-----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, NLLhpeURZtShEH2es86Kqi+5lwJYEKPzrOMEYpZ22xuyiB9Cgub/+kxEnHGsboeo 2XK7h2J9U8wfn2HE4itYbg== 0001005210-98-000004.txt : 19980512 0001005210-98-000004.hdr.sgml : 19980512 ACCESSION NUMBER: 0001005210-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980328 FILED AS OF DATE: 19980511 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: 98614866 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 MARCH 28, 1998 -------------- 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 May 8, 1998: Suburban Propane Partners, L.P. - 21,562,500 Common Units - 7,163,750 Subordinated Units This Report contains a total of 18 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 March 28, 1998 and September 27, 1997 3 Condensed Consolidated Statements of Operations for the three months ended March 28, 1998 and March 29, 1997 4 Condensed Consolidated Statements of Operations for the six months ended March 28, 1998 and March 29, 1997 5 Condensed Consolidated Statements of Cash Flows for the three and six months ended March 28, 1998 and March 29, 1997 6 Condensed Consolidated Statement of Partners' Capital for the six months ended March 28, 1998 7 Notes to Condensed Consolidated Financial Statements 8-12 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 13-16 Part 2 Other Information Item 5 - Other 17 Item 6 - Exhibits and Reports on Form 8-K 17 Signatures 18 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) (UNAUDITED) MARCH 28, SEPTEMBER 27, 1998 1997 --------- --------- ASSETS Current assets: Cash and cash equivalents ................................... $ 61,814 $ 19,336 Accounts receivable, less allowance for doubtful accounts of $3,182 and $2,682, respectively...... 68,879 45,927 Inventories ................................................. 21,327 31,915 Prepaid expenses and other current assets ................... 7,396 7,183 --------- --------- Total current assets ................................... 159,416 104,361 Property, plant and equipment, net ............................... 355,397 364,347 Net prepaid pension cost ......................................... 34,460 48,598 Goodwill and other intangible assets, net ........................ 218,178 219,017 Other assets ..................................................... 2,069 9,311 --------- --------- Total assets ........................................... $ 769,520 $ 745,634 ========= ========= LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable ............................................ $ 30,381 $ 37,785 Accrued employment and benefit costs ........................ 20,305 19,957 Accrued insurance ........................................... 5,340 5,280 Customer deposits and advances .............................. 7,513 12,795 Accrued interest ............................................ 8,243 8,306 Other current liabilities ................................... 11,877 12,578 --------- --------- Total current liabilities .............................. 83,659 96,701 Long-term debt ................................................... 428,175 427,970 Postretirement benefits obligation ............................... 35,368 51,123 Accrued insurance ................................................ 16,700 18,468 Other liabilities ................................................ 9,931 10,133 --------- --------- Total liabilities ...................................... 573,833 604,395 Partners' capital: Common Unitholders .......................................... 127,656 100,476 Subordinated Unitholder ..................................... 55,430 39,835 General Partner ............................................. 25,818 12,830 Unearned compensation ....................................... (13,217) (11,902) --------- --------- Total partners' capital ................................ 195,687 141,239 --------- --------- Total liabilities and partners' capital ................ $ 769,520 $ 745,634 ========= =========
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 MARCH 28, MARCH 29, 1998 1997 ---------- ---------- Revenues Propane .................................... $214,134 $260,404 Other ...................................... 16,295 17,227 -------- -------- 230,429 277,631 Costs and expenses Cost of sales .............................. 115,351 163,144 Operating .................................. 53,121 57,731 Depreciation and amortization .............. 9,173 9,188 Selling, general and administrative expenses 8,027 8,109 -------- -------- 185,672 238,172 Income from operations .......................... 44,757 39,459 Interest expense, net ........................... 7,741 9,115 -------- -------- Income before provision for income taxes ........ 37,016 30,344 Provision for income taxes ...................... 5 63 -------- -------- Net income ................................. $ 37,011 $ 30,281 ======== ======== General Partner's interest in net income ........ $ 740 $ 606 -------- -------- Limited Partners' interest in net income ........ $ 36,271 $ 29,675 ======== ======== Net income per Unit ............................. $ 1.26 $ 1.03 ======== ======== 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 OPERATIONS ( in thousands, except per unit amounts) (unaudited) SIX MONTHS ENDED MARCH 28, MARCH 29, 1998 1997 ---------- ---------- Revenues Propane ........................................ $ 397,039 $ 484,961 Other .......................................... 38,276 38,698 --------- --------- 435,315 523,659 Costs and expenses Cost of sales .................................. 221,008 311,238 Operating ...................................... 105,165 112,456 Depreciation and amortization .................. 18,465 18,469 Selling, general and administrative expenses ... 15,985 16,137 Gain on sale of investment in Dixie Pipeline Co. (5,090) 0 --------- --------- 355,533 458,300 Income from operations .............................. 79,782 65,359 Interest expense, net ............................... 15,849 17,613 --------- --------- Income before provision for income taxes ............ 63,933 47,746 Provision for income taxes .......................... 21 127 --------- --------- Net income ..................................... $ 63,912 $ 47,619 ========= ========= General Partner's interest in net income ............ $ 1,278 $ 952 --------- --------- Limited Partners' interest in net income ............ $ 62,634 $ 46,667 ========= ========= Net income per Unit ................................. $ 2.18 $ 1.62 ========= ========= 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 SIX MONTHS ENDED MARCH 28, MARCH 29, MARCH 28, MARCH 29, 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Cash flows from operating activities: Net income ................................... $ 37,011 $ 30,281 $ 63,912 $ 47,619 Adjustments to reconcile net income to net cash provided by operations: Depreciation ............................ 7,345 7,296 14,705 14,691 Amortization ............................ 1,828 1,892 3,760 3,778 Gain on disposal of investment .......... 0 0 (5,090) 0 Gain on disposal of property, plant and equipment ............................. (1,006) (36) (1,407) (418) Changes in operating assets and liabilities, net of acquisitions and dispositions: Decrease (increase) in accounts receivable 8,116 20,708 (22,952) (34,501) Decrease in inventories ................. 8,725 26,151 10,588 9,312 (Increase) in prepaid expenses and other current assets .............. (3,649) (1,235) (213) (415) (Decrease) in accounts payable ........... (6,767) (20,900) (7,404) (2,815) Increase (decrease) in accrued employment and benefit costs ........... 1,907 181 736 (2,427) (Decrease) increase in accrued interest . (8,107) (7,945) (63) 127 (Decrease) in other accrued liabilities . (3,964) (3,879) (5,923) (5,127) Other noncurrent assets ...................... (717) (273) (1,050) (621) Deferred credits and other noncurrent liabilities ........................... (2,634) (1,319) (3,127) (4,846) ------------ ------------ -------- ------------ Net cash provided by operating activities ..................... 38,088 50,922 46,472 24,357 ------------ ------------ -------- ------------ Cash flows from investing activities: Capital expenditures ........................ (4,572) (6,726) (7,642) (15,488) Acquisitions ................................ 0 (809) (3,693) (1,503) Proceeds from sale of investment ............ 0 0 13,090 0 Proceeds from sale of property, plant and equipment, net ................ 1,613 971 4,104 3,007 ------------ ------------ -------- ------------ Net cash provided by (used in) investing activities ......... (2,959) (6,564) 5,859 (13,984) ------------ ------------ -------- ------------ Cash flows from financing activities: Short-term borrowings/(repayments), net ..... 0 (35,000) 0 14,000 Long-term debt repayments ................... (1) 0 (1) 0 Proceeds from General Partner APU contribution ............................ 0 0 12,000 0 Partnership distribution .................... (10,926) (10,927) (21,852) (25,583) ------------ ------------ -------- ------------ Net cash (used in) financing activities ............... (10,927) (45,927) (9,853) (11,583) ------------ ------------ -------- ------------ Net increase (decrease) in cash and cash equivalents ................................ 24,202 (1,569) 42,478 (1,210) Cash and cash equivalents at beginning of period .................................... 37,612 19,290 19,336 18,931 ------------ ------------ -------- ------------ Cash and cash equivalents at end of period .................................... $ 61,814 $ 17,721 $ 61,814 $ 17,721 ============ ============ ======== ============ Supplemental disclosure of cash flow information: Cash paid for interest ....................... $ 16,175 $ 16,189 $ 16,343 $ 16,357 ============ ============ ======== ============ Non-cash investing and financing activities Assets acquired by incurring note payable ... $ 0 $ 0 $ 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 Net Grants Issued under Restricted Unit Plan ................. 1,703 (1,703) Partnership distribution ............. (21,562) (290) (21,852) Amortization of Restricted Unit compensation ......................... 388 388 APU contribution (120 Units) .......................... 12,000 12,000 Net income ........................... -- -- 47,039 15,595 1,278 -- 63,912 ------ ------------ -------- ------------ ------- ---------------- -------- Balance at March 28, 1998 ............ 21,562 7,164 $127,656 $ 55,430 $25,818 $ (13,217) $195,687 ====== ============ ======== ============ ======= ================ ========
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 MARCH 28, 1998 (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, 1997 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 March 28, 1998 and September 27, 1997 was $130,410 and $115,705, respectively. GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill and other intangible assets are comprised of the following: MARCH 28, SEPTEMBER 27, 1998 1997 ---- ---- Goodwill ............................... $237,772 $235,439 Debt origination costs ................. 6,224 6,224 Other, principally noncompete agreements 5,065 4,514 -------- -------- 249,061 246,177 Less: Accumulated amortization ........ 30,883 27,160 -------- -------- $218,178 $219,017 ======== ======== 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. 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 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. The Partnership did not require any cash contributions in exchange for APUs from the General Partner in the second fiscal quarter. On February 10, 1998, the Partnership paid the Minimum Quarterly Distributions on all outstanding Common Units for the quarter ended December 27, 1997. The Partnership did not make a quarterly distribution on its Subordinated Units (which are held by the General Partner) for said fiscal quarter. At March 28, 1998, 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 permitted 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 six months ended March 28, 1998, the Partnership incurred expenses of $202 under the Services Agreement. The Services Agreement was terminated effective April 3, 1998 at which time the Partnership began utilizing the services of an unrelated third party provider. 5. COMMITMENTS AND CONTINGENCIES - -- ----------------------------- The Partnership leases certain property, plant and equipment for various periods under noncancelable leases. Rental expense under operating leases was $7,894 for the six months ended March 28, 1998. 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 March 28, 1998, accrued insurance liabilities amounted to $22,040, 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, 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. The Bank Credit Facilities consist of a $75,000 working capital facility and a $25,000 acquisition facility. The Operating Partnership's obligations under the Bank Credit Facilities are unsecured on an equal and ratable basis with the Operating Partnership's obligations under the Senior Notes. Borrowings under the Bank Credit Facilities 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 March 28, 1998, such fee was .25%. On February 25, 1998, the Operating Partnership entered into the First Amendment to its Amended and Restated Bank Credit Agreement, which First Amendment is filed as an Exhibit with this Form 10-Q. The Bank Credit Facilities will expire September 30, 2000. No amounts were outstanding under the Bank Credit Facilities as of September 27, 1997 and March 28, 1998. 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 March 28, 1998 ... 719,509 $17.91 - $21.63 ======== =============== For the six months ended March 28, 1998, the Partnership amortized $388 of unearned compensation. 8. EMPLOYEE BENEFIT PLANS - -- ---------------------- Effective January 1, 1998, the Partnership, in connection with its overall restructuring efforts to implement long-term cost reduction strategies, modified certain employee benefit plans. In this regard, the Partnership amended its noncontributory defined benefit pension plan to provide for a cash balance format as compared to a final average format which was in effect prior to January 1, 1998. The Partnership also terminated its postretirement benefit plan for all eligible employees retiring after March 1, 1998. All active and eligible employees who were to receive benefits under the postretirement plan subsequent to March 1, 1998, were provided a settlement by increasing their accumulated benefits under the cash balance pension plan. The Partnership has in part accounted for the restructuring of the above-noted benefit plans as a reduction in the postretirement plan benefit obligation (retaining only the obligation related to employees retired on or before March 1, 1998) and as a corresponding decrease in the net prepaid pension cost with a net difference of $300 being recognized as a gain in the accompanying statement of operations for the three months ended March 28, 1998. 9. SUBSEQUENT EVENT - COMMON UNIT DISTRIBUTION - -- ------------------------------------------- On April 24, 1998 the Partnership announced a quarterly distribution of $0.50 per Limited Partner Common Unit for the second quarter of fiscal 1998 payable on May 12, 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 MARCH 28, 1998 - --------------------------------- COMPARED TO THREE MONTHS ENDED MARCH 29, 1997 - --------------------------------------------- REVENUES Revenues decreased 17.0% or $47.2 million to $230.4 million for the three months ended March 28, 1998 as compared to $277.6 million for the three months ended March 29, 1997. The overall decrease is primarily attributable to lower propane costs resulting in lower sales prices to customers. Propane gallons sold to retail customers decreased 1.7% or 3.2 million gallons to 180.1 million gallons. The decrease in retail gallons is principally due to significantly warmer temperatures than in the prior period. Temperatures nationally were approximately 8% warmer than in the prior period. Wholesale and trading gallons sold increased 13.1% or 9.7 million gallons to 83.6 million gallons resulting from the Partnership's expansion of its product procurement and price risk management activities. GROSS PROFIT Gross profit increased 0.5% or $0.6 million to $115.1 million in the second quarter of fiscal 1998, principally due to higher margins and the Parternship's expansion of its product procurement and price risk management activities. OPERATING EXPENSES Operating expenses decreased 8.0% or $4.6 million to $53.1 million for the three months ended March 28, 1998 as compared to $57.7 million for the three months ended March 29, 1997. The decrease in operating expenses is principally attributable to the continued favorable impact of restructuring activities undertaken during 1997, primarily lower payroll costs and vehicle maintenance expenditures. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses were $8.0 million for the three months ended March 28, 1998, which are consistent with the prior period's comparable quarter. OPERATING INCOME AND EBITDA Operating income increased $5.3 million to $44.8 million in the three months ended March 28, 1998 compared to $39.5 million in the prior period's second quarter. EBITDA increased $5.3 million to $53.9 million. The increase in EBITDA and operating income is primarily 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 $1.4 million to $7.7 million in the three months ended March 28, 1998 compared with $9.1 million in the prior period. The decrease is attributable to improved working capital management and lower product costs which resulted in no amounts being borrowed under the Partnership's Bank Credit Facilities during the second quarter of fiscal 1998. SIX MONTHS ENDED MARCH 28, 1998 - ------------------------------- COMPARED TO SIX MONTHS ENDED MARCH 29, 1997 - ------------------------------------------- REVENUES Revenues decreased 16.8% or $88.3 million to $435.3 million for the six months ended March 28, 1998 as compared to $523.7 million for the six months ended March 29, 1997. The overall decrease is primarily attributable to lower propane costs resulting in lower sales prices to customers. Propane gallons sold to retail customers decreased 1.1% or 3.9 million gallons to 338.4 million gallons as compared to the same period in the prior year. The decrease in retail gallons is primarily attributable to temperatures being 4% warmer than in the prior year's comparable period. Wholesale and trading gallons sold decreased 6.2% or 8.7 million gallons to 132.2 million. The decrease is attributable to a decline in wholesale gallons resulting from the Partnership's reduced emphasis on the wholesale market due to the low margin nature of such sales. GROSS PROFIT Gross profit increased 0.9% or $1.9 million to $214.3 for the six months ended March 28, 1998, principally attributable to higher margins, the Partnership's expansion of its product procurement and price risk management activities and increased volume in sales of propane-related parts and services. OPERATING EXPENSES Operating expenses decreased 6.5% or $7.3 million to $105.2 million for the six months ended March 28, 1998 as compared to $112.5 million for the six months ended March 29, 1997. The decrease in operating expenses is principally attributable to lower payroll expenses resulting from restructuring activities undertaken during 1997. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses were $16.0 million for the six months ended March 28, 1998, which are consistent with the six months ended March 29, 1997. OPERATING INCOME AND EBITDA Operating income increased $14.4 million to $79.8 million in the six months ended March 28, 1998 compared to $65.4 million in the prior period. EBITDA increased $14.4 million to $98.2 million. Results for the six months 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 $9.3 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 $1.8 million to $15.8 million in the six months ended March 28, 1998 compared with $17.6 million in the prior period. The decrease is attributable to improved working capital management and lower product costs which resulted in no amounts being borrowed on the Partnership's Bank Credit Facilities during the six months ended March 28, 1998. 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, to a limited extent, 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 six month period ended March 28, 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 six months ended March 28, 1998, net cash provided by operating activities was $46.5 million compared to cash provided by operating activities of $24.4 million in the six months ended March 29, 1997. The increase of $22.1 million was primarily due to lower working capital requirements for receivables and inventory of $12.8 million and higher net income, which was partially offset by an decrease in accounts payable of $4.6 million. The changes in receivables, inventory and accounts payable primarily result from improved working capital management, the decrease in propane costs and corresponding selling prices. Net cash provided by investing activities amounted to $5.9 million during the six months ended March 28, 1998 which includes proceeds of $13.1 million from the sale of the Partnership's minority interest in the Dixie Pipeline Co., $4.1 million from the sale of property, plant and equipment, offset by business acquisition payments of $3.7 million and capital expenditures of $7.6 million (including $3.5 million for maintenance expenditures and $4.1 million to support the growth of operations). Net cash used in investing activities was $14.0 million for the six months ended March 29, 1997 consisting of capital expenditures of $15.5 million (including $7.1 million for maintenance expenditures and $8.4 million to support the growth of operations) and acquisition payments of $1.5 million, offset by proceeds from the sale of property, plant and equipment of $3.0 million. The decrease in capital expenditures of $7.9 million for the six months ended March 28, 1998 when compared to the prior year period is primarily due to reductions in customer equipment and new vehicle purchases as the Partnership has elected to lease new vehicles in lieu of purchasing same. Net cash used in financing activities for the six months ended March 28, 1998 was $9.9 million reflecting the Partnership's cash distributions and the proceeds of the General Partner's APU contributions. Net cash used in financing activities for the six months ended March 29, 1997 was $11.6 million, arising from net short-term borrowings of $14.0 million principally for working capital requirements, offset by the Partnership's distributions of $25.6 million. The Partnership has announced that it will make a distribution of $0.50 per Unit to its Common Unitholders on May 12, 1998 for the second 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 third 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 (10) First Amendment to Amended and Restated Credit Agreement made and entered into as of February 25, 1998 by and among the Operating Partnership, as Borrower, the Lenders referred to therein, First Union National Bank, as Administrative Agent, and the Bank of New York, as Document Agent. (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: MAY 11, 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 Exhibit FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "First Amendment") is made and entered into as of this 25th day of February, 1998 by and among SUBURBAN PROPANE, L.P., a limited partnership organized under the laws of Delaware, as Borrower, the Lenders who are or may become a party to the Credit Agreement referred to below, and FIRST UNION NATIONAL BANK, as Administrative Agent for the lenders and THE BANK OF NEW YORK, as Document Agent for the Lenders. STATEMENT OF PURPOSE The Lenders agreed to extend certain Loans to the Borrower pursuant to the Amended and Restated Credit Agreement dated as of September 30, 1997 by and among the Borrower, the Lenders, the Administrative Agent and the Documentation Agent (as amended or supplemented from time to time, the "Credit Agreement"). The parties now desire to amend the Credit Agreement in certain respects, to clarify the treatment of certain accounting items, on the terms and conditions set forth below. NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. EFFECT OF AMENDMENT. Except as expressly amended hereby, the Credit Agreement and Loan Documents shall be and remain in full force and effect. 2. CAPITALIZED TERMS. All capitalized undefined terms used in this First Amendment shall have the respective meanings assigned thereto in the Credit Agreement. 3. MODIFICATION OF CREDIT AGREEMENT. The definition of "EBITDA" set forth in Section 1.1 of the Credit Agreement is hereby deleted in its entirety and the following definition is substituted in lieu thereof: "EBITDA" means, with respect to the Borrower and its Subsidiaries on a Consolidated basis for any period, (a) the Consolidated net income of the Borrower and its Subsidiaries for such period, computed in accordance with GAAP, PLUS, (b) to the extent deducted in computing such Consolidated net income and without duplication, the sum of (i) income tax expense, (ii) Interest Expense, (iii) depreciation and amortization expense, (iv) extraordinary losses during such period, (v) non-cash restructuring charges, (vi) cash restructuring charges, in an aggregate amount not to exceed $5,000,000 during the term of this Agreement and (vii) with respect to any period that includes the fiscal quarter ended June 28, 1997, restructuring charges (in an aggregate amount not to exceed $6,900,000) recorded by the Borrower during such fiscal quarter; MINUS, (c) to the extent added in computing such Consolidated net income and without duplication, extraordinary gains during the applicable period. 4. CONSENT TO COMMODITY HEDGING POLICY. By its execution hereof, each Lender hereby approves the Borrower's commodity hedging policy (the "Policy") in the form attached hereto as EXHIBIT A-1. Upon execution hereof by the Required Lenders, the Policy shall become the "commodity hedging policy" referred to in Sections 7.17 and 9.01(c) of the Credit Agreement pursuant to which the Borrower may enter into Commodity Hedging Agreements. As set forth in Section 7.17 of the Credit Agreement, the Borrower shall not amend the Policy in any manner that increases the risk exposure of the Borrower (including, without limitation, any increase of the limits thereunder) without the prior written consent of the Required Lenders, which consent shall not be unreasonably withheld. 5. REPRESENTATIONS AND WARRANTIES/NO DEFAULT. (a) By its execution hereof, the Borrower hereby certifies that each of the representations and warranties set forth in the Credit Agreement and the other Loan Documents is true and correct in all material respects as of the date hereof as if fully set forth herein and that as of the date hereof no Default or Event of Default has occurred and is continuing. (b) By its execution hereof, the Borrower hereby represents and warrants that each of the Borrower and its Subsidiaries has the right, power and authority and has taken all necessary corporate and other action to authorize the execution, delivery and performance of this First Amendment and each other document executed in connection herewith to which it is a party in accordance with their respective terms. This First Amendment has been duly executed and delivered by the duly authorized officers of the Borrower and each of its Subsidiaries party thereto, and each such document constitutes the legal, valid and binding obligation of the Borrower or its Subsidiary party thereto, enforceable in accordance with its terms. 6. EXPENSES. The Borrower shall pay all reasonable out-of-pocket expenses of the Agent in connection with the preparation, execution and delivery of this First Amendment, including without limitation, the reasonable fees and disbursements of counsel for the Agent. 7. GOVERNING LAW. This First Amendment shall be governed by and construed in accordance with the laws of the State of New York. 8. NO FURTHER AMENDMENT. Except as expressly set forth herein, all other provisions of the Credit Agreement shall be unmodified and shall continue in full force and effect. The Borrower acknowledges that the execution and delivery of this First Amendment does not constitute a waiver of any of the provisions of Section 12.11 of the Credit Agreement and no Lender shall be under any obligation to agree to any future amendment of the Credit Agreement. 9. COUNTERPARTS. This First Amendment may be executed in separate counterparts, each of which when executed and delivered is an original but all of which taken together constitute one and the same instrument. 10. FAX TRANSMISSION. A facsimile, telecopy or other reproduction of this First Amendment may be executed by one or more parties hereto, and an executed copy of this First Amendment may be delivered by one or more parties hereto by facsimile or similar instantaneous electronic transmission device pursuant to which the signature of or on behalf of such party can be seen, and such execution and delivery shall be considered valid, binding and effective for all purposes. At the request of any party hereto, all parties hereto agree to execute an original of this First Amendment as well as any facsimile, telecopy or other reproduction hereof. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed as of the date and year first above written. SUBURBAN PROPANE, L.P. By: /S/ ROBERT M. PLANTE -------------------- Name: ROBERT M. PLANTE ---------------- Title: TREASURER --------- FIRST UNION NATIONAL BANK, as Administrative Agent and as Lender By: /S/ JAMES J. PETRONCHAK ----------------------- Name: JAMES J. PETRONCHAK ------------------- Title: SENIOR VICE PRESIDENT --------------------- THE BANK OF NEW YORK, as Documentation Agent and as Lender By: /S/ RANDOLPH E.J. MEDRANO ------------------------- Name: RANDOLPH E.J. MEDRANO --------------------- Title: VICE PRESIDENT -------------- BANQUE PARIBAS By: /S/ ROBERT G. CARINO -------------------- Name: ROBERT G. CARINO ---------------- Title: VICE PRESIDENT -------------- By: /S/ DUANE HELKOWSKI ------------------- Name: DUANE HELKOWSKI --------------- Title: VICE PRESIDENT -------------- CREDIT LYONNAIS NEW YORK BRANCH By: /S/ VLADIMER LABUN ------------------ Name: VLADIMER LABUN -------------- Title: FIRST VICE PRESIDENT-MANAGER ---------------------------- THE FIRST NATIONAL BANK OF CHICAGO By: /S/ ROBERT MCMILLAN ------------------- Name: ROBERT MCMILLAN --------------- Title: CORPORATE BANKING OFFICER ------------------------- MELLON BANK By: /S/ GEORGE B. DAVIS ------------------- Name: GEORGE B. DAVIS --------------- Title: VICE PRESIDENT -------------- ABN AMRO BANK, N.V. By: /S/ GEORGE M. DUGAN -------------------- Name: GEORGE M. DUGAN --------------- Title: VICE PRESIDENT -------------- By: /S/ ALAN LIPSKY --------------- Name: ALAN LIPSKY ----------- Title: CORPORATE BANKING 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 6-MOS SEP-26-1998 SEP-29-1997 MAR-28-1998 61,814 0 72,061 3,182 21,327 159,416 485,807 130,410 769,520 83,659 428,175 0 0 0 195,687 769,520 435,315 435,315 221,008 326,173 0 1,543 15,849 63,933 21 63,912 0 0 0 63,912 0 0
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