-----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, Og+dHYTE/X0I5RHnPmSzOvRxXQCzLgcaKOD5CUo6cXV7AdYKC0CCJhHnIpYC/ktz +abPhK5uDVCcK389dp6+lQ== 0001005210-98-000002.txt : 19980210 0001005210-98-000002.hdr.sgml : 19980210 ACCESSION NUMBER: 0001005210-98-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971227 FILED AS OF DATE: 19980209 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: SEC FILE NUMBER: 001-14222 FILM NUMBER: 98525521 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 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 DECEMBER 27, 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) (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 December 27, 1997: Suburban Propane Partners, L.P. - 21,562,500 Common Units - 7,163,750 Subordinated Units This Report contains a total of 16 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 December 27, 1997 3 and September 27, 1997 Condensed Consolidated Statements of Operations for the three months ended December 27, 1997 and December 28, 1996 4 Condensed Consolidated Statements of Cash Flows for the three months ended December 27, 1997 and December 28, 1996 5 Condensed Consolidated Statement of Partners' Capital for the three months ended December 27, 1997 6 Notes to Condensed Consolidated Financial Statements 7-11 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 12-14 Part 2 Other Information Item 5 - Other 15 Item 6 - Exhibits and Reports on Form 8-K 15 Signatures 16 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS Statements made in this Form 10-Q which relate to the Partnership's expectations or predictions are or may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934. The Partnership's actual results may differ materially from those contained in any such forward-looking statements depending on a number of factors, risks and uncertainties, some of which are outside the Partnership's control, including the unit cost of propane, weather, continued control of expenses, customer retention and regulatory developments. SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) DECEMBER 27, SEPTEMBER 27, 1997 1997 (UNAUDITED) (AUDITED) ------------ ------------- ASSETS Current assets: Cash and cash equivalents ................................... $ 37,612 $ 19,336 Accounts receivable, less allowance for doubtful accounts of $3,182 and $2,682, respectively...... 76,995 45,927 Inventories ................................................. 30,052 31,915 Prepaid expenses and other current assets ................... 3,747 7,183 --------- --------- Total current assets ................................... 148,406 104,361 Property, plant and equipment, net ............................... 358,777 364,347 Net prepaid pension cost ......................................... 48,808 48,598 Goodwill and other intangible assets, net ........................ 250,745 249,790 Other assets ..................................................... 1,430 9,311 --------- --------- Total assets ........................................... $ 808,166 $ 776,407 ========= ========= LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable ............................................ $ 37,148 $ 37,785 Accrued employment and benefit costs ........................ 18,591 19,957 Accrued insurance ........................................... 4,980 5,280 Customer deposits and advances .............................. 10,958 12,795 Accrued interest ............................................ 16,350 8,306 Other current liabilities ................................... 12,756 12,578 --------- --------- Total current liabilities .............................. 100,783 96,701 Long-term debt ................................................... 428,176 427,970 Postretirement benefits obligation ............................... 81,196 81,896 Accrued insurance ................................................ 18,185 18,468 Other liabilities ................................................ 10,417 10,133 --------- --------- Total liabilities ...................................... 638,757 635,168 Partners' capital: Common Unitholders .......................................... 111,436 100,476 Subordinated Unitholder ..................................... 46,399 39,835 General Partner ............................................. 25,223 12,830 Unearned compensation ....................................... (13,649) (11,902) --------- --------- Total partners' capital ................................ 169,409 141,239 --------- --------- Total liabilities and partners' capital ................ $ 808,166 $ 776,407 ========= =========
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 December 27, 1997 December 28, 1996 ----------------- ----------------- Revenues Propane ........................................ $ 182,905 $ 224,557 Other .......................................... 21,981 21,471 --------- --------- 204,886 246,028 Costs and expenses Cost of sales .................................. 105,657 148,094 Operating ...................................... 52,044 54,725 Depreciation and amortization .................. 9,292 9,281 Selling, general and administrative expenses ... 7,958 8,028 Gain on sale of investment in Dixie Pipeline Co. (5,090) 0 --------- --------- 169,861 220,128 Income from operations .............................. 35,025 25,900 Interest expense, net ............................... 8,108 8,498 --------- --------- Income before provision for income taxes ............ 26,917 17,402 Provision for income taxes .......................... 16 64 --------- --------- Net income ..................................... $ 26,901 $ 17,338 ========= ========= General Partner's interest in net income ............ $ 538 $ 347 --------- --------- Limited Partners' interest in net income ............ $ 26,363 $ 16,991 ========= ========= Net income per Unit ................................. $ 0.92 $ 0.59 ========= ========= Weighted average number of Units outstanding ........ 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 Three Months Ended December 27, December 28, 1997 1996 ------------------ ------------------ Cash flows from operating activities: Net income ........................................................ $ 26,901 $ 17,338 Adjustments to reconcile net income to net cash provided by (used in) operations: Depreciation ................................................. 7,360 7,395 Amortization ................................................. 1,932 1,886 Gain on disposal of investment ............................... (5,090) 0 Gain on disposal of property, plant and equipment .................................................. (401) (382) Changes in operating assets and liabilities, net of acquisitions and dispositions: (Increase) in accounts receivable ............................. (31,068) (55,209) Decrease/(increase) in inventories ............................ 1,863 (16,839) Decrease in prepaid expenses and other current assets ........................................ 3,436 820 (Decrease)/increase in accounts payable ....................... (637) 18,085 (Decrease) in accrued employment and benefit costs ........................................... (1,171) (2,609) Increase in accrued interest ................................. 8,044 8,072 (Decrease) in other accrued liabilities ...................... (1,959) (1,248) Other noncurrent assets ........................................... (333) (348) Deferred credits and other noncurrent liabilities ................. (493) (3,526) -------- ---------- Net cash provided by (used in) operating activities ..... 8,384 (26,565) -------- ---------- Cash flows from investing activities: Capital expenditures ............................................. (3,070) (8,762) Acquisitions ..................................................... (3,693) (694) Proceeds from sale of investment ................................. 13,090 0 Proceeds from sale of property, plant and equipment, net ......... 2,491 2,036 -------- ---------- Net cash provided by (used in) investing activities ..... 8,818 (7,420) -------- ---------- Cash flows from financing activities: Short-term borrowings, net ....................................... 0 49,000 Proceeds from General Partner APU contribution ................... 12,000 0 Partnership distribution ......................................... (10,926) (14,656) -------- ---------- Net cash provided by financing activities ............... 1,074 34,344 -------- ---------- Net increase in cash and cash equivalents .............................. 18,276 359 Cash and cash equivalents at beginning of period ....................... 19,336 18,931 -------- ---------- Cash and cash equivalents at end of period ............................. $ 37,612 $ 19,290 ======== ========== Supplemental disclosure of cash flow information: Cash paid for interest ........................................... $ 168 $ 168 ======== ========== Non-cash investing and financing activities Assets acquired by incurring note payable ........................ $ 250 $ 0 ======== ==========
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 27, 1997 ........ 21,562 7,164 $100,476 $ 39,835 $ 12,830 $ (11,902) $ 141,239 Grants under Restricted Unit Plan ................................. 1,942 (1,942) Partnership distribution ............. (10,781) (145) (10,926) Amortization of Restricted Unit compensation ......................... 195 195 APU contribution (120 Units) .......................... 12,000 12,000 Net income ........................... -- -- 19,799 6,564 538 -- 26,901 ------- ------------- -------- ----------- ---------- --------------- --------- Balance at December 27, 1997 ......... 21,562 7,164 $111,436 $ 46,399 $ 25,223 $ (13,649) $ 169,409 ======= ============= ======== =========== ========== =============== =========
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 DECEMBER 27, 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 Partnership Entities 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., ("Millennium Petrochemicals"), formerly Quantum Chemical Corporation, 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"), which was formed as a result of Hanson PLC's demerger in October 1996. Millennium is a Security and Exchange Commission registrant which files periodic reports. Millennium's annual report on Form 10-K for the fiscal year ended December 31, 1996 has been filed (Commission File Number 1-12091). 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 and a special limited partner interest in the Partnership. The limited partner interest is evidenced by 7,163,750 Subordinated Units and the special limited partner interest is evidenced by 220,000 Additional Partnership Units ("APUs"). 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 27, 1997, 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. 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. 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 December 27, 1997 and September 27, 1997 was $123,065 and $115,705, respectively. GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill and other intangible assets are comprised of the following: DECEMBER 27, 1997 SEPTEMBER 27, 1997 ----------------- ------------------ Goodwill ............................... $268,545 $266,212 Debt origination costs ................. 6,224 6,224 Other, principally noncompete agreements 5,065 4,514 -------- -------- 279,834 276,950 Less: Accumulated amortization ........ 29,089 27,160 -------- -------- $250,745 $249,790 ======== ======== 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 PER UNIT. Net income per unit is computed by dividing net income, after deducting the General Partner's 2% interest by the weighted average number of outstanding Common Units and Subordinated Units. 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 less cash reserves established by the Board of Supervisors in its reasonable discretion for future cash requirements. In accordance with the Distribution Support Agreement among the Partnership, the General Partner and Millennium, to enhance the Partnership's ability to distribute the Minimum Quarterly Distribution on the Common Units, the General Partner has agreed to contribute to the Partnership cash in exchange for APUs. The APUs represent non-voting, limited partner Partnership interests with a stated value per unit of $100. The APUs are not entitled to cash distributions or allocations of any items of Partnership income, gain, loss, deduction or credit. On November 6, 1997 the General Partner contributed $12,000 to the Partnership in exchange for 120,000 additional APUs. The Partnership used the contribution to pay the Minimum Quarterly Distributions on all outstanding Common Units for the quarter ended September 27, 1997 on November 10, 1996. The Partnership did not make a quarterly distribution on its Subordinated Units (which are held by the General Partner) for said fiscal quarter. At December 27, 1997, the General Partner has contributed a total of $22,000 or 220,000 APUs and has a remaining maximum contribution obligation of $21,600 or 216,000 APUs under the Distribution Support Agreement. 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 three months ended December 27, 1997, the Partnership incurred expenses of $101 under the Services Agreement. Millennium Petrochemicals has notified the Partnership of its intention to terminate the Services Agreement on or about March 31, 1998. 5. COMMITMENTS AND CONTINGENCIES ----------------------------- The Partnership leases certain property, plant and equipment for various periods under noncancelable leases. Rental expense under operating leases was $3,920 for the three months ended December 27, 1997. The Partnership is self-insured for general and product, workers' compensation and automobile liabilities up to predetermined amounts above which third party insurance applies. At December 27, 1997, accrued insurance liabilities amounted to $23,165, 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 and 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, based on the advice of legal counsel, 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. 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. On September 30, 1997, the Partnership amended and restated its Bank Credit Facilities. The amended agreement provides for a $75,000 working capital facility and a $25,000 acquisition facility. The Operating Partnership's obligations, under the terms of the new agreement, will continue to be unsecured on an equal and ratable basis with the Operating Partnership's obligations under the Senior Notes. Borrowings under the amended agreement will 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 .20% to .25% based upon certain financial tests will be payable quarterly whether or not borrowings occur. As of December 27, 1997, such fee was .25%. The agreement expires September 30, 2000. No amounts were outstanding under the Bank Credit Facilities as of December 27, 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. 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. Upon issuance of Restricted Units, unearned compensation is amortized ratably over the applicable vesting periods under the Plan. UNITS VALUE PER UNIT ----- -------------- Outstanding September 27, 1997 634,148 $18.41 - $21.63 Awarded ...................... 97,556 $17.91 Forfeited .................... (12,195) $18.41 - $21.63 ------- --------------- Outstanding December 27, 1997 719,509 $17.91 - $21.63 ======= =============== For the three months ended December 27, 1997, the Partnership amortized $195 of unearned compensation. 8. SALE OF INVESTMENT ------------------ In December 1997, the Partnership sold its minority interest in the Dixie Pipeline Company, which owns and operates a propane pipeline, for net cash proceeds of $13,090 and realized a gain of $5,090. 9. SUBSEQUENT EVENT - COMMON UNIT DISTRIBUTION ------------------------------------------- On January 20, 1998 the Partnership announced a quarterly distribution of $0.50 per Limited Partner Common Unit for the first quarter of fiscal 1998 payable on February 10, 1998. The Partnership will not make a quarterly distribution on its Subordinated Units (which are held by the General Partner) for said fiscal quarter. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 27, 1997 - ------------------------------------ COMPARED TO THREE MONTHS ENDED DECEMBER 28, 1996 - ------------------------------------------------ REVENUES Revenues decreased 16.7% or $41.1 million to $204.9 million for the three months ended December 27, 1997 as compared to $246.0 million for the three months ended December 28, 1996. The overall decrease is primarily attributable to lower propane costs being passed on to customers. Propane sold to retail customers remained at the same level as the prior period's comparable quarter while wholesale gallons sold decreased 27.6% or 18.5 million gallons to 48.5 million gallons. The decrease in wholesale gallons is primarily attributable to the Partnership's reduced emphasis on the wholesale market due to the low-margin nature of such sales. GROSS PROFIT Gross profit increased 1.3% or $1.3 million to $99.2 million in the first quarter of fiscal 1998, principally attributable to higher margins and increased volume in sales of propane-related parts and services. OPERATING EXPENSES Operating expenses decreased 4.9% or $2.7 million to $52.0 million for the three months ended December 27, 1997 as compared to $54.7 million for the three months ended December 28, 1996. The decrease in operating expenses is principally attributable to lower payroll expenses resulting from the restructuring activities undertaken during 1997. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses were $8.0 million for the three months ended December 27, 1997, which are consistent with the prior period's quarter. OPERATING INCOME AND EBITDA Operating income increased $9.1 million to $35.0 million in the three months ended December 27, 1997 compared to $25.9 million in the prior year's first quarter. EBITDA increased $9.1 million to $44.3 million. Results for the first quarter include a $5.1 million gain from the sale of an investment in the Dixie Pipeline Company which the Partnership sold after determining it did not offer any strategic business advantages. Excluding the gain, EBITDA and operating income increased $4.0 million attributable to lower period expenses and higher overall 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. INTEREST EXPENSE Interest expense decreased $.4 million to $8.1 million in the three months ended December 27, 1997 compared with $8.5 million in the prior period. The decrease is attributable to improved working capital management and APU contributions from the General Partner which resulted in no amounts being borrowed on the Partnership's Bank Credit Facilities during the first quarter of fiscal 1998. READINESS FOR YEAR 2000 The Partnership has taken actions and continues to evaluate the extent of work required to make its computer-based systems Year 2000 compliant, including replacing and/or updating existing legacy systems. While these efforts will involve additional costs, the Partnership believes, based on available information, that it will be able to manage its total Year 2000 transition without any material adverse effect on its business operations. 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 December 27, 1997, net cash provided by operating activities was $8.4 million compared to cash used in operating activities of $26.6 million in the three months ended December 28, 1996. The increase of $35.0 million was primarily due to lower working capital requirements for receivables and inventory of $42.8 million and higher net income, which was partially offset by an decrease in accounts payable of $18.7 million. The changes in receivables, inventory and accounts payable primarily result from the decrease in propane costs and corresponding selling prices. Net cash provided by investing activities amounted to $8.8 million during the three months ended December 27, 1997 which included proceeds of $13.1 million from the sale of the Partnership's minority interest in the Dixie Pipeline Co., $2.5 million from the sale of property, plant and equipment, offset by business acquisition payments of $3.7 million and capital expenditures of $3.1 million (including $1.1 million for maintenance expenditures and $2.0 million to support the growth of operations). Net cash used in investing activities was $7.4 million for the three months ended December 28, 1996 consisting of capital expenditures of $8.8 million (including $4.6 million for maintenance expenditures and $4.2 million to support the growth of operations) and acquisition payments of $.7 million, offset by proceeds from the sale of property, plant and equipment of $2.1 million. Net cash provided by financing activities for the three months ended December 27, 1997 was $1.1 million arising from the proceeds of the General Partner's APU contributions exceeding the Partnership's fiscal 1997 fourth quarter distribution. Net cash provided by financing activities for the three months ended December 28, 1996 was $34.3 million, arising from net short-term borrowings of $49.0 million principally for working capital requirements and to fund the Partnership's fiscal 1996 fourth quarter distribution. The Partnership has announced that it will make a distribution of $.50 per Unit to its Common Unitholders on February 10, 1998 for the first fiscal quarter of 1998. The Partnership will not make a distribution to the Subordinated Unitholder for said fiscal quarter. The Partnership does not anticipate utilizing proceeds available under the Distribution Support Agreement with respect to the funding of the Minimum Quarterly Distribution for the second quarter of fiscal 1998. 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. Future capital needs of the Partnership are expected to be provided by future operations, existing cash balances, the Bank Credit Facilities and, to the extent required, APU contributions from the General Partner. The Partnership may incur additional indebtedness or issue additional Units to fund possible future acquisitions. 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) Reports on Form 8-K Report on Form 8-K dated December 19, 1997, containing the Partnership's press release dated December 19, 1997 with respect to the sale of its 8.6% ownership interest in the Dixie Pipeline Company. 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: FEBRUARY 9, 1998 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 shedule contains summary financial information extracted from the financial statementscontained in the body of the accompanying For 10-Q and is qualified in it's entirety by reference to such financial statements 1,000 3-MOS SEP-26-1998 SEP-29-1997 DEC-27-1997 37,612 0 80,177 3,182 30,052 148,406 481,842 123,065 808,166 100,783 428,176 0 0 0 169,409 808,166 204,886 204,886 105,657 157,701 0 891 8,108 26,917 16 26,901 0 0 0 26,901 0 0
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