-----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, GKY8KD1BmYL5pJMK7cGETrRZUjiljttB1LjjIYMgkzX8v/RzP7WwDBnwnSix6+ci 3CzDoy5QiIdCXZ5Ey40tQA== 0001005210-99-000003.txt : 19990210 0001005210-99-000003.hdr.sgml : 19990210 ACCESSION NUMBER: 0001005210-99-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981226 FILED AS OF DATE: 19990209 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: 99525424 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, L.P. 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 26, 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 December 26, 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 December 26, 1998 and September 26, 1998 4 Condensed Consolidated Statements of Operations for the three months ended December 26, 1998 and December 27, 1997 5 Condensed Consolidated Statements of Cash Flows for the three months ended December 26, 1998 and December 27, 1997 6 Condensed Consolidated Statement of Partners' Capital for the three months ended December 26, 1998 7 Notes to Condensed Consolidated Financial Statements 8-12 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 13-15 Item 3 - Quantitative and Qualitative Disclosures about Market Risk 15-16 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 - ----------------------------------------------- This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, relating to the Partnership's future business expectations and predictions and financial condition and results of operations. These forward-looking statements involve certain risks and uncertainties. Important factors that could cause actual results to differ materially from those discussed in such forward-looking statements ("cautionary statements") include, among other things: the impact of weather conditions on the demand for propane; fluctuations in the unit cost of propane; the ability of the Partnership to compete with other suppliers of propane and other energy sources; the ability of the Partnership to retain customers; the impact of energy efficiency and technology advances on the demand for propane; the ability of management to continue to control expenses; the impact of regulatory developments on the Partnership's business, including the resolution of Final Rule HM-225 (49 CFR 171.5) promulgated by the research and special programs administration of the U.S Department of Transportation; the impact of legal proceedings on the Partnership's business; and, if the proposed recapitalization of the Partnership discussed below is completed, the impact of the additional debt at the operating partnership level and the impact of the replacement of a third party distribution support arrangement with alternative support from the Partnership. All subsequent written and oral forward-looking statements attributable to Suburban or persons acting on its behalf are expressly qualified in their entirety by such cautionary statements.
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) December 26, September 26, 1998 1998 (unaudited) (audited) ------------- -------------- ASSETS Current assets: Cash and cash equivalents $ 54,188 $ 59,819 Accounts receivable, less allowance for doubtful accounts of $2,382 58,081 39,134 Inventories 30,239 29,962 Prepaid expenses and other current assets 4,476 3,866 ------------- -------------- Total current assets 146,984 132,781 Property, plant and equipment, net 339,015 343,828 Net prepaid pension cost 34,268 34,556 Goodwill and other intangible assets, net 213,162 214,782 Other assets 4,779 3,618 ------------- -------------- Total assets $ 738,208 $ 729,565 ============= ============== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable $ 33,789 $ 31,315 Accrued employment and benefit costs 15,853 20,926 Accrued insurance 5,330 4,830 Customer deposits and advances 15,120 16,241 Accrued interest 16,312 8,198 Other current liabilities 9,083 10,040 ------------- -------------- Total current liabilities 95,487 91,550 Long-term debt 427,850 427,897 Postretirement benefits obligation 35,758 35,980 Accrued insurance 16,285 16,574 Other liabilities 9,504 9,764 ------------- -------------- Total liabilities 584,884 581,765 Partners' capital: Common Unitholders 87,222 84,847 Subordinated Unitholder 53,141 49,147 General Partner 24,595 24,488 Unearned compensation (11,634) (10,682) ------------- -------------- Total partners' capital 153,324 147,800 ------------- -------------- Total liabilities and partners' capital $738,208 $729,565 ============= ==============
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 26, December 27, 1998 1997 ------------ ------------ Revenues Propane $ 138,790 $ 182,905 Other 22,426 21,981 --------- --------- 161,216 204,886 Costs and expenses Cost of sales 68,871 105,657 Operating 52,274 53,930 Depreciation and amortization 8,782 9,292 General and administrative expenses 7,326 6,072 Gain on sale of investment in Dixie Pipeline Co. - (5,090) --------- --------- 137,253 169,861 Income from operations 23,963 35,025 Interest expense, net 7,586 8,108 --------- --------- Income before provision for income taxes 16,377 26,917 Provision for income taxes 7 16 --------- --------- Net income $ 16,370 $ 26,901 ========= ========= General Partner's interest in net income $ 327 $ 538 --------- --------- Limited Partners' interest in net income $ 16,043 $ 26,363 ========= ========= Basic and diluted net income per Unit $ 0.56 $ 0.92 ========= ========= 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 December 26, December 27, 1998 1997 ------------------ ------------------ Cash flows from operating activities: Net income $ 16,370 $ 26,901 Adjustments to reconcile net income to net cash provided by operations: Depreciation 6,898 7,360 Amortization 1,884 1,932 (Gain) on disposal of investment - (5,090) (Gain) on disposal of property, plant and equipment (88) (401) Changes in operating assets and liabilities, net of acquisitions and dispositions: (Increase) in accounts receivable (18,947) (31,068) (Increase)/decrease in inventories (277) 1,863 (Increase)/decrease in prepaid expenses and other current assets (610) 3,436 Increase/(decrease) in accounts payable 2,474 (637) (Decrease) in accrued employment and benefit costs (4,918) (1,171) Increase in accrued interest 8,114 8,044 (Decrease) in other accrued liabilities (1,578) (1,959) Other noncurrent assets (1,033) (333) Deferred credits and other noncurrent liabilities (771) (493) ------------- ------------- Net cash provided by operating activities 7,518 8,384 ------------- ------------- Cash flows from investing activities: Capital expenditures (2,936) (3,070) Acquisitions (109) (3,693) Proceeds from sale of investment - 13,090 Proceeds from sale of property, plant and equipment, net 944 2,491 ------------- ------------- Net cash (used in) provided by investing activities (2,101) 8,818 ------------- ------------- Cash flows from financing activities: Long-term debt repayments (47) - Proceeds from General Partner APU contribution - 12,000 Partnership distribution (11,001) (10,926) ------------- ------------- Net cash (used in) provided by financing activities (11,048) 1,074 ------------- ------------- Net (decrease)/increase in cash and cash equivalents (5,631) 18,276 Cash and cash equivalents at beginning of period 59,819 19,336 ------------- ------------- Cash and cash equivalents at end of period $ 54,188 $ 37,612 ============= ============= Supplemental disclosure of cash flow information: Cash paid for interest $ 108 $ 168 ============= ============= Non-cash investing and financing activities Assets acquired by incurring note payable $ - $ 250 ============= =============
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 26, 1998 21,562 7,164 $84,847 $49,147 $24,488 $(10,682) $147,800 Grants issued under Restricted Unit Plan 1,107 (1,107) - Partnership distribution (10,781) (220) (11,001) Amortization of Restricted Unit compensation 155 155 Net income - - 12,049 3,994 327 - 16,370 ------ ------------ ------- ------------ ------- ---------------- -------- Balance at December 26, 1998 21,562 7,164 $87,222 $53,141 $24,595 $(11,634) $153,324 ====== ============ ======= ============ ======= ================ ========
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 26, 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 Suburban Propane, a division of Quantum Chemical Corporation (the "Predecessor Company"). In addition, Suburban Sales & Service, Inc. (the "Service Company"), a subsidiary of the Operating Partnership, was formed to acquire and operate the service work and appliance and parts businesses of the Predecessor Company. The Partnership, the Operating Partnership 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. 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 Securities and Exchange Commission ("SEC") 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 (See Note 7 Proposed Recapitalization). 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 Partnership's Annual Report on Form 10-K for the fiscal year ended September 26, 1998, including management's discussion of financial results contained therein. Due to the seasonal nature of the Partnership's propane business, the results of operations for interim periods are not necessarily indicative of the results to be expected for a full year. FISCAL PERIOD. The Partnership's fiscal periods end on the Saturday nearest the end of the quarter. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FINANCIAL INSTRUMENTS. The Partnership routinely uses propane futures and forward contracts to reduce the risk of future price fluctuations and to help ensure supply during periods of high demand. Gains and losses on futures and forward contracts designated as hedges are deferred and recognized in cost of sales as a component of the product cost for the related hedged transaction. In the Consolidated Statement of Cash Flows, cash flows from qualifying hedges are classified in the same category as the cash flows from the items being hedged. INVENTORIES. Inventories are stated at the lower of cost or market. Cost is determined using a weighted average method for propane and a 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 26, 1998 and September 26, 1998 was $148,536 and $141,669, respectively. GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill and other intangible assets are comprised of the following: DECEMBER 26, 1998 SEPTEMBER 26, 1998 ----------------- ------------------ Goodwill $237,900 $237,812 Debt origination costs 6,224 6,224 Other, principally noncompete agreements 5,092 5,076 ---------- ---------- 249,216 249,112 Less: Accumulated amortization 36,054 34,330 ---------- ---------- $213,162 $214,782 ========== ========== 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. Basic net income (loss) per limited partner Unit is computed by dividing net income (loss), after deducting the General Partner's 2% interest, by the weighted average number of outstanding Common Units and Subordinated Units. Diluted net income (loss) per limited partner Unit is computed by dividing net income (loss), after deducting the General Partner's 2% interest, by the weighted average number of outstanding Common Units and Subordinated Units and the weighted average number of Restricted Units granted under the Restricted Unit Award Plan which vest over time (See Note 6 Restricted Unit Plan). RECLASSIFICATIONS. Certain prior period balances have been reclassified to conform with the current period presentation. 3. DISTRIBUTIONS OF AVAILABLE CASH - -- ------------------------------- The Partnership makes distributions to its partners 45 days after the end of each fiscal quarter in an aggregate amount equal to its Available Cash for such quarter. Available Cash generally means all cash on hand at the end of the fiscal quarter less the amount of cash reserves established by the Board of Supervisors in its reasonable discretion for future cash requirements. 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 has not required any cash contributions in exchange for APUs from the General Partner since the distribution for the fourth fiscal quarter of 1997. At December 26, 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 (See Note 7 Proposed Recapitalization). 4. COMMITMENTS AND CONTINGENCIES - -- ----------------------------- The Partnership leases certain property, plant and equipment for various periods under noncancelable leases. Rental expense under operating leases was $4,145 for the three months ended December 26, 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 December 26, 1998, accrued insurance liabilities amounted to $21,615, 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. 5. 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 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 is payable quarterly whether or not borrowings occur. As of December 26, 1998, such fee was .25%. The Bank Credit Facilities will expire September 30, 2000. No amounts were outstanding under the Bank Credit Facilities as of September 26, 1998 and December 26, 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. For the three months ended December 26, 1998, interest expense was $8,255. 6. 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. Following is a summary of activity in the Restricted Unit Plan: UNITS VALUE PER UNIT -------- -------------- Outstanding September 26, 1998 621,811 $18.41 - $21.63 Awarded 61,948 $17.88 -------- --------------- Outstanding December 26, 1998 683,759 $17.88 - $21.63 ======== =============== For the three months ended December 26, 1998, the Partnership amortized $155 of unearned compensation. 7. PROPOSED RECAPITALIZATION - -- ------------------------- On November 27, 1998, the Partnership Entities entered into a Recapitalization Agreement with Millennium, the General Partner and Suburban Energy Services Group LLC, an entity newly formed by the Partnership's management. Under the terms of the Agreement, the Partnership will purchase Millennium's 24.4% subordinated partner interest evidenced by 7,163,750 Subordinated Units and retire such units. In addition, the requirement for the Partnership to repay $22,000 in outstanding APUs under the Distribution Support Agreement will be eliminated. The existing Distribution Support Agreement will be replaced with an alternative support arrangement provided by the Partnership. The aggregate redemption price to be paid to Millennium will be $69,000 which is expected to be funded from available cash resources and/or borrowings under a bank credit facility. Concurrent with the execution of the Recapitalization Agreement, Suburban Energy Services Group LLC, ("Successor General Partner") entered into a Purchase Agreement with Millennium and the General Partner whereby the General Partner agreed to sell to the Successor General Partner for $6,000 the General Partner interest in the Partnership Entities. The consummation of the transactions is subject to certain conditions described in the Recapitalization and Purchase Agreements, including the approval of a majority of the Partnership's Common Unitholders and senior noteholders. On December 23, 1998, the Partnership filed a preliminary proxy statement with the SEC related to the proposed Recapitalization. The preliminary proxy statement is currently undergoing a review by the SEC staff. 8. SUBSEQUENT EVENT - COMMON UNIT DISTRIBUTION - -- ------------------------------------------- On January 21, 1999 the Partnership announced a quarterly distribution of $0.50 per Limited Partner Common Unit for the first quarter of fiscal 1999 payable on February 9, 1999 to holders of record on January 29, 1999. The Partnership will not make a quarterly distribution on its Subordinated Units (which are held by the General Partner) for said fiscal quarter. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 26, 1998 - ------------------------------------ COMPARED TO THREE MONTHS ENDED DECEMBER 27, 1997 - ------------------------------------------------ REVENUES Revenues decreased 21.3% or $43.7 million to $161.2 million for the three months ended December 26, 1998 as compared to $204.9 million for the three months ended December 27, 1997. The overall decrease is primarily attributable to a decline in retail volumes and lower propane costs resulting in lower sales prices to customers. Propane sold to retail customers decreased 13.1% or 20.7 million gallons to 137.6 million gallons, as compared to 158.3 million gallons in the prior period's quarter. The decrease in retail gallons is principally due to warmer temperatures which nationwide were 12% warmer than normal during the quarter and 14% warmer than the prior period's quarter. Wholesale gallons sold and gallons sold related to price risk management activities decreased 10.5% or 5.1 million gallons to 43.4 million gallons principally resulting from the Partnership's reduced emphasis on the wholesale market due to the low-margin nature of such sales. GROSS PROFIT Gross profit decreased 6.9% or $6.9 million to $92.3 million in the first quarter of fiscal 1999, principally attributable to lower retail volumes partially offset by overall higher margins. OPERATING EXPENSES Operating expenses decreased 3.1% or $1.7 million to $52.3 million for the three months ended December 26, 1998 as compared to $53.9 million for the three months ended December 27, 1997. The decrease in operating expenses is principally attributable to lower payroll and benefit costs and vehicle fuel expenses. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses increased 20.7% or $1.3 million to $7.3 million for the three months ended December 26, 1998 as compared to $6.1 million for the three months ended December 27, 1997. The increase is primarily attributable to the absence of offsetting dividend income earned in the prior year's quarter on the sold investment in the Dixie Pipeline Company and higher information systems expenses. OPERATING INCOME AND EBITDA Results for the prior year's 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 this one-time item, operating income decreased $6.0 million to $24.0 million in the three months ended December 26, 1998 compared to $29.9 million in the prior year's first quarter. EBITDA, excluding the one-time item, decreased $6.5 million to $39.2 million. The decrease in operating income and EBITDA is primarily attributable to decreased retail volumes partially offset by lower period expenses and 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. INTEREST EXPENSE Net interest expense decreased $0.5 million to $7.6 million in the three months ended December 26, 1998 compared with $8.1 million in the prior period. The decrease is attributable to higher interest income on significantly increased cash investments. HEDGING The Partnership engages in hedging transactions to reduce the effect of price volatility on its product costs and to help ensure the availability of propane during periods of short supply. The Partnership is currently a party to propane futures contracts on the New York Mercantile Exchange and enters into agreements to purchase and sell propane at fixed prices in the future. These activities are monitored by management through enforcement of the Partnership's Commodity Trading Policy. Hedging does not always result in increased product margins and the Partnership does not consider hedging activities to be material to operations or liquidity for the three month period ended December 26, 1998. 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 26, 1998, net cash provided by operating activities was $7.5 million compared to cash provided by operating activities of $8.4 million in the three months ended December 27, 1997. The decrease of $0.9 million was primarily due to lower net income and payment of accrued incentive compensation partially offset by a decrease in working capital requirements arising from lower retail gallons sold and a decline in the cost of propane. Net cash used in investing activities was $2.1 million during the three months ended December 26, 1998 consisting of capital expenditures of $2.9 million (including $1.5 million for maintenance expenditures and $1.4 million to support the growth of operations) and acquisition payments of $0.1 million, offset by proceeds from the sales of property, plant and equipment of $0.9 million. Net cash provided by investing activities was $8.8 million for 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 financing activities for the three months ended December 26, 1998 was $11.0 million, principally reflecting the Partnership's distribution. 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. The Partnership has announced that it will make a distribution of $.50 per Unit to its Common Unitholders on February 9, 1999 for the first fiscal quarter of 1999. 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 1999. The ability of the Partnership to satisfy its future obligations will depend on its future performance, which will be subject to prevailing economic, financial, business and weather conditions and other factors, many of which are beyond its control. Based on its current cash position, available Bank Credit Facilities and expected cash flow from operating activities, the Partnership expects to have sufficient funds to meet its obligations and working capital needs during fiscal 1999. In connection with the proposed Recapitalization, the Operating Partnership has obtained a commitment letter dated October 30, 1998 from The Bank of New York providing for a new bank credit facility allowing for borrowings of up to $150.0 million. The Recapitalization may be funded by borrowings under this facility and/or internally generated funds. Pursuant to the terms of the commitment letter, borrowings under this facility will bear interest at a rate based upon either LIBOR plus a margin or The Bank of New York's prime rate plus a margin. The facility will mature upon the earlier of (a) five years from the date of closing and (b) March 31, 2002 if on or before March 31, 2002, the Senior Notes have not been amended to provide that no principal payments are due thereunder prior to June 30, 2003. The Partnership and all present and future domestic subsidiaries of the Operating Partnership will guarantee the repayment of any amounts due under the facility; provided, however, that the Service Company will not be required to guarantee the facility for so long as its EBITDA does not exceed certain levels. The facility will be secured by certain owned and later-acquired assets of the Partnership, the Operating Partnership and its subsidiary guarantors and will rank equally with the Operating Partnership's obligations under the Senior Notes. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of December 26, 1998, the Partnership was party to propane forward contracts with various third parties and futures traded on the New York Mercantile Exchange ("NYMEX"). Such contracts provide that the Partnership sell or acquire propane at a fixed price at fixed future dates. At expiration, the contracts are settled by the delivery of propane to the respective party or are settled by the payment of a net amount equal to the difference between the then current price of propane and the fixed contract price. The contracts are entered into for purposes other than trading in anticipation of market movements, and to manage and hedge exposure to fluctuating propane prices as well as to help ensure the availability of propane during periods of high demand. Market risks associated with the trading of futures and forward contracts are monitored daily for compliance with the Partnership's trading policy which includes volume limits for open positions. Open inventory positions are reviewed and managed daily as to exposures to changing market prices. MARKET RISK The Partnership is subject to commodity price risk to the extent that propane market prices deviate from fixed contract settlement amounts. Futures contracts traded with brokers of the NYMEX require daily cash settlements in margin accounts. Forward contracts are generally settled at the expiration of the contract term. CREDIT RISK Futures contracts are guaranteed by the NYMEX and as a result have minimal credit risk. The Partnership is subject to credit risk with forward contracts to the extent the counterparties do not perform. The Partnership evaluates the financial condition of each counterparty with which it conducts business and establishes credit limits to reduce exposure to credit risk of non-performance. SENSITIVITY ANALYSIS In an effort to estimate the exposure of unfavorable market price movements, a sensitivity analysis of open positions as of December 26, 1998 was performed. Based on this analysis, a hypothetical 10% adverse change in market prices for each of the future months for which a future and/or forward contract exists indicates a potential loss in future earnings of $2.3 million as of December 26, 1998. The above hypothetical change does not reflect the worst case scenario. Actual results may be significantly different depending on market conditions and the composition of the open position portfolio. SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES PART II ITEM 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 November 27, 1998, announcing the Partnership's proposed recapitalization. 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, 1999 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 For 10-Q and is qualified in it's entirety by reference to such financial statements 1,000 3-MOS SEP-25-1999 SEP-28-1998 DEC-26-1998 54,188 0 60,463 2,382 30,239 146,984 487,551 148,536 738,208 95,487 427,850 0 0 0 153,324 738,208 161,216 161,216 68,871 121,145 0 396 7,586 16,377 7 16,370 0 0 0 16,370 0 0
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