With the Agway Acquisition, we acquired certain surplus properties with either known or probable environmental exposure, some of which are currently in varying stages of investigation, remediation or monitoring. Additionally, we identified that certain active sites acquired contained environmental conditions which required further investigation, future remediation or ongoing monitoring activities. The environmental exposures included instances of soil and/or groundwater contamination associated with the handling and storage of fuel oil, gasoline and diesel fuel. Under the agreement for the Agway Acquisition, the seller was required to deposit $15.0 million from the total purchase price into an escrow account to reimburse us for any such future environmental costs and expenses. The escrowed funds were to be used to fund such environmental costs and expenses during the first three years following the closing date of the Agway Acquisition.

Since the Agway Acquisition and through February 2006, $10.1 million of the escrowed funds were utilized to fund environmental remediation expenditures. On March 17, 2006, we finalized an agreement with the seller for the release of the remaining escrowed funds to us and, as such, received $4.9 million which will be used to fund our 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 after considering expected reimbursement from state environmental agencies. As of September 30, 2006, we had accrued environmental liabilities of $4.8 million representing the total estimated future liability for remediation and monitoring. For the portion of the estimated environmental liability that is recoverable under state environmental reimbursement funds, we record an asset within other assets related to the amount of the liability expected to be reimbursed by state agencies, which amounted to $1.3 million as of September 30, 2006.

Estimating the extent of our responsibility at a particular site, and the method and ultimate cost of remediation of that site, requires making numerous assumptions. As a result, the ultimate cost to remediate any site may differ from current estimates, and will depend, in part, on whether there is additional contamination, not currently known to us, at that site. However, we believe that our past experience provides a reasonable basis for estimating these liabilities. As additional information becomes available, estimates are adjusted as necessary. While we do not anticipate that any such adjustment would be material to our financial statements, the result of ongoing or future environmental studies or other factors could alter this expectation and require recording additional liabilities. We currently cannot determine whether we will incur additional liabilities or the extent or amount of any such liabilities.

National Fire Protection Association (‘‘NFPA’’) Pamphlet Nos. 54 and 58, which establish rules and procedures governing the safe handling of propane, or comparable regulations, have been adopted, in whole, in part or with state addenda, as the industry standard for propane storage, distribution and equipment installation and operation in all of the states in which we operate. In some states these laws are administered by state agencies, and in others they are administered on a municipal level. Pamphlet No. 58 has adopted storage tank valve retrofit requirements due to be completed by June 2011 or later depending on when each state adopts the 2001 edition of NFPA Pamphlet No. 58. We have a program in place to meet this deadline.

NFPA Pamphlet Nos. 30, 30A, 31, 385 and 395, which establish rules and procedures governing the safe handling of distillates (fuel oil, kerosene and diesel fuel) and gasoline, or comparable regulations, have been adopted, in whole, in part or with state addenda, as the industry standard for fuel oil, kerosene, diesel fuel and gasoline storage, distribution and equipment installation/operation in all of the states in which we operate. In some states these laws are administered by state agencies and in others they are administered on a municipal level.

With respect to the transportation of propane, distillates and gasoline by truck, we are subject to regulations promulgated under the Federal Motor Carrier Safety Act. These regulations cover the transportation of hazardous materials and are administered by the United States Department of Transportation or similar state agencies. We conduct ongoing training programs to help ensure that our operations are in compliance with applicable safety regulations. We maintain various permits that are necessary to operate some of our facilities, some of which may be material to our operations. We

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believe that the procedures currently in effect at all of our facilities for the handling, storage and distribution of propane, distillates and gasoline are consistent with industry standards and are in compliance, in all material respects, with applicable laws and regulations.

Future developments, such as stricter environmental, health or safety laws and regulations thereunder, could affect our operations. We do not anticipate that the cost of our compliance with environmental, health and safety laws and regulations, including CERCLA, as currently in effect and applicable to known sites will have a material adverse effect on our financial condition or results of operations. To the extent we discover any environmental liabilities presently unknown to us or environmental, health or safety laws or regulations are made more stringent, however, there can be no assurance that our financial condition or results of operations will not be materially and adversely affected.

Employees

As of September 30, 2006, we had 3,441 full time employees, of whom 363 were engaged in general and administrative activities (including fleet maintenance), 44 were engaged in transportation and product supply activities and 3,034 were customer service center employees. As of September 30, 2006, 111 of our employees were represented by 11 different local chapters of labor unions. We believe that our relations with both our union and non-union employees are satisfactory. From time to time, we hire temporary workers to meet peak seasonal demands.

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ITEM 1A.	RISK FACTORS

You should carefully consider the specific risk factors set forth below as well as the other information contained or incorporated by reference in this Annual Report. Some factors in this section are Forward-Looking Statements. See ‘‘Disclosure Regarding Forward-Looking Statements’’ above.

Risks Inherent in the Ownership of Our Common Units

Cash distributions are not guaranteed and may fluctuate with our performance and other external factors.

Cash distributions on our Common Units are not guaranteed, and depend primarily on our cash flow and our cash reserves. Because they are not dependent on profitability, which is affected by non-cash items, our cash distributions might be made during periods when we record losses and might not be made during periods when we record profits.

The amount of cash we generate may fluctuate based on our performance and other factors, including:

	•	the impact of the risks inherent in our business operations, as described below;

	•	required principal and interest payments on our debt and restrictions contained in our debt instruments;

	•	issuances of debt and equity securities;

	•	our ability to control expenses;

	•	fluctuations in working capital;

	•	capital expenditures; and

	•	financial, business and other factors, a number of which will be beyond our control.

Our Partnership Agreement gives our Board of Supervisors broad discretion in establishing cash reserves for, among other things, the proper conduct of our business. These cash reserves will affect the amount of cash available for distributions.

We have substantial indebtedness. Our debt agreements may limit our ability to make distributions to Unitholders as well as our financial flexibility.

As of September 30, 2006, we had total outstanding borrowings of $548.3 million, including $423.3 million of senior notes issued by the Partnership and our wholly-owned subsidiary, Suburban Energy Finance Corporation, and $125.0 million of borrowings under the Operating Partnership’s revolving credit facility. The payment of principal and interest on our debt will reduce the cash available to make distributions on our Common Units. In addition, we will not be able to make any distributions to our Unitholders if there is, or after giving effect to such distribution, there would be, an event of default under the indenture governing the senior notes. The amount of distributions that the Partnership makes to its Unitholders is limited by the senior notes, and the amount of distributions that the Operating Partnership may make to the Partnership is limited by the revolving credit facility. The amount and terms of our debt may also adversely affect our ability to finance future operations and capital needs, limit our ability to pursue acquisitions and other business opportunities and make our results of operations more susceptible to adverse economic and industry conditions. In addition to our outstanding indebtedness, we may in the future incur additional debt to finance acquisitions or for general business purposes, which could result in a significant increase in our leverage. Our ability to make principal and interest payments depends on our future performance, which is subject to many factors, some of which are beyond our control.

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Unitholders have limited voting rights.

A Board of Supervisors manages our operations. Our Unitholders have only limited voting rights on matters affecting our business, including the right to elect the members of our Board of Supervisors every three years.

It may be difficult for a third party to acquire us, even if doing so would be beneficial to our Unitholders.

Some provisions of our Partnership Agreement may discourage, delay or prevent third parties from acquiring us, even if doing so would be beneficial to our Unitholders. For example, our Partnership Agreement contains a provision, based on Section 203 of the Delaware General Corporation Law, that generally prohibits the Partnership from engaging in a business combination with a 15% or greater Unitholder for a period of three years following the date that person or entity acquired at least 15% of our outstanding Common Units, unless certain exceptions apply. Additionally, our Partnership Agreement sets forth advance notice procedures for a Unitholder to nominate a Supervisor to stand for election, which procedures may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of Supervisors or otherwise attempting to obtain control of the Partnership. These nomination procedures may not be revised or repealed, and inconsistent provisions may not be adopted, without the approval of the holders of at least 66 2/3% of the outstanding Common Units. These provisions may have an anti-takeover effect with respect to transactions not approved in advance by our Board of Supervisors, including discouraging attempts that might result in a premium over the market price of the Common Units held by our Unitholders.

Unitholders may not have limited liability in some circumstances.

A number of states have not clearly established limitations on the liabilities of limited partners for the obligations of a limited partnership. Our Unitholders might be held liable for our obligations as if they were general partners if:

	•	a court or government agency determined that we were conducting business in the state but had not complied with the state’s limited partnership statute; or

	•	Unitholders’ rights to act together to remove or replace the General Partner or take other actions under our Partnership Agreement are deemed to constitute ‘‘participation in the control’’ of our business for purposes of the state’s limited partnership statute.

Unitholders may have liability to repay distributions.

Unitholders will not be liable for assessments in addition to their initial capital investment in the Common Units. Under specific circumstances, however, Unitholders may have to repay to us amounts wrongfully returned or distributed to them. Under Delaware law, we may not make a distribution to Unitholders if the distribution causes our liabilities to exceed the fair value of our assets. Liabilities to partners on account of their partnership interests and nonrecourse liabilities are not counted for purposes of determining whether a distribution is permitted. Delaware law provides that a limited partner who receives a distribution of this kind and knew at the time of the distribution that the distribution violated Delaware law will be liable to the limited partnership for the distribution amount for three years from the distribution date. Under Delaware law, an assignee who becomes a substituted limited partner of a limited partnership is liable for the obligations of the assignor to make contributions to the partnership. However, such an assignee is not obligated for liabilities unknown to him at the time he or she became a limited partner if the liabilities could not be determined from the partnership agreement.

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If we issue additional limited partner interests or other equity securities as consideration for acquisitions or for other purposes, the relative voting strength of each Unitholder will be diminished over time due to the dilution of each Unitholder’s interests and additional taxable income may be allocated to each Unitholder.

Our Partnership Agreement generally allows us to issue additional limited partner interests and other equity securities without the approval of our Unitholders. Therefore, when we issue additional Common Units or securities ranking on a parity with the Common Units, each Unitholder’s proportionate partnership interest will decrease, and the amount of cash distributed on each Common Unit and the market price of Common Units could decrease. The issuance of additional Common Units will also diminish the relative voting strength of each previously outstanding Common Unit. In addition, the issuance of additional Common Units will, over time, result in the allocation of additional taxable income, representing built-in gain at the time of the new issuance, to those Common Unitholders that existed prior to the new issuance.

Risks Inherent in our Business Operations

Since weather conditions may adversely affect demand for propane, fuel oil and other refined fuels and natural gas, our results of operations and financial condition are vulnerable to warm winters.

Weather conditions have a significant impact on the demand for propane, fuel oil and other refined fuels and natural gas for both heating and agricultural purposes. Many of our customers rely heavily on propane, fuel oil or natural gas as a heating source. The volume of propane, fuel oil and natural gas sold is at its highest during the six-month peak heating season of October through March and is directly affected by the severity of the winter. Typically, we sell approximately two-thirds of our retail propane volume and approximately three-fourths of our retail fuel oil volume during the peak heating season.

Actual weather conditions can vary substantially from year to year, significantly affecting our financial performance. For example, average temperatures in our service territories were 11% warmer than normal for the year ended September 30, 2006 compared to 6% warmer than normal in the prior year, as reported by the National Oceanic and Atmospheric Administration (‘‘NOAA’’). During the critical heating months of January and February 2006, average temperatures were 20% warmer than normal. Furthermore, variations in weather in one or more regions in which we operate can significantly affect the total volume of propane, fuel oil and other refined fuels and natural gas we sell and, consequently, our results of operations. Variations in the weather in the northeast, where we have a greater concentration of higher margin residential accounts and substantially all of our fuel oil and natural gas operations, generally have a greater impact on our operations than variations in the weather in other markets. We can give no assurance that the weather conditions in any quarter or year will not have a material adverse effect on our operations, or that our available cash will be sufficient to pay principal and interest on our indebtedness and distributions to Unitholders.

Sudden increases in the price of propane, fuel oil and other refined fuels and natural gas due to, among other things, our inability to obtain adequate supplies from our usual suppliers, may adversely affect our operating results.

Our profitability in the retail propane, fuel oil and refined fuels and natural gas businesses is largely dependent on the difference between our product cost and retail sales price. Propane, fuel oil and other refined fuels and natural gas are commodities, and the unit price we pay is subject to volatile changes in response to changes in supply or other market conditions over which we have no control, including the severity of winter weather and the price and availability of competing alternative energy sources. In general, product supply contracts permit suppliers to charge posted prices at the time of delivery or the current prices established at major supply points, including Mont Belvieu, Texas, and Conway, Kansas. In addition, our supply from our usual sources may be interrupted due to reasons that are beyond our control. As a result, the cost of acquiring propane, fuel oil and other refined fuels and natural gas from other suppliers might be materially higher at least on a short-term basis. Since we may not be able to pass on to our customers immediately, or in full, all increases in our wholesale cost of propane, fuel oil and other refined fuels and natural gas, these

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increases could reduce our profitability. We engage in transactions to hedge certain product costs from time to time in an attempt to reduce cost volatility and to help ensure availability of product during periods of short supply. We can give no assurance that future volatility in propane, fuel oil and natural gas supply costs will not have a material adverse effect on our profitability and cash flow, or that our available cash will be sufficient to pay principal and interest on our indebtedness and distributions to our Unitholders.

Because of the highly competitive nature of the retail propane and fuel oil businesses, we may not be able to retain existing customers or acquire new customers, which could have an adverse impact on our operating results and financial condition.

The retail propane and fuel oil industries are mature and highly competitive. We expect overall demand for propane to remain relatively constant over the next several years, while we expect the overall demand for fuel oil to be relatively flat to moderately declining during the same period. Year-to-year industry volumes of propane and fuel oil are expected to be primarily affected by weather patterns and from competition intensifying during warmer than normal winters.

Propane and fuel oil compete in the alternative energy sources market with electricity, natural gas and other existing and future sources of energy, some of which are, or may in the future be, less costly for equivalent energy value. For example, natural gas is a significantly less expensive source of energy than propane and fuel oil. As a result, except for some industrial and commercial applications, propane and fuel oil are generally not economically competitive with natural gas in areas where natural gas pipelines already exist. The gradual expansion of the nation’s natural gas distribution systems has made natural gas available in many areas that previously depended upon propane or fuel oil. Propane and fuel oil compete to a lesser extent with each other due to the cost of converting from one to the other.

In addition to competing with other sources of energy, our propane and fuel oil businesses compete with other distributors principally on the basis of price, service, availability and portability. Competition in the retail propane business is highly fragmented and generally occurs on a local basis with other large full-service multistate propane marketers, thousands of smaller local independent marketers and farm cooperatives. Our fuel oil business competes with fuel oil distributors offering a broad range of services and prices, from full service distributors to those offering delivery only. Generally, our existing fuel oil customers, unlike our existing propane customers, own their own tanks. As a result, the competition for these customers is more intense than in our propane business, where our existing customers seeking to switch distributors may face additional transition costs and delays.

As a result of the highly competitive nature of the retail propane and fuel oil businesses, our growth within these industries depends on our ability to acquire other retail distributors, open new customer service centers, add new customers and retain existing customers. We believe our ability to compete effectively depends on reliability of service, responsiveness to customers and our ability to control expenses in order to maintain competitive prices.

The risk of terrorism and political unrest and the current hostilities in the Middle East may adversely affect the economy and the price and availability of propane, fuel oil and other refined fuels and natural gas.

Terrorist attacks and political unrest and the current hostilities in the Middle East may adversely impact the price and availability of propane, fuel oil and other refined fuels and natural gas, as well as our results of operations, our ability to raise capital and our future growth. The impact that the foregoing may have on our industry in general, and on us in particular, is not known at this time. An act of terror could result in disruptions of crude oil or natural gas supplies and markets (the sources of propane and fuel oil), and our infrastructure facilities could be direct or indirect targets. Terrorist activity may also hinder our ability to transport propane, fuel oil and other refined fuels if our means of supply transportation, such as rail or pipeline, become damaged as a result of an attack. A lower level of economic activity could result in a decline in energy consumption, which could adversely affect our revenues or restrict our future growth. Instability in the financial markets as a result of terrorism could also affect our ability to raise capital. Terrorist activity and hostilities in the Middle

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East could likely lead to increased volatility in prices for propane, fuel oil and other refined fuels and natural gas. We have opted to purchase insurance coverage for terrorist acts within our property and casualty insurance programs, but we can give no assurance that our insurance coverage will be adequate to fully compensate us for any losses to our business or property resulting from terrorist acts.

Energy efficiency, general economic conditions and technological advances have affected and may continue to affect demand for propane and fuel oil by our retail customers.

The national trend toward increased conservation and technological advances, including installation of improved insulation and the development of more efficient furnaces and other heating devices, has adversely affected the demand for propane and fuel oil by our retail customers which, in turn, has resulted in lower sales volumes to our customers. In addition, recent economic conditions may lead to additional conservation by retail customers to further reduce their heating costs. Future technological advances in heating, conservation and energy generation may adversely affect our financial condition and results of operations.

Our financial condition and results of operations may be adversely affected by governmental regulation and associated environmental and health and safety costs.

Our business is subject to a wide range of federal, state and local laws and regulations related to environmental and health and safety matters including those concerning, among other things, the investigation and remediation of contaminated soil and groundwater and transportation of hazardous materials. These requirements are complex, changing and tend to become more stringent over time. In addition, we are required to maintain various permits that are necessary to operate our facilities, some of which are material to our operations. There can be no assurance that we have been, or will be, at all times in complete compliance with all legal, regulatory and permitting requirements or that we will not incur material costs or liabilities in the future relating to such requirements. Violations could result in penalties, or the curtailment or cessation of operations.

Moreover, currently unknown environmental issues, such as the discovery of additional contamination, may result in significant additional expenditures, and potentially significant expenditures also could be required to comply with future changes to environmental laws and regulations or the interpretation or enforcement thereof. Such expenditures, if required, could have a material adverse effect on our business, financial condition or results of operations.

We are subject to operating hazards and litigation risks that could adversely affect our operating results to the extent not covered by insurance.

Our operations are subject to all operating hazards and risks normally associated with handling, storing and delivering combustible liquids such as propane, fuel oil and other refined fuels. As a result, we have been, and are likely to continue to be, a defendant in various legal proceedings and litigation arising in the ordinary course of business. We are self-insured for general and product, workers’ compensation and automobile liabilities up to predetermined amounts above which third-party insurance applies. We cannot guarantee that our insurance will be adequate to protect us from all material expenses related to potential future claims for personal injury and property damage or that these levels of insurance will be available at economical prices, nor that all legal matters that arise will be covered by our insurance programs.

If we are unable to make acquisitions on economically acceptable terms or effectively integrate such acquisitions into our operations, our financial performance may be adversely affected.

The retail propane and fuel oil industries are mature. We foresee only limited growth in total retail demand for propane and flat to moderately declining retail demand for fuel oil. With respect to our retail propane business, because of the long-standing customer relationships that are typical in our industry, the inconvenience of switching tanks and suppliers and propane’s higher cost relative to other

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energy sources, such as natural gas, it may be difficult for us to acquire new retail propane customers except through acquisitions. As a result, we expect the success of our financial performance to depend, in part, upon our ability to acquire other retail propane and fuel oil distributors or other energy-related businesses and to successfully integrate them into our existing operations and to make cost saving changes. The competition for acquisitions is intense and we can make no assurance that we will be able to acquire other propane and fuel oil distributors or other energy-related businesses on economically acceptable terms or, if we do, to integrate the acquired operations effectively.

Tax Risks to Unitholders

Our tax treatment depends on our status as a partnership for federal income tax purposes. The IRS could treat us as a corporation, which would substantially reduce the cash available for distribution to Unitholders.

The anticipated after-tax economic benefit of an investment in our Common Units depends largely on our being treated as a partnership for federal income tax purposes. We believe that, under current law, we will be classified as a partnership for federal income tax purposes. We have not requested, and do not plan to request, a ruling from the IRS on this or any other tax matter affecting us. The IRS may adopt positions that differ from the positions we take. In addition, current law may change so as to cause us to be treated as a corporation for federal income tax purposes or otherwise subject us to entity-level federal income taxation. If we were treated as a corporation for federal income tax purposes, we would be required to pay tax on our income at corporate tax rates (currently a maximum of 35% federal rate) and likely would be required to pay state income tax at varying rates. Because a tax would be imposed upon us as a corporation, our cash available for distribution to our Unitholders would be substantially reduced. Therefore, our treatment as a corporation would result in a material reduction in the anticipated cash flow and after-tax return to our Unitholders, likely causing a substantial reduction in the value of our Common Units.

A successful IRS contest of the federal income tax positions we take may adversely affect the market for our Common Units, and the cost of any IRS contest will reduce our cash available for distribution to our Unitholders.

We have not requested a ruling from the IRS with respect to our treatment as a partnership for federal income tax purposes or any other matter affecting us. The IRS may adopt positions that differ from the positions we take. It may be necessary to resort to administrative or court proceedings to sustain some or all of the positions we take. A court may not agree with the positions we take. Any contest with the IRS may materially and adversely impact the market for our Common Units and the price at which they trade. In addition, our costs of any contest with the IRS will be borne indirectly by our Unitholders because the costs will reduce our cash available for distribution.

A Unitholder’s tax liability could exceed cash distributions on its Common Units.

Because our Unitholders are treated as partners to whom we allocate taxable income which could be different in amount than the cash we distribute, a Unitholder is required to pay federal income taxes and, in some cases, state and local income taxes on its allocable share of our income, even if it receives no cash distributions from us. We cannot guarantee that a Unitholder will receive cash distributions equal to its allocable share of our taxable income or even the tax liability to it resulting from that income.

Ownership of Common Units may have adverse tax consequences for tax-exempt organizations and foreign investors.

Investment in Common Units by certain tax-exempt entities and foreign persons raises issues specific to them. For example, virtually all of our taxable income allocated to organizations exempt from federal income tax, including individual retirement accounts and other retirement plans, will be unrelated business taxable income and thus will be taxable to the Unitholder. Distributions to foreign persons will be reduced by withholding taxes at the highest applicable effective tax rate, and foreign persons will be required to file United States federal tax returns and pay tax on their share of our taxable income.

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There are limits on a Unitholder’s deductibility of losses.

In the case of taxpayers subject to the passive loss rules (generally, individuals and closely held corporations), any losses generated by us will only be available to offset our future income and cannot be used to offset income from other activities, including other passive activities or investments. Unused losses may be deducted when the Unitholder disposes of its entire investment in us in a fully taxable transaction with an unrelated party. A Unitholder’s share of our net passive income may be offset by unused losses from us carried over from prior years, but not by losses from other passive activities, including losses from other publicly-traded partnerships.

Tax shelter registration could increase the risk of a potential audit by the IRS.

We registered as a ‘‘tax shelter’’ under the law in effect at the time of our initial public offering and were assigned tax shelter registration number 96080000050. The issuance of a tax shelter registration number to us does not indicate that a Common Unit investment in us or the claimed tax benefits have been reviewed, examined or approved by the IRS.

The tax gain or loss on the disposition of Common Units could be different than expected.

A Unitholder who sells Common Units will recognize a gain or loss equal to the difference between the amount realized, including its share of our nonrecourse liabilities, and its adjusted tax basis in the Common Units. Prior distributions in excess of cumulative net taxable income allocated to a Common Unit which decreased a Unitholder’s tax basis in that Common Unit will, in effect, become taxable income if the Common Unit is sold at a price greater than the Unitholder’s tax basis in that Common Unit, even if the price is less than the original cost of the Common Unit. A portion of the amount realized, if the amount realized exceeds the Unitholder’s adjusted basis in that Common Unit, will likely be characterized as ordinary income. Furthermore, should the IRS successfully contest some conventions used by us, a Unitholder could recognize more gain on the sale of Common Units than would be the case under those conventions, without the benefit of decreased income in prior years.

Reporting of partnership tax information is complicated and subject to audits.

We furnish each Unitholder with a Schedule K-1 that sets forth its allocable share of income, gains, losses and deductions. In preparing these schedules, we use various accounting and reporting conventions and adopt various depreciation and amortization methods. We cannot guarantee that these conventions will yield a result that conforms to statutory or regulatory requirements or to administrative pronouncements of the IRS. Further, our income tax return may be audited, which could result in an audit of a Unitholder’s income tax return and increased liabilities for taxes because of adjustments resulting from the audit.

We treat each purchaser of our Common Units as having the same tax benefits without regard to the actual Common Units purchased. The IRS may challenge this treatment, which could adversely affect the value of the Common Units.

Because we cannot match transferors and transferees of Common Units and because of other reasons, uniformity of the economic and tax characteristics of the Common Units to a purchaser of Common Units of the same class must be maintained. To maintain uniformity and for other reasons, we have adopted certain depreciation and amortization conventions which may be inconsistent with Treasury Regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to a Unitholder. It also could affect the timing of these tax benefits or the amount of gain from the sale of Common Units, and could have a negative impact on the value of our Common Units or result in audit adjustments to a Unitholder’s income tax return.

There are state, local and other tax considerations for our Unitholders.

In addition to United States federal income taxes, Unitholders will likely be subject to other taxes, such as state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we do business or own property, even if

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the Unitholder does not reside in any of those jurisdictions. A Unitholder will likely be required to file state and local income tax returns and pay state and local income taxes in some or all of the various jurisdictions in which we do business or own property and may be subject to penalties for failure to comply with those requirements. It is the responsibility of each Unitholder to file all United States federal, state and local income tax returns that may be required of such Unitholder.

Unitholders may have negative tax consequences if we default on our debt or sell assets.

If we default on any of our debt obligations, our lenders will have the right to sue us for non-payment. This could cause an investment loss and negative tax consequences for Unitholders through the realization of taxable income by Unitholders without a corresponding cash distribution. Likewise, if we were to dispose of assets and realize a taxable gain while there is substantial debt outstanding and proceeds of the sale were applied to the debt, Unitholders could have increased taxable income without a corresponding cash distribution.

The sale or exchange of 50% or more of our capital and profits interests during any twelve-month period will result in a deemed termination (and reconstitution) of the Partnership for federal income tax purposes which would cause Unitholders to be allocated an increased amount of taxable income.

We will be deemed to have terminated (and reconstituted) for federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and profits within a twelve-month period. Were this to occur, it would, among other things, result in the closing of our taxable year for all Unitholders and could result in a deferral of depreciation deductions allowable in computing our taxable income. This would result in Unitholders being allocated an increased amount of taxable income.

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ITEM 1B.	UNRESOLVED STAFF COMMENTS

None.

ITEM 2.	PROPERTIES

As of September 30, 2006, we owned approximately 76% of our customer service center and satellite locations and leased the balance of our retail locations from third parties. We own and operate a 22 million gallon refrigerated, aboveground propane storage facility in Elk Grove, California and a 60 million gallon underground propane storage cavern in Tirzah, South Carolina. Additionally, we own our principal executive offices located in Whippany, New Jersey.

The transportation of propane requires specialized equipment. The trucks and railroad tank cars utilized for this purpose carry specialized steel tanks that maintain the propane in a liquefied state. As of September 30, 2006, we had a fleet of 17 transport truck tractors, of which we owned three, and 22 railroad tank cars, of which we owned two. In addition, as of September 30, 2006 we had 1,072 bobtail and rack trucks, of which we owned approximately 16%, 207 fuel oil tankwagons, of which we owned approximately 61%, and 1,691 other delivery and service vehicles, of which we owned approximately 41%. We lease the vehicles we do not own. As of September 30, 2006, we also owned approximately 871,509 customer propane storage tanks with typical capacities of 100 to 500 gallons, 189,247 customer propane storage tanks with typical capacities of over 500 gallons and 239,512 portable propane cylinders with typical capacities of five to ten gallons.

ITEM 3.	LEGAL PROCEEDINGS

Litigation

Our operations are subject to all operating hazards and risks normally incidental to handling, storing and delivering combustible liquids such as propane. As a result, we have been, and will continue to be, a defendant in various legal proceedings and litigation arising in the ordinary course of business. We are self-insured for general and product, workers’ compensation and automobile liabilities up to predetermined amounts above which third party insurance applies. We believe that the self-insured retentions and coverage we maintain are reasonable and prudent. Although any litigation is inherently uncertain, based on past experience, the information currently available to us, and the amount of our self-insurance reserves for known and unasserted self-insurance claims (which was approximately $45.4 million at September 30, 2006), we do not believe that these pending or threatened litigation matters, or known claims or known contingent claims, will have a material adverse effect on our results of operations, financial condition or cash flow. For the portion of our estimated self-insurance liability that exceeds our deductibles, we record a corresponding asset related to the amount of the liability to be covered by insurance (which was approximately $8.7 million at September 30, 2006).

On October 21, 2004 the jury in the trial of Heritage Propane Partners, L.P. v. SCANA et al. returned a unanimous verdict in our favor on all claims pending against us by Heritage Propane Partners, L.P. (‘‘Heritage’’). Following our Operating Partnership’s 1999 acquisition of the propane assets of SCANA Corporation (‘‘SCANA’’), Heritage had brought an action in the South Carolina Court of Common Pleas for Richland County against SCANA for breach of contract and fraud and against our Operating Partnership for tortious interference with contract and tortious interference with prospective contract. After the jury returned a verdict against SCANA, the Court conducted a separate bench trial on our cross-claims against SCANA for indemnification, in which we sought to recover our defense costs. The Court granted judgment on our cross-claims against SCANA and awarded us a total of approximately $2.6 million. However, on November 17, 2005, the Court granted SCANA’s motion to vacate the judgment in our favor. SCANA claimed that, at the time that the order was entered, the Court lacked jurisdiction over our cross-claims because SCANA had appealed the jury verdict against it, thereby divesting the Court of jurisdiction over matters that could be affected by SCANA’s appeal. SCANA further claimed that if the judgment against it was vacated on appeal, it would have no liability to us for our defense costs. We were informed that Heritage has

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settled its claims against SCANA on appeal and that SCANA and Heritage are in the process of requesting a dismissal of the appeal. In order to avoid the uncertainties of result and the additional expenses that would be associated with continuing this litigation, on November 2, 2006 we agreed to settle this matter with SCANA. In connection with this settlement, SCANA paid us $2.0 million.

ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The 2006 Tri-Annual Meeting of the Partnership’s Unitholders (the ‘‘Tri-Annual Meeting’’) was held on October 17, 2006. Pursuant to authority granted by the Unitholders, after the votes were counted on all but one of the proposals described below, the Board of Supervisors adjourned the Tri-Annual Meeting until October 19, 2006, at which time the votes were counted on the last proposal.

At the Tri-Annual Meeting, the Unitholders re-elected to the Board of Supervisors, for a three-year term, all three nominees proposed by the Board:

Nominee			For						Withheld
John Hoyt Stookey					28,650,048						529,165
Harold R. Logan, Jr.					28,566,429						612,784
Dudley C. Mecum					28,649,329						529,884

Pursuant to the Previous Partnership Agreement which was in effect at the time of the Tri-Annual Meeting, the General Partner had the right to appoint two of the five Supervisors of the Partnership. The General Partner appointed Mark A. Alexander and Michael J. Dunn, Jr. as Supervisors. Pursuant to amendments to the Previous Partnership Agreement approved by the Unitholders at the Tri-Annual Meeting and implemented at the closing of the GP Exchange Transaction, Messrs. Alexander and Dunn will serve as Supervisors until the next Tri-Annual Meeting of Unitholders (scheduled to be held in 2009), at which meeting all Supervisors will be elected by the Unitholders.

At the Tri-Annual Meeting, the Unitholders also approved the following proposals:

The exchange of 2,300,000 Common Units for the IDRs and economic interests in the Partnership and the Operating Partnership held by the General Partner (see ‘‘GP Exchange Transaction and Amendment to Partnership Agreements’’ in Item 1 of this Annual Report and Note 19 to the Consolidated Financial Statements included in this Annual Report):

			For						Against						Abstain						Broker Non-Votes
All Common Units					15,342,742						1,028,541						431,001						12,376,929
Common Units held by Unaffiliated Unitholders*					15,267,609						1,028,541						431,001						12,376,929

*	Unaffiliated Unitholders are all Unitholders other than the individual members of the General Partner prior to the consummation of the GP Exchange Transaction.

The amendment of the Previous Partnership Agreement to effect the GP Exchange Transaction, to provide for the election of all Supervisors by the Unitholders and other changes (as described in Item 1 of this Annual Report):

			For						Against						Abstain						Broker Non-Votes
All Common Units					15,406,367						914,978						480,939						12,376,929
Common Units held by Unaffiliated Unitholders					15,331,234						914,978						480,939						12,376,929

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The amendment of the Previous Partnership Agreement to restrict combinations with interested Unitholders, based on Section 203 of the Delaware General Corporation Law:

			For						Against						Abstain						Broker Non-Votes
All Common Units					15,538,338						818,878						445,068						12,376,929
Common Units held by Unaffiliated Unitholders					15,463,204						818,878						445,068						12,376,929

The amendment of the Previous Partnership Agreement to require a 66-2/3% vote to change the procedure set forth in the Partnership Agreement to nominate Supervisors:

			For						Against						Abstain						Broker Non-Votes
All Common Units					15,257,345						1,265,643						378,730						12,307,359
Common Units held by Unaffiliated Unitholders					15,182,212						1,265,643						378,730						12,307,359

The Partnership’s 2000 Restricted Unit Plan, as amended and restated, including the authorization of 230,000 additional Common Units to be available for grant under the plan:

			For						Against						Abstain						Broker Non-Votes
All Common Units					14,961,298						1,398,320						442,666						12,402,205

Adjournment of the Tri-Annual Meeting, if necessary, to solicit additional proxies:

			For						Against						Abstain						Broker Non-Votes
All Common Units					27,555,354						1,167,792						453,416						—

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PART II

ITEM 5.	MARKET FOR THE REGISTRANT’S COMMON UNITS, RELATED UNITHOLDER MATTERS AND ISSUER PURCHASES OF UNITS

(a) Our Common Units, representing limited partner interests in the Partnership, are listed and traded on the New York Stock Exchange (‘‘NYSE’’) under the symbol SPH. As of December 7, 2006, there were 895 Common Unitholders of record. The following table presents, for the periods indicated, the high and low sales prices per Common Unit, as reported on the NYSE, and the amount of quarterly cash distributions declared and paid per Common Unit with respect to each quarter.

			Common Unit Price Range												Cash Distribution Paid per Common Unit
			High						Low
Fiscal 2005
First Quarter				$	35.70					$	30.00					$	0.6125
Second Quarter					36.00						33.45						0.6125
Third Quarter					35.70						31.55						0.6125
Fourth Quarter					37.40						25.39						0.6125
Fiscal 2006
First Quarter				$	29.68					$	23.51					$	0.6125
Second Quarter					30.23						24.90						0.6125
Third Quarter					31.09						27.70						0.6375
Fourth Quarter					35.95						30.80						0.6625

We make quarterly distributions to our partners in an aggregate amount equal to our Available Cash (as defined in our Partnership Agreement as adopted effective October 19, 2006) with respect to such quarter. Available Cash generally means all cash on hand at the end of the fiscal quarter plus all additional cash on hand as a result of borrowings subsequent to the end of such quarter less cash reserves established by the Board of Supervisors in its reasonable discretion for future cash requirements.

We are a publicly traded limited partnership and, other than certain corporate subsidiaries, we are not subject to federal income tax. Instead, Unitholders are required to report their allocable share of our earnings or loss, regardless of whether we make distributions.

	(b)	Not applicable.

	(c)	None.

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ITEM 6.	SELECTED FINANCIAL DATA

The following table presents our selected consolidated historical financial data as derived from our audited consolidated financial statements, certain of which are included elsewhere in this Annual Report. All amounts in the table below, except per unit data, are in thousands.

			Year Ended
			September 30, 2006 (a)						September 24, 2005						September 25, 2004 (b)						September 27, 2003						September 28, 2002
Statement of Operations Data
Revenues				$	1,661,640					$	1,620,234					$	1,307,254					$	735,075					$	635,122
Costs and expenses					1,523,380						1,548,436						1,231,356						655,225						552,341
Restructuring costs (c)					6,076						2,775						2,942						—						—
Impairment of goodwill (d)					—						656						3,177						—						—
Gain on sale of storage facility					—						—						—						—						(6,768	)
Income before interest expense, loss on debt extinguishment and provision for income taxes (e)					132,184						68,367						69,779						79,850						89,549
Loss on debt extinguishment (f)					—						36,242						—						—						—
Interest expense, net					40,680						40,374						40,832						33,629						35,325
Provision for income taxes					764						803						3						202						703
Income (loss) from continuing operations (e)					90,740						(9,052	)					28,944						46,019						53,521
Discontinued operations:
Gain on sale of customer service centers (g)					—						976						26,332						2,483						—
(Loss) income from discontinued customer service centers					—						—						(972	)					167						3
Net income (loss) (e)					90,740						(8,076	)					54,304						48,669						53,524
Income (loss) from continuing operations per Common Unit – basic					2.84						(0.29	)					0.96						1.77						2.12
Net income (loss) per Common Unit – basic (h)					2.84						(0.26	)					1.79						1.87						2.12
Net income (loss) per Common Unit – diluted (h)					2.83						(0.26	)					1.78						1.86						2.12
Cash distributions declared per unit				$	2.53					$	2.45					$	2.41					$	2.33					$	2.28
Balance Sheet Data (end of period)
Cash and cash equivalents				$	60,571					$	14,411					$	53,481					$	15,765					$	40,955
Current assets					235,351						236,803						252,894						98,912						116,789
Total assets					953,886						965,597						992,007						670,559						700,146
Current liabilities, excluding short-term borrowings and current portion of long-term borrowings					192,616						194,987						202,024						94,802						98,606
Total debt					548,304						575,295						515,915						383,826						472,769
Other long-term liabilities					112,265						119,199						105,950						107,853						109,485
Partners’ capital – Common Unitholders					170,151						159,199						238,880						165,950						103,680
Partner’s (deficit) capital – General Partner				$	(1,969	)				$	(1,779	)				$	852					$	1,567					$	1,924

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			Year Ended
			September 30, 2006 (a)						September 24, 2005						September 25, 2004 (b)						September 27, 2003						September 28, 2002
Statement of Cash Flows Data
Cash provided by (used in)
Operating activities				$	170,321					$	39,005					$	93,065					$	57,300					$	68,775
Investing activities					(19,092	)					(24,631	)					(196,557	)					(4,859	)					(6,851	)
Financing activities				$	(105,069	)				$	(53,444	)				$	141,208					$	(77,631	)				$	(57,463	)
Other Data
Depreciation and amortization				$	33,151					$	37,762					$	36,743					$	27,520					$	28,355
EBITDA and Adjusted EBITDA (i)					165,335						107,105						131,882						110,020						117,907
Capital expenditures – maintenance and growth (j)					23,057						29,301						26,527						14,050						17,464
Acquisitions				$	—					$	—					$	211,181					$	—					$	—
Retail gallons sold
Propane					466,779						516,040						537,330						491,451						455,988
Fuel oil and refined fuels					145,616						244,536						220,469						—						—

(a)	Fiscal 2006 includes 53 weeks of operations compared to 52 weeks in each of fiscal 2005, 2004, 2003 and 2002.

(b)	Fiscal 2004 includes the results from our acquisition of substantially all of the assets and operations of Agway Energy from December 23, 2003, the date of acquisition.

(c)

During fiscal 2006, we incurred $6.1 million in restructuring charges associated primarily with severance costs from our field realignment efforts initiated during the fourth quarter of fiscal 2005, including the restructuring of our HVAC segment. During fiscal 2005, we incurred $2.8 million in restructuring charges associated primarily with severance costs from the realignment of our field operations. During fiscal 2004, we incurred $2.9 million in restructuring charges to integrate our assets, employees and operations with Agway Energy assets, employees and operations.

(d)	During fiscal 2005, we recorded a non-cash charge of $0.7 million related to the impairment of goodwill in our HVAC segment. During fiscal 2004, we recorded a non-cash charge of $3.2 million related to impairment of goodwill for one of our reporting units acquired in fiscal 1999 included in the all other segment.

(e)	These amounts include, in addition to the gain on sale of customer service centers and the gain on sale of storage facility, gains from the disposal of property, plant and equipment of $1.0 million for fiscal 2006, $2.0 million for fiscal 2005, $0.7 million for fiscal 2004, $0.6 million for fiscal 2003 and $0.5 million for fiscal 2002.

(f)	During fiscal 2005, we incurred a one-time charge of $36.2 million as a result of our March 31, 2005 debt refinancing to reflect the loss on debt extinguishment associated with a prepayment premium of $32.0 million and the write-off of $4.2 million of unamortized bond issuance costs associated with the previously outstanding senior notes.

(g)

Gain on sale of customer service centers for fiscal 2005 of $1.0 million reflects the finalization of certain purchase price adjustments with the buyer of the customer service centers sold during fiscal 2004. Gain on sale of customer service centers for fiscal 2004 of $26.3 million reflects the sale of 24 customer service centers for net cash proceeds of approximately $39.4 million. Gain on sale of customer service centers for fiscal 2003 of $2.5 million reflects the sale of nine customer service centers for net cash proceeds of approximately $7.2 million. The gains on sale have been accounted for within discontinued operations pursuant to Statement of Financial Accounting

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Standards (‘‘SFAS’’) No. 144, ‘‘Accounting for the Impairment or Disposal of Long-Lived Assets’’ (‘‘SFAS 144’’). Prior period results of operations attributable to the customer service centers sold in fiscal 2004 have been reclassified to remove financial results from continuing operations. Prior period results of operations attributable to the customer service centers sold in fiscal 2003 were not significant and, as such, results prior to fiscal 2003 were not reclassified to remove financial results from continuing operations.

(h)

Computations of earnings per Common Unit are performed in accordance with Emerging Issues Task Force consensus 03-6 ‘‘Participating Securities and the Two-Class Method Under FAS 128’’ (‘‘EITF 03-6’’), when applicable. EITF 03-6 requires, among other things, the use of the two-class method of computing earnings per unit when participating securities exist. The two-class method is an earnings allocation formula that computes earnings per unit for each class of Common Unit and participating security according to distributions declared and participating rights in undistributed earnings, as if all of the earnings were distributed to the limited partners and the General Partner (inclusive of the previously outstanding IDRs of the General Partner which were considered participating securities for purposes of the two-class method). Net income is allocated to the Common Unitholders and the General Partner in accordance with their respective partnership ownership interests, after giving effect to any priority income allocations for IDRs of the General Partner. Following the GP Exchange Transaction consummated on October 19, 2006, the two-class method of computing income per Common Unit under EITF 03-6 will no longer be applicable.

The requirements of EITF 03-6 do not apply to the computation of earnings per Common Unit in periods in which a net loss is reported and therefore did not have any impact on loss per Common Unit for the year ended September 24, 2005, nor did it have any impact on income per Common Unit for the years ended September 25, 2004, September 27, 2003 or September 28, 2002.

Basic income per Common Unit for the year ended September 30, 2006 is computed by dividing the limited partners’ share of net income, calculated under the two-class method of computing earnings, by the weighted average number of outstanding Common Units. Application of the two-class method under EITF 03-6 had a negative impact on income per Common Unit of $0.07 for the year ended September 30, 2006 compared to the computation under SFAS No. 128 ‘‘Earnings per Share’’ (‘‘SFAS 128’’). Basic net income (loss) per Common Unit for the years ended September 24, 2005, September 25, 2004, September 27, 2003 and September 28, 2002 is computed under SFAS 128 by dividing net income (loss), after deducting our General Partner’s interest, by the weighted average number of outstanding Common Units. Diluted net income (loss) per Common Unit for these same periods is computed by dividing net income (loss), after deducting our General Partner’s interest, by the weighted average number of outstanding Common Units and time vested restricted units granted under our 2000 Restricted Unit Plan.

(i)

EBITDA represents net income before deducting interest expense, income taxes, depreciation and amortization. Our management uses EBITDA as a measure of liquidity and we are including it because we believe that it provides our investors and industry analysts with additional information to evaluate our ability to meet our debt service obligations and to pay our quarterly distributions to holders of our Common Units. In addition, certain of our incentive compensation plans covering executives and other employees utilize EBITDA as the performance target. We use the term Adjusted EBITDA to reflect the presentation of EBITDA for the year ended September 24, 2005 exclusive of the impact of the non-cash charge for loss on debt extinguishment in the amount of $36.2 million. We use this non-GAAP financial measure in order to assist industry analysts and investors in assessing our liquidity on a year-over-year basis. Moreover, our revolving credit agreement requires us to use EBITDA or Adjusted EBITDA as a component in calculating our leverage and interest coverage ratios. EBITDA and Adjusted EBITDA are not recognized terms under generally accepted accounting principles (‘‘GAAP’’) and should not be considered as alternatives to net income or net cash provided by operating activities determined in accordance with GAAP. Because EBITDA as determined by us excludes

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	some, but not all, items that affect net income, it may not be comparable to EBITDA or similarly titled measures used by other companies. The following table sets forth (i) our calculations of EBITDA and Adjusted EBITDA and (ii) a reconciliation of EBITDA and Adjusted EBITDA, as so calculated, to our net cash provided by operating activities (amounts in thousands):

			Fiscal 2006						Fiscal 2005						Fiscal 2004						Fiscal 2003						Fiscal 2002
Net income (loss)				$	90,740					$	(8,076	)				$	54,304					$	48,669					$	53,524
Add:
Provision for income taxes					764						803						3						202						703
Interest expense, net					40,680						40,374						40,832						33,629						35,325
Depreciation and amortization					33,151						37,762						36,743						27,520						28,355
EBITDA					165,335						70,863						131,882						110,020						117,907
Loss on debt extinguishment					—						36,242						—						—						—
Adjusted EBITDA					165,335						107,105						131,882						110,020						117,907
Add (subtract):
Provision for income taxes					(764	)					(803	)					(3	)					(202	)					(703	)
Loss on debt extinguishment					—						(36,242	)					—						—						—
Interest expense, net					(40,680	)					(40,374	)					(40,832	)					(33,629	)					(35,325	)
Gain on disposal of property, plant and equipment, net					(1,000	)					(2,043	)					(715	)					(636	)					(546	)
Gain on sale of customer service centers					—						(976	)					(26,332	)					(2,483	)					—
Gain on sale of storage facility					—						—						—						—						(6,768	)
Changes in working capital and other assets and liabilities					47,430						12,338						29,065						(15,770	)					(5,790	)
Net cash provided by (used in)
Operating activities				$	170,321					$	39,005					$	93,065					$	57,300					$	68,775
Investing activities				$	(19,092	)				$	(24,631	)				$	(196,557	)				$	(4,859	)				$	(6,851	)
Financing activities				$	(105,069	)				$	(53,444	)				$	141,208					$	(77,631	)				$	(57,463	)

(j)	Our capital expenditures fall generally into two categories: (i) maintenance expenditures, which include expenditures for repair and replacement of property, plant and equipment; and (ii) growth capital expenditures which include new propane tanks and other equipment to facilitate expansion of our customer base and operating capacity.

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ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of our financial condition and results of operations, which should be read in conjunction with our historical consolidated financial statements and notes thereto included elsewhere in this Annual Report.

The following are factors that regularly affect our operating results and financial condition. In addition, our business is subject to the risks and uncertainties described in Item 1A of this Annual Report.

Product Costs

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 volatile changes 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. 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 was experienced over the past two fiscal years, retail sales volumes may be negatively impacted by customer conservation efforts.

Seasonality

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

Weather

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

Risk Management

Product supply contracts are generally one-year agreements subject to annual renewal and generally permit suppliers to charge posted market prices (plus transportation costs) at the time of delivery or the current prices established at major delivery points. Since rapid increases in the cost of propane or fuel oil may not be immediately passed on to retail customers, such increases could reduce profitability. We engage in risk management activities to reduce the effect of price volatility on our

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product costs and to help ensure the availability of product during periods of short supply. We are currently a party to propane and fuel oil futures contracts traded on the NYMEX and enter into forward and option agreements with third parties to purchase and sell propane at fixed prices in the future. Risk management activities are monitored by an internal Commodity Risk Management Committee, made up of five members of management, through enforcement of our Hedging and Risk Management Policy and reported to our Audit Committee. Risk management transactions may not always result in increased product margins. See Item 7A of this Annual Report.

Critical Accounting Policies and Estimates

Our significant accounting policies are summarized in Note 2, ‘‘Summary of Significant Accounting Policies,’’ included within the Notes to Consolidated Financial Statements section elsewhere in this Annual Report.

Certain amounts included in or affecting our consolidated financial statements and related disclosures must be estimated, requiring management to make certain assumptions with respect to values or conditions that cannot be known with certainty at the time the financial statements are prepared. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We are also subject to risks and uncertainties that may cause actual results to differ from estimated results. Estimates are used when accounting for depreciation and amortization of long-lived assets, employee benefit plans, self-insurance and litigation reserves, environmental reserves, allowances for doubtful accounts, asset valuation assessments and valuation of derivative instruments. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any effects on our business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known to us. We believe that the following are our critical accounting estimates:

Allowances for Doubtful Accounts.    We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We estimate our allowances for doubtful accounts using a specific reserve for known or anticipated uncollectible accounts, as well as an estimated reserve for potential future uncollectible accounts taking into consideration our historical write-offs. If the financial condition of one or more of our customers were to deteriorate resulting in an impairment in their ability to make payments, additional allowances could be required.

Pension and Other Postretirement Benefits.    We estimate the rate of return on plan assets, the discount rate to estimate the present value of future benefit obligations and the cost of future health care benefits in determining our annual pension and other postretirement benefit costs. In accordance with GAAP, actual results that differ from our assumptions are accumulated and amortized over future periods and therefore, generally affect our recognized expense and recorded obligation in such future periods. While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in market conditions may materially affect our pension and other postretirement benefit obligations and our future expense. See ‘‘Liquidity and Capital Resources – Pension Plan Assets and Obligations’’ below for additional disclosure regarding pension benefits.

Self-Insurance Reserves.    Our accrued insurance reserves represent the estimated costs of known and anticipated or unasserted claims under our general and product, workers’ compensation and automobile insurance policies. Accrued insurance provisions for unasserted claims arising from unreported incidents are based on an analysis of historical claims data. For each claim, we record a self-insurance provision up to the estimated amount of the probable claim utilizing actuarially determined loss development factors applied to actual claims data. Our self-insurance provisions are susceptible to change to the extent that actual claims development differs from historical claims

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development. We maintain insurance coverage wherein our net exposure for insured claims is limited to the insurance deductible, claims above which are paid by our insurance carriers. For the portion of our estimated self-insurance liability that exceeds our deductibles, we record an asset related to the amount of the liability expected to be paid by the insurance companies.

Environmental Reserves.    We establish reserves for environmental exposures when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based upon our evaluation of costs associated with environmental remediation and ongoing monitoring activities. Inherent uncertainties exist in such evaluations due to unknown conditions and changing laws and regulations. These liabilities are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available. Accrued environmental reserves are exclusive of claims against third parties, and an asset is established where contribution or reimbursement from such third parties, such as governmental agencies, has been agreed and we are reasonably assured of receiving such contribution or reimbursement. Environmental reserves are not discounted.

Goodwill Impairment Assessment.    We assess the carrying value of goodwill at a reporting unit level, at least annually, based on an estimate of the fair value of each reporting unit. Fair value of the reporting unit is estimated using discounted cash flow analyses taking into consideration estimated cash flows in a ten-year projection period and a terminal value calculation at the end of the projection period.

Derivative Instruments and Hedging Activities.    See Item 7A of this Annual Report for information about accounting for derivative instruments and hedging activities.

Executive Overview of Results of Operations and Financial Condition

We reported record earnings for the fiscal year ended September 30, 2006 despite a challenging operating environment resulting from the combination of significantly warmer than normal temperatures and sustained high energy costs resulting in continued customer conservation. Net income for fiscal 2006 of $90.7 million, or $2.84 per Common Unit, increased $98.8 million compared to a net loss of $8.1 million, or $0.26 per Common Unit, in the prior year. EBITDA (as defined and reconciled below) amounted to $165.3 million in fiscal 2006, an increase of $58.2 million (54.3%) compared to Adjusted EBITDA (which excludes a $36.2 million loss on debt extinguishment as defined and reconciled below) of $107.1 million in fiscal 2005. Fiscal 2006 includes 53 weeks of operations compared to 52 weeks in the prior year.

The significant improvement in year-over-year financial results reflects the positive steps taken since the beginning of the fourth quarter of fiscal 2005, and throughout fiscal 2006, to streamline our field operating footprint, drive operational efficiencies and cost savings and improve our customer mix by exiting certain lower margin business. In addition to the field realignment efforts, during the third quarter of fiscal 2006 we initiated plans to restructure our HVAC service offerings and reduce the level of HVAC installation activities. The focus of our ongoing service offerings will be in support of our existing customer base within our propane, fuel oil and refined fuels and natural gas and electricity segments. Since our field realignment process began, we have eliminated more than 400 positions and retired nearly 700 vehicles from our fleet, generating significant savings in our fixed cost structure. During fiscal 2006, while we did not experience the full-year effect of the cost savings from these initiatives, savings in payroll and benefit related expenses, costs to operate and maintain our fleet and other costs to operate our customer service centers exceeded $27.0 million.

Another contributing factor to our increased earnings compared to the prior year was the impact on profitability in the fuel oil and refined fuels segment from the decision to eliminate the fuel oil Ceiling Program following the fiscal 2005 heating season. As reported throughout fiscal 2005, our margin opportunities in the fuel oil business were restricted as a result of a fuel oil Ceiling Program which pre-established a maximum price per gallon, coupled with our decision not to hedge when confronted with unprecedented costs to hedge the program. The impact of the lost margin opportunity on our prior year results was approximately $21.5 million. By eliminating this pricing program for

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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 without significant customer losses.

In our propane and refined fuels segments, while significantly warmer than normal temperatures and continued high commodity prices have had a negative effect on volumes sold, our continued efforts to strategically exit certain lower margin business accounted for a significant portion of the volume decline, yet favorably impacted overall segment profitability. Specifically, in the propane segment, we 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 25.5 million gallons compared to the prior year. In the fuel oil and refined fuels segment, our decision to exit certain lower margin diesel and gasoline business resulted in a decrease in volumes sold of approximately 51.8 million gallons in fiscal 2006 compared to the prior year. Overall, propane volumes sold in fiscal 2006 of 466.8 million gallons decreased 49.2 million gallons (9.5%) compared to 516.0 million gallons in fiscal 2005. Fuel oil and refined fuels volumes sold of 145.6 million gallons in fiscal 2006 decreased 98.9 million gallons (40.4%) compared to 244.5 million gallons in the prior year.

EBITDA and net income for fiscal 2006 were unfavorably impacted by $17.5 million as a result of certain significant items relating mainly to (i) $6.1 million of restructuring charges primarily related to severance benefits associated with our field realignment and the restructuring of our HVAC business; (ii) incremental professional services fees of $5.0 million associated with the GP Exchange Transaction consummated on October 19, 2006; (iii) a non-cash pension settlement charge of $4.4 million to accelerate the recognition of actuarial losses in our defined benefit pension plan as a result of the level of lump sum retirement benefit payments made during fiscal 2006 in line with the reduction in headcount; and (iv) a $2.0 million charge included within cost of products sold to reduce the carrying value of inventory that will no longer be marketed by our customer service centers as a result of our reorganization.

By comparison, Adjusted EBITDA and net loss for fiscal 2005 were unfavorably impacted by $3.5 million and $39.7 million, respectively, as a result of certain significant items relating mainly to (i) a $36.2 million loss on debt extinguishment associated with our March 31, 2005 debt refinancing; (ii) a $2.8 million restructuring charge attributable primarily to severance associated with the realignment of our field operations; and (iii) a $0.7 million charge attributable to impairment of goodwill associated with our HVAC segment.

As a result of the timing of our field realignment efforts and the restructuring of our HVAC segment, we expect additional cost savings during fiscal 2007 from the full-year effect of these initiatives. With the positive steps taken over the past year to further streamline our operating cost structure, drive operational efficiencies and improve our customer mix, we believe we are well positioned for supporting the growth of our core operating segments and for profitable growth into the future. Additionally, with the consummation of the GP Exchange Transaction on October 19, 2006, we have simplified our capital structure by eliminating our General Partner’s disproportionate 15% share of future distribution growth in exchange for the issuance of 2,300,000 Common Unit representing approximately 7% of the total outstanding Common Units. As a result, 100% of all future distribution increases, if any, will inure to the benefit of our Common Unitholders (including the current and former members of management who owned the General Partner).

From a cash flow perspective, we generated cash flow from operating activities of $170.3 million in fiscal 2006, an increase of $131.3 million compared to the prior year, and ended the fiscal year with more than $60.0 million in cash on hand and no amounts outstanding under the working capital facility of our Revolving Credit Agreement. As we look ahead to fiscal 2007, our anticipated cash requirements include: (i) maintenance and growth capital expenditures of approximately $25.0 million; (ii) approximately $41.0 million of interest and income tax payments; and, (iii) assuming distributions remain at the current level, approximately $86.4 million of distributions to Common Unitholders (an increase of approximately $2.6 million as a result of the issuance of Common Units in the GP Exchange Transaction). Based on our current estimate of our cash position, availability under the

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Revolving Credit Agreement (unused borrowing capacity under the working capital facility of $125.9 million at December 7, 2006) and expected cash flow from operating activities, we expect to have sufficient funds to meet our current and future obligations.

Results of Operations

Fiscal Year 2006 Compared to Fiscal Year 2005

Fiscal 2006 includes 53 weeks of operations compared to 52 weeks in the prior year, which has affected operating results for all categories discussed below.

Revenues

(Dollars in thousands)			Fiscal 2006						Fiscal 2005						Increase / (Decrease)						Percent Increase / (Decrease)
Revenues
Propane				$	1,086,083					$	969,943					$	116,140						12.0	%
Fuel oil and refined fuels					356,531						431,223						(74,692	)					(17.3	%)
Natural gas and electricity					122,071						102,803						19,268						18.7	%
HVAC					87,258						106,115						(18,857	)					(17.8	%)
All other					9,697						10,150						(453	)					(4.5	%)
Total revenues				$	1,661,640					$	1,620,234					$	41,406						2.6	%

Total revenues increased $41.4 million, or 2.6%, to $1,661.6 million for the year ended September 30, 2006 compared to $1,620.2 million for the year ended September 24, 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 11% warmer than normal for fiscal 2006 compared to 6% warmer than normal temperatures in fiscal 2005. While the fiscal 2006 heating season began with temperatures that were 5% warmer than normal in the first quarter, significantly warmer than normal temperatures, particularly 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 $1,086.1 million for the year ended September 30, 2006 increased $116.1 million, or 12.0%, compared to $969.9 million in the prior year, 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 fiscal 2006 decreased 49.2 million gallons, or 9.5%, to 466.8 million gallons from 516.0 million gallons in the prior year. 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 19.9% as a result of higher commodity prices for propane. The average posted price of propane during fiscal 2006 increased 21.8% compared to the average posted prices in the prior year. Additionally, included within the propane segment are revenues from wholesale and risk management activities of $74.4 million for the year ended September 30, 2006 which was comparable to the prior year.

Revenues from the distribution of fuel oil and refined fuels of $356.5 million for the year ended September 30, 2006 decreased $74.7 million, or 17.3%, from $431.2 million in the prior year. Sales of fuel oil and refined fuels amounted to 145.6 million gallons during fiscal 2006 compared to 244.5 million gallons in the prior year, a decrease of 98.9 million gallons, or 40.4%. 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

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51.8 million gallons compared to the prior year, 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 38.8% 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 fiscal 2006 increased 21.4% compared to the average posted prices in the prior year.

Revenues for the year ended September 30, 2006 were favorably impacted by an 18.7% increase in our natural gas and electricity segment, which increased to $122.1 million from $102.8 million in the prior year, 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 17.8%, to $87.3 million during fiscal 2006 compared to $106.1 million in the prior year, primarily as a result of the decision during the third quarter of fiscal 2006 to reorganize the HVAC segment and to reduce the level of HVAC installation activities. The focus of our ongoing service offerings will be in support of our existing propane, refined fuels and natural gas and electricity segments, thus reducing overall HVAC segment revenues.

Cost of Products Sold

(Dollars in thousands)			Fiscal 2006						Fiscal 2005						Increase / (Decrease)						Percent Increase / (Decrease)
Cost of products sold
Propane				$	635,365					$	545,677					$	89,688						16.4	%
Fuel oil and refined fuels					272,052						385,501						(113,449	)					(29.4	%)
Natural gas and electricity					102,687						90,461						12,226						13.5	%
HVAC					35,972						42,650						(6,678	)					(15.7	%)
All other					5,721						5,456						265						4.9	%
Total cost of products sold				$	1,051,797					$	1,069,745					$	(17,948	)					(1.7	%)
As a percent of total revenues					63.3	%					66.0	%

The cost of products sold reported in the consolidated statements of operations represents the weighted average unit cost of propane and fuel oil sold, as well as the cost of natural gas and electricity, including transportation costs to deliver product from our supply points to storage or to our customer service centers. Cost of products sold also includes the cost of appliances and related parts sold or installed by our customer service centers computed on a basis that approximates the average cost of the products. Changes in the fair value of derivative instruments that are not designated as hedges are recorded in current period earnings within cost of products sold. Cost of products sold is reported exclusive of any depreciation and amortization; these amounts are reported separately within the consolidated statements of operations.

Cost of products sold decreased $17.9 million to $1,051.8 million for the year ended September 30, 2006, compared to $1,069.7 million in the prior year. The decrease results primarily from the lower sales volumes described above, offset to an extent by higher commodity prices for propane and fuel oil. Cost of products sold for fiscal 2006 include a $14.5 million unrealized (non-cash) gain representing the net change in fair values of derivative instruments under SFAS No. 133, ‘‘Accounting for Derivative Instruments and Hedging Activities,’’ as amended by SFAS Nos. 137, 138, 149 and 155 (‘‘SFAS 133’’), compared to a $2.5 million unrealized (non-cash) loss in the prior year (see Item 7A of this Annual Report for information on our policies regarding the accounting for derivative instruments).

Cost of products sold associated with the distribution of propane and related activities of $635.4 million increased $89.7 million, or 16.4%, compared to the prior year. Higher propane prices resulted in a $106.9 million increase in cost of products sold during fiscal 2006 compared to the prior

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year, partially offset by decreased propane volumes which had an impact of $48.0 million. Wholesale and risk management activities resulted in a $28.0 million increase in cost of products sold compared to the prior year.

Cost of products sold associated with our fuel oil and refined fuels segment of $272.1 million decreased $113.4 million, or 29.4%, compared to the prior year. Lower sales volumes resulted in a $154.9 million decrease in cost of products sold during fiscal 2006 compared to the prior year, partially offset by higher commodity prices which had an impact of $56.5 million compared to the prior year. Cost of products sold as a percentage of revenues in our fuel oil and refined fuels segment decreased from 89.4% during fiscal 2005 to 76.3% in 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 fiscal 2005 significantly affected margin opportunities. The lost margin opportunity from this fuel oil Ceiling Program had an estimated negative impact of $21.5 million on fiscal 2005 operating margins in the fuel oil and refined fuels segment. By eliminating this pricing program beginning in fiscal 2006, we no longer incur the costs of hedging deliveries made under the 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 $12.2 million impact on cost of products sold for the year ended September 30, 2006 compared to the prior year. Cost of products sold in our HVAC segment declined $10.2 million as a result of lower revenues, partially offset by a charge of $3.5 million to reduce the carrying value of inventory that will no longer be actively marketed by our customer service centers.

For the year ended September 30, 2006, total cost of products sold represented 63.3% of revenues compared to 66.0% in the prior year, primarily as a result of the improved pricing strategy in the fuel oil operations following the elimination of the Ceiling Program, as well as the improved customer mix from our decision to exit certain lower margin customers in both the propane and fuel oil and refined fuels segments.

Operating Expenses

(Dollars in thousands)			Fiscal 2006						Fiscal 2005						Decrease						Percent Decrease
Operating expenses				$	374,871					$	393,738					$	(18,867	)					(4.8	%)
As a percent of total revenues					22.6	%					24.3	%

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.

Operating expenses of $374.9 million for the year ended September 30, 2006 decreased $18.9 million, or 4.8%, compared to $393.7 million in the prior year, primarily as a result of cost savings achieved through the aforementioned field realignment efforts and restructuring of our HVAC service offerings. During the fourth quarter of fiscal 2005, we initiated plans to realign our field operations and, as a second phase of our field realignment, during the third quarter of fiscal 2006 we initiated plans to restructure our HVAC service offerings by reducing our HVAC installation activities. These efforts have significantly restructured our operating footprint and reduced our cost structure through the elimination of more than 400 positions and the retirement of nearly 700 vehicles from our fleet through the creation of routing efficiencies, generating significant savings in our fixed cost structure. As a result, payroll and benefit related expenses declined $16.6 million and savings in other operating expenses amounted to $10.5 million. In addition, bad debt expense decreased $2.4 million from improved collection efforts. These cost savings were offset to an extent by a $6.2 million increase in variable compensation resulting from the improved earnings in fiscal 2006

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compared to the prior year. Additionally, fiscal 2006 operating expenses include a $4.4 million non-cash pension settlement charge in order to accelerate the recognition of a portion of unrecognized actuarial losses in our defined benefit pension plan as a result of the level of lump sum benefit payments made during fiscal 2006 from the reduction in headcount.

General and Administrative Expenses

(Dollars in thousands)			Fiscal 2006						Fiscal 2005						Increase						Percent Increase
General and administrative expenses				$	63,561					$	47,191					$	16,370						34.7	%
As a percent of total revenues					3.8	%					2.9	%

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 $63.6 million for the year ended September 30, 2006 were $16.4 million, or 34.7%, higher compared to $47.2 million in fiscal 2005. The increase was primarily attributable to a $9.2 million increase in variable compensation in line with increased earnings, incremental professional services fees of $5.0 million associated with the GP Exchange Transaction consummated on October 19, 2006 and an increase of $2.2 million in other expenses associated with our field realignment efforts.

Restructuring Costs and Impairment of Goodwill.    For the year ended September 30, 2006, we recorded a restructuring charge of $6.1 million related primarily to severance costs incurred to effectuate our field realignment and HVAC restructuring initiatives during fiscal 2006 resulting in the elimination of more than 400 positions. During fiscal 2005, we recorded a $2.8 million restructuring charge related primarily to employee termination costs incurred as a result of actions taken during fiscal 2005.

During fiscal 2005 we recorded a non-cash charge of $0.7 million related to the impairment of goodwill associated with our HVAC segment as a result of our annual assessment of the anticipated future cash flows from that segment.

Depreciation and Amortization

(Dollars in thousands)			Fiscal 2006						Fiscal 2005						Decrease						Percent Decrease
Depreciation and amortization				$	33,151					$	37,762					$	(4,611	)					(12.2	%)
As a percent of total revenues					2.0	%					2.3	%

Depreciation and amortization expense for the year ended September 30, 2006 decreased $4.6 million, or 12.2%, compared to the prior year primarily as a result of lower amortization expense on intangible assets that have been fully amortized, coupled with lower deprecation from asset retirements. Fiscal 2006 depreciation and amortization expense included a $1.1 million asset impairment charge associated with our field realignment efforts, as well as the write-down of certain assets in the all other business segment, compared to a $1.2 million impairment charge included in depreciation and amortization expense in the prior year.

Interest Expense

(Dollars in thousands)			Fiscal 2006						Fiscal 2005						Increase						Percent Increase
Interest expense, net				$	40,680					$	40,374					$	306						0.8	%
As a percent of total revenues					2.4	%					2.5	%