UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

Current Report

Pursuant to Section 13 or 15 (d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) August 7, 2014

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 incorporation or organization)

  

(I.R.S. Employer

Identification No.)

240 Route 10 West

Whippany, New Jersey 07981

(973) 887-5300

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

  ¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

  ¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

  ¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

  ¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The following information, including the exhibit attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

On August 7, 2014, Suburban Propane Partners, L.P. issued a press release (the “Press Release”) describing its Fiscal 2014 Third Quarter Financial Results. A copy of the Press Release has been furnished as Exhibit 99.1 to this Current Report.

Within the Press Release, we reference earnings before interest, income taxes, depreciation and amortization (“EBITDA”) which is considered a non-GAAP financial measure. Additionally, we discuss EBITDA excluding the impact of unrealized (non-cash) gains or losses attributable to mark-to-market activity on derivative instruments and certain other items (“Adjusted EBITDA”). Our calculations of EBITDA and Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net cash provided by operating activities is presented in the Press Release furnished as Exhibit 99.1 to this Current Report.

We provide these non-GAAP financial measures because we believe that they assist the investment community in properly assessing our liquidity on a year-over-year basis. In addition, we believe that these non-GAAP financial measures provide useful information to investors and industry analysts that facilitates the comparison of cash flows between periods for purposes of evaluating our ability to meet our debt service obligations and to pay quarterly distributions.

We also reference gross margins, computed as revenues less cost of products sold as those amounts are reported on the consolidated financial statements. Since cost of products sold does not include depreciation and amortization expense, the gross margin we reference is considered a non-GAAP financial measure. Given the nature of our business, the level of profitability in the retail propane, fuel oil, and natural gas and electricity businesses is largely dependent on the difference between retail sales price and product cost. Therefore, we discuss gross margins in order to provide investors and industry analysts with useful information to facilitate their understanding of the impact of the commodity prices on profitability.

ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS

 

(d) Exhibits.

 

99.1    Press Release of Suburban Propane Partners, L.P. dated August 7, 2014, describing the Fiscal 2014 Third Quarter Financial Results.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

August 7, 2014       SUBURBAN PROPANE PARTNERS, L.P.
      By: /s/ MICHAEL A. KUGLIN
     

Name: Michael A. Kuglin

Title: Vice President—Finance & Chief Accounting Officer

EXHIBITS

 

Exhibit
No.		    Exhibit
99.1    Press Release of Suburban Propane Partners, L.P. dated August 7, 2014, describing the Fiscal 2014 Third Quarter Financial Results.
EX-99.1

Exhibit 99.1

 

LOGO   

News Release

Contact: Michael Stivala

President

P.O. Box 206, Whippany, NJ 07981-0206

Phone: 973-503-9252

FOR IMMEDIATE RELEASE

Suburban Propane Partners, L.P.

Announces Third Quarter Earnings

Whippany, New Jersey, August 7, 2014 — Suburban Propane Partners, L.P. (NYSE:SPH), a nationwide distributor of propane, fuel oil and related products and services, as well as a marketer of natural gas and electricity, today announced earnings for its third quarter ended June 28, 2014.

Consistent with the seasonal nature of the propane and fuel oil businesses, the Partnership typically experiences a net loss in the third quarter of its fiscal year. Net loss for the third quarter of fiscal 2014 was $59.0 million, or $0.98 per Common Unit, compared to a net loss of $45.2 million, or $0.77 per Common Unit, in the prior year third quarter. Earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the third quarter of fiscal 2014 amounted to a loss of $5.2 million, compared to EBITDA of $10.9 million in the prior year third quarter.

Net income and EBITDA for the third quarter of fiscal 2014 included a loss on debt extinguishment of $11.6 million and expenses of $4.3 million related to the ongoing integration of Inergy Propane. Net income and EBITDA for the third quarter of fiscal 2013 included a charge of $6.0 million related to the Partnership’s voluntary withdrawal from multi-employer pension plans covering certain employees acquired in the acquisition of Inergy Propane, as well as $2.2 million in expenses related to the integration of Inergy Propane.

Excluding the effects of these items, as well as the unrealized (non-cash) mark-to-market adjustments on derivative instruments in both quarters, Adjusted EBITDA (as defined and reconciled below) amounted to $10.0 million for the third quarter of fiscal 2014, compared to Adjusted EBITDA of $19.2 million in the prior year third quarter.

In announcing these results, President Michael A. Stivala said, “Following a winter heating season in which consumers experienced significantly higher energy bills, as a result of both greater usage and higher average prices, customer demand slowed during the third quarter as customers delayed deliveries while making payments on their winter usage. In addition, our own efforts to manage exposure to higher than normal customer receivable balances resulted in lower volumes and higher provisions for potential bad debts during the third quarter of fiscal 2014. With the heating season behind us, we resumed our integration activities and have made substantial progress executing on our system conversion plans, further refining our operating model and providing enhanced employee training. As the new fiscal year approaches, we will be substantially completed with our system conversions and physical blending activities and will continue to fine-tune our operating model to maximize operating efficiencies within the combined footprint.”

Retail propane gallons sold in the third quarter of fiscal 2014 decreased 8.9 million, or 9.7%, to 83.2 million, compared to 92.1 million in the prior year third quarter. Sales of fuel oil and other refined fuels decreased 1.3 million gallons, or 15.7%, to 7.0 million gallons compared to 8.3 million gallons in the prior year third quarter. The decrease in volumes was primarily due to the lingering effects of this year’s heating season on customer buying habits. In addition, although weather during the third quarter typically has less of an impact on volumes sold than it does during the heating season, volumes in the prior year third quarter benefitted from a late burst of cold weather that contributed to higher volumes in April 2013 compared to April 2014.

According to the National Oceanic and Atmospheric Administration, average temperatures (as measured by heating degree days) across all of the Partnership’s service territories during April 2014 were 5% warmer than normal and 7% warmer than the comparable prior year period. Overall, average temperatures for the third quarter of fiscal 2014 were 10% warmer than normal and 4% warmer than the prior year third quarter.

Revenues of $297.1 million increased $6.3 million, or 2.2%, compared to the prior year third quarter, primarily due to higher retail selling prices associated with higher wholesale product costs, offset to an extent by lower volumes sold. Average posted propane prices (basis Mont Belvieu, Texas) and fuel oil prices for the third quarter of fiscal 2014 were 16.6% and 2.1% higher than the prior year third quarter, respectively. Cost of products sold for the third quarter of fiscal 2014 of $161.5 million increased $13.3 million, or 9.0%, compared to $148.2 million in the prior year third quarter, primarily due to higher wholesale product costs, offset to an extent by lower volumes sold. Cost of products sold for the third quarter of fiscal 2014 included a $0.7 million unrealized (non-cash) gain attributable to the mark-to-market adjustment for derivative instruments used in risk management activities, compared to a $0.1 million unrealized (non-cash) loss in the prior year third quarter. These unrealized gains and losses are excluded from Adjusted EBITDA for both periods in the table below.

Combined operating and general and administrative expenses of $129.2 million for the third quarter of fiscal 2014 were $2.5 million, or 1.9%, lower than the prior year third quarter, primarily due to operating efficiencies and synergies realized as a result of the integration of Inergy Propane; including lower payroll and benefit-related expenses attributable to lower headcount and lower vehicle expenses from a reduction in the quantity of vehicles in use, offset to an extent by higher bad debt expense as a result of an increase in the allowance for potential uncollectible accounts.

Depreciation and amortization expense of $33.0 million increased $1.5 million, or 4.7%, primarily due to the acceleration of depreciation expense on assets taken out of service as a result of integration activities. Net interest expense of $20.7 million decreased $3.7 million, or 15.3%, due to the reduction of $157.3 million in long-term borrowings during the fourth quarter of fiscal 2013 and, to a lesser extent, the refinancing of $496.6 million in aggregate principal amount of 7.5% Senior Notes due 2018 with $525.0 million in aggregate principal amount of 5.5% Senior Notes due 2024 in the third quarter of fiscal 2014.

 

2

Concluding his remarks, Mr. Stivala said, “During the third quarter of fiscal 2014, we also took steps to further strengthen our balance sheet with the successful refinancing of our 7.5% Senior Notes due 2018 with 5.5% Senior Notes due 2024, effectively extending maturities on this portion of our debt by six years at a very attractive interest rate, and reducing our cash interest requirement by more than $8 million annually.”

As previously announced on July 23, 2014, the Partnership’s Board of Supervisors has declared a quarterly distribution of $0.8750 per Common Unit for the three months ended June 28, 2014. On an annualized basis, this distribution rate equates to $3.50 per Common Unit. The $0.8750 per Common Unit distribution is payable on August 12, 2014 to Common Unitholders of record as of August 5, 2014.

Suburban Propane Partners, L.P. is a publicly traded master limited partnership listed on the New York Stock Exchange. Headquartered in Whippany, New Jersey, Suburban has been in the customer service business since 1928. The Partnership serves the energy needs of approximately 1.2 million residential, commercial, industrial and agricultural customers through more than 750 locations in 41 states.

This press release contains certain forward-looking statements relating to future business expectations and financial condition and results of operations of the Partnership, based on management’s current good faith expectations and beliefs concerning future developments. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those discussed or implied in such forward-looking statements, including the following:

 

  •   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 and natural gas, the impact of the Partnership’s hedging and risk management activities, and the adverse impact of price increases on volumes as a result of customer conservation;

 

  •   The cost savings expected from the Partnership’s acquisition of the retail operations formerly owned by Inergy, L.P. (the “Inergy Propane Acquisition”) may not be fully realized or realized within the expected timeframe;

 

  •   The revenue gained by the Partnership from the Inergy Propane Acquisition may be lower than expected;

 

  •   The costs of integrating the business acquired in the Inergy Propane Acquisition into the Partnership’s existing operations may be greater than expected;

 

  •   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;

 

3

  •   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 global warming, 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, including, but not limited to, Inergy Propane;

 

  •   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 Annual Report under “Risk Factors.”

Some of these risks and uncertainties are discussed in more detail in the Partnership’s Annual Report on Form 10-K for its fiscal year ended September 28, 2013 and other periodic reports filed with the SEC. 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, except as otherwise required by law.

# # #

 

4

Suburban Propane Partners, L.P. and Subsidiaries

Consolidated Statements of Operations

For the Three and Nine Months Ended June 28, 2014 and June 29, 2013

(in thousands, except per unit amounts)

(unaudited)

 

     Three Months Ended     Nine Months Ended  
     June 28,
2014		     June 29,
2013		     June 28,
2014		      June 29,
2013		  

Revenues

          

Propane

    $ 242,173      $ 230,777      $ 1,409,271       $ 1,164,099   

Fuel oil and refined fuels

      26,898        31,026        174,888         185,967   

Natural gas and electricity

      16,912        16,132        74,311         64,253   

All other

      11,160        12,870        38,501         45,615   
  

 

 

    

 

 

    

 

 

     

 

 

  
     297,143        290,805        1,696,971         1,459,934   

Costs and expenses

          

Cost of products sold

      161,482        148,176        959,206         740,275   

Operating

      115,991        118,314        361,035         359,621   

General and administrative

      13,253        13,465        51,105         51,060   

Depreciation and amortization

      32,992        31,505        101,101         93,347   
  

 

 

    

 

 

    

 

 

     

 

 

  
     323,718        311,460        1,472,447         1,244,303   

Operating (loss) income

      (26,575 )      (20,655 )      224,524         215,631   

Loss on debt extinguishment

      11,589        —          11,589         —     

Interest expense, net

      20,662        24,385        63,095         73,284   
  

 

 

    

 

 

    

 

 

     

 

 

  

(Loss) income before provision for income taxes

      (58,826 )      (45,040 )      149,840         142,347   

Provision for income taxes

      163        148        611         430   
  

 

 

    

 

 

    

 

 

     

 

 

  

Net (loss) income

    $ (58,989 )    $ (45,188 )    $ 149,229       $ 141,917   
  

 

 

    

 

 

    

 

 

     

 

 

  

Net (loss) income per Common Unit - basic

    $ (0.98 )    $ (0.77 )    $ 2.47       $ 2.46   
  

 

 

    

 

 

    

 

 

     

 

 

  

Weighted average number of Common Units outstanding - basic

      60,462        58,730        60,448         57,718   
  

 

 

    

 

 

    

 

 

     

 

 

  

Net (loss) income per Common Unit - diluted

    $ (0.98 )    $ (0.77 )    $ 2.46       $ 2.45   
  

 

 

    

 

 

    

 

 

     

 

 

  

Weighted average number of Common Units outstanding - diluted

      60,462        58,730        60,710         57,924   
  

 

 

    

 

 

    

 

 

     

 

 

  

Supplemental Information:

          

EBITDA (a)

    $ (5,172 )    $ 10,850      $ 314,036       $ 308,978   

Adjusted EBITDA (a)

    $ 10,023      $ 19,171      $ 334,000       $ 327,312   

Retail gallons sold:

          

Propane

      83,155        92,109        454,702         456,356   

Refined fuels

      6,981        8,331        43,595         47,439   

Capital expenditures:

          

Maintenance

    $ 5,167      $ 2,463      $ 12,972       $ 6,301   

Growth

    $ 2,118      $ 5,810      $ 8,670       $ 14,866   

(more)

(a) EBITDA represents net income before deducting interest expense, income taxes, depreciation and amortization. Adjusted EBITDA represents EBITDA excluding the unrealized net gain or loss on mark-to-market activity for derivative instruments and certain other items, as applicable, as provided in the table below. Our management uses EBITDA and Adjusted EBITDA as measures of liquidity and we are including them because we believe that they provide our investors and industry analysts with additional information to evaluate our ability to meet our debt service obligations and to pay our quarterly distributions to holders of our Common Units.

EBITDA and Adjusted EBITDA are not recognized terms under accounting principles generally accepted in the United States of America (“US GAAP”) and should not be considered as an alternative to net income or net cash provided by operating activities determined in accordance with US GAAP. Because EBITDA and Adjusted EBITDA as determined by us excludes some, but not all, items that affect net income, they may not be comparable to EBITDA and Adjusted EBITDA or similarly titled measures used by other companies.

The following table sets forth (i) our calculations of EBITDA and Adjusted EBITDA and (ii) a reconciliation of Adjusted EBITDA, as so calculated, to our net cash provided by operating activities:

 

     Three Months Ended     Nine Months Ended  
     June 28,
2014		     June 29,
2013		     June 28,
2014		     June 29,
2013		  

Net (loss) income

    $ (58,989 )    $ (45,188 )    $ 149,229      $ 141,917   

Add:

         

Provision for income taxes

      163        148        611        430   

Interest expense, net

      20,662        24,385        63,095        73,284   

Depreciation and amortization

      32,992        31,505        101,101        93,347   
  

 

 

    

 

 

    

 

 

    

 

 

  

EBITDA

      (5,172 )      10,850        314,036        308,978   

Unrealized (non-cash) (gains) losses on changes in fair value of derivatives

      (707 )      73        (708 )      6,333   

Integration-related costs

      4,313        2,248        9,083        6,001   

Multi-employer pension plan withdrawal charge

      —          6,000        —          6,000   

Loss on debt extinguishment

      11,589        —          11,589        —     
  

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted EBITDA

      10,023        19,171        334,000        327,312   

Add / (subtract):

         

Provision for income taxes

      (163 )      (148 )      (611 )      (430 ) 

Interest expense, net

      (20,662 )      (24,385 )      (63,095 )      (73,284 ) 

Unrealized (non-cash) gains (losses) on changes in fair value of derivatives

      707        (73 )      708        (6,333 ) 

Integration-related costs

      (4,313 )      (2,248 )      (9,083 )      (6,001 ) 

Multi-employer pension plan withdrawal charge

      —          (6,000 )      —          (6,000 ) 

Loss (gain) on disposal of property, plant and equipment, net

      179        (301 )      (340 )      (2,891 ) 

Compensation cost recognized under Restricted Unit Plans

      2,074        840        5,663        3,253   

Changes in working capital and other assets and liabilities

      136,738        79,649        (122,272 )      (35,158 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Net cash provided by operating activities

    $ 124,583      $ 66,505      $ 144,970      $ 200,468   
  

 

 

    

 

 

    

 

 

    

 

 

  

The unaudited financial information included in this document is intended only as a summary provided for your convenience, and should be read in conjunction with the complete consolidated financial statements of the Partnership (including the Notes thereto, which set forth important information) contained in its Quarterly Report on Form 10-Q to be filed by the Partnership with the United States Securities and Exchange Commission (“SEC”). Such report, once filed, will be available on the public EDGAR electronic filing system maintained by the SEC.