Table of Contents
SECURITIES AND EXCHANGE COMMISSION
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 23-2787918 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) | Identification No.) |
(Address of Principal Executive Offices) (Zip Code)
(Registrant’s Telephone Number, Including Area Code)
Large accelerated filerþ | Accelerated filero | Non-accelerated filero | Smaller reporting companyo |
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Exhibit 10.1 | ||||||||
Exhibit 10.2 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
EX-101 DEFINITION LINKBASE DOCUMENT |
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Table of Contents
(unaudited)
(Thousands of dollars)
June 30, | September 30, | June 30, | ||||||||||
2011 | 2010 | 2010 | ||||||||||
ASSETS | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 6,219 | $ | 7,726 | $ | 9,628 | ||||||
Accounts receivable (less allowances for doubtful accounts of $17,056 $15,290 and $15,326, respectively) | 229,377 | 172,708 | 182,607 | |||||||||
Accounts receivable — related parties | 1,206 | 7,039 | 7,232 | |||||||||
Inventories | 111,334 | 114,122 | 95,885 | |||||||||
Derivative financial instruments | 5,569 | 7,478 | 175 | |||||||||
Prepaid expenses and other current assets | 13,403 | 16,785 | 12,768 | |||||||||
Total current assets | 367,108 | 325,858 | 308,295 | |||||||||
Property, plant and equipment (less accumulated depreciation and amortization of $923,467, $867,250 and $855,423, respectively) | 649,209 | 642,778 | 634,882 | |||||||||
Goodwill | 691,355 | 678,721 | 670,438 | |||||||||
Intangible assets, net | 42,324 | 37,590 | 34,248 | |||||||||
Other assets | 19,681 | 11,272 | 11,483 | |||||||||
Total assets | $ | 1,769,677 | $ | 1,696,219 | $ | 1,659,346 | ||||||
LIABILITIES AND PARTNERS’ CAPITAL | ||||||||||||
Current liabilities: | ||||||||||||
Current maturities of long-term debt | $ | 5,201 | $ | 20,123 | $ | 98,401 | ||||||
Bank loans | 176,000 | 91,000 | 15,000 | |||||||||
Accounts payable — trade | 129,548 | 130,575 | 100,725 | |||||||||
Accounts payable — related parties | 9 | 2,352 | 984 | |||||||||
Customer deposits and advances | 38,984 | 86,154 | 43,121 | |||||||||
Derivative financial instruments | 2,400 | — | 17,975 | |||||||||
Other current liabilities | 83,374 | 130,058 | 95,193 | |||||||||
Total current liabilities | 435,516 | 460,262 | 371,399 | |||||||||
Long-term debt | 828,912 | 771,279 | 770,703 | |||||||||
Other noncurrent liabilities | 56,954 | 71,792 | 66,893 | |||||||||
Total liabilities | 1,321,382 | 1,303,333 | 1,208,995 | |||||||||
Commitments and contingencies (note 7) | ||||||||||||
Partners’ capital: | ||||||||||||
AmeriGas Partners, L.P. partners’ capital: | ||||||||||||
Common unitholders (units issued — 57,124,296, 57,088,509 and 57,088,509, respectively) | 428,574 | 372,220 | 453,634 | |||||||||
General partner | 4,331 | 3,751 | 4,576 | |||||||||
Accumulated other comprehensive income (loss) | 2,592 | 4,877 | (20,334 | ) | ||||||||
Total AmeriGas Partners, L.P. partners’ capital | 435,497 | 380,848 | 437,876 | |||||||||
Noncontrolling interest | 12,798 | 12,038 | 12,475 | |||||||||
Total partners’ capital | 448,295 | 392,886 | 450,351 | |||||||||
Total liabilities and partners’ capital | $ | 1,769,677 | $ | 1,696,219 | $ | 1,659,346 | ||||||
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Table of Contents
(unaudited)
(Thousands of dollars, except per unit amounts)
Three Months Ended | Nine Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues: | ||||||||||||||||
Propane | $ | 428,286 | $ | 356,835 | $ | 1,941,693 | $ | 1,816,236 | ||||||||
Other | 42,544 | 39,778 | 136,133 | 123,073 | ||||||||||||
470,830 | 396,613 | 2,077,826 | 1,939,309 | |||||||||||||
Costs and expenses: | ||||||||||||||||
Cost of sales — propane (excluding depreciation shown below) | 284,629 | 220,545 | 1,257,038 | 1,125,387 | ||||||||||||
Cost of sales — other (excluding depreciation shown below) | 16,212 | 15,305 | 43,902 | 39,769 | ||||||||||||
Operating and administrative expenses | 147,139 | 138,704 | 474,039 | 451,614 | ||||||||||||
Depreciation | 21,435 | 19,739 | 61,853 | 59,653 | ||||||||||||
Amortization | 3,063 | 2,148 | 8,516 | 5,453 | ||||||||||||
Other income, net | (8,329 | ) | (5,148 | ) | (20,404 | ) | (3,749 | ) | ||||||||
464,149 | 391,293 | 1,824,944 | 1,678,127 | |||||||||||||
Operating income | 6,681 | 5,320 | 252,882 | 261,182 | ||||||||||||
Loss on extinguishment of debt | — | — | (18,801 | ) | — | |||||||||||
Interest expense | (15,643 | ) | (16,981 | ) | (47,365 | ) | (50,184 | ) | ||||||||
(Loss) income before income taxes | (8,962 | ) | (11,661 | ) | 186,716 | 210,998 | ||||||||||
Income tax expense | (139 | ) | (662 | ) | (487 | ) | (2,378 | ) | ||||||||
Net (loss) income | (9,101 | ) | (12,323 | ) | 186,229 | 208,620 | ||||||||||
Less: net income attributable to noncontrolling interest | (51 | ) | (49 | ) | (2,511 | ) | (2,550 | ) | ||||||||
Net (loss) income attributable to AmeriGas Partners, L.P. | $ | (9,152 | ) | $ | (12,372 | ) | $ | 183,718 | $ | 206,070 | ||||||
General partner’s interest in net (loss) income attributable to AmeriGas Partners, L.P. | $ | 1,474 | $ | 828 | $ | 5,308 | $ | 4,148 | ||||||||
Limited partners’ interest in net (loss) income attributable to AmeriGas Partners, L.P. | $ | (10,626 | ) | $ | (13,200 | ) | $ | 178,410 | $ | 201,922 | ||||||
(Loss) income per limited partner unit — basic and diluted (note 2) | ||||||||||||||||
Basic | $ | (0.19 | ) | $ | (0.23 | ) | $ | 2.83 | $ | 3.03 | ||||||
Diluted | $ | (0.19 | ) | $ | (0.23 | ) | $ | 2.83 | $ | 3.03 | ||||||
Average limited partner units outstanding (thousands): | ||||||||||||||||
Basic | 57,129 | 57,089 | 57,115 | 57,073 | ||||||||||||
Diluted | 57,129 | 57,089 | 57,165 | 57,119 | ||||||||||||
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Table of Contents
(unaudited)
(Thousands of dollars)
Nine Months Ended | ||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 186,229 | $ | 208,620 | ||||
Adjustments to reconcile net income to net cash from operating activities: | ||||||||
Depreciation and amortization | 70,369 | 65,106 | ||||||
Provision for uncollectible accounts | 9,454 | 9,593 | ||||||
Net change in realized gains and losses deferred as cash flow hedges | 2,900 | 206 | ||||||
Loss on extinguishment of debt | 18,801 | — | ||||||
Other, net | (3,784 | ) | 3,040 | |||||
Net change in: | ||||||||
Accounts receivable | (58,547 | ) | (56,135 | ) | ||||
Inventories | 3,851 | (7,062 | ) | |||||
Accounts payable | (3,371 | ) | (15,585 | ) | ||||
Other current assets | 3,385 | (360 | ) | |||||
Other current liabilities | (109,335 | ) | (73,566 | ) | ||||
Net cash provided by operating activities | 119,952 | 133,857 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Expenditures for property, plant and equipment | (59,201 | ) | (59,796 | ) | ||||
Proceeds from disposals of assets | 2,678 | 1,944 | ||||||
Acquisitions of businesses, net of cash acquired | (31,194 | ) | (17,296 | ) | ||||
Net cash used by investing activities | (87,717 | ) | (75,148 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Distributions | (127,540 | ) | (120,010 | ) | ||||
Noncontrolling interest activity | (1,723 | ) | (1,800 | ) | ||||
Increase in bank loans | 85,000 | 15,000 | ||||||
Issuance of long-term debt | 462,122 | — | ||||||
Repayment of long-term debt | (452,235 | ) | (2,067 | ) | ||||
Proceeds associated with equity-based compensation plans, net of tax withheld | 616 | 566 | ||||||
Capital contributions from General Partner | 18 | 17 | ||||||
Net cash used by financing activities | (33,742 | ) | (108,294 | ) | ||||
Cash and cash equivalents decrease | $ | (1,507 | ) | $ | (49,585 | ) | ||
CASH AND CASH EQUIVALENTS: | ||||||||
End of period | $ | 6,219 | $ | 9,628 | ||||
Beginning of period | 7,726 | 59,213 | ||||||
Decrease | $ | (1,507 | ) | $ | (49,585 | ) | ||
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Table of Contents
(unaudited)
(Thousands of dollars, except unit data)
Accumulated | Total | |||||||||||||||||||||||||||
other | AmeriGas | Total | ||||||||||||||||||||||||||
Number of | Common | General | comprehensive | Partners, L.P. | Noncontrolling | partners’ | ||||||||||||||||||||||
Common Units | unitholders | partner | income (loss) | partners’ capital | interest | capital | ||||||||||||||||||||||
For the nine months ended June 30, 2011: | ||||||||||||||||||||||||||||
Balance September 30, 2010 | 57,088,509 | $ | 372,220 | $ | 3,751 | $ | 4,877 | $ | 380,848 | $ | 12,038 | $ | 392,886 | |||||||||||||||
Net income | 178,410 | 5,308 | 183,718 | 2,511 | 186,229 | |||||||||||||||||||||||
Net gains on derivative instruments | 26,258 | 26,258 | 267 | 26,525 | ||||||||||||||||||||||||
Reclassification of net gains on derivative instruments | (28,543 | ) | (28,543 | ) | (295 | ) | (28,838 | ) | ||||||||||||||||||||
Comprehensive income | 178,410 | 5,308 | (2,285 | ) | 181,433 | 2,483 | 183,916 | |||||||||||||||||||||
Distributions | (122,794 | ) | (4,746 | ) | (127,540 | ) | (1,820 | ) | (129,360 | ) | ||||||||||||||||||
Unit-based compensation expense | 1,310 | — | 1,310 | — | 1,310 | |||||||||||||||||||||||
Common Units issued in connection with incentive compensation plans, net of tax withheld | 35,787 | (572 | ) | 18 | (554 | ) | (554 | ) | ||||||||||||||||||||
General Partner contribution to AmeriGas Propane, L.P. | 97 | 97 | ||||||||||||||||||||||||||
Balance June 30, 2011 | 57,124,296 | $ | 428,574 | $ | 4,331 | $ | 2,592 | $ | 435,497 | $ | 12,798 | $ | 448,295 | |||||||||||||||
Accumulated | Total | |||||||||||||||||||||||||||
other | AmeriGas | Total | ||||||||||||||||||||||||||
Number of | Common | General | comprehensive | Partners, L.P. | Noncontrolling | partners’ | ||||||||||||||||||||||
Common Units | unitholders | partner | income (loss) | partners’ capital | interest | capital | ||||||||||||||||||||||
For the nine months ended June 30, 2010: | ||||||||||||||||||||||||||||
Balance September 30, 2009 | 57,046,388 | $ | 367,708 | $ | 3,698 | $ | (6,947 | ) | $ | 364,459 | $ | 11,866 | $ | 376,325 | ||||||||||||||
Net income | 201,922 | 4,148 | 206,070 | 2,550 | 208,620 | |||||||||||||||||||||||
Net gains on derivative instruments | 12,318 | 12,318 | 125 | 12,443 | ||||||||||||||||||||||||
Reclassification of net gains on derivative instruments | (25,705 | ) | (25,705 | ) | (266 | ) | (25,971 | ) | ||||||||||||||||||||
Comprehensive income | 201,922 | 4,148 | (13,387 | ) | 192,683 | 2,409 | 195,092 | |||||||||||||||||||||
Distributions | (116,723 | ) | (3,287 | ) | (120,010 | ) | (1,800 | ) | (121,810 | ) | ||||||||||||||||||
Unit-based compensation expense | 1,078 | — | 1,078 | — | 1,078 | |||||||||||||||||||||||
Common Units issued in connection with incentive compensation plans, net of tax withheld | 42,121 | (351 | ) | 17 | (334 | ) | (334 | ) | ||||||||||||||||||||
Balance June 30, 2010 | 57,088,509 | $ | 453,634 | $ | 4,576 | $ | (20,334 | ) | $ | 437,876 | $ | 12,475 | $ | 450,351 | ||||||||||||||
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Table of Contents
(unaudited)
(Thousands of dollars, except per unit)
1. | Nature of Operations |
AmeriGas Partners, L.P. (“AmeriGas Partners”) is a publicly traded limited partnership that conducts a national propane distribution business through its principal operating subsidiary AmeriGas Propane, L.P. (“AmeriGas OLP”) and prior to its merger with AmeriGas OLP on October 1, 2010 (“the Merger”), AmeriGas OLP’s subsidiary, AmeriGas Eagle Propane, L.P. (“Eagle OLP”). AmeriGas Partners and AmeriGas OLP are Delaware limited partnerships. AmeriGas OLP subsequent to the Merger, and AmeriGas OLP and Eagle OLP collectively prior to the Merger, are referred to herein as “the Operating Partnership.” AmeriGas Partners, the Operating Partnership and all of their subsidiaries are collectively referred to herein as “the Partnership” or “we.” |
The Operating Partnership is engaged in the distribution of propane and related equipment and supplies. The Operating Partnership comprises the largest retail propane distribution business in the United States serving residential, commercial, industrial, motor fuel and agricultural customers in all 50 states. |
At June 30, 2011, AmeriGas Propane, Inc. (the “General Partner”), an indirect wholly owned subsidiary of UGI Corporation (“UGI”), held a 1% general partner interest in AmeriGas Partners and a 1.01% general partner interest in AmeriGas OLP. The General Partner and its wholly owned subsidiary Petrolane Incorporated (“Petrolane,” a predecessor company of the Partnership) also owned 24,691,209 AmeriGas Partners Common Units (“Common Units”). The remaining 32,433,087 Common Units are publicly held. The Common Units represent limited partner interests in AmeriGas Partners. |
AmeriGas Partners holds a 99% limited partner interest in AmeriGas OLP. Through September 30, 2010, AmeriGas OLP, indirectly through subsidiaries, owned an effective 0.1% general partner interest and a direct approximate 99.9% limited partner interest in Eagle OLP. |
AmeriGas Partners and the Operating Partnership have no employees. Employees of the General Partner conduct, direct and manage our operations. Prior to the Merger, the General Partner provided management and administrative services to AmeriGas Eagle Holdings, Inc. (“AEH”), the general partner of Eagle OLP, under a management services agreement. The General Partner is reimbursed monthly for all direct and indirect expenses it incurs on our behalf (see Note 5). |
2. | Significant Accounting Policies |
The condensed consolidated financial statements include the accounts of AmeriGas Partners and its majority-owned subsidiaries principally comprising AmeriGas OLP and, prior to the Merger, Eagle OLP. We eliminate all significant intercompany accounts and transactions when we consolidate. We account for the General Partner’s 1.01% interest in AmeriGas OLP as a noncontrolling interest in the condensed consolidated financial statements. |
AmeriGas Finance Corp., AmeriGas Eagle Finance Corp. and AP Eagle Finance Corp. are wholly owned finance subsidiaries of AmeriGas Partners. Their sole purpose is to serve as co-obligors for debt securities issued by AmeriGas Partners. |
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Table of Contents
(unaudited)
(Thousands of dollars, except per unit)
The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). They include all adjustments which we consider necessary for a fair statement of the results for the interim periods presented. Such adjustments consisted only of normal recurring items unless otherwise disclosed. The September 30, 2010 condensed consolidated balance sheet data were derived from audited financial statements but do not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). These financial statements should be read in conjunction with the financial statements and related notes included in our Annual Report on Form 10-K for the year ended September 30, 2010. Weather significantly impacts demand for propane and profitability because many customers use propane for heating purposes. Due to the seasonal nature of the Partnership’s propane business, the results of operations for interim periods are not necessarily indicative of the results to be expected for a full year. |
Allocation of Net Income Attributable to AmeriGas Partners.Net income attributable to AmeriGas Partners, L.P. for partners’ capital and statement of operations presentation purposes is allocated to the General Partner and the limited partners in accordance with their respective ownership percentages after giving effect to amounts distributed to the General Partner in excess of its 1% general partner interest in AmeriGas Partners based on its incentive distribution rights (“IDRs”) under the Fourth Amended and Restated Agreement of Limited Partnership of AmeriGas Partners (“Partnership Agreement”). |
Net Income Per Unit.Income per limited partner unit is computed in accordance with GAAP regarding the application of the two-class method for determining income per unit for master limited partnerships (“MLPs”) when IDRs are present. The two-class method requires that income per limited partner unit be calculated as if all earnings for the period were distributed and requires a separate calculation for each quarter and year-to-date period. In periods when our net income attributable to AmeriGas Partners exceeds our Available Cash, as defined in the Partnership Agreement, and is above certain levels, the calculation according to the two-class method results in an increased allocation of undistributed earnings to the General Partner. Generally, in periods when our Available Cash in respect of the quarter or year-to-date periods exceeds our net income (loss) attributable to AmeriGas Partners, the calculation according to the two-class method results in an allocation of earnings to the General Partner greater than its relative ownership interest in the Partnership (or in the case of a net loss attributable to AmeriGas Partners, an allocation of such net loss to the Common Unitholders greater than their relative ownership interest in the Partnership). |
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Table of Contents
(unaudited)
(Thousands of dollars, except per unit)
The following table sets forth the numerators and denominators of the basic and diluted income per limited partner unit computations: |
Three Months Ended | Nine Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Common Unitholders’ interest in net income attributable to AmeriGas Partners under the two-class method for MLPs | $ | (10,626 | ) | $ | (13,200 | ) | $ | 161,868 | $ | 173,115 | ||||||
Weighted average Common Units outstanding — basic (thousands) | 57,129 | 57,089 | 57,115 | 57,073 | ||||||||||||
Potentially dilutive Common Units (thousands) | 0 | 0 | 50 | 46 | ||||||||||||
Weighted average Common Units outstanding — diluted (thousands) | 57,129 | 57,089 | 57,165 | 57,119 | ||||||||||||
Theoretical distributions of net income attributable to AmeriGas Partners, L.P. in accordance with the two-class method for the nine months ended June 30, 2011 and 2010 resulted in an increased allocation of net income attributable to AmeriGas Partners, L.P. to the General Partner in the computation of income per limited partner unit which had the effect of decreasing earnings per limited partner unit by $0.29 and $0.50, respectively. There was no dilutive effect in accordance with the two-class method for the three months ended June 30, 2011 or 2010. |
Potentially dilutive Common Units included in the diluted limited partner units outstanding computation reflect the effects of restricted Common Unit awards granted under the General Partner’s incentive compensation plans. |
Comprehensive Income.Comprehensive income comprises net income and other comprehensive income (loss). Other comprehensive income (loss) results from gains and losses on derivative instruments qualifying as cash flow hedges, net of reclassifications of net gains and losses to net income. |
Use of Estimates.The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and costs. These estimates are based on management’s knowledge of current events, historical experience and various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may be different from these estimates and assumptions. |
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Table of Contents
(unaudited)
(Thousands of dollars, except per unit)
3. | Accounting Changes |
New Accounting Standards Not Yet Adopted |
Fair Value Measurements.In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04 “Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in GAAP and IFRS.” The amendments in ASU 2011-04 result in common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”). The new guidance applies to all reporting entities that are required or permitted to measure or disclose the fair value of an asset, liability or an instrument classified in shareholders’ equity. Among other things, the new guidance requires quantitative information about unobservable inputs, valuation processes and sensitivity analysis associated with fair value measurements categorized within Level 3 of the fair value hierarchy. The new guidance is effective for our interim period ending March 31, 2012 and is required to be applied prospectively. We do not expect it will have a material impact on our results of operations or financial condition. |
Presentation of Comprehensive Income.In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income,” which revises the manner in which entities present comprehensive income in their financial statements. The new guidance removes the presentation options in Accounting Standards Codification (“ASC”) Topic 220 and requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. ASU 2011-05 does not change the items that must be reported in other comprehensive income. The change in presentation is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011 and the guidance is required to be applied retrospectively. Early adoption is permitted. |
4. | Intangible Assets |
The Partnership’s goodwill and intangible assets comprise the following: |
June 30, | September 30, | June 30, | ||||||||||
2011 | 2010 | 2010 | ||||||||||
Subject to amortization: | ||||||||||||
Customer relationships and noncompete agreements | $ | 75,814 | $ | 65,203 | $ | 62,608 | ||||||
Accumulated amortization | (33,490 | ) | (27,613 | ) | (28,360 | ) | ||||||
$ | 42,324 | $ | 37,590 | $ | 34,248 | |||||||
Not subject to amortization: | ||||||||||||
Goodwill | $ | 691,355 | $ | 678,721 | $ | 670,438 | ||||||
The increase in goodwill and other intangible assets during the nine months ended June 30, 2011 reflects the effects of acquisitions. Amortization expense of intangible assets was $2,118 and $1,505 for the three months ended June 30, 2011 and 2010, respectively. Amortization expense of intangible assets was $5,874 and $4,390 for the nine months ended June 30, 2011 and 2010, respectively. No amortization is included in cost of sales in the Condensed Consolidated Statements of Operations. Our expected aggregate amortization expense of intangible assets for the remainder of Fiscal 2011 and the next four fiscal years is as follows: remainder of Fiscal 2011 — $2,100; Fiscal 2012 — $8,624; Fiscal 2013 — $8,040; Fiscal 2014 — $7,061; Fiscal 2015 — $5,057. |
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Table of Contents
(unaudited)
(Thousands of dollars, except per unit)
5. | Related Party Transactions |
Pursuant to the Partnership Agreement, the General Partner is entitled to reimbursement for all direct and indirect expenses incurred or payments it makes on behalf of the Partnership. Prior to the Merger and pursuant to a Management Services Agreement between AmeriGas Eagle Holdings, Inc., the general partner of Eagle OLP prior to the Merger, and the General Partner, the General Partner was also entitled to reimbursement for all direct and indirect expenses it made on Eagle OLP’s behalf. These costs, which totaled $84,544 and $280,737 for the three and nine months ended June 30, 2011, respectively, and $78,895 and $267,024 for the three and nine months ended June 30, 2010, respectively, include employee compensation and benefit expenses of employees of the General Partner and general and administrative expenses. |
UGI provides certain financial and administrative services to the General Partner. UGI bills the General Partner monthly for all direct and indirect corporate expenses incurred in connection with providing these services and the General Partner is reimbursed by the Partnership for these expenses. The allocation of indirect UGI corporate expenses to the Partnership utilizes a weighted, three-component formula based on the relative percentage of the Partnership’s revenues, operating expenses and net assets employed to the total of such items for all UGI operating subsidiaries for which general and administrative services are provided. The General Partner believes that this allocation method is reasonable and equitable to the Partnership. Such corporate expenses totaled $1,660 and $9,465 during the three and nine months ended June 30, 2011, respectively, and $2,095 and $7,966 during the three and nine months ended June 30, 2010, respectively. In addition, UGI and certain of its subsidiaries provide office space, stop loss medical coverage and automobile liability insurance to the Partnership. The costs related to these items totaled $782 and $2,350 for the three and nine months ended June 30, 2011, respectively, and $401 and $1,837 for the three and nine months ended June 30, 2010, respectively. |
AmeriGas OLP purchases propane from Atlantic Energy, LLC (“Atlantic Energy”), a former subsidiary of UGI Energy Services, Inc. (“Energy Services”), a subsidiary of UGI, pursuant to a propane sales agreement (“Product Sales Agreement”) expiring on April 2015, whereby Atlantic Energy has agreed to sell and AmeriGas OLP has agreed to purchase a specified amount of propane annually at a terminal located in Chesapeake, Virginia. The price to be paid for product purchased under the agreement is determined annually using a contractual formula that takes into account published index prices and the locational value of deliveries at the terminal. On July 30, 2010, Energy Services sold its interest in Atlantic Energy. In addition, from time to time, AmeriGas OLP purchases propane on an as needed basis from Energy Services. The prices of the purchases are generally based on market price at the time of purchase. Purchases of propane by AmeriGas OLP from Energy Services and Atlantic Energy (through the date of its sale) totaled $4,073 during the nine months ended June 30, 2011 and $4,653 and $38,409 during the three and nine months ended June 30, 2010, respectively. AmeriGas OLP did not purchase any propane from Energy Services during the three months ended June 30, 2011. The sale of the terminal did not affect the terms of the Product Sales Agreement. |
The Partnership also sells propane to other affiliates of UGI. Such amounts were not material during the periods presented. |
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Table of Contents
(unaudited)
(Thousands of dollars, except per unit)
6. | Debt |
On January 20, 2011, AmeriGas Partners issued $470,000 principal amount of 6.50% Senior Notes due 2021. The proceeds from the issuance of the 6.50% Senior Notes were used in February 2011 to repay AmeriGas Partners’ $415,000 7.25% Senior Notes due May 15, 2015 pursuant to a January 5, 2011 tender offer and subsequent redemption. The 6.50% Senior Notes due 2021 rank pari passu with AmeriGas Partners’ outstanding senior debt. In addition, in February 2011, AmeriGas Partners redeemed the outstanding $14,640 principal amount of its 8.875% Senior Notes due May 2011. The Partnership incurred a loss of $18,801 on these early extinguishments of debt which amount is reflected on the Condensed Consolidated Statements of Operations under the caption “Loss on extinguishment of debt.” The 6.50% Senior Notes of AmeriGas Partners restrict the ability of the Partnership and AmeriGas OLP to, among other things, incur additional indebtedness, make investments, incur liens, issue preferred interests, prepay subordinated indebtedness, and effect mergers, consolidations and sales of assets. |
In addition, on June 21, 2011, AmeriGas OLP entered into an unsecured revolving credit agreement (the “2011 Credit Agreement”) with a group of banks providing for borrowings up to $325,000 (including a $100,000 sublimit for letters of credit). Concurrently with entering into the 2011 Credit Agreement, AmeriGas OLP terminated its then-existing $200,000 revolving credit agreement dated as of November 6, 2006 and its $75,000 credit agreement dated as of April 17, 2009. The 2011 Credit Agreement permits AmeriGas OLP to borrow at prevailing interest rates, including the base rate, defined as the higher of the Federal Funds rate plus 0.50% or the agent bank’s prime rate, or at a two-week, one-, two-, three-, or six-month Eurodollar Rate, as defined in the 2011 Credit Agreement, plus a margin. The margin on base rate borrowings (which ranges from 0.75% to 1.75%), Eurodollar Rate borrowings (which ranges from 1.75% to 2.75%), and the 2011 Credit Agreement facility fee rate (which ranges from 0.30% to 0.50%) are dependent upon AmeriGas Partners’ ratio of debt to earnings before interest expense, income taxes, depreciation and amortization (“EBITDA”), each as defined in the 2011 Credit Agreement. The 2011 Credit Agreement restricts the incurrence of additional indebtedness and also restricts certain liens, guarantees, investments, loans and advances, payments, mergers, consolidations, asset transfers, transactions with affiliates, sales of assets, acquisitions and other transactions. The 2011 Credit Agreement requires that AmeriGas OLP and AmeriGas Partners not exceed ratios of total indebtedness to EBITDA, as defined for each of those entities, and that AmeriGas Partners maintains a minimum ratio of EBITDA to interest expense, as defined. |
7. | Commitments and Contingencies |
Environmental Matters |
By letter dated March 6, 2008, the New York State Department of Environmental Conservation (“DEC”) notified AmeriGas OLP that DEC had placed property owned by the Partnership in Saranac Lake, New York on its Registry of Inactive Hazardous Waste Disposal Sites. A site characterization study performed by DEC disclosed contamination related to former manufactured gas plant (“MGP”) operations on the site. DEC has classified the site as a significant threat to public health or environment with further action required. The Partnership has researched the history of the site and its ownership interest in the site. The Partnership has reviewed the preliminary site characterization study prepared by the DEC, the extent of the contamination, and the possible existence of other potentially responsible parties. The Partnership has communicated the results of its research to DEC and is awaiting a response before doing any additional investigation. Because of the preliminary nature of available environmental information, the ultimate amount of expected clean up costs cannot be reasonably estimated. |
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(unaudited)
(Thousands of dollars, except per unit)
Other Matters |
On May 27, 2009, the General Partner was named as a defendant in a purported class action lawsuit in the Superior Court of the State of California in which plaintiffs challenged AmeriGas OLP’s weight disclosure with regard to its portable propane grill cylinders. After that initial suit, various AmeriGas entities were named in more than a dozen similar suits that were filed in various courts throughout the United States. All of those cases were consolidated and transferred to the United States District Court for the Western District of Missouri. On May 19, 2010, the Court granted the class’ motion seeking preliminary approval of the parties’ settlement. On October 4, 2010, the Court ruled that the settlement was fair, reasonable and adequate to the class and granted final approval of the settlement. |
On or about October 21, 2009, the General Partner received a notice that the Offices of the District Attorneys of Santa Clara, Sonoma, Ventura, San Joaquin and Fresno Counties and the City Attorney of San Diego (the “District Attorneys”) have commenced an investigation into AmeriGas OLP’s cylinder labeling and filling practices in California and issued an administrative subpoena seeking documents and information relating to those practices. We have responded to the administrative subpoena. On or about July 20, 2011, the General Partner received a second subpoena from the District Attorneys. The subpoena seeks information and documents regarding AmeriGas OLP’s cylinder exchange program and alleges potential violations of California’s Unfair Competition Law. We are reviewing the subpoena and will continue to cooperate with the District Attorneys. |
In 1996, a fire occurred at the residence of Samuel and Brenda Swiger (the “Swigers”) when propane that leaked from an underground line ignited. In July 1998, the Swigers filed a class action lawsuit against AmeriGas Propane, L.P. (named incorrectly as “UGI/AmeriGas, Inc.”), in the Circuit Court of Monongalia County, West Virginia, in which they sought to recover an unspecified amount of compensatory and punitive damages and attorney’s fees, for themselves and on behalf of persons in West Virginia for whom the defendants had installed propane gas lines, resulting from the defendants’ alleged failure to install underground propane lines at depths required by applicable safety standards. On December 14, 2010, AmeriGas OLP and its affiliates entered into a settlement agreement with the class, which was preliminarily approved by the Circuit Court of Monongalia County on January 13, 2011. |
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(unaudited)
(Thousands of dollars, except per unit)
In 2005, the Swigers also filed what purports to be a class action in the Circuit Court of Harrison County, West Virginia against UGI, an insurance subsidiary of UGI, certain officers of UGI and the General Partner, and their insurance carriers and insurance adjusters. In the Harrison County lawsuit, the Swigers are seeking compensatory and punitive damages on behalf of the putative class for alleged violations of the West Virginia Insurance Unfair Trade Practice Act, negligence, intentional misconduct, and civil conspiracy. The Swigers have also requested that the Court rule that insurance coverage exists under the policies issued by the defendant insurance companies for damages sustained by the members of the class in the Monongalia County lawsuit. The Circuit Court of Harrison County has not certified the class in the Harrison County lawsuit at this time and, in October 2008, stayed that lawsuit pending resolution of the class action lawsuit in Monongalia County. We believe we have good defenses to the claims in this action. |
On July 15, 2011, BP America Production Company (“BP”) filed a complaint against AmeriGas Propane, L.P. in the District Court of Denver County, Colorado, alleging, among other things, breach of contract and breach of the covenant of good faith and fair dealing relating to amounts billed for certain goods and services provided to BP since 2005 (the “Services”). The Services relate to the installation of propane-fueled equipment and appliances, and the supply of propane, to approximately 400 residential customers at the request of and for the account of BP. The complaint seeks an unspecified amount of direct, indirect, consequential, special and compensatory damages, including attorneys’ fees, costs and interest and other appropriate relief. It also seeks an accounting to determine the amount of the alleged overcharges related to the Services. We recently commenced an investigation into these allegations. Because of the preliminary nature of this investigation, which is ongoing, the amount of loss, if any, cannot be reasonably estimated. |
We cannot predict the final results of any of the environmental or other pending claims or legal actions described above. However, it is reasonably possible that some of them could be resolved unfavorably to us and result in losses in excess of recorded amounts. We are unable to estimate any possible losses in excess of recorded amounts. Although we currently believe, after consultation with counsel, that damages or settlements, if any, recovered by the plaintiffs in such claims or actions will not have a material adverse effect on our financial position, damages or settlements could be material to our operating results or cash flows in future periods depending on the nature and timing of future developments with respect to these matters and the amounts of future operating results and cash flows. In addition to the matters described above, there are other pending claims and legal actions arising in the normal course of our businesses. We believe, after consultation with counsel, the final outcome of such other matters will not have a material effect on our consolidated financial position, results of operations or cash flows. |
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(unaudited)
(Thousands of dollars, except per unit)
8. | Fair Value Measurement |
Derivative Financial Instruments |
The following table presents our financial assets and financial liabilities that are measured at fair value on a recurring basis for each of the fair value hierarchy levels, including both current and noncurrent portions, as of June 30, 2011, September 30, 2010 and June 30, 2010: |
Asset (Liability) | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | |||||||||||||||
Identical Assets | Observable | Unobservable | ||||||||||||||
and Liabilities | Inputs | Inputs | ||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
June 30, 2011: | ||||||||||||||||
Assets: | ||||||||||||||||
Derivative financial instruments: | ||||||||||||||||
Commodity contracts | $ | — | $ | 5,569 | $ | — | $ | 5,569 | ||||||||
Liabilities: | ||||||||||||||||
Derivative financial instruments: | ||||||||||||||||
Commodity contracts | $ | — | $ | (2,757 | ) | $ | — | $ | (2,757 | ) | ||||||
September 30, 2010: | ||||||||||||||||
Assets: | ||||||||||||||||
Derivative financial instruments: | ||||||||||||||||
Commodity contracts | $ | — | $ | 8,025 | $ | — | $ | 8,025 | ||||||||
June 30, 2010: | ||||||||||||||||
Assets: | ||||||||||||||||
Derivative financial instruments: | ||||||||||||||||
Commodity contracts | $ | — | $ | 244 | $ | — | $ | 244 | ||||||||
Liabilities: | ||||||||||||||||
Derivative financial instruments: | ||||||||||||||||
Commodity contracts | $ | — | $ | (18,012 | ) | $ | — | $ | (18,012 | ) |
The fair values of our non-exchange traded commodity derivative contracts are based upon indicative price quotations available through brokers, industry price publications or recent market transactions and related market indicators. For commodity option contracts we use a Black Scholes option pricing model that considers time value and volatility of the underlying commodity. The fair values of interest rate contracts are based upon third-party quotes or indicative values based on recent market transactions. |
Other Financial Instruments |
The carrying amounts of financial instruments included in current assets and current liabilities (excluding unsettled derivative instruments and current maturities of long-term debt) approximate their fair values because of their short-term nature. The carrying amount and estimated fair value of our long-term debt at June 30, 2011 were $834,113 and $850,188, respectively. The carrying amount and estimated fair value of our long-term debt at June 30, 2010 were $869,104 and $866,974, respectively. We estimate the fair value of long-term debt by using current market prices and by discounting future cash flows using rates available for similar type debt. |
We have financial instruments such as short-term investments and trade accounts receivable which could expose us to concentrations of credit risk. We limit our credit risk from short-term investments by investing only in investment-grade commercial paper and U.S. Government securities. The credit risk from trade accounts receivable is limited because we have a large customer base which extends across many different U.S. markets. |
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(unaudited)
(Thousands of dollars, except per unit)
9. | Disclosures About Derivative Instruments and Hedging Activities |
The Partnership is exposed to certain market risks related to its ongoing business operations. Management uses derivative financial and commodity instruments, among other things, to manage these risks. The primary risks managed by derivative instruments are commodity price risk and interest rate risk. Although we use derivative financial and commodity instruments to reduce market risk associated with forecasted transactions, we do not use derivative financial and commodity instruments for speculative or trading purposes. The use of derivative instruments is controlled by our risk management and credit policies which govern, among other things, the derivative instruments the Partnership can use, counterparty credit limits and contract authorization limits. Because our derivative instruments generally qualify as hedges under GAAP, we expect that changes in the fair value of derivative instruments used to manage commodity or interest rate market risk would be substantially offset by gains or losses on the associated anticipated transactions. |
Commodity Price Risk |
In order to manage market risk associated with the Partnership’s fixed-price programs which permit customers to lock in the prices they pay for propane principally during the months of October through March, the Partnership uses over-the-counter derivative commodity instruments, principally price swap contracts. At June 30, 2011 and 2010 there were 145.0 million gallons and 148.4 million gallons, respectively, of propane hedged with over-the-counter price swap and option contracts. At June 30, 2011, the maximum period over which we are hedging propane market price risk is 15 months with a weighted average of 7 months. In addition, the Partnership from time to time enters into price swap agreements to reduce short-term commodity price volatility and to provide market price risk support to a limited number of its wholesale customers. These agreements are not designated as hedges for accounting purposes and the volumes of propane subject to these agreements were not material. |
We account for substantially all of our commodity price risk contracts as cash flow hedges. Changes in the fair values of contracts qualifying for cash flow hedge accounting are recorded in accumulated other comprehensive income (“AOCI”) and noncontrolling interests, to the extent effective in offsetting changes in the underlying commodity price risk, until earnings are affected by the hedged item. At June 30, 2011, the amount of net gains associated with commodity price risk hedges expected to be reclassified into earnings during the next twelve months based upon current fair values is $6,314. |
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(unaudited)
(Thousands of dollars, except per unit)
Interest Rate Risk |
Our long-term debt is typically issued at fixed rates of interest. As these long-term debt issues mature, we typically refinance such debt with new debt having interest rates reflecting then-current market conditions. In order to reduce market rate risk on the underlying benchmark rate of interest associated with near- to medium-term forecasted issuances of fixed-rate debt, from time to time we enter into interest rate protection agreements (“IRPAs”). We account for IRPAs as cash flow hedges. Changes in the fair values of IRPAs are recorded in AOCI, to the extent effective in offsetting changes in the underlying interest rate risk, until earnings are affected by the hedged interest expense. There are no unsettled IRPAs outstanding at June 30, 2011. The amount of net losses associated with IRPAs expected to be reclassified into earnings during the next twelve months is $538 (which excludes the impact of the debt refinancing described in Note 10). |
As previously disclosed, during the three months ended March 31, 2010, the Partnership’s management determined that it was likely that it would not issue $150,000 of long-term debt during the summer of 2010. As a result, the Partnership discontinued cash flow hedge accounting treatment for interest rate protection agreements associated with this previously anticipated long-term debt issuance and recorded a $12,193 loss during the three months ended March 31, 2010 which is reflected in other income, net, on the Condensed Consolidated Statements of Operations for the nine months ended June 30, 2010. |
Derivative Financial Instruments Credit Risk |
The Partnership is exposed to credit loss in the event of nonperformance by counterparties to derivative financial and commodity instruments. Our counterparties principally consist of major energy companies and major U.S. financial institutions. We maintain credit policies with regard to our counterparties that we believe reduce overall credit risk. These policies include evaluating and monitoring our counterparties’ financial condition, including their credit ratings, and entering into agreements with counterparties that govern credit limits. Certain of these agreements call for the posting of collateral by the counterparty or by the Partnership in the forms of letters of credit, parental guarantees or cash. Although we have concentrations of credit risk associated with derivative financial instruments held by certain derivative financial instrument counterparties, the maximum amount of loss due to credit risk that, based upon the gross fair values of the derivative financial instruments, we would incur if these counterparties that make up the concentration failed to perform according to the terms of their contracts was not material at June 30, 2011. We generally do not have credit-risk-related contingent features in our derivative contracts. |
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(unaudited)
(Thousands of dollars, except per unit)
The following table provides information regarding the fair values and balance sheet locations of our derivative assets and liabilities existing as of June 30, 2011 and 2010: |
Derivative Assets | Derivative (Liabilities) | |||||||||||||||||||
Fair Value | Fair Value | |||||||||||||||||||
Balance Sheet | June 30, | Balance Sheet | June 30, | |||||||||||||||||
Location | 2011 | 2010 | Location | 2011 | 2010 | |||||||||||||||
Derivatives Designated as Hedging Instruments: | ||||||||||||||||||||
Propane contracts | Derivative financial instruments | $ | 5,569 | $ | 180 | Derivative financial instruments and Other noncurrent liabilities | $ | (2,757 | ) | $ | (17,956 | ) | ||||||||
Derivatives Not Designated as Hedging Instruments: | ||||||||||||||||||||
Propane contracts | Derivative financial instruments and Other assets | $ | — | $ | 64 | Derivative financial instruments | $ | — | $ | (56 | ) | |||||||||
Total Derivatives | $ | 5,569 | $ | 244 | $ | (2,757 | ) | $ | (18,012 | ) | ||||||||||
The following table provides information on the effects of derivative instruments on the Condensed Consolidated Statements of Operations and changes in AOCI and noncontrolling interest for the three and nine months ended June 30, 2011: |
Three Months Ended June 30, 2011 |
Location of | ||||||||||
Gain | Gain (Loss) | Gain (Loss) | ||||||||
Recognized in | Reclassified from | Reclassified from | ||||||||
AOCI and Noncontrolling | AOCI and Noncontrolling | AOCI and Noncontrolling | ||||||||
Interest | Interest into Income | Interest into Income | ||||||||
Cash Flow | ||||||||||
Hedges: | ||||||||||
Propane contracts | $ | 1,248 | $ | 9,642 | Cost of sales | |||||
Interest rate contracts | — | (135 | ) | Interest expense | ||||||
Total | $ | 1,248 | $ | 9,507 | ||||||
Nine Months Ended June 30, 2011 |
Location of | ||||||||||
Gain | Gain (Loss) | Gain (Loss) | ||||||||
Recognized in | Reclassified from | Reclassified from | ||||||||
AOCI and Noncontrolling | AOCI and Noncontrolling | AOCI and Noncontrolling | ||||||||
Interest | Interest into Income | Interest into Income | ||||||||
Cash Flow | ||||||||||
Hedges: | ||||||||||
Propane contracts | $ | 26,525 | $ | 29,242 | Cost of sales | |||||
Interest rate contracts | — | (404 | ) | Interest expense | ||||||
Total | $ | 26,525 | $ | 28,838 | ||||||
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(unaudited)
(Thousands of dollars, except per unit)
The following table provides information on the effects of derivative instruments on the Condensed Consolidated Statements of Operations and changes in AOCI and noncontrolling interest for the three and nine months ended June 30, 2010: |
Three Months Ended June 30, 2010 |
Location of | ||||||||||
Loss | Gain (Loss) | Gain (Loss) | ||||||||
Recognized in | Reclassified from | Reclassified from | ||||||||
AOCI and Noncontrolling | AOCI and Noncontrolling | AOCI and Noncontrolling | ||||||||
Interest | Interest into Income | Interest into Income | ||||||||
Cash Flow | ||||||||||
Hedges: | ||||||||||
Propane contracts | $ | (20,280 | ) | $ | 4,609 | Cost of sales | ||||
Interest rate contracts | — | (135 | ) | Interest expense/other expense | ||||||
Total | $ | (20,280 | ) | $ | 4,474 | |||||
Nine Months Ended June 30, 2010 |
Location of | ||||||||||
Gain | Gain (Loss) | Gain (Loss) | ||||||||
Recognized in | Reclassified from | Reclassified from | ||||||||
AOCI and Noncontrolling | AOCI and Noncontrolling | AOCI and Noncontrolling | ||||||||
Interest | Interest into Income | Interest into Income | ||||||||
Cash Flow | ||||||||||
Hedges: | ||||||||||
Propane contracts | $ | 10,704 | $ | 38,568 | Cost of sales | |||||
Interest rate contracts | 1,739 | (12,597 | ) | Interest expense/other expense | ||||||
Total | $ | 12,443 | $ | 25,971 | ||||||
The amounts of derivative gains or losses representing ineffectiveness were not material. The amount of net gains or losses associated with propane contracts that are not designated as hedging instruments was not material during the three and nine months ended June 30, 2011 or 2010. |
We are also a party to a number of contracts that have elements of a derivative instrument. These contracts include, among others, binding purchase orders, contracts which provide for the purchase and delivery of propane and service contracts that require the counterparty to provide commodity storage or transportation service to meet our normal sales commitments. Although many of these contracts have the requisite elements of a derivative instrument, these contracts qualify for normal purchase and normal sales exception accounting under GAAP because they provide for the delivery of products or services in quantities that are expected to be used in the normal course of operating our business and the price in the contract is based on an underlying that is directly associated with the price of the product or service being purchased or sold. |
10. | Subsequent Event — Debt Refinancing |
On July 27, 2011, AmeriGas Partners announced an offer to purchase for cash any and all of its $350,000 aggregate principal amount of outstanding 7 1/8% Senior Notes (the “2016 Notes”) due May 2016 (the “Tender Offer”), subject to receipt of the proceeds of the issuance of $450,000 of 6.25% Senior Notes due 2019 (the “6.25% Notes”). The 6.25% Notes are expected to be issued on August 10, 2011. The proceeds from the offering will be used to finance the Tender Offer and for general corporate purposes, including to repay borrowings outstanding under the 2011 Credit Agreement. The Partnership intends to redeem any 2016 Notes that are not tendered in the Tender Offer. The Partnership expects to record a loss of approximately $20,000 associated with these transactions during the fourth quarter of Fiscal 2011. |
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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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Three Months Ended June 30, | ||||||||||||||||
(millions of dollars) | 2011 | 2010 | Increase | |||||||||||||
Gallons sold (millions): | ||||||||||||||||
Retail | 155.1 | 150.1 | 5.0 | 3.3 | % | |||||||||||
Wholesale | 21.6 | 15.8 | 5.8 | 36.7 | % | |||||||||||
176.7 | 165.9 | 10.8 | 6.5 | % | ||||||||||||
Revenues: | ||||||||||||||||
Retail propane | $ | 394.7 | $ | 337.4 | $ | 57.3 | 17.0 | % | ||||||||
Wholesale propane | 33.6 | 19.4 | 14.2 | 73.2 | % | |||||||||||
Other | 42.5 | 39.8 | 2.7 | 6.8 | % | |||||||||||
$ | 470.8 | $ | 396.6 | $ | 74.2 | 18.7 | % | |||||||||
Total margin (a) | $ | 170.0 | $ | 160.8 | $ | 9.2 | 5.7 | % | ||||||||
EBITDA (b) | $ | 31.1 | $ | 27.2 | $ | 3.9 | 14.3 | % | ||||||||
Operating income (b) | $ | 6.7 | $ | 5.3 | $ | 1.4 | 26.4 | % | ||||||||
Net loss attributable to AmeriGas Partners | $ | (9.2 | ) | $ | (12.4 | ) | $ | 3.2 | (25.8 | )% | ||||||
Heating degree days — % (warmer) than normal (c) | (1.4 | )% | (17.0 | )% | — | — |
(a) | Total margin represents total revenues less cost of sales — propane and cost of sales — other. | |
(b) | Earnings before interest expense, income taxes, depreciation and amortization (“EBITDA”) should not be considered as an alternative to net income attributable to AmeriGas Partners (as an indicator of operating performance) and is not a measure of performance or financial condition under accounting principles generally accepted in the United States of America (“GAAP”). Management believes EBITDA is a meaningful non-GAAP financial measure used by investors to (1) compare the Partnership’s operating performance with other companies within the propane industry and (2) assess its ability to meet loan covenants. The Partnership’s definition of EBITDA may be different from that used by other companies. Management uses EBITDA to compare year-over-year profitability of the business without regard to capital structure as well as to compare the relative performance of the Partnership to that of other master limited partnerships without regard to their financing methods, capital structure, income taxes or historical cost basis. In view of the omission of interest, income taxes, depreciation and amortization from EBITDA, management also assesses the profitability of the business by comparing net income attributable to AmeriGas Partners for the relevant years. Management also uses EBITDA to assess the Partnership’s profitability because its parent, UGI Corporation, uses the Partnership’s EBITDA to assess the profitability of the Partnership. UGI Corporation discloses the Partnership’s EBITDA as the profitability measure to comply with the GAAP requirement to provide profitability information about its domestic propane segment. | |
The following table includes reconciliations of net income attributable to AmeriGas Partners to EBITDA for the periods presented: |
Three Months Ended | ||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
Net loss attributable to AmeriGas Partners | $ | (9.2 | ) | $ | (12.4 | ) | ||
Income tax expense | 0.1 | 0.7 | ||||||
Interest expense | 15.6 | 17.0 | ||||||
Depreciation | 21.5 | 19.7 | ||||||
Amortization | 3.1 | 2.2 | ||||||
EBITDA | $ | 31.1 | $ | 27.2 | ||||
(c) | Deviation from average heating degree days for the 30-year period 1971-2000 based upon national weather statistics provided by the National Oceanic and Atmospheric Administration (“NOAA”) for 335 airports in the United States, excluding Alaska. |
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Nine Months Ended June 30, | Increase | |||||||||||||||
(millions of dollars) | 2011 | 2010 | (Decrease) | |||||||||||||
Gallons sold (millions): | ||||||||||||||||
Retail | 727.8 | 746.7 | (18.9 | ) | (2.5 | )% | ||||||||||
Wholesale | 99.0 | 106.3 | (7.3 | ) | (6.9 | )% | ||||||||||
826.8 | 853.0 | (26.2 | ) | (3.1 | )% | |||||||||||
Revenues: | ||||||||||||||||
Retail propane | $ | 1,796.3 | $ | 1,681.0 | $ | 115.3 | 6.9 | % | ||||||||
Wholesale propane | 145.4 | 135.2 | 10.2 | 7.5 | % | |||||||||||
Other | 136.1 | 123.1 | 13.0 | 10.6 | % | |||||||||||
$ | 2,077.8 | $ | 1,939.3 | $ | 138.5 | 7.1 | % | |||||||||
Total margin (a) | $ | 776.9 | $ | 774.2 | $ | 2.7 | 0.3 | % | ||||||||
EBITDA (b) | $ | 301.9 | $ | 323.7 | $ | (21.8 | ) | (6.7 | )% | |||||||
Operating income (b) | $ | 252.9 | $ | 261.2 | $ | (8.3 | ) | (3.2 | )% | |||||||
Net income attributable to AmeriGas Partners | $ | 183.7 | $ | 206.1 | $ | (22.4 | ) | (10.9 | )% | |||||||
Heating degree days — % (warmer) than normal (c) | (0.1 | )% | (1.6 | )% | — | — |
(a) | Total margin represents total revenues less cost of sales — propane and cost of sales — other. | |
(b) | Earnings before interest expense, income taxes, depreciation and amortization (“EBITDA”) should not be considered as an alternative to net income attributable to AmeriGas Partners (as an indicator of operating performance) and is not a measure of performance or financial condition under accounting principles generally accepted in the United States of America (“GAAP”). Management believes EBITDA is a meaningful non-GAAP financial measure used by investors to (1) compare the Partnership’s operating performance with other companies within the propane industry and (2) assess its ability to meet loan covenants. The Partnership’s definition of EBITDA may be different from that used by other companies. Management uses EBITDA to compare year-over-year profitability of the business without regard to capital structure as well as to compare the relative performance of the Partnership to that of other master limited partnerships without regard to their financing methods, capital structure, income taxes or historical cost basis. In view of the omission of interest, income taxes, depreciation and amortization from EBITDA, management also assesses the profitability of the business by comparing net income attributable to AmeriGas Partners for the relevant years. Management also uses EBITDA to assess the Partnership’s profitability because its parent, UGI Corporation, uses the Partnership’s EBITDA to assess the profitability of the Partnership. UGI Corporation discloses the Partnership’s EBITDA as the profitability measure to comply with the GAAP requirement to provide profitability information about its domestic propane segment. EBITDA for the nine months ended June 30, 2011 includes a pre-tax loss of $18.8 million associated with the early extinguishment of debt. EBITDA and operating income for the nine months ended June 30, 2010 includes a pre-tax loss of $12.2 million associated with the discontinuance of interest rate hedges. |
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The following table includes reconciliations of net income attributable to AmeriGas Partners to EBITDA for the periods presented: |
Nine Months Ended | ||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
Net income attributable to AmeriGas Partners | $ | 183.7 | $ | 206.1 | ||||
Income tax expense | 0.5 | 2.4 | ||||||
Interest expense | 47.3 | 50.2 | ||||||
Depreciation | 61.9 | 59.6 | ||||||
Amortization | 8.5 | 5.4 | ||||||
EBITDA | $ | 301.9 | $ | 323.7 | ||||
(c) | Deviation from average heating degree days for the 30-year period 1971-2000 based upon national weather statistics provided by the National Oceanic and Atmospheric Administration (“NOAA”) for 335 airports in the United States, excluding Alaska. Prior year data has been adjusted to correct a NOAA error. |
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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ITEM 4. | CONTROLS AND PROCEDURES |
(a) | Evaluation of Disclosure Controls and Procedures |
The Partnership’s disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by the Partnership in reports filed under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The General Partner’s management, with the participation of the General Partner’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Partnership’s disclosure controls and procedures as of the end of the period covered by this Report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Partnership’s disclosure controls and procedures, as of the end of the period covered by this Report, were effective at the reasonable assurance level. |
(b) | Change in Internal Control over Financial Reporting |
No change in the Partnership’s internal control over financial reporting occurred during the Partnership’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting. |
ITEM 1. LEGAL PROCEEDINGS
BP America Production Company v. Amerigas Propane, L.P.
On July 15, 2011, BP America Production Company (“BP”) filed a complaint against AmeriGas Propane, L.P. in the District Court of Denver County, Colorado, alleging, among other things, breach of contract and breach of the covenant of good faith and fair dealing relating to amounts billed for certain goods and services provided to BP since 2005 (the “Services”). The Services relate to the installation of propane-fueled equipment and appliances, and the supply of propane, to approximately 400 residential customers at the request of and for the account of BP. The complaint seeks an unspecified amount of direct, indirect, consequential, special and compensatory damages, including attorneys’ fees, costs and interest and other appropriate relief. It also seeks an accounting to determine the amount of the alleged overcharges related to the Services. We recently commenced an investigation into these allegations.
ITEM 1A. | RISK FACTORS |
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ITEM 6. | EXHIBITS |
Exhibit No. | Exhibit | Registrant | Filing | Exhibit | ||||||
10.1 | Form of Change in Control Agreement dated as of May 9, 2011 for Mr. Iannarelli | |||||||||
10.2 | Credit Agreement dated as of June 21, 2011 by and among AmeriGas Propane, L.P., as Borrower, AmeriGas Propane, Inc., as a Guarantor, Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender and Issuing Lender (“Agent”), Wells Fargo Securities, LLC, as Sole Lead Arranger and Sole Book Manager and Wells Fargo Bank, National Association, Branch Banking and Trust Company, Citibank, N.A., JPMorgan Chase Bank, N.A., PNC Bank, National Association, Citizens Bank of Pennsylvania, The Bank of New York Mellon, Compass Bank, Manufacturers and Traders Trust Company, Sovereign Bank, TD Bank, N.A. and the other financial institutions from time to time party thereto | |||||||||
31.1 | Certification by the Chief Executive Officer relating to the Registrant’s Report on Form 10-Q for the quarter ended June 30, 2011, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||||||
31.2 | Certification by the Chief Financial Officer relating to the Registrant’s Report on Form 10-Q for the quarter ended June 30, 2011, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||||||
32 | Certification by the Chief Executive Officer and the Chief Financial Officer relating to the Registrant’s Report on Form 10-Q for the quarter ended June 30, 2011, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||||||
101.INS | * | XBRL Instance | ||||||||
101.SCH | * | XBRL Taxonomy Extension Schema | ||||||||
101.CAL | * | XBRL Taxonomy Extension Calculation | ||||||||
101.DEF | * | XBRL Taxonomy Extension Definition | ||||||||
101.LAB | * | XBRL Taxonomy Extension Labels | ||||||||
101.PRE | * | XBRL Taxonomy Extension Presentation |
* | XBRL information will be considered to be furnished, not filed, for the first two years of a company’s submission of XBRL information. |
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AmeriGas Partners, L.P. (Registrant) | ||||
By: | AmeriGas Propane, Inc., | |||
as General Partner | ||||
Date: August 5, 2011 | By: | /s/ John S. Iannarelli | ||
John S. Iannarelli | ||||
Vice President — Finance and Chief Financial Officer | ||||
Date: August 5, 2011 | By: | /s/ William J. Stanczak | ||
William J. Stanczak | ||||
Controller and Chief Accounting Officer |
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10.1 | Form of Change in Control Agreement dated as of May 9, 2011 for Mr. Iannarelli | |||
10.2 | Credit Agreement dated as of June 21, 2011 by and among AmeriGas Propane, L.P., as Borrower, AmeriGas Propane, Inc., as a Guarantor, Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender and Issuing Lender (“Agent”), Wells Fargo Securities, LLC, as Sole Lead Arranger and Sole Book Manager and Wells Fargo Bank, National Association, Branch Banking and Trust Company, Citibank, N.A., JPMorgan Chase Bank, N.A., PNC Bank, National Association, Citizens Bank of Pennsylvania, The Bank of New York Mellon, Compass Bank, Manufacturers and Traders Trust Company, Sovereign Bank, TD Bank, N.A. and the other financial institutions from time to time party thereto | |||
31.1 | Certification by the Chief Executive Officer relating to the Registrant’s Report on Form 10-Q for the quarter ended June 30, 2011, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
31.2 | Certification by the Chief Financial Officer relating to the Registrant’s Report on Form 10-Q for the quarter ended June 30, 2011, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
32 | Certification by the Chief Executive Officer and the Chief Financial Officer relating to the Registrant’s Report on Form 10-Q for the quarter ended June 30, 2011, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
101.INS | * | XBRL.Instance | ||
101.SCH | * | XBRL Taxonomy Extension Schema | ||
101.CAL | * | XBRL Taxonomy Extension Calculation | ||
101.DEF | * | XBRL Taxonomy Extension Definition | ||
101.LAB | * | XBRL Taxonomy Extension Labels | ||
101.PRE | * | XBRL Taxonomy Extension Presentation |
* | XBRL information will be considered to be furnished, not filed, for the first two years of a company’s submission of XBRL information. |
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