UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 30, 2000 ----------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 16 OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ______ to ______ Commission File Number: 1-14222 ------- SUBURBAN PROPANE PARTNERS, L.P. ------------------------------- (Exact name of registrant as specified in its charter) Delaware 22-3410353 - -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 240 Route 10 West, Whippany, NJ 07981 - -------------------------------------------------------------------------------- (Address of principal executive office) (Zip Code) (973) 887-5300 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for each shorter period that the Registrant was required to file such reports), and (2) had been subject to such filing requirements for the past 90 days. Yes X No --- --- The issuer had outstanding 24,631,287 Common Units as of February 7, 2001. This Report contains a total of 18 pages.
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES Index to Form 10-Q Part 1 Financial Information Page ---- Item 1 - Financial Statements Suburban Propane Partners, L.P. and Subsidiaries ------------------------------------------------ Condensed Consolidated Balance Sheets as of December 30, 2000 and September 30, 2000 3 Condensed Consolidated Statements of Operations for the three months ended December 30, 2000 and December 25, 1999 4 Condensed Consolidated Statements of Cash Flows for the three months ended December 30, 2000 and December 25, 1999 5 Condensed Consolidated Statement of Partners' Capital for the three months ended December 30, 2000 6 Notes to Condensed Consolidated Financial Statements 7-12 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 13-15 Item 3 - Quantitative and Qualitative Disclosures about Market Risk 15-16 Part 2 Other Information Item 6 - Exhibits and Reports on Form 8-K 17 Signatures 18 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS - ----------------------------------------------- This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, relating to the Partnership's future business expectations and predictions and financial condition and results of operations. These forward-looking statements involve certain risks and uncertainties. Important factors that could cause actual results to differ materially from those discussed in such forward-looking statements ("cautionary statements") include, among other things: the impact of weather conditions on the demand for propane; fluctuations in the unit cost of propane; the ability of the Partnership to compete with other suppliers of propane and other energy sources; the ability of the Partnership to retain and acquire customers; the Partnership's ability to implement its expansion strategy and to integrate acquired businesses successfully; the impact of energy efficiency and technology advances on the demand for propane; the ability of management to continue to control expenses; the impact of regulatory developments on the Partnership's business; and the impact of legal proceedings on the Partnership's business. All subsequent written and oral forward-looking statements attributable to the Partnership or persons acting on its behalf are expressly qualified in their entirety by such cautionary statements.
<TABLE> SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) <CAPTION> December 30, September 30, 2000 2000 (unaudited) (audited) ------------ ------------- ASSETS Current assets: <S> <C> <C> Cash & cash equivalents .................................. $ 18,928 $ 11,645 Accounts receivable, less allowance for doubtful accounts of $ 5,028 and $2,975, respectively ................... 115,648 61,303 Inventories .............................................. 48,062 41,631 Prepaid expenses and other current assets ................ 11,277 7,581 --------- --------- Total current assets ............................. 193,915 122,160 Property, plant and equipment, net ........................... 347,597 350,640 Net prepaid pension cost ..................................... 33,659 33,687 Goodwill & other intangibles assets, net ..................... 259,080 261,617 Other assets ................................................. 3,261 3,012 --------- --------- Total assets. .................................... $ 837,512 $ 771,116 ========= ========= LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable ......................................... $ 81,031 $ 59,794 Accrued employment and benefit costs ..................... 21,179 18,979 Short-term borrowings .................................... 26,000 6,500 Accrued insurance ........................................ 6,140 6,170 Customer deposits and advances ........................... 15,550 23,164 Accrued interest ......................................... 16,309 8,171 Other current liabilities ................................ 10,935 8,683 --------- --------- Total current liabilities.. ...................... 177,144 131,461 Long-term borrowings ......................................... 473,158 517,219 Postretirement benefits obligation ........................... 34,155 33,885 Accrued insurance ............................................ 18,827 19,458 Other liabilities ............................................ 7,291 7,264 --------- --------- Total liabilities... ............................. 710,575 709,287 --------- --------- Partners' capital: Common Unitholders ....................................... 126,127 58,474 General Partner .......................................... 2,229 1,866 Deferred compensation trust .............................. (11,567) (11,567) Common Units held in trust, at cost ...................... 11,567 11,567 Unearned Compensation .................................... (2,131) (640) Accumulated other comprehensive income ................... 712 2,129 --------- --------- Total partners' capital .......................... 126,937 61,829 --------- --------- Total liabilities and partners' capital........... $ 837,512 $ 771,116 ========= ========= </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements.
<TABLE> SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per Unit amounts) (unaudited) <CAPTION> Three Months Ended ------------------ December 30, December 25, 2000 1999 ------------ ------------ Revenues <S> <C> <C> Propane ............................................ $ 268,459 $ 174,008 Other .............................................. 25,624 26,454 --------- --------- 294,083 200,462 Cost and Expenses Cost of sales ...................................... 169,138 102,441 Operating .......................................... 64,377 55,289 Depreciation and amortization ...................... 9,586 9,006 General and administrative ......................... 8,206 6,643 Gain on sale of assets ............................. -- (10,328) --------- --------- 251,307 163,051 Income before interest expense and income taxes ...................................... 42,776 37,411 Interest expense, net ................................ 9,988 9,399 --------- --------- Income before provision for income taxes ............ 32,788 28,012 Provision for income taxes ........................... 71 21 --------- --------- Net income ........................................... $ 32,717 $ 27,991 ========= ========= General Partner's interest in net income ............. $ 654 $ 560 --------- --------- Limited Partners' interest in net income ............. $ 32,063 $ 27,431 ========= ========= Net income per Unit .................................. $ 1.33 $ 1.23 ========= ========= Weighted average number of Units outstanding ......... 24,163 22,264 --------- --------- </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements.
<TABLE> SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) <CAPTION> (unaudited) Three Months Ended ------------------ December 30, 2000 December 25, 1999 ----------------- ----------------- Cash flows from operating activities: <S> <C> <C> Net income ...................................................... $ 32,717 $ 27,991 Adjustments to reconcile net income to net cash provided by operations: Depreciation ............................................... 7,049 7,072 Amortization ............................................... 2,537 1,934 (Gain) on disposal of property, plant and equipment ................................................ (592) (10,544) Changes in operating assets and liabilities, net of acquisitions and dispositions: (Increase) in accounts receivable .......................... (54,345) (29,384) (Increase) in inventories .................................. (6,431) (6,893) (Increase) in prepaid expenses and other current assets ...................................... (5,113) (805) Increase in accounts payable ............................... 21,237 13,759 Increase/(decrease) in accrued employment and benefit costs ......................................... 2,325 (3,159) Increase in accrued interest ............................... 8,138 9,050 (Decrease) in other accrued liabilities .................... (5,392) (1,525) Other noncurrent assets ......................................... (221) (145) Deferred credits and other noncurrent liabilities ............... (387) (638) ----------------- ----------------- Net cash provided by operating activities ............. 1,522 6,713 ----------------- ----------------- Cash flows from investing activities: Capital expenditures ........................................... (4,273) (4,579) Acquisitions ................................................... -- (97,914) Proceeds from sale of property, plant and equipment, net ....... 859 17,862 ----------------- ----------------- Net cash (used in) investing activities ............... (3,414) (84,631) ----------------- ----------------- Cash flows from financing activities: Long-term (repayments)/borrowings, net ......................... (44,008) 96,988 Short-term borrowings/(repayments), net ........................ 19,500 (2,750) Credit agreement expenses ...................................... -- (3,123) Net proceeds from S-3 public offering .......................... 47,079 -- Partnership distribution ....................................... (13,396) (11,628) ----------------- ----------------- Net cash provided by financing activities ............. 9,175 79,487 ----------------- ----------------- Net increase in cash.................................................. 7,283 1,569 Cash and cash equivalents at beginning of period ..................... 11,645 8,392 ----------------- ----------------- Cash and cash equivalents at end of period ........................... $ 18,928 $ 9,961 ================= ================= Supplemental disclosure of cash flow information: Cash paid for interest ........................................... $ 1,838 $ 199 ================= ================= </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements.
<TABLE> SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (in thousands) <CAPTION> Common Deferred Number of Units General Units in Compensation Unearned Common Common Partner Trust Trust Compensation --------------- ------ ------- ----- ----- ------------ <S> <C> <C> <C> <C> <C> <C> Balance at September 30, 2000 ...... 22,279 $ 58,474 $ 1,866 $ 11,567 $ (11,567) $ (640) Net income .......................... 32,102 615 Other comprehensive income: Unrealized loss on securities .. Comprehensive income ................ Partnership distribution ............ (13,144) (252) Sale of Common Units under public offering, net of expenses.. 2,353 47,079 Grants issued under Restricted Unit Plan ........................ 1,616 (1,616) Amortization of Compensation Deferral Plan .................... 59 Amortization of Restricted Unit Plan ........................ -- -- -- -- -- 66 --------------- ------ ------- ----- ----- ------------ Balance at December 30, 2000 ....... 24,632 $ 126,127 $ 2,229 $ 11,567 $ (11,567) $ (2,131) =============== ====== ======= ===== ===== ============ Accumulated Other Total Comprehensive Partners' Comprehensive Income Capital Income ------ ------- ------ <S> <C> <C> $ 2,129 $ 61,829 32,717 $ 32,717 (1,417) (1,417) (1,417) --------- $ 31,300 ========= (13,396) 47,079 59 -- 66 ------ ------- $ 712 $ 126,937 ====== ======= </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements. SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements December 30, 2000 (Dollars in Thousands) (Unaudited) 1. PARTNERSHIP ORGANIZATION AND FORMATION -------------------------------------- Suburban Propane Partners, L.P. (the "Partnership") and its subsidiary, Suburban Propane, L.P. (the "Operating Partnership"), were formed as Delaware limited partnerships on December 19, 1995 to acquire and operate the propane business and assets of Suburban Propane, a division of Quantum Chemical Corporation (the "Predecessor Company"). The Partnership completed an initial public offering of Common Units on March 5, 1996. In addition, Suburban Sales & Service, Inc. (the "Service Company"), a subsidiary of the Operating Partnership, was formed to acquire and operate the service work and appliance and parts businesses of the Predecessor Company. The Partnership, the Operating Partnership, the Service Company, a corporation subsequently acquired by the Operating Partnership, Gas Connection, Inc., and Suburban @ Home, Inc., a corporation formed to operate a heating and air conditioning business, are collectively referred to hereinafter as the "Partnership Entities". On May 26, 1999, the Partnership completed a recapitalization (the "Recapitalization") which included the redemption of all limited partner interests held by the Former General Partner, Suburban Propane GP, Inc. a wholly-owned subsidiary of Millennium Chemicals, Inc., and the substitution of a new general partner, Suburban Energy Services Group LLC, which is owned by senior management of the Partnership. 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -------------------------------------------------------------------- BASIS OF PRESENTATION. The condensed consolidated financial statements include the accounts of the Partnership Entities. All significant intercompany transactions and accounts have been eliminated. The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. They include all adjustments which the Partnership considers necessary for a fair statement of the results for the interim period presented. Such adjustments consisted only of normal recurring items unless otherwise disclosed. These financial statements should be read in conjunction with the Partnership's Annual Report on Form 10-K for the fiscal year ended September 30, 2000, including management's discussion of financial results contained therein. Due to the seasonal nature of the Partnership's propane business, the results of operations for interim periods are not necessarily indicative of the results to be expected for a full year. FISCAL PERIOD. The Partnership's fiscal periods end on the Saturday nearest the end of the quarter. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. DERIVATIVE INSTRUMENTS. The Partnership routinely uses propane futures and forward contracts to reduce the risk of future price fluctuations and to help ensure supply during periods of high demand. Effective October 1, 2000, the date of adoption of a new accounting pronouncement for derivative instruments, management determined that the Partnership's derivative instruments do not qualify as hedges. Accordingly, such contracts are recorded as assets or liabilities on the balance sheet based on their fair value and any subsequent changes in the fair values of such contracts are recorded in income. These amounts are included in other current assets, other current liabilities and operating expenses, respectively. See "Adoption of New Accounting Standard" for further information. INVENTORIES. Inventories are stated at the lower of cost or market. Cost is determined using a weighted average method for propane and a standard cost basis for appliances, which estimates average cost. PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment is computed using the straight-line method over the estimated service lives, which range from three to forty years. Accumulated depreciation at December 30, 2000 and September 30, 2000 was $204,360 and $198,549, respectively. GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill and other intangible assets are comprised of the following: <TABLE> <CAPTION> December 30, 2000 September 30, 2000 ----------------- ------------------ <S> <C> <C> Goodwill $296,201 $296,201 Debt origination costs 8,024 8,024 Deferred credit agreement costs 3,123 3,123 Other, principally noncompete agreements 4,940 4,940 --------- --------- 312,288 312,288 Less: Accumulated amortization 53,208 50,671 --------- --------- $259,080 $261,617 ========= ========= </TABLE> INCOME TAXES. As discussed in Note 1, the Partnership Entities consist of two limited partnerships, the Partnership and the Operating Partnership, and three corporate entities. For federal and state income tax purposes, the earnings attributed to the Partnership and Operating Partnership are included in the tax returns of the individual partners. As a result, no recognition of income tax expense has been reflected in the Partnership's consolidated financial statements relating to the earnings of the Partnership and Operating Partnership. The earnings attributed to the corporate entities are subject to federal and state income taxes. Accordingly, the Partnership's consolidated financial statements reflect income tax expense related to the corporate entities' earnings.
UNIT-BASED COMPENSATION. The Partnership accounts for Unit-based compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations, and makes the pro forma information disclosures required under the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation". Upon issuance of Units under the compensation plans, unearned compensation equivalent to the market value of the Restricted Units, granted under the restricted unit plans, or Common Units, granted under the Compensation Deferral Plan, is charged at the date of grant. The unearned compensation is amortized ratably over the restricted periods. The unamortized unearned compensation value is shown as a reduction of partners' capital in the accompanying consolidated balance sheets. As a result of the May 26, 1999 Recapitalization, all unamortized compensation related to the Restricted Units, issued under the initial Restricted Unit Plan, was earned and expense of $11,393 was recorded. As of December 30, 2000, no Units were outstanding under the initial Restricted Unit Plan, 42,925 Common Units were outstanding under the Compensation Deferral Plan and 78,228 Restricted Units were outstanding under the 2000 Restricted Unit Plan. See Notes 6 and 7 for further information. NET INCOME (LOSS) PER UNIT. Basic net income (loss) per limited partner Unit is computed by dividing net income (loss), after deducting the General Partner's approximate 2% interest, by the weighted average number of outstanding Common Units. Diluted net income (loss) per limited partner Unit is computed by dividing net income (loss), after deducting the General Partner's approximate 2% interest, by the weighted average number of outstanding Common Units, time vested Restricted Units granted under the Restricted Unit Award Plans and time vested Common Units granted under the Compensation Deferral Plan. ADOPTION OF NEW ACCOUNTING STANDARD. In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("Statement No. 133"). Statement No. 133, as amended by Statement No. 137 and Statement No. 138, requires entities to record derivatives as assets or liabilities on the balance sheet based on their fair value and any subsequent changes in the fair values of contracts must be recorded in income, unless the contracts qualify as hedges. Contracts qualifying for hedge accounting would have changes in fair values reported as a component of comprehensive income (equity). The Partnership adopted Statement No. 133 effective with the first fiscal quarter of 2001. Management determined that the Partnership's derivative contracts do not qualify for hedge accounting and its derivatives are marked-to-market through income. The fair market value of the Partnership's derivative portfolio on the date of adoption did not reflect any unrealized net gain or loss and as such no cumulative effect of this change in accounting is reflected in the accompanying financial statements. For the three months ended December 30, 2000, the Partnership recorded expense of $1.1 million, which represents the net change in the fair values of the Partnership's derivatives during that period. RECLASSIFICATIONS. Certain prior period balances have been reclassified to conform with the current period presentation. 3. DISTRIBUTIONS OF AVAILABLE CASH ------------------------------- The Partnership makes distributions to its partners 45 days after the end of each fiscal quarter in an aggregate amount equal to its Available Cash for such quarter. Available Cash generally means all cash on hand at the end of the
fiscal quarter less the amount of cash reserves established by the Board of Supervisors in its reasonable discretion for future cash requirements. In connection with the Recapitalization, the Partnership agreed to maintain through March 31, 2001, the date on which the distribution support agreement provided by the Former General Partner was to expire, certain levels of committed availability under its Credit Agreement to support the Minimum Quarterly Distribution. 4. COMMITMENTS AND CONTINGENCIES ----------------------------- The Partnership leases certain property, plant and equipment for various periods under noncancelable leases. Rental expense under operating leases was $5,638 for the three months ended December 30, 2000. The Partnership is self-insured for general and product, workers' compensation and automobile liabilities up to predetermined amounts above which third party insurance applies. At December 30, 2000, accrued insurance liabilities amounted to $24,967, representing the total estimated losses under these self-insurance programs. These liabilities represent the gross estimated losses as no claims or lawsuits, individually or in the aggregate, were estimated to exceed the Partnership's deductibles on its insurance policies. The Partnership also is involved in various legal actions which have arisen in the normal course of business including those relating to commercial transactions and product liability. Management believes that the ultimate resolution of these matters will not have a material adverse effect on the Partnership's financial position or future results of operations, after considering its self-insurance liability for known and unasserted self-insurance claims. 5. LONG-TERM DEBT AND REVOLVING CREDIT AGREEMENT --------------------------------------------- On March 5, 1996, the Operating Partnership issued $425,000 of Senior Notes with an annual interest rate of 7.54%. The Operating Partnership's obligations under the Senior Note Agreement are unsecured and rank on an equal and ratable basis with the Operating Partnership's obligations under the Revolving Credit Agreement discussed below. The Senior Notes will mature June 30, 2011. The Note Agreement requires that the principal be paid in equal annual installments of $42,500 starting June 30, 2002. At December 30, 2000, the Revolving Credit Agreement consisted of a $100,000 acquisition facility and a $75,000 working capital facility. Borrowings under the Revolving Credit Agreement bear interest at a rate based upon either LIBOR plus a margin, First Union National Bank's prime rate or the Federal Funds rate plus 1/2 of 1%. An annual fee ranging from .375% to .50%, based upon certain financial tests, is payable quarterly whether or not borrowings occur. As of December 30, 2000, such fee was .50%. As of December 30, 2000, $46,000 was outstanding under the acquisition facility of the Revolving Credit Agreement resulting from the acquisition of SCANA, $26,000 was outstanding under the working capital facility. As of September 30, 2000, $90,000 was outstanding under the acquisition facility of the Revolving Credit Agreement and $6,500 was outstanding under the working capital facility.
The Senior Note Agreement and Revolving Credit Agreement contain various restrictive and affirmative covenants applicable to the Operating Partnership, including (i) maintenance of certain financial tests (including maintaining minimum net worth of $50,000), (ii) restrictions on the incurrence of additional indebtedness, and (iii) restrictions on certain liens, investments, guarantees, loans, advances, payments, mergers, consolidations, distributions, sales of assets and other transactions. Effective January 29, 2001, the Partnership amended its Revolving Credit Agreement (See Note 9 - Subsequent Events). 6. COMPENSATION DEFERRAL PLAN -------------------------- Effective May 26, 1999, in connection with the Partnership's Recapitalization, the Partnership adopted the Compensation Deferral Plan (the "Deferral Plan") which provided for eligible employees of the Partnership to surrender their right to receive all or a portion of their unvested Common Units granted under the Partnership's 1996 Restricted Unit Award Plan prior to the time their Common Units were substantially certain to vest in exchange for the right to participate in and receive certain payments under the Deferral Plan. Senior management of the Partnership surrendered 553,896 Restricted Units representing substantially all of their Restricted Units, before they vested in exchange for the right to participate in the Deferral Plan. The Partnership deposited into a trust on behalf of these individuals 553,896 Common Units. The Deferral Plan also allows eligible employees to defer receipt of Common Units that may be subsequently granted by the Partnership under the Deferral Plan. The Common Units granted under the Deferral Plan and related Partnership distributions are subject to forfeiture provisions such that (a) 100% of the Common Units would be forfeited if the grantee shall cease to be employed by the Partnership within three years of the date of the Recapitalization, (b) 75% would be forfeited if the grantee shall cease to be employed after the third anniversary, but prior to the fourth anniversary of the Recapitalization date and (c) 50% would be forfeited if the grantee shall cease to be employed after the fourth anniversary, but prior to the fifth anniversary. Upon issuance of Common Units under the Deferral Plan, unearned compensation equivalent to the market value of the Common Units is charged at the date of grant. The unearned compensation is amortized in accordance with the Deferral Plan's forfeiture provisions. The unamortized unearned compensation value is shown as a reduction of partners' capital in the accompanying consolidated balance sheets. During the three months ended December 30, 2000, the Partnership amortized $59 of unearned compensation. Following is a summary of activity in the Deferral Plan: Units Value Per Unit ----- -------------- Outstanding, September 30, 2000 and December 30, 2000 42,925 $19.91 ====== ====== Pursuant to the Deferral Plan, participants have deferred receipt of these Common Units and related distributions by the Partnership by depositing the Units into a trust. The value of the Common Units deposited in the trust and the related deferred compensation trust liability are reflected in the accompanying consolidated balance sheet at December 30, 2000 as components of partners' capital.
7. 2000 RESTRICTED UNIT PLAN ------------------------- In November 2000, the Partnership adopted the Suburban Propane Partners, L.P. 2000 Restricted Unit Plan (the "2000 Restricted Unit Plan") which authorizes the issuance of Common Units with an aggregate value of $10,000 (487,804 Common Units valued at the initial public offering price of $20.50 per Unit) to executives, managers and other employees of the Partnership. Restricted Units issued under the 2000 Restricted Unit Plan vest over time with twenty-five percent of such units vesting at the end of each of the third and fourth anniversaries of the issuance date and fifty percent vesting at the end of the fifth anniversary of the issuance date. 2000 Restricted Unit Plan participants are not eligible to receive quarterly distributions or vote their respective Restricted Units until vested. Restrictions also limit the sale or transfer of the Units during the restricted periods. The value of the Restricted Unit is established by the market price of the Common Unit at the date of grant. Restricted Units are subject to forfeiture in certain circumstances as defined in the 2000 Restricted Unit Plan. During the three months ended December 30, 2000, the Partnership amortized $66 of unearned compensation. Following is a summary of activity in the 2000 Restricted Unit Plan: Units Value Per Unit ----- -------------- Outstanding, September 30, 2000 - $ - Awarded 78,228 $20.66 ------ ------ Outstanding, December 30, 2000 78,228 $20.66 ====== ====== 8. PUBLIC OFFERING --------------- On October 17, 2000, the Partnership sold 2,175,000 Common Units in a public offering at a price of $21.125 per Unit realizing proceeds of $43,500, net of underwriting commissions and any other offering expenses. On November 14, 2000, following the underwriters partial exercise of its over-allotment option, the Partnership sold an additional 177,700 Common Units at the same price, generating net proceeds of $3,600. These transactions increased the total number of Common Units outstanding to 24,631,287. The aggregate net proceeds of $47,100 were applied to reduce outstanding Revolving Credit borrowings. 9. Subsequent Events ----------------- On January 26, 2001, the Partnership announced a quarterly distribution of $.5375 per Common Unit for the first quarter of fiscal 2001 consisting of the Minimum Quarterly Distribution of $.50 per Common Unit and an additional distribution of $.0375 per Common Unit payable on February 13, 2001 to holders of record on February 5, 2001. Effective January 29, 2001, the Partnership amended its existing Revolving Credit Agreement. The new Revolving Credit Agreement reduces the acquisition facility from $100,000 to $50,000 and extends the term to May 31, 2003. In addition, the covenant to maintain a minimum net worth has been eliminated and the maximum ratio of consolidated total indebtedness to EBITDA (as defined in the amendment) is reduced from 5.10 to 1 to 5.00 to 1 from April 1, 2001 through May 31, 2003. The Partnership's working capital facility was retained at $75,000. There is an $11,600 subfacility in place through the quarter ending March 31, 2001 to support the Minimum Quarterly Distribution.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Months Ended December 30, 2000 - ------------------------------------ Compared to Three Months Ended December 25, 1999 - ------------------------------------------------ REVENUES Revenues increased 46.7% or $93.6 million to $294.1 million for the three months ended December 30, 2000 compared to $200.5 million for the three months ended December 25, 1999. The overall increase is primarily attributable to higher propane costs resulting in higher sales prices to customers and an increase in retail and wholesale volumes. Propane sold to retail customers increased 16.6% or 23.4 million gallons to 163.9 million gallons, compared to 140.5 million gallons in the prior period's quarter. The increase in retail gallons is principally due to colder than normal weather. Temperatures nationwide during the quarter averaged 13% colder than normal as compared to 11% warmer than normal in the prior period's quarter. Wholesale gallons sold and gallons sold related to price risk management activities increased 25.1% or 14.3 million gallons to 71.4 million gallons, principally resulting from increased market opportunities attributable to a more volatile propane pricing environment. OPERATING EXPENSES Operating expenses increased 16.4% or $9.1 million to $64.4 million for the three months ended December 30, 2000 compared to $55.3 million for the three months ended December 25, 1999. The increase in operating expenses is ratable with the higher level of activity during the quarter and is principally attributable to increased payroll and benefit costs, an increase in fleet operating expenses and an increase in the allowance for doubtful accounts receivable. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses increased 23.5% or $1.6 million to $8.2 million for the three months ended December 30, 2000 compared to $6.6 million for the three months ended December 25, 1999. The increase is primarily attributable to planned higher payroll and benefit costs. INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES AND EBITDA Results for the first quarter ended December 25, 1999 include a $10.3 million gain from the sale of assets. Excluding this one-time item in the prior year, income before interest expense and income taxes increased $15.7 million to $42.8 million in the three months ended December 30, 2000 compared to $27.1 million in the prior year's first quarter. EBITDA, excluding the one-time item in the prior year, increased $16.3 million or 45.1% to $52.4 million. The increases in income before interest expense and income taxes and in EBITDA are primarily attributable to an increase in gross profit resulting from the higher sales volumes partially offset by higher operating and general and administrative expenses.
EBITDA should not be considered as an alternative to net income (as an indicator of operating performance) or as an alternative to cash flow (as a measure of liquidity or ability to service debt obligations) and is not in accordance with or superior to generally accepted accounting principles but provides additional information for evaluating the Partnership's ability to distribute the Minimum Quarterly Distribution. Because EBITDA excludes some, but not all, items that affect net income and this measure may vary among companies, the EBITDA data presented above may not be comparable to similarly titled measures of other companies. INTEREST EXPENSE Net interest expense increased $.6 million to $10.0 million in the three months ended December 25, 2000 compared with $9.4 million in the prior period. The increase is attributable to higher short-term borrowings to fund increased working capital requirements due to the increased cost of propane. LIQUIDITY AND CAPITAL RESOURCES Due to the seasonal nature of the propane business, cash flows from operating activities are greater during the winter and spring seasons as customers pay for propane purchased during the heating season. For the three months ended December 30, 2000, net cash provided by operating activities was $1.5 million compared to cash provided by operating activities of $6.7 million in the three months ended December 25, 1999. The decrease of $5.2 million was primarily due to higher working capital requirements, specifically accounts receivable and inventory, due to the increased cost of propane. Net cash used in investing activities was $3.4 million for the three months ended December 30, 2000 consisting of capital expenditures of $4.3 million (including $.3 million for maintenance expenditures and $4.0 million to support the growth of operations), offset by $.9 million from the sale of property, plant and equipment. Net cash used in investing activities was $84.6 million during the three months ended December 25, 1999 consisting of acquisition payments of $97.9 million reflecting the SCANA acquisition and capital expenditures of $4.6 million (including $3.5 million for maintenance expenditures and $1.1 million to support the growth of operations), offset by proceeds from the sales of property, plant and equipment of $17.9 million, including 23 customer service centers. Net cash provided by financing activities for the three months ended December 30, 2000 was $9.2 million, reflecting $47.1 million in net proceeds received from the sale of Common Units in a public offering and the subsequent underwriters partial exercise of its over-allotment option, $19.5 million of net working capital borrowings under the Partnership's Revolving Credit Agreement partially offset by $13.4 million in Partnership distributions and $44.0 million of net repayments of amounts outstanding under the acquisition facility utilizing the proceeds from the public offering. Net cash provided by financing activities for the three months ended December 25, 1999 was $79.5 million, principally reflecting borrowings to fund the SCANA acquisition partially offset by the Partnership's distribution.
Effective January 29, 2001, the Partnership amended its existing Revolving Credit Agreement. Pursuant to the amendment, the acquisition facility has been reduced from $100.0 million to $50.0 million, the working capital facility has been retained at $75.0 million and both facilities have been extended until May 31, 2003. The minimum net worth covenant has been eliminated and the maximum leverage ratio will be reduced to 5.00 to 1 for quarters after March 31, 2001. Borrowings bear interest at a rate based upon either LIBOR plus a maximum margin of 2% or the agent bank's base rate plus a margin of 1% (in each case such margin to reduce according to improvements in the leverage ratio). An annual fee of .50% (also subject to reduction according to improvements in the leverage ratio) is payable quarterly whether or not borrowings are made. The working capital facility includes an $11.6 million subfacility to support the Minimum Quarterly Distribution. This subfacility will remain in place through the quarter ending March 31, 2001, when the liquidity arrangement provided by the Partnership at the time of the Recapitalization will terminate. The Partnership has announced that it will make a distribution of $.5375 per Unit to its Common Unitholders on February 13, 2001 for the first fiscal quarter of 2001 consisting of the Minimum Quarterly Distribution of $.50 per Common Unit and an additional distribution of $.0375 per Common Unit. The ability of the Partnership to satisfy its future obligations will depend on its future performance, which will be subject to prevailing economic, financial, business and weather conditions and other factors, many of which are beyond its control. Based on its current cash position, available Bank Credit Facilities and expected cash flow from operating activities, the Partnership expects to have sufficient funds to meet its obligations and working capital needs, and pay distributions at the current level, during fiscal 2001. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of December 30, 2000, the Partnership was party to propane forward and option contracts with various third parties and futures traded on the New York Mercantile Exchange ("NYMEX"). Forward and future contracts provide that the Partnership sell or acquire propane at a fixed price at fixed future dates. An option contract allows, but does not require its holder to buy or sell propane at a specified price during a specified time period. The writer of an option contract must fulfill the obligation of the option contract, should the holder choose to exercise the option. At expiration, contracts are settled by the delivery of propane to the respective party or are settled by the payment of a net amount equal to the difference between the then current price of propane and the fixed contract price. The contracts are entered into in anticipation of market movements and to manage and hedge exposure to fluctuating propane prices. Market risks associated with the trading of futures and forward contracts are monitored daily for compliance with the Partnership's trading policy which includes volume limits for open positions. Open inventory positions are reviewed and managed daily as to exposures to changing market prices. MARKET RISK The Partnership is subject to commodity price risk to the extent that propane market prices deviate from fixed contract settlement amounts. Futures contracts traded with brokers of the NYMEX require daily cash settlements in margin accounts. Forward and option contracts are generally settled at the expiration of the contract term. CREDIT RISK Futures contracts are guaranteed by the NYMEX and as a result have minimal credit risk. The Partnership is subject to credit risk with forward and option contracts to the extent the counterparties do not perform. The Partnership evaluates the financial condition of each counterparty with which it conducts business and establishes credit limits to reduce exposure to credit risk of non-performance.
SENSITIVITY ANALYSIS In an effort to estimate the exposure of unfavorable market price movements, a sensitivity analysis of open positions as of December 30, 2000 was performed. Based on this analysis, a hypothetical 10% adverse change in market prices for each of the future months for which an option, future and/or forward contract exists indicates a potential loss in future earnings of $.6 million as of December 30, 2000. See also Item 7A of the Partnership's Annual Report on Form 10-K for the fiscal year ended September 30, 2000. The above hypothetical change does not reflect the worst case scenario. Actual results may be significantly different depending on market conditions and the composition of the open position portfolio.
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES Part II Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (3)(a) Amended and Restated Credit Agreement by and between Suburban Propane, L.P. as Borrower, the Lenders referred to therein, First Union National Bank, as Administrative Agent, Fleet National Bank, as Syndication Agent, and the Bank of New York, as Managing Agent, effective January 29, 2001. (27) Financial Data Schedule (b) Reports on Form 8-K Report on Form 8-K dated January 19, 2001 announcing the Partnership's Fiscal 2001 First Quarter Conference Call.
SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THE REGISTRANT HAS CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED: SUBURBAN PROPANE PARTNERS, L.P. Date: February 13, 2001 By /s/ John W. Smolak --------------------------------------- John W. Smolak Chief Financial Officer By /s/ Edward J. Grabowiecki --------------------------------------- Edward J. Grabowiecki Vice President, Controller and Chief Accounting Officer