-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D9n61rtPpsT0OPp2iborNfZGrRaILftvnrAFqPaf5rZEJbZdgEfaKOgC1+xdtBIv 77Ri1LffuFVy4wBxwmPC3w== /in/edgar/work/20000807/0001005210-00-000010/0001005210-00-000010.txt : 20000921 0001005210-00-000010.hdr.sgml : 20000921 ACCESSION NUMBER: 0001005210-00-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000624 FILED AS OF DATE: 20000807 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUBURBAN PROPANE PARTNERS LP CENTRAL INDEX KEY: 0001005210 STANDARD INDUSTRIAL CLASSIFICATION: [5900 ] IRS NUMBER: 223410353 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14222 FILM NUMBER: 687459 BUSINESS ADDRESS: STREET 1: ONE SUBURBAN PLAZA STREET 2: 240 ROUTE 10 WEST CITY: WIPPANY STATE: NJ ZIP: 07981 BUSINESS PHONE: 9738875300 MAIL ADDRESS: STREET 1: ONE SUBURBAN PLZ STREET 2: 240 RTE 10 WEST CITY: WHIPPANY STATE: NJ ZIP: 07981 10-Q 1 0001.txt SUBURBAN PROPANE, LP 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 24, 2000 ------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 16 OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ______ to ______ Commission File Number: 1-14222 ------- SUBURBAN PROPANE PARTNERS, L.P. ------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 22-3410353 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 240 ROUTE 10 WEST, WHIPPANY, NJ 07981 - -------------------------------------------------------------------------------- (Address of principal executive office) (Zip Code) (973) 887-5300 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for each shorter period that the Registrant was required to file such reports), and (2) had 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 August 7, 2000: 22,278,587 Common Units This Report contains a total of 21 pages. SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES INDEX TO FORM 10-Q Part 1 Financial Information PAGE ---- Item 1 - Financial Statements SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES ------------------------------------------------ Condensed Consolidated Balance Sheets as of June 24, 2000 and September 25, 1999 4 Condensed Consolidated Statements of Operations for the three months ended June 24, 2000 and June 26, 1999 5 Condensed Consolidated Statements of Operations for the nine months ended June 24, 2000 and June 26, 1999 6 Condensed Consolidated Statements of Cash Flows for the three and nine months ended June 24, 2000 and June 26, 1999 7 Condensed Consolidated Statement of Partners' Capital for the nine months ended June 24, 2000 8 Notes to Condensed Consolidated Financial Statements 9-14 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 15-19 Item 3 - Quantitative and Qualitative Disclosures about Market Risk 19 Part 2 Other Information Item 6 - Exhibits and Reports on Form 8-K 20 Signatures 21 DISCLOSURE REGARDING 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. Important factors that could cause actual results to differ materially from those discussed in such forward-looking statements ("cautionary statements") include, among other things: 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. SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) June 24, September 25, 2000 1999 (unaudited) (audited) --------- --------- ASSETS Current assets: Cash & cash equivalents ..................................................................... $ 11,856 $ 8,392 Accounts receivable, less allowance for doubtful accounts of $ 3,283 and $2,089, respectively ......................................................... 50,546 37,620 Inventories ................................................................................. 39,914 29,727 Prepaid expenses and other current assets ................................................... 5,240 2,898 --------- --------- Total current assets ................................................................ 107,556 78,637 Property, plant and equipment, net .............................................................. 366,288 330,807 Net prepaid pension cost ........................................................................ 33,640 33,498 Goodwill & other intangibles assets, net ........................................................ 249,286 213,963 Other assets .................................................................................... 2,811 2,315 --------- --------- Total assets ....................................................................... $ 759,581 $ 659,220 ========= ========= LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable ............................................................................ $ 37,176 $ 40,068 Accrued employment and benefit costs ........................................................ 17,362 19,629 Short-term borrowings ....................................................................... 0 2,750 Accrued insurance ........................................................................... 5,960 5,120 Customer deposits and advances .............................................................. 8,226 17,774 Accrued interest ............................................................................ 15,920 8,250 Other current liabilities ................................................................... 8,297 9,415 --------- --------- Total current liabilities ......................................................... 92,941 103,006 Long-term borrowings ............................................................................ 517,232 427,634 Postretirement benefits obligation .............................................................. 34,004 34,394 Accrued insurance ............................................................................... 17,953 18,009 Other liabilities ............................................................................... 7,809 7,791 --------- --------- Total liabilities ................................................................ 669,939 590,834 --------- --------- Partners' capital: Common Unitholders ........................................................................ 87,874 66,342 General Partner ........................................................................... 2,466 2,044 Deferred compensation trust ............................................................... (11,567) (10,712) Common Units held in trust, at cost ....................................................... 11,567 10,712 Unearned Compensation ..................................................................... (698) 0 --------- --------- Total partners' capital ......................................................... 89,642 68,386 --------- --------- Total liabilities and partners' capital ......................................... $ 759,581 $ 659,220 ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per Unit amounts) (unaudited) Three Months Ended ------------------ June 24, June 26, 2000 1999 --------- --------- Revenues Propane ......................................................................................... $ 136,802 $ 105,874 Other ........................................................................................... 17,157 16,031 --------- --------- 153,959 121,905 Costs and Expenses Cost of sales ................................................................................... 84,965 52,347 Operating ....................................................................................... 52,919 52,194 Depreciation and amortization ................................................................... 9,865 8,689 General and administrative ...................................................................... 6,595 7,720 Recapitalization costs .......................................................................... 0 18,903 --------- --------- 154,344 139,853 --------- --------- (Loss) before interest expense and income taxes ................................................................................... (385) (17,948) Interest expense, net ............................................................................. 10,243 7,324 --------- --------- (Loss) before provision for income taxes .......................................................... (10,628) (25,272) Provision for income taxes ........................................................................ 71 21 --------- --------- Net (loss) ........................................................................................ $ (10,699) $ (25,293) ========= ========= General Partner's interest in net (loss) .......................................................... $ (214) $ (506) --------- --------- Limited Partners' interest in net (loss) .......................................................... $ (10,485) $ (24,787) ========= ========= Net (loss) per Unit ............................................................................... $ (0.47) $ (0.93) ========= ========= Weighted average number of Units outstanding ...................................................... 22,279 26,563 --------- ---------
The accompanying notes are an integral part of these condensed consolidated financial statements. SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per Unit amounts) (unaudited) Nine Months Ended ----------------- June 24, June 26, 2000 1999 --------- --------- Revenues Propane ........................................................................................ $ 581,970 $ 448,309 Other .......................................................................................... 63,331 56,790 --------- --------- 645,301 505,099 Costs and Expenses Cost of sales .................................................................................. 352,439 217,455 Operating ...................................................................................... 167,580 159,440 Depreciation and amortization .................................................................. 28,755 26,201 General and administrative ..................................................................... 20,210 22,308 Recapitalization costs ......................................................................... 0 18,903 Gain on sale of assets ......................................................................... (10,328) 0 --------- --------- 558,656 444,307 --------- --------- Income before interest expense and income taxes .................................................................................. 86,645 60,792 Interest expense, net ............................................................................ 29,885 22,507 --------- --------- Income before provision for income taxes ......................................................... 56,760 38,285 Provision for income taxes ....................................................................... 163 47 --------- --------- Net income ....................................................................................... $ 56,597 $ 38,238 ========= ========= General Partner's interest in net income ......................................................... $ 1,132 $ 765 --------- --------- Limited Partners' interest in net income ......................................................... $ 55,465 $ 37,473 ========= ========= Net income per Unit .............................................................................. $ 2.49 $ 1.34 ========= ========= Weighted average number of Units outstanding ..................................................... 22,274 28,005 --------- ---------
The accompanying notes are an integral part of these condensed consolidated financial statements. SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Three Months Ended Nine Months Ended June 24, June 26, June 24, June 26, 2000 1999 2000 1999 --------- --------- --------- --------- Cash flows from operating activities: Net (loss)/income ......................................................... $ (10,699) $ (25,293) $ 56,597 $ 38,238 Adjustments to reconcile net (loss)/income to net cash provided by operating activities: Depreciation ......................................................... 7,402 6,691 21,914 20,385 Amortization ......................................................... 2,463 1,998 6,841 5,816 (Gain)/loss on disposal of property, plant and equipment .......................................................... (654) 33 (11,246) (79) Recapitalization costs ............................................... 0 18,903 0 18,903 Changes in operating assets and liabilities, net of acquisitions and dispositions: Decrease/(increase) in accounts receivable ........................... 34,735 26,201 (10,315) 837 Decrease/(increase) in inventories .................................. 5,330 (886) (4,299) 3,807 (Increase)/decrease in prepaid expenses and other current assets ................................................ (9) 2,246 (2,292) (771) (Decrease)/increase in accounts payable .............................. (14,240) (1,563) (2,892) 397 Increase/(decrease) in accrued employment and benefit costs ................................................... 206 1,147 (2,110) (3,069) Increase in accrued interest ......................................... 7,709 7,810 7,670 7,838 (Decrease)/increase in other accrued liabilities ...................... (588) 281 (11,131) (7,499) Other noncurrent assets ................................................... (101) (572) (638) (2,058) Deferred credits and other noncurrent liabilities ......................... 820 (1,160) (502) (1,596) --------- --------- --------- --------- Net cash provided by operating activities ....................... 32,374 35,836 47,597 81,149 --------- --------- --------- --------- Cash flows from investing activities: Capital expenditures ..................................................... (4,950) (1,870) (14,322) (7,726) Acquisitions ............................................................. (328) (295) (98,012) (4,631) Proceeds from sale of property, plant and equipment, net ................. 1,216 1,129 19,900 3,081 --------- --------- --------- --------- Net cash (used in) investing activities ......................... (4,062) (1,036) (92,434) (9,276) --------- --------- --------- --------- Cash flows from financing activities: Long-term (repayments)/borrowings net .................................... (7,307) (640) 89,672 (688) Short-term (repayments) .................................................. (10,000) 0 (2,750) 0 Redemption of subordinated units and APU's ............................... 0 (69,000) 0 (69,000) Payment of recapitalization costs ........................................ 0 (9,367) 0 (9,367) Credit agreement expenses ................................................ 0 0 (3,123) 0 Partnership distribution ................................................. (11,935) (11,001) (35,498) (33,003) --------- --------- --------- --------- Net cash (used in) provided by financing activities ............. (29,242) (90,008) 48,301 (112,058) --------- --------- --------- --------- Net (decrease)/increase in cash ............................................... (930) (55,208) 3,464 (40,185) Cash and cash equivalents at beginning of period ............................... 12,786 74,842 8,392 59,819 --------- --------- --------- --------- Cash and cash equivalents at end of period ..................................... $ 11,856 $ 19,634 $ 11,856 $ 19,634 ========= ========= ========= ========= Supplemental disclosure of cash flow information: Cash paid for interest ..................................................... $ 2,572 $ 298 $ 22,272 $ 16,581 ========= ========= ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (in thousands) (unaudited) Common Deferred Total Number of General Units in Compensation Unearned Partners' Common Units Common Partner Trust Trust Compensation Capital ------------ ------ ------- ----- ----- ------------ ------- Balance at September 25, 1999 22,236 $ 66,342 $ 2,044 $ 10,712 $(10,712) $ -- $ 68,386 Partnership distribution -- (34,788) (710) (35,498) Grants issued under Compensation Deferral Plan 43 855 -- 855 (855) (855) -- Amortization of Compensation Deferral Plan -- -- 157 157 Net income 55,465 1,132 56,597 --------- -------- -------- -------- -------- ------------- -------- Balance at June 24, 2000 22,279 $ 87,874 $ 2,466 $ 11,567 $(11,567) $ (698) $ 89,642 ========= ======== ======== ======== ======== ============= ========
The accompanying notes are an integral part of these condensed consolidated financial statements. SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 24, 2000 (DOLLARS IN THOUSANDS) (UNAUDITED) 1. PARTNERSHIP ORGANIZATION AND FORMATION - -- -------------------------------------- Suburban Propane Partners, L.P. (the "Partnership") and its subsidiary, Suburban Propane, L.P. (the "Operating Partnership"), were formed as Delaware limited partnerships on December 19, 1995 to acquire and operate the propane business and assets of Suburban Propane, a division of Quantum Chemical Corporation (the "Predecessor Company"). In addition, Suburban Sales & Service, Inc. (the "Service Company"), a subsidiary of the Operating Partnership, was formed to acquire and operate the service work and appliance and parts businesses of the Predecessor Company. The Partnership, the Operating Partnership, the Service Company and a corporation subsequently acquired by the Operating Partnership, Gas Connection, Inc. (the "Retail Company"), are collectively referred to hereinafter as the "Partnership Entities". The Partnership completed an initial public offering of Common Units on March 5, 1996. On May 26, 1999, the Partnership completed a recapitalization (the "Recapitalization") which included the redemption of all limited partner interests held by the Former General Partner, Suburban Propane GP, Inc. a wholly-owned subsidiary of Millennium Chemicals, Inc., and the substitution of a new general partner, Suburban Energy Services Group LLC, which is owned by senior management of the Partnership. 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -- -------------------------------------------------------------------- BASIS OF PRESENTATION. The condensed consolidated financial statements include the accounts of the Partnership Entities. All significant intercompany transactions and accounts have been eliminated. The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. They include all adjustments which the Partnership considers necessary for a fair statement of the results for the interim periods presented. Such adjustments consist only of normal recurring items unless otherwise disclosed. These financial statements should be read in conjunction with the Partnership's Annual Report on Form 10-K for the fiscal year ended September 25, 1999, including management's discussion of financial results contained therein. Due to the seasonal nature of the Partnership's propane business, the results of operations for interim periods are not necessarily indicative of the results to be expected for a full year. FISCAL PERIOD. The Partnership's fiscal periods end on the Saturday nearest the end of the quarter. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FINANCIAL INSTRUMENTS. The Partnership routinely uses propane futures and forward contracts to reduce the risk of future price fluctuations and to help ensure supply during periods of high demand. Gains and losses on futures and forward contracts designated as hedges are deferred and recognized in cost of sales as a component of the product cost for the related hedged transaction. In the Condensed Consolidated Statements of Cash Flows, cash flows from qualifying hedges are classified in the same category as the cash flows from the items being hedged. INVENTORIES. Inventories are stated at the lower of cost or market. Cost is determined using a weighted average method for propane and a standard cost basis for appliances, which approximates average cost. PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment is computed using the straight-line method over the estimated service lives, which range from three to forty years. Accumulated depreciation at June 24, 2000 and September 25, 1999 was $191,413 and $168,538, respectively. GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill and other intangible assets are comprised of the following: JUNE 24, 2000 SEPTEMBER 25, 1999 ------------- ------------------ Goodwill $281,081 $242,230 Debt origination costs 8,024 8,024 Deferred credit agreement costs 3,123 - Other, principally noncompete agreements 4,940 4,948 -------- -------- 297,168 255,202 Less: Accumulated amortization 47,882 41,239 -------- -------- $249,286 $213,963 ======== ======== INCOME TAXES. As discussed in Note 1, the Partnership Entities consist of two limited partnerships, the Partnership and the Operating Partnership, and two corporate entities, the Service Company and the Retail Company. For federal and state income tax purposes, the earnings attributed to the Partnership and the Operating Partnership are included in the tax returns of the individual partners. As a result, no recognition of income tax expense has been reflected in the Partnership's consolidated financial statements relating to the earnings of the Partnership and the Operating Partnership. The earnings attributed to the corporate entities are subject to federal and state income taxes. Accordingly, the Partnership's consolidated financial statements reflect income tax expense related to the corporate entities' earnings. NET INCOME (LOSS) PER UNIT. Prior to May 26, 1999, basic net income (loss) per limited partner Unit was computed by dividing net income (loss), after deducting the General Partner's 2% interest, by the weighted average number of outstanding Common Units and Subordinated Units. Diluted net income (loss) per limited partner Unit was computed by dividing net income (loss), after deducting the General Partner's 2% interest, by the weighted average number of outstanding Common Units and Subordinated Units and the weighted average number of Restricted Units granted under the Restricted Unit Award Plan which were to vest over time. Subsequent to May 26, 1999, basic and diluted net income (loss) per limited partner Unit is computed by dividing net income (loss), after deducting the General Partner's 2% interest, by the weighted average number of outstanding Common Units. NEW ACCOUNTING STANDARD. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("Statement No. 133"). Statement No. 133 requires entities to record derivatives as assets or liabilities on the balance sheet and to measure them at fair value. FASB has delayed this standard's effective date for one year and, accordingly, it will be adopted by the Partnership in fiscal year 2001. Management is currently evaluating the impact this statement may have on the Partnership's financial statements. RECLASSIFICATIONS. Certain prior period balances have been reclassified to conform with the current period presentation. 3. DISTRIBUTIONS OF AVAILABLE CASH - -- ------------------------------- The Partnership makes distributions to its partners 45 days after the end of each fiscal quarter in an aggregate amount equal to its Available Cash for such quarter. Available Cash generally means all cash on hand at the end of the fiscal quarter less the amount of cash reserves established by the Board of Supervisors in its reasonable discretion for future cash requirements. The Partnership's Revolving Credit Agreement (See Note 5 - Long-Term Debt and Revolving Credit Agreement) includes a $22,000 subfacility to support the Minimum Quarterly Distribution on Common Units through March 31, 2001. No drawings have been made under this subfacility. 4. COMMITMENTS AND CONTINGENCIES - -- ----------------------------- The Partnership leases certain property, plant and equipment for various periods under noncancelable leases. Rental expense under operating leases was $14,797 for the nine months ended June 24, 2000. The Partnership effectively is self-insured for general and product, workers' compensation and automobile liabilities up to predetermined amounts above which third party insurance applies. At June 24, 2000, accrued insurance liabilities amounted to $23,913, representing the total estimated losses under these self-insurance programs. These liabilities represent the gross estimated losses as no claims or lawsuits, individually or in the aggregate, were estimated to exceed the Partnership's deductibles on its insurance policies. The Partnership is also involved in various legal actions which have arisen in the normal course of business including those relating to commercial transactions and product liability. It is the opinion of management that the ultimate resolution of these matters will not have a material adverse effect on the Partnership's financial position or future results of operations, after considering its self-insurance liability for known and unasserted self-insurance claims. 5. LONG-TERM DEBT AND REVOLVING CREDIT AGREEMENT - -- --------------------------------------------- On March 5, 1996, the Operating Partnership issued $425,000 of Senior Notes with an annual interest rate of 7.54%. The Operating Partnership's obligations under the Senior Note Agreement are unsecured and rank on an equal and ratable basis with the Operating Partnership's obligations under the Revolving Credit Agreement discussed below. The Senior Notes will mature June 30, 2011. The Note Agreement requires that the principal be paid in equal annual installments of $42,500 starting June 30, 2002. On November 10, 1999, in connection with the acquisition of SCANA (See Note 7 - Acquisition and Divestiture), the Partnership replaced its former Bank Credit Facilities with a new $175,000 Revolving Credit Agreement with a syndicate of banks led by First Union National Bank as Administrative Agent. The Revolving Credit Agreement consists of a $100,000 acquisition facility and a $75,000 working capital facility which expire on March 31, 2001. Borrowings under the Revolving Credit Agreement bear interest at a rate based upon either LIBOR plus a margin, First Union National Bank's prime rate or the Federal Funds rate plus 1/2 of 1%. An annual fee ranging from .375% to .50%, based upon certain financial tests, is payable quarterly whether or not borrowings occur. As of June 24, 2000, such fee was .50%. The Revolving Credit Agreement provides the Partnership, at the Partnership's option, the right to extend the expiration date from March 31, 2001 to December 31, 2001 provided that the maximum ratio of consolidated total indebtedness to EBITDA (as defined in the Revolving Credit Agreement) would decrease from 5.10 to 1.00 to 4.75 to 1.00 during the nine month extension period. As of June 24, 2000, $90,000 was outstanding under the acquisition facility of the Revolving Credit Agreement resulting from the acquisition of SCANA (See Note 7 - Acquisition and Divestiture). As of September 25, 1999, $2,750 was outstanding under the former Bank Credit Facilities. The Senior Note Agreement and Revolving Credit Agreement contain various restrictive and affirmative covenants applicable to the Operating Partnership, including (i) maintenance of certain financial tests (including maintaining minimum net worth of $50,000), (ii) restrictions on the incurrence of additional indebtedness, and (iii) restrictions on certain liens, investments, guarantees, loans, advances, payments, mergers, consolidations, distributions, sales of assets and other transactions. 6. COMPENSATION DEFERRAL PLAN - -- -------------------------- Effective May 26, 1999, in connection with the Partnership's Recapitalization, the Partnership adopted the Compensation Deferral Plan (the "Deferral Plan") which provided for eligible employees of the Partnership to surrender their right to receive all or a portion of their unvested Common Units granted under the Partnership's 1996 Restricted Unit Award Plan prior to the time their Common Units were substantially certain to vest in exchange for the right to participate in and receive certain payments under the Deferral Plan. Senior management of the Partnership surrendered 553,896 Restricted Units, representing substantially all of their Restricted Units, before they vested in exchange for the right to participate in the Deferral Plan. The Partnership deposited into a trust on behalf of these individuals 553,896 Common Units. The Deferral Plan also allows eligible employees to defer receipt of Common Units that may be subsequently granted by the Partnership under the Deferral Plan. The Common Units granted under the Deferral Plan and related Partnership distributions are subject to forfeiture provisions such that (a) 100% of the Common Units would be forfeited if the grantee ceases to be employed prior to the third anniversary of the Recapitalization, (b) 75% would be forfeited if the grantee ceases to be employed after the third anniversary but prior to the fourth anniversary of the Recapitalization and (c) 50% would be forfeited if the grantee ceases to be employed after the fourth anniversary but prior to the fifth anniversary of the Recapitalization. Upon issuance of Common Units under the Deferral Plan, unearned compensation equivalent to the market value of the Common Units is charged at the date of grant. The unearned compensation is amortized in accordance with the Deferral Plan's forfeiture provisions. The unamortized unearned compensation value is shown as a reduction of partners' capital in the accompanying consolidated balance sheets. During the nine months ended June 24, 2000, the Partnership granted 42,925 Common Units to eligible employees. During the nine months ended June 24, 2000, the Partnership amortized $157 of unearned compensation. Pursuant to the Deferral Plan, participants have deferred receipt of these Common Units and related distributions by the Partnership by depositing the Units into a trust. The value of the Common Units deposited in the trust and the related deferred compensation trust liability are reflected in the accompanying consolidated balance sheets as components of partners' capital. 7. ACQUISITION AND DIVESTITURE - -- --------------------------- On November 8, 1999, the Partnership acquired the assets of SCANA Propane Gas, Inc., SCANA Propane Storage, Inc., SCANA Propane Supply, Inc., USA Cylinder Exchange, Inc., and C&T Pipeline, LLC from SCANA Corp. SCANA Propane Gas, Inc. distributes approximately 20 million gallons annually and services more than 40,000 customers from 22 customer service centers in North and South Carolina. USA Cylinder Exchange, Inc. operates an automated 20-lb. propane cylinder refurbishing and refill center in Hartsville, South Carolina, selling to approximately 1,600 grocery and convenience stores in the Carolinas, Georgia and Tennessee. SCANA Propane Storage, Inc. owns a 60 million gallon storage cavern in Tirzah, South Carolina which is connected to the Dixie Pipeline by the 62 mile propane pipeline owned by C&T Pipeline, LLC. The Partnership borrowed $97,000 under the acquisition facility of its Revolving Credit Agreement to fund the acquisition, consisting of $86,000 for the SCANA assets, $8,600 in acquired working capital and $2,400 in related bank fees. The acquisition has been accounted for using the purchase method of accounting. Accordingly, the accompanying balance sheet reflects a preliminary purchase price allocation to the assets and liabilities based on their estimated fair values, with the balance of $39,163 being recorded as goodwill and amortized over forty years on a straight-line basis. On December 3, 1999, the Partnership sold 23 customer service centers, principally located in Georgia, for total cash proceeds of $19,400. The Partnership realized a gain of $10,328 as a result of the transaction. 8. SUBSEQUENT EVENT - COMMON UNIT DISTRIBUTION - -- ------------------------------------------- On July 20, 2000, the Partnership announced a quarterly distribution of $.5250 per Common Unit for the third quarter of fiscal 2000 consisting of the Minimum Quarterly Distribution of $.50 per Common Unit and an additional distribution of $.025 per Common Unit payable on August 8, 2000 to holders of record on July 28, 2000. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 24, 2000 - -------------------------------- COMPARED TO THREE MONTHS ENDED JUNE 26, 1999 - -------------------------------------------- REVENUES Our revenues increased 26.3% or $32.1 million to $154.0 million for the three months ended June 24, 2000 compared to $121.9 million for the three months ended June 26, 1999. The overall increase is primarily attributable to higher propane costs which resulted in higher sales prices to customers and, to a lesser extent, increases in appliance sales and service revenue. We sold 96.5 million gallons of propane to retail customers as compared to 103.9 million gallons in the corresponding period in fiscal 1999. The decrease was primarily due to the effect of warmer temperatures which was partially offset by retail volumes associated with the SCANA acquisition. Wholesale gallons sold and gallons sold related to price risk management activities increased 54.8% or 16.7 million gallons to 47.3 million gallons, principally resulting from increased market opportunities attributable to a more volatile propane pricing environment. OPERATING EXPENSES Operating expenses for the three months ended June 24, 2000 were $52.9 million which is consistent with $52.2 million for the three months ended June 26, 1999. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses decreased 14.6% or $1.1 million to $6.6 million for the three months ended June 24, 2000 compared to $7.7 million for the three months ended June 26, 1999. The decrease is primarily attributable to gains realized on the sale of non-strategic assets. INCOME (LOSS) BEFORE INTEREST EXPENSE AND INCOME TAXES AND EBITDA (Loss) before interest expense and income taxes decreased $17.6 million to $(0.4) million in the three months ended June 24, 2000 compared to $(17.9) million in the prior year's third quarter. EBITDA increased $18.7 million to $9.5 million. The prior period reflects $18.9 million of costs incurred in connection with our recapitalization. Excluding the non-recurring costs from the prior period, (loss) before interest expense and income taxes decreased to a loss of $(0.4) million from income of $1.0 million in the prior period and EBITDA was $9.5 million as compared to $9.6 million in the prior period. Excluding the non-recurring costs from the prior period, the decrease in income (loss) before interest expense and income taxes is primarily attributable to increased depreciation and amortization expenses associated with the SCANA acquisition. EBITDA for the three months ended June 24, 2000 was consistent with the corresponding 1999 period. EBITDA should not be considered as an alternative to net income (as an indicator of operating performance) or as an alternative to cash flow (as a measure of liquidity or ability to service debt obligations) and is not in accordance with or superior to generally accepted accounting principles but provides additional information for evaluating the Partnership's ability to distribute the Minimum Quarterly Distribution. Because EBITDA excludes some, but not all, items that affect net income and this measure may vary among companies, the EBITDA data presented above may not be comparable to similarly titled measures of other companies. INTEREST EXPENSE Net interest expense increased $2.9 million to $10.2 million in the three months ended June 24, 2000 compared with $7.3 million in the prior period's quarter. The increase is primarily attributable to interest expense on borrowings to fund the acquisition of SCANA. HEDGING The Partnership engages in hedging transactions to reduce the effect of price volatility on its product costs and to help ensure the availability of propane during periods of short supply. The Partnership is currently a party to propane futures contracts on the New York Mercantile Exchange and enters into agreements to purchase and sell propane at fixed prices in the future. These activities are monitored by management through enforcement of the Partnership's Commodity Trading Policy. Hedging does not always result in increased product margins and the Partnership does not consider hedging activities to be material to operations or liquidity for the three month period ended June 24, 2000. NINE MONTHS ENDED JUNE 24, 2000 - ------------------------------- COMPARED TO NINE MONTHS ENDED JUNE 26, 1999 - ------------------------------------------- REVENUES Our revenues increased 27.8% or $140.2 million to $645.3 million for the nine months ended June 24, 2000 compared to $505.1 million for the nine months ended June 26, 1999. The overall increase is primarily attributable to higher propane costs which resulted in higher sales prices to customers and an increase in the sales of appliances and related products. We sold 428.9 million gallons of propane to retail customers as compared to 436.5 million gallons in the corresponding period in fiscal 1999. The decrease was primarily due to warmer temperatures, which, nationwide were 12% warmer than normal during the 2000 period as compared to 8% warmer than normal during the 1999 period. The effect of warmer temperatures was partially offset, however, by retail volumes associated with the SCANA acquisition. Wholesale gallons sold and gallons sold related to price risk management activities increased 29.2% or 42.2 million gallons to 186.8 million gallons, principally resulting from increased market opportunities attributable to a more volatile propane pricing environment. OPERATING EXPENSES Operating expenses increased 5.1% or $8.2 million to $167.6 million for the nine months ended June 24, 2000 compared to $159.4 million for the nine months ended June 26, 1999. The increase in operating expenses is principally attributable to increased payroll and benefit costs resulting from the SCANA acquisition, expansion of retail and service business initiatives and, to a lesser extent, higher vehicle fuel costs. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses decreased 9.4% or $2.1 million to $20.2 million for the nine months ended June 24, 2000 compared to $22.3 million for the nine months ended June 26, 1999. The decrease is primarily attributable to gains realized on the sale of non-strategic assets and lower expenses for professional services. INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES AND EBITDA Results for the current year period include a $10.3 million gain from the sale of assets. Results for the 1999 period include $18.9 million of recapitalization costs. Excluding these one-time items from both periods, income before interest expense and income taxes decreased $3.4 million to $76.3 million in the nine months ended June 24, 2000 compared to $79.7 million in the corresponding 1999 period. EBITDA, excluding these one-time items, decreased $0.8 million to $105.1 million. The decreases in income before interest expense and income taxes and EBITDA are primarily attributable to increased depreciation and amortization in determining income before interest expense and income taxes, as well as to higher operating expenses, associated principally with the acquisition of SCANA, partially offset by a $5.2 million increase in gross profit resulting from higher appliance and related product sales and installation activities. EBITDA should not be considered as an alternative to net income (as an indicator of operating performance) or as an alternative to cash flow (as a measure of liquidity or ability to service debt obligations) and is not in accordance with or superior to generally accepted accounting principles but provides additional information for evaluating the Partnership's ability to distribute the Minimum Quarterly Distribution. Because EBITDA excludes some, but not all, items that affect net income and this measure may vary among companies, the EBITDA data presented above may not be comparable to similarly titled measures of other companies. INTEREST EXPENSE Net interest expense increased $7.4 million to $29.9 million in the nine months ended June 24, 2000 compared with $22.5 million in the prior period. The increase is primarily attributable to interest expense on borrowings to fund the acquisition of SCANA. HEDGING The Partnership engages in hedging transactions to reduce the effect of price volatility on its product costs and to help ensure the availability of propane during periods of short supply. The Partnership is currently a party to propane futures contracts on the New York Mercantile Exchange and enters into agreements to purchase and sell propane at fixed prices in the future. These activities are monitored by management through enforcement of the Partnership's Commodity Trading Policy. Hedging does not always result in increased product margins and the Partnership does not consider hedging activities to be material to operations or liquidity for the nine month period ended June 24, 2000. LIQUIDITY AND CAPITAL RESOURCES Due to the seasonal nature of the propane business, cash flows from operating activities are greater during the winter and spring seasons as customers pay for propane purchased during the heating season. For the nine months ended June 24, 2000, net cash provided by operating activities was $47.6 million compared to cash provided by operating activities of $81.1 million in the nine months ended June 26, 1999. The decrease of $33.5 million was primarily due to higher working capital requirements due to the increased cost of propane, coupled with a reduction of $9.2 million in net income after adjusting for non-cash items in both periods. Net cash used in investing activities was $92.4 million during the nine months ended June 24, 2000 and consisted of acquisition payments of $98.0 million reflecting the SCANA acquisition and capital expenditures of $14.3 million (including $6.1 million for maintenance expenditures and $8.2 million to support the growth of operations), offset by proceeds of $19.9 million from the sales of property, plant and equipment, including 23 customer service centers. Net cash used in investing activities was $9.3 million for the nine months ended June 26, 1999 and consisted of capital expenditures of $7.7 million (including $2.5 million for maintenance expenditures and $5.2 million to support the growth of operations) and acquisition payments of $4.6 million, offset by $3.1 million from the sale of property, plant and equipment. The increase in capital expenditures of $6.6 million is primarily attributable to the installation of new information systems and increased purchases of propane tanks for customers' premises. Net cash provided by financing activities for the nine months ended June 24, 2000 was $48.3 million, principally reflecting net borrowings to fund the SCANA acquisition partially offset by the Partnership's distributions and repayments of borrowings under our working capital facility. Net cash used in financing activities for the nine months ended June 26, 1999 was $112.1 million, principally reflecting the Partnership's distributions and payments made to fund our recapitalization. The Partnership has announced that it will make a distribution of $.525 per Unit to its Common Unitholders on August 8, 2000 for the third fiscal quarter of 2000 consisting of the Minimum Quarterly Distribution of $.50 per Common Unit and an additional distribution of $.025 per Common Unit. The ability of the Partnership to satisfy its future 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. Based on its current cash position, available Bank Credit Facilities and expected cash flow from operating activities, the Partnership expects to have sufficient funds to meet its obligations and working capital needs, and pay distributions at the current level for the next twelve months. On January 20, 2000, the Partnership filed an S-4 Registration Statement with the Securities and Exchange Commission for the issuance from time-to-time of up to 10 million Common Units to be used as the consideration for the acquisition of other businesses. The Partnership will file a prospectus supplement containing specific information about the terms of an acquisition each time Common Units are intended to be issued pursuant to the registration statement. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of June 24, 2000, the Partnership was party to propane forward and option contracts with various third parties and futures traded on the New York Mercantile Exchange ("NYMEX"). Forward and future contracts provide that the Partnership sell or acquire propane at a fixed price at fixed future dates. An option contract allows, but does not require its holder to buy or sell propane at a specified price during a specified time period; the writer of an option contract must fulfill the obligation of the option contract, should the holder choose to exercise the option. At expiration, the contracts are settled by the delivery of propane to the respective party or are settled by the payment of a net amount equal to the difference between the then current price of propane and the fixed contract price. The contracts are entered into in anticipation of market movements and to manage and hedge exposure to fluctuating propane prices. Market risks associated with the trading of futures and forward contracts are monitored daily for compliance with the Partnership's trading policy which includes volume limits for open positions. Open inventory positions are reviewed and managed daily as to exposures to changing market prices. MARKET RISK The Partnership is subject to commodity price risk to the extent that propane market prices deviate from fixed contract settlement amounts. Futures contracts traded with brokers of the NYMEX require daily cash settlements in margin accounts. Forward and option contracts are generally settled at the expiration of the contract term. CREDIT RISK Futures contracts are guaranteed by the NYMEX and as a result have minimal credit risk. The Partnership is subject to credit risk with forward and option contracts to the extent the counterparties do not perform. The Partnership evaluates the financial condition of each counterparty with which it conducts business and establishes credit limits to reduce exposure to credit risk of non-performance. SENSITIVITY ANALYSIS In an effort to estimate the exposure of unfavorable market price movements, a sensitivity analysis of open positions as of June 24, 2000 was performed. Based on this analysis, a hypothetical 10% adverse change in market prices for each of the future months for which an option, future and/or forward contract exists indicates a potential loss in future earnings of $1.3 million as of June 24, 2000. The above hypothetical change does not reflect the worst case scenario. Actual results may be significantly different depending on market conditions and the composition of the open position portfolio. SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES PART II ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (27) Financial Data Schedule (b) Reports on Form 8-K None. SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THE REGISTRANT HAS CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED: SUBURBAN PROPANE PARTNERS, L.P. DATE: AUGUST 7 , 2000 BY /S/ EDWARD J. GRABOWIECKI ------------------------------ EDWARD J. GRABOWIECKI VICE PRESIDENT, CONTROLLER AND CHIEF ACCOUNTING OFFICER EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the financial statements contained in the body of the accompanying For 10-Q and is qualified in it's entirety by reference to such financial statements 1,000 9-MOS SEP-30-2000 SEP-27-1999 JUN-24-2000 11,856 0 53,829 3,283 39,914 107,556 557,701 191,413 759,581 92,941 517,232 0 0 0 89,642 759,581 645,301 645,301 352,439 520,019 0 2,694 29,885 56,760 163 56,597 0 0 0 56,597 2.49 2.49
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