UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1996
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 16 OF THE SECURITIES
EXCHANGE ACT OF 1934
for the transition period from ______ to ______
Commission File Number: 1-14222
SUBURBAN PROPANE PARTNERS, L.P.
-------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3410353
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
240 Route 10 West, Whippany, NJ 07981
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
(201) 887-5300
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for each shorter period that the Registrant
was required to file such reports), and (2) had been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of June 29, 1996:
Suburban Propane Partners, L.P. - 21,562,500 Common Units
- 7,163,750 Subordinated Units
This Report contains a total of 22 pages.
<PAGE>
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 Sheet as of June 29, 1996 3
Condensed Consolidated Statement of Operations from
April 1, 1996 through June 29, 1996 and March 5, 1996
through June 29, 1996 4-5
Condensed Consolidated Statement of Cash Flows from
April 1, 1996 through June 29, 1996 and March 5, 1996
through June 29, 1996 6-7
Condensed Consolidated Statement of Partners' Capital
from March 4, 1996 through June 29, 1996 8
Notes to Condensed Consolidated Financial Statements 9-16
Suburban Propane division of Quantum Chemical Corporation
---------------------------------------------------------
(Predecessor)
-------------
Condensed Consolidated Balance Sheet as of 3
September 30, 1995
Condensed Consolidated Statement of Operations
from April 1, 1995 through July 1, 1995 and
October 1, 1995 through March 4, 1996 and
October 1, 1994 through July 1, 1995. 4-5
Condensed Consolidated Statement of Cash Flows
from April 1, 1995 through July 1, 1995 and
October 1, 1995 through March 4, 1996 and
October 1, 1994 through July 1, 1995. 6-7
Notes to Condensed Consolidated Financial Statements 9-16
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 17-20
Part 2 Other Information
Item 5 - Other 21
Item 6 - Exhibits and Reports on Form 8-K 21
Signatures 22
<PAGE>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
SEPTEMBER 30,
JUNE 29, 1995
1996 (PREDECESSOR)
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................... $ 62,251 $ 136
Accounts receivable, less allowance for
doubtful accounts of $3,162 ................ 48,883 41,045
Inventories ................................... 23,288 36,663
Prepaid expenses and other current assets ..... 7,449 1,002
----------- -----------
Total current assets ..................... 141,871 78,846
Property, plant and equipment, net ................. 364,775 363,805
Net prepaid pension cost ........................... 46,809 44,713
Goodwill and other intangible assets, net .......... 251,697 239,909
Other assets ....................................... 9,271 9,186
----------- -----------
Total assets ............................. 814,423 736,459
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL/
PREDECESSOR EQUITY
Current liabilities:
Accounts payable .............................. $ 24,881 $ $22,298
Accrued employment and benefit costs .......... 22,784 19,975
Accrued insurance ............................. 4,460 4,470
Customer deposits and advances ................ 3,662 8,501
Accrued interest .............................. 10,487 0
Other current liabilities ..................... 10,210 9,097
----------- -----------
Total current liabilities ................ 76,484 64,341
Long-term debt ..................................... 425,000 0
Postretirement benefits obligation ................. 82,322 83,098
Accrued insurance .................................. 18,248 18,569
Other liabilities .................................. 11,547 12,216
----------- -----------
Total liabilities ........................ 613,601 178,224
Predecessor equity ................................. 0 558,235
Partners' capital:
General Partner ............................... 4,016 0
Limited Partners .............................. 196,806 0
----------- -----------
Total partners' capital/predecessor equity 200,822 558,235
----------- -----------
Total liabilities and partners' capital/
predecessor equity ..................... $ 814,423 $ 736,459
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
( in thousands, except per unit amounts)
(unaudited)
THREE MONTHS ENDED
JUNE 29, 1996 JULY 1, 1995
(PREDECESSOR)
------------- ------------
<S> <C> <C>
Revenues
Propane .................................... $ 116,120 $ 108,356
Other ...................................... 14,470 13,919
----------- -----------
130,590 122,275
Costs and expenses
Cost of sales .............................. 68,012 59,634
Operating .................................. 49,561 48,859
Depreciation and amortization .............. 8,983 8,402
Selling, general and administrative expenses 7,296 6,782
Management fee ............................. 0 775
----------- -----------
133,852 124,452
Loss before interest expense and income taxes ... (3,262) (2,177)
Interest expense, net ........................... 7,251 0
----------- -----------
Loss before provision for income taxes .......... (10,513) (2,177)
Provision (benefit) for income taxes ............ 63 (993)
----------- -----------
Net loss ................................... $ (10,576) $ (1,184)
=========== ===========
General Partner's interest in net loss .......... $ (212)
-----------
Limited Partners' interest in net loss .......... $ (10,364)
===========
Net loss per Unit ............................... $ (0.36)
===========
Weighted average number of Units outstanding .... 28,726
-----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
( in thousands, except per unit amounts)
(unaudited)
October 1, 1995 October 1, 1995 October 1, 1994
through March 5, 1996 through through
March 4, 1996 through June 29, 1996 July 1, 1995
(Predecessor) June 29, 1996 (Combined) (Predecessor)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues
Propane .................................... $ 352,621 $ 178,049 $ 530,670 $ 475,911
Other ...................................... 31,378 19,213 50,591 49,226
------------- ------------- ------------- -------------
383,999 197,262 581,261 525,137
Costs and expenses
Cost of sales .............................. 204,491 104,154 308,645 263,786
Operating .................................. 88,990 66,744 155,734 151,913
Depreciation and amortization .............. 14,816 11,826 26,642 25,356
Selling, general and administrative expenses 12,616 8,863 21,479 18,188
Management fee ............................. 1,290 0 1,290 2,325
------------- ------------- ------------- -------------
322,203 191,587 513,790 461,568
Income before interest expense and income taxes . 61,796 5,675 67,471 63,569
Interest expense, net ........................... 0 9,236 9,236 0
------------- ------------- ------------- -------------
Income (loss) before provision for income taxes . 61,796 (3,561) 58,235 63,569
Provision for income taxes ...................... 28,147 84 28,231 28,954
------------- ------------- ------------- -------------
Net income (loss) .......................... $ 33,649 $ (3,645) $ 30,004 $ 34,615
============= ============= ============= =============
General Partner's interest in net loss .......... $ (73)
-------------
Limited Partners' interest in net loss .......... $ (3,572)
=============
Net loss per Unit ............................... $ (0.12)
=============
Weighted average number of Units outstanding .... 28,726
-------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 29, JULY 1,
1996 1995
(PREDECESSOR)
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ..................................................... $ (10,576) $ (1,184)
Adjustments to reconcile net loss to net cash
provided by (used in) operations:
Depreciation ............................................ 7,296 6,833
Amortization ............................................ 1,687 1,569
Gain on disposal of property, plant and
equipment ............................................. (26) (46)
Changes in operating assets and liabilities, net of
acquisitions and dispositions:
Decrease in accounts receivable ........................ 11,953 26,591
Decrease in inventories ................................ 3,834 2,915
Increase in prepaid expenses and
other current assets ................................... (1,331) (300)
Decrease in accounts payable ............................ (7,399) (1,438)
Decrease due to affiliate ............................... (41,735) 0
Increase (decrease) in accrued employment
and benefit costs ...................................... 10 (2,172)
Increase in accrued interest ............................ 8,173 0
Increase in other accrued liabilities .................. 545 1,169
Other noncurrent assets ...................................... (750) 64
Deferred credits and other noncurrent liabilities ............ 4,778 (2,693)
------------- -------------
Net cash provided by (used in) operating activities (23,541) 31,308
------------- -------------
Cash flows from investing activities:
Capital expenditures ........................................ (6,351) (4,847)
Acquisitions ................................................ (4,168) (2,213)
Proceeds from sale of property, plant and equipment, net .... 157 1,531
------------- -------------
Net cash used in investing activities .............. (10,362) (5,529)
------------- -------------
Cash flows from financing activities:
Cash activity with parent, net .............................. 0 (25,852)
Proceeds from post-closing adjustment with former parent .... 5,560 0
------------- -------------
Net cash provided by (used in) financing activities 5,560 (25,852)
------------- -------------
Net decrease in cash and cash equivalents ........................ (28,343) (73)
Cash and cash equivalents at beginning of period .................. 90,594 272
------------- -------------
Cash and cash equivalents at end of period ........................ $ 62,251 $ 199
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per unit amounts)
(unaudited)
October 1, 1995 October 1, 1995 October 1, 1994
through March 5, 1996 through through
March 4, 1996 through June 29, 1996 July 1, 1995
(Predecessor) June 29, 1996 (Combined) (Predecessor)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................... $ 33,649 $ (3,645) $ 30,004 $ 34,615
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operations:
Depreciation ........................................... 12,033 9,535 21,568 20,620
Amortization ........................................... 2,783 2,291 5,074 4,736
Gain on disposal of property, plant and
equipment ............................................ (85) (35) (120) (106)
Changes in operating assets and liabilities, net of
acquisitions and dispositions:
Decrease (increase) in accounts receivable ............. (56,643) 48,805 (7,838) 7,224
Decrease in inventories ............................... 2,829 10,546 13,375 15,589
Decrease (increase) in prepaid expenses and
other current assets .................................. (1,874) (4,573) (6,447) 177
Increase (decrease) in accounts payable ................ 9,335 (6,752) 2,583 (4,479)
Increase (decrease) in accrued employment
and benefit costs ..................................... 2,303 506 2,809 (7,391)
Increase in accrued interest ........................... 0 10,487 10,487 0
Decrease in other accrued liabilities .................. (3,530) (206) (3,736) (5,828)
Other noncurrent assets ..................................... (1,203) (978) (2,181) 294
Deferred credits and other noncurrent liabilities ........... (3,362) 5,096 1,734 (4,762)
------------ ------------ ------------ ------------
Net cash provided by (used in) operating activities (3,765) 71,077 67,312 60,689
------------ ------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures ....................................... (9,796) (8,779) (18,575) (17,253)
Acquisitions ............................................... (13,172) (6,115) (19,287) (4,608)
Proceeds from sale of property, plant and equipment, net ... 1,003 303 1,306 5,235
------------ ------------ ------------ ------------
Net cash used in investing activities ............. (21,965) (14,591) (36,556) (16,626)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Cash activity with parent, net ............................. 25,799 0 25,799 (44,162)
Proceeds from post-closing adjustment with former parent ... 0 5,560 5,560 0
Proceeds from debt placement ............................... 0 425,000 425,000 0
Proceeds from offering ..................................... 0 413,569 413,569 0
Debt placement and credit agreement expenses ............... 0 (6,224) (6,224) 0
Cash distribution to general partner ....................... 0 (832,345) (832,345) 0
------------ ------------ ------------ ------------
Net cash provided by (used in) financing activities 25,799 5,560 31,359 (44,162)
------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ............ 69 62,046 62,115 (99)
Cash and cash equivalents at beginning of period ................. 136 205 136 298
------------ ------------ ------------ ------------
Cash and cash equivalents at end of period ....................... $ 205 $ 62,251 $ 62,251 $ 199
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(in thousands)
(unaudited)
Total
Number of Units General Partners'
Common Subordinated Common Subordinated Partner Capital
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 4, 1996 ...... -- -- -- -- -- --
Contribution in connection
with formation of the
Partnership and issuance
of Common Units ........ 21,562 7,164 $ 150,488 $ 49,890 $ 4,089 $ 204,467
Net loss ................. -- -- (2,679) (893) (73) (3,645)
---------------------------------------------------------------------------------------
Balance at June 29, 1996 ...... 21,562 7,164 $ 147,809 $ 48,997 $ 4,016 $ 200,822
=======================================================================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 29, 1996
(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 - See Note 4) of the
Predecessor Company to the Operating Partnership and the Service Company. On
March 25, 1996, the underwriters of the Partnership's initial public offering
exercised an overallotment option to purchase an additional 2,812,500 Common
Units. The Operating Partnership and Service Company are, and the Predecessor
Company was, engaged in the retail and wholesale marketing of propane and
related appliances and services.
Suburban Propane GP, Inc. (the "General Partner") is a wholly-owned subsidiary
of Quantum Chemical Corporation ("Quantum") and serves as the general partner of
the Partnership and the Operating Partnership. Both the General Partner and
Quantum are indirect wholly-owned subsidiaries of Hanson PLC ("Hanson"). The
General Partner holds a 1% general partner interest in the Partnership and a
1.0101% general partner interest in the Operating Partnership. In addition, the
General Partner owns a 24.4% limited partner interest in the Partnership. This
limited partner interest is evidenced by subordinated units representing limited
partner interests in the Partnership. The General Partner has delegated to the
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 inter-company
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.
<PAGE>
Such adjustments consisted only of normal recurring items unless otherwise
disclosed. These financial statements should be read in conjunction with the
Predecessor Company financial statements contained in Amendment No. 4 to the
Partnership's Form S-1 Registration Statement (Registration No. 33-80605) filed
with the Commission on February 28, 1996. 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. Accordingly, the accompanying condensed consolidated results
of operations for the Partnership are for the period March 5, 1996 (date at
which Partnership operations commenced) to June 29, 1996.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash equivalents. The Partnership considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
Revenue Recognition. Sales of propane are recognized at the time product is
shipped or delivered to the customer. Revenue from the sale of propane
appliances and equipment is recognized at the time of sale or installation.
Revenue from repairs and maintenance is recognized upon completion of the
service.
Inventories. Inventories are stated at the lower of cost or market. Cost is
determined using a weighted average method for propane and a specific
identification basis for appliances.
Property, Plant and Equipment. Property, plant and equipment are stated at cost.
When plant and equipment are retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and any gains or losses
are reflected in operations. Depreciation of property, plant and equipment is
computed using the straight-line method over the estimated service lives which
range from three to forty years.
Accumulated depreciation at June 29, 1996 and September 30, 1995 was $78,635 and
$57,067, respectively.
Goodwill and other intangible assets. Goodwill and other intangible assets are
comprised of the following at June 29, 1996:
Goodwill $260,843
Debt origination costs 6,224
Other, principally noncompete agreements 2,334
-----------
269,401
Less: Accumulated amortization 17,704
-----------
$251,697
===========
<PAGE>
Goodwill represents the excess of the purchase price over the fair market value
of net assets acquired and is being amortized on a straight-line basis over
forty years from the date of acquisition.
Debt origination costs represent the costs incurred in connection with the
placement of the $425,000 of Senior Notes (see Note 6) which is being amortized
on a straight-line basis over 15 years.
Income taxes. As discussed in Note 1, the Partnership Entities consist of two
limited partnerships, the Partnership and the Operating Partnership, and one
corporate entity, the Service Company. For federal and state income tax
purposes, the earnings attributed to the Partnership and Operating Partnership
are included in the tax returns of the individual partners. As a result, no
recognition of income tax expense has been reflected in the Partnership's
consolidated financial statements relating to the earnings of the Partnership
and Operating Partnership. The earnings attributed to the Service Company are
subject to federal and state income taxes. Accordingly, the Partnership's
consolidated financial statements reflect income tax expense related to the
Service Company's earnings.
Net Income 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 plus all additional cash on hand as a result of borrowings and
purchases of additional limited partner units (APUs) subsequent to the end of
such quarter less cash reserves established by the Board of Supervisors in its
reasonable discretion for future cash requirements. The Partnership has not made
a distribution to Unitholders for the partial fiscal quarter ended March 30,
1996. The Partnership will make a distribution on August 13, 1996 for the fiscal
quarter ended June 29, 1996 to holders of record as of July 26, 1996. The
minimum Quarterly Distribution and Target Distribution levels for said fiscal
quarter will be increased proportionately to reflect the fact that a
distribution was not made for the partial fiscal quarter ended March 30, 1996.
4. RELATED PARTY TRANSACTIONS
--------------------------
Pursuant to the Contribution, Conveyance and Assumption Agreement dated as of
March 4, 1996, between Quantum and the Partnership (the "Contribution
Agreement"), Quantum retained ownership of the Predecessor Company's accounts
receivable, net of allowance for doubtful accounts, as of the Closing Date. The
Partnership retained from the net proceeds of the Common Unit offering cash in
an amount equal to the net book value of such accounts receivable. In accordance
with the Contribution Agreement, the Partnership had agreed to collect such
<PAGE>
accounts receivable on behalf of Quantum which amounted to $97,700 as of the
Closing Date. As of June 29, 1996, the Operating Partnership had satisfied its
obligation to Quantum under such arrangement.
Pursuant to a Computer Services Agreement dated as of the Closing Date between
Quantum and the Partnership, Quantum permits the Partnership to utilize
Quantum's mainframe computer for the generation of customer bills, reports and
information regarding the Partnership's retail sales. For the four months ended
June 29, 1996, the Partnership incurred expenses of $127 under the Services
Agreement.
5. COMMITMENTS AND CONTINGENCIES
-----------------------------
The Partnership leases certain property, plant and equipment for various periods
under noncancelable leases. Rental expense under operating leases was $10,000
for the nine months ended June 29, 1996.
The Partnership is involved in various legal actions which have arisen in the
normal course of business including those relating to commercial transactions
and product liability. It is the opinion of management, based on the advice of
legal counsel, that the ultimate resolution of these matters will not have a
material adverse effect on the Partnership's financial position or future
results of operations.
6. LONG-TERM DEBT
--------------
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 will rank on an equal and
ratable basis with the Operating Partnership's obligations under the Bank Credit
Facilities discussed in Note 7 below. The Senior Notes will mature June 30,
2011, and require semiannual interest payments. The Note Agreement requires that
the principal be paid in equal annual installments of $42,500 starting June 30,
2002.
The Senior Note Agreement contains 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. BANK CREDIT FACILITIES
----------------------
The Bank Credit Facilities consist of a $100,000 acquisition facility
("Acquisition Facility") and a $75,000 working capital facility ("The Working
Capital Facility"). The Operating Partnership's obligations under the Bank
Credit Facilities are unsecured on an equal and ratable basis with the Operating
Partnership's obligations under the Senior Notes. The Bank Credit Facilities
will bear interest at a rate based upon either LIBOR, Chase Manhattan's
(formerly Chemical Bank's) prime rate or the Federal Funds effective rate plus
1/2 of 1% and in each case, plus a margin. In addition, an annual fee (whether
or not borrowings occur) is payable quarterly ranging from 0.125% to 0.375%
based upon certain financial tests. The Credit Agreement governing the
<PAGE>
Acquisition Facility and Working Capital Facility contains covenants generally
similar to those contained in the Senior Note Agreement.
The Working Capital Facility will expire on March 1, 1999. The Acquisition
Facility will expire on March 1, 2003. Any loans outstanding under the
Acquisition Facility after March 1, 1999 will require equal quarterly principal
payments over a four year period.
8. UNAUDITED PRO FORMA FINANCIAL INFORMATION
-----------------------------------------
The accompanying unaudited pro forma condensed consolidated statements of
operations for the three and nine months ended June 29, 1996 and July 1, 1995
were derived from the historical statements of operations of the Predecessor
Company for the periods October 1, 1994 through July 1, 1995 and October 1, 1995
through March 4, 1996 and the condensed consolidated statement of operations of
the Partnership from March 5, 1996 through June 29, 1996. The pro forma
condensed consolidated statements of operations were prepared to reflect the
effects of Partnership formation as if it had been completed in its entirety as
of the beginning of the periods presented. However, these statements do not
purport to present the results of operations of the Partnership had the
partnership formation actually been completed as of the beginning of the periods
presented. In addition, the pro forma condensed consolidated statements of
operations are not necessarily indicative of the results of future operations of
the Partnership and should be read in conjunction with the historical condensed
consolidated financial statements of the Predecessor Company and the Partnership
appearing elsewhere in this Quarterly Report on Form 10-Q.
<PAGE>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
June 29 July 1
1996 1995
------------ ------------
<S> <C> <C>
Revenues
Propane .................................... $ 116,120 $ 108,356
Other ...................................... 14,470 13,919
------------ ------------
130,590 122,275
Costs and Expenses
Cost of sales .............................. 68,012 59,634
Operating .................................. 49,561 48,859
Depreciation and amortization .............. 8,983 8,402
Selling, general and administrative expenses 7,296 7,557
------------ ------------
133,852 124,452
Loss before interest expenses and income taxes .. (3,262) (2,177)
Interest expense, net ........................... 7,251 8,175
------------ ------------
Loss before provision for income taxes .......... (10,513) (10,352)
Provision for income taxes ...................... 63 63
------------ ------------
Net loss ........................................ $ (10,576) $ (10,415)
============ ============
General Partner's interest in net loss .......... $ (212) $ (208)
------------ ------------
Limited Partners' interest in net loss .......... $ (10,364) $ (10,207)
============ ============
Net loss per Unit ............................... $ (0.36) $ (0.36)
============ ============
Weighted average number of Units outstanding .... 28,726 28,726
============ ============
</TABLE>
<PAGE>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended
June 29 July 1
1996 1995
------------ ------------
<S> <C> <C>
Revenues
Propane .................................... $ 530,670 $ 475,911
Other ...................................... 50,591 49,226
------------ ------------
581,261 525,137
Costs and Expenses
Cost of sales .............................. 308,645 263,786
Operating .................................. 155,734 151,913
Depreciation and amortization .............. 26,642 25,356
Selling, general and administrative expenses 22,769 20,513
------------ ------------
513,790 461,568
Income before interest expenses and income taxes 67,471 63,569
Interest expense, net ........................... 23,262 24,525
------------ ------------
Income before provision for income taxes ........ 44,209 39,044
Provision for income taxes ...................... 189 189
------------ ------------
Net income ...................................... $ 44,020 $ 38,855
============ ============
General Partner's interest in net income ........ $ 880 $ 777
------------ ------------
Limited Partners' interest in net income ........ $ 43,140 $ 38,078
============ ============
Net income per Unit ............................. $ 1.50 $ 1.33
============ ============
Weighted average number of Units outstanding .... 28,726 28,726
============ ============
</TABLE>
<PAGE>
9. UNAUDITED PRO FORMA FINANCIAL INFORMATION - CONTINUED
-----------------------------------------------------
Significant pro forma adjustments reflected in the above data include the
following:
1. For the three and nine month periods ended June 29, 1996 and July 1, 1995,
the elimination of management fees paid by the Predecessor Company to HM
Holdings, Inc.
2. For the three and nine month periods ended June 29, 1996 and July 1, 1995,
the addition of the estimated incremental general and administrative costs
associated with the partnership operating as a publicly traded partnership.
3. For the three and nine month periods ended June 29, 1996 and July 1, 1995, an
adjustment to interest expense to reflect the interest expense associated with
the Senior Notes and Bank Credit Facilities.
4. For the three and nine month periods ended June 29, 1996, and July 1, 1995,
the elimination of the provision for income taxes, as income taxes will be borne
by the Partners and not the Partnership, except for corporate income taxes
related to the Service Company.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 29, 1996
- --------------------------------
COMPARED TO THREE MONTHS ENDED JULY 1, 1995
- -------------------------------------------
REVENUES
Revenues increased 6.8% or $8.3 million to $130.6 million for the three months
ended June 29, 1996 as compared to $122.3 million for the three months ended
July 1, 1995. The overall increase is primarily attributable to higher retail
and wholesale selling prices. Propane sold to retail customers increased 1.5% or
1.5 million gallons while wholesale gallons sold increased 4% or 1.4 million
gallons.
GROSS PROFIT
Gross profit equaled the prior period's level of $62.6 million. The impact of
the higher retail and wholesale volumes was offset by lower retail margins due
to product cost increases. Product cost is expected to remain at higher than
historical levels with an associated impact on retail margins through the end of
the fiscal year.
OPERATING EXPENSES
Operating expenses increased 1.4% or $0.7 million to $49.6 million for the three
months ended June 29, 1996 as compared to $48.9 million for the three months
ended July 1, 1995. The increase in operating expenses is principally due to
higher plant and equipment maintenance, advertising and insurance expenses.
Operating expenses are expected to remain at higher than historical levels
through the end of the fiscal year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, General and Administrative expenses decreased 3.5% or $0.3 million to
$7.3 million for the three months ended June 29, 1996 compared to $7.6 million
for the three months ended July 1, 1995. Expenses declined due to lower
headcount-related expenses and supplies, offset in part by expenditures for
employee training and customer satisfaction programs.
OPERATING INCOME AND EBITDA
The operating loss increased $1.1 million to $3.3 million in the three months
ended June 29, 1996 compared to $2.2 million in the prior period. EBITDA
decreased 8.1% or $0.5 million to $5.7 million. This decrease is primarily
attributable to higher operating expenses, partially offset by lower selling,
general and administrative expenses. 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.
<PAGE>
NINE MONTHS ENDED JUNE 29, 1996
- -------------------------------
COMPARED TO NINE MONTHS ENDED JULY 1, 1995
- ------------------------------------------
REVENUES
Revenues increased 10.7% or $56.2 million to $581.3 million for the nine months
ended June 29, 1996 as compared to $525.1 million for the nine months ended July
1, 1995. The overall increase is primarily attributable to higher retail volumes
and wholesale volumes coupled with increased retail and wholesale selling
prices. Retail gallons sold increased 6.8% or 29.8 million gallons to 465.5
million gallons as compared to 435.7 million gallons for the nine months ended
July 1, 1995, while wholesale gallons sold increased 3.8% or 5.6 million gallons
to 153.6 million gallons compared to 148.0 million in the prior period. The
increase in gallons sold is due to the colder temperatures in all sections of
the country, except for the West.
GROSS PROFIT
Gross profit increased 4.3% or $11.2 million to $272.6 million for the nine
months ended June 29, 1996 compared to $261.4 million in the prior period. The
increase in gross profit principally resulted from higher retail propane volumes
partially offset by lower retail margins resulting from increased product costs.
OPERATING EXPENSES
Operating expenses increased 2.5% or $3.8 million to $155.7 million for the nine
months ended June 29, 1996 as compared to $151.9 million for the nine months
ended July 1, 1995. Operating expenses increased due to higher delivery costs
associated with the higher volumes, higher maintenance and fuel costs and a $0.5
million non-recurring expense related to a fire at an underground storage
facility in November 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, General and Administrative expenses increased 11.2% or $2.3 million to
$22.8 million for the nine months ended June 29, 1996 compared to $20.5 million
for the nine months ended July 1, 1995. Expenses increased due to higher
employee incentive costs, expenditures for employee training and new customer
satisfaction programs.
OPERATING INCOME AND EBITDA
Operating income increased 6.1% or $3.9 million to $67.5 million in the nine
months ended June 29, 1996 compared to $63.6 million in the prior period. EBITDA
increased 5.8% or $5.2 million to $94.1 million. This increase is primarily
attributable to the higher volume of retail gallons sold partially offset by
lower retail margins and an increase in operating and general and administrative
expenses. 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.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Due to the seasonal nature of the propane business, cash flows from operating
activities are greater during the winter and spring seasons as customers pay for
propane purchased during the heating season. For the three months ended June 29,
1996, net cash used in operating activities increased $54.8 million to $23.5
million compared to $31.3 million provided by operating activities in the three
months ended July 1, 1995. Such increase was primarily due to $41.7 million of
cash remitted to Quantum during the quarter principally reflecting cash
collected by the Partnership during the second quarter on Predecessor Company
accounts receivable which were retained by Quantum and a $14.6 million decrease
in accounts receivable activity also attributable to the retention of the
closing date accounts receivable by Quantum.
Net cash used in investing activities was $10.4 million for the three months
ended June 29, 1996 consisting of capital expenditures of $6.4 million and
acquisition payments of $4.2 million, offset by proceeds from the sale of
property, plant and equipment of $0.2 million. Net cash used in investing
activities was $5.5 million for the three months ended July 1, 1995 consisting
of capital expenditures of $4.8 million and acquisition payments of $2.2
million, offset by proceeds from the sale of property, plant and equipment of
$1.5 million.
For the nine months ended June 29, 1996, net cash provided by operating
activities increased $6.6 million to $67.3 million compared to $60.7 million for
nine months ended July 1, 1995. The increase is primarily attributable to an
aggregate increase in accounts payable, accrued expenses and other liabilities
of $36.3 million partially offset by an increase in accounts receivable, prepaid
expenses and decreased net income and inventories totaling $28.5 million arising
from an increase in the cost and volume of gallons sold and costs of operating
as a publicly traded partnership.
Net cash used in investing activities was $36.6 million for the nine months
ended June 29, 1996, reflecting $18.6 million in capital expenditures and $19.3
million of payments for acquisitions offset by net proceeds of $1.3 million from
the sale of property, plant and equipment. Net cash used in investing activities
was $16.6 million for the nine months ended July 1, 1995, consisting of capital
expenditures of $17.3 million and acquisition payments of $4.6 million, offset
by proceeds from the sale of property and equipment of $5.2 million. The
increase in cash used for acquisition activities of $13.1 million primarily
results from the Partnership's business strategy to expand its operations and
increase its retail market share through selective acquisitions of other propane
distributors as well as through internal growth.
Prior to March 5, 1996, the Predecessor Company's cash accounts had been managed
on a centralized basis by HM Holdings, Inc. ("HM Holdings"), a wholly-owned
affiliate of Hanson. Accordingly, cash receipts and disbursements relating to
the operations of the Predecessor Company were received or funded by HM
Holdings. Net cash provided by financing activities, which are reflected as a
increase in division invested capital, was $25.8 million during the five months
ended March 5, 1996 compared to $44.2 million of cash used by (reduction of
division invested capital) during the nine month period ended July 1, 1995. Net
cash provided by financing activities was $5.6 million for the three months
ended June 29, 1996. Such amount represents the closing price adjustment
received from Quantum in connection with the Partnership's initial public
offering.
<PAGE>
In March 1996, the Operating Partnership issued $425.0 million aggregate
principal amount of Senior Notes with an interest rate of 7.54% for net cash
proceeds of $418.8 million. Also, the Partnership, by means of an initial public
offering and the exercise of an overallotment option by the underwriters, issued
21,562,500 Common Units for net cash proceeds of $413.6 million. The net
proceeds of the Notes and Units issuance (which total $832.4 million), less the
$5.6 million closing price adjustment discussed above and $97.7 million
reflecting the retention of the Predecessor Company net accounts receivable by
Quantum, were used to acquire the propane assets from Quantum, pay off the
intercompany payables and make a special distribution to the General Partner.
The Partnership will make distributions in an amount equal to all of its
Available Cash approximately 45 days after the end of each fiscal quarter to
holders of record on the applicable record dates. The initial distribution of
$.66 per unit is payable on August 13, 1996 to all unitholders of record as of
July 26, 1996. The initial distribution includes a pro rata distribution for the
period March 5, 1996 to March 31, 1996 in addition to the regular Partnership
distribution for the Partnership's third fiscal quarter ended June 29, 1996.
<PAGE>
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
(99) Press Release dated August 6, 1996 regarding
the appointment of Dudley C. Mecum as an
Elected Supervisor of the Board of
Supervisors.
(B) Form 8-K
None
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THE REGISTRANT HAS
CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY
AUTHORIZED:
SUBURBAN PROPANE PARTNERS, L.P.
Date: August 9, 1996 By /s/ Charles T. Hoepper
----------------------
Charles T. Hoepper
Senior Vice President, Chief Financial
Officer and Chief Accounting Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
(27) Financial Data Schedule
(99) Press Release, dated August 6, 1996, regarding the
appointment of Dudley C. Mecum as an Elected Supervisor
of the Board of Supervisors.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial
information extracted from the financial
statements contained in the body of the
accompanying Form 10-Q and is qualified in its
entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUN-29-1996
<CASH> 62,251
<SECURITIES> 0
<RECEIVABLES> 52,045
<ALLOWANCES> 3,162
<INVENTORY> 23,288
<CURRENT-ASSETS> 141,871
<PP&E> 443,410
<DEPRECIATION> 78,635
<TOTAL-ASSETS> 814,423
<CURRENT-LIABILITIES> 76,484
<BONDS> 425,000
0
0
<COMMON> 0
<OTHER-SE> 200,822
<TOTAL-LIABILITY-AND-EQUITY> 814,423
<SALES> 581,261
<TOTAL-REVENUES> 581,261
<CGS> 308,645
<TOTAL-COSTS> 464,379
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,162
<INTEREST-EXPENSE> 9,236
<INCOME-PRETAX> 58,235
<INCOME-TAX> 28,231
<INCOME-CONTINUING> 30,004
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,004
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
SUBURBAN PROPANE
One Suburban Plaza * 240 Route 10 West * P.O. Box 206 * Whippany, NJ 07981-0206
Office 201-887-5300
Contact: Mark Alexander
Executive Vice Chairman
Suburban Propane Partners, L.P.
201-887-5300
For Immediate Release
---------------------
SUBURBAN PROPANE PARTNERS, L.P. ELECTS DUDLEY C. MECUM
------------------------------------------------------
TO BOARD OF SUPERVISORS
-----------------------
Whippany, New Jersey, August 6, 1996 -- Suburban Propane Partners, L.P.
(NYSE:SPH) has elected Dudley C. Mecum to the Company's Board of Supervisors.
Mr. Mecum is a partner of G.L.Ohrstrom,Inc., a New York-based leveraged buy out
group. In the past, Mr. Mecum has served as Group Vice President of Combustion
Engineering, Inc., as Senior Partner of KPMG Peat Marwick, LLP., Assistant
Secretary of the US Army - Installation and Logistics Department of Defense, and
Assistant Director for Management and Organization for the Office of Management
and Budget.
"We are very pleased Dudley Mecum has agreed to serve as an elected supervisor
on our board," said Mark A. Alexander, Suburban Propane's Executive Vice
Chairman. "We will benefit from his diverse and extensive management expertise
and board experience."
Mr. Mecum's other board appointments include Travelers Group, Inc.,
Travelers/Aetna Property & Casualty Corporation, Lyondell Petrochemical Company,
Fingerhut Companies, Inc., DynCorp, Vicorp Restaurants, Inc., Roper Industries,
Inc. and Harrow Industries, Inc. Mr. Mecum holds a B.A. degree from Ohio
Wesleyan University and an M.B.A. from Harvard Business School.
Suburban Propane Partners, L.P. is a publicly traded partnership listed on the
New York Stock Exchange. Headquartered in Whippany, New Jersey, Suburban Propane
has been in the retail propane business since 1928 and is the nation's third
largest propane gas marketer. The Company serves more than 700,000 active
residential, commercial, industrial and agricultural customers through more than
350 sales and service centers in more than 40 states. Suburban Propane
successfully completed a 21.6 million unit initial public offering in March
1996.
