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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|/x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2001

OR

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ----------------------------------------------------------------------------------------

Commission File Number 1-2499

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CORNERSTONE PROPANE PARTNERS, L.P.(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

77-0439862(I.R.S. Employer Identification Number)432 Westridge Drive, Watsonville, California(Address of principal executive offices)

95076(Zip Code)


Registrant's telephone number, including area code:(831) 724-1921

NONE(Former name, former address and former fiscal year, if changed since last report)

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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 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 / /

Indicate
the number of shares outstanding of each of the issuer's classes of common stock as of May 14, 2001: 17,260,435Common Units

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CORNERSTONE PROPANE PARTNERS, L.P.

TABLE OF CONTENTS

|                                                                                                                            |  | PAGE
|--------------------------------------------------------------------------------------------------------------------------- |  | ----
|Part I. Financial Information                                                                                               |  |     
|Item 1                                                                                                                      |  |     
|Financial Statements                                                                                                        |  |     
|Cornerstone Propane Partners, L.P.                                                                                          |  |     
|Consolidated Balance Sheets as of March 31, 2001 and 2000, and June 30, 2000                                                |  | 1   
|Consolidated Statements of Operations for the Three Months and Nine Months ended March 31, 2001 and 2000                    |  | 2   
|Consolidated Statements of Partners' Capital for the Nine Months Ended March 31, 2001 and 2000                              |  | 3   
|Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2001 and 2000                                     |  | 4   
|Notes to Consolidated Financial Statements                                                                                  |  | 5   
|Item 2                                                                                                                      |  |     
|Management's Discussion and Analysis of Financial Condition and Results of Operations of Cornerstone Propane Partners, L.P. |  | 10  
|Item 3                                                                                                                      |  |     
|Quantitative and Qualitative Disclosures About Market Risks                                                                 |  | 15  
|Part II. Other Information                                                                                                  |  |     
|Item 6                                                                                                                      |  |     
|Exhibits and Reports on Form 8-K                                                                                            |  | 15  
|Signature                                                                                                                   |  | 16  

ii

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CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY        CONSOLIDATED BALANCE SHEETS  (Dollars in thousands)  (Unaudited)

|                                     |                                        | March 31,                               |         |         |          
|------------------------------------ | -------------------------------------- | --------------------------------------- | ------- | ------- | ---------
|
|
|ASSETS                               |                                       
|Current assets:                      |                                        |                                         |         |         |          
|                                     | Cash and cash equivalents              |                                         | $       | 24,895  |          
|                                     | Trade receivables, net                 |                                         |         | 254,724 |          
|                                     | Inventories                            |                                         |         | 37,894  |          
|                                     | Prepaid expenses                       |                                         |         | 1,590   |          
|                                     | Other current assets                   |                                         |         | 1,973   |          
|                                     | Due from related party                 |                                         |         | 9,730   |          
|                                     |                                        |                                         |         |         |          
|                                     |                                        | Total current assets                    |         |         | 330,806  
|Property, plant, and equipment, net  |                                        |                                         | 332,957 |         |          
|Goodwill, net                        |                                        |                                         | 317,111 |         |          
|Other intangibles, net               |                                        |                                         | 36,894  |         |          
|Other assets                         |                                        |                                         | 8,303   |         |          
|                                     |                                        |                                         |         |         |          
|                                     |                                        | Total assets                            |         | $       | 1,026,071
|                                     |                                        |                                         |         |         |          
|LIABILITIES AND PARTNERS' CAPITAL    |                                       
|Current liabilities:                 |                                        |                                         |         |         |          
|                                     | Current portion of long-term debt      |                                         | $       | 7,053   |          
|                                     | Trade accounts payable                 |                                         |         | 232,781 |          
|                                     | Accrued expenses                       |                                         |         | 20,735  |          
|                                     |                                        |                                         |         |         |          
|                                     |                                        | Total current liabilities               |         |         | 260,569  
|Long-term debt, less current portion |                                        |                                         | 497,914 |         |          
|Due to related party                 |                                        |                                         |        |         |          
|Other noncurrent liabilities         |                                        |                                         | 9,340   |         |          
|                                     |                                        |                                         |         |         |          
|                                     |                                        | Total liabilities                       |         |         | 767,823  
|                                     |                                        |                                         |         |         |          
|Partners' capital                    |                                        |                                         |         |         |          
|                                     | Common Unitholders                     |                                         |         | 165,605 |          
|                                     | Subordinated Unitholders               |                                         |         | 88,775  |          
|                                     | General partners                       |                                         |         | 5,299   |          
|                                     | Accumulated other comprehensive income |                                         |         | (1,431  | )        
|                                     |                                        |                                         |         |         |          
|                                     |                                        | Total partners' capital                 |         |         | 258,248  
|                                     |                                        |                                         |         |         |          
|                                     |                                        | Total liabilities and partners' capital |         | $       | 1,026,071
|                                     |                                        |                                         |         |         |          

The
accompanying notes are an integral part of these financial statements.

1

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CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY        CONSOLIDATED STATEMENTS OF OPERATIONS  (Dollars in thousands)  (Unaudited)

|                                                         |                                                                              | For the three months ended March 31, |         | For the nine months ended March 31,
|-------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------ | ------- | -----------------------------------
|
|Revenues                                                 |                                                                              | $                                    | 864,544 |                                    
|Cost of sales                                            |                                                                              |                                      | 781,888 |                                    
|                                                         |                                                                              |                                      |         |                                    
|                                                         | Gross profit                                                                 |                                      |         | 82,656                             
|                                                         |                                                                              |                                      |         |                                    
|Expenses:                                                |                                                                              |                                      |         |                                    
|                                                         | Operating, general, and administrative                                       |                                      |         | 40,851                             
|                                                         | Depreciation and amortization                                                |                                      |         | 12,318                             
|                                                         | Non-recurring charge                                                         |                                      |         |                                   
|                                                         |                                                                              |                                      |         |                                    
|                                                         |                                                                              |                                      |         | 53,169                             
|                                                         |                                                                              |                                      |         |                                    
|                                                         | Operating income                                                             |                                      |         | 29,487                             
|Increase in fair value of derivatives                    |                                                                              |                                      | 101     |                                    
|Interest expense                                         |                                                                              |                                      | 10,464  |                                    
|                                                         |                                                                              |                                      |         |                                    
|                                                         | Income before provision for income taxes                                     |                                      |         | 19,124                             
|Provision for income taxes                               |                                                                              |                                      | 472     |                                    
|                                                         |                                                                              |                                      |         |                                    
|                                                         | Income before cumulative effect of adoption of accounting principle          |                                      |         | 18,652                             
|Cumulative effect of adoption of accounting principle    |                                                                              |                                      |        |                                    
|                                                         |                                                                              |                                      |         |                                    
|                                                         | Net income                                                                   |                                      | $       | 18,652                             
|                                                         |                                                                              |                                      |         |                                    
|                                                         | General partners' interest in net income                                     |                                      | $       | 373                                
|                                                         |                                                                              |                                      |         |                                    
|                                                         | Limited partners' interest in net income                                     |                                      | $       | 18,279                             
|                                                         |                                                                              |                                      |         |                                    
|                                                         | Income per unit before cumulative effect of adoption of accounting principle |                                      | $       | 0.77                               
|                                                         | Cumulative effect per unit of adoption of accounting principle               |                                      |         |                                   
|                                                         |                                                                              |                                      |         |                                    
|                                                         | Net income per unit                                                          |                                      | $       | 0.77                               
|                                                         |                                                                              |                                      |         |                                    
|Weighted average number of units outstanding (thousands) |                                                                              |                                      | 23,773  |                                    
|                                                         |                                                                              |                                      |         |                                    

The
accompanying notes are an integral part of these financial statements.

2

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CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY        CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL  (Dollars in thousands)  (Unaudited)

|                          |                                                             | Thousands of Units       |     |       |   |   |         |         |        |        |   |       |      
|------------------------- | ----------------------------------------------------------- | ------------------------ | --- | ----- | - | - | ------- | ------- | ------ | ------ | - | ----- | -----
|
|
|Balance at June 30, 2000  |                                                             | 16,822                   |     | 6,598 |   | $ | 176,961 |         | $      | 86,163 |   | $     | 5,546
|                          | Comprehensive net income:                                   |                          |     |       |   |   |         |         |        |        |   |       |      
|                          |                                                             | Net income               |     |      |   |  |         |         | 6,989  |        |   | 2,612 |      
|                          |                                                             | Other comprehensive loss |     |      |   |  |         |         |       |        |   |      |      
|                          |                                                             |                          |     |       |   |   |         |         |        |        |   |       |      
|                          |                                                             | Net comprehensive income |     |      |   |  |         |         | 6,989  |        |   | 2,612 |      
|                          | Issuance of Common Units and General Partners' contribution |                          | 59  |       |  |   |         | 955     |        |        |  |       |      
|                          | Issuance of warrants and conversion into common units       |                          | 379 |       |  |   |         | 5,511   |        |        |  |       |      
|                          | Issuance of warrants in payment of fees                     |                          |    |       |  |   |         | 2,713   |        |        |  |       |      
|                          | Quarterly distributions                                     |                          |    |       |  |   |         | (27,524 | )      |        |  |       |      
|                          |                                                             |                          |     |       |   |   |         |         |        |        |   |       |      
|Balance at March 31, 2001 |                                                             | 17,260                   |     | 6,598 |   | $ | 165,605 |         | $      | 88,775 |   | $     | 5,299
|                          |                                                             |                          |     |       |   |   |         |         |        |        |   |       |      
|Balance at June 30, 1999  |                                                             | 16,789                   |     | 6,598 |   | $ | 220,237 |         | $      | 89,029 |   | $     | 6,490
|                          | Comprehensive net income:                                   |                          |     |       |   |   |         |         |        |        |   |       |      
|                          |                                                             | Net income               |     |      |   |  |         |         | 10,077 |        |   | 3,961 |      
|                          |                                                             | Other comprehensive loss |     |      |   |  |         |         |       |        |   |      |      
|                          |                                                             |                          |     |       |   |   |         |         |        |        |   |       |      
|                          |                                                             | Net comprehensive income |     |      |   |  |         |         | 10,077 |        |   | 3,961 |      
|                          | Financing costs                                             |                          |    |       |  |   |         | (40     | )      |        |  |       |      
|                          | Issuance of Common Units and General Partners' contribution |                          |     |       |   |   |         | 345     |        |        |   |       |      
|                          | Quarterly distributions                                     |                          |    |       |  |   |         | (27,216 | )      |        |  |       |      
|                          |                                                             |                          |     |       |   |   |         |         |        |        |   |       |      
|Balance at March 31, 2000 |                                                             | 16,789                   |     | 6,598 |   | $ | 203,403 |         | $      | 92,990 |   | $     | 6,226
|                          |                                                             |                          |     |       |   |   |         |         |        |        |   |       |      

The
accompanying notes are an integral part of these financial statements.

3

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CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY        CONSOLIDATED STATEMENTS OF CASH FLOWS  (Dollars in thousands)  (Unaudited)

|                                                  |                                                                            | Nine Months Ended
March 31,                                       |                                            
|------------------------------------------------- | -------------------------------------------------------------------------- | ----------------------------------------------------------------- | -------------------------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:             |                                                                            |                                                                   |                                            
|                                                  | Net income                                                                 |                                                                   | $                                          
|                                                  | Adjustments to reconcile net income to net cash from operating activities: |                                                                   |                                            
|                                                  |                                                                            | Depreciation and amortization                                     |                                            
|                                                  |                                                                            | Gain on sale of assets                                            |                                            
|                                                  |                                                                            | Foreign currency translation                                      |                                            
|                                                  |                                                                            | Cumulative effect of adoption of accounting principle             |                                            
|                                                  |                                                                            | Increase in fair value of derivatives                             |                                            
|                                                  |                                                                            | Changes in assets and liabilities, net of effect of acquisitions: |                                            
|                                                  |                                                                            |                                                                   | Trade receivables, net                     
|                                                  |                                                                            |                                                                   | Inventories                                
|                                                  |                                                                            |                                                                   | Prepaid expenses and other current assets  
|                                                  |                                                                            |                                                                   | Trade accounts payable and accrued expenses
|                                                  |                                                                            |                                                                   |                                            
|                                                  |                                                                            |                                                                   |                                            
|                                                  |                                                                            |                                                                   |                                            
|CASH FLOWS FROM INVESTING ACTIVITIES:             |                                                                            |                                                                   |                                            
|                                                  | Expenditures for property, plant and equipment, net                        |                                                                   |                                            
|                                                  | Acquisitions, net of cash received                                         |                                                                   |                                            
|                                                  | Proceeds from sale of assets                                               |                                                                   |                                            
|                                                  | Other investments                                                          |                                                                   |                                            
|                                                  |                                                                            |                                                                   |                                            
|                                                  |                                                                            |                                                                   |                                            
|                                                  |                                                                            |                                                                   |                                            
|CASH FLOWS FROM FINANCING ACTIVITIES:             |                                                                            |                                                                   |                                            
|                                                  | Net change in Working Capital Facility                                     |                                                                   |                                            
|                                                  | Payments on purchase obligations                                           |                                                                   |                                            
|                                                  | Proceeds from Senior Note Offering                                         |                                                                   |                                            
|                                                  | Issuance of common units                                                   |                                                                   |                                            
|                                                  | Payments for debt financing                                                |                                                                   |                                            
|                                                  | Advances (to) from related parties                                         |                                                                   |                                            
|                                                  | Partnership distributions                                                  |                                                                   |                                            
|                                                  |                                                                            |                                                                   |                                            
|                                                  |                                                                            |                                                                   |                                            
|                                                  |                                                                            |                                                                   |                                            
|NET CHANGE IN CASH AND CASH EQUIVALENTS           |                                                                            |                                                                   | 17,158                                     
|CASH AND CASH EQUIVALENTS, beginning of period    |                                                                            |                                                                   | 7,737                                      
|                                                  |                                                                            |                                                                   |                                            
|CASH AND CASH EQUIVALENTS, end of period          |                                                                            | $                                                                 | 24,895                                     
|                                                  |                                                                            |                                                                   |                                            
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |                                                                            |                                                                   |                                            
|Cash paid for interest                            |                                                                            | $                                                                 | 28,332                                     
|                                                  |                                                                            |                                                                   |                                            
|NON-CASH INVESTING & FINANCING ACTIVITIES:        |                                                                            |                                                                   |                                            
|                                                  | Assets acquired in exchange for debt                                       |                                                                   | $                                          
|                                                  |                                                                            |                                                                   |                                            
|                                                  | Common Units issued in payment of debt                                     |                                                                   | $                                          
|                                                  |                                                                            |                                                                   |                                            
|                                                  | Warrants for Common Units issued in payment of fees                        |                                                                   | $                                          
|                                                  |                                                                            |                                                                   |                                            
|                                                  | Guarantee fees accrued                                                     |                                                                   | $                                          
|                                                  |                                                                            |                                                                   |                                            

The
accompanying notes are an integral part of these financial statements.

4

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CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  MARCH 31, 2001  (Dollars in thousands, except unit data)  (Unaudited)

1.  BASIS OF PRESENTATION

These consolidated financial statements include the accounts of Cornerstone Propane Partners, L.P. ("Cornerstone Partners") and its subsidiary, Cornerstone
Propane, L.P. (the "Operating Partnership"), and the Operating Partnership's corporate subsidiaries collectively referred to as the "Partnership". All material intercompany balances and transactions
have been eliminated. Certain 2000 amounts in the accompanying consolidated financial statements have been reclassified to conform to the 2001 presentation. These reclassifications had no effect on
net income or Partners' capital as previously reported.

The
accompanying interim consolidated financial statements of the Partnership are unaudited; however, in the opinion of management, all adjustments necessary for a fair presentation
of such consolidated financial statements have been reflected in the interim periods presented. Such adjustments consisted only of normal recurring items. The Partnership's business is seasonal and,
accordingly, interim results are not indicative of results for a full year. The significant accounting policies and certain financial information, which are normally included in financial statements
prepared in accordance with accounting principles generally accepted in the United States, but which are not required for interim reporting purposes, have been condensed or omitted. The accompanying
consolidated financial statements of the Partnership should be read in conjunction with the consolidated financial statements and related notes included in the Partnership's Annual Report on
Form 10-K for the fiscal year ended June 30, 2000.

2.  DISTRIBUTIONS OF AVAILABLE CASH

The Partnership will make distributions to its partners with respect to each fiscal quarter of the Partnership within 45 days after the end of each
fiscal quarter in an aggregate amount equal to its Available Cash for such quarter. The Partnership will distribute 100% of its Available Cash (98% to Unitholders and 2% to the General Partners) until
the Minimum Quarterly Distribution ("MQD") of $.54 per unit for such quarter has been met. The MQD will be subject to the payment of incentive distributions in the event Available Cash exceeds the MQD
of $.54 on all units. During the Subordination Period, to the extent there is sufficient Available Cash, the holders of Common Units have the right to receive the MQD, plus any arrearages, prior to
the distribution of Available Cash to holders of Subordinated Units. Subordinated Units do not accrue arrearages with respect to distributions for any quarter.

On
April 26, 2001, the MQD for the three month period from January 1, 2001 to March 31, 2001 was declared in the amount of $9.5 million, representing in
the aggregate, distributions to the Common Unitholders and General Partners at $.54 per common unit. This distribution will be paid on May 15, 2001. No distributions have been declared or paid
on the Subordinated Units since October 1, 1997.

3.  NET INCOME PER UNIT

Net income per unit is computed by dividing net income, after considering the General Partners' 2% interest, by the weighted average number of Common and
Subordinated Units outstanding during the period.

5

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4.  DERIVATIVES AND HEDGING

The Partnership utilizes commodity futures contracts and other financial derivatives to reduce its exposure to unfavorable changes in commodity prices. On
July 1, 2000, the Partnership adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement. Companies must formally
document, designate and assess the effectiveness of transactions that receive hedge accounting. The Partnership has elected not to adopt the detailed hedging match requirements of FAS 133 and
not
to treat any of its forward purchase, commodity hedge or inventory positions as hedges under this pronouncement. As a result, any increases or decreases in the fair value of inventory and contract
values, compared to quarter end market prices, are reported as gains or losses in the Partnership's financial statements. The Partnership will continue to review the hedging decision in light of the
activities of its competitors and any future guidance issued by the Financial Accounting Standards Board.

At
July 1, 2000, recognition of the Partnership's derivatives resulted in a reported loss of $5.3 million, which has been recognized in the accompanying financial
statements as the cumulative effect of adopting SFAS No.133.

The
fair value of the Partnership's derivatives has changed from a liability of $5.3 million at July 1, 2000 to an asset of $0.4 million at March 31, 2001.
The change of $5.7 million for the nine months ended March 31, 2001, is reported as a gain in the consolidated financial statements under the caption "Change in fair value of
derivatives".

5.  SEGMENT AND RELATED INFORMATION

For the purpose of providing segment information, the Partnership's two principal business segments are its retail and Coast Energy Group ("CEG") operations.
The retail segment includes propane sales, principally to residential customers and end-users; repair and maintenance of propane heating systems and appliances; and the sale of
propane-related supplies, appliances, and other equipment. These transactions are accounted for as one business segment internally and share the same customer base. CEG provides supply, marketing, and
distribution services to other resellers and end-users. Principal products are propane, other natural gas liquids, crude oil, and natural gas. The accounting policies of the segments are
the same as those described in the summary of significant accounting policies in the annual report on Form 10-K. Intra-company transactions between segments are recorded
approximately at market value at the transaction date.

6

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The segments are evaluated internally using EBITDA as defined below. Depreciation, amortization, interest, mark to market adjustments and some operating, general, and administrative
expenses are not specifically tracked by business segment, and are therefore included in the "Other" category in the following tables:

|                                                |                   | Three Months Ended March 31, 2001
|----------------------------------------------- | ----------------- | ---------------------------------
|
|Revenues                                        |                   | $                                
|Cost of sales                                   |                   |                                  
|                                                |                   |                                  
|                                                | Gross profit      |                                  
|Operating, general, and administrative expenses |                   |                                  
|                                                |                   |                                  
|                                                | EBITDA            |                                  
|Non-allocated expenses                          |                   |                                  
|                                                |                   |                                  
|                                                | Net income (loss) |                                  
|                                                |                   |                                  

|                                                |                   | Three Months Ended March 31, 2000
|----------------------------------------------- | ----------------- | ---------------------------------
|
|Revenues                                        |                   | $                                
|Cost of sales                                   |                   |                                  
|                                                |                   |                                  
|                                                | Gross profit      |                                  
|Operating, general, and administrative expenses |                   |                                  
|                                                |                   |                                  
|                                                | EBITDA            |                                  
|Non-allocated expenses                          |                   |                                  
|                                                |                   |                                  
|                                                | Net income (loss) |                                  
|                                                |                   |                                  

|                                                |                   | Nine Months Ended March 31, 2001
|----------------------------------------------- | ----------------- | --------------------------------
|
|Revenues                                        |                   | $                               
|Cost of sales                                   |                   |                                 
|                                                |                   |                                 
|                                                | Gross profit      |                                 
|Operating, general, and administrative expenses |                   |                                 
|                                                |                   |                                 
|                                                |                   | EBITDA                          
|Non-recurring charges                           |                   |                                 
|Non-allocated expenses                          |                   |                                 
|                                                |                   |                                 
|                                                | Net income (loss) |                                 
|                                                |                   |                                 

7

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|                                                |                   | Nine Months Ended March 31, 2000
|----------------------------------------------- | ----------------- | --------------------------------
|
|Revenues                                        |                   | $                               
|Cost of sales                                   |                   |                                 
|                                                |                   |                                 
|                                                | Gross profit      |                                 
|Operating, general, and administrative expenses |                   |                                 
|                                                |                   |                                 
|                                                | EBITDA            |                                 
|Non-allocated expenses                          |                   |                                 
|                                                |                   |                                 
|                                                | Net income (loss) |                                 
|                                                |                   |                                 

|                         |              | As of March 31, 2001 |        
|------------------------ | ------------ | -------------------- | -------
|
|Identifiable assets      |              | $                    | 331,978
|General corporate assets |              |                      |       
|                         |              |                      |        
|                         | Total assets |                      | $      
|                         |              |                      |        

|                         |              | As of March 31, 2000 |        
|------------------------ | ------------ | -------------------- | -------
|
|Identifiable assets      |              | $                    | 337,823
|General corporate assets |              |                      |       
|                         |              |                      |        
|                         | Total assets |                      | $      
|                         |              |                      |        

---

EBITDA
consists of net income before interest, income taxes, depreciation, amortization, non-recurring charges, and mark to market adjustments for SFAS 133. EBITDA
should not be considered as an alternative to net income (as an indicator of operating performance) or as an alternative to cash flow, and it is not a measure of performance or financial condition
under accounting principles generally accepted in the United States, but it provides additional information for evaluating the Partnership's ability to distribute the Minimum Quarterly Distribution
and to service and incur indebtedness. Cash flows in accordance with accounting principles generally accepted in the United States consist of cash flows from operating, investing and financing
activities; cash flows from operating activities reflect net income (including charges for interest and income taxes, which are not reflected in EBITDA), adjusted for noncash charges or income (which
are reflected in EBITDA) and changes in operating assets and liabilities (which are not reflected in EBITDA). Further, cash flows from investing and financing activities are not included in EBITDA.

6.  ACCOUNTING ESTIMATES AND CHANGES

The Partnership's accounting policy with respect to certain natural gas and crude oil activities had been to record such activities on a one month lag basis as
sufficient information was not available to recognize current month activity. In connection with the implementation of improved information systems and because of the increasing dollar value of these
activities, the Partnership began to recognize such activities in the month in which they occurred, beginning with the quarter ended December 31, 2000. Additional amounts included in the
financial statements for the periods ended December 31, 2000 related to this revision were revenues of $321.1 million, gross margin of

8

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$0.9 million, and mark to market adjustments of $0.8 million. As of March 31, 2001, accounts receivable and accounts payable increased by $173.8 million and
$172.7 million, respectively.

The
Partnership will be required to follow the guidance in Staff Accounting Bulletin 101 ("SAB 101") issued by the SEC with respect to revenue recognition in the quarter beginning
April 1, 2001. The Partnership does not believe that any revisions to its revenue recognition policies as a result of SAB 101 will be significant.

7.  SALE OF CEG'S CANADIAN CRUDE OIL ACTIVITIES

In February 2001, the Partnership consummated the sale of its Canadian crude oil activities. The terms of this agreement transfer certain assets and
contracts of CEG's Canadian business operations to the buyer effective December 1, 2000. This transaction was reported in the Partnership's third fiscal quarter results. The sale resulted in a
gain of approximately $0.5 million including adjustments for inventory that was sold as part of discontinuing this business activity. The transaction is expected to have adjustments based on a
final settlement and Management believes that these adjustments will be immaterial.

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ITEM 2  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION  AND RESULTS OF OPERATIONS

The
following discussion of the historical financial condition and results of operations for the Partnership should be read in conjunction with the historical financial statements and
notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

General

The Partnership is a Delaware limited partnership initially formed to own and operate the propane business and assets of SYN Inc., Empire Energy
Corporation and CGI Holdings, Inc. The Partnership's management believes that it is the fifth largest retail marketer of propane in the United States, serving more than 470,000 residential,
commercial, industrial and agricultural customers from approximately 270 customer service centers in 34 states. The Partnership's two principal business segments are its retail and Coast Energy Group
("CEG") operations. The retail segment includes propane sales, principally to end-users; repair and maintenance of propane heating systems and appliances; and the sale of propane-related
supplies, appliances and other equipment. CEG provides supply, marketing, and distribution services to other resellers and end-users. Principal products are propane, other natural gas
liquids, crude oil, and natural gas.

Because
a substantial portion of the Partnership's retail propane is used in the weather-sensitive residential markets, the temperatures in the Partnership's area of operations,
particularly during the six-month peak heating season (October through March), have a significant effect on the financial performance of the Partnership. In any given area,
warmer-than-normal temperatures will tend to result in reduced propane use, while sustained colder-than-normal temperatures will tend to result in
greater propane use. Therefore, information on normal temperatures is used by the Partnership in understanding how historical results of operations are affected by temperatures that are colder or
warmer than normal and in preparing forecasts of future operations, which are based on the assumption that normal weather will prevail in each of the Partnership's regions.

Gross
profit margins are not only affected by weather patterns but also by changes in customer mix and underlying product costs. For example, sales to residential customers ordinarily
generate higher margins
than sales to other customer groups, such as commercial or agricultural customers. In addition, gross profit margins vary by geographic region. Accordingly, profit margins could vary significantly
from year to year in a period of identical sales volumes. Gross margins can also be impacted by significant increases in underlying product costs, that may not in all instances be passed along to
customers in the form of higher selling prices.

Analysis of Historical Results of OperationsThree Month Period Ended March 31

The following discussion compares the results of operations and other data of the Partnership for the three-month period ended March 31, 2001, to the
three-month period ended March 31, 2000.

Volume.During the three months ended March 31, 2001, the Partnership sold 101.5 million retail propane
gallons, a decrease of 2.6 million gallons or 2.5% from the 104.1 million retail propane gallons sold during the three months ended March 31, 2000. Retail sales volumes were
negatively impacted for the quarter ended March 31, 2001 by record high commodity prices, partially offset by weather patterns and temperatures that were significantly colder than normal and
colder than the prior year.

Revenues.Revenues decreased by $245.1 million or 22.1% to $864.5 million for the three months ended
March 31, 2001, as compared to $1,109.6 million for the three months ended March 31, 2000. This decrease was primarily attributable to a decrease in CEG revenues of
$283.7 million or 29.1% to $692.8 million for the three months ended March 31, 2001, as compared to $976.5 million for the three

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months ended March 31, 2000. This decrease was due primarily to the sale of the Canadian crude oil activities, partially offset by higher product prices. The revenues for the retail business
increased by $38.6 million or 29.0% to $171.7 million for the three months ended March 31, 2001, as compared to $133.1 million for the three months ended March 31,
2000. This reflects primarily an increase in propane selling prices in response to product cost increases noted below, combined with the volume sales impact of colder weather across much of the United
States, partially offset by consumer conservation due to high commodity costs.

Cost of Product Sold.Cost of product sold decreased by $248.7 million or 24.1% to $781.9 million for the
three months ended March 31, 2001, as compared to $1,030.6 million for the three months ended March 31, 2000. The decrease in cost of product sold was primarily due to the
decreased CEG sales described above, partially offset by higher propane, crude oil and natural gas product commodity prices. As a percentage of revenues, cost of product sold decreased to 90.4% for
the three months ended March 31, 2001, as compared to 92.9% for the three months ended March 31, 2000, due primarily to the decrease in CEG's activities.

Gross Profit.Gross profit increased $3.6 million or 4.6% to $82.6 million for the three months ended
March 31, 2001, compared to $79.0 million for the three months ended March 31, 2000. Gross profit for the retail operations increased $13.8 million or 22.6% to
$74.9 million for the three months ended March 31, 2001, compared to $61.1 million for the three months ended March 31, 2000. Retail gross margin per gallon for the three
months ended March 31, 2001 was 25.7% better than last year. This was attributable to a greater mix of high-margin weather-related residential sales, maintaining propane margins in
light of higher propane costs, the benefit of inventory gains on pre-heating season product purchases, and increased revenues from additional services. CEG's gross profit decreased
$10.2 million or 57.0% to $7.7 million for the three months ended March 31, 2001, compared to $17.9 million for the three months ended March 31, 2000 due to the sale
of the Canadian crude oil activities, lower margins in wholesale propane and U.S. crude oil, partially offset by increases in Canadian natural gas activities. As a percentage of revenues, total gross
profit increased to 9.6% for the three months ended March 31, 2001, as compared to 7.1% for the three months ended March 31, 2000. This is due to an increase in retail sales, which was
offset by a decrease in CEG sales that have lower gross margins as a percent of sales.

Cash Operating, General and Administrative Expenses.Cash operating, general and administrative expenses increased by
$1.7 million or 4.3% to $40.9 million for the three months ended March 31, 2001, as compared to $39.2 million for the three months ended March 31, 2000. CEG's
operating expenses decreased $1.9 million primarily due to the sale of the Canadian crude oil operations. Operating expenses for the retail segment increased $2.9 million or 10.1% due to
higher vehicle operating costs as a result of the higher propane costs mentioned above, and increased employee benefit costs as a result of group medical insurance cost increases, partially offset by
expense reduction initiatives. As a percentage of revenues, operating, general and administrative expenses increased to 4.7% for the three months ended March 31, 2001, as compared to 3.5% for
the three months ended March 31, 2000, due primarily to the decrease in CEG revenues.

Depreciation and Amortization.Depreciation and amortization increased $2.5 million or 25.5% to
$12.3 million for the three months ended March 31, 2001, as compared to $9.8 million for the three months ended March 31, 2000. This increase was primarily due to the
additional amortization and depreciation expense associated with the amortization of debt renegotiation costs.

Interest Expense.Interest expense increased by $1.1 million or 11.7% to $10.5 million for the three
months ended March 31, 2001, as compared to $9.4 million for the three months ended March 31, 2000. The increase was due principally to borrowings related to acquisitions and to a
lesser extent, higher working capital borrowings as a result of higher commodity prices.

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Analysis of Historical Results of OperationsNine month Period Ended March 31

The following discussion compares the results of operations and other data of the Partnership for the nine-month period ended March 31,
2001, to the nine-month period ended March 31, 2000.

Volume.During the nine months ended March 31, 2001, the Partnership sold 239.6 million retail propane
gallons, an increase of 2.6 million gallons or 1.1% from the 237.0 million retail propane gallons sold during the nine months ended March 31, 2000. Retail sales volumes were
positively impacted for the nine months ended March 31, 2001 by weather patterns and temperatures that were significantly colder than normal and colder than prior year.

Revenues.Revenues increased by $1,181.0 million or 45.5% to $3,776.4 million for the nine months ended
March 31, 2001, as compared to $2,595.4 million for the nine months ended March 31, 2000. This increase was primarily attributable to an increase in CEG revenues of
$1,091.3 million or 47.2% to $3,402.3 million for the nine months ended March 31, 2001, as compared to $2,311.0 million for the nine months ended March 31, 2000.
CEG's increase was due primarily to base business growth, acquisitions, higher product costs, and the change in reporting certain CEG activities as discussed in Note 6, as well as some impact
of the colder weather conditions, partially offset by the sale of the Canadian crude oil operations. The revenues for the retail business increased by $89.7 million or 31.5% to
$374.1 million for the nine months ended March 31, 2001, as compared to $284.4 million for the nine months ended March 31, 2000. This reflects primarily the effect of the
colder weather and the increases in propane selling prices in response to product cost increases noted below, combined with increased revenue from non-weather sensitive sales.

Cost of Product Sold.Cost of product sold increased by $1,159.0 million or 48.0% to $3,576.0 million for
the nine months ended March 31, 2001, as compared to $2,417.0 million for the nine months ended March 31, 2000. The increase in cost of product sold was primarily due to the
increased CEG sales described above, combined with higher commodity costs. As a percentage of revenues, cost of product sold increased to 94.7% for the nine months ended March 31, 2001, as
compared to 93.1% for the nine months ended March 31, 2000, due primarily to the increase in CEG's activities.

Gross Profit.Gross profit increased $22.0 million or 12.3% to $200.4 million for the nine months ended
March 31, 2001, compared to $178.4 million for the nine months ended March 31, 2000. Gross profit on retail propane increased $24.0 million or 16.9% to
$165.7 million for the nine months ended March 31, 2001, compared to $141.7 million for the nine months ended March 31, 2000. Retail gross margin per gallon for the nine
months ended March 31, 2001 was 15.7% better than last year. This was attributable to a greater mix of high-margin weather-related residential sales, increasing propane selling
prices as propane product costs rose, the benefit of inventory gains on pre-heating season product purchases, and increased revenues from additional services. CEG's gross profit decreased
$2.0 million or 5.4% to $34.7 million for the nine months ended March 31, 2001, compared to $36.7 million for the nine months ended March 31, 2000 due to the sale of
the Canadian crude oil activities and lower margins for wholesale propane. As a percentage of revenues, total gross profit decreased to 5.3% for the nine months ended March 31, 2001, as
compared to 6.9% for the nine months ended March 31, 2000. This is due to a higher mix of CEG sales, which have lower gross margins as a percent of sales. Gross profit
increases from businesses acquired during fiscal 2000 in the CEG division was approximately $2.9 million for the nine months ended March 31, 2001.

Cash Operating, General and Administrative Expenses.Cash operating, general and administrative expenses increased by
$8.8 million or 8.1% to $118.1 million for the nine months ended March 31, 2001, as compared to $109.3 million for the nine months ended March 31, 2000. CEG's
operating expenses increased $3.5 million due to increased infrastructure costs. Cash operating expenses in the retail and administrative areas increased by $5.3 million due to group
health insurance costs, higher

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vehicle operating costs as a result of higher propane costs, and increased incentive costs due to the high financial performance of most of the retail customer service centers. Partially offsetting
these costs were reductions in controllable expenses at the customer service center level. As a percentage of revenues, operating, general and administrative expenses decreased to 3.1% for the nine
months ended March 31, 2001, as compared to 4.2% for the nine months ended March 31, 2000, due primarily to an increase in CEG revenues.

Depreciation and Amortization.Depreciation and amortization increased $8.6 million or 31.7% to
$35.7 million for the nine months ended March 31, 2001, as compared to $27.1 million for the nine months ended March 31, 2000. This increase was primarily due to the
additional amortization and depreciation expense associated with businesses acquired in prior periods and the amortization of debt renegotiation costs.

Non-recurring charges.During the last three months of fiscal 2000 and the first six months of fiscal 2001,
the Partnership incurred losses related to natural gas financial positions. The trading of financial contracts for natural gas was a new business activity initiated in late calendar 1999. As
previously disclosed in the fiscal 2000 annual report and Form 10-K, Cornerstone discontinued this business activity and function within its Coast Energy Group division in the
fourth quarter of fiscal 2000. Cornerstone incurred losses in conjunction with this business activity when natural gas prices escalated dramatically in late fiscal 2000. In June of 2000 the
Partnership discontinued these financial derivative activities. The associated financial contract losses were reported in the fourth quarter of fiscal 2000 and in the first and second quarters of
fiscal 2001 as the related positions were closed. Losses from this Coast Energy Group business have been classified as non-recurring since these financial derivative trading activities
initiated in fiscal 2000 have been discontinued.

Interest Expense.Interest expense increased by $3.1 million or 11.3% to $30.6 million for the nine
months ended March 31, 2001, as compared to $27.5 million for the nine months ended March 31, 2000. The increase was due principally to borrowings related to acquisitions, higher
working capital borrowings as a result of higher product costs and higher Federal Reserve driven interest rates on floating rate working capital loans.

Liquidity and Capital Resources

Operating Activities.Cash provided by operating activities during the nine month period ended March 31, 2001
was $49.0 million. Cash flow from operations included a net income of $9.8 million and non-cash charges of $33.9 million for the period, comprised of depreciation and
amortization expense, the gain on sale of assets and the net gain in the fair value of derivatives. The impact of working capital changes increased cash flow by approximately $5.3 million. As
of March 31, 2001, accounts receivable and accounts payable increased by $173.8 million and $172.7 million, respectively, due to the change in reporting certain CEG activities as
discussed in Note 6.

Investing Activities.Cash used by investment activities for the nine month period ended March 31, 2001 totaled
$3.6 million, which was principally related to the purchases of property, plant and equipment, partially offset by the sales of several Partnership retail service centers, the sale of the
Canadian crude oil operations, and the sales of surplus property and equipment. The sale of selected retail service centers reflects the Partnership's continuing focus on the rationalization of
under-performing operations.

Financing Activities.Cash used by financing activities was $28.2 million for the nine months ended
March 31, 2001, which reflects an increase of $22.8 million in the partnership's working capital facility and net payments on long-term debt and cash financing costs of
$7.2 million. Cash distributions paid to Unitholders for the period totaled $28.1 million and advances to related parties totaled $15.7 million.

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Financing and Sources of Liquidity

The Partnership's obligations under its Senior Note Agreements and Bank Credit Agreement are secured by a security interest in the Operating Partnership's
inventory, accounts receivable and certain customer storage tanks. The Senior Note and Bank Credit Agreements contain various terms and covenants including financial ratio covenants with respect to
debt and interest coverage and limitations, among others, on the ability of the Partnership and its subsidiaries to incur additional indebtedness, create liens, make investments and loans, and enter
into mergers, consolidations or sales of all or substantially all assets. These ratios for the Senior Notes are incurrence tests to be met in order for the Partnership to incur additional ratable
secured debt. In addition, other financial ratios must be met for the Partnership to pay the Minimum Quarterly Distribution ("MQD") without approval of the Senior Note holders. At March 31,
2001, certain of the Partnership's financial ratios were outside of the incurrence test thresholds; therefore the Partnership is currently precluded from borrowing additional
parity senior secured debt for acquisitions until these financial ratios are back within the thresholds stated in the agreements. The Partnership's financial ratios meet all requirements with respect
to its ability to make its MQD payments.

Forward-looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange
Act of 1934, as amended, relating to the Partnership's future business expectations and predictions and financial condition and results of operations. These forward-looking statements involve certain
risks and uncertainties. The Partnership's actual future performance will be affected by a number of factors, risks, and uncertainties, including, without limitation: the impact of weather conditions
on the demand for propane; fluctuations in the unit cost of propane; the ability of the Partnership to compete with other suppliers of propane and other energy sources; the ability of the Partnership
to retain and acquire customers; the Partnership's ability to implement its expansion strategy and to integrate acquired businesses successfully; the impact of energy efficiency and technology
advances on the demand for propane; the ability of management to continue to control expenses; the impact of regulatory developments on the Partnership's business; and the impact of legal proceedings
on the Partnership's business. All subsequent written and oral forward-looking statements attributable to the Partnership or persons acting on its behalf are expressly qualified in their entirety by
such cautionary statements. The Partnership undertakes no obligation to publicly release any revision to these forward-looking statements to reflect events or circumstances after the date of such
statements or to reflect the occurrence of anticipated or unanticipated events.

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ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Market Risk

The Partnership has limited exposure to technology risk, interest rate risk and, foreign currency risk. The Partnership has greater exposure in credit risk and
commodity price risk. In the normal course of business, the Partnership employs various strategies and procedures to manage its exposure to changes in interest rates, fluctuations in the value of
foreign currencies, and changes in commodity prices. The Partnership's exposure to any of these risks is not materially different than as disclosed in the Partnership's Annual Report on
10-K for the year ended June 30, 2000.

PART II.  OTHER INFORMATION

Item 6:  Exhibits and Reports on Form 8-K



None



None

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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.

| |  | Cornerstone Propane Partners, L.P. (Registrant)
| |  | -----------------------------------------------
| |  | By:                                            
| |  | By:                                            
| |  | Name:                                          
| |  | Title:                                         
| |  | By:                                            
| |  | Name:                                          
| |  | Title:                                         
| |  | Date:                                          

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