UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
AMENDMENT NO. 1 TO FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 26, 1998
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 16 OF THE SECURITIES
EXCHANGE ACT OF 1934
for the transition period from ______ to ______
Commission File Number: 1-14222
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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 December 26, 1998:
Suburban Propane Partners, L.P. - 21,562,500 Common Units
- 7,163,750 Subordinated Units
This Report contains a total of 18 pages.
<PAGE>
EXPLANATORY NOTE
----------------
This Form 10-Q/A (Amendment No. 1) amends and restates in its entirety the
Registrant's Quarterly Report on Form 10-Q for the quarterly period ended
December 26, 1998 filed with the Securities and Exchange Commission (the
"Commission") on February 9, 1999. This amendment and restatement is being filed
in response to certain comments of the staff of the Commission on the Annual
Report on Form 10-K for the fiscal year ended September 26, 1998 that were made
in connection with the proposed recapitalization of the Registrant described in
the Registrant's definitive Proxy Statement filed with the Commission on April
22, 1999. The Registrant hereby amends Part I, Items 1 and 2.
<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 December 26, 1998
and September 26, 1998 5
Condensed Consolidated Statements of Operations for the three
months ended December 26, 1998 and December 27, 1997 6
Condensed Consolidated Statements of Cash Flows for the
three months ended December 26, 1998 and December 27, 1997 7
Condensed Consolidated Statement of Partners' Capital
for the three months ended December 26, 1998 8
Notes to Condensed Consolidated Financial Statements 9-13
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-16
Item 3 - Quantitative and Qualitative Disclosures
about Market Risk 17
Part 2 Other Information
Item 5 - Other 18
Item 6 - Exhibits and Reports on Form 8-K 18
Signatures 19
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
- -----------------------------------------------
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
relating to the Partnership's future business expectations and predictions and
financial condition and results of operations. These forward-looking statements
involve certain risks and uncertainties. Important factors that could cause
actual results to differ materially from those discussed in such forward-looking
statements ("cautionary statements") include, among other things: the impact of
weather conditions on the demand for propane; fluctuations in the unit cost of
propane; the ability of the Partnership to compete with other suppliers of
propane and other energy sources; the ability of the Partnership to retain
customers; the impact of energy efficiency and technology advances on the demand
<PAGE>
for propane; the ability of management to continue to control expenses; the
impact of regulatory developments on the Partnership's business, including the
resolution of Final Rule HM-225 (49 CFR 171.5) promulgated by the research and
special programs administration of the U.S Department of Transportation; the
impact of legal proceedings on the Partnership's business; and, if the proposed
recapitalization of the Partnership discussed below is completed, the impact of
the additional debt at the operating partnership level and the impact of the
replacement of a third party distribution support arrangement with alternative
support from the Partnership. All subsequent written and oral forward-looking
statements attributable to Suburban or persons acting on its behalf are
expressly qualified in their entirety by such cautionary statements.
<PAGE>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 26, September 26,
1998 1998
(unaudited) (audited)
------------ -------------
ASSETS
Current assets:
Cash and cash equivalents .................. $ 54,188 $ 59,819
Accounts receivable, less allowance for
doubtful accounts of $2,382 ............. 58,081 39,134
Inventories ................................ 30,239 29,962
Prepaid expenses and other current assets .. 4,476 3,866
--------- ---------
Total current assets .................. 146,984 132,781
Property, plant and equipment, net .............. 339,015 343,828
Net prepaid pension cost ........................ 34,268 34,556
Goodwill and other intangible assets, net ....... 213,162 214,782
Other assets .................................... 4,779 3,618
--------- ---------
Total assets .......................... $ 738,208 $ 729,565
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable ........................... $ 33,789 $ 31,315
Accrued employment and benefit costs ....... 15,853 20,926
Accrued insurance .......................... 5,330 4,830
Customer deposits and advances ............. 15,120 16,241
Accrued interest ........................... 16,312 8,198
Other current liabilities .................. 9,083 10,040
--------- ---------
Total current liabilities ............. 95,487 91,550
Long-term debt .................................. 427,850 427,897
Postretirement benefits obligation .............. 35,758 35,980
Accrued insurance ............................... 16,285 16,574
Other liabilities ............................... 9,504 9,764
--------- ---------
Total liabilities ..................... 584,884 581,765
Partners' capital:
Common Unitholders ......................... 87,222 84,847
Subordinated Unitholder .................... 53,141 49,147
General Partner ............................ 24,595 24,488
Unearned compensation ...................... (11,634) (10,682)
--------- ---------
Total partners' capital ............... 153,324 147,800
--------- ---------
Total liabilities and partners' capital $ 738,208 $ 729,565
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per Unit amounts)
(unaudited)
Three Months Ended
December 26, 1998 December 27, 1997
----------------- ----------------
Revenues
Propane ................................. $138,790 $182,905
Other ................................... 22,426 21,981
----------- -----------
161,216 204,886
Costs and expenses
Cost of sales ........................... 68,871 105,657
Operating ............................... 52,274 53,930
Depreciation and amortization ........... 8,782 9,292
General and administrative expenses ..... 7,326 6,072
Gain on sale of investment in Dixie
Pipeline Co. .......................... - (5,090)
----------- -----------
137,253 169,861
Income from operations ..................... 23,963 35,025
Interest expense, net ...................... 7,586 8,108
----------- -----------
Income before provision for income taxes ... 16,377 26,917
Provision for income taxes ................. 7 16
----------- -----------
Net income .............................. $ 16,370 $ 26,901
=========== ===========
General Partner's interest in net income ... $ 327 $ 538
----------- -----------
Limited Partners' interest in net income ... $ 16,043 $ 26,363
=========== ===========
Basic and diluted net income per Unit ...... $ 0.56 $ 0.92
=========== ===========
Weighted average number of Units outstanding 28,726 28,726
----------- -----------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
<TABLE>
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
December 26, 1998 December 27, 1997
----------------- -----------------
Cash flows from operating activities:
<S> <C> <C>
Net income .................................................. $ 16,370 $ 26,901
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation ........................................... 6,898 7,360
Amortization ........................................... 1,884 1,932
(Gain) on disposal of investment ....................... -- (5,090)
(Gain) on disposal of property, plant and
equipment ............................................ (88) (401)
Changes in operating assets and liabilities, net of
acquisitions and dispositions:
(Increase) in accounts receivable ....................... (18,947) (31,068)
(Increase)/decrease in inventories ...................... (277) 1,863
(Increase)/decrease in prepaid expenses and
other current assets .................................. (610) 3,436
Increase/(decrease) in accounts payable ................. 2,474 (637)
(Decrease) in accrued employment
and benefit costs ..................................... (4,918) (1,171)
Increase in accrued interest ............................ 8,114 8,044
(Decrease) in other accrued liabilities ................ (1,578) (1,959)
Other noncurrent assets ..................................... (1,033) (333)
Deferred credits and other noncurrent liabilities ........... (771) (493)
-------- --------
Net cash provided by operating activities ......... 7,518 8,384
-------- --------
Cash flows from investing activities:
Capital expenditures ....................................... (2,936) (3,070)
Acquisitions ............................................... (109) (3,693)
Proceeds from sale of investment ........................... -- 13,090
Proceeds from sale of property, plant and equipment, net ... 944 2,491
-------- --------
Net cash (used in) provided by investing activities (2,101) 8,818
-------- --------
Cash flows from financing activities:
Long-term debt repayments .................................. (47) --
Proceeds from General Partner APU contribution ............. -- 12,000
Partnership distribution ................................... (11,001) (10,926)
-------- --------
Net cash (used in) provided by financing activities (11,048) 1,074
-------- --------
Net (decrease)/increase in cash and cash equivalents ............. (5,631) 18,276
Cash and cash equivalents at beginning of period ................. 59,819 19,336
-------- --------
Cash and cash equivalents at end of period ....................... $ 54,188 $ 37,612
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest ..................................... $ 108 $ 168
======== ========
Non-cash investing and financing activities
Assets acquired by incurring note payable ................. $ -- $ 250
======== ========
</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 26, 1998 21,562 7,164 $ 84,847 $ 49,147 $ 24,488 $(10,682) $147,800
Grants issued under
Restricted Unit Plan 1,107 (1,107) -
Partnership distribution (10,781) (220) (11,001)
Amortization of Restricted Unit
compensation 155 155
Net income - - 12,049 3,994 327 - 16,370
------ ------------ ------ ------------ ------- ---------------- -------
Balance at December 26, 1998 21,562 7,164 $ 87,222 $ 53,141 $ 24,595 $ (11,634) $153,324
====== ============ ====== ============ ======= ================ =======
</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
DECEMBER 26, 1998
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. PARTNERSHIP ORGANIZATION AND FORMATION
- -----------------------------------------------
Suburban Propane Partners, L.P. (the "Partnership") was formed on December 19,
1995 as a Delaware limited partnership. The Partnership and its subsidiary,
Suburban Propane, L.P. (the "Operating Partnership"), were formed to acquire and
operate the propane business and assets of Suburban Propane, a division of
Quantum Chemical Corporation (the "Predecessor Company"). In addition, Suburban
Sales & Service, Inc. (the "Service Company"), a subsidiary of the Operating
Partnership, was formed to acquire and operate the service work and appliance
and parts businesses of the Predecessor Company. The Partnership, the Operating
Partnership and the Service Company are collectively referred to hereinafter as
the "Partnership Entities". The Partnership Entities commenced operations on
March 5, 1996 (the "Closing Date") upon consummation of an initial public
offering of 18,750,000 Common Units representing limited partner interests in
the Partnership (the "Common Units"), the private placement of $425,000
aggregate principal amount of Senior Notes due 2011 issued by the Operating
Partnership (the "Senior Notes") and the transfer of all the propane assets
(excluding the net accounts receivable balance) of the Predecessor Company to
the Operating Partnership and the Service Company. On March 25, 1996, the
underwriters of the Partnership's initial public offering exercised an
overallotment option to purchase an additional 2,812,500 Common Units.
Suburban Propane GP, Inc. (the "General Partner") is a wholly-owned subsidiary
of Millennium Petrochemicals Inc., ("Millennium Petrochemicals"), formerly
Quantum Chemical Corporation, and serves as the general partner of the
Partnership and the Operating Partnership. Both the General Partner and
Millennium Petrochemicals are indirect wholly-owned subsidiaries of Millennium
Chemicals Inc. ("Millennium"), which was formed as a result of Hanson PLC's
demerger in October 1996. Millennium is a Securities and Exchange Commission
("SEC") registrant, which files periodic reports. Millennium's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997 has been filed (Commission
File Number 1-12091). The General Partner holds a 1% general partner interest in
the Partnership and a 1.0101% general partner interest in the Operating
Partnership. In addition, the General Partner owns a 24.4% limited partner
interest and a special limited partner interest in the Partnership. The limited
partner interest is evidenced by 7,163,750 Subordinated Units and the special
limited partner interest is evidenced by 220,000 Additional Partnership Units
("APUs"). The General Partner has delegated to the Partnership's Board of
Supervisors all management powers over the business and affairs of the
Partnership Entities that the General Partner possesses under applicable law
(See Note 7 The Recapitalization).
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------------------------------------------------
BASIS OF PRESENTATION. The condensed consolidated financial statements include
the accounts of the Partnership Entities. All significant intercompany
<PAGE>
transactions and accounts have been eliminated. The accompanying condensed
consolidated financial statements are unaudited and have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission. They include all adjustments which the Partnership considers
necessary for a fair statement of the results for the interim period presented.
Such adjustments consisted only of normal recurring items unless otherwise
disclosed. These financial statements should be read in conjunction with the
Partnership's Annual Report on Form 10-K for the fiscal year ended September 26,
1998, including management's discussion of financial results contained therein.
Due to the seasonal nature of the Partnership's propane business, the results of
operations for interim periods are not necessarily indicative of the results to
be expected for a full year.
FISCAL PERIOD. The Partnership's fiscal periods end on the Saturday nearest the
end of the quarter.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS. The Partnership routinely uses propane futures and
forward contracts to reduce the risk of future price fluctuations and to help
ensure supply during periods of high demand. Gains and losses on futures and
forward contracts designated as hedges are deferred and recognized in cost of
sales as a component of the product cost for the related hedged transaction. In
the Consolidated Statement of Cash Flows, cash flows from qualifying hedges are
classified in the same category as the cash flows from the items being hedged.
INVENTORIES. Inventories are stated at the lower of cost or market. Cost is
determined using a weighted average method for propane and a specific
identification basis for appliances.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at cost.
Depreciation of property, plant and equipment is computed using the
straight-line method over the estimated service lives, which range from three to
forty years.
Accumulated depreciation at December 26, 1998 and September 26, 1998 was
$148,536 and $141,669, respectively.
GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill and other intangible assets are
comprised of the following:
<TABLE>
DECEMBER 26, 1998 SEPTEMBER 26, 1998
----------------- ------------------
<CAPTION>
<S> <C> <C>
Goodwill $237,900 $237,812
Debt origination costs 6,224 6,224
Other, principally noncompete agreements 5,092 5,076
--------- ---------
249,216 249,112
Less: Accumulated amortization 36,054 34,330
--------- ---------
$213,162 $214,782
========= =========
</TABLE>
INCOME TAXES. As discussed in Note 1, the Partnership Entities consist of two
limited partnerships, the Partnership and the Operating Partnership, and one
<PAGE>
corporate entity, the Service Company. For federal and state income tax
purposes, the earnings attributed to the Partnership and Operating Partnership
are included in the tax returns of the individual partners. As a result, no
recognition of income tax expense has been reflected in the Partnership's
consolidated financial statements relating to the earnings of the Partnership
and Operating Partnership. The earnings attributed to the Service Company are
subject to federal and state income taxes. Accordingly, the Partnership's
consolidated financial statements reflect income tax expense related to the
Service Company's earnings.
NET INCOME (LOSS) PER UNIT. Basic net income (loss) per limited partner Unit is
computed by dividing net income (loss), after deducting the General Partner's 2%
interest, by the weighted average number of outstanding Common Units and
Subordinated Units. Diluted net income (loss) per limited partner Unit is
computed by dividing net income (loss), after deducting the General Partner's 2%
interest, by the weighted average number of outstanding Common Units and
Subordinated Units and the weighted average number of Restricted Units granted
under the Restricted Unit Award Plan which vest over time (See Note 6 Restricted
Unit Plan).
RECLASSIFICATIONS. Certain prior period balances have been reclassified to
conform with the current period presentation.
3. DISTRIBUTIONS OF AVAILABLE CASH
- ----------------------------------------
The Partnership makes distributions to its partners 45 days after the end of
each fiscal quarter in an aggregate amount equal to its Available Cash for such
quarter. Available Cash generally means all cash on hand at the end of the
fiscal quarter less the amount of cash reserves established by the Board of
Supervisors in its reasonable discretion for future cash requirements. In
accordance with the Distribution Support Agreement among the Partnership, the
General Partner and Millennium, to enhance the Partnership's ability to
distribute the Minimum Quarterly Distribution on the Common Units, the General
Partner has agreed to contribute to the Partnership cash in exchange for APUs.
The APUs represent non-voting, limited partner Partnership interests with a
stated value per unit of $100. The APUs are not entitled to cash distributions
or allocations of any items of Partnership income, gain, loss, deduction or
credit. The Partnership has not required any cash contributions in exchange for
APUs from the General Partner since the distribution for the fourth fiscal
quarter of 1997. At December 26, 1998, the General Partner has contributed a
total of $22,000 or 220,000 APUs and has a remaining maximum contribution
obligation of $21,600 or 216,000 APUs under the Distribution Support Agreement
(See Note 7 The Recapitalization).
4. COMMITMENTS AND CONTINGENCIES
- --------------------------------------
The Partnership leases certain property, plant and equipment for various periods
under noncancelable leases. Rental expense under operating leases was $4,145 for
the three months ended December 26, 1998.
The Partnership is self-insured for general and product, workers' compensation
and automobile liabilities up to predetermined amounts above which third party
insurance applies. At December 26, 1998, accrued insurance liabilities amounted
to $21,615, representing the total estimated losses under these self-insurance
programs. These liabilities represent the gross estimated losses as no claims or
lawsuits, individually or in the aggregate, were estimated to exceed the
Partnership's deductibles and its insurance policies.
<PAGE>
The Partnership is also involved in various legal actions which have arisen in
the normal course of business including those relating to commercial
transactions and product liability. It is the opinion of management, based on
the advice of legal counsel, that the ultimate resolution of these matters will
not have a material adverse effect on the Partnership's financial position or
future results of operations, after considering its self-insurance liability for
known and unasserted self-insurance claims.
5. LONG-TERM DEBT AND BANK CREDIT FACILITIES
- --------------------------------------------------
On the Closing Date, the Operating Partnership issued $425,000 of Senior Notes
with an annual interest rate of 7.54%. The Operating Partnership's obligations
under the Senior Note Agreement are unsecured and rank on an equal and ratable
basis with the Operating Partnership's obligations under the Bank Credit
Facilities discussed below. The Senior Notes will mature June 30, 2011, and
require semiannual interest payments which commenced June 30, 1996. The Note
Agreement requires that the principal be paid in equal annual installments of
$42,500 starting June 30, 2002.
The Bank Credit Facilities consist of a $75,000 working capital facility and a
$25,000 acquisition facility. The Operating Partnership's obligations under the
Bank Credit Facilities are unsecured on an equal and ratable basis with the
Operating Partnership's obligations under the Senior Notes. Borrowings under the
Bank Credit Facilities bear interest at a rate based upon either LIBOR plus a
margin, First Union National Bank's prime rate or the Federal Funds rate plus
1/2 of 1%. An annual fee ranging from .20% to .25% based upon certain financial
tests is payable quarterly whether or not borrowings occur. As of December 26,
1998, such fee was .25%. The Bank Credit Facilities will expire September 30,
2000.
No amounts were outstanding under the Bank Credit Facilities as of September 26,
1998 and December 26, 1998.
The Senior Note Agreement and Bank Credit Facilities contain various restrictive
and affirmative covenants applicable to the Operating Partnership, including (i)
maintenance of certain financial tests, (ii) restrictions on the incurrence of
additional indebtedness, and (iii) restrictions on certain liens, investments,
guarantees, loans, advances, payments, mergers, consolidations, distributions,
sales of assets and other transactions.
For the three months ended December 26, 1998, interest expense was $8,255.
6. RESTRICTED UNIT PLAN
- -----------------------------
The Partnership's 1996 Restricted Unit Award Plan authorizes the issuance of
Common Units with an aggregate value of $15,000 to executives, managers and
Elected Supervisors of the Partnership. Upon issuance of Restricted Units,
unearned compensation is amortized ratably over the applicable vesting periods
under the Plan. No Units were vested or exercisable as of December 26, 1998.
<PAGE>
Following is a summary of activity in the Restricted Unit Plan:
UNITS VALUE PER UNIT
-------- ---------------
Outstanding September 26, 1998 621,811 $18.41 - $21.63
Awarded 61,948 $17.88
-------- ---------------
Outstanding December 26, 1998 683,759 $17.88 - $21.63
======== ===============
For the three months ended December 26, 1998, the Partnership amortized $155 of
unearned compensation.
7. THE RECAPITALIZATION
On November 27, 1998, the Partnership Entities entered into a Recapitalization
Agreement with Millennium, the General Partner and Suburban Energy Services
Group LLC, an entity newly formed by the Partnership's management. Under the
terms of the Agreement, the Partnership will purchase Millennium's 24.4%
subordinated partner interest evidenced by 7,163,750 Subordinated Units and
retire such units. In addition, the requirement for the Partnership to repay
$22,000 in outstanding APUs under the Distribution Support Agreement will be
eliminated. The existing Distribution Support Agreement will be replaced with an
alternative support arrangement provided by the Partnership. The aggregate
redemption price to be paid to Millennium is $69,000, subject to adjustments,
and will be funded from the existing cash on hand and, if necessary, borrowings
under the Bank Credit Facilities.
Concurrent with the execution of the Recapitalization Agreement, Suburban Energy
Services Group LLC, ("Successor General Partner") entered into a Purchase
Agreement with Millennium and the General Partner whereby the General Partner
agreed to sell to the Successor General Partner for $6,000 the General Partner
interest in the Partnership Entities.
The consummation of the transactions is subject to certain conditions described
in the Recapitalization and Purchase Agreements, including the approval of a
majority of the Partnership's Common Unitholders .
On April 22, 1999, the Partnership filed a definitive Proxy Statement with the
SEC related to the Recapitalization.
8. SUBSEQUENT EVENT - COMMON UNIT DISTRIBUTION
- ----------------------------------------------------
On January 21, 1999 the Partnership announced a quarterly distribution of $0.50
per Limited Partner Common Unit for the first quarter of fiscal 1999 payable on
February 9, 1999. The Partnership will not make a quarterly distribution on its
Subordinated Units (which are held by the General Partner) for said fiscal
quarter.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 26, 1998
- ------------------------------------
COMPARED TO THREE MONTHS ENDED DECEMBER 27, 1997
- ------------------------------------------------
REVENUES
Revenues decreased 21.3% or $43.7 million to $161.2 million for the three months
ended December 26, 1998 as compared to $204.9 million for the three months ended
December 27, 1997. The overall decrease is primarily attributable to a decline
in retail volumes and lower propane costs resulting in lower sales prices to
customers. Propane sold to retail customers decreased 13.1% or 20.7 million
gallons to 137.6 million gallons, as compared to 158.3 million gallons in the
prior period's quarter. The decrease in retail gallons is principally due to
warmer temperatures which nationwide were 12% warmer than normal during the
quarter and 14% warmer than the prior period's quarter. Wholesale gallons sold
and gallons sold related to price risk management activities decreased 10.5% or
5.1 million gallons to 43.4 million gallons principally resulting from the
Partnership's reduced emphasis on the wholesale market due to the low-margin
nature of such sales.
OPERATING EXPENSES
Operating expenses decreased 3.1% or $1.7 million to $52.3 million for the three
months ended December 26, 1998 as compared to $53.9 million for the three months
ended December 27, 1997. The decrease in operating expenses is principally
attributable to lower payroll and benefit costs and vehicle fuel expenses.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 20.7% or $1.3 million to $7.3
million for the three months ended December 26, 1998 as compared to $6.1 million
for the three months ended December 27, 1997. The increase is primarily
attributable to dividend income earned in the prior year's quarter on the sold
investment in the Dixie Pipeline Company and higher information systems
expenses.
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES AND EBITDA
Results for the prior year's first quarter include a $5.1 million gain from the
sale of an investment in the Dixie Pipeline Company, which the Partnership sold
after determining it did not offer any strategic business advantages. Excluding
<PAGE>
this one-time item, income before interest expense and income taxes decreased
$6.0 million to $24.0 million in the three months ended December 26, 1998
compared to $29.9 million in the prior year's first quarter. EBITDA, excluding
the one-time item, decreased $6.5 million to $32.7 million. The decrease in
income before interest expense and income taxes and EBITDA is primarily
attributable to decreased retail volumes partially offset by lower period
expenses and higher retail margins.
EBITDA should not be considered as an alternative to net income (as an indicator
of operating performance) or as an alternative to cash flow (as a measure of
liquidity or ability to service debt obligations) and is not in accordance with
or superior to generally accepted accounting principles but provides additional
information for evaluating the Partnership's ability to distribute the Minimum
Quarterly Distribution.
INTEREST EXPENSE
Net interest expense decreased $0.5 million to $7.6 million in the three months
ended December 26, 1998 compared with $8.1 million in the prior period. The
decrease is attributable to higher interest income on significantly increased
cash investments.
HEDGING
The Partnership engages in hedging transactions to reduce the effect of price
volatility on its product costs and to help ensure the availability of propane
during periods of short supply. The Partnership is currently a party to propane
futures contracts on the New York Mercantile Exchange and enters into agreements
to purchase and sell propane at fixed prices in the future. These activities are
monitored by management through enforcement of the Partnership's Commodity
Trading Policy. Hedging does not always result in increased product margins and
the Partnership does not consider hedging activities to be material to
operations or liquidity for the three month period ended December 26, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Due to the seasonal nature of the propane business, cash flows from operating
activities are greater during the winter and spring seasons as customers pay for
propane purchased during the heating season. For the three months ended December
26, 1998, net cash provided by operating activities was $7.5 million compared to
cash provided by operating activities of $8.4 million in the three months ended
December 27, 1997. The decrease of $0.9 million was primarily due to lower net
income and payment of accrued incentive compensation partially offset by a
decrease in working capital requirements arising from lower retail gallons sold
and a decline in the cost of propane.
Net cash used in investing activities was $2.1 million during the three months
ended December 26, 1998 consisting of capital expenditures of $2.9 million
(including $1.5 million for maintenance expenditures and $1.4 million to support
the growth of operations) and acquisition payments of $0.1 million, offset by
proceeds from the sales of property, plant and equipment of $0.9 million. Net
cash provided by investing activities was $8.8 million for the three months
ended December 27, 1997 which included proceeds of $13.1 million from the sale
of the Partnership's minority interest in the Dixie Pipeline Co., $2.5 million
from the sale of property, plant and equipment, offset by business acquisition
<PAGE>
payments of $3.7 million and capital expenditures of $3.1 million (including
$1.1 million for maintenance expenditures and $2.0 million to support the growth
of operations).
Net cash used in financing activities for the three months ended December 26,
1998 was $11.0 million, principally reflecting the Partnership's distribution.
Net cash provided by financing activities for the three months ended December
27, 1997 was $1.1 million, arising from the proceeds of the General Partner's
APU contributions exceeding the Partnership's fiscal 1997 fourth quarter
distribution.
The Partnership has announced that it will make a distribution of $.50 per Unit
to its Common Unitholders on February 9, 1999 for the first fiscal quarter of
1999. The Partnership will not make a distribution to the Subordinated
Unitholder for said fiscal quarter. The Partnership does not anticipate
utilizing proceeds available under the Distribution Support Agreement with
respect to the funding of the Minimum Quarterly Distribution for the second
quarter of fiscal 1999.
The ability of the Partnership to satisfy its future obligations will depend on
its future performance, which will be subject to prevailing economic, financial,
business and weather conditions and other factors, many of which are beyond its
control. Based on its current cash position, available Bank Credit Facilities
and expected cash flow from operating activities, the Partnership expects to
have sufficient funds to meet its obligations and working capital needs during
fiscal 1999.
In connection with the Recapitalization, the Operating Partnership will amend
the Bank Credit Facilities to, among other things, (i) extend its maturity date
to March 31, 2001, (ii) amend the minimum adjusted consolidated net worth
covenant to reduce the required minimum net worth of the Operating Partnership
from $125 to $50 million, (iii) provide for a $22 million liquidity subfacility
to be available to finance certain shortfalls in the payment of the Minimum
Quarterly Distribution, (iv) permit the Operating Partnership to borrow an
amount sufficient to purchase the loan made to the Successor General Partner by
Mellon Bank, N.A. to purchase the GP Interests and Incentive Distribution Rights
from the Successor General Partner (the "GP Loan") if an event of default occurs
under such loan, (v) decrease the maximum ratio of consolidated total
indebtedness to EBITDA from 5.25 to 1.00 to 5.10 to 1.00, (vi) modify certain
definitions and covenants relating to the ownership of the General Partner and
the Operating Partnership, (vii) increase the Applicable Margins (as defined in
the Bank Credit Facilities) and (viii) consent to the amendments to the
Partnership Agreement and the Senior Note Agreement contemplated by the
Recapitalization and to the termination of the Distribution Support Agreement.
The Senior Note Agreement will be amended to, among other things, (i) reduce the
minimum adjusted consolidated net worth requirement from $125 million to $50
million, (ii) create a financial covenant exception for non-recurring, non-cash
charges to be incurred in connection with the Recapitalization, (iii) decrease
the maximum ratio of consolidated total indebtedness to EBITDA from 5.25 to
5.10, with a further decrease to 5.00 effective as of April 1, 2001, and (iv)
include a new interest coverage maintenance test requiring the Operating
Partnership to maintain a ratio of consolidated EBITDA for any four fiscal
<PAGE>
quarters to consolidated interest expense for such period of at least 2.50 to
1.0. In addition, prior to the closing of the Recapitalization, the Partnership
will obtain the consent of a majority of the holders of the Senior Notes to (i)
the replacement of the General Partner with the Successor General Partners, (ii)
the amendments to the Partnership Agreements necessary for the Recapitalization,
(iii) the termination of the Distribution Support Agreement and (iv) the
distribution by the Operating Partnership to the Partnership to permit the
Partnership to pay the redemption price. In consideration for granting their
consent to the foregoing, the Operating Partnership will pay a fee to each
holder of Senior Notes in an amount equal to 0.375% of the outstanding principal
amount of Senior Notes held by such holder. The total amount of such fees is
expected to be $1.6 million.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 26, 1998, the Partnership was party to propane forward contracts
with various third parties and futures traded on the New York Mercantile
Exchange ("NYMEX"). Such contracts provide that the Partnership sell or acquire
propane at a fixed price at fixed future dates. At expiration, the contracts are
settled by the delivery of propane to the respective party or are settled by the
payment of a net amount equal to the difference between the then current price
of propane and the fixed contract price. The contracts are entered into for
purposes other than trading in anticipation of market movements, and to manage
and hedge exposure to fluctuating propane prices as well as to help ensure the
availability of propane during periods of high demand.
Market risks associated with the trading of futures and forward contracts are
monitored daily for compliance with the Partnership's trading policy which
includes volume limits for open positions. Open inventory positions are reviewed
and managed daily as to exposures to changing market prices.
MARKET RISK
The Partnership is subject to commodity price risk to the extent that propane
market prices deviate from fixed contract settlement amounts. Futures contracts
traded with brokers of the NYMEX require daily cash settlements in margin
accounts. Forward contracts are generally settled at the expiration of the
contract term.
CREDIT RISK
Futures contracts are guaranteed by the NYMEX and as a result have minimal
credit risk. The Partnership is subject to credit risk with forward contracts to
the extent the counterparties do not perform. The Partnership evaluates the
<PAGE>
financial condition of each counterparty with which it conducts business and
establishes credit limits to reduce exposure to credit risk of non-performance.
SENSITIVITY ANALYSIS
In an effort to estimate the exposure of unfavorable market price movements, a
sensitivity analysis of open positions as of December 26, 1998 was performed.
Based on this analysis, a hypothetical 10% adverse change in market prices for
each of the future months for which a future and/or forward contract exists
indicates a potential loss in future earnings of $2.3 million as of December 26,
1998.
The above hypothetical change does not reflect the worst case scenario. Actual
results may be significantly different depending on market conditions and the
composition of the open position portfolio.
<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) Reports on Form 8-K
Report on Form 8-K dated November 27, 1998, announcing the
Partnership's proposed recapitalization.
<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: APRIL 22, 1999 BY /S/ ANTHONY M. SIMONOWICZ
------------------------------
ANTHONY M. SIMONOWICZ
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER
BY /S/ EDWARD J. GRABOWIECKI
------------------------------
EDWARD J. GRABOWIECKI
CONTROLLER AND CHIEF ACCOUNTING
OFFICER
