SUBURBAN PROPANE PARTNERS LP MANAGEMENT REPORT OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

0
The following is a discussion of the financial condition and results of
operations of the Partnership as of and for the three and nine months ended June
25, 2022, as seen from our perspective. The discussion should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the historical consolidated financial statements and
notes thereto included in the Annual Report on Form 10-K for the fiscal year
ended September 25, 2021.

Executive Overview

The following are factors that regularly affect our operating results and
financial condition. Our business is also subject to the risks and uncertainties
described in Item 1A included in the Annual Report on Form 10-K for the fiscal
year ended September 25, 2021 and in this Quarterly Report. Management currently
considers the following events, trends, and uncertainties to be most important
to understanding our financial condition and operating performance:

Product Costs and Sourcing

The level of profitability in the retail propane, fuel oil, natural gas and
electricity businesses is largely dependent on the difference between retail
sales price and our costs to acquire and transport products. The unit cost of
our products, particularly propane, fuel oil and natural gas, is subject to
volatility as a result of supply and demand dynamics or other market conditions,
including, but not limited to, economic and political factors impacting crude
oil and natural gas supply or pricing. We enter into product supply contracts
that are generally one-year agreements subject to annual renewal, and also
purchase product on the open market. We attempt to reduce price risk by pricing
product on a short-term basis. Our propane supply contracts typically provide
for pricing based upon index formulas using the posted prices established at
major supply points such as Mont Belvieu, Texas, or Conway, Kansas (plus
transportation costs) at the time of delivery.

To supplement our annual purchase requirements, we may utilize forward fixed
price purchase contracts to acquire a portion of the propane that we resell to
our customers, which allows us to manage our exposure to unfavorable changes in
commodity prices and to assure adequate physical supply. The percentage of
contract purchases, and the amount of supply contracted for under forward
contracts at fixed prices, will vary from year to year based on market
conditions.

Changes in our costs to acquire and transport products can occur rapidly over a
short period of time and can impact profitability. There is no assurance that we
will be able to pass on product acquisition and transportation cost increases
fully or immediately, particularly when such costs increase rapidly. Therefore,
average retail sales prices can vary significantly from year to year as our
costs fluctuate with the propane, fuel oil, crude oil and natural gas commodity
markets and infrastructure conditions. In addition, periods of sustained higher
commodity and/or transportation prices can lead to customer conservation,
resulting in reduced demand for our product.

During the third quarter of fiscal 2022, the wholesale cost of propane receded
nominally from the elevated levels of the prior sequential quarter, but were
still significantly higher than the prior year, primarily due to lower propane
inventory levels for this time of year, coupled with the macroeconomic and
geopolitical factors, such as Russia's invasion of Ukraine, impacting commodity
prices globally and in the United States. According to the Energy Information
Administration, U.S. propane inventory levels at the end of June 2022 were 54.0
million barrels, which was 6.1% lower than June 2021 levels and 14% lower than
the 5-year average for June. Average posted propane prices (basis Mont Belvieu,
Texas) were 43.8% higher than the prior year third quarter, albeit 4.1% lower
than the prior sequential quarter. Consistent with our established practice, we
adjusted customer pricing as market conditions allowed.

Seasonality

The retail propane and fuel oil distribution businesses, as well as the natural
gas marketing business, are seasonal because these fuels are primarily used for
heating in residential and commercial buildings. Historically, approximately
two­thirds of our retail propane volume is sold during the six-month peak
heating season from October through March. The fuel oil business tends to
experience greater seasonality given its more limited use for space heating and
approximately three-fourths of our fuel oil volumes are sold between October and
March. Consequently, sales and operating profits are concentrated in our first
and second fiscal quarters. Cash flows from operations, therefore, are greatest
during the second and third fiscal quarters when customers pay for product
purchased during the winter heating season. We expect lower operating profits
and either net losses or lower net income during the period from April through
September (our third and fourth fiscal quarters). To the extent necessary, we
will reserve cash from the second and first quarters for distribution to holders
of our Common Units in the fourth quarter and the following fiscal year first
quarter.

                                       24
--------------------------------------------------------------------------------
  Table of Contents
Weather

Weather conditions have a significant impact on the demand for our products, in
particular propane, fuel oil and natural gas, for both heating and agricultural
purposes. Many of our customers rely heavily on propane, fuel oil or natural gas
as a heating source. Accordingly, the volume sold is directly affected by the
severity of the winter weather in our service areas, which can vary
substantially from year to year. In any given area, sustained warmer than normal
temperatures will tend to result in reduced propane, fuel oil and natural gas
consumption, while sustained colder than normal temperatures will tend to result
in greater consumption.

Hedging and risk management activities

We engage in hedging and risk management activities to reduce the effect of
price volatility on our product costs and to ensure the availability of product
during periods of short supply. We enter into propane forward, options and swap
agreements with third parties, and use futures and options contracts traded on
the New York Mercantile Exchange ("NYMEX") to purchase and sell propane, fuel
oil, crude oil and natural gas at fixed prices in the future. The majority of
the futures, forward and options agreements are used to hedge price risk
associated with propane and fuel oil physical inventory, as well as, in certain
instances, forecasted purchases of propane or fuel oil. In addition, we sell
propane and fuel oil to customers at fixed prices, and enter into derivative
instruments to hedge a portion of our exposure to fluctuations in commodity
prices as a result of selling the fixed price contracts. Forward contracts are
generally settled physically at the expiration of the contract whereas futures,
options and swap contracts are generally settled at the expiration of the
contract through a net settlement mechanism. Although we use derivative
instruments to reduce the effect of price volatility associated with priced
physical inventory and forecasted transactions, we do not use derivative
instruments for speculative trading purposes. Risk management activities are
monitored by an internal Commodity Risk Management Committee, made up of six
members of management and reporting to our Audit Committee, through enforcement
of our Hedging and Risk Management Policy.

Impact of the COVID-19 pandemic on customer demand patterns

The COVID-19 pandemic has resulted in commodity and stock market volatility,
significant government stimulus and uncertainty about economic conditions. As a
result, we experienced a period of lower revenues in certain customer sectors,
particularly during the period from March 2020 through December 2020, as well as
an increase in usage in our residential and certain other customer segments that
benefited from stay-at-home initiatives and the demand for temporary, portable
energy solutions. As economic and business conditions continue to evolve, more
people are returning to work and demand in these residential and certain other
customer segments have moderated back to more historical levels. Nonetheless, as
we navigate through fiscal 2022 and beyond, we continue to refine alternative
operational plans, inclusive of manpower levels, to address different customer
demand scenarios, and to adapt our operational model to the potential for
shifting demand patterns in the future as a result of the COVID-19 pandemic on
future cash flows and access to adequate liquidity.

Inflation and other cost increases

In addition to the evolving impact of the COVID-19 pandemic, we have been
impacted by other global and economic events. We are experiencing increased
inflation in the costs of various goods and services we use to operate our
business, including higher wholesale costs for the products we distribute.
Although we have not experienced significant disruptions with securing the
products we sell, inflationary factors and competition for resources across the
supply chain has resulted in increased costs in a wide variety of areas,
including labor, transportation costs and the cost of tanks and other equipment.
These and other factors may continue to impact our product costs, expenses, and
capital expenditures, and could continue to have an impact on consumer demand as
consumers manage the impact of inflation on their resources.

Significant Accounting Policies and Estimates

Our significant accounting policies are summarized in Note 2, “Summary of Significant Accounting Policies,” included in the Notes to Consolidated Financial Statements section of our Annual Report on Form 10-K for the year ended September 25, 2021.

Certain amounts included in or affecting our consolidated financial statements
and related disclosures must be estimated, requiring management to make certain
assumptions with respect to values or conditions that cannot be known with
certainty at the time the financial statements are prepared. The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America ("US GAAP") requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. We are also subject to risks and uncertainties that
may cause actual results to differ from estimated results. Estimates are used
when accounting for depreciation and amortization of long-lived assets, employee
benefit plans, self-insurance and litigation reserves, environmental reserves,
allowances for doubtful accounts, asset valuation assessments and valuation of
derivative instruments. We base our estimates on historical experience and on
various other assumptions

                                       25

————————————————– ——————————

Contents

that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Any effects on our
business, financial position or results of operations resulting from revisions
to these estimates are recorded in the period in which the facts that give rise
to the revision become known to us. Management has reviewed these critical
accounting estimates and related disclosures with the Audit Committee of our
Board of Supervisors.

Results of operations and financial situation

Consistent with the seasonal nature of our businesses, we typically experience a
net loss in the third quarter of our fiscal year. Net loss for the third quarter
of fiscal 2022 improved to $2.5 million, or $0.04 per Common Unit, compared to a
net loss of $26.0 million, or $0.41 per Common Unit, in the fiscal 2021 third
quarter. Adjusted earnings before interest, taxes, depreciation and amortization
(Adjusted EBITDA, as defined and reconciled below) increased $5.9 million, or
25.3%, to $29.2 million for the third quarter of fiscal 2022, compared to $23.3
million in the prior year third quarter.

Retail propane gallons sold in the third quarter of fiscal 2022 of 75.5 million
gallons decreased 1.6% compared to the prior year, primarily due to the adverse
impact of historically high commodity prices on customer buying habits and
demand, partially offset by cooler spring temperatures that contributed to
higher heat-related demand in certain markets. In addition, volumes in the prior
year third quarter benefitted from incremental outdoor heating and cooking
demand associated with continued COVID-19 related government restrictions.
Average temperatures (as measured by heating degree days) across all of our
service territories during the third quarter were 4% warmer than normal and 5%
colder than the prior year third quarter.

Average wholesale propane prices (basis Mont Belvieu, Texas) for the third
quarter of fiscal 2022 increased 43.8% compared to the prior year third quarter.
Total gross margin for the third quarter of fiscal 2022 was $159.4 million,
compared to $155.0 million in the prior year third quarter. Gross margin for the
third quarter of fiscal 2022 included a $0.9 million unrealized loss
attributable to the mark-to-market adjustment for derivative instruments used in
risk management activities, compared to an $11.1 million unrealized gain in the
prior year third quarter. These non-cash adjustments, which were reported in
cost of products sold, were excluded from Adjusted EBITDA for both periods.
Excluding the impact of these non-cash mark-to-market adjustments, total gross
margin increased $16.4 million, or 11.4%, compared to the prior year third
quarter, primarily due to prudent margin management during a volatile commodity
price environment, as well as from the favorable impact of commodity hedges that
matured during the period. Our hedging and risk management activities are
intended to reduce the effect of price volatility associated with forecasted
purchases of propane, and propane sold on a fixed price basis. The commodity
hedges that matured during the third quarter of fiscal 2022 were principally
comprised of net long positions that were favorably impacted from the
significant rise in commodity prices.

Combined operating and general and administrative expenses of $130.6 million for
the third quarter of fiscal 2022 increased 9.1% compared to the prior year,
primarily due to higher payroll and benefit-related expenses, including higher
variable compensation expense, higher vehicle lease and fuel costs, higher
provisions for doubtful accounts, as well as other inflationary effects on our
operating costs.

During the third quarter of fiscal 2022, we utilized cash flows from operating
activities to repay $43.1 million in debt, and make additional investments in
Oberon Fuels, Inc. ("Oberon"). As a result of the debt repayment and the
increase in Adjusted EBITDA during the third quarter of fiscal 2022, the
Consolidated Leverage Ratio, as defined in our credit agreement, for the
trailing twelve-month period ending June 25, 2022 improved to 3.64x.

As previously announced on July 21, 2022, the Partnership's Board of Supervisors
declared a quarterly distribution of $0.325 per Common Unit effective for the
distribution payable in respect of the third quarter of fiscal 2022. This
distribution is payable on August 9, 2022 to Common Unitholders of record as of
August 2, 2022.

Our anticipated cash requirements for the remainder of fiscal 2022 include: (i)
maintenance and growth capital expenditures of approximately $11.7 million; (ii)
interest and income tax payments of approximately $12.0 million; and (iii) cash
distributions of approximately $20.5 million to our Common Unitholders based on
the quarterly distribution rate of $0.325 per Common Unit. Based on our
liquidity position, which includes cash on hand, availability of funds under our
revolving credit facility and expected cash flow from operating activities, we
expect to have sufficient funds to meet our current and future obligations.

Although uncertainty remains regarding the long-term impact of the COVID-19
pandemic on the economy and businesses, we believe our efficient and flexible
business model, as well as the recent steps taken to strengthen our balance
sheet, leave us well positioned to manage our business through the crisis as it
continues to unfold. Nonetheless, as we progress through the remainder of fiscal
2022, there remains significant uncertainty regarding the scope and duration of
governmental policies that have been, or may in the future be, instituted to
mitigate the spread of COVID-19. We will continue to adapt to the changing
circumstances and make decisions to help ensure the long-term sustainability of
our businesses, and to be able to be opportunistic for strategic growth
initiatives.

                                       26

————————————————– ——————————

Contents

We also continue to make additional investments in Oberon in support of our
ongoing collective efforts to commercialize clean-burning, renewable dimethyl
ether ("rDME") (see Item 1, Note 4 of this Quarterly Report). Specifically,
Oberon continues to evaluate the expansion of production capacity, and we made
investments in new equipment in one of our locations in California to handle,
store and distribute Propane+rDME blended products. During the third quarter of
fiscal 2022, we launched the first commercial sales of Propane+rDME, which
combines clean, versatile and abundantly available propane with the lower carbon
benefits of rDME, in our southern California markets. Additionally, on May 23,
2022, we announced our agreement with Iwatani Corporation of America to
collaborate in advancing the adoption of low-carbon alternative energy solutions
across multiple applications in the propane market, including propane blended
with rDME and to further advance investments in hydrogen infrastructure and
transportation services in the United States. On June 1, 2022, we announced our
agreement to construct, own and operate a new biodigester system with Adirondack
Farms in Clinton County, New York for the production of renewable natural gas
("RNG"). This project further expands the portfolio of clean energy investments
under our wholly owned subsidiary, Suburban Renewable Energy, LLC ("Suburban
Renewables"), which was formed in January 2022 to support our strategic goal of
building a renewable energy platform.

During the second quarter of fiscal 2022, Suburban Renewables completed its
investment of $30.0 million, plus direct transaction costs, in Independence
Hydrogen, Inc. ("IH"), in exchange for a 25% equity interest (see Item 1, Note 4
of this Quarterly Report). IH is a veteran-owned and operated, privately held
company developing a gaseous hydrogen ecosystem to deliver locally sourced
hydrogen to local markets, with a primary focus on material handling and backup
power applications. Hydrogen is a critical energy source to decarbonize the
material handling, transportation and heavy industry sectors and it can also
provide grid resiliency as backup power and long-duration storage to enable the
deployment of intermittent renewable energy sources. IH's mission is to make
communities cleaner, safer and more energy resilient by providing a reliable
supply of affordable hydrogen.

Three months completed June 25, 2022 Compared to the three months ended June 26, 2021

Revenue

(Dollars and gallons in thousands)          Three Months Ended                            Percent
                                          June 25,      June 26,        Increase         Increase
                                            2022          2021         (Decrease)       (Decrease)
Revenues
Propane                                   $ 260,634     $ 208,689     $     51,945              24.9 %
Fuel oil and refined fuels                   19,274        11,314            7,960              70.4 %
Natural gas and electricity                   7,547         5,835            1,712              29.3 %
All other                                    12,877        12,247              630               5.1 %
Total revenues                            $ 300,332     $ 238,085     $     62,247              26.1 %
Retail gallons sold
Propane                                      75,510        76,702           (1,192 )            (1.6 )%
Fuel oil and refined fuels                    3,629         3,854             (225 )            (5.8 )%



As discussed above, average temperatures (as measured by heating degree days)
across all of our service territories during the third quarter of fiscal 2022
were 4% warmer than normal (as measured by the thirty-year average of heating
degree days utilized by NOAA) and 5% cooler than the prior year third quarter.
The increase in heating degree days compared to the prior year was primarily
experienced in the northeast and midwest regions during the month of April,
which was 10% colder than average temperatures in April 2021.

Revenues from the distribution of propane and related activities of $260.6
million increased $51.9 million, or 24.9%, compared to the prior year, primarily
due to higher average retail selling prices associated with higher wholesale
costs, offset to an extent by lower volumes sold. Average propane selling prices
increased 23.6% compared to the prior year, reflecting higher average wholesale
costs, resulting in a $48.2 million increase in revenues. Retail propane gallons
sold decreased 1.2 million gallons, or 1.6%, compared to the prior year,
primarily due to customer conservation and lower resale activities as described
above, resulting in a $3.2 million decrease in revenues. Included within the
propane segment are revenues from other propane activities, which increased $6.9
million primarily due to a higher notional amount of hedging contracts used in
risk management activities that were settled physically.

Revenues from the distribution of fuel oil and refined fuels of $19.3 million
were $8.0 million, or 70.4%, higher than the prior year, primarily due to higher
average retail selling prices associated with higher wholesale costs, offset to
an extent by a decrease in volumes sold. Average fuel oil and refined fuels
selling prices increased 81.2% compared to the prior year, reflecting higher
average wholesale costs, resulting in an $8.6 million increase in revenues. Fuel
oil and refined fuels gallons sold decreased 0.2 million gallons, or 5.8%,
primarily due to customer conservation, resulting in a $0.6 million decrease in
revenues.

                                       27

————————————————– ——————————

Contents

Revenues in our natural gas and electricity segment of $7.5 million were $1.7
million, or 29.3%, higher than the prior year, primarily due to higher average
selling prices, reflecting higher average wholesale costs, offset to an extent
by lower volumes sold, primarily due to the impact of a lower customer base.

Cost of Products Sold

(Dollars in thousands)              Three Months Ended
                                  June 25,      June 26,                     Percent
                                    2022          2021        Increase      Increase
Cost of products sold
Propane                          $  117,394     $  68,219     $  49,175          72.1 %
Fuel oil and refined fuels           14,327         7,560         6,767          89.5 %
Natural gas and electricity           5,348         3,482         1,866          53.6 %
All other                             3,861         3,795            66           1.7 %
Total cost of products sold      $  140,930     $  83,056     $  57,874          69.7 %
As a percent of total revenues         46.9 %        34.9 %



The cost of products sold reported in the condensed consolidated statements of
operations represents the weighted average unit cost of propane, fuel oil and
refined fuels, and natural gas and electricity sold, including transportation
costs to deliver product from our supply points to storage or to our customer
service centers. Cost of products sold also includes the cost of appliances and
related parts sold or installed by our customer service centers computed on a
basis that approximates the average cost of the products.

Given the retail nature of our operations, we maintain a certain level of priced
physical inventory to help ensure that our field operations have adequate supply
commensurate with the time of year. Our strategy has been, and will continue to
be, to keep our physical inventory priced relatively close to market for our
field operations. Consistent with past practices, we principally utilize futures
and/or options contracts traded on the NYMEX to mitigate the price risk
associated with our priced physical inventory, as well as, in certain instances,
forecasted purchases of propane or fuel oil. In addition, we sell propane and
fuel oil to customers at fixed prices, and enter into derivative instruments to
hedge a portion of our exposure to fluctuations in commodity prices as a result
of selling the fixed price contracts. At expiration, the derivative contracts
are settled by the delivery of the product to the respective party or are
settled by the payment to the respective party of a net amount equal to the
difference between the then market price and the fixed contract price or option
exercise price. Under this risk management strategy, realized gains or losses on
futures or options contracts, which are reported in cost of products sold, that
are used to hedge price risk associated with our priced physical inventory or
fixed price volumes sold will typically offset losses or gains on the physical
inventory once the product is sold or delivered as it pertains to fixed price
contracts (which may or may not occur in the same accounting period). We do not
use futures or options contracts, or other derivative instruments, for
speculative trading purposes. Unrealized non-cash gains or losses from changes
in the fair value of derivative instruments that are not designated as cash flow
hedges are recorded within cost of products sold. Cost of products sold excludes
depreciation and amortization; these amounts are reported separately within the
condensed consolidated statements of operations.

In the commodities markets, average posted propane prices (basis Mont Belvieu,
Texas) and fuel oil prices were 43.8% and 101.5% higher than the prior year
third quarter, respectively. The net change in the fair value of derivative
instruments resulted in a $0.9 million unrealized non-cash loss in the third
quarter of fiscal 2022 compared to an $11.1 million unrealized non-cash gain in
the prior year quarter, resulting in a net increase of $12.0 million in cost of
products sold year-over-year, all of which was reported within the propane
segment. These unrealized mark-to-market adjustments are excluded from Adjusted
EBITDA for both periods.

Cost of products sold associated with the distribution of propane and related
activities of $117.4 million increased $49.2 million, or 72.1%, compared to the
prior year third quarter. Higher average wholesale costs, net of realized gains
on commodity hedges, contributed to an increase in cost of products sold of
$33.6 million, while lower volumes sold contributed to a decrease of $1.3
million in cost of products sold. Included within the propane segment are costs
from other propane activities which increased $4.9 million compared to the prior
year due to a higher notional amount of hedging contracts that were settled
physically, as well as the net increase in cost of products sold of $12.0
million resulting from the mark-to-market adjustments on derivative instruments
in both periods discussed above.

Cost of products sold associated with our fuel oil and refined fuels segment of
$14.3 million increased $6.8 million, or 89.5%, compared to the prior year third
quarter. Higher average wholesale costs led to an increase in costs of products
sold of $7.2 million, which was offset to an extent by a $0.4 million decrease
associated with lower volumes.

Cost of products sold in our natural gas and electricity segment of $5.3 million
increased $1.9 million, or 53.6%, compared to the prior year primarily due to
higher natural gas and electricity wholesale costs, partially offset by lower
usage.

                                       28
--------------------------------------------------------------------------------
  Table of Contents
Operating Expenses

(Dollars in thousands)             Three Months Ended
                                 June 25,      June 26,                      Percent
                                   2022          2021         Increase      Increase
Operating expenses               $ 109,081     $ 102,016     $    7,065           6.9 %
As a percent of total revenues        36.3 %        42.8 %




All costs of operating our retail distribution and appliance sales and service
operations are reported within operating expenses in the condensed consolidated
statements of operations. These operating expenses include the compensation and
benefits of field and direct operating support personnel, costs of operating and
maintaining our vehicle fleet, overhead and other costs of our purchasing,
training and safety departments and other direct and indirect costs of operating
our customer service centers.

Operating costs of $109.1 million for the third quarter of fiscal 2022 increased $7.1 millionor 6.9%, compared to the third quarter of the prior year, mainly due to higher salary costs and benefits costs, including higher variable compensation costs, higher rental costs vehicles and fuel, higher bad debt provisions due to higher selling prices, and other inflationary effects on our operating costs.

General and administrative expenses

(Dollars in thousands)                   Three Months Ended
                                       June 25,      June 26,                      Percent
                                         2022          2021         Increase      Increase
General and administrative expenses   $   21,541     $  17,756     $    3,785          21.3 %
As a percent of total revenues               7.2 %         7.5 %




All costs of our back office support functions, including compensation and
benefits for executives and other support functions, as well as other costs and
expenses to maintain finance and accounting, treasury, legal, human resources,
corporate development and the information systems functions are reported within
general and administrative expenses in the condensed consolidated statements of
operations.

General and administrative expenses of $21.5 million for the third quarter of
fiscal 2022 increased $3.8 million, or 21.3%, compared to the prior year third
quarter, primarily due to higher payroll and benefit-related costs, including
higher variable compensation expense, as well as other inflationary increases.

Depreciation and amortization

(Dollars in thousands)              Three Months Ended
                                  June 25,      June 26,                     Percent
                                    2022          2021        Decrease      Decrease

Depreciation and amortization $14,009 $27,254 ($13,245)

     (48.6 )%
As a percent of total revenues          4.7 %        11.4 %



Depreciation and amortization expense of $14.0 million for the third quarter of
fiscal 2022 decreased $13.2 million, or 48.6%, compared to the prior year third
quarter, primarily as a result of lower amortization expense attributable to the
conclusion of the amortization period for certain intangible assets from prior
business acquisitions.

Interest Expense, net

(Dollars in thousands)              Three Months Ended
                                  June 25,      June 26,                     Percent
                                    2022          2021        Decrease      Decrease
Interest expense, net            $   15,004     $  16,737     $  (1,733 )       (10.4 )%
As a percent of total revenues          5.0 %         7.0 %



Net interest expense of $15.0 million in the third quarter of fiscal 2022
decreased $1.7 million, or 10.4%, compared to the prior year third quarter, due
to the impact of the refinancing of two tranches of senior notes at lower
interest rates in the third quarter of the prior year, as well as a lower
average level of outstanding debt. See Liquidity and Capital Resources below for
additional discussion.

                                       29

————————————————– ——————————

Contents

Loss on extinguishment of debt

On May 24, 2021, we repurchased, satisfied and discharged all of our previously
outstanding 2024 Senior Notes and 2025 Senior Notes with net proceeds from the
issuance of the 2031 Senior Notes and borrowings under the Revolving Credit
Facility, as described and defined below, pursuant to a tender offer and
redemption. In connection with this tender offer and redemption during the third
quarter of fiscal 2021, we recognized a loss on the extinguishment of debt of
$16.0 million, consisting of $11.5 million for the redemption premium and
related fees, as well as the write-off of $4.5 million in unamortized debt
origination costs.

EBITDA and Adjusted EBITDA

EBITDA represents net income before deducting interest expense, income taxes,
depreciation and amortization. Adjusted EBITDA represents EBITDA excluding the
unrealized net gain or loss on mark-to-market activity for derivative
instruments and other items, as applicable, as provided in the table below. Our
management uses EBITDA and Adjusted EBITDA as supplemental measures of operating
performance and we are including them because we believe that they provide our
investors and industry analysts with additional information that we determined
is useful to evaluate our operating results. EBITDA and Adjusted EBITDA are not
recognized terms under US GAAP and should not be considered as an alternative to
net income or net cash provided by operating activities determined in accordance
with US GAAP. Because EBITDA and Adjusted EBITDA as determined by us excludes
some, but not all, items that affect net income, they may not be comparable to
EBITDA and Adjusted EBITDA or similarly titled measures used by other companies.

The following table sets forth our calculations of EBITDA and Adjusted EBITDA:

(Dollars in thousands)                                       Three Months Ended
                                                         June 25,          June 26,
                                                           2022              2021
Net loss                                              $       (2,535 )   $     (26,021 )
Add:
Provision for income taxes                                       271               173
Interest expense, net                                         15,004            16,737
Depreciation and amortization                                 14,009        

27,254

EBITDA                                                        26,749        

18,143

Unrealized non-cash losses (gains) on changes in
fair value of derivatives                                        921           (11,139 )
Equity in earnings of unconsolidated affiliates                  877               116
Pension settlement charge                                        634               142
Loss on debt extinguishment                                        -            16,029
Adjusted EBITDA                                       $       29,181     $      23,291


We also reference gross margins, computed as revenues less cost of products sold
as those amounts are reported on the condensed consolidated financial
statements. Our management uses gross margin as a supplemental measure of
operating performance and we are including it as we believe that it provides our
investors and industry analysts with additional information that we determined
is useful to evaluate our operating results. As cost of products sold does not
include depreciation and amortization expense, the gross margin we reference is
considered a non-GAAP financial measure.


Nine month period ended June 25, 2022 Compared to the nine months ended June 26, 2021

Revenue

(Dollars and gallons in thousands)              Nine Months Ended                             Percent
                                            June 25,        June 26,         Increase         Increase
                                              2022            2021          (Decrease)       (Decrease)
Revenues
Propane                                    $ 1,108,572     $   958,641     $    149,931             15.6 %
Fuel oil and refined fuels                      83,741          59,075           24,666             41.8 %
Natural gas and electricity                     31,165          23,461            7,704             32.8 %
All other                                       40,356          39,337            1,019              2.6 %
Total revenues                             $ 1,263,834     $ 1,080,514     $    183,320             17.0 %
Retail gallons sold
Propane                                        339,954         357,443          (17,489 )           (4.9 )%
Fuel oil and refined fuels                      20,478          21,301             (823 )           (3.9 )%




                                       30

————————————————– ——————————

Contents

Average temperatures (as measured in heating degree days) across all of our
service territories for the first nine months of fiscal 2022 were 10% warmer
than normal and 1% warmer than the prior year period. The weather during the
first nine months of fiscal 2022 was characterized by widespread warm
temperatures throughout most of our service territories during the critical
month of December which lasted into early January. While a cooling trend arrived
late in January, warmer weather returned in mid-February. The unseasonably warm
and erratic weather pattern throughout the majority of fiscal 2022 led to
inconsistent heat-related demand, while elevated selling prices due to
significantly higher wholesale costs contributed to customer conservation. In
addition, as more people continued to return to work in a post-COVID environment
and outdoor heating needs moderated to more traditional pre-pandemic levels,
resale volumes were negatively affected.

Revenues from the distribution of propane and related activities of $1,108.6
million increased $149.9 million, or 15.6%, compared to the prior year period,
primarily due to higher average retail selling prices associated with higher
wholesale costs, offset to an extent by lower volumes sold. Average propane
selling prices increased 23.2% compared to the prior year period, reflecting a
rise in average wholesale costs, resulting in a $205.0 million increase in
revenues. Retail propane gallons sold decreased 17.5 million gallons, or 4.9%,
compared to the prior year, resulting in a $45.5 million decrease in revenues.
Included within the propane segment are revenues from other propane activities,
which decreased $9.6 million primarily due to a lower notional amount of hedging
contracts used in risk management activities that were settled physically.

Revenues from the distribution of fuel oil and refined fuels of $83.7 million
increased $24.7 million, or 41.8%, compared to the prior year period, primarily
due to higher average selling prices associated with higher wholesale costs,
partially offset by lower volumes sold. Average selling prices for fuel oil and
refined fuels increased 47.5%, resulting in a $26.9 million increase in
revenues. Fuel oil and refined fuels volumes sold decreased 0.8 million gallons,
or 3.9%, resulting in a $2.2 million decrease in revenues.

Revenues in our natural gas and electricity segment of $31.2 million were $7.7
million, or 32.8%, higher than the prior year period, resulting from higher
average selling prices, reflecting higher average wholesale costs, offset to an
extent by lower volumes sold, primarily due to the impact of warmer temperatures
on customer demand and a lower customer base.

Cost of Products Sold

(Dollars in thousands)              Nine Months Ended
                                 June 25,      June 26,                     Percent
                                   2022          2021        Increase      Increase
Cost of products sold
Propane                          $ 484,524     $ 358,292     $ 126,232          35.2 %
Fuel oil and refined fuels          59,196        35,203        23,993          68.2 %
Natural gas and electricity         20,818        12,858         7,960          61.9 %
All other                           11,761        11,649           112           1.0 %
Total cost of products sold      $ 576,299     $ 418,002     $ 158,297          37.9 %
As a percent of total revenues        45.6 %        38.7 %



In the commodities markets, average posted propane prices (basis Mont Belvieu,
Texas) and fuel oil prices in the first nine months of fiscal 2022 were 62.2%
and 88.1% higher than the prior year period, respectively. The net change in the
fair value of derivative instruments resulted in a $1.5 million unrealized
non-cash loss and a $17.6 million unrealized non-cash gain in the first nine
months of fiscal 2022 and 2021, respectively, resulting in an increase of $19.1
million in cost of products sold year-over-year, all of which was reported
within the propane segment. These unrealized mark-to-market adjustments are
excluded from Adjusted EBITDA for both periods.

Cost of products sold associated with the distribution of propane and related
activities of $484.5 million increased $126.2 million, or 35.2%, compared to the
prior year period. Higher average wholesale costs contributed to a $135.6
million increase in cost of products sold, while lower volumes sold contributed
to a $17.9 million decrease. Included within the propane segment are costs from
other propane activities which decreased $10.6 million compared to the prior
year due to a lower notional amount of hedging contracts used in risk management
activities that were settled physically, coupled with the net increase in cost
of products sold of $19.1 million resulting from the mark-to-market adjustments
on derivative instruments in both periods discussed above.

Cost of products sold associated with our fuel oil and refined fuels segment of
$59.2 million increased $24.0 million, or 68.2%, compared to the prior year
period. Higher average wholesale costs contributed to an increase in cost of
products sold of $25.4 million, which was partially offset by the $1.4 million
impact from lower volumes sold.

                                       31

————————————————– ——————————

Contents

Cost of products sold in our natural gas and electricity segment of $20.8
million increased $8.0 million, or 61.9%, compared to the prior year period,
primarily due to higher natural gas and electricity wholesale costs, partially
offset by lower usage.

Operating Expenses

(Dollars in thousands)              Nine Months Ended
                                 June 25,      June 26,                     Percent
                                   2022          2021        Increase      Increase
Operating expenses               $ 334,229     $ 309,183     $  25,046           8.1 %
As a percent of total revenues        26.4 %        28.6 %



Operating expenses of $334.2 million for the first nine months of fiscal 2022
increased $25.0 million, or 8.1%, compared to the corresponding prior year
period, due primarily to higher payroll and benefit-related costs, including
higher variable compensation expense, higher vehicle lease and operating costs,
higher provisions for doubtful accounts, as well as other inflationary effects
on our operating costs.


General and administrative expenses

(Dollars in thousands)                   Nine Months Ended
                                      June 25,      June 26,                      Percent
                                        2022          2021         Increase      Increase

General and administrative expenses $64,962 $57,866 $7,096 12.3% As a percentage of total revenue

              5.1 %         5.4 %



General and administrative expenses of $65.0 million for the first nine months
of fiscal 2022 increased $7.1 million, or 12.3%, compared to the prior year
period, primarily due to higher payroll and benefit-related costs, including
higher variable compensation expense given the year-over-year increase in
earnings.

Depreciation and amortization

(Dollars in thousands)              Nine Months Ended
                                 June 25,      June 26,                     Percent
                                   2022          2021        Decrease      Decrease

Depreciation and amortization $44,356 $82,617 ($38,261)

    (46.3 )%
As a percent of total revenues         3.5 %         7.6 %



Depreciation and amortization expense of $44.4 million in the first nine months
of fiscal 2022 decreased $38.3 million, or 46.3%, primarily as a result of lower
amortization expense attributable to the conclusion of the amortization period
for certain intangible assets from prior business acquisitions.

Interest Expense, net

(Dollars in thousands)              Nine Months Ended
                                 June 25,      June 26,                     Percent
                                   2022          2021        Decrease      Decrease
Interest expense, net            $  45,557     $  52,964     $  (7,407 )       (14.0 )%
As a percent of total revenues         3.6 %         4.9 %



Net interest expense of $45.6 million in the first nine months of fiscal 2022
decreased $7.4 million, or 14.0%, compared to the prior year period, primarily
due to the impact of the refinancing of two tranches of senior notes at lower
interest rates in the third quarter of the prior year, as well as a lower
average level of outstanding debt. See Liquidity and Capital Resources below for
additional discussion.

                                       32
--------------------------------------------------------------------------------
  Table of Contents
Loss on Debt Extinguishment

On May 24, 2021, we repurchased, satisfied and discharged all of our previously
outstanding 2024 Senior Notes and 2025 Senior Notes with net proceeds from the
issuance of the 2031 Senior Notes and borrowings under the Revolving Credit
Facility, as described and defined below, pursuant to a tender offer and
redemption. In connection with this tender offer and redemption during the third
quarter of fiscal 2021, we recognized a loss on the extinguishment of debt of
$16.0 million, consisting of $11.5 million for the redemption premium and
related fees, as well as the write-off of $4.5 million in unamortized debt
origination costs.

EBITDA and Adjusted EBITDA

The following table sets forth our calculations of EBITDA and Adjusted EBITDA:

(Dollars in thousands)                                       Nine Months Ended
                                                        June 25,          June 26,
                                                          2022              2021
Net income                                            $     193,865     $     139,172
Add:
Provision for income taxes                                      171               936
Interest expense, net                                        45,557            52,964
Depreciation and amortization                                44,356         

82,617

EBITDA                                                      283,949         

275,689

Unrealized non-cash losses (gains) on changes in
fair value of derivatives                                     1,442           (17,632 )
Equity in earnings of unconsolidated affiliates               2,202               552
Pension settlement charge                                       634               712
Loss on debt extinguishment                                       -            16,029
Adjusted EBITDA                                       $     288,227     $     275,350



We also reference gross margins, computed as revenues less cost of products sold
as those amounts are reported on the condensed consolidated financial
statements. Our management uses gross margin as a supplemental measure of
operating performance and we are including it as we believe that it provides our
investors and industry analysts with additional information that we determined
is useful to evaluate our operating results. As cost of products sold does not
include depreciation and amortization expense, the gross margin we reference is
considered a non-GAAP financial measure.

Cash and capital resources

Cash flow analysis

Operating Activities. Net cash provided by operating activities for the first
nine months of fiscal 2022 of $171.1 million decreased $9.6 million compared to
the corresponding prior year period. The decrease was primarily due to a higher
level of variable-based compensation payments for awards earned in the
respective prior fiscal year, the payment of the employer portion of social
security payroll tax that was deferred during a certain portion of fiscal 2020
under the CARES Act, and a larger increase in working capital compared to the
prior year, which stemmed from the rise in average wholesale costs of propane
(discussed above).

Investing Activities. Net cash used in investing activities of $64.3 million for
the first nine months of fiscal 2022 consisted of capital expenditures of $33.3
million (including approximately $17.8 million to support the growth of
operations and $15.5 million for maintenance expenditures), a $30.0 million
investment in IH (plus direct transactions costs), $5.8 million used to fund the
acquisition of certain assets of a retail propane business and additional
investments in Oberon, partially offset by approximately $5.3 million in
proceeds from the sale of property, plant and equipment, as well as the sale of
certain assets and operations in a non-strategic market of the propane segment.
See Item 1, Note 4 of this Quarterly Report.

Net cash used in investing activities of $27.8 million for the first nine months
of fiscal 2021 consisted of capital expenditures of $21.8 million (including
approximately $11.3 million to support the growth of operations and $10.5
million for maintenance expenditures), $8.3 million used to fund the acquisition
of a retail propane business and other investment activities, partially offset
by approximately $2.3 million in proceeds from the sale of property, plant and
equipment.

Financing Activities. Net cash used in financing activities of $105.6 million
for the first nine months of fiscal 2022 reflected $61.3 million paid for the
quarterly distributions to Common Unitholders at a rate of $0.325 per Common
Unit paid in respect of the fourth quarter of fiscal 2021 and first and second
quarters of fiscal 2022, $40.6 million in net repayments under our revolving
credit facility and other financing activities of $3.7 million.

                                       33

————————————————– ——————————

Contents

Net cash used in financing activities for the first nine months of fiscal 2021
reflected $56.2 million paid for the quarterly distributions to Common
Unitholders at a rate of $0.30 per Common Unit paid in respect of the fourth
quarter of fiscal 2020 and the first and second quarters of fiscal 2021, and
other financing activities of $3.6 million. Also reflected in financing
activities for the first nine months of fiscal 2021 was proceeds of $650.0
million from the issuance of the 2031 Senior Notes which were used, along with
borrowings of $125.0 million under our revolving credit facility, to repurchase,
satisfy and discharge all of the previously outstanding 2024 Senior Notes and
2025 Senior Notes, with an aggregate par value of $775.0 million, as well as to
pay tender premiums and other related fees of $11.3 million and debt issuance
costs of $10.8 million, pursuant to a tender offer and redemption. For the nine
months ended June 26, 2021, we utilized excess cash flows to repay $68.2 million
of total debt.

Summary of Long-Term Debt Securities and Revolving Credit Facility

As of June 25, 2022, our long-term debt consisted of $350.0 million in aggregate
principal amount of 5.875% senior notes due March 1, 2027, $650.0 million in
aggregate principal amount of 5.0% senior notes due June 1, 2031 and $91.4
million outstanding under our $500.0 million senior secured revolving credit
facility ("Revolving Credit Facility") provided by our credit agreement. Total
long-term borrowings as of June 25, 2022 and June 26, 2021 was $1,091.4 million
and $1,151.4 million, respectively. See Item 1, Note 10 of this Quarterly
Report.

Based upon our Consolidated EBITDA, as defined in the credit agreement, for the
trailing twelve-month period ended June 25, 2022, and outstanding borrowings and
letters of credits issued under the Revolving Credit Facility as of June 25,
2022, our borrowing capacity under the Revolving Credit Facility was $359.7
million.

The aggregate amounts of long-term debt maturities subsequent to June 25, 2022
are as follows: fiscal 2022: $-0-; fiscal 2023: $-0-; fiscal 2024: $-0-; fiscal
2025: $91.4 million; fiscal 2026: $-0-; and thereafter: $1,000.0 million.

Partnership distributions

We are required to make distributions in an amount equal to all of our Available
Cash, as defined in our Third Amended and Restated Partnership Agreement, as
amended (the "Partnership Agreement"), no more than 45 days after the end of
each fiscal quarter to holders of record on the applicable record dates.
Available Cash, as defined in the Partnership Agreement, generally means all
cash on hand at the end of the respective fiscal quarter less the amount of cash
reserves established by the Board of Supervisors in its reasonable discretion
for future cash requirements. These reserves are retained for the proper conduct
of our business, the payment of debt principal and interest and for
distributions during the next four quarters. The Board of Supervisors reviews
the level of Available Cash on a quarterly basis based upon information provided
by management.

On July 21, 2022, we announced a quarterly distribution of $0.325 per Common
Unit, or $1.30 on an annualized basis, in respect of the third quarter of fiscal
2022, payable on August 9, 2022 to holders of record on August 2, 2022.

Other commitments

We have a noncontributory, cash balance format, defined benefit pension plan
which was frozen to new participants effective January 1, 2000. Effective
January 1, 2003, the defined benefit pension plan was amended such that future
service credits ceased and eligible employees would receive interest credits
only toward their ultimate retirement benefit. We also provide postretirement
health care and life insurance benefits for certain retired employees under a
plan that was frozen to new participants effective March 31, 1998. At June 25,
2022, we had a liability for the defined benefit pension plan and accrued
retiree health and life benefits of $23.6 million and $7.3 million,
respectively.

We are self-insured for general and product, workers' compensation and
automobile liabilities up to predetermined thresholds above which third party
insurance applies. At June 25, 2022, we had accrued insurance liabilities of
$65.4 million, and a receivable of $15.7 million related to the amount of the
liability expected to be covered by insurance.

Legal Affairs

See Section 1, Note 13, Legal Matters subsection of this quarterly report.

                                       34

————————————————– ——————————

Contents

© Edgar Online, source Previews

Share.

Comments are closed.