FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-13692
Commission file number 33-92734-01
Commission file number 333-72986-02
Commission file number 333-72986-01
AMERIGAS PARTNERS, L.P.
AMERIGAS FINANCE CORP.
AMERIGAS EAGLE FINANCE CORP.
AP EAGLE FINANCE CORP.
(Exact name of registrants as specified in their charters)
Delaware 23-2787918
Delaware 23-2800532
Delaware 23-3074434
Delaware 23-3077318
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
460 North Gulph Road, King of Prussia, PA 19406
(Address of principal executive offices) (Zip Code)
(610) 337-7000
(Registrants' telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
At July 31, 2002, the registrants had units and shares of common stock
outstanding as follows:
AmeriGas Partners, L.P. - 39,541,286 Common Units
9,891,072 Subordinated Units
AmeriGas Finance Corp. - 100 shares
AmeriGas Eagle Finance Corp. - 100 shares
AP Eagle Finance Corp. - 100 shares
AMERIGAS PARTNERS, L.P.
TABLE OF CONTENTS
PAGES
-----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
AmeriGas Partners, L.P.
Condensed Consolidated Balance Sheets as of June 30, 2002 and
September 30, 2001 1
Condensed Consolidated Statements of Operations for the three and nine
months ended June 30, 2002 and 2001 2
Condensed Consolidated Statements of Cash Flows for the nine
months ended June 30, 2002 and 2001 3
Condensed Consolidated Statement of Partners' Capital for the
nine months ended June 30, 2002 4
Notes to Condensed Consolidated Financial Statements 5 - 11
AmeriGas Finance Corp.
Balance Sheets as of June 30, 2002 and September 30, 2001 12
Note to Balance Sheets 13
AmeriGas Eagle Finance Corp.
Balance Sheets as of June 30, 2002 and September 30, 2001 14
Note to Balance Sheets 15
AP Eagle Finance Corp.
Balance Sheets as of June 30, 2002 and September 30, 2001 16
Note to Balance Sheets 17
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AMERIGAS PARTNERS, L.P.
TABLE OF CONTENTS (CONTINUED)
PAGES
-----
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 18 - 25
Item 3. Quantitative and Qualitative Disclosures About Market Risk 26
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 28 - 29
-ii-
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Thousands of dollars)
June 30, September 30,
2002 2001
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 45,089 $ 32,489
Accounts receivable (less allowances for doubtful accounts
of $8,980 and $10,792, respectively) 93,823 102,392
Accounts receivable - related parties 3,492 3,352
Inventories 53,798 73,072
Prepaid expenses and other current assets 18,831 18,955
------------- -------------
Total current assets 215,033 230,260
Property, plant and equipment (less accumulated depreciation and
amortization of $393,284 and $347,898, respectively) 613,724 627,640
Goodwill and excess reorganization value 589,924 589,878
Intangible assets (less accumulated amortization of $8,077 and
$5,364, respectively) 24,193 26,870
Other assets 22,219 21,774
------------- -------------
Total assets $ 1,465,093 $ 1,496,422
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current maturities of long-term debt $ 58,219 $ 87,178
Accounts payable - trade 73,892 73,692
Accounts payable - related parties 2,044 3,623
Customer deposits and advances 28,322 48,540
Other current liabilities 80,975 112,657
------------- -------------
Total current liabilities 243,452 325,690
Long-term debt 888,214 918,726
Other noncurrent liabilities 41,952 42,860
Commitments and contingencies (note 7)
Minority interests 6,861 5,641
Partners' capital 284,614 203,505
------------- -------------
Total liabilities and partners' capital $ 1,465,093 $ 1,496,422
============= =============
See accompanying notes to consolidated financial statements.
- 1 -
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(Thousands of dollars, except per unit)
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Revenues:
Propane $ 226,192 $ 197,524 $ 998,326 $ 1,137,527
Other 28,277 21,640 87,650 71,557
----------- ----------- ----------- -----------
254,469 219,164 1,085,976 1,209,084
----------- ----------- ----------- -----------
Costs and expenses:
Cost of sales - propane 99,196 112,267 493,314 700,562
Cost of sales - other 12,032 8,237 35,702 28,142
Operating and administrative expenses 115,642 86,845 351,139 282,820
Depreciation and amortization 16,632 18,529 49,306 55,235
Other (income), net (802) (1,007) (1,878) (3,489)
----------- ----------- ----------- -----------
242,700 224,871 927,583 1,063,270
----------- ----------- ----------- -----------
Operating income (loss) 11,769 (5,707) 158,393 145,814
Interest expense (21,784) (19,319) (66,541) (59,163)
----------- ----------- ----------- -----------
Income (loss) before income taxes (10,015) (25,026) 91,852 86,651
Income tax (expense) benefit 68 474 (148) 879
Minority interests 2 206 (1,263) (979)
----------- ----------- ----------- -----------
Income (loss) before accounting changes (9,945) (24,346) 90,441 86,551
Cumulative effect of accounting changes -- -- -- 12,494
----------- ----------- ----------- -----------
Net income (loss) $ (9,945) $ (24,346) $ 90,441 $ 99,045
=========== =========== =========== ===========
General partner's interest in net income (loss) $ (100) $ (244) $ 904 $ 990
=========== =========== =========== ===========
Limited partners' interest in net income (loss) $ (9,845) $ (24,102) $ 89,537 $ 98,055
=========== =========== =========== ===========
Income (loss) per limited partner unit - basic:
Income (loss) before accounting changes $ (0.20) $ (0.54) $ 1.84 $ 1.94
Cumulative effect of accounting changes -- -- -- 0.28
----------- ----------- ----------- -----------
Net income (loss) $ (0.20) $ (0.54) $ 1.84 $ 2.22
=========== =========== =========== ===========
Income (loss) per limited partner unit - diluted:
Income (loss) before accounting changes $ (0.20) $ (0.54) $ 1.83 $ 1.94
Cumulative effect of accounting changes -- -- -- 0.28
----------- ----------- ----------- -----------
Net income (loss) $ (0.20) $ (0.54) $ 1.83 $ 2.22
=========== =========== =========== ===========
Average limited partner units outstanding:
Basic 49,432 44,295 48,736 44,149
=========== =========== =========== ===========
Diluted 49,432 44,295 48,830 44,149
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
- 2 -
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Thousands of dollars)
Nine Months Ended
June 30,
----------------------
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 90,441 $ 99,045
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of accounting changes -- (12,494)
Depreciation and amortization 49,306 55,235
Other, net 868 987
Net change in:
Accounts receivable 4,096 (8,408)
Inventories 19,274 10,760
Accounts payable (1,379) (34,494)
Other current assets and liabilities (35,199) (21,523)
--------- ---------
Net cash provided by operating activities 127,407 89,108
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (38,586) (28,624)
Proceeds from disposals of assets 6,329 2,660
Acquisitions of businesses, net of cash acquired (736) (147)
--------- ---------
Net cash used by investing activities (32,993) (26,111)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (81,035) (73,827)
Minority interest activity (199) 199
Decrease in bank loans -- (21,000)
Issuance of long-term debt 40,900 59,705
Repayment of long-term debt (98,607) (60,390)
Proceeds from issuance of Common Units 56,556 39,836
Capital contributions from General Partner 571 407
--------- ---------
Net cash used by financing activities (81,814) (55,070)
--------- ---------
Cash and cash equivalents increase $ 12,600 $ 7,927
========= =========
CASH AND CASH EQUIVALENTS:
End of period $ 45,089 $ 18,722
Beginning of period 32,489 10,795
--------- ---------
Increase $ 12,600 $ 7,927
========= =========
See accompanying notes to consolidated financial statements.
- 3 -
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(unaudited)
(Thousands, except unit data)
Accumulated
Number of units other Total
-------------------------- General comprehensive partners'
Common Subordinated Common Subordinated partner income (loss) capital
----------- ------------ --------- ------------ ------- ------------- ---------
BALANCE SEPTEMBER 30, 2001 36,761,239 9,891,072 $ 187,001 $ 28,513 $2,174 $(14,183) $203,505
Net income 71,496 18,041 904 90,441
Net loss on derivative instruments (17,543) (17,543)
Reclassification adjustment for net
losses on derivative instruments
included in net income 32,119 32,119
------- --------
Comprehensive income 14,576 105,017
Distributions (63,905) (16,320) (810) (81,035)
Common Units issued in connection
with public offering 2,428,047 49,623 501 50,124
Common Units sold to General Partner 350,000 6,933 70 7,003
----------- ---------- --------- -------- ------ -------- --------
BALANCE JUNE 30, 2002 39,539,286 9,891,072 $ 251,148 $ 30,234 $2,839 $ 393 $284,614
=========== ========== ========= ======== ====== ======== ========
See accompanying notes to consolidated financial statements.
- 4 -
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
AmeriGas Partners, L.P. ("AmeriGas Partners"), its principal operating
subsidiaries AmeriGas Propane, L.P. ("AmeriGas OLP") and AmeriGas OLP's
subsidiary, AmeriGas Eagle Propane, L.P. ("Eagle OLP"), and their
subsidiaries. AmeriGas OLP and Eagle OLP are collectively referred to
herein as "the Operating Partnerships." AmeriGas Partners, the Operating
Partnerships and their subsidiaries are collectively referred to herein as
"the Partnership" or "we." We eliminate all significant intercompany
accounts and transactions when we consolidate. We account for AmeriGas
Propane, Inc.'s (the "General Partner's") 1.01% interest in AmeriGas OLP
and an unrelated third party's 0.1% limited partner interest in Eagle OLP
as minority interests in the condensed consolidated financial statements.
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. 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, 2001 ("2001 Annual Report"). 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.
Potentially dilutive units included in diluted average limited partner
units outstanding comprise restricted Common Units issuable under
incentive award plans.
The following table presents the components of comprehensive income (loss)
for the three and nine months ended June 30, 2002 and 2001:
Three Months Ended June 30, Nine Months Ended June 30,
2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------
Net income (loss) $ (9,945) $ (24,346) $ 90,441 $99,045
Other comprehensive income (loss) (5,436) (8,720) 14,576 (10,387)
- -------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $ (15,381) $ (33,066) $ 105,017 $88,658
- -------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) is principally the result of changes in
the fair value of propane commodity derivative instruments and interest
rate protection agreements, net of reclassification adjustments for net
gains and losses included in net income (loss).
- 5 -
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars, except per unit)
2. ACQUISITION OF COLUMBIA PROPANE
On August 21, 2001, AmeriGas Partners, through AmeriGas OLP, acquired the
propane distribution businesses of Columbia Energy Group ("Columbia
Propane Businesses") in a series of equity and asset purchases pursuant to
the terms of the Purchase Agreement dated January 30, 2001 and Amended and
Restated August 7, 2001 ("Columbia Purchase Agreement") by and among
Columbia Energy Group ("CEG"), Columbia Propane Corporation ("Columbia
Propane"), Columbia Propane, L.P. ("CPLP"), CP Holdings, Inc. ("CPH"),
AmeriGas Partners, AmeriGas OLP, and the General Partner. The acquired
businesses comprised the seventh largest retail marketer of propane in the
United States with annual sales of over 300 million gallons from locations
in 29 states. The acquired businesses were principally conducted through
Columbia Propane and its approximate 99% owned subsidiary, CPLP (referred
to after the acquisition as "Eagle OLP"). AmeriGas OLP acquired
substantially all of the assets of Columbia Propane, including an indirect
1% general partner interest and an approximate 99% limited partnership
interest in Eagle OLP.
The purchase price of the Columbia Propane Businesses consisted of
$201,750 in cash. In addition, AmeriGas OLP agreed to pay CEG for the
amount of working capital, as defined, in excess of $23,000. In April
2002, the Partnership's management and CEG agreed upon the amount of
working capital acquired by AmeriGas OLP and AmeriGas OLP made an
additional payment for working capital and other adjustments totaling
$736. The Columbia Purchase Agreement also provided for the purchase by
CEG of limited partnership interests in AmeriGas OLP valued at $50,000 for
$50,000 in cash, which interests were exchanged for 2,356,953 Common Units
of AmeriGas Partners having an estimated fair value of $54,422.
Concurrently with the acquisition, AmeriGas Partners issued $200,000 of
8.875% Senior Notes due 2011, the net proceeds of which were contributed
to AmeriGas OLP to finance the acquisition of the Columbia Propane
Businesses, to fund related fees and expenses, and to repay debt
outstanding under AmeriGas OLP's Bank Credit Agreement.
The following table identifies the components of the purchase price:
- ------------------------------------------------------------------------------
Cash paid $ 202,486
Cash received from sale of AmeriGas OLP limited partner interests (50,000)
Fair value of AmeriGas Partners' Common Units issued in exchange
for the AmeriGas OLP limited partner interests 54,422
Transaction costs and expenses 6,968
Involuntary employee termination benefits and relocation costs 5,363
Other liabilities and obligations assumed 6,107
- ------------------------------------------------------------------------------
$ 225,346
- ------------------------------------------------------------------------------
- 6 -
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars, except per unit)
The purchase price of the Columbia Propane Businesses has been
preliminarily allocated to the assets acquired and liabilities assumed as
follows:
- -----------------------------------------------------------------------------------
Working capital $ 24,556
Property, plant and equipment 181,386
Customer relationships and noncompete agreement (estimated useful life
of 15 and 5 years, respectively) 20,986
Other assets and liabilities (1,582)
- -----------------------------------------------------------------------------------
Total $ 225,346
- -----------------------------------------------------------------------------------
The Partnership is currently in the process of completing the review and
determination of the fair value of the Columbia Propane Businesses' assets
acquired and liabilities assumed, principally the fair values of property,
plant and equipment and identifiable intangible assets. The final
allocation of the purchase price is not expected to differ materially from
the preliminary allocation. The operating results of the Columbia Propane
Businesses are included in our consolidated results from August 21, 2001.
The following table presents unaudited pro forma income statement and per
unit data for the nine months ended June 30, 2001 as if the acquisition of
the Columbia Propane Businesses had occurred as of October 1, 2000:
Nine Months
Ended
June 30, 2001
- --------------------------------------------------------------------------
Revenues $ 1,555,017
Income before accounting changes $ 100,577
Net income $ 113,071
Income per limited partner unit - basic and diluted:
Income before accounting changes $ 2.14
Net income $ 2.41
- --------------------------------------------------------------------------
The pro forma results of operations reflect the Columbia Propane
Businesses' historical operating results after giving effect to
adjustments directly attributable to the transaction that are expected to
have a continuing impact. They are not adjusted for, among other things,
the impact of normal weather conditions, operating synergies and
anticipated cost savings. In our opinion, the unaudited pro forma results
are not necessarily indicative of the actual results that would have
occurred had the acquisition of the Columbia Propane Businesses occurred
as of the beginning of the period presented or of future operating results
under our management.
- 7 -
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars, except per unit)
3. ADOPTION OF SFAS NO. 142
Effective October 1, 2001, we adopted the provisions of SFAS No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 addresses
the financial accounting and reporting for acquired goodwill and other
intangible assets and supersedes Accounting Principles Board ("APB")
Opinion No. 17, "Intangible Assets." SFAS 142 addresses the financial
accounting and reporting for intangible assets acquired individually or
with a group of other assets (excluding those acquired in a business
combination) at acquisition and also addresses the financial accounting
and reporting for goodwill and other intangible assets subsequent to their
acquisition. Under SFAS 142, an intangible asset is amortized over its
useful life unless that life is determined to be indefinite. Goodwill,
including excess reorganization value, and other intangible assets with
indefinite lives are not amortized but are subject to tests for impairment
at least annually. In accordance with the provisions of SFAS 142, the
Partnership ceased the amortization of goodwill and excess reorganization
value effective October 1, 2001.
The Partnership's intangible assets comprise the following:
- -------------------------------------------------------------------------------------------------
June 30, 2002 September 30, 2001
----------------------------- -----------------------------
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
- -------------------------------------------------------------------------------------------------
Subject to amortization:
Customer relationships and
noncompete agreements $ 32,270 $ (8,077) $ 32,234 $ (5,364)
Not subject to amortization:
Goodwill $ 496,604 $ 496,558
Excess reorganization value 93,320 93,320
- -------------------------------------------------------------------------------------------------
$ 589,924 $ 589,878
- -------------------------------------------------------------------------------------------------
Amortization expense of intangible assets for the three and nine months
ended June 30, 2002 was $892 and $2,713, respectively. Amortization
expense of intangible assets for the three and nine months ended June 30,
2001, including amortization of goodwill and excess reorganization value
prior to the adoption of SFAS 142, was $6,399 and $19,216, respectively.
Our expected aggregate amortization expense of intangible assets for the
next five fiscal years is as follows: Fiscal 2002 - $3,396; Fiscal 2003 -
$2,971; Fiscal 2004 - $2,858; Fiscal 2005 - $2,625; Fiscal 2006 - $2,139.
- 8 -
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars, except per unit)
The following table reflects adjusted net income (loss) and net income
(loss) per limited partner unit as if SFAS 142 had been effective as of
October 1, 2000:
- -------------------------------------------------------------------------------------------------------------
Three Months Nine Months
Ended June 30, Ended June 30,
- -------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS):
Reported income (loss) before accounting changes $ (9,945) $ (24,346) $ 90,441 $ 86,551
Add back goodwill and excess reorganization value
amortization, net of adjustment to minority interest -- 5,891 -- 17,675
- -------------------------------------------------------------------------------------------------------------
Adjusted income (loss) before accounting changes (9,945) (18,455) 90,441 104,226
Cumulative effect of accounting changes -- -- -- 12,494
- -------------------------------------------------------------------------------------------------------------
Adjusted net income (loss) $ (9,945) $ (18,455) $ 90,441 $ 116,720
- -------------------------------------------------------------------------------------------------------------
DILUTED INCOME (LOSS) PER LIMITED PARTNER UNIT:
Reported income (loss) before accounting changes $ (0.20) $ (0.54) $ 1.83 $ 1.94
Add back goodwill and excess reorganization value
amortization, net of adjustment to minority interest -- 0.13 -- 0.40
- -------------------------------------------------------------------------------------------------------------
Adjusted income (loss) before accounting changes (0.20) (0.41) 1.83 2.34
Cumulative effect of accounting changes -- -- -- 0.28
- -------------------------------------------------------------------------------------------------------------
Adjusted net income (loss) $ (0.20) $ (0.41) $ 1.83 $ 2.62
- -------------------------------------------------------------------------------------------------------------
In accordance with the provisions of SFAS 142, we were required to perform
a transitional goodwill impairment test by March 31, 2002. In addition, we
must perform the impairment test annually and whenever events or
circumstances indicate that the value of goodwill might be impaired. In
connection with these goodwill impairment tests, SFAS 142 prescribes a
two-step method for determining goodwill impairment. In the first step, we
determine the fair value of the Partnership. If the carrying amount of the
Partnership exceeds its fair value, we would then perform the second step
of the impairment test which requires the calculation of the implied fair
value of goodwill by allocating the Partnership's fair value to all of its
assets and liabilities in a manner similar to a business combination, with
any residual fair value being allocated to goodwill. If the carrying value
of the goodwill exceeds its implied fair value, an impairment loss is
recognized for the excess.
We have completed the transitional impairment test and have determined
that based upon the fair value of the Partnership, goodwill and excess
reorganization value were not impaired as of October 1, 2001. We will
perform our annual impairment test during the fourth fiscal quarter.
- 9 -
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars, except per unit)
4. CHANGES IN ACCOUNTING
Tank Fee Revenue Recognition. In order to comply with the provisions of
SEC Staff Accounting Bulletin No. 101 entitled "Revenue Recognition,"
effective October 1, 2000, we changed our method of accounting for
annually billed nonrefundable tank fees. Prior to the change,
nonrefundable tank fees for installed Partnership-owned tanks were
recorded as revenue when billed. Under the new accounting method, revenues
from such fees are recorded on a straight-line basis over one year. As a
result of the new accounting method, on October 1, 2000, we recorded a
charge of $5,984 representing the cumulative effect of the change in
accounting method on prior years. The change in accounting method for
nonrefundable tank fees did not have a material impact on reported
revenues for the periods presented.
Accounting for Tank Installation Costs. Effective October 1, 2000, we
changed our method of accounting for tank installation costs which are not
billed to customers. Prior to the change in accounting method, all such
costs to install Partnership-owned tanks at a customer location were
expensed as incurred. Under the new accounting method, all such costs, net
of amounts billed to customers, are capitalized in property, plant and
equipment and amortized over the estimated period of benefit not exceeding
ten years. We believe that the new accounting method better matches the
costs of installing Partnership-owned tanks with the periods benefited. As
a result of this change in accounting, on October 1, 2000, we recorded an
increase of $19,214 in net income representing the cumulative effect of
the change in accounting method on prior years.
Cumulative Effect of Accounting Changes. The cumulative effect impact of
these accounting changes reflected on the Condensed Consolidated Statement
of Operations for the nine months ended June 30, 2001 and related per
limited partner unit amounts, as well as the cumulative effect from the
adoption of SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," comprise the following:
- -------------------------------------------------------------------------------
Cumulative Per Limited
Effect Partner Unit
- -------------------------------------------------------------------------------
Tank fees $ (5,984) $ (0.13)
Tank installation costs 19,214 0.43
SFAS 133 (736) (0.02)
- -------------------------------------------------------------------------------
Total $ 12,494 $ 0.28
- -------------------------------------------------------------------------------
- 10 -
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars, except per unit)
5. RELATED PARTY TRANSACTIONS
Pursuant to the Agreement of Limited Partnership of AmeriGas Partners and
a Management Services Agreement between AmeriGas Eagle Holdings, Inc., the
general partner of Eagle OLP, and the General Partner, the General Partner
is entitled to reimbursement for all direct and indirect expenses incurred
or payments it makes on behalf of the Partnership. These costs totaled
$64,691 and $200,955 during the three and nine months ended June 30, 2002,
respectively, and $47,179 and $159,764 during the three and nine months
ended June 30, 2001, respectively. In addition, UGI Corporation ("UGI")
provides certain financial and administrative services to the General
Partner. UGI bills the General Partner for these direct and indirect
corporate expenses and the General Partner is reimbursed by the
Partnership for these expenses. Such corporate expenses totaled $1,266 and
$4,196 during the three and nine months ended June 30, 2002, respectively,
and $1,388 and $3,866 during the three and nine months ended June 30,
2001, respectively. UGI and certain of its subsidiaries also provide
office space to the Partnership and during the three and nine months ended
June 30, 2001, provided general liability, automobile and workers'
compensation insurance. These expenses totaled $358 and $1,071 during the
three and nine months ended June 30, 2002, respectively, and $402 and $982
during the three and nine months ended June 30, 2001, respectively. In
addition, the Partnership advances funds to Atlantic Energy, Inc. for the
purchase of propane. Such advances totaled $3,148 at June 30, 2002 and are
included in accounts receivable - related parties.
6. ISSUANCE OF COMMON UNITS
On October 5, 2001, AmeriGas Partners sold 350,000 Common Units to the
General Partner at a market price of $19.81 per unit. The proceeds of this
sale and related capital contributions from the General Partner totaling
$7,075 were contributed to AmeriGas OLP and used to reduce Bank Credit
Agreement borrowings and for working capital.
On December 11, 2001, AmeriGas Partners sold 1,843,047 Common Units in an
underwritten public offering at a public offering price of $21.50 per
unit. On January 8, 2002, the underwriters partially exercised their
overallotment option in the amount of 585,000 Common Units. The net
proceeds of the public offering and related capital contributions from the
General Partner totaling $50,635 were contributed to AmeriGas OLP and used
to reduce Bank Credit Agreement borrowings and for working capital.
7. COMMITMENTS AND CONTINGENCIES
There have been no significant developments relating to the commitments
and contingencies reported in the Partnership's 2001 Annual Report.
-11-
AMERIGAS FINANCE CORP.
(a wholly owned subsidiary of AmeriGas Partners, L.P.)
BALANCE SHEETS
(unaudited)
June 30, September 30,
2002 2001
-------- -------------
ASSETS
Cash $ 1,000 $ 1,000
-------- -------------
Total assets $ 1,000 $ 1,000
======== =============
STOCKHOLDER'S EQUITY
Common stock, $.01 par value; 100 shares authorized,
issued and outstanding $ 1 $ 1
Additional paid-in capital 999 999
-------- -------------
Total stockholder's equity $ 1,000 $ 1,000
======== =============
See accompanying note to balance sheets.
- 12 -
AMERIGAS FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF AMERIGAS PARTNERS, L.P.)
NOTE TO BALANCE SHEETS
AmeriGas Finance Corp. (AmeriGas Finance), a Delaware corporation, was formed on
March 13, 1995 and is a wholly owned subsidiary of AmeriGas Partners, L.P.
(AmeriGas Partners).
On April 19, 1995, AmeriGas Partners issued $100,000,000 face value of 10.125%
Senior Notes due April 2007. AmeriGas Finance serves as a co-obligor of these
notes.
AmeriGas Partners owns all 100 shares of AmeriGas Finance common stock
outstanding.
- 13 -
AMERIGAS EAGLE FINANCE CORP.
(a wholly owned subsidiary of AmeriGas Partners, L.P.)
BALANCE SHEETS
(unaudited)
June 30, September 30,
2002 2001
----------- -----------
ASSETS
Cash $ 1,000 $ 1,000
----------- -----------
Total assets $ 1,000 $ 1,000
=========== ===========
STOCKHOLDER'S EQUITY
Common stock, without par value; 100 shares authorized,
issued and outstanding $ -- $ --
Additional paid-in capital 1,000 1,000
----------- -----------
Total stockholder's equity $ 1,000 $ 1,000
=========== ===========
See accompanying note to balance sheets.
- 14 -
AMERIGAS EAGLE FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF AMERIGAS PARTNERS, L.P.)
NOTE TO BALANCE SHEETS
AmeriGas Eagle Finance Corp. (Eagle Finance), a Delaware corporation, was formed
on February 22, 2001 and is a wholly owned subsidiary of AmeriGas Partners, L.P.
(AmeriGas Partners).
On April 4, 2001, AmeriGas Partners issued $60,000,000 face value of 10% Senior
Notes due April 2006. Eagle Finance serves as a co-obligor of these notes.
AmeriGas Partners owns all 100 shares of Eagle Finance common stock outstanding.
- 15 -
AP EAGLE FINANCE CORP.
(a wholly owned subsidiary of AmeriGas Partners, L.P.)
BALANCE SHEETS
(unaudited)
June 30, September 30,
2002 2001
------------ -----------
ASSETS
Cash $ 1,000 $ 1,000
------------ -----------
Total assets $ 1,000 $ 1,000
============ ===========
STOCKHOLDER'S EQUITY
Common stock, without par value; 100 shares authorized,
issued and outstanding $ -- $ --
Additional paid-in capital 1,000 1,000
------------ -----------
Total stockholder's equity $ 1,000 $ 1,000
============ ===========
See accompanying note to balance sheets.
- 16 -
AP EAGLE FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF AMERIGAS PARTNERS, L.P.)
NOTE TO BALANCE SHEETS
AP Eagle Finance Corp. (AP Eagle Finance), a Delaware corporation, was formed on
April 12, 2001 and is a wholly owned subsidiary of AmeriGas Partners, L.P.
(AmeriGas Partners).
On August 21, 2001, AmeriGas Partners issued $200,000,000 face value of 8.875%
Senior Notes due May 2011. On May 3, 2002, AmeriGas Partners issued an
additional $40,000,000 face value of 8.875% Senior Notes due May 2011. AP Eagle
Finance serves as a co-obligor of these notes.
AmeriGas Partners owns all 100 shares of AP Eagle Finance common stock
outstanding.
- 17 -
AMERIGAS PARTNERS, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following analyses compare the Partnership's results of operations for (1)
the three months ended June 30, 2002 ("2002 three-month period") with the three
months ended June 30, 2001 ("2001 three-month period") and (2) the nine months
ended June 30, 2002 ("2002 nine-month period") with the nine months ended June
30, 2001 ("2001 nine-month period"). AmeriGas Finance Corp., AmeriGas Eagle
Finance Corp., and AP Eagle Finance Corp. have nominal assets and do not conduct
any operations. Accordingly, discussions of the results of operations and
financial condition and liquidity of these entities are not presented.
2002 THREE-MONTH PERIOD COMPARED WITH 2001 THREE-MONTH PERIOD
- --------------------------------------------------------------------------------------------------------------
Increase
Three Months Ended June 30, 2002 2001 (Decrease)
- ---------------------------------------------------------------------------------------------------------
(Millions of dollars)
Gallons sold (millions):
Retail 171.0 133.2 37.8 28.4%
Wholesale 39.4 36.5 2.9 7.9%
------- ------- ------
210.4 169.7 40.7 24.0%
======= ======= ======
Revenues:
Retail propane $ 206.3 $ 174.1 $ 32.2 18.5%
Wholesale propane 19.9 23.4 (3.5) (15.0)%
Other 28.3 21.7 6.6 30.4%
------- ------- ------
$ 254.5 $ 219.2 $ 35.3 16.1%
======= ======= ======
Total margin (a) $ 143.2 $ 98.7 $ 44.5 45.1%
EBITDA (b) $ 28.4 $ 12.8 $ 15.6 121.9%
Operating income $ 11.8 $ (5.7) $ 17.5 307.0%
Heating degree days - % colder (warmer)
than normal (c) 4.3 (12.7) -- --
- ---------------------------------------------------------------------------------------------------------
(a) Total margin represents total revenues less cost of sales.
(b) EBITDA (earnings before interest expense, income taxes, depreciation and
amortization, minority interests and the cumulative effect of accounting
changes) should not be considered as an alternative to net income (as an
indicator of operating performance) or as an alternative to cash flow (as
a measure of liquidity or ability to service debt obligations) and is not
a measure of performance or financial condition under accounting
principles generally accepted in the United States. EBITDA is included to
provide additional information for evaluating (1) the Partnership's
ability to declare and pay the Minimum Quarterly Distribution and (2) its
performance. The Partnership's definition of EBITDA may be different from
that used by other companies.
(c) Deviation from average heating degree days based upon national weather
statistics provided by the National Oceanic and Atmospheric Administration
("NOAA") for 335 airports in the continental United States.
- 18 -
AMERIGAS PARTNERS, L.P.
Based upon national heating degree day data, temperatures in the 2002
three-month period were 4.3% colder than normal compared to weather that was
12.7% warmer than normal in the 2001 three-month period. Retail gallons sold
increased 37.8 million gallons (28.4%) principally as a result of the August 21,
2001 acquisition of Columbia Propane and, to a lesser extent, increased sales
from our PPX(R) grill cylinder exchange business. The increase in PPX(R) sales
reflects the impact on grill cylinder exchanges resulting from new National Fire
Protection Association ("NFPA") guidelines requiring that propane cylinders
refilled after April 1, 2002 be fitted with overfill protection devices ("OPDs")
and an increase in the number of PPX(R) distribution outlets. Although sales to
commercial, industrial and motor fuel customers increased during the 2002
three-month period due to the Columbia Propane acquisition, volumes from these
customers were negatively impacted by a weak U.S. economy in the 2002
three-month period.
Retail propane revenues increased $32.2 million to $206.3 million reflecting a
$49.4 million increase due to the higher retail volumes sold partially offset by
a $17.2 million decrease as a result of lower average selling prices. Wholesale
propane revenues decreased $3.5 million reflecting a $5.3 million decrease
resulting from lower average selling prices partially offset by a $1.8 million
increase as a result of higher wholesale volumes sold. The lower retail and
wholesale selling prices reflect lower propane product costs in the 2002
three-month period. Other revenues increased $6.6 million primarily due to the
impact of the Columbia Propane acquisition. Cost of sales decreased $9.3 million
reflecting the previously mentioned lower average propane product costs
partially offset by the higher gallons sold.
Total margin increased $44.5 million principally reflecting (1) the impact of
the Columbia Propane acquisition; (2) a $15.4 million increase in margin from
our PPX(R) grill cylinder exchange business reflecting the higher volumes and
greater PPX(R) unit margins; and (3) higher average propane unit margins on
non-PPX(R) retail volumes. PPX(R) unit margins in the 2002 three-month
period were higher than in the prior-year period due to increases in PPX(R)
margins to fund the additional capital cost of installing OPDs on
out-of-compliance grill cylinders. Because a significant portion of the
improvement in PPX(R) margin in the 2002 three-month period was due to the
impact of the NFPA guidelines, the extent to which this greater level of PPX(R)
margin is sustainable in the future will depend upon a number of factors
including the saturation rate of OPD valve replacement and competitive market
conditions.
EBITDA increased $15.6 million in the 2002 three-month period as the $44.5
million increase in total margin was partially offset principally by a $28.8
million increase in Partnership operating and administrative expenses. The
increase in operating and administrative expenses primarily resulted from
incremental expenses associated with Columbia Propane's operations and higher
volume-driven expenses associated with PPX(R). Operating income increased more
than the increase in EBITDA as the elimination of goodwill and excess
reorganization value amortization resulting from the adoption of SFAS 142 on
October 1, 2001 was partially offset principally by higher depreciation and
amortization resulting from the Columbia Propane acquisition. The prior-year
three-month period includes $6.0 million of goodwill and excess reorganization
value amortization.
The Partnership's interest expense for the 2002 three-month period increased
$2.5 million primarily due to higher levels of AmeriGas Partners' long-term debt
outstanding primarily related to the Columbia Propane acquisition partially
offset by lower AmeriGas OLP Bank Credit Agreement borrowings and lower
short-term interest rates.
- 19 -
AMERIGAS PARTNERS, L.P.
2002 NINE-MONTH PERIOD COMPARED WITH 2001 NINE-MONTH PERIOD
- ---------------------------------------------------------------------------------------------------------
Increase
Nine Months Ended June 30, 2002 2001 (Decrease)
- ---------------------------------------------------------------------------------------------------------
(Millions of dollars)
Gallons sold (millions):
Retail 782.8 678.1 104.7 15.4%
Wholesale 208.7 257.9 (49.2) (19.1)%
--------- --------- -------
991.5 936.0 55.5 5.9%
========= ========= =======
Revenues:
Retail propane $ 897.9 $ 942.4 $ (44.5) (4.7)%
Wholesale propane 100.4 195.1 (94.7) (48.5)%
Other 87.7 71.6 16.1 22.5%
--------- --------- -------
$ 1,086.0 $ 1,209.1 $(123.1) (10.2)%
========= ========= =======
Total margin $ 557.0 $ 480.4 $ 76.6 15.9%
EBITDA $ 207.7 $ 201.0 $ 6.7 3.3%
Operating income $ 158.4 $ 145.8 $ 12.6 8.6%
Heating degree days - % (warmer) colder
than normal (9.5) 3.0 -- --
- ---------------------------------------------------------------------------------------------------------
Temperatures based upon national heating degree days were 9.5% warmer than
normal in the 2002 nine-month period compared to weather that was 3.0% colder
than normal in the 2001 nine-month period. According to the National Climatic
Data Center, U.S. weather in the November 2001 through January 2002 period was
the warmest November through January period on record. Although the
significantly warmer weather and a weak U.S. economy adversely affected our
sales volumes, retail gallons sold increased 104.7 million gallons principally
as a result of the August 21, 2001 acquisition of Columbia Propane.
Retail propane revenues decreased $44.5 million to $897.9 million reflecting a
$190.0 million decrease as a result of lower average selling prices partially
offset by a $145.5 million increase due to the higher retail volumes sold.
Wholesale propane revenues decreased $94.7 million reflecting (1) a $57.5
million decrease resulting from lower average selling prices and (2) a $37.2
million decrease as a result of lower wholesale volumes sold. The lower retail
and wholesale selling prices reflect significantly lower propane product costs
during the 2002 nine-month period compared to the prior-year period. Other
revenues increased $16.1 million primarily due to the impact of the Columbia
Propane acquisition. Cost of sales decreased $199.7 million reflecting the lower
average propane product costs partially offset by the impact of the higher
retail gallons sold.
Total margin increased $76.6 million reflecting the impact of the Columbia
Propane acquisition and a $22.7 million increase in total margin from PPX(R) as
a result of higher unit margins and volumes. Average retail propane unit margins
were comparable with the prior year. Average unit margins in the current year
benefited from greater PPX(R) unit margins and volumes while the prior year unit
margins benefited from derivative hedge gains and favorably priced supply
arrangements during a period of rapidly escalating product costs and market
volatility.
- 20 -
AMERIGAS PARTNERS, L.P.
EBITDA increased $6.7 million in the 2002 nine-month period as the $76.6 million
increase in total margin was partially offset by (1) a $68.3 million increase in
Partnership operating and administrative expenses and (2) a $1.6 million
decrease in other income. The increase in operating expenses in the current year
includes operating and administrative expenses of Columbia Propane's operations
and higher volume-driven expenses associated with PPX(R). Operating income
increased more than the increase in EBITDA principally due to the elimination of
goodwill amortization resulting from the adoption of SFAS 142 on October 1, 2001
partially offset principally by higher depreciation and amortization resulting
from the Columbia Propane acquisition. The prior-year nine-month period includes
$17.9 million of goodwill and excess reorganization value amortization.
The Partnership's interest expense for the 2002 nine-month period increased $7.4
million primarily due to higher levels of AmeriGas Partners' long-term debt
outstanding primarily related to the Columbia Propane acquisition partially
offset by lower AmeriGas OLP Bank Credit Agreement borrowings and lower
short-term interest rates.
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL CONDITION
The Partnership's debt outstanding at June 30, 2002 totaled $946.4 million
(including current maturities of $58.2 million) compared to $1,005.9 million at
September 30, 2001. In November 2001, AmeriGas Partners redeemed prior to
maturity $15 million face value of its 10.125% Senior Notes at a redemption
price of 103.375%. In April 2002, we repaid $60 million of AmeriGas OLP maturing
First Mortgage Notes with a combination of existing cash balances and borrowings
under our Bank Credit Agreement. On May 3, 2002, AmeriGas Partners issued $40
million of 8 7/8% Senior Notes at an effective interest rate of 8.25% and
contributed the proceeds to AmeriGas OLP to reduce indebtedness under its
Revolving Credit Facility and for working capital and general business purposes.
AmeriGas OLP's Bank Credit Agreement consists of a $100 million Revolving Credit
Facility and a $75 million Acquisition Facility. At June 30, 2002, there were no
borrowings outstanding under either of these facilities. Issued and outstanding
letters of credit under the Revolving Credit Facility, which reduce available
borrowing capacity, totaled $9.5 million at June 30, 2002. Although these
facilities have a September 15, 2002 termination date, management expects these
facilities to be extended through October 1, 2003 pursuant to a Second Amended
and Restated Bank Credit Agreement anticipated to be finalized in August 2002.
On October 5, 2001, AmeriGas Partners sold 350,000 Common Units to the General
Partner at a market price of $19.81 per unit. The proceeds of this sale and
related capital contributions from the General Partner totaling $7.1 million
were contributed to AmeriGas OLP and used to reduce Bank Credit Agreement
borrowings and for working capital. On December 11, 2001, AmeriGas Partners sold
1,843,047 Common Units in an underwritten public offering at a public offering
price of $21.50 per unit. On January 8, 2002, the underwriters partially
exercised their overallotment option in the amount of 585,000 Common Units. The
net proceeds of the public offering and related capital contributions from the
General Partner totaling $50.6 million were contributed to AmeriGas OLP and used
to reduce Bank Credit Agreement borrowings and for working capital.
- 21 -
AMERIGAS PARTNERS, L.P.
During the nine months ended June 30, 2002, the Partnership declared and paid
the minimum quarterly distribution of $0.55 (the "MQD") on all units for the
quarters ended September 30, 2001, December 31, 2001 and March 31, 2002. The MQD
for the quarter ended June 30, 2002 will be paid on August 18, 2002 to holders
of record on August 9, 2002. The ability of the Partnership to declare and pay
the MQD on all units depends upon a number of factors. These factors include (1)
the level of Partnership earnings; (2) the cash needs of the Partnership's
operations (including cash needed for maintaining and increasing operating
capacity); (3) changes in operating working capital; and (4) the Partnership's
ability to borrow under its Bank Credit Agreement, to refinance maturing debt,
and to increase its long-term debt. Some of these factors are affected by
conditions beyond our control including weather, competition in markets we
serve, and the cost of propane.
Pursuant to the Agreement of Limited Partnership of AmeriGas Partners, the
remaining 9,891,072 Subordinated Units held by the General Partner are eligible
to convert to Common Units on the first day after the record date for any
quarter ending on or after March 31, 2000 in which certain cash-based
performance and distribution requirements are met. Based upon current
projections of operating results and changes in working capital, it is
reasonably possible that the Partnership could satisfy the requirements for
conversion in respect of the quarter ending September 30, 2002.
CONTRACTUAL CASH OBLIGATIONS AND COMMITMENTS
The following table presents significant contractual cash obligations under
long-term agreements existing as of June 30, 2002 (in millions).
- -------------------------------------------------------------------------------------------
Three Months
Ended
September 30, Fiscal Fiscal
2002 2003 - 2004 2005 - 2006 Thereafter Total
- -------------------------------------------------------------------------------------------
Long-term debt $ 1.1 $ 118.2 $ 216.8 $ 610.3 $ 946.4
Operating leases 12.1 67.1 52.2 69.1 200.5
- -------------------------------------------------------------------------------------------
Total $ 13.2 $ 185.3 $ 269.0 $ 679.4 $ 1,146.9
- -------------------------------------------------------------------------------------------
CASH FLOWS
The Partnership had cash balances totaling $45.1 million at June 30, 2002
compared to $32.5 million at September 30, 2001. Due to the seasonal nature of
the propane business, cash flows from operating activities are generally
strongest during the second and third fiscal quarters when customers pay for
propane purchased during the heating season and are generally at their lowest
levels during the first and fourth fiscal quarters. Accordingly, cash flows from
operating activities during the nine months ended June 30, 2002 are not
necessarily indicative of cash flows to be expected for a full year.
OPERATING ACTIVITIES. Cash provided by operating activities was $127.4 million
during the nine months ended June 30, 2002 compared with $89.1 million during
the prior-year nine-month period. Changes in operating working capital during
the 2002 nine-month period used $13.2 million of operating cash flow compared
with $53.7 million of cash used in the prior year nine-month period. The
significant decline in cash used for changes in operating working capital
principally reflects the impact of substantially lower propane selling prices
and product costs on working capital, principally accounts receivable and
inventories. Cash flow from operating activities before changes in operating
working capital was
- 22 -
AMERIGAS PARTNERS, L.P.
$140.6 million in the nine months ended June 30, 2002 compared with $142.8
million in the prior-year nine-month period. Higher income before accounting
changes was offset by a decrease in amortization expense due to the adoption of
SFAS 142.
INVESTING ACTIVITIES. We spent $38.6 million for property, plant and equipment
(including maintenance capital expenditures of $15.2 million) during the nine
months ended June 30, 2002 compared with $28.6 million (including maintenance
capital expenditures of $13.0 million) during the nine months ended June 30,
2001. The increase in capital expenditures reflects higher expenditures for
PPX(R), principally grill cylinder OPDs to comply with NFPA guidelines, and
expenditures associated with the Columbia Propane Businesses. Proceeds from
asset sales were higher in the 2002 nine-month period reflecting, in part,
disposals of Columbia Propane excess assets.
FINANCING ACTIVITIES. During each of the nine-month periods ended June 30, 2002
and 2001, we declared and paid the MQD on all Common and Subordinated units and
the general partner interests. During the 2002 nine-month period, we sold
350,000 Common Units to the General Partner, and 2,428,047 Common Units to the
public in conjunction with an underwritten public offering. The combined net
proceeds of these sales and related capital contributions from the General
Partner of $57.7 million were contributed to AmeriGas OLP and used to reduce
Bank Credit Agreement borrowings and for working capital. During the 2002
nine-month period, AmeriGas Partners redeemed $15 million of its 10.125% Senior
Notes and AmeriGas OLP repaid $20 million of borrowings outstanding under its
Acquisition Facility. Also during the 2002 nine-month period, AmeriGas Partners
issued $40 million of 8 7/8% Senior Notes and contributed the proceeds to
AmeriGas OLP to reduce indebtedness under its Revolving Credit Facility and for
working capital and general business purposes.
ADOPTION OF SFAS NO. 142
Effective October 1, 2001, we adopted the provisions of SFAS No. 142, "Goodwill
and Other Intangible Assets" ("SFAS 142"). SFAS 142 addresses the financial
accounting and reporting for acquired goodwill and other intangible assets and
supersedes APB Opinion No. 17, "Intangible Assets." SFAS 142 addresses the
financial accounting and reporting for intangible assets acquired individually
or with a group of other assets (excluding those acquired in a business
combination) at acquisition and also addresses the financial accounting and
reporting for goodwill and other intangible assets subsequent to their
acquisition. Under SFAS 142, an intangible asset is amortized over its useful
life unless that life is determined to be indefinite. Goodwill, including excess
reorganization value, and other intangible assets with indefinite lives are not
amortized but are subject to tests for impairment at least annually. As a result
of the adoption of SFAS 142, the Partnership ceased the amortization of goodwill
and excess reorganization value effective October 1, 2001. For a more detailed
discussion of SFAS 142 and its impact on the Partnership, see Note 3 to
Condensed Consolidated Financial Statements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In response to the SEC's Release No. 33-8040, "Cautionary Advice Regarding
Disclosure About Critical Accounting Policies," the Partnership has identified
the following critical accounting policy that is most important to the portrayal
of the Partnership's financial condition and results of operations. The
following accounting policy requires management's most subjective or complex
judgments, often as a result of the need to make estimates regarding matters
that are inherently uncertain.
- 23 -
AMERIGAS PARTNERS, L.P.
LITIGATION ACCRUALS. The Partnership is involved in litigation regarding pending
claims and legal actions that arise in the normal course of its business. In
accordance with generally accepted accounting principles, the Partnership
establishes reserves for pending claims and legal actions when it is probable
that a liability exists and the amount or range of amounts can be reasonably
estimated. Reasonable estimates involve management judgments based on a broad
range of information and prior experience. These judgments are reviewed
quarterly as more information is received and the amounts reserved are updated
as necessary. Such estimated reserves may differ materially from the actual
liability, and such reserves may change materially as more information becomes
available and estimated reserves are adjusted.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") recently issued SFAS No. 143,
"Accounting for Asset Retirement Obligations" ("SFAS 143"), SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"),
SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections" ("SFAS 145") and SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146").
SFAS 143 addresses financial accounting and reporting for legal obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. SFAS 143 requires that the fair value of a liability for
an asset retirement obligation be recognized in the period in which it is
incurred with a corresponding increase in the carrying value of the related
asset. Entities shall subsequently charge the retirement cost to expense using a
systematic and rational method over the related asset's useful life and adjust
the fair value of the liability resulting from the passage of time through
charges to interest expense. We are required to adopt SFAS 143 effective October
1, 2002. We are currently in the process of evaluating the impact SFAS 143 will
have on our financial condition and results of operations.
SFAS 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," as it relates to the disposal of a segment of a business. SFAS
144 establishes a single accounting model for long-lived assets to be disposed
of based upon the framework of SFAS 121, and resolves significant implementation
issues of SFAS 121. SFAS 144 is effective for the Partnership October 1, 2002.
We believe that the adoption of SFAS 144 will not have a material impact on our
financial condition or results of operations.
SFAS 145 rescinded SFAS No. 4, "Reporting Gains and Losses from Extinguishment
of Debt" (an amendment of APB Opinion No. 30) ("SFAS 4"), effective May 15,
2002. SFAS 4 had required that material gains and losses on extinguishment of
debt be classified as an extraordinary item. Under SFAS 145, it is less likely
that a gain or loss on extinguishment of debt would be classified as an
extraordinary item in our Consolidated Statement of Income. Among other things,
SFAS 145 also amends SFAS 13, "Accounting for Leases," to require that certain
lease modifications that have economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-leaseback transactions.
The provisions of SFAS 145 relating to leases are effective for transactions
- 24 -
AMERIGAS PARTNERS, L.P.
occurring after May 15, 2002. We believe that SFAS 145 will not have a material
effect on our financial condition or results of operations.
SFAS 146 addresses accounting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force ("EITF") No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity." Generally, SFAS 146 requires that a liability for costs
associated with an exit or disposal activity, including contract termination
costs, employee termination benefits and other associated costs, be recognized
when the liability is incurred. Under EITF No. 94-3, a liability was recognized
at the date of an entity's commitment to an exit plan. SFAS 146 will be
effective for disposal activities initiated after December 31, 2002. We believe
that SFAS 146 will not have a material effect on our financial condition or
results of operations.
- 25 -
AMERIGAS PARTNERS, L.P.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risks are commodity prices for propane and interest rates on
borrowings.
Price risk associated with fluctuations in the prices the Partnership pays for
propane is principally a result of market forces reflecting changes in supply
and demand. The Partnership's profitability is sensitive to changes in propane
supply costs, and the Partnership generally attempts to pass on increases in
such costs to customers. The Partnership may not, however, always be able to
pass through product cost increases fully, particularly when product costs rise
rapidly. In order to manage a portion of the Partnership's propane market price
risk, we use contracts for the forward purchase or sale of propane, propane
fixed-price supply agreements, and over-the-counter derivative commodity
instruments including price swap and option contracts. Over-the-counter
derivative commodity instruments utilized by the Partnership to hedge forecasted
purchases of propane are generally settled at expiration of the contract. In
order to minimize credit risk associated with these contracts, we monitor
established credit limits with the contract counterparties. Although we use
derivative financial and commodity instruments to reduce market price risk
associated with forecasted transactions, we do not use derivative financial and
commodity instruments for speculative or trading purposes.
The Partnership has both fixed-rate and variable-rate debt. Changes in interest
rates impact the cash flows of variable-rate debt but generally do not impact
its fair value. Conversely, changes in interest rates impact the fair value of
fixed-rate debt but do not impact their cash flows. Our variable rate debt
comprises borrowings under AmeriGas OLP's Bank Credit Agreement. These debt
agreements have interest rates that are generally indexed to short-term market
interest rates. Our long-term debt is typically issued at fixed rates of
interest based upon market rates for debt having similar terms and credit
ratings. As these long-term debt issues mature, we may refinance such debt with
new debt having an interest rate that is more or less than the refinanced debt.
In order to reduce interest rate risk associated with forecasted issuances of
fixed-rate debt, we generally enter into interest rate protection agreements.
The following table summarizes the fair values of unsettled market risk
sensitive derivative instruments held at June 30, 2002. It also includes the
changes in fair value that would result if there were an adverse change in (1)
the market price of propane of 10 cents per gallon and (2) interest rates on
ten-year U.S. treasury notes of 100 basis points:
- --------------------------------------------------------------------------------
Fair Change in
Value Fair Value
- --------------------------------------------------------------------------------
(Millions of dollars)
June 30, 2002:
Propane commodity price risk $ 2.3 $ (7.5)
Interest rate risk (1.3) (2.6)
- --------------------------------------------------------------------------------
Because the Partnership's derivative instruments generally qualify as hedges
under SFAS 133, we expect that changes in the fair value of derivative
instruments used to manage propane price or interest rate risk would be
substantially offset by gains or losses on the associated underlying
transactions.
- 26 -
AMERIGAS PARTNERS, L.P.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
99 Certification by the Chief Executive Officer and the Chief Financial
Officer relating to the Registrants' Report on Form 10-Q for the
quarter ended June 30, 2002.
(b) The following Current Report on Form 8-K was filed during the fiscal
quarter ended June 30, 2002:
DATE ITEM NUMBER CONTENT
May 21, 2002 4, 7 Changes in Registrants' Certifying Accountant
This report was amended on a Form 8-K/A dated May 21, 2002 to clarify the
agreement of the former independent auditors with the Registrants' disclosure.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
AmeriGas Partners, L.P.
----------------------------------------
(Registrant)
By: AmeriGas Propane, Inc.,
as General Partner
Date: August 13, 2002 By: /s/ Martha B. Lindsay
- ---------------------- ----------------------------------------
Martha B. Lindsay
Vice President - Finance
and Chief Financial Officer
By: /s/ Richard R. Eynon
----------------------------------------
Richard R. Eynon
Controller and Chief Accounting Officer
AmeriGas Finance Corp.
----------------------------------------
(Registrant)
Date: August 13, 2002 By: /s/ Martha B. Lindsay
- ---------------------- ----------------------------------------
Martha B. Lindsay
Vice President - Finance
and Chief Financial Officer
By: /s/ Richard R. Eynon
----------------------------------------
Richard R. Eynon
Controller and Chief Accounting Officer
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AmeriGas Eagle Finance Corp.
----------------------------------------
(Registrant)
Date: August 13, 2002 By: /s/ Martha B. Lindsay
- ---------------------- ----------------------------------------
Martha B. Lindsay
Vice President - Finance
and Chief Financial Officer
By: /s/ Richard R. Eynon
----------------------------------------
Richard R. Eynon
Controller and Chief Accounting Officer
AP Eagle Finance Corp.
----------------------------------------
(Registrant)
Date: August 13, 2002 By: /s/ Martha B. Lindsay
- ---------------------- ----------------------------------------
Martha B. Lindsay
Vice President - Finance
and Chief Financial Officer
By: /s/ Richard R. Eynon
----------------------------------------
Richard R. Eynon
Controller and Chief Accounting Officer
- 29 -
AMERIGAS PARTNERS, L.P.
EXHIBIT INDEX
99 Certification by the Chief Executive Officer and the Chief Financial
Officer relating to the Registrants' Report on Form 10-Q for the quarter
ended June 30, 2002