UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 16 OF THE SECURITIES
EXCHANGE ACT OF 1934
for the transition period from ______ to ______
Commission File Number: 1-14222
SUBURBAN PROPANE PARTNERS, L.P.
-------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3410353
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
240 Route 10 West, Whippany, NJ 07981
- ------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
(201)887-5300
- ------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for each shorter period that the Registrant
was required to file such reports), and (2) had been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of July 31, 1997:
Suburban Propane Partners, L.P. - 21,562,500 Common Units
- 7,163,750 Subordinated Units
This Report contains a total of 19 pages.
<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 Sheets as of June 28, 1997 3
and as of September 28, 1996
Condensed Consolidated Statements of Operations for the three
months ended June 28, 1997 and June 29, 1996 and for the nine
months ended June 28, 1997 4
Condensed Consolidated Statements of Cash Flows for the three
months ended June 28, 1997 and June 29, 1996 and for the nine
months ended June 28, 1997 5
Condensed Consolidated Statement of Partners' Capital
for the nine months ended June 28, 1997 6
Notes to Condensed Consolidated Financial Statements 7-13
Suburban Propane division of Quantum Chemical Corporation
---------------------------------------------------------
(Predecessor)
-------------
Condensed Consolidated Statements of Operations for the
nine months ended June 29, 1996 4
Condensed Consolidated Statements of Cash Flows for the
for the nine months ended June 29, 1996 5
Notes to Condensed Consolidated Financial Statements 7-13
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-17
Part 2 Other Information
Item 5 - Other 18
Item 6 - Exhibits and Reports on Form 8-K 18
Signatures 19
<PAGE>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
June 28, September 28,
1997 1996
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ................ $ 24,405 $ 18,931
Accounts receivable, less allowance for
doubtful accounts of $3,982 and $3,312
in 1997 and 1996, respectively ........ 51,170 55,021
Inventories .............................. 27,520 40,173
Prepaid expenses and other current assets. 5,871 6,567
--------- ---------
Total current assets ................ 108,966 120,692
Property, plant and equipment, net ............ 369,088 374,013
Net prepaid pension cost ...................... 48,286 47,514
Goodwill and other intangible assets, net ..... 251,429 255,948
Other assets .................................. 9,336 9,257
--------- ---------
Total assets ........................ $ 787,105 $ 807,424
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable ......................... $ 27,341 $ 40,730
Accrued employment and benefit costs ..... 22,830 25,389
Accrued insurance ........................ 5,280 5,280
Customer deposits and advances ........... 6,005 8,242
Accrued interest ......................... 16,150 8,222
Other current liabilities ................ 14,246 13,963
--------- ---------
Total current liabilities ........... 91,852 101,826
Long-term debt ................................ 427,971 428,229
Postretirement benefits obligation ............ 80,642 81,374
Accrued insurance ............................. 19,327 19,456
Other liabilities ............................. 10,229 11,860
--------- ---------
Total liabilities ................... 630,021 642,745
Partners' capital:
Common unitholders ....................... 121,454 129,283
Subordinated unitholder .................. 43,457 40,100
General Partner .......................... 3,272 3,286
Unearned compensation .................... (11,099) (7,990)
--------- ---------
Total partners' capital ............. 157,084 164,679
--------- ---------
Total liabilities and partners' capital.... $ 787,105 $ 807,424
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
<TABLE>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
( in thousands, except per unit amounts)
(unaudited)
Three Months Ended Nine Months Ended
June 28, 1997 June 29, 1996 June 28, 1997 June 29, 1996
(Predecessor)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues
Propane ........................... $ 117,165 $ 116,120 $ 602,126 $ 530,670
Other ............................. 15,198 14,470 53,896 50,591
--------- --------- --------- ---------
132,363 130,590 656,022 581,261
Costs and expenses
Cost of sales ..................... 67,478 68,012 378,716 308,645
Operating ......................... 51,413 49,561 163,869 155,734
Depreciation and amortization ..... 9,342 8,983 27,811 26,642
Selling, general and administrative 8,172 7,296 24,309 21,479
Management fee .................... 0 0 0 1,290
Restructuring charge .............. 6,911 0 6,911 0
--------- --------- --------- ---------
143,316 133,852 601,616 513,790
Income (loss) before interest expense
and income taxes .................. (10,953) (3,262) 54,406 67,471
Interest expense, net ............... 8,181 7,251 25,794 9,236
--------- --------- --------- ---------
Income (loss) before provision for
income taxes ....................... (19,134) (10,513) 28,612 58,235
Provision for income taxes .......... 47 63 174 28,231
--------- --------- --------- ---------
Net income (loss) ................. $ (19,181) $ (10,576) $ 28,438 $ 30,004
========= ========= ========= =========
General Partner's interest in net income
(loss) ............................ $ (384) $ (212) $ 569
--------- --------- ---------
Limited Partners' interest in net income
(loss) ............................ $ (18,797) $ (10,364) $ 27,869
========= ========= =========
Net income (loss) per Unit ............. $ (0.65) $ (0.36) $ 0.97
========= ========= =========
Weighted average number of Units
outstanding ....................... 28,726 28,726 28,726
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
<TABLE>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended Nine Months Ended
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
(Predecessor)
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................... $ (19,181) $ (10,576) $ 28,438 $ 30,004
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation ...................................... 7,437 7,296 22,128 21,568
Amortization ...................................... 1,905 1,687 5,683 5,074
Restructuring and asset impairment charge ......... 6,911 0 6,911 0
Gain on disposal of property, plant and
equipment ....................................... (20) (26) (438) (120)
Changes in operating assets and liabilities,
net of acquisitions and dispositions:
(Increase) decrease in accounts receivable ....... 38,352 11,953 3,851 (7,838)
Decrease in inventories .......................... 3,341 3,834 12,653 13,375
(Increase) decrease in prepaid expenses
and other current assets ........................ 1,111 (1,331) 696 (6,447)
Increase (decrease) in accounts payable ........... (10,574) (7,399) (13,389) 2,583
Decrease in due to affifliate ..................... 0 (41,735) 0 0
Increase (decrease) in accrued
employment and benefit costs ..................... 344 10 (2,083) 2,809
Increase in accrued interest ...................... 7,801 8,173 7,928 10,487
Increase (Decrease) in other accrued liabilities.. (1,982) 545 (7,109) (3,736)
Other noncurrent assets .............................. (230) (750) (851) (2,181)
Deferred credits and other noncurrent liabilities .... 598 4,778 (4,248) 1,734
--------- --------- -------- ------------
Net cash provided by (used in)
operating activities ..................... 35,813 (23,541) 60,170 67,312
Cash flows from investing activities:
Capital expenditures ................................ (5,689) (6,351) (21,176) (18,575)
Acquisitions ........................................ (35) (4,168) (1,538) (19,287)
Proceeds from sale of property, plant and
equipment, net .......................... 1,779 157 4,785 1,306
Net cash used in investing activities ........ (3,945) (10,362) (17,929) (36,556)
Cash flows from financing activities:
Cash activity with parent, net ...................... 0 0 0 25,799
Proceeds from post-closing adjustment
with former parent ........................... 0 5,560 0 5,560
Proceeds from debt placement ........................ 0 0 0 425,000
Proceeds from offering-net .......................... 0 0 0 413,569
Debt placement and credit agreement expenses ........ 0 0 0 (6,224)
Cash distribution to General Partner ................ 0 0 0 (832,345)
Long-term debt repayment ............................ (258) 0 (258) 0
Short-term (repayments) ............................. (14,000) 0 0 0
Partnership distribution ............................ (10,926) 0 (36,509) 0
--------- --------- --------- -----------
Net cash provided by (used in)
financing activities ......................... (25,184) 5,560 (36,767) 31,359
--------- --------- --------- -----------
Net increase (decrease) in cash and cash
equivalents ........................................ 6,684 (28,343) 5,474 62,115
Cash and cash equivalents at beginning of period ........ 17,721 90,594 18,931 136
--------- --------- --------- -----------
Cash and cash equivalents at end of period .............. $ 24,405 $ 62,251 $ 24,405 62,251
========= ========= ========= ===========
Supplemental disclosure of cash flow information:
Cash paid for interest ............................... $ 380 $ 58 $ 16,737 $ 58
========= ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
<TABLE>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
<CAPTION>
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
-------- ------------ ---------- ------------- --------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 28, 1996 .... 21,562 7,164 $ 129,283 $ 40,100 $ 3,286 $ (7,990) $164,679
Additional grants under restricted
Unit plan .................. 3,585 (3,585)
Partnership distribution ......... (32,344) (3,582) (583) (36,509)
Unamortized restricted Unit
compensation ............... 476 476
Net income ....................... -- -- 20,930 6,939 569 -- 28,438
-------- ------------ ---------- ------------- --------- ---------------- ---------
Balance at June 28, 1997 ......... 21,562 7,164 $ 121,454 $ 43,457 $ 3,272 $ (11,099) $157,084
======== ============ ========== ============= ========= ================ =========
</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 28, 1997
(Dollars in Thousands)
(Unaudited)
1. Partnership Organization and Formation
--------------------------------------
Suburban Propane Partners, L.P. (the "Partnership") was formed on December 19,
1995 as a Delaware limited partnership. The Partnership and its subsidiary,
Suburban Propane, L.P. (the "Operating Partnership"), were formed to acquire and
operate the propane business and assets of the Suburban Propane Division of
Quantum Chemical Corporation (the "Predecessor Company"). In addition, Suburban
Sales & Service, Inc. (the "Service Company"), a subsidiary of the Operating
Partnership, was formed to acquire and operate the service work and appliance
and parts sales businesses of the Predecessor Company. The Partnership, the
Operating Partnership and the Service Company are collectively referred to
hereinafter as the "Partnership Entities". The Partnership Entities commenced
operations on March 5, 1996 (the "Closing Date") upon consummation of an initial
public offering of 18,750,000 Common Units representing limited partner
interests in the Partnership (the "Common Units"), the private placement of
$425,000 aggregate principal amount of Senior Notes due 2011 issued by the
Operating Partnership (the "Senior Notes") and the transfer of all the propane
assets (excluding the net accounts receivable balance) of the Predecessor
Company to the Operating Partnership and the Service Company. On March 25, 1996,
the underwriters of the Partnership's initial public offering exercised an
overallotment option to purchase an additional 2,812,500 Common Units. The
Operating Partnership and Service Company are, and the Predecessor Company was,
engaged in the retail and wholesale marketing of propane and related appliances
and services.
Suburban Propane GP, Inc. (the "General Partner") is a wholly-owned subsidiary
of Millennium Petrochemicals Inc., formerly Quantum Chemical Corporation
("Millennium Petrochemicals"), and serves as the general partner of the
Partnership and the Operating Partnership. Both the General Partner and
Millennium Petrochemicals are indirect wholly-owned subsidiaries of Millennium
Chemicals Inc. ("Millennium"), a publicly-traded company. Millennium was formed
as a result of the demerger (spin-off) of Hanson PLC's ("Hanson") chemicals
businesses in October 1996. The General Partner holds a 1% general partner
interest in the Partnership and a 1.0101% general partner interest in the
Operating Partnership. In addition, the General Partner owns a 24.4% limited
partner interest in the Partnership. This limited partner interest is evidenced
by 7,163,750 Subordinated Units representing limited partner interests in the
Partnership. The General Partner has delegated to the Partnership's Board of
Supervisors all management powers over the business and affairs of the
Partnership Entities that the General Partner possesses under applicable law.
2. Basis of Presentation and Summary of Significant Accounting Policies
--------------------------------------------------------------------
Basis of Presentation. The condensed consolidated financial statements include
the accounts of the Partnership Entities. All significant intercompany
transactions and accounts have been eliminated. The accompanying condensed
consolidated financial statements are unaudited and have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission. They include all adjustments which the Partnership considers
necessary for a fair statement of the results for the interim period presented.
Such adjustments consisted only of normal recurring items unless otherwise
disclosed. These financial statements should be read in conjunction with the
Company's Annual Report on Form 10-K for the fiscal year ended September 28,
1996, including management's discussion and analysis of financial condition and
results of operations contained therein. Due to the seasonal nature of the
Partnership's propane business, the results of operations for interim periods
are not necessarily indicative of the results to be expected for a full year.
Fiscal Period. The Partnership's fiscal periods end on the Saturday nearest the
end of the quarter.
<PAGE>
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents. The Partnership considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents. The carrying amount approximates fair value because of the short
maturity of these instruments.
Revenue Recognition. Sales of propane are recognized at the time product is
shipped or delivered to the customer.Revenue from the sale of propane appliances
and equipment is recognized at the time of sale or installation. Revenue from
repairs and maintenance is recognized upon completion of the service.
Inventories. Inventories are stated at the lower of cost or market. Cost
is determined using a weighted average method for propane and a specific
identification basis for appliances.
Property, Plant and Equipment. Property, plant and equipment are stated at cost.
When plant and equipment are retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and any gains or losses
are reflected in operations. Depreciation of property, plant and equipment is
computed using the straight-line method over the estimated service lives which
range from three to forty years.
Accumulated depreciation at June 28, 1997 and September 28, 1996 was $105,223
and $85,987, respectively.
Goodwill and Other Intangible Assets. Goodwill and other intangible assets
are comprised of the following at June 28, 1997:
Goodwill $ 265,995
Debt origination costs 6,224
Other, principally noncompete agreements 4,465
---------
276,684
Less: Accumulated amortization 25,255
---------
$251,429
=========
Goodwill represents the excess of the purchase price over the fair market value
of net assets acquired and is being amortized on a straight-line basis over
forty years from the date of acquisition.
<PAGE>
Debt origination costs represent the costs incurred in connection with the
placement of the $425,000 of Senior Notes which is being amortized on a
straight-line basis over 15 years.
Income Taxes. As discussed in Note 1, the Partnership Entities consist of two
limited partnerships, the Partnership and the Operating Partnership, and one
corporate entity, the Service Company. For federal and state income tax
purposes, the earnings attributed to the Partnership and Operating Partnership
are included in the tax returns of the individual partners. As a result, no
recognition of income tax expense has been reflected in the Partnership's
consolidated financial statements relating to the earnings of the Partnership
and Operating Partnership. The earnings attributed to the Service Company are
subject to federal and state income taxes. Accordingly, the Partnership's
consolidated financial statements reflect income tax expense related to the
Service Company's earnings.
Net Income (Loss) Per Unit. Net income (loss) per unit is computed by dividing
net income (loss), after deducting the General Partner's 2% interest by the
weighted average number of outstanding Common Units and Subordinated Units.
Reclassifications. Certain prior period balances have been reclassified to
conform with the current period presentation.
3. Distributions of Available Cash
-------------------------------
The Partnership will make distributions to its partners 45 days after the end of
each fiscal quarter in an aggregate amount equal to its Available Cash for such
quarter. Available Cash generally means all cash on hand at the end of the
fiscal quarter plus all additional cash on hand as a result of borrowings and
purchases of additional limited partner units (APUs) subsequent to the end of
such quarter less cash reserves established by the Board of Supervisors in its
reasonable discretion for future cash requirements. The Partnership paid the
Minimum Quarterly Distributions on all outstanding Common Units for the quarter
ended March 29, 1997 on May 13, 1997 which amounted to $10,927. The Partnership
did not make a quarterly distribution on its Subordinated Units (which are held
by the General Partner) for said fiscal quarter.
4. Related Party Transactions
--------------------------
Pursuant to a Computer Services Agreement (the "Services Agreement") dated as of
the Closing Date between Millennium Petrochemicals and the Partnership,
Millennium Petrochemicals permits the Partnership to utilize Millennium
Petrochemicals' mainframe computer for the generation of customer bills, reports
and information regarding the Partnership's retail sales. For the nine months
ended June 28, 1997, the Partnership incurred expenses of $284 under the
Services Agreement.
Pursuant to the Contribution, Conveyance and Assumption Agreement dated as of
March 4, 1996, between Millennium Petrochemicals and the Partnership (the
"Contribution Agreement"), Millennium Petrochemicals retained ownership of the
Predecessor Company's accounts receivable, net of allowance for doubtful
accounts, as of the Closing Date. The Partnership retained from the net proceeds
of the Common Unit offering cash in an amount equal to the net book value of
such accounts receivable. In accordance with the Contribution Agreement, the
Partnership had agreed to collect such accounts receivable on behalf of
Millennium Petrochemicals which amounted to $97,700 as of the Closing Date. The
Operating Partnership satisfied its obligation to Millennium Petrochemicals
under the arrangement during the quarter ended June 29, 1996.
<PAGE>
5. Commitments and Contingencies
-----------------------------
The Partnership leases certain property, plant and equipment for various periods
under noncancelable leases. Rental expense under operating leases was $11,013
for the nine months ended June 28, 1997.
The Partnership is involved in various legal actions which have arisen in the
normal course of business including those relating to commercial transactions
and product liability. It is the opinion of management, based on the advice of
legal counsel, that the ultimate resolution of these matters, after considering
its $24,600 self-insurance reserves for known and unasserted self-insurance
claims, will not have a material adverse effect on the Partnership's financial
position or future results of operations.
6. Long-term Debt and Bank Credit Facilities
-----------------------------------------
On the Closing Date, the Operating Partnership issued $425,000 of Senior Notes
with an annual interest rate of 7.54%. The Operating Partnership's obligations
under the Senior Note Agreement are unsecured and rank on an equal and ratable
basis with the Operating Partnership's obligations under the Bank Credit
Facilities discussed below. The Senior Notes will mature June 30, 2011, and
require semiannual interest payments which commenced June 30, 1996. The Note
Agreement requires that the principal be paid in equal annual installments of
$42,500 starting June 30, 2002.
The Bank Credit Facilities consist of a $100,000 acquisition facility (the
"Acquisition Facility") and a $75,000 working capital facility (the "Working
Capital Facility"). The Operating Partnership's obligations under the Bank
Credit Facilities are unsecured and will rank on an equal and ratable basis with
the Operating Partnership's obligations under the Senior Notes. The Bank Credit
Facilities bear interest at a rate based upon either LIBOR, Chase Manhattan's
(formerly Chemical Bank's) prime rate or the Federal Funds effective rate plus
1/2 of 1% and in each case, plus a margin. In addition, an annual fee (whether
or not borrowings occur) is payable quarterly ranging from 0.125% to 0.375%
based upon certain financial tests. As of June 28, 1997, such fee was 0.375%.
The Working Capital Facility will expire on March 1, 1999. The Acquisition
Facility will expire on March 1, 2003. Any loans outstanding under the
Acquisition Facility after March 1, 1999 will require equal quarterly principal
payments over a four-year period.
The Partnership had no borrowings outstanding under the Bank Credit Facilities
as of June 28, 1997.
The Senior Note Agreement and Bank Credit Facilities contain various restrictive
and affirmative covenants applicable to the Operating Partnership, including (i)
maintenance of certain financial tests, (ii) restrictions on the incurrence of
additional indebtedness, and (iii) restrictions on certain liens, investments,
guarantees, loans, advances, payments, mergers, consolidations, distributions,
sales of assets and other transactions.
<PAGE>
7. Unaudited Pro Forma Financial Information
-----------------------------------------
The accompanying unaudited pro forma condensed consolidated statements of
operations for the nine months ended June 29, 1996 were derived from the
historical statements of operations of the Predecessor Company and the
statements for the nine months ended June 28, 1997 were derived from the
condensed consolidated statement of operations of the Partnership. The pro forma
condensed consolidated statements of operations were prepared to reflect the
effects of Partnership formation as if it had been completed in its entirety as
of the beginning of the period presented. However, these statements do not
purport to present the results of operations of the Partnership had the
Partnership formation actually been completed as of the beginning of the period
presented. In addition, the pro forma condensed consolidated statements of
operations are not necessarily indicative of the results of future operations of
the Partnership and should be read in conjunction with the historical condensed
consolidated financial statements of the Predecessor Company and the Partnership
appearing elsewhere in this Quarterly Report on Form 10-Q.
<PAGE>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit amounts)
Nine Months Ended
June 28, June 29,
1997 1996
--------- ---------
Revenues
Propane .................................... $ 602,126 $ 530,670
Other ...................................... 53,896 50,591
--------- ---------
656,022 581,261
Costs and Expenses
Cost of sales .............................. 378,716 308,645
Operating .................................. 163,869 155,734
Depreciation and amortization .............. 27,811 26,642
Selling, general and administrative expenses 24,309 21,479
Management fee ............................. 0 1,290
Restructuring charge ....................... 6,911 0
--------- ---------
601,616 513,790
Income before interest expenses and income taxes 54,406 67,471
Interest expense, net ........................... 25,794 23,262
--------- ---------
Income before provision for income taxes ........ 28,612 44,209
Provision for income taxes ...................... 174 189
--------- ---------
Net income ...................................... $ 28,438 $ 44,020
========= =========
General Partner's interest in net income ........ $ 569 $ 880
--------- ---------
Limited Partners' interest in net income ........ $ 27,869 $ 43,140
========= =========
Net income per Unit ............................. $ 0.97 $ 1.50
========= =========
Weighted average number of Units outstanding .... 28,726 28,726
========= =========
<PAGE>
7. Unaudited Pro Forma Financial Information - Continued
-----------------------------------------------------
Significant pro forma adjustments reflected in the above data include the
following:
a. For the nine months ended June 29, 1996, an adjustment to interest expense to
reflect the interest expense associated with the Senior Notes and Bank Credit
Facilities. b. For the nine months ended June 29, 1996, the elimination of the
provision for income taxes, as income taxes will be borne by the partners and
not the Partnership, except for corporate income taxes related to the Service
Company.
The Partnership's management estimates that the incremental costs of operating
as a stand alone entity during the nine months ended June 29, 1996 would have
approximated the management fee paid to an affiliate of its former Parent
Company. These incremental costs are estimated to be $1,290 for the nine months
ended June 29, 1996.
8. Restricted Unit Plan
--------------------
The Partnership's 1996 Restricted Unit Award Plan authorizes the issuance of
Common Units with an aggregate value of $15,000 to executives, managers and
Elected Supervisors of the Partnership. Initial Restricted Unit grants with a
total value of $7,990 were awarded effective March 5, 1996 and additional grants
with a total value of $3,585 were awarded effective October 1, 1996. Upon
issuance of Restricted Units, unearned compensation is amortized ratably over
the applicable vesting periods under the Plan. Unamortized unearned compensation
was $11,099 at June 28, 1997 and is shown as a reduction of partners' capital in
the Partnership's Condensed Consolidated Balance Sheets.
9. Restructuring Charge
--------------------
In the second quarter of fiscal 1997, the Partnership announced that it was
evaluating certain long-term cost reduction strategies and organizational
changes. As a result of this effort, the Partnership reorganized its product
procurement and logistics group, redesigned its fleet and maintenance, field and
corporate office organizations, identified facilities to be closed and impaired
assets whose carrying amounts would not be recovered. In support of this effort
during the third fiscal quarter, the Partnership recorded a restructuring charge
of $6.9 million, which included the following:
Severance, other employee benefits and
facility closure costs $5.1
Write-down to fair value certain assets 1.8
----
$6.9
====
At June 28, 1997 the remaining accruals related to the above captioned charges
totaled $5.3 million.
10. Subsequent Event - Common Unit Distribution
-------------------------------------------
On July 22, 1997, the Partnership announced a quarterly distribution of $0.50
per Limited Partner Common Unit (aggregating $10,927) for the fiscal quarter
ended June 28, 1997 payable on August 12, 1997. The Partnership will not make a
quarterly distribution on its Subordinated Units (which are held by the General
Partner) for said fiscal quarter. Millennium will provide $10 million of
distribution support available under the Distribution Support Agreement between
the Partnership and the General Partner toward the payment of the Quarterly
Common Unit Distribution for said fiscal quarter.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The disclosure set forth below includes forward looking statements. Actual
results may differ materially from those projected herein as a result of
possible variations in propane costs, expense levels and retail market
conditions for propane as well as other factors.
Three Months Ended June 28, 1997
- --------------------------------
Compared to Three Months Ended June 29, 1996
- --------------------------------------------
Revenues
Revenues increased 1.4% or $1.8 million to $132.4 million for the three months
ended June 28, 1997 as compared to $130.6 million for the three months ended
June 29, 1996. The overall increase is attributable to higher retail and
wholesale selling prices resulting from the increased cost of propane, offset in
part by lower wholesale volumes. Propane sold to retail customers was even with
last year's volume of 102.9 million gallons. Wholesale gallons sold decreased
24.0% or 7.9 million gallons to 25.1 million gallons due to the lack of
favorable wholesale sales opportunities.
Gross Profit
Gross profit increased 3.7% or $2.3 million to $64.9 million. The increase was a
result of higher retail margins offset in part by lower wholesale volumes. The
higher retail margins resulted from product costs declining at a faster rate
than selling prices.
Operating Expenses
Operating expenses increased 3.7% or $1.9 million to $51.4 million for the three
months ended June 28, 1997 as compared to $49.6 million for the three months
ended June 29, 1996. The increase in operating expenses is due to increases in
payroll and related benefit costs and vehicle leasing and maintenance
expenditures.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $0.9 million to $8.2
million for the three months ended June 28, 1997 compared to $7.3 million for
the three months ended June 29, 1996. Expenses were higher than the prior period
principally due to increases in professional services and information system
development expenditures.
Operating Income and EBITDA
During the three months ended June 28, 1997, the Partnership recorded a $6.9
million restructuring charge consisting primarily of severance, facility
shutdown costs and asset writedowns. The restructuring charge resulted from a
reorganization of the product procurement and logistics group, a redesign of the
fleet and maintenance group and changes in field management to improve
operations.
<PAGE>
Operating income decreased $7.7 million to a loss of $11.0 million in the three
months ended June 28, 1997 compared to a loss of $3.3 million in the prior
period. EBITDA decreased $7.3 million to a loss of $1.6 million. The results
include the restructuring charge of $6.9 million. Excluding the restructuring
charge, operating income was $0.8 million lower and EBITDA was $0.4 million
lower than the prior period principally due to higher period expenses offset
partially by higher retail margins. EBITDA should not be considered as an
alternative to net income (as an indicator of operating performance) or as an
alternative to cash flow (as a measure of liquidity or ability to service debt
obligations) but provides additional information for evaluating the
Partnership's ability to distribute the Minimum Quarterly Distribution.
Net Interest Expense
Net interest expense increased $0.9 million to $8.2 million for the three months
ended June 28, 1997, as compared to $7.3 million for the prior year period. This
increase is due to lower interest income during the current period on
investments.
Nine Months Ended June 28, 1997
- -------------------------------
Compared to Nine Months Ended June 29, 1996
- -------------------------------------------
Revenues
Revenues increased 12.9% or $74.8 million to $656.0 million for the nine months
ended June 28, 1997 as compared to $581.3 million for the nine months ended June
28, 1996. The overall increase was attributable to higher retail and wholesale
selling prices resulting from the increased cost of propane, offset in part by
lower retail volumes. Propane sold to retail customers decreased 4.4% or 20.3
million gallons to 445.2 million gallons while wholesale gallons sold increased
8.1% or 12.4 million gallons to 166.0 million gallons. The decrease in retail
gallons was primarily due to warmer temperatures during the 1997 heating season
than during the prior year coupled with customers' energy conservation due to
the historically higher level of propane prices. Approximately, 65% of the
decrease in retail gallons occurred in the Partnership's Southeastern region
which experienced weather which was 14% warmer than the prior period. The
increase in wholesale gallons resulted from favorable wholesale sales
opportunities arising from the volatility of industry-wide propane prices during
the period.
Gross Profit
Gross profit increased 1.7% or $4.7 million to $277.3 million. The increase is
principally a result of higher retail margins, increased wholesale revenues and
higher gross profit from appliance and parts sales offset partially by lower
retail volumes. Average product costs for the Partnership increased
substantially during the first two quarters of fiscal 1997 when compared to the
same period of the prior year. The product cost increase was principally
attributable to significant price increases charged by the Partnership's
suppliers during the first four months of the current period. During the nine
months ended June 28, 1997, the Partnership was able to pass on these product
cost increases through higher selling prices and maintain higher unit margins
than during the prior period.
Operating Expenses
Operating expenses increased 5.2% or $8.1 million to $163.9 million for the nine
months ended June 28, 1997 as compared to $155.7 million for the nine months
ended June 29, 1996. The increase in operating expenses was principally due to
higher vehicle fuel costs resulting from the increase in propane costs along
with higher payroll and related benefit costs, equipment maintenance, vehicle
leasing expenses and an increase in the allowance for doubtful accounts
resulting from the increase in revenues.
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses, including the management fee,
increased 6.8% or $1.5 million to $24.3 million for the nine months ended June
28, 1997 compared to $22.8 million for the nine months ended June 29, 1996.
Expenses were higher than the prior period principally due to higher information
system development costs, professional services and compensation expense under
the Partnership's Restricted Unit Plan.
Operating Income and EBITDA
Operating income, excluding the restructuring charge, decreased $6.2 million to
$61.3 million in the nine months ended June 28, 1997 compared to $67.5 million
in the prior period. EBITDA, excluding the restructuring charge, decreased $5.0
million to $89.1 million. The decrease is attributable to higher period expenses
partially offset by higher gross profit. EBITDA should not be considered as an
alternative to net income (as an indicator of operating performance) or as an
alternative to cash flow (as a measure of liquidity or ability to service debt
obligations) but provides additional information for evaluating the
Partnership's ability to distribute the Minimum Quarterly Distribution.
Liquidity and Capital Resources
Due to the seasonal nature of the propane business, cash flows from operating
activities are greater during the winter and spring seasons as customers pay for
propane purchased during the heating season. For the three months ended June 28,
1997, net cash provided by operating activities increased $59.4 million to $35.8
million compared to $23.5 million of cash used in operating activities during
the three months ended June 29, 1996. Cash used in operating activities in the
prior period included $41.7 million of net cash remitted by the Partnership to
Millennium Petrochemicals (classified as due to affiliate, net) under the terms
of the Contribution Agreement between Millennium Petrochemicals and the
Partnership. Excluding this item, cash provided by operations increased by $17.6
million in the three months ended June 28, 1997 compared to the prior period.
Such increase was primarily attributable to a $26.4 million increase in accounts
receivable collections principally due to increased selling prices during the
heating season reflecting the higher cost of propane, partially offset by lower
net income of $1.7 million excluding the restructuring charge, restructuring
charge payments of $1.6 million and a decrease in deferred credits and other
noncurrent liabilities of $4.2 million.
Net cash used in investing activities was $3.9 million for the three months
ended June 28, 1997 consisting of capital expenditures of $5.7 million, offset
by proceeds from the sale of property, plant and equipment of $1.8 million. Net
cash used in investing activities was $10.4 million for the three months ended
June 29, 1996 consisting of capital expenditures of $6.4 million and acquisition
payments of $4.2 million.
Net cash used in financing activities for the three months ended June 28, 1997
was $25.2 million arising from net short-term debt repayments of $14.0 million
and the Partnership distribution of $10.9 million.
Cash provided by operating activities for the nine months ended June 28, 1997
decreased $7.1 million to $60.2 million compared to $67.3 million in the prior
period. The decrease was principally due to an increase in cash required to fund
inventory purchases due to the timing of purchases and costs of operating as a
publicly-traded partnership.
<PAGE>
Net cash used in investing activities was $17.9 million for the nine months
ended June 28, 1997 consisting of capital expenditures of $21.2 million and
acquisition payments of $1.5 million, offset by proceeds from the sale of
property, plant and equipment of $4.8 million. Net cash used in investing
activities was $36.6 million for the nine months ended June 29, 1996 consisting
of capital expenditures of $18.6 million and acquisition payments of $19.3
million, offset by proceeds from the sale of property, plant and equipment of
$1.3 million.
Net cash used in financing activities for the nine months ended June 28, 1997
was $36.8 million, principally resulting from the Partnership's distributions.
Prior to March 5, 1996, the Predecessor Company's cash accounts had been managed
on a centralized basis by an affiliate of Hanson. Accordingly, cash receipts and
disbursements relating to the operations of the Predecessor Company were
received or funded by the Hanson affiliate. Net cash activity with parent prior
to March 5, 1996 was $25.8 million (received from the Hanson affiliate) for the
nine months ended June 29, 1996. In March 1996, the Operating Partnership issued
$425.0 million aggregate principal amount of Senior Notes with an interest rate
of 7.54% for net cash proceeds of $418.8 million. Also, the Partnership, by
means of an initial public offering and the exercise of an overallotment option
by the underwriters, issued 21,562,500 Common Units for net cash proceeds of
$413.6 million. The net proceeds of the Notes and Units issuance (which totaled
$832.4 million), less $5.6 million reflecting a closing price adjustment to
adjust division invested capital to $623.2 million immediately prior to the
Partnership formation and $97.7 million reflecting the retention of the
Predecessor Company net accounts receivable by Millennium Petrochemicals, was
used to acquire the propane assets from Millennium Petrochemicals, pay off the
intercompany payables and make a special distribution to the General Partner.
As a result of lower than anticipated earnings for fiscal 1997 and the costs
associated with the restructuring efforts, the Partnership will utilize $10.0
million of cash proceeds available under the Distribution Support Agreement
between the Partnership and the General Partner in connection with the payment
of the Minimum Quarterly Distribution on the Common Units with respect to the
third fiscal quarter of 1997. In addition, the Partnership anticipates that it
will also utilize a portion of the cash proceeds available under the
Distribution Support Agreement with respect to the fourth fiscal quarter of
1997. The amount of proceeds under the Distribution Support Agreement which will
be utilized in the fourth quarter will be dependent on the fourth quarter's
operating results. The Distribution Support Agreement provides for a maximum of
approximately $44 million in cash to support the Partnership's Minimum Quarterly
Distributions to holders of Common Units through March 31, 2001. The Partnership
has not made a distribution on its subordinated units for the first three fiscal
quarters of 1997 and does not intend to make a distribution to the subordinated
unitholder for the fourth quarter.
<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
(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 11, 1997 By /s/ Anthony M. Simonowicz
-------------------------
Anthony M. Simonowicz
Vice President, Chief Financial Officer
By /s/ Edward J. Grabowiecki
-------------------------
Edward J. Grabowiecki
Controller and Chief Accounting Officer
<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 it's entirety by
refernce to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-END> JUN-28-1997
<CASH> 24,405
<SECURITIES> 0
<RECEIVABLES> 55,152
<ALLOWANCES> 3,982
<INVENTORY> 27,520
<CURRENT-ASSETS> 108,966
<PP&E> 477,203
<DEPRECIATION> 108,115
<TOTAL-ASSETS> 787,105
<CURRENT-LIABILITIES> 91,852
<BONDS> 427,971
0
0
<COMMON> 0
<OTHER-SE> 157,084
<TOTAL-LIABILITY-AND-EQUITY> 787,105
<SALES> 656,022
<TOTAL-REVENUES> 656,022
<CGS> 378,716
<TOTAL-COSTS> 542,585
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,982
<INTEREST-EXPENSE> 25,794
<INCOME-PRETAX> 28,612
<INCOME-TAX> 174
<INCOME-CONTINUING> 28,438
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,438
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
