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 30, 2000
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 16 OF THE SECURITIES
EXCHANGE ACT OF 1934
for the transition period from ______ to ______
Commission File Number: 1-14222
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SUBURBAN PROPANE PARTNERS, L.P.
-------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3410353
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
240 Route 10 West, Whippany, NJ 07981
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
(973) 887-5300
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for each shorter period that the Registrant
was required to file such reports), and (2) had been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The issuer had outstanding 24,631,287 Common Units as of February 7, 2001.
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 30, 2000
and September 30, 2000 3
Condensed Consolidated Statements of Operations for the three
months ended December 30, 2000 and December 25, 1999 4
Condensed Consolidated Statements of Cash Flows for the
three months ended December 30, 2000 and December 25, 1999 5
Condensed Consolidated Statement of Partners' Capital
for the three months ended December 30, 2000 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 30, September 30,
2000 2000
(unaudited) (audited)
------------ -------------
ASSETS
Current assets:
Cash & cash equivalents .................................. $ 18,928 $ 11,645
Accounts receivable, less allowance for doubtful accounts
of $ 5,028 and $2,975, respectively ................... 115,648 61,303
Inventories .............................................. 48,062 41,631
Prepaid expenses and other current assets ................ 11,277 7,581
--------- ---------
Total current assets ............................. 193,915 122,160
Property, plant and equipment, net ........................... 347,597 350,640
Net prepaid pension cost ..................................... 33,659 33,687
Goodwill & other intangibles assets, net ..................... 259,080 261,617
Other assets ................................................. 3,261 3,012
--------- ---------
Total assets. .................................... $ 837,512 $ 771,116
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable ......................................... $ 81,031 $ 59,794
Accrued employment and benefit costs ..................... 21,179 18,979
Short-term borrowings .................................... 26,000 6,500
Accrued insurance ........................................ 6,140 6,170
Customer deposits and advances ........................... 15,550 23,164
Accrued interest ......................................... 16,309 8,171
Other current liabilities ................................ 10,935 8,683
--------- ---------
Total current liabilities.. ...................... 177,144 131,461
Long-term borrowings ......................................... 473,158 517,219
Postretirement benefits obligation ........................... 34,155 33,885
Accrued insurance ............................................ 18,827 19,458
Other liabilities ............................................ 7,291 7,264
--------- ---------
Total liabilities... ............................. 710,575 709,287
--------- ---------
Partners' capital:
Common Unitholders ....................................... 126,127 58,474
General Partner .......................................... 2,229 1,866
Deferred compensation trust .............................. (11,567) (11,567)
Common Units held in trust, at cost ...................... 11,567 11,567
Unearned Compensation .................................... (2,131) (640)
Accumulated other comprehensive income ................... 712 2,129
--------- ---------
Total partners' capital .......................... 126,937 61,829
--------- ---------
Total liabilities and partners' capital........... $ 837,512 $ 771,116
========= =========
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 30, December 25,
2000 1999
------------ ------------
Revenues
Propane ............................................ $ 268,459 $ 174,008
Other .............................................. 25,624 26,454
--------- ---------
294,083 200,462
Cost and Expenses
Cost of sales ...................................... 169,138 102,441
Operating .......................................... 64,377 55,289
Depreciation and amortization ...................... 9,586 9,006
General and administrative ......................... 8,206 6,643
Gain on sale of assets ............................. -- (10,328)
--------- ---------
251,307 163,051
Income before interest expense and
income taxes ...................................... 42,776 37,411
Interest expense, net ................................ 9,988 9,399
--------- ---------
Income before provision for income taxes ............ 32,788 28,012
Provision for income taxes ........................... 71 21
--------- ---------
Net income ........................................... $ 32,717 $ 27,991
========= =========
General Partner's interest in net income ............. $ 654 $ 560
--------- ---------
Limited Partners' interest in net income ............. $ 32,063 $ 27,431
========= =========
Net income per Unit .................................. $ 1.33 $ 1.23
========= =========
Weighted average number of Units outstanding ......... 24,163 22,264
--------- ---------
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 30, 2000 December 25, 1999
----------------- -----------------
Cash flows from operating activities:
Net income ...................................................... $ 32,717 $ 27,991
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation ............................................... 7,049 7,072
Amortization ............................................... 2,537 1,934
(Gain) on disposal of property, plant and
equipment ................................................ (592) (10,544)
Changes in operating assets and liabilities, net of
acquisitions and dispositions:
(Increase) in accounts receivable .......................... (54,345) (29,384)
(Increase) in inventories .................................. (6,431) (6,893)
(Increase) in prepaid expenses and
other current assets ...................................... (5,113) (805)
Increase in accounts payable ............................... 21,237 13,759
Increase/(decrease) in accrued employment
and benefit costs ......................................... 2,325 (3,159)
Increase in accrued interest ............................... 8,138 9,050
(Decrease) in other accrued liabilities .................... (5,392) (1,525)
Other noncurrent assets ......................................... (221) (145)
Deferred credits and other noncurrent liabilities ............... (387) (638)
----------------- -----------------
Net cash provided by operating activities ............. 1,522 6,713
----------------- -----------------
Cash flows from investing activities:
Capital expenditures ........................................... (4,273) (4,579)
Acquisitions ................................................... -- (97,914)
Proceeds from sale of property, plant and equipment, net ....... 859 17,862
----------------- -----------------
Net cash (used in) investing activities ............... (3,414) (84,631)
----------------- -----------------
Cash flows from financing activities:
Long-term (repayments)/borrowings, net ......................... (44,008) 96,988
Short-term borrowings/(repayments), net ........................ 19,500 (2,750)
Credit agreement expenses ...................................... -- (3,123)
Net proceeds from S-3 public offering .......................... 47,079 --
Partnership distribution ....................................... (13,396) (11,628)
----------------- -----------------
Net cash provided by financing activities ............. 9,175 79,487
----------------- -----------------
Net increase in cash.................................................. 7,283 1,569
Cash and cash equivalents at beginning of period ..................... 11,645 8,392
----------------- -----------------
Cash and cash equivalents at end of period ........................... $ 18,928 $ 9,961
================= =================
Supplemental disclosure of cash flow information:
Cash paid for interest ........................................... $ 1,838 $ 199
================= =================
The accompanying notes 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)
Common Deferred
Number of Units General Units in Compensation Unearned
Common Common Partner Trust Trust Compensation
--------------- ------ ------- ----- ----- ------------
Balance at September 30, 2000 ...... 22,279 $ 58,474 $ 1,866 $ 11,567 $ (11,567) $ (640)
Net income .......................... 32,102 615
Other comprehensive income:
Unrealized loss on securities ..
Comprehensive income ................
Partnership distribution ............ (13,144) (252)
Sale of Common Units under
public offering, net of expenses.. 2,353 47,079
Grants issued under Restricted
Unit Plan ........................ 1,616 (1,616)
Amortization of Compensation
Deferral Plan .................... 59
Amortization of Restricted
Unit Plan ........................ -- -- -- -- -- 66
--------------- ------ ------- ----- ----- ------------
Balance at December 30, 2000 ....... 24,632 $ 126,127 $ 2,229 $ 11,567 $ (11,567) $ (2,131)
=============== ====== ======= ===== ===== ============
Accumulated
Other Total
Comprehensive Partners' Comprehensive
Income Capital Income
------ ------- ------
$ 2,129 $ 61,829
32,717 $ 32,717
(1,417) (1,417) (1,417)
---------
$ 31,300
=========
(13,396)
47,079
59
-- 66
------ -------
$ 712 $ 126,937
====== =======
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 30, 2000
(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 as Delaware limited
partnerships 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"). The Partnership completed an initial public offering of
Common Units on March 5, 1996. 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, a corporation subsequently acquired by the Operating Partnership, Gas
Connection, Inc., and Suburban @ Home, Inc., a corporation formed to operate a
heating and air conditioning business, are collectively referred to hereinafter
as the "Partnership Entities".
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 30,
2000, 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.
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, such contracts are recorded as assets or
liabilities on the balance sheet 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. See "Adoption of New Accounting Standard" for
further information.
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 30, 2000 and September 30, 2000 was
$204,360 and $198,549, respectively.
GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill and other intangible assets are
comprised of the following:
December 30, 2000 September 30, 2000
----------------- ------------------
Goodwill $296,201 $296,201
Debt origination costs 8,024 8,024
Deferred credit agreement costs 3,123 3,123
Other, principally noncompete agreements 4,940 4,940
--------- ---------
312,288 312,288
Less: Accumulated amortization 53,208 50,671
--------- ---------
$259,080 $261,617
========= =========
INCOME TAXES. As discussed in Note 1, the Partnership Entities consist of two
limited partnerships, the Partnership and the Operating Partnership, and three
corporate entities. 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.
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 required under the provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation". Upon issuance of Units under the
compensation plans, unearned compensation equivalent to the market value of the
Restricted Units, granted under the restricted unit plans, or Common Units,
granted under the Compensation 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'
capital in the accompanying consolidated balance sheets. As a result of the May
26, 1999 Recapitalization, all unamortized compensation related to the
Restricted Units, issued under the initial Restricted Unit Plan, was earned and
expense of $11,393 was recorded. As of December 30, 2000, no Units were
outstanding under the initial Restricted Unit Plan, 42,925 Common Units were
outstanding under the Compensation Deferral Plan and 78,228 Restricted Units
were outstanding under the 2000 Restricted Unit Plan. See Notes 6 and 7 for
further information.
NET INCOME (LOSS) PER UNIT. Basic net income (loss) per limited partner Unit is
computed by dividing net income (loss), after deducting the General Partner's
approximate 2% interest, by the weighted average number of outstanding Common
Units. Diluted net income (loss) per limited partner Unit is computed by
dividing net income (loss), after deducting the General Partner's approximate 2%
interest, by the weighted average number of outstanding Common Units, time
vested Restricted Units granted under the Restricted Unit Award Plans and time
vested Common Units granted under the Compensation Deferral Plan.
ADOPTION OF NEW ACCOUNTING STANDARD. In June 1998, FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("Statement No.
133"). Statement No. 133, as amended by Statement No. 137 and Statement No. 138,
requires entities to record derivatives as assets or liabilities on the balance
sheet based on their fair value and any subsequent changes in the fair values of
contracts must be recorded in income, unless the contracts qualify as hedges.
Contracts qualifying for hedge accounting would have changes in fair values
reported as a component of comprehensive income (equity). The Partnership
adopted Statement No. 133 effective with the first fiscal quarter of 2001.
Management determined that the Partnership's derivative contracts do not qualify
for hedge accounting and its derivatives are marked-to-market through income.
The fair market value of the Partnership's derivative portfolio on the date of
adoption did not reflect any unrealized net gain or loss and as such no
cumulative effect of this change in accounting is reflected in the accompanying
financial statements. For the three months ended December 30, 2000, the
Partnership recorded expense of $1.1 million, which represents the net change in
the fair values of the Partnership's derivatives during that period.
RECLASSIFICATIONS. Certain prior period balances have been reclassified to
conform with the current period presentation.
3. DISTRIBUTIONS OF AVAILABLE CASH
-------------------------------
The Partnership makes distributions to its partners 45 days after the end of
each fiscal quarter in an aggregate amount equal to its Available Cash for such
quarter. Available Cash generally means all cash on hand at the end of the
fiscal quarter less the amount of cash reserves established by the Board of
Supervisors in its reasonable discretion for future cash requirements. In
connection with the Recapitalization, the Partnership agreed to maintain through
March 31, 2001, the date on which the distribution support agreement provided by
the Former General Partner was to expire, certain levels of committed
availability under its Credit Agreement to support the Minimum Quarterly
Distribution.
4. COMMITMENTS AND CONTINGENCIES
-----------------------------
The Partnership leases certain property, plant and equipment for various periods
under noncancelable leases. Rental expense under operating leases was $5,638 for
the three months ended December 30, 2000.
The Partnership is self-insured for general and product, workers' compensation
and automobile liabilities up to predetermined amounts above which third party
insurance applies. At December 30, 2000, accrued insurance liabilities amounted
to $24,967, 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 also is 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 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 March 5, 1996, 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.
At December 30, 2000, the Revolving Credit Agreement consisted of a $100,000
acquisition facility and a $75,000 working capital facility. 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 .375% to .50%, based upon certain
financial tests, is payable quarterly whether or not borrowings occur. As of
December 30, 2000, such fee was .50%.
As of December 30, 2000, $46,000 was outstanding under the acquisition facility
of the Revolving Credit Agreement resulting from the acquisition of SCANA,
$26,000 was outstanding under the working capital facility. As of September 30,
2000, $90,000 was outstanding under the acquisition facility of the Revolving
Credit Agreement and $6,500 was outstanding under the working capital facility.
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.
Effective January 29, 2001, the Partnership amended its Revolving Credit
Agreement (See Note 9 - Subsequent Events).
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 30, 2000, the Partnership amortized $59 of unearned
compensation.
Following is a summary of activity in the Deferral Plan:
Units Value Per Unit
----- --------------
Outstanding, September 30, 2000 and
December 30, 2000 42,925 $19.91
====== ======
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 30, 2000 as components of partners'
capital.
7. 2000 RESTRICTED UNIT PLAN
-------------------------
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 twenty-five
percent of such units vesting at the end of each of the third and fourth
anniversaries of the issuance date and fifty percent vesting at the end of the
fifth anniversary of the issuance date. 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. During the three months ended December 30,
2000, the Partnership amortized $66 of unearned compensation.
Following is a summary of activity in the 2000 Restricted Unit Plan:
Units Value Per Unit
----- --------------
Outstanding, September 30, 2000 - $ -
Awarded 78,228 $20.66
------ ------
Outstanding, December 30, 2000 78,228 $20.66
====== ======
8. PUBLIC OFFERING
---------------
On October 17, 2000, the Partnership sold 2,175,000 Common Units in a public
offering at a price of $21.125 per Unit realizing proceeds of $43,500, net of
underwriting commissions and any other offering expenses. On November 14, 2000,
following the underwriters partial exercise of its over-allotment option, the
Partnership sold an additional 177,700 Common Units at the same price,
generating net proceeds of $3,600. These transactions increased the total number
of Common Units outstanding to 24,631,287. The aggregate net proceeds of $47,100
were applied to reduce outstanding Revolving Credit borrowings.
9. Subsequent Events
-----------------
On January 26, 2001, the Partnership announced a quarterly distribution of
$.5375 per Common Unit for the first quarter of fiscal 2001 consisting of the
Minimum Quarterly Distribution of $.50 per Common Unit and an additional
distribution of $.0375 per Common Unit payable on February 13, 2001 to holders
of record on February 5, 2001.
Effective January 29, 2001, the Partnership amended its existing Revolving
Credit Agreement. The new Revolving Credit Agreement reduces the acquisition
facility from $100,000 to $50,000 and extends the term to May 31, 2003. In
addition, the covenant to maintain a minimum net worth has been eliminated and
the maximum ratio of consolidated total indebtedness to EBITDA (as defined in
the amendment) is reduced from 5.10 to 1 to 5.00 to 1 from April 1, 2001 through
May 31, 2003. The Partnership's working capital facility was retained at
$75,000. There is an $11,600 subfacility in place through the quarter ending
March 31, 2001 to support the Minimum Quarterly Distribution.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three Months Ended December 30, 2000
- ------------------------------------
Compared to Three Months Ended December 25, 1999
- ------------------------------------------------
REVENUES
Revenues increased 46.7% or $93.6 million to $294.1 million for the three months
ended December 30, 2000 compared to $200.5 million for the three months ended
December 25, 1999. The overall increase is primarily attributable to higher
propane costs resulting in higher sales prices to customers and an increase in
retail and wholesale volumes. Propane sold to retail customers increased 16.6%
or 23.4 million gallons to 163.9 million gallons, compared to 140.5 million
gallons in the prior period's quarter. The increase in retail gallons is
principally due to colder than normal weather. Temperatures nationwide during
the quarter averaged 13% colder than normal as compared to 11% warmer than
normal in the prior period's quarter. Wholesale gallons sold and gallons sold
related to price risk management activities increased 25.1% or 14.3 million
gallons to 71.4 million gallons, principally resulting from increased market
opportunities attributable to a more volatile propane pricing environment.
OPERATING EXPENSES
Operating expenses increased 16.4% or $9.1 million to $64.4 million for the
three months ended December 30, 2000 compared to $55.3 million for the three
months ended December 25, 1999. The increase in operating expenses is ratable
with the higher level of activity during the quarter and is principally
attributable to increased payroll and benefit costs, an increase in fleet
operating expenses and an increase in the allowance for doubtful accounts
receivable.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 23.5% or $1.6 million to $8.2
million for the three months ended December 30, 2000 compared to $6.6 million
for the three months ended December 25, 1999. The increase is primarily
attributable to planned higher payroll and benefit costs.
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES AND EBITDA
Results for the first quarter ended December 25, 1999 include a $10.3 million
gain from the sale of assets. Excluding this one-time item in the prior year,
income before interest expense and income taxes increased $15.7 million to $42.8
million in the three months ended December 30, 2000 compared to $27.1 million in
the prior year's first quarter. EBITDA, excluding the one-time item in the prior
year, increased $16.3 million or 45.1% to $52.4 million. The increases in income
before interest expense and income taxes and in EBITDA are primarily
attributable to an increase in gross profit resulting from the higher sales
volumes partially offset by higher operating and 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) 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 $.6 million to $10.0 million in the three months
ended December 25, 2000 compared with $9.4 million in the prior period. The
increase is attributable to higher short-term borrowings to fund increased
working capital requirements due to the increased cost of propane.
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
30, 2000, net cash provided by operating activities was $1.5 million compared to
cash provided by operating activities of $6.7 million in the three months ended
December 25, 1999. The decrease of $5.2 million was primarily due to higher
working capital requirements, specifically accounts receivable and inventory,
due to the increased cost of propane.
Net cash used in investing activities was $3.4 million for the three months
ended December 30, 2000 consisting of capital expenditures of $4.3 million
(including $.3 million for maintenance expenditures and $4.0 million to support
the growth of operations), offset by $.9 million from the sale of property,
plant and equipment. 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 provided by financing activities for the three months ended December
30, 2000 was $9.2 million, reflecting $47.1 million in net proceeds received
from the sale of Common Units in a public offering and the subsequent
underwriters partial exercise of its over-allotment option, $19.5 million of net
working capital borrowings under the Partnership's Revolving Credit Agreement
partially offset by $13.4 million in Partnership distributions and $44.0 million
of net repayments of amounts outstanding under the acquisition facility
utilizing the proceeds from the public offering.
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.
Effective January 29, 2001, the Partnership amended its existing Revolving
Credit Agreement. Pursuant to the amendment, the acquisition facility has been
reduced from $100.0 million to $50.0 million, the working capital facility has
been retained at $75.0 million and both facilities have been extended until May
31, 2003. The minimum net worth covenant has been eliminated and the maximum
leverage ratio will be reduced to 5.00 to 1 for quarters after March 31, 2001.
Borrowings bear interest at a rate based upon either LIBOR plus a maximum margin
of 2% or the agent bank's base rate plus a margin of 1% (in each case such
margin to reduce according to improvements in the leverage ratio). An annual fee
of .50% (also subject to reduction according to improvements in the leverage
ratio) is payable quarterly whether or not borrowings are made. The working
capital facility includes an $11.6 million subfacility to support the Minimum
Quarterly Distribution. This subfacility will remain in place through the
quarter ending March 31, 2001, when the liquidity arrangement provided by the
Partnership at the time of the Recapitalization will terminate.
The Partnership has announced that it will make a distribution of $.5375 per
Unit to its Common Unitholders on February 13, 2001 for the first fiscal quarter
of 2001 consisting of the Minimum Quarterly Distribution of $.50 per Common Unit
and an additional distribution of $.0375 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 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 30, 2000, 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, 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 30, 2000 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 $.6 million as of
December 30, 2000. See also Item 7A of the Partnership's Annual Report on Form
10-K for the fiscal year ended September 30, 2000.
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
(3)(a) Amended and Restated Credit Agreement by and between
Suburban Propane, L.P. as Borrower, 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, effective January
29, 2001.
(27) Financial Data Schedule
(b) Reports on Form 8-K
Report on Form 8-K dated January 19, 2001 announcing the
Partnership's Fiscal 2001 First Quarter Conference Call.
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 13, 2001 By /s/ John W. Smolak
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John W. Smolak
Chief Financial Officer
By /s/ Edward J. Grabowiecki
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Edward J. Grabowiecki
Vice President, Controller and
Chief Accounting Officer