UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 28, 1998
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 16 OF THE SECURITIES
EXCHANGE ACT OF 1934
for the transition period from ______ to ______
Commission File Number: 1-14222
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SUBURBAN PROPANE PARTNERS, L.P.
-------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 22-3410353
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
240 ROUTE 10 WEST, WHIPPANY, NJ 07981
- -------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
(973)887-5300
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for each shorter period that the Registrant
was required to file such reports), and (2) had been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of May 8, 1998:
Suburban Propane Partners, L.P. - 21,562,500 Common Units
- 7,163,750 Subordinated Units
This Report contains a total of 18 pages.
<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 28, 1998
and September 27, 1997 3
Condensed Consolidated Statements of Operations for the three
months ended March 28, 1998 and March 29, 1997 4
Condensed Consolidated Statements of Operations for the six
months ended March 28, 1998 and March 29, 1997 5
Condensed Consolidated Statements of Cash Flows for the three
and six months ended March 28, 1998 and March 29, 1997 6
Condensed Consolidated Statement of Partners' Capital
for the six months ended March 28, 1998 7
Notes to Condensed Consolidated Financial Statements 8-12
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-16
Part 2 Other Information
Item 5 - Other 17
Item 6 - Exhibits and Reports on Form 8-K 17
Signatures 18
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Statements made in this Form 10-Q which relate to the Partnership's expectations
or predictions are or may be deemed to be forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities
Exchange Act of 1934. The Partnership's actual results may differ materially
from those contained in any such forward-looking statements depending on a
number of factors, risks and uncertainties, some of which are outside the
Partnership's control, including the unit cost of propane, weather, continued
control of expenses, customer retention and regulatory developments.
<PAGE>
<TABLE>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
MARCH 28, SEPTEMBER 27,
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 61,814 $ 19,336
Accounts receivable, less allowance for
doubtful accounts of $3,182 and $2,682, respectively...... 68,879 45,927
Inventories ................................................. 21,327 31,915
Prepaid expenses and other current assets ................... 7,396 7,183
--------- ---------
Total current assets ................................... 159,416 104,361
Property, plant and equipment, net ............................... 355,397 364,347
Net prepaid pension cost ......................................... 34,460 48,598
Goodwill and other intangible assets, net ........................ 218,178 219,017
Other assets ..................................................... 2,069 9,311
--------- ---------
Total assets ........................................... $ 769,520 $ 745,634
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable ............................................ $ 30,381 $ 37,785
Accrued employment and benefit costs ........................ 20,305 19,957
Accrued insurance ........................................... 5,340 5,280
Customer deposits and advances .............................. 7,513 12,795
Accrued interest ............................................ 8,243 8,306
Other current liabilities ................................... 11,877 12,578
--------- ---------
Total current liabilities .............................. 83,659 96,701
Long-term debt ................................................... 428,175 427,970
Postretirement benefits obligation ............................... 35,368 51,123
Accrued insurance ................................................ 16,700 18,468
Other liabilities ................................................ 9,931 10,133
--------- ---------
Total liabilities ...................................... 573,833 604,395
Partners' capital:
Common Unitholders .......................................... 127,656 100,476
Subordinated Unitholder ..................................... 55,430 39,835
General Partner ............................................. 25,818 12,830
Unearned compensation ....................................... (13,217) (11,902)
--------- ---------
Total partners' capital ................................ 195,687 141,239
--------- ---------
Total liabilities and partners' capital ................ $ 769,520 $ 745,634
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
<TABLE>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
( in thousands, except per unit amounts)
(unaudited)
THREE MONTHS ENDED
MARCH 28, MARCH 29,
1998 1997
---------- ----------
<S> <C> <C>
Revenues
Propane .................................... $214,134 $260,404
Other ...................................... 16,295 17,227
-------- --------
230,429 277,631
Costs and expenses
Cost of sales .............................. 115,351 163,144
Operating .................................. 53,121 57,731
Depreciation and amortization .............. 9,173 9,188
Selling, general and administrative expenses 8,027 8,109
-------- --------
185,672 238,172
Income from operations .......................... 44,757 39,459
Interest expense, net ........................... 7,741 9,115
-------- --------
Income before provision for income taxes ........ 37,016 30,344
Provision for income taxes ...................... 5 63
-------- --------
Net income ................................. $ 37,011 $ 30,281
======== ========
General Partner's interest in net income ........ $ 740 $ 606
-------- --------
Limited Partners' interest in net income ........ $ 36,271 $ 29,675
======== ========
Net income per Unit ............................. $ 1.26 $ 1.03
======== ========
Weighted average number of Units outstanding .... 28,726 28,726
======== ========
</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 OPERATIONS
( in thousands, except per unit amounts)
(unaudited)
SIX MONTHS ENDED
MARCH 28, MARCH 29,
1998 1997
---------- ----------
<S> <C> <C>
Revenues
Propane ........................................ $ 397,039 $ 484,961
Other .......................................... 38,276 38,698
--------- ---------
435,315 523,659
Costs and expenses
Cost of sales .................................. 221,008 311,238
Operating ...................................... 105,165 112,456
Depreciation and amortization .................. 18,465 18,469
Selling, general and administrative expenses ... 15,985 16,137
Gain on sale of investment in Dixie Pipeline Co. (5,090) 0
--------- ---------
355,533 458,300
Income from operations .............................. 79,782 65,359
Interest expense, net ............................... 15,849 17,613
--------- ---------
Income before provision for income taxes ............ 63,933 47,746
Provision for income taxes .......................... 21 127
--------- ---------
Net income ..................................... $ 63,912 $ 47,619
========= =========
General Partner's interest in net income ............ $ 1,278 $ 952
--------- ---------
Limited Partners' interest in net income ............ $ 62,634 $ 46,667
========= =========
Net income per Unit ................................. $ 2.18 $ 1.62
========= =========
Weighted average number of Units outstanding ........ 28,726 28,726
========= =========
</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 SIX MONTHS ENDED
MARCH 28, MARCH 29, MARCH 28, MARCH 29,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ................................... $ 37,011 $ 30,281 $ 63,912 $ 47,619
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation ............................ 7,345 7,296 14,705 14,691
Amortization ............................ 1,828 1,892 3,760 3,778
Gain on disposal of investment .......... 0 0 (5,090) 0
Gain on disposal of property, plant and
equipment ............................. (1,006) (36) (1,407) (418)
Changes in operating assets and liabilities,
net of acquisitions and dispositions:
Decrease (increase) in accounts receivable 8,116 20,708 (22,952) (34,501)
Decrease in inventories ................. 8,725 26,151 10,588 9,312
(Increase) in prepaid expenses
and other current assets .............. (3,649) (1,235) (213) (415)
(Decrease) in accounts payable ........... (6,767) (20,900) (7,404) (2,815)
Increase (decrease) in accrued
employment and benefit costs ........... 1,907 181 736 (2,427)
(Decrease) increase in accrued interest . (8,107) (7,945) (63) 127
(Decrease) in other accrued liabilities . (3,964) (3,879) (5,923) (5,127)
Other noncurrent assets ...................... (717) (273) (1,050) (621)
Deferred credits and other noncurrent
liabilities ........................... (2,634) (1,319) (3,127) (4,846)
------------ ------------ -------- ------------
Net cash provided by operating
activities ..................... 38,088 50,922 46,472 24,357
------------ ------------ -------- ------------
Cash flows from investing activities:
Capital expenditures ........................ (4,572) (6,726) (7,642) (15,488)
Acquisitions ................................ 0 (809) (3,693) (1,503)
Proceeds from sale of investment ............ 0 0 13,090 0
Proceeds from sale of property, plant and
equipment, net ................ 1,613 971 4,104 3,007
------------ ------------ -------- ------------
Net cash provided by (used in)
investing activities ......... (2,959) (6,564) 5,859 (13,984)
------------ ------------ -------- ------------
Cash flows from financing activities:
Short-term borrowings/(repayments), net ..... 0 (35,000) 0 14,000
Long-term debt repayments ................... (1) 0 (1) 0
Proceeds from General Partner APU
contribution ............................ 0 0 12,000 0
Partnership distribution .................... (10,926) (10,927) (21,852) (25,583)
------------ ------------ -------- ------------
Net cash (used in)
financing activities ............... (10,927) (45,927) (9,853) (11,583)
------------ ------------ -------- ------------
Net increase (decrease) in cash and cash
equivalents ................................ 24,202 (1,569) 42,478 (1,210)
Cash and cash equivalents at beginning
of period .................................... 37,612 19,290 19,336 18,931
------------ ------------ -------- ------------
Cash and cash equivalents at end
of period .................................... $ 61,814 $ 17,721 $ 61,814 $ 17,721
============ ============ ======== ============
Supplemental disclosure of cash flow information:
Cash paid for interest ....................... $ 16,175 $ 16,189 $ 16,343 $ 16,357
============ ============ ======== ============
Non-cash investing and financing activities
Assets acquired by incurring note payable ... $ 0 $ 0 $ 250 $ 0
============ ============ ======== ============
</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 27, 1997 ........ 21,562 7,164 $100,476 $ 39,835 $12,830 $ (11,902) $ 141,239
Net Grants Issued under
Restricted Unit Plan ................. 1,703 (1,703)
Partnership distribution ............. (21,562) (290) (21,852)
Amortization of Restricted Unit
compensation ......................... 388 388
APU contribution
(120 Units) .......................... 12,000 12,000
Net income ........................... -- -- 47,039 15,595 1,278 -- 63,912
------ ------------ -------- ------------ ------- ---------------- --------
Balance at March 28, 1998 ............ 21,562 7,164 $127,656 $ 55,430 $25,818 $ (13,217) $195,687
====== ============ ======== ============ ======= ================ ========
</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 28, 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. PARTNERSHIP ORGANIZATION AND FORMATION
- -- --------------------------------------
Suburban Propane Partners, L.P. (the "Partnership") was formed on December 19,
1995 as a Delaware limited partnership. The Partnership and its subsidiary,
Suburban Propane, L.P. (the "Operating Partnership"), were formed to acquire and
operate the propane business and assets of the Suburban Propane Division of
Quantum Chemical Corporation (the "Predecessor Company"). In addition, Suburban
Sales & Service, Inc. (the "Service Company"), a subsidiary of the Operating
Partnership, was formed to acquire and operate the service work and appliance
and parts sales businesses of the Predecessor Company. The Partnership, the
Operating Partnership and the Service Company are collectively referred to
hereinafter as the "Partnership Entities". The Partnership Entities commenced
operations on March 5, 1996 (the "Closing Date") upon consummation of an initial
public offering of 18,750,000 Common Units representing limited partner
interests in the Partnership (the "Common Units"), the private placement of
$425,000 aggregate principal amount of Senior Notes due 2011 issued by the
Operating Partnership (the "Senior Notes") and the transfer of all the propane
assets (excluding the net accounts receivable balance) of the Predecessor
Company to the Operating Partnership and the Service Company. On March 25, 1996,
the underwriters of the Partnership's initial public offering exercised an
overallotment option to purchase an additional 2,812,500 Common Units. The
Partnership Entities are, and the Predecessor Company was, engaged in the retail
and wholesale marketing of propane and related appliances and services.
Suburban Propane GP, Inc. (the "General Partner") is a wholly-owned subsidiary
of Millennium Petrochemicals Inc., ("Millennium Petrochemicals"), formerly
Quantum Chemical Corporation, and serves as the general partner of the
Partnership and the Operating Partnership. Both the General Partner and
Millennium Petrochemicals are indirect wholly-owned subsidiaries of Millennium
Chemicals Inc. ("Millennium"), which was formed as a result of Hanson PLC's
demerger in October 1996. Millennium is a Security and Exchange Commission
registrant which files periodic reports. Millennium's annual report on Form 10-K
for the fiscal year ended December 31, 1997 has been filed (Commission File
Number 1-12091). The General Partner holds a 1% general partner interest in the
Partnership and a 1.0101% general partner interest in the Operating Partnership.
In addition, the General Partner owns a 24.4% limited partner interest and a
special limited partner interest in the Partnership. The limited partner
interest is evidenced by 7,163,750 Subordinated Units and the special limited
partner interest is evidenced by 220,000 Additional Partnership Units ("APUs").
The General Partner has delegated to the Partnership's Board of Supervisors all
management powers over the business and affairs of the Partnership Entities that
the General Partner possesses under applicable law.
<PAGE>
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -- --------------------------------------------------------------------
BASIS OF PRESENTATION. The condensed consolidated financial statements include
the accounts of the Partnership Entities. All significant intercompany
transactions and accounts have been eliminated. The accompanying condensed
consolidated financial statements are unaudited and have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission. They include all adjustments which the Partnership considers
necessary for a fair statement of the results for the interim period presented.
Such adjustments consisted only of normal recurring items unless otherwise
disclosed. These financial statements should be read in conjunction with the
Company's Annual Report on Form 10-K for the fiscal year ended September 27,
1997, including management's discussion of financial results contained therein.
Due to the seasonal nature of the Partnership's propane business, the results of
operations for interim periods are not necessarily indicative of the results to
be expected for a full year.
FISCAL PERIOD. The Partnership's fiscal periods end on the Saturday nearest the
end of the quarter.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORIES. Inventories are stated at the lower of cost or market. Cost is
determined using a weighted average method for propane and a specific
identification basis for appliances.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at cost.
Depreciation of property, plant and equipment is computed using the
straight-line method over the estimated service lives which range from three to
forty years.
Accumulated depreciation at March 28, 1998 and September 27, 1997 was $130,410
and $115,705, respectively.
GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill and other intangible assets are
comprised of the following:
MARCH 28, SEPTEMBER 27,
1998 1997
---- ----
Goodwill ............................... $237,772 $235,439
Debt origination costs ................. 6,224 6,224
Other, principally noncompete agreements 5,065 4,514
-------- --------
249,061 246,177
Less: Accumulated amortization ........ 30,883 27,160
-------- --------
$218,178 $219,017
======== ========
INCOME TAXES. As discussed in Note 1, the Partnership Entities consist of two
limited partnerships, the Partnership and the Operating Partnership, and one
corporate entity, the Service Company. For federal and state income tax
purposes, the earnings attributed to the Partnership and Operating Partnership
are included in the tax returns of the individual partners. As a result, no
<PAGE>
recognition of income tax expense has been reflected in the Partnership's
consolidated financial statements relating to the earnings of the Partnership
and Operating Partnership. The earnings attributed to the Service Company are
subject to federal and state income taxes. Accordingly, the Partnership's
consolidated financial statements reflect income tax expense related to the
Service Company's earnings.
NET INCOME PER UNIT. Net income per unit is computed by dividing net income,
after deducting the General Partner's 2% interest by the weighted average number
of outstanding Common Units and Subordinated Units.
RECLASSIFICATIONS. Certain prior period balances have been reclassified to
conform with the current period presentation.
3. DISTRIBUTIONS OF AVAILABLE CASH
- -- -------------------------------
The Partnership will make distributions to its partners 45 days after the end of
each fiscal quarter in an aggregate amount equal to its Available Cash for such
quarter. Available Cash generally means all cash on hand at the end of the
fiscal quarter less cash reserves established by the Board of Supervisors in its
reasonable discretion for future cash requirements. In accordance with the
Distribution Support Agreement among the Partnership, the General Partner and
Millennium, to enhance the Partnership's ability to distribute the Minimum
Quarterly Distribution on the Common Units, the General Partner has agreed to
contribute to the Partnership cash in exchange for APUs. The APUs represent
non-voting, limited partner Partnership interests with a stated value per unit
of $100. The APUs are not entitled to cash distributions or allocations of any
items of Partnership income, gain, loss, deduction or credit. The Partnership
did not require any cash contributions in exchange for APUs from the General
Partner in the second fiscal quarter. On February 10, 1998, the Partnership paid
the Minimum Quarterly Distributions on all outstanding Common Units for the
quarter ended December 27, 1997. The Partnership did not make a quarterly
distribution on its Subordinated Units (which are held by the General Partner)
for said fiscal quarter. At March 28, 1998, the General Partner has contributed
a total of $22,000 or 220,000 APUs and has a remaining maximum contribution
obligation of $21,600 or 216,000 APUs under the Distribution Support Agreement.
4. RELATED PARTY TRANSACTIONS
- -- --------------------------
Pursuant to a Computer Services Agreement (the "Services Agreement") dated as of
the Closing Date between Millennium Petrochemicals and the Partnership,
Millennium Petrochemicals permitted the Partnership to utilize Millennium
Petrochemicals' mainframe computer for the generation of customer bills, reports
and information regarding the Partnership's retail sales. For the six months
ended March 28, 1998, the Partnership incurred expenses of $202 under the
Services Agreement. The Services Agreement was terminated effective April 3,
1998 at which time the Partnership began utilizing the services of an unrelated
third party provider.
5. COMMITMENTS AND CONTINGENCIES
- -- -----------------------------
The Partnership leases certain property, plant and equipment for various periods
under noncancelable leases. Rental expense under operating leases was $7,894 for
the six months ended March 28, 1998.
<PAGE>
The Partnership is self-insured for general and product, workers' compensation
and automobile liabilities up to predetermined amounts above which third party
insurance applies. At March 28, 1998, accrued insurance liabilities amounted to
$22,040, representing the total estimated losses under these self-insurance
programs. These liabilities represent the gross estimated losses as no claims or
lawsuits, individually or in the aggregate, were estimated to exceed the
Partnership's deductibles on its insurance policies.
The Partnership is also involved in various legal actions which have arisen in
the normal course of business including those relating to commercial
transactions and product liability. It is the opinion of management, based on
the advice of legal counsel, that the ultimate resolution of these matters will
not have a material adverse effect on the Partnership's financial position or
future results of operations, after considering its self-insurance liability for
known and unasserted self-insurance claims.
6. LONG-TERM DEBT AND BANK CREDIT FACILITIES
- -- -----------------------------------------
On the Closing Date, the Operating Partnership issued $425,000 of Senior Notes
with an annual interest rate of 7.54%. The Operating Partnership's obligations
under the Senior Note Agreement are unsecured and rank on an equal and ratable
basis with the Operating Partnership's obligations under the Bank Credit
Facilities discussed below. The Senior Notes will mature June 30, 2011, and
require semiannual interest payments which commenced June 30, 1996. The Note
Agreement requires that the principal be paid in equal annual installments of
$42,500 starting June 30, 2002.
The Bank Credit Facilities consist of a $75,000 working capital facility and a
$25,000 acquisition facility. The Operating Partnership's obligations under the
Bank Credit Facilities are unsecured on an equal and ratable basis with the
Operating Partnership's obligations under the Senior Notes. Borrowings under the
Bank Credit Facilities will bear interest at a rate based upon either LIBOR plus
a margin, First Union National Bank's prime rate or the Federal Funds rate plus
1/2 of 1%. An annual fee ranging from .20% to .25% based upon certain financial
tests will be payable quarterly whether or not borrowings occur. As of March 28,
1998, such fee was .25%. On February 25, 1998, the Operating Partnership entered
into the First Amendment to its Amended and Restated Bank Credit Agreement,
which First Amendment is filed as an Exhibit with this Form 10-Q. The Bank
Credit Facilities will expire September 30, 2000.
No amounts were outstanding under the Bank Credit Facilities as of September 27,
1997 and March 28, 1998.
The Senior Note Agreement and Bank Credit Facilities contain various restrictive
and affirmative covenants applicable to the Operating Partnership, including (i)
maintenance of certain financial tests, (ii) restrictions on the incurrence of
additional indebtedness, and (iii) restrictions on certain liens, investments,
guarantees, loans, advances, payments, mergers, consolidations, distributions,
sales of assets and other transactions.
<PAGE>
7. RESTRICTED UNIT PLAN
- -- --------------------
The Partnership's 1996 Restricted Unit Award Plan authorizes the issuance of
Common Units with an aggregate value of $15,000 to executives, managers and
Elected Supervisors of the Partnership. Upon issuance of Restricted Units,
unearned compensation is amortized ratably over the applicable vesting periods
under the Plan.
UNITS VALUE PER UNIT
----- --------------
Outstanding September 27, 1997 634,148 $18.41 - $21.63
Awarded ...................... 97,556 $17.91
Forfeited .................... (12,195) $18.41 - $21.63
-------- ---------------
Outstanding March 28, 1998 ... 719,509 $17.91 - $21.63
======== ===============
For the six months ended March 28, 1998, the Partnership amortized $388 of
unearned compensation.
8. EMPLOYEE BENEFIT PLANS
- -- ----------------------
Effective January 1, 1998, the Partnership, in connection with its overall
restructuring efforts to implement long-term cost reduction strategies, modified
certain employee benefit plans.
In this regard, the Partnership amended its noncontributory defined benefit
pension plan to provide for a cash balance format as compared to a final average
format which was in effect prior to January 1, 1998. The Partnership also
terminated its postretirement benefit plan for all eligible employees retiring
after March 1, 1998. All active and eligible employees who were to receive
benefits under the postretirement plan subsequent to March 1, 1998, were
provided a settlement by increasing their accumulated benefits under the cash
balance pension plan.
The Partnership has in part accounted for the restructuring of the above-noted
benefit plans as a reduction in the postretirement plan benefit obligation
(retaining only the obligation related to employees retired on or before March
1, 1998) and as a corresponding decrease in the net prepaid pension cost with a
net difference of $300 being recognized as a gain in the accompanying statement
of operations for the three months ended March 28, 1998.
9. SUBSEQUENT EVENT - COMMON UNIT DISTRIBUTION
- -- -------------------------------------------
On April 24, 1998 the Partnership announced a quarterly distribution of $0.50
per Limited Partner Common Unit for the second quarter of fiscal 1998 payable on
May 12, 1998. The Partnership will not make a quarterly distribution on its
Subordinated Units (which are held by the General Partner) for said fiscal
quarter.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 28, 1998
- ---------------------------------
COMPARED TO THREE MONTHS ENDED MARCH 29, 1997
- ---------------------------------------------
REVENUES
Revenues decreased 17.0% or $47.2 million to $230.4 million for the three months
ended March 28, 1998 as compared to $277.6 million for the three months ended
March 29, 1997. The overall decrease is primarily attributable to lower propane
costs resulting in lower sales prices to customers. Propane gallons sold to
retail customers decreased 1.7% or 3.2 million gallons to 180.1 million gallons.
The decrease in retail gallons is principally due to significantly warmer
temperatures than in the prior period. Temperatures nationally were
approximately 8% warmer than in the prior period. Wholesale and trading gallons
sold increased 13.1% or 9.7 million gallons to 83.6 million gallons resulting
from the Partnership's expansion of its product procurement and price risk
management activities.
GROSS PROFIT
Gross profit increased 0.5% or $0.6 million to $115.1 million in the second
quarter of fiscal 1998, principally due to higher margins and the Parternship's
expansion of its product procurement and price risk management activities.
OPERATING EXPENSES
Operating expenses decreased 8.0% or $4.6 million to $53.1 million for the three
months ended March 28, 1998 as compared to $57.7 million for the three months
ended March 29, 1997. The decrease in operating expenses is principally
attributable to the continued favorable impact of restructuring activities
undertaken during 1997, primarily lower payroll costs and vehicle maintenance
expenditures.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $8.0 million for the three
months ended March 28, 1998, which are consistent with the prior period's
comparable quarter.
OPERATING INCOME AND EBITDA
Operating income increased $5.3 million to $44.8 million in the three months
ended March 28, 1998 compared to $39.5 million in the prior period's second
quarter. EBITDA increased $5.3 million to $53.9 million. The increase in EBITDA
and operating income is primarily attributable to lower period expenses and
higher overall gross profit. EBITDA should not be considered as an alternative
to net income (as an indicator of operating performance) or as an alternative to
cash flow (as a measure of liquidity or ability to service debt obligations) but
provides additional information for evaluating the Partnership's ability to
distribute the Minimum Quarterly Distribution.
<PAGE>
INTEREST EXPENSE
Interest expense decreased $1.4 million to $7.7 million in the three months
ended March 28, 1998 compared with $9.1 million in the prior period. The
decrease is attributable to improved working capital management and lower
product costs which resulted in no amounts being borrowed under the
Partnership's Bank Credit Facilities during the second quarter of fiscal 1998.
SIX MONTHS ENDED MARCH 28, 1998
- -------------------------------
COMPARED TO SIX MONTHS ENDED MARCH 29, 1997
- -------------------------------------------
REVENUES
Revenues decreased 16.8% or $88.3 million to $435.3 million for the six months
ended March 28, 1998 as compared to $523.7 million for the six months ended
March 29, 1997. The overall decrease is primarily attributable to lower propane
costs resulting in lower sales prices to customers. Propane gallons sold to
retail customers decreased 1.1% or 3.9 million gallons to 338.4 million gallons
as compared to the same period in the prior year. The decrease in retail gallons
is primarily attributable to temperatures being 4% warmer than in the prior
year's comparable period. Wholesale and trading gallons sold decreased 6.2% or
8.7 million gallons to 132.2 million. The decrease is attributable to a decline
in wholesale gallons resulting from the Partnership's reduced emphasis on the
wholesale market due to the low margin nature of such sales.
GROSS PROFIT
Gross profit increased 0.9% or $1.9 million to $214.3 for the six months ended
March 28, 1998, principally attributable to higher margins, the Partnership's
expansion of its product procurement and price risk management activities and
increased volume in sales of propane-related parts and services.
OPERATING EXPENSES
Operating expenses decreased 6.5% or $7.3 million to $105.2 million for the six
months ended March 28, 1998 as compared to $112.5 million for the six months
ended March 29, 1997. The decrease in operating expenses is principally
attributable to lower payroll expenses resulting from restructuring activities
undertaken during 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $16.0 million for the six
months ended March 28, 1998, which are consistent with the six months ended
March 29, 1997.
OPERATING INCOME AND EBITDA
Operating income increased $14.4 million to $79.8 million in the six months
ended March 28, 1998 compared to $65.4 million in the prior period. EBITDA
increased $14.4 million to $98.2 million. Results for the six months include a
$5.1 million gain from the sale of an investment in the Dixie Pipeline Company
<PAGE>
which the partnership sold after determining it did not offer any strategic
business advantages. Excluding the gain, EBITDA and operating income increased
$9.3 million attributable to lower period expenses and higher overall gross
profit. EBITDA should not be considered as an alternative to net income (as an
indicator of operating performance) or as an alternative to cash flow (as a
measure of liquidity or ability to service debt obligations) but provides
additional information for evaluating the Partnership's ability to distribute
the Minimum Quarterly Distribution.
INTEREST EXPENSE
Interest expense decreased $1.8 million to $15.8 million in the six months ended
March 28, 1998 compared with $17.6 million in the prior period. The decrease is
attributable to improved working capital management and lower product costs
which resulted in no amounts being borrowed on the Partnership's Bank Credit
Facilities during the six months ended March 28, 1998.
HEDGING
The Partnership engages in hedging transactions to reduce the effect of price
volatility on its product costs and to help ensure the availability of propane
during periods of short supply. The Partnership is currently a party to propane
futures contracts on the New York Mercantile Exchange and, to a limited extent,
enters into agreements to purchase and sell propane at fixed prices in the
future. These activities are monitored by management through enforcement of the
Partnership's Commodity Trading Policy. Hedging does not always result in
increased product margins and the Partnership does not consider hedging
activities to be material to operations or liquidity for the six month period
ended March 28, 1998.
READINESS FOR YEAR 2000
The Partnership has taken actions and continues to evaluate the extent of work
required to make its computer-based systems Year 2000 compliant, including
replacing and/or updating existing legacy systems. While these efforts will
involve additional costs, the Partnership believes, based on available
information, that it will be able to manage its total Year 2000 transition
without any material adverse effect on its business operations.
LIQUIDITY AND CAPITAL RESOURCES
Due to the seasonal nature of the propane business, cash flows from operating
activities are greater during the winter and spring seasons as customers pay for
propane purchased during the heating season. For the six months ended March 28,
1998, net cash provided by operating activities was $46.5 million compared to
cash provided by operating activities of $24.4 million in the six months ended
March 29, 1997. The increase of $22.1 million was primarily due to lower working
capital requirements for receivables and inventory of $12.8 million and higher
net income, which was partially offset by an decrease in accounts payable of
$4.6 million. The changes in receivables, inventory and accounts payable
primarily result from improved working capital management, the decrease in
propane costs and corresponding selling prices.
Net cash provided by investing activities amounted to $5.9 million during the
six months ended March 28, 1998 which includes proceeds of $13.1 million from
the sale of the Partnership's minority interest in the Dixie Pipeline Co., $4.1
<PAGE>
million from the sale of property, plant and equipment, offset by business
acquisition payments of $3.7 million and capital expenditures of $7.6 million
(including $3.5 million for maintenance expenditures and $4.1 million to support
the growth of operations). Net cash used in investing activities was $14.0
million for the six months ended March 29, 1997 consisting of capital
expenditures of $15.5 million (including $7.1 million for maintenance
expenditures and $8.4 million to support the growth of operations) and
acquisition payments of $1.5 million, offset by proceeds from the sale of
property, plant and equipment of $3.0 million. The decrease in capital
expenditures of $7.9 million for the six months ended March 28, 1998 when
compared to the prior year period is primarily due to reductions in customer
equipment and new vehicle purchases as the Partnership has elected to lease new
vehicles in lieu of purchasing same.
Net cash used in financing activities for the six months ended March 28, 1998
was $9.9 million reflecting the Partnership's cash distributions and the
proceeds of the General Partner's APU contributions.
Net cash used in financing activities for the six months ended March 29, 1997
was $11.6 million, arising from net short-term borrowings of $14.0 million
principally for working capital requirements, offset by the Partnership's
distributions of $25.6 million.
The Partnership has announced that it will make a distribution of $0.50 per Unit
to its Common Unitholders on May 12, 1998 for the second fiscal quarter of 1998.
The Partnership will not make a distribution to the Subordinated Unitholder for
said fiscal quarter. The Partnership does not anticipate utilizing proceeds
available under the Distribution Support Agreement with respect to the funding
of the Minimum Quarterly Distribution for the third quarter of fiscal 1998.
The ability of the Partnership to satisfy its future obligations will depend on
its future performance, which will be subject to prevailing economic, financial,
business and weather conditions and other factors, many of which are beyond its
control. Future capital needs of the Partnership are expected to be provided by
future operations, existing cash balances, the Bank Credit Facilities and, to
the extent required, APU contributions from the General Partner. The Partnership
may incur additional indebtedness or issue additional Units to fund possible
future acquisitions.
<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
(10) First Amendment to Amended and Restated
Credit Agreement made and entered into as of
February 25, 1998 by and among the Operating
Partnership, as Borrower, the Lenders
referred to therein, First Union National
Bank, as Administrative Agent, and the Bank
of New York, as Document Agent.
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
<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 11, 1998 BY /S/ ANTHONY M. SIMONOWICZ
-------------------------
ANTHONY M. SIMONOWICZ
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
BY /S/ EDWARD J. GRABOWIECKI
------------------------------
EDWARD J. GRABOWIECKI
CONTROLLER AND CHIEF ACCOUNTING OFFICER
<PAGE>
Exhibit
FIRST AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"First Amendment") is made and entered into as of this 25th day of February,
1998 by and among SUBURBAN PROPANE, L.P., a limited partnership organized under
the laws of Delaware, as Borrower, the Lenders who are or may become a party to
the Credit Agreement referred to below, and FIRST UNION NATIONAL BANK, as
Administrative Agent for the lenders and THE BANK OF NEW YORK, as Document Agent
for the Lenders.
STATEMENT OF PURPOSE
The Lenders agreed to extend certain Loans to the Borrower pursuant to
the Amended and Restated Credit Agreement dated as of September 30, 1997 by and
among the Borrower, the Lenders, the Administrative Agent and the Documentation
Agent (as amended or supplemented from time to time, the "Credit Agreement").
The parties now desire to amend the Credit Agreement in certain
respects, to clarify the treatment of certain accounting items, on the terms and
conditions set forth below.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. EFFECT OF AMENDMENT. Except as expressly amended hereby, the Credit
Agreement and Loan Documents shall be and remain in full force and effect.
2. CAPITALIZED TERMS. All capitalized undefined terms used in this
First Amendment shall have the respective meanings assigned thereto in the
Credit Agreement.
3. MODIFICATION OF CREDIT AGREEMENT. The definition of "EBITDA" set
forth in Section 1.1 of the Credit Agreement is hereby deleted in its entirety
and the following definition is substituted in lieu thereof:
"EBITDA" means, with respect to the Borrower and its
Subsidiaries on a Consolidated basis for any period, (a) the
Consolidated net income of the Borrower and its Subsidiaries for such
period, computed in accordance with GAAP, PLUS, (b) to the extent
deducted in computing such Consolidated net income and without
duplication, the sum of (i) income tax expense, (ii) Interest Expense,
(iii) depreciation and amortization expense, (iv) extraordinary losses
during such period, (v) non-cash restructuring charges, (vi) cash
restructuring charges, in an aggregate amount not to exceed $5,000,000
during the term of this Agreement and (vii) with respect to any period
<PAGE>
that includes the fiscal quarter ended June 28, 1997, restructuring
charges (in an aggregate amount not to exceed $6,900,000) recorded by
the Borrower during such fiscal quarter; MINUS, (c) to the extent added
in computing such Consolidated net income and without duplication,
extraordinary gains during the applicable period.
4. CONSENT TO COMMODITY HEDGING POLICY. By its execution hereof, each
Lender hereby approves the Borrower's commodity hedging policy (the "Policy") in
the form attached hereto as EXHIBIT A-1. Upon execution hereof by the Required
Lenders, the Policy shall become the "commodity hedging policy" referred to in
Sections 7.17 and 9.01(c) of the Credit Agreement pursuant to which the Borrower
may enter into Commodity Hedging Agreements. As set forth in Section 7.17 of the
Credit Agreement, the Borrower shall not amend the Policy in any manner that
increases the risk exposure of the Borrower (including, without limitation, any
increase of the limits thereunder) without the prior written consent of the
Required Lenders, which consent shall not be unreasonably withheld.
5. REPRESENTATIONS AND WARRANTIES/NO DEFAULT.
(a) By its execution hereof, the Borrower hereby certifies that each of
the representations and warranties set forth in the Credit Agreement and the
other Loan Documents is true and correct in all material respects as of the date
hereof as if fully set forth herein and that as of the date hereof no Default or
Event of Default has occurred and is continuing.
(b) By its execution hereof, the Borrower hereby represents and
warrants that each of the Borrower and its Subsidiaries has the right, power and
authority and has taken all necessary corporate and other action to authorize
the execution, delivery and performance of this First Amendment and each other
document executed in connection herewith to which it is a party in accordance
with their respective terms. This First Amendment has been duly executed and
delivered by the duly authorized officers of the Borrower and each of its
Subsidiaries party thereto, and each such document constitutes the legal, valid
and binding obligation of the Borrower or its Subsidiary party thereto,
enforceable in accordance with its terms.
6. EXPENSES. The Borrower shall pay all reasonable out-of-pocket
expenses of the Agent in connection with the preparation, execution and delivery
of this First Amendment, including without limitation, the reasonable fees and
disbursements of counsel for the Agent.
7. GOVERNING LAW. This First Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
8. NO FURTHER AMENDMENT. Except as expressly set forth herein, all
other provisions of the Credit Agreement shall be unmodified and shall continue
in full force and effect. The Borrower acknowledges that the execution and
delivery of this First Amendment does not constitute a waiver of any of the
provisions of Section 12.11 of the Credit Agreement and no Lender shall be under
any obligation to agree to any future amendment of the Credit Agreement.
<PAGE>
9. COUNTERPARTS. This First Amendment may be executed in separate
counterparts, each of which when executed and delivered is an original but all
of which taken together constitute one and the same instrument.
10. FAX TRANSMISSION. A facsimile, telecopy or other reproduction of
this First Amendment may be executed by one or more parties hereto, and an
executed copy of this First Amendment may be delivered by one or more parties
hereto by facsimile or similar instantaneous electronic transmission device
pursuant to which the signature of or on behalf of such party can be seen, and
such execution and delivery shall be considered valid, binding and effective for
all purposes. At the request of any party hereto, all parties hereto agree to
execute an original of this First Amendment as well as any facsimile, telecopy
or other reproduction hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed as of the date and year first above written.
SUBURBAN PROPANE, L.P.
By: /S/ ROBERT M. PLANTE
--------------------
Name: ROBERT M. PLANTE
----------------
Title: TREASURER
---------
FIRST UNION NATIONAL BANK,
as Administrative Agent and
as Lender
By: /S/ JAMES J. PETRONCHAK
-----------------------
Name: JAMES J. PETRONCHAK
-------------------
Title: SENIOR VICE PRESIDENT
---------------------
<PAGE>
THE BANK OF NEW YORK,
as Documentation Agent and
as Lender
By: /S/ RANDOLPH E.J. MEDRANO
-------------------------
Name: RANDOLPH E.J. MEDRANO
---------------------
Title: VICE PRESIDENT
--------------
BANQUE PARIBAS
By: /S/ ROBERT G. CARINO
--------------------
Name: ROBERT G. CARINO
----------------
Title: VICE PRESIDENT
--------------
By: /S/ DUANE HELKOWSKI
-------------------
Name: DUANE HELKOWSKI
---------------
Title: VICE PRESIDENT
--------------
CREDIT LYONNAIS NEW YORK BRANCH
By: /S/ VLADIMER LABUN
------------------
Name: VLADIMER LABUN
--------------
Title: FIRST VICE PRESIDENT-MANAGER
----------------------------
THE FIRST NATIONAL BANK OF CHICAGO
By: /S/ ROBERT MCMILLAN
-------------------
Name: ROBERT MCMILLAN
---------------
Title: CORPORATE BANKING OFFICER
-------------------------
MELLON BANK
By: /S/ GEORGE B. DAVIS
-------------------
Name: GEORGE B. DAVIS
---------------
Title: VICE PRESIDENT
--------------
<PAGE>
ABN AMRO BANK, N.V.
By: /S/ GEORGE M. DUGAN
--------------------
Name: GEORGE M. DUGAN
---------------
Title: VICE PRESIDENT
--------------
By: /S/ ALAN LIPSKY
---------------
Name: ALAN LIPSKY
-----------
Title: CORPORATE BANKING OFFICER
-------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This shedule contains summary financial information extracted from the financial
statementscontained in the body of the accompanying For 10-Q and is qualified in
it's entirety by reference to such financial statements
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-26-1998
<PERIOD-START> SEP-29-1997
<PERIOD-END> MAR-28-1998
<CASH> 61,814
<SECURITIES> 0
<RECEIVABLES> 72,061
<ALLOWANCES> 3,182
<INVENTORY> 21,327
<CURRENT-ASSETS> 159,416
<PP&E> 485,807
<DEPRECIATION> 130,410
<TOTAL-ASSETS> 769,520
<CURRENT-LIABILITIES> 83,659
<BONDS> 428,175
0
0
<COMMON> 0
<OTHER-SE> 195,687
<TOTAL-LIABILITY-AND-EQUITY> 769,520
<SALES> 435,315
<TOTAL-REVENUES> 435,315
<CGS> 221,008
<TOTAL-COSTS> 326,173
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,543
<INTEREST-EXPENSE> 15,849
<INCOME-PRETAX> 63,933
<INCOME-TAX> 21
<INCOME-CONTINUING> 63,912
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,912
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
