sph-10q_20190330.htm

Table of Contents

 

 

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 30, 2019

 

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 every Interactive Data File required to be submitted 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 such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

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  

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of exchange on which registered

Common Units

SPH

New York Stock Exchange

At May 6, 2019, there were 61,665,692 Common Units of Suburban Propane Partners, L.P. outstanding.

 

 

 

 


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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 30, 2019 and September 29, 2018

 

1

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the three months ended March 30, 2019 and March 31, 2018

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the six months ended March 30, 2019 and March 31, 2018

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended March 30, 2019 and March 31, 2018

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended March 30, 2019 and March 31, 2018

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Partners’ Capital for the three months ended March 30, 2019 and March 31, 2018

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Partners’ Capital for the six months ended March 30, 2019 and March 31, 2018

 

7

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

8

 

 

 

 

 

ITEM 2.

 

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

 

23

 

 

 

 

 

ITEM 3.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

32

 

 

 

 

 

ITEM 4.

 

CONTROLS AND PROCEDURES

 

34

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

35

 

 

 

 

 

ITEM 1.

 

LEGAL PROCEEDINGS

 

35

 

 

 

 

 

ITEM 1A.

 

RISK FACTORS

 

35

 

 

 

 

 

ITEM 2.

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

35

 

 

 

 

 

ITEM 3.

 

DEFAULTS UPON SENIOR SECURITIES

 

35

 

 

 

 

 

ITEM 4.

 

MINE SAFETY DISCLOSURES

 

35

 

 

 

 

 

ITEM 5.

 

OTHER INFORMATION

 

35

 

 

 

 

 

ITEM 6.

 

EXHIBITS

 

36

 

 

 

 

 

SignaturEs

 

37

 

 

 


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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 29, 2018.  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.

 

 

 

 


Table of Contents

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

 

 

 

March 30,

 

 

September 29,

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,928

 

 

$

5,164

 

Accounts receivable, less allowance for doubtful accounts of $4,338 and

   $3,629, respectively

 

 

153,599

 

 

 

71,298

 

Inventories

 

 

50,510

 

 

 

59,112

 

Other current assets

 

 

22,599

 

 

 

22,194

 

Total current assets

 

 

232,636

 

 

 

157,768

 

Property, plant and equipment, net

 

 

636,618

 

 

 

649,218

 

Goodwill

 

 

1,096,119

 

 

 

1,093,470

 

Other intangible assets, net

 

 

151,408

 

 

 

175,183

 

Other assets

 

 

23,189

 

 

 

25,560

 

Total assets

 

$

2,139,970

 

 

$

2,101,199

 

LIABILITIES AND PARTNERS’ CAPITAL

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

55,923

 

 

$

38,264

 

Accrued employment and benefit costs

 

 

31,039

 

 

 

32,402

 

Customer deposits and advances

 

 

47,698

 

 

 

95,483

 

Accrued interest

 

 

14,891

 

 

 

13,223

 

Other current liabilities

 

 

29,608

 

 

 

39,666

 

Total current liabilities

 

 

179,159

 

 

 

219,038

 

Long-term borrowings

 

 

1,256,048

 

 

 

1,255,138

 

Accrued insurance

 

 

54,305

 

 

 

54,797

 

Other liabilities

 

 

75,410

 

 

 

78,402

 

Total liabilities

 

 

1,564,922

 

 

 

1,607,375

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Partners’ capital:

 

 

 

 

 

 

 

 

Common Unitholders (61,664 and 61,405 units issued and outstanding at

   March 30, 2019 and September 29, 2018, respectively)

 

 

598,614

 

 

 

518,494

 

Accumulated other comprehensive loss

 

 

(23,566

)

 

 

(24,670

)

Total partners’ capital

 

 

575,048

 

 

 

493,824

 

Total liabilities and partners’ capital

 

$

2,139,970

 

 

$

2,101,199

 

 

 

 

 

 

 

 

 

 

 

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

1


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SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per unit amounts)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 30,

 

 

March 31,

 

 

 

2019

 

 

2018

 

Revenues

 

 

 

 

 

 

 

 

Propane

 

$

433,056

 

 

$

462,814

 

Fuel oil and refined fuels

 

 

41,598

 

 

 

41,699

 

Natural gas and electricity

 

 

17,596

 

 

 

20,392

 

All other

 

 

12,127

 

 

 

11,377

 

 

 

 

504,377

 

 

 

536,282

 

Costs and expenses

 

 

 

 

 

 

 

 

Cost of products sold

 

 

201,522

 

 

 

246,642

 

Operating

 

 

108,154

 

 

 

111,828

 

General and administrative

 

 

21,988

 

 

 

18,205

 

Depreciation and amortization

 

 

30,623

 

 

 

32,203

 

 

 

 

362,287

 

 

 

408,878

 

Operating income

 

 

142,090

 

 

 

127,404

 

Interest expense, net

 

 

19,647

 

 

 

19,402

 

Other, net

 

 

1,175

 

 

 

1,174

 

Income before provision for income taxes

 

 

121,268

 

 

 

106,828

 

Provision for income taxes

 

 

252

 

 

 

41

 

Net income

 

$

121,016

 

 

$

106,787

 

Net income per Common Unit - basic

 

$

1.96

 

 

$

1.74

 

Weighted average number of Common Units outstanding - basic

 

 

61,776

 

 

 

61,463

 

Net income per Common Unit - diluted

 

$

1.94

 

 

$

1.73

 

Weighted average number of Common Units outstanding - diluted

 

 

62,225

 

 

 

61,793

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

2


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SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per unit amounts)

(unaudited)

 

 

 

Six Months Ended

 

 

 

March 30,

 

 

March 31,

 

 

 

2019

 

 

2018

 

Revenues

 

 

 

 

 

 

 

 

Propane

 

$

754,416

 

 

$

784,944

 

Fuel oil and refined fuels

 

 

70,507

 

 

 

67,014

 

Natural gas and electricity

 

 

31,000

 

 

 

33,539

 

All other

 

 

25,558

 

 

 

24,062

 

 

 

 

881,481

 

 

 

909,559

 

Costs and expenses

 

 

 

 

 

 

 

 

Cost of products sold

 

 

384,107

 

 

 

411,831

 

Operating

 

 

207,563

 

 

 

210,267

 

General and administrative

 

 

38,493

 

 

 

34,980

 

Depreciation and amortization

 

 

60,694

 

 

 

63,334

 

 

 

 

690,857

 

 

 

720,412

 

Loss on sale of business

 

 

 

 

 

4,823

 

Operating income

 

 

190,624

 

 

 

184,324

 

Interest expense, net

 

 

39,135

 

 

 

38,916

 

Other, net

 

 

2,351

 

 

 

2,346

 

Income before provision for (benefit from) income taxes

 

 

149,138

 

 

 

143,062

 

Provision for (benefit from) income taxes

 

 

403

 

 

 

(893

)

Net income

 

$

148,735

 

 

$

143,955

 

Net income per Common Unit - basic

 

$

2.41

 

 

$

2.34

 

Weighted average number of Common Units outstanding - basic

 

 

61,711

 

 

 

61,391

 

Net income per Common Unit - diluted

 

$

2.39

 

 

$

2.33

 

Weighted average number of Common Units outstanding - diluted

 

 

62,128

 

 

 

61,688

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

3


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SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

March 30,

 

 

March 31,

 

March 30,

 

 

March 31,

 

 

 

2019

 

 

2018

 

2019

 

 

2018

 

Net income

 

$

121,016

 

 

$

106,787

 

$

148,735

 

 

$

143,955

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of net actuarial losses and prior service

   credits into earnings

 

 

552

 

 

 

757

 

 

1,104

 

 

 

1,514

 

Other comprehensive income

 

 

552

 

 

 

757

 

 

1,104

 

 

 

1,514

 

Total comprehensive income

 

$

121,568

 

 

$

107,544

 

$

149,839

 

 

$

145,469

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

4


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SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Six Months Ended

 

 

 

March 30,

 

 

March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

148,735

 

 

$

143,955

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

60,694

 

 

 

63,334

 

Loss on sale of business

 

 

 

 

 

4,823

 

Compensation costs recognized under Restricted Unit Plans

 

 

6,575

 

 

 

5,147

 

Other, net

 

 

228

 

 

 

317

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(82,613

)

 

 

(94,723

)

Inventories

 

 

8,769

 

 

 

1,129

 

Other current and noncurrent assets

 

 

629

 

 

 

(11,913

)

Accounts payable

 

 

17,787

 

 

 

14,536

 

Accrued employment and benefit costs

 

 

(1,365

)

 

 

2,221

 

Customer deposits and advances

 

 

(47,785

)

 

 

(50,072

)

Other current and noncurrent liabilities

 

 

(10,410

)

 

 

4,817

 

Net cash provided by operating activities

 

 

101,244

 

 

 

83,571

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(16,552

)

 

 

(18,153

)

Acquisition of businesses

 

 

(10,575

)

 

 

(4,151

)

Proceeds from sale of business

 

 

 

 

 

2,800

 

Proceeds from sale of property, plant and equipment

 

 

3,095

 

 

 

3,002

 

Net cash (used in) investing activities

 

 

(24,032

)

 

 

(16,502

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from borrowings under revolving credit facility

 

 

234,400

 

 

 

205,700

 

Repayments of borrowings under revolving credit facility

 

 

(234,500

)

 

 

(194,300

)

Partnership distributions

 

 

(73,841

)

 

 

(73,499

)

Other, net

 

 

(2,507

)

 

 

(2,017

)

Net cash (used in) financing activities

 

 

(76,448

)

 

 

(64,116

)

Net increase in cash and cash equivalents

 

 

764

 

 

 

2,953

 

Cash and cash equivalents at beginning of period

 

 

5,164

 

 

 

2,789

 

Cash and cash equivalents at end of period

 

$

5,928

 

 

$

5,742

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

5


Table of Contents

 

SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 30, 2019

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Number of

 

 

Common

 

 

Comprehensive

 

 

Partners’

 

 

 

Common Units

 

 

Unitholders

 

 

(Loss)

 

 

Capital

 

Balance, beginning of period

 

 

61,664

 

 

$

511,042

 

 

$

(24,118

)

 

$

486,924

 

Net income

 

 

 

 

 

 

121,016

 

 

 

 

 

 

 

121,016

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

552

 

 

 

552

 

Partnership distributions

 

 

 

 

 

 

(36,998

)

 

 

 

 

 

 

(36,998

)

Common Units issued under Restricted Unit Plans

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation costs recognized under Restricted Unit Plans

 

 

 

 

 

 

3,554

 

 

 

 

 

 

 

3,554

 

Balance, end of period

 

 

61,664

 

 

$

598,614

 

 

$

(23,566

)

 

$

575,048

 

 

 

 

Three Months Ended March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Number of

 

 

Common

 

 

Comprehensive

 

 

Partners’

 

 

 

Common Units

 

 

Unitholders

 

 

(Loss)

 

 

Capital

 

Balance, beginning of period

 

 

61,389

 

 

$

584,102

 

 

$

(28,055

)

 

$

556,047

 

Net income

 

 

 

 

 

 

106,787

 

 

 

 

 

 

 

106,787

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

757

 

 

 

757

 

Partnership distributions

 

 

 

 

 

 

(36,836

)

 

 

 

 

 

 

(36,836

)

Common Units issued under Restricted Unit Plans

 

 

15

 

 

 

 

 

 

 

 

 

 

 

Compensation costs recognized under Restricted Unit Plans

 

 

 

 

 

 

2,498

 

 

 

 

 

 

 

2,498

 

Balance, end of period

 

 

61,404

 

 

$

656,551

 

 

$

(27,298

)

 

$

629,253

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

6


Table of Contents

 

SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

(in thousands)

(unaudited)

 

 

 

Six Months Ended March 30, 2019

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Number of

 

 

Common

 

 

Comprehensive

 

 

Partners’

 

 

 

Common Units

 

 

Unitholders

 

 

(Loss)

 

 

Capital

 

Balance, beginning of period

 

 

61,405

 

 

$

518,494

 

 

$

(24,670

)

 

$

493,824

 

Net income

 

 

 

 

 

 

148,735

 

 

 

 

 

 

 

148,735

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

1,104

 

 

 

1,104

 

Partnership distributions

 

 

 

 

 

 

(73,841

)

 

 

 

 

 

 

(73,841

)

Common Units issued under Restricted Unit Plans

 

 

259

 

 

 

(1,349

)

 

 

 

 

 

 

(1,349

)

Compensation costs recognized under Restricted Unit Plans

 

 

 

 

 

 

6,575

 

 

 

 

 

 

 

6,575

 

Balance, end of period

 

 

61,664

 

 

$

598,614

 

 

$

(23,566

)

 

$

575,048

 

 

 

 

Six Months Ended March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Number of

 

 

Common

 

 

Comprehensive

 

 

Partners’

 

 

 

Common Units

 

 

Unitholders

 

 

(Loss)

 

 

Capital

 

Balance, beginning of period

 

 

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

 

 

 

(846

)

 

 

 

 

 

 

(846

)

Compensation costs recognized under Restricted Unit Plans

 

 

 

 

 

 

5,147

 

 

 

 

 

 

 

5,147

 

Balance, end of period

 

 

61,404

 

 

$

656,551

 

 

$

(27,298

)

 

$

629,253

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

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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 61,663,627 Common Units outstanding at March 30, 2019.  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 29, 2018.  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, the corresponding fourth quarter is fourteen weeks in duration.

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Revenue Recognition.  On September 30, 2018, the first day of fiscal 2019, the Partnership adopted the new accounting guidance regarding revenue recognition under the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-09 “Revenue from Contracts with Customers” (“ASU 2014-09”) and all related amendments using the full retrospective method.  ASU 2014-09 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.  The adoption of this standard had no impact on the Partnership’s condensed consolidated statements of financial position, operations or cash flows.

Revenue is recognized by the Partnership when goods or services promised in a contract with a customer have been transferred, and no further performance obligation on that transfer is required, in an amount that reflects the consideration expected to be received.  Performance obligations are determined and evaluated based on the specific terms of the arrangements and the distinct products and services offered.  Due to the nature of the retail business of the Partnership, there are no remaining or unsatisfied performance obligations as of the end of the reporting period, except for tank rental agreements, maintenance service contracts, fixed price contracts and budgetary programs, as described below.  The performance obligation associated with sales of propane, fuel oil and refined fuels is met 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 defined by the performance obligations included within the related customer contract.  Revenue from repairs, maintenance and other service activities is recognized upon completion of the service.  Revenue from the natural gas and electricity business is recognized based on customer usage as determined by meter readings for amounts delivered, an immaterial amount of which may be unbilled at the end of each accounting period.

The Partnership defers the recognition of revenue for annually billed tank rent, maintenance service contracts, fixed price contracts and budgetary programs where customer consideration is received at the start of the contract period, establishing contract liabilities which are disclosed as customer deposits and advances on the condensed consolidated balance sheets.  Deliveries to customers enrolled in budgetary programs that exceed billings to those customers establish contract assets which are included in accounts receivable on the condensed consolidated balance sheets.  The Partnership ratably recognizes revenue over the applicable term for tank rent and maintenance service agreements, which is generally one year, and at the time of delivery for fixed price contracts and budgetary programs.  

The Partnership incurs incremental direct costs to obtain certain contracts when it pays commissions to its salesforce.  These costs are expensed as incurred, consistent with the practical expedients issued by the FASB, since the expected amortization period is one year or less.  The Partnership generally determines selling prices based on, among other things, current weighted average cost and the current replacement cost of the product at the time of delivery, plus an applicable margin.  Except for tank rental agreements, maintenance service contracts, fixed price contracts and budgetary programs, customer payments for the satisfaction of a performance obligation are due upon receipt.

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

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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 to the current period presentation.  See Recently Adopted Accounting Pronouncements, below.

Recently Issued Accounting Pronouncements.  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.

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.

Recently Adopted Accounting Pronouncements. During the first quarter of fiscal 2019, the Partnership adopted new accounting guidance under ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017-07”), which has been applied retrospectively.  This update required separate disclosure below Operating income on the face of the condensed consolidated statements of operations for certain components of net periodic pension cost and net periodic postretirement cost. The adoption of this standard had no material impact on the Partnership’s condensed consolidated financial statements other than to classify certain components of net periodic benefit costs on the condensed consolidated statements of operations from Operating expenses to Other, net.  Refer to Note 14, “Pension Plans and Other Postretirement Benefits”.

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.  The adoption of this standard had no material impact on the Partnership’s condensed consolidated statements of cash flows.

See also Revenue Recognition, above.

 

3.

Disaggregation of Revenue

The following table disaggregates revenue for each customer type.  See Note 17 for more information on segment reporting wherein it is disclosed that the Partnership’s Propane, Fuel Oil and Refined Fuels and Natural Gas and Electricity reportable segments generated approximately 86%, 8% and 4%, respectively, of the Partnership’s revenue for all periods presented.  The propane segment contributes the majority of the Partnership’s revenue and the concentration of revenue by customer type for the propane segment is not materially different from the consolidated revenue.

 

 

Three Months Ended

 

 

March 30,

 

 

March 31,

 

 

2019

 

 

2018

 

Retail

 

 

 

 

 

 

 

Residential

$

312,110

 

 

$

323,045

 

Commercial

 

118,081

 

 

 

125,597

 

Industrial

 

33,477

 

 

 

34,906

 

Agricultural

 

13,867

 

 

 

14,400

 

Government

 

23,339

 

 

 

24,717

 

Wholesale

 

3,503

 

 

 

13,616

 

Total revenues

$

504,377

 

 

$

536,282

 

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Six Months Ended

 

 

March 30,

 

 

March 31,

 

 

2019

 

 

2018

 

Retail

 

 

 

 

 

 

 

Residential

$

533,824

 

 

$

537,253

 

Commercial

 

214,659

 

 

 

219,539

 

Industrial

 

62,431

 

 

 

63,029

 

Agricultural

 

27,768

 

 

 

30,401

 

Government

 

39,273

 

 

 

39,843

 

Wholesale

 

3,526

 

 

 

19,494

 

Total revenues

$

881,481

 

 

$

909,559

 

 

The Partnership recognized $25,988 and $59,146 of revenue during the three and six months ended March 30, 2019, respectively, and $22,738 and $53,821 during the three and six months ended March 31, 2018, respectively, for annually billed tank rent, maintenance service contracts, fixed price contracts and budgetary programs where customer consideration was received at the start of the contract period and which was included in contract liabilities as of the beginning of each respective period. Contract assets of $32,435 and $9,606 relating to deliveries to customers enrolled in budgetary programs that exceeded billings to those customers were included in accounts receivable as of March 30, 2019 and September 29, 2018, respectively.

 

4.

Acquisition of Business

On February 6, 2019, the Operating Partnership acquired the propane assets and operations of a propane retailer operating in strategic markets on the west coast for $12,000, including $800 for non-compete consideration, plus working capital acquired. As of March 30, 2019, $10,575 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.

 

5.

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.

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

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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.

The following summarizes the fair value of the Partnership’s derivative instruments and their location in the condensed consolidated balance sheets as of March 30, 2019 and September 29, 2018, respectively:

 

 

 

As of March 30, 2019

 

 

As of September 29, 2018

 

Asset Derivatives

 

Location

 

Fair Value

 

 

Location

 

Fair Value

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

Commodity-related derivatives

 

Other current assets

 

$

3,944

 

 

Other current assets

 

$

14,875

 

 

 

Other assets

 

 

 

 

Other assets

 

 

13

 

 

 

 

 

$

3,944

 

 

 

 

$

14,888

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability Derivatives

 

Location

 

Fair Value

 

 

Location

 

Fair Value

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

Commodity-related derivatives

 

Other current liabilities

 

$

2,285

 

 

Other current liabilities

 

$

6,122

 

 

 

Other liabilities

 

 

 

 

Other liabilities

 

 

167

 

 

 

 

 

$

2,285