================================================================================
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended September 29, 200127, 2003
Commission File Number: 1-14222
SUBURBAN PROPANE PARTNERS, L.P
-------------------------------L.P.
(Exact name of registrant as specified in its charter)
Delaware 22-3410353
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
240 Route 10 West
Whippany, NJ 07981
(973) 887-5300
--------------
(Address, including zip code, and telephone
number, including area 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 WHICH REGISTEREDTitle of each class Name of each exchange on which registered
Common Units New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [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'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 14, 2001November 21, 2003 of the registrant's Common
Units held by non-affiliates of the registrant, based on the reported closing
price of such units on the New York Stock Exchange on such date ($25.30/31.17 per
unit), was approximately $621,417,335.$847,035,000. As of December 14, 2001 24,631,287November 21, 2003 there were
27,266,767 Common Units
were outstanding.
Documents Incorporated by Reference: None
================================================================================
================================================================================
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
INDEX TO ANNUAL REPORT ON FORM 10-K
PART I Page
----
ITEM 1. BUSINESS........................................................BUSINESS......................................................... 1
ITEM 2. PROPERTIES...................................................... 6PROPERTIES....................................................... 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 FINANCIAL DATA......................................... 8DATA..........................................10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................... 10OPERATIONS....................13
ITEM 7A. QUANTITATIVE7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK..................................................... 18RISK......................................................26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................... 19DATA......................28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................. 19DISCLOSURE..............................31
ITEM 9A.CONTROLS AND PROCEDURES..........................................31
PART III
ITEM 10. DIRECTORS10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............. 20REGISTRANT...............32
ITEM 11. EXECUTIVE COMPENSATION.......................................... 2311.EXECUTIVE COMPENSATION...........................................35
ITEM 12. SECURITY12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.................................................. 28MANAGEMENT...................................................40
ITEM 13. CERTAIN13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................. 29TRANSACTIONS...................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............................................. 30
Signatures................................................................ 318-K..............................................42
Signatures...................................................................43
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
- -----------------------------------------------
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 THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE DISCUSSED OR IMPLIED IN SUCH FORWARD-LOOKING
STATEMENTScontains forward-looking statements
("CAUTIONARY STATEMENTS"Forward-Looking 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;The risks and uncertainties and their impact on the Partnership's
operations include, but are not limited to, the following risks:
o THE ABILITY OF THE PARTNERSHIP TO COMPETE WITH OTHER SUPPLIERS OF PROPANE AND
OTHER ENERGY SOURCES;The impact of weather conditions on the demand for propane;
o THE ABILITY OF THE PARTNERSHIP TO RETAIN CUSTOMERS;Fluctuations in the unit cost of propane;
o THE IMPACT OF ENERGY EFFICIENCY AND TECHNOLOGY ADVANCES ON THE DEMAND FOR
PROPANE;The ability of the Partnership to compete with other suppliers of propane
and other energy sources; o THE ABILITY OF MANAGEMENT TO CONTINUE TO CONTROL EXPENSES;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 IMPACT OF REGULATORY DEVELOPMENTS ON THE PARTNERSHIP'S BUSINESS;The ability of the Partnership to retain customers;
o THE IMPACT OF LEGAL PROCEEDINGS ON THE PARTNERSHIP'S BUSINESS;The impact of energy efficiency and technology advances on the demand for
propane;
o THE PARTNERSHIP'S ABILITY TO IMPLEMENT ITS EXPANSION STRATEGY INTO NEW LINES
OF BUSINESS 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.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
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 than 800,000approximately 750,000 active residential, commercial,
industrial and agricultural customers fromthrough approximately 330320 customer service
centers in over 40 states as of September 29,
2001. 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 524.7491.5 million gallons during the year
ended September 29,
2001.27, 2003. In addition, the Partnershipwe sold approximately 161.331.7 million
gallons of propane at wholesale to large industrial end usersend-users and other propane
distributors during the fiscal year. Based on industry statistics 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 5%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"). 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 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 ("Hanson"). 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 to
operate the service work and appliance and propane equipment parts businesses of
the Predecessor Company. 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
million aggregate principal amount of Senior Notes and the transfer of all the propane assets
(excluding the net accounts receivable balance) of the Predecessor Company to
the Operating PartnershipNotes. Suburban Sales and Service,
Company.
On January 5, 2001, Suburban Holdings, Inc. (the "Service Company"), a subsidiary of the Operating Partnership, was
formed at that time to holdoperate the stockservice work and appliance and propane
equipment parts businesses of the Partnership.
Other subsidiaries of the Operating Partnership include Gas Connection,
Inc. (doing business as HomeTown Hearth & Grill), Suburban @ Home Inc.("Suburban @
Home"), and Suburban Franchising, Inc. Gas Connection, Inc.("Suburban Franchising"). HomeTown Hearth
& Grill sells and installs natural gas and propane gas grills, fireplaces and
related accessories and supplies;supplies through twelve retail stores in the south,
northeast and northwest regions as of September 27, 2003; Suburban @ Home Inc. sells,
installs, services and repairs a full range of heating and air conditioning
products;products through five retail locations in the south, northeast and northwest
regions as of September 27, 2003; and Suburban Franchising Inc. creates and develops
propane related franchising business opportunities.
The
Partnership,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,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 Service Company,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 Holdings,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 eighth largest retail propane
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 subsidiaries are collectively referredcore 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 hereinafter as the
"Partnership Entities".
BUSINESS STRATEGY
The Partnership'sa 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 strategy is to extend and consolidate its
presence in strategically attractivesold
approximately 106.3 million gallons of propane and related markets. The
Partnership will continueapproximately 356.8 million
gallons of fuel oil, gasoline and diesel fuel to evaluate acquisition of other propane distributors
that can immediately contributeretail customers for
residential, commercial and agricultural applications. See additional discussion
in Note 15 to the Partnership's overall growth strategy.
DuringConsolidated 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
past three fiscal years,Bankruptcy Code in a bankruptcy proceeding pending before the Partnership acquired three retail
propane distributors and two retail distributors of gas appliances, parts and
related products at a total cost of $5.5 million. In addition, in November 1999,
the Partnership acquired the propane operations of a group of affiliated
companies in the southeastern 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 total costspecified period of approximately
$97.0 million.
The competitiontime. An
auction is currently scheduled for acquisitionsDecember 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 propane companies among large propane
retailers has intensified over the last few years. Although the Partnership did
not acquire any propane distributors in fiscal 2001, the Partnership believes
there are numerous retail propane distribution companies that are potential
candidates for acquisitionauction process and
continues to seek these typesupon receipt of opportunities.
However, therenecessary regulatory approvals. There can be no assurance that
we will ultimately be the Partnership will find attractive
candidates insuccessful bidder at the futureauction or that the Partnership will be able to
acquire such
candidatesconsummate 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 economically acceptable terms.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.
2
BecauseOver the past several years, we have focused on improving the efficiency of
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 seasonal naturegrowth of the propane business and the impact on
earnings and cash flow, the Partnership also seeks to acquire and develop
related retail and service business linesoperations that can benefit from the
Partnership'sour infrastructure
and national presence. Gas Connection, Inc.,
acquired byWe invest in enhancements to our technology
infrastructure to increase operating efficiencies and to develop marketing
programs and incentive compensation arrangements focused on customer growth and
retention. We measure and reward the Partnership in 1999, sells and installs natural gas and propane
gas grills, fireplaces and related accessories and supplies. Assuccess of September 29,
2001,our customer service centers
based on a combination of profitability of the Partnership was operating eleven Gas Connection stores in the
northeast and northwest regions. Although Gas Connection plans to expand its
operations in existing regions, it has currently slowed the pace of new store
openings in order to assess and fine-tune its growth strategy. Suburban @ Home,
Inc., which opened its firstindividual customer service
center, in September 2000, is an internally
developed heating, ventilationcustomer growth and air conditioning business offering a full
range of productssatisfaction statistics and services for "total indoor comfort". Suburban @ Home plans
to open at least two new retail locations during fiscal 2002. It is the
Partnership's intention to use Gas Connection, Suburban @ Home and other
business ventures as a platform on which to build a retail and service network
that will complement its core propane operations.
In conjunction with its acquisition strategy, the Partnershipasset utilization
measures. Additionally, we continuously evaluates itsevaluate our existing facilities to
identify opportunities to optimize itsour return on assets by selectively divesting
operations in slower growing markets.
The Partnership also plansmarkets and seek to continuereinvest in markets that
present more opportunities for growth.
In addition 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 also believes that it can continue to achieve internalfurther support our overall growth through the implementation of more efficient operating standards and increased
reliance on information technology. The Partnership employs a nationwide sales
organization and has a comprehensive customer retention program.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 Administration, propane accounts for approximately 4% of
household energy consumption in the United States. This level has not changed
materially over the previous two decades. PropaneAs 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 British 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 36%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 5%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 330320 customer service centers in
over 40 states as of
September 29, 2001. The Partnership's27, 2003. Our operations are concentrated in the east and west coast
regions of the United States. In fiscal 2001, the Partnership served more than 800,0002003, we serviced approximately 750,000
active customers. Approximately two-thirds of the Partnership'sour retail propane volume has
historically been sold during the six 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 76%94% of the gallons sold by the
Partnershipus in fiscal 20012003 were to
retail customers: 40%41% to residential customers, 29%30% to commercial customers, 11%10%
to industrial customers, 6% to agricultural customers and 14%13% to other retail
users. The balance of approximately 24%6% of the gallons sold by the Partnershipus in fiscal 20012003
was for risk management activities and wholesale customers. Sales to residential
customers in fiscal 20012003 accounted for approximately 50%59% of the Partnership's
gross profitour margins on
propane sales, reflecting the higher-margin nature of the residential market. No
single customer accounted for 10% or more of the
Partnership'sour revenues during fiscal 2001.2003.
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 refilled in place or transported for replenishment at the Partnership'sour
distribution locations. The PartnershipWe 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;California and Tirzah, South Carolina), and coastal terminals to the Partnership'sour customer
service centers by a combination of common carriers, owner-operators and
railroad tank cars. See 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. The wholesale market
includes customers who use propane to fire furnaces, as a cutting gas and in
other process applications. Due to the low margin nature of the wholesale market
as compared to the retail market, the Partnership haswe have selectively reduced itsour emphasis on
wholesale marketing.marketing over the last few years. Accordingly, sales of wholesale
gallons during fiscal 20012003 decreased in comparison to fiscal 2000.2002, which also
decreased from fiscal 2001.
PROPANE SUPPLY
The Partnership'sOur propane supply is purchased from overnearly 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 approximately 97% of its propane supplies from domestic
suppliers during fiscal 2001. Most of the propane purchased by the Partnership
in fiscal 2001 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 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. Although the Partnership makeswe make no assurance regarding the availability of supplies
of propane in the future, the Partnershipwe currently expectsexpect to be able to secure adequate
supplies during fiscal 2002.2004. During the
year ended September 29, 2001,fiscal 2003, Dynegy Liquids Marketing and
Trade ("Dynegy"), and Enterprise Products Operating L.P. ("Enterprise") and Louis Dreyfus Plastic
Corporation ("Louis Dreyfus") provided
approximately 18%, 17%21% and 12%13%, respectively, of the Partnership'sour total domestic propane supply.
The availability of the Partnership'sour 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. The Partnership believesWe believe that, if
supplies from Dynegy Enterprise or Louis DreyfusEnterprise were interrupted, itwe would be able to secure
adequate propane supplies from other sources without a material disruption of
itsour operations. However,Nevertheless, the cost of acquiring such propane might be materially higher
and, at least on a short-term basis, margins could be affected. Aside from these
threetwo suppliers, no single supplier provided more than 10% of the Partnership'sour total domestic
propane supply in thefiscal 2003. During that year, ended September 29, 2001.
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 ensure 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.our
commodity trading policy. See additional discussion in Item 7A of this Annual
Report.
The Partnership operatesWe 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. As of September 29, 2001,27,
2003, the majority of the storage capacity in Mississippi, California and South Carolina was
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 and its subsidiariesWe utilize a variety of trademarks and tradenames which they own,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 addressing
emergency discharge control issues. The regulations, which became effective as
of July 1, 1999, required the Partnershipus to modify the inspection and record keeping
procedures for the Partnership'sour cargo tank vehicles. A schedule of compliance is set forth
within the regulations. The Partnership hasWe have implemented the required discharge control
systems and is in full compliancecomply, 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 29, 2001 the Partnership27, 2003, we had 3,239approximately 2,973 full time employees,
of whom 316285 were engaged in general and administrative activities (including
fleet maintenance), 4129 were engaged in transportation and product supply
activities and 2,8822,659 were customer service center employees. As of September 29, 2001, 15827,
2003, 145 of suchour employees were represented by 1110 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
As of September 29, 2001, the Partnership27, 2003, we owned approximately 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 170 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 29, 2001, the
Partnership has27, 2003, we had
a fleet of 16seven transport truck tractors, of which 13 arewe owned by
the Partnership,five, and 253251
railroad tank cars, the majorityall of which are leased by
the Partnership.we leased. In addition, as of September 29, 2001 the Partnership utilizes
1,25427,
2003 we used 1,148 bobtail and rack trucks, of which 48% arewe owned by the Partnership,approximately 27%,
and 1,4061,339 other delivery and service vehicles, of which 43% arewe owned by the
Partnership.approximately
29%. Vehicles that are not owned by the Partnershipus are leased. As of September 29, 2001, the Partnership27, 2003, we
also owned 710,091approximately 771,679 customer storage tanks with typical capacities
of 100 to 500 gallons, 34,90837,370 customer storage tanks with typical capacities of
over 500 gallons and 46,301137,682 portable cylinders with typical capacities of 5five
to 10ten gallons.
7
ITEM 3. LEGAL 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 $25.7$28.6 million at September 29, 2001)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
quarter of the year ended September 29, 2001.None.
8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS AND RELATED UNITHOLDER MATTERS
TheOur 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 14, 2001,November 21, 2003, there were 951982 Common Unitholders of
record. The following table sets forth,presents, for the periods indicated, the high and
low sales prices per Common Unit, as reported on the 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 ---- ---Paid
----------- ----------- -----------------
Fiscal 2000
-2002
-----------
First Quarter $ 20.6327.99 $ 16.5024.50 $ 0.52500.5625
Second Quarter 20.00 16.44 0.525028.40 24.36 0.5625
Third Quarter 20.13 18.38 0.525028.25 25.59 0.5750
Fourth Quarter 22.06 19.56 0.537528.49 20.00 0.5750
Fiscal 2001
-2003
-----------
First Quarter $ 22.0628.49 $ 19.0024.60 $ 0.53750.5750
Second Quarter 24.25 21.75 0.550029.60 26.90 0.5750
Third Quarter 27.85 23.40 0.550029.89 27.40 0.5875
Fourth Quarter 28.00 21.05 0.5625
Fiscal 2002
- -----------
First Quarter (through
December 14, 2001) $ 27.99 $ 24.92 -
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, Unitholders 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 FINANCIAL DATA
The following table presents our selected consolidated historical financial
data of the Partnership.data. The selected consolidated historical financial data is derived from theour
audited financial statements of the Partnership.statements. The amounts in the table below, except per unit
data, are in thousands.
Year Ended ------------------------------------------------------------
Sept(a)
----------------------------------------------------------------------------
September September September September September
27, 2003 28, 2002 29, Sept2001 30, Sept 25, Sept 26, Sept 27,
2001 (b) 2000 (b) 25, 1999 1998 1997
-------- -------- -------- -------- --------
Statement of Operations Data------------ ---------
STATEMENT OF OPERATIONS DATA
Revenues ....................................... $ 923,554771,679 $ 836,829665,105 $ 619,778931,536 $ 667,287841,304 $ 771,131
Depreciation620,207
Costs and amortization .................. 38,502 38,772 34,906 36,531 37,307
Restructuring charge ........................... -- -- -- -- 6,911expenses 691,662 582,321 838,055 770,332 547,579
Recapitalization costs ......................... -- --(c) - - - - 18,903 -- --
Gain on sale of assets ......................... -- 10,328 -- -- --- - - (10,328) -
Gain on sale of storage facility - (6,768) - - -
Income before interest expense and
income taxes. 91,475 79,560 53,272 68,814 47,763taxes (d) 80,017 89,552 93,481 81,300 53,725
Interest expense, net .......................... 37,590 40,794 30,765 30,614 33,97933,629 35,325 39,596 42,534 31,218
Provision for income taxes .....................202 703 375 234 68
35 190
Net income .....................................Income from continuing operations (d) 46,186 53,524 53,510 38,532 22,439
38,165 13,594Discontinued 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 from continuing operations per Common
Unit - basic 1.78 2.12 2.14 1.70 0.83
Net income per unit (a) ........................Common Unit - basic (f) 1.87 2.12 2.14 1.70 0.83
1.30 0.46Net income per Common Unit - diluted (f) 1.86 2.12 2.14 1.70 0.83
Cash distributions declared per unit ...........$ 2.33 $ 2.28 $ 2.20 $ 2.11 $ 2.03
BALANCE SHEET DATA (END OF PERIOD)
Cash and cash equivalents $ 2.0015,765 $ 2.00
Balance Sheet Data (end of period)40,955 $ 36,494 $ 11,645 $ 8,392
Current assets ................................. $98,912 116,789 124,339 $ 122,160 $ 78,637 $ 132,781 $ 104,361
Total assets ...................................665,630 700,146 723,006 771,116 659,220
729,565 745,634
Current liabilities, ............................ 162,103 131,461 103,006 91,550 96,701
Long-termexcluding current portion of
long-term borrowings ........................... 430,270 517,219 427,634 427,897 427,97094,802 98,606 119,196 124,585 99,953
Total debt 383,826 472,769 473,177 524,095 430,687
Other long-term liabilities ....................102,924 109,485 71,684 60,607 60,194 62,318 79,724
Partners' capital - Common Unitholders .........165,950 103,680 105,549 58,474 66,342
123,312 128,409
Partners'Partner's capital - General Partner ............$ 1,567 $ 1,924 $ 1,888 $ 1,866 $ 2,044
$ 24,488 $ 12,830
Statement of Cash Flows DataSTATEMENT OF CASH FLOWS DATA
Cash provided by/ (used(used in)
Operating activities ........................$ 57,300 $ 68,775 $ 101,838 $ 59,467 $ 81,758
$ 70,073 $ 58,848
Investing activities ........................(4,859) (6,851) (17,907) (99,067) (12,241)
2,900 (20,709)
Financing activities ........................$ (77,631) $ (57,463) $ (59,082) $ 42,853 $(120,944)
OTHER DATA
Depreciation and amortization (g) $ (32,490)27,520 $ (37,734)
Other Data28,355 $ 36,496 $ 37,032 $ 34,453
EBITDA (c) ..................................... $(h) 110,020 117,907 129,977 $ 118,332 $ 88,178 $ 105,345 $ 85,070
Capital expenditures (d)(i)
Maintenance and growth ......................14,050 17,464 23,218 21,250 11,033
Acquisitions $ 23,218- $ 21,250- $ 11,033 $ 12,617 $ 24,888
Acquisitions ................................ $ --- $ 98,012 $ 4,768
$ 4,041 $ 1,880
Retail propane gallons sold ....................491,451 455,988 524,728 523,975 524,276 529,796 540,799
10
(a) Net income per unit is computed by dividingOur 2000 fiscal year contained 53 weeks. All other fiscal years contained
52 weeks.
(b) Includes the limited partners' interest
in net income by the number of weighted average units outstanding.
(b) Amounts as of and for the years ended September 29, 2001 and September 30,
2000 include amounts relating to theresults from our November 1999 acquisition of certain
subsidiaries of SCANA Corporation, where applicable.
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 $11.3 million
representing non-cash charges associated with the accelerated vesting of
restricted Common Units.
(d) These amounts include, in addition to the gain on sale of assets and the
gain 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 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.
(f) 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.
(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, 2001 (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 year ended September 29, 2001 as a result of 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 calculated as income 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 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. (d) The Partnership'sfollowing 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):
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 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.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
- -----------------------------------------------
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 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: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 risks 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;The impact of weather conditions on the demand for propane;
o FLUCTUATIONS IN THE UNIT COST OF PROPANE;Fluctuations in the unit cost of propane;
o THE ABILITY OF THE PARTNERSHIP TO COMPETE WITH OTHER SUPPLIERS OF PROPANE AND
OTHER ENERGY SOURCES;Our ability to compete with other suppliers of propane and other energy
sources;
o THE ABILITY OF THE PARTNERSHIP TO RETAIN CUSTOMERS;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 IMPACT OF ENERGY EFFICIENCY AND TECHNOLOGY ADVANCES ON THE DEMAND FOR
PROPANE;Our ability to retain customers;
o THE ABILITY OF MANAGEMENT TO CONTINUE TO CONTROL EXPENSES;The impact of energy efficiency and technology advances on the demand for
propane;
o THE IMPACT OF REGULATORY DEVELOPMENTS ON THE PARTNERSHIP'S BUSINESS;The ability of management to continue to control expenses;
o THE IMPACT OF LEGAL PROCEEDINGS ON THE PARTNERSHIP'S BUSINESS;The impact of regulatory developments on our business;
o THE PARTNERSHIP'S ABILITY TO IMPLEMENT ITS EXPANSION STRATEGY INTO NEW LINES
OF BUSINESS 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.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 is a "margin-based" business where the level of
profitability is largely
dependent on the difference between retail sales price 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. During fiscal
2001 and 2000, theTherefore, average cost of propane to the Partnership was substantially
higher than in prior years. Through increases in retail sales prices the
Partnership was ablecan vary
13
significantly from year to pass onyear as product cost increases during fiscal 2001costs fluctuate with propane, crude
oil and 2000.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 monthsix-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 the 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.Policy and reported
to our Audit Committee. Risk management transactions domay not always result in
increased product margins. See additional discussion 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 retail propane business, first and second
quarter revenues and earnings are consistently greater thanservice.
ALLOWANCE FOR DOUBTFUL ACCOUNTS. We maintain allowances for doubtful accounts
for estimated losses resulting from the comparable third
and fourth quarter results. The following presentsinability 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 Partnership's selected
quarterly financial data for the last two fiscal years (unaudited;condition of one or
more of our customers were to deteriorate resulting in thousands,
except per unit amounts).
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL YEAR
------- ------- ------- ------- ----------
Fiscal 2001
- -----------
Revenues ..................... $ 294,083 $ 352,608 $ 143,304 $ 133,559 $ 923,554
Income/ (loss) before interest
expense and income taxes .. 42,776 67,535 (5,542) (13,294) 91,475
Net income/ (loss) ........... 32,717 57,176 (14,559) (21,824) 53,510
Net income/ (loss) per unit .. 1.33 2.28 (0.58) (0.87) 2.14
EBITDA (a) ................... $ 52,362 $ 77,554 $ 3,935 $ (3,874) $ 129,977
Retail gallons sold .......... 163,900 185,068 90,129 85,631 524,728
Fiscal 2000
- -----------
Revenues ..................... $ 200,462 $ 290,880 $ 153,959 $ 191,528 $ 836,829
Gain on sale of assets ....... 10,328 -- -- -- 10,328
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 (0.47) (0.79) 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
(a) EBITDA (earnings before interest, taxes, depreciation and amortization) is
calculated as income/(loss) before interest expense and income taxes plus
depreciation and amortization. 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 orimpairment in their
ability to service debt obligations)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 is notthe cost of future health care benefits in determining our
annual pension and other postretirement benefit costs. In accordance with or superior to
generally accepted accounting principles, but providesactual 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 evaluating the Partnership's ability to pay the Minimum
Quarterly Distribution. Because EBITDA excludes some, but not all, items
that affect net incomederivative instruments and
this measure may vary among companies, the
EBITDA data presented above may not be comparable to similarly titled
measures of other companies.hedging activities.
15
RESULTS OF OPERATIONS
Results for fiscal 2001 reflect 52 weeks of operations as compared to 53
weeks in fiscal 2000. Results for fiscal 2000 include a $10.3 million gain on
sale of assets.
FISCAL YEAR 20012003 COMPARED TO FISCAL YEAR 20002002
- -------------------------------------------------------------------------------------------
REVENUES. Revenues increased $86.716.0%, or $106.6 million, or 10.4% to $923.6$771.7 million in
fiscal 20012003 compared to $836.8$665.1 million in fiscal 2000.2002. Revenues from retail
propane activities increased $143.9$130.0 million, or 23.6%24.3%, to $753.4$664.2 million in
fiscal 20012003 compared to $609.5$534.2 million in fiscal 2000.the prior year. This increase is primarily
attributablewas 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 product costs which resulted in higher retail sales
prices.during
the second half of the year. Retail gallons sold increased slightly35.5 million gallons,
or 7.8%, to 524.7491.5 million gallons in fiscal 20012003 compared to 524.0456.0 million
gallons in fiscal 2000. This increase is
attributable2002 due primarily to colder weather offset by customer conservation efforts.
Nationwideaverage temperatures experienced
in parts of our service area, particularly during fiscal 2001 were 2% colder than normal as
compared to temperatures that were 11% warmer than normal during fiscal 2000,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 decreased $58.2
million or 40.3% to $86.2of $16.6 million in
fiscal 20012003 decreased $19.5 million, or 54.0%, compared to $144.4revenues of $36.1
million in fiscal 2000. Although propane product cost was substantially higher in fiscal
2001 than inthe prior years, product cost began to declineyear primarily as a result of lower volumes sold in the
second half of
fiscal 2001. Accordingly, the Partnership reduced its risk management activities
resultingwholesale market in a decrease in revenues from the risk management sale of propane.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 $83.9$90.9 million in fiscal 2001 were comparable2003 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 20002003 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 $82.9 million.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
11.9%7.1%, or $26.7$16.6 million, to $250.8$250.7 million in fiscal 20012003 compared to $224.0$234.1
million in fiscal 2000. This2002. 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 is principallyin 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 increased payrollthe impact of $2.8 million higher employee
compensation and benefit related costs, including increased incentive compensation accrualsas well as $1.2 million higher fees for
professional services in line with higher
earnings, higher provisions for doubtful accounts resulting from the increases
in selling prices, higher insurance, increased vehicle fuel costs, the
development of retail and service business initiatives and unrealized losses
recorded under the provisions of Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), related to changes in fair values of the Partnership's derivatives.current year period.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
remained consistent at $38.5decreased $0.9 million, or 3.2%, to $27.5 million in fiscal 20012003, compared to
$38.8 million$28.4 in fiscal 2000.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $3.9 million or 13.6% to $32.5 million in fiscal 2001 compared to
$28.6 million in fiscal 2000. This increase is primarily attributable to higher
payroll and benefit costs, including incentive compensation accruals in line
with higher earnings, increased costs for professional services and higher
equipment leasing costs offset in part by gains realized on the sales of
non-strategic assets and corporate investments.2002.
GAIN ON SALE OF ASSETS. ResultsSTORAGE FACILITY. On January 31, 2002 (the second quarter
of fiscal 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.
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES AND EBITDA. Results for
fiscal 2000 include a $10.3 million gain on the sale of assets. Excluding this
one-time item, incomeIncome before
interest expense and income taxes increased 32.1%decreased $9.6 million, or $22.210.7%, to $80.0
million to $91.5 millionin fiscal 2003 compared to $69.2$89.6 million in the prior period.
EBITDA, excluding the one-time item, increased 20.3% or $22.0year. Earnings
before interest, taxes, depreciation and amortization ("EBITDA") amounted to
$110.0 million to $130.0
millionfor fiscal 2003 compared to $108.0$117.9 million infor the prior period.year, a
decline of $7.9 million, or 6.7%. The increasesdecline in income before interest expense
and income taxes and in EBITDA are primarily
attributable to higher gross profitover the prior year reflects the impact of $52.6 million reflecting7.8%
higher retail margins, partiallyvolumes sold, offset by increasedthe $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.
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
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):
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 7.9%$1.7 million, or $3.24.8%, to
$33.6 million to
$37.6 millionin fiscal 2003 compared to $40.8$35.3 million in the prior year.fiscal 2002. The
decrease is
primarily duein interest expense reflects the positive steps taken by us during the
third quarter of fiscal 2003 to reductionslower our overall leverage, which resulted in amountsan
$88.9 million reduction in debt, coupled with lower average interest rates on
outstanding borrowings under the Partnership'sour 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 lesser extent, lower interest rates.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 the peak heating months of October through March
of fiscal 2002 as well as, to a lesser extent, the impact of the economic
recession on commercial and industrial customers' buying habits.
Nationwide temperatures during fiscal 20002002 were 11%13% warmer than normal and 4% warmeras
compared to temperatures that were 2% colder than normal during fiscal 1999,2001, as
reported by NOAA. Temperatures duringDuring the peak heating months of October 2001 through March
of the fiscal 2000 heating season2002, temperatures nationwide were one of the warmest on record with
temperatures being 13% warmer than normal and 4% warmeras 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. This
increase is2001.
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 decreased $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 certain subsidiaries of SCANA Corporation (the
"SCANA Acquisition"), 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 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 effect at the beginning of the prior year,
fiscal 2001 net income would have improved by $7.4 million.
GAIN ON SALE OF STORAGE 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 net 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 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 2002 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 our
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 2001 income before interest expense and income taxes would have improved
by $7.4 million.
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 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, 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):
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 decreased 10.9%,
or $4.3 million, to $35.3 million in fiscal 2002 compared to $39.6 million in
the prior year. This decrease is primarily attributable to gains
realized on the sale of non-strategic assets andreductions in average
amounts outstanding during fiscal 2002 under our Revolving Credit Agreement, as
well as lower expenses for professional
services.average interest rates.
20
GAINS ON SALE OF ASSETS. Results for fiscal 2000 reflect a gain of $10.3
million associated with the sale of 23 customer service centers principally
located in Georgia in December 1999.
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 Chemicals,
Inc. ("Millennium"), the former general partner of the Partnership, to extend
the scheduled closing date for the Recapitalization. The $7.6 million includes
approximately $0.3 million of expenses paid to Millennium to purchase its
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 for
fiscal 2000 include a $10.3 million gain on the sale of assets. Results for
fiscal 1999 include $18.9 million of recapitalization costs. Excluding these
one-time items from both periods, 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. 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 in income before interest expense and income taxes is
primarily attributable to increased depreciation and amortization associated
with the SCANA Acquisition, partially offset by higher income associated with
the SCANA Acquisition and lower general and administrative expenses. The
increase in EBITDA is principally attributable to higher income associated with
the SCANA Acquisition and lower general and administrative expenses. EBITDA
should not be considered as an alternative to net income (as an indicator of
operating performance) or as an alternative to cash flow (as a measure of
liquidity or ability to service debt obligations) but provides additional
information for evaluating the Partnership's ability to distribute the Minimum
Quarterly Distribution.
INTEREST EXPENSE. Net interest expense increased 32.6% or $10.0 million to
$40.8 million compared to $30.8 million in the prior year. The increase is due
to interest expense on borrowings to fund the SCANA Acquisition.
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, the
Partnership'sour
second and third fiscal quarters, as customers pay for propane purchased during
the heating season. In fiscal 2001,2003, net cash provided by operating activities
increased $42.4decreased $11.5 million, or 16.7%, to $101.8 million compared to $59.5$57.3 million in fiscal 2000.2003 compared to
$68.8 million in fiscal 2002. The increasedecrease is primarily due to improvedlower net income,
including lower non-cash items (principally depreciation, amortization and gains
on asset disposals), as well as the impact of increased investment in accounts
receivable and 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 fiscal 2002 compared to $101.8 million in
fiscal 2001. The decrease was primarily due to lower net income, including lower
non-cash items (principally depreciation, amortization and gains on asset
disposals), as well as the impact of unfavorable changes in working capital principally reflected in decreased accounts receivable, attributable to
a decrease in sales during the fourth quarter of fiscal 2001 in
comparison to the fourth quarterprior year, principally reflecting lower compensation and
benefit accruals, offset by lower inventories.
Net cash used in investing activities was $4.9 million in fiscal 2003,
reflecting $14.1 million in capital expenditures (including $4.7 million for
maintenance expenditures and $9.4 million to support the growth of operations)
offset by net proceeds of $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 2000, decreased accounts payable, attributable2002, reflecting
$17.5 million in capital expenditures (including $13.0 million for maintenance
expenditures and $4.5 million to support the decreased costgrowth 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 during the fourth quarter of fiscal 2001, and
higher net income of $22.2 million, after adjusting for non-cash items
(depreciation, amortization and gains on disposal of assets)storage facility in
both periods.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.
Net cash used in investingfinancing activities for fiscal 2003 was $99.1$77.6 million,
reflecting (i) the payment of our quarterly distributions to our Common
Unitholders and our General Partner amounting to $60.1 million, (ii) the
repayment of all outstanding borrowings under our Revolving Credit Agreement
amounting to $46.0 million, (iii) the repayment of the second annual principal
payment of $42.5 million due under the 1996 Senior Note Agreement, and (iv) the
payment of $0.8 million in fees associated with the renewal and extension of our
Revolving Credit Agreement during May 2003. The $88.9 million reduction in debt
during fiscal 2000, reflecting $21.3 million in capital expenditures (including $7.5 million
for maintenance expenditures2003 was funded through a combination of cash provided by
operations and $13.8 million to support the growth of
operations) and $98.0 million of acquisition payments, including $97.0 million
for the SCANA Acquisition, offset by net proceeds of $20.2$72.2 million from a follow-on public
offering of approximately 2.6 million Common Units (including full exercise of
the saleunderwriters' over-allotment option) which was completed during the third
quarter of property, plantfiscal 2003. Net cash used in financing activities for fiscal 2002
was $57.5 million, primarily reflecting the payment of quarterly distributions
to our Common Unitholders and equipment, including 23 customer service centers.
our General Partner. Net cash used in financing
activities for fiscal 2001 was $59.1 million, reflecting repayments under theour
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 $6.5 million borrowed under the net working capital facility,
and $54.5 million in Partnershipfor payment of quarterly distributions to our Common
Unitholders and our General Partner, partly offset by net proceeds of $47.1
million from thea public offering. Net cash provided by financing activities for fiscal 2000 was $42.9offering of approximately 2.4 million reflecting $89.7 millionCommon Units in
borrowingsOctober 2000.
On March 5, 1996, pursuant to fund the SCANA Acquisition
and $3.8a Senior Note Agreement (the "1996 Senior
Note Agreement"), we issued $425.0 million of net working capital borrowingssenior notes (the "1996 Senior
Notes") with an annual interest rate of 7.54%. Our obligations under the 1996
Senior Note Agreement are unsecured and rank on an equal and ratable basis with
our obligations under the 2002 Senior Note Agreement and the Revolving Credit
Agreement offset by $47.4 million in Partnership distributions and $3.1 million
of expenses to amenddiscussed below. Under the Revolving Credit Agreement. The increase of $7.1
million in Partnership distributions during fiscal 2001 is attributable to the
increase in Common Units outstanding as a resultterms of the public offering and the
increases in the quarterly distribution amounts.
In fiscal 2000, net cash provided by operating activities decreased $22.3
million to $59.5 million compared to $81.8 million in fiscal 1999. 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 for non-cash items (depreciation, amortization, gains
on disposal of assets and recapitalization costs) in both periods. The lower net
income, after adjusting for non-cash items, primarily results from increased
interest expense associated with borrowings to fund the SCANA Acquisition.
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 used in financing activities for fiscal 1999 was $120.9 million,
reflecting $69.0 million paid to the Former General Partner to redeem all
outstanding Subordinated Units and Additional Partnership Units ("APUs"), $9.4
million of recapitalization costs, $2.1 million of net working capital
borrowings under the Partnership's Bank Credit Facilities and $44.6 million in
Partnership distributions.
In March 1996 the Operating Partnership issued $425.0 million aggregate
principal amount of Senior Notes with an interest rate of 7.54%. The Senior
Notes mature June 30, 2011. The Senior Note Agreement, requires thatwe
became obligated to pay the principal be paidon the 1996 Senior Notes in equal annual
payments of $42.5 million starting July 1, 2002.
Effective January 29, 2001,2002, with the Partnership amended its existinglast such payment due
June 30, 2011. On July 1,
21
2002, we received net proceeds of $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, 2003.
Our previous Revolving Credit Agreement, reducing thewhich provided a $75.0 million
working capital facility and a $50.0 million acquisition facility, from $100.0 millionwas scheduled
to $50.0
million and extending the term tomature on May 31, 2003. In addition,On May 8, 2003, we completed the covenant to
maintain a minimum net worth was eliminatedSecond Amended and
Restated Credit Agreement (the "Revolving Credit Agreement") which extends the
maximum ratio of
consolidated total indebtedness to EBITDA (as defined in the amendment) was
reduced from 5.10 to 1 to 5.00 to 1 from April 1, 2001 throughprevious Revolving Credit Agreement until May 31, 2003.2006. The Partnership'sRevolving Credit
Agreement provides a $75.0 million working capital facility was retained at $75.0and an acquisition
facility of $25.0 million. 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%0.375% to .50%0.50%, 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, 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 29, 2001,27, 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 representing amounts outstanding to fundof the SCANA Acquisition, totaled $46.0
million,previous
Revolving Credit Agreement and there were no amounts were outstandingborrowings under the working
capital facility, and the
annual fee was .375%.facility.
The 1996 Senior Note Agreement, the 2002 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 the Senior Note Agreement and
the Revolving Credit Agreementall of our debt agreements as
of September 29, 2001.
Under27, 2003 and at the termsend of the Senior Note Agreement, the first annual principal
installment of $42.5 million is due on July 1, 2002. The Partnership intends to
refinance this amount and has initiated discussions with various third parties
to reach a refinancing agreement with favorable terms to the Partnership.
Alternatively, the Partnership currently expects that it will generate
sufficient funds from operations or have available adequate borrowing capacity
under the working capital facility of the Revolving Credit Agreement to make the
principal payment.
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 Board of Supervisors 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 2001, the
Partnership made2003, we paid
distributions to itsour Common Unitholders of $.5375$0.5750 per Common Unit. On July 24,
2003, the Board of Supervisors declared a $0.05 annualized increase in the
quarterly distribution from $0.5750 per Common Unit for the first quarter, $.55to $0.5875 per Common Unit,
or $2.35 on an annualized basis, for the second and third quarters and $.5625 per Common Unit forquarter of fiscal 2003, which was
paid on August 12, 2003. On October 23, 2003, the fourth quarter. Distributions
consistedBoard of the $.50 Minimum Quarterly Distribution per Common Unit and an
additionalSupervisors declared
a quarterly distribution per Common Unit of $.0375 for the first quarter, $.05
for the second and third quarters and $.0625 for the fourth quarter. The
increase in the distributions to $.5625$0.5875 per Common Unit for the fourth quarter of
fiscal 2003, which is in excesswas paid on November 10, 2003 to holders of the target distribution of $.55 per Common Unit (the
"Target Distribution"), resulted in the operation of therecord 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 IDRs represent an incentive for the General Partner
(which is owned by the management of the Partnership)our management) to increase the distributions to Common
Unitholders in excess of the Target Distribution.$0.55 per Common Unit. With regard to the first
$.55$0.55 of the Common Unit distribution, paid in the fourth quarter, 98.11%98.29% of the Available Cash (as defined in the Amended and Restated Partnership
Agreement) wasis
distributed to the Common Unitholders and 1.89% was1.71% is distributed to the General
Partner.Partner
22
(98.11% and 1.89%, respectively, prior to our June 2003 public offering). With
regard to the balance of $.0125 of the Common Unit distributiondistributions paid, in the fourth quarter, 85% of the
Available Cash wasis distributed to the Common Unitholders and 15% wasis 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 Partnership'slower 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 20022004 include maintenance and
growth capital expenditures of approximately $19.0 million for the repair and
replacement of property, plant and equipment, and approximately $34.0$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, the
Partnershipwe will be required to pay
approximately $56.7$65.8 million in distributions to its Common Unitholders and itsthe
General Partner during fiscal 2002.2004. Based on the Partnership'sour current estimatesestimate of itsour 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 our current and future obligations.
In connection with the above obligationspending acquisition of the assets 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 fiscal 2002, as well as allother permanent financing to repay the facility at our earliest
opportunity, possibly through one or more offerings of its current obligationsequity 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 during fiscal 2002.
OTHER COMPREHENSIVE INCOME
During fiscal 2001,of the actuarially determined prepaid benefit costAgway Energy business for the
Partnership's noncontributoryforseeable 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 30,
2000 decreased, resulting in an accrued benefit liability as27, 2003 exceeded the market value
of September 29,
2001. This change is attributablepension plan assets by $42.1 million, which improved $11.1 million compared
to a decreasethe $53.2 million underfunded position at the end of $34,764the prior year. The
improvement in the actual return
on plan assets for fiscal 2001 asfunded status compared to fiscal 2000 as2002 has also resulted in a
resultfavorable adjustment of the
significant decline in capital markets, and the use of more conservative
valuation assumptions reflecting the current interest rate environment. The
adjustment for the minimum pension liability in the amount of $47,277 is offset
by a reduction$5.0 million to accumulated other comprehensive
(loss)/income, a component of partners' capital.
PUBLIC OFFERING
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 other offering expenses. On
November 14, 2000, following the underwriter's partial exercise of its
over-allotment option, the Partnership sold an additional 177,700 Common Units
capital, at the same price, generating additional net proceedsend of $3.6 million.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 aggregate net proceedscumulative reduction to partners' capital is
attributable to the level of $47.1 million were appliedunrealized losses experienced on our pension assets
over the past three years and represent non-cash charges to reduceour partners'
capital with no impact on the Partnership's
outstanding Revolving Credit Agreement borrowings. These transactions increasedresults of operations for the total numberfiscal year ended
September 27, 2003. Our defined benefit pension plan was frozen to new
participants effective January 1, 2000 and, in furtherance of Common Units outstandingour effort to
24.632 million.
As a result of the public offering, the combined general partner interestminimize future increases in the Partnership wasbenefit 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 2%6.75% as of September
28, 2002 to 1.89% while6.0% as of September 27, 2003 to reflect an estimate of current
market expectations related to long term interest rates. Additionally, we
reduced the Common Unitholder
interestexpected 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
Partnership increased from 98% to 98.11%.
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,
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 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. In connection with the Recapitalization, the
Partnership's Distribution Support Agreement with the Former General Partner was
terminated and replaced with a $21.6 million liquidity arrangement (which was in
effect until March 31, 2001) 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
interests 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 management 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.
ADOPTION OF NEW ACCOUNTING STANDARD
Effective with the firstfourth 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
Partnership adopted
SFAS 133, as amended by Statement ofimmediately preceding table.
24
GUARANTEES
Financial Accounting Standards Board ("SFAS"FASB") Financial Interpretation No.
13745, "Guarantor's Accounting and SFAS No. 138. SFAS 133Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others," expands the existing
disclosure requirements for guarantees and requires entities to record derivatives as assets
or liabilities onrecognition of a liability
for the balance sheet based on their fair value of guarantees issued after December 31, 2002. We have
residual value guarantees associated with any
subsequent changes incertain 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 values of contracts recorded in income, unless
the contracts qualify as hedges. Certain contracts qualifying for hedge
accounting would have changes in fair values reported as a component of
comprehensive income (equity). Based on the criteria set forth in SFAS 133,
management determined that the Partnership's derivative contracts do not qualify
for hedge accounting and, commencing with the adoption of SFAS 133, its
derivatives are marked-to-market through income. The fair market value of the Partnership's derivative portfolio onequipment will equal or
exceed the dateguaranteed amount, or we will pay the lessor the difference. Although
the fair value of adoptionequipment at the end of SFAS 133 did not
reflect any unrealized net gain or loss and accordingly, no cumulative effectits 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 change in accountingamount, 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 corresponding amount
included within other assets, in the accompanying consolidated financial statements.
balance sheet as
of September 27, 2003.
RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001,June 2002, the Financial Accounting Standards Board (the "FASB")FASB issued SFAS No. 141, "Business Combinations"146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 141"146"), and. SFAS No. 142, "Goodwill
and Other Intangible Assets" ("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 142"). Under146 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 141, all
business combinations initiatedNo. 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" and
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, 2001 are required to be accounted2003, and for under the purchase method of accounting. Under the provisions of SFAS 142,
goodwill will no longer be amortized but will be subject to a transitional
impairment review and to annual impairment reviews in accordance with the SFAS.
SFAS 142 is effective for fiscal years beginninghedging relationships
designated after December 15, 2001, but
early adoption is permitted for companies with a fiscal year beginning after
March 15, 2001.June 30, 2003. The Partnership has elected to early adopt SFAS 142 effective
for the first quarter of fiscal 2002. The Partnership estimates that adoption of thethis standard will result in a decrease in goodwill amortization expense for
fiscal 2002 of $7.4 million. In addition, the Partnership believes that the
required transitional impairment review willdid not have a
material impact on its
consolidated financial position or consolidated results of operations.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"), which requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred and the associated asset retirement costs be capitalized as
part of the carrying amount of the long-lived asset. Accretion expense and
depreciation expense related to the liability and capitalized asset retirement
costs, respectively, would be recorded in subsequent periods. SFAS 143 is
effective for fiscal years beginning after June 15, 2002. The Partnership is
currently in the process of evaluating the impact SFAS 143 will have on theour consolidated financial position, results of operations andor
cash flows of the
Partnership.flows.
In October 2001,May 2003, the FASB issued SFAS No. 144,150, "Accounting for the
Impairment or DisposalCertain
Financial Instruments with Characteristics of Long-Lived Assets"both Liabilities and Equity"
("SFAS 144"150"). SFAS 144 applies to
all long-lived assets, including discontinued operations,150 establishes standards for the classification and
provides guidance
on the measurement of certain financial instruments with characteristics of both
liabilities and recognitionequity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). Many of impairment charges for assetsthese instruments were previously required to be
held
and used, assets to be abandoned and assets to be disposed of by sale. SFAS 144
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of". SFAS 144classified 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 years
beginning after December 15, 2001.2003. The provisionsadoption 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. 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
25
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, we are to be
applied prospectively.currently evaluating the impact, if
any, that FIN 46 or any future amendment may have on our financial position and
results of operations.
26
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of September 29, 2001, 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 29, 2001.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 $1.5$3.3 million
and $1.0$0.7 million, as of September 29, 200127, 2003 and September 30, 2000,28, 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 29, 2001, the Partnership's27, 2003, our open position portfolio reflected a net long
position (purchase) aggregating $8.9$19.2 million.
As of November 30, 2001, theThe average posted price of propane on November 21, 2003 at Mont Belvieu,
Texas (a major storage point) was 2955.63 cents per gallon as compared to 4050.75
cents per gallon aton September 29, 2001,27, 2003, representing a 28% decline. This decline is
attributable to factors including warmer weather patterns, high national propane
inventory levels and decreases in the market price of crude oil.9.6% increase.
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Partnership'sOur Consolidated Financial Statements and the Report of Independent
AccountantsAuditors thereon and the Supplemental Financial Information listed on the
accompanying Index to Financial Statement Schedule 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
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
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, 2001.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....... 43 President and Chief Executive Officer; Member
of the Board of Supervisors (Appointed
Supervisor)
Michael J. Dunn, Jr..... 52 Senior Vice President - Member of the Board of
Supervisors (Appointed Supervisor)
David R. Eastin......... 43 Senior Vice President and Chief Operating
Officer
Michael M. Keating...... 48 Vice President - Human Resources and
Administration
Jeffrey S. Jolly........ 49 Vice President and Chief Information Officer
Robert M. Plante........ 53 Vice President - Finance and Treasurer
Janice G. Meola......... 35 General Counsel and Secretary
John Hoyt Stookey....... 71 Member of the Board of Supervisors
(Chairman and Elected Supervisor)
Harold R. Logan, Jr..... 57 Member of the Board of Supervisors
(Elected Supervisor)
Dudley C. Mecum......... 66 Member of the Board of Supervisors
(Elected Supervisor)
Mark J. Anton........... 75
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 Treasurera member of the Executive
Committee of the National Propane Gas Association and a member of its Executive Committee. He is 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
Managera Vice President since October 1999 and District Managerbecame
Vice President and Chief Financial Officer in November 2003. He was Vice
President - Finance from March 2001 until November 2003 and Treasurer from March
1996 through October 2002. Mr. Plante held various financial and managerial
positions with predecessors of the Partnership from 1977 until 1996.
Mr. Jolly has served as Vice President and Chief Information Officer since
May 1999. He was Vice President - Information Services from July 1997 until May
1999. From May 1993 until joining the Partnership, Mr. Jolly was Vice President
- - Information Systems at Ferrellgas Partners, L.P. and its predecessor
company, Buckeye Gas Products Company.The Wood Company, a food services company.
Mr. Keating serveshas 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. 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. Jolly serves as Vice President and Chief Information Officer of the
Partnership.D'Ambrosio became Treasurer in November 2002. He served as Chief Information OfficerAssistant
Treasurer from October 2000 to November 2002 and as Director of Treasury
Services from January 1998 to October 2000. Mr. D'Ambrosio joined the
Partnership in May 1999 to1996 after ten years in the present. Hecommercial banking industry.
Ms. Meola has served as Vice President, Information ServicesGeneral Counsel and Secretary since
July 1997.
Mr. Jolly was employed as Vice President Information Systems at The Wood Company
from 1993 to 1997.November 2003. From 1989 to 1993, he was employed by Johanna Dairies, Inc.
and Alpo Pet Foods Inc. for four and one years, respectively.
Mr. Plante serves as Vice President - Finance and Treasurer of the
Partnership. He has served as Vice President since OctoberMay 1999 and as Treasurer
since March 1996. Mr. Plante was Director of Financial Services from 1993 to
1996 and held various other management positions with the organization since
1977.until November 2003, Ms. Meola servesserved 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.Quantum and served as
non-executive Chairman and a director of Quantum from its acquisition by Hanson
plc in September 1993 until October 1995. Mr. Stookey is also a directornon-executive
Chairman of United States Trust Company 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. andThe 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., CCC Information Systems Inc. and Mrs. Fields Holding Company,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 fiscal 2001.2003.
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
Summary Compensation TableSUMMARY 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 ................... 2001 450,000 450,000 -- -- -- 160,5452003 $450,000 $192,150 - $167,037
President and Chief Executive Officer 2000 400,000 304,000 -- -- -- 128,548
1999 400,000 400,000 -- -- -- 95,0002002 450,000 157,500 25,382 158,513
2001 450,000 450,000 7,141 166,371
Michael J. Dunn, Jr .................Jr. 2003 280,000 101,626 27,403 95,695
Sr. Vice President - Corporate Development 2002 275,000 81,813 12,135 85,956
2001 260,000 221,000 -- -- -- 84,168
Sr. Vice President .................. 2000 235,000 151,810 -- -- -- 67,324
1999 225,000 191,250 -- -- -- 48,0243,414 89,321
David R. Eastin .....................2003 265,000 96,182 - 91,721
Senior Vice President and 2002 260,000 77,350 2,018 81,984
Chief Operating Officer 2001 240,000 204,000 -- -- -- 78,888- 84,362
Robert M. Plante 2003 180,000 46,116 - 39,038
Vice President and Chief OperatingFinancial Officer ............. 2000 190,000 108,300 -- -- -- 47,093
1999 67,307 47,396 -- 389,020 19,512 16,4202002 175,000 45,625 3,807 32,938
2001 150,000 75,000 1,071 35,169
Jeffrey S. Jolly .................... 2001 170,000 85,000 -- -- -- 42,4082003 182,500 38,964 10,366 50,443
Vice President and Chief Information 2000 150,000 57,000 -- -- -- 58,274
Officer ............................. 1999 145,000 72,500 -- 96,000 5,366 20,213
Michael M. Keating ..................2002 177,500 31,063 4,600 41,414
2001 167,500 83,750 -- -- -- 41,935
Vice President, Human Resources and . 2000 145,000 55,100 -- -- -- 34,098
Administration ...................... 1999 140,000 70,000 -- -- -- 19,837170,000 85,000 1,294 47,660
(1) Bonuses are reported for the year earned, regardless of the year paid.
(2) 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 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
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 29, 2001, and
the aggregate value thereof (calculated at a per unit price of $25.04, the
closing price of a Common Unit on September 28, 2001, as reported on the
New York Stock Exchange) were 243,902 ($6,107,306) for Mr. Alexander,
48,780 ($1,221,451) for Mr. Dunn, 19,512 ($488,580) for Mr. Jolly and
29,268 ($732,870) 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 $488,580 on September 28, 2001,
are held in the Benefits Protection Trust and are subject to the same terms
and conditions that are described in footnote 2.
(4) For Mr. Alexander, this amount includes the following: $5,250$3,000 under the
Retirement Savings and Investment Plan; $1,356$1,200 in administrative fees under
the Cash Balance Pension Plan; $135,000 awarded under the 1996 Long-Term
Incentive Program;Plan; and $18,939$27,837 for miscellaneous insurance. For Mr. Dunn, this amount
includes the following: $5,250$3,000 under the Retirement Savings and Investment
Plan; $1,356$1,200 in administrative fees under the Cash Balance Pension Plan;
$66,300$71,400 awarded under the 1996 Long-Term Incentive Program;Plan; and $11,262$20,095 for miscellaneous
insurance. For Mr. Eastin, this amount includes the following: $5,250$3,000 under
the Retirement Savings and Investment Plan; $1,356$1,200 in administrative fees
under the Cash Balance Pension Plan; $61,200$67,575 awarded under the 1996 Long-Term
Incentive Program;Plan; and $11,082$19,946 for miscellaneousinsurance. For Mr. Plante, this amount
includes the following: $2,700 under the Retirement Savings and Investment
Plan; $1,200 in administrative fees under the Cash Balance Pension Plan;
$32,400 awarded under the Long-Term Incentive Plan; and $2,738 for
insurance. For Mr. Jolly, this amount includes the following: $5,100$2,738 under
the Retirement Savings and Investment Plan; $1,356$1,200 in administrative fees
under the Cash Balance Pension Plan; $25,500$27,375 awarded under the 1996 Long-Term
Incentive Program;Plan; and $10,452$19,130 for miscellaneous
insurance.
For Mr. Keating, this amount includes the following: $5,025
under the Retirement Savings and Investment Plan; $1,356 in administrative
fees under the Cash Balance Pension Plan; $25,125 awarded under the 1996
Long-Term Incentive Program; and $10,429 for miscellaneous insurance.
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. In
addition, if 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 2001,2003, 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 57
years, 46 years and 24 years, respectively, under both plans. For vesting
purposes, however, Mr. Alexander has 1719 years combined service with the
Partnership and his prior service with Hanson Industries. Messrs. Plante and
Jolly and
Keating have 426 years and 166 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 BenefitCurrently, the statutory maximum 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 7,936 15,872 23,808 31,744 39,680 47,616 55,552
$200,000 16,686 33,372 50,058 66,744 83,430 100,116 116,802
$300,000 25,436 50,872 76,308 101,744 127,180 152,616 178,052
$400,000 34,186 68,372 102,558 136,744 170,930 205,116 239,302
$500,000 42,936 85,972 128,808 171,744 214,680 257,616 300,552
(1)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 20012002 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 3.0%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 20012002 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 (the "Plan""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.maximums, 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 cash balance plan. In light of the conversion of the
Qualified Plan to a cash balance formula, the PlanSERP has been amended and restated
effective January 1, 1998. The annual Retirement Benefit under the SERP
represents the amount of Annual Benefits that the Normal Retirement Benefit payableparticipants in the SERP would
otherwise be eligible to receive, calculated using the same pay based credits
described under the Plan shall be
determined as follows: (a) For Annuity Starting Dates or other determination
dates on or after January 1, 1998 and prior to January 1, 2003, a Participant's
Normal Retirement Benefit shall be equal to the excess of: (i) (A) the greater
of a Participant's Pension benefit (determined using Average Final Compensation
as defined in footnote 2 of the Retirement Benefits Section) or the accrued
benefit based on the Basic Account (determined using Compensation and Excess
Compensation as defined in the Plan), plus (B) the accrued benefit based on the
Supplemental Account, if any (determined using Compensation and Excess
Compensation as defined in the Plan); over (ii) the Participant's Pension
Offset. (b) For Annuity Starting Dates or other determination dates on or after
January 1, 2003, a Participant's Normal Retirement Benefit shall be equalsection above, applied to the excess of: (i)(A)amount of
Annual Compensation that exceeds the greater of a Participant's PensionIRS statutory maximums for defined benefit
determined as
of January 1, 2003 (based on Compensation, Benefit Service, and all other
relevant factors as of January 1, 2003) or the accrued benefit based on the
Basic Account (determined using Compensation and Excess Compensation as defined
in the Plan), plus (B) the accrued benefit based on the Supplemental Account, if
any (determined using Compensation and Excess Compensation as defined in the
Plan); over (ii) the Participant's Pension Offset.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 itsour Common Units with respect to each fiscal year. Awards
vest over time with one-third vesting at the beginning of years three, four, and
five from the award date.
Long-Term Incentive Plan awards earned in fiscal 2001We 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 2003 were as follows:
Performance or
Other Period
Award Until Maturation Potential Awards Under Plan
Name FY 20012003 or Payout Threshold Target Maximum
- ---- -------- ----------------------- --------- -------- ----------------- ------ -------
Mark A. Alexander .. $135,000 3-5 Years $ 0 $135,000 $135,000
Michael J. Dunn, Jr. 66,30071,400 3-5 Years 0 66,300 66,30071,400 71,400
David R. Eastin .... 61,20067,575 3-5 Years 0 61,200 61,20067,575 67,575
Robert M. Plante 32,400 3-5 Years 0 32,400 32,400
Jeffrey S. Jolly ... 25,50027,375 3-5 Years 0 25,500 25,500
Michael M. Keating . 25,125 3-5 Years 0 25,125 25,12527,375 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 $450,000 as of September 29,
200128, 2002 and provides for
Mr. Alexander to 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.
Mr. Alexander has also agreed that a sale or transfer of the General
Partner after the Recapitalization would not constitute a change of control
under his 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. 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
The following table sets forth certain information as of December 14, 2001November 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.
- ----------------------
Amount and Nature of Percent
Title of Class Name of Beneficial Owner Beneficial Ownership of Class
- -------------- ------------------------ -------------------- --------
Common Units Mark A. Alexander (a) 30,000 *
Michael J. Dunn, Jr. (a) 0 -
David R. Eastin (a) 0 -
Jeffrey S. Jolly (a) 0 -
Michael M. Keating (a) 0 -
John Hoyt Stookey 11,519 *
Harold R. Logan, Jr. 17,134 *
Dudley C. Mecum 5,634 *
Mark J. Anton (b) 4,600 *
All Members of the Board
of Supervisors and Executive
Officers as a Group (13 persons) 69,337 *
Goldman, Sachs & Co. (c) 2,453,006 10%
SUBURBAN PROPANE, L.P.
- ----------------------
Amount and Nature of Percent
Title of Class Name of Beneficial Owner Beneficial Ownership of Class
- -------------- ------------------------ -------------------- --------
Common Units Mark A. Alexander (a) 29,000 *
Michael J. Dunn, Jr. (a) 0 -
David R. Eastin 11,000 -
Robert M. Plante 12,262 -
Jeffrey S. Jolly 3,000 -
John Hoyt Stookey 11,519 *
Harold R. Logan, Jr. 15,064 *
Dudley C. Mecum 5,634 *
Mark J. Anton (b) 4,600 *
All Members of the Board
of Supervisors and Executive
Officers as a Group (13 persons) 92,079 *
Goldman, Sachs & Co. (c) 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
* 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. Suburban Energy
Services Group LLC isUnits until they are
distributed by the General Partner. The business addresstrust. Mr. Alexander and Mr. Dunn have elected to
receive the quarterly cash distributions on these deferred units.
Notwithstanding the foregoing, if a "change of Suburban
Energy Services Group LLC is 240 Route 10 West, Whippany, New Jersey 07981.control" of the Partnership
occurs (as defined in the Compensation Deferral Plan), all of the 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 3,600 Common Units with
his 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
InNone.
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.categories 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
principal accountant, PricewaterhouseCoopers LLP. The policy 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 the Audit
Committee. The Audit Committee pre-approved all audit and non-audit services
provided by PricewaterhouseCoopers LLP during fiscal 2003 and reviewed all audit
and non-audit services for fiscal 2002.
42
PART IV
ITEM 14.15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 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-22.F-24.
2. Financial Statement 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.
(b) The Partnership filed aReports on Form 8-K
No reports were filed on January 19, 2001, July 13, 2001 and
October 19, 2001, each incorporating a press release announcing the
Partnership's Quarterly Earnings Conference Call.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 Supervisor December 19, 2001
- ------------------------
(Michael J. Dunn, Jr.)
/s/ JOHN HOYT STOOKEY Chairman and Elected Supervisor December 19, 2001
- ---------------------
(John Hoyt Stookey)
/s/ HAROLD R. LOGAN, JR. Elected Supervisor December 19, 2001
- ------------------------
(Harold R. Logan, Jr.)
/s/ DUDLEY C. MECUM Elected Supervisor December 19, 2001
- -------------------
(Dudley C. Mecum)
/s/ ROBERT M. PLANTE Vice President - Finance and December 19, 2001
- -------------------- Treasurer of Suburban Propane
(Robert M. Plante) Partners, L.P. (Principal
Financial Officer)
/s/ ROBERT M. PLANTE Vice President - Finance and December 19, 2001
- -------------------- Treasurer of Suburban Propane
(Robert M. Plante) Partners, L.P. (Principal
Accounting Officer)
Signature Title Date
--------- ----- ----
/s/ MICHAEL J. DUNN, JR Senior Vice President - Corporate December 2, 2003
- --------------------------------- Development
(Michael J. Dunn, Jr.) Suburban Propane Partners, L.P.
Appointed Supervisor
/s/ JOHN HOYT STOOKEY Chairman and Elected Supervisor December 2, 2003
- ---------------------------------
(John Hoyt Stookey)
/s/ HAROLD R. LOGAN, JR. Elected Supervisor December 2, 2003
- ---------------------------------
(Harold R. Logan, Jr.)
/s/ DUDLEY C. MECUM Elected Supervisor December 2, 2003
- ---------------------------------
(Dudley C. Mecum)
/s/ ROBERT M. PLANTE Vice President and December 2, 2003
- --------------------------------- Chief Financial Officer
(Robert M. Plante) Suburban Propane Partners, L.P.
/s/ MICHAEL A. STIVALA Controller December 2, 2003
- --------------------------------- 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. 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 Amended and Restated Credit Agreement dated as of
January 29, 2001 by and among Suburban Propane, L.P., the
Lenders referred to therein, First Union National Bank, as
Administrative Agent, Fleet National Bank, as Syndication
Agent and the Bank of New York, as Managing 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 10.1110.18 The Partnership's Severance Protection Plan dated
September 1996.
E 10.12K 10.19 Suburban Propane L.P. Long-Term Incentive Program.
G 10.13Plan 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 10.14F 10.21 Compensation Deferral Plan of Suburban Propane Partners,
L.P. and Suburban Propane, L.P. dated May 26, 1999.
J 10.15 Suburban Propane Partners, L.P. 2000 Restricted Unit Plan.
E-1
K 10.16 Amended and Restated Supplemental Executive
Retirement Plan of the Partnership (effective as of
January 1, 1998).
K 10.17H 10.22 First Amendment to the Compensation Deferral Plan of
Suburban Propane Partners, L.P. and Suburban Propane, L.P.
dated November 5, 2001.
K 10.18H 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.
KM 23.1 Consent of Independent Accountants.
M 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 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 (3)(A) to the Partnership's Quarterly
Report on Form 10-Q for the fiscal year ended December 30, 2000.
J 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.
KMarch 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 29, 2001Sheets -
As of September 27, 2003 and September 30, 2000.... F-328, 2002............................F-3
Consolidated Statements of Operations -
Years Ended September 29, 2001,27, 2003, September 30, 200028, 2002 and
September 25, 1999..................................................... F-429, 2001.........................................................F-4
Consolidated Statements of Cash Flows -
Years Ended September 29, 2001,27, 2003, September 30, 200028, 2002 and
September 25, 1999..................................................... F-529, 2001.........................................................F-5
Consolidated Statements of Partners' Capital -
Years Ended September 29, 2001,27, 2003, September 30, 200028, 2002 and
September 25, 1999..................................................... F-629, 2001.........................................................F-6
Notes to Consolidated Financial Statements............................... F-7Statements...................................F-7
F-1
REPORT OF INDEPENDENT ACCOUNTANTSAUDITORS
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 14.15.(a)1.(i) on page 30 present fairly, in all material respects, the
financial position of Suburban Propane Partners, L.P. and its subsidiaries (the
"Partnership") at September 29, 200127, 2003 and September 30, 200028, 2002 and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended September 29, 200127, 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
14.15.(a)2. on page 30 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 financial statement schedule are the
responsibility of the Partnership's management; our responsibility is to express
an opinion on these financial statements and 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 our opinion.
PricewaterhouseCoopers LLP
Florham Park, NJ
October 23, 20012003
F-2
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 29, September
30,
2001 2000
------------- -------------27, 2003 28, 2002
---------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents .................................................... $ 36,49415,765 $ 11,64540,955
Accounts receivable, less allowance for doubtful accounts
of $3,992$2,519 and $2,975,$1,894, respectively ........................................ 42,702 61,30336,437 33,002
Inventories .................................................................. 41,891 41,63141,510 36,367
Prepaid expenses and other current assets .................................... 3,252 7,581
--------- ---------5,200 6,465
---------------- -----------------
Total current assets ................................................. 124,339 122,16098,912 116,789
Property, plant and equipment, net ............................................... 344,374 350,640
Net prepaid pension cost ......................................................... -- 33,687312,790 331,009
Goodwill and other243,236 243,260
Other intangible assets, net ........................................ 252,391 261,6171,035 1,474
Other assets ..................................................................... 1,902 3,012
--------- ---------9,657 7,614
---------------- -----------------
Total assets ........................................................ $ 723,006665,630 $ 771,116
========= =========700,146
================ =================
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable ............................................................. $ 38,68526,204 $ 59,79427,412
Accrued employment and benefit costs ......................................... 29,948 18,979
Short-term borrowings ........................................................ -- 6,50020,798 21,430
Current portion of long-term borrowings ...................................... 42,500 --42,911 88,939
Accrued insurance ............................................................ 7,860 6,1707,810 8,670
Customer deposits and advances ............................................... 23,217 23,16423,958 26,125
Accrued interest ............................................................. 8,318 8,1717,457 8,666
Other current liabilities .................................................... 11,575 8,683
--------- ---------8,575 6,303
---------------- -----------------
Total current liabilities .......................................... 162,103 131,461137,713 187,545
Long-term borrowings ............................................................. 430,270 517,219340,915 383,830
Postretirement benefits obligation ............................................... 34,521 33,88533,435 33,284
Accrued insurance ................................................................ 17,881 19,458
Net accrued20,829 18,299
Accrued pension liability .................................................... 13,703 --42,136 53,164
Other liabilities ................................................................ 5,579 7,264
--------- ---------6,524 4,738
---------------- -----------------
Total liabilities ................................................. 664,057 709,287
--------- ---------581,552 680,860
---------------- -----------------
Commitments and contingencies
Partners' capital:
Common Unitholders (24,632(27,256 and 22,27924,631 units issued and outstanding at
September 29, 200127, 2003 and September 30, 2000,28, 2002, respectively)................. 105,549 58,474 165,950 103,680
General Partner ............................................................ 1,888 1,8661,567 1,924
Deferred compensation trust ................................................ (11,567)(5,795) (11,567)
Common Units held in trust, at cost ........................................ 11,5675,795 11,567
Unearned compensation ...................................................... (1,211) (640)(2,171) (1,924)
Accumulated other comprehensive (loss)/ income ............................. (47,277) 2,129
--------- ---------loss (81,268) (84,394)
---------------- -----------------
Total partners' capital .......................................... 58,949 61,829
--------- ---------84,078 19,286
---------------- -----------------
Total liabilities and partners' capital .......................... $ 723,006665,630 $ 771,116700,146
================ =================
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 unit amounts)
Year Ended
-------------------------------------------------------
September September September
27, 2003 28, 2002 29, 2001
------------- ---------------- ----------------
Revenues
Propane $ 680,741 $ 570,280 $ 839,607
Other 90,938 94,825 91,929
------------- ---------------- ----------------
771,679 665,105 931,536
Costs and expenses
Cost of products sold 376,783 289,055 510,313
Operating 250,698 234,140 258,735
General and administrative 36,661 30,771 32,511
Depreciation and amortization 27,520 28,355 36,496
Gain on sale of storage facility - (6,768) -
------------- ---------------- ----------------
691,662 575,553 838,055
------------- ---------------- ----------------
Income before interest expense and provision for income taxes 80,017 89,552 93,481
Interest income (334) (600) (414)
Interest expense 33,963 35,925 40,010
------------- ---------------- ----------------
Income before provision for income taxes 46,388 54,227 53,885
Provision for income taxes 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 $ 48,669 $ 53,524 $ 53,510
============= ================ ================
General Partner's interest in net income $ 1,193 $ 1,362 $ 1,048
------------- ---------------- ----------------
Limited Partners' interest in net income $ 47,476 $ 52,162 $ 52,462
============= ================ ================
Income per Common Unit - basic
Income from continuing operations $ 1.78 $ 2.12 $ 2.14
Discontinued operations 0.09 - -
------------- ---------------- ----------------
Net income $ 1.87 $ 2.12 $ 2.14
------------- ---------------- ----------------
Weighted average number of Common Units outstanding - 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 September September
27, 2003 28, 2002 29, 2001
---------------- ----------------- -----------------
Cash flows from operating activities:
Net income $ 48,669 $ 53,524 $ 53,510
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation expense 27,097 27,857 28,517
Amortization of 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, net (636) (546) (3,843)
Gain on sale of customer service centers (2,483) - -
Gain on sale of storage facility - (6,768) -
Changes in assets and liabilities, net of dispositions:
(Increase)/decrease in accounts receivable (4,101) 9,635 18,601
(Increase)/decrease in inventories (5,339) 5,402 (260)
Decrease/(increase) in prepaid expenses and
other current assets 576 (2,526) 1,699
Decrease in accounts payable (1,208) (10,862) (21,109)
(Decrease)/increase in accrued employment
and benefit costs (632) (8,518) 10,969
(Decrease)/increase in accrued interest (1,209) 348 147
(Decrease)/increase in other accrued liabilities (1,825) (1,153) 4,635
(Increase)/decrease in other noncurrent assets (2,506) (439) 1,194
Decrease in other noncurrent liabilities (1,680) - (2,647)
---------------- ----------------- -----------------
Net cash provided by operating activities 57,300 68,775 101,838
---------------- ----------------- -----------------
Cash flows from investing activities:
Capital expenditures (14,050) (17,464) (23,218)
Proceeds from sale of property, plant and equipment, net 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 investing activities (4,859) (6,851) (17,907)
---------------- ----------------- -----------------
Cash flows from financing activities:
Long-term debt repayments (88,939) (408) (44,428)
Short-term debt repayments, net - - (6,500)
Credit agreement expenses (826) - (730)
Net proceeds from issuance of Common Units 72,186 - 47,079
Partnership distributions (60,052) (57,055) (54,503)
---------------- ----------------- -----------------
Net cash used in financing activities (77,631) (57,463) (59,082)
---------------- ----------------- -----------------
Net (decrease)/increase in cash and cash equivalents (25,190) 4,461 24,849
Cash and cash equivalents at beginning of year 40,955 36,494 11,645
---------------- ----------------- -----------------
Cash and cash equivalents at end of year 15,765 40,955 36,494
================ ================= =================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 33,635 $ 34,134 $ 37,774
================ ================= =================
Non-cash adjustment for minimum pension liability $ (4,938) $ 37,800 $ 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)
Accumu-
lated
Other
Compre-
Number of Deferred Common Unearned hensive Total Compre-
Common Common General Compen- Units Held Compen- (Loss)/ Partners' hensive
Units Unitholders Partner sation in Trust sation Income Capital Income
----- ------------------- ------ -------- ------ ------ ------- ------
Balance at September 30, 2000 22,278 $ 58,474 $ 1,866 $ (11,567) $ 11,567 $ (640) $ 2,129 $ 61,829
Net income 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
public offering, net of
offering expenses 2,353 47,079 47,079
Grants issued under Restricted
Unit Plan, net of forfeitures 1,011 (1,011) -
Amortization of Compensation
Deferral Plan 212 212
Amortization of Restricted
Unit Plan, net of forfeitures 228 228
--------- --------- --------- -------- -------- -------- -------- ---------
Balance at September 29, 2001 24,631 105,549 1,888 (11,567) 11,567 (1,211) (47,277) 58,949
Net income 52,162 1,362 53,524 $53,524
Other comprehensive income:
Net unrealized 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, net of forfeitures 1,698 (1,698) -
Amortization of Compensation
Deferral Plan 382 382
Amortization of Restricted
Unit Plan, net of forfeitures 603 603
--------- --------- --------- -------- -------- -------- -------- ---------
Balance at September 28, 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 $ 51,795
========
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 $ 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.
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit amounts)
Year Ended
-----------------------------------------------
September 29, September 30, September 25,
2001 2000 1999
------------- ------------- -------------
Revenues
Propane ..................................................... $ 839,607 $ 753,931 $ 544,265
Other ....................................................... 83,947 82,898 75,513
--------- --------- ---------
923,554 836,829 619,778
Costs and expenses
Cost of sales ............................................... 510,313 476,176 273,109
Operating ................................................... 250,753 224,020 210,217
General and administrative .................................. 32,511 28,629 29,371
Depreciation and amortization ............................... 38,502 38,772 34,906
Recapitalization costs ...................................... -- -- 18,903
Gain on sale of assets ...................................... -- (10,328) --
--------- --------- ---------
832,079 757,269 566,506
--------- --------- ---------
Income before interest expense and provision for income taxes.. 91,475 79,560 53,272
Interest expense, net ......................................... 37,590 40,794 30,765
--------- --------- ---------
Income before provision for income taxes ...................... 53,885 38,766 22,507
Provision for income taxes .................................... 375 234 68
--------- --------- ---------
Net income .................................................... $ 53,510 $ 38,532 $ 22,439
========= ========= =========
General Partner's interest in net income ...................... $ 1,048 $ 771 $ 449
--------- --------- ---------
Limited Partners' interest in net income ...................... $ 52,462 $ 37,761 $ 21,990
========= ========= =========
Basic and diluted net income per Unit ......................... $ 2.14 $ 1.70 $ 0.83
========= ========= =========
Weighted average number of Units outstanding .................. 24,514 22,275 26,563
--------- --------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended
-----------------------------------------------
September 29, September 30, September 25,
2001 2000 1999
------------- ------------ -------------
Cash flows from operating activities:
Net income ........................................................... $ 53,510 $ 38,532 $ 22,439
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation .................................................... 28,517 29,142 26,989
Amortization .................................................... 9,985 9,630 7,917
(Gain) on disposal of property, plant and
equipment ..................................................... (3,843) (11,313) (578)
Recapitalization costs .......................................... -- -- 18,903
Changes in operating assets and liabilities, net of acquisitions and
dispositions:
Decrease/(increase) in accounts receivable ...................... 18,601 (21,072) 1,514
(Increase)/decrease in inventories .............................. (260) (6,016) 235
Decrease/(increase) in prepaid expenses and
other current assets ........................................... 1,699 (2,504) 968
(Decrease)/increase in accounts payable ......................... (21,109) 19,726 8,753
Increase/(decrease) in accrued employment
and benefit costs .............................................. 11,409 (435) (855)
Increase/(decrease) in accrued interest ......................... 147 (79) 52
Increase in other accrued liabilities ........................... 4,635 4,403 1,198
Other noncurrent assets .............................................. 1,194 (886) (4,086)
Deferred credits and other noncurrent liabilities .................... (2,647) 339 (1,691)
--------- --------- ---------
Net cash provided by operating activities .................. 101,838 59,467 81,758
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures ................................................ (23,218) (21,250) (11,033)
Acquisitions ........................................................ -- (98,012) (4,768)
Proceeds from sale of property, plant and equipment, net ............ 5,311 20,195 3,560
--------- --------- ---------
Net cash (used in) investing activities .................... (17,907) (99,067) (12,241)
--------- --------- ---------
Cash flows from financing activities:
Long-term (repayments)/borrowings, net .............................. (44,428) 89,659 (695)
Short-term (repayments)/borrowings, net ............................. (6,500) 3,750 2,750
Redemption of Subordinated Units and APU's .......................... -- -- (69,000)
Payment of recapitalization costs ................................... -- -- (9,367)
Credit agreement expenses ........................................... (730) (3,123) --
Net proceeds from public offering ................................... 47,079 -- --
Partnership distribution ............................................ (54,503) (47,433) (44,632)
--------- --------- ---------
Net cash (used in)/provided by financing activities......... (59,082) 42,853 (120,944)
--------- --------- ---------
Net increase/(decrease) in cash ........................................... 24,849 3,253 (51,427)
Cash and cash equivalents at beginning of year ............................ 11,645 8,392 59,819
--------- --------- ---------
Cash and cash equivalents at end of year .................................. 36,494 11,645 8,392
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest ................................................ $ 37,774 $ 40,944 $ 32,602
========= ========= =========
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)
Deferred Common
Number of Units General Compensation Units in
Common Subordinated Common Subordinated Partner Trust Trust
--------- ------------ --------- ------------ -------- ------------ --------
Balance at September 26, 1998. ......... 21,562 7,164 $ 84,847 $ 49,147 $ 24,488 $ -- $ --
Net income ............................. 6,807 15,183 449
Net grants issued under
Restricted Unit Plan ................ 1,154
Partnership distribution ............... (43,739) (893)
Amortization of Restricted
Unit Compensation ....................
Recapitalization transactions .......... 674 (7,164) 17,273 (64,330) (22,000) (10,712) 10,712
--------- --------- --------- --------- --------- ------------ --------
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
Amortization of Compensation
Deferral Plan ....................... -- -- -- -- -- -- --
--------- --------- --------- --------- --------- ------------ --------
Balance at September 30, 2000........... 22,279 -- 58,474 -- 1,866 (11,567) 11,567
Net income ............................. 52,462 1,048
Other comprehensive loss:
Unrealized holding loss arising
during the year ....................
Less: Reclassification adjustment
for gains included in net income ...
Minimum pension liability adjustment..
Comprehensive income ...................
Partnership distribution ............... (53,477) (1,026)
Sale of Common Units under
public offering, net of expenses ..... 2,353 47,079
Grants issued under Restricted
Unit Plan, net of forfeitures ........ 1,011
Amortization of Compensation
Deferral Plan ........................
Amortization of Restricted
Unit Plan, net of forfeitures ........ -- -- -- -- -- -- --
--------- --------- --------- --------- --------- ------------ --------
Balance at September 29, 2001 .......... 24,632 -- $ 105,549 $ -- $ 1,888 $ (11,567) $11,567
========= ========= ========= ========= ========= ============ ========
Accumulated
Other
Compre- Total Compre-
Unearned hensive Partners' hensive
Compensation (Loss)/Income Capital Income
------------ --------------- --------- -------
Balance at September 26, 1998 .......... $ (10,682) $ -- $ 147,800
Net income ............................. 22,439
Net grants issued under
Restricted Unit Plan ................ (1,154) --
Partnership distribution ............... (44,632)
Amortization of Restricted
Unit Compensation .................... 443 443
Recapitalization transactions .......... 11,393 -- (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 .......... (855) --
Amortization of Compensation
Deferral Plan ....................... 215 -- 215
---------- --------------- ---------
Balance at September 30, 2000 .......... (640) 2,129 61,829
Net income ............................. 53,510 $ 53,510
Other comprehensive loss:
Unrealized holding loss arising
during the year .................... (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 distribution ............... (54,503)
Sale of Common Units under
public offering, net of expenses ..... 47,079
Grants issued under Restricted
Unit Plan, net of forfeitures ........ (1,011) --
Amortization of Compensation
Deferral Plan ........................ 212 212
Amortization of Restricted
Unit Plan, net of forfeitures ........ 228 -- 228
---------- --------------- ----------
Balance at September 29, 2001 .......... $ (1,211) $ (47,277) $ 58,949
========== =============== ==========
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 29, 2001, SEPTEMBER 30, 2000 AND SEPTEMBER 25, 1999
(Dollars(dollars in 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 commenced operations on March 5, 1996 (the
"Closing Date") upon
consummation of an initial public offering of 18,750,00021,562,500 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 underwriters of the Partnership's
initial public offering exercised an over-allotment option to purchase an
additional 2,812,500 Common Units.
On January 5, 2001, Suburban Holdings, Inc., a subsidiary of the Operating
Partnership, was formed to 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".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. 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 Partner") as
the new general partner of the Partnership and the Operating Partnership
following the General Partner"),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 (Seeand, following the public offerings discussed in Note 11,13,
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 engaged in the retail and wholesale marketing of
propane and related appliances and services. The Partnership serves
more than
800,000approximately 750,000 active residential, commercial, industrial and
agricultural customers from approximately 330320 customer service centers in over 40
states. The Partnership's operations are concentrated in the east and west coast
regions of the United States. No single customer accounted for 10% or
F-7
more of the Partnership's revenues during fiscal 2003, 2002 or 2001. During
fiscal 2003, 2002 and 2001, three suppliers provided approximately 42%, 49% and
47%, respectively, of the Partnership'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 operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
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 Operating
Partnership as a result of the Partnership's 98.9899% limited partner interest
in the Operating Partnership and 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 2001appliances and fiscal 1999.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.
DERIVATIVE 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. Effective October 1, 2000, the date
of adoption of a new accounting pronouncement for derivative instruments,
management determined that the Partnership's derivative instruments do not
qualify as hedges. Accordingly, commencing on that date, such contracts are
recorded as assets or liabilities based on their fair value and any subsequent
changes in the fair values of such contracts are recorded in income. These
amounts are included in other current assets, other current liabilities and
operating expenses, respectively. During fiscal 2001, the Partnership recorded
an unrealized loss of $3,071, representing the net change in the fair values of
the Partnership's derivatives during that period. See "Adoption of New
Accounting Standard" for further information.
REVENUE RECOGNITION. Sales of propane are recognized 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 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 approximates 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.
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. The Partnership capitalizes costs
incurred in the acquisition and modification of computer software used
internally, including consulting fees and costs of employees dedicated solely to
a specific project. At the time assets are retired, or otherwise disposed of,
the asset and related accumulated 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
Expenditures for maintenance and routine repairs are expensed as incurred while
betterments are capitalized as additions toComputer software 3-7 Years
The Partnership reviews the relatedrecoverability of long-lived assets and depreciated
overwhen
circumstances occur that indicate that the asset's remainingcarrying 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.
GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill and other intangible assets
consistEvaluation of possible
impairment is based on the Partnership's ability to recover the value of the
following:
September 29, September 30,
2001 2000
------------- -------------
Goodwill ................................. $296,224 $296,201
Debt origination costs ................... 8,024 8,024
Deferred credit agreement costs .......... 1,753 3,123
Other, principally non-compete agreements. 4,540 4,940
-------- --------
310,541 312,288
Less: accumulated amortization ........... 58,150 50,671
-------- --------
$252,391 $261,617
======== ========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 evaluates the recoverability of goodwill and other intangible
assets when events or changes in circumstances indicate that the carrying amount
may be impaired. If an impairment indicator exists, an estimate of future cash
flows attributable to the relevant operations is developed and compared to the
carrying amount of the goodwill. If the expected undiscounted future cash flows
are less than the carrying amount of the goodwill,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.
Debt origination costs representestimated using either (i) a
market value approach taking into consideration the costs incurredquoted market price of
Common Units; or (ii) discounted cash flow analyses taking into consideration
estimated cash flows in connection witha ten-year projection period and a terminal value
calculation at the placementend of the projection period.
OTHER INTANGIBLE ASSETS. Other intangible assets consist primarily of
non-compete agreements which are amortized under the straight-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 and
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 five
corporate 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 asset and
liability approach to accounting for income taxes. Under this method, deferred
tax assets and liabilities are recognized for the expected future tax
consequences of differences between the carrying amounts and the tax basis 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-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 Statementthe Restricted Units on the date
of Financial
Accounting Standards ("SFAS")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 issuance of unitsPro forma net income and net income
per Common Unit under the compensation plans, unearned
compensation equivalentfair value method of accounting for Restricted Units
under SFAS 123 would be the same 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 Restricted Units granted
underproducts. Cost of products sold is reported
exclusive of any depreciation and amortization as such amounts are reported
separately within the Restricted Unit Plans or Common Units granted underconsolidated statements of operations.
All other costs of operating the Compensation
Deferral Plan (the "Deferral Plan") is charged at 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 issued underinformation systems functions are reported within general
and administrative expenses in the 1996 Restricted Unit Award Plan was earned and
expenseconsolidated statements of $11,393 was recorded. As of September 29, 2001 no units were
outstanding under the 1996 Restricted Unit Award Plan, 42,925 Common Units were
outstanding under the Deferral Plan and 48,960 Restricted Units were outstanding
under the 2000 Restricted Unit Plan (see Note 7, Restricted Unit Plans, and Note
8, Compensation Deferral Plan, for further information).operations.
F-10
NET INCOME (LOSS) PER UNIT. Basic net income (loss) per limited partner unitCommon Unit is computed by dividing
net income, (loss), after deducting the General Partner's 1.89%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
1.89% interest, by the weighted average number of outstanding Common Units,
Subordinated Units, and the time vested Restricted Units granted under the 2000 Restricted
Unit 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 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. The Partnership reports comprehensive (loss)/income (the
total of net income and all other non-owner changes in partners' capital) within
the consolidated 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 minimum pension liability adjustments and is included asadjustments.
RECENTLY ISSUED ACCOUNTING STANDARDS. In June 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 componentcommitment to an exit or disposal
plan. The provisions of partners'
capital.
ADOPTION OF NEW ACCOUNTING STANDARD. Effective with the first quarterSFAS 146 are effective for exit or disposal activities
initiated after December 31, 2002. The provisions of fiscal
2001,this standard will be
applied by the Partnership adoptedon 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" ("SFAS 133"), as amended by SFAS No. 137 and
SFAS No. 138. SFAS 133 requires entities to record derivatives as assets or
liabilities on the balance sheet based on their fair value with any subsequent
changes in the fair values of contracts recorded in income, unless the contracts
qualify as hedges. Certain contracts qualifying for hedge accounting would have
changes in fair values reported as a component of comprehensive income (equity).
Based on the criteria set forth in SFAS 133, management determined that the
Partnership's derivative contracts do not qualify for hedgeclarifies financial accounting and commencing with the adoption of SFAS 133, its derivatives are marked-to-market
through income. The fair market value of the Partnership'sreporting for derivative portfolio
on the date of adoption of SFAS 133 did not reflect any unrealized net gaininstruments,
including certain derivative instruments embedded in other contracts. This
statement is effective for contracts entered into or loss and accordingly, no cumulative effect of this change in accounting is
reflected in the accompanying consolidated financial statements.
RECENTLY ISSUED ACCOUNTING STANDARDS. In July 2001, the Financial Accounting
Standards Board (the "FASB") issued SFAS No. 141, "Business Combinations" ("SFAS
141"), and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142").
Under the provisions of SFAS 141, all business combinations initiatedmodified after June 30,
2001 are required to be accounted2003, and for under the purchase method of
accounting. Under the provisions of SFAS 142, goodwill will no longer be
amortized but will be subject to a transitional impairment review and to annual
impairment reviews in accordance with the SFAS. SFAS 142 is effective for fiscal
years beginninghedging relationships designated after December 15, 2001, but early adoption is permitted for
companies with a fiscal year beginning after March 15, 2001.June 30, 2003. The Partnership has
elected to early adopt SFAS 142 effective for the first quarter of fiscal 2002.
The Partnership estimates that adoption
of thethis standard will result in a
decrease in goodwill amortization expense for fiscal 2002 of $7,406. In
addition, the Partnership believes that the required transitional impairment
review willdid not have a material impact on its consolidated financial position or
consolidated results of operations.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"), which requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred and the associated asset retirement costs be capitalized as
part of the carrying amount of the long-lived asset. Accretion expense and
depreciation expense related to the liability and capitalized asset retirement
costs, respectively, would be recorded in subsequent periods. SFAS 143 is
effective for fiscal years beginning after June 15, 2002. The Partnership is
currently in the process of evaluating the impact SFAS 143 will have on thePartnership's
consolidated financial position, results of operations andor cash flows of the
Partnership.flows.
In October 2001,May 2003, the FASB issued SFAS No. 144,150, "Accounting for the
Impairment or DisposalCertain Financial
Instruments with Characteristics of Long-Lived Assets"both Liabilities and Equity" ("SFAS 144"150").
SFAS 144 applies to
all long-lived assets, including discontinued operations,150 establishes standards for the classification and provides guidance
on the measurement of certain
financial instruments with characteristics of both liabilities and recognitionequity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of impairment charges for assetsthese instruments
were previously required to be held
and used, assets to be abandoned and assets to be disposed of by sale. SFAS 144
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of". SFAS 144classified 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 years
beginning after December 15, 2001.2003. The
provisionsadoption of this standard aredid 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. 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 be
applied prospectively.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
F-11
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
Partnership is currently evaluating the impact, if any, that FIN 46 or any
future amendment may have on its financial position and 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 98.11%98.29% to
the Common Unitholders and 1.89%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 $.55$0.55 per Common Unit per quarter
asUnit.
As defined in the Partnership Agreement.
Effective with the completion of the Recapitalization (see Note 11, 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 exchange for APUs. In connection with the Recapitalization, the Partnership
redeemed all the outstanding APUs representing $22,000 that the General Partner
had previously contributed under the Distribution Support Agreement. In
addition, the Partnership entered into an agreement to maintainhas certain levels
of committed availability under its Revolving Credit Agreement to support the
minimum quarterly distribution. This agreement expired on March 31, 2001.
The Partnership has paid the Minimum Quarterly Distribution on all outstanding
Common Units during each quarter of fiscal 2001. The Partnership has increased
the quarterly distribution to Unitholders to $.5625 per Common Unit per quarter
effective for the fiscal fourth quarter ended September 29, 2001 from $.5375 per
Common Unit per quarter effective for the fiscal fourth quarter ended September
30, 2000. The increased quarterly distribution amount consists of the existing
Minimum Quarterly Distribution of $.50 per Common Unit per quarter plus an
additional $.0625 per Common Unit per quarter above the Minimum Quarterly
Distribution. The increase in the distributions to $.5625 per Common Unit for
the fourth quarter, which is in excess of the target distribution of $.55 per
Common Unit (the "Target Distribution"), resulted in the operation of the Incentive Distribution Rights ("IDRs"). The IDRs which represent an
incentive for the General Partner (which is owned by the management of the Partnership) to increase the distributions to Common
Unitholders in excess of the Target
Distribution.target quarterly distribution of $0.55 per Common
Unit. With regard to the first $.55$0.55 of the Common Unit distributionquarterly distributions paid in the fourthany
given quarter, 98.11%98.29% of the Available Cash (as defined in the Amended
and Restated Partnership Agreement) wasis distributed to the Common
Unitholders and 1.89% was1.71% is distributed to the General Partner.Partner (98.11% and 1.89%,
respectively, prior to the June 2003 public offering described in Note 13). With
regard to the balance of $.0125quarterly distributions in excess of the $0.55 per
Common Unit target distribution, paid in the fourth quarter, 85% of the Available Cash wasis distributed to the
Common Unitholders and 15% wasis 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 declared a quarterly distribution of
$0.5875 per Common Unit, or $2.35 on an annualized basis, for the fourth quarter
of fiscal 2003 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 exceeds
$0.55 per Common Unit.
F-12
4. RELATED PARTY TRANSACTION
In connection withADOPTION OF NEW ACCOUNTING STANDARD
Effective September 30, 2001, the beginning of the Partnership's Recapitalization (See Note 11, The
Recapitalization), the Successor General Partner acquired the general partner
interests from Millennium for $6,000 (the "GP Loan") which was borrowed under a
private placement with Mellon Bank N.A. ("Mellon"). In addition,2002 fiscal
year, the Partnership incurred expenseselected to early adopt the provisions of $300SFAS 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 requires a
transitional impairment review for goodwill, as well as an annual impairment
review, to complete the purchasebe performed on a reporting unit basis. As a result of the general partner
interestadoption
of SFAS 142, amortization expense for the year ended September 28, 2002
decreased by $7,416 compared to the Successor General Partner. As ofyear ended September 29, 2001 the balance
outstanding under the GP Loan was $1,895.
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-defaultdue to the
obligationslack of amortization expense related to goodwill. Aside from this 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 obligations under its Senior Note Agreement and its Revolving
Credit Agreement. Upon a GP Note default,intangible assets. In accordance with SFAS 142, the Partnership
also will havecompleted its annual impairment review and, as the right to purchasefair values of identified
reporting units exceeded the GP Note from Mellon.
If the Partnership elects or is required to purchase the GP Note from Mellon,
the Partnership has the right, exercisable in its sole discretion pursuant to
the 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 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 years ended September 27, 2003, September 28, 2002 and September
29, 2001 was $423, $498 and September 30, 2000)$563, respectively.
Aggregate amortization expense related to the Compensation Deferral Plan to be forfeited and cancelled (and to cause
allother intangible assets for each of
the related distributions to be forfeited), regardlessfive succeeding fiscal years as of September 27, 2003 is as follows: 2004 -
$352; 2005 - $299; 2006 - $228; 2007 - $76 and 2008 - $40.
F-13
For the year ended September 27, 2003, the net carrying amount of goodwill
decreased by $24 as a result of the amount paid
bysale of certain assets during the Partnership to purchase the GP Note.period.
5. SELECTED BALANCE SHEET INFORMATION
Inventories consist of the following:
September 29,27, September 30,
2001 2000
------------- -------------28,
2003 2002
--------------------- --------------------
Propane .................................. $33,080 $33,050$ 34,033 $ 28,799
Appliances ............................... 8,811 8,581
------- -------
$41,891 $41,631
======= =======7,477 7,568
--------------------- --------------------
$ 41,510 $ 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 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 27, 2003, September 28, 2002
and September 29, September 30,
2001 2000
------------- -------------
Landamounted to $27,097, $27,857 and improvements .................... $ 28,490 $ 28,776
Buildings and improvements ............... 56,922 54,855
Transportation equipment ................. 52,973 59,228
Storage facilities ....................... 26,170 30,854
Equipment, primarily tanks and cylinders.. 395,839 375,476
-------- --------
560,394 549,189
Less: accumulated depreciation ........... 216,020 198,549
-------- --------
$344,374 $350,640
======== ========$28,517, respectively.
6. LONG-TERM DEBT AND REVOLVING CREDIT AGREEMENTBORROWINGS
Long-term debt consistsborrowings consist of the following:
September 29, September 30,
2001 2000
------------- -------------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 ............................ 2,048 2,370
Amounts outstanding under Acquisition Facility
of Revolving Credit Agreement ........... 46,000 90,000
Other long-term liabilities .................. 129 225
-------- --------
473,177 517,595
Less: current portion ........................ 42,907 376
-------- --------
$430,270 $517,219
======== ========
On the Closing Date,(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.
The Partnership intendsPursuant to the Partnership's intention to refinance such amount
and has initiated discussions with various third parties to reachthe first annual principal
payment of $42,500, the Operating Partnership executed on April 19, 2002 a refinancing
agreement with favorable terms toNote
Purchase Agreement for the Partnership. Alternatively,private placement of 10-year 7.37% Senior Notes due
June 30, 2012 (the "2002 Senior Note Agreement"). On July 1, 2002, the
Partnership currently expects that it will generate sufficientreceived $42,500 from the issuance of the Senior Notes under the
2002 Senior Note Agreement and used the funds from
operations or have available adequate borrowing capacityto pay the first annual principal
payment of $42,500 due under its working
capital facility to make the principal payment.
On November 10, 1999, in connection1996 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 certain subsidiaries
of SCANA Corporation (the "SCANA Acquisition"; see$42,500 due under the 1996
Senior Note 14, Acquisition and
Disposition),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. Effective
January 29, 2001, the Partnership amended its existinguntil May 31, 2006. The
Revolving Credit Agreement reducing the acquisition facility from $100,000 to $50,000 and
extending the term to May 31, 2003. In addition, the covenant to maintainprovides a minimum net worth was eliminated and the maximum ratio of consolidated total
indebtedness to EBITDA (as defined in the amendment) was reduced from 5.10 to 1
to 5.00 to 1 from April 1, 2001 through May 31, 2003. The Partnership's$75,000 working capital facility was retained at $75,000.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 29, 2001,27, 2003 there were no
borrowings outstanding under the fee was .375%.Revolving Credit Agreement. As of September 29, 200128,
2002, $46,000 was outstanding under the acquisition facility of the previous
Revolving Credit Agreement and there were no borrowings under the working
capital facility.
As of September 30, 2000, $46,00027, 2003, the Partnership had borrowing capacity of $75,000
under the working capital facility and $90,000,
respectively, were outstanding$25,000 under the acquisition facility of
the Revolving Credit Agreement resulting from the SCANA Acquisition and $0 and $6,500,
respectively, were outstandingAgreement. The weighted average interest rate associated
with borrowings under the working capital facility of the Revolving Credit Agreement.
Based on the current rates offered to the PartnershipAgreement was 3.42%, 3.67% and 6.98%
for debt of the same
remaining maturities, the carrying value of the Partnership's long-term debt
approximates its fair market value.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, but not limited to, a leverage ratio less than 5.0
to 1 and an interest coverage ratio in excess of 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 was 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, the Partnership'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 net carrying amount of $5,960 and $5,926,
respectively. Aggregate amortization expense related to 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 PLANS
In November 2000, the Partnership adopted the Suburban Propane Partners, L.P.
2000 Restricted Unit Plan (the "2000 Restricted Unit Plan") which authorizes the
issuance of Common Units with an aggregate value of $10,000 (487,804 Common
Units valued at the initial public offering price of $20.50 per unit) to
executives, managers and other employees of the Partnership. Restricted Units
issued under the 2000 Restricted Unit Plan vest over time with 25% of the Common
Units vesting at the end of each of the third and fourth anniversaries of the
issuance date and the remaining 50% of the Common Units vesting at the end of
the fifth anniversary of the issuance date. The 2000 Restricted Unit Plan
participants are not eligible to receive quarterly distributions or vote their
respective Restricted Units until vested. Restrictions also limit the sale or
transfer of the units 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 11, 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 Plans:
Units Value Per Unit
------- --------------
Outstanding September 30, 2000 and
September 25, 1999 ................... -- $ --
Awarded ............................... 78,228 20.66
Forfeited ............................. (29,268) 20.66
-------- ---------
Outstanding September 29, 2001 ........ 48,960 $ 20.66
======== =========
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 27, 2003, September 28, 2002 and September 29,
2001, the Partnership amortized $863, $603 and $228, respectively, of unearned
compensation associated with the 2000 Restricted Unit Plan. Under the
1996 Restricted Unit Plan, for the year ended September 25, 1999, the Partnership
amortized $443net of unearned compensation and recorded an expense of $11,336
related to the accelerated vesting on the closing date of the Recapitalization
which is included in recapitalization costs in the accompanying statements of
operations (See Note 11, The Recapitalization).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 1996 Restricted
Unit 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 all 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.
During the years ended
September 29, 2001 and September 30, 2000,Senior management of the Partnership amortized $212 and
$215, respectively,surrendered 553,896 Common Units, at the
date of unearned compensation associated withthe 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, with a fair value of $19.91 per
Common Unit at the date 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 29, 200127, 2003 and September 30, 2000, 42,92528, 2002, there were
299,511 and 596,821 Common Units, wererespectively, held in trust under the Deferral
Plan with a value of $19.91 per Common Unit.
Pursuant to the Deferral Plan, participants have deferred receipt of these
Common Units and related distributions by the Partnership by depositing the
units into a trust.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. During the second quarter of fiscal 2003, the Partnership recorded a
$5,772 reduction in the deferred compensation liability and a corresponding
reduction in the value of Common Units 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 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. The Partnership also terminated its
postretirementOn September 20, 2002, the Board of
Supervisors approved an amendment to the defined benefit pension plan for all eligible employees retiring after Marchwhereby,
effective January 1, 1998. All active2003, future service credits ceased and eligible employees
who were towill now receive benefits under the
postretirement plan subsequent to March 1, 1998, were provided a settlement by
increasinginterest credits only toward their accumulated benefits under the cash balance pension plan.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.
The following table sets forth the plan's actuarial assumptions:
September 29, September 30,
2001 2000
------------- -------------
Weighted-average discount rate ............... 7.25% 7.75%
Average rate of compensation increase ........ 3.50% 3.50%
Weighted-average expected long-term rate of
return on plan assets........................ 9.50% 9.50%
The following table provides a reconciliation of benefit obligations:
September 29, September 30,
2001 2000
------------- -------------
Benefit obligation at beginning of year ... $ 151,415 $ 155,933
Service cost .............................. 5,024 4,403
Interest cost ............................. 11,034 10,945
Actuarial loss/ (gain) .................... 15,875 (1,946)
Benefits paid ............................. (16,161) (17,920)
--------- ---------
Benefit obligation at end of year ......... $ 167,187 $ 151,415
========= =========
The following table provides a reconciliation of plan assets:
September 29, September 30,
2001 2000
------------- -------------
Fair value of plan assets at beginning
of year ................................ $ 177,051 $ 177,981
Actual return on plan assets ............ (17,774) 16,990
Benefits paid ........................... (16,161) (17,920)
--------- ---------
Fair value of plan assets at end of year. $ 143,116 $ 177,051
========= =========
The following table provides a reconciliation of the funded status of the plan:
September 29, September 30,
2001 2000
------------- -------------
(Unfunded)/ funded status .................. $(24,071) $ 25,636
Unrecognized prior service cost ............ (1,303) (1,513)
Unrecognized net actuarial loss ............ 58,948 9,564
Accumulated other comprehensive loss ....... (47,277) --
-------- --------
(Accrued benefit liability)/ prepaid
benefit cost ............................. $(13,703) $ 33,687
======== ========
During fiscal 2001, the actuarially determined prepaid benefit costThere were no minimum funding requirements for the
Partnership's noncontributory defined
benefit pension plan as of September 30,
2000 decreased,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 an accruedlegislative changes impacting cash balance defined benefit liability as of September 29,
2001. This change is attributable to a decrease of $34,764pension
plans in the actual returnfuture. While no such legislative changes have been adopted, and if
adopted the impact on the Partnership's defined benefit pension plan assets for fiscal 2001 as compared to fiscal 2000 as a resultis not
certain, there can be no assurances that future legislative developments will
not have an adverse effect on the Partnership's results of the
significant decline in capital markets, and the use of more conservative
valuation assumptions reflecting the current interest rate environment. The
adjustment for the minimum pension liability in the amount of $47,277 is offset
by a reduction to accumulated other comprehensive (loss)/income, a component of
partners' capital.operations or cash
flows.
F-18
The net periodic pension expense/(income) includes the following:
Year Ended
---------------------------------------------
September 29, September 30, September 25,
2001 2000 1999
------------- ------------- -------------
Service cost ............................ $ 5,024 $ 4,403 $ 5,674
Interest cost ........................... 11,034 10,945 11,107
Expected return on plan assets .......... (15,735) (15,327) (16,254)
Amortization of prior service cost ...... (210) (210) (210)
Recognized net actuarial loss ........... -- -- 741
-------- -------- --------
Net periodic pension expense/ (income) .. $ 113 $ (189) $ 1,058
======== ======== ========
DEFINED CONTRIBUTION PLAN. The Partnership has a defined contribution plan
covering most employees. ContributionsEmployer contributions and costs are a percent of the
participating employees' compensation.compensation, subject to the achievement of annual
performance targets of the Partnership. These amountscontributions totaled $4,560, $1,908$1,305, $947
and $1,331$4,560 for the years ended September 29, 2001,27, 2003, September 30, 200028, 2002 and
September 25, 1999,29, 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, noted above. The Partnership does not fund its
postretirement health care and life insurance benefit plans.
The following table provides a reconciliation of the changes in the benefit
obligations:obligations and the fair value of the plan assets for each of the years ended
September 29,27, 2003 and September 30,
2001 2000
------------- -------------
Benefit obligation at beginning28, 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 Partnership'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 credits effective January 1, 2003. This
amendment resulted in a curtailment gain of $1,093 included within the net
periodic pension cost for the year .... $ 38,254 $ 38,808
Service cost ............................... 123 130
Interest cost .............................. 2,794 2,753
Actuarial gain ............................. (1,270) (265)
Benefits paid .............................. (2,342) (3,172)
-------- --------
Benefit obligation at endended September 28, 2002. Additionally,
during fiscal 2003, the Partnership made a voluntary contribution of year .......... $ 37,559 $ 38,254
======== ========
The following table provides a reconciliation of$10,000 to
the plan, thereby taking proactive steps to improve the funded status of the
plan:plan and reduce the minimum pension liability.
The following table provides the components of net periodic benefit costs for
the years ended September 29,27, 2003 and September 30,
2001 2000
------------- -------------
Funded status ............................ $(37,559) $(38,254)
Unrecognized prior service cost .......... (3,746) (4,467)
Unrecognized net actuarial loss .......... 4,249 5,664
-------- --------
Accrued benefit liability ................ (37,056) (37,057)
Less: current portion .................... 2,535 3,172
-------- --------
Non-current liability .................... $(34,521) $(33,885)
======== ========
28, 2002:
The net periodic postretirement benefit expense includes the
following components:
Year Ended
----------------------------------------------
September 29, September 30, September 25,
2001 2000 1999
------------- ------------- -------------Other
Pension Benefits Postretirement Benefits
------------------------------------- ---------------------------------
2003 2002 2003 2002
------------ --------------- --------------- ---------------
Service cost ............................... $ 123629 $ 1304,445 $ 13617 $ 16
Interest cost .............................. 2,794 2,753 2,58111,376 11,581 2,641 2,574
Expected return on plan assets (12,161) (14,974) - -
Amortization of prior service cost ......... (721) (721) (714)- (210) (720) (720)
Curtailment gain - (1,093) - -
Recognized net actuarial loss .............. 145 168 284
------- ------- -------4,066 1,912 342 41
------------ --------------- --------------- ---------------
Net periodic postretirement benefit expense ..................................cost $ 2,3413,910 $ 2,3301,661 $ 2,287
======= ======= =======2,280 $ 1,911
============ =============== =============== ===============
Pension benefit expense was $113 (consisting of service cost of $5,024, interest
cost of $11,034, expected return on plan assets of $15,735 and amortization of
prior service cost of $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 of $145) for the
year ended September 29, 2001. The assumptions used in the measurement of the
Partnership's benefit obligations are shown in the following table:
Other
Pension Benefits Postretirement Benefits
------------------------------------- ---------------------------------
September September September September
27, 2003 28, 2002 27, 2003 28, 2002
--------------- ---------------- -------------- ------------
Weighted-average discount rate 6.00% 6.75% 6.00% 6.75%
Average rate of 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 an 8% increase
for pre-65 retirees and a 9% increase for post-65 retirees in the cost of
covered health care benefits at September 29, 2001 and a 7%13% increase in the cost of
covered health care benefits at September 30, 2000. This rate27, 2003 and a 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 5.25%5.00% in fiscal 2005 for pre-65 retirees and fiscal 2006
for post-65 retirees2013 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 29, 200127, 2003 by approximately
$1,300$1,354 and the aggregate of service and interest components of net periodic
postretirement benefit expense for the year ended September 29, 200127, 2003 by
approximately $90.
The weighted-average discount rate used$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 7.25%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 various prices that are eventually sold to its customers, exposing the
Partnership to market fluctuations in the price of propane. A control
environment has been established which includes policies and 7.75%procedures for risk
assessment and the approval, reporting and monitoring of derivative instruments
and hedging activities. The Partnership 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 Partnership'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 29,27,
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 Partnership'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 September 30, 2000, respectively.
10. PUBLIC OFFERING
On October 17, 2000, the Partnership sold 2,175,000 Common Units in a public
offering at a priceno concentration of $21.125 per unit realizing proceeds of $43,500, net of
underwriting commissions and other offering expenses. On November 14, 2000,
following the underwriter's partial exercise of its over-allotment option, the
Partnership sold an additional 177,700 Common Unitsreceivables exists at
the same price,
generating additional net proceedsend of $3,600.fiscal 2003 or 2002.
Futures contracts are traded on and guaranteed by the New York Merchantile
Exchange ("NYMEX") and as a result, have minimal credit risk. Futures contracts
traded with brokers of the NYMEX require daily cash settlements in margin
accounts. The aggregate net proceedsPartnership is subject to credit risk with forward and option
contracts entered into with various third parties to the extent the
counterparties do not perform. The Partnership evaluates the financial condition
of $47,100 were appliedeach 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 Partnership's outstandingcontracts.
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
short-term nature of these instruments. The fair value of the Revolving Credit
Agreement borrowings. These transactions increasedapproximates the total number of Common
Units outstandingcarrying value since the interest rates are
periodically adjusted to 24,631,287.
As a result ofreflect market conditions. Based on the public offering, the combined general partner interest in the
Partnership was reduced from 2%current rates
offered to 1.89% while the Common Unitholder interest in
the Partnership increased from 98% to 98.11%.
11. THE RECAPITALIZATION
On May 26, 1999, after receiving Unitholder approval, the Partnership completed
the Recapitalization contemplated by its November 27, 1998 Recapitalization
Agreement with Millennium, the General Partner and the Successor General
Partner. The elements of the Recapitalization included:
o The redemption by the Partnership of all 7,163,750 Subordinated Units and
220,000 APUs, which were owned by the General Partner, for $69,000 in cash.
o The substitution of the Successor General Partner as the new general
partner of the Partnership and the Operating Partnership following its
purchase of the combined 2% general partner interests in the Partnership
and the Operating Partnership and the incentive distribution rights in the Partnership for $6,000 in cash (the "GP Interest Purchase"). As a result of
the public offering discussed in Note 10, the Successor General Partner
combined interest in the Partnership and the Operating Partnership was
subsequently reduced to 1.89%.
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 through March 31, 2001 by the Partnership
under the Bank Credit Facilities, as amended.
o An increase in the quarterly distribution to the Partnership's Unitholders
from $.50 to $.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 consisted of the existing Minimum Quarterly Distribution of $.50
per unit per quarter plus an additional $.0125 per unit per quarter above
the Minimum Quarterly Distribution.
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 would have 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, 2001 and September 30, 2000 as components of partners' capital.
12. 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.
13.Senior Notes approximates their fair market
value.
11. 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 $24,690, $19,931$24,337, $24,005
and $18,018$23,354 for the years ended September 27, 2003, September 28, 2002 and
September 29, 2001, September 30, 2000 and September 25, 1999, respectively.
Future minimum rental commitments under noncancelable operating lease agreements
as of September 29, 200127, 2003 are as follows:
Fiscal Year
-----------
20022004 $ 23,018
2003 20,068
2004 15,52917,796
2005 12,87512,868
2006 9,959
2007 5,860
2008 and thereafter 24,2276,410
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
29, 200127, 2003 and September 30, 2000,28, 2002, the Partnership had accrued insurance
liabilities of $25,741$28,639 and $25,628,$26,969, respectively, representing the total
estimated losses under these self-insurance programs. These liabilities
represent the gross estimated losses as no claims or lawsuits, individually or
in the aggregate, were estimated to exceed the Partnership's deductibles on its
insurance policies. The Partnership is also
involved in various legal actions which have arisen in the normal course of
business, including those relating to commercial transactions and product
liability. 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.
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 guarantees that the fair value of 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 operating leases entered into after December 31,
2002 was $2,067 which is reflected in other liabilities, with a corresponding
amount included within other assets, in the accompanying consolidated balance
sheet as of September 27, 2003.
13. PUBLIC OFFERINGS
On June 18, 2003, the Partnership sold 2,282,500 Common Units in a public
offering at a price of $29.00 per Common Unit realizing proceeds of $62,879, net
of underwriting commissions and other 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 result of the 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 2,175,000 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 other offering expenses. On November 14,
2000, following the underwriter's partial exercise of its over-allotment option,
the Partnership sold an additional 177,700 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. These transactions increased the total number of Common
Units outstanding to 24,631,287.
14. ACQUISITIONDISCONTINUED 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 8, 1999,10, 2003, the Partnership acquiredannounced that it had entered into an
asset purchase agreement (the "Purchase Agreement") to acquire substantially all
of the assets of SCANA Propane Gas,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., SCANA Propane Storage,for total cash consideration of
approximately $206,000, subject to certain purchase price adjustments. Agway,
Inc., SCANA Propane Supply, 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., USA Cylinder
Exchange, Inc., and C&T Pipeline, LLC from SCANA Corporation's motion to establish bid procedures 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 centers 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 stores in the Carolinas, Georgia and Tennessee. SCANA Propane
Storage, Inc. owns a 60 million gallon storage cavern in Tirzah, South Carolina
whichsale. In addition, the transaction has been approved by the Partnership's
Board of Supervisors. Closing on the sale under the Purchase Agreement is
connectedsubject to the Dixie Pipelineapproval by the 62 mile propane pipeline owned
by C&T Pipeline, LLC.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 acquisition has beentransaction
will be accounted for using the purchase method of accounting.
Accordingly,Under the terms of the Purchase Agreement, the Partnership would purchase priceall 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 allocated toreviewed and
accepted by 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 30, 2000 and
September 25, 1999 would not have been materially different from the reported
amounts for either year.
On December 3, 1999Bankruptcy Court, there can be no assurance that the Partnership
sold 23 customer service centers principally
located in Georgia for total cash proceeds of approximately $19,400 and recorded
a gain of $10,328.
15. SUBSEQUENT EVENT
On October 25, 2001,will ultimately be the Partnership announced a quarterly distribution of
$.5625 per Common Unit forsuccessful bidder at the fourth quarter of fiscal 2001 consisting of the
Minimum Quarterly Distribution of $.50 per Common Unit and an additional
distribution of $.0625 per Common Unit payable on November 13, 2001 to holders
of record on November 5, 2001.auction.
F-24
INDEX TO SUPPLEMENTAL FINANCIAL INFORMATION
SUBURBAN ENERGY SERVICES GROUP LLC
Page
----
Report of Independent Accountants F-23Auditors............................................. F-25
Balance Sheets-September 29, 2001Sheets
As of September 27, 2003 and September 30, 2000 F-2428, 2002....................... F-26
Notes to Balance SheetsSheets.................................................... F-27
F-25
REPORT OF INDEPENDENT ACCOUNTANTSAUDITORS
To the Stockholders of
Suburban Energy Services Group LLC:
In our opinion, the accompanying balance sheets present fairly, in all material
respects, the financial position of Suburban Energy Services Group LLC at
September 29, 200127, 2003 and September 30, 200028, 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 our
opinion.
PricewaterhouseCoopers LLP
Florham Park, NJ
October 23, 20012003
F-26
SUBURBAN ENERGY SERVICES GROUP LLC
BALANCE SHEETS
September 29, September
30,
2001 2000
------------- -------------27, 2003 28, 2002
---------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents ......................................... $ 8,6682,886 $ 5,986
----------- -----------4,363
---------------- -----------------
Total current assets ...................................... 8,668 5,9862,886 4,363
Investment in Suburban Propane Partners, L.P. ......................... 1,888,492 1,866,4261,566,483 1,924,003
Goodwill, net ......................................................... 3,112,560 3,195,180
----------- -----------3,112,560
---------------- -----------------
Total assets ............................................. $ 5,009,7204,681,929 $ 5,067,592
=========== ===========5,040,926
================ =================
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current portion of note payable ................................... $ 1,600,000 $ 1,030,000
Accrued interest .................................................. 13,487 55,733
----------- -----------
Total current liabilities ............................... 1,613,487 1,085,733
Note payable .......................................................... 295,000 3,995,000
----------- -----------STOCKHOLDERS' EQUITY
Total liabilities ...................................... 1,908,487 5,080,733
----------- ------------ -
---------------- -----------------
Stockholders' equity/ (deficit):equity
Common stock, $1 par value, 2,000 shares issued and outstanding..outstanding 2,000 2,000
Additional paid in capital ...................................... 2,790,886 345,1411,853,333 3,405,108
Retained earnings/(accumulated deficit) ......................... 308,347 (360,282)
----------- -----------earnings 2,826,596 1,633,818
---------------- -----------------
Total stockholders' equity/(deficit) .................. 3,101,233 (13,141)
----------- -----------equity 4,681,929 5,040,926
---------------- -----------------
Total liabilities and stockholders' equity/(deficit)...equity $ 5,009,7204,681,929 $ 5,067,592
=========== ===========5,040,926
================ =================
The accompanying notes are an integral part of these balance sheets.
F-27
SUBURBAN ENERGY SERVICES GROUP LLC
NOTES TO BALANCE SHEETS
SEPTEMBER 29, 2001 AND SEPTEMBER 30, 2000
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. The 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 a 1% general partner interest in the Partnership and
a 1.0101% general partner interest in Suburban Propane, L.P., a wholly-owned subsidiary of the Operating
Partnership.
The Partnership is a publicly-traded master 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. As a result
of atwo public offeringofferings by the Partnership on October 17, 2000 and June 18,
2003, the Company's interest in the Partnership was reduced to .88%.701%. The
Company's interest in Suburban Propane, L.P. was not affected.
The Company acquired the general partner interests from Millennium Chemicals
Inc. on May 26, 1999 (the "Closing Date") for $6,000,000, which was borrowed
under a credit agreement with Mellon Bank, N.A. ("Mellon"). The Company is owned
by senior management of Suburban Propane, L.P. Each owner has contributed their
pro-rata share of $2,000 as their initial capital contribution. The Company is
repaying the $6,000,000 borrowing from its general partner distributions
received from the Partnership and from capital contributions from its owners.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING PERIOD. The Company's accounting period ends on the last Saturday
nearest to September 30.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH 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 the Partnership on the
Closing Date which was
subsequently reduced to 1.89%1.71%. The Company accounts for its investment under the
equity method of accounting whereby the Company recognizes in income 1.89% (2% prior to October 17, 2000)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 tests goodwill is being amortizedfor impairment on an annual basis using a straight-line basis
over a period of forty years. Accumulated amortization at September 29, 2001 and
September 30, 2000 amounted to $192,780 and $110,160, respectively.
3. NOTE PAYABLE
Ontwo-step
impairment test. The first step compares 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 original GP Loan maturities as of September
30, 2000 were: $1,030,000 in 2001, $1,600,000 in 2002, $1,600,000 in 2003 and
$795,000 in 2004. During fiscal 2001, the Company prepaid a portion of the GP
loan modifying the loan maturities to: $1,600,000 in 2002 and $295,000 in 2003.
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 Revolving Credit Agreement.
Upon a GP Note 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 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.position.
F-29
INDEX TO FINANCIAL STATEMENT SCHEDULE
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
Page
----
Schedule II Valuation and Qualifying Accounts-YearsAccounts - Years Ended
September 29, 2001,27, 2003, September 30, 200028, 2002 and
September 25, 1999.29, 2001........................................... S-2
S-1
SCHEDULE II
-----------
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
BALANCE AT CHARGED BALANCE
BEGINNING TO COSTS AND OTHER AT END
OF PERIOD EXPENSES ADDITIONS DEDUCTIONS OF PERIOD
--------------- -------------- --------------- --------------- ---------------
Balance at Charged Balance
Beginning to Costs and Other at End
of Period Expenses Additions Deductions of Period
------------- ------------- ------------- ------------- -------------
YEAR ENDED SEPTEMBER 25, 1999
- -----------------------------29, 2001
Allowance for doubtful accounts $ 2,382 $ 2,601 $ - $ (2,894) $ 2,089
=============== ============== =============== =============== ===============
Accumulated amortization:
Goodwill................... 31,767 5,977 - - 37,744
Other intangibles.......... 2,563 1,076 - (144) 3,495
--------------- -------------- --------------- --------------- ---------------
Total $ 34,330 $ 7,053 $ - $ (144) $ 41,239
=============== ============== =============== =============== ===============
YEAR ENDED SEPTEMBER 30, 2000
- -----------------------------
Allowance for doubtful accounts $ 2,089 $ 3,137 $ - $ (2,251) $ 2,975
=============== ============== =============== =============== ===============
Accumulated amortization:
Goodwill................... 37,744 7,292 - (18) 45,018
Other intangibles.......... 3,495 2,338 - (180) 5,653
--------------- -------------- --------------- --------------- ---------------
Total $ 41,239 $ 9,630 $ - $ (198) $ 50,671
=============== ============== =============== =============== ===============
YEAR ENDED SEPTEMBER 29, 2001
- -----------------------------
Allowance for doubtful accounts $ 2,975 $ 5,328 $ - $ (4,311) $ 3,992
=============== ============== =============== =============== ===============
Accumulated amortization:
Goodwill................... 45,018 7,417 - - 52,435
Other intangibles.......... 5,653 2,568 - (2,506) 5,715
--------------- -------------- --------------- --------------- ---------------
Total============= ============= ============= ============= =============
YEAR ENDED SEPTEMBER 28, 2002
Allowance for doubtful accounts $ 50,6713,992 $ 9,9851,147 $ - $ (2,506)(3,245) $ 58,150
=============== ============== =============== =============== ===============1,894
============= ============= ============= ============= =============
YEAR ENDED SEPTEMBER 27, 2003
Allowance for doubtful accounts $ 1,894 $ 3,315 $ - $ (2,690) $ 2,519
============= ============= ============= ============= =============
EXHIBIT 10.16
-------------
SUBURBAN PROPANE, L.P.
SUPPLEMENTAL EXECUTIVE
RETIREMENT PLAN
(EFFECTIVE AS OF JANUARY 1, 1998)
SUBURBAN PROPANE, L.P.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(Effective as of January 1, 1998)
Contents
- ------------------------------------------------------------------
Section Page
ARTICLE I. THE PLAN
1.1 Establishment of the Plan...............................1
1.2 Purpose.................................................1
ARTICLE II. DEFINITIONS
2.1 Average Final Compensation..............................1
2.2 Board of Supervisors....................................1
2.3 Committee...............................................1
2.4 Compensation............................................1
2.5 Deferred Retirement Benefit.............................1
2.6 Deferred Retirement Date................................2
2.7 Disability Retirement Benefit...........................2
2.8 Early Retirement Benefit................................2
2.9 Early Retirement Date...................................2
2.10 OLP.....................................................2
2.11 Excess Compensation.....................................2
2.12 MLP.....................................................2
2.13 Normal Retirement Benefit...............................2
2.14 Participant.............................................2
2.15 Partnership.............................................2
2.16 Pension Offset..........................................2
2.17 Plan....................................................2
2.18 Qualified Plan..........................................2
2.19 Retirement Date.........................................2
ARTICLE III. PARTICIPATION
3.1 Participation...........................................2
3.2 Continuation of Participation...........................3
ARTICLE IV. RETIREMENT DATE
4.1 Normal Retirement Date..................................3
4.2 Deferred Retirement Date................................3
4.3 Early Retirement Date...................................3
ARTICLE V. RETIREMENT BENEFITS
5.1 Normal Retirement Benefit...............................4
5.2 Deferred Retirement Benefit.............................4
5.3 Early Retirement Benefit................................5
5.4 Disability Retirement Benefit...........................5
5.5 Adjusted Age and Benefit Service........................6
ARTICLE VI. DEATH BENEFITS
6.1 Prior to Retirement.....................................6
6.2 After Retirement........................................6
ARTICLE VII. IN EVENT OF TERMINATION OF EMPLOYMENT
7.1 Termination Prior to Retirement.........................7
7.2 Termination after Eligibility for Retirement............7
ARTICLE VIII. TIME AND FORM OF BENEFIT PAYMENT
8.1 Normal Form of Benefit..................................7
8.2 Optional Forms of Benefit...............................7
ARTICLE IX. PROVISION OF BENEFITS
9.1 Participant Contributions...............................7
9.2 Funding.................................................7
ARTICLE X. ADMINISTRATION OF THE PLAN
10.1 Powers and Duties of the Committee......................8
ARTICLE XI. MISCELLANEOUS
11.1 Prohibition Against Encumbrance.........................8
11.2 Right of Participant....................................8
11.3 Change in Control.......................................8
ARTICLE XII. AMENDMENT OR TERMINATION OF THE PLAN
12.1 Amendment..............................................11
12.2 Termination............................................11
ARTICLE I. THE PLAN
1.1 ESTABLISHMENT AND RESTATEMENT OF THE PLAN
Effective March 5, 1996, Suburban Propane, L.P., a Delaware limited partnership
(the "OLP"), established the Suburban Propane, L.P. Supplemental Executive
Retirement Plan (the "Plan"), which is an unfunded supplemental retirement plan
for select employees ("Participants") of the OLP. Effective January 1, 1998, the
Pension Plan for Eligible Employees of Suburban Propane, L.P. (the "Qualified
Plan") was amended and restated as a cash balance plan. In light of the
conversion of the Qualified Plan to a cash balance formula, this Plan is hereby
amended and restated effective January 1, 1998.
1.2 PURPOSE
The purpose of the Plan is to provide Participants with a minimum level of
retirement income from the OLP, in addition to other sources of capital
accumulation. The Plan is intended to be a non-qualified, deferred compensation
plan for a "select group of management or highly compensated employees" as that
term is used in the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). It is further intended that the Plan be unfunded for tax purposes as
well as for purposes of Title I of ERISA.
As amended and restated, this Plan incorporates and replaces any agreement or
arrangement between the Participants and the OLP with regard to nonqualified
supplemental retirement benefits that was in existence prior to January 1, 1998.
ARTICLE II. DEFINITIONS
Except as otherwise defined herein, each capitalized term shall have the meaning
set forth in the Qualified Plan.
2.1 "AVERAGE FINAL COMPENSATION" shall mean the 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. Any administrative procedure adopted relative to the
calculation of Average Final Compensation for the Qualified Plan shall apply to
this Plan.
2.2 "BOARD OF SUPERVISORS" shall mean the Board of Supervisors of the
Partnership, except as otherwise specifically stated.
2.3 "COMMITTEE" shall mean the Compensation Committee of the Board of
Supervisors.
2.4 "COMPENSATION" shall have the same meaning as in the Qualified Plan,
except that Compensation shall be determined without regard to the dollar
limitations on the amount of pay taken into account, which limitations are set
forth in Section 1.14 of the Qualified Plan.
2.5 "DEFERRED RETIREMENT BENEFIT" shall mean the benefit payable to a
Participant pursuant to the provisions of Section 5.2 (Deferred Retirement
Benefit).
2.6 "DEFERRED RETIREMENT DATE" shall mean the first day of the month
coincident with or immediately following the date a Participant retires after
his or her Normal Retirement Date pursuant to the provisions of Section 4.2
(Deferred Retirement Date).
2.7 "DISABILITY RETIREMENT BENEFIT" shall mean the benefit payable to a
Participant pursuant to Section 5.4 (Disability Retirement Benefit).
2.8 "EARLY RETIREMENT BENEFIT" shall mean the benefit payable to a
Participant pursuant to Section 5.3 (Early Retirement Benefit).
2.9 "EARLY RETIREMENT DATE" shall mean the first day of the month
coincident with or immediately following the date a Participant retires prior to
his or her Normal Retirement Date pursuant to the provisions of Section 4.3
(Early Retirement Date).
2.10 "EXCESS COMPENSATION" shall mean Compensation in excess of the taxable
wage base in effect under Section 230 of the Social Security Act for any Plan
Year.
2.11 "MLP" shall mean Suburban Propane Partners, L.P., a Delaware limited
partnership.
2.12 "NORMAL RETIREMENT BENEFIT" shall mean the benefit payable to a
Participant pursuant to Section 5.1 (Normal Retirement Benefit).
2.13 "OLP" shall mean Suburban Propane, L.P.
2.14 "PARTICIPANT" shall mean a person who has become a participant in this
Plan pursuant to Section 3.1, who is entitled to benefits hereunder.
Participants shall be limited to a "select group of management or highly
compensated employees" as that term is used in ERISA.
2.15 "PARTNERSHIP" shall mean Suburban Propane, L.P. and Suburban Propane
Partners, L.P., Delaware limited partnerships and their successors.
2.16 "PENSION OFFSET" shall mean the amount of the monthly Accrued Benefit
payable as of the determination date (reduced as applicable to reflect
commencement of the benefit payable hereunder prior to Normal Retirement Date)
to the Participant under the Qualified Plan in the form of a single life
annuity, multiplied by twelve.
2.17 "PLAN" shall mean the Suburban Propane, L.P. Supplemental Executive
Retirement Plan.
2.18 "QUALIFIED PLAN" shall mean the Pension Plan for Eligible Employees of
Suburban Propane, L.P.
2.19 "RETIREMENT DATE" shall mean the Early Retirement Date, the Normal
Retirement Date, or the Deferred Retirement Date, whichever is applicable.
ARTICLE III. PARTICIPATION
3.1 PARTICIPATION
Participants will be limited to individuals who are named by the Committee and
maintained in the minutes of its meetings.
3.2 CONTINUATION OF PARTICIPATION
(a) A person who has become a Participant in accordance with Section 3.1
shall, except as provided in subsection (b) below, continue as a
Participant as long as he or she continues in the employment of the
OLP and thereafter as long as he or she is entitled to benefits under
the Plan.
(b) Subject to the provisions of Section 11.3 (Change in Control), the
Committee may, in its sole discretion, remove a Participant from active
participation in the Plan if the Participant is no longer an officer of
the OLP. In this event, any benefits accrued under this Plan will be
vested and payable at the Participant's Retirement Date in accordance
with Article IV. Notwithstanding anything herein to the contrary, if
(i) a Participant's employment is terminated for cause or
mismanagement, as determined by the Committee in its sole discretion,
(ii) the Participant is convicted of a felony, or (iii) the
Participant's employment terminates prior to retirement as provided in
Section 7.1, all rights under this Plan with respect to such
Participant shall be forfeited.
(c) Subject to the provisions of Section 11.3 (Change in Control), the
Committee, in its sole discretion, may cease payment of benefits under
this Plan if the Committee determines in its sole discretion that the
Participant is acting in bad faith against the Partnership or its
subsidiaries, or has filed any legal suits, complaints, or grievances
against the Partnership or its subsidiaries or any of its employees,
plans, agents, fiduciaries in any court of law or tribunal, or with any
federal, state, or municipal agency.
ARTICLE IV. RETIREMENT DATE
4.1 NORMAL RETIREMENT DATE
A Participant who retires on his or her Normal Retirement Date shall be entitled
to a Normal Retirement Benefit as determined in accordance with Section 5.1
(Normal Retirement Benefit).
4.2 DEFERRED RETIREMENT DATE
A Participant whose employment with the OLP continues beyond his or her Normal
Retirement Date and whose entitlement to benefits under the Plan has not been
forfeited in accordance with subsection (b) of Section 3.2 (Continuation of
Participation), shall retire on a Deferred Retirement Date and shall be entitled
to a Deferred Retirement Benefit in accordance with Section 5.2 (Deferred
Retirement Benefit).
4.3 EARLY RETIREMENT DATE
A Participant who has attained age 55 and is credited with 10 or more years of
Eligibility Service may retire at an Early Retirement Date. In such case, the
Participant shall be entitled to an Early Retirement Benefit as determined under
Section 5.3 (Early Retirement Benefit).
ARTICLE V. RETIREMENT BENEFITS
5.1 NORMAL RETIREMENT BENEFIT
The annual amount of the Normal Retirement Benefit payable hereunder shall be
determined as follows:
(a) For Annuity Starting Dates or other determination dates on or after
January 1, 1998 and prior to January 1, 2003, a Participant's Normal
Retirement Benefit shall be equal to the excess of:
(i) (A) the greater of a Participant's Pension benefit (determined
using Average Final Compensation as defined herein) or the
accrued benefit based on the Basic Account (determined using
Compensation and Excess Compensation as defined herein), plus (B)
the accrued benefit based on the Supplemental Account, if any
(determined using Compensation and Excess Compensation as defined
herein); over (ii) the Participant's Pension Offset.
(b) For Annuity Starting Dates or other determination dates on or after
January 1, 2003, a Participant's Normal Retirement Benefit shall be
equal to the excess of:
(i) (A) the greater of a Participant's Pension benefit determined as
of January 1, 2003 (based on Compensation, Benefit Service, and
all other relevant factors as of January 1, 2003) or the accrued
benefit based on the Basic Account (determined using Compensation
and Excess Compensation as defined herein), plus (B) the accrued
benefit based on the Supplemental Account, if any (determined
using Compensation and Excess Compensation as defined herein);
over
(ii) the Participant's Pension Offset.
Distribution of a Participants Normal Retirement Benefit under this Plan shall
commence at such time as distribution of his or her Retirement Benefit commences
under the Qualified Plan.
5.2 DEFERRED RETIREMENT BENEFIT
If a Participant remains in employment after his or her Normal Retirement Date
and is entitled to a benefit in accordance with Section 4.2 (Deferred Retirement
Date), the Participant shall be entitled to the benefit determined under Section
5.1 based on his or her Benefit Service (as applicable) to the Deferred
Retirement Date. Benefit payments to such a Participant shall be postponed until
the Participant's actual retirement on the Deferred Retirement Date and shall
commence at such time as distribution of his or her Retirement Benefit commences
under the Qualified Plan.
5.3 EARLY RETIREMENT BENEFIT
A Participant retiring prior to his or her Normal Retirement Date, as provided
in Section 4.3 (Early Retirement Date), shall be entitled to receive a benefit,
commencing on such Normal Retirement Date, equal to the amount determined under
Section 5.1 based on his or her Average Final Compensation, Compensation, Excess
Compensation, and Benefit Service (as applicable) determined on such Early
Retirement Date.
In lieu of such benefit commencing on the Normal Retirement Date, the
Participant may elect to have such benefit commence on the first day of any
month following his or her Early Retirement Date, provided he or she elects to
commence distribution of his or her benefit under the Qualified Plan on the same
date. If the Participant's benefit under the Qualified Plan is determined to be
based upon his or her Pension benefit, the Participant's benefit shall be
reduced by 5/12 of one percent for each month by which such Early Retirement
Date precedes the first day of the calendar month following his or her 62nd
birthday.
5.4 DISABILITY RETIREMENT BENEFIT
(a) This paragraph shall apply only to Participants who commenced
receiving benefits under the OLP's long term disability program before
January 1, 1998 and had not commenced receiving benefits under the
Qualified Plan as of January 1, 1998. A Participant who has become
disabled before his or her Normal Retirement Date but after completing
five years of Eligibility Service shall be entitled to a Disability
Retirement Benefit calculated in accordance with Section 5.1(a), as
modified by Section 4.05(a) of the Qualified Plan. A Participant who
is entitled to a Disability Retirement Benefit under this paragraph
and satisfies the age and service requirements for an Early Retirement
Benefit in accordance with Section 5.3 shall be entitled to commence
payment of his or her Disability Retirement Benefit prior to his or
her Normal Retirement Date in accordance with Section 5.3, provided
the Participant elects to commence distributions from the Qualified
Plan on that date.
(b) This paragraph shall apply only to Participants who commence receiving
benefits under the OLP's long term disability program on or after
January 1, 1998. A Participant who has become disabled after
completing five years of Eligibility Service shall be entitled to a
Disability Retirement Benefit calculated in accordance with Section
5.1(a), as modified by Section 4.05(b) of the Qualified Plan. A
Participant who is entitled to a Disability Retirement Benefit under
this paragraph and satisfies the age and service requirements for an
Early Retirement Benefit in accordance with Section 5.3 shall be
entitled to commence payment of his or her Disability Retirement
Benefit as of the second anniversary of the date the Participant
commenced receiving benefits under the OLP's long term disability
program, provided the Participant elects to commence distributions
from the Qualified Plan on that date.
(c) Participants who commence receiving benefits under the OLP's long term
disability program on or after January 1, 2003 shall be entitled to a
Disability Retirement Benefit calculated in accordance with Section
5.1(b), as modified by Sections 4.05(b) and (c) of the Qualified Plan.
A Participant who is entitled to a Disability Retirement Benefit under
this paragraph and satisfies the age and service requirements for an
Early Retirement Benefit in accordance with Section 5.3 shall be
entitled to commence payment of his or her Disability Retirement
Benefit as of the second anniversary of the date the Participant
commenced receiving benefits under the OLP's long term disability
program, provided the Participant elects to commence distributions
from the Qualified Plan on that date.
(d) If the Participant's benefits under the OLP's long term disability
plan are discontinued prior to Normal Retirement Date and the
Participant does not return to service with the OLP or an Affiliated
OLP, he or she will be entitled to receive an Early Retirement Benefit
calculated in accordance with Section 5.3, provided the Participant
then satisfies the eligibility requirements for such benefit and
elects to commence distribution of his or her benefit under the
Qualified Plan on such date.
5.5 ADJUSTED AGE AND BENEFIT SERVICE
The Committee may, in its sole discretion, determine an adjusted Benefit Service
and/or an adjusted age for the Participant. The adjusted Benefit Service may be
1, 2, 3, 4, or 5 years more than the Participant's actual Benefit Service
(subject to the 35 years maximum for Benefit Service). The adjusted age may be
1, 2, 3, 4, or 5 years more than the Participant's actual age.
In determining the amount of a Participant's benefit in accordance with this
Article V, a Participant's adjusted age and adjusted Benefit Service shall be
used as if they were his or her actual age and Benefit Service. However, under
no circumstances shall benefits commence under this Plan prior to commencement
of benefits under the Qualified Plan.
ARTICLE VI. DEATH BENEFITS
6.1 PRIOR TO RETIREMENT
Upon the death of a Participant prior to retirement, his or her surviving
spouse, if any, shall be entitled to a benefit hereunder if such surviving
spouse is entitled to a benefit under the Qualified Plan. The amount and form
(including commencement date) of the benefit payable to the surviving spouse
shall be calculated in the same manner as the spouse's death benefit provided
for in Section 4.06 of the Qualified Plan, however, on the basis of the formula
set forth in Section 5.1 herein.
6.2 AFTER RETIREMENT
There is no benefit payable under the Plan in the event of the Participant's
death after payment of the retirement benefit has commenced unless an option is
in effect in accordance with Section 8.2 (Optional Forms of Benefits).
ARTICLE VII. IN EVENT OF TERMINATION OF EMPLOYMENT
7.1 TERMINATION PRIOR TO RETIREMENT
Subject to Section 11.3 (Change of Control), if a Participant's employment with
the OLP ceases for any reason and the Participant or his spouse is not eligible
for a benefit under the provisions of Article IV (Retirement Date), Article VI
(Death Benefits), or Section 5.4 (Disability Benefits), no benefits shall become
payable to such Participant or his spouse under this Plan.
7.2 TERMINATION AFTER ELIGIBILITY FOR RETIREMENT
A Participant whose employment with the OLP ceases for any reason other than
death and who is eligible to retire under the provisions of Article IV
(Retirement Date), shall be deemed to have retired or to have been retired by
the Company and shall be entitled to the appropriate benefits, subject to any
possible forfeiture of benefits pursuant to Section 3.2.
ARTICLE VIII. TIME AND FORM OF BENEFIT PAYMENT
8.1 NORMAL FORM OF BENEFIT
Except as otherwise provided in Section 8.2, the retirement benefit shall be
payable as a monthly annuity as of the first day of each calendar month for the
life of the Participant with benefits ceasing upon the Participant's death.
8.2 OPTIONAL FORMS OF BENEFIT
If a Participant is entitled to a benefit from the Qualified Plan, the benefit
under this Plan may be paid in the same form as the Qualified Plan's benefit is
payable so long as the Committee approval is secured. If such form of payment is
other than a Single Life Annuity, the amount of the benefit otherwise payable
under this Plan shall be actuarially adjusted in the same manner that benefits
are to be adjusted under the Qualified Plan.
ARTICLE IX. PROVISION OF BENEFITS
9.1 PARTICIPANT CONTRIBUTIONS
Participants shall make no contributions under the Plan.
9.2 FUNDING
Benefit payments from the Plan will be made from the general assets of the OLP
in accordance with such arrangements as the OLP may deem necessary and proper to
fulfill its agreement hereunder.
ARTICLE X. ADMINISTRATION OF THE PLAN
10.1 POWERS AND DUTIES OF THE COMMITTEE
The Committee, in addition to all the powers and duties specified in the various
provisions of the Plan, shall have the exclusive right to interpret the Plan and
decide any matter arising in connection with the administration of the Plan in
its sole discretion.
ARTICLE XI. MISCELLANEOUS
11.1 PROHIBITION AGAINST ENCUMBRANCE
Except in the case of a court order which meets the requirements of a "qualified
domestic relations order" as defined in Section 414(p) of the Internal Revenue
Code of 1986, no right to benefits under the Plan shall be subject in any manner
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
attachment, or garnishment by creditors of a Participant or the Participant's
spouse. If the interest of any Participant or Participant's beneficiary would,
but for this Section 11.1, cease in whole or in part to be enjoyed by such
individual, the Committee, in its sole discretion, may direct that the funds
constituting such interest be withheld or it may expend such funds for the
direct maintenance and support of the Participant, and the Participant's spouse,
children, or dependents as the Committee deems fit and proper in its sole
discretion.
11.2 RIGHT OF PARTICIPANT
Neither the adoption of the Plan nor its operation shall in any way affect the
right and power of the OLP to dismiss or otherwise terminate the employment, or
to change the terms of employment or amount of compensation, of any Participant
at any time or for any reason. The Plan constitutes a mere promise by the OLP to
make benefit payments in the future, and Participants in the Plan shall have the
status of general unsecured creditors of the OLP.
11.3 CHANGE IN CONTROL
(a) The Plan will terminate effective on the close of business 30 days
following a Change in Control, as hereinafter defined. Upon such
Change in Control, Section 12.1 (Amendment) shall become null and
void. Additionally, each Participant will be deemed retired and his or
her benefit under Section 5.1 shall be determined as of the date this
Plan is terminated. A lump sum payment equivalent to the present value
of each Participant's benefit payable under this Plan, utilizing the
lesser of the prime rate of interest as published in the Wall Street
Journal (New York edition) as of the date of a Change in Control or
8%, whichever is less, as the discount rate to determine the present
value -of accrued benefits, shall be paid as soon as practical
following such date of a Change in Control, but in no event later than
90 days. All other actuarial assumptions to be utilized shall be those
in effect as at the last actuarial valuation of the Qualified Plan
prior to such Change in Control.
(b) For purposes of this Section 11.3, prior to May 26, 1999, "Change in
Control" means the occurrence during the term of the Plan of:
(i) an acquisition (other than directly from the MLP) of Common
Units, Subordinated Units or voting equity interests of the MLP
("VOTING SECURITIES") by any "Person" (as the term person is used
for purposes of Section 13 ) (d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT")), other
than the MLP, HM Holdings, Inc. or any of their affiliates,
immediately after which such Person has "BENEFICIAL OWNERSHIP"
(within the meaning of Rule l3d-3 promulgated under the Exchange
Act) or more than twenty five percent (25%) of the combined
voting power of the MLP's then outstanding Common Units;
PROVIDED, HOWEVER, that in determining whether a Change of
Control has occurred, Common Units which are acquired in a
"NON-CONTROL ACQUISITION" (as hereinafter defined) shall not
constitute an acquisition which would cause a Change of Control.
A "NON-CONTROL ACQUISITION" shall mean an acquisition by (i) an
employee benefit plan (or a trust forming a part thereof)
maintained by (A) the MLP or the Partnership or (B) 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 MLP (for
purposes of this definition, a "SUBSIDIARY"), (ii) the MLP or its
Subsidiaries, or (iii) any Person in connection with a
"NON-CONTROL TRANSACTION" (as hereinafter defined);
(ii) approval by the partners of the MLP of (A) a merger,
consolidation or reorganization involving the MLP, unless (x) the
holders of Common Units immediately before such merger,
consolidation or reorganization own, directly or indirectly
immediately following such merger, consolidation or
reorganization, at least sixty percent (60%) of the combined
voting power of the outstanding Common Units of the entity
resulting from such merger, consolidation or reorganization (the
"SURVIVING ENTITY") in substantially the same proportion as their
ownership of the Common Units immediately before such merger,
consolidation or reorganization, and (y) no person or entity
(other than the MLP, any Subsidiary, any employee benefit plan
(or any trust forming a part thereof) maintained by the MLP, the
Partnership, the Surviving Entity, or any Person who, immediately
prior to such merger, consolidation or reorganization had
Beneficial Ownership of more than twenty five percent (25%) of
the then outstanding Common Units), has Beneficial Ownership of
more than twenty five percent (25%) of the combined voting power
of the Surviving Entity's then outstanding voting securities; (B)
a complete liquidation or dissolution of the MLP; or (C) the sale
or other disposition of 50% or more of the net assets of the MLP
to any Person (other than a transfer to a Subsidiary). A
transaction described in clauses (x) or (y) of subsection (A)
hereof shall be referred to as a "NON-CONTROL TRANSACTION;" or
(iii) A "QUALIFIED OWNER OR QUALIFIED OWNERS" (as defined below) not
having, in the aggregate, Beneficial Ownership of at least 50.1%
of the capital stock of the General Partner (as defined in the
Amended and Restated Agreement of Limited Partnership of Suburban
Propane Partners, L.P.,) (by vote and value). For purposes of
this Section 11.3, "QUALIFIED OWNER" shall mean (a) Quantum
Chemical Corporation, (b) SCM Chemicals Inc., or (c) the
publicly-traded person that owns (or that owned at any time after
the date hereof), directly or indirectly, 50.1 % of the issued
and outstanding stock of Quantum Chemical Corporation or SCM
Chemicals Inc.
Notwithstanding the foregoing, a Change of Control shall not be deemed
to occur solely because any Person (the "SUBJECT PERSON") acquired
Beneficial Ownership of more than the permitted amount of the
outstanding Voting Securities as a result of the acquisition of Voting
Securities by the MLP which, by reducing the number of Voting
Securities outstanding, increases the proportional number of units
Beneficially Owned by the Subject Person, provided that if a Change of
Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the MLP, and after
such acquisition by the MLP, the Subject Person becomes the Beneficial
Owner of any additional Voting Securities which increases the
percentage of the then outstanding Voting Securities Beneficially Owned
by the Subject Person, then a Change of Control shall occur.
(c) Notwithstanding anything in Section 11.3(b) above to the contrary,
effective May 26, 1999, for purposes of this Section 11.3 "CHANGE OF
CONTROL" shall mean the occurrence during the term of the Plan of:
(i) an acquisition (other than directly from the MLP) of the Common
Units or voting equity interests of the MLP ("VOTING SECURITIES")
by any "PERSON" (as the term is used for purposes of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT")), other than the MLP, Suburban Energy
Services Group LLC or any of their affiliates, immediately after
which such Person has "BENEFICIAL Ownership" (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of more than
twenty-five percent (25%) of the combined voting power of the
MLP's then outstanding Common Units; PROVIDED, HOWEVER, that in
determining whether a Change of Control has occurred, Common
Units which are acquired in a "NON-CONTROL ACQUISITION" shall not
constitute an acquisition which would cause a Change of Control.
A "NON-CONTROL ACQUISITION" shall mean an acquisition by (i) an
employee benefit plan (or a trust forming a part thereof)
maintained by (A) the MLP or the Partnership or (B) any
corporation, partnership or other Person of which a majority of
its voting power of its voting equity securities or equity
interest is owned, directly or indirectly, by the MLP (for the
purposes of this definition, a "SUBSIDIARY"), (ii) the MLP or its
Subsidiaries, or (iii) any Person in connection with a
"NON-CONTROL TRANSACTION" (as hereinafter defined); or
(ii) approval by the partners of the MLP of (A) a merger,
consolidation or reorganization involving the MLP, unless (x) the
holders of the Common Units immediately before such merger,
consolidation or reorganization own, directly or indirectly
immediately following such merger, consolidation or
reorganization, at least sixty percent (60%) of the combined
voting power of the outstanding Common Units of the entity
resulting from such merger, consolidation or reorganization (the
"SURVIVING ENTITY") in substantially the same proportion as their
ownership of the Common Units immediately before such merger,
consolidation or reorganization, and (y) no person or entity
(other than the MLP, any Subsidiary, any employee benefit plan
(or any trust forming a part thereof) maintained by the MLP, the
Partnership, any Subsidiary, the Surviving Entity, or any Person
who, immediately prior to such merger, consolidation or
reorganization had Beneficial Ownership of more than twenty-five
percent (25%) of the then outstanding Common Units), has
Beneficial Ownership of more than twenty-five percent (25%) of
the combined voting power of the Surviving Entity's then
outstanding voting securities; (B) a complete liquidation or
dissolution of the MLP; or (C) the sale or other disposition of
fifty percent (50%) or more of the net assets of the MLP to any
Person (other than a transfer to a Subsidiary). A transaction
described in clause (x) or (y) of subsection (A) hereof shall be
referred to as a "NON-CONTROL TRANSACTION."
Notwithstanding the foregoing, a Change of Control shall not be deemed
to occur solely because any Person (the "SUBJECT PERSON") acquired
Beneficial Ownership of more than the permitted amount of the
outstanding Voting Securities as a result of the acquisition of Voting
Securities by the MLP which, by reducing the number of Voting
Securities outstanding, increases the proportional number of units
Beneficially Owned by the Subject Person, provided that if a Change of
Control would occur (but for the operation of this sentence) as a
result of the acquisition of the Voting Securities by the MLP, and
after such acquisition of Voting Securities by the MLP, the Subject
Person becomes the Beneficial Owner of any additional Voting Securities
which increases the percentage of the then outstanding Voting
Securities Beneficially Owned by the Subject Person, then a Change of
Control shall occur.
ARTICLE XII. AMENDMENT OR TERMINATION OF THE PLAN
12.1 AMENDMENT
The Board of Supervisors reserves the right at any time and from time to time,
to modify or amend, in whole or in part, any or all of the provisions of the
Plan. No such amendment shall adversely affect any Participants or Participant's
beneficiary's rights to benefits accrued under the Plan prior the effective date
of the amendment.
12.2 TERMINATION
The Board of Supervisors shall have the right to terminate the Plan at any time
provided that such action shall not adversely affect any Participant's or
Participant's beneficiary's rights to benefits accrued under the Plan prior to
such action.
ARTICLE XIII. APPLICATION OF PLAN TO MARK A. ALEXANDER
The application of the Plan to Mark A. Alexander shall be governed by the
attached Schedule A which is hereby incorporated by reference.
By: /S/ MICHAEL M. KEATING
---------------------------
Michael M. Keating
Vice President - Human Resources
and Administration
EXHIBIT 10.17
-------------
FIRST AMENDMENT TO THE
COMPENSATION DEFERRAL PLAN OF
SUBURBAN PROPANE PARTNERS, L.P. AND
SUBURBAN PROPANE, L.P.
WHEREAS, the Board of Supervisors (the "Board") of Suburban Partners
Propane, L.P. and Suburban Propane, L.P. and adopted the Compensation Deferral
Plan of Suburban Propane Partners, L.P. and Suburban Propane, L.P. (the
"Deferral Plan") effective as of May 26, 1999; and
WHEREAS, the Board desires to amend the Deferral Plan to allow a
participant who elects to make an additional deferral election pursuant to
Section 6.6 of the Deferral Plan to commence the distribution of the quarterly
distribution on the participant's Deferred Units made following the Acquisition
Loan Termination Date; and
WHEREAS, Section 10.8 of the Deferral Plan authorizes the committee
appointed by the Board (the "Committee") to amend the Deferral Plan;
NOW, THEREFORE, the Deferral Plan is hereby amended as follows:
1. Effective as of November 5, 2001, Section 6.6 of the Deferral Plan is
hereby amended by adding a new subsection 6.6(c) to read as follows:
(c) The additional deferral election shall specify whether the Participant
shall have each Quarterly Distribution on the Common Units credited to such
Participant's account following the Acquisition Loan Termination Date (i)
distributed as soon as practicable following the date such distributions
are made or (ii) distributed at the same time (and in the same proportion)
as the Common Units credited to the Participant's account are distributed.
2. In all other respects, the Deferral Plan is hereby ratified and
affirmed.
IN WITNESS WHEREOF, this instrument has been executed on November 5, 2001.
By: /S/ MICHAEL M. KEATING
---------------------------
Michael M. Keating
Vice President of Human Resources
and Administration
EXHIBIT 10.18
-------------
SUBURBAN PROPANE
RETIREMENT SAVINGS & INVESTMENT PLAN
(Restated Effective January 1, 1998)
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
1.1 "Account"......................................................... 1
1.2 "Affiliate"....................................................... 1
1.3 "Appropriate Notice".............................................. 1
1.4 "Beneficiary"..................................................... 1
1.5 "Board" or "Board of Supervisors"................................. 1
1.6 "Code"............................................................ 1
1.7 "Committee"....................................................... 1
1.8 "Company"......................................................... 1
1.9 "Compensation".................................................... 1
1.10 "Compensation Deferral Contributions"............................. 2
1.11 "Compensation Deferral Contributions Account"..................... 2
1.12 "Effective Date".................................................. 2
1.13 "Eligible Employee"............................................... 2
1.14 "Employee"........................................................ 2
1.15 "Employee Contribution Account"................................... 3
1.16 "Employer"........................................................ 3
1.17 "Employer Matching Contributions"................................. 3
1.18 "Employer Matching Contributions Account"......................... 3
1.19 "Employer Securities"............................................. 3
1.20 "ERISA"........................................................... 3
1.21 "ESOP Account".................................................... 3
1.22 "Hour of Service"................................................. 3
1.23 "Investment Fund"................................................. 4
1.24 "Investment Manager".............................................. 4
1.25 "Leased Employee"................................................. 4
1.26 "Leave of Absence"................................................ 4
1.27 "Member".......................................................... 5
1.28 "Parental Leave".................................................. 5
1.29 "Plan"............................................................ 5
1.30 "Plan Year"....................................................... 5
1.31 "Prior Plan"...................................................... 5
1.32 "Prior Plan Account".............................................. 6
1.33 "Related Employer"................................................ 6
1.34 "Required Beginning Date"......................................... 6
1.35 "Retirement"...................................................... 6
1.36 "Rollover Contribution"........................................... 6
1.37 "Rollover Contribution Account"................................... 6
1.38 "Service"......................................................... 6
1.39 "Suspense Account"................................................ 6
1.40 "Total and Permanent Disability".................................. 6
1.41 "Trustee"......................................................... 7
1.42 "Trust Fund"...................................................... 7
1.43 "Valuation Date".................................................. 7
ARTICLE II
ELIGIBILITY AND MEMBERSHIP
2.1 Members on the Effective Date..................................... 7
2.2 Eligible Employees on and after the Effective Date................ 7
2.3 Completion of Appropriate Notice.................................. 7
2.4 Elections Upon Becoming A Member.................................. 7
2.5 Beneficiary Designation........................................... 8
2.6 Transfers to or from Non-Covered Status........................... 8
2.7 Rollover Contributions From Other Plans........................... 8
ARTICLE III
COMPENSATION DEFERRAL CONTRIBUTIONS
3.1 Compensation Deferral Contributions............................... 9
3.2 Changes and Suspension of Contributions........................... 9
3.3 Transfer of Contributions to Trustee.............................. 9
ARTICLE IV
LIMITATIONS ON, AND DISTRIBUTION OF, EXCESS COMPENSATION
DEFERRAL CONTRIBUTIONS AND EXCESS EMPLOYER MATCHING
CONTRIBUTIONS OF HIGHLY COMPENSATED EMPLOYEES
4.1 Limitations....................................................... 10
4.2 Control of Compensation Deferral Contributions
and Employer Matching Contributions and
Distribution of Excess............................................ 11
4.3 Limitation of Annual Additions.................................... 13
ARTICLE V
EMPLOYER MATCHING CONTRIBUTIONS
5.1 Amount of Employer Matching Contributions......................... 16
5.2 Treatment of Forfeitures.......................................... 17
5.3 Transfer of Contributions to Trustees............................. 17
ARTICLE VI
ACCOUNTS
6.1 Maintenance of Accounts........................................... 18
6.2 Valuations........................................................ 18
ARTICLE VII
VESTING OF ACCOUNTS
7.1 Employer Matching Contributions Account........................... 18
7.2 Other Accounts.................................................... 18
7.3 Earlier Vesting in Employer Matching
Contributions Accounts............................................ 18
7.4 Forfeitures....................................................... 19
ARTICLE VIII
INVESTMENT OF ACCOUNTS
8.1 Investment of Accounts............................................ 19
8.2 Redirection of Future Contributions............................... 20
8.3 Reinvestment of Prior Contributions............................... 20
8.4 Statements of Accounts............................................ 20
8.5 Crediting of Accounts............................................. 20
8.6 Correction of Errors.............................................. 21
8.7 Investment of Deferred Distributions.............................. 21
ARTICLE IX
WITHDRAWALS AND LOANS DURING EMPLOYMENT
9.1 Withdrawal Options................................................ 21
9.2 Hardship Withdrawals.............................................. 22
9.3 Values............................................................ 23
9.4 Payment of Withdrawals............................................ 23
9.5 Loans............................................................. 24
ARTICLE X
DISTRIBUTION
10.1 Amount of Distribution............................................ 25
10.2 Notice of Options and Normal Form of Distribution................. 26
10.3 Alternate Form of Distribution.................................... 27
10.4 Identity of Payee................................................. 27
10.5 Non-alienation of Benefits........................................ 28
10.6 Qualified Domestic Relations Order................................ 28
10.7 Commencement of Benefits.......................................... 29
10.8 Spousal Consent................................................... 29
10.9 Lump Sum Payment Without Election................................. 29
10.10 Trustee to Trustee Transfers...................................... 30
ARTICLE XI
ADMINISTRATION OF THE PLAN
11.1 Plan Administrator................................................ 30
11.2 Board of Supervisors.............................................. 31
11.3 Appointment of the Committee...................................... 31
11.4 Compensation, Expenses............................................ 31
11.5 Committee Actions, Agents......................................... 31
11.6 Committee Meetings................................................ 31
11.7 Authority and Duties of the Committee............................. 32
11.8 Personal Liability................................................ 32
11.9 Dealings Between Committee and Individual Members................. 32
11.10 Information to be Supplied by the Employer........................ 32
11.11 Records........................................................... 33
11.12 Fiduciary Capacity................................................ 33
11.13 Fiduciary Responsibility. If a Plan fiduciary acts in
accordance with ERISA, Title I, Subtitle B Part 4................. 33
11.14 Claim Procedure................................................... 33
ARTICLE XII
OPERATION OF THE TRUST
12.1 Trust Fund........................................................ 34
12.2 Trustee........................................................... 34
12.3 Investment Manager................................................ 34
12.4 Purchase and Holding of Securities................................ 35
12.5 Voting of Employer Securities..................................... 35
12.6 Disbursement of Funds............................................. 35
12.7 Exclusive Benefit of Members...................................... 35
ARTICLE XIII
AMENDMENT, TERMINATION AND MERGER
13.1 Right to Amend.................................................... 36
13.2 Suspension or Termination......................................... 36
13.3 Merger, Consolidation of Transfer................................. 36
ARTICLE XIV
MISCELLANEOUS
14.1 Uniform Administration............................................ 37
14.2 Payment Due an Incompetent........................................ 37
14.3 Source of Payments................................................ 37
14.4 Plan Not a Contract of Employment................................. 37
14.5 Applicable Law.................................................... 37
14.6 Unclaimed Amounts................................................. 37
ARTICLE XV
TOP HEAVY PROVISIONS
15.1 Application....................................................... 38
15.2 Minimum Contribution.............................................. 38
15.3 Adjustment to limitation on Benefits.............................. 39
15.4 Definitions....................................................... 39
15.5 Effect of Change in Application Legislation
or Regulation..................................................... 41
ARTICLE I
DEFINITIONS
As used herein, unless otherwise defined or required by the context, the
following words and phrases shall have the meanings indicated. Some of the words
and phrases used in the plan are not defined in this Article I, but, for
convenience are defined as they are introduced into the text.
1.1 "ACCOUNT" means a Member's Employee Contributions Account,Compensation
Deferral Contributions Account, Rollover Contribution Account, Employer Matching
Contributions Account, ESOP Account and Prior Plan Account, as the context
requires.
1.2 "AFFILIATE" means any company which is related to the Employer as a
member of a controlled group of corporations in accordance with Section 414(b)
of the Code, as a trade or business under common control in accordance with
Section 414(c) of the Code or members of an affiliated service group as defined
under Section 414(m) of the Code.
1.3 "APPROPRIATE NOTICE" means the written form, electronic procedure or
other method prescribed by the Committee to convey information for a particular
purpose.
1.4 "BENEFICIARY" means the person or persons designated by the Plan or by
a Member under Section 2.5 (Beneficiary Designation) to receive benefits payable
under the Plan as a result of the Member's death.
1.5 "BOARD" or "BOARD OF SUPERVISORS" means the Board of Supervisors of
the Company.
1.6 "CODE" means the Internal Revenue Code of 1986, as amended from time
to time and references to sections thereof shall be deemed to include any such
sections as amended, modified or renumbered.
1.7 "COMMITTEE" means the Benefits Administration Committee appointed in
accordance with Section 11.3 (Appointment of Committee).
1.8 "COMPANY" means Suburban Propane Partners L.P.
1.9 "COMPENSATION" means with respect to a Plan Year, the sum of the
amount reported by the Employer to the Internal Revenue Service on Form W-2 as
the Member's compensation for such calendar year (including commissions to the
extent specified by the Committee under regulations uniformly applicable to all
employees similarly situated) the amount of any Compensation Deferral
Contributions made on such Member's behalf to the Plan and the amount, if any,
contributed to a cafeteria plan that is excluded from gross income pursuant to
Section 125 of the Code; but exclusive of bonuses, overtime pay, termination or
severance pay, prizes, awards, grievance settlements, overseas cost of living
allowances, relocation allowances, mortgage assistance, executive perquisites,
stock options, and such other extraordinary items or remuneration as the
Committee shall determine from time to time pursuant to such uniform and
nondiscriminatory rules as it shall adopt. On and after January 1, 1989 the
Compensation of each Employee taken into account under the Plan for any Plan
Year shall not exceed $200,000 as thereafter adjusted for inflation in
accordance with Section 415(d) of the Code. For Plan Years beginning after 1993
the Compensation of each Employee taken into account under the Plan for any such
Plan Year shall not exceed $150,000 as thereafter adjusted for inflation in
accordance with Section 401(a)(17)(B) of the Code.
1.10 "COMPENSATION DEFERRAL CONTRIBUTIONS" means contributions made by the
Employer pursuant to an election by the Member to reduce the cash compensation
otherwise currently payable to such Member by an equivalent amount, in
accordance with the provisions of Section 3.1 (Compensation Deferral
Contributions).
1.11 "COMPENSATION DEFERRAL CONTRIBUTIONS ACCOUNT" means the separate
account maintained for a Member to record such Member's share of the Trust Fund
attributable to Compensation Deferral Contributions made on such Member's behalf
to the Plan or equivalent contributions made to a Prior Plan.
1.12 "EFFECTIVE DATE" means January 1, 1994, the date the Plan was spun off
from the Quantum Savings & Stock Ownership Plan.
1.13 "ELIGIBLE EMPLOYEE" means any active, full--time Employee other than
(i) an individual who is covered by a collective bargaining agreement between
the Employer and any union unless participation by such Employee in the Plan has
been agreed to by the parties to such agreement, (ii) a "leased employee" within
the meaning of Code Section 414(n), (iii) an individual who is receiving a
pension or severance pay from the Employer or (iv) any individual under contract
(whether oral or in writing) with the Employer as a fee for service worker, an
independent contractor or a worker in any other capacity that is not intended by
such contract to create the relationship of employer and employee, whether of
not any such contract is in derogation of the common law and notwithstanding any
third party determination that the relationship of employer and employee exists
for any other purpose.
A part-time Employee shall be eligible to participate in the Plan after
completion of at least 1,000 Hours of Service during the consecutive
twelve-month period immediately following such Employee's date of hire or during
any Plan Year.
1.14 "EMPLOYEE" means each individual employed by the Employer or an
Affiliate, including any leased employee and any other individual required to be
treated as an employee pursuant to Code Section 414(n).
1.15 "EMPLOYEE CONTRIBUTIONS ACCOUNT" means the separate account maintained
for a Member to record such Member's share of the Trust Fund attributable to
previously permitted after-tax contributions by the Member to the Quantum
Savings and Stock ownership Plan.
1.16 "EMPLOYER" means Suburban Propane L.P. and its subsidiaries.
1.17 "EMPLOYER MATCHING CONTRIBUTIONS" means the Employer matching
contributions made to the Trust Fund pursuant to Article V (Employer Matching
Contributions).
1.18 "EMPLOYER MATCHING CONTRIBUTIONS ACCOUNT" means the separate Account
maintained for a Member to record such Member's share of the Trust Fund
attributable to Employer Matching Contributions made on such Member's behalf.
1.19 "EMPLOYER SECURITIES" means the sponsored American Depositary Shares
traded on the New York Stock Exchange each of which represent five shares of
capital stock of, Hanson PLC, an English company, which was the ultimate parent
company of the Employer prior to March 1, 1996. Employer Securities shall also
include shares distributed to holders of Employer Securities as a dividend or in
a corporate reorganization of Hanson PLC.
1.20 "ERISA" means Public Law No. 93-406, the Employee Retirement Income
Security Act of 1974, as amended.
1.21 "ESOP ACCOUNT" means the separate account maintained for each Member's
share of the Trust Fund attributable to certain matching contributions or stock
bonus contributions made to the Quantum Savings and Stock Ownership Plan prior
to October 1, 1993 under the Employee Stock Ownership Plan ("ESOP") provisions
of the Plan.
1.22 "HOUR OF SERVICE" means each hour for which an Employee is paid, or
entitled to payment, or receives earned income from an Employer or an Affiliate:
(a) for performance of duties;
(b) on account of a period of time during which no duties were
performed, provided that except in the case of an Leave of Absence, no more
than 501 Hours of Service shall be credited for any single continuous
period during which an Employee performs no duty, and provided that no
Hours of Service shall be credited for periods of time in respect of which
an Employee receives severance pay or for payments made or due under a plan
maintained solely for the purpose of complying with applicable workers'
compensation, unemployment compensation or disability insurance laws, or
for reimbursement of medical expenses; and
(c) for which back pay, irrespective of mitigation of damages, is
awarded or agreed to by the Employer provided that Hours of Service
credited under (a) or (b) shall not be credited under (c).
Hours of Service credited to an Employee for the performance of duties will
be credited to the computation period in which the duties are performed. The
determination of Hours of Service for reasons other than the performance of
duties shall be made in accordance with the provisions of Labor Department
Regulations Section 2530.200b--2(b), and Hours of Service shall be credited to
the computation periods to which the award or agreement pertains. Except in the
case of a Leave of Absence, not more than 501 Hours of Service shall be credited
for any continuous period during which an Employee performs no duty or, in the
case of service required to be credited for payments of back pay awarded or
agreed to, for a period during which an employee did not or would not have
performed duties.
To the extent not credited above, for periods of Leave of Absence an
Employee shall be credited with a number of Hours of Service for each week of
such Leave of Absence equal to the Employee's weekly average number of Hours of
Service scheduled for the six--week period immediately preceding such Leave of
Absence.
In any case in which an individual becomes an Employee upon the acquisition
of all or a portion of the business of his or her former employer by the
Employer or an Affiliate, whether by merger, acquisition of assets or stock, or
otherwise, his or her service with his or her predecessor employer shall be
included in determining his or her Hours of Service if, and to the extent that,
such service is required to be credited hereunder (A) by section 414(a) of the
Code and any regulations promulgated thereunder, (B) by the terms of the
agreement pursuant to which the business of such former employer was acquired by
the Employer or an Affiliate, or (C) by vote of the Board of Supervisors.
1.23 "INVESTMENT FUND" means any one of the investment funds prescribed by
the Committee as described in Section 8.1 (Investment of Accounts).
1.24 "INVESTMENT MANAGER" means the individual and/or other entity
appointed in accordance with Section 12.3 (Investment Manager) who has
acknowledged in writing that such individual is a fiduciary with respect to the
Plan and who is:
(a) registered as an investment adviser under the Investment Advisers
Act of 1940, or (b) a bank, as defined in such Act, or (c) an insurance
company qualified to manage, assign or dispose of assets of pension plans.
1.25 "LEASED EMPLOYEE" shall mean any person described in Code Section
414(n)(6).
1.26 "LEAVE OF ABSENCE" means an absence or interruption of service
approved by the Committee under uniform and nondiscriminatory rules and
procedures. Members on leave of absence for service in the Armed Forces of the
United States, however, shall be deemed to have been on Leave of Absence,
provided they return to service with an Employer within the required time
limitations set forth in the then applicable laws governing reemployment rights
of persons inducted, or who have enlisted, in the Armed Forces.
1.27 "MEMBER" means an Eligible Employee who has become a member of the
Plan in accordance with Article II (Eligibility and Membership). Each Member
shall continue to be such until the later of the date such Member ceases to be
an Eligible Employee or such Member's Accounts have been completely distributed.
1.28."PARENTAL LEAVE" means a period not in excess of two (2) years
commencing after December 31, 1984 during which an individual is absent from
work for any period:
(a) by reason of the pregnancy of the individual,
(b) by reason of the birth of a child of the individual
(c) by reason of the placement of a child with the individual in
connection with the adoption of such child by such individual, or
(d) for purposes of caring for such child for a period beginning
immediately following such birth or placement.
An absence from work shall not be a Parental Leave unless the Employee
furnishes the Plan Administrator such timely information as may reasonably be
required to establish that the absence from work was for one of the reasons
specified in this Section 1.28 and the number of days for which there was such
an absence. Nothing contained herein shall be construed to establish an Employer
policy of treating a Parental Leave as a Leave of Absence.
1.29 "PLAN" means the Suburban Propane Retirement Savings & Investment Plan
effective January 1, 1994 and as amended and restated effective January 1, 1998
as set forth herein.
1.30 "PLAN YEAR" means the calendar year.
1.31 "PRIOR PLAN" means an employee benefit plan qualified under Section
401(a) of the Code, all or part of the assets of which are transferred to the
Plan in a transaction which meets the requirements of Regulation 1.414(1) of the
Code. On the Effective Date "Prior Plan" includes the Quantum Savings and Stock
Ownership Plan, the Thrift and Profit Sharing Plan f or Eligible Employees of
National Distillers and Chemical Corporation (the "Hourly Plan") and the
Petrolane Savings and Stock Ownership Plan. Prior Plan shall also include the
Suburban Propane Retirement Savings & Investment Plan for Certain Hourly
Represented Employees which was merged into the Plan effective January 1, 1997.
1.32 "PRIOR PLAN ACCOUNT" means the separate account maintained for a
Member to record such Member's share of the Trust Fund attributable to employer
contributions to the plans described herein as Prior Plans. This account will
not receive any new contributions after the Effective Date.
1.33 "RELATED EMPLOYER" means any entity that has at least 20% ownership
interest in the Company and any entity that would be required to be aggregated
with a Related Employer under the rules of Section 414(b) or (c) of the Code.
1.34 "REQUIRED BEGINNING DATE" means April 1 of the year following the Plan
Year in which occurs the later of the date that the Member terminates employment
or the date on which the Member attains the age of 70-1/2 years.
1.35 "RETIREMENT" means a Member's normal, early or deferred retirement
whichever shall apply to the Member under the provisions of the Employer's
pension plan applicable to such Member.
1.36 "ROLLOVER CONTRIBUTION" means an amount which is transferred from
another plan to this Plan, in accordance with the provisions of Section 2.7
(Rollover Contribution From Other Plans).
1.37 "ROLLOVER CONTRIBUTION ACCOUNT" means the separate Account maintained
for a Member to record such Member's share of the Trust Fund. attributable to
any Rollover Contribution made to the Plan on his behalf.
1.38 "SERVICE" means the period of employment beginning on the first day
the Eligible Employee performs duties for the Employer or an Affiliate and
ending on the day of quit, retirement, discharge or death, or two years after
the commencement of absence on account of parental Leave, or one year after an
authorized absence for any other reason. All prior periods of employ-ment with
the Employer or an Affiliate, and breaks in employment of less than one year
shall be included in Service. If a break in employment of not more than two
years is on account of Parental Leave not more than one year of Service shall be
credited to an Eligible Employee for a period of Parental Leave.
1.39 "SUSPENSE ACCOUNT" means the separate account maintained for a Member
pursuant to Section 4.3.
1.40 "TOTAL AND PERMANENT DISABILITY" means a physical or mental condition
as determined by the Committee in a nondiscriminatory manner, based upon
appropriate medical reports and examinations, which renders a Member incapable
of performing his or her customary duties for the Employer for the first two
years of incapacity, or for another employer after two years. However, no Member
shall be deemed to be disabled if such incapacity (a) was incurred, suffered or
occurred while the Member was engaged in, or resulted from having engaged in, a
criminal enterprise, or (b) was intentionally self-inflicted.
1.41 "TRUSTEE" means the corporate trustee appointed from time to time by
the Employer to administer the Trust Fund in accordance with Section 12.2
(Trustee).
1.42 "TRUST FUND" means the trust fund established in accordance with
Section 12.1 (Trust Fund) from which benefits provided under this Plan will be
paid.
1.43 "VALUATION DATE" means the last business day of each calendar month on
which the New York Stock Exchange is open for trading.
ARTICLE II
ELIGIBILITY AND MEMBERSHIP
2.1 MEMBERS ON THE EFFECTIVE DATE. Each person who was a member of the
Quantum Savings and Stock Ownership Plan immediately before the Effective Date
shall continue as a member
2.2 ELIGIBLE EMPLOYEES ON AND AFTER THE EFFECTIVE DATE.
(a) On and after the Effective Date an Eligible Employee may elect to
become a Member at any time. Such election will be effective as soon as
administratively possible.
Notwithstanding the foregoing, a former employee who is reemployed as an
Eligible Employee following a termination of employment and who, prior to
termination, satisfied the conditions for membership in the Plan, shall be
eligible to become a Member of the Plan immediately upon reemployment, subject
to such advance notice procedures as the Committee shall prescribe.
(b) In the case of a person who, immediately prior to becoming an employee,
had been in the employ of a Related Employer, the period of service with such
Related Employer shall be considered for meeting the requirements of an Eligible
Employee
2.3 COMPLETION OF APPROPRIATE NOTICE. In order to become a Member an
Eligible Employee must give the Appropriate Notice to the Committee as the
Committee may prescribe from time to time.
2.4 ELECTIONS UPON BECOMING A MEMBER. An Eligible Employee, in giving
the Appropriate Notice specified in Section 2.3, shall (a) authorize the
Employer to reduce current compensation for Compensation Deferral Contributions
pursuant to Section 3.1 (Compensation Deferral Contributions), (b) make an
investment election from among those options prescribed from time to time by
the Committee as described in Section 8.1 (Investment of Accounts) and (c)
designate a Beneficiary in accordance with Section 2.5 (Beneficiary
Designation). Any such payroll authorization, investment election or Beneficiary
designation shall remain in effect until changed by giving the Appropriate
Notice to the Committee subject to the provisions of the Plan.
2.5 BENEFICIARY DESIGNATION. Each Member shall designate a Beneficiary by
giving the Appropriate Notice to the Committee. The designated Beneficiary may
be an individual, estate or trust; however, if the Member is married at the time
of such Member's death, such Member's surviving spouse shall automatically be
such Member's sole Beneficiary unless the spouse has consented in writing in
accordance with Section 10.8 (Spousal Consent) to a designation of a different
Beneficiary. If more than one individual or trust is named, the Member shall
indicate the shares and/or precedence of each individual or trust so named. Any
Beneficiary so designated may be changed by the Member at any time (subject to
his spouse's consent, if applicable) by giving the Appropriate Notice to the
Committee.
In the event that no Beneficiary has been designated or that no designated
Beneficiary survives the Member, the following Beneficiaries (if then living)
shall be deemed to have been designated in the following priority: (a) spouse,
(b) children, including adopted children, in equal shares, (c) parents, in equal
shares, or the Member's surviving parent, if only one parent survives, and (d)
Member's estate.
2.6 TRANSFERS TO OR FROM NON-COVERED STATUS. If a Member ceases to meet
the definition of Eligible Employee as set forth in Section 1.13 (Eligible
Employee) but continues to be an Employee or an employee of an Affiliate, such
Member's right to make or have contributions made on such Member's behalf to the
Plan shall be suspended. If during the period of suspension, a Member's
employment with the Employer or an Affiliate terminates for any reason, there
shall be a distribution of such Member's Accounts in accordance with the
provisions of Article X (Distribution).
If and when the suspended Member again becomes an Eligible Employee, such
Member may resume having Compensation Deferral Contributions made on such
Member's behalf as of any payroll date thereafter by giving Appropriate Notice
to the Committee as the Committee may prescribe from time to time.
2.7 ROLLOVER CONTRIBUTIONS FROM OTHER PLANS. An Eligible Employee who is
in receipt of a distribution which is eligible to be "rolled over" to a
qualified plan in accordance with applicable Code sections may, in accordance
with and subject to such rules and procedures approved by the Committee,
transfer all or part of such distribution into the Plan; provided, that
distributions which are so transferred to the Plan shall consist only of cash
and that such transfer shall be in conformity with requirements set forth in the
Code.
Upon approval by the Committee, the amount transferred to the Plan shall be
deposited in the Trust Fund in cash and shall be credited to a Rollover
Contribution Account.
ARTICLE III
COMPENSATION DEFERRAL CONTRIBUTIONS
3.1 COMPENSATION DEFERRAL CONTRIBUTIONS. Each Member who is an Eligible
Employee may elect to have the Employer make Compensation Deferral Contributions
not to exceed $10,000 per year (subject to adjustment for inflation in
accordance with Section 415(d) of the Code) to the Plan on such Member's behalf
to be credited to such Member's Compensation Deferral Contributions Account, in
which case the cash compensation otherwise payable by the Employer to the Member
shall be reduced by an amount equal to the Compensation Deferral Contributions
so made. Subject to the limitations prescribed in Section 4.1 the amount of
Compensation Deferral Contributions in any payroll period shall be in whole
percentages from 1% to 17% of the Member's Compensation as the Member shall
designate (or such greater or lesser percentages as the Committee may from time
to time prescribe for the Plan).
The foregoing notwithstanding during the "make up period," as defined
below, a former Member (a "Veteran") who is reemployed after a period of
military service may elect to have the Employer make additional Compensation
Deferral Contributions to the Plan on such Veteran's behalf, the total of which
may not exceed the maximum Compensation Deferral Contributions that the Veteran
could have elected to have made if no military leave had occurred. For the
purposes of calculating the amount of such additional Compensation Deferral
Contributions the Veteran's Compensation during such leave of absence shall be
deemed to have been the Veteran's annual rate of compensation at the time the
military leave of absence commenced (the `Deemed Compensation Rate') and the
`make up period' during which such additional Compensation Deferral
Contributions may be elected shall be equal to the lesser of five years or three
times the period of the military leave of absence. Such additional Compensation
Deferral Contributions in any payroll period shall be in whole percentages of
the Veteran's current payroll and shall not exceed the maximum amount that could
have been deferred at the Deemed Compensation Rate. In the event that the
additional Compensation Deferral Contributions to the Plan on a Veteran's behalf
that are authorized by this paragraph exceed the limitations set forth in
Article IV of the Plan or otherwise conflict with the provisions of the Code or
ERISA such limitations or conflicts shall be ignored to the extent permitted by
Code Section 414(u).
3.2 CHANGES AND SUSPENSION OF CONTRIBUTIONS. Compensation Deferral
Contributions made on a Member's behalf may be increased or decreased or
suspended effective as soon as administratively possible after the Appropriate
Notice is given to the Committee. Similarly, a Member who has suspended
Compensation Deferral Contributions may resume having such contributions as soon
as administratively possible after the Appropriate Notice is given to the
Committee.
3.3 TRANSFER OF CONTRIBUTIONS TO TRUSTEE. Contributions made under this
Article III will be transferred to the Trustee by the 15th day of the month
following the month in which the contributions are withheld from the Member's
Compensation and/or in which the Member's cash compensation is reduced; provided
that all Compensation Deferral Contributions for a Plan Year shall be
transferred to the Trustee not later than 30 days after the end of the Plan
Year.
ARTICLE IV
LIMITATIONS ON, AND DISTRIBUTION OF, EXCESS COMPENSATION
DEFERRAL CONTRIBUTIONS AND EXCESS EMPLOYER MATCHING
CONTRIBUTIONS OF HIGHLY COMPENSATED EMPLOYEES
4.1 LIMITATIONS. The Committee in its sole discretion shall separately
limit the amount of Compensation Deferral Contributions and Employer Matching
Contributions made on behalf of each "Highly Compensated Employee" (as defined
below) for each Plan Year to insure that neither the Deferral Percentage nor the
Contributions Percentage (each as defined below and referred to herein as the
"Percentage") exceed the greater of (X) 125 percent of the Percentage of all
other Eligible Employees in the current or preceding Plan Year (the "Measuring
Year") as the Committee may select as permitted by the Code and guidance from
the Internal Revenue Service or, alternatively, (Y) the Percentage of all other
Eligible Employees for the Measuring Year plus 2 percentage points; and, the
actual Percentage for the Highly Compensated Employees is not more than two
times the actual Percentage in the Measuring Year of all other Eligible
Employees.
For purposes of this Section, the term "Deferral Percentage" with
respect to any Plan Year means the Compensation Deferral Contributions
for the Plan Year divided by Compensation.
For purposes of this Section, the term "Contributions Percentage"
with respect to any Plan Year means the Employer Matching
Contributions for the Plan Year divided by Compensation.
For the purposes of this Section, the term "Highly Compensated
Employee" with respect to any Plan Year means an Eligible Employee or
former Eligible Employee who performed services during the Plan Year
for which the determination is being made and:
(a) at any time during such Plan Year or preceding Plan Year was a
5-percent owner of the Employer (as defined for top-heavy plans under Code
Sec. 416(1); or
(b) earned $80,000 or more in the preceding Plan Year (subject to
adjustment for inflation in accordance with Section 415(d) of the Code) in
annual Compensation from the Employer.
(1) For the purposes of this Section, the term "Compensation" means Compensation
within the meaning of Code Section 415(c)(3), including elective or salary
reduction contributions to a cafeteria plan, cash or deferred arrangement or tax
sheltered annuity.
(2) For the purpose of this Section the term "Employer" shall also include all
other entities aggregated with the Employer under the requirements of Code
Section 414 (b), (c), (m) and (o).
For purposes of this Section the definition of "Compensation Deferral
Contributions" and "Employer Matching Contributions" shall include Compensation
Deferral Contributions and Employer Matching Contributions made under any other
plan that is aggregated with this Plan for purposes of Sections 401(a)(4) or
410(b) (other than Section 410(b)(2)(A)(ii)) of the Code and if any such plan is
permissively aggregated with this Plan for the purposes of Section 401(k) of the
Code, the plans so aggregated must also satisfy Section 401(a)(4) and 410(b) as
if they were a single plan. Further, for the purposes of this Section,
Compensation Deferral Contributions made on behalf of each Highly Compensated
Employee shall be determined by treating all cash or deferred arrangements under
which each such Highly Compensated Employee is eligible as a single arrangement.
4.2 CONTROL OF COMPENSATION DEFERRAL CONTRIBUTIONS AND EMPLOYER MATCHING
CONTRIBUTIONS AND DISTRIBUTION OF EXCESS.
(a) RULES FOR COMPENSATION DEFERRAL CONTRIBUTIONS. The Committee may, in
accordance with uniform and nondiscriminatory rules it establishes from time to
time, require that Members who are among the Highly Compensated Employees for
the Plan Year make Compensation Deferral Contributions elections following
and/or preceding the completion of such elections by all other Eligible
Employees and the Committee may (X) limit the amount by which each Member who is
among the Highly Compensated Employees may elect to reduce his or her
Compensation, and (Y) subject to Section 402(g) of the code, permit each other
Eligible Employee to elect to reduce his or her compensation within higher
limits than those for Highly Compensated Employees.
In the event that it is determined prior to the close of any Plan Year that
the amount of Compensation Deferral Contributions to be made with respect to
such Highly Compensated Employees would cause the limitation contained in this
Section to be exceeded for the Plan Year in which such Contributions occur, the
amount of Compensation Deferral Contributions allowed to be made on behalf of
Highly Compensated Employees for such Plan Year shall be reduced. The Highly
Compensated Employees to whom the reduction is applicable, and the amount of the
excess Compensation Deferral Contributions, shall be determined by reducing the
actual Deferral Contributions of the Highly Compensated Employee or Employees
with the highest actual Deferral Contributions to the extent required to-
(i) enable the arrangement to satisfy the limitation set forth in Section
4.1 above; or
(ii) cause such Highly Compensated Employee's or Employees' actual
Compensation Deferral Contributions to equal the actual Compensation Deferral
Contribution of the Highly Compensated Employee or Employees with the next
highest actual Compensation Deferral Contributions.
The "leveling" process described in paragraph (i) or (ii) shall be repeated
until the limitations set forth in this Section are satisfied.
If the Committee determines that the limitations contained in this Section
have not been met for any Plan Year, the Committee may return the excess
Compensation Deferral Contributions of Members who are Highly Compensated
Employees (calculated in the manner set forth above) to such Members within the
12-month period beginning after the last day of the Plan Year for which such
contributions were made. The amount of such excess Compensation Deferral
Contributions shall be adjusted to reflect any income or loss allocable to such
excess during the Plan Year determined in accordance with the alternative method
set forth in Reg. Section 1.401(k)-l(f)(4)(ii)(C) and also from the end of the
Plan Year to the date of distribution determined in accordance with the safe
harbor method, set forth in Reg. Section 1.401(k)-1(f) (4) (ii) (D). In
addition, Employer Matching Contributions that are attributable to excess
Compensation Deferral Contributions shall be deemed Excess Aggregate
Contributions and shall be forfeited or distributed as provided in paragraph
(b), below.
The amount of excess Compensation Deferral Contributions to be returned
under this section shall be reduced however, by the amount of any Compensation
Deferral Contributions that have previously been distributed pursuant to Section
4.3 for the taxable year ending in the same plan year and conversely
Compensation Deferral Contributions that are to be distributed pursuant to
section 4.3 shall be reduced by the amount of any excess Compensation Deferral
Contributions previously distributed under this section for the plan year
beginning in such taxable year.
(b) RULES FOR EMPLOYER MATCHING CONTRIBUTIONS. In the event that it is
determined prior to the close of any Plan Year that the amount of Employer
Matching Contributions to be made with respect to Highly Compensated Employees
would cause the limitation contained in this Section to be exceeded for the Plan
Year in which such Contributions occur, the amount of Employer Matching
Contributions allowed to be made on behalf of Highly Compensated Employees for
such Plan Year shall be reduced. The Highly Compensated Employees to whom the
reduction is applicable, and the amount of the excess shall be determined by
reducing the Employer Matching Contributions of the Highly Compensated Employee
or Employees with the highest actual Matching Contributions to the extent
required to-
(i) enable the arrangement to satisfy the limitation set forth in Section
4.1 above; or
(ii) cause such Highly Compensated Employee's or Employees' actual Matching
Contributions to equal the Matching Contributions of the Highly Compensated
Employee or Employees with the next highest actual Matching Contributions.
The "leveling" process described in paragraph (i) or (ii) shall be repeated
until the limitations set forth in this Section are satisfied.
Excess Aggregate Contributions plus any income and minus any losses
allocable thereto, shall be forfeited, if not vested, or if not forfeitable,
distributed, no later than the last day of each Plan Year to those Members to
whose Individual Accounts such Excess Aggregate Contributions were allocated.
Employer Matching Contributions which are forfeited shall be credited against
Employer Matching Contributions required to be made to Member's accounts in the
Plan Year following the Plan Year that the excess Employer Matching
contributions were allocated to Member's accounts provided, however, any excess
which has not been so credited within two and one half months after the end of
the Plan Year shall be immediately refunded to the Employer.
(c) MULTIPLE USE LIMITATIONS. If the actual Deferral Percentage, the actual
Contribution Percentage, and the sum of the two percentages for the group of
Highly Compensated Employees in the Plan exceed the limits set forth in
Regs.1.401(m)--2(b) then in such case the required reduction of multiple use of
the alternate limitation shall be accomplished through reduction of the actual
Deferral Percentage for all Highly Compensated Employees eligible to participate
in the Plan in accordance with the procedures prescribed in Regs. l.401(m)-2(b)
which are incorporated herein by reference.
4.3 LIMITATION OF ANNUAL ADDITIONS.
(a) Notwithstanding anything herein to the contrary, in no event shall
the Annual Additions (as hereinafter defined) with respect to any Member in
any Plan Year exceed the Maximum Annual Additions. A Member's "Maximum
Annual Additions" means the lesser of (i) 25% of the Member's compensation
reported on Form W-2 (after December 31, 1997, compensation for the
purposes of Annual Additions shall also include elective or salary
reduction contributions to a cafeteria plan, cash or deferred compensation
arrangement or tax sheltered annuity) or (ii) the dollar limit in effect
for such Plan Year in accordance with Section 415(c)(1)(A) of the Code
($30,000 as hereafter adjusted for inflation in accordance with Section
415(d) of the Code),
(b) For purposes of this Section 4.3 the term "Annual Additions" means
the sum for any Plan Year of
(i) Compensation Deferral Contributions made in accordance with
Section 3.1 (Compensation Deferral Contributions),
(ii) Employer Matching Contributions including forfeitures as
applied in accordance with Section 5.1 Amount of Employer Matching
Contributions) and Section 5.2 (Treatment of Forfeitures).
(iii) The amount of annual additions (within the meaning of
Section 415(c) (2) of the Code) under all other qualified defined
contribution plans of the Employer or an Affiliate.
(c) If the Member's Annual Additions exceed the Maximum Annual
Additions limitations in accordance with this Section 4.3, such amounts
shall not be contributed to the Trust or, if contributed by or on behalf of
a Member under the Plan shall be reduced in the following order, but only
to the extent necessary to meet the limitations: (1) Compensation Deferral
Contributions and (ii) Employer Matching Contributions in respect of such
reduced Compensation Deferral Contributions.
(d) Combined Fraction.
(i) Notwithstanding the foregoing, for any Plan Year beginning
before January 1, 2000, if a Member is a participant in any qualified
defined benefit plan maintained by an Employer or an Affiliate, the
sum of the "Defined Benefit Plan Fraction" (as defined below) and the
"Defined Contribution Plan Fraction" (as defined below) for such
Member shall not exceed 1.0 (called "Combined Fraction"). If for any
Plan Year the -Combined Fraction of a Member exceeds 1.0 after
application of provisions for limitation of benefits under all such
qualified defined benefit plans, the Maximum Annual Additions of such
Member shall be reduced as provided in Section 4.3(c) to the extent
necessary to reduce the Combined Fraction of such Member to 1.0.
(ii) The "Defined Benefit Plan Fraction" applicable to a Member
for any Plan Year is a fraction, the numerator of which is the sum of
the Projected Annual Benefit of the Member under all of the qualified
defined benefit Plans maintained by the Employer or an Affiliate,
(whether or not terminated) in which such Member participates
(determined as of the close of the Plan Year) and the denominator of
which is the lesser of (A) the product of 1.25 multiplied by the
maximum dollar limitation on a Member's Projected Annual Benefit if
the plan provided the maximum benefit allowable under Section 415(b)
of the Code for such Plan Year, or (B) the product of 1.4 multiplied
by 100% of the Member's Highest Average Compensation.
Notwithstanding the above, if the Member was a participant in one
or more defined benefit plans maintained by the Employer which were in
existence on July 1, 1982, the denominator of this fraction will not
be less than 1.25 multiplied by the sum of the annual benefits under
such plans which the Member had accrued as of the later of September
30, 1983, or the last limitation year beginning before January 1,
1983. The preceding sentence applies only if defined benefit plans
individually and in the aggregate satisfied the requirements of
Section 415 of the Code as in effect at the end of the 1982 limitation
year.
(iii) The "Defined Contribution Plan Fraction" applicable to a
Member for any Limitation Year is a fraction, the numerator of which
is the sum of the Member's Annual Additions as of the close of such
Plan Year for that Plan Year and for all prior Plan Years under all of
the defined contribution plans maintained by an Employer or an
Affiliate in which Member participates, and the denominator of which
is the lesser of the following amounts (determined for such Plan Year
and for each prior Plan Year of service with the Employer or any
Affiliate regardless of whether a plan was in existence during those
years): (A) the product of 1.25 multiplied by the dollar limitation in
effect under Code Section 415(c)(1)(A) for the Plan Year (determined
without regard to the special dollar limitation for employee stock
ownership plans), or (B) the product of 1.4 multiplied by twenty-five
percent of the Member's Compensation for the Plan Year.
(e) Definitions.
(i) "Highest Average Compensation" means the average of a
Member's high three consecutive Plan Years (determined as of the close
of the Plan Year) of employment with the Employer or the actual number
of years of employment for those Members who are employed for less
than three consecutive years with the Employer.
(ii)"Projected Annual Benefit" means the annual benefit a Member
would receive from employer contributions under a defined benefit
plan, adjusted, in the case of any benefit payable in a form other
than a single life annuity or a qualified joint and survivor annuity,
to the actuarial equivalent of a single life annuity, assuming (A) the
Member continues employment until reaching the plan's normal
retirement age (or the Member's current age, if later), (B)
compensation remains unchanged and (C) all other relevant factors used
to determine benefits under the plan remain constant in the future.
(f) In the event that, notwithstanding the foregoing provisions
of this Section 4.3, the limitations with respect to Annual Additions
prescribed hereunder are exceeded with respect to any Member and such
excess arises as a consequence of reasonable error in estimating a
Member's compensation or such other circumstances as the Secretary of
Treasury shall permit, the Employer Matching Contributions portion of
such excess shall be held in a Suspense Account and, if such Member
remains a Member, shall be used to reduce Employer Matching
Contributions for such Member for the succeeding Plan Years, and, if
such Member ceases participating in the Plan, shall be used to reduce
Employer Matching Contributions for all Members in the Plan Year of
cessation and succeeding Plan Years, as necessary. Compensation
Deferral Contributions which have been made to the Trust and are
reduced under Section 4.3(c) shall be refunded to the Member as soon
as administratively convenient. Any Employer Matching Contributions
including Forfeitures remaining upon Plan Termination which cannot be
allocated to Members in accordance with the foregoing in the Plan Year
of termination of the Plan shall be returned to the Employer.
(g) For purposes of this Section 4.3, the standard of control for
determining if a company is an Affiliate under Section 414(b) and
414(c) of the Internal Revenue Code shall be deemed to be "more than
50%" rather than "at least 80%.
ARTICLE V
EMPLOYER MATCHING CONTRIBUTIONS
5.1 AMOUNT OF EMPLOYER MATCHING CONTRIBUTIONS.
(a) Although the Plan shall not require any contributions the Employer may
in its discretion make a basic and, also, a supplemental matching contribution
to the Plan as soon as administratively feasible following the December
Valuation Date, with respect to each individual who is an Eligible Employee as
of the last day of the Plan Year and on whose behalf it made Elective
Contributions during the Plan Year.
(b) A basic discretionary matching contribution shall be a percentage of a
Member's aggregate Compensation Deferral Contributions which do not exceed 6% of
Compensation ("Eligible Compensation Deferral Contributions") that shall be
based on a sliding scale of adjusted earnings before interest, income taxes,
depreciation and amortization ("Adjusted EBITDA") divided by an earnings
performance target set for the fiscal year of the Employer by the Board of
Supervisors (the "Performance Target"), in accordance with the following
schedule:
------------------------------------------------------------------------------
Adjusted EBITDA as a Percentage Matching Contributions Expressed
of the Performance Target as a Percentage of Eligible
for the Employer's Fiscal Year: Compensation Deferral Contributions
for thePlan Year:
------------------------------------------------------------------------------
Less than 85% 0%
-----------------------------------------------------------------------------
85% to 87% 25%
-----------------------------------------------------------------------------
88% to 90% 30%
------------------------------------------------------------------------------
91% to 93% 35%
-----------------------------------------------------------------------------
94% to 96% 40%
------------------------------------------------------------------------------
97% to 99% 45%
-----------------------------------------------------------------------------
100% to 102% 50%
-----------------------------------------------------------------------------
103% to 105% 60%
-----------------------------------------------------------------------------
106% to 108% 70%
-----------------------------------------------------------------------------
109% to 111% 80%
-----------------------------------------------------------------------------
112% to 114% 90%
-----------------------------------------------------------------------------
115% and over 100%
------------------------------------------------------------------------------
(c) A supplemental discretionary matching contribution may be in such
amount as the Board of Supervisors shall select.
This section shall not be interpreted as a guarantee of any Employer
Matching Contributions.
5.2 TREATMENT OF FORFEITURES. Any amounts forfeited in accordance with
Sections 7.4 (Forfeitures) and 14.6 (Unclaimed Amounts) shall be applied as a
credit towards the amount of Employer Matching Contributions otherwise required
under Section 5.1. or may be applied to discharge the expenses of the Plan
described in Section 11.4 (Compensation, Expenses). However, if Employer
Matching Contributions are discontinued, for Plan Years following the Plan Year
in which such discontinuance occurs, any such forfeited amounts in excess of the
amounts required to restore forfeited amounts to the Employer Matching
Contributions Accounts of Members who are reemployed in accordance with Section
7,4 shall be allocated as of the last day of the Plan Year to the Member's
Employer Matching Contributions Accounts in an amount equal to the amount of
such forfeited amounts available for allocation multiplied by a fraction the
numerator of which is the Member's Compensation Deferral Contributions for the
Plan Year not in excess of six percent of such Member's Compensation and the
denominator of which is the aggregate of all Members' Compensation Deferral
Contributions not in excess of six percent of all such Members' Compensation.
5.3 TRANSFER OF CONTRIBUTIONS TO TRUSTEE. Employer Matching Contributions
under this Article V shall be paid to the Trustee as soon as practicable after
the end of the Plan Year (but in no event later than 60 days after the last day
of such month) and such Employer Matching Contributions (inclusive of the credit
for forfeitures as provided in Section 5.2) shall be credited as of the last day
of the Plan Year to each Member's Employer Matching Contributions Account.
ARTICLE VI
ACCOUNTS
6.1 MAINTENANCE OF ACCOUNTS. For each Member the Committee shall, where
applicable, cause a separate Compensation Deferral Contributions Account, an
Employer Matching Contributions Account, an ESOP Account, a Rollover
Contribution Account and a Prior Plan Account to be maintained. For Employee
contributions made to a Prior Plan which were not Compensation Deferral
Contributions the Committee shall continue to maintain a separate Employee
Contributions Account.
6.2 VALUATIONS. As of each Valuation Date, the Committee shall adjust the
Employee Contributions Account the Compensation Deferral Contributions Account,
the Employer Matching Contributions Account, the ESOP Account, the Rollover
Contribution Account and the Prior Plan Account for each Member to reflect his
share of contributions (including for this purpose contributions made after such
Valuation Date but credited as of such Valuation Date), amounts of principal or
interest paid or accrued in respect of a loan made to such Member pursuant to
Section 9.5, withdrawals, distributions, forfeitures, income, expenses payable
from the Trust Fund and any other increase or decrease in the value of Trust
Fund assets since the preceding Valuation Date.
ARTICLE VII
VESTING OF ACCOUNTS
7.1 EMPLOYER MATCHING CONTRIBUTIONS ACCOUNT. A Member's interest in the
Member's Employer Matching Contributions Account shall become 100% vested after
completion of at least five years of Service provided, however, that (a) each
Member of the Plan who was employed on the Effective Date shall be 100% vested
in all past and future Employer Matching Contributions, (b) Employer Matching
Contributions to accounts of Highly Compensated Employees shall not be deemed to
vest until the Deferral Percentage and Contributions Percentage limitations set
forth in Article IV have been satisfied and (c) nothing herein shall delay
vesting pursuant to the provisions of a Prior Plan.
7.2 OTHER ACCOUNTS. Interests in Compensation Deferral Contributions
Accounts, Prior Plan Accounts, ESOP Accounts, Rollover Contribution Accounts and
Employee Contributions Accounts shall be fully vested at all times.
7.3 EARLIER VESTING IN EMPLOYER MATCHING CONTRIBUTIONS ACCOUNTS.
Notwithstanding the foregoing, a Member's interest in his or her Employer
Matching Contributions Account shall be fully vested (a) on the date of
termination of employment by reason of death, Retirement or Total and Permanent
Disability, (b) when and if this Plan shall at any time be terminated for any
reason, (C) upon the complete discontinuance of contributions by the Employer
hereunder, or (d) upon partial termination of this Plan if such Member is a
member affected by such partial termination. For the purposes of subparagraph
(C) the Employer's failure in one year to make matching contributions pursuant
to Section 5.1 (Amount of Employer Matching Contributions) because it did not
achieve a predetermined Performance Target shall not be deemed to be a
discontinuance of contributions.
7.4 FORFEITURES. A Member's Employer Matching Contributions Account which
is not vested in accordance with this Article VII at the time of such Member's
termination of employment shall be forfeited as of the last day of the Plan Year
in which the Member has a termination of employment. However, if a Member who
has a termination of employment is reemployed before the end of a period of five
consecutive Plan Years beginning with the Plan Year in which the Member has a
termination of employment and during which the Member is not an Employee on the
last day of each Plan Year', any forfeited amounts shall be restored to the
Member's Employer Matching Contributions Account. For purposes of the preceding
sentence, any Plan Year in which a Member is absent from work on the last day of
the Plan Year by reason of a Parental Leave shall not be counted as one of the
Plan Years in such a period of five consecutive Plan Years and the Plan Year
immediately preceding the Plan Year immediately following a Plan Year in which
such Member is absent from work on the last day of the Plan Year by reason of
Parental Leave shall be deemed to be consecutive.
Amounts required to be restored to the Employer Matching Contributions
Accounts of a Member shall be reinstated, to the extent not contributed by an
Employer, out of amounts forfeited under this Section 7.4 or 14.6 (Unclaimed
Amounts) for the Plan Year and, to the extent such forfeitures are not
sufficient, shall be charged ratably against income of the Trust Fund.
ARTICLE VIII
INVESTMENT OF ACCOUNTS
8.1 INVESTMENT OF ACCOUNTS.
Effective as of March 1, 1996 or thereafter on becoming a Member, each
Member shall direct that his or her Accounts be invested in increments of 5% in
one or more Investment Funds prescribed from time to time by the Committee and
described in the summary plan description, as amended, which individually and
collectively are designed to conform to DOL Regulation 2550.404c-- 1 for
so--called Section 404(c) plans in order that fiduciaries of the Plan may be
relieved of liability for any losses which are the direct and necessary result
of a Member's investment directions. Contributions to a Member's Accounts, for
which a Member has not given investment directions will be invested in a fixed
income fund.
The Plan currently maintains a Company Stock fund, which prior to March 1,
1996 invested in Employer Securities. This fund will be maintained by the Plan
until the Accounts having investments in the fund are fully distributed or until
the Employer elects to eliminate the option to elect distribution in kind as set
forth in Section 10.2(b). No new investments will be made in the fund after
March 1, 1996. Dividends on Employer Securities in the Company Stock Fund will
be invested proportionally in accordance with the Member's directions for the
investment of current contributions to the Member's Compensation Deferral
Contributions Account.
The foregoing notwithstanding, if, in the judgment of the Plan
Administrator, any Employer Securities are deemed to be no longer a prudent
investment, the investment in such Employer Securities held in the Company Stock
Fund may be liquidated in whole or in part at any time.
8.2 REDIRECTION OF FUTURE CONTRIBUTIONS. A Member's investment directions
under Section 8.1 may be changed at any time and will be effective as soon as
administratively feasible after Appropriate Notice is received by the Committee.
Such change in direction will not be effective as to amounts previously
contributed or invested.
8.3 REINVESTMENT OF PRIOR CONTRIBUTIONS.
(a) As soon as administratively feasible after Appropriate Notice is
received by the Committee, a Member may direct that up to the total value in any
Investment Fund holding investments from the Member's Compensation Deferral
Contributions Accounts, Employer Matching Contributions Account, Prior Plan
Account, Rollover Contribution Account, ESOP Account or Employee Contributions
Accounts be transferred from such Investment fund to any other Investment fund
in increments of 5%. The value of any account or portion thereof to be
reinvested shall be determined on the Valuation Date immediately preceding the
month of transfer.
(b) The Committee may, in its sole discretion, impose at any time or from
time to time such restrictions on the transfers of monies from one Investment
Fund to another as it deems necessary or appropriate.
8.4 STATEMENTS OF ACCOUNTS. Each Member shall be furnished periodic
statements of accounts as often as the Committee may determine but not less
frequently than annually. A like statement shall be furnished to a Member upon
any distribution being made under the Plan.
8.5 CREDITING OF ACCOUNTS. Interests in each of the Investment Funds shall
be credited to each Member's Accounts as units of value determined separately
for each Investment Fund, as follows:
(a) the initial value of a unit in each Investment Fund on the date the
fund is established shall be one dollar;
(b) the unit of value of each Investment Fund shall be redetermined on each
Valuation Date by dividing the then fair market value of all of the assets of
such Investment Fund by the number of units therein then outstanding. Amounts
held as a result of forfeiture shall not be included in the value of the Company
Stock Fund in determining the unit of value; and
(c) contributions to a fund after the date that the fund is established
will be credited to the Member's Accounts as units of value, the number of which
is determined by dividing the dollar amount of the contribution by the then
current unit of value.
If a suspense account credited in accordance with Section 4.3(f) is in
existence on a Valuation Date, the number of units of value in the suspense
account shall be adjusted as of each Valuation Date so that such an account does
not participate in the Trust's investment gains or losses. To the extent a
Member's Accounts are invested pursuant to Section 9.5 in a loan to a Member,
the Member's Accounts shall be credited and charged directly with income, gains,
losses and expenses attributable to such loan as of each Valuation Date and the
value of the account will be adjusted through the date of a distribution to
reflect the value of such direct investments on the distribution date. A
Member's loan principal and interest payments shall be credited to the Member's
Accounts which are invested in such loans pursuant to Section 9.5 and such
payments shall be invested in accordance with the Member's investment directions
for such Accounts pursuant to Sections 8.1 or 8.2 as the situation may require.
8.6 CORRECTION OF ERRORS. In the event of an error in the adjustment of a
Member's Account, the Committee, in its sole discretion, may correct such error
by either crediting or charging the adjustment required to make such correction
to or against Forfeitures for the Plan Year or to or against income as an
expense of the Trust for the Plan Year in which the correction is made, or if an
Employer contributes an amount to correct any such error, from such amount.
Except as provided in this Section, the Accounts of other Members, shall not be
readjusted on account of such error.
8.7 INVESTMENT OF DEFERRED DISTRIBUTIONS. Former employees who are Members
of the Plan shall have the same investment options for their Accounts as are
available for the Accounts of current employees who are Members of the Plan.
ARTICLE IX
WITHDRAWALS AND LOANS DURING EMPLOYMENT
9.1 WITHDRAWAL OPTIONS.
(a) Any Member may withdraw all or part of his or her Employee
Contributions Account, Rollover Contributions Account, Prior Plan Account or, if
age 55 or older, his or her ESOP Account, at any time once in any twelve-month
period.
(b) Hardship. In the event of Hardship (as defined in Section 9.2), a
Member may, by giving the Appropriate Notice to the Committee, elect to withdraw
the balance of any account specified in paragraph (a), above, as well as the
cumulative amount of all contributions to the Compensation Deferral
Contributions Account together with any Income allocable to such contributions
as of December 31, 1988 as of the next succeeding Valuation Date.
(c) Age 59-1/2. After a Member's attainment of age 59-1/2, in any
twelve-month period a Member may make one withdrawal of all or any portion of
the value of the Member's Compensation Deferral Contributions Account and the
vested portion of such Member's Employer Contributions Account.
(d) A withdrawal shall be not less than the lesser of $500 or the combined
total in the Member's Accounts from which withdrawals may be made.
9.2 HARDSHIP WITHDRAWALS.
(a) Frequency. Hardship withdrawals (including amounts necessary to pay any
federal, state or local taxes on such withdrawals) may be made once in any
twelve-month period.
(b) Verification of Need. Each request for a hardship withdrawal must be
accompanied by a statement signed by the Member attesting that the financial
need cannot be relieved,
(i) Through reimbursement or compensation by insurance or otherwise,
(ii) By liquidation of the Member's assets (including those assets of the
Member's spouse and minor children that are reasonably available to the
Member) to the extent such liquidation will not itself cause immediate and
heavy financial need,
(iii)By ceasing Compensation Deferral Contributions under the Plan, or
(iv) By other distributions or nontaxable (at the time of the loan)
loans from any plan maintained by the Employer or any other employer, or by
borrowing from commercial sources on reasonable commercial terms.
The Committee shall be entitled to rely on the Member's statement of need
without inquiry into the Member's financial circumstances.
(c) Determination of Hardship. A withdrawal will be deemed to be a hardship
withdrawal if made on account of:
(i) Medical expenses incurred, or to be incurred, by the Member, the
Member's spouse, or any dependent,
(ii) Purchase (excluding mortgage payments) of a principal residence
for the Member,
(iii) Payment of tuition for the next year, semester or quarter of
post-secondary education for the Member, the Member's spouse or any
dependent,
(iv) The need to prevent the eviction of the Member from the Member's
principal residence or foreclosure on the mortgage of the Member's
principal residence,
(v) Such other immediate and heavy financial need as the Commissioner
of Internal Revenue may from time to time publish by revenue rulings,
notices and other documents of general applicability, or
(vi) Any other immediate and heavy financial need as determined on the
basis of all relevant facts and circumstances by the Committee in an
objective and nondiscriminatory manner in accordance with the requirements
of the Code and the applicable regulations and in accordance with the
following standards and principles:
(A) the need shall be due to an extra-ordinary emergency,
(B) the need shall be heavy,
(C) the need shall be immediate,
(D) the need shall be for reasons of hardship as commonly
understood such as financial expenses and not for entertainment
or pleasure, and
(E) the need shall not fail to qualify as immediate and
heavy merely because such need was reasonably foreseeable or
voluntarily incurred.
9.3 VALUES. All withdrawals under Sections 9.1 or 9.2 shall be based on the
values of Accounts as of the Valuation Date next following the date that the
Appropriate Notice was given to the Committee, or such other Valuation Date as
the Committee shall prescribe. Any withdrawal from any Account under Sections or
9.2 shall be charged proportionately against each Investment Fund described in
Article VIII (Investment of Accounts) in which such Account is invested.
9.4 PAYMENT OF WITHDRAWALS. Any amount withdrawn under Section 9.1 shall be
paid to a Member in a lump sum in cash, as soon as practicable after the
Valuation Date as of which the withdrawal election is effective provided,
however, that at the Member's request whole numbers of Employer Securities
contained in the Member's Account may be distributed in kind.
9.5 LOANS. A Member who is a "party in interest" as defined in Section
3(14) of ERISA (a "Party in Interest") may borrow for any purpose from the
vested value of his or her Compensation Deferral Contributions Account, Prior
Plan Account, Rollover Contribution Account and Employee Contributions Account
once in any twelve--month period an amount (inclusive of current loans) of up to
one half of the total of all of his or her Accounts, but in any event not more
than the lesser of (a) $50,000 reduced by the excess (if any) of the highest
balance of existing loans during the preceding 12 months over the current loan
or (b) the total vested value of the accounts listed in clauses (i) through (iv)
in this paragraph. For record keeping purposes amounts that are borrowed in
accordance with the preceding formula shall be deducted from a Member's accounts
in the following order: (i) Compensation Deferral Contributions Account, (ii)
Prior Plan Account, (iii) Rollover Contribution Account and (iv) Employee
Contributions Account.
For the purposes of the foregoing, any outstanding balance of an existing
loan (including any Prior Loan) shall be aggregated with any additional funds
being borrowed in order to calculate a Member's borrowing limit.
The minimum amount of a loan shall be $1,000.
A Member may have outstanding at any one time two general purpose loans,
one of which may qualify as a loan to acquire a primary residence, provided,
however, that any Prior Loan may remain outstanding in accordance with its
terms.
A "Prior Loan" is a loan that was originated before January 1, 1996.
All loans shall be made pursuant to such other procedures and terms as
shall be adopted by the Committee, subject to the following:
(A) A loan may remain outstanding so long as the
borrower remains a Party in Interest and shall be repayable
within five years from the date of borrowing upon such terms
as may be determined by the Committee; provided, however,
that any loan of more than $15,000 used to acquire the
primary residence of a Member shall be repayable over a
period of up to ten years.
The Committee may in its absolute discretion grant such loan in accordance
with such uniform and nondiscriminatory rules as it may from time to time
establish. Any such loan shall be made at a then prevailing commercial rate of
interest for similar credits on such terms of repayment (in level payments not
less frequent than monthly) and subject to such rules and restrictions as the
Committee shall determine, provided that any such loans shall be available to
all Members on a reasonably equivalent basis and that any loan may be repaid at
any time without penalty.
All Member loans shall be secured on a dollar for dollar basis by up to 50%
of the balance of the Accounts from which the loan is made. To the extent a loan
is unpaid, it shall be deducted from the amount payable to such Member or such
Member's beneficiary at the time of distribution of the Accounts from which the
loan was made;
(B) In the event that a Member fails to repay a loan
according to its terms and foreclosure occurs, the Plan may
foreclose on the portion of the Member's Accounts for which
a distributable event has occurred. In the event of
foreclosure, a distributable event shall be deemed to occur
immediately following the next Valuation Date for any
portion of an Account with respect to which the Member or
the Member's Beneficiary would be permitted in accordance
with Sections 9.1 or 10.1 to elect an immediate
distribution;
(C) The receivable representing the loan (and other
loans to the same Member) will be accounted for by the
Trustee as a separate earmarked investment solely for the
individual account of the Member. A Member's payments to the
Trust of principal and interest on the loan shall be
invested by the Trustee as elected by the Member in
accordance with the Member's investment directions for
future contributions in accordance with Section 8.2, as soon
as reasonably practical;
(D) Loan applications may be made by any member, any
time, by making the appropriate application to the Committee
or its designee, as the Committee may prescribe from time to
time.
(E) No loan shall remain outstanding after a Member is
no longer a Party in Interest. If a Member who is no longer
a Party in Interest elects under Section 10.7 not to file a
claim for the commencement of benefits when the Member's
employment is terminated, the balance of any outstanding
loan must be repaid in full within sixty (60) days.
(F) Loan Origination Fee. From time to time the
Committee may set a reasonable loan origination fee for each
loan application. Such fees shall be deducted from loan
proceeds paid to loan applicants.
ARTICLE X
DISTRIBUTION
10.1 AMOUNT OF DISTRIBUTION. The Member or the Member's Beneficiary, as the
case may be, shall not be entitled to elect to receive a distribution of the
vested value of the Member's account until:
(a) the Member's Retirement, termination of employment, death or Permanent
Disability, or
(b) termination of the Plan without establishment or maintenance of a
successor plan, or
(c) the date of sale of substantially all of the assets of the Employer or
the date of sale of the Employer's interest in a subsidiary of the Employer to
an acquiring corporation which continues the employment of the Member without
the establishment of a successor plan.
(d) April 1 (before termination of employment) of the year following the
Plan Year that a Members becomes 70 1/2 years of age.
The vested value of the Member's Account shall be determined in accordance
with Article VII (Vesting of Accounts) as of the Valuation Date next following
such election except that in the case of the Member's Total and Permanent
disability the vested value of the Member's account shall be determined as of
the Valuation Date next following the date the Committee determines that the
Member has a Total and Permanent Disability. In any event, such Valuation Date
shall be no later than the Valuation Date which immediately precedes the
Member's Required Beginning Date (or the date which would have been the Member's
Required beginning Date had the Member survived).
If a Member's Beneficiary is not the Member's spouse, distributions under
the Plan shall be completed not more than five years after the Member's death.
10.2 NOTICE OF OPTIONS AND NORMAL FORM OF DISTRIBUTION.
(i) No less than thirty (30) nor more than ninety (90) days prior to
the date of any distribution hereunder the Plan Administrator shall provide
the Member or the Member's Beneficiary, as the case may be, with a general
description of the material features and an explanation of the relative
values of the optional forms of benefits available under the Plan.
(ii) If a distribution is one to which Sections 401(a)(11) and 417 of
the Code do not apply, such distribution may commence less than thirty (30)
days after the notice required under Reg. Section 1.411(a)--11(c) is given,
provided that:
(A) the Plan Administrator clearly informs the Member
that the Member has a right to a period of at least thirty
(30) days after receiving the notice to consider the
decision of whether or not to elect a distribution (and, if
applicable, a particular distribution option), and
(B) the Member, after receiving the notice,
affirmatively elects a distribution.
(b) Normal Form of Distribution. Unless otherwise elected in accordance
with Section 10.3 and subject to Section 10.7, distributions shall be made by
the Trustee as soon as practicable after the Valuation Date next following the
Member's (or the Member's Beneficiary's as the case may be) election and consent
to receive a distribution of the vested value of such Member's Account, in a
single sum in cash except that (i) at the Member's option Employer Securities
held in the Member's Account may be distributed in kind provided, however, that
the Employer shall have discretion to eliminate this option in accordance with
Reg. Section 1.411(d)--4 Q&A-2(d), and (ii) in the discretion of the Committee,
a note with respect to a Participant's loan from such Member's Compensation
Deferral Account may be distributed in kind.
(c) Notwithstanding any provision of the Plan to the contrary, to the
extent that any optional form of benefit under this Plan permits a distribution
prior to the Employee's retirement, death, disability, or severance from
employment, and prior to plan termination, the optional form of benefit is not
available with respect to benefits attributable to assets (including
post--transfer earnings thereon) and liabilities that are transferred, within
the meaning of section 414(1) of the Internal Revenue Code, to this Plan from a
money purchase pension plan qualified under section 401(a) of the Internal
Revenue Code (other than any portion of those assets and liabilities
attributable to voluntary employee contributions.
10.3 ALTERNATE FORM OF DISTRIBUTION. For benefits which accrued under the
Plan prior to December 31, 1998 a Member may request to have the value of such
Member's Accounts distributed in periodic installments not more frequent than
monthly commencing at such time as the Member shall elect in accordance with the
Plan payable over a fixed period not to exceed the lesser of ten years or the
life expectancy of the Member at the time payments commence. The obligation of
the Plan to make such periodic installment payments may be satisfied through the
purchase of an annuity from a reputable domestic insurance company selected by
the Committee. Payment of any interest in the Company Stock Fund in a Member's
Accounts, if any, to which the Member has a nonforfeitable interest may be made
in cash solely for the purpose of effecting such an alternate form of
distribution.
Distributions will be made in accordance with the requirements of the
regulations under Code Section 401(a)9, including the minimum distribution
incidental benefit requirements of Proposed Regulations Section 1.401(a)(9)-2.
Such minimum distribution requirements shall supersede any distribution options
in the Plan that are inconsistent therewith.
10.4 IDENTITY OF PAYEE. The determination of the Committee as to the
identity of the proper payee of any benefit under the Plan and the amount of
such benefit properly payable shall be conclusive, and payment in accordance
with such determination shall constitute a complete discharge of all obligations
on account of such benefit.
10.5 NON-ALIENATION OF BENEFITS.
(a) No benefit payable at any time under this Plan shall be subject in
any manner to alienation, sale, transfer, assignment, pledge, attachment,
or other legal processes, or encumbrance of any kind. Any attempt to
alienate, sell, transfer, assign pledge or otherwise encumber any such
benefits, whether currently or thereafter payable, shall be void. No
benefit, nor any fund which may be established for the payment of such
benefits, shall, in any manner, be liable for or subject to the debts or
liabilities of any person entitled to such benefits. If any person shall
attempt to, or shall alienate, sell, transfer, assign, pledge or otherwise
encumber benefits to which such person may become entitled under this Plan,
or if by reason of such person's bankruptcy or other event happening at any
time, such benefits would devolve upon any other person or would not be
enjoyed by the person entitled thereto under the Plan, then the Committee,
in its discretion, may terminate the interest in any such benefits of the
person entitled thereto under the Plan and hold or apply them to or for the
benefit of such person entitled thereto under the Plan or such person's
spouse, children or other dependents, or any of them, in such manner as the
Committee may deem proper.
(b) Notwithstanding Section 10.5(a), the Trustee
(i) shall comply with an order entered on or after January 1,
1985, determined by the Committee to be a Qualified Domestic Relations
Order,
(ii) may treat an order entered before January 1, 1985, as a
Qualified Domestic Relations Order even if it does not meet the
requirements of Code Section 414(p), and
(iii)shall comply with a Federal tax levy made pursuant to Code
Section 6331 and with collection proceedings by the United States on a
judgment resulting from an unpaid tax assessment.
10.6 QUALIFIED DOMESTIC RELATIONS ORDER.
(a) The Plan shall comply with the provisions of Code Section 414(p)
relating to qualified domestic relations orders and all regulations
pertaining thereto.
b) An alternate payee's interest in the Plan will be distributed in
the form of a single sum as soon as practicable after a proposed order is
determined to be a qualified domestic relations order.
10.7 COMMENCEMENT OF BENEFITS. Unless a Member elects otherwise, the
payment of benefits under the Plan shall begin not later than the 60th day after
the latest of the close of the Plan Year in which:
a) the Member attains age 65;
(b) the 10th anniversary of the date the Member's participation in the
Plan occurs; or
(c) the Member's employment with the Company or an Affiliate is
terminated;
provided that except as provided in Section 10.9 no benefits shall be
distributed unless the Member has filed a claim for benefits until the Valuation
Date immediately preceding the Required Beginning Date and further provided that
(excepting Members who are currently employed by the Employer) distribution of
benefits to the Member shall commence in accordance with Regulations not later
than the Member's Required Beginning Date.
10.8 SPOUSAL CONSENT. A valid spousal consent to the Member's naming of a
Beneficiary other than the Member's spouse shall be:
(a) in a writing acknowledging the effect of the consent;
(b) witnessed by a notary public; and
(c) effective only for the spouse who exercises the consent;
provided that, notwithstanding the provisions of this Article X, the consent of
a Member's spouse shall not be required if it is established to the satisfaction
of the Plan Administrator that such consent may not be obtained because there is
no spouse, because the spouse cannot be located or because of such other
circumstances as the Secretary of the Treasury may by regulations prescribe.
10.9 LUMP SUM PAYMENT WITHOUT ELECTION. Notwithstanding any other provision
of this Article X, if a Member or a Beneficiary is entitled to a distribution
and if the vested value of a Member's Account or the vested value of the
Beneficiary's share of the Member's Account before benefits are paid or commence
to be paid hereunder does not exceed $5,000, the Committee may in accordance
with uniform and nondiscriminatory rules direct the immediate distribution of
such benefit to the person entitled thereto regardless of any election or
consent of the Member, the Member's spouse or other Beneficiary.
10.10 TRUSTEE TO TRUSTEE TRANSFERS.
(a) A Member who receives an Eligible Rollover Distribution may elect
to have such distribution paid directly to an Eligible Retirement Plan by
specifying in an Appropriate Notice the Eligible Retirement Plan to which
such distribution is to be paid in a direct trustee to trustee transfer
pursuant to such uniform rules as to the form and time of transfer as the
Committee shall prescribe.
(b) (i) "Eligible Rollover Distribution." An Eligible Rollover
Distribution is any distribution of all or a portion of the balance to the
credit of the Member distributee, except that an Eligible Rollover
Distribution does not include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently than annually)
made for the life (or life expectancy) of the Member distributee or the
joint lives (or joint life expec-tancies) of the Member distributee and the
Member's desig-nated beneficiary, or for a specified period of ten years or
more; any distribution to the extent such distribution is required under
section 401(a)(9) of the Code; and the por-tion of any distribution that is
not includible in gross income (determined without regard to the exclusion
for net unrealized appreciation with respect to Employer Securities).
(b) (ii)"Eligible Retirement Plan." An Eligible Retirement Plan is an
individual retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code, or a qualified trust
described in section 401(a) of the Code, that accepts the Member
distributee's Eligible Rollover Distribution. However, in the case of an
Eligible Rollover Distribution to the surviving spouse of a Member, an
Eligible Retirement Plan is an individual retirement account or an
individual retirement annuity.
ARTICLE XI
ADMINISTRATION OF THE PLAN
11.1 PLAN ADMINISTRATOR. The Committee shall be the Plan Administrator:
(a) The Committee shall administer, enforce and interpret the Plan and
the trust agreement established hereunder and shall have the powers
necessary thereto, including but not by way of limitation the powers to
exercise its responsibilities in accordance with Sections 1.3 (Appropriate
Notice), 1.9 (Compensation), 1.26 (Leave of Absence), 1.40 (Total and
Permanent Disability), Article II (Eligibility and Membership) 3.1
(Compensation Deferral Contributions), 3.2 (Changes and Suspension of
Contributions), 4.1 (Limitations), 6.1 (Maintenance of Accounts), 6.2
(Valuations), Article VIII (Investment of Accounts), Article IX
(Withdrawals and Loans During Employment), 12.6 (Disbursement of Funds),
Article XIV (Miscellaneous), and the remainder of this Article XI, and
(b) Authority to hold the funds of the Plan shall be delegated to the
Trustee in accordance with Section 12.2 (Trustee), and
(c) Authority to direct the investment of the Plan's funds shall be
delegated to an Investment Manager in accordance with Section 12.3
(Investment Manager).
With respect to all other responsibilities of the Plan Administrator
the Committee shall act through its duly authorized officers and agents.
11.2 BOARD OF SUPERVISORS. With respect to Sections 5.1 (Amount of Employer
Matching Contributions), 11.8 (Personal Liability), 13.1 (Right to Amend) and
13.2 (Suspension or Termination) the Employer shall act only by resolution, or
pursuant to an enabling resolution of the Board of Supervisors.
11.3 APPOINTMENT OF THE COMMITTEE. The Committee shall be the Benefits
Administration Committee of the Company.
11.4 COMPENSATION, EXPENSES. All proper expenses required for the
administration of the Plan incurred by the Committee, the Employer, an
Investment Manager or the Trustee for accounting, legal and other professional,
consulting or technical services, including fees and expenses of the Trustee or
any Investment Manager shall be paid by the Trust.
11.5 COMMITTEE ACTIONS, AGENTS. The Committee may appoint such agents, who
need not be members of the Committee, as it may deem necessary for the effective
performance of its duties and may delegate to such agents such powers and duties
as the Committee may deem expedient or appropriate.
Any action of the Committee, including but not by way of limitation,
instructions to the Trustee, shall be evidenced by the signature of a member who
has been so authorized by the Committee to sign for it, and the Trustee shall be
fully protected in acting thereon. A certificate of the secretary or an
assistant secretary of the Committee setting forth the name of the members
thereof shall be sufficient evidence at all times as to the persons then
constituting the Committee.
11.6 COMMITTEE MEETINGS. The Committee shall hold meetings upon such
notice, at such time and place as they may determine. The Committee shall act by
a majority of its members at the time in office and such action may be taken
from time to time by a vote at a meeting or in writing without a meeting. A
majority of the members of the Committee at the time in office shall constitute
a quorum for the transaction of business.
11.7 AUTHORITY AND DUTIES OF THE COMMITTEE. The Committee may from time to
time establish rules for the administration of the Plan. The Committee shall
have the exclusive right to interpret the Plan and to decide any matters arising
thereunder in connection with the administration of the Plan. It shall endeavor
to act by general rules so as not to discriminate in favor of any person. Its
decisions and the records of the Committee shall be conclusive and binding upon
the Employer, Members and all other persons having an interest under the Plan.
No member of the Committee shall be disqualified from exercising the powers and
discretion herein conferred by reason of the fact that the exercise of any such
power or discretion may affect the payment of benefits to such member under the
Plan; however, no member may vote on a matter relating exclusively to such
member. To the extent that it is administratively feasible, the period of notice
required for Members' elections to commence, change or suspend contributions
hereunder or to make or change investment elections for either future
contributions or existing accounts may be relaxed, reduced or eliminated by the
Committee in accordance with uniform and nondiscriminatory rules.
The Committee shall keep or cause to be kept all records and other data as
may be necessary for the administration of the Plan.
11.8 PERSONAL LIABILITY. To the extent not contrary to the provisions of
ERISA, no member of the Committee, officer, supervisor or employee of an
Employer shall be personally liable for acts done in good faith hereunder unless
resulting from such member's own negligence or willful misconduct. Each such
member of the Committee, officer and supervisor shall be indemnified by the
Employer against expenses reasonably incurred by such member in connection with
any action to which he may be a party by reason of such member's
responsibilities hereunder, except in relation to matters as to which such
member shall be adjudged in such action to be liable for negligence or
misconduct in the performance of such member's duty. However, nothing in this
Plan shall be deemed to relieve any person who is a fiduciary under the Plan for
purposes of ERISA from any responsibility or liability which such Act shall
impose upon such member.
11.9 DEALINGS BETWEEN COMMITTEE AND INDIVIDUAL MEMBERS. Any notice required
to be given to, or any document required to be filed with, the Committee will be
properly given or filed if mailed by registered or certified mail, postage
prepaid, or delivered to the Benefits Administration Committee, c/o Suburban
Propane LP, 1 Suburban Plaza, 240 Route 10 West, P.O. Box 206, Whippany, New
Jersey 07981, or delivered as the Committee may hereafter from time to time
prescribe.
The Committee shall make available to such Member for examination, such of
its records as pertain to the benefits to which such Member shall be entitled
under the Plan.
11.10 INFORMATION TO BE SUPPLIED BY THE EMPLOYER. The Employer shall
provide the Committee or its delegate with such information as it shall from
time to time need in the discharge of its duties.
11.11 RECORDS. The regularly kept records of the Committee and the Employer
shall be conclusive evidence of the Credited Service and Service of an Employee,
the Employee's Compensation, age, marital status, status as an Employee, and all
other matters contained therein applicable to this Plan; provided that an
Employee may request a correction in the record of age or any other disputed
fact at any time prior to retirement. Such correction shall be made if within 90
days after such request the Employee furnishes the Committee in support thereof
documentary proof of age or the other disputed fact satisfactory to the
Committee.
11.12 FIDUCIARY CAPACITY. Any person or group of persons may serve in more
than one fiduciary capacity with respect to the Plan.
11.13 FIDUCIARY RESPONSIBILITY. If a Plan fiduciary acts in accordance with
ERISA, Title I, Subtitle B Part 4 in determining that a Member's spouse has
consented to the naming of a Beneficiary other than the spouse or that the
consent of the Member's spouse may not be obtained because there is no spouse,
the spouse cannot be located or other circumstances prescribed by the Secretary
of the Treasury by regulations, then to the extent of payments made pursuant to
such consent, revocation or determination, the Plan and its fiduciaries shall
have no further liability.
11.14 CLAIM PROCEDURE.
(a) Each Member or Beneficiary ("Claimant") may submit an application
for benefits ("Claims") to the Committee or to such other person as may be
designated by the Committee in writing in such form as is provided or
approved by the Committee. A Claimant shall have no right to seek review of
a denial of benefits, or to bring any action in any court to enforce a
Claim prior to filing a Claim and exhausting all rights to review in
accordance with this Section.
When a Claim has been filed properly, such Claim shall be evaluated and the
Claimant shall be notified of the approval or the denial of the Claim within
ninety (90) days after the receipt of such Claim unless special circumstances
require an extension of time for processing the claim. If such an extension of
time for processing is required, written notice of the extension shall be
furnished to the Claimant prior to the termination of the initial ninety (90)
day period, which notice shall specify the special circumstances requiring an
extension and the date by which a final decision will be reached (which date
shall not be later than one hundred and eighty (180) days after the date on
which the Claim was filed). A Claimant shall be given a written notice in which
the Claimant shall be advised as to whether the Claim is granted or denied, in
whole or in part. If a Claim is denied, in whole or in part, the notice shall
contain (1) the specific reasons for the denial, (2) references to pertinent
Plan provisions upon which the denial is based, (3) a description of any
additional material or information necessary to perfect the Claim and an
explanation of why such material or information is necessary, and (4) the
Claimant's rights to seek review of the denial.
(b) If a Claim is denied, in whole or in part, the Claimant shall have
the right to (i) request that the Committee (or such other person as shall
be designated in writing by the Committee) review the denial, (ii) review
pertinent documents, and (iii) submit issues and comments in writing,
provided that the Claimant files a written request for review with the
Committee within sixty (60) days after the date on which the Claimant
received written notification of the denial. Within sixty (60) days after a
request for review is received, the review shall be made and the Claimant
shall be advised in writing of the decision on review, unless special
circumstances require an extension of time for processing the review, in
which case the Claimant shall be given a written notification within such
initial sixty (60) day period specifying the reasons for the extension and
when, such review shall be completed within one hundred and twenty (120)
days after the date on which the request for review was filed. The decision
on review shall be forwarded to the Claimant in writing and shall include
specific reasons for the decision and references to Plan provisions upon
which the decision is based. A decision on review shall be final and
binding on all persons for all purposes. If a Claimant shall fail to file a
request for review in accordance with the procedures herein outlined, such
Claimant shall have no rights to review and shall have no right to bring
action in any court and the denial of the Claim shall become final and
binding on all persons for all purposes.
ARTICLE XII
OPERATION OF THE TRUST FUND
12.1 TRUST FUND. All assets of the Plan shall be held in trust as a Trust
Fund for the exclusive benefit of Members and their Beneficiaries, and no part
of the corpus or income shall be used for or diverted to any other purpose. No
person shall have any interest in or right to any part of the Trust Fund, except
to the extent provided in the Plan.
12.2 TRUSTEE. All contributions to the Plan shall be paid to a Trustee or
Trustees which shall be appointed from time to time by the Company by
appropriate instrument with such powers in the Trustee as to control and
disbursement of the funds as the Employer shall approve and as shall be in
accordance with the Plan. The Company may remove any Trustee at any time, upon
reasonable notice and upon such removal or upon the resignation of any Trustee
the Company shall designate a successor Trustee.
12.3 INVESTMENT MANAGER. In accordance with the terms of the trust
agreement, the Company may appoint one or more Investment Managers (individuals
and/or other entities), who may include the Trustee and who are collectively
referred to herein as the Investment Manager, to direct the investment and
reinvestment of part or all of the Plan's funds that are not invested in
Employer Securities. The Company may change the appointment of the Investment
Manager from time to time.
12.4 PURCHASE AND HOLDING OF SECURITIES. As soon as convenient after
receiving contributions, the Trustee shall:
(a) in the case of contributions which are to be invested in the Fixed
Income Fund, purchase group annuity contracts or make other investment
arrangements that in the aggregate provide a stable rate of return.
(b) in the case of contributions which are to be invested in any of
the other funds purchase securities for each Fund as the Trustee deems
advisable, and register such stock and securities in the name of the
Trustee or its nominee;
12.5 VOTING OF EMPLOYER SECURITIES. For shareholders' meetings Members
shall be furnished proxy material and a form for instructing the Trustee how to
vote the Employer Securities represented by units credited to their Accounts,
and the Trustee shall vote or otherwise exercise shareholder rights with respect
to such Employer Securities as instructed. The Trustee shall hold such
instructions in confidence and shall not divulge them to anyone, including, but
not limited to, the Employer, its officers or employees.
Shares for which no instructions are received shall be voted by the Trustee
in the same proportion as those shares for which instructions have been
received. With respect to the exercise of shareholder's rights to sell or retain
the Employer Securities represented by units credited to a Member's Accounts in
extraordinary instances involving an unusual price and terms and conditions for
such securities such as a tender offer, the Trustee shall act in accordance with
the Committee's instructions.
12.6 DISBURSEMENT OF FUNDS. The funds held by the Trustee shall be applied,
in the manner determined by the Committee, to the payment of benefits to such
persons as are entitled thereto in accordance with the Plan.
The Committee shall determine the manner in which the funds of the Plan
shall be disbursed in accordance with the Plan, including the form of voucher or
warrant to be used in authorizing disbursements and the qualification of persons
authorized to approve and sign the same and any other matters incident to the
disbursement of such funds.
12.7 EXCLUSIVE BENEFIT OF MEMBERS. All contributions under the Plan shall
be paid to the Trustee and deposited in the Trust Fund and shall be held,
managed and distributed solely in the interest of the Members and beneficiaries
for the exclusive purpose of (1) providing benefits to Members and beneficiaries
and (2) defraying reasonable administrative expenses of the Plan and the Trust,
to the extent such expenses are not paid by the Employer and Affiliates provided
that:
(a) if, and to the extent, a deduction for a contribution under
Section 404 of the Code is disallowed, contributions conditioned upon
deductibility shall be returned to the Employer or Affiliate within one
year after the disallowance of the deduction; and
(b) if, and to the extent, a contribution is made through a good faith
mistake of fact, such contribution shall be returned to the Employer within
one year of the payment of the contribution.
ARTICLE XIII
AMENDMENT, TERMINATION AND MERGER
13.1 RIGHT TO AMEND. The Employer reserves the right at any time, and from
time to time, to modify or amend in whole or in part the provisions of the Plan,
but no such amendment shall divest any Member of any amount previously credited
to a Member's Accounts or, except to the extent permitted by the Secretary of
the Treasury by regulation, shall eliminate with respect to a Member's Account
balance at the time of such amendment an optional form of benefit, and further
provided that no part of the assets of the Trust Fund shall, by reason of any
modification or amendment, be used for or diverted to, purposes other than for
the exclusive benefit of Members and their Beneficiaries, under the Plan.
13.2 SUSPENSION OR TERMINATION. The Employer may at any time suspend
Employer Matching Contributions and Compensation Deferral Contributions in whole
or in part. The suspension of Employer Matching Contributions and Compensation
Deferral Contributions shall not in itself constitute a termination of the Plan.
The Employer may at any time terminate or discontinue the Plan by filing with
the Committee a certified copy of the resolution of its Board of Supervisors
authorizing the termination or discontinuance.
If the Plan is terminated, no further contributions shall be made by the
Employer and the Account of each Member shall be applied for the Member's (or
the Member's Beneficiary's) benefit either by payment in cash or in kind, or by
the continuation of the Trust Fund in accordance with the trust instrument and
the provisions of the Plan as though the Plan were otherwise in full force and
effect.
13.3 MERGER, CONSOLIDATION OF TRANSFER. In the case of any merger, or
consolidation with, or transfer of assets or liabili-ties to any other plan,
each Member in the Plan would (if the Plan then terminated) receive a benefit
immediately after the merger, consolidation, or transfer which is equal to or
greater than the benefit such Member would have been entitled to receive
immediately before the merger consolidation, or transfer (if the Plan had then
terminated).
ARTICLE XIV
MISCELLANEOUS
14.1 UNIFORM ADMINISTRATION. Whenever, in the administration of the Plan,
any action is required by the Employer or the Committee, including, but not by
way of limitation, action with respect to eligibility or classification of
employees, contributions or benefits, such action shall be uniform in nature as
applied to all persons similarly situated and no such action shall be taken
which will discriminate in favor of Members who are officers or significant
shareholders of the Employer or persons whose principal duties consist of
supervising the work of other employees or highly compensated Members.
14.2 PAYMENT DUE AN INCOMPETENT. If the Committee determines that any
person to whom a payment is due hereunder is incompetent by reason of physical
or mental disability, the Committee shall have power to cause the payments
becoming due to such person to be made to another for the benefit of the
incompetent, without responsibility of the Committee or the Trustee to see to
the application of such payment. Payments made in accordance with such power
shall operate as a complete discharge of all obligations on account of such
payment of the Committee, the Trustee and the Trust Fund.
14.3 SOURCE OF PAYMENTS. All benefits under the Plan shall be paid or
provided solely from the Trust Fund and the Employer assumes no liability or
responsibility therefor, except to the extent required by law.
14.4 PLAN NOT A CONTRACT OF EMPLOYMENT. Nothing herein contained shall be
deemed to give any Eligible Employee or Member the right to be retained in the
employ of the Employer or to interfere with the right of the Employer to
discharge any Eligible Employee or Member at any time.
14.5 APPLICABLE LAW. Except to the extent governed by Federal law the Plan
shall be administered and interpreted in accordance with the laws of the State
of New York.
14.6 UNCLAIMED AMOUNTS. It shall be the duty and responsibility of a Member
or a Beneficiary to keep the Committee apprised of such Member's whereabouts and
of such Member's current mailing address. Unclaimed amounts shall consist of the
amounts of the Accounts of a retired, deceased or terminated Member which cannot
be distributed because of the Committee's inability, after a reasonable search,
to locate a Member or a Member's Beneficiary within a period of two (2) years
after the payment of benefits becomes due. Unclaimed amounts for a Plan Year
shall be Forfeitures for the Plan Year in which such two-year period shall end.
Such Forfeitures shall be treated as provided in Section 5.2.
If an unclaimed amount is subsequently properly claimed by the Member or
the Member's Beneficiary ("Reclaimed Amount") and unless an Employer in its
discretion makes a contribution to the Plan for such year in an amount
sufficient to pay such Reclaimed Amount to the extent that the Reclaimed Amount
originated as an unclaimed amount, it shall be charged against Forfeitures for
the Plan Year and, to the extent such Forfeitures are not sufficient, shall be
treated as an expense of the Trust Fund.
ARTICLE XV
TOP HEAVY PROVISIONS
15.1 APPLICATION. The provisions of this Article shall apply for any
top-heavy Plan Year notwithstanding anything to the contrary in the Plan.
15.2 MINIMUM CONTRIBUTION. For any Plan Year which is a top--heavy Plan
Year, the Employer shall contribute to the Plan a minimum contribution on behalf
of each Member who is not a Key Employee for such year and who is employed on
the last day of the Plan Year, regardless of whether or not the Member has
elected to make Compensation Deferral Contributions for the year. The minimum,
contribution shall, in general, equal 3 percent of each such Member's
Compensation, but shall be subject to the following special rules:
(a) If the largest contribution on behalf of a Key Employee for such
year, taking into account Compensation Deferral Contributions and
discretionary Employer Matching Contributions, is equal to less than 3
percent of the Key Employee's Compensation, such lesser percentage shall be
the minimum contribution percentage for Members who are not Key Employees.
This special rule shall not apply, however, if the Plan is required to be
included in an aggregation group and enables a defined benefit plan to meet
the requirements of ss.ss. 401(a) (4) or 410.
(b) No minimum contribution will be required with respect to a Member
who is also covered by another top--heavy defined contribution plan of a
Related Employer (as defined in section 414(b) or (c)) which meets the
vesting requirements of ss. 416(b) and under which the Participant receives
the top-heavy minimum contribution.
(c) If a Participant is also covered by a top-heavy defined benefit
plan of an Affiliated Employer, "5%" shall be substituted for "3%" above in
determining the minimum contribution.
(d) The minimum contribution with respect to any Member who is not a
Key Employee for the particular year will be offset by any discretionary
Employer Matching Contribution, but not any other type of contribution
otherwise made for the Member's benefit for such year.
(e) If additional minimum contributions are required under this
Section, such contributions shall be credited to the Member's Employer
Matching Contributions Account.
(f) A minimum contribution required under this Section shall be made
even though, under other plan provisions, the Member would not otherwise be
entitled to receive an allocation for the year because of (i) the Member's
failure to be an Eligible Employee as of the last day of the Plan Year, or
(ii) the Member's failure to make Compensation Deferral Contributions to
the Plan, or (iii) the Member's Compensation is less than a stated amount.
15.3 ADJUSTMENT TO LIMITATION ON BENEFITS. For purposes of the S415 limits,
the definitions of "defined contribution plan fraction" and "defined benefit
plan fraction" contained therein shall be modified, for any Plan Year which is a
top-heavy Plan Year, by substituting "1.0" for "1.25" in Code Section 415(e)(2)
(B) and 415(e)(3)(B).
15.4 DEFINITIONS. For purposes of these top-heavy provisions, the following
terms have the following meanings:
(a) "key employee" means a key employee described in Code Section
416(i) (1), and "non-key employee" means any employee who is not a key
employee (including employees who are former key employees);
(b) "top-heavy plan year" means a Plan Year if any of the following
conditions exist:
(i) the top--heavy ratio for the plan exceeds 60%, and the Plan
is not part of any required aggregation group or permissive
aggregation group of plans;
(ii) this Plan is a part of a required aggregation group of plans
but not part of a permissive aggregation group and the top-heavy ratio
for the group of plans exceeds 60%; or
(iii)the Plan is not part of a required aggregation group and
part of a permissive aggregation group of plans and the top-heavy
ratio for the permissive aggregation group exceeds 60%.
(c) "top--heavy ratio":
(i) If the Employer maintains one or more defined contribution
plans and the Employer has not maintained any defined benefit plan
which during the 5-year period ending on the determina-tion date(s)
has or has had accrued benefits, the top--heavy ratio for the Plan
alone or for the required or permissive aggregation group as
appropriate is a fraction, the numerator of which is the sum of the
account balances of all key employees on the determination date(s)
(including any part of any account balance distributed in the 5-year
period ending on the determination date(s)), and the denominator of
which is the sum of all account balances (including any part of an
account balance distributed in the 5-year period ending on the
determination date(s)), both computed in accordance with Code Section
416. Both the numerator and the denominator of the top--heavy ratio
are increased to reflect any contribution not actually made as of the
determination date, but which is required to be taken into account on
that date under Code Section 416.
(ii) If the Employer maintains one or more defined contribution
plans and the Employer maintains or has maintained one or more defined
benefit plans which during the 5-year period ending on the
determination date(s) has or has had any accrued benefits, the
top--heavy ratio for any required or permissive aggregation group as
appropriate is a fraction the numerator of which is the sum of the
account balances under the aggregated defined contribution plan or
plans for all key employees, determined in accordance with (i) above,
and the present value of accrued benefits under the aggregated defined
benefit plan or plans for all key employees as of the determination
date(s), and the denominator of which is the sum of the account
balances under the aggregated defined contribution plan or plans for
all participants, determined in accordance with Code Section 416.
The accrued benefits under the defined benefit plan in both the numerator
and denominator of the top--heavy ratio are increased for any distribution of an
accrued benefit made in the 5--year period ending on the determination date.
(iii) For purposes of (i) and (ii) above, the value of account
balances and the present value of accrued benefits will be determined
as for the most recent valuation date that falls within or ends with
the 12-month period ending, on the determination date, except as
provided in Section 416 for the first and second plan years of a
defined benefit plan. The account balances and accrued benefits of a
Member (A) who is not a key employee but who was a key employee in a
prior year, or (B) who has not been credited with at least one Hour of
Service with any employer maintaining the plan at any time during the
5-year period ending on the determination date will be disregarded.
The calculation of the top--heavy ratio, and the extent to which
distributions, rollovers, and transfers are taken into account will be
made in accordance with Code Section 416. Deductible employee
contributions will not be taken into account for purposes of computing
the top-heavy ratio. When aggregating plans, the value of account
balances and accrued benefits will be calculated with reference to the
determination dates that fall within the same calendar year.
(iv) The accrued benefit of a Member other than a key employee
shall be determined under (A) the method, if any, that uniformly
applies for accrual purposes under all defined benefit plans
maintained by the Employer, or (B) if there is no such method, as if
such benefit accrued not more rapidly than the slowest accrual rate
permitted under the fractional rule of code Section 411(b)(1)(C).
(d) The "permissive aggregation group" is the required aggregation
group of plans plus any other plan or plans of the Employer which, when
considered as a group with the required aggregation group, would continue
to satisfy the requirements of Code Sections 401(a)(4) and 410.
(e) The "required aggregation group" is (i) each qualified plan of the
Employer in which at least one key employee participates or participated at
any time during the determination period (regardless of whether the plan
has terminated), and (ii) any other qualified plan of the Employer which
enables a plan described in (i) to meet the requirements of Code Sections
401(a) (4) and 410(b).
(f) For purposes of computing the top--heavy ratio, the "valuation
date" shall be the last day of the applicable plan year.
(g) For purposes of establishing the present value to compute the
top-heavy ratio, any benefit shall be discounted only for mortality and
interest based on the interest and mortality rates specified in defined
benefit plan(s), if applicable.
(h) The term "determination date" means, with respect to the initial
plan year of a plan, the last day of such plan year and, with respect to
any other plan year of a plan, the last day of the preceding plan year of
such plan. The term "applicable determination date" means, with respect to
the plan, the determination date for any plan year of such plan which falls
within the same calendar year as the applicable determination date of the
Plan.
15.5 EFFECT OF CHANGE IN APPLICABLE LEGISLATION OR REGULATION. In the event
that Congress should provide by statute or the Secretary of the Treasury should
provide by regulation a ruling, that the provisions of this Article XV are no
longer necessary for the plan to meet the requirements of Section 401(a) or
other applicable provisions of the Code, such limitations shall become void and
shall no longer apply, without the necessity of further amendment to the Plan.
EXHIBIT 21.1
------------
SUBSIDIARIES OF SUBURBAN PROPANE PARTNERS, L.P.
Suburban Propane, L.P., a Delaware limited partnership
Suburban Sales & Service, Inc., a Delaware corporation
Suburban Holdings, Inc., a Delaware corporation
Gas Connection, Inc., an Oregon corporation
Suburban @ Home, Inc., a Delaware corporation
Suburban Franchising, Inc., a Nevada corporation
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-10197 and No. 333-72972) and Form S-4 (No.
333-95077) of our report dated October 23, 2001 relating to the financial
statements, which appears in the Suburban Propane Partners, L.P.'s Annual Report
on Form 10-K for the year ended September 29, 2001. We also consent to the
incorporation by reference of our report dated October 23, 2001 relating to the
financial statement schedule, which appears in such Annual Report on Form 10-K.
We also consent to the incorporation by reference in such registration
statements of our report dated October 23, 2001 on the financial statements of
Suburban Energy Services Group LLC, which appears in such Annual Report on Form
10-K.
PricewaterhouseCoopers LLP
Florham Park, NJ
December 18, 2001S-2