SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
[X] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box :
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e) (2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SUBURBAN PROPANE PARTNERS, L.P.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other
than the Registrant)
Payment of Filing Fee (Check the appropriate box) :
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i) (4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11 (a) (2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $
2) Form, Schedule or Registration Statement No:
3) Filing Party:
4) Date Filed:
Suburban Propane Partners, L.P.
One Suburban Plaza
240 Route 10 West
Whippany, New Jersey 07981-0206
(Suburban Propane Logo)
May 13, 1997
Dear Fellow Suburban Propane Unitholder:
You are cordially invited to attend the Tri-Annual Meeting of Limited
Partners of Suburban Propane Partners, L.P. to be held on Tuesday, June 17,
1997, beginning at 9:00 a.m. at The Olde Mill Inn, 225 Route 202, at Exit 30B
off Route 287, Basking Ridge, New Jersey 07920.
Whether or not you plan to attend in person, it is important that your
units be represented at the meeting. You may vote on the matters that come
before the meeting by marking the enclosed proxy card and returning it promptly.
If you sign and return your proxy card without specifying your choices, it will
be understood that you wish to have your units voted in accordance with the
recommendations as set forth in the attached Proxy Statement.
Sincerely,
/s/ MARK A. ALEXANDER
--------------------------------------------
Mark A. Alexander
President and Chief Executive Officer
SUBURBAN PROPANE PARTNERS, L.P.
One Suburban Plaza
240 Route 10 West
Whippany, New Jersey 07981
NOTICE OF TRI-ANNUAL MEETING OF
LIMITED PARTNERS TO BE HELD ON
JUNE 17, 1997
Notice is hereby given that the 1997 Tri-Annual Meeting of Limited Partners (the
"Tri-Annual Meeting") of Suburban Propane Partners, L.P. (the "Partnership")
will be held at The Olde Mill Inn, 225 Route 202, at Exit 30B off Route 287,
Basking Ridge, New Jersey 07920 on June 17, 1997, beginning at 9:00 a.m. for the
following purposes:
1. To elect three members of the Partnership's Board of Supervisors to serve
as Elected Supervisors for three year terms expiring at the Partnership's
2000 Tri-Annual Meeting;
2. To ratify the appointment of Price Waterhouse LLP as the Partnership's
independent auditors for fiscal 1997; and
3. To consider any other matters that may properly come before the Tri-Annual
Meeting.
Only record holders of the Partnership's common and subordinated units at the
close of business on May 9, 1997 will be entitled to notice of and to vote at
the Tri-Annual Meeting and any postponements and adjournments thereof.
By Order of the Board of Supervisors
/s/ KEVIN T. McIVER
--------------------------------------------------
Kevin T. McIver
Secretary
May 13, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE TRI-ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND RETURN THE ENCLOSED PROXY CARD.
SUBURBAN PROPANE PARTNERS , L.P.
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PROXY STATEMENT
----------------------
This Proxy Statement is furnished to unitholders in connection with
the solicitation by the Board of Supervisors of Suburban Propane Partners,
L.P. (the "Partnership"), of proxies for use at the Tri-Annual Meeting of
Limited Partners of the Partnership (the "Tri-Annual Meeting") to be held at The
Olde Mill Inn, 225 Route 202, at Exit 30B off Route 287, Basking Ridge, New
Jersey 07920, on June 17, 1997, at 9:00 a.m., and at any and all postponements
or adjournments thereof, for the purposes set forth in the accompanying Notice
of Tri-Annual Meeting.
This Proxy Statement, the Notice of Tri-Annual Meeting and the accompanying
proxy card are first being mailed to unitholders of the Partnership on or about
May 13, 1997.
MATTERS TO BE CONSIDERED
At the Tri-Annual Meeting, unitholders will be asked to consider and vote
upon the election of three supervisors (the "Elected Supervisors"), and to
ratify the appointment of Price Waterhouse LLP as the Partnership's independent
auditors for fiscal 1997. The Board of Supervisors knows of no matters that are
to be brought before the Tri-Annual Meeting other than as set forth in the
Notice of Tri-Annual Meeting. If any other matters properly come before the
Tri-Annual Meeting, the persons named in the enclosed form of proxy or their
substitutes will vote in accordance with their best judgment on such matters.
VOTING
Only unitholders of record at the close of business on May 9, 1997 (the
"Record Date") are entitled to notice of the Tri-Annual Meeting and to vote
their common or subordinated units held by them on that date at the Tri-Annual
Meeting or any postponements or adjournments thereof. Each outstanding common or
subordinated unit entitles its holder to cast one vote on each matter to be
voted upon at the Tri-Annual Meeting. As of the Record Date, 21,562,500 common
units and 7,163,750 subordinated units were outstanding; all of the subordinated
units are owned by Suburban Propane GP, Inc., the general partner of the
Partnership (the "General Partner") and an indirect, wholly-owned subsidiary of
Millennium Chemicals Inc.("Millennium").
The presence at the Tri-Annual Meeting, in person or by proxy, of a
majority of all common and subordinated units outstanding on the Record Date
will constitute a quorum. The affirmative vote of holders of a plurality of
outstanding common units and subordinated units present in person or represented
by proxy at the Tri-Annual Meeting and voting as a single class is required for
the election of Elected Supervisors, assuming a quorum is present. Only common
units and subordinated units that are voted in favor of a nominee will be
counted toward that nominee's achievement of a plurality. Units held by
unitholders present in person at the Tri-Annual Meeting that are not voted for a
nominee or units held by unitholders represented at the Tri-Annual Meeting by
proxy from which authority to vote for a nominee has been properly withheld
(including broker non-votes) will not be counted toward that nominee's
achievement of a plurality.
1
Assuming a quorum is present, the approval of each other proposal to be
considered at the Tri-Annual Meeting requires the affirmative vote of holders of
at least a majority of the outstanding common units and subordinated units
entitled to vote and be present in person or by proxy at the Tri-Annual Meeting.
With respect to an abstention, the units will be considered present and entitled
to vote at the Tri-Annual Meeting and they will have the same effect as votes
against the matter. With respect to broker non-votes, the units will not be
considered entitled to vote at the Tri-Annual Meeting for such matter and the
broker non-votes will have the practical effect of reducing the number of
affirmative votes required to achieve a majority vote for such matter by
reducing the total number of units from which the majority is calculated.
If the accompanying proxy card is properly signed and returned to the
designated party and not revoked, it will be voted in accordance with the
instructions contained therein. Unless contrary instructions are given, the
persons designated as proxy holders in the proxy card will vote FOR the election
of the Elected Supervisors and FOR ratification of the appointment of Price
Waterhouse LLP as the Partnership's independent accountants for its 1997 fiscal
year, and as recommended by the Board of Supervisors with regard to all other
matters or, if no such recommendation is given, in their own discretion. Each
unitholder may revoke a previously granted proxy at any time before it is
exercised by filing with the Secretary of the Partnership a revoking instrument
or a duly executed proxy bearing a later date or by attending the Tri-Annual
Meeting and voting in person. Attendance at the Tri-Annual Meeting will not in
and of itself constitute revocation of a proxy.
PROXY SOLICITATION
The cost of soliciting proxies in the enclosed form will be borne by the
Partnership. Officers and regular employees of the Partnership may, but without
compensation other than their regular compensation, solicit proxies by further
mailing or personal conversations, or by telephone, telex or facsimile. The
Partnership will, upon request, reimburse brokerage firms and others for their
reasonable expenses in forwarding solicitation material to the beneficial owners
of common units.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of May 1, 1997
regarding the beneficial ownership of common and subordinated units by each
person or group known by the Partnership (based upon filings under Section 13(d)
or (g) under The Securities Exchange Act of 1934, as amended (the "Exchange
Act")) to own beneficially more than 5% thereof, each member of the Board of
Supervisors, each executive officer named in the Summary Compensation table and
all members of the Board of Supervisors and executive officers as a group.
2
Suburban Propane, L.P.
- ----------------------
Name of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership (1) of Class
- -------------- ---------------- --------------------- --------
Common Units Mark A. Alexander 19,100 *
Salvatore M. Quadrino 0 ---
Charles T. Hoepper 2,000 *
Kevin T. McIver 1,000 *
David R. Feheley 3,000 *
George H. Hempstead, III 0 ---
Robert E. Lee 1,300 (2) *
John Hoyt Stookey 10,000 *
Harold R. Logan, Jr. 2,500 *
Dudley C. Mecum 1,000 *
All Members of the Board
of Supervisors and Executive
Officers as a Group (12 persons) 44,200 .205%
Subordinated
Units Suburban Propane GP, Inc.(3) 7,163,750 100.0%
(1) Unless otherwise indicated, each holder has sole voting and investment power
over the units beneficially owned.
(2) Includes 300 units owned by Mr. Lee's son.
(3) Suburban Propane GP, Inc. is an indirect, wholly-owned subsidiary of
Millennium, which may be deemed to be the beneficial owner of all subordinated
units owned by Suburban Propane GP, Inc. The business address of both
corporations is 99 Wood Avenue South, Iselin, New Jersey 08830.
* Represents less than one-tenth of 1%.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Section 16(a) of the Exchange Act requires the members of the Partnership's
Board of Supervisors and its executive officers to file initial reports of
ownership and reports of changes in ownership of the Partnership's common units
with the Securities and Exchange Commission. Members of the Board of Supervisors
and executive officers are required to furnish the Partnership with copies of
all Section 16(a) forms that they file. Based upon a review of these filings,
the Partnership notes that Mr. Stookey inadvertently failed to report by March
15, 1996 his ownership of 10,000 common units. The relevant filing disclosing
his purchase of these common units was made on April 8, 1996.
ELECTION OF ELECTED SUPERVISORS
(Item 1 on Proxy Card)
The Board of Supervisors of the Partnership is composed of seven
supervisors: two Appointed Supervisors appointed by the General Partner of the
Partnership (the "Appointed Supervisors"); two Management Supervisors who are
executive officers of the Partnership (the "Management Supervisors"); and three
Elected Supervisors who are the nominees described below, all of whom are
currently serving as Elected Supervisors. The General Partner has delegated to
the Board of Supervisors all management powers over the business and affairs of
the Partnership that the General Partner possesses under applicable law.
3
The Elected Supervisors have been nominated by the Board of Supervisors and
are required to be elected by a plurality of the votes of holders of outstanding
common units and subordinated units present in person or represented at the
Tri-Annual Meeting and voting as a single class. If elected, all nominees are
expected to serve until the Partnership's next Tri-Annual Meeting in 2000 and
until their successors are duly elected. All of the nominees at present are
available for election as supervisors. If for any reason a nominee becomes
unavailable for election, the proxies solicited by the Board of Supervisors will
be voted for a substitute nominee selected by the Board of Supervisors.
Set forth below is biographical information concerning each nominee for
Elected Supervisor.
NOMINEES FOR ELECTION AS ELECTED SUPERVISORS
-- TO SERVE UNTIL THE 2000 TRI-ANNUAL MEETING
John Hoyt Stookey, 67, has served as Chairman and a Member of the Board of
Supervisors of the Partnership since March 5, 1996, the date the Partnership
commenced operations upon consummation of an initial public offering of common
units representing limited partner interests in the Partnership (the "Spin-Off
Date"). He had been the non-executive Chairman and a director of Quantum
Chemical Corporation ("Quantum") from the time it was acquired by Hanson PLC
("Hanson") on September 30, 1993 to October 31, 1995. From 1986 to September 30,
1993, he was the Chairman, President and Chief Executive Officer of Quantum. He
is also a director of United States Trust Company of New York, ACX Technologies,
Inc., Chesapeake Corporation and Cypress Amax Minerals Company. Mr. Stookey
served from 1989 to 1993 as an executive officer of Petrolane Incorporated,
Petrolane Finance Corp., and QJV Corp., which companies were reorganized in July
1993 under the U.S. Bankruptcy Code. These companies were affiliates of Quantum
at the time of such reorganization.
Harold R. Logan, Jr., 52, has been an Elected Supervisor of the Partnership
since the Spin-Off Date. Mr. Logan is Executive Vice President, Chief Financial
Officer and Treasurer as well as a Director of TransMontaigne Oil Company (a
company engaged in the distribution and marketing of petroleum products,
primarily gasoline and jet fuel, and in the gathering and processing of natural
gas). From 1987 to 1995 he served as Senior Vice President of Finance and a
Director of Associated Natural Gas Corporation (an independent gatherer and
marketer of natural gas, natural gas liquids and crude oil which in 1994 was
acquired by Panhandle Eastern Corporation).
Dudley C. Mecum, 62, has been an Elected Supervisor of the Partnership
since June 25, 1996. Mr. Mecum is Chairman of Mecum Associates Inc. (management
consultants). Mr. Mecum was a partner of G. L. Ohrstrom & Co. (a sponsor of and
investor in leveraged transactions) from 1989 to June, 1996. He is also a
director of Travelers Group, Inc., Travelers/Aetna Property & Casualty Corp.,
Lyondell Petrochemical Company, Fingerhut Companies, Inc., Dyncorp, Vicorp
Restaurants, Inc. and Metris Industries, Inc.
The Board of Supervisors recommends a vote "FOR" the above named nominees.
4
REMAINING MEMBERS OF THE BOARD OF SUPERVISORS
Set forth below is biographical information concerning each Appointed
Supervisor and each Management Supervisor.
George H. Hempstead, III, 53, has been an Appointed Supervisor of the
Partnership since the Spin-Off Date. He is also Vice President and Secretary and
a Director of the General Partner. He has served as Senior Vice President, Law
and Administration of Millennium since October 1996, as Senior Vice President,
Law and Administration of Hanson Industries (Hanson's management division in the
United States) from June 1995 to September 1996 as well as Senior Vice President
and General Counsel of Hanson Industries from 1993 to 1995 and Vice President
and General Counsel of Hanson Industries from 1982 to 1993. He was an Associate
Director of Hanson from 1990 to September 1996 and a Director of Hanson
Industries from 1986 to September 1996. He initially joined Hanson Industries in
1976.
Robert E. Lee, 40, has been an Appointed Supervisor of the Partnership
since the Spin-Off Date. He is also the President and a Director of the General
Partner. He has served as President, Chief Operating Officer and a Director of
Millennium since October 1996 and was a Senior Vice President and Chief
Operation Officer of Hanson Industries from June 1995 until September 1996. He
was Vice President and Chief Financial Officer of Hanson Industries from 1992 to
June 1995 and Vice President and Treasurer from 1990 to 1992. He was an
Associate Director of Hanson from 1992 to September 1996 and a Director of
Hanson Industries from June 1995 to September 1996. He joined Hanson Industries
in 1982.
Mark A. Alexander, 38, has been a Management Supervisor of the Partnership
since the Spin-Off Date. He has served as President and Chief Executive Officer
since October 1, 1996 and was previously Executive Vice Chairman and Chief
Executive Officer of the Partnership. Mr. Alexander was Senior Vice President --
Corporate Development of Hanson Industries from 1995 until March 4, 1996, where
he was responsible for mergers and acquisitions, real estate and divestitures,
and was Vice President of Acquisitions from 1989 to 1995. He was an Associate
Director of Hanson from 1993 and a Director of Hanson Industries from June 1995
until March 4, 1996.
David R. Feheley, 49, serves as Senior Vice President -- Operations of the
Partnership and was appointed a Management Supervisor on October 1, 1996. Mr.
Feheley was Senior Vice President -- Operations of Suburban Propane from
September 1995 until March 4, 1996 and was an Area Vice President from October
1990 to September 1995.
5
PARTNERSHIP GOVERNANCE
General
- -------
The Partnership commenced operations on the Spin-Off Date upon consummation
of an initial public offering of common units representing limited partner
interests in the Partnership. The General Partner has been an indirect,
wholly-owned subsidiary of Millennium since October, 1996, when Hanson PLC
("Hanson") transferred Quantum and its other chemical operations to Millennium
and Millennium distributed all its then outstanding common stock to Hanson
shareholders, and serves as the general partner of the Partnership. Both the
General Partner and Quantum are indirect wholly-owned subsidiaries of
Millennium, which was formed as a result of Hanson's demerger in October 1996.
The General Partner holds a 1% general partner interest in the Partnership and a
1.0101% general partner interest in Suburban Propane, L.P. (the "Operating
Partnership"). In addition, the General Partner owns a 24.4% limited partner
interest in the Partnership. This limited partner interest is evidenced by
subordinated units representing limited partner interests in the Partnership.
The General Partner has delegated to the Partnership's Board of Supervisors
all management powers over the business and affairs of the Partnership that the
General Partner possesses under applicable law.
Supervisors' Remuneration and Attendance at Meetings
- ----------------------------------------------------
The Management and Appointed Supervisors are not compensated for their
services as Supervisors. Mr. Stookey receives annual compensation of $75,000 for
his services as Chairman of the Board of Supervisors. Messrs. Logan and Mecum
each receive $15,000 per year, plus $1,000 per meeting of the Board of
Supervisors or committee thereof attended. In addition the Elected Supervisors
participate in the Partnership's 1996 Restricted Unit Plan (the "Restricted Unit
Plan") and each received Unit Awards of 14,634 units in 1996, having a value of
$300,000 as of the Spin-Off Date. These Unit Awards are subject to a bifurcated
vesting procedure such that (i) 25% of the Unit Awards vest in equal amounts in
1999, 2001 and 2003 and (ii) the remaining 75% vest automatically on, and in the
same proportion as, the conversion of subordinated units to common units which
conversion cannot commence prior to April 1999. The Partnership reimburses the
Elected Supervisors for their reasonable out-of-pocket expenses incurred in
connection with Board and Committee meetings and pays the premiums on a
directors' and officers' insurance policy insuring the Elected Supervisors.
The Board held four meetings in fiscal 1996. Each Elected Supervisor
attended at least 75% of the total number of meetings of the Board and
Committees on which such Supervisor served, except that Mr. Mecum missed one of
the two Board meetings held in fiscal 1996 subsequent to his appointment as an
Elected Supervisor.
6
Committees of the Board
- -----------------------
The Board has established three standing committees: an Audit Committee, a
Compensation Committee and a Restricted Unit Plan Committee.
The Audit Committee has authority to review, at the request of the Board of
Supervisors, specific matters as to which the Board believes there may be a
conflict of interest in order to determine if the resolution of such conflict
proposed by the Board is fair and reasonable to the Partnership. In addition,
the Audit Committee reviews external financial reporting of the Partnership,
recommends engagement of the Partnership's independent accountants and reviews
the Partnership's procedures for internal auditing and the adequacy of its
internal accounting controls. The Committee, which presently consists of Messrs.
Stookey, Mecum and Logan (Chairman), met once during the seven month period
beginning on the Spin-Off Date through the end of the 1996 fiscal year.
The Compensation Committee sets the compensation for all executive officers
and administers incentive plans for executive officers, other than the
Restricted Unit Plan Committee. The Committee, which presently consists of
Messrs. Stookey (Chairman), Logan and Hempstead, met once during the seven month
period beginning on the Spin-Off Date through the end of the 1996 fiscal year.
The Restricted Unit Plan Committee reviews and approves all Unit Awards
under the Partnership's Restricted Unit Plan and administers the Plan for the
participants therein. The Committee, which presently consists of Messrs. Stookey
and Logan, met once during the seven month period beginning on the Spin-Off Date
through the end of the 1996 fiscal year.
EXECUTIVE COMPENSATION
Compensation Committee Report on Executive Compensation
- -------------------------------------------------------
The Compensation Committee has delivered the following report:
Executive Compensation
The principles to which the Committee adheres in structuring executive
compensation are discussed below.
A) Long-Term and At-Risk Focus
---------------------------
A significant portion of total compensation for executive officers should
be composed of long-term, at-risk pay to focus management on, and align its
own interests with, the long-term interests of owners of the Partnership's
common and subordinated units.
B) Management Development
----------------------
Compensation opportunities are structured to attract and retain those
individuals who can maximize the creation of unitholder value. The
compensation structure supports the Partnership's philosophy of developing
potential leaders throughout the system.
7
C) Competitiveness
---------------
Over time, the level of competitiveness in compensation opportunities will
be based on the Partnership's performance relative to other publicly traded
limited partnerships and best practices in executive compensation followed
by the comparison group of companies discussed below which are coincident
with the Board of Supervisors' views regarding total unitholder return. In
accordance with this principle, current total compensation competitiveness
is targeted in the third quartile (on a scale where the fourth quartile is
the highest and the first quartile is the lowest) of the range of total
compensation of a comparison group of companies consisting of other
publicly traded master limited partnerships. This comparison group does not
consist of the same companies which comprise the peer group for the
performance graph contained in this Proxy Statement.
Components of Executive Compensation
The four components of executive compensation are: (a) base salary, (b)
annual incentives, (c) long-term incentives and (d) benefits. Each category is
offered to executive officers and key employees in various combinations,
structured in each case to meet varying business objectives, to provide a level
of total compensation in the third quartile of the range of total compensation
offered by comparison group companies.
Total compensation comparisons are selected by reviewing other master
limited partnerships for such performance characteristics as distribution
payment levels and controllable profit and earnings before interest, taxes,
depreciation and amortization ("EBITDA"). Those entities which exhibit
leadership in these performance measures over sustained periods are selected as
benchmarks for the Partnership's compensation standards. The Committee may also
choose to benchmark pay practices at companies that reflect a broader market for
executive talent.
A) Base Salary
-----------
Base salary is targeted at the third quartile of the range for the
comparison group. Increases in base salary are at competitive levels but
occur at frequencies ranging from 12 months to 18 months, depending upon
recent performance, time in job, level of pay and other factors. The
intervals between increases in base pay are designed to ensure that
management's focus remains on the long-term portion of the total
compensation package. Increases in base pay are determined by individual
performance rather than the Partnership's performance, and are based on
performance reviews given every 12 months.
8
B) Annual Performance Incentive Plan
---------------------------------
Target annual incentives are established for certain key employees,
including executive officers. The actual award is based on EBITDA,
controllable profit, customer service and personal performance, and may be
greater or less than the target annual incentive. Below a threshold level
of performance, no awards will be granted. Generally, profit growth, and
unit volume increase are weighed higher than personal performance, but the
Compensation Committee may adjust weightings to take into account unusual
circumstances. Opportunities are targeted at the third quartile of the
range of the comparison group.
C) Long-Term Incentives
--------------------
At present, the only long-term incentive program is the Restricted Unit
Plan. A long-term incentive plan is currently being designed, and it is
anticipated that this plan will be implemented prior to the end of fiscal
1997.
D) Restricted Units
----------------
The Restricted Unit Award Plan is designed as a special purpose plan to
focus executives, including executive officers, on the long-term
performance of the Partnership. Units are subject to forfeiture should
these executives leave the Partnership. Consistent with the Committee's
emphasis on long-term, at-risk focus, the units vest over a seven year
period and 75% of the awards are contingent on the conversion of the
Partnership's subordinated units to common units, which conversion is
dependent upon the Partnership's financial performance.
E) Supplemental Executive Retirement Plan
--------------------------------------
The Supplemental Executive Retirement Plan is an unfunded plan, designed to
provide additional retirement benefits to senior executive officers of the
Partnership. Benefits under the Plan are calculated without regard to
statutory maximums.
F) Benefits
--------
Benefits offered to key executives serve a different purpose than do the
other elements of total compensation. In general, they provide a safety net
of protection against the financial catastrophes that can result from
illness, disability or death. Benefits offered to key executives are
largely those that are offered to the general employee population, with
some variation, primarily to promote tax efficiency and replacement of
benefit opportunities lost due to regulatory limits.
9
Chief Executive Officer's Compensation
The compensation of Mark A. Alexander, the Chief Executive Officer of the
Partnership is based upon an Employment Agreement with him which became
effective on March 5, 1996 and has a term of three years. Pursuant to his
Employment Agreement, Mr. Alexander receives an annual base salary of $350,000,
subject to annual review, and received Restricted Unit Awards with a value of
$3,000,000 based on the price of the Partnership's common units as of the
Spin-Off Date. The Restricted Unit Awards vest pursuant to the bifurcated
vesting procedure such that (i) 25% of the Unit Awards vest in equal amounts in
1999, 2001 and 2003 and (ii) the remaining 75% vest automatically on, and in the
same proportion as, the conversion of subordinated units to common units which
conversion cannot commence prior to April 1999. Of the total award, 75% is
subject to vesting if certain financial goals are met by the Partnership over
the next five years. In addition, Mr. Alexander may earn a bonus of up to 100%
of annual base salary for services rendered based upon certain performance
criteria. The Committee believes that the foregoing contingent compensation
arrangements set forth in Mr. Alexander's Employment Agreement achieve the
desired mutuality of interest between the Chief Executive Officer and the
Partnership's unitholders, and considers Mr. Alexander's Employment Agreement to
be consistent with its compensation philosophy.
Respectfully submitted:
John Hoyt Stookey (Chairman)
George H. Hempstead, III
Harold R. Logan, Jr.
10
Summary Compensation Table
- --------------------------
The following table sets forth a summary of all compensation awarded or
paid to or earned by the chief executive officer and the four other most highly
compensated executive officers of the Partnership in fiscal 1996 (the
Partnership's first year as a reporting company under Section 13(a) or 15(d) of
the Exchange Act. The compensation set forth below for the portion of fiscal
1996 prior to March 5, 1996 and for fiscal 1995, reflects services rendered by
the four named executive officers (other than Mr. Alexander) to the Suburban
Propane Division of Quantum (the "Predecessor Company"). Mr. Alexander, who
joined the Partnership on March 5, 1996, was not employed by the Predecessor
Company. His salary amount set forth below reflects the base salary amount paid
from March 5, 1996 through the end of fiscal 1996.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------- ----------------------
Restricted
Name and Unit All Other
Principal Position Year Salary ($) Bonus ($)(3)Award(s)($)(4) Compensation($)(6)
- ------------------ ---- ---------- ---------- ------------ ----------------
Mark A. Alexander 1996 196,538 20,417 3,000,000 1,610
Executive Vice
Chairman and Chief
Executive Officer
Salvatore M.Quadrino(1) 1996 275,000 12,030 2,500,000 (5) 499,750
President 1995 225,000 0 4,500
Charles T. Hoepper (2) 1996 145,000 7,250 500,000 (5) 149,350
Senior Vice President 1995 135,000 0 2,950
and Chief Financial
Officer
Kevin T. McIver 1996 138,000 6,210 325,000 143,140
Vice President and 1995 131,553 0 3,962
General Counsel
David R. Feheley 1996 135,000 7,425 500,000 139,050
Senior Vice President 1995 106,000 0 2,319
- Operations
(1) Mr.Quadrino resigned as President of the Partnership and as a member of its
Board of Supervisors on October 1, 1996. Pursuant to the terms of his
resignation, Mr. Quadrino is entitled to continue to receive through March 4,
1999 a salary of $275,000 per year and, subject to certain restrictions, medical
and dental benefits and life insurance coverage with a face amount of $825,000.
Mr. Alexander replaced Mr. Quadrino as President of the Partnership effective
October 1, 1996.
11
(2) Mr. Hoepper resigned as Senior Vice President and Chief Financial
Officer of the Partnership on March 17, 1997. Mr. Hoepper was replaced
as Vice President and Chief Financial Officer by Anthony M. Simonowicz,
previously Vice President - Corporate Development of the Partnership. Mr.
Hoepper received no severance or termination-related compensation at the time
of his resignation.
(3) Bonuses are reported for the year earned, regardless of the year paid. The
bonus program is based on the achievement of pre-determined business and/or
financial performance objectives measured in operating profit and return on
capital employed. Due to the negative impact on Suburban Propane's results of
operations resulting from the warm winter in fiscal year 1995, no bonuses
were paid to executive officers employed by Suburban for such fiscal year.
(4) The Restricted Units were issued on March 5, 1996 (at the consummation of
the Partnership's initial public offering) under the Partnership's 1996
Restricted Unit Plan. The aggregate dollar value was computed by multiplying the
number of Restricted Units granted by $20.50, the initial public offering price
of the common units. The Restricted Units are subject to a bifurcated vesting
procedure such that: (i) 25% of the units vest in equal amounts on each of March
5, 1999, 2001 and 2003 (or upon a change of control of the Partnership); and
(ii) the remaining 75% vest automatically upon, and in the same proportion as,
the conversion of the subordinated units to common units, which conversion
cannot commence prior to April 1999 under the Partnership's Amended and Restated
Partnership Agreement dated as of March 4, 1996 (or upon a change of control of
the Partnership). Until such Restricted Units vest, their holders will not be
entitled to any distributions or allocations of income and loss, nor shall they
have any voting or other rights with respect to such common units. At September
28, 1996, the number of Restricted Units and the aggregate value thereof
(calculated at a per Unit price of $21.75, the closing price of a common unit on
September 27, 1996 as reported on the New York Stock Exchange) were 146,341
($3,182,917) for Mr. Alexander, 121,951 ($2,652,434) for Mr. Quadrino, 24,391
($530,504) for Mr. Hoepper, 15,854 ($344,825) for Mr. McIver and 24,391
($530,504) for Mr. Feheley. See Footnote 5 below.
(5) These awards where forfeited with the resignations of Messrs. Quadrino and
Hoepper.
(6) Amounts for fiscal 1996 include one-time success fee payments made by
Hanson in connection with the consummation of the Partnership's initial
public offering; matching contributions under the Suburban Propane Retirement
Savings and Investment Plan and, in the case of Mr. McIver, premium payments
relating to the Suburban Propane Executive Death Benefit Plan. The amounts
of the success fees were $450,000, $145,000, $138,000 and $135,000 to Messrs.
Quadrino, Hoepper, McIver and Feheley. Mr. Quadrino's compensation amount also
includes certain benefits in connection with his termination of employment.
Retirement Benefits
- -------------------
The following table sets forth the annual benefits upon retirement at age
65 in 1996, without regard to statutory maximums, for various combinations of
final average earnings and lengths of service which may be payable to Messrs.
Alexander, Quadrino, Hoepper, McIver, and Feheley under the Pension Plan for
Eligible Employees of Suburban Propane, L.P. and Subsidiaries and the Suburban
Propane Company Supplemental Executive Retirement Plan. Each such plan has been
assumed by the Partnership and each such person will be credited for service
earned under such plan to date. As of September 28, 1996, Messrs. Alexander,
Quadrino, Hoepper, McIver, and Feheley had 7 months, 6 years, 5 years, 14 years,
and 20 years service under the plans.
12
Pension Plan
Annual Benefit for Years of Credited Service Shown (2)
Final 5-Year (1)
Average
Earnings 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years
- -------- ------- -------- -------- -------- -------- -------- --------
$100,000 8,147 16,294 24,440 32,587 40,734 48,881 57,028
$200,000 16,897 33,794 50,690 67,587 84,484 101,381 118,278
$300,000 25,647 51,294 76,940 102,587 128,234 153,881 179,528
$400,000 34,397 68,794 103,190 137,587 171,984 206,381 240,778
$500,000 43,147 86,294 129,440 172,587 215,734 258,881 302,028
1) The Plans' definition of earnings consists of base pay only.
2) Annual Benefits are computed on the basis of straight life
annuity amounts. The pension benefit is calculated as follows: the sum of
(a) plus (b) multiplied by (c) where (a) is that portion of final average
earnings up to 125% of social security Covered Compensation times 1.4% and
(b) is that portion of final average earnings in excess of 125% of social
security Covered Compensation times 1.75% and (c) is credited service up to
a maximum of 35 years.
In addition, certain additional retirement and life insurance benefits are
payable to Mr. McIver pursuant to two Suburban Propane executive plans that were
in effect prior to Quantum's acquisition of Suburban Propane in 1983. Under the
Suburban Propane Deferred Compensation Plan, Mr. McIver is entitled, subject to
certain conditions set forth in the Plan, which include remaining in the
Partnership's employ until retirement, to receive a retirement supplement of
approximately $21,000 per year for a ten-year period subsequent to retirement.
Under the Suburban Propane Executive Death Benefit Plan, $100,000 of life
insurance proceeds, on an after-tax basis, are payable to Mr. McIver's estate,
subject to the terms and conditions of the Plan, which include remaining in the
employ of the Partnership until retirement.
Supplemental Executive Retirement Plan
- --------------------------------------
The Partnership has adopted a non-qualified, unfunded supplemental
retirement plan known as the Supplemental Executive Retirement Plan. The purpose
of the Plan is to provide certain executive officers with a level of retirement
income from the Partnership, without regard to statutory maximums. Under the
Plan, a participant's annual benefit, assuming retirement at age 65, is equal to
(a) 1.4% of the participant's Average Final Compensation not in excess of 125%
of Covered Compensation plus (b) 1.75% of the participant's Average Final
Compensation in excess of 125% of Covered Compensation times (c) the
participant's years of benefit service with the Partnership (not to exceed 35)
minus (d) the Pension Offset. The defined terms in this paragraph will have the
same meanings as in the Plan or in the Partnership's qualified Retirement Plan.
Messrs. Alexander and Feheley currently participate in this Plan.
13
Restricted Unit Plan
- --------------------
The Partnership has adopted the Restricted Unit Plan for executive
officers, other key employees and the Elected Supervisors of the Partnership.
The summary of the Restricted Unit Plan contained herein does not purport to be
complete and is qualified in its entirety by reference to the Restricted Unit
Plan, which was filed as an exhibit to the Partnership s Registration Statement
on Form S-1 (Registration No. 33-80605).
Rights to acquire authorized but unissued common units of the Partnership
with an aggregate value of $15.0 million are available under the Restricted Unit
Plan. For purposes of calculating the value of these unit grants, a value of
$20.50 (the initial public offering price of the common units) has been
utilized. As of September 30, 1996, rights to acquire common units with an
aggregate value of $10.5 million (the Initial Units ) were granted, subject to
the vesting conditions described below and subject to other customary terms and
conditions, as follows: (i) rights to acquire common units with an aggregate
value of $3.0 million have been allocated to Mr. Alexander, (ii) rights to
acquire common units with an aggregate value of $2.5 million were allocated to
Mr. Quadrino, but have been forfeited upon Mr. Quadrino s resignation, (iii)
rights to acquire common units with an aggregate value of $4.1 million were
allocated to other participants in the Plan who are executive officers or other
key employees of the Partnership s business, as determined by the Board of
Supervisors or a compensation committee thereof, and (iv) rights to acquire
common units with an aggregate value of $0.9 million were allocated among the
three Elected Supervisors.
The rights to acquire the remaining $7.0 million of the $15.0 million
aggregate value of Initial Units were reserved and may be allocated or issued in
the future to executive officers and other key employees on such terms and
conditions (including vesting conditions) as are described below or as the Board
of Supervisors, or a compensation committee thereof, shall determine. Without
the consent of the General Partner, such awards to executive officers and other
key employees cannot be made to prior award recipients except on terms and
conditions substantially identical to the awards previously received. Each
Elected Supervisor subsequently appointed or elected will receive rights to
acquire common units with a value of $0.3 million on the same terms and
conditions as those granted to the three initial Elected Supervisors.
The Initial Units are subject to a bifurcated vesting procedure such that
(i) 25% of the Initial Units will vest over time (or upon a change of control of
the Partnership as defined in the Restricted Unit Plan, if earlier) with
one-third of such units vesting at the end of the third, fifth and seventh
anniversaries of the consummation of the Partnership s initial public offering,
and (ii) the remaining 75% of the Initial Units will vest automatically upon,
and in the same proportions as, the conversion of the Subordinated Units to
common units (or upon a change of control of the Partnership as defined in the
Restricted Unit Plan, if earlier).
14
Upon vesting in accordance with the terms and conditions of the Restricted
Unit Plan, common units allocated to a plan participant will be issued to such a
participant. Until such allocated, but unissued, common units have vested and
have been issued to a participant, such participant shall not be entitled to any
distributions or allocations of income or loss and shall not have any voting or
other rights in respect of such common units.
The issuance of the common units pursuant to the Restricted Unit Plan is
intended to serve as a means of incentive compensation for performance and not
primarily as an opportunity to participate in the equity appreciation in respect
of the common units. Therefore, no consideration will be payable by the plan
participants upon vesting and issuance of the Common Units.
Employment Agreements
- ---------------------
The Partnership entered into employment agreements (the Employment
Agreements ) with Mr. Alexander and Quadrino (each, an Executive) which became
effective March 5, 1996. The summary of such Employment Agreements contained
herein does not purport to be complete and is qualified in its entirety by
reference to the Employment Agreements. On October 1, 1996, Mr. Quadrino
resigned as President of the Partnership and, pursuant to his Employment
Agreement, will be paid $22,916 per month through March 1999.
Mr. Alexander's Employment Agreement has an initial term of three years but
automatically renews for successive one-year periods, unless earlier terminated
by the Partnership or by Mr. Alexander or otherwise terminated in accordance
with the Employment Agreement. The Employment Agreement for Mr. Alexander
provides for an initial base salary of $350,000. Mr. Alexander may earn a bonus
up to 100% of annual base salary for services rendered based upon certain
performance criteria. The Employment Agreement also provides for the opportunity
to participate in benefit plans made available to other senior executives and
senior managers of the Partnership, including the Restricted Unit Plan. The
Partnership also provides Mr. Alexander with term life insurance with a face
amount equal to three times his annual base salary. In addition, Mr. Alexander
participates in a non-qualified supplemental retirement plan which provides
retirement income which could not be provided under the Partnership s qualified
plans by reason of limitations contained in the Internal Revenue Code. If a
change of control (as defined in the Employment Agreement) of the Partnership
occurs and within six months prior thereto or at any time subsequent to a change
of control the Partnership terminates the Executive s employment without cause
(other than pursuant to a non-renewal) or the Executive resigns with good
reason, then the Executive will generally be entitled to (i) a lump sum
severance payment equal to three times the sum of his annual base salary in
effect as of the date of termination, (ii) the maximum bonus paid or payable
with respect to any of the three preceding fiscal years, and (iii) medical
benefits for three years from the date of such termination. The Employment
Agreement provides that if any payment received by the Executive is subject to
the 20% federal excise tax under Section 4999 of the Code, the payment will be
grossed up to permit the Executive to retain a net amount on an after-tax basis
equal to what he would have received had the excise tax not been payable.
15
Severance Protection Plan For Key Executives
- --------------------------------------------
The Partnership has adopted a Severance Protection Plan which provides the
Partnership s executive officers and other key employees with employment
protection for one year following a "change of control" as defined in the plan.
This plan provides for severance payments equal to sixty-five weeks of base pay
and target bonus following a change of control for such officers and key
employees.
COMPARISON OF CUMULATIVE TOTAL RETURN
The following graph compares the performance of the Partnership's common
units with the performances of the New York Stock Exchange Index (the "NYSE
Market Index") and a peer group index over the period from February 29, 1996,
when regular trading in the common units commenced on the NYSE, through
September 28, 1996, the end of the 1996 fiscal year. The graph assumes that $100
was invested on February 29, 1996 in each of the Partnership's common units, the
NYSE Index and the peer group index and that all distributions or dividends were
reinvested.
The Partnership does not believe that any published industry or
line-of-business index accurately reflects the Partnership's business.
Accordingly, the Partnership has created a special peer group index consisting
of the five other propane marketing companies whose common units are publicly
traded. The common units of the following companies have been included in the
Partnership's peer group index: Ferrellgas Partners, L.P., AmeriGas Partners,
L.P., Star Gas Partners, L.P., National Propane Partners, L.P. and Heritage
Propane Partners, L.P. The peer group weighs the returns of Ferrellgas, AmeriGas
and Star Gas according to each company's public market capitalization as of
February 29, 1996. The peer group weighs the returns of National Propane and
Heritage Propane according to each company's public market capitalization as of
the dates that the common units of these two companies began to trade publicly,
which were June 27, 1996 and June 25, 1996, respectively.
(NOTE: THIS TABLE IS REPRESENTED BY A GRAPH WHICH HAS BEEN OMITTED FOR THE
ELECTRONIC FILING.)
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG THE PARTNERSHIP,
NYSE INDEX AND PEER GROUP INDEX
02/29/96 03/31/96 06/30/96 09/28/96
-------- -------- -------- --------
SUBURBAN PROPANE $ 100.00 $ 101.22 $ 99.39 $ 108.97
PEER GROUP 100.00 100.24 99.55 106.67
NYSE MARKET INDEX 100.00 101.27 105.07 107.82
17
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(Item 2 on Proxy Card)
The Board of Supervisors, upon the recommendation of the Audit Committee,
has appointed the firm of Price Waterhouse LLP as independent auditors to
examine the Company's financial statements for fiscal 1997. Price Waterhouse LLP
were the Company's independent auditors for fiscal 1996. If the unitholders do
not ratify such appointment, it will be reconsidered by the Board.
Representatives of Price Waterhouse LLP are expected to be present at the
Tri-Annual Meeting, will have the opportunity to make a statement if they desire
to do so and will be available to respond to questions.
The Board of Supervisors recommends that unitholders vote "FOR"
ratification of such appointment.
PROPOSALS FOR NEXT TRI-ANNUAL MEETING
All proposals from unitholders to be considered at the next Tri-Annual
Meeting must be received by the Secretary of the Partnership at 240 Route 10
West, P.O. Box 206, Whippany, New Jersey 07981-0206, not later than the close of
business on January 21, 2000, for inclusion in the proxy materials relating to
that meeting.
Supplemental financial information for the Partnership, which consists of
audited financial statements, including supplementary financial information and
selected financial data and the accompanying Management's Discussion of
Financial Analysis for fiscal 1996 as well as financial statements and
accompanying Management's Discussion of Financial Analysis for the fiscal
quarter ended December 28, 1996, accompanies this Proxy Statement. The
Partnership will furnish an Annual Report on Form 10-K for fiscal 1996 or any
exhibit thereto upon request by a unitholder directed to Kevin T. McIver,
Secretary, Suburban Propane, L.P., 240 Route 10 West, P.O. Box 206, Whippany,
New Jersey 07981-0206. With respect to copies of Form 10-K exhibits, a fee
limited to the Partnership's reasonable expenses in furnishing same will be
assessed.
By Order of the Board of Supervisors,
/s/ KEVIN McIVER
---------------------------------------------
Kevin T. McIver
Secretary
18
SUBURBAN PROPANE PARTNERS, L.P.
SUPPLEMENTAL FINANCIAL INFORMATION
ACCOMPANYING PROXY STATEMENT
FOR JUNE 17, 1997 TRI-ANNUAL MEETING
OF LIMITED PARTNERS
19
Index to Supplemental Financial Information
Pages
Selected Historical and Pro Forma Financial Information 1 - 3
Management's Discussion and Analysis of Financial Condition
and Results of Operations - September 28, 1996 4 - 8
Report of Independent Accountants 9
Consolidated Financial Statements as of and for the
year ended September 28, 1996 10 - 28
Management's Discussion and Analysis of Financial Condition
and Results of Operations - December 28, 1996 29 - 30
Condensed Consolidated Financial Statements as of and for
the Three Months Ended December 28, 1996 31 - 41
20
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION.
The following table presents selected condensed consolidated historical
and pro forma financial information of Suburban Propane Partners, L.P. (the
Partnership) and Suburban Propane Division of Quantum Chemical Corporation (the
Predecessor Company) (amounts in thousands, except per Unit data). The following
financial information has been derived from the audited financial statements,
except for the proforma columns which are unaudited, and should be read in
conjunction with the consolidated financial statements and related notes or the
fiscal year ended September 28, 1996 and for the period ended December 28, 1996
included elsewhere in this Proxy.
Partnership (a) Predecessor Company (b) (c)
--------------------------------------------------------------------------------------------------
March 5, October 1,
Pro Forma Pro Forma 1996 1995
Three Months Ended Year Ended(d) through through Year Ended Twelve Months Ended
------------------- --------------------
Dec. 28 Dec. 30 Sept 28, Sept 28, March 4, Sept 30, October 1, Sept 30,
1996 1995 1996 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ---- ---- ----
Statement of
Operations Data
Revenues .............$246,028 $190,679 $707,946 $323,947 $383,999 $633,620 $677,767 $678,992 $637,463
Gross Profit ......... 97,934 93,384 330,254 150,746 179,508 314,724 347,227 332,016 323,927
Depreciation and
Amortization ......... 9,281 8,716 35,862 21,046 14,816 34,055 34,300 37,706 34,373
Operating Income
(Loss) ............... 25,900 26,396 58,332 (3,464) 61,796 55,544 75,490 58,149 29,972
Interest Expense,
Net .................. 8,498 8,230 31,197 17,171 - - - - -
Cumulative
Effect of Changes
in Accounting
Principles (e) ....... - - - - - - - - 87,800
Provision for
Income Taxes ......... 64 63 250 147 28,147 25,299 33,644 26,733 12,653
Net Income (Loss) .... 17,338 18,103 26,885 (20,782) 33,649 30,245 41,846 31,523 (70,328)
Net Income (Loss)
per Unit (f) .........$ 0.59 $ 0.62 $ 0.92 $ (0.71)
Balance Sheet Data
(end of period)
Current Assets .......$192,279 $120,692 $120,692 $ 78,846 $ 88,566 $124,033 $146,001
Total Assets ......... 877,880 807,424 807,424 736,459 755,053 599,939 617,712
Current Liabilities 172,968 101,826 101,826 69,872 74,555 70,772 86,332
Long-term Debt ....... 428,229 428,229 428,229 - - - -
Other Long-term
Liabilities .......... 109,163 112,690 112,690 108,352 120,946 107,824 107,878
Predecessor
Equity ............... 558,235 559,552 421,344 423,502
Partners' Capital -
General Partner ...... 3,340 3,567 3,286
Partners' Capital -
Limited Partners ..... 164,180 174,790 161,393
Other Data
EBITDA (g) ...........$ 35,181 $ 35,112 $ 94,194 $ 17,582 $ 76,612 $ 89,599 $109,790 $ 95,855 $ 64,345
Capital Expenditures (h)
Maintenance ..........$ 8,762 $ 6,408 $ 25,885 $ 16,089 $ 9,796 $ 21,359 $ 17,839 $ 31,679 $ 11,539
Acquisition ..........$ 694 $ 3,544 $ 28,529 $ 15,357 $ 13,172 $ 5,817 $ 1,448 $ - $ -
Cash Provided by
(used in) :
Operating activities..$(26,565) $(13,781) $ 73,214 $ 62,961 $ (3,765) $ 53,717 $ 77,067 $ 71,923 $ 50,210
Investing activities..$ (7,420) $ (9,383) $(52,414) $(30,449) $(21,965) $(22,317) $(16,126) $(20,572) $ (9,151)
Financing activities..$ 34,344 $ 23,147 $ (2,005) $(13,786) $ 25,799 $(31,562) $(68,093) $(55,648) $(38,635)
Retail Propane
Gallons Sold ......... 158,996 157,592 566,900 257,029 309,871 527,269 568,809 563,291 552,097
21
(a) The Partnership acquired the propane business and assets of the
Predecessor Company on March 5, 1996 (the Closing Date). There are no
material differences in the basis of assets and liabilities between the
Partnership and the Predecessor Company.
(b) The Predecessor Company's financial information for the fiscal 1994 and
1995 periods may not be comparable to the twelve months ended September 30,
1992 and 1993 due to the application of purchase accounting adjustments in
connection with Hanson PLC's ("Hanson") acquisition of Quantum Chemical
Corporation ("Quantum") on September 30, 1993.
(c) In connection with Hanson's acquisition of Quantum on September 30,
1993, the Predecessor Company changed its fiscal year ending December 31 to
a 52-53 week fiscal year ending on the Saturday nearest to September 30.
The new fiscal year includes the full October through March heating season.
Prior to the change in fiscal year, the heating season was split between
two fiscal years. Solely for purposes of comparing the Predecessor Company
operating results to fiscal 1994 and 1995, the statement of operations data
of the Predecessor Company has been combined for the following periods:
January 1 to September 30, 1992 with the corresponding data for the period
from October 1, 1991 to December 31, 1991 (the "twelve months ended
September 30, 1992"); and January 1 to September 30, 1993 with the
corresponding data for the period from October 1, 1992 to December 31, 1992
(the "twelve months ended September 30, 1993").
(d) The pro forma financial and operating information for the three months
ended December 30, 1995 were derived from the historical statements of
operations of the Predecessor Company and the statement for the year ended
September 28, 1996 was derived from the historical statement of operations
of the Predecessor Company for the period October 1, 1995 through March 4,
1996 and the consolidated statement of operations of the Partnership from
March 5, 1996 to September 28, 1996. The pro forma financial and operating
information was prepared to reflect the effects of the Partnership
formation as if it had been completed in its entirety as of the beginning
of the periods presented.
22
Significant pro forma adjustments reflected in the financial and operating
information include the following:
a. For the year ended September 28, 1996 and the three month period
ended December 30, 1995, an adjustment to interest expense to
reflect the interest expense associated with the Senior Notes and
Bank Credit Facilities.
b. For the year ended September 28, 1996 and the three month period
ended December 30, 1995, the elimination of the provision for
income taxes, as income taxes will be borne by the partners and
not the Partnership, except for corporate income taxes related to
the Service Company.
The Partnership's management estimates that the incremental costs of
operating as a stand alone entity in each of the years presented would
approximate the management fee paid to an affiliate of its former Parent
Company. These incremental costs are estimated to be $1,290 and $3,100 for
the years ended September 28, 1996 and September 30, 1995, respectively.
(e) Effective October 1, 1991, the Predecessor Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS No. 106," and SFAS No.
109, "Accounting for Income Taxes" ("SFAS No. 109"). The Predecessor
Company elected to immediately recognize the obligation for the SFAS No.
106 benefits, resulting in a cumulative effect charge to earnings of
$53,100, net of income taxes of $32,900. The adoption of SFAS No. 109
resulted in a cumulative effect charge to earnings of $34,700.
(f) Net income (loss) per Unit is computed by dividing the limited
partners' interest in net income (loss) by the number of Units outstanding.
(g) Defined as operating income plus depreciation and amortization. EBITDA
should not be considered as an alternative to net income (as an indicator
of operating performance) or as an alternative to cash flow (as a measure
of liquidity or ability to service debt obligations) and is not in
accordance with nor superior to generally accepted accounting principles
but provides additional information for evaluating the Partnership's
ability to pay the Minimum Quarterly Distribution.
(h) The Partnership's capital expenditures fall generally into two
categories: (i) maintenance capital expenditures, which include
expenditures for repair and replacement of property, plant and equipment,
and (ii) acquisition capital expenditures, which include expenditures
related to the acquisition of retail propane operations and a portion of
the purchase price allocated to intangibles associated with such acquired
businesses.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The following is a discussion of the historical and pro forma financial
condition and results of operations of the Predecessor Company and the
Partnership. The discussion should be read in conjunction with the historical
and pro forma consolidated financial statements and notes thereto included
elsewhere in this Proxy. Since the Operating Partnership and Service Company
account for substantially all of the assets, revenues and earnings of the
Partnership, a separate discussion of the Partnership's results of operations
from other sources is not presented.
GENERAL
The Partnership is engaged in the retail and wholesale marketing of propane
and related appliances and services. The Partnership is the third largest retail
marketer of propane in the United States, serving more than 730,000 active
residential, commercial, industrial and agricultural customers from 352 customer
service centers in 41 states. The Partnership's annual retail propane sales
volume were approximately 567 million, 527 million and 569 million gallons
during the fiscal year ended September 28, 1996, September 30, 1995 and October
1, 1994, respectively.
The retail propane business of the Partnership consists principally of
transporting propane purchased on the contract and spot markets, primarily from
major oil companies, to its retail distribution outlets and then to storage
tanks located on the customers' premises. In the residential and commercial
markets, propane is primarily used for space heating, water heating, clothes
drying and cooking purposes. Industrial customers primarily use propane as a
motor fuel burned in internal combustion engines that power over-the-road
vehicles, forklifts and stationary engines, to fire furnaces, as a cutting gas
and in other process applications. In the agricultural market propane is
primarily used for tobacco curing, crop drying, poultry brooding and weed
control. In its wholesale operations, the Partnership sells propane principally
to large industrial end-users and other propane distributors.
The retail propane distribution business is seasonal because of propane's
primary use for heating in residential and commercial buildings. Historically,
approximately two-thirds of the Partnership's retail propane volume is sold
during the six-month peak heating season of October through March. Consequently,
sales and operating profits are concentrated in the Partnership's first and
second fiscal quarters. Cash flows from operations, therefore, are greatest
during the second and third fiscal quarters when customers pay for propane
purchased during the winter heating season. To the extent necessary, the
Partnership will reserve cash from the second and third quarters for
distribution to Unitholders in the first and fourth fiscal quarters.
The retail propane business is a "margin-based" business where the level of
profitability is largely dependent on the difference between retail sales prices
and product cost. The unit cost of propane is subject to volatile changes as a
result of product supply or other market conditions. Propane unit cost changes
can occur rapidly over a short period of time and can impact retail margins. The
Partnership's unit cost of propane in the fiscal year ended September 28, 1996
was substantially higher than product costs in the fiscal years ended September
30, 1995 and 1994, respectively, and, consequently, the Partnership's retail
gross margins declined from the levels achieved in the 1995 and 1994 fiscal
years.
24
SELECTED QUARTERLY HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS)
The following historical pro forma quarterly financial data for periods
prior to the Partnership formation were derived from the historical statements
of operations of the Predecessor Company for the period October 1, 1994 through
March 4, 1996 and reflect the effects of the Partnership formation as if the
formation had been completed in its entirety as of the beginning of the periods
presented.
The pro forma quarterly financial data do not purport to present the
results of operations of the Partnership had the Partnership formation actually
been completed as of the beginning of the periods presented. In addition, the
pro forma quarterly financial data are not necessarily indicative of the results
of future operations of the Partnership and should be read in conjunction with
the consolidated financial statements and notes thereto, appearing elsewhere in
this Proxy.
Three months ended December 28, 1996:
First Quarter
-------------
Revenues $246,028
Gross Profit 97,934
Operating Income 25,900
Net Income 17,338
EBITDA 35,181
Retail Gallons Sold 158,996
Fiscal year ended September 28, 1996
Pro Forma Pro Forma
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Revenues $190,679 $259,992 $130,590 $126,685
Gross Profit 93,384 116,654 62,578 57,638
Operating Income (Loss) 26,396 44,337 (3,262) (9,139)
Net Income (Loss) 18,103 36,493 (10,576) (17,135)
EBITDA 35,113 53,280 5,721 80
Retail Gallons Sold 157,592 204,991 102,896 101,421
Fiscal year ended September 30, 1995
Pro Forma
- --------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Revenues $185,163 $217,699 $122,275 $108,483
Gross Profit 91,017 107,693 62,641 53,373
Operating Income (Loss) 25,624 40,122 (2,177) (8,025)
Net Income (Loss) 17,386 31,884 (10,415) (15,606)
EBITDA 34,141 48,559 6,225 674
Retail Gallons Sold 150,830 183,452 101,404 91,583
Analysis of Historical Results of Operations
The Partnership acquired the propane business and assets of Suburban
Propane on March 5, 1996. Solely for purposes of comparing the results of
operations of the Partnership for the year ended September 28, 1996 with those
of the Predecessor Company in the prior year period, the statement of operations
data for the year ended September 28, 1996 is comprised of the combined
statements of operations of the Predecessor Company for the period October 1,
1995 to March 4, 1996 and the Partnership for the period March 5, 1996 to
September 28, 1996.
25
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
REVENUES. Revenues increased $74.3 million or 11.7% to $707.9 million
in fiscal 1996 as compared to $633.6 million in fiscal 1995. The overall
increase is primarily attributable to higher retail volumes and wholesale
volumes coupled with increased retail and wholesale selling prices. Retail
gallons sold increased 7.5% or 39.6 million gallons to 566.9 million
gallons as compared to 527.3 million gallons in fiscal 1995, while
wholesale gallons sold increased 4.6% or 8.2 million gallons to 189.0
million gallons compared to 180.7 million in the prior year. The increase
in gallons sold is due to the colder temperatures in all sections of the
country, except for the West region.
GROSS PROFIT. Gross profit increased $15.5 million or 4.9% to $330.3
million for fiscal 1996 compared to $314.7 million in the prior year. The
increase in gross profit principally resulted from higher retail propane
volumes partially offset by lower retail margins resulting from increased
product costs. It is expected that product costs will remain at higher than
historical levels with an associated impact on retail margins at least
through the end of the first quarter of fiscal 1997.
OPERATING EXPENSES. Operating expenses increased $6.1 million or 3.1%
to $203.4 million for fiscal year 1996 as compared to $197.3 million in the
prior year. Operating expenses increased due to higher delivery costs
associated with the higher volumes and higher maintenance and product
costs. Operating expenses are expected to remain at higher than historical
levels at least through the end of the first quarter of fiscal 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, including the management fee charged to the
Predecessor Company, increased $4.8 million or 17.3% to $32.6 million for
fiscal 1996 compared to $27.8 million in the prior year. Expenses increased
due to a nonrecurring charge of $2.3 million incurred in the fourth quarter
as a result of certain employee terminations. The increase is also
attributable to higher expenditures for the implementation of new employee
training and customer satisfaction programs.
OPERATING INCOME AND EBITDA. Operating income increased $2.8 million
or 5.0% to $58.3 million for fiscal 1996 compared to $55.5 million in the
prior year. EBITDA increased $4.6 million or 5.1% to $94.2 million. The
increase is primarily attributable to the higher volume of retail gallons
sold partially offset by lower retail margins and an increase in operating
and general and administrative expenses. EBITDA should not be considered as
an alternative to net income (as in indicator of operating performance) or
as an alternative to cash flow (as a measure of liquidity or ability to
service debt obligations) but provides additional information for
evaluating the Partnership's ability to pay the Minimum Quarterly
Distribution.
26
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
REVENUES. Revenues decreased $44.2 million or 6.5% to $633.6 million
in fiscal year 1995 compared to $677.8 million in fiscal year 1994. The
overall decrease is primarily attributed to lower retail volume as gallons
decreased 41.5 million gallons or 7.3% to 527.3 million gallons in fiscal
year 1995 compared to 568.8 million gallons in fiscal year 1994. Wholesale
gallons declined 8.4 million gallons or 4.4% to 180.7 million gallons for
the period compared to 189.1 million gallons in the prior period. The
decline in retail and wholesale gallons was primarily due to lower demand
resulting from temperatures that were approximately 9% warmer than the
prior fiscal year.
Other revenues decreased $1.5 million or 2.3% to $63.5 million in 1995
compared to $65.0 million for the prior year primarily due to a decline in
appliance sales revenue.
GROSS PROFIT. Gross profit decreased $32.5 million or 9.4% to $314.7
million in 1995 compared to $347.2 million in the prior year. The decline
is attributable to a decline in retail volume discussed above of 41.5
million gallons or 7.3%, and a decline in average retail margins of 4.4%.
The decline in average retail margins was primarily attributable to a 10%
decline in the volume of higher margin gallons sold to residential
customers for home heating.
OPERATING EXPENSES. Operating expenses decreased $12.6 million or 6.0%
to $197.3 million in 1995 compared to $209.9 million in 1994. The decrease
is primarily attributable to a $11.3 million or 8.3% reduction in
employment and benefit costs. The Predecessor Company was able to reduce
employment due to improved delivery and service efficiencies.
OPERATING INCOME AND EBITDA. Operating income decreased $20.0 million
or 26.5% to $55.5 million in 1995 compared to $75.5 million in 1994. EBITDA
decreased $20.2 million or 18.4% to $89.6 million in 1995 compared to
$109.8 million in 1994. This reduction is primarily attributable to the
lower volume of gallons sold and lower retail margins, partially offset by
lower employment and benefit costs. EBITDA should not be considered as an
alternative to net income (as an indicator of operating performance) or as
an alternative to cash flow (as a measure of liquidity or ability to
service debt obligations) but provides additional information for
evaluating the Partnership's ability to pay the Minimum Quarterly
Distribution.
27
LIQUIDITY AND CAPITAL RESOURCES
The Partnership believes that approximately $29.0 million of maintenance
capital expenditures will be required in fiscal year 1997 for repair and
replacement of property, plant and equipment. The Partnership expects to fund
these capital expenditures from cash flow from operations or from borrowings
under the Working Capital Facility.
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 fiscal 1996,
net cash provided by operating activities increased $5.5 million to $59.2
million compared to $53.7 million in fiscal 1995. The increase is primarily
attributable to an aggregate increase in accounts payable, accrued interest and
expenses and other noncurrent liabilities totaling $53.9 million partially
offset by an increase in accounts receivable, inventories, prepaid expenses and
decreased net income totaling $50.0 million arising from an increase in the cost
and volume of gallons sold and operating under the Partnership structure for
seven months of fiscal 1996.
Net cash used in investing activities was $52.4 million for fiscal 1996,
reflecting $25.9 million in capital expenditures and $28.5 million of payments
for acquisitions, offset by net proceeds of $2.0 million from the sale of
property, plant and equipment. Net cash used in investing activities was $22.3
million for fiscal 1995, consisting of capital expenditures of $21.4 million and
acquisition payments of $5.8 million, offset by proceeds from the sale of
property and equipment of $4.9 million. The increase in cash used for
acquisition activities of $22.7 million primarily results from the Partnership's
business strategy to expand its operations and increase its retail market share
through selective acquisitions of other propane distributors as well as through
internal growth.
For fiscal year 1995, net cash provided by operating activities decreased
$23.4 million or 30.3% to $53.7 million compared to $77.1 million for fiscal
year 1994 due primarily to decreases of $11.6 million in net income and $5.6
million due to changes in accrued liabilities.
Net cash used in investing activities was $22.3 million for fiscal year
1995, reflecting $21.4 million in capital expenditures and $5.8 million of
payments for the acquisition of new customer service centers offset by net
proceeds of $4.9 million from the sale of marginal performing customer service
locations and other property and equipment. Net cash used in investing
activities was $16.1 million in fiscal year 1994, consisting of capital
expenditures of $17.8 million and acquisition payments of $1.4 million, offset
by proceeds from the sale of property and equipment of $3.1 million.
Prior to March 5, 1996, the Predecessor Company's cash accounts had been
managed on a centralized basis by HM Holdings, Inc. ("HM Holdings"), a
wholly-owned affiliate of Hanson. Accordingly, cash receipts and disbursements
relating to the operations of Suburban Propane were received or funded by HM
Holdings. Net cash provided by financing activities, which are reflected as an
increase in predecessor equity, was $25.8 million during the five months ended
March 5, 1996 compared to $31.6 million of cash used by (reduction of
predecessor equity) during the year ended September 30, 1995.
28
In March 1996, the Operating Partnership issued $425.0 million aggregate
principal amount of Senior Notes with an interest rate of 7.54% for net cash
proceeds of $418.8 million. Also, the Partnership, by means of an initial public
offering and the exercise of an overallotment option by the underwriters, issued
21,562,500 Common Units for net cash proceeds of $413.6 million. The net
proceeds of the Notes and Common Units issuance (which totaled $832.4 million),
less a $5.6 million closing price adjustment paid by Quantum in connection with
the transactions and $97.7 million reflecting the retention of net accounts
receivable by Quantum, were used to acquire the propane assets from Quantum, pay
off the intercompany payables and make a special distribution to the General
Partner.
The Operating Partnership has Bank Credit Facilities consisting of a $100.0
million acquisition facility and a $75.0 million working capital facility which
are unsecured and on a equal and ratable basis with the Operating Partnership's
obligations under the Senior Notes. At September 28, 1996, there were no amounts
outstanding under the Bank Credit Facilities.
The Partnership will make distributions in an amount equal to all of its
Available Cash approximately 45 days after the end of each fiscal quarter to
holders of record on the applicable record dates. The Partnership has made
distributions on August 13, 1996 for the partial fiscal quarter ended March 30,
1996 and the quarter ended June 29, 1996 and on November 12, 1996 for the
quarter ended September 28, 1996.
29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Supervisors and Unitholders of
Suburban Propane Partners, L.P.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of
partners' capital present fairly, in all material respects, the financial
position of Suburban Propane Partners, L.P. and its subsidiaries (the
"Partnership") at September 28, 1996 and the Suburban Propane division of
Quantum Chemical Corporation (the "Predecessor Company") at September 30,
1995, and the results of operations and cash flows of the Partnership for
the period March 5, 1996 to September 28, 1996 and of the Predecessor
Company for the period October 1, 1995 to March 4, 1996 and the two years
ended September 30, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion
expressed above.
Price Waterhouse LLP
Morristown, NJ
October 21, 1996
30
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30,
September 28, 1995
1996 (Predecessor)
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 18,931 $ 136
Accounts receivable, less allowance for doubtful
accounts of $3,312 and $3,162, respectively. 55,021 41,045
Inventories ................................... 40,173 36,663
Prepaid expenses and other current assets ..... 6,567 1,002
-------- --------
Total current assets ..................... 120,692 78,846
Property, plant and equipment, net ................. 374,013 363,805
Net prepaid pension cost ........................... 47,514 44,713
Goodwill and other intangible assets, net .......... 255,948 239,909
Other assets ....................................... 9,257 9,186
-------- --------
Total assets ............................. $807,424 $736,459
======== ========
LIABILITIES AND PARTNERS' CAPITAL/
PREDECESSOR EQUITY
Current liabilities:
Accounts payable .............................. $ 40,730 $ 22,298
Accrued employment and benefit costs .......... 25,389 19,975
Accrued insurance ............................. 5,280 4,470
Customer deposits and advances ................ 8,242 8,501
Accrued interest .............................. 8,222 --
Other current liabilities ..................... 13,963 9,097
-------- --------
Total current liabilities ................ 101,826 64,341
Long-term debt ..................................... 428,229 --
Postretirement benefits obligation ................. 81,374 83,098
Accrued insurance .................................. 19,456 18,569
Other liabilities .................................. 11,860 12,216
-------- --------
Total liabilities ........................ 642,745 178,224
-------- --------
Commitments and contingencies
Predecessor equity ................................. -- 558,235
Partners' capital:
Common unitholders ............................ 129,283 --
Subordinated unitholder ....................... 40,100 --
General Partner ............................... 3,286 --
Unearned compensation ......................... (7,990) --
-------- --------
Total partners' capital/predecessor equity 164,679 558,235
-------- --------
Total liabilities and partners' capital/
predecessor equity ..................... $807,424 $736,459
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
31
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
( in thousands, except per Unit amounts)
October 1, 1995 October 1, 1995
through March 5, 1996 through
September 28, 1996 through March 4, 1996
(Combined) September 28, 1996 (Predecessor)
---------- ------------------ -------------
Revenues
Propane ............................... $ 641,679 $ 289,058 $ 352,621
Other ................................. 66,267 34,889 31,378
---------- ---------- ---------
707,946 323,947 383,999
Costs and expenses
Cost of sales ......................... 377,692 173,201 204,491
Operating ............................. 203,426 114,436 88,990
Depreciation and amortization ......... 35,862 21,046 14,816
Selling, general and administrative
expenses ............................. 31,344 18,728 12,616
Management fee ........................ 1,290 0 1,290
---------- ---------- ----------
649,614 327,411 322,203
Income (loss) before interest expense
and income taxes ......................... 58,332 (3,464) 61,796
Interest expense, net ...................... 17,171 17,171 0
---------- ---------- ----------
Income (loss) before provision
for income taxes ......................... 41,161 (20,635) 61,796
Provision for income taxes ................. 28,294 147 28,147
---------- ---------- ----------
Net income (loss) ..................... $ 12,867 $ (20,782) $ 33,649
========== ========== ==========
General Partner's interest in net loss ..... $ (416)
----------
Limited Partners' interest in net loss ..... $ (20,366)
==========
Net loss per Unit .......................... $ (0.71)
==========
Weighted average number of Units outstanding 28,726
----------
The accompanying notes are an integral part of these consolidated financial
statements.
32
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
( in thousands)
Year Ended
----------------------------------------------------------
September 28, 1996 September 30, 1995 October 1, 1994
(Combined) (Predecessor) (Predecessor)
---------- ------------- -------------
Revenues
Propane ........................... $ 641,679 $ 570,064 $ 612,757
Other ............................. 66,267 63,556 65,010
---------- ---------- ----------
707,946 633,620 677,767
Costs and expenses
Cost of sales ..................... 377,692 318,896 330,540
Operating ......................... 203,426 197,348 209,879
Depreciation and amortization ..... 35,862 34,055 34,300
Selling, general and administrative
expenses ........................ 31,344 24,677 24,058
Management fee .................... 1,290 3,100 3,500
---------- ---------- ----------
649,614 578,076 602,277
Income before interest expense and
income taxes ......................... 58,332 55,544 75,490
Interest expense, net .................. 17,171 0 0
---------- ---------- ----------
Income before provision for income taxes 41,161 55,544 75,490
Provision for income taxes ............. 28,294 25,299 33,644
---------- ---------- ----------
Net income ........................ $ 12,867 30,245 41,846
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
33
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
October 1, 1995 October 1, 1995
through March 5, 1996 through
September 28, 1996 through March 4, 1996
(Combined) September 28, 1996 (Predecessor)
---------- ------------------ -------------
Cash flows from operating activities:
Net income (loss) ..................................... $ 12,867 $ (20,782) $ 33,649
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operations:
Depreciation ..................................... 28,920 16,887 12,033
Amortization ..................................... 6,942 4,159 2,783
(Gain) on disposal of property, plant and
equipment ...................................... (241) (156) (85)
Changes in operating assets and liabilities, net of
acquisitions and dispositions:
(Increase)/decrease in accounts receivable ....... (13,976) 42,667 (56,643)
(Increase)/decrease in inventories ............... (3,510) (6,339) 2,829
(Increase) in prepaid expenses and
other current assets ............................ (5,565) (3,691) (1,874)
Increase in accounts payable ..................... 18,432 9,097 9,335
Increase in accrued employment
and benefit costs ............................... 5,754 3,451 2,303
Increase in accrued interest ..................... 8,222 8,222 --
Increase/(decrease) in other accrued liabilities . 5,417 8,947 (3,530)
Other noncurrent assets ............................... (2,872) (1,669) (1,203)
Deferred credits and other noncurrent liabilities ..... (1,194) 2,168 (3,362)
------ ----- ------
Net cash provided by (used in) operating activities 59,196 62,961 (3,765)
------ ------ ------
Cash flows from investing activities:
Capital expenditures ................................. (25,885) (16,089) (9,796)
Acquisitions ......................................... (28,529) (15,357) (13,172)
Proceeds from the sale of property, plant
and equipment ...................................... 2,000 997 1,003
----- --- -----
Net cash used in investing activities ....... (52,414) (30,449) (21,965)
------- ------- -------
Cash flows from financing activities:
Cash activity with parent, net ....................... 25,799 -- 25,799
Proceeds from settlement with former parent .......... 5,560 5,560 --
Proceeds from debt placement ......................... 425,000 425,000 --
Proceeds from Common Unit offering ................... 413,569 413,569 --
Debt placement and credit agreement expenses ......... (6,224) (6,224) --
Cash distribution to General Partner ................. (832,345) (832,345) --
Partnership distribution ............................. (19,346) (19,346) --
------- -------
Net cash provided by (used in) financing activities 12,013 (13,786) 25,799
------ ------- ------
Net increase in cash and cash equivalents .................. 18,795 18,726 69
Cash and cash equivalents at beginning of period ........... 136 205 136
--- --- ---
Cash and cash equivalents at end of period ................ $ 18,931 $ 18,931 $ 205
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest ............................... $ 10,550 $ 10,550 $ --
========= ========= =======
Non cash investing and financing activities
Assets acquired by incurring note payable .............. $ 3,528 $ 3,528 $ --
========= ========= =======
The accompanying notes are an integral part of these consolidated financial
statements.
34
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended
-----------------------------------------------------------
September 28, 1996 September 30, 1995 October 1, 1994
(Combined) (Predecessor) (Predecessor)
---------- ------------- -------------
Cash flows from operating activities:
Net income .......................................... $ 12,867 $ 30,245 $ 41,846
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation ................................... 28,920 27,746 28,050
Amortization ................................... 6,942 6,309 6,250
(Gain)/loss on disposal of property, plant
and equipment ................................ (241) (1,492) 114
Changes in operating assets and liabilities,
net of acquisitions and dispositions:
(Increase)/decrease in accounts receivable ...... (13,976) 6,173 3,555
(Increase)/decrease in inventories ............. (3,510) 2,692 11,027
(Increase)/decrease in prepaid expenses
and other current assets ..................... (5,565) 693 933
Increase/(decrease) in accounts payable ........ 18,432 878 (7,180)
Increase/(decrease) in accrued employment
and benefit costs ............................. 5,754 (1,199) 3,110
Increase in accrued interest ................... 8,222 -- --
Increase/(decrease) in other accrued liabilities 5,417 (4,362) (3,962)
Other noncurrent assets ............................. (2,872) (1,372) (1,181)
Deferred credits and other noncurrent liabilities ... (1,194) (12,594) (5,495)
Net cash provided by operating activities . 59,196 53,717 77,067
Cash flows from investing activities:
Capital expenditures ............................... (25,885) (21,359) (17,839)
Acquisitions ....................................... (28,529) (5,817) (1,448)
Proceeds from the sale of property, plant
and equipment ..................................... 2,000 4,859 3,161
Net cash used in investing activities ..... (52,414) (22,317) (16,126)
Cash flows from financing activities:
Cash activity with parent, net ...................... 25,799 (31,562) (68,093)
Proceeds from settlement with former parent ......... 5,560 -- --
Proceeds from debt placement ........................ 425,000 -- --
Proceeds from Common Unit offering .................. 413,569 -- --
Debt placement and credit agreement expenses ........ (6,224) -- --
Cash distribution to General Partner ................ (832,345) -- --
Partnership distribution ............................ (19,346) -- --
Net cash provided by (used in) financing activities 12,013 (31,562) (68,093)
Net increase (decrease) in cash and cash equivalents ..... 18,795 (162) (7,152)
Cash and cash equivalents at beginning of period ......... 136 298 7,450
Cash and cash equivalents at end of period ............... $ 18,931 $ 136 298
Supplemental disclosure of cash flow information:
Cash paid for interest ............................. $ 10,550 $ -- $ --
Non cash investing and financing activities
Assets acquired by incurring note payable ............. $ 3,528 $ -- $ --
The accompanying notes are an integral part of these consolidated financial
statements.
35
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(in thousands)
Unearned Total
Number of Units General Compensation Partners'
Common Subordinated Common Subordinated Partner Restricted Units Capital
------ ------------ ------ ------------ ------- ---------------- -------
Balance at March 5, 1996 ...... -- -- -- -- -- --
Contribution in connection
with formation of the
Partnership and issuance
of Common Units ......... 21,562 7,164 $150,488 $ 49,890 $ 4,089 $204,467
Quarterly distribution .... (14,239) (4,720) (387) (19,346)
Unamortized restricted Unit
compensation ........... 8,330 $ (7,990) 340
Net loss .................. -- -- (15,296) (5,070) (416) -- (20,782)
------ ----- -------- ------- ------- -------- -------
Balance at September 28, 1996 . 21,562 7,164 $129,283 $40,100 $ 3,286 $ (7,990) 164,679
====== ===== ======== ======= ======= ======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
36
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 1996
(Dollars in thousands)
1. PARTNERSHIP ORGANIZATION AND FORMATION
--------------------------------------
Suburban Propane Partners, L.P. (the "Partnership") was formed on December 19,
1995 as a Delaware limited partnership. The Partnership and its subsidiary,
Suburban Propane, L.P. (the "Operating Partnership"), were formed to acquire and
operate the propane business and assets of the Suburban Propane Division of
Quantum Chemical Corporation (the "Predecessor Company"). In addition, Suburban
Sales & Service, Inc. (the "Service Company"), a subsidiary of the Operating
Partnership, was formed to acquire and operate the service work and appliance
and parts businesses of the Predecessor Company. The Partnership, the Operating
Partnership and the Service Company are collectively referred to hereinafter as
the "Partnership Entities." The Partnership Entities commenced operations on
March 5, 1996 (the "Closing Date") upon consummation of an initial public
offering of 18,750,000 Common Units representing limited partner interests in
the Partnership (the "Common Units"), the private placement of $425,000
aggregate principal amount of Senior Notes due 2011 issued by the Operating
Partnership (the "Senior Notes") and the transfer of all the propane assets
(excluding the net accounts receivable balance) of the Predecessor Company to
the Operating Partnership and the Service Company. On March 25, 1996, the
underwriters of the Partnership's initial public offering exercised an
overallotment option to purchase an additional 2,812,500 Common Units.
Suburban Propane GP, Inc. (the "General Partner") is a wholly-owned subsidiary
of Quantum Chemical Corporation ("Quantum") and serves as the general partner of
the Partnership and the Operating Partnership. Both the General Partner and
Quantum are indirect wholly-owned subsidiaries of Millennium Chemicals Inc.
("Millennium") which was formed as a result of Hanson PLC's (the "Parent
Company") demerger in October 1996. The General Partner holds a 1% general
partner interest in the Partnership and a 1.0101% general partner interest in
the Operating Partnership. In addition, the General Partner owns a 24.4% limited
partner interest in the Partnership. This limited partner interest is evidenced
by 7,163,750 Subordinated Units representing limited partner interests in the
Partnership. The General Partner has delegated to the Partnership's Board of
Supervisors all management powers over the business and affairs of the
Partnership Entities that the General Partner possesses under applicable law.
The Partnership Entities are, and the Predecessor Company was, engaged in the
retail and wholesale marketing of propane and related appliances and services.
The Partnership believes it is the third largest retail marketer of propane in
the United States, serving more than 730,000 active residential, commercial,
industrial and agricultural customers from 352 Customer Service Centers in 41
states. The Partnership's operations are concentrated in the east and west coast
regions of the United States. The retail propane sales volume of the Partnership
was approximately 567 million gallons during the fiscal year ended September 28,
1996. Based on industry statistics, the Partnership believes that its retail
propane sales volume constitutes approximately 6% of the domestic retail market
for propane.
37
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------
BASIS OF PRESENTATION. The consolidated financial statements present the
consolidated financial position, results of operations and cash flows of the
Partnership Entities, and the Predecessor Company for periods prior to the
Closing Date. All significant intercompany transactions and accounts have been
eliminated.
FISCAL PERIOD. The Partnership and the Predecessor Company's fiscal year ends on
the last Saturday nearest to September 30. Because the Partnership commenced
operations on the Closing Date, the accompanying statements of operations and
cash flows present the consolidated results of operations and cash flows of the
Partnership for the period March 5, 1996 to September 28, 1996 and the results
of operations and cash flows of the Predecessor Company for the period October
1, 1995 to March 4, 1996 and the two fiscal years ended September 30, 1995.
Solely for purposes of comparing the results of operations of the Partnership
for the year ended September 28, 1996 with those of the Predecessor Company in
the prior year periods, the statement of operations date for the year ended
September 28, 1996 is comprised of the combined statements of operations of the
Predecessor Company for the period October 1, 1995 to March 4, 1996 and the
Partnership for the period March 5, 1996 to September 28, 1996.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS. The Partnership considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents. The carrying amount approximates fair value because of the short
maturity of these instruments.
REVENUE RECOGNITION Sales of propane are recognized at the time product is
shipped or delivered to the customer. Revenue from the sale of propane,
appliances and equipment is recognized at the time of sale or installation.
Revenue from repairs and maintenance is recognized upon completion of the
service.
INVENTORIES Inventories are stated at the lower of cost or market. Cost is
determined using a weighted average method for propane and a specific
identification basis for appliances.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost.
Depreciation is determined for related groups of assets under the straight-line
method based upon their estimated useful lives as follows:
Buildings 40 Years
Building and land improvements 10-20 Years
Transportation equipment 5-30 Years
Storage facilities 30 Years
Equipment, primarily tanks and cylinders 3-40 Years
Expenditures for maintenance and routine repairs are expensed as incurred.
38
GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill and other intangible assets are
comprised of the following:
September 28, September 30,
1996 1995 (Predecessor)
------------- ------------------
Goodwill $265,292 $251,784
Debt Origination Costs 6,224 0
Other, principally noncompete agreements 4,003 754
----- ---
275,519 252,538
Less: Accumulated amortization 19,571 12,629
------ ------
$255,948 $239,909
======== ========
Goodwill represents the excess of the purchase price over the fair value of net
assets acquired and is being amortized on a straight-line basis over forty years
from the date of acquisition.
Debt origination costs represent the costs incurred in connection with the
placement of the $425,000 of Senior Notes which is being amortized on a straight
line basis over 15 years.
The Partnership periodically evaluates goodwill for impairment by calculating
the anticipated future cash flows attributable to its operations. Such expected
cash flows, on an undiscounted basis, are compared to the carrying values of the
tangible and intangible assets, and if impairment is indicated, the carrying
value of goodwill is adjusted. In the opinion of management, no impairment of
goodwill exists (see "New Pronouncement" below).
ACCRUED INSURANCE. Accrued insurance represents the estimated costs of known and
anticipated or unasserted claims under the Partnership's general and product,
workers' compensation and automobile insurance policies. Accrued insurance
provisions for unasserted claims arising from unreported incidents are based on
an analysis of historical claims data. For each claim, the Partnership records a
self-insurance provision up to the estimated amount of the probable claim or the
amount of the deductible, whichever is lower. Claims are generally settled
within 5 years of origination.
INCOME TAXES. As discussed in Note 1, the Partnership Entities consist of two
limited partnerships, the Partnership and the Operating Partnership, and one
corporate entity, the Service Company. For federal and state income tax
purposes, the earnings attributable 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 attributable to the Service Company are
subject to federal and state income taxes. Accordingly, the Partnership's
consolidated financial statements reflect income tax expense related to the
Service Company's earnings. Net earnings for financial statement purposes may
differ significantly from taxable income reportable to unitholders as a result
of differences between the tax basis and financial reporting basis of assets and
liabilities and the taxable income allocation requirements under the Partnership
agreement.
39
For federal income tax purposes, the Predecessor Company was included in the
consolidated tax return of a United States affiliate of the Parent Company. The
Predecessor Company's tax assets, liabilities, expenses and benefits result from
the tax effect of its transactions determined as if the Predecessor Company
filed a separate income tax return. The Predecessor Company's income taxes were
paid by an affiliate of the Parent Company in which income tax expense was
credited through an intercompany account included in the accompanying balance
sheets as predecessor equity.
Income taxes are provided based on the provisions of Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes," which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements and tax returns in different
years. Under this method, deferred income tax assets and liabilities are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
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. Upon issuance of Units
under the plan, unearned compensation equivalent to the market value of the
restricted Units 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 sheet.
The Partnership adopted the disclosure-only option of SFAS No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123") as of September 28, 1996. If the
accounting provisions of SFAS No. 123 had been adopted as of the beginning of
fiscal 1995, the effect on 1995 net earnings would not be material. Further,
based upon the current and anticipated use of restricted units, the Partnership
believes the impact of SFAS No. 123 would not be material in any future period.
NET INCOME (LOSS) PER UNIT. Net income (loss) per Unit is computed by dividing
net income (loss), after deducting the General Partner's 2% interest, by the
weighted average number of outstanding Common Units and Subordinated Units.
RECLASSIFICATIONS. Certain prior period balances have been reclassified to
conform with the current period presentation.
NEW PRONOUNCEMENT. On March 5, 1996, the Partnership adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS No.
121"). This statement requires impairment losses to be recorded on long-lived
assets used in operations and certain identifiable intangible assets when
indications of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
Adoption of SFAS No. 121 did not have an impact on the financial statements.
40
3. SUPPLEMENTAL UNAUDITED PRO FORMA FINANCIAL INFORMATION
------------------------------------------------------
The following unaudited pro forma condensed consolidated statements of
operations for the years ended September 28, 1996 and September 30, 1995 were
derived from the historical statements of operations of the Predecessor Company
for the period October 1, 1994 through March 4, 1996 and the consolidated
statement of operations of the Partnership from March 5, 1996 through September
28, 1996. The unaudited pro forma condensed consolidated statements of
operations were prepared to reflect the effects of the Partnership formation as
if it had been completed in its entirety as of the beginning of the periods
presented. However, these statements do not purport to present the results of
operations of the Partnership had the partnership formation actually been
completed as of the beginning of the periods presented. In addition, the
unaudited pro forma condensed consolidated financial statements of operations
are not necessarily indicative of the results of future operations of the
Partnership.
Year Ended
September 28, September 30,
1996 1995
------------- -------------
Revenues
Propane ..................................... $641,679 $570,064
Other ....................................... 66,267 63,556
------ ------
707,946 633,620
Cost and Expenses
Cost of sales ............................... 377,692 318,896
Operating ................................... 203,426 197,348
Depreciation and amortization ............... 35,862 34,055
Selling, general and administrative expenses 31,344 24,677
Management Fee .............................. 1,290 3,100
----- -----
649,614 578,076
Income before interest expense and income taxes 58,332 55,544
Interest expense, net ......................... 31,197 32,045
------ ------
Income before provision for income taxes ...... 27,135 23,499
Provision for income taxes .................... 250 250
--- ---
Net income .................................... $ 26,885 $ 23,249
======== ========
General Partner's interest in net income ...... $ 538 $ 465
-------- --------
Limited Partners' interest in net income ...... $ 26,347 $ 22,784
======== ========
Net income per Unit ........................... $ 0.92 $ 0.79
======== ========
Weighted average number of Units outstanding .. 28,726 28,726
====== ======
41
Significant pro forma adjustments reflected in the above data include the
following for each of the years presented:
1. An adjustment to interest expense to reflect the interest expense associated
with the Senior Notes and Bank Credit Facilities.
2. The elimination of the provision for income taxes, as income taxes will be
borne by the Partners and not the Partnership, except for corporate income
taxes related to the Service Company.
The Partnership's management estimates that the incremental costs of operating
as a stand alone entity in each of the years presented would approximate the
management fee paid to an affiliate of its former Parent Company. These
incremental costs are estimated to be $1,290 and $3,100 for the years ended
September 28, 1996 and September 30, 1995, respectively.
4. DISTRIBUTIONS OF AVAILABLE CASH
-------------------------------
The Partnership makes distributions to its partners with respect to each fiscal
quarter of the Partnership in an aggregate amount equal to its Available Cash
for such quarter. Available Cash generally means, with respect to any fiscal
quarter of the Partnership, all cash on hand at the end of such quarter less the
amount of cash reserves established by the Board of Supervisors in its
reasonable discretion for future cash requirements. These reserves are retained
for the proper conduct of the Partnership's business, the payment of debt
principal and interest and for distributions during the next four quarters.
Distributions by the Partnership in an amount equal to 100% of its Available
Cash will generally be made 98% to the Common and Subordinated Unitholders and
2% to the General Partner, subject to the payment of incentive distributions in
the event Available Cash exceeds the Minimum Quarterly Distribution ($.50) on
all units. To the extent there is sufficient Available Cash, the holders of
Common Units have the right to receive the Minimum Quarterly Distribution, plus
any arrearages, prior to the distribution of Available Cash to holders of
Subordinated Units. Common Units will not accrue arrearages for any quarter
after the Subordination Period (as defined below) and Subordinated Units will
not accrue any arrearages with respect to distributions for any quarter.
The Subordination Period will generally extend until the first day of any
quarter beginning after March 31, 2001 in respect of which (a) distributions of
Available Cash from Operating Surplus on the Common Units and the Subordinated
Units with respect to each of the three consecutive four-quarter periods
immediately preceding such date equaled or exceeded the sum of the Minimum
Quarterly Distribution on all of the outstanding Common Units and Subordinated
Units during such periods, (b) the Adjusted Operating Surplus generated during
each of the three consecutive four-quarter periods immediately preceding such
date equaled or exceeded the sum of the Minimum Quarterly Distribution on all of
the outstanding Common Units and Subordinated Units and related distribution on
the General Partner interest in the Partnership during such periods, and (c)
there are no outstanding Common Unit Arrearages. Upon expiration of the
Subordination Period, all remaining Subordinated Units will convert into Common
Units on a one-for-one basis and will thereafter participate pro rata with the
other Common Units in distributions of Available Cash.
42
For the seven month period ended September 28, 1996, the Partnership paid
$19,346 in Minimum Quarterly Distributions on all outstanding Common Units and
Subordinated Units for the partial quarter ended March 30, 1996 and the quarter
ended June 29, 1996. The Partnership paid the Minimum Quarterly Distribution of
$14,363 on all outstanding Common Units and Subordinated Units for the quarter
ended September 28, 1996 on November 12, 1996. The distributions were paid to
all holders of record on the applicable quarter end record date.
5. RELATED PARTY TRANSACTIONS
--------------------------
The Predecessor Company's cash accounts were managed on a centralized basis by
an affiliate of the former Parent Company. Accordingly, cash receipts and
disbursements were received by or made through the affiliate company. Cash
transactions between or on behalf of the Predecessor Company are included in the
accompanying balance sheet in the predecessor equity account.
The Predecessor Company was also provided management, treasury, insurance,
employee benefits, tax and accounting services by an affiliate of the former
Parent Company. As consideration for the services provided by the affiliate, the
Predecessor Company was charged an annual management fee based on a percentage
of revenue. In the opinion of management, the management fee allocation
represented a reasonable estimate of the cost of services provided by the
affiliate on behalf of the Predecessor Company. However, the fee was not
necessarily indicative of the level of expenses which might have been incurred
by the Predecessor Company operating on a stand-alone basis. Management fees for
the period October 1, 1995 to March 4, 1996 and the years ended September 30,
1995 and October 1, 1994 were $1,290, $3,100 and $3,500, respectively.
Pursuant to the Contribution, Conveyance and Assumption Agreement dated as of
March 4, 1996, between Quantum and the Partnership (the "Contribution
Agreement"), Quantum retained ownership of the Predecessor Company's accounts
receivable, net of allowance for doubtful accounts, as of the Closing Date. The
Partnership retained from the net proceeds of the Common Unit offering cash in
an amount equal to the net book value of such accounts receivable. In accordance
with the Contribution Agreement, the Partnership had agreed to collect such
accounts receivable on behalf of Quantum which amounted to $97,700 as of the
Closing Date. As of September 28, 1996, the Operating Partnership had satisfied
its obligation to Quantum under such arrangement.
The Predecessor was provided computerized information services by Quantum .
Charges related to these services, included in selling, general and
administrative expenses in the accompanying statements of operations, were $148,
$1,731 and $2,081 for the period October 1, 1995 to March 4, 1996 and the years
ended September 30, 1995 and October 1, 1994, respectively.
Pursuant to a Computer Services Agreement (the "Services Agreement") dated as of
the Closing Date between Quantum and the Partnership, Quantum permits the
Partnership to utilize Quantum's mainframe computer for the generation of
customer bills, reports and information regarding the Partnership's retail
sales. For the seven months ended September 28, 1996, the Partnership incurred
expenses of $218 under the Services Agreement.
43
6. SELECTED BALANCE SHEET INFORMATION
----------------------------------
Inventories consist of:
September 28, September 30,
1996 1995 (Predecessor)
------------- ------------------
Propane $ 36,213 $ 33,474
Appliances 3,960 3,189
----- -----
$ 40,173 $ 36,663
======== ========
The Partnership enters into contracts to buy propane for supply purposes. Such
contracts generally have terms of less than one year, with propane costs based
on market prices at the date of delivery.
Property, plant and equipment consist of:
September 28, September 30,
1996 1995(Predecessor)
------------- -----------------
Land and improvements $ 29,462 $ 27,964
Buildings and improvements 43,909 39,966
Transportation equipment 48,470 42,489
Storage facilities 16,836 15,561
Equipment, primarily tanks and cylinders 321,323 294,892
------- -------
460,000 420,872
Less: accumulated depreciation 85,987 57,067
------ ------
$374,013 $363,805
======== ========
7. LONG-TERM DEBT AND BANK CREDIT FACILITIES
-----------------------------------------
Long-term debt consists of:
September 28,
1996
-------------
Senior Notes, 7.54%, due
June 30, 2011 $425,000
Note Payable, 8%, due
in Annual Installments through 2006 3,528
-----
428,528
Less: current portion 299
---
$428,229
========
44
On the Closing Date, the Operating Partnership issued $425,000 of Senior Notes
with an annual interest rate of 7.54%. The Operating Partnership's obligations
under the Senior Note Agreement are unsecured and will rank on an equal and
ratable basis with the Operating Partnership's obligations under the Bank Credit
Facilities discussed below. The Senior Notes will mature June 30, 2011, and
require semiannual interest payments which commenced June 30, 1996. The Note
Agreement requires that the principal be paid in equal annual payments of
$42,500 starting June 30, 2002.
The Bank Credit Facilities consist of a $100,000 acquisition facility (the
"Acquisition Facility") and a $75,000 working capital facility (the "Working
Capital Facility"). The Operating Partnership's obligations under the Bank
Credit Facilities are unsecured on an equal and ratable basis with the Operating
Partnership's obligations under the Senior Notes. The Bank Credit Facilities
will bear interest at a rate based upon either LIBOR, Chemical Bank's prime rate
or the Federal Funds effective rate plus 1/2 of 1% and in each case, plus a
margin. In addition, an annual fee (whether or not borrowings occur), is payable
quarterly ranging from 0.125% to 0.375% based upon certain financial tests.
The Working Capital Facility will expire on March 1, 1999. The Acquisition
Facility will expire on March 1, 2003. Any loans outstanding under the
Acquisition Facility after March 1, 1999 will require equal quarterly principal
payments over a four year period. No amounts were outstanding under the Bank
Credit Facilities as of September 28, 1996.
The fair value of the Partnership's long-term debt is estimated based on the
current rates offered to the Partnership for debt of the same remaining
maturities. The carrying value of the Partnership's long-term debt approximates
its fair market value.
The Senior Note Agreement and Bank Credit Facilities contains various
restrictive and affirmative covenants applicable to the Operating Partnership,
including (a) maintenance of certain financial tests, (b) restrictions on the
incurrence of
additional indebtedness, and (c) restrictions on certain liens, investments,
guarantees, loans, advances, payments, mergers, consolidations, distributions,
sales of assets and other transactions.
For the period March 5, 1996 to September 28, 1996, interest expense was
$18,772.
45
8. RESTRICTED UNIT PLAN
--------------------
The Partnership adopted the 1996 Restricted Unit Award Plan (the "Restricted
Unit Plan") which authorizes the issuance of Common Units with an aggregate
value of $15,000 (731,707 Common Units valued at the initial public offering
price of $20.50 per Unit) to executives, managers and Elected Supervisors of the
Partnership. Units issued under the Restricted Unit Plan are subject to a
bifurcated vesting procedure such that (a) twenty-five percent of the issued
Units will vest over time with one-third of such units vesting at the end of
each of the third, fifth and seventh anniversaries of the issuance date, and (b)
the remaining seventy-five percent of the Units will vest automatically upon,
and in the same proportions as, the conversion of Subordinated Units to Common
Units. Restricted Unit Plan participants are not eligible to receive quarterly
distributions or vote their respective Units until vested. Restrictions
generally 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.
As of and for the seven months ended September 28, 1996, a total of 388,533
restricted Common Units were awarded. For the seven months ended September 28,
1996, the Partnership amortized $340 of compensation expense.
9. POSTRETIREMENT PENSION PLANS AND OTHER POSTEMPLOYMENT BENEFITS
--------------------------------------------------------------
Concurrent with the Partnership formation, employees of the Predecessor Company
became employees of the Partnership and the Partnership assumed the Predecessor
Company's employee-related liabilities.
DEFINED BENEFIT PLANS
Prior to the Partnership formation, employees of the Predecessor Company
participated in two noncontributory defined benefit pension plans with
contributions being made by Quantum and the assets being maintained in the
Hanson America Inc. Master Trust. Subsequent to the Partnership formation, the
two defined benefit plans were merged and the plan assets were transferred into
a separate trust maintained by the Partnership. The trusts' assets consist
primarily of common stock, fixed income securities and real estate. Included in
the Hanson America Inc. Master Trust were Hanson ordinary shares and sponsored
American Depository Receipts which, at market value, comprised 2.5% of the
trust's assets at September 30, 1995. As of September 28, 1996, the trust
maintained by the Partnership included Hanson ordinary shares which, at market
value, comprised 1.9% of the trust's assets.
The benefits for the plan are based on years of service and the employee's
salary at or near retirement. Contributions to the defined benefit plan are made
by the Partnership in accordance with the Employee Retirement Income Security
Act of 1974 minimum funding standards plus additional amounts which may be
determined from time-to-time.
The following table sets forth the plans' actuarial assumptions:
September 28, September 30,
1996 1995 (Predecessor)
------------- ------------------
Weighted-average discount rate 7.75% 7.5%
Average rate of compensation increase 4.25% 4.3%
Weighted-average expected long-term rate
of return on plan assets 9.0% 9.0%
46
The following table sets forth the plans' funded status and net prepaid
pension cost:
September 28, September 30,
1996 1995 (Predecessor)
------------ ------------------------
Plan Whose Plan Whose
Assets Accumulated
Exceed Benefits
Accumulated Exceed
Benefit Assets
Actuarial present value of benefit obligation
Vested benefit obligation ................ $122,786 $103,731 $ 8,316
Non-vested benefit obligation ............ 5,859 5,564 563
----- ----- ---
Accumulated benefit obligation ........... $128,645 $109,295 $ 8,879
======== ======== ========
Projected benefit obligation ............... $140,535 $121,698 $ 9,589
Plan assets at fair value .................. 172,773 158,425 7,674
------- ------- -----
Plan assets in excess of (less than) projected
benefit obligation ........................ 32,238 36,727 (1,915)
Unrecognized net loss ...................... 15,276 9,371 530
------ ----- ---
Net prepaid pension cost ................. $ 47,514 $ 46,098 $ (1,385)
======== ======== ========
The net periodic pension income includes the following:
Year Ended
Period March 5, 1996 Period October 1, September 30, October 1,
to September 28, 1995 to March 4, 1995 1994
1996 1996 (Predecessor) (Predecessor) (Predecessor)
------------------- ------------------ -------------- -------------
Service cost-benefits earned
during the period ................ $ 2,616 $ 1,869 $ 4,322 $ 4,989
Interest cost on projected benefit
obligation ....................... 5,748 4,106 9,308 9,573
Actual return on plan assets ....... (10,233) (7,310) (14,180) (15,664)
Net amortization and deferral ...... 310 221 -- --
-------- -------- -------- --------
Net periodic pension income $ (1,559) $ (1,114) $ (550) $ (1,102)
======== ======== ======== ========
47
DEFINED CONTRIBUTION PENSION PLANS
The Partnership has defined contribution plans covering most employees.
Contributions and costs are a percent of the participating employees'
compensation. These amounts totaled $1,103, $788, $1,774 and $1,554 for the
seven months ended September 28, 1996, the five months ended March 4, 1996 and
the years ended September 30, 1995 and October 1, 1994, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Partnership provides postretirement health care and life insurance benefits
for certain retired employees. The Partnership employees hired prior to July
1993 are eligible for such benefits if they reach a specified retirement age
while working for the Partnership.
The Partnership does not fund its postretirement benefit plan. The following
table presents the plan's accrued postretirement benefit cost included in the
accompanying balance sheets at September 28, 1996 and September 30, 1995:
September 28, September 30,
1996 1995(Predecessor)
------------- -----------------
Retirees ............................... $ 76,769 $ 71,429
Fully eligible active plan participants 2,160 2,268
Other active plan participants ......... 11,776 14,077
------ ------
Accumulated postretirement benefit obligation 90,705 87,774
Unrecognized net loss .................. (5,660) (1,431)
------ ------
Accrued postretirement benefit cost .... 85,045 86,343
Less: current portion ................. 3,671 3,245
----- -----
Noncurrent liability ................... $ 81,374 $ 83,098
======== ========
The net periodic postretirement benefit cost includes the following components:
Year Ended
Period March 5, 1996 Period October 1, September 30, October 1,
to September 28, 1995 to March 4, 1995 1994
1996 1996 (Predecessor) (Predecessor) (Predecessor)
-------------------- ------------------ ------------- -------------
Service cost ................. $ 473 $ 338 $ 730 $ 813
Interest cost ................ 918 656 1,174 1,613
--- --- ----- -----
Net periodic postretirement
benefit cost .............. $1,391 $ 994 $1,904 $2,426
====== ====== ====== ======
48
The accumulated postretirement benefit obligation was based on a 11%, 12% and
13%, increase in the cost of covered health care benefits for 1996, 1995 and
1994, respectively. This rate is assumed to decrease gradually to 6% in 2003 and
to remain at that level thereafter. Increasing the assumed health care cost
trend rates by 1.0% in each year would increase the Partnership's accumulated
postretirement benefit obligation as of September 28, 1996 by $3,365 and the
aggregate of service and interest components of net periodic postretirement
benefit cost for the combined twelve months ended September 28, 1996 by $14.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 8.0% and 7.5% at September 28, 1996 and
September 30, 1995, respectively.
10. PARTNERS' CAPITAL AND PREDECESSOR EQUITY
----------------------------------------
Partners' capital consists of 21,562,500 Common Units representing a 73.6%
limited partner interest, 7,163,750 Subordinated Units representing a 24.4%
limited partner interest (owned by the General Partner), and a 2% General
Partner interest.
On August 29, 1996, the Partnership filed with the Securities and Exchange
Commission a shelf registration statement on Form S-1 to register 3,000,000
Common Units representing limited partner interests in the Partnership. The
registration statement was declared effective September 23, 1996. The Common
Units may be issued from time-to-time by the Partnership in connection with the
Partnership's acquisition of other businesses, properties or securities in
business combination transactions.
The predecessor equity account reflects the Predecessor Company's activity
between an affiliate of the former Parent Company for the period October 1, 1995
to March 4, 1996 and for the years ended September 30, 1995 and October 1, 1994.
An analysis of the predecessor equity is as follows:
Period October 1, Year Ended
1995 to March 4, September 30, October 1,
1996 1995 1994
----------------- ------------- ----------
Beginning balance ............................ $ 558,235 $ 559,552 $ 585,799
--------- --------- ---------
Net income ................................... 33,649 30,245 41,846
------ ------ ------
Cash transfers, net .......................... (26,236) (99,845) (159,305)
Amounts paid or accrued by parent on behalf of
the Predecessor Company, net ............ 52,035 68,283 91,212
------ ------ ------
Cash activity with parent, net ........ 25,799 (31,562) (68,093)
------ ------- -------
Ending balance ........................ $ 617,683 $ 558,235 $ 559,552
========= ========= =========
49
The predecessor equity account was non-interest bearing with no repayment terms
and included $449,749, $265,625 and $349,291 in intercompany payables at March
4, 1996, September 30, 1995 and October 1, 1994, respectively.
11. INCOME TAXES
------------
As discussed in Note 2, the Partnership's earnings for federal and state income
tax purposes is included in the tax returns of the individual partners.
Accordingly, no recognition has been given to income taxes in the accompanying
financial statements of the Partnership except for earnings of the Service
Company which are subject to federal and state income taxes. The information
presented below relates to the Predecessor Company.
The provision for income taxes consists of the following:
Period October 1, Year Ended
1995 to March 4, September 30, October 1,
1996 1995 1994
----------------- ------------- ----------
Current:
Federal .......................... $ 20,516 $ 18,458 $ 27,798
State ............................ 5,809 5,216 7,855
----- ----- -----
$ 26,325 $ 23,674 $ 35,653
Deferred ............................ 1,822 1,625 (2,009)
----- ----- ------
Total provision for income taxes $ 28,147 $ 25,299 $ 33,644
======== ======== ========
The net deferred tax liability, reflected in the intercompany balances included
in the accompanying balance sheet at September 30, 1995 as predecessor equity,
is as follows:
Gross Deferred Tax Assets
Reserves and accruals ................... $ 26,898
Post retirement benefits ................ 34,981
Intangible assets ....................... 6,414
Other ................................... 589
---
Total gross deferred tax assets .... $ 68,882
---------
Gross Deferred Tax Liabilities
Property, plant and equipment ........... $(111,037)
Prepaid pension asset ................... (17,312)
Safe harbor leases ...................... (4,341)
------
Total gross deferred tax liabilities $(132,690)
---------
Net deferred tax liability ............... $ (63,808)
=========
A reconciliation of the statutory federal tax rate to the Predecessor Company's
effective tax rate follows:
50
Period Year Ended
October 1, 1995 September 30, October 1,
to March 4, 1996 1995 1994
---------------- ------------- ----------
Statutory federal tax rate ............................. 35.0% 35.0% 35.0%
Difference in tax rate due to:
State income taxes, net of federal income tax benefit 6.0% 6.0% 6.0%
Goodwill ............................................ 4.1% 4.1% 2.9%
Other, net .......................................... 0.5% 0.5% 0.7%
--- --- ---
Effective tax rate ..................................... 45.6% 45.6% 44.6%
==== ==== ====
12. COMMITMENTS AND CONTINGENCIES
-----------------------------
COMMITMENTS
The Partnership leases certain property, plant and equipment for various periods
under noncancelable leases. Rental expense under operating leases was $7,844,
$5,603, $11,563 and $8,468 for the seven months ended September 28, 1996, the
five months ended March 4, 1996 and for the years ended September 30, 1995 and
October 1, 1994, respectively.
Future minimum rental commitments under noncancelable operating lease agreements
as of September 28, 1996 are as follows:
Fiscal Year
-----------
1997 $10,401
1998 6,517
1999 4,886
2000 2,650
2001 and thereafter 7,307
CONTINGENCIES
The Partnership is involved in various legal actions which have arisen in the
normal course of business, including those relating to commercial transactions
and product liability. It is the opinion of management, 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.
51
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 28, 1996
- ------------------------------------
COMPARED TO THREE MONTHS ENDED DECEMBER 30, 1995
- ------------------------------------------------
REVENUES
Revenues increased 29.0% or $55.3 million to $246.0 million for the three months
ended December 28, 1996 as compared to $190.7 million for the three months ended
December 30, 1995. The overall increase is primarily attributable to higher
retail and wholesale selling prices resulting from the increased cost of
propane. Propane sold to retail customers increased .9% or 1.4 million gallons
to 159.0 million gallons while wholesale gallons sold increased 32.7% or 16.5
million gallons to 67.0 million gallons. Nationwide temperatures nationally were
approximately 3% warmer than the prior period. The increase in wholesale gallons
resulted from favorable trading opportunities arising from the volatility of
industry-wide propane prices during the period.
GROSS PROFIT
Gross profit increased 4.9% or $4.6 million to $97.9 million. The increase is a
result of higher retail and wholesale volumes and margins. Average product cost
for the Partnership increased substantially when comparing the three months
ended December 28, 1996 to the same period in the prior year. The product cost
increase is principally attributable to significant price increases charged by
the Partnership's suppliers during the 1996 period resulting from perceived low
nationwide propane inventory levels. During the three months ended December 28,
1996, the Partnership was able to pass on these increases and maintain overall
margins above the prior period.
OPERATING EXPENSES
Operating expenses increased 8.1% or $4.1 million to $54.7 million for the three
months ended December 28, 1996 as compared to $50.6 million for the three months
ended December 30, 1995. The increase in operating expenses is principally due
to higher vehicle fuel costs resulting from the increase in propane prices and
higher payroll expenses attributable to an increase in the operational workforce
to support enhanced customer service programs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses, including the management fee,
increased 5.1% or $.4 million to $8.0 million for the three months ended
December 28, 1996 compared to $7.6 million for the three months ended December
30, 1995. Expenses were higher than the prior period principally due to higher
information system development costs.
52
OPERATING INCOME AND EBITDA
Operating income decreased $.5 million to $25.9 million in the three months
ended December 28, 1996 compared to $26.4 million in the prior period. EBITDA
increased $.1 million to $35.2 million. The increase is attributable to
increased gross profits offset by higher period expenses. EBITDA should not be
considered as an alternative to net income (as an indicator of operating
performance) or as an alternative to cash flow (as a measure of liquidity or
ability to service debt obligations) but provides additional information for
evaluating the Partnership's ability to distribute the Minimum Quarterly
Distribution.
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
28, 1996, net cash used in operating activities increased $9.1 million to $26.6
million compared to $17.5 million used in operating activities in the three
months ended December 30, 1995. Such increase was principally due to higher
working capital requirements for receivables and inventory of $31.6 million
partially offset by an increase in accounts payable of $9.1 million and an
increase in accrued interest and other accrued liabilities of $10.6 million. The
increases in receivables, inventory and accounts payable primarily result from
the increase in propane costs and corresponding selling prices.
Net cash used in investing activities was $7.4 million for the three months
ended December 28, 1996 consisting of capital expenditures of $8.8 million and
acquisition payments of $.7 million, offset by proceeds from the sale of
property, plant and equipment of $2.1 million. Net cash used in investing
activities was $9.4 million for the three months ended December 30, 1995
consisting of capital expenditures of $6.4 million and acquisition payments of
$3.5 million, offset by proceeds from the sale of property, plant and equipment
of $.6 million.
Prior to March 5, 1996, the Predecessor Company's cash accounts had been managed
on a centralized basis by an affiliate of Hanson. Accordingly, cash receipts and
disbursements relating to the operations of the Predecessor Company were
received or funded by the Hanson affiliate. Net cash provided by financing
activities, which are reflected as a increase in division invested capital, was
$26.9 million during the three months ended December 30, 1995. Net cash provided
by financing activities for the three months ended December 28, 1996 was $34.3
million, arising from net short-term borrowings of $49.0 million principally for
working capital requirements and to fund the Partnership's fiscal 1996 fourth
quarter distribution.
53
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
December 28, September 28,
1996 1996
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 19,290 $ 18,931
Accounts receivable, less allowance for
doubtful accounts of $3,842 and $3,312, respectively...... 110,230 55,021
Inventories ................................................. 57,012 40,173
Prepaid expenses and other current assets ................... 5,747 6,567
--------- ---------
Total current assets ................................... 192,279 120,692
Property, plant and equipment, net ............................... 374,015 374,013
Net prepaid pension cost ......................................... 47,810 47,514
Goodwill and other intangible assets, net ........................ 254,467 255,948
Other assets ..................................................... 9,309 9,257
--------- ---------
Total assets ........................................... $ 877,880 $ 807,424
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable ............................................ $ 58,815 $ 40,730
Accrued employment and benefit costs ........................ 22,622 25,389
Accrued insurance ........................................... 5,280 5,280
Short-term borrowings ....................................... 49,000 --
Customer deposits and advances .............................. 6,862 8,242
Accrued interest ............................................ 16,294 8,222
Other current liabilities ................................... 14,095 13,963
--------- ---------
Total current liabilities .............................. 172,968 101,826
Long-term debt ................................................ 428,229 428,229
Postretirement benefits obligation ............................ 81,120 81,374
Accrued insurance ............................................. 16,811 19,456
Other liabilities ............................................. 11,232 11,860
--------- ---------
Total liabilities ...................................... 710,360 642,745
Partners' capital:
Common unitholders .......................................... 134,842 129,283
Subordinated unitholder ..................................... 40,754 40,100
General Partners ............................................ 3,340 3,286
Unearned compensation ....................................... (11,416) (7,990)
--------- ---------
Total partners' capital ................................ 167,520 164,679
--------- ---------
Total liabilities and partners' capital ................ $ 877,880 $ 807,424
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
54
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
( in thousands, except per unit amounts)
(unaudited)
Three Months Ended
December 28, 1996 December 30, 1995
(Predecessor)
----------------- -----------------
Revenues
Propane .................................... $ 224,557 $ 170,697
Other ...................................... 21,471 19,982
----------- -----------
246,028 190,679
Costs and expenses
Cost of sales .............................. 148,094 97,295
Operating .................................. 54,725 50,632
Depreciation and amortization .............. 9,281 8,716
Selling, general and administrative expenses 8,028 6,865
Management fee ............................. 0 775
----------- -----------
220,128 164,283
Income before interest expense and income taxes 25,900 26,396
Interest expense, net ........................ 8,498 0
----------- -----------
Income before provision for income taxes ..... 17,402 26,396
Provision for income taxes ................... 64 12,023
----------- -----------
Net income ................................. $ 17,338 $ 14,373
=========== ===========
General Partner's interest in net income ..... $ 347
-----------
Limited Partners' interest in net income ..... $ 16,991
===========
Net income per Unit .......................... $ 0.59
===========
Weighted average number of Units outstanding . 28,726
-----------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
55
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended Three Months Ended
December 28, December 30,
1996 1995
(Predecessor)
------------------- -----------------
Cash flows from operating activities:
Net income .............................................. $ 17,338 $ 14,373
Adjustments to reconcile net loss to net cash
provided by (used in) operations:
Depreciation ....................................... 7,395 7,087
Amortization ....................................... 1,886 1,629
Gain on disposal of property, plant and
equipment ........................................ (382) (33)
Changes in operating assets and liabilities, net of
acquisitions and dispositions:
(Increase) in accounts receivable ................... (55,209) (35,466)
(Increase) in inventories ........................... (16,839) (5,004)
Decrease/(Increase) in prepaid expenses and
other current assets .............................. 820 (1,221)
Increase in accounts payable ........................ 18,085 8,998
(Decrease) in accrued employment
and benefit costs ................................. (2,609) (2,340)
Increase in accrued interest ....................... 8,072 0
(Decrease) in other accrued liabilities ............ (1,248) (3,731)
Other noncurrent assets ................................. (348) (4)
Deferred credits and other noncurrent liabilities ....... (3,526) (1,799)
----------- -----------
Net cash used in operating activities ......... (26,565) (17,511)
----------- -----------
Cash flows from investing activities:
Capital expenditures ................................... (8,762) (6,408)
Acquisitions ........................................... (694) (3,544)
Proceeds from sale of property, plant and equipment, net 2,036 569
----------- -----------
Net cash used in investing activities ......... (7,420) (9,383)
----------- -----------
Cash flows from financing activities:
Cash activity with parent, net ......................... 0 26,877
Short-term borrowings, net ............................. 49,000 0
Partnership distribution ............................... (14,656) 0
----------- -----------
Net cash provided by financing activities ..... 34,344 26,877
----------- -----------
Net increase/(decrease) in cash and cash equivalents ......... 359 (17)
Cash and cash equivalents at beginning of period ............. 18,931 136
----------- -----------
Cash and cash equivalents at end of period ................... $ 19,290 $ 119
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest ................................. $ 168 $ --
----------- -----------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
56
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(in thousands)
(unaudited)
Unearned Total
Number of Units General Compensation Partners'
Common Subordinated Common Subordinated Partner Restricted Units Capital
------ ------------ ------ ------------ ------- ---------------- -------
Balance at September 28, 1996 .... 21,562 7,164 $ 129,283 $ 40,100 $ 3,286 $ (7,990) $ 164,679
Additional grants under restricted
Unit plan (174,882 units) ........ 3,585 (3,585)
Quarterly distribution ........... (10,787) (3,576) (293) (14,656)
Unamortized restricted Unit
compensation ..................... 159 159
Net income .................. -- -- 12,761 4,230 347 -- 17,338
------ ----- --------- --------- --------- --------- ---------
Balance at December 28, 1996 ..... 21,562 7,164 $ 134,842 $ 40,754 $ 3,340 $ (11,416) $ 167,520
====== ===== ========= ========= ========= ========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
57
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 28, 1996
(Dollars in Thousands)
(Unaudited)
1. Partnership Organization and Formation
--------------------------------------
Suburban Propane Partners, L.P. (the "Partnership") was formed on December 19,
1995 as a Delaware limited partnership. The Partnership and its subsidiary,
Suburban Propane, L.P. (the "Operating Partnership"), were formed to acquire and
operate the propane business and assets of the Suburban Propane Division of
Quantum Chemical Corporation (the "Predecessor Company"). In addition, Suburban
Sales & Service, Inc. (the "Service Company"), a subsidiary of the Operating
Partnership, was formed to acquire and operate the service work and appliance
and parts sales businesses of the Predecessor Company. The Partnership, the
Operating Partnership and the Service Company are collectively referred to
hereinafter as the "Partnership Entities." The Partnership Entities commenced
operations on March 5, 1996 (the "Closing Date") upon consummation of an initial
public offering of 18,750,000 Common Units representing limited partner
interests in the Partnership (the "Common Units"), the private placement of
$425,000 aggregate principal amount of Senior Notes due 2011 issued by the
Operating Partnership (the "Senior Notes") and the transfer of all the propane
assets (excluding the net accounts receivable balance) of the Predecessor
Company to the Operating Partnership and the Service Company. On March 25, 1996,
the underwriters of the Partnership's initial public offering exercised an
overallotment option to purchase an additional 2,812,500 Common Units. The
Operating Partnership and Service Company are, and the Predecessor Company was,
engaged in the retail and wholesale marketing of propane and related appliances
and services.
Suburban Propane GP, Inc. (the "General Partner") is a wholly-owned subsidiary
of Quantum Chemical Corporation ("Quantum") and serves as the general partner of
the Partnership and the Operating Partnership. Both the General Partner and
Quantum are indirect wholly-owned subsidiaries of Millennium Chemicals, Inc.
("Millennium"), which was formed as a result of the demerger (spin-off) of
Hanson PLC's ("Hanson") chemicals businesses in October 1996. The General
Partner holds a 1% general partner interest in the Partnership and a 1.0101%
general partner interest in the Operating Partnership. In addition, the General
Partner owns a 24.4% limited partner interest in the Partnership. This limited
partner interest is evidenced by 7,163,750 Subordinated Units representing
limited partner interests in the Partnership. The General Partner has delegated
to the Partnership's Board of Supervisors all management powers over the
business and affairs of the Partnership Entities that the General Partner
possesses under applicable law.
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
Company's financial statements for the fiscal year ended September 28, 1996,
including management's discussion of financial results contained herein. 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.
58
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.
CASH EQUIVALENTS. The Partnership considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents. The carrying amount approximates fair value because of the short
maturity of these instruments.
REVENUE RECOGNITION. Sales of propane are recognized at the time product is
shipped or delivered to the customer. Revenue from the sale of propane
appliances and equipment is recognized at the time of sale or installation.
Revenue from repairs and maintenance is recognized upon completion of the
service.
INVENTORIES. Inventories are stated at the lower of cost or market. Cost is
determined using a weighted average method for propane and a specific
identification basis for appliances.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at cost.
When plant and equipment are retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and any gains or losses
are reflected in operations. 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 28, 1996 and September 28, 1996 was $93,382
and $85,987, respectively.
GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill and other intangible assets
are comprised of the following at December 28, 1996:
Goodwill $265,537
Debt origination costs 6,224
Other, principally noncompete agreements 4,164
-----
275,925
Less: Accumulated amortization 21,458
------
$254,467
========
59
Goodwill represents the excess of the purchase price over the fair market value
of net assets acquired and is being amortized on a straight-line basis over
forty years from the date of acquisition.
Debt origination costs represent the costs incurred in connection with the
placement of the $425,000 of Senior Notes which is being amortized on a
straight-line basis over 15 years.
INCOME TAXES. As discussed in Note 1, the Partnership Entities consist of two
limited partnerships, the Partnership and the Operating Partnership, and one
corporate entity, the Service Company. 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 Service Company are
subject to federal and state income taxes. Accordingly, the Partnership's
consolidated financial statements reflect income tax expense related to the
Service Company's earnings.
NET INCOME PER UNIT. Net income per unit is computed by dividing net income,
after deducting the General Partner's 2% interest by the weighted average number
of outstanding Common Units and Subordinated Units.
RECLASSIFICATIONS. Certain prior period balances have been reclassified to
conform with the current period presentation.
3. Distributions of Available Cash
-------------------------------
The Partnership will make 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 plus all additional cash on hand as a result of borrowings and
purchases of additional limited partner units (APUs) subsequent to the end of
such quarter less cash reserves established by the Board of Supervisors in its
reasonable discretion for future cash requirements. The Partnership paid the
Minimum Quarterly Distributions on all outstanding Common Units and Subordinated
Units for the quarter ended September 28, 1996 on November 12, 1996. The
aggregate amount of these Common and Subordinated Distributions was $14,363.
4. Related Party Transactions
--------------------------
Pursuant to a Computer Services Agreement (the "Services Agreement") dated as of
the Closing Date between Quantum and the Partnership, Quantum permits the
Partnership to utilize Quantum's mainframe computer for the generation of
customer bills, reports and information regarding the Partnership's retail
sales. For the three months ended December 28, 1996, the Partnership incurred
expenses of $92 under the Services Agreement.
60
5. Commitments and Contingencies
-----------------------------
The Partnership leases certain property, plant and equipment for various periods
under noncancelable leases. Rental expense under operating leases was $3,597 for
the three months ended December 28, 1996.
The Partnership is involved in various legal actions which have arisen in the
normal course of business including those relating to commercial transactions
and product liability. It is the opinion of management, 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.
6. Long-Term Debt and Bank Credit Facilities
-----------------------------------------
On the Closing Date, the Operating Partnership issued $425,000 of Senior Notes
with an annual interest rate of 7.54%. The Operating Partnership's obligations
under the Senior Note Agreement are unsecured and rank on an equal and ratable
basis with the Operating Partnership's obligations under the Bank Credit
Facilities discussed below. The Senior Notes will mature June 30, 2011, and
require semiannual interest payments which commenced June 30, 1996. The Note
Agreement requires that the principal be paid in equal annual installments of
$42,500 starting June 30, 2002.
The Bank Credit Facilities consist of a $100,000 acquisition facility (the
"Acquisition Facility") and a $75,000 working capital facility ("The Working
Capital Facility"). The Operating Partnership's obligations under the Bank
Credit Facilities are unsecured and will rank on an equal and ratable basis with
the Operating Partnership's obligations under the Senior Notes. The Bank Credit
Facilities bear interest at a rate based upon either LIBOR, Chase Manhattan's
(formerly Chemical Bank's) prime rate or the Federal Funds effective rate plus
1/2 of 1% and in each case, plus a margin. In addition, an annual fee (whether
or not borrowings occur) is payable quarterly ranging from 0.125% to 0.375%
based upon certain financial tests. As of December 28, 1996 such fee was 0.375%.
The Working Capital Facility will expire on March 1, 1999. The Acquisition
Facility will expire on March 1, 2003. Any loans outstanding under the
Acquisition Facility after March 1, 1999 will require equal quarterly principal
payments over a four year period.
As of December 28, 1996, the Partnership had outstanding short-term borrowings
of $35,000 under the Working Capital Facility and $14,000 under the Acquisition
Facility.
The Senior Note Agreement and Bank Credit Facilities contain various restrictive
and affirmative covenants applicable to the Operating Partnership, including (i)
maintenance of certain financial tests, (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.
61
7. Unaudited Pro Forma Financial Information
-----------------------------------------
The accompanying unaudited pro forma condensed consolidated statements of
operations for the three months ended December 30, 1995 were derived from the
historical statements of operations of the Predecessor Company and the
statements for the three months ended December 28, 1996 were derived from the
condensed consolidated statement of operations of the Partnership. The pro forma
condensed consolidated statements of operations were prepared to reflect the
effects of the Partnership formation as if it had been completed in its entirety
as of the beginning of the periods presented. However, these statements do not
purport to present the results of operations of the Partnership had the
Partnership formation actually been completed as of the beginning of the periods
presented. In addition, the pro forma condensed consolidated statements of
operations are not necessarily indicative of the results of future operations of
the Partnership and should be read in conjunction with the historical condensed
consolidated financial statements of the Predecessor Company and the Partnership
contained herein.
62
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit amounts)
Three Months Ended
December 28, December 30,
1996 1995
------------ -----------
Revenues
Propane .................................... $ 224,557 $ 170,697
Other ...................................... 21,471 19,982
-------- --------
246,028 190,679
Costs and Expenses
Cost of sales .............................. 148,094 97,295
Operating .................................. 54,725 50,632
Depreciation and amortization .............. 9,281 8,716
Selling, general and administrative expenses 8,028 7,640
-------- --------
220,128 164,283
Income before interest expenses and income taxes 25,900 26,396
Interest expense, net ........................ 8,498 8,230
-------- --------
Income before provision for income taxes ..... 17,402 18,166
Provision for income taxes ................... 64 63
-------- --------
Net income ................................... $ 17,338 $ 18,103
======== ========
General Partner's interest in net income ..... $ 347 $ 362
-------- --------
Limited Partners' interest in net income ..... $ 6,991 $ 17,741
======== ========
Net income per Unit .......................... $ 0.59 $ 0.62
======== ========
Weighted average number of Units outstanding . 28,726 28,726
======== ========
63
7. Unaudited Pro Forma Financial Information - Continued
-----------------------------------------------------
Significant pro forma adjustments reflected in the above data include the
following:
a. For the three month period ended December 30, 1995, the elimination of
management fees paid by the Predecessor Company to a wholly-owned affiliate
of Hanson.
b. For the three month period ended December 30, 1995, the addition of the
estimated incremental general and administrative costs associated with the
Partnership operating as a publicly traded partnership.
c. For the three month period ended December 30, 1995, an adjustment to
interest expense to reflect the interest expense associated with the Senior
Notes and Bank Credit Facilities.
d. For the three month period ended December 30, 1995, the elimination of
the provision for income taxes, as income taxes will be borne by the
partners and not the Partnership, except for corporate income taxes related
to the Service Company.
8. Restricted Unit Plan
--------------------
The Partnership's 1996 Restricted Unit Award Plan authorizes the issuance of
Common Units with an aggregate value of $15,000 to executives, managers and
Elected Supervisors of the Partnership. Initial Restricted Unit grants with a
total value of $7,990 were awarded effective March 5, 1996 and additional grants
with a total value of $3,585 were awarded effective October 1, 1996. Upon
issuance of Restricted Units, unearned compensation is amortized ratably over
the applicable vesting periods under the Plan. Unamortized unearned compensation
was $11,416 at December 28, 1996 and is shown as a reduction of partners'
capital in the Partnership's Condensed Consolidated Balance Sheets.
9. Subsequent Event - Common Unit Distribution
-------------------------------------------
On January 21, 1997, the Partnership announced a quarterly distribution of $0.50
per Limited Partner Common Unit for the first quarter of fiscal 1997 payable on
February 11, 1997. The Partnership will not make a quarterly distribution on its
Subordinated Units (which are held by the General Partner) for said fiscal
quarter.
64
[X] Please mark your vote as in this example.
This proxy will be voted FOR each nominee for Elected Supervisor for whom
authority to vote is not withheld and FOR Item 2 if no vote is specified.
- --------------------------------------------------------------------------------
The Board of Supervisors recommends a vote "FOR" all nominees and Item 2.
- --------------------------------------------------------------------------------
1. Election of Elected Supervisors
FOR WITHHELD NOMINEES:
"FOR" all If marked, vote is John Hoyt Stookey
nominees (except [ ] [ ] withheld from all Harold R. Logan, Jr.
as marked to the nominees listed Dudley C. Mecum
contrary below)
To withhold authority to vote for any individual nominees,
write his name on the space provided below:
- ------------------------------------------------
FOR AGAINST ABSTAIN
2. Ratification of
Price Waterhouse LLP [ ] [ ] [ ]
as independent auditors
for 1997.
3. To vote in their discretion upon such other
business as may property come before the meeting.
NOTE: Please sign exactly as name appears to the
left. Joint owners should each sign. When signing
as attorney, executor, administrator, trustee or
guardian, please also give your full title. If a
corporation, please sign in full corporate name
by an authorized officer. If a partnership, please
sign in full partnership name by an authorized
person.
- ----------------------------------------------------
- ----------------------------------------------------
SIGNATURE(S) DATE
o FOLD AND DETACH HERE o
1997 Tri-Annual Meeting of Limited Partners
Date: June 17, 1997
Time: 9:00 a.m. Local Time
Place: The Olde Mill Inn
225 Route 202
Basking Ridge, New Jersey
66
Suburban Propane Partners, L.P.
Proxy for 1997 Tri-Annual Meeting of Limited Partners
This Proxy is Solicited on Behalf of the Board of Supervisors
The undersigned hereby appoints Mark A. Alexander and David R. Feheley,
jointly and severally, proxies, with full power of substitution, to vote as
specified on the reverse side all common units of Suburban Propane Partners,
L.P. which the undersigned is entitled to vote at the Tri-Annual Meeting of
Limited Partners on June 17, 1997, or any adjournment thereof.
P
R
O
X
Y
You are encouraged to specify your choices by marking the [SEE REVERSE]
appropriate boxes, on the reverse side, but you need not mark [ SIDE ]
any boxes if you wish to vote in accordance with the Board of
Supervisors' recommendations. However, your units cannot be
voted unless you sign and return this card.
o FOLD AND DETACH HERE o
67