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 June 30, 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 333-72986-02
Commission file number 333-72986-01
AMERIGAS PARTNERS, L.P.
AMERIGAS EAGLE FINANCE CORP.
AP EAGLE FINANCE CORP.
(Exact name of registrants as specified in their charters)
Delaware 23-2787918
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, 2003, the registrants had units and shares of common stock
outstanding as follows:
AmeriGas Partners, L.P. - 52,333,208 Common Units
AmeriGas Eagle Finance Corp. - 100 shares
AP Eagle Finance Corp. - 100 shares
AMERIGAS PARTNERS, L.P.
TABLE OF CONTENTS
PAGES
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
AmeriGas Partners, L.P.
Condensed Consolidated Balance Sheets as of June 30, 2003,
September 30, 2002 and June 30, 2002 1
Condensed Consolidated Statements of Operations for the three
and nine months ended June 30, 2003 and 2002 2
Condensed Consolidated Statements of Cash Flows for the nine
months ended June 30, 2003 and 2002 3
Condensed Consolidated Statement of Partners' Capital for the
nine months ended June 30, 2003 4
Notes to Condensed Consolidated Financial Statements 5 - 11
AmeriGas Eagle Finance Corp.
Balance Sheets as of June 30, 2003 and September 30, 2002 12
Note to Balance Sheets 13
AP Eagle Finance Corp.
Balance Sheets as of June 30, 2003 and September 30, 2002 14
Note to Balance Sheets 15
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 16 - 23
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23 - 24
Item 4. Controls and Procedures 24 - 25
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 26
Signatures 27
-i-
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Thousands of dollars)
June 30, September 30, June 30,
2003 2002 2002
---------- ------------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 33,959 $ 47,400 $ 45,089
Accounts receivable (less allowances for doubtful accounts
of $10,741, $7,588 and $8,980, respectively) 109,427 83,274 93,823
Accounts receivable - related parties 875 6,862 3,492
Inventories 59,420 62,496 53,798
Prepaid expenses and other current assets 24,414 31,238 18,831
---------- ------------- ----------
Total current assets 228,095 231,270 215,033
Property, plant and equipment (less accumulated depreciation and
amortization of $457,574, $408,590 and $393,284, respectively) 607,225 611,550 613,724
Goodwill and excess reorganization value 599,652 589,923 589,924
Intangible assets (less accumulated amortization of $10,948,
$8,651 and $8,077, respectively) 27,176 22,586 24,193
Other assets 16,633 17,289 22,219
---------- ------------- ----------
Total assets $1,478,781 $ 1,472,618 $1,465,093
========== ============= ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current maturities of long-term debt $ 60,988 $ 60,398 $ 58,219
Bank loans - 10,000 -
Accounts payable - trade 72,454 81,891 73,892
Accounts payable - related parties 1,006 5,003 2,044
Customer deposits and advances 14,666 53,177 28,322
Interest accrued 17,247 34,492 19,197
Other current liabilities 67,159 62,863 61,778
---------- ------------- ----------
Total current liabilities 233,520 307,824 243,452
Long-term debt 868,832 885,386 888,214
Other noncurrent liabilities 52,727 44,810 41,952
Commitments and contingencies (note 7)
Minority interests 7,576 6,232 6,861
Partners' capital 316,126 228,366 284,614
---------- ------------- ----------
Total liabilities and partners' capital $1,478,781 $ 1,472,618 $1,465,093
========== ============= ==========
See accompanying notes to condensed 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,
-------------------------- --------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Revenues:
Propane $ 257,705 $ 226,192 $ 1,263,423 $ 998,326
Other 29,431 28,277 94,290 87,650
----------- ----------- ----------- -----------
287,136 254,469 1,357,713 1,085,976
----------- ----------- ----------- -----------
Costs and expenses:
Cost of sales - propane 145,637 105,992 723,258 506,123
Cost of sales - other 12,310 12,032 38,716 35,702
Operating and administrative expenses 119,136 108,846 374,005 338,330
Depreciation and amortization 18,891 16,632 54,813 49,306
Equity investee (income) loss 637 54 493 (458)
Other (income), net (3,008) (856) (7,066) (2,172)
----------- ----------- ----------- -----------
293,603 242,700 1,184,219 926,831
----------- ----------- ----------- -----------
Operating income (loss) (6,467) 11,769 173,494 159,145
Loss on extinguishments of debt - - (3,023) (752)
Interest expense (21,468) (21,784) (66,051) (66,541)
----------- ----------- ----------- -----------
Income (loss) before income taxes (27,935) (10,015) 104,420 91,852
Income tax (expense) benefit 343 68 405 (148)
Minority interests 178 2 (1,451) (1,263)
----------- ----------- ----------- -----------
Net income (loss) $ (27,414) $ (9,945) $ 103,374 $ 90,441
=========== =========== =========== ===========
General partner's interest in net income (loss) $ (274) $ (100) $ 1,034 $ 904
=========== =========== =========== ===========
Limited partners' interest in net income (loss) $ (27,140) $ (9,845) $ 102,340 $ 89,537
=========== =========== =========== ===========
Net income (loss) per limited partner unit:
Basic $ (0.54) $ (0.20) $ 2.06 $ 1.84
=========== =========== =========== ===========
Diluted $ (0.54) $ (0.20) $ 2.06 $ 1.83
=========== =========== =========== ===========
Average limited partner units outstanding:
Basic 49,847 49,432 49,571 48,736
=========== =========== =========== ===========
Diluted 49,847 49,432 49,631 48,830
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
- 2 -
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Thousands of dollars)
Nine Months Ended
June 30,
----------------------
2003 2002
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 103,374 $ 90,441
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 54,813 49,306
Other, net 11,005 868
Net change in:
Accounts receivable (26,025) 4,096
Inventories 3,224 19,274
Accounts payable (13,433) (1,379)
Other current assets and liabilities (45,803) (35,199)
--------- ---------
Net cash provided by operating activities 87,155 127,407
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (43,425) (38,586)
Proceeds from disposals of assets 6,037 6,329
Acquisitions of businesses, net of cash acquired (27,009) (736)
--------- ---------
Net cash used by investing activities (64,397) (32,993)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (82,388) (81,035)
Minority interest activity (358) (199)
Decrease in bank loans (10,000) -
Issuance of long-term debt 122,780 40,900
Repayment of long-term debt (141,996) (98,607)
Proceeds from issuance of Common Units 75,005 56,556
Capital contributions from General Partner 758 571
--------- ---------
Net cash used by financing activities (36,199) (81,814)
--------- ---------
Cash and cash equivalents (decrease) increase $ (13,441) $ 12,600
========= =========
CASH AND CASH EQUIVALENTS:
End of period $ 33,959 $ 45,089
Beginning of period 47,400 32,489
--------- ---------
(Decrease) increase $ (13,441) $ 12,600
========= =========
See accompanying notes to condensed 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 100,961 1,379 1,034 103,374
Net gains on derivative instruments 17,052 17,052
Reclassification of net gains
on derivative instruments (26,062) (26,062)
------------- -----------
Comprehensive income (9,010) 94,364
Distributions (76,124) (5,440) (824) (82,388)
Common Units issued in
connection with public offering 2,900,000 75,005 758 75,763
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 JUNE 30, 2003 52,333,208 - $ 315,308 $ - $ 3,182 $ (2,364) $ 316,126
========== ============ ========= ============ =========== ============= ===========
See accompanying notes to condensed 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") 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. The September 30, 2002 condensed consolidated balance sheet
data was derived from audited financial statements, but does not
include all disclosures required by accounting principles generally
accepted in the United States of America. 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 (LOSS). The following table presents the components of
comprehensive income (loss) for the three and nine months ended June 30, 2003
and 2002:
- ------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
June 30 June 30,
---------------------- ----------------------
2003 2002 2003 2002
- ------------------------------------------------------------------------------------
Net income (loss) $ (27,414) $ (9,945) $ 103,374 $ 90,441
Other comprehensive income (loss) 1,571 (5,436) (9,010) 14,576
- ------------------------------------------------------------------------------------
Comprehensive income (loss) $ (25,843) $ (15,381) $ 94,364 $ 105,017
- ------------------------------------------------------------------------------------
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 $618 and $1,641 during the three and nine
months ended June 30, 2003, respectively, and $411 and $740 during the three and
nine months ended June 30, 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 nine months ended June 30, 2003, certain costs previously
considered operating and administrative expenses have been included in cost of
sales. We have reclassified $6,796 and $12,809 of such costs incurred during the
three and nine months ended June 30, 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 for the nine months ended June 30, 2003 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, in
the Condensed Consolidated Statement of Operations for the nine months ended
June 30, 2002 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:
-------------------------------------------------------------
June 30, September 30,
2003 2002
-------------------------------------------------------------
Subject to amortization:
Customer relationships and
noncompete agreements $ 38,124 $ 31,237
Accumulated amortization (10,948) (8,651)
-------------------------------------------------------------
$ 27,176 $ 22,586
-------------------------------------------------------------
Not subject to amortization:
Goodwill $ 506,332 $ 496,603
Excess reorganization value 93,320 93,320
-------------------------------------------------------------
$ 599,652 $ 589,923
-------------------------------------------------------------
The increases in intangible assets during the nine months ended June
30, 2003 resulted from Partnership business acquisitions. Amortization
expense of intangible assets was $745 and $2,297 for the three and nine
months ended June 30, 2003, respectively, and $892 and $2,713 for the
three and nine months ended June 30, 2002, respectively. Our expected
aggregate amortization expense of intangible assets for the next five
fiscal years is as follows: Fiscal 2003 - $3,140; Fiscal 2004 - $3,306;
Fiscal 2005 - $3,068; Fiscal 2006 - $2,661; Fiscal 2007 - $2,030.
3. COMMON UNIT ACTIVITY
On June 17, 2003, AmeriGas Partners sold 2,900,000 Common Units in an
underwritten public offering at a public offering price of $27.12 per
unit. The net proceeds of the public offering totaling $75,005 and the
associated capital contributions from the General Partner totaling
$1,531 were contributed to AmeriGas OLP and used to reduce indebtedness
under its bank credit agreement and for general partnership purposes.
The underwriters' overallotment option expired unexercised.
In December 2002, the General Partner determined that the cash-based
performance and distribution requirements for the conversion of the
then-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, the Subordinated Units were converted
to an equivalent 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.
- 7 -
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars, except per unit)
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 $68,553 and
$215,750 during the three and nine months ended June 30, 2003,
respectively, and $64,691 and $200,955 during the three and nine months
ended June 30, 2002, respectively.
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 $2,455 and $6,699 during the three and nine months
ended June 30, 2003, respectively, and $1,266 and $4,196 during the
three and nine months ended June 30, 2002, respectively. UGI and
certain of its subsidiaries also provide office space, and during the
three and nine months ended June 30, 2003 provided automobile liability
insurance, to the Partnership. These expenses totaled $441 and $1,315
during the three and nine months ended June 30, 2003, respectively, and
$358 and $1,071 during the three and nine months ended June 30, 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 $941 and $11,764 during the three and nine months
ended June 30, 2003, respectively, and $3,573 and $11,365 during the
three and nine months ended June 30, 2002, respectively. Purchases of
propane by AmeriGas OLP from Atlantic Energy during the three and nine
months ended June 30, 2003 totaled $2,240 and $20,898, respectively,
and during the three and nine months ended June 30, 2002 totaled $1,585
and $10,939 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 nine months ended June 30, 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 June 30, 2003, September 30, 2002
and June 30, 2002 totaled $772, $5,243 and $3,148, respectively, which
amounts are included in accounts receivable - related parties in the
Condensed Consolidated Balance Sheets.
- 8 -
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars, except per unit)
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 net proceeds, including debt premium, 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
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 at an effective interest rate of 7.72% and contributed the net
proceeds of $33,680, including debt premium, to AmeriGas OLP.
6. MANAGEMENT REALIGNMENT
In June 2003, the General Partner announced a plan to realign its
management structure. Pursuant to the plan, the Partnership will close
its seven regional offices located across the country and will relocate
four regional vice presidents to its Valley Forge, Pennsylvania
headquarters. In addition, the Partnership reconfigured its eighty
geographically-based market areas into approximately sixty market
areas. The management realignment is expected to be substantially
complete by September 30, 2003.
The new management structure is expected to further streamline business
processes, eliminate duplication and reduce overhead expenses. As a
result of the management realignment, the Partnership incurred charges
for severance, lease termination and other expenses totaling $3,022
which are reflected as operating and administrative expenses in the
Condensed Consolidated Statements of Operations for the three and nine
months ended June 30, 2003. As of June 30, 2003, $2,698 of costs
associated with the management realignment, principally comprising
employee severance and lease termination costs, are included in other
current liabilities in the Condensed Consolidated Balance Sheet.
Additional future costs to be incurred in conjunction with the
management realignment are not expected to have a material effect on
our results of operations.
- 9 -
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars, except per unit)
7. 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 $17,000 at June 30, 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 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 June 30,
2003, the potential amount payable under this indemnity by the Company
Parties was approximately $71,000. These indemnity
- 10 -
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars, except per unit)
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.
- 11 -
AMERIGAS EAGLE FINANCE CORP.
(a wholly owned subsidiary of AmeriGas Partners, L.P.)
BALANCE SHEETS
(unaudited)
June 30, 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.
- 12 -
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 amount of 10% Senior Notes due April 2006.
AmeriGas Partners owns all 100 shares of Eagle Finance common stock outstanding.
- 13 -
AP EAGLE FINANCE CORP.
(a wholly owned subsidiary of AmeriGas Partners, L.P.)
BALANCE SHEETS
(unaudited)
June 30, 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.
- 14 -
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 amount 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 amount 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 amount 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 amount of 8.875%
Senior Notes due May 2011. On April 4, 2003, AmeriGas Partners and AP Eagle
Finance exchanged (1) $15,000 face amount of 8.875% Series A Senior Notes due
May 2011 and (2) $88,000,000 face amount 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 amount of 8.875% Series B Senior Notes due May 2011.
AmeriGas Partners owns all 100 shares of AP Eagle Finance common stock
outstanding.
- 15 -
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, 2003 ("2003 three-month period") with the three
months ended June 30, 2002 ("2002 three-month period") and (2) the nine months
ended June 30, 2003 ("2003 nine-month period") with the nine months ended June
30, 2002 ("2002 nine-month period"). AmeriGas Eagle Finance Corp. and AP Eagle
Finance Corp. have nominal assets and do not conduct any operations. Their sole
purpose is to serve as co-obligors for debt securities issued by AmeriGas
Partners, L.P. 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
- --------------------------------------------------------------------------------
Increase
Three Months Ended June 30, 2003 2002 (Decrease)
- --------------------------------------------------------------------------------
(Dollars in millions)
Gallons sold (millions) (a):
Retail 182.4 182.5 (0.1) (0.1)%
Wholesale 21.7 27.9 (6.2) (22.2)%
------ ------ ------
204.1 210.4 (6.3) (3.0)%
====== ====== ======
Revenues:
Retail propane $244.2 $213.1 $ 31.1 14.6 %
Wholesale propane 13.5 13.1 0.4 3.1 %
Other 29.4 28.3 1.1 3.9 %
------ ------ ------
$287.1 $254.5 $ 32.6 12.8 %
====== ====== ======
Total margin (b) $129.2 $136.4 $ (7.2) (5.3)%
Modified EBITDA (c) $ 13.1 $ 28.5 $(15.4) (54.0)%
Operating income (loss) $ (6.5) $ 11.8 $(18.3) (155.1)%
Heating degree days - % colder (warmer)
than normal (d) (0.5) 4.3 - -
- --------------------------------------------------------------------------------
(a) Retail gallons sold in the 2003 three-month period include certain bulk
gallons previously considered 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) Modified 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 Modified EBITDA is a meaningful non-GAAP financial
measure used by investors to compare the Partnership's operating performance
with other companies within the propane industry. The Partnership's
definition of Modified 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, Modified
EBITDA for interim periods is not necessarily indicative of amounts to be
expected for a full year.
- 16 -
AMERIGAS PARTNERS, L.P.
The following table includes reconciliations of net loss to Modified
EBITDA for the periods presented:
Three Months Ended
June 30,
------------------
2003 2002
------ ------
Net loss $(27.4) $ (9.9)
Minority interests (0.2) -
Income tax benefit (0.3) (0.1)
Interest expense 21.5 21.8
Depreciation 17.9 15.5
Amortization 1.0 1.1
Equity investee loss 0.6 0.1
------ -----
Modified EBITDA $ 13.1 $28.5
====== =====
(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.
Retail gallons sold in the 2003 three-month period were substantially equal to
the prior-year three-month period reflecting the effects of slightly colder
early spring weather on heating-related sales offset principally by lower
commercial and industrial sales resulting from continuing economic weakness and
price-induced conservation. Low-margin wholesale propane volumes sold in the
2003 three-month period totaled 21.7 million gallons, a decline of 6.2 million
gallons, reflecting a decrease in supply-related product cost management
activity.
Retail propane revenues increased $31.1 million in the 2003 three-month period
due to higher average retail selling prices. Wholesale propane revenues
increased $0.4 million reflecting (1) a $3.3 million increase as a result of
higher average wholesale propane selling prices partially offset by (2) a $2.9
million decrease as a result of the lower wholesale volumes sold. Retail and
wholesale propane selling prices in the 2003 three-month period reflect
significantly higher propane commodity costs. Other revenues increased $1.1
million due in large part to increased hauling activity. Total propane cost of
sales increased $39.6 million in the 2003 three-month period reflecting the
previously mentioned higher propane commodity costs.
The $7.2 million decrease in total margin is principally due to lower unit
margins from our PPX(R) grill cylinder exchange business in the 2003 three-month
period and lower average unit margins from our non-PPX(R) customers. Margins in
the prior-year period benefited from lower propane commodity prices as a result
of reduced demand for propane during the warmer than normal 2002 winter heating
season.
The $15.4 million decrease in Modified EBITDA reflects the previously mentioned
decrease in total margin and a $10.3 million increase in operating and
administrative expenses partially offset by a $2.2 million increase in other
income. Although Modified EBITDA is not a measure of performance or financial
condition under accounting principles generally accepted in the United States,
management believes Modified EBITDA is a meaningful non-GAAP financial measure
used by investors to compare our operating performance with other companies
within the retail propane industry. The higher 2003 three-month period operating
expenses include, among other
- 17 -
AMERIGAS PARTNERS, L.P.
things, (1) $3.0 million of expenses associated with the realignment of the
Partnership's management structure announced in June 2003; (2) greater medical
and general insurance expenses; and (3) higher incentive compensation expenses.
The greater other income in the 2003 three-month period reflects greater income
from sales of fixed assets and higher finance charge income. Operating income
decreased $18.3 million in the 2003 three-month period reflecting the previously
mentioned decline in Modified EBITDA and greater depreciation expense
principally associated with PPX(R).
2003 NINE-MONTH PERIOD COMPARED WITH 2002 NINE-MONTH PERIOD
- ----------------------------------------------------------------------------------
Nine Months Ended June 30, 2003 2002 Increase
- ----------------------------------------------------------------------------------
(Dollars in millions)
Gallons sold (millions) (a):
Retail 900.0 826.2 73.8 8.9%
Wholesale 188.7 165.3 23.4 14.2%
-------- -------- --------
1,088.7 991.5 97.2 9.8%
======== ======== ========
Revenues:
Retail propane $1,150.2 $ 923.5 $ 226.7 24.5%
Wholesale propane 113.2 74.8 38.4 51.3%
Other 94.3 87.7 6.6 7.5%
-------- -------- --------
$1,357.7 $1,086.0 $ 271.7 25.0%
======== ========= ========
Total margin $ 595.7 $ 544.2 $ 51.5 9.5%
Modified EBITDA (b) $ 228.8 $ 208.0 $ 20.8 10.0%
Operating income $ 173.5 $ 159.1 $ 14.4 9.1%
Heating degree days - % colder (warmer)
than normal 0.9 (9.5) - -
- ----------------------------------------------------------------------------------
(a) Retail gallons sold in the 2003 nine-month period include certain bulk
gallons previously considered wholesale gallons. Prior-period gallon
amounts have been adjusted to conform to the current period classification.
(b) The following table includes reconciliations of net income to Modified
EBITDA for the periods presented:
Nine Months Ended
June 30,
---------------------------
2003 2002
------------ -----------
Net income $ 103.4 $ 90.4
Minority interests 1.4 1.3
Income tax (benefit) expense (0.4) 0.1
Interest expense 66.1 66.5
Loss on extinguishments of debt 3.0 0.8
Depreciation 51.8 46.0
Amortization 3.0 3.3
Equity investee loss (income) 0.5 (0.4)
------------ -----------
Modified EBITDA $ 228.8 $ 208.0
============ ===========
Weather based upon heating degree days was 0.9% colder than normal during the
2003 nine-month period compared to weather that was 9.5% warmer than normal in
the 2002 nine-month
- 18 -
AMERIGAS PARTNERS, L.P.
period. Although temperatures nationwide averaged near normal during the 2003
nine-month period, our overall results reflect weather that was significantly
warmer in the West and generally colder than normal in the East. Retail propane
volumes sold increased 73.8 million gallons in the 2003 nine-month period due
principally to the effects of the colder weather partially offset by the effects
of price-induced customer conservation and, with respect to commercial and
industrial customers, continuing economic weakness. Wholesale volumes totaled
188.7 million gallons, an increase of 23.4 million gallons, reflecting the
effects of the colder weather and supply-related product cost management
activities.
Retail propane revenues increased $226.7 million reflecting (1) a $144.2 million
increase due to higher average selling prices and (2) an $82.5 million increase
due to the higher retail volumes sold. Wholesale propane revenues increased
$38.4 million reflecting (1) a $27.8 million increase due to higher average
selling prices and (2) a $10.6 million increase due to the higher volumes sold.
The higher retail and wholesale selling prices reflect significantly higher
propane product costs during the 2003 nine-month period resulting from, among
other things, higher crude oil and natural gas prices and lower propane
inventories. Other revenues increased $6.6 million reflecting higher customer
fee and hauling revenue. Total cost of sales increased $220.1 million reflecting
the higher propane product costs and higher volumes sold.
The $51.5 million increase in total margin is principally due to the higher
propane gallons sold and, to a lesser extent, slightly higher average retail
propane unit margins. Notwithstanding the previously mentioned significant
increase in the commodity price of propane, retail propane unit margins were
slightly higher than the prior-year period reflecting the effects of the higher
average selling prices and the benefits of favorable propane product cost
management activities.
Modified EBITDA increased $20.8 million in the 2003 nine-month period reflecting
the previously mentioned increase in total margin and a $4.9 million increase in
other income partially offset by a $35.7 million increase in Partnership
operating and administrative expenses. Operating and administrative expenses
increased principally due to higher medical and general insurance expenses,
higher distribution expenses due to higher vehicle fuel costs, and higher
incentive compensation and uncollectible accounts expenses. In addition, the
Partnership incurred $3.0 million of costs during the 2003 nine-month period as
a result of its management realignment announced in June 2003. Other income in
the 2003 nine-month period includes a gain of $1.1 million from the settlement
of certain hedge contracts and greater income from sales of assets and finance
charges while other income in the prior-year nine-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 nine-month period increased less than
the increase in Modified EBITDA due to higher depreciation expense principally
associated with PPX(R).
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL CONDITION
The Partnership's long-term debt outstanding at June 30, 2003 totaled $929.8
million (including current maturities of $61.0 million) compared to $945.8
million (including current maturities of $60.4 million) at September 30, 2002.
On December 3, 2002, AmeriGas Partners issued $88
- 19 -
AMERIGAS PARTNERS, L.P.
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 at an effective
interest rate of 7.72% and contributed the net proceeds of $33.7 million,
including debt premium, 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 June 30, 2003, there were no borrowings outstanding under these facilities.
Up to $30 million of the Acquisition Facility may be used for working capital
purposes. Issued and outstanding letters of credit under the Revolving Credit
Facility, which reduce available borrowing capacity, totaled $27 million at
June 30, 2003. AmeriGas OLP's Bank Credit Agreement expires October 1, 2003.
The Partnership expects to renew this facility prior to its expiration.
On June 17, 2003, AmeriGas Partners sold 2,900,000 Common Units in an
underwritten public offering at a public offering price of $27.12 per unit. The
net proceeds of the public offering totaling $75,005 and the associated capital
contributions from the General Partner totaling $1,531 were contributed to
AmeriGas OLP and used to reduce indebtedness under its bank credit agreement and
for general partnership purposes. The underwriters' overallotment option expired
unexercised.
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 1.4 million Common Units.
During the nine months ended June 30, 2003, the Partnership declared and paid
the minimum quarterly distribution of $0.55 (the "MQD") on all limited partner
units for the quarters ended September 30, 2002, December 31, 2002, and March
31, 2003. The MQD for the quarter ended June 30, 2003 will be paid on August 18,
2003 to holders of record on August 8, 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 its Common 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
Amended 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.
- 20 -
AMERIGAS PARTNERS, L.P.
CASH FLOWS
The Partnership had cash and cash equivalents totaling $34.0 million at June 30,
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 during the first and fourth fiscal quarters. Accordingly, cash flows from
operating activities during the nine months ended June 30, 2003 are not
necessarily indicative of cash flows to be expected for a full year.
OPERATING ACTIVITIES. Cash provided by operating activities was $87.2 million
during the 2003 nine-month period compared to $127.4 million in the prior-year
nine-month period. Cash required to fund changes in operating working capital
during the 2003 nine-month period totaled $82.0 million, a significant increase
from the $13.2 million required in the prior-year nine-month period, principally
reflecting the effects of the higher propane commodity costs on changes in
customer accounts receivable and inventories and the higher volumes sold. Cash
flow from operating activities before changes in working capital was $169.2
million in the 2003 nine-month period compared to $140.6 million in the
prior-year nine-month period reflecting the improved 2003 nine-month period
operating results.
INVESTING ACTIVITIES. We spent $43.4 million for property, plant and equipment
(including maintenance capital expenditures of $16.2 million and growth capital
expenditures of $27.2 million) during the nine months ended June 30, 2003
compared to $38.6 million (including maintenance capital expenditures of $15.2
million and growth capital expenditures of $23.4 million) during the prior-year
nine-month period. The increase is due in large part to greater PPX(R) capital
expenditures associated with purchases of overfill protection devices ("OPDs").
During the nine months ended June 30, 2003, the Partnership acquired several
propane distribution businesses for $27.0 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
nine-month periods. During the 2003 nine-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. In April 2003, AmeriGas Partners issued $32 million face amount of
8.875% Series B Senior Notes due 2011 and contributed the net proceeds of $33.7
million to AmeriGas OLP. Also in April 2003, AmeriGas OLP repaid $53.8 million
of maturing First Mortgage Notes.
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
- 21 -
AMERIGAS PARTNERS, L.P.
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. 150,
"Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity" ("SFAS 150"); 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 FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45").
SFAS 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of the instruments
within the scope of SFAS 150 were previously classified as equity. SFAS 150 is
effective for financial instruments entered into or modified after May 31, 2003
and otherwise shall be effective for the Partnership on July 1, 2003. For
financial instruments created before May 31, 2003, and still existing on July 1,
2003, transition shall be achieved by reporting the cumulative effect of a
change in an accounting principle by initially measuring the instruments at fair
value or other measurement attribute required by SFAS 150. The adoption of SFAS
150 did not affect our financial position or results of operations.
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.
- 22 -
AMERIGAS PARTNERS, L.P.
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 7 to Condensed Consolidated
Financial Statements. The application of FIN 45 did not have a material effect
on our financial position or results of operations.
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 instruments. 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.
- 23 -
AMERIGAS PARTNERS, L.P.
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 June 30, 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)
June 30, 2003:
Propane commodity price risk $ 1.3 $ (8.6)
Interest rate risk (1.5) (2.1)
- ---------------------------------------------------------------
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
(a) Evaluation of Disclosure Controls and Procedures
The Partnership's management, with the participation of the
Partnership's Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the Partnership's disclosure controls
and procedures as of the end of the period covered by this report.
Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Partnership's disclosure controls
and procedures as of the end of the period covered by this report were
designed and functioning effectively to provide reasonable assurance
that the information required to be disclosed by the Partnership in
reports filed under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms. The Partnership believes that 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.
- 24 -
AMERIGAS PARTNERS, L.P.
(b) Change in Internal Control over Financial Reporting
No change in the Partnership's internal control over financial
reporting occurred during the Partnership's most recent fiscal quarter
that has materially affected, or is reasonably likely to materially
affect, the Partnership's internal control over financial reporting.
- 25 -
AMERIGAS PARTNERS, L.P.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
31.1 Certification by the Chief Executive Officer relating to the
Registrants' Report on Form 10-Q for the quarter ended June
30, 2003 pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification by the Chief Financial Officer relating to the
Registrants' Report on Form 10-Q for the quarter ended June
30, 2003 pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32 Certification by the Chief Executive Officer and Chief
Financial Officer relating to the Registrants' Report on Form
10-Q for the quarter ended June 30, 2003 pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
(b) The following Current Reports on Form 8-K were filed during the fiscal
quarter ended June 30, 2003:
DATE ITEM NUMBER CONTENT
April 16, 2003 5, 7 Underwriting Agreement dated April 11, 2003 and Third
Supplemental Indenture dated April 16, 2003 pertaining to
AmeriGas Partners, L.P. 8.875% Series B Senior Notes due 2011.
April 30, 2003 7, 9, 12 Press Release of AmeriGas Partners, L.P. reporting its financial
results for the second fiscal quarter ended March 31, 2003.
June 12, 2003 5, 7 Underwriting Agreement dated June 11, 2003, pertaining to
2,900,000 Common Unit offering. Opinion of Morgan, Lewis &
Bockius LLP, dated June 12, 2003, relating to certain tax
matters and consent of Morgan, Lewis & Bockius LLP.
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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 14, 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 Eagle Finance Corp.
---------------------------------------
(Registrant)
Date: August 14, 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: August 14, 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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AMERIGAS PARTNERS, L.P.
EXHIBIT INDEX
31.1 Certification by the Chief Executive Officer relating to the
Registrants' Report on Form 10-Q for the quarter ended June 30, 2003
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by the Chief Financial Officer relating to the
Registrants' Report on Form 10-Q for the quarter ended June 30, 2003
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification by the Chief Executive Officer and Chief Financial
Officer relating to the Registrants' Report on Form 10-Q for the
quarter ended June 30, 2003 pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.