Suburban Propane Partners, L.P.
2007 Annual Report
Partnership Profile
Suburban Propane Partners, L.P. (NYSE: SPH) has been in the customer service
business since 1928. A Master Limited Partnership since 1996, Suburban is a value
and growth-oriented company managed for long-term, consistent performance.
Headquartered in Whippany, New Jersey, Suburban is a nationwide marketer and
distributor of a diverse array of products to meet the energy needs of our customers,
specializing in propane, fuel oil and refined fuels, as well as the marketing of natural
gas and electricity in deregulated markets. With more than 3,100 employees and
approximately 300 locations, Suburban maintains business operations in 30 states,
providing prompt, reliable service to approximately 1,000,000 residential, commercial,
industrial and agricultural customers.
During fiscal 2007, Suburban had retail propane sales of 432.5 million gallons which,
based on industry statistics, constitutes about 4% of the total domestic retail market.
In addition, Suburban had sales of fuel oil and other refined fuels of 104.5 million
gallons in fiscal 2007. According to Department of Energy statistics, of the 107 million
households in the United States, 9.4 million depend on propane for various uses and
8.5 million use fuel oil as their main heating fuel. Propane is a derivative of natural gas
processing and petroleum refining. It is clean burning, abundant and available through
an infrastructure of rail, barge, pipeline and truck transportation. Propane is stored in
caverns, terminals and bulk storage plants before it is delivered to end users.
Approximately 90% of the propane used in the United States is produced
domestically. Fuel oil comes from domestic wells and refineries in addition to imports
from foreign countries. Approximately 85% of the fuel oil consumed in the United
States is refined domestically as part of the “distillate fuel oil” product family, which
includes fuel oil and diesel fuel. Fuel oil is transported via barge, pipeline and truck
transportation through terminals and bulk storage plants before being delivered to
end users.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended September 29, 2007
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number: 1-14222
SUBURBAN PROPANE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
22-3410353
(I.R.S. Employer
Identification No.)
240 Route 10 West
Whippany, NJ 07981
(973) 887-5300
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Units
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [X] No [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act.
Yes [ ] No [X]
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ]
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [ ] No [X]
The aggregate market value as of March 30, 2007 of the registrant’s Common Units held by non-affiliates of the registrant, based on the reported
closing price of such units on the New York Stock Exchange on such date ($44.00 per unit), was approximately $1,437,667,000.
Documents Incorporated by Reference: None
Total number of pages (excluding Exhibits): 142
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
INDEX TO ANNUAL REPORT ON FORM 10-K
PART I
Page
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
BUSINESS......................................................................................................................
1
RISK FACTORS............................................................................................................. 11
UNRESOLVED STAFF COMMENTS........................................................................... 19
PROPERTIES.................................................................................................................. 20
LEGAL PROCEEDINGS................................................................................................ 20
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................... 20
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
MARKET FOR THE REGISTRANT’S COMMON UNITS, RELATED
UNITHOLDER MATTERS AND ISSUER PURCHASES OF UNITS......................... 21
SELECTED FINANCIAL DATA................................................................................... 22
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................................................
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK..................................................................................…..................….. 48
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...........................…. 51
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE….......................................…...… 55
CONTROLS AND PROCEDURES................................................................................ 55
OTHER INFORMATION............................................................................................... 56
26
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
DIRECTORS, EXECUTIVE OFFICERS AND PARTNERSHIP GOVERNANCE......... 57
EXECUTIVE COMPENSATION............................................................…................... 62
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED UNITHOLDER MATTERS........................ 90
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE.. .................................................................................... 93
PRINCIPAL ACCOUNTING FEES AND SERVICES.............................................…. 96
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES............................................... 97
SIGNATURES............................................................…........................................................................... 98
PART IV
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements (“Forward-Looking Statements”) as
defined in the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as
amended, relating to future business expectations and predictions and financial condition and results of
operations of Suburban Propane Partners, L.P. (the “Partnership”). Some of these statements can be identified by
the use of forward-looking terminology such as “prospects,” “outlook,” “believes,” “estimates,” “intends,”
“may,” “will,” “should,” “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 Annual Report
identifying such risks and uncertainties are referred to as “Cautionary Statements”). The risks and uncertainties
and their impact on the Partnership’s results include, but are not limited to, the following risks:
• The impact of weather conditions on the demand for propane, fuel oil and other refined fuels, natural gas and
electricity;
• Fluctuations in the unit cost of propane, fuel oil and other refined fuels and natural gas, and the impact of
price increases on customer conservation;
• The ability of the Partnership to compete with other suppliers of propane, fuel oil and other energy sources;
• The impact on the price and supply of propane, fuel oil and other refined fuels from the political, military or
economic instability of the oil producing nations, global terrorism and other general economic conditions;
• The ability of the Partnership to acquire and maintain reliable transportation for its propane, fuel oil and
other refined fuels;
• The ability of the Partnership to retain customers;
• The impact of energy efficiency and technology advances on the demand for propane and fuel oil;
• The ability of management to continue to control expenses;
• The impact of changes in applicable statutes and government regulations, or their interpretations, including
those relating to the environment and global warming and other regulatory developments on the Partnership’s
business;
• The impact of legal proceedings on the Partnership’s business;
• The impact of operating hazards that could adversely affect the Partnership’s operating results to the extent
not covered by insurance; and
• The Partnership’s ability to make strategic acquisitions and successfully integrate them.
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 Annual Report. On different occasions, the
Partnership or its representatives have made or may make Forward-Looking Statements in other filings with the
Securities and Exchange Commission (“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 Annual 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 this
Annual Report.
PART I
ITEM 1. BUSINESS
Development of Business
Suburban Propane Partners, L.P. (the “Partnership”), a publicly traded Delaware limited partnership, is a
nationwide marketer and distributor of a diverse array of products meeting the energy needs of our customers. We
specialize in the distribution of propane, fuel oil and refined fuels, as well as the marketing of natural gas and
electricity in deregulated markets. In support of our core marketing and distribution operations, we install and
service a variety of home comfort equipment, particularly in the areas of heating, ventilation and air conditioning
(“HVAC”). We believe, based on LP/Gas Magazine dated February 2007, that we are the fourth largest retail
marketer of propane in the United States, measured by retail gallons sold in the year 2006. As of September 29,
2007, we were serving the energy needs of approximately 1,000,000 active residential, commercial, industrial and
agricultural customers through approximately 300 locations in 30 states located primarily in the east and west coast
regions of the United States, including Alaska. We sold approximately 432.5 million gallons of propane to retail
customers and 104.5 million gallons of fuel oil and refined fuels during the year ended September 29, 2007.
Together with our predecessor companies, we have been continuously engaged in the retail propane business since
1928.
We conduct our business principally through Suburban Propane, L.P., a Delaware limited partnership, which
operates our propane business and assets (the “Operating Partnership”), and its direct and indirect subsidiaries.
Our general partner, and the general partner of our Operating Partnership, is Suburban Energy Services Group
LLC (the “General Partner”), a Delaware limited liability company. Since October 19, 2006, the General Partner
has had no economic interest in either the Partnership or the Operating Partnership other than as a holder of 784
Common Units of the Partnership. Prior to October 19, 2006, the General Partner was majority-owned by senior
management of the Partnership and owned an approximate combined 1.75% general partner interest in the
Partnership and the Operating Partnership.
On October 19, 2006, the Partnership, the Operating Partnership and the General Partner consummated an
Exchange Agreement by and among the parties dated July 27, 2006 (the “Exchange Agreement”), pursuant to
which the Partnership issued 2,300,000 Common Units to the General Partner in exchange for the cancellation of
the General Partner’s incentive distribution rights (“IDRs”), the economic interest in the Partnership included in
the general partner interest therein and the economic interest in the Operating Partnership included in the general
partner interest therein (the “GP Exchange Transaction”). Pursuant to a Distribution, Release and Lockup
Agreement dated July 27, 2006 by and among the Partnership, the Operating Partnership, the General Partner and
the then individual members of the General Partner (the “Distribution Agreement”), the Common Units received
by the General Partner (other than 784 Common Units that will remain in the General Partner) were distributed to
the then members of the General Partner in exchange for their interests in the General Partner.
In addition to the GP Exchange Transaction, the Partnership adopted the Third Amended and Restated
Agreement of Limited Partnership (the “Partnership Agreement”), which amended the Previous Partnership
Agreement to, among other things, effectuate the GP Exchange Transaction. Under the Partnership Agreement,
the General Partner will continue to be the general partner of both the Partnership and the Operating Partnership,
but its general partner interests will have no economic value (which means that such general partner interests do
not entitle the holder thereof to any cash distributions of either partnership, or to any cash payment upon the
liquidation of either partnership, or any other economic rights in either partnership). Following the GP Exchange
Transaction and the consummation of the Distribution Agreement, the sole member of the General Partner is the
Chief Executive Officer of the Partnership and the General Partner holds 784 Common Units received in the GP
Exchange Transaction. The Partnership continues to own all of the limited partner interests in the Operating
Partnership, with 0.1% thereof held through a newly-organized limited liability company, wholly-owned (directly
and indirectly) by the Partnership. Additionally, under the Partnership Agreement no incentive distribution
1
rights are outstanding and no provisions for future incentive distribution rights are contained in the Partnership
Agreement. The Common Units now represent 100% of the limited partner interests in the Partnership.
Subsidiaries of the Operating Partnership include Suburban Sales and Service, Inc. (the “Service Company”),
which conducts a portion of the Partnership’s service work and appliance and parts businesses. The Service
Company is the sole member of Gas Connection, LLC (d/b/a HomeTown Hearth & Grill), and Suburban
Franchising, LLC. HomeTown Hearth & Grill sells and installs natural gas and propane gas grills, fireplaces and
related accessories and supplies through six retail stores in the northwest and northeast regions as of September
29, 2007. Suburban Franchising creates and develops propane related franchising business opportunities.
On December 23, 2003, we acquired substantially all of the assets and operations of Agway Energy
Products, LLC, Agway Energy Services, Inc. and Agway Energy Services PA, Inc. (collectively referred to as
“Agway Energy”) pursuant to an asset purchase agreement dated November 10, 2003 (the “Agway
Acquisition”). With the Agway Acquisition, we transformed our business from a marketer of a single fuel into
one that provides multiple energy solutions, with expansion into the marketing and distribution of fuel oil and
refined fuels, as well as the marketing of natural gas and electricity.
On November 21, 2003, Suburban Heating Oil Partners, LLC, a subsidiary of HomeTown Hearth & Grill,
was formed to acquire and operate the fuel oil and refined fuels and HVAC businesses and assets of Agway
Energy. In addition, Agway Energy Services, LLC, also a subsidiary of HomeTown Hearth & Grill, was formed
to acquire and operate the natural gas and electricity marketing business of Agway Energy.
Suburban Energy Finance Corporation, a direct wholly-owned subsidiary of the Partnership, was formed on
November 26, 2003 to serve as co-issuer, jointly and severally with the Partnership, of the Partnership’s
unsecured 6.875% senior notes due December 2013. Suburban Energy Finance Corporation has nominal assets
and conducts no business operations.
In this Annual Report, unless otherwise indicated, the terms “Partnership,” “we,” “us,” and “our” are used to
refer to Suburban Propane Partners, L.P. or to Suburban Propane Partners, L.P. and its consolidated subsidiaries,
including the Operating Partnership. The Partnership, the Operating Partnership and the Service Company
commenced operations in March 1996 in connection with the Partnership’s initial public offering of Common
Units.
We currently file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and current reports on
Form 8-K with the Securities and Exchange Commission (“SEC”). You may read and copy any materials that
we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You
may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Any information filed by us is also available on the SEC’s EDGAR database at www.sec.gov.
Upon written request or through a link from our website at www.suburbanpropane.com, we will provide,
without charge, copies of our Annual Report on Form 10-K for the year ended September 29, 2007, each of the
Quarterly Reports on Form 10-Q, current reports filed or furnished on Form 8-K and all amendments to such
reports as soon as is reasonably practicable after such reports are electronically filed with or furnished to the
SEC. Requests should be directed to: Suburban Propane Partners, L.P., Investor Relations, P.O. Box 206,
Whippany, New Jersey 07981-0206.
Our Strategy
Our business strategy is to deliver increasing value to our Unitholders through initiatives, both internal and
external, that are geared toward achieving sustainable profitable growth and increased quarterly distributions. The
following are key elements of our strategy:
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Internal Focus on Driving Operating Efficiencies, Reducing Our Cost Structure and Enhancing Our
Customer Mix. We focus internally on improving the efficiency of our existing operations, managing our cost
structure and improving our customer mix. Through investments in our technology infrastructure, we continue to
seek to improve operating efficiencies, particularly in the areas of routing, forecasting customer usage, inventory
control and customer tracking. In furtherance of this strategy and to leverage our investments in technology, over
the past two fiscal years (beginning at the end of fiscal 2005), we implemented plans to streamline our operating
footprint and management structure, drive operating efficiencies, and refocus our HVAC activities on service
offerings to support our existing customer base within our core operating segments. While the majority of the
specific initiatives under these plans were executed by the end of fiscal 2007, our focus on operating efficiencies
and on our cost structure is an ongoing process intended to support our strategy of achieving sustainable profitable
growth.
In addition, we continually evaluate our customer base and, in particular, focus on customers that provide a
proper return. In that regard, our efforts to strategically exit certain lower margin business in both our propane
and fuel oil and refined fuels segments has resulted in a reduction in volumes sold, yet has had a favorable
impact on overall segment profitability. Specifically, in our propane segment, our residential customer base
accounted for a higher percentage of our overall volumes sold in fiscal 2007 compared to prior years, primarily
from the reduction of certain low margin commercial, industrial and agricultural customers. In our fuel oil and
refined fuels segment, our decision in fiscal 2005 to begin to exit the majority of our lower margin diesel and
gasoline businesses has resulted in a decrease in volumes sold in fiscal 2007 compared to prior years.
Growing Our Customer Base by Improving Customer Retention and Acquiring New Customers. We set
clear objectives to focus our employees on seeking new customers and retaining existing customers by providing
world-class customer service. We believe that customer satisfaction is a critical factor in the growth and success of
our operations. “Our Business is Customer Satisfaction” is one of our core operating philosophies. We measure
and reward our customer service centers based on a combination of profitability of the individual customer service
center and net customer growth.
Selective Acquisitions of Complementary Businesses or Assets. Externally, we seek to extend our presence or
diversify our product offerings through selective acquisitions. Our acquisition strategy is to focus on businesses
with a relatively steady cash flow that will extend our presence in strategically attractive markets, complement our
existing business segments or provide an opportunity to diversify our operations with other energy-related assets.
While we are active in this area, we are also very patient and deliberate in evaluating acquisition candidates. There
were no acquisitions completed during fiscal 2007, 2006 or 2005 as we focused internally on driving efficiencies,
reducing costs and integrating the operations of Agway Energy which were acquired in fiscal 2004. However,
during fiscal 2007 we completed a non-cash transaction in which we disposed of nine customer service centers
considered to be in markets that were non-strategic to our operations in exchange for three customer service
centers located in Alaska, thus expanding our presence in this strategically attractive market.
Selective Disposition of Non-Strategic Assets. We continuously evaluate our existing facilities to identify
opportunities to optimize our return on assets by selectively divesting operations in slower growing markets,
generating proceeds that can be reinvested in markets that present greater opportunities for growth. Our objective is
to fully exploit the growth and profit potential of all of our assets. In that regard, on October 2, 2007 (subsequent to
the end of fiscal 2007) we completed the sale of our Tirzah, South Carolina underground granite propane storage
cavern, and associated 62-mile pipeline, for approximately $54.0 million in net proceeds which will be
reinvested in the business.
Business Segments
We manage and evaluate our operations in six segments, four of which are reportable segments: Propane,
Fuel Oil and Refined Fuels, Natural Gas and Electricity and HVAC. These business segments are described
3
below. See Note 16 to the Consolidated Financial Statements included in this Annual Report for financial
information about our business segments.
Propane is a by-product of natural gas processing and petroleum refining. It is a clean burning energy source
recognized for its transportability and ease of use relative to alternative forms of stand-alone energy sources.
Propane use falls into three broad categories:
Propane
•
•
•
residential and commercial applications;
industrial applications; and
agricultural uses.
In the residential and commercial markets, propane is used primarily for space heating, water heating, clothes
drying and cooking. Industrial customers use propane generally as a motor fuel to power over-the-road vehicles,
forklifts and stationary engines, to fire furnaces, as a cutting gas and in other process applications. In the
agricultural market, propane is primarily used for tobacco curing, crop drying, poultry brooding and weed control.
Propane is extracted from natural gas or oil wellhead gas at processing plants or separated from crude oil during
the refining process. It is normally transported and stored in a liquid state under moderate pressure or refrigeration
for ease of handling in shipping and distribution. When the pressure is released or the temperature is increased,
propane becomes a flammable gas that is colorless and odorless, although an odorant is added to allow its detection.
Propane is clean burning and, when consumed, produces only negligible amounts of pollutants.
Product Distribution and Marketing
We distribute propane through a nationwide retail distribution network consisting of approximately 300
locations in 30 states as of September 29, 2007. Our operations are concentrated in the east and west coast regions
of the United States, including Alaska. In fiscal 2007, we serviced approximately 791,000 active propane
customers. Typically, our customer service centers are located in suburban and rural areas where natural gas is not
readily available. Generally, these customer service centers consist of an office, appliance showroom, warehouse
and service facilities, with one or more 18,000 to 30,000 gallon storage tanks on the premises. Most of our
residential customers receive their propane supply through an automatic delivery system that eliminates the
customer’s need to make an affirmative purchase decision. These deliveries are scheduled through computer
technology, based upon each customer’s historical consumption patterns and prevailing weather conditions.
Additionally, as is common practice in the industry, we offer our customers a budget payment plan whereby the
customer’s estimated annual propane purchases and service contracts are paid for in a series of estimated equal
monthly payments over a twelve-month period. From our customer service centers, we also sell, install and service
equipment to customers who purchase propane from us including heating and cooking appliances, hearth products
and supplies and, at some locations, propane fuel systems for motor vehicles.
We sell propane primarily to six customer markets: residential, commercial, industrial (including engine fuel),
agricultural, other retail users and wholesale. Approximately 91% of the propane gallons sold by us in fiscal 2007
were to retail customers: 44% to residential customers, 31% to commercial customers, 10% to industrial customers,
6% to agricultural customers and 9% to other retail users. The balance of approximately 9% of the propane gallons
sold by us in fiscal 2007 was for risk management activities and wholesale customers. Sales to residential
customers in fiscal 2007 accounted for approximately 70% of our margins on retail propane sales, reflecting the
higher-margin nature of the residential market. No single customer accounted for 10% or more of our propane
revenues during fiscal 2007.
Retail deliveries of propane are usually made to customers by means of bobtail and rack trucks. Propane is
pumped from bobtail trucks, which have capacities ranging from 2,125 gallons to 2,975 gallons of propane, into a
4
stationary storage tank on the customers’ premises. The capacity of these storage tanks ranges from approximately
100 gallons to approximately 1,200 gallons, with a typical tank having a capacity of 300 to 400 gallons. As is
common in the propane industry, we own a significant portion of the storage tanks located on our customers’
premises. We also deliver propane to retail customers in portable cylinders, which typically have a capacity of 5 to
35 gallons. When these cylinders are delivered to customers, empty cylinders are refilled in place or transported for
replenishment at our distribution locations. We also deliver propane to certain other bulk end users in larger trucks
known as transports, which have an average capacity of approximately 9,000 gallons. End users receiving transport
deliveries include industrial customers, large-scale heating accounts, such as local gas utilities that use propane as a
supplemental fuel to meet peak load delivery requirements, and large agricultural accounts that use propane for crop
drying.
In our wholesale operations, we principally sell propane to large industrial end users and other propane
distributors. The wholesale market includes customers who use propane to fire furnaces, as a cutting gas and in
other process applications. Due to the low margin nature of the wholesale market as compared to the retail market,
we have reduced our emphasis on wholesale marketing over the last several years.
Supply
Our propane supply is purchased from approximately 66 oil companies and natural gas processors at
approximately 125 supply points located in the United States and Canada. We make purchases primarily under one-
year agreements that are subject to annual renewal, and also purchase propane on the spot market. Supply contracts
generally provide for pricing in accordance with posted prices at the time of delivery or the current prices
established at major storage points, and some contracts include a pricing formula that typically is based on
prevailing market prices. Some of these agreements provide maximum and minimum seasonal purchase guidelines.
Propane is generally transported from refineries, pipeline terminals, storage facilities (including our storage facility
in Elk Grove, California) and coastal terminals to our customer service centers by a combination of common
carriers, owner-operators and railroad tank cars. See Item 2 of this Annual Report.
Historically, supplies of propane have been readily available from our supply sources. Although we make no
assurance regarding the availability of supplies of propane in the future, we currently expect to be able to secure
adequate supplies during fiscal 2008. During fiscal 2007, Targa Liquids Marketing and Trade (“Targa”) and
Enterprise Products Operating L.P. (“Enterprise”) provided approximately 18% and 10%, respectively, of our total
domestic propane purchases. Aside from these two suppliers, no single supplier provided more than 10% of our
total domestic propane supply during fiscal 2007. The availability of our propane supply is dependent on several
factors, including the severity of winter weather and the price and availability of competing fuels, such as natural
gas and fuel oil. We believe that if supplies from Targa or Enterprise were interrupted, we would be able to secure
adequate propane supplies from other sources without a material disruption of our operations. Nevertheless, the
cost of acquiring such propane might be higher and, at least on a short-term basis, margins could be affected.
Approximately 94% of our total propane purchases were from domestic suppliers in fiscal 2007.
We seek to reduce the effect of propane price volatility on our product costs and to help ensure the availability
of propane during periods of short supply. We are currently a party to propane futures transactions on the New
York Mercantile Exchange (“NYMEX”) and to forward and option contracts with various third parties to purchase
and sell product at fixed prices in the future. These activities are monitored by our senior management through
enforcement of our Hedging and Risk Management Policy. See Items 7 and 7A of this Annual Report.
We own and operate a large propane storage facility in California. We also operate smaller storage facilities in
other locations and have rights to use storage facilities in additional locations (including our former facility in
Tirzah, South Carolina). These storage facilities enable us to buy and store large quantities of propane particularly
during periods of low demand, which generally occur during the summer months. This practice helps ensure a more
secure supply of propane during periods of intense demand or price instability. As of September 29, 2007, the
majority of our storage capacity in California was leased to third parties. On October 2, 2007, we completed the
5
sale of our Tirzah, South Carolina underground granite propane storage cavern, and associated 62-mile pipeline.
Competition
According to the Energy Information Administration, propane accounts for approximately 4% of household
energy consumption in the United States. This level has not changed materially over the previous two decades. As
an energy source, propane competes primarily with natural gas, electricity and fuel oil, principally on the basis of
price, availability and portability.
Propane is more expensive than natural gas on an equivalent British Thermal Unit basis in locations serviced by
natural gas, but it is an alternative to natural gas in rural and suburban areas where natural gas is unavailable or
portability of product is required. Historically, the expansion of natural gas into traditional propane markets has
been inhibited by the capital costs required to expand pipeline and retail distribution systems. Although the recent
extension of natural gas pipelines to previously unserved geographic areas tends to displace propane distribution in
those areas, we believe new opportunities for propane sales have been arising as new neighborhoods are developed
in geographically remote areas.
We also have some relative advantages over suppliers of other energy sources. For example, propane is
generally less expensive to use than electricity for space heating, water heating, clothes drying and cooking. Fuel oil
has not been a significant competitor due to the current geographical diversity of our operations, and propane and
fuel oil are not significant competitors because of the cost of converting from one to the other.
In addition to competing with suppliers of other energy sources, our propane operations compete with other
retail propane distributors. The retail propane industry is highly fragmented and competition generally occurs on a
local basis with other large full-service multi-state propane marketers, thousands of smaller local independent
marketers and farm cooperatives. Based on industry statistics contained in 2005 Sales of Natural Gas Liquids and
Liquefied Refinery Gases, as published by the American Petroleum Institute in March 2007, and LP/Gas
Magazine dated February 2007, the ten largest retailers, including us, account for approximately 39% of the total
retail sales of propane in the United States, and no single marketer has a greater than 10% share of the total retail
propane market in the United States. Most of our customer service centers compete with five or more marketers or
distributors. However, each of our customer service centers operates in its own competitive environment because
retail marketers tend to locate in close proximity to customers in order to lower the cost of providing service. Our
typical customer service center has an effective marketing radius of approximately 50 miles, although in certain
rural areas the marketing radius may be extended by a satellite office.
Product Distribution and Marketing
Fuel Oil and Refined Fuels
We market and distribute fuel oil, kerosene, diesel fuel and gasoline to approximately 97,000 residential and
commercial customers in the northeast region of the United States. Sales of fuel oil and refined fuels for fiscal
2007 amounted to 104.5 million gallons. Approximately 60% of the refined fuel gallons sold by us in fiscal 2007
were to residential customers, principally for home heating, 8% were to commercial customers, 3% were to
agricultural and 1% to other users. Fuel oil has a more limited use, compared to propane, for space and water
heating in residential and commercial buildings. We sell diesel fuel and gasoline to commercial and industrial
customers for use primarily to propel motor vehicles. Due to the low margin nature of the diesel fuel and
gasoline businesses, at the end of fiscal 2005 we made a decision to reduce our emphasis on these activities and,
in certain instances, exited the business. Sales of diesel and gasoline accounted for the remaining 28% of total
volumes sold in this segment during fiscal 2007.
6
Approximately 70% of our fuel oil customers receive their fuel oil under an automatic delivery system
without the customer having to make an affirmative purchase decision. These deliveries are scheduled through
computer technology, based upon each customer’s historical consumption patterns and prevailing weather
conditions. Additionally, as is common practice in the industry, we offer our customers a budget payment plan
whereby the customer’s estimated annual fuel oil purchases and service contracts are paid for in a series of
estimated equal monthly payments over a twelve-month period. From our customer service centers, we also sell,
install and service equipment to customers who purchase fuel oil from us including heating appliances.
Deliveries of fuel oil are usually made to customers by means of tankwagon trucks, which have capacities
ranging from 2,500 gallons to 3,000 gallons. Fuel oil is pumped from the tankwagon truck into a stationary storage
tank that is located on the customer’s premises, which is owned by the customer. The capacity of customer storage
tanks ranges from approximately 275 gallons to approximately 1,000 gallons. No single customer accounted for
10% or more of our fuel oil revenues during fiscal 2007.
Supply
We obtain fuel oil and other refined fuels in either pipeline, truckload or tankwagon quantities, and have
contracts with certain pipeline and terminal operators for the right to temporarily store fuel oil at more than 13
terminal facilities we do not own. We have arrangements with certain suppliers of fuel oil, which provide open
access to fuel oil at specific terminals throughout the northeast. Additionally, a portion of our purchases of fuel
oil are made at local wholesale terminal racks. In most cases, the supply contracts do not establish the price of
fuel oil in advance; rather, prices are typically established based upon market prices at the time of delivery plus
or minus a differential to market for transportation and volume discounts. We purchase fuel oil from nearly 23
suppliers at approximately 69 supply points. While fuel oil supply is more susceptible to longer periods of
constraint than propane, we believe that our supply arrangements will provide us with sufficient supply sources.
Although we make no assurance regarding the availability of supplies of fuel oil in the future, we currently expect to
be able to secure adequate supplies during fiscal 2008.
Competition
The fuel oil industry is a mature industry with total demand expected to remain relatively flat to moderately
declining. The fuel oil industry is highly fragmented, characterized by a large number of relatively small,
independently owned and operated local distributors. We compete with other fuel oil distributors offering a
broad range of services and prices, from full service distributors to those that solely offer the delivery service.
We have developed a wide range of sales programs and service offerings for our fuel oil customer base in an
attempt to be viewed as a full service energy provider and to build customer loyalty. For instance, like most
companies in the fuel oil business, we provide home heating equipment repair service to our fuel oil customers
through our HVAC segment on a 24-hour a day basis. The fuel oil business unit also competes for retail
customers with suppliers of alternative energy sources, principally natural gas, propane and electricity.
Natural Gas and Electricity
We market natural gas and electricity through our wholly-owned subsidiary Agway Energy Services, LLC
(“AES”) in the deregulated markets of New York and Pennsylvania primarily to residential and small
commercial customers. Historically, local utility companies provided their customers with all three aspects of
electric and natural gas service: generation, transmission and distribution. However, under deregulation, public
utility commissions in several states are licensing energy service companies, such as AES, to act as alternative
suppliers of the commodity to end consumers. In essence, we make arrangements for the supply of electricity or
natural gas to specific delivery points. The local utility companies continue to distribute electricity and natural
gas on their distribution systems. The business strategy of this business segment is to expand its market share by
concentrating on growth in the customer base and expansion into other deregulated markets that are considered
strategic markets.
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We serve nearly 71,000 natural gas and electricity customers in New York and Pennsylvania. During fiscal
2007, we sold approximately 4.4 million dekatherms of natural gas and 510.3 million kilowatt hours of electricity
through the natural gas and electricity segment. Approximately 90% of our customers were residential
households and the remainder were small commercial and industrial customers. New accounts are obtained
through numerous marketing and advertising programs, including telemarketing and direct mail initiatives. Most
local utility companies have established billing service arrangements whereby customers receive a single bill
from the local utility company which includes distribution charges from the local utility company, as well as
product charges for the amount of natural gas or electricity provided by AES and utilized by the customer. We
have arrangements with several local utility companies that provide billing and collection services for a fee.
Under these arrangements, we are paid by the local utility company for all or a portion of customer billings after
a specified number of days following the customer billing with no further recourse to AES.
Supply of natural gas is arranged through annual supply agreements with major national wholesale
suppliers. Pricing under the annual natural gas supply contracts is based on posted market prices at the time of
delivery, and some contracts include a pricing formula that typically is based on prevailing market prices. The
majority of our electricity requirements are purchased through the New York Independent System Operator
(“NYISO”) under an annual supply agreement, as well as purchase arrangements through other national
wholesale suppliers on the open market. Electricity pricing under the NYISO agreement is based on local market
indices at the time of delivery. Competition is primarily with local utility companies, as well as other marketers
of natural gas and electricity providing similar alternatives as AES.
HVAC
We sell, install and service all types of whole-house heating products, air cleaners, humidifiers, de-
humidifiers, hearth products and space heaters to the customers of our propane, fuel oil, natural gas and
electricity products. We also offer services such as duct cleaning, air balancing and energy audits to those
customers. Our supply needs are filled through supply arrangements with several large regional equipment
manufacturers and distribution companies. Competition in this business segment is primarily with small, local
HVAC providers and contractors, as well as, to a lesser extent, other regional service providers. During the third
quarter of fiscal 2006, we initiated plans to restructure our HVAC service offerings and eliminated certain stand-
alone installation activities. See Note 6 to the consolidated financial statements in this Annual Report. The
focus of our ongoing service offerings will be in support of the service needs of our existing customer base
within our propane, refined fuels and natural gas and electricity business segments. Additionally, we have
entered into arrangements with third-party service providers to complement and, in certain instances, supplement
our existing service capabilities.
Activities from our HomeTown Hearth & Grill and Suburban Franchising subsidiaries comprise the all other
business caption.
All Other
Seasonality
The retail propane and fuel oil distribution businesses, as well as the natural gas marketing business, are
seasonal because of the primary use of these fuels 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
8
losses or lower net income during the period from April through September (our third and fourth fiscal quarters).
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 use.
Trademarks and Tradenames
We utilize a variety of trademarks and tradenames owned by us, including “Suburban Propane,” “Gas
Connection” and “HomeTown Hearth & Grill.” Additionally, in connection with the Agway Acquisition, we
acquired rights to certain trademarks and tradenames, including “Agway Propane,” “Agway” and “Agway
Energy Products” in connection with the distribution of petroleum-based fuel and sales and service of HVAC
equipment. We regard our trademarks, tradenames and other proprietary rights as valuable assets and believe
that they have significant value in the marketing of our products and services.
Government Regulation; Environmental and Safety Matters
We are subject to various federal, state and local environmental, health and safety laws and regulations.
Generally, these laws impose limitations on the discharge of pollutants and establish standards for the handling
of solid and hazardous wastes and can require the investigation and cleanup of environmental contamination.
These laws include the Resource Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act (“CERCLA”), the Clean Air Act, the Occupational Safety and Health Act, the
Emergency Planning and Community Right to Know Act, the Clean Water Act and comparable state statutes.
CERCLA, also known as the “Superfund” law, imposes joint and several liability without regard to fault or the
legality of the original conduct on certain classes of persons that are considered to have contributed to the release
or threatened release of a “hazardous substance” into the environment. Propane is not a hazardous substance
within the meaning of CERCLA, whereas fuel oil is considered a hazardous substance. We own real property at
locations where such hazardous substances may be present as a result of prior activities.
We expect that we will be required to expend funds to participate in the remediation of certain sites,
including sites where we have been designated by the Environmental Protection Agency as a potentially
responsible party under CERCLA and at sites with aboveground and underground fuel storage tanks. We will
also incur other expenses associated with environmental compliance. We continually monitor our operations
with respect to potential environmental issues, including changes in legal requirements and remediation
technologies.
With the Agway Acquisition, we acquired certain surplus properties with either known or probable
environmental exposure, some of which are currently in varying stages of investigation, remediation or
monitoring. Additionally, we identified that certain active sites acquired contained environmental conditions
which required further investigation, future remediation or ongoing monitoring activities. The environmental
exposures included instances of soil and/or groundwater contamination associated with the handling and storage
of fuel oil, gasoline and diesel fuel.
As of September 29, 2007, we had accrued environmental liabilities of $2.6 million representing the total
estimated future liability for remediation and monitoring. For the portion of the estimated environmental liability
that is recoverable under state environmental reimbursement funds, we record an asset within other assets related
to the amount of the liability expected to be reimbursed by state agencies, which amounted to $0.1 million as of
9
September 29, 2007.
Estimating the extent of our responsibility at a particular site, and the method and ultimate cost of remediation
of that site, requires making numerous assumptions. As a result, the ultimate cost to remediate any site may
differ from current estimates, and will depend, in part, on whether there is additional contamination, not currently
known to us, at that site. However, we believe that our past experience provides a reasonable basis for estimating
these liabilities. As additional information becomes available, estimates are adjusted as necessary. While we do
not anticipate that any such adjustment would be material to our financial statements, the result of ongoing or
future environmental studies or other factors could alter this expectation and require recording additional
liabilities. We currently cannot determine whether we will incur additional liabilities or the extent or amount of
any such liabilities.
National Fire Protection Association (“NFPA”) Pamphlet Nos. 54 and 58, which establish rules and
procedures governing the safe handling of propane, or comparable regulations, have been adopted, in whole, in
part or with state addenda, as the industry standard for propane storage, distribution and equipment installation
and operation in all of the states in which we operate. In some states these laws are administered by state
agencies, and in others they are administered on a municipal level. Pamphlet No. 58 has adopted storage tank
valve retrofit requirements due to be completed by June 2011 or later depending on when each state adopts the
2001 edition of NFPA Pamphlet No. 58. We have a program in place to meet this deadline.
NFPA Pamphlet Nos. 30, 30A, 31, 385 and 395, which establish rules and procedures governing the safe
handling of distillates (fuel oil, kerosene and diesel fuel) and gasoline, or comparable regulations, have been
adopted, in whole, in part or with state addenda, as the industry standard for fuel oil, kerosene, diesel fuel and
gasoline storage, distribution and equipment installation/operation in all of the states in which we operate. In
some states these laws are administered by state agencies and in others they are administered on a municipal
level.
With respect to the transportation of propane, distillates and gasoline by truck, we are subject to regulations
promulgated under the Federal Motor Carrier Safety Act. These regulations cover the transportation of
hazardous materials and are administered by the United States Department of Transportation or similar state
agencies. We conduct ongoing training programs to help ensure that our operations are in compliance with
applicable safety regulations. We maintain various permits that are necessary to operate some of our facilities,
some of which may be material to our operations. We believe that the procedures currently in effect at all of our
facilities for the handling, storage and distribution of propane, distillates and gasoline are consistent with
industry standards and are in compliance, in all material respects, with applicable laws and regulations.
The Department of Homeland Security (“DHS”) has published new regulations under 6 CFR Part 27
Chemical Facility Anti-Terrorism Standards. Our facilities are registered with the DHS and are proceeding
through the screening process. Because our facilities are currently operating under the security programs
developed under guidelines issued by the Department of Transportation, Department of Labor and Environmental
Protection Agency, we do not anticipate that we will incur additional material liabilities to comply with the DHS
regulations.
Future developments, such as stricter environmental, health or safety laws and regulations thereunder, could
affect our operations. We do not anticipate that the cost of our compliance with environmental, health and safety
laws and regulations, including CERCLA, as currently in effect and applicable to known sites will have a
material adverse effect on our financial condition or results of operations. To the extent we discover any
environmental liabilities presently unknown to us or environmental, health or safety laws or regulations are made
more stringent, however, there can be no assurance that our financial condition or results of operations will not
be materially and adversely affected.
10
Employees
As of September 29, 2007, we had 3,144 full time employees, of whom 416 were engaged in general and
administrative activities (including fleet maintenance), 43 were engaged in transportation and product supply
activities and 2,685 were customer service center employees. As of September 29, 2007, 91 of our employees were
represented by 8 different local chapters of labor unions. We believe that our relations with both our union and
non-union employees are satisfactory. From time to time, we hire temporary workers to meet peak seasonal
demands.
ITEM 1A. RISK FACTORS
You should carefully consider the specific risk factors set forth below as well as the other information
contained or incorporated by reference in this Annual Report. Some factors in this section are Forward-Looking
Statements. See ‘‘Disclosure Regarding Forward-Looking Statements’’ above.
Risks Inherent in the Ownership of Our Common Units
Cash distributions are not guaranteed and may fluctuate with our performance and other external factors.
Cash distributions on our Common Units are not guaranteed, and depend primarily on our cash flow and our
cash on hand. Because they are not dependent on profitability, which is affected by non-cash items, our cash
distributions might be made during periods when we record losses and might not be made during periods when
we record profits.
The amount of cash we generate may fluctuate based on our performance and other factors, including:
•
•
•
•
•
•
•
the impact of the risks inherent in our business operations, as described below;
required principal and interest payments on our debt and restrictions contained in our debt instruments;
issuances of debt and equity securities;
our ability to control expenses;
fluctuations in working capital;
capital expenditures; and
financial, business and other factors, a number of which will be beyond our control.
Our Partnership Agreement gives our Board of Supervisors broad discretion in establishing cash reserves
for, among other things, the proper conduct of our business. These cash reserves will affect the amount of cash
available for distributions.
We have substantial indebtedness. Our debt agreements may limit our ability to make distributions to
Unitholders, as well as our financial flexibility.
As of September 29, 2007, we had total outstanding borrowings of $550.0 million, including $425.0 million
of senior notes issued by the Partnership and our wholly-owned subsidiary, Suburban Energy Finance
Corporation, and $125.0 million of borrowings under the Operating Partnership's revolving credit facility. The
payment of principal and interest on our debt will reduce the cash available to make distributions on our
Common Units. In addition, we will not be able to make any distributions to our Unitholders if there is, or after
giving effect to such distribution, there would be, an event of default under the indenture governing the senior
notes. The amount of distributions that the Partnership makes to its Unitholders is limited by the senior notes,
and the amount of distributions that the Operating Partnership may make to the Partnership is limited by the
revolving credit facility. The amount and terms of our debt may also adversely affect our ability to finance future
11
operations and capital needs, limit our ability to pursue acquisitions and other business opportunities and make
our results of operations more susceptible to adverse economic and industry conditions. In addition to our
outstanding indebtedness, we may in the future incur additional debt to finance acquisitions or for general
business purposes, which could result in an increase in our leverage. Our ability to make principal and interest
payments depends on our future performance, which is subject to many factors, some of which are beyond our
control.
Unitholders have limited voting rights.
A Board of Supervisors manages our operations. Our Unitholders have only limited voting rights on matters
affecting our business, including the right to elect the members of our Board of Supervisors every three years.
It may be difficult for a third party to acquire us, even if doing so would be beneficial to our Unitholders.
Some provisions of our Partnership Agreement may discourage, delay or prevent third parties from acquiring
us, even if doing so would be beneficial to our Unitholders. For example, our Partnership Agreement contains a
provision, based on Section 203 of the Delaware General Corporation Law, that generally prohibits the
Partnership from engaging in a business combination with a 15% or greater Unitholder for a period of three years
following the date that person or entity acquired at least 15% of our outstanding Common Units, unless certain
exceptions apply. Additionally, our Partnership Agreement sets forth advance notice procedures for a Unitholder
to nominate a Supervisor to stand for election, which procedures may discourage or deter a potential acquiror
from conducting a solicitation of proxies to elect the acquiror’s own slate of Supervisors or otherwise attempting
to obtain control of the Partnership. These nomination procedures may not be revised or repealed, and
inconsistent provisions may not be adopted, without the approval of the holders of at least 66-2/3% of the
outstanding Common Units. These provisions may have an anti-takeover effect with respect to transactions not
approved in advance by our Board of Supervisors, including discouraging attempts that might result in a premium
over the market price of the Common Units held by our Unitholders.
Unitholders may not have limited liability in some circumstances.
A number of states have not clearly established limitations on the liabilities of limited partners for the
obligations of a limited partnership. Our Unitholders might be held liable for our obligations as if they were
general partners if:
•
a court or government agency determined that we were conducting business in the state but had not
complied with the state's limited partnership statute; or
• Unitholders' rights to act together to remove or replace the General Partner or take other actions under
our Partnership Agreement are deemed to constitute ‘‘participation in the control’’ of our business for
purposes of the state's limited partnership statute.
Unitholders may have liability to repay distributions.
Unitholders will not be liable for assessments in addition to their initial capital investment in the Common
Units. Under specific circumstances, however, Unitholders may have to repay to us amounts wrongfully returned
or distributed to them. Under Delaware law, we may not make a distribution to Unitholders if the distribution
causes our liabilities to exceed the fair value of our assets. Liabilities to partners on account of their partnership
interests and nonrecourse liabilities are not counted for purposes of determining whether a distribution is
permitted. Delaware law provides that a limited partner who receives a distribution of this kind and knew at the
time of the distribution that the distribution violated Delaware law will be liable to the limited partnership for the
distribution amount for three years from the distribution date. Under Delaware law, an assignee who becomes a
substituted limited partner of a limited partnership is liable for the obligations of the assignor to make
12
contributions to the partnership. However, such an assignee is not obligated for liabilities unknown to him at the
time he or she became a limited partner if the liabilities could not be determined from the partnership agreement.
If we issue additional limited partner interests or other equity securities as consideration for acquisitions or
for other purposes, the relative voting strength of each Unitholder will be diminished over time due to the
dilution of each Unitholder's interests and additional taxable income may be allocated to each Unitholder.
Our Partnership Agreement generally allows us to issue additional limited partner interests and other equity
securities without the approval of our Unitholders. Therefore, when we issue additional Common Units or
securities ranking on a parity with the Common Units, each Unitholder's proportionate partnership interest will
decrease, and the amount of cash distributed on each Common Unit and the market price of Common Units could
decrease. The issuance of additional Common Units will also diminish the relative voting strength of each
previously outstanding Common Unit. In addition, the issuance of additional Common Units will, over time,
result in the allocation of additional taxable income, representing built-in gains at the time of the new issuance, to
those Common Unitholders that existed prior to the new issuance.
Risks Inherent in our Business Operations
Since weather conditions may adversely affect demand for propane, fuel oil and other refined fuels and
natural gas, our results of operations and financial condition are vulnerable to warm winters.
Weather conditions have a significant impact on the demand for propane, fuel oil and other refined fuels 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. The volume of propane, fuel oil and natural gas sold is at its highest during the
six-month peak heating season of October through March and is directly affected by the severity of the winter.
Typically, we sell approximately two-thirds of our retail propane volume and approximately three-fourths of our
retail fuel oil volume during the peak heating season.
Actual weather conditions can vary substantially from year to year, significantly affecting our financial
performance. For example, average temperatures in our service territories were 6% warmer than normal for the
year ended September 29, 2007 compared to 11% warmer than normal temperatures in fiscal 2006 and 6%
warmer than normal temperatures in fiscal 2005, as reported by the National Oceanic and Atmospheric
Administration (‘‘NOAA’’). Furthermore, variations in weather in one or more regions in which we operate can
significantly affect the total volume of propane, fuel oil and other refined fuels and natural gas we sell and,
consequently, our results of operations. Variations in the weather in the northeast, where we have a greater
concentration of higher margin residential accounts and substantially all of our fuel oil and natural gas
operations, generally have a greater impact on our operations than variations in the weather in other markets. We
can give no assurance that the weather conditions in any quarter or year will not have a material adverse effect on
our operations, or that our available cash will be sufficient to pay principal and interest on our indebtedness and
distributions to Unitholders.
Sudden increases in the price of propane, fuel oil and other refined fuels and natural gas due to, among other
things, our inability to obtain adequate supplies from our usual suppliers, may adversely affect our operating
results.
Our profitability in the retail propane, fuel oil and refined fuels and natural gas businesses is largely
dependent on the difference between our product cost and retail sales price. Propane, fuel oil and other refined
fuels and natural gas are commodities, and the unit price we pay is subject to volatile changes in response to
changes in supply or other market conditions over which we have no control, including the severity of winter
weather and the price and availability of competing alternative energy sources. In general, product supply
contracts permit suppliers to charge posted prices at the time of delivery or the current prices established at major
13
supply points, including Mont Belvieu, Texas, and Conway, Kansas. In addition, our supply from our usual
sources may be interrupted due to reasons that are beyond our control. As a result, the cost of acquiring propane,
fuel oil and other refined fuels and natural gas from other suppliers might be materially higher at least on a short-
term basis. Since we may not be able to pass on to our customers immediately, or in full, all increases in our
wholesale cost of propane, fuel oil and other refined fuels and natural gas, these increases could reduce our
profitability. We engage in transactions to hedge certain product costs from time to time in an attempt to reduce
cost volatility and to help ensure availability of product during periods of short supply. We can give no assurance
that future volatility in propane, fuel oil and natural gas supply costs will not have a material adverse effect on
our profitability and cash flow, or that our available cash will be sufficient to pay principal and interest on our
indebtedness and distributions to our Unitholders.
Because of the highly competitive nature of the retail propane and fuel oil businesses, we may not be able to
retain existing customers or acquire new customers, which could have an adverse impact on our operating
results and financial condition.
The retail propane and fuel oil industries are mature and highly competitive. We expect overall demand for
propane to remain relatively constant over the next several years, while we expect the overall demand for fuel oil
to be relatively flat to moderately declining during the same period. Year-to-year industry volumes of propane
and fuel oil are expected to be primarily affected by weather patterns and from competition intensifying during
warmer than normal winters, as well as from the impact of a sustained higher commodity price environment on
customer conservation.
Propane and fuel oil compete in the alternative energy sources market with electricity, natural gas and other
existing and future sources of energy, some of which are, or may in the future be, less costly for equivalent
energy value. For example, natural gas is a significantly less expensive source of energy than propane and fuel
oil. As a result, except for some industrial and commercial applications, propane and fuel oil are generally not
economically competitive with natural gas in areas where natural gas pipelines already exist. The gradual
expansion of the nation's natural gas distribution systems has made natural gas available in many areas that
previously depended upon propane or fuel oil. Propane and fuel oil compete to a lesser extent with each other
due to the cost of converting from one to the other.
In addition to competing with other sources of energy, our propane and fuel oil businesses compete with
other distributors principally on the basis of price, service, availability and portability. Competition in the retail
propane business is highly fragmented and generally occurs on a local basis with other large full-service multi-
state propane marketers, thousands of smaller local independent marketers and farm cooperatives. Our fuel oil
business competes with fuel oil distributors offering a broad range of services and prices, from full service
distributors to those offering delivery only. Generally, our existing fuel oil customers, unlike our existing
propane customers, own their own tanks. As a result, the competition for these customers is more intense than in
our propane business, where our existing customers seeking to switch distributors may face additional transition
costs and delays.
As a result of the highly competitive nature of the retail propane and fuel oil businesses, our growth within
these industries depends on our ability to acquire other retail distributors, open new customer service centers, add
new customers and retain existing customers. We believe our ability to compete effectively depends on reliability
of service, responsiveness to customers and our ability to control expenses in order to maintain competitive
prices.
Energy efficiency, general economic conditions and technological advances have affected and may continue
to affect demand for propane and fuel oil by our retail customers.
The national trend toward increased conservation and technological advances, including installation of
improved insulation and the development of more efficient furnaces and other heating devices, has adversely
14
affected the demand for propane and fuel oil by our retail customers which, in turn, has resulted in lower sales
volumes to our customers. In addition, recent economic conditions may lead to additional conservation by retail
customers to further reduce their heating costs, particularly during periods of sustained higher commodity prices
as has been the case over the past three fiscal years. Future technological advances in heating, conservation and
energy generation may adversely affect our financial condition and results of operations.
Our operating results and ability to generate sufficient cash flow to pay principal and interest on our
indebtedness, and to pay distributions to Unitholders, may be affected by our ability to continue to control
expenses.
The propane and fuel oil industries are mature and highly fragmented with competition from other multi-state
marketers and thousands of smaller local independent marketers. Demand for propane and fuel oil is expected to
be affected by many factors beyond our control, including, but not limited to, the severity of weather conditions
during the peak heating season, customer conservation driven by high energy costs and other economic factors,
as well as technological advances impacting energy efficiency. Accordingly, our propane and fuel oil sales
volumes and related gross margins may be negatively affected by these factors beyond our control. Our
operating profits and ability to generate sufficient cash flow may depend on our ability to continue to control
expenses in line with sales volumes. We can give no assurance that we will be able to continue to control
expenses to the extent necessary to reduce the effect on our profitability and cash flow from these factors.
The risk of terrorism and political unrest and the current hostilities in the Middle East may adversely affect
the economy and the price and availability of propane, fuel oil and other refined fuels and natural gas.
Terrorist attacks and political unrest and the current hostilities in the Middle East may adversely impact the
price and availability of propane, fuel oil and other refined fuels and natural gas, as well as our results of
operations, our ability to raise capital and our future growth. The impact that the foregoing may have on our
industry in general, and on us in particular, is not known at this time. An act of terror could result in disruptions
of crude oil or natural gas supplies and markets (the sources of propane and fuel oil), and our infrastructure
facilities could be direct or indirect targets. Terrorist activity may also hinder our ability to transport propane,
fuel oil and other refined fuels if our means of supply transportation, such as rail or pipeline, become damaged as
a result of an attack. A lower level of economic activity could result in a decline in energy consumption, which
could adversely affect our revenues or restrict our future growth. Instability in the financial markets as a result of
terrorism could also affect our ability to raise capital. Terrorist activity and hostilities in the Middle East could
likely lead to increased volatility in prices for propane, fuel oil and other refined fuels and natural gas. We have
opted to purchase insurance coverage for terrorist acts within our property and casualty insurance programs, but
we can give no assurance that our insurance coverage will be adequate to fully compensate us for any losses to
our business or property resulting from terrorist acts.
Our financial condition and results of operations may be adversely affected by governmental regulation and
associated environmental and health and safety costs.
Our business is subject to a wide range of federal, state and local laws and regulations related to
environmental and health and safety matters including those concerning, among other things, the investigation
and remediation of contaminated soil and groundwater and transportation of hazardous materials. These
requirements are complex, changing and tend to become more stringent over time. In addition, we are required to
maintain various permits that are necessary to operate our facilities, some of which are material to our operations.
There can be no assurance that we have been, or will be, at all times in complete compliance with all legal,
regulatory and permitting requirements or that we will not incur material costs or liabilities in the future relating
to such requirements. Violations could result in penalties, or the curtailment or cessation of operations.
Moreover, currently unknown environmental issues, such as the discovery of additional contamination, may
result in significant additional expenditures, and potentially significant expenditures also could be required to
15
comply with future changes to environmental laws and regulations or the interpretation or enforcement thereof.
Such expenditures, if required, could have a material adverse effect on our business, financial condition or results
of operations.
We are subject to operating hazards and litigation risks that could adversely affect our operating results to the
extent not covered by insurance.
Our operations are subject to all operating hazards and risks normally associated with handling, storing and
delivering combustible liquids such as propane, fuel oil and other refined fuels. As a result, we have been, and
are likely to continue to be, a defendant in various legal proceedings and litigation arising in the ordinary course
of business. We are self-insured for general and product, workers' compensation and automobile liabilities up to
predetermined amounts above which third-party insurance applies. We cannot guarantee that our insurance will
be adequate to protect us from all material expenses related to potential future claims for personal injury and
property damage or that these levels of insurance will be available at economical prices, nor that all legal matters
that arise will be covered by our insurance programs.
If we are unable to make acquisitions on economically acceptable terms or effectively integrate such
acquisitions into our operations, our financial performance may be adversely affected.
The retail propane and fuel oil industries are mature. We foresee only limited growth in total retail demand
for propane and flat to moderately declining retail demand for fuel oil. With respect to our retail propane
business, because of the long-standing customer relationships that are typical in our industry, the inconvenience
of switching tanks and suppliers and propane's higher cost relative to other energy sources, such as natural gas, it
may be difficult for us to acquire new retail propane customers except through acquisitions. As a result, we
expect the success of our financial performance to depend, in part, upon our ability to acquire other retail
propane and fuel oil distributors or other energy-related businesses and to successfully integrate them into our
existing operations and to make cost saving changes. The competition for acquisitions is intense and we can
make no assurance that we will be able to acquire other propane and fuel oil distributors or other energy-related
businesses on economically acceptable terms or, if we do, to integrate the acquired operations effectively.
Tax Risks to Unitholders
Our tax treatment depends on our status as a partnership for federal income tax purposes. The IRS could
treat us as a corporation, which would substantially reduce the cash available for distribution to Unitholders.
The anticipated after-tax economic benefit of an investment in our Common Units depends largely on our
being treated as a partnership for federal income tax purposes. We believe that, under current law, we will be
classified as a partnership for federal income tax purposes. We have not requested, and do not plan to request, a
ruling from the IRS on this or any other tax matter affecting us. The IRS may adopt positions that differ from the
positions we take. In addition, current law may change so as to cause us to be treated as a corporation for federal
income tax purposes or otherwise subject us to entity-level federal income taxation. If we were treated as a
corporation for federal income tax purposes, we would be required to pay tax on our income at corporate tax
rates (currently a maximum of 35% federal rate) and likely would be required to pay state income tax at varying
rates. Because a tax would be imposed upon us as a corporation, our cash available for distribution to our
Unitholders would be substantially reduced. Therefore, our treatment as a corporation would result in a material
reduction in the anticipated cash flow and after-tax return to our Unitholders, likely causing a substantial
reduction in the value of our Common Units.
16
A successful IRS contest of the federal income tax positions we take may adversely affect the market for our
Common Units, and the cost of any IRS contest will reduce our cash available for distribution to our
Unitholders.
We have not requested a ruling from the IRS with respect to our treatment as a partnership for federal income
tax purposes or any other matter affecting us. The IRS may adopt positions that differ from the positions we take.
It may be necessary to resort to administrative or court proceedings to sustain some or all of the positions we
take. A court may not agree with the positions we take. Any contest with the IRS may materially and adversely
impact the market for our Common Units and the price at which they trade. In addition, our costs of any contest
with the IRS will be borne indirectly by our Unitholders because the costs will reduce our cash available for
distribution.
A Unitholder's tax liability could exceed cash distributions on its Common Units.
Because our Unitholders are treated as partners to whom we allocate taxable income which could be different
in amount than the cash we distribute, a Unitholder is required to pay federal income taxes and, in some cases,
state and local income taxes on its allocable share of our income, even if it receives no cash distributions from us.
We cannot guarantee that a Unitholder will receive cash distributions equal to its allocable share of our taxable
income or even the tax liability to it resulting from that income.
Ownership of Common Units may have adverse tax consequences for tax-exempt organizations and foreign
investors.
Investment in Common Units by certain tax-exempt entities and foreign persons raises issues specific to
them. For example, virtually all of our taxable income allocated to organizations exempt from federal income tax,
including individual retirement accounts and other retirement plans, will be unrelated business taxable income
and thus will be taxable to the Unitholder. Distributions to foreign persons will be reduced by withholding taxes
at the highest applicable effective tax rate, and foreign persons will be required to file United States federal tax
returns and pay tax on their share of our taxable income.
There are limits on a Unitholder's deductibility of losses.
In the case of taxpayers subject to the passive loss rules (generally, individuals and closely held
corporations), any losses generated by us will only be available to offset our future income and cannot be used to
offset income from other activities, including other passive activities or investments. Unused losses may be
deducted when the Unitholder disposes of its entire investment in us in a fully taxable transaction with an
unrelated party. A Unitholder's share of our net passive income may be offset by unused losses from us carried
over from prior years, but not by losses from other passive activities, including losses from other publicly-traded
partnerships.
Tax shelter registration could increase the risk of a potential audit by the IRS.
We registered as a ‘‘tax shelter’’ under the law in effect at the time of our initial public offering and were
assigned tax shelter registration number 96080000050. The issuance of a tax shelter registration number to us
does not indicate that a Common Unit investment in us or the claimed tax benefits have been reviewed, examined
or approved by the IRS.
The tax gain or loss on the disposition of Common Units could be different than expected.
A Unitholder who sells Common Units will recognize a gain or loss equal to the difference between the
amount realized, including its share of our nonrecourse liabilities, and its adjusted tax basis in the Common
Units. Prior distributions in excess of cumulative net taxable income allocated to a Common Unit which
17
decreased a Unitholder's tax basis in that Common Unit will, in effect, become taxable income if the Common
Unit is sold at a price greater than the Unitholder's tax basis in that Common Unit, even if the price is less than
the original cost of the Common Unit. A portion of the amount realized, if the amount realized exceeds the
Unitholder's adjusted basis in that Common Unit, will likely be characterized as ordinary income. Furthermore,
should the IRS successfully contest some conventions used by us, a Unitholder could recognize more gain on the
sale of Common Units than would be the case under those conventions, without the benefit of decreased income
in prior years.
Reporting of partnership tax information is complicated and subject to audits.
We furnish each Unitholder with a Schedule K-1 that sets forth its allocable share of income, gains, losses
and deductions. In preparing these schedules, we use various accounting and reporting conventions and adopt
various depreciation and amortization methods. We cannot guarantee that these conventions will yield a result
that conforms to statutory or regulatory requirements or to administrative pronouncements of the IRS. Further,
our income tax return may be audited, which could result in an audit of a Unitholder's income tax return and
increased liabilities for taxes because of adjustments resulting from the audit.
We treat each purchaser of our Common Units as having the same tax benefits without regard to the actual
Common Units purchased. The IRS may challenge this treatment, which could adversely affect the value of
the Common Units.
Because we cannot match transferors and transferees of Common Units and because of other reasons,
uniformity of the economic and tax characteristics of the Common Units to a purchaser of Common Units of the
same class must be maintained. To maintain uniformity and for other reasons, we have adopted certain
depreciation and amortization conventions which may be inconsistent with Treasury Regulations. A successful
IRS challenge to those positions could adversely affect the amount of tax benefits available to a Unitholder. It
also could affect the timing of these tax benefits or the amount of gain from the sale of Common Units, and could
have a negative impact on the value of our Common Units or result in audit adjustments to a Unitholder's income
tax return.
There are state, local and other tax considerations for our Unitholders.
In addition to United States federal income taxes, Unitholders will likely be subject to other taxes, such as
state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by
the various jurisdictions in which we do business or own property, even if the Unitholder does not reside in any
of those jurisdictions. A Unitholder will likely be required to file state and local income tax returns and pay state
and local income taxes in some or all of the various jurisdictions in which we do business or own property and
may be subject to penalties for failure to comply with those requirements. It is the responsibility of each
Unitholder to file all United States federal, state and local income tax returns that may be required of such
Unitholder.
Unitholders may have negative tax consequences if we default on our debt or sell assets.
If we default on any of our debt obligations, our lenders will have the right to sue us for non-payment. This
could cause an investment loss and negative tax consequences for Unitholders through the realization of taxable
income by Unitholders without a corresponding cash distribution. Likewise, if we were to dispose of assets and
realize a taxable gain while there is substantial debt outstanding and proceeds of the sale were applied to the
debt, Unitholders could have increased taxable income without a corresponding cash distribution.
18
The sale or exchange of 50% or more of our capital and profits interests during any twelve-month period will
result in a deemed termination (and reconstitution) of the Partnership for federal income tax purposes which
would cause Unitholders to be allocated an increased amount of taxable income.
We will be deemed to have terminated (and reconstituted) for federal income tax purposes if there is a sale or
exchange of 50% or more of the total interests in our capital and profits within a twelve-month period. Were this
to occur, it would, among other things, result in the closing of our taxable year for all Unitholders and could
result in a deferral of depreciation deductions allowable in computing our taxable income. This would result in
Unitholders being allocated an increased amount of taxable income.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
19
ITEM 2. PROPERTIES
As of September 29, 2007, we owned approximately 75% of our customer service center and satellite locations
and leased the balance of our retail locations from third parties. We own and operate a 22 million gallon
refrigerated, aboveground propane storage facility in Elk Grove, California. Effective October 2, 2007, we sold our
60 million gallon underground propane storage cavern in Tirzah, South Carolina. Additionally, we own our
principal executive offices located in Whippany, New Jersey.
The transportation of propane requires specialized equipment. The trucks and railroad tank cars utilized for this
purpose carry specialized steel tanks that maintain the propane in a liquefied state. As of September 29, 2007, we
had a fleet of 11 transport truck tractors, of which we owned two, and 21 railroad tank cars, of which we owned one.
In addition, as of September 29, 2007 we had 991 bobtail and rack trucks, of which we owned approximately 36%,
187 fuel oil tankwagons, of which we owned approximately 68%, and 1,333 other delivery and service vehicles, of
which we owned approximately 52%. We lease the vehicles we do not own. As of September 29, 2007, we also
owned approximately 831,401 customer propane storage tanks with typical capacities of 100 to 500 gallons,
173,835 customer propane storage tanks with typical capacities of over 500 gallons and 242,678 portable propane
cylinders with typical capacities of five to ten gallons.
ITEM 3. LEGAL PROCEEDINGS
Litigation
Our operations are subject to all operating hazards and risks normally incidental to handling, storing and
delivering combustible liquids such as propane. As a result, we have been, and will continue to be, a defendant in
various legal proceedings and litigation arising in the ordinary course of business. We are self-insured for general
and product, workers’ compensation and automobile liabilities up to predetermined amounts above which third
party insurance applies. We believe that the self-insured retentions and coverage we maintain are reasonable and
prudent. Although any litigation is inherently uncertain, based on past experience, the information currently
available to us, and the amount of our self-insurance reserves for known and unasserted self-insurance claims
(which was approximately $50.3 million at September 29, 2007), we do not believe that these pending or
threatened litigation matters, or known claims or known contingent claims, will have a material adverse effect on
our results of operations, financial condition or cash flow. For the portion of our estimated self-insurance liability
that exceeds our deductibles, we record a corresponding asset related to the amount of the liability to be covered
by insurance (which was approximately $13.9 million at September 29, 2007).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
20
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON UNITS, RELATED UNITHOLDER
MATTERS AND ISSUER PURCHASES OF UNITS
(a) Our Common Units, representing limited partner interests in the Partnership, are listed and traded on the
New York Stock Exchange (“NYSE”) under the symbol SPH. As of November 20, 2007, there were 785
Common Unitholders of record. The following table presents, for the periods indicated, the high and low sales
prices per Common Unit, as reported on the NYSE, and the amount of quarterly cash distributions declared and
paid per Common Unit in respect of each quarter.
Fiscal 2006
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2007
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Common Unit Price Range
High
Low
Cash Distribution
Declared per
Common Unit
$
29.68
30.23
31.09
35.95
$
23.51
24.90
27.70
30.80
$
0.6125
0.6125
0.6375
0.6625
$
39.15
44.22
49.58
49.50
$
33.12
35.11
43.96
38.70
$
0.6875
0.7000
0.7125
0.7500
We make quarterly distributions to our partners in an aggregate amount equal to our Available Cash (as
defined in our Partnership Agreement as adopted effective October 19, 2006, as amended) with respect to such
quarter. Available Cash generally means all cash on hand at the end of the fiscal quarter plus all additional cash
on hand as a result of borrowings subsequent to the end of such quarter less cash reserves established by the
Board of Supervisors in its reasonable discretion for future cash requirements.
We are a publicly traded limited partnership and, other than certain corporate subsidiaries, we are not subject
to federal income tax. Instead, Unitholders are required to report their allocable share of our earnings or loss,
regardless of whether we make distributions.
(b) Not applicable.
(c) None.
21
ITEM 6. SELECTED FINANCIAL DATA
The following table presents our selected consolidated historical financial data as derived from our audited
consolidated financial statements, certain of which are included elsewhere in this Annual Report. All amounts in
the table below, except per unit data, are in thousands.
Statement of Operations Data
Revenues
Costs and expenses
Restructuring charges and severance costs (c)
Impairment of goodwill (d)
Income before interest expense, loss on debt
extinguishment and provision for income taxes (e)
Loss on debt extinguishment (f)
Interest expense, net
Provision for income taxes
Current
Deferred
Income (loss) from continuing operations (e)
Discontinued operations:
Gain on disposal of discontinued operations (g)
Income from discontinued operations (h)
Net income (loss)
Income (loss) from continuing operations per Common
Unit - basic
Net income (loss) per Common Unit - basic (i)
Net income (loss) per Common Unit - diluted (i)
Cash distributions declared per unit
Balance Sheet Data (end of period)
Cash and cash equivalents
Current assets
Total assets
Current liabilities, excluding short-term borrowings
and current portion of long-term borrowings
Total debt
Other long-term liabilities
Partners' capital - Common Unitholders
Partner's (deficit) capital - General Partner
Statement of Cash Flows Data
Cash provided by (used in)
Operating activities
Investing activities
Financing activities
Other Data
Depreciation and amortization - continuing operations
Depreciation and amortization - discontinued operations
EBITDA and Adjusted EBITDA (j)
Capital expenditures - maintenance and growth (k)
Acquisitions
Retail gallons sold
Propane
Fuel oil and refined fuels
September
29, 2007
September
30, 2006 (a)
Year Ended
September
24, 2005
September
25, 2004 (b)
September
27, 2003
$
1,439,563
1,273,482
1,485
-
$
1,657,130
1,521,316
6,076
-
$
1,615,555
1,546,531
2,775
656
$
1,301,943
1,229,578
2,942
3,177
$
729,680
653,457
-
-
164,596
-
35,596
1,853
3,800
123,347
1,887
2,053
127,287
129,738
-
40,680
764
-
88,294
-
2,446
90,740
65,593
36,242
40,374
803
-
(11,826)
976
2,774
(8,076)
66,246
-
40,832
3
-
25,411
26,332
2,561
54,304
76,223
-
33,629
202
-
42,392
2,483
3,794
48,669
3.79
3.91
3.89
2.85
$
2.76
2.84
2.83
2.53
$
(0.38)
(0.26)
(0.26)
2.45
$
0.84
1.79
1.78
2.41
$
1.63
1.87
1.86
2.33
$
$
96,586
282,211
975,218
$
60,571
235,351
945,566
$
14,411
236,803
959,305
$
53,481
252,894
988,323
$
15,765
98,912
668,492
196,410
548,538
63,993
208,230
$
-
192,616
548,304
103,945
170,151
(1,969)
$
194,987
575,295
112,907
159,199
(1,779)
$
202,024
515,915
102,266
238,880
852
$
94,802
383,826
105,786
165,950
1,567
$
$
$
145,957
(19,689)
(90,253)
$
170,321
(19,092)
(105,069)
$
$
$
39,005
(24,631)
(53,444)
$
93,065
(196,557)
141,208
$
$
$
57,300
(4,859)
(77,631)
$
28,790
452
197,778
26,756
$
-
$
32,653
498
165,335
23,057
$
-
$
37,260
502
107,105
29,301
$
-
$
36,236
507
131,882
26,527
211,181
$
$
26,978
542
110,020
14,050
$
-
432,526
104,506
466,779
145,616
516,040
244,536
537,330
220,469
491,451
-
22
(a) Fiscal 2006 includes 53 weeks of operations compared to 52 weeks in each of fiscal 2007, 2005, 2004 and
2003.
(b) Fiscal 2004 includes the results from our acquisition of substantially all of the assets and operations of Agway
Energy from December 23, 2003, the date of acquisition.
(c) During fiscal 2007, we incurred $1.5 million in charges associated with severance for positions eliminated
unrelated to any specific plan of restructuring. During fiscal 2006, we incurred $6.1 million in restructuring
charges associated primarily with severance costs from our field realignment efforts initiated during the fourth
quarter of fiscal 2005, including the restructuring of our HVAC segment. During fiscal 2005, we incurred $2.8
million in restructuring charges associated primarily with severance costs from the realignment of our field
operations. During fiscal 2004, we incurred $2.9 million in restructuring charges to integrate our assets,
employees and operations with Agway Energy assets, employees and operations.
(d) During fiscal 2005, we recorded a non-cash charge of $0.7 million related to the impairment of goodwill in our
HVAC segment. During fiscal 2004, we recorded a non-cash charge of $3.2 million related to impairment of
goodwill for one of our reporting units acquired in fiscal 1999.
(e) These amounts include gains from the disposal of property, plant and equipment of $2.8 million for fiscal
2007, $1.0 million for fiscal 2006, $2.0 million for fiscal 2005, $0.7 million for fiscal 2004 and $0.6 million
for fiscal 2003.
(f) During fiscal 2005, we incurred a one-time charge of $36.2 million as a result of our March 31, 2005 debt
refinancing to reflect the loss on debt extinguishment associated with a prepayment premium of $32.0
million and the write-off of $4.2 million of unamortized bond issuance costs associated with the previously
outstanding senior notes.
(g) Gain on disposal of discontinued operations for fiscal 2007 of $1.9 million reflects the exchange, in a non-
cash transaction, of nine non-strategic customer service centers for three customer service centers of another
company in Alaska, as well as the sale of three additional customer service centers for net cash proceeds of
$1.3 million. Gain on disposal of discontinued operations for fiscal 2005 of $1.0 million reflects the
finalization of certain purchase price adjustments with the buyer of the customer service centers sold during
fiscal 2004. Gain on disposal of discontinued operations for fiscal 2004 of $26.3 million reflects the sale of
24 customer service centers for net cash proceeds of approximately $39.4 million. Gain on disposal of
discontinued operations for fiscal 2003 of $2.5 million reflects the sale of nine customer service centers for
net cash proceeds of approximately $7.2 million. The gains on disposal have been accounted for within
discontinued operations pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 144,
''Accounting for the Impairment or Disposal of Long-Lived Assets'' (“SFAS 144”). Prior period results of
operations attributable to the customer service centers sold during fiscal 2007 were not significant and, as
such, prior period results were not reclassified to remove financial results from continuing operations. The
prior period results of operations attributable to the customer service centers sold in fiscal 2004 have been
reclassified to remove financial results from continuing operations.
(h) On October 2, 2007, we completed the sale of our Tirzah, South Carolina underground granite propane
storage cavern, and associated 62-mile pipeline, for approximately $54.0 million in net proceeds (the “Tirzah
Sale”). The 57.5 million gallon underground storage cavern is connected to the Dixie Pipeline and provides
propane storage for the eastern United States. As a result of this sale, a gain of approximately $40.0 million
will be reported as a gain from the disposal of discontinued operations in our results for the first quarter of
fiscal 2008. The results of operations from the Tirzah facilities have been reported within discontinued
operations. Because the transaction closed subsequent to the end of fiscal 2007, our cash on hand at
September 29, 2007 does not include the net proceeds of approximately $54.0 million.
23
(i) Computations of earnings per Common Unit for the year ended September 29, 2007 were performed in
accordance with SFAS No. 128 “Earnings per Share” (“SFAS 128”) by dividing net income by the weighted
average number of outstanding Common Units. For fiscal 2006, earnings per Common Unit were performed
in accordance with Emerging Issues Task Force consensus 03-6 “Participating Securities and the Two-Class
Method Under FAS 128” (“EITF 03-6”), when applicable. EITF 03-6 requires, among other things, the use
of the two-class method of computing earnings per unit when participating securities exist. The two-class
method is an earnings allocation formula that computes earnings per unit for each class of Common Unit and
participating security according to distributions declared and participating rights in undistributed earnings, as
if all of the earnings were distributed to the limited partners and the General Partner (inclusive of the
previously outstanding IDRs of the General Partner which were considered participating securities for
purposes of the two-class method). Net income was allocated to the Common Unitholders and the General
Partner in accordance with their respective partnership ownership interests, after giving effect to any priority
income allocations for IDRs of the General Partner. As a result of the GP Exchange Transaction on October
19, 2006, the two-class method of computing income per Common Unit under EITF 03-6 is no longer
applicable.
The requirements of EITF 03-6, which we adopted at the end of fiscal 2004, do not apply to the computation
of earnings per Common Unit in periods in which a net loss is reported and therefore did not have any impact
on loss per Common Unit for the year ended September 24, 2005, nor did it have any impact on income per
Common Unit for the years ended September 25, 2004 or September 27, 2003. Application of the two-class
method under EITF 03-6 had a negative impact on income per Common Unit of $0.07 for the year ended
September 30, 2006 compared to the computation under SFAS No. 128. Basic net income (loss) per
Common Unit for the years ended September 24, 2005, September 25, 2004 and September 27, 2003 was
computed under SFAS 128 by dividing net income (loss), after deducting our General Partner’s interest, by
the weighted average number of outstanding Common Units. Diluted net income (loss) per Common Unit
for these same periods was computed by dividing net income (loss), after deducting our General Partner’s
interest, by the weighted average number of outstanding Common Units and unvested restricted units under
our 2000 Restricted Unit Plan. For purposes of the computation of income per Common Unit for the year
ended September 30, 2007, earnings that would have been allocated to the General Partner for the period
prior to the GP Exchange Transaction were not significant.
(j) EBITDA represents net income before deducting interest expense, income taxes, depreciation and
amortization. Our management uses EBITDA as a measure of liquidity and we are including it because we
believe that it provides our investors and industry analysts with additional information to evaluate our ability
to meet our debt service obligations and to pay our quarterly distributions to holders of our Common Units.
In addition, certain of our incentive compensation plans covering executives and other employees utilize
EBITDA as the performance target. We use the term Adjusted EBITDA to reflect the presentation of
EBITDA for the year ended September 24, 2005 exclusive of the impact of the non-cash charge for loss on
debt extinguishment in the amount of $36.2 million. We use this non-GAAP financial measure in order to
assist industry analysts and investors in assessing our liquidity on a year-over-year basis. Moreover, our
revolving credit agreement requires us to use EBITDA or Adjusted EBITDA as a component in calculating
our leverage and interest coverage ratios. EBITDA and Adjusted EBITDA are not recognized terms under
generally accepted accounting principles ("GAAP") and should not be considered as alternatives to net
income or net cash provided by operating activities determined in accordance with GAAP. Because
EBITDA as determined by us excludes some, but not all, items that affect net income, it may not be
comparable to EBITDA or similarly titled measures used by other companies. The following table sets forth
(i) our calculations of EBITDA and Adjusted EBITDA and (ii) a reconciliation of EBITDA and Adjusted
EBITDA, as so calculated, to our net cash provided by operating activities (amounts in thousands):
24
Net income (loss)
Add:
Provision for income taxes
Interest expense, net
Depreciation and amortization
Continuing operations
Discontinued operations
EBITDA
Loss on debt extinguishment
Adjusted EBITDA
Add (subtract):
Provision for income taxes - current
Loss on debt extinguishment
Interest expense, net
Compensation cost recognized under
Restricted Unit Plan
Gain on disposal of property, plant and
equipment, net
Gain on disposal of
discontinued operations
Pension settlement charge
Changes in working capital and other
assets and liabilities
Fiscal
2007
Fiscal
2006
Fiscal
2005
Fiscal
2004
Fiscal
2003
$
127,287
$
90,740
$
(8,076)
$
54,304
$
48,669
5,653
35,596
28,790
452
197,778
-
197,778
764
40,680
32,653
498
165,335
-
165,335
803
40,374
37,260
502
70,863
36,242
107,105
3
40,832
36,236
507
131,882
-
131,882
(1,853)
-
(35,596)
(764)
-
(40,680)
(803)
(36,242)
(40,374)
(3)
-
(40,832)
3,014
2,221
1,805
1,171
(2,782)
(1,000)
(2,043)
(715)
(1,887)
3,269
-
4,437
(976)
-
(26,332)
5,337
202
33,629
26,978
542
110,020
-
110,020
(202)
-
(33,629)
862
(636)
(2,483)
-
(15,986)
40,772
10,533
22,557
(16,632)
Net cash provided by operating activities
$
145,957
$
170,321
$
39,005
$
93,065
$
57,300
(k) Our capital expenditures fall generally into two categories: (i) maintenance expenditures, which include
expenditures for repair and replacement of property, plant and equipment; and (ii) growth capital expenditures
which include new propane tanks and other equipment to facilitate expansion of our customer base and
operating capacity.
25
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of our financial condition and results of operations, which should be read in
conjunction with our historical consolidated financial statements and notes thereto included elsewhere in this
Annual Report.
The following are factors that regularly affect our operating results and financial condition. In addition, our
business is subject to the risks and uncertainties described in Item 1A of this Annual Report.
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 product cost. The unit cost of our products,
particularly propane, fuel oil and natural gas, is subject to volatility as a result of product supply 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. In certain instances, and when market conditions are
favorable as was the case in the fuel oil market during the first half of fiscal 2007, we are able to purchase
product under our supply arrangements at a discount to the market.
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 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.
Product cost changes 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 cost increases fully or immediately, particularly when product
costs increase rapidly. Therefore, average retail sales prices can vary significantly from year to year as product
costs fluctuate with propane, fuel oil, crude oil and natural gas commodity market conditions. In addition, in
periods of sustained higher commodity prices, as has been experienced over the past several fiscal years, retail
sales volumes may be negatively impacted by customer conservation efforts.
Seasonality
The retail propane and fuel oil distribution businesses, as well as the natural gas marketing business, are
seasonal because of the primary use 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 third quarters for distribution to holders of our
Common Units in the first and fourth fiscal quarters.
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 use.
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 and
option agreements with third parties, and use fuel oil futures and option contracts traded on the NYMEX, to
purchase and sell propane and fuel oil at fixed prices in the future. The majority of the futures, forward and
option agreements are used to hedge forecasted purchases of propane or fuel oil and are generally settled at
expiration of the contract. Although we use derivative instruments to reduce the effect of price volatility
associated with 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
five members of management, through enforcement of our Hedging and Risk Management Policy and reported to
our Audit Committee.
As a result of various market factors during the first half of fiscal 2007, particularly commodity price
volatility during the first four months of the fiscal year, we experienced additional margin opportunities due to
favorable pricing under certain supply arrangements and from our supply and risk management activities. These
market conditions generated additional operating profit of approximately $14.7 million during the year ended
September 29, 2007. However, supply and risk management transactions may not always result in increased
product margins and there can be no assurance that these favorable market conditions will be present in the
future in order to provide the additional margin opportunities realized during fiscal 2007. See Item 7A of this
Annual Report.
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 elsewhere in this Annual
Report.
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 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
27
of our Board of Supervisors. We believe that the following are our critical accounting estimates:
Revenue Recognition. Sales of propane, fuel oil and refined fuels are recognized at the time product is delivered to
the customer. Revenue from the sale of appliances and equipment is recognized at the time of sale or when
installation is complete, as applicable. Revenue from repairs, maintenance and other service activities is recognized
upon completion of the service. Revenue from HVAC service contracts is recognized ratably over the service
period. Revenue from the natural gas and electricity business is recognized based on customer usage as determined
by meter readings, plus an amount for natural gas and electricity delivered but unbilled at the end of each
accounting period.
Allowances for Doubtful Accounts. We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. We estimate our allowances for
doubtful accounts using a specific reserve for known or anticipated uncollectible accounts, as well as an
estimated reserve for potential future uncollectible accounts taking into consideration our historical write-offs. If
the financial condition of one or more of our customers were to deteriorate resulting in an impairment in their
ability to make payments, additional allowances could be required.
Pension and Other Postretirement Benefits. We estimate the rate of return on plan assets, the discount rate to
estimate the present value of future benefit obligations and the cost of future health care benefits in determining
our annual pension and other postretirement benefit costs. While we believe that our assumptions are
appropriate, significant differences in our actual experience or significant changes in market conditions may
materially affect our pension and other postretirement benefit obligations and our future expense. See “Liquidity
and Capital Resources - Pension Plan Assets and Obligations” below for additional disclosure regarding pension
benefits.
Self-Insurance Reserves. Our accrued insurance reserves represent the estimated costs of known and anticipated
or unasserted claims under our general and product, workers’ compensation and automobile insurance policies.
Accrued insurance provisions for unasserted claims arising from unreported incidents are based on an analysis of
historical claims data. For each claim, we record a self-insurance provision up to the estimated amount of the
probable claim utilizing actuarially determined loss development factors applied to actual claims data. Our self-
insurance provisions are susceptible to change to the extent that actual claims development differs from historical
claims development. We maintain insurance coverage wherein our net exposure for insured claims is limited to
the insurance deductible, claims above which are paid by our insurance carriers. For the portion of our estimated
self-insurance liability that exceeds our deductibles, we record an asset related to the amount of the liability
expected to be paid by the insurance companies.
Environmental Reserves. We establish reserves for environmental exposures when it is probable that a liability
has been incurred and the amount of the liability can be reasonably estimated based upon our evaluation of costs
associated with environmental remediation and ongoing monitoring activities. Inherent uncertainties exist in
such evaluations due to unknown conditions and changing laws and regulations. These liabilities are adjusted
periodically as remediation efforts progress or as additional technical or legal information becomes available.
Accrued environmental reserves are exclusive of claims against third parties, and an asset is established where
contribution or reimbursement from such third parties, such as governmental agencies, has been agreed and we
are reasonably assured of receiving such contribution or reimbursement. Environmental reserves are not
discounted.
Goodwill Impairment Assessment. We assess the carrying value of goodwill at a reporting unit level, at least
annually, based on an estimate of the fair value of each reporting unit. Fair value of the reporting unit is
estimated using discounted cash flow analyses taking into consideration estimated cash flows in a ten-year
projection period and a terminal value calculation at the end of the projection period.
28
Derivative Instruments and Hedging Activities. See Item 7A of this Annual Report for information about
accounting for derivative instruments and hedging activities.
Executive Overview of Results of Operations and Financial Condition
During fiscal 2007, we took several steps to deliver increasing value to our Unitholders, streamline our cost
structure and further strengthen our balance sheet. Through our efforts over the past two fiscal years to drive
operating efficiencies, reduce costs and improve our customer mix, during fiscal 2007 we reported our second
consecutive year of record earnings. Net income for fiscal 2007 of $127.3 million, or $3.91 per Common Unit,
increased $36.6 million compared to net income of $90.7 million, or $2.84 per Common Unit, in the prior year.
EBITDA (as defined and reconciled below) increased $32.5 million, or 19.7%, to $197.8 million in fiscal 2007,
compared to EBITDA of $165.3 million in fiscal 2006. Fiscal 2007 included 52 weeks of operations compared
to 53 weeks in fiscal 2006.
From a cash flow perspective, despite the sustained period of high commodity prices, we continue to fund
working capital requirements from cash on hand and have not borrowed under our working capital facility since
April 2006. Additionally, during fiscal 2007 we made a voluntary contribution of $25.0 million to our pension
plan from cash on hand in order to fully fund our accumulated benefit obligation which we believe will reduce, if
not eliminate, future funding requirements. Even after this voluntary contribution, we ended fiscal 2007 in a
strong cash position with approximately $96.6 million in cash on hand, an increase of $36.0 million, or 59.4%,
compared to the end of fiscal 2006. On the strength of these earnings and improved cash flows, our Board of
Supervisors increased the annualized distribution rate by $0.35 per Common Unit during fiscal 2007 to $3.00 per
Common Unit, an increase of 13% compared to the annualized distribution rate at the end of fiscal 2006.
Subsequent to the end of fiscal 2007, we also closed on the sale of our Tirzah, South Carolina underground
propane storage facility and related 62-mile pipeline (the “Tirzah Sale”) for net proceeds of $54.0 million, thus
further increasing the cash on hand.
The most significant factor contributing to the growth in earnings was a $49.5 million, or 11.6%, decline in
combined operating and general and administrative expenses (excluding certain items of a non-recurring nature
in both fiscal years as described below) for fiscal 2007 compared to the prior year, despite a $7.0 million increase
in variable compensation costs in line with higher earnings. Since our field and HVAC realignment process
began at the end of fiscal 2005, we have eliminated nearly 1,000 positions and retired nearly 1,000 vehicles from
our fleet, generating significant savings in our fixed cost structure for the foreseeable future.
In addition, our efforts to improve our customer mix through the strategic exit from certain lower margin
business in both the propane and refined fuels segments contributed to the improved year-over-year operating
results. Specifically, in the propane segment, we focused on higher margin residential customers and, in several
instances, exited certain lower margin commercial, industrial and agricultural customers which accounted for a
decrease in volumes sold of approximately 20.9 million gallons compared to the prior year. In the fuel oil and
refined fuels segment, our decision to exit certain lower margin diesel and gasoline business resulted in a
decrease in volumes sold of approximately 21.7 million gallons in fiscal 2007 compared to the prior year.
Overall, retail propane volumes sold during fiscal 2007 decreased 34.3 million gallons, or 7.3%, to 432.5 million
gallons compared to 466.8 million gallons in fiscal 2006. Sales of fuel oil and refined fuels decreased 41.1
million gallons, or 28.2%, to 104.5 million gallons in fiscal 2007 compared to 145.6 million gallons in fiscal
2006. Ongoing customer conservation in the sustained high energy price environment, combined with the impact
of exiting lower margin business, has had the most significant negative impact on volumes, despite colder
average temperatures compared to the prior year. Average temperatures in our service territories were 94% of
normal for fiscal 2007 compared to 89% of normal temperatures in the prior year.
In the commodities market, average posted prices for both propane and fuel oil remained high relative to
historical trends and, in particular, increased sharply towards the end of fiscal 2007. Average posted prices for
29
propane increased 2.6% and average fuel oil prices decreased 1.2% during fiscal 2007 compared to the prior
year. By the end of September 2007 the average posted prices for propane and fuel oil were 41% and 33%
higher, respectively, compared to the average posted prices at the end of September 2006. The impact of lower
volumes was offset to an extent by higher average margins from an improved customer mix, as well as from
additional margin opportunities due to favorable pricing under certain supply arrangements and from hedging and
risk management activities, particularly during the first half of fiscal 2007. We attribute approximately $14.7
million of the fiscal 2007 profitability to the favorable supply and market factors. However, supply and risk
management activities may not always result in increased product margins and there can be no assurance that the
favorable market conditions will be present in the future in order to provide the additional margin contribution
realized in fiscal 2007.
Net income and EBITDA for fiscal 2007 included (i) a non-cash pension settlement charge of $3.3 million to
accelerate the recognition of actuarial losses in our defined benefit pension plan as a result of the level of lump
sum retirement benefit payments made during fiscal 2007; (ii) severance charges of $1.5 million related to
positions eliminated in fiscal 2007; (iii) a $2.0 million gain from the recovery of a substantial portion of legal
fees associated with our successful defense of a matter following the 1999 acquisition of certain propane assets
in North and South Carolina; (iv) gains (reported within discontinued operations) of $1.9 million from the sale
and exchange of customer service centers considered to be non-strategic; and (v) a non-cash adjustment to the
provision for income taxes – deferred taxes of $3.8 million.
EBITDA and net income for fiscal 2006 were unfavorably impacted by $17.5 million as a result of certain
significant items relating mainly to: (i) $6.1 million of restructuring charges primarily related to severance
benefits associated with our field realignment and the restructuring of our HVAC business; (ii) incremental
professional services fees of $5.0 million associated with the GP Exchange Transaction consummated on
October 19, 2006; (iii) a non-cash pension settlement charge of $4.4 million; and (iv) a $2.0 million charge
included within cost of products sold to reduce the carrying value of service inventory that will no longer be
marketed by our customer service centers as a result of our reorganization.
As we look ahead to fiscal 2008, our anticipated cash requirements include: (i) maintenance and growth capital
expenditures of approximately $25.0 million; (ii) approximately $37.0 million of interest and income tax payments;
and, (iii) assuming distributions remain at the current level, approximately $98.1 million of distributions to Common
Unitholders. Based on our current estimate of our cash position, availability under the Revolving Credit
Agreement (unused borrowing capacity under the working capital facility of $124.0 million at September 29,
2007) and expected cash flow from operating activities, we expect to have sufficient funds to meet our current
and future obligations.
30
Results of Operations
Fiscal Year 2007 Compared to Fiscal Year 2006
Fiscal 2007 included 52 weeks of operations compared to 53 weeks in the prior year, which has affected
operating results for all categories discussed below.
Revenues
(Dollars in thousands)
Revenues
Propane
Fuel oil and refined fuels
Natural gas and electricity
HVAC
All other
Total revenues
Fiscal
2007
Fiscal
2006
Decrease
Percent
Decrease
$
1,019,798
262,076
94,352
56,519
6,818
1,439,563
$
$
1,081,573
356,531
122,071
87,258
9,697
1,657,130
$
$
(61,775)
(94,455)
(27,719)
(30,739)
(2,879)
(217,567)
$
(5.7%)
(26.5%)
(22.7%)
(35.2%)
(29.7%)
(13.1%)
Total revenues decreased $217.6 million, or 13.1%, to $1,439.6 million for the year ended September 29,
2007 compared to $1,657.1 million for the year ended September 30, 2006, driven primarily by lower volumes in
each of our operating segments, offset to an extent by the higher average selling prices. As reported by NOAA,
average temperatures in our service territories were 6% warmer than normal for fiscal 2007 compared to 11%
warmer than normal temperatures in fiscal 2006. Lower volumes, despite the colder average temperatures
compared to the prior year, were attributed to ongoing customer conservation driven by high energy costs, our
ongoing efforts to improve our customer mix by exiting certain lower margin accounts, as well as the impact of
the additional week of operations in the prior year.
Revenues from the distribution of propane and related activities of $1,019.8 million for the year ended
September 29, 2007 decreased $61.8 million, or 5.7%, compared to $1,081.6 million in the prior year, primarily
due to lower volumes, offset to an extent by higher average selling prices. Retail propane gallons sold in fiscal
2007 decreased 34.3 million gallons, or 7.3%, to 432.5 million gallons from 466.8 million gallons in the prior
year. Propane volumes sold were negatively affected by customer conservation efforts, and our effort to focus on
higher margin residential customers. Average propane selling prices increased 5.1% year-over-year as a result of
higher commodity prices for propane and a more favorable customer mix. The average posted price of propane
during fiscal 2007 increased 2.6% compared to the average posted prices in the prior year. Additionally,
included within the propane segment are revenues from wholesale and risk management activities of $44.8
million for the year ended September 29, 2007, which decreased $29.6 million, or 39.8%, compared to the prior
year primarily due to lower risk management activity in the continued high price environment.
Revenues from the distribution of fuel oil and refined fuels of $262.1 million for the year ended September
29, 2007 decreased $94.5 million, or 26.5%, from $356.5 million in the prior year. Fuel oil and refined fuels
gallons sold in fiscal 2007 decreased 41.1 million gallons, or 28.2%, to 104.5 million gallons compared to 145.6
million gallons in the prior year. Lower volumes in our fuel oil and refined fuels segment were attributable
primarily to our continued efforts to exit certain lower margin gasoline and low sulfur diesel businesses which
resulted in an approximate decrease of 21.7 million gallons, or 53% of the total volume decline compared to the
prior year. Average selling prices in our fuel oil and refined fuels segment increased 2.4% as a result of the
decreased emphasis on lower priced gasoline and diesel businesses. The average posted price of fuel oil during
fiscal 2007 decreased 1.2% compared to the average posted prices in the prior year, yet increased sharply during
31
September 2007 compared to the prior year.
Revenues in our natural gas and electricity marketing segment decreased $27.7 million, or 22.7%, to $94.4
million in fiscal 2007 primarily from lower volumes and lower average selling prices for both natural gas and
electricity. Revenues in our HVAC segment declined 35.2%, to $56.5 million during fiscal 2007 compared to
$87.3 million in the prior year, primarily as a result of the decision during the third quarter of fiscal 2006 to
reorganize the HVAC segment and to reduce the level of stand alone HVAC installation activities. The focus of
our ongoing service offerings will be in support of our existing propane, refined fuels and natural gas and
electricity segments, thus reducing overall HVAC segment revenues.
Cost of Products Sold
(Dollars in thousands)
Cost of products sold
Propane
Fuel oil and refined fuels
Natural gas and electricity
HVAC
All other
Total cost of products sold
Fiscal
2007
Fiscal
2006
Decrease
Percent
Decrease
$
$
573,305
194,213
77,116
16,847
3,937
865,418
$
635,365
272,052
102,687
35,972
5,721
1,051,797
$
$
(62,060)
(77,839)
(25,571)
(19,125)
(1,784)
(186,379)
$
(9.8%)
(28.6%)
(24.9%)
(53.2%)
(31.2%)
(17.7%)
As a percent of total revenues
60.1%
63.5%
The cost of products sold reported in the consolidated statements of operations represents the weighted
average unit cost of propane and fuel oil sold, as well as the cost of natural gas and electricity, 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. 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 in each quarterly reporting period within cost of products sold. Cost of products sold is reported
exclusive of any depreciation and amortization; these amounts are reported separately within the consolidated
statements of operations.
Cost of products sold decreased $186.4 million, or 17.7%, to $865.4 million for the year ended September
29, 2007, compared to $1,051.8 million in the prior year. The decrease results primarily from the lower sales
volumes described above, as well as the impact of various favorable market factors impacting our supply and risk
management activities which provided incremental margin opportunities in fiscal 2007. We attribute
approximately $14.7 million of the fiscal 2007 margins to these favorable market conditions that may not be
present in the future. Additionally, cost of products sold for fiscal 2007 included a $7.6 million unrealized (non-
cash) loss representing the net change in fair values of derivative instruments under SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities,” as amended (“SFAS 133”), compared to a $14.5 million
unrealized (non-cash) gain in the prior year (see Item 7A of this Annual Report for information on our policies
regarding the accounting for derivative instruments).
Cost of products sold associated with the distribution of propane and related activities of $573.3 million
decreased $62.1 million, or 9.8%, compared to the prior year. Lower sales volumes resulted in a $41.3 million
decrease in cost of products sold during fiscal 2007 compared to the prior year, partially offset by higher
commodity prices which had an unfavorable impact of $0.7 million compared to the prior year. In addition, the
32
impact of mark-to-market adjustments for derivative instruments under SFAS 133 resulted in a $3.8 million
increase in cost of products sold as fiscal 2007 included a $1.9 million unrealized (non-cash) loss, compared to a
$1.9 million unrealized (non-cash) gain in the prior year. Wholesale and risk management activities resulted in a
$25.6 million decrease in cost of products sold compared to the prior year due to lower risk management
activities.
Cost of products sold associated with our fuel oil and refined fuels segment of $194.2 million decreased
$77.8 million, or 28.6%, compared to the prior year. Lower sales volumes and lower commodity prices resulted
in a decrease in cost of products sold of $80.4 million and $15.8 million, respectively, during fiscal 2007
compared to the prior year. These declines were partially offset by the impact of mark-to-market adjustments for
derivative instruments under SFAS 133, which resulted in a $18.3 million increase in cost of products sold as
fiscal 2007 included a $5.7 million unrealized (non-cash) loss, compared to a $12.6 million unrealized (non-cash)
gain in the prior year.
Cost of products sold in our natural gas and electricity segment of $77.1 million decreased $25.6 million, or
24.9%, compared to prior year primarily due to lower revenues.
Cost of products sold in our HVAC segment of $16.8 million decreased $19.1 million, or 53.2%, compared
to prior year primarily due to lower revenues and a charge of $3.5 million in fiscal 2006 to reduce the carrying
value of service inventory that is no longer actively marketed by our customer service centers.
For the year ended September 29, 2007, total cost of products sold represented 60.1% of revenues compared
to 63.5% in the prior year, primarily as a result of an improved customer mix from our decision to exit certain
lower margin customers in both the propane and fuel oil and refined fuels segments, as well as the impact of
various favorable market factors impacting our supply and risk management activities and the lower HVAC
activities.
Operating Expenses
(Dollars in thousands)
Operating expenses
As a percent of total revenues
Fiscal
2007
322,852
22.4%
$
Fiscal
2006
373,305
22.5%
$
Decrease
$
(50,453)
Percent
Decrease
(13.5%)
All costs of operating our retail distribution and appliance sales and service operations are reported within
operating expenses in the 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.
Operating expenses of $322.9 million for the year ended September 29, 2007 decreased $50.5 million, or
13.5%, compared to $373.3 million in the prior year, which included an additional week of operations. In fiscal
2007, we realized the full-year effect of the operating efficiencies, lower headcount and lower vehicle count
resulting from our field and HVAC reorganizations that began at the end of the third quarter of fiscal 2005 and
continued into the beginning of fiscal 2007. The most significant cost savings were experienced in payroll and
benefit related expenses which declined $28.5 million, as well as a decrease of $7.1 million in vehicle
expenditures and savings in other costs of $16.5 million to operate our customer service centers. These cost
savings were offset to an extent by a $2.7 million increase in variable compensation resulting from the improved
earnings in fiscal 2007 compared to the prior year. In addition, fiscal 2007 operating expenses include a non-
33
cash pension settlement charge of $3.3 million, which was $1.1 million lower than the prior year charge of $4.4
million, in order to accelerate the recognition of a portion of unrecognized actuarial losses in our defined benefit
pension plan as a result of the level of lump sum retirement benefit payments made during each of the respective
fiscal years.
General and Administrative Expenses
(Dollars in thousands)
General and administrative expenses
As a percent of total revenues
Fiscal
2007
Fiscal
2006
$
56,422
3.9%
$
63,561
3.8%
Decrease
$
(7,139)
Percent
Decrease
(11.2%)
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 consolidated statements of operations.
General and administrative expenses of $56.4 million for the year ended September 29, 2007 were $7.1
million, or 11.2%, lower compared to $63.6 million in fiscal 2006. The decrease was primarily attributable to a
$5.0 million reduction in professional services fees incurred in the prior year associated with the GP Exchange
Transaction consummated on October 19, 2006, as well as $4.4 million in higher costs incurred in the prior year
associated with our field realignment effort. The reduction in professional services fees also includes a $2.0
million gain from our recovery of a substantial portion of legal fees associated with our successful defense of a
matter following the 1999 acquisition of certain propane assets in North and South Carolina. These cost savings
were offset to an extent by a $4.3 million increase in variable compensation resulting from the improved earnings
in fiscal 2007 compared to the prior year.
Restructuring Charges and Severance Costs. For the year ended September 29, 2007, we recorded a charge of
$1.5 million related to severance costs incurred associated with positions eliminated during fiscal 2007 unrelated
to a specific plan of restructuring. For the year ended September 30, 2006, we recorded a restructuring charge of
$6.1 million related primarily to severance costs incurred to effectuate our field realignment and HVAC
restructuring initiatives during fiscal 2006.
Depreciation and Amortization
(Dollars in thousands)
Depreciation and amortization
As a percent of total revenues
Fiscal
2007
Fiscal
2006
$
28,790
2.0%
$
32,653
2.0%
Decrease
$
(3,863)
Percent
Decrease
(11.8%)
Depreciation and amortization expense for the year ended September 29, 2007 decreased $3.9 million, or
11.8%, compared to the prior year primarily as a result of lower amortization expense on intangible assets that
have been fully amortized, coupled with lower depreciation from asset retirements. Fiscal 2006 depreciation and
amortization expense included a $1.1 million asset impairment charge associated with our field realignment
efforts, as well as the write-down of certain assets.
34
Interest Expense, net
(Dollars in thousands)
Interest expense, net
As a percent of total revenues
Fiscal
2007
Fiscal
2006
$
35,596
2.5%
$
40,680
2.5%
Decrease
$
(5,084)
Percent
Decrease
(12.5%)
Net interest expense decreased $5.1 million, or 12.5%, to $35.6 million in fiscal 2007. During fiscal 2007,
there were no borrowings under our working capital facility as seasonal working capital needs have been funded
through improved cash flow and cash on hand, resulting in lower interest expense. In the prior year period,
average borrowings under our working capital facility amounted to $13.4 million with a peak borrowing level of
$84.0 million. Additionally, as a result of increased cash on hand, interest income on invested cash has increased
compared to the prior year, thus reducing net interest expense.
Discontinued Operations. During the first quarter of fiscal 2007, in a non-cash transaction, we completed a
transaction in which we disposed of nine customer service centers considered to be non-strategic in exchange for
three customer service centers of another company located in Alaska. We reported a $1.0 million gain within
discontinued operations in the first quarter of fiscal 2007 for the amount by which the fair value of assets
relinquished exceeded the carrying value of the assets relinquished. As part of our overall business strategy, we
continually monitor and evaluate existing operations in order to identify opportunities to optimize return on
assets by selectively divesting operations in slower growing or non-strategic markets. During fiscal 2007, we
also sold three customer service centers for net cash proceeds of $1.3 million and recorded a gain on sale of $0.9
million which has been accounted for in accordance with SFAS 144.
On October 2, 2007, we completed the sale of our Tirzah, South Carolina underground granite propane
storage cavern, and associated 62-mile pipeline, for approximately $54.0 million in net proceeds. The 57.5
million gallon underground storage cavern is connected to the Dixie Pipeline and provides propane storage for
the eastern United States. As part of the agreement, we entered into a long-term storage arrangement with the
purchaser of the cavern that will enable us to continue to meet the needs of our retail operations, consistent with
past practices. As a result of this sale, a gain of approximately $40.0 million will be reported as a gain from the
disposal of discontinued operations in our results for the first quarter of fiscal 2008. The results of operations
from the Tirzah facilities have been reported within discontinued operations. Because the transaction closed
subsequent to the end of fiscal 2007, our cash on hand at September 29, 2007 does not include the approximate
$54.0 million of net proceeds from the sale.
Net Income and EBITDA. We reported net income of $127.3 million, or $3.91 per Common Unit, for the year
ended September 29, 2007 compared to net income of $90.7 million, or $2.84 per Common Unit, in the prior
year. EBITDA for fiscal 2007 of $197.8 million increased $32.5 million, or 19.7%, compared to EBITDA of
$165.3 million in the prior year.
Net income and EBITDA for fiscal 2007 included (i) the non-cash pension settlement charge of $3.3 million;
(ii) severance costs of $1.5 million related to positions eliminated; (iii) a gain of $2.0 million from the recovery
of a substantial portion of legal fees associated with the successful defense of a matter following the 1999
acquisition of certain propane assets in North and South Carolina; (iv) gains (reported within discontinued
operations) of $1.9 million from the sale and exchange of customer service centers considered to be non-
strategic; and (v) a non-cash adjustment to the provision for income taxes – deferred taxes of $3.8 million.
By comparison, EBITDA and net income for fiscal 2006 were unfavorably impacted by $17.5 million and
$18.6 million, respectively, as a result of certain significant items relating mainly to (i) $6.1 million of
35
restructuring charges primarily related to severance benefits associated with our field realignment and the
restructuring of our HVAC business; (ii) incremental professional services fees of $5.0 million associated with
the GP Exchange Transaction consummated on October 19, 2006; (iii) a non-cash pension settlement charge of
$4.4 million; (iv) a charge of $2.0 million within cost of products sold to reduce the carrying value of service
inventory that will no longer be marketed by our customer service centers; and (v) $1.1 million included within
depreciation and amortization expense attributable to impairment of assets affected by the field realignment.
EBITDA represents net income before deducting interest expense, income taxes, depreciation and
amortization. Our management uses EBITDA as a measure of liquidity and we are including it because we
believe that it provides our investors and industry analysts with additional information to evaluate our ability to
meet our debt service obligations and to pay our quarterly distributions to holders of our Common Units. In
addition, certain of our incentive compensation plans covering executives and other employees utilize EBITDA
as the performance target. We use this non-GAAP financial measure in order to assist industry analysts and
investors in assessing our liquidity on a year-over-year basis. Moreover, our revolving credit agreement requires
us to use EBITDA as a component in calculating our leverage and interest coverage ratios. EBITDA is not a
recognized term under GAAP and should not be considered as an alternative to net income or net cash provided
by operating activities determined in accordance with GAAP. Because EBITDA as determined by us excludes
some, but not all, items that affect net income, it may not be comparable to EBITDA or similarly titled measures
used by other companies.
The following table sets forth (i) our calculations of EBITDA and (ii) a reconciliation of EBITDA, as so
calculated, to our net cash provided by operating activities:
(Dollars in thousands)
Net income (loss)
Add:
Provision for income taxes
Interest expense, net
Depreciation and amortization - continuing operations
Depreciation and amortization - discontinued operations
EBITDA
Add (subtract):
Provision for income taxes - current
Interest expense, net
Compensation cost recognized under Restricted Unit Plan
Gain on disposal of property, plant and equipment, net
Gain on disposal of discontinued operations
Pension settlement charge
Changes in working capital and other assets and liabilities
Year Ended
September 29,
2007
September 30,
2006
$
127,287
$
90,740
5,653
35,596
28,790
452
197,778
(1,853)
(35,596)
3,014
(2,782)
(1,887)
3,269
(15,986)
764
40,680
32,653
498
165,335
(764)
(40,680)
2,221
(1,000)
-
4,437
40,772
Net cash provided by operating activities
$
145,957
$
170,321
36
Fiscal Year 2006 Compared to Fiscal Year 2005
Fiscal 2006 includes 53 weeks of operations compared to 52 weeks in the prior year, which has affected
operating results for all categories discussed below.
Revenues
(Dollars in thousands)
Revenues
Propane
Fuel oil and refined fuels
Natural gas and electricity
HVAC
All other
Total revenues
Fiscal
2006
Fiscal
2005
Increase /
(Decrease)
$
1,081,573
356,531
122,071
87,258
9,697
1,657,130
$
$
965,264
431,223
102,803
106,115
10,150
1,615,555
$
$
116,309
(74,692)
19,268
(18,857)
(453)
41,575
$
Percent
Increase /
(Decrease)
12.0%
(17.3%)
18.7%
(17.8%)
(4.5%)
2.6%
Total revenues increased $41.5 million, or 2.6%, to $1,657.1 million for the year ended September 30, 2006
compared to $1,615.6 million for the year ended September 24, 2005, driven primarily by higher average selling
prices resulting from significantly higher commodity prices, offset to an extent by lower volumes in our propane
and fuel oil and refined fuels segments. As reported by NOAA, average temperatures in our service territories
were 11% warmer than normal for fiscal 2006 compared to 6% warmer than normal temperatures in fiscal 2005.
While the fiscal 2006 heating season began with temperatures that were 5% warmer than normal in the first
quarter, significantly warmer than normal temperatures, particularly during the critical heating months of January
and February 2006 which were 20% warmer than normal, had a significant negative impact on volumes sold. In
the commodities markets, the high propane and fuel oil prices experienced throughout fiscal 2005 continued into
fiscal 2006, thus continuing to negatively impact volumes as a result of customer conservation.
Revenues from the distribution of propane and related activities of $1,081.6 million for the year ended
September 30, 2006 increased $116.3 million, or 12.0%, compared to $965.3 million in the prior year, primarily
due to the impact of higher average selling prices in line with significantly higher product costs, offset to an
extent by the impact of lower volumes. Retail propane gallons sold in fiscal 2006 decreased 49.2 million gallons,
or 9.5%, to 466.8 million gallons from 516.0 million gallons in the prior year. Propane volumes sold were
negatively affected by the impact of warmer weather, customer conservation efforts, and our effort to focus on
higher margin residential customers. Average propane selling prices increased 19.9% as a result of higher
commodity prices for propane. The average posted price of propane during fiscal 2006 increased 21.8%
compared to the average posted prices in the prior year. Additionally, included within the propane segment are
revenues from wholesale and risk management activities of $74.4 million for the year ended September 30, 2006
which was comparable to the prior year.
Revenues from the distribution of fuel oil and refined fuels of $356.5 million for the year ended September
30, 2006 decreased $74.7 million, or 17.3%, from $431.2 million in the prior year. Sales of fuel oil and refined
fuels amounted to 145.6 million gallons during fiscal 2006 compared to 244.5 million gallons in the prior year, a
decrease of 98.9 million gallons, or 40.4%. Lower volumes in our fuel oil and refined fuels segment were
attributable primarily to our continued efforts to exit certain lower margin diesel and gasoline businesses which
resulted in an approximate decrease of 51.8 million gallons compared to the prior year, combined with the impact
of high prices on fuel oil volumes, as well as the impact on volumes from the decision to eliminate the 2005
fiscal year fuel oil ceiling program (“Ceiling Program”). Average selling prices in our fuel oil and refined fuels
segment increased 38.8% as a result of higher fuel oil commodity prices, coupled with the decreased emphasis on
37
lower priced diesel and gasoline businesses and the shift in our pricing strategy at the field level following the
elimination of the restrictions from the Ceiling Program. The average posted price of fuel oil during fiscal 2006
increased 21.4% compared to the average posted prices in the prior year.
Revenues for the year ended September 30, 2006 were favorably impacted by an 18.7% increase in our
natural gas and electricity segment, which increased to $122.1 million from $102.8 million in the prior year,
primarily as a result of a rise in electricity volumes coupled with increases in average selling prices for natural
gas and electricity in line with higher commodity prices. Revenues in our HVAC segment declined 17.8%, to
$87.3 million during fiscal 2006 compared to $106.1 million in the prior year, primarily as a result of the
decision during the third quarter of fiscal 2006 to reorganize the HVAC segment and to reduce the level of
HVAC installation activities. The focus of our ongoing service offerings will be in support of our existing
propane, refined fuels and natural gas and electricity segments, thus reducing overall HVAC segment revenues.
Cost of Products Sold
(Dollars in thousands)
Cost of products sold
Propane
Fuel oil and refined fuels
Natural gas and electricity
HVAC
All other
Total cost of products sold
Fiscal
2006
Fiscal
2005
Increase /
(Decrease)
$
635,365
272,052
102,687
35,972
5,721
1,051,797
$
$
545,677
385,501
90,461
42,650
5,456
1,069,745
$
$
89,688
(113,449)
12,226
(6,678)
265
(17,948)
$
Percent
Increase /
(Decrease)
16.4%
(29.4%)
13.5%
(15.7%)
4.9%
(1.7%)
As a percent of total revenues
63.5%
66.2%
Cost of products sold decreased $17.9 million to $1,051.8 million for the year ended September 30, 2006,
compared to $1,069.7 million in the prior year. The decrease results primarily from the lower sales volumes
described above, offset to an extent by higher commodity prices for propane and fuel oil. Cost of products sold
for fiscal 2006 include a $14.5 million unrealized (non-cash) gain representing the net change in fair values of
derivative instruments under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as
amended by SFAS Nos. 137, 138, 149 and 155 (“SFAS 133”), compared to a $2.5 million unrealized (non-cash)
loss in the prior year (see Item 7A of this Annual Report for information on our policies regarding the accounting
for derivative instruments).
Cost of products sold associated with the distribution of propane and related activities of $635.4 million
increased $89.7 million, or 16.4%, compared to the prior year. Higher propane prices resulted in a $106.9
million increase in cost of products sold during fiscal 2006 compared to the prior year, partially offset by
decreased propane volumes which had an impact of $48.0 million. Wholesale and risk management activities
resulted in a $28.0 million increase in cost of products sold compared to the prior year.
Cost of products sold associated with our fuel oil and refined fuels segment of $272.1 million decreased
$113.4 million, or 29.4%, compared to the prior year. Lower sales volumes resulted in a $154.9 million decrease
in cost of products sold during fiscal 2006 compared to the prior year, partially offset by higher commodity
prices which had an impact of $56.5 million compared to the prior year. Cost of products sold as a percentage of
revenues in our fuel oil and refined fuels segment decreased from 89.4% during fiscal 2005 to 76.3% in fiscal
2006 primarily as a result of the elimination of the Ceiling Program which had the effect of restricting fuel oil
margin opportunities in fiscal 2005. The Ceiling Program primarily affected deliveries from February through
38
April 2005 as a result of the decision not to hedge the program; however, the inability to pass on the significant
rise in the commodity prices throughout fiscal 2005 significantly affected margin opportunities. The lost margin
opportunity from this fuel oil Ceiling Program had an estimated negative impact of $21.5 million on fiscal 2005
operating margins in the fuel oil and refined fuels segment. By eliminating this pricing program beginning in
fiscal 2006, we no longer incur the costs of hedging deliveries made under the program and we have been
successful in implementing our market-based pricing strategies in our field operations, without significant
customer losses.
The increase in revenues attributable to our natural gas and electricity segment had a $12.2 million impact on
cost of products sold for the year ended September 30, 2006 compared to the prior year. Cost of products sold in
our HVAC segment declined $10.2 million as a result of lower revenues, partially offset by a charge of $3.5
million to reduce the carrying value of inventory that will no longer be actively marketed by our customer service
centers.
For the year ended September 30, 2006, total cost of products sold represented 63.3% of revenues compared
to 66.0% in the prior year, primarily as a result of the improved pricing strategy in the fuel oil operations
following the elimination of the Ceiling Program, as well as the improved customer mix from our decision to exit
certain lower margin customers in both the propane and fuel oil and refined fuels segments.
Operating Expenses
(Dollars in thousands)
Operating expenses
As a percent of total revenues
Fiscal
2006
373,305
22.5%
$
Fiscal
2005
392,335
24.3%
$
Decrease
$
(19,030)
Percent
Decrease
(4.9%)
Operating expenses of $373.3 million for the year ended September 30, 2006 decreased $19.0 million, or
4.9%, compared to $392.3 million in the prior year, primarily as a result of cost savings achieved through the
aforementioned field realignment efforts and restructuring of our HVAC service offerings. During the fourth
quarter of fiscal 2005, we initiated plans to realign our field operations and, as a second phase of our field
realignment, during the third quarter of fiscal 2006 we initiated plans to restructure our HVAC service offerings
by reducing our HVAC installation activities. These efforts have significantly restructured our operating
footprint and reduced our cost structure through the elimination of more than 400 positions and the retirement of
nearly 700 vehicles from our fleet through the creation of routing efficiencies, generating significant savings in
our fixed cost structure. As a result, payroll and benefit related expenses declined $16.6 million and savings in
other operating expenses amounted to $10.6 million. In addition, bad debt expense decreased $2.4 million from
improved collection efforts. These cost savings were offset to an extent by a $6.2 million increase in variable
compensation resulting from the improved earnings in fiscal 2006 compared to the prior year. Additionally,
fiscal 2006 operating expenses include a $4.4 million non-cash pension settlement charge in order to accelerate
the recognition of a portion of unrecognized actuarial losses in our defined benefit pension plan as a result of the
level of lump sum benefit payments made during fiscal 2006 from the reduction in headcount.
39
General and Administrative Expenses
(Dollars in thousands)
General and administrative expenses
As a percent of total revenues
Fiscal
2006
Fiscal
2005
$
63,561
3.8%
$
47,191
2.9%
Increase
$
16,370
Percent
Increase
34.7%
General and administrative expenses of $63.6 million for the year ended September 30, 2006 were $16.4
million, or 34.7%, higher compared to $47.2 million in fiscal 2005. The increase was primarily attributable to a
$9.2 million increase in variable compensation in line with increased earnings, incremental professional services
fees of $5.0 million associated with the GP Exchange Transaction consummated on October 19, 2006 and an
increase of $2.2 million in other expenses associated with our field realignment efforts.
Restructuring Charges and Severance Costs and Impairment of Goodwill. For the year ended September 30,
2006, we recorded a restructuring charge of $6.1 million related primarily to severance costs incurred to
effectuate our field realignment and HVAC restructuring initiatives during fiscal 2006 resulting in the
elimination of more than 400 positions. During fiscal 2005, we recorded a $2.8 million restructuring charge
related primarily to employee termination costs incurred as a result of actions taken during fiscal 2005.
During fiscal 2005 we recorded a non-cash charge of $0.7 million related to the impairment of goodwill
associated with our HVAC segment as a result of our annual assessment of the anticipated future cash flows from
that segment.
Depreciation and Amortization
(Dollars in thousands)
Depreciation and amortization
As a percent of total revenues
Fiscal
2006
Fiscal
2005
$
32,653
2.0%
$
37,260
2.3%
Decrease
$
(4,607)
Percent
Decrease
(12.4%)
Depreciation and amortization expense for the year ended September 30, 2006 decreased $4.6 million, or
12.4%, compared to the prior year primarily as a result of lower amortization expense on intangible assets that
have been fully amortized, coupled with lower deprecation from asset retirements. Fiscal 2006 depreciation and
amortization expense included a $1.1 million asset impairment charge associated with our field realignment
efforts, as well as the write-down of certain assets in the all other business segment, compared to a $1.2 million
impairment charge included in depreciation and amortization expense in the prior year.
Interest Expense, net
(Dollars in thousands)
Interest expense, net
As a percent of total revenues
Fiscal
2006
Fiscal
2005
$
40,680
2.5%
$
40,374
2.5%
Increase
$
306
Percent
Increase
0.8%
40
Net interest expense increased $0.3 million, or 0.8%, to $40.7 million in fiscal 2006 as a result of increased
borrowings under our working capital facility during the fiscal 2006 heating season compared to the prior year.
Discontinued Operations. Discontinued operations reflect the income associated with the assets sold in the
Tirzah Sale of $2.4 million and $2.8 million for fiscal year 2006 and 2005, respectively. During fiscal 2005, we
also recorded a gain on sale of $1.0 million to reflect the finalization of certain purchase price adjustments with
the buyer of the customer service centers sold in fiscal 2004.
Net Income (Loss) and EBITDA. We reported net income of $90.7 million for the year ended September 30,
2006 compared to a net loss of $8.1 million in the prior year. EBITDA for fiscal 2006 of $165.3 million
increased $58.2 million, or 54.3%, compared to Adjusted EBITDA of $107.1 million in the prior year.
EBITDA and net income for fiscal 2006 were unfavorably impacted by $17.5 million and $18.6 million,
respectively, as a result of certain significant items relating mainly to (i) $6.1 million of restructuring charges
primarily related to severance benefits associated with our field realignment and the restructuring of our HVAC
business; (ii) incremental professional services fees of $5.0 million associated with the GP Exchange Transaction
consummated on October 19, 2006; (iii) a non-cash pension settlement charge of $4.4 million; (iv) a charge of
$2.0 million within cost of products sold to reduce the carrying value of inventory that will no longer be
marketed by our customer service centers; and (v) $1.1 million included within depreciation and amortization
expense attributable to impairment of assets affected by the field realignment.
By comparison, Adjusted EBITDA and net loss for fiscal 2005 were unfavorably impacted by $3.5 million
and $40.9 million, respectively, as a result of certain significant items relating mainly to (i) a $36.2 million loss
on debt extinguishment associated with our March 31, 2005 debt refinancing; (ii) a $2.8 million restructuring
charge attributable primarily to severance associated with the realignment of our field operations; (iii) a $0.7
million charge attributable to impairment of goodwill associated with our HVAC segment; (iv) a $0.8 million
charge included within amortization expense attributable to the impairment of other intangible assets in our
HVAC segment; and (v) $0.4 million included within depreciation expense attributable to impairment of assets
affected by the field realignment. In addition to the non-recurring items impacting fiscal 2005 results, the most
significant negative impact on operating results was from the approximate $21.5 million impact on margin
opportunities in our fuel oil business from the Ceiling Program.
EBITDA represents net income before deducting interest expense, income taxes, depreciation and
amortization. Our management uses EBITDA as a measure of liquidity and we are including it because we
believe that it provides our investors and industry analysts with additional information to evaluate our ability to
meet our debt service obligations and to pay our quarterly distributions to holders of our Common Units. In
addition, certain of our incentive compensation plans covering executives and other employees utilize EBITDA
as the performance target. We use the term Adjusted EBITDA to reflect the presentation of EBITDA for the year
ended September 24, 2005 exclusive of the impact of the non-cash charge for loss on debt extinguishment in the
amount of $36.2 million. We use this non-GAAP financial measure in order to assist industry analysts and
investors in assessing our liquidity on a year-over-year basis. Moreover, our revolving credit agreement requires
us to use EBITDA or Adjusted EBITDA as a component in calculating our leverage and interest coverage ratios.
EBITDA and Adjusted EBITDA are not recognized terms under GAAP and should not be considered as
alternatives to net income or net cash provided by operating activities determined in accordance with GAAP.
Because EBITDA as determined by us excludes some, but not all, items that affect net income, it may not be
comparable to EBITDA or similarly titled measures used by other companies.
41
The following table sets forth (i) our calculations of EBITDA and Adjusted EBITDA and (ii) a reconciliation
of EBITDA and Adjusted EBITDA, as so calculated, to our net cash provided by operating activities:
(Dollars in thousands)
Net income (loss)
Add:
Provision for income taxes
Interest expense, net
Depreciation and amortization - continuing operations
Depreciation and amortization - discontinued operations
EBITDA
Loss on debt extinguishment
Adjusted EBITDA
Add (subtract):
Provision for income taxes
Loss on debt extinguishment
Interest expense, net
Compensation cost recognized under Restricted Unit Plan
Gain on disposal of property, plant and equipment, net
Gain on disposal of discontinued operations
Pension settlement charge
Changes in working capital and other assets and liabilities
Year Ended
September 30,
2006
September 24,
2005
$
90,740
$
(8,076)
764
40,680
32,653
498
165,335
-
165,335
(764)
-
(40,680)
2,221
(1,000)
-
4,437
40,772
803
40,374
37,260
502
70,863
36,242
107,105
(803)
(36,242)
(40,374)
1,805
(2,043)
(976)
-
10,533
Net cash provided by operating activities
$
170,321
$
39,005
Liquidity and Capital Resources
Analysis of Cash Flows
Operating Activities. Net cash provided by operating activities for the year ended September 29, 2007
amounted to $146.0 million, a decrease of $24.3 million compared to $170.3 million in the prior year. The decrease
was attributable to a $41.7 million increase in working capital and a $15.0 million increase in voluntary
contributions to our defined benefit pension plan compared to the prior year, partially offset by $32.4 million in
increased earnings, after adjusting for non-cash items in both periods (depreciation, amortization compensation
costs recognized under our Restricted Unit Plan, gains on disposal of assets, pension settlement charges and
deferred tax provision). The fiscal 2007 voluntary pension plan contribution of $25.0 million was made to fully
fund our estimated accumulated benefit obligation, thus substantially reducing, if not eliminating, our future
funding requirements. As of September 29, 2007, the funded status of our defined benefit pension plan was $5.5
million, or 103% funded.
In fiscal 2006, net cash provided by operating activities increased $131.3 million to $170.3 million, compared to
$39.0 million in fiscal 2005. The increase was attributable to an $81.0 million decreased investment in working
capital in comparison to the prior year, particularly in decreased accounts receivable balances as a result of steps
taken during fiscal 2006 to improve collection efforts, coupled with $64.1 million higher income, after adjusting
for non-cash items in both periods (depreciation, amortization, pension settlement charge, loss on debt
extinguishment, impairment of goodwill and gains on disposal of assets and customer service centers); offset to
an extent by a decrease in other long-term assets and liabilities of $13.8 million.
42
Investing Activities. Net cash used in investing activities of $19.7 million for the year ended September 29,
2007 consisted of capital expenditures of $26.8 million (including $10.0 million for maintenance expenditures
and $16.8 million to support the growth of operations), offset by net proceeds of $5.8 million from the sale of
property, plant and equipment and proceeds from the sale of certain customer service centers of $1.3 million.
Capital spending in fiscal 2007 increased $3.7 million, or 16.0%, compared to fiscal 2006 primarily as a result of
spending on information technology to finalize the integration of systems from the Agway Acquisition, as well as
the timing of capital spending for our field realignment efforts, particularly to integrate certain customer service
center locations.
Net cash used in investing activities of $19.1 million for the year ended September 30, 2006 consisted of
capital expenditures of $23.1 million (including $11.2 million for maintenance expenditures and $11.9 million to
support the growth of operations), offset by net proceeds of $4.0 million from the sale of property, plant and
equipment. Capital spending in fiscal 2006 decreased $6.2 million, or 21.2%, compared to fiscal 2005 primarily
as a result of (i) efforts to consolidate existing storage assets for better utilization in conjunction with our fiscal
2006 field realignment efforts thereby reducing fiscal 2006 spending needs; and (ii) a reduction from fiscal 2005
spending on information technology for the integration of Agway Energy.
Financing Activities. Net cash used in financing activities for the year ended September 29, 2007 of $90.3
million reflects quarterly distributions to Common Unitholders at a rate of $0.6625 per Common Unit in respect
of the fourth quarter of fiscal 2006, at a rate of $0.6875 per Common Unit in respect of the first quarter of fiscal
2007, at a rate of $0.70 per Common Unit in respect of the second quarter of fiscal 2007 and at a rate of $0.7125
per Common Unit in respect of the third quarter of fiscal 2007. There were no borrowings under our working
capital facility during fiscal 2007, nor have there been any borrowings since April 2006.
Net cash used in financing activities for the year ended September 30, 2006 of $105.1 million reflects the
repayment of short-term borrowings of $26.8 million under our Revolving Credit Agreement and quarterly
distributions to Common Unitholders and the General Partner at a rate of $0.6125 per Common Unit in respect of
the fourth quarter of fiscal 2005 and the first and second quarters of fiscal 2006 and at a rate of $0.6375 per
Common Unit in respect of the third quarter of fiscal 2006 totaling $77.8 million. This distribution amount
includes a $0.3 million payment made to the General Partner reflecting a true-up of previous underpayments
resulting from an error in the computation of quarterly cash distributions to the General Partner. During fiscal
2006, borrowings under the working capital facility reached $84.0 million during the peak heating season, which
was fully repaid by the end of April 2006.
Summary of Long-Term Debt Obligations and Revolving Credit Lines
Our long-term borrowings and revolving credit lines consist of $425.0 million in 6.875% senior notes due
December 2013 (the “2003 Senior Notes”) and a Revolving Credit Agreement at the Operating Partnership level
which provides a five-year $125.0 million term loan due March 31, 2010 (the “Term Loan”) and a separate
working capital facility which provides available credit up to $175.0 million. There were no outstanding
borrowings under the working capital facility as of September 29, 2007. There have been no borrowings under
our working capital facility since April 2006. We have standby letters of credit issued under the working capital
facility of the Revolving Credit Agreement in the aggregate amount of $51.0 million in support of retention
levels under our self-insurance programs and certain lease obligations. Therefore, as of September 29, 2007 we
had available borrowing capacity of $124.0 million under the working capital facility of the Revolving Credit
Agreement. Additionally, under the third amendment to the Revolving Credit Agreement our Operating
Partnership is authorized to incur additional indebtedness of up to $10.0 million in connection with capital leases
and up to $20.0 million in short-term borrowings during the period from December 1 to April 1 in each fiscal
year in order to meet working capital needs during periods of peak demand, if necessary. Because of our
operating results and cash flow, we did not make any such short-term borrowings during fiscal 2007.
43
The 2003 Senior Notes mature on December 15, 2013 and require semi-annual interest payments. We are
permitted to redeem some or all of the 2003 Senior Notes any time on or after December 15, 2008 at redemption
prices specified in the indenture governing the 2003 Senior Notes. In addition, the 2003 Senior Notes have a
change of control provision that would require us to offer to repurchase the notes at 101% of the principal
amount repurchased, if the holders of the notes elected to exercise the right of repurchase. Borrowings under the
Revolving Credit Agreement, including the Term Loan, bear interest at a rate based upon either LIBOR or
Wachovia National Bank's prime rate plus, in each case, the applicable margin. An annual facility fee ranging
from 0.375% to 0.50%, based upon certain financial tests, is payable quarterly whether or not borrowings occur.
In connection with the Term Loan, our Operating Partnership also entered into an interest rate swap contract
with a notional amount of $125.0 million with the issuing lender. Effective March 31, 2005 through March 31,
2010, our Operating Partnership will pay a fixed interest rate of 4.66% to the issuing lender on the notional
principal amount of $125.0 million, effectively fixing the LIBOR portion of the interest rate at 4.66%. In return,
the issuing lender will pay to our Operating Partnership a floating rate, namely LIBOR, on the same notional
principal amount. The applicable margin above LIBOR, as defined in the Revolving Credit Agreement, will be
paid in addition to this fixed interest rate of 4.66%.
Under the Revolving Credit Agreement, our Operating Partnership must maintain a leverage ratio (the ratio
of total debt to EBITDA) of less than 4.0 to 1 and an interest coverage ratio (the ratio of EBITDA to interest
expense) of greater than 2.5 to 1 at the Partnership level. The Revolving Credit Agreement and the 2003 Senior
Notes both contain various restrictive and affirmative covenants applicable to our Operating Partnership and us,
respectively. These covenants include (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. We were in compliance with all covenants and terms of all
of our debt agreements as of September 29, 2007.
Partnership Distributions
We are required to make distributions in an amount equal to all of our Available Cash, as defined in the
Third Amended and Restated Partnership Agreement, as amended, 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. As a result of the GP Exchange Transaction,
all IDRs formerly held by the General Partner have been cancelled and the General Partner is not entitled to
receive any cash distributions in respect of its general partner interests. Accordingly, beginning with the quarterly
distribution paid on November 14, 2006 in respect of the fourth quarter of fiscal 2006, 100% of all cash
distributions are paid to the holders of Common Units, including the 2.3 million Common Units issued in the GP
Exchange Transaction.
On October 25, 2007, we announced a quarterly distribution of $0.75 per Common Unit, or $3.00 on an
annualized basis, in respect of the fourth quarter of fiscal 2007 payable on November 13, 2007 to holders of
record on November 6, 2007. This quarterly distribution included an increase of $0.0375 per Common Unit, or
$0.15 per Common Unit on an annualized basis, from the previous quarterly distribution rate representing the
fifteenth increase since our recapitalization in 1999 and a 13% increase in the quarterly distribution rate since the
fourth quarter of the prior year.
44
Pension Plan Assets and Obligations
Our defined benefit pension plan was frozen to new participants effective January 1, 2000 and, in furtherance
of our effort to minimize future increases in our benefit obligations, effective January 1, 2003, all future service
credits were eliminated. Therefore, eligible participants will receive interest credits only toward their ultimate
defined benefit under the defined benefit pension plan. There were no minimum funding requirements for the
defined benefit pension plan during fiscal 2007, 2006 or 2005. During 2007, we made a voluntary cash
contribution from cash on hand of $25.0 million to our defined benefit pension plan in order to fully fund our
estimated accumulated benefit obligation, thus substantially reducing, if not eliminating, our future funding
requirements. As a result of our voluntary contributions and improved asset returns in our pension asset portfolio
during the last several years, the fair value of plan assets exceeded the accumulated benefit obligation of the
defined benefit pension plan by $5.5 million as of September 29, 2007. This overfunded position resulted in the
elimination of the additional minimum liability of $63.5 million with a corresponding increase to accumulated
other comprehensive loss, a component of partners’ capital.
At the end of fiscal 2007, we adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans – An Amendment of FASB Statements No. 87, 88, 103 and 132R” (“SFAS 158”),
which requires companies to recognize the funded status of pension and other postretirement benefit plans as an
asset or liability on sponsoring employers’ balance sheets and to recognize changes in the funded status in
comprehensive income (loss) in the year the changes occur. This adoption resulted in a $48.0 million reduction
to the prepaid pension asset and a $5.0 million decrease to accrued postretirement liability, with the net amount
of $43.0 million recorded as a reduction in the net assets of the Partnership to accumulated other comprehensive
loss. As of September 29, 2007, the fair value of plan assets exceeded the projected benefit obligation of the
defined benefit pension plan by $5.5 million, which was recognized on the balance sheet as an asset in
accordance with SFAS 158.
During fiscal 2007, lump sum benefit payments of $10.8 million exceeded the combined service and interest
costs of the net periodic pension cost. As a result, pursuant to SFAS No. 88 “Employers’ Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” we recorded a
non-cash settlement charge of $3.3 million in order to accelerate recognition of a portion of cumulative
unrecognized losses in the defined benefit pension plan. These unrecognized losses were previously
accumulated as a reduction to partners’ capital and were being amortized to expense as part of our net periodic
pension cost in accordance with SFAS No. 87 “Employers’ Accounting for Pensions.” A similar non-cash
pension settlement charge of $4.4 million was recorded in fiscal 2006 as a result of the level of lump sum benefit
payments. Additional pension settlement charges may be required in future periods depending on the level of
lump sum benefit payments.
The Partnership’s investment policies and strategies, as set forth in the Investment Management Policy and
Guidelines, are monitored by a Benefits Committee comprised of five members of management. During fiscal 2007,
the Benefits Committee proposed and the Board of Supervisors approved contributions to the plan in order to fully
fund the accumulated benefit obligation, as described above, and to change the plan’s asset allocation to reduce
investment risk and more closely match the asset mix to the future cash requirements of the plan. The
implementation of this strategy resulted in the $25.0 million voluntary contribution described above, and a change in
the asset allocation to reflect a greater concentration of fixed income securities.
There can be no assurance that future declines in capital markets, or interest rates, will not have an adverse
impact on our results of operations or cash flow. However, with the overfunded status of the plan, coupled with
the shift in investment strategy to a higher concentration of fixed income securities, we expect over the long-term
that the returns on plan assets should match increases in the accumulated benefit obligation resulting from
interest credits, this maintaining a fully funded status. For purposes of computing the actuarial valuation of
projected benefit obligations, we increased the discount rate assumption from 5.50% as of September 30, 2006 to
6.00% as of September 29, 2007 to reflect current market expectations related to long-term interest rates and the
45
projected duration of our pension obligations based on a benchmark index with similar characteristics as the
expected cash flow requirements of our defined benefit pension plan over the long-term. Additionally, for
purposes of the computation of the net periodic pension cost for fiscal 2007, 2006 and 2005 we assumed
increased long-term rates of return on plan assets of 8.00%, 8.00% and 7.50%, respectively, based on the
investment mix of our pension asset portfolio, historical asset performance and expectations for future
performance. For purposes of the computation of the net periodic pension cost for fiscal 2008, we expect the rate
of return on plan assets will be reduced to reflect the higher concentration of fixed income securities. Based on
information provided by our actuaries, we do not project any future funding requirements.
We also provide postretirement health care and life insurance benefits for certain retired employees. Partnership
employees who were hired prior to July 1993 and retired prior to March 1998 are eligible for such benefits if they
reached a specified retirement age while working for the Partnership. Effective January 1, 2000, we terminated our
postretirement benefit plan for all eligible employees retiring after March 1, 1998. All active and eligible employees
who were to receive benefits under the postretirement plan subsequent to March 1, 1998 were provided an increase
to their accumulated benefits under the defined benefit pension plan. Our postretirement health care and life
insurance benefit plans are unfunded.
Long-Term Debt Obligations and Operating Lease Obligations
Contractual Obligations
Long-term debt obligations and future minimum rental commitments under noncancelable operating lease
agreements as of September 29, 2007 are due as follows:
(Dollars in thousands)
Fiscal
2008
Fiscal
2009
Fiscal
2010
Fiscal
2011
Fiscal
2012 and
thereafter
Total
Long-term debt
Future interest payments
Operating leases
$
-
38,606
12,903
$
-
38,606
9,455
$
125,000
36,259
6,798
$
-
29,219
4,342
$
425,000
73,048
3,114
$
550,000
215,738
36,612
Total debt obligations, cash interest
and lease commitments
$
51,509
$
48,061
$
168,057
$
33,561
$
501,162
$
802,350
Additionally, we have standby letters of credit in the aggregate amount of $51.0 million, in support of
retention levels under our casualty insurance programs and certain lease obligations, which expire periodically
through October 25, 2008.
Operating Leases
We lease certain property, plant and equipment for various periods under noncancelable operating leases,
including approximately 53% of our vehicle fleet, approximately 25% of our customer service centers and
portions of our information systems equipment. Rental expense under operating leases was $19.6 million, $27.2
million and $28.6 million for fiscal 2007, 2006 and 2005, respectively. Future minimum rental commitments under
noncancelable operating lease agreements as of September 29, 2007 are presented in the table above.
46
Off-Balance Sheet Arrangements
Guarantees
We have residual value guarantees associated with certain of our operating leases, related primarily to
transportation equipment, with remaining lease periods scheduled to expire periodically through fiscal 2014.
Upon completion of the lease period, we guarantee that the fair value of the equipment will equal or exceed the
guaranteed amount, or we will pay the lessor the difference. Although the fair value of equipment at the end of
its lease term has historically exceeded the guaranteed amounts, the maximum potential amount of aggregate
future payments we could be required to make under these leasing arrangements, assuming the equipment is
deemed worthless at the end of the lease term, is approximately $15.3 million. The fair value of residual value
guarantees for outstanding operating leases was $-0- as of September 29, 2007 and September 30, 2006.
Recently Issued Accounting Standards
In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, “The Fair
Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). Under SFAS 159, entities may elect
to measure specified financial instruments and warranty and insurance contracts at fair value on a contract-by-
contract basis, with changes in fair value recognized in earnings each reporting period. SFAS 159 is effective for
fiscal years beginning after November 15, 2007, which will be our 2009 fiscal year beginning September 28,
2008. We are currently in the process of evaluating the impact that SFAS 159 may have on our consolidated
financial position, results of operations and cash flows.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157
defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value
measurements. It also establishes a fair value hierarchy that prioritizes information used in developing
assumptions when pricing an asset or liability. Like SFAS 159 above, SFAS 157 will be effective for fiscal years
beginning after November 15, 2007, which will be our 2009 fiscal year beginning September 28, 2008. We are
currently in the process of evaluating the impact that SFAS 157 may have on our consolidated financial position,
results of operations and cash flows.
In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes –
An Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 requires companies to determine whether it
is more likely than not that a tax position will be sustained upon examination by the appropriate taxing
authorities before any part of the benefit can be recorded in the financial statements. FIN 48 is effective for
fiscal years beginning after December 15, 2006, which will be our 2008 fiscal year beginning September 30,
2007. We are currently in the process of assessing the impact that FIN 48 will have on our consolidated financial
statements and currently do not expect that adoption of FIN 48 will have a material impact on our financial
position, results of operation or cash flows.
47
ITEM 7A. 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 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. In
certain instances, and when market conditions are favorable as was the case in the fuel oil market during the first
half of fiscal 2007, 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 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, availability of supply and demand given the time of year.
Typically, our on hand priced position does not exceed more than four weeks of our supply needs and, during the
peak heating season, typically not more than two weeks of supply is maintained in inventory. 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 SFAS 133, qualify for and are designated as a normal purchase or normal
sale contract. Such contracts are exempted from the fair value accounting requirements of SFAS 133 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 option contracts, forward contracts and, in certain instances, over-the-counter options (collectively,
“derivative instruments”) to manage the price risk associated with priced, physical product and with future
purchases of the commodities used in our operations, principally propane and fuel oil, as well as to ensure the
availability of product during periods of high demand. Futures and forward 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 current
price and the fixed contract 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.
As a result of various market factors during the first half of fiscal 2007, particularly commodity price
volatility during the first four months of the fiscal year, we experienced additional margin opportunities due to
favorable pricing under certain supply arrangements and from our hedging and risk management activities. We
attribute approximately $14.7 million of the fiscal 2007 profitability to the favorable supply and market factors.
However, supply and risk management transactions may not always result in increased product margins and there
can be no assurance that these favorable market conditions will be present in the future in order to provide the
additional margin opportunities realized during fiscal 2007.
Market Risk
We are subject to commodity price risk to the extent that propane or fuel oil market prices deviate from fixed
contract settlement amounts. Futures traded with brokers on the NYMEX require daily cash settlements in
48
margin accounts. Forward and option contracts are generally settled at the expiration of the contract term either
by physical delivery or through a net settlement mechanism. Market risks associated with the trading of futures,
options and forward contracts 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
Futures and fuel oil options are guaranteed by the NYMEX and, as a result, have minimal credit risk. We are
subject to credit risk with forward and option 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 credit risk of non-performance.
Interest Rate Risk
A portion of our long-term borrowings bear interest at a variable rate based upon either LIBOR or Wachovia
National Bank's prime rate, plus an applicable margin depending on the level of our total leverage. Therefore, we
are subject to interest rate risk on the variable component of the interest rate. We manage our interest rate risk by
entering into interest rate swap agreements. On March 31, 2005, we entered into a $125.0 million interest rate
swap contract in conjunction with the Term Loan facility under the Revolving Credit Agreement. The interest
rate swap is being accounted for under SFAS 133 and has been designated as a cash flow hedge. Changes in the
fair value of the interest rate swap are recognized in other comprehensive (loss) income (“OCI”) until the hedged
item is recognized in earnings. At September 29, 2007, the fair value of the interest rate swap was ($0.3) million
representing an unrealized loss and was included within other liabilities.
Derivative Instruments and Hedging Activities
All of our derivative instruments are reported on the balance sheet, within other current assets or other
current liabilities, at their fair values pursuant to SFAS 133. On the date that futures, forward and option
contracts 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 cost of products sold 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 used to hedge future purchases are immediately recognized in cost of products sold. 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 under SFAS 133, are recorded within cost of products sold as they
occur.
At September 29, 2007, the fair value of derivative instruments described above resulted in derivative assets
(unrealized gains) of $2.5 million included within prepaid expenses and other current assets and derivative
liabilities (unrealized losses) of $0.5 million included within other current liabilities. Cost of products sold
included unrealized (non-cash) losses in the amount of $7.6 million for the year ended September 29, 2007
compared to unrealized (non-cash) gains of $14.5 million for the year ended September 30, 2006, attributable to
the change in fair value of derivative instruments not designated as cash flow hedges. As of September 29, 2007,
unrealized gains on derivative instruments designated as cash flow hedges in the amount of $1.4 million were
included in OCI and are expected to be recognized in earnings during the next 12 months as the hedged
transactions occur.
49
Sensitivity Analysis
In an effort to estimate our exposure to unfavorable market price changes in propane or fuel oil related to our
open positions under derivative instruments, we developed a model that incorporates the following data and
assumptions:
A. The actual fixed contract price of open positions as of September 29, 2007 for each of the future
periods.
B. The estimated future market prices for futures and forward contracts as of September 29, 2007 as
derived from the NYMEX for traded propane or fuel oil futures for each of the future periods.
C. The market prices determined in B. above were adjusted adversely by a hypothetical 10% change in the
future periods and compared to the fixed contract settlement amounts in A. above to project the
potential negative impact on earnings that would be recognized for the respective scenario.
Based on the sensitivity analysis described above, the hypothetical 10% adverse change in market prices for
each of the future months for which a future, forward and/or option contract exists indicates either future losses or a
reduction in potential future gains of $5.8 million as of September 29, 2007. 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. The average posted price of propane on September 29, 2007 at
Mont Belvieu, Texas (a major storage point) was $1.341 per gallon as compared to $0.9475 per gallon on
September 30, 2006. The average posted price of fuel oil on September 29, 2007 at Linden, New Jersey was
$2.2379 per gallon as compared to $1.685 per gallon on September 30, 2006. The average posted price of propane
on November 20, 2007 at Mont Belvieu, Texas was $1.563 per gallon, representing a 16.6% increase since the end
of fiscal 2007. The average posted price of fuel oil on November 20, 2007 at Linden, New Jersey was $2.6739 per
gallon, representing a 19.5% increase since the end of fiscal 2007.
As of September 29, 2007, our open positions under derivative instruments reflected a net short position (sell
contracts) aggregating $32.2 million.
50
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our Consolidated Financial Statements and the Report of Independent Registered Public Accounting Firm
thereon listed on the accompanying Index to Financial Statements (see page F-1) and the Supplemental Financial
Information listed on the accompanying Index to Financial Statement Schedule (see page S-1) are included herein.
Selected Quarterly Financial Data
Due to the seasonality of the retail propane business, our first and second quarter revenues and earnings are
consistently greater than third and fourth quarter results. The following presents our selected quarterly financial
data for the last two fiscal years (unaudited; in thousands, except per unit amounts).
Fiscal 2007
Revenues
Income (loss) before interest expense and provision for
income taxes (b)
Income (loss) from continuing operations (b)
Discontinued operations:
Gain on disposal of discontinued operations (c)
Income from discontinued operations (d)
Net income (loss) (b)
Net income (loss) from continuing operations per
common unit - basic (e)
Net income (loss) per common unit - basic (e)
Net income (loss) per common unit - diluted (e)
Cash (used in) provided by
Operating activities
Investing activities
Financing activities
EBITDA (f)
Retail gallons sold
Propane
Fuel oil and refined fuels
Fiscal 2006
Revenues
Income (loss) before interest expense and provision for
income taxes (b)
Income (loss) from continuing operations (b)
Discontinued operations:
Income from discontinued operations (d)
Net income (loss) (b)
Net income (loss) from continuing operations per
common unit - basic (e)
Net income (loss) per common unit - basic (e)
Net income (loss) per common unit - diluted (e)
Cash (used in) provided by
Operating activities
Investing activities
Financing activities
EBITDA (f)
Retail gallons sold
Propane
Fuel oil and refined fuels
First
Quarter
Second
Quarter
Third
Quarter Quarter (a)(g)
Fourth
Total
Year (a)
$
397,908
$
555,111
$
271,454
$
215,090
$
1,439,563
63,062
53,084
1,002
568
54,654
1.65
1.70
1.69
114,972
105,272
-
588
105,860
3.22
3.24
3.22
7,261
(1,751)
203
408
(1,140)
(0.05)
(0.03)
(0.03)
(20,699)
(33,258)
682
489
(32,087)
(1.02)
(0.99)
(0.99)
164,596
123,347
1,887
2,053
127,287
3.79
3.91
3.89
(5,893)
(6,663)
(21,637)
71,768
$
87,120
(2,048)
(22,464)
123,130
$
46,788
(5,981)
(22,872)
15,303
$
17,942
(4,997)
(23,280)
(12,423)
$
145,957
(19,689)
(90,253)
197,778
$
121,764
28,498
166,796
43,997
80,042
19,144
63,924
12,867
432,526
104,506
$
486,160
$
589,788
$
303,048
$
278,134
$
1,657,130
48,109
37,392
823
38,215
1.12
1.15
1.14
94,345
83,323
706
84,029
2.42
2.44
2.43
(1,097)
(10,904)
431
(10,473)
(0.34)
(0.33)
(0.33)
(11,619)
(21,517)
486
(21,031)
(0.68)
(0.66)
(0.66)
129,738
88,294
2,446
90,740
2.76
2.84
2.83
(8,932)
(5,938)
17,088
57,143
$
63,768
(3,303)
(60,411)
103,949
$
66,048
(3,184)
(41,671)
7,090
$
49,437
(6,667)
(20,075)
(2,847)
$
170,321
(19,092)
(105,069)
165,335
$
133,811
43,816
168,847
54,699
88,661
26,563
75,460
20,538
466,779
145,616
51
(a) Fiscal 2006 includes 53 weeks of operations compared to 52 weeks in fiscal 2007. The fourth quarter of
fiscal 2006 includes 14 weeks of operations compared to 13 weeks in the fourth quarter of fiscal 2007.
(b) These amounts include gains from the disposal of property, plant and equipment of $2.8 million for fiscal
2007 and $1.0 million for fiscal 2006.
(c) Gain on disposal of discontinued operations reflects (i) a $1.0 million gain on the non-cash exchange of nine
non-strategic customer service centers for three customer service centers of another company in Alaska
during the first quarter of fiscal 2007; (ii) a $0.2 million gain on the sale of one customer service center for
net cash proceeds of $0.3 million during the third quarter of fiscal 2007; and (iii) a $0.7 million gain on the
sale of two customer service centers for net cash proceeds of $1.0 million during the fourth quarter of fiscal
2007. These gains were accounted for within discontinued operations pursuant to SFAS 144.
(d) On October 2, 2007, we completed the Tirzah Sale. As a result of this sale, a gain of approximately $40.0
million will be reported as a gain from the disposal of discontinued operations in our results for the first
quarter of fiscal 2008. The results of operations from the Tirzah facilities have been reported within
discontinued operations. Because the transaction closed subsequent to the end of fiscal 2007, our cash on
hand at September 29, 2007 does not include the net proceeds of approximately $54.0 million.
(e) Computations of earnings per Common Unit for the year ended September 29, 2007 were performed in
accordance with SFAS No. 128 “Earnings per Share” (“SFAS 128”) by dividing net income by the weighted
average number of outstanding Common Units. For fiscal 2006, earnings per Common Unit were performed
in accordance with Emerging Issues Task Force consensus 03-6 “Participating Securities and the Two-Class
Method Under FAS 128” (“EITF 03-6”), when applicable. EITF 03-6 requires, among other things, the use
of the two-class method of computing earnings per unit when participating securities exist. The two-class
method is an earnings allocation formula that computes earnings per unit for each class of Common Unit and
participating security according to distributions declared and participating rights in undistributed earnings, as
if all of the earnings were distributed to the limited partners and the General Partner (inclusive of the
previously outstanding IDRs of the General Partner which were considered participating securities for
purposes of the two-class method). Net income was allocated to the Common Unitholders and the General
Partner in accordance with their respective partnership ownership interests, after giving effect to any priority
income allocations for IDRs of the General Partner. As a result of the GP Exchange Transaction on October
19, 2006, the two-class method of computing income per Common Unit under EITF 03-6 is no longer
applicable.
The requirements of EITF 03-6 do not apply to the computation of earnings per Common Unit in periods in
which a net loss is reported and therefore did not have any impact on the third and fourth quarters of fiscal
2006. Net income and income from continuing operations per Common Unit presented in this table for the
first and second quarters of fiscal 2006 and for the year ended September 30, 2006 reflect the impact of the
application of EITF 03-6. Basic net income (loss) per Common Unit computed under SFAS 128 is computed
by dividing net income (loss), after deducting our General Partner's interest, by the weighted average number
of outstanding Common Units. Diluted net income per Common Unit is computed by dividing net income
(loss) by the weighted average number of outstanding Common Units and unvested restricted units granted
under our 2000 Restricted Unit Plan. For purposes of the computation of income per Common Unit for the
year ended September 30, 2007, earnings that would have been allocated to the General Partner for the
period prior to the GP Exchange Transaction were not significant.
(f) EBITDA represents net income before deducting interest expense, income taxes, depreciation and
amortization. Our management uses EBITDA as a measure of liquidity and we are including it because we
believe that it provides our investors and industry analysts with additional information to evaluate our ability
to meet our debt service obligations and to pay our quarterly distributions to holders of our Common Units.
In addition, certain of our incentive compensation plans covering executives and other employees utilize
52
EBITDA as the performance target. We use this non-GAAP financial measure in order to assist industry
analysts and investors in assessing our liquidity on a year-over-year and quarter-to-quarter basis. Moreover,
our revolving credit agreement requires us to use EBITDA as a component in calculating our leverage and
interest coverage ratios. EBITDA is not a recognized term under GAAP and should not be considered as an
alternative to net income or net cash provided by operating activities determined in accordance with GAAP.
Because EBITDA as determined by us excludes some, but not all, items that affect net income, it may not be
comparable to EBITDA or similarly titled measures used by other companies. The following table sets forth
(i) our calculations of EBITDA and (ii) a reconciliation of EBITDA, as so calculated, to our net cash
provided by operating activities (amounts in thousands):
Fiscal 2007
Net income (loss)
Add:
Provision for income taxes
Interest exp ense, net
Dep reciation and amortization:
Continuing op erations
Discontinued op erations
EBIT DA
Add (subtract):
Provision for income taxes - current
Interest exp ense, net
Comp ensation cost recognized under
Restricted Unit Plan
Gain on disp osal of p rop erty ,
p lant and equip ment, net
Gain on disp osal of
discontinued op erations
Pension settlement charge
Changes in working cap ital and other
assets and liabilities
First
Q uarter
S econd
Q uarte r
Third
Q uarte r
Fourth
Q uarte r
Total
Year
$
54,654
$
105,860
$
(1,140)
$
(32,087)
$
127,287
762
9,216
7,010
126
71,768
378
9,322
7,446
124
123,130
389
8,623
7,306
125
15,303
4,124
8,435
7,028
77
(12,423)
5,653
35,596
28,790
452
197,778
(762)
(9,216)
(378)
(9,322)
(389)
(8,623)
(324)
(8,435)
(1,853)
(35,596)
1,297
(137)
949
905
3,014
(247)
(1,815)
(1,002)
-
-
-
(339)
(203)
-
(381)
(2,782)
(682)
3,269
(1,887)
3,269
(67,731)
(24,358)
40,090
36,013
(15,986)
Net cash p rovided by op erating activities
$
(5,893)
$
87,120
$
46,788
$
17,942
$
145,957
53
Fiscal 2006
Net income (loss)
Add:
Provision for income taxes
Interest exp ense, net
Dep reciation and amortiz ation:
Continuing op erations
Discontinued op erations
EBIT DA
Add (subtract):
Provision for income taxes
Interest exp ense, net
Comp ensation cost recogniz ed under
Restricted Unit Plan
(Gain) loss on disp osal of p rop erty ,
p lant and equip ment, net
Pension settlement charge
Changes in working cap ital and other
assets and liabilities
First
Q uarter
S e cond
Q uarte r
Third
Q uarter
Fourth
Q uarter
Total
Year
$
38,215
$
84,029
$
(10,473)
$
(21,031)
$
90,740
150
10,567
8,089
122
57,143
83
10,939
8,777
121
103,949
121
9,686
7,634
122
7,090
(150)
(10,567)
(83)
(10,939)
(121)
(9,686)
410
9,488
8,153
133
(2,847)
(410)
(9,488)
764
40,680
32,653
498
165,335
(764)
(40,680)
615
(44)
-
561
(577)
-
472
(568)
-
573
2,221
189
4,437
(1,000)
4,437
(55,929)
(29,143)
68,861
56,983
40,772
Net cash p rovided by op erating activities
$
(8,932)
$
63,768
$
66,048
$
49,437
$
170,321
(g) The fourth quarter of fiscal 2007 includes a $3.8 million provision for income taxes – deferred taxes related
to the utilization of net operating losses in the first quarter of fiscal 2007.
54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
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 (the “Exchange
Act”)) that are designed to provide reasonable assurance that information required to be disclosed in the
Partnership’s filings 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.
Before filing this Annual Report, the Partnership completed an evaluation under the supervision and with the
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 September 29, 2007. Based on this evaluation, the Partnership’s principal
executive officer and principal financial officer concluded that the Partnership’s disclosure controls and
procedures were effective at the reasonable assurance level as of September 29, 2007.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING. There have not been any
changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the
Exchange Act) during the quarter ended September 29, 2007, that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting. Management’s Report on Internal
Control over Financial Reporting is included below.
In the ordinary course of business, we review our system of internal control over financial reporting and
make changes to our systems and processes to improve controls and increase efficiency, while ensuring that we
maintain an effective internal control environment. Changes may include such activities as implementing new,
more efficient systems and automating manual processes.
MANAGEMENT'S REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING.
Management of the Partnership is responsible for establishing and maintaining adequate internal control over
financial reporting. The Partnership's internal control over financial reporting is designed to provide reasonable
assurance as to the reliability of the Partnership's financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
The Partnership’s management has assessed the effectiveness of the Partnership’s internal control over
financial reporting as of September 29, 2007. In making this assessment, the Partnership used the criteria
established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal
Control-Integrated Framework.” These criteria are in the areas of control environment, risk assessment, control
activities, information and communication, and monitoring. The Partnership's assessment included documenting,
evaluating and testing the design and operating effectiveness of its internal control over financial reporting.
55
Based on the Partnership’s assessment, as described above, management has concluded that, as of September
29, 2007, the Partnership’s internal control over financial reporting was effective.
Management’s assessment of the effectiveness of the Partnership's internal control over financial reporting as
of September 29, 2007 has been audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which appears in the “Report of Independent Registered Public
Accounting Firm” on page F-2 of this Annual Report.
ITEM 9B. OTHER INFORMATION
None.
56
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Partnership Management
Our Partnership Agreement provides that all management powers over our business and affairs are exclusively
vested in our Board of Supervisors and, subject to the direction of the Board of Supervisors, our officers. No
Unitholder has any management power over our business and affairs or actual or apparent authority to enter into
contracts on behalf of or otherwise to bind us. There are currently seven Supervisors, who serve on the Board of
Supervisors pursuant to the terms of the Partnership Agreement. Prior to adoption of the current Partnership
Agreement on October 19, 2006, following approval thereof by the Common Unitholders, Common Unitholders
elected three Supervisors to serve a three-year term and the General Partner appointed two Supervisors. Under the
current Partnership Agreement, all Supervisors are elected by the Common Unitholders for three-year terms and the
two Supervisors appointed by the General Partner, Messrs. Alexander and Dunn, will continue to serve until the
next Tri-Annual Meeting of the Unitholders (currently scheduled for fiscal 2009), at which meeting all Supervisors
will be elected by the Common Unitholders.
On January 31, 2007, acting on authority granted to it under the Partnership Agreement, the Board of
Supervisors increased its size from five to seven Supervisors and appointed John D. Collins and Jane Swift to fill the
vacancies thereby created, effective April 25, 2007. Mr. Collins and Ms. Swift will continue to serve on the Board
of Supervisors until the next Tri-Annual Meeting of the Unitholders, at which time they will be subject to re-election
by the Common Unitholders.
Five Supervisors, who are not officers or employees of the Partnership or its subsidiaries, serve on the Audit
Committee with authority to review, at the request of the Board of Supervisors, specific matters as to which the
Board of Supervisors believes there may be a conflict of interest in order to determine if the resolution or course of
action in respect of such conflict proposed by the Board of Supervisors is fair and reasonable to us. Under the
Partnership Agreement, any matter that receives the “Special Approval” of the Audit Committee (i.e., approval by a
majority of the members of the Audit Committee) is conclusively deemed to be fair and reasonable to us, is deemed
approved by all of our partners and shall not constitute a breach of the Partnership Agreement or any duty stated or
implied by law or equity as long as the material facts known to the party having the potential conflict of interest
regarding that matter were disclosed to the Audit Committee at the time it gave Special Approval. The Audit
Committee also assists the Board of Supervisors in fulfilling its oversight responsibilities relating to (a) integrity
of the Partnership’s financial statements and internal controls over financial reporting; (b) the Partnership’s
compliance with applicable laws, regulations and its code of conduct; (c) independence and qualifications of the
independent registered public accounting firm; and (d) performance of the internal audit function and the
independent registered public accounting firm.
Mr. Collins has advised the Board of Supervisors that he currently serves on the audit committees of four
public companies, including the Partnership. In accordance with the rules of the NYSE, the Board of Supervisors
has determined that Mr. Collins’ simultaneous service on four audit committees would not impair his ability to
effectively serve on the Audit Committee of the Partnership’s Board of Supervisors.
The Board of Supervisors has determined that all five members of the Audit Committee, Harold R. Logan, Jr.,
John Hoyt Stookey, Dudley C. Mecum, John D. Collins and Jane Swift are audit committee financial experts and
are independent within the meaning of the NYSE corporate governance listing standards and in accordance with
Item 407 of Regulation S-K as of the date of this Annual Report. Mr. Logan, Chairman of the Audit Committee,
presides at the regularly scheduled executive sessions of the non-management Supervisors, all of whom are
independent, held as part of the meetings of the Audit Committee. On October 31, 2007, the Audit Committee
approved the nomination to appoint Mr. Collins as Chairman of the Audit Committee, effective January 24,
2008. Investors and other parties interested in communicating directly with the non-management supervisors as a
57
group may do so by writing to the Non-Management Members of the Board of Supervisors, c/o Company
Secretary, Suburban Propane Partners, L.P., P.O. Box 206, Whippany, New Jersey 07981-0206.
Board of Supervisors and Executive Officers of the Partnership
The following table sets forth certain information with respect to the members of the Board of Supervisors
and our executive officers as of November 20, 2007. Officers are appointed by the Board of Supervisors for
one-year terms and Supervisors are elected by the Unitholders for three-year terms.
Name
Mark A. Alexander………………..
Age
49
Michael J. Dunn, Jr. ………………
58
Michael A. Stivala………………… 38
43
A. Davin D’Ambrosio……………..
Paul Abel………………………….
54
William E. Anderson……………… 51
50
Mark Anton, II…………………….
43
Steven C. Boyd……………………
46
Douglas T. Brinkworth……………
54
Michael M. Keating……………….
Mark Wienberg……………………
45
37
Michael Kuglin……………………
Harold R. Logan, Jr. ……………… 63
John Hoyt Stookey….……………..
77
Dudley C. Mecum…………………
John D. Collins……………………
Jane Swift…………………………
72
69
42
Position With the Partnership
Chief Executive Officer; Member of the
Board of Supervisors
President; Member of the Board of Supervisors
Chief Financial Officer and Chief Accounting Officer
Vice President and Treasurer
Vice President, General Counsel and Secretary
Northeast Area Vice President
Vice President -- Business Development
Southeast and Western Area Vice President
Vice President -- Supply
Vice President -- Human Resources and Administration
Vice President -- Operational Planning and Analysis
Controller
Member of the Board of Supervisors (Chairman and Chairman
of the Audit Committee)
Member of the Board of Supervisors (Chairman of the
Compensation Committee)
Member of the Board of Supervisors
Member of the Board of Supervisors
Member of the Board of Supervisors
Mr. Alexander has served as Chief Executive Officer and as a Supervisor since March 1996, and as President
from October 1996 until May 2005. He was Executive Vice Chairman from March 1996 through October 1996.
From 1989 until joining the Partnership, Mr. Alexander was an officer of Hanson Industries (the United States
management division of Hanson plc, a global diversified industrial conglomerate), most recently Senior Vice
President – Corporate Development. Mr. Alexander is the sole member of the General Partner. Mr. Alexander is a
Director of Kaydon Corporation.
Mr. Dunn became President in May 2005. From June 1998 until that date he was Senior Vice President,
becoming Senior Vice President – Corporate Development in November 2002. Mr. Dunn has served as a
Supervisor since July 1998. He was Vice President – Procurement and Logistics from March 1997 until June 1998.
Before joining the Partnership, Mr. Dunn was Vice President of Commodity Trading for the investment banking
firm of Goldman Sachs & Company (“Goldman Sachs”).
Mr. Stivala has served as Chief Financial Officer and Chief Accounting Officer since October 2007. Prior to
that he was Controller and Chief Accounting Officer since May 2005 and Controller since December 2001.
Before joining the Partnership, he held several positions with PricewaterhouseCoopers LLP, an international
accounting firm, most recently as Senior Manager in the Assurance practice. Mr. Stivala is a Certified Public
Accountant and a member of the American Institute of Certified Public Accountants.
58
Mr. D’Ambrosio became Treasurer in November 2002 and was additionally made a Vice President in
October 2007. He served as Assistant Treasurer from October 2000 to November 2002 and as Director of
Treasury Services from January 1998 to October 2000. Mr. D’Ambrosio joined the Partnership in May 1996
after ten years in the commercial banking industry.
Mr. Abel has served as General Counsel and Secretary since June 2006 and was additionally made a Vice
President in October 2007. From May 2005 until June 2006, Mr. Abel was Assistant General Counsel of
Velocita Wireless, L.P., the owner and operator of a nationwide wireless data network. From 1998 until May
2005, Mr. Abel was Vice President, Secretary and General Counsel of AXS-One Inc. (formerly known as
Computron Software, Inc.), an international business software company.
Mr. Anderson has served as Northeast Area Vice President since March 2007. He joined the Partnership in
December 2003 as a Region General Manager upon the Partnership’s acquisition of Agway Energy, where he had
also served as Region General Manager since before 2002.
Mr. Anton has served as Vice President, Business Development since he joined the Partnership in 1999.
Prior to joining the Partnership, Mr. Anton worked as an Area Manager for another large multi-state propane
marketer and was a Vice President at several large investment banking organizations.
Mr. Boyd has served as Southeast and Western Area Vice President since March 2007. Prior to that he was
Managing Director – Area Operations since November 2003 and Regional Manager – Northern California since
May 1997. Mr. Boyd held various managerial positions with predecessors of the Partnership from 1986 through
1996.
Mr. Brinkworth became Vice President – Supply in May 2005. Mr. Brinkworth joined the Partnership in
April 1997 after a nine year career with Goldman Sachs and, since joining the Partnership, has served in various
positions in the supply area, most recently as Managing Director.
Mr. Keating has served as Vice President – Human Resources and Administration since July 1996. He
previously held senior human resource positions at Hanson Industries and Quantum Chemical Corporation
(“Quantum”), a predecessor of the Partnership.
Mr. Wienberg has served as Vice President – Operational Planning and Analysis since October 2007. Prior
to that he served as Managing Director, Financial Planning and Analysis from October 2003 to October 2007 and
as Director, Financial Planning and Analysis from July 2001 to October 2003. Prior to joining the Partnership,
Mr. Wienberg was Assistant Vice President – Finance of International Home Foods Corp., a consumer products
manufacturer.
Mr. Kuglin became Controller in October 2007. For the eight years prior to joining the Partnership he held
several financial and managerial positions with Alcatel-Lucent, a global communications solutions provider.
Prior
international accounting firm
PricewaterhouseCoopers LLP, most recently Manager in the Assurance practice. Mr. Kuglin is a Certified
Public Accountant and a member of the American Institute of Certified Public Accountants.
to Alcatel-Lucent, Mr. Kuglin held several positions with
the
Mr. Logan has served as a Supervisor since March 1996 and was elected as Chairman of the Board of
Supervisors in January 2007. From 2003 to September 2006, Mr. Logan was a Director and Chairman of the
Finance Committee of the Board of Directors of TransMontaigne Inc., which provided logistical services (i.e.
pipeline, terminaling and marketing) to producers and end-users of refined petroleum products. From 1995 to
2002, Mr. Logan was Executive Vice President/Finance, Treasurer and a Director of TransMontaigne Inc. From
1987 to 1995, Mr. Logan served as Senior Vice President of Finance and a Director of Associated Natural Gas
Corporation, an independent gatherer and marketer of natural gas, natural gas liquids and crude oil. Mr. Logan is
also a Director of Graphic Packaging, Inc. and Hart Energy Publishing LLP.
59
Mr. Stookey has served as a Supervisor since March 1996. He was Chairman of the Board of Supervisors from
March 1996 through January 2007. From 1986 until September 1993, he was the Chairman, President and Chief
Executive Officer of Quantum. He served as non-executive Chairman and a Director of Quantum from its
acquisition by Hanson plc in September 1993 until October 1995. Mr. Stookey is a non-executive Chairman of Per
Scholas Inc. (a non-profit organization dedicated to using technology to improve the lives of residents of the South
Bronx).
Mr. Mecum has served as a Supervisor since June 1996. He has been a managing director of Capricorn
Holdings, LLC (a sponsor of and investor in leveraged buyouts) since June 1997. Mr. Mecum was a partner of G.L.
Ohrstrom & Co. (a sponsor of and investor in leveraged buyouts) from 1989 to June 1996.
Mr. Collins has served as a Supervisor since April 2007. He served with KPMG, LLP, an international
accounting firm, from 1962 until 2000, most recently as senior audit partner of its New York office. He has
served as a United States representative on the International Auditing Procedures Committee, a committee of
international accountants responsible for establishing international auditing standards. Mr. Collins is a Director
of Montpelier Re, Mrs. Fields Famous Brands, LLC and Excelsior Funds, and serves as a Trustee of LeMoyne
College.
Ms. Swift has served as a Supervisor since April 2007. She is the founder of WNP Consulting, LLC,
providing expert advice and guidance to early stage education companies. From 2003 - 2006 she was a General
Partner at Arcadia Partners, a venture capital firm focused on the education industry. She currently serves on the
boards of Animated Speech Company, Sally Ride Science Inc. and WellCare Health Plans, and several not-for-
profit boards, including The Republican Majority for Choice and Landmark Volunteers, Inc. Prior to joining
Arcadia, Ms. Swift served for 15 years in Massachusetts state government, becoming Massachusetts’ first woman
governor in 2001.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our Supervisors, executive officers and holders of ten percent or
more of our Common Units to file initial reports of ownership and reports of changes in ownership of our
Common Units with the SEC. Supervisors, executive officers and ten percent Unitholders are required to furnish
the Partnership with copies of all Section 16(a) forms that they file. Based on a review of these filings, we
believe that all such filings were timely made during fiscal 2007.
Codes of Ethics and of Business Conduct
We have adopted a Code of Ethics that applies to our principal executive officer, principal financial officer
and principal accounting officer, and a Code of Business Conduct that applies to all of our employees, officers
and Supervisors. Copies of our Code of Ethics and our Code of Business Conduct are available without charge
from our website at www.suburbanpropane.com or upon written request directed to: Suburban Propane Partners,
L.P., Investor Relations, P.O. Box 206, Whippany, New Jersey 07981-0206. Any amendments to, or waivers
from, provisions of our Code of Ethics or our Code of Business Conduct that apply to our principal executive
officer, principal financial officer and principal accounting officer will be posted on our website.
Corporate Governance Guidelines
We have adopted Corporate Governance Guidelines and Policies in accordance with the NYSE corporate
governance listing standards in effect as of the date of this Annual Report. Copies of our Corporate Governance
Guidelines are available without charge from our website at www.suburbanpropane.com or upon written request
directed to: Suburban Propane Partners, L.P., Investor Relations, P.O. Box 206, Whippany, New Jersey 07981-
0206.
60
Audit Committee Charter
We have adopted a written Audit Committee Charter in accordance with the NYSE corporate governance
listing standards in effect as of the date of this Annual Report. The Audit Committee Charter is reviewed
periodically to ensure that it meets all applicable legal and NYSE listing requirements. Copies of our Audit
Committee Charter are available without charge from our website at www.suburbanpropane.com or upon written
request directed to: Suburban Propane Partners, L.P., Investor Relations, P.O. Box 206, Whippany, New Jersey
07981-0206.
Compensation Committee Charter
Five Supervisors, who are not officers or employees of the Partnership or its subsidiaries, serve on the
Compensation Committee. We have adopted a Compensation Committee Charter in accordance with the NYSE
corporate governance listing standards in effect as of the date of this Annual Report. Copies of our
Compensation Committee Charter are available without charge from our website at www.suburbanpropane.com
or upon written request directed to: Suburban Propane Partners, L.P., Investor Relations, P.O. Box 206,
Whippany, New Jersey 07981-0206.
NYSE Annual CEO Certification
The NYSE requires the Chief Executive Officer of each listed company to submit a certification indicating
that the company is not in violation of the Corporate Governance listing standards of the NYSE on an annual
basis. Mr. Alexander submitted his Annual CEO Certification for 2007 to the NYSE without qualification.
61
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis provides a review of our executive compensation philosophy,
policies and practices with respect to the following executive officers of the Partnership (the “named executive
officers”): the Chief Executive Officer, President, the Chief Financial Officer, the other two most highly
compensated executive officers and one individual, Mr. Jolly, for whom disclosure would have been required but
for the fact that he no longer served as an executive officer at the conclusion of fiscal 2007.
Executive Compensation Philosophy and Components
The objectives of our executive compensation program are as follows:
• The attraction and retention of talented executives who have the skills and experience required to
achieve our goals; and
• The alignment of the short-term and long-term interests of our executive officers with the short-term
and long-term interests of our Unitholders.
We accomplish these objectives by providing our executives with compensation packages that combine
various components that are specifically linked to either short-term or long-term performance measures.
Therefore, our executive compensation packages are designed to achieve our overall goal of sustainable,
profitable growth by rewarding our executive officers for behaviors that facilitate our achieving this goal.
The principal components of the compensation we provide to our named executive officers are as follows:
• Base salary;
• Cash incentives paid under an annual bonus plan;
• Long-term Incentive Plan grants; and
• Discretionary grants of restricted units under the 2000 Restricted Unit Plan.
We align the short-term and long-term interests of our executive officers with the short-term and long-term
interests of our Unitholders by:
• Providing our executive officers with an annual incentive target that encourages them to achieve or
exceed targeted financial results and operating performance for the fiscal year;
• Providing a long-term incentive plan that encourages our executives to implement activities and
practices conducive to sustainable, profitable growth because it permits them to share in benefits
generated in the future; and
• Providing a restricted unit plan that is utilized to retain the services of the participating executive
officers over a five-year period while simultaneously encouraging behaviors conducive to the long-
term appreciation of our Common Units.
Establishing Executive Compensation
The Compensation Committee (the “Committee”) is responsible for overseeing our executive compensation
program. In accordance with its charter, available on our website at www.suburbanpropane.com, the Committee
ensures that the compensation packages provided to our executive officers are designed in accordance with our
compensation philosophy. The Committee reviews and approves the compensation packages of all managing
directors, vice presidents and the named executive officers.
62
Annually, the Vice President of Human Resources prepares a comprehensive analysis of each executive
officer’s past and current compensation to assist the Committee in the assessment and determination of executive
compensation packages for the subsequent fiscal year. The Committee considers a number of factors in
establishing the compensation packages for each executive officer, including, but not limited to, tenure, scope of
responsibility and individual performance. The relative importance assigned to each of these factors by the
Committee may differ from executive to executive. The performance of each of our executive officers is
continually assessed by the Committee and by our highest-ranking executive officers and also factors into the
decision-making process, particularly in relation to promotions and increases in base compensation. In addition,
as part of the Committee’s annual review of each executive officer’s fiscal 2007 total compensation package, the
Committee was provided with benchmarking data for a relevant peer group of companies for comparison
purposes. The benchmarking data is just one of a number of factors considered by the Committee, but is not
necessarily the most persuasive factor.
The benchmarking data was derived from the Mercer Human Resource Consulting, Inc. (“Mercer”)
Benchmark Database containing information obtained from surveys of over 2,500 organizations and 167
positions which may include similarly-sized national propane marketers. The Committee does not base its
benchmarking solely on a peer group of other propane marketers. The use of the Mercer database provides a
broad base of compensation benchmarking information for companies of a similar size to Suburban. The peer
group used for the Suburban positions consisted of organizations included in the Mercer database that report
annual revenues of between $1.0 billion and $2.5 billion per year. The Committee used the median total
compensation paid by the peer group to assess whether the “total cash compensation opportunities” that we
provide to our executive officers are both competitive and commensurate with each executive officer’s position
and corresponding duties. However, due to an overall increase in salaries in the New York area, the Committee
may consider using the mean of the reported data as a benchmark in the future.
In establishing the executive compensation packages for fiscal 2007, the members of the Committee also
focused on lessening the shortfalls between the compensation packages that we provide to our executive officers
and the median compensation paid by the companies whose data underlie the Mercer benchmark database. The
Committee does not, however, set specific percentile targets for total compensation of our executive officers
compared to the total compensation of the peer group.
In making its decisions regarding our fiscal 2007 executive compensation packages, the Committee first
reviewed the total cash compensation opportunities that we provided to our executive officers during fiscal 2006.
Each executive officer’s “total cash compensation opportunities” consist of base salary, an annual cash bonus,
and long-term incentives. The Committee then compared each executive officer’s total cash compensation
opportunity to the total median cash compensation opportunity for the parallel position in the Mercer study. By
focusing on each executive officer’s total cash compensation opportunities as a whole, instead of on single
components of compensation such as base salary, the Committee created fiscal 2007 compensation packages for
our executive officers that emphasize the performance-based components of compensation.
Role of Executive Officers and Compensation Committee in Compensation Process
The Committee establishes and enforces our general compensation philosophy in consultation with our Chief
Executive Officer. The role of our Chief Executive Officer in the executive compensation process is to
recommend individual pay adjustments for the executive officers, other than himself, to the Committee based on
market conditions, our performance, and individual performance. With the assistance of our Vice President of
Human Resources, our CEO presented the Committee with information comparing each executive officer’s
compensation to the median compensation figures provided in the Mercer Database. Additionally, based on our
budgeted fiscal 2007 financial performance, our CEO presented the Committee with budgeted EBITDA for
purposes of setting the targets for our annual cash bonus plan.
63
Among other duties, the Committee has overall responsibility for:
• Reviewing and approving compensation of our Chief Executive Officer, President, Chief Financial
Officer and all other executive officers;
• Reporting to the Board of Supervisors any and all decisions regarding compensation changes for our
Chief Executive Officer, President, Chief Financial Officer and our other executive officers;
• Evaluating and making recommendations to the Board of Supervisors regarding our annual bonus
plan, long-term incentive plan, restricted unit plan, as well as all other compensation policies and
programs;
• Administering and interpreting the compensation plans that constitute each component of our
executive officers’ compensation packages; and
• Engaging consultants, when appropriate, to provide independent, third-party advice on executive
officer-related compensation (in prior fiscal years, the Committee engaged Sibson Consulting during
fiscal 2004 for benchmarking the fiscal 2005 executive officers’ compensation packages and Mercer
during fiscal 2005 for benchmarking our President’s 2006 compensation package).
Allocation Among Components
Under our compensation structure, the mix of base salary, cash bonus and long-term compensation provided
to each executive officer varies depending on their position. The base salary for each executive officer is the
only fixed component of compensation. All other compensation, including annual cash bonuses and long-term
incentive compensation, is variable in nature as it is dependent upon achievement of certain performance
measures. The following table summarizes the components as percentages of each named executive officer’s
total cash compensation opportunity.
Base Salary
Cash
Bonus Target
Long-Term
Incentive
Mark A. Alexander(1)
Robert M. Plante
Michael J. Dunn, Jr.
Steven C. Boyd
Michael M. Keating
Jeffrey S. Jolly(2)
42%
42%
39%
51%
49%
46%
42%
36%
39%
31%
32%
33%
16%
22%
22%
18%
19%
21%
(1) Mr. Alexander’s Long-Term Incentive Plan award is considerably less than Mr. Plante’s and Mr. Dunn’s because under
his employment agreement the percentage applied to his base pay is lower than the percentage applied to the base pay of
each of the other named executive officers.
(2) Pursuant to the terms of his severance agreement, in November 2007, Mr. Jolly was paid his Long-Term Incentive Plan
award granted in fiscal 2005. Under the terms of this severance agreement, Mr. Jolly forfeited all rights to his 2006 and
2007 Long-Term Incentive Plan awards.
In allocating compensation among these elements, we believe that the compensation of our senior-most levels
of management—the levels of management having the greatest ability to influence our performance—should be
approximately 50% performance-based, while lower levels of management should receive a greater portion of
their compensation in base salary. Additionally, our short-term and long-term incentive plans do not provide for
minimum payments and are, thus, truly pay-for-performance compensation plans.
Internal Pay Equity
In determining the different compensation packages for each of our named executive officers, the Committee
takes into consideration a number of factors, including the level of responsibility and influence that each named
executive officer has over the affairs of the Partnership, tenure, individual performance and years in one’s current
position. The relative importance assigned to each of these factors by the Committee may differ from executive
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to executive. The Committee will also consider the existing level of equity ownership of each of our named
executive officers when granting awards under our 2000 Restricted Unit Plan and the 2003 Long-Term Incentive
Plan (see below for a description of both plans). The compensation packages for our Chief Executive Officer
and our President are set forth in their respective employment agreements, as further described below. As a
result, different weight may be given to different components of compensation among each of our named
executive officers. In addition, as discussed in the section above titled “Allocation Among Components,” the
compensation packages that we provide to our senior-most levels of management are, at a minimum, 50%
performance-based. In order to align the interests of senior management with the interests of our Common
Unitholders, we consider it requisite to accentuate the performance-based elements of the compensation packages
that we provide to these individuals because the actions and decisions of these individuals have a direct impact
on our performance.
Base Salary
Base salaries for the named executive officers and, indeed, all of our other executive officers, are reviewed
and approved annually by the Committee. In order to determine the fiscal 2007 base salary increases, the
Committee compared each executive officer’s fiscal 2006 base salary with the corollary median salary provided
in the Mercer study. The Committee determined base salary adjustments, which may be higher or lower than the
comparative data, following an assessment of our overall results as well as each executive officer’s position,
performance and scope of responsibility, while at the same time considering each executive officer’s previous
total cash compensation opportunities. At the beginning of fiscal 2007, each named executive officer received
adjustments to his base salary in accordance with the philosophy and process described above, ranging from 0%
to 28%. A subsequent 8% adjustment was made to Mr. Boyd’s base salary upon his promotion to vice president
during fiscal 2007. In the event of a promotion such as Mr. Boyd’s or a new hire, the Committee reviews and
takes action at its next meeting.
The fiscal 2007 adjustments to each named executive officer’s base salary were as follows:
Mark A. Alexander(1)
Robert M. Plante(2)
Michael J. Dunn, Jr.(3)
Steven C. Boyd(4)
Michael M. Keating
Jeffrey S. Jolly
0%
28%
7%
24%
9%
8%
(1) Because Mr. Alexander’s base salary is set forth under the provisions of his employment agreement, the
Committee did not adjust his base salary.
(2) The Committee’s decision to increase Mr. Plante’s salary by 28% was based on consideration of his
responsibilities as CFO and the increasing complexity of the CFO’s responsibilities resulting from the
promulgation of the Sarbanes-Oxley Act.
(3) Upon the execution of an employment agreement with Mr. Dunn on February 5, 2007, his base salary was
increased by 7% to $400,000.
(4) This percentage represents the total adjustment between Mr. Boyd’s fiscal 2006 base salary and his base
salary upon his promotion to vice president.
The total base salary paid to each named executive officer in fiscal 2007 is reported in the column titled
“Salary ($)” in the Summary Compensation Table below.
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Annual Cash Bonus Plan
Annual cash bonuses (which fall within the SEC’s definition of “Non-Equity Incentive Plan Compensation”
for the purposes of the Summary Compensation Table and otherwise) are earned by our executive officers in
accordance with the performance objective provisions of our annual cash bonus plan. The cash bonuses earned
by Mr. Alexander and Mr. Dunn are the only exceptions to this general rule because their bonus provisions are
established in their respective employment agreements. Although this plan is generally administered using the
formula described below, occasionally the Committee may exercise its broad discretionary powers to decrease or
increase the annual cash bonus paid to a particular executive officer when the Committee recognizes that a
particular executive officer’s performance warrants a decreased or an increased bonus. Such adjustments, if any,
are recommended to the Committee by our Chief Executive Officer. During fiscal 2007, our Chief Executive
Officer did not make any such recommendations to the Committee.
The terms of our annual bonus plan provide for cash payments of a specified percentage (which, in fiscal
2007, ranged from 60% to 100%) of our named executive officers’ annual base salaries (“target cash bonus”) if,
for the fiscal year, actual EBITDA equals the Partnership’s budgeted EBITDA. For purposes of calculating the
annual cash bonus, the Committee may exercise discretion to adjust both budgeted and actual EBITDA for
various items considered to be non-recurring in nature; including, but not limited to, unrealized (non-cash) gains
or losses from the application of SFAS 133 reported within cost of products sold in our statement of operations
(“cash bonus plan EBITDA”). Executive officers have the opportunity to earn between 90% and 110% of their
target cash bonuses, in accordance with the terms of the plan, paralleling the percentage of actual cash bonus
plan EBITDA in relationship to budgeted cash bonus plan EBITDA ranging from 90% to 110%. Under the
annual bonus plan, no bonuses are earned if actual cash bonus plan EBITDA is less than 90% of budgeted cash
bonus plan EBITDA and cash bonuses cannot exceed 110% of the target cash bonus even if actual cash bonus
plan EBITDA is more than 110% of budgeted cash bonus plan EBITDA.
For fiscal 2007, our budgeted cash bonus plan EBITDA was $171.7 million. Our actual cash bonus plan
EBITDA was such that each of our executive officers earned 110% of his target cash bonus. The following table
provides the fiscal 2007 budgeted cash bonus plan EBITDA targets that were established at the October 17, 2006
Compensation Committee meeting:
Fiscal 2007 Budged Cash
Bonus Plan EBITDA
(in Millions)
$188.9
$180.3
$171.7 (1)
$163.1
$154.5
Target Bonus Percentage that
would have been Earned if
Actual Cash Bonus Plan
EBITDA Equaled the Figure
in the Previous Column
110%
105%
100%
95%
90%
(1) Budgeted cash bonus plan EBITDA for fiscal 2007.
The bonuses earned under the annual cash bonus plan by each of our named executive officers are reported in
the column titled “Non-Equity Incentive Plan Compensation ($)” in the Summary Compensation Table below.
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The 2007 target cash bonus percentages and target cash bonuses established for each named executive officer
and the actual cash bonuses earned by each of them during fiscal 2007 are summarized as follows:
Name
2007 Target Cash
Bonus as a % of
Salary
2007 Target Cash
Bonus
2007 Actual Cash
Bonus Earned
Mark A. Alexander(1)
100%
Robert M. Plante
85%
Michael J. Dunn, Jr.(1)(2)
100%
Steven C. Boyd(2)
Michael M. Keating
Jeffrey S. Jolly(3)
60%
65%
65%
$450,000
$255,000
$400,000
$141,000
$136,500
$143,000
$495,000
$280,500
$440,000
$155,100
$150,150
$157,300
(1) Mr. Alexander’s and Mr. Dunn’s target cash bonuses are established by the terms in their respective employment
agreements. See “Employment Agreements” section below.
(2) Both Mr. Dunn and Mr. Boyd received mid-year salary increases, and the Committee agreed to permit their target cash
bonuses to equal their final salaries for the fiscal year multiplied by their respective target cash bonus percentages.
(3) The terms of Mr. Jolly’s severance agreement permit, among other things, payment of his cash bonus, if earned in
accordance with the terms of our annual bonus plan, as if he had remained in our employ during the entire 2007 fiscal
year.
For purposes of establishing the cash bonus targets for fiscal 2008, at its meeting on October 31, 2007 the
Committee reviewed and approved our fiscal 2008 budget. The budget is developed annually using a bottom-up
process factoring in reasonable growth targets from the prior year performance, while at the same time
attempting to reach a good balance between a target that is reasonably achievable, yet not assured. As described
above, executive officers will have the opportunity to earn between 90% and 110% of their target cash bonuses,
paralleling the percentage of actual cash bonus plan EBITDA in relationship to budgeted cash bonus plan
EBITDA ranging from 90% to 110%. Over the past three years, our actual cash bonus plan EBITDA was such
that each of our executive officers earned 110%, 109% and 0% of their respective target cash bonus for fiscal
2007, 2006 and 2005, respectively.
2003 Long-Term Incentive Plan
At the beginning of fiscal 2003, we adopted the 2003 Long-Term Incentive Plan (“LTIP-2”), a phantom unit
plan, as a principal component of our executive compensation program. While the annual cash bonus plan is a
pay-for-performance plan that focuses on our short-term financial goals, LTIP-2 is designed to motivate our
executive officers to focus on long-term financial goals. LTIP-2 measures the market performance of our
Common Units on the basis of total return to our Unitholders (“TRU”) during a three-year measurement period
commencing on the first day of the fiscal year in which an unvested award was granted and compares our TRU to
the TRU of each of the other members of a predetermined peer group, primarily consisting of other master
limited partnerships, approved by the Committee. The predetermined peer group may vary from year-to-year, but
for all current awards, includes Amerigas, Ferrellgas and Inergy (the other propane master limited partnerships).
Unvested awards are granted at the beginning of each fiscal year as a Committee-approved percentage of each
executive officer’s salary. Cash payouts, if any, are earned and paid at the end of the three-year measurement
period.
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LTIP-2 is designed to:
• Align a portion of our executive officers’ compensation opportunities with the long-term goals of our
Unitholders;
• Provide long-term compensation opportunities consistent with market practice;
• Reward long-term value creation; and
• Provide a retention incentive for our executive officers and other key employees.
At the beginning of the three-year measurement period, each executive officer’s unvested grant of phantom
units is calculated by dividing a predetermined percentage (which is 30% for Mr. Alexander and for all other
executive officers is 52%), established upon adoption of LTIP-2, of the executive officer’s target bonus by the
average of the closing prices of our Common Units for the twenty days preceding the beginning of the fiscal year.
At the end of the three-year measurement period, depending on the quartile ranking within which our TRU falls
relative to the other members of the peer group, our executive officers, as well as the other participants, all of
whom are key employees, will receive a cash payout equal to:
• The quantity of the participant’s phantom units multiplied by the average of the closing prices of our
Common Units for the twenty days preceding the conclusion of the three-year measurement period;
• The quantity of the participant’s phantom units multiplied by the sum of the distributions that would
have inured to one of our outstanding Common Units during the three-year measurement period; and
• The sum of the products of the two preceding calculations multiplied by: zero if our performance
falls within the lowest quartile of the peer group; 50% if our performance falls within the second
lowest quartile; 100% if our performance falls within the second highest quartile; and 125% if our
performance falls within the top quartile.
The three-year measurement period of the fiscal 2005 award ended simultaneously with the conclusion of
fiscal 2007. The TRU for the fiscal 2005 award fell within the second highest quartile. The following is a
summary of the cash payouts related to the fiscal 2005 award earned by our named executive officers at the
conclusion of fiscal 2007.
Mark A. Alexander
Robert M. Plante
Michael J. Dunn, Jr.
Steven C. Boyd
Michael M. Keating
Jeffrey S. Jolly
$ 206,923
$ 143,499
$ 239,112
$ 70,349
$ 95,877
$ 103,647
The following is a summary of the quantity of phantom units that signify the unvested grants to our named
executive officers during fiscal years 2006 and 2007 that will be used to calculate cash payments at the end of
each respective award’s three-year measurement period (i.e., at the end of our fiscal year 2008 for the fiscal 2006
award and at the end of our fiscal year 2009 for the fiscal 2007 award).
Mark A. Alexander
Robert M. Plante
Michael J. Dunn, Jr.
Steven C. Boyd
Michael M. Keating
Jeffrey S. Jolly
Fiscal Year
2006 Award
4,328
3,134
6,252
1,645
2,092
-0-
Fiscal Year
2007 Award
4,007
3,936
5,788
2,037
2,107
-0-
The peer group members selected by the Committee for the fiscal 2005 award comprised both energy and
pipeline-related publicly-traded partnerships as well as two energy-related corporations because the Committee
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believed it reasonable to measure our performance against the performance of a peer group consisting of diverse
energy providers. The following table lists, in alphabetical order, the names and ticker symbols of the peer group
used to measure our performance during the fiscal 2005 LTIP-2 award’s three-year measurement period:
2005 LTIP-2 Award Peer Group
(Three-year Measurement Period Completed)
Peer Group Member Name
AmeriGas Partners, L.P.
CH Energy Group, Inc.
Energy Transfer Partners, L.P.
Enterprise Products Partners, L.P.
Ferrellgas Partners, L.P.
Inergy, L.P.
Kinder Morgan Energy Partners, L.P.
Oneok Partners, L.P.
Piedmont Natural Gas Co., Inc.
Plains All American Pipeline, L.P.
Star Gas Partners, L.P.
Ticker Symbol
APU
CNG
ETP
EDP
FGP
NRGY
KMP
OKS
PNY
PAA
SGU
The peer group members selected by the Committee for the fiscal 2006 and fiscal 2007 awards were
somewhat different because the Committee decided that the peer group should consist entirely of publicly-traded
partnerships, inclusive of all propane-related partnerships. The Committee decided this because all publicly-
traded partnerships have similar tax attributes and can, as a result, distribute more cash than similarly-sized
corporations generating similar revenues. The following table lists, in alphabetical order, the names and ticker
symbols of the peer group used to measure our performance during the fiscal 2006 and fiscal 2007 LTIP-2
awards’ three-year measurement periods:
2006 and 2007 LTIP-2 Awards Peer Group
(Completed Two Years and Three Years of Each Award’s Three-year Measurement Period,
Respectively)
Peer Group Member Name
AmeriGas Partners, L.P.
Copano Energy, LLC
Crosstex Energy, L.P.
Dorchester Minerals, L.P.
Energy Transfer Partners, L.P.
Ferrellgas Partners, L.P.
Inergy, L.P.
MarkWest Energy Partners, L.P.
Plains All American Pipeline, L.P.
Star Gas Partners, L.P.
Sunoco Logistics Partners, L.P.
Ticker Symbol
APU
CPNO
XTEX
DMLP
ETP
FGP
NRGY
MWE
PAA
SGU
SXL
The LTIP-2 document also contains a retirement provision that provides for the immediate termination of the
three-year measurement period for all outstanding LTIP-2 awards held by a participant upon retirement. TRU is
calculated as if the three-year measurement period for each outstanding award ended on the participant’s
retirement date in order to determine whether a payment has been earned by the retiree.
Because LTIP-2 is a phantom unit plan, compensation expense generated by this plan is charged to earnings
in accordance with SFAS 123R. As a result, all such charges to this year’s earnings relative to our named
executive officers are reported in the column titled “Unit Awards ($)” in the Summary Compensation Table
below.
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2000 Restricted Unit Plan
We adopted the 2000 Restricted Unit Plan (“RUP”) effective November 1, 2000. Upon adoption, this plan
authorized the issuance of 487,805 Common Units to our executive officers, managers and other employees and
to the members of our Board of Supervisors. On October 17, 2006, following approval by our Unitholders, we
adopted amendments to the RUP which, among other things, increased the number of Common Units authorized
for issuance under the RUP by 230,000 for a total of 717,805. At the conclusion of fiscal 2007, there remained
71,792 restricted units available for future grants.
When the Committee authorizes a grant of restricted units, the unvested units underlying a grant do not
provide the grantee with voting rights and do not pay or accrue distributions during the vesting period.
Restricted unit grants vest as follows: 25% on the third and fourth anniversaries of the grant date and the
remaining 50% on the fifth anniversary of the grant date. Unvested grants are subject to forfeiture in certain
circumstances as defined in the RUP document. Upon vesting, restricted units are automatically converted into
our Common Units, with full voting rights and rights to receive distributions.
The RUP document contains a retirement provision that provides for the immediate vesting of all unvested
RUP grants held by a retiring participant who meets all three of the following conditions on his or her retirement
date:
1. The unvested RUP grant has been held by the grantee for at least six months;
2. The RUP grantee is age 55 or older; and
3. The RUP grantee has worked for us or one of our predecessors for at least 10 years.
On October 31, 2007, in order to comply with the regulations promulgated under Internal Revenue Code
(“IRC”) Section 409(A), the Board of Supervisors amended the retirement provision to require a six-month delay
between a retirement eligible RUP participant’s retirement date and the date on which the Partnership issues
outstanding Common Units to such Participants.
All RUP grants are made at the discretion of the Committee. Although the reasons for awarding a grant can
vary, the objective of awarding a grant to a recipient is twofold: to retain the services of the recipient over the
five-year vesting period while, at the same time providing the type of motivation that further aligns the long-term
interests of the recipient with the long-term interests of our Unitholders. The reasons for which the Committee
awards RUP grants include, but are not limited to, the following:
• To attract skilled and capable candidates to fill vacant positions;
• To retain the services of an employee;
• To provide an adequate compensation package to accompany an internal promotion; and
• To reward outstanding performance.
In determining the quantity of restricted units to award to each executive officer and other key employees, the
Committee considers, without limitation:
• The executive officer’s scope of responsibility, performance and contribution to meeting our
objectives;
• The total cash compensation opportunity provided to the executive officer for whom the grant is
being considered;
• The value of similar equity awards to executive officers of similarly sized enterprises; and
• The current value of a similar quantity of outstanding Common Units.
In addition, in establishing the level of restricted units to grant to our executive officers, the Committee
considers the level of equity ownership by our executive officers and, prior to October 17, 2006, the level of
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equity representation through management’s ownership of the General Partner.
Our practice is to determine the dollar amount of equity compensation that we want to provide. This dollar
amount is then converted into a quantity of restricted units by dividing that dollar amount by the average of the
closing prices of our Common Units for the twenty trading days preceding the grant date. The Committee
generally makes these awards at their first meeting each year following the availability of the financial results for
the prior fiscal year; however, occasionally the Committee grants awards at other times of the year, particularly
when the need arises to grant awards because of promotions and new hires. The grant date for RUP grants
coincides with the date of grant by the Committee typically at its October or November meeting. However, in the
few cases that grants were approved at other Committee meetings during the year, the effective date of the grant
invariably coincided with the date of the meeting.
On October 31, 2007, the Committee adopted a policy with respect to the effective date of subsequent grants
of restricted units under the RUP which states that:
Unless the Committee expressly determines otherwise for a particular award at the time of its approval of
such award, the effective date of grant of all awards of restricted units under the RUP in a given calendar
year will be the first business day in the month of December of that calendar year. If, at the discretion of
the Committee, an award is expressed as a dollar amount, then such award will be converted into the
number of restricted units, as of the effective date of grant, obtained by dividing the dollar amount of the
award by the average of the closing prices, on the New York Stock Exchange, of one Common Unit of
the Partnership for the 20 trading days immediately prior to that effective date of grant.
During fiscal 2007, RUP grants were awarded to the following named executive officers:
Grant Date
Quantity of Restricted Units
Robert M. Plante
Steven C. Boyd
Michael M. Keating
November 1, 2006
April 25, 2007
April 25, 2007
2,753
5,496
2,198
Mr. Plante’s and Mr. Keating’s RUP grants were awarded to them by the Committee in recognition of their
exemplary performance over the past ten years. Mr. Boyd’s RUP grant was awarded in recognition of his
performance and promotion to vice president.
Compensation expense for unvested RUP grants is recognized ratably over the vesting periods and is net of
estimated forfeitures in accordance with SFAS 123R. The RUP-related SFAS 123R expense recognized in the
Partnership’s fiscal 2007 statement of operations, excluding forfeiture estimates, on behalf of each of the named
executive officers is reported in the column titled “Unit Awards ($)” in the Summary Compensation Table below.
Recoupment of Incentive Compensation
On April 25, 2007, upon recommendation by the Committee, the Board of Supervisors approved an Incentive
Compensation Recoupment Policy which permits the Committee to seek the reimbursement from certain
executives of the Partnership and Operating Partnership of incentive compensation paid to those executives in
connection with any fiscal year for which there is a significant restatement of the published financial statements
of the Partnership triggered by a material accounting error, which results in less favorable results than those
originally reported by the Partnership. Such reimbursement can be sought from executives even if they had no
responsibility for the restatement. In addition to the foregoing, if the Committee determines that any fraud or
intentional misconduct by an executive was a contributing factor to the Partnership having to make a significant
restatement, then the Committee is authorized to take appropriate action against such executive, including
disciplinary action, up to, and including, termination, and requiring reimbursement of all, or any part, of the
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compensation paid to that executive in excess of that executive’s base salary, including cancellation of any
unvested restricted units. The Incentive Compensation Recoupment Policy is available on our website at
www.suburbanpropane.com.
On July 31, 2007, the Board amended the annual bonus plan, LTIP-2 and the RUP to expressly make future
awards under such plans subject to the Incentive Compensation Recoupment Policy.
Long-Term Incentive Plan of October 1, 1997
Effective October 1, 1997, we adopted a non-qualified, unfunded long-term incentive plan for executive
officers and other key employees (‘‘LTIP-1’’). Effective September 30, 2004, we discontinued LTIP-1 with the
effect that no new awards will be made after that date; however, all awards for which the performance criteria
had been satisfied prior thereto will continue to vest and be payable in accordance with their terms. LTIP-1
awards were based on a percentage of base salary and were subject to the achievement of certain performance
criteria, including our ability to earn sufficient funds to make cash distributions on our Common Units with
respect to the fiscal years for which the awards were granted. Because all performance criteria for LTIP-1 were
satisfied during the fiscal years for which any outstanding awards were granted, the Summary Compensation
Table below contains only interest credits made in accordance with the terms of the plan in the column titled
“Non-Equity Incentive Plan Compensation ($).” Because the Committee authorized a November 2007 payment
of all remaining plan balances to the remaining participants, the amounts reported in the Summary Compensation
Table below represent the final interest credits that we will provide to the participants on behalf of this plan.
Originally, awards vested over a five-year period with one-third vesting at the beginning of each of years
three, four, and five following the award date. Prior to the enactment of IRC Section 409(A) on January 1, 2005,
payments relating to unvested awards earned prior to September 30, 2004 under LTIP-1 were expected to be
made annually through the end of fiscal 2011. On November 2, 2005, our Board of Supervisors approved
amendments to LTIP-1 for the purpose of IRC Section 409(A) compliance. The principal amendments provided:
• That all previously vested amounts under LTIP-1 as of the date of the amendment were to be
distributed to participants by December 31, 2005;
• That all future vested amounts will be distributed to plan participants within 30 days after such
amounts become vested; and
• That future deferrals of awards under LTIP-1 are no longer permitted.
Pension Plan
We sponsor a noncontributory defined benefit pension plan that was originally designed to cover all of our
eligible employees who met certain criteria relative to age and length of service. Effective January 1, 1998, we
amended the plan in order to provide for a cash balance format rather than the final average pay format that was
in effect prior to January 1, 1998. The cash balance format is designed to evenly spread the growth of a
participant’s earned retirement benefit throughout his or her career rather than the final average pay format,
under which a greater portion of a participant’s benefits were earned toward the latter stages of his or her career.
Effective January 1, 2000, we amended the plan to limit inclusion in this plan to existing participants and no
longer admit new participants to the plan. On January 1, 2003, we amended the plan to cease future service
credits on behalf of the participants and, from that point on, participants’ benefits have earned only interest
credits toward their ultimate retirement benefit.
Each of our named executive officers participates in the plan. The changes in the actuarial value relative to
each named executive officer’s participation in the plan is reported in the column titled “Change in Pension
Value and Nonqualified Deferred Compensation Earnings ($)” in the Summary Compensation Table below.
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Deferred Compensation
All employees, including the named executive officers, who satisfy certain service requirements, are entitled
to participate in our IRC Section 401(k) Plan (the “401(k) Plan”), in which participants may defer a portion of
their eligible cash compensation up to the limits established by law. We offer the 401(k) plan to attract and
retain talented employees by providing them with a tax-advantaged opportunity to save for retirement.
For fiscal 2007, all of our named executive officers participated in the 401(k) Plan. The benefits provided to
our named executive officers under the 401(k) Plan are provided on the same basis as to our other exempt
employees. Amounts deferred by our named executive officers under the 401(k) Plan are included in the column
titled “Salary ($)” in the Summary Compensation Table below.
In order to be competitive with other employers, if certain performance criteria are met, we will provide our
employee-participants with a match of up to 6% of their base salary that was contributed to the plan during the
calendar year. The following chart shows the performance target criteria that must be met for each level of
matching contribution:
If We Meet This
Percentage of
Budgeted EBITDA(1)…
The Participating Employee
Will Receive this Matching
Contribution for the Year…
115% or higher
100% to 114%
90% to 99%
Less than 90%
100%
50%
25%
0%
(1) For additional information regarding the non-GAAP term “Budgeted EBITDA,” refer to the explanation
provided under the subheading “Annual Cash Bonus Plan” above.
For fiscal 2007, our budgeted 401(k) Plan EBITDA was $171.7 million. Our fiscal 2007 results were such
that actual 401(k) Plan EBITDA exceeded 115% of budgeted 401(k) Plan EBITDA. As a result, we shall provide
participants with a match equal to 100% of their calendar year 2007 contributions that did not exceed 6% of their
total base pay up to the statutory maximum of $15,500. The matching contributions that we will make on behalf
of our named executive officers are reported in the column titled “All Other Compensation ($)” in the Summary
Compensation Table below.
Non-Qualified Deferred Compensation
We maintain a Non-Qualified Deferred Compensation Plan (the “Compensation Deferral Plan”) to which
vested Restricted Units from the 1996 Restricted Unit Plan (which was subsequently replaced by the 2000
Restricted Unit Plan described above) were deferred on May 26, 1999 in connection with our Recapitalization.
The Compensation Deferral Plan is structured as a rabbi trust. On November 2, 2005, for the purpose of IRC
Section 409(A) compliance, our Board of Supervisors approved an amendment to the Compensation Deferral
Plan that prohibited any additional deferral elections.
Presently, Mr. Alexander and Mr. Dunn are the only remaining beneficiaries of the Compensation Deferral
Plan. In accordance with their deferral elections, the entire corpus of the Compensation Deferral Plan shall be
distributed to them during January 2008 and the fair market value of their respective portions of the corpus shall
be added to their taxable wage earnings for that calendar year.
Because the Compensation Deferral Plan contains only Common Units, and because the cash distributions
that inure to those units are immediately distributed to the beneficiaries, the plan does not provide Mr. Alexander
73
and Mr. Dunn with above market interest; nor do they receive distributions on the Common Units at a rate higher
than the distributions paid on behalf of our Common Units held by the investing public. As a result, nothing
relative to the Compensation Deferral Plan is reported in the Summary Compensation Table below.
Supplemental Executive Retirement Plan
In 1998, we adopted a non-qualified, unfunded supplemental retirement plan known as the Suburban Propane
Company Supplemental Executive Retirement Plan (the ‘‘SERP’’). The purpose of the SERP is to provide Mr.
Alexander and Mr. Dunn with a level of retirement income from us, without regard to statutory maximums,
including the IRC’s limitation for defined benefit plans. In light of the conversion of the Pension Plan to a cash
balance formula as described under the subheading “Pension Plan” above, the SERP was amended and restated
effective January 1, 1998. The annual retirement benefit under the SERP represents the amount of annual
benefits that the participants in the SERP would otherwise be eligible to receive, calculated using the same pay-
based credits referenced in the “Pension Plan” section above, applied to the amount of annual compensation that
exceeds the IRC’s statutory maximums for defined benefit plans, which was $200,000 in 2002. Effective
January 1, 2003, the SERP was discontinued with a frozen benefit determined for Mr. Alexander and Mr. Dunn.
Provided that the SERP requirements are met, upon retirement Mr. Alexander will receive a monthly benefit of
$6,737 and Mr. Dunn will receive a monthly benefit of $373. Because this plan does not provide Mr. Alexander
and Mr. Dunn with above market interest credits, nothing relative to the SERP is reported in the Summary
Compensation Table below.
Other Benefits
As part of his total compensation package, each named executive officer is eligible to participate in all of our
other employee benefit plans, such as the medical, dental, group life insurance and disability plans. In each case,
with the exception of Mr. Alexander for whom we purchase supplemental life insurance and supplemental long-
term disability policies at a cost of $6,249 per year, these benefits are provided on the same basis as are provided
to other exempt employees. These benefit plans are offered to attract and retain talented employees and to
provide them with competitive benefits.
Other than to Mr. Alexander and Mr. Dunn, in accordance with the terms of their employment agreements
(described below), there are no post-termination or other special rights provided to any named executive officer
to participate in these benefit programs other than the right to participate in such plans for a fixed period of time
following termination of employment as required by law.
The costs of all such benefits incurred on behalf of our named executive officer’s are reported in the column
titled “All Other Compensation ($)” in the Summary Compensation Table below.
74
Perquisites
Perquisites represent a minor component of our executive officers’ compensation. Each of the named
executive officers is eligible for tax preparation services, a company-provided vehicle, and an annual physical.
The following table summarizes both the value and the utilization of these perquisites by the named executive
officers.
Name
Mark A. Alexander
Robert M. Plante
Michael J. Dunn, Jr.
Steven C. Boyd
Michael M. Keating
Jeffrey S. Jolly
Tax Preparation
Services
$2,000
$2,000
$2,000
$ 950
$2,000
$2,000
Employer-
Provided
Vehicle
$11,078
$10,349
$10,198
$ 5,647
$11,522
$ -0-
Physical
$1,200
$1,200
$1,200
$ -0-
$1,500
$1,200
Perquisite-related costs are reported in the column titled “All Other Compensation ($)” in the Summary
Compensation Table below.
Impact of Accounting and Tax Treatments of Executive Compensation
As we are a partnership and not a corporation for federal income tax purposes, we are not subject to the
executive compensation tax deductible limitations of IRC Section 162(m). Accordingly, none of the
compensation paid to our named executive officers is subject to limitation. However, if such tax laws related to
executive compensation change in the future, the Committee will consider the implications on us.
In accordance with their respective employment agreements, Mr. Alexander and Mr. Dunn are entitled to
receive tax gross-up payments for any parachute excise tax incurred pursuant to IRC Section 4999; they are also
entitled to receive tax gross-up payments for any payment that violates the provisions of IRC Section 409(A) or
its associated regulations.
On November 2, 2005, the Board of Supervisors approved an amendment to the Suburban Propane, L.P.
Severance Protection Plan for Key Employees (the “Severance Plan”) to provide that if any payment under the
Severance Plan subjects a participant to the 20% federal excise tax under IRC Section 409(A), the payment will
be grossed up to permit such participant to retain a net amount on an after-tax basis equal to what he or she
would have received had the excise tax not been payable.
Employment Agreements
Mr. Alexander, our Chief Executive Officer, and Mr. Dunn, our President, are the only named executive
officers, and, indeed, the only executive officers, with whom we have employment agreements. We entered into
an employment agreement with Mr. Alexander when it was announced, on March 5, 1996, that he would become
our Chief Executive Officer. This agreement was subsequently amended on October 23, 1997, April 14, 1999
and November 2, 2005. We entered into an employment agreement that had an effective date of February 1,
2007 with Mr. Dunn on February 5, 2007.
Mr. Alexander’s Employment Agreement had an initial term of three years, and automatically renews for
successive one-year periods, unless earlier terminated by us or by Mr. Alexander or otherwise terminated in
accordance with the terms of the employment agreement. The employment agreement provides for an annual
base salary of $450,000 as of September 30, 2006 and provides Mr. Alexander with the opportunity to earn a
cash bonus of up to 100% of base salary based upon the achievement of the same EBITDA-related performance
75
criteria as contained in our annual cash bonus plan described in the section titled “Annual Cash Bonus Plan”
above. Under our partnership agreement, the Committee has the authority to grant Mr. Alexander a bonus in
excess of 100% if, in accordance with the terms of the annual bonus plan, our other executive officers earn
bonuses exceeding their target bonuses for the fiscal year. The Committee exercised this authority in connection
with Mr. Alexander’s cash bonus for fiscal 2006 and fiscal 2007. The discretionary component of Mr.
Alexander’s fiscal 2007 cash bonus is disclosed in the column titled “Bonus ($)” and the non-discretionary
component of Mr. Alexander’s bonus is disclosed in the column titled “Non-Equity Incentive Plan Compensation
($)” in the Summary Compensation Table below.
Mr. Alexander’s employment agreement also provides for the opportunity to participate in benefit plans made
available to our other executive officers and our other key employees. We also provide Mr. Alexander with a
term life insurance policy with a face amount equal to three times his base salary.
If a change of control (as defined in the “Change of Control” section below) of the Partnership occurs, and
within six months prior thereto or at any time subsequent to such change of control, we terminate Mr.
Alexander’s employment without cause (as defined in the “Severance Benefits” section below) or if Mr.
Alexander resigns with good reason (as defined in the “Severance Benefits” section below) or terminates his
employment commencing on the six month anniversary and ending on the twelve month anniversary of such
change of control, then Mr. Alexander shall be entitled to:
• A lump sum severance payment equal to three times his annual base salary in effect as of the date of
termination plus three times his annual cash bonus at 100%; and
• Medical benefits for three years from the date of such termination.
In situations unconnected to a change of control event, if the Partnership terminates Mr. Alexander’s
employment without cause or if Mr. Alexander resigns with good reason, then Mr. Alexander shall be entitled to:
• A severance payment equal to (A) the portion of his base salary earned but not paid as of the date of
termination, (B) his pro-rata annual cash bonus under the employment agreement based upon the
number of days worked during the fiscal year of termination, and (C) three times his annual base
salary in effect as of the date of termination; and
• Medical benefits for three years from the date of such termination reduced to the extent comparable
benefits are provided to Mr. Alexander by another party.
The employment agreement requires that if any payment received by Mr. Alexander is subject to either or
both of the 20% excise taxes under IRC Sections 4999 and 409(A), the payment shall be increased to permit Mr.
Alexander to retain a net amount on an after-tax basis equal to what he would have received had the excise tax
not been payable.
If Mr. Alexander’s employment is terminated due to death, disability, without good reason, or pursuant to
delivery of a non-renewal notice to the Partnership in accordance with the terms and conditions of his
employment agreement, he or his estate, as the case may be, shall be entitled to earned but unpaid base salary
plus his pro-rata cash bonus. If his employment is terminated by the Partnership for cause, he shall be entitled to
his earned but unpaid base salary only.
Mr. Dunn’s employment agreement has an initial term of two years commencing on February 1, 2007, the
term of which shall automatically renew for successive one-year periods, unless earlier terminated by us or by
Mr. Dunn or otherwise terminated in accordance with the terms of the employment agreement. The provisions of
Mr. Dunn’s employment agreement provide for an initial annual base salary of $400,000 per year (pro-rated in
the case of the Partnership’s 2007 fiscal year and any other partial fiscal year during the term of the employment
agreement) and, in accordance with the provisions of our annual cash bonus plan, the opportunity to earn a cash
bonus in each fiscal year up to 110% of his annual base salary for that same fiscal year (the “Maximum Annual
76
Cash Bonus”). Additionally, Mr. Dunn’s employment agreement permits him to participate in the same benefit
plans made available to our other executive officers and other key employees.
If a change of control (as defined in the “Change of Control” section below) of the Partnership occurs and
within six months prior thereto or within two years thereafter the Partnership terminates Mr. Dunn’s employment
without cause (as defined in the “Severance Benefits” section below) or if Mr. Dunn resigns with good reason (as
defined in the “Severance Benefits” section below), then Mr. Dunn shall be entitled to a severance payment equal
to the sum of:
• The portion of his base salary earned but not paid as of the date of termination;
• His pro-rata cash bonus (the bonus Mr. Dunn would have been entitled to under the employment
agreement for the full fiscal year in which the termination occurred multiplied by the number of days
from the beginning of that fiscal year until the termination date and divided by 365);
• Two times the sum of (1) his annual base salary in effect as of the date of termination, plus (2) the
Maximum Annual Cash Bonus; and
• Medical benefits for two years from the date of such termination.
In situations unconnected to a change of control event, if the Partnership terminates Mr. Dunn’s employment
without cause, or if Mr. Dunn resigns with good reason, then Mr. Dunn shall be entitled to:
• A severance payment equal to (A) the portion of his base salary earned but not paid as of the date of
termination, (B) the annual cash bonus Mr. Dunn would have been entitled to under the employment
agreement for the full fiscal year in which the termination occurred had Mr. Dunn remained
employed by the Partnership for that full fiscal year, and (C) two times his annual base salary in
effect as of the date of termination; and
• Medical benefits for two years from the date of such termination.
The employment agreement requires that if any payment received by Mr. Dunn is subject to either or both of
the 20% excise taxes under IRC Sections 4999 and 409(A), the payment shall be increased to permit Mr. Dunn to
retain a net amount on an after-tax basis equal to what he would have received had the excise tax not been
payable.
If Mr. Dunn’s employment is terminated due to death, disability, or pursuant to delivery of a non-renewal
notice to the Partnership in accordance with the terms and conditions of his employment agreement, he or his
estate, as the case may be, shall be entitled to earned but unpaid base salary plus his pro-rata cash bonus for the
fiscal year during which termination occurred. If his employment is terminated by the Partnership for cause, or
he resigns without good reason, he shall be entitled to his earned but unpaid base salary only.
For additional information, see the table titled “Potential Payments Upon Termination” below.
Severance Benefits
We believe that, in most cases, employees should be paid reasonable severance benefits. Therefore, it is the
general policy of the Committee to provide executive officers and other key employees who are terminated by us
without cause or who choose to terminate their employment with us for good reason with a severance payment
equal to, at a minimum, one year’s base salary, unless circumstances dictate otherwise. This policy was adopted
because it may be difficult for former executive officers and other key employees to find comparable
employment within a short period of time. However, depending upon individual facts and circumstances,
particularly the severed employee’s tenure with us, the Committee permits us to provide additional severance to
severed executive officers and other key employees.
77
A “key employee” is an employee who has attained a director level pay-grade or higher. “Cause” will be
deemed to exist where the individual has been convicted of a crime involving moral turpitude, has stolen from us,
has violated his or her non-competition or confidentiality obligations, or has been grossly negligent in fulfillment
of his or her responsibilities. “Good reason” generally will exist where an executive officer’s position or
compensation has been decreased or where the employee has been required to relocate.
Change of Control
Our executive officers and other key employees have built Suburban Propane Partners, L.P. into the
successful enterprise that it is today; therefore, we believe that it is important to protect them in the event of a
change of control. Further, it is our belief that the interests of our Unitholders will be best served if the interests
of our executive officers are aligned with them, and that providing change of control benefits should eliminate, or
at least reduce, the reluctance of our executive officers to pursue potential change of control transactions that
may be in the best interests of our Unitholders. Additionally, we believe that the severance benefits provided to
our executive officers and to our key employees are consistent with market practice and appropriate because
these benefits are an inducement to accepting employment and because the executive officers have agreed to and
are subject to non-competition and non-solicitation covenants for a period following termination of employment.
Therefore, our executive officers and other key employees are provided with employment protection following a
change of control (the “Severance Protection Plan”). Our Severance Protection Plan covers all executive
officers, including the named executive officers, with the exception of our Chief Executive Officer and our
President, whose severance provisions are established in their respective employment agreements.
The Severance Protection Plan provides for severance payments between sixty-five to seventy-eight weeks of
base salary and target cash bonuses for such officers and key employees following a change of control and
termination of employment. All named executive officers who participate in the Severance Protection Plan are
eligible for seventy-eight weeks of base salary and target bonuses. Relative to the overall value of Suburban
Propane Partners, L.P., these potential change of control benefits are relatively minor. The cash components of
any change of control benefits are paid in a lump sum.
In addition, upon a change of control, without regard to whether a participant’s employment is terminated, all
unvested awards granted under the RUP immediately vest and become distributable to the participants and all
outstanding, unvested LTIP-1 and LTIP-2 awards immediately vest and become payable to the participants
within thirty days of the change of control event. In particular, all outstanding LTIP-2 grants will vest as if the
three-year measurement period for each outstanding grant concluded on the date the change of control occurred
and our TRU was such that, in relation to the performance of the other members of the peer group, it fell within
the top quartile.
For purposes of these benefits, a change of control is deemed to occur, in general, if:
• An acquisition of our Common Units or voting equity interests by any person immediately after
which such person beneficially owns more than 30% of the combined voting power of our then
outstanding Common Units, unless such acquisition was made by (a) us or our subsidiaries, or any
employee benefit plan maintained by us, our Operating Partnership or any of our subsidiaries, or (b)
by any person in a transaction where (A) the existing holders prior to the transaction own at least
50% of the voting power of the entity surviving the transaction and (B) none of the Unitholders other
than the Partnership, our subsidiaries, any employee benefit plan maintained by us, our Operating
Partnership, or the surviving entity, or the existing beneficial owner of more than 25% of the
outstanding Common Units owns more than 25% of the combined voting power of the surviving
entity (such transaction, a “Non-Control Transaction”); or
• Approval by our partners of (a) a merger, consolidation or reorganization involving the Partnership
other than a Non-Control Transaction; (b) a complete liquidation or dissolution of the Partnership; or
(c) the sale or other disposition of 40% or more of the gross fair market value of all the assets of the
78
partnership to any person (other than a transfer to a subsidiary).
The SERP will terminate effective on the close of business thirty days following the change of control. Mr.
Alexander and Mr. Dunn will be deemed to have retired and will have their respective benefits determined as of
the date the plan is terminated with payment of their benefits no later than ninety days after the change of control.
Each will receive a lump sum payment equivalent to the present value of his benefit payable under the plan
utilizing the lesser of the prime rate of interest as published in the Wall Street Journal as of the date of the change
of control or one percent, as the discount rate to determine the present value of the accrued benefit.
For purposes of the SERP, a change of control is deemed to occur, in general, if:
• An acquisition of our Common Units or voting equity interests by any person immediately after
which such person beneficially owns more than 25% of the combined voting power of our then
outstanding Common Units, unless such acquisition was made by (a) us or our subsidiaries, or any
employee benefit plan maintained by us, our Operating Partnership or any of our subsidiaries, or (b)
by any person in a transaction where (A) the existing holders prior to the transaction own at least
60% of the voting power of the entity surviving the transaction and (B) none of the Unitholders other
than the Partnership, our subsidiaries, any employee benefit plan maintained by us, our Operating
Partnership, or the surviving entity, or the existing beneficial owner of more than 25% of the
outstanding Common Units owns more than 25% of the combined voting power of the surviving
entity (such transaction, a “Non-Control Transaction”); or
• Approval by our partners of (a) a merger, consolidation or reorganization involving the Partnership
other than a Non-Control Transaction; (b) a complete liquidation or dissolution of the Partnership; or
(c) the sale or other disposition of 50% or more of our net assets to any person (other than a transfer
to a subsidiary).
For additional information pertaining to severance payable to our named executive officers following a
change of control-related termination, see the table titled “Potential Payments Upon Termination” below.
Report of the Compensation Committee
The Compensation Committee has reviewed and discussed with management this Compensation Discussion
and Analysis. Based on its review and discussions with management, the Committee recommended to the Board
of Directors that this Compensation Discussion and Analysis be included in this annual report on Form 10-K for
fiscal 2007.
The Compensation Committee:
John Hoyt Stookey, Chairman
John D. Collins
Harold R. Logan, Jr.
Dudley C. Mecum
Jane Swift
79
ADDITIONAL INFORMATION REGARDING EXECUTIVE COMPENSATION
Summary Compensation Table for Fiscal 2007
The following table sets forth certain information concerning compensation of each named executive officer
during the fiscal year ended September 29, 2007:
Year
(b)
Salary
($)(1)
(c )
Bonus
($)(2)
(d)
Stock
Awards
($)(3)
(e)
Non-Equity
Incentive Plan
Compensation
($)(4)
(g)
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)(5)
(h)
All Other
Compensation
($)(6)
(i)
Total
($)
(j)
2007
$450,000
$ 45,000
$410,238
$456,188
$(1,460)
$ 52,507
$1,412,473
2007
$300,000
$300,000
$586,635
$282,315
$29,265
$ 44,698
$1,542,913
2007
$391,552
2007
$226,232
2007
$210,000
2007
$ 71,319
-
-
-
-
$824,713
$443,568
$ 6,752
$ 44,879
$1,711,464
$243,910
$155, 868
$(3,348)
$ 34,202
$ 656,864
$266,908
$151,611
$ 5,648
$ 44,619
$ 678,786
$103,647
$157,300
$ 2,282
$378,106
$ 712,654
Name and Principal
Position
(a)
Mark A. Alexander
Chief Executive Officer
Robert M. Plante
Vice President & CFO
Michael J. Dunn, Jr.
President
Steven C. Boyd
Vice President of
Operations
Michael M. Keating
Vice President of Human
Resources & Admin.
Jeffrey S. Jolly
Former Vice President &
CIO
(1) Includes amounts deferred by named executive officers as contributions to the qualified 401(k) plan.
(2) The Compensation Committee exercised its discretionary authority to provide Mr. Alexander with an incentive payment equal to 110% of his target
cash bonus to parallel the cash bonuses earned by the other named executive officers under the annual cash bonus plan. The amount reported in this
column represents the additional 10% awarded to Mr. Alexander at the Committee's discretion. Additionally, upon his retirement and in recognition
of his 30-plus years of exemplary service to the Partnership and its predecessors, the Compensation Committee enhanced Mr. Plante’s bonus by an
additional $300,000.
(3) The amounts reported in this column represent the expense, before the application of forfeiture estimates, recognized in our fiscal 2007 statement of
operations with respect to RUP grants made in fiscal 2007, as well as in prior fiscal years, and for LTIP-2 grants made in fiscal 2007 as well as in
prior fiscal years. The calculations of the charges to earnings generated by both plans were made in accordance with SFAS 123R. The breakdown for
each plan with respect to each named executive officer is as follows:
Plan Name
RUP
LTIP-2
Totals
Mr. Alexander
N/A
$ 410,238
$ 410,238
Mr. Plante
$ 100,003
486,632
$ 586,635
Mr. Dunn
N/A
$ 824,713
$ 824,713
Mr. Boyd
$ 87,127
156,783
$ 243,910
Mr. Keating
$ 39,911
226,997
$ 266,908
Mr. Jolly
N/A
$ 103,647
$ 103,647
Because Mr. Plante and Mr. Dunn have met the retirement eligibility criteria under the provisions of both plans, the accounting rules set forth in SFAS
123R require full recognition of all expense relative to such plans on behalf of individuals who need only to choose to retire to trigger the vesting of
their awards
(4) The amounts reported in this column represent the portions of each named executive officer's annual cash bonus that were earned in accordance with
the performance measures discussed under the subheading "Annual Cash Bonus Plan” in the "Compensation Discussion and Analysis" and the
interest credits made on behalf of the remaining LTIP-1 balances. The breakdown for each plan with respect to each named executive officer is as
follows:
Plan Name
Cash Bonus
LTIP-1 Interest Credits
Totals
Mr. Alexander
$ 450,000
6,188
$ 456,188
Mr. Plante
$ 280,500
1,815
$ 282,315
Mr. Dunn
$ 440,000
3,568
$ 443,568
Mr. Boyd
$ 155,100
768
$ 155,868
Mr. Keating
$ 150,150
1,461
$ 151,611
Mr. Jolly
$ 157,300
-
$ 157,300
(5) The amounts reported in this column represent each named executive officer’s Cash Balance Plan earnings for the year.
80
(6) The amounts reported in this column consist of the following:
Type of Compensation
401(k) Match
Value of Annual Physical Examination
Value of Partnership Provided Vehicle
Tax-preparation Services
Cash Balance Plan Administrative Fees
Severance Payments
Insurance Premiums
Totals
Mr. Alexander
$ 13,500
1,200
11,078
2,000
1,500
N/A
23,229
$ 52,507
Mr. Plante
$ 13,500
1,200
10,349
2,000
1,500
N/A
16,149
$ 44,698
Mr. Dunn
$ 13,500
1,200
10,198
2,000
1,500
N/A
16,481
$ 44,879
Mr. Boyd
$ 13,500
N/A
5,647
950
1,500
N/A
12,605
$ 34,202
Mr. Keating
$ 13,500
1,500
11,522
2,000
1,500
N/A
14,597
$ 44,619
Mr. Jolly
$ N/A
1,200
N/A
2,000
N/A
369,559
5,347
$ 378,106
Note: Column (f) was omitted from the Summary Compensation Table because the Partnership does not award options to its employees.
Grants of Plan Based Awards Table for Fiscal 2007
The following table sets forth certain information concerning grants of awards made to each named executive
officer during the fiscal year ended September 29, 2007:
Estimated Future Payments
Under Non-Equity Incentive
Plan Awards
Estimated Future Payments
Under Equity Incentive Plan
Awards
Name
Plan
Name
Grant
Date
Approval
Date
Phantom
Units
Underlying
Equity
Incentive
Plan Awards
(LTIP-2)(4)(5)
(a)
Mark A. Alexander
Robert M. Plante
Michael J. Dunn, Jr.
Steven C. Boyd
Michael M. Keating
Jeffrey S. Jolly
(b)
1 Oct 06
1 Oct 06
1 Nov 06
1 Oct 06
1 Oct 06
1 Oct 06
1 Oct 06
25 Apr 07
1 Oct 06
1 Oct 06
25 Apr 07
1 Oct 06
1 Oct 06
1 Oct 06
RUP (1)
Bonus(2)
LTIP-2(3)
RUP(1)
Bonus(2)
LTIP-2(3)
RUP (1)
Bonus(2)
LTIP-2(3)
RUP (1)
Bonus(2)
LTIP-2(3)
RUP (1)
Bonus(2)
LTIP-2(3)
RUP (1)
Bonus(2)
LTIP-2(3)
17 Oct 06
25 Apr 07
25 Apr 07
4,007
3,936
5,788
2,037
2,107
Target
($)
Maximum
($)
Target
($)
Maximum
($)
All Other stock
Awards:
Number of
Shares of Stock
or Units
(#)
Grant Date
Fair Value of
Stock and
Option
Awards
($) (6)
(d)
(e)
(g)
(h)
(i)
(l)
$450,000
$495,000
$214,877
$268,597
$255,000
$280,500
$211,070
$263,837
$400,000
$440,000
$310,384
$387,980
$141,000
$155,100
$109,235
$136,544
$136,500
$150,150
$112,989
$141,236
$143,000
$157,300
2,753
$100,003
5,496
$259,466
2,198
$103,768
(1) The quantities reported on these lines represent discretionary awards under the Partnership’s 2000 Restricted Unit Plan. RUP awards vest as
follows: 25% of the award on the third anniversary of the grant date; 25% of the award on the fourth anniversary of the grant date; and 50% of
the award on the fifth anniversary of the grant date. If a recipient has held an unvested award for at least six months; is 55 years or older; and
has worked for the Partnership for at least ten years, an award held by such participant will vest upon such participant’s retirement if the
participant retires prior to the conclusion of the normal vesting schedule. On September 29, 2007, Mr. Plante was the only named executive
officer who held a RUP award and, at the same time, satisfied all three retirement eligibility criteria.
(2) Amounts reported on these lines are the targeted and maximum annual cash bonus compensation potential for each named executive officer
under the annual cash bonus plan as described in the “Compensation Discussion and Analysis” under the subheading “Annual Cash Bonus
Plan.” Actual amounts earned by the named executive officers for fiscal 2007 were equal to the maximum amounts reported on this line.
Column C (“Threshold $”) was omitted because the annual cash bonus plan does not provide for a minimum cash payment. Because this award
was granted to, and the maximum amounts were earned by, our named executive officers during fiscal 2007, the maximum amounts reported
under column (e) have been reported in the Summary Compensation Table above.
81
(3) LTIP-2 is a phantom unit plan. Payments, if earned, are based on a combination of (1) the fair market value of our Common Units at the end of
a three-year measurement period, which, for purposes of the plan, is the average of the closing prices for the twenty business days preceding the
conclusion of the three-year measurement period, and (2) cash equal to the distributions that would have inured to the same quantity of
outstanding Common Units during the same three-year measurement period. The fiscal 2007 award “Target ($)” and “Maximum ($)” amounts
are estimates based upon (1) the fair market value (the average of the closing prices of our Common Units for the twenty business days
preceding September 29, 2007) of our Common Units at the end of fiscal 2007, and (2) the estimated distributions over the course of the award’s
three-year measurement period. Column F (“Threshold $”) was omitted because LTIP-2 does not provide for a minimum cash payment.
(4) This column is frequently used when non-equity incentive plan awards are denominated in units; however, in this case, the numbers reported
represent the phantom units each named executive officer was awarded under LTIP-2 during fiscal 2007.
(5) Mr. Jolly forfeited his fiscal 2007 LTIP-2 award in accordance with the provisions of his severance agreement.
(6) The dollar amounts reported in this column represent the aggregate fair value of the RUP awards on the grant date, calculated in accordance with
SFAS 123R. The fair value shown may not be indicative of the value realized in the future upon vesting due to the variability in the trading
price of our Common Units.
Note: Column (k) was omitted from the Grants of Plan Based Awards Table because the Partnership does not award options to its employees.
Outstanding Equity Awards at Fiscal Year End 2007 Table
The following table sets forth certain information concerning outstanding equity awards under our 2000
Restricted Unit Plan and phantom equity awards under our 2003 Long-Term Incentive Plan for each named
executive officer as of September 29, 2007:
Stock Awards
Number of
Shares or Units of
Stock That Have
Not Vested
(#)(4)
(g)
-
2,753
-
14,596
2,198
-
Market Value
of Shares or
Units of Stock
That Have Not
Vested
($)(5)
(h)
-
$ 123,045
-
$ 652,368
$ 98,240
-
Equity Incentive
Plan Awards:
Number of
Unearned
Shares, Units or
Other Rights
that Have Not
Vested
(#)(6)
(i)
8,335
7,070
12,040
3,682
4,199
-
Equity Incentive Plan
Awards: Market or
Payout Value of
Unearned Shares,
Units or Other Rights
That Have Not Vested
($)(7)
(j)
$ 445,352
$ 377,962
$ 643,317
$ 196,835
$ 224,392
-
Name
(a)
Mark A. Alexander
Robert M. Plante(1)
Michael J. Dunn, Jr.
Steven C. Boyd(2)
Michael M. Keating(3)
Jeffrey S. Jolly
(1) Mr. Plante’s RUP award will vest upon his retirement at the end of the twenty-four month reduced-responsibility employment period, or earlier,
if he chooses to retire prior to the conclusion of the twenty-four month period.
(2) Mr. Boyd’s RUP awards will vest as follows:
Vesting Date
Nov, 1,
2007
Nov. 1,
2008
Nov. 1,
2009
Apr. 25,
2010
Nov. 1,
2010
Apr. 25, 2011
Apr. 25, 2012
Quantity of Units
1,200
2,500
2,200
1,374
3,200
1,374
2,748
(3) Mr. Keating will meet the retirement eligibility criteria (explained under the subheading “2003 Long-Term Incentive Plan” in the “Compensation
Discussion and Analysis”) during fiscal 2008. If he does not retire prior to the conclusion of the normal vesting schedule of his award, his award
will vest as follows:
Vesting Date
April 25, 2010
April 25, 2011
April 25, 2012
Quantity of Units
550
550
1,098
(4) The figures reported in this column represent the total quantity of each of our named executive officer’s unvested RUP awards.
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(5) The figures reported in this column represent the figures reported in column (g) multiplied by the average of the highest and the lowest trading
prices of our Common Units on September 28, 2007.
(6) The amounts reported in this column represent the quantities of phantom units that underlie the outstanding fiscal 2006 and fiscal 2007 awards
under LTIP-2. Payments, if earned, will be made to participants at the end of a three-year measurement period and will be based upon our total
return to Common Unitholders in contrast to the total return provided by a predetermined peer group of eleven other companies, most of which
are publicly-traded partnerships, to their shareholders or unitholders. For more information on LTIP-2, refer to the subheading “2003 Long-
Term Incentive Plan” in the “Compensation Discussion and Analysis.”
(7) The amounts reported in this column represent the estimated future target payouts of the fiscal 2006 and fiscal 2007 LTIP-2 awards. These
amounts were computed by multiplying the quantities of the unvested phantom units in column (i) by the average of the closing prices of our
Common Units for the twenty business days preceding September 29, 2007 (in accordance with the plan’s valuation methodology), and by
adding to the product of that calculation the product of each year’s underlying phantom units times the sum of the distributions that are
estimated to inure to an outstanding Common Unit during each award’s three-year measurement period. Due to the variability in the trading
prices of our Common Units, actual payments at the end of the three-year measurement period may differ. The following chart provides a
breakdown of each year’s awards:
Fiscal 2006 Phantom Units
Value of Fiscal 2006
Phantom Units
Estimated Distributions over
Measurement Period
Fiscal 2007 Phantom Units
Value of Fiscal 2007
Phantom Units
Estimated Distributions over
Measurement Period
Mr. Alexander
4,328
Mr. Plante
3,134
Mr. Dunn
6,252
Mr. Boyd
1,645
Mr. Keating
2,092
Mr. Jolly
-
$ 195,459
$ 141,536
$ 282,350
$ 74,291
$ 94,478
$ -
$ 35,016
$ 25,356
$ 50,582
$ 13,309
$ 16,925
$ -
4,007
3,936
5,788
2,037
2,107
-
$ 180,962
$ 177,756
$ 261,395
$ 91,994
$ 95,155
$ -
$ 33,915
$ 33,314
$ 48,990
$ 17,241
$ 17,834
$ -
Note: Columns (b), (c), (d), (e) and (f), all of which are for the reporting of option-related compensation, have been omitted from the Outstanding
Equity Awards At Fiscal Year End Table because we do not grant options to our employees.
Equity Vested Table for Fiscal 2007
Awards under the 2000 Restricted Unit Plan are settled in Common Units upon vesting. Awards under the
2003 Long-Term Incentive Plan, a phantom-equity plan, are settled in cash. The following two tables set forth
certain information concerning all vesting of awards under our 2000 Restricted Unit Plan and the vesting of the
fiscal 2005 award under our 2003 Long-Term Incentive Plan for each named executive officer during the fiscal
year ended September 29, 2007:
2000 Restricted Unit Plan
Unit Awards
Name
Mark A. Alexander
Robert M. Plante
Michael J. Dunn, Jr.
Steven C. Boyd
Michael M. Keating
Jeffrey S. Jolly
Number of
Common
Units
Acquired on
Vesting
(#)
-
-
-
600
-
-
Value
Realized on
Vesting
($)(1)
-
-
-
$ 21,795
-
-
(1) The value realized is equal to the average of the high and low trading prices of our Common Units on the vesting date, multiplied by the number
of units that vested.
83
2003 Long-Term Incentive Plan –
Fiscal 2005(2) Award
Cash Awards
Name
Mark A. Alexander
Robert M. Plante
Michael J. Dunn, Jr.
Steven C. Boyd
Michael M. Keating
Jeffrey S. Jolly
Number of
Phantom
Units
Acquired on
Vesting
(#)
3,915
2,715
4,524
1,331
1,814
1,961
Value
Realized on
Vesting
($)(3)
$ 206,923
$ 143,499
$ 239,112
$ 70,349
$ 95,877
$ 103,647
(2) The fiscal 2005 award’s three-year measurement period concluded on September 29, 2007.
(3) The value realized was calculated in accordance with the terms and conditions of LTIP-2. For more information, refer to the subheading “2003
Long-Term Incentive Plan” in the “Compensation Discussion and Analysis.”
Pension Benefits Table for Fiscal 2007
The following table sets forth certain information concerning each plan that provides for payments or other
benefits at, following, or in connection with retirement for each named executive officer as of the end of the
fiscal year ended September 29, 2007:
Name
Mark A. Alexander
Robert M. Plante
Michael J. Dunn, Jr.
Plan Name
SERP (1)
Cash Balance Plan (2)
Cash Balance Plan (2)
Transition Agreement (3)
Restricted Unit Plan (4)
LTIP-2 (5)
SERP (1)
Cash Balance Plan (2)
LTIP-2 (5)
Steven C. Boyd
Cash Balance Plan (2)
Michael M. Keating
Cash Balance Plan (2)
Jeffrey S. Jolly
Cash Balance Plan (2)
Number
of years
Credited
Service
(#)
7
7
Present Value
of
Accumulated
Benefit
($)
$ 476,823
$ 180,787
Payments
During Last
Fiscal Year
($)
$ -
$ -
26
N/A
N/A
N/A
6
6
N/A
15
15
6
$ 662,371
$ 56,299
$ 123,045
$ 346,305
$ 45,376
$ 194,039
$ 592,507
$ -
$ -
$ -
$ -
$ -
$ -
$ -
$ 95,788
$ -
$ 388,223
$ -
$ 117,759
$ -
(1) Mr. Alexander and Mr. Dunn are the only employees who participate in the SERP. Provided that the SERP requirements are met (retirement at
age 55 or older and having provided ten or more years of service to the Partnership), Mr. Alexander will receive a monthly benefit of $6,737 and
Mr. Dunn will receive a monthly benefit of $373. For more information on the SERP, refer to the subheading “Supplemental Executive
Retirement Plan” in the “Compensation Discussion and Analysis.”
(2) For more information on the Cash Balance Plan, refer to the subheading “Pension Plan” in the “Compensation Discussion and Analysis.”
(3) Mr. Plante’s planned retirement as CFO was announced on April 25, 2007. Following his retirement as Chief Financial Officer, Mr. Plante’s
transition agreement provides for continued employment, with diminished responsibilities, with the Partnership for a period of time not to
exceed twenty-four months. During this extended period of employment, Mr. Plante will act as a special advisor to the Board of Supervisors and
will also make himself available to Mr. Stivala, the Partnership’s new Chief Financial Officer, to ensure a smooth transition of responsibilities.
The amount reported represents Mr. Plante’s $1,000 per month salary plus $32,299, the estimated cost of Mr. Plante’s continued medical
insurance coverage for the twenty-four month period.
(4) Upon retirement, Mr. Plante’s outstanding RUP award shall vest in accordance with the retirement provision of the plan document. For
purposes of the vesting of this award, Mr. Plante’s retirement will occur at the conclusion of the period of continued employment.
(5) Currently, Mr. Dunn and Mr. Plante are the only named executive officers who meet the retirement criteria of the LTIP-2 plan document. For
participants meeting these criteria, upon retirement, all outstanding LTIP-2 awards shall vest as if the three-year measurement period ended on
84
the participant’s retirement date. The determination as to whether a payment will be made to the retiree in connection with the abbreviated
measurement period is dependent upon the satisfaction of the same market criteria that are applied to awards that vest at the end of the three-year
measurement period. For more information on vesting and market criteria relative to this plan, refer to the subheading “2003 Long-Term
Incentive Plan” in the “Compensation Discussion and Analysis.” If Mr. Plante remains employed by the Partnership for the full twenty-four
month extended period of employment described in footnote 3 above, the vesting of his remaining LTIP-2 awards (for fiscal years 2006 and
2007) shall coincide with the natural culmination of the three-year measurement periods associated with each award. In accordance with the
terms of Mr. Plante’s transition arrangement, he will not be eligible for any additional LTIP-2 awards during the period of extended employment.
Potential Payments Upon Termination
Potential Payments upon Termination to Named Executive Officers with Employment Agreements
The following table sets forth certain information concerning the potential payments to Mr. Alexander and
Mr. Dunn under their employment agreements, the SERP and the Long-Term Incentive Plans (“LTIP-1” and
“LTIP-2”) for the circumstances listed in the table assuming a September 29, 2007 termination date:
Executive Payments and Benefits Upon Termination
Death
Disability
Involuntary
Termination
Without Cause
by the
Partnership or
by the
Executive for
Good Reason
without a
Change of
Control Event
Involuntary
Termination
Without Cause
by the
Partnership or
by the
Executive for
Good Reason
with a Change
of Control
Event
Mark M. Alexander
Cash Compensation(1)
Accelerated Vesting Of Fiscal 2006 and 2007 LTIP-2 Awards(2)
Payment of Remaining Balance of LTIP-1 Awards(3)
SERP(6)
Medical Benefits
280(G)Tax Gross-up
409(A)Tax Gross-up
Total
Michael J. Dunn, Jr.
Cash Compensation(1)
Accelerated Vesting Of Fiscal 2006 and 2007 LTIP-2 Awards(2)
Payment of Remaining Balance of LTIP-1 Awards(3)
SERP
Medical Benefits
280(G)Tax Gross-up
409(A)Tax Gross-up
Total
$ 0(4)
N/A
45,000
210,700
N/A
N/A
N/A
$ 255,700
$ 0(4)
N/A
28,000
27,800
N/A
N/A
N/A
$ 55,800
$ 0(5)
N/A
45,000
385,900
N/A
N/A
N/A
$ 430,900
$ 0(5)
N/A
28,000
48,900
N/A
N/A
N/A
$ 76,900
$ 1,350,000
N/A
45,000
0
54,516
N/A
N/A
$ 1,449,516
$ 800,000
N/A
28,000
48,900
34,780
N/A
N/A
$ 911,680
$ 2,835,000
512,721
45,000
225,200
54,516
N/A
N/A
$ 3,702,437
$ 1,680,000
740,634
28,000
48,900
34,780
N/A
N/A
$ 2,532,314
(1) For more information on the cash compensation payable to the two named executive officers with whom we have entered into employment
agreements, refer to the subheading “Employment Agreements” in the “Compensation Discussion and Analysis.”
(2)
In the event of a change of control, all LTIP-2 awards will vest immediately regardless of whether termination immediately follows. If a change
of control event occurs, the calculation of the LTIP-2 payment will be made as if our total return to Common Unitholders was higher than that
provided by any of the other members of the peer group to their shareholders or unitholders. For more information, refer to the subheading
“2003 Long-Term Incentive Plan” in the “Compensation Discussion and Analysis.” In the event of death, the inability to continue employment
due to permanent disability, or a termination without cause or a good reason resignation unconnected to a change of control event, awards will
vest in accordance with the normal vesting schedule and will be subject to the same requirements as awards held by individuals still employed
by the Partnership and shall be subject to the same risks as awards held by all other participants.
(3) The amounts reported on these lines represent the remaining balances of LTIP-1 which, by action of the Committee, were paid to the participants
on November 16, 2007.
(4)
In the event of death, Mr. Alexander’s and Mr. Dunn’s estates are entitled to a payment equal to the decedent’s earned but unpaid salary and
pro-rata cash bonus at the time of death.
(5)
In the event of disability, each is entitled to a payment equal to his earned but unpaid salary and pro-rata cash bonus.
85
(6) Because Mr. Alexander had not attained age 55 on September 30, 2007, if any of the above hypothetical events had occurred on that date, only
death, disability or a change in control would give rise to a SERP-related payment. Change of control related payments are due to Mr.
Alexander and Mr. Dunn within 30 days of the change of control event, regardless of whether termination or resignation follows the event. In
the event of death, Mr. Alexander’s estate would have received a lump sum payment of $210,700. In the event of disability, if Mr. Alexander
remained disabled until age 55, he would be eligible for a lump sum payment, at that time, of $980,400. The figure ($385,900) reported in the
table represents the present value of the hypothetical future payment.
Potential Payments upon Termination to Named Executive Officers without Employment Agreements
The following table sets forth certain information containing potential payments to the three named executive
officers without employment agreements in accordance with the provisions of the Severance Protection Plan, the
RUP, LTIP-2 and LTIP-1 for the circumstances listed in the table assuming a September 29, 2007 termination
date:
Executive Payments and Benefits Upon Termination
Death
Disability
Involuntary
Termination
Without Cause
by the
Partnership or
by the
Executive for
Good Reason
without a
Change of
Control
Event(8)
Involuntary
Termination
Without Cause
by the
Partnership or
by the
Executive for
Good Reason
with a Change
of Control
Event
Robert M. Plante
Cash Compensation(1)
Accelerated Vesting Of Fiscal 2006 and 2007 LTIP-2 Awards(2)
Payment of Remaining Balance of LTIP-1 Awards(3)
Accelerated Vesting of Outstanding RUP Awards(7)
Medical Benefits
Survivor Benefits(6)
280(G)Tax Gross-up
409(A)Tax Gross-up
Total
Steven C. Boyd
Cash Compensation(1)
Accelerated Vesting Of Fiscal 2006 and 2007 LTIP-2 Awards(2)
Payment of Remaining Balance of LTIP-1 Awards(3)
Accelerated Vesting of Outstanding RUP Awards(7)
Medical Benefits
280(G)Tax Gross-up
409(A)Tax Gross-up
$ 0(4)
N/A
15,000
N/A
N/A
83,200
N/A
N/A
$ 98,200
$ 0(5)
N/A
15,000
N/A
N/A
N/A
N/A
N/A
$ 15,000
$ 300,000
N/A
15,000
N/A
16,149
N/A
N/A
N/A
$ 331,149
$ 0(4)
N/A
6,250
N/A
N/A
N/A
N/A
$ 0(5)
N/A
6,250
406,725
N/A
N/A
N/A
$ 412,975
$ 235,000
N/A
6,250
N/A
12,605
N/A
N/A
$ 253,855
$ 870,750
433,256
15,000
123,045
N/A
N/A
N/A
N/A
$ 1,442,051
$ 585,150
225,670
6,250
652,368
N/A
N/A
N/A
$ 1,469,438
Total
$ 6,250
Michael M. Keating
Cash Compensation(1)
Accelerated Vesting Of Fiscal 2006 and 2007 LTIP-2 Awards(2)
Payment of Remaining Balance of LTIP-1 Awards(3)
Accelerated Vesting of Outstanding RUP Awards(7)
Medical Benefits
280(G)Tax Gross-up
409(A)Tax Gross-up
Total
$ 0(4)
N/A
11,700
N/A
N/A
N/A
N/A
$ 11,700
$ 0(5)
N/A
11,700
N/A
N/A
N/A
N/A
$ 11,700
$ 210,000
N/A
11,700
N/A
14,597
N/A
N/A
$ 236,297
$ 540,225
258,021
11,700
98,240
N/A
N/A
N/A
$ 908,186
(1)
(2)
In the event of a change of control followed by a termination without cause or by a resignation with good reason, each of the named executive
officers without employment agreements will receive 78 weeks of base pay plus a sum equal to their maximum annual cash bonus divided by 52
and multiplied by 78 in accordance with the terms of the Severance Protection Plan. For more information on the Severance Protection Plan,
refer to the subheading “Change of Control” in the “Compensation Discussion and Analysis.”
In the event of a change of control, all LTIP-2 awards will vest immediately regardless of whether termination immediately follows. If a change
of control event occurs, the calculation of the LTIP-2 payment will be made as if our total return to Common Unitholders was higher than that
provided by any of the other members of the peer group to their shareholders or unitholders. For more information, refer to the subheading
“2003 Long-Term Incentive Plan” in the “Compensation Discussion and Analysis.”
In the event of death, the inability to continue employment due to permanent disability, or a termination without cause or a good reason
86
resignation unconnected to a change of control event, awards will vest in accordance with the normal vesting schedule and will be subject to the
same requirements as awards held by individuals still employed by the Partnership and shall be subject to the same risks as awards held by all
other participants. However, as in the case of Mr. Jolly’s severance agreement, under such circumstances, the rights to such awards are
sometimes surrendered by the holder under the terms of the final severance agreement.
(3) The amounts reported on these lines represent the remaining balances of LTIP-1 which, by action of the Committee, was paid to the participants
on November 16, 2007.
(4)
In the event of death, the named executive officer’s estate is entitled to a payment equal to the decedent’s earned but unpaid salary and pro-rata
cash bonus.
(5)
In the event of disability, the named executive officer is entitled to a payment equal to his earned but unpaid salary and pro-rata cash bonus.
(6) Mr. Plante’s spouse would be entitled to payments of $1,600 per month for 52 months under the Partnership’s predecessor’s Survivor Benefits
Plan. The plan provides survivor benefits of up to $1,600 per month to spouses under age 62 and to children under age 18 for up to five years.
Because Ms. Plante will attain age 62 within the next five years, if Mr. Plante had died on September 29, 2007, she would have been entitled to
52 payments. This Plan, which was offered by one of the Partnership’s predecessors to all full-time, exempt employees, was closed to
additional participants in 1986; however, existing participants were provided with continuing coverage. Mr. Plante is the only executive officer
who participates in the plan.
(7) The RUP document makes no provisions for the vesting of grants held by recipients who die prior to the completion of the vesting schedule.
If a recipient of a RUP grant becomes permanently disabled, only those grants that have been held for at least one year on the date that the
employee’s employment is terminated as a result of his or her permanent disability shall immediately vest; all grants held by the recipient for less
than one year shall be forfeited by the recipient. Because Mr. Plante’s and Mr. Keating’s RUP grants were awarded less than one year prior to
September 29, 2007, if either had become permanently disabled on September 29, 2007, his RUP grant would have been forfeited. Of Mr.
Boyd’s 14,596 unvested restricted units as of September 29, 2007, 9,100 would have vested if Mr. Boyd had become permanently disabled on
September 29, 2007.
Under circumstances unrelated to a change of control, if a RUP grant recipient’s employment is terminated without cause or he or she resigns for
good reason, any RUP grants held by such recipient shall be forfeited.
In the event of a change of control, as defined in the RUP document, all unvested RUP grants shall vest immediately on the date the change of
control is consummated, regardless of the holding period and regardless of whether the recipient’s employment is terminated.
(8) Any severance benefits, unrelated to a change-of-control event, payable to these officers would be determined by the Compensation Committee
on a case-by-case basis in accordance with prior treatment of other similarly situated executives and may, as a result, differ from this
hypothetical presentation. For purposes of this table, we have assumed that each of these named executive officers would, upon termination of
employment without cause or for resignation for good reason, receive accrued salary and benefits through the date of termination plus one times
annual salary, paid in the form of salary continuation, and continued participation, at active employee rates, in the Partnership’s health insurance
plans for one year.
Actual Severance Arrangement with Jeffrey S. Jolly
The following table provides information concerning the Partnership’s severance arrangement with Mr. Jolly
whose position was eliminated on January 26, 2007:
Involuntary
Termination
Without Cause
by the
Partnership or
by the
Executive for
Good Reason
without a
Change of
Control Event
$ 330,000
157,300
34,834
16,150
19,409
4,000
N/A
N/A
$ 561,693
Executive Payments and Benefits Upon Termination
Cash Compensation(1)
Annual Cash Bonus(2)
Payment of Remaining Balance of LTIP-1 Awards(3)
Vehicle(4)
Medical Benefits(5)
Income Tax Preparation Services for Two Years(6)
280(G)Tax Gross-up
409(A)Tax Gross-up
Total
(1) The amount reported on this line represents the continued payment of Mr. Jolly’s base salary in effect on the date of his departure through July
26, 2008.
87
(2) The amount reported on this line represents Mr. Jolly’s full annual cash bonus, without pro-ration, for fiscal 2007.
(3) The amount reported on this line represents the payment of Mr. Jolly’s remaining, unpaid LTIP-1 balance. Because the performance criteria
associated with this balance were satisfied during a prior fiscal year, this amount has been excluded from the Summary Compensation Table.
(4) The amount reported on this line represents the cost to transfer title of Mr. Jolly’s employer-provided vehicle from the lessor to Mr. Jolly.
(5) The amount reported on this line represents the cost of health insurance premiums, under COBRA, that the Partnership will pay on Mr. Jolly’s
behalf through July 26, 2008, or, if earlier, until Mr. Jolly obtains health insurance benefits from another employer.
(6) The amount reported on this line represents the estimated cost to reimburse Mr. Jolly for income tax preparation services for two years.
SUPERVISORS’ COMPENSATION
The following table sets forth the compensation of the non-employee members of the Board of Supervisors of
the Partnership during fiscal 2007.
Fees Earned
or Paid in
Cash
($) (1)
Unit Awards
($) (4)
Non-equity
incentive plan
compensation
($)
Supervisor
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
All Other
Compensation
($)
Total
($)
John D. Collins (2)
Harold R. Logan, Jr. (3)
Dudley C. Mecum
John Hoyt Stookey (3)
Jane Swift (2)
$ 37,500
93,750
75,000
81,250
37,500
$ 26,577
290,863
290,863
290,863
26,577
$ -
-
-
-
-
$ -
-
-
-
-
$ -
-
-
-
-
$ 64,077
384,613
365,863
372,113
64,077
(1)
Includes amounts earned for fiscal 2007, including meeting fees for the fourth quarter of 2007 that were paid in October 2007. Does not include
amounts paid in fiscal 2007 for fiscal 2006 meeting fees.
(2) Mr. Collins’ and Ms. Swift’s terms as Supervisors commenced on April 25, 2007. Although each is paid an annual retainer of $75,000 in
installments of $18,750 per quarter, the fees earned by each of them for fiscal 2007 reflect the prorating of their annual retainers for the mid-year
commencement of their terms as Supervisors.
(3) During the first quarter of fiscal 2007, Mr. Stookey served as Chairman of the Board of Supervisors. For the subsequent three quarters of fiscal
2007, Mr. Logan served as Chairman of the Board of Supervisors. Accordingly, Mr. Stookey received one quarterly installment of $25,000 and
three quarterly installments of $18,750. Mr. Logan received one quarterly installment of $18,750 and three quarterly installments of $25,000.
(4) Represents the dollar amount charged to earnings for financial statement reporting purposes during fiscal 2007 pursuant to SFAS 123R for
restricted unit grants of 8,500 awarded on November 1, 2004 and 3,000 awarded on April 25, 2007 to each of Messrs. Logan, Mecum and
Stookey, and for restricted unit grants of 5,496 awarded to each of Mr. Collins and to Ms. Swift on April 25, 2007. All grants were made in
accordance with the provisions of our 2000 Restricted Unit Plan and vest accordingly. The fair market values of our Common Units ($33.20 for
the 2004 grants and $47.21 for the 2007 grants) on the dates the grants were awarded, based on the average of the high and low sales prices on
the respective grant dates, were used to calculate the value of the restricted unit grants for purposes of amortizing compensation expense under
SFAS 123R. As of September 29, 2007, each non-employee member of the Board of Supervisors held the following quantities of unvested
restricted unit grants: Mr. Collins, 5,496 units; Mr. Logan, 11,500 units; Mr. Mecum, 11,500 units; Mr. Stookey, 11,500 units; and Ms. Swift,
5,496 units. In accordance with the retirement provisions of the 2000 Restricted Unit Plan and with the requirements of SFAS 123R, all
remaining, unamortized expense for the unvested grants awarded to Messrs. Logan, Mecum and Stookey was recognized during fiscal 2007.
Note: The column for reporting option awards was omitted from the Supervisor’s Compensation Table because the Partnership does not award options to
its supervisors or to its employees.
Fees and Benefit Plans for Non-Employee Supervisors
Annual Cash Retainer Fees. As the Chairman of the Board of Supervisors, Mr. Logan receives an annual
retainer of $100,000, payable in quarterly installments of $25,000 each. Each of the other supervisors receives
an annual cash retainer of $75,000, payable in quarterly installments of $18,750 each.
88
Meeting Fees. The members of our Board of Supervisors receive no additional remuneration for attendance
at regularly scheduled meetings of the Board or its Committees, other than reimbursement of reasonable
expenses incurred in connection with such attendance.
Restricted Unit Plan. Each non-employee supervisor participates in the 2000 Restricted Unit Plan. All
grants vest in accordance with the provisions of the plan document (see Compensation Discussion and Analysis
section titled “2000 Restricted Unit Plan” for description of vesting schedule). Upon vesting, all grants are
settled by issuing Common Units; therefore, this plan is accounted for as equity rather than as a liability in the
Partnership’s financial statements. During fiscal 2004, Messrs. Logan, Mecum and Stookey were awarded
unvested restricted unit plan grants of 8,500 units each; during fiscal 2007, each of them received an additional
unvested grant of 3,000 units. Upon commencement of their terms as supervisors in fiscal 2007, Mr. Collins and
Ms. Swift each received a grant of 5,496 units.
Additional Supervisor Compensation. Non-employee supervisors receive no other forms of remuneration
from us. The only perquisite provided to the members of the Board of Supervisors is the ability to purchase
propane at the same discounted rate that we offer propane to our employees, the value of which was less than
$10,000 in fiscal 2007 for each supervisor.
Compensation Committee Interlocks and Insider Participation. None.
89
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED UNITHOLDER MATTERS
The following table sets forth certain information as of November 20, 2007 regarding the beneficial
ownership of Common Units by each member of the Board of Supervisors, each executive officer named in the
Summary Compensation Table in Item 11 of this Annual Report, and all members of the Board of Supervisors
and executive officers as a group. Based upon filings under Section 13(d) or (g) under the Exchange Act, the
Partnership does not know of any person or group who beneficially owns more than 5% of the outstanding
Common Units. Except as set forth in the notes to the table, each individual or entity has sole voting and
investment power over the Common Units reported.
Name of Beneficial Owner
Mark A. Alexander (a)(b)(j)
Michael J. Dunn, Jr. (a)(j)
Robert M. Plante (c)
Jeffrey S. Jolly (d)
Michael M. Keating (e)
Steven C. Boyd (f)
John Hoyt Stookey (g)
Harold R. Logan, Jr.(g)
Dudley C. Mecum (g)
John D. Collins (h)
Jane Swift (h)
Amount and Nature of
Beneficial Ownership
1,298,912
216,996
82,038
94,241
126,206
27,233
11,947
12,729
7,759
-0-
-0-
Percent
of Class
4.0%
*
*
*
*
*
*
*
*
*
*
All Members of the Board
of Supervisors and Executive
Officers as a Group (19 persons) (d)(i)
2,001,228
6.1%
* Less than 1%.
(a) Includes the following numbers of Common Units as to which the following individuals deferred receipt as
described below; Mr. Alexander – 243,902 and Mr. Dunn – 48,780. These Common Units are held in trust
pursuant to a Compensation Deferral Plan, and Mr. Alexander and Mr. Dunn will have no voting or
investment power over these Common Units until they are distributed by the trust, which distribution is
scheduled to occur on January 2, 2008. Mr. Alexander and Mr. Dunn have elected to receive the quarterly
cash distributions on these deferred units. Notwithstanding the foregoing, if a “change of control” of the
Partnership occurs (as defined in the Compensation Deferral Plan), all of the deferred Common Units (and
related distributions) held in trust automatically become distributable to such individuals.
(b) Includes 784 Common Units held by the General Partner, of which, as an accommodation to the Partnership,
Mr. Alexander is the sole member. Includes 29,000 Common Units which are held in a brokerage account,
where there is a possibility that such Common Units could be pledged as security.
(c) Excludes 2,753 unvested restricted units, none of which will vest in the 60-day period following November
20, 2007. Restricted unit grants vest 25%, 25% and 50%, respectively, on the third, fourth and fifth
anniversaries of the date of grant and 100% upon a “change in control”, as defined in the Partnership’s 2000
Restricted Unit Plan. Due to Mr. Plante’s retirement as Vice President and Chief Financial Officer as of
September 29, 2007, all of these 2,753 unvested restricted units will vest upon his retirement at the end of the
twenty-four month reduced-responsibility employment period, or earlier, if he chooses to retire prior to the
90
conclusion of the twenty-four month period. See Footnote 1 to Outstanding Equity Awards at Fiscal Year
End 2007 Table under Item 11, above. Includes 82,038 Common Units which are held in a brokerage
account, where there is a possibility that such Common Units could be pledged as security.
(d) As of January 26, 2007, the last day of Mr. Jolly’s employment with the Partnership, and the last day on
which the Partnership had access to information about Mr. Jolly’s beneficial ownership of Common Units.
(e) Excludes 2,198 unvested restricted units, none of which will vest in the 60-day period following November
20, 2007. Restricted unit grants vest 25%, 25% and 50%, respectively, on the third, fourth and fifth
anniversaries of the date of grant and 100% upon a “change in control”, as defined in the Partnership’s 2000
Restricted Unit Plan.
(f) Excludes 13,396 unvested restricted units, none of which will vest in the 60-day period following November
20, 2007. Restricted unit grants vest 25%, 25% and 50%, respectively, on the third, fourth and fifth
anniversaries of the date of grant and 100% upon a “change in control”, as defined in the Partnership’s 2000
Restricted Unit Plan. Includes 26,033 Common Units which are held in a brokerage account, where there is a
possibility that such Common Units could be pledged as security.
(g) Excludes 9,375 unvested restricted units, none of which will vest in the 60-day period following November
20, 2007. Restricted unit grants vest 25%, 25% and 50%, respectively, on the third, fourth and fifth
anniversaries of the date of grant and 100% upon a “change in control”, as defined in the Partnership’s 2000
Restricted Unit Plan.
(h) Excludes 5,496 unvested restricted units, none of which will vest in the 60-day period following November
20, 2007. Restricted unit grants vest 25%, 25% and 50%, respectively, on the third, fourth and fifth
anniversaries of the date of grant and 100% upon a “change in control”, as defined in the Partnership’s 2000
Restricted Unit Plan.
(i) Includes 1,985 unvested restricted units which will vest in the 60-day period following November 20, 2007.
Inclusive of the units referred to in footnotes (c), (e), (f), (g) and (h) above, the reported number of units also
excludes 120,157 unvested restricted units, none of which will vest in the 60 day period following November
20, 2007, owned by certain executive officers, whose restricted units vest on the same basis as described in
footnotes (c), (e), (f), (g) and (h) above. Includes 223,723 Common Units which are held in a brokerage
account, where there is a possibility that such Common Units could be pledged as security (inclusive of the
units referred to in footnotes (b), (c) and (f) above).
(j) Refer to Item 13 of this Annual Report for a description of certain lockup requirements pertaining to the
Common Units issued to the General Partner under the GP Exchange Transaction. For Messrs. Alexander
and Dunn, includes 1,026,010 and 168,216 Common Units, respectively, subject to a two-year lockup
requirement from October 19, 2006.
91
Securities Authorized for Issuance Under the 2000 Restricted Unit Plan
The following table sets forth certain information, as of September 29, 2007, with respect to the
Partnership’s 2000 Restricted Unit Plan, under which Restricted Units of the Partnership, as described in Note 9
to the Consolidated Financial Statements included in this Annual Report, are authorized for issuance.
Plan
Category
Equity compensation plans approved by security
holders (1)
Equity compensation plans not approved by security
holders
Total
Number of Common
Units to be issued
upon
vesting of restricted
units
(a)
Weighted-
average grant
date fair value per
restricted unit
(b)
383,090 (2)
$35.36
--
383,090
--
$35.36
Number of restricted units
remaining available for
future issuance under the
2000 Restricted Unit Plan (excluding
securities reflected in
column (a))
(c)
204,427
--
204,427
(1) Relates to the 2000 Restricted Unit Plan.
(2) Represents number of restricted units that, as of September 29, 2007, had been granted under the
2000 Restricted Unit Plan but had not yet vested.
92
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
Related Party Transactions
Certain Relationships and Related Party Transactions
On October 19, 2006, after receiving the requisite approval of the Common Unitholders, the Partnership, the
Operating Partnership and the General Partner consummated the GP Exchange Transaction, pursuant to which
the Partnership issued 2,300,000 Common Units to the General Partner in exchange for the cancellation of the
General Partner’s IDRs, the economic interest in the Partnership included in the general partner interest therein
and the economic interest in the Operating Partnership included in the general partner interest therein.
Immediately thereafter, on October 19, 2006, pursuant to a Distribution, Release and Lockup Agreement dated
July 27, 2006 by and among the Partnership, the Operating Partnership, the General Partner and the then
individual members of the General Partner (the “Distribution Agreement”), the Common Units received by the
General Partner (other than 784 Common Units that will remain in the General Partner) were distributed to the
then members of the General Partner in exchange for their interests in the General Partner. Pursuant to the
Distribution Agreement, on October 19, 2006 the Partnership filed a shelf registration statement with the SEC in
order to register the resale by the individual members of the General Partner of the Common Units distributed to
them by the General Partner. The Partnership has agreed to maintain the effectiveness of the registration
statement for two years after October 19, 2006 (subject to the Board of Supervisors’ right to suspend its use
under certain circumstances). Additionally, the Partnership agreed to indemnify the individual members of the
General Partner, and the General Partner, against certain liabilities arising from the GP Exchange Transaction
and the shelf registration statement, including liabilities that may arise under the securities laws.
The numbers of Common Units distributed to the Chief Executive Officer and each executive officer named
in the Summary Compensation Table in Item 11 of this Annual Report, as well as the executive officers as a
group following the GP Exchange Transaction were as follows. The then three Supervisors who were not
officers of the Partnership received no Common Units in the GP Exchange Transaction.
Mark A. Alexander (a)
Michael J. Dunn, Jr. (b)
Robert M. Plante
Jeffrey S. Jolly
Steven C. Boyd
Michael M. Keating
Executive Officers as a Group (a) (b)
Common Units
Received in the
GP Exchange
Transaction
1,026,010
168,216
82,038
92,641
24,555
125,206
1,620,616
(a) Includes 784 Common Units held by the General Partner, of which, as an accommodation to the Partnership,
Mr. Alexander is the sole member. Under the Distribution Agreement, the Partnership and the Operating
Partnership have agreed to pay or reimburse Mr. Alexander for taxes imposed upon the General Partner by
any state other than the state in which Mr. Alexander resides (except to the extent such taxes are attributable
to activities or income of the General Partner that are unrelated to its ownership of the 784 Common Units or
its status as General Partner).
93
(b) Excludes 55,200 Common Units distributed to Mr. Dunn’s former wife.
Under the Distribution Agreement, the then individual members of the General Partner are subject to certain
restrictions on the transfer of any of the Common Units distributed to them by the General Partner. Each of
Messrs. Alexander and Dunn has agreed not to transfer any of the Common Units received by him in the GP
Exchange Transaction for a period of two years from October 19, 2006, except: (i) to a family member, or trust
for the benefit of a family member, of such individual who agrees to be bound by the lockup requirement; (ii)
with the prior written consent of the Board of Supervisors of the Partnership; (iii) pursuant to a Change of
Control (as defined in the Distribution Agreement); (iv) by will or the laws of intestacy to such person’s legal
representative, heir or legatee; or (v) if such person is a partnership or corporation or similar entity, a distribution
to its partners, stockholders, but subject to the terms of the lockup requirement. All other previous members of
the General Partner agreed to not transfer any of the Common Units received by him or her in the GP Exchange
Transaction for a period of 90 days following consummation of the GP Exchange Transaction except under the
circumstances described in clauses (i) through (v) above. This 90 day lockup period has now expired.
Pursuant to the Partnership Agreement, the General Partner is neither required nor permitted to make any
additional capital contributions to the Partnership, and the General Partner may not transfer the retained 784
Common Units nor acquire any additional Common Units. Any transfer by the General Partner of its general
partnership interest in the Partnership is subject to the prior approval of the Board of Supervisors of the
Partnership, except for a transfer by the General Partner of the entirety of such interest to an affiliate of the
General Partner.
Additionally, the Board of Supervisors of the Partnership may, at any time, and for any reason, require the
General Partner to transfer its general partnership interest in the Partnership or its Common Units to a designee
of the Board of Supervisors. The consideration for the transfer of the general partnership interest in the
Partnership shall be nominal. The consideration for the transfer of Common Units by the General Partner shall
be the current market price of such Common Units. The Board of Supervisors may also, at any time and for any
reason, require any or all of the members of the General Partner to transfer their limited liability company
interests in the General Partner to a designee of the Board of Supervisors. The consideration for the transfer of
limited liability company interests by the members of the General Partner shall be the product of (i) the
member’s percentage interest in the General Partner multiplied by the number of Common Units owned by the
General Partner and (ii) the current market price of the Common Units. If any such transfer is pursuant to or in
connection with a merger or other transaction involving the Partnership, then the consideration for the Common
Units owned by the General Partner shall be the consideration being paid on account of the Common Units in
connection with the merger or such other transaction. Such consideration shall be paid in the form of cash or, at
the option of the Board of Supervisors, in the form of consideration paid in the merger or other transaction.
The Partnership will continue its past practice of providing tax services to the General Partner at no cost to
the General Partner and, in fiscal 2007, paid the cost of external tax return preparation services for the former
members of the General Partner which amounted to approximately $55,000.
The firm that served as financial advisor to the General Partner in connection with the GP Exchange
Transaction has performed merger, acquisition and general financial advisory services for the Partnership in the
past. The Partnership has agreed to retain the firm to continue to provide these services for fiscal 2008 through
2011 for an annual fee of $225,000. The Partnership has also agreed to indemnify the firm against various
liabilities arising from its engagement by the Partnership, as well as from its engagement as financial advisor to
the General Partner in connection with the GP Exchange Transaction.
94
Supervisor Independence
The Corporate Governance Guidelines and Principles adopted by the Board of Supervisors provide that a
Supervisor is deemed to be lacking a material relationship to the Partnership and is therefore independent of
management if the following criteria are satisfied:
1. Within the past three years, the Supervisor:
a. has not been employed by the Partnership and has not received more than $100,000 per year in direct
compensation from the Partnership, other than Supervisor and committee fees and pension or other forms
of deferred compensation for prior service;
b. has not provided significant advisory or consultancy services to the Partnership, and has not been
affiliated with a company or a firm that has provided such services to the Partnership in return for
aggregate payments during any of the last three fiscal years of the Partnership in excess of the greater of
2% of the other company’s consolidated gross revenues or $1 million;
c. has not been a significant customer or supplier of the Partnership and has not been affiliated with a
company or firm that has been a customer or supplier of the Partnership and has either made to the
Partnership or received from the Partnership payments during any of the last three fiscal years of the
Partnership in excess of the greater of 2% of the other company’s consolidated gross revenues or $1
million;
d. has not been employed by or affiliated with an internal or external auditor that within the past three years
provided services to the Partnership; and
e. has not been employed by another company where any of the Partnership’s current executives serve on
that company’s compensation committee;
2. The Supervisor is not a spouse, parent, sibling, child, mother- or father-in-law, son- or daughter-in-law or
brother- or sister-in-law of a person having a relationship described in 1. above nor shares a residence with
such person;
3. The Supervisor is not affiliated with a tax-exempt entity that within the past 12 months received significant
contributions from the Partnership (contributions of the greater of 2% of the entity’s consolidated gross
revenues or $1 million are considered significant); and
4. The Supervisor does not have any other relationships with the Partnership or with members of senior
management of the Partnership that the Board determines to be material.
95
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table sets forth the aggregate fees for services related to fiscal years 2007 and 2006 provided
by PricewaterhouseCoopers LLP, our independent registered public accounting firm.
Audit Fees (a)
Audit-Related Fees (b)
Tax Fees (c)
All Other Fees (d)
Fiscal
2007
Fiscal
2006
$
2,275,000
145,000
848,000
2,000
$
2,510,000
50,000
927,500
4,500
(a) Audit Fees consist of professional services rendered for the integrated audit of our annual consolidated
financial statements and our internal control over financial reporting, including reviews of our quarterly
financial statements, as well as for services rendered in connection with the issuance of comfort letters and
consents in connection with other filings made with the SEC.
(b) Audit-Related Fees consist of fees billed for consultations concerning financial accounting and reporting
standards.
(c) Tax Fees consist of fees for professional services related to tax reporting, compliance and transaction
services assistance.
(d) All Other Fees represent fees for services provided to us not otherwise included in the categories above.
The Audit Committee of the Board of Supervisors has adopted a formal policy concerning the approval of
audit and non-audit services to be provided by the independent registered public accounting firm,
PricewaterhouseCoopers LLP. The policy requires that all services PricewaterhouseCoopers LLP may provide to
us, including audit services and permitted audit-related and non-audit services, be pre-approved by the Audit
Committee.
The Audit Committee pre-approved all audit and non-audit services provided by
PricewaterhouseCoopers LLP during fiscal 2007 and fiscal 2006.
96
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Annual Report:
1. Financial Statements
See “Index to Financial Statements” set forth on page F-1.
2. Financial Statement Schedule
See “Index to Financial Statement Schedule” set forth on page S-1.
3. Exhibits
See “Index to Exhibits” set forth on page E-1.
97
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Date: November 28, 2007
SUBURBAN PROPANE PARTNERS, L.P.
By: /s/ MARK A. ALEXANDER
Mark A. Alexander
Chief Executive Officer and
Supervisor
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature
Title
Date
By: /s/ MARK A. ALEXANDER
(Mark A. Alexander)
Chief Executive Officer and
Supervisor
November 28, 2007
By: /s/ MICHAEL J. DUNN, JR
President and Supervisor
November 28, 2007
(Michael J. Dunn, Jr.)
By: /s/ HAROLD R. LOGAN, JR.
Chairman and Supervisor
November 28, 2007
(Harold R. Logan, Jr.)
By: /s/ JOHN HOYT STOOKEY
Supervisor
November 28, 2007
(John Hoyt Stookey)
By: /s/ DUDLEY C. MECUM
(Dudley C. Mecum)
By: /s/ JOHN D. COLLINS
(John D. Collins)
By: /s/ JANE SWIFT
(Jane Swift)
Supervisor
Supervisor
Supervisor
By: /s/ MICHAEL A. STIVALA
(Michael A. Stivala)
Chief Financial Officer and
Chief Accounting Officer
November 28, 2007
November 28, 2007
November 28, 2007
November 28, 2007
By /s/ MICHAEL A. KUGLIN
Controller
November 28, 2007
(Michael A. Kuglin)
98
The exhibits listed on this Exhibit Index are filed as part of this Annual Report. Exhibits required to be filed by
Item 601 of Regulation S-K, which are not listed below, are not applicable.
INDEX TO EXHIBITS
Exhibit
Number
2.1
3.1
3.2
4.1
4.2
4.3
4.4
10.1
10.2
10.3
Description
Exchange Agreement dated as of July 27, 2006 by and among the Partnership, the Operating
Partnership and the General Partner. (Incorporated by reference to Exhibit 10.1 to the
Partnership’s Current Report on Form 8-K filed July 28, 2006).
Third Amended and Restated Agreement of Limited Partnership of the Partnership dated as of
October 19, 2006, as amended as of July 31, 2007. (Incorporated by reference to Exhibit 3.1 to
the Partnership’s Current Report on Form 8-K filed August 2, 2007).
Third Amended and Restated Agreement of Limited Partnership of the Operating
Partnership dated as of October 19, 2006. (Incorporated by reference to Exhibit 3.2 to the
Partnership’s Current Report on Form 8-K filed October 19, 2006).
Description of Common Units of the Partnership. (Incorporated by reference to Exhibit 4.1 to
the Partnership’s Current Report on Form 8-K filed October 19, 2006).
Indenture, dated as of December 23, 2003, between Suburban Propane Partners, L.P.,
Suburban Energy Finance Corp. and The Bank of New York, as Trustee (including Form of
Senior Global Exchange Note). (Incorporated by reference to Exhibit 10.28 to the
Partnership’s Quarterly Report on Form 10-Q For the fiscal quarter ended December 27,
2003).
Exchange and Registration Rights Agreement, dated December 23, 2003 among Suburban
Propane Partners, L.P., Suburban Energy Finance Corp., Wachovia Capital Markets, LLC
and Goldman, Sachs & Co. (Incorporated by reference to Exhibit 4.1 to the Partnership’s
Registration Statement on Form S-4 dated December 19, 2003).
Exchange and Registration Rights Agreement, dated March 31, 2005 among Suburban
Propane Partners, L.P., Suburban Energy Finance Corp., Wachovia Capital Markets, LLC
and Goldman, Sachs & Co. (Incorporated by reference to Exhibit 4.1 to the Partnership’s
Current Report of Form 8-K filed April 1, 2005).
Employment Agreement dated as of March 5, 1996 between the Operating Partnership and
Mr. Alexander. (Incorporated by reference to Exhibit 10.13 to the Partnership’s Current
Report on Form 8-K filed April 29, 1996).
First Amendment to Employment Agreement dated as of March 5, 1996 between the Operating
Partnership and Mr. Alexander entered into as of October 23, 1997. (Incorporated by reference
to Exhibit 10.13 to the Partnership’s Current Report on Form 8-K filed April 29, 1996).
Second Amendment to Employment Agreement dated as of March 5, 1996 between the
Operating Partnership and Mr. Alexander entered into as of April 14, 1999. (Incorporated by
reference to Exhibit 10.15 to the Partnership’s Annual Report on Form 10-K for the fiscal year
ended September 27, 1997).
E-1
10.4
10.5
10.6
Form of Third Amendment to Employment Agreement dated as of March 5, 1996 between the
Operating Partnership and Mr. Alexander, entered into November 2, 2005. (Incorporated by
reference to Exhibit 10.4 to the Partnership’s Annual Report on Form 10-K for the fiscal year
ended September 24, 2005).
Employment Agreement dated as of February 1, 2007 between the Operating Partnership and
Mr. Dunn. (Incorporated by reference to Exhibit 10.2 to the Partnership’s Quarterly Report
on Form 10-Q For the fiscal quarter ended December 30, 2006).
Suburban Propane Partners, L.P. 2000 Restricted Unit Plan, as amended and restated effective
October 17, 2006, as amended effective July 31, 2007 and as further amended effective
October 31, 2007. (Filed herewith).
10.7
Suburban Propane, L.P. Severance Protection Plan dated September 1996. (Incorporated by
reference to Exhibit 10.12 to the Partnership’s Annual Report on Form 10-K for the fiscal
year ended September 28, 1996).
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
Form of Amendment to Suburban Propane Severance Protection Plan for Key Employees,
adopted November 2, 2005. (Incorporated by reference to Exhibit 10.7 to the Partnership’s
Annual Report on Form 10-K for the fiscal year ended September 24, 2005).
Suburban Propane, L.P. Long Term Incentive Plan, as amended and restated effective October
1, 1999. (Incorporated by reference to Exhibit 10.19 to the Partnership’s Annual Report on
Form 10-K for the fiscal year ended September 28, 2002).
Form of Amendment to Suburban Propane, L.P. Long Term Incentive Program, adopted
November 2, 2005. (Incorporated by reference to Exhibit 10.9 to the Partnership’s Annual
Report on Form 10-K for the fiscal year ended September 24, 2005).
Suburban Propane L.P. 2003 Long Term Incentive Plan, as amended and restated effective
October 17, 2006, as amended effective July 31, 2007 and as further amended effective
October 31, 2007. (Filed herewith)
Benefits Protection Trust dated May 26, 1999 by and between Suburban Propane Partners, L.P.
and First Union National Bank. (Incorporated by reference to the Partnership’s Quarterly
Report on Form 10-Q for the fiscal quarter ended June 26, 1999).
Compensation Deferral Plan of Suburban Propane Partners, L.P. and Suburban Propane, L.P.
amended and restated as of January 1, 2004. (Incorporated by reference to Exhibit 10. 9 to the
Partnership’s Annual Report on Form 10-K for the fiscal year ended September 25, 2004).
Form of Amendment to Compensation Deferral Plan of Suburban Propane Partners, L.P. and
Suburban Propane, L.P., adopted November 2, 2005. (Incorporated by reference to Exhibit
10.13 to the Partnership’s Annual Report on Form 10-K for the fiscal year ended September
24, 2005).
Amended and Restated Supplemental Executive Retirement Plan of the Partnership (effective
as of January 1, 1998). (Incorporated by reference to Exhibit 10.23 to the Partnership’s Annual
Report on Form 10-K for the fiscal year ended September 29, 2001).
Amended and Restated Retirement Savings and Investment Plan of Suburban Propane effective
as of January 1, 1998). (Incorporated by reference to Exhibit 10.24 to the Partnership’s Annual
E-2
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
21.1
23.1
31.1
Report on Form 10-K for the fiscal year ended September 29, 2001).
Amendment No. 1 to the Retirement Savings and Investment Plan of Suburban Propane
(effective January 1, 2002). (Incorporated by reference to Exhibit 10.25 to the Partnership’s
Annual Report on Form 10-K for the fiscal year ended September 28, 2002).
Third Amended and Restated Credit Agreement dated October 20, 2004, as amended by the
First Amendment thereto dated March 17, 2005, as further amended by the Second
Amendment thereto dated August 25, 2005. (Incorporated by reference to the Partnership’s
Current Report on Form 8-K filed August 29, 2005).
First Amendment to the Third Amended and Restated Credit Agreement dated as of March 11,
2005. (Incorporated by reference to Exhibit 10.1 to the Partnership’s Current Report on Form
8-K filed April 1, 2005).
Second Amendment to the Third Amended and Restated Credit Agreement dated as of August
26, 2005. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed
August 29, 2005).
Third Amendment to the Third Amended and Restated Credit Agreement dated as of February
9, 2006. (Incorporated by reference to the Partnership’s Current Report on Form 8-K filed
February 24, 2006).
Distribution, Release and Lockup Agreement, dated as of July 27, 2006, between the
Partnership, the Operating Partnership, the General Partner and the members of the General
Partner. (Incorporated by reference to Exhibit 10.2 to the Partnership’s Current Report on
Form 8-K filed July 28, 2006).
Purchase and Sale Agreement, dated September 17, 2007, among Suburban Propane, L.P.,
Suburban Pipeline LLC and Plains LPG Services, L.P. (Incorporated by reference to Exhibit
10.1 to the Partnership’s Current Report on Form 8-K filed September 20, 2007).
Non-Competition Agreement, dated September 17, 2007, between Suburban Propane, L.P.
and Plains LPG Services, L.P. (Incorporated by reference to Exhibit 10.2 to the Partnership’s
Current Report on Form 8-K filed September 20, 2007).
Propane Storage Agreement, dated September 17, 2007, between Suburban Propane, L.P.
and Plains LPG Services, L.P. (Incorporated by reference to Exhibit 10.3 to the Partnership’s
Current Report on Form 8-K filed September 20, 2007).
Release and Waiver of All Claims dated as of January 31, 2007 between the Operating
Partnership and Mr. Jolly. (Incorporated by reference to Exhibit 10.1 to the Partnership’s
Quarterly Report on Form 10-Q For the fiscal quarter ended December 30, 2006).
Subsidiaries of Suburban Propane Partners, L.P. (Filed herewith).
Consent of Independent Registered Public Accounting Firm. (Filed herewith).
Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith).
E-3
31.2
32.1
32.2
Certification of the Vice President and Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed
herewith).
Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith).
Certification of the Vice President and Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed
herewith).
E-4
INDEX TO FINANCIAL STATEMENTS
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
Page
Report of Independent Registered Public Accounting Firm.......................................................................…... F-2
Consolidated Balance Sheets -
As of September 29, 2007 and September 30, 2006......................................................................................... F-4
Consolidated Statements of Operations -
Years Ended September 29, 2007, September 30, 2006 and September 24, 2005...….................................. F-5
Consolidated Statements of Cash Flows -
Years Ended September 29, 2007, September 30, 2006 and September 24, 2005......................................... F-6
Consolidated Statements of Partners’ Capital -
Years Ended September 29, 2007, September 30, 2006 and September 24, 2005......................................... F-7
Notes to Consolidated Financial Statements........................…............................................................................. F-8
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Supervisors and Unitholders of
Suburban Propane Partners, L.P.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of
operations, partners' capital and of cash flows present fairly, in all material respects, the financial position of
Suburban Propane Partners, L.P. and its subsidiaries (the “Partnership”) at September 29, 2007 and September
30, 2006, and the results of their operations and their cash flows for each of the three years in the period ended
September 29, 2007 in conformity with accounting principles generally accepted in the United States of America.
In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2)
presents fairly, in all material respects, the information set forth therein when read in conjunction with the related
consolidated financial statements. Also in our opinion, the Partnership maintained, in all material respects,
effective internal control over financial reporting as of September 29, 2007, based on criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Partnership's management is responsible for these financial statements and financial
statement schedule, for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in Management's Report on Internal
Control over Financial Reporting appearing in Item 9A. Our responsibility is to express opinions on these
financial statements, on the financial statement schedule, and on the Partnership's internal control over financial
reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material misstatement
and whether effective internal control over financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 11 to the consolidated financial statements, the Partnership changed its method of
accounting for its defined benefit pension and postretirement plans effective September 29, 2007.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
F-2
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
November 28, 2007
F-3
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts
of $5,041 and $5,530, respectively
Inventories
Assets held for sale
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Other intangible assets, net
Pension asset
Other assets
Total assets
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable
Accrued employment and benefit costs
Accrued insurance
Customer deposits and advances
Accrued interest
Liabilities associated with assets held for sale
Other current liabilities
Total current liabilities
Long-term borrowings
Postretirement benefits obligation
Accrued insurance
Accrued pension liability
Other liabilities
Total liabilities
Commitments and contingencies
Partners' capital:
Common Unitholders (32,674 and 30,314 units issued and outstanding at
September 29, 2007 and September 30, 2006, respectively)
General Partner
Deferred compensation
Common Units held in trust, at cost
Accumulated other comprehensive loss
Total partners' capital
Total liabilities and partners' capital
September
29, 2007
September
30, 2006
$
96,586
$
60,571
71,607
81,246
11,221
21,551
282,211
374,641
277,559
18,242
5,547
17,018
975,218
$
$
56,999
41,702
13,880
61,731
8,546
1,291
12,261
196,410
548,538
22,193
36,428
-
5,372
808,941
78,547
79,418
-
16,815
235,351
390,383
281,359
18,098
-
20,375
945,566
$
$
57,372
35,510
7,360
62,630
8,371
-
21,373
192,616
548,304
27,759
38,053
31,086
7,047
844,865
208,230
-
(5,660)
5,660
(41,953)
166,277
975,218
$
170,151
(1,969)
(5,704)
5,704
(67,481)
100,701
945,566
$
The accompanying notes are an integral part of these consolidated financial statements.
F-4
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit amounts)
Revenues
Propane
Fuel oil and refined fuels
Natural gas and electricity
HVAC
All other
Costs and expenses
Cost of products sold
Operating
General and administrative
Restructuring charges and severance costs
Impairment of goodwill
Depreciation and amortization
Income before interest expense and provision for income taxes
Loss on debt extinguishment
Interest income
Interest expense
Income (loss) before provision for income taxes
Provision for income taxes
Current
Deferred
Income (loss) from continuing operations
Discontinued operations (Note 15):
Gain on disposal of discontinued operations
Income from discontinued operations
September
29, 2007
$
1,019,798
262,076
94,352
56,519
6,818
1,439,563
Year Ended
September
30, 2006
$
1,081,573
356,531
122,071
87,258
9,697
1,657,130
September
24, 2005
$
965,264
431,223
102,803
106,115
10,150
1,615,555
865,418
322,852
56,422
1,485
-
28,790
1,274,967
164,596
-
3,863
(39,459)
1,051,797
373,305
63,561
6,076
-
32,653
1,527,392
129,738
-
630
(41,310)
1,069,745
392,335
47,191
2,775
656
37,260
1,549,962
65,593
(36,242)
310
(40,684)
129,000
89,058
(11,023)
1,853
3,800
764
-
803
-
123,347
88,294
(11,826)
1,887
2,053
-
2,446
976
2,774
Net income (loss)
$
127,287
$
90,740
$
(8,076)
General Partner's interest in net income (loss)
Limited Partners' interest in net income (loss)
$
-
$
127,287
$
$
2,628
88,112
$
$
(251)
(7,825)
Income (loss) per Common Unit - basic
Income (loss) from continuing operations
Discontinued operations
Net income (loss)
Weighted average number of Common Units outstanding - basic
Income (loss) per Common Unit - diluted
Income (loss) from continuing operations
Discontinued operations
Net income (loss)
Weighted average number of Common Units outstanding - diluted
$
$
$
$
$
$
3.79
0.12
3.91
32,554
3.77
0.12
3.89
32,730
2.76
0.08
2.84
30,310
2.75
0.08
2.83
30,453
$
$
$
$
$
$
(0.38)
0.12
(0.26)
30,276
(0.38)
0.12
(0.26)
30,276
The accompanying notes are an integral part of these consolidated financial statements.
F-5
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income to net cash provided by operations:
Depreciation expense - continuing operations
Depreciation expense - discontinued operations
Amortization of intangible assets
Amortization of debt origination costs
Compensation cost recognized under Restricted Unit Plan
Amortization of discount on long-term borrowings
Gain on disposal of property, plant and equipment, net
Gain on disposal of discontinued operations
Pension settlement charge
Impairment of goodwill
Loss on debt extinguishment
Deferred tax provision
Changes in assets and liabilities
Decrease (increase) in accounts receivable
(Increase) decrease in inventories
(Increase) decrease in prepaid expenses and other current assets
(Decrease) increase in accounts payable
Increase (decrease) in accrued employment and benefit costs
Increase (decrease) in accrued interest
Increase (decrease) in other accrued liabilities
(Increase) in other noncurrent assets
Increase in other noncurrent liabilities
Contribution to defined benefit pension plan
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Proceeds from sale of property, plant and equipment
Proceeds from sale of customer service centers, net
Net cash (used in) investing activities
Cash flows from financing activities:
Long-term debt repayments
Long-term debt issuance
Short-term (repayments) borrowings
Expenses associated with debt agreements
Prepayment premium associated with debt extinguishment
Partnership distributions
Net cash (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
September
29, 2007
Year Ended
September
30, 2006
September
24, 2005
$
127,287
$
90,740
$
(8,076)
26,547
452
2,243
1,327
3,014
234
(2,782)
(1,887)
3,269
-
-
3,800
6,836
(1,915)
(4,268)
(448)
6,192
175
162
(40,444)
41,163
(25,000)
145,957
(26,756)
5,783
1,284
(19,689)
30,066
498
2,587
1,324
2,221
234
(1,000)
-
4,437
-
-
-
31,371
1,147
15,745
(6,197)
15,219
(2,604)
(11,325)
(44)
5,902
(10,000)
170,321
(23,057)
3,965
-
(19,092)
32,363
502
4,897
1,514
1,806
117
(2,043)
(976)
-
656
36,242
-
(18,918)
(16,424)
4,315
3,326
(4,861)
908
(5,989)
(944)
10,590
-
39,005
(29,301)
4,670
-
(24,631)
-
-
-
-
-
(90,253)
(90,253)
36,015
60,571
96,586
$
(475)
-
(26,750)
-
-
(77,844)
(105,069)
46,160
14,411
60,571
$
(340,440)
372,953
26,750
(4,175)
(31,980)
(76,552)
(53,444)
(39,070)
53,481
14,411
$
Supplemental disclosure of cash flow information:
Cash paid for interest
$
37,165
$
41,241
$
42,457
The accompanying notes are an integral part of these consolidated financial statements.
F-6
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
(in thousands)
Number of
Common
Units
Common
Unitholders
General
Partner
Deferred
Compen-
sation
Common
Units Held
in Trust
Unearned
Compen-
sation
Accumulated
Other
Compre-
hensive
(Loss) Income
Total
Partners'
Capital
Comprehensive
Income (Loss)
Balance at September 25, 2004
30,257
$
238,880
$
852
$
(5,778)
$
5,778
$
(3,845)
$
(67,769)
$
168,118
(7,825)
(251)
(8,076)
$
(8,076)
Net loss
Other comprehensive loss:
Net unrealized losses on cash flow hedges
Reclassification of realized gains on
cash flow hedges into earnings
Minimum pension liability adjustment
Total comprehensive loss
Partnership distributions
Common Units issued under
Restricted Unit Plan
Common Units distributed into trust
Grants issued under Restricted
Unit Plan, net of forfeitures
Amortization of Restricted
Unit Plan, net of forfeitures
(74,172)
(2,380)
22
2,316
(109)
109
(2,316)
1,806
(4,355)
4,355
-
-
Balance at September 24, 2005
30,279
159,199
(1,779)
(5,887)
5,887
Net income
Other comprehensive income:
Net unrealized gains on cash flow hedges
Reclassification of realized gains on
cash flow hedges into earnings
Non-cash pension settlement charge
Minimum pension liability adjustment
Total comprehensive income
Partnership distributions
Common Units issued under
Restricted Unit Plan
Common Units distributed from trust
Elimination of unearned compensation
from adoption of SFAS 123R
Compensation cost recognized under
Restricted Unit Plan, net of forfeitures
88,112
2,628
(75,026)
(2,818)
35
183
(183)
(4,355)
2,221
Balance at September 30, 2006
30,314
170,151
(1,969)
(5,704)
5,704
Net income
Other comprehensive income:
Net unrealized losses on cash flow hedges
Reclassification of realized losses on
cash flow hedges into earnings
Non-cash pension settlement charge
Minimum pension liability adjustment
Adjustment to initially adopt SFAS 158
Total comprehensive income
Partnership distributions
Common Units issued under
Restricted Unit Plan
Common Units issued in
Exchange of GP interest
Exchange and cancellation of GP Interest
Common Units distributed from trust
Compensation cost recognized under
Restricted Unit Plan, net of forfeitures
127,287
(90,253)
60
2,300
80,443
(82,412)
1,969
44
(44)
3,014
-
(1,293)
(1,293)
(9,129)
1,242
(9,129)
1,242
(1,293)
(9,129)
1,242
$
(17,256)
(76,949)
590
-
4,437
4,441
(76,552)
-
-
1,806
76,116
90,740
$
90,740
590
-
4,437
4,441
$
100,208
590
-
4,437
4,441
(77,844)
-
-
2,221
(67,481)
100,701
127,287
$
127,287
(173)
(173)
(173)
1,967
3,269
63,510
-
$
195,860
1,967
3,269
63,510
(43,045)
1,967
3,269
63,510
(43,045)
(90,253)
80,443
(80,443)
-
3,014
Balance at September 29, 2007
32,674
$
208,230
$
-
$
(5,660)
$
5,660
$
-
$
(41,953)
$
166,277
The accompanying notes are an integral part of these consolidated financial statements.
F-7
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per unit amounts)
1. Partnership Organization and Formation
Suburban Propane Partners, L.P. (the “Partnership”) is a publicly traded Delaware limited partnership principally
engaged, through its operating partnership and subsidiaries, in the retail marketing and distribution of propane,
fuel oil and refined fuels, as well as the marketing of natural gas and electricity in deregulated markets. In
addition, to complement its core marketing and distribution businesses, the Partnership services a wide variety of
home comfort equipment, particularly for heating, ventilation and air conditioning (“HVAC”). The publicly
traded limited partner interests in the Partnership are evidenced by common units traded on the New York Stock
Exchange (“Common Units”), with 32,674,255 Common Units outstanding at September 29, 2007. The holders
of Common Units are entitled to participate in distributions and exercise the rights and privileges available to
limited partners under the Third Amended and Restated Agreement of Limited Partnership (the “Partnership
Agreement”), adopted on October 19, 2006 following approval by Common Unitholders at the Partnership’s Tri-
Annual Meeting and as thereafter amended by the Board of Supervisors on July 31, 2007, pursuant to the
authority granted to the Board in the Partnership Agreement. Rights and privileges under the Partnership
Agreement include, among other things, the election of all members of the Board of Supervisors and voting on
the removal of the general partner.
Suburban Propane, L.P. (the “Operating Partnership”), a Delaware limited partnership, is the Partnership’s
operating subsidiary formed to operate the propane business and assets. In addition, Suburban Sales & Service,
Inc. (the “Service Company”), a subsidiary of the Operating Partnership, was formed to operate the service work
and appliance and parts businesses of the Partnership. The Operating Partnership, together with its direct and
indirect subsidiaries, accounts for substantially all of the Partnership’s assets, revenues and earnings. The
Partnership, the Operating Partnership and the Service Company commenced operations in March 1996 in
connection with the Partnership’s initial public offering.
The general partner of both the Partnership and the Operating Partnership is Suburban Energy Services Group
LLC (the “General Partner”), a Delaware limited liability company. On October 19, 2006, the Partnership
consummated an agreement with its General Partner to exchange 2,300,000 newly issued Common Units for the
General Partner’s incentive distribution rights (“IDRs”) and the economic interest in the Partnership and the
Operating Partnership included in the general partner interests therein (the “GP Exchange Transaction”). Prior to
the GP Exchange Transaction, the General Partner was majority-owned by senior management of the Partnership
and owned 224,625 general partner units (an approximate 0.74% ownership interest) in the Partnership and a
1.0101% general partner interest in the Operating Partnership. The General Partner also held all outstanding
IDRs and appointed two of the five members of the Board of Supervisors. As a result of the GP Exchange
Transaction, the General Partner no longer has any economic interest in either the Partnership or the Operating
Partnership other than as a holder of 784 Common Units that will remain in the General Partner, no IDRs are
outstanding and the sole member of the General Partner is the Partnership’s Chief Executive Officer.
On January 5, 2001, Suburban Holdings, Inc., a subsidiary of the Operating Partnership, was formed to hold the
stock of Gas Connection, Inc. (d/b/a HomeTown Hearth & Grill), Suburban @ Home, Inc. (“Suburban @
Home”) and Suburban Franchising, Inc. (“Suburban Franchising”). On December 31, 2006, Suburban Holdings,
Inc. and Suburban @ Home merged into the Service Company. On January 1, 2007, HomeTown Hearth & Grill
and Suburban Franchising converted into single-member LLCs owned by the Service Company. HomeTown
Hearth & Grill sells and installs natural gas and propane gas grills, fireplaces and related accessories and
supplies. Suburban Franchising creates and develops propane related franchising business opportunities.
F-8
On December 23, 2003, the Partnership acquired substantially all of the assets and operations of Agway Energy
Products, LLC, Agway Energy Services, Inc. and Agway Energy Services PA, Inc. (collectively referred to as
“Agway Energy”) pursuant to an asset purchase agreement dated November 10, 2003 (the “Agway Acquisition”).
Agway Energy was a leading regional marketer of propane, fuel oil, gasoline and diesel fuel primarily in New
York, Pennsylvania, New Jersey and Vermont. To complement its core marketing and delivery business, Agway
Energy also installed and serviced a wide variety of home comfort equipment, particularly in the areas of HVAC.
The Agway Acquisition was consistent with the Partnership’s business strategy of prudently pursuing
acquisitions of retail propane distributors and other energy-related businesses that can complement or supplement
its core propane operations. The Agway Acquisition also expanded the Partnership’s presence in the northeast
energy market.
On November 21, 2003, Suburban Heating Oil Partners, LLC, a subsidiary of HomeTown Hearth & Grill, was
formed to acquire the assets of and operate the fuel oil and refined fuels and HVAC businesses of Agway Energy
acquired on December 23, 2003. In addition, Agway Energy Services, LLC, also a subsidiary of HomeTown
Hearth & Grill, was formed to acquire and operate the natural gas and electricity marketing business of Agway
Energy.
Suburban Energy Finance Corporation, a direct wholly-owned subsidiary of the Partnership, was formed on
November 26, 2003 to serve as co-issuer, jointly and severally with the Partnership, of the Partnership’s 6.875%
senior notes due in 2013 (see Note 8).
The Partnership serves approximately 1,000,000 active residential, commercial, industrial and agricultural
customers from approximately 300 locations in 30 states. The Partnership’s operations are concentrated in the
east and west coast regions of the United States, including Alaska. No single customer accounted for 10% or
more of the Partnership’s revenues during fiscal 2007, 2006 or 2005. During fiscal 2007, 2006 and 2005, three
suppliers provided approximately 34%, 35% and 33%, respectively, of the Partnership’s total domestic propane
supply. The Partnership believes that, if supplies from any of these three suppliers were interrupted, it would be able
to secure adequate propane supplies from other sources without a material disruption of its operations.
2. Summary of Significant Accounting Policies
Principles of Consolidation. The 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. As a result of the GP Exchange Transaction, the General Partner no
longer has any economic interest in the Partnership or the Operating Partnership apart from 784 Common Units
held by it. The Partnership consolidates the results of operations, financial condition and cash flows of the
Operating Partnership as a result of the Partnership’s 100% limited partner interest in the Operating Partnership.
Fiscal Period. The Partnership’s fiscal year ends on the last Saturday nearest to September 30. Fiscal 2006
included 53 weeks of operations compared to 52 weeks in fiscal 2007 and fiscal 2005.
Revenue Recognition. Sales of propane, fuel oil and refined fuels are recognized at the time product is delivered to
the customer. Revenue from the sale of appliances and equipment is recognized at the time of sale or when
installation is complete, as applicable. Revenue from repairs, maintenance and other service activities is recognized
upon completion of the service. Revenue from HVAC service contracts is recognized ratably over the service
period. Revenue from the natural gas and electricity business is recognized based on customer usage as determined
by meter readings, plus an amount for natural gas and electricity delivered but unbilled at the end of each
accounting period.
Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting
principles (“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
F-9
and the reported amounts of revenues and expenses during the reporting period. Estimates have been made by
management in the areas of self-insurance and litigation reserves, pension and other postretirement benefit
liabilities and costs, valuation of derivative instruments, depreciation and amortization of long-lived assets, asset
impairment assessments, tax valuation allowances and allowances for doubtful accounts. Actual results could
differ from those estimates, making it reasonably possible that a change in these estimates could occur in the near
term.
Cash and Cash Equivalents. The Partnership considers all highly liquid instruments purchased with an original
maturity of three months or less to be cash equivalents. The carrying amount approximates fair value because of
the short maturity of these instruments.
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.
Derivative Instruments and Hedging Activities.
Commodity Price Risk. The Partnership enters into a combination of exchange-traded futures and option
contracts, forward contracts and, in certain instances, over-the-counter options (collectively, “derivative
instruments”) to manage the price risk associated with future purchases of the commodities used in its operations,
principally propane and fuel oil, as well as to ensure supply during periods of high demand. All of the
Partnership’s derivative instruments are reported on the consolidated balance sheet, within other current assets or
other current liabilities, at their fair values pursuant to Statement of Financial Accounting Standards (“SFAS”)
No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS Nos. 137, 138,
149 and 155 (“SFAS 133”). 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, under SFAS 133,
qualify for and are designated as a normal purchase or normal sale contract. Such contracts are exempted from
the fair value accounting requirements of SFAS 133 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 futures, options and forward contracts 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 futures, forward and option contracts are entered into, 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 (loss) (“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, 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 cost of products sold 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 used to hedge future purchases are recognized in cost of products sold 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 under SFAS 133, are recorded within cost of products sold as they
occur.
Interest Rate Risk. A portion of the Partnership’s long-term borrowings bear interest at a variable rate based
upon either LIBOR or Wachovia National Bank's prime rate, plus an applicable margin depending on the level of
the Partnership’s total leverage. Therefore, the Partnership is subject to interest rate risk on the variable
component of the interest rate. The Partnership manages part of its variable interest rate risk by entering into
F-10
interest rate swap agreements. On March 31, 2005, the Partnership entered into a $125,000 interest rate swap
contract in conjunction with the Term Loan facility under the Revolving Credit Agreement (see Note 8). The
interest rate swap is being accounted for under SFAS 133 and the Partnership has designated the interest rate
swap as a cash flow hedge. Changes in the fair value of the interest rate swap are recognized in OCI until the
hedged item is recognized in earnings.
Long-Lived Assets. Long-lived assets include:
Property, plant and equipment. Property, plant and equipment are stated at cost. Expenditures for maintenance and
routine repairs are expensed as incurred while betterments are capitalized as additions to the related assets and
depreciated over the asset’s remaining useful life. The Partnership capitalizes costs incurred in the acquisition and
modification of computer software used internally, including consulting fees and costs of employees dedicated
solely to a specific project. At the time assets are retired, or otherwise disposed of, the asset and related
accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized within
operating expenses. Depreciation is determined under the straight-line method based upon the estimated useful life
of the asset as follows:
Buildings
Building and land improvements
Transportation equipment
Storage facilities
Office equipment
Tanks and cylinders
Computer software
40 Years
20-40 Years
4-20 Years
7-40 Years
5-10 Years
15-40 Years
3-7 Years
The weighted average estimated useful life of the Partnership’s tanks and cylinders is approximately 25 years.
The Partnership reviews the recoverability of long-lived assets when circumstances occur that indicate that the
carrying value of an asset may not be recoverable. Such circumstances include a significant adverse change in the
manner in which an asset is being used, current operating losses combined with a history of operating losses
experienced by the asset or a current expectation that an asset will be sold or otherwise disposed of before the end of
its previously estimated useful life. Evaluation of possible impairment is based on the Partnership’s ability to
recover the value of the asset from the future undiscounted cash flows expected to result from the use and eventual
disposition of the asset. If the expected undiscounted cash flows are less than the carrying amount of such asset, an
impairment loss is recorded as the amount by which the carrying amount of an asset exceeds its fair value. The fair
value of an asset will be measured using the best information available, including prices for similar assets or the
result of using a discounted cash flow valuation technique.
Goodwill. 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 in August of each year, or when
an event occurs or circumstances change that would indicate potential impairment. 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 ten-year projection period and a terminal value calculation at the end of
the projection period. If the fair value of the reporting unit exceeds its carrying value, the goodwill associated
with the reporting unit is not considered to be impaired. If the carrying value of the reporting unit exceeds its
fair value, an impairment loss is recognized to the extent that the carrying amount of the associated goodwill, if
any, exceeds the implied fair value of the goodwill.
Other Intangible Assets. Other intangible assets consist of non-compete agreements and acquired leasehold
interests, customer lists and tradenames. Non-compete agreements are amortized under the straight-line method
over the periods of the related agreements, ending periodically between fiscal years 2008 and 2009. Leasehold
F-11
interests are amortized under the straight-line method over the shorter of the lease term or the useful life of the
related assets, through fiscal 2025. Customer lists and tradenames are amortized under the straight-line method
over the estimated period for which the assets are expected to contribute to the future cash flows of the reporting
entities to which they relate, ending periodically between fiscal years 2012 and 2019.
Accrued Insurance. Accrued insurance represents the estimated costs of known and anticipated or unasserted
claims under the Partnership’s general and product, workers’ compensation and automobile insurance policies.
Accrued insurance provisions for unasserted claims arising from unreported incidents are based on an analysis of
historical claims data. For each claim, the Partnership records a self-insurance provision up to the estimated amount
of the probable claim utilizing actuarially determined loss development factors applied to actual claims data. The
Partnership maintains insurance coverage wherein our net exposure for insured claims is limited to the insurance
deductible, claims above which are paid by the Partnership’s insurance carriers. For the portion of the estimated
self-insurance liability that exceeds insurance deductibles, the Partnership records an asset within other assets
related to the amount of the liability expected to be covered by insurance. Claims are generally settled within five
years of origination.
Customer Deposits and Advances. The Partnership offers different payment programs to its customers including
the ability to prepay for usage and to make equal monthly payments on account under a budget payment plan. The
Partnership establishes a liability within customer deposits and advances for amounts collected in advance of
deliveries.
Environmental Reserves. The Partnership establishes reserves for environmental exposures when it is probable
that a liability has been incurred and the amount of the liability can be reasonably estimated based upon the
Partnership’s best estimate of costs associated with environmental remediation and ongoing monitoring
activities. Accrued environmental reserves are exclusive of claims against third parties, and an asset is
established where contribution or reimbursement from such third parties has been agreed and the Partnership is
reasonably assured of receiving such contribution or reimbursement. Environmental reserves are not discounted.
Income Taxes. As discussed in Note 1, the Partnership structure consists of two limited partnerships, the
Partnership and the Operating Partnership, and several corporate entities (the “Corporate Entities”). 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 included in the tax returns of
the individual partners. As a result, except for certain states that impose an income tax on partnerships, no income
tax expense is reflected in the Partnership’s consolidated financial statements relating to the earnings of the
Partnership and the Operating Partnership. The earnings attributable to the Corporate Entities are subject to federal
and state income taxes. Net earnings for financial statement purposes may differ significantly from taxable income
reportable to Common Unitholders as a result of differences between the tax basis and financial reporting basis of
assets and liabilities and the taxable income allocation requirements under the Partnership Agreement.
Income taxes for the Corporate Entities are provided based on the asset and liability approach to accounting for
income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax
consequences of differences between the carrying amounts and the tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period when the change is enacted. A valuation
allowance is recorded to reduce the carrying amounts of deferred tax assets when it is more likely than not that the
full amount will not be realized.
Asset Retirement Obligations. SFAS No. 143, “Accounting for Asset Retirement Obligations,” (“SFAS 143”)
and Financial Accounting Standards Board (“FASB”) Interpretation No. 47, “Accounting for Conditional Asset
Retirement Obligations” (“FIN 47”) prescribes financial accounting and reporting standards for obligations
associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The
provisions of this statement apply to legal obligations associated with the retirement of long-lived assets that
F-12
result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except
for certain obligations of lessees. The Partnership has recognized asset retirement obligations for certain costs of
contractually mandated removal of leasehold improvements and certain costs to remove and properly dispose of
underground and aboveground fuel oil storage tanks.
The Partnership records a liability at fair value for the estimated cost to settle an asset retirement obligation at the
time that liability is incurred, which is generally when the asset is purchased, constructed or leased. The
Partnership records the liability, which is referred to as an asset retirement obligation, when it has a legal
obligation, as defined in SFAS 143, to incur costs to retire the asset and when a reasonable estimate of the fair
value of the liability can be made. If a reasonable estimate cannot be made at the time the liability is incurred,
the Partnership records the liability when sufficient information is available to estimate the liability’s fair value.
Unit-Based Compensation. The Partnership accounts for unit-based compensation in accordance with the revised
SFAS No. 123, “Share-Based Payment” (“SFAS 123R”) which was adopted by the Partnership effective for the
quarter ended December 24, 2005, the first quarter of fiscal 2006. Prior to adoption, the Partnership accounted for
unit-based compensation plans under the provisions of Accounting Principles Board Opinion No. 25, “Accounting
for Stock Issued to Employees,” and related interpretations and followed the disclosure only provision of SFAS No.
123, “Accounting for Stock-Based Compensation”. SFAS 123R requires the recognition of 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. SFAS 123R also requires the measurement
of liability awards under an equity-based payment arrangement based on remeasurement of the award’s fair value
at the conclusion of each quarterly reporting period until the date of settlement, taking into consideration the
probability that the performance conditions will be satisfied.
Costs and Expenses. The cost of products sold reported in the consolidated statements of operations represents
the weighted average unit cost of propane, fuel oil and refined fuels, as well as the cost of natural gas and
electricity sold, including transportation costs to deliver product from the Partnership’s supply points to storage
or to the Partnership’s customer service centers. Cost of products sold also includes the cost of appliances,
equipment and related parts sold or installed by the Partnership’s customer service centers computed on a basis
that approximates the average cost of the products. 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 in each reporting
period within cost of products sold. Cost of products sold is reported exclusive of any depreciation and
amortization as such amounts are reported separately within the consolidated statements of operations.
All other costs of operating the Partnership’s retail propane, fuel oil and refined fuels distribution and appliance
sales and service operations are reported within operating expenses in the consolidated statements of operations.
These operating expenses include the compensation and benefits of field and direct operating support personnel,
costs of operating and maintaining the vehicle fleet, overhead and other costs of the purchasing, training and
safety departments and other direct and indirect costs of operating the Partnership’s customer service centers.
All costs of 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 consolidated statements of operations.
Net Income Per Unit. Subsequent to the GP Exchange Transaction, computations of earnings per Common Unit
are performed in accordance with SFAS No. 128 “Earnings per Share” (“SFAS 128”). Prior to the GP Exchange
Transaction, when the General Partner owned IDRs in the Partnership, computations of earnings per Common
Unit were performed in accordance with Emerging Issues Task Force ("EITF") consensus 03-6 "Participating
Securities and the Two-Class Method Under FAS 128" ("EITF 03-6"), when applicable. EITF 03-6 requires,
among other things, the use of the two-class method of computing earnings per unit when participating securities
exist. The two-class method is an earnings allocation formula that computes earnings per unit for each class of
F-13
Common Unit and participating security according to distributions declared and the participating rights in
undistributed earnings, as if all of the earnings were distributed to the limited partners and the General Partner
(inclusive of the IDRs of the General Partner which were considered participating securities for purposes of the
two-class method). Net income was allocated to the Common Unitholders and the General Partner in accordance
with their respective Partnership ownership interests, after giving effect to any priority income allocations for
incentive distributions allocated to the General Partner. For purposes of the computation of income per Common
Unit for the year ended September 29, 2007, earnings that would have been allocated to the General Partner for
the period prior to the GP Exchange Transaction were not significant.
Basic income per Common Unit for the year ended September 29, 2007 is computed by dividing net income by
the weighted average number of outstanding Common Units. Diluted income per Common Unit for the year
ended September 29, 2007 is computed by dividing net income by the weighted average number of outstanding
Common Units and unvested Restricted Units granted under the 2000 Restricted Unit Plan.
Basic income per Common Unit for the year ended September 30, 2006 was computed by dividing the limited
partners’ share of net income, calculated under the two-class method of computing earnings, by the weighted
average number of outstanding Common Units. Net income was allocated to the Unitholders and the General
Partner in accordance with their respective partnership ownership interests, after giving effect to any priority
income allocations to the General Partner for IDRs. Following the GP Exchange Transaction consummated on
October 19, 2006, the two-class method of computing income per Common Unit under EITF 03-6 is no longer
applicable.
Basic net income (loss) per Common Unit for the years ended September 30, 2006 and September 24, 2005 was
computed by dividing net income (loss), after deducting the General Partner's interest, by the weighted average
number of outstanding Common Units. Diluted net income (loss) per Common Unit for these same periods is
computed by dividing net income (loss), after deducting the General Partner's interest, by the weighted average
number of outstanding Common Units and unvested Restricted Units granted under the Partnership’s 2000
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 175,701 and 143,039 units for the years
ended September 29, 2007 and September 30, 2006, respectively, to reflect the potential dilutive effect of the
unvested Restricted Units outstanding using the treasury stock method. Diluted net income per Common Unit
for the year ended September 24, 2005 does not include 134,471 Restricted Units as their effect would be anti-
dilutive.
Comprehensive Income. The Partnership reports comprehensive (loss) income (the total of net income and all
other non-owner changes in partners’ capital) within the consolidated statement of partners’ capital.
Comprehensive (loss) income includes unrealized gains and losses on derivative instruments accounted for as
cash flow hedges, minimum pension liability adjustments (prior to the adoption of SFAS No. 158, “Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans – An Amendment of FASB Statements
No. 87, 88, 103 and 132R” (“SFAS 158”)) and changes in the funded status of the pension plan (subsequent to
the adoption of SFAS 158).
Recently Issued Accounting Standards. In February 2007, the Financial Accounting Standards Board
(“FASB”) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS
159”). Under SFAS 159, entities may elect to measure specified financial instruments and warranty and
insurance contracts at fair value on a contract-by-contract basis, with changes in fair value recognized in earnings
each reporting period. SFAS 159 is effective for fiscal years beginning after November 15, 2007, which will be
the Partnership’s 2009 fiscal year beginning September 28, 2008. The Partnership is currently in the process of
evaluating the impact that SFAS 159 may have on its consolidated financial position, results of operations and
cash flows.
F-14
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157
defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value
measurements. It also establishes a fair value hierarchy that prioritizes information used in developing
assumptions when pricing an asset or liability. Like SFAS 159 above, SFAS 157 will be effective for fiscal years
beginning after November 15, 2007, which will be the Partnership’s 2009 fiscal year beginning September 28,
2008. The Partnership is currently in the process of evaluating the impact that SFAS 157 may have on its
consolidated financial position, results of operations and cash flows.
In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – An
Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 requires companies to determine whether it is
more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities
before any part of the benefit can be recorded in the financial statements. FIN 48 is effective for fiscal years
beginning after December 15, 2006, which will be the Partnership’s 2008 fiscal year beginning September 30,
2007. The Partnership is currently in the process of assessing the impact that FIN 48 will have on its
consolidated financial statements and currently does not expect that adoption of FIN 48 will have a material
impact on its financial position, results of operation or cash flows.
Reclassifications. Certain prior period amounts have been reclassified to conform with the current period
presentation.
3.
Distributions of Available Cash
The Partnership makes distributions to its partners no later than 45 days after the end of each fiscal quarter of the
Partnership in an aggregate amount equal to its Available Cash for such quarter. 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 the Partnership’s business, the payment of
debt principal and interest and for distributions during the next four quarters.
Prior to October 19, 2006, the General Partner had IDRs which represented an incentive for the General Partner
to increase distributions to Common Unitholders in excess of the target quarterly distribution of $0.55 per
Common Unit. With regard to the first $0.55 of quarterly distributions paid in any given quarter, 98.26% of the
Available Cash was distributed to the Common Unitholders and 1.74% was distributed to the General Partner.
With regard to the balance of quarterly distributions in excess of the $0.55 per Common Unit target distribution,
85% of the Available Cash was distributed to the Common Unitholders and 15% was distributed to the General
Partner. As a result of the GP Exchange Transaction, the IDRs were cancelled and the General Partner is no
longer entitled to receive any cash distributions in respect of its general partner interests. Accordingly, beginning
with the quarterly distribution paid on November 14, 2006 in respect of the fourth quarter of fiscal 2006, 100%
of all cash distributions are paid to holders of Common Units.
The following summarizes the quarterly distributions per Common Unit declared and paid in respect of each of
the quarters in the three fiscal years in the period ended September 29, 2007:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal
2007
Fiscal
2006
Fiscal
2005
$
0.6875
0.7000
0.7125
0.7500
$
0.6125
0.6125
0.6375
0.6625
$
0.6125
0.6125
0.6125
0.6125
F-15
On October 25, 2007, the Board of Supervisors declared a quarterly distribution of $0.75 per Common Unit, or
$3.00 per Common Unit on an annualized basis, in respect of the fourth quarter of fiscal 2007, which was paid on
November 13, 2007 to holders of record on November 6, 2007. This quarterly distribution included an increase
of $0.0375 per Common Unit, or $0.15 per Common Unit on an annualized basis, from the previous distribution
rate.
4. Selected Balance Sheet Information
Inventories consist of the following:
Propane and refined fuels
Natural gas
Appliances and related parts
As of
September 29,
2007
September 30,
2006
$
$
76,730
697
3,819
81,246
72,143
1,148
6,127
79,418
$
$
During fiscal 2006, the Partnership recorded a charge of $3,517 to reduce the carrying value of appliance and parts
inventory that would no longer be actively marketed by its customer service centers.
The Partnership enters into contracts to buy propane, fuel oil and natural gas for supply purposes. Such contracts
generally have one year terms subject to annual renewal, with costs based on market prices at the date of delivery.
Property, plant and equipment consist of the following:
As of
September 29,
2007
September 30,
2006
Land and improvements
Buildings and improvements
Transportation equipment
Storage facilities
Equipment, primarily tanks and cylinders
Computer software
Construction in progress
Less: accumulated depreciation
$
$
28,463
76,261
36,016
72,237
451,689
37,474
5,823
707,963
333,322
374,641
30,534
75,535
37,125
84,533
447,573
32,941
7,973
716,214
325,831
390,383
$
$
Depreciation expense from continuing operations for the years ended September 29, 2007, September 30, 2006 and
September 24, 2005 amounted to $26,547, $30,066 and $32,363, respectively. Depreciation expense for the years
ended September 30, 2006 and September 24, 2005 included non-cash charges of $1,094 and $425, respectively,
related to an impairment of assets as a result of restructuring activities in each of those years (see Note 6).
Depreciation expense from discontinued operations for the years ended September 29, 2007, September 30, 2006
and September 24, 2005 amounted to $452, $498 and $502, respectively.
F-16
5. Goodwill and Other Intangible Assets
The Partnership’s fiscal 2007 and fiscal 2006 annual goodwill impairment review resulted in no adjustments to
the carrying amount of goodwill. Based on the results of its fiscal 2005 annual goodwill impairment review, the
Partnership recorded a non-cash charge of $656 for the impairment of goodwill associated with its HVAC
segment for the year ended September 24, 2005. During fiscal 2007, the Partnership reversed $3,800 of the
deferred tax asset valuation allowance, which was established through purchase accounting for the Agway
Acquisition, as a reduction to goodwill. This adjustment resulted from the utilization of a portion of the net
operating losses established in purchase accounting for the Agway Acquisition.
Other intangible assets, the majority of which were acquired in the Agway Acquisition, consist of the following:
Customer lists
Tradenames
Non-compete agreements
Other
Less: accumulated amortization
Customer lists
Tradenames
Non-compete agreements
Other
September 29,
2007
September 30,
2006
$
22,316
1,499
516
1,967
26,298
$
19,866
1,499
986
1,967
24,318
(6,669)
(562)
(482)
(343)
(8,056)
18,242
$
(4,726)
(412)
(830)
(252)
(6,220)
18,098
$
During fiscal 2007, in a non-cash transaction, the Partnership completed a transaction in which it disposed of
nine customer service centers considered to be non-strategic in exchange for three customer service centers of
another company located in Alaska. The Partnership relinquished assets with a fair value of approximately
$4,000 and allocated this fair value among the assets received, including $2,450 to the customer list acquired and
$1,550 to the property, plant and equipment acquired (primarily tanks and cylinders). This customer list will be
amortized over a ten-year period. The Partnership reported a $1,002 gain within discontinued operations in the
first quarter of fiscal 2007 for the amount by which the fair value of assets relinquished exceeded the carrying
value of the assets relinquished.
Aggregate amortization expense related to other intangible assets for the years ended September 29, 2007,
September 30, 2006 and September 24, 2005 was $2,243, $2,587 and $4,897, respectively. Amortization
expense for the year ended September 24, 2005 included a non-cash charge of $810 attributable to an impairment
in the value of tradenames associated with the HVAC segment which were acquired in the Agway Acquisition.
Aggregate amortization expense related to other intangible assets for each of the five succeeding fiscal years as
of September 29, 2007 is as follows: 2008 - $2,224; 2009 - $2,220; 2010 - $2,205; 2011 - $2,205 and 2012 -
$1,730.
6. Restructuring Charges and Severance Costs
During the fourth quarter of fiscal 2005 and throughout fiscal 2006, the Partnership approved and initiated plans
of reorganization to realign the field operations in an effort to streamline the operating footprint and to leverage
the system infrastructure to achieve additional operational efficiencies and reduce costs, as well as to restructure
F-17
its HVAC business (collectively, the “Restructuring”). As a result of the Restructuring, the Partnership recorded
a restructuring charge of $2,775 during fiscal 2005 associated with severance and other employee benefits for
approximately 85 positions eliminated and in fiscal 2006 recorded additional charges of $5,276 related to
severance and other employee benefits for approximately 325 positions eliminated and $800 related to exit costs,
primarily lease termination costs, associated with a plan to exit certain activities of the HomeTown Hearth &
Grill business. During fiscal 2007, payments for severance and other employee costs associated with the
Restructuring totaled $1,621 and were charged against the reserves established. As of September 29, 2007, the
reserve for severance and other employee benefits has been fully utilized. The remaining reserve consists only of
exit costs associated with the HomeTown Hearth & Grill business, which amounted to $370 and is expected to be
utilized over the next twelve months.
For the year ended September 29, 2007, the Partnership incurred severance charges of $1,485 associated with
positions eliminated during fiscal 2007 unrelated to a specific plan of restructuring.
7. Income Taxes
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, as a separate legal entity, and the Operating
Partnership are not subject to income tax at the partnership level. Rather, the taxable income or loss attributable
to the Partnership, as a separate legal entity, and to the Operating Partnership, which may vary substantially from
the income (loss) before income taxes, reported by the Partnership in the consolidated statement of operations,
are includable in the federal and state income tax returns of the individual partners. 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 information regarding each partner’s basis in the Partnership.
The earnings of the corporate entities that do not qualify under the Internal Revenue Code for partnership status
are subject to federal and state income taxes. The Partnership’s fuel oil and refined fuels, natural gas and
electricity and HVAC business segments are structured as corporate entities and, as such, are subject to corporate
level income tax. However, a number of those corporate entities have experienced operating losses in recent
years and, as a result, a full valuation allowance has been provided against the deferred tax assets. As such, at
present, many of those entities do not report a tax provision as a result of the full valuation allowance.
Although the Corporate Entities are subject to corporate level income tax, management has conducted a review of
the need for a valuation allowance and believes, based upon an analysis of both negative and positive evidence, at
the balance sheet date, that it is more likely than not that the Partnership’s deferred tax assets will not be utilized in
the future. Therefore, management has determined that for the year ended September 29, 2007, it is necessary to
maintain the offsetting valuation allowance. Management’s periodic reviews include, among other things, the nature
and amount of the taxable income and expense items, the expected timing when assets will be used or liabilities will
be required to be reported and the reliability of historical profitability of businesses 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. In order to reach a more likely than not conclusion that the deferred tax
assets will be utilized, management believes that it will be necessary to assess the performance of fiscal 2008 with
the performance of the preceding quarters to determine if a more likely than not conclusion can be reached. Because
of the trend of taxable operating results for the corporate entities has been improving over the past two years,
management believes a reasonable possibility exists that, within the next year, sufficient positive evidence may be
available to reach a conclusion that a valuation allowance is no longer needed.
F-18
The income tax provision (benefit) of all the legal entities included in the Partnership’s consolidated statement of
operations consists of the following:
September 29,
2007
Year Ended
September 30,
2006
September 24,
2005
Current
Federal
State and local
Deferred
$
474
1,379
1,853
3,800
5,653
$
196
568
764
-
$
764
$
(6)
809
803
-
$
803
$
As a result of the profitability of the Partnership’s fuel oil and refined fuel business, the Partnership reported
taxable income and, as a result, utilized net operating losses to offset the current cash tax liability. Utilization of
these net operating losses resulted in a $3,800 deferred tax provision, and a corresponding reversal of a portion
of the valuation allowance established in purchase accounting for the Agway Acquisition, which reduced
goodwill (see Note 5).
The federal income tax benefits reported for fiscal 2005 result from a refund of prior taxes paid.
The provision for income taxes differs from income taxes computed at the United States federal statutory rate as
a result of the following:
September 29,
2007
Year Ended
September 30,
2006
September 24,
2005
Income tax provision at federal statutory tax rate
Impact of Partnership income not subject to
federal income taxes
Permanent differences
Change in valuation allowance
State income taxes
Alternative minimum tax
Other, net
Provision for income taxes - current and deferred
$
45,149
$
31,170
$
(3,858)
(39,459)
(358)
(1,583)
1,379
447
78
5,653
$
(27,822)
396
(3,766)
568
196
22
764
$
(9,398)
(1,632)
14,888
809
-
(6)
803
$
F-19
The components of net deferred taxes and the related valuation allowance using current enacted tax rates are as
follows:
Deferred tax assets:
Net operating loss carryforwards
Allowance for doubtful accounts
Inventory
Intangible assets
Property, plant and equipment
Deferred revenue
Derivative instruments
Severance and other exit costs
AMT credit carryforward
Other accruals
Total deferred tax assets
Deferred tax liabilities:
Derivative instruments
Property, plant and equipment
Total deferred tax liabilities
Net deferred tax assets
Valuation allowance
Net deferred tax assets
As of
September 29,
2007
September 30,
2006
$
35,060
964
1,062
775
-
1,710
188
-
644
3,403
43,806
$
42,031
1,092
713
66
181
2,419
-
58
196
3,088
49,844
-
510
510
43,296
(43,296)
$
-
2,112
-
2,112
47,732
(47,732)
$
-
In order to fully realize the net deferred tax assets, the corporate entities will need to generate future taxable income.
A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Although certain corporate entities generated taxable income during fiscal 2007, based upon
the level of current taxable income and projections of future taxable income of the corporate entities over the
periods which deferred tax assets are expected to be deductible, management believes that it is more likely than not
that the Partnership will not realize the full benefit of its deferred tax assets as of September 29, 2007 and
September 30, 2006. Of the total valuation allowance as of September 29, 2007, $17,719 was established through
purchase accounting for the Agway Acquisition in December 2003. To the extent that a reversal of a portion of the
valuation allowance is warranted in the future, the reversal will be recorded as a reduction of goodwill. During
fiscal 2007, $8,820 of the Partnership’s net operating loss-related deferred tax benefits were realized, of which
$3,800 resulted in a reversal of valuation allowance with a corresponding reduction to goodwill.
As of September 29, 2007, the Partnership had tax loss carryforwards for federal income tax reporting purposes of
approximately $86,760 which are available to offset future federal taxable income and expire between 2024 and
2026.
F-20
8. Long-Term Borrowings
Short-term and long-term borrowings consist of the following:
Senior Notes, 6.875%, due December 15, 2013,
net of unamortized discount of $1,462 and $1,696, respectively
Term Loan, 6.29% to 7.16%, due March 31, 2010
As of
September 29,
2007
September 30,
2006
$
$
423,538
125,000
548,538
$
$
423,304
125,000
548,304
The Partnership and its subsidiary, Suburban Energy Finance Corporation, have issued $425,000 aggregate
principal amount of Senior Notes (the “2003 Senior Notes”) with an annual interest rate of 6.875%. The
Partnership’s obligations under the 2003 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 2003
Senior Notes are structurally subordinated to, which means they rank effectively behind, any debt and other
liabilities of the Operating Partnership. The 2003 Senior Notes mature on December 15, 2013 and require semi-
annual interest payments in June and December. The Partnership is permitted to redeem some or all of the 2003
Senior Notes any time on or after December 15, 2008 at redemption prices specified in the indenture governing
the 2003 Senior Notes. In addition, in the event of a change of control of the Partnership, as defined in the 2003
Senior Notes, the Partnership must offer to repurchase the notes at 101% of the principal amount repurchased, if
the holders of the notes exercise the right of repurchase.
The Operating Partnership has a revolving credit facility, the Third Amended and Restated Credit Agreement
(the “Revolving Credit Agreement”), which expires on March 31, 2010. The Revolving Credit Agreement
provides for a five-year $125,000 term loan facility (the “Term Loan”) and a separate working capital facility
which provides available revolving borrowing capacity up to $175,000. In addition, under the third amendment
to the Revolving Credit Agreement the Operating Partnership is authorized to incur additional indebtedness of up
to $10,000 in connection with capital leases and up to $20,000 in short-term borrowings during the period from
December 1 to April 1 in each fiscal year to provide additional working capital during periods of peak demand, if
necessary.
Borrowings under the Revolving Credit Agreement, including the Term Loan, bear interest at a rate based upon
either LIBOR or Wachovia National Bank's prime rate, plus, in each case, the applicable margin or the Federal
Funds rate plus 1/2 of 1%. An annual facility fee ranging from 0.375% to 0.50%, based upon certain financial
tests, is payable quarterly whether or not borrowings occur. As of September 29, 2007 and September 30, 2006,
there were no borrowings outstanding under the working capital facility of the Revolving Credit Agreement and
there have been no borrowings since April 2006.
In connection with the Term Loan, the Operating Partnership also entered into an interest rate swap agreement
with a notional amount of $125,000. Effective March 31, 2005 through March 31, 2010, the Operating
Partnership will pay a fixed interest rate of 4.66% to the issuing lender on notional principal amount of $125,000,
effectively fixing the LIBOR portion of the interest rate at 4.66%. In return, the issuing lender will pay to the
Operating Partnership a floating rate, namely LIBOR, on the same notional principal amount. The applicable
margin above LIBOR, as defined in the Revolving Credit Agreement, will be paid in addition to this fixed
interest rate of 4.66%. The fair value of the interest rate swap amounted to $(284) and $1,182 at September 29,
2007 and September 30, 2006, respectively, and is included in other liabilities and other assets, respectively, with
a corresponding amount included within OCI.
The Revolving Credit Agreement and the 2003 Senior Notes both contain various restrictive and affirmative
covenants applicable to the Operating Partnership and the Partnership, respectively, including (i) restrictions on
F-21
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
Revolving Credit Agreement, the Operating Partnership is required to maintain a leverage ratio (the ratio of total
debt to EBITDA) of less than 4.0 to 1. In addition, the Operating Partnership is required to maintain an interest
coverage ratio (the ratio of EBITDA to interest expense) of greater than 2.5 to 1 at the Partnership level. The
Partnership and the Operating Partnership were in compliance with all covenants and terms of the 2003 Senior
Notes and the Revolving Credit Agreement as of September 29, 2007.
Debt origination costs representing the costs incurred in connection with the placement of, and the subsequent
amendment to, the 2003 Senior Notes and the Revolving Credit Agreement were capitalized within other assets
and are being amortized on a straight-line basis over the term of the respective debt agreements. Other assets at
September 29, 2007 and September 30, 2006 include debt origination costs with a net carrying amount of $6,230
and $7,557, respectively. Aggregate amortization expense related to deferred debt origination costs included
within interest expense for the years ended September 29, 2007, September 30, 2006 and September 24, 2005
was $1,327, $1,324 and $1,514, respectively.
The aggregate amounts of long-term debt maturities subsequent to September 29, 2007 are as follows: 2008 - $0;
2009 - $0; 2010 - $125,000; 2011 - $0; and, thereafter - $425,000.
9. Unit-Based Compensation Arrangements
As described in Note 2, the Partnership accounts for its unit-based compensation arrangements under SFAS 123R
which requires the recognition of 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, as well as the measurement of liability awards under a unit-based payment arrangement based on
remeasurement of the award’s fair value at the conclusion of each quarterly reporting period until the date of
settlement, taking into consideration the probability that the performance conditions will be satisfied. The
Partnership has historically recognized unearned compensation associated with awards under its 2000 Restricted
Unit Plan ratably to expense over the vesting period based on the fair value of the award on the grant date and
has historically recognized compensation cost and the associated unearned compensation liability for equity-
based awards under its Long-Term Incentive Plan consistent with the requirements of SFAS 123R.
2000 Restricted Unit Plan. In November 2000, the Partnership adopted the Suburban Propane Partners, L.P.
2000 Restricted Unit Plan (the “2000 Restricted Unit Plan”) which authorizes the issuance of Common Units to
executives, managers and other employees and members of the Board of Supervisors of the Partnership. On
October 17, 2006, the Partnership adopted amendments to the 2000 Restricted Unit Plan which, among other
things, increased the number of Common Units authorized for issuance under the plan by 230,000 for a total of
717,805. Restricted Units issued under the 2000 Restricted Unit Plan vest over time with 25% of the Common
Units vesting at the end of each of the third and fourth anniversaries of the grant date and the remaining 50% of
the Common Units vesting at the end of the fifth anniversary of the grant date. The 2000 Restricted Unit Plan
participants are not eligible to receive quarterly distributions or vote their respective Restricted Units until
vested. Restrictions also limit the sale or transfer of the units during the restricted periods. The value of the
Restricted Unit is established by the market price of the Common Unit on the date of grant. Restricted Units are
subject to forfeiture in certain circumstances as defined in the 2000 Restricted Unit Plan. Compensation expense
for the unvested awards is recognized ratably over the vesting periods and is net of estimated forfeitures.
F-22
Following is a summary of activity in the 2000 Restricted Unit Plan:
Outstanding September 25, 2004
Granted
Forfeited
Vested
Outstanding September 24, 2005
Granted
Forfeited
Vested
Outstanding September 30, 2006
Granted
Forfeited
Vested
Outstanding September 29, 2007
Units
228,113
94,239
(26,282)
(22,292)
273,778
120,365
(18,154)
(35,203)
340,786
151,515
(47,023)
(62,188)
383,090
$
Weighted Average
Grant Date Fair
Value Per Unit
28.25
$
33.20
(30.92)
(24.77)
29.17
26.51
(30.04)
(24.85)
29.28
44.51
(30.06)
(28.34)
35.36
$
$
As of September 29, 2007, unrecognized compensation cost related to unvested Restricted Units awarded under
the 2000 Restricted Unit Plan amounted to $7,094. Compensation cost associated with the unvested awards is
expected to be recognized over a weighted-average period of 2.1 years. Compensation expense for the 2000
Restricted Unit Plan for years ended September 29, 2007, September 30, 2006 and September 24, 2005 was
$3,014, $2,221 and $1,806, respectively.
Long-Term Incentive Plan. The Partnership has a non-qualified, unfunded long-term incentive plan for officers
and key employees (‘‘LTIP-2’’) which provides for payment, in the form of cash, for an award of equity-based
compensation at the end of a three-year performance period. The level of compensation earned under LTIP-2 is
based on the market performance of the Partnership’s Common Units on the basis of total return to Unitholders
(‘‘TRU’’) compared to the TRU of a predetermined peer group primarily composed of other Master Limited
Partnerships, approved by the Compensation Committee of the Board of Supervisors, over the same three-year
performance period. Compensation expense for the years ended September 29, 2007 and September 30, 2006
was $5,977 and $1,249, respectively. As a result of the performance at the end of fiscal 2005, the Partnership
recorded a reversal of compensation expense in the amount of ($644) for the year ended September 24, 2005.
10. Compensation Deferral Plan
In 1996, the Partnership adopted the 1996 Restricted Unit Award Plan (the “1996 Restricted Unit Plan”) which
authorized the issuance of Common Units with an aggregate value of $15,000 (731,707 Common Units valued at
the initial public offering price of $20.50 per unit) to executives, managers and non-employee Supervisors of the
Partnership. According to the change of control provisions of the 1996 Restricted Unit Plan, all outstanding
Restricted Units on the closing date of the recapitalization in May 1999 vested and converted into Common
Units. At the date of the recapitalization, individuals who became members of the General Partner surrendered
receipt of 553,896 Common Units, representing substantially all of their vested Restricted Units, in exchange for
the right to participate in the Compensation Deferral Plan.
Effective May 26, 1999, in connection with the Partnership’s recapitalization, the Partnership adopted the
Compensation Deferral Plan (the “Deferral Plan”) which provided for eligible employees of the Partnership to
defer receipt of all or a portion of the vested Restricted Units granted under the 1996 Restricted Unit Plan in
exchange for the right to participate in and receive certain payments under the Deferral Plan. Senior
management of the Partnership surrendered 553,896 Common Units, at the date of the recapitalization, into the
F-23
Deferral Plan. The Partnership deposited into a trust on behalf of these individuals 553,896 Common Units.
During fiscal 2000, certain members of management deferred receipt of an additional 42,925 Common Units
granted under the Deferral Plan, with a fair value of $19.91 per Common Unit at the date of grant, by depositing
the units into the trust.
In January 2003, in accordance with the terms of the Deferral Plan, 297,310 of the deferred units were distributed
to certain members of the General Partner and became freely traded, while the remaining members of
management elected to further defer receipt of their deferred units (totaling 299,511 Common Units) until a later
date through January 2008. In November 2004, an additional 3,272 Common Units with a fair value of $109
were deposited into the Deferral Plan on behalf of individuals electing to defer receipt of Common Units vested
under the 2000 Restricted Unit Plan. On November 2, 2005, the Deferral Plan was amended to disallow any
additional deferrals of Common Units into the trust subsequent to December 31, 2004.
During fiscal 2007, 2,195 Common Units were distributed from the Deferral Plan, resulting in a reduction of $44
in the deferred compensation liability and a corresponding reduction in the value of Common Units held in trust,
both within partners’ capital.
As of September 29, 2007 and September 30, 2006, there were 292,682 and 294,877 Common Units,
respectively, held in trust under the Deferral Plan. The value of the Common Units deposited in the trust and the
related deferred compensation obligation in the amount of $5,660 and $5,704 as of September 29, 2007 and
September 30, 2006, respectively, are reflected in the accompanying consolidated balance sheets as components
of partners’ capital.
11. Employee Benefit Plans
Defined Contribution Plan. The Partnership has an employee Retirement Savings and Investment Plan (the
“401(k) Plan”) covering most employees. Employer contributions and costs relating to the 401(k) Plan are a percent
of the participating employees’ compensation, subject to the achievement of annual performance targets of the
Partnership. These contributions totaled $5,426, $3,868 and $183 for the years ended September 29, 2007,
September 30, 2006 and September 24, 2005, respectively.
Defined Benefit Pension Benefits and Retiree Health and Life Benefits.
Defined Benefit Pension Benefits. The Partnership has a noncontributory defined benefit pension plan which was
originally designed to cover all eligible employees of the Partnership who met certain requirements as to age and
length of service. Effective January 1, 1998, the Partnership amended its noncontributory defined benefit pension
plan to provide benefits under a cash balance formula as compared to a final average pay formula which was in
effect prior to January 1, 1998. Effective January 1, 2000, participation in the noncontributory defined benefit
pension plan was limited to eligible participants in existence on that date with no new participants eligible to
participate in the plan. On September 20, 2002, the Board of Supervisors approved an amendment to the defined
benefit pension plan whereby, effective January 1, 2003, future service credits ceased and eligible employees
receive interest credits only toward their ultimate retirement benefit.
Contributions, as needed, are made to a trust maintained by the Partnership. The trust’s assets consist primarily of
fixed income securities. Contributions to the defined benefit pension plan are made by the Partnership in
accordance with the Employee Retirement Income Security Act of 1974 minimum funding standards plus additional
amounts which may be determined from time to time. There were no minimum funding requirements for the
defined benefit pension plan for fiscal 2007, 2006 or 2005. In recent years, cash balance defined benefit pension
plans have come under increased scrutiny resulting in litigation regarding such plans sponsored by other companies.
Partly in response to these developments, the federal Pension Protection Act of 2006 (the “2006 Pension Act”) was
recently enacted, and these developments may result in further legislative changes impacting cash balance defined
benefit pension plans in the future. There can be no assurances that future legislative developments will not have an
F-24
adverse effect on the Partnership’s results of operations or cash flows.
Retiree Health and Life Benefits. The Partnership provides postretirement health care and life insurance benefits
for certain retired employees. Partnership employees hired prior to July 1993 and that retired prior to March 1998
are eligible for such benefits if they reached a specified retirement age while working for the Partnership. Effective
January 1, 2000, the Partnership terminated its postretirement benefit plan for all eligible employees retiring after
March 1, 1998. All active and eligible employees who were eligible to receive benefits under the postretirement
plan subsequent to March 1, 1998, were provided an increase to their accumulated benefits under the cash balance
pension plan. The Partnership’s postretirement health care and life insurance benefit plans are unfunded. Effective
January 1, 2006, the Partnership changed its postretirement health care plan from a self-insured program to one that
is fully insured under which the Partnership pays a portion of the insurance premium on behalf of the eligible
participants. This modification to the postretirement health care plan reduced the accumulated benefit obligation as
of September 30, 2006 by $5,133 and resulted in a reduction of the net periodic postretirement benefit expense by
approximately $637 for the year ended September 30, 2006.
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans – An Amendment of FASB Statements No. 87, 88, 103 and 132R” (“SFAS 158”).
SFAS 158 requires companies to recognize the funded status of pension and other postretirement benefit plans as
an asset or liability on sponsoring employers’ balance sheets and to recognize changes in the funded status in
comprehensive income (loss) in the year the changes occur. This statement also requires the measurement date
of plan assets and obligations to occur at the end of the employer’s fiscal year. The Partnership uses the date of
its consolidated financial statements as the measurement date.
The initial impact of adopting the standard is to recognize in accumulated other comprehensive income (loss)
unrecognized prior service costs or credits and net actuarial gains or losses that were previously unrecognized
under SFAS No. 87, “Employers’ Accounting for Pension” (“SFAS 87”). SFAS 158 became effective for the
Partnership’s fiscal year ended September 29, 2007. The following table summarizes the effect of required
changes in the additional minimum liability (“AML”) reported in accumulated other comprehensive loss as of
September 29, 2007 prior to the adoption of SFAS 158, as well as the initial impact of the adoption of SFAS 158.
The AML under SFAS 87 was eliminated during fiscal 2007, primarily as a result of employer contributions. As
of September 29, 2007, the fair value of plan assets exceeded the accumulated benefit obligation of the defined
benefit pension plan.
Prior to AML and
SFAS 158
Adjustments
AML Adjustments
Prior to
SFAS 158 Adoption
SFAS 158
Adoption
Post AML and
SFAS 158
Adjustments
Accrued pension liability (asset)
Accrued postretirement liability
Accumulated other comprehensive loss
$
$
$
9,990
29,353
63,510
$
(63,510)
-
$
(63,510)
$
$
$
47,973
(4,928)
43,045
$
$
$
(5,547)
24,425
43,045
Projected Benefit Obligation, Fair Value of Plan Assets and Funded Status. The following tables provide a
reconciliation of the changes in the benefit obligations and the fair value of the plan assets for each of the years
ended September 29, 2007 and September 30, 2006 and a statement of the funded status for both years using an end
of year measurement date. Under the Partnership’s defined benefit pension plan, the accumulated benefit obligation
and the projected benefit obligation are the same.
F-25
Reconciliation of benefit obligations:
Benefit obligation at beginning of year
Service cost
Interest cost
Plan amendments
Actuarial (gain) loss
Settlement payments
Benefits paid
Benefit obligation at end of year
Reconciliation of fair value of plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Settlement payments
Benefits paid
Fair value of plan assets at end of year
Funded status:
Funded status at end of year
Unrecognized prior service cost
Net unrecognized actuarial loss (gain)
Net amount recognized at end of year
Amounts recognized in consolidated balance
sheets consist of:
Pension asset
Accrued benefit liability
Net amount recognized at end of year
Less: Current portion
Non-current benefit liability
Amounts not yet recognized in net periodic benefit cost and
included in accumulated other comprehensive income (loss):
Net loss (gain)
Prior service (credits)
Net amount recognized in accumulated other comprehensive loss
Pension Benefits
2007
2006
Retiree Health and Life
Benefits
2007
2006
$
$
$
$
173,480
-
8,905
-
(5,042)
(10,786)
(8,240)
158,317
142,394
15,496
25,000
(10,786)
(8,240)
163,864
$
$
182,079
-
9,146
-
2,157
(11,521)
(8,381)
173,480
141,873
10,423
10,000
(11,521)
(8,381)
142,394
$
$
$
$
$
5,547
$
(31,086)
-
66,778
35,692
$
25,030
12
1,317
-
110
-
(2,043)
24,426
33,673
15
1,416
(5,133)
(1,989)
-
(2,952)
25,030
$
$
$
-
-
2,043
-
(2,043)
$
-
$
-
-
2,952
-
(2,952)
$
-
$
(24,426)
$
$
(25,030)
(4,915)
(720)
(30,665)
$
$
5,547
-
5,547
-
$
(31,086)
(31,086)
$
$
-
$
(24,426)
(24,426)
2,233
(22,193)
$
$
-
$
(30,665)
(30,665)
2,906
(27,759)
$
$
$
47,973
-
47,973
$
(610)
(4,318)
(4,928)
$
The AML included in accumulated other comprehensive loss as of September 30, 2006 was $66,778. The
amounts in accumulated other comprehensive loss as of September 29, 2007 that are expected to be recognized as
components of net periodic benefit costs during the next fiscal year are $3,375 and $490 for pension and
postretirement benefits, respectively.
During fiscal 2007 and 2006, lump sum benefit payments to either terminated or retired individuals amounted to
$10,786 and $11,521, respectively. The lump sum benefit payments exceeded the combined service and interest
costs of the net periodic pension cost of $8,905 and $9,146 for fiscal 2007 and 2006, respectively, and as a result,
the Partnership was required to recognize a non-cash settlement charge of $3,269 and $4,437 during the fourth
quarter of fiscal 2007 and 2006, respectively, pursuant to SFAS No. 88 “Employers’ Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for Termination Benefits”. The non-cash charges were
required to accelerate recognition of a portion of cumulative unrecognized losses in the defined benefit pension
F-26
plan.
The Partnership made voluntary contributions of $25,000 and $10,000 to the defined benefit pension plan during
fiscal 2007 and 2006, respectively, thereby taking proactive steps to improve the funded status of the plan. As of
September 29, 2007, the fair value of plan assets exceeded the projected benefit obligation of the defined benefit
pension plan by $5,547, which was recognized on the balance sheet as an asset.
Plan Asset Allocation. The following table presents the actual allocation of assets held in trust:
Fixed income securities - long-term bonds
Equity securities - domestic and international
September 29, 2007
September 30, 2006
80%
20%
100%
40%
60%
100%
The Partnership’s investment policies and strategies, as set forth in the Investment Management Policy and
Guidelines, are monitored by a Benefits Committee comprised of five members of management. During fiscal 2007,
the Benefits Committee proposed and the Board of Supervisors approved contributions to the plan in order to fully
fund the accumulated benefit obligation and to change the plan’s asset allocation to reduce investment risk and more
closely match the asset mix to the future cash requirements of the plan. The implementation of this strategy resulted
in the $25,000 voluntary contribution described above, and a change in the asset allocation to reflect a greater
concentration of fixed income securities. The fixed income portion is invested in a combination of long-term U.S.
government bonds and intermediate-term corporate bonds with a strategy to match the actuarially estimated duration
of the plan’s projected benefit obligations. The target asset mix is as follows: (i) fixed income securities portion of
the portfolio should range between 75% and 85%; and (ii) equity securities portion of the portfolio should range
between 15% and 25%.
Projected Contributions and Benefit Payments. There are no projected minimum funding requirements under
the Partnership’s defined benefit pension plan for fiscal 2008. The Partnership estimates that retiree health and
life benefit payments will be $2,233 for fiscal 2008. Estimated future benefit payments for both pension and
retiree health and life benefits are as follows:
Fiscal Year
2008
2009
2010
2111
2012
2013 through 2017
Pension
Benefits
$
23,413
14,236
13,929
13,093
13,422
61,402
Retiree
Health and
Life
Benefits
$
2,233
2,182
2,121
2,048
1,968
8,248
F-27
Effect on Operations. The following table provides the components of net periodic benefit costs included in
operating expenses for the years ended September 29, 2007, September 30, 2006 and September 24, 2005:
Pension Benefits
2006
2005
2007
Retiree Health and Life Benefits
2007
2005
2006
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Settlement charge
Recognized net actuarial loss
Net periodic benefit costs
$
-
8,905
(10,317)
-
3,269
5,315
7,172
$
$
-
9,146
(10,294)
-
4,437
6,469
9,758
$
-
$
9,107
(9,335)
-
-
6,641
6,413
$
$
$
$
12
1,317
-
(597)
-
-
732
15
1,416
-
(1,083)
-
-
348
$
$
$
18
1,783
-
(720)
-
-
1,081
Actuarial Assumptions. The assumptions used in the measurement of the Partnership’s benefit obligations as of
September 29, 2007 and September 30, 2006 are shown in the following table:
Pension Benefits
2007
2006
Retiree Health and
Life Benefits
2007
2006
Weighted-average discount rate
Average rate of compensation increase
6.00%
n/a
5.50%
n/a
6.00%
n/a
5.50%
n/a
The assumptions used in the measurement of net periodic pension benefit and postretirement benefit costs for the
years ended September 29, 2007, September 30, 2006 and September 24, 2005 are shown in the following table:
Pension Benefits
2006
2005
2007
Retiree Health and Life Benefits
2007
2005
2006
Weighted-average discount rate
Average rate of compensation
increase
Weighted-average expected long-
term rate of return on plan assets
Health care cost trend
5.50%
5.25%
5.50%
5.50%
5.25%
5.25%
n/a
n/a
n/a
n/a
n/a
n/a
8.00%
n/a
8.00%
n/a
7.50%
n/a
n/a
10.00%
n/a
10.00%
n/a
11.00%
The discount rate assumption takes into consideration current market expectations related to long-term interest
rates and the projected duration of the Partnership’s pension obligations based on a benchmark index with similar
characteristics as the expected cash flow requirements of the Partnership’s defined benefit pension plan over the
long-term. The long-term rate of return on plan assets assumption reflects estimated future performance in the
Partnership’s pension asset portfolio considering the investment mix of the pension asset portfolio and historical
asset performance.
The 10.00% increase in health care costs assumed at September 29, 2007 is assumed to decrease gradually to 5.00%
in fiscal 2013 and to remain at that level thereafter. Increasing the assumed health care cost trend rates by 1.0% in
each year would increase the Partnership’s benefit obligation as of September 29, 2007 by approximately $500 and
the aggregate of service and interest components of net periodic postretirement benefit expense for the year ended
September 29, 2007 by approximately $28. Decreasing the assumed health care cost trend rates by 1.0% in each
year would decrease the Partnership’s benefit obligation as of September 29, 2007 by approximately $454 and the
aggregate of service and interest components of net periodic postretirement benefit expense for the year ended
F-28
September 29, 2007 by approximately $26. The Partnership has concluded that the prescription drug benefits within
the retiree medical plan will not qualify for a Medicare subsidy available under recent legislation.
12. Financial Instruments
Derivative Instruments and Hedging Activities. The Partnership purchases propane and refined fuels that are
eventually sold to its customers at various times, quantities and prices, exposing the Partnership to market
fluctuations in the price of these commodities. A control environment has been established which includes
policies and procedures for risk assessment and the approval, reporting and monitoring of derivative instruments
and hedging activities. The Partnership closely monitors the potential impacts of commodity price changes and,
where appropriate, utilizes commodity futures, forward and option contracts to hedge its commodity price risk,
both to protect margins and to ensure supply during periods of high demand. Derivative instruments are used to
hedge a portion of the Partnership’s forecasted purchases for no more than one year in the future. At September
29, 2007, the fair value of derivative instruments described above resulted in derivative assets (unrealized gains)
of $2,544 included within prepaid expenses and other current assets and derivative liabilities (unrealized losses)
of $458 included within other current liabilities. As of September 29, 2007, unrealized gains on derivative
instruments designated as cash flow hedges in the amount of $1,377 were included in OCI and are expected to be
recognized in earnings during the next 12 months as the hedged forecasted transactions occur. However, due to
the volatility of the commodities market, the corresponding value in OCI is subject to change prior to its impact
on earnings.
Gains and losses attributable to the mark-to-market adjustments on derivative instruments not designated as
hedges under SFAS 133 for all periods presented are reported within cost of products sold. For the years ended
September 29, 2007, September 30, 2006 and September 24, 2005, cost of products sold included gains (losses)
in the amount of ($7,555), $14,472 and ($2,497), respectively, attributable to changes in the fair value of
derivative instruments not designated as cash flow hedges.
As of September 29, 2007, an unrealized loss of $284 was included in OCI attributable to the Partnership’s
interest rate swap agreement and is expected to be recognized in earnings as the interest on the Term Loan
impacts earnings through March 31, 2010. However, due to changes in the interest rate environment, the
corresponding value in OCI is subject to change prior to its impact on earnings.
Credit Risk. The Partnership’s principal customers are residential and commercial end users of propane and
fuel oil and refined fuels served by approximately 300 locations in 30 states. No single customer accounted for
more than 10% of revenues during fiscal 2007, 2006 or 2005 and no concentration of receivables exists as of
September 29, 2007 or September 30, 2006.
Futures contracts are traded on and guaranteed by the New York Mercantile Exchange (the “NYMEX”) and as a
result, have minimal credit risk. Futures contracts traded with brokers of the NYMEX require daily cash
settlements in margin accounts. The Partnership is subject to credit risk with forward and option contracts
entered into with various third parties to the extent the counterparties do not perform. The Partnership evaluates
the financial condition of each counterparty with which it conducts business and establishes credit limits to
reduce exposure to credit risk based on non-performance. The Partnership does not require collateral to support
the contracts.
Fair Value of Financial Instruments. The fair value of cash and cash equivalents is not materially different
from their carrying amounts because of the short-term nature of these instruments. The fair value of the
Revolving Credit Agreement approximates the carrying value since the interest rates are periodically adjusted to
reflect market conditions. Based on the current rates offered to the Partnership for debt of the same remaining
maturities, the carrying value of the Partnership’s 2003 Senior Notes approximates their fair market value.
F-29
13. Commitments and Contingencies
Commitments. The Partnership leases certain property, plant and equipment, including portions of the
Partnership’s vehicle fleet, for various periods under noncancelable leases. Rental expense under operating leases
was $19,611, $27,217 and $28,559 for the years ended September 29, 2007, September 30, 2006 and September 24,
2005, respectively.
Future minimum rental commitments under noncancelable operating lease agreements as of September 29, 2007 are
as follows:
Fiscal Year
2008
2009
2010
2011
2012 and thereafter
Contingencies.
$ 12,903
9,455
6,798
4,342
3,114
Self Insurance. As discussed in Note 2, the Partnership is self-insured for general and product, workers’
compensation and automobile liabilities up to predetermined amounts above which third party insurance applies. At
September 29, 2007 and September 30, 2006, the Partnership had accrued liabilities of $50,308 and $45,413,
respectively, representing the total estimated losses under these self-insurance programs. The Partnership is also
involved in various legal actions which have arisen in the normal course of business, including those relating to
commercial transactions and product liability. Management believes, based on the advice of legal counsel, that the
ultimate resolution of these matters will not have a material adverse effect on the Partnership’s financial position or
future results of operations, after considering its self-insurance liability for known and unasserted self-insurance
claims. For the portion of the estimated self-insurance liability that exceeds insurance deductibles, the
Partnership records an asset within other assets related to the amount of the liability expected to be covered by
insurance which amounted to $13,858 and $8,665 as of September 29, 2007 and September 30, 2006,
respectively.
On October 23, 2007 the Partnership settled an ongoing litigation case regarding its general and product liability
for $4,750. As a result of the settlement, the Partnership reduced the portion of its estimated self-insurance
liability that exceeded the insurance deductible and corresponding asset by $400 as of September 29, 2007.
Environmental. The Partnership is subject to various federal, state and local environmental, health and safety
laws and regulations. Generally, these laws impose limitations on the discharge of pollutants and establish
standards for the handling of solid and hazardous wastes. These laws include the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), the
Clean Air Act, the Occupational Safety and Health Act, the Emergency Planning and Community Right to Know
Act, the Clean Water Act and comparable state statutes. CERCLA, also known as the “Superfund” law, imposes
joint and several liability without regard to fault or the legality of the original conduct on certain classes of
persons that are considered to have contributed to the release or threatened release of a “hazardous substance”
into the environment. Propane is not a hazardous substance within the meaning of CERCLA. However, the
Partnership owns real property where such hazardous substances may exist.
The Partnership is also subject to various laws and governmental regulations concerning environmental matters
and expects that it will be required to expend funds to participate in the remediation of certain sites, including
sites where it has been designated by the Environmental Protection Agency as a potentially responsible party
under CERCLA and at sites with aboveground and underground fuel storage tanks.
F-30
With the Agway Acquisition, the Partnership acquired certain surplus properties with either known or probable
environmental exposure, some of which are currently in varying stages of investigation, remediation or
monitoring. Additionally, the Partnership identified that certain active sites acquired contained environmental
conditions which may require further investigation, future remediation or ongoing monitoring activities. The
environmental exposures include instances of soil and/or groundwater contamination associated with the
handling and storage of fuel oil, gasoline and diesel fuel.
Estimating the extent of the Partnership’s responsibility at a particular site, and the method and ultimate cost of
remediation of that site, requires making numerous assumptions. As a result, the ultimate cost to remediate any
site may differ from current estimates, and will depend, in part, on whether there is additional contamination, not
currently known to the Partnership, at that site. However, management believes that the Partnership’s past
experience provides a reasonable basis for estimating these liabilities. As additional information becomes
available, estimates are adjusted as necessary. While management does not anticipate that any such adjustment
would be material to the Partnership’s financial statements, the result of ongoing or future environmental studies
or other factors could alter this expectation and require recording additional liabilities. Management currently
cannot determine whether the Partnership will incur additional liabilities or the extent or amount of any such
liabilities. As of September 29, 2007 and September 30, 2006, the environmental reserve amounted to $2,578
and $4,786, respectively, and the corresponding asset for expected reimbursements amounted to $50 and $1,294,
respectively.
Future developments, such as stricter environmental, health or safety laws and regulations thereunder, could
affect the Partnership’s operations. Management does not anticipate that the cost of the Partnership’s compliance
with environmental, health and safety laws and regulations, including CERCLA, as currently in effect and
applicable to known sites will have a material adverse effect on the Partnership’s financial condition or results of
operations. To the extent there are any environmental liabilities presently unknown to the Partnership or
environmental, health or safety laws or regulations are made more stringent, however, there can be no assurance
that the Partnership’s financial condition or results of operations will not be materially and adversely affected.
Legal Matters. Following the Operating Partnership’s 1999 acquisition of the propane assets of SCANA
Corporation (“SCANA”), Heritage Propane Partners, L.P. had brought an action against SCANA for breach of
contract and fraud and against the Operating Partnership for tortious interference with contract and tortious
interference with prospective contract. On October 21, 2004, the jury returned a unanimous verdict in favor of
the Operating Partnership on all claims, but against SCANA. After the jury returned the verdict against SCANA,
the Operating Partnership filed a cross-claim against SCANA for indemnification, seeking to recover defense
costs. On November 2, 2006, SCANA and the Operating Partnership reached a settlement agreement wherein
the Operating Partnership received $2,000 as a reimbursement of defense costs incurred as a result of the lawsuit.
The $2,000 was recorded as a reduction to general and administrative expenses during the first quarter of fiscal
2007.
14. Guarantees
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 2014.
Upon completion of the lease period, the Partnership guarantees that the fair value of the equipment will equal or
exceed the guaranteed amount, or the Partnership will pay the lessor the difference. Although the fair value of
equipment at the end of its lease term has historically exceeded the guaranteed amounts, the maximum potential
amount of aggregate future payments the Partnership could be required to make under these leasing
arrangements, assuming the equipment is deemed worthless at the end of the lease term, is approximately
$15,330. The fair value of residual value guarantees for outstanding operating leases was $-0- as of September
29, 2007 and September 30, 2006.
F-31
15. Discontinued Operations and Disposition
The Partnership continuously evaluates its existing operations to identify opportunities to optimize the return on
assets employed and selectively divests operations in slower growing or non-strategic markets and seeks to
reinvest in markets that are considered to present more opportunities for growth. In line with that strategy,
during the first quarter of fiscal 2007, in a non-cash transaction, the Partnership completed a transaction in which
it disposed of nine customer service centers considered to be non-strategic in exchange for three customer service
centers of another company located in Alaska. The Partnership reported a $1,002 gain within discontinued
operations in the first quarter of fiscal 2007 for the amount by which the fair value of assets relinquished
exceeded the carrying value of the assets relinquished. During the second half of fiscal 2007, the Partnership
sold three customer service centers for net cash proceeds of $1,284. The $1,284 in net cash proceeds resulted in
a gain of $885. Accordingly, the Partnership recorded gains on sale of $1,887 which was accounted for within
discontinued operations in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-
Lived Assets” (“SFAS 144”). Current and prior period results of operations attributable to these customer
service centers were not significant and, as such, have not been reclassified to remove its financial results from
continuing operations.
On October 2, 2007, the Operating Partnership completed the sale of its Tirzah, South Carolina underground
granite propane storage cavern, and associated 62-mile pipeline, for approximately $54,000 in cash, after taking
into account certain adjustments. The 57.5 million gallon underground storage cavern is connected to the Dixie
Pipeline and provides propane storage for the eastern United States. As part of the agreement, the Operating
Partnership entered into a long-term storage arrangement with the purchaser of the cavern that will enable the
Operating Partnership to continue to meet the needs of its retail operations, consistent with past practices. As a
result of this sale, a gain of approximately $40,000 will be reported as a gain from the disposal of discontinued
operations in the Partnership’s results for the first quarter of fiscal 2008. The results of operations from the
Tirzah facilities have been reported within discontinued operations on the consolidated statements of operations
for fiscal years 2007, 2006 and 2005, and the assets and liabilities have been classified as held for sale on the
consolidated balance sheet as of September 29, 2007. Because the transaction closed subsequent to the end of
fiscal 2007, the Partnership’s cash on hand at September 29, 2007 does not include the $54,000 of approximate
net proceeds from the sale.
During fiscal 2005, the Partnership finalized certain purchase price adjustments with the buyer of customer
service centers sold in fiscal 2004 and recorded an additional gain on sale of $976.
16. Segment Information
The Partnership manages and evaluates its operations in six segments, four of which are reportable segments:
Propane, Fuel Oil and Refined Fuels, Natural Gas and Electricity and HVAC. The chief operating decision
maker evaluates performance of the operating segments using a number of performance measures, including
gross margins and income before interest expense and provision for income taxes (operating profit). Costs
excluded from these profit measures are captured in Corporate and include corporate overhead expenses not
allocated to the operating segments. Unallocated corporate overhead expenses include all costs of back office
support functions that are reported as general and administrative expenses within the consolidated statements of
operations. In addition, certain costs associated with field operations support that are reported in operating
expenses within the consolidated statements of operations, including purchasing, training and safety, are not
allocated to the individual operating segments. Thus, operating profit for each operating segment includes only
the costs that are directly attributable to the operations of the individual segment. The accounting policies of the
operating segments are the same as those described in the summary of significant accounting policies in Note 2.
The propane segment is primarily engaged in the retail distribution of propane to residential, commercial,
industrial and agricultural customers and, to a lesser extent, wholesale distribution to large industrial end users.
In the residential and commercial markets, propane is used primarily for space heating, water heating, cooking
F-32
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.
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.
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.
The HVAC segment is engaged in the sale, installation and servicing of a wide variety of home comfort
equipment and parts, particularly in the areas of heating, ventilation and air conditioning. In furtherance of the
Partnership’s efforts to restructure its field operations and to focus on its core operating segments, during fiscal
2006 the Partnership initiated plans to streamline the HVAC service offerings by significantly reducing
installation activities and focusing on service offerings that support the Partnership’s existing customer base
within its propane, refined fuels and natural gas and electricity segments.
F-33
The following table presents certain data by reportable segment and provides a reconciliation of total operating
segment information to the corresponding consolidated amounts for the periods presented:
September 29,
2007
Year Ended
September 30,
2006
September 24,
2005
Revenues:
Propane
Fuel oil and refined fuels
Natural gas and electricity
HVAC
All other
Total revenues
Income (loss) before interest expense, loss on debt
extinguishment and provision for income taxes:
Propane
Fuel oil and refined fuels
Natural gas and electricity
HVAC
All other
Corporate
Total income before interest expense, loss on debt
extinguishment and provision for income taxes
$
$
$
1,019,798
262,076
94,352
56,519
6,818
1,439,563
1,081,573
356,531
122,071
87,258
9,697
1,657,130
965,264
431,223
102,803
106,115
10,150
1,615,555
$
$
$
$
205,350
26,283
11,404
(2,673)
(1,966)
(73,802)
$
182,592
36,727
11,297
(14,837)
(5,321)
(80,720)
$
144,239
(6,474)
6,463
(12,423)
(3,802)
(62,410)
164,596
129,738
65,593
Reconciliation to income (loss) from continuing operations
Interest expense, net
Loss on debt extinguishment
Provision for income taxes
Income (loss) from continuing operations
$
35,596
-
5,653
123,347
40,680
-
764
88,294
$
40,374
36,242
803
(11,826)
$
Depreciation and amortization:
Propane
Fuel oil and refined fuels
Natural gas and electricity
HVAC
All other
Corporate
Total depreciation and amortization
$
$
$
$
$
$
16,229
3,493
929
344
377
7,418
28,790
20,380
4,351
849
710
1,160
5,203
32,653
25,068
4,802
967
1,509
281
4,633
37,260
Assets:
Propane
Fuel oil and refined fuels
Natural gas and electricity
HVAC
All other
Corporate
Eliminations
Total assets
As of
September 29,
2007
September 30,
2006
$
$
737,090
69,801
22,213
1,486
1,511
231,098
(87,981)
975,218
732,784
92,173
22,644
8,353
2,719
174,874
(87,981)
945,566
$
$
F-34
For the year ended September 30, 2006, income (loss) before interest expense, loss on debt extinguishment and
provision for income taxes for the propane, fuel oil and refined fuels, HVAC and all other segments included
restructuring charges of $2,802, $500, $1,854 and $920, respectively. In addition, depreciation and amortization
expense for the propane and all other segments for the year ended September 30, 2006 reflected non-cash charges
of $187 and $907, respectively, for the impairment of fixed assets (see Note 4).
For the year ended September 24, 2005, income (loss) before interest expense, loss on debt extinguishment and
provision for income taxes for the propane, fuel oil and refined fuels and HVAC segments included $2,525, $125
and $125, respectively, for restructuring charges (see Note 6); and for the HVAC segment included the non-cash
charge of $656 for goodwill impairment (see Note 5). In addition, depreciation and amortization expense for the
HVAC segment for the year ended September 24, 2005 reflected the non-cash charge of $810 for the impairment
of other intangible assets (see Note 5).
F-35
INDEX TO FINANCIAL STATEMENT SCHEDULE
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
Schedule II Valuation and Qualifying Accounts - Years Ended September 29, 2007,
September 30, 2006 and September 24, 2005...........................................................................
S-2
Page
S-1
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
SCHEDULE II
Balance at
Beginning
of Period
Charged
to Costs and
Expenses
Other
Additions
Deductions
Balance
at End
of Period
Year Ended September 24, 2005
Allowance for doubtful accounts
Valuation allowance for deferred tax assets
$
7,896
34,711
$
9,289
16,787
$
-
-
$
(7,220)
-
$
9,965
51,498
Year Ended September 30, 2006
Allowance for doubtful accounts
Valuation allowance for deferred tax assets
$
9,965
51,498
$
6,801
-
$
-
-
$
(11,236)
(3,766)
$
5,530
47,732
Year Ended September 29, 2007
Allowance for doubtful accounts
Valuation allowance for deferred tax assets
$
5,530
47,732
$
5,142
-
-
$
-
$
(5,631)
(4,436)
$
5,041
43,296
S-2
SUBSIDIARIES OF SUBURBAN PROPANE PARTNERS, L.P.
(as of November 21, 2007)
EXHIBIT 21.1
SUBURBAN LP HOLDINGS, INC. (Delaware)
SUBURBAN LP HOLDINGS, LLC (Delaware)
SUBURBAN PROPANE, L. P. (Delaware)
SUBURBAN PROPANE GAS CORPORATION (Delaware)
SUBURBAN SALES & SERVICE, INC. (Delaware)
GAS CONNECTION, LLC (Oregon) (d/b/a HomeTown Hearth & Grill)
SUBURBAN FRANCHISING, LLC (Nevada)
SUBURBAN ENERGY FINANCE CORP. (Delaware)
SUBURBAN PLUMBING NEW JERSEY, LLC (Delaware)
SUBURBAN PIPELINE LLC (Delaware)
SUBURBAN HEATING OIL PARTNERS, LLC (Delaware) (d/b/a Suburban Propane)
AGWAY ENERGY SERVICES, LLC (Delaware)
SUBURBAN ALBANY PROPERTY, LLC (Delaware)
SUBURBAN BUTLER MONROE STREET PROPERTY, LLC (Delaware)
SUBURBAN CANTON BUCK STREET PROPERTY, LLC (Delaware)
SUBURBAN CANTON ROUTE 11 PROPERTY, LLC (Delaware)
SUBURBAN CHAMBERSBURG FIFTH AVENUE PROPERTY, LLC (Delaware)
SUBURBAN COLONIE PROPERTY LLC (Delaware)
SUBURBAN ELLENBURG DEPOT PROPERTY, LLC (Delaware)
SUBURBAN GETTYSBURG PROPERTY, LLC (Delaware)
SUBURBAN LEWISTOWN PROPERTY, LLC (Delaware)
SUBURBAN MA SURPLUS PROPERTY, LLC (Delaware)
SUBURBAN MARCY PROPERTY, LLC (Delaware)
SUBURBAN MIDDLETOWN NORTH STREET PROPERTY, LLC (Delaware)
SUBURBAN NEW MILFORD SMITH STREET PROPERTY, LLC (Delaware)
SUBURBAN NJ PROPERTY ACQUISITIONS, LLC (Delaware)
SUBURBAN NJ SURPLUS PROPERTY, LLC (Delaware)
SUBURBAN NY PROPERTY ACQUISITIONS, LLC (Delaware)
SUBURBAN NY SURPLUS PROPERTY, LLC (Delaware)
SUBURBAN PA PROPERTY ACQUISITIONS, LLC (Delaware)
SUBURBAN PA SURPLUS PROPERTY, LLC (Delaware)
SUBURBAN ROCHESTER PROPERTY, LLC (Delaware)
SUBURBAN SODUS PROPERTY, LLC (Delaware)
SUBURBAN TEMPLE PROPERTY, LLC (Delaware)
SUBURBAN TOWANDA PROPERTY, LLC (Delaware)
SUBURBAN VERBANK PROPERTY, LLC (Delaware)
SUBURBAN VINELAND PROPERTY, LLC (Delaware)
SUBURBAN VT PROPERTY ACQUISITIONS, LLC (Delaware)
SUBURBAN WALTON PROPERTY, LLC (Delaware)
SUBURBAN WASHINGTON PROPERTY, LLC (Delaware)
PLATEAU, INC. (New Mexico)
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-109714
and 333-138077) and Form S-8 (No. 333-72972 and 333-138093) of Suburban Propane Partners, L.P. of our
report dated November 28, 2007 relating to the financial statements, financial statement schedule, and the
effectiveness of internal control over financial reporting, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
November 28, 2007
Certification of the Chief Executive Officer Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
EXHIBIT 31.1
I, Mark A. Alexander, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Suburban Propane Partners, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Supervisors:
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
November 28, 2007
By: /s/ MARK A. ALEXANDER
Mark A. Alexander
Chief Executive Officer
Certification of the Vice President and Chief Financial Officer Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
EXHIBIT 31.2
I, Michael A. Stivala, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Suburban Propane Partners, L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Supervisors:
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
November 28, 2007
By: /s/ MICHAEL A. STIVALA
Michael A. Stivala
Chief Financial Officer & Chief Accounting Officer
Certification of the Chief Executive Officer Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
EXHIBIT 32.1
In connection with the Annual Report of Suburban Propane Partners, L.P. (the “Partnership”) on Form 10-K for
the period ended September 29, 2007 as filed with the Securities and Exchange Commission on the date hereof
(the “Report”), I, Mark A. Alexander, Chief Executive Officer of the Partnership, certify, pursuant to 18 U.S.C.
§ 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Partnership.
By: /s/ MARK A. ALEXANDER
Mark A. Alexander
Chief Executive Officer
November 28, 2007
This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as
amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Certification of the Vice President and Chief Financial Officer Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
EXHIBIT 32.2
In connection with the Annual Report of Suburban Propane Partners, L.P. (the “Partnership”) on Form 10-K for
the period ended September 29, 2007 as filed with the Securities and Exchange Commission on the date hereof
(the “Report”), I, Michael A. Stivala, Chief Financial Officer and Chief Accounting Officer of the Partnership,
certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my
knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Partnership.
By: /s/ MICHAEL A. STIVALA
Michael A. Stivala
Chief Financial Officer & Chief Accounting Officer
November 28, 2007
This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as
amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Suburban Executive
Management
Executive Management
Mark A. Alexander
Chief Executive Officer
Michael J. Dunn, Jr.
President
Michael A. Stivala
Chief Financial Officer and Chief Accounting Officer
A. Davin D'Ambrosio
Vice President and Treasurer
Paul E. Abel
Vice President, General Counsel and Secretary
William E. Anderson
Northeast Area Vice President
Mark Anton II
Vice President — Business Development
Steven C. Boyd
West and Southeast Area Vice President
Douglas T. Brinkworth
Vice President — Supply
Michael M. Keating
Vice President — Human Resources and Administration
Mark Wienberg
Vice President — Operational Planning and Analysis
Michael A. Kuglin
Controller
Board of Supervisors
Harold R. Logan, Jr.*
Chairman and Non-management Supervisor
John D. Collins*
Non-management Supervisor
Dudley C. Mecum*
Non-management Supervisor
John Hoyt Stookey*
Non-management Supervisor
Jane Swift*
Non-management Supervisor
Mark A. Alexander
Supervisor
Michael J. Dunn, Jr.
Supervisor
* Member of both the Audit Committee and the Compensation Committee
Unitholder
Information
Exchange Listing
Suburban Propane Partners, L.P. common units are listed
on the New York Stock Exchange under the ticker
symbol SPH.
Transfer Agent/Unitholder Records
Computershare Trust Company, N.A.
PO Box 43069
Providence, RI 02940-3069
Telephone: 781-575-2724
Investor Information
Copies of Annual Reports, Interim Reports and other
publications are available without charge from:
Suburban Propane Partners, L.P.
Investor Relations
P.O. Box 206
Whippany, New Jersey 07981-0206
Telephone: 973-503-9252
Web Address: www.suburbanpropane.com
Refer to our website for:
(cid:129) Company news, including the scheduling of analyst calls
(cid:129) Earnings releases
(cid:129) K-1’s
It is anticipated that K-1’s will be available on our website
and mailed to each Unitholder in late February 2008.
Suburban Propane Partners, L.P.
One Suburban Plaza (cid:129) 240 Route 10 West
P.O. Box 206
Whippany, New Jersey 07981-0206
www.suburbanpropane.com