Edgar Filing: SUBURBAN PROPANE PARTNERS LP

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (do not check if a smaller reporting company)

Smaller reporting company

FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 30, 2013

¨	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

22-3410353

(State or other jurisdiction of

incorporation or organization)

(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)

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

INDEX TO FORM 10-Q


		Page
	PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)

	Condensed Consolidated Balance Sheets as of March 30, 2013 and September 29, 2012		1

	Condensed Consolidated Statements of Operations for the three months ended March 30, 2013 and March 24, 2012		2

	Condensed Consolidated Statements of Operations for the six months ended March 30, 2013 and March 24, 2012		3

	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended March 30, 2013 and March 24, 2012		4

	Condensed Consolidated Statements of Cash Flows for the six months ended March 30, 2013 and March 24, 2012		5

	Condensed Consolidated Statement of Partners’ Capital for the six months ended March 30, 2013		6

	Notes to Condensed Consolidated Financial Statements		7

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		22

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		38

ITEM 4.	CONTROLS AND PROCEDURES		40

	PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS		41

ITEM 1A.	RISK FACTORS		41

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		41

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES		41

ITEM 4.	MINE SAFETY DISCLOSURES		41

ITEM 5.	OTHER INFORMATION		41

ITEM 6.	EXHIBITS		41

SIGNATURES			42

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements (“Forward-Looking Statements”) as defined in the Private Securities Litigation Reform Act of 1995 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 cost savings expected from the Partnership’s most recent acquisition of the retail propane operations formerly owned by Inergy, L.P. (“Inergy Propane”) may not be fully realized or realized within the expected time frame;

•

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

•

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

•

The ability of the Partnership to compete with other marketers and distributors 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 or acquire new customers;

•

The impact of customer conservation, energy efficiency and technology advances on the demand for propane, fuel oil and other refined fuels, natural gas and electricity;

•

The ability of management to continue to control expenses;

•

The impact of changes in applicable statutes and government regulations, or their interpretations, including those relating to the environment and global warming, derivative instruments and other regulatory developments on the Partnership’s business;

•

The impact of changes in tax laws that could adversely affect the tax treatment of the Partnership for income tax purposes;

•

The impact of legal proceedings on the Partnership’s business;

•

The impact of operating hazards that could adversely affect the Partnership’s operating results to the extent not covered by insurance;

•

The Partnership’s ability to make strategic acquisitions and successfully integrate them;

•

The impact of current conditions in the global capital and credit markets, and general economic pressures;

•

The operating, legal and regulatory risks the Partnership may face; and

•

Other risks referenced from time to time in filings with the Securities and Exchange Commission (“SEC”) and those factors listed or incorporated by reference into the Partnership’s Annual Report under “Risk Factors.”

Some of these Forward-Looking Statements are discussed in more detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report. Reference is also made to the risk factors discussed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 29, 2012. On different occasions, the Partnership or its representatives have made or may make Forward-Looking Statements in other filings with the SEC, press releases or oral statements made by or with the approval of one of the Partnership’s authorized executive officers. Readers are cautioned not to place undue reliance on Forward-Looking Statements, which reflect management’s view only as of the date made. The Partnership undertakes no obligation to update any Forward-Looking Statement or Cautionary Statement, except as required by law. All subsequent written and oral Forward-Looking Statements attributable to the Partnership or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements in this Quarterly Report and in future SEC reports.

SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)


	March 30,			September 29,
	2013			2012
ASSETS
Current assets:
Cash and cash equivalents	$	166,558		$	134,317
Accounts receivable, less allowance for doubtful accounts of $6,135 and $4,347, respectively		191,539			88,944
Inventories		75,409			88,176
Other current assets		22,677			26,843

Total current assets		456,183			338,280
Property, plant and equipment, net		947,261			969,325
Goodwill		1,092,299			1,092,299
Other intangible assets, net		412,133			436,484
Other assets		47,903			48,060

Total assets	$	2,955,779		$	2,884,448

LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Accounts payable	$	76,557		$	53,141
Accrued employment and benefit costs		24,193			16,514
Customer deposits and advances		62,791			124,297
Other current liabilities		60,756			59,763

Total current liabilities		224,297			253,715
Long-term borrowings		1,418,096			1,422,078
Accrued insurance		54,021			45,960
Other liabilities		68,724			70,952

Total liabilities		1,765,138			1,792,705

Commitments and contingencies
Partners’ capital:
Common Unitholders (57,121 and 57,013 units issued and outstanding at March 30, 2013 and September 29, 2012, respectively)		1,247,633			1,152,850
Accumulated other comprehensive loss		(56,992	)		(61,107	)

Total partners’ capital		1,190,641			1,091,743

Total liabilities and partners’ capital	$	2,955,779		$	2,884,448

The accompanying notes are an integral part of these condensed consolidated financial statements.

SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per unit amounts)

(unaudited)


	Three Months Ended
	March 30,		March 24,
	2013		2012
Revenues
Propane	$	540,537	$	283,759
Fuel oil and refined fuels		92,795		43,748
Natural gas and electricity		29,732		21,708
All other		15,362		8,411

		678,426		357,626
Costs and expenses
Cost of products sold		346,999		208,401
Operating		126,371		71,293
General and administrative		19,763		14,158
Depreciation and amortization		29,648		7,649

		522,781		301,501
Operating income		155,645		56,125
Loss on debt extinguishment		—		507
Interest expense, net		24,343		6,425

Income before provision for (benefit from) income taxes		131,302		49,193
Provision for (benefit from) income taxes		150		(380	)

Net income	$	131,152	$	49,573

Income per Common Unit—basic	$	2.29	$	1.39

Weighted average number of Common Units outstanding—basic		57,185		35,600

Income per Common Unit—diluted	$	2.28	$	1.38

Weighted average number of Common Units outstanding—diluted		57,441		35,839

The accompanying notes are an integral part of these condensed consolidated financial statements.

SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per unit amounts)

(unaudited)


	Six Months Ended
	March 30,		March 24,
	2013		2012
Revenues
Propane	$	933,322	$	524,115
Fuel oil and refined fuels		154,941		74,729
Natural gas and electricity		48,121		39,759
All other		32,745		18,909

		1,169,129		657,512
Costs and expenses
Cost of products sold		592,099		391,975
Operating		241,307		137,235
General and administrative		37,595		26,453
Depreciation and amortization		58,007		15,434

		929,008		571,097
Operating income		240,121		86,415
Loss on debt extinguishment		—		507
Interest expense, net		48,899		13,263

Income before provision for (benefit from) income taxes		191,222		72,645
Provision for (benefit from) income taxes		282		(160	)

Net income	$	190,940	$	72,805

Income per Common Unit—basic	$	3.34	$	2.05

Weighted average number of Common Units outstanding—basic		57,169		35,588

Income per Common Unit—diluted	$	3.33	$	2.03

Weighted average number of Common Units outstanding—diluted		57,392		35,808

The accompanying notes are an integral part of these condensed consolidated financial statements.

SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)


	Three Months Ended					Six Months Ended
	March 30,		March 24,			March 30,		March 24,
	2013		2012			2013		2012
Net income	$	131,152	$	49,573		$	190,940	$	72,805
Other comprehensive income:
Net unrealized gains (losses) on cash flow hedges		270		(695	)		116		(378	)
Reclassification of realized losses on cash flow hedges into earnings		740		643			1,601		1,338
Amortization of net actuarial losses and prior service credits into earnings		1,199		1,194			2,398		2,390

Other comprehensive income		2,209		1,142			4,115		3,350

Total comprehensive income	$	133,361	$	50,715		$	195,055	$	76,155

The accompanying notes are an integral part of these condensed consolidated financial statements.

SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Six Months Ended
	March 30,			March 24,
	2013			2012
Cash flows from operating activities:
Net income	$	190,940		$	72,805
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization		58,007			15,434
Loss on debt extinguishment		—			507
Other, net		(1,764	)		5,153
Changes in assets and liabilities:
Accounts receivable		(102,595	)		(40,213	)
Inventories		12,767			(1,380	)
Other current and noncurrent assets		(3,922	)		5,139
Accounts payable		23,416			(3,248	)
Accrued employment and benefit costs		7,679			(8,119	)
Customer deposits and advances		(61,506	)		(22,508	)
Accrued insurance		8,061			(1,673	)
Other current and noncurrent liabilities		2,880			(4,849	)

Net cash provided by operating activities		133,963			17,048

Cash flows from investing activities:
Capital expenditures		(12,894	)		(9,367	)
Proceeds from sale of property, plant and equipment		3,892			1,878
Adjustment to purchase price for Inergy Propane		5,850			—

Net cash (used in) investing activities		(3,152	)		(7,489	)

Cash flows from financing activities:
Repayments of long-term borrowings		—			(100,000	)
Proceeds from long-term borrowings		—			100,000
Issuance costs associated with long-term borrowings		—			(2,420	)
Partnership distributions		(98,570	)		(60,490	)

Net cash (used in) financing activities		(98,570	)		(62,910	)

Net increase (decrease) in cash and cash equivalents		32,241			(53,351	)
Cash and cash equivalents at beginning of period		134,317			149,553

Cash and cash equivalents at end of period	$	166,558		$	96,202

The accompanying notes are an integral part of these condensed consolidated financial statements.

SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

(in thousands)

(unaudited)


						Accumulated
						Other			Total
	Number of		Common			Comprehensive			Partners’
	Common Units		Unitholders			(Loss)			Capital
Balance at September 29, 2012		57,013	$	1,152,850		$	(61,107	)	$	1,091,743
Net income				190,940						190,940
Unrealized gains on cash flow hedges							116			116
Reclassification of realized losses on cash flow hedges into earnings							1,601			1,601
Amortization of net actuarial losses and prior service credits into earnings							2,398			2,398
Partnership distributions				(98,570	)					(98,570	)
Common Units issued under
Restricted Unit Plans		108
Compensation cost recognized under
Restricted Unit Plans, net of forfeitures				2,413						2,413

Balance at March 30, 2013		57,121	$	1,247,633		$	(56,992	)	$	1,190,641

The accompanying notes are an integral part of these condensed consolidated financial statements.

SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except unit and per unit amounts)

(unaudited)

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 57,121,392 Common Units outstanding at March 30, 2013. 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 as amended (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, the sole member of which is the Partnership’s Chief Executive Officer. Other than as a holder of 784 Common Units that will remain in the General Partner, the General Partner does not have any economic interest in the Partnership or the Operating Partnership.

The Partnership’s fuel oil and refined fuels, natural gas and electricity and services businesses are structured as corporate entities (collectively referred to as the “Corporate Entities”) and, as such, are subject to corporate level income tax.

Suburban Energy Finance Corp., a direct 100%-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 senior notes.

On August 1, 2012 (the “Acquisition Date”), the Partnership completed the acquisition of the sole membership interest in Inergy Propane, LLC, including certain wholly-owned subsidiaries of Inergy Propane, LLC, and the assets of Inergy Sales and Service, Inc. The acquired interests and assets are collectively referred to as “Inergy Propane.” As of the Acquisition Date, Inergy Propane consisted of the former retail propane assets and operations of Inergy, L.P. (“Inergy”). On the Acquisition Date, Inergy Propane and its remaining wholly-owned subsidiaries which were acquired became subsidiaries of the Operating Partnership, but were merged into the Operating Partnership on April 30, 2013. The results of operations of Inergy Propane are included in the Partnership’s results of operations beginning on the Acquisition Date. See Note 3.

2. Basis of Presentation

Principles of Consolidation. The condensed consolidated financial statements include the accounts of the Partnership, the Operating Partnership and all of its direct and indirect subsidiaries. All significant intercompany transactions and account balances have been eliminated. The Partnership consolidates the results of operations, financial condition and cash flows of the Operating Partnership as a result of the Partnership’s 100% limited partner interest in the Operating Partnership.

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). They include all adjustments that the Partnership considers necessary for a fair statement of the results for the interim periods presented. Such adjustments consist only of normal recurring items, unless otherwise disclosed. These financial statements should be read in conjunction with the financial statements included in the Partnership’s Annual Report on Form 10-K for the fiscal year ended September 29, 2012. Due to the seasonal nature of the Partnership’s operations, the results of operations for interim periods are not necessarily indicative of the results to be expected for a full year.

Fiscal Period. The Partnership uses a 52/53 week fiscal year which ends on the last Saturday in September. The Partnership’s fiscal quarters are generally 13 weeks in duration. When the Partnership’s fiscal year is 53 weeks long, the corresponding fourth quarter is 14 weeks in duration.

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 for amounts delivered, some of which may be unbilled at the end of each accounting period. Revenue from annually billed tank fees is deferred at the time of billings and recognized on a straight-line basis over one year.

Fair Value Measurements. The Partnership measures certain of its assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants – in either the principal market or the most advantageous market. The principal market is the market with the greatest level of activity and volume for the asset or liability.

The common framework for measuring fair value utilizes a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below with Level 1 having the highest priority and Level 3 having the lowest.

•	Level 1: Quoted prices in active markets for identical assets or liabilities.

•	Level 2: Quoted prices in active markets for similar assets or liabilities; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.

•	Level 3: Valuations derived from valuation techniques in which one or more significant inputs are unobservable.

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates have been made by management in the areas of self-insurance and litigation reserves, pension and other postretirement benefit liabilities and costs, valuation of derivative instruments, depreciation and amortization of long-lived assets, asset impairment assessments, tax valuation allowances, allowances for doubtful accounts, and purchase price allocation for acquired businesses. Actual results could differ from those estimates, making it reasonably possible that a material change in these estimates could occur in the near term.

Recently Issued Accounting Pronouncements.

In December 2011, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update (“ASU”) regarding disclosures about offsetting assets and liabilities (“ASU 2011-11”). The new guidance requires an entity to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on its financial position. The amendments, further clarified with ASU 2013-01, will enhance disclosures by requiring improved information about financial instruments and derivative instruments that are either offset in accordance with other US GAAP or subject to an enforceable master netting arrangement or similar agreement, irrespective of whether or not they are offset in the balance sheet. The new guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods, which will be the Partnership’s first quarter of its 2014 fiscal year. The Partnership is currently evaluating the impact of the new guidance on its future disclosures.

In February 2013, the FASB issued an ASU to establish the effective date for the requirement to present components of reclassifications out of accumulated other comprehensive income either parenthetically on the face of the financial statements or in the notes to the financial statements (“ASU 2013-02”). The guidance is effective prospectively for annual periods beginning after December 15, 2012, and interim periods within those annual periods, which will be the first quarter of the Partnership’s 2014 fiscal year. The adoption of ASU 2013-02 will not change the items that must be reported in other comprehensive income.

Recently Adopted Accounting Pronouncements.

In June 2011, the FASB issued an ASU to provide guidance on increasing the prominence of items reported in other comprehensive income (“ASU 2011-05”). The update eliminated the option to present components of other comprehensive income as part of the statement of partners’ capital and required net income and the components of other comprehensive income be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Partnership adopted ASU 2011-05 on September 30, 2012. This update did not change the items that must be reported in other comprehensive income, but required the Partnership to change its historical practice of showing comprehensive income and its components within the Statement of Partners’ Capital.

In July 2012, the FASB issued an ASU to simplify previous guidance which required an entity to perform a two-step impairment test for intangible assets (“ASU 2012-02”). The update allows entities to first assess the qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test. An entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The Partnership adopted ASU 2012-02 on September 30, 2012 and its adoption did not have any impact on the Partnership’s financial position, results or operations or cash flows. See Note 6.

3. Acquisition of Inergy Propane

As described in Note 1, the Partnership completed the acquisition of Inergy Propane on August 1, 2012. The acquisition of Inergy Propane was consummated pursuant to a definitive agreement dated April 25, 2012 with Inergy, Inergy GP, LLC and Inergy Sales and Service, Inc., as amended. See Note 3, “Acquisition of Inergy Propane,” included within the Notes to Consolidated Financial Statements section of our Annual Report on Form 10-K for the fiscal year ended September 29, 2012.

The Inergy Propane acquisition is consistent with key elements of the Partnership’s strategy for operational growth, which is to focus on acquiring businesses with a relatively steady cash flow that will extend the Partnership’s presence in strategically attractive markets and complement its existing business segments.

The consolidated balance sheets at March 30, 2013 and September 29, 2012 both reflect a preliminary allocation of the purchase price to the assets acquired and liabilities assumed. The Partnership is in the process of obtaining information required to determine the fair values of certain assets and liabilities acquired, principally non-current tangible and intangible assets. The Partnership expects to finalize the determination of the Acquisition Date fair value amounts by July 31, 2013.

The following presents a comparison of the actual results for the three and six months ended March 30, 2013 with the unaudited pro forma combined financial information for the three and six months ended March 24, 2012 as if the Inergy Propane acquisition had occurred on September 26, 2010, the first day of the Partnership’s 2011 fiscal year. The unaudited pro forma combined financial information is not necessarily indicative of the results that would have occurred had the Inergy Propane acquisition occurred on the date indicated, nor is it necessarily indicative of future operating results.


	Three Months Ended				Six Months Ended
	March 30, 2013		March 24, 2012		March 30, 2013		March 24, 2012
Revenues	$	678,426	$	679,784	$	1,169,129	$	1,275,152
Net income	$	131,152	$	77,781	$	190,940	$	110,117
Income per Common Unit
Basic	$	2.29	$	1.39	$	3.34	$	1.96
Diluted	$	2.28	$	1.38	$	3.33	$	1.96

4. Financial Instruments and Risk Management

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-term maturity of these instruments.

Derivative Instruments and Hedging Activities.

Commodity Price Risk. Given the retail nature of its operations, the Partnership maintains a certain level of priced physical inventory to ensure its field operations have adequate supply commensurate with the time of year. The Partnership’s strategy is to keep its physical inventory priced relatively close to market for its field operations. The Partnership enters into a combination of exchange-traded futures and option contracts and, in certain instances, over-the-counter options and swap contracts (collectively, “derivative instruments”) to hedge price risk associated with propane and fuel oil physical inventories, as well as future purchases of propane or fuel oil used in its operations and to ensure adequate supply during periods of high demand. In addition, the Partnership sells propane and fuel oil to customers at fixed prices, and enters into swap agreements to hedge a portion of its exposure to fluctuations in commodity prices as a result of selling the fixed price contracts. Under this risk management strategy, realized gains or losses on derivative instruments will typically offset losses or gains on the physical inventory once the product is sold or delivered as it pertains to fixed price contracts. All of the Partnership’s derivative instruments are reported on the consolidated balance sheet at their fair values. In addition, in the course of normal operations, the Partnership routinely enters into contracts such as forward priced physical contracts for the purchase or sale of propane and fuel oil that qualify for and are designated as normal purchase or normal sale contracts. Such contracts are exempted from the fair value accounting requirements and are accounted for at the time product is purchased or sold under the related contract. The Partnership does not use derivative instruments for speculative trading purposes. Market risks associated with futures, options, forward and swap 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 derivative instruments are entered into, other than those designated as normal purchases or normal sales, the Partnership makes a determination as to whether the derivative instrument qualifies for designation as a hedge. Changes in the fair value of derivative instruments are recorded each period in current period earnings or other comprehensive income (“OCI”), depending on whether the derivative instrument is designated as a hedge and, if so, the type of hedge. For derivative instruments designated as cash flow hedges, the Partnership formally assesses, both at the hedge contract’s inception and on an ongoing basis, whether the hedge contract is highly effective in offsetting changes in cash flows of hedged items. Changes in the fair value of derivative instruments designated as cash flow hedges are reported in OCI to the extent effective and reclassified into earnings during the same period in which the hedged item affects earnings. The mark-to-market gains or losses on ineffective portions of cash flow hedges are recognized in earnings immediately. Changes in the fair value of derivative instruments that are not designated as cash flow hedges, and that do not meet the normal purchase and normal sale exemption, are recorded within earnings as they occur. Cash flows associated with derivative instruments are reported as operating activities within the consolidated statement of cash flows.

Interest Rate Risk. A portion of the Partnership’s borrowings bear interest at prevailing interest rates based upon, at the Operating Partnership’s option, LIBOR plus an applicable margin or the base rate, defined as the higher of the Federal Funds Rate plus ¹/₂ of 1% or the agent bank’s prime rate, or LIBOR plus 1%, plus the applicable margin. The applicable margin is dependent on the level of the Partnership’s total leverage (the ratio of total debt to income before deducting interest expense, income taxes, depreciation and amortization (“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 swaps have been designated as, and are accounted for as, cash flow hedges. The fair value of the interest rate swaps are determined using an income approach, whereby future settlements under the swaps are converted into a single present value, with fair value being based on the value of current market expectations about those future amounts. Changes in the fair value are recognized in OCI until the hedged item is recognized in earnings. However, due to changes in the underlying interest rate environment, the corresponding value in OCI is subject to change prior to its impact on earnings.

Valuation of Derivative Instruments. The Partnership measures the fair value of its exchange-traded commodity-related options and futures contracts using quoted market prices found on the New York Mercantile Exchange (the “NYMEX”) (Level 1 inputs); the fair value of its commodity-related swap agreements using quoted forward prices and the fair value of its interest rate swaps using model-derived valuations driven by observable projected movements of the 3-month LIBOR (Level 2 inputs); and the fair value of its over-the-counter commodity-related options contracts using Level 3 inputs. The Partnership’s over-the-counter commodity-related options contracts are valued based on an internal option model. The inputs utilized in the model are based on publicly available information as well as broker quotes. The significant unobservable inputs used in the fair value measurements of the Partnership’s over-the-counter commodity-related options contracts are interest rate and market volatility.

The following summarizes the gross fair value of the Partnership’s derivative instruments and their location in the condensed consolidated balance sheet as of March 30, 2013 and September 29, 2012, respectively:


	As of March 30, 2013			As of September 29, 2012
	Location	Fair Value		Location	Fair Value
Asset Derivatives
Derivatives not designated as hedging instruments:
Commodity-related derivatives	Other current assets	$	1,261	Other current assets	$	4,523
	Other assets		1,464	Other assets		610

		$	2,725		$	5,133


	Location	Fair Value		Location	Fair Value
Liability Derivatives
Derivatives designated as hedging instruments:
Interest rate swaps	Other current liabilities	$	1,632	Other current liabilities	$	2,430
	Other liabilities		2,128	Other liabilities		3,047

		$	3,760		$	5,477

Derivatives not designated as hedging instruments:
Commodity-related derivatives	Other current liabilities	$	1,897	Other current liabilities	$	8,720
	Other liabilities		14	Other liabilities		22

		$	1,911		$	8,742

The following summarizes the reconciliation of the beginning and ending balances of assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs:


	Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
	Six Months Ended						Six Months Ended
	March 30, 2013						March 24, 2012
	Assets			Liabilities			Assets			Liabilities
Beginning balance of over-the-counter options	$	5,002		$	1,209		$	1,780		$	118
Beginning balance realized during the period		(3,604	)		(1,151	)		(398	)		—
Contracts purchased during the period		1,991			—			330			—
Change in the fair value of outstanding contracts		(962	)		(54	)		(770	)		(97	)

Ending balance of over-the-counter options	$	2,427		$	4		$	942		$	21

As of March 30, 2013 and September 29, 2012, the Partnership’s outstanding commodity-related derivatives had a weighted average maturity of approximately six and four months, respectively.

The effect of the Partnership’s derivative instruments on the condensed consolidated statement of operations and the condensed consolidated statement of comprehensive income, as applicable, for the three and six months ended March 30, 2013 and March 24, 2012 are as follows:


	Three months ended March 30, 2013							Three months ended March 24, 2012
Derivatives in Cash Flow Hedging Relationships	Gains (Losses) Recognized in OCI (Effective Portion)		Gains (Losses) Reclassified from Accumulated OCI into Income					Gains (Losses) Recognized in OCI (Effective Portion)			Gains (Losses) Reclassified from Accumulated OCI into Income
Derivatives in Cash Flow Hedging Relationships	Gains (Losses) Recognized in OCI (Effective Portion)		Location		Amount			Gains (Losses) Recognized in OCI (Effective Portion)			Location		Amount
Interest rate swap	$	270		Interest expense	$	(740	)	$	(695	)		Interest expense	$	(643	)

	$	270			$	(740	)	$	(695	)			$	(643	)



Derivatives Not Designated as Hedging Instruments	Location of Gains (Losses) Recognized in Income		Amount of Unrealized Gains (Losses) Recognized in Income		Location of Gains (Losses) Recognized in Income		Amount of Unrealized Gains (Losses) Recognized in Income
Commodity-related derivatives		Cost of products sold	$	(2,646)		Cost of products sold	$	—

			$	(2,646)			$	—



	Six months ended March 30, 2013							Six months ended March 24, 2012
Derivatives in Cash Flow Hedging	Gains (Losses) Recognized in OCI (Effective		Gains (Losses) Reclassified from Accumulated OCI into Income					Gains (Losses) Recognized in OCI (Effective			Gains (Losses) Reclassified from Accumulated OCI into Income
Relationships	Portion)		Location		Amount			Portion)			Location		Amount
Interest rate swap	$	116		Interest expense	$	(1,601	)	$	(378	)		Interest expense	$	(1,338	)

	$	116			$	(1,601	)	$	(378	)			$	(1,338	)



Derivatives Not Designated as Hedging Instruments	Location of Gains (Losses) Recognized in Income		Amount of Unrealized Gains (Losses) Recognized in Income		Location of Gains (Losses) Recognized in Income		Amount of Unrealized Gains (Losses) Recognized in Income
Commodity-related derivatives		Cost of products sold	$	(6,260)		Cost of products sold	$	(1,048)

			$	(6,260)			$	(1,048)

Bank Debt and Senior Notes. The fair value of the borrowings under the Revolving Credit Facility (defined below) approximates the carrying value since the interest rates are periodically adjusted to reflect market conditions. Based upon quoted market prices (a Level 1 input), the fair value of the Senior Notes (defined below) of the Partnership are as follows:


	As of
	March 30,		September 29,
	2013		2012
7.5% senior notes due October 1, 2018	$	536,282	$	531,316
7.375% senior notes due March 15, 2020		270,000		272,500
7.375% senior notes due August 1, 2021		543,718		542,460

	$	1,350,000	$	1,346,276

5. 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. Inventories consist of the following:


	As of
	March 30,		September 29,
	2013		2012
Propane, fuel oil and refined fuels and natural gas	$	71,836	$	83,543
Appliances		3,573		4,633

	$	75,409	$	88,176

6. 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 as of the end of fiscal July of each year, or when an event occurs or circumstances change that would indicate potential impairment.

During the first quarter of fiscal 2013, the Partnership adopted new accounting guidance related to goodwill impairment testing. Under the new guidance, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test.

Under the two-step impairment test, the Partnership assesses the carrying value of goodwill at a reporting unit level based on an estimate of the fair value of the respective reporting unit. Fair value of the reporting unit is estimated using discounted cash flow analyses taking into consideration estimated cash flows in a 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.

The carrying values of goodwill assigned to the Partnership’s operating segments are as follows:


	As of
	March 30,		September 29,
	2013		2012
Propane	$	1,069,271	$	1,069,271
Fuel oil and refined fuels		15,128		15,128
Natural gas and electricity		7,900		7,900

	$	1,092,299	$	1,092,299

7. Net Income Per Common Unit

Computations of basic income per Common Unit are performed by dividing net income by the weighted average number of outstanding Common Units and restricted units granted under the restricted unit plans to retirement-eligible grantees. Computations of diluted income per Common Unit are performed by dividing net income by the weighted average number of outstanding Common Units and unvested restricted units granted under the restricted unit plans. In computing diluted net income per Common Unit, weighted average units outstanding used to compute basic net income per Common Unit were increased by 256,003 and 222,665 units for the three and six months ended March 30, 2013, respectively, and 235,661 and 219,269 units for the three and six months ended March 24, 2012, respectively, to reflect the potential dilutive effect of the unvested restricted units outstanding using the treasury stock method.

8. Long-Term Borrowings

Long-term borrowings consist of the following:


	As of
	March 30,		September 29,
	2013		2012
7.5% senior notes due October 1, 2018, including unamortized premium of $31,026 and $33,366, respectively	$	527,583	$	529,923
7.375% senior notes due March 15, 2020, net of unamortized discount of $1,507 and $1,615, respectively		248,493		248,385
7.375% senior notes due August 1, 2021, including unamortized premium of $38,577 and $40,327, respectively		542,020		543,770
Revolving Credit Facility, due January 5, 2017		100,000		100,000

	$	1,418,096	$	1,422,078

Senior Notes.

2018 Senior Notes and 2021 Senior Notes

On August 1, 2012, the Partnership and its 100%-owned subsidiary, Suburban Energy Finance Corp., issued $496,557 in aggregate principal amount of unregistered 7.5% senior notes due October 1, 2018 (the “2018 Senior Notes”) and $503,443 in aggregate principal amount of unregistered 7.375% senior notes due August 1, 2021 (the “2021 Senior Notes”) in a private placement in connection with the Inergy Propane acquisition described in Note 1. Based on market rates for similar issues, the 2018 Senior Notes and 2021 Senior Notes were valued at 106.875% and 108.125%, respectively, of the principal amount, on the date of acquisition as they were issued in exchange for Inergy’s outstanding notes, not for cash. The 2018 Senior Notes require semi-annual interest payments in April and October, and the 2021 Senior Notes require semi-annual interest payments in February and August.

On December 19, 2012, the Partnership completed an offer to exchange its existing unregistered 7.5% senior notes due 2018 and 7.375% senior notes due 2021 (the “Old Notes”) for an equal principal amount of 7.5% senior notes due 2018 and 7.375% senior notes due 2021 (the “Exchange Notes”), respectively, that have been registered under the Securities Act of 1933, as amended. The terms of the Exchange Notes are identical in all material respects (including principal amount, interest rate, maturity and redemption rights) to the Old Notes for which they were exchanged, except that the Exchange Notes generally will not be subject to transfer restrictions.

2020 Senior Notes

On March 23, 2010, the Partnership and its 100%-owned subsidiary, Suburban Energy Finance Corp., completed a public offering of $250,000 in aggregate principal amount of 7.375% senior notes due March 15, 2020 (the “2020 Senior Notes”). The 2020 Senior Notes were issued at 99.136% of the principal amount. The 2020 Senior Notes require semi-annual interest payments in March and September.

The Partnership’s obligations under the 2018 Senior Notes, 2020 Senior Notes and 2021 Senior Notes (collectively, the “Senior Notes”) are unsecured and rank senior in right of payment to any future subordinated indebtedness and equally in right of payment with any future senior indebtedness. The Senior Notes are structurally subordinated to, which means they rank effectively behind, any debt and other liabilities of the Operating Partnership. The Senior Notes each have a change of control provision that would require the Partnership to offer to repurchase the notes at 101% of the principal amount repurchased, if a change of control, as defined in the applicable indenture, occurs and is followed by a rating decline (a decrease in the rating of the notes by either Moody’s Investors Service or Standard and Poor’s Rating Group by one of more gradations) within 90 days of the consummation of the change of control.

Credit Agreement

The Operating Partnership has an amended and restated credit agreement entered into on January 5, 2012, as amended on August 1, 2012 (the “Amended Credit Agreement”) that provides for a five-year $400,000 revolving credit facility (the “Revolving Credit Facility”) of which, $100,000 was outstanding as of March 30, 2013 and September 29, 2012. Borrowings under the Revolving Credit Facility may be used for general corporate purposes, including working capital, capital expenditures and acquisitions. The Operating Partnership has the right to prepay any borrowings under the Revolving Credit Facility, in whole or in part, without penalty at any time prior to maturity.

The amendment and restatement of the credit agreement on January 5, 2012 amended the previous credit agreement to, among other things, extend the maturity date from June 25, 2013 to January 5, 2017, reduce the borrowing rate and commitment fees, and amend certain affirmative and negative covenants. As of January 5, 2012, the Operating Partnership had borrowings of $100,000 outstanding under the revolving credit facility of the previous credit agreement, and rolled those borrowings into the Revolving Credit Facility of the Amended Credit Agreement. Also, at such time, the Operating Partnership had letters of credit issued under the revolving credit facility of the previous credit agreement primarily in support of retention levels under its self-insurance programs, all of which have been rolled into the Revolving Credit Facility of the Amended Credit Agreement.

On August 1, 2012, the Operating Partnership executed an amendment to the Amended Credit Agreement to, among other things, provide for (i) a $250,000 senior secured 364-Day Facility and (ii) an increase in its revolving credit facility under the Amended Credit Agreement from $250,000 to $400,000. On the Acquisition Date, the Operating Partnership drew $225,000 on the 364-Day Facility, which was used to fund a portion of the Inergy Propane acquisition, including costs and expenses related to the acquisition. The Partnership repaid the $225,000 of borrowings under the 364-Day Facility on August 14, 2012 with the net proceeds from the public issuance of Common Units on August 14, 2012.

The amendment to the Amended Credit Agreement on August 1, 2012 also amended certain restrictive and affirmative covenants applicable to the Operating Partnership and the Partnership, as well as certain financial covenants, including (a) requiring the Partnership’s consolidated interest coverage ratio, as defined in the amendment, to be not less than 2.0 to 1.0 as of the end of any fiscal quarter; (b) prohibiting the total consolidated leverage ratio, as defined in the amendment, of the Partnership from being greater than 7.0 to 1.0 as of the end of any fiscal quarter. The minimum consolidated interest coverage ratio increases over time, and commencing with the second quarter of fiscal 2014, such minimum ratio will be 2.5 to 1.0. The maximum consolidated leverage ratio decreases over time, and commencing with the first quarter of fiscal 2015, such maximum ratio will be 4.75 to 1.0 (or 5.0 to 1.0 during an acquisition period, as defined in the amendment). As of March 30, 2013, the requirements for minimum consolidated interest coverage ratio and maximum consolidated leverage ratio were 2.25 to 1.0 and 5.75 to 1.0, respectively.

The Partnership acts as a guarantor with respect to the obligations of the Operating Partnership under the Amended Credit Agreement pursuant to the terms and conditions set forth therein. The obligations under the Amended Credit Agreement are secured by liens on substantially all of the personal property of the Partnership, the Operating Partnership and their subsidiaries, as well as mortgages on certain real property.

Borrowings under the Revolving Credit Facility bear interest at prevailing interest rates based upon, at the Operating Partnership’s option, LIBOR plus the applicable margin or the base rate, defined as the higher of the Federal Funds Rate plus ¹/₂ of 1%, the agent bank’s prime rate, or LIBOR plus 1%, plus in each case the applicable margin. The applicable margin is dependent upon the Partnership’s ratio of total debt to EBITDA on a consolidated basis, as defined in the Revolving Credit Facility. As of March 30, 2013, the interest rate for the Revolving Credit Facility was approximately 2.8%. The interest rate and the applicable margin will be reset at the end of each calendar quarter.

In connection with the previous revolving credit facility, the Operating Partnership entered into an interest rate swap agreement with a notional amount of $100,000 and an effective date of March 31, 2010 and termination date of June 25, 2013. Under the interest rate swap agreement, the Operating Partnership will pay a fixed interest rate of 3.12% to the issuing lender on the notional principal amount outstanding, effectively fixing the LIBOR portion of the interest rate at 3.12%. In return, the issuing lender will pay to the Operating Partnership a floating rate, namely LIBOR, on the same notional principal amount. The interest rate swap has been designated as a cash flow hedge. In connection with the Amended Credit Agreement, the Operating Partnership entered into a forward starting interest rate swap agreement with a June 25, 2013 effective date, which coincides with the maturity of the existing interest rate swap agreement, and a maturity date of January 5, 2017. Under this forward starting interest rate swap agreement, the Operating Partnership will pay a fixed interest rate of 1.63% to the issuing lender on the notional principal amount outstanding, and the issuing lender will pay to the Operating Partnership a floating rate, namely LIBOR, on the same notional principal amount. The forward starting interest rate swap has been designated as a cash flow hedge.

As of March 30, 2013, the Partnership had standby letters of credit issued under the Revolving Credit Facility in the aggregate amount of $49,242 which expire periodically through April 15, 2014. Therefore, as of March 30, 2013, the Partnership had available borrowing capacity of $250,758 under the Revolving Credit Facility.

The Amended Credit Agreement and the 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 Amended Credit Agreement and the indentures governing the Senior Notes, the Operating Partnership and the Partnership are generally permitted to make cash distributions equal to available cash, as defined, as of the end of the immediately preceding quarter, if no event of default exists or would exist upon making such distributions, and with respect to the indentures governing the Senior Notes, the Partnership’s consolidated fixed charge coverage ratio, as defined, is greater than 1.75 to 1. The Partnership and the Operating Partnership were in compliance with all covenants and terms of the Senior Notes and the Amended Credit Agreement as of March 30, 2013.

The aggregate amounts of long-term debt maturities subsequent to March 30, 2013 are as follows: fiscal 2013 through fiscal 2016: $-0-; fiscal 2017: $100,000; and thereafter: $1,250,000.

9. Distributions of Available Cash

The Partnership makes distributions to its partners no later than 45 days after the end of each fiscal quarter 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.

On April 24, 2013, the Partnership announced a quarterly distribution of $0.8750 per Common Unit, or $3.50 per Common Unit on an annualized basis, in respect of the second quarter of fiscal 2013, payable on May 14, 2013 to holders of record on May 7, 2013.

10. Unit-Based Compensation Arrangements

The Partnership recognizes compensation cost over the respective service period for employee services received in exchange for an award of equity or equity-based compensation based on the grant date fair value of the award. The Partnership measures liability awards under an equity-based payment arrangement based on remeasurement of the award’s fair value at the conclusion of each interim and annual reporting period until the date of settlement, taking into consideration the probability that the performance conditions will be satisfied.

Restricted Unit Plans. In fiscal 2000 and fiscal 2009, the Partnership adopted the Suburban Propane Partners, L.P. 2000 Restricted Unit Plan and 2009 Restricted Unit Plan (collectively, the “Restricted Unit Plans”), respectively, which authorize the issuance of Common Units to executives, managers and other employees and members of the Board of Supervisors of the Partnership. The total number of Common Units authorized for issuance under the Restricted Unit Plans was 1,902,122 as of March 30, 2013. Unless otherwise stipulated by the Compensation Committee of the Board of Supervisors on or before the grant date, restricted units issued under the Restricted Unit Plans vest over time with 25% of the Common Units vesting on each of the third and fourth anniversaries of the grant date and the remaining 50% of the Common Units vesting on the fifth anniversary of the grant date. The Restricted Unit Plans participants are not eligible to receive quarterly distributions with respect to or vote their respective restricted units until vested. Because each restricted unit represents a promise to issue a Common Unit at a future date, restricted units cannot be sold or transferred prior to vesting. The fair value of the restricted unit is established by the market price of the Common Unit on the date of grant, net of estimated future distributions and forfeitures during the vesting period. Restricted units are subject to forfeiture in certain circumstances as defined in the Restricted Unit Plans. Compensation expense for the unvested awards is recognized ratably over the vesting periods and is net of estimated forfeitures.

During the six months ended March 30, 2013, the Partnership awarded 200,933 restricted units under the Restricted Unit Plans at an aggregate grant date fair value of $4,706. The following is a summary of activity for the Restricted Unit Plans for the six months ended March 30, 2013:


				Weighted Average
				Grant Date Fair
	Units			Value Per Unit
Outstanding September 29, 2012		442,851		$	32.68
Awarded		200,933			23.42
Forfeited		(725	)		(32.57	)
Issued		(108,160	)		(31.73	)

Outstanding March 30, 2013		534,899		$	29.40

As of March 30, 2013, unrecognized compensation cost related to unvested restricted units awarded under the Restricted Unit Plans amounted to $7,699. Compensation cost associated with unvested awards is expected to be recognized over a weighted-average period of 1.7 years. Compensation expense recognized under the Restricted Unit Plans, net of forfeitures, for the three and six months ended March 30, 2013 was $1,173 and $2,413, respectively, and $1,147 and $2,350 for the three and six months ended March 24, 2012, respectively.

Long-Term Incentive Plan. The Partnership has a non-qualified, unfunded long-term incentive plan for officers and key employees (the “LTIP”) which provides for payment, in the form of cash, of an award of equity-based compensation at the end of a three-year performance period. The level of compensation earned under the LTIP 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 consisting solely of other master limited partnerships, approved by the Compensation Committee of the Board of Supervisors, over the same three-year performance period. As a result of the quarterly remeasurement of the liability for awards under the LTIP, compensation expense for the three and six months ended March 30, 2013 was $436 and $1,719, respectively, and $102 and $691 for the three and six months ended March 24, 2012, respectively. As of March 30, 2013 and September 29, 2012, the Partnership had a liability included within accrued employment and benefit costs (or other liabilities, as applicable) of $3,207 and $1,488, respectively, related to estimated future payments under the LTIP.

11. Commitments and Contingencies

Self-Insurance. The Partnership is self-insured for general and product, workers’ compensation and automobile liabilities up to predetermined thresholds above which third party insurance applies. As of March 30, 2013 and September 29, 2012, the Partnership had accrued insurance liabilities of $60,641 and $54,551, respectively, representing the total estimated losses under these self-insurance programs. For the portion of the estimated self-insurance liability that exceeds insurance deductibles, the Partnership records an asset within other assets (or other current assets, as applicable) related to the amount of the liability expected to be covered by insurance which amounted to $19,262 and $17,522 as of March 30, 2013 and September 29, 2012, respectively.

Legal Matters. The Partnership’s operations are subject to operating hazards and risks normally incidental to handling, storing and delivering combustible liquids such as propane. The Partnership has been, and will continue to be, a defendant in various legal proceedings and litigation as a result of these operating hazards and risks, and as a result of other aspects of its business. In this last regard, the Partnership currently is a defendant in commercial suits in two states, including one class action and another putative class action in which the court has denied class certification without prejudice. The Partnership believes both such suits are without merit. The class action alleges several claims relating to two fees charged by the Partnership in connection with its residential propane business in California. During the fourth quarter of fiscal 2012, to avoid both the continued expenses and burden of defending that action and the uncertainty inherent in all litigations, the Partnership entered into an agreement to settle that California action on a class-wide basis in return for the payment of a monetary sum and certain non-monetary consideration, and established an accrual of $4,500 for the estimated cost of the settlement. The court granted preliminary approval of the proposed settlement on November 19, 2012. In the putative class action, the Partnership has been successful in eliminating several of the claims such that only certain contractual and consumer statute claims remain. The Partnership is contesting this putative class action vigorously and has determined, based on the allegations and discovery to date, that no reserve for a loss contingency other than for legal defense fees and expenses is required. The Partnership is unable to reasonably estimate the possible loss or range of loss, if any, arising from this litigation.

12. 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 2019. 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, was $16,091 as of March 30, 2013. The fair value of residual value guarantees for outstanding operating leases was de minimis as of March 30, 2013 and September 29, 2012.

13. Pension Plans and Other Postretirement Benefits

The following table provides the components of net periodic benefit costs:


	Pension Benefits
	Three Months Ended						Six Months Ended
	March 30,			March 24,			March 30,			March 24,
	2013			2012			2013			2012
Interest cost	$	1,307		$	1,577		$	2,614		$	3,155
Expected return on plan assets		(1,320	)		(1,416	)		(2,641	)		(2,833	)
Recognized net actuarial loss		1,321			1,318			2,643			2,636

Net periodic benefit cost	$	1,308		$	1,479		$	2,616		$	2,958


	Postretirement Benefits
	Three Months Ended						Six Months Ended
	March 30,			March 24,			March 30,			March 24,
	2013			2012			2013			2012
Service Cost	$	2		$	2		$	4		$	3
Interest cost		146			200			293			401
Amortization of prior service costs		(122	)		(122	)		(245	)		(244	)
Recognized net actuarial loss		—			—			—			—

Net periodic benefit cost	$	26		$	80		$	52		$	160

There are no projected minimum employer cash contribution requirements under ERISA laws for fiscal 2013 under the Partnership’s defined benefit pension plan. The projected annual contribution requirements related to the Partnership’s postretirement health care and life insurance benefit plan for fiscal 2013 is $1,427, of which $677 has been contributed during the six months ended March 30, 2013.

14. 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 before income taxes reported by the Partnership in the condensed consolidated statement of operations, are includable in the federal and state income tax returns of the holders of Common Units. 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 unitholder’s basis in the Partnership.

As described in Note 1, the earnings of the Corporate Entities are subject to corporate level federal and state income tax. However, based upon past performance, the Corporate Entities are currently reporting an income tax provision composed primarily of minimum state income taxes. A full valuation allowance has been provided against the deferred tax assets based upon an analysis of all available evidence, both negative and positive at the balance sheet date, which, taken as a whole, indicates that it is more likely than not that sufficient future taxable income will not be available to utilize the assets. Management’s periodic reviews include, among other things, the nature and amount of the taxable income and expense items, the expected timing of when assets will be used or liabilities will be required to be reported and the reliability of historical profitability of businesses expected to provide future earnings. Furthermore, management considered tax-planning strategies it could use to increase the likelihood that the deferred assets will be realized.

15. Segment Information

The Partnership manages and evaluates its operations in five operating segments, three of which are reportable segments: Propane, Fuel Oil and Refined Fuels and Natural Gas and Electricity. The chief operating decision maker evaluates performance of the operating segments using a number of performance measures, including revenues 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 otherwise the same as those described in Note 2, “Summary of Significant Accounting Policies,” in the Partnership’s Annual Report on Form 10-K for the fiscal year ended September 29, 2012.

The propane segment is primarily engaged in the retail distribution of propane to residential, commercial, industrial and agricultural customers and, to a lesser extent, wholesale distribution to large industrial end users. In the residential and commercial markets, propane is used primarily for space heating, water heating, cooking 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.

Activities in the “all other” category include the Partnership’s service business, which is primarily engaged in the sale, installation and servicing of a wide variety of home comfort equipment, particularly in the areas of heating and ventilation, and activities from the Partnership’s franchising subsidiary, Suburban Cylinder Express.

The following table presents certain relevant financial information by reportable segment and provides a reconciliation of total operating segment information to the corresponding consolidated amounts for the periods presented:


	Three Months Ended						Six Months Ended
	March 30,			March 24,			March 30,			March 24,
	2013			2012			2013			2012
Revenues:
Propane	$	540,537		$	283,759		$	933,322		$	524,115
Fuel oil and refined fuels		92,795			43,748			154,941			74,729
Natural gas and electricity		29,732			21,708			48,121			39,759
All other		15,362			8,411			32,745			18,909

Total revenues	$	678,426		$	357,626		$	1,169,129		$	657,512

Operating income:
Propane	$	179,961		$	70,483		$	286,269		$	113,981
Fuel oil and refined fuels		5,742			3,465			6,441			5,931
Natural gas and electricity		5,711			1,639			8,277			4,343
All other		(6,525	)		(3,732	)		(11,374	)		(6,329	)
Corporate		(29,244	)		(15,730	)		(49,492	)		(31,511	)

Total operating income		155,645			56,125			240,121			86,415
Reconciliation to net income:
Loss on debt extinguishment		—			507			—			507
Interest expense, net		24,343			6,425			48,899			13,263
Provision for (benefit from) income taxes		150			(380	)		282			(160	)

Net income	$	131,152		$	49,573		$	190,940		$	72,805

Depreciation and amortization:
Propane	$	23,042		$	4,942		$	45,564		$	9,855
Fuel oil and refined fuels		1,345			620			2,936			1,162
Natural gas and electricity		40			79			118			303
All other		208			20			271			53
Corporate		5,013			1,988			9,118			4,061

Total depreciation and amortization	$	29,648		$	7,649		$	58,007		$	15,434


	As of
	March 30,		September 29,
	2013		2012
Assets:
Propane	$	2,558,422	$	2,529,021
Fuel oil and refined fuels		115,827		101,108
Natural gas and electricity		20,099		14,777
All other		4,487		7,232
Corporate		256,944		232,310

Total assets	$	2,955,779	$	2,884,448

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of the financial condition and results of operations of the Partnership as of and for the three and six months ended March 30, 2013. 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 29, 2012.

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 included in the Annual Report on Form 10-K for the fiscal year ended September 29, 2012.

Product Costs and Supply

The level of profitability in our 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 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.

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, retail sales volumes can be negatively impacted by customer conservation efforts.

Seasonality

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

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 and crude oil futures and option contracts traded on the New York Mercantile Exchange (“NYMEX”), to purchase and sell propane, fuel oil and crude oil at fixed prices in the future. The majority of the futures, forward and option agreements are used to hedge price risk associated with our propane and fuel oil physical inventory, as well as, in certain instances, forecasted purchases of propane and fuel oil. Forward contracts are generally settled physically at the expiration of the contract whereas futures and option contracts 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 Audit Committee, through enforcement of our Hedging and Risk Management Policy.

Critical Accounting Policies and Estimates

Our significant accounting policies are summarized in Note 2, “Summary of Significant Accounting Policies,” included within the Notes to Consolidated Financial Statements section of our Annual Report on Form 10-K for the fiscal year ended September 29, 2012.

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 have been made by us 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, allowances for doubtful accounts, and purchase price allocation for acquired businesses. 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 financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known to us. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Supervisors.

Results of Operations and Financial Condition

Our results of operations and financial condition for the three and six months ended March 30, 2013 were significantly affected by the retail propane assets and operations of Inergy, L.P. (“Inergy”) that we acquired on August 1, 2012 (the “Acquisition Date”). The acquired interests and assets are collectively referred to as “Inergy Propane”. See Note 3, “Acquisition of Inergy Propane,” included within the Notes to Condensed Consolidated Financial Statements section of Item 1 in this quarterly report, as well as Note 3, “Acquisition of Inergy Propane,” included within the Notes to Consolidated Financial Statements section of our Annual Report on Form 10-K for the fiscal year ended September 29, 2012.

The second quarter of fiscal 2013 was the second full quarter of operations since our acquisition of Inergy Propane. For comparative purposes, the variances in year-over-year results were primarily attributable to the inclusion of the Inergy Propane operations. In addition, operating performance in our legacy operations improved as a result of a combination of colder average temperatures, lower wholesale propane costs and continued savings in operating expenses. Net income for the three months ended March 30, 2013 amounted to $131.2 million, or $2.29 per Common Unit, compared to $49.6 million, or $1.39 per Common Unit, in the prior year second quarter. Earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the second quarter of fiscal 2013 amounted to $185.3 million, compared to $63.3 million in the prior year second quarter, an increase of $122.0 million.

Net income and EBITDA for the fiscal 2013 second quarter included $2.7 million in expenses related to the ongoing integration of Inergy Propane operations. Net income and EBITDA for the fiscal 2012 second quarter included a $2.1 million non-cash charge from a loss on disposal of an asset in our natural gas and electricity business, as well as a $0.5 million loss on debt extinguishment associated with the amended and restated credit agreement completed in January 2012. Excluding the effects of these charges for the fiscal 2013 and 2012 second quarters, as well as the unrealized (non-cash) mark-to-market adjustments on derivative instruments used in risk management activities in both quarters, Adjusted EBITDA amounted to $190.7 million for the fiscal 2013 second quarter, compared to Adjusted EBITDA of $65.9 million in the prior year second quarter.

Retail propane gallons sold in the second quarter of fiscal 2013 increased 120.4 million gallons, to 210.3 million gallons from 89.9 million gallons in the prior year second quarter. Sales of fuel oil and other refined fuels increased 12.6 million gallons, to 23.2 million gallons compared to 10.6 million gallons in the prior year second quarter. The increase in volumes sold was primarily attributable to the inclusion of the Inergy Propane operations, as well as increases in our legacy operations resulting from colder average temperatures. According to the National Oceanic and Atmospheric Administration (“NOAA”), average temperatures (as measured by heating degree days) across all of our service territories during the second quarter of fiscal 2013 were 1% warmer than normal, compared to 21% warmer than normal in the prior year second quarter. The favorable weather comparison for the quarter was primarily due to colder than normal average temperatures in the month of March 2013 which, as reported by NOAA, were 10% colder than normal compared to 31% warmer than normal in March of the prior year.

Despite the increased size of our business and the resulting increased working capital needs, we funded all working capital requirements with cash on hand without the need to borrow under our working capital facility and ended the second quarter of fiscal 2013 with $166.6 million of cash. On April 24, 2013, we announced that our Board of Supervisors had declared a quarterly distribution of $0.8750 per Common Unit for the three months ended March 30, 2013. This quarterly distribution rate equates to an annualized rate of $3.50 per Common Unit. The distribution is payable on May 14, 2013 to Common Unitholders of record as of May 7, 2013.

During the second quarter of fiscal 2013, we continued to make progress on our efforts to integrate Inergy Propane with our legacy operations. With our key operations management in place since the start of the heating season, we have now focused our attention on further streamlining our regional operating structure, defining the operating footprint at the local level and identifying the management teams across the entire platform. With the heating season behind us, we have aggressively turned our attention to the blending of locations in overlapping geographies and the conversion of key operating systems. Plenty of work remains to be done with the integration of the business operations and cultures in preparation for the next heating season. We will continue to execute on our detailed integration plans while, at the same time, maintaining our focus on the combined customer base and continuing to look for opportunities to improve efficiencies.

Our anticipated cash requirements for the remainder of fiscal 2013 include: (i) maintenance and growth capital expenditures of approximately $38.1 million; (ii) interest payments of approximately $74.3 million; and (iii) cash distributions of approximately $100.0 million to our Common Unitholders based on the current quarterly distribution rate of $0.8750 per Common Unit. As of March 30, 2013, we had unused borrowing capacity under our Revolving Credit Facility of $250.8 million, after considering outstanding letters of credit of $49.2 million and outstanding borrowings of $100.0 million.

Three Months Ended March 30, 2013 Compared to Three Months Ended March 24, 2012

Revenues


	Three Months Ended
	March 30,		March 24,				Percent
(Dollars in thousands)	2013		2012		Increase		Increase
Revenues
Propane	$	540,537	$	283,759	$	256,778		90.5	%
Fuel oil and refined fuels		92,795		43,748		49,047		112.1	%
Natural gas and electricity		29,732		21,708		8,024		37.0	%
All other		15,362		8,411		6,951		82.6	%

Total revenues	$	678,426	$	357,626	$	320,800		89.7	%

Total revenues increased $320.8 million, or 89.7%, to $678.4 million for the second quarter of fiscal 2013 compared to $357.6 million for the prior year second quarter, primarily due to higher volumes sold in all reportable operating segments, offset to an extent by lower average selling prices. As discussed above, the increase in propane and fuel oil and refined fuels volumes sold was primarily due to the addition of the Inergy Propane business, coupled with increases in volumes sold across all reportable segments in our legacy operations resulting from colder average temperatures. Average temperatures (as measured by heating degree days) across all of our service territories during the second quarter of fiscal 2013 were 1% warmer than normal, compared to 21% warmer than normal in the prior year second quarter. The favorable weather comparison for the quarter was primarily due to colder than normal average temperatures in the month of March 2013, which were 10% colder than normal compared to 31% warmer than normal in March of the prior year.

Revenues from the distribution of propane and related activities of $540.5 million for the second quarter of fiscal 2013 increased $256.8 million, or 90.5%, compared to $283.8 million in the prior year second quarter, primarily due to higher volumes sold, partially offset by lower average selling prices attributable to lower product costs. Retail propane gallons sold in the second quarter of fiscal 2013 increased 120.4 million gallons, or 133.8%, to 210.3 million gallons from 89.9 million gallons in the prior year second quarter, primarily as a result of the addition of Inergy Propane, as well as increases in our legacy operations resulting from colder average temperatures. Average propane selling prices for the second quarter of fiscal 2013 decreased 15.8% compared to the prior year second quarter due to lower product costs. Included within the propane segment are revenues from other propane activities of $6.2 million for the second quarter of fiscal 2013, which decreased $4.2 million compared to the prior year second quarter.

Revenues from the distribution of fuel oil and refined fuels of $92.8 million for the second quarter of fiscal 2013 increased $49.0 million, or 112.1%, from $43.7 million in the prior year second quarter, primarily due to higher volumes sold, offset to an extent by lower average selling prices. Fuel oil and refined fuels gallons sold in the second quarter of fiscal 2013 increased 12.7 million gallons, or 119.8%, to 23.2 million gallons from 10.6 million gallons in the prior year second quarter, primarily as a result of the addition of Inergy Propane, as well as increases in our legacy operations resulting from colder average temperatures. Average selling prices in our fuel oil and refined fuels segment in the second quarter of fiscal 2013 decreased 3.1% compared to the prior year second quarter.

Revenues in our natural gas and electricity segment of $29.7 million for the second quarter of fiscal 2013 increased $8.0 million, or 37.0%, from $21.7 million in the prior year second quarter, primarily due to higher natural gas volumes sold and, to a lesser extent, electricity volumes sold. The increase in sales volumes was primarily attributable to the more favorable weather pattern in the second quarter of fiscal 2013, compared to the unseasonably warm weather in the prior year second quarter.

Cost of Products Sold


	Three Months Ended
	March 30,			March 24,					Percent
(Dollars in thousands)	2013			2012			Increase		Increase
Cost of products sold
Propane	$	243,974		$	157,028		$	86,946		55.4	%
Fuel oil and refined fuels		75,954			33,982			41,972		123.5	%
Natural gas and electricity		20,854			14,882			5,972		40.1	%
All other		6,217			2,509			3,708		147.8	%

Total cost of products sold	$	346,999		$	208,401		$	138,598		66.5	%

As a percent of total revenues		51.1	%		58.3	%

The cost of products sold reported in the condensed consolidated statements of operations represents the weighted average unit cost of propane and fuel oil and refined fuels 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 natural gas and electricity, as well as the cost of appliances and related parts sold or installed by our customer service centers computed on a basis that approximates the average cost of the products. Unrealized (non-cash) gains or losses from changes in the fair value of derivative instruments that are not designated as cash flow hedges are recorded in each quarterly reporting period within cost of products sold. Cost of products sold is reported exclusive of any depreciation and amortization; these amounts are reported separately within the condensed consolidated statements of operations.

Given the retail nature of our operations, we maintain a certain level of priced physical inventory to ensure 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. Under this risk management strategy, realized gains or losses on futures or options contracts, which are reported in cost of products sold, will typically offset losses or gains on the physical inventory once the product is sold (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.

Average posted prices for propane and fuel oil for the second quarter of fiscal 2013 were 31.3% and 3.5%, respectively, lower than the prior year second quarter. Total cost of products sold increased $138.6 million, or 66.5%, to $347.0 million in the second quarter of fiscal 2013 compared to $208.4 million in the prior year second quarter, primarily due to higher volumes sold, offset to an extent by lower propane product costs. In addition, the net change in the fair value of derivative instruments resulted in unrealized (non-cash) losses of $2.6 million in the second quarter of fiscal 2013, resulting in an increase of $2.6 million in cost of products sold in the second quarter of fiscal 2013 compared to the prior year second quarter, all of which was reported in the propane segment.

Cost of products sold associated with the distribution of propane and related activities of $244.0 million for the second quarter of fiscal 2013 increased $86.9 million, or 55.4%, compared to the prior year second quarter. Higher propane volumes sold resulted in an increase of $194.8 million in cost of products sold during the second quarter of fiscal 2013 compared to the prior year second quarter. The impact of the increase in volumes sold was partially offset by lower average propane costs, which resulted in a $104.5 million decrease in cost of products sold during the second quarter of fiscal 2013 compared to the prior year second quarter. Cost of products sold from other propane activities decreased $6.0 million in the second quarter of fiscal 2013 compared to the prior year second quarter.

Cost of products sold associated with our fuel oil and refined fuels segment of $76.0 million for the second quarter of fiscal 2013 increased $42.0 million, or 123.5%, compared to the prior year second quarter. Although average fuel oil wholesale prices decreased year-over-year, fuel oil and refined fuels costs of products sold slightly increased year-over-year due to timing of product purchases. Accordingly, higher fuel oil and refined fuels volumes sold and higher average fuel oil and refined fuels costs resulted in an increase of $40.6 million and $1.4 million, respectively, in cost of products sold during the second quarter of fiscal 2013 compared to the prior year second quarter.

Cost of products sold in our natural gas and electricity segment of $20.9 million for the second quarter of fiscal 2013 increased $6.0 million, or 40.1%, compared to the prior year second quarter due to higher volumes sold, offset to an extent by lower natural gas product costs.

For the second quarter of fiscal 2013, total cost of products sold as a percent of total revenues decreased 7.2 percentage points to 51.1% from 58.3% in the prior year second quarter. The decrease in cost of products sold as a percentage of revenues was primarily attributable to the decline in propane wholesale product costs outpacing the decline in propane average selling prices. In addition, colder average temperatures and the inclusion of Inergy Propane operations resulted in a higher concentration of residential volumes sold in the second quarter of fiscal 2013 compared to the prior year second quarter, which had a favorable impact on overall gross margins.

Operating Expenses


	Three Months Ended
	March 30,			March 24,					Percent
(Dollars in thousands)	2013			2012			Increase		Increase
Operating expenses	$	126,371		$	71,293		$	55,078		77.3	%
As a percent of total revenues		18.6	%		19.9	%

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 expenses of $126.4 million in the second quarter of fiscal 2013 increased $55.1 million, or 77.3%, compared to $71.3 million in the prior year second quarter, primarily due to the addition of Inergy Propane. In addition, operating expenses for the second quarter of fiscal 2013 included a $1.0 million charge related to severance costs associated with the integration of the Inergy Propane operations. This charge was excluded from our calculation of Adjusted EBITDA for the three months ended March 30, 2013 below.

General and Administrative Expenses


	Three Months Ended
	March 30,			March 24,					Percent
(Dollars in thousands)	2013			2012			Increase		Increase
General and administrative expenses	$	19,763		$	14,158		$	5,605		39.6	%
As a percent of total revenues		2.9	%		4.0	%

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 $19.8 million for second quarter of fiscal 2013 increased $5.6 million compared to $14.2 million in the prior year second quarter, primarily due to higher variable compensation associated with higher earnings, as well as higher legal expenses associated with uninsured matters. In addition, general and administrative expenses for the second quarter of fiscal 2013 included $1.7 million of professional services and other expenses associated with the integration of the Inergy Propane operations. General and administrative expenses for the second quarter of fiscal 2012 included a $2.1 million non-cash charge from a loss on disposal of an asset used in our natural gas and electricity business. Both of these items were excluded from our calculation of Adjusted EBITDA below.

Depreciation and Amortization


	Three Months Ended
	March 30,			March 24,					Percent
(Dollars in thousands)	2013			2012			Increase		Increase
Depreciation and amortization	$	29,648		$	7,649		$	21,999		287.6	%
As a percent of total revenues		4.4	%		2.1	%

Depreciation and amortization expense of $29.6 million for the second quarter of fiscal 2013 increased $22.0 million compared to the prior year second quarter, primarily as a result of the acquired tangible and identifiable intangible assets of Inergy Propane.

Loss on Debt Extinguishment

In connection with the execution of the amendment of our credit agreement, we recognized a non-cash charge of $0.5 million to write-off a portion of unamortized debt origination costs during the second quarter of fiscal 2012. This charge was excluded from our calculation of Adjusted EBITDA for the three months ended March 24, 2012 below. See Liquidity and Capital Resources below for additional discussion on the amendment to the credit agreement.

Interest Expense, net


	Three Months Ended
	March 30,			March 24,					Percent
(Dollars in thousands)	2013			2012			Increase		Increase
Interest expense, net	$	24,343		$	6,425		$	17,918		278.9	%
As a percent of total revenues		3.6	%		1.8	%

Net interest expense of $24.3 million for the second quarter of fiscal 2013 increased $17.9 million compared to the prior year second quarter, primarily due to the issuance of $496.6 million in aggregate principal amount of 7.5% senior notes due October 1, 2018 and $503.4 million in aggregate principal amount of 7.375% senior notes due August 1, 2021 in connection with the acquisition of Inergy Propane on August 1, 2012. See Liquidity and Capital Resources below for additional discussion.

Net Income, EBITDA and Adjusted EBITDA

Net income for the second quarter of fiscal 2013 amounted to $131.2 million, or $2.29 per Common Unit, compared to net income of $49.6 million, or $1.39 per Common Unit, in the prior year second quarter. Earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the second quarter of fiscal 2013 amounted to $185.3 million, compared to $63.3 million in the prior year second quarter. Adjusted EBITDA, as calculated below, amounted to $190.7 million for the second quarter of fiscal 2013 compared to $65.9 million in the prior year second quarter.

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

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


	Three Months Ended
	March 30,			March 24,
(Dollars in thousands)	2013			2012
Net income	$	131,152		$	49,573
Add:
Provision for (benefit from) income taxes		150			(380	)
Interest expense, net		24,343			6,425
Depreciation and amortization		29,648			7,649

EBITDA		185,293			63,267
Unrealized (non-cash) losses on changes in fair value of derivatives		2,646			—
Integration-related costs		2,729			—
Loss on debt extinguishment					507
Loss on asset disposal		—			2,078

Adjusted EBITDA		190,668			65,852
Add (subtract):
(Provision for) benefit from income taxes		(150	)		380
Interest expense, net		(24,343	)		(6,425	)
Unrealized (non-cash) (losses) on changes in fair value of derivatives		(2,646	)		—
Integration-related costs		(2,729	)		—
(Gain) on disposal of property, plant and equipment, net		(323	)		(179	)
Compensation cost recognized under Restricted Unit Plans		1,173			1,147
Changes in working capital and other assets and liabilities		(89,224	)		(18,404	)

Net cash provided by operating activities	$	72,426		$	42,371

Six Months Ended March 30, 2013 Compared to Six Months Ended March 24, 2012

Revenues


	Six Months Ended
	March 30,		March 24,				Percent
(Dollars in thousands)	2013		2012		Increase		Increase
Revenues
Propane	$	933,322	$	524,115	$	409,207		78.1	%
Fuel oil and refined fuels		154,941		74,729		80,212		107.3	%
Natural gas and electricity		48,121		39,759		8,362		21.0	%
All other		32,745		18,909		13,836		73.2	%

Total revenues	$	1,169,129	$	657,512	$	511,617		77.8	%

Total revenues increased $511.6 million, or 77.8%, to $1,169.1 million for the first six months of fiscal 2013 compared to $657.5 million for the first six months of the prior year due to higher volumes sold, offset to an extent by lower average propane, fuel oil and refined fuels and natural gas selling prices. The increase in sales volumes was primarily due to the addition of the Inergy Propane business, as well as increases in our legacy operations resulting from colder average temperatures. Average temperatures (as measured in heating degree days) across all of our service territories for the first six months of fiscal 2013 were 4% warmer than normal, compared to 14% warmer than normal for the first six months of the prior year.

Revenues from the distribution of propane and related activities of $933.3 million for the first six months of fiscal 2013 increased $409.2 million, or 78.1%, compared to $524.1 million for the first six months of the prior year, primarily due to higher volumes sold, partially offset by lower average selling prices associated with lower product costs. Retail propane gallons sold in the first six months of fiscal 2013 increased 200.0 million gallons, or 121.8%, to 364.2 million gallons from 164.2 million gallons in the first six months of the prior year, primarily as a result of the addition of Inergy Propane, as well as increases in our legacy operations resulting from colder average temperatures. Average propane selling prices for the first six months of fiscal 2013 decreased 17.1% compared to the first six months of the prior year due to lower product costs. Included within the propane segment are revenues from other propane activities of $11.1 million for the first six months of fiscal 2013, which decreased $8.9 million compared to the first six months of the prior year.

Revenues from the distribution of fuel oil and refined fuels of $154.9 million for the first six months of fiscal 2013 increased $80.2 million, or 107.3%, from $74.7 million in the first six months of the prior year, primarily due to higher volumes sold, partially offset by lower average selling prices. Fuel oil and refined fuels gallons sold in the first six months of fiscal 2013 increased 20.8 million gallons, or 114.2%, to 39.1 million gallons from 18.3 million gallons in the first six months of the prior year, primarily as a result of the addition of Inergy Propane, as well as increases in our legacy operations resulting from colder average temperatures. Average selling prices in our fuel oil and refined fuels segment in the first six months of fiscal 2013 decreased 3.0% compared to the first six months of the prior year.

Revenues in our natural gas and electricity segment increased $8.3 million, or 21.0%, to $48.1 million in the first six months of fiscal 2013 compared to $39.8 million in the first six months of the prior year as a result of higher natural gas and electricity volumes sold, and higher electricity average selling prices. The increase in volumes sold was primarily attributable to the more favorable weather pattern in the first six months of fiscal 2013, compared to the unseasonably warm weather in the first six months of the prior year.

Cost of Products Sold


	Six Months Ended
	March 30,			March 24,					Percent
(Dollars in thousands)	2013			2012			Increase		Increase
Cost of products sold
Propane	$	418,590		$	300,507		$	118,083		39.3	%
Fuel oil and refined fuels		127,432			58,152			69,280		119.1	%
Natural gas and electricity		33,564			27,508			6,056		22.0	%
All other		12,513			5,808			6,705		115.4	%

Total cost of products sold		$592,099			$391,975			$200,124		51.1	%

As a percent of total revenues		50.6	%		59.6	%

Average posted prices for propane and fuel oil for the first six months of fiscal 2013 were 35.1% and 0.6%, respectively, lower than the first six months of the prior year. Total cost of products sold increased $200.1 million, or 51.1%, to $592.1 million in the first six months of fiscal 2013 compared to $392.0 million in the first six months of the prior year due to higher volumes sold, partially offset by lower average propane product costs. The net change in the fair value of derivative instruments during the period resulted in $6.3 million and $1.0 million of unrealized (non-cash) losses reported in cost of products sold in the first six months of fiscal 2013 and 2012, respectively, resulting in an increase of $5.2 million in cost of products sold in the first six months of fiscal 2013 compared to the first six months of the prior year, all of which was reported in the propane segment.

Cost of products sold associated with the distribution of propane and related activities of $418.6 million for the first six months of fiscal 2013 increased $118.1 million, or 39.3%, compared to the first six months of the prior year. Higher propane volumes sold resulted in an increase of $334.9 million in cost of products sold during the first six months of fiscal 2013 compared to the first six months of the prior year. The impact of the increase in volumes sold was partially offset by lower average propane costs, which resulted in a $205.7 million decrease in cost of products sold during the first six months of fiscal 2013 compared to the first six months of the prior year. Cost of products sold from other propane activities decreased $16.3 million in the first six months of fiscal 2013 compared to the first six months of the prior year.

Cost of products sold associated with our fuel oil and refined fuels segment of $127.4 million for the first six months of fiscal 2013 increased $69.3 million, or 119.1%, compared to the first six months of the prior year. Higher fuel oil and refined fuels volumes sold and higher product costs resulted in an increase of $66.3 million and $3.0 million, respectively, in cost of products sold during the first six months of fiscal 2013 compared to the first six months of the prior year.

Cost of products sold in our natural gas and electricity segment of $33.6 million for the first six months of fiscal 2013 increased $6.1 million, or 22.0%, compared to the first six months of the prior year, primarily due to higher natural gas and electricity volumes sold, and higher electricity product costs.

For the first six months of fiscal 2013, total cost of products sold as a percent of total revenues decreased 9.0 percentage points to 50.6% from 59.6% in the first six months of the prior year. The decrease in cost of products sold as a percentage of revenues was primarily attributable to the decline in propane wholesale product costs outpacing the decline in propane average selling prices. In addition, colder average temperatures and the inclusion of Inergy Propane operations resulted in a higher concentration of residential volumes sold in the first six months of fiscal 2013 compared to the first six months of the prior year, which had a favorable impact on overall gross margins.

Operating Expenses


	Six Months Ended
	March 30,			March 24,					Percent
(Dollars in thousands)	2013			2012			Increase		Increase
Operating expenses	$	241,307		$	137,235		$	104,072		75.8	%
As a percent of total revenues		20.6	%		20.9	%

Operating expenses of $241.3 million for the first six months of fiscal 2013 increased $104.1 million, or 75.8%, compared to $137.2 million for the first six months of the prior year, primarily due to the addition of Inergy Propane. In addition, operating expenses for the first six months of fiscal 2013 included a $1.0 million charge related to severance costs associated with the integration of the Inergy Propane operations. This charge was excluded from our calculation of Adjusted EBITDA for the six months ended March 30, 2013 below.

General and Administrative Expenses


	Six Months Ended
	March 30,			March 24,					Percent
(Dollars in thousands)	2013			2012			Increase		Increase
General and administrative expenses	$	37,595		$	26,453		$	11,142		42.1	%
As a percent of total revenues		3.2	%		4.0	%

General and administrative expenses of $37.6 million for the first six months of fiscal 2013 increased $11.1 million compared to $26.5 million for the first six months of the prior year, primarily due to higher variable compensation associated with higher earnings, as well as higher legal expenses associated with uninsured matters. In addition, general and administrative expenses for the first six months of fiscal 2013 included a $2.5 million gain on sale of asset. Also, general and administrative expenses for the first six months of fiscal 2013 included $1.7 million of professional services and other expenses associated with the integration of the Inergy Propane operations. General and administrative expenses for the first six months of fiscal 2012 included a $2.1 million non-cash charge from a loss on disposal of an asset used in our natural gas and electricity business. Both of these items were excluded from our calculation of Adjusted EBITDA below.

Depreciation and Amortization


	Six Months Ended
	March 30,			March 24,					Percent
(Dollars in thousands)	2013			2012			Increase		Increase
Depreciation and amortization	$	58,007		$	15,434		$	42,573		275.8	%
As a percent of total revenues		5.0	%		2.3	%

Depreciation and amortization expense of $58.0 million for the first six months of fiscal 2013 increased $42.6 million compared to $15.4 million in the first six months of the prior year, primarily as a result of the acquired tangible and identifiable intangible assets of Inergy Propane.

Loss on Debt Extinguishment

In connection with the execution of the amendment of our credit agreement, we recognized a non-cash charge of $0.5 million to write-off a portion of unamortized debt origination costs during the first six months of fiscal 2012. See Liquidity and Capital Resources below for additional discussion on the amendment to the credit agreement.

Interest Expense, net


	Six Months Ended
	March 30,			March 24,					Percent
(Dollars in thousands)	2013			2012			Increase		Increase
Interest expense, net	$	48,899		$	13,263		$	35,636		268.7	%
As a percent of total revenues		4.2	%		2.0	%

Net interest expense of $48.9 million for the first six months of fiscal 2013 increased $35.6 million compared to $13.3 million in the first six months of the prior year, primarily due to the issuance of $496.6 million in aggregate principal amount of 7.5% senior notes due October 1, 2018 and $503.4 million in aggregate principal amount of 7.375% senior notes due August 1, 2021 in connection with the acquisition of Inergy Propane on August 1, 2012. See Liquidity and Capital Resources below for additional discussion.

Net Income, EBITDA and Adjusted EBITDA

Net income for the first six months of fiscal 2013 amounted to $190.9 million, or $3.34 per Common Unit, compared to net income of $72.8 million, or $2.05 per Common Unit, in the first six months of the prior year. EBITDA for the first six months of fiscal 2013 and 2012 amounted to $298.1 million and $101.3 million, respectively. Adjusted EBITDA for the first six months of fiscal 2013 and 2012 amounted to $307.1 million and $105.0 million, respectively.

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


	Six Months Ended
	March 30,			March 24,
(Dollars in thousands)	2013			2012
Net income	$	190,940		$	72,805
Add:
Provision for (benefit from) income taxes		282			(160	)
Interest expense, net		48,899			13,263
Depreciation and amortization		58,007			15,434

EBITDA		298,128			101,342
Unrealized (non-cash) losses on changes in fair value of derivatives		6,260			1,048
Integration-related costs		2,729			—
Loss on debt extinguishment		—			507
Loss on asset disposal		—			2,078

Adjusted EBITDA		307,117			104,975
Add (subtract):
(Provision for) benefit from income taxes		(282	)		160
Interest expense, net		(48,899	)		(13,263	)
Unrealized (non-cash) (losses) on changes in fair value of derivatives		(6,260	)		(1,048	)
Integration-related costs		(2,729	)		—
(Gain) on disposal of property, plant and equipment, net		(2,590	)		(211	)
Compensation cost recognized under Restricted Unit Plans		2,413			2,350
Changes in working capital and other assets and liabilities		(114,807	)		(75,915	)

Net cash provided by operating activities	$	133,963		$	17,048

Liquidity and Capital Resources

Analysis of Cash Flows

Operating Activities. Net cash provided by operating activities for the first six months of fiscal 2013 and fiscal 2012 was $134.0 million and $17.0 million, respectively. The increase in net cash provided by operating activities was primarily attributable to an increase in earnings in the first six months of fiscal 2013 compared to the same period in the prior year. In addition, average posted prices for propane during the first six months of fiscal 2013 decreased 35.1% compared to the first six months of the prior year, which resulted in a substantial reduction in working capital requirements year-over-year. Also, cash flows from operating activities for the first six months of fiscal 2013 benefited to an extent by the realization of working capital acquired in the Inergy Propane acquisition.

Investing Activities. Net cash used in investing activities of $3.2 million for the first six months of fiscal 2013 consisted of capital expenditures of $12.9 million (including approximately $3.8 million for maintenance expenditures and $9.1 million to support the growth of operations), partially offset by $5.9 million in net proceeds from Inergy as a result of a purchase price adjustment attributable to the working capital of Inergy Propane, and $3.9 million in net proceeds from the sale of property, plant and equipment. Net cash used in investing activities of $7.5 million for the first six months of fiscal 2012 consisted of capital expenditures of $9.4 million (including $5.2 million for maintenance expenditures and $4.2 million to support the growth of operations), partially offset by $1.9 million in net proceeds from the sale of property, plant and equipment.

Financing Activities. Net cash used in financing activities for the first six months of fiscal 2013 of $98.6 million reflects the quarterly distribution to Common Unitholders at a rate of $0.8525 per Common Unit paid in respect of the fourth quarter of fiscal 2012 and at a rate of $0.8750 per Common Unit paid in respect of the first quarter of fiscal 2013.

Net cash used in financing activities for the first six months of fiscal 2012 of $62.9 million reflects the quarterly distribution to Common Unitholders at a rate of $0.8525 per Common Unit paid in respect of the fourth quarter of fiscal 2011 and first quarter of fiscal 2012. With the execution of the amendment of our credit agreement on January 5, 2012, we rolled the $100.0 million then-outstanding under the revolving credit facility of the previous credit agreement into the revolving credit facility of the amended credit agreement. This resulted in the repayment of the $100.0 million then-outstanding under the revolving credit facility of the previous credit agreement with proceeds from borrowings under the revolving credit facility of the amended credit agreement. In addition, financing activities for the first six months of fiscal 2012 also reflects the payment of $2.4 million in debt origination costs associated with the aforementioned credit agreement amendment. See Summary of Long-Term Debt Obligations and Revolving Credit Lines below for additional discussion.

Summary of Long-Term Debt Obligations and Revolving Credit Lines

As of March 30, 2013, our long-term debt consisted of $496.6 million in aggregate principal amount of 7.5% senior notes due October 1, 2018, $250.0 million in aggregate principal amount of 7.375% senior notes due March 15, 2020, $503.4 million in aggregate principal amount of 7.375% senior notes due August 1, 2021 and $100.0 million outstanding under our senior secured Revolving Credit Facility.

Senior Notes

2018 Senior Notes and 2021 Senior Notes

On August 1, 2012, we and our 100%-owned subsidiary, Suburban Energy Finance Corp., issued $496.6 million in aggregate principal amount of unregistered 7.5% senior notes due October 1, 2018 (the “2018 Senior Notes”) and $503.4 million in aggregate principal amount of unregistered 7.375% senior notes due August 1, 2021 (the “2021 Senior Notes”) in a private placement in connection with the Inergy Propane acquisition. The 2018 Senior Notes require semi-annual interest payments in April and October, and the 2021 Senior Notes require semi-annual interest payments in February and August.

On December 19, 2012, we completed an offer to exchange our existing unregistered 7.5% senior notes due 2018 and 7.375% senior notes due 2021 (collectively, the “Old Notes”) for an equal principal amount of 7.5% senior notes due 2018 and 7.375% senior notes due 2021 (collectively, the “Exchange Notes”), respectively, that have been registered under the Securities Act of 1933, as amended. The terms of the Exchange Notes are identical in all material respects (including principal amount, interest rate, maturity and redemption rights) to the Old Notes for which they were exchanged, except that the Exchange Notes generally will not be subject to transfer restrictions.

2020 Senior Notes

On March 23, 2010, we and our 100%-owned subsidiary, Suburban Energy Finance Corp., completed a public offering of $250.0 million in aggregate principal amount of 7.375% senior notes due March 15, 2020 (the “2020 Senior Notes”). The 2020 Senior Notes require semi-annual interest payments in March and September.

Our obligations under the 2018 Senior Notes, 2020 Senior Notes and 2021 Senior Notes (collectively, the “Senior Notes”) are unsecured and rank senior in right of payment to any future subordinated indebtedness and equally in right of payment with any future senior indebtedness. The Senior Notes are structurally subordinated to, which means they rank effectively behind, any debt and other liabilities of the Operating Partnership. The Senior Notes each have a change of control provision that would require us to offer to repurchase the notes at 101% of the principal amount repurchased, if a change of control, as defined in the applicable indenture, occurs and is followed by a rating decline (a decrease in the rating of the notes by either Moody’s Investors Service or Standard and Poor’s Rating Group by one of more gradations) within 90 days of the consummation of the change of control.

Credit Agreement

Our Operating Partnership has an amended and restated credit agreement entered into on January 5, 2012, as amended on August 1, 2012 (the “Amended Credit Agreement”) that provides for a five-year $400.0 million revolving credit facility (the “Revolving Credit Facility”) of which, $100.0 million was outstanding as of March 30, 2013. Borrowings under the Revolving Credit Facility may be used for general corporate purposes, including working capital, capital expenditures and acquisitions. Our Operating Partnership has the right to prepay any borrowings under the Revolving Credit Facility, in whole or in part, without penalty at any time prior to maturity.

The amendment and restatement of the credit agreement on January 5, 2012 amended the previous credit agreement to, among other things, extend the maturity date from June 25, 2013 to January 5, 2017, reduce the borrowing rate and commitment fees, and amend certain affirmative and negative covenants. As of January 5, 2012, our Operating Partnership had borrowings of $100.0 million outstanding under the revolving credit facility of the previous credit agreement, and rolled those borrowings into the Revolving Credit Facility of the Amended Credit Agreement. Also, at such time, our Operating Partnership had letters of credit issued under the revolving credit facility of the previous credit agreement primarily in support of retention levels under its self-insurance programs, all of which have been rolled into the Revolving Credit Facility of the Amended Credit Agreement.

Borrowings under the Revolving Credit Facility may be used for general corporate purposes, including working capital, capital expenditures and acquisitions. Our Operating Partnership has the right to prepay loans under the Revolving Credit Facility, in whole or in part, without penalty at any time prior to maturity. We have standby letters of credit issued under the Revolving Credit Facility in the aggregate amount of $49.2 million primarily in support of retention levels under our self-insurance programs, which expire periodically through April 15, 2014. Therefore, as of March 30, 2013, we had available borrowing capacity of $250.8 million under the Revolving Credit Facility.

In connection with the previous revolving credit facility, our Operating Partnership entered into an interest rate swap agreement with a notional amount of $100.0 million and an effective date of March 31, 2010 and termination date of June 25, 2013. Under the interest rate swap agreement, our Operating Partnership will pay a fixed interest rate of 3.12% to the issuing lender on the notional principal amount outstanding, effectively fixing the LIBOR portion of the interest rate at 3.12%. In return, the issuing lender will pay our Operating Partnership a floating rate, namely LIBOR, on the same notional principal amount. The interest rate swap has been designated as a cash flow hedge. In connection with the Amended Credit Agreement, our Operating Partnership entered into a forward starting interest rate swap agreement with a June 25, 2013 effective date, which is commensurate with the maturity of the existing interest rate swap agreement, and a maturity date of January 5, 2017. Under this forward starting interest rate swap agreement, our Operating Partnership will pay a fixed interest rate of 1.63% to the issuing lender on the notional principal amount outstanding, and the issuing lender will pay our Operating Partnership a floating rate, namely LIBOR, on the same notional principal amount. The forward starting interest rate swap has been designated as a cash flow hedge.

The Amended Credit Agreement and the 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 Amended Credit Agreement and the indentures governing the Senior Notes, the Operating Partnership and the Partnership are generally permitted to make cash distributions equal to available cash, as defined, as of the end of the immediately preceding quarter, if no event of default exists or would exist upon making such distributions, and with respect to the indentures governing the Senior Notes, Partnership’s consolidated fixed charge coverage ratio, as defined, is greater than 1.75 to 1. We and our Operating Partnership were in compliance with all covenants and terms of the Senior Notes and the Amended Credit Agreement as of March 30, 2013.

Partnership Distributions

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

On April 24, 2013, we announced a quarterly distribution of $0.8750 per Common Unit, or $3.50 on an annualized basis, in respect of the second quarter of fiscal 2013 payable on May 14, 2013 to holders of record on May 7, 2013.

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 also frozen to new participants effective January 1, 2000. At March 30, 2013, we had a liability for the defined benefit pension plan and accrued retiree health and life benefits of $32.0 million and $19.9 million, respectively.

We are self-insured for general and product, workers’ compensation and automobile liabilities up to predetermined thresholds above which third party insurance applies. At March 30, 2013, we had accrued insurance liabilities of $60.6 million, and an insurance recovery asset of $19.3 million related to the amount of the liability expected to be covered by insurance carriers.

Legal Matters

Our operations are subject to operating hazards and risks normally incidental to handling, storing and delivering combustible liquids such as propane. We have been, and will continue to be, a defendant in various legal proceedings and litigation as a result of these operating hazards and risks, and as a result of other aspects of our business. In this last regard, we currently are a defendant in commercial suits in two states, including one class action and another putative class action in which the court has denied class certification without prejudice. We believe both such suits are without merit. The class action alleges several claims relating to two fees charged by us in connection with our residential propane business in California. During the fourth quarter of fiscal 2012, to avoid both the continued expenses and burden of defending that action and the uncertainty inherent in all litigations, we entered into an agreement to settle that California action on a class-wide basis in return for the payment of a monetary sum and certain non-monetary consideration, and established an accrual of $4.5 million for the estimated cost of the settlement. The court granted preliminary approval of the proposed settlement on November 19, 2012. In the putative class action, we have been successful in eliminating several of the claims such that only certain contractual and consumer statute claims remain. We are contesting this putative class action vigorously and have determined, based on the allegations and discovery to date, that no reserve for a loss contingency other than for legal defense fees and expenses is required. We are unable to reasonably estimate the possible loss or range of loss, if any, arising from this litigation.

Off-Balance Sheet Arrangements

Guarantees

We have residual value guarantees associated with certain of our operating leases, related primarily to transportation equipment, with remaining lease periods scheduled to expire periodically through fiscal 2019. Upon completion of the lease period, we guarantee that the fair value of the equipment will equal or exceed the guaranteed amount, or we will pay the lessor the difference. Although the fair value of equipment at the end of its lease term has historically exceeded the guaranteed amounts, the maximum potential amount of aggregate future payments we could be required to make under these leasing arrangements, assuming the equipment is deemed worthless at the end of the lease term, was approximately $16.1 million as of March 30, 2013. The fair value of residual value guarantees for outstanding operating leases was de minimis as of March 30, 2013.

Recently Issued Accounting Pronouncements.

In December 2011, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update (“ASU”) regarding disclosures about offsetting assets and liabilities (“ASU 2011-11”). The new guidance requires an entity to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on its financial position. The amendments, further clarified with ASU 2013-01, will enhance disclosures by requiring improved information about financial instruments and derivative instruments that are either offset in accordance with other US GAAP or subject to an enforceable master netting arrangement or similar agreement, irrespective of whether or not they are offset in the balance sheet. The new guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods, which will be our first quarter of the 2014 fiscal year. We are currently evaluating the impact of the new guidance on our future disclosures.

In February 2013, the FASB issued an ASU to establish the effective date for the requirement to present components of reclassifications out of accumulated other comprehensive income either parenthetically on the face of the financial statements or in the notes to the financial statements (“ASU 2013-02”). The guidance is effective prospectively for annual periods beginning after December 15, 2012, and interim periods within those annual periods, which will be the first quarter of our 2014 fiscal year. The adoption of ASU 2013-02 will not change the items that must be reported in other comprehensive income.

Recently Adopted Accounting Pronouncements.

In June 2011, the FASB issued an ASU to provide guidance on increasing the prominence of items reported in other comprehensive income (“ASU 2011-05”). The update eliminated the option to present components of other comprehensive income as part of the statement of partners’ capital and required net income and the components of other comprehensive income be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. We adopted ASU 2011-05 on September 30, 2012. This update did not change the items that must be reported in other comprehensive income, but required us to change its historical practice of showing comprehensive income and its components within the Statement of Partners’ Capital.

In July 2012, the FASB issued an ASU to simplify previous guidance which required an entity to perform a two-step impairment test for intangible assets (“ASU 2012-02”). The update allows entities to first assess the qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test. An entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. We adopted ASU 2012-02 on September 30, 2012 and its adoption did not have any impact on our financial position, results or operations or cash flows.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Commodity Price Risk

We enter into product supply contracts that are generally one-year agreements subject to annual renewal, and also purchase product on the open market. Our propane supply contracts typically provide for pricing based upon index formulas using the posted prices established at major supply points such as Mont Belvieu, Texas, or Conway, Kansas (plus transportation costs) at the time of delivery. In addition, to supplement our annual purchase requirements, we may utilize forward fixed price purchase contracts to acquire a portion of the propane that we resell to our customers, which allows us to manage our exposure to unfavorable changes in commodity prices and to ensure adequate physical supply. The percentage of contract purchases, and the amount of supply contracted for under forward contracts at fixed prices, will vary from year to year based on market conditions. In certain instances, and when market conditions are favorable, we are able to purchase product under our supply arrangements at a discount to the market.

Product cost changes can occur rapidly over a short period of time and can impact profitability. We attempt to reduce commodity price risk by pricing product on a short-term basis. The level of priced, physical product maintained in storage facilities and at our customer service centers for immediate sale to our customers will vary depending on several factors, including, but not limited to, price, supply and demand dynamics, 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 accounting rules for derivative instruments and hedging activities, qualify for and are designated as normal purchase or normal sale contracts. Such contracts are exempted from fair value accounting and are accounted for at the time product is purchased or sold under the related contract.

Under our hedging and risk management strategies, we enter into a combination of exchange-traded futures and options contracts and, in certain instances, over-the-counter options and swap contracts (collectively, “derivative instruments”) to manage the price risk associated with physical product and with future purchases of the commodities used in our operations, principally propane and fuel oil, as well as to ensure the availability of product during periods of high demand. In addition, the Partnership sells propane and fuel oil to customers at fixed prices, and enters into swap agreements to hedge a portion of its exposure to fluctuations in commodity prices as a result of selling the fixed price contracts. We do not use derivative instruments for speculative or trading purposes. Futures and swap contracts require that we sell or acquire propane or fuel oil at a fixed price for delivery at fixed future dates. An option contract allows, but does not require, its holder to buy or sell propane or fuel oil at a specified price during a specified time period. However, the writer of an option contract must fulfill the obligation of the option contract, should the holder choose to exercise the option. At expiration, the contracts are settled by the delivery of the product to the respective party or are settled by the payment of a net amount equal to the difference between the then market price and the fixed contract price or option exercise price. To the extent that we utilize derivative instruments to manage exposure to commodity price risk and commodity prices move adversely in relation to the contracts, we could suffer losses on those derivative instruments when settled. Conversely, if prices move favorably, we could realize gains. Under our hedging and risk management strategy, realized gains or losses on derivative instruments will typically offset losses or gains on the physical inventory once the product is sold to customers at market prices, or delivered to customers as it pertains to fixed price contracts.

Futures are traded with brokers of the NYMEX and require daily cash settlements in margin accounts. Forward contracts are generally settled at the expiration of the contract term by physical delivery, and swap and options contracts are generally settled at expiration through a net settlement mechanism. Market risks associated with our derivative instruments are monitored daily for compliance with our Hedging and Risk Management Policy which includes volume limits for open positions. Open inventory positions are reviewed and managed daily as to exposures to changing market prices.

Credit Risk

Exchange-traded futures and options contracts are guaranteed by the NYMEX and, as a result, have minimal credit risk. We are subject to credit risk with over-the-counter forward, swap and options contracts to the extent the counterparties do not perform. We evaluate the financial condition of each counterparty with which we conduct business and establish credit limits to reduce exposure to the risk of non-performance by our counterparties.

Interest Rate Risk

A portion of our borrowings bear interest at prevailing interest rates based upon, at the Operating Partnership’s option, LIBOR, plus an applicable margin or the base rate, defined as the higher of the Federal Funds Rate plus ¹/₂ of 1% or the agent bank’s prime rate, or LIBOR plus 1%, plus the applicable margin. The applicable margin is dependent on the level of the Partnership’s total leverage (the total ratio of debt to EBITDA). Therefore, we are subject to interest rate risk on the variable component of the interest rate. We manage our interest rate risk by entering into interest rate swap agreements. The interest rate swaps have been designated as a cash flow hedge. Changes in the fair value of the interest rate swaps are recognized in other comprehensive income (“OCI”) until the hedged item is recognized in earnings. At March 30, 2013, the fair value of the interest rate swaps was $3.8 million representing an unrealized loss and is included within other current liabilities and other liabilities, as applicable, with a corresponding debit in OCI.

Derivative Instruments and Hedging Activities

All of our derivative instruments are reported on the balance sheet 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 during the same period in which the hedged item affects earnings. The mark-to-market gains or losses on ineffective portions of cash flow hedges are immediately recognized in 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, are recorded within cost of products sold as they occur. Cash flows associated with derivative instruments are reported as operating activities within the condensed consolidated statement of cash flows.

Sensitivity Analysis

In an effort to estimate our exposure to unfavorable market price changes in commodities related to our open positions under derivative instruments, we developed a model that incorporates the following data and assumptions:

The fair value of open positions as of March 30, 2013.

The market prices for the underlying commodities used to determine A. above were adjusted adversely by a hypothetical 10% change and compared to the fair value 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, a hypothetical 10% adverse change in market prices for which futures and option contracts exists indicates potential future losses in future earnings of $1.6 million as of March 30, 2013. See also Item 7A of our Annual Report on Form 10-K for the fiscal year ended September 29, 2012. The above hypothetical change does not reflect the worst case scenario. Actual results may be significantly different depending on market conditions and the composition of the open position portfolio.

ITEM 4.

CONTROLS AND PROCEDURES

(a) 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) that are designed to provide reasonable assurance that information required to be disclosed in the Partnership’s filings and submissions under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to the Partnership’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

The Partnership completed an evaluation under the supervision and with participation of the Partnership’s management, including the Partnership’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Partnership’s disclosure controls and procedures as of March 30, 2013. Based on this evaluation, the Partnership’s principal executive officer and principal financial officer have concluded that as of March 30, 2013, such disclosure controls and procedures were effective to provide the reasonable assurance described above.

There have not been any changes in the Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934) during the quarter ended March 30, 2013 that have materially affected or are reasonably likely to materially affect its internal control over financial reporting.

PART II

ITEM 1.

LEGAL PROCEEDINGS

Part I, Item 1. Financial Statements, Note 11 to the Condensed Consolidated Financial Statements, of this Form 10-Q is hereby incorporated herein by reference.

ITEM 1A.

RISK FACTORS

There have been no material changes to the risk factors disclosed in Item 1A in the Partnership’s Annual Report on Form 10-K for the fiscal year ended September 29, 2012.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULT UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

(a) Exhibits


31.1		Certification of the President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith).

31.2		Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith).

32.1		Certification of the President and 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).

32.2		Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith).

101.INS		XBRL Instance Document (Filed herewith)

101.SCH		XBRL Taxonomy Extension Schema Document (Filed herewith)

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (Filed herewith)

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document (Filed herewith)

101.LAB		XBRL Taxonomy Extension Label Linkbase Document (Filed herewith)

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document (Filed herewith)

SIGNATURES

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


	SUBURBAN PROPANE PARTNERS, L.P.

May 9, 2013	By:	/s/ MICHAEL A. STIVALA
Date		Michael A. Stivala
		Chief Financial Officer

May 9, 2013	By:	/s/ MICHAEL A. KUGLIN
Date		Michael A. Kuglin
		Vice President and Chief Accounting Officer