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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 FEBRUARY 28, 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 March 31, 1998, the registrant had units outstanding as follows:
Heritage Propane Partners, L.P. 4,678,629 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 February 28, 1998 and August 31, 1997 1
Consolidated Statements of Operations for the three months and six
months ended February 28, 1998 and 1997 2
Consolidated Statement of Partners' Capital for the six months ended
February 28, 1998 3
Consolidated Statements of Cash Flows for the six months ended
February 28, 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 February 28, August 31,
1998 1997
-------- --------
(unaudited)
CURRENT ASSETS:
Cash $ 2,798 $ 2,025
Accounts receivable, net of allowance for doubtful accounts 22,022 11,170
Inventories 7,649 13,361
Prepaid expenses 1,270 1,395
-------- --------
Total current assets 33,739 27,951
PROPERTY, PLANT AND EQUIPMENT, net 131,790 117,962
INVESTMENT IN AFFILIATES 4,679 4,097
INTANGIBLES AND OTHER ASSETS, net 66,063 53,789
-------- --------
Total assets $236,271 $203,799
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Working capital facilities $ 3,400 $ 12,250
Accounts payable 15,247 14,000
Accrued and other current liabilities 7,544 7,376
Current maturities of long-term debt 2,276 800
-------- --------
Total current liabilities 28,467 34,426
LONG-TERM DEBT, less current maturities 171,179 148,453
-------- --------
Total liabilities 199,646 182,879
-------- --------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Common unit holders 23,831 11,295
Subordinated unit holders 12,426 9,417
General Partner 368 208
-------- --------
Total partners' capital 36,625 20,920
-------- --------
Total liabilities and partners' capital $236,271 $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 DATA)
(UNAUDITED)
Three Months Ended Six Months Ended
February 28, February 28,
1998 1997 1998 1997
----------- ----------- ----------- -----------
REVENUES:
Retail $ 56,776 $ 57,239 $ 87,815 $ 87,226
Wholesale 9,704 22,701 19,100 38,182
Other 5,176 4,629 10,647 9,975
----------- ----------- ----------- -----------
Total revenues 71,656 84,569 117,562 135,383
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of products sold 36,761 54,584 63,585 89,066
Depreciation and amortization 3,198 2,706 6,254 5,317
Selling, general, and administrative 1,284 1,385 2,559 2,636
Operating expenses 12,481 11,903 23,233 21,511
----------- ----------- ----------- -----------
Total costs and expenses 53,724 70,578 95,631 118,530
----------- ----------- ----------- -----------
OPERATING INCOME 17,932 13,991 21,931 16,853
Gain on disposal of assets 320 179 391 311
Equity in earnings of affiliates 493 411 552 451
Other expense (98) (21) (116) (51)
Interest expense (3,708) (3,004) (7,205) (5,950)
----------- ----------- ----------- -----------
INCOME BEFORE MINORITY INTEREST 14,939 11,556 15,553 11,614
Minority interest (312) (269) (432) (422)
----------- ----------- ----------- -----------
NET INCOME 14,627 11,287 15,121 11,192
GENERAL PARTNER'S INTEREST IN NET INCOME 146 113 151 112
----------- ----------- ----------- -----------
LIMITED PARTNERS' INTEREST IN NET INCOME $ 14,481 $ 11,174 $ 14,970 $ 11,080
=========== =========== =========== ===========
BASIC NET INCOME PER LIMITED PARTNER UNIT $ 1.74 $ 1.40 $ 1.82 $ 1.39
=========== =========== =========== ===========
BASIC WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING
8,335,055 7,987,943 8,228,289 7,987,943
=========== =========== =========== ===========
DILUTED NET INCOME PER LIMITED PARTNER UNIT $ 1.73 $ 1.40 $ 1.81 $ 1.38
=========== =========== =========== ===========
DILUTED WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING
8,365,255 8,005,943 8,258,489 8,005,943
=========== =========== =========== ===========
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 -- -- (4,467) (3,703) (82) (8,252)
Issuance of restricted Common Units
in connection with acquisitions 363,825 -- 8,645 -- -- 8,645
Capital contribution from General
Partner in connection with
issuance of Common Units -- -- -- -- 88 88
Deferred compensation on Restricted
Units -- -- 12 88 3 103
Net Income -- -- 8,346 6,624 151 15,121
---------- ---------- -------- -------- ---- -------
BALANCE, February 28, 1998 4,648,825 3,702,943 $ 23,831 $ 12,426 $368 $36,625
========== ========== ======== ======== ==== =======
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)
Six Months Ended
February 28,
1998 1997
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,121 $ 11,192
Reconciliation of net income to net cash provided
by operating activities-
Depreciation and amortization 6,254 5,317
Provision for losses on accounts receivable 257 339
Gain on disposal of assets (391) (311)
Deferred compensation on restricted units 103 --
Undistributed earnings of affiliates (582) (352)
Minority interest 1 103
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable (10,761) (14,640)
Inventories 6,276 4,622
Prepaid expenses 195 (229)
Intangibles and other assets 81 (275)
Accounts payable 556 3,442
Accrued and other current liabilities (76) 564
-------- --------
Net cash provided by operating activities 17,034 9,772
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash acquired (16,934) (1,489)
Capital expenditures (5,203) (4,268)
Proceeds from assets sales 5,144 1,327
-------- --------
Net cash used in investing activities (19,827) (4,430)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 92,372 34,099
Principal payments on debt (83,476) (31,114)
Unit distribution (8,252) (6,883)
Capital contribution from General Partner 88 --
-------- --------
Net cash provided by (used in) financing activities 732 (3,898)
-------- --------
INCREASE IN CASH 773 1,444
CASH, beginning of period 2,025 1,170
-------- --------
CASH, end of period $ 2,798 $ 2,614
======== ========
NONCASH FINANCING ACTIVITIES:
Notes payable incurred on noncompete agreements $ 4,380 $ 182
Issuance of Common Units in connection with
acquisitions (restricted in regard to
transferability) $ 8,645 --
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 6,354 $ 6,225
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:
February 28, August 31,
1998 1997
------- -------
(Unaudited)
Fuel $ 3,733 $ 9,468
Appliances, parts and fittings 3,916 3,893
------- -------
$ 7,649 $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 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, 1997, and $82 was distributed to the General Partner. On January
14, 1998, the Partnership paid the MQD of $4,176, or $.50 per
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Common and Subordinated Unit, and $85 was distributed to the General Partner, to
holders of record on January 5, 1998. On March 24, 1998, the Partnership
declared the MQD of $4,176, or $.50 per Common and Subordinated Unit, and $85 to
be distributed to the General Partner, for the period December 1, 1997 to
February 28, 1998, payable April 14, 1998, to holders of record on April 3,
1998.
5. RECLASSIFICATIONS:
Certain prior period amounts have been reclassified to conform with the current
period presentations. These reclassifications have no impact on net income.
6. 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 138 districts in 25 states,
serving over 225,000 customers. The Partnership has made 17 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 February 28, 1997, the Partnership has consummated 9 acquisitions
which affect the comparability of prior period financial results as they are,
for the most part included in the three months and six months ended February 28,
1998, yet the acquisition activity was not included in the comparable periods of
the prior 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 effected every operating region in the Partnership's operations.
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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.
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.
Three Months Ended February 28, 1998 Compared to Three Months Ended
February 28, 1997.
Volume. During the three months ended February 28, 1998, the
Partnership sold 57.9 million retail gallons, an increase of 9.0 million retail
gallons or 18.3% from the 48.9 million retail gallons sold in the three months
ended February 28, 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 three months ended February 28,
1998, as compared to the same period of the prior year.
The Partnership also sold approximately 26.9 million wholesale gallons
in the three months ended February 28, 1998, a decrease of 11.8 million
wholesale gallons or 30.5% from the 38.7 million wholesale gallons sold in the
three months ended February 28, 1997. The decrease in wholesale volumes was
attributable to a decrease of 7.0 million gallons in the foreign operations of
M-P Energy Partnership and 4.8 million gallons in the U. S wholesale operations,
both primarily due to warmer than normal weather and eliminating lower margin
wholesale volumes.
Revenues. Total revenues decreased $12.9 million or 15.2% to $71.7
million for the three months ended February 28, 1998, as compared to $84.6
million for the same three month period last year. Domestic retail fuel revenues
decreased $.4 million or 0.7% to $56.8 million for the three months ended
February 28, 1998, as compared to $57.2 million for the three months ended
February 28, 1997. Domestic wholesale revenues decreased $3.6 million or 62.1%
from the $5.8 million for the three months ended February 28, 1997, to $2.2
million for February 28, 1998. Foreign wholesale revenues decreased $9.5 million
or 55.9% to $7.5 million for the three months ended February 28 1998, as
compared to $17.0 million for the same three month period last year. The
decrease in foreign and domestic wholesale revenues was attributable to both
decreased volumes and sales prices whereas the decreased domestic retail fuel
revenues resulted from decreased sales prices, partially offset by increased
volumes. The three months ending February 28, 1997, saw some of the most
volatile product costs in the industry in which the Partnership needed to
respond to by increased selling prices where possible.
Cost of Sales. Total cost of sales decreased $17.8 million or 32.6% to
$36.8 million for the three months ended February 28, 1998, as compared to $54.6
million for the three months ended February 28, 1997. Domestic cost of sales
decreased $8.2 million or 21.6% to $29.7 million for the three months ended
February 28, 1998, as compared to $37.9 million for the comparable three month
period last year. Foreign cost of sales decreased $9.6 million or 57.5% to $7.1
million for the three months ended February 28, 1998, as compared to $16.7
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 February 28, 1998 as
compared to the three month period ended February 28, 1997.
Gross Profit. Total gross profit increased $4.9 million or 16.4% to
$34.9 million for the three months ended February 28, 1998, as compared to $30.0
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 slightly by $.6
million or 4.9% to $12.5 million in the three months ended February 28, 1998, as
compared to $11.9 million in the three months ended February 28, 1997. This
increase was primarily attributable to costs associated with acquisitions such
as salaries, employee benefits and plant operations.
Selling, General and Administrative. Selling, general and
administrative expenses were $1.3 million for the three months ended February
28, 1998, a decrease of 7.1% from the $1.4 million for the three months ending
February 28, 1997.
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Depreciation and Amortization. Depreciation and amortization increased
approximately $.5 million or 18.5% to $3.2 million in the three months ended
February 28, 1998, as compared to $2.7 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 $3.9 million or 28.2% to
$17.9 million for the three months ended February 28, 1998, as compared to $14.0
million for the three months ended February 28, 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 $3.3 million to $14.6 million for the
three months ended February 28, 1998, as compared to the net income of $11.3
million for the three months ended February 28, 1997. This increase is the
result of higher operating income for the three months ended February 28, 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 $4.5 million or 26.3% to $21.6 million in the three months ended
February 28, 1998, as compared to $17.1 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.
Six Months Ended February 28, 1998 Compared to Six Months Ended
February 28, 1997.
Volume. During the six months ended February 28, 1998, the Partnership
sold 90.7 million retail gallons, an increase of 10.3 million retail gallons or
12.9% from the 80.4 million retail gallons sold in the six months ended February
28, 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 six months ended February 28, 1998, as compared
to the same period of the prior year.
The Partnership also sold approximately 49.7 million wholesale gallons
in the six months ended February 28, 1998, a decrease of 19.0 million wholesale
gallons or 27.7% from the 68.7 million wholesale gallons sold in the six months
ended February 28, 1997. The decrease in wholesale volumes was attributable to
the decreased wholesale volumes of 11.7 million gallons in the foreign
operations of M-P Energy Partnership and 7.3 million gallons in U. S. wholesale
operations, both primarily due to warmer than normal weather in those areas of
operations and eliminating lower margin wholesale volumes.
Revenues. Total revenues decreased $17.8 million or 13.1% to $117.6
million for the six months ended February 28, 1998, as compared to $135.4
million for the same six month period last fiscal year. Domestic retail fuel
revenues increased $.6 million or 0.7% to $87.8 million for the six months ended
February 28, 1998, as compared to $87.2 million for the six months ended
February 28, 1997. Domestic wholesale revenues decreased $5.1 million or 59.3%
from the $8.6 million for the six months ended February 28, 1997, to $3.5
million for February 28, 1998. Foreign wholesale revenues made up the majority
of the revenue decrease showing a decrease of $14.0 million or 47.3% to $15.6
million for the six months ended February 28, 1998, as compared to $29.6 million
for the same six 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 $25.5 million or 28.6% to
$63.6 million for the six months ended February 28, 1998, as compared to $89.1
million for the six months ended February 28, 1997. Domestic cost of sales
decreased $11.4 million or 18.9% to $48.8 million for the six months ended
February 28, 1998, as compared to $60.2 million for the comparable six month
period last year. Foreign cost of sales decreased $14.1 million or 48.8% to
$14.8 million for the six months ended February 28, 1998, as compared to $28.9
million for the same six 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 the decrease in propane costs in the
six months ended February 28, 1998, as compared to the same six month period
ended February 28, 1997.
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Gross Profit. Total gross profit increased $7.7 million or 16.5% to
$54.0 million for the six months ended February 28, 1998, as compared to $46.3
million for the same six month period last year. This increase was attributable
to an increase in retail volumes sold, the impact of higher domestic margins and
an increase in other gross profit.
Operating Expenses. Operating expenses increased by $1.7 million or
7.9% to $23.2 million in the six months ended February 28, 1998, as compared to
$21.5 million in the six months ended February 28, 1997. This increase was
primarily attributable to costs associated with acquisitions such as salaries,
employee benefits and plant operations.
Selling, General and Administrative. Selling, general and
administrative expenses were $2.6 million for the three months ended February
28, 1998, a slight decrease of 2.9% from the six months ended February 28, 1997.
Depreciation and Amortization. Depreciation and amortization increased
approximately $1.0 million or 18.9% to $6.3 million in the six months ended
February 28, 1998, as compared to $5.3 million for the same six month period
last year. This increase was primarily the result of additional depreciation and
amortization associated with acquisitions.
Operating Income. Operating income increased $5.0 million or 29.6% to
$21.9 million for the six months ended February 28, 1998, as compared to $16.9
million for the six months ended February 28, 1997. This increase was due to the
increase in gross profit due to higher domestic fuel margins and increased
retail volumes, offset by the acquisition related increase in operating expenses
and the increased depreciation and amortization
Net Income. Net income increased $3.9 million to $15.1 million for the
six months ended February 28, 1998, as compared to the net income of $11.2
million for the six months ended February 28, 1997. This increase is the result
of higher operating income for the six months ended February 28, 1998 as
compared to the same six month period last year, partially offset by increased
interest costs of $1.3 million.
EBITDA. Earnings before interest, taxes, depreciation, and amortization
was $28.7 million for the six months ended February 28, 1998 as compared to
$22.6 million for the same six month period for fiscal 1997, representing a
27.1% 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 six months ended
February 28, 1998, was $17.0 million compared to $9.8 million during the six
months ended February 28, 1997. The cash flows from operations during the six
months ended February 28, 1998, consisted primarily of net income of $15.1
million and noncash charges of $5.6 million, principally depreciation and
amortization. The six months ended February 28, 1997 had substantial increases
in accounts receivable and accounts payable due to the increased foreign volumes
of M-P Energy Partnership during the first two quarters of fiscal 1997. Foreign
sales prices decreased and volumes were down 11.7 million gallons for the six
months ended February 28, 1998 as compared to the same six month period last
year resulting in lower accounts receivable and accounts payable levels for M-P
Energy Partnership.
Cash used in investing activities during the six months ended February
28, 1998 included capital expenditures for acquisitions amounting to $16.9
million, net of cash received. The Partnership spent an additional $5.2 million
for 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 provided by financing activities during the six months ended
February 28, 1998 of $.7 million is the net of $8.9 million of debt incurred,
reduced by the full Minimum Quarterly Distribution to unit holders of $8.2
million.
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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 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 8 year maturity was completed subsequent
to February 28, 1998. The proceeds of the of Notes were used to refinance
amounts outstanding under the Acquisition Facility. As of March 31, 1998, the
Acquisition Facility had $35.0 million available to fund future acquisitions and
the Working Capital Facility had $15.0 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 unit holders and to fund acquisition,
maintenance and growth capital expenditures. Acquisition capital expenditures,
which include expenditures related to the acquisition of retail propane
operations, were $16.9 million for the six months ended February 28, 1998, as
compared to $1.5 million during the six months ended February 28, 1997. In
addition to the $16.9 million of cash expended for acquisitions during the six
months ended February 28, 1998, $8.6 million of Common Units, restricted as to
transferability of the Units, were issued in connection with acquiring new
companies.
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 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 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) On March 13, 1998, the Partnership issued 29,804 Common Units ("Units")
to Heritage Holdings, Inc., the Partnership's General Partner. These
Units were issued in connection with the
10
13
assumption of certain liabilities by the General Partner from the
Partnership's prior acquisition of certain assets of another propane
company. 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
11
14
- - ----------------
(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.
(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.
12
15
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: April 13, 1998 By: /s/ H. Michael Krimbill
----------------------------------
H. Michael Krimbill
(Chief Accounting Officer and
officer duly authorized to sign
on behalf of the registrant)
13
16
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.
(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.
5
1,000
3-MOS 6-MOS
AUG-31-1998 AUG-31-1998
DEC-01-1997 SEP-01-1997
FEB-28-1998 FEB-28-1998
2,798 2,798
0 0
22,458 22,458
436 436
7,649 7,649
33,739 33,739
162,423 162,423
30,633 30,633
236,271 236,271
28,467 28,467
171,179 171,179
0 0
0 0
36,625 36,625
0 0
236,271 236,271
71,656 117,562
71,656 117,562
36,761 63,585
53,724 95,631
(715) (827)
0 0
3,708 7,205
14,939 15,553
0 0
14,627 15,121
0 0
0 0
0 0
14,627 15,121
1.74 1.82
1.73 1.81
