Suburban Propane®
2008 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 2,900 employees, Suburban maintains business operations in 30 states, providing
prompt, reliable service to more than 900,000 residential, commercial, industrial and agricultural
customers through approximately 300 locations.
During fiscal 2008, Suburban had retail propane sales of 386.2 million gallons which, based on
industry statistics, constitutes about 5% of the total domestic retail market. In addition, Suburban
had sales of fuel oil and other refined fuels of 76.5 million gallons in fiscal 2008. According to
Department of Energy statistics, of the 111.1 million households in the United States, 12.6 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 27, 2008
[ ] 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 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, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer
Non-accelerated filer (do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
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 28, 2008 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 ($37.88 per unit), was approximately $1,239,638,000.
Documents Incorporated by Reference: None
Total number of pages (excluding Exhibits): 134
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….......................................…...… 54
CONTROLS AND PROCEDURES................................................................................ 54
OTHER INFORMATION............................................................................................... 55
26
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
DIRECTORS, EXECUTIVE OFFICERS AND PARTNERSHIP GOVERNANCE...... 56
EXECUTIVE COMPENSATION............................................................…................... 61
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED UNITHOLDER MATTERS........................ 89
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE.. .................................................................................... 91
PRINCIPAL ACCOUNTING FEES AND SERVICES.............................................…. 92
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES............................................... 93
SIGNATURES............................................................…........................................................................... 94
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;
• Volatility in the unit cost of propane, fuel oil and other refined fuels and natural gas, the impact of the
Partnership’s hedging and risk management activities, and the adverse impact of price increases on volumes
as a result of customer conservation;
• The 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 customer conservation, 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;
• The Partnership’s ability to make strategic acquisitions and successfully integrate them; and
• The impact of current conditions in the global capital and credit markets, and general economic pressures.
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 and ventilation. We believe,
based on LP/Gas Magazine dated February 2008, that we are the fourth largest retail marketer of propane in the
United States, measured by retail gallons sold in the year 2007. As of September 27, 2008, we were serving the
energy needs of more than 900,000 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 386.2 million gallons of propane to retail customers and 76.5 million
gallons of fuel oil and refined fuels during the year ended September 27, 2008. 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 limited liability company, wholly-owned (directly and indirectly)
by the Partnership. Additionally, under the Partnership Agreement no incentive distribution rights are
1
outstanding and no provisions for future incentive distribution rights are contained in the Partnership Agreement.
The Common Units 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 four retail stores in the northwest and northeast regions as of September
27, 2008. 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. Our fuel oil and refined fuels, natural gas
and electricity and services businesses are structured as corporate entities (collectively referred to as Corporate
Entities) and, as such, are subject to corporate level income tax.
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 SEC. You may read and receive copies of 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 27, 2008, 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:
2
Internal Focus on Driving Operating Efficiencies, Right-Sizing 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 and the return on assets employed. Beginning at the end of fiscal 2005 and
continuing throughout much of fiscal 2007, we implemented specific plans to streamline our operating footprint and
management structure, eliminate redundant functions and assets through enhanced operating efficiencies, and
refocus our service activities on 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. Our internal efforts are particularly focused
in the areas of route optimization, forecasting customer usage, inventory control, cash management and customer
tracking.
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.
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 2008, 2007 or 2006 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 we completed
the sale of our Tirzah, South Carolina underground granite propane storage cavern, and associated 62-mile
pipeline, for approximately $53.7 million in net proceeds which have been 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 Services. These business segments are described
below. See the Notes to the Consolidated Financial Statements included in this Annual Report for financial
information about our business segments.
3
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 27, 2008. Our operations are concentrated in the east and west coast regions
of the United States, including Alaska. In fiscal 2008, we serviced approximately 745,000 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 95% of the propane gallons sold by us in fiscal 2008
were to retail customers: 43% to residential customers, 32% to commercial customers, 9% to industrial customers,
6% to agricultural customers and 10% to other retail users. The balance of approximately 5% of the propane
gallons sold by us in fiscal 2008 was for risk management activities and wholesale customers. Sales to residential
customers in fiscal 2008 accounted for approximately 63% 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 2008.
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
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’
4
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 55 oil companies and natural gas processors at
approximately 115 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 2009. During fiscal 2008, Targa Liquids Marketing and Trade (“Targa”) provided
approximately 19% of our total propane purchases. Aside from this supplier, no single supplier provided more than
10% of our total propane supply during fiscal 2008. 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 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 95% of our total propane purchases were from domestic suppliers in fiscal 2008.
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 27, 2008, the
majority of our storage capacity in California was leased to third parties. On October 2, 2007, we completed the
sale of our Tirzah, South Carolina underground granite propane storage cavern, and associated 62-mile pipeline.
5
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 2006 Sales of Natural Gas Liquids and
Liquefied Refinery Gases, as published by the American Petroleum Institute in December 2007, and LP/Gas
Magazine dated February 2008, the ten largest retailers, including us, account for approximately 43% of the total
retail sales of propane in the United States. During fiscal year 2008, one marketer had more than a 10% share of
the total retail propane market in the United States. For fiscal years 2007 and 2006, no single marketer had 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 90,000 residential and
commercial customers in the northeast region of the United States. Sales of fuel oil and refined fuels for fiscal
2008 amounted to 76.5 million gallons. Approximately 65% of the fuel oil and refined fuels gallons sold by us in
fiscal 2008 were to residential customers, principally for home heating, 4% were to commercial customers, 1%
were to agricultural and 4% 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 26% of
total volumes sold in this segment during fiscal 2008.
Approximately 61% 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
6
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 2008.
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 for transportation and volume discounts. We purchase fuel oil from more than 20
suppliers at approximately 60 supply points. While fuel oil supply is more susceptible to longer periods of
supply 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 2009.
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 services 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.
7
We serve nearly 71,000 natural gas and electricity customers in New York and Pennsylvania. During fiscal
2008, we sold approximately 4.1 million dekatherms of natural gas and 493.1 million kilowatt hours of electricity
through the natural gas and electricity segment. Approximately 80% of our customers were residential
households and the remainder was 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.
Services
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
heating and ventilation 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 service offerings and eliminated
certain stand-alone installation activities. See the Notes to the consolidated financial statements in this Annual
Report. The focus of our ongoing service offerings are 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 the primary use of these fuels is for heating 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
8
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 consumption.
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 heating
and ventilation. 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 27, 2008, we had accrued environmental liabilities of $1.6 million representing the total
estimated future liability for remediation and monitoring.
9
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 sell those
products. 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 regulations under 6 CFR Part 27 Chemical
Facility Anti-Terrorism Standards. Our facilities are registered with the DHS – we have 468 facilities
determined to be “Not a High Risk Chemical Facility” and 16 facilities determined to be Tier 4 (lowest level of
security risk). These 16 facilities are currently being reviewed for Security Vulnerability Assessment
submission, which is due by December 30, 2008. 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 significant costs in order to
comply with these 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 27, 2008, we had 2,985 full time employees, of whom 430 were engaged in general and
administrative activities (including fleet maintenance), 45 were engaged in transportation and product supply
activities and 2,510 were customer service center employees. As of September 27, 2008, 96 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 27, 2008, we had total outstanding borrowings of $535.0 million, including $425.0 million
of senior notes issued by the Partnership and our wholly-owned subsidiary, Suburban Energy Finance
Corporation, and $110.0 million of borrowings outstanding under the Operating Partnership's term loan. 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 require additional debt to finance acquisitions or for general
business purposes; however, credit market conditions may impact our ability to access such financing. If we are
unable to access needed financing or to generate sufficient cash from operations, we may be required to abandon
certain projects or curtail capital expenditures. Additional debt, where it is available, 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
12
substituted limited partner of a limited partnership is liable for the obligations of the assignor to make
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 27, 2008 compared to 6% warmer than normal temperatures in fiscal 2007 and 11%
warmer than normal temperatures in fiscal 2006, 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
13
contracts permit suppliers to charge posted prices at the time of delivery or the current prices established at major
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 manage the price risk associated with certain of our 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.
14
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
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.
Current conditions in the global capital and credit markets, and general economic pressures may adversely
affect our financial position and results of operations.
Our business and operating results are materially affected by worldwide economic conditions. Current
conditions in the global capital and credit markets and general economic pressures have led to declining
consumer and business confidence, increased market volatility and widespread reduction of business activity
generally. As a result of this turmoil, coupled with increasing energy prices, our customers may experience cash
flow shortages which may lead to delayed or cancelled plans to purchase our products, and affect the ability of
our customers to pay for our products. In addition, disruptions in the U.S. residential mortgage market, increases
in mortgage foreclosure rates and failures of lending institutions may adversely affect retail customer demand for
our products (in particular, products used for home heating and home comfort equipment) and our business 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
15
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 significant costs 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
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.
16
Tax Risks to Unitholders
Our tax treatment depends on our status as a partnership for federal income tax purposes. The Internal
Revenue Service ("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. In the past, members of
Congress have proposed substantive changes to the current federal income tax laws that affect certain publicly-
traded partnerships and legislation that would eliminate partnership tax treatment for certain publicly-traded
partnerships. Any modification to the U.S. tax laws and interpretations thereof may or may not be applied
retroactively. Although no legislation is currently pending that would affect our tax treatment as a partnership,
we are unable to predict whether any such changes or other proposals will ultimately be enacted. 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 U.S. federal rate of 35%) 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. In addition, because of widespread state budget deficits
and other reasons, several states are evaluating ways to subject partnerships to entity-level taxation through the
imposition of state income, franchise and other forms of taxation. Any such changes could negatively impact our
ability to make distributions and also impact the value of an investment in our Common Units.
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,
17
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. Tax-exempt entities and foreign persons should consult
their own tax advisors before investing in our Common Units.
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
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
18
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.
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.
The sale or exchange of 50% or more of our Common Units 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 Common Units 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.
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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
19
ITEM 2. PROPERTIES
As of September 27, 2008, we owned approximately 77% 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
57.5 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 27, 2008, we
had a fleet of 14 transport truck tractors, of which we owned three, and 21 railroad tank cars, of which we owned
one. In addition, as of September 27, 2008 we had 912 bobtail and rack trucks, of which we owned approximately
42%, 149 fuel oil tankwagons, of which we owned approximately 57%, and 1,182 other delivery and service
vehicles, of which we owned approximately 52%. We lease the vehicles we do not own. As of September 27,
2008, we also owned approximately 756,752 customer propane storage tanks with typical capacities of 100 to 500
gallons, 159,253 customer propane storage tanks with typical capacities of over 500 gallons and 252,764 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 $73.0 million at September 27, 2008), 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
covered by insurance (which was approximately $38.8 million at September 27, 2008).
During the first quarter of fiscal 2009, we agreed to settle a litigation involving alleged product liability for
approximately $30.0 million. This settlement will be finalized once certain required procedural activities are
completed in various jurisdictions, which is expected to occur in the first quarter of fiscal 2009. The matter was
covered by insurance above the level of our insurance deductible. As a result of this settlement, in which we
denied any liability, we increased the portion of our estimated self-insurance liability that exceeded the insurance
deductible and established a corresponding asset of $30.0 million as of September 27, 2008 to accrue for the
settlement and subsequent reimbursement from our third party insurance carrier.
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 24, 2008, there were 754
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 2008
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
$
48.50
42.43
42.60
39.59
$
40.00
34.00
37.88
33.13
$
0.7625
0.7750
0.8000
0.8050
$
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
Income (loss) from continuing operations (e)
Discontinued operations:
Gain on disposal of discontinued operations (g)
Income from discontinued operations
Net income (loss)
Income (loss) from continuing operations per Common
Unit - basic
Net income (loss) per Common Unit - basic (h)
Net income (loss) per Common Unit - diluted (h)
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 (i)
Capital expenditures - maintenance and growth (j)
Acquisitions
Retail gallons sold (k)
Propane
Fuel oil and refined fuels
September
27, 2008
September
29, 2007
Year Ended
September
30, 2006 (a)
September
24, 2005
September
25, 2004 (b)
$
1,574,163
1,424,035
-
-
$
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
150,128
-
37,052
1,903
111,173
43,707
-
154,880
164,596
-
35,596
5,653
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
3.39
4.72
4.70
3.09
$
3.79
3.91
3.89
2.76
$
2.76
2.84
2.83
2.48
$
(0.38)
(0.26)
(0.26)
2.45
$
0.84
1.79
1.78
2.39
$
$
137,698
359,551
1,035,713
$
96,586
295,874
988,881
$
60,571
235,351
945,566
$
14,411
236,803
959,305
$
53,481
252,894
988,323
223,615
531,772
60,250
264,231
$
-
206,011
548,538
68,055
208,230
$
-
191,195
548,304
105,366
170,151
(1,969)
$
193,401
575,295
114,493
159,199
(1,779)
$
198,907
515,915
105,383
238,880
852
$
$
120,517
36,630
(116,035)
$
$
$
145,957
(19,689)
(90,253)
$
170,321
(19,092)
(105,069)
$
$
$
39,005
(24,631)
(53,444)
$
93,065
(196,557)
141,208
$
$
28,394
-
222,229
21,819
$
-
$
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
$
386,222
76,515
432,526
104,506
466,779
145,616
516,040
244,536
537,330
220,469
22
(a) Fiscal 2006 includes 53 weeks of operations compared to 52 weeks in each of fiscal 2008, 2007, 2005 and
2004.
(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 services 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
services 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 $2.3 million for fiscal
2008, $2.8 million for fiscal 2007, $1.0 million for fiscal 2006, $2.0 million for fiscal 2005 and $0.7 million
for fiscal 2004.
(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 2008 of $43.7 million reflects the October 2, 2007 sale
of our Tirzah, South Carolina underground granite propane storage cavern, and associated 62-mile pipeline,
for $53.7 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. 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. 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 sale of our Tirzah, South Carolina storage cavern and
associated pipeline and the customer service centers sold in fiscal 2004 have been reclassified to remove
financial results from continuing operations.
(h) Computations of basic earnings per Common Unit for the years ended September 27, 2008 and 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, and restricted units granted
under the 2000 Restricted Unit Plan to retirement-eligible grantees. For fiscal 2006, earnings per Common
Unit were performed in accordance with Emerging Issues Task Force consensus 03-6 “Participating
23
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 year ended September 25, 2004. 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 and September 25, 2004 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 29, 2007, earnings that would
have been allocated to the General Partner for the period prior to the GP Exchange Transaction were not
significant.
(i) 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
2008
Fiscal
2007
Fiscal
2006
Fiscal
2005
Fiscal
2004
$
154,880
$
127,287
$
90,740
$
(8,076)
$
54,304
1,903
37,052
28,394
-
222,229
-
222,229
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
(626)
-
(37,052)
(1,853)
-
(35,596)
(764)
-
(40,680)
(803)
(36,242)
(40,374)
3
40,832
36,236
507
131,882
-
131,882
(3)
-
(40,832)
2,156
3,014
2,221
1,805
1,171
(2,252)
(2,782)
(1,000)
(2,043)
(715)
(43,707)
-
(1,887)
3,269
-
4,437
(976)
-
(26,332)
5,337
(20,231)
(15,986)
40,772
10,533
22,557
Net cash provided by operating activities
$
120,517
$
145,957
$
170,321
$
39,005
$
93,065
(j) 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.
(k) Over the course of the past several years, retail gallons sold in both segments have been adversely affected by
the elimination of certain lower margin accounts, particularly industrial, commercial and agricultural propane
accounts and low sulfur diesel and gasoline accounts, as well as the impact of enhanced efficiencies in home
heating and customer conservation attributable to the high price environment.
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 consolidated financial statements and notes thereto included elsewhere in this Annual Report.
Executive Overview
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 we also purchase product on the open market. We attempt to reduce our exposure to volatile
product costs by short-term pricing arrangements, rather than long-term fixed price supply arrangements. 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 (relating to our supply arrangements and
risk management activities) are favorable, as was the case in the propane and fuel oil markets during the first half
of fiscal 2007, we are able to purchase product under our supply arrangements at a discount to the spot market.
However, such favorable market conditions and margin opportunities were not present in fiscal 2008. Rather,
very challenging market conditions in fiscal 2008, characterized by an extreme rise in commodity prices
(particularly during the third quarter) coupled with lower volumes resulted in the recognition of realized losses
under our hedging and risk management activities which were not fully offset by the sales of the physical
inventory as more fully described under “Hedging and Risk Management Activities” below.
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 have been 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
26
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.
Weather
Weather conditions have a significant impact on the demand for our products, in particular propane, fuel oil
and natural gas, for both heating and agricultural purposes. Many of our customers rely heavily on propane, fuel
oil or natural gas as a heating source. Accordingly, the volume sold is directly affected by the severity of the
winter weather in our service areas, which can vary substantially from year to year. In any given area, sustained
warmer than normal temperatures will tend to result in reduced propane, fuel oil and natural gas consumption,
while sustained colder than normal temperatures will tend to result in greater consumption.
Hedging and Risk Management Activities
We engage in hedging and risk management activities to reduce the effect of price volatility on our product
costs and to ensure the availability of product during periods of short supply. We enter into propane forward and
option agreements with third parties, and use fuel oil futures and option contracts traded on the New York
Mercantile Exchange (“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 price risk associated with propane and
fuel oil physical inventory, as well as, in certain instances, forecasted purchases of propane or fuel oil. Forward
contracts are generally settled physically at the expiration of the contract and futures are generally settled in cash
at the expiration of the contract. Although we use derivative instruments to reduce the effect of price volatility
associated with priced physical inventory and forecasted transactions, we do not use derivative instruments for
speculative trading purposes. Risk management activities are monitored by an internal Commodity Risk
Management Committee, made up of five members of management and reporting to our Auditing Committee,
through enforcement of our Hedging and Risk Management Policy.
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. These
market conditions generated additional operating profit of approximately $14.7 million during fiscal 2007
compared to fiscal 2008. Supply and risk management transactions may not always result in increased product
margins and there can be no assurance that the favorable market conditions that contributed to incremental
margin during the first half of fiscal 2007 will be present in the future in order to provide the additional margin
opportunities. Very different and challenging factors existed in fiscal 2008. In fact, as a result of the rise in
commodity prices in fiscal 2008, particularly during the third quarter, we realized losses under our futures
positions utilized to hedge price risk associated with a portion of our priced physical inventory. Under our
hedging and risk management strategy, realized gains or losses on futures contracts will typically offset losses or
gains on the physical inventory once the product is sold to customers at market prices. However, as a result of
lower than expected volumes primarily attributable to customer conservation, the timing was such that these
losses were not fully offset by sales of the physical product. Accordingly, our risk management activities had a
negative effect on earnings of approximately $10.8 million during fiscal 2008 as a result of realized losses on
futures contracts that were not fully offset by sales of physical product. See Item 7A of this Annual Report for a
further discussion of risk management activities.
27
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
of our Board of Supervisors. We believe that the following are our critical accounting estimates:
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. As a result of our large customer base, which
is comprised of more than 900,000 customers, no individual customer account is material. Therefore, while
some variation to actual results occurs, historically such variability has not been material. Schedule II, Valuation
and Qualifying Accounts, provides a summary of the changes in our allowances for doubtful accounts during the
period.
Pension and Other Postretirement Benefits. We estimate the rate of return on plan assets, the discount rate used
to estimate the present value of future benefit obligations and the expected 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.
With other assumptions held constant, an increase of 100 basis points in the discount rate would have an
estimated favorable impact of $0.3 million on net pension and postretirement benefit costs and an increase of
100 basis points in the expected rate of return assumption would have an estimated favorable impact of
$1.5 million on net pension and postretirement benefit costs. With other assumptions held constant, a decrease
of 100 basis points in the discount rate would have an estimated unfavorable impact of $0.2 million on net
pension and postretirement benefit costs and a decrease of 100 basis points in the expected rate of return
assumption would have an estimated unfavorable impact of $1.5 million on net pension and postretirement
benefit costs.
28
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. Historically, we have not
experienced significant variability in our actuarial estimates for claims incurred but not reported. Accrued
insurance provisions for reported claims are reviewed at least quarterly, and our assessment of whether a loss is
probable and/or reasonably estimable is updated as necessary. Due to the inherently uncertain nature of, in
particular, product liability claims, the ultimate loss may differ materially from our estimates. However, because
of the nature of our insurance arrangements, those material variations historically have not, nor are they expected
in the future to have, a material impact on our results of operations or financial position.
Derivative Instruments and Hedging Activities. See Item 7A of this Annual Report for information about
accounting for derivative instruments and hedging activities.
Results of Operations and Financial Condition
Fiscal 2008 presented a challenging operating environment characterized by a volatile commodity price
environment, continued customer conservation, relatively mild temperatures during the peak winter heating
season and a general slowdown in the economy. However, the steps taken by us over the past several years to
streamline our operating platform, drive operational efficiencies and reduce costs have helped to mitigate the
potential negative effect on our operating results and financial position from these external factors. Net income
for fiscal 2008 amounted to $154.9 million, or $4.72 per Common Unit, an increase of $27.6 million, or 21.7%,
compared to net income of $127.3 million, or $3.91 per Common Unit, in fiscal 2007. EBITDA (as defined and
reconciled below) increased $24.4 million, or 12.3%, to $222.2 million in fiscal 2008 compared to $197.8 million
for fiscal 2007.
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. In the current period of uncertainty surrounding the credit markets, we ended fiscal 2008 in a strong
cash position with more than $137.6 million of cash on hand, which we expect will provide sufficient liquidity to
fund our ongoing operations for the foreseeable future without an immediate need to access the capital markets.
Based on our financial strength, our fiscal 2008 earnings and our confidence in our operating platform, on
October 23, 2008, our Board of Supervisors increased the annualized distribution rate by $0.02 per Common Unit
to $3.22 per Common Unit, an increase of 7.3% compared to the annualized distribution rate of $3.00 at the end
of fiscal 2007.
Revenues of $1,574.2 million increased $134.6 million, or 9.4%, compared to the prior year due to higher
average selling prices associated with higher product costs, partially offset by lower volumes. Retail propane
gallons sold for fiscal 2008 decreased 46.3 million gallons, or 10.7%, to 386.2 million gallons from 432.5 million
gallons in fiscal 2007. Sales of fuel oil and other refined fuels decreased 28.0 million gallons, or 26.8%, to 76.5
million gallons compared to 104.5 million gallons in the prior year. Lower volumes in both segments were
attributable to ongoing customer conservation resulting from historically high commodity prices, warmer average
temperatures during the peak heating months from October 2007 through March 2008 and, to a lesser extent, the
effects of eliminating certain lower margin accounts. Average heating degree days in our service territories were
94% of normal for fiscal 2008 and flat compared to the prior year; however, the winter heating season of fiscal
2008 was warmer than the comparable prior year period, particularly in the northeast where average heating
29
degree days were 7% below normal and the prior year, thus contributing to the lower volumes.
In the commodities markets, average posted prices for propane and fuel oil during fiscal 2008 were 48.6%
and 63.8% higher, respectively, compared to fiscal 2007. Costs of products sold increased $174.0 million, or
20.1%, to $1,039.4 million in fiscal 2008 compared to $865.4 million in the prior year, primarily resulting from
the rise in commodity prices. As reported throughout much of the prior year, favorable market conditions
impacting the supply and pricing structure for propane and fuel oil provided approximately $14.7 million of
incremental margin opportunities in fiscal 2007, which were not present in fiscal 2008. In addition, with the
dramatic rise in commodity prices, particularly during the third quarter of fiscal 2008, we reported realized losses
from risk management activities that were not fully offset by sales of the physical product, resulting in a negative
effect of approximately $10.8 million on fiscal 2008 earnings. Costs of products sold for fiscal 2008 also
included a $1.8 million unrealized (non-cash) gain attributable to the mark-to-market on certain risk management
activities, compared to a $7.6 million unrealized (non-cash) loss in the prior year.
The favorable trend experienced in operating and general and administrative expenses resulting from our
efforts to drive efficiencies and reduce costs continued throughout fiscal 2008. Combined operating and general
and administrative expenses of $356.2 million decreased $23.1 million, or 6.1%, compared to $379.3 million in
the prior year. The most significant cost savings were experienced in payroll and benefit related expenses
resulting from a lower headcount and lower variable compensation in line with lower earnings, once adjusted for
the significant items described below. In addition, we achieved a modest reduction in costs to operate our fleet
as a result of a lower vehicle count and route efficiencies, which more than offset the impact of a dramatic rise in
diesel costs.
Net income and EBITDA for fiscal 2008 included a gain (reported within discontinued operations) of $43.7
million from the sale of our Tirzah, South Carolina underground propane storage cavern and associated 62-mile
pipeline, which occurred during October 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; and (iv) gains (reported within
discontinued operations) of $1.9 million from the sale and exchange of customer service centers considered to be
non-strategic.
As we look ahead to fiscal 2009, our anticipated cash requirements include: (i) maintenance and growth capital
expenditures of approximately $25.0 million; (ii) approximately $38.4 million of interest and income tax payments;
and (iii) assuming distributions remain at the current level, approximately $105.6 million of distributions to
Common Unitholders. Based on our current cash position, availability under the Revolving Credit Agreement
(unused borrowing capacity under the working capital facility of $119.2 million at September 27, 2008) and
expected cash flow from operating activities, we expect to have sufficient funds to meet our current and future
obligations. Based on our current forecast of working capital requirements for fiscal 2009, we currently do not
expect to borrow under the working capital facility in fiscal 2009.
30
Fiscal Year 2008 Compared to Fiscal Year 2007
Revenues
(Dollars in thousands)
Revenues
Propane
Fuel oil and refined fuels
Natural gas and electricity
Services
All other
Total revenues
Fiscal
2008
Fiscal
2007
Increase /
(Decrease)
$
1,132,950
288,078
103,745
44,393
4,997
1,574,163
$
$
1,019,798
262,076
94,352
56,519
6,818
1,439,563
$
$
$
113,152
26,002
9,393
(12,126)
(1,821)
134,600
Percent
Increase /
(Decrease)
11.1%
9.9%
10.0%
(21.5%)
(26.7%)
9.4%
Total revenues increased $134.6 million, or 9.4%, to $1,574.2 million for the year ended September 27, 2008
compared to $1,439.6 million for the year ended September 29, 2007, due to higher average selling prices
associated with higher product costs, partially offset by lower volumes. Volumes in our propane, fuel oil and
refined fuels and natural gas and electricity segments were lower in fiscal 2008 compared to the prior year
primarily due to ongoing customer conservation resulting from the historically high commodity prices, proactive
steps to manage customer credit risk, warmer weather in our service territories during the peak heating months
and, to a lesser extent, the effects of eliminating certain lower margin accounts which occurred throughout much
of the prior year. From a weather perspective, average heating degree days in our service territories were 94% of
normal for fiscal 2008 and flat compared to the prior year; however, the winter heating season of fiscal 2008 was
warmer than the comparable prior year period, particularly in the northeast where average heating degree days
were 7% below normal and the prior year, thus having a negative effect on volumes.
Revenues from the distribution of propane and related activities of $1,133.0 million for the year ended
September 27, 2008 increased $113.2 million, or 11.1%, compared to $1,019.8 million for the year ended
September 29, 2007, primarily due to higher average selling prices, partially offset by lower volumes. Retail
propane gallons sold in fiscal 2008 decreased 46.3 million gallons, or 10.7%, to 386.2 million gallons from 432.5
million gallons in the prior year. The average posted price of propane during fiscal 2008 increased 48.6%
compared to the average posted prices in the prior year, while our average propane selling prices during fiscal
2008 increased approximately 27.0% compared to the prior year. Additionally, revenues from wholesale and
other propane activities for the year ended September 27, 2008 decreased $13.2 million compared to the prior
year.
Revenues from the distribution of fuel oil and refined fuels of $288.1 million for the year ended September
27, 2008 increased $26.0 million, or 9.9%, from $262.1 million in the prior year, primarily due to higher average
selling prices, partially offset by lower volumes. Fuel oil and refined fuels gallons sold in fiscal 2008 decreased
28.0 million gallons, or 26.8%, to 76.5 million gallons from 104.5 million gallons in the prior year. Lower
volumes in our fuel oil and refined fuels segment were attributable to the impact of ongoing customer
conservation from continued high energy prices combined with our decision to exit certain lower margin diesel
and gasoline businesses. Our decision to exit the majority of our low sulfur diesel and gasoline businesses
resulted in a reduction in volumes in the fuel oil and refined fuels segment of approximately 9.7 million gallons,
or 34.5% of the total volume decline in fiscal 2008 compared to the prior year. The average posted price of fuel
oil during fiscal 2008 increased approximately 63.8% compared to the average posted prices in the prior year,
while our average selling prices in our fuel oil and refined fuels segment increased approximately 47.4%
compared to the prior year period.
31
Revenues in our natural gas and electricity segment increased $9.3 million, or 10.0%, to $103.7 million for
the year ended September 27, 2008 compared to $94.4 million in the prior year as a result of higher average
selling prices for both electricity and natural gas, partially offset by lower electricity and natural gas volumes.
Revenues in our services segment decreased 21.5% to $44.4 million in fiscal 2008 from $56.5 million in the prior
year as a result of the decision to reduce the level of certain installation activities. The focus of our ongoing
service offerings are in support of our existing core commodity segments.
Cost of Products Sold
(Dollars in thousands)
Cost of products sold
Propane
Fuel oil and refined fuels
Natural gas and electricity
Services
All other
Total cost of products sold
Fiscal
2008
Fiscal
2007
Increase /
(Decrease)
$
$
$
689,921
247,310
87,600
12,530
2,075
1,039,436
$
573,305
194,213
77,116
16,847
3,937
865,418
$
$
116,616
53,097
10,484
(4,317)
(1,862)
174,018
Percent
Increase /
(Decrease)
20.3%
27.3%
13.6%
(25.6%)
(47.3%)
20.1%
As a percent of total revenues
66.0%
60.1%
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 within cost of products sold. Cost of products sold excludes depreciation and amortization; these
amounts are reported separately within the consolidated statements of operations.
Cost of products sold in fiscal 2008 included a $1.8 million unrealized (non-cash) gain representing the net
unrealized change in the fair value of derivative instruments during the period, compared to a $7.6 million
unrealized (non-cash) loss in the prior year resulting in a decrease of $9.4 million in cost of products sold for the
year ended September 27, 2008 compared to the prior year.
Cost of products sold associated with the distribution of propane and related activities of $689.9 million
increased $116.6 million, or 20.3%, compared to the prior year. Higher average propane costs resulted in an
increase of $189.8 million in cost of products sold during fiscal 2008 compared to the prior year. The impact of
the sharp increase in commodity prices was partially offset by lower propane volumes which resulted in a $55.8
million decrease in cost of products sold during fiscal 2008 compared to the prior year. Lower wholesale and
other propane revenues, noted above, decreased cost of products sold by approximately $14.2 million compared
to the prior year. In addition, the portion of the total net change in the fair value of derivative instruments
associated with the propane segment during fiscal 2008, noted above, resulted in a $3.2 million decrease in cost
of products sold compared to the prior year.
Cost of products sold associated with our fuel oil and refined fuels segment of $247.3 million increased
$53.1 million, or 27.3%, compared to the prior year. Higher average fuel oil costs resulted in an increase of
$101.8 million in cost of products sold during fiscal 2008 compared to the prior year period. This increase was
partially offset by lower fuel oil sales volumes, which resulted in a $53.3 million decrease in cost of products
32
sold during fiscal 2008 compared to the prior year. In addition, as described above, risk management activities
during fiscal 2008 resulted in a $10.8 million increase in cost of products sold compared to the prior year as a
result of realized losses on futures contracts that were not fully offset by sales of physical product. The portion
of the total net change in the fair value of derivative instruments associated with the fuel oil and refined fuels
segment during the period resulted in a $6.2 million decrease in cost of products sold compared to the prior year.
Cost of products sold in our natural gas and electricity segment of $87.6 million increased $10.5 million, or
13.6%, compared to the prior year due to higher average electricity costs and, to a lesser extent, natural gas costs.
Cost of products sold in our services segment of $12.5 million decreased $4.3 million, or 25.6%, compared to the
prior year primarily due to lower sales volumes.
For the year ended September 27, 2008, total cost of products sold represented 66.0% of revenues compared
to 60.1% in the prior year. This increase was primarily attributable to the significant increase in product costs
which we were not able to fully pass on to customers, as well as the favorable market conditions discussed above
that contributed approximately $14.7 million of incremental margin opportunities in the prior year that were not
present in fiscal 2008 and the negative effect of higher commodity prices on our risk management activities
which resulted in $10.8 million of realized losses during the second half of fiscal 2008 that were not fully offset
by sales of physical product.
Operating Expenses
(Dollars in thousands)
Operating expenses
As a percent of total revenues
Fiscal
2008
308,071
19.6%
$
Fiscal
2007
322,852
22.4%
$
Decrease
$
(14,781)
Percent
Decrease
(4.6%)
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 $308.1 million for the year ended September 27, 2008 decreased $14.8 million, or
4.6%, compared to $322.9 million in the prior year as a result of our continued efforts to drive operational
efficiencies and reduce costs across all operating segments. Payroll and benefit related expenses declined $18.8
million due to lower headcount, as well as lower variable compensation associated with lower earnings in fiscal
2008 compared to the prior year. In addition, vehicle expenditures decreased $0.6 million compared to the prior
year, despite a significant increase in the cost of diesel fuel, as a result of a lower vehicle count enabled by
ongoing routing efficiencies. Savings from payroll and benefit related expenses and vehicle expenditures were
partially offset by higher bad debt expense and increased costs to operate our customer service centers in the high
energy price environment.
33
General and Administrative Expenses
(Dollars in thousands)
General and administrative expenses
As a percent of total revenues
Fiscal
2008
Fiscal
2007
$
48,134
3.1%
$
56,422
3.9%
Decrease
$
(8,288)
Percent
Decrease
(14.7%)
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 $48.1 million for the year ended September 27, 2008 decreased $8.3
million, or 14.7%, compared to $56.4 million during the prior year. The decrease was primarily attributable to a
reduction in variable compensation resulting from lower earnings in fiscal 2008 compared to the prior year and
the reduction of compensation costs recognized under certain long-term incentive plans.
Restructuring Charges and Severance Costs
We did not record any restructuring charges for the year ended September 27, 2008. For the year ended
September 29, 2007, we recorded a charge of $1.5 million primarily related to employee termination costs
incurred as a result of further refinements to our plan to restructure our services segment.
Depreciation and Amortization
(Dollars in thousands)
Depreciation and amortization
As a percent of total revenues
Fiscal
2008
Fiscal
2007
$
28,394
1.8%
$
28,790
2.0%
Decrease
$
(396)
Percent
Decrease
(1.4%)
Depreciation and amortization expense of $28.4 million for the year ended September 27, 2008 was
relatively unchanged compared to the prior year.
Interest Expense, net
(Dollars in thousands)
Interest expense, net
As a percent of total revenues
Fiscal
2008
Fiscal
2007
$
37,052
2.4%
$
35,596
2.5%
Increase
$
1,456
Percent
Increase
4.1%
Net interest expense increased $1.5 million, or 4.1%, to $37.1 million for the year ended September 27, 2008,
compared to $35.6 million in the prior year as a result of lower market interest rates for short-term investments,
which contributed to less interest income earned. As has been the case since April 2006, there were no
borrowings under our working capital facility as seasonal working capital needs have been funded through cash
34
on hand and cash flow from operations. We ended fiscal 2008 in a strong cash position with $137.7 million in
cash on the consolidated balance sheet.
Discontinued 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 $53.7 million in cash, after
taking into account certain adjustments. As part of the agreement, we entered into a long-term storage
arrangement, not to exceed 7 million propane gallons, 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, we
reported a $43.7 million gain on disposal of discontinued operations during 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 2007 and the assets and liabilities have been classified as held for
sale on the consolidated balance sheet as of September 29, 2007.
During the first quarter of fiscal 2007, in a non-cash transaction, 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 during 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 fiscal 2007 we also sold three customer service centers for net cash proceeds of $1.3 million and reported
a gain on sale within discontinued operations of $0.9 million.
Net Income and EBITDA
We reported net income of $154.9 million, or $4.72 per Common Unit, for the year ended September 27,
2008 compared to net income of $127.3 million, or $3.91 per Common Unit, in the prior year. EBITDA for
fiscal 2008 of $222.2 million increased $24.4 million, or 12.3%, compared to EBITDA of $197.8 million in the
prior year.
Net income and EBITDA for fiscal 2008 included a gain (reported within discontinued operations) of $43.7
million from our sale of its Tirzah, South Carolina underground storage cavern and associated 62-mile pipeline.
By comparison, 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 of $3.8 million.
EBITDA represents net income before deducting interest expense, income taxes, depreciation and
amortization. Our management uses EBITDA as a measure of liquidity and we disclose 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.
35
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
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 27,
2008
September 29,
2007
$
154,880
$
127,287
1,903
37,052
28,394
-
222,229
(626)
(37,052)
2,156
(2,252)
(43,707)
-
(20,231)
5,653
35,596
28,790
452
197,778
(1,853)
(35,596)
3,014
(2,782)
(1,887)
3,269
(15,986)
Net cash provided by operating activities
$
120,517
$
145,957
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
Services
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
36
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
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 services 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 services segment and to reduce the level of stand alone installation activities. The focus of our
ongoing service offerings are in support of our existing propane, refined fuels and natural gas and electricity
segments, thus reducing overall services segment revenues.
Cost of Products Sold
(Dollars in thousands)
Cost of products sold
Propane
Fuel oil and refined fuels
Natural gas and electricity
Services
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%
Cost of products sold decreased $186.4 million, or 17.7%, to $865.4 million for the year ended September
37
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
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 services 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 services
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%)
Operating expenses of $322.9 million for the year ended September 29, 2007 decreased $50.5 million, or
38
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 services 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-
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%)
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 services 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
39
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.
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.
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
restructuring charges primarily related to severance benefits associated with our field realignment and the
restructuring of our services 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
40
$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.
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
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
Liquidity and Capital Resources
Analysis of Cash Flows
Operating Activities. Net cash provided by operating activities for the year ended September 27, 2008
amounted to $120.5 million, a decrease of $25.5 million compared to $146.0 million in the prior year. The decrease
was attributable to a $21.2 million decrease in earnings, after adjusting for non-cash items in both periods
(deprecation, amortization, compensation costs recognized under our Restricted Unit Plan, gains on disposal of
assets, pension settlement charges and deferred tax provision) and a $29.3 million increased investment in
working capital, partially offset by a $25.0 million voluntary contribution to our defined benefit pension plan
made in fiscal 2007. No pension contributions were made during fiscal 2008.
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.
Investing Activities. Net cash provided by investing activities of $36.6 million for the year ended September
27, 2008 consisted of the net proceeds from the sale of discontinued operations of $53.7 million and the net
41
proceeds from the sale of property, plant and equipment of $4.7 million, partially offset by capital expenditures
of $21.8 million (including $12.0 million for maintenance expenditures and $9.8 million to support the growth of
operations). Capital spending in fiscal 2008 decreased $5.0 million, or 18.7%, compared to fiscal 2007 primarily
as a result of lower spending on tanks and information technology as much of the incremental spending on our
field realignment efforts has been incurred.
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.
Financing Activities. Net cash used in financing activities for the year ended September 27, 2008 of $116.0
million reflects $101.0 million in quarterly distributions to Common Unitholders at a rate of $0.75 per Common
Unit in respect of the fourth quarter of fiscal 2007, at a rate of $0.7625 per Common Unit in respect of the first
quarter of fiscal 2008, at a rate of $0.775 per Common Unit in respect of the second quarter of fiscal 2008 and at
a rate of $0.80 per Common Unit in respect of the third quarter of fiscal 2008, as well as a prepayment of $15.0
million to reduce amounts outstanding under our term loan. There were no borrowings under our working capital
facility during fiscal 2008, nor have there been any borrowings since April 2006.
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.
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. On September 26, 2008 we made a
prepayment of $15.0 million on the Term Loan thereby reducing the amount outstanding to $110.0 million.
There were no outstanding borrowings under the working capital facility as of September 27, 2008 and 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 $55.8
million in support of retention levels under our self-insurance programs and certain lease obligations which
expire periodically through October 25, 2009. Therefore, as of September 27, 2008 we had available borrowing
capacity of $119.2 million under the working capital facility of the Revolving Credit Agreement. Additionally,
under 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 cash position, operating results and cash flow, we did not make
any such short-term borrowings during fiscal 2008.
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
42
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 LIBOR plus an
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. In connection with the $15.0 million
prepayment of the Term Loan on September 26, 2008, we also amended the interest rate swap contract to reduce
the notional amount by $15.0 million. From an original borrowing date of March 31, 2005 through March 31,
2010, our Operating Partnership paid or will pay a fixed interest rate of 4.66% to the issuing lender on the
notional principal amount outstanding, effectively fixing the LIBOR portion of the interest rate at 4.66%. In
return, the issuing lender paid or 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. Under the 2003 Senior Note indenture, we are
generally permitted to make cash distributions equal to Available Cash, as defined, as of the end of the
immediately preceding quarter, if no event of default exists or would exist upon making such distributions, and
our consolidated fixed charge coverage ratio, as defined, is greater than 1.75 to 1. Under the Revolving Credit
Agreement, as long as no default exists or would result, the Partnership is permitted to make cash distributions
not more frequently than quarterly in an amount not to exceed Available Cash, as defined, for the immediately
preceding fiscal quarter. 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 27, 2008 and September 29, 2007.
Under the Revolving Credit Agreement, proceeds from the sale, transfer or other disposition of any asset of
the Operating Partnership, other than the sale of inventory in the ordinary course of business, in excess of $15
million must be used to acquire productive assets within twelve months of receipt of the proceeds. Any proceeds
not used within twelve months of receipt to acquire productive assets must be used to prepay the outstanding
principal of the Term Loan. As noted above, we prepaid $15.0 million of the Term Loan on September 26, 2008
with the remaining available proceeds from the sale of our Tirzah storage facility that were not expected to be
used to acquire productive assets within twelve months of receipt. An additional $2.0 million prepayment was
made on November 10, 2008, representing the remaining amount to be prepaid from the net proceeds from the
Tirzah Sale.
While we do not expect to utilize our working capital facility to fund our ongoing operational needs for the
foreseeable future, we have performed an evaluation of the financial institutions supporting our Revolving Credit
Agreement in order to assess their ability to provide capital under the working capital facility, if necessary. Our
Revolving Credit Agreement is supported by a diverse group of thirteen financial institutions. Management
believes that we maintain strong relationships with the financial institutions within our current bank group and,
to the extent necessary, will have sufficient access to the unused portion of the working capital facility ($119.2
million as of September 27, 2008 after considering outstanding letters of credit). Our Revolving Credit
Agreement matures in March 2010 and we will begin the process of renewing the agreement during the second
quarter of fiscal 2009.
43
Partnership Distributions
We are required to make distributions in an amount equal to all of our Available Cash, as defined in the
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.
On October 23, 2008, we announced a quarterly distribution of $0.805 per Common Unit, or $3.22 on an
annualized basis, in respect of the fourth quarter of fiscal 2008 payable on November 10, 2008 to holders of
record on November 3, 2008. This quarterly distribution included an increase of $0.005 per Common Unit, or
$0.02 per Common Unit on an annualized basis, from the previous quarterly distribution rate representing the
nineteenth increase since our recapitalization in 1999 and a 7.3% increase in the quarterly distribution rate since
the fourth quarter of the prior year.
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 2008, 2007 or 2006. However, we made voluntary contributions of
$25.0 million and $10.0 million to the defined benefit pension plan during fiscal 2007 and fiscal 2006,
respectively, thereby taking proactive steps to improve the funded status of the plan. As of September 27, 2008
and September 29, 2007, the fair value of plan assets exceeded the projected benefit obligation of the defined
benefit pension plan by $0.1 million and $5.5 million, respectively, which was recognized on the balance sheet as
an asset. Although the projected benefit obligation under the defined benefit pension plan remained fully funded
as of September 27, 2008, the funded status declined $5.4 million compared to the prior year due to negative
returns on plan assets during fiscal 2008, which were attributable to the negative performance of the markets
where the plan’s assets are invested (domestic fixed income securities market, as well as the domestic and
international equity markets), offset to a considerable degree by a reduction in the present value of the benefit
obligation due to a general increase in market interest rates.
Our 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
projected benefit obligation and changed the plan’s asset allocation to reduce investment risk and more closely
match the expected returns on plan assets to the future cash requirements of the plan. The implementation of this
strategy resulted in a $25.0 million voluntary contribution in fiscal 2007 from cash on hand and changed the asset
allocation to reflect a greater concentration of fixed income securities.
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, 106 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 resulting
$43.0 million reduction in our net assets recorded as an adjustment to accumulated other comprehensive loss.
44
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.” During fiscal 2008, the
amount of the pension benefit obligation settled through lump sum payments was $6.7 million, which did not
exceed the settlement threshold of $8.7 million; therefore, a settlement charge was not required to be recognized
for fiscal 2008. Additional pension settlement charges may be required in future periods depending on the level
of lump sum benefit payments made in future periods.
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 fully funded 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 largely fund the annual interest on the accumulated benefit obligation thus
maintaining a fully funded status. For purposes of measuring our projected benefit obligations, we increased the
discount rate from 6.00% as of September 29, 2007 to 7.625% as of September 27, 2008, reflecting current
market rates for debt obligations of a similar duration to our pension obligations. For purposes of computing net
periodic pension cost for fiscal 2008, 2007 and 2006, our assumed long-term rate of return on plan assets was
6.00%, 8.00% and 8.00%, respectively, based on the investment mix of our pension asset portfolio, historical
asset performance and expectations for future performance. The reduced expected return assumption for fiscal
2008 relative to prior years reflects the shift in asset mix away from equities and into fixed income investments,
which was implemented in early fiscal 2008
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 health care
benefits if they reached a specified retirement age while working for the Partnership. Partnership employees hired
prior to July 1993 are eligible for postretirement life insurance benefits if they reach a specified retirement age while
working for the Partnership. Effective January 1, 2000, we terminated our postretirement health care benefit plan
for all eligible employees retiring after March 1, 1998. All active and eligible employees who were to receive health
care 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. Effective January 1, 2006, we changed its postretirement health care plan from a self-
insured program to one that is fully insured under which we pay a portion of the insurance premium on behalf of the
eligible participants.
45
Long-Term Debt Obligations and Operating Lease Obligations
Contractual Obligations
The following table summarizes payments due under our known contractual obligations as of September 27,
2008.
(Dollars in thousands)
Fiscal
2009
Fiscal
2010
Fiscal
2011
Fiscal
2012
Fiscal
2013 and
thereafter
Total
Long-term debt obligations
Future interest payments
Operating lease obligations (a)
Postretirement benefits obligations
Self-insurance obligations (b)
Other contractual obligations
Total
$
$
$
$
2,000
34,853
13,286
1,923
41,404
1,151
94,617
108,000
33,303
10,409
1,879
8,558
5,834
167,983
$
-
29,219
7,767
1,820
6,166
1,068
46,040
$
-
$
29,219
5,732
1,755
4,281
253
41,240
$
425,000
43,828
8,452
8,637
12,624
4,971
503,512
$
$
$
$
535,000
170,422
45,646
16,014
73,033
13,277
853,392
(a) Payments exclude costs associated with insurance, taxes and maintenance, which are not material to the
operating lease obligations.
(b) The timing of when payments are due for our self-insurance obligations is based on estimates that may
differ from when actual payments are made. In addition, the payments do not reflect amounts to be
recovered from our insurance providers, which was $38.8 million as of September 27, 2008 and included
in other current assets ($30.0 million) and other assets ($8.8 million) on the consolidated balance sheet.
Additionally, we have standby letters of credit in the aggregate amount of $55.8 million, in support of
retention levels under our casualty insurance programs and certain lease obligations, which expire periodically
through October 25, 2009.
Operating Leases
We lease certain property, plant and equipment for various periods under noncancelable operating leases,
including approximately 52% of our vehicle fleet, approximately 23% of our customer service centers and
portions of our information systems equipment. Rental expense under operating leases was $17.7 million, $19.6
million and $27.2 million for fiscal 2008, 2007 and 2006, respectively. Future minimum rental commitments under
noncancelable operating lease agreements as of September 27, 2008 are presented in the table above.
Off-Balance Sheet Arrangements
Guarantees
Certain of our operating leases, primarily those for transportation equipment with remaining lease periods
scheduled to expire periodically through fiscal 2015, contain residual value guarantee provisions. Under those
provisions, we guarantee that the fair value of the equipment will equal or exceed the guaranteed amount upon
completion of the lease period, or we will pay the lessor the difference between fair value and the guaranteed
amount. 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
46
approximately $16.1 million. The fair value of residual value guarantees for outstanding operating leases was de
minimis as of September 27, 2008 and September 29, 2007.
Recently Issued Accounting Standards
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. SFAS 157 is effective for fiscal years beginning after November
15, 2007, which is our 2009 fiscal year, which began on September 28, 2008. In February of 2008, the FASB
provided an elective one-year deferral of the provisions of SFAS 157 for nonfinancial assets and nonfinancial
liabilities that are only measured at fair value on a non-recurring basis. The adoption of SFAS 157 did not have a
material effect on our consolidated financial position, results of operations and cash flows.
In February 2007, the 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 is our 2009 fiscal year, which began on September 28, 2008. We did not elect the
fair value measurement option; accordingly, the adoption of SFAS 159 did not have a material impact on our
consolidated financial position, results of operations and cash flows
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements – an Amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting
standards for noncontrolling interests in an entity’s subsidiary and alters the way the consolidated income
statement is presented. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008, which
will be our 2010 fiscal year beginning September 27, 2009. As of September 27, 2008, all of our subsidiaries
were wholly-owned; accordingly, the adoption of SFAS 160 should not have any impact on our consolidated
financial position, results of operations and cash flows.
Also in December 2007, the FASB issued a revised SFAS No. 141 “Business Combinations” (“SFAS
141R”). Among other things, SFAS 141R requires an entity to recognize acquired assets, liabilities assumed and
any noncontrolling interest at their respective fair values as of the acquisition date, clarifies how goodwill
involved in a business combination is to be recognized and measured, and requires the expensing of acquisition-
related costs as incurred. SFAS 141R is effective for business combinations entered into in fiscal years
beginning on or after December 15, 2008, which will be our 2010 fiscal year beginning September 27, 2009, with
early adoption prohibited.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging
Activities – an Amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 requires enhanced
disclosures about an entity’s objectives for using derivative instruments and related hedged items, how those
derivative instruments are accounted for under SFAS 133 and how derivative instruments and related hedged
items affect an entity’s financial position, financial performance and cash flows. SFAS 161 is effective for
financial statements for interim or annual periods beginning on or after November 15, 2008, which will be the
second quarter of our 2009 fiscal year beginning December 28, 2008. Because it is only a disclosure standard,
the adoption of SFAS 161 will not have a material effect on our consolidated financial position, results of
operations and 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 ensure adequate physical supply. The percentage of contract purchases, and the amount of supply
contracted for under forward contracts at fixed prices, will vary from year to year based on market conditions. In
certain instances, and when market conditions are favorable as was the case in the propane and fuel oil markets
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 commodity price risk by pricing product on a short-term basis. The level of priced, physical product
maintained in storage facilities and at our customer service centers for immediate sale to our customers will vary
depending on several factors, including, but not limited to, price, availability of supply, and demand for a given
time of the year. Typically, our on hand priced position does not exceed more than four to eight weeks of our
supply needs depending on the time of the year. In the course of normal operations, we routinely enter into
contracts such as forward priced physical contracts for the purchase or sale of propane and fuel oil that, under
SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended (“SFAS 133”),
qualify for and are designated as normal purchase or normal sale contracts. 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. We do not use derivative instruments for speculative or
trading purposes. 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 or option exercise
price. To the extent that we utilize derivative instruments to manage exposure to commodity price risk and
commodity prices move adversely in relation to the contracts, we could suffer losses on those derivative
instruments when settled. Conversely, if prices move favorably, we could realize gains. Under our hedging and
risk management strategy, realized gains or losses on futures contracts will typically offset losses or gains on the
physical inventory once the product is sold to customers at market prices.
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. These
market conditions generated additional operating profit of approximately $14.7 million from incremental margin
opportunities in fiscal 2007, which were not present in fiscal 2008.
48
With the dramatic rise in commodity prices in fiscal 2008, particularly during the third quarter, we reported
realized losses from our risk management activities that were not fully offset by sales of physical product,
resulting in a negative effect on earnings of approximately $10.8 million during fiscal 2008. As a result of
continued market volatility, we made a decision under our risk management strategy to unwind all of our short
futures positions during the third quarter of fiscal 2008.
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 of the NYMEX require daily cash settlements in
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 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 over-the-counter, forward and propane 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 the risk of non-performance by our counterparties.
Interest Rate Risk
A portion of our long-term borrowings bear interest at a variable rate based upon LIBOR 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 an interest rate swap agreement.
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. On September 26, 2008, we amended the interest rate swap
contract to reduce the notional amount by $15.0 million, representing the amount of the Term Loan prepaid on
that date. 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 income (“OCI”)
until the hedged item is recognized in earnings. At September 27, 2008, the fair value of the interest rate swap
was $3.2 million representing an unrealized loss and is included within other liabilities with a corresponding
debit in accumulated other comprehensive loss.
Derivative Instruments and Hedging Activities
Pursuant to SFAS 133, all of our derivative instruments are reported on the balance sheet, within other
current assets or other current liabilities, at their fair values. 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, or interest expense
depending on the item being hedged, 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
49
SFAS 133, are recorded within cost of products sold as they occur.
At September 27, 2008, the fair value of derivative instruments described above resulted in derivative assets
(unrealized gains) of $5.0 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) gains in the amount of $1.8 million for the year ended September 27, 2008
compared to unrealized (non-cash) losses of $7.6 million for the year ended September 29, 2007, attributable to
the change in fair value of derivative instruments not designated as cash flow hedges.
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 27, 2008 for each of the future
periods.
B. The estimated future market prices for futures and forward contracts as of September 27, 2008 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 or option contract exists indicates either future losses or a reduction in
potential future gains of $1.8 million as of September 27, 2008. 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 27, 2008 at Mont
Belvieu, Texas (a major storage point) was $1.433 per gallon as compared to $1.341 per gallon on September 29,
2007. The average posted price of fuel oil on September 27, 2008 at Linden, New Jersey was $2.8636 per gallon as
compared to $2.2379 per gallon on September 29, 2007.
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 2008
Revenues
Cost of products sold
Income (loss) before interest expense and provision for
income taxes (a)
Income (loss) from continuing operations (a)
Discontinued operations:
Gain on disposal of discontinued operations (b)
Net income (loss) (a)
Net income (loss) from continuing operations per
common unit - basic (d)
Net income (loss) per common unit - basic (d)
Net income (loss) per common unit - diluted (d)
Cash (used in) provided by
Operating activities
Investing activities
Financing activities
EBITDA (e)
Retail gallons sold
Propane
Fuel oil and refined fuels
Fiscal 2007 (f)
Revenues
Cost of products sold
Income (loss) before interest expense and provision for
income taxes (a)
Income (loss) from continuing operations (a)
Discontinued operations:
Gain on disposal of discontinued operations (b)
Income from discontinued operations (c)
Net income (loss) (a)
Net income (loss) from continuing operations per
common unit - basic (d)
Net income (loss) per common unit - basic (d)
Net income (loss) per common unit - diluted (d)
Cash (used in) provided by
Operating activities
Investing activities
Financing activities
EBITDA (e)
Retail gallons sold
Propane
Fuel oil and refined fuels
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
Year
$
425,109
277,715
$
587,097
380,757
$
305,476
212,974
$
256,481
167,990
$
1,574,163
1,039,436
51,789
41,722
43,707
85,429
1.27
2.61
2.60
104,375
94,523
-
94,523
2.89
2.89
2.87
(4,380)
(13,747)
-
(13,747)
(0.42)
(0.42)
(0.42)
(1,656)
(11,325)
-
(11,325)
(0.35)
(0.35)
(0.35)
150,128
111,173
43,707
154,880
3.39
4.72
4.70
(41,953)
48,875
(24,539)
102,555
$
50,340
(3,553)
(24,953)
111,482
$
48,601
(5,419)
(25,362)
2,779
$
63,529
(3,273)
(41,181)
5,413
$
120,517
36,630
(116,035)
222,229
$
111,937
23,594
146,252
31,435
71,420
12,614
56,613
8,872
386,222
76,515
$
397,908
230,874
$
555,111
327,347
$
271,454
167,224
$
215,090
139,973
$
1,439,563
865,418
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
51
(a) These amounts include gains from the disposal of property, plant and equipment of $2.3 million for fiscal
2008 and $2.8 million for fiscal 2007.
(b) Gain on disposal of discontinued operations reflects (i) a $43.7 million gain on the Tirzah Sale during the
first quarter of fiscal 2008 for net cash proceeds of $53.7 million; (ii) 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; (iii) 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 (iv) 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.
(c) The results of operations from the Tirzah Sale have been reported within discontinued operations.
(d) Basic net income (loss) per Common Unit is computed under SFAS 128 by dividing net income (loss) by the
weighted average number of outstanding Common Units, and restricted units granted under the 2000
Restricted Unit Plan to retirement-eligible grantees. 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.
(e) 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 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):
52
Fiscal 2008
Net income (loss)
Add:
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
Year
$
85,429
$
94,523
$
(13,747)
$
(11,325)
$
154,880
Provision for (benefit from) income taxes
Interest expense, net
Depreciation and amortization
EBITDA
Add (subtract):
(Provision for) benefit from 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
Changes in working capital and other
assets and liabilities
1,679
8,388
7,059
102,555
(402)
(8,388)
(67)
(1,429)
(43,707)
434
9,418
7,107
111,482
(190)
(9,418)
753
(283)
-
(157)
9,524
7,159
2,779
(87)
(9,524)
817
(109)
-
(53)
9,722
7,069
5,413
53
(9,722)
1,903
37,052
28,394
222,229
(626)
(37,052)
653
2,156
(431)
-
(2,252)
(43,707)
(90,515)
(52,004)
54,725
67,563
(20,231)
Net cash (used in) provided by operating activities
$
(41,953)
$
50,340
$
48,601
$
63,529
$
120,517
Fiscal 2007
Net income (loss)
Add:
Provision for income taxes
Interest expense, net
Depreciation and amortization:
Continuing operations
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
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
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)
(247)
(1,002)
-
(1,815)
-
-
949
(339)
(203)
-
905
3,014
(381)
(682)
3,269
(2,782)
(1,887)
3,269
(67,731)
(24,358)
40,090
36,013
(15,986)
Net cash (used in) provided by operating activities
$
(5,893)
$
87,120
$
46,788
$
17,942
$
145,957
(f) The fourth quarter of fiscal 2007 includes a $3.8 million provision for income taxes related to the utilization
of net operating losses in the first quarter of fiscal 2007.
53
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 27, 2008. 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 27, 2008.
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 27, 2008, 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
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.
INTERNAL CONTROL OVER FINANCIAL REPORTING.
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 27, 2008. 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.
54
Based on the Partnership’s assessment, as described above, management has concluded that, as of September
27, 2008, the Partnership’s internal control over financial reporting was effective.
ITEM 9B. OTHER INFORMATION
None.
55
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 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 control 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; (d) performance of the internal audit function and the independent
registered public accounting firm; and (e) accounting complaints.
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 Rule 10A-3 of the Exchange Act, Item 407 of Regulation S-K and the Partnership’s criteria for Supervisor
independence (as discussed in Item 13, herein) as of the date of this Annual Report. Mr. Collins, 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. Investors and other parties
interested in communicating directly with the non-management Supervisors as a group may do so by writing to
56
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 24, 2008. 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
50
Michael J. Dunn, Jr. ………………
59
Michael A. Stivala………………… 39
44
A. Davin D’Ambrosio……………..
55
Paul Abel………………………….
51
Mark Anton, II…………………….
44
Steven C. Boyd……………………
47
Douglas T. Brinkworth……………
55
Michael M. Keating……………….
46
Mark Wienberg……………………
Neil Scanlon………………………
43
38
Michael Kuglin……………………
Harold R. Logan, Jr. ……………… 64
78
John Hoyt Stookey….……………..
Dudley C. Mecum…………………
John D. Collins……………………
73
70
Jane Swift…………………………
43
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
Vice President -- Business Development
Vice President -- Operations
Vice President -- Supply
Vice President -- Human Resources and Administration
Vice President -- Operational Planning
Vice President -- Information Services
Controller
Member of the Board of Supervisors (Chairman)
Member of the Board of Supervisors (Chairman of the
Compensation Committee)
Member of the Board of Supervisors
Member of the Board of Supervisors (Chairman of the
Audit Committee)
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 and a member of its Corporate Governance and Nominating Committee.
Mr. Dunn has served as President since 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.
Mr. D’Ambrosio has served as Treasurer since 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
57
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. 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 Vice President – Operations since October 2008. Prior to that he was Southeast and
Western Area Vice President since March 2007, 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 has served as Vice President – Supply since 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 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. Scanlon became Vice President – Information Services in November 2008. Prior to that he served as
Assistant Vice President – Information Services since November 2007, Managing Director – Information
Services from November 2002 to November 2007 and Director – Information Services from April 1997 until
November 2002. Prior to joining the Partnership, Mr. Scanlon spent several years with JP Morgan & Co., most
recently as Vice President – Corporate Systems and earlier held several positions with Andersen Consulting
(“Accenture”), an international systems consulting firm, most recently as Manager.
Mr. Kuglin has served as Controller since 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 to Alcatel-Lucent, Mr. Kuglin held several positions with the 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.
Mr. Logan has served as a Supervisor since March 1996 and was elected as Chairman of the Board of
Supervisors in January 2007. From 2006 to the present, Mr. Logan is a Co-Founder and Director of Basic
Materials and Services LLC, an investment company that has invested in companies that provide specialized
infrastructure services and materials for the pipeline construction industry and the sand/silica industry. 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
58
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
Holding Company and Hart Energy Publishing LLP.
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, at which time he retired. Since then, Mr.
Stookey has served as a trustee for a number of non-profit organizations, including founding and serving as 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) and Landmark Volunteers (places high school students in volunteer
positions with non-profit organizations during summer vacations).
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 Columbia Atlantic 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 K12, Inc., Animated Speech Company and Sally Ride Science Inc. 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 2008.
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.
59
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.
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 2008 to the NYSE without qualification.
60
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, the President, the Chief Financial Officer and the other two most highly
compensated executive officers.
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 achievement of 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 our managing
directors, assistant vice presidents, vice presidents and our named executive officers.
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
61
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 2008 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 believes that benchmarking against such companies in determining “total cash compensation
opportunities” is appropriate because of the proximity of the Partnership’s headquarters to New York City and
the need to realistically compete for skilled executives in an environment shared by numerous other enterprises
that seek skilled employees. For this reason, the Committee chooses not to base its benchmarking on the
compensation practices of other propane marketers due to the fact that the other, similarly-sized propane
marketers compete for employees in vastly different economic environments.
Alternatively, for the reasons below, the Committee decided to include all other propane marketers,
structured as publicly traded partnerships, in the peer group it selected for the 2003 Long-Term Incentive Plan
(for more on the 2003 Long-Term Incentive Plan, refer to the subheading “2003 Long-Term Incentive Plan”
below). Earning a payment under the 2003 Long-Term Incentive Plan is dependent upon the performance
(referred to in the plan document as “total return to unitholders”) of our Common Units in comparison to the unit
performance of a peer group of eleven other master limited partnerships over a three-year measurement period.
Because total return to unitholders is based on unit price appreciation and distributions, both of which are
impacted by earnings, this plan was implemented by the Committee to provide an incentive to management to
grow the business and to be conservative in regard to the management of expenses, among other things, and,
thereby, enhance the return that we provide to our investors. Because master limited partnerships are not
taxpaying entities, potentially these entities have more available cash to distribute to their investors than similar
businesses that operate as corporations and do pay corporate-level taxes. This sometimes enables master limited
partnerships to provide a greater return, in the form of cash distributions, to their investors than similarly situated
corporations. As a result of this reasoning, the Committee selected a peer group for the 2003 Long-Term
Incentive Plan that included other propane marketers, even though the Committee selected the Mercer database
as a tool to benchmark “total cash compensation opportunities.”
In establishing the fiscal 2007 executive compensation packages, 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, in establishing the fiscal 2008 executive compensation packages, due to an
overall increase in executive salaries in the New York area, the Committee used the mean of the reported data as
its benchmark. Generally speaking, the mean of the reported data is higher than the median. The members of the
Committee focused on lessening the shortfalls between the compensation packages that we provide to our
executive officers and the mean compensation paid by the companies whose data underlie the Mercer database.
The Committee does not, however, have a formal target with respect to the amount of the shortfall it is trying to
62
lessen. Moreover, the Committee does not 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 2008 executive compensation packages, the Committee first
reviewed the total cash compensation opportunities that we provided to our executive officers during fiscal 2007.
Each executive officer’s “total cash compensation opportunities” consist of base salary, an annual cash bonus,
and 2003 Long-Term Incentive Plan awards. The Committee then compared each executive officer’s total cash
compensation opportunity to the total mean 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 2008 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 Chief Executive Officer presented the Committee with information comparing each
executive officer’s compensation to the mean compensation figures provided in the Mercer database.
The Partnership’s sole use of Mercer was to provide the Committee with benchmarking data. Therefore,
neither the Chief Executive Officer nor the President met with representatives from Mercer. The information
provided by Mercer was derived from a proprietary database maintained by Mercer and, as such, there was no
formal consultancy role played by them. The Committee believes that the Mercer benchmarking data, which is
provided to the Committee by our Vice President of Human Resources, can be used by the Committee as an
objective benchmark on which decisions relative to executive compensation can be based. In the course of its
deliberations, the Committee compares the objective data obtained from the Mercer database to the internal
analyses prepared by our Vice President of Human Resources.
Among other duties, the Committee has overall responsibility for:
• Reviewing and approving compensation of our Chief Executive Officer, President, Chief Financial
Officer and our 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 approving our annual cash 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 his 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
63
total cash compensation opportunity in fiscal 2008.
Base Salary
Cash
Bonus Target
Long-Term
Incentive
Mark A. Alexander(1)
Michael A. Stivala
Michael J. Dunn, Jr.
Steven C. Boyd
Michael M. Keating
43%
50%
40%
52%
50%
43%
33%
40%
31%
33%
14%
17%
20%
17%
17%
(1) Mr. Alexander’s Long-Term Incentive Plan award is considerably less than Mr. Dunn’s per the terms of an agreement
between Mr. Alexander and the Partnership.
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
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,
approximately 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 2008 base salary increases, the
Committee compared each executive officer’s fiscal 2007 base salary with the corresponding mean salary
provided in the Mercer database. 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 2008, each named executive
officer received adjustments to his base salary in accordance with the philosophy and process described above,
ranging from 0% to 25%. In the event of a promotion (such as Mr. Boyd’s in fiscal 2007) or a new hire, the
Committee reviews and takes action at its next meeting.
64
The fiscal 2008 adjustments to each named executive officer’s base salary were as follows:
Mark A. Alexander(1)
Michael A. Stivala(2)
Michael J. Dunn, Jr.(3)
Steven C. Boyd
Michael M. Keating
0%
25%
6%
4%
5%
(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. Stivala’s salary by 25% was based on consideration of the
increased responsibilities he assumed upon his promotion from Controller to Chief Financial Officer and the
increasing complexity of the Chief Financial Officer’s responsibilities resulting from the promulgation of the
Sarbanes-Oxley Act and related regulations.
(3) Although Mr. Dunn’s initial base salary was established under the terms of his employment agreement, those
terms provide for annual base salary adjustments at the discretion of the Committee.
The total base salary paid to each named executive officer in fiscal 2008 is reported in the column titled
“Salary ($)” in the Summary Compensation Table below.
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 2008, our Chief Executive
Officer did not make any such recommendations to the Committee.
The terms of our annual cash bonus plan provide for cash payments of a specified percentage (which, in
fiscal 2008 ranged from 60% to 100%) of our named executive officers’ annual base salaries (“target cash
bonus”) if, for the fiscal year, actual EBITDA (as defined in Item 6, herein) 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 on derivative instruments reported within cost of products sold
in our statement of operations and gains or losses on the disposal of discontinued 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 cash 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.
65
For fiscal 2008, our budgeted cash bonus plan EBITDA was $187.0 million. Our actual cash bonus plan
EBITDA was such that each of our executive officers earned 95% of his target cash bonus. The following table
provides the fiscal 2008 budgeted cash bonus plan EBITDA targets that were established at the October 31, 2007
Compensation Committee meeting:
Fiscal 2008 Budgeted Cash
Bonus Plan EBITDA
(in Millions)
$205.7
$196.4
$187.0 (1)
$177.7
$168.3
Target Bonus Percentage that
would have been Earned if
Actual Cash Bonus Plan
EBITDA Equaled the Figure
in the Previous Column
110%
105%
100%
95%
90%
(1) Budgeted cash bonus plan EBITDA for fiscal 2008.
The bonuses earned under the annual cash bonus plan by each of our named executive officers are reported
in the column titled “Non-Equity Incentive Plan Compensation ($)” in the Summary Compensation Table below.
The 2008 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 2008 are summarized as follows:
Name
Mark A. Alexander(1)
Michael A. Stivala
Michael J. Dunn, Jr.(1)
Steven C. Boyd
Michael M. Keating
2008 Target Cash
Bonus as a % of
Base Salary
2008 Target Cash
Bonus
2008 Actual Cash
Bonus Earned
100%
65%
100%
60%
65%
$450,000
$162,500
$425,000
$147,000
$143,000
$427,500
$154,375
$403,750
$139,650
$135,850
(1) Mr. Alexander’s and Mr. Dunn’s target cash bonuses are established by the terms of their respective employment
agreements. See “Employment Agreements” section below.
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 budgeted cash bonus plan EBITDA. The budgeted cash bonus
plan EBITDA 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 95%, 110% and
109% of their respective target cash bonus for fiscal 2008, 2007 and 2006, 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
66
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, consisting solely 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 Partners, L.P., Ferrellgas Partners, L.P. and Inergy, L.P. (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.
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 cash 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 2006 award ended simultaneously with the conclusion of
fiscal 2008. The TRU for the fiscal 2006 award fell within the highest quartile. The following is a summary of
the cash payouts related to the fiscal 2006 award earned by our named executive officers at the conclusion of
fiscal 2008.
Mark A. Alexander
Michael A. Stivala
Michael J. Dunn, Jr.
Steven C. Boyd
Michael M. Keating
$ 239,740(1)
$ 81,526(1)
$ 346,263(1)
$ 91,107(1)
$ 115,864(1)
(1) The cash payouts related to our named executive officers’ fiscal 2006 awards earned at the conclusion of fiscal 2008
is an additional disclosure that bears no meaningful relationship to the SFAS 123R expense recognized during fiscal
2008 and reported in column (e) of the Summary Compensation Table below.
The following is a summary of the quantity of phantom units that signify the unvested grants to our named
executive officers during fiscal years 2007 and 2008 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 2009 for the fiscal 2007
award and at the end of our fiscal year 2010 for the fiscal 2008 award).
67
Mark A. Alexander
Michael A. Stivala
Michael J. Dunn, Jr.
Steven C. Boyd
Michael M. Keating
Fiscal Year
2007 Award
4,007
1,603
6,174
2,037
2,107
Fiscal Year
2008 Award
2,989
1,871
4,894
1,693
1,647
The peer group members selected by the Committee for the fiscal 2007 and fiscal 2008 awards consist
entirely of publicly-traded partnerships, inclusive of all propane-related partnerships. The Committee decided
upon this peer group 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 2007 and fiscal 2008 LTIP-2 awards’ three-year measurement periods:
2007 and 2008 LTIP-2 Awards Peer Group
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
Formerly, the LTIP-2 plan document contained a retirement provision that provided for the immediate
termination of the three-year measurement period for all outstanding LTIP-2 awards held by a retirement-eligible
participant upon retirement. Under the former provisions, TRU was 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 had been earned by the retiree. On January 24, 2008, the Committee amended the retirement provisions
of the plan document to provide that a retirement-eligible participant’s outstanding awards vest as of the
retirement-eligible date, but such awards remain subject to the same three-year measurement period for purposes
of determining the eventual cash payout, if any, at the conclusion of the measurement period.
Because the cash payments under the LTIP-2 are based on the value of our Common Units, compensation
expense generated by this plan is recognized 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.
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 2008, there remained
89,874 restricted units available for future grants.
68
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 receive distributions or accrue rights to distributions during the
vesting period. Restricted unit grants vest as follows: 25% on each of 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 previously contained a retirement provision that provided for the immediate vesting of
all unvested RUP grants held by a retiring participant who met 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 409A, 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 unvested RUP grants vest.
All RUP grants are made at the discretion of the Committee. Because individual circumstances differ, the
Committee has not adopted a formulaic approach to making RUP grants. Grants are awarded at the Committee’s
discretion when the need arises. 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 existing level of equity ownership by our executive officers and, prior to October 17, 2006, the
level of equity representation through management’s ownership of the then General Partner.
When the Committee decides to grant an equity award, it approves a dollar amount of equity compensation
that it wants to provide to a particular employee. 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
69
promotions and new hires.
Until October 17, 2007, the grant date for RUP grants usually coincided with the Committee’s approval date.
However, 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 2008, RUP grants were awarded to the following named executive officers:
Grant Date Quantity of Restricted Units
Michael A. Stivala
Michael J. Dunn, Jr.
Steven C. Boyd
Michael M. Keating
2,272
December 3, 2007
December 3, 2007 29,533
3,408
December 3, 2007
3,408
December 3, 2007
All fiscal 2008 awards were made in recognition of the exemplary performance of each of the recipients and
as retention tools. The quantity of units selected for Mr. Dunn’s award was considerably higher than the
quantities granted to the other recipients in recognition of his responsibilities as President and in consideration of
his not receiving any prior grants under the RUP, unlike each of the other named executive officers.
Additionally, the Committee relied upon information provided by Mercer to conclude that this grant and all of
the other grants were necessary to remediate shortfalls perceived by the Committee in the cash compensation of
each of the named executive officers. Additionally, the Committee believed that each of these grants will
function as a necessary retention tool. To that end, although Mr. Dunn currently satisfies the criteria found in the
retirement provisions of the RUP document, the Committee exercised its discretionary authority to make his
award subject to the special stipulation that he hold his unvested award for three years before the retirement
provisions of the RUP document become applicable.
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 2008 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
70
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 cash bonus plan, LTIP-2 and the RUP to expressly make
future awards under such plans subject to the Incentive Compensation Recoupment Policy.
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 participation 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 and
pay-based credits on behalf of the participants and, from that point on, participants’ benefits have increased only
due to interest credits.
Each of our named executive officers, with the exception of Mr. Stivala, 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 ($)” in the
Summary Compensation Table below.
Deferred Compensation
All employees, including the named executive officers, who satisfy certain service requirements, are entitled
to participate in our IRC Section 401(k) Plan (the “401(k) Plan”), in which participants may defer a portion of
their eligible cash compensation up to the limits established by law. We offer the 401(k) Plan to attract and
retain talented employees by providing them with a tax-advantaged opportunity to save for retirement.
For fiscal 2008, all of our named executive officers participated in the 401(k) Plan. The benefits provided to
our named executive officers under the 401(k) Plan are provided on the same basis as to our other exempt
employees. Amounts deferred by our named executive officers under the 401(k) Plan are included in the column
titled “Salary ($)” in the Summary Compensation Table below.
In order to be competitive with other employers, if certain performance criteria are met, we will match our
employee-participants’ contributions up to 6% of their base salary, at a rate determined based on a performance-
based scale. 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
71
provided under the subheading “Annual Cash Bonus Plan” above.
For fiscal 2008, our budgeted 401(k) Plan EBITDA was $187.0 million. Similar to our annual cash bonus
plan, our fiscal 2008 results were such that actual 401(k) Plan EBITDA equaled 95% of budgeted 401(k) Plan
EBITDA. As a result, we will provide participants with a match equal to 25% of their calendar year 2008
contributions that did not exceed 6% of their total base pay up to a maximum base pay of $230,000. The
matching contributions that we will make on behalf of our named executive officers are reported in the column
titled “All Other Compensation ($)” in the Summary Compensation Table below.
Non-Qualified Deferred Compensation
Until January 2008, we maintained 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 by the recipients, some of whom are
our named executive officers, on May 26, 1999 in connection with our Recapitalization. The Compensation
Deferral Plan operated through a rabbi trust, which held the deferred restricted units. On November 2, 2005, for
the purpose of IRC Section 409A compliance, our Board of Supervisors approved an amendment to the
Compensation Deferral Plan that prohibited any additional deferral elections.
At the end of fiscal 2007, Mr. Alexander and Mr. Dunn were the only remaining beneficiaries of the
Compensation Deferral Plan. In accordance with their deferral elections, the entire corpus of the rabbi trust was
distributed to them during January 2008 and the fair market value of their respective portions of the corpus is
included in their taxable wage earnings for calendar year 2008.
Because the Compensation Deferral Plan contained only Common Units, and because the cash distributions
that inured to those units were immediately distributed to the beneficiaries, the plan did not provide Mr.
Alexander and Mr. Dunn with above market interest; nor did 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-
72
term disability policies at a cost of $6,693 per year, these benefits are provided on the same basis as are provided
to other exempt employees. These benefit plans are offered to attract and retain talented employees and to
provide them with competitive benefits.
Other than to Mr. Alexander and Mr. Dunn, in accordance with the terms of their employment agreements
(described below), there are no post-termination or other special rights provided to any named executive officer
to participate in these benefit programs other than the right to participate in such plans for a fixed period of time
following termination of employment, on the same basis as is provided to other exempt employees, as required
by law.
The costs of all such benefits incurred on behalf of our named executive officers are reported in the column
titled “All Other Compensation ($)” in the Summary Compensation Table below.
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 in fiscal 2008.
Name
Mark A. Alexander
Michael A. Stivala
Michael J. Dunn, Jr.
Steven C. Boyd
Michael M. Keating
Tax Preparation
Services
$5,000
$ -0-
$2,500
$ 900
$2,500
Employer-
Provided
Vehicle
$11,395
$12,647
$12,888
$ 6,549
$11,522
Physical
$1,500
$1,500
$1,500
$ -0-
$1,200
Perquisite-related costs are reported in the column titled “All Other Compensation ($)” 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
limitations of IRC Section 162(m) with respect to tax deductible executive compensation. Accordingly, none of
the compensation paid to our named executive officers is subject to a limitation as to tax deductibility. 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 409A 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 409A, 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.
73
Employment Agreements
Mr. Alexander, our Chief Executive Officer, and Mr. Dunn, our President, are the only named executive
officers, named or otherwise, 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. On November 13, 2008, the Committee approved an amendment to each of
Mr. Alexander's and Mr. Dunn's employment agreements to bring these agreements into conformance with the
final regulations issued by the IRS under IRC Section 409A, which amendments were then executed by the
Company and these executives. These amendments did not effect any substantive changes to the benefits
received by these executives under the agreements.
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 $450,000 and provides Mr. Alexander with the opportunity to earn a cash bonus of up to 100% of
base salary based upon the achievement of the same EBITDA-related performance criteria as contained in our
annual cash bonus plan described in the section titled “Annual Cash Bonus Plan” above. Under our Partnership
Agreement, the Committee has the authority to grant Mr. Alexander a bonus in excess of 100% if, in accordance
with the terms of the annual cash bonus plan, our other executive officers earn bonuses exceeding their target
bonuses for the fiscal year. The Committee exercised this authority in connection with Mr. Alexander’s cash
bonus for fiscal 2006 and fiscal 2007. The discretionary component of Mr. Alexander’s fiscal 2007 cash bonus
is disclosed in the column titled “Bonus ($)” 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.
The final provisions of both employment agreements were the results of negotiations between the Committee
and each individual and are not reducible to a specific process. For example, Mr. Alexander is the only Chief
Executive Officer that has been employed by the Partnership. As a result, some aspects of his employment
arrangements predate the existence of the Partnership and were agreed to by the former general partner. Over the
years, when considering whether to renew Mr. Alexander’s contract, the Committee has considered, among other
factors, Mr. Alexander’s experience, performance and the fact that our headquarters are located in the New York
Metropolitan area. Similar considerations applied to the circumstances under which Mr. Dunn’s employment
agreement was negotiated. The Partnership’s termination and change of control arrangements are an important
part of the competitive total compensation provided to its executives. These termination and change of control
arrangements also assist in retaining those executives with leadership abilities and skills necessary during a
transition period. These arrangements did not affect any decision made in fiscal 2008 with respect to any other
compensation elements for our named executive officers.
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:
74
• 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 the 20%
excise tax under IRC Section 4999, 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 provided for an initial annual base salary of $400,000 per year (which may
be adjusted upwards annually at the Committee’s discretion) 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 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.
75
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 the 20% excise
tax under IRC Section 4999, 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 may make exceptions to this general policy.
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 the Partnership 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
76
severance provisions are established in their respective employment agreements.
The Severance Protection Plan provides for severance payments of either sixty-five or 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 the
Partnership, 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 will vest immediately and become distributable to the participants and
all outstanding, unvested LTIP-2 grants will vest immediately 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,
Suburban Energy Services Group, LLC, or any employee benefit plan maintained by us, our
Operating Partnership or any of our subsidiaries, or (b) 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
Partnership to any person (other than a transfer to a subsidiary).
The SERP (as discussed above in the section titled “Supplemental Executive Retirement Plan”) 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,
Suburban Energy Services Group, LLC, or any employee benefit plan maintained by us, our
Operating Partnership or any of our subsidiaries, or (b) 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%
77
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 tables 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 Supervisors that this Compensation Discussion and Analysis be included in this Annual Report on Form 10-K
for fiscal 2008.
The Compensation Committee:
John Hoyt Stookey, Chairman
John D. Collins
Harold R. Logan, Jr.
Dudley C. Mecum
Jane Swift
78
ADDITIONAL INFORMATION REGARDING EXECUTIVE COMPENSATION
Summary Compensation Table for Fiscal 2008
The following table sets forth certain information concerning compensation of each named executive officer
during the fiscal years ended September 27, 2008 and September 29, 2007:
All Other
Compensation
($)(6)
(i)
Total
($)
(j)
$46,926
$1,096,032
$52,507
$1,413,933
$32,589
$ 594,877
$32,356
$ 575,557
$38,976
$1,366,121
-
-
-
-
-
Name and Principal
Position
(a)
Year
(b)
Salary
($)(1)
(c )
Bonus
($)(2)
(d)
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)(5)
(h)
Unit
Awards
($)(3)
(e)
Non-Equity
Incentive Plan
Compensation
($)(4)
(g)
Mark A. Alexander
Chief Executive Officer
2008
$450,000
-
$171,606
$427,500
2007
$450,000
$ 45,000
$410,238
$456,188
Michael A. Stivala
Chief Financial Officer &
Chief Accounting Officer
2008
$250,000
2007
$200,000
Michael J. Dunn, Jr.
President
Steven C. Boyd
Vice President of
Operations
2008
$425,000
2007
$391,552
2008
$245,000
2007
$226,232
Michael M. Keating
Vice President of Human
Resources & Admin.
2008
$220,000
2007
$210,000
-
-
-
-
-
-
-
-
$157,913
$154,375
$210,370
$132,831
$498,395
$403,750
$824,713
$443,568
$ 6,752
$ 44,879
$1,711,464
$178,116
$139,650
$243,910
$155,868
$290,955
$135,850
-
-
-
$ 26,406
$ 589,172
$ 34,202
$ 660,212
$35,109
$ 681,914
$266,908
$151,611
$ 5,648
$43,816
$ 677,983
(1) Includes amounts deferred by named executive officers as contributions to the qualified 401(k) Plan. For more information on Mr. Alexander’s and
Mr. Dunn’s base salaries, refer to the subheading titled “Employment Agreements” in the “Compensation Discussion and Analysis” above. During
fiscal 2007, Mr. Stivala was not our Chief Financial Officer. His promotion from Controller to Chief Financial Officer was effective on September
30, 2007; therefore, the $50,000 increase between his fiscal 2007 and fiscal 2008 base salary is attributable to the increased responsibilities associated
with his promotion.
For more information on the relationship between salaries and other cash compensation (i.e., annual cash incentives and 2003 Long-Term Incentive
Plan awards), refer to the subheading titled “Allocation Among Components” in the “Compensation Discussion and Analysis” above.
(2) For fiscal 2007, during its October 31, 2007 meeting, the 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.
(3) The amounts reported in this column represent the expense, before the application of forfeiture estimates, recognized in our fiscal 2008 and 2007
statements of operations with respect to RUP grants made in fiscal years 2008 and 2007, as well as in prior fiscal years, and for LTIP-2 grants made in
fiscal years 2008 and 2007 as well as in prior fiscal years. The specific details regarding these plans are provided in the preceding “Compensation
Discussion and Analysis” under the subheadings “2000 Restricted Unit Plan” and “2003 Long-Term Incentive Plan.” 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
2008
RUP
LTIP-2
Total
RUP
LTIP-2
Totals
2007
Mr. Alexander
Mr. Stivala
Mr. Dunn
Mr. Boyd
Mr. Keating
N/A
$ 171,606
$ 171,606
N/A
$ 410,238
$ 410,238
$ 81,983
75,930
$ 157,913
$ 82,507
127,863
$ 210,370
$ 309,366
189,029
$ 498,395
N/A
$ 824,713
$ 824,713
$ 94,480
83,636
$ 178,116
$ 87,127
156,783
$ 243,910
$ 160,358
130,597
$ 290,955
$ 39,911
226,997
$ 266,908
Because Mr. Dunn has met the retirement eligibility criteria under the provisions of LTIP-2, the accounting rules set forth in SFAS 123R require full
recognition of all expense relative to such plans for Mr. Dunn. Although Mr. Dunn has also met the retirement eligibility criteria under the RUP’s
79
normal retirement provisions, at the discretion of the Committee, Mr. Dunn’s unvested award must be held for three years from the grant date of
December 3, 2007 before the retirement provisions become applicable. As a result, the expense associated with Mr. Dunn’s RUP award shall be
recognized over this three year period.
Mr. Dunn’s December 3, 2007 RUP award of 29,533 units was granted in consideration of his responsibilities as the Partnership’s President and in
consideration of his not having received a prior grant under this plan.
Because Mr. Keating satisfied the RUP and LTIP-2 retirement criteria during fiscal 2008, all remaining unrecognized expense relative to his unvested
awards was recognized during fiscal 2008 in accordance with the requirements of SFAS 123R.
(4) For fiscal 2008, the amounts reported in this column represent each named executive officer's annual cash bonus earned in accordance with the
performance measures discussed under the subheading “Annual Cash Bonus Plan” in the “Compensation Discussion and Analysis.” For fiscal 2007,
the amounts included in this column also include the interest credits made on behalf of the remaining balances of LTIP-2’s predecessor plan. Because
the remaining balances of the predecessor plan were distributed to the participants during November 2007, there were no 2008 interest credits. The
fiscal 2007 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. Stivala
$ 132,000
831
$ 132,831
Mr. Dunn
$ 440,000
3,568
$ 443,568
Mr. Boyd
$ 155,100
768
$ 155,868
Mr. Keating
$ 150,150
1,461
$ 151,611
(5) The amounts reported in this column represent each named executive officer’s Cash Balance Plan earnings for the year. The change in pension value
and nonqualified deferred compensation earnings for fiscal 2008 was ($150,315), ($23,157), ($29,043) and ($57,881) for Messrs. Alexander, Dunn,
Boyd and Keating, respectively. The change in pension value and nonqualified deferred compensation earnings for fiscal 2007 was ($1,460) and
($3,348) for Messrs. Alexander and Boyd, respectively. These amounts have been omitted from the table because they are negative. Mr. Stivala is not
a participant in these plans.
(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
Insurance Premiums
Totals
Type of Compensation
401(k) Match
Value of Annual Physical Examination
Value of Partnership Provided Vehicle or, in Mr.
Stivala’s Case, Car Allowance
Tax Preparation Services
Cash Balance Plan Administrative Fees
Insurance Premiums
Totals
Mr. Alexander
$ 3,450
1,500
11,395
5,000
1,500
24,081
$ 46,926
Mr. Alexander
$ 13,500
1,200
11,078
2,000
1,500
23,229
$ 52,507
2008
Mr. Stivala
$ 3,450
1,500
12,647
N/A
N/A
14,992
$ 32,589
2007
Mr. Stivala
$ 12,485
1,200
4,675
N/A
N/A
13,996
$ 32,356
Mr. Dunn
$ 3,450
1,500
12,888
2,500
1,500
17,138
$ 38,976
Mr. Dunn
$ 13,500
1,200
10,198
2,000
1,500
16,481
$ 44,879
Mr. Boyd
$ 3,450
N/A
6,549
900
1,500
14,007
$ 26,406
Mr. Boyd
$ 13,500
N/A
5,647
950
1,500
12,605
$ 34,202
Mr. Keating
$ 3,300
1,200
11,522
2,500
1,500
15,087
$ 35,109
Mr. Keating
$ 12,697
1,500
11,522
2,000
1,500
14,597
$ 43,816
Note: Column (f) was omitted from the Summary Compensation Table because the Partnership does not award options to its employees.
80
Grants of Plan Based Awards Table for Fiscal 2008
The following table sets forth certain information concerning grants of awards made to each named executive
officer during the fiscal year ended September 27, 2008:
Estimated Future Payments
Under Non-Equity Incentive
Plan Awards
Estimated Future Payments
Under Equity Incentive Plan
Awards
Target
($)
(d)
N/A
$450,000
Maximum
($)
(e)
N/A
$495,000
Target
($)
(g)
N/A
Maximum
($)
(h)
N/A
$135,910
$169,876
$162,500
$178,750
$ 85,074
$106,354
$425,000
$467,500
$222,530
$278,186
$147,000
$161,700
$ 76,980
$ 96,215
$143,000
$157,300
$ 74,889
$ 93,623
Phantom
Units
Underlying
Equity
Incentive
Plan Awards
(LTIP-2)(4)
N/A
2,989
1,871
4,894
1,693
1,647
All Other stock
Awards:
Number of
Shares of Stock
or Units
(#)
Grant Date
Fair Value of
Stock and
Option
Awards
($) (5)
(i)
N/A
(l)
N/A
2,272
$80,054
29,533
$1,040,593
3,408
$120,081
3,408
$120,081
Name
Plan
Name
Grant
Date
Approval
Date
(a)
Mark A. Alexander
Michael A. Stivala
Michael J. Dunn, Jr.
Steven C. Boyd
Michael M. Keating
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)
(b)
N/A
28 Sep 07
28 Sep 07
3 Dec 07
28 Sep 07
28 Sep 07
3 Dec 07
28 Sep 07
28 Sep 07
3 Dec 07
28 Sep 07
28 Sep 07
3 Dec 07
28 Sep 07
28 Sep 07
N/A
31 Oct 07
31 Oct 07
31 Oct 07
31 Oct 07
(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 six months following such participant’s
retirement if the participant retires prior to the conclusion of the normal vesting schedule unless the Committee exercises its discretionary
authority to alter the plan’s retirement provision in regard to a particular award. On September 27, 2008, Messrs. Dunn and Keating were the
only named executive officers who held RUP awards and, at the same time, satisfied all three retirement eligibility criteria. However, as a
condition of Mr. Dunn’s award, the Committee requires Mr. Dunn to hold his award for three years from the grant date before the plan’s
retirement provisions become applicable. Detailed discussions of the general terms of the RUP and the facts and circumstances considered by
the Committee in authorizing the 2008 awards to the named executive officers is included in the “Compensation Discussion and Analysis” under
the subheading “2000 Restricted Unit Plan.”
(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 2008 were equal to 95% of the “Target” amounts reported on this line.
Column (c) (“Threshold $”) was omitted because the annual cash bonus plan does not provide for a minimum cash payment. Because these plan
awards were granted to, and 95% of the “Target” awards were earned by, our named executive officers during fiscal 2008, 95% of the “Target”
amounts reported under column (d) have been reported in the Summary Compensation Table above.
(3) LTIP-2 is a phantom unit plan. As discussed in the “Compensation Discussion and Analysis” above, under the subheading “2003 Long-Term
Incentive Plan,” in accordance with his employment agreement, Mr. Alexander’s award is based upon 30% of his annual target cash bonus;
however, Mr. Dunn’s award (as are the awards of all of the other named executive officers) is based upon 52% of his annual target cash bonus.
The different percentages account for the apparent differences between amounts reported for Mr. Alexander and for Mr. Dunn.
Payments, if earned, are based on a combination of (1) the fair market value of our Common Units at the end of a three-year measurement
period, which, for purposes of the plan, is the average of the closing prices for the twenty business days preceding the conclusion of the three-
year measurement period, and (2) cash equal to the distributions that would have inured to the same quantity of outstanding Common Units
during the same three-year measurement period. The fiscal 2008 award “Target ($)” 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 27, 2008) of our
Common Units at the end of fiscal 2008, and (2) the estimated distributions over the course of the award’s three-year measurement period.
Column (f) (“Threshold $”) was omitted because LTIP-2 does not provide for a minimum cash payment. Detailed descriptions of the plan and
the calculation of awards are included in the “Compensation Discussion and Analysis” under the subheading “2003 Long-Term Incentive Plan.”
(4) This column is frequently used when non-equity incentive plan awards are denominated in units; however, in this case, the numbers reported
represent the phantom units each named executive officer was awarded under LTIP-2 during fiscal 2008.
81
(5) The dollar amounts reported in this column represent the aggregate fair value of the RUP awards on the grant date, calculated in accordance with
SFAS 123R. The fair value shown may not be indicative of the value realized in the future upon vesting due to the variability in the trading
price of our Common Units.
Note: Columns (j) and (k) were omitted from the Grants of Plan Based Awards Table because the Partnership does not award options to its employees.
Outstanding Equity Awards at Fiscal Year End 2008 Table
The following table sets forth certain information concerning outstanding equity awards under our 2000
Restricted Unit Plan and phantom equity awards under our 2003 Long-Term Incentive Plan for each named
executive officer as of September 27, 2008:
Stock Awards
Equity Incentive
Plan Awards:
Number of
Unearned
Shares, Units or
Other Rights
that Have Not
Vested
(#)(7)
(i)
6,996
3,474
11,068
3,730
3,754
Market Value
of Shares or
Units of Stock
That Have Not
Vested
($)(6)
(h)
-
$ 476,605
$1,009,290
$ 574,277
$ 191,585
Equity Incentive Plan
Awards: Market or
Payout Value of
Unearned Shares,
Units or Other Rights
That Have Not Vested
($)(8)
(j)
$316,355
$157,261
$500,561
$168,711
$169,772
Number of
Shares or Units of
Stock That Have
Not Vested
(#)(5)
(g)
-
13,946
29,533
16,804
5,606
Name
(a)
Mark A. Alexander
Michael A. Stivala(1)
Michael J. Dunn, Jr. (2)
Steven C. Boyd(3)
Michael M. Keating(4)
(1) Mr. Stivala’s RUP awards will vest as follows:
Vesting
Date
Quantity
of Units
Oct. 1,
2008
Nov. 1,
2008
Oct. 1,
2009
Nov. 1,
2009
Apr. 25,
2010
Oct. 1,
2010
Nov. 1,
2010
Dec. 3,
2010
Apr. 25,
2011
Dec. 3,
2011
Apr. 25,
2012
Dec. 3,
2012
870
1,200
870
900
1,374
1,738
600
568
1,374
568
2,748
1,136
(2) Despite Mr. Dunn’s having met the plan’s retirement criteria, this award will not be subject to the plan’s retirement provisions until December 3,
2010. For more information on this and the retirement provision, refer to the subheading “2000 Restricted Unit Plan” in the “Compensation
Discussion and Analysis.” If Mr. Dunn does not retire prior to the conclusion of the normal vesting schedule of his award, his award will vest as
follows:
Vesting Date
Quantity of
Units
Dec. 3,
2010
Dec. 3,
2011
Dec. 3,
2012
7,384
7,384
14,765
(3) Mr. Boyd’s RUP awards will vest as follows:
Vesting Date
Quantity of
Units
Nov. 1,
2008
Nov. 1,
2009
Apr. 25,
2010
Nov. 1,
2010
Dec. 3,
2010
Apr. 25,
2011
Dec. 3,
2011
Apr. 25,
2012
Dec. 3,
2012
2,500
2,200
1,374
3,200
852
1,374
852
2,748
1,704
(4) Mr. Keating met the retirement eligibility criteria (explained under the subheading “2000 Restricted Unit 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
Quantity of
Units
Apr. 25,
2010
Dec. 3,
2010
Apr. 25,
2011
Dec. 3,
2011
Apr. 25,
2012
Dec. 3,
2011
550
852
550
852
1,098
1,704
(5) The figures reported in this column represent the total quantity of each of our named executive officer’s unvested RUP awards.
(6) 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 26, 2008, the last trading day of fiscal 2008.
82
(7) The amounts reported in this column represent the quantities of phantom units that underlie the outstanding fiscal 2007 and fiscal 2008 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 comparison to the total return provided by a predetermined peer group of eleven other companies, all of which
are publicly-traded partnerships, to their unitholders. For more information on LTIP-2, refer to the subheading “2003 Long-Term Incentive
Plan” in the “Compensation Discussion and Analysis.”
(8) The amounts reported in this column represent the estimated future target payouts of the fiscal 2007 and fiscal 2008 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 27, 2008 (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, as well as our performance relative to the peer group, actual payments, if any, at the end of the three-year
measurement period may differ. The following chart provides a breakdown of each year’s awards:
Fiscal 2007 Phantom Units
Value of Fiscal 2007 Phantom
Units
Estimated Distributions over
Measurement Period
Fiscal 2008 Phantom Units
Value of Fiscal 2008 Phantom
Units
Estimated Distributions over
Measurement Period
Mr. Alexander
4,007
Mr. Stivala
1,603
Mr. Dunn
6,174
Mr. Boyd
2,037
Mr. Keating
2,107
$ 144,182
$ 57,680
$ 222,156
$ 73,296
$ 75,815
$ 36,263
$ 14,507
$ 55,875
$ 18,435
$ 19,068
2,989
1,871
4,894
1,693
1,647
$ 107,552
$ 67,323
$ 176,098
$ 60,918
$ 59,263
$ 28,358
$ 17,751
$ 46,432
$ 16,062
$ 15,626
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 2008
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 2006 award under our 2003 Long-Term Incentive Plan for each named executive officer during the fiscal
year ended September 27, 2008:
2000 Restricted Unit Plan
Unit Awards
Name
Mark A. Alexander
Michael A. Stivala
Michael J. Dunn, Jr.
Steven C. Boyd
Michael M. Keating
Number of
Common
Units
Acquired on
Vesting
(#)
-
1,200
-
1,200
-
Value
Realized on
Vesting
($)(1)
-
$57,654
-
$57,654
-
(1) The value realized is equal to the average of the high and low trading prices of our Common Units on the vesting date, multiplied by the number
of units that vested.
2003 Long-Term Incentive Plan –
Fiscal 2006(2) Award
Cash Awards
Name
Mark A. Alexander
Michael A. Stivala
Michael J. Dunn, Jr.
Steven C. Boyd
Michael M. Keating
Number of
Phantom
Units
Acquired on
Vesting
(#)(3)
4,328
1,472
6,252
1,645
2,092
Value Realized on
Vesting ($)(4)
$239,704
$ 81,526
$346,263
$ 91,107
$115,864
(2) The fiscal 2006 award’s three-year measurement period concluded on September 27, 2008.
83
(3)
In accordance with the formula described in the “Compensation Discussion and Analysis” under the subheading “2003 Long-Term Incentive
Plan,” these quantities were calculated at the beginning of the three-year measurement period and were, therefore, based upon each individual’s
salary and target cash bonus at that time.
(4) The value (i.e., cash payment) realized was calculated in accordance with the terms and conditions of LTIP-2. For more information, refer to the
subheading “2003 Long-Term Incentive Plan” in the “Compensation Discussion and Analysis.”
Pension Benefits Table for Fiscal 2008
The following table sets forth certain information concerning each plan that provides for payments or other
benefits at, following, or in connection with retirement for each named executive officer as of the end of the
fiscal year ended September 27, 2008:
Name
Mark A. Alexander
Plan Name
SERP (1)
Cash Balance Plan (2)
Number
of Years
Credited
Service
(#)
7
7
Present Value
of
Accumulated
Benefit
($)
$ 365,988
$ 141,307
Payments
During Last
Fiscal Year
($)
$ -
$ -
Michael A. Stivala(3)
N/A
N/A
$ -
$ -
Michael J. Dunn, Jr.
SERP (1)
Cash Balance Plan (2)
LTIP-2 (4)
Steven C. Boyd
Cash Balance Plan (2)
Michael M. Keating
Cash Balance Plan (2)
LTIP-2 (4)
RUP(5)
6
6
N/A
15
15
N/A
N/A
$ 40,990
$ 175,268
$ 500,561
$ -
$ -
$ -
$ 66,745
$ -
$ 280,342
$ 169,772
$ 191,585
$ -
$ -
$ -
(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) Because Mr. Stivala commenced employment with the Partnership after January 1, 2000, the date on which the Cash Balance Plan was closed to
new participants, he does not participate in the Cash Balance Plan.
(4) Currently, Mr. Dunn and Mr. Keating are the only named executive officers who meet the retirement criteria of the LTIP-2 plan document. For
such participants, upon retirement, outstanding but unvested LTIP-2 awards become fully vested. However, payouts on those awards are
deferred until the conclusion of each outstanding award’s three-year measurement period, based on the outcome of the TRU relative to the peer
group. The number reported on this line represents a projected payout of Mr. Dunn’s and Mr. Keating’s outstanding fiscal 2007 and fiscal 2008
LTIP-2 awards. Because the ultimate payout, if any, is predicated on the trading prices of the Partnership’s Common Units at the end of the
three-year measurement period, as well as where, within the peer group, our TRU falls, the value reported 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.
(5) Currently, Mr. Keating is the only named executive officer who meets the retirement criteria of the RUP document. For such participants, upon
retirement, outstanding RUP awards vest six months after retirement. The value reported in this table is identical to the value of 5,606 Common
Units on September 27, 2008.
84
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 LTIP-2 for the circumstances listed in the table
assuming a September 27, 2008 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 A. Alexander
Cash Compensation(1)
Accelerated Vesting of Fiscal 2007 and 2008 LTIP-2 Awards(2)
SERP(5)
Medical Benefits
280G Tax Gross-up
409A Tax Gross-up
Total
Michael J. Dunn, Jr.
Cash Compensation(1)
Accelerated Vesting of Fiscal 2007 and 2008 LTIP-2 Awards(2)
Accelerated Vesting of Outstanding RUP Awards(6)
SERP
Medical Benefits
280G Tax Gross-up
409A Tax Gross-up
$ 0(3)
N/A
220,600
N/A
N/A
N/A
$ 220,600
$ 0(3)
N/A
N/A
29,800
N/A
N/A
N/A
Total
$ 29,800
$ 0(4)
N/A
287,000
N/A
N/A
N/A
$ 287,000
$ 0(4)
N/A
N/A
52,400
N/A
N/A
N/A
$ 52,400
$ 1,350,000
N/A
0
35,388
N/A
N/A
$ 1,385,388
$ 850,000
N/A
N/A
52,400
23,592
N/A
N/A
$ 925,992
$ 2,835,000
355,505
449,100
35,388
N/A
N/A
$ 3,674,993
$ 1,785,000
561,852
1,009,290
38,500
23,592
N/A
N/A
$ 3,418,234
(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 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)
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.
(4)
In the event of disability, each is entitled to a payment equal to his earned but unpaid salary and pro-rata cash bonus.
(5) Because Mr. Alexander had not attained age 55 on September 27, 2008, if any of the above hypothetical events had occurred on that date, only
death, disability or a change of 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 $220,600. 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 $864,200. The figure $287,000 reported in the
table represents the present value of the hypothetical future payment.
(6) 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. Dunn’s RUP grant was awarded less than one year prior to September 27, 2008, if
he had become permanently disabled on September 27, 2008, his RUP grant would have been forfeited.
85
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.
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 and LTIP-2 for the circumstances listed in the table assuming a September 27, 2008 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(6)
Involuntary
Termination
Without Cause
by the
Partnership or
by the
Executive for
Good Reason
with a Change
of Control
Event
Michael A. Stivala
Cash Compensation(1)
Accelerated Vesting of Fiscal 2007 and 2008 LTIP-2 Awards(2)
Accelerated Vesting of Outstanding RUP Awards(5)
Medical Benefits
280G Tax Gross-up
409A Tax Gross-up
Total
Steven C. Boyd
Cash Compensation(1)
Accelerated Vesting of Fiscal 2007 and 2008 LTIP-2 Awards(2)
Accelerated Vesting of Outstanding RUP Awards(5)
Medical Benefits
280G Tax Gross-up
409A Tax Gross-up
Total
Michael M. Keating
Cash Compensation(1)
Accelerated Vesting of Fiscal 2007 and 2008 LTIP-2 Awards(2)
Accelerated Vesting of Outstanding RUP Awards(5)
Medical Benefits
280G Tax Gross-up
409A Tax Gross-up
Total
$ 0(3)
N/A
N/A
N/A
N/A
N/A
$ 0
$ 0(4)
N/A
398,959
N/A
N/A
N/A
$ 398,959
$ 250,000
N/A
N/A
11,796
N/A
N/A
$ 261,796
$ 0(3)
N/A
N/A
N/A
N/A
N/A
$ 0
$ 0(4)
N/A
457,808
N/A
N/A
N/A
$ 457,808
$ 245,000
N/A
N/A
10,464
N/A
N/A
$ 255,464
$ 0(3)
N/A
N/A
N/A
N/A
N/A
$ 0
$ 0(4)
N/A
75,117
N/A
N/A
N/A
$ 220,000
N/A
N/A
11,796
N/A
N/A
$ 75,117
$ 231,796
$ 618,750
170,198
476,605
N/A
N/A
N/A
$ 1,265,553
$ 588,000
189,196
574,276
N/A
N/A
N/A
$ 1,351,472
$ 544,500
190,611
191,585
N/A
N/A
N/A
$ 926,696
(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 annual target 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 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.
86
(3)
(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.
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.
(5) 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. Stivala, Mr. Boyd and Mr. Keating each received a unit grant during fiscal 2008,
if any or all of the three had become permanently disabled on September 27, 2008, the following quantities of unvested restricted units would
have vested: Stivala, 11,674; Boyd, 13,396; Keating, 2,198 and the following quantities would have been forfeited: Stivala, 2,272; Boyd,
3,408; Keating, 3,408.
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.
(6) Any severance benefits, unrelated to a change of control event, payable to these officers would be determined by the 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.
SUPERVISORS’ COMPENSATION
The following table sets forth the compensation of the non-employee members of the Board of Supervisors
of the Partnership during fiscal 2008.
Supervisor
John D. Collins
Harold R. Logan, Jr.
Dudley C. Mecum
John Hoyt Stookey
Jane Swift
Fees Earned
or Paid in
Cash
($) (1)
Unit Awards
($) (2)
Total
($)
$ 75,000
100,000
75,000
75,000
75,000
$ 49,861
-
-
-
49,861
$ 124,861
100,000
75,000
75,000
124,861
(1)
Includes amounts earned for fiscal 2008, including quarterly retainer installments for the fourth quarter of 2008 that were paid in October 2008.
Does not include amounts paid in fiscal 2008 for fiscal 2007 quarterly retainer installments.
(2) Represents the dollar amount charged to earnings for financial statement reporting purposes during fiscal 2008 pursuant to SFAS 123R for
restricted unit grants of 5,496 awarded to both Mr. Collins and 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 average of the high and low sales price, discounted for projected
distributions during the vesting period, was used to calculate the value of the restricted unit grants for purposes of amortizing compensation
expense under SFAS 123R. Because Messrs. Logan, Mecum and Stookey have met the plan’s retirement provisions, all expense for their
unvested grants was previously recognized. As of September 27, 2008, 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, 9,375 units; Mr. Mecum, 9,375 units; Mr. Stookey,
9,375 units; and Ms. Swift, 5,496 units.
Note: The columns for reporting option awards, non-equity incentive plan compensation, changes in pension value and non-qualified deferred
compensation plan earnings and all other forms of compensation were omitted from the Supervisor’s Compensation Table because the Partnership does not
provide these forms of compensation to its non-employee supervisors.
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.
87
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 a description of the vesting schedule). Upon vesting, all
grants are settled by issuing Common Units. 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 2008 for each supervisor.
Compensation Committee Interlocks and Insider Participation. None.
88
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED UNITHOLDER MATTERS
The following table sets forth certain information as of November 24, 2008 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)
Michael J. Dunn, Jr. (b)
Michael A. Stivala (c)
Steven C. Boyd (d)
Michael M. Keating (e)
John Hoyt Stookey (f)
Harold R. Logan, Jr.(f)
Dudley C. Mecum (f)
John D. Collins (g)
Jane Swift (g)
Amount and Nature of
Beneficial Ownership
1,298,912
208,947
8,962
29,733
98,500
14,072
14,854
9,884
12,450
-0-
Percent
of Class
3.9%
*
*
*
*
*
*
*
*
*
All Members of the Board
of Supervisors and Executive
Officers as a Group (17 persons) (h)
1,823,188
5.5%
* Less than 1%.
(a) Includes 784 Common Units held by the General Partner, of which Mr. Alexander is the sole member.
Includes 1,298,128 Common Units which are held in a brokerage account, where there is a possibility that
such Common Units could be pledged as security.
(b) Excludes 29,533 unvested restricted units, none of which will vest in the 60-day period following November
24, 2008. 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.
(c) Excludes 11,876 unvested restricted units, none of which will vest in the 60-day period following November
24, 2008. 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.
(d) Excludes 14,304 unvested restricted units, none of which will vest in the 60-day period following November
24, 2008. 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 29,733 Common Units which are held in a brokerage account, where there is a
possibility that such Common Units could be pledged as security.
(e) Excludes 5,606 unvested restricted units, none of which will vest in the 60-day period following November
24, 2008. 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 7,250 unvested restricted units, none of which will vest in the 60-day period following November
89
24, 2008. 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.
(g) Excludes 5,496 unvested restricted units, none of which will vest in the 60-day period following November
24, 2008. 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) Inclusive of the units referred to in footnotes (b), (c), (e), (f) and (g) above, the reported number of units
excludes 145,059 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 (b), (c), (e), (f) and (g) above. Includes 1,822,404 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 (a) and (d) above).
Securities Authorized for Issuance Under the 2000 Restricted Unit Plan
The following table sets forth certain information, as of September 27, 2008, with respect to the
Partnership’s 2000 Restricted Unit Plan, under which restricted units of the Partnership, as described in the Notes
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)
446,515 (2)
$30.57
--
446,515
--
$30.57
Number of restricted units
remaining available for
future issuance under the
2000 Restricted Unit Plan (excluding
securities reflected in
column (a))
(c)
89,874
--
89,874
(1) Relates to the 2000 Restricted Unit Plan.
(2) Represents number of restricted units that, as of September 27, 2008, had been granted under the
2000 Restricted Unit Plan but had not yet vested.
90
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
Related Person Transactions
None.
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.
91
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table sets forth the aggregate fees for services related to fiscal years 2008 and 2007 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
2008
Fiscal
2007
$
2,325,000
84,000
722,000
-
$
2,275,000
145,000
848,000
2,000
(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 the issuance of consents in connection with other filings made with the SEC.
(b) Audit-Related Fees consist of professional services rendered in connection with acquisition-related due
diligence and consultations concerning financial accounting and reporting standards.
(c) Tax Fees consist of fees for professional services related to tax reporting, tax 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 2008 and fiscal 2007.
92
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.
93
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 26, 2008
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 26, 2008
By: /s/ MICHAEL J. DUNN, JR
President and Supervisor
November 26, 2008
(Michael J. Dunn, Jr.)
By: /s/ HAROLD R. LOGAN, JR.
Chairman and Supervisor
November 26, 2008
(Harold R. Logan, Jr.)
By: /s/ JOHN HOYT STOOKEY
Supervisor
November 26, 2008
(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 26, 2008
November 26, 2008
November 26, 2008
November 26, 2008
By /s/ MICHAEL A. KUGLIN
Controller
November 26, 2008
(Michael A. Kuglin)
94
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
10.5
10.6
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 on Form 8-K filed April 1, 2005).
Amended and Restated Employment Agreement dated as of November 13, 2008 between the
Operating Partnership and Mr. Alexander. (Filed herewith)
Amended and Restated Employment Agreement dated as of November 13, 2008 between the
Operating Partnership and Mr. Dunn. (Filed herewith)
Suburban Propane Partners, L.P. 2000 Restricted Unit Plan, as amended and restated effective
October 17, 2006 and as further amended on July 31, 2007, October 31, 2007 and January 24,
2008. (Incorporated by reference to Exhibit 10.1 to the Partnership’s Quarterly Report on Form
10-Q for the fiscal quarter ended December 29, 2007).
E-1
10.7
Suburban Propane, L.P. Severance Protection Plan, as amended on January 24, 2008.
(Incorporated by reference to Exhibit 10.3 to the Partnership’s Quarterly Report on Form 10-
Q for the fiscal quarter ended December 29, 2007).
10.8
10.9
10.10
10.11
10.15
10.16
10.17
10.18
10.19
10.20
10.21
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 on October 17, 2006
and as further amended on July 31, 2007, October 31, 2007 and January 24, 2008.
(Incorporated by reference to Exhibit 10.2 to the Partnership’s Quarterly Report on Form 10-
Q for the fiscal quarter ended December 29, 2007).
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
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).
E-2
10.22
10.23
10.24
10.25
21.1
23.1
31.1
31.2
32.1
32.2
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).
Subsidiaries of Suburban Propane Partners, L.P. (Filed herewith).
Consent of PricewaterhouseCoopers LLP. (Filed herewith).
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. (Filed herewith).
Certification of the Chief Financial Officer and Chief Accounting Officer 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 Chief Financial Officer and Chief Accounting 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-3
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 27, 2008 and September 29, 2007......................................................................................... F-3
Consolidated Statements of Operations -
Years Ended September 27, 2008, September 29, 2007 and September 30, 2006...….................................. F-4
Consolidated Statements of Cash Flows -
Years Ended September 27, 2008, September 29, 2007 and September 30, 2006......................................... F-5
Consolidated Statements of Partners’ Capital -
Years Ended September 27, 2008, September 29, 2007 and September 30, 2006......................................... F-6
Notes to Consolidated Financial Statements........................…............................................................................. F-7
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 27, 2008 and September
29, 2007, and the results of their operations and their cash flows for each of the three years in the period ended
September 27, 2008 in conformity with accounting principles generally accepted in the United States of America.
Also in our opinion, the Partnership maintained, in all material respects, effective internal control over financial
reporting as of September 27, 2008, 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, 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 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.
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
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 26, 2008
F-2
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 $6,578 and $5,041, 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
Other liabilities
Total liabilities
Commitments and contingencies
Partners' capital:
Common Unitholders (32,725 and 32,674 units issued and outstanding at
September 27, 2008 and September 29, 2007, respectively)
Deferred compensation
Common Units held in trust, at cost
Accumulated other comprehensive loss
Total partners' capital
Total liabilities and partners' capital
September
27, 2008
September
29, 2007
$
137,698
$
96,586
94,933
79,822
-
47,098
359,551
367,808
276,282
16,018
132
15,922
1,035,713
$
$
58,079
27,053
41,120
71,206
11,030
-
15,127
223,615
531,772
17,153
31,913
11,184
815,637
85,270
81,246
11,221
21,551
295,874
374,641
277,559
18,242
5,547
17,018
988,881
$
$
56,999
37,640
13,880
75,394
8,546
1,291
12,261
206,011
548,538
22,193
36,428
9,434
822,604
264,231
-
-
(44,155)
220,076
1,035,713
$
208,230
5,660
(5,660)
(41,953)
166,277
988,881
$
The accompanying notes are an integral part of these consolidated financial statements.
F-3
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
Services
All other
Costs and expenses
Cost of products sold
Operating
General and administrative
Restructuring charges and severance costs
Depreciation and amortization
Income before interest expense and provision for income taxes
Interest income
Interest expense
Income before provision for income taxes
Provision for income taxes
Income from continuing operations
Discontinued operations:
Gain on disposal of discontinued operations
Income from discontinued operations
September
27, 2008
$
1,132,950
288,078
103,745
44,393
4,997
1,574,163
Year Ended
September
29, 2007
$
1,019,798
262,076
94,352
56,519
6,818
1,439,563
September
30, 2006
$
1,081,573
356,531
122,071
87,258
9,697
1,657,130
1,039,436
308,071
48,134
-
28,394
1,424,035
150,128
2,787
(39,839)
113,076
1,903
865,418
322,852
56,422
1,485
28,790
1,274,967
164,596
3,863
(39,459)
129,000
5,653
111,173
123,347
43,707
-
1,887
2,053
1,051,797
373,305
63,561
6,076
32,653
1,527,392
129,738
630
(41,310)
89,058
764
88,294
-
2,446
Net income
$
154,880
$
127,287
$
90,740
General Partner's interest in net income
Limited Partners' interest in net income
$
-
$
154,880
$
-
$
127,287
$
$
2,628
88,112
Income per Common Unit - basic
Income from continuing operations
Discontinued operations
Net income
Weighted average number of Common Units outstanding - basic
Income per Common Unit - diluted
Income from continuing operations
Discontinued operations
Net income
Weighted average number of Common Units outstanding - diluted
$
$
$
$
$
$
3.39
1.33
4.72
32,783
3.37
1.33
4.70
32,950
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
The accompanying notes are an integral part of these consolidated financial statements.
F-4
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net income
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
Deferred tax provision
Changes in assets and liabilities
(Increase) decrease in accounts receivable
Decrease (increase) in inventories
(Increase) decrease in prepaid expenses and other current assets
Increase (decrease) increase in accounts payable
(Decrease) increase in accrued employment and benefit costs
Increase (decrease) in accrued insurance
(Decrease) increase in customer deposits and advances
Increase (decrease) in accrued interest
Increase (decrease) in other accrued liabilities
Decrease (increase) in other noncurrent assets
(Decrease) 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 discontinued operations
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Long-term debt repayments
Short-term repayments
Partnership distributions
Net cash (used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
September
27, 2008
Year Ended
September
29, 2007
September
30, 2006
$
154,880
$
127,287
$
90,740
26,170
-
2,224
1,328
2,156
234
(2,252)
(43,707)
-
1,277
(9,663)
1,424
(27,001)
1,080
(10,587)
27,240
(4,188)
2,484
2,866
2,810
(8,258)
-
120,517
(21,819)
4,734
53,715
36,630
26,547
452
2,243
1,327
3,014
234
(2,782)
(1,887)
3,269
3,800
(6,827)
(1,915)
(4,268)
(448)
3,551
6,520
12,780
175
(5,475)
(40,444)
43,804
(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)
15,384
(4,145)
531
(2,604)
(7,711)
(44)
5,737
(10,000)
170,321
(23,057)
3,965
-
(19,092)
(15,000)
-
(101,035)
(116,035)
41,112
96,586
137,698
$
-
-
(90,253)
(90,253)
36,015
60,571
96,586
$
(475)
(26,750)
(77,844)
(105,069)
46,160
14,411
60,571
$
Supplemental disclosure of cash flow information:
Cash paid for interest
$
35,217
$
37,165
$
41,241
The accompanying notes are an integral part of these consolidated financial statements.
F-5
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 24, 2005
30,279
$
159,199
$
(1,779)
$
5,887
$
(5,887)
$
(4,355)
$
(76,949)
$
76,116
Net income
Other comprehensive income:
Net unrealized gains on cash flow hedges
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
90,740
$
90,740
(75,026)
(2,818)
35
(4,355)
2,221
(183)
183
4,355
590
4,437
4,441
$
100,208
590
4,437
4,441
590
4,437
4,441
(77,844)
-
-
2,221
Balance at September 30, 2006
30,314
$
170,151
$
(1,969)
$
5,704
$
(5,704)
$
-
$
(67,481)
$
100,701
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
3,014
(44)
44
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
Net income
Other comprehensive income:
Net unrealized losses on cash flow hedges
Reclassification of realized gains on
cash flow hedges into earnings
Amortization of net actuarial losses and prior
service credits into earnings and net
change in funded status of benefit plans
Total comprehensive income
Partnership distributions
Common Units issued under
Restricted Unit Plan
Common Units distributed from trust
Compensation cost recognized under
Restricted Unit Plan, net of forfeitures
154,880
(101,035)
51
2,156
(5,660)
5,660
154,880
$
154,880
(2,916)
(2,916)
(1,377)
(1,377)
(2,916)
(1,377)
2,091
2,091
$
2,091
152,678
(101,035)
-
2,156
Balance at September 27, 2008
32,725
$
264,231
$
-
$
-
$
-
$
-
$
(44,155)
$
220,076
The accompanying notes are an integral part of these consolidated financial statements.
F-6
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 and ventilation. The publicly traded limited partner interests in
the Partnership are evidenced by common units traded on the New York Stock Exchange (“Common Units”),
with 32,725,383 Common Units outstanding at September 27, 2008. 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 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”).
The operations of Agway Energy consisted of the distribution and marketing of propane, fuel oil and refined
fuels, as well as the marketing of natural gas and electricity. The Partnership’s fuel oil and refined fuels, natural
gas and electricity and services businesses are structured as corporate entities (collectively referred to as
Corporate Entities) and, as such, are subject to corporate level income tax.
F-7
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.
The Partnership serves over 900,000 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 2008, 2007 or 2006. During fiscal 2008, 2007 and 2006, three suppliers
provided approximately 35%, 34% and 35%, respectively, of the Partnership’s total 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 2008 and
fiscal 2007 included 52 weeks of operations and fiscal 2006 included 53 weeks of operations.
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 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, as adjusted for amounts 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
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. Given the retail nature of its operations, the Partnership maintains a certain level of
F-8
priced physical inventory to ensure its field operations have adequate supply commensurate with the time of year.
The Partnership’s strategy is to keep its physical inventory priced relatively close to market for its field
operations. The Partnership enters into a combination of exchange-traded futures and option contracts, forward
contracts and, in certain instances, over-the-counter options (collectively, “derivative instruments”) to hedge
price risk associated with propane and fuel oil physical inventory, as well as future purchases of propane or fuel
oil used in its operations and to ensure adequate supply during periods of high demand. Under this risk
management strategy, realized gains or losses on derivative instruments will typically offset losses or gains on
the physical inventory once the product is sold. 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 (“SFAS 133”). In addition, in the course of normal operations, the Partnership
routinely enters into contracts such as forward priced physical contracts for the purchase or sale of propane and
fuel oil that, under SFAS 133, qualify for and are designated as normal purchase or normal sale contracts. 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, other than those designated as normal
purchases or normal sales, the Partnership makes a determination as to whether the derivative instrument
qualifies for designation as a hedge. Changes in the fair value of derivative instruments are recorded each period
in current period earnings or other comprehensive income (loss) (“OCI”), depending on whether the derivative
instrument is designated as a hedge and, if so, the type of hedge. For derivative instruments designated as cash
flow hedges, the Partnership formally assesses, both at the hedge contract’s inception and on an ongoing basis,
whether the hedge contract is highly effective in offsetting changes in cash flows of hedged items. Changes in
the fair value of derivative instruments designated as cash flow hedges are reported in OCI to the extent effective
and reclassified into 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. Cash flows associated with derivative
instruments are reported as operating activities within the consolidated statement of cash flows.
Interest Rate Risk. A portion of the Partnership’s long-term borrowings bear interest at a variable rate based
upon LIBOR, plus an applicable margin depending on the level of the Partnership’s total leverage (the ratio of
total debt to EBITDA). 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 interest rate swap
agreements. 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
F-9
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 customer lists, tradenames, non-compete agreements
and leasehold interests. 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. Non-compete agreements are
amortized under the straight-line method over the periods of the related agreements, ending in fiscal year 2009.
Leasehold 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.
Accrued Insurance. Accrued insurance represents the estimated costs of known and anticipated or unasserted
claims for self-insured liabilities related to general and product, workers’ compensation and automobile liability.
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 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 such that its 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
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.
F-10
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. 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
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
F-11
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 interim and annual 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, as well as the natural gas and electricity marketing business, 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’s interest included 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 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 years ended September 27, 2008 and September 29, 2007 was computed
by dividing net income by the weighted average number of outstanding Common Units and restricted units
granted under the 2000 Restricted Unit Plan to retirement-eligible grantees. Diluted income per Common Unit
for the years ended September 27, 2008 and September 29, 2007 was 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.
F-12
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 was no longer
applicable.
In computing diluted net income per Common Unit, weighted average units outstanding used to compute basic
net income per Common Unit were increased by 166,308, 175,701 and 143,039 units for the years ended
September 27, 2008, 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.
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, 106 and 132R” (“SFAS 158”)) and changes in the funded status of pension and other postretirement
benefit plans (subsequent to the adoption of SFAS 158).
Recently Issued Accounting Standards. 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. SFAS 157 is effective for fiscal
years beginning after November 15, 2007, which is the Partnership’s 2009 fiscal year which began on September
28, 2008. In February of 2008, the FASB provided an elective one-year deferral of provisions of SFAS 157 for
nonfinancial assets and nonfinancial liabilities that are only measured at fair value on a non-recurring basis. The
adoption of SFAS 157 did not have a material effect on the Partnership’s consolidated financial position, results
of operations and cash flows.
In February 2007, the 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 is the Partnership’s 2009 fiscal year which began on September 28, 2008. The Partnership did
not elect the fair value measurement option; accordingly, the adoption of SFAS 159 did not have a material
impact on its consolidated financial position, results of operations and cash flows.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements – an Amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting
standards for noncontrolling interests in an entity’s subsidiary and alters the way the consolidated income
statement is presented. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008, which
will be the Partnership’s 2010 fiscal year beginning September 27, 2009. As of September 27, 2008, all of the
Partnership’s subsidiaries are wholly-owned; accordingly, the adoption of SFAS 160 should not have any impact
on the Partnership’s consolidated financial position, results of operations and cash flows.
Also in December 2007, the FASB issued revised SFAS No. 141 “Business Combinations” (“SFAS 141R”).
Among other things, SFAS 141R requires an entity to recognize acquired assets, liabilities assumed and any
noncontrolling interest at their respective fair values as of the acquisition date, clarifies how goodwill involved in
a business combination is to be recognized and measured, and requires the expensing of acquisition-related costs
as incurred. SFAS 141R is effective for business combinations entered into in fiscal years beginning on or after
F-13
December 15, 2008, which will be the Partnership’s 2010 fiscal year beginning September 27, 2009, with early
adoption prohibited.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging
Activities – an Amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 requires enhanced
disclosures about an entity’s objectives for using derivative instruments and related hedged items, how those
derivative instruments are accounted for under SFAS 133 and how derivative instruments and related hedged
items affect an entity’s financial position, financial performance and cash flows. SFAS 161 is effective for
financial statements for interim or annual periods beginning after November 15, 2008, which will be the second
quarter of the Partnership’s 2009 fiscal year beginning December 28, 2008. Because it is only a disclosure
standard, the adoption of SFAS 161 will not have a material effect on the Partnership’s consolidated financial
position, results of operations and cash flows.
Reclassifications and Revisions. Certain prior period amounts have been reclassified to conform with the current
period presentation. In addition, accounts receivable and customer deposits and advances as of September 29, 2007
were increased by $13,663 to reflect certain customer advances previously included in accounts receivable.
Accrued employment and benefit costs were reduced and other liabilities were increased as of September 29, 2007
by $4,062 to reclassify the non-current portion of the accrued long-term incentive plan award liabilities.
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 27, 2008:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal
2008
Fiscal
2007
Fiscal
2006
$
0.7625
0.7750
0.8000
0.8050
$
0.6875
0.7000
0.7125
0.7500
$
0.6125
0.6125
0.6375
0.6625
On October 23, 2008, the Board of Supervisors declared a quarterly distribution of $0.805 per Common Unit, or
F-14
$3.22 per Common Unit on an annualized basis, in respect of the fourth quarter of fiscal 2008, which was paid on
November 10, 2008 to holders of record on November 3, 2008. This quarterly distribution included an increase
of $0.005 per Common Unit, or $0.02 per Common Unit on an annualized basis, from the previous distribution
rate established in July, 2008, and an increase of $0.055, or $0.22 on an annualized basis from the prior year-end
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 27,
2008
September 29,
2007
$
$
76,036
283
3,503
79,822
76,730
697
3,819
81,246
$
$
The Partnership enters into contracts to buy propane, fuel oil and natural gas for supply purposes. Such contracts
generally have a term of one year 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 27,
2008
September 29,
2007
Land and improvements
Buildings and improvements
Transportation equipment
Storage facilities
Equipment, primarily tanks and cylinders
Computer systems
Construction in progress
Less: accumulated depreciation
$
$
28,307
77,833
35,033
74,954
463,332
41,796
1,711
722,966
355,158
367,808
28,463
76,261
36,016
72,237
451,689
37,474
5,823
707,963
333,322
374,641
$
$
Depreciation expense from continuing operations for the years ended September 27, 2008, September 29, 2007 and
September 30, 2006 amounted to $26,170, $26,547 and $30,066, respectively. Depreciation expense for the year
ended September 30, 2006 included a non-cash charge of $1,094 related to an impairment of assets as a result of
restructuring activities in that year. Depreciation expense from discontinued operations for the years ended
September 27, 2008, September 29, 2007 and September 30, 2006 amounted to $0, $452 and $498, respectively.
5. Goodwill and Other Intangible Assets
The Partnership’s fiscal 2008, fiscal 2007 and fiscal 2006 annual goodwill impairment review resulted in no
adjustments to the carrying amount of goodwill. During fiscal 2008 and fiscal 2007, the Partnership reversed
$1,277 and $3,800 of the deferred tax asset valuation allowance, respectively, which was established through
F-15
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
Other
Less: accumulated amortization
Customer lists
Tradenames
Other
September 27,
2008
September 29,
2007
$
22,316
1,499
2,117
25,932
$
22,316
1,499
2,483
26,298
(8,632)
(712)
(570)
(9,914)
16,018
$
(6,669)
(562)
(825)
(8,056)
18,242
$
During fiscal 2007, in a non-cash transaction, the Partnership 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 27, 2008,
September 29, 2007 and September 30, 2006 was $2,224, $2,243 and $2,587, respectively. Aggregate
amortization expense related to other intangible assets for each of the five succeeding fiscal years as of
September 27, 2008 is as follows: 2009 - $2,220; 2010 - $2,205; 2011 - $2,205; 2012 - $2,205 and 2013 - $1,572.
6. Restructuring Charges and Severance Costs
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 its services business (collectively,
the “Restructuring”). As a result of the Restructuring, the Partnership recorded a restructuring charge of $5,276
in fiscal 2006 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 was fully utilized. As of September
27, 2008, the remaining reserve consists only of exit costs associated with the HomeTown Hearth & Grill
business, which amounted to $183 and is expected to be utilized over the next twelve months.
For the year ended September 27, 2008, the Partnership did not record any restructuring charges. 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.
F-16
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 services 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 a
result, at present, many of those Corporate Entities do not report a tax provision. The conclusion that a full
valuation is necessary was based upon an analysis of all available evidence, both negative and positive at the
balance sheet date, which, taken as a whole, indicates that it is more likely than not that sufficient future taxable
income will not be available to utilize the Partnership’s deferred tax assets. 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.
The income tax provision of all the legal entities included in the Partnership’s consolidated statement of
operations consists of the following:
September 27,
2008
Year Ended
September 29,
2007
September 30,
2006
Current
Federal
State and local
Deferred
$
$
73
553
626
1,277
1,903
474
1,379
1,853
3,800
5,653
$
196
568
764
-
$
764
$
$
As a result of the calendar year 2007 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 $1,277 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.
F-17
The provision for income taxes differs from income taxes computed at the United States federal statutory rate as
a result of the following:
September 27,
2008
Year Ended
September 29,
2007
September 30,
2006
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
$
39,577
$
45,149
$
31,170
(45,323)
1,240
6,930
(572)
53
(2)
1,903
$
(39,459)
(358)
(1,583)
1,379
447
78
5,653
$
(27,822)
396
(3,766)
568
196
22
764
$
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
Deferred revenue
Derivative instruments
AMT credit carryforward
Other accruals
Total deferred tax assets
Deferred tax liabilities:
Property, plant and equipment
Total deferred tax liabilities
Net deferred tax assets
Valuation allowance
Net deferred tax assets
As of
September 27,
2008
September 29,
2007
$
41,768
1,428
722
1,127
1,787
92
646
2,083
49,653
$
35,060
964
1,062
775
1,710
188
644
3,403
43,806
758
758
48,895
(48,895)
$
-
510
510
43,296
(43,296)
$
-
Of the total valuation allowance as of September 27, 2008, $16,442 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.
As of September 27, 2008, the Partnership had tax loss carryforwards for federal income tax reporting purposes of
approximately $102,261, which are available to offset future federal taxable income and expire between 2024 and
2028.
F-18
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 $1,228 and $1,462, respectively
Term Loan, 6.29% to 7.16%, due March 31, 2010
Less: current portion of Term Loan
As of
September 27,
2008
September 29,
2007
$
$
423,772
110,000
533,772
2,000
531,772
423,538
125,000
548,538
-
548,538
$
$
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
LIBOR plus 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 27, 2008 and September 29, 2007, there were no borrowings outstanding under the working capital
facility of the Revolving Credit Agreement and there have been no borrowings since April 2006.
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
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, as defined) 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 27, 2008.
F-19
Under the 2003 Senior Note indenture, the Partnership is generally permitted to make cash distributions equal to
available cash, as defined, as of the end of the immediately preceding quarter, if no event of default exists or
would exist upon making such distributions, and the Partnership’s consolidated fixed charge coverage ratio, as
defined, is greater than 1.75 to 1.
Under the Revolving Credit Agreement, as long as no default exists or would result, the Partnership is permitted
to make cash distributions not more frequently than quarterly in an amount not to exceed available cash, as
defined, for the immediately preceding fiscal quarter.
Under the Revolving Credit Agreement, proceeds from the sale, transfer or other disposition of any asset of the
Operating Partnership, other than the sale of inventory in the ordinary course of business, in excess of $15,000
must be used to acquire productive assets within twelve months of receipt of the proceeds. Any proceeds not
used within twelve months of receipt to acquire productive assets must be used to prepay the outstanding
principal of the Term Loan. On September 26, 2008, the Operating Partnership prepaid $15,000 on the Term
Loan with the net proceeds from the sale of the Tirzah storage facility that were not expected to be used to
acquire productive assets within twelve months of receipt. An additional $2,000 prepayment was made on
November 10, 2008, representing the remaining amount to be prepaid from the net proceeds from the Tirzah
Sale.
In connection with the Term Loan, the Operating Partnership also entered into an interest rate swap agreement
with a notional amount of $125,000. In connection with the $15,000 prepayment of the Term Loan on September
26, 2008, the Operating Partnership also amended the interest rate swap contract to reduce the notional amount
by $15,000. From the original borrowing date of March 31, 2005 through March 31, 2010, the Operating
Partnership paid or will pay a fixed interest rate of 4.66% to the issuing lender on notional principal amount
outstanding, effectively fixing the LIBOR portion of the interest rate at 4.66%. In return, the issuing lender paid
or 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 $(3,200) and $(284) at
September 27, 2008 and September 29, 2007, respectively, and is included in other liabilities with a
corresponding amount included within accumulated other comprehensive loss.
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 because it is not materially different from the effective interest
method over the term of the respective debt agreements. Other assets at September 27, 2008 and September 29,
2007 include debt origination costs with a net carrying amount of $4,902 and $6,230, respectively. Aggregate
amortization expense related to deferred debt origination costs included within interest expense for the years
ended September 27, 2008, September 29, 2007 and September 30, 2006 was $1,328, $1,327 and $1,324,
respectively.
The aggregate amounts of long-term debt maturities subsequent to September 27, 2008 are as follows: 2009 -
$2,000; 2010 - $108,000; 2011 - $0; 2012 - $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
F-20
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.
The following is a summary of activity in the 2000 Restricted Unit Plan:
Outstanding September 24, 2005
Granted
Forfeited
Vested
Outstanding September 30, 2006
Granted
Forfeited
Vested
Outstanding September 29, 2007
Granted
Forfeited
Vested
Outstanding September 27, 2008
Units
273,778
120,365
(18,154)
(35,203)
340,786
151,515
(47,023)
(62,188)
383,090
125,912
(11,359)
(51,128)
446,515
$
Weighted Average
Grant Date Fair
Value Per Unit
29.17
$
26.51
(30.04)
(24.85)
29.28
44.51
(30.06)
(28.34)
28.85
35.19
(27.17)
(30.52)
30.57
$
$
As of September 27, 2008, unrecognized compensation cost related to unvested restricted units awarded under
the 2000 Restricted Unit Plan amounted to $6,603. Compensation cost associated with the unvested awards is
expected to be recognized over a weighted-average period of 1.9 years. Compensation expense for the 2000
Restricted Unit Plan for years ended September 27, 2008, September 29, 2007 and September 30, 2006 was
$2,156, $3,014 and $2,221, 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 composed of other publicly traded partnerships
(master limited partnerships), as approved by the Compensation Committee of the Board of Supervisors, over the
same three-year performance period. Compensation expense, which includes adjustments to previously
recognized compensation expense for current period changes in the fair value of unvested awards, for the years
F-21
ended September 27, 2008, September 29, 2007 and September 30, 2006 was $1,859, $5,977 and $1,249,
respectively.
10. Compensation Deferral Plan
The Compensation Deferral Plan provided eligible employees of the Partnership the ability to defer receipt of all
or a portion of vested restricted units granted under a prior restricted unit award plan. These units were held in
trust on behalf of the individuals. During the second quarter of fiscal 2008, the remaining 292,682 Common
Units were distributed to the participants resulting in the satisfaction of the deferred compensation liability of
$5,660, classified in partners’ capital and a corresponding reduction to common units held in trust, classified as a
contra-equity balance within 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 matching contributions relating to the 401(k) Plan are a
percentage of the participating employees’ elective contributions. The percentage of the Partnership’s contributions
are based on a sliding scale depending on the Partnership’s achievement of annual performance targets. These
contributions totaled $1,190, $5,426 and $3,868 for the years ended September 27, 2008, September 29, 2007 and
September 30, 2006, 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 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 defined benefit pension plan was limited to eligible
existing participants 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. 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 made at the discretion of the Partnership, which may be
determined from time to time. There were no minimum funding requirements for the defined benefit pension plan
for fiscal 2008, 2007 or 2006. 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 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 are eligible for postretirement life
insurance benefits if they reach a specified retirement age while working for the Partnership. Partnership employees
hired prior to July 1993 and who retired prior to March 1998 are eligible for postretirement health care benefits if
they reached a specified retirement age while working for the Partnership. Effective January 1, 2000, the
Partnership terminated its postretirement health care benefit plan for all eligible employees retiring after March 1,
1998. All active employees who were eligible to receive health care benefits under the postretirement plan
subsequent to March 1, 1998, were provided an increase to their accumulated benefits under the cash balance
F-22
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, 106 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 SFAS 158 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.
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 27, 2008 and September 29, 2007 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-23
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
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):
Actuarial net loss (gain)
Prior service (credits)
Net amount recognized in accumulated other comprehensive loss
Pension Benefits
2008
2007
Retiree Health and Life
Benefits
2008
2007
$
$
$
$
158,317
-
8,749
-
(16,904)
(6,653)
(8,314)
135,195
163,864
(13,570)
-
(6,653)
(8,314)
135,327
$
$
173,480
-
8,905
-
(5,042)
(10,786)
(8,240)
158,317
142,394
15,496
25,000
(10,786)
(8,240)
163,864
$
$
$
$
24,426
8
1,399
-
(4,954)
-
(1,803)
19,076
25,030
12
1,317
-
110
-
(2,043)
24,426
$
$
$
-
-
1,803
-
(1,803)
$
-
$
-
-
2,043
-
(2,043)
-
$
$
132
$
5,547
$
(19,076)
$
(24,426)
$
$
$
$
132
-
132
5,547
-
5,547
$
$
-
(19,076)
(19,076)
1,923
(17,153)
$
$
$
-
(24,426)
(24,426)
2,233
(22,193)
$
$
$
50,345
-
50,345
$
$
47,973
-
47,973
$
$
(5,563)
(3,828)
(9,391)
$
(610)
(4,318)
(4,928)
$
The amounts in accumulated other comprehensive loss as of September 27, 2008 that are expected to be
recognized as components of net periodic benefit costs during the next fiscal year are $4,050 and ($822) for
pension and postretirement benefits, respectively.
During fiscal 2007, lump sum pension benefit payments to either terminated or retiring individuals amounted to
$10,786, which exceeded the settlement threshold (combined service and interest costs of net periodic pension
cost) of $8,905 for fiscal 2007, and as a result, the Partnership was required to recognize a non-cash settlement
charge of $3,269 during the fourth quarter of fiscal 2007 pursuant to SFAS No. 88 “Employers’ Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits”. The non-cash
charge was required to accelerate recognition of a portion of cumulative unrecognized losses in the defined
benefit pension plan. During fiscal 2008, the amount of the pension benefit obligation settled through lump sum
payments was $6,653, which did not exceed the settlement threshold of $8,749; therefore, a settlement charge
was not required to be recognized for fiscal 2008.
F-24
The Partnership made a voluntary contribution of $25,000 to the defined benefit pension plan during fiscal 2007
to proactively improve the funded status of the plan. As of September 27, 2008 and September 29, 2007, the fair
value of plan assets exceeded the projected benefit obligation of the defined benefit pension plan by $132 and
$5,547, respectively, 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 as of September
27, 2008 and September 29, 2007:
Fixed income securities - long-term bonds
Equity securities - domestic and international
2008
81%
19%
100%
2007
80%
20%
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 2009. Estimated future benefit payments for both pension
and retiree health and life benefits are as follows:
Fiscal Year
2009
2010
2011
2112
2013
2014 through 2018
Pension
Benefits
$
19,878
13,613
12,868
12,911
12,269
55,271
Retiree
Health and
Life
Benefits
$
1,923
1,879
1,820
1,755
1,672
6,965
F-25
Effect on Operations. The following table provides the components of net periodic benefit costs included in
operating expenses for the years ended September 27, 2008, September 29, 2007 and September 30, 2006:
Pension Benefits
2007
2006
2008
Retiree Health and Life Benefits
2008
2006
2007
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service credit
Settlement charge
Recognized net actuarial loss
Net periodic benefit costs
$
-
8,749
(9,082)
-
-
3,375
3,042
$
$
-
8,905
(10,317)
-
3,269
5,315
7,172
$
-
$
9,146
(10,294)
-
4,437
6,469
9,758
$
8
$
1,399
-
(490)
-
-
917
$
$
$
12
1,317
-
(597)
-
-
732
15
1,416
-
(1,083)
-
-
348
$
$
Actuarial Assumptions. The assumptions used in the measurement of the Partnership’s benefit obligations as of
September 27, 2008 and September 29, 2007 are shown in the following table:
Pension Benefits
2008
2007
Retiree Health and
Life Benefits
2008
2007
Weighted-average discount rate
Average rate of compensation increase
7.625%
n/a
6.000%
n/a
7.625%
n/a
6.000%
n/a
The assumptions used in the measurement of net periodic pension benefit and postretirement benefit costs for the
years ended September 27, 2008, September 29, 2007 and September 30, 2006 are shown in the following table:
Pension Benefits
2007
2006
2008
Retiree Health and Life Benefits
2008
2006
2007
Weighted-average discount rate
Average rate of compensation
increase
Weighted-average expected long-
term rate of return on plan assets
Health care cost trend
6.00%
5.50%
5.25%
6.00%
5.50%
5.25%
n/a
n/a
n/a
n/a
n/a
n/a
6.00%
n/a
8.00%
n/a
8.00%
n/a
n/a
9.50%
n/a
10.00%
n/a
10.00%
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 expected 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 expected return on plan assets is determined based on the expected long-term
rate of return on plan assets and the market-related value of plan assets. The market-related value of pension
plan assets is the fair value of the assets. Unrecognized actuarial gains and losses in excess of 10% of the greater
of the projected benefit obligation and the market-related value of plan assets are amortized over the expected
average remaining service period of active employees expected to receive benefits under the plan.
The 9.50% increase in health care costs assumed at September 27, 2008 is assumed to decrease gradually to 5.00%
in fiscal 2017 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 27, 2008 by approximately $369 and
F-26
the aggregate of service and interest components of net periodic postretirement benefit expense for the year ended
September 27, 2008 by approximately $22. Decreasing the assumed health care cost trend rates by 1.0% in each
year would decrease the Partnership’s benefit obligation as of September 27, 2008 by approximately $338 and the
aggregate of service and interest components of net periodic postretirement benefit expense for the year ended
September 27, 2008 by approximately $20. 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.
Commodity Price Risk
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 27, 2008, the fair value of derivative
instruments described above resulted in derivative assets of $5,048 included within prepaid expenses and other
current assets and derivative liabilities of $494 included within other current liabilities. As of September 27,
2008, none of the Partnership’s outstanding commodity derivative instruments were designated as hedges for
accounting purposes.
Unrealized gains and losses attributable to the mark-to-market adjustments on derivative instruments not
designated as hedges under SFAS 133 are reported within cost of products sold for all periods presented. For the
years ended September 27, 2008, September 29, 2007 and September 30, 2006, cost of products sold included
unrealized gains (losses) in the amount of $1,764, ($7,555) and $14,472, respectively, attributable to changes in
the fair value of derivative instruments not designated as hedges.
Interest Rate Risk
As of September 27, 2008, an unrealized loss of $2,916 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 2008, 2007 or 2006 and no concentration of receivables exists as of
September 27, 2008 or September 29, 2007.
Exchange traded futures and options 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
F-27
Revolving Credit Agreement approximates the carrying value since the interest rates are periodically adjusted to
reflect market conditions. Based upon quoted market prices of the 6.875% Senior Notes due December 15, 2013,
the fair value of the Partnership’s 2003 Senior Notes was $386,750 as of September 27, 2008.
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 $17,739, $19,611 and $27,217 for the years ended September 27, 2008, September 29, 2007 and September 30,
2006, respectively.
Future minimum rental commitments under noncancelable operating lease agreements as of September 27, 2008 are
as follows:
Fiscal Year
2009
2010
2011
2012
2013 and thereafter
Contingencies.
Minimum
Lease
Payments
$ 13,286
10,409
7,767
5,732
8,452
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 27, 2008 and September 29, 2007, the Partnership had accrued liabilities of $73,033 and $50,308,
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 liability that exceeds insurance deductibles, the Partnership records an
asset within other assets (or prepaid expenses and other current assets, as applicable) related to the amount of the
liability expected to be covered by insurance which amounted to $38,825 and $13,858 as of September 27, 2008
and September 29, 2007, respectively.
During the first quarter of fiscal 2009, the Partnership agreed to settle a litigation involving alleged product
liability for approximately $30,000. This settlement will be finalized once certain procedural activities are
completed in various jurisdictions, which is expected to occur in the first quarter of fiscal 2009. The matter was
settled through insurance above the level of the Partnership’s deductible. As a result of this settlement, in which
the Partnership denied any liability, the Partnership increased the portion of its estimated self-insurance liability
that exceeded the insurance deductible and established a corresponding asset of $30,000 as of September 27,
2008 to accrue for the settlement and subsequent reimbursement from the Partnership’s third party insurance
carrier.
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
F-28
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.
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 27, 2008 and September 29, 2007, the environmental reserve amounted to $1,558
and $2,578, 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 2015.
F-29
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
$16,058. The fair value of residual value guarantees for outstanding operating leases was de minimis as of
September 27, 2008 and September 29, 2007.
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, 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 $53,715 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, not to exceed 7 million propane gallons, 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 $43,707 was 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 in the comparative prior year periods have been reclassified to discontinued operations on the
consolidated statements of operations for the fiscal years ended September 29, 2007 and September 30, 2006,
and the assets and liabilities were classified as held for sale on the consolidated balance sheet as of September
29, 2007.
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 and reported a gain of $885 on
disposal of discontinued operations. Prior period results of operations attributable to these customer service
centers were not significant and, as such, have not been reclassified as discontinued operations.
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 Services. 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.
F-30
In the residential and commercial markets, propane is used primarily for space heating, water heating, cooking
and clothes drying. Industrial customers use propane generally as a motor fuel burned in internal combustion
engines that power over-the-road vehicles, forklifts and stationary engines, to fire furnaces and as a cutting gas.
In the agricultural markets, propane is primarily used for tobacco curing, crop drying, poultry brooding and weed
control.
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 services 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 and ventilation. 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 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.
For the year ended September 30, 2006, income before interest expense and provision for income taxes for the
propane, fuel oil and refined fuels, services 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.
F-31
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 27,
2008
Year Ended
September 29,
2007
September 30,
2006
Revenues:
Propane
Fuel oil and refined fuels
Natural gas and electricity
Services
All other
Total revenues
Income (loss) before interest expense and
provision for income taxes:
Propane
Fuel oil and refined fuels
Natural gas and electricity
Services
All other
Corporate
Total income before interest expense and
provision for income taxes
Reconciliation to income from continuing operations
Interest expense, net
Provision for income taxes
Income from continuing operations
Depreciation and amortization:
Propane
Fuel oil and refined fuels
Natural gas and electricity
Services
All other
Corporate
$
$
$
1,132,950
288,078
103,745
44,393
4,997
1,574,163
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
$
$
$
$
219,546
(2,825)
9,812
(15,319)
(725)
(60,361)
$
207,269
26,283
11,404
(24,369)
(1,966)
(54,025)
$
184,845
36,727
11,297
(39,855)
(5,321)
(57,955)
150,128
164,596
129,738
37,052
1,903
111,173
$
35,596
5,653
123,347
$
40,680
764
88,294
$
$
$
$
15,515
3,381
1,008
312
79
8,099
28,394
16,229
3,493
929
344
377
7,418
28,790
20,380
4,351
849
710
1,160
5,203
32,653
Total depreciation and amortization
$
$
$
Assets:
Propane
Fuel oil and refined fuels
Natural gas and electricity
Services
All other
Corporate
Eliminations
Total assets
As of
September 27,
2008
September 29,
2007
$
$
746,281
70,548
23,658
2,841
1,234
279,132
(87,981)
1,035,713
747,391
72,664
22,213
1,985
1,511
231,098
(87,981)
988,881
$
$
F-32
INDEX TO FINANCIAL STATEMENT SCHEDULE
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES
Schedule II Valuation and Qualifying Accounts - Years Ended September 27, 2008,
September 29, 2007 and September 30, 2006...........................................................................
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 (a)
Balance
at End
of Period
Year Ended September 30, 2006
Allowance for doubtful accounts
Valuation allowance for deferred tax assets
$
9,965
51,498
$
2,463
-
$
-
-
$
(6,898)
(3,765)
$
5,530
47,733
Year Ended September 29, 2007
Allowance for doubtful accounts
Valuation allowance for deferred tax assets
$
5,530
47,733
$
4,331
-
$
-
-
$
(4,820)
(4,437)
$
5,041
43,296
Year Ended September 27, 2008
Allowance for doubtful accounts
Valuation allowance for deferred tax assets
$
5,041
43,296
$
9,166
6,930
-
$
-
$
(7,629)
(1,331)
$
6,578
48,895
(a) Represents amounts that did not impact earnings.
S-2
EXHIBIT 10.1
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of ______, 2008, by and between Suburban Propane,
L.P. (the “Partnership”) and Mark A. Alexander (the “Executive”).
WHEREAS, the Partnership desires to retain the services of the Executive and the
Executive desires to perform services for the Partnership, in each case, upon the terms and
conditions set forth herein; and
WHEREAS, the Partnership and the Executive are party to an Employment Agreement
dated March 5, 1996 (the “Original Effective Date”)with such agreement having been amended
effective March 5, 1996, October 23, 1997 and November 2, 2005 (collectively, the “Previous
Agreement”), and
WHEREAS, the Executive is currently the Chief Executive Officer of the Partnership and
desires to continue in such position;
WHEREAS, the Partnership desires to continue to employ the Executive as Chief
Executive Officer;
WHEREAS, the Parties desire to amend and restate the Previous Agreement to the
extent necessary to comply with Section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”) and the guidance promulgated thereunder and to make additional changes
as set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual benefits and
covenants contained herein, the parties hereto, intending to be bound, hereby agree as
follows:
1.
Term
The term of employment under this Agreement shall continue to be for a period
commencing on March 5, 2008 and ending on March 5, 2009 (the “Renewal Date”), or if
extended pursuant to this Section 1, ending on any anniversary of the Renewal Date, subject to
termination as hereinafter provided (such initial period and extension(s) thereof being hereinafter
referred to as the “Employment Term”). Unless earlier terminated in accordance with the
provisions of Section 5 hereof, upon the Renewal Date and upon each anniversary date thereof,
the Employment Term shall be automatically extended for an additional period of one year upon
the terms and conditions set forth herein unless written notice of termination (a “Non-Renewal
Notice”) is given by either party at least ninety days prior to the Renewal Date or relevant
anniversary thereof, in which event the provisions of Section 6 shall apply.
1
2.
Duties and Status
2.1
Duties. The Partnership hereby employs the Chief Executive Officer of the
Partnership. The Executive shall also serve (without compensation) as Chief Executive Officer
of Suburban Propane Partners, L.P. (the “MLP”). If requested to do so, the Executive shall serve
(without additional compensation) on the board of supervisors of the Partnership and the board
of supervisors of the MLP (the “Board”) and committees thereof. The Executive accepts such
positions and agrees to perform those duties, services and responsibilities incident thereto as may
be assigned to him or vested in him by the Board from time to time. The Executive also agrees
(a) to devote his full business time, attention and skill to the performance of, and to perform
faithfully, efficiently and with undivided loyalty, such duties, services and responsibilities and
(b) to use his best efforts to promote the interests of the Partnership and the MLP.
2.2.
Exclusive Employment. During the Employment Term, the Executive shall not
engage in other employment or consulting work or any trade or business for his own account or
for or on behalf of any other person, firm or corporation. Notwithstanding the foregoing, during
the Employment Term the Executive may (a) serve on (i) civil and charitable boards and
committees and (ii) such other corporate boards or committees as are approved by the Board,
which approval shall not be unreasonably withheld and (b) manage personal investments,
provided that such service or management does not interfere with the performance of the
Executive’s duties hereunder.
3.
Compensation and Benefits
In consideration for his services under this Agreement, the Executive shall be
compensated as follows:
3.1
Salary. The Partnership shall pay to the Executive during the Employment Term
a salary (the “Base Salary”), payable in accordance with the normal payroll practices of the
Partnership then in effect, in the amount of $450,000 per fiscal year (pro rated in the case of the
first fiscal year and any other partial fiscal year). The amount of Base Salary shall be reviewed
by the Partnership on at least an annual basis and may be increased as the Partnership deems
appropriate but Base Salary, as increased, may not be decreased during the Employment Term.
3.2
Bonuses. For each fiscal year (or portion thereof) of the Partnership during the
Employment Term, the Executive will be eligible for a bonus based on the attainment by the
Partnership of performance targets set by the compensation committee of the Board (the
“Compensation Committee”). The amount of such bonus for a fiscal year or portion thereof (the
“Annual Bonus”) payable pursuant to the terms hereof shall not exceed 100% of the Executive’s
Base Salary for such year (or portion thereof) to which it relates (the “Maximum Annual
Bonus”). If the Executive’s Base Salary is changed during any fiscal year, the Maximum Annual
Bonus for such year shall be pro rated to reflect the Executive’s actual base salary during such
year. The Compensation Committee shall meet within two months after the end of a
performance period to certify whether a performance target has been satisfied. If the
Compensation Committee so certifies, the Partnership will pay to the Executive the Annual
2
Bonus (subject to applicable withholding taxes). Prior to the beginning of each fiscal year, the
Compensation Committee will meet to set performance targets for the next fiscal year and the
Executive will receive an Annual Bonus with respect to future periods according to the
aforementioned guidelines. Any Annual Bonus under this Section 3.2 shall be paid no later than
the 15th day of the third month following the end of the calendar year that includes the end of the
fiscal year used in determining achievement of the performance targets payable (the exact
payment date to be determined by the Company).
3.3
Long-Term Incentive Compensation Programs. The Executive shall be eligible to
participate in long-term incentive compensation programs (including the 2000 Restricted Unit
Plan and the 2003 Long-Term Incentive Plan) applicable to other senior executives of the
Partnership in the discretion of the Compensation Committee from time to time.
3.4
Vacation. The Executive shall be entitled to such number of annual paid vacation
days and the number of days of paid holidays, leaves of absence, and leaves for illness or
temporary disability as may he provided in the policies of the Partnership in respect of other
executives and senior managers of the Partnership, but in no event shall the Executive be entitled
to less than four weeks vacation per year.
3.5
Reimbursement of Expenses. The Executive shall be entitled to receive
reimbursement of all reasonable expenses incurred by him in connection with the performance of
his duties hereunder, in accordance with the policies and procedures of the Partnership.
3.6
Benefits. The Executive shall be entitled to participate in employee benefit and
fringe benefit plans and programs (including life, health, disability and officer indemnity
insurance and retirement plans) generally made available to other senior executives and senior
managers by the Partnership. Nothing in this Agreement shall restrict the right of the Partnership
to amend, modify or terminate any such plans or programs. Without duplication of any benefits
received by the Executive pursuant to the first sentence of this Section 3.6:
(a)
The Partnership shall purchase during the Employment Term, on behalf of
the Executive, term life insurance coverage payable to the Executive’s designated beneficiary,
with a face amount equal to three times the Executive’s Base Salary.
(b)
The Partnership shall include the Executive in the Suburban Propane
Company Supplemental Executive Retirement Plan, effective as of October 1, 1994 (the
“SERP”) maintained by the Partnership immediately prior to the Original Effective Date.
(c)
The Partnership shall reimburse the Executive for any and all costs and
expenses reasonably incurred by the Executive in connection with the Executive’s leasing of a
car provided, however, (i) the Partnership shall pay the expenses not later than the end of the
calendar year following the calendar year in which the expenses are incurred, (ii) the amount of
such expenses that the Partnership is obligated to pay in any given calendar year shall not affect
the expenses that the Partnership is obligated to pay in any other calendar year, and (iii) the
Executive’s right to have the Partnership pay such expenses may not be liquidated or exchanged
for any other benefit.
3
(d)
For purposes of any retirement plans maintained by the Partnership
(including, but not limited to, any qualified pension and 401(k) plans and the SERP), the
Executive shall receive past service credit for service with Hanson America Inc. for purposes of
eligibility, vesting and benefit accruals under such plans; provided, however, that the benefits
payable to the Executive under such plans of the Partnership shall be reduced by and shall in no
way duplicate benefits payable to the Executive under such plans of Hanson America Inc.
4.
Non-Competition; Confidential Information
The Executive and the Partnership recognize that due to the nature of the Executive’s
engagement hereunder and the relationship of the Executive to the Partnership and the MLP, the
Executive will have access to and will acquire, and may assist in developing, confidential and
proprietary information relating to the business and operations of the Partnership, the MLP and
their affiliates, including, without limiting the generality of the foregoing, information with
respect to the business of the Partnership, the MLP and their affiliates. The Executive
acknowledges that such information will be of central importance to the business of the
Partnership, the MLP and their affiliates and that disclosure of it to, or its use by, others could
cause substantial loss to the Partnership and the MLP. The Executive accordingly agrees as
follows:
4.1
Non-Competition.
(a)
Until the later of (i) if any severance is payable pursuant to Section 6.2
hereof, the expiration of the Severance Period (as defined in Section 6.2 hereof) or (ii) the second
anniversary of the expiration or termination of the Employment Term (the period from the
Original Effective Date until such later date being referred to as the “Non-Competition Period”),
the Executive shall not, directly or indirectly, either individually or as owner, partner, investor,
agent, director, officer, employee, consultant, independent contractor or otherwise, except for the
account of and on behalf of the Partnership, the MLP or their affiliates, own, manage, operate,
direct, join, control, be employed by, or participate in the ownership, management, operation or
control of, or be connected in any manner with, including, but not limited to, holding the
positions of shareholder, member, director, officer, consultant, agent, representative, independent
contractor, employee, partner or investor, in or for any business or enterprise engaged in (i) the
domestic retail distribution of propane for residential, commercial, industrial (including engine
fuel), agricultural or other retail users, (ii) the wholesale distribution of propane in the United
States or the wholesale brokerage of propane in Canada, or (iii) the domestic retail distribution of
propane-related supplies or equipment, including home and commercial appliances.
(b)
During the Non-Competition Period, the Executive shall not, directly or
indirectly, either individually or as owner, partner, shareholder, member, investor, agent,
director, officer, employee, consultant, agent, independent contractor or otherwise, except for the
account of and on behalf of the Partnership, the MLP or their affiliates, solicit, endeavor to entice
away from the Partnership, the MLP or their affiliates, or otherwise engage in any activity to,
directly or indirectly, influence, attempt to influence, disrupt or terminate the relationship of the
Partnership, the MLP or any of their affiliates with, any of its customers, prospective customers,
suppliers, prospective suppliers, employees, directors, independent contractors, representatives,
4
agents or other persons or entities with a past, present or prospective relationship with the
Partnership, the MLP or any of their affiliates.
(c)
Nothing in this Section 4 shall be construed to prevent the Executive from
owning as an investment not more than 0.5% of a class of equity or debt securities issued by any
competitor of the Partnership, which securities are publicly traded and registered under Section
12 of the Securities Exchange Act of 1934.
4.2
Proprietary Information. The Executive shall keep confidential any and all
“confidential or proprietary information” (as defined hereinafter) of the Partnership and its
affiliates, and shall not, other than in connection with the business of the Partnership and the
MLP or as required, in the opinion of counsel, by law or an order of a court or regulatory agency,
directly or indirectly, disclose any such information to any person or entity, or use the same in
any way and then, only after as much notice is provided to the Partnership as is practicable under
the circumstances. Upon the expiration of the Employment Term, the Executive shall promptly
return to the Partnership all property, keys, notes, memoranda, writings, lists (including customer
lists), files, reports, correspondence, logs, machines, software, technical data or any other
tangible product or document which has been produced by, received by, or otherwise submitted
to the Executive by the Partnership or any of its affiliates at any time. For purposes of this
Agreement, “confidential or proprietary information” means any information relating to the
Partnership or any affiliate of the Partnership which is not generally available from sources
outside the Partnership or any of its affiliates (other than as a result of disclosure by the
Executive).
4.3
Company’s Remedies for Breach. It is recognized that damages in the event of
breach of this Section 4 by the Executive would be difficult to ascertain, and it is therefore
agreed that each of the Partnership and the MLP, in addition to and without limiting any other
remedy or right either may have, shall have the right to an injunction or other equitable relief in
any court of competent jurisdiction, enjoining any such breach or prospective breach. The
existence of this right shall not preclude any other rights and remedies at law or in equity which
the Partnership or the MLP may have. Neither the Partnership nor the MLP shall be required to
post any bond in connection with the foregoing. The Executive acknowledges and agrees that
the provisions of this Section 4 are reasonable and necessary for the successful operation of the
Partnership and the MLP and that the Partnership would not have entered into this Agreement if
the Executive had not agreed to the provisions of this Section 4.
4.4
Enforceability. The covenants set forth in Sections 4.1 and Section 4.2 shall be
construed as independent of any of the other provisions contained in this Agreement and shall be
enforceable as aforesaid, notwithstanding the existence of any claim or cause of action of the
Executive against the Partnership, the MLP or any of their affiliates, whether based on this
Agreement or otherwise. In the event that any of the provisions of this Section 4 should ever be
adjudicated to exceed the time or other limitations permitted by applicable law, then such
provisions shall be deemed reformed in any jurisdiction to the time or other limitations permitted
by applicable law. The provisions of this Section 4 shall survive the expiration or the
termination of this Agreement. If the Partnership asserts a claim against the Executive for
violation of any covenant set forth in Section 4.1 or Section 4.2 and the Executive prevails on the
5
merits in a material respect on such claim, the Partnership shall pay the reasonable attorneys’
fees and costs incurred by the Executive in connection with such claim.
5.
Termination of Employment
5.1
Death or Disability. The Employment Term shall terminate automatically upon
the Executive's death or Disability (as hereinafter defined). “Disability” shall mean any physical
or mental impairment, infirmity or incapacity rendering the Executive substantially unable to
perform his duties hereunder for a period of time exceeding 180 days in the aggregate during any
period of twelve consecutive months. A determination of Disability shall be made by a
physician independent of the Partnership chosen by the Partnership. In the event of an initial
determination of Disability, the Executive may seek a second opinion of his choosing. Where
the first and second opinions differ, a third opinion rendered by a physician mutually agreed to
by the Partnership and the Executive shall be deemed final. For so long as the Executive is
receiving the Base Salary during such twelve month period, any benefits under the Partnership's
disability insurance policies to which the Executive would be entitled with respect to such period
shall accrue to, and be for the benefit of, the Partnership.
5.2
Cause. The Partnership may terminate the Executive’s employment and the
Employment Term for “Cause”. For purposes of this Agreement, “Cause” means: (a) the
Executive's willful misconduct, gross negligence or recklessness in the performance of his duties
hereunder; (b) a material breach by the Executive of any of the provisions of Section 4.1 or 4.2
hereof; or (c) an action or omission by the Executive for which he is indicted or convicted for
commission of a felony or a misdemeanor (in the case of a misdemeanor, involving moral
turpitude) or the Executive being subject to a judgment, order or decree (by consent or
otherwise) by any governmental or regulatory authority which restricts his ability to engage in
the business conducted by the Partnership, the MLP and their affiliates.
5.3
Good Reason. The Executive’s employment and the Employment Term may be
terminated by the Executive for Good Reason. For purposes of this Agreement, “Good Reason”
means: (a) any failure by the Partnership to comply in any material respect with any of the
provisions of Article 3 of this Agreement which is not cured within thirty days following notice
by the Executive; (b) a material diminution in the Executive’s title, authority, duties or
responsibilities, without the consent of the Executive; or (c) the requirement by the Partnership,
without the Executive's consent, that the Executive be based more than 35 miles from the
Executive's present office location or more than 50 miles from the Executive's present residence.
5.4
Termination without Cause. Notwithstanding anything to the contrary herein, the
Partnership may terminate the Executive's employment hereunder and the Employment Term at
any time and the Executive may be removed as an officer of the MLP and the Partnership at any
time, subject to the provisions of Section 6.
5.5
Non-Renewal. The Executive’s employment and the Employment Term may be
terminated by either party pursuant to a Non-Renewal Notice, subject to the provisions of
Section 6.
6
5.6
Notice of Termination. Any termination of employment hereunder (other than
termination as a result of death) by the Partnership or by the Executive shall be communicated by
Notice of Termination (as hereinafter defined) to the other party hereto given in accordance with
Section 8.2 of this Agreement. For purposes of this Agreement, a “Notice of Termination”
means a written notice which (a) indicates the specific termination provision in this Agreement
relied upon, and (b) sets forth the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
5.7
Date of Termination. The termination of the Executive’s employment pursuant to
Section 5 shall be effective on the date that the Executive or the Partnership, as the case may be,
receives the Notice of Termination; provided however, that (a) if the Executive’s employment is
terminated by reason of death. the Date of Termination shall be the date of death of the
Executive. (b) if the Executive's employment is terminated by reason of Disability, the Date of
Termination shall be the date that a physician finally determines in accordance with Section 5.1
that a Disability exists with respect to the Executive, (c) if the Executive terminates his
employment, the Date of Termination shall be the tenth Business Day after receipt by the
Partnership of the Notice of Termination (or, in the event of termination for Good Reason as set
forth in Section 5.3(a), the tenth Business Day after the expiration of the 30 day cure period) and
(d) if the Executive’s employment is terminated pursuant to a Non-Renewal Notice, the Date of
Termination shall be the Renewal Date or the next anniversary thereof (as applicable). For
purposes of this Agreement, references to a “termination,” “termination of employment” or like
terms shall mean “Separation from Service” as defined in Section 9.1 herein.
6.
Payment Upon Termination
6.1
Change of Control. In the event that a Change of Control occurs during the
Employment Term and within six months prior thereto or at any time thereafter, either the
Partnership terminates the Executive’s employment hereunder without Cause (including pursuant
to a Non-Renewal Notice) or the Executive terminates his employment hereunder with Good
Reason or the Executive elects to terminate his employment hereunder during the six month
period commencing on the sixth month anniversary and ending on the twelve month anniversary
of a Change of Control, (a) the Partnership shall pay to the Executive, in accordance with Section
6.4 herein, the sum of (i) the portion of the Base Salary earned but unpaid as of the Date of
Termination, (ii) the Pro-rata Bonus (as defined below) and (iii) an amount equal to three times
the sum of (A) the Base Salary plus (B) the Maximum Annual Bonus and (b) the Partnership
shall provide to the Executive and his dependents from the Date of Termination until the
expiration of the third anniversary of the Date of Termination (the “Severance Period”), medical
benefits substantially equivalent to the medical benefits provided by the Partnership to senior
executives and their dependents during such period; provided, however, (i) that benefits
otherwise receivable by the Executive pursuant to this clause (b) of this Section 6.1 shall be
reduced to the extent comparable benefits are actually provided to the Executive or his
dependents by another party (and the Executive shall report to the Partnership any benefits that
are actually provided to him); (ii) the Severance Period shall run concurrently with any period
for which Executive is eligible to elect health coverage under COBRA; (iii) during the Severance
Period, the benefits provided in any one calendar year shall not affect the amount of benefits
provided in any other calendar year; (iv) the reimbursement of an eligible taxable expense shall
be made on or before the end of the calendar year following the calendar year in which the
7
expense was incurred; and (v) the Executive’s rights pursuant to this Section 6.1(b) shall not be
subject to liquidation or exchange for another benefit. The Partnership's obligation and the
Executive's rights under clause (a)(ii) and (iii) and clause (b) of this Section 6.1 shall terminate
immediately upon the occurrence of a Competition Event (as defined below).
6.2
Good Reason, Termination without Cause. In the event that the Executive
terminates his employment for Good Reason or the Partnership terminates the Executive’s
employment without Cause or has delivered a Non-Renewal Notice to the Executive, then,
without duplication of any amounts paid or benefits provided pursuant to Section 6.1, the
Partnership shall (a) pay to the Executive, in accordance with Section 6.4 herein, (i) all earned
but unpaid Base Salary as of the Date of Termination, (ii) the Pro-rata Bonus (as defined below)
and (iii) an amount equal to three times Base Salary and (b) provide the Executive and his
dependents, from the Date of Termination until the expiration of the Severance Period, medical
benefits substantially equivalent to the medical benefits provided by the Partnership to senior
executives and their dependents during such period; provided, however, that (i) benefits
otherwise receivable by the Executive pursuant to clause (b) of this Section 6.2 shall be reduced
to the extent comparable benefits are actually provided to the Executive or his dependents by
another party (and the Executive shall report to the Partnership any benefits that are actually
provided to him); (ii) the Severance Period shall run concurrently with any period for which
Executive is eligible to elect health coverage under COBRA; (iii) during the Severance Period,
the benefits provided in any one calendar year shall not affect the amount of benefits provided in
any other calendar year; (iv) the reimbursement of an eligible taxable expense shall be made on
or before the end of the calendar year following the year in which the expense was incurred; and
(v) the Executive’s rights pursuant to this Section 6.2(iii) shall not be subject to liquidation or
exchange for another benefit. The Partnership's obligation and the Executive’s rights under
clause (a)(ii) and (iii) and clause (b) of this Section 6.2 shall terminate immediately upon the
occurrence of a Competition Event (as defined below).
6.3
Death. Disability, Cause, Without Good Reason. In the event that the
Executive’s employment is terminated (a) by reason of the Executive's death or Disability, (b) by
the Partnership for Cause, (c) by the Executive without Good Reason or (d) by the Executive
pursuant to a Non-Renewal Notice, the Partnership shall pay to the Executive, the Executive's
estate, or the Executive’s legal representative, as the case may be, in accordance with Section 6.4
herein, (i) the Base Salary earned but unpaid as of the Date of Termination and (ii) in the event
that such termination is by reason of death, Disability or the delivery of a Non-Renewal Notice,
the Pro-rata Bonus (as defined below).
6.4
Timing of Payments.
(a) With respect to payments made to the Executive pursuant to clause (a)(i)
of Sections 6.1 and 6.2 and clause (i) of Section 6.3 (unpaid Base Salary), the Partnership shall
pay the Executive in a lump sum in cash, within 30 days after the Date of Termination
(b) With respect to payments made to the Executive pursuant to clause (a)(ii)
of Sections 6.1 and 6.2 and clause (ii) of Section 6.3 (Pro-rata Bonus), the Partnership shall pay
the Executive in a lump sum in cash no later than the 15th day of the third month following the
8
end of the calendar year that includes the end of the fiscal year used in determining achievement
of the performance targets applicable to such payment, in accordance with Section 3.2 herein.
(c) With respect to payments made to the Executive pursuant to clause (a)(iii)
of Sections 6.1 and 6.2 (separation pay), if the Executive is a “Specified Employee” as defined
in Section 9.2 herein on his Date of Termination, the Partnership shall pay the Executive in a
lump sum in cash upon the earlier of (a) a date no later than 30 days after Executive’s death, or
(b) the first day of the seventh month following Executive’s Date of Termination. In the case of
any such delayed payment, the Partnership shall pay interest on the delayed amount at a per
annum rate equal to the short-term applicable federal rate in accordance with section 1274(d) of
the Internal Revenue Code in effect for the month in which Date of Termination occurs. If the
Executive is not a Specified Employee on his Date of Termination, the Partnership shall pay the
Executive in a lump sum in cash, within 30 days after the Date of Termination.
6.5
Excise Taxes.
(a)
In the event that any payment or benefit (within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended (the “Code”)) to the Executive or
for his benefit paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise in connection with, or arising out of, his employment with the
Partnership or a change in ownership or effective control of the Partnership or of a substantial
portion of its assets (a “Payment” or “Payments”) would be subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the “Excise Tax”), then the Executive will be entitled to receive an
additional payment (a “Gross-Up Payment”) in an amount such that after payment by the
Executive of all taxes (including the Excise Tax, any interest or penalties, other than interest and
penalties imposed by reason of the Executive's failure to file timely a tax return or pay taxes
shown due on his return, imposed with respect to such taxes and the Excise Tax), including any
income tax and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b)
An initial determination as to whether a Gross-Up Payment is required
pursuant to this Agreement and the amount of such Gross-Up Payment shall be made at the
Partnership's expense by an accounting firm selected by the Partnership and reasonably
acceptable to the Executive which is designated as one of the five largest accounting firms in the
United States (the “Accounting Firm”). The Accounting Firm shall provide its determination
(the “Determination”), together with detailed supporting calculations and documentation, to the
Partnership and the Executive within five days of the Executive’s termination of employment (if
applicable) or such other time as requested by the Partnership or by the Executive (Provided the
Executive reasonably believes that any of the Payments may be subject to the Excise Tax).
Within ten days of the delivery of the Determination to the Executive, the Executive shall have
the right to dispute the Determination (the “Dispute”). The Gross-Up Payment, if any, as
determined pursuant to this Section 6.5 shall be paid by the Partnership to the Executive within
five days of the receipt of the Determination. The existence of the Dispute shall not in any way
affect the Executive’s right to receive the Gross-Up Payment in accordance with the
Determination. If there is no Dispute, the Determination shall be binding, final and conclusive
9
upon the Partnership and the Executive subject to the application of Section 6.5(c) below.
Notwithstanding anything contained in this Agreement to the contrary, any Gross-Up Payment
pursuant to this section 6.5(ii) shall be paid no later than the end of the calendar year following
the calendar year in which the corresponding taxes are remitted to the applicable government
taxing authority.
(c)
As a result of the uncertainty in the application of Sections 4999 and 280G
of the Code, it is possible that a Gross-Up Payment (or a portion thereof) will be paid which
should not have been paid (an “Excess Payment”) or a Gross-Up Payment (or a portion thereof)
which should have been paid will not have been paid (an “Underpayment”). An Underpayment
shall be deemed to have occurred (i) upon notice (formal or informal) to the Executive from any
governmental taxing authority that the Executive's tax liability (whether in respect of the
Executive’s current taxable year or in respect of any prior taxable year) may be increased by
reason of the imposition of the Excise Tax on a Payment or Payments with respect to which the
Partnership has failed to make a sufficient Gross-Up Payment, (ii) upon a determination by a
court, (iii) by reason of determination by the Partnership (which shall include the position taken
by the Partnership, together with its consolidated group, on its federal income tax return) or (iv)
upon the resolution of the Dispute to the Executive’s satisfaction. If an Underpayment occurs,
the Executive shall promptly notify the Partnership and the Partnership, subject to its rights to
dispute whether an overpayment exists and the amount thereof, shall promptly, but in any event,
at least five days prior to the date on which the applicable government taxing authority has
requested payment, pay to the Executive an additional Gross-Up Payment equal to the amount of
the Underpayment plus any interest and penalties (other than interest and penalties imposed by
reason of the Executive’s failure to file timely a tax return or pay taxes shown due on the
Executive’s return) imposed on the Underpayment. Notwithstanding anything contained in this
Agreement to the contrary, any Underpayment pursuant to this section 6.5(c) shall be paid to the
Executive no later than the end of the calendar year following the calendar year in the
corresponding taxes are remitted to the applicable government taxing authority. An Excess
Payment shall be deemed to have occurred upon a “Final Determination” (as hereinafter defined)
that the Excise Tax shall not be imposed upon a Payment or Payments (or portion thereof) with
respect to which the Executive had previously received a Gross-Up Payment. A “Final
Determination” shall be deemed to have occurred when the Executive has received from the
applicable government taxing authority a refund of taxes or other reduction in the Executive’s
tax liability by reason of the Excess Payment and upon either (x) the date a determination is
made by, or an agreement is entered into with, the applicable governmental taxing authority
which finally and conclusively binds the Executive and such taxing authority, or in the event that
a claim is brought before a court of competent jurisdiction, the date upon which a final
determination has been made by such court and either all appeals have been taken and finally
resolved or the time for all appeals has expired or (y) the statute of limitations with respect to the
Executive’s applicable tax return has expired. If an Excess Payment is determined to have been
made, the amount of the Excess Payment shall be treated as a loan by the Partnership to the
Executive and the Executive shall pay to the Partnership on demand (but not less than 10 days
after the determination of such Excess Payment and written notice has been delivered to the
Executive) the amount of the Excess Payment plus interest at an annual rate equal to the
Applicable Federal Rate provided for in Section 1274(d) of the Code from the date the Gross-Up
Payment (to which the Excess Payment relates) was paid to the Executive until the date of
repayment to the Partnership.
10
(d)
Notwithstanding anything contained in this Agreement to the contrary, in
the event that, according to the Determination, an Excise Tax will be imposed on any Payment or
Payments, the Partnership shall pay to the applicable government taxing authorities as Excise
Tax and income tax withholding, the amount of the Excise Tax and income tax that the
Partnership has actually withheld from the Payment or Payments.
6.6
Certain Definitions.
(a)
“Pro-rata Bonus” means the bonus that the Executive would have been
entitled to receive under Section 3.2 as an Annual Bonus for the full fiscal year in which his
employment terminated, multiplied by the number of days from the beginning of such fiscal year
until the Date of Termination and divided by 365. The Pro-rata Bonus shall be determined by
the Compensation Committee in the manner described in Section 3.2.
(b)
“Competition Event” means any act or activity by the Executive, directly
or indirectly, which the Partnership deems, in its good faith judgment, to be a violation of
Section 4.1 hereof.
(c)
“Change of Control” means:
(i)
the date on which any Person, or More than One Person Acting as
a Group, (as those terms are defined below) acquires or has acquired during the 12-month period
ending on the date of the most recent acquisition by such Person or More than One Person
Acting as a Group (other than an acquisition directly by the Partnership, Suburban Energy
Service Group LLC or any of their affiliates) Common Units or other voting equity interests of
the Partnership (“Voting Securities”) immediately after which such Person or More than One
Person Acting as a Group has Beneficial Ownership (as that term is defined below) of more than
thirty percent (30%) of the combined voting power of the Partnership’s then outstanding
Common Units; provided, however, that in determining whether a Change in Control has
occurred, Common Units which are acquired in a Non-Control Acquisition (as that term is
defined below) shall not constitute an acquisition which would cause a Change in Control. A
“Non-Control Acquisition” shall mean an acquisition by (x) an employee benefit plan (or a trust
forming a part there) maintained by (A) the Partnership or Suburban, or (B) any corporation,
partnership or other Person of which a majority of its voting power or its voting equity securities
or equity interest is owned, directly or indirectly, by the Partnership, (y) the Partnership or its
subsidiaries, or (z) any Person or More than One Person Acting as a Group in connection with a
Non-Control Transaction (as that term is defined below); or
(ii)
approval by the partners of the Partnership of (x) a merger,
consolidation or reorganization involving the Partnership, unless (A) the holders of the Common
Units immediately before such merger, consolidation or reorganization own, directly or
indirectly immediately following such merger, consolidation or reorganization, at least fifty
percent (50%) of the combined voting power of the outstanding Common Units of the entity
resulting from such merger, consolidation or reorganization (the “Surviving Entity”) in
substantially the same proportion as their ownership of the Common Units immediately before
such merger, consolidation or reorganization, and (B) no person or entity (other than the
Partnership, any subsidiary thereof, any employee benefit plan (or any trust forming a part
11
thereof) maintained by the Partnership, any subsidiary thereof, the Surviving Entity, or any
Person who, immediately prior to such merger, consolidation or reorganization, had Beneficial
Ownership of more than twenty five percent (25%) of then outstanding Common Units), has
Beneficial Ownership of more than twenty five percent (25%) of the combined voting power of
the Surviving Entity’s then outstanding voting securities; (y) a complete liquidation or
dissolution of the Partnership; or (z) the sale or other disposition of forty percent (40%) of the
total gross fair market value of all the assets of the Partnership to any Person or More than One
Person Acting as a Group (other than a transfer to a subsidiary of the Partnership). For this
purpose, gross fair market value means the value of the assets of the Partnership, or the value of
the assets being disposed of, determined without regard to any liability associated with such
assets. A transaction described in clause (A) or (B) of subsection (x) hereof shall be referred to
as a “Non-Control Transaction.”
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely
because any Person (the “Subject Person”) acquired Beneficial Ownership of more than the
permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting
Securities by the Partnership which, by reducing the number of Voting Securities outstanding,
increases the proportional number of Common Units Beneficially Owned by the Subject Person,
provided that if a Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Partnership, and after such acquisition of
Voting Securities by the Partnership, the Subject Person becomes the Beneficial Owner of any
additional Voting Securities which increases the percentage of the then outstanding Voting
Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur.
For purposes of the foregoing definition of Change in Control, “Person” and “Beneficial
Ownership” have the meanings used for purposes of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended, and “More than one Person Acting as a Group” has the same
meaning as set forth in Treasury Regulation 1.409A-3(i)(5)(v)(B).
6.7 Mitigation. The Executive shall have no duty to mitigate with respect to any
payments due pursuant to Section 6 by seeking or accepting other employment.
7.
Compliance with Other Agreements by Executive
The Executive represents and warrants to the Partnership that the execution of this
Agreement by him and his performance of his obligations hereunder will not, with or without the
giving of notice or the passage of time or both, conflict with, result in the breach of any provision
of or the termination of, or constitute a default under, any agreement to which the Executive is a
party or by which the Executive is bound.
8.
Miscellaneous
8.1
This Agreement shall be governed by and construed in accordance with the laws
of the State of New Jersey, without giving effect to the conflicts of laws principles thereof. The
captions of this Agreement are not part of the provisions hereof and shall have no force or effect.
This Agreement may not be amended or modified otherwise than by a written agreement
executed by the Partnership and the Executive or their respective successors and legal
representatives.
12
8.2
All notices and other communications hereunder shall be in writing and shall be
given by facsimile, hand delivery to the other party or by registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Mark A. Alexander
c/o Suburban Propane
One Suburban Plaza
240 Route 10 West
P.O. Box 206
Whippany, NJ 07981-0206
With Copies To: Kenneth Kirschner
Hogan & Hartson LLP
875 Third Avenue
New York, NY 10022
If to the Partnership:
Suburban Propane, L.P.
One Suburban Plaza
240 Route 10 West
Whippany, New Jersey 07981-0206
Telecopier:
Attention: Paul Abel, Vice President, General Counsel and Secretary
(201) 515-5982
or to such other address as either party shall have furnished to the other in writing in accordance
herewith. Notice and communications shall be effective when actually received by the
addressee.
8.3
Any term or provision of this Agreement which is invalid or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms or provisions of
this Agreement or affecting the validity or enforceability of any of the terms or provisions of this
Agreement in any other jurisdiction.
8.4
Notwithstanding any other provision (including Section 3) of this Agreement to
the contrary, the Partnership or other payor may withhold from any amounts payable under this
Agreement such taxes or other amounts as shall be required to be withheld pursuant to any
applicable law or regulation.
13
8.5
The Executive’s or the Partnership's failure to insist upon strict compliance with
any provision hereof shall not be deemed to be a waiver of such provision or any other provision
hereof.
8.6
This Agreement contains the entire understanding of the Partnership and the
Executive with respect to the subject matter hereof and thereof and supersedes all prior
agreements between the Partnership and the Executive, whether oral or written.
8.7
This Agreement shall be binding upon and inure solely to the benefit of the parties
hereto and their respective successors, permitted assigns, heirs, distributees and legal
representatives, including any partnership, corporation or other business organization with which
the Partnership may merge or consolidate and the Partnership will require any successor to all or
substantially all of the business or assets of the Partnership to expressly assume and agree to
perform this Agreement in the same manner as the Partnership would be so required to do.
Nothing in this Agreement, express or implied, is intended to confer upon any other person or
entity any rights or remedies of any nature whatsoever under or by reason of this Agreement.
Insofar as the Executive is concerned, this contract, being personal, cannot be assigned.
8.8
“Business Day” means any day excluding Saturday, Sunday, and any day which
shall be in the City of New York a legal holiday or a day which banking institutions in the City
of New York are authorized by law or other government action to close. If any date on which a
payment is required to be made hereunder is not a Business Day, then such payment (without
any additional interest) shall be made on the next succeeding Business Day.
8.9
Any controversy, dispute or claim arising under this Agreement or any breach
thereof (other than in connection with Section 4 hereof) shall be settled by arbitration conducted
in New York City in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association, and judgment upon any award rendered by the arbitrator may
be entered by any federal or state court having jurisdiction thereof. Any such arbitration shall be
conducted by a single arbitrator who shall be a member of the National Academy of Arbitrators.
If the parties are unable to agree upon an arbitrator, then an arbitrator shall be appointed in
accordance with the rules of the American Arbitration Association. The parties intend that this
agreement to arbitrate be valid, enforceable and irrevocable and that any determination reached
pursuant to the foregoing procedure shall be final and binding on the parties absent fraud. Each
party shall pay its own costs and expenses of such arbitration and the fees and expenses of the
arbitrator shall be borne equally by the parties, except that the arbitrators shall be entitled to
award the reasonable attorneys’ fees and costs and the reasonable costs of arbitration to the
Executive if the Executive prevails in such arbitration in any material respect. Any amount
reimbursable by the Partnership under this Section 8.9 in any one calendar year shall not affect
the amount reimbursable in any other calendar year, and the reimbursement of an eligible
expense shall be made within five business days after delivery of Executive’s respective written
requests for payment accompanied with such evidence of fees and expenses incurred as the
Partnership reasonably may require, but in any event no later than the end of the calendar
following the calendar year in which the expense was incurred.
14
8.10 This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and the same
instrument.
9.
Code Section 409A.
9.1
Notwithstanding anything in this Agreement to the contrary, to the extent that any
amount or benefit that would constitute non-exempt “deferred compensation” for purposes of
Section 409A of the Code would otherwise be payable or distributable hereunder by reason of
the Executive’s Termination of Employment, such amount or benefit will not be payable or
distributable to Executive by reason of such circumstance unless (a) the circumstances giving
rise to such termination of employment meet any description or definition of “separation from
service” in Section 409A of the Code and applicable regulations (without giving effect to any
elective provisions that may be available under such definition, a “Separation from Service”), or
(b) the payment or distribution of such amount or benefit would be exempt from the application
of Section 409A of the Code by reason of the short-term deferral exemption or otherwise. This
provision does not prohibit the vesting of any amount upon a termination of employment,
however defined. If this provision prevents the payment or distribution of any amount or benefit,
such payment or distribution shall be made on the date, if any, on which an event occurs that
constitutes a Section 409A-compliant “Separation from Service” or such later date as may be
required by Section 9.2 below.
9.2
Notwithstanding anything in this Agreement to the contrary, if any amount or
benefit that would constitute non-exempt “deferred compensation” for purposes of Section 409A
of the Code would otherwise be payable or distributable under this Agreement by reason of the
Executive’s Separation from Service during a period in which he is a Specified Employee (as
defined below), then, subject to any permissible acceleration of payment by the Company under
Treas. Reg. Section 1.409A-3(j)(4)(ii) (domestic relations order), (j)(4)(iii) (conflicts of interest),
or (j)(4)(vi) (payment of employment taxes):
(a)
if the payment or distribution is payable in a lump sum, the Executive’s
right to receive payment or distribution of such non-exempt deferred compensation will
be delayed until the earlier of the Executive’s death or the first day of the seventh month
following the Executive’s Separation from Service; and
(b)
if the payment or distribution is payable over time, the amount of such
non-exempt deferred compensation that would otherwise be payable during the six-month
period immediately following the Executive’s Separation from Service will be
accumulated and Executive’s right to receive payment or distribution of such
accumulated amount will be delayed until the earlier of Executive’s death or the first day
of the seventh month following the Executive’s Separation from Service, whereupon the
accumulated amount will be paid or distributed to the Executive and the normal payment
or distribution schedule for any remaining payments or distributions will resume.
For purposes of this Agreement, the term “Specified Employee” has the meaning given
such term in Code Section 409A and the final regulations thereunder (“Final 409A
Regulations”), provided, however, that, as permitted in the Final 409A Regulations, the
15
Partnership’s Specified Employees and its application of the six-month delay rule of Code
Section 409A(a)(2)(B)(i) shall be determined in accordance with rules adopted by the Board of
Supervisors or a committee thereof, which shall be applied consistently with respect to all
nonqualified deferred compensation arrangements of the Partnership, including this Agreement.
* * * * * * * * * * * * * * *
(signatures on next page)
16
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
SUBURBAN PROPANE, L.P.
By:____________________________________
Name:
Title:
Mark A. Alexander
/s/ MARK A ALEXANDER
17
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
EXHIBIT 10.5
THIS AGREEMENT, dated as of _______________, 2008, by and between
Suburban Propane, L.P. (the “Partnership”) and Michael J. Dunn, Jr. (the “Executive”).
WHEREAS, the Partnership desires to retain the services of the Executive and
the Executive desires to perform services for the Partnership, in each case, upon the
terms and conditions set forth herein; and
WHEREAS, the Partnership and the Executive are party to an Employment
Agreement dated February 1, 2007 (the “Previous Agreement”), and
WHEREAS, the Executive is currently President of the Partnership and desires to
continue in such position;
WHEREAS, the Partnership desires to continue to employ the Executive as
President;
WHEREAS, the Parties desire to amend and restate the Previous Agreement to the
extent necessary to comply with Section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”) and the guidance promulgated thereunder.
NOW, THEREFORE, in consideration of the premises and the mutual benefits
and covenants contained herein, the parties hereto, intending to be bound, hereby agree as
follows:
1.
Term
The initial term of employment under this Agreement shall be for the period
commencing on February 1, 2007 (the “Effective Date”) and ending on the second
anniversary thereof (the “Renewal Date”), or if extended pursuant to this Section 1,
ending on any anniversary of the Renewal Date, subject to termination as hereinafter
provided (such initial period and extension(s) thereof being hereinafter referred to as the
“Employment Term”). Unless earlier terminated in accordance with the provisions of
Section 5 hereof, upon the Renewal Date and upon each anniversary date thereof, the
Employment Term shall be automatically extended for an additional period of one year
upon the terms and conditions set forth herein unless written notice of termination (a
“Non-Renewal Notice”) is given by either party at least ninety days prior to the Renewal
Date or relevant anniversary thereof, in which event the provisions of Section 6 shall
apply.
- 1 -
2.
Duties and Status
2.1. Duties. The Partnership hereby employs the Executive as President.
Executive shall report to the Chief Executive Officer and shall perform duties of the type
customarily performed by persons serving in the position of President of a business of the
size, type and nature of the Partnership. If requested to do so, the Executive shall serve
(without additional compensation) on the Board of Supervisors of the Partnership and
Suburban Propane Partners, L.P. (the “MLP”) (the “Board”) and committees thereof.
The Executive accepts such positions and agrees to perform those duties, services and
responsibilities incident thereto as may be assigned to him or vested in him by the Chief
Executive Officer and the Board from time to time. The Executive also agrees (a) subject
to Section 2.2 below, to devote his full business time, attention and skill to the
performance of, and to perform faithfully, efficiently and with undivided loyalty, such
duties, services and responsibilities and (b) to use his best efforts to promote the interests
of the Partnership.
2.2.
Exclusive Employment. During the Employment Term, the Executive
shall not engage in other employment or consulting work or any trade or business for his
own account or for or on behalf of any other person, firm or corporation.
Notwithstanding the foregoing, during the Employment Term the Executive may (a)
serve on (i) civil and charitable boards and committees and (ii) such other corporate
boards or committees as are approved by the Board, which approval shall not be
unreasonably withheld and (b) manage personal investments, provided that such service
or management does not interfere with the performance of the Executive's duties
hereunder.
3.
Compensation and Benefits
In consideration for his services under this Agreement. the Executive shall be
compensated as follows:
3.1.
Salary. The Partnership shall pay to the Executive during the Employment
Term a salary (the “Base Salary”), payable in accordance with the normal payroll
practices of the Partnership then in effect, in the amount of $400,000 per fiscal year (pro
rated in the case of the first fiscal year and any other partial fiscal year). The amount of
Base Salary shall be reviewed by the Compensation Committee of the Board (the
“Compensation Committee”) on at least an annual basis and may be increased as the
Compensation Committee deems appropriate but Base Salary, as increased, may not be
decreased during the Employment Term.
3.2. Bonuses. For each fiscal year (or portion thereof) of the Partnership during the
Employment Term, the Executive will be eligible for a bonus under the Partnership’s
Annual Incentive Plan for Salaried Employees, as in effect from time to time, based on
the attainment by the Partnership of performance targets set by the Compensation
Committee. The amount of such bonus for a fiscal year or portion thereof (the “Annual
- 2 -
Bonus”) payable pursuant to the terms hereof shall not exceed 110% of the Executive's
Base Salary for such year (or portion thereof) to which it relates (the “Maximum Annual
Bonus”). Any Annual Bonus under this Section 3.2 shall be paid no later than the 15th
day of the third month following the end of the calendar year that includes the end of the
fiscal year used in determining achievement of the performance targets payable (the exact
payment date to be determined by the Company).
3.3.
Long-Term Incentive Compensation Programs. Executive shall be
eligible to participate in long-term incentive compensation programs (including the 2000
Restricted Unit Plan and the 2003 Long-Term Incentive Plan) applicable to other senior
executives of the Partnership in the discretion of the Compensation Committee from time
to time.
3.4. Vacation. The Executive shall be entitled to such number of annual paid
vacation days and the number of days of paid holidays, leaves of absence, and leaves for
illness or temporary disability as may be provided in the policies of the Partnership in
respect of other executives and senior managers of the Partnership, but in no event shall
the Executive be entitled to less than four weeks vacation per year.
3.5. Reimbursement of Expenses. The Executive shall be entitled to receive
reimbursement of all reasonable expenses incurred by him in connection with the
performance of his duties hereunder, in accordance with the policies and procedures of
the Partnership.
3.6. Benefits. The Executive shall be entitled to participate in employee
benefit and fringe benefit plans and programs (including life, health, disability and officer
indemnity insurance and retirement plans) generally made available to other senior
executives and senior managers by the Partnership. Nothing in this Agreement shall
restrict the right of the Partnership to amend, modify or terminate any such plans or
programs.
3.7. Company Car. The Partnership shall reimburse the Executive for any and
all costs and expenses reasonably incurred by the Executive in connection with the
Executive's leasing of a car in accordance with Partnership policy relating to gas,
insurance, maintenance, etc. provided, however, (i) the Partnership shall pay the expenses
not later than the end of the calendar year following the calendar year in which the
expenses are incurred, (ii) the amount of such expenses that the Partnership is obligated
to pay in any given calendar year shall not affect the expenses that the Partnership is
obligated to pay in any other calendar year, and (iii) the Executive’s right to have the
Partnership pay such expenses may not be liquidated or exchanged for any other benefit.
4.
Non-Competition; Confidential Information
The Executive and the Partnership recognize that due to the nature of the
Executive's engagement hereunder and the relationship of the Executive to the
Partnership and the MLP, the Executive will have access to and will acquire, and may
assist in developing, confidential and proprietary information relating to the business and
- 3 -
operations of the Partnership, the MLP and their affiliates, including, without limiting the
generality of the foregoing, information with respect to the business of the Partnership,
the MLP and their affiliates. The Executive acknowledges that such information will be
of central importance to the business of the Partnership, the MLP and their affiliates and
that disclosure of it to, or its use by, others could cause substantial loss to the Partnership
and the MLP. The Executive accordingly agrees as follows:
4.1. Non-Competition; Non-Solicitation.
(a)
From the Effective Date until the later of (i) if any severance is
payable pursuant to Section 6.2 hereof, the expiration of the Severance Period (as defined
in Section 6.2 hereof) or (ii) the first anniversary of the Date of Termination (as defined
in Section 5.7 hereof), the Executive shall not, directly or indirectly, either individually or
as owner, partner, investor, agent, director, officer, employee, consultant, independent
contractor or otherwise, except for the account of and on behalf of the Partnership, the
MLP or their affiliates, own, manage, operate, direct, join, control, be employed by, or
participate in the ownership, management, operation or control of, or be connected in any
manner with, including, but not limited to, holding the positions of shareholder, member,
director, officer, consultant, agent, representative, independent contractor, employee,
partner or investor, in or for any business or enterprise engaged in (i) the marketing or
distribution of domestic retail distribution of propane, fuel oil and refined fuels for
residential, commercial, industrial (including engine fuel), agricultural or other retail
users, (ii) marketing of natural gas and electricity in deregulated markets (ii) the
wholesale distribution of propane in the United States or the wholesale brokerage of
propane in Canada, or (iii) the domestic retail distribution of energy-related supplies or
equipment, including home and commercial appliances.
(b)
From the Effective Date until the second anniversary of the Date of
Termination (as defined in Section 5.7 hereof), the Executive shall not, directly or
indirectly, either individually or as owner, partner, shareholder, member, investor, agent,
director, officer, employee, consultant, agent, independent contractor or otherwise, except
for the account of and on behalf of the Partnership, the MLP or their affiliates, solicit,
endeavor to entice away from the Partnership, the MLP or their affiliates, or otherwise
engage in any activity to, directly or indirectly, influence, attempt to influence, disrupt or
terminate the relationship of the Partnership, the MLP or any of their affiliates with, any
of its customers, prospective customers, suppliers, prospective suppliers, employees,
directors, independent contractors, representatives, agents or other persons or entities
with a past, present or prospective relationship with the Partnership, the MLP or any of
their affiliates .
(c)
Nothing in this Section 4.1 shall be construed to prevent the
Executive from owning as an investment not more than 0.5% of a class of equity or debt
securities issued by any competitor of the Partnership, which securities are publicly
traded and registered under Section 12 of the Securities Exchange Act of 1934.
4.2.
Proprietary Information. The Executive shall keep confidential any and
all "confidential or proprietary information" (as defined hereinafter) of the Partnership
- 4 -
and its affiliates, and shall not, other than in connection with the business of the
Partnership and the MLP or as required, in the opinion of counsel, by law or an order of a
court or regulatory agency, directly or indirectly, disclose any such information to any
person or entity, or use the same in any way and then, only after as much notice is
provided to the Partnership as is practicable under the circumstances. Upon the
expiration of the Employment Term, the Executive shall promptly return to the
Partnership all property, keys, notes, memoranda, writings, lists (including customer
lists), files, reports, correspondence, logs, machines, software, technical data or any other
tangible product or document which has been produced by, received by, or otherwise
submitted to the Executive by the Partnership or any of its affiliates at any time. For
purposes of this Agreement, “confidential or proprietary information” means any
information relating to the Partnership or any affiliate of the Partnership which is not
generally available from sources outside the Partnership or any of its affiliates (other than
as a result of disclosure by the Executive).
4.3.
Partnership’s Remedies for Breach. It is recognized that damages in the
event of breach of this Section 4 by the Executive would be difficult to ascertain, and it is
therefore agreed that each of the Partnership and the MLP, in addition to and without
limiting any other remedy or right either may have, shall have the right to an injunction
or other equitable relief in any court of competent jurisdiction, enjoining any such breach
or prospective breach. The existence of this right shall not preclude any other rights and
remedies at law or in equity which the Partnership or the MLP may have. Neither the
Partnership nor the MLP shall be required to post any bond in connection with the
foregoing. The Executive acknowledges and agrees that the provisions of this Section 4
are reasonable and necessary for the successful operation of the Partnership and the MLP
and that the Partnership would not have entered into this Agreement if the Executive had
not agreed to the provisions of this Section 4.
4.4.
Enforceability. The covenants set forth in Sections 4.1 and Section 4.2
shall be construed as independent of any of the other provisions contained in this
Agreement and shall be enforceable as aforesaid, notwithstanding the existence of any
claim or cause of action of the Executive against the Partnership, the MLP or any of their
affiliates, whether based on this Agreement or otherwise. In the event that any of the
provisions of this Section 4 should ever be adjudicated to exceed the time or other
limitations permitted by applicable law, then such provisions shall be deemed reformed
in any jurisdiction to the time or other limitations permitted by applicable law. The
provisions of this Section 4 shall survive the expiration or the termination of this
Agreement. If the Partnership asserts a claim against the Executive for violation of any
covenant set forth in Section 4.1 or Section 4.2 and the Executive prevails on the merits
in a material respect on such claim, the Partnership shall pay the reasonable attorney’s
fees and costs incurred by the Executive in connection with such claim.
5.
Termination of Employment
5.1. Death or Disability. The Employment Term shall terminate automatically
upon the Executive's death or Disability (as hereinafter defined). “Disability” shall mean
- 5 -
any physical or mental impairment, infirmity or incapacity rendering the Executive
substantially unable to perform his duties hereunder for a period of time exceeding 180
days in the aggregate during any period of twelve consecutive months. A determination
of Disability shall be made by a physician independent of the Partnership chosen by the
Partnership. In the event of an initial determination of Disability, the Executive may seek
a second opinion of his choosing. Where the first and second opinions differ, a third
opinion rendered by a physician mutually agreed to by the Partnership and the Executive
shall be deemed final. For so long as the Executive is receiving the Base Salary during
such twelve month period, any benefits under the Partnership's disability insurance
policies to which the Executive would be entitled with respect to such period shall accrue
to, and be for the benefit of, the Partnership.
5.2. Cause. The Partnership may terminate the Executive's employment and
the Employment Term for “Cause.” For purposes of this Agreement, “Cause” shall mean
(a) the Executive’s gross negligence or willful misconduct in the performance of his
duties, (b) the Executive’s willful or grossly negligent failure to perform his duties, (c)
the breach by the Executive of any written covenants made to the Partnership or the MLP
including a material breach by the Executive of any of the provisions of Section 4.1 or
4.2 hereof; (d) dishonest, fraudulent or unlawful behavior by the Executive (whether or
not in conjunction with employment) including a willful or grossly negligent violation of
any securities or financial reporting laws, rules or regulations or any policy of the
Partnership or the MLP relating to the foregoing or the Executive being subject to a
judgment, order or decree (by consent or otherwise) by any governmental or regulatory
authority which restricts his ability to engage in the business conducted by the
Partnership, the MLP and any of their affiliates, or (e) willful or reckless breach by the
Executive of any policy adopted by the Partnership or the MLP, concerning conflicts of
interest, standards of business conduct or fair employment practices or procedures with
respect to compliance with applicable law.
5.3. Good Reason. The Executive’s employment and the Employment Term
may be terminated by the Executive for Good Reason. For purposes of this Agreement.
“Good Reason” means: (a) any failure by the Partnership to comply in any material
respect with any of the provisions of Article 3 of this Agreement which is not cured
within thirty days following notice by the Executive; (b) a material diminution in the
Executive’s title, authority, duties or responsibilities, without the consent of the
Executive; or (c) the requirement by the Partnership, without the Executive’s consent,
that the Executive be based more than 35 miles from the Executive's present office
location or more than 50 miles from the Executive's present residence.
5.4.
Termination without Cause. Notwithstanding anything to the contrary
herein, the Partnership may terminate the Executive’s employment hereunder and the
Employment Term at any time and the Executive may be removed as an officer of the
Partnership at any time, subject to the provisions of Section 6.
- 6 -
5.5. Non-Renewal. The Executive’s employment and the Employment Term
may be terminated by either party pursuant to a Non-Renewal Notice, subject to the
provisions of Section 6.
5.6. Notice of Termination. Any termination of employment hereunder (other
than termination as a result of death) by the Partnership or by the Executive shall be
communicated by Notice of Termination (as hereinafter defined) to the other party hereto
given in accordance with Section 8.2 of this Agreement. For purposes of this Agreement,
a “Notice of Termination”means a written notice which (a) indicates the specific
termination provision in this Agreement relied upon, and (b) sets forth the facts and
circumstances claimed to provide a basis for termination of the Executive’s employment
under the provision so indicated.
5.7. Date of Termination. The termination of the Executive’s employment pursuant to
Section 5 shall be effective on the date that the Executive or the Partnership, as the case
may be, receives the Notice of Termination; provided however, that (a) if the Executive’s
employment is terminated by reason of death, the Date of Termination shall be the date of
death of the Executive, (b) if the Executive’s employment is terminated by reason of
Disability, the Date of Termination shall be the date that a physician finally determines in
accordance with Section 5.1 that a Disability exists with respect to the Executive, (c) if
the Executive terminates his employment, the Date of Termination shall be the tenth
Business Day after receipt by the Partnership of the Notice of Termination (or, in the
event of termination for Good Reason as set forth in Section 5.3(a), the tenth Business
Day after the expiration of the 30 day cure period) and (d) if the Executive’s employment
is terminated pursuant to a Non-Renewal Notice, the Date of Termination shall be the
Renewal Date. For purposes of this Agreement, references to a “termination,”
“termination of employment” or like terms shall mean “Separation from Service” as
defined in Section 9.1 herein.
6.
Payment Upon Termination
6.1. Change of Control. In the event that (x) within six months prior to a
Change of Control or (y) within two years following a Change of Control, either the
Partnership terminates the Executive's employment hereunder without Cause (including
pursuant to a Non-Renewal Notice) or the Executive terminates his employment
hereunder with Good Reason, (a) the Partnership shall pay to the Executive, in
accordance with Section 6.4 herein, the sum of (i) the portion of the Base Salary earned
but unpaid as of the Date of Termination, (ii) the Pro-rata Bonus (as defined below) and
(iii) an amount equal to two times the sum of (A) the Base Salary plus (B) the Maximum
Annual Bonus and (b) the Partnership shall provide to the Executive and his dependents
from the Date of Termination until the expiration of the second anniversary of the Date of
Termination, (the “Severance Period”), medical benefits substantially equivalent to the
medical benefits provided by the Partnership to senior executives and their dependents
during such period; provided, however, (i) that benefits otherwise receivable by the
Executive pursuant to clause (b) of this Section 6.1 shall be reduced to the extent
comparable benefits are actually provided to the Executive or his dependents by another
party (and the Executive shall report to the Partnership any benefits that are actually
- 7 -
provided to him); (ii) the Severance Period shall run concurrently with any period for
which Executive is eligible to elect health coverage under COBRA; (iii) during the
Severance Period, the benefits provided in any one calendar year shall not affect the
amount of benefits provided in any other calendar year; (iv) the reimbursement of an
eligible taxable expense shall be made on or before the end of the calendar year following
the calendar year in which the expense was incurred; and (v) the Executive’s rights
pursuant to this Section 6.1(b) shall not be subject to liquidation or exchange for another
benefit. The Partnership's obligation and the Executive's rights under clause (a) (ii) and
(iii) and clause (b) of this Section 6.1 shall terminate immediately upon the occurrence of
a Competition Event (as defined below).
6.2. Good Reason, Termination without Cause. In the event that the Executive
terminates his employment for Good Reason or the Partnership terminates the
Executive’s employment without Cause or has delivered a Non-Renewal Notice to the
Executive, the Partnership shall, without duplication of any amounts paid or benefits
provided pursuant to Section 6.1, (a) pay to the Executive, in accordance with Section 6.4
herein, (i) all earned but unpaid Base Salary as of the Date of Termination, (ii) an
amount equal to two times the Base Salary and (iii) the Annual Bonus the Executive
would have received for such fiscal year, calculated as if the executive had remained
employed for the entire fiscal year determined and paid in accordance with Section 3.2
herein and (b) provide to the Executive and his dependents, until the expiration of the
Severance Period, medical benefits substantially equivalent to the medical benefits
provided by the Partnership to senior executives and their dependents during such period;
provided, however, that (i) benefits otherwise receivable by the Executive pursuant to
clause (b) of this Section 6.2 shall be reduced to the extent comparable benefits are
actually provided on the Executive’s behalf by another party (and the Executive shall
report to the Partnership any benefits that are actually provided to him); (ii) the Severance
Period shall run concurrently with any period for which Executive is eligible to elect
health coverage under COBRA; (iii) during the Severance Period, the benefits provided
in any one calendar year shall not affect the amount of benefits provided in any other
calendar year; (iv) the reimbursement of an eligible taxable expense shall be made on or
before the end of the calendar year following the calendar year in which the expense was
incurred; and (v) the Executive’s rights pursuant to this Section 6.2(b) shall not be subject
to liquidation or exchange for another benefit. The Partnership's obligation and the
Executive’s rights under clause (a)(ii) and (iii) and clause (b) of this Section 6.2 shall
terminate immediately upon the occurrence of a Competition Event (as defined below).
Notwithstanding anything in this Agreement to the contrary the Executive’s Retirement
(as defined below) shall not to give rise to any benefits under this section 6.2.
6.3. Death, Disability, Cause, Without Good Reason. In the event that the
Executive’s employment is terminated (a) by reason of the Executive’s death or
Disability, (b) by the Partnership for Cause, (c) by the Executive without Good Reason or
(d) by the Executive pursuant to a Non-Renewal Notice, the Partnership shall pay to the
Executive, the Executive’s estate, or the Executive’s legal representative, as the case may
be, in accordance with Section 6.4 herein, (i) the Base Salary earned but unpaid as of the
Date of Termination and (ii) in the event that such termination is by reason of death,
- 8 -
Disability or the delivery of a Non-Renewal Notice, the Pro-rata Bonus (as defined
below).
6.4
Timing of Payments.
(a) With respect to payments made to the Executive pursuant to clause
(a)(i) of Sections 6.1 and 6.2 and clause (i) of Section 6.3 (unpaid Base Salary), the
Partnership shall pay the Executive in a lump sum in cash, within 30 days after the Date
of Termination
(b) With respect to payments made to the Executive pursuant to clause
(a)(ii) of Sections 6.1, and clause (ii) of Section 6.3 (Pro-rata Bonus) and clause (a)(iii) of
Section 6.2 (Annual Bonus), the Partnership shall pay the Executive in a lump sum in
cash no later than the 15th day of the third month following the end of the calendar year
that includes the end of the fiscal year used in determining achievement of the
performance targets applicable to such payment in accordance with Section 3.2 herein.
(c) With respect to payments made to the Executive pursuant to clause
(a)(iii) of Section 6.1 and (a)(ii) of Section 6.2 (separation pay), if the Executive is a
“Specified Employee” as defined in Section 9.2 herein on his Date of Termination, the
Partnership shall pay the Executive in a lump sum in cash upon the earlier of (a) a date no
later than 30 days after Executive’s death, or (b) the first day of the seventh month
following Executive’s Date of Termination. In the case of any such delayed payment, the
Partnership shall pay interest on the delayed amount at a per annum rate equal to the
short-term applicable federal rate in accordance with section 1274(d) of the Internal
Revenue Code in effect for the month in which Date of Termination occurs. If the
Executive is not a Specified Employee on his Date of Termination, the Partnership shall
pay the Executive in a lump sum in cash, within 60 days after the Date of Termination.
6.5.
Excise Taxes.
(a)
In the event that any payment or benefit (within the
meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the
“Code")) to the Executive or for his benefit paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise in connection with, or arising out of,
his employment with the Partnership or a change in ownership or effective control of the
Partnership or of a substantial portion of its assets (a “Payment” or “Payments”) would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties
are incurred by the Executive with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively referred to as the “Excise
Tax”), then the Executive will be entitled to receive an additional payment (a “Gross-Up
Payment”) in an amount such that after payment by the Executive of all taxes (including
the Excise Tax, any interest or penalties, other than interest and penalties imposed by
reason of the Executive’s failure to file timely a tax return or pay taxes shown due on his
return, imposed with respect to such taxes and the Excise Tax), including any income tax
and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
- 9 -
(b)
An initial determination as to whether a Gross-Up Payment
is required pursuant to this Agreement and the amount of such Gross-Up Payment shall
be made at the Partnership’s expense by an accounting firm selected by the Partnership
and reasonably acceptable to the Executive which is designated as one of the five largest
accounting firms in the United States (the “Accounting Firm”). The Accounting Firm
shall provide its determination (the “Determination”), together with detailed supporting
calculations and documentation, to the Partnership and the Executive within five days of
the Executive's termination of employment (if applicable) or such other time as requested
by the Partnership or by the Executive (provided the Executive reasonably believes that
any of the Payments may be subject to the Excise Tax). Within ten days of the delivery
of the Determination to the Executive, the Executive shall have the right to dispute the
Determination (the “Dispute”). The Gross-Up Payment, if any, as determined pursuant to
this Section 6.5 shall be paid by the Partnership to the Executive within five days of the
receipt of the Determination. The existence of the Dispute shall not in any way affect the
Executive's right to receive the Gross-Up Payment in accordance with the Determination.
If there is no Dispute, the Determination shall be binding, final and conclusive upon the
Partnership and the Executive subject to the application of Section 6.5(c) below.
Notwithstanding anything contained in this Agreement to the contrary, any Gross-Up
Payment pursuant to this section 6.5(ii) shall be paid no later than the end of the calendar
year following the calendar year in which the corresponding taxes are remitted to the
applicable government taxing authority.
(c)
As a result of the uncertainty in the application of Sections 4999
and 280G of the Code, it is possible that a Gross-Up Payment (or a portion thereof) will
be paid which should not have been paid (an “Excess Payment”) or a Gross-Up Payment
(or a portion thereof) which should have been paid will not have been paid (an
“Underpayment”). An Underpayment shall be deemed to have occurred (i) upon notice
(formal or informal) to the Executive from any governmental taxing authority that the
Executive’s tax liability (whether in respect of the Executive’s current taxable year or in
respect of any prior taxable year) may be increased by reason of the imposition of the
Excise Tax on a Payment or Payments with respect to which the Partnership has failed to
make a sufficient Gross-Up Payment, (ii) upon a determination by a court, (iii) by reason
of determination by the Partnership (which shall include the position taken by the
Partnership, together with its consolidated group, on its federal income tax return) or (iv)
upon the resolution of the Dispute to the Executive’s satisfaction. If an Underpayment
occurs, the Executive shall promptly notify the Partnership and the Partnership, subject to
its rights to dispute whether an overpayment exists and the amount thereof, shall
promptly, but in any event, at least five days prior to the date on which the applicable
government taxing authority has requested payment, pay to the Executive an additional
Gross-Up Payment equal to the amount of the Underpayment plus any interest and
penalties (other than interest and penalties imposed by reason of the Executive’s failure
to file timely a tax return or pay taxes shown due on the Executive’s return) imposed on
the Underpayment. Notwithstanding anything contained in this Agreement to the
contrary, any Underpayment pursuant to this section 6.5(c) shall be paid to the Executive
no later than the end of the calendar year following the calendar year in the
corresponding taxes are remitted to the applicable government taxing authority. An
- 10 -
Excess Payment shall be deemed to have occurred upon a “Final Determination” (as
hereinafter defined) that the Excise Tax shall not be imposed upon a Payment or
Payments (or portion thereof) with respect to which the Executive had previously
received a Gross-Up Payment. A “Final Determination” shall be deemed to have
occurred when the Executive has received from the applicable government taxing
authority a refund of taxes or other reduction in the Executive’s tax liability by reason of
the Excess Payment and upon either (x) the date a determination is made by, or an
agreement is entered into with, the applicable governmental taxing authority which
finally and conclusively binds the Executive and such taxing authority, or in the event
that a claim is brought before a court of competent jurisdiction, the date upon which a
final determination has been made by such court and either all appeals have been taken
and finally resolved or the time for all appeals has expired or (y) the statute of limitations
with respect to the Executive’s applicable tax return has expired. If an Excess Payment is
determined to have been made, the amount of the Excess Payment shall be treated as a
loan by the Partnership to the Executive and the Executive shall pay to the Partnership on
demand (but not less than 10 days after the determination of such Excess Payment and
written notice has been delivered to the Executive) the amount of the Excess Payment
plus interest at an annual rate equal to the Applicable Federal Rate provided for in
Section 1274(d) of the Code from the date the Gross-Up Payment (to which the Excess
Payment relates) was paid to the Executive until the date of repayment to the Partnership.
(d)
In the event that, according to the Determination, an Excise Tax
will be imposed on any Payment or Payments, the Partnership shall pay to the applicable
government taxing authorities as Excise Tax and income tax withholding, the amount of
the Excise Tax and income tax that the Partnership has actually withheld from the
Payment or Payments.
6.6. Certain Definitions.
(a)
“Pro-rata Bonus” means the bonus that the Executive would have
been entitled to receive under Section 3.2 as an Annual Bonus for the full fiscal year in
which his employment terminated, multiplied by the number of days from the beginning
of such fiscal year until the Date of Termination and divided by 365. The Pro-rata Bonus
shall be determined by the Compensation Committee in the manner described in Section
3.2.
(b)
“Competition Event” means any act or activity by the Executive,
directly or indirectly, which the Partnership deems, in its good faith judgment, to be a
violation of Sections 4.1 and 4.2 hereof.
(c)
“Change of Control” means:
(i)
the date on which any Person, or More than One Person
Acting as a Group, (as those terms are defined below) acquires or has acquired during the
12-month period ending on the date of the most recent acquisition by such Person or
More than One Person Acting as a Group (other than an acquisition directly by the
Partnership, Suburban Energy Service Group LLC or any of their affiliates) Common
- 11 -
Units or other voting equity interests of the Partnership (“Voting Securities”)
immediately after which such Person or More than One Person Acting as a Group has
Beneficial Ownership (as that term is defined below) of more than thirty percent (30%) of
the combined voting power of the Partnership’s then outstanding Common Units;
provided, however, that in determining whether a Change in Control has occurred,
Common Units which are acquired in a Non-Control Acquisition (as that term is defined
below) shall not constitute an acquisition which would cause a Change in Control. A
“Non-Control Acquisition” shall mean an acquisition by (x) an employee benefit plan (or
a trust forming a part there) maintained by (A) the Partnership or Suburban, or (B) any
corporation, partnership or other Person of which a majority of its voting power or its
voting equity securities or equity interest is owned, directly or indirectly, by the
Partnership, (y) the Partnership or its subsidiaries, or (z) any Person or More than One
Person Acting as a Group in connection with a Non-Control Transaction (as that term is
defined below); or
(ii)
approval by the partners of the Partnership of (x) a merger,
consolidation or reorganization involving the Partnership, unless (A) the holders of the
Common Units immediately before such merger, consolidation or reorganization own,
directly or indirectly immediately following such merger, consolidation or
reorganization, at least fifty percent (50%) of the combined voting power of the
outstanding Common Units of the entity resulting from such merger, consolidation or
reorganization (the “Surviving Entity”) in substantially the same proportion as their
ownership of the Common Units immediately before such merger, consolidation or
reorganization, and (B) no person or entity (other than the Partnership, any subsidiary
thereof, any employee benefit plan (or any trust forming a part thereof) maintained by the
Partnership, any subsidiary thereof, the Surviving Entity, or any Person who,
immediately prior to such merger, consolidation or reorganization, had Beneficial
Ownership of more than twenty five percent (25%) of then outstanding Common Units),
has Beneficial Ownership of more than twenty five percent (25%) of the combined voting
power of the Surviving Entity’s then outstanding voting securities; (y) a complete
liquidation or dissolution of the Partnership; or (z) the sale or other disposition of forty
percent (40%) of the total gross fair market value of all the assets of the Partnership to
any Person or More than One Person Acting as a Group (other than a transfer to a
subsidiary of the Partnership). For this purpose, gross fair market value means the value
of the assets of the Partnership, or the value of the assets being disposed of, determined
without regard to any liability associated with such assets. A transaction described in
clause (A) or (B) of subsection (x) hereof shall be referred to as a “Non-Control
Transaction. ”
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person (the “Subject Person”) acquired Beneficial Ownership of more
than the permitted amount of the outstanding Voting Securities as a result of the
acquisition of Voting Securities by the Partnership which, by reducing the number of
Voting Securities outstanding, increases the proportional number of Common Units
Beneficially Owned by the Subject Person, provided that if a Change in Control would
occur (but for the operation of this sentence) as a result of the acquisition of Voting
Securities by the Partnership, and after such acquisition of Voting Securities by the
- 12 -
Partnership, the Subject Person becomes the Beneficial Owner of any additional Voting
Securities which increases the percentage of the then outstanding Voting Securities
Beneficially Owned by the Subject Person, then a Change in Control shall occur.
For purposes of the foregoing definition of Change in Control, “Person” and
“Beneficial Ownership” have the meanings used for purposes of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended, and “More than one Person Acting as
a Group” has the same meaning as set forth in Treasury Regulation 1.409A-3(i)(5)(v)(B).
(d)
“Retirement” shall mean voluntary termination of employment by
the Executive following attainment of age 55 and completion of 10 years of “eligible
service” to the Partnership or its predecessors, in connection with a bona fide intent by
the Executive to no longer seek full time employment in the industries in which the
Partnership then participates. The term “eligible service” shall have the same meaning as
the term is used in the Pension Plan for Eligible Employees of Suburban Propane L.P.
and Subsidiaries.
6.7. Mitigation. The Executive shall have no duty to mitigate with respect to
any payments due pursuant to Section 6 by seeking or accepting other employment.
6.8. Waiver and Release. As a condition precedent to receiving the
compensation and benefits provided under this Section 6 (except for unpaid Base Salary
described in Section 6.4(a)), the Executive shall execute a waiver and release
substantially in the form attached hereto as Exhibit A within 45 days from Date of
Termination. Notwithstanding any other provision of this Agreement to the contrary, the
Executive shall not receive any payments or benefits to which the Executive may be
entitled under this Section 6 if the Executive fails to execute such release or revokes such
release.
7.
Compliance with Other Agreements by Executive
The Executive represents and warrants to the Partnership that the execution of this
Agreement by him and his performance of his obligations hereunder will not, with or
without the giving of notice or the passage of time or both, conflict with, result in the
breach of any provision of or the termination of, or constitute a default under, any
agreement to which the Executive is a party or by which the Executive is bound.
8.
Miscellaneous
8.1.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New Jersey, without giving effect to the conflicts of laws
principles thereof. The captions of this Agreement are not part of the provisions hereof
and shall have no force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the Partnership and the Executive or
their respective successors and legal representatives.
8.2. All notices and other communications hereunder shall be in writing and
shall be given by facsimile, hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
- 13 -
If to the Executive:
Michael J. Dunn, Jr.
c/o Suburban Propane, L.P.
One Suburban Plaza
Plaza I
240 Route 10 West
Whippany, New Jersey 07981-0206
With Copies To:
Kenneth Kirschner
Hogan & Hartson LLP
875 Third Avenue
New York, NY 10022
If to the Partnership:
Suburban Propane, L.P.
One Suburban Plaza
Plaza I
240 Route 10 West
Whippany, New Jersey 07981-0206
Attention: Paul E. Abel, Esq., General Counsel and Secretary
or to such other address as either party shall have furnished to the other in writing in
accordance herewith. Notice and communications shall be effective when actually
received by the addressee.
8.3. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such invalidity or unenforceability without rendering invalid or unenforceable the
remaining terms or provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any other
jurisdiction.
8.4. Notwithstanding any other provision (including Section 3) of this
Agreement to the contrary, the Partnership or other payor may withhold from any
amounts payable under this Agreement such taxes or other amounts as shall be required
to be withheld pursuant to any applicable law or regulation.
8.5.
The Executive's or the Partnership’s failure to insist upon strict
compliance with any provision hereof shall not be deemed to be a waiver of such
provision or any other provision hereof
- 14 -
8.6.
This Agreement contains the entire understanding of the Partnership and
the Executive with respect to the subject matter hereof and thereof and supersedes all
prior agreements between the Partnership and the Executive, whether oral or written,
except for benefit agreements and plans provided in Section 3 or otherwise available to
the Executive.
This Agreement shall be binding upon and inure solely to the benefit of the parties
hereto and their respective successors, permitted assigns, heirs, distributees and legal
representatives, including any partnership, corporation or other business organization
with which the Partnership may merge or consolidate and the Partnership will require any
successor to all or substantially all of the business or assets of the Partnership to
expressly assume and agree to perform this Agreement in the same manner as the
Partnership would be so required to do. Nothing in this Agreement, express or implied, is
intended to confer upon any other person or entity any rights or remedies of any nature
whatsoever under or by reason of this Agreement. Insofar as the Executive is concerned,
this contract, being personal, cannot be assigned.
8.7.
“Business Day” means any day excluding Saturday, Sunday, and any day
which shall be in the City of New York a legal holiday or a day which banking
institutions in the City of New York are authorized by law or other government action to
close. If any date on which a payment is required to be made hereunder is not a Business
Day, then such payment (without any additional interest) shall be made on the next
succeeding Business Day.
8.8. Any controversy, dispute or claim arising under this Agreement or any
breach thereof (other than in connection with Section 4 hereof) shall be settled by
arbitration conducted in New York City in accordance with the American Arbitration
Association’s National Rules for the Resolution of Employment Disputes (including
Mediation and Arbitration Rules) (“Rules”), a judgment upon any award rendered by the
arbitrator may be entered by any federal or state court having jurisdiction thereof. Any
such arbitration shall be conducted by a single arbitrator who shall be a member of the
National Academy of Arbitrators. If the parties are unable to agree upon an arbitrator,
then an arbitrator shall be appointed in accordance with the Rules of the American
Arbitration Association. The parties intend that this agreement to arbitrate be valid,
enforceable and irrevocable and that any determination reached pursuant to the foregoing
procedure shall be final and binding on the parties absent fraud. Each party shall pay its
own costs and expenses of such arbitration including attorneys’ fees and the fees and
expenses of the arbitrator shall be borne equally by the parties, except that the arbitrators
shall be entitled to award the reasonable attorney’s fees and costs and the reasonable
costs of arbitration to the Executive if the Executive prevails in such arbitration in any
material respect. Any amount reimbursable by the Partnership under this Section 8.8 in
any one calendar year shall not affect the amount reimbursable in any other calendar
year, and the reimbursement of an eligible expense shall be made within five business
days after delivery of Executive’s respective written requests for payment accompanied
with such evidence of fees and expenses incurred as the Partnership reasonably may
- 15 -
require, but in any event no later than the end of the calendar after the calendar year in
which the expense was incurred.
8.9.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute one and the
same instrument.
9.
Code Section 409A
9.1
Notwithstanding anything in this Agreement to the contrary, to the extent
that any amount or benefit that would constitute non-exempt “deferred compensation” for
purposes of Section 409A of the Code would otherwise be payable or distributable
hereunder by reason of the Executive’s Termination of Employment, such amount or
benefit will not be payable or distributable to Executive by reason of such circumstance
unless (a) the circumstances giving rise to such termination of employment meet any
description or definition of “separation from service” in Section 409A of the Code and
applicable regulations (without giving effect to any elective provisions that may be
available under such definition, a “Separation from Service”), or (b) the payment or
distribution of such amount or benefit would be exempt from the application of
Section 409A of the Code by reason of the short-term deferral exemption or otherwise.
This provision does not prohibit the vesting of any amount upon a termination of
employment, however defined. If this provision prevents the payment or distribution of
any amount or benefit, such payment or distribution shall be made on the date, if any, on
which an event occurs that constitutes a Section 409A-compliant “Separation from
Service” or such later date as may be required by Section 9.2 below.
9.2
Notwithstanding anything in this Agreement to the contrary, if any amount
or benefit that would constitute non-exempt “deferred compensation” for purposes of
Section 409A of the Code would otherwise be payable or distributable under this
Agreement by reason of the Executive’s Separation from Service during a period in
which he is a Specified Employee (as defined below), then, subject to any permissible
acceleration of payment by the Company under Treas. Reg. Section 1.409A-3(j)(4)(ii)
(domestic relations order), (j)(4)(iii) (conflicts of interest), or (j)(4)(vi) (payment of
employment taxes):
(a)
if the payment or distribution is payable in a lump sum, the
Executive’s right to receive payment or distribution of such non-exempt deferred
compensation will be delayed until the earlier of the Executive’s death or the first
day of the seventh month following the Executive’s Separation from Service; and
(b)
if the payment or distribution is payable over time, the amount of
such non-exempt deferred compensation that would otherwise be payable during
the six-month period immediately following the Executive’s Separation from
Service will be accumulated and Executive’s right to receive payment or
distribution of such accumulated amount will be delayed until the earlier of
Executive’s death or the first day of the seventh month following the Executive’s
- 16 -
Separation from Service, whereupon the accumulated amount will be paid or
distributed to the Executive and the normal payment or distribution schedule for
any remaining payments or distributions will resume.
For purposes of this Agreement, the term “Specified Employee” has the meaning
given such term in Code Section 409A and the final regulations thereunder (“Final 409A
Regulations”), provided, however, that, as permitted in the Final 409A Regulations, the
Partnership’s Specified Employees and its application of the six-month delay rule of
Code Section 409A(a)(2)(B)(i) shall be determined in accordance with rules adopted by
the Board of Supervisors or a committee thereof, which shall be applied consistently with
respect to all nonqualified deferred compensation arrangements of the Partnership,
including this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
SUBURBAN PROPANE, L.P. By:
By: /s/ MARK A ALEXANDER
Name: Mark A. Alexander
Chief Executive Officer
/s/ MICHAEL J. DUNN, JR
Michael J. Dunn, Jr.
- 17 -
EXHIBIT A
RELEASE AND WAIVER OF ALL CLAIMS
RELEASE
THIS IS A RELEASE AND WAIVER OF CLAIMS (hereinafter referred to as
“Release” or “Agreement”) made this ___________day of _____________, 200__, by
and between Suburban Propane, L.P. (including its subsidiaries and affiliates, and
hereinafter referred to as "Company" or “Suburban”) having a principal place of business
at 240 Route 10 West, P.O. Box 206, Whippany, New Jersey 07981-0206 and
___________________________ residing at ___________________________________
(hereinafter referred to as “Executive”)
WHEREAS, the Company and Executive previously entered into an employment
agreement dated _______, 20__ under which Executive was employed by the Company
(the “Employment Agreement”); and
WHEREAS, Executive’s employment with the Company (has been) (will be)
terminated effective __________________; and
WHEREAS, pursuant to Section 6 of the Employment Agreement, Executive is
entitled to certain compensation and benefits upon such termination, contingent upon the
execution of this Release (the “Agreement”);
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein and in the Employment Agreement, the Company and Executive agree
as follows:
IN EXCHANGE for such consideration set forth in Section 6 of the Employment
Agreement, Executive agrees that his/her acceptance and execution of this Agreement
constitutes a full, complete and knowing release and waiver of any claims asserted or
non-asserted that he/she now has or now may have against Suburban arising out of
his/her employment or termination of employment up to and including the date of this
Agreement, including any claims Executive may have under state common law for torts
or contracts (including wrongful or constructive discharge, breach of contract, emotional
distress) or under federal, state or local statute, regulation, rule, ordinance or order that
covers or relates to any aspect of employment or discrimination in employment
including, but not limited to the following:
a.
Title VII of the Civil Rights Act of 1964, as amended;
- 18 -
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
Civil Rights Act of 1991;
Americans with Disabilities Act;
Equal Pay Act of 1963;
Family and Medical Leave Act of 1993;
Age Discrimination in Employment Act;
Older Worker's Benefit Protection Act;
Worker Adjustment and Retraining Notification Act;
Employee Retirement Income Security Act of 1974;
Occupational Safety and Health Act of 1970;
Fair Labor Standards Act;
Consumer Credit Protection Act, Title III;
m.
New Jersey Law Against Discrimination;
n.
o.
p.
q.
r.
s.
t.
u.
New Jersey Conscientious Employee Protection Act;
New Jersey Worker and Community Fight to Know Act;
New Jersey Family Leave Act;
New Jersey Worker Health and Safety Act;
New Jersey Civil Rights Act;
any comparable state laws which may apply;
any state or federal "whistleblower" statutes; or
any claim for severance pay, bonus, salary; Suburban stock, sick leave,
holiday pay, vacation pay, life insurance, health or medical insurance or
any other fringe benefit, workers' compensation or disability except as
may otherwise be provided in this Agreement.
IN FURTHER CONSIDERATION FOR THE PAYMENTS SET FORTH
ABOVE, Executive hereby, on behalf of himself/herself, his/her descendants, ancestors,
dependents, heirs, executors, administrators, assigns and successors, covenants not to sue,
and fully and forever releases and unequivocally discharges Suburban, its subsidiaries,
affiliates, divisions, successors, predecessors and assigns, together with its past and pre-
sent trustees, directors, officers, agents, attorneys, insurers, employees, unit holders, and
- 19 -
representatives, and all persons acting by, through, under or in concert with any of them
(collectively "Releasees") from any and all claims, wages demands, rights, liens, agree-
ments, contracts, covenants, actions, suits, causes of action, obligations, debts, costs,
expenses, attorneys' fees, damages, judgments, orders or liabilities of whatsoever kind or
nature in law, equity or otherwise, whether now known or unknown, suspected or unsus-
pected which the Executive now owns, holds, or claims to have, own, or held or that
Executive at any time heretofore had, owned, held or claimed to have, own, or hold,
against each or any of the Releasees.
THE EXECUTIVE covenants and agrees that he/she will not, either individually
or in concert with others, file or voluntarily participate or assist in the prosecution of any
court proceedings against the Releasees, provided that nothing in this Agreement shall
prevent (a) Executive's participation in any such proceeding where such participation is
required by summons or subpoena or is otherwise compelled by law, or (b) Executive's
challenge to the validity of this Release.
THE EXECUTIVE understands and agrees that he/she has no right to further
employment with Suburban and that Suburban will have no obligation to reemploy
him/her at any time in the future.
THE EXECUTIVE hereby agrees and acknowledges that this Release and its
contents shall not constitute or be deemed an admission of liability or wrongdoing on
behalf of Suburban or the Executive, the same being expressly denied by each party.
THE EXECUTIVE covenants and agrees that he/she will treat this Release and
its contents in a confidential manner and not disclose any of its terms, including the
amount of money referred to or the terms of the non-compete provision contained in this
Release, with any party other than his/her attorney(s), accountant(s) or other professional
advisors. Suburban likewise agrees to keep this Release and its contents confidential.
THE EXECUTIVE warrants and agrees that he/she is responsible for any
federal, state, and local taxes which may be owed by him/her by virtue of the receipt of
any portion of the consideration herein provided. Executive agrees to hold Suburban
harmless from any claims by taxing authorities arising solely out of Executive's failure to
properly report any amounts received by Executive pursuant to this Release.
SUBURBAN AND THE EXECUTIVE acknowledge and agree that this
Agreement does not, and shall not be construed to, release or limit the scope of any
existing obligation of the Suburban (i) to indemnify Executive for his acts as an officer or
director of Company in accordance with the bylaws of Company and the policies and
procedures of Company that are presently in effect, (ii) to Executive with respect to
certain compensation and benefits upon termination, pursuant to Section 6 of the
Employment Agreement which are contingent upon the execution of this Release or (iii)
to Executive and his eligible, participating dependents or beneficiaries under any existing
long term incentive plan, group welfare or retirement plan of the Company in which
Executive and/or such dependents are participants.
- 20 -
THE EXECUTIVE acknowledges that he/she has been encouraged to seek the
advice of an attorney of his/her choice in regard to this Release. Suburban and the
Executive represent that they have relied upon the advice of their attorneys, who are
attorneys of their own choice, or they have knowingly and willingly not sought the advice
of their attorneys. The Executive hereby understands and acknowledges the significance
and consequences of such Release and represents that the terms of this Release are fully
understood and voluntarily accepted by him/her, without coercion.
THE EXECUTIVE further agrees and understands that he/she has twenty-one
(21) days from his/her receipt of this Release to review and return this Release to
Suburban's Human Resources: Department in Whippany, New Jersey and seven (7) days
following his /her signing of this Release to revoke the Release.
THE EXECUTIVE acknowledges that he/she has had a sufficient amount of
time to consider the terms of this Release. Both the Executive and Suburban have
cooperated in the drafting and preparation of this Release. Hence, in any construction to
be made of this Release, the same shall not be construed against any party on the basis
that the party was the drafter. In any event, it is agreed that this Release shall be
interpreted in accordance with the laws of the state of New Jersey.
IF ONE OR MORE of the provisions of this release shall for any reason be held
invalid, illegal or unenforceable in any respect by a Court of competent jurisdiction, such
invalidity, illegality or unenforceability shall not affect or impair any other provision of
Release, but this release shall be construed as if such invalid, illegal, or unenforceable
provision had not been contained herein.
(Signature page follows)
PLEASE READ CAREFULLY. YOU ARE ADVISED TO CONSULT WITH AN
ATTORNEY BEFORE SIGNING THIS AGREEMENT. THIS AGREEMENT
INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.
IN WITLESS WHEREOF, the Executive and Suburban have executed this Release and
Waiver of all claims as of the date first above written.
Suburban Propane, I.P.
By:
Title:
Date:
- 21 -
Executive Name (Print)
Executive Signature
Date:
- 22 -
SUBSIDIARIES OF SUBURBAN PROPANE PARTNERS, L.P.
(as of November 26, 2008)
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 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 Form S-8 (Nos. 333-72972 and 333-138093) of Suburban Propane Partners, L.P. of our report dated
November 26, 2008 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 26, 2008
Certification of the Chief Executive Officer 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 26, 2008
By: /s/ MARK A. ALEXANDER
Mark A. Alexander
Chief Executive Officer
Certification of the Chief Financial Officer
and Chief Accounting Officer
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 26, 2008
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 27, 2008 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 26, 2008
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 Chief Financial Officer
and Chief Accounting 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 27, 2008 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 26, 2008
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.
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 43078
Providence, RI 02940-3078
Telephone: 781-575-2724
www.computershare.com
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 2009.
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
Mark Anton II
Vice President — Business Development
Steven C. Boyd
Vice President — Operations
Douglas T. Brinkworth
Vice President — Supply
Neil E. Scanlon
Vice President — Information Services
Michael M. Keating
Vice President — Human Resources and Administration
Mark Wienberg
Vice President — Operational Planning
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
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