sph-10q_20180331.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 March 31, 2018

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 May 7, 2018, there were 61,405,409 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 March 31, 2018 and September 30, 2017  

 

1

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2018 and March 25, 2017

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the six months ended March 31, 2018 and March 25, 2017

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended March 31, 2018 and March 25, 2017

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2018 and March 25, 2017

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statement of Partners’ Capital for the six months ended March 31, 2018

 

6

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

 

 

 

ITEM 2.

 

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

 

21

 

 

 

 

 

ITEM 3.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

31

 

 

 

 

 

ITEM 4.

 

CONTROLS AND PROCEDURES

 

32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

34

 

 

 

 

 

ITEM 1.

 

LEGAL PROCEEDINGS

 

34

 

 

 

 

 

ITEM 1A.

 

RISK FACTORS

 

34

 

 

 

 

 

ITEM 2.

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

34

 

 

 

 

 

ITEM 3.

 

DEFAULTS UPON SENIOR SECURITIES

 

34

 

 

 

 

 

ITEM 4.

 

MINE SAFETY DISCLOSURES

 

34

 

 

 

 

 

ITEM 5.

 

OTHER INFORMATION

 

34

 

 

 

 

 

ITEM 6.

 

EXHIBITS

 

35

 

 

 

 

 

SignaturEs

 

36

 

 


 

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)

 

 

 

March 31,

 

 

September 30,

 

 

 

2018

 

 

2017

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,742

 

 

$

2,789

 

Accounts receivable, less allowance for doubtful accounts of $4,644 and

   $3,044, respectively

 

 

160,506

 

 

 

65,683

 

Inventories

 

 

52,121

 

 

 

53,220

 

Other current assets

 

 

28,485

 

 

 

17,801

 

Total current assets

 

 

246,854

 

 

 

139,493

 

Property, plant and equipment, net

 

 

667,429

 

 

 

692,627

 

Goodwill

 

 

1,093,470

 

 

 

1,094,635

 

Other intangible assets, net

 

 

193,869

 

 

 

219,876

 

Other assets

 

 

26,359

 

 

 

24,652

 

Total assets

 

$

2,227,981

 

 

$

2,171,283

 

LIABILITIES AND PARTNERS’ CAPITAL

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

51,488

 

 

$

38,652

 

Accrued employment and benefit costs

 

 

29,622

 

 

 

27,402

 

Customer deposits and advances

 

 

46,951

 

 

 

97,023

 

Accrued interest

 

 

13,943

 

 

 

13,682

 

Other current liabilities

 

 

33,262

 

 

 

33,607

 

Total current liabilities

 

 

175,266

 

 

 

210,366

 

Long-term borrowings

 

 

1,284,574

 

 

 

1,272,164

 

Accrued insurance

 

 

58,581

 

 

 

54,921

 

Other liabilities

 

 

80,307

 

 

 

80,850

 

Total liabilities

 

 

1,598,728

 

 

 

1,618,301

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Partners’ capital:

 

 

 

 

 

 

 

 

Common Unitholders (61,404 and 61,105 units issued and outstanding at

   March 31, 2018 and September 30, 2017, respectively)

 

 

656,551

 

 

 

581,794

 

Accumulated other comprehensive loss

 

 

(27,298

)

 

 

(28,812

)

Total partners’ capital

 

 

629,253

 

 

 

552,982

 

Total liabilities and partners’ capital

 

$

2,227,981

 

 

$

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

 

 

 

March 31,

 

 

March 25,

 

 

 

2018

 

 

2017

 

Revenues

 

 

 

 

 

 

 

 

Propane

 

$

462,814

 

 

$

385,654

 

Fuel oil and refined fuels

 

 

41,699

 

 

 

34,630

 

Natural gas and electricity

 

 

20,392

 

 

 

19,239

 

All other

 

 

11,377

 

 

 

11,055

 

 

 

 

536,282

 

 

 

450,578

 

Costs and expenses

 

 

 

 

 

 

 

 

Cost of products sold

 

 

246,642

 

 

 

192,467

 

Operating

 

 

113,002

 

 

 

110,420

 

General and administrative

 

 

18,205

 

 

 

12,164

 

Depreciation and amortization

 

 

32,203

 

 

 

32,670

 

 

 

 

410,052

 

 

 

347,721

 

Operating income

 

 

126,230

 

 

 

102,857

 

Loss on debt extinguishment

 

 

 

 

 

1,567

 

Interest expense, net

 

 

19,402

 

 

 

17,487

 

Income before provision for (benefit from) income taxes

 

 

106,828

 

 

 

83,803

 

Provision for (benefit from) income taxes

 

 

41

 

 

 

(9

)

Net income

 

$

106,787

 

 

$

83,812

 

Net income per Common Unit - basic

 

$

1.74

 

 

$

1.37

 

Weighted average number of Common Units outstanding - basic

 

 

61,463

 

 

 

61,203

 

Net income per Common Unit - diluted

 

$

1.73

 

 

$

1.36

 

Weighted average number of Common Units outstanding - diluted

 

 

61,793

 

 

 

61,503

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 OPERATIONS

(in thousands, except per unit amounts)

(unaudited)

 

 

 

Six Months Ended

 

 

 

March 31,

 

 

March 25,

 

 

 

2018

 

 

2017

 

Revenues

 

 

 

 

 

 

 

 

Propane

 

$

784,944

 

 

$

655,113

 

Fuel oil and refined fuels

 

 

67,014

 

 

 

56,726

 

Natural gas and electricity

 

 

33,539

 

 

 

32,306

 

All other

 

 

24,062

 

 

 

23,740

 

 

 

 

909,559

 

 

 

767,885

 

Costs and expenses

 

 

 

 

 

 

 

 

Cost of products sold

 

 

411,831

 

 

 

310,632

 

Operating

 

 

212,613

 

 

 

209,769

 

General and administrative

 

 

34,980

 

 

 

27,211

 

Depreciation and amortization

 

 

63,334

 

 

 

63,931

 

 

 

 

722,758

 

 

 

611,543

 

Loss on sale of business

 

 

4,823

 

 

 

 

Operating income

 

 

181,978

 

 

 

156,342

 

Loss on debt extinguishment

 

 

 

 

 

1,567

 

Interest expense, net

 

 

38,916

 

 

 

36,318

 

Income before (benefit from) provision for income taxes

 

 

143,062

 

 

 

118,457

 

(Benefit from) provision for income taxes

 

 

(893

)

 

 

156

 

Net income

 

$

143,955

 

 

$

118,301

 

Net income per Common Unit - basic

 

$

2.34

 

 

$

1.94

 

Weighted average number of Common Units outstanding - basic

 

 

61,391

 

 

 

61,127

 

Net income per Common Unit - diluted

 

$

2.33

 

 

$

1.93

 

Weighted average number of Common Units outstanding - diluted

 

 

61,688

 

 

 

61,386

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

March 31,

 

 

March 25,

 

March 31,

 

 

March 25,

 

 

 

2018

 

 

2017

 

2018

 

 

2017

 

Net income

 

$

106,787

 

 

$

83,812

 

$

143,955

 

 

$

118,301

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized (losses) on cash flow hedges

 

 

 

 

 

(5

)

 

 

 

 

(10

)

Reclassification of realized losses on cash flow hedges

   into earnings

 

 

 

 

 

15

 

 

 

 

 

215

 

Amortization of net actuarial losses and prior service

   credits into earnings

 

 

757

 

 

 

1,203

 

 

1,514

 

 

 

2,406

 

Other comprehensive income

 

 

757

 

 

 

1,213

 

 

1,514

 

 

 

2,611

 

Total comprehensive income

 

$

107,544

 

 

$

85,025

 

$

145,469

 

 

$

120,912

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

4


 

SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Six Months Ended

 

 

 

March 31,

 

 

March 25,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

143,955

 

 

$

118,301

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

63,334

 

 

 

63,931

 

Loss on sale of business

 

 

4,823

 

 

 

 

Loss on debt extinguishment

 

 

 

 

 

1,567

 

Other, net

 

 

5,464

 

 

 

5,157

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(94,723

)

 

 

(71,434

)

Inventories

 

 

1,129

 

 

 

(2,010

)

Other current and noncurrent assets

 

 

(11,913

)

 

 

(8,632

)

Accounts payable

 

 

14,536

 

 

 

23,643

 

Accrued employment and benefit costs

 

 

2,221

 

 

 

339

 

Customer deposits and advances

 

 

(50,072

)

 

 

(47,303

)

Contribution to defined benefit pension plan

 

 

(1,904

)

 

 

(2,792

)

Other current and noncurrent liabilities

 

 

5,551

 

 

 

(1,219

)

Net cash provided by operating activities

 

 

82,401

 

 

 

79,548

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(18,153

)

 

 

(17,205

)

Acquisition of business

 

 

(4,151

)

 

 

 

Proceeds from sale of business

 

 

3,002

 

 

 

 

Proceeds from sale of property, plant and equipment

 

 

2,800

 

 

 

3,297

 

Net cash (used in) investing activities

 

 

(16,502

)

 

 

(13,908

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from long-term borrowings

 

 

 

 

 

350,000

 

Repayments of long-term borrowings (includes premium and fees)

 

 

 

 

 

(360,902

)

Proceeds from borrowings under revolving credit facility

 

 

205,700

 

 

 

177,645

 

Repayments of borrowings under revolving credit facility

 

 

(194,300

)

 

 

(147,800

)

Issuance costs associated with long-term borrowings

 

 

 

 

 

(6,090

)

Partnership distributions

 

 

(73,499

)

 

 

(108,140

)

Other, net

 

 

(847

)

 

 

(736

)

Net cash (used in) financing activities

 

 

(62,946

)

 

 

(96,023

)

Net increase (decrease) in cash and cash equivalents

 

 

2,953

 

 

 

(30,383

)

Cash and cash equivalents at beginning of period

 

 

2,789

 

 

 

37,341

 

Cash and cash equivalents at end of period

 

$

5,742

 

 

$

6,958

 

 

 

 

 

 

 

 

 

 

 

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

5


 

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

 

 

 

 

 

 

143,955

 

 

 

 

 

 

 

143,955

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

1,514

 

 

 

1,514

 

Partnership distributions

 

 

 

 

 

 

(73,499

)

 

 

 

 

 

 

(73,499

)

Common Units issued under Restricted Unit Plans

 

 

299

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation cost recognized under Restricted Unit Plans, net of

   forfeitures

 

 

 

 

 

 

4,301

 

 

 

 

 

 

 

4,301

 

Balance at March 31, 2018

 

 

61,404

 

 

$

656,551

 

 

$

(27,298

)

 

$

629,253

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

6


 

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 61,403,502 Common Units outstanding at March 31, 2018.  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.

7


 

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 that the adoption of ASU 2017-04 will have a material impact on the Partnership’s consolidated financial statements.

8


 

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 six months ended March 31, 2018 and March 25, 2017, 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 March 31, 2018, $4,151 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 of 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.

9


 

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.

10


 

The following summarizes the fair value of the Partnership’s derivative instruments and their location in the condensed consolidated balance sheets as of March 31, 2018 and September 30, 2017, respectively:

 

 

 

As of March 31, 2018

 

 

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

 

$

4,867

 

 

Other current assets

 

$

11,164

 

 

 

Other assets

 

 

752

 

 

Other assets

 

 

771

 

 

 

 

 

$

5,619

 

 

 

 

$

11,935

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability Derivatives

 

Location

 

Fair Value

 

 

Location

 

Fair Value

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

Commodity-related derivatives

 

Other current liabilities

 

$

1,136

 

 

Other current liabilities

 

$

1,978

 

 

 

Other liabilities

 

 

687

 

 

Other liabilities

 

 

432

 

 

 

 

 

$

1,823

 

 

 

 

$

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)

 

 

 

Six Months Ended

 

 

Six Months Ended

 

 

 

March 31, 2018

 

 

March 25, 2017

 

 

 

Assets

 

 

Liabilities

 

 

Assets

 

 

Liabilities

 

Beginning balance of over-the-counter options

 

$

4,108

 

 

$

737

 

 

$

809

 

 

$

 

Beginning balance realized during the period

 

 

(2,466

)

 

 

(532

)

 

 

(369

)

 

 

 

Contracts purchased during the period

 

 

800

 

 

 

 

 

 

 

 

 

 

Change in the fair value of outstanding contracts

 

 

(1,008

)

 

 

(205

)

 

 

(143

)

 

 

 

Ending balance of over-the-counter options

 

$

1,434

 

 

$

 

 

$

297

 

 

$

 

 

As of March 31, 2018 and September 30, 2017, the Partnership’s outstanding commodity-related derivatives had a weighted average maturity of approximately five months.

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 and six months ended March 31, 2018 and March 25, 2017 are as follows:

 

 

 

Three Months Ended March 31, 2018

 

 

Three Months Ended March 25, 2017

 

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

 

$

(15

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(3,696

)

 

 

 

 

 

Cost of

products sold

 

$

(2,512

)

 

 

11


 

 

 

Six Months Ended March 31, 2018

 

 

Six Months Ended March 25, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

 

 

$

(10

)

 

Interest expense

 

$

(215

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(5,227

)

 

 

 

 

 

Cost of

products sold

 

$

(2,053

)

 

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 March 31, 2018

 

 

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

 

$

8,912

 

 

$

(3,293

)

 

$

5,619

 

 

$

16,378

 

 

$

(4,443

)

 

$

11,935

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity-related derivatives

 

$

5,116

 

 

$

(3,293

)

 

$

1,823

 

 

$

6,853

 

 

$

(4,443

)

 

$

2,410

 

 

The Partnership had no cash collateral requirements as of March 31, 2018 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

 

 

 

March 31,

 

 

September 30,

 

 

 

2018

 

 

2017

 

5.5% senior notes due June 1, 2024

 

$

509,250

 

 

$

527,888

 

5.75% senior notes due March 1, 2025

 

 

241,250

 

 

 

248,750

 

5.875% senior notes due March 1, 2027

 

 

333,109

 

 

 

349,125

 

 

 

$

1,083,609

 

 

$

1,125,763