The following is a discussion of the financial condition and results of operations of the Partnership as of and for the three and nine months ended June 27, 2009. 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 27, 2008. Executive Overview
The following are factors that regularly affect our operating results and financial condition. In addition, our business is subject to the risks and uncertainties described in Item 1A of this Quarterly Report as well as those included in the Annual Report on Form 10-K for the fiscal year ended September 27, 2008.
Product Costs and Supply
The level of profitability in the retail propane, fuel oil, natural gas and electricity businesses is largely dependent on the difference between retail sales price and product cost. The unit cost of our products, particularly propane, fuel oil and natural gas, is subject to volatility as a result of product supply or other market conditions, including, but not limited to, economic and political factors impacting crude oil and natural gas supply or pricing. We enter into product supply contracts that are generally one-year agreements subject to annual renewal, and also purchase product on the open market. We attempt to reduce price risk by pricing product on a short-term basis. Our propane supply contracts typically provide for pricing based upon index formulas using the posted prices established at major supply points such as Mont Belvieu, Texas, or Conway, Kansas (plus transportation costs) at the time of delivery.
To supplement our annual purchase requirements, we may utilize forward fixed price purchase contracts to acquire a portion of the propane that we resell to our customers, which allows us to manage our exposure to unfavorable changes in commodity prices and to assure adequate physical supply. The percentage of contract purchases, and the amount of supply contracted for under forward contracts at fixed prices, will vary from year to year based on market conditions.
Product cost changes can occur rapidly over a short period of time and can impact profitability. There is no assurance that we will be able to pass on product cost increases fully or immediately, particularly when product costs increase rapidly. Therefore, average retail sales prices can vary significantly from year to year as product costs fluctuate with propane, fuel oil, crude oil and natural gas commodity market conditions. In addition, in periods of sustained higher commodity prices, as has been experienced over the past several fiscal years, retail sales volumes have been negatively impacted by customer conservation efforts.
Seasonality
The retail propane and fuel oil distribution businesses, as well as the natural gas marketing business, are seasonal because 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 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 propane and fuel oil physical inventory, as well as, in certain instances, forecasted purchases of propane or fuel oil. Forward contracts are generally settled physically at the expiration of the contract and futures are generally settled in cash at the expiration of the contract. Although we use derivative instruments to reduce the effect of price volatility associated with priced physical inventory and forecasted transactions, we do not use derivative instruments for speculative trading purposes. Risk management activities are monitored by an internal Commodity Risk Management Committee, made up of five members of management and reporting to our 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 27, 2008.
Certain amounts included in or affecting our consolidated financial statements and related disclosures must be estimated, requiring management to make certain assumptions with respect to values or conditions that cannot be known with certainty at the time the financial statements are prepared. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We are also subject to risks and uncertainties that may cause actual results to differ from estimated results. Estimates are used when accounting for depreciation and amortization of long-lived assets, employee benefit plans, self-insurance and litigation reserves, environmental reserves, allowances for doubtful accounts, asset valuation assessments and valuation of derivative instruments. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any effects on our business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known to us. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Supervisors. Results of Operations and Financial Condition Consistent with the seasonal nature of the propane and fuel oil businesses, we typically experience a net loss in the third quarter. Net loss for the three months ended June 27, 2009 narrowed to $7.4 million, or $0.23 per Common Unit, compared to a net loss of $13.7 million, or $0.42 per Common Unit, in the prior year third quarter. Earnings before interest, taxes, depreciation and amortization ("EBITDA") for the third quarter of fiscal 2009 amounted to $11.5 million, compared to $2.8 million in the prior year third quarter. EBITDA for the third quarter of fiscal 2009 included a $6.1 million unrealized (non-cash) loss representing the net change in the fair value of derivative instruments during the period (reported within cost of products sold), compared to a $4.7 million unrealized (non-cash) gain in the prior year third quarter resulting in a $10.8 million decrease in EBITDA in the third quarter of fiscal 2009 compared to the prior year third quarter. Excluding the impact of non-cash adjustments on derivative instruments, Adjusted EBITDA (as defined and reconciled below) was $17.7 million for the third quarter of fiscal 2009, an increase of $19.6 million compared to a loss of $1.9 million in the prior year third quarter.

The improvement in Adjusted EBITDA for the third quarter of fiscal 2009 compared to the prior year third quarter was driven primarily by higher operating margins, expense reductions gained through operating efficiencies and the absence of $14.5 million in realized losses from risk management activities that occurred in the third quarter of fiscal 2008 at the height of last year's rise in commodity prices. The economic recession continued to negatively affect sales volumes in the propane and refined fuels segments, especially in the commercial and industrial sectors, which account for a greater concentration of sales volumes after the heating season. With the increased level of earnings during the first three quarters of fiscal 2009 compared to the first three quarters of the prior year, coupled with lower working capital requirements from the generally lower commodity price environment, we ended the third quarter of fiscal 2009 with $256.1 million of cash on hand.
Retail propane gallons sold in the third quarter of fiscal 2009 decreased 10.2 million gallons, or 14.3%, to 61.2 million gallons compared to 71.4 million gallons in the prior year third quarter. Sales of fuel oil and other refined fuels decreased 2.9 million gallons, or 23.3%, to 9.7 million gallons during the third quarter of fiscal 2009 compared to 12.6 million gallons in the prior year third quarter. Lower volumes in both segments were primarily attributed to declines in commercial and industrial volumes resulting from the recession and, to a lesser extent, continued customer conservation.
In the commodities market, average posted prices for propane of $0.727 per gallon and for fuel oil of $1.556 per gallon during the third quarter of fiscal 2009 were 57.2% and 56.0%, respectively, lower than the prior year third quarter. The decline in commodity prices contributed to a reduction in our product costs, which resulted in an increase in our retail propane and fuel oil unit margins for the third quarter of fiscal 2009 compared to the prior year third quarter. In addition, as discussed above, the rapidly rising commodity price environment during the third quarter of fiscal 2008 contributed to $14.5 million in realized losses from our risk management activities that were not fully offset by sales of the physical product.
The proactive steps we have taken in prior years to create a more efficient and cost effective operating structure continue to produce cost savings and have contributed to the overall strength of our cash flow and financial position. Combined operating and general and administrative expenses of $85.4 million for the third quarter of fiscal 2009 decreased $4.3 million, or 4.8%, compared to the prior year third quarter primarily due to continued savings in payroll and vehicles expenses, partially offset by higher variable compensation attributable to higher earnings.
From a cash flow perspective, we continue to fund working capital requirements from cash on hand. During the third quarter of fiscal 2009, we generated $64.5 million in cash flow from operations. We ended the third quarter of fiscal 2009 with $256.1 million in cash on hand and are well positioned as we advance into the fourth quarter of the fiscal year. In addition, since the end of the third quarter of the prior year, we have reduced outstanding debt by $25.0 million. On the strength of these earnings and cash flows, our Board of Supervisors declared the twenty-second increase (since our recapitalization in 1999) in our quarterly distribution from $0.815 to $0.825 per Common Unit. The distribution equates to $3.30 per Common Unit annualized, an increase of $0.04 per Common Unit from the previous distribution rate, and a growth rate of 3.1% compared to the third quarter of fiscal 2008.
Looking ahead to the remainder of fiscal 2009, we expect that the economic recession and volatile commodity price environment will continue to present challenges in each of our markets that will continue to affect customer buying habits, thus having a possible negative impact on sales volumes. Nonetheless, we believe that our flexible cost structure, focus on operating efficiencies and financial strength are all factors that will help us effectively manage through the challenging operating environment.

Our anticipated cash requirements for the remainder of fiscal 2009 include:
(i) maintenance and growth capital expenditures of approximately $11.2 million;
(ii) interest payments of approximately $3.3 million; and (iii) cash distributions of approximately $27.1 million to our Common Unitholders based on the most recently increased quarterly distribution rate of $0.825 per Common Unit. Based on our current estimates of cash flow from operations and our cash position at the end of the third quarter of fiscal 2009, we do not anticipate the need to borrow under our credit facility to meet our working capital requirements for the remainder of fiscal 2009. On June 26, 2009, we successfully completed a new $250.0 million senior secured revolving credit facility ("Revolving Credit Facility"). The new four-year Revolving Credit Facility provides for $250.0 million of revolving lines of credit to replace our previous credit agreement, which consisted of a $175.0 million working capital facility and a separate $108.0 million term loan, both of which were set to mature in March 2010. At closing we borrowed $100.0 million under the Revolving Credit Facility and, along with cash on hand, repaid the $108.0 million previously outstanding on the term loan facility. As of June 27, 2009, there was unused borrowing capacity under the Revolving Credit Facility of $92.8 million after considering outstanding letters of credit of $57.2 million.
Three Months Ended June 27, 2009 Compared to Three Months Ended June 28, 2008

Revenues

                                     Three Months Ended
                                   June 27,      June 28,                      Percent
     (Dollars in thousands)          2009          2008         Decrease      Decrease
     Revenues
     Propane                       $ 139,571     $ 216,999     $  (77,428 )       (35.7 %)
     Fuel oil and refined fuels       23,091        55,262        (32,171 )       (58.2 %)
     Natural gas and electricity      12,147        22,507        (10,360 )       (46.0 %)
     Services                          8,321         9,184           (863 )        (9.4 %)
     All other                         1,242         1,524           (282 )       (18.5 %)

     Total revenues                $ 184,372     $ 305,476     $ (121,104 )       (39.6 %)

Total revenues decreased $121.1 million, or 39.6%, to $184.4 million for the three months ended June 27, 2009 compared to $305.5 million for the three months ended June 28, 2008 due to lower average selling prices associated with lower product costs, and, to a lesser extent, lower volumes. Volumes were lower than the prior year third quarter due to the negative impact of adverse economic conditions, particularly on our commercial and industrial accounts, as well as ongoing customer conservation efforts and the unfavorable impact of warmer temperatures. On an overall basis, temperatures in our service territories were 7% warmer than normal levels during the third quarter of fiscal 2009 and 4% warmer than the prior year third quarter.
Revenues from the distribution of propane and related activities of $139.6 million in the third quarter of fiscal 2009 decreased $77.4 million, or 35.7%, compared to $217.0 million in the prior year third quarter, primarily due to lower average selling prices, and, to a lesser extent, lower volumes, particularly in our commercial and industrial accounts. Average propane selling prices in the third quarter of fiscal 2009 decreased 23.3% compared to the prior year third quarter due to lower product costs, thereby having a negative impact on revenues. Retail propane gallons sold in the third quarter of fiscal 2009 decreased 10.2 million gallons, or 14.3%, to 61.2 million gallons from 71.4 million gallons in the prior year third quarter. The volume decline was primarily attributable to lower commercial and industrial volumes, which account for a greater concentration of sales volume after the heating season, resulting from the recession and, to a lesser extent, continued customer conservation. Lower volumes sold in the non-residential customer base accounted for more than 67% of the decline in propane sales volume. Additionally, included within the propane segment are revenues from wholesale and other propane activities of $6.9 million in the third quarter of fiscal 2009, which decreased $8.2 million compared to the prior year third quarter.
Revenues from the distribution of fuel oil and refined fuels of $23.1 million in the third quarter of fiscal 2009 decreased $32.2 million, or 58.2%, from $55.3 million in the prior year third quarter, primarily due to lower average selling prices and lower volumes. Average selling prices in our fuel oil and refined fuels segment in the third quarter of fiscal 2009 decreased 45.3% compared to the prior year third quarter due to lower product costs, thereby having a negative impact on revenues. Fuel oil and refined fuels gallons sold in the third quarter of fiscal 2009 decreased 2.9 million gallons, or 23.3%, to 9.7 million gallons from 12.6 million gallons in the prior year third quarter. Lower volumes in our fuel oil and refined fuels segment were attributable to the impact of ongoing customer conservation driven by adverse economic conditions.

Revenues in our natural gas and electricity segment decreased $10.4 million, or 46.0%, to $12.1 million in the third quarter of fiscal 2009 compared to $22.5 million in the prior year third quarter as a result of lower average selling prices and lower natural gas volumes. Revenues in our services segment decreased 9.4% to $8.3 million in the third quarter of fiscal 2009 from $9.2 million in the prior year third quarter primarily due to reduced installation activities as a result of the market decline in residential and commercial construction and other adverse economic conditions. Cost of Products Sold
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 option 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 option contracts will typically offset losses or gains on the physical inventory once the product is sold. We do not use futures or options contracts, or other derivative instruments, for speculative trading purposes.
With the unprecedented rise in commodity prices during the third quarter of fiscal 2008, we reported realized losses from our risk management activities which were not fully offset by sales of the physical product, resulting in a $14.5 million increase in cost of products sold during the third quarter of fiscal 2008.

                                     Three Months Ended                          Percent
                                   June 27,      June 28,      (Decrease)       (Decrease)
  (Dollars in thousands)             2009          2008         Increase         Increase
  Cost of products sold
  Propane                          $  57,819     $ 135,545     $   (77,726 )          (57.3 %)
  Fuel oil and refined fuels          19,255        54,518         (35,263 )          (64.7 %)
  Natural gas and electricity          7,859        19,780         (11,921 )          (60.3 %)
  Services                             1,696         2,437            (741 )          (30.4 %)
  All other                              834           694             140             20.2 %

  Total cost of products sold      $  87,463     $ 212,974     $  (125,511 )          (58.9 %)


  As a percent of total revenues        47.4 %        69.7 %

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, 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.

Cost of products sold decreased $125.5 million, or 58.9%, to $87.5 million in the third quarter of fiscal 2009 compared to $213.0 million in the prior year third quarter due to the impact of the decline in product costs, lower volumes sold and realized losses from risk management activities of $14.5 million in the prior year third quarter, partially offset by the unfavorable impact of non-cash mark-to-market adjustments from our risk management activities in the third quarter of fiscal 2009 compared to the prior year third quarter. Cost of products sold in the third quarter of fiscal 2009 included a $6.1 million unrealized (non-cash) loss representing the net change in the fair value of derivative instruments during the period, compared to a $4.7 million unrealized (non-cash) gain in the prior year third quarter resulting in an increase of $10.8 million in cost of products sold in the third quarter of fiscal 2009 compared to the prior year third quarter ($2.9 million increase reported within the propane segment and $7.9 million increase reported within the fuel oil and refined fuels segment).
Cost of products sold associated with the distribution of propane and related activities of $57.8 million decreased $77.7 million, or 57.3%, compared to the prior year third quarter. Lower average propane costs and lower propane volumes resulted in a decrease of $54.6 million and $17.7 million, respectively, in cost of products sold during the third quarter of fiscal 2009 compared to the prior year third quarter. Cost of products sold from wholesale and other propane activities decreased $8.3 million compared to the prior year third quarter. Cost of products sold associated with our fuel oil and refined fuels segment of $19.3 million decreased $35.3 million, or 64.7%, compared to the prior year third quarter. Lower average fuel oil costs and lower fuel oil volumes resulted in a decrease of $18.5 million and $10.2 million, respectively, in cost of products sold during the third quarter of fiscal 2009 compared to the prior year third quarter. In addition, the impact from risk management activities contributed to a decrease in cost of products sold compared to the prior year third quarter as a result of the $14.5 million realized loss, discussed above, reported in the fiscal 2008 third quarter.
Cost of products sold in our natural gas and electricity segment of $7.9 million decreased $11.9 million, or 60.3%, compared to the prior year third quarter due to lower product costs and lower natural gas volumes. Cost of products sold in our services segment of $1.7 million decreased $0.7 million, or 30.4%, compared to the prior year third quarter primarily due to lower sales volumes. For the third quarter of fiscal 2009, total cost of products sold represented 47.4% of revenues compared to 69.7% in the prior year third quarter. This decrease was primarily attributable to the decrease in product costs which outpaced the decline in average selling prices, as well as the favorable impact from risk management activities.

Operating Expenses

                                        Three Months Ended
                                      June 27,      June 28,                     Percent
    (Dollars in thousands)              2009          2008        Decrease      Decrease
    Operating expenses               $   72,295     $  76,455     $  (4,160 )        (5.4 %)
    As a percent of total revenues         39.2 %        25.0 %

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 $72.3 million in the third quarter of fiscal 2009 decreased $4.2 million, or 5.4%, compared to $76.5 million in the prior year third quarter as a result of lower fuel costs to operate our fleet and lower costs to operate our customer service centers, partially offset by higher variable compensation associated with higher earnings.

General and Administrative Expenses

                                          Three Months Ended
                                        June 27,      June 28,                      Percent
 (Dollars in thousands)                   2009          2008         Decrease      Decrease
 General and administrative expenses   $   13,108     $  13,268     $     (160 )        (1.2 %)
 As a percent of total revenues               7.1 %         4.3 %

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 . . .