UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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 April 30, 2003, the registrants had units and shares of common stock
outstanding as follows:
AmeriGas Partners, L.P. - 49,433,208 Common 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 March 31, 2003,
September 30, 2002 and March 31, 2002 1
Condensed Consolidated Statements of Operations for the three
and six months ended March 31, 2003 and 2002 2
Condensed Consolidated Statements of Cash Flows for the six
months ended March 31, 2003 and 2002 3
Condensed Consolidated Statement of Partners' Capital for the
six months ended March 31, 2003 4
Notes to Condensed Consolidated Financial Statements 5 - 10
AmeriGas Finance Corp.
Balance Sheets as of March 31, 2003 and September 30, 2002 11
Note to Balance Sheets 12
AmeriGas Eagle Finance Corp.
Balance Sheets as of March 31, 2003 and September 30, 2002 13
Note to Balance Sheets 14
AP Eagle Finance Corp.
Balance Sheets as of March 31, 2003 and September 30, 2002 15
Note to Balance Sheets 16
-i-
AMERIGAS PARTNERS, L.P.
TABLE OF CONTENTS (continued)
PAGES
-----
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 17 - 23
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24 - 25
Item 4. Controls and Procedures 25
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 26
Signatures 27 - 28
Certifications 29 - 30
-ii-
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Thousands of dollars)
March 31, September 30, March 31,
2003 2002 2002
---------- ---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 22,769 $ 47,400 $ 66,211
Accounts receivable (less allowances for doubtful accounts
of $11,826, $7,588 and $13,071, respectively) 201,081 83,274 149,322
Accounts receivable - related parties 6,998 6,862 1,624
Inventories 69,247 62,496 54,650
Prepaid expenses and other current assets 20,978 31,238 19,940
---------- ---------- ----------
Total current assets 321,073 231,270 291,747
Property, plant and equipment (less accumulated depreciation and
amortization of $441,462, $408,590 and $377,680, respectively) 609,013 611,550 619,976
Goodwill and excess reorganization value 591,155 589,923 589,924
Intangible assets (less accumulated amortization of $10,203,
$8,651 and $7,185, respectively) 21,436 22,586 25,085
Other assets 17,297 17,289 21,621
---------- ---------- ----------
Total assets $1,559,974 $1,472,618 $1,548,353
========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current maturities of long-term debt $ 60,673 $ 60,398 $ 64,455
Bank loans -- 10,000 --
Accounts payable - trade 147,974 81,891 93,658
Accounts payable - related parties 1,948 5,003 1,155
Customer deposits and advances 14,756 53,177 22,571
Interest accrued 33,255 34,492 36,182
Other current liabilities 60,787 62,863 53,123
---------- ---------- ----------
Total current liabilities 319,393 307,824 271,144
Long-term debt 889,344 885,386 901,265
Other noncurrent liabilities 50,516 44,810 41,621
Commitments and contingencies (note 6)
Minority interests 7,053 6,232 6,867
Partners' capital 293,668 228,366 327,456
---------- ---------- ----------
Total liabilities and partners' capital $1,559,974 $1,472,618 $1,548,353
========== ========== ==========
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 Six Months Ended
March 31, March 31,
-------------------------- --------------------------
2003 2002 2003 2002
--------- ----------- ----------- ---------
Revenues:
Propane $ 595,138 $ 432,986 $ 1,005,718 $ 772,134
Other 30,408 27,136 64,859 59,373
--------- ----------- ----------- ---------
625,546 460,122 1,070,577 831,507
--------- ----------- ----------- ---------
Costs and expenses:
Cost of sales - propane 349,327 214,492 577,621 400,131
Cost of sales - other 11,334 10,122 26,406 23,670
Operating and administrative expenses 133,923 116,368 254,869 229,484
Depreciation and amortization 18,431 16,488 35,922 32,674
Equity investee (income) loss 106 (282) (144) (512)
Other (income), net (3,122) (1,710) (4,058) (1,316)
--------- ----------- ----------- ---------
509,999 355,478 890,616 684,131
--------- ----------- ----------- ---------
Operating income 115,547 104,644 179,961 147,376
Loss on extinguishments of debt (3,023) -- (3,023) (752)
Interest expense (21,884) (22,011) (44,583) (44,757)
--------- ----------- ----------- ---------
Income before income taxes 90,640 82,633 132,355 101,867
Income tax (expense) benefit 320 322 62 (216)
Minority interests (1,084) (966) (1,629) (1,265)
--------- ----------- ----------- ---------
Net income $ 89,876 $ 81,989 $ 130,788 $ 100,386
========= =========== =========== =========
General partner's interest in net income $ 899 $ 820 $ 1,308 $ 1,004
========= =========== =========== =========
Limited partners' interest in net income $ 88,977 $ 81,169 $ 129,480 $ 99,382
========= =========== =========== =========
Net income per limited partner unit - basic and diluted $ 1.80 $ 1.64 $ 2.62 $ 2.05
========= =========== =========== =========
Average limited partner units outstanding:
Basic 49,433 49,385 49,433 48,385
========= =========== =========== =========
Diluted 49,491 49,493 49,483 48,476
========= =========== =========== =========
See accompanying notes to consolidated financial statements.
-2-
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Thousands of dollars)
Six Months Ended
March 31,
------------------------
2003 2002
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 130,788 $ 100,386
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 35,922 32,674
Other, net 9,056 4,675
Net change in:
Accounts receivable (124,250) (48,402)
Inventories (6,726) 18,422
Accounts payable 62,865 17,498
Other current assets and liabilities (35,669) (33,693)
--------- ---------
Net cash provided by operating activities 71,986 91,560
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (32,885) (26,787)
Proceeds from disposals of assets 3,019 4,137
Acquisition of business, net of cash acquired (2,175) --
--------- ---------
Net cash used by investing activities (32,041) (22,650)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (54,926) (53,574)
Minority interest activity (700) (245)
Decrease in bank loans (10,000) --
Issuance of long-term debt 89,100 --
Repayment of long-term debt (88,050) (38,496)
Proceeds from issuance of Common Units -- 56,556
Capital contributions from General Partner -- 571
--------- ---------
Net cash used by financing activities (64,576) (35,188)
--------- ---------
Cash and cash equivalents (decrease) increase $ (24,631) $ 33,722
========= =========
CASH AND CASH EQUIVALENTS:
End of period $ 22,769 $ 66,211
Beginning of period 47,400 32,489
--------- ---------
(Decrease) increase $ (24,631) $ 33,722
========= =========
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, 2002 39,541,286 9,891,072 $ 201,660 $ 17,846 $2,214 $ 6,646 $228,366
Net income 128,101 1,379 1,308 130,788
Net gains on derivative instruments 16,272 16,272
Reclassification of net gains
on derivative instruments (26,853) (26,853)
------- --------
Comprehensive income (10,581) 120,207
Distributions (48,937) (5,440) (549) (54,926)
Common Units issued in
connection with executive
compensation plan 850 21 -- 21
Conversion of Subordinated Units
to Common Units 9,891,072 (9,891,072) 13,785 (13,785) --
----------- ---------- --------- --------- ------ ------- --------
Balance March 31, 2003 49,433,208 -- $ 294,630 $ -- $2,973 $(3,935) $293,668
=========== ========== ========= ========= ====== ======= ========
See accompanying notes to consolidated financial statements.
-4-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(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") and its principal
operating subsidiaries AmeriGas Propane, L.P. ("AmeriGas OLP") and
AmeriGas OLP's subsidiary, AmeriGas Eagle Propane, L.P. ("Eagle
OLP"). AmeriGas Partners, AmeriGas OLP and Eagle OLP are Delaware
limited partnerships. AmeriGas OLP and Eagle OLP are collectively
referred to herein as "the Operating Partnerships," and AmeriGas
Partners, the Operating Partnerships and all of 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 approximate 0.1% limited partner interest in Eagle OLP as
minority interests in the condensed consolidated financial
statements. The Partnership's 50% ownership interest in Atlantic
Energy, Inc. ("Atlantic Energy"), a propane storage terminal located
in Chesapeake, Virginia, is accounted for by the equity method.
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, 2002
("2002 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.
NET INCOME PER UNIT. Net income per unit is computed by dividing net
income, after deducting the General Partner's 1% interest in AmeriGas
Partners, by the weighted average number of limited partner units
outstanding. Potentially dilutive Common Units included in the
diluted limited partner units outstanding computation reflect the
effects of Common Unit awards issued under AmeriGas Propane, Inc.
incentive compensation plans.
-5-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars, except per unit)
COMPREHENSIVE INCOME. The following table presents the components of
comprehensive income for the three and six months ended March 31, 2003 and 2002:
- ------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- ------------------------
2003 2002 2003 2002
- ------------------------------------------------------------------------------------------------
Net income $ 89,876 $ 81,989 $ 130,788 $100,386
Other comprehensive income (loss) (12,268) 25,755 (10,581) 20,012
- ------------------------------------------------------------------------------------------------
Comprehensive income $ 77,608 $107,744 $ 120,207 $120,398
- ------------------------------------------------------------------------------------------------
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 reclassifications of net gains and losses to net
income.
UNIT-BASED COMPENSATION. As permitted by Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), we apply the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), in recording
compensation expense for grants of equity instruments to employees. We recorded
unit-based compensation expense of $693 and $1,023 during the three and six
months ended March 31, 2003, respectively, and $210 and $329 during the three
and six months ended March 31, 2002, respectively. Our unit-based compensation
expense under the provisions of APB 25 for all periods presented was not
materially different from amounts determined under the provisions of SFAS 123.
USE OF ESTIMATES. We make estimates and assumptions when preparing financial
statements in conformity with accounting principles generally accepted in the
United States. These estimates and assumptions affect the reported amounts of
assets and liabilities, revenues and expenses, as well as the disclosure of
contingent assets and liabilities. Actual results could differ from these
estimates.
RECLASSIFICATIONS. In order to more appropriately classify direct costs
associated with the Partnership's Prefilled Propane Xchange ("PPX(R)") program,
for the three and six months ended March 31, 2003, certain costs previously
reflected in operating and administrative expenses have been included in cost of
sales. We have reclassified $3,261 and $6,013 of such costs incurred during the
three and six months ended March 31, 2002, respectively, to conform to the
current-period presentation.
In January 2003, the Partnership recorded a loss on an early extinguishment of
long-term debt. This loss has been reflected in the Condensed Consolidated
Statements of Operations as "loss on extinguishments of debt." A loss associated
with a November 2001 early extinguishment of long-term debt previously included
in other (income), net, has been reclassified to conform to the current-period
presentation (see Note 5).
-6-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars, except per unit)
2. INTANGIBLE ASSETS
The Partnership's intangible assets comprise the following:
--------------------------------------------------------------------------------
March 31, September 30,
2003 2002
--------------------------------------------------------------------------------
Subject to amortization:
Customer relationships and
noncompete agreements $ 31,639 $ 31,237
Accumulated amortization (10,203) (8,651)
------------------------------------------------------------------------------
$ 21,436 $ 22,586
------------------------------------------------------------------------------
Not subject to amortization:
Goodwill $ 497,835 $ 496,603
Excess reorganization value 93,320 93,320
------------------------------------------------------------------------------
$ 591,155 $ 589,923
------------------------------------------------------------------------------
The increases in intangible assets during the six months ended March
31, 2003 resulted from a Partnership business acquisition.
Amortization expense of intangible assets was $765 and $1,552 for the
three and six months ended March 31, 2003, respectively, and $910 and
$1,821 for the three and six months ended March 31, 2002,
respectively. Our expected aggregate amortization expense of
intangible assets for the next five fiscal years is as follows:
Fiscal 2003 - $3,018; Fiscal 2004 - $2,850; Fiscal 2005 - $2,613;
Fiscal 2006 - $2,205; Fiscal 2007 - $1,575.
3. CONVERSION OF SUBORDINATED UNITS
In December 2002, the General Partner determined that the cash-based
performance and distribution requirements for the conversion of the
remaining 9,891,072 Subordinated Units, all of which were held by the
General Partner, had been met in respect of the quarter ended
September 30, 2002. As a result, these Subordinated Units were
converted to a like number of Common Units effective November 18,
2002. The conversion of the Subordinated Units did not result in an
increase in the total number of AmeriGas Partners limited partner
units outstanding.
4. RELATED PARTY TRANSACTIONS
Pursuant to the Second Amended and Restated 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
$75,306 and $147,197 during the three and six months ended March 31,
2003, respectively, and $68,863 and $137,688 during the three and six
months ended March 31, 2002, respectively.
-7-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars, except per unit)
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 $2,627 and $4,244 during the three and six months
ended March 31, 2003, respectively, and $1,939 and $3,139 during the
three and six months ended March 31, 2002, respectively. UGI and
certain of its subsidiaries also provide office space, and during the
three and six months ended March 31, 2003 provided automobile
liability insurance, to the Partnership. These expenses totaled $444
and $875 during the three and six months ended March 31, 2003,
respectively, and $359 and $713 during the three and six months ended
March 31, 2002, respectively.
The Partnership purchases propane on behalf of Atlantic Energy.
Atlantic Energy reimburses AmeriGas OLP for its purchases plus
interest as Atlantic Energy sells such propane to third parties or to
AmeriGas OLP itself. The total dollar value of propane purchased on
behalf of Atlantic Energy was $8,039 and $10,823 during the three and
six months ended March 31, 2003, respectively, and $4,650 and $7,792
during the three and six months ended March 31, 2002, respectively.
Purchases of propane by AmeriGas OLP from Atlantic Energy during the
three and six months ended March 31, 2003 totaled $12,897 and
$18,658, respectively, and during the three and six months ended
March 31, 2002 totaled $5,383 and $9,354, respectively.
The General Partner also provides other services to Atlantic Energy
including accounting, insurance and other administrative services and
is reimbursed for the related costs. Such costs were not material
during the three and six months ended March 31, 2003 or 2002. In
addition, AmeriGas OLP enters into product cost hedging contracts on
behalf of Atlantic Energy. When these contracts are settled, AmeriGas
OLP is reimbursed the cost of any losses, or distributes the proceeds
of any gains, to Atlantic Energy.
Amounts due from Atlantic Energy at March 31, 2003, September 30,
2002 and March 31, 2002 totaled $6,714, $5,243 and $717,
respectively, which amounts are included in accounts receivable -
related parties in the Condensed Consolidated Balance Sheets.
5. LONG-TERM DEBT
On December 3, 2002, AmeriGas Partners issued $88,000 face amount of
8.875% Senior Notes due 2011 at an effective interest rate of 8.30%.
The proceeds, net of underwriters' fees, of $89,100 were used on
January 6, 2003 to redeem prior to maturity AmeriGas Partners'
$85,000 face amount of 10.125% Senior Notes due 2007 at a redemption
price of 102.25%, plus accrued interest. The Partnership recognized a
loss of $3,023 in the quarter ended March 31, 2003 related to the
redemption premium and other associated costs and expenses. In
November 2001, AmeriGas Partners redeemed prior to maturity $15,000
face value of its 10.125% Senior Notes at a redemption price of
103.375%. The Partnership
-8-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars, except per unit)
recognized a loss of $752 in the quarter ended December 31, 2001
related to the early redemption.
In April 2003, AmeriGas OLP repaid $53,750 of maturing First Mortgage
Notes. In conjunction with this repayment, in April 2003 AmeriGas
Partners issued $32,000 face amount of 8.875% Series B Senior Notes
due 2011 and contributed the net proceeds of $33,680 to AmeriGas OLP.
6. COMMITMENTS AND CONTINGENCIES
The Partnership has succeeded to certain lease guarantee obligations
of Petrolane relating to Petrolane's divestiture of nonpropane
operations before its 1989 acquisition by QFB Partners. Future lease
payments under these leases total approximately $18,000 at March 31,
2003. The leases expire through 2010 and some of them are currently
in default. The Partnership has succeeded to the indemnity agreement
of Petrolane by which Texas Eastern Corporation ("Texas Eastern"), a
prior owner of Petrolane, agreed to indemnify Petrolane against any
liabilities arising out of the conduct of businesses that do not
relate to, and are not a part of, the propane business, including
lease guarantees. In December 1999, Texas Eastern filed for
dissolution under the Delaware General Corporation Law. In May 2001,
Petrolane filed a declaratory judgment action in the Delaware
Chancery Court seeking confirmation of Texas Eastern's
indemnification obligations and judicial supervision of Texas
Eastern's dissolution to ensure that its indemnification obligations
to Petrolane are paid or adequately provided for in accordance with
law. Those proceedings are pending. Pursuant to a Liquidation and
Winding Up Agreement dated September 17, 2002, PanEnergy Corporation
("PanEnergy"), Texas Eastern's sole stockholder, assumed all
of Texas Eastern's liabilities as of December 20, 2002, to the extent
of the value of Texas Eastern's assets transferred to PanEnergy as of
that date (which was estimated to exceed $94,000), and to the extent
that such liabilities arise within ten years from Texas Eastern's
date of dissolution. Notwithstanding the dissolution proceeding, and
based on Texas Eastern previously having satisfied directly defaulted
lease obligations without the Partnership's having to honor its
guarantee, we believe that the probability that the Partnership will
be required to directly satisfy the lease obligations subject to the
indemnification agreement is remote.
On August 21, 2001, AmeriGas Partners, through AmeriGas OLP, acquired
the propane distribution businesses of Columbia Energy Group (the
"2001 Acquisition") pursuant to the terms of a purchase agreement
(the "2001 Acquisition Agreement") by and among Columbia Energy Group
("CEG"), Columbia Propane Corporation ("CPC"), Columbia Propane, L.P.
("CPLP"), CP Holdings, Inc. ("CPH," and together with CPC and CPLP,
the "Company Parties"), AmeriGas Partners, AmeriGas OLP and the
General Partner (together with AmeriGas Partners and AmeriGas OLP,
the "Buyer Parties"). As a result of the 2001 Acquisition, AmeriGas
OLP acquired all of the stock of CPC and CPH and substantially all of
the partnership interests of CPLP. Under the terms of an earlier
acquisition agreement (the "1999 Acquisition Agreement"), the Company
Parties agreed
-9-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars, except per unit)
to indemnify the former general partners of National Propane
Partners, L.P. (a predecessor company of the Columbia Propane
businesses) and an affiliate (collectively, "National General
Partners") against certain income tax and other losses that they may
sustain as a result of the 1999 acquisition by CPLP of National
Propane Partners, L.P. (the "1999 Acquisition") or the operation of
the business after the 1999 Acquisition ("National Claims"). At March
31, 2003, the potential amount payable under this indemnity by the
Company Parties was approximately $71,000. These indemnity
obligations will expire on the date that CPH acquires the remaining
outstanding partnership interest of CPLP, which is expected to occur
on or after July 19, 2009.
Under the terms of the 2001 Acquisition Agreement, CEG agreed to
indemnify the Buyer Parties and the Company Parties against any
losses that they sustain under the 1999 Acquisition Agreement and
related agreements ("Losses"), including National Claims, to the
extent such claims are based on acts or omissions of CEG or the
Company Parties prior to the 2001 Acquisition. The Buyer Parties
agreed to indemnify CEG against Losses, including National Claims, to
the extent such claims are based on acts or omissions of the Buyer
Parties or the Company Parties after the 2001 Acquisition. CEG and
the Buyer Parties have agreed to apportion certain losses resulting
from National Claims to the extent such losses result from the 2001
Acquisition itself.
We also have other contingent liabilities, pending claims and legal
actions arising in the normal course of our business. We cannot
predict with certainty the final results of these matters. However,
it is reasonably possible that some of them could be resolved
unfavorably to us. Although management currently believes, 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.
-10-
AMERIGAS FINANCE CORP.
(a wholly owned subsidiary of AmeriGas Partners, L.P.)
BALANCE SHEETS
(unaudited)
March 31, September 30,
2003 2002
------ ------
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.
-11-
AMERIGAS
FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF AMERIGAS PARTNERS, L.P.)
NOTE TO BALANCE SHEETS
(UNAUDITED)
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 and AmeriGas Finance jointly and severally
issued $100,000,000 face value of 10.125% Senior Notes due April 2007 (Notes).
In November 2001, AmeriGas Partners redeemed prior to maturity $15,000,000 face
value of the Notes at a redemption price of 103.375%. In January 2003, AmeriGas
Partners redeemed prior to maturity, the remaining $85,000,000 face value of the
Notes at a redemption price of 102.25%.
AmeriGas Partners owns all 100 shares of AmeriGas Finance common stock
outstanding.
-12-
AMERIGAS EAGLE FINANCE CORP.
(a wholly owned subsidiary of AmeriGas Partners, L.P.)
BALANCE SHEETS
(unaudited)
March 31, September 30,
2003 2002
------ ------
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.
-13-
AMERIGAS EAGLE
FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF AMERIGAS PARTNERS, L.P.)
NOTE TO BALANCE SHEETS
(UNAUDITED)
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 and Eagle Finance jointly and severally
issued $60,000,000 face value of 10% Senior Notes due April 2006.
AmeriGas Partners owns all 100 shares of Eagle Finance common stock outstanding.
-14-
AP EAGLE FINANCE CORP.
(a wholly owned subsidiary of AmeriGas Partners, L.P.)
BALANCE SHEETS
(unaudited)
March 31, September 30,
2003 2002
------ ------
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.
-15-
AP EAGLE FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF AMERIGAS PARTNERS, L.P.)
NOTE TO BALANCE SHEETS
(UNAUDITED)
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 and AP Eagle Finance jointly and severally
issued $200,000,000 face value of 8.875% Series A Senior Notes due May 2011. On
December 20, 2001, AmeriGas Partners and AP Eagle Finance exchanged $199,985,000
face value of 8.875% Series A Senior Notes due May 2011 for a like amount of
AmeriGas Partners and AP Eagle Finance 8.875% Series B Senior Notes due May 2011
pursuant to a registered exchange offer. On May 3, 2002, AmeriGas Partners and
AP Eagle Finance jointly and severally issued $40,000,000 face value of 8.875%
Series B Senior Notes due May 2011. On December 3, 2002, AmeriGas Partners and
AP Eagle Finance jointly and severally issued $88,000,000 face value of 8.875%
Senior Notes due May 2011. On April 4, 2003, AmeriGas Partners and AP Eagle
Finance exchanged (1) $15,000 face value of 8.875% Series A Senior Notes due May
2011 and (2) $88,000,000 face value of 8.875% Senior Notes due May 2011 for like
amounts of AmeriGas Partners and AP Eagle Finance 8.875% Series B Senior Notes
due May 2011 pursuant to a registered exchange offer.
In April 2003, AmeriGas Partners and AP Eagle Finance jointly and severally
issued $32,000,000 face value of 8.875% Series B Senior Notes due May 2011.
AmeriGas Partners owns all 100 shares of AP Eagle Finance common stock
outstanding.
-16-
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 March 31, 2003 ("2003 three-month period") with the three
months ended March 31, 2002 ("2002 three-month period") and (2) the six months
ended March 31, 2003 ("2003 six-month period") with the six months ended March
31, 2002 ("2002 six-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.
2003 THREE-MONTH PERIOD COMPARED WITH 2002 THREE-MONTH PERIOD
- ------------------------------------------------------------------------------------------------
Three Months Ended March 31, 2003 2002 Increase
- ------------------------------------------------------------------------------------------------
(Dollars in millions)
Gallons sold (millions) (a):
Retail 393.4 363.4 30.0 8.3%
Wholesale 95.3 69.0 26.3 38.1%
------- ------- -------
488.7 432.4 56.3 13.0%
======= ======= =======
Revenues:
Retail propane $ 532.0 $ 402.7 $ 129.3 32.1%
Wholesale propane 63.1 30.3 32.8 108.3%
Other 30.4 27.1 3.3 12.2%
------- ------- -------
$ 625.5 $ 460.1 $ 165.4 35.9%
======= ======= =======
Total margin (b) $ 264.9 $ 235.5 $ 29.4 12.5%
EBITDA (c) $ 134.1 $ 120.9 $ 13.2 10.9%
Operating income $ 115.5 $ 104.6 $ 10.9 10.4%
Heating degree days - % colder (warmer)
than normal (d) 1.0 (8.5) -- --
- ------------------------------------------------------------------------------------------------
(a) Retail gallons sold in the 2003 three-month period include certain bulk
gallons previously reflected in wholesale gallons. Prior-period gallon
amounts have been adjusted to conform to the current period
classification.
(b) Total margin represents total revenues less cost of sales.
(c) EBITDA (earnings before interest expense, income taxes, depreciation and
amortization, equity investee income, loss on debt extinguishments, and
minority interests) 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.
Management believes EBITDA is a meaningful non-GAAP financial measure used
by analysts and lenders for evaluating the Partnership's operating
performance and ability to meet loan covenants. In addition, EBITDA is
sometimes useful for comparing operating results of companies within the
propane industry. The Partnership's definition of EBITDA may be different
from that used by other companies. 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, EBITDA for interim periods are not necessarily indicative of
amounts to be expected for a full year.
-17-
AMERIGAS PARTNERS, L.P.
The following table includes reconciliations of operating income to EBITDA
for the periods presented:
Three Months Ended
March 31,
-----------------------
2003 2002
------- -------
Operating income $ 115.5 $ 104.6
Depreciation 17.5 15.5
Amortization 1.0 1.1
Equity investee loss (income) 0.1 (0.3)
------- -------
EBITDA $ 134.1 $ 120.9
======= =======
(d) 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 United States, excluding Alaska.
Weather based upon national degree day data averaged 1.0% colder than normal
during the 2003 three-month period and 6.8% colder than the 2002 three-month
period. Although temperatures on a nationwide basis averaged near normal in the
2003 three-month period, weather in the western United States was significantly
warmer than normal while weather in the eastern United States was generally
colder than normal. The increase in retail volumes sold reflects the impact of
the colder weather on heating-related sales partially offset by the impact of
price-induced conservation and, with respect to commercial and industrial
customers, the effects of continuing economic weakness. Low-margin wholesale
propane volumes sold totaled 95.3 million gallons in the 2003 three-month period
compared to 69.0 million gallons in the prior-year period reflecting in large
part the effects of the colder weather and product cost hedging activities.
Retail propane revenues increased $129.3 million reflecting (1) a $96.1 million
increase due to higher average retail selling prices and (2) a $33.2 million
increase due to the higher volumes sold. Wholesale propane revenues increased
$32.8 million reflecting (1) a $21.3 million increase as a result of higher
average wholesale propane selling prices and (2) an $11.5 million increase as a
result of the greater wholesale volumes sold. Retail and wholesale propane
selling prices in the 2003 three-month period reflect a significant increase in
the commodity price of propane. The higher propane commodity costs resulted
from, among other things, high crude oil prices and historically low propane
inventory levels. Total cost of sales increased $136.0 million principally
reflecting the higher propane commodity costs and the higher retail and
wholesale volumes sold.
The increase in 2003 three-month period total margin is due principally to the
higher retail propane gallons sold and higher average retail unit margins.
Notwithstanding the previously mentioned significant increase in the commodity
price of propane in the 2003 three-month period, retail unit margins were higher
reflecting the effects of the higher average selling prices and the benefits of
favorable product cost management activities.
The increase in EBITDA reflects the previously mentioned increase in total
margin and greater other income partially offset by higher Partnership operating
and administrative expenses. Although EBITDA is not a measure of performance or
financial condition under accounting principles generally accepted in the United
States, management believes EBITDA is a meaningful non-GAAP financial measure
used by analysts and lenders for evaluating the Partnership's operating
-18-
AMERIGAS PARTNERS, L.P.
performance and ability to meet loan covenants. The higher 2003 three-month
period operating expenses reflect higher volume-driven overtime and vehicle
expenses, greater general and group insurance expenses, and higher incentive
compensation and uncollectible accounts expenses. Other income in the 2003
three-month period includes a gain of $1.1 million from the settlement of
certain hedge contracts. Operating income increased $10.9 million reflecting the
previously mentioned increase in EBITDA partially offset by greater depreciation
expense principally associated with PPX(R).
2003 SIX-MONTH PERIOD COMPARED WITH 2002 SIX-MONTH PERIOD
- ----------------------------------------------------------------------------------------------------
Six Months Ended March 31, 2003 2002 Increase
- ----------------------------------------------------------------------------------------------------
(Dollars in millions)
Gallons sold (millions) (a):
Retail 717.6 643.7 73.9 11.5%
Wholesale 167.0 137.4 29.6 21.5%
-------- -------- --------
884.6 781.1 103.5 13.3%
======== ======== ========
Revenues:
Retail propane $ 906.0 $ 710.4 $ 195.6 27.5%
Wholesale propane 99.7 61.7 38.0 61.6%
Other 64.9 59.4 5.5 9.3%
-------- -------- --------
$1,070.6 $ 831.5 $ 239.1 28.8%
======== ======== ========
Total margin $ 466.6 $ 407.7 $ 58.9 14.4%
EBITDA (b) $ 215.7 $ 179.5 $ 36.2 20.2%
Operating income $ 180.0 $ 147.4 $ 32.6 22.1%
Heating degree days - % colder (warmer)
than normal 1.1 (11.4) -- --
- ----------------------------------------------------------------------------------------------------
(a) Retail gallons sold in the 2003 six-month period include certain bulk
gallons previously reflected in wholesale gallons. Prior-period gallon
amounts have been adjusted to conform to the current period
classification.
(b) The following table includes reconciliations of operating income to EBITDA
for the periods presented:
Six Months Ended
March 31,
----------------------
2003 2002
------- -------
Operating income $ 180.0 $ 147.4
Depreciation 33.8 30.4
Amortization 2.0 2.2
Equity investee (income) (0.1) (0.5)
------- -------
EBITDA $ 215.7 $ 179.5
======= =======
Weather based upon national heating degree days was 1.1% colder than normal
during the 2003 six-month period compared to weather that was 11.4% warmer than
normal in the 2002 six-month period. Although temperatures on a nationwide basis
averaged near normal in the 2003 six-month period, weather in the western United
States was significantly warmer than normal while weather in the eastern
-19-
AMERIGAS PARTNERS, L.P.
United States was generally colder than normal. Retail propane volumes sold
increased 73.9 million gallons due principally to the effects of the colder
weather. Wholesale volumes sold totaled 167.0 million gallons in the 2003
six-month period compared to 137.4 million gallons in the prior-year principally
reflecting the effects of colder weather and product cost hedging activities.
Retail propane revenues increased $195.6 million reflecting (1) a $114.0 million
increase due to higher average selling prices and (2) an $81.6 million increase
due to the higher volumes sold. Wholesale propane revenues increased $38.0
million reflecting (1) a $24.7 million increase due to higher average selling
prices and (2) a $13.3 million increase due to the higher volumes sold. The
higher retail and wholesale selling prices reflect significantly higher propane
product costs during the 2003 six-month period. Total cost of sales increased
$180.2 million reflecting the higher volumes sold and higher average propane
product costs.
The increase in total margin is principally due to the higher propane gallons
sold and higher average retail propane unit margins. Notwithstanding the
significant increase in the commodity price of propane, retail propane unit
margins during the 2003 six-month period were higher than the prior-year period
reflecting the effects of higher average selling prices and the benefits of
favorable propane product cost management activities.
EBITDA increased $36.2 million in the 2003 six-month period as the previously
mentioned increase in total margin and higher other income was partially offset
by a $25.4 million increase in operating and administrative expenses. Operating
and administrative expenses increased principally due to higher volume-driven
overtime and vehicle expenses, greater general and group insurance expenses, and
higher incentive compensation and uncollectible accounts expense. Other income
in the 2003 six-month period includes a gain of $1.1 million from the settlement
of certain hedge contracts while other income in the prior-year six-month period
was reduced by a $2.1 million loss from declines in the value of propane
commodity option contracts. Operating income in the 2003 six-month period
increased less than the increase in EBITDA due to higher depreciation expense
principally associated with PPX(R).
-20-
AMERIGAS PARTNERS, L.P.
FINANCIAL CONDITION AND LIQUIDITY
Financial Condition
The Partnership's long-term debt outstanding at March 31, 2003 totaled $950.0
million (including current maturities of $60.7 million) compared to $945.8
million of long-term debt (including current maturities of $60.4 million) at
September 30, 2002. On December 3, 2002, AmeriGas Partners issued $88 million
face amount of 8.875% Senior Notes due 2011 at an effective interest rate of
8.30%. The net proceeds of $89.1 million were used on January 6, 2003 to redeem
prior to maturity AmeriGas Partners' $85 million face amount of 10.125% Senior
Notes due 2007 at a redemption price of 102.25%, plus accrued interest. The
Partnership recognized a loss of $3.0 million in the quarter ended March 31,
2003 relating to the redemption premium and other associated costs and expenses.
In April 2003, AmeriGas OLP repaid $53.8 million of maturing First Mortgage
Notes. In conjunction with this repayment, in April 2003 AmeriGas Partners
issued $32 million face amount of 8.875% Series B Notes due 2011 and contributed
the net proceeds of $33.7 million to AmeriGas OLP.
AmeriGas OLP's Second Amended and Restated Bank Credit Agreement consists of a
$100 million Revolving Credit Facility and a $75 million Acquisition Facility.
At March 31, 2003, there were no borrowings outstanding under these facilities.
Issued and outstanding letters of credit under the Revolving Credit Facility,
which reduce available borrowing capacity, totaled $22.2 million at March 31,
2003. AmeriGas OLP's Bank Credit Agreement expires October 1, 2003. The
Partnership's management expects to renew this facility prior to its expiration.
AmeriGas Partners has debt and equity shelf registration statements with the SEC
under which it may issue up to an additional $28 million of 8.875% Series B
Senior Notes and an additional 4.3 million Common Units.
During the six months ended March 31, 2003, the Partnership declared and paid
the MQD on all limited partner units for the quarters ended September 30, 2002
and December 31, 2002. The MQD for the quarter ended March 31, 2003 will be paid
on May 18, 2003 to holders of record on May 9, 2003. Effective November 18,
2002, the 9,891,072 Subordinated Units held by the General Partner were
converted to Common Units (see "Conversion of Subordinated Units" below). The
ability of the Partnership to declare and pay the MQD on limited partner units
in the future 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.
CASH FLOWS
The Partnership had cash and cash equivalents totaling $22.8 million at March
31, 2003 compared to $47.4 million at September 30, 2002. 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
-21-
AMERIGAS PARTNERS, L.P.
during the first and fourth fiscal quarters. Accordingly, cash flows from
operating activities during the six months ended March 31, 2003 are not
necessarily indicative of cash flows to be expected for a full year.
OPERATING ACTIVITIES. Cash provided by operating activities was $72.0 million
during the 2003 six-month period compared to $91.6 million in the prior-year
six-month period. Cash required to fund changes in operating working capital
during the 2003 six-month period totaled $103.8 million, a significant increase
from the $46.2 million required in the prior-year six-month period, principally
reflecting the effects of the higher propane volumes sold and higher propane
commodity costs on changes in customer accounts receivable and inventories. Cash
flow from operating activities before changes in working capital was $175.8
million in the 2003 six-month period compared to $137.7 million in the
prior-year six-month period reflecting the improved 2003 six-month period
operating results.
INVESTING ACTIVITIES. We spent $32.9 million for property, plant and equipment
(including maintenance capital expenditures of $11.8 million) during the six
months ended March 31, 2003 compared to $26.8 million (including maintenance
capital expenditures of $11.9 million) during the prior-year six-month period.
The increase is due in large part to greater PPX(R) capital expenditures
associated with purchases of overfill protection devices ("OPDs"). Proceeds from
asset disposals were lower in the 2003 six-month period principally due to lower
sales of excess assets. During the six months ended March 31, 2003, the
Partnership acquired a propane distribution business for $2.2 million.
FINANCING ACTIVITIES. The Partnership declared and paid the MQD on all limited
partner units and the general partner interests during each of the 2003 and 2002
six-month periods. During the 2003 six-month period, AmeriGas OLP repaid all
outstanding borrowings under its Revolving Credit Facility. In December 2002,
AmeriGas Partners received $89.1 million of net proceeds from the issuance of
$88 million face amount of 8.875% Senior Notes due 2011. On January 6, 2003, the
net proceeds were used to repay prior to maturity the remaining $85 million face
amount of 10.125% Senior Notes at a redemption price of 102.25%, plus accrued
interest.
CONVERSION OF SUBORDINATED UNITS
In December 2002, the General Partner determined that the cash-based performance
and distribution requirements for the conversion of the remaining 9,891,072
Subordinated Units, all of which were held by the General Partner, had been met
in respect of the quarter ended September 30, 2002. As a result, these
Subordinated Units were converted to a like number of Common Units effective
November 18, 2002. The conversion of the Subordinated Units did not result in an
increase in the total number of AmeriGas Partners limited partner units
outstanding.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") recently issued SFAS No. 149,
"Amendment of Statement 133 on Derivative Instruments and Hedging Activities"
("SFAS 149"); SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure" ("SFAS 148"); SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"); and
-22-
AMERIGAS PARTNERS, L.P.
FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN
45").
SFAS 149 amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 149 amends
SFAS 133 for decisions made (1) as part of the FASB's Derivatives Implementation
Group ("DIG") process; (2) in connection with other FASB projects dealing with
financial instruments; and (3) in connection with implementation issues raised
in relation to the application of the definition of a derivative. SFAS 149 is
effective for contracts entered into or modified after June 30, 2003. Based upon
the types of contracts currently entered into by the Partnership, we do not
believe SFAS 149 will have a material impact on our financial position or
results of operations.
SFAS 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), to provide alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee compensation.
In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. As permitted by SFAS 123, we currently apply
the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), in recording compensation
expense for grants of equity instruments to employees. The disclosures required
by SFAS 148 are included in Note 1 to Condensed Consolidated Financial
Statements.
SFAS 146 addresses accounting for costs associated with exit or disposal
activities and replaces the guidance in 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 an entity committed to an exit plan. SFAS 146 became
effective for disposal activities initiated after December 31, 2002. The initial
adoption of the provisions of SFAS 146 did not affect our financial position or
results of operations.
FIN 45 expands the existing disclosure requirements for guarantees and requires
that companies recognize, at the inception of a guarantee, a liability for the
fair value of the obligations undertaken when issuing the guarantee. The initial
recognition and initial measurement provisions of FIN 45 are effective for
guarantees issued or modified after December 31, 2002. The disclosure
requirements of FIN 45 are included in Note 6 to Condensed Consolidated
Financial Statements. The application of FIN 45 did not have a material effect
on our financial position or results of operations.
-23-
AMERIGAS PARTNERS, L.P.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary financial market risks include commodity prices for propane and
interest rates on borrowings.
The 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 for propane and other energy commodities. 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
reduce the volatility 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 are generally settled at expiration of
the contract. In order to minimize credit risk associated with derivative
commodity 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 includes 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 interest rates reflecting then-current market
conditions. This debt may have an interest rate that is more or less than the
refinanced debt. In order to reduce interest rate risk associated with near-term
forecasted issuances of fixed-rate debt, from time to time we enter into
interest rate protection agreements.
The following table summarizes the fair values of unsettled market risk
sensitive derivative instruments held at March 31, 2003. 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 50 basis points:
- --------------------------------------------------------------------------------
Fair Change in
Value Fair Value
- --------------------------------------------------------------------------------
(Millions of dollars)
March 31, 2003:
Propane commodity price risk $ 1.2 $ (0.8)
Interest rate risk (2.8) (2.1)
- --------------------------------------------------------------------------------
-24-
AMERIGAS PARTNERS, L.P.
Because the Partnership's derivative instruments generally qualify as hedges
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," 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.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation of the effectiveness of the design and operation of the
Partnership's disclosure controls and procedures was carried out within the
90-day period prior to the filing of this quarterly report by the General
Partner under the supervision and with the participation of the General
Partner's management, including the Chief Executive Officer and Chief Financial
Officer. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Partnership's disclosure controls and
procedures have been designed and are being operated in a manner that provides
reasonable assurance that the information required to be disclosed by the
Partnership in reports filed under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms. A controls system, no matter how well designed and
operated, cannot provide absolute assurance that the objectives of the controls
system are met, and no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within a company have
been detected. Subsequent to the date of the most recent evaluation of the
Partnership's internal controls, there were no significant changes in the
Partnership's internal controls or in other factors that could significantly
affect the internal controls, including any corrective actions with regard to
significant deficiencies and material weaknesses.
-25-
AMERIGAS PARTNERS, L.P.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
10.1 UGI Corporation 1997 Stock Option and Dividend Equivalent Plan
Amended and Restated as of April 29, 2003 is incorporated by
reference to Exhibit 10.4 to UGI's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2003.
10.2 UGI Corporation 2000 Stock Incentive Plan Amended and Restated as
of April 29, 2003 is incorporated by reference to Exhibit 10.5 to
UGI's Quarterly Report on Form 10-Q for the quarter ended March
31, 2003.
10.3 UGI Corporation 1992 Non-Qualified Stock Option Plan Amended and
Restated as of April 29, 2003 is incorporated by reference to
Exhibit 10.6 to UGI's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2003.
10.4 UGI Corporation 2002 Non-Qualified Stock Option Plan Amended and
Restated as of April 29, 2003 is incorporated by reference to
Exhibit 10.7 to UGI's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2003.
99 Certification by the Chief Executive Officer and Chief Financial
Officer relating to the Registrants' Report on Form 10-Q for the
quarter ended March 31, 2003.
(b) The following Current Report on Form 8-K was filed during the fiscal
quarter ended March 31, 2003:
DATE ITEM NUMBER CONTENT
January 22, 2003 5 Notice of first quarter earnings
conference call webcast
-26-
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: May 15, 2003 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: May 15, 2003 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
-27-
AmeriGas Eagle Finance Corp.
---------------------------------
(Registrant)
Date: May 15, 2003 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: May 15, 2003 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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CERTIFICATIONS
I, Eugene V.N. Bissell, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AmeriGas Partners,
L.P., AmeriGas Finance Corp., AmeriGas Eagle Finance Corp. and AP Eagle
Finance Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrants as of, and for, the periods presented in this
quarterly report;
4. The registrants' other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrants and
we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrants, including their
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrants' disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrants' other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants' auditors and the audit
committee of each registrant's board of directors (or persons performing
the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants'
ability to record, process, summarize and report financial data
and have identified for the registrants' auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants'
internal controls; and
6. The registrants' other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: May 15, 2003
Eugene V.N. Bissell
-------------------------------------
Eugene V.N. Bissell
President and Chief Executive Officer
AmeriGas Propane, Inc.
AmeriGas Finance Corp.
AmeriGas Eagle Finance Corp.
AP Eagle Finance Corp.
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I, Martha B. Lindsay, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AmeriGas Partners,
L.P., AmeriGas Finance Corp., AmeriGas Eagle Finance Corp. and AP Eagle
Finance Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrants as of, and for, the periods presented in this
quarterly report;
4. The registrants' other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrants and
we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrants, including their
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrants' disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrants' other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants' auditors and the audit
committee of each the registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants'
ability to record, process, summarize and report financial data
and have identified for the registrants' auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants'
internal controls; and
6. The registrants' other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: May 15, 2003
Martha B. Lindsay
-------------------------------------
Martha B. Lindsay
Vice President - Finance and Chief
Financial Officer
AmeriGas Propane, Inc.
AmeriGas Finance Corp.
AmeriGas Eagle Finance Corp.
AP Eagle Finance Corp.
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EXHIBIT INDEX
10.1 UGI Corporation 1997 Stock Option and Dividend Equivalent Plan
Amended and Restated as of April 29, 2003 is incorporated by
reference to Exhibit 10.4 to UGI's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2003.
10.2 UGI Corporation 2000 Stock Incentive Plan Amended and Restated as
of April 29, 2003 is incorporated by reference to Exhibit 10.5 to
UGI's Quarterly Report on Form 10-Q for the quarter ended March
31, 2003.
10.3 UGI Corporation 1992 Non-Qualified Stock Option Plan Amended and
Restated as of April 29, 2003 is incorporated by reference to
Exhibit 10.6 to UGI's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2003.
10.4 UGI Corporation 2002 Non-Qualified Stock Option Plan Amended and
Restated as of April 29, 2003 is incorporated by reference to
Exhibit 10.7 to UGI's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2003.
99 Certification by the Chief Executive Officer and the Chief
Financial Officer relating to the Registrants' Reports on Form
10-Q for the quarter ended March 31, 2003.