-----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, F/UJ9M1i4/iK4iLfwDl/w6q/0gKh9KIvLtJcrZ862jAHiUTACyXft4VR1EFtwU+v 9OJHcTlc70PozEWv4nv4ug== 0001005210-97-000010.txt : 19970812 0001005210-97-000010.hdr.sgml : 19970812 ACCESSION NUMBER: 0001005210-97-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970628 FILED AS OF DATE: 19970811 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUBURBAN PROPANE PARTNERS LP CENTRAL INDEX KEY: 0001005210 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS RETAIL [5900] IRS NUMBER: 223410353 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14222 FILM NUMBER: 97655538 BUSINESS ADDRESS: STREET 1: ONE SUBURBAN PLAZA STREET 2: 240 ROUTE 10 WEST CITY: WIPPANY STATE: NJ ZIP: 07981 BUSINESS PHONE: 2018875300 MAIL ADDRESS: STREET 1: ONE SUBURBAN PLZ STREET 2: 240 RTE 10 WEST CITY: WHIPPANY STATE: NJ ZIP: 07981 10-Q 1 10-Q FOR SUBURBAN PROPANE PARTNERS, L.P. 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 28, 1997 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) (201)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 July 31, 1997: Suburban Propane Partners, L.P. - 21,562,500 Common Units - 7,163,750 Subordinated Units This Report contains a total of 19 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 28, 1997 3 and as of September 28, 1996 Condensed Consolidated Statements of Operations for the three months ended June 28, 1997 and June 29, 1996 and for the nine months ended June 28, 1997 4 Condensed Consolidated Statements of Cash Flows for the three months ended June 28, 1997 and June 29, 1996 and for the nine months ended June 28, 1997 5 Condensed Consolidated Statement of Partners' Capital for the nine months ended June 28, 1997 6 Notes to Condensed Consolidated Financial Statements 7-13 Suburban Propane division of Quantum Chemical Corporation --------------------------------------------------------- (Predecessor) ------------- Condensed Consolidated Statements of Operations for the nine months ended June 29, 1996 4 Condensed Consolidated Statements of Cash Flows for the for the nine months ended June 29, 1996 5 Notes to Condensed Consolidated Financial Statements 7-13 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 14-17 Part 2 Other Information Item 5 - Other 18 Item 6 - Exhibits and Reports on Form 8-K 18 Signatures 19 SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited) June 28, September 28, 1997 1996 ------------ ------------ ASSETS Current assets: Cash and cash equivalents ................ $ 24,405 $ 18,931 Accounts receivable, less allowance for doubtful accounts of $3,982 and $3,312 in 1997 and 1996, respectively ........ 51,170 55,021 Inventories .............................. 27,520 40,173 Prepaid expenses and other current assets. 5,871 6,567 --------- --------- Total current assets ................ 108,966 120,692 Property, plant and equipment, net ............ 369,088 374,013 Net prepaid pension cost ...................... 48,286 47,514 Goodwill and other intangible assets, net ..... 251,429 255,948 Other assets .................................. 9,336 9,257 --------- --------- Total assets ........................ $ 787,105 $ 807,424 ========= ========= LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable ......................... $ 27,341 $ 40,730 Accrued employment and benefit costs ..... 22,830 25,389 Accrued insurance ........................ 5,280 5,280 Customer deposits and advances ........... 6,005 8,242 Accrued interest ......................... 16,150 8,222 Other current liabilities ................ 14,246 13,963 --------- --------- Total current liabilities ........... 91,852 101,826 Long-term debt ................................ 427,971 428,229 Postretirement benefits obligation ............ 80,642 81,374 Accrued insurance ............................. 19,327 19,456 Other liabilities ............................. 10,229 11,860 --------- --------- Total liabilities ................... 630,021 642,745 Partners' capital: Common unitholders ....................... 121,454 129,283 Subordinated unitholder .................. 43,457 40,100 General Partner .......................... 3,272 3,286 Unearned compensation .................... (11,099) (7,990) --------- --------- Total partners' capital ............. 157,084 164,679 --------- --------- Total liabilities and partners' capital.... $ 787,105 $ 807,424 ========= ========= 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 Nine Months Ended June 28, 1997 June 29, 1996 June 28, 1997 June 29, 1996 (Predecessor) ------------- ------------- ------------- ------------- Revenues Propane ........................... $ 117,165 $ 116,120 $ 602,126 $ 530,670 Other ............................. 15,198 14,470 53,896 50,591 --------- --------- --------- --------- 132,363 130,590 656,022 581,261 Costs and expenses Cost of sales ..................... 67,478 68,012 378,716 308,645 Operating ......................... 51,413 49,561 163,869 155,734 Depreciation and amortization ..... 9,342 8,983 27,811 26,642 Selling, general and administrative 8,172 7,296 24,309 21,479 Management fee .................... 0 0 0 1,290 Restructuring charge .............. 6,911 0 6,911 0 --------- --------- --------- --------- 143,316 133,852 601,616 513,790 Income (loss) before interest expense and income taxes .................. (10,953) (3,262) 54,406 67,471 Interest expense, net ............... 8,181 7,251 25,794 9,236 --------- --------- --------- --------- Income (loss) before provision for income taxes ....................... (19,134) (10,513) 28,612 58,235 Provision for income taxes .......... 47 63 174 28,231 --------- --------- --------- --------- Net income (loss) ................. $ (19,181) $ (10,576) $ 28,438 $ 30,004 ========= ========= ========= ========= General Partner's interest in net income (loss) ............................ $ (384) $ (212) $ 569 --------- --------- --------- Limited Partners' interest in net income (loss) ............................ $ (18,797) $ (10,364) $ 27,869 ========= ========= ========= Net income (loss) per Unit ............. $ (0.65) $ (0.36) $ 0.97 ========= ========= ========= Weighted average number of Units outstanding ....................... 28,726 28,726 28,726 --------- --------- ---------
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 28, June 29, June 28, June 29, 1997 1996 1997 1996 (Predecessor) --------- --------- --------- ------------ Cash flows from operating activities: Net income (loss) .................................... $ (19,181) $ (10,576) $ 28,438 $ 30,004 Adjustments to reconcile net income to net cash provided by operations: Depreciation ...................................... 7,437 7,296 22,128 21,568 Amortization ...................................... 1,905 1,687 5,683 5,074 Restructuring and asset impairment charge ......... 6,911 0 6,911 0 Gain on disposal of property, plant and equipment ....................................... (20) (26) (438) (120) Changes in operating assets and liabilities, net of acquisitions and dispositions: (Increase) decrease in accounts receivable ....... 38,352 11,953 3,851 (7,838) Decrease in inventories .......................... 3,341 3,834 12,653 13,375 (Increase) decrease in prepaid expenses and other current assets ........................ 1,111 (1,331) 696 (6,447) Increase (decrease) in accounts payable ........... (10,574) (7,399) (13,389) 2,583 Decrease in due to affifliate ..................... 0 (41,735) 0 0 Increase (decrease) in accrued employment and benefit costs ..................... 344 10 (2,083) 2,809 Increase in accrued interest ...................... 7,801 8,173 7,928 10,487 Increase (Decrease) in other accrued liabilities.. (1,982) 545 (7,109) (3,736) Other noncurrent assets .............................. (230) (750) (851) (2,181) Deferred credits and other noncurrent liabilities .... 598 4,778 (4,248) 1,734 --------- --------- -------- ------------ Net cash provided by (used in) operating activities ..................... 35,813 (23,541) 60,170 67,312 Cash flows from investing activities: Capital expenditures ................................ (5,689) (6,351) (21,176) (18,575) Acquisitions ........................................ (35) (4,168) (1,538) (19,287) Proceeds from sale of property, plant and equipment, net .......................... 1,779 157 4,785 1,306 Net cash used in investing activities ........ (3,945) (10,362) (17,929) (36,556) Cash flows from financing activities: Cash activity with parent, net ...................... 0 0 0 25,799 Proceeds from post-closing adjustment with former parent ........................... 0 5,560 0 5,560 Proceeds from debt placement ........................ 0 0 0 425,000 Proceeds from offering-net .......................... 0 0 0 413,569 Debt placement and credit agreement expenses ........ 0 0 0 (6,224) Cash distribution to General Partner ................ 0 0 0 (832,345) Long-term debt repayment ............................ (258) 0 (258) 0 Short-term (repayments) ............................. (14,000) 0 0 0 Partnership distribution ............................ (10,926) 0 (36,509) 0 --------- --------- --------- ----------- Net cash provided by (used in) financing activities ......................... (25,184) 5,560 (36,767) 31,359 --------- --------- --------- ----------- Net increase (decrease) in cash and cash equivalents ........................................ 6,684 (28,343) 5,474 62,115 Cash and cash equivalents at beginning of period ........ 17,721 90,594 18,931 136 --------- --------- --------- ----------- Cash and cash equivalents at end of period .............. $ 24,405 $ 62,251 $ 24,405 62,251 ========= ========= ========= =========== Supplemental disclosure of cash flow information: Cash paid for interest ............................... $ 380 $ 58 $ 16,737 $ 58 ========= ========= ========= ===========
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) Unearned Total Number of Units General Compensation Partners' Common Subordinated Common Subordinated Partner Restricted Units Capital -------- ------------ ---------- ------------- --------- ---------------- --------- Balance at September 28, 1996 .... 21,562 7,164 $ 129,283 $ 40,100 $ 3,286 $ (7,990) $164,679 Additional grants under restricted Unit plan .................. 3,585 (3,585) Partnership distribution ......... (32,344) (3,582) (583) (36,509) Unamortized restricted Unit compensation ............... 476 476 Net income ....................... -- -- 20,930 6,939 569 -- 28,438 -------- ------------ ---------- ------------- --------- ---------------- --------- Balance at June 28, 1997 ......... 21,562 7,164 $ 121,454 $ 43,457 $ 3,272 $ (11,099) $157,084 ======== ============ ========== ============= ========= ================ =========
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 28, 1997 (Dollars in Thousands) (Unaudited) 1. Partnership Organization and Formation -------------------------------------- Suburban Propane Partners, L.P. (the "Partnership") was formed on December 19, 1995 as a Delaware limited partnership. The Partnership and its subsidiary, Suburban Propane, L.P. (the "Operating Partnership"), were formed to acquire and operate the propane business and assets of the Suburban Propane 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 sales businesses of the Predecessor Company. The Partnership, the Operating Partnership and the Service Company are collectively referred to hereinafter as the "Partnership Entities". The Partnership Entities commenced operations on March 5, 1996 (the "Closing Date") upon consummation of an initial public offering of 18,750,000 Common Units representing limited partner interests in the Partnership (the "Common Units"), the private placement of $425,000 aggregate principal amount of Senior Notes due 2011 issued by the Operating Partnership (the "Senior Notes") and the transfer of all the propane assets (excluding the net accounts receivable balance) of the Predecessor Company to the Operating Partnership and the Service Company. On March 25, 1996, the underwriters of the Partnership's initial public offering exercised an overallotment option to purchase an additional 2,812,500 Common Units. The Operating Partnership and Service Company are, and the Predecessor Company was, engaged in the retail and wholesale marketing of propane and related appliances and services. Suburban Propane GP, Inc. (the "General Partner") is a wholly-owned subsidiary of Millennium Petrochemicals Inc., formerly Quantum Chemical Corporation ("Millennium Petrochemicals"), and serves as the general partner of the Partnership and the Operating Partnership. Both the General Partner and Millennium Petrochemicals are indirect wholly-owned subsidiaries of Millennium Chemicals Inc. ("Millennium"), a publicly-traded company. Millennium was formed as a result of the demerger (spin-off) of Hanson PLC's ("Hanson") chemicals businesses in October 1996. The General Partner holds a 1% general partner interest in the Partnership and a 1.0101% general partner interest in the Operating Partnership. In addition, the General Partner owns a 24.4% limited partner interest in the Partnership. This limited partner interest is evidenced by 7,163,750 Subordinated Units representing limited partner interests in the Partnership. The General Partner has delegated to the Partnership's Board of Supervisors all management powers over the business and affairs of the Partnership Entities that the General Partner possesses under applicable law. 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 period presented. Such adjustments consisted only of normal recurring items unless otherwise disclosed. These financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended September 28, 1996, including management's discussion and analysis of financial condition and results of operations 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. Cash Equivalents. The Partnership considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. The carrying amount approximates fair value because of the short maturity of these instruments. Revenue Recognition. Sales of propane are recognized at the time product is shipped or delivered to the customer.Revenue from the sale of propane appliances and equipment is recognized at the time of sale or installation. Revenue from repairs and maintenance is recognized upon completion of the service. Inventories. Inventories are stated at the lower of cost or market. Cost is determined using a weighted average method for propane and a specific identification basis for appliances. Property, Plant and Equipment. Property, plant and equipment are stated at cost. When plant and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any gains or losses are reflected in operations. 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 28, 1997 and September 28, 1996 was $105,223 and $85,987, respectively. Goodwill and Other Intangible Assets. Goodwill and other intangible assets are comprised of the following at June 28, 1997: Goodwill $ 265,995 Debt origination costs 6,224 Other, principally noncompete agreements 4,465 --------- 276,684 Less: Accumulated amortization 25,255 --------- $251,429 ========= Goodwill represents the excess of the purchase price over the fair market value of net assets acquired and is being amortized on a straight-line basis over forty years from the date of acquisition. Debt origination costs represent the costs incurred in connection with the placement of the $425,000 of Senior Notes which is being amortized on a straight-line basis over 15 years. Income Taxes. As discussed in Note 1, the Partnership Entities consist of two limited partnerships, the Partnership and the Operating Partnership, and one corporate entity, the Service Company. For federal and state income tax purposes, the earnings attributed to the Partnership and 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 Operating Partnership. The earnings attributed to the Service Company are subject to federal and state income taxes. Accordingly, the Partnership's consolidated financial statements reflect income tax expense related to the Service Company's earnings. Net Income (Loss) Per Unit. Net income (loss) per 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 and Subordinated Units. Reclassifications. Certain prior period balances have been reclassified to conform with the current period presentation. 3. Distributions of Available Cash ------------------------------- The Partnership will make 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 plus all additional cash on hand as a result of borrowings and purchases of additional limited partner units (APUs) subsequent to the end of such quarter less cash reserves established by the Board of Supervisors in its reasonable discretion for future cash requirements. The Partnership paid the Minimum Quarterly Distributions on all outstanding Common Units for the quarter ended March 29, 1997 on May 13, 1997 which amounted to $10,927. The Partnership did not make a quarterly distribution on its Subordinated Units (which are held by the General Partner) for said fiscal quarter. 4. Related Party Transactions -------------------------- Pursuant to a Computer Services Agreement (the "Services Agreement") dated as of the Closing Date between Millennium Petrochemicals and the Partnership, Millennium Petrochemicals permits the Partnership to utilize Millennium Petrochemicals' mainframe computer for the generation of customer bills, reports and information regarding the Partnership's retail sales. For the nine months ended June 28, 1997, the Partnership incurred expenses of $284 under the Services Agreement. Pursuant to the Contribution, Conveyance and Assumption Agreement dated as of March 4, 1996, between Millennium Petrochemicals and the Partnership (the "Contribution Agreement"), Millennium Petrochemicals retained ownership of the Predecessor Company's accounts receivable, net of allowance for doubtful accounts, as of the Closing Date. The Partnership retained from the net proceeds of the Common Unit offering cash in an amount equal to the net book value of such accounts receivable. In accordance with the Contribution Agreement, the Partnership had agreed to collect such accounts receivable on behalf of Millennium Petrochemicals which amounted to $97,700 as of the Closing Date. The Operating Partnership satisfied its obligation to Millennium Petrochemicals under the arrangement during the quarter ended June 29, 1996. 5. Commitments and Contingencies ----------------------------- The Partnership leases certain property, plant and equipment for various periods under noncancelable leases. Rental expense under operating leases was $11,013 for the nine months ended June 28, 1997. The Partnership is 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, based on the advice of legal counsel, that the ultimate resolution of these matters, after considering its $24,600 self-insurance reserves for known and unasserted self-insurance claims, will not have a material adverse effect on the Partnership's financial position or future results of operations. 6. Long-term Debt and Bank Credit Facilities ----------------------------------------- On the Closing Date, 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 Bank Credit Facilities discussed below. The Senior Notes will mature June 30, 2011, and require semiannual interest payments which commenced June 30, 1996. The Note Agreement requires that the principal be paid in equal annual installments of $42,500 starting June 30, 2002. The Bank Credit Facilities consist of a $100,000 acquisition facility (the "Acquisition Facility") and a $75,000 working capital facility (the "Working Capital Facility"). The Operating Partnership's obligations under the Bank Credit Facilities are unsecured and will rank on an equal and ratable basis with the Operating Partnership's obligations under the Senior Notes. The Bank Credit Facilities bear interest at a rate based upon either LIBOR, Chase Manhattan's (formerly Chemical Bank's) prime rate or the Federal Funds effective rate plus 1/2 of 1% and in each case, plus a margin. In addition, an annual fee (whether or not borrowings occur) is payable quarterly ranging from 0.125% to 0.375% based upon certain financial tests. As of June 28, 1997, such fee was 0.375%. The Working Capital Facility will expire on March 1, 1999. The Acquisition Facility will expire on March 1, 2003. Any loans outstanding under the Acquisition Facility after March 1, 1999 will require equal quarterly principal payments over a four-year period. The Partnership had no borrowings outstanding under the Bank Credit Facilities as of June 28, 1997. The Senior Note Agreement and Bank Credit Facilities contain various restrictive and affirmative covenants applicable to the Operating Partnership, including (i) maintenance of certain financial tests, (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. 7. Unaudited Pro Forma Financial Information ----------------------------------------- The accompanying unaudited pro forma condensed consolidated statements of operations for the nine months ended June 29, 1996 were derived from the historical statements of operations of the Predecessor Company and the statements for the nine months ended June 28, 1997 were derived from the condensed consolidated statement of operations of the Partnership. The pro forma condensed consolidated statements of operations were prepared to reflect the effects of Partnership formation as if it had been completed in its entirety as of the beginning of the period presented. However, these statements do not purport to present the results of operations of the Partnership had the Partnership formation actually been completed as of the beginning of the period presented. In addition, the pro forma condensed consolidated statements of operations are not necessarily indicative of the results of future operations of the Partnership and should be read in conjunction with the historical condensed consolidated financial statements of the Predecessor Company and the Partnership appearing elsewhere in this Quarterly Report on Form 10-Q. SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per unit amounts) Nine Months Ended June 28, June 29, 1997 1996 --------- --------- Revenues Propane .................................... $ 602,126 $ 530,670 Other ...................................... 53,896 50,591 --------- --------- 656,022 581,261 Costs and Expenses Cost of sales .............................. 378,716 308,645 Operating .................................. 163,869 155,734 Depreciation and amortization .............. 27,811 26,642 Selling, general and administrative expenses 24,309 21,479 Management fee ............................. 0 1,290 Restructuring charge ....................... 6,911 0 --------- --------- 601,616 513,790 Income before interest expenses and income taxes 54,406 67,471 Interest expense, net ........................... 25,794 23,262 --------- --------- Income before provision for income taxes ........ 28,612 44,209 Provision for income taxes ...................... 174 189 --------- --------- Net income ...................................... $ 28,438 $ 44,020 ========= ========= General Partner's interest in net income ........ $ 569 $ 880 --------- --------- Limited Partners' interest in net income ........ $ 27,869 $ 43,140 ========= ========= Net income per Unit ............................. $ 0.97 $ 1.50 ========= ========= Weighted average number of Units outstanding .... 28,726 28,726 ========= ========= 7. Unaudited Pro Forma Financial Information - Continued ----------------------------------------------------- Significant pro forma adjustments reflected in the above data include the following: a. For the nine months ended June 29, 1996, an adjustment to interest expense to reflect the interest expense associated with the Senior Notes and Bank Credit Facilities. b. For the nine months ended June 29, 1996, the elimination of the provision for income taxes, as income taxes will be borne by the partners and not the Partnership, except for corporate income taxes related to the Service Company. The Partnership's management estimates that the incremental costs of operating as a stand alone entity during the nine months ended June 29, 1996 would have approximated the management fee paid to an affiliate of its former Parent Company. These incremental costs are estimated to be $1,290 for the nine months ended June 29, 1996. 8. Restricted Unit Plan -------------------- The Partnership's 1996 Restricted Unit Award Plan authorizes the issuance of Common Units with an aggregate value of $15,000 to executives, managers and Elected Supervisors of the Partnership. Initial Restricted Unit grants with a total value of $7,990 were awarded effective March 5, 1996 and additional grants with a total value of $3,585 were awarded effective October 1, 1996. Upon issuance of Restricted Units, unearned compensation is amortized ratably over the applicable vesting periods under the Plan. Unamortized unearned compensation was $11,099 at June 28, 1997 and is shown as a reduction of partners' capital in the Partnership's Condensed Consolidated Balance Sheets. 9. Restructuring Charge -------------------- In the second quarter of fiscal 1997, the Partnership announced that it was evaluating certain long-term cost reduction strategies and organizational changes. As a result of this effort, the Partnership reorganized its product procurement and logistics group, redesigned its fleet and maintenance, field and corporate office organizations, identified facilities to be closed and impaired assets whose carrying amounts would not be recovered. In support of this effort during the third fiscal quarter, the Partnership recorded a restructuring charge of $6.9 million, which included the following: Severance, other employee benefits and facility closure costs $5.1 Write-down to fair value certain assets 1.8 ---- $6.9 ==== At June 28, 1997 the remaining accruals related to the above captioned charges totaled $5.3 million. 10. Subsequent Event - Common Unit Distribution ------------------------------------------- On July 22, 1997, the Partnership announced a quarterly distribution of $0.50 per Limited Partner Common Unit (aggregating $10,927) for the fiscal quarter ended June 28, 1997 payable on August 12, 1997. The Partnership will not make a quarterly distribution on its Subordinated Units (which are held by the General Partner) for said fiscal quarter. Millennium will provide $10 million of distribution support available under the Distribution Support Agreement between the Partnership and the General Partner toward the payment of the Quarterly Common Unit Distribution for said fiscal quarter. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The disclosure set forth below includes forward looking statements. Actual results may differ materially from those projected herein as a result of possible variations in propane costs, expense levels and retail market conditions for propane as well as other factors. Three Months Ended June 28, 1997 - -------------------------------- Compared to Three Months Ended June 29, 1996 - -------------------------------------------- Revenues Revenues increased 1.4% or $1.8 million to $132.4 million for the three months ended June 28, 1997 as compared to $130.6 million for the three months ended June 29, 1996. The overall increase is attributable to higher retail and wholesale selling prices resulting from the increased cost of propane, offset in part by lower wholesale volumes. Propane sold to retail customers was even with last year's volume of 102.9 million gallons. Wholesale gallons sold decreased 24.0% or 7.9 million gallons to 25.1 million gallons due to the lack of favorable wholesale sales opportunities. Gross Profit Gross profit increased 3.7% or $2.3 million to $64.9 million. The increase was a result of higher retail margins offset in part by lower wholesale volumes. The higher retail margins resulted from product costs declining at a faster rate than selling prices. Operating Expenses Operating expenses increased 3.7% or $1.9 million to $51.4 million for the three months ended June 28, 1997 as compared to $49.6 million for the three months ended June 29, 1996. The increase in operating expenses is due to increases in payroll and related benefit costs and vehicle leasing and maintenance expenditures. Selling, General and Administrative Expenses Selling, general and administrative expenses increased $0.9 million to $8.2 million for the three months ended June 28, 1997 compared to $7.3 million for the three months ended June 29, 1996. Expenses were higher than the prior period principally due to increases in professional services and information system development expenditures. Operating Income and EBITDA During the three months ended June 28, 1997, the Partnership recorded a $6.9 million restructuring charge consisting primarily of severance, facility shutdown costs and asset writedowns. The restructuring charge resulted from a reorganization of the product procurement and logistics group, a redesign of the fleet and maintenance group and changes in field management to improve operations. Operating income decreased $7.7 million to a loss of $11.0 million in the three months ended June 28, 1997 compared to a loss of $3.3 million in the prior period. EBITDA decreased $7.3 million to a loss of $1.6 million. The results include the restructuring charge of $6.9 million. Excluding the restructuring charge, operating income was $0.8 million lower and EBITDA was $0.4 million lower than the prior period principally due to higher period expenses offset partially by higher retail margins. 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) but provides additional information for evaluating the Partnership's ability to distribute the Minimum Quarterly Distribution. Net Interest Expense Net interest expense increased $0.9 million to $8.2 million for the three months ended June 28, 1997, as compared to $7.3 million for the prior year period. This increase is due to lower interest income during the current period on investments. Nine Months Ended June 28, 1997 - ------------------------------- Compared to Nine Months Ended June 29, 1996 - ------------------------------------------- Revenues Revenues increased 12.9% or $74.8 million to $656.0 million for the nine months ended June 28, 1997 as compared to $581.3 million for the nine months ended June 28, 1996. The overall increase was attributable to higher retail and wholesale selling prices resulting from the increased cost of propane, offset in part by lower retail volumes. Propane sold to retail customers decreased 4.4% or 20.3 million gallons to 445.2 million gallons while wholesale gallons sold increased 8.1% or 12.4 million gallons to 166.0 million gallons. The decrease in retail gallons was primarily due to warmer temperatures during the 1997 heating season than during the prior year coupled with customers' energy conservation due to the historically higher level of propane prices. Approximately, 65% of the decrease in retail gallons occurred in the Partnership's Southeastern region which experienced weather which was 14% warmer than the prior period. The increase in wholesale gallons resulted from favorable wholesale sales opportunities arising from the volatility of industry-wide propane prices during the period. Gross Profit Gross profit increased 1.7% or $4.7 million to $277.3 million. The increase is principally a result of higher retail margins, increased wholesale revenues and higher gross profit from appliance and parts sales offset partially by lower retail volumes. Average product costs for the Partnership increased substantially during the first two quarters of fiscal 1997 when compared to the same period of the prior year. The product cost increase was principally attributable to significant price increases charged by the Partnership's suppliers during the first four months of the current period. During the nine months ended June 28, 1997, the Partnership was able to pass on these product cost increases through higher selling prices and maintain higher unit margins than during the prior period. Operating Expenses Operating expenses increased 5.2% or $8.1 million to $163.9 million for the nine months ended June 28, 1997 as compared to $155.7 million for the nine months ended June 29, 1996. The increase in operating expenses was principally due to higher vehicle fuel costs resulting from the increase in propane costs along with higher payroll and related benefit costs, equipment maintenance, vehicle leasing expenses and an increase in the allowance for doubtful accounts resulting from the increase in revenues. Selling, General and Administrative Expenses Selling, general and administrative expenses, including the management fee, increased 6.8% or $1.5 million to $24.3 million for the nine months ended June 28, 1997 compared to $22.8 million for the nine months ended June 29, 1996. Expenses were higher than the prior period principally due to higher information system development costs, professional services and compensation expense under the Partnership's Restricted Unit Plan. Operating Income and EBITDA Operating income, excluding the restructuring charge, decreased $6.2 million to $61.3 million in the nine months ended June 28, 1997 compared to $67.5 million in the prior period. EBITDA, excluding the restructuring charge, decreased $5.0 million to $89.1 million. The decrease is attributable to higher period expenses partially offset by higher gross profit. 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) but provides additional information for evaluating the Partnership's ability to distribute the Minimum Quarterly Distribution. 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 three months ended June 28, 1997, net cash provided by operating activities increased $59.4 million to $35.8 million compared to $23.5 million of cash used in operating activities during the three months ended June 29, 1996. Cash used in operating activities in the prior period included $41.7 million of net cash remitted by the Partnership to Millennium Petrochemicals (classified as due to affiliate, net) under the terms of the Contribution Agreement between Millennium Petrochemicals and the Partnership. Excluding this item, cash provided by operations increased by $17.6 million in the three months ended June 28, 1997 compared to the prior period. Such increase was primarily attributable to a $26.4 million increase in accounts receivable collections principally due to increased selling prices during the heating season reflecting the higher cost of propane, partially offset by lower net income of $1.7 million excluding the restructuring charge, restructuring charge payments of $1.6 million and a decrease in deferred credits and other noncurrent liabilities of $4.2 million. Net cash used in investing activities was $3.9 million for the three months ended June 28, 1997 consisting of capital expenditures of $5.7 million, offset by proceeds from the sale of property, plant and equipment of $1.8 million. Net cash used in investing activities was $10.4 million for the three months ended June 29, 1996 consisting of capital expenditures of $6.4 million and acquisition payments of $4.2 million. Net cash used in financing activities for the three months ended June 28, 1997 was $25.2 million arising from net short-term debt repayments of $14.0 million and the Partnership distribution of $10.9 million. Cash provided by operating activities for the nine months ended June 28, 1997 decreased $7.1 million to $60.2 million compared to $67.3 million in the prior period. The decrease was principally due to an increase in cash required to fund inventory purchases due to the timing of purchases and costs of operating as a publicly-traded partnership. Net cash used in investing activities was $17.9 million for the nine months ended June 28, 1997 consisting of capital expenditures of $21.2 million and acquisition payments of $1.5 million, offset by proceeds from the sale of property, plant and equipment of $4.8 million. Net cash used in investing activities was $36.6 million for the nine months ended June 29, 1996 consisting of capital expenditures of $18.6 million and acquisition payments of $19.3 million, offset by proceeds from the sale of property, plant and equipment of $1.3 million. Net cash used in financing activities for the nine months ended June 28, 1997 was $36.8 million, principally resulting from the Partnership's distributions. Prior to March 5, 1996, the Predecessor Company's cash accounts had been managed on a centralized basis by an affiliate of Hanson. Accordingly, cash receipts and disbursements relating to the operations of the Predecessor Company were received or funded by the Hanson affiliate. Net cash activity with parent prior to March 5, 1996 was $25.8 million (received from the Hanson affiliate) for the nine months ended June 29, 1996. In March 1996, the Operating Partnership issued $425.0 million aggregate principal amount of Senior Notes with an interest rate of 7.54% for net cash proceeds of $418.8 million. Also, the Partnership, by means of an initial public offering and the exercise of an overallotment option by the underwriters, issued 21,562,500 Common Units for net cash proceeds of $413.6 million. The net proceeds of the Notes and Units issuance (which totaled $832.4 million), less $5.6 million reflecting a closing price adjustment to adjust division invested capital to $623.2 million immediately prior to the Partnership formation and $97.7 million reflecting the retention of the Predecessor Company net accounts receivable by Millennium Petrochemicals, was used to acquire the propane assets from Millennium Petrochemicals, pay off the intercompany payables and make a special distribution to the General Partner. As a result of lower than anticipated earnings for fiscal 1997 and the costs associated with the restructuring efforts, the Partnership will utilize $10.0 million of cash proceeds available under the Distribution Support Agreement between the Partnership and the General Partner in connection with the payment of the Minimum Quarterly Distribution on the Common Units with respect to the third fiscal quarter of 1997. In addition, the Partnership anticipates that it will also utilize a portion of the cash proceeds available under the Distribution Support Agreement with respect to the fourth fiscal quarter of 1997. The amount of proceeds under the Distribution Support Agreement which will be utilized in the fourth quarter will be dependent on the fourth quarter's operating results. The Distribution Support Agreement provides for a maximum of approximately $44 million in cash to support the Partnership's Minimum Quarterly Distributions to holders of Common Units through March 31, 2001. The Partnership has not made a distribution on its subordinated units for the first three fiscal quarters of 1997 and does not intend to make a distribution to the subordinated unitholder for the fourth quarter. SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES Part II Item 5. Other Information - None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (27) Financial Data Schedule (b) 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 11, 1997 By /s/ Anthony M. Simonowicz ------------------------- Anthony M. Simonowicz Vice President, Chief Financial Officer By /s/ Edward J. Grabowiecki ------------------------- Edward J. Grabowiecki Controller and Chief Accounting Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the financial statements contained in the body of the accompanying form 10-Q and is qualified in it's entirety by refernce to such financial statements. 1000 9-MOS SEP-28-1996 JUN-28-1997 24,405 0 55,152 3,982 27,520 108,966 477,203 108,115 787,105 91,852 427,971 0 0 0 157,084 787,105 656,022 656,022 378,716 542,585 0 3,982 25,794 28,612 174 28,438 0 0 0 28,438 0 0
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