SPH 10-Q
Suburban Propane Partners LP (SPH)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of |
(I.R.S. Employer |
incorporation or organization) |
Identification No.) |
(
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol |
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Name of exchange on which registered |
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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. ☒
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).
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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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 6, 2024, there were
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
INDEX TO FORM 10-Q
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ITEM 1. |
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1 |
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Condensed Consolidated Balance Sheets as of March 30, 2024 and September 30, 2023 |
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Condensed Consolidated Statements of Partners’ Capital for the six months ended March 30, 2024 |
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ITEM 2. |
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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ITEM 3. |
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37 |
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ITEM 4. |
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38 |
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39 |
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ITEM 1. |
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39 |
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ITEM 1A. |
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39 |
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ITEM 2. |
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39 |
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ITEM 3. |
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39 |
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ITEM 4. |
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39 |
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ITEM 5. |
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39 |
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ITEM 6. |
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40 |
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41 |
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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, capital expenditures, strategic alternatives, project developments, 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 that could impact the Partnership’s results include, but are not limited to, the following:
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, 2023. 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. For a more complete discussion of specific factors which could cause actual results to differ from those in the Forward-Looking Statements or Cautionary Statements, see “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
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March 30, |
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September 30, |
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2024 |
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2023 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, less allowance for doubtful accounts of $ |
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Inventories |
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Other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Operating lease right-of-use assets |
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Goodwill |
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Other intangible assets, net |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND PARTNERS’ CAPITAL |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued employment and benefit costs |
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Customer deposits and advances |
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Operating lease liabilities |
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Other current liabilities |
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Total current liabilities |
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Long-term borrowings |
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Accrued insurance |
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Operating lease liabilities |
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Other liabilities |
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Total liabilities |
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Partners’ capital: |
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Common Unitholders ( |
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Accumulated other comprehensive loss |
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( |
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( |
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Total partners’ capital |
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Total liabilities and partners’ capital |
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$ |
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$ |
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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)
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Three Months Ended |
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March 30, |
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March 25, |
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2024 |
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2023 |
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Revenues |
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Propane |
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$ |
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$ |
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Fuel oil and refined fuels |
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Natural gas and electricity |
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All other |
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Costs and expenses |
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Cost of products sold |
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Operating |
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General and administrative |
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Depreciation and amortization |
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Operating income |
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Loss on debt extinguishment |
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Interest expense, net |
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Other, net |
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Income before provision for income taxes |
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Provision for income taxes |
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Net income |
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$ |
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$ |
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Net income per Common Unit - basic |
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$ |
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$ |
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Weighted average number of Common Units outstanding - basic |
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Net income per Common Unit - diluted |
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$ |
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$ |
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Weighted average number of Common Units outstanding - diluted |
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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)
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Six Months Ended |
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March 30, |
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March 25, |
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2024 |
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2023 |
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Revenues |
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Propane |
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$ |
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$ |
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Fuel oil and refined fuels |
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Natural gas and electricity |
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All other |
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Costs and expenses |
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Cost of products sold |
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Operating |
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General and administrative |
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Depreciation and amortization |
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Operating income |
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Loss on debt extinguishment |
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Interest expense, net |
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Other, net |
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Income before provision for income taxes |
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Provision for income taxes |
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Net income |
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$ |
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$ |
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Net income per Common Unit - basic |
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$ |
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$ |
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Weighted average number of Common Units outstanding - basic |
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Net income per Common Unit - diluted |
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$ |
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$ |
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Weighted average number of Common Units outstanding - diluted |
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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)
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Three Months Ended |
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Six Months Ended |
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March 30, |
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March 25, |
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March 30, |
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March 25, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive income: |
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Amortization of net actuarial losses and prior service |
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Other comprehensive income |
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Total comprehensive income |
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$ |
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$ |
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$ |
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$ |
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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)
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Six Months Ended |
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March 30, |
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March 25, |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operations: |
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Depreciation and amortization |
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Equity in losses of unconsolidated affiliates |
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Compensation costs recognized under Restricted Unit Plan |
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Loss on debt extinguishment |
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Other, net |
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Changes in assets and liabilities: |
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Accounts receivable |
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( |
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( |
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Inventories |
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Other current and noncurrent assets |
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( |
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Accounts payable |
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Accrued employment and benefit costs |
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( |
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( |
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Customer deposits and advances |
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( |
) |
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( |
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Contributions to defined benefit pension plan |
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( |
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( |
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Other current and noncurrent liabilities |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Capital expenditures |
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( |
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( |
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Investments in and acquisitions of businesses |
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( |
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( |
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Proceeds from sale of property, plant and equipment |
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Net cash (used in) investing activities |
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( |
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( |
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Cash flows from financing activities: |
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Proceeds from borrowings under revolving credit facility |
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Repayments of borrowings under revolving credit facility |
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( |
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( |
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Issuance costs associated with long-term borrowings |
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( |
) |
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Partnership distributions |
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( |
) |
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( |
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Other, net |
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( |
) |
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( |
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Net cash (used in) provided by financing activities |
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( |
) |
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Net increase in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash at beginning of period |
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Cash, cash equivalents and restricted cash at end of period |
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$ |
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$ |
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Less: restricted cash |
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Cash and cash equivalents, end of period |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
(in thousands)
(unaudited)
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Three Months Ended March 30, 2024 |
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Accumulated |
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Other |
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Total |
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Number of |
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Common |
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Comprehensive |
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Partners’ |
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Common Units |
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Unitholders |
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(Loss) |
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Capital |
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Balance, beginning of period |
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$ |
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$ |
( |
) |
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$ |
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Net income |
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— |
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Other comprehensive income |
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— |
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Partnership distributions |
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( |
) |
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— |
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( |
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Common Units issued under Restricted Unit Plan |
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— |
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— |
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Compensation costs recognized under Restricted Unit Plan |
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— |
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Balance, end of period |
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$ |
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$ |
( |
) |
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$ |
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Three Months Ended March 25, 2023 |
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Accumulated |
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Other |
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Total |
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Number of |
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Common |
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Comprehensive |
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Partners’ |
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Common Units |
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Unitholders |
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(Loss) |
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Capital |
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Balance, beginning of period |
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$ |
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$ |
( |
) |
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$ |
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Net income |
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— |
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Other comprehensive income |
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— |
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Partnership distributions |
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( |
) |
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— |
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( |
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Common Units issued under Restricted Unit Plan |
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— |
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Compensation costs recognized under Restricted Unit Plan |
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— |
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Balance, end of period |
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$ |
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$ |
( |
) |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
(in thousands)
(unaudited)
|
|
Six Months Ended March 30, 2024 |
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Accumulated |
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Other |
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Total |
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Number of |
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Common |
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Comprehensive |
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Partners’ |
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Common Units |
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Unitholders |
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(Loss) |
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Capital |
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Balance, beginning of period |
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$ |
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$ |
( |
) |
|
$ |
|
|||
Net income |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Other comprehensive income |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Partnership distributions |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Common Units issued under Restricted Unit Plan |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Compensation costs recognized under Restricted Unit Plan |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Balance, end of period |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
Six Months Ended March 25, 2023 |
|
|||||||||||||
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
||||
|
|
|
|
|
|
|
|
Other |
|
|
Total |
|
||||
|
|
Number of |
|
|
Common |
|
|
Comprehensive |
|
|
Partners’ |
|
||||
|
|
Common Units |
|
|
Unitholders |
|
|
(Loss) |
|
|
Capital |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance, beginning of period |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Net income |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Other comprehensive income |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Partnership distributions |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Common Units issued under Restricted Unit Plan |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Compensation costs recognized under Restricted Unit Plan |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Balance, end of period |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except unit and per unit amounts)
(unaudited)
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, renewable propane, renewable natural gas (“RNG”), fuel oil and refined fuels, as well as the marketing of natural gas and electricity in deregulated markets and producer of and investor in low-carbon fuel alternatives. 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
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.
Suburban Renewable Energy, LLC (“Suburban Renewable Energy”) is a wholly owned subsidiary of the Operating Partnership that was formed in January 2022. Suburban Renewable Energy serves as the platform for the Partnership’s investments in innovative, renewable energy technologies and businesses.
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
The Partnership’s fuel oil and refined fuels, natural gas and electricity, services, and renewable energy 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
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
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, 2023. 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.
8
Fiscal Period. The Partnership uses a
Revenue Recognition. 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
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
The Partnership incurs incremental direct costs, such as commissions to its salesforce, to obtain certain contracts. These costs are expensed as incurred, consistent with the practical expedients issued by the Financial Accounting Standards Board (“FASB”), since the expected amortization period is one year or less. The Partnership generally determines selling prices based on, among other things, the 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.
Revenues from the Partnership’s renewable energy platform, as described further in Note 4, “Investments in and Acquisitions of Businesses,” consist of in-take and off-take revenues. In-take revenues are generated from tipping fees charged to third parties who deliver feedstocks, including food and beverage waste, to the Partnership’s facilities. These feedstocks, as well as manure from dairy cattle, are then anaerobically digested and converted into RNG and fertilizer. Off-take revenues are generated through the sale of RNG and the related environmental attributes, including renewable identification numbers (“RINs”) and low carbon fuel standard (“LCFS”) credits that are generated from the production and distribution of RNG, and revenues generated from the sales of fertilizers and other byproducts produced in the RNG production process. Revenues from the Partnership’s renewable energy platform are reported within the “all other” segment (refer to Note 18, “Segment Information” for more information).
In-take revenues are recognized at the point in time when the feedstocks are delivered to the Partnership because that is when the performance obligations have been satisfied. Off-take revenues are recognized at the point in time when the Partnership delivers the RNG to the customer because that is when the performance obligations have been satisfied.
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.
9
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 condensed 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 RNG revenue recognition, 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.
Recently Issued Accounting Pronouncements. In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting: Improvements to Reportable Segment Disclosures” (“Topic 280”). This update will require public entities to disclose significant segment expenses that are regularly provided to the chief operating decision maker and included within segment profit and loss. The standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. Topic 280 will first be effective for the Partnership’s fiscal 2025 annual report and should be applied retrospectively to all prior periods presented in the financial statements. The Partnership is assessing the effect of this update on its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes: Improvements to Income Tax Disclosures” (“Topic 740”). This update requires disclosure of specific categories and disaggregation of information in the income tax rate reconciliation table. Topic 740 also requires disclosure of disaggregated information related to income taxes paid, income or loss from continuing operations before income tax expense or benefit, and income tax expense or benefit from continuing operations. The requirements of Topic 740 are effective for annual periods beginning after December 15, 2024, which will be the Partnership’s fiscal 2026 annual report. Early adoption is permitted and the amendments should be applied on a prospective basis with retrospective application also being permitted. The Partnership is assessing the effect of this update on its consolidated financial statements and related disclosures.
SEC Climate Disclosures. In March 2024, the SEC issued final rules to require disclosures about certain climate-related information in registration statements and annual reports. In April 2024, the SEC issued an order to stay the rules pending the completion of judicial review of multiple petitions challenging the rules. The rules will require disclosure of, among other things, material climate-related risks, how the Partnership’s Board of Supervisors and management oversee and manage such risks, and the actual and potential material impacts of such risks to the Partnership. The rules also require disclosure about material climate-related targets and goals, greenhouse gas emissions (“GHG”) from operations owned or controlled (Scope 1) and purchased energy consumed in owned or controlled operations (Scope 2), and the financial impacts of severe weather events and other natural conditions. Currently, it is uncertain whether the SEC's new climate-related disclosure rules will withstand pending and future legal challenges. If the rules are ultimately implemented, the Partnership will apply them prospectively with certain disclosures beginning in its fiscal 2026 annual report. The Partnership is assessing the effect of these rules on its consolidated financial statements and related disclosures.
10
|
Three Months Ended |
|
|||||
|
March 30, |
|
|
March 25, |
|
||
|
2024 |
|
|
2023 |
|
||
Retail |
|
|
|
|
|
||
Residential |
$ |
|
|
$ |
|
||
Commercial |
|
|
|
|
|
||
Industrial |
|
|
|
|
|
||
Government |
|
|
|
|
|
||
Agricultural |
|
|
|
|
|
||
Wholesale |
|
|
|
|
|
||
Total revenues |
$ |
|
|
$ |
|
||
|
Six Months Ended |
|
|||||
|
March 30, |
|
|
March 25, |
|
||
|
2024 |
|
|
2023 |
|
||
Retail |
|
|
|
|
|
||
Residential |
$ |
|
|
$ |
|
||
Commercial |
|
|
|
|
|
||
Industrial |
|
|
|
|
|
||
Government |
|
|
|
|
|
||
Agricultural |
|
|
|
|
|
||
Wholesale |
|
|
|
|
|
||
Total revenues |
$ |
|
|
$ |
|
||
The Partnership recognized $
On December 28, 2022, Suburban Renewable Energy acquired a platform of RNG production assets (the “RNG Acquisition”) from Equilibrium Capital Group (“Equilibrium”), a leading sustainability-driven asset management firm.
The following table presents unaudited pro forma combined financial information as if the aforementioned acquisition had occurred on September 25, 2022, the first day of the Partnership’s 2023 fiscal year:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
March 30, |
|
|
March 25, |
|
|
March 30, |
|
|
March 25, |
|
||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Suburban Renewable Energy owns a
11
During the third quarter of fiscal 2022, Suburban Renewable Energy announced an agreement to construct, own and operate a new biodigester system with Adirondack Farms, a family dairy farm located in Clinton County, New York, for the production of RNG. Construction of the assets began during the first quarter of fiscal 2023, and is expected to be completed during the second half of calendar 2025.
The Operating Partnership owns a
These strategic investments were made to support the Partnership’s Go Green with Suburban Propane corporate pillar, which focuses on advocating for the clean-burning and versatile nature of propane and renewable propane as a solution to a lower carbon future and investing in innovative, renewable energy alternatives to lower GHG emissions. The investments in IH and Oberon are being accounted for under the equity method of accounting and were included in “Other assets” within the condensed consolidated balance sheets, and the Partnership’s equity in their earnings were included in “Other, net” within the condensed consolidated statements of operations.
Cash, Cash Equivalents and Restricted Cash. The Partnership considers all highly liquid instruments purchased with an original maturity of
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
12
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, Secured Overnight Financing Rate (“SOFR”) plus an applicable margin or the base rate, defined as the higher of the
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 SOFR (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, 2024 and September 30, 2023, respectively:
|
|
As of March 30, 2024 |
|
|
As of September 30, 2023 |
|
||||||
Asset Derivatives |
|
Location |
|
Fair Value |
|
|
Location |
|
Fair Value |
|
||
Derivatives not designated as |
|
|
|
|
|
|
|
|
|
|
||
Commodity-related derivatives |
|
Other current assets |
|
$ |
|
|
Other current assets |
|
$ |
|
||
|
|
Other assets |
|
|
|
|
Other assets |
|
|
|
||
|
|
|
|
$ |
|
|
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
||
Liability Derivatives |
|
Location |
|
Fair Value |
|
|
Location |
|
Fair Value |
|
||
Derivatives not designated as |
|
|
|
|
|
|
|
|
|
|
||
Commodity-related derivatives |
|
Other current liabilities |
|
$ |
|
|
Other current liabilities |
|
$ |
|
||
|
|
Other liabilities |
|
|
|
|
Other liabilities |
|
|
|
||
|
|
|
|
$ |
|
|
|
|
$ |
|
||
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 |
|
|||||||||||||
|
|
Six Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
March 30, 2024 |
|
|
March 25, 2023 |
|
||||||||||
|
|
Assets |
|
|
Liabilities |
|
|
Assets |
|
|
Liabilities |
|
||||
Beginning balance of over-the-counter options |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Beginning balance realized during the period |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Contracts purchased during the period |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Change in the fair value of outstanding contracts |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Ending balance of over-the-counter options |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
13
As of March 30, 2024 and September 30, 2023, the Partnership’s outstanding commodity-related derivatives had a weighted average maturity of approximately months.
The effect of the Partnership’s derivative instruments on the condensed consolidated statements of operations for the three and six months ended March 30, 2024 and March 25, 2023 are as follows:
|
|
Three Months Ended March 30, 2024 |
|
|
Three Months Ended March 25, 2023 |
|
||||||
Derivatives Not Designated |
|
Unrealized Gains (Losses) |
|
|
Unrealized Gains (Losses) |
|
||||||
|
|
Location |
|
Amount |
|
|
Location |
|
Amount |
|
||
Commodity-related derivatives |
|
|
$ |
|
|
|
$ |
( |
) |
|||
|
|
Six Months Ended March 30, 2024 |
|
|
Six Months Ended March 25, 2023 |
|
||||||
Derivatives Not Designated |
|
Unrealized Gains (Losses) |
|
|
Unrealized Gains (Losses) |
|
||||||
|
|
Location |
|
Amount |
|
|
Location |
|
Amount |
|
||
Commodity-related derivatives |
|
|
$ |
( |
) |
|
|
$ |
( |
) |
||
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 30, 2024 |
|
|
As of September 30, 2023 |
|
||||||||||||||||||
|
|
|
|
|
|
|
|
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 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Liability Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commodity-related derivatives |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
The Partnership had $-
Bank Debt, Green Bonds and Senior Notes. The fair value of the Revolving Credit Facility approximates the carrying value since the interest rates are adjusted quarterly to reflect market conditions.
|
|
As of |
|
|||||
|
|
March 30, |
|
|
September 30, |
|
||
|
|
2024 |
|
|
2023 |
|
||
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
$ |
|
|
$ |
|
||
14
Cash, Cash Equivalents and Restricted Cash. Restricted cash consists of amounts deposited in various bank accounts held by a trustee, as required for operating, maintenance and debt service purposes, all of which is stipulated in the loan agreement under the indenture to the Green Bonds.
|
|
As of |
|
|||||
|
|
March 30, |
|
|
September 30, |
|
||
|
|
2024 |
|
|
2023 |
|
||
|
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash included in other current assets |
|
|
|
|
|
|
||
Restricted cash included in other assets (noncurrent) |
|
|
|
|
|
|
||
Total cash, cash equivalents, and restricted cash shown on the condensed consolidated statements of cash flows |
|
$ |
|
|
$ |
|
||
Inventories. Inventories are stated at the lower of cost or market. Cost is determined using a weighted average method for propane, fuel oil and refined fuels and natural gas, and a standard cost basis for appliances, which approximates average cost.
|
|
As of |
|
|||||
|
|
March 30, |
|
|
September 30, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Propane, fuel oil and refined fuels and natural gas |
|
$ |
|
|
$ |
|
||
Appliances |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Goodwill is subject to an impairment review at a reporting unit level, on an annual basis as of the end of fiscal July of each year, or when an event occurs or circumstances change that would indicate potential impairment.
The Partnership has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing an impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform an impairment test.
Under an impairment test, the Partnership assesses the carrying value of goodwill at a reporting unit level based on an estimate of the fair value of the respective reporting unit. Fair value of the reporting unit is estimated using discounted cash flow analyses taking into consideration estimated cash flows in a
15
The carrying values of goodwill assigned to the Partnership’s operating segments are as follows:
|
|
|
|
|
Fuel oil and |
|
|
Natural gas |
|
|
|
|
|
|
|
|||||
|
|
Propane |
|
|
refined fuels |
|
|
and electricity |
|
|
All other |
|
|
Total |
|
|||||
Balance as of September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Goodwill |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Accumulated adjustments |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Fiscal 2024 Activity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Goodwill acquired |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance as of March 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Goodwill |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Accumulated adjustments |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Other intangible assets consist of the following:
|
|
As of |
|
|||||
|
|
March 30, |
|
|
September 30, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Customer relationships |
|
$ |
|
|
$ |
|
||
Non-compete agreements |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less: accumulated amortization |
|
|
|
|
|
|
||
Customer relationships |
|
|
( |
) |
|
|
( |
) |
Non-compete agreements |
|
|
( |
) |
|
|
( |
) |
Other |
|
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
The Partnership leases certain property, plant and equipment, including portions of its vehicle fleet, for various periods under noncancelable leases all of which were determined to be operating leases. The Partnership determines if an agreement contains a lease at inception based on the Partnership’s right to the economic benefits of the leased assets and its right to direct the use of the leased asset. Right-of-use assets represent the Partnership’s right to use an underlying asset, and right-of-use liabilities represent the Partnership’s obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term.
The Partnership has residual value guarantees associated with certain of its operating leases, related primarily to transportation equipment. See Note 14, “Guarantees” for more information.
The Partnership does not have any material lease obligations that were signed, but not yet commenced as of March 30, 2024.
16
Quantitative information on the Partnership’s lease population is as follows:
|
|
Three Months Ended |
|
|
|
Six Months Ended |
|
||||||||||
|
|
March 30, |
|
|
March 25, |
|
|
|
March 30, |
|
|
March 25, |
|
||||
|
|
2024 |
|
|
2023 |
|
|
|
2024 |
|
|
2023 |
|
||||
Lease expense |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash payments for operating leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Right-of-use assets obtained in exchange |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average remaining lease term |
|
|
|
|
|
|
|
|
|
|
|
||||||
Weighted-average discount rate |
|
|
|
|
|
|
|
|
|
% |
|
|
% |
||||
The following table summarizes future minimum lease payments under non-cancelable operating leases as of March 30, 2024:
Fiscal Year |
|
Operating Leases |
|
|
2024 (remaining) |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 and thereafter |
|
|
|
|
Total future minimum lease payments |
|
$ |
|
|
Less: interest |
|
|
( |
) |
Total lease obligations |
|
$ |
|
|
Computations of basic income per Common Unit are performed by dividing net income by the weighted average number of outstanding Common Units, and vested (and unissued) restricted units granted under the Partnership’s Restricted Unit Plan, as defined below, to retirement-eligible grantees. Computations of diluted income per Common Unit are performed by dividing net income by the weighted average number of outstanding Common Units and unvested restricted units granted under the Restricted Unit Plan. In computing diluted net income per Common Unit, weighted average units outstanding used to compute basic net income per Common Unit were increased by
Long-term borrowings consist of the following:
|
|
As of |
|
|||||
|
|
March 30, |
|
|
September 30, |
|
||
|
|
2024 |
|
|
2023 |
|
||
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
Revolving Credit Facility, due |
|
|
|
|
|
|
||
Subtotal |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less: unamortized debt issuance costs |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
17
Senior Notes
2027 Senior Notes. On
2031 Senior Notes. On
The Partnership’s obligations under the 2027 Senior Notes and 2031 Senior Notes (collectively, the “Senior Notes”) are unsecured and rank senior in right of payment to any future subordinated indebtedness and equally in right of payment with any future senior indebtedness. The Senior Notes are structurally subordinated to, which means they rank effectively behind, any debt and other liabilities of the Operating Partnership. The Partnership is permitted to redeem some or all of the Senior Notes at redemption prices and times as specified in the indentures governing the Senior Notes. The Senior Notes each have a change of control provision that would require the Partnership to offer to repurchase the notes at
Green Bonds. On December 28, 2022, the Partnership assumed the loan agreement under the Indentures of Trust, issued by The Industrial Development Authority of the County of Pinal (“Green Bonds”) from Equilibrium in conjunction with the RNG Acquisition. The proceeds of the Green Bonds, which bear interest at
Credit Agreement. On March 15, 2024, the Partnership and the Operating Partnership entered into a Fourth Amended and Restated Credit Agreement (the “Credit Agreement”) that provides for a $
The Credit Agreement contains certain restrictive and affirmative covenants applicable to the Operating Partnership, its subsidiaries and the Partnership, as well as certain financial covenants, including (a) requiring the Partnership’s Consolidated Interest Coverage Ratio, as defined in the Credit Agreement, to be not less than
18
The Partnership and certain subsidiaries of the Operating Partnership act as guarantors with respect to the obligations of the Operating Partnership under the Credit Agreement pursuant to the terms and conditions set forth therein. The obligations under the Credit Agreement are secured by liens on substantially all of the personal property of the Partnership, the Operating Partnership and their subsidiaries, as well as mortgages on certain real property.
As of March 30, 2024, borrowings under the Revolving Credit Facility bear interest at prevailing interest rates based upon, at the Operating Partnership’s option, SOFR plus the Applicable Rate, or the base rate, defined as the higher of the
As of March 30, 2024, the Partnership had standby letters of credit issued under the Revolving Credit Facility of $
The Credit Agreement and the Senior Notes both contain various restrictive and affirmative covenants applicable to the Operating Partnership, its subsidiaries and the Partnership, respectively, including (i) restrictions on the incurrence of additional indebtedness, and (ii) restrictions on certain liens, investments, guarantees, loans, advances, payments, mergers, consolidations, distributions, sales of assets and other transactions. Under the Credit Agreement and the indentures governing the Senior Notes, the Operating Partnership and the Partnership are generally permitted to make cash distributions equal to available cash, as defined, as of the end of the immediately preceding quarter, if no event of default exists or would exist upon making such distributions, and with respect to the indentures governing the Senior Notes, the Partnership’s Consolidated Fixed Charge Coverage Ratio, as defined, is greater than
The aggregate amounts of long-term debt maturities subsequent to March 30, 2024 are as follows: fiscal 2024: $-
The Partnership makes distributions to its partners no later than
On
The Partnership recognizes compensation cost over the respective service period for employee services received in exchange for an award of equity, or equity-based compensation, based on the grant date fair value of the award. The Partnership measures liability awards under an equity-based payment arrangement based on remeasurement of the award’s fair value at the conclusion of each interim and annual reporting period until the date of settlement, taking into consideration the probability that the performance conditions will be satisfied.
Restricted Unit Plan. At the Partnership’s Tri-Annual Meeting held on May 15, 2018, the Unitholders approved and the Partnership adopted the Suburban Propane Partners, L.P. 2018 Restricted Unit Plan (the “Restricted Unit Plan”) authorizing the issuance of up to
19
Restricted units are subject to forfeiture in certain circumstances as defined in the Restricted Unit Plan. Compensation expense for the unvested awards is recognized ratably over the vesting periods and is net of estimated forfeitures.
During the six months ended March 30, 2024, the Partnership awarded
|
|
|
|
|
Weighted Average |
|
||
|
|
Restricted |
|
|
Grant Date Fair |
|
||
|
|
Units |
|
|
Value Per Unit |
|
||
Outstanding September 30, 2023 |
|
|
|
|
$ |
|
||
Awarded |
|
|
|
|
|
|
||
Forfeited |
|
|
|
|
|
|
||
Vested (1) |
|
|
( |
) |
|
|
( |
) |
Outstanding March 30, 2024 |
|
|
|
|
$ |
|
||
As of March 30, 2024, unrecognized compensation cost related to unvested restricted units awarded under the Restricted Unit Plan amounted to $
Phantom Equity Plan. At its November 8, 2022 meeting, the Compensation Committee adopted the Phantom Equity Plan (the “PEP”) to incentivize behaviors that will lead to the creation of long-term value for the Partnership’s Unitholders by functioning as a cash-settled corollary plan to the Partnership’s Restricted Unit Plan. The executive officers of the Partnership, the members of the Board, and other employees of the Partnership are eligible for awards of phantom units under the PEP. Unless otherwise stipulated by the Compensation Committee, the standard vesting schedule for awards under the PEP will be one-third of each award on each of the first three anniversaries of the award grant date, subject to continuous employment or service from the grant date through the applicable payment date. Unvested awards are subject to forfeiture in certain circumstances, as defined in the PEP document and the applicable award agreements. Upon vesting, phantom units are automatically converted into cash equal to the average of the highest and lowest trading prices of the Partnership’s Common Units on the vesting date.
Compensation expense, which includes adjustments to previously recognized compensation expense for current period changes in the fair value of unvested awards, for the three and six months ended March 30, 2024 was $
Distribution Equivalent Rights Plan.
Long-Term Incentive Plan. On November 10, 2020, the Partnership adopted the 2021 Long-Term Incentive Plan (“the LTIP”).
20
25% weight based on the achievement of certain operating and strategic objectives, set by the Compensation Committee, over that award’s three-year measurement period. The level of compensation earned under the fiscal 2022 award and awards thereafter, is also evaluated using two separate measurement components: (i) 50% weight based on the level of average distributable cash flow of the Partnership over the three-year measurement period; and (ii) 50% weight based on the achievement of certain operating and strategic objectives, set by the Compensation Committee for that award’s three-year measurement period.
As a result of the quarterly remeasurement of the liability for awards under the LTIP, compensation expense (benefit) recognized for the three and six months ended March 30, 2024 was $
Accrued Insurance. The Partnership is self-insured for general and product, workers’ compensation and automobile liabilities up to predetermined amounts above which third party insurance applies. As of March 30, 2024 and September 30, 2023, the Partnership had accrued liabilities of $
Legal Matters. The Partnership’s operations are subject to operating hazards and risks normally incidental to handling, storing and delivering combustible liquids such as propane. The Partnership has been, and will continue to be, a defendant in various legal proceedings and litigation as a result of these operating hazards and risks, and as a result of other aspects of its business. In this regard, the Partnership’s natural gas and electricity (“AES”) business was sued in a putative class action suit in the Northern District of New York. The complaint alleged a number of claims under various consumer statutes and common law in New York and Pennsylvania regarding pricing offered to electricity customers in those states. The case was dismissed in part by the district court, but causes of action based on the New York consumer statute and breach of contract were allowed to proceed. On April 12, 2022, the court granted summary judgment in favor of the Partnership on the remaining counts and the complaint was dismissed in full. The plaintiff appealed the judgment to the Second Circuit Court of Appeals. On December 12, 2023, the Court of Appeals issued an Order and Decision affirming the decision of the lower court granting judgment to Agway and dismissing the plaintiff’s claims.
The State of New York amended Section 349-d of the New York General Business Law (“GBL”) effective on March 18, 2024, to require that energy service companies that operate in the state, such as AES in connection with its natural gas and electricity business, first obtain written consent from the customer before any change in commodity prices can be charged to the customer. To date, the amended statute has not had a material negative impact on AES, but the Partnership continues to assess the impact that the GBL amendment may have in the future on its natural gas and electricity business. In addition, the New York Public Service Commission (“NYPSC”) has proposed an amendment to its Uniform Business Practices (“UBP”), which would apply to AES and other energy supply companies that operate in the state, that would, if adopted, require AES to send notice each month to its customers that includes a historical comparison between the rates charged by AES and what the customer would have paid had they remained with their incumbent utility. While the effective date of this UBP amendment is not yet known, the Partnership anticipates that the additional notice requirements mandated by the NYPSC could have a negative effect on customer retention for energy supply companies if the amendment is finalized as proposed. As a result of the amendment to the GBL, as well as the pending UBP revision, the Partnership is in the process of reviewing strategic alternatives for the AES business.
The Partnership has residual value guarantees associated with certain of its operating leases, related primarily to transportation equipment, with remaining lease periods scheduled to expire periodically through fiscal
21
The following table provides the components of net periodic benefit costs:
|
|
Pension Benefits |
|
|||||||||||||
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
March 30, |
|
|
March 25, |
|
|
March 30, |
|
|
March 25, |
|
||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Interest cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Amortization of net loss |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net periodic benefit cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
Postretirement Benefits |
|
|||||||||||||
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
March 30, |
|
|
March 25, |
|
|
March 30, |
|
|
March 25, |
|
||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Interest cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Amortization of prior service credits |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Amortization of net (gain) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net periodic benefit cost |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The Partnership expects to contribute approximately $
The Partnership contributes to multi-employer pension plans (“MEPPs”) in accordance with various collective bargaining agreements covering union employees. As one of the many participating employers in these MEPPs, the Partnership is responsible with the other participating employers for any plan underfunding. As of March 30, 2024 and September 30, 2023, the Partnership’s estimated obligation to these MEPPs was $
The following table summarizes amounts reclassified out of accumulated other comprehensive income (loss) for the three and six months ended March 30, 2024 and March 25, 2023:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
March 30, |
|
|
March 25, |
|
|
March 30, |
|
|
March 25, |
|
||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Pension Benefits |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance, beginning of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Reclassifications to earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of net loss (1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance, end of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Postretirement Benefits |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance, beginning of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Reclassifications to earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of net gain and prior service credits (1) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance, end of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accumulated Other Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance, beginning of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Reclassifications to earnings |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance, end of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
22
For federal income tax purposes, as well as for state income tax purposes in the majority of the states in which the Partnership operates, the earnings attributable to the Partnership and the Operating Partnership are not subject to income tax at the partnership level. With the exception of those states that impose an entity-level income tax on partnerships, the taxable income or loss attributable to the Partnership and to the Operating Partnership, which may vary substantially from the income (loss) before income taxes reported by the Partnership in the condensed consolidated statement of operations, are includable in the federal and state income tax returns of the Common Unitholders. The aggregate difference in the basis of the Partnership’s net assets for financial and tax reporting purposes cannot be readily determined as the Partnership does not have access to each Common Unitholder’s basis in the Partnership.
As described in Note 1, “Partnership Organization and Formation,” the earnings of the Corporate Entities are subject to U.S. corporate level income tax. However, based upon past performance, the Corporate Entities are currently reporting an income tax provision composed primarily of minimum state income taxes. A full valuation allowance has been provided against the deferred tax assets (with the exception of certain net operating loss carryforwards (“NOLs”) that arose after 2017) based upon an analysis of all available evidence, both negative and positive at the balance sheet date, which, taken as a whole, indicates that it is more likely than not that sufficient future taxable income will not be available to utilize the assets. Management’s periodic reviews include, among other things, the nature and amount of the taxable income and expense items, the expected timing of when assets will be used or liabilities will be required to be reported and the reliability of historical profitability of businesses that are expected to provide future earnings. Furthermore, management considered tax-planning strategies it could use to increase the likelihood that the deferred tax assets will be realized.
As a result of the Tax Cuts and Jobs Act of 2017, NOLs generated by the Corporate Entities beginning in 2018 may be carried forward indefinitely. The Corporate Entities generated a taxable loss during the 2022 tax year, which resulted in a $
The Partnership manages and evaluates its operations in
The propane segment is primarily engaged in the retail distribution of propane and renewable propane to residential, commercial, industrial, agricultural and government customers and, to a lesser extent, wholesale distribution to large industrial end users. In the residential, commercial and government markets, propane is used primarily for space heating, water heating, cooking and clothes drying. Industrial customers use propane generally as a motor fuel burned in internal combustion engines that power over-the-road vehicles, forklifts and stationary engines, to fire furnaces and as a cutting gas. In the agricultural markets, propane is primarily used for tobacco curing, crop drying, poultry brooding and weed control. In addition, the Partnership’s equity investment in Oberon is included within the propane segment.
The fuel oil and refined fuels segment is primarily engaged in the retail distribution of fuel oil, diesel, kerosene and gasoline to residential and commercial customers for use primarily as a source of heat in homes and buildings.
23
The natural gas and electricity segment is engaged in the marketing of natural gas and electricity to residential and commercial customers in the deregulated energy markets of New York and Pennsylvania. Under this operating segment, the Partnership owns the relationship with the end consumer and has agreements with the local distribution companies to deliver the natural gas or electricity from the Partnership’s suppliers to the customer.
Activities in the “all other” category include the Partnership’s service business, which is primarily engaged in the sale, installation and servicing of a wide variety of home comfort equipment, particularly in the areas of heating and ventilation. In addition, the Partnership’s platform of RNG businesses and the equity investment in IH are included within “all other.”
The following table presents certain data by reportable segment and provides a reconciliation of total operating segment information to the corresponding condensed consolidated amounts for the periods presented:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
March 30, |
|
|
March 25, |
|
|
March 30, |
|
|
March 25, |
|
||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Propane |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Fuel oil and refined fuels |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Natural gas and electricity |
|
|
|
|
|
|
|
|
|
|
|
|
||||
All other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Propane |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Fuel oil and refined fuels |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Natural gas and electricity |
|
|
|
|
|
|
|
|
|
|
|
|
||||
All other |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Corporate |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total operating income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Reconciliation to net income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss on debt extinguishment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Provision for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Propane |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Fuel oil and refined fuels |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Natural gas and electricity |
|
|
|
|
|
|
|
|
|
|
|
|
||||
All other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total depreciation and amortization |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
As of |
|
|||||
|
|
March 30, |
|
|
September 30, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Assets: |
|
|
|
|
|
|
||
Propane |
|
$ |
|
|
$ |
|
||
Fuel oil and refined fuels |
|
|
|
|
|
|
||
Natural gas and electricity |
|
|
|
|
|
|
||
All other |
|
|
|
|
|
|
||
Corporate |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
24
On
On
These acquisitions were consummated pursuant to the Partnership’s strategic growth initiatives.
25
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the financial condition and results of operations of the Partnership as of and for the three and six months ended March 30, 2024, seen from our perspective. The discussion and analysis should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the historical consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended September 30, 2023.
Executive Overview
The following are factors that regularly affect our operating results and financial condition. Our business is subject to the risks and uncertainties described in Item 1A included in the Annual Report on Form 10-K for the fiscal year ended September 30, 2023 and in this Quarterly Report. Management currently considers the following events, trends, and uncertainties to be most important to understanding our financial condition and operating performance:
Product Costs and Supply
The level of profitability in the retail propane, fuel oil, natural gas and electricity businesses is largely dependent on the difference between retail sales price and our costs to acquire and transport products. The unit cost of our products, particularly propane, fuel oil and natural gas, is subject to volatility as a result of supply and demand dynamics or other market conditions, including, but not limited to, economic and political factors impacting crude oil and natural gas supply or pricing. We enter into product supply contracts that are generally one-year agreements subject to annual renewal, and also purchase product on the open market. We attempt to reduce price risk by pricing product on a short-term basis. Our propane supply contracts typically provide for pricing based upon index formulas using the posted prices established at major supply points such as Mont Belvieu, Texas, or Conway, Kansas (plus transportation costs) at the time of delivery.
To supplement our annual purchase requirements, we may utilize forward fixed price purchase contracts to acquire a portion of the propane that we resell to our customers, which allows us to manage our exposure to unfavorable changes in commodity prices and to assure adequate physical supply. The percentage of contract purchases, and the amount of supply contracted for under forward contracts at fixed prices, will vary from year to year based on market conditions.
Changes in our costs to acquire and transport products can occur rapidly over a short period of time and can impact profitability. There is no assurance that we will be able to pass on product acquisition and transportation cost increases fully or immediately, particularly when such costs increase rapidly. Therefore, average retail sales prices can vary significantly from year to year as our costs fluctuate with the propane, fuel oil, crude oil and natural gas commodity markets and infrastructure conditions. In addition, periods of sustained higher commodity and/or transportation prices can lead to customer conservation, resulting in reduced demand for our product.
According to the Energy Information Administration, U.S. propane inventory levels at the end of March 2024 were 51.8 million barrels, which was 7.0% lower than March 2023 levels, albeit 7.8% higher than the five-year average for March. These lower inventory levels in comparison to March 2023 contributed to an increase in average posted propane prices (basis Mont Belvieu, Texas) of 2.8% compared to the prior year second quarter.
Seasonality
The retail propane and fuel oil distribution businesses, as well as the retail natural gas marketing business, are seasonal because these fuels are primarily used for heating in residential and commercial buildings. Historically, approximately two‑thirds of our retail propane volume is sold during the six-month peak heating season from October through March. The fuel oil business tends to experience greater seasonality given its more limited use for space heating and approximately three-fourths of our fuel oil volumes are sold between October and March. Consequently, sales and operating profits are concentrated in our first and second fiscal quarters. Cash flows from operations, therefore, are greatest during the second and third fiscal quarters when customers pay for product purchased during the winter heating season. We expect lower operating profits and either net losses or lower net income during the period from April through September (our third and fourth fiscal quarters). To the extent necessary, we will reserve cash from the second and first quarters for distribution to holders of our Common Units in the fourth quarter and the following fiscal year first quarter.
26
Weather
Weather conditions have a significant impact on the demand for our products, in particular propane, fuel oil and natural gas, for both heating and agricultural purposes. Many of our customers rely heavily on propane, fuel oil or natural gas as a heating source. Accordingly, the volume sold is directly affected by the severity of the winter weather in our service areas, which can vary substantially from year to year. In any given area, sustained warmer than normal temperatures will tend to result in reduced propane, fuel oil and natural gas consumption, while sustained colder than normal temperatures will tend to result in greater consumption.
Hedging and Risk Management Activities
We engage in hedging and risk management activities to reduce the effect of price volatility on our product costs and to ensure the availability of product during periods of short supply. We enter into propane forward, options and swap agreements with third parties, and use futures and options contracts traded on the New York Mercantile Exchange (“NYMEX”) to purchase and sell propane, fuel oil, crude oil and natural gas at fixed prices in the future. The majority of the futures, forward and options agreements are used to hedge price risk associated with propane and fuel oil physical inventory, as well as, in certain instances, forecasted purchases of propane or fuel oil. In addition, we sell propane and fuel oil to customers at fixed prices, and enter into derivative instruments to hedge a portion of our exposure to fluctuations in commodity prices as a result of selling the fixed price contracts. Forward contracts are generally settled physically at the expiration of the contract whereas futures, options and swap contracts are generally settled at the expiration of the contract through a net settlement mechanism. Although we use derivative instruments to reduce the effect of price volatility associated with priced physical inventory and forecasted transactions, we do not use derivative instruments for speculative trading purposes. Risk management activities are monitored by an internal Commodity Risk Management Committee, made up of six members of management and reporting to our Audit Committee, through enforcement of our Hedging and Risk Management Policy.
Inflation and Other Cost Increases
We are experiencing inflationary pressures in the costs of various goods and services we use to operate our business, including volatile wholesale costs for the products we distribute. Although we have not experienced significant disruptions with securing the products we sell, inflationary factors and competition for resources across the supply chain has resulted in increased costs in a wide variety of areas; including labor, transportation costs, operating costs and the cost of capital expansion projects, tanks and other equipment. These and other factors may continue to impact our product costs, expenses, and capital expenditures, and could continue to have an impact on consumer demand as consumers manage the impact of inflation on their resources.
Critical Accounting Policies and Estimates
Our significant accounting policies are summarized in Note 2, “Summary of Significant Accounting Policies,” included within the Notes to Consolidated Financial Statements section of our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.
Certain amounts included in or affecting our consolidated financial statements and related disclosures must be estimated, requiring management to make certain assumptions with respect to values or conditions that cannot be known with certainty at the time the financial statements are prepared. 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. We are also subject to risks and uncertainties that may cause actual results to differ from estimated results. Estimates are used when accounting for depreciation and amortization of long-lived assets, employee benefit plans, self-insurance and litigation reserves, environmental reserves, allowances for doubtful accounts, asset valuation assessments and valuation of derivative instruments. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any effects on our business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known to us. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Supervisors.
Results of Operations and Financial Condition
Net income for the second quarter of fiscal 2024 was $111.5 million, or $1.73 per Common Unit, compared to net income of $104.5 million, or $1.63 per Common Unit, in the second quarter of fiscal 2023. Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA, as defined and reconciled below) for the second quarter of fiscal 2024 was $147.0 million, compared to $149.0 million in the prior year second quarter.
27
Retail propane gallons sold in the second quarter of fiscal 2024 of 140.2 million gallons decreased 2.7% compared to the prior year, primarily due to widespread warm weather throughout much of the second quarter, aside from a two-week period of extreme cold temperatures in mid-January 2024. Average temperatures (as measured by heating degree days) across all of our service territories during the second quarter were 8% warmer than normal and 4% cooler than the prior year second quarter (which was heavily influenced by mid-January heating degree days that were 33% colder than the prior year). Average temperatures for the month of February were 1% warmer than the prior year and on par for the warmest February on record; followed by March which was 7% warmer than the prior year.
Average propane prices (basis Mont Belvieu, Texas) for the second quarter of fiscal 2024 increased 2.8% compared to the prior year second quarter. Total gross margin of $308.0 million for the second quarter increased $13.1 million, or 4.4%, compared to the prior year second quarter. Gross margin for the second quarter of fiscal 2024 included a $5.9 million unrealized gain attributable to the mark-to-market adjustment for derivative instruments used in risk management activities, compared to a $4.5 million unrealized loss in the prior year second quarter. These non-cash adjustments, which were reported in cost of products sold, were excluded from Adjusted EBITDA for both periods. Excluding the impact of the mark-to-market adjustments, total gross margin increased $2.7 million, or 0.9%, compared to the prior year second quarter, primarily due to higher unit margins, which increased $0.08 per gallon, more than offsetting the lower volumes sold.
Combined operating and general and administrative expenses of $154.4 million for the second quarter of fiscal 2024 increased $1.2 million, or 0.8%, compared to the prior year second quarter, primarily due to higher payroll and benefit-related expenses, offset to an extent by lower volume-related variable operating costs. In addition, included within general and administrative expenses in the second quarter of the prior year were acquisition-related fees and expenses of $3.4 million, which were excluded from Adjusted EBITDA for the second quarter of fiscal 2023.
On March 15, 2024, we entered into a Fourth Amended and Restated Credit Agreement (the “Credit Agreement”) that provides for a $500 million revolving credit facility (the “Revolving Credit Facility”), of which $154.5 million was outstanding as of March 30, 2024. The Revolving Credit Facility matures on the earlier of (i) the date that is ninety-one (91) days prior to maturity of the 2027 Senior Notes, as defined in Item 1, Note 10 of this Quarterly Report (unless the notes have been refinanced prior to such date) and (ii) March 15, 2029. At the time of the execution of the Credit Agreement, $187.9 million was outstanding under the revolving credit facility of the previous credit agreement, which was rolled into the Revolving Credit Facility under the Credit Agreement. The Credit Agreement amends and restates the previous credit agreement dated March 5, 2020.
Total debt outstanding as of March 30, 2024 increased $22.5 million compared to September 30, 2023, primarily due to seasonal borrowings under our Revolving Credit Facility to help fund working capital needs. During the second quarter of fiscal 2024, we utilized cash flows from operating activities to repay $32.3 million in outstanding borrowings under the Revolving Credit Facility. As a result of this debt repayment, the Total Consolidated Leverage Ratio, as defined in our Credit Agreement, for the twelve-month period ending March 30, 2024 improved to 4.61x compared to 4.72x at the end of the fiscal 2024 first quarter.
As previously announced on April 25, 2024, the Partnership’s Board of Supervisors declared a quarterly distribution of $0.325 per Common Unit for the three months ended March 30, 2024. On an annualized basis, this distribution rate equates to $1.30 per Common Unit. The distribution is payable on May 14, 2024 to Common Unitholders of record as of May 7, 2024.
Our anticipated cash requirements for the remainder of fiscal 2024 include: (i) maintenance and growth capital expenditures of approximately $9.3 million and $27.5 million, respectively; (ii) interest and income tax payments of approximately $35.0 million; and (iii) cash distributions of approximately $41.6 million to our Common Unitholders based on the quarterly distribution rate of $0.325 per Common Unit. Based on our liquidity position, which includes cash on hand, availability of funds under our Revolving Credit Facility and expected cash flow from operating activities, we expect to have sufficient funds to meet our current and future obligations.
28
Three Months Ended March 30, 2024 Compared to Three Months Ended March 25, 2023
Revenues
(Dollars and gallons in thousands) |
|
Three Months Ended |
|
|
|
|
|
Percent |
|
|||||||
|
|
March 30, |
|
|
March 25, |
|
|
Increase |
|
|
Increase |
|
||||
|
|
2024 |
|
|
2023 |
|
|
(Decrease) |
|
|
(Decrease) |
|
||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Propane |
|
$ |
437,564 |
|
|
$ |
457,140 |
|
|
$ |
(19,576 |
) |
|
|
(4.3 |
)% |
Fuel oil and refined fuels |
|
|
31,595 |
|
|
|
38,126 |
|
|
|
(6,531 |
) |
|
|
(17.1 |
)% |
Natural gas and electricity |
|
|
8,713 |
|
|
|
11,856 |
|
|
|
(3,143 |
) |
|
|
(26.5 |
)% |
All other |
|
|
20,215 |
|
|
|
19,379 |
|
|
|
836 |
|
|
|
4.3 |
% |
Total revenues |
|
$ |
498,087 |
|
|
$ |
526,501 |
|
|
$ |
(28,414 |
) |
|
|
(5.4 |
)% |
Retail gallons sold |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Propane |
|
|
140,243 |
|
|
|
144,149 |
|
|
|
(3,906 |
) |
|
|
(2.7 |
)% |
Fuel oil and refined fuels |
|
|
6,992 |
|
|
|
7,742 |
|
|
|
(750 |
) |
|
|
(9.7 |
)% |
As discussed above, average temperatures (as measured in heating degree days) across all of our service territories were 8% warmer than normal and 4% cooler than the prior year second quarter. Following a short burst of extreme cold weather in the middle of January, February 2024 temperatures were on par for the warmest on record. The months of February and March collectively were 4% warmer than the comparable prior year period and negatively impacted customer demand for heating purposes.
Revenues from the distribution of propane and related activities of $437.6 million decreased $19.6 million, or 4.3%, compared to the prior year, primarily due to lower volumes sold and lower average retail selling prices. Retail propane gallons sold decreased 3.9 million gallons, or 2.7%, compared to the prior year, primarily due to lower heat-related demand as described above, resulting in a $12.2 million decrease in revenues. Average propane selling prices decreased 1.5% compared to the prior year, reflecting lower average wholesale costs coming into the quarter, resulting in a $6.7 million decrease in revenues. Included within the propane segment are revenues from risk management activities, which decreased $0.7 million primarily due to the impact of lower selling prices on commodity hedging contracts that were settled physically.
Revenues from the distribution of fuel oil and refined fuels of $31.6 million were $6.5 million, or 17.1%, lower than the prior year, primarily due to lower volumes sold and lower average retail selling prices. Fuel oil and refined fuels gallons sold decreased 0.7 million gallons, or 9.7%, resulting in a $3.7 million decrease in revenues. Average fuel oil and refined fuels selling prices decreased 8.1% compared to the prior year, reflecting lower average wholesale costs, resulting in a $2.8 million decrease in revenues.
Revenues in our natural gas and electricity segment of $8.7 million were $3.1 million, or 26.5%, lower than the prior year, primarily due to lower natural gas average selling prices, reflecting lower average wholesale costs, and to a lesser extent, lower volumes sold, primarily due to warmer temperatures in our operating territories and a lower customer base.
Revenues in our all other segment of $20.2 million were $0.8 million, or 4.3%, higher than the prior year, primarily due to an increase in the volume of pipeline injected renewable natural gas (“RNG”) and higher prices for certain environmental attributes. Revenue from the RNG production assets primarily consist of sales of RNG and the associated environmental attributes, and tipping fees charged to third parties for various waste feedstocks.
Cost of Products Sold
(Dollars in thousands) |
|
Three Months Ended |
|
|
|
|
|
Percent |
|
|||||||
|
|
March 30, |
|
|
March 25, |
|
|
Increase |
|
|
Increase |
|
||||
|
|
2024 |
|
|
2023 |
|
|
(Decrease) |
|
|
(Decrease) |
|
||||
Cost of products sold |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Propane |
|
$ |
161,190 |
|
|
$ |
194,854 |
|
|
$ |
(33,664 |
) |
|
|
(17.3 |
)% |
Fuel oil and refined fuels |
|
|
20,464 |
|
|
|
26,031 |
|
|
|
(5,567 |
) |
|
|
(21.4 |
)% |
Natural gas and electricity |
|
|
4,760 |
|
|
|
7,187 |
|
|
|
(2,427 |
) |
|
|
(33.8 |
)% |
All other |
|
|
3,706 |
|
|
|
3,536 |
|
|
|
170 |
|
|
|
4.8 |
% |
Total cost of products sold |
|
$ |
190,120 |
|
|
$ |
231,608 |
|
|
$ |
(41,488 |
) |
|
|
(17.9 |
)% |
As a percent of total revenues |
|
|
38.2 |
% |
|
|
44.0 |
% |
|
|
|
|
|
|
||
29
The cost of products sold reported in the condensed consolidated statements of operations represents the weighted average unit cost of propane, fuel oil and refined fuels, and natural gas and electricity sold, including transportation costs to deliver product from our supply points to storage or to our customer service centers. Cost of products sold also includes the cost of appliances and related parts sold or installed by our customer service centers computed on a basis that approximates the average cost of the products.
Given the retail nature of our operations, we maintain a certain level of priced physical inventory to help ensure that our field operations have adequate supply commensurate with the time of year. Our strategy has been, and will continue to be, to keep our physical inventory priced relatively close to market for our field operations. Consistent with past practices, we principally utilize futures and/or options contracts traded on the NYMEX to mitigate the price risk associated with our priced physical inventory, as well as, in certain instances, forecasted purchases of propane or fuel oil. In addition, we sell propane and fuel oil to customers at fixed prices, and enter into derivative instruments to hedge a portion of our exposure to fluctuations in commodity prices as a result of selling the fixed price contracts. At expiration, the derivative contracts are settled by the delivery of the product to the respective party or are settled by the payment to the respective party of a net amount equal to the difference between the then market price and the fixed contract price or option exercise price. Under this risk management strategy, realized gains or losses on futures or options contracts, which are reported in cost of products sold, will typically offset losses or gains on the physical inventory once the product is sold or delivered as it pertains to fixed price contracts (which may or may not occur in the same accounting period). We do not use futures or options contracts, or other derivative instruments, for speculative trading purposes. Unrealized non-cash gains or losses from changes in the fair value of derivative instruments that are not designated as cash flow hedges are recorded within cost of products sold. Cost of products sold excludes depreciation and amortization; these amounts are reported separately within the condensed consolidated statements of operations.
From a commodity perspective, wholesale propane prices trended lower than the prior year coming into the second quarter of fiscal 2024. During the second quarter, wholesale propane prices continued to trend lower than the prior year during January 2024, and then rose modestly for the remainder of the second quarter. Overall, average posted propane prices (basis Mont Belvieu, Texas) and fuel oil prices were 2.8% higher and 7.6% lower than the prior year second quarter, respectively. The net change in the fair value of derivative instruments resulted in a $5.9 million unrealized non-cash gain in the second quarter of fiscal 2024, compared to a $4.5 million unrealized non-cash loss in the prior year second quarter, resulting in a net decrease of $10.4 million in cost of products sold year-over-year, all of which was reported within the propane segment. These unrealized mark-to-market adjustments are excluded from Adjusted EBITDA for both periods.
Cost of products sold associated with the distribution of propane and related activities of $161.2 million decreased $33.7 million, or 17.3%, compared to the prior year second quarter. Lower average wholesale costs contributed to a decrease in cost of products sold of $14.1 million, while lower volumes sold contributed a $4.8 million decrease. Included within the propane segment are costs from other propane activities, which decreased $4.4 million compared to the prior year due to a decrease in costs for hedging contracts used in risk management activities that were settled physically, as well as the net decrease of $10.4 million resulting from the mark-to-market adjustments on derivative instruments in both periods discussed above.
Cost of products sold associated with our fuel oil and refined fuels segment of $20.5 million decreased $5.6 million, or 21.4%, compared to the prior year second quarter. Lower average wholesale costs and lower volumes sold contributed to decreases of $3.1 million and $2.5 million, respectively.
Cost of products sold in our natural gas and electricity segment of $4.8 million decreased $2.4 million, or 33.8%, compared to the prior year primarily due to lower average wholesale costs, and to a lesser extent, lower usage.
Operating Expenses
(Dollars in thousands) |
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
March 30, |
|
|
March 25, |
|
|
|
|
|
Percent |
|
||||
|
|
2024 |
|
|
2023 |
|
|
Increase |
|
|
Increase |
|
||||
Operating expenses |
|
$ |
128,311 |
|
|
$ |
127,450 |
|
|
$ |
861 |
|
|
|
0.7 |
% |
As a percent of total revenues |
|
|
25.8 |
% |
|
|
24.2 |
% |
|
|
|
|
|
|
||
All costs of operating our retail distribution and appliance sales and service operations, as well as the RNG production facilities, are reported within operating expenses in the condensed consolidated statements of operations. These operating expenses include the compensation and benefits of field and direct operating support personnel, costs of operating and maintaining our vehicle fleet, overhead and other costs of our purchasing, training and safety departments and other direct and indirect costs of operating our customer service centers and RNG production facilities.
30
Operating expenses of $128.3 million for the second quarter of fiscal 2024 increased $0.9 million, or 0.7%, compared to the prior year second quarter, primarily due to higher payroll and benefit-related costs, as well as other inflationary effects on our operating costs, substantially offset by lower vehicle fuel costs and other volume-related variable operating costs.
General and Administrative Expenses
(Dollars in thousands) |
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
March 30, |
|
|
March 25, |
|
|
|
|
|
Percent |
|
||||
|
|
2024 |
|
|
2023 |
|
|
Increase |
|
|
Increase |
|
||||
General and administrative expenses |
|
$ |
26,071 |
|
|
$ |
25,700 |
|
|
$ |
371 |
|
|
|
1.4 |
% |
As a percent of total revenues |
|
|
5.2 |
% |
|
|
4.9 |
% |
|
|
|
|
|
|
||
All costs of our back office support functions, including compensation and benefits for executives and other support functions, as well as other costs and expenses to maintain finance and accounting, treasury, legal, human resources, corporate development and the information systems functions are reported within general and administrative expenses in the condensed consolidated statements of operations.
General and administrative expenses of $26.1 million for the second quarter of fiscal 2024 increased $0.4 million, or 1.4%, compared to the prior year second quarter, primarily due to higher payroll and benefit-related costs and other inflationary factors. Included in the prior year second quarter were $3.4 million in professional fees and expenses associated with our RNG Acquisition.
Depreciation and Amortization
(Dollars in thousands) |
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
March 30, |
|
|
March 25, |
|
|
|
|
|
Percent |
|
||||
|
|
2024 |
|
|
2023 |
|
|
Increase |
|
|
Increase |
|
||||
Depreciation and amortization |
|
$ |
16,725 |
|
|
$ |
16,064 |
|
|
$ |
661 |
|
|
|
4.1 |
% |
As a percent of total revenues |
|
|
3.4 |
% |
|
|
3.1 |
% |
|
|
|
|
|
|
||
Depreciation and amortization expense of $16.7 million for the second quarter of fiscal 2024 increased $0.7 million, or 4.1%, compared to the prior year second quarter, primarily as a result of accelerated depreciation for assets taken out of service coupled with additional investments made in our RNG production facilities.
Interest Expense, net
(Dollars in thousands) |
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
March 30, |
|
|
March 25, |
|
|
|
|
|
Percent |
|
||||
|
|
2024 |
|
|
2023 |
|
|
Increase |
|
|
Increase |
|
||||
Interest expense, net |
|
$ |
19,919 |
|
|
$ |
19,871 |
|
|
$ |
48 |
|
|
|
0.2 |
% |
As a percent of total revenues |
|
|
4.0 |
% |
|
|
3.8 |
% |
|
|
|
|
|
|
||
Net interest expense of $19.9 million for the second quarter of fiscal 2024 was essentially flat to the prior year second quarter. Lower average outstanding borrowings under our Revolving Credit Facility were offset by higher benchmark interest rates for borrowings under that facility. See Liquidity and Capital Resources below for additional discussion.
Loss on Debt Extinguishment
In connection with the refinancing of our previous revolving credit facility during the second quarter of fiscal 2024, we recognized a non-cash charge of $0.2 million to write-off a portion of unamortized debt origination costs.
EBITDA and Adjusted EBITDA
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 other items, as applicable, as provided in the table below. Our management uses EBITDA and Adjusted EBITDA as supplemental measures of operating performance and we are including them because we believe that they provide our investors and industry analysts with additional information that we determined is useful to evaluate our operating results. EBITDA and Adjusted EBITDA are not recognized terms under US GAAP and should not be considered as an alternative to net income or net cash provided by operating activities
31
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 our calculations of EBITDA and Adjusted EBITDA:
(Dollars in thousands) |
|
Three Months Ended |
|
|||||
|
|
March 30, |
|
|
March 25, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Net income |
|
$ |
111,500 |
|
|
$ |
104,477 |
|
Add: |
|
|
|
|
|
|
||
Provision for income taxes |
|
|
32 |
|
|
|
225 |
|
Interest expense, net |
|
|
19,919 |
|
|
|
19,871 |
|
Depreciation and amortization |
|
|
16,725 |
|
|
|
16,064 |
|
EBITDA |
|
|
148,176 |
|
|
|
140,637 |
|
Unrealized non-cash (gains) losses on changes in fair value of derivatives |
|
|
(5,868 |
) |
|
|
4,501 |
|
Equity in losses of unconsolidated affiliates |
|
|
4,499 |
|
|
|
413 |
|
Loss on debt extinguishment |
|
|
215 |
|
|
|
— |
|
Acquisition-related costs |
|
|
— |
|
|
|
3,406 |
|
Adjusted EBITDA |
|
$ |
147,022 |
|
|
$ |
148,957 |
|
We also reference gross margins, computed as revenues less cost of products sold as those amounts are reported on the condensed consolidated financial statements. Our management uses gross margin as a supplemental measure of operating performance and we are including it as we believe that it provides our investors and industry analysts with additional information that we determined is useful to evaluate our operating results. As cost of products sold does not include depreciation and amortization expense, the gross margin we reference is considered a non-GAAP financial measure.
Six Months Ended March 30, 2024 Compared to Six Months Ended March 25, 2023
Revenues
(Dollars and gallons in thousands) |
|
Six Months Ended |
|
|
|
|
|
Percent |
|
|||||||
|
|
March 30, |
|
|
March 25, |
|
|
Increase |
|
|
Increase |
|
||||
|
|
2024 |
|
|
2023 |
|
|
(Decrease) |
|
|
(Decrease) |
|
||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Propane |
|
$ |
750,922 |
|
|
$ |
799,493 |
|
|
$ |
(48,571 |
) |
|
|
(6.1 |
)% |
Fuel oil and refined fuels |
|
|
55,493 |
|
|
|
68,267 |
|
|
|
(12,774 |
) |
|
|
(18.7 |
)% |
Natural gas and electricity |
|
|
15,206 |
|
|
|
20,546 |
|
|
|
(5,340 |
) |
|
|
(26.0 |
)% |
All other |
|
|
42,300 |
|
|
|
35,665 |
|
|
|
6,635 |
|
|
|
18.6 |
% |
Total revenues |
|
$ |
863,921 |
|
|
$ |
923,971 |
|
|
$ |
(60,050 |
) |
|
|
(6.5 |
)% |
Retail gallons sold |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Propane |
|
|
246,788 |
|
|
|
252,913 |
|
|
|
(6,125 |
) |
|
|
(2.4 |
)% |
Fuel oil and refined fuels |
|
|
12,248 |
|
|
|
13,305 |
|
|
|
(1,057 |
) |
|
|
(7.9 |
)% |
Average temperatures (as measured in heating degree days) across all of our service territories for the first six months of fiscal 2024 were 9% warmer than normal and 1% warmer than the prior year first half. The fiscal 2024 heating season was characterized by an inconsistent weather pattern and unseasonably warm temperatures throughout much of our service territories, particularly during the most critical months for heat-related demand, with only a brief burst of cooler weather in mid-January. For the critical heating month of December, average temperatures were 10% warmer than normal and prior year, while for the critical month of February, average temperatures were 12% warmer than normal and 1% warmer than the prior year. Average temperatures for the month of January were 4% warmer than normal and 17% cooler than the prior year, but the increase in heating degree days compared to the prior year were influenced by extreme cold temperatures for a two-week period mid-month. The unseasonably warm and inconsistent weather pattern during the first half of fiscal 2024 adversely impacted heat-related demand.
Revenues from the distribution of propane and related activities of $750.9 million decreased $48.6 million, or 6.1%, compared to the prior year first half, primarily due to lower average selling prices and lower volumes sold. Average propane selling prices decreased 4.0% compared to the prior year period, reflecting lower average wholesale costs, resulting in a $30.7 million decrease in revenues. Retail propane gallons sold decreased 6.1 million gallons, or 2.4%, compared to the prior year, resulting in a $19.2 million decrease in revenues. Included within the propane segment are revenues from other propane activities, which increased $1.3 million primarily due to a higher notional amount of hedging contracts used in risk management activities that were settled physically.
32
Revenues from the distribution of fuel oil and refined fuels of $55.5 million decreased $12.8 million, or 18.7%, compared to the prior year first half, primarily due to lower average selling prices, coupled with lower volumes sold. Average selling prices for fuel oil and refined fuels decreased 12.5%, resulting in a $7.4 million decrease in revenues. Fuel oil and refined fuels volumes sold decreased 1.1 million gallons, or 7.9%, resulting in a $5.4 million decrease in revenues.
Revenues in our natural gas and electricity segment of $15.2 million were $5.3 million, or 26.0%, lower than the prior year first half, resulting from lower selling prices, lower volumes sold (primarily due to the impact of warmer temperatures on customer demand) and a lower customer base.
Revenues in our all other segment of $42.3 million were $6.6 million, or 18.6%, higher than the prior year first half, primarily due to the impact of the RNG Acquisition, which closed at the beginning of our fiscal 2023 second quarter. Revenue from the RNG production assets primarily consist of sales of RNG and the associated environmental attributes, and tipping fees charged to third parties for various waste feedstocks.
Cost of Products Sold
(Dollars in thousands) |
|
Six Months Ended |
|
|
|
|
|
Percent |
|
|||||||
|
|
March 30, |
|
|
March 25, |
|
|
Increase |
|
|
Increase |
|
||||
|
|
2024 |
|
|
2023 |
|
|
(Decrease) |
|
|
(Decrease) |
|
||||
Cost of products sold |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Propane |
|
$ |
288,962 |
|
|
$ |
344,694 |
|
|
$ |
(55,732 |
) |
|
|
(16.2 |
)% |
Fuel oil and refined fuels |
|
|
37,185 |
|
|
|
48,403 |
|
|
|
(11,218 |
) |
|
|
(23.2 |
)% |
Natural gas and electricity |
|
|
8,278 |
|
|
|
13,127 |
|
|
|
(4,849 |
) |
|
|
(36.9 |
)% |
All other |
|
|
8,748 |
|
|
|
8,037 |
|
|
|
711 |
|
|
|
8.8 |
% |
Total cost of products sold |
|
$ |
343,173 |
|
|
$ |
414,261 |
|
|
$ |
(71,088 |
) |
|
|
(17.2 |
)% |
As a percent of total revenues |
|
|
39.7 |
% |
|
|
44.8 |
% |
|
|
|
|
|
|
||
In the commodities markets, average posted propane prices (basis Mont Belvieu, Texas) and fuel oil prices were 6.9% and 14.3% lower than the prior year first half, respectively. The net change in the fair value of derivative instruments resulted in unrealized non-cash losses of $4.9 million and $18.2 million in the first six months of fiscal 2024 and 2023, respectively, resulting in a decrease of $13.3 million in cost of products sold year-over-year, all of which was reported within the propane segment. These unrealized mark-to-market adjustments are excluded from Adjusted EBITDA for both periods.
Cost of products sold associated with the distribution of propane and related activities of $289.0 million decreased $55.7 million, or 16.2%, compared to the prior year first half. Lower average wholesale costs contributed to a $32.4 million decrease in cost of products sold, and lower volumes sold contributed to a $7.6 million decrease. Included within the propane segment are costs from other propane activities which decreased $2.4 million compared to the prior year due to a decrease in propane costs for the physical settlement of hedging agreements, coupled with the net decrease in cost of products sold of $13.3 million resulting from the mark-to-market adjustments on derivative instruments in both periods discussed above.
Cost of products sold associated with our fuel oil and refined fuels segment of $37.2 million decreased $11.2 million, or 23.2%, compared to the prior year first half. Lower average wholesale costs and lower volumes sold contributed to decreases in cost of products sold of $7.4 million and $3.8 million, respectively.
Cost of products sold in our natural gas and electricity segment of $8.3 million decreased $4.8 million, or 36.9%, compared to the prior year, due to lower average wholesale costs, as well as lower usage from warmer weather.
Operating Expenses
(Dollars in thousands) |
|
Six Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
March 30, |
|
|
March 25, |
|
|
|
|
|
Percent |
|
||||
|
|
2024 |
|
|
2023 |
|
|
Increase |
|
|
Increase |
|
||||
Operating expenses |
|
$ |
250,381 |
|
|
$ |
243,161 |
|
|
$ |
7,220 |
|
|
|
3.0 |
% |
As a percent of total revenues |
|
|
29.0 |
% |
|
|
26.3 |
% |
|
|
|
|
|
|
||
Operating expenses of $250.4 million for the first half of fiscal 2024 increased $7.2 million, or 3.0%, compared to the prior year first half, primarily due to higher payroll and benefit-related costs, as well as the operating costs associated with our RNG production facilities and other inflationary effects on our operating costs, offset to an extent by lower volume-related variable operating costs.
33
General and Administrative Expenses
(Dollars in thousands) |
|
Six Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
March 30, |
|
|
March 25, |
|
|
|
|
|
Percent |
|
||||
|
|
2024 |
|
|
2023 |
|
|
Increase |
|
|
Increase |
|
||||
General and administrative expenses |
|
$ |
51,641 |
|
|
$ |
48,712 |
|
|
$ |
2,929 |
|
|
|
6.0 |
% |
As a percent of total revenues |
|
|
6.0 |
% |
|
|
5.3 |
% |
|
|
|
|
|
|
||
General and administrative expenses of $51.6 million for the first half of fiscal 2024 increased $2.9 million, or 6.0%, compared to the prior year period, primarily due to increases in payroll and benefit-related costs and other inflationary increases. Included in the prior year were $3.4 million in professional fees and expenses related to our RNG Acquisition.
Depreciation and Amortization
(Dollars in thousands) |
|
Six Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
March 30, |
|
|
March 25, |
|
|
|
|
|
Percent |
|
||||
|
|
2024 |
|
|
2023 |
|
|
Increase |
|
|
Increase |
|
||||
Depreciation and amortization |
|
$ |
33,118 |
|
|
$ |
29,843 |
|
|
$ |
3,275 |
|
|
|
11.0 |
% |
As a percent of total revenues |
|
|
3.8 |
% |
|
|
3.2 |
% |
|
|
|
|
|
|
||
Depreciation and amortization expense of $33.1 million in the first half of fiscal 2024 increased $3.3 million, or 11.0%, primarily from the impact of our RNG Acquisition at the beginning of our second quarter of the prior year period.
Interest Expense, net
(Dollars in thousands) |
|
Six Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
March 30, |
|
|
March 25, |
|
|
|
|
|
Percent |
|
||||
|
|
2024 |
|
|
2023 |
|
|
Increase |
|
|
Increase |
|
||||
Interest expense, net |
|
$ |
38,111 |
|
|
$ |
35,865 |
|
|
$ |
2,246 |
|
|
|
6.3 |
% |
As a percent of total revenues |
|
|
4.4 |
% |
|
|
3.9 |
% |
|
|
|
|
|
|
||
Net interest expense of $38.1 million in the first half of fiscal 2024 increased $2.2 million compared to the prior year first half, primarily due to the impact of higher benchmark interest rates for borrowings under our Revolving Credit Facility and a higher average level of outstanding borrowings under that facility to fund the RNG Acquisition, as well as the impact of $80.6 million in Green Bonds assumed in the RNG Acquisition. See Liquidity and Capital Resources below for additional discussion.
Loss on Debt Extinguishment
In connection with the refinancing of our previous revolving credit facility during the second quarter of fiscal 2024, we recognized a non-cash charge of $0.2 million to write-off a portion of unamortized debt origination costs.
EBITDA and Adjusted EBITDA
The following table sets forth our calculations of EBITDA and Adjusted EBITDA:
(Dollars in thousands) |
|
Six Months Ended |
|
|||||
|
|
March 30, |
|
|
March 25, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Net income |
|
$ |
135,954 |
|
|
$ |
149,871 |
|
Add: |
|
|
|
|
|
|
||
Provision for income taxes |
|
|
281 |
|
|
|
177 |
|
Interest expense, net |
|
|
38,111 |
|
|
|
35,865 |
|
Depreciation and amortization |
|
|
33,118 |
|
|
|
29,843 |
|
EBITDA |
|
|
207,464 |
|
|
|
215,756 |
|
Unrealized non-cash losses on changes in fair value of derivatives |
|
|
4,918 |
|
|
|
18,207 |
|
Equity in losses of unconsolidated affiliates |
|
|
9,657 |
|
|
|
695 |
|
Loss on debt extinguishment |
|
|
215 |
|
|
|
— |
|
Acquisition-related costs |
|
|
— |
|
|
|
4,341 |
|
Adjusted EBITDA |
|
$ |
222,254 |
|
|
$ |
238,999 |
|
34
We also reference gross margins, computed as revenues less cost of products sold as those amounts are reported on the condensed consolidated financial statements. Our management uses gross margin as a supplemental measure of operating performance and we are including it as we believe that it provides our investors and industry analysts with additional information that we determined is useful to evaluate our operating results. As cost of products sold does not include depreciation and amortization expense, the gross margin we reference is considered a non-GAAP financial measure.
Liquidity and Capital Resources
Analysis of Cash Flows
Operating Activities. Net cash provided by operating activities for the first half of fiscal 2024 was $62.4 million compared to $105.4 million in the first half of the prior year. The change was primarily due to lower operating income, and an increase in working capital, which stemmed from a smaller decline in the wholesale cost of propane compared to the sharp decline in the prior year period.
Investing Activities. Net cash used in investing activities of $30.7 million for the first six months of fiscal 2024 consisted of capital expenditures of $25.7 million (including approximately $15.0 million to support the growth of operations and $10.7 million for maintenance expenditures), $6.0 million used to fund an additional investment in a privately held start-up entity and additional investments in Oberon, partially offset by $1.0 million in proceeds from the sale of property, plant and equipment. See Item 1, Note 4 of this Quarterly Report.
Net cash used in investing activities of $137.5 million for the first half of fiscal 2023 consisted of the RNG Acquisition (net of cash acquired) of $108.8 million, capital expenditures of $24.0 million (including approximately $12.3 million to support the growth of operations and $11.7 million for maintenance expenditures), a $3.0 million investment in a privately held start-up entity (plus direct transactions costs) and additional investments in Oberon, partially offset by approximately $1.5 million in proceeds from the sale of property, plant and equipment.
Financing Activities. Net cash used in financing activities of $26.5 million for the first half of fiscal 2024 reflected $22.5 million in net borrowings under our Revolving Credit Facility, which were used to fund a portion of our seasonal working capital needs and the capital expenditures and investments noted above, $41.5 million paid for the quarterly distributions to Common Unitholders at a rate of $0.325 per Common Unit paid in respect of the fourth quarter of fiscal 2023 and first quarter of fiscal 2024, $3.5 million in debt origination costs related to the refinancing of our Credit Agreement in March 2024 and other financing activities of $4.0 million.
Net cash provided by financing activities of $46.0 million for the first six months of fiscal 2023 reflected $90.9 million in net borrowings under our Revolving Credit Facility, which were used to fund the acquisition and investments noted above, and $41.1 million paid for the quarterly distributions to Common Unitholders at a rate of $0.325 per Common Unit paid in respect of the fourth quarter of fiscal 2022 and first quarter of fiscal 2023 and other financing activities of $3.8 million.
Summary of Long-Term Debt Obligations and Revolving Credit Facility
As of March 30, 2024, our long-term debt consisted of $350.0 million in aggregate principal amount of 5.875% Senior Notes due March 1, 2027, $650.0 million in aggregate principal amount of 5.0% Senior Notes due June 1, 2031, $80.6 million in aggregate principal amount of 5.5% Green Bonds due October 1, 2028 through October 1, 2033 and $154.5 million outstanding under our Revolving Credit Facility provided by our Credit Agreement. Total long-term borrowings as of March 30, 2024 and March 25, 2023 was $1,235.1 million and $1,261.1, million, respectively. See Item 1, Note 10 of this Quarterly Report.
The aggregate amounts of long-term debt maturities subsequent to March 30, 2024 are as follows: fiscal 2024: $-0-; fiscal 2025: $-0-; fiscal 2026: $-0-; fiscal 2027: $504.5 million; fiscal 2028: $-0-; and thereafter: $730.6 million.
35
Total Consolidated Leverage Ratio. Total Consolidated Leverage Ratio, as defined by our Credit Agreement, represents total indebtedness as of the balance sheet date minus unrestricted cash and cash equivalents in an amount not to exceed $25.0 million, divided by Adjusted EBITDA calculated on a trailing twelve-month basis plus non-cash compensation costs recognized under our Restricted Unit Plans for the same period and other items. The measurement of the Total Consolidated Leverage Ratio for the trailing twelve-month periods ended March 30, 2024 and September 30, 2023 was as follows:
(Dollars in thousands) |
|
Twelve Months Ended |
|
|||||
|
|
March 30, |
|
|
September 30, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Total debt |
|
$ |
1,235,145 |
|
|
$ |
1,212,645 |
|
Less: cash and cash equivalents (1) |
|
|
(4,420 |
) |
|
|
|
|
Total debt, less cash and cash equivalents |
|
$ |
1,230,725 |
|
|
|
|
|
|
|
|
|
|
|
|
||
Adjusted EBITDA |
|
$ |
258,280 |
|
|
$ |
275,025 |
|
Compensation costs recognized under Restricted Unit Plans |
|
|
8,463 |
|
|
|
8,260 |
|
Other |
|
|
— |
|
|
|
168 |
|
Adjusted EBITDA for use in calculation |
|
$ |
266,743 |
|
|
$ |
283,453 |
|
|
|
|
|
|
|
|
||
Total Consolidated Leverage Ratio |
|
4.61 x |
|
|
4.28 x |
|
||
Partnership Distributions
We are required to make distributions in an amount equal to all of our Available Cash, as defined in our Third Amended and Restated Partnership Agreement, as amended (the “Partnership Agreement”), no more than 45 days after the end of each fiscal quarter to holders of record on the applicable record dates. Available Cash, as defined in the Partnership Agreement, generally means all cash on hand at the end of the respective fiscal quarter less the amount of cash reserves established by the Board of Supervisors in its reasonable discretion for future cash requirements. These reserves are retained for the proper conduct of our business, the payment of debt principal and interest and for distributions during the next four quarters. The Board of Supervisors reviews the level of Available Cash on a quarterly basis based upon information provided by management.
On April 25, 2024, we announced a quarterly distribution of $0.325 per Common Unit, or $1.30 on an annualized basis, in respect of the second quarter of fiscal 2024, payable on May 14, 2024 to holders of record on May 7, 2024.
Other Commitments
We have a noncontributory, cash balance format, defined benefit pension plan which was frozen to new participants effective January 1, 2000. Effective January 1, 2003, the defined benefit pension plan was amended such that future service credits ceased and eligible employees would receive interest credits only toward their ultimate retirement benefit. We also provide postretirement health care and life insurance benefits for certain retired employees under a plan that was frozen to new participants effective March 31, 1998. At March 30, 2024, we had a liability for the defined benefit pension plan and accrued retiree health and life benefits of $17.0 million and $4.5 million, respectively.
We are self-insured for general and product, workers’ compensation and automobile liabilities up to predetermined thresholds above which third party insurance applies. At March 30, 2024, we had accrued insurance liabilities of $60.3 million, and a receivable of $16.2 million related to the amount of the liability expected to be covered by insurance.
Legal Matters
We are currently evaluating the impact of recently adopted changes to the New York General Business Law, as well as proposed changes to the New York Public Service Commission’s Uniform Business Practices, on our natural gas and electricity business operated through our 100%-owned subsidiary, Agway Energy Services, LLC (“AES”), and we are in the process of reviewing strategic alternatives for the AES business. See Item 1, Note 13, “Commitments and Contingencies,” Legal Matters subsection of this Quarterly Report.
36
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Price Risk
We enter into product supply contracts that are generally one-year agreements subject to annual renewal, and also purchase product on the open market. Our propane supply contracts typically provide for pricing based upon index formulas using the posted prices established at major supply points such as Mont Belvieu, Texas, or Conway, Kansas (plus transportation costs) at the time of delivery. In addition, to supplement our annual purchase requirements, we may utilize forward fixed price purchase contracts to acquire a portion of the propane that we resell to our customers, which allows us to manage our exposure to unfavorable changes in commodity prices and to ensure adequate physical supply. The percentage of contract purchases, and the amount of supply contracted for under forward contracts at fixed prices, will vary from year to year based on market conditions. In certain instances, and when market conditions are favorable, we are able to purchase product under our supply arrangements at a discount to the market.
Product cost changes can occur rapidly over a short period of time and can impact profitability. We attempt to reduce commodity price risk by pricing product on a short-term basis. The level of priced, physical product maintained in storage facilities and at our customer service centers for immediate sale to our customers will vary depending on several factors, including, but not limited to, price, supply and demand dynamics for a given time of the year. Typically, our on hand priced position does not exceed more than four to eight weeks of our supply needs, depending on the time of the year. In the course of normal operations, we routinely enter into contracts such as forward priced physical contracts for the purchase or sale of propane and fuel oil that, under accounting rules for derivative instruments and hedging activities, qualify for and are designated as normal purchase or normal sale contracts. Such contracts are exempted from fair value accounting and are accounted for at the time product is purchased or sold under the related contract.
Under our hedging and risk management strategies, we enter into a combination of exchange-traded futures and options contracts and, in certain instances, over-the-counter options and swap contracts (collectively, “derivative instruments”) to manage the price risk associated with physical product and with future purchases of the commodities used in our operations, principally propane and fuel oil, as well as to help ensure the availability of product during periods of high demand. In addition, we sell propane and fuel oil to customers at fixed prices, and enter into derivative instruments to hedge a portion of our exposure to fluctuations in commodity prices as a result of selling the fixed price contracts. We do not use derivative instruments for speculative or trading purposes. Futures and swap contracts require that we sell or acquire propane or fuel oil at a fixed price for delivery at fixed future dates. An option contract allows, but does not require, its holder to buy or sell propane or fuel oil at a specified price during a specified time period. However, the writer of an option contract must fulfill the obligation of the option contract, should the holder choose to exercise the option. At expiration, the contracts are settled by the delivery of the product to the respective party or are settled by the payment of a net amount equal to the difference between the then market price and the fixed contract price or option exercise price. To the extent that we utilize derivative instruments to manage exposure to commodity price risk and commodity prices move adversely in relation to the contracts, we could suffer losses on those derivative instruments when settled. Conversely, if prices move favorably, we could realize gains. Under our hedging and 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 to customers at market prices, or delivered to customers as it pertains to fixed price contracts.
Futures are traded with brokers of the NYMEX and require daily cash settlements in margin accounts. Forward contracts are generally settled at the expiration of the contract term by physical delivery, and swap and options contracts are generally settled at expiration through a net settlement mechanism. Market risks associated with our derivative instruments are monitored daily for compliance with our Hedging and Risk Management Policy which includes volume limits for open positions. Open inventory positions are reviewed and managed daily as to exposures to changing market prices.
Credit Risk
Exchange-traded futures and options contracts are guaranteed by the NYMEX and, as a result, have minimal credit risk. We are subject to credit risk with over-the-counter forward, swap and options contracts to the extent the counterparties do not perform. We evaluate the financial condition of each counterparty with which we conduct business and establish credit limits to reduce exposure to the risk of non-performance by our counterparties.
Interest Rate Risk
A portion of our borrowings bear interest at prevailing interest rates based upon, at the Operating Partnership’s option, SOFR, 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 SOFR plus 1%, plus the applicable margin. The applicable margin is dependent on the level of our total consolidated leverage (the total ratio of debt to consolidated EBITDA). Therefore, we are subject to interest rate risk on the variable component of the interest rate. From time to time, we enter into interest rate swap agreements to manage a part of our variable interest rate risk. The interest rate swaps are designated as cash flow hedges. Changes in the fair value of the interest rate swaps are recognized in other comprehensive income (“OCI”) until the hedged item is recognized in earnings. At March 30, 2024, we were not party to an interest rate swap agreement.
37
Derivative Instruments and Hedging Activities
All of our derivative instruments are reported on the balance sheet at their fair values. On the date that derivative instruments are entered into, we make 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 OCI, depending on whether a derivative instrument is designated as a hedge and, if so, the type of hedge. For derivative instruments designated as cash flow hedges, we formally assess, 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 immediately recognized in earnings. 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 in earnings as they occur. Cash flows associated with derivative instruments are reported as operating activities within the condensed consolidated statement of cash flows.
Sensitivity Analysis
In an effort to estimate our exposure to unfavorable market price changes in commodities related to our open positions under derivative instruments, we developed a model that incorporates the following data and assumptions:
Based on the sensitivity analysis described above, the hypothetical 10% adverse change in market prices for open derivative instruments as of March 30, 2024 indicates a decrease in potential future net gains of $6.5 million. See also Item 7A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2023. The above hypothetical change does not reflect the worst case scenario. Actual results may be significantly different depending on market conditions and the composition of the open position portfolio.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Partnership maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to provide reasonable assurance that information required to be disclosed in the Partnership’s filings and submissions under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to the Partnership’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
The Partnership completed an evaluation under the supervision and with participation of the Partnership’s management, including the Partnership’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Partnership’s disclosure controls and procedures as of March 30, 2024. Based on this evaluation, the Partnership’s principal executive officer and principal financial officer have concluded that, as of March 30, 2024, such disclosure controls and procedures were effective to provide the reasonable assurance described above.
Changes in Internal Control Over Financial Reporting
There have not been any changes in the Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended March 30, 2024 that have materially affected or are reasonably likely to materially affect its internal control over financial reporting.
38
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Item 1A. “Risk Factors” in the Partnership’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
During the fiscal quarter ended March 30, 2024, our supervisors and executive officers (as defined in Rule 16a-1 under the Securities Exchange Act of 1934, as amended), did not
39
ITEM 6. EXHIBITS
INDEX TO EXHIBITS
The exhibits listed on this Exhibit Index are filed as part of this Quarterly Report. Exhibits required to be filed by Item 601 of Regulation S-K, which are not listed below, are not applicable.
Exhibit Number |
|
Description |
|
|
|
|
|
|
10.1 |
|
|
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32.1 |
|
|
|
|
|
32.2 |
|
|
|
|
|
101.INS |
|
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbases Document |
|
|
|
104 |
|
Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
40
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 thereunto duly authorized.
|
SUBURBAN PROPANE PARTNERS, L.P. |
||
|
|
|
|
May 9, 2024 |
By: |
|
/s/ MICHAEL A. KUGLIN |
Date |
|
|
Michael A. Kuglin |
|
|
|
Chief Financial Officer |
|
|
|
|
May 9, 2024 |
By: |
|
/s/ DANIEL S. BLOOMSTEIN |
Date |
|
|
Daniel S. Bloomstein |
|
|
|
Vice President, Controller and Chief Accounting Officer |
41