sph-10q_20171230.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 30, 2017

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number:  1-14222

 

SUBURBAN PROPANE PARTNERS, L.P.

(Exact name of registrant as specified in its charter)

 

 

Delaware

22-3410353

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

240 Route 10 West

Whippany, NJ 07981

(973)  887-5300

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,”  “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

(do not check if a smaller reporting company)

Smaller reporting company

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

At February 5, 2018, there were 61,393,674 Common Units of Suburban Propane Partners, L.P. outstanding.

 

 

 

 


 

SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

INDEX TO FORM 10-Q

 

 

 

 

 

Page

 

 

PART I. FINANCIAL INFORMATION

 

1

 

 

 

 

 

ITEM 1.

 

FINANCIAL STATEMENTS (UNAUDITED)

 

1

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of December 30, 2017 and September 30, 2017  

 

1

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the three months ended December 30, 2017 and December 24, 2016

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended December 30, 2017 and December 24, 2016

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended December 30, 2017 and December 24, 2016

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statement of Partners’ Capital for the three months ended December 30, 2017

 

5

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

6

 

 

 

 

 

ITEM 2.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

20

 

 

 

 

 

ITEM 3.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

27

 

 

 

 

 

ITEM 4.

 

CONTROLS AND PROCEDURES

 

28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

30

 

 

 

 

 

ITEM 1.

 

LEGAL PROCEEDINGS

 

30

 

 

 

 

 

ITEM 1A.

 

RISK FACTORS

 

30

 

 

 

 

 

ITEM 2.

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

30

 

 

 

 

 

ITEM 3.

 

DEFAULTS UPON SENIOR SECURITIES

 

30

 

 

 

 

 

ITEM 4.

 

MINE SAFETY DISCLOSURES

 

30

 

 

 

 

 

ITEM 5.

 

OTHER INFORMATION

 

30

 

 

 

 

 

ITEM 6.

 

EXHIBITS

 

31

 

 

 

 

 

SignaturEs

 

32

 

 


 

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements (“Forward-Looking Statements”) as defined in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, relating to future business expectations and predictions and financial condition and results of operations of Suburban Propane Partners, L.P. (the “Partnership”). Some of these statements can be identified by the use of forward-looking terminology such as “prospects,” “outlook,” “believes,” “estimates,” “intends,” “may,” “will,” “should,” “could,” “anticipates,” “expects” or “plans” or the negative or other variation of these or similar words, or by discussion of trends and conditions, strategies or risks and uncertainties.  These Forward-Looking Statements involve certain risks and uncertainties that could cause actual results to differ materially from those discussed or implied in such Forward-Looking Statements (statements contained in this Quarterly Report identifying such risks and uncertainties are referred to as “Cautionary Statements”). The risks and uncertainties and their impact on the Partnership’s results include, but are not limited to, the following risks:

The impact of weather conditions on the demand for propane, fuel oil and other refined fuels, natural gas and electricity;

Volatility in the unit cost of propane, fuel oil and other refined fuels, natural gas and electricity, the impact of the Partnership’s hedging and risk management activities, and the adverse impact of price increases on volumes sold as a result of customer conservation;

The ability of the Partnership to compete with other suppliers of propane, fuel oil and other energy sources;

The impact on the price and supply of propane, fuel oil and other refined fuels from the political, military or economic instability of the oil producing nations, global terrorism and other general economic conditions;

The ability of the Partnership to acquire sufficient volumes of, and the costs to the Partnership of acquiring, transporting and storing, propane, fuel oil and other refined fuels;

The ability of the Partnership to acquire and maintain reliable transportation for its propane, fuel oil and other refined fuels;

The ability of the Partnership to retain customers or acquire new customers;

The impact of customer conservation, energy efficiency and technology advances on the demand for propane, fuel oil and other refined fuels, natural gas and electricity;

The ability of management to continue to control expenses;

The impact of changes in applicable statutes and government regulations, or their interpretations, including those relating to the environment and climate change, derivative instruments and other regulatory developments on the Partnership’s business;

The impact of changes in tax laws that could adversely affect the tax treatment of the Partnership for income tax purposes;

The impact of legal proceedings on the Partnership’s business;

The impact of operating hazards that could adversely affect the Partnership’s operating results to the extent not covered by insurance;

The Partnership’s ability to make strategic acquisitions and successfully integrate them;

The impact of current conditions in the global capital and credit markets, and general economic pressures;

The operating, legal and regulatory risks the Partnership may face; and

Other risks referenced from time to time in filings with the Securities and Exchange Commission (“SEC”) and those factors listed or incorporated by reference into the Partnership’s most recent Annual Report under “Risk Factors.”

Some of these Forward-Looking Statements are discussed in more detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report.  Reference is also made to the risk factors discussed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.  On different occasions, the Partnership or its representatives have made or may make Forward-Looking Statements in other filings with the SEC, press releases or oral statements made by or with the approval of one of the Partnership’s authorized executive officers.  Readers are cautioned not to place undue reliance on Forward-Looking Statements, which reflect management’s view only as of the date made.  The Partnership undertakes no obligation to update any Forward-Looking Statement or Cautionary Statement, except as required by law.  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 the Cautionary Statements in this Quarterly Report and in future SEC reports.

 

 

 

 


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

 

 

 

December 30,

 

 

September 30,

 

 

 

2017

 

 

2017

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,907

 

 

$

2,789

 

Accounts receivable, less allowance for doubtful accounts of $3,744 and

   $3,044, respectively

 

 

138,788

 

 

 

65,683

 

Inventories

 

 

61,761

 

 

 

53,220

 

Other current assets

 

 

26,253

 

 

 

17,801

 

Total current assets

 

 

232,709

 

 

 

139,493

 

Property, plant and equipment, net

 

 

677,562

 

 

 

692,627

 

Goodwill

 

 

1,093,470

 

 

 

1,094,635

 

Other intangible assets, net

 

 

207,900

 

 

 

219,876

 

Other assets

 

 

24,731

 

 

 

24,652

 

Total assets

 

$

2,236,372

 

 

$

2,171,283

 

LIABILITIES AND PARTNERS’ CAPITAL

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

73,498

 

 

$

38,652

 

Accrued employment and benefit costs

 

 

21,625

 

 

 

27,402

 

Customer deposits and advances

 

 

79,098

 

 

 

97,023

 

Accrued interest

 

 

16,766

 

 

 

13,682

 

Other current liabilities

 

 

31,657

 

 

 

33,607

 

Total current liabilities

 

 

222,644

 

 

 

210,366

 

Long-term borrowings

 

 

1,319,969

 

 

 

1,272,164

 

Accrued insurance

 

 

55,756

 

 

 

54,921

 

Other liabilities

 

 

81,956

 

 

 

80,850

 

Total liabilities

 

 

1,680,325

 

 

 

1,618,301

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Partners’ capital:

 

 

 

 

 

 

 

 

Common Unitholders (61,389 and 61,105 units issued and outstanding at

   December 30, 2017 and September 30, 2017, respectively)

 

 

584,102

 

 

 

581,794

 

Accumulated other comprehensive loss

 

 

(28,055

)

 

 

(28,812

)

Total partners’ capital

 

 

556,047

 

 

 

552,982

 

Total liabilities and partners’ capital

 

$

2,236,372

 

 

$

2,171,283

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


 

SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per unit amounts)

(unaudited)

 

 

 

Three Months Ended

 

 

 

December 30,

 

 

December 24,

 

 

 

2017

 

 

2016

 

Revenues

 

 

 

 

 

 

 

 

Propane

 

$

322,130

 

 

$

269,459

 

Fuel oil and refined fuels

 

 

25,315

 

 

 

22,096

 

Natural gas and electricity

 

 

13,147

 

 

 

13,067

 

All other

 

 

12,685

 

 

 

12,685

 

 

 

 

373,277

 

 

 

317,307

 

Costs and expenses

 

 

 

 

 

 

 

 

Cost of products sold

 

 

165,189

 

 

 

118,165

 

Operating

 

 

99,611

 

 

 

99,349

 

General and administrative

 

 

16,775

 

 

 

15,047

 

Depreciation and amortization

 

 

31,131

 

 

 

31,261

 

 

 

 

312,706

 

 

 

263,822

 

Loss on sale of business

 

 

4,823

 

 

 

 

Operating income

 

 

55,748

 

 

 

53,485

 

Interest expense, net

 

 

19,514

 

 

 

18,831

 

Income before (benefit from) provision for income taxes

 

 

36,234

 

 

 

34,654

 

(Benefit from) provision for income taxes

 

 

(934

)

 

 

165

 

Net income

 

$

37,168

 

 

$

34,489

 

Net income per Common Unit - basic

 

$

0.61

 

 

$

0.57

 

Weighted average number of Common Units outstanding - basic

 

 

61,333

 

 

 

61,042

 

Net income per Common Unit - diluted

 

$

0.60

 

 

$

0.56

 

Weighted average number of Common Units outstanding - diluted

 

 

61,525

 

 

 

61,232

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


 

SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

 

December 30,

 

 

December 24,

 

 

 

2017

 

 

2016

 

Net income

 

$

37,168

 

 

$

34,489

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Net unrealized (losses) on cash flow hedges

 

 

 

 

 

(5

)

Reclassification of realized losses on cash flow hedges

   into earnings

 

 

 

 

 

200

 

Amortization of net actuarial losses and prior service

   credits into earnings

 

 

757

 

 

 

1,203

 

Other comprehensive income

 

 

757

 

 

 

1,398

 

Total comprehensive income

 

$

37,925

 

 

$

35,887

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

December 30,

 

 

December 24,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

37,168

 

 

$

34,489

 

Adjustments to reconcile net income to net cash provided by operations:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

31,131

 

 

 

31,261

 

Loss on sale of business

 

 

4,823

 

 

 

 

Other, net

 

 

2,432

 

 

 

2,541

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(73,005

)

 

 

(55,039

)

Inventories

 

 

(8,511

)

 

 

(8,451

)

Other current and noncurrent assets

 

 

(7,779

)

 

 

(7,335

)

Accounts payable

 

 

36,316

 

 

 

36,213

 

Accrued employment and benefit costs

 

 

(5,776

)

 

 

4,453

 

Customer deposits and advances

 

 

(17,925

)

 

 

(13,820

)

Contribution to defined benefit pension plan

 

 

 

 

 

(1,396

)

Other current and noncurrent liabilities

 

 

2,832

 

 

 

323

 

Net cash provided by operating activities

 

 

1,706

 

 

 

23,239

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(8,499

)

 

 

(6,828

)

Acquisition of business

 

 

(4,051

)

 

 

 

Proceeds from sale of business

 

 

2,800

 

 

 

 

Proceeds from sale of property, plant and equipment

 

 

1,372

 

 

 

2,098

 

Net cash (used in) investing activities

 

 

(8,378

)

 

 

(4,730

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from borrowings under revolving credit facility

 

 

113,800

 

 

 

57,500

 

Repayments of borrowings under revolving credit facility

 

 

(66,500

)

 

 

(54,100

)

Partnership distributions

 

 

(36,663

)

 

 

(53,952

)

Other, net

 

 

(847

)

 

 

(736

)

Net cash provided by (used in) financing activities

 

 

9,790

 

 

 

(51,288

)

Net increase (decrease) in cash and cash equivalents

 

 

3,118

 

 

 

(32,779

)

Cash and cash equivalents at beginning of period

 

 

2,789

 

 

 

37,341

 

Cash and cash equivalents at end of period

 

$

5,907

 

 

$

4,562

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Number of

 

 

Common

 

 

Comprehensive

 

 

Partners’

 

 

 

Common Units

 

 

Unitholders

 

 

(Loss)

 

 

Capital

 

Balance at September 30, 2017

 

 

61,105

 

 

$

581,794

 

 

$

(28,812

)

 

$

552,982

 

Net income

 

 

 

 

 

 

37,168

 

 

 

 

 

 

 

37,168

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

757

 

 

 

757

 

Partnership distributions

 

 

 

 

 

 

(36,663

)

 

 

 

 

 

 

(36,663

)

Common Units issued under Restricted Unit Plans

 

 

284

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation cost recognized under Restricted Unit Plans, net of

   forfeitures

 

 

 

 

 

 

1,803

 

 

 

 

 

 

 

1,803

 

Balance at December 30, 2017

 

 

61,389

 

 

$

584,102

 

 

$

(28,055

)

 

$

556,047

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


 

SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except unit and per unit amounts)

(unaudited)

1.

Partnership Organization and Formation

Suburban Propane Partners, L.P. (the “Partnership”) is a publicly traded Delaware limited partnership principally engaged, through its operating partnership and subsidiaries, in the retail marketing and distribution of propane, fuel oil and refined fuels, as well as the marketing of natural gas and electricity in deregulated markets.  In addition, to complement its core marketing and distribution businesses, the Partnership services a wide variety of home comfort equipment, particularly for heating and ventilation.  The publicly traded limited partner interests in the Partnership are evidenced by common units traded on the New York Stock Exchange (“Common Units”), with 61,389,265 Common Units outstanding at December 30, 2017.  The holders of Common Units are entitled to participate in distributions and exercise the rights and privileges available to limited partners under the Third Amended and Restated Agreement of Limited Partnership, (the “Partnership Agreement”) as amended.  Rights and privileges under the Partnership Agreement include, among other things, the election of all members of the Board of Supervisors and voting on the removal of the general partner.

Suburban Propane, L.P. (the “Operating Partnership”), a Delaware limited partnership, is the Partnership’s operating subsidiary formed to operate the propane business and assets.  In addition, Suburban Sales & Service, Inc. (the “Service Company”), a subsidiary of the Operating Partnership, was formed to operate the service work and appliance and parts businesses of the Partnership.  The Operating Partnership, together with its direct and indirect subsidiaries, accounts for substantially all of the Partnership’s assets, revenues and earnings.  The Partnership, the Operating Partnership and the Service Company commenced operations in March 1996 in connection with the Partnership’s initial public offering.

The general partner of both the Partnership and the Operating Partnership is Suburban Energy Services Group LLC (the “General Partner”), a Delaware limited liability company, the sole member of which is the Partnership’s Chief Executive Officer.  Other than as a holder of 784 Common Units that will remain in the General Partner, the General Partner does not have any economic interest in the Partnership or the Operating Partnership.

The Partnership’s fuel oil and refined fuels, natural gas and electricity and services businesses are structured as either limited liability companies that are treated as corporations or corporate entities (collectively referred to as the “Corporate Entities”) and, as such, are subject to corporate level U.S. income tax.

Suburban Energy Finance Corp., a direct 100%-owned subsidiary of the Partnership, was formed on November 26, 2003 to serve as co-issuer, jointly and severally with the Partnership, of the Partnership’s senior notes.

 

 

2.

Basis of Presentation

Principles of Consolidation.  The condensed consolidated financial statements include the accounts of the Partnership, the Operating Partnership and all of its direct and indirect subsidiaries.  All significant intercompany transactions and account balances have been eliminated.  The Partnership consolidates the results of operations, financial condition and cash flows of the Operating Partnership as a result of the Partnership’s 100% limited partner interest in the Operating Partnership.

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 (“SEC”).  They include all adjustments that the Partnership considers necessary for a fair statement of the results of operations, financial position and cash flows for the interim periods presented.  Such adjustments consist only of normal recurring items, unless otherwise disclosed.  These financial statements should be read in conjunction with the financial statements included in the Partnership’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017.  Due to the seasonal nature of the Partnership’s operations, 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 uses a 52/53 week fiscal year which ends on the last Saturday in September.  The Partnership’s fiscal quarters are generally thirteen weeks in duration.  When the Partnership’s fiscal year is 53 weeks long, as was the case for fiscal 2017, the corresponding fourth quarter is fourteen weeks in duration.

6


 

Revenue Recognition.  Sales of propane, fuel oil and refined fuels are recognized at the time product is delivered to the customer.  Revenue from the sale of appliances and equipment is recognized at the time of sale or when installation is complete, as applicable.  Revenue from repairs, maintenance and other service activities is recognized upon completion of the service.  Revenue from annually billed service contracts is recognized ratably over the service period.  Revenue from the natural gas and electricity business is recognized based on customer usage as determined by meter readings for amounts delivered, some of which may be unbilled at the end of each accounting period.  Revenue from annually billed tank fees is deferred at the time of billings and recognized on a straight-line basis over one year.

Fair Value Measurements.  The Partnership measures certain of its assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants – in either the principal market or the most advantageous market.  The principal market is the market with the greatest level of activity and volume for the asset or liability.

The common framework for measuring fair value utilizes a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values.  The basis for fair value measurements for each level within the hierarchy is described below with Level 1 having the highest priority and Level 3 having the lowest.

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Quoted prices in active markets for similar assets or liabilities; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.

Level 3: Valuations derived from valuation techniques in which one or more significant inputs are unobservable.

Business Combinations.  The Partnership accounts for business combinations using the acquisition method and accordingly, the assets and liabilities of the acquired entities are recorded at their estimated fair values at the acquisition date.  Goodwill represents the excess of the purchase price over the fair value of the net assets acquired, including the amount assigned to identifiable intangible assets.  The primary drivers that generate goodwill are the value of synergies between the acquired entities and the Partnership, and the acquired assembled workforce, neither of which qualifies as an identifiable intangible asset.  Identifiable intangible assets with finite lives are amortized over their useful lives.  The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.  The Partnership expenses all acquisition-related costs as incurred.

Use of Estimates.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) 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.  Estimates have been made by management in the areas of self-insurance and litigation reserves, pension and other postretirement benefit liabilities and costs, valuation of derivative instruments, depreciation and amortization of long-lived assets, asset impairment assessments, tax valuation allowances, allowances for doubtful accounts, and purchase price allocation for acquired businesses.  The Partnership uses Society of Actuaries life expectancy information when developing the annual mortality assumptions for the pension and postretirement benefit plans, which are used to measure net periodic benefit costs and the obligation under these plans.  Actual results could differ from those estimates, making it reasonably possible that a material change in these estimates could occur in the near term.

Reclassifications.  Certain prior period amounts have been reclassified to conform with the current period presentation.  See Recently Adopted Accounting Pronouncements, below.

Recently Issued Accounting Pronouncements.  

In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017-07”).  This update provides guidance on the capitalization, presentation and disclosure of net benefit costs.  ASU 2017-07 is effective for the first interim period within annual reporting periods beginning after December 15, 2017, which will be the Partnership’s first quarter of fiscal 2019 and will be applied retrospectively upon adoption.  The Partnership is currently evaluating the impact that the standard will have on the Partnership’s consolidated statements of operations.

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”).  This update eliminates the second of the two-step goodwill impairment test, as described in Note 6, “Goodwill and Other Intangible Assets.”  Instead, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit to its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit.  ASU 2017-04 is effective for the first interim period within annual reporting periods beginning after December 15, 2019, which will be the Partnership’s first quarter of fiscal 2021.  Early adoption of ASU 2017-04 is permitted.  The Partnership does not expect the adoption of ASU 2017-04 will have a material impact on the Partnership’s consolidated financial statements.

7


 

In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”).  This update addresses eight specific cash flow issues and is intended to reduce diversity in practice on how certain cash receipts and cash payments are presented and classified in the statement of cash flows.  ASU 2016-15 is effective for the first interim period within annual reporting periods beginning after December 15, 2017, which will be the Partnership’s first quarter of fiscal 2019.  Early adoption of ASU 2016-15 is permitted.  The Partnership is currently evaluating the impact of adopting the standard on the Partnership’s consolidated statements of cash flows.

In February 2016, the FASB issued ASU 2016-02, “Leases” (“ASU 2016-02”). The standard amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 is effective for the first interim period within annual reporting periods beginning after December 15, 2018, which will be the Partnership’s first quarter of fiscal 2020. Early adoption of ASU 2016-02 is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Partnership is currently evaluating the impact of adopting ASU 2016-02 on the Partnership’s consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” (“ASU 2014-09”).  This update provides a principles-based approach to revenue recognition, requiring revenue recognition to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The ASU provides a five-step model to be applied to all contracts with customers. The five steps are to identify the contract(s) with the customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when each performance obligation is satisfied. On July 9, 2015, the FASB finalized a one-year deferral of the effective date of ASU 2014-09.  The revenue standard is therefore effective for the first interim period within annual reporting periods beginning after December 15, 2017, which will be the Partnership’s first quarter of fiscal 2019.  Early adoption as of the original effective date is permitted.  ASU 2014-09 can be applied either retrospectively to each prior reporting period presented or with the cumulative effect of initially applying the update recognized at the date of the initial application along with additional disclosures.  While the Partnership is still in the process of evaluating the potential impact of ASU 2014-09, it does not expect its adoption will have a material impact on the Partnership’s consolidated financial statements.

Recently Adopted Accounting Pronouncements.  During the first quarter of fiscal 2018, the Partnership adopted new accounting guidance regarding stock-based compensation under ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”).  Cash payments made to the taxing authorities on employees’ behalf for withheld shares are now presented as financing activities on the condensed consolidated statement of cash flows, rather than operating activities.  The amounts paid to federal and state taxing authorities were $847 and $736 for the three months ended December 30, 2017 and December 24, 2016, respectively.

 

3.

Acquisition and Disposition of Businesses

On November 7, 2017, the Operating Partnership acquired the propane assets and operations of a propane retailer headquartered in California for $4,871, including $750 for non-compete consideration, plus working capital acquired.  As of December 30, 2017, $4,051 was paid and the remainder of the purchase price will be funded in accordance with the terms of the asset purchase and non-compete agreements.  The acquisition was consummated pursuant to the Partnership’s strategic growth initiatives.  The purchase price allocation and results of operations the acquired business were not material to the Partnership’s condensed consolidated financial position and statement of operations.

On December 8, 2017, the Operating Partnership sold certain assets and operations in a non-strategic market of its propane segment for $2,800, plus working capital consideration, resulting in a loss of $4,823 that was recognized during the first quarter of fiscal 2018, principally for the allocated goodwill and other identifiable intangible assets associated with this business.  The corresponding net assets and results of operations were not material to the Partnership’s condensed consolidated results of operations, financial position and cash flows.

 

4.

Financial Instruments and Risk Management

Cash and Cash Equivalents.  The Partnership considers all highly liquid 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-term maturity of these instruments.

8


 

Derivative Instruments and Hedging Activities

Commodity Price Risk.  Given the retail nature of its operations, the Partnership maintains a certain level of priced physical inventory to help ensure its field operations have adequate supply commensurate with the time of year.  The Partnership’s strategy is to keep its physical inventory priced relatively close to market for its field operations.  The Partnership enters into a combination of exchange-traded futures and option contracts and, in certain instances, over-the-counter options and swap contracts (collectively, “derivative instruments”) to hedge price risk associated with propane and fuel oil physical inventories, as well as future purchases of propane or fuel oil used in its operations and to help ensure adequate supply during periods of high demand.  In addition, the Partnership sells propane and fuel oil to customers at fixed prices, and enters into derivative instruments to hedge a portion of its exposure to fluctuations in commodity prices as a result of selling the fixed price contracts.  Under this risk management strategy, realized gains or losses on derivative instruments will typically offset losses or gains on the physical inventory once the product is sold or delivered as it pertains to fixed price contracts.  All of the Partnership’s derivative instruments are reported on the condensed consolidated balance sheet at their fair values.  In addition, in the course of normal operations, the Partnership routinely enters into contracts such as forward priced physical contracts for the purchase or sale of propane and fuel oil that qualify for and are designated as normal purchase or normal sale contracts.  Such contracts are exempted from the fair value accounting requirements and are accounted for at the time product is purchased or sold under the related contract.  The Partnership does not use derivative instruments for speculative trading purposes.  Market risks associated with derivative instruments are monitored daily for compliance with the Partnership’s Hedging and Risk Management Policy which includes volume limits for open positions.  Priced on-hand inventory is also reviewed and managed daily as to exposures to changing market prices.

On the date that derivative instruments are entered into, other than those designated as normal purchases or normal sales, the Partnership makes a determination as to whether the derivative instrument qualifies for designation as a hedge.  Changes in the fair value of derivative instruments are recorded each period in current period earnings or other comprehensive income (“OCI”), depending on whether the derivative instrument is designated as a hedge and, if so, the type of hedge.  For derivative instruments designated as cash flow hedges, the Partnership formally assesses, both at the hedge contract’s inception and on an ongoing basis, whether the hedge contract is highly effective in offsetting changes in cash flows of hedged items.  Changes in the fair value of derivative instruments designated as cash flow hedges are reported in OCI to the extent effective and reclassified into earnings during the same period in which the hedged item affects earnings.  The mark-to-market gains or losses on ineffective portions of cash flow hedges are recognized in earnings immediately.  Changes in the fair value of derivative instruments that are not designated as cash flow hedges, and that do not meet the normal purchase and normal sale exemption, are recorded within earnings as they occur.  Cash flows associated with derivative instruments are reported as operating activities within the condensed consolidated statement of cash flows.

Interest Rate Risk.  A portion of the Partnership’s borrowings bear interest at prevailing interest rates based upon, at the Operating Partnership’s option, LIBOR plus an applicable margin or the base rate, defined as the higher of the Federal Funds Rate plus ½ of 1% or the agent bank’s prime rate, or LIBOR plus 1%, plus the applicable margin.  The applicable margin is dependent on the level of the Partnership’s total leverage (the ratio of total debt to income before deducting interest expense, income taxes, depreciation and amortization (“EBITDA”)).  Therefore, the Partnership is subject to interest rate risk on the variable component of the interest rate.  From time to time, the Partnership manages part of its variable interest rate risk by entering into interest rate swap agreements. The interest rate swaps have been designated as, and are accounted for as, cash flow hedges.  The fair value of the interest rate swaps are determined using an income approach, whereby future settlements under the swaps are converted into a single present value, with fair value being based on the value of current market expectations about those future amounts.  Changes in the fair value are recognized in OCI until the hedged item is recognized in earnings.  However, due to changes in the underlying interest rate environment, the corresponding value in OCI is subject to change prior to its impact on earnings.

Valuation of Derivative Instruments.  The Partnership measures the fair value of its exchange-traded options and futures contracts using quoted market prices found on the New York Mercantile Exchange (the “NYMEX”) (Level 1 inputs); the fair value of its swap contracts using quoted forward prices, and the fair value of its interest rate swaps using model-derived valuations driven by observable projected movements of the 3-month LIBOR (Level 2 inputs); and the fair value of its over-the-counter options contracts using Level 3 inputs.  The Partnership’s over-the-counter options contracts are valued based on an internal option model.  The inputs utilized in the model are based on publicly available information as well as broker quotes.  The significant unobservable inputs used in the fair value measurements of the Partnership’s over-the-counter options contracts are interest rate and market volatility.

9


 

The following summarizes the fair value of the Partnership’s derivative instruments and their location in the condensed consolidated balance sheets as of December 30, 2017 and September 30, 2017, respectively:

 

 

 

As of December 30, 2017

 

 

As of September 30, 2017

 

Asset Derivatives

 

Location

 

Fair Value

 

 

Location

 

Fair Value

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

Commodity-related derivatives

 

Other current assets

 

$

10,738

 

 

Other current assets

 

$

11,164

 

 

 

Other assets

 

 

 

 

Other assets

 

 

771

 

 

 

 

 

$

10,738

 

 

 

 

$

11,935

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability Derivatives

 

Location

 

Fair Value

 

 

Location

 

Fair Value

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

Commodity-related derivatives

 

Other current liabilities

 

$

2,342

 

 

Other current liabilities

 

$

1,978

 

 

 

Other liabilities

 

 

274

 

 

Other liabilities

 

 

432

 

 

 

 

 

$

2,616

 

 

 

 

$

2,410

 

 

The following summarizes the reconciliation of the beginning and ending balances of assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs:

 

 

 

Fair Value Measurement Using Significant

Unobservable Inputs (Level 3)

 

 

 

Three Months Ended

 

 

Three Months Ended

 

 

 

December 30, 2017

 

 

December 24, 2016

 

 

 

Assets

 

 

Liabilities

 

 

Assets

 

 

Liabilities

 

Beginning balance of over-the-counter options

 

$

4,108

 

 

$

737

 

 

$

809

 

 

$

 

Beginning balance realized during the period

 

 

(313

)

 

 

 

 

 

 

 

 

 

Contracts purchased during the period

 

 

 

 

 

 

 

 

48

 

 

 

 

Change in the fair value of outstanding contracts

 

 

122

 

 

 

(305

)

 

 

332

 

 

 

 

Ending balance of over-the-counter options

 

$

3,917

 

 

$

432

 

 

$

1,189

 

 

$

 

 

As of December 30, 2017 and September 30, 2017, the Partnership’s outstanding commodity-related derivatives had a weighted average maturity of approximately four and five months, respectively.

The effect of the Partnership’s derivative instruments on the condensed consolidated statements of operations and the condensed consolidated statements of comprehensive income, as applicable, for the three months ended December 30, 2017 and December 24, 2016 are as follows:

 

 

 

Three Months Ended December 30, 2017

 

 

Three Months Ended December 24, 2016

 

Derivatives in Cash Flow

 

Gains (Losses)

Recognized  in OCI

 

 

Gains (Losses) Reclassified

from Accumulated OCI into

Income

 

 

Gains (Losses)

Recognized  in OCI

 

 

Gains (Losses) Reclassified

from Accumulated OCI into

Income

 

Hedging Relationships

 

(Effective Portion)

 

 

Location

 

Amount

 

 

(Effective Portion)

 

 

Location

 

Amount

 

Interest rate swap

 

$

 

 

Interest expense

 

$

 

 

$

(5

)

 

Interest expense

 

$

(200

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives Not Designated

as Hedging Instruments

 

 

 

 

 

Unrealized Gains (Losses)

Recognized in Income

 

 

 

 

 

 

Unrealized Gains (Losses)

Recognized in Income

 

 

 

 

 

 

 

Location

 

Amount

 

 

 

 

 

 

Location

 

Amount

 

Commodity-related

   derivatives

 

 

 

 

 

Cost of

products sold

 

$

(1,531

)

 

 

 

 

 

Cost of

products sold

 

$

459

 

 

10


 

The following table presents the fair value of the Partnership’s recognized derivative assets and liabilities on a gross basis and amounts offset on the condensed consolidated balance sheets subject to enforceable master netting arrangements or similar agreements:

 

 

 

As of December 30, 2017

 

 

As of September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

Net amounts

 

 

 

 

 

 

 

 

 

 

Net amounts

 

 

 

 

 

 

 

 

 

 

 

presented in the

 

 

 

 

 

 

 

 

 

 

presented in the

 

 

 

Gross amounts

 

 

Effects of netting

 

 

balance sheet

 

 

Gross amounts

 

 

Effects of netting

 

 

balance sheet

 

Asset Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity-related derivatives

 

$

12,435

 

 

$

(1,697

)

 

$

10,738

 

 

$

16,378

 

 

$

(4,443

)

 

$

11,935

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity-related derivatives

 

$

4,313

 

 

$

(1,697

)

 

$

2,616

 

 

$

6,853

 

 

$

(4,443

)

 

$

2,410

 

 

The Partnership had no posted cash collateral as of December 30, 2017 and September 30, 2017 with its brokers for outstanding commodity-related derivatives.

Bank Debt and Senior Notes.  The fair value of the borrowings under the Revolving Credit Facility (defined below in Note 8) approximates the carrying value since the interest rates are adjusted quarterly to reflect market conditions.  Based upon quoted market prices (a Level 1 input), the fair value of the Senior Notes (also defined below in Note 8) of the Partnership are as follows:

 

 

 

As of

 

 

 

December 30,

 

 

September 30,

 

 

 

2017

 

 

2017

 

5.5% senior notes due June 1, 2024

 

$

522,375

 

 

$

527,888

 

5.75% senior notes due March 1, 2025

 

 

246,875

 

 

 

248,750

 

5.875% senior notes due March 1, 2027

 

 

343,980

 

 

 

349,125

 

 

 

$

1,113,230

 

 

$

1,125,763

 

 

 

5.

Inventories

Inventories are stated at the lower of cost or market.  Cost is determined using a weighted average method for propane, fuel oil and refined fuels and natural gas, and a standard cost basis for appliances, which approximates average cost.  Inventories consist of the following:

 

 

 

As of

 

 

 

December 30,

 

 

September 30,

 

 

 

2017

 

 

2017

 

Propane, fuel oil and refined fuels and natural gas

 

$

60,226

 

 

$

51,844

 

Appliances

 

 

1,535

 

 

 

1,376

 

 

 

$

61,761

 

 

$

53,220

 

 

 

6.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of net assets acquired.  Goodwill is subject to an impairment review at a reporting unit level, on an annual basis as of the end of fiscal July of each year, or when an event occurs or circumstances change that would indicate potential impairment.

The Partnership has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test.

11


 

Under the two-step impairment test, the Partnership assesses the carrying value of goodwill at a reporting unit level based on an estimate of the fair value of the respective reporting unit.  Fair value of the reporting unit is estimated using discounted cash flow analyses taking into consideration estimated cash flows in a ten-year projection period and a terminal value calculation at the end of the projection period.  If the fair value of the reporting unit exceeds its carrying value, the goodwill associated with the reporting unit is not considered to be impaired.  If the carrying value of the reporting unit exceeds its fair value, an impairment loss is recognized to the extent that the carrying amount of the associated goodwill, if any, exceeds the implied fair value of the goodwill.

The carrying values of goodwill assigned to the Partnership’s operating segments are as follows:

 

 

 

 

 

 

 

Fuel oil and

 

 

Natural gas

 

 

 

 

 

 

 

Propane

 

 

refined fuels

 

 

and electricity

 

 

Total

 

Balance as of September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

1,082,297

 

 

$

10,900

 

 

$

7,900

 

 

$

1,101,097

 

Accumulated adjustments

 

 

 

 

 

(6,462

)

 

 

 

 

 

(6,462

)

 

 

$

1,082,297

 

 

$

4,438

 

 

$

7,900

 

 

$

1,094,635

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal 2018 Activity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill disposed (2)

 

 

(1,165

)

 

 

 

 

 

 

 

 

(1,165

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

1,081,132

 

 

$

10,900

 

 

$

7,900

 

 

$

1,099,932

 

Accumulated adjustments

 

 

 

 

 

(6,462

)

 

 

 

 

 

(6,462

)

 

 

$

1,081,132

 

 

$

4,438

 

 

$

7,900

 

 

$

1,093,470

 

 

Other intangible assets consist of the following:

 

 

 

As of

 

 

 

December 30,

 

 

September 30,

 

 

 

2017

 

 

2017

 

Customer relationships (1) (2)

 

$

491,461

 

 

$

492,656

 

Non-compete agreements (1)

 

 

31,790

 

 

 

31,040

 

Other

 

 

1,967

 

 

 

1,967

 

 

 

 

525,218

 

 

 

525,663

 

 

 

 

 

 

 

 

 

 

Less: accumulated amortization

 

 

 

 

 

 

 

 

      Customer relationships

 

 

(290,131

)

 

 

(279,287

)

Non-compete agreements

 

 

(25,906

)

 

 

(25,242

)

Other

 

 

(1,281

)

 

 

(1,258

)

 

 

 

(317,318

)

 

 

(305,787

)

 

 

$

207,900

 

 

$

219,876

 

 

(1)

Reflects the impact from the acquisition (Note 3).

(2)

Reflects the impact from the disposition of certain assets and operations in a non-strategic market of the propane

segment (Note 3).

 

 

7.

Net Income Per Common Unit

Computations of basic income per Common Unit are performed by dividing net income by the weighted average number of outstanding Common Units, and vested (and unissued) restricted units granted under the Partnership’s Restricted Unit Plan, as defined below, to retirement-eligible grantees.  Computations of diluted income per Common Unit are performed by dividing net income by the weighted average number of outstanding Common Units and unissued restricted units granted under the Restricted Unit Plan.  In computing diluted net income per Common Unit, weighted average units outstanding used to compute basic net income per Common Unit were increased by 191,893 and 190,259 units for the three months ended December 30, 2017 and December 24, 2016, respectively, to reflect the potential dilutive effect of the unvested restricted units outstanding using the treasury stock method.  

 

 

12


 

8.

Long-Term Borrowings

Long-term borrowings consist of the following:

 

 

 

As of

 

 

 

December 30,

 

 

September 30,

 

 

 

2017

 

 

2017

 

5.5% senior notes, due June 1, 2024

 

$

525,000

 

 

$

525,000

 

5.75% senior notes, due March 1, 2025

 

 

250,000

 

 

 

250,000

 

5.875% senior notes due March 1, 2027

 

 

350,000

 

 

 

350,000

 

Revolving Credit Facility, due March 3, 2021

 

 

209,945

 

 

 

162,645

 

    Subtotal

 

 

1,334,945

 

 

 

1,287,645

 

 

 

 

 

 

 

 

 

 

Less: unamortized debt issuance costs

 

 

(14,976

)