SPH

Business Context and Reporting Period

Company: Suburban Propane Partners, L.P.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: December 30, 2000
Business Overview: The Partnership acquires and operates propane businesses, including retail and wholesale propane sales, service work, and appliance businesses. The business is highly seasonal, with peak demand and cash flows occurring during winter months.

Key Financial Metrics

Note: EBITDA figures exclude a $10.3 million gain on sale of assets recorded in the prior year period.

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 46.7% ($93.6 million) driven by higher propane costs passed to customers and increased volumes. Retail gallons sold rose 16.6% due to colder-than-normal weather (13% below average vs. 11% above average in the prior year).
• Profitability: Net income increased 16.9%. Income before interest and taxes rose to $42.8 million, compared to $37.4 million in the prior year (which included a $10.3 million one-time gain on asset sales).
• Operating Expenses: Increased 16.4% to $64.4 million, primarily due to higher payroll, fleet costs, and an increased allowance for doubtful accounts.
• Cash Flow: Net cash provided by operating activities decreased $5.2 million to $1.5 million. This decline was caused by higher working capital requirements (increases in accounts receivable and inventory) necessitated by higher propane costs.
• Capital Structure: The Partnership completed a public offering of Common Units in Q4 2000, raising $47.1 million in net proceeds, which were used to reduce revolving credit borrowings.

Guidance, Outlook, and Risks

• Distribution: Announced a quarterly distribution of $0.5375 per Common Unit for the first quarter of fiscal 2001, payable February 13, 2001. This includes the minimum quarterly distribution of $0.50 plus an additional $0.0375.
• Liquidity Outlook: Management expects sufficient funds to meet obligations and maintain current distribution levels during fiscal 2001 based on cash position and credit facilities.
• Debt Covenants: On January 29, 2001, the Revolving Credit Agreement was amended. The acquisition facility was reduced to $50 million, the term extended to May 31, 2003, and the minimum net worth covenant was eliminated. The maximum leverage ratio (Debt/EBITDA) was reduced to 5.00 to 1.
• Key Risks:
  • Weather: Demand is heavily dependent on weather conditions.
  • Commodity Prices: Fluctuations in propane unit costs impact margins and working capital needs.
  • Derivatives: The Partnership adopted SFAS No. 133 effective October 1, 2000. Derivatives are now marked-to-market through income, resulting in a $1.1 million expense for the quarter due to fair value changes.
  • Legal/Insurance: The Partnership is self-insured for certain liabilities with accrued liabilities of $24.97 million as of period end.

Investor Verification Checklist

• Weather Impact: Verify the correlation between the reported 13% colder weather and the 16.6% increase in retail gallons sold.
• Working Capital Efficiency: Review the $54.3 million increase in accounts receivable and $6.4 million increase in inventory to ensure collection and inventory turnover remain healthy despite higher costs.
• Derivative Accounting: Confirm the impact of the new SFAS No. 133 standard on future earnings volatility, as derivatives no longer qualify as hedges.
• Debt Covenants: Monitor compliance with the new 5.00 to 1 Debt/EBITDA leverage ratio following the January 2001 credit agreement amendment.
• One-Time Items: Ensure comparisons of operating income exclude the $10.3 million gain on asset sales from the prior year to accurately assess operational performance.