UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 25, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 16 OF THE SECURITIES EXCHANGE
ACT OF 1934
for the transition period from ______ to ______
Commission File Number: 1-14222
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SUBURBAN PROPANE PARTNERS, L.P.
-------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 22-3410353
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
240 ROUTE 10 WEST, WHIPPANY, NJ 07981
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
(973)887-5300
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for each shorter period that the Registrant
was required to file such reports), and (2) had been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of February 7, 2000: 22,278,587 Common Units
This Report contains a total of 18 pages.
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Part 1 Financial Information PAGE
----
Item 1 - Financial Statements
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
------------------------------------------------
Condensed Consolidated Balance Sheets as of December 25, 1999
and September 25, 1999 3
Condensed Consolidated Statements of Operations for the three
months ended December 25, 1999 and December 26, 1998 4
Condensed Consolidated Statements of Cash Flows for the
three months ended December 25, 1999 and December 26, 1998 5
Condensed Consolidated Statement of Partners' Capital
for the three months ended December 25, 1999 6
Notes to Condensed Consolidated Financial Statements 7-12
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-15
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 15-16
Part 2 Other Information
Item 6 - Exhibits and Reports on Form 8-K 17
Signatures 18
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
- -----------------------------------------------
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
relating to the Partnership's future business expectations and predictions and
financial condition and results of operations. These forward-looking statements
involve certain risks and uncertainties. Important factors that could cause
actual results to differ materially from those discussed in such forward-looking
statements ("cautionary statements") include, among other things: the impact of
weather conditions on the demand for propane; fluctuations in the unit cost of
propane; the ability of the Partnership to compete with other suppliers of
propane and other energy sources; the ability of the Partnership to retain and
acquire customers; the Partnership's ability to implement its expansion strategy
and to integrate acquired businesses successfully; the impact of energy
efficiency and technology advances on the demand for propane; the ability of
management to continue to control expenses; the impact of regulatory
developments on the Partnership's business; and the impact of legal proceedings
on the Partnership's business. 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.
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 25, September 25,
1999 1999
(unaudited) (audited)
--------- ---------
ASSETS
Current assets:
Cash & cash equivalents ..................................................................... $ 9,961 $ 8,392
Accounts receivable, less allowance for doubtful accounts
of $ 2,389 and $2,089, respectively ......................................................... 69,615 37,620
Inventories ................................................................................. 43,866 29,727
Prepaid expenses and other current assets ................................................... 3,753 2,898
--------- ---------
Total current assets ................................................................ 127,195 78,637
Property, plant and equipment, net .............................................................. 373,206 325,224
Net prepaid pension cost ........................................................................ 33,545 33,498
Goodwill & other intangible assets, net ......................................................... 252,253 213,963
Other assets .................................................................................... 2,414 7,898
--------- ---------
Total assets ....................................................................... $ 788,613 $ 659,220
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable ............................................................................ $ 53,827 $ 40,068
Accrued employment and benefit costs ........................................................ 16,431 19,629
Short-term borrowings ....................................................................... - 2,750
Accrued insurance ........................................................................... 5,405 5,120
Customer deposits and advances .............................................................. 15,778 17,774
Accrued interest ............................................................................ 17,300 8,250
Other current liabilities ................................................................... 10,906 9,415
--------- ---------
Total current liabilities ......................................................... 119,647 103,006
Long-term borrowings ............................................................................ 524,572 427,634
Postretirement benefits obligation .............................................................. 34,497 34,394
Accrued insurance ............................................................................... 17,215 18,009
Other liabilities ............................................................................... 7,894 7,791
--------- ---------
Total liabilities ................................................................ 703,825 590,834
--------- ---------
Partners' capital:
Common Unitholders ........................................................................ 83,232 66,342
General Partner ........................................................................... 2,372 2,044
Common Units held in trust, at cost ....................................................... 11,567 10,712
Deferred compensation trust ............................................................... (11,567) (10,712)
Unearned Compensation ..................................................................... (816) --
--------- ---------
Total partners' capital ......................................................... 84,788 68,386
--------- ---------
Total liabilities and partners' capital ......................................... $ 788,613 $ 659,220
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per Unit amounts)
(unaudited)
Three Months Ended
------------------
December 25, December 26,
1999 1998
--------- ---------
Revenues
Propane ..................................................................................... $ 174,008 $ 138,790
Other ....................................................................................... 26,454 22,426
--------- ---------
200,462 161,216
--------- ---------
Costs and expenses
Cost of sales ................................................................................ 102,441 68,871
Operating .................................................................................... 55,289 52,274
Depreciation and amortization ................................................................ 9,006 8,782
General and administrative expenses .......................................................... 6,643 7,326
Gain on sale of assets ....................................................................... (10,328) --
--------- ---------
163,051 137,253
Income before interest expense and
provision for income taxes ................................................................... 37,411 23,963
Interest expense, net ............................................................................ 9,399 7,586
--------- ---------
Income before provision for income taxes ......................................................... 28,012 16,377
Provision for income taxes ....................................................................... 21 7
--------- ---------
Net income ................................................................................... $ 27,991 $ 16,370
========= =========
General Partner's interest in net income ......................................................... $ 560 $ 327
--------- ---------
Limited Partners' interest in net income ......................................................... $ 27,431 $ 16,043
========= =========
Basic and diluted net income per Unit ............................................................ $ 1.23 $ 0.56
========= =========
Weighted average number of Units outstanding ..................................................... 22,264 28,726
--------- ---------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
------------------
December 25, 1999 December 26, 1998
----------------- -----------------
Cash flows from operating activities:
Net income ................................................................................. $ 27,991 $ 16,370
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation .......................................................................... 7,072 6,898
Amortization .......................................................................... 1,934 1,884
(Gain) on disposal of property, plant and
equipment ........................................................................... (10,544) (88)
Changes in operating assets and liabilities, net of
acquisitions and dispositions:
(Increase) in accounts receivable ..................................................... (29,384) (18,947)
(Increase) in inventories ............................................................. (6,893) (277)
(Increase) in prepaid expenses and other
current assets ....................................................................... (805) (610)
Increase in accounts payable ......................................................... 13,759 2,474
(Decrease) in accrued employment
and benefit costs .................................................................... (3,159) (4,918)
Increase in accrued interest .......................................................... 9,050 8,114
(Decrease) in other accrued liabilities ............................................... (1,525) (1,578)
Other noncurrent assets .................................................................... (145) (1,033)
Deferred credits and other noncurrent liabilities .......................................... (638) (771)
-------- --------
Net cash provided by operating activities ........................................ 6,713 7,518
-------- --------
Cash flows from investing activities:
Capital expenditures ...................................................................... (4,579) (2,936)
Acquisitions .............................................................................. (97,914) (109)
Proceeds from sale of property, plant and equipment, net .................................. 17,862 944
-------- --------
Net cash (used in) investing activities ......................................... (84,631) (2,101)
-------- --------
Cash flows from financing activities:
Long-term borrowings (net) ................................................................ 96,988 (47)
Short-term borrowings/(repayments) (net) .................................................. (2,750) --
Credit agreement expenses ................................................................. (3,123) --
Partnership distribution .................................................................. (11,628) (11,001)
-------- --------
Net cash provided by (used in) financing activities ............................ 79,487 (11,048)
Net increase/(decrease) in cash and cash equivalents .......................................... 1,569 (5,631)
Cash and cash equivalents at beginning of period ................................................ 8,392 59,819
======== ========
Cash and cash equivalents at end of period ...................................................... $ 9,961 $ 54,188
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest .................................................................... $ 199 $ 108
======== ========
The accompanying note are an integral part of these condensed consolidated
financial statements.
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(in thousands)
(unaudited)
Common Deferred Total
Number of General Units in Compensation Unearned Partners'
Common Units Common Partner Trust Trust Compensation Capital
------------ ------ ------- ----- ----- ------------ -------
Balance at September 25, 1999 ..... 22,236 $ 66,342 $ 2,044 $ 10,712 $ (10,712) $ -- $ 68,386
Partnership Distribution ........... (11,396) (232) (11,628)
Grants issued under Compensation
Deferral Plan ...................... 43 855 855 (855) (855)
Amortization of Compensation
Deferral Plan ...................... 39 39
Net income ........................ -- 27,431 560 -- -- -- 27,991
------ -------- -------- -------- ------------- ----------- --------
Balance at December 25, 1999 ..... 22,279 $ 83,232 $ 2,372 $ 11,567 $ (11,567) $ (816) $ 84,788
====== ======== ======== ======== ============= =========== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. PARTNERSHIP ORGANIZATION AND FORMATION
- -- --------------------------------------
Suburban Propane Partners, L.P. (the "Partnership") and its subsidiary, Suburban
Propane, L.P. (the "Operating Partnership"), were formed on December 19, 1995 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, the Service Company and a corporate operating entity
subsequently acquired by the Operating Partnership are collectively referred to
hereinafter as the "Partnership Entities". The Operating Partnership and the
Service Company commenced operations on March 5, 1996 (the "Closing Date") upon
consummation of an initial public offering.
On May 26, 1999, the Partnership completed a recapitalization (the
"Recapitalization") which included the redemption of all limited partner
interests held by the Former General Partner, Suburban Propane GP, Inc. a
wholly-owned subsidiary of Millennium Chemicals, Inc., and the substitution of a
new general partner, Suburban Energy Services Group LLC which, is owned by
senior management of the Partnership.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -- --------------------------------------------------------------------
BASIS OF PRESENTATION. The condensed consolidated financial statements include
the accounts of the Partnership Entities. All significant intercompany
transactions and accounts have been eliminated. The accompanying condensed
consolidated financial statements are unaudited and have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission. They include all adjustments which the Partnership considers
necessary for a fair statement of the results for the interim period presented.
Such adjustments consisted only of normal recurring items unless otherwise
disclosed. These financial statements should be read in conjunction with the
Partnership's Annual Report on Form 10-K for the fiscal year ended September 25,
1999, including management's discussion of financial results contained therein.
Due to the seasonal nature of the Partnership's propane business, the results of
operations for interim periods are not necessarily indicative of the results to
be expected for a full year.
FISCAL PERIOD. The Partnership's fiscal periods end on the Saturday nearest the
end of the quarter.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS. The Partnership routinely uses propane futures and
forward contracts to reduce the risk of future price fluctuations and to help
ensure supply during periods of high demand. Gains and losses on futures and
forward contracts designated as hedges are deferred and recognized in cost of
sales as a component of the product cost for the related hedged transaction. In
the Condensed Consolidated Statement of Cash Flows, cash flows from qualifying
hedges are classified in the same category as the cash flows from the items
being hedged.
INVENTORIES. Inventories are stated at the lower of cost or market. Cost
is determined using a weighted average method for propane and a standard
cost basis for appliances, which estimates average cost.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at cost.
Depreciation of property, plant and equipment is computed using the
straight-line method over the estimated service lives, which range from three to
forty years.
Accumulated depreciation at December 25, 1999 and September 25, 1999 was
$173,571 and $168,538, respectively.
GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill and other intangible assets
are comprised of the following:
DECEMBER 25, 1999 SEPTEMBER 25, 1999
----------------- ------------------
Goodwill $279,213 $242,230
Debt origination costs 8,024 8,024
Deferred credit agreement costs 3,123 -
Other, principally noncompete agreements 4,978 4,948
-------- --------
295,338 255,202
Less: Accumulated amortization 43,085 41,239
-------- --------
$252,253 $213,963
======== ========
INCOME TAXES. As discussed in Note 1, the Partnership Entities consist of two
limited partnerships, the Partnership and the Operating Partnership, and two
corporate entities, the Service Company and Gas Connection, Inc. For federal and
state income tax purposes, the earnings attributed to the Partnership and
Operating Partnership are included in the tax returns of the individual
partners. As a result, no recognition of income tax expense has been reflected
in the Partnership's consolidated financial statements relating to the earnings
of the Partnership and Operating Partnership. The earnings attributed to the
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 INCOME (LOSS) PER UNIT. Prior to May 26, 1999, basic net income (loss) per
limited partner Unit was computed by dividing net income (loss), after deducting
the General Partner's 2% interest, by the weighted average number of outstanding
Common Units and Subordinated Units. Diluted net income (loss) per limited
partner Unit was computed by dividing net income (loss), after deducting the
General Partner's 2% interest, by the weighted average number of outstanding
Common Units and Subordinated Units and the weighted average number of
Restricted Units granted under the Restricted Unit Award Plan which were to vest
over time.
Subsequent to May 26, 1999, basic and diluted net income (loss) per limited
partner Unit is computed by dividing net income (loss), after deducting the
General Partner's 2% interest, by the weighted average number of outstanding
Common Units.
NEW ACCOUNTING STANDARD. In June 1998, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("Statement No.
133"). Statement No. 133 requires entities to record derivatives as assets or
liabilities on the balance sheet and to measure them at fair value. FASB has
delayed this standard's effective date for one year and, accordingly, it will
be adopted by the Partnership in fiscal year 2001. Management is currently
evaluating the impact this statement may have on the Partnership's financial
statements.
RECLASSIFICATIONS. Certain prior period balances have been reclassified to
conform with the current period presentation.
3. DISTRIBUTIONS OF AVAILABLE CASH
- -- -------------------------------
The Partnership makes distributions to its partners 45 days after the end of
each fiscal quarter in an aggregate amount equal to its Available Cash for such
quarter. Available Cash generally means all cash on hand at the end of the
fiscal quarter less the amount of cash reserves established by the Board of
Supervisors in its reasonable discretion for future cash requirements. The
Partnership's Revolving Credit Agreement (See Note 5 - Long-Term Debt and
Revolving Credit Agreement) includes a $22,000 subfacility to support the
Minimum Quarterly Distribution on Common Units. No drawings have been made under
this subfacility.
4. COMMITMENTS AND CONTINGENCIES
- -- -----------------------------
The Partnership leases certain property, plant and equipment for various periods
under noncancelable leases. Rental expense under operating leases was $4,878 for
the three months ended December 25, 1999.
The Partnership effectively is self-insured for general and product, workers'
compensation and automobile liabilities up to predetermined amounts above which
third party insurance applies. At December 25, 1999, accrued insurance
liabilities amounted to $22,620, representing the total estimated losses under
these self-insurance programs. These liabilities represent the gross estimated
losses as no claims or lawsuits, individually or in the aggregate, were
estimated to exceed the Partnership's deductibles on its insurance policies.
The Partnership is also involved in various legal actions which have arisen in
the normal course of business including those relating to commercial
transactions and product liability. It is the opinion of management that the
ultimate resolution of these matters will not have a material adverse effect on
the Partnership's financial position or future results of operations, after
considering its self-insurance liability for known and unasserted self-insurance
claims.
5. LONG-TERM DEBT AND REVOLVING CREDIT AGREEMENT
- -- ---------------------------------------------
On the Closing Date, the Operating Partnership issued $425,000 of Senior Notes
with an annual interest rate of 7.54%. The Operating Partnership's obligations
under the Senior Note Agreement are unsecured and rank on an equal and ratable
basis with the Operating Partnership's obligations under the Revolving Credit
Agreement discussed below. The Senior Notes will mature June 30, 2011. The Note
Agreement requires that the principal be paid in equal annual installments of
$42,500 starting June 30, 2002.
On November 10, 1999, in connection with the acquisition of SCANA (See Note 7 -
Acquisition and Divestiture), the Partnership replaced its former Bank Credit
Facilities with a new $175,000 Revolving Credit Agreement with a syndicate of
banks led by First Union National Bank as Administrative Agent. The Revolving
Credit Agreement consists of a $100,000 acquisition facility and a $75,000
working capital facility which expire on March 31, 2001. Borrowings under the
Revolving Credit Agreement bear interest at a rate based upon either LIBOR plus
a margin, First Union National Bank's prime rate or the Federal Funds rate plus
1/2 of 1%. An annual fee ranging from .25% to .50%, based upon certain financial
tests, is payable quarterly whether or not borrowings occur. As of December 25,
1999, such fee was .50%.
The Revolving Credit Agreement provides the Partnership, at the Partnership's
option, the right to extend the expiration date from March 31, 2001 to December
31, 2001 provided that the maximum ratio of consolidated total indebtedness to
EBITDA (as defined in the Revolving Credit Agreement) will decrease from 5.10 to
1.00 to 4.75 to 1.00 during the nine month extension period.
As of December 25, 1999, $97,000 was outstanding under the Revolving Credit
Agreement resulting from the acquisition of SCANA (See Note 7 - Acquisition and
Divestiture). As of September 25, 1999, $2,750 was outstanding under the former
Bank Credit Facilities.
The Senior Note Agreement and Revolving Credit Agreement contain various
restrictive and affirmative covenants applicable to the Operating Partnership,
including (i) maintenance of certain financial tests (including maintaining
minimum net worth of $50,000), (ii) restrictions on the incurrence of additional
indebtedness, and (iii) restrictions on certain liens, investments, guarantees,
loans, advances, payments, mergers, consolidations, distributions, sales of
assets and other transactions.
6. 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 receive all or a portion of their unvested Common Units granted under
the Partnership's 1996 Restricted Unit Award Plan prior to the time their Common
Units were substantially certain to vest in exchange for the right to
participate in and receive certain payments under the Deferral Plan. Senior
management of the Partnership surrendered 553,896 Restricted Units representing
substantially all of their Restricted Units, before they vested in exchange for
the right to participate in the Deferral Plan. The Partnership deposited into a
trust on behalf of these individuals 553,896 Common Units.
The Deferral Plan also allows eligible employees to defer receipt of Common
Units that may be subsequently granted by the Partnership under the Deferral
Plan. The Common Units granted under the Deferral Plan and related Partnership
distributions are subject to forfeiture provisions such that (a) 100% of the
Common Units would be forfeited if the grantee shall cease to be employed by the
Partnership within three years of the date of the Recapitalization, (b) 75%
would be forfeited if the grantee shall cease to be employed after the third
anniversary, but prior to the fourth anniversary of the Recapitalization date
and (c) 50% would be forfeited if the grantee shall cease to be employed after
the fourth anniversary, but prior to the fifth anniversary. 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. 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
three months ended December 25, 1999, the Partnership granted 42,925 Common
Units to eligible employees. During the three months ended December 25, 1999,
the Partnership amortized $39 of unearned compensation.
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. The value of the Common Units deposited in the trust and the
related deferred compensation trust liability are reflected in the accompanying
consolidated balance sheet at December 25, 1999 as components of partners'
capital.
7. ACQUISITION AND DIVESTITURE
- -- ---------------------------
On November 8, 1999, the Partnership acquired the assets of SCANA Propane Gas,
Inc., SCANA Propane Storage, Inc., SCANA Propane Supply, Inc., USA Cylinder
Exchange, Inc., and C&T Pipeline, LLC from SCANA Corp. 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 which is connected to the Dixie Pipeline by the 62
mile propane pipeline owned by C&T Pipeline, LLC. The Partnership borrowed
$97,000 under the acquisition facility of its Revolving Credit Agreement to fund
the acquisition, consisting of $86,000 for the SCANA assets, $8,600 in acquired
working capital and $2,400 in related bank fees. The acquisition has been
accounted for using the purchase method of accounting. Accordingly, the
accompanying balance sheet reflects a preliminary purchase price allocation to
the assets and liabilities based on their estimated values, with the balance of
$36,893 being recorded as goodwill and amortized over forty years on a
straight-line basis.
On December 3, 1999, the Partnership sold 23 customer service centers,
principally located in Georgia, for cash proceeds of $18,000 plus working
capital. The Partnership realized a gain of $10,328 as a result of the
transaction.
8. SUBSEQUENT EVENT - COMMON UNIT DISTRIBUTION
- -- -------------------------------------------
On January 21, 2000, the Partnership announced a quarterly distribution of
$.5250 per Common Unit for the first quarter of fiscal 2000 consisting of the
Minimum Quarterly Distribution of $.50 per Common Unit and an additional
distribution of $.025 per Common Unit payable on February 8, 2000 to holders of
record on January 28, 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 25, 1999
- ------------------------------------
COMPARED TO THREE MONTHS ENDED DECEMBER 26, 1998
- ------------------------------------------------
REVENUES
Revenues increased 24.3% or $39.2 million to $200.5 million for the three months
ended December 25, 1999 compared to $161.2 million for the three months ended
December 26, 1998. The overall increase is primarily attributable to higher
propane costs resulting in higher sales prices to customers, an increase in
retail volumes and an increase in the sales of appliances and related products.
Propane sold to retail customers increased 2.1% or 2.9 million gallons to 140.5
million gallons, compared to 137.6 million gallons in the prior period's
quarter. The increase in retail gallons is principally due to the acquisition of
SCANA in the current quarter. Temperatures nationwide during the quarter
continued to be unusually warm, averaging 11% warmer than normal as compared to
12% warmer than normal in the prior period's quarter. Wholesale gallons sold and
gallons sold related to price risk management activities increased 31.3% or 13.6
million gallons to 57.0 million gallons, principally resulting from increased
market opportunities attributable to a more volatile propane pricing
environment.
OPERATING EXPENSES
Operating expenses increased 5.8% or $3.0 million to $55.3 million for the three
months ended December 25, 1999 compared to $52.3 million for the three months
ended December 26, 1998. The increase in operating expenses is principally
attributable to increased payroll and benefit costs resulting from the SCANA
acquisition and, to a lesser extent, higher vehicle fuel costs.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased 9.3% or $0.7 million to $6.6
million for the three months ended December 25, 1999 compared to $7.3 million
for the three months ended December 26, 1998. The decrease is primarily
attributable to lower information systems expenses in the current quarter.
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES AND EBITDA
Results for the first quarter include a $10.3 million gain from the sale of
assets. Excluding this one-time item, income before interest expense and income
taxes increased $3.1 million to $27.1 million in the three months ended December
25, 1999 compared to $24.0 million in the prior year's first quarter. EBITDA,
excluding the one-time item, increased $3.3 million or 10.2% to $36.1 million.
The increases in income before interest expense and income taxes and in EBITDA
are primarily attributable to higher gross profit of $5.7 million due to higher
appliances and related product sales and an increase in gallons sold, partially
offset by higher operating 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) and is not in accordance with
or superior to generally accepted accounting principles but provides additional
information for evaluating the Partnership's ability to distribute the Minimum
Quarterly Distribution. Because EBITDA excludes some, but not all, items that
affect net income and this measure may vary among companies, the EBITDA data
presented above may not be comparable to similarly titled measures of other
companies.
INTEREST EXPENSE
Net interest expense increased $1.8 million to $9.4 million in the three months
ended December 25, 1999 compared with $7.6 million in the prior period. The
increase is attributable to interest expense on borrowings for the acquisition
of SCANA.
HEDGING
The Partnership engages in hedging transactions to reduce the effect of price
volatility on its product costs and to help ensure the availability of propane
during periods of short supply. The Partnership is currently a party to propane
futures contracts on the New York Mercantile Exchange and enters into agreements
to purchase and sell propane at fixed prices in the future. These activities are
monitored by management through enforcement of the Partnership's Commodity
Trading Policy. Hedging does not always result in increased product margins and
the Partnership does not consider hedging activities to be material to
operations or liquidity for the three month period ended December 25, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Due to the seasonal nature of the propane business, cash flows from operating
activities are greater during the winter and spring seasons as customers pay for
propane purchased during the heating season. For the three months ended December
25, 1999, net cash provided by operating activities was $6.7 million compared to
cash provided by operating activities of $7.5 million in the three months ended
December 26, 1998. The decrease of $0.8 million was primarily due to higher
working capital requirements due to the increased cost of propane.
Net cash used in investing activities was $84.6 million during the three months
ended December 25, 1999 consisting of acquisition payments of $97.9 million
reflecting the SCANA acquisition and capital expenditures of $4.6 million
(including $3.5 million for maintenance expenditures and $1.1 million to support
the growth of operations), offset by proceeds from the sales of property, plant
and equipment of $17.9 million, including 23 customer service centers. Net cash
used in investing activities was $2.1 million for the three months ended
December 26, 1998 consisting of capital expenditures of $2.9 million (including
$1.5 million for maintenance expenditures and $1.4 million to support the growth
of operations) and business acquisition payments of $0.1 million, offset by $0.9
million from the sale of property, plant and equipment.
Net cash provided by financing activities for the three months ended December
25, 1999 was $79.5 million, principally reflecting borrowings to fund the SCANA
acquisition partially offset by the Partnership's distribution. Net cash used in
financing activities for the three months ended December 26, 1998 was $11.0
million, principally reflecting the Partnership's distribution.
The Partnership has announced that it will make a distribution of $.525 per Unit
to its Common Unitholders on February 8, 2000 for the first fiscal quarter of
2000 consisting of the Minimum Quarterly Distribution of $.50 per Common Unit
and an additional distribution of $.025 per Common Unit.
The ability of the Partnership to satisfy its future obligations will depend on
its future performance, which will be subject to prevailing economic, financial,
business and weather conditions and other factors, many of which are beyond its
control. Based on its current cash position, available Bank Credit Facilities
and expected cash flow from operating activities, the Partnership expects to
have sufficient funds to meet its obligations and working capital needs, and pay
distributions at the current level, during fiscal 2000.
On January 20, 2000, the Partnership filed an S-4 Registration Statement with
the Securities and Exchange Commission for the issuance from time-to-time of up
to 10 million Common Units to be used as the consideration for the acquisition
of other businesses. The Partnership will file a prospectus supplement
containing specific information about the terms of an acquisition each time
Common Units are intended to be issued pursuant to the registration statement.
YEAR 2000
The Partnership's information technology and non-information technology systems
successfully transitioned into the Year 2000 with no disruptions in operations
or information processing. In addition, the Partnership believes that no
significant vendors/suppliers and/or customers experienced any interruptions
attributable to the Year 2000 issue.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 25, 1999, the Partnership was party to propane forward and option
contracts with various third parties and futures traded on the New York
Mercantile Exchange ("NYMEX"). Forward and future contracts provide that the
Partnership 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.
Market risks associated with the trading of futures and forward contracts are
monitored daily for compliance with the Partnership's trading policy which
includes volume limits for open positions. Open inventory positions are reviewed
and managed daily as to exposures to changing market prices.
MARKET RISK
The Partnership is subject to commodity price risk to the extent that propane
market prices deviate from fixed contract settlement amounts. Futures contracts
traded with brokers of the NYMEX require daily cash settlements in margin
accounts. Forward and option contracts are generally settled at the expiration
of the contract term.
CREDIT RISK
Futures contracts are guaranteed by the NYMEX and as a result have minimal
credit risk. The Partnership is subject to credit risk with forward and option
contracts to the extent the counterparties do not perform. The Partnership
evaluates the financial condition of each counterparty with which it conducts
business and establishes credit limits to reduce exposure to credit risk of
non-performance.
SENSITIVITY ANALYSIS
In an effort to estimate the exposure of unfavorable market price movements, a
sensitivity analysis of open positions as of December 25, 1999 was performed.
Based on this analysis, a hypothetical 10% adverse change in market prices for
each of the future months for which an option, future and/or forward contract
exists indicates a potential loss in future earnings of $0.7 million as of
December 25, 1999.
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.
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
Report on Form 8-K dated September 29, 1999
announcing the Partnership's agreement with SCANA
Corporation to acquire the assets of SCANA Propane
Gas, Inc., SCANA Propane Storage, Inc., SCANA Propane
Supply, Inc., USA Cylinder Exchange, Inc. and C&T
Pipeline, LLC for $86.0 million plus working capital.
Report on Form 8-K dated November 17, 1999 announcing
the Partnership's consummation of its previously
announced purchase of the assets of SCANA Propane
Gas, Inc., SCANA Propane Storage, Inc., SCANA Propane
Supply, Inc., USA Cylinder Exchange, Inc. and C&T
Pipeline, LLC for $86.0 million plus working capital.
Report on Form 8-K dated January 21, 2000 announcing
the Partnership's earnings and increase in its
quarterly distribution for the quarter ended December
25, 1999.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THE REGISTRANT HAS
CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY
AUTHORIZED:
SUBURBAN PROPANE PARTNERS, L.P.
DATE: FEBRUARY 7, 2000 BY /S/ ANTHONY M. SIMONOWICZ
-------------------------
ANTHONY M. SIMONOWICZ
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
BY /S/ EDWARD J. GRABOWIECKI
-------------------------
EDWARD J. GRABOWIECKI
VICE PRESIDENT, CONTROLLER AND
CHIEF ACCOUNTING OFFICER