UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 29, 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 April 30, 1997:
Suburban Propane Partners, L.P. - 21,562,500 Common Units
- 7,163,750 Subordinated Units
This Report contains a total of 20 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 March 29, 1997 3
and as of September 28, 1996
Condensed Consolidated Statements of Operations for the
three months ended March 29, 1997 and for the six months
ended March 29, 1997 4
Condensed Consolidated Statements of Cash Flows for
the three months ended March 29, 1997 and for the six
months ended March 29, 1997 5
Condensed Consolidated Statement of Partners' Capital
for the six months ended March 29, 1997 6
Notes to Condensed Consolidated Financial Statements 7-14
SUBURBAN PROPANE DIVISION OF QUANTUM CHEMICAL CORPORATION
---------------------------------------------------------
(PREDECESSOR)
-------------
Condensed Consolidated Statements of Operations for the
three months ended March 30, 1996 and for the six months
ended March 30, 1996 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 30, 1996 and for the six months
ended March 30, 1996 5
Notes to Condensed Consolidated Financial Statements 7-14
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-18
Part 2 Other Information
Item 5 - Other 19
Item 6 - Exhibits and Reports on Form 8-K 19
Signatures 20
<PAGE>
<TABLE>
<CAPTION>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
MARCH 29, SEPTEMBER 28,
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................. $ 17,721 $ 18,931
Accounts receivable, less allowance for
doubtful accounts of $4,282 and $3,312
in 1997 and 1996, respectively........... 89,522 55,021
Inventories ................................ 30,861 40,173
Prepaid expenses and other current assets .. 6,982 6,567
--------- ---------
Total current assets .................. 145,086 120,692
Property, plant and equipment, net .............. 372,595 374,013
Net prepaid pension cost ........................ 48,076 47,514
Goodwill and other intangible assets, net ....... 253,299 255,948
Other assets .................................... 9,316 9,257
--------- ---------
Total assets .......................... $ 828,372 $ 807,424
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable ........................... $ 37,915 $ 40,730
Accrued employment and benefit costs ....... 22,644 25,389
Accrued insurance .......................... 5,280 5,280
Short-term borrowing ....................... 14,000 --
Customer deposits and advances ............. 4,726 8,242
Accrued interest ........................... 8,349 8,222
Other current liabilities .................. 10,596 13,963
--------- ---------
Total current liabilities ............. 103,510 101,826
Long-term debt .................................. 428,229 428,229
Postretirement benefits obligation .............. 80,891 81,374
Accrued insurance ............................... 18,190 19,456
Other liabilities ............................... 10,519 11,860
--------- ---------
Total liabilities ..................... 641,339 642,745
Partners' capital:
Common unitholders ......................... 146,353 129,283
Subordinated unitholder .................... 48,137 40,100
General Partner ............................ 3,800 3,286
Unearned compensation ...................... (11,257) (7,990)
--------- ---------
Total partners' capital ............... 187,033 164,679
--------- ---------
Total liabilities and partners' capital $ 828,372 $ 807,424
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
( in thousands, except per unit amounts)
(unaudited)
Three Months Ended Six Months Ended
March 29, March 30, March 29, March 30,
1997 1996 1997 1996
(Predecessor) (Predecessor)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues
Propane ................................. $ 260,404 $ 243,853 $ 484,961 $ 414,550
Other ................................... 17,227 16,139 38,698 36,121
-------- -------- -------- --------
277,631 259,992 523,659 450,671
Costs and expenses
Cost of sales ........................... 163,144 143,338 311,238 240,633
Operating ............................... 57,731 55,541 112,456 106,173
Depreciation and amortization ........... 9,188 8,943 18,469 17,659
Selling, general and administrative ..... 8,109 7,318 16,137 14,183
Management fee .......................... 0 515 0 1,290
-------- -------- -------- --------
238,172 215,655 458,300 379,938
Income before interest expense and
income taxes ............................ 39,459 44,337 65,359 70,733
Interest expense, net ........................ 9,115 1,985 17,613 1,985
-------- -------- -------- --------
Income before provision for income
taxes .................................... 30,344 42,352 47,746 68,748
Provision for income taxes ................... 63 16,145 127 28,168
-------- -------- -------- --------
Net income .............................. $ 30,281 $ 26,207 $ 47,619 $ 40,580
======== ======== ======== ========
General Partner's interest in net income ..... $ 606 $ 952
-------- --------
Limited Partners' interest in net income ..... $ 29,675 $ 46,667
======== ========
Net income per Unit .......................... $ 1.03 $ 1.62
======== ========
Weighted average number of Units
outstanding ............................. 28,726 28,726
-------- --------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 29, MARCH 30, MARCH 29, MARCH 30,
1997 1996 1997 1996
(PREDECESSOR) (PREDECESSOR)
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income .....................................$ 30,281 $ 26,207 $ 47,619 $ 40,580
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation .............................. 7,296 7,186 14,691 14,272
Amortization .............................. 1,892 1,757 3,778 3,387
Gain on disposal of property, plant and
equipment ............................... (36) (71) (418) (94)
Changes in operating assets and liabilities,
net of acquisitions and dispositions:
(Increase) decrease in accounts receivable 20,708 15,675 (34,501) (19,791)
Decrease in inventories .................. 26,151 14,545 9,312 9,541
(Increase) in prepaid expenses
and other current assets ................ (1,235) (3,895) (415) (5,116)
Increase (decrease) in accounts payable ... (20,900) 984 (2,815) 9,982
Increase in due to affifliate ............. 0 41,735 0 41,735
Increase (decrease) in accrued
employment and benefit costs ............. 181 5,139 (2,427) 2,799
Increase (decrease) in accrued interest ... (7,945) 2,314 127 2,314
(Decrease) in other accrued liabilities ... (3,879) (550) (5,127) (4,281)
Other noncurrent assets ........................ (273) (1,427) (621) (1,431)
Deferred credits and other noncurrent
liabilities ............................. (1,319) (1,244) (4,846) (3,044)
--------- --------- --------- ---------
Net cash provided by operating
activities ....................... 50,922 108,355 24,357 90,853
--------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures .......................... (6,726) (5,816) (15,488) (12,224)
Acquisitions .................................. (809) (11,575) (1,503) (15,119)
Proceeds from sale of property, plant and
equipment, net .................. 971 589 3,007 1,149
--------- --------- --------- ---------
Net cash used in investing activities (6,564) (16,802) (13,984) (26,194)
--------- ---------- --------- ---------
Cash flows from financing activities:
Cash activity with parent, net ................ 0 (1,078) 0 25,799
Proceeds from debt placement .................. 0 425,000 0 425,000
Proceeds from offering-net .................... 0 413,569 0 413,569
Debt placement and credit agreement
expenses ............................. 0 (6,224) 0 (6,224)
Cash distribution to General Partner .......... 0 (832,345) 0 (832,345)
Short-term borrowings (repayments), net ....... (35,000) 0 14,000 0
Partnership distribution ...................... (10,927) 0 (25,583) 0
--------- --------- --------- ---------
Net cash provided by (used in)
financing activities ................. (45,927) (1,078) (11,583) 25,799
--------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents .................................. (1,569) 90,475 (1,210) 90,458
Cash and cash equivalents at beginning
of period ...................................... 19,290 119 18,931 136
--------- --------- --------- ---------
Cash and cash equivalents at end
of period ...................................... $ 17,721 $ 90,594 $ 17,721 $ 90,594
========= ========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest ......................... $ 16,189 $ -- $ 16,357 $ --
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(IN THOUSANDS)
(UNAUDITED)
UNEARNED TOTAL
NUMBER OF UNITS GENERAL COMPENSATION PARTNERS'
COMMON SUBORDINATED COMMON SUBORDINATED PARTNER RESTRICTED UNITS CAPITAL
------ ------------ ------ ------------ ------- ---------------- -------
<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 .......... (21,563) (3,582) (438) (25,583)
Unamortized restricted Unit
compensation .................... 318 318
Net income ........................ -- -- $ 35,048 11,619 952 -- 47,619
------- -------- -------- -------- -------- ----------- ---------
Balance at March 29, 1997 ......... 21,562 7,164 $ 146,353 $ 48,137 $ 3,800 $ (11,257) $ 187,033
======= ======== ======== ======== ======== =========== =========
</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
MARCH 29, 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"), which 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 March 29, 1997 and September 28, 1996 was $100,677
and $85,987, respectively.
Goodwill and Other Intangible Assets. Goodwill and other intangible assets
are comprised of the following at March 29, 1997:
Goodwill $265,960
Debt origination costs 6,224
Other, principally noncompete agreements 4,465
-----------
276,649
Less: Accumulated amortization 23,350
$253,299
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 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.
<PAGE>
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 December 28, 1996 on February 11, 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 six months
ended March 29, 1997, the Partnership incurred expenses of $183 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.
5. COMMITMENTS AND CONTINGENCIES
-----------------------------
The Partnership leases certain property, plant and equipment for various periods
under noncancelable leases. Rental expense under operating leases was $7,388 for
the six months ended March 29, 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 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.
<PAGE>
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 March 29, 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.
As of March 29, 1997, the Partnership had outstanding short-term borrowings of
$14,000 under the Acquisition Facility. These borrowings were repaid by April
16, 1997.
The Senior Note Agreement and Bank Credit Facilities contain various restrictive
and affirmative covenants applicable to the Operating Partnership, including (i)
maintenance of certain financial tests, (ii) restrictions on the incurrence of
additional indebtedness, and (iii) restrictions on certain liens, investments,
guarantees, loans, advances, payments, mergers, consolidations, distributions,
sales of assets and other transactions.
7. UNAUDITED PRO FORMA FINANCIAL INFORMATION
-----------------------------------------
The accompanying unaudited pro forma condensed consolidated statements of
operations for the three and six months ended March 30, 1996 were derived from
the historical statements of operations of the Predecessor Company and the
statements for the three and six months ended March 29, 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 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>
<TABLE>
<CAPTION>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
Three Months Ended
March 29, March 30,
1997 1996
-------- --------
<S> <C> <C>
Revenues
Propane ........................................... $ 260,404 $ 243,853
Other ............................................. 17,227 16,139
-------- --------
277,631 259,992
Costs and Expenses
Cost of sales ..................................... 163,144 143,338
Operating ......................................... 57,731 55,541
Depreciation and amortization ..................... 9,188 8,943
Selling, general and administrative expenses ...... 8,109 7,318
Management fee .................................... 0 515
-------- --------
238,172 215,655
Income before interest expenses and income taxes ....... 39,459 44,337
Interest expense, net .................................. 9,115 7,781
-------- --------
Income before provision for income taxes ............... 30,344 36,556
Provision for income taxes ............................. 63 63
-------- --------
Net Income ............................................. $ 30,281 $ 36,493
======== ========
General Partner's interest in net income ............... $ 606 $ 730
-------- --------
Limited Partners' interest in net income ............... $ 29,675 $ 35,763
======== ========
Net loss per Unit ...................................... $ 1.03 $ 1.24
======== ========
Weighted average number of Units outstanding ........... 28,726 28,726
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
Six Months Ended
March 29, March 30,
1997 1996
-------- ---------
<S> <C> <C>
Revenues
Propane .................................... $ 484,961 $ 414,550
Other ...................................... 38,698 36,121
------- -------
523,659 450,671
Costs and Expenses
Cost of sales .............................. 311,238 240,633
Operating .................................. 112,456 106,173
Depreciation and amortization .............. 18,469 17,659
Selling, general and administrative expenses 16,137 14,183
Management fee ............................. 0 1,290
------- -------
458,300 379,938
Income before interest expenses and income taxes 65,359 70,733
Interest expense, net ........................... 17,613 16,011
------- -------
Income before provision for income taxes ........ 47,746 54,722
Provision for income taxes ...................... 127 126
------- -------
Net income ...................................... $ 47,619 $ 54,596
======= =======
General Partner's interest in net income ........ $ 952 $ 1,092
------- -------
Limited Partners' interest in net income ........ $ 46,667 $ 53,504
======= =======
Net income per Unit ............................. $ 1.62 $ 1.86
======= =======
Weighted average number of Units outstanding .... 28,726 28,726
======= =======
</TABLE>
<PAGE>
7. UNAUDITED PRO FORMA FINANCIAL INFORMATION - CONTINUED
-----------------------------------------------------
Significant pro forma adjustments reflected in the above data include the
following:
a. For the three and six month periods ended March 30, 1996, an adjustment to
interest expense to reflect the interest expense associated with the Senior
Notes and Bank Credit Facilities.
b. For the three and six month periods ended March 30, 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 three and six month periods ended March 30,
1996 would approximate the management fee paid to an affiliate of its former
Parent Company. These incremental costs are estimated to be $515 and $1,290 for
the three and six month periods ended March 30, 1996, respectively.
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 $11,257 at March 29, 1997 and is shown as a reduction of partners' capital
in the Partnership's Condensed Consolidated Balance Sheets.
9. SUBSEQUENT EVENT - COMMON UNIT DISTRIBUTION
-------------------------------------------
On April 22, 1997, the Partnership announced a quarterly distribution of $0.50
per Limited Partner Common Unit (aggregating $10,926) for the fiscal quarter
ended March 29, 1997 payable on May 13, 1997. The Partnership will not make a
quarterly distribution on its Subordinated Units (which are held by the General
Partner) 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 MARCH 29, 1997
- ---------------------------------
COMPARED TO THREE MONTHS ENDED MARCH 30, 1996
- ---------------------------------------------
REVENUES
Revenues increased 6.8% or $17.6 million to $277.6 million for the three months
ended March 29, 1997 as compared to $260.0 million for the three months ended
March 30, 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 retail volumes. Propane sold to retail customers decreased 10.6%
or 21.7 million gallons to 183.3 million gallons. The decrease in retail gallons
was primarily due to significantly warmer temperatures than in the prior period
coupled with customers' energy conservation due to the historically higher level
of propane prices. Approximately 55% of the decrease in retail gallons occurred
in the Partnership's Southeastern Region which experienced weather which was 26%
warmer than the prior period. Temperatures nationally were approximately 11%
warmer than in the prior period. Wholesale gallons sold increased 5.4% or 3.8
million gallons to 73.9 million gallons resulting from favorable wholesale sales
opportunities arising from the volatility of industry-wide propane prices during
the period.
GROSS PROFIT
Gross profit decreased 1.9% or $2.2 million to $114.5 million. The decrease was
primarily a result of lower retail volumes offset in part by overall higher
retail margins. Average product costs charged by the Partnership's suppliers
increased significantly during the first four months of fiscal 1997 as compared
to the prior year attributable to perceived low nationwide propane inventory
levels. The product costs began to decline in January as warmer than normal
national temperatures resulted in significantly reduced demand. During the three
months ended March 29, 1997, the Partnership was able to pass on these product
cost increases and maintain higher unit margins than during the prior period.
OPERATING EXPENSES
Operating expenses increased 3.9% or $2.2 million to $57.7 million for the three
months ended March 29, 1997 as compared to $55.5 million for the three months
ended March 30, 1996. The increase in operating expenses is due to higher
facility and equipment leasing costs, equipment maintenance expenditures and an
increase in the allowance for doubtful accounts attributable to the higher
selling prices.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses, including the management fee,
increased 3.5% or $.3 million to $8.1 million for the three months ended March
29, 1997 compared to $7.8 million for the three months ended March 30, 1996.
Expenses were higher than the prior period principally due to higher information
system development costs.
OPERATING INCOME AND EBITDA
Operating income decreased $4.8 million to $39.5 million in the three months
ended March 29, 1997 compared to $44.3 million in the prior period. EBITDA
decreased $4.6 million to $48.6 million. The decrease is attributable to
decreased gross profit principally resulting from lower retail volumes coupled
with higher period 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>
SIX MONTHS ENDED MARCH 29, 1997
- -------------------------------
COMPARED TO SIX MONTHS ENDED MARCH 30, 1996
- -------------------------------------------
REVENUES
Revenues increased 16.2% or $73.0 million to $523.7 million for the six months
ended March 29, 1997 as compared to $450.7 million for the six months ended
March 30, 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 5.6% or
20.3 million gallons to 342.3 million gallons while wholesale gallons sold
increased 16.8% or 20.3 million gallons to 140.9 million gallons. For the
period, temperatures nationally were eight percent warmer than during 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 1.1% or $2.4 million to $212.4 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 in the six months ended March 29, 1997 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 six months ended March 29,
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 5.9% or $6.3 million to $112.5 million for the six
months ended March 29, 1997 as compared to $106.2 million for the six months
ended March 30, 1996. The increase in operating expenses was principally due to
higher vehicle fuel costs resulting from the increase in propane costs along
with higher equipment maintenance, rental expenses and an increase in the
allowance for doubtful accounts resulting from the increase in revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses, including the management fee,
increased 4.3% or $.7 million to $16.1 million for the six months ended March
29, 1997 compared to $15.5 million for the six months ended March 30, 1996.
Expenses were higher than the prior period principally due to higher information
system development costs.
OPERATING INCOME AND EBITDA
Operating income decreased $5.4 million to $65.4 million in the six months ended
March 29, 1997 compared to $70.7 million in the prior period. EBITDA decreased
$4.6 million to $83.8 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.
<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 March
29, 1997, net cash provided by operating activities decreased $57.5 million to
$50.9 million compared to $108.4 million in the three months ended March 30,
1996. Cash provided by operations in the prior period included $41.7 million of
net cash collected by the Partnership on behalf of 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 decreased by $15.8 million in the three months
ended March 29, 1997 compared to the prior period. Such decrease was primarily
attributable to a $10.2 million increase in accrued interest payments under the
Partnership's Senior Notes and a net increase in cash required to fund inventory
purchases due to the increased cost of propane.
Net cash used in investing activities was $6.6 million for the three months
ended March 29, 1997 consisting of capital expenditures of $6.7 million and
acquisition payments of $.8 million, offset by proceeds from the sale of
property, plant and equipment of $.9 million. Net cash used in investing
activities was $16.8 million for the three months ended March 30, 1996
consisting of capital expenditures of $5.8 million and acquisition payments of
$11.6 million, offset by proceeds from the sale of property, plant and equipment
of $.6 million.
Net cash used in financing activities for the three months ended March 29, 1997
was $45.9 million arising from net short-term debt repayments of $35.0 million
and the Partnership distribution of $10.9 million.
Excluding the $41.7 million of net cash collected on behalf of Millennium
Petrochemicals discussed above, cash provided by operating activities for the
six months ended March 29, 1997 decreased $24.8 million to $24.4 million
compared to $49.2 million in the prior period. The decrease was principally due
to higher accounts receivable levels attributable to increased selling prices
and an increase in cash required to fund inventory purchases due to the timing
of purchases and the increased cost of propane.
Net cash used in investing activities was $14.0 million for the six months ended
March 29, 1997 consisting of capital expenditures of $15.5 million and
acquisition payments of $1.5 million, offset by proceeds from the sale of
property, plant and equipment of $3.0 million. Net cash used in investing
activities was $26.2 million for the six months ended March 30, 1996 consisting
of capital expenditures of $12.2 million and acquisition payments of $15.1
million, offset by proceeds from the sale of property, plant and equipment of
$1.1 million.
Net cash used in financing activities for the six months ended March 29, 1997
was $11.6 million, principally resulting from the Partnership's distributions of
$25.6 million, partially offset by net short-term borrowings of $14.0 million.
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 $1.1 million (paid to the Hanson affiliate) and $25.8
million (received from the Hanson affiliate) for the three and six months ended
March 30, 1996, respectively. 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.
<PAGE>
The Partnership is currently evaluating certain long-term cost reduction
strategies and organizational changes which it plans to finalize by the
conclusion of the quarter ending June 28, 1997. Accordingly, the Partnership
expects that these changes will result in a restructuring charge in the range of
$4 to $6 million during the third fiscal quarter. As a result of lower than
anticipated earnings for fiscal 1997 and the costs associated with the
restructuring efforts, the Partnership anticipates that it will utilize a
portion of the cash proceeds available under the Distribution Support Agreement
between the Partnership and the General Partner to pay the Minimum Quarterly
Distribution on the Common Units 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 future operating results
for the remainder of fiscal 1997. 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 and second fiscal quarters of 1997 and does not intend to make a
distribution to the subordinated unitholder for the remainder of fiscal 1997.
<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: MAY 9, 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
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-END> MAR-29-1997
<CASH> 17,721
<SECURITIES> 0
<RECEIVABLES> 93,804
<ALLOWANCES> 4,282
<INVENTORY> 30,861
<CURRENT-ASSETS> 145,086
<PP&E> 473,272
<DEPRECIATION> 100,677
<TOTAL-ASSETS> 828,372
<CURRENT-LIABILITIES> 103,510
<BONDS> 428,229
0
0
<COMMON> 0
<OTHER-SE> 187,033
<TOTAL-LIABILITY-AND-EQUITY> 828,372
<SALES> 523,659
<TOTAL-REVENUES> 523,659
<CGS> 311,238
<TOTAL-COSTS> 423,694
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,282
<INTEREST-EXPENSE> 17,613
<INCOME-PRETAX> 47,746
<INCOME-TAX> 127
<INCOME-CONTINUING> 47,619
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<EXTRAORDINARY> 0
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</TABLE>
