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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended December 29, 2001
Commission File Number: 1-14222
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
(973) 887-5300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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 [ ]
As of February 8, 2002, 24,631,287 Common Units were outstanding.
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SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PART I Page
----
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets as of December 29, 2001
and September 29, 2001....................................... 1
Consolidated Statements of Operations for the three months
ended December 29, 2001 and December 30, 2000................ 2
Consolidated Statements of Cash Flows for the three months
ended December 29, 2001 and December 30, 2000................ 3
Consolidated Statement of Partners' Capital for the three
months ended December 29, 2001............................... 4
Notes to Consolidated Financial Statements................... 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................ 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.................................................. 13
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................. 15
Signatures............................................................. 16
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 THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE DISCUSSED OR IMPLIED IN SUCH FORWARD-LOOKING
STATEMENTS ("CAUTIONARY STATEMENTS"). THE RISKS AND UNCERTAINTIES AND THEIR
IMPACT ON THE PARTNERSHIP'S OPERATIONS INCLUDE, BUT ARE NOT LIMITED TO, THE
FOLLOWING RISKS:
o THE IMPACT OF WEATHER CONDITIONS ON THE DEMAND FOR PROPANE;
o FLUCTUATIONS IN THE UNIT COST OF PROPANE;
o THE ABILITY OF THE PARTNERSHIP TO COMPETE WITH OTHER SUPPLIERS OF PROPANE
AND OTHER ENERGY SOURCES;
o THE ABILITY OF THE PARTNERSHIP TO RETAIN CUSTOMERS;
o THE IMPACT OF ENERGY EFFICIENCY AND TECHNOLOGY ADVANCES ON THE DEMAND FOR
PROPANE;
o THE ABILITY OF MANAGEMENT TO CONTINUE TO CONTROL EXPENSES;
o THE IMPACT OF REGULATORY DEVELOPMENTS ON THE PARTNERSHIP'S BUSINESS;
o THE IMPACT OF LEGAL PROCEEDINGS ON THE PARTNERSHIP'S BUSINESS;
o THE PARTNERSHIP'S ABILITY TO IMPLEMENT ITS EXPANSION STRATEGY INTO NEW
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.
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
December 29, September 29,
2001 2001
------------ -------------
ASSETS
Current assets:
Cash and cash equivalents .................................. $ 21,729 $ 36,494
Accounts receivable, less allowance for doubtful accounts
of $3,152 and $3,992, respectively ...................... 61,639 42,702
Inventories ................................................ 43,430 41,891
Prepaid expenses and other current assets .................. 3,149 3,252
--------- ---------
Total current assets ............................... 129,947 124,339
Property, plant and equipment, net ............................. 341,444 344,374
Goodwill, net .................................................. 243,430 243,789
Other intangible assets, net ................................... 1,845 1,990
Other assets ................................................... 8,136 8,514
--------- ---------
Total assets ...................................... $ 724,802 $ 723,006
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable ........................................... $ 34,027 $ 38,685
Accrued employment and benefit costs ....................... 20,617 29,948
Current portion of long-term borrowings .................... 42,500 42,500
Accrued insurance .......................................... 7,750 7,860
Customer deposits and advances ............................. 25,280 23,217
Accrued interest ........................................... 16,899 8,318
Other current liabilities .................................. 9,380 11,575
--------- ---------
Total current liabilities ........................ 156,453 162,103
Long-term borrowings ........................................... 430,210 430,270
Postretirement benefits obligation ............................. 34,664 34,521
Accrued insurance .............................................. 18,115 17,881
Net accrued pension liability .................................. 14,391 13,703
Other liabilities .............................................. 5,412 5,579
--------- ---------
Total liabilities ............................... 659,245 664,057
========= =========
Commitments and contingencies
Partners' capital:
Common Unitholders (24,632 units issued and outstanding at
December 29, 2001 and September 29, 2001) ........... 113,421 105,549
General Partner .......................................... 1,965 1,888
Deferred compensation trust .............................. (11,567) (11,567)
Common Units held in trust, at cost ...................... 11,567 11,567
Unearned compensation .................................... (2,552) (1,211)
Accumulated other comprehensive (loss) ................... (47,277) (47,277)
--------- ---------
Total partners' capital ........................ 65,557 58,949
--------- ---------
Total liabilities and partners' capital ........ $ 724,802 $ 723,006
========= =========
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)
(unaudited)
Three Months Ended
---------------------------
December 29, December 30,
2001 2000
------------ ------------
Revenues
Propane ............................................................ $153,856 $268,459
Other .............................................................. 28,008 27,469
-------- --------
181,864 295,928
Costs and expenses
Cost of sales ...................................................... 79,944 169,138
Operating .......................................................... 57,652 66,222
General and administrative ......................................... 7,207 8,206
Depreciation and amortization ...................................... 7,586 9,586
-------- --------
152,389 253,152
Income before interest expense and provision for income taxes ........ 29,475 42,776
Interest expense, net ................................................ 8,724 9,988
-------- --------
Income before provision for income taxes ............................. 20,751 32,788
Provision for income taxes ........................................... 138 71
-------- --------
Net income ........................................................... $ 20,613 $ 32,717
======== ========
General Partner's interest in net income ............................. $ 390 $ 654
-------- --------
Limited Partners' interest in net income ............................. $ 20,223 $ 32,063
-------- --------
Basic and diluted net income per unit ................................ $ 0.82 $ 1.33
-------- --------
Weighted average number of units outstanding ......................... 24,631 24,163
-------- --------
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)
(unaudited)
Three Months Ended
---------------------------
December 29, December 30,
2001 2000
------------ ------------
Cash flows from operating activities:
Net income ................................................... $ 20,613 $ 32,717
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation ............................................ 7,130 7,049
Amortization ............................................ 456 2,537
(Gain) on disposal of property, plant and
equipment, net ........................................ (13) (592)
Changes in operating assets and liabilities, net
of dispositions:
(Increase) in accounts receivable ....................... (18,937) (54,345)
(Increase) in inventories ............................... (1,539) (6,431)
Decrease/(increase) in prepaid expenses and
other current assets ................................... 103 (5,113)
(Decrease)/increase in accounts payable ................. (4,449) 21,237
(Decrease)/increase in accrued employment
and benefit costs ...................................... (9,168) 2,325
Increase in accrued interest ............................ 8,581 8,138
(Decrease) in other accrued liabilities ................. (302) (5,392)
Other noncurrent assets ...................................... 48 (221)
Deferred credits and other noncurrent liabilities ............ 898 (387)
-------- --------
Net cash provided by operating activities .......... 3,421 1,522
-------- --------
Cash flows from investing activities:
Capital expenditures ........................................ (5,216) (4,273)
Proceeds from sale of property, plant and equipment, net .... 1,198 859
-------- --------
Net cash (used in) investing activities ............ (4,018) (3,414)
-------- --------
Cash flows from financing activities:
Long-term debt (repayments) ................................. -- (44,008)
Short-term debt borrowings, net ............................. -- 19,500
Net proceeds from public offering ........................... -- 47,079
Partnership distribution .................................... (14,168) (13,396)
-------- --------
Net cash (used in)/provided by financing activities. (14,168) 9,175
-------- --------
Net (decrease)/increase in cash ................................... (14,765) 7,283
Cash and cash equivalents at beginning of period .................. 36,494 11,645
-------- --------
Cash and cash equivalents at end of period ........................ $ 21,729 $ 18,928
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest ....................................... $ 332 $ 1,838
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(in thousands)
(unaudited)
Accumulated
Deferred Common Other Total
Number of Units Common General Compensation Units in Unearned Comprehensive Partners'
Common Unitholders Partner Trust Trust Compensation (Loss) Capital
--------------- ----------- ------- ------------ -------- ------------ ------------- ---------
Balance at September 29, 2001 24,632 $ 105,549 $ 1,888 $ (11,567) $ 11,567 $ (1,211) $ (47,277) $ 58,949
Net income .................... 20,223 390 20,613
Comprehensive income ..........
Partnership distribution ...... (13,855) (313) (14,168)
Grants issued under Restricted
Unit Plan, net of forfeitures 1,504 (1,504) --
Amortization of Compensation
Deferral Plan ............... 56 56
Amortization of Restricted
Unit Plan, net of forfeitures -- -- -- -- -- 107 -- 107
-------------- ----------- ------- ------------ -------- ------------ ------------- ---------
Balance at December 29, 2001 24,632 $ 113,421 $ 1,965 $ (11,567) $ 11,567 $ (2,552) $ (47,277) $ 65,557
============== =========== ======= ============ ======== ============ ============= =========
Comprehensive
Income
-------------
Balance at September 29, 2001
Net income .................... $ 20,613
--------------
Comprehensive income .......... $ 20,613
==============
Partnership distribution ......
Grants issued under Restricted
Unit Plan, net of forfeitures
Amortization of Compensation
Deferral Plan ...............
Amortization of Restricted
Unit Plan, net of forfeitures
Balance at December 29, 2001
The accompanying notes are an integral part of these consolidated financial
statements.
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 2001 AND DECEMBER 30, 2000
(dollars in thousands, except per unit amounts)
(unaudited)
1. BASIS OF PRESENTATION
---------------------
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of Suburban Propane Partners, L.P. (the "Partnership"), its partners
and its indirect subsidiaries. All significant intercompany transactions and
accounts have been eliminated. The accompanying 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 periods presented. Such adjustments consist 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 29, 2001, including management's discussion
and analysis of financial condition and results of operations 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. Significant estimates have been made by management in the
areas of insurance and litigation reserves, as well as the allowance for
doubtful accounts. Actual results could differ from those estimates, making it
reasonably possible that a change in these estimates could occur in the near
term.
RECLASSIFICATIONS. Certain prior period amounts have been reclassified to
conform with the current period presentation.
2. INVENTORIES
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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. Inventories consist of the following:
December 29, September 29,
2001 2001
------------- -------------
Propane $ 34,157 $ 33,080
Appliances 9,273 8,811
------------- -------------
$ 43,430 $ 41,891
============= =============
3. NET INCOME PER UNIT
-------------------
Basic net income per limited partner 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. Diluted net income per limited
partner 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 time vested Restricted Units granted under the 2000 Restricted
Unit Plan. In computing diluted net income per unit for the three months ended
December 29, 2001, weighted average units outstanding used to compute basic net
income per unit were increased by 21,121 units to reflect the potential dilutive
effect of the time vested Restricted Units outstanding using the treasury stock
method. In computing diluted net income per unit for the three months ended
December 30, 2000, 54,158 units were excluded from the computation of diluted
weighted average units outstanding as their effects would have been
antidilutive.
4. ADOPTION OF NEW ACCOUNTING STANDARD
-----------------------------------
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"). SFAS 142 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 be performed on a reporting unit basis. As a result
of the adoption of SFAS 142, amortization expense for the three months ended
December 29, 2001 decreased by $1,854 compared to the three months ended
December 30, 2000 due to the lack 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 intangible assets. In accordance with SFAS
142, the Partnership has six months from the initial date of adoption, or until
March 30, 2002, to complete its transitional impairment review and does not
anticipate recognizing an impairment loss.
The following table reflects the effect of the adoption of SFAS 142 on net
income and net income per unit as if SFAS 142 had been in effect for the periods
presented:
Three Months Ended
-----------------------------
December 29, December 30,
2001 2000
------------ ------------
Net income:
As reported $ 20,613 $ 32,717
Goodwill amortization - 1,854
------------ ------------
As adjusted $ 20,613 $ 34,571
============ ============
Basic and diluted net income per unit:
As reported $ 0.82 $ 1.33
Goodwill amortization - 0.07
------------ ------------
As adjusted $ 0.82 $ 1.40
============ ============
Other intangible assets at December 29, 2001 and September 29, 2001 consist
primarily of non-compete agreements with a gross carrying amount of $4,440 and
$4,540, respectively, and accumulated amortization of $2,595 and $2,550,
respectively. These non-compete agreements are amortized under the straight-line
method over the periods of the agreements, ending periodically between fiscal
years 2002 and 2011. Aggregate amortization expense related to other intangible
assets for the three months ended December 29, 2001 and December 30, 2000 was
$126 and $150, respectively.
Aggregate amortization expense related to other intangible assets for each of
the five succeeding fiscal years as of December 29, 2001 is as follows:
FISCAL YEAR
-----------
Remainder of 2002 $ 370
2003 426
2004 360
2005 303
2006 232
For the three months ended December 29, 2001, the carrying amount of goodwill
decreased by $359 as a result of the sale of certain assets during the period.
5. 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 each
respective 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.
On January 24, 2002, the Partnership declared a quarterly distribution of $.5625
per Common Unit for the first quarter of fiscal 2002 payable on February 11,
2002 to holders of record on February 4, 2002.
6. LONG-TERM DEBT
--------------
The Partnership's Senior Note Agreement, which matures June 30, 2011, requires
that the principal amount of $425,000 be paid in equal annual payments of
$42,500 starting July 1, 2002. The Partnership currently intends to refinance
the first annual payment and is in advanced discussions with various third
parties to reach a refinancing agreement with favorable terms to the
Partnership. In the event that there is no agreement to refinance the first
annual payment, the Partnership currently expects that it will generate
sufficient funds from operations or have available adequate borrowing capacity
under its working capital facility to make the principal payment.
7. 2000 RESTRICTED UNIT PLAN
-------------------------
In November 2001, the Partnership awarded 59 units under the 2000 Restricted
Unit Plan at an aggregate value of $1,571 to 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. Upon award
of Restricted Units, the unamortized unearned compensation value is shown as a
reduction to partners' capital. The unearned compensation is amortized ratably
over the restricted periods.
8. COMMITMENTS AND CONTINGENCIES
-----------------------------
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 29, 2001 and September 29, 2001, the Partnership
had accrued insurance liabilities of $25,865 and $25,741, 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 that 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.
9. RECENTLY ISSUED ACCOUNTING STANDARDS
------------------------------------
In July 2001, the Financial Accounting Standards Board ("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
of SFAS 143 and does not anticipate that adoption of this standard will have a
material impact on its consolidated financial position, results of operations or
cash flows.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 applies to all long-lived
assets, including discontinued operations, and provides guidance on the
measurement and recognition of impairment charges for assets 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 144 is effective for fiscal years
beginning after December 15, 2001. The provisions of this standard are to be
applied prospectively. The Partnership is currently in the process of evaluating
the impact of SFAS 144 and does not anticipate that adoption of this standard
will have a material impact on its consolidated financial position, results of
operations or cash flows.
10. SUBSEQUENT EVENT
----------------
On January 31, 2002, the Partnership sold its 170 million gallon propane storage
facility in Hattiesburg, Mississippi, for total cash proceeds of $8,400,
resulting in a gain on sale of approximately $6,900 which will be recognized in
the second quarter of fiscal 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Partnership as of and for the first fiscal quarter ended
December 29, 2001. The discussion should be read in conjunction with the
historical consolidated financial statements and notes thereto included in the
Annual Report on Form 10-K for the most recent fiscal year ended September 29,
2001.
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 THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE DISCUSSED OR IMPLIED IN
SUCH FORWARD-LOOKING STATEMENTS ("CAUTIONARY STATEMENTS"). THE RISKS AND
UNCERTAINTIES AND THEIR IMPACT ON THE PARTNERSHIP'S OPERATIONS INCLUDE, BUT ARE
NOT LIMITED TO, THE FOLLOWING RISKS:
o THE IMPACT OF WEATHER CONDITIONS ON THE DEMAND FOR PROPANE;
o FLUCTUATIONS IN THE UNIT COST OF PROPANE;
o THE ABILITY OF THE PARTNERSHIP TO COMPETE WITH OTHER SUPPLIERS OF PROPANE
AND OTHER ENERGY SOURCES;
o THE ABILITY OF THE PARTNERSHIP TO RETAIN CUSTOMERS;
o THE IMPACT OF ENERGY EFFICIENCY AND TECHNOLOGY ADVANCES ON THE DEMAND FOR
PROPANE;
o THE ABILITY OF MANAGEMENT TO CONTINUE TO CONTROL EXPENSES;
o THE IMPACT OF REGULATORY DEVELOPMENTS ON THE PARTNERSHIP'S BUSINESS;
o THE IMPACT OF LEGAL PROCEEDINGS ON THE PARTNERSHIP'S BUSINESS;
o THE PARTNERSHIP'S ABILITY TO IMPLEMENT ITS EXPANSION STRATEGY INTO NEW
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.
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED DECEMBER 29, 2001 COMPARED TO THREE MONTHS ENDED DECEMBER 30,
- --------------------------------------------------------------------------------
2000
- ----
REVENUES. Revenues decreased 38.5%, or $114.1 million, to $181.9 million
for the three months ended December 29, 2001 compared to $295.9 million for the
three months ended December 30, 2000. This decrease is principally due to a
decrease in retail volumes sold, coupled with a decrease in average selling
prices. The decrease in volume is primarily attributable to the unusually warm
weather conditions and the impact of the current economic downturn on commercial
and industrial customers. The decrease in selling prices is in line with the
steep decline in product costs which began in March 2001.
Retail gallons sold decreased 24.3%, or 39.9 million gallons, to 124.0
million gallons, compared to 163.9 million gallons in the prior year quarter.
Sales prices averaged approximately 15% lower during the three months ended
December 29, 2001 as compared to the prior year quarter. Temperatures nationwide
were 18% warmer than normal during the three month period as compared to 13%
colder than normal in the prior year period, a 27% decline year-over-year, as
reported by the National Oceanic and Atmospheric Administration. The wide swing
in temperatures was particularly felt during the latter two-thirds of the fiscal
2002 first quarter.
Revenue from other sources, including sales of appliances, related parts
and services, of $28.0 million for the three months ended December 29, 2001 was
comparable to other revenue in the prior year quarter of $27.5 million.
GROSS MARGIN. Gross margin decreased 19.6%, or $24.9 million, to $101.9
million for the three months ended December 29, 2001 compared to $126.8 million
for the three months ended December 30, 2000. The lower margins are attributable
to the decline in retail volumes sold. However, the average gross margin as a
percentage of revenues for the first quarter of fiscal 2002 improved to 56.0%
compared to 42.8% in the prior year quarter.
OPERATING EXPENSES. Operating expenses decreased 12.9%, or $8.6 million, to
$57.7 million for the three months ended December 29, 2001 compared to $66.2
million for the three months ended December 30, 2000. The decrease in operating
expenses is principally attributable to the Partnership's ability to reduce
costs amidst declining volumes resulting from management's ongoing initiatives
to shift costs from fixed to variable, primarily in the areas of employee
compensation and benefits. Operating expenses in the first quarter of fiscal
2002 include a $2.7 million unrealized gain attributable to the mark-to-market
adjustment on derivative instruments, compared to a $1.1 million unrealized loss
in the prior year quarter (Refer to Item 3 for information on the Partnership's
policies regarding its accounting for derivative instruments).
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased 12.2%, or $1.0 million, to $7.2 million for the three months ended
December 29, 2001 compared to $8.2 million for the three months ended December
30, 2000, again attributable to management's cost containment efforts
particularly with employee compensation and benefits and professional services.
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES AND EBITDA. Income before
interest expense and income taxes decreased $13.3 million to $29.5 million in
the three months ended December 29, 2001 compared to $42.8 million in the prior
year quarter. EBITDA decreased $15.3 million, or 29.2%, to $37.1 million. These
changes in income before interest expense and income taxes and in EBITDA are
primarily attributable to lower revenues partially offset by an improvement in
the average margin per retail gallon sold, reflecting continued efforts to
manage product costs, and lower operating and general and administrative
expenses, as described above.
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 our ability to distribute its
quarterly distributions. 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 decreased $1.3 million, or 12.7%, to
$8.7 million for the three months ended December 29, 2001 compared to $10.0
million in the prior year quarter. This decrease is primarily attributable to
reductions in average amounts outstanding under our Revolving Credit Agreement
and, to a lesser extent, lower average interest rates. There were no outstanding
borrowings under the working capital facility of the Revolving Credit Agreement
during the first quarter of fiscal 2002 compared to $26.0 million during the
prior year quarter.
LIQUIDITY AND CAPITAL RESOURCES
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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 29, 2001, net cash provided by operating activities was
$3.4 million compared to cash provided by operating activities of $1.5 million
in the three months ended December 30, 2000. The increase of $1.9 million was
primarily due to favorable changes in working capital in comparison to the prior
year quarter partly offset by lower net income of $13.5 million, after adjusting
for non-cash items (depreciation, amortization and gain on disposal of assets)
in both periods.
Net cash used in investing activities was $4.0 million during the three
months ended December 29, 2001 consisting of capital expenditures of $5.2
million (including $2.3 million for maintenance expenditures and $2.9 million to
support the growth of operations), offset by net proceeds from the sale of
property, plant and equipment of $1.2 million. Net cash used in investing
activities was $3.4 million during the three months ended December 30, 2000
consisting of capital expenditures of $4.3 million (including $0.3 million for
maintenance expenditures and $4.0 million to support the growth of operations),
offset by net proceeds from the sale of property, plant and equipment of $0.9
million. Additionally, on January 31, 2002 we sold our 170 million gallon
propane storage facility in Hattiesburg, Mississippi, for total cash proceeds of
$8.4 million, resulting in a gain on sale of approximately $6.9 million which
will be recognized in the second quarter of fiscal 2002.
Net cash used in financing activities for the three months ended December
29, 2001 was $14.2 million, reflecting Partnership distributions. 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 $19.5 million of net working
capital borrowings under the Revolving Credit Agreement partially offset by
$13.4 million in Partnership distributions and $44.0 million of net repayments
of amounts outstanding under the Revolving Credit Agreement utilizing the
proceeds of the public offering.
On January 24, 2002, we declared a quarterly distribution of $.5625 per
Common Unit for the first quarter of fiscal 2002 payable on February 11, 2002 to
holders of record on February 4, 2002.
Our Senior Note Agreement, which matures on June 30, 2011, requires that
the principal amount of $425.0 million be paid in equal annual payments of $42.5
million starting July 1, 2002. We currently intend to refinance the first annual
payment and are in advanced discussions with various third parties to reach a
refinancing agreement with favorable terms to the Partnership. In the event that
there is no agreement to refinance the first annual payment, we currently expect
that the Partnership will generate sufficient funds from operations or have
available adequate borrowing capacity under the working capital facility to make
the principal payment.
As discussed above, the results of operations for the first quarter of
fiscal 2002 were adversely impacted by unseasonably warm weather nationwide, as
weather was 18% warmer than normal. If current weather patterns persist during
the second quarter of fiscal 2002 and for the remainder of our fiscal year, the
demand for propane may be adversely affected which may result in a continued
decline in retail gallons sold compared to the prior year. Our ability to
satisfy our future obligations will depend on our future performance, which will
be subject to prevailing economic, financial, business and weather conditions
and other factors, many of which are beyond our control. Results of operations
and cash flow from operations may be negatively impacted by a decline in retail
volumes and overall gross margins. However, our continued efforts to control our
operating and general and administrative expenses, coupled with lower average
interest rates, is expected to mitigate the negative impact of lower revenues
and gross margins.
Based on our current estimate of our cash position, availability under the
Revolving Credit Agreement (unused borrowing capacity under the working capital
facility of $75.0 million at December 29, 2001) and expected cash from operating
activities, we expect to have sufficient funds to meet our current and future
obligations.
LONG-TERM DEBT OBLIGATIONS AND OTHER COMMITMENTS
- ------------------------------------------------
Long-term debt obligations and future minimum rental commitments under
noncancelable operating lease agreements as of December 29, 2001 are due as
follows (amounts in thousands):
Remainder Fiscal
of Fiscal Fiscal Fiscal Fiscal 2006 and
2002 2003 2004 2005 thereafter Total
--------- ---------- --------- --------- ---------- ----------
Long-term debt $ 42,855 $ 88,941 $ 42,911 $ 42,939 $ 255,475 $ 473,121
Operating leases 16,919 19,534 16,299 13,259 24,224 90,235
Total long-term debt obligations --------- ---------- --------- --------- ---------- ----------
and lease commitments $ 59,774 $ 108,475 $ 59,210 $ 56,198 $ 279,699 $ 563,356
========= ========== ========= ========= ========== ==========
Additionally, we have standby letters of credit in the aggregate amount of
$28.9 million, in support of our casualty insurance coverage and certain lease
obligations, which expire on March 1, 2002.
RELATED PARTY TRANSACTION
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The Partnership's general partner, Suburban Energy Services Group LLC (the
"General Partner"), acquired the general partner interests from a predecessor
general partner on May 26, 1999 for $6.0 million (the "GP Loan") which was
borrowed under a private placement with Mellon Bank N.A. ("Mellon"). As of
December 29, 2001, the balance outstanding under the GP Loan was $1.4 million.
Under the occurrence and continuance of an event of default, as defined in
the GP Loan, Mellon will have the right to cause the Partnership to purchase the
note evidencing the GP Loan (the "GP Note"). The Partnership has agreed to
maintain borrowing availability under its available lines of credit, which will
be sufficient to enable it to repurchase the GP Note in these circumstances. The
note evidencing the GP Loan will also cross-default to the obligations of the
Partnership's obligations under its Senior Note Agreement and its Revolving
Credit Agreement. Upon a GP Note default, the Partnership also will have the
right to purchase 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 $11.6 million as of December 29, 2001 and September 29,
2001) related to the Compensation Deferral Plan to be forfeited and cancelled
(and to cause all of the related distributions to be forfeited), regardless of
the amount paid by the Partnership to purchase the GP Note.
ADOPTION OF NEW ACCOUNTING STANDARD
- -----------------------------------
Effective September 30, 2001, the beginning of our 2002 fiscal year, we
elected to early adopt the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142").
SFAS 142 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 be performed on a reporting unit basis. As a result of the adoption
of SFAS 142, amortization expense for the three months ended December 29, 2001
decreased by $1.9 million compared to the three months ended December 30, 2000
as a result of the lack 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 our intangible assets. In accordance with SFAS 142, we have six
months from the initial date of adoption, or until March 30, 2002, to complete
our transitional impairment review and do not anticipate recognizing an
impairment loss.
RECENTLY ISSUED ACCOUNTING STANDARDS
- ------------------------------------
In July 2001, the Financial Accounting Standards Board ("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. We are currently in the process of evaluating the impact of SFAS 143
and do not anticipate that adoption of this standard will have a material impact
on its consolidated financial position, results of operations or cash flows.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 applies to
all long-lived assets, including discontinued operations, and provides guidance
on the measurement and recognition of impairment charges for assets 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 144 is effective for fiscal years
beginning after December 15, 2001. The provisions of this standard are to be
applied prospectively. We are currently in the process of evaluating the impact
of SFAS 144 and do not anticipate that adoption of this standard will have a
material impact on our consolidated financial position, results of operations or
cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 29, 2001, the Partnership was party to propane forward and
option contracts with various third parties and futures traded on the New York
Mercantile Exchange (the "NYMEX"). Futures and forward contracts require 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 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'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
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 either by physical delivery or through a net settlement
mechanism.
CREDIT RISK
Futures 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 29, 2001 was
performed. Based on this analysis, a hypothetical 10% adverse change in market
prices for each of the future months for which an option, futures and/or forward
contract exists indicates a potential loss in future earnings of $1.3 million
and $0.6 million as of December 29, 2001 and December 30, 2000, respectively.
See also Item 7A of the Partnership's Annual Report on Form 10-K for the fiscal
year ended September 29, 2001.
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 at any given point in time.
DERIVATIVE INSTRUMENTS
The Partnership accounts for its derivative instruments in accordance with
the provisions of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133"), as amended by SFAS No. 137 and SFAS No. 138.
The Partnership's derivative instruments do not qualify, and are therefore not
designated, as hedges under SFAS 133. Accordingly, derivative instruments are
recorded as assets or liabilities based on their fair value and any subsequent
changes in fair values of these instruments are recorded in income. Fair values
for forward and futures contracts are derived from quoted market prices for
similar instruments traded on the NYMEX.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
No exhibits included in this filing.
(b) Reports on Form 8-K
The Partnership filed a Form 8-K on January 11, 2002 incorporating
a press release announcing the Partnership's Quarterly Earnings
Conference Call.
Other items under Part II are not applicable.
SIGNATURES
Pursuant to the requirements 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.
February 12, 2002 /s/ ROBERT M. PLANTE
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Date Robert M. Plante
Vice President - Finance and Treasurer
(Principal Financial Officer)
February 12, 2002 /s/ MICHAEL A. STIVALA
- ----------------- ----------------------
Date Michael A. Stivala
Controller
(Principal Accounting Officer)