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, 2004
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, 2004, the registrants had units and shares of common stock
outstanding as follows:
AmeriGas Partners, L.P. - 52,373,272 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, 2004,
September 30, 2003 and March 31, 2003 1
Condensed Consolidated Statements of Operations for the three
and six months ended March 31, 2004 and 2003 2
Condensed Consolidated Statements of Cash Flows for the
six months ended March 31, 2004 and 2003 3
Condensed Consolidated Statement of Partners' Capital for the
six months ended March 31, 2004 4
Notes to Condensed Consolidated Financial Statements 5 - 11
AmeriGas Finance Corp.
Balance Sheets as of March 31, 2004 and September 30, 2003 12
Note to Balance Sheets 13
AmeriGas Eagle Finance Corp.
Balance Sheets as of March 31, 2004 and September 30, 2003 14
Note to Balance Sheets 15
AP Eagle Finance Corp.
Balance Sheets as of March 31, 2004 and September 30, 2003 16
Note to Balance Sheets 17
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 18 - 24
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24 - 25
Item 4. Controls and Procedures 26
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 28 - 29
-i-
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Thousands of dollars)
March 31, September 30, March 31,
2004 2003 2003
--------------- --------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 13,073 $ 45,872 $ 22,769
Accounts receivable (less allowances for doubtful accounts
of $14,901, $9,192 and $11,826, respectively) 211,108 100,170 201,081
Accounts receivable - related parties 2,010 2,915 6,998
Inventories 67,548 70,171 69,247
Prepaid expenses and other current assets 16,870 17,204 20,978
--------------- --------------- ---------------
Total current assets 310,609 236,332 321,073
Property, plant and equipment (less accumulated depreciation and
amortization of $505,553, $473,090 and $441,462, respectively) 608,834 594,604 609,013
Goodwill and excess reorganization value 606,621 602,475 591,155
Intangible assets (less accumulated amortization of $14,053,
$11,934 and $10,203, respectively) 28,403 27,032 21,436
Other assets 20,918 21,733 17,297
--------------- --------------- ---------------
Total assets $ 1,575,385 $ 1,482,176 $ 1,559,974
=============== =============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current maturities of long-term debt $ 58,949 $ 58,705 $ 60,673
Bank loans 3,000 - -
Accounts payable - trade 119,735 87,352 147,974
Accounts payable - related parties 512 930 1,948
Customer deposits and advances 17,515 52,771 14,756
Interest accrued 32,056 31,987 33,255
Other current liabilities 61,191 66,303 60,787
--------------- --------------- ---------------
Total current liabilities 292,958 298,048 319,393
Long-term debt 866,763 868,581 889,344
Other noncurrent liabilities 59,903 54,859 50,516
Commitments and contingencies (note 6)
Minority interests 7,969 7,005 7,053
Partners' capital 347,792 253,683 293,668
--------------- --------------- ---------------
Total liabilities and partners' capital $ 1,575,385 $ 1,482,176 $ 1,559,974
=============== =============== ===============
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 Six Months Ended
March 31, March 31,
------------------------------ ------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
Revenues:
Propane $ 654,142 $ 595,138 $ 1,077,403 $ 1,005,718
Other 33,568 30,408 70,505 64,859
------------- ------------- ------------- -------------
687,710 625,546 1,147,908 1,070,577
------------- ------------- ------------- -------------
Costs and expenses:
Cost of sales - propane 392,297 349,327 631,419 577,621
Cost of sales - other 12,899 11,334 28,280 26,406
Operating and administrative expenses 139,395 133,923 263,158 254,869
Depreciation and amortization 19,816 18,431 39,471 35,922
Other (income), net (4,656) (3,016) (7,938) (4,202)
------------- ------------- ------------- -------------
559,751 509,999 954,390 890,616
------------- ------------- ------------- -------------
Operating income 127,959 115,547 193,518 179,961
Loss on extinguishment of debt - (3,023) - (3,023)
Interest expense (21,167) (21,884) (42,302) (44,583)
------------- ------------- ------------- -------------
Income before income taxes 106,792 90,640 151,216 132,355
Income tax benefit (expense) 79 320 (628) 62
Minority interests (1,221) (1,084) (1,789) (1,629)
------------- ------------- ------------- -------------
Net income $ 105,650 $ 89,876 $ 148,799 $ 130,788
============= ============= ============= =============
General partner's interest in net income $ 1,057 $ 899 $ 1,488 $ 1,308
============= ============= ============= =============
Limited partners' interest in net income $ 104,593 $ 88,977 $ 147,311 $ 129,480
============= ============= ============= =============
Net income per limited partner unit:
Basic $ 2.00 $ 1.80 $ 2.81 $ 2.62
============= ============= ============= =============
Diluted $ 1.99 $ 1.80 $ 2.81 $ 2.62
============= ============= ============= =============
Average limited partner units outstanding:
Basic 52,373 49,433 52,360 49,433
============= ============= ============= =============
Diluted 52,431 49,491 52,436 49,483
============= ============= ============= =============
See accompanying notes to condensed consolidated financial statements.
-2-
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Thousands of dollars)
Six Months Ended
March 31,
----------------------------
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 148,799 $ 130,788
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 39,471 35,922
Other, net 7,560 9,056
Net change in:
Accounts receivable (111,521) (124,250)
Inventories 5,917 (6,726)
Accounts payable 29,570 62,865
Other current assets and liabilities (36,776) (35,669)
------------ ------------
Net cash provided by operating activities 83,020 71,986
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (31,064) (32,885)
Proceeds from disposals of assets 5,479 3,019
Acquisitions of businesses, net of cash acquired (33,122) (2,175)
------------ ------------
Net cash used by investing activities (58,707) (32,041)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (58,178) (54,926)
Minority interest activity (787) (700)
Increase (decrease) in bank loans 3,000 (10,000)
Issuance of long-term debt - 89,100
Repayment of long-term debt (1,147) (88,050)
------------ ------------
Net cash used by financing activities (57,112) (64,576)
------------ ------------
Cash and cash equivalents decrease $ (32,799) $ (24,631)
============ ============
CASH AND CASH EQUIVALENTS:
End of period $ 13,073 $ 22,769
Beginning of period 45,872 47,400
------------ ------------
Decrease $ (32,799) $ (24,631)
============ ============
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 other Total
Common General comprehensive partners'
Units Common partner income (loss) capital
------------ ------------- ------------- ------------- -------------
BALANCE SEPTEMBER 30, 2003 52,333,208 $ 255,423 $ 2,577 $ (4,317) $ 253,683
Net income 147,311 1,488 148,799
Net gains on derivative instruments 21,902 21,902
Reclassification of net gains
on derivative instruments (19,504) (19,504)
------------- ------------- ------------- -------------
Comprehensive income 147,311 1,488 2,398 151,197
Distributions (57,596) (582) (58,178)
Common Units issued in
connection with incentive
compensation plan 40,064 1,090 1,090
------------ ------------- ------------- ------------- -------------
BALANCE MARCH 31, 2004 52,373,272 $ 346,228 $ 3,483 $ (1,919) $ 347,792
============ ============= ============= ============= =============
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,
2003 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, 2003 ("2003 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, 2004 and
2003:
Three Months Ended Six Months Ended
March 31, March 31,
---------------------------- ---------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net income $ 105,650 $ 89,876 $ 148,799 $ 130,788
Other comprehensive (loss) income (11,738) (12,268) 2,398 (10,581)
------------ ------------ ------------ ------------
Comprehensive income $ 93,912 $ 77,608 $ 151,197 $ 120,207
------------ ------------ ------------ ------------
Other comprehensive (loss) income 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.
-6-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars, except per unit)
We use the intrinsic value method prescribed by APB 25 for our unit-based
employee compensation plans. We recorded unit-based compensation expense
of $664 and $484 during the three and six months ended March 31, 2004,
respectively, and $693 and $1,023 during the three and six months ended
March 31, 2003, respectively. If we had determined unit-based compensation
expense under the fair value method prescribed by SFAS 123, net income and
basic and diluted income per limited partner unit for the three and six
months ended March 31, 2004 and 2003 would have been as follows:
Three Months Ended Six Months Ended
March 31, March 31,
------------------------------ ------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
Net income as reported $ 105,650 $ 89,876 $ 148,799 $ 130,788
Add: Unit-based employee compensation
expense included in reported
net income 664 693 484 1,023
Deduct: Total stock and unit-based
employee compensation expense
determined under the fair
value method for all awards (807) (862) (725) (1,246)
------------- ------------- ------------- -------------
Pro forma net income $ 105,507 $ 89,707 $ 148,558 $ 130,565
------------- ------------- ------------- -------------
Basic income per limited partner unit:
As reported $ 2.00 $ 1.80 $ 2.81 $ 2.62
Pro forma $ 1.99 $ 1.80 $ 2.81 $ 2.61
Diluted income per limited partner unit:
As reported $ 1.99 $ 1.80 $ 2.81 $ 2.62
Pro forma $ 1.99 $ 1.79 $ 2.80 $ 2.61
------------- ------------- ------------- -------------
USE OF ESTIMATES. We make estimates and assumptions when preparing
financial statements in conformity with accounting principles generally
accepted in the United States of America. 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.
2. ACQUISITIONS
On October 1, 2003, AmeriGas OLP acquired substantially all of the retail
propane distribution assets and business of Horizon Propane LLC ("Horizon
Propane") for total cash consideration of $31,044. In December 2003,
AmeriGas OLP paid Horizon Propane a working capital adjustment of $111 in
accordance with the Asset Purchase Agreement. During its fiscal year ended
June 30, 2003, Horizon Propane sold over 30 million gallons of propane
from ninety locations in twelve states. In addition, several smaller
acquisitions of retail propane businesses were completed during the six
months ended March 31, 2004. The pro forma effect of all of these
transactions is not material.
-7-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars, except per unit)
3. INTANGIBLE ASSETS
The Partnership's intangible assets comprise the following:
March 31, September 30,
2004 2003
------------ ------------
Subject to amortization:
Customer relationships and
noncompete agreements $ 42,456 $ 38,966
Accumulated amortization (14,053) (11,934)
------------ ------------
$ 28,403 $ 27,032
------------ ------------
Not subject to amortization:
Goodwill $ 513,301 $ 509,155
Excess reorganization value 93,320 93,320
------------ ------------
$ 606,621 $ 602,475
------------ ------------
The increases in intangible assets during the six months ended March 31,
2004 resulted from Partnership business acquisitions. Amortization expense
of intangible assets was $1,031 and $2,119 for the three and six months
ended March 31, 2004, respectively, and $765 and $1,552 for the three and
six months ended March 31, 2003, respectively. Our expected aggregate
amortization expense of intangible assets for the next five fiscal years
is as follows: Fiscal 2004 - $4,108; Fiscal 2005 - $3,727; Fiscal 2006 -
$3,342; Fiscal 2007 - $2,712; Fiscal 2008 - $2,483.
4. RELATED PARTY TRANSACTIONS
Pursuant to the Partnership Agreement and a Management Services Agreement
among 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, which totaled $85,183 and $163,437 during
the three and six months ended March 31, 2004, respectively, and $75,306
and $147,497 during the three and six months ended March 31, 2003,
respectively, include employee compensation and benefit expenses of
employees of the General Partner and general and administrative expenses.
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 $2,370 and $5,532 during the three and six months ended March 31,
2004, respectively, and $2,627 and $4,244 during the three and six months
ended March 31, 2003, respectively. In addition, UGI and certain of its
subsidiaries provide office space and automobile liability insurance to
the Partnership. These expenses totaled $779 and $1,240 during the three
and six months ended March
-8-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars, except per unit)
31, 2004, respectively, and $444 and $875 during the three and six months
ended March 31, 2003, 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
$14,979 and $21,232 during the three and six months ended March 31, 2004,
respectively, and $8,039 and $10,823 during the three and six months ended
March 31, 2003, respectively. Purchases of propane by AmeriGas OLP from
Atlantic Energy during the three and six months ended March 31, 2004
totaled $14,354 and $22,034, respectively, and during the three and six
months ended March 31, 2003 totaled $12,897 and $18,658, 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, 2004 or 2003. On occasion, 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 to Atlantic Energy totaled $400 at March 31, 2004.
Amounts due from Atlantic Energy at September 30, 2003 and March 31, 2003
totaled $2,042 and $6,714, respectively. Amounts due to or due from
Atlantic Energy are included in accounts payable - related parties or
accounts receivable - related parties, respectively, in the Condensed
Consolidated Balance Sheets.
5. LONG-TERM DEBT
In April 2004, AmeriGas OLP repaid $53,750 of maturing First Mortgage
Notes. In conjunction with this repayment, in April 2004, AmeriGas
Partners issued $28,000 face amount of 8.875% Senior Notes due 2011 at an
effective rate of 7.18%, and contributed the net proceeds of $30,135 to
AmeriGas OLP.
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.
-9-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars, except per unit)
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 $13,000 at March 31, 2004. 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 ("Columbia Propane"), Columbia Propane, L.P.
("CPLP"), CP Holdings, Inc. ("CPH," and together with Columbia Propane 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 Columbia Propane 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 March 31, 2004, the potential amount
payable under this indemnity by the Company Parties was
-10-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars, except per unit)
approximately $63,000. 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 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.
7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2003, the Financial Accounting Standards Board ("FASB")
revised Financial Interpretation No. 46, "Consolidation of Variable
Interest Entities" ("FIN 46"), which was originally issued in January 2003
and clarifies Accounting Research Bulletin No. 51, "Consolidated Financial
Statements." FIN 46 was effective immediately for variable interest
entities created or obtained after January 31, 2003. For variable
interests created or acquired before February 1, 2003, FIN 46 is effective
for our interim period ended March 31, 2004. If certain conditions are
met, FIN 46 requires the primary beneficiary to consolidate certain
variable interest entities. The Partnership has not created or obtained
any variable interest entities prior to, or after January 31, 2004.
Therefore, the adoption of FIN 46 did not affect the Partnership's
financial position or results of operations.
-11-
AMERIGAS FINANCE CORP.
(a wholly owned subsidiary of AmeriGas Partners, L.P.)
BALANCE SHEETS
(unaudited)
March 31, September 30,
2004 2003
---------- -------------
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 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").
As of November 21, 2003, AmeriGas Partners and AmeriGas Finance have an
effective unallocated shelf registration statement with the Securities and
Exchange Commission under the Securities Act of 1933 under which AmeriGas
Partners may issue up to $500,000,000 of debt or equity securities. AmeriGas
Finance will be the co-obligor of the debt securities, if any, issued pursuant
to the registration statement.
AmeriGas Partners owns all 100 shares of AmeriGas Finance common stock
outstanding.
-13-
AMERIGAS EAGLE FINANCE CORP.
(a wholly owned subsidiary of AmeriGas Partners, L.P.)
BALANCE SHEETS
(unaudited)
March 31, September 30,
2004 2003
---------- -------------
ASSETS
Cash $ 1,000 $ 1,000
---------- -------------
Total assets $ 1,000 $ 1,000
========== =============
STOCKHOLDER'S EQUITY
Common stock, without par value; 100 shares authorized,
issued and outstanding $ - $ -
Additional paid-in capital 1,000 1,000
---------- -------------
Total stockholder's equity $ 1,000 $ 1,000
========== =============
See accompanying note to balance sheets.
-14-
AMERIGAS EAGLE FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF AMERIGAS PARTNERS, L.P.)
NOTE TO BALANCE SHEETS
(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.
-15-
AP EAGLE FINANCE CORP.
(a wholly owned subsidiary of AmeriGas Partners, L.P.)
BALANCE SHEETS
(unaudited)
March 31, September 30,
2004 2003
---------- -------------
ASSETS
Cash $ 1,000 $ 1,000
---------- -------------
Total assets $ 1,000 $ 1,000
========== =============
STOCKHOLDER'S EQUITY
Common stock, without par value; 100 shares authorized,
issued and outstanding $ - $ -
Additional paid-in capital 1,000 1,000
---------- -------------
Total stockholder's equity $ 1,000 $ 1,000
========== =============
See accompanying note to balance sheets.
-16-
AP EAGLE FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF AMERIGAS PARTNERS, L.P.)
NOTE TO BALANCE SHEETS
(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.
In April 2004, AmeriGas Partners and AP Eagle Finance jointly and severally
issued $28,000,000 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.
-17-
AMERIGAS PARTNERS, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ANALYSIS OF RESULTS OF OPERATIONS
The following analyses compare the Partnership's results of operations for (1)
the three months ended March 31, 2004 ("2004 three-month period") with the three
months ended March 31, 2003 ("2003 three-month period") and (2) the six months
ended March 31, 2004 ("2004 six-month period") with the six months ended March
31, 2003 ("2003 six-month period"). AmeriGas Finance Corp., 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.
2004 THREE-MONTH PERIOD COMPARED WITH 2003 THREE-MONTH PERIOD
Three Months Ended March 31, 2004 2003 Increase
-------- -------- -----------------
(millions of dollars)
Gallons sold (millions):
Retail 403.9 393.4 10.5 2.7%
Wholesale 112.2 95.3 16.9 17.7%
-------- -------- --------
516.1 488.7 27.4 5.6%
======== ======== ========
Revenues:
Retail propane $ 573.8 $ 532.0 $ 41.8 7.9%
Wholesale propane 80.4 63.1 17.3 27.4%
Other 33.5 30.4 3.1 10.2%
-------- -------- --------
$ 687.7 $ 625.5 $ 62.2 9.9%
======== ======== ========
Total margin (a) $ 282.5 $ 264.9 $ 17.6 6.6%
EBITDA (b) $ 146.6 $ 129.9 $ 16.7 12.9%
Operating income $ 128.0 $ 115.5 $ 12.5 10.8%
Net income $ 105.7 $ 89.9 $ 15.8 17.6%
Heating degree days - % (warmer) colder than normal (c) (1.5) 1.0 - -
(a) Total margin represents total revenues less cost of sales - propane and
cost of sales - other.
(b) EBITDA (earnings before interest expense, income taxes, and depreciation
and amortization) 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 of America.
Management believes EBITDA is a meaningful non-GAAP financial measure used
by investors to compare the Partnership's operating performance with that
of other 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
is not necessarily indicative of amounts to be expected for a full year.
-18-
AMERIGAS PARTNERS, L.P.
The following table includes reconciliations of net income to EBITDA for
the periods presented:
Three Months Ended
March 31,
--------------------
2004 2003
-------- --------
Net income $ 105.7 $ 89.9
Income tax benefit (0.1) (0.3)
Interest expense 21.2 21.9
Depreciation 18.6 17.4
Amortization 1.2 1.0
-------- --------
EBITDA $ 146.6 $ 129.9
======== ========
(c) Deviation from average heating degree days based upon national weather
statistics provided by the National Oceanic and Atmospheric Administration
("NOAA") for 335 airports in the United States, excluding Alaska.
Weather based upon heating degree days was 1.5% warmer than normal during the
2004 three-month period compared to weather that was 1.0% colder than normal in
the prior-year three-month period. Retail propane volumes sold increased 10.5
million gallons in the 2004 three-month period due primarily to the October 2003
Horizon Propane acquisition partially offset by the continuing effects of the
weakened economy on commercial and industrial customer sales volumes. Low margin
wholesale volumes increased 16.9 million gallons primarily reflecting the
effects of product cost hedging activities.
Retail propane revenues increased $41.8 million reflecting (1) a $27.6 million
increase due to higher average selling prices and (2) a $14.2 million increase
due to the higher retail volumes sold. Wholesale propane revenues increased
$17.3 million reflecting (1) an $11.2 million increase due to the higher volumes
sold and (2) a $6.1 million increase due to higher average selling prices.
Selling prices in the 2004 three-month period were higher than in the prior-year
three-month period as the industry continues to experience unusually high
propane product costs resulting from, among other things, higher crude oil and
natural gas prices. Total cost of sales increased $44.5 million primarily
reflecting the increase in volumes sold and higher propane product costs.
Total margin increased $17.6 million principally due to higher average retail
propane unit margins and the higher retail volumes sold. The benefits of
derivative hedge instruments and favorable supply arrangements during this
period of escalating product costs and market volatility resulted in the
Partnership recording higher than normal unit margins while maintaining
competitive prices.
EBITDA increased $16.7 million in the 2004 three-month period reflecting (1) the
previously mentioned increase in total margin, (2) the absence of a $3.0 million
loss on extinguishment of long-term debt that occurred in the 2003 three-month
period, and (3) a $1.6 million increase in other income. These increases were
partially offset by a $5.5 million increase in operating and administrative
expenses principally due to higher employee payroll and overtime expenses
related to the increased volumes associated with the Horizon Propane
acquisition. These increases were partially offset by the beneficial effects on
operating expenses of the management realignment completed in late Fiscal 2003
which streamlined business processes, eliminated
-19-
AMERIGAS PARTNERS, L.P.
duplication and reduced overhead expenses. Operating income in the 2004
three-month period increased less than the increase in EBITDA due to higher
depreciation and amortization expense associated with recent acquisitions and
the absence of the previously mentioned loss on extinguishment of long-term
debt.
2004 SIX-MONTH PERIOD COMPARED WITH 2003 SIX-MONTH PERIOD
Increase
Six Months Ended March 31, 2004 2003 (Decrease)
---------- ---------- -------------------------
(millions of dollars)
Gallons sold (millions):
Retail 708.4 717.6 (9.2) (1.3)%
Wholesale 145.3 167.0 (21.7) (13.0)%
---------- ---------- ----------
853.7 884.6 (30.9) (3.5)%
========== ========== ==========
Revenues:
Retail propane $ 973.9 $ 906.0 $ 67.9 7.5 %
Wholesale propane 103.5 99.7 3.8 3.8 %
Other 70.5 64.9 5.6 8.6 %
---------- ---------- ----------
$ 1,147.9 $ 1,070.6 $ 77.3 7.2 %
========== ========== ==========
Total margin $ 488.2 $ 466.6 $ 21.6 4.6 %
EBITDA (a) $ 231.2 $ 211.2 $ 20.0 9.5 %
Operating income $ 193.5 $ 180.0 $ 13.5 7.5 %
Net income $ 148.8 $ 130.8 $ 18.0 13.8 %
Heating degree days - % (warmer) colder
than normal (4.1) 1.1 - -
(a) The following table includes reconciliations of net income to EBITDA for the
periods presented:
Six Months Ended
March 31,
2004 2003
-------- --------
Net income $ 148.8 $ 130.8
Income tax expense (benefit) 0.6 (0.1)
Interest expense 42.3 44.6
Depreciation 36.9 33.9
Amortization 2.6 2.0
-------- --------
EBITDA $ 231.2 $ 211.2
======== ========
Based upon heating degree day data, temperatures in the 2004 six-month period
were 4.1% warmer than normal compared to temperatures that were 1.1% colder than
normal in the prior-year six-month period. Notwithstanding volume growth from
acquisitions, retail propane volumes sold decreased 9.2 million gallons in the
2004 six-month period due principally to the effects of continuing economic
weakness on commercial and industrial customer sales volumes and the warmer
weather in the 2004 six-month period. Low margin wholesale volumes decreased
21.7 million gallons primarily reflecting the effects of product cost hedging
activities.
-20-
AMERIGAS PARTNERS, L.P.
Retail propane revenues increased $67.9 million as a $79.5 million increase due
to higher average selling prices was partially offset by an $11.6 million
decrease due to the lower retail volumes sold. Wholesale propane revenues
increased $3.8 million as a $16.8 million increase due to higher average selling
prices was partially offset by a $13.0 million decrease due to the lower volumes
sold. Retail and wholesale selling prices were higher during the 2004 six-month
period principally as a result of the continued high propane product costs
within the industry. Other revenues from ancillary sales and services were $70.5
million in the 2004 six-month period and $64.9 million in the 2003 six-month
period. Although total propane volumes decreased, total cost of sales increased
$55.7 million reflecting the effects of higher propane product costs.
Total margin increased $21.6 million as a result of (1) recent acquisitions and
higher average retail and wholesale propane unit margins on reduced gallons sold
and (2) a $3.8 million increase in margin from ancillary sales and services.
Notwithstanding the previously mentioned increase in the commodity price of
propane, retail and wholesale propane unit margins were higher than in the 2003
six-month period reflecting the effects of higher average selling prices.
EBITDA increased $20.0 million in the 2004 six-month period reflecting (1) the
previously mentioned increase in total margin, (2) a $3.7 million increase in
other income, and (3) the absence of a $3.0 million loss on extinguishment of
long-term debt in the prior year six-month period. These increases were
partially offset by an $8.3 million increase in operating and administrative
expenses principally due to higher compensation and distribution expenses
resulting from the impact of Horizon Propane and other recent acquisitions,
partially offset by the beneficial effects on operating expenses of the
management realignment completed in late Fiscal 2003. Other income in the 2004
six-month period includes greater income from finance charges and asset sales
while other income in the prior-year six-month period was reduced by a $1.0
million charge associated with the adoption of SFAS No. 143, "Accounting for
Asset Retirement Obligations." Operating income in the 2004 six-month period
increased less than the increase in EBITDA due to higher depreciation and
amortization expense as a result of recent acquisitions and the absence of the
aforementioned loss on extinguishment of long-term debt.
-21-
AMERIGAS PARTNERS, L.P.
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL CONDITION
The Partnership's long-term debt outstanding at March 31, 2004 totaled $925.7
million (including current maturities of $58.9 million) compared to $927.3
million (including current maturities of $58.7 million) at September 30, 2003.
In April 2004, AmeriGas OLP repaid $53.8 million of maturing First Mortgage
Notes. In conjunction with this repayment, in April 2004, AmeriGas Partners
issued $28 million face amount of 8.875% Senior Notes due 2011 at an effective
rate of 7.18%, and contributed the net proceeds of $30.1 million to AmeriGas
OLP.
AmeriGas OLP's Credit Agreement expires on October 15, 2006 and consists of (1)
a $100 million Revolving Credit Facility and (2) a $75 million Acquisition
Facility. The Revolving Credit Facility may be used for working capital and
general purposes of AmeriGas OLP. The Acquisition Facility provides AmeriGas OLP
with the ability to borrow up to $75 million to finance the purchase of propane
businesses or propane business assets or, to the extent it is not so used, may
be used for working capital and general purposes. At March 31, 2004, there were
$3 million of borrowings outstanding under the Revolving Credit Facility.
AmeriGas OLP's short-term borrowing needs are seasonal and are typically
greatest during the fall and winter heating-season months due to the need to
fund higher levels of working capital. Issued and outstanding letters of credit
under the Revolving Credit Facility, which reduce the amount of available
borrowing capacity, totaled $41.2 million at March 31, 2004.
AmeriGas OLP also has a credit agreement with the General Partner to borrow up
to $20 million on an unsecured, subordinated basis, for working capital and
general purposes. UGI has agreed to contribute up to $20 million to the General
Partner to fund such borrowings.
AmeriGas Partners periodically issues debt and equity securities and
expects to continue to do so. It has issued debt securities and common units in
underwritten public offerings in each of the last three fiscal years. Most
recently, it issued debt securities in April 2004 and common units in June
2003. The Partnership has effective debt and equity shelf registration
statements with the SEC under which it may issue up to an additional (1) 1.4
million AmeriGas Partners Common Units and (2) up to $500 million of debt or
equity securities pursuant to an unallocated shelf registration statement.
During the six months ended March 31, 2004, the Partnership declared and paid
the minimum quarterly distribution of $0.55 (the "MQD") on all limited partner
units for the quarter ended September 30, 2003 and December 31, 2003. The MQD
for the quarter ended March 31, 2004 will be paid on May 18, 2004 to holders of
record on May 10, 2004. 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 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.
-22-
AMERIGAS PARTNERS, L.P.
CASH FLOWS
OPERATING ACTIVITIES. The Partnership had cash and cash equivalents totaling
$13.1 million at March 31, 2004 compared to $45.9 million at September 30, 2003.
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 months.
Conversely, operating cash flows are generally at their lowest levels during the
first and fourth fiscal quarters when the Partnership's investment in working
capital, principally accounts receivable and inventories, is generally greatest.
Accordingly, cash flows from operating activities during the six months ended
March 31, 2004 are not necessarily indicative of cash flows to be expected for a
full year. The Partnership uses its Credit Agreement to satisfy its seasonal
cash flow needs. Cash flow provided by operating activities was $83.0 million
during the 2004 six-month period compared to $72.0 million in the prior-year
six-month period. Cash flow from operating activities before changes in working
capital was $195.8 million in the 2004 six-month period compared to $175.8
million in the prior-year six-month period reflecting the improved 2004
six-month period operating results. Cash required to fund changes in operating
working capital during the 2004 six-month period totaled $112.8 million, an
increase from the $103.8 million required in the prior-year six-month period.
INVESTING ACTIVITIES. We spent $31.1 million for property, plant and equipment
(including maintenance capital expenditures of $12.1 million and growth capital
expenditures of $19.0 million) during the six months ended March 31, 2004
compared to $32.9 million (including maintenance capital expenditures of $11.8
million and growth capital expenditures of $21.1 million) during the prior-year
six-month period. The decrease is due in large part to lower PPX(R) capital
expenditures associated with purchases of cylinders and overfill protection
devices ("OPDs"). The increase in proceeds received from disposals of assets
reflects the sale of three district locations during the 2004 six-month period.
During the six months ended March 31, 2004, the Partnership acquired Horizon
Propane and several smaller propane distribution businesses for $33.1 million.
FINANCING ACTIVITIES. Cash flow used by financing activities was $57.1 million
in the 2004 six-month period compared to $64.6 million in the prior-year period.
Financing activity is primarily the result of repayments and issuances of
long-term debt, borrowings under our Credit Agreement and distributions on
limited partner units.
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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2003, the Financial Accounting Standards Board ("FASB") revised
Financial Interpretation No. 46, "Consolidation of Variable Interest Entities"
("FIN 46"), which was originally issued in January 2003 and clarifies Accounting
Research Bulletin No. 51, "Consolidated Financial Statements." FIN 46 was
effective immediately for variable interest entities created or obtained after
January 31, 2003. For variable interests created or acquired
-23-
AMERIGAS PARTNERS, L.P.
before February 1, 2003, FIN 46 is effective for our interim period ended March
31, 2004. If certain conditions are met, FIN 46 requires the primary beneficiary
to consolidate certain variable interest entities. The Partnership has not
created or obtained any variable interest entities prior to, or after January
31, 2004. Therefore, the adoption of FIN 46 did not affect the Partnership's
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. 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 Credit
Agreement. This agreement has 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.
-24-
AMERIGAS PARTNERS, L.P.
The following table summarizes the fair values of unsettled market risk
sensitive derivative instruments held at March 31, 2004. Fair values reflect the
estimated amounts that we would receive or pay to terminate the contracts at the
reporting date based upon quoted market prices of comparable contracts at March
31, 2004. The table also includes the changes in fair value that would result if
there were an adverse change of ten percent in (1) the market price of propane
and (2) interest rates on ten-year U.S. treasury notes:
Fair Change in
Value Fair Value
------- ----------
(Millions of dollars)
March 31, 2004:
Propane commodity price risk $ 2.5 $ (3.6)
Interest rate risk (3.7) (4.7)
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.
-25-
AMERIGAS PARTNERS, L.P.
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.
(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.
-26-
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 March 31,
2004, 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 March 31,
2004, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32 Certification by the Chief Executive Officer and the Chief Financial
Officer relating to the Registrant's Report on Form 10-Q for the
quarter ended March 31, 2004, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) The Registrant did not file any Current Reports on Form 8-K during
the second quarter of fiscal year 2004.
- ------------------
* This Exhibit shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
otherwise subject to liability under that section, nor shall it be deemed
incorporated by reference in any filing under the Securities Act of 1933,
as amended, or the Exchange Act, except as expressly set forth by specific
reference in such filing.
-27-
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 17, 2004 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 17, 2004 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: May 17, 2004 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
-28-
AP Eagle Finance Corp.
-----------------------------------------------
(Registrant)
Date: May 17, 2004 By: /s/ Martha B. Lindsay
-----------------------------------------------
Martha B. Lindsay
Vice President - Finance
and Chief Financial Officer
By: /s/ Richard R. Eynon
-----------------------------------------------
Richard R. Eynon
Controller and Chief Accounting Officer
-29-
AMERIGAS PARTNERS, L.P.
EXHIBIT INDEX
31.1 Certification by the Chief Executive Officer relating to the Registrants'
Report on Form 10-Q for the quarter ended March 31, 2004, 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 March 31, 2004, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
*32 Certification by the Chief Executive Officer and the Chief Financial
Officer relating to the Registrant's Report on Form 10-Q for the quarter
ended March 31, 2004, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
- ------------------
* This Exhibit shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
otherwise subject to liability under that section, nor shall it be deemed
incorporated by reference in any filing under the Securities Act of 1933,
as amended, or the Exchange Act, except as expressly set forth by specific
reference in such filing.