UNITED STATES================================================================================
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DCWashington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTIONAnnual Report Pursuant to Section 13 ORor 15(d) OF THE
SECURITIES EXCHANGE ACT OFof the
Securities Exchange Act of 1934
For the fiscal year ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from ______ to ______27, 2003
Commission File Number: 1-14222
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SUBURBAN PROPANE PARTNERS, L.P.
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(Exact name of registrant as specified in its charter)
Delaware 22-3410353
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
240 Route 10 West
Whippany, NJ 07981
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(Address of principal executive office) (Zip Code)
(973) 887-5300
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(Registrant's(Address, including zip code, and telephone
number, including area code)code, of registrant's
principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
Title of each class which registered
Common Units New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by SectionsSection 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for eachsuch shorter period that the Registrantregistrant was
required to file such reports), and (2) hadhas been subject to such filing
requirements for the past 90 days. Yes X[X] No --- ---[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant'sregistrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [X]
Indicate by check mark whether registrant is an accelerated filer (as defined in
Rule 12b-2 of the Securities Exchange Act of 1934). Yes [X] No [ ]
The aggregate market value as of December 15, 2000November 21, 2003 of the Registrant'sregistrant's Common
Units held by non-affiliates of the Registrant,registrant, based on the reported closing
price of such units on the New York Stock Exchange on such date ($19.8125
/unit)31.17 per
unit), was approximately $486,752,500. On December 15, 2000$847,035,000. As of November 21, 2003 there were
outstanding 24,631,28727,266,767 Common Units.Units outstanding.
Documents Incorporated by Reference: None
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SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
INDEX TO ANNUAL REPORT ON FORM 10-K
PART I PAGEPage
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ITEM 1. BUSINESS....................................................BUSINESS......................................................... 1
ITEM 2. PROPERTIES.................................................. 5PROPERTIES....................................................... 7
ITEM 3. LEGAL PROCEEDINGS........................................... 6PROCEEDINGS................................................ 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 6HOLDERS.............. 8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS AND RELATED
UNITHOLDER MATTERS.................................. 7MATTERS............................................... 9
ITEM 6. SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA............ 8DATA..........................................10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............... 9OPERATIONS....................13
ITEM 7A. QUANTITATIVE7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK................................................. 17RISK......................................................26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 18DATA......................28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE......................... 18DISCLOSURE..............................31
ITEM 9A.CONTROLS AND PROCEDURES..........................................31
PART III
ITEM 10. DIRECTORS10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 19REGISTRANT...............32
ITEM 11. EXECUTIVE COMPENSATION...................................... 2111.EXECUTIVE COMPENSATION...........................................35
ITEM 12. SECURITY12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.............................................. 26MANAGEMENT...................................................40
ITEM 13. CERTAIN13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 27TRANSACTIONS...................41
ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES...........................41
PART IV
ITEM 14. EXHIBITS,15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K......................................... 29
Signatures............................................................. 318-K..............................................42
Signatures...................................................................43
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
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THIS ANNUAL REPORT ON FORMThis Annual Report on Form 10-K 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
STATEMENTScontains forward-looking statements
("CAUTIONARY STATEMENTS"Forward-Looking 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
FOR PROPANE; THE ABILITY OF MANAGEMENT TO CONTINUE TO CONTROL EXPENSES; THE
IMPACT OF REGULATORY DEVELOPMENTS ON THE PARTNERSHIP'S BUSINESS; THE IMPACT OF
LEGAL PROCEEDINGS ON THE PARTNERSHIP'S BUSINESS; AND THE PARTNERSHIP'S ABILITY
TO IMPLEMENT ITS EXPANSION STRATEGY AND TO INTEGRATE ACQUIRED BUSINESSES
SUCCESSFULLY. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE PARTNERSHIP OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY SUCH CAUTIONARY STATEMENTS.as defined in the Private Securities Litigation
Reform Act of 1995 relating to the Partnership's future business expectations
and predictions and financial condition and results of operations. Some of these
statements can be identified by the use of forward-looking terminology such as
"prospects," "outlook," "believes," "estimates," "intends," "may," "will,"
"should," "anticipates," "expects" or "plans" or the negative or other variation
of these or similar words, or by discussion of trends and conditions, strategies
or risks and uncertainties. These Forward-Looking Statements involve certain
risks and uncertainties that could cause actual results to differ materially
from those discussed or implied in such Forward-Looking Statements ("Cautionary
Statements"). The risks and uncertainties and their impact on the Partnership's
operations include, but are not limited to, the following risks:
o The impact of weather conditions on the demand for propane;
o Fluctuations in the unit cost of propane;
o The ability of the Partnership to compete with other suppliers of propane
and other energy sources; o The impact on propane prices and supply from
the political and economic instability of the oil producing nations and
other general economic conditions;
o The ability of the Partnership to retain customers;
o The impact of energy efficiency and technology advances on the demand for
propane;
o The ability of management to continue to control expenses;
o The impact of regulatory developments on the Partnership's business;
o The impact of legal proceedings on the Partnership's business;
o The Partnership's ability to implement its expansion strategy into new
business lines and sectors;
o The Partnership's ability to integrate acquired businesses successfully.
Some of these Forward-Looking Statements are discussed in more detail in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this Annual Report. On different occasions, the Partnership or
its representatives have made or may make Forward-Looking Statements in other
filings that the Partnership makes with the Securities and Exchange Commission,
in press releases or in oral statements made by or with the approval of one of
its authorized executive officers. Readers are cautioned not to place undue
reliance on Forward-Looking or Cautionary Statements, which reflect management's
opinions only as of the date hereof. The Partnership undertakes no obligation to
update any Forward-Looking or Cautionary Statement. All subsequent written and
oral Forward-Looking Statements attributable to the Partnership or persons
acting on its behalf are expressly qualified in their entirety by the Cautionary
Statements in this Annual Report and in future SEC reports.
PART I
ITEM 1. BUSINESS.BUSINESS
GENERAL
Suburban Propane Partners, L.P. (the "Partnership"), a publicly traded
Delaware limited partnership is principally engaged, through its operating
partnership and subsidiaries, in the retail and wholesale marketing of propane
and related appliances, parts and services. Based upon propane industry statistics, the Partnership ison LP/Gas Magazine dated
February 2003, we believe we are the third largest retail marketer of propane in
the United States, serving more thanapproximately 750,000 active residential, commercial,
industrial and agricultural customers fromthrough approximately 350320 customer service
centers in over 40 states as of September 30,
2000. The Partnership's27, 2003. Our operations are concentrated
primarily in the east and west coast regions of the United States. TheOur retail
propane sales volume of the Partnership
was approximately 524491.5 million gallons during the fiscal year
ended September 30,
2000.27, 2003. In addition, the Partnershipwe sold approximately 28631.7 million
gallons of propane at wholesale to large industrial end usersend-users and other propane
distributors during the fiscal year. Based on industry statistics for calendar year
1999,contained in
2001 Sales of Natural Gas Liquids and Liquefied Refinery Gases, as published by
the Partnership believes that its retail propaneAmerican Petroleum Institute in November 2002, our sales volume constitutesaccounted
for approximately 6%4.4% of the domestic retail market for propane.
The Partnership conducts itspropane during the year
2001.
We conduct our business principally through its subsidiary, Suburban Propane, L.P., a
Delaware limited partnership (the "Operating Partnership" and, together with). Our general partner
is Suburban Energy Services Group LLC (the "General Partner"), a Delaware
limited liability company owned by members of our senior management. The General
Partner owns a combined 1.71% general partner interest in the Partnership and
the "Partnerships").Operating Partnership and the Partnership owns all of the limited
partnership interests in the Operating Partnership. The Partnership and the
Operating Partnership were formed in 1995 to acquire and
operate the propane business and assets of Suburban Propane, a division of
Quantum Chemical Corporation, (the "Predecessor Company") then owned by Hanson
PLC. The Predecessor Company had been continuously engaged in the retail propane
business since 1928 and had been owned by Quantum since 1983. In addition,
Suburban Sales and Service, Inc. (the "Service Company"), a subsidiary of the
Operating Partnership, was formed in 1995 to acquire and operate the service
work and appliance and propane equipment parts businesses of the Predecessor
Company. The Partnership, the Operating Partnership, the Service Company and a
corporate entity engaged in retail operations subsequently acquired by the
Operating Partnership, Gas Connection, Inc. (the "Retail Company"), are
collectively referred to hereinafter as the "Partnership Entities". The
Partnership, Operating Partnership and the Service Company commenced operations on March 5, 1996 upon consummation of
an initial public offering of common units representing limited partner
interests in the Partnership ("Common Units"), and the private placement of $425.0$425
million aggregate principal amount of Senior NotesNotes. Suburban Sales and the transferService,
Inc. (the "Service Company"), a subsidiary of all the propane assets (excluding the net accounts
receivable balance) of the Predecessor Company to the Operating Partnership, was
formed at that time to operate the service work and Service Company.
BUSINESS STRATEGY
The Partnership's business strategy is to extendappliance and consolidate its
presence in strategically attractive markets, primarily through the acquisition
of other propane
distributors. During the past three fiscal years, the
Partnership acquired seven retail propane distributors and two retail
distributors of gas appliances,equipment parts and related products at a total cost of
$11.4 million. In addition, in November 1999, the Partnership acquired the
propane operations of a group of affiliated companies in the southeastern United
States for a total cost of approximately $97.0 million. The operations acquired
in November 1999 included:
o A propane distributor supplying approximately 20 million gallons
annually from 22 service centers to more than 40,000 retail customers
in North and South Carolina,
o a propane cylinder refurbishing and refilling center serving
approximately 1,600 grocery and convenience stores in the Carolinas,
Georgia and Tennessee,
o a 60 million gallon propane storage cavern in South Carolina, and
o a 62-mile pipeline linking the storage cavern to the Dixie Pipeline.
Becausebusinesses of the seasonal naturePartnership.
Other subsidiaries of the propane business and the impact on
earnings and cash flow, theOperating Partnership also seeks to acquire and develop
related retail and service business lines that can benefit from the
Partnership's infrastructure and national presence. In February 1999, the
Partnership purchasedinclude Gas Connection,
Inc. (doing business as HomeTown Hearth & Grill), a small company with five retail
stores in the area surrounding Portland, Oregon, thatSuburban @ Home ("Suburban @
Home"), and Suburban Franchising, Inc. ("Suburban Franchising"). HomeTown Hearth
& Grill sells and installs natural gas and propane gas grills, fireplaces and
related accessories and supplies. Itsupplies through twelve retail stores in the south,
northeast and northwest regions as of September 27, 2003; Suburban @ Home sells,
installs, services and repairs a full range of heating and air conditioning
products through five retail locations in the south, northeast and northwest
regions as of September 27, 2003; and Suburban Franchising creates and develops
propane related franchising business opportunities.
In this Annual Report, unless otherwise indicated, the terms "Partnership,"
"we," "us," and "our" are used to refer to Suburban Propane Partners, L.P. or to
Suburban Propane Partners, L.P. and its consolidated subsidiaries, including the
Operating Partnership.
We currently file Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q and current reports on Form 8-K with the Securities and Exchange Commission
("SEC"). The public may read and copy any materials that we file with the SEC at
the SEC's Public Reference Room at 450 Fifth Street, N. W., Washington, D.C.
20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. Any information filed by us
is also available on the SEC's EDGAR database at www.sec.gov.
Upon written request or through a link from our website at
www.suburbanpropane.com, we will provide, without charge, copies of our Annual
Report on Form 10-K for the fiscal year ended September 27, 2003, each of the
Quarterly Reports on Form 10-Q, current reports filed or furnished on Form 8-K
and all amendments to such reports as soon as is reasonably practicable after
such reports are electronically filed with or furnished to the
1
SEC. Requests should be directed to: Suburban Propane Partners, L.P., Investor
Relations, P.O. Box 206, Whippany, New Jersey 07981-0206.
RECENT DEVELOPMENTS
On November 10, 2003, we entered into an asset purchase agreement (the
"Purchase Agreement") to acquire substantially all of the assets and operations
of Agway Energy Products, LLC, Agway Energy Services PA, Inc. and Agway Energy
Services, Inc. (collectively "Agway Energy"), all of which entities are wholly
owned subsidiaries of Agway, Inc., for $206.0 million in cash, subject to
certain purchase price adjustments. Agway Energy, based in Syracuse, New York,
is a leading regional marketer of propane, fuel oil, gasoline and diesel fuel
primarily in New York, Pennsylvania, New Jersey and Vermont. Based on LP/Gas
Magazine dated February 2003, Agway Energy is the Partnership's intention for Gas Connection to provide a solid platform on
which to build aeighth largest retail network that willpropane
marketer in the United States, operating through approximately 139 distribution
and sales centers. Agway Energy is also one of the leading marketers and
distributors of fuel oil in the northeast region of the United States. To
complement its core marketing and delivery business, Agway Energy installs and
services a wide variety of home comfort equipment, particularly in the area of
heating, ventilation and air conditioning ("HVAC"). Additionally, to a lesser
extent, Agway Energy markets natural gas and electricity in New York and
Pennsylvania. For its fiscal year ended June 30, 2003, Agway Energy served more
than 400,000 active customers across all of its lines of business and sold
approximately 106.3 million gallons of propane and approximately 356.8 million
gallons of fuel oil, gasoline and diesel fuel to retail customers for
residential, commercial and agricultural applications. See additional discussion
in Note 15 to the Consolidated Financial Statements included in this Annual
Report.
Agway Energy is comprised of three wholly-owned subsidiaries of Agway, Inc.
Agway, Inc. is presently a debtor-in-possession under Chapter 11 of the
Bankruptcy Code in a bankruptcy proceeding pending before the United States
Bankruptcy Court for the Northern District of New York (the "Bankruptcy Court").
Agway Energy is not a Chapter 11 debtor. The Purchase Agreement was filed with
the Bankruptcy Court and on November 24, 2003, the Bankruptcy Court approved
Agway, Inc.'s motion to establish bid procedures for the sale. Under the
Bankruptcy Court order, we were officially designated the "stalking horse"
bidder in a process in which additional bids for the Agway Energy assets and
business operations are being solicited for a specified period of time. An
auction is currently scheduled for December 18, 2003. If we are the successful
bidder at the auction, the closing on the sale under the Purchase Agreement is
expected to occur shortly following the conclusion of the auction process and
upon receipt of necessary regulatory approvals. There can be no assurance that
we will ultimately be the successful bidder at the auction or will be able to
consummate the acquisition of Agway Energy.
In line with our business strategy, this acquisition, once consummated,
will expand our presence in the northeast retail propane market. Additionally,
Agway Energy's extensive presence in the northeast fuel oil delivery business
expands our product offerings in the attractive northeast energy market and
provides an opportunity to leverage our existing management expertise and
technology to enhance operational efficiencies within the Agway Energy business.
The HVAC business of Agway Energy is more mature than our Suburban @ Home
operations and is expected to provide an opportunity to accelerate the growth in
this business, as well as to enhance the overall service offering to our
existing customer base in the northeast.
BUSINESS STRATEGY
Our business strategy is to deliver increasing value to our unitholders
through initiatives, both internal and external, that are geared toward
achieving sustainable profitable growth and increased quarterly distributions.
We pursue this business strategy through a combination of (i) an internal focus
on enhancing customer service, growing and retaining our customer base and
improving the efficiency of operations and, (ii) acquisitions of businesses to
complement or supplement our core propane operations.
As2
Over the past several years, we have focused on improving the efficiency of
September 30, 2000,our operations and our cost structure, strengthening our balance sheet and
distribution coverage and building a platform for growth. We continue to pursue
internal growth of our existing propane operations and to foster the Partnership wasgrowth of
related retail and service operations that can benefit from our infrastructure
and national presence. We invest in enhancements to our technology
infrastructure to increase operating ten Gas
Connection storesefficiencies and plans to open additional stores throughoutdevelop marketing
programs and incentive compensation arrangements focused on customer growth and
retention. We measure and reward the northeastsuccess of our customer service centers
based on a combination of profitability of the individual customer service
center, customer growth and northwest regions.
In conjunction with its acquisition strategy, the Partnershipsatisfaction statistics and asset utilization
measures. Additionally, we continuously evaluates itsevaluate our existing facilities to
identify opportunities to optimize itsour return on assets by selectively divesting
marginally profitable operations in slower growing markets. For example,markets and seek to reinvest in December 1999, the Partnership sold 23
of its service centers, principally located in Georgia,markets that
present more opportunities for total cash proceeds
of approximately $19.4 million.
The Partnership is also exploring new methodsgrowth.
In addition to market propane. On July
26, 2000, the Partnership announced that it would offer propane and related
services to businesses and consumers through a relationship with Essential.com,
which provides one-stop shopping for a broad range of energy and communications
services.
The Partnership also plans to continue to pursueour internal growth strategies, we have evaluated several
acquisition opportunities both within the propane sector, as well as in other
energy-related businesses in an effort to accelerate our overall growth
strategy. Our acquisition strategy is to focus on businesses with a relatively
steady cash flow that will either extend our presence in strategically
attractive propane markets, complement our existing network of its
existingpropane
operations by acquiring new customers, retaining moreor provide an opportunity to diversify our operations with other
energy-related assets. In this regard, as further discussed above, we believe
that the pending acquisition of its existing
customersthe assets of Agway Energy would significantly
enhance our position in the northeast propane market and selling additional productsexpand our product and
servicesservice offerings to customers. The
Partnership employs a nationwide sales organization and has a comprehensive
customer retention program. By retaining more of its existing customers and
continuing to seek new customers, the Partnership believes it can increase its
customer base and improve its profitability.further support our overall growth objectives.
INDUSTRY BACKGROUND AND COMPETITION
Propane is a by-product of natural gas processing and petroleum refining,refining.
It is a clean-burning energy source recognized for its transportability and ease
of use relative to alternative forms of stand-alone energy sources. Retail
propane use falls into three broad categories: (i) residential and commercial
applications, (ii) industrial applications and (iii) agricultural uses. In the
residential and commercial markets, propane is used primarily for space heating,
water heating, clothes drying and cooking. Industrial customers primarily use propane
generally as a motor fuel burned in internal combustion engines that power
over-the-road vehicles, forklifts and stationary engines, to fire furnaces, as a
cutting gas and in other process applications. In the agricultural market,
propane is primarily used for tobacco curing, crop drying, poultry brooding and
weed control. In its wholesale operations, the Partnership sells propane
principally to large industrial end-users and other propane distributors.
Propane is extracted from natural gas or oil wellhead gas at processing
plants or separated from crude oil during the refining process. Propane is
normally transported and stored in a liquid state under moderate pressure or
refrigeration for ease of handling in shipping and distribution. When the
pressure is released or the temperature is increased, it is usable asbecomes a flammable gas. Propanegas
that is both colorless and odorless with an odorant added to allow for its detection.
Propane is clean burning, producingand when consumed produces only negligible amounts of
pollutants when consumed.pollutants.
Based upon information provided by the National Propane Gas Association and
the Energy Information Agency,Administration, propane accounts for approximately three percent4% of
household energy consumption in the United States. PropaneThis level has not changed
materially over the previous two decades. As an energy source, propane competes
primarily with electricity, natural gas and fuel oil, as an energy source, principally on the basis
of price, availability and portability.
Propane is more expensive than natural gas on an equivalent BTUBritish Thermal
Unit basis in locations servedserviced by natural gas, but serves asit is an alternative to
natural gas in rural and suburban areas where natural gas is unavailable or
portability of product is required. Historically, the expansion of natural gas
into traditional propane markets has been inhibited by the capital costs
required to expand pipeline and retail distribution systems. Although the recent
extension of natural gas pipelines to previously unserved geographic areas tends
to displace propane distribution in areas affected, the
Partnership believes that new opportunities for
propane sales arisehave been arising as morenew neighborhoods are developed in
geographically remote neighborhoods are developed.areas. Propane is generally less expensive to use than
electricity for space heating, water heating, clothes drying and cooking. DueFuel
oil has not been a significant competitor due to the current geographical
diversity of the
Partnership'sour operations, fuel oil has not been a significant competitor. In
addition,and propane and fuel oil compete to a lesser extent
as a resultbecause of the cost of converting
3
from one to the other.
In addition to competing with alternativesuppliers of other sources or energy, sources, the Partnership
competeswe
compete with other companies engagedretail propane distributors. Competition in the retail propane distribution
business. Competition in the
propane industry is highly fragmented and generally occurs on a local basis with
other large full-service multi-state propane marketers, thousands of smaller
local independent marketers and farm cooperatives. Based on industry publications,statistics
contained in 2001 Sales of Natural Gas Liquids and Liquified Refinery Gases, as
published by the Partnership believes thatAmerican Petroleum Institute in November 2002, and LP/Gas
Magazine dated February 2003, the 10ten largest retailers, including the Partnership,us, account
for approximately 40%29% of the total retail sales of propane in the United States. Based on industry
statistics,States,
no single marketer has a greater than 10% share of the Partnership believes that itstotal retail market in
the United States and our sales volume constitutesaccounted for approximately 6%4.4% of the
domestic retail market for propane.propane during 2001. Most of the
Partnership's retail distribution branchesour customer service
centers compete with five or more marketers or distributors. Each retail distribution outletHowever, each of
our customer service centers operates in its own competitive environment because
retail marketers tend to locate in close proximity to customers in order to
lower the cost of providing service. TheOur typical retail
distribution outlet generallycustomer service center has an
effective marketing radius of approximately 50 miles, although in certain rural
areas the marketing radius may be extended by a satellite office.
PRODUCTS, SERVICES AND MARKETING
The Partnership distributesWe distribute propane through a nationwide retail distribution network
consisting of approximately 350320 customer service centers in
over 40 states as of
September 30, 2000. The Partnership's27, 2003. Our operations are concentrated in the east and west coast
regions of the United States. In fiscal 2000, the Partnership served more than2003, we serviced approximately 750,000
active customers. Approximately two-thirds of the Partnership'sour retail propane volume has
historically been sold during the six-monthsix month peak heating season from October
through March, as many customers use propane for heating purposes. Typically,
customer service centers are found in suburban and rural areas where natural gas
is not readily available. Generally, such locations consist of an office,
appliance showroom, warehouse and service facilities, with one or more 18,000 to
30,000 gallon storage tanks on the premises. Most of the Partnership'sour residential customers
receive their propane supply pursuant to an automatic delivery system whichthat
eliminates the customer's need to make an affirmative purchase decision. From
itsour customer service centers, we also sell, install and stand alone retail centers, the Partnership
also sells, installs and servicesservice equipment
related to itsour propane distribution business, including heating and cooking
appliances, hearth products and supplies and, at some locations, propane fuel
systems for motor vehicles.
The Partnership sellsWe sell propane primarily to six customer markets: residential, commercial,
industrial (including engine fuel), agricultural, other retail users and
wholesale. Approximately 64.7%94% of the gallons sold by the Partnershipus in fiscal 20002003 were to
retail customers: 39.8%41% to residential customers, 24.5%30% to commercial customers, 14.0%10%
to industrial customers, (including 11.0% to engine
fuel customers), 6.1 %6% to agricultural customers and 15.6%13% to other retail
users. The balance of approximately 35.3% were6% of the gallons sold by us in fiscal 2003
was for risk management activities and wholesale customers. Sales to residential
customers in fiscal 20002003 accounted for approximately 52.0%59% of the Partnership's gross profitour margins on
propane sales, reflecting the higher-margin nature of this segment of the residential market. No
single customer accounted for 10% or more of the Partnership'sour revenues during fiscal year 2000.2003.
Retail deliveries of propane are usually made to customers by means of
bobtail and rack trucks. Propane is pumped from the bobtail truck, which
generally holds 2,200with
capacities ranging from 2,125 gallons to 2,975 gallons of propane, into a
stationary storage tank on the customer's premises. The capacity of these
storage tanks ranges from approximately 100 gallons to approximately 1,200
gallons, with a typical tank having a capacity of 300 to 400 gallons. The PartnershipWe also
deliversdeliver propane to retail customers in portable cylinders, which typically have
a capacity of 5 to 35 gallons. When these cylinders are delivered to customers,
empty cylinders are picked uprefilled in place or transported for replenishment at the Partnership'sour
distribution locations or are refilled in
place. The Partnershiplocations. We also deliversdeliver propane to certain other bulk end users
of propane in larger trucks known as transports (which have an average capacity
of approximately 9,000 gallons). End-users receiving transport deliveries
include industrial customers, large-scale heating accounts, such as local gas
utilities whichthat use propane as a supplemental fuel to meet peak load
deliverability requirements, and large agricultural accounts whichthat use propane
for crop drying. Propane is generally transported from refineries, pipeline
terminals, storage facilities (including the Partnership'sour storage facilities in Hattiesburg,
Mississippi, Elk Grove,
California and Tirzah, South Carolina), and coastal terminals to the Partnership'sour customer
service centers by a combination of transport trucks, common carriers, owner-operators and
railroad tank cars. (SeeSee additional discussion in Item 2 of this Annual Report.)
4
In itsour wholesale operations, the Partnershipwe principally sellssell propane to large
industrial end-users and other propane distributors. ThisThe wholesale market segment
includes customers who use propane to fire furnaces, as a cutting gas and in
other process applications. Due to the volatile propane pricing environment
encounteredlow margin nature of the wholesale market
as compared to the retail market, we have selectively reduced our emphasis on
wholesale marketing over the last few years. Accordingly, sales of wholesale
gallons during fiscal 2000, the Partnership experienced an increase2003 decreased in wholesale volumes associated with increased market opportunities.comparison to fiscal 2002, which also
decreased from fiscal 2001.
PROPANE SUPPLY
The Partnership'sOur propane supply is purchased from over 100nearly 70 oil companies and natural
gas processors at more than 150approximately 180 supply points located in the United States
and Canada. The Partnership also makesWe make purchases on the spot market. The
Partnership purchased over 97% of its propane supplies from domestic suppliers
during fiscal 2000. Most of the propane purchased by the Partnership in fiscal
2000 was purchased pursuant to one yearprimarily under one-year agreements that are
subject to annual renewal, but also purchase propane on the percentage of contract purchases may vary from year to year as
determined by the Partnership.spot market. Supply
contracts generally provide for pricing in accordance with posted prices at the
time of delivery or the current prices established at major storage points, and
some contracts include a pricing formula that typically is based on suchprevailing
market prices. Some of these agreements provide maximum and minimum seasonal
purchase guidelines. The Partnership usesWe use a number of interstate pipelines, as well as
railroad tank cars and delivery trucks
common carriers and owner operators to transport propane from suppliers to
storage and distribution facilities.
SuppliesHistorically, supplies of propane from the Partnership'sour supply sources historically have been readily
available. InAlthough we make no assurance regarding the availability of supplies
of propane in the future, we currently expect to be able to secure adequate
supplies during fiscal year ended September 30, 2000,2004. During fiscal 2003, Dynegy Liquids Marketing and
Trade ("Dynegy") and Enterprise Products Operating L.P. ("Enterprise") provided
approximately 14%21% and 13%, respectively, of the
Partnership'sour total domestic propane supply.
The Partnership believesavailability of our propane supply is dependent on several factors,
including the severity of winter weather and the price and availability of
competing fuels such as natural gas and heating oil. We believe that, if
supplies from Dynegy or Enterprise were interrupted, itwe would be able to secure
adequate propane supplies from other sources without a material disruption of
itsour operations. Nevertheless, the cost of acquiring such propane might be higher
and, at least on a short-term basis, margins could be affected. Aside from Enterprise,these
two suppliers, no single supplier provided more than 10% of the Partnership'sour total domestic
propane supply in the fiscal 2003. During that year, ended
September 30, 2000.
The Partnership's product procurement and price risk management group seeksapproximately 98% of our total
propane purchases were from domestic suppliers.
We seek to reduce the effect of propane price volatility on the Partnership'sour product
costs and to help insureensure the availability of propane during periods of short
supply. The
Partnership isWe are currently a party to propane futures transactions on the New York
Mercantile Exchange and to forward and option contracts with various third
parties to purchase and sell product at fixed prices in the future. These
activities are monitored by our senior management through enforcement of the Partnership's
Commodity Trading Policy. (Seeour
commodity trading policy. See additional discussion in Item 7A of this Annual
Report.)
The Partnership operates
We operate large propane storage facilities in Mississippi,
California and South
Carolina andCarolina. We also operate smaller storage facilities in other locations and hashave
rights to use storage facilities in additional locations. TheAs of September 27,
2003, the majority of the storage capacity in California and South Carolina is currentlywas
leased to third parties. The Partnership'sOur storage facilities allow the Partnershipenable us to buy and store large
quantities of propane during periods of low demand and lower prices, which
generally occur during the summer months. The Partnership believes its storage
facilities helpThis practice helps ensure a more
secure supply of propane during periods of intense demand or price instability.
TRADEMARKS AND TRADENAMES
The Partnership utilizesWe utilize a variety of trademarks and tradenames which it
owns,owned by us, including
"Suburban Propane". The Partnership regards itsPropane," "Gas Connection," and "Suburban @ Home." We regard our
trademarks, tradenames and other proprietary rights as valuable assets and
believesbelieve that they have significant value in the marketing of itsour products.
5
GOVERNMENT REGULATION; ENVIRONMENTAL AND SAFETY MATTERS
The Partnership isWe are subject to various federal, state and local environmental, health
and safety laws and regulations. Generally, these laws impose limitations on the
discharge of pollutants and establish standards for the handling of solid and
hazardous wastes.wastes and can require the investigation and cleanup of environmental
contamination. These laws include the Resource Conservation and Recovery Act,
the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), the Clean Air Act, the Occupational Safety and Health Act, the
Emergency Planning and Community Right to Know Act, the Clean Water Act and
comparable state statutes. CERCLA, also known as the "Superfund" law, imposes
joint and several liability without regard to fault or the legality of the
original conduct on certain classes of persons that are considered to have
contributed to the release or threatened release of a "hazardous substance" into
the environment. Propane is not a hazardous substance within the meaning of
CERCLA, however, the Partnership ownsCERCLA. However, we own real property at locations where such hazardous
substances may exist.exist as a result of prior activities.
National Fire Protection Association Pamphlets No. 54 and No. 58, which
establish rules and procedures governing the safe handling of propane, or
comparable regulations, have been adopted, in whole, in part or with state
addenda, as the industry standard in all of the states in which the Partnership operates.we operate. In
some states these laws are administered by state agencies, and in others they
are administered on a municipal level. Pamphlet No. 58 has adopted storage tank
valve retrofit requirements due to be complete by June 2011. A program is in
place to meet the deadline.
With respect to the transportation of propane by truck, the
Partnership iswe are subject to
regulations promulgated under the Federal Motor Carrier Safety Act. These
regulations cover the transportation of hazardous materials and are administered
by the United States Department of Transportation. The Partnership conductsTransportation or similar state agency. We
conduct ongoing training programs to help ensure that itsour operations are in
compliance with applicable safety regulations. The Partnership maintainsWe maintain various permits that
are necessary to operate some of itsour facilities, some of which may be material
to itsour operations. The Partnership
believesWe believe that the procedures currently in effect at all of
itsour facilities for the handling, storage and distribution of propane are
consistent with industry standards and are in compliance, in all material
respects, with applicable laws and regulations.
The Department of Transportation has established regulations includingaddressing
emergency discharge control issues. The regulations, which became effective as
of July 1, 1999, required us to modify the recently enacted regulations regarding the
unloading of liquefied compressed gasinspection and record keeping
procedures for our cargo tank motor vehicles. A schedule of compliance is set forth
within the regulations. We have implemented the required discharge control
systems and comply, in all material respects, with current regulatory
requirements.
Future developments, such as stricter environmental, health or safety laws
and regulations thereunder, could affect Partnershipour operations. The Partnership
anticipatesWe do not anticipate
that the cost of our compliance with or liabilities under environmental, health and safety laws and
regulations, including CERCLA, will not have a material adverse effect on the Partnership.our
financial condition or results of operations. To the extent that there are any
environmental liabilities unknown to the Partnershipus or environmental, health or safety laws
or regulations are made more stringent, there can be no assurance that the
Partnership'sour
financial condition or results of operations will not be materially and
adversely affected.
EMPLOYEES
As of September 30, 2000 the Partnership27, 2003, we had 3,247approximately 2,973 full time employees,
of whom 315285 were engaged in general and administrative activities (including
fleet maintenance
personnel)maintenance), 4029 were engaged in transportation and product supply
activities and 2,8922,659 were customer service center employees. As of September 30, 2000, 15027,
2003, 145 of suchour employees arewere represented by 910 different local chapters of
labor unions. The Partnership
believesWe believe that itsour relations with both itsour union and non-union
employees are satisfactory. From time to time, the Partnership hireswe hire temporary workers to meet
peak seasonal demands.
6
ITEM 2. PROPERTIES.PROPERTIES
As of September 30, 2000, the Partnership27, 2003, we owned approximately 68%70% of itsour customer
service center and satellite locations and leased the balance of itsour retail
locations from third parties. In addition, the Partnership ownsWe own and operates a 187 million gallon underground storage facility in Hattiesburg,
Mississippi,operate a 22 million gallon
refrigerated, above-ground propane storage facility in Elk Grove, California and
a 60 million gallon underground propane storage cavern in Tirzah, South
Carolina. Additionally, we own our principal executive offices located in
Whippany, New Jersey.
The transportation of propane requires specialized equipment. The trucks
and railroad tank cars utilized for this purpose carry specialized steel tanks
that maintain the propane in a liquefied state. As of September 30, 2000, the
Partnership27, 2003, we had
a fleet of 16seven transport truck tractors, of which 13 arewe owned by
the Partnership,five, and 327251
railroad tank cars, all of which are leased by the
Partnership.we leased. In addition, the Partnership utilizes 1,278as of September 27,
2003 we used 1,148 bobtail and rack trucks, of which 58% arewe owned by the Partnership,approximately 27%,
and 1,4181,339 other delivery and service vehicles, of which 47% arewe owned by the Partnership.approximately
29%. Vehicles that are not owned by the Partnershipus are leased. As of September 30, 2000, the
Partnership27, 2003, we
also owned 919,692approximately 771,679 customer storage tanks with typical capacities
of 100 to 500 gallons, 37,370 customer storage tanks with typical capacities of
over 500 gallons and 103,020137,682 portable cylinders with typical capacities of 5five
to 10ten gallons.
7
ITEM 3. LEGAL PROCEEDINGS.PROCEEDINGS
LITIGATION
The Partnership'sOur operations are subject to all operating hazards and risks normally
incidental to handling, storing, and delivering combustible liquids such as
propane. As a result, the Partnership haswe have been, and will continue to be, a defendant in
various legal proceedings and litigation arising in the ordinary course of
business. The Partnership isWe are self-insured for general and product, workers' compensation and
automobile liabilities up to predetermined amounts above which third party
insurance applies. The Partnership
believesWe believe that the self-insured retentions and coverage it maintainswe
maintain are reasonable and prudent. Although any litigation is inherently
uncertain, based on past experience, the information currently available to it,us,
and the amount of itsour self-insurance reserves for known and unasserted
self-insurance claims (which was approximately $25.6$28.6 million at September 30, 2000)27,
2003), the Partnership
doeswe do not believe that these pending or threatened litigation matters, or
known claims or known contingent claims, will have a material adverse effect on
itsour results of operations, financial condition or our cash flow.
On May 23, 2001, Heritage Propane Partners, L.P. ("Heritage") amended a
complaint it had filed on November 30, 1999 in the South Carolina Court of
Common Pleas, Fifth Judicial Circuit, against SCANA Corporation ("SCANA") and
Cornerstone Ventures, L.P. ("Cornerstone") to name our Operating Partnership as
a defendant (Heritage v. SCANA et al., Civil Action 0l-CP-40-3262). Third party
insurance and the self-insurance reserves referenced above do not apply to this
action. The amended complaint alleges, among other things, that SCANA breached a
contract for the sale of propane assets and asserts claims against our Operating
Partnership for wrongful interference with prospective advantage and civil
conspiracy for allegedly interfering with Heritage's prospective contract with
SCANA. Heritage claims that it is entitled to recover its financial condition.alleged lost profits
in the amount of $125.0 million and that all defendants are jointly and
severally liable to it for such amount. Our Operating Partnership moved to
dismiss the claims asserted against it for failure to state a claim. On October
24, 2001, the court denied our Operating Partnership's motion to dismiss the
amended complaint.
On February 6, 2003, the plaintiffs in Heritage v. SCANA et al filed a
motion to amend its complaint to assert additional claims against all
defendants, including three new claims against our Operating Partnership: aiding
and abetting; misappropriation; and unjust enrichment. The court has granted
this motion. On May 5, 2003, our Operating Partnership filed a motion for
summary judgement to dismiss the claims asserted against it in the original
complaint filed against our Operating Partnership. We withdrew this motion for
strategic reasons but intend to re-file it at a later date. However, we cannot
predict the outcome of this motion for summary judgement. Discovery is ongoing
between all parties to the lawsuit. We do not anticipate that this matter will
be tried before the Spring of 2004. We believe that the claims and proposed
additional claims against our Operating Partnership are without merit and are
defending the action vigorously. If this matter proceeds to trial, we cannot
predict the outcome of this trial, or , if the trial is before a jury, what
verdict the jury ultimately may reach.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders of the
Partnership, through the solicitation of proxies or otherwise, during the fourth
fiscal quarter of the year ended September 30, 2000.HOLDERS
None.
8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS AND RELATED UNITHOLDER MATTERS.
TheMATTERS
Our Common Units, representing limited partner interests in the
Partnership, are listed and traded on the New York Stock Exchange ("NYSE") under
the symbol SPH. As of December 15, 2000,November 21, 2003, there were 1,028 registered982 Common Unitholders of
record. The following table sets forth,presents, for the periods indicated, the high and
low salesales prices per Common Unit, as reported on the New
York Stock Exchange,NYSE, and the amount of
quarterly cash distributions declared and paid per Common Unit.Unit with respect to
each quarter.
Common Unit Price Range
------------------------ Cash Distribution
Paid
----------------------- ----------------------
High Low ---- ---
1999Paid
----------- ----------- -----------------
Fiscal Year
- ----------------2002
-----------
First Quarter $19.94 $17.13 $0.5000$ 27.99 $ 24.50 $ 0.5625
Second Quarter 20.13 18.00 0.500028.40 24.36 0.5625
Third Quarter 20.50 17.94 0.512528.25 25.59 0.5750
Fourth Quarter 20.75 19.00 0.5125
200028.49 20.00 0.5750
Fiscal Year
- ----------------2003
-----------
First Quarter $20.63 $16.50 $0.5250$ 28.49 $ 24.60 $ 0.5750
Second Quarter 20.00 16.44 0.525029.60 26.90 0.5750
Third Quarter 20.13 18.38 0.525029.89 27.40 0.5875
Fourth Quarter 22.06 19.56 0.5375
2001 Fiscal Year
- ----------------
First Quarter
(through December 15, 2000) $22.00 $19.00 -
The Partnership makes30.95 27.91 0.5875
We make quarterly distributions to itsour partners in an aggregate amount
equal to itsour Available Cash (as defined) fordefined in the Second Amended and Restated
Partnership Agreement) with respect to such quarter. Available Cash generally
means all cash on hand at the end of the fiscal quarter plus all additional cash
on hand as a result of borrowings subsequent to the end of such quarter less
cash reserves established by the Board of Supervisors in its reasonable
discretion for future cash requirements.
The Partnership isWe are a publicly traded limited partnership that isand are not subject to federal
income tax. Instead, partnersUnitholders are required to report their allocable share of
the Partnership'sour earnings or loss, regardless of whether the
Partnership makeswe make distributions.
9
ITEM 6. SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA.DATA
The following table presents our selected condensedconsolidated historical financial
data. The selected consolidated historical financial data of the Partnership and the Predecessor Company. The selected
condensed consolidated historical data is derived from theour
audited financial statements of the Partnership and Predecessor Company.statements. The amounts in the table below, except per Unitunit
data, are in thousands.
Predecessor
Partnership (a) Company
-------------
March 5, October 1,
Year Ended Year Ended Year Ended Year Ended 1996 1995
----------------------------------------------------------- through through
Sept(a)
----------------------------------------------------------------------------
September September September September September
27, 2003 28, 2002 29, 2001 30, Sept2000 (b) 25, Sept 26, Sept 27, Sept 28, March 4,
2000 1999
1998 1997 1996 1996
---- ---- ---- ---- ---- ------------ -------- -------- ------------ ---------
STATEMENT OF OPERATIONS DATA
Statement of Operations Data
Revenues ........................... $ 836,829771,679 $ 619,778665,105 $ 667,287931,536 $ 771,131841,304 $ 323,947 $ 383,999
Depreciation620,207
Costs and Amortization ....................... 38,772 34,906 36,531 37,307 21,046 14,816
Restructuring Charge ............... -- -- -- 6,911 2,340 --expenses 691,662 582,321 838,055 770,332 547,579
Recapitalization Cost .............. --costs (c) - - - - 18,903 -- -- -- --
Gain on Salesale of Assets ............. 10,328 -- -- -- -- --assets - - - (10,328) -
Gain on sale of storage facility - (6,768) - - -
Income (Loss) Beforebefore interest expense and
income taxes (d) 80,017 89,552 93,481 81,300 53,725
Interest Expense and Income Taxes .......... 79,560 53,272 68,814 47,763 (3,464) 61,796
Interest Expense, Net .............. 40,794 30,765 30,614 33,979 17,171 --expense, net 33,629 35,325 39,596 42,534 31,218
Provision for Income Taxes .........income taxes 202 703 375 234 68
35 190 147 28,147
Net Income (Loss) ..................from continuing operations (d) 46,186 53,524 53,510 38,532 22,439
38,165 13,594 (20,782) 33,649Discontinued operations:
Gain on sale of customer service centers (e) 2,483 - - - -
Net income (d) 48,669 53,524 53,510 38,532 22,439
Income (Loss)from continuing operations per Common
Unit (b) .....- basic 1.78 2.12 2.14 1.70 0.83
Net income per Common Unit - basic (f) 1.87 2.12 2.14 1.70 0.83
Net income per Common Unit - diluted (f) 1.86 2.12 2.14 1.70 0.83
Cash distributions declared per unit $ 1.702.33 $ 0.832.28 $ 1.302.20 $ 0.462.11 $ (0.71) --
Balance Sheet Data (c)
(end of period)2.03
BALANCE SHEET DATA (END OF PERIOD)
Cash and cash equivalents $ 15,765 $ 40,955 $ 36,494 $ 11,645 $ 8,392
Current Assets ..................... $assets 98,912 116,789 124,339 122,160 $ 78,637
$ 132,781 $ 104,361 $ 120,692
Total Assets .......................assets 665,630 700,146 723,006 771,116 659,220
729,565 745,634 776,651
Current Liabilities ................ 131,461 103,006 91,550 96,701 101,826
Long-term Debt ..................... 517,219 427,634 427,897 427,970 428,229liabilities, excluding current portion of
long-term borrowings 94,802 98,606 119,196 124,585 99,953
Total debt 383,826 472,769 473,177 524,095 430,687
Other Long-termlong-term liabilities ........102,924 109,485 71,684 60,607 60,194
62,318 79,724 81,917
Partners' Capitalcapital - Common Unitholders 165,950 103,680 105,549 58,474 66,342
Partner's capital - General Partner $ 1,567 $ 1,924 $ 1,888 $ 1,866 $ 2,044
24,488 12,830 3,286 --
Partners' Capital - Limited Partners 58,474 66,342 123,312 128,409 161,393 --
Statement ofSTATEMENT OF CASH FLOWS DATA
Cash Flows Data
Cash Provided by
(Usedprovided by/(used in)
Operating Activities .............activities $ 57,300 $ 68,775 $ 101,838 $ 59,467 $ 81,758
Investing activities (4,859) (6,851) (17,907) (99,067) (12,241)
Financing activities $ 70,073(77,631) $ 58,848(57,463) $ 62,961 $ (3,765)
Investing Activities ............. $ (99,067) $ (12,241) $ 2,900 $ (20,709) $ (30,449) $ (21,965)
Financing Activities .............(59,082) $ 42,853 $(120,944)
OTHER DATA
Depreciation and amortization (g) $ (32,490)27,520 $ (37,734)28,355 $ (13,786)36,496 $ 25,799
Other Data37,032 $ 34,453
EBITDA (d) ......................... $(h) 110,020 117,907 129,977 118,332 $ 88,178
$ 105,345 $ 85,070 $ 17,582 $ 76,612
Capital Expenditures (e)expenditures (i)
Maintenance and growth .............14,050 17,464 23,218 21,250 11,033
Acquisitions $ 21,250- $ 11,033- $ 12,617 $ 24,888 $ 16,089 $ 9,796
Acquisitions .......................- $ 98,012 $ 4,768
$ 4,041 $ 1,880 $ 15,357 $ 13,172
Retail Propane
Gallons Sold ....................propane gallons sold 491,451 455,988 524,728 523,975 524,276 529,796 540,799 257,029 309,871
10
NOTES:
- ------
(a) The Partnership acquiredOur 2000 fiscal year contained 53 weeks. All other fiscal years contained
52 weeks.
(b) Includes the propane businessresults from our November 1999 acquisition of certain
subsidiaries of SCANA Corporation, accounted for under the purchase method,
from the date of acquisition.
(c) We incurred expenses of $18.9 million in connection with the
recapitalization transaction described in Note 1 to the consolidated
financial statements included in this Annual Report. These expenses
included $7.6 million representing cash expenses and assets$11.3 million
representing non-cash charges associated with the accelerated vesting of
restricted Common Units.
(d) These amounts include, in addition to the Predecessor
Companygain on March 5, 1996 (the Closing Date). There are no material
differences in the basissale of assets and liabilities between the
Partnershipgain on sale of storage facility, gains from the disposal of property,
plant and equipment of $0.6 million for fiscal 2003, $0.5 million for
fiscal 2002, $3.8 million for fiscal 2001, $1.0 million for fiscal 2000 and
$0.6 million for fiscal 1999.
(e) Gain on sale of customer service centers consists of nine customer service
centers we sold during fiscal 2003 for total cash proceeds of approximately
$7.2 million. We recorded a gain on sale of approximately $2.5 million,
which has been accounted for within discontinued operations pursuant to
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting
for the Predecessor Company.
(b) NetImpairment or Disposal of Long-Lived Assets." Prior period results
of operations attributable to these nine customer service centers were not
significant and, as such, prior period results have not been reclassified
to remove financial results from continuing operations.
(f) Basic net income (loss) per Common Unit is computed by dividing the limited partners'
interest in net income, (loss)after
deducting our general partner's interest, by the weighted average number of
outstanding Common Units. Diluted net income per Common Unit is computed by
dividing net income, after deducting our general partner's approximate 2%
interest, by the weighted average number of outstanding Common Units outstanding.
(c) Balancesand
time vested restricted units granted under our 2000 Restricted Unit Plan.
(g) Depreciation and amortization expense for the year ended September 28, 2002
reflects our early adoption of SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142") as of September 30, 2000 include those relating2001 (the beginning of our 2002
fiscal year). SFAS 142 eliminates the requirement to amortize goodwill and
certain intangible assets. Amortization expense for the year ended
September 28, 2002 reflects approximately $7.4 million lower amortization
expense compared to the November
1999 acquisitionyear ended September 29, 2001 as a result of SCANA, where applicable.
(d)the
elimination of amortization expense associated with goodwill.
(h) EBITDA (earningsrepresents net income before deducting interest expense, income
taxes, depreciation and amortization)amortization. Our management uses EBITDA as a
measure of liquidity and we are including it because we believe that it
provides our investors and industry analysts with additional information to
evaluate our ability to meet our debt service obligations and to pay our
quarterly distributions to holders of our Common Units. Moreover, our
senior note agreements and our revolving credit agreement require us to use
EBITDA as a component in calculating our leverage and interest coverage
ratios. EBITDA is defined as income (loss) before interest expensenot a recognized term under generally accepted accounting
principles ("GAAP") and income taxes plus
depreciation and amortization. EBITDA should not be considered as an alternative to net
income (as an indicator ofor net cash provided by operating performance) or as
an alternative to cash flow (as a measure of liquidity or ability to
service debt obligations) and is notactivities determined in
accordance with GAAP. Because EBITDA as determined by us excludes some, but
not all, items that affect net income, it may not be comparable to EBITDA
or superiorsimilarly titled measures used by other companies. The following table
sets forth (i) our calculation of EBITDA and (ii) a reconciliation of
EBITDA, as so calculated, to generally accepted accounting principles, but provides additional
information for evaluating the Partnership's ability to pay the Minimum
Quarterly Distribution.
(e) The Partnership'sour net cash provided by operating activities
(amounts in thousands):
11
Fiscal Fiscal Fiscal Fiscal Fiscal
2003 2002 2001 2000 1999
------------- --------------- --------------- -------------- ---------------
Net income $ 48,669 $ 53,524 $ 53,510 $ 38,532 $ 22,439
Add:
Provision for income taxes 202 703 375 234 68
Interest expense, net 33,629 35,325 39,596 42,534 31,218
Depreciation and amortization 27,520 28,355 36,496 37,032 34,453
------------- --------------- --------------- -------------- ---------------
EBITDA 110,020 117,907 129,977 118,332 88,178
------------- --------------- --------------- -------------- ---------------
Add/(subtract):
Provision for income taxes (202) (703) (375) (234) (68)
Interest expense, net (33,629) (35,325) (39,596) (42,534) (31,218)
Gain on disposal of property, plant and
equipment, net (636) (546) (3,843) (11,313) (578)
Gain on sale of customer service centers (2,483) - - - -
Gain on sale of storage facility - (6,768) - - -
Changes in working capital and other
assets and liabilities (15,770) (5,790) 15,675 (4,784) 25,444
------------- --------------- --------------- -------------- ---------------
Net cash provided by/(used in)
Operating activities $ 57,300 $ 68,775 $ 101,838 $ 59,467 $ 81,758
============= =============== =============== ============== ===============
Investing activities $ (4,859) $ (6,851) $ (17,907) $ (99,067) $ (12,241)
============= =============== =============== ============== ===============
Financing activities $ (77,631) $ (57,463) $ (59,082) $ 42,853 $ (120,944)
============= =============== =============== ============== ===============
(i) Our capital expenditures fall generally into three categories: (i)
maintenance expenditures, which include expenditures for repair and
replacement of property, plant and equipment,equipment; (ii) growth capital
expenditures which include new propane tanks and other equipment to
facilitate expansion of the Partnership'sour customer base and operating capacity; and (iii)
acquisition capital expenditures, which include expenditures related to the
acquisition of propane and other retail propane operations and a portion of the
purchase price allocated to intangiblesintangible assets associated with such acquired
businesses.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of the historicalour financial condition and results of
operations, of the Partnership. The discussionwhich should be read in conjunction with theour historical consolidated
financial statements and notes thereto included elsewhere in this Form 10-K.Annual Report.
Since theour Operating Partnership and Service Company account for substantially
all of theour assets, revenues and earnings, of the Partnership, a separate discussion of the Partnership's results of
operations from our other sourcessubsidiaries is not presented.
GENERALDISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains Forward-Looking Statements as
defined in the Private Securities Litigation Reform Act of 1995 relating to our
future business expectations and predictions and financial condition and results
of operations. Some of these statements can be identified by the use of
forward-looking terminology such as "prospects," "outlook," "believes,"
"estimates," "intends," "may," "will," "should," "anticipates," "expects" or
"plans" or the negative or other variation of these or similar words, or by
discussion of trends and conditions, strategies or risks and uncertainties.
These Forward-Looking Statements involve certain risks and uncertainties that
could cause actual results to differ materially from those discussed or implied
in such Cautionary Statements. The Partnership'srisks and uncertainties and their impact on
our operations include, but are not limited to, the following risks:
o The impact of weather conditions on the demand for propane;
o Fluctuations in the unit cost of propane;
o Our ability to compete with other suppliers of propane and other energy
sources;
o The impact on propane prices and supply from the political and economic
instability of the oil producing nations and other general economic
conditions;
o Our ability to retain customers;
o The impact of energy efficiency and technology advances on the demand for
propane;
o The ability of management to continue to control expenses;
o The impact of regulatory developments on our business;
o The impact of legal proceedings on our business;
o Our ability to implement our expansion strategy into new business lines and
sectors;
o Our ability to integrate acquired businesses successfully.
On different occasions, we or our representatives have made or may make
Forward-Looking Statements in other filings that we make with the SEC, in press
releases or in oral statements made by or with the approval of one of our
authorized executive officers. Readers are cautioned not to place undue reliance
on Forward-Looking or Cautionary Statements, which reflect management's opinions
only as of the date hereof. We undertake no obligation to update any
Forward-Looking or Cautionary Statement. All subsequent written and oral
Forward-Looking Statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by the Cautionary Statements in this
Annual Report and in future SEC reports.
The following are factors that regularly affect our operating results and
financial condition:
PRODUCT COSTS
The level of profitability in the retail propane business consists primarily of
transporting propane purchased on a year-to-year contract basis and in the spot
market, mainly from major oil companies, to its retail distribution outlets and
then to storage tanks located on its customers' premises. In the Partnership's
wholesale operations, it sells propane to large industrial end-users and other
propane distributors.
PRODUCT COSTS
The retail propane business is a "margin-based" business where the level of
profitability is largely
dependent on the difference between retail sales pricesprice and product cost. The
unit cost of propane is subject to volatile changes as a result of product
supply or other market conditions.conditions, including, but not limited to, economic and
political factors impacting crude oil and natural gas supply or pricing. Propane
unit cost changes can occur rapidly over a short period of time and can impact
retail margins.profitability. There is no assurance that the Partnershipwe will be able to pass on product
cost increases fully or immediately, particularly when product costs increase
rapidly. Therefore, average retail sales prices can vary
13
significantly from year to year as product costs fluctuate with propane, crude
oil and natural gas commodity market conditions.
SEASONALITY
The retail propane distribution business is seasonal because of propane's
primary use for heating in residential and commercial buildings. Historically,
approximately two-thirds of the Partnership'sour retail propane volume is sold during the
six-month peak heating season offrom October through March. Consequently, sales
and operating profits are concentrated in the Partnership'sour first and second fiscal quarters.
Cash flows from operations, therefore, are greatest during the second and third
fiscal quarters when customers pay for propane purchased during the winter
heating season. Lower operating profits and either net losses or lower net
income during the period from April through September (our third and fourth
fiscal quarters) are expected. To the extent necessary, the
Partnershipwe will reserve cash
from the second and third quarters for distribution to Unitholders in the first
and fourth fiscal quarters.
WEATHER
Weather conditions have a significant impact on the demand for propane for
both heating and agricultural purposes. Many customers of the Partnershipour customers rely heavily on
propane as a heating fuel. Accordingly, the volume of propane sold is directly
affected by the severity of the winter weather in our service areas, which can
vary substantially from year to year. In any given area, sustained
warmer-than-normal temperatures will tend to result in reduced propane use,
while sustained colder-than-normal temperatures will tend to result in greater
propane use.
RISK MANAGEMENT
The Partnership engagesProduct supply contracts are generally one-year agreements subject to
annual renewal and generally permit suppliers to charge posted market prices
(plus transportation costs) at the time of delivery or the current prices
established at major delivery points. Since rapid increases in hedging transactionsthe cost of
propane may not be immediately passed on to retail customers, such increases
could reduce profit margins. We engage in risk management activities to reduce
the effect of price volatility on itsour product costs and to help ensure the
availability of propane during periods of short supply. The Partnership isWe are currently a party
to propane futures contracts traded on the New York Mercantile Exchange and
entersenter into forward and option agreements with third parties to purchase and sell
propane at fixed prices in the future. TheseRisk management activities are monitored
by management through enforcement of the Partnership'sour Commodity Trading Policy. Hedging doesPolicy and reported
to our Audit Committee. Risk management transactions may not always result in
increased product margins and the Partnership does not consider hedging
activities to be material to operations or liquidity for the years ended
September 30, 2000 and September 25, 1999. Formargins. See additional information, seediscussion in Item 7A of this Annual
Report.
SELECTED QUARTERLY FINANCIAL DATA
DueCRITICAL ACCOUNTING POLICIES AND ESTIMATES
Certain amounts included in or affecting our consolidated financial
statements and related disclosures must be estimated, requiring management to
make certain assumptions with respect to values or conditions that cannot be
known with certainty at the time the financial statements are prepared. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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. We are also subject to risks and uncertainties that
may cause actual results to differ from estimated results. Estimates are used
when accounting for depreciation and amortization of long-lived assets, employee
benefit plans, self-insurance and legal reserves, allowance for doubtful
accounts, asset valuation assessment and valuation of derivative instruments. We
base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Any effects on our
business, financial position or results of operations resulting from revisions
to these estimates are recorded in the period in which the facts that
14
give rise to the seasonalityrevision become known to us.
Our significant accounting policies are summarized in Note 2, "Summary of
Significant Accounting Policies," included within the Notes to Consolidated
Financial Statements section elsewhere in this Annual Report. We believe that
the following are our critical accounting policies:
REVENUE RECOGNITION. We recognize revenue from the sale of propane at the time
product is delivered to the customer. Revenue from the sale of appliances and
equipment is recognized at the time of sale or when installation is complete, as
applicable. Revenue from repair and maintenance activities is recognized upon
completion of the service.
ALLOWANCE FOR DOUBTFUL ACCOUNTS. We maintain allowances for doubtful accounts
for estimated losses resulting from the inability of our customers to make
required payments. We estimate our allowance for doubtful accounts using a
specific reserve for known or anticipated uncollectible accounts, as well as a
general reserve for potential future uncollectible accounts taking into
consideration our historical write-offs. If the financial condition of one or
more of our customers were to deteriorate resulting in an impairment in their
ability to make payments, additional allowances could be required.
PENSION AND OTHER POSTRETIREMENT BENEFITS. We estimate the rate of return on
plan assets, the discount rate to estimate the present value of future benefit
obligations and the cost of future health care benefits in determining our
annual pension and other postretirement benefit costs. In accordance with
generally accepted accounting principles, actual results that differ from our
assumptions are accumulated and amortized over future periods and therefore,
generally affect our recognized expense and recorded obligation in such future
periods. While we believe that our assumptions are appropriate, significant
differences in our actual experience or significant changes in market conditions
may materially affect our pension and other postretirement obligations and our
future expense. See "Pension Plan Assets" below for additional disclosure
regarding pension and other postretirement benefits.
SELF-INSURANCE RESERVES. Our accrued insurance reserves represent the estimated
costs of known and anticipated or unasserted claims under our general and
product, workers' compensation and automobile insurance policies. Accrued
insurance provisions for unasserted claims arising from unreported incidents are
based on an analysis of historical claims data. For each claim, we record a
self-insurance provision up to the estimated amount of the probable claim or the
amount of the deductible, whichever is lower, utilizing actuarially determined
loss development factors applied to actual historical claims data.
GOODWILL IMPAIRMENT ASSESSMENT. We assess the carrying value of goodwill at a
reporting unit level, at least annually, based on an estimate of the fair value
of the respective reporting unit. Fair value of the reporting unit is estimated
using either (i) a market value approach taking into consideration the quoted
market price of our Common Units; or (ii) discounted cash flow analyses taking
into consideration estimated cash flows in a ten-year projection period and a
terminal value calculation at the end of the projection period.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. See Item 7A of this Annual Report
for additional information about accounting for derivative instruments and
hedging activities.
15
RESULTS OF OPERATIONS
FISCAL YEAR 2003 COMPARED TO FISCAL YEAR 2002
- ----------------------------------------------
REVENUES. Revenues increased 16.0%, or $106.6 million, to $771.7 million in
fiscal 2003 compared to $665.1 million in fiscal 2002. Revenues from retail
propane business,activities increased $130.0 million, or 24.3%, to $664.2 million in
fiscal 2003 compared to $534.2 million in the prior year. This increase was the
result of an increase in average propane selling prices, coupled with an
increase in retail gallons sold. Propane selling prices averaged 15.9% higher in
fiscal 2003 compared to the prior year as a result of steadily increasing costs
of propane throughout the first half of fiscal 2003 which remained higher during
the second half of the year. Retail gallons sold increased 35.5 million gallons,
or 7.8%, to 491.5 million gallons in fiscal 2003 compared to 456.0 million
gallons in fiscal 2002 due primarily to colder average temperatures experienced
in parts of our service area, particularly during the six month peak heating
season from October 2002 through March 2003.
Temperatures nationwide, as reported by the National Oceanic and
Atmospheric Administration ("NOAA"), averaged 1% colder than normal in fiscal
2003 compared to 13% warmer than normal temperatures in the prior year, or 14%
colder conditions year-over-year. The coldest weather conditions, however, were
experienced in the eastern and central regions of the United States. In the
west, average temperatures were 10% warmer than normal during fiscal 2003,
compared to 7% warmer than normal during the prior year. In addition, our
volumes continue to be affected by the impact of a continued economic recession
on customer buying habits.
Revenues from wholesale and risk management activities of $16.6 million in
fiscal 2003 decreased $19.5 million, or 54.0%, compared to revenues of $36.1
million in the prior year primarily as a result of lower volumes sold in the
wholesale market in line with our strategy to reduce our emphasis on wholesale
activities. Revenue from other sources, including sales of appliances and
related parts and services, of $90.9 million in fiscal 2003 decreased $3.9
million, or 4.1%, compared to other revenue in the prior year of $94.8 million.
The decrease in other revenues was primarily attributable to lower revenues from
service and installations.
COST OF PRODUCTS SOLD. The cost of products sold reported in the
consolidated statements of operations represents the weighted average unit cost
of propane sold, including transportation costs to deliver product from our
supply points to storage or to our customer service centers. Cost of products
sold also includes the cost of appliances and related parts sold or installed by
our customer service centers computed on a basis that approximates the average
cost of the products. Cost of products sold is reported exclusive of any
depreciation and amortization as such amounts are reported separately within the
consolidated statements of operations.
Cost of products sold increased $87.7 million, or 30.3%, to $376.8 million
in fiscal 2003 compared to $289.1 million in the prior year. The increase
results primarily from a $93.0 million impact from the aforementioned increase
in the commodity price of propane resulting in a 39.4% increase in the average
unit cost of propane in fiscal 2003 compared to the prior year, coupled with the
aforementioned increase in retail volumes sold resulting in an increase of $17.0
million; offset by a $21.2 million decrease from the decline in wholesale and
risk management activities described above. In fiscal 2003, cost of products
sold represented 48.8% of revenues compared to 43.5% in the prior year. The
increase in the cost of products sold as a percentage of revenues relates
primarily to steadily increasing costs of propane during the first half of
fiscal 2003 which remained higher during the second half of fiscal 2003 compared
to steadily declining product costs in the prior year.
OPERATING EXPENSES. All costs of operating our retail propane distribution
and appliance sales and service operations are reported within operating
expenses in the consolidated statements of operations. These operating expenses
include the compensation and benefits of field and direct operating support
personnel, costs of operating and maintaining our vehicle fleet, overhead and
other costs of our purchasing, training and safety departments and other direct
and indirect costs of our customer service centers. Operating expenses increased
7.1%, or $16.6 million, to $250.7 million in fiscal 2003 compared to $234.1
million in fiscal 2002. Operating expenses in fiscal 2003 include a $1.5 million
unrealized (non-cash) loss representing the net change in fair
16
values of derivative instruments, compared to a $5.4 million unrealized
(non-cash) gain in the prior year (see Item 7A - Quantitative and Qualitative
Disclosures About Market Risk for information on our policies regarding the
accounting for derivative instruments). In addition to the $6.9 million non-cash
impact of changes in the fair value of derivative instruments year-over-year,
operating expenses increased $9.7 million primarily resulting from (i) $2.3
million increased pension costs, (ii) $2.2 million higher insurance costs, (iii)
$2.1 million higher costs to operate our fleet primarily from increased fuel
costs and (iv) $0.9 million higher employee compensation and benefits to support
the increased sales volume. In addition, we experienced $2.1 million higher bad
debt expense as a result of the significant increase in the commodity price of
propane resulting in higher prices to our customers, higher sales volumes and
general economic conditions.
GENERAL AND ADMINISTRATIVE EXPENSES. All costs of our back office support
functions, including compensation and benefits for executives and other support
functions, as well as other costs and expenses to maintain finance and
accounting, treasury, legal, human resources, corporate development and the
information systems functions are reported within general and administrative
expenses in the consolidated statements of operations. General and
administrative expenses of $36.7 million for fiscal 2003 were $5.9 million, or
19.2%, higher than fiscal 2002 expenses of $30.8 million. The increase was
primarily attributable to the impact of $2.8 million higher employee
compensation and benefit related costs, as well as $1.2 million higher fees for
professional services in the current year period.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
decreased $0.9 million, or 3.2%, to $27.5 million in fiscal 2003, compared to
$28.4 in fiscal 2002.
GAIN ON SALE OF STORAGE FACILITY. On January 31, 2002 (the second quarter
revenues and earnings are consistently greater than the comparable third
and fourth quarter results. The following presents the Partnership's selected
quarterly financial dataof fiscal 2002), we sold our 170 million gallon propane storage facility in
Hattiesburg, Mississippi, which was considered a non-strategic asset, for the last two fiscal years.
Fiscal 2000 (unaudited) (in thousands, except per Unit amounts)
First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal 2000
------------- -------------- ------------- -------------- -----------
Revenues $200,462 $290,880 $153,959 $191,528 $836,829
Gain on Sale of Assets 10,328 -- -- -- 10,328net
cash proceeds of $8.0 million, resulting in a gain on sale of approximately $6.8
million.
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES AND EBITDA. Income (Loss) Before Interest
Expense and Income Taxes 37,411 49,619 (385) (7,085) 79,560
Net Income (Loss) 27,991 39,305 (10,699) (18,065) 38,532
Net Income (Loss) per Unit 1.23 1.73 (.47) (.79) 1.70
EBITDA(a) 46,417 59,503 9,480 2,932 118,332
Retail Gallons Sold 140,516 191,865 96,483 95,111 523,975
Fiscal 1999 (unaudited) (in thousands, except per Unit amounts)
First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal 1999
------------- -------------- ------------- -------------- -----------
Revenues $161,216 $221,978 $121,905 $114,679 $619,778
Recapitalization Costs -- -- (18,903) -- (18,903)
Income (Loss) Before Interest
Expense and Income Taxes 23,963 54,777 (17,948) (7,520) 53,272
Net Income (Loss) 16,370 47,161 (25,293) (15,799) 22,439
Net Income (Loss) per Unit .56 1.61 (.93) (.70) .83
EBITDA (a) 32,745 63,507 (9,259) 1,185 88,178
Retail Gallons Sold 137,603 195,045 103,893 87,735 524,276
(a) EBITDA (earnings before interest, taxes, depreciation and amortization) is
calculated as income (loss) before
interest expense and income taxes plusdecreased $9.6 million, or 10.7%, to $80.0
million in fiscal 2003 compared to $89.6 million in the prior year. Earnings
before interest, taxes, depreciation and amortization ("EBITDA") amounted to
$110.0 million for fiscal 2003 compared to $117.9 million for the prior year, a
decline of $7.9 million, or 6.7%. The decline in income before interest expense
and income taxes and in EBITDA over the prior year reflects the impact of 7.8%
higher retail volumes sold, offset by the $6.9 million unfavorable impact of
mark-to-market activity on derivative instruments year-over-year included within
operating expenses, the $6.8 million gain on sale of our Hattiesburg,
Mississippi storage facility impacting prior year results and the higher
combined operating and general and administrative expenses (described above) in
support of higher business activity. Additionally, the $2.5 million gain
reported from the sale of nine customer service centers during fiscal 2003,
reported within discontinued operations, had a favorable impact on fiscal 2003
EBITDA.
EBITDA represents net income before deducting interest expense, income
taxes, depreciation and amortization. Our management uses EBITDA as a measure of
liquidity and we are including it because we believe that it provides our
investors and industry analysts with additional information to evaluate our
ability to meet our debt service obligations and to pay our quarterly
distributions to holders of our Common Units. Moreover, our senior note
agreements and our revolving credit agreement require us to use EBITDA as a
component in calculating our leverage and interest coverage ratios. EBITDA is
not a recognized term under generally accepted accounting principles ("GAAP")
and should not be considered as an alternative to net income (as an indicator ofor net cash
provided by operating performance) or as an alternative to
cash flow (as a measure of liquidity or ability to service debt obligations) and
is notactivities determined in accordance with or superior to generally accepted accounting
principles, but provides additional information for evaluating the Partnership's
ability to pay the Minimum Quarterly Distribution.GAAP. Because
EBITDA as determined by us excludes some, but not all, items that affect net
income, and this measure may vary among
companies, the EBITDA data presented aboveit may not be comparable to EBITDA or similarly titled measures ofused by
other companies. RESULTS OF OPERATIONSThe following table sets forth (i) our calculation of EBITDA
and (ii) a reconciliation of EBITDA, as so calculated, to our net cash provided
by operating activities (amounts in thousands):
17
Year Ended
-------------------------------------------
September 27, September 28,
2003 2002
------------------ -------------------
Net income $ 48,669 $ 53,524
Add:
Provision for income taxes 202 703
Interest expense, net 33,629 35,325
Depreciation and amortization 27,520 28,355
------------------ -------------------
EBITDA 110,020 117,907
------------------ -------------------
Add/(subtract):
Provision for income taxes (202) (703)
Interest expense, net (33,629) (35,325)
Gain on disposal of property, plant and equipment, net (636) (546)
Gain on sale of customer service centers (2,483) -
Gain on sale of storage facility - (6,768)
Changes in working capital and other assets and liabilities (15,770) (5,790)
------------------ -------------------
Net cash provided by/(used in)
Operating activities $ 57,300 $ 68,775
================== ===================
Investing activities $ (4,859) $ (6,851)
================== ===================
Financing activities $ (77,631) $ (57,463)
================== ===================
INTEREST EXPENSE. Net interest expense decreased $1.7 million, or 4.8%, to
$33.6 million in fiscal 2003 compared to $35.3 million in fiscal 2002. The
decrease in interest expense reflects the positive steps taken by us during the
third quarter of fiscal 2003 to lower our overall leverage, which resulted in an
$88.9 million reduction in debt, coupled with lower average interest rates on
outstanding borrowings under our Revolving Credit Agreement during the first and
second quarters of fiscal 2003.
DISCONTINUED OPERATIONS. As part of our overall business strategy, we
continually monitor and evaluate our existing operations to identify
opportunities that will allow us to optimize our return on assets employed by
selectively consolidating or divesting operations in slower growing or
non-strategic markets. In line with that strategy, we sold nine customer service
centers during fiscal 2003 for total cash proceeds of approximately $7.2
million. We recorded a gain on sale of approximately $2.5 million, which has
been accounted for within discontinued operations pursuant to SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets."
FISCAL YEAR 20002002 COMPARED TO FISCAL YEAR 19992001
- ---------------------------------------------
Results for fiscal 2000 include a $10.3 million gain on the sale of assets.
Results for fiscal 1999 reflect costs of $18.9 million resulting from the
Partnership's recapitalization. Fiscal 2000 includes 53 weeks of operations
compared to 52 weeks in the prior year.
REVENUES. Revenues increased $217.1 million or 35.0% to $836.8of $665.1 million in fiscal 20002002 decreased $266.4
million, or 28.6%, compared to $619.8$931.5 million in fiscal 1999.2001. Revenues from
retail propane activities increased $117.9decreased $219.2 million, or 24.0%29.1%, to $609.5$534.2 million
in fiscal 20002002 compared to $491.6$753.4 million in fiscal 1999.2001. This increasedecrease is
primarilyprincipally due to a decrease in average selling prices, coupled with a decrease
in retail gallons sold. Average selling prices declined 18.4% as a result of a
significant decline in the commodity price of propane in fiscal 2002 compared to
the prior year. Retail gallons sold decreased 13.1%, or 68.7 million gallons, to
456.0 million gallons in fiscal 2002 compared to 524.7 million gallons in fiscal
2001. The decrease in volume was attributable to higher product costsrecord warm weather conditions
which resulted in higher selling prices.
Temperatureswere most dramatic during fiscal 2000 were 12% warmer than normal and 4% warmer
than fiscal 1999, as reported by National Oceanic and Atmospheric Administration
("NOAA"). Temperatures duringthe peak heating months of October through March
of fiscal 2002 as well as, to a lesser extent, the fiscal 2000 heating
season were oneimpact of the warmesteconomic
recession on record withcommercial and industrial customers' buying habits.
Nationwide temperatures beingduring fiscal 2002 were 13% warmer than normal and 4%as
compared to temperatures that were 2% colder than normal during fiscal 2001, as
reported by NOAA. During the peak heating months of October 2001 through March
2002, temperatures nationwide were 13% warmer than normal as compared to 5%
colder than normal in the prior year period.
Retail gallons sold remained consistent with fiscal 1999 amounting to 524.0
million gallonscomparable period in fiscal 2000 compared to 524.3 million gallons in fiscal 1999.2001, as reported by NOAA.
Volumes from the components of our customer mix that are less weather sensitive
declined approximately 12% year-over-year.
18
Revenues from wholesale and risk management activities increased $91.7decreased $50.1
million, or 174.3%58.1%, to $144.4$36.1 million in fiscal 20002002 compared to $52.7$86.2 million in
fiscal 1999. This increase is attributed to increased wholesale activity
principally resulting from increased market opportunities attributable to a more2001. A less volatile commodity price environment for propane pricing environment.
Other revenues increased 9.8% or $7.4 million to $82.9 million induring
fiscal 20002002 compared to $75.5 millionfiscal 2001 resulted in fiscal 1999. The increase is attributable to
higherreduced risk management
activities and lower volumes in the wholesale market. Revenue from other
sources, including sales of gas grills, fireplacesappliances and related parts and an increaseservices, of $94.8
million in service/installationfiscal 2002 increased $2.9 million, or 3.2%, over fiscal 2001
revenues associatedof $91.9 million.
COST OF PRODUCTS SOLD. Cost of products sold decreased $221.2 million, or
43.3%, to $289.1 million in fiscal 2002 compared to $510.3 million in fiscal
2001. The decrease results primarily from a $125.1 million impact from the
aforementioned decrease in the commodity price of propane resulting in a 36.3%
decrease in the average unit cost of propane during fiscal 2002 compared to
fiscal 2001. This is coupled with severalthe aforementioned decrease in retail growth initiatives.volumes
sold resulting in a decrease of $51.9 million, and a $45.4 million decrease from
the decline in wholesale and risk management activities described above. In
fiscal 2002, cost of products sold represented 43.5% of revenues compared to
54.8% in the prior year. The decrease in the cost of products sold as a
percentage of revenues relates primarily to steadily decreasing costs of propane
during fiscal 2002.
OPERATING EXPENSES. Operating expenses increased 6.6%decreased 9.5%, or $13.8$24.6 million, to
$224.0$234.1 million in fiscal 20002002 compared to $210.2$258.7 million in fiscal 1999. The
increase2001.
Operating expenses for the year ended September 28, 2002 include a $5.4 million
unrealized (non-cash) gain representing the net change in fair values of
derivative instruments not designated as hedges, compared to a $3.1 million
unrealized loss in fiscal 2001 (see Item 7A of this Annual Report for
information on our policies regarding the accounting for derivative instruments
and hedging activities). In addition to the $8.5 million favorable impact from
changes in the fair value of derivative instruments year-over-year, operating
expenses isdecreased $16.1 million, or 6.3%, principally attributable to increased payrollour
ability to reduce costs amidst declining volumes resulting from ongoing
initiatives to shift costs from fixed to variable, primarily in the areas of
employee compensation and benefitbenefits. The lower compensation costs reflecting the acquisition of SCANA, continued expansion of
retail$10.5
million were offset, in part, by a $4.0 million increase in medical and service business initiatives, an additional week of operationsdental
costs in fiscal 2000 and to a lesser extent, higher vehicle fuel costs.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
11.1% or $3.9 million to $38.8 million2002 compared to $34.9the prior year. Additionally, operating
expenses were favorably impacted by a $4.2 million decrease in provisions for
doubtful accounts and $3.0 million lower costs of operating our fleet, including
maintenance and fuel costs, in fiscal 1999.
The increase is attributable2002 compared to additional assets associated withfiscal 2001. Provisions
for doubtful accounts were higher in fiscal 2001 primarily as a result of the
SCANA
acquisition.generally higher selling price environment driven by the higher average propane
costs.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased $0.7$1.7 million, or 2.5%5.2%, to $28.6$30.8 million in fiscal 20002002 compared to
$29.4$32.5 million in fiscal 2001, again attributable to a decrease in employee
compensation and benefit costs of $4.3 million, as well as to a $1.6 million
decrease in fees for professional services, partly offset by a $1.3 million
increase in telecommunication costs.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
decreased 22.2%, or $8.1 million, to $28.4 million in fiscal 2002 compared to
$36.5 million in the prior year. The decreaseyear primarily as a result of our decision to early
adopt SFAS 142 effective September 30, 2001 (the beginning of fiscal 2002),
which eliminated the requirement to amortize goodwill and certain intangible
assets. If SFAS 142 had been in general and administrative expenses
is primarily attributable to gains realized oneffect at the salebeginning of non-strategic assets
and lower expenses for professional services.
GAINSthe prior year,
fiscal 2001 net income would have improved by $7.4 million.
GAIN ON SALE OF ASSETS. ResultsSTORAGE FACILITY. On January 31, 2002, we sold our 170
million gallon propane storage facility in Hattiesburg, Mississippi, which was
considered a non-strategic asset, for fiscal 2000 reflectnet cash proceeds of $8.0 million,
resulting in a gain of $10.3
million associated with theon sale of 23 customer service centers principally
located in Georgia in December 1999. Total cash proceeds in connection with the
sale amounted to approximately $19.4$6.8 million.
RECAPITALIZATION COSTS. Results for fiscal 1999 reflect expenses of $18.9
million incurred in connection with the Partnership's recapitalization
transactions. Approximately $7.6 million of the recapitalization costs represent
amounts paid for financial advisory fees, proxy solicitation fees, legal,
accounting and tax service fees and $1.0 million paid to Millennium to extend
the scheduled closing date for the Recapitalization. The $7.6 million includes
approximately $0.3 million of expenses paid for purchase of the Former General
Partner's interests. Approximately $11.3 million of the recapitalization costs
reflect compensation expense recognized upon accelerated vesting of 673,165
issued and outstanding Restricted Units on the closing date of the
Recapitalization pursuant to the change of control provisions of the Restricted
Unit Plan. The Partnership also incurred approximately $1.8 million in fees and
expenses to amend its Senior Note Agreement. Such amount has been deferred and
is being amortized over the remaining term of the Senior Notes.
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES AND EBITDA. Results forIncome before
interest expense and income taxes decreased 4.2%, or $3.9 million, to $89.6
million compared to $93.5 million in the prior year. Earnings before interest,
taxes, depreciation and amortization ("EBITDA") decreased 9.3%, or $12.1
million, to $117.9 million in fiscal year 2000 include a $10.32002 compared to $130.0 million in the
prior year. The decreases in income before interest expense and
19
income taxes and in EBITDA reflect the impact of the 13.1% lower retail volumes
sold in fiscal 2002 attributable to unseasonably warm heating season
temperatures and the economy; partially offset by (i) the $26.3 million, or
9.0%, decrease in combined operating and general and administrative expenses
described above, (ii) the impact of the $6.8 million gain on the sale of assets. Results forour
Hattiesburg, Mississippi storage facility and (iii) the impact on operating
expenses of changes in the fair value of derivative instruments described above.
In addition, if SFAS 142 had been in effect at the beginning of the prior year,
fiscal year 1999 include $18.9 million of recapitalization costs. Excluding
these one-time items from both periods,2001 income before interest expense and income taxes decreased 4.1% or $2.9 million to $69.2 million compared to $72.2
million in the prior period.would have improved
by $7.4 million.
EBITDA excluding the one-time items from both
periods, increased 0.9% or $0.9 million to $108.0 million compared to $107.1
million in the prior period.
The decrease inrepresents net income before deducting interest expense, and income
taxes, is
primarily attributable to increased depreciation and amortization associatedamortization. Our management uses EBITDA as a measure of
liquidity and we are including it because we believe that it provides our
investors and industry analysts with the SCANA acquisition, partially offset by higher income associated with
the SCANA acquisitionadditional information to evaluate our
ability to meet our debt service obligations and lower generalto pay our quarterly
distributions to holders of our Common Units. Moreover, our senior note
agreements and administrative expenses. The
increaseour revolving credit agreement require us to use EBITDA as a
component in calculating our leverage and interest coverage ratios. EBITDA is
principally attributable to higher income associated with
the SCANA acquisitionnot a recognized term under generally accepted accounting principles ("GAAP")
and lower general and administrative expenses. EBITDA should not be considered as an alternative to net income (as an indicatoror net cash
provided by operating activities determined in accordance with GAAP. Because
EBITDA as determined by us excludes some, but not all, items that affect net
income, it may not be comparable to EBITDA or similarly titled measures used by
other companies. The following table sets forth (i) our calculation of EBITDA
and (ii) a reconciliation of EBITDA, as so calculated, to our net cash provided
by 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.activities (amounts in thousands):
Year Ended
------------------------------------------
September 28, September 29,
2002 2001
----------------- -----------------
Net income $ 53,524 $ 53,510
Add:
Provision for income taxes 703 375
Interest expense, net 35,325 39,596
Depreciation and amortization 28,355 36,496
----------------- -----------------
EBITDA 117,907 129,977
----------------- -----------------
Add/(subtract):
Provision for income taxes (703) (375)
Interest expense, net (35,325) (39,596)
Gain on disposal of property, plant and equipment, net (546) (3,843)
Gain on sale of storage facility (6,768) -
Changes in working capital and other assets and liabilities (5,790) 15,675
----------------- -----------------
Net cash provided by/(used in)
Operating activities $ 68,775 $ 101,838
================= =================
Investing activities $ (6,851) $ (17,907)
================= =================
Financing activities $ (57,463) $ (59,082)
================= =================
INTEREST INCOME AND INTEREST EXPENSE. Net interest expense increased 32.6%decreased 10.9%,
or $10.0$4.3 million, to $40.8$35.3 million in fiscal 2002 compared to $30.8$39.6 million in
the prior year. The increase is due
to interest expense on borrowings to fund the SCANA acquisition.
FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998
- ---------------------------------------------
REVENUES. Revenues decreased $47.5 million or 7.1% to $619.8 million in
fiscal 1999 compared to $667.3 million in fiscal 1998. Revenues from retail
propane activities decreased $31.8 million or 6.1% to $491.6 million in fiscal
1999 compared to $523.4 million in fiscal 1998. This decrease is primarily attributable to lower product costs which resultedreductions in lower selling prices and,
to a lesser extent, a decrease in retail gallons sold.
Overall, higher nationwide inventories of propane, coupled with warmer than
normal temperatures during the winter of fiscal 1999, resulted in a significant
decrease in the cost of propane when compared to the winter of fiscal 1998.
Temperaturesaverage
amounts outstanding during fiscal 1999 were 8% warmer than normal and 1% warmer than
fiscal 1998,2002 under our Revolving Credit Agreement, as
reported by National Oceanic and Atmospheric Administration
("NOAA"). Temperatures during October through March of the fiscal 1999 heating
season were one of the warmest on record with temperatures being 9% warmer than
normal and 2% warmer than the prior year period.
Retail gallons sold decreased 1.0% or 5.5 million gallons to 524.3 million
gallons in fiscal 1999 compared to 529.8 million gallons in the prior year. The
decline in retail gallons sold is principally attributable to warmer
temperatures, principally during the winter heating season, in all areas of the
Partnership's operations.
Revenues from wholesale and risk management activities decreased $22.5
million or 29.9% to $52.7 million in fiscal 1999 compared to $75.2 million in
fiscal 1998. This decrease is attributed to lower product costs which resulted
in lower selling prices and to the Partnership's reduced emphasis on wholesale
marketing, due to the low margin nature of the wholesale market.
Other revenues increased 9.9% or $6.8 million to $75.5 million in fiscal
1999 compared to $68.7 million in fiscal 1998. The increase is attributable to
higher sales of appliances and related parts and an increase in
service/installation revenues associated with several retail growth initiatives.
OPERATING EXPENSES. Operating expenses remained consistent with fiscal 1999
amounting to $210.2 million compared to $210.4 million in fiscal 1998well as lower payroll, benefits costs and vehicle fuel costs were offset by increased
operating expenses associated with several retail growth initiatives.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased $0.8 million or 2.7% to $29.4 million in fiscal 1999 compared to $30.2
million in the prior year. Fiscal 1998 results reflect a $1.4 million write-off
of certain impaired information system assets and a $2.0 million charge related
to insurance claims for which insurance coverage was denied. Excluding these
non-recurring items, general and administrative expenses increased $2.6 million
or 9.7% in fiscal 1999, principally due to higher information system expenses
including costs incurred to address Y2K compliance and the absence of offsetting
dividend income of $0.8 million earned in the prior year on the sold investment
in the Dixie Pipeline Company.
RECAPITALIZATION COSTS. Results for fiscal 1999 reflect expenses of $18.9
million incurred in connection with the Partnership's recapitalization
transactions. Approximately $7.6 million of the recapitalization costs represent
amounts paid for financial advisory fees, proxy solicitation fees, legal,
accounting and tax service fees and $1.0 million paid to Millennium to extend
the scheduled closing date for the Recapitalization. The $7.6 million includes
approximately $0.3 million of expenses paid for purchase of the Former General
Partner's interests. Approximately $11.3 million of the recapitalization costs
reflect compensation expense recognized upon accelerated vesting of 673,165
issued and outstanding Restricted Units on the closing date of the
Recapitalization pursuant to the change of control provisions of the Restricted
Unit Plan. The Partnership also incurred approximately $1.8 million in fees and
expenses to amend its Senior Note Agreement. Such amount has been deferred and
is being amortized over the remaining term of the Senior Notes (approximately
11.5 years).
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES AND EBITDA. Results for the
fiscal year 1999 include $18.9 million of recapitalization costs. Results for
the fiscal year 1998 include a $5.1 million gain from the sale of an investment
in the Dixie Pipeline Co., a $1.8 million write-off of certain impaired assets
and a $2.0 million charge related to insurance claims for which insuranceaverage interest rates.
20
coverage was denied. Excluding these one-time items from both periods, income
before interest expense and income taxes increased 6.9% or $4.7 million to $72.2
million compared to $67.5 million in the prior period. EBITDA, excluding the
one-time items from both periods, increased 2.9% or $3.0 million to $107.1
million compared to $104.1 million in the prior period.
The improvement in income before interest expense and income taxes and
EBITDA is primarily attributable to higher overall gross profit of $5.8 million,
partially offset by higher general and administrative expenses. The increase in
gross profit principally resulted from higher sales of appliances and related
parts and increased service/installation activities attributable to several
retail growth initiatives and an increase in gains realized on the Partnership's
product procurement and price risk management activities, including hedging
transactions. 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. Net interest expense remained comparable at $30.8
million in fiscal 1999 compared with $30.6 million in the prior year.
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, our
second and third fiscal quarters, as customers pay for propane purchased during
the heating season. In fiscal 2000,2003, net cash provided by operating activities
decreased $22.3$11.5 million, or 16.7%, to $59.5
million compared to $81.8$57.3 million in fiscal 1999.2003 compared to
$68.8 million in fiscal 2002. The decrease is primarily due to higher working capital requirements principally reflected in increased
accounts receivable, inventory and accounts payable due to the increased cost of
propane in fiscal 2000, coupled with lower net income,
of $9.7 million, after
adjusting forincluding lower non-cash items (depreciation(principally depreciation, amortization and amortization, gains
on disposalasset disposals), as well as the impact of assetsincreased investment in accounts
receivable and recapitalization costs)inventories resulting from higher commodity prices and increased
business activity during fiscal 2003 compared to fiscal 2002 due to generally
colder average temperatures.
In fiscal 2002, net cash provided by operating activities decreased $33.0
million, or 32.4%, to $68.8 million in both periods.fiscal 2002 compared to $101.8 million in
fiscal 2001. The decrease was primarily due to lower net income, after adjusting forincluding lower
non-cash items primarily results from increased interest
expense associated with borrowings(principally depreciation, amortization and gains on asset
disposals), as well as the impact of unfavorable changes in working capital in
comparison to fund the SCANA acquisition.prior year, principally reflecting lower compensation and
benefit accruals, offset by lower inventories.
Net cash used in investing activities was $99.1$4.9 million in fiscal 2000,2003,
reflecting $21.3$14.1 million in capital expenditures (including $7.5$4.7 million for
maintenance expenditures and $13.8$9.4 million to support the growth of operations)
and $98.0 million of acquisition payments, including $97.0 million for the
acquisition of SCANA, offset by net proceeds of $20.2$9.2 million from the sale of assets (including net
proceeds of $7.2 million from the sale of nine customer service centers). Net
cash used in investing activities was $6.9 million in fiscal 2002, reflecting
$17.5 million in capital expenditures (including $13.0 million for maintenance
expenditures and $4.5 million to support the growth of operations) offset by net
proceeds of $10.6 million from the sale of assets (including net proceeds of
$8.0 million resulting from the sale of our propane storage facility in
Hattiesburg, Mississippi). Net cash used in investing activities was $17.9
million in fiscal 2001, reflecting $23.2 million in capital expenditures
(including $6.5 million for maintenance expenditures and $16.7 million to
support the growth of operations), offset by net proceeds of $5.3 million from
the sale of property, plant and equipment, including 23 customer service centers. Net cash
provided by investing activities was $12.2 million in fiscal 1999, consisting of
capital expenditures of $11.0 million (including $3.2 million for maintenance
expenditures and $7.8 million to support the growth of operations) and
acquisition payments of $4.8 million, offset by proceeds from the sale of
property and equipment of $3.6 million. The increase of $10.2 million in capital
expenditures during fiscal 2000, as compared to fiscal 1999, is attributable to
higher information system expenditures related to the replacement and expansion
of internal information systems and higher expenditures for customer tanks
associated with new customer installations.
Net cash provided by financing activities for fiscal 2000 was $42.9
million, reflecting $89.7 million in borrowings to fund the SCANA acquisition
and $3.8 million of net working capital borrowings under the Partnership's Bank
Credit Facilities offset by $47.4 million in Partnership distributions and $3.1
million of expenses to amend the Partnership's Bank Credit Facilities.
In fiscal 1999, net cash provided by operating activities increased $11.7
million to $81.8 million compared to $70.1 million in fiscal 1998. The increase
was primarily due to higher net income of $8.3 million, after excluding the
non-recurring Recapitalization costs of $18.9 million in fiscal 1999 and the
$5.1 million gain on the sale of an investment in fiscal 1998, and favorable
changes in operating assets and liabilities of $4.2 million, partially offset by
lower depreciation and amortization of $1.6 million. Changes in operating assets
and liabilities included an increase in accounts payable of $15.2 million
primarily attributable to changes in the timing and payment terms on propane
purchases partially offset by decreases in accounts receivable of $5.3 million
inventories of $1.7 million and prepaid expenses of $2.3 million.
equipment.
Net cash used in financing activities for fiscal 19992003 was $120.9$77.6 million,
reflecting $69.0 million paid(i) the payment of our quarterly distributions to the Formerour Common
Unitholders and our General Partner amounting to redeem$60.1 million, (ii) the
repayment of all outstanding Subordinated Units and APUs, $9.4 million of recapitalization costs,
$2.1 million of net working capital borrowings under our Revolving Credit Agreement
amounting to $46.0 million, (iii) the Partnership's Bank
Credit Facilitiesrepayment of the second annual principal
payment of $42.5 million due under the 1996 Senior Note Agreement, and $44.6(iv) the
payment of $0.8 million in Partnership distributions.
Netfees associated with the renewal and extension of our
Revolving Credit Agreement during May 2003. The $88.9 million reduction in debt
during fiscal 2003 was funded through a combination of cash provided by
investing activities was $2.9 million in fiscal 1998,
consistingoperations and the net proceeds of capital expenditures of $12.6 million (including $6.0 million for
maintenance expenditures and $6.6 million to support the growth of operations)
and acquisition payments of $4.0 million, offset by proceeds from the sale of
property and equipment of $6.5 million and $13.1$72.2 million from the salea follow-on public
offering of approximately 2.6 million Common Units (including full exercise of
the investment inunderwriters' over-allotment option) which was completed during the Dixie Pipeline Co.third
quarter of fiscal 2003. Net cash used in financing activities for fiscal year 19982002
was $32.5$57.5 million, primarily reflecting the payment of quarterly distributions
to our Common Unitholders and our General Partner. Net cash used in financing
activities for fiscal 2001 was $59.1 million, reflecting $44.2repayments under our
Operating Partnership's Revolving Credit Agreement, as amended and restated
effective January 29, 2001 (the "Revolving Credit Agreement"), including a net
repayment of $44.0 million borrowed under the SCANA Acquisition facility and a
net repayment of Partnership$6.5 million borrowed under the net working capital facility,
and $54.5 million for payment of quarterly distributions to our Common
Unitholders and $0.3 million
in debt repayments partiallyour General Partner, partly offset by $12.0net proceeds of $47.1
million from a public offering of approximately 2.4 million Common Units in
APU contributions
received from the Former General Partner.
InOctober 2000.
On March 5, 1996, the Operating Partnershippursuant to a Senior Note Agreement (the "1996 Senior
Note Agreement"), we issued $425.0 million aggregate
principal amount of senior notes (the "1996 Senior
NotesNotes") with an annual interest rate of 7.54%. The Senior
Notes mature June 30, 2011. TheOur obligations under the 1996
Senior Note Agreement requires thatare unsecured and rank on an equal and ratable basis with
our obligations under the 2002 Senior Note Agreement and the Revolving Credit
Agreement discussed below. Under the terms of the 1996 Senior Note Agreement, we
became obligated to pay the principal be paidon the 1996 Senior Notes in equal annual
payments of $42.5 million starting July 1, 2002, with the last such payment due
June 30, 2002.
As2011. On July 1,
21
2002, we received net proceeds of September$42.5 million from the issuance of 7.37%
Senior Notes due June, 2012 (the "2002 Senior Notes") and used the funds to pay
the first annual principal payment of $42.5 million due under the 1996 Senior
Note Agreement. Our obligations under the agreement governing the 2002 Senior
Notes (the "2002 Senior Note Agreement") are unsecured and rank on an equal and
ratable basis with our obligations under the 1996 Senior Note Agreement and the
Revolving Credit Agreement. Rather than refinance the second annual principal
payment of $42.5 million due under the 1996 Senior Note Agreement, we elected to
repay this principal payment on June 30, 2000, the Partnership had available a $175.0 million2003.
Our previous Revolving Credit Agreement, with a syndicate of banks led by First Union National
Bank as Administrative Agent. The Revolving Credit Agreement consists of a
$100.0 million acquisition facility andwhich provided a $75.0 million
working capital facility and a $50.0 million acquisition facility, was scheduled
to mature on May 31, 2003. On May 8, 2003, we completed the Second Amended and
Restated Credit Agreement (the "Revolving Credit Agreement") which expire on Marchextends the
previous Revolving Credit Agreement until May 31, 2001.2006. The Revolving Credit
Agreement provides the
Partnership, at the Partnership's option, the right to extend the expiration
date from March 31, 2001 to December 31, 2001 provided that the maximum ratioa $75.0 million working capital facility and an acquisition
facility of consolidated total indebtedness to EBITDA (as defined in$25.0 million. Borrowings under the Revolving Credit Agreement) will decreaseAgreement bear
interest at a rate based upon either LIBOR plus a margin, Wachovia National
Bank's prime rate or the Federal Funds rate plus 1/2 of 1%. An annual fee
ranging from 5.100.375% to 1.00 to 4.75 to 1.00 during0.50%, based upon certain financial tests, is payable
quarterly whether or not borrowings occur. These terms are substantially the
nine month
extension period. Borrowingssame as the terms under the previous Revolving Credit Agreement. In connection
with the completion of the Revolving Credit Agreement, we repaid $21.0 million
of outstanding borrowings under the Revolving Credit Agreement. On June 19,
2003, we repaid the remaining outstanding balance of $25.0 million under the
Revolving Credit Agreement. As of September 27, 2003 there were no borrowings
outstanding under the Revolving Credit Agreement. As of September 28, 2002,
$46.0 million was outstanding under the acquisition facility of the previous
Revolving Credit Agreement and there were no borrowings under the working
capital facility were $90.0 million and $6.5 million, respectively, as of
September 30, 2000. Borrowings underfacility.
The 1996 Senior Note Agreement, the acquisition facility represent amounts
outstanding to fund the SCANA acquisition.
The2002 Senior Note Agreement and the
Revolving Credit Agreement contain various restrictive and affirmative covenants
applicable to theour Operating Partnership, including (a) maintenance of certain
financial tests, including, but not limited to, a leverage ratio of less than
5.0 to 1 and an interest coverage ratio in excess of 2.5 to 1 using EBITDA in
such ratio calculations, (b) restrictions on the incurrence of additional
indebtedness, and (c) restrictions on certain liens, investments, guarantees,
loans, advances, payments, mergers, consolidations, distributions, sales of
assets and other transactions. The
Operating Partnership wasDuring December 2002, we amended the 1996 Senior
Note Agreement to (i) eliminate an adjusted net worth financial test to be
consistent with the 2002 Senior Note Agreement and Revolving Credit Agreement,
and (ii) require a leverage ratio of less than 5.25 to 1 when the underfunded
portion of our pension obligations is used in the computation of the ratio. We
were in compliance with all covenants and terms of all of our debt agreements as
of September 30, 2000. The Partnership intends to exercise its option to extend the
Revolving Credit Agreement to December 31, 2001 or replace the existing
Revolving Credit Agreement with a new facility with more favorable restrictive27, 2003 and affirmative covenants prior to March 31, 2001.
On October 17, 2000, the Partnership sold 2.175 million Common Units in a
public offering at a price of $21.125 per unit realizing proceeds of $43.5
million, net of underwriting commissions and any other offering expenses. On
November 14, 2000, following the underwriters partial exercise of its
over-allotment option, the Partnership sold an additional 177,700 Common Units at the same price, generating net proceedsend of $3.6 million. These transactions
increased the total number of Common Units outstanding to 24.632 million. The
aggregate proceeds of $47.1 million were applied to reduce outstanding Revolving
Credit borrowings.
The Partnershipeach fiscal quarter for all periods
presented.
We will make distributions in an amount equal to all of itsour Available Cash,
as defined in the Second Amended and Restated Partnership Agreement,
approximately 45 days after the end of each fiscal quarter to holders of record
on the applicable record dates. The Partnership has made
distributionsBoard of $.5250 per Unit to its Common Unitholders forSupervisors reviews the level of
Available Cash on a quarterly basis based upon information provided by
management. During each of the first three quarters of fiscal 2000 and2003, we paid
distributions to our Common Unitholders of $0.5750 per Common Unit. On July 24,
2003, the Board of Supervisors declared a $0.05 annualized increase in the
quarterly distribution of $.5375from $0.5750 per Common Unit to $0.5875 per Common Unit,
or $2.35 on an annualized basis, for the fourth fiscalthird quarter of fiscal 2000 consisting2003, which was
paid on August 12, 2003. On October 23, 2003, the Board of $.50 in Minimum Quarterly
Distribution and an additionalSupervisors declared
a quarterly distribution of $.025 during the first three
quarters of fiscal 2000 and $.0375$0.5875 per Common Unit for the fourth quarter of
fiscal 2000.2003, which was paid on November 10, 2003 to holders of record on
November 3, 2003.
Quarterly distributions include Incentive Distribution Rights ("IDRs")
payable to the General Partner to the extent the quarterly distribution exceeds
$0.55 per Common Unit. The Partnership'sIDRs represent an incentive for the General Partner
(which is owned by our management) to increase the distributions to Common
Unitholders in excess of the $0.55 per Common Unit. With regard to the first
$0.55 of the Common Unit distribution, 98.29% of the Available Cash is
distributed to the Common Unitholders and 1.71% is distributed to the General
Partner
22
(98.11% and 1.89%, respectively, prior to our June 2003 public offering). With
regard to the balance of the Common Unit distributions paid, 85% of the
Available Cash is distributed to the Common Unitholders and 15% is distributed
to the General Partner.
As discussed above, the results of operations for the fiscal year ended
September 27, 2003 were impacted by generally colder average temperatures
compared to fiscal 2002 across much of the United States, a challenging
commodity price and supply environment and the sustained economic recession. Our
results of operations were favorably impacted by a return to more normal weather
patterns, particularly in the east, and our continued focus on managing our cost
structure; despite the negative effects of unseasonably warm weather in the west
and the economy. In addition, our product supply and risk management activities
helped to ensure adequate supply and to mitigate the impact of propane price
volatility during a period of uncertainty surrounding the situation in Iraq and
other oil producing nations. We took several steps during fiscal 2003 to further
strengthen our balance sheet and improve our leverage, highlighted by the
successful completion during the third quarter of a follow-on public offering of
approximately 2.6 million Common Units and the repayment of $88.9 million of
debt. The lower debt levels resulted in approximately $2.0 million lower
interest expense in fiscal 2003 compared to the prior year.
Our anticipated cash requirements for fiscal 20012004 include maintenance and
growth capital expenditures of approximately $19.1$19.0 million for the repair and
replacement of property, plant and equipment, approximately $38.3$30.0 million of
interest payments on the 1996 Senior Notes, the 2002 Senior Notes and the
Revolving Credit Agreement and a principal payment of $42.5 million due on June
30, 2004 under the 1996 Senior Note Agreement. In addition, assuming
distributions remain at the current level, we will be required to pay
approximately $53.9$65.8 million in Minimum Quarterly Distributions and
additional distributions to its Common Unitholders and the
General Partner during fiscal 2001.2004. Based on itsour current estimate of our cash
position, availability under the Revolving Credit Agreement (unused borrowing
capacity under the working capital facility of $69.5 million at September 27,
2003) and expected cash flow from operating activities, the
Partnership expectswe expect to have
sufficient funds to meet these obligations for
fiscal 2001, as well as all of itsour current obligations and working capital needs
during fiscal 2001.
THE RECAPITALIZATION
From March 5, 1996 through May 26, 1999, Suburban Propane GP, Inc. (the
"Former General Partner"), a wholly-owned indirect subsidiary of Millennium
Chemicals, Inc., ("Millennium"), served as the general partner of the
Partnership and Operating Partnership owning a 1% general partner interest in
the Partnership and a 1.0101% general partner interest in the Operating
Partnership. Millennium became a publicly traded company upon Hanson PLC's
spin-off of its chemical business, including its interests in the Partnership,
in October 1996. In addition, the Former General Partner owned a 24.4% limited
partner interest and a special limited partner interest in the Partnership. The
limited partner interest was evidenced by 7,163,750 Subordinated Units and the
special limited partner interest was evidenced by 220,000 Additional Partnership
Units ("APUs").
On May 26, 1999, after receiving Unitholder approval, the Partnership
completed a recapitalization (the "Recapitalization"), pursuant to which the
Partnership simplified its capital structure by, among other things, redeeming
all 7,163,750 outstanding Subordinated Units and all 220,000 outstanding APUs,
all of which were owned by the Former General Partner, for a total price of
$69.0 million in cash.future obligations.
In connection with the Recapitalization,pending acquisition of the Partnership's Distribution Supportassets and operations of
Agway Energy, we expect to close the acquisition upon completion of the auction
process, final approval of the acquisition by the Bankruptcy Court and necessary
regulatory approvals. At present, we plan to fund the $206.0 million purchase
price and related acquisition costs and expenses with capital markets
financings. In the interim, we have obtained a commitment from established
investment banking institutions to provide a $210.0 million 364-day facility to
fund all or a portion of the purchase price. If we draw on this facility, it
would bear interest at a floating rate and, at our option, may be converted at
maturity into a 9-year term loan. If the facility were drawn, we would seek to
arrange for other permanent financing to repay the facility at our earliest
opportunity, possibly through one or more offerings of equity or debt
securities. Following consummation of the acquisition, we believe that we will
have sufficient cash flow from operating activities and availability under our
Revolving Credit Agreement to fund the incremental cash requirements and to fund
incremental working capital needs of the Agway Energy business for the
forseeable future.
PENSION PLAN ASSETS
While our pension asset portfolio experienced significantly improved asset
returns in fiscal 2003, the funded status of our defined benefit pension plan
continues to be impacted by the low interest rate environment affecting the
actuarial value of the projected benefit obligations, as well as the cumulative
impact of prior losses particularly during 2002 and 2001. As a result, the
projected benefit obligation as of September 27, 2003 exceeded the market value
of pension plan assets by $42.1 million, which improved $11.1 million compared
to the $53.2 million underfunded position at the end of the prior year. The
improvement in the funded status compared to fiscal 2002 has also resulted in a
favorable adjustment of $5.0 million to accumulated other comprehensive
(loss)/income, a component of partners' capital, at the end of fiscal 2003.
Therefore, the cumulative reduction to
23
partners' capital amounted to $80.1 million on the consolidated balance sheet at
September 27, 2003 compared to the cumulative reduction of $85.1 million as of
September 28, 2002. The cumulative reduction to partners' capital is
attributable to the level of unrealized losses experienced on our pension assets
over the past three years and represent non-cash charges to our partners'
capital with no impact on the Former General Partnerresults of operations for the fiscal year ended
September 27, 2003. Our defined benefit pension plan was terminatedfrozen to new
participants effective January 1, 2000 and, replacedin furtherance of our effort to
minimize future increases in the benefit obligations, effective January 1, 2003
all future service credits were eliminated.
For purposes of computing the actuarial valuation of projected benefit
obligations, we reduced the discount rate assumption from 6.75% as of September
28, 2002 to 6.0% as of September 27, 2003 to reflect an estimate of current
market expectations related to long term interest rates. Additionally, we
reduced the expected long-term rate of return on plan assets assumption from
8.5% as of September 28, 2002 to 7.75% as of September 27, 2003 based on the
current investment mix of our pension asset portfolio and historical asset
performance. There were no minimum funding requirements for the defined benefit
pension plan during fiscal 2003, 2002 or 2001. However, in an effort to
proactively address our funded status we elected to make a voluntary
contribution of $10.0 million to our defined benefit pension plan during the
fourth quarter of fiscal 2003, thus improving our funded status. This voluntary
contribution, coupled with improved asset returns in our pension asset portfolio
during fiscal 2003, offset the negative effects on the funded status of further
declines in the interest rate environment. There can be no assurances that
future declines in capital markets, or interest rates, will not have an adverse
impact on our results of operations or cash flow.
LONG-TERM DEBT OBLIGATIONS AND OPERATING LEASE OBLIGATIONS
CONTRACTUAL OBLIGATIONS
Long-term debt obligations and future minimum rental commitments under
noncancelable operating lease agreements as of September 27, 2003 are due as
follows (amounts in thousands):
Fiscal Fiscal Fiscal Fiscal 2008 and
2004 2005 2006 2007 thereafter Total
---------------- -------------- ------------- --------------- --------------- --------------
Long-term debt $ 42,911 $ 42,940 $ 42,975 $ 42,500 $ 212,500 $ 383,826
Operating leases 17,796 12,868 9,959 5,860 6,410 52,893
Total long-term debt
obligations and ---------------- -------------- ------------- --------------- --------------- --------------
lease commitments $ 60,707 $ 55,808 $ 52,934 $ 48,360 $ 218,910 $ 436,719
================ ============== ============= =============== =============== ==============
Additionally, we have standby letters of credit in the aggregate amount of $35.4
million, in support of retention levels under our casualty insurance programs
and certain lease obligations, which expire on March 1, 2004.
OFF-BALANCE SHEET ARRANGEMENTS
OPERATING LEASES
We lease certain property, plant and equipment for various periods under
noncancelable operating leases, including all of our railroad tank cars,
approximately 70% of our vehicle fleet, approximately 30% of our customer
service centers and portions of our information systems equipment. Rental
expense under operating leases was $24.3 million, $24.0 million and $23.4
million for the years ended September 27, 2003, September 28, 2002 and September
29, 2001, respectively. Future minimum rental commitments under noncancelable
operating lease agreements as of September 27, 2003 are presented in the
immediately preceding table.
24
GUARANTEES
Financial Accounting Standards Board ("FASB") Financial Interpretation No.
45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others," expands the existing
disclosure requirements for guarantees and requires recognition of a liability
for the fair value of guarantees issued after December 31, 2002. We have
residual value guarantees associated with certain of our operating leases,
related primarily to transportation equipment, with remaining lease periods
scheduled to expire periodically through fiscal 2009. Upon completion of the
lease period, we guarantee that the fair value of the equipment will equal or
exceed the guaranteed amount, or we will pay the lessor the difference. Although
the fair value of equipment at the end of its lease term has historically
exceeded the guaranteed amounts, the maximum potential amount of aggregate
future payments we could be required to make under these leasing arrangements,
assuming the equipment is deemed worthless at the end of the lease term, is
approximately $14.4 million. Of this amount, the fair value of residual value
guarantees for operating leases entered into after December 31, 2002 was $2.1
million which is reflected in other liabilities, with a $21.6 million liquidity arrangement provided by
the Partnership under the Operating Partnership's Amended and Restated Credit
Agreement. The quarterly distribution was increased and the size of the Board of
Supervisors was reduced from seven to five members, with the three supervisors
elected by holders of Common Units representing a majority of the Board.
In addition, the Former General Partner sold its entire general partner
interestscorresponding amount
included within other assets, in the Partnership and the Operating Partnership, including its
incentive distribution rights in the Partnership ("IDRs"), to Suburban Energy
Services Group LLC, a new entity owned by senior managementaccompanying consolidated balance sheet as
of the Partnership
(the "Successor General Partner"), for a total price of $6.0 million. The
Successor General Partner assumed the rights and duties of the Former General
Partner under the partnership agreements of the Partnership and the Operating
Partnership and was substituted as the new general partner of the Partnership
and the Operating Partnership. In connection with the Recapitalization and the
substitution of the Successor General Partner, the IDRs were amended to reduce
the Successor General Partner's right to receive distributions in excess of the
Minimum Quarterly Distribution and the Board of Supervisors was given the right
to convert the IDRs to Common Units after the fifth anniversary of the
Recapitalization. The Partnership Agreement and the Operating Partnership
Agreement were amended to permit and effect the Recapitalization and the
substitution of the Successor General Partner.
NEWSeptember 27, 2003.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998,2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 requires
companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or disposal
plan. The provisions of SFAS 146 are effective for exit or disposal activities
initiated after December 31, 2002. We will apply the provisions of this standard
on an ongoing basis, as applicable.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 amends
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("Statementand
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. This statement is, in general, effective for contracts
entered into or modified after June 30, 2003, and for hedging relationships
designated after June 30, 2003. The adoption of this standard did not have a
material impact on our consolidated financial position, results of operations or
cash flows.
In May 2003, the FASB issued SFAS No. 133"150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity"
("SFAS 150"). Statement No. 133, as
amended by Statement No. 137SFAS 150 establishes standards for the classification and
Statement No. 138,measurement of certain financial instruments with characteristics of both
liabilities and equity. It requires entities to record
derivatives as assets or liabilities on the balance sheet based on their fair
value and any subsequent changes in the fair values of contracts must be
recorded in income, unless the contracts qualify as hedges. Contracts qualifying
for hedge accounting would have changes in fair values reportedthat an issuer classify a financial
instrument that is within its scope as a componentliability (or an asset in some
circumstances). Many of comprehensive income (equity).these instruments were previously required to be
classified as equity. This statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective for our
fourth quarter in fiscal 2003. The Partnership will adopt Statementadoption of this standard did not have a
material impact on our consolidated financial position, results of operations or
cash flows.
In January 2003, the FASB issued FASB Interpretation No. 133
effective with46, "Consolidation
of Variable Interest Entities" ("FIN 46"), an interpretation of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements." FIN 46 addresses
consolidation by business enterprises of variable interest entities that meet
certain characteristics. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after January 31, 2003. The
consolidation requirements apply to variable interest entities created before
February 1, 2003 in the first fiscal quarteryear or interim period
25
beginning after June 15, 2003. However, in October 2003, the FASB deferred the
effective date for applying certain provisions of 2001, as required. Management has
determined that the Partnership's derivative contracts do not qualify for hedge
accountingFIN 46 and will mark-to-market its derivatives through income. Based on the
Partnership's derivatives outstanding on September 30, 2000, the transition
amount required to be recognized upon adoptionin November 2003,
issued an exposure draft which would amend certain provisions of Statement No. 133 on October
1, 2000 will not be significant to the Partnership. However, changes to the
contracts outstanding after that date will cause volatility in earnings.
In fiscal 2000, the staffFIN 46. As a
result of the Securitieslatest exposure draft, we are currently evaluating the impact, if
any, that FIN 46 or any future amendment may have on our financial position and
Exchange Commission
("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition", ("SAB
101"). SAB 101, and its subsequent amendments, summarizes the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. SAB 101 will be implemented by the Partnership in fiscal
year 2001 and management does not anticipate the implementation will be
significant to the Partnership.results of operations.
26
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of September 30, 2000, the Partnership was27, 2003, we were a party to propane forward and option
contracts with various third parties and futures traded on the New York
Mercantile Exchange ("NYMEX"(the "NYMEX"). ForwardFutures and futureforward contracts providerequire that the
Partnershipwe
sell or acquire propane at a fixed price at fixed future dates. An option
contract allows, but does not require, its holder to buy or sell propane at a
specified price during a specified time period; the writer of an option contract
must fulfill the obligation of the option contract, should the holder choose to
exercise the option. 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 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, options and forward
contracts are monitored daily for compliance with the Partnership'sour 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 isWe are subject to commodity price risk to the extent that propane market
prices deviate from fixed contract settlement amounts. Futures contracts traded with
brokers ofon the NYMEX require daily cash settlements in margin accounts. Forward
and option contracts are generally settled at the expiration of the contract
term.term either by physical delivery or through a net settlement mechanism.
CREDIT RISK
Futures contracts are guaranteed by the NYMEX and, as a result, have minimal credit
risk. The Partnership isWe are subject to credit risk with forward and option contracts to the
extent the counterparties do not perform. The Partnership
evaluatesWe evaluate the financial condition of
each counterparty with which it conductswe conduct business and establishesestablish credit limits to
reduce exposure to credit risk of non-performance.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We account for derivative instruments in accordance with the provisions of
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS No. 137, SFAS No. 138 and SFAS No. 149. All derivative
instruments are reported on the balance sheet, within other current assets or
other current liabilities, at their fair values. On the date that futures,
forward and option contracts are entered into, we make a determination as to
whether the derivative instrument qualifies for designation as a hedge. Prior to
March 31, 2002, we determined that our derivative instruments did not qualify as
hedges and, as such, the changes in fair values were recorded in income.
Beginning with contracts entered into subsequent to March 31, 2002, a portion of
the derivative instruments entered into have been designated and qualify as cash
flow hedges. For derivative instruments designated as cash flow hedges, we
formally assess, both at the hedge contract's inception and on an ongoing basis,
whether the hedge contract is highly effective in offsetting changes in cash
flows of hedged items. Changes in the fair value of derivative instruments
designated as cash flow hedges are reported in accumulated other comprehensive
(loss)/income ("OCI") to the extent effective and reclassified into cost of
products sold during the same period in which the hedged item affects earnings.
The mark-to-market gains or losses on ineffective portions of hedges are
recognized in cost of products sold immediately. Changes in the fair value of
derivative instruments that are not designated as hedges are recorded in current
period earnings. Fair values for forward contracts and futures are derived from
quoted market prices for similar instruments traded on the NYMEX.
27
At September 27, 2003, the fair value of derivative instruments described
above resulted in derivative assets of $0.6 million included within prepaid
expenses and other current assets and derivative liabilities of $1.7 million
included within other current liabilities. For the year ended September 27, 2003
operating expenses include unrealized (non-cash) losses of $1.5 million compared
to unrealized (non-cash) gains of $5.4 million for the year ended September 28,
2002, attributable to the change in the fair value of derivative instruments not
designated as hedges. At September 27, 2003, unrealized gains on derivative
instruments designated as cash flow hedges in the amount of $1.1 million were
included in OCI and are expected to be recognized in earnings during the next 12
months as the hedged transactions occur. However, due to the volatility of the
commodities market, the corresponding value in OCI is subject to change prior to
its impact on earnings.
SENSITIVITY ANALYSIS
In an effort to estimate the Partnership'sour exposure to unfavorable market price changes
in propane related to itsour open inventory positions the
Partnershipunder derivative instruments, we
developed a model which incorporatedthat incorporates the following data and assumptions:
A. The actual fixed contract price contract settlement amounts were utilizedof open positions as of September 27,
2003 for each of the future periods.
B. The estimated future market prices werefor futures and forward contracts
as of September 27, 2003 as derived from the NYMEX for traded propane
futures for each of the future periods as of
September 30, 2000.periods.
C. The market prices determined in BB. above were adjusted adversely by a
hypothetical 10% change in the future periods and compared to the
fixed contract settlement amounts in AA. above to project the additional loss inpotential
negative impact on earnings whichthat would be recognized for the
respective scenario.
Based on the sensitivity analysis described above, the hypothetical 10%
adverse change in market prices for each of the future months for which a
future, forward and/or option contract exists indicate either a reduction in
potential future gains or potential losses in future earnings of $1.0$3.3 million
and $0.7 million, as of September 30, 200027, 2003 and September 25, 1999,28, 2002, respectively.
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.
As of September 30, 2000, the
Partnership's27, 2003, our open position portfolio reflected a net long
position (purchase) aggregating $25.4$19.2 million.
As of November 30, 2000, theThe average posted price of propane on November 21, 2003 at Mont Belvieu,
Texas (a major storage point) was 6255.63 cents per gallon which is consistent with the
posted price atas compared to 50.75
cents per gallon on September 30, 2000.27, 2003, representing a 9.6% increase.
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Partnership'sDATA
Our Consolidated Financial Statements and the Report of Independent
AccountantsAuditors thereon and the SupplementarySupplemental Financial Information listed on the
accompanying Index to Financial Statement SchedulesSchedule are included herein.
See Item 7SELECTED QUARTERLY FINANCIAL DATA
Due to the seasonality of the retail propane business, our first and second
quarter revenues and earnings are consistently greater than third and fourth
quarter results. The following presents our selected quarterly financial data
for Selected Quarterly Financial Data.the last two fiscal years (unaudited; in thousands, except per unit
amounts).
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
-------------- --------------- --------------- --------------- ---------------
Fiscal 2003
- -----------
Revenues $ 204,469 $ 295,435 $ 146,171 $ 125,604 $ 771,679
Income/(loss) before interest
expense and income taxes (a) 32,240 64,815 (3,598) (13,440) 80,017
Income/(loss) from continuing operations (a) 23,254 55,902 (12,014) (20,956) 46,186
Discontinued operations:
Gain on sale of customer service centers (b) - 2,404 79 - 2,483
Net income/(loss) (a) 23,254 58,306 (11,935) (20,956) 48,669
Income/(loss) from continuing operations per
common unit - basic 0.92 2.21 (0.47) (0.75) 1.78
Net income/(loss) per common
unit - basic (c) 0.92 2.31 (0.47) (0.75) 1.87
Net income/(loss) per common
unit - diluted (c) 0.92 2.30 (0.47) (0.75) 1.86
Cash provided by/(used in):
Operating activities 8,378 14,988 45,557 (11,623) 57,300
Investing activities (2,561) 3,235 (1,205) (4,328) (4,859)
Financing activities (14,591) (14,533) 10,655 (59,162) (77,631)
EBITDA (d) $ 39,213 $ 74,019 $ 3,198 $ (6,410) $ 110,020
Retail gallons sold 139,934 182,956 89,600 78,961 491,451
Fiscal 2002
- -----------
Revenues $ 181,864 $ 235,887 $ 137,635 $ 109,719 $ 665,105
Gain on sale of storage facility - 6,768 - - 6,768
Income/(loss) before interest
expense and income taxes (a) 29,805 71,071 (2,499) (8,825) 89,552
Net income/(loss) (a) 20,613 61,901 (11,028) (17,962) 53,524
Net income/(loss) per common
unit - basic (c) 0.82 2.46 (0.44) (0.71) 2.12
Net income/(loss) per common
unit - diluted (c) 0.82 2.45 (0.44) (0.71) 2.12
Cash provided by/(used in):
Operating activities 3,421 32,701 29,906 2,747 68,775
Investing activities (4,018) 4,034 (3,213) (3,654) (6,851)
Financing activities (14,168) (14,168) (14,186) (14,941) (57,463)
EBITDA (d) $ 37,061 $ 78,146 $ 4,549 $ (1,849) $ 117,907
Retail gallons sold 123,958 168,621 86,730 76,679 455,988
(a) These amounts include, in addition to the gain on sale of customer service
centers and the gain on sale of storage facility, gains from the disposal
of property, plant and equipment of $0.6 million for fiscal 2003 and $0.5
million for fiscal 2002.
29
(b) Gain on sale of customer service centers consists of five customer service
centers we sold during the second quarter of fiscal 2003 for total cash
proceeds of approximately $5.6 million and four customer service centers we
sold during the third quarter of fiscal 2003 for total cash proceeds of
approximately $1.6 million. We recorded a gain on sale in the second and
third quarters of approximately $2.4 million and $0.1 million,
respectively, which have been accounted for within discontinued operations
pursuant to SFAS 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." Prior period results of operations attributable to
these nine customer service centers were not significant and, as such,
prior period results have not been reclassified to remove financial results
from continuing operations.
(c) Basic net income per Common Unit is computed by dividing net income, after
deducting our general partner's interest, by the weighted average number of
outstanding Common Units. Diluted net income per Common Unit is computed by
dividing net income, after deducting our general partner's approximate 2%
interest, by the weighted average number of outstanding Common Units and
time vested restricted units granted under our 2000 Restricted Unit Plan.
(d) EBITDA represents net income/(loss) before deducting interest expense,
income taxes, depreciation and amortization. Our management uses EBITDA as
a measure of liquidity and we are including it because we believe that it
provides our investors and industry analysts with additional information to
evaluate our ability to meet our debt service obligations and to pay our
quarterly distributions to holders of our Common Units. Moreover, our
senior note agreements and our revolving credit agreement require us to use
EBITDA as a component in calculating our leverage and interest coverage
ratios. EBITDA is not a recognized term under generally accepted accounting
principles ("GAAP") and should not be considered as an alternative to net
income/(loss) or net cash provided by operating activities determined in
accordance with GAAP. Because EBITDA as determined by us excludes some, but
not all, items that affect net income/(loss), it may not be comparable to
EBITDA or similarly titled measures used by other companies. The following
table sets forth (i) our calculation of EBITDA and (ii) a reconciliation of
EBITDA, as so calculated, to our net cash provided by operating activities
(amounts in thousands):
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
-------------- --------------- --------------- --------------- ---------------
Fiscal 2003
- -----------
Net income / (loss) $ 23,254 $ 58,306 $ (11,935) $ (20,956) $ 48,669
Add:
Provision / (benefit) for income taxes 130 37 (64) 99 202
Interest expense, net 8,856 8,876 8,480 7,417 33,629
Depreciation and amortization 6,973 6,800 6,717 7,030 27,520
---------------- --------------- ---------------- --------------- ----------------
EBITDA 39,213 74,019 3,198 (6,410) 110,020
---------------- --------------- ---------------- --------------- ----------------
Add / (subtract):
(Provision) / benefit for income taxes (130) (37) 64 (99) (202)
Interest expense, net (8,856) (8,876) (8,480) (7,417) (33,629)
Gain on disposal of property, plant and
equipment, net (346) 26 (166) (150) (636)
Gain on sale of customer service centers - (2,404) (79) - (2,483)
Changes in working capital and other
assets and liabilities (21,503) (47,740) 51,020 2,453 (15,770)
---------------- --------------- ---------------- --------------- ----------------
Net cash provided by/(used in)
Operating activities $ 8,378 $ 14,988 $ 45,557 $ (11,623) $ 57,300
================ =============== ================ =============== ================
Investing activities $ (2,561) $ 3,235 $ (1,205) $ (4,328) $ (4,859)
================ =============== ================ =============== ================
Financing activities $ (14,591) $ (14,533) $ 10,655 $ (59,162) $ (77,631)
================ =============== ================ =============== ================
30
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
-------------- --------------- --------------- --------------- ---------------
Fiscal 2002
- -----------
Net income / (loss) $ 20,613 $ 61,901 $ (11,028) $ (17,962) $ 53,524
Add:
Provision for income taxes 138 190 190 185 703
Interest expense, net 9,054 8,980 8,339 8,952 35,325
Depreciation and amortization 7,256 7,075 7,048 6,976 28,355
---------------- --------------- ---------------- --------------- ----------------
EBITDA 37,061 78,146 4,549 (1,849) 117,907
---------------- --------------- ---------------- --------------- ----------------
Add / (subtract):
Provision for income taxes (138) (190) (190) (185) (703)
Interest expense, net (9,054) (8,980) (8,339) (8,952) (35,325)
Gain on disposal of property, plant and
equipment, net (13) (263) 63 (333) (546)
Gain on sale of storage facility - (6,768) - - (6,768)
Changes in working capital and other
assets and liabilities (24,435) (29,244) 33,823 14,066 (5,790)
---------------- --------------- ---------------- --------------- ----------------
Net cash provided by/(used in)
Operating activities $ 3,421 $ 32,701 $ 29,906 $ 2,747 $ 68,775
================ =============== ================ =============== ================
Investing activities $ (4,018) $ 4,034 $ (3,213) $ (3,654) $ (6,851)
================ =============== ================ =============== ================
Financing activities $ (14,168) $ (14,168) $ (14,186) $ (14,941) $ (57,463)
================ =============== ================ =============== ================
31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Our management, including our principal executive officer and principal
financial officer, have evaluated the effectiveness of our "disclosure controls
and procedures" (as defined in Rule 13a-15(e) of the Securities Exchange Act of
1934) as of September 27, 2003. Based on such evaluation, our principal
executive officer and principal financial officer have concluded that as of
September 27, 2003, such disclosure controls and procedures are effective for
the purpose of ensuring that material information required to be in this Annual
Report is made known to them by others on a timely basis. There have not been
any changes in our internal control over financial reporting (as defined in Rule
13a-15(f) of the Securities Exchange Act of 1934) during the quarter ending
September 27, 2003 that have materially affected or are reasonably likely to
materially affect our internal control over financial reporting.
32
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.REGISTRANT
PARTNERSHIP MANAGEMENT
TheOur Second Amended and Restated Partnership Agreement (the "Partnership
Agreement") provides that all management powers over theour business and affairs of the Partnership
are exclusively vested in itsour Board of Supervisors and, subject to the direction
of the Board of Supervisors, the
officers of the Partnership.our officers. No Unitholder has any management
power over theour business and affairs of the Partnership or actual or apparent authority to enter
into contracts on behalf of, or to otherwise bind, the Partnership.us. Three independent Elected
Supervisors and two Appointed Supervisors serve on the Board of Supervisors
pursuant to the terms of the Partnership Agreement, as amended.Agreement. The Elected Supervisors are
voted on by the Unitholders to serve a term of three years. The Appointed
Supervisors are appointed by the Successorour General Partner.
The three Elected Supervisors serve on the Audit Committee with the
authority to review, at the request of the Board of Supervisors, specific
matters as to which the Board of Supervisors believes there may be a conflict of
interest in order to determine if the resolution of such conflict proposed by
the Board of Supervisors is fair and reasonable to us. Under the Partnership. AnyPartnership
Agreement, any matters approved by the Audit Committee will be conclusively
deemed to be fair and reasonable to the Partnership,us, approved by all partners of the Partnershipour partners and not
a breach by theour General Partner or the Board of Supervisors of any duties they
may owe the Partnershipus or the Unitholders. In addition,The primary function of the Audit Committee will review externalis to
assist the Board of Supervisors in fulfilling its oversight responsibilities
relating to the establishment of accounting policies; preparation of financial
reportingstatements; integrity of financial reporting; compliance with applicable laws,
regulations and policies; independence and performance of the Partnership, will
recommend engagement of the Partnership'sinternal auditor
and independent accountants and will
reviewfindings of both the Partnership's procedures for internal auditingauditor and
the adequacyindependent accountants.
The Board of Supervisors has determined that all three members of the Partnership's internal accounting controls.Audit
Committee, John Hoyt Stookey, Harold R. Logan, Jr. and Dudley C. Mecum, are
audit committee financial experts and are independent of management, as defined
in Item 7(d)(3)(iv) of Schedule 14A.
BOARD OF SUPERVISORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The following table sets forth certain information with respect to the
members of the Board of Supervisors and our executive officers of the Partnership as of December 15, 2000.November
21, 2003. Officers are elected for one-year terms and Supervisors are elected or
appointed for three-year terms.
Position With the
Name Age Partnership
- ------------------------- ----- ----------------------------------------
Mark A. Alexander........ 42 President and Chief Executive Officer;
Member of the Board of Supervisors
(Appointed Supervisor)
Michael J. Dunn, Jr...... 51 Senior Vice President -- Member of the
Board of Supervisors
(Appointed Supervisor)
David R. Eastin.......... 42 Senior Vice President and Chief Operating
Officer
John W. Smolak........... 51 Chief Financial Officer
Michael M. Keating....... 47 Vice President -- Human Resources and
Administration
Edward J. Grabowiecki... 38 Vice President, Controller and Chief
Accounting Officer
Jeffrey S. Jolly........... 48 Vice President and Chief Information
Officer
Robert M. Plante.......... 52 Vice President and Treasurer
Janice G. Meola........... 34 General Counsel and Secretary
John Hoyt Stookey........ 70 Member of the Board of Supervisors
(Chairman and Elected Supervisor)
Harold R. Logan, Jr...... 56 Member of the Board of Supervisors
(Elected Supervisor)
Dudley C. Mecum.......... 65 Member of the Board of Supervisors
(Elected Supervisor)
Mark J. Anton............ 74
Position With the
Name Age Partnership
- ---------------------------------------- ----- ---------------------------------------------------------
Mark A. Alexander....................... 45 President and Chief Executive Officer; Member of the
Board of Supervisors (Appointed Supervisor)
Michael J. Dunn, Jr..................... 54 Senior Vice President - Corporate Development;
Member of the Board of Supervisors (Appointed Supervisor)
David R. Eastin......................... 45 Senior Vice President and Chief Operating Officer
Robert M. Plante........................ 55 Vice President and Chief Financial Officer
Jeffrey S. Jolly........................ 51 Vice President and Chief Information Officer
Michael M. Keating...................... 50 Vice President - Human Resources and Administration
Janice G. Meola......................... 37 Vice President, General Counsel and Secretary
A. Davin D'Ambrosio..................... 39 Treasurer
Michael A. Stivala...................... 34 Controller
John Hoyt Stookey....................... 73 Member of the Board of Supervisors
(Chairman and Elected Supervisor)
Harold R. Logan, Jr..................... 59 Member of the Board of Supervisors (Elected Supervisor)
Dudley C. Mecum......................... 68 Member of the Board of Supervisors (Elected Supervisor)
Mark J. Anton........................... 77 Supervisor Emeritus
33
Mr. Alexander serveshas served as President and Chief Executive Officer of the
Partnershipsince
October 1996 and as an Appointed Supervisor of the Board of Supervisors. Prior to
October 1, 1996, he served assince March 1996. He was Executive
Vice Chairman and Chief Executive Officer offrom March through October 1996. From
1989 until joining the Partnership.Partnership, Mr. Alexander was an officer of Hanson
Industries (the United States management division of Hanson plc), most recently
Senior Vice President --- Corporate Development of Hanson Industries (Hanson's management division in the United
States) from 1995 until March 4, 1996, where he was responsible for mergers and
acquisitions, real estate and divestitures, and was Vice President of
Acquisitions from 1989 to 1995. He was an Associate Director of Hanson from 1993
and a Director of Hanson Industries from June 1995 until March 4, 1996.Department. Mr. Alexander also has servedserves as the Chairman
of the Board of Managers of Suburban
Energy Services Group LLC since May 1999.the General Partner. He is also a director-at-largemember of the Executive
Committee of the National Propane Gas Association and a member of its Executive Committee. He is
President of the Coalition for Fair Competition in Rural Markets and Chairman of
the Research and Development Advisory Committee of the Propane Education and
Research Council.Association.
Mr. Dunn serveshas served as Senior Vice President of the Partnershipsince June 1998 and became
Senior Vice President - Corporate Development in November 2002. Mr. Dunn has
served as an Appointed Supervisor of the Board of Supervisors. Mr. Dunnsince July 1998. He was Vice President ---
Procurement and Logistics of the Partnership from March 1997 until June 1998. Prior toFrom 1983 until
joining the Partnership, Mr. Dunn was Vice President of Commodity Trading for
the investment banking firm of Goldman Sachs & Company, New York, NY since 1981.Company. Mr. Dunn also has
servedserves on the
Board of Managers of Suburban Energy Services Group LLC since May
1999.the General Partner.
Mr. Eastin serves as Senior Vice President and Chief Operating Officer of
the Partnership. He has served as Chief Operating Officer since May 1999 and became
a Senior Vice President in November 2000. Prior toFrom 1992 until joining the
Partnership, in May 1999, Mr. Eastin was employed byheld various executive positions with Star Gas Propane
LP, since
1992 holding the positions ofmost recently as Vice President Operations, Director of Eastern
Operations and Regional Manager. From 1980 to 1992,- Operations. Mr. Eastin serves on the Board
of Managers of the General Partner.
Mr. Plante has served as Area
Manager and District Manager at Ferrellgas Partners, L.P. and its predecessor
company, Buckeye Gas Products Company.
Mr. Smolak serves as Chief Financial Officer of the Partnership. Prior to
joining the Partnership in October 2000, he served as Seniora Vice President of
Finance & Administrationsince October 1999 and Chief Financial Officer for 1-800-Flowers.com, Inc.
from January 1999 to September 2000. From February 1995 to December 1998, Mr.
Smolak was employed by Lechters, Inc. as thebecame
Vice President and Chief Financial Officer and then Seniorin November 2003. He was Vice
President - Finance from March 2001 until November 2003 and Chief Financial Officer. He was
Senior Vice President of AdministrationTreasurer from March
1996 through October 2002. Mr. Plante held various financial and Chief Financial Officer of Jungle
Jim's Playlands, Inc. from 1993 to 1995 and from 1990 to 1992 served as Vice
President and Chief Financial Officer of Precision LensCrafters, a division of
U.S. Shoe Corporation. During the period of 1977 to 1990, he served in several
senior financialmanagerial
positions as well as that of a management consultant with Booz, Allen & Hamilton.
Mr. Keating serves as Vice President -- Human Resources and Administration
of the Partnership. Mr. Keating was Director of Human Resources at Hanson
Industries from 1993 to July 1996 and was Director of Human Resources and
Corporate Personnel at Quantum Chemical Corporation from 1989 to 1993.
Mr. Grabowiecki serves as Vice President, Controller and Chief Accounting
Officer of the Partnership. Mr. Grabowiecki served as Director of Accounting
Servicespredecessors of the Partnership from January 1996 to September 1996. Prior to
joining the Partnership, Mr. Grabowiecki was a regional controller for Discovery
Zone, Inc. from June 1993 to January1977 until 1996.
Mr. Grabowiecki held several
positions at Ernst & Young from 1984 to 1993, including Senior Manager from 1992
to 1993.
Mr. Jolly serveshas served as Vice President and Chief Information Officer of the
Partnership.since
May 1999. He served as Chief Information Officer from May 1999 to the
present. He has served aswas Vice President - Information Services sincefrom July 1997.1997 until May
1999. From May 1993 until joining the Partnership, Mr. Jolly was employed as Vice President
- - Information Systems at The Wood Company, from 1993 to 1997. From 1989 to 1993, he was employed by Johanna Dairies, Inc.
and Alpo Pet Foods Inc. for four and one years, respectively.
a food services company.
Mr. Plante serves as Vice President and Treasurer of the Partnership. HeKeating has served as Vice President - Human Resources and
Administration since July 1996. He previously held senior human resource
positions at Hanson Industries and Quantum Chemical Corporation ("Quantum"), a
predecessor of the Partnership.
Mr. D'Ambrosio became Treasurer in November 2002. He served as Assistant
Treasurer from October 19992000 to November 2002 and as Treasurer since March
1996. Mr. Plante was Director of FinancialTreasury
Services from 1993January 1998 to October 2000. Mr. D'Ambrosio joined the
Partnership in May 1996 and held
various other management positions withafter ten years in the organization since 1977.commercial banking industry.
Ms. Meola serveshas served as Vice President, General Counsel and Secretary since
November 2003. From May 1999 until November 2003, Ms. Meola served as General
Counsel and Secretary of the Partnership.Secretary. She served aswas Counsel from July 1998 to May 1999. She was1999 and Associate
Counsel from September 1996, towhen she joined the Partnership, until July 1998.
Prior toMr. Stivala has served as Controller since December 2001. From 1991 until
joining the Partnership, Ms. Meola was
employedhe held several positions with PricewaterhouseCoopers
LLP, most recently as Environmental Counsel forSenior Manager in the CNA Insurance CompaniesAssurance practice. Mr. Stivala is a
Certified Public Accountant and its
predecessor, Continental Insurance Company, from 1994 to 1996. From 1992 to
1994, she was employed by Bumgardner, Hardin & Ellis as a litigation associate.
She served as a judicial clerk tomember of the Honorable Arthur N. D'Italia, A.J.S.C.,
during the 1991 to 1992 court term.American Institute of Certified
Public Accountants.
Mr. Stookey has served as an Elected Supervisor and Chairman of the Board
of Supervisors of the Partnership since March 5, 1996. He served as the
non-executive Chairman and a director of Quantum from the time it was acquired
by Hanson on September 30, 1993 to October 31, 1995. From 1986 tountil September 30, 1993, he was the
Chairman, President and Chief Executive Officer of Quantum. He
is alsoQuantum and served as
non-executive Chairman and a director of United States Trust CompanyQuantum from its acquisition by Hanson
plc in September 1993 until October 1995. Mr. Stookey is a non-executive
Chairman of New York and Graphic
Packaging,Per Scholas Inc.
34
Mr. Logan has served as an Elected Supervisor since March 1996. He is a
Director and Chairman of the Partnership since
March 5, 1996.Finance Committee of the Board of Directors of
TransMontaigne Inc., which provides logistical services (i.e. pipeline,
terminaling and marketing) to producers and end-users of refined petroleum
products. From 1995 to 2002, Mr. Logan has served aswas Executive Vice President -- President/Finance,
Treasurer and a Director of TransMontaigne Inc. since 1995. TransMontaigne Inc.
provides logistical services, i.e., pipeline, terminaling and marketingFrom 1987 to producers and end users of refined petroleum products. He1995, Mr. Logan
served as Senior Vice President of Finance and a directorDirector of Associated Natural
Gas Corporation, an independent gatherer and marketer of natural gas, natural
gas liquids and crude oil, which in 1994 was acquired by Panhandle Eastern Corporation, from 1987
until 1995.oil. Mr. Logan is also a directorDirector of Union Bankshares Ltd.The Houston
Exploration Company, Graphic Packaging, Inc. and Rivington Capital Advisors,
LLC.
Mr. Mecum has served as an Elected Supervisor since June 1996. Mr. MecumHe has been
a managing director of Capricorn Holdings, LLC (a sponsor of and investor in
leveraged buyouts) since June 1997. Mr. Mecum was a partner of G.L. Ohrstrom &
Co. (a sponsor of and investor in leveraged buyouts) from 1989 to June 1996. Mr.
Mecum is also a director of Lyondell, Chemical Co., Dyncorp.,Dyncorp, CitiGroup Inc. and CCC Information SystemsMrs. Fields Famous
Brands, Inc.
Mr. Anton has served as Supervisor Emeritus of the Board of Supervisors of
the Partnership
since January 1999. He is a former President, Chief Executive Officer and
Chairman of the Board of Directors of Suburban Propane Gas Corporation, a
predecessor of the Partnership, and a former Executive Vice President of
Quantum Chemical
Corporation.Quantum.
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Partnership'sour directors and executive
officers to file initial reports of ownership and reports of changes in
ownership of the Company'sour Common Units with the Securities and Exchange Commission.
Directors, executive officers and ten percent Unitholders are required to
furnish the Partnership with copies of all Section 16(a) forms that they file.
Based on a review of these filings, the Partnership believeswe believe that all such filings were made
timely during the 2000 fiscal year.2003.
CODE OF ETHICS
We have adopted a code of ethics that applies to our senior executive team,
including our principal executive officer, principal financial officer and
principal accounting officer. Copies of our code of ethics are available without
charge from our website at www.suburbanpropane.com or upon written request
directed to: Suburban Propane Partners, L.P., Investor Relations, P.O. Box 206,
Whippany, New Jersey 07981-0206. Any amendments to, or waivers from, provisions
of this code of ethics that apply to our principal executive officer, principal
financial officer and principal accounting officer will be posted on our
website.
35
ITEM 11. EXECUTIVE COMPENSATION.COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of all compensation awarded or
paid to or earned by theour chief executive officer and theour four other most highly
compensated executive officers of the Partnership for services rendered to the
Partnershipus during each of the
last three fiscal years.
Annual Compensation
Long-Term Compensation
--------------------------------------- -------------------------------------
Other-------------------------- LTIP All
Annual Restricted Other
Name and Principal Position Year Salary ($) Bonus(1)($) Compensation($) $ Units(2),(3)(#) Compensation(4) Payout Compensation(2)
- --------------------------- ---- ---------- ------------------ ------- ---------------
-- ------------ -------------
Mark A. Alexander ................... 2000 400,000 304,0002003 $450,000 $192,150 - -- -- 128,548$167,037
President and Chief Executive Officer 1999 400,000 400,000 - -- -- 95,000
1998 381,250 381,528 - -- -- 64,2752002 450,000 157,500 25,382 158,513
2001 450,000 450,000 7,141 166,371
Michael J. Dunn, Jr ................. 2000 235,000 151,810 - -- -- 67,324Jr. 2003 280,000 101,626 27,403 95,695
Sr. Vice President .................. 1999 225,000 191,250 - -- -- 48,024
1998 178,000 153,177 - -- -- 31,561Corporate Development 2002 275,000 81,813 12,135 85,956
2001 260,000 221,000 3,414 89,321
David R. Eastin ..................... 2000 190,000 108,3002003 265,000 96,182 - -- -- 47,09391,721
Senior Vice President and 2002 260,000 77,350 2,018 81,984
Chief Operating Officer ............. 1999 67,307 47,3962001 240,000 204,000 - 389,020 19,512 16,42084,362
Robert M. Plante 2003 180,000 46,116 - 39,038
Vice President and Chief Financial Officer 2002 175,000 45,625 3,807 32,938
2001 150,000 75,000 1,071 35,169
Jeffrey S. Jolly .................... 2000 150,000 57,000 - -- -- 58,2742003 182,500 38,964 10,366 50,443
Vice President and Chief Information 1999 145,000 72,500 - 96,000 5,366 20,213
Officer ............................. 1998 137,500 67,500 - 289,000 14,146 14,655
Michael M. Keating .................. 2000 145,000 55,100 - -- -- 34,098
Vice President, Human Resources and . 1999 140,000 70,000 - -- -- 19,837
Administration ...................... 1998 135,000 67,500 - -- -- 14,1452002 177,500 31,063 4,600 41,414
2001 170,000 85,000 1,294 47,660
(1)Bonuses are reported for the year earned, regardless of the year paid.
(2)Mr. Jolly was granted these restricted units pursuant to the Partnership's
1996 Restricted Unit Plan. The aggregate dollar value of Restricted Units was
computed by multiplying the number of Restricted Units granted by the closing
market price on the date of grant. These Restricted Units, and the Restricted
Units granted to Messrs. Alexander, Dunn and Keating prior to the years for
which information is included in the table, would have vested automatically
upon the Recapitalization under a "change of control" provision contained in
the Partnership's 1996 Restricted Unit Plan. Each executive officer, however,
agreed to surrender all of his Restricted Units, prior to their vesting upon
the Recapitalization, in exchange for an equal number of units. These units
were deposited into the Partnership's Benefits Protection Trust (the
"Benefits Protection Trust"), and are being held in such trust and will be
distributed to each executive in accordance with the terms of the new
compensation deferral plan of the Partnership and Suburban Propane, L.P., a
subsidiary of the Partnership through which the Partnership operates (the
"Operating Partnership"), described below (the "Deferral Plan"). The number
of units held in the Benefits Protection Trust at September 30, 2000, and the
aggregate value thereof (calculated at a per unit price of $22.00, the
closing price of a Common Unit on September 29, 2000, as reported on the New
York Stock Exchange) were 243,902 ($5,365,844) for Mr. Alexander, 48,780
($1,073,160) for Mr. Dunn, 19,512 ($429,264) for Mr. Jolly and 29,268
($643,896) for Mr. Keating. Quarterly distributions associated with the units
held in the Benefits Protection Trust will be deposited into the trust and
deferred by each executive until the date the General Partner's $6.0 million
loan from Mellon Bank ("Mellon") used to finance the acquisition of the
Partnership's general partnership interests from the former general partner
(the "GP Loan") is repaid in full, or the seventh anniversary of the closing
of the Recapitalization, whichever date the executive has chosen, but subject
to the earlier distribution and forfeiture provisions of the Deferral Plan.
(3)Mr. Eastin was granted 19,512 Special Common Units pursuant to the Deferral
Plan. The aggregate dollar value of these Special Common Units was computed
by multiplying the number of Special Common Units granted by the closing
market price on the date of grant. Mr. Eastin's right to receive these
Special Common Units is subject to forfeiture should his employment with the
Partnership terminate. The forfeiture schedule provides that his right to (a)
100% of the Special Common Units shall be forfeited if his employment
terminates before May 26, 2002, (b) 75% of the Special Common Units shall be
forfeited if his employment terminates after May 26, 2002 but before May 26,
2003, and (c) 50% of the Special Common Units shall be forfeited if his
employment terminates after May 26, 2003 but before May 26, 2004. The
forfeiture provisions lapse as to 100% of these Special Common Units on the
earlier of May 26, 2004 and the repayment of the GP Loan. These Special
Common Units, valued at $429,264 on September 29, 2000, are held in the
Benefits Protection Trust and are subject to the same terms and conditions
that are described in footnote 3.
(4)For Mr. Alexander, these amounts for 2000 includethis amount includes the following: $5,000$3,000 under the
Retirement Savings and Investment Plan; $1,704$1,200 in administrative fees under
the Cash Balance Pension Plan; $105,000$135,000 awarded under the 1996
Long-Term
Incentive Program;Plan; and $16,844$27,837 for miscellaneous insurance. For Mr. Dunn, these amounts includethis amount
includes the following: $5,000$3,000 under the Retirement Savings and Investment
Plan; $1,704$1,200 in administrative fees under the Cash Balance Pension Plan;
$52,434$71,400 awarded under the 1996 Long-Term Incentive Program;Plan; and $8,186$20,095 for miscellaneous
insurance. For Mr. Eastin, these
amounts includethis amount includes the following: $3,502$3,000 under
the Retirement Savings and Investment Plan; $1,704$1,200 in administrative fees
under the Cash Balance Pension Plan; $32,419$67,575 awarded under the 1996 Long-Term
Incentive Program;Plan; and $9,468$19,946 for miscellaneous insurance. For Mr. Jolly, these amounts includePlante, this amount
includes the following: $4,368$2,700 under the Retirement Savings and Investment
Plan; $1,704$1,200 in administrative fees under the Cash Balance Pension Plan;
$19,688$32,400 awarded under the 1996 Long-Term Incentive Program; $9,181Plan; and $2,738 for
miscellaneous
insurance; and $23,333 in loan forgiveness.insurance. For Mr. Keating, these amounts
includeJolly, this amount includes the following: $4,219$2,738 under
the Retirement Savings and Investment Plan; $1,704$1,200 in administrative fees
under the Cash Balance Pension Plan; $19,031$27,375 awarded under the 1996 Long-Term
Incentive Program;Plan; and $9,144$19,130 for miscellaneous insurance.
1999 DEFERRAL PLAN
Under the terms of the Partnership's 1996 Restricted Unit Plan, the
substitution of the General Partner as the general partner of the Partnership
resulted in a "change of control" that would have caused all unvested Restricted
Units to automatically vest. However, all of the executives and key employees of
the Partnership who became members of the General Partner and owned Restricted
Units agreed to surrender such Restricted Units, prior to vesting, in exchange
for the right to participate in the Deferral Plan. The Partnership deposited the
units issued in exchange for Restricted Units into the Benefits Protection
Trust, which was structured as a "rabbi" trust within the meaning of the
Internal Revenue Code of 1954, as amended. All cash distributions made by the
Partnership on units held in the Benefits Protection Trust are deposited into
the Benefits Protection Trust.
Pursuant to the Deferral Plan, the members of the General Partner deferred
receipt of their units and related distributions until the date the GP Loan is
repaid in full or the seventh anniversary of the closing of the
Recapitalization, whichever date the deferring party may choose, but subject to
the earlier distribution and forfeiture provisions of the Deferral Plan. The
members of the General Partner also defer receipt of $930,000 per year of
quarterly distributions on deferred units to support the Partnership's Minimum
Quarterly Distribution through the fiscal quarter ending March 31, 2001. In
addition, if Suburban Propane L.P., a subsidiary of the Partnership through
which the Partnership principally conducts its business (the "Operating
Partnership"), elects or is required to purchase the GP Loan from Mellon, the
terms of the Deferral Plan provide that all of the members' deferred units may,
at the Partnership's or the Operating Partnership's discretion, be forfeited and
cancelled (and all of the related distributions may also be forfeited),
regardless of the amount paid by the Operating Partnership to purchase the GP
Loan. Notwithstanding the foregoing, if a "change of control" of the Partnership
occurs (as defined in the Deferral Plan), all of the deferred units (and related
distributions) held in the trust automatically become distributable to the
members of the General Partner.36
RETIREMENT BENEFITS
The following table sets forth the annual benefits upon retirement at age
65 in 2000,2003, without regard to statutory maximums, for various combinations of
final average earnings and lengths of service which may be payable to Messrs.
Alexander, Dunn, Eastin, Jolly,Plante and KeatingJolly under the Pension Plan for Eligible
Employees of the Operating Partnership and its Subsidiaries and/or the Suburban
Propane Company Supplemental Executive Retirement Plan. Each such plan has been
assumed by the Partnership and each such person will be credited for service
earned under such plan to date. Messrs. Alexander, Dunn, and Eastin have 47
years, 36 years and 1 year,4 years, respectively, under both plans. For vesting
purposes, however, Mr. Alexander has 1619 years combined service with the
Partnership and his prior service with Hanson Industries. Messrs. Plante and
Jolly and Keating have 326 years and 156 years, respectively, under the Pension Plan. TheyBenefits
under the Pension Plan are currently limited to IRS statutory maximums for defined benefit
plans. PENSION PLAN
ANNUAL BENEFIT FOR YEARS OF CREDITED SERVICE SHOWN (1),(2),(3),(4)
Average
Earnings 5 Yrs. 10 Yrs. 15 Yrs. 20 Yrs. 25 Yrs. 30 Yrs. 35 Yrs.
- -------- ------ ------- ------- ------- ------- ------- -------
$100,000 7,982 15,964 23,947 31,929 39,911 47,893 55,875
$200,000 16,732 33,464 50,197 66,929 83,661 100,393 117,125
$300,000 25,482 50,964 76,447 101,929 127,411 152,893 178,375
$400,000 34,232 68,464 102,697 136,929 171,161 205,393 239,625
$500,000 42,982 85,964 128,947 171,929 214,911 257,893 300,875
(1)Currently, the statutory maximum for defined benefit plan is $200,000.
Pension Plan
Annual Benefit for Years of Credited Service Shown (1,2,3,4,5,6)
Average
Earnings 5 Yrs. 10 Yrs. 15 Yrs. 20 Yrs. 25 Yrs. 30 Yrs. 35 Yrs.
- -------- ------ ------- ------- ------- ------- ------- -------
$100,000 7,888 15,775 23,663 31,551 39,438 47,326 55,214
$200,000 16,638 33,275 49,913 66,551 83,188 99,826 116,464
$300,000 25,388 50,775 76,163 101,551 126,938 152,326 177,714
$400,000 34,138 68,275 102,413 136,551 170,688 204,826 238,964
$500,000 42,888 85,775 128,663 171,551 214,438 257,326 300,214
1 The Plans' definition of earnings consists of base pay only.
(2)2 Annual Benefits are computed on the basis of straight life annuity amounts.
The pension benefit is calculated as the sum of (a) plus (b) multiplied by
(c) where (a) is that portion of final average earnings up to 125% of
social security Covered Compensation times 1.4% and (b) is that portion of
final average earnings in excess of 125% of social security Covered
Compensation times 1.75% and (c) is credited service up to a maximum of 35
years.
(3)3 Effective January 1, 1998, the Plan was amended to a cash balance benefit
formula for current and future Plan participants. Initial account balances
were established based upon the actuarial equivalent value of the accrued
December 31, 1997 Prior Planprior plan benefit. Annual interest credits and pay-based
credits will be credited to this account. The 20002002 pay-based credits for
Messrs. Alexander, Dunn, Eastin, Jolly,Plante and KeatingJolly are 3.0%, 1.5%2.0%, 1.5%,
1.5%,10.0% and 2.5%2.0%, respectively. Participants as of December 31, 1997 will
receive the greater of the cash balance benefit and the prior plan benefit
through the year 2002. It should also be noted that theThe Plan was amended effective January 1, 2000.
UnderPursuant to this amendment, individuals who are hired or rehired on or
after January 1, 2000 willare not be eligible to participate in the Plan.
(4)4 In addition, a supplemental cash balance account was established equal to
the value of certain benefits related to retiree medical and vacation
benefits. An initial account value was determined for those active
employees who were eligible for retiree medical coverage as of April 1,
1998 equal to $415 multiplied by years of benefit service (maximum of 35
years). Future pay-based credits and interest are credited to this account.
The 20002002 pay-based credits for Messrs. Alexander, Dunn, Eastin, Jolly,Plante and
KeatingJolly are 2.0%, 0.0%, 0.0%, 0.0%2.0% and 2.0%0.0%, respectively.
This account is payable5 Effective January 1, 2003, all future pay-based credits as determined under
the cash balance benefit formula were discontinued. Interest credits
continue to be applied based on the five-year U.S. Treasury bond rate in
additioneffect during the preceding November, plus one percent.
6 Effective January 1, 2003 the annual benefits accrued by Messrs. Alexander,
Dunn and Eastin pursuant to the "grandfathered benefit calculations."Supplemental Executive Retirement Plan (in
excess of the statutory limitations governing the Pension Plan) were, in
the aggregate, approximately $100,000.
37
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Partnership hasWe have adopted a non-qualified, unfunded supplemental retirement plan
known as the Supplemental Executive Retirement Plan.Plan (the "SERP"). The purpose of
the PlanSERP is to provide certain executive officers with a level of retirement
income from the Partnership,us, without regard to statutory maximums. Undermaximums, including the IRS
limitation for defined benefit plans. Effective January 1, 1998, the Pension
Plan for Eligible Employees of Suburban Propane, L.P. (the "Qualified Plan") was
amended and restated as a participant's annual benefit, assuming retirement at age 65, is equal to
(a) 1.4%cash balance plan. In light of the participant's highest average annual compensation for the 60
consecutive months in the last 120 months of benefit service affording the
highest such average, or during all months of benefit service if less than 60
months (the "Average Final Compensation") not in excess of 125% of Covered
Compensation plus (b) 1.75%conversion of the
participant's Average Final Compensation in
excess of 125% of Covered Compensation times (c)Qualified Plan to a cash balance formula, the participant's years of
benefit service withSERP has been amended and restated
effective January 1, 1998. The annual Retirement Benefit under the Partnership (not to exceed 35) minus (d)SERP
represents the amount of Annual Benefits that the monthly accrued benefit payable as ofparticipants in the determination date (reducedSERP would
otherwise be eligible to reflect commencement ofreceive, calculated using the benefit payable hereunder priorsame pay based credits
described under the Retirement Benefits section above, applied to the normal
retirement date) toamount of
Annual Compensation that exceeds the participant under Suburban's Pension Plan in the form of
a single life annuity, multiplied by twelve (the "Pension Offset").IRS statutory maximums for defined benefit
plans which is currently $200,000. Messrs. Alexander, Dunn, and Eastin currently
participate in this Plan. The Planthe SERP.
Effective January 1, 2003, the SERP was amendeddiscontinued with a frozen benefit
determined for Messrs. Alexander, Dunn and Eastin. Provided that the SERP
requirements are met, Mr. Alexander will receive a monthly benefit of $6,031,
Mr. Dunn will receive a monthly benefit of $347.30 and Mr. Eastin will receive a
monthly benefit of $1,053.18. In the event of a change in control involving the
Partnership, the SERP will terminate effective on the close of business 30 days
following the change in control. Each participant will be deemed retired and
will have his benefit determined as of April 14, 1999 to provide that a sale or transferthe date the plan is terminated with
payment of the General
Partnerbenefit no later than 90 days after the change in control. Each
participant will receive a lump sum payment equivalent to the present value of
each participant's benefit payable under this plan utilizing the lesser of the
Partnership would not constitute a "changeprime rate of control" underinterest as published in the Plan entitling its participantsWall Street Journal as of the date of
the change of control or one percent, which ever is less, as the discount rate
to lump sum payments.determine the present value of accrued benefit.
LONG-TERM INCENTIVE PLAN
The Partnership hasWe have adopted a non-qualified, unfunded long-term incentive plan for
officers and key employees, effective October 1, 1997.1997 (the "LTIP"). Payout of
the LTIP will follow the normal vesting schedule of each participant. Awards are
based on a percentage of base pay and are subject to the achievement of certain
performance contingencies,criteria, including the Partnership'sour ability to earn sufficient funds and make
cash distributions on its common unitsour Common Units with respect to each fiscal year. Awards
vest over time with one-third vesting at the endbeginning of years three, four, and
five from the award date. We will terminate this plan effective September 30,
2004. Effective October 1, 2002 we adopted a new non-qualified, unfunded
long-term incentive plan for officers and key employees. The new plan measures
our performance as Total Return to Unitholders ("TRU") relative to a
predetermined peer group, primarily composed of other Master Limited
Partnerships, approved by our Compensation Committee. Awards are granted in
three year performance cycles based on a quartile ranking of TRU compared to the
peer group. Target awards for each participant are a percentage of base salary.
Long-Term Incentive Plan awards earned in fiscal year 20002003 were as follows:
Performance or
Other Period
Award Until Maturation Potential Awards Under Plan
Name FY 20002003 or Payout Threshold Target Maximum
- ---- ------- ---------------- --------- ----------------- ------ -------
Mark A. Alexander $105,000$135,000 3-5 Years $ 0 $60,000 $120,000$135,000 $135,000
Michael J. Dunn, Jr. 52,43471,400 3-5 Years 0 29,963 59,92571,400 71,400
David R. Eastin 32,41967,575 3-5 Years 0 18,525 37,05067,575 67,575
Robert M. Plante 32,400 3-5 Years 0 32,400 32,400
Jeffrey S. Jolly 19,68827,375 3-5 Years 0 11,250 22,500
Michael M. Keating 19,031 3-5 Years 0 10,875 21,75027,375 27,375
38
EMPLOYMENT AGREEMENT
The PartnershipWe entered into an employment agreement (the "Employment Agreement") with
Mr. Alexander, which became effective March 5, 1996 and was amended October 23,
1997 and April 14, 1999.
Mr. Alexander's Employment Agreement had an initial term of three years,
and automatically renews for successive one-year periods, unless earlier
terminated by the Partnershipus or by Mr. Alexander or otherwise terminated in accordance with
the Employment Agreement. The Employment Agreement for Mr. Alexander provides
for an annual base salary of $400,000$450,000 as of September 30,
2000. In addition,28, 2002 and provides for
Mr. Alexander mayto earn a bonus up to 100% of annual base salary (the "Maximum
Annual Bonus") for services rendered based upon certain performance criteria.
The Employment Agreement also provides for the opportunity to participate in
benefit plans made available to our other senior executives and senior managers of the Partnership. The Partnershipmanagers.
We also providesprovide Mr. Alexander with term life insurance with a face amount equal
to three times his annual base salary.
For the purposes of this section "change of control" means the occurrence
during the employment term of: (i) an acquisition of our Common Units or voting
equity interests by any person other than the Partnership, the General Partner
or any of our affiliates immediately after which such person beneficially owns
more than 25% of the combined voting power of our then outstanding units: unless
such acquisition was made by (a) us or our subsidiaries, or any employee benefit
plan maintained by us, our Operating Partnership or any of our subsidiaries, or
(b) by any person in a transaction where (A) the existing holders prior to the
transaction own at least 60% of the voting power of the entity surviving the
transaction and (B) none of the Unitholders other than the Partnership, our
subsidiaries, any employee benefit plan maintained by us, our Operating
Partnership, or the surviving entity, or the existing beneficial owner of more
than 25% of the outstanding units owns more than 25% of the combined voting
power of the surviving entity (such transaction, Non-Control Transaction): (ii)
approval by our partners of (a) merger, consolidation or reorganization
involving the Partnership other than a Non-Control Transaction: (b) a complete
liquidation or dissolution of the Partnership: or (c) the sale or other
disposition of 50% or more of our net assets to any person (other than a
transfer to a subsidiary).
If a "change of control" (as defined in the Employment Agreement) of the Partnership occurs and within six months
prior thereto or at any time subsequent to such change of control the Partnership terminateswe terminate
the Executive's employment without "cause" or the Executive resigns with "good
reason" or the Executive terminates his employment during the six month period
commencing on the six month anniversary and ending on the twelve month
anniversary of a "change of control", then Mr. Alexander will be entitled to (i)
a lump sum severance payment equal to three times the sum of his annual base
salary in effect as of the date of termination and the Maximum Annual Bonus, and
(ii) medical benefits for three years from the date of such termination. The
Employment Agreement provides that if any payment received by Mr. Alexander is
subject to the 20% federal excise tax under Section 4999 of the Internal Revenue
Code, the payment will be grossed up to permit Mr. Alexander to retain a net
amount on an after-tax basis equal to what he would have received had the excise
tax not been payable.
The substitution of the General Partner as the general partner of the
Partnership resulted in a "change of control" under the terms of Mr. Alexander's
employment agreement. As of April 14, 1999, Mr. Alexander agreed to waive his
right to receive a change of control payment solely in connection with the
Recapitalization. Mr. Alexander also agreed that a sale or transfer of the
General Partner after the Recapitalization would not constitute a change of
control under the Employment Agreement.
Mr. Alexander also participates in the SERP, which provides retirement
income which could not be provided under the Partnership'sour qualified plans by reason of
limitations contained in the Internal Revenue Code.
SEVERANCE PROTECTION PLAN FOR KEY EMPLOYEES
The Partnership'sOur officers and key employees are provided with employment protection
following a "change of control" as defined(the "Severance Protection Plan"). For the
purposes of this section "change of control" means the occurrence during the
employment term of: (i) an acquisition of our Common Units or voting equity
interests by any person other than the Partnership, our General Partner or any
of their affiliates immediately after which such person beneficially owns more
than 25% of the combined voting power of our then outstanding units: unless such
acquisition was made by (a) us or our subsidiaries, or any employee benefit plan
maintained by us, our Operating Partnership or any of our subsidiaries, or (b)
by any person in a transaction where (A) the Plan. Thisexisting holders prior to the
transaction own at least 60% of the voting power of the entity surviving the
transaction and (B) none of the
39
Unitholders other than the Partnership, our subsidiaries, any employee benefit
plan maintained by us, our Operating Partnership, or the surviving entity, or
the existing beneficial owner of more than 25% of the outstanding units owns
more than 25% of the combined voting power of the surviving entity (such
transaction a "Non-Control Transaction"): (ii) approval by our partners of (a)
merger, consolidation or reorganization involving the Partnership other than a
Non-Control Transaction: (b) a complete liquidation or dissolution of the
Partnership: or (c) the sale or other disposition of 50% or more of our net
assets to any person (other than a transfer to a subsidiary).
The Severance Protection Plan provides for severance payments equal to
sixty-five (65) weeks of base pay and target bonuses for such officers and key
employees following a "change of control" and termination of employment. This
group comprises approximately forty-three (43) individuals. Pursuant to their
Severance Protection
Agreements,severance protection agreements, Messrs. Dunn, Eastin, Plante and Jolly, and Keating, as our
executive officers, of
the Partnership, have been granted severance protection payments of
seventy-eight (78) weeks of base pay and target bonuses following a "change in
control" and termination of employment in lieu of participation in the Severance
Protection Plan. Our Compensation Committee has also granted severance
protection payments of seventy-eight (78) weeks to four other executive officers
who do not participate in the Severance Protection Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Compensation of theour executive officers of the Partnership is determined by the Compensation
Committee of its Board.our Board of Supervisors. The Compensation Committee is comprised
of Messrs. Stookey, Mecum and Logan, neithernone of whom are our officers or employees of the
Partnership.employees.
COMPENSATION OF SUPERVISORS
Mr. Stookey, who is the Chairman of the Board of Supervisors, receives
annual compensation of $75,000 for his services to the
Partnership.us. Mr. Logan and Mr. Mecum,
the other two Elected Supervisors, receive $50,000 per year and Mr. Mark J.
Anton, who serves as Supervisor Emeritus, receives $15,000 per year. In addition, each Elected Supervisor participated in
the Restricted Unit Plan and had received Unit Awards with a value of $0.3
million which vested and converted to Common Units in connection with the
Partnership's Recapitalization. All Elected
Supervisors and the Supervisor Emeritus receive reimbursement of reasonable
out-of-pocket expenses incurred in connection with meetings of the Board of
Supervisors. The Partnership doesWe do not
expect to pay any additional remuneration to itsour employees (or
employees of any of itsour affiliates) or employees of theour General Partner or any
of its affiliates for serving as members of the Board of Supervisors.
40
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.MANAGEMENT
The following table sets forth certain information as of December 15, 2000November 21, 2003
regarding the beneficial ownership of Common Units and Incentive Distribution
Rights by each member of the Board of Supervisors, each executive officer named
in the Summary Compensation table, all members of the Board of Supervisors and
executive officers as a group and each person or group known by the Partnershipus (based upon
filings under Section 13(d) or (g) under The Securities Exchange Act of 1934) to
own beneficially more than 5% thereof. Except as set forth in the notes to the
table, the business address of each personindividual or entity in the table is c/o
the
Partnership,Suburban Propane Partners, L.P., 240 Route 10 West, Whippany, New Jersey
07981-0206 and each individual or entity has sole voting and investment power
over the Common Units reported.
SUBURBAN PROPANE, L.P.
- ----------------------
NAME AMOUNT AND NATURE OF PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASSAmount and Nature of Percent
Title of Class Name of Beneficial Owner Beneficial Ownership of Class
- -------------- ------------------------------------------- -------------------- --------
Common Units Mark A. Alexander (a) 25,00029,000 *
Michael J. Dunn, Jr. (a) 0 -
David R. Eastin (a) 0 *11,000 -
Robert M. Plante 12,262 -
Jeffrey S. Jolly (a) 0 -
Michael M. Keating (a) 03,000 -
John Hoyt Stookey 11,519 *
Harold R. Logan, Jr. 17,13415,064 *
Dudley C. Mecum 5,634 *
Mark J. Anton (b) 3,6004,600 *
All Members of the Board
of Supervisors and Executive
Officers as a Group (13 persons) 63,33792,079 *
Goldman, Sachs & Co. (c) 2,799,273 12.6%1,709,003 6.3%
85 Broad Street Common Units
New York, NY 10004
Incentive Distribution Suburban Energy Services
Rights Group LLC (a) N/A N/A *LessN/A
* Less than 1%.
(a) Excludes the following numbers of Common Units as to which the following
individuals deferred receipt as described below; Mr. Alexander - 243,902
and Mr. Dunn - 48,780. These Common Units are held in the Benefits
Protection Trust; Mr. Alexander: 243,902; Mr. Dunn: 48,780; Mr. Eastin:
19,512; Mr. Keating: 29,268trust pursuant to a
Compensation Deferral Plan, and Mr. Jolly: 19,512. The above individualsAlexander and Mr. Dunn will have no
voting or investment power over these Common Units. These
individualsUnits until they are
distributed by the trust. Mr. Alexander and Mr. Dunn have elected to
receive the following ownership interestsquarterly cash distributions on these deferred units.
Notwithstanding the foregoing, if a "change of control" of the Partnership
occurs (as defined in the Successor General
Partner: Mr. Alexander: 40.9%; Mr. Dunn: 8.2%; Mr. Eastin: 3.3%; Mr.
Keating: 4.9% and Mr. Jolly: 3.3%. Suburban Energy Services Group LLC isCompensation Deferral Plan), all of the General Partner. The business address of Suburban Energy Services Group
LLC is 240 Route 10 West, Whippany, New Jersey 07981.deferred
Common Units (and related distributions) held in the trust automatically
become distributable to the members.
(b) Mr. Anton shares voting and investment power over these shares3,600 Common Units with
his wife.wife and over 1,000 Common Units with Lizmar Partners, L.P., a family
owned limited partnership of which he is its general partner.
(c) Holder reports having shared voting power with respect to all of the Common
Units and shared dispositive power with respect to all of the Common Units.
41
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
InTRANSACTIONS
None.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table sets forth the aggregate fees for services related to
fiscal years 2003 and 2002 provided by PricewaterhouseCoopers LLP, our principal
accountants.
Fiscal Fiscal
2003 2002
-------------------- -------------------
Audit Fees (a) $ 599,000 $ 474,000
Audit-Related Fees (b) 206,000 12,000
Tax Fees (c) 590,000 772,600
All Other Fees (d) -- 179,900
(a) Audit Fees represent fees billed for professional services rendered for the
audit of our annual financial statements and review of our quarterly
financial statements, and audit services provided in connection with the Recapitalization, the General Partner acquired the
general partner interests,other
statutory or regulatory filings, including its incentive distribution rights, in the
Partnership from Millennium Chemicals Inc.services related to our June
2003 public offering of Common Units.
(b) Audit-Related Fees represent fees billed for $6.0 million using the proceeds
of the GP Loan. The Partnership paid expenses of $0.3 million incurred by the
General Partner.
Under the occurrence and continuance of an event of default, as defined in
the GP Loan, Mellon Bank will have the right to cause the Partnership to
purchase the note evidencing the GP Loan (the "GP Note"). The Partnership has
agreed to maintain borrowing availability under its available lines of credit,
which will be sufficient to enable it to repurchase the GP Note in these
circumstances. The GP Note will also cross-default to the Partnership's
obligations under its Senior Note Agreement and its Revolving Credit Agreement.
Upon a default under the GP Loan, the Partnership will also have the right to
purchase the GP Note from Mellon Bank.
If the Partnership elects or is required to purchase the GP Note from
Mellon Bank, the Partnership has the right, exercisable in its sole discretion
pursuant to the Deferral Plan, to cause up to all of the units deposited in the
trustassurance services related to
the Deferral Planaudit of our financial statements. The amount shown for fiscal 2003
consists primarily of services related to be forfeitedcurrent and cancelled (and to cause
allfuture compliance
with the provisions of the Sarbanes-Oxley Act of 2002. The amount shown for
fiscal 2002 consists of services related distributions to be forfeited), regardlessthe stand-alone audit of the
amountfinancial statements of Suburban Energy Service Group LLC, our General
Partner. In addition to these amounts, fees for services related to the
audits of the Partnership's defined benefit pension plan and defined
contribution plan financial statements, paid by the Partnershipindividual plans, were
$31,000 and $29,500 for the fiscal 2003 and 2002 audits, respectively.
(c) Tax Fees represent fees for professional services related to purchasetax reporting,
compliance and transaction services assistance.
(d) All Other Fees represent fees for services provided to us not otherwise
included in the GP Note.
Alexander & Associates provides executive searchcategories above. The amount shown for fiscal 2002 consists
primarily of services related to operational control reviews.
The Audit Committee of the Board of Supervisors has adopted a formal policy
concerning the approval of audit and non-audit services to be provided by the
Partnership.principal accountant, PricewaterhouseCoopers LLP. The firm is ownedpolicy requires that all
services PricewaterhouseCoopers LLP may provide to us, including audit services
and permitted audit-related and non-audit services, be pre-approved by Richard Alexander, the brother of Mark
Alexander, the Partnership's PresidentAudit
Committee. The Audit Committee pre-approved all audit and Chief Executive Officer. The
Partnership paid the firm $199,884 through December 15, 2000non-audit services
provided by PricewaterhouseCoopers LLP during fiscal 2003 and reviewed all audit
and non-audit services for the successful
completion of three searches. The Partnership believes that the terms of the
engagement were no less favorable to the Partnership than those that could have
been obtained from unrelated parties.fiscal 2002.
42
PART IV
ITEM 14.15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.8-K
(a) The following documents are filed as part of this Report:
1. (i) Financial Statements
See "Index to Financial Statements" set forth on page F-1.
(ii) Supplemental Financial Information
Balance Sheet Information of Suburban Energy Services Group LLC
See "Index to Supplemental Financial Information" set forth on page
F-20.F-24.
2. Financial Statement Schedule.Schedule
See "Index to Financial Statement Schedule" set forth on page S-1.
3. Exhibits
See "Index to Exhibits" set forth on page E-1.
Management Contracts and Compensatory Plans and Arrangements
- Employment Agreement dated as of March 5, 1996 between the
Operating Partnership and Mr. Alexander (filed as Exhibit 10.6 to
the Partnership's Current Report on Form 8-K filed on April 29,
1996).
- First Amendment to Employment Agreement dated as of March 5, 1996
between the Operating Partnership and Mr. Alexander entered into
as of October 23, 1997 (filed as Exhibit 10.7 to the
Partnership's Annual Report on Form 10-K for the fiscal year
ended September 27, 1997).
- Second Amendment to Employment Agreement dated as of March 5,
1996 between the Operating Partnership and Mr. Alexander entered
into as of April 14, 1999 (filed as Exhibit (10)(c) to the
Partnership's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 26, 1999).
- The Partnership's 1996 Restricted Unit Plan (filed as Exhibit
10.8 to the Partnership's Current Report on Form 8-K filed on
April 29, 1996).
- Form of Unit Grant Agreement pursuant to the Partnership's 1996
Restricted Unit Plan (filed as Exhibit 10.9 to the Partnership's
Current Report on Form 8-K filed on April 29, 1996).
- The Partnership's Supplemental Executive Retirement Plan (filed
as Exhibit 10.11 to the Partnership's Annual Report on Form 10-K
for the fiscal year ended September 28, 1996).
- The Partnership's Severance Protection Plan dated September 1996
(filed as Exhibit 10.12 to the Partnership's Annual Report on
Form 10-K for the fiscal year ended September 28, 1996).
- Compensation Deferral Plan of Suburban Propane Partners, L.P. and
Suburban Propane, L.P., dated May 26, 1999 (filed as Exhibit
(10)(e) to the Partnership's Quarterly Report on Form 10-Q for
the fiscal quarter ended June 26, 1999).
- Benefits Protection Trust dated May 26, 1999 by and between
Suburban Propane Partners, L.P. and First Union National Bank
(filed as Exhibit (10)(f) to the Partnership's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 26, 1999).
- Suburban Propane Partners, L.P. 2000 Restricted Unit Plan (Filed
as Exhibit 10.16 herewith).
(b) Reports on Form 8-K
ReportNo reports were filed on Form 8-K dated November 9, 2000 announcing the Partnership's
hiring of John W. Smolak as Chief Financial Officer.form 8-K.
43
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Suburban Propane Partners, L.P.
Date: December 2, 2003 By: /s/ MARK A. ALEXANDER
------------------------------------------------------------
Mark A. Alexander
President, Chief Executive Officer
and Appointed Supervisor
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ MICHAEL J. DUNN, JR. Appointed SupervisorJR Senior Vice President - Corporate December 18, 20002, 2003
- --------------------------------------------------------- Development
(Michael J. Dunn, Jr.) Suburban Propane Partners, L.P.
Appointed Supervisor
/s/ JOHN HOYT STOOKEY Chairman and Elected Supervisor December 18, 20002, 2003
- ------------------------------------------------------
(John Hoyt Stookey)
/s/ HAROLD R. LOGAN, JR. Elected Supervisor December 18, 20002, 2003
- ---------------------------------------------------------
(Harold R. Logan, Jr.)
/s/ DUDLEY C. MECUM Elected Supervisor December 18, 20002, 2003
- ----------------------------------------------------
(Dudley C. Mecum)
/s/ JOHN W. SMOLAKROBERT M. PLANTE Vice President and December 2, 2003
- --------------------------------- Chief Financial Officer
December 18, 2000
- ------------------- of(Robert M. Plante) Suburban Propane
(John W. Smolak) Partners, L.P.
/s/ EDWARD J. GRABOWIECKI Vice President,MICHAEL A. STIVALA Controller December 18, 20002, 2003
- ------------------------- and Chief Accounting Officer
(Edward J. Grabowiecki) of--------------------------------- Suburban Propane Partners, L.P.
(Michael A. Stivala)
44
INDEX TO EXHIBITS
The exhibits listed on this Exhibit Index are filed as part of this report.Annual
Report. Exhibits required to be filed by Item 601 of Regulation S-K, which are
not listed below, are not applicable.
Exhibit
Number Description
------ -----------
D 2.1 Recapitalization Agreement dated as of November 27,
1998 by and among the Partnership, the Operating
Partnership, the General Partner, Millennium and Suburban
Energy Services Group LLC.
AE 3.1 Second Amended and Restated Agreement of Limited
Partnership of the Partnership dated as of March 4, 1996.
AMay 26, 1999.
E 3.2 Second Amended and Restated Agreement of Limited
Partnership of the Operating Partnership dated as
of March 4, 1996.
I 10.1 Credit Agreement dated as of November 8, 1999 by and among
Suburban Propane, L.P., the Lenders referred to therein and First
Union National Bank, as Administrative Agent.May 26, 1999.
A 10.210.3 Note Agreement dated as of February 28, 1996 among certain
investors and the Operating Partnership relating to $425
million aggregate principal amount of 7.54% Senior Notes
due June 30, 2011.
K 10.4 Amendment No. 1 to the Note Agreement dated May 13,
1998 among certain investors and the Operating Partnership
relating to $425 million aggregate principal amount of
7.54% Senior Notes due June 30, 2011.
K 10.5 Amendment No. 2 to the Note Agreement dated March 29,
1999 among certain investors and the Operating Partnership
relating to $425 million aggregate principal amount of
7.54% Senior Notes due June 30, 2011.
K 10.6 Amendment No. 3 to the Note Agreement dated December
6, 2000 among certain investors and the Operating
Partnership relating to $425 million aggregate principal
amount of 7.54% Senior Notes due June 30, 2011.
I 10.7 Amendment No. 4 to the Note Agreement dated March 21,
2002 among certain investors and the Operating Partnership
relating to $425 million aggregate principal amount of
7.54% Senior Notes due June 30, 2011.
K 10.8 Amendment No. 5 to the Note Agreement dated November
20, 2002 among certain investors and the Operating
Partnership relating to $425 million aggregate principal
amount of 7.54% Senior Notes due June 30, 2011.
E-1
I 10.9 Guaranty Agreement dated as of April 11, 2002
provided by four direct subsidiaries of Suburban Propane,
L.P. for the 7.54% Senior Notes due June 30, 2011.
I 10.10 Intercreditor Agreement dated March 21, 2002 between
First Union National Bank, the Lenders under the Operating
Partnership's Amended and Restated Credit Agreement and
the Noteholders of the Operating Partnership's 7.54%
Senior Notes due June 30, 2011.
J 10.11 Note Agreement dated as of April 19, 2002 among certain
investors and the Operating Partnership relating to $42.5
million aggregate principal amount of 7.37% Senior Notes
due June 30, 2012.
J 10.12 Guaranty Agreement dated as of July 1, 2002 provided by
certain subsidiaries of Suburban Propane, L.P. for the
7.37% Senior Notes due June 30, 2012.
A 10.610.13 Employment Agreement dated as of March 5, 1996 between the
Operating Partnership and Mr. Alexander.
C 10.710.14 First Amendment to Employment Agreement dated as of
March 5, 1996 between the Operating Partnership and
Mr. Alexander entered into as of October 23, 1997.
F 10.810.15 Second Amendment to Employment Agreement dated as of
March 5, 1996 between the Operating Partnership and Mr.
Alexander entered into as of April 14, 1999.
A 10.910.16 The Partnership's 1996 Restricted Unit Plan.
A 10.10 Form of Unit Grant Agreement pursuant to the Partnership's 1996G 10.17 Suburban Propane Partners, L.P. 2000 Restricted Unit Plan.
B 10.11 The Partnership Supplemental Executive Retirement Plan (effective
as of March 5, 1996).
B 10.1210.18 The Partnership's Severance Protection Plan dated
September 1996.
E 10.13K 10.19 Suburban Propane L.P. Long-Term Incentive Program.
E-1
Exhibit
Number Description
------ -----------
G 10.14Plan as
amended and restated effective October 1, 1999.
F 10.20 Benefits Protection Trust dated May 26, 1999 by and
between Suburban Propane Partners, L.P.
and First Union National Bank.
H 10.15F 10.21 Compensation Deferral Plan of Suburban Propane Partners,
L.P. and Suburban Propane, L.P. dated May 26, 1999.
J 10.16H 10.22 First Amendment to the Compensation Deferral Plan of
Suburban Propane Partners, L.P. 2000 Restricted Unit Plan.
Jand Suburban Propane, L.P.
dated November 5, 2001.
H 10.23 Amended and Restated Supplemental Executive
Retirement Plan of the Partnership (effective as of
January 1, 1998).
H 10.24 Amended and Restated Retirement Savings and
Investment Plan of Suburban Propane (effective as of
January 1, 1998).
K 10.25 Amendment No. 1 to the Retirement Savings and Investment
Plan of Suburban Propane (effective January 1, 2002).
L 10.26 Second Amended and Restated Credit Agreement dated
May 8, 2003.
M 10.27 First Amendment to Second Amended and Restated Credit
Agreement dated November 4, 2003.
E-2
M 21.1 Listing of Subsidiaries of the Partnership.
JM 23.1 Consent of Independent Accountants.
J 27.1M 31.1 Certification of the President and Chief Executive
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
M 31.2 Certification of the Vice President and Chief
Financial Data Schedule.Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
M 32.1 Certification of the President and Chief Executive
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
M 32.2 Certification of the Vice President and Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
- --------------------------------------------------------------------------------
A Incorporated by reference to the same numbered Exhibit to the
Partnership's Current Report on Form 8-K filed April 29, 1996.
B Incorporated by reference to the same numbered Exhibit to the
Partnership's Annual Report on Form 10-K for the fiscal year ended
September 28, 1996.
C Incorporated by reference to the same numbered Exhibit to the
Partnership's Annual Report on Form 10-K for the fiscal year ended
September 27, 1997.
D Incorporated by reference to Exhibit 2.1 to the Partnership's Current
Report on Form 8-K filed December 3, 1998.
E Incorporated by reference to the Partnership's Proxy Statement filed
pursuant to Section 14(a) of the Securities Exchange Act of 1934 on
April 22, 1999.
F Incorporated by reference to the Partnership's Quarterly Report on Form
10-Q for the fiscal quarter ended June 26, 1999.
G Incorporated by reference to Exhibit 10.16 to the Partnership's Annual
Report on Form 10-K for the fiscal year ended September 30, 2000.
H Incorporated by reference to the same numbered Exhibit to the
Partnership's Annual Report on Form 10-K for the fiscal year ended
September 29, 2001.
I Incorporated by reference to the Partnership's Quarterly Report on Form
10-Q for the fiscal quarter ended March 30, 2002.
J Incorporated by reference to the Partnership's Quarterly Report on Form
10-Q for the fiscal quarter ended June 29, 2002.
E-3
K Incorporated by reference to the same numbered Exhibit to the
Partnership's Annual Report on Form 10-K for the fiscal year ended
September 28, 1998.
F2002.
L Incorporated by reference to the same numbered Exhibit (10)(c) to the
Partnership's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 26, 1999.
G Incorporated by reference to Exhibit (10)(f) to the Partnership's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 26, 1999.
H Incorporated by reference to Exhibit (10)(e) to the Partnership's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 26, 1999.
I Incorporated by reference to Exhibit 10.1 to the Partnership's Annual Report
on Form 10-K for the fiscal year ended September 25, 1999.
JMarch 29, 2003.
M Filed herewith.
E-2E-4
INDEX TO FINANCIAL STATEMENTS
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
Page
----
Report of Independent Accountants F-2Auditors...............................................F-2
Consolidated Balance Sheets-September 30, 2000Sheets -
As of September 27, 2003 and September 25, 1999 F-328, 2002............................F-3
Consolidated Statements of Operations -
Years Ended September 30, 2000,27, 2003, September 25, 199928, 2002 and
September 26, 1998 F-429, 2001.........................................................F-4
Consolidated Statements of Cash Flows -
Years Ended September 30, 2000,27, 2003, September 25, 199928, 2002 and
September 26, 1998 F-529, 2001.........................................................F-5
Consolidated Statements of Partners' Capital -
Years Ended September 30, 2000,27, 2003, September 25, 199928, 2002 and
September 26, 1998 F-629, 2001.........................................................F-6
Notes to Consolidated Financial Statements F-7Statements...................................F-7
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------AUDITORS
To the Board of Supervisors and Unitholders of
Suburban Propane Partners, L.P.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)1(i) on page 2915.(a)1.(i) present fairly, in all material respects, the
financial position of Suburban Propane Partners, L.P. and its subsidiaries (the
"Partnership") at September 30, 200027, 2003 and September 25, 1999,28, 2002 and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended September 30, 2000,27, 2003 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the index appearing under Item
14(a)2 on page 2915.(a)2. presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements. These financial statements and the
financial statement schedule are the
responsibility of the Partnership's management; our responsibility is to express
an opinion on these financial statements and the financial statement schedule based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed
above.our opinion.
PricewaterhouseCoopers LLP
Florham Park, NJ
October 24, 2000, except for Note 14
which is as of November 14, 200023, 2003
F-2
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, September
25,
2000 1999
------------- -------------27, 2003 28, 2002
---------------- -----------------
ASSETS
Current assets:
Current assets:
Cash &and cash equivalents .................................. $ 11,64515,765 $ 8,39240,955
Accounts receivable, less allowance for doubtful accounts
of $ 2,975$2,519 and $2,089,$1,894, respectively ...................... 61,303 37,62036,437 33,002
Inventories .............................................. 41,631 29,72741,510 36,367
Prepaid expenses and other current assets ................ 7,581 2,898
--------- ---------5,200 6,465
---------------- -----------------
Total current assets ............................. 122,160 78,63798,912 116,789
Property, plant and equipment, net ........................... 350,640 330,807
Net prepaid pension cost ..................................... 33,687 33,498312,790 331,009
Goodwill & other intangibles243,236 243,260
Other intangible assets, net ..................... 261,617 213,9631,035 1,474
Other assets ................................................. 3,012 2,315
--------- ---------9,657 7,614
---------------- -----------------
Total assets .................................... $ 771,116665,630 $ 659,220
========= =========700,146
================ =================
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable ......................................... $ 59,79426,204 $ 40,06827,412
Accrued employment and benefit costs ..................... 18,979 19,629
Short-term20,798 21,430
Current portion of long-term borrowings .................................... 6,500 2,75042,911 88,939
Accrued insurance ........................................ 6,170 5,1207,810 8,670
Customer deposits and advances ........................... 23,164 17,77423,958 26,125
Accrued interest ......................................... 8,171 8,2507,457 8,666
Other current liabilities ................................ 8,683 9,415
--------- ---------8,575 6,303
---------------- -----------------
Total current liabilities ...................... 131,461 103,006137,713 187,545
Long-term borrowings ......................................... 517,219 427,634340,915 383,830
Postretirement benefits obligation ........................... 33,885 34,39433,435 33,284
Accrued insurance ............................................ 19,458 18,00920,829 18,299
Accrued pension liability 42,136 53,164
Other liabilities ............................................ 7,264 7,791
--------- ---------6,524 4,738
---------------- -----------------
Total liabilities ............................. 709,287 590,834
--------- ---------581,552 680,860
---------------- -----------------
Commitments and contingencies
Partners' capital:
Common Unitholders ..................................... 58,474 66,342(27,256 and 24,631 units issued and outstanding at
September 27, 2003 and September 28, 2002, respectively) 165,950 103,680
General Partner ........................................ 1,866 2,0441,567 1,924
Deferred compensation trust ............................(5,795) (11,567) (10,712)
Common Units held in trust, at cost ....................5,795 11,567
10,712
Unearned Compensation .................................. (640) --compensation (2,171) (1,924)
Accumulated other comprehensive income ................. 2,129 --
--------- ---------loss (81,268) (84,394)
---------------- -----------------
Total partners' capital ...................... 61,829 68,386
--------- ---------84,078 19,286
---------------- -----------------
Total liabilities and partners' capital ...... $ 771,116665,630 $ 659,220
========= =========
700,146
================ =================
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per Unitunit amounts)
Year Ended
-------------------------------------------------------------------------------------------------
September 30, September 25, September
26,
2000 1999 199827, 2003 28, 2002 29, 2001
------------- ------------- -------------
Revenues---------------- ----------------
Revenues
Propane ................................................ $ 753,931680,741 $ 544,265570,280 $ 598,599839,607
Other .................................................. 82,898 75,513 68,688
--------- --------- ---------
836,829 619,778 667,287
--------- --------- ---------90,938 94,825 91,929
------------- ---------------- ----------------
771,679 665,105 931,536
Costs and expenses
Cost of sales ........................................... 476,176 273,109 326,440products sold 376,783 289,055 510,313
Operating ............................................... 224,020 210,217 210,415250,698 234,140 258,735
General and administrative 36,661 30,771 32,511
Depreciation and amortization ........................... 38,772 34,906 36,531
General and administrative expenses ..................... 28,629 29,371 30,177
Recapitalization costs .................................. -- 18,903 --27,520 28,355 36,496
Gain on sale of investment in Dixie Pipeline Co. ........ -- -- (5,090)
Gain on sale of assets .................................. (10,328) -- --
--------- --------- ---------
757,269 566,506 598,473storage facility - (6,768) -
------------- ---------------- ----------------
691,662 575,553 838,055
------------- ---------------- ----------------
Income before interest expense and provision for income taxes .............................. 79,560 53,272 68,81480,017 89,552 93,481
Interest income (334) (600) (414)
Interest expense net ....................................... 40,794 30,765 30,614
--------- --------- ---------33,963 35,925 40,010
------------- ---------------- ----------------
Income before provision for income taxes .................... 38,766 22,507 38,20046,388 54,227 53,885
Provision for income taxes .................................. 234 68 35
--------- --------- ---------202 703 375
------------- ---------------- ----------------
Income from continuing operations 46,186 53,524 53,510
Discontinued operations (Note 14):
Gain on sale of customer service centers 2,483 - -
------------- ---------------- ----------------
Net income .............................................. $ 38,53248,669 $ 22,43953,524 $ 38,165
========= ========= =========53,510
============= ================ ================
General Partner's interest in net income .................... $ 7711,193 $ 4491,362 $ 763
--------- --------- ---------1,048
------------- ---------------- ----------------
Limited Partners' interest in net income .................... $ 37,76147,476 $ 21,99052,162 $ 37,402
========= ========= =========
Basic and diluted net52,462
============= ================ ================
Income per Common Unit - basic
Income from continuing operations $ 1.78 $ 2.12 $ 2.14
Discontinued operations 0.09 - -
------------- ---------------- ----------------
Net income per Unit ....................... $ 1.701.87 $ 0.832.12 $ 1.30
========= ========= =========2.14
------------- ---------------- ----------------
Weighted average number of Common Units outstanding ................ 22,275 26,563 28,726
--------- --------- ---------
- basic 25,359 24,631 24,514
------------- ---------------- ----------------
Income per Common Unit - diluted
Income from continuing operations $ 1.77 $ 2.12 $ 2.14
Discontinued operations 0.09 - -
------------- ---------------- ----------------
Net income $ 1.86 $ 2.12 $ 2.14
------------- ---------------- ----------------
Weighted average number of Common Units outstanding - diluted 25,495 24,665 24,530
------------- ---------------- ----------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended
------------------------------------------------------------------------------------------------------
September 30, September 25, September
26,
2000 1999 1998
------------- ------------- -------------27, 2003 28, 2002 29, 2001
---------------- ----------------- -----------------
Cash flows from operating activities:
Net income ....................................................... $ 38,53248,669 $ 22,43953,524 $ 38,16553,510
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation ................................................ 29,142 26,989 29,166expense 27,097 27,857 28,517
Amortization ................................................ 9,630 7,917 7,365
(Gain) on sale of investment ................................ -- -- (5,090)
(Gain)intangible assets 423 498 7,979
Amortization of debt origination costs 1,291 1,338 2,006
Amortization of unearned compensation 863 985 440
Gain on disposal of property, plant and
equipment, ................................................. (11,313) (578) (1,391)
Recapitalization costs ...................................... -- 18,903 --net (636) (546) (3,843)
Gain on sale of customer service centers (2,483) - -
Gain on sale of storage facility - (6,768) -
Changes in operating assets and liabilities, net of
acquisitions and dispositions:
(Increase)/decrease in accounts receivable .................. (21,072) 1,514 6,793(4,101) 9,635 18,601
(Increase)/decrease in inventories .......................... (6,016) 235 1,953
(Increase)/decrease(5,339) 5,402 (260)
Decrease/(increase) in prepaid expenses and
other current assets ....................................... (2,504) 968 3,317
Increase/(decrease)576 (2,526) 1,699
Decrease in accounts payable ..................... 19,726 8,753 (6,470)(1,208) (10,862) (21,109)
(Decrease)/increase in accrued employment
and benefit costs .......................................... (435) (855) 1,595(632) (8,518) 10,969
(Decrease)/increase in accrued interest ..................... (79) 52 (108)
Increase(1,209) 348 147
(Decrease)/increase in other accrued liabilities ...................... 4,403 1,198 458
Other(1,825) (1,153) 4,635
(Increase)/decrease in other noncurrent assets .......................................... (886) (4,086) (2,853)
Deferred credits and(2,506) (439) 1,194
Decrease in other noncurrent liabilities ................ 339 (1,691) (2,827)
--------- --------- ---------(1,680) - (2,647)
---------------- ----------------- -----------------
Net cash provided by operating activities .............. 59,467 81,758 70,073
--------- --------- ---------57,300 68,775 101,838
---------------- ----------------- -----------------
Cash flows from investing activities:
Capital expenditures ............................................ (21,250) (11,033) (12,617)
Acquisitions .................................................... (98,012) (4,768) (4,041)
Proceeds from sale of investment ................................ -- -- 13,090(14,050) (17,464) (23,218)
Proceeds from sale of property, plant and equipment, net ........ 20,195 3,560 6,468
--------- --------- ---------1,994 2,625 5,311
Proceeds from sale of customer service centers, net 7,197 - -
Proceeds from sale of storage facility, net - 7,988 -
---------------- ----------------- -----------------
Net cash (used in) provided byused in investing activities..... (99,067) (12,241) 2,900
--------- --------- ---------activities (4,859) (6,851) (17,907)
---------------- ----------------- -----------------
Cash flows from financing activities:
Long-term borrowings/(repayments)debt repayments (88,939) (408) (44,428)
Short-term debt repayments, net ........................... 89,659 (695) (260)
Short-term borrowings ........................................... 3,750 2,750 --
Proceeds from General Partner APU contribution .................. -- -- 12,000
Redemption of Subordinated Units and APU's ...................... -- (69,000) --
Payment of recapitalization costs ............................... -- (9,367) --- - (6,500)
Credit agreement expenses........................................ (3,123) -- --expenses (826) - (730)
Net proceeds from issuance of Common Units 72,186 - 47,079
Partnership distribution ........................................ (47,433) (44,632) (44,230)
--------- --------- ---------distributions (60,052) (57,055) (54,503)
---------------- ----------------- -----------------
Net cash provided by (used in)used in financing activities .... 42,853 (120,944) (32,490)
--------- --------- ---------(77,631) (57,463) (59,082)
---------------- ----------------- -----------------
Net increase/(decrease)/increase in cash ...................................... 3,253 (51,427) 40,483and cash equivalents (25,190) 4,461 24,849
Cash and cash equivalents at beginning of period ...................... 8,392 59,819 19,336
--------- --------- ---------year 40,955 36,494 11,645
---------------- ----------------- -----------------
Cash and cash equivalents at end of period ............................ $ 11,645 $ 8,392 $ 59,819
========= ========= =========year 15,765 40,955 36,494
================ ================= =================
Supplemental disclosure of cash flow information:
Cash paid for interest ............................................ $ 40,94433,635 $ 32,60234,134 $ 32,659
========= ========= =========37,774
================ ================= =================
Non-cash investing and financing activities
Assets acquired by incurring note payable .........................adjustment for minimum pension liability $ --(4,938) $ --37,800 $ 250
========= ========= =========
47,277
================ ================= =================
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(in thousands)
Common DeferredAccumu-
lated
Other
Compre-
Number of Deferred Common Unearned hensive Total Compre-
Common Common General Compen- Units GeneralHeld Compen- (Loss)/ Partners' hensive
Units Unitholders Partner sation in Compensation Unearned
Common Subordinated Common Subordinated Partner Trust Trust Compensationsation Income Capital Income
----- ------------------- ------ -------------------- ------ ------------------ ------- -------- ------------ ------------------
Balance at September 27, 1997 ...... 21,562 7,164 $100,47630, 2000 22,278 $ 39,83558,474 $ 12,8301,866 $ --(11,567) $ --11,567 $ (11,902)(640) $ 2,129 $ 61,829
Net Income ......................... 28,090 9,312 763
Net grants forfeitedincome 52,462 1,048 53,510 $53,510
Other comprehensive income:
Unrealized holding loss (1,046) (1,046) (1,046)
Less: Reclassification
adjustment for gains
included in net income (1,083) (1,083) (1,083)
Minimum pension liability
adjustment (47,277) (47,277) (47,277)
--------
Comprehensive income $ 4,104
========
Partnership distributions (53,477) (1,026) (54,503)
Sale of Common Units under
Restricted Unit Plan ............... (594) 594
Partnership distribution ........... (43,125) (1,105)
Amortizationpublic offering, net of
Restricted
Unit compensation .................. 626
APU contribution (120 Units) ....... -- -- -- -- 12,000 -- -- --
------ ------------ ------ ------------ ------- -------- ------------ ------------
Balance at September 26, 1998....... 21,562 7,164 84,847 49,147 24,488 (10,682)
Net Income ......................... 6,807 15,183 449
Net grantsoffering expenses 2,353 47,079 47,079
Grants issued under Restricted
Unit Plan, ............... 1,154 (1,154)
Partnership distribution ........... (43,739) (893)
Amortizationnet of Restricted
Unit compensation .................. 443
Recapitalization transactions....... 674 (7,164) 17,273 (64,330) (22,000) 10,712 (10,712) 11,393
------ ------------ ------ ------------ ------- -------- ------------ ------------
Balance at September 25, 1999....... 22,236 66,342 2,044 10,712 (10,712)
Net income ......................... 37,761 771
Other comprehensive income:
Unrealized gain on securities....
Comprehensive income ...............
Partnership distribution ........... (46,484) (949)
Grants issued under Compensation
Deferral Plan ...................... 43 855 855 (855) (855)forfeitures 1,011 (1,011) -
Amortization of Compensation
Deferral Plan ...................... -- -- -- -- -- -- -- 215
------ ------------ ------ ------------ ------- -------- ------------ ------------
Balance at September 30, 2000 22,279 -- $ 58,474 $ -- $ 1,866 $ 11,567 $ (11,567) $ (640)
====== ============ ====== ============ ======= ======== ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(in thousands)
Accumulated
Other Total
Comprehensive Partners' Comprehensive
Income Capital Income
------------- --------- -------------
Balance at September 27, 1997 ...... $141,239
Net Income ......................... 38,165
Net grants forfeited under
Restricted Unit Plan ............... --
Partnership distribution ........... (44,230)212 212
Amortization of Restricted
Unit compensation .................. 626
APU contribution (120 Units) ....... 12,000
-------------Plan, net of forfeitures 228 228
--------- ---------------------- --------- -------- -------- -------- -------- ---------
Balance at September 26, 1998....... 147,80029, 2001 24,631 105,549 1,888 (11,567) 11,567 (1,211) (47,277) 58,949
Net Income ......................... 22,439income 52,162 1,362 53,524 $53,524
Other comprehensive income:
Net grantsunrealized gains on cash
flow hedges 838 838 838
Less: Reclassification of
realized gains on cash
flow hedges into earnings (155) (155) (155)
Minimum pension liability
adjustment (37,800) (37,800) (37,800)
--------
Comprehensive income $ 16,407
========
Partnership distributions (55,729) (1,326) (57,055)
Grants issued under Restricted
Unit Plan, ............... --
Partnership distribution ........... (44,632)
Amortizationnet of Restricted
Unit compensation .................. 443
Recapitalization transactions....... (57,664)
------------- --------- -------------
Balance at September 25, 1999....... 68,386
Net income ......................... 38,532 $ 38,532
Other comprehensive income:
Unrealized gain on securities.... $ 2,129 2,129 2,129
-------------
Comprehensive income ............... $ 40,661
=============
Partnership distribution ........... (47,433)
Grants issued under Compensation
Deferral Plan ......................forfeitures 1,698 (1,698) -
Amortization of Compensation
Deferral Plan ...................... -- 215
-------------382 382
Amortization of Restricted
Unit Plan, net of forfeitures 603 603
--------- ---------------------- --------- -------- -------- -------- -------- ---------
Balance at September 30, 200028, 2002 24,631 103,680 1,924 (11,567) 11,567 (1,924) (84,394) 19,286
Net income 47,476 1,193 48,669 $48,669
Other comprehensive income:
Net unrealized losses on cash
flow hedges (1,129) (1,129) (1,129)
Less: Reclassification of
realized gains on cash
flow hedges into earnings (683) (683) (683)
Minimum pension liability
adjustment 4,938 4,938 4,938
--------
Comprehensive income $ 2,12951,795
========
Partnership distributions (58,502) (1,550) (60,052)
Sale of Common Units under
public offering, net of
offering expenses 2,625 72,186 72,186
Distribution of Common Units
held in trust 5,772 (5,772) -
Grants issued under Restricted
Unit Plan, net of forfeitures 1,110 (1,110) -
Amortization of Restricted
Unit Plan, net of forfeitures 863 863
--------- --------- --------- -------- -------- -------- -------- ---------
Balance at September 27, 2003 27,256 $ 61,829
=============165,950 $ 1,567 $ (5,795) $ 5,795 $ (2,171) $(81,268) $ 84,078
========= ====================== ========= ======== ======== ======== ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Dollars(dollars in thousands)thousands, except per unit amounts)
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 and a corporate operating entity subsequently
acquired by the Operating Partnership, Gas Connection, Inc. (the "Retail
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 Units21,562,500 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 of 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 underwritersJanuary 5, 2001, Suburban Holdings, Inc., a subsidiary of the Partnership's
initial public offering exercised an over-allotment optionOperating
Partnership, was formed to purchase an
additional 2,812,500 Common Units.hold the stock of Gas Connection, Inc., Suburban @
Home, Inc. and Suburban Franchising, Inc. Gas Connection, Inc. (d/b/a HomeTown
Hearth & Grill) sells and installs natural gas and propane gas grills,
fireplaces and related accessories and supplies; Suburban @ Home, Inc. sells,
installs, services and repairs a full range of heating and air conditioning
products; and Suburban Franchising, Inc. creates and develops propane related
franchising business opportunities. The Partnership, the Operating Partnership,
the Service Company, Suburban Holdings, Inc. and its subsidiaries are
collectively referred to hereinafter as the "Partnership Entities."
From the Closing DateMarch 5, 1996 through May 26, 1999, Suburban Propane GP, Inc. (the "General"Former
General Partner"), a wholly-owned indirect subsidiary of Millennium Chemicals,
Inc. ("Millennium"), served as the general partner of the Partnership and the Operating
Partnership owning a 1% general partner interest in the Partnership and a
1.0101% general partner interest in the Operating Partnership. Millennium
became a publicly traded company upon Hanson PLC's spin-off of its chemical
business, including its interests in the Partnership, in October 1996. In addition, the
Former General Partner owned a 24.4% limited partner interest evidenced by
7,163,750 Subordinated Units and a special limited partner interest in the
Partnership. The limited partner
interest was evidenced by 7,163,750 Subordinated Units and the special limited
partner interest was evidenced by 220,000 Additional Partnership Units ("APUs").
On May 26, 1999, the Partnership completed a recapitalization (the
"Recapitalization") which included the redemption of the Subordinated Units and
APUsspecial limited partner interest from the Former General Partner, and the
general partner was replaced with a new
General Partner,substitution of Suburban Energy Services Group LLC (the "Successor General"General Partner"), owned by Senior Management as
the new general partner of the Partnership (Seeand the Operating Partnership
following the General Partner's purchase of the combined 2.0101% general partner
interests for $6,000 in cash. The General Partner is owned by senior management
of the Partnership and, following the public offerings discussed in Note 10 -13,
owns a combined 1.71% general partner interest in the Partnership and the
Operating Partnership.
The Recapitalization).limited partner interests in the Partnership are evidenced by Common Units
traded on the New York Stock Exchange. The limited partners are entitled to
participate in distributions and exercise the rights and privileges available to
limited partners under the Second Amended and Restated Agreement of Limited
Partnership, such as the election of three of the five members of the Board of
Supervisors and vote on the removal of the general partner.
The Partnership Entities are and the Predecessor Company was, engaged in the retail and wholesale marketing of
propane and related appliances and services. The Partnership believes it is the third largest retail marketer of propane in
the United States, serving more thanserves
approximately 750,000 active residential, commercial, industrial and
agricultural customers from approximately 350320 customer service centers in over 40
states. The Partnership's operations are concentrated in the east and west coast
regions of the United States. The retail propane sales
volumeNo single customer accounted for 10% or
F-7
more of the Partnership wasPartnership's revenues during fiscal 2003, 2002 or 2001. During
fiscal 2003, 2002 and 2001, three suppliers provided approximately 524 million gallons during42%, 49% and
47%, respectively, of the fiscal years ended September 30, 2000 and September 25, 1999. Based on industry
statistics, thePartnership's total domestic propane supply. The
Partnership believes that, if supplies from any of these three suppliers were
interrupted, it would be able to secure adequate propane supplies from other
sources without a material disruption of its retail propane sales volume
constitutes approximately 6% of the domestic retail market for propane.
F-7
operations.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASISPRINCIPLES OF PRESENTATION.CONSOLIDATION. The consolidated financial statements presentinclude the
consolidated financial position,accounts of the Partnership Entities. All significant intercompany transactions
and account balances have been eliminated. The Partnership consolidates the
results of operations, financial condition and cash flows of the Partnership. All significant intercompany transactionsOperating
Partnership as a result of the Partnership's 98.9899% limited partner interest
in the Operating Partnership and accounts have been
eliminated.its ability to influence control over the major
operating and financial decisions through the powers of the Board of Supervisors
provided for in the Second Amended and Restated Agreement of Limited
Partnership.
FISCAL PERIOD. The Partnership's fiscal year ends on the last Saturday nearest
to September 30.
As fiscal 2000 ended on Saturday, September 30, 2000, fiscal
2000 includes 53 weeksREVENUE RECOGNITION. Sales of operations comparedpropane are recognized at the time product is
delivered to 52 weeks in eachthe customer. Revenue from the sale of fiscal 1999appliances and fiscal 1998.equipment is
recognized at the time of sale or when installation is complete, as applicable.
Revenue from repair and maintenance activities is recognized upon completion of
the service.
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. Estimates have been made by management in the areas of
insurance and litigation reserves, pension and other postretirement benefit
liabilities and costs, valuation of derivative instruments, asset valuation
assessment, as well as the allowance for doubtful accounts. Actual results could
differ from those estimates.estimates, making it reasonably possible that a change in
these estimates could occur in the near term.
CASH AND CASH EQUIVALENTS. The Partnership considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents. The carrying amount approximates fair value because of the
short maturity of these instruments.
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
order for a future or forward contract to be accounted for as a hedge, the item
to be hedged must expose the Partnership to price risk and the future or forward
must reduce such price risk. As the Partnership is subject to propane market
pricing and the propane forwards and futures highly correlate with changes in
the market price of propane, hedge accounting is often utilized. The Partnership
accounts for financial instruments which do not meet the hedge criteria or for
hedging transactions which are terminated, under the mark or market rules which
require gains or losses to be immediately recognized in earnings. 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.
Net realized gains and losses for fiscal years 2000, 1999 and 1998 and
unrealized gains and losses on open positions as of September 30, 2000 and
September 25, 1999, respectively, were not material. See "New Accounting
Standards" for further information.
REVENUE RECOGNITION. Sales of propane are recognized at the time product is
shipped or delivered to the customer. Revenue from the sale of propane,
appliances and equipment is recognized at the time of sale or installation.
Revenue from repairs and maintenance is recognized upon completion of the
service.
INVENTORIES. Inventories are stated at the lower of cost or market. Cost is
determined using a weighted average method for propane and a standard cost basis
for appliances, which estimatesapproximates average cost.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The Partnership is exposed to the
impact of market fluctuations in the commodity price of propane. The Partnership
routinely uses commodity futures, forward and option contracts to hedge its
commodity price risk and to ensure supply during periods of high demand. All
derivative instruments are reported on the balance sheet, within other current
assets or other current liabilities, at their fair values. On the date that
futures, forward and option contracts are entered into, the Partnership makes a
determination as to whether the derivative instrument qualifies for designation
as a hedge. Prior to March 31, 2002, the Partnership determined that its
derivative instruments did not qualify as hedges and, as such, the changes in
fair values were recorded in income. Beginning with contracts entered into
subsequent to March 31, 2002, a portion of the derivative instruments entered
into by the Partnership have been designated and qualify as cash flow hedges.
For derivative instruments designated as cash flow hedges, the Partnership
formally assesses, both at the hedge contract's inception and on an ongoing
basis, whether the hedge contract is highly effective in offsetting changes in
cash flows of hedged items. Changes in the fair value of derivative instruments
designated as cash flow hedges are reported in accumulated other comprehensive
(loss)/income to the extent effective and reclassified into cost of products
sold during the same period in which the hedged item affects earnings. The
mark-to-market gains or losses on ineffective portions of hedges are recognized
in cost of products sold immediately. Changes in the fair value of derivative
instruments that are not designated as hedges are recorded
F-8
in current period earnings within operating expenses.
LONG-LIVED ASSETS. Long-lived assets include:
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at cost.
Depreciation is determined for related groups of assets under the straight-line
method based upon their estimated useful lives as follows:
Buildings 40 Years
Building and land improvements 10-20 Years
Transportation equipment 5-30 Years
Storage facilities 30 Years
Equipment, primarily tanks and cylinders 3-40 Years
Expenditures for maintenance and routine repairs are expensed as incurred while
betterments are capitalized as additions to the related assets and depreciated
over the asset's remaining useful life. F-8
GOODWILL AND OTHER INTANGIBLE ASSETS. GoodwillThe Partnership capitalizes costs
incurred in the acquisition and other intangiblemodification of computer software used
internally, including consulting fees and costs of employees dedicated solely to
a specific project. At the time assets are comprisedretired, or otherwise disposed of,
the following:
September 30, September 25,
2000 1999
------------- -------------
Goodwill .................................. $296,201 $242,230
Debt origination costs .................... 8,024 8,024
Deferred credit agreement cost ............ 3,123 --
Other, principally non-compete agreements.. 4,940 4,948
-------- --------
312,288 255,202
Less:asset and related accumulated amortization ............ 50,671 41,239
-------- --------
$261,617 $213,963
======== ========depreciation are removed from the accounts,
and any resulting gain or loss is recognized within operating expenses.
Depreciation is determined for related groups of assets under the straight-line
method based upon their estimated useful lives as follows:
Buildings 40 Years
Building and land improvements 10-40 Years
Transportation equipment 4-30 Years
Storage facilities 20 Years
Equipment, primarily tanks and cylinders 3-40 Years
Computer software 3-7 Years
The Partnership reviews the recoverability of long-lived assets when
circumstances occur that indicate that the carrying value of an asset group may
not be recoverable. Such circumstances include a significant adverse change in
the manner in which an asset group is being used, current operating losses
combined with a history of operating losses experienced by the asset group or a
current expectation that an asset group will be sold or otherwise disposed of
before the end of its previously estimated useful life. Evaluation of possible
impairment is based on the Partnership's ability to recover the value of the
asset group from the future undiscounted cash flows expected to result from the
use and eventual disposition of the asset group. If the expected undiscounted
cash flows are less than the carrying amount of such asset, an impairment loss
is recorded as the amount by which the carrying amount of an asset group exceeds
its fair value. The fair value of an asset group will be measured using the best
information available, including prices for similar assets or the result of
using a discounted cash flow valuation technique.
GOODWILL. Goodwill represents the excess of the purchase price over the fair
value of net assets acquiredacquired. Effective September 30, 2001, the beginning of the
Partnership's 2002 fiscal year, the Partnership elected to early adopt the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"). As a result of the adoption
of SFAS 142, goodwill is beingno longer amortized to expense, rather is subject to an
impairment review at a reporting unit level, on a straight-linean annual basis over periods
ranging from twenty to forty years from the datein August of
acquisition.each year, or when an event occurs or circumstances change that would indicate
potential impairment. The Partnership periodically evaluates goodwill for impairment by calculating
the anticipated future cash flows attributable to its operations. Such expected
cash flows, on an undiscounted basis, are compared to the carrying values of the
tangible and intangible assets, and if impairment is indicated,assesses the carrying value of goodwill at
a reporting unit level based on an estimate of the fair value of the respective
reporting unit. Fair value of the reporting unit is adjusted. Inestimated using either (i) a
market value approach taking into consideration the opinionquoted market price of
management, no impairmentCommon Units; or (ii) discounted cash flow analyses taking into consideration
estimated cash flows in a ten-year projection period and a terminal value
calculation at the end of goodwill exists.
Debt origination costs represent the costs incurred in connection withprojection period.
OTHER INTANGIBLE ASSETS. Other intangible assets consist primarily of
non-compete agreements which are amortized under the placementstraight-line method over
the periods of the related agreements, ending periodically between fiscal years
2004 and the subsequent amendment to the $425,000 of Senior Notes are
being amortized on a straight-line basis over 15 years.2011.
ACCRUED INSURANCE. Accrued insurance represents the estimated costs of known and
anticipated or unasserted claims under the Partnership's general and product,
workers' compensation and automobile insurance policies. Accrued insurance
provisions for unasserted claims arising from unreported incidents are based on
an analysis of historical claims data. For each claim, the Partnership records a
self-insurance provision up to the estimated amount of the probable claim or the
amount of the deductible, whichever is lower.lower, utilizing actuarially determined
loss
F-9
development factors applied to actual claims data. Claims are generally settled
within 5 years of origination.
INCOME TAXES. As discussed in Note 1, the Partnership Entities consist of two
limited partnerships, the Partnership and the Operating Partnership, and twofive
corporate entities, the Service Company and the Retail Company.entities. For federal and state income tax purposes, the earnings
attributable to the Partnership and the 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 the
Operating Partnership. The earnings attributable to the corporate entities are
subject to federal and state income taxes. Accordingly, the Partnership's
consolidated financial statements reflect income tax expense related to the
corporate entities' earnings. Net earnings for financial statement purposes may
differ significantly from taxable income reportable to Unitholders as a result
of differences between the tax basis and financial reporting basis of assets and
liabilities and the taxable income allocation requirements under the Partnership
Agreement.
Income taxes for the corporate entities are provided based on the provisions of Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accountingasset and
liability approach to accounting for Income Taxes", which requires recognition ofincome taxes. Under this method, deferred
tax assets and liabilities are recognized for the expected future tax
consequences of events
that have been included in the financial statements and tax returns in different
years. Under this method, deferred income tax assets and liabilities are
determined based on the differencedifferences between the financial statementcarrying amounts and the tax basesbasis of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period when
the change is enacted.
UNIT-BASED COMPENSATION. The Partnership accounts for Unit-basedunit-based compensation in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations, and makes the pro forma
information disclosures requiredinterpretations. Upon award of
restricted units under the provisionsPartnership's Restricted Unit Plan, unearned
compensation equivalent to the market price of the Restricted Units on the date
of grant is established as a reduction of partners' capital. The unearned
compensation is amortized ratably to expense over the restricted periods. The
Partnership follows the disclosure only provision of SFAS No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). Upon issuancePro forma net income and net income
per Common Unit under the fair value method of accounting for Restricted Units
under SFAS 123 would be the plans, unearned compensation equivalentsame as reported net income and net income per
Common Unit.
COSTS AND EXPENSES. The cost of products sold reported in the consolidated
statements of operations represents the weighted average unit cost of propane
sold, including transportation costs to deliver product from the Partnership's
supply points to storage or to the market valuePartnership's customer service centers. Cost
of products sold also includes the cost of appliances and related parts sold or
installed by the Partnership's customer service centers computed on a basis that
approximates the average cost of the F-9
Restricted Units or Common Units granted underproducts. Cost of products sold is reported
exclusive of any depreciation and amortization as such amounts are reported
separately within the Compensation Deferral Plan is
charged atconsolidated statements of operations.
All other costs of operating the date of grant. The unearned compensation is amortized ratably
over the restricted periods. The unamortized unearned compensation value is
shown as a reduction of partners' capitalPartnership's retail propane distribution and
appliance sales and service operations are reported within operating expenses in
the accompanying consolidated balance sheets. As a resultstatements of operations. These operating expenses include the
compensation and benefits of field and direct operating support personnel, costs
of operating and maintaining the vehicle fleet, overhead and other costs of the
May 26, 1999 Recapitalization, all
unamortizedpurchasing, training and safety departments and other direct and indirect costs
of the Partnership's customer service centers.
All costs of back office support functions, including compensation relatedand benefits
for executives and other support functions, as well as other costs and expenses
to maintain finance and accounting, treasury, legal, human resources, corporate
development and the Restricted Units was earnedinformation systems functions are reported within general
and expenseadministrative expenses in the consolidated statements of $11,393 was recorded. As of September 30, 2000 there were no Units
outstanding under the Restricted Unit Plan and there were 42,925 Common Units
outstanding under the Compensation Deferral Plan.operations.
F-10
NET INCOME (LOSS) PER UNIT. Basic net income (loss) per limited partnerCommon Unit is computed by dividing
net income, (loss), after deducting the General Partner's approximate 2% interest, by
the weighted average number of outstanding Common Units. Diluted net income per
Common Unit is computed by dividing net income, after deducting the General
Partner's approximate 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,
Subordinated Units, time vested Restricted Units granted under the 2000 Restricted
Unit Award PlanPlan. In computing diluted net income per Common Unit, weighted average
units outstanding used to compute basic net income per Common Unit were
increased by 136,000 units and 34,000 units for the years ended September 27,
2003 and September 28, 2002, respectively, to reflect the potential dilutive
effect of the time vested Restricted Units outstanding using the treasury stock
method. Net income is allocated to the Common Units granted underUnitholders and the Compensation
Deferral Plan.General
Partner in accordance with their respective Partnership ownership interests,
after giving effect to any priority income allocations for incentive
distributions allocated to the General Partner.
COMPREHENSIVE INCOME. SFAS No. 130, "Reporting Comprehensive Income" ("Statement
No. 130") was adopted in fiscal 1999. Statement No. 130 requires entities to
reportThe Partnership reports comprehensive (loss)/income (the
total of net income and all other non-owner changes in partners' capital) either below net income inwithin
the statement of
operations, in a separate statement of comprehensive income or within theconsolidated statement of partners' capital. Comprehensive (loss)/income
includes unrealized gains and losses on equity securities classifiedderivative instruments accounted for as
available-for-salecash flow hedges and is included
as a component of partners' capital.
NEWminimum pension liability adjustments.
RECENTLY ISSUED ACCOUNTING STANDARDS. In June 1998,2002, the Financial Accounting
Standards Board (the "FASB") issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 requires
companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or disposal
plan. The provisions of SFAS 146 are effective for exit or disposal activities
initiated after December 31, 2002. The provisions of this standard will be
applied by the Partnership on an ongoing basis, as applicable.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 amends
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("Statement No. 133").
Statement No. 133, as amended by Statement No. 137 and
Statement No. 138,
requires entities to record derivatives as assetsclarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts. This
statement is effective for contracts entered into or liabilitiesmodified after June 30,
2003, and for hedging relationships designated after June 30, 2003. The adoption
of this standard did not have a material impact on the balance
sheet based on their fair valuePartnership's
consolidated financial position, results of operations or cash flows.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and any subsequent changes inEquity" ("SFAS 150").
SFAS 150 establishes standards for the fair valuesclassification and measurement of contracts must be recorded in income, unless the contracts qualify as hedges.
Contracts qualifying for hedge accounting would have changes in fair values
reportedcertain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a componentliability (or an asset in some circumstances). Many of comprehensive income (equity).these instruments
were previously required to be classified as equity. This statement is effective
for financial instruments entered into or modified after May 31, 2003, and
otherwise is effective for the Partnership's fourth quarter in fiscal 2003. The
Partnership will
adopt Statementadoption of this standard did not have a material impact on the Partnership's
consolidated financial position, results of operations or cash flows.
In January 2003, the FASB issued FASB Interpretation No. 133 effective with46, "Consolidation
of Variable Interest Entities" ("FIN 46"), an interpretation of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements." FIN 46 addresses
consolidation by business enterprises of variable interest entities that meet
certain characteristics. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after January 31, 2003. The
consolidation requirements apply to variable interest entities created before
February 1, 2003 in the first fiscal quarteryear or interim period beginning after June
15, 2003. However, in October 2003, the FASB deferred the effective date for
applying certain provisions
F-11
of 2001, as
required. Management has determined that the Partnership's derivative contracts
do not qualify for hedge accountingFIN 46 and will mark-to-market its derivatives
through income. Based on the Partnership's derivatives outstanding on September
30, 2000, the transition amount required to be recognized upon adoptionin November 2003, issued an exposure draft which would amend
certain provisions of Statement No. 133 on October 1, 2000 will not be significant to the Partnership.
However, changes to the contracts outstanding after that date will cause
volatility in earnings.
In fiscal 2000, the staffFIN 46. As a result of the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101, "Revenue Recognition", ("SAB 101").
SAB 101, and its subsequent amendments, summarizes the SEC's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. SAB 101 will be implemented bylatest exposure draft, the
Partnership in fiscal year 2001is currently evaluating the impact, if any, that FIN 46 or any
future amendment may have on its financial position and management does not anticipate the implementation will be significant to the
Partnership.results of operations.
RECLASSIFICATIONS. Certain prior period amounts have been reclassified to
conform with the current period presentation.
3. DISTRIBUTIONS OF AVAILABLE CASH
The Partnership makes distributions to its partners with respect toapproximately 45 days after
the end of each fiscal quarter of the Partnership in an aggregate amount equal
to its Available Cash for such quarter. Available Cash, as defined in the Second
Amended and Restated Partnership Agreement, generally means with respect to any fiscal
quarter of the Partnership, all cash on hand at
the end of suchthe respective fiscal quarter less the amount of cash reserves
established by the Board of Supervisors in its reasonable discretion for future
cash requirements. These reserves are retained for the proper conduct of the
Partnership's business, the payment of debt principal and interest and for
distributions during the next four quarters. Distributions by the Partnership in
an amount equal to 100% of its Available Cash will generally be made 98%98.29% to
the Common Unitholders and 2%1.71% to the General Partner, subject to the payment
of incentive distributions into the event
Available Cash exceedsGeneral Partner to the extent the quarterly
distributions exceed a target distribution of $0.55 per Unit per quarter asCommon Unit.
As defined in the Partnership Agreement. Common Units will be entitled to
arrearages if the full Minimum Quarterly Distribution is not paid with respect
to any quarter through the fiscal quarter ending March 31, 2001.
F-10
Effective with the completion of the Recapitalization (See Note 10 - The
Recapitalization), the Distribution Support Agreement among the Partnership, the
General PartnerSecond Amended and Millennium, which was used to enhance the Partnership's
ability to distribute the Minimum Quarterly Distribution on Common Units, was
terminated and replaced by a $22,000 liquidity subfacility provided by theRestated Partnership under the Partnership's Bank Credit Facilities (See Note 6 -
Long-Term Debt and Revolving Credit Agreement). Under the Distribution Support Agreement, the General
Partner had agreed to contribute to the Partnership cash
in exchangehas certain Incentive Distribution Rights ("IDRs") which represent an
incentive for APUs. In connection with the Recapitalization, the Partnership
redeemed all the outstanding APUs representing $22,000 that the General Partner had previously contributed underto increase distributions to Common
Unitholders in excess of the Distribution Support Agreement.target quarterly distribution of $0.55 per Common
Unit. With regard to the first $0.55 of quarterly distributions paid in any
given quarter, 98.29% of the Available Cash is distributed to the Common
Unitholders and 1.71% is distributed to the General Partner (98.11% and 1.89%,
respectively, prior to the June 2003 public offering described in Note 13). With
regard to the balance of quarterly distributions in excess of the $0.55 per
Common Unit target distribution, 85% of the Available Cash is distributed to the
Common Unitholders and 15% is distributed to the General Partner.
The following summarizes the quarterly distributions per Common Unit declared
and paid in respect of each of the quarters in the three fiscal years in the
period ended September 27, 2003:
September 27, September 28, September 29,
2003 2002 2001
-------------------- --------------------- --------------------
First Quarter $ 0.5750 $ 0.5625 $ 0.5375
Second Quarter 0.5750 0.5625 0.5500
Third Quarter 0.5875 0.5750 0.5500
Fourth Quarter 0.5875 0.5750 0.5625
On October 23, 2003, the Partnership has paiddeclared a quarterly distribution of
$0.5875 per Common Unit, or $2.35 on an annualized basis, for the Minimum Quarterly Distribution on all outstanding
Common Units during eachfourth quarter
of fiscal 2000. The Partnership has increased2003 that was paid on November 10, 2003 to holders of record on
November 3, 2003. This quarterly distribution includes incentive distributions
payable to the General Partner to the extent the quarterly distribution to Unitholders from $.5250 to $.5375exceeds
$0.55 per quarter
effective for the fiscal fourth quarter endedCommon Unit.
F-12
4. ADOPTION OF NEW ACCOUNTING STANDARD
Effective September 30, 2000. The total
amount consists of2001, the existing Minimum Quarterly Distribution of $.50 per Unit
per quarter plus an additional $0.0375 per Unit per quarter above the Minimum
Quarterly Distribution.
4. RELATED PARTY TRANSACTIONS
In connection with the Partnership's Recapitalization (See Note 10 - The
Recapitalization), the Successor General Partner acquired the general partner
interests from Millennium Chemicals Inc. for $6,000 (the "GP Loan") which was
borrowed under a private placement with Mellon Bank N.A. ("Mellon"). In
addition, the Partnership incurred expenses of $300 to complete the purchase of
the general partner interest by the Successor General Partner.
Under the occurrence and continuance of an event of default, as defined in the
GP Loan, Mellon will have the right to cause the Partnership to purchase the
note evidencing the GP Loan (the "GP Note"). The Partnership has agreed to
maintain borrowing availability under its available lines of credit, which will
be sufficient to enable it to repurchase the GP Note in these circumstances. The
note evidencing the GP Loan will also cross-default to the obligationsbeginning of the Partnership's obligations under its Senior Note Agreement and its Revolving
Credit Agreement. Upon a GP default,2002 fiscal
year, the Partnership elected to early adopt the provisions of SFAS 142 which
modifies the financial accounting and reporting for goodwill and other
intangible assets, including the requirement that goodwill and certain
intangible assets no longer be amortized. This new standard also will haverequires a
transitional impairment review for goodwill, as well as an annual impairment
review, to be performed on a reporting unit basis. As a result of the rightadoption
of SFAS 142, amortization expense for the year ended September 28, 2002
decreased by $7,416 compared to purchase the GP Noteyear ended September 29, 2001 due to the
lack of amortization expense related to goodwill. Aside from Mellon.
Ifthis change in
accounting for goodwill, no other change in accounting for intangible assets was
required as a result of the adoption of SFAS 142 based on the nature of the
Partnership's intangible assets. In accordance with SFAS 142, the Partnership
elects or is required to purchasecompleted its annual impairment review and, as the note from Mellon,fair values of identified
reporting units exceeded the Partnership has the right, exercisable in its sole discretion pursuant to the
new compensation deferral plan established for the members of the Successor
General Partner, to cause up to all of the Common Units deposited in the trust
(amounting to $11,567respective carrying values, goodwill was not
considered impaired as of September 30, 2000)27, 2003 nor as of September 28, 2002.
The following table reflects the effect of the adoption of SFAS 142 on net
income and net income per Common Unit as if SFAS 142 had been in effect for the
periods presented:
September 27, September 28, September 29,
2003 2002 2001
------------- ------------- -------------
Net income:
As reported $ 48,669 $ 53,524 $ 53,510
Goodwill amortization - - 7,416
------------- ------------- -------------
As adjusted $ 48,669 $ 53,524 $ 60,926
============= ============= =============
Basic net income per Common Unit:
As reported $ 1.87 $ 2.12 $ 2.14
Goodwill amortization - - 0.29
------------- ------------- -------------
As adjusted $ 1.87 $ 2.12 $ 2.43
============= ============= =============
Diluted net income per Common Unit:
As reported $ 1.86 $ 2.12 $ 2.14
Goodwill amortization - - 0.29
------------- ------------- -------------
As adjusted $ 1.86 $ 2.12 $ 2.43
============= ============= =============
Other intangible assets at September 27, 2003 and September 28, 2002 consist
primarily of non-compete agreements with a gross carrying amount of $3,608 and
$4,240, respectively, and accumulated amortization of $2,573 and $2,766,
respectively. These non-compete agreements are amortized under the straight-line
method over the periods of the agreements, ending periodically between fiscal
years 2004 and 2011. Aggregate amortization expense related to other intangible
assets for the compensation
deferral planyears ended September 27, 2003, September 28, 2002 and September
29, 2001 was $423, $498 and $563, respectively.
Aggregate amortization expense related to be forfeited and cancelled (and to cause allother intangible assets for each of
the related
distributions to be forfeited), regardless of the amount paid by the Partnership
to purchase the GP Note.
Pursuant to a Computer Services Agreement (the "Services Agreement") datedfive succeeding fiscal years as of the Closing Date between MillenniumSeptember 27, 2003 is as follows: 2004 -
$352; 2005 - $299; 2006 - $228; 2007 - $76 and the Partnership, Millennium permitted
the Partnership to utilize Millennium's mainframe computer for the generation of
customer bills, reports and information regarding the Partnership's retail
sales. The Services Agreement was terminated effective April 3, 1998 at which
time the Partnership began utilizing the services of an unrelated third party
provider.2008 - $40.
F-13
For the year ended September 26, 199827, 2003, the Partnership incurred
expensesnet carrying amount of $202 undergoodwill
decreased by $24 as a result of the Services Agreement.sale of certain assets during the period.
5. SELECTED BALANCE SHEET INFORMATION
Inventories consist of:of the following:
September 30,27, September 25,
2000 1999
------------- -------------28,
2003 2002
--------------------- --------------------
Propane ................................. $ 33,05034,033 $ 24,36728,799
Appliances and heating accessories....... 8,581 5,360
-------- --------7,477 7,568
--------------------- --------------------
$ 41,63141,510 $ 29,727
======== ========
F-11
36,367
===================== ====================
The Partnership enters into contracts to buy propane for supply purposes. Such
contracts generally have terms of less than one year terms subject to annual renewal, with propane
costs based on market prices at the date of delivery. Property, plant and
equipment consist of:of the following:
September 27, September 28,
2003 2002
--------------------- --------------------
Land and improvements $ 27,134 $ 28,043
Buildings and improvements 59,543 57,245
Transportation equipment 36,677 46,192
Storage facilities 59,554 59,069
Equipment, primarily tanks and cylinders 370,494 362,001
Computer software 12,122 3,806
Construction in progress 2,531 11,935
--------------------- --------------------
568,055 568,291
Less: accumulated depreciation 255,265 237,282
--------------------- --------------------
$ 312,790 $ 331,009
===================== ====================
Depreciation expense for the years ended September 30,27, 2003, September 25,
2000 1999
------------- -------------
Land28, 2002
and improvements..................... $ 28,776 $ 27,892
BuildingsSeptember 29, 2001 amounted to $27,097, $27,857 and improvements................ 54,855 49,838
Transportation equipment.................. 59,228 55,541
Storage facilities........................ 30,854 24,923
Equipment, primarily tanks and cylinders.. 375,476 341,151
-------- --------
549,189 499,345
Less: accumulated depreciation............ 198,549 168,538
-------- --------
$350,640 $330,807$28,517, respectively.
6. LONG-TERM DEBT AND REVOLVING CREDIT AGREEMENTBORROWINGS
Long-term debt consists of:
September 30, September 25,
2000 1999
------------- -------------borrowings consist of the following:
F-14
September 27, September 28,
2003 2002
--------------------- --------------------
Senior Notes, 7.54%, due June 30, 2011 $ 340,000 $ 382,500
Senior Notes, 7.37%, due June 30, 2012 42,500 42,500
Note payable, 8%, due in annual installments through 2006 1,322 1,698
Amounts outstanding under Acquisition Facility
of Revolving Credit Agreement - 46,000
Other long-term liabilities 4 71
--------------------- --------------------
383,826 472,769
Less: current portion 42,911 88,939
--------------------- --------------------
$ 340,915 $ 383,830
===================== ====================
On March 5, 1996, pursuant to a Senior Notes, 7.54%, due June 30, 2011.... $425,000 $425,000
Note payable, 8%, due in annual
installments through 2006............... 2,370 2,670
Amounts outstanding under Acquisition
Facility of Revolving Credit Agreement.. 90,000 --
Other long-term liabilities............... 225 267
-------- --------
517,595 427,937
Less: current portion 376 303
-------- --------
$517,219 $427,634
======== ========
On the Closing Date,Agreement (the "1996 Senior Note
Agreement") the Operating Partnership issued $425,000 of Senior Notes (the "1996
Senior Notes") with an annual interest rate of 7.54%. The Operating
Partnership's obligations under the 1996 Senior Note Agreement are unsecured and
rank on an equal and ratable basis with the Operating Partnership's obligations
under the 2002 Senior Note Agreement and the Revolving Credit Agreement
discussed below. The 1996 Senior Notes will mature June 30, 2011, and require
semiannual interest payments which commenced June 30, 1996. The 1996 Senior Note
Agreement requires that the principal be paid in equal annual payments of
$42,500 starting July 1, 2002.
Pursuant to the Partnership's intention to refinance the first annual principal
payment of $42,500, the Operating Partnership executed on April 19, 2002 a Note
Purchase Agreement for the private placement of 10-year 7.37% Senior Notes due
June 30, 2002.2012 (the "2002 Senior Note Agreement"). On November 10, 1999, in connectionJuly 1, 2002, the
Partnership received $42,500 from the issuance of the Senior Notes under the
2002 Senior Note Agreement and used the funds to pay the first annual principal
payment of $42,500 due under the 1996 Senior Note Agreement. The Operating
Partnership's obligations under the 2002 Senior Note Agreement are unsecured and
rank on an equal and ratable basis with the acquisitionOperating Partnership's obligations
under the 1996 Senior Note Agreement and the Revolving Credit Agreement. Rather
than refinance the second annual principal payment of SCANA (See$42,500 due under the 1996
Senior Note 13 -
Acquisition and Dispositions),Agreement, the Partnership replaced its former Bankelected to repay this principal payment
on June 30, 2003.
The Partnership's previous Revolving Credit Facilities,Agreement, which had consisted ofprovided a $75,000
working capital facility and a $25,000$50,000 acquisition facility, with a new $175,000was scheduled to
mature on May 31, 2003. On May 8, 2003, the Partnership completed the Second
Amended and Restated Credit Agreement (the "Revolving Credit Agreement") which
extends the previous Revolving Credit Agreement with a syndicate of banks led by First Union National Bank as Administrative
Agent.until May 31, 2006. The
Revolving Credit Agreement consists of a $100,000 acquisition
facility andprovides a $75,000 working capital facility which expire on March 31, 2001.and an
acquisition facility of $25,000. Borrowings under the Revolving Credit Agreement
bear interest at a rate based upon either LIBOR plus a margin, First UnionWachovia National
Bank's prime rate or the Federal Funds rate plus 1/2 of 1%. An annual fee
ranging from .375% to .50%, based upon certain financial tests, is payable
quarterly whether or not borrowings occur. These terms are substantially the
same as the terms under the previous Revolving Credit Agreement. In connection
with the completion of the Revolving Credit Agreement, the Partnership repaid
$21,000 of outstanding borrowings under the Revolving Credit Agreement. On June
19, 2003, the Partnership repaid the remaining outstanding balance of $25,000
under the Revolving Credit Agreement. As of September 30, 2000, such fee was .50%.
The Revolving Credit Agreement provides the Partnership, at the Partnership's
option, the right to extend the expiration date from March 31, 2001 to December
31, 2001 provided that the maximum ratio of consolidated total indebtedness to
EBITDA (as defined in27, 2003 there were no
borrowings outstanding under the Revolving Credit Agreement) would decrease from 5.10
to 1.00 to 4.75 to 1.00 during the nine month extension period.
F-12
Agreement. As of September 30, 2000, $90,00028,
2002, $46,000 was outstanding under the acquisition facility of the previous
Revolving Credit Agreement resulting from the acquisition of SCANA and $6,500 was outstandingthere were no borrowings under the working
capital facility.
As of September 25,
1999, $2,750 was outstanding27, 2003, the Partnership had borrowing capacity of $75,000
under the former Bank Credit Facilities.
Based onworking capital facility and $25,000 under the current rates offered to the Partnership for debtacquisition facility of
the same
remaining maturities,Revolving Credit Agreement. The weighted average interest rate associated
with borrowings under the carrying value of the Partnership's long-term debt
approximates its fair market value.Revolving Credit Agreement was 3.42%, 3.67% and 6.98%
for fiscal 2003, 2002 and 2001, respectively.
F-15
The 1996 Senior Note Agreement, the 2002 Senior Note Agreement and the Revolving
Credit Agreement contain various restrictive and affirmative covenants
applicable to the Operating Partnership,Partnership; including (a) maintenance of certain
financial tests, (including maintaining
minimum net worthincluding, but not limited to, a leverage ratio less than 5.0
to 1 and an interest coverage ratio in excess of $50,000),2.50 to 1, (b) restrictions on
the incurrence of additional indebtedness, and (c) restrictions on certain
liens, investments, guarantees, loans, advances, payments, mergers,
consolidations, distributions, sales of assets and other transactions. During
December 2002, the Partnership amended the 1996 Senior Note Agreement to (i)
eliminate an adjusted net worth financial test to be consistent with the 2002
Senior Note Agreement and Revolving Credit Agreement, and (ii) require a
leverage ratio of less than 5.25 to 1 when the underfunded portion of the
Partnership's pension obligations is used in the computation of the ratio. The
Partnership intends to exercise its option to
extendwas in compliance with all covenants and terms of the 1996 Senior
Note Agreement, the 2002 Senior Note Agreement and the Revolving Credit
Agreement as of September 27, 2003.
Debt origination costs representing the costs incurred in connection with the
placement of, and the subsequent amendment to, December 31, 2001 or replace the existingPartnership's Senior Notes
and Revolving Credit Agreement were capitalized within other assets and are
being amortized on a straight-line basis over the term of the respective debt
agreements. Other assets at September 27, 2003 and September 28, 2002 include
debt origination costs with a new facility with more favorable
restrictivenet carrying amount of $5,960 and affirmative covenants prior$5,926,
respectively. Aggregate amortization expense related to March 31, 2001.deferred debt
origination costs included within interest expense for the years ended September
27, 2003, September 28, 2002 and September 29, 2001 was $1,291, $1,338 and
$2,006, respectively.
The aggregate amounts of long-term debt maturities subsequent to September 27,
2003 are as follows: 2004 - $42,911; 2005 - $42,940; 2006 - $42,975; 2007 -
$42,500; 2008 - $42,500; and, thereafter - $170,000.
F-16
7. RESTRICTED UNIT PLANPLANS
In 1996,November 2000, the Partnership adopted the 1996Suburban Propane Partners, L.P.
2000 Restricted Unit Award Plan (the "Restricted"2000 Restricted Unit Plan") which authorizes the
issuance of Common Units with an aggregate value of $15,000 (731,707$10,000 (487,804 Common
Units valued at the initial public offering price of $20.50 per Unit)unit) to
executives, managers and Elected
Supervisorsother employees of the Partnership. Restricted Units
issued under the 2000 Restricted Unit Plan were
subject to a bifurcated vesting procedure such that (a) twenty-five percent of
the issued Units were to vest over time with one-third25% of such unitsthe Common
Units vesting at the end of each of the third fifth and seventhfourth anniversaries of the
issuance date and (b) the remaining seventy-five percent50% of the Common Units were to vest
automatically upon, and investing at the same proportions as,end of
the conversionfifth anniversary of Subordinated Units to Common Units.the issuance date. The 2000 Restricted Unit Plan
participants wereare not eligible to receive quarterly distributions or vote their
respective Restricted Units until vested. Restrictions generallyalso limit the sale or
transfer of the Unitsunits during the restricted periods. The value of the Restricted
Unit is established by the market price of the Common Unit at the date of grant.
Restricted Units are subject to forfeiture in certain circumstances as defined
in the 2000 Restricted Unit Plan.
In 1996, the Partnership adopted the 1996 Restricted Unit Award Plan (the "1996
Restricted Unit Plan") which authorized the issuance of Common Units with an
aggregate value of $15,000 (731,707 Common Units valued at the initial public
offering price of $20.50 per unit) to executives, managers and Elected
Supervisors of the Partnership. According to the change of control provisions of
the 1996 Restricted Unit Plan, all outstanding Restricted Units on the closing
date of the Recapitalization (See Note 10 - The Recapitalization)in May 1999 vested and converted into Common Units.
At the date of the Recapitalization, individuals who became members of the
General Partner surrendered receipt of 553,896 Common Units, representing
substantially all of their vested Restricted Units, in exchange for the right to
participate in a new compensation deferral plan of the Partnership and the
Operating Partnership (see Note 8, Compensation Deferral Plan).
Following is a summary of activity in the Restricted Unit Plan:
Units Value Per Unit
----- --------------
OUTSTANDING, SEPTEMBER 27, 1997 .......... 634,148 $18.41 - $21.63
Awarded .................................. 97,556 $19.91
Forfeited ................................ (109,893) $18.41 - $21.63
--------- ---------------
OUTSTANDING, SEPTEMBER 26, 1998 .......... 621,811 $18.41 - $21.63
Awarded .................................. 74,143 $17.88 - $19.06
Forfeited ................................ (22,789) $17.88 - $19.91
Vested and converted to Common Units...... (673,165) $17.88 - $21.63
--------- ---------------
OUTSTANDING, SEPTEMBER 25, 1999 AND
SEPTEMBER 30, 2000 ....................... -0- $ -0-
========= ===============
F-13
ForPlans:
Weighted Average
Grant Date Fair
Units Value Per Unit
------------------ -----------------------
OUTSTANDING SEPTEMBER 29, 2001 48,960 $ 20.66
Awarded 66,298 26.63
Forfeited (3,272) (20.66)
------------------ -----------------------
OUTSTANDING SEPTEMBER 28, 2002 111,986 24.19
Awarded 44,288 27.74
Forfeited (5,726) (20.66)
------------------ -----------------------
OUTSTANDING SEPTEMBER 27, 2003 150,548 $ 25.37
================== =======================
During the yearyears ended September 25, 1999,27, 2003, September 28, 2002 and September 29,
2001, the Partnership amortized $443$863, $603 and $228, respectively, of unearned
compensation and recorded an expense of $11,336 related toassociated with the accelerated vesting on the closing date of the Recapitalization which is
included in recapitalization costs in the accompanying statements of operations
(See Note 10 - The Recapitalization). For the year ended September 26, 1998, the
Partnership amortized $626 of unearned compensation.
The Partnership intends on adopting a new2000 Restricted Unit Plan, in fiscal 2001
which will replace the existing Restricted Unit Plan. The new Restricted Unit
Plan will eliminate the bifurcated vesting procedures and substitute a five-year
vesting procedure. The Partnership does not anticipate awarding anynet of the Units
which remain available under the existing Restricted Unit Plan which amount to
58,542 Units at September 30, 2000.forfeitures.
8. COMPENSATION DEFERRAL PLAN
Effective May 26, 1999, in connection with the Partnership's Recapitalization,
the Partnership adopted the Compensation Deferral Plan (the "Deferral Plan")
which provided for eligible employees of the Partnership to surrender their
right to receivedefer receipt of all
or a portion of their unvested Commonthe vested Restricted Units granted under the Partnership's 1996 Restricted
Unit Award Plan prior to the time their Common
Units were substantially certain to vest in exchange for the right to participate in and receive certain
payments under the Deferral Plan. Senior
management of the Partnership surrendered 553,896 Restricted Units, representing
substantially all of their Restricted Units, before they vested in exchange for
the right to participate in the Deferral Plan. The Partnership deposited into a
trust on behalf of these individuals 553,896 Common Units.
The Deferral Plan also allows eligible
employees to defer receipt of Common Units that may be subsequently granted by the
Partnership under the Deferral Plan. The Partnership granted Common Units under
the Deferral Plan only once during fiscal 2000. The Common Units granted under
the Deferral Plan and related Partnership distributions arewere subject to
forfeiture provisions such that (a) 100% of the Common Units would be forfeited
if the grantee ceasesceased to be
F-17
employed prior to the third anniversary of the Recapitalization, (b) 75% would
be forfeited if the grantee ceasesceased to be employed after the third anniversary
but prior to the fourth anniversary of the Recapitalization and (c) 50% would be
forfeited if the grantee ceasesceased to be employed after the fourth anniversary but
prior to the fifth anniversary of the Recapitalization. All forfeiture
provisions lapsed in August of 2002. Upon issuance of Common Units under the
Deferral Plan, unearned compensation equivalent to the market value of the
Common Units is charged at the date of grant.grant is recorded. The unearned compensation is
amortized in accordance with the Deferral Plan's forfeiture provisions. The
unamortized unearned compensation value is shown as a reduction of partners'
capital in the accompanying consolidated balance sheets.
For the year ended
September 30, 2000,Senior management of the Partnership amortized $215surrendered 553,896 Common Units, at the
date of unearned compensation.
Pursuant tothe Recapitalization, into the Deferral Plan. The Partnership deposited
into a trust on behalf of these individuals 553,896 Common Units. During fiscal
2000, certain members of management deferred receipt of an additional 42,925
Common Units granted under the Deferral Plan, participants have deferred receiptwith a fair value of these$19.91 per
Common Units and related distributions byUnit at the Partnershipdate of grant, by depositing the units into the trust.
In January 2003, in accordance with the terms of the Deferral Plan, 297,310 of
the deferred units were distributed to the members of the General Partner and
may now be voted and/or freely traded. Certain members of management elected to
further defer receipt of their deferred units (totaling 299,511 Common Units)
until January 2008. As of September 27, 2003 and September 28, 2002, there were
299,511 and 596,821 Common Units, into a trust.respectively, held in trust under the Deferral
Plan. The value of the Common Units deposited in the trust and the related
deferred compensation trust liability in the amount of $5,795 and $11,567 as of
September 27, 2003 and September 28, 2002, respectively, are reflected in the
accompanying condensed consolidated balance sheets as components of partners'
capital. Following isDuring the second quarter of fiscal 2003, the Partnership recorded a
summary of activity$5,772 reduction in the Deferral Plan:deferred compensation liability and a corresponding
reduction in the value of Common Units Value Per Unit
----- --------------
Outstanding, September 25, 1999........... - -
Awarded................................... 42,925 $19.91
------- --------
Outstanding, September 30, 2000........... 42,925 $19.91
======= ========held in trust, both within partners'
capital, related to the value of Common Units distributed from the trust.
9. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
DEFINED BENEFIT PLANS
=====================PLAN. The Partnership has a noncontributory defined benefit
pension plan which was originally designed to cover all eligible employees of
the Partnership who met certain requirements as to age and length of service.
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.
F-14
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 pay format which was in effect prior to January 1, 1998. The cash
balance format is designed to evenly spread the growth of a participant's earned
retirement benefit throughout his/her career as compared to the final average
pay format, under which a greater portion of employee benefits were earned
toward the latter stages of one's career. Effective January 1, 2000,
participation in the noncontributory defined benefit pension plan was limited to
eligible participants in existence on that date with no new participants
eligible to participate in the plan. On September 20, 2002, the Board of
Supervisors approved an amendment to the defined benefit pension plan whereby,
effective January 1, 2003, future service credits ceased and eligible employees
will now receive interest credits only toward their ultimate retirement benefit.
Contributions, as needed, are made to a trust maintained by the Partnership. The
trust's assets consist primarily of common stock, fixed income securities and
real estate. Contributions to the defined benefit pension plan are made by the
Partnership in accordance with the Employee Retirement Income Security Act of
1974 minimum funding standards plus additional amounts which may be determined
from time to time. There were no minimum funding requirements for the defined
benefit pension plan for fiscal 2003, 2002 or 2001. Recently, there has been
increased scrutiny over cash balance defined benefit pension plans and resulting
litigation regarding such plans sponsored by other companies. These developments
may result in legislative changes impacting cash balance defined benefit pension
plans in the future. While no such legislative changes have been adopted, and if
adopted the impact on the Partnership's defined benefit pension plan is not
certain, there can be no assurances that future legislative developments will
not have an adverse effect on the Partnership's results of operations or cash
flows.
F-18
DEFINED CONTRIBUTION PLAN. The Partnership alsohas a defined contribution plan
covering most employees. Employer contributions and costs are a percent of the
participating employees' compensation, subject to the achievement of annual
performance targets of the Partnership. These contributions totaled $1,305, $947
and $4,560 for the years ended September 27, 2003, September 28, 2002 and
September 29, 2001, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. The Partnership provides
postretirement health care and life insurance benefits for certain retired
employees. Partnership employees hired prior to July 1993 and that retired prior
to March 1998 are eligible for such benefits if they reached a specified
retirement age while working for the Partnership. Effective January 1, 2000, the
Partnership 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.plan, noted above. The Partnership has accounted for the restructuring of the above-noteddoes not fund its
postretirement health care and life insurance 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, after costs associated with such restructuring, being
recognized as a gain in the accompanying statement of operations for the year
ended September 26, 1998.
The Partnership has a noncontributory defined benefit pension plan covering all
eligible employees of the Partnership who have met certain requirements as to
age and length of service. Contributions are made to a trust maintained by the
Partnership.
The trust's assets consist primarily of common stock, fixed income securities
and real estate. Contributions to the defined benefit plan are made by the
Partnership in accordance with the Employee Retirement Income Security Act of
1974 minimum funding standards plus additional amounts which may be determined
from time-to-time.
September 30, September 25,
2000 1999
------------- -------------
The following table sets forth the plan's
actuarial assumptions:
Weighted-average discount rate............ 7.75% 7.50%
Average rate of compensation increase..... 3.50% 3.50%
Weighted-average expected long-term rate
of return on plan assets................. 9.50% 9.0%
The following table provides a reconciliation
of benefit obligations:
Benefit obligation at beginning of year .. $155,933 $178,785
Service cost.............................. 4,403 5,673
Interest cost............................. 10,945 11,107
Actuarial (gain).......................... (1,946) (19,723)
Benefits paid............................. (17,920) (19,909)
--------- ---------
Benefit obligation at end of year......... $151,415 $155,933
========= =========
The following table provides a reconciliation
of plan assets:
Fair value of plan assets at beginning of
year..................................... $177,981 $179,090
Actual return on plan assets.............. 16,990 18,800
Benefits paid............................. (17,920) (19,909)
--------- ---------
Fair value of plan assets at end of year.. $177,051 $177,981
========= =========plans.
The following table provides a reconciliation of the changes in the benefit
obligations and the fair value of the plan assets for each of the years ended
September 27, 2003 and September 28, 2002 and a statement of the funded status
for both years:
Other
Pension Benefits Postretirement Benefits
--------------------------------------- -------------------------------------
2003 2002 2003 2002
------------------ ------------------ ------------------ ----------------
RECONCILIATION OF BENEFIT OBLIGATIONS:
Benefit obligation at beginning of year $ 174,698 $ 167,187 $ 41,136 $ 37,559
Service cost 629 4,445 17 16
Interest cost 11,376 11,581 2,641 2,574
Actuarial loss/(gain) 4,066 8,700 (4,115) 3,852
Curtailment gain - (1,812) - -
Benefits paid (16,593) (15,403) (2,497) (2,865)
-------------- ------------------ ------------------ ----------------
Benefit obligation at end of year $ 174,176 $ 174,698 $ 37,182 $ 41,136
============== ================== ================== ================
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS:
Fair value of plan assets at beginning of year $ 121,534 $ 143,116 $ - $ -
Actual return on plan assets 17,099 (6,179) - -
Employer contributions 10,000 - 2,497 2,865
Benefits paid (16,593) (15,403) (2,497) (2,865)
-------------- ------------------ ------------------ ----------------
Fair value of plan assets at end of year $ 132,040 $ 121,534 $ - $ -
============== ================== ================== ================
FUNDED STATUS:
Funded status at end of year $ (42,136) $ (53,164) $ (37,182) $ (41,136)
Unrecognized prior service cost - - (2,306) (3,026)
Net unrecognized actuarial losses 80,139 85,077 3,603 8,060
Accumulated other comprehensive (loss) (80,139) (85,077) - -
-------------- ------------------ ------------------ ----------------
Accrued benefit liability (42,136) (53,164) (35,885) (36,102)
Less: Current portion - - 2,450 2,818
-------------- ------------------ ------------------ ----------------
Non-current benefit liability $ (42,136) $ (53,164) $ (33,435) $ (33,284)
============== ================== ================== ================
The funded status of the plan:
Funded status............................. $ 25,636 $ 22,048
Unrecognized priorPartnership's defined benefit pension plan continues to
be impacted by the turbulent capital markets affecting the market value of our
pension asset portfolio and by the low interest rate environment affecting the
actuarial value of the projected benefit obligations. In an effort to minimize
future increases in the pension plan
F-19
benefit obligations, the Partnership adopted an amendment to the defined benefit
pension plan which ceased future service cost........... (1,513) (1,723)
Unrecognized net actuarial loss........... 9,564 13,173
--------- ---------
Prepaid benefit cost...................... $ 33,687 $ 33,498
========= =========
F-15
Thecredits effective January 1, 2003. This
amendment resulted in a curtailment gain of $1,093 included within the net
periodic pension (income)/expense includescost for the following:year ended September 28, 2002. Additionally,
during fiscal 2003, the Partnership made a voluntary contribution of $10,000 to
the plan, thereby taking proactive steps to improve the funded status of the
plan and reduce the minimum pension liability.
The following table provides the components of net periodic benefit costs for
the years ended September 27, 2003 and September 28, 2002:
Year Ended Year Ended Year Ended
September 30, September 25, September 26,
2000 1999 1998
------------- ------------- -------------Other
Pension Benefits Postretirement Benefits
------------------------------------- ---------------------------------
2003 2002 2003 2002
------------ --------------- --------------- ---------------
Service cost ............................. $ 4,403629 $ 5,6744,445 $ 5,03817 $ 16
Interest cost ............................ 10,945 11,107 11,69811,376 11,581 2,641 2,574
Expected return on plan assets ........... (15,327) (16,254) (16,901)(12,161) (14,974) - -
Amortization of prior service cost .......- (210) (210) (185)(720) (720)
Curtailment gain - (1,093) - -
Recognized net actuarial loss ............ -- 741 --
Plan amendment ........................... -- -- 14,392
--------- ---------- ---------4,066 1,912 342 41
------------ --------------- --------------- ---------------
Net periodic pension (income)/expense..benefit cost $ (189)3,910 $ 1,0581,661 $ 14,042
========= ========== =========2,280 $ 1,911
============ =============== =============== ===============
DEFINED CONTRIBUTION PLAN
=========================
The Partnership has a defined contributionPension benefit expense was $113 (consisting of service cost of $5,024, interest
cost of $11,034, expected return on plan covering most employees.
Contributionsassets of $15,735 and costs are a percentamortization of the participating employees'
compensation. These amounts totaled $1,908, $1,331 and $1,923 for the years
ended September 30, 2000, September 25, 1999 and September 26, 1998,
respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
===========================================
The Partnership provides postretirement health care and life insurance benefits
for certain retired employees. Partnership employees hired prior to July 1993
and that retired prior to March 1998 are eligible for such benefits if they
reached a specified retirement age while working for the Partnership. The
Partnership does not fund its postretirement benefit plan.
September 30, September 25,
2000 1999
------------- -------------
The following table provides a reconciliation
of benefit obligations:
Benefit obligation at beginning of year .. $ 38,808 $ 41,447
Service cost ............................. 130 136
Interest cost ............................ 2,753 2,581
Actuarial (gain) ......................... (265) (1,772)
Benefits paid ............................ (3,172) (3,505)
Amendments ............................... -- (79)
--------- ---------
Benefit obligation at end of year ........ $ 38,254 $ 38,808
========= =========
The following table provides a reconciliation
of the funded status of the plan:
Funded status ............................ $(38,254) $(38,808)
Unrecognized
prior service cost .......... (4,467) (5,188)
Unrecognizedof $210) and other postretirement benefit costs were $2,341
(consisting of service cost of $123, interest cost of $2,794, amortization of
prior service cost of $721 and recognized net actuarial loss .......... 5,664 6,097
--------- ---------
Accruedof $145) for the
year ended September 29, 2001. The assumptions used in the measurement of the
Partnership's benefit liability ................ $(37,057) $(37,899)
Less: Current portion ................... 3,172 3,505
--------- ---------
Non-current liability .................... $ 33,885 $ 34,394
========= =========
F-16
The net periodic postretirement benefit (income)/expense includesobligations are shown in the following components:table:
Year Ended Year Ended Year EndedOther
Pension Benefits Postretirement Benefits
------------------------------------- ---------------------------------
September 30, September 25, September 26,
2000 1999 1998
------------- ------------- -------------September
27, 2003 28, 2002 27, 2003 28, 2002
--------------- ---------------- -------------- ------------
Service cost ............................. $ 130 $ 136 $ 474
Interest cost ............................ 2,753 2,581 2,645
Amortization
Weighted-average discount rate 6.00% 6.75% 6.00% 6.75%
Average rate of prior service cost ....... (721) (714) (536)
Recognized net actuarial loss ............ 168 284 184
Plan amendment ........................... -- -- (15,367)
--------- ---------- ---------
Net periodic postretirement benefit
(income)/expense............... $ 2,330 $ 2,287 $(12,600)
========= ========== =========compensation increase n/a 3.50% - -
Weighted-average expected long-term
rate of return on plan assets 7.75% 8.50% - -
The following assumptions were used in the measurement of the Partnership's
benefit obligations as of September 29, 2001: weighted-average discount rate of
7.25%, average rate of compensation increase of 3.50% and weighted-average
expected long-term rate of return on plan assets of 9.50%. The accumulated
postretirement benefit obligation was based on a 7% and 8%13% increase in the cost of
covered health care benefits for 2000at September 27, 2003 and 1999,
respectively. This ratea 12% increase in the
cost of covered health care benefits at September 28, 2002. The 13% increase in
health care costs assumed at September 27, 2003 is assumed to decrease gradually
to 5.75%5.00% in 2002fiscal 2013 and to remain at that level thereafter. Increasing the
assumed health care cost trend rates by 1.0% in each year would increase the
Partnership's benefit obligation as of September 30, 200027, 2003 by $1,180approximately
$1,354 and the aggregate of service and interest components of accumulated postretirement net periodic
postretirement benefit costexpense for the year ended September 30, 200027, 2003 by
$90.
The weighted-average discount rate usedapproximately $105. Decreasing the assumed health care cost trend rates by 1.0%
in determiningeach year would decrease the accumulatedPartnership's benefit obligation as of September
27, 2003 by approximately $1,222 and the aggregate service and interest
components of net periodic postretirement benefit obligation was 7.75% and 7.5%expense for the year ended
September 27, 2003 by approximately $94.
F-20
10. FINANCIAL INSTRUMENTS
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The Partnership purchases propane
at September 30, 2000 and
September 25, 1999, respectively.
10. THE RECAPITALIZATION
On May 26, 1999, after receiving Unitholder approval,various prices that are eventually sold to its customers, exposing the
Partnership completedto market fluctuations in the Recapitalization contemplated by its November 27, 1998 Recapitalization
Agreement with Millennium, the General Partnerprice of propane. A control
environment has been established which includes policies and procedures for risk
assessment and the Successor General
Partner.approval, reporting and monitoring of derivative instruments
and hedging activities. The elementsPartnership closely monitors the potential impacts
of commodity price changes and, where appropriate, utilizes commodity futures,
forward and option contracts to hedge its commodity price risk, to protect
margins and to ensure supply during periods of high demand. Derivative
instruments are used to hedge a portion of the Recapitalization included:
oPartnership's forecasted
purchases for no more than one year in the future.
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS No. 137, SFAS No. 138 and SFAS No. 149 ("SFAS 133") requires all
derivatives (with certain exceptions), whether designated in hedging
relationships or not, to be recorded on the consolidated balance sheet at fair
value. SFAS 133 requires that changes in the derivative instrument's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges, either fair value hedges or
cash flow hedges, allows a derivative's gains and losses to offset related
results on the hedged item in the statement of operations, and requires that a
company formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. Fair value hedges are derivative
financial instruments that hedge the exposure to changes in the fair value of an
asset or liability or an identified portion thereof attributable to a particular
risk. Cash flow hedges are derivative financial instruments that hedge the
exposure to variability in expected future cash flows attributable to a
particular risk.
Since March 31, 2002, the Partnership's futures and forward contracts qualify
and have been designated as cash flow hedges and, as such, the effective
portions of changes in the fair value of these derivative instruments are
recorded in other comprehensive (loss)/income ("OCI") and are recognized in cost
of products sold when the hedged item impacts earnings. As of September 27,
2003, unrealized gains on derivative instruments designated as cash flow hedges
in the amount of $1,129 were included in OCI and are expected to be recognized
in earnings during the next 12 months as the hedged forecasted transactions
occur. However, due to the volatility of the commodities market, the
corresponding value in OCI is subject to change prior to its impact on earnings.
Option contracts are not classified as hedges and, as such, changes in the fair
value of these derivative instruments are recognized within operating expenses
in the consolidated statement of operations as they occur. Additionally, prior
to March 31, 2002, the Partnership's futures and forward contracts were not
designated as cash flow hedges and the changes in fair value of these
instruments were recognized in earnings as they occurred. For the year ended
September 27, 2003, operating expenses included unrealized losses in the amount
of $1,500 compared to unrealized gain in the amount of $5,356 for the year ended
September 28, 2002, attributable to changes in the fair value of derivative
instruments not designated as hedges.
CREDIT RISK. The redemptionPartnership's principal customers are residential and
commercial end users of propane served by approximately 320 customer service
centers in 40 states. No single customer accounted for more than 10% of revenues
during fiscal 2003, 2002 or 2001 and no concentration of receivables exists at
the end of fiscal 2003 or 2002.
Futures contracts are traded on and guaranteed by the Partnership of all 7,163,750 Subordinated UnitsNew York Merchantile
Exchange ("NYMEX") and 220,000 APUs, which were owned by the General Partner, for $69,000
in cash.
o The substitutionas a result, have minimal credit risk. Futures contracts
traded with brokers of the Successor General Partner asNYMEX require daily cash settlements in margin
accounts. The Partnership is subject to credit risk with forward and option
contracts entered into with various third parties to the new general
partnerextent the
counterparties do not perform. The Partnership evaluates the financial condition
of each counterparty with which it conducts business and establishes credit
limits to reduce exposure to credit risk based on non-performance. The
Partnership does not require collateral to support the contracts.
F-21
FAIR VALUE OF FINANCIAL INSTRUMENTS. The fair value of cash and cash equivalents
are not materially different from their carrying amounts because of the
Partnership and the Operating Partnership following its
purchaseshort-term nature of these instruments. The fair value of the combined 2% general partner interests inRevolving Credit
Agreement approximates the Partnership andcarrying value since the Operating Partnership andinterest rates are
periodically adjusted to reflect market conditions. Based on the incentive
distribution rights incurrent rates
offered to the Partnership for $6,000 in cash (the "GP
Interest Purchase").
o The amendmentdebt of the Senior Note, Bank Credit Facilities andsame remaining maturities, the
partnership agreements of the Partnership and the Operating
Partnership to permit and effect the Recapitalization and to reduce
the distribution levels that apply to the incentive distribution
rights of the Successor General Partner.
o The termination of the Distribution Support Agreement among the
Partnership, the General Partner and Millennium and its replacement
with a liquidity arrangement provided by the Partnership under the
Bank Credit Facilities, as amended.
o An increase in the quarterly distribution to the Partnership's
Unitholders from $0.50 to $0.5125 per Unit per quarter (from $2.00 to
$2.05 per Unit per year), effective for the fiscal quarter ended June
26, 1999. The total amount consists of the existing Minimum Quarterly
Distribution of $0.50 per Unit per quarter plus an additional $0.0125
per Unit per quarter above the Minimum Quarterly Distribution.
F-17
The Partnership incurred expenses of $18,903 in connection with the
Recapitalization transactions of which $7,567 represents cash expenses and
$11,336 represents non-cash expenses associated with the accelerating vesting of
Restricted Units. The redemption price and the costs of the Recapitalization
were funded entirely from available cash on hand.
The Successor General Partner borrowed the $6,000 purchase price for the GP
Interest Purchase from Mellon, N.A. In connection with the GP Loan, the
Operating Partnership entered into a purchase agreement with Mellon under which
the Operating Partnership is required to purchase the note evidencing the GP
Loan in the event of a default under the GP Loan by the Successor General
Partner.
The Successor General Partner is owned by Senior Management of the Partnership
who had previously been granted Restricted Units under the Partnership's
Restricted Unit Plan. These individuals surrendered 553,896 Restricted Units
representing substantially all of their Restricted Units, before they vested
(according to their terms, the Restricted Units vested and converted into Common
Units on completion of the Recapitalization) in exchange for the right to
participate in a new compensation deferral plan of the Partnership and the
Operating Partnership. The Partnership deposited into a trust on behalf of these
individuals 553,896 Common Units. Pursuant to the new compensation deferral
plan, these individuals have deferred receipt of these Common Units and related
distributions by the Partnership until the date the GP Loan is repaid in full or
the seventh anniversary of the date the Recapitalization is completed, whichever
they may choose, but subject to the earlier distribution and forfeiture
provisions of the compensation deferral plan. Thecarrying value of the Common Units
deposited in the trust and the related deferred compensation trust liability are
reflected in the accompanying consolidated balance sheets at September 30, 2000
and September 25, 1999 as components of Partners' Capital.Partnership's Senior Notes approximates their fair market
value.
11. INCOME TAXES
As discussed in Note 2, the Partnership's earnings for federal and state income
tax purposes are included in the tax returns of the individual partners.
Accordingly, no recognition has been given to income taxes in the accompanying
financial statements of the Partnership except for earnings of the corporate
entities which are subject to federal and state income taxes.
12. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
===========Commitments. The Partnership leases certain property, plant and equipment,
including portions of the Partnership's vehicle fleet, for various periods under
noncancelable leases. Rental expense under operating leases was $19,931,
$18,018$24,337, $24,005
and $16,993$23,354 for the years ended September 30, 2000,27, 2003, September 25, 199928, 2002 and
September 26, 1998,29, 2001, respectively.
Future minimum rental commitments under noncancelable operating lease agreements
as of September 30, 200027, 2003 are as follows:
FISCAL YEARFiscal Year
-----------
2001 $19,817
2002 15,608
2003 15,462
2004 10,977$ 17,796
2005 12,868
2006 9,959
2007 5,860
2008 and thereafter 20,613
CONTINGENCIES
=============6,410
CONTINGENCIES. As discussed in Note 2, 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 September
30, 200027, 2003 and September 25, 1999,28, 2002, the Partnership had accrued insurance
liabilities amounted to $25,628of $28,639 and $23,129,$26,969, respectively, representing the total
estimated F-18
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,Management believes, 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.
The Partnership is subject to various federal, state and local environmental,
health and safety laws and regulations. Generally, these laws impose limitations
on the discharge of pollutants and establish standards for the handling of solid
and hazardous wastes. These laws include the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), the Clean Air Act, the Occupational Safety and Health Act, the
Emergency Planning and Community Right to Know Act, the Clean Water Act and
comparable state statutes. CERCLA, also known as the "Superfund" law, imposes
joint and several liability without regard to fault or the legality of the
original conduct on certain classes of persons that are considered to have
contributed to the release or threatened release of a "hazardous substance" into
the environment. Propane is not a hazardous substance within the meaning of
CERCLA, however,CERCLA. However, the Partnership owns real property where such hazardous
substances may exist.
Future developments, such as stricter environmental, health or safety laws and
regulations thereunder, could affect Partnership operations. The Partnership
anticipates that compliance with or liabilities under environmental, health and
safety laws and regulations, including CERCLA, will not have a material adverse
effect on the Partnership. To the extent that there are any environmental
liabilities unknown to the Partnership or environmental, health or safety laws
or regulations are made more stringent, there can be no assurance that the
Partnership's results of operations will not be materially and adversely
affected.
13. ACQUISITION AND DISPOSITIONS
On November 8, 1999,F-22
12. GUARANTEES
FASB Financial Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others," expands the existing disclosure requirements for guarantees and
requires recognition of a liability for the fair value of guarantees issued
after December 31, 2002. The Partnership has residual value guarantees
associated with certain of its operating leases, related primarily to
transportation equipment, with remaining lease periods scheduled to expire
periodically through fiscal 2010. Upon completion of the lease period, the
Partnership acquiredguarantees that the assetsfair value of SCANA Propane Gas,
Inc., SCANA Propane Storage, Inc., SCANA Propane Supply, Inc., USA Cylinder
Exchange, Inc., and C&T Pipeline, LLC from SCANA Corp.the equipment will equal or exceed
the guaranteed amount, or the Partnership will pay the lessor the difference.
Although the fair value of equipment at the end of its lease term has
historically exceeded the guaranteed amounts, the maximum potential amount of
aggregate future payments the Partnership could be required to make under these
leasing arrangements, assuming the equipment is deemed worthless at the end of
the lease term, is approximately $14,355. Of this amount, the fair value of
residual value guarantees for $86,000 plus working
capital. SCANA Propane Gas, Inc. distributes approximately 20 million gallons
annually and services more than 40,000 customers from 22 customer service
centersoperating leases entered into after December 31,
2002 was $2,067 which is reflected in North and South Carolina. USA Cylinder Exchange, Inc. operates an
automated 20-lb. propane cylinder refurbishing and refill center in Hartsville,
South Carolina, selling to approximately 1,600 grocery and convenience storesother liabilities, with a corresponding
amount included within other assets, in the Carolinas, Georgia and Tennessee. SCANA Propane Storage, Inc. owns a 60
million gallon storage cavern in Tirzah, South Carolina which is connected to
the Dixie Pipeline by the 62 mile propane pipeline owned by C&T Pipeline, LLC.
The acquisition has been accounted for using the purchase methodaccompanying consolidated balance
sheet as of accounting.
Accordingly, the purchase price has been allocated to the assets and liabilities
based on their estimated fair values and the balance of $54,283 has been
recorded as goodwill and is being amortized over its estimated useful life of
forty years. Unaudited pro forma consolidated results after giving effect to the
acquisition during the years ended September 25, 1999 and September 30, 2000
would not have been materially different from the reported amounts for either
year.27, 2003.
13. PUBLIC OFFERINGS
On December 3, 1999June 18, 2003, the Partnership sold 23 customer service centers principally
located2,282,500 Common Units in Georgia for total casha public
offering at a price of $29.00 per Common Unit realizing proceeds of approximately $19,400$62,879, net
of underwriting commissions and recordedother offering expenses. On June 26, 2003,
following the underwriters' full exercise of their over-allotment option, the
Partnership sold an additional 342,375 Common Units at $29.00 per Common Unit,
generating additional net proceeds of $9,307. The aggregate net proceeds of
$72,186 were used for general partnership purposes, including working capital
and the repayment of outstanding borrowings under the Revolving Credit Agreement
and the second annual principal payment of $42,500 due under the 1996 Senior
Note Agreement on June 30, 2003. These transactions increased the total number
of Common Units outstanding to 27,256,162. As a gainresult of $10,328.
14. SUBSEQUENT EVENTSthe Public Offering,
the combined general partner interest in the Partnership was reduced from 1.89%
to 1.71% while the Common Unitholder interest in the Partnership increased from
98.11% to 98.29%.
On October 17, 2000, the Partnership sold 2,1752,175,000 Common Units in a public
offering at a price of $21.125 per Common Unit realizing proceeds of $43,500,
net of underwriting commissions and any other offering expenses. On November 14,
2000, following the underwritersunderwriter's partial exercise of its over-allotment option,
the Partnership sold an additional 0.178177,700 Common Units at the same price,
generating additional net proceeds of $3,600. The aggregate net proceeds of
$47,100 were applied to reduce the Partnership's outstanding Revolving Credit
Agreement borrowings. F-19These transactions increased the total number of Common
Units outstanding to 24,631,287.
14. DISCONTINUED OPERATIONS AND DISPOSITION
In line with the Partnership's strategy of divesting operations in slower
growing or non-strategic markets in an effort to identify opportunities to
optimize the return on assets employed, the Partnership sold nine customer
service centers during fiscal 2003 for net cash proceeds of approximately
$7,197. The Partnership recorded a gain on sale of approximately $2,483 during
fiscal 2003 which has been accounted for within discontinued operations pursuant
to SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." Prior period results of operations attributable to these nine customer
service centers were not significant and, as such, prior period results have not
been reclassified to remove financial results from continuing operations.
On January 31, 2002, the Partnership sold its 170 million gallon propane storage
facility in Hattiesburg, Mississippi, which was considered a non-strategic
asset, for net cash proceeds of approximately $7,988, resulting in a gain on
sale of approximately $6,768.
F-23
15. SUBSEQUENT EVENT
On November 10, 2003, the Partnership announced that it had entered into an
asset purchase agreement (the "Purchase Agreement") to acquire substantially all
of the assets of Agway Energy Products, LLC, Agway Energy Services PA, Inc. and
Agway Energy Services, Inc. (collectively "Agway Energy"), all of which are
wholly owned subsidiaries of Agway, Inc., for total cash consideration of
approximately $206,000, subject to certain purchase price adjustments. Agway,
Inc. is presently a debtor-in-possession under Chapter 11 of the Bankruptcy Code
pending before the United States Bankruptcy Court for the Northern District of
New York. Agway Energy is not a Chapter 11 debtor. The Purchase Agreement was
filed with the United States Bankruptcy Court and on November 24, 2003, the
Bankruptcy Court approved Agway, Inc.'s motion to establish bid procedures for
the sale. In addition, the transaction has been approved by the Partnership's
Board of Supervisors. Closing on the sale under the Purchase Agreement is
subject to the approval by the United States Bankruptcy Court following the
conclusion of an auction process, to be conducted pursuant to the jurisdiction
of the Bankruptcy Court, and is subject to regulatory approvals. The transaction
will be accounted for using the purchase method of accounting.
Under the terms of the Purchase Agreement, the Partnership would purchase all of
the operations of Agway Energy, including 139 distribution and sales centers
primarily in New York, Pennsylvania, New Jersey and Vermont. Agway Energy, based
in Syracuse, New York, markets and distributes propane, fuel oil, gasoline and
diesel fuels and installs and services a wide variety of home comfort equipment,
particularly in the area of heating, ventilation and air conditioning. For the
year ended June 30, 2003 Agway Energy provided service to more than 400,000
customers across all lines of business and sold approximately 106.3 million
gallons of propane and 356.8 million gallons of fuel oil, gasoline and diesel
fuel to retail customers for residential, commercial, industrial and
agricultural applications. While the Purchase Agreement has been reviewed and
accepted by the Bankruptcy Court, there can be no assurance that the Partnership
will ultimately be the successful bidder at the auction.
F-24
INDEX TO SUPPLEMENTAL FINANCIAL INFORMATION
SUBURBAN ENERGY SERVICES GROUP LLC
PAGEPage
----
Report of Independent Accountants F-21Auditors............................................. F-25
Balance Sheets
-As of September 30, 200027, 2003 and September 25, 1999 F-2228, 2002....................... F-26
Notes to Consolidated Balance Sheets F-23
F-20Sheets.................................................... F-27
F-25
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------AUDITORS
To the Stockholders of
Suburban Energy Services Group LLCLLC:
In our opinion, the accompanying consolidated balance sheets present fairly, in all material
respects, the financial position of Suburban Energy Services Group LLC at
September 30, 200027, 2003 and September 25, 199928, 2002 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the balance sheets are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the balance sheets, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall balance sheet
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.our
opinion.
PricewaterhouseCoopers LLP
Florham Park, NJ
October 24, 2000
F-2123, 2003
F-26
SUBURBAN ENERGY SERVICES GROUP LLC
BALANCE SHEETS
September 30, September
25,
2000 1999
------------- -------------
Assets27, 2003 28, 2002
---------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 5,9862,886 $ 23,149
----------- -----------4,363
---------------- -----------------
Total current assets ............................. 5,986 23,1492,886 4,363
Investment in Suburban Propane Partners, L.P. .... 1,866,426 2,044,4531,566,483 1,924,003
Goodwill, net .................................... 3,195,180 3,277,800
----------- -----------3,112,560 3,112,560
---------------- -----------------
Total assets ................................. $ 5,067,5924,681,929 $ 5,345,402
=========== ===========
Liabilities
Current Liabilities:
Current portion of note payable .................. $ 1,030,000 $ 460,000
Interest payable ................................. 55,733 49,933
----------- -----------
Total current liabilities ........................ 1,085,733 509,933
Note payable ....................................... 3,995,000 5,425,000
----------- -----------5,040,926
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Total liabilities ................................ 5,080,733 5,934,933
----------- ------------ -
---------------- -----------------
Stockholders' equity (deficit)
Common stock, $1 par value, 2,000 shares issued and outstanding ....................... 2,000 2,000
Additional paid in capital ....................... 345,141 --
Accumulated1,853,333 3,405,108
Retained earnings (deficit) ................... (360,282) (591,531)
----------- -----------2,826,596 1,633,818
---------------- -----------------
Total stockholders' equity (deficit) ........... (13,141) (589,531)
----------- -----------4,681,929 5,040,926
---------------- -----------------
Total liabilities and stockholders' equity (deficit).................................... $ 5,067,5924,681,929 $ 5,345,402
=========== ===========5,040,926
================ =================
The accompanying notes are an integral part of these financial statements.
F-22balance sheets.
F-27
SUBURBAN ENERGY SERVICES GROUP LLC
Notes To Financial StatementsNOTES TO BALANCE SHEETS
1. ORGANIZATION AND FORMATION
Suburban Energy Services Group LLC (the "Company") was formed on October 26,
1998 as a limited liability company pursuant to the Delaware Limited Liability
Company Act. ItThe Company was formed to purchase the general partner interests in
Suburban Propane Partners, L.P. (the "Partnership") from Suburban Propane GP,
Inc. (the "Former General Partner"), a wholly-owned indirect subsidiary of
Millennium Chemicals Inc., and become the successor general partner. TheOn May 26,
1999, the Company purchased and owns a 0.88%1% general partner interest in Suburban Propane Partners, L.P.the Partnership and
a 1.0101% general partner interest in Suburban Propane, L.P., a wholly-owned subsidiary of
Suburban Propane Partners, L.P.
Suburban Propane Partners, L.P.the Operating
Partnership.
The Partnership is a publicly-traded Master Limited Partnership
tradedmaster limited partnership whose common
units are listed on the New York Stock Exchange and is engaged in the retail and
wholesale marketing of propane and related appliances and services. The Company acquiredAs a result
of two public offerings by the general partner interests from Millennium Chemicals
Inc.Partnership on May 26, 1999 (the "Closing Date") for $6,000,000, whichOctober 17, 2000 and June 18,
2003, the Company's interest in the Partnership was borrowed
under a private placement with Mellon Bank, N.A. ("Mellon")reduced to .701%. The
Company is owned by senior management ofCompany's interest in Suburban Propane, L.P. Each owner
has contributed their pro-rata share of $2,000 as their initial capital
contribution. The Company plans to repay the $6,000,000 borrowing from its
general partner distributions to be received from Suburban Propane Partners,
L.P. and from capital contributions from its owners. During the year ended
September 30, 2000, the Company's owners made capital contributions in the
amount of $345,141.was not affected.
2. BASISSUMMARY OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BASISACCOUNTING PERIOD. The Company's accounting period ends on the last Saturday
nearest to September 30.
USE OF PRESENTATION.ESTIMATES. The accompanyingpreparation of financial statements have been
prepared onin conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the accrual basisreported amounts of accounting.assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS. The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents. The carrying amount approximates fair value because of the
short maturity of these instruments.
INVESTMENT IN SUBURBAN PROPANE PARTNERS, L.P. As previously noted, the Company
acquired a combined 2% general partner interest in Suburban Propane
Partners, L.P. on the Closing Date.Partnership which was
subsequently reduced to 1.71%. The Company accounts for its investment under the
equity method of accounting whereby the Company recognizes in income 2%its share
of net income of Suburban Propane Partners, L.P. consolidated net income (loss)
and reduces its investment balance to the extent of partnership distributions
the Company receives from Suburban Propane Partners, L.P.
GOODWILL. The company recorded goodwill on the Closing Date of
$3,305,340 representingGoodwill represents the excess of the $6,000,000 purchase price for the general
partner interests in the Partnership over the carrying value of the General
Partner's capital account reflected on the books of Suburban Propane Partners,
L.P. on the date of acquisition.
The Company amortizestests goodwill overfor impairment on an annual basis using a forty-year period utilizingtwo-step
impairment test. The first step compares the straight-line method. Accumulated amortization
at September 30, 2000 and September 25, 1999 amounted to $110,160 and $27,540,
respectively.
3. NOTE PAYABLE
On the Closing Date, the Company borrowed $6,000,000 under a loan agreement (the
"GP Loan") with Mellon to finance the purchase of the general partner interests
held by the Former General Partner. The GP loan is secured by a pledge of the
general partner interests held by the Company.
The GP Loan has a term of five years from the Closing Date and requires interest
to be paid at a rate equal to LIBOR plus 2% with such interest to be paid no
less frequently than quarterly. The GP Loan maturities for each of the next four
years are: $1,030,000 in 2001, $1,600,000 in 2002, $1,600,000 in 2003 and
$795,000 in 2004.
F-23
The GP Loan contains various covenants limiting the abilityfair value of the Company to (i) incur indebtedness, (ii) grant liens, (iii) acquire assets, other than the
general partner interests, and (iv) merge, consolidate or sell its assets.
Uponcarrying value of the occurrence and continuancecompany. If the carrying value of an eventthe Company exceeds the
fair value of default under the GP Loan,
Mellon will haveCompany, a second step is performed comparing the rightimplied fair
value of the Company with the carrying amount of the Company's goodwill to
cause Suburban Propane, L.P. to purchasedetermine the note
evidencingamount of goodwill impairment, if any. Based on the GP Loan (the "GP Note"). Suburban Propane, L.P. has agreed to
maintain borrowing availability under its available linesCompany's
annual goodwill impairment test, goodwill was not considered impaired as of
credit, which will
be sufficient to enable it to repurchase the GP Note in these circumstances. The
GP Note will also cross-default to the obligations of Suburban Propane, L.P.'s
obligations under its Senior Note Agreement and its Credit Agreement. Upon a GP
Default, Suburban Propane, L.P. also will have the right to purchase the GP Note
from Mellon.
4.September 27, 2003.
F-28
INCOME TAXESTAXES. For federalFederal and state income tax purposes, the earnings and losses
attributable to the Company are included in the tax returns of the individual
stockholders. As a result, no recognition of income tax expense (benefit)taxes has been reflected in
the accompanying balance sheets.
RECENTLY ISSUED ACCOUNTING STANDARDS. In January 2003, the Financial Accounting
Standards Board ("FASB") issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"), an interpretation of Accounting Research
Bulletin No. 51, "Consolidated Financial Statements." FIN 46 addresses
consolidation by business enterprises of variable interest entities that meet
certain characteristics. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after January 31, 2003. The
consolidation requirements apply to variable interest entities created before
February 1, 2003 in the first fiscal year or interim period beginning after June
15, 2003. However, in October 2003, the FASB deferred the effective date for
applying certain provisions of FIN 46 and in November 2003, issued an exposure
draft which would amend certain provisions of FIN 46. As a result of the latest
exposure draft, the Company is currently evaluating the impact, if any, that FIN
46 or any future amendment may have on its financial statements.
F-24position.
F-29
Index to Financial Statement Schedule
Suburban Propane Partners,INDEX TO FINANCIAL STATEMENT SCHEDULE
SUBURBAN PROPANE PARTNERS, L.P. and Subsidiaries
PAGEAND SUBSIDIARIES
Page
----
Schedule II Valuation and Qualifying Accounts for the fiscal years
ended- Years Ended
September 30, 2000,27, 2003, September 25, 199928, 2002 and
September 26, 1998.29, 2001........................................... S-2
S-1
SCHEDULE II
-----------
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
BALANCE AT CHARGED DEDUCTIONS BALANCE
BEGINNING TO COST / OTHER (AMOUNTS AT END
OF PERIOD EXPENSES ADDITIONS CHARGED OFF) OF PERIOD
--------- -------- --------- ------------ ---------
Year Ended September 26, 1998
- -----------------------------
Balance at Charged Balance
Beginning to Costs and Other at End
of Period Expenses Additions Deductions of Period
------------- ------------- ------------- ------------- -------------
YEAR ENDED SEPTEMBER 29, 2001
Allowance for doubtful accounts $ 2,6822,975 $ 2,642 $-- $(2,942)5,328 $ 2,382
======= ======= === ======= =======
Accumulated amortization:
Goodwill .................... $25,633- $ 6,134 $--(4,311) $ -- $31,767
Other intangibles ........... $ 1,527 $ 1,036 $-- $ -- $ 2,563
------- ------- --- ------- -------
Total ....... $27,160 $ 7,170 $-- $ -- $34,330
======= ======= === ======= =======
Restructuring reserves ........ $ 4,566 $ -- $-- $(4,566) $ --
======= ======= === ======= =======
Year Ended September 25, 1999
- -----------------------------3,992
============= ============= ============= ============= =============
YEAR ENDED SEPTEMBER 28, 2002
Allowance for doubtful accounts $ 2,3823,992 $ 2,601 $-- $(2,894)1,147 $ 2,089
======= ======= === ======= =======
Accumulated amortization:
Goodwill .................... $31,767- $ 5,977 $--(3,245) $ -- $37,744
Other intangibles ........... $ 2,563 $ 1,076 $-- $ (144) $ 3,495
------- ------- --- ------- -------
Total ....... $34,330 $ 7,053 $-- $ (144) $41,239
======= ======= === ======= =======
Year Ended September 30, 2000
- -----------------------------1,894
============= ============= ============= ============= =============
YEAR ENDED SEPTEMBER 27, 2003
Allowance for doubtful accounts $ 2,0891,894 $ 3,137 $-- $(2,251)3,315 $ 2,975
======= ======= === ======= =======
Accumulated amortization:
Goodwill .................... $37,744- $ 7,292 $--(2,690) $ (18) $45,018
Other intangibles ........... $ 3,495 $ 2,338 $-- $ (180) $ 5,653
------- ------- --- ------- -------
Total ....... $41,239 $ 9,630 $-- $ (198) $50,671
======= ======= === ======= =======2,519
============= ============= ============= ============= =============
S-2
SUBURBAN PROPANE PARTNERS, L.P.
2000 RESTRICTED UNIT PLAN
SUBURBAN PROPANE PARTNERS, L.P. 2000 RESTRICTED UNIT PLAN
ARTICLE I
PURPOSE AND APPROVAL
The purpose of this Plan is to strengthen Suburban Propane
Partners, L.P., a Delaware limited partnership (the "Partnership"), by providing
an incentive to certain selected employees of the Partnership and affiliated
entities, and thereby encouraging them to devote their abilities and industry to
the success of the Partnership's business enterprise in such a manner as to
maximize the Partnership's value. It is intended that this purpose be achieved
by extending to such individuals an added long-term incentive for continued
service to the Partnership, and for high levels of performance and unusual
efforts which enhance the Partnership's value through the grant of rights to
receive Common Units (as hereinafter defined) of the Partnership.
ARTICLE II
DEFINITIONS
For the purposes of this Plan, unless otherwise specified in
an agreement, capitalized terms shall have the following meanings:
2.1 "Act" shall mean the Securities Act of 1933, as amended.
2.2 "Agreement" shall mean the written agreement between the Partnership
and a Grantee evidencing the grant of an Award and setting forth the terms and
conditions thereof.
2.3 "Award" shall mean a grant of restricted Common Units pursuant to the
terms of this Plan.
2.4 "Beneficial Ownership" shall mean as that term is used within the
meaning of Rule 13d-3 promulgated under the Exchange Act.
2.5 "Board" shall mean the Board of Supervisors of the Partnership.
2.6 "Cause" shall mean, unless otherwise provided in an Agreement, (a) the
Grantee's gross negligence or willful misconduct in the performance of his
duties, (b) the Grantee's willful or grossly negligent failure to perform his
duties, (c) the breach by the Grantee of any written covenants to Suburban
Propane, L.P. or any of the Partnership's other affiliates, (d) dishonest,
fraudulent or unlawful behavior by the Grantee (whether or not in conjunction
with employment) or the Grantee being subject to a judgment, order or decree (by
consent or otherwise) by any governmental or regulatory authority which
restricts his ability to engage in the business conducted by Suburban Propane,
L.P., the Partnership, or any of their affiliates, or (e) willful or reckless
breach by the Grantee of any policy adopted by Suburban Propane, L.P., the
Partnership, or any of their affiliates, concerning conflicts of interest,
standards of business conduct or fair employment practices or procedures with
respect to compliance with applicable law.
2.7 "Change in Capitalization" shall mean any increase or reduction in the
number of Common Units, or any change (including, but not limited to, a change
in value) in the Common Units, or exchange of Common Units for a different
number of kind of units or other securities of the Partnership, by reason of a
reclassification, recapitalization, merger, consolidation, reorganization,
spin-off, split-up, issuance of warrants or rights or other convertible
securities, unit distribution, unit split or reverse unit split, cash dividend,
property dividend, combination or exchange of units, repurchase of units, change
in corporate structure or otherwise.
2.8 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.9 "Committee" shall mean the Compensation Committee of the Board.
2.10 "Common Units" shall mean the common units representing limited
partnership interest of the Partnership.
2.11 "Disability" shall have the same meaning that such term (or similar
term) has under the Partnership's long-term disability plan, or as otherwise
determined by the Committee.
2.12 "Effective Date" shall mean November 1, 2000.
2.13 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
2.14 "Fair Market Value" per unit on any date shall mean the average of the
high and low sale prices of the Common Units on such date on the principal
national securities exchange on which such Common Units are listed or admitted
to trading, or if such Common Units are not so listed or admitted to trading,
the arithmetic mean of the per Common Unit closing bid price and per Common Unit
closing asked price on such date as quoted on the National Association of
Securities Dealers Automated Quotation System or such other market on which such
prices are regularly quoted, or, if there have been no published bid or asked
quotations with respect to Common Units on such date, the Fair Market Value
shall be the value established by the Board in good faith.
2.15 "General Partner" has the meaning set forth in the Partnership
Agreement.
2.16 "Good Reason" shall mean, unless otherwise provided in an Agreement,
in the case of an employee of Suburban Propane, L.P. or any of the Partnership's
other affiliates, (a) any failure by Suburban Propane, L.P. or any of the
Partnership's other affiliates to comply in any material respect with the
compensation provisions of a written employment agreement between the Grantee
and Suburban Propane, L.P. or any of the Partnership's other affiliates, (b) a
material adverse change in the Grantee's title without his consent, or (c) the
assignment to the Grantee, without his consent, of duties and responsibilities
materially inconsistent with his level of responsibility.
2.17 "Grantee" shall mean a person to whom an Award has been granted under
the Plan.
2.18 "Partnership" shall mean Suburban Propane Partners, L.P., a Delaware
limited partnership, and its successors.
2.19 "Partnership Agreement" shall mean the Second Amended and Restated
Agreement of Limited Partnership of the Partnership.
2.20 "Person" has the meaning used for purposes of Section 13(d) or 14(d)
of the Exchange Act.
2.21 "Plan" shall mean the Suburban Propane Partners, L.P. 2000 Restricted
Unit Plan.
2.22 "Pooling Period" shall mean, with respect to a Pooling Transaction,
the period ending on the first date on which the combined entity resulting from
such Pooling Transaction publishes thirty days of combined operating results.
2.23 "Pooling Transaction" shall mean an acquisition of or by the
Partnership in a transaction which is intended to be treated as a "pooling of
interests" under generally accepted accounting principles.
2.24 "Subsidiary" means any corporation, partnership, or other Person of
which a majority of its voting power or its voting equity securities or equity
interest is owned, directly or indirectly, by the Partnership.
ARTICLE III
ADMINISTRATION OF THE PLAN
3.1 The Plan shall be administered by the Committee, which shall hold
meetings at such times as may be necessary for the proper administration of the
Plan. The Committee shall keep minutes of its meetings. A quorum shall consist
of not less than two members of the Committee and a majority of a quorum may
authorize any action. Any decision or determination reduced to writing and
signed by a majority of all of the members of the Committee shall be as fully
effective as if made by a majority vote at a meeting duly called and held.
Notwithstanding anything else herein to the contrary, the Committee may delegate
to any individual or committee of individuals the responsibility to carry out
any of its rights and duties with respect to the Plan. No member of the
Committee or any individual to whom it has delegated any of its rights and
duties shall be liable for any action, failure to act, determination or
interpretation made in good faith with respect to this Plan or any transaction
hereunder, except for liability arising from his or her own willful misfeasance,
gross negligence or reckless disregard of his or her duties. The Partnership
hereby agrees to indemnify each member of the Committee and its delegates for
all costs and expenses and, to the extent permitted by applicable law, any
liability incurred in connection with defending against, responding to,
negotiating for the settlement of or otherwise dealing with any claim, cause of
action or dispute of any kind arising in connection with any actions in
administering this Plan or in authorizing or denying authorization for any
transaction hereunder.
3.2 Each member of the Committee shall be a "disinterested person" within
the meaning of Rule 16b-3 under the Exchange Act.
3.3 Subject to the express terms and conditions set forth herein, the
Committee shall have the power, consistent with Rule 16b-3 under the Exchange
Act, from time to time to:
(a) select those employees and members of the Board to whom Awards
shall be granted and to determine the terms and conditions (which need not
be identical) of each such Award;
(b) make any amendment or modification to any Agreement consistent
with the terms of the Plan;
(c) construe and interpret the Plan and the Awards, and establish,
amend and revoke rules and regulations for the administration of the Plan,
including, but not limited to, correcting any defect or supplying any
omission, or reconciling any inconsistency in the Plan or in any Agreement
or between the Plan and any Agreement, in the manner and to the extent it
shall deem necessary or advisable so that the Plan complies with applicable
law, including Rule 16b-3 under the Exchange Act to the extent applicable,
and otherwise to make the Plan fully effective. All decisions and
determinations by the Committee or its delegates in the exercise of this
power shall be final, binding and conclusive upon the Partnership, its
subsidiaries, the Grantees and all other persons having any interest
therein;
(d) exercise its discretion with respect to the powers and rights
granted to it as set forth in the Plan; and
(e) generally, exercise such powers and perform such acts as it deems
necessary or advisable to promote the best interests of the Partnership
with respect to the Plan.
3.4 The maximum number of Common Units that may be made the subject of
Awards granted under the Plan is 487,805. The Partnership shall reserve for
purposes of the Plan, out of its authorized but unissued units, such amount of
Common Units.
3.5 Notwithstanding anything inconsistent contained in this Plan, the
number of Common Units subject to, or which may become subject to, Awards at any
time under the Plan shall be reduced to such lesser amount as may be required
pursuant to the methods of calculation necessary so that the exemptions provided
pursuant to Rule 16b-3 under the Exchange Act will continue to be available for
transactions involving all current and future Awards. In addition, during the
period that any Awards remain outstanding under the Plan, the Committee may make
good faith adjustments with respect to the number of Common Units attributable
to such Awards for purposes of calculating the maximum number of Common Units
subject to the granting of future Awards under the Plan, provided that following
such adjustments the exemptions provided pursuant to Rule 16b-3 under the
Exchange Act will continue to be available for transactions involving all
current and future Awards.
ARTICLE IV
COMMON UNIT GRANTS
4.1 Time Vesting Grants. From time to time, the Committee may grant
restricted Common Units to Grantees, in such amounts as it deems prudent and
proper. Such rights shall be granted, and the Common Units underlying such
rights shall be issued, in consideration of the performance of services and for
no other consideration.
4.2 Forfeiture. A Grantee's rights with respect to the restricted Common
Units shall remain forfeitable at all times prior to the date on which the
restrictions thereon shall have lapsed in accordance with the terms of the Plan
and the Award.
4.3 Vesting Schedule. The restricted Common Unit grants made pursuant to
Section 4.1 shall vest and become non-forfeitable, unless otherwise determined
by the Committee (at the time of Award or otherwise), and the restrictions
thereon shall lapse, at a rate of 25% on the third anniversary of the date of
the applicable Award, a second 25% on the fourth anniversary, and a final 50% on
the fifth anniversary of the date of the applicable Award, provided that the
Grantee is employed on such date.
4.4 Other Grants. Notwithstanding anything else herein to the contrary, the
Committee may grant Common Units on such terms and conditions as it determines
in its sole discretion, the terms and conditions of which shall be set forth in
the applicable Award.
ARTICLE V
OTHER PROVISIONS APPLICABLE TO VESTING
5.1 Forfeiture. Unless otherwise provided in an Award, any and all
restricted Common Units in respect of which the restrictions have not previously
lapsed shall be forfeited (and automatically transferred to and reacquired by
the Partnership at no cost to the Partnership and neither the Grantee nor any
successors, heirs, assigns, or personal representatives of such Grantee shall
thereafter have any further right or interest therein) upon the termination of
the Grantee's employment for any reason.
5.2 Disability. Notwithstanding the provisions of Section 5.1, unless
otherwise provided in an Agreement, if a Grantee's employment terminates as a
result of Disability, the restricted Common Units held by such Grantee for one
year on the date of termination shall immediately vest.
5.3 Recycling of Forfeited Shares. Subject to the restrictions set forth in
Rule 16b-3 of the Exchange Act, any Common Units forfeited hereunder may be,
after six months, the subject of an Award pursuant to this Plan.
ARTICLE VI
DELIVERY OF UNITS, ETC.
6.1 Delivery of Common Units. Subject to Section 16, upon the vesting of
Common Units, the Partnership shall deliver to the Grantee a certificate
representing such number of Common Units as are subject to such rights, to the
extent of such vesting, free of all restrictions hereunder within 45 days of the
date of vesting.
6.2 Transferability. Until such time as restricted Common Units have vested
and become non-forfeitable and certificates representing Common Units in respect
thereof have been issued, a Grantee shall not be entitled to transfer such
Common Units.
6.3 Rights of Grantees. Until such time as restricted Common Units have
vested and become non-forfeitable and certificates representing Common Units in
respect thereof have been issued, a Grantee shall not be entitled to exercise
any rights of a unitholder with respect thereto, including the right to vote
such units and the right to receive allocations or distributions thereon.
ARTICLE VII
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
7.1 In the event of a Change in Capitalization, the Committee shall
conclusively determine the appropriate adjustments, if any, to (i) the maximum
number and class of Common Units or other units or securities with respect to
which Awards may be granted under the Plan, (ii) the number of Common Units or
other units or securities which are subject to outstanding Awards granted under
the Plan, and the purchase price therefor, if applicable.
7.2 If, by reason of a Change in Capitalization, a Grantee of an Award
shall be entitled to new, additional or different rights to acquire units or
other securities, such new, additional or different rights or securities shall
thereupon be subject to all of the conditions, restrictions and performance
criteria which were applicable to the units subject to the Award prior to such
Change in Capitalization.
7.3 Notwithstanding anything contained in the Plan or any Agreement to the
contrary, in the event of a Change in Control which also constitutes a Pooling
Transaction, the Committee may take such actions which are specifically
recommended by an independent accounting firm retained by the Partnership to the
extent reasonably necessary to assure that the Pooling Transaction will qualify
as such, including but not limited to (i) deferring the vesting or lapsing of
restrictions with respect to any Award, (ii) providing that the payment or
settlement in respect of any Award be made in the form of cash, units, shares of
stock or securities of a successor or acquiror of the Partnership, or a
combination of the foregoing and (iii) providing for the extension of the
vesting period of any Award to the extent necessary to accommodate the
foregoing.
ARTICLE VIII
TERMINATION AND AMENDMENT OF THE PLAN
The Plan shall terminate on the day preceding the tenth anniversary of
the Effective Date and no Award may be granted thereafter. The Board may sooner
terminate the Plan and the Board may at any time and from time to time amend,
terminate, modify or suspend the Plan or any Agreement provided, however, that
no such amendment, modification, suspension or termination shall impair or
adversely affect any Awards theretofore granted under the Plan, except with the
consent of the Grantee, nor shall any amendment, modification, suspension or
termination deprive any Grantee of any Common Units which he or she may have
acquired through or as a result of the Plan. To the extent necessary under
Section 16(b) of the Exchange Act and the rules and regulations promulgated
thereunder or other applicable law, no amendment shall be effective unless
approved by the unitholders of the Partnership in accordance with applicable law
and regulations.
ARTICLE IX
MISCELLANEOUS
9.1 Non-Exclusivity of the Plan. The adoption of the Plan by the Board
shall not be construed as amending, modifying or rescinding any previously
approved incentive arrangement or as creating any limitations on the power of
the Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of options to acquire the Common
Units, and such arrangements may be either applicable generally or only in
specific cases.
9.2 Limitation of Liability. As illustrative of the limitations of
liability of the Partnership, but not intended to be exhaustive thereof, nothing
in the Plan shall be construed to:
(a) give any person any right to be granted an Award other than at the
sole discretion of the Committee;
(b) give any person any rights whatsoever with respect to the Common
Units except as specifically provided in the Plan or an Agreement;
(c) limit in any way the right of the Partnership or any of its
affiliates to terminate the employment of any person at any time; or
(d) be evidence of any agreement or understanding, express or implied,
that the Partnership will employ any person at any particular rate of
compensation or for any particular period of time.
9.3 Regulations and Other Approvals; Governing Law. Except as to matters of
federal law, this Plan and the rights of all persons claiming hereunder shall be
construed and determined in accordance with the laws of the State of New Jersey
without giving effect to conflicts of law principles.
Notwithstanding any other provisions of this Plan, the obligation of the
Partnership to deliver the Common Units in respect thereof under the Plan shall,
in each case, be subject to all applicable laws, rules and regulations,
including all applicable federal and state securities laws, and the obtaining of
all such approvals by governmental agencies as may be deemed necessary or
appropriate by the Committee.
(a) Except as provided in Article VIII hereof, the Board may make such
changes to the Plan or an Agreement as may be necessary or appropriate to
comply with the rules and regulations of any government authority.
(b) Each Award is subject to the requirement that, if at any time the
Committee determines, in its sole and absolute discretion, that the
listing, registration or qualification of the Common Units issuable
pursuant to the Plan is required by any securities exchange or under any
state or federal law, or the consent or approval of any governmental
regulatory body is necessary or desirable as a condition of, or in
connection with, the grant of an Award of the issuance of the Common Units,
no Awards shall be granted and no Common Units shall be issued, in whole or
in part, unless such listing, registration, qualification, consent or
approval has been effected or obtained free of any conditions not
acceptable to the Committee.
(c) Notwithstanding anything contained in the Plan or any Agreement to
the contrary, in the event that the disposition of the Common Units or any
other securities acquired pursuant to the Plan is not covered by a then
current registration statement under the Act or is not otherwise exempt
from such registration, such Common Units shall be restricted against
transfer to the extent required by the Act and Rule 144 or other
regulations thereunder. The Committee may require any person receiving
Common Units pursuant to an award granted under the Plan, as a condition
precedent to receipt of such Common Units, to represent and warrant to the
Partnership in writing that the Common Units acquired by such individual
are acquired without a view to any distribution thereof and will not be
sold or transferred other than pursuant to an effective registration
thereof under said Act or pursuant to an exemption applicable under the Act
or the rules and regulations promulgated thereunder. The certificates
evidencing any of such Common Units shall be appropriately legended to
reflect their status as restricted securities as aforesaid.
9.4 Withholding of Taxes. At such times as a Grantee recognizes taxable
income in connection with the rights to acquire Common Units granted hereunder
(a "Taxable Event"), the Grantee shall pay to the Partnership an amount equal to
the federal, state and local income taxes and other amounts as may be required
by law to be withheld by the Partnership in connection with the Taxable Event
(the "Withholding Taxes") prior to the issuance of such units. The Partnership
shall have the right to deduct from any payment of cash to a Grantee an amount
equal to the Withholding Taxes in satisfaction of the obligation to pay
Withholding Taxes. In satisfaction of the obligation to pay Withholding Taxes to
the Partnership, the Grantee may make a written election (the "Tax Election"),
which may be accepted or rejected in the discretion of the Committee, to have
withheld a portion of the Common Units then issuable to him or her having an
aggregate Fair Market Value, on the date preceding the date of such issuance,
equal to the Withholding Taxes, provided that in respect of a Grantee who may be
subject to liability under Section 16(b) of the Exchange Act, such withholding
is done in accordance with any applicable Rule under section 16(b) of the
Exchange Act.
9.5 Interpretation. The Plan is intended to comply with Rule 16b-3
promulgated under the Exchange Act, and the Committee shall interpret and
administer the provisions of the Plan or any Agreement in a manner consistent
therewith. Any provisions inconsistent with such rule shall be inoperative and
shall not affect the validity of the Plan.
9.6 Effective Date. The effective date of the Plan shall be the Effective
Date. The effectiveness of this Plan is subject to approval of the Plan prior to
the Effective Date by the partners of the Partnership.
EXHIBIT 21.1
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SUBSIDIARIES OF SUBURBAN PROPANE PARTNERS, L.P.
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Suburban Propane, L.P., a Delaware limited partnership
Suburban Sales & Service, Inc., a Delaware corporation
Gas Connection Inc., an Oregon corporation
Suburban @ Home, Inc., a Delaware corporation
EXHIBIT 23.1
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CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-10197) and Form S-4 (No. 333-95077) of Suburban
Propane Partners, L.P. of our report dated October 24, 2000, except for Note 14,
which is as of November 14, 2000, appearing on page F-2 of this Annual Report on
Form 10-K. We also consent to the application of such report to the Financial
Statement Schedule listed under Item 14(a) 2 of this Form 10-K when such
schedule is read in conjunction with the consolidated financial statements
referred to in our report. The audits referred to in such report also included
this schedule. We also consent to the incorporation by reference in such
registration statement of our report dated October 24, 2000 on the financial
statements of Suburban Energy Services Group LLC appearing on page F-21 of this
Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Florham Park, NJ
December 18, 2000