UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
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
AMERIGAS PARTNERS, L.P.
(Exact name of registrants as specified in their charters)
Delaware 23-2787918
(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 July 31, 2005, there were 54,492,605 Common Units of AmeriGas Partners,
L.P. outstanding.
AMERIGAS PARTNERS, L.P.
TABLE OF CONTENTS
PAGES
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2005,
September 30, 2004 and June 30, 2004 1
Condensed Consolidated Statements of Operations for the three and nine
months ended June 30, 2005 and 2004 2
Condensed Consolidated Statements of Cash Flows for the
nine months ended June 30, 2005 and 2004 3
Condensed Consolidated Statement of Partners' Capital for the
nine months ended June 30, 2005 4
Notes to Condensed Consolidated Financial Statements 5 - 14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 15 - 23
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23 - 24
Item 4. Controls and Procedures 25
PART II OTHER INFORMATION
Item 6. Exhibits 26 - 27
Signatures 28
-i-
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Thousands of dollars)
June 30, September 30, June 30,
2005 2004 2004
----------- ------------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 5,027 $ 40,583 $ 23,306
Accounts receivable (less allowances for doubtful accounts
of $14,683, $11,964 and $13,420, respectively) 151,533 141,709 145,095
Accounts receivable - related parties 2,582 5,137 3,724
Inventories 71,727 84,753 63,940
Prepaid expenses 6,609 11,699 10,890
Other current assets 6,106 14,235 4,393
----------- ------------- -----------
Total current assets 243,584 298,116 251,348
Property, plant and equipment (less accumulated depreciation and
amortization of $559,653, $520,447 and $521,790, respectively) 588,147 592,353 601,334
Goodwill and excess reorganization value 619,193 609,058 606,715
Other intangible assets (less accumulated amortization of $19,613,
$16,158 and $15,120, respectively) 30,564 28,612 27,350
Other assets 15,174 22,088 20,687
----------- ------------- -----------
Total assets $ 1,496,662 $ 1,550,227 $ 1,507,434
=========== ============= ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current maturities of long-term debt $ 118,689 $ 60,068 $ 59,469
Bank loans 15,000 - -
Accounts payable - trade 88,126 112,315 71,296
Accounts payable - related parties 2,773 1,309 188
Customer deposits and advances 38,915 78,907 36,983
Employee compensation and benefits accrued 33,772 30,023 31,944
Interest accrued 17,096 30,675 16,603
Other current liabilities 43,210 39,173 31,564
----------- ------------- -----------
Total current liabilities 357,581 352,470 248,047
Long-term debt 795,664 841,283 842,115
Other noncurrent liabilities 61,707 59,687 58,730
Commitments and contingencies (note 8)
Minority interests 7,860 7,749 8,240
Partners' capital 273,850 289,038 350,302
----------- ------------- -----------
Total liabilities and partners' capital $ 1,496,662 $ 1,550,227 $ 1,507,434
=========== ============= ===========
See accompanying notes to condensed consolidated financial statements.
-1-
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(Thousands of dollars, except per unit)
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------- ------------------------
2005 2004 2005 2004
--------- --------- ----------- ----------
Revenues:
Propane $ 315,992 $ 282,510 $ 1,497,120 $1,359,913
Other 33,477 32,597 106,833 103,102
--------- --------- ----------- ----------
349,469 315,107 1,603,953 1,463,015
--------- --------- ----------- ----------
Costs and expenses:
Cost of sales - propane 194,744 169,095 946,794 800,514
Cost of sales - other 14,231 14,923 43,083 43,203
Operating and administrative expenses 124,698 118,125 392,411 381,283
Depreciation and amortization 18,221 19,968 55,969 59,439
Other income, net (4,070) (3,011) (21,526) (10,949)
--------- --------- ----------- ----------
347,824 319,100 1,416,731 1,273,490
--------- --------- ----------- ----------
Operating income (loss) 1,645 (3,993) 187,222 189,525
Loss on extinguishment of debt (33,602) - (33,602) -
Interest expense (19,722) (20,516) (60,958) (62,818)
--------- --------- ----------- ----------
Income (loss) before income taxes and minority interests (51,679) (24,509) 92,662 126,707
Income tax benefit (expense) 324 237 (1,809) (391)
Minority interests 79 140 (1,616) (1,649)
--------- --------- ----------- ----------
Net income (loss) $ (51,276) $ (24,132) $ 89,237 $ 124,667
========= ========= =========== ==========
General partner's interest in net income (loss) $ (513) $ (241) $ 892 $ 6,448
========= ========= =========== ==========
Limited partners' interest in net income (loss) $ (50,763) $ (23,891) $ 88,345 $ 118,219
========= ========= =========== ==========
Net income (loss) per limited partner unit:
Basic $ (0.93) $ (0.45) $ 1.62 $ 2.25
========= ========= =========== ==========
Diluted $ (0.93) $ (0.45) $ 1.62 $ 2.24
========= ========= =========== ==========
Average limited partner units outstanding (thousands):
Basic 54,493 53,188 54,487 52,635
========= ========= =========== ==========
Diluted 54,493 53,188 54,541 52,708
========= ========= =========== ==========
See accompanying notes to condensed consolidated financial statements.
-2-
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Thousands of dollars)
Nine Months Ended
June 30,
----------------------
2005 2004
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 89,237 $ 124,667
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 55,969 59,439
Provision for uncollectible accounts 8,359 7,833
Gain on sale of Atlantic Energy (9,135) -
Loss on extinguishment of debt 33,602 -
Other, net (1,915) (240)
Net change in:
Accounts receivable (15,265) (35,433)
Inventories 13,280 9,585
Accounts payable (22,726) (19,062)
Other current assets and liabilities (43,646) (37,801)
--------- ---------
Net cash provided by operating activities 107,760 108,988
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (50,138) (44,612)
Proceeds from disposals of assets 15,549 7,938
Net proceeds from sale of Atlantic Energy 11,504 -
Acquisitions of businesses, net of cash acquired (22,646) (33,388)
--------- ---------
Net cash used by investing activities (45,731) (70,062)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (91,364) (87,275)
Minority interest activity (1,298) (719)
Issuance of long-term debt 446,000 30,135
Repayment of long-term debt (465,923) (55,347)
Increase in bank loans 15,000 -
Proceeds from issuance of Common Units - 51,197
Capital contributions from General Partner - 517
--------- ---------
Net cash used by financing activities (97,585) (61,492)
--------- ---------
Cash and cash equivalents decrease $ (35,556) $ (22,566)
========= =========
CASH AND CASH EQUIVALENTS:
End of period $ 5,027 $ 23,306
Beginning of period 40,583 45,872
--------- ---------
Decrease $ (35,556) $ (22,566)
========= =========
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 88,345 892 89,237
Net losses on derivative instruments (19,353) (19,353)
Reclassification of net gains
on derivative instruments 5,712 5,712
--------- ------- ------------- ---------
Comprehensive income 88,345 892 (13,641) 75,596
Distributions (90,450) (914) (91,364)
Common Units issued in
connection with incentive
compensation plan 19,333 579 579
---------- --------- ------- ------------- ---------
BALANCE JUNE 30, 2005 54,492,605 $ 275,361 $ 2,761 $ (4,273) $ 273,849
========== ========= ======= ============= =========
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
5). Atlantic Energy's principal asset was a propane storage terminal
located in Chesapeake, Virginia.
AmeriGas Finance Corp., AmeriGas Eagle Finance Corp. and AP Eagle Finance
Corp. are wholly-owned finance subsidiaries of AmeriGas Partners. Their
sole purpose is to serve as co-obligors for debt securities issued by
AmeriGas Partners, L.P.
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
-5-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
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 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, but not necessarily, 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 diluted limited partner unit was $(0.10)
for the nine months ended June 30, 2004.
Potentially dilutive Common Units included in the diluted limited partner
units outstanding computation reflect the effects of restricted Common
Unit awards granted under the General Partner's incentive compensation
plans.
COMPREHENSIVE INCOME. The following table presents the components of
comprehensive income (loss) for the three and nine months ended June 30,
2005 and 2004:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- -------------------
2005 2004 2005 2004
-------- -------- -------- --------
Net income (loss) $(51,276) $(24,132) $ 89,237 $124,667
Other comprehensive income (loss) (3,274) 4,025 (13,641) 6,423
-------- -------- -------- --------
Comprehensive income (loss) $(54,550) $(20,107) $ 75,596 $131,090
-------- -------- -------- --------
Other comprehensive income (loss) is principally the result of changes in
the fair value of propane commodity derivative instruments and interest
rate protection agreements, net of reclassifications of net gains and
losses to net income.
UNIT-BASED COMPENSATION. As permitted by Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), we apply the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
25"), in recording compensation expense for grants of equity instruments
to employees.
-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 unit-based compensation expense
of $392 and $288 during the three and nine months ended June 30, 2005,
respectively, and $72 and $556 during the three and nine months ended June
30, 2004, respectively. The forfeiture of restricted units in fiscal 2005
resulted in the reversal of previously recognized expense. 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 nine months ended June 30, 2005 and
2004 would have been as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------- --------------------
2005 2004 2005 2004
--------- -------- -------- ---------
Net (loss) income as reported $ (51,276) $(24,132) $ 89,237 $ 124,667
Add: Unit-based employee
compensation expense
included in reported net (loss) income 392 72 288 556
Deduct: Total stock and unit-based
employee compensation expense
determined under the fair
value method for all awards (505) (216) (672) (941)
--------- -------- -------- ---------
Pro forma net (loss) income $ (51,389) $(24,276) $ 88,853 $ 124,282
--------- -------- -------- ---------
Basic (loss) income per limited partner unit:
As reported $ (0.93) $ (0.45) $ 1.62 $ 2.25
Pro forma $ (0.93) $ (0.45) $ 1.61 $ 2.24
Diluted (loss) income per limited partner unit:
As reported $ (0.93) $ (0.45) $ 1.62 $ 2.24
Pro forma $ (0.93) $ (0.45) $ 1.61 $ 2.24
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 nine months ended June 30, 2005, AmeriGas OLP acquired several
retail propane distribution businesses for total cash consideration of
approximately $22,600. The operating results of these businesses have been
included in our operating results from
-7-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
their respective dates of acquisition. The pro forma effects of these
transactions were not material to the Partnership's results of operations.
3. LONG-TERM DEBT
In April 2005, the Partnership repaid $53,750 of maturing AmeriGas OLP
First Mortgage Notes with the proceeds from a $35,000 term loan due on
October 1, 2006, borrowings under its revolving credit facility and
existing cash balances.
In May 2005, the Partnership refinanced $373,360 of its outstanding 8.875%
Senior Notes due 2011 through the issuance of $415,000 of 7.25% Senior
Notes due 2015. In connection with the refinancing, the Partnership
incurred a loss on early extinguishment of debt totaling $33,602, which is
reflected in the condensed consolidated statements of income for the three
and nine months ended June 30, 2005.
4. DISTRIBUTION INCREASE
In April 2005, the General Partner declared an increase in the
Partnership's regular quarterly distribution to $0.56 per limited partner
unit which was payable May 18, 2005 to unit holders of record May 10,
2005. The annualized distribution rate after the increase will be $2.24
per limited partner unit.
5. 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 nine months ended June 30, 2005.
-8-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
6. INTANGIBLE ASSETS
The Partnership's intangible assets comprise the following:
June 30, September 30,
2005 2004
----------- -------------
Subject to amortization:
Customer relationships and
noncompete agreements $ 50,177 $ 44,770
Accumulated amortization (19,613) (16,158)
----------- -------------
$ 30,564 $ 28,612
----------- -------------
Not subject to amortization:
Goodwill $ 525,873 $ 515,738
Excess reorganization value 93,320 93,320
----------- -------------
$ 619,193 $ 609,058
----------- -------------
The increases in intangible assets during the nine months ended June 30,
2005 resulted from Partnership business acquisitions. Amortization expense
of intangible assets was $1,103 and $3,456 for the three and nine months
ended June 30, 2005, respectively, and $1,067 and $3,186 for the three and
nine months ended June 30, 2004, respectively. Our expected aggregate
amortization expense of intangible assets for the next five fiscal years
is as follows: Fiscal 2005 - $4,596; Fiscal 2006 - $4,369; Fiscal 2007 -
$3,731; Fiscal 2008 - $3,455; Fiscal 2009 - $3,127.
7. 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 $72,404 and $231,833 during
the three and nine months ended June 30, 2005, respectively, and $71,509
and $234,946 during the three and nine months ended June 30, 2004,
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 $4,008 and $9,762 during the
three and nine months ended June 30, 2005, respectively, and $2,154 and
$7,686 during the three and nine months ended June 30, 2004, respectively.
In addition, UGI and certain of its subsidiaries (excluding Atlantic
Energy which is discussed separately) provide office space and automobile
liability insurance and sold propane to the Partnership. These costs
totaled $814 and $2,968 during the three and nine months
-9-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
ended June 30, 2005, respectively, and $679 and $1,919 during the three
and nine months ended June 30, 2004, respectively.
Prior to the November 2004 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
during the nine months ended June 30, 2005, all of which occurred prior to
the sale of our ownership interests. The total dollar value of propane
purchased on behalf of Atlantic Energy was $3,875 and $25,108 during the
three and nine months ended June 30, 2004, respectively. AmeriGas OLP
still purchases propane from Atlantic Energy, now owned by an affiliate of
UGI. Purchases of propane by AmeriGas OLP from Atlantic Energy during the
three and nine months ended June 30, 2005 totaled $3,888 and $23,952,
respectively, and during the three and nine months ended June 30, 2004
totaled $3,091 and $25,125, 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 took effect on April 1, 2005 and
will 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 and nine months ended June 30,
2005 and 2004. In addition, AmeriGas OLP entered into product cost hedging
contracts on behalf of Atlantic Energy. When these contracts were settled,
AmeriGas OLP was reimbursed the cost of any losses by, or distributed the
proceeds of any gains to, Atlantic Energy. No amounts were due from
Atlantic Energy at June 30. 2005. Amounts due from Atlantic Energy at
September 30, 2004 and June 30, 2004 totaled $2,906 and $1,421,
respectively. Amounts due from Atlantic Energy are included in accounts
receivable - related parties in the Condensed Consolidated Balance Sheets.
-10-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
8. 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 $10,000 at June 30, 2005. 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 March 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 operation of the business after the 1999
Acquisition ("National Claims"). At June 30, 2005, 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
-11-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
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. In 2004, the court 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.
9. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2005, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 154, "Accounting Changes and Error Corrections" ("SFAS 154"). SFAS 154
replaces APB No. 20, "Accounting Changes" and SFAS No. 3, "Reporting
Accounting Changes in Interim Financial Statements" and establishes
retrospective application as the required method for reporting a change in
accounting principle. SFAS 154 provides guidance for determining whether
retrospective application of a change in accounting principle is
impracticable and for reporting a
-12-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
change when retrospective application is impracticable. SFAS 154 is effective
for accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005.
In March 2005, the FASB issued Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations" ("FIN 47"). It requires an entity to
recognize a liability for a conditional asset retirement obligation when
incurred if the liability can be reasonably estimated. FIN 47 clarifies that
the term "Conditional Asset Retirement Obligation" refers to a legal obligation
to perform an asset retirement activity in which the timing and/or method of
settlement are conditional on a future event that may or may not be within the
control of the entity. FIN 47 also clarifies when an entity would have
sufficient information to reasonably estimate the fair value of an asset
retirement obligation. FIN 47 is effective no later than the end of fiscal
years ending after December 15, 2005. We are currently evaluating the impact
of FIN 47 on our financial position and results of operations.
In December 2004, the 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 our fiscal year ending September 30, 2006. 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 financial position or results of operations. For disclosure regarding pro
forma net income and earnings per unit as if we had determined unit-based
compensation under the fair value method prescribed by SFAS 123, see 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
-13-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
change significantly as a result of the exchange. SFAS 153 is effective
for interim periods beginning after June 15, 2005. The adoption of SFAS
153 will not have a material effect on our consolidated financial position
or results of operations.
-14-
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.
-15-
AMERIGAS PARTNERS, L.P.
ANALYSIS OF RESULTS OF OPERATIONS
The following analyses compare the Partnership's results of operations for (1)
the three months ended June 30, 2005 ("2005 three-month period") with the three
months ended June 30, 2004 ("2004 three-month period") and (2) the nine months
ended June 30, 2005 ("2005 nine-month period") with the nine months ended June
30, 2004 ("2004 nine-month period").
EXECUTIVE OVERVIEW
The Partnership's results are largely seasonal and dependent upon weather
conditions, particularly during the peak-heating season, which occurs in the
first half of our fiscal year. As a result, our net income is generally higher
in our first and second fiscal quarters whereas lower net income or net losses
occur in our third and fourth fiscal quarters. Weather during the first half of
our fiscal year was 6.2% warmer than normal compared to 4.1% warmer than normal
in the prior-year winter heating season. In addition to the weather conditions,
our volumes reflect the effects of customer conservation due to high propane
prices.
During the past nine months, the Partnership refinanced $373.4 million of its
8.875% Senior Notes due 2011 with $415 million of 7.25% Senior Notes and
incurred a loss on early extinguishment of debt totaling $33.6 million. The
refinancing extended the maturity of our debt several years and will lower
annual interest expense. The Partnership acquired several retail propane
distribution businesses during the 2005 nine-month period which is consistent
with its growth through acquisitions strategy. In addition, our PPX(R) grill
cylinder exchange business increased its sales and exchange volumes 6% compared
to the 2004 nine-month period, but its contribution to our earnings decreased
principally reflecting competitive pricing pressures and the higher cost of
propane. Also, the Partnership's earnings include an after-tax gain of $7.1
million from the November 2004 sale of its 50% ownership in Atlantic Energy,
Inc. ("Atlantic Energy").
The Partnership reported net income of $89.2 million and net income per diluted
limited partner unit of $1.62 during the nine months ended June 30, 2005, which
includes the previously mentioned $33.6 million charge for the early
extinguishment of debt and an after-tax gain of $7.1 million ($0.13 per limited
partner unit) in connection with the sale of Atlantic Energy. The Partnership's
results were adversely affected by warmer than normal weather and the negative
effects of customer conservation resulting from higher propane selling prices
due to significantly higher propane product costs. The combination of these
factors resulted in an approximate 3% decrease in retail propane volumes sold
compared to the prior-year nine-month period.
-16-
AMERIGAS PARTNERS, L.P.
2005 THREE-MONTH PERIOD COMPARED WITH 2004 THREE-MONTH PERIOD
Increase
Three Months Ended June 30, 2005 2004 (Decrease)
- ---------------------------------------------- ------ ------ ----------------
(millions of dollars)
Gallons sold (millions):
Retail 181.9 175.2 6.7 3.8 %
Wholesale 19.2 55.0 (35.8) (65.1)%
------ ------ -------
201.1 230.2 (29.1) (12.6)%
====== ====== =======
Revenues:
Retail propane $297.9 $247.9 $ 50.0 20.2%
Wholesale propane 18.1 34.6 (16.5) (47.7)%
Other 33.5 32.6 0.9 2.8%
------ ------ -------
$349.5 $315.1 $ 34.4 10.9%
====== ====== =======
Total margin (a) $140.5 $131.1 $ 9.4 7.2%
EBITDA (b) $(13.7) $ 16.1 $ (29.8) (185.1)%
Operating income (loss) $ 1.6 $ (4.0) $ 5.6 140.0%
Net loss $(51.3) $(24.1) $ (27.2) 112.9%
Heating degree days - % warmer than normal (c) (4.9) (8.0) - -
(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
("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
June 30,
-------------------
2005 2004
-------- -------
Net loss $ (51.3) $ (24.1)
Income tax benefit (0.3) (0.2)
Interest expense 19.7 20.5
Depreciation 16.9 18.6
Amortization 1.3 1.3
-------- -------
EBITDA $ (13.7) $ 16.1
======== =======
(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.
-17-
AMERIGAS PARTNERS, L.P.
Based upon national heating degree-day data, temperatures were 4.9% warmer than
normal during the 2005 three-month period compared to temperatures that were
8.0% warmer than normal during the 2004 three-month period. Retail propane
volumes sold increased 3.8% which reflects the effects of recent acquisitions on
volumes sold and significantly colder weather in May than in the prior year. In
the 2005 three-month period, our average retail propane product costs were
approximately 32% higher than in the 2004 three-month period, which resulted in
higher year-over-year prices to our customers. These higher prices resulted in
customer conservation which limited the increase in volumes sold. Low-margin
wholesale propane volumes sold decreased during the 2005 three-month period
reflecting lower volumes sold in connection with product cost hedging
activities.
Retail propane revenues increased $50.0 million reflecting a $40.4 million
increase due to higher average selling prices and a $9.6 million increase due to
the higher retail volumes sold. Wholesale propane revenues decreased $16.5
million reflecting a $22.5 million decrease due to lower volumes sold partially
offset by a $6.0 million increase resulting from higher average selling prices.
The higher average retail and wholesale selling prices per gallon reflect the
continuance of significantly higher propane product costs compared to the prior
year. The average wholesale cost per gallon of propane at Mont Belvieu, one of
the major propane supply points in the United States, was approximately 26%
greater than the average cost per gallon during the 2004 three-month period.
Total cost of sales increased $25.0 million reflecting the increase in propane
product costs and, to a much lesser extent, the increased volumes sold. Total
margin increased $9.4 million compared to the 2004 three-month period reflecting
higher retail volumes sold, slightly higher average retail propane margins per
gallon and higher margin from ancillary sales and services.
EBITDA during the 2005 three-month period was $(13.7) million compared to $16.1
million during the 2004 three-month period. The $29.8 million decline in EBITDA
reflects a $33.6 million loss on early extinguishment of debt resulting from the
Partnership's refinancing of $373.4 million of its Senior Notes in May 2005 and
increased operating and administrative expenses which were partially offset by
the previously mentioned increase in total margin. Operating and administrative
expenses increased $6.6 million principally reflecting higher performance-based
compensation and benefit costs, general insurance expense, vehicle fuel expense
and vehicle lease expense. Operating income increased $5.6 million reflecting
the increase in total margin, a decrease in depreciation expense and an increase
in other income largely offset by the previously mentioned increase in operating
and administrative expenses. The $1.1 million increase in other income primarily
reflects increased gains from fixed asset disposals. Net income in the 2005
three-month period decreased $27.2 million reflecting the increase in operating
income and $0.8 million lower interest expense which was more than offset by the
$33.6 million loss on extinguishment of debt.
-18-
AMERIGAS PARTNERS, L.P.
2005 NINE-MONTH PERIOD COMPARED WITH 2004 NINE-MONTH PERIOD
Increase
Nine Months Ended June 30, 2005 2004 (Decrease)
- ------------------------------------------ --------- --------- --------------
(millions of dollars)
Gallons sold (millions):
Retail 857.5 883.6 (26.1) (3.0)%
Wholesale 123.0 200.3 (77.3) (38.6)%
--------- --------- ------
980.5 1,083.9 (103.4) (9.5)%
========= ========= ======
Revenues:
Retail propane $ 1,384.0 $ 1,221.8 $162.2 13.3%
Wholesale propane 113.2 138.1 (24.9) (18.0)%
Other 106.8 103.1 3.7 3.6%
--------- --------- ------
$ 1,604.0 $ 1,463.0 $141.0 9.6%
========= ========= ======
Total margin $ 614.1 $ 619.3 $ (5.2) (0.8)%
EBITDA (a) $ 208.0 $ 247.3 $(39.3) (15.9)%
Operating income $ 187.2 $ 189.5 $ (2.3) (1.2)%
Net income $ 89.2 $ 124.7 $(35.5) (28.5)%
Heating degree days - % warmer than normal (6.1) (4.6) - -
(a) The following table includes reconciliations of net income to EBITDA for
the periods presented:
Nine Months Ended
June 30,
------------------
2005 2004
------- -------
Net income $ 89.2 $ 124.7
Income tax expense 1.8 0.3
Interest expense 61.0 62.8
Depreciation 51.9 55.6
Amortization 4.1 3.9
------- -------
EBITDA $ 208.0 $ 247.3
======= =======
Temperatures during the 2005 nine-month period were 6.1% warmer than normal
compared to temperatures that were 4.6% warmer than normal during the 2004
nine-month period. Retail propane volumes sold decreased 3% principally due to
the warmer than normal winter weather and the negative effects of customer
conservation on volumes sold which is primarily attributed to increased propane
selling prices. Low-margin wholesale propane volumes sold decreased during the
2005 nine-month period reflecting lower volumes sold in connection with product
cost hedging activities.
Retail propane revenues increased $162.2 million reflecting a $198.3 million
increase due to higher average selling prices partially offset by a $36.1
million decrease due to the lower retail volumes sold. Wholesale propane
revenues decreased $24.9 million reflecting a $53.3 million decrease due to
lower volumes sold partially offset by a $28.4 million increase due to higher
average selling prices. The higher average retail and wholesale selling prices
per gallon reflect significantly higher propane product costs. The average
wholesale cost per gallon of propane at
-19-
AMERIGAS PARTNERS, L.P.
Mont Belvieu was approximately 29% greater than the average cost per gallon
during the 2004 nine-month period. Total cost of sales increased $146.2 million
reflecting the higher propane product costs. Total margin decreased $5.2 million
principally due to the lower retail volumes sold partially offset by slightly
higher average retail propane margins per gallon and higher margin from
ancillary sales and services.
Notwithstanding a $9.1 million pre-tax gain recognized on the Partnership's sale
of its 50% ownership interest in Atlantic Energy, EBITDA during the 2005
nine-month period decreased $39.3 million compared to the 2004 nine-month period
as a result of the $33.6 million loss on early extinguishment of debt resulting
from the Partnership's refinancing of its Senior Notes in May 2005, an $11.1
million increase in operating and administrative expenses and the decrease in
total margin. The increase in operating and administrative expenses principally
resulted from higher vehicle fuel expense, vehicle lease costs and general
insurance expense. Operating income decreased $2.3 million reflecting the
decrease in total margin and the higher operating and administrative expenses
partially offset by higher other income, which reflects the gain on the sale of
Atlantic Energy, and slightly lower depreciation expense. Net income in the 2005
nine-month period decreased $35.5 million reflecting the $33.6 million loss on
early extinguishment of debt, lower operating income and increased income taxes
resulting from the Partnership's gain on the sale of its ownership interest in
Atlantic Energy partially offset by lower interest expense.
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL CONDITION
The Partnership's long-term debt outstanding at June 30, 2005 totaled $914.4
million (including current maturities of $118.7 million) compared to $901.4
million (including current maturities of $60.1 million) at September 30, 2004.
In April 2005, the Partnership repaid $53.8 million of maturing AmeriGas OLP
First Mortgage Notes with the proceeds from a $35 million term loan ("AmeriGas
OLP Term Loan") due October 1, 2006, borrowings under its revolving credit
facility and existing cash balances. In May 2005, the Partnership refinanced
$373.4 million of its outstanding 8.875% Senior Notes due 2011 through the
issuance of $415.0 million of 7.25% Senior Notes due 2015. In connection with
the refinancing, the Partnership incurred a loss on early extinguishment of debt
totaling $33.6 million.
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 June 30, 2005, there were $15 million of
borrowings outstanding under the Credit Agreement, which are classified as bank
loans on the Condensed Consolidated Balance Sheet. 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 $57.8
million at June 30, 2005.
-20-
AMERIGAS PARTNERS, L.P.
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, and if market conditions are acceptable, it may issue
Common Units in the near future. Most recently, it issued debt securities
through a private placement in May 2005 and Common Units in May 2004 in an
underwritten public offering. Proceeds of the offerings are used to refinance
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.
In April 2005, the Partnership declared an increase in the regular
quarterly distribution to $0.56 per limited partnership unit ($2.24 on an
annual basis). The quarterly distribution of $0.56 for the quarter ended June
30, 2005 will be paid on August 18, 2005 to holders of record on August 10,
2005. During the nine months ended June 30, 2005, the Partnership declared and
paid the quarterly distributions on all limited partner units for the quarters
ended September 30, 2004, December 31, 2005 and March 31, 2005. The ability of
the Partnership to declare and pay the quarterly distribution 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, refinance maturing debt, and
increase its long-term debt. Some of these factors are affected by conditions
beyond the Partnership's 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
$5.0 million at June 30, 2005 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 nine months ended
June 30, 2005 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 $107.8 million
during the 2005 nine-month period compared to $109.0 million during the 2004
nine-month period. Cash flow from operating activities before changes in working
capital was $176.1 million in the 2005 nine-month period compared to $191.7
million in the prior-year nine-month period. Cash required to fund changes in
operating working capital during the 2005 nine-month period totaled $68.4
million compared to the $82.7 million required in the prior-year nine-month
period largely reflecting the changes in accounts receivables.
-21-
AMERIGAS PARTNERS, L.P.
INVESTING ACTIVITIES. We spent $50.1 million for property, plant and equipment
(including maintenance capital expenditures of $15.5 million and growth capital
expenditures of $34.6 million) during the nine months ended June 30, 2005
compared to $44.6 million (including maintenance capital expenditures of $15.1
million and growth capital expenditures of $29.5 million) during the prior-year
nine-month period. The increase is due to greater expenditures relating to
growth initiatives. The increase in proceeds received from disposals of assets
reflects nine district locations sold during the 2005 nine-month period compared
to three district locations sold in the 2004 nine-month period. During the 2005
nine-month period, the Partnership sold its 50% ownership interest in Atlantic
Energy for $11.5 million. The Partnership acquired several retail propane
businesses for $22.6 million during the 2005 nine-month period compared to $33.4
million during the 2004 nine-month period.
FINANCING ACTIVITIES. Cash flow used by financing activities was $97.6 million
in the 2005 nine-month period compared to $61.5 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 partnership interests.
As previously mentioned, the Partnership refinanced $373.4 million of its
outstanding 8.875% Senior Notes due 2011 through the issuance of $415.0 million
of 7.25% Senior Notes due 2015. The Partnership also incurred a $33.6 million
loss on extinguishment of debt in connection with its repayment of the 8.875%
Senior Notes. In April 2005, the Partnership repaid $53.8 million of maturing
AmeriGas OLP First Mortgage Notes with the proceeds from the $35 million
AmeriGas OLP Term Loan, borrowings under its revolving credit facility and
existing cash balances.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2005, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 154, "Accounting Changes and
Error Corrections" ("SFAS 154"). SFAS 154 replaces APB No. 20, "Accounting
Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim Financial
Statements" and establishes retrospective application as the required method
for reporting a change in accounting principle. SFAS 154 provides guidance for
determining whether retrospective application of a change in accounting
principle is impracticable and for reporting a change when retrospective
application is impracticable. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005.
In March 2005, the FASB issued Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations" ("FIN 47"). It requires an entity to
recognize a liability for a conditional asset retirement obligation when
incurred if the liability can be reasonably estimated. FIN 47 clarifies that
the term Conditional Asset Retirement Obligation refers to a legal obligation
to perform an asset retirement activity in which the timing and/or method of
settlement are conditional on a future event that may or may not be within
the control of the entity. FIN 47 also clarifies when an entity would have
sufficient information to reasonably estimate the fair value of an asset
retirement obligation. FIN 47 is effective no later than the end of fiscal
years ending after December 15, 2005. We are currently evaluating the impact
of FIN 47 on our financial position and results of operations.
-22-
AMERIGAS PARTNERS, L.P.
In December 2004, the 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 our fiscal year ending September 30, 2006. 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 financial position or results of operations. For disclosure regarding pro
forma net income and earnings per unit as if we had determined unit-based
compensation under the fair value method prescribed by SFAS 123, see 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
adoption of SFAS 153 will not have a material effect on its consolidated
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 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
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AMERIGAS PARTNERS, L.P.
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
and the AmeriGas OLP Term Loan. These agreements have interest rates that are
generally indexed to short-term market interest rates. Our long-term debt is
typically issued at fixed rates of interest based upon market rates for debt
having similar terms and credit ratings. As these long-term debt issues mature,
we may refinance such debt with new debt having interest rates reflecting
then-current market conditions. This debt may have an interest rate that is more
or less than the refinanced debt. In order to reduce interest rate risk
associated with near-term forecasted issuances of fixed-rate debt, from time to
time we enter into interest rate protection agreements.
The following table summarizes the fair values of unsettled market risk
sensitive derivative instruments held at June 30, 2005. 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
June 30, 2005. 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)
June 30, 2005:
Propane commodity price risk $ 5.1 $ (13.3)
Interest rate risk (7.0) (3.7)
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.
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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.
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AMERIGAS PARTNERS, L.P.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS
The exhibits filed as part of this report are as follows (exhibits incorporated
by reference are set forth with the name of the registrant, the type of report
and registration number or last date of the period for which it was filed, and
the exhibit number in such filing):
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
- ----------- ------------------------------------------- -------------- --------- -------
4.1 Fifth Supplemental Indenture dated April AmeriGas Form 8-K 4.1
13, 2005 by and among Wachovia Bank, Partners, L.P. (5/9/05)
National Association, successor to First
Union National Bank, as trustee, AmeriGas
Partners, L.P., a Delaware limited
partnership, and AP Eagle Finance Corp., a
Delaware corporation, to the Indenture
dated August 21, 2001 by and among First
Union National Bank, as trustee, AmeriGas
Partners, L.P., and AP Eagle Finance Corp.
4.2 Indenture, dated May 3, 2005, by and among AmeriGas Form 8-K 4.1
AmeriGas Partners, L.P., a Delaware limited Partners, L.P. (5/6/05)
partnership, AmeriGas Finance Corp., a
Delaware corporation, and Wachovia Bank,
National Association, as trustee.
10.1 Credit Agreement, dated as of April 18, AmeriGas Form 8-K 10.1
2005, by and among AmeriGas Propane, L.P., Partners, L.P. (4/22/05)
as Borrower, AmeriGas Propane, Inc., as a
Guarantor, Petrolane Incorporated, as a
Guarantor, Wachovia Bank, National
Association, as Agent, and the other
financial institutions party thereto.
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AMERIGAS PARTNERS, L.P.
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
- ----------- ------------------------------------------- -------------- --------- -------
10.2 Registration Rights Agreement, dated May 3, AmeriGas Form 8-K 99.1
2005, by and among AmeriGas Partners, L.P., Partners, L.P. (5/6/05)
a Delaware limited partnership, AmeriGas
Finance Corp., a Delaware corporation,
AmeriGas Propane, L.P., a Delaware limited
partnership, AmeriGas Eagle Propane, L.P.,
a Delaware limited partnership, AmeriGas
Propane, Inc., a Pennsylvania corporation,
AmeriGas Eagle Holdings, Inc., a Delaware
corporation, and Credit Suisse First Boston
LLC, Citigroup Global Markets Inc., and
Wachovia Capital Markets, LLC.
31.1 Certification by the Chief Executive
Officer relating to the Registrant's Report
on Form 10-Q for the quarter ended June 30,
2005, 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 June 30,
2005, 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 June 30, 2005,
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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AMERIGAS PARTNERS, L.P.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AmeriGas Partners, L.P.
--------------------------------------
(Registrant)
By: AmeriGas Propane, Inc.,
as General Partner
Date: August 5, 2005 By: /s/ Michael J. Cuzzolina
-----------------------------------
Michael J. Cuzzolina
Vice President - Finance
and Chief Financial Officer
Date: August 5, 2005 By: /s/ William J. Stanczak
---------------------------------------
William J. Stanczak
Controller and Chief Accounting Officer
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AMERIGAS PARTNERS, L.P.
EXHIBIT INDEX
31.1 Certification by the Chief Executive Officer relating to the Registrant's
Report on Form 10-Q for the quarter ended June 30, 2005, 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 June 30, 2005, 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 June 30, 2005, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.