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 December 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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
At January 31, 2005, the registrants had units and shares of common stock
outstanding as follows:
AmeriGas Partners, L.P. - 54,492,605 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
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
AmeriGas Partners, L.P.
Condensed Consolidated Balance Sheets as of December 31, 2004,
September 30, 2004 and December 31, 2003 1
Condensed Consolidated Statements of Operations for the three
months ended December 31, 2004 and 2003 2
Condensed Consolidated Statements of Cash Flows for the
three months ended December 31, 2004 and 2003 3
Condensed Consolidated Statement of Partners' Capital for the
three months ended December 31, 2004 4
Notes to Condensed Consolidated Financial Statements 5 - 12
AmeriGas Finance Corp.
Balance Sheets as of December 31, 2004 and September 30, 2004 13
Note to Balance Sheets 14
AmeriGas Eagle Finance Corp.
Balance Sheets as of December 31, 2004 and September 30, 2004 15
Note to Balance Sheets 16
AP Eagle Finance Corp.
Balance Sheets as of December 31, 2004 and September 30, 2004 17
Note to Balance Sheets 18
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 19 - 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 26
Signatures 27 - 28
-i-
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Thousands of dollars)
December 31, September 30, December 31,
2004 2004 2003
------------ ------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 7,218 $ 40,583 $ 23,293
Accounts receivable (less allowances for doubtful accounts
of $13,285, $11,964 and $9,864, respectively) 234,016 141,709 187,600
Accounts receivable - related parties 2,935 5,137 3,661
Inventories 104,253 84,753 85,797
Prepaid expenses and other current assets 10,428 25,934 26,704
---------- ---------- ----------
Total current assets 358,850 298,116 327,055
Property, plant and equipment (less accumulated depreciation and
amortization of $535,322, $520,447 and $489,223, respectively) 594,805 592,353 611,078
Goodwill and excess reorganization value 618,048 609,058 604,771
Intangible assets (less accumulated amortization of $17,324,
$16,158 and $13,022, respectively) 31,395 28,612 29,183
Other assets 17,997 22,088 21,702
---------- ---------- ----------
Total assets $1,621,095 $1,550,227 $1,593,789
========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current maturities of long-term debt $ 60,420 $ 60,068 $ 58,937
Bank loans 30,000 - 36,000
Accounts payable - trade 184,888 112,315 147,837
Accounts payable - related parties 1,432 1,309 1,541
Customer deposits and advances 64,537 78,907 55,518
Employee compensation and benefits accrued 21,053 30,023 26,198
Interest accrued 16,634 30,675 17,339
Other current liabilities 55,127 39,173 39,262
---------- ---------- ----------
Total current liabilities 434,091 352,470 382,632
Long-term debt 840,812 841,283 867,097
Other noncurrent liabilities 61,578 59,687 54,547
Commitments and contingencies (note 6)
Minority interests 7,574 7,749 7,261
Partners' capital 277,040 289,038 282,252
---------- ---------- ----------
Total liabilities and partners' capital $1,621,095 $1,550,227 $1,593,789
========== ========== ==========
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
December 31,
------------------------
2004 2003
--------- ---------
Revenues:
Propane $ 517,451 $ 423,261
Other 38,765 36,937
--------- ---------
556,216 460,198
--------- ---------
Costs and expenses:
Cost of sales - propane 335,309 239,122
Cost of sales - other 15,835 15,381
Operating and administrative expenses 130,619 123,763
Depreciation and amortization 19,318 19,655
Other income, net (12,549) (3,282)
--------- ---------
488,532 394,639
--------- ---------
Operating income 67,684 65,559
Interest expense (20,503) (21,135)
--------- ---------
Income before income taxes and minority interests 47,181 44,424
Income tax expense (2,315) (707)
Minority interests (575) (568)
--------- ---------
Net income $ 44,291 $ 43,149
========= =========
General partner's interest in net income $ 2,493 $ 2,538
========= =========
Limited partners' interest in net income $ 41,798 $ 40,611
========= =========
Net income per limited partner unit:
Basic $ 0.77 $ 0.78
========= =========
Diluted $ 0.77 $ 0.77
========= =========
Average limited partner units outstanding (thousands):
Basic 54,477 52,348
========= =========
Diluted 54,552 52,442
========= =========
See accompanying notes to condensed consolidated financial statements.
-2-
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Thousands of dollars)
Three Months Ended
December 31,
----------------------
2004 2003
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 44,291 $ 43,149
Adjustments to reconcile net income to net
cash (used) provided by operating activities:
Depreciation and amortization 19,318 19,655
Gain on sale of Atlantic Energy (9,135) -
Other, net 432 3,572
Net change in:
Accounts receivable (93,081) (74,768)
Inventories (19,302) (12,356)
Accounts payable 72,925 60,944
Other current assets and liabilities (27,570) (25,500)
-------- --------
Net cash (used) provided by operating activities (12,122) 14,696
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (21,136) (14,277)
Proceeds from disposals of assets 6,096 3,494
Net proceeds from sale of Atlantic Energy 11,504 -
Acquisitions of businesses, net of cash acquired (15,642) (32,033)
-------- --------
Net cash used by investing activities (19,178) (42,816)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (30,265) (29,082)
Minority interest activity (485) (460)
Increase in bank loans 30,000 36,000
Repayment of long-term debt (1,315) (917)
-------- --------
Net cash (used) provided by financing activities (2,065) 5,541
-------- --------
Cash and cash equivalents decrease $(33,365) $(22,579)
======== ========
CASH AND CASH EQUIVALENTS:
End of period $ 7,218 $ 23,293
Beginning of period 40,583 45,872
-------- --------
Decrease $(33,365) $(22,579)
======== ========
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, 2004 54,473,272 $ 276,887 $ 2,783 $ 9,368 $ 289,038
Net income 41,798 2,493 44,291
Net losses on derivative instruments (24,988) (24,988)
Reclassification of net gains
on derivative instruments (1,154) (1,154)
----------- ----------- ----------- -----------
Comprehensive income 41,798 2,493 (26,142) 18,149
Distributions (29,962) (303) (30,265)
Common Units issued in
connection with incentive
compensation plan 4,000 118 118
---------- ----------- ----------- ----------- -----------
BALANCE DECEMBER 31, 2004 54,477,272 $ 288,841 $ 4,973 $ (16,774) $ 277,040
========== =========== =========== =========== ===========
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") was accounted for by the equity method (see Note
3). Atlantic Energy's principal asset is a propane storage terminal
located in Chesapeake, Virginia.
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,
2004 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, 2004 ("2004 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 interest in AmeriGas
Partners, by the weighted average number of limited partner units
outstanding.
Effective April 2004, the Partnership adopted Emerging Issues Task Force
Issue No. 03-6, "Participating Securities and the Two-Class Method under
FASB Statement No. 128" ("EITF 03-6"), which results in the calculation of
net income per limited partner unit for each period according to
distributions declared and participation rights in undistributed earnings,
as if all of the earnings for the period had been distributed. In periods
with undistributed earnings above certain levels, the calculation
according to the two-class method results in an increased allocation of
undistributed earnings to the General Partner
-5-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
and a dilution of the earnings to the limited partners. Due to the
seasonality of the propane business, the dilutive effect of EITF 03-6 on
net income per limited partner unit will typically impact our first three
fiscal quarters. EITF 03-6 is not expected to impact net income per
limited partner unit for the fiscal year. The dilutive effect of EITF 03-6
on net income per limited partner unit was $(0.03) and $(0.04) for the
three months ended December 31, 2004 and 2003, respectively. Prior-period
basic and diluted income per limited partner unit amounts have been
recalculated in accordance with EITF 03-6.
Potentially dilutive Common Units included in the diluted limited partner
units outstanding computation reflect the effects of restricted Common
Unit awards granted under AmeriGas Propane, Inc. incentive compensation
plans.
COMPREHENSIVE INCOME. The following table presents the components of
comprehensive income for the three months ended December 31, 2004 and
2003:
Three Months Ended
December 31,
----------------------
2004 2003
--------- --------
Net income $ 44,291 $ 43,149
Other comprehensive (loss) income (26,142) 14,136
-------- --------
Comprehensive income $ 18,149 $ 57,285
-------- --------
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
(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 a unit-based compensation benefit
of $495 and $180 during the three months ended December 31, 2004 and 2003,
respectively, as a result of forfeitures of restricted units. 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 months ended December 31, 2004 and 2003
would have been as follows:
Three Months Ended
December 31,
---------------------------
2004 2003
----------- -----------
Net income as reported $ 44,291 $ 43,149
Deduct: Unit-based employee compensation
benefit included in reported
net income (495) (180)
Add: Total stock and unit-based
employee compensation benefit
determined under the fair
value method for all awards 350 82
---------- ----------
Pro forma net income $ 44,146 $ 43,051
---------- ----------
Basic income per limited partner unit:
As reported $ 0.77 $ 0.78
Pro forma $ 0.77 $ 0.77
Diluted income per limited partner unit:
As reported $ 0.77 $ 0.77
Pro forma $ 0.76 $ 0.77
RECLASSIFICATIONS. We have reclassified certain prior year balances to
conform to the current period presentation.
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
During the three months ended December 31, 2004, AmeriGas OLP acquired
three retail propane distribution businesses for total cash consideration
of $15,642. The operating results of these businesses have been included
in our operating results from their respective dates of acquisition. The
pro forma effect of these transactions was not material to the
Partnership's results of operations.
-7-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
3. SALE OF OWNERSHIP INTEREST IN ATLANTIC ENERGY, INC.
In November 2004, the Partnership sold its 50% ownership interest in
Atlantic Energy consisting of 3,500 shares of common stock ("Shares")
pursuant to a Stock Purchase Agreement ("Agreement") by and between AmerE
Holdings, Inc. ("AmerE"), an indirect wholly owned subsidiary of AmeriGas
OLP, and UGI Asset Management, Inc., an indirect wholly owned subsidiary
of UGI Corporation ("UGI"). UGI Asset Management, Inc. purchased AmerE's
Shares for $11,504 in cash, which is net of post-closing adjustments, as
defined in the Agreement. The Partnership recognized a pre-tax gain on the
sale totaling $9,135 ($7,107 net of tax), which amount is included in
"Other income, net" in the Condensed Consolidated Statement of Operations
for the three months ended December 31, 2004.
4. INTANGIBLE ASSETS
The Partnership's intangible assets comprise the following:
December 31, September 30,
2004 2004
------------ -------------
Subject to amortization:
Customer relationships and
noncompete agreements $ 48,719 $ 44,770
Accumulated amortization (17,324) (16,158)
--------- ---------
$ 31,395 $ 28,612
--------- ---------
Not subject to amortization:
Goodwill $ 524,728 $ 515,738
Excess reorganization value 93,320 93,320
--------- ---------
$ 618,048 $ 609,058
--------- ---------
The increases in intangible assets during the three months ended December
31, 2004 resulted from Partnership business acquisitions. Amortization
expense of intangible assets was $1,166 and $1,088 for the three months
ended December 31, 2004 and 2003, respectively. Our expected aggregate
amortization expense of intangible assets for the next five fiscal years
is as follows: Fiscal 2005 - $4,525; Fiscal 2006 - $4,160; Fiscal 2007 -
$3,522; Fiscal 2008 - $3,246; Fiscal 2009 - $2,924.
-8-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
5. 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 $78,694 and $78,208 during
the three months ended December 31, 2004 and 2003, respectively, include
employee compensation and benefit expenses of employees of the General
Partner and general and administrative expenses.
UGI provides certain financial and administrative services to the General
Partner. UGI bills the General Partner for all direct and indirect
corporate expenses incurred in connection with providing these services
and the General Partner is reimbursed by the Partnership for these
expenses. Such corporate expenses totaled $3,234 and $3,162 during the
three months ended December 31, 2004 and 2003, respectively. In addition,
UGI and certain of its subsidiaries provide office space and automobile
liability insurance to the Partnership. These expenses totaled $997 and
$367 during the three months ended December 31, 2004 and 2003,
respectively.
Subsequent to the acquisition of Columbia Propane and prior to the sale of
our 50% ownership interest in Atlantic Energy, we purchased propane on
behalf of Atlantic Energy. Atlantic Energy reimbursed AmeriGas OLP for its
purchases plus interest as Atlantic Energy sold such propane to third
parties or to AmeriGas OLP itself. The total dollar value of propane
purchased on behalf of Atlantic Energy was $2,420 and $6,253 during the
three months ended December 31, 2004 and 2003, respectively. Purchases of
propane by AmeriGas OLP from Atlantic Energy during the three months ended
December 31, 2004 and 2003 totaled $8,506 and $7,680, respectively.
In November 2004, in conjunction with the sale of our 50% ownership
interest in Atlantic Energy, UGI Asset Management, Inc. and AmeriGas OLP
entered into a Product Sales Agreement whereby UGI Asset Management, Inc.
has agreed to sell and AmeriGas OLP has agreed to purchase a specified
amount of propane annually at the Atlantic Energy terminal in Chesapeake,
Virginia. The Product Sales Agreement will take effect on April 1, 2005
and continue for a primary term of five years with an option to extend the
agreement for up to an additional five years. The price to be paid for
product purchased under the agreement will be determined annually using a
contractual formula that takes into account published index prices and the
locational value of deliveries at the Atlantic Energy terminal.
Prior to the sale of Atlantic Energy, the General Partner also provided it
with other services including accounting, insurance and other
administrative services and was reimbursed for the related costs. Such
costs were not material during the three months ended December 31, 2004
and 2003. In addition, AmeriGas OLP entered into product
-9-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
cost hedging contracts on behalf of Atlantic Energy. When these
contracts were settled, AmeriGas OLP was reimbursed the cost of any
losses, or distributed the proceeds of any gains, to Atlantic Energy.
Amounts due from Atlantic Energy at December 31, 2004, September 30, 2004
and December 31, 2003 totaled $376, $2,906 and $3,644, respectively.
Amounts due from Atlantic Energy are included in accounts receivable -
related parties in the Condensed Consolidated Balance Sheets.
6. COMMITMENTS AND CONTINGENCIES
The Partnership has succeeded to certain lease guarantee obligations of
Petrolane relating to Petrolane's divestiture of non-propane operations
before its 1989 acquisition by QFB Partners. Future lease payments under
these leases total approximately $12,000 at December 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.
PanEnergy Corporation ("PanEnergy"), Texas Eastern's sole stockholder,
subsequently 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
-10-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
operation of the business after the 1999 Acquisition ("National Claims").
At December 31, 2004, the potential amount payable under this indemnity by
the Company Parties was approximately $58,000. 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.
Samuel and Brenda Swiger and their son (the "Swigers") sustained personal
injuries and property damage as a result of a fire that occurred when
propane that leaked from an underground line ignited. In July 1998, the
Swigers filed a class action lawsuit against AmeriGas Propane, L.P. (named
incorrectly as "UGI/AmeriGas, Inc."), in the Circuit Court of Monongalia
County, West Virginia, in which they sought to recover an unspecified
amount of compensatory and punitive damages and attorney's fees, for
themselves and on behalf of persons in West Virginia for whom the
defendants had installed propane gas lines, allegedly resulting from the
defendants' failure to install underground propane lines at depths
required by applicable safety standards. The court recently granted the
plaintiffs' motion to include customers acquired from Columbia Propane in
August 2001 as additional potential class members and to amend their
complaint to name additional parties consistent with such ruling. In 2003,
we settled the individual personal injury and property damage claims of
the Swigers. Class counsel has indicated that the class is seeking
compensatory damages in excess of $12,000 plus punitive damages, civil
penalties and attorneys' fees. We believe we have good defenses to the
claims of the class members and intend to vigorously defend against the
remaining claims in this lawsuit.
We also have other contingent liabilities, pending claims and legal action
arising in the normal course of our business. We cannot predict with
certainty the final results of these and the aforementioned 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 amount of future operating results and cash flows.
-11-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"). SFAS
123R replaces SFAS 123 and supersedes APB 25. SFAS 123, as originally
issued in 1995, established as preferable a fair-value-based method of
accounting for share-based payment transactions with employees. However,
SFAS 123 permitted entities the option of continuing to apply the guidance
in APB 25, as long as the footnotes to financial statements disclosed what
net income would have been had the preferable fair-value-based method been
used. SFAS 123R requires that the compensation cost relating to
share-based payment transactions be recognized in the financial
statements. The cost is required to be measured based on the fair value of
the equity or liability instruments issued. SFAS 123R covers a wide range
of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation
rights, and employee share purchase plans. SFAS 123R is effective for
interim periods beginning after June 15, 2005. Under all of the transition
methods, unrecognized compensation expense for awards that are not vested
on the adoption date will be recognized in the Partnership's statements of
operations through the end of the requisite service period. The
Partnership does not believe that the adoption of SFAS 123R will have a
material impact on its results of operations or financial position as
detailed in Note 1.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets - An Amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from fair
value measurement for nonmonetary exchanges of similar productive assets
in paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary
Transactions," and replaces it with an exception for exchanges that lack
commercial substance. SFAS 153 specifies that a nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected
to change significantly as a result of the exchange. SFAS 153 is effective
for interim periods beginning after June 15, 2005. The Partnership does
not believe that the adoption of SFAS 153 will have a material effect on
its consolidated results of operations or financial position.
-12-
AMERIGAS FINANCE CORP.
(a wholly owned subsidiary of AmeriGas Partners, L.P.)
BALANCE SHEETS
(unaudited)
December 31, September 30,
2004 2004
------------ -------------
ASSETS
Cash $1,000 $1,000
------ ------
Total assets $1,000 $1,000
====== ======
STOCKHOLDER'S EQUITY
Common stock, without par value; 100 shares authorized,
issued and outstanding $ - $ -
Additional paid-in capital 1,000 1,000
------ ------
Total stockholder's equity $1,000 $1,000
====== ======
See accompanying note to balance sheets.
-13-
AMERIGAS 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 $446,219,000 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.
-14-
AMERIGAS EAGLE FINANCE CORP.
(a wholly owned subsidiary of AmeriGas Partners, L.P.)
BALANCE SHEETS
(unaudited)
December 31, September 30,
2004 2004
------------ -------------
ASSETS
Cash $1,000 $1,000
------ ------
Total assets $1,000 $1,000
====== ======
STOCKHOLDER'S EQUITY
Common stock, without par value; 100 shares authorized,
issued and outstanding $ - $ -
Additional paid-in capital 1,000 1,000
------ ------
Total stockholder's equity $1,000 $1,000
====== ======
See accompanying note to balance sheets
-15-
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.
-16-
AP EAGLE FINANCE CORP.
(a wholly owned subsidiary of AmeriGas Partners, L.P.)
BALANCE SHEETS
(unaudited)
December 31, September 30,
2004 2004
------------ -------------
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.
-17-
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.
-18
AMERIGAS PARTNERS, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Information contained in this Management's Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this Quarterly Report may
contain forward-looking statements. Such statements use forward-looking words
such as "believe," "plan," "anticipate," "continue," "estimate," "expect,"
"may," "will," or other similar words. These statements discuss plans,
strategies, events or developments that we expect or anticipate will or may
occur in the future.
A forward-looking statement may include a statement of the assumptions or bases
underlying the forward-looking statement. We believe that we have chosen these
assumptions or bases in good faith and that they are reasonable. However, we
caution you that actual results almost always vary from assumed facts or bases,
and the differences between actual results and assumed facts or bases can be
material, depending on the circumstances. When considering forward-looking
statements, you should keep in mind the following important factors which could
affect our future results and could cause those results to differ materially
from those expressed in our forward-looking statements: (1) adverse weather
conditions resulting in reduced demand; (2) cost volatility and availability of
propane, and the capacity to transport propane to our market areas; (3) changes
in laws and regulations, including safety, tax and accounting matters; (4) large
supplier, counterparty or customer defaults; (5) competitive pressures from the
same and alternative energy sources; (6) failure to acquire new customers
thereby reducing or limiting any increase in revenues; (7) liability for
environmental claims; (8) customer conservation measures and improvements in
energy efficiency and technology resulting in reduced demand; (9) adverse labor
relations; (10) inability to make business acquisitions on economically
acceptable terms resulting in failure to acquire new customers thereby limiting
any increase in revenues; (11) liability in excess of insurance coverage for
personal injury and property damage arising from explosions and other
catastrophic events, including acts of terrorism, resulting from operating
hazards and risks incidental to transporting, storing and distributing propane,
butane and ammonia; (12) political, regulatory and economic conditions in the
United States and in foreign countries; and (13) interest rate fluctuations and
other capital market conditions.
These factors are not necessarily all of the important factors that could cause
actual results to differ materially from those expressed in any of our
forward-looking statements. Other unknown or unpredictable factors could also
have material adverse effects on future results. We undertake no obligation to
update publicly any forward-looking statement whether as a result of new
information or future events except as required by Federal securities laws.
-19-
AMERIGAS PARTNERS, L.P.
ANALYSIS OF RESULTS OF OPERATIONS
The following analysis compares the Partnership's results of operations for the
three months ended December 31, 2004 ("2004 three-month period") with the three
months ended December 31, 2003 ("2003 three-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.
EXECUTIVE OVERVIEW
During the first quarter of Fiscal 2005, the Partnership operated in an
environment of sustained elevated propane product costs and significantly warmer
than normal weather conditions, factors that adversely affected all companies
within the propane industry. Weather was 8.0% warmer than normal and our product
costs increased nearly 40% compared to the prior year. Customer conservation
driven by higher propane prices negatively affected retail sales volumes. The
Partnership's net income of $44.3 million includes an after-tax gain of $7.1
million from the sale of its 50% ownership in Atlantic Energy and increased
operating and administrative expenses. Due to the warmer than normal weather,
the Partnership has implemented warm weather action plans in an effort to
contain its operating and administrative expenses.
2004 THREE-MONTH PERIOD COMPARED WITH 2003 THREE-MONTH PERIOD
Increase
Three Months Ended December 31, 2004 2003 (Decrease)
- --------------------------------------------- ------- ------- -------------------
(millions of dollars)
Gallons sold (millions):
Retail 296.8 304.5 (7.7) (2.5)%
Wholesale 44.4 33.0 11.4 34.5 %
------- ------- -------
341.2 337.5 3.7 1.1 %
======= ======= =======
Revenues:
Retail propane $ 475.5 $ 400.1 $ 75.4 18.8 %
Wholesale propane 42.0 23.2 18.8 81.0 %
Other 38.7 36.9 1.8 4.9 %
------- ------- -------
$ 556.2 $ 460.2 $ 96.0 20.9 %
======= ======= =======
Total margin (a) $ 205.1 $ 205.7 $ (0.6) (0.3)%
EBITDA (b) $ 86.4 $ 84.6 $ 1.8 2.1 %
Operating income $ 67.7 $ 65.6 $ 2.1 3.2 %
Net income $ 44.3 $ 43.1 $ 1.2 2.8 %
Heating degree days - % warmer than normal (c) (8.0) (7.4) - -
(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
-20-
AMERIGAS PARTNERS, L.P.
financial condition under accounting principles generally accepted in the
United States of America ("GAAP"). Management believes EBITDA is a
meaningful non-GAAP financial measure used by investors to 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.
The following table includes reconciliations of net income to EBITDA for
the periods presented:
Three Months Ended
December 31,
----------------------------
2004 2003
------- -------
Net income $ 44.3 $ 43.1
Income tax expense 2.3 0.7
Interest expense 20.5 21.1
Depreciation 17.9 18.4
Amortization 1.4 1.3
------- -------
EBITDA $ 86.4 $ 84.6
======= =======
(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.
Based upon national heating degree day data, temperatures were 8.0% warmer than
normal during the 2004 three-month period compared to temperatures that were
7.4% warmer than normal in the 2003 three-month period. Retail propane volumes
sold decreased 2.5% due to the negative effects of price-induced customer
conservation resulting from higher propane selling prices.
Retail propane revenues increased $75.4 million reflecting an $85.5 million
increase due to higher average selling prices partially offset by a $10.1
million decrease due to the lower retail volumes sold. Wholesale propane
revenues increased $18.8 million reflecting (1) a $10.9 million increase due to
higher average selling prices and (2) a $7.9 million increase due to the higher
volumes sold principally relating to product cost hedging activities. The higher
average retail and wholesale selling prices per gallon reflect significantly
higher propane product costs. The average wholesale cost per gallon at Mont
Belvieu, one of the major propane supply points in the United States, was
approximately 47% greater than the average cost per gallon during the 2003
three-month period. Total cost of sales increased $96.6 million primarily
reflecting increased propane product costs. Notwithstanding the lower retail
volumes sold, total margin was comparable to the 2003 three-month period
principally due to slightly higher average retail propane margins per gallon.
The increase in EBITDA during the 2004 three-month period reflects a $9.3
million increase in other income due to a $9.1 million pre-tax gain recognized
on the Partnership's sale of its 50% ownership interest in Atlantic Energy, Inc.
("Atlantic Energy"). The increase in other income was partially offset by a $6.9
million increase in operating and administrative expenses principally resulting
from higher (1) vehicle costs associated with increased fuel prices and higher
vehicle lease expense, (2) employee compensation costs and (3) general insurance
expenses. Operating income increased more than the increase in EBITDA due to
slightly lower
-21-
AMERIGAS PARTNERS, L.P.
depreciation expense. Net income in the 2004 three-month period increased $1.2
million reflecting the after-tax gain on the Partnership's sale of its ownership
interest in Atlantic Energy and lower interest expense partially offset by
increased operating and administrative expenses.
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL CONDITION
The Partnership's long-term debt outstanding at December 31, 2004 totaled $901.2
million (including current maturities of $60.4 million) compared to $901.4
million (including current maturities of $60.1 million) at September 30, 2004.
The Partnership expects to refinance all or a portion of the $53.8 million of
principal on the AmeriGas OLP First Mortgage Notes due in April 2005.
AmeriGas OLP's Credit Agreement expires on October 15, 2008 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, for
working capital and general purposes, subject to restrictions in the AmeriGas
Partners Senior Notes indentures. At December 31, 2004, there was $30 million of
borrowings outstanding under the Credit Agreement, which are classified as bank
loans. 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 $51.0 million at December 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 issuing securities in the future. 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 May 2004, both in underwritten public offerings. Proceeds of the public
offerings are used to reduce indebtedness and for general Partnership purposes,
including funding acquisitions. 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 $446.2
million of debt or equity securities pursuant to an unallocated shelf
registration statement.
During the three months ended December 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, 2004. The MQD for the quarter
ended December 31, 2004 will be paid on February 18, 2005 to holders of record
on February 10, 2005. 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)
-22-
AMERIGAS PARTNERS, L.P.
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, the cost of propane
and changes in capital market conditions.
CASH FLOWS
OPERATING ACTIVITIES. The Partnership had cash and cash equivalents totaling
$7.2 million at December 31, 2004 compared to $40.6 million at September 30,
2004. 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 three
months ended December 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 used by operating activities was
$12.1 million during the 2004 three-month period compared to cash flow provided
by operating activities of $14.7 million during the 2003 three-month period.
Cash flow from operating activities before changes in working capital was $54.9
million in the 2004 three-month period compared to $66.4 million in the
prior-year three-month period. These decreases reflect the negative effects of
customer conservation resulting from significantly higher propane selling prices
and greater cash required to fund changes in working capital. Cash required to
fund changes in operating working capital during the 2004 three-month period
totaled $67.0 million compared to the $51.7 million required in the prior-year
three-month period reflecting the effects of the higher selling prices on
accounts receivable and higher propane costs on inventories and accounts
payable.
INVESTING ACTIVITIES. We spent $21.1 million for property, plant and equipment
(including maintenance capital expenditures of $6.5 million and growth capital
expenditures of $14.6 million) during the three months ended December 31, 2004
compared to $14.3 million (including maintenance capital expenditures of $6.1
million and growth capital expenditures of $8.2 million) during the prior-year
three-month period. The significant increase is due to greater expenditures
relating to growth initiatives. The increase in proceeds received from disposals
of assets reflects the sale of five district locations during the 2004
three-month period compared to three district locations in the 2003 three-month
period. During the 2004 three-month period, the Partnership sold its 50%
ownership interest in Atlantic Energy for $11.5 million. The Partnership
acquired three retail propane businesses for $15.6 million during the 2004
three-month period.
FINANCING ACTIVITIES. Cash flow used by financing activities was $2.1 million in
the 2004 three-month period compared to cash flow provided by financing
activities of $5.5 million in the prior-year period. The Partnership's financing
activities are typically the result of repayments and issuances of long-term
debt, borrowings under our Credit Agreement, issuances of Common Units and
distributions on limited partner units.
-23-
AMERIGAS PARTNERS, L.P.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"). SFAS 123R replaces
SFAS 123 and supersedes APB 25. SFAS 123, as originally issued in 1995,
established as preferable a fair-value-based method of accounting for
share-based payment transactions with employees. However, SFAS 123 permitted
entities the option of continuing to apply the guidance in APB 25, as long as
the footnotes to financial statements disclosed what net income would have been
had the preferable fair-value-based method been used. SFAS 123R requires that
the compensation cost relating to share-based payment transactions be recognized
in the financial statements. The cost is required to be measured based on the
fair value of the equity or liability instruments issued. SFAS 123R covers a
wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. SFAS 123R is effective for interim periods
beginning after June 15, 2005. Under all of the transition methods, unrecognized
compensation expense for awards that are not vested on the adoption date will be
recognized in the Partnership's statements of operations through the end of the
requisite service period. The Partnership does not believe that the adoption of
SFAS 123R will have a material impact on its results of operations or financial
position as detailed in Note 1 to the Condensed Consolidated Financial
Statements.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
- - An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions"
("SFAS 153"). SFAS 153 eliminates the exception from fair value measurement for
nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB
Opinion No. 29, "Accounting for Nonmonetary Transactions," and replaces it with
an exception for exchanges that lack commercial substance. SFAS 153 specifies
that a nonmonetary exchange has commercial substance if the future cash flows of
the entity are expected to change significantly as a result of the exchange.
SFAS 153 is effective for interim periods beginning after June 15, 2005. The
Partnership does not believe that the adoption of SFAS 153 will have a material
effect on its consolidated results of operations or financial position.
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 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
-24-
AMERIGAS PARTNERS, L.P.
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 its 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.
The following table summarizes the fair values of unsettled market risk
sensitive derivative instruments held at December 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
December 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)
December 31, 2004:
Propane commodity price risk $ (9.8) $ (13.0)
Interest rate risk (3.1) (6.1)
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.
-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.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS
10.1 Summary of Director Compensation
31.1 Certification by the Chief Executive Officer relating to the
Registrants' Report on Form 10-Q for the quarter ended December 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 December 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 December 31, 2004, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
-26-
AMERIGAS PARTNERS, L.P.
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: February 7, 2005 By: /s/ Martha B. Lindsay
-------------------------------
Martha B. Lindsay
Vice President - Finance
and Chief Financial Officer
By: /s/ William J. Stanczak
-------------------------------
William J. Stanczak
Controller and Chief Accounting Officer
AmeriGas Finance Corp.
-------------------------------
(Registrant)
Date: February 7, 2005 By: /s/ Martha B. Lindsay
-------------------------------
Martha B. Lindsay
Vice President - Finance
and Chief Financial Officer
By: /s/ William J. Stanczak
-------------------------------
William J. Stanczak
Controller and Chief Accounting Officer
AmeriGas Eagle Finance Corp.
-----------------------------------
(Registrant)
Date: February 7, 2005 By: /s/ Martha B. Lindsay
-------------------------------
Martha B. Lindsay
Vice President - Finance
and Chief Financial Officer
By: /s/ William J. Stanczak
-------------------------------
William J. Stanczak
Controller and Chief Accounting Officer
-27-
AMERIGAS PARTNERS, L.P.
AP Eagle Finance Corp.
-------------------------------
(Registrant)
Date: February 7, 2005 By: /s/ Martha B. Lindsay
-------------------------------
Martha B. Lindsay
Vice President - Finance
and Chief Financial Officer
By: /s/ William J. Stanczak
-------------------------------
William J. Stanczak
Controller and Chief Accounting Officer
-28-
AMERIGAS PARTNERS, L.P.
EXHIBIT INDEX
10.1 Summary of Director Compensation
31.1 Certification by the Chief Executive Officer relating to the
Registrant's Report on Form 10-Q for the quarter ended December 31,
2004, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by the Chief Financial Officer relating to the
Registrant's Report on Form 10-Q for the quarter ended December 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 December 31, 2004, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.