent, by internal growth.
The Partnership also sold approximately 20.4 million wholesale gallons
in the three months ended May 31, 1998, a decrease of 8.7 million wholesale
gallons or 29.9% from the 29.1 million wholesale gallons sold in the three
months ended May 31, 1997. The decrease in wholesale volumes was attributable to
a decrease of 6.5 million gallons in the foreign operations of M-P Energy
Partnership and 2.2 million gallons in the U. S wholesale operations, both
primarily due to warmer than normal weather.
Revenues. Total revenues increased $1.4 million or 3.4% to $42.3
million for the three months ended May 31, 1998, as compared to $40.9 million
for the same three month period last year. Domestic retail fuel revenues
increased $4.6 million or 17.4% to $31.1 million for the three months ended May
31, 1998, as compared to $26.5 million for the three months ended May 31, 1997.
Domestic wholesale revenues decreased $.8 million or 36.4% from the $2.2 million
for the three months ended May 31, 1997, to $1.4 million for May 31, 1998.
Foreign wholesale revenues decreased $2.9 million or 33.3% to $5.8 million for
the three months ended May 31, 1998, as compared to $8.7 million for the same
three month period last year. The decrease in foreign wholesale revenues was
attributable to decreased volumes and sales prices whereas the decreased
domestic wholesale fuel revenues resulted from decreased volumes offset somewhat
by increased sales prices. The increase in domestic retail fuel revenues was
attributable to the increase in retail volumes offset by a decrease in the sales
prices for the three months ended May 31, 1998 as compared to the three months
ended May 31, 1997. The three months ended May 31, 1997, was affected by the
higher inventory values coming out of a winter that had the most volatile
product costs in the history of the industry. The Partnership responded to these
high fuel costs with increased selling prices where necessary. During the three
months ended May 31, 1998, selling prices decreased as compared to the three
months ended May 31, 1997.
Cost of Sales. Total cost of sales decreased $3.3 million or 13.5% to
$21.1 million for the three months ended May 31, 1998, as compared to $24.4
million for the three months ended May 31, 1997. Domestic cost of sales
decreased $.4 million or 2.5% to $15.5 million for the three months ended May
31, 1998, as compared to $15.9 million for the comparable three month period
last year. Foreign cost of sales decreased $2.9 million or 34.1% to $5.6 million
for the three months ended May 31, 1998, as compared to $8.5 million for the
same three month period last year. The decrease in foreign cost of sales was
attributable to decreased volumes and a decrease in the cost per gallon of
propane from last year's prices. The decrease in domestic cost of sales was also
due to the decrease in domestic wholesale volumes and the decrease in propane
costs in the three months ended May 31, 1998, as compared to the three month
period ended May 31, 1997, offset by the increase in retail volumes.
Gross Profit. Total gross profit increased $4.7 million or 28.5% to
$21.2 million for the three months ended May 31, 1998, as compared to $16.5
million for the same three month period last year. This increase was
attributable to an increase in retail volumes sold and the reduction of fuel
costs.
Operating Expenses. Operating expenses increased by $2.3 million or
23.5% to $12.1 million in the three months ended May 31, 1998, as compared to
$9.8 million in the three months ended May 31, 1997. This increase was primarily
attributable to costs associated with acquisitions.
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Selling, General and Administrative. Selling, general and
administrative expenses were $1.4 million for the three months ended May 31,
1998, an increase of 7.7% from the $1.3 million for the three months ending May
31, 1997.
Depreciation and Amortization. Depreciation and amortization increased
approximately $.8 million or 27.6% to $3.7 million in the three months ended May
31, 1998, as compared to $2.9 million for the same three month period last year.
This increase was primarily the result of additional depreciation and
amortization associated with acquisitions.
Operating Income. Operating income increased $1.5 million or 60.0% to
$4.0 million for the three months ended May 31, 1998, as compared to $2.5
million for the three months ended May 31, 1997. This increase was due to the
increase in gross profit offset by the acquisition related increase in operating
expenses and depreciation and amortization.
Net Income. Net income increased $.9 million to $.4 million for the
three months ended May 31, 1998, as compared to the net loss of ($.5) million
for the three months ended May 31, 1997. This increase is the result of higher
operating income for the three months ended May 31, 1998, as compared to the
same three month period last year, partially offset by increased interest costs.
EBITDA. Earnings before interest, taxes, depreciation, and amortization
increased $2.5 million or 44.6% to $8.1 million in the three months ended May
31, 1998, as compared to $5.6 million for the same three month period of fiscal
1997. This increase was due to increased gross profit offset by the acquisition
related increase in operating expenses.
Nine Months Ended May 31, 1998 Compared to the Nine Months Ended May
31, 1997.
Volume. During the nine months ended May 31, 1998, the Partnership sold
125.3 million retail gallons, an increase of 18.3 million retail gallons or
17.1% from the 107.0 million retail gallons sold in the nine months ended May
31, 1997. This increase was primarily attributable to acquisition related
volumes offset, to a certain extent, by warmer weather in the Partnership's
areas of operations during the nine months ended May 31, 1998, as compared to
the same period of the prior year.
The Partnership also sold approximately 70.2 million wholesale gallons
in the nine months ended May 31, 1998, a decrease of 27.6 million wholesale
gallons or 28.2% from the 97.8 million wholesale gallons sold in the nine months
ended May 31, 1997. The decrease in wholesale volumes was attributable to a
decline of 18.2 million gallons in the foreign operations of M-P Energy
Partnership and 9.4 million gallons in U. S. wholesale operations, both
primarily due to warmer than normal weather in those areas of operations.
Revenues. Total revenues decreased $16.5 million or 9.4% to $159.8
million for the nine months ended May 31, 1998, as compared to $176.3 million
for the same nine month period last fiscal year. Domestic retail fuel revenues
increased $5.2 million or 4.6% to $118.9 million for the nine months ended May
31, 1998, as compared to $113.7 million for the nine months ended May 31, 1997.
Domestic wholesale revenues decreased $5.9 million or 54.6% from the $10.8
million for the nine months ended May 31, 1997, to $4.9 million for the nine
months ended May 31, 1998. Foreign wholesale revenues accounted for the
remaining decline, showing a decrease of $16.9 million or 44.1% to $21.4 million
for the nine months ended May 31, 1998, as compared to $38.3 million for the
same nine month period last year. The decrease in foreign and domestic wholesale
revenues was attributable to both decreased volumes and sales prices. The
increased domestic retail fuel revenues resulted from increased volumes offset
somewhat by decreased sales prices.
Cost of Sales. Total cost of sales decreased $28.9 million or 25.5% to
$84.6 million for the nine months ended May 31, 1998, as compared to $113.5
million for the nine months ended May 31, 1997. Domestic cost of sales decreased
$11.9 million or 15.6% to $64.2 million for the nine months ended May 31, 1998,
as compared to $76.1 million for the comparable nine month period last year.
Foreign cost of sales decreased $17.0 million or 45.5% to $20.4 million for the
nine months ended May 31, 1998, as compared to $37.4 million for the same nine
month period last year. The decrease in foreign cost of sales was attributable
to decreased volumes and a decrease in the cost per gallon of propane. The
decrease in domestic cost of sales was also due to the decrease in domestic
wholesale volumes and
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the decrease in propane costs in the nine months ended May 31, 1998, as compared
to the same nine month period ended May 31, 1997, partially offset by the
increased volumes of retail fuel.
Gross Profit. Total gross profit increased $12.4 million or 19.7% to
$75.2 million for the nine months ended May 31, 1998, as compared to $62.8
million for the same nine month period last year. This increase was attributable
to an increase in retail volumes sold, the impact of higher margins and an
increase in other propane related gross profit.
Operating Expenses. Operating expenses increased by $4.0 million or
12.8% to $35.3 million in the nine months ended May 31, 1998, as compared to
$31.3 million in the nine months ended May 31, 1997. This increase was primarily
attributable to costs associated with acquisitions.
Selling, General and Administrative. Selling, general and
administrative expenses were $4.0 million for the nine months ended May 31,
1998, unchanged from the prior year.
Depreciation and Amortization. Depreciation and amortization increased
approximately $1.8 million or 22.0% to $10.0 million in the nine months ended
May 31, 1998, as compared to $8.2 million for the same nine month period last
year. This increase was primarily the result of additional depreciation and
amortization associated with acquisitions.
Operating Income. Operating income increased $6.6 million or 34.2% to
$25.9 million for the nine months ended May 31, 1998, as compared to $19.3
million for the nine months ended May 31, 1997. This increase was due to the
increase in gross profit, offset by the acquisition related increase in
operating expenses and depreciation and amortization.
Net Income. Net income increased $4.8 million to $15.5 million for the
nine months ended May 31, 1998, as compared to net income of $10.7 million for
the nine months ended May 31, 1997. This increase is the result of higher
operating income, partially offset by increased interest costs.
EBITDA. Earnings before interest, taxes, depreciation, and amortization
was $36.8 million for the nine months ended May 31, 1998 as compared to $28.3
million for the same nine month period for fiscal 1997, representing a 30.0%
increase. This increase was due to increased gross profit offset by the
acquisition related increase in operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Cash provided by operating activities during the nine months ended May
31, 1998, was $28.5 million compared to $20.0 million during the nine months
ended May 31, 1997. The cash flows from operations during the nine months ended
May 31, 1998, consisted primarily of net income of $15.5 million and noncash
charges of $9.3 million, principally depreciation and amortization.
Cash used in investing activities during the nine months ended May 31,
1998, included capital expenditures for acquisitions amounting to $23.3 million,
net of cash received. The Partnership spent an additional $6.6 million for both
maintenance capital needed to sustain operations at current levels, as well as
new customer tanks to support growth of operations and other miscellaneous
capitalized items.
Cash used in financing activities during the nine months ended May 31,
1998, of $2.7 million is the net of $9.7 million of debt incurred, reduced by
the full Minimum Quarterly Distribution to unitholders of $12.5 million.
Financing and Sources of Liquidity
The Partnership has 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
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other general partnership purposes, and an Acquisition Facility, a revolving
credit facility providing for up to $35.0 million of borrowings to be used for
acquisitions and improvements.
On November 19, 1997 the Partnership entered into a Note Purchase
Agreement that provides for the issuance of up to $100 million of senior secured
promissory notes (the "Notes") if certain conditions are met. An initial
placement of $32 million of Notes at an average interest rate of 7.23% with an
average 10 year maturity was completed at the closing of the Note Purchase
Agreement. An additional placement of $15 million of Notes at an average
interest rate of 6.59% with an average 12 year maturity was completed in March
1998. The proceeds of the Notes were used to refinance amounts outstanding under
the Acquisition Facility. As of June 30, 1998, the Acquisition Facility had
$35.0 million available to fund future acquisitions and the Working Capital
Facility had $9.1 million available for borrowings.
Effective November 19, 1997, the Partnership registered 2,000,000
additional Common Units which may be issued from time to time by the Partnership
by means of a prospectus delivered in connection with its negotiations for
acquisition of other businesses, properties or securities in business
combination transactions. As of the date of the filing of this Form 10-Q, no
Common Units have been issued with respect to this registration statement.
The Partnership uses its cash provided by operating and financing
activities to provide distributions to unitholders and to fund acquisition,
maintenance and growth capital expenditures. Acquisition capital expenditures,
which include expenditures related to the acquisition of retail propane
operations, were $23.3 million for the nine months ended May 31, 1998, as
compared to $3.9 million during the nine months ended May 31, 1997. In addition
to the $23.3 million of cash expended for acquisitions during the nine months
ended May 31, 1998, $9.8 million of Common Units, restricted as to
transferability of the Units, were issued in connection with acquisitions.
The assets utilized in the propane business do not typically require
lengthy manufacturing process time nor complicated, high technology components.
Accordingly, the Partnership does not have any significant financial commitments
for capital expenditures. In addition, the Partnership 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 operating 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 to fund possible future acquisitions.
YEAR 2000 MATTERS
The Partnership has a number of information system improvement initiatives under
way that will require increased expenditures during the next several years.
These initiatives include the modification of certain computer software and
hardware systems to be Year 2000 compliant. Although the final estimates to
modify current systems have not yet been determined, the Partnership does not
expect that such costs, which will be expensed when incurred, will have a
material effect on the Partnership's results of operations.
FORM 10-Q
PART II $ OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(c) During the three months ended May 31, 1998, the Partnership issued
54,999 Common Units ("Units") to Heritage Holdings, Inc., the
Partnership's General Partner. These Units were issued in connection
with the assumption of certain liabilities by the General Partner from
the Partnership's acquisitions of certain assets of other propane
companies. Subsequent to May 31, 1998, the Partnership issued an
additional 67,100 Units to Heritage Holdings, Inc., also in relation to
the assumption of certain liabilities by the General Partner from the
Partnership's
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acquisitions of certain assets of other propane companies. These
Common Units were not registered with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, by virtue of
an exemption under Section 4(2) thereof. These Common Units carry a
restrictive legend with regard to transfer of the Units.
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
(a) The following exhibits are filed as part of this Report. Exhibits
required by Item 601 of Regulation S-K, but which are not listed below,
are not applicable.
Exhibit
Number Description
------ -----------
(1) 3.1 Agreement of Limited Partnership of Heritage Propane Partners, L.P.
(1) 10.1 Form of Bank Credit Facility
(3) 10.1.1 Amendment of Bank Credit Facility dated as of July 9, 1996
(4) 10.1.2 Amendment of Bank Credit Facility dated as of February 28, 1997
(5) 10.1.3 Third Amendment to Credit Agreement dated as of September 30,1997
(6) 10.1.4 Fourth Amendment to Credit Agreement dated as of November 18, 1997
(1) 10.2 Form of Note Purchase Agreement
(3) 10.2.1 Amendment of Note Purchase Agreement dated as of July 25, 1996
(4) 10.2.2 Amendment of Note Purchase Agreement dated as of March 11, 1997
(1) 10.3 Form of Contribution, Conveyance and Assumption Agreement among Heritage
Holdings, Inc., Heritage Holdings Partners, L.P. and Heritage Operating L.P.
(1) 10.4 1989 Stock Option Plan
(1) 10.5 1995 Stock Option Plan
(1) 10.6 Restricted Unit Plan
(4) 10.6.1 Amendment of Restricted Unit Plan dated as of October 17, 1996
(2) 10.7 Employment Agreement for James E. Bertelsmeyer
(1) 10.8 Employment Agreement for R.C. Mills
(1) 10.9 Employment Agreement for G.A. Darr
(1) 10.10 Employment Agreement for H. Michael Krimbill
(6) 10.16 Note Purchase Agreement, dated as of November 19, 1997
27.1 Financial Data Schedule - Filed with EDGAR version only
- - - - -------------------
(1) Incorporated by reference to the same numbered Exhibit to Registrant's
Registration Statement on Form S-3, File No. 333-4018, filed with the
Commission on June 21,1996.
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(2) Incorporated by reference to Exhibit 10.11 to Registrant's Registration
Statement on Form S-1, File No. 333-4018, filed with the Commission on
June 21, 1996.
(3) Incorporated by reference to the same numbered Exhibit to Registrant's
Form 10-Q for the quarter ended November 30, 1996.
(4) Incorporated by reference to the same numbered Exhibit to Registrant's
Form 10-Q for the quarter ended February 28, 1997.
(5) Incorporated by reference to the same numbered Exhibit to Registrant's
Form 10-K for the year ended August 31, 1997.
(6) Incorporated by reference to the same numbered Exhibit to Registrant's
Form 10-Q for the quarter ended November 30, 1997.
- - - - ---------------------
(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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SIGNATURE
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: July 9, 1998 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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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- - - - ----------- -----------
27 Financial Data Schedule
5
1,000
3-MOS 6-MOS
AUG-31-1998 AUG-31-1998
MAR-01-1998 SEP-01-1997
MAY-31-1998 MAY-31-1998
3,136 3,136
0 0
13,349 13,349
436 436
9,977 9,977
27,199 27,199
168,875 168,875
32,918 32,918
235,958 235,958
25,337 25,337
176,631 176,631
0 0
0 0
0 0
33,990 33,990
235,958 235,958
42,285 159,847
42,285 159,847
21,052 84,637
38,296 133,927
(153) (980)
0 0
3,619 10,824
523 16,076
0 0
419 15,540
0 0
0 0
0 0
419 15,540
.05 1.86
.05 1.85
