SUBURBAN PROPANE PARTNERS LP - Quarter Report: 2006 March (Form 10-Q)

conservation. Average temperatures in our service territories, as reported by the National Oceanic and Atmospheric Administration (‘‘NOAA’’), were 12% warmer than normal for the three months ended March 25, 2006, compared to 4% warmer than normal temperatures in the prior year quarter. During the critical heating months of January and February 2006, average temperatures were 20% warmer than normal. In the commodities markets, the high propane and fuel oil prices experienced throughout fiscal 2005 continued during the first half of fiscal 2006. Average posted prices of propane and fuel oil during the second quarter of fiscal 2006 of $0.946 per gallon and $1.751 per gallon, respectively, increased 20% and 25%, respectively, compared to the average posted prices in the prior year quarter.

Our increased earnings reflect the proactive steps we took in fiscal 2006 to ensure that the negative effect of the fuel oil Ceiling Program on our fiscal 2005 results did not recur, as well as the improvements in our cost structure from our field realignment efforts which began during the fourth quarter of fiscal 2005. In addition, we have continued our focus on improving our customer mix and have consciously eliminated certain lower margin business in our propane and refined fuels segments.

The most significant contributing factor to our increased earnings in the second quarter of fiscal 2006 compared to the prior year was the impact of the previously announced decision to eliminate the fuel oil Ceiling Program following the fiscal 2005 heating season. During the second quarter of the prior year, we were unable to pass on fully the rise in fuel oil prices due to restrictions of our Ceiling Program, which pre-established a maximum price per gallon. This, coupled with our decision not to hedge this pricing program for deliveries from February through April 2005 when confronted with unprecedented costs to properly hedge the program during that period, significantly restricted our margin opportunities in the fiscal 2005 second quarter. The impact of the lost margin opportunity on the prior year quarter was approximately $11.0 million. By eliminating this pricing program for fiscal 2006, we no longer incur the costs of hedging deliveries associated with the Ceiling Program and we have been successful in implementing our market-based pricing strategies in our field operations without significant customer losses.

With our field realignment initiatives, we have significantly restructured our operating footprint and reduced our fixed cost structure through the achievement of operating efficiencies and better use of technology. The most significant cost savings was experienced in payroll and benefit related expenses with the elimination of nearly 150 positions since the beginning of the fourth quarter of the prior year, as well as in routing efficiencies which has allowed us to reduce our fleet by nearly 300 vehicles. We began to realize a significant portion of the anticipated cost savings and efficiencies from the field realignment efforts during the second quarter of fiscal 2006 as combined operating and general and administrative expenses of $117.2 million decreased $5.1 million, or 4.2%, compared to the prior year quarter. The decline in operating and general and administrative expenses was achieved despite a $6.3 million increase in variable compensation costs in line with the higher earnings, a $3.5 million increase in bad debt expense due to higher energy costs and a $0.5 million increase in costs to operate and maintain our fleet primarily resulting from higher fuel costs.

Retail propane gallons sold in the second quarter of fiscal 2006 decreased 30.3 million gallons, or 15.2%, to 168.8 million gallons compared to 199.1 million gallons in the prior year quarter. Sales of fuel oil and other refined fuels decreased 38.2 million gallons, or 41.1%, to 54.7 million gallons during the second quarter of fiscal 2006 compared to 92.9 million gallons in the prior year quarter. While the significantly warmer than normal temperatures in the fiscal 2006 second quarter, combined with the continued high commodity price environment, had a negative effect on propane and refined fuels volumes, our decision to exit certain lower margin business in both segments also contributed to the decline in volumes sold, yet positively impacted our overall profitability. In the propane segment, we have focused on higher margin residential customers and, in several instances, exited certain lower margin commercial, industrial and agricultural customers which accounted for a decrease in volumes sold of approximately 14.0 million gallons during the second quarter of fiscal 2006 compared to the prior year quarter. In the fuel oil and refined fuels segment, our decision to exit certain lower margin diesel and gasoline business has resulted in a decrease in volumes sold of approximately 13.7 million gallons during the three months ended March 25, 2006 compared to the prior year quarter.

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Looking ahead to the remainder of fiscal 2006, we expect that our operating results will continue to be positively impacted by the cost savings and efficiencies achieved to date, as well as further efficiencies anticipated, from our field realignment efforts. Additionally, since the fuel oil Ceiling Program also had a negative impact of approximately $10.0 million on profitability in the third quarter of the prior year, we expect improvements in our fuel oil margin opportunities and, therefore, profitability in our fuel oil operations during the third quarter of fiscal 2006 compared to the prior year. Our field realignment efforts will continue into the third and fourth quarters of fiscal 2006 as we focus on further streamlining the operations ahead of the fiscal 2007 heating season. Following the end of the second quarter of fiscal 2006, we initiated a plan to restructure the operations within our HVAC segment which will result in the elimination of additional positions and service vehicles during the third quarter of fiscal 2006. As a result, additional restructuring charges are expected to be incurred during the third or fourth quarters of fiscal 2006 as these plans are finalized. With the positive steps to date and our continued focus on the areas within our control, we expect an improvement in operating results in the second half of fiscal 2006 compared to the second half of fiscal 2005.

As anticipated, we made use of the working capital facility of our Revolving Credit Agreement throughout the fiscal 2006 heating season to fund seasonal working capital needs, particularly in light of the high commodity price environment. At the end of the second quarter of fiscal 2006, we had outstanding borrowings of $21.8 million under the working capital facility. As of March 30, 2006 (subsequent to the end of the second quarter), we fully repaid all outstanding amounts under the working capital facility. Apart from the repayment of the working capital facility in the third quarter of fiscal 2006, our anticipated cash requirements for the remainder of fiscal 2006 include: (i) maintenance and growth capital expenditures of approximately $16.1 million; (ii) interest payments of approximately $19.3 million; and (iii) distributions of approximately $39.3 million to Common Unitholders and the General Partner reflecting our quarterly distribution at a rate of $0.6125 per Common Unit payable on May 9, 2006 and of $0.6375 per Common Unit payable on August 8, 2006. Based on our current estimates of cash flow from operations, our cash position at the end of the second quarter of fiscal 2006 and availability under the Revolving Credit Agreement (unused borrowing capacity under the working capital facility of $120.7 million after considering outstanding letters of credit of $54.3 million as of April 25, 2006), we expect to have sufficient funds to meet our current and future obligations.

Results of Operations

Three Months Ended March 25, 2006 Compared to Three Months Ended March 26, 2005

Revenues

(Dollars in thousands)				Three Months Ended												Percent Increase (Decrease)
				March 25, 2006				March 26, 2005				Increase (Decrease)
Revenues
Propane				$	386,610			$	360,830			$	25,780				7.1	%
Fuel oil and refined fuels					133,567				157,963				(24,396	)			(15.4	%)
Natural gas and electricity					46,111				39,265				6,846				17.4	%
HVAC					22,416				27,104				(4,688	)			(17.3	%)
All other					2,239				2,207				32				1.4	%
Total revenues				$	590,943			$	587,369			$	3,574				0.6	%

Total revenues increased $3.6 million, or 0.6%, to $590.9 million for the three months ended March 25, 2006 compared to $587.4 million for the three months ended March 26, 2005, driven primarily by higher average selling prices resulting from significantly higher commodity prices, offset to an extent by lower volumes in our propane and fuel oil and refined fuels segments. Average temperatures in our service territories were 12% warmer than normal for the three months ended

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March 25, 2006, compared to 4% warmer than normal temperatures in the prior year quarter, as reported by NOAA. During the critical heating months of January and February 2006, average temperatures were 20% warmer than normal. In the commodities markets, the high propane and fuel oil prices experienced throughout fiscal 2005 continued into fiscal 2006, thus continuing to negatively impact volumes as a result of customer conservation, yet increasing average selling prices.

Revenues from the distribution of propane and related activities of $386.6 million in the second quarter of fiscal 2006 increased $25.8 million, or 7.1%, compared to $360.8 million in the prior year quarter, primarily due to the impact of higher average selling prices in line with significantly higher product costs, offset to an extent by the impact of lower volumes. Retail propane gallons sold in the second quarter of fiscal 2006 decreased 30.3 million gallons, or 15.2%, to 168.8 million gallons from 199.1 million gallons in the prior year quarter. Propane volumes sold were negatively affected by the impact of warmer weather, customer conservation efforts, and our effort to focus on higher margin residential customers. In several markets, we elected to exit certain lower margin commercial, industrial and agricultural customers, thus reducing our reported volume yet improving our overall profitability with an improved customer mix. Average propane selling prices increased approximately 20.5% as a result of higher commodity prices for propane. The average posted price of propane during the second quarter of fiscal 2006 increased approximately 20% compared to the average posted prices in the prior year quarter. Additionally, included within the propane segment are revenues from wholesale and risk management activities of $22.6 million for the three months ended March 25, 2006 which increased $17.6 million compared to the prior year quarter.

Revenues from the distribution of fuel oil and other refined fuels of $133.6 million in the second quarter of fiscal 2006 decreased $24.4 million, or 15.4%, from $158.0 million in the prior year quarter. Sales of fuel oil and other refined fuels amounted to 54.7 million gallons during the second quarter of fiscal 2006 compared to 92.9 million gallons in the prior year quarter, a decrease of 38.2 million gallons, or 41.1%. Lower volumes in our fuel oil and refined fuels segment were attributable primarily to our continued efforts to exit certain lower margin diesel and gasoline businesses combined with the impact of high prices on fuel oil volumes, as well as the impact on volumes from the decision to eliminate the fuel oil Ceiling Program. Average selling prices in our fuel oil and refined fuels segment increased 44% as a result of higher fuel oil commodity prices, coupled with the decreased emphasis on lower priced diesel and gasoline businesses. The average posted price of fuel oil during the second quarter of fiscal 2006 increased approximately 25% compared to the average posted prices in the prior year quarter. By eliminating this Ceiling Program for fiscal 2006, we have been successful in implementing our market-based pricing strategies in our field operations without significant customer losses, which has resulted in an improvement in our margin opportunities and, therefore, in our profitability within this segment.

Revenues for the second quarter of fiscal 2006 were favorably impacted by a 17.4% increase in our natural gas and electricity marketing segment, which increased to $46.1 million from $39.3 million in the prior year quarter, primarily as a result of a rise in electricity volumes coupled with increases in average selling prices for natural gas and electricity in line with higher commodity prices. Revenues in our HVAC segment declined 17.3%, to $22.4 million during the second quarter of fiscal 2006 compared to $27.1 million in the prior year quarter as a result of lower service activity from the warmer average temperatures during the fiscal 2006 heating season.

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Cost of Products Sold

(Dollars in thousands)				Three Months Ended												Percent Increase (Decrease)
				March 25, 2006				March 26, 2005				Increase (Decrease)
Cost of products sold
Propane				$	221,585			$	195,264			$	26,321				13.5	%
Fuel oil and refined fuels					99,823				140,251				(40,428	)			(28.8	%)
Natural gas and electricity					37,255				33,353				3,902				11.7	%
HVAC					8,511				10,269				(1,758	)			(17.1	%)
All other					1,125				1,378				(253	)			(18.4	%)
Total cost of products sold				$	368,299			$	380,515			$	(12,216	)			(3.2	%)
As a percent of total revenues				62.3%				64.8%

The cost of products sold reported in the condensed consolidated statements of operations represents the weighted average unit cost of propane and fuel oil sold, as well as the cost of natural gas and electricity, including transportation costs to deliver product from our supply points to storage or to our customer service centers. Cost of products sold also includes the cost of appliances and related parts sold or installed by our customer service centers computed on a basis that approximates the average cost of the products. Cost of products sold is reported exclusive of any depreciation and amortization; these amounts are reported separately within the condensed consolidated statements of operations.

Cost of products sold decreased $12.2 million, or 3.2%, to $368.3 million for the three months ended March 25, 2006 compared to $380.5 million in the prior year quarter. The decrease results primarily from the lower sales volumes described above, offset to an extent by higher commodity prices for all products. Cost of products sold associated with the distribution of propane and related activities of $221.6 million increased $26.3 million, or 13.5%, compared to the prior year quarter. Higher propane prices resulted in a $39.9 million increase in cost of products sold during the second quarter of fiscal 2006 compared to the prior year quarter, partially offset by decreased propane volumes which had an impact of $28.7 million. Higher wholesale and risk management activities, noted above, increased cost of products sold by $15.1 million compared to the prior year quarter.

Cost of products sold associated with our fuel oil and refined fuels segment of $99.8 million decreased $40.4 million, or 28.8%, compared to the prior year quarter. Lower sales volumes resulted in a $57.7 million decrease in cost of products sold during the second quarter of fiscal 2006 compared to the prior year quarter, partially offset by higher commodity prices which had an impact of $19.2 million compared to the prior year quarter. Cost of products sold as a percentage of revenues in our fuel oil and refined fuels segment decreased from 88.8% during the second quarter of fiscal 2005 to 74.7% in the second quarter of fiscal 2006 primarily as a result of the elimination of the Ceiling Program which had the effect of restricting fuel oil margin opportunities in fiscal 2005, as well as the aforementioned improvement in product mix from the exit of certain lower margin diesel and gasoline businesses. The impact of the lost margin opportunity from the Ceiling Program in the prior year quarter was approximately $11.0 million. By eliminating this pricing program for fiscal 2006, we no longer incur the costs of hedging deliveries associated with this program and we have been successful in implementing our market-based pricing strategies in our field operations without significant customer losses. These factors have contributed to an improvement in overall profitability within this segment beyond the estimated $11.0 million impact that the Ceiling Program had on the prior year quarter.

The increase in revenues attributable to our natural gas and electricity segment had a $3.9 million impact on cost of products sold for the three months ended March 25, 2006 compared to the prior year quarter. Cost of products sold in our HVAC segment declined $1.8 million, or 17.1%, as a result of lower revenues.

For the quarter ended March 25, 2006, total cost of products sold represented 62.3% of revenues compared to 64.8% in the prior year quarter. This decrease results primarily from the impact of the

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elimination of the fuel oil Ceiling Program and the efforts we have taken to eliminate lower margin business in the propane and refined fuels segments.

Operating Expenses

(Dollars in thousands)				Three Months Ended
				March 25, 2006				March 26, 2005				Decrease				Percent Decrease
Operating expenses				$	100,084			$	110,229			$	(10,145	)			(9.2	%)
As a percent of total revenues				16.9%				18.8%

All costs of operating our retail distribution and appliance sales and service operations are reported within operating expenses in the consolidated statements of operations. These operating expenses include the compensation and benefits of field and direct operating support personnel, costs of operating and maintaining our vehicle fleet, overhead and other costs of our purchasing, training and safety departments and other direct and indirect costs of our customer service centers. Changes in the fair value of derivative instruments that are not designated as hedges are recorded in current period earnings within operating expenses.

Operating expenses of $100.1 million for the three months ended March 25, 2006 decreased $10.1 million, or 9.2%, compared to $110.2 million in the prior year quarter. Operating expenses in the fiscal 2006 second quarter include a $0.6 million unrealized (non-cash) loss representing the net change in fair values of derivative instruments during the period, compared to a $2.8 million unrealized loss in the prior year quarter resulting in a $2.2 million decrease in operating expenses for the quarter ended March 25, 2006 compared to the prior year quarter (see Item 3 in this Quarterly Report for information on our policies regarding the accounting for derivative instruments). In addition to the impact of the mark-to-market adjustments, operating expenses decreased $7.9 million, primarily as a result of cost savings achieved through our field realignment which began during the fourth quarter of fiscal 2005.

With our field realignment, we have significantly restructured our operating footprint and reduced our cost structure through the elimination of nearly 150 positions since the beginning of the fourth quarter of the prior year, as well as through the creation of routing efficiencies which has allowed us to reduce our fleet by nearly 300 vehicles. As a result, payroll and benefit related expenses decreased by $7.5 million and other operating expenses decreased $4.7 million. Partially offsetting these cost savings during the second quarter of fiscal 2006 was a $3.5 million increase in bad debt expense due to higher energy costs, as well as a $0.8 million increase in variable compensation in line with our increased earnings.

General and Administrative Expenses

(Dollars in thousands)				Three Months Ended
				March 25, 2006				March 26, 2005				Increase				Percent Increase
General and administrative expenses				$	17,114			$	12,057			$	5,057				41.9	%
As a percent of total revenues				2.9%				2.1%

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

General and administrative expenses of $17.1 million for the three months ended March 25, 2006 were $5.1 million, or 41.9%, higher compared to $12.1 million the during second quarter of fiscal 2005. The increase was primarily attributable to a $5.5 million increase in variable compensation in line with improved earnings, as well as an increase of $0.6 million in other expenses; offset to an extent by a $1.0 million decrease in professional services expenses primarily from lower compliance costs for the Sarbanes-Oxley requirements.

Restructuring Costs.    For the three months ended March 25, 2006, we recorded a restructuring charge of $1.5 million related primarily to employee termination costs incurred as a result of the realignment

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of our field operations which was approved and initiated during the fourth quarter of fiscal 2005. This realignment is expected to generate further efficiencies, realize operating synergies and reduce costs at the field operating level. The restructuring charge consists primarily of costs associated with severance and other employee benefits for an additional 65 positions eliminated during the second quarter of fiscal 2006 for a total of 150 positions eliminated since the beginning of the fourth quarter of fiscal 2005 under the field realignment plan.

Our field realignment efforts will continue into the third and fourth quarters of fiscal 2006 as we focus on further streamlining the operations ahead of the fiscal 2007 heating season. Following the end of the second quarter of fiscal 2006, we initiated a plan to streamline the operations within our HVAC segment which will result in the elimination of additional positions and service vehicles during the third quarter of fiscal 2006. As a result, additional restructuring charges are expected to be incurred during the third or fourth quarters of fiscal 2006 as these plans are finalized.

During fiscal 2005, we recorded a $0.3 million restructuring charge for severance costs associated with the continued integration of Agway Energy operations and management.

Depreciation and Amortization

(Dollars in thousands)				Three Months Ended
				March 25, 2006				March 25, 2005				Decrease				Percent Decrease
Depreciation and amortization				$	8,898			$	9,198			$	(300	)			(3.3	%)
As a percent of total revenues				1.5%				1.6%

Depreciation and amortization expense decreased $0.3 million, or 3.3%, to $8.9 million for the three months ended March 25, 2006, compared to $9.2 million in the prior year quarter as a result of lower depreciation from asset retirements. Partially offsetting this decrease was an asset impairment charge of $1.1 million associated with our field realignment efforts, as well as the write-down of certain assets in our all other business segment related to HomeTown Hearth & Grill.

Interest Expense, net

(Dollars in thousands)				Three Months Ended
				March 25, 2006				March 25, 2005				Increase				Percent Increase
Interest expense, net				$	10,939			$	10,480			$	459				4.4	%
As a percent of total revenues				1.9%				1.8%

Net interest expense increased $0.5 million, or 4.4%, to $10.9 million for the three months ended March 25, 2006, compared to $10.5 million in the prior year quarter. The increase results primarily from higher average amounts outstanding under our working capital facility during the second quarter of fiscal 2006 to fund increased working capital requirements from higher commodity prices, offset to an extent by lower average interest rates on long-term borrowings.

Net Income and EBITDA.    Net income for the three months ended March 25, 2006 amounted to $84.0 million, an increase of $18.5 million, or 28.2%, compared to the prior year quarter of $65.5 million. EBITDA increased $18.7 million, or 21.9%, to $103.9 million for the three months ended March 25, 2006 compared to $85.2 million in the prior year quarter. Despite lower volumes in propane and refined fuels, our net income and EBITDA improved 28.2% and 21.9%, respectively, as a result of our effort to focus on higher margin propane and refined fuels customers, cost savings attributable to the ongoing field realignment and the impact on fuel oil margins from the elimination of the Ceiling Program.

EBITDA represents net income before deducting interest expense, income taxes, depreciation and amortization. Our management uses EBITDA as a measure of liquidity and we are including it because we believe that it provides our investors and industry analysts with additional information to evaluate our ability to meet our debt service obligations and to pay our quarterly distributions to holders of our Common Units. Moreover, our Revolving Credit Agreement requires us to use

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EBITDA as a component in calculating our leverage and interest coverage ratios. EBITDA is not a recognized term under GAAP and should not be considered as an alternative to net income or net cash provided by operating activities determined in accordance with GAAP. Because EBITDA as determined by us excludes some, but not all, items that affect net income, it may not be comparable to EBITDA or similarly titled measures used by other companies. The following table sets forth (i) our calculation of EBITDA and (ii) a reconciliation of EBITDA, as so calculated, to our net cash provided by/(used in) operating activities:

(Dollars in thousands)				Three Months Ended
				March 25, 2006				March 26, 2005
Net income				$	84,029			$	65,457
Add:
Provision for income taxes					83				109
Interest expense, net					10,939				10,480
Depreciation and amortization					8,898				9,198
EBITDA					103,949				85,244
Add (subtract):
Provision for income taxes					(83	)			(109	)
Interest expense, net					(10,939	)			(10,480	)
Gain on disposal of property, plant and equipment, net					(577	)			(860	)
Gain on sale of customer service centers					—				(976	)
Changes in working capital and other assets and liabilities					(28,582	)			(65,288	)
Net cash provided by/(used in)
Operating activities				$	63,768			$	7,531
Investing activities				$	(3,303	)		$	(5,035	)
Financing activities				$	(60,411	)		$	(1,443	)

Six Months Ended March 25, 2006 Compared to Six Months Ended March 26, 2005

Revenues

(Dollars in thousands)				Six Months Ended								Increase (Decrease)				Percent Increase (Decrease)
				March 25, 2006				March 26, 2005
Revenues
Propane				$	696,902			$	619,613			$	77,289				12.5	%
Fuel oil and refined fuels					238,872				266,223				(27,351	)			(10.3	%)
Natural gas and electricity					84,054				61,753				22,301				36.1	%
HVAC					53,643				59,274				(5,631	)			(9.5	%)
All other					4,935				4,552				383				8.4	%
Total revenues				$	1,078,406			$	1,011,415			$	66,991				6.6	%

Total revenues increased $67.0 million, or 6.6%, to $1,078.4 million for the six months ended March 25, 2006 compared to $1,011.4 million for the six months ended March 26, 2005, driven primarily by higher average selling prices resulting from significantly higher commodity prices, offset to an extent by lower volumes in our propane and fuel oil and refined fuels segments. As reported by NOAA, average temperatures in our service territories were 9% warmer than normal for the six months ended March 25, 2006, compared to 5% warmer than normal temperatures in the prior year period. While the fiscal 2006 heating season began with temperatures that were 5% warmer than normal in the first quarter of fiscal 2006, significantly warmer than normal temperatures, particularly

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during the critical heating months of January and February 2006 which were 20% warmer than normal, had a significant negative impact on volumes sold. In the commodities markets, the high propane and fuel oil prices experienced throughout fiscal 2005 continued into fiscal 2006, thus continuing to negatively impact volumes as a result of customer conservation.

Revenues from the distribution of propane and related activities of $696.9 million for the first six months of fiscal 2006 increased $77.3 million, or 12.5%, compared to $619.6 million in the prior year period, primarily due to the impact of higher average selling prices in line with significantly higher product costs, offset to an extent by the impact of lower volumes. Retail propane gallons sold in the first six months of fiscal 2006 decreased 38.2 million gallons, or 11.2%, to 302.7 million gallons from 340.9 million gallons in the prior year period. Propane volumes sold were negatively affected by the impact of warmer weather, customer conservation efforts, and our effort to focus on higher margin residential customers. Average propane selling prices increased approximately 13.2% as a result of higher commodity prices for propane. The average posted price of propane during the first half of fiscal 2006 increased approximately 23% compared to the average posted prices in the prior year period. Additionally, included within the propane segment are revenues from wholesale and risk management activities of $45.5 million for the six months ended March 25, 2006 which increased $36.4 million compared to the prior year period.

Revenues from the distribution of fuel oil and other refined fuels of $238.9 million in the first half of fiscal 2006 decreased $27.4 million, or 10.3%, from $266.2 million in the prior year. Sales of fuel oil and other refined fuels amounted to 98.5 million gallons during the first half of fiscal 2006 compared to 158.8 million gallons in the prior year period, a decrease of 60.3 million gallons, or 38.0%. Lower volumes in our fuel oil and refined fuels segment were attributable primarily to our continued efforts to exit certain lower margin diesel and gasoline businesses which resulted in an approximate decrease of 21.0 million gallons compared to the prior year period, combined with the impact of high prices on fuel oil volumes, as well as the impact on volumes from the decision to eliminate the fuel oil Ceiling Program. Average selling prices in our fuel oil and refined fuels segment increased approximately 35% as a result of higher fuel oil commodity prices, coupled with the decreased emphasis on lower priced diesel and gasoline businesses and the shift in our pricing strategy at the field level following the elimination of the restrictions from the Ceiling Program. The average posted price of fuel oil during the first half of fiscal 2006 increased approximately 27% compared to the average posted prices in the prior year period.

Revenues for the first six months of fiscal 2006 were favorably impacted by a 36.1% increase in our natural gas and electricity marketing segment, which increased to $84.1 million from $61.8 million in the prior year period, primarily as a result of a rise in electricity volumes coupled with increases in average selling prices for natural gas and electricity in line with higher commodity prices. Revenues in our HVAC segment declined 9.5%, to $53.6 million during the first half of fiscal 2006 compared to $59.3 million in the prior year period.

Cost of Products Sold

(Dollars in thousands)				Six Months Ended								Increase (Decrease)				Percent Increase (Decrease)
				March 25, 2006				March 26, 2005
Cost of products sold
Propane				$	411,596			$	342,273			$	69,323				20.3	%
Fuel oil and refined fuels					185,535				232,049				(46,514	)			(20.0	%)
Natural gas and electricity					71,224				53,851				17,373				32.3	%
HVAC					20,347				23,049				(2,702	)			(11.7	%)
All other					2,482				2,733				(251	)			(9.2	%)
Total cost of products sold				$	691,184			$	653,955			$	37,229				5.7	%
As a percent of total revenues				64.1%				64.7%

Cost of products sold increased $37.2 million to $691.2 million for the six months ended March 25, 2006, compared to $654.0 million in the prior year period. The increase results primarily

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from the higher commodity prices for propane and fuel oil, offset to an extent by the lower sales volumes described above. Cost of products sold associated with the distribution of propane and related activities of $411.6 million increased $69.3 million, or 20.3%, compared to the prior year period. Higher propane prices resulted in a $52.9 million increase in cost of products sold during the first six months of fiscal 2006 compared to the prior year period, partially offset by decreased propane volumes which had an impact of $18.6 million. Higher wholesale and risk management activities, noted above, increased cost of products sold by $34.6 million compared to the prior year period.

Cost of products sold associated with our fuel oil and refined fuels segment of $185.5 million decreased $46.5 million, or 20.0%, compared to the prior year period. Lower sales volumes resulted in a $77.8 million decrease in cost of products sold during the first half of fiscal 2006 compared to the prior year period, partially offset by higher commodity prices which had an impact of $33.4 million compared to the prior year period. Cost of products sold as a percentage of revenues in our fuel oil and refined fuels segment decreased from 87.2% during the first half of fiscal 2005 to 78.6% in the first half of fiscal 2006 primarily as a result of the elimination of the fuel oil Ceiling Program which had the effect of restricting fuel oil margin opportunities in fiscal 2005. The Ceiling Program primarily affected deliveries from February through April 2005 as a result of the decision not to hedge the program, however, the inability to pass on the significant rise in the commodity prices throughout the first nine months of fiscal 2005 significantly affected margin opportunities throughout the first three quarters of fiscal 2005. By eliminating this pricing program for fiscal 2006, we no longer incur the costs of hedging deliveries associated with this program and we have been successful in implementing our market-based pricing strategies in our field operations, without significant customer losses.

The increase in revenues attributable to our natural gas and electricity segment had a $17.4 million impact on cost of products sold for the six months ended March 25, 2006 compared to the prior year period. Cost of products sold in our HVAC segment declined $2.7 million as a result of lower revenues.

For the six months ended March 25, 2006, total cost of products sold represented 64.1% of revenues compared to 64.7% in the prior year period.

Operating Expenses

(Dollars in thousands)				Six Months Ended
				March 25, 2006				March 26, 2005				Decrease				Percent Decrease
Operating expenses				$	193,303			$	205,570			$	(12,267	)			(6.0	%)
As a percent of total revenues				17.9%				20.3%

Operating expenses of $193.3 million for the six months ended March 25, 2006 decreased $12.3 million, or 6.0%, compared to $205.6 million in the prior year period. Operating expenses in the first half of fiscal 2006 include a $6.5 million unrealized (non-cash) gain representing the net change in fair values of derivative instruments during the period, compared to a $0.3 million unrealized loss in the first half of the prior year (see Item 3 in this Quarterly Report for information on our policies regarding the accounting for derivative instruments). In addition to the non-cash impact of changes in the fair value of derivative instruments, operating expenses decreased $5.5 million primarily as a result of cost savings achieved through the aforementioned field realignment efforts. As a result of these efforts, payroll and benefit related expenses decreased by $9.2 million and other operating expenses decreased $3.9 million. Partially offsetting these cost savings was a $4.2 million increase in bad debt expense due to higher energy costs and increased variable compensation costs of $3.4 million in line with higher earnings.

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General and Administrative Expenses

(Dollars in thousands)				Six Months Ended
				March 25, 2006				March 26, 2005				Increase				Percent Increase
General and administrative expenses				$	31,330			$	23,025			$	8,305				36.1	%
As a percent of total revenues				2.9%				2.3%

General and administrative expenses of $31.3 million for the six months ended March 25, 2006 were $8.3 million, or 36.1%, higher compared to $23.0 million during the first half of fiscal 2005. The increase was primarily attributable to $5.0 million increased variable compensation in line with improved earnings, as well as higher professional service fees in connection with assistance with certain business initiatives, including the field realignment.

Depreciation and Amortization

(Dollars in thousands)				Six Months Ended
				March 25, 2006				March 26, 2005				Decrease				Percent Decrease
Depreciation and amortization				$	17,109			$	18,317			$	(1,208	)			(6.6	%)
As a percent of total revenues				1.6%				1.8%

Depreciation and amortization expense decreased $1.2 million, or 6.6%, to $17.1 million for the six months ended March 25, 2006, compared to $18.3 million in the prior year period as a result of lower depreciation from asset retirements. Partially offsetting this decrease was an asset impairment charge of $1.1 million in fiscal 2006 associated with our field realignment efforts, as well as the write-down of certain assets in our all other business segment.

Interest Expense, net

(Dollars in thousands)				Six Months Ended
				March 25, 2006				March 26, 2005				Increase				Percent Increase
Interest expense, net				$	21,506			$	20,343			$	1,163				5.7	%
As a percent of total revenues				2.0%				2.0%

Net interest expense increased $1.2 million, or 5.7%, to $21.5 million for the six months ended March 25, 2006, compared to $20.3 million in the prior year period. The increase results primarily from higher amounts outstanding under our working capital facility to fund increased working capital requirements from higher commodity prices, offset to an extent by lower average interest rates on long-term borrowings.

Net Income and EBITDA.    Net income for the six months ended March 25, 2006 amounted to $122.2 million, or $3.59 per Common Unit, an increase of $31.8 million, or 35.2%, compared to the prior year period of $90.4 million, or $2.69 per Common Unit. EBITDA increased $31.9 million, or 24.7%, to $161.1 million for the six months ended March 25, 2006, compared to $129.2 million in the prior year period. Despite weather that was 9% warmer than normal for the first six months of fiscal 2006, and 20% warmer than normal in January and February 2006, our results were favorably impacted by the areas that are well within our control: (i) the impact of eliminating the fuel oil Ceiling Program, (ii) operating expense savings from our field realignment efforts to streamline the operating footprint and achieve operating efficiencies and, (iii) unit margin improvement from improved customer mix.

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

(Dollars in thousands)				Six Months Ended
				March 25, 2006				March 26, 2005
Net income				$	122,244			$	90,358
Add:
Provision for income taxes					233				198
Interest expense, net					21,506				20,343
Depreciation and amortization					17,109				18,317
EBITDA					161,092				129,216
Add (subtract):
Provision for income taxes					(233	)			(198	)
Interest expense, net					(21,506	)			(20,343	)
Gain on disposal of property, plant and equipment, net					(621	)			(1,067	)
Gain on sale of customer service centers					—				(976	)
Changes in working capital and other assets and liabilities					(83,896	)			(128,728	)
Net cash provided by/(used in)
Operating activities				$	54,836			$	(22,096	)
Investing activities				$	(9,241	)		$	(12,944	)
Financing activities				$	(43,323	)		$	(1,539	)

Liquidity and Capital Resources

Analysis of Cash Flows

Operating Activities.    Due to the seasonal nature of the propane and fuel oil businesses, cash flows from operating activities are greater during the winter and spring seasons (our second and third fiscal quarters) as customers pay for products purchased during the heating season. For the six months ended March 25, 2006, net cash provided by operating activities was $54.8 million compared to net cash used in operating activities of $22.1 million for the six months of the prior year. The $76.9 million improvement in operating cash flows was attributable to a $32.3 million increase in earnings, after adjusting for non-cash items in both periods (depreciation, amortization and gains on disposal of assets), coupled with a $44.6 million decrease in investment in working capital in comparison to the first six months of the prior year, particularly lower accounts receivable and inventories at the end of the fiscal 2006 heating season compared to the prior year.

In addition, during the second quarter of fiscal 2006 we received $4.9 million from an agreement to release to us the remaining funds previously held in escrow following the Agway Acquisition in December 2003. These funds were originally set aside by the seller to fund environmental remediation and monitoring activities related to properties acquired in the Agway Acquisition and will be used by us to fund estimated future remediation and monitoring costs. Based on management’s estimate of required future remediation and monitoring activities, the remaining funds are expected to be sufficient to cover future requirements.

Investing Activities.    Net cash used in investing activities of $9.2 million for the six months ended March 25, 2006 consists of capital expenditures of $10.9 million (including $4.1 million for maintenance expenditures and $6.8 million to support the growth of operations), partially offset by the net proceeds from the sale of property, plant and equipment of $1.6 million. Net cash used in investing activities of $12.9 million for the six months ended March 26, 2005 consisted of capital expenditures of $16.2 million (including $3.5 million for maintenance expenditures and $12.7 million to support growth of operations), partially offset by the net proceeds from the sale of property, plant and equipment of $3.3 million.

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Financing Activities.    Net cash used in financing activities for the six months ended March 25, 2006 of $43.3 million reflects the repayment of short-term borrowings of $5.0 million under our Revolving Credit Agreement and quarterly distributions to Common Unitholders and the General Partner at a rate $0.6125 per Common Unit in respect of the fourth quarter of fiscal 2005 and the first quarter of fiscal 2006 of $38.3 million. Net cash used in financing activities for the six months ended March 26, 2005 of $1.5 million reflects the net result of borrowings of $38.0 million under our Revolving Credit Agreement, quarterly distributions to Common Unitholders and the General Partner at a rate of $0.6125 per Common Unit amounting to $38.3 million and $1.3 million in fees associated with entering into the Third Amended and Restated Credit Agreement in October 2004.

Summary of Long-Term Debt Obligations and Revolving Credit Lines

Our long-term borrowings and revolving credit lines consist of $425.0 million in 6.875% senior notes due December 2013 (the ‘‘2003 Senior Notes’’) and a Revolving Credit Agreement at the Operating Partnership level which provides a five-year $125.0 million term loan due March 31, 2010 (the ‘‘Term Loan’’) and a separate working capital facility. The 2003 Senior Notes mature on December 15, 2013 and require semi-annual interest payments that began on June 15, 2004. We are permitted to redeem some or all of the 2003 Senior Notes any time on or after December 15, 2008, at redemption prices specified in the indenture governing the 2003 Senior Notes. In addition, embedded within the 2003 Senior Notes is a change of control provision that would require us to offer to repurchase the notes at 101% of the principal amount repurchased, if the holders of the notes elected to exercise the right of repurchase.

On August 26, 2005, we completed the second amendment to the Revolving Credit Agreement pursuant to which the lenders (i) eliminated a stand-alone $75.0 million letter of credit facility and combined that credit with the existing revolving working capital facility; (ii) increased the revolving working capital facility by an additional $25.0 million, thereby raising the amount of the working capital facility from $75.0 million to $175.0 million (including the $75.0 million from the former stand-alone letter of credit facility); (iii) extended the revolving credit facility’s expiration date to match the March 31, 2010 maturity date of the Term Loan; and, (iv) amended certain other terms to effect the foregoing. On February 23, 2006, we completed the third amendment to the Revolving Credit Agreement which authorized our Operating Partnership to incur additional indebtedness of up to $10.0 million in connection with capital leases and up to $20.0 million in short-term borrowings during the period from December 1 to April 1 in each fiscal year. The third amendment provides us with greater financial flexibility for general working capital purposes during periods of peak demand, if necessary.

Borrowings under the Revolving Credit Agreement, including the Term Loan, bear interest at a rate based upon either LIBOR or Wachovia National Bank's prime rate, plus, in each case, the applicable margin or the Federal Funds rate plus ½ of 1%. An annual facility fee ranging from 0.375% to 0.50%, based upon certain financial tests, is payable quarterly whether or not borrowings occur.

As of March 25, 2006, there was $21.8 million outstanding under the working capital facility of the Revolving Credit Agreement that was used to fund working capital requirements during the fiscal 2006 heating season. While working capital requirements have increased as a result of the sustained period of significantly higher commodity prices for both propane and fuel oil, our working capital facility has provided more than adequate borrowing capacity to meet the increased seasonal needs. As of March 30, 2006 (subsequent to the end of our second quarter), we fully repaid all amounts outstanding under the working capital facility of the Revolving Credit Agreement.

The Revolving Credit Agreement and the 2003 Senior Notes both contain various restrictive and affirmative covenants applicable to our Operating Partnership and us, respectively, including (i) restrictions on the incurrence of additional indebtedness, and (ii) restrictions on certain liens, investments, guarantees, loans, advances, payments, mergers, consolidations, distributions, sales of assets and other transactions. Under the Revolving Credit Agreement, the Operating Partnership is required to maintain a leverage ratio (the ratio of Operating Partnership debt to EBITDA) of less than 4.0 to 1. In addition, the Operating Partnership is required to maintain an interest coverage ratio

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(the ratio of EBITDA to consolidated interest expense) of greater than 2.5 to 1 on a consolidated basis. We were in compliance with all covenants and terms of all of our debt agreements as of March 25, 2006.

In connection with the Term Loan, our Operating Partnership also entered into an interest rate swap contract with a notional amount of $125.0 million with the issuing lender. Effective March 31, 2005 through March 31, 2010, our Operating Partnership will pay a fixed interest rate of 4.66% to the issuing lender on notional principal amount of $125.0 million, effectively fixing the LIBOR portion of the interest rate at 4.66%. In return, the issuing lender will pay to our Operating Partnership a floating rate, namely LIBOR, on the same notional principal amount. The applicable margin above LIBOR, as defined in the Revolving Credit Agreement, is not included in, and will be paid in addition to this fixed interest rate of 4.66%.

Partnership Distributions

We will make distributions in an amount equal to all of our Available Cash, as defined in the Second Amended and Restated Partnership Agreement, approximately 45 days after the end of each fiscal quarter to holders of record on the applicable record dates. The Board of Supervisors reviews the level of Available Cash on a quarterly basis based upon information provided by management. On April 20, 2006, we declared a quarterly distribution of $0.6125 per Common Unit, or $2.45 on an annualized basis, in respect of the second quarter of fiscal 2006 payable on May 9, 2006 to holders of record on May 2, 2006. On May 4, 2006, we announced an increase in our quarterly distribution from $0.6125 to $0.6375 per Common Unit, or $2.55 on an annualized basis. The quarterly distribution at this increased level will be payable in respect of the third quarter of fiscal 2006 on August 8, 2006 to holders of record on August 1, 2006.

Quarterly distributions include Incentive Distribution Rights (‘‘IDRs’’) payable to our General Partner to the extent the quarterly distribution exceeds $0.55 per Common Unit. The IDRs represent an incentive for the General Partner (which is owned by management of the Partnership) to increase the distributions to Common Unitholders in excess of $0.55 per Common Unit. With regard to the first $0.55 of the Common Unit distribution, 98.26% of the Available Cash is distributed to the Common Unitholders and 1.74% is distributed to the General Partner. With regard to the balance of the Common Unit distributions paid, approximately 85% of the Available Cash is distributed to the Common Unitholders and approximately 15% is distributed to the General Partner.

Debt Obligations and Other Commitments

The following table presents short-term and long-term debt obligations, cash interest and future minimum rental commitments due under noncancelable operating lease agreements as of March 25, 2006. For purposes of determining cash interest due under the Term Loan, a variable interest debt instrument, we have used the interest rate in effect as of March 25, 2006, taking into consideration the impact of the interest rate swap described above.

				Payments due by period
(Dollars in thousands)				Remainder of Fiscal 2006				Fiscal 2007				Fiscal 2008				Fiscal 2009				Fiscal 2010 and thereafter				Total
Short-term and long-term debt				$	22,225			$	—			$	—			$	—			$	548,187			$	570,412
Future interest payments					21,065				35,603				37,731				37,731				108,650				240,780
Operating leases					12,196				17,403				13,208				8,071				10,120				60,998
Total debt obligations, cash interest and lease commitments				$	55,486			$	53,006			$	50,939			$	45,802			$	666,957			$	872,190

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 were ceased and eligible employees would only

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receive interest credits toward their ultimate retirement benefit. At March 25, 2006, we had accrued pension obligations of $42.9 million. 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 25, 2006, we had accrued retiree health and life benefits of $32.3 million. We are self-insured for general, product, workers’ compensation and automobile liabilities up to predetermined thresholds above which third party insurance applies. At March 25, 2006, we had accrued insurance liabilities of $37.2 million, net of an $8.7 million asset related to the amount of the liability expected to be covered by insurance carriers. Additionally, we have standby letters of credit in the aggregate amount of $54.3 million, in support of our casualty insurance coverage and certain lease obligations, which expire periodically through March 1, 2007.

Additionally, 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 2013. 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 difference. Although the equipments' fair value at the end of its lease term has historically exceeded the guaranteed amounts, the maximum potential amount of aggregate future payments we could be required to make under these leasing arrangements, assuming the equipment is deemed worthless at the end of the lease term, is approximately $18.0 million. Of this amount, the fair value of residual value guarantees for operating leases entered into after December 31, 2002 were $8.3 million and $6.3 million as of March 25, 2006 and September 24, 2005, respectively, which is reflected in other liabilities, with a corresponding amount included within other assets in the accompanying condensed consolidated balance sheets.

Recently Issued Accounting Standards

In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and 140" ("SFAS 155"). Among other things, SFAS 155 permits the fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation under SFAS 133. It also clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS 133 and establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. SFAS 155 is effective for all financial instruments acquired, issued, or subject to a remeasurement event occurring after our fiscal year ending September 30, 2006. We are currently evaluating the provisions of SFAS 155 and currently believe that adoption will not have a material effect on our financial position, results of operations or cash flows.

In September 2005, the FASB's Emerging Issues Task Force reached a consensus on Issue 04-13, "Accounting for the Purchases and Sales of Inventory with the Same Counterparty" ("EITF 04-13"). EITF 04-13 concluded that two or more inventory purchase and sales transactions with the same counterparty that are entered into in contemplation of one another should be viewed as a single nonmonetary transaction within the scope of Accounting Principles Board Opinion No. 29, "Accounting for Nonmonetary Transactions." EITF 04-13 is effective for new arrangements entered into, and modification or renewals of existing arrangements, beginning in our third quarter of fiscal 2006. We are currently evaluating the provisions of EITF 04-13 and currently believe that adoption will not have a material effect on our financial position, results of operations or cash flows.

In March 2005, the Financial Accounting Standards Board (the "FASB") issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations" ("FIN 47"). FIN 47 clarifies the term "conditional asset retirement obligation" as a legal obligation to retire an asset when the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. FIN 47 also requires an entity to recognize a liability for the fair value of the conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. FIN 47 is effective no later than the end of our fiscal year ending September 30, 2006. We are currently evaluating the provisions of FIN 47 and currently believe that adoption will not have a material effect on our financial position, results of operations or cash flows.

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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements (‘‘Forward-Looking Statements’’) as defined in the Private Securities Litigation Reform Act of 1995 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 are subject to certain risks and uncertainties that could cause actual results to differ materially from those discussed or implied in such Forward-Looking Statements (statements contained in this Quarterly Report identifying such risks and uncertainties are referred to as ‘‘Cautionary Statements’’). The risks and uncertainties and their impact on the Partnership’s results include, but are not limited to, the following risks:

•	The impact of weather conditions on the demand for propane, fuel oil and other refined fuels, natural gas and electricity;

•	Fluctuations in the unit cost of propane, fuel oil and other refined fuels and natural gas, and the impact of price increases on customer conservation;

•	The ability of the Partnership to compete with other suppliers of propane, fuel oil and other energy sources;

•	The impact on the price and supply of propane, fuel oil and other refined fuels from the political, military or economic instability of the oil producing nations, global terrorism and other general economic conditions;

•	The ability of the Partnership to acquire and maintain reliable transportation for its propane, fuel oil and other refined fuels;

•	The ability of the Partnership to retain customers;

•	The impact of energy efficiency and technology advances on the demand for propane and fuel oil;

•	The ability of management to continue to control expenses including the results of our recent field realignment initiative;

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

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

•	The Partnership’s ability to implement its expansion strategy into new business lines and sectors; and

•	The Partnership’s ability to integrate acquired businesses successfully.

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. On different occasions, the Partnership or its representatives have made or may make Forward-Looking Statements in other filings with the Securities and Exchange Commission (‘‘SEC’’), press releases or oral statements made by or with the approval of one of the Partnership’s authorized executive officers. Readers are cautioned not to place undue reliance on Forward-Looking Statements, which reflect management’s view only as of the date made. The Partnership undertakes no obligation to update any Forward-Looking Statement or Cautionary Statement. 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.

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ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of March 25, 2006, we were a party to exchange-traded futures and option contracts, forward contracts and in certain instances, over-the-counter options (collectively ‘‘derivative instruments’’) to manage the price risk associated with future purchases of the commodities used in our operations, principally propane and fuel oil. Futures and forward contracts require that we sell or acquire propane or fuel oil at a fixed price at fixed future dates. An option contract allows, but does not require, its holder to buy or sell propane or fuel oil at a specified price during a specified time period. However, the writer of an option contract must fulfill the obligation of the option contract, should the holder choose to exercise the option. At expiration, the contracts are settled by the delivery of the product to the respective party or are settled by the payment of a net amount equal to the difference between the then current price and the fixed contract price. The contracts are entered into in anticipation of market movements and to manage and hedge exposure to fluctuating prices of propane and fuel oil, as well as to help ensure the availability of product during periods of high demand.

During fiscal 2005, approximately 70% of our fuel oil volumes were sold to individual customers under a Ceiling Program which was an agreement pre-establishing a maximum price per gallon over a twelve-month period. While our strategy was to enter into derivative instruments in the form of futures and options traded on the NYMEX covering a majority of the fuel oil we expected to sell to customers under the Ceiling Program in an effort to protect the margins under the program, we evaluated the costs of such hedge protection and elected not to hedge deliveries in February through April of 2005 (impacting our second and third fiscal quarters of fiscal 2005) under this program. After evaluating the costs to adequately hedge the Ceiling Program in the current commodity price environment, particularly for fuel oil, we decided to discontinue offering the Ceiling Program after the fiscal 2005 heating season. Accordingly, we have not offered the Ceiling Program for the fiscal 2006 heating season.

Market Risk

We are subject to commodity price risk to the extent that propane or fuel oil market prices deviate from fixed contract settlement amounts. Futures traded with brokers of the NYMEX require daily cash settlements in margin accounts. Forward and option contracts are generally settled at the expiration of the contract term either by physical delivery or through a net settlement mechanism. Market risks associated with the trading of futures, options and forward contracts are monitored daily for compliance with our Hedging and Risk Management Policy which includes volume limits for open positions. Open inventory positions are reviewed and managed daily as to exposures to changing market prices.

Credit Risk

Futures and fuel oil options are guaranteed by the NYMEX and, as a result, have minimal credit risk. We are subject to credit risk with forward and propane option contracts to the extent the counterparties do not perform. We evaluate the financial condition of each counterparty with which we conduct business and establish credit limits to reduce exposure to credit risk of non-performance.

Interest Rate Risk

A portion of our long-term borrowings bear interest at a variable rate based upon either LIBOR or Wachovia National Bank's prime rate, plus an applicable margin depending on the level of our total leverage. Therefore, we are subject to interest rate risk on the variable component of the interest rate. We manage our interest rate risk by entering into interest rate swap agreements. On March 31, 2005, we entered into a $125.0 million interest rate swap contract in conjunction with the new Term Loan facility under the Revolving Credit Agreement. The interest rate swap is being accounted for under SFAS 133 and has been designated as a cash flow hedge. Changes in the fair value of the interest rate swap are recognized in other comprehensive income until the hedged item is recognized in earnings. At March 25, 2006, the fair value of the interest rate swap was $1.7 million representing an unrealized gain and is included within other assets.

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Derivative Instruments and Hedging Activities

We account for derivative instruments in accordance with the provisions of SFAS 133. All derivative instruments are reported on the balance sheet, within other current assets or other current liabilities, at their fair values. Fair values for forward contracts and futures are derived from quoted market prices for similar instruments traded on the NYMEX. 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 other comprehensive income (loss) (‘‘OCI’’), depending on whether a derivative instrument is designated as a hedge and, if so, the type of hedge. For derivative instruments designated as cash flow hedges, 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 hedges are recognized in operating expenses immediately.

Changes in the fair value of derivative instruments that are not designated as hedges are recorded in current period earnings within operating expenses and reclassified to cost of products sold once realized. A portion of our option contracts are not classified as hedges and, as such, changes in the fair value of these derivative instruments are recognized within operating expenses as they occur. The value of certain option contracts that do qualify as hedges and are designated as cash flow hedges under SFAS 133 have two components of value: time value and intrinsic value. The intrinsic value is the value by which the option is in the money (i.e., the amount by which the value of the commodity exceeds the exercise or ‘‘strike’’ price of the option). The remaining amount of option value is attributable to time value. We do not include the time value of option contracts in our assessment of hedge effectiveness and, therefore, record changes in the time value component of the options currently in earnings.

At March 25, 2006, the fair value of derivative instruments described above resulted in derivative assets (unrealized gains) of $0.3 million included within prepaid expenses and other current assets and derivative liabilities (unrealized losses) of $1.2 million included within other current liabilities. Operating expenses included unrealized (non-cash) losses in the amount of $0.6 million for the three months ended March 25, 2006, unrealized (non-cash) gains of $6.5 million for the six months ended March 25, 2006 and unrealized (non-cash) losses in the amounts of $2.8 million and $0.3 million for the three and six months ended March 26, 2005, respectively, attributable to the change in fair value of derivative instruments not designated as cash flow hedges. At March 25, 2006, unrealized losses on derivative instruments designated as cash flow hedges in the amount of $0.1 million were included in OCI and are expected to be recognized in earnings during the next 12 months as the hedged transactions occur. However, due to the volatility of the commodities market, the corresponding value in OCI is subject to change prior to its impact on earnings.

Sensitivity Analysis

In an effort to estimate our exposure to unfavorable market price changes in propane or fuel oil, a sensitivity analysis of open positions as of March 25, 2006 was performed. Based on this analysis, a hypothetical 10% adverse change in market prices for each of the future months for which a future, forward and/or option contract exists indicates either a reduction in potential future gains or potential losses in future earnings of $5.0 million and $0.2 million as of March 25, 2006 and March 26, 2005, respectively. See also Item 7A of our Annual Report on Form 10-K for the fiscal year ended September 24, 2005.

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 at any given point in time.

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ITEM 4.	CONTROLS AND PROCEDURES

(a)    The Partnership maintains disclosure controls and procedures (as defined in Rule 13a-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 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.

On May 2, 2006, before filing this Quarterly Report, 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 25, 2006. Based on this evaluation, the Partnership’s principal executive officer and principal financial officer have concluded that as of March 25, 2006, such disclosure controls and procedures were effective at the reasonable assurance level.

(b)    There have not been any changes in the Partnership’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) during the quarter ended March 25, 2006 that have materially affected or are reasonably likely to materially affect its internal control over financial reporting.

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PART II

ITEM 6.	EXHIBITS

(a)	Exhibits

	31.1	Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2	Certification of the Vice President and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32.1	Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	32.2	Certification of the Vice President and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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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 4, 2006				/s/ ROBERT M. PLANTE
Date				Robert M. Plante Vice President and Chief Financial Officer
May 4, 2006				/s/ MICHAEL A. STIVALA
Date				Michael A. Stivala Controller and Chief Accounting Officer

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