UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2006
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 registrant as specified in its charter)
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
(Registrant's 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 a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer X Accelerated filer Non-accelerated filer
---- ---- ----
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
----- -----
At April 30, 2006, there were 56,797,105 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 March 31,
2006, September 30, 2005 and March 31, 2005 1
Condensed Consolidated Statements of Operations for the
three and six months ended March 31, 2006 and 2005 2
Condensed Consolidated Statements of Cash Flows for the
six months ended March 31, 2006 and 2005 3
Condensed Consolidated Statement of Partners' Capital for
the six months ended March 31, 2006 4
Notes to Condensed Consolidated Financial Statements 5 - 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14 - 21
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22 - 23
Item 4. Controls and Procedures 24
PART II OTHER INFORMATION
Item 1A. Risk Factors 25
Item 6. Exhibits 25
Signatures 26
-i-
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Thousands of dollars)
March 31, September 30, March 31,
2006 2005 2005
---------- ------------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 57,576 $ 99,162 $ 10,992
Accounts receivable (less allowances for doubtful accounts
of $18,943, $13,143 and $16,889, respectively) 248,231 161,209 250,519
Accounts receivable - related parties 3,037 2,600 2,483
Inventories 86,829 90,748 75,953
Derivative financial instruments 2,007 50,788 2,735
Prepaid expenses and other current assets 8,638 13,233 9,384
---------- ---------- ----------
Total current assets 406,318 417,740 352,066
Property, plant and equipment (less accumulated depreciation and
amortization of $594,954, $569,822, and $549,648, respectively) 582,841 584,519 592,423
Goodwill and excess reorganization value 619,143 619,052 617,006
Intangible assets (less accumulated amortization of $22,965,
$20,756 and $18,511, respectively) 27,366 29,422 30,469
Other assets 19,884 12,342 17,207
---------- ---------- ----------
Total assets $1,655,552 $1,663,075 $1,609,171
========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current maturities of long-term debt $ 3,091 $ 118,087 $ 59,106
Bank loans -- -- 12,000
Accounts payable - trade 149,014 136,429 135,061
Accounts payable - related parties 6,262 2,993 2,336
Customer deposits and advances 41,723 92,427 31,673
Employee compensation and benefits accrued 29,821 31,410 27,577
Interest accrued 19,014 28,985 30,671
Other current liabilities 41,345 46,684 41,414
---------- ---------- ----------
Total current liabilities 290,270 457,015 339,838
Long-term debt 932,501 795,415 840,395
Other noncurrent liabilities 60,388 64,658 61,267
Commitments and contingencies (note 5)
Minority interests 11,822 8,570 8,447
Partners' capital 360,571 337,417 359,224
---------- ---------- ----------
Total liabilities and partners' capital $1,655,552 $1,663,075 $1,609,171
========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
-1-
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(Thousands of dollars, except per unit)
Three Months Ended Six Months Ended
March 31, March 31,
------------------- -----------------------
2006 2005 2006 2005
-------- -------- ---------- ----------
Revenues:
Propane $678,417 $663,677 $1,266,774 $1,181,128
Other 39,713 34,591 81,580 73,356
-------- -------- ---------- ----------
718,130 698,268 1,348,354 1,254,484
-------- -------- ---------- ----------
Costs and expenses:
Cost of sales - propane 433,845 416,741 825,819 752,050
Cost of sales - other 13,467 13,017 29,282 28,852
Operating and administrative expenses 141,595 137,094 275,033 267,713
Depreciation and amortization 17,916 18,430 36,169 37,748
Other income, net (5,018) (4,907) (8,939) (17,456)
-------- -------- ---------- ----------
601,805 580,375 1,157,364 1,068,907
-------- -------- ---------- ----------
Operating income 116,325 117,893 190,990 185,577
Loss on extinguishment of debt (17,079) -- (17,079) --
Interest expense (19,428) (20,733) (38,347) (41,236)
-------- -------- ---------- ----------
Income before income taxes and minority interests 79,818 97,160 135,564 144,341
Income tax (expense) benefit (56) 182 (107) (2,133)
Minority interests (1,003) (1,120) (1,685) (1,695)
-------- -------- ---------- ----------
Net income $ 78,759 $ 96,222 $ 133,772 $ 140,513
======== ======== ========== ==========
General partner's interest in net income $ 17,287 $ 15,076 $ 22,823 $ 17,568
======== ======== ========== ==========
Limited partners' interest in net income $ 61,472 $ 81,146 $ 110,949 $ 122,945
======== ======== ========== ==========
Net income per limited partner unit:
Basic $ 1.08 $ 1.49 $ 1.95 $ 2.26
======== ======== ========== ==========
Diluted $ 1.08 $ 1.49 $ 1.95 $ 2.25
======== ======== ========== ==========
Average limited partner units outstanding (thousands):
Basic 56,797 54,493 56,797 54,485
======== ======== ========== ==========
Diluted 56,827 54,533 56,833 54,542
======== ======== ========== ==========
See accompanying notes to condensed consolidated financial statements.
-2-
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Thousands of dollars)
Six Months Ended
March 31,
---------------------
2006 2005
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 133,772 $ 140,513
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 36,169 37,748
Gain on sale of Atlantic Energy -- (9,135)
Loss on early extinguishment of debt 17,079 --
Other, net (113) 7,766
Net change in:
Accounts receivable (95,300) (112,683)
Inventories 3,919 9,011
Accounts payable 15,854 23,773
Other current assets and liabilities (63,842) (42,855)
--------- ---------
Net cash provided by operating activities 47,538 54,138
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (35,608) (35,069)
Proceeds from disposals of assets 5,656 10,406
Net proceeds from sale of Atlantic Energy -- 11,504
Acquisitions of businesses, net of cash acquired (551) (18,626)
--------- ---------
Net cash used by investing activities (30,503) (31,785)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (64,255) (60,539)
Minority interest activity 2,049 (824)
Increase in bank loans -- 12,000
Issuance of long-term debt 343,875 --
Repayment of long-term debt (340,290) (2,581)
--------- ---------
Net cash used by financing activities (58,621) (51,944)
--------- ---------
Cash and cash equivalents decrease $ (41,586) $ (29,591)
========= =========
CASH AND CASH EQUIVALENTS:
End of period $ 57,576 $ 10,992
Beginning of period 99,162 40,583
--------- ---------
Decrease $ (41,586) $ (29,591)
========= =========
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, 2005 56,792,605 $289,396 $ 2,920 $ 45,101 $337,417
Net income 110,949 22,823 133,772
Net losses on derivative instruments (32,015) (32,015)
Reclassification of net gains
on derivative instruments (14,494) (14,494)
-------- ------- -------- --------
Comprehensive income 110,949 22,823 (46,509) 87,263
Distributions (63,614) (642) (64,256)
Common Units issued in
connection with incentive
compensation plan 4,500 146 1 147
---------- -------- ------- -------- --------
BALANCE MARCH 31, 2006 56,797,105 $336,877 $25,102 $ (1,408) $360,571
========== ======== ======= ======== ========
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. In November 2004,
the Partnership sold its interest in Atlantic Energy (also see Note 4).
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, 2005 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, 2005 ("2005 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' net income,
by the weighted average number of limited partner units outstanding. This
interest is calculated in accordance with the provisions in the Partnership
Agreement governing cash distributions. The percentage of cash distributions to
the General Partner increases after certain target distributions have been made
to the limited partners.
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
-5-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
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 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 $(0.29)
and $(0.38) for the three and six months ended March 31, 2006, respectively, and
$(0.26) and $(0.30) for the three and six months ended March 31, 2005,
respectively. Because EITF 03-6 does not currently impact the calculation of
Partnership net income per limited partner unit on an annual basis, annual net
income per limited partner unit is not equal to the sum of net income per
limited partner unit for each of the Partnership's quarterly periods.
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 (loss) income for the three and six months ended March 31, 2006
and 2005:
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -------------------
2006 2005 2006 2005
------- -------- -------- --------
Net income $78,759 $ 96,222 $133,772 $140,513
Other comprehensive (loss) income (8,977) 15,775 (46,509) (10,367)
Comprehensive income $69,782 $111,997 $ 87,263 $130,146
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.
EQUITY-BASED COMPENSATION. Under UGI's 2004 Omnibus Equity Compensation Plan
("OECP"), certain key employees of the General Partner may be granted stock
options for UGI Common Stock. Such awards typically vest ratably over a period
of years (generally three years). There are certain change of control and
retirement eligibility conditions that, if met, generally result in an
acceleration of vesting. Stock options for UGI Common Stock generally can be
exercised no later than ten years from the grant date.
Under the AmeriGas Propane, Inc. 2000 Long-Term Incentive Plan ("2000 Propane
Plan"), the General Partner may grant to key employees the rights to receive a
total of 500,000 AmeriGas Partners Common Units ("Units"), or cash equivalent to
the fair market value of such Units, or a combination of both, upon the
achievement of performance goals. In addition, the 2000 Propane
-6-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
Plan authorizes the crediting of Partnership Common Unit distribution
equivalents to participants' accounts. Any distribution equivalents will be paid
in cash. The actual number of Common Units (or their cash equivalent) ultimately
issued, and the actual amount of distribution equivalents paid, is dependent
upon the achievement of market performance goals and employee service
conditions. Generally, each grant, unless paid, will terminate when the
participant ceases to be employed by the General Partner. There are certain
change of control and retirement eligibility conditions that, if met, generally
result in an acceleration of vesting. 30,100 awards were granted pursuant to the
2000 Propane Plan during both the three and six months ended March 31, 2006 and
26,567 awards were granted during the same prior-year periods.
We also have a nonexecutive AmeriGas Propane, Inc. plan under which the General
Partner may grant key employees who do not participate in the 2000 Propane Plan
the rights to receive a total of 200,000 AmeriGas Partners Common Units.
Generally, awards under the nonexecutive plan vest at the end of a three-year
period and are paid in Units and cash. There are certain change of control
conditions that, if met, generally result in an acceleration of vesting. Awards
granted pursuant to the nonexecutive plan during the three and six months ended
March 31, 2006 and 2005 and any associated expense was not material to the
Partnership's financial position, results of operations or cash flows.
Effective October 1, 2005, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 123 (revised 2004), "Share-Based Payment"
("SFAS 123R"). Prior to October 1, 2005, as permitted, we applied 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. Under APB 25, the Partnership did not record
any compensation expense for stock options, but provided the required pro forma
disclosures as if we had determined compensation expense under the fair value
method as prescribed by the provisions of SFAS No. 123. Under SFAS 123R, all
equity-based compensation cost is measured on the grant date or at the end of
each period based on the fair value of that award and is recognized in the
income statement over the requisite service period.
As permitted by the standard, under the modified prospective approach, effective
October 1, 2005, we began recording compensation expense for awards that were
not vested as of that date. The Partnership used the Black-Scholes
option-pricing model to estimate the fair value of each option prior to adoption
of SFAS 123R and continues to use this model. The adoption of SFAS 123R resulted
in compensation expense associated with stock options of $260 and $348 during
the three and six months ended March 31, 2006, respectively. As of March 31,
2006, there was $1,018 of unrecognized compensation cost related to non-vested
stock options that is expected to be recognized over a weighted average period
of 2.0 years. Assuming no significant change in the level of future stock option
grants to AmeriGas Propane, Inc. employees, we do not believe that compensation
expense associated with stock options will have a material impact on the
Partnership's financial position, results of operations or cash flows.
-7-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
Both prior to and after the adoption of SFAS 123R, we measured and recorded
compensation cost of Unit awards that can be settled at the General Partner's
option in cash or AmeriGas Partners Common Units, or a combination of both,
based upon their fair value as of the end of each period. The fair value of
Units is generally dependent upon AmeriGas Partners Common Unit price and its
performance in comparison to a group of peer companies. The fair value of these
awards is expensed over requisite service periods.
The following table illustrates the effects on net income and basic and diluted
income per unit as if we had applied the provisions of SFAS 123R to all of our
equity-based compensation awards for the periods prior to the adoption of SFAS
123R.
Three Months Ended Six Months Ended
March 31, March 31,
2005 2005
------------------ ----------------
Net income as reported $96,222 $140,513
Add (deduct): Equity-based employee
compensation expense (benefit)
included in reported net income 391 (104)
Deduct: Total stock and equity-based
employee compensation expense
determined under the fair
value method for all awards (517) (167)
------- --------
Pro forma net income $96,096 $140,242
------- --------
Basic income per limited partner unit:
As reported $ 1.49 $ 2.26
Pro forma $ 1.49 $ 2.25
Diluted income per limited partner unit:
As reported $ 1.49 $ 2.25
Pro forma $ 1.49 $ 2.25
The total equity-based compensation expense/(benefit) recorded during the three
and six months ended March 31, 2006 was $626 and ($125), respectively, which
reflects both stock option and Unit awards. The six-month periods ended March
31, 2006 and 2005 each reflect a net compensation benefit largely reflecting the
effects of certain market performance conditions not being met.
As of March 31, 2006, there was $2,226 of unrecognized compensation cost
associated with 114,817 Unit awards that is expected to be recognized over a
weighted average period of 2.1 years. Also, at March 31, 2006, a liability of
$1,792 is reflected in other non-current liabilities in the Condensed
Consolidated Balance Sheet. It is the Partnership's practice to issue new
-8-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
AmeriGas Partners Common Units for the portion of any Unit awards paid out in
AmeriGas Partners Common Units.
The following table illustrates Unit award activity for the six-month period
ended March 31, 2006:
Units Value (per Unit)
- --------------------------------------------------------------------------------
Non-vested Units - September 30, 2005 116,000 $36.33
Granted 36,850
Forfeited (6,200)
Vested (6,750)(a)
Performance criteria not met (25,083)
Non-vested Units - March 31, 2006 114,817 $35.00
- --------------------------------------------------------------------------------
(a) Represents awards under the non-executive plan of 4,500 that were settled
through the issuance of new AmeriGas Partners Common Units and 2,250
that were settled in cash.
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. INTANGIBLE ASSETS
The Partnership's intangible assets comprise the following:
March 31, September 30,
2006 2005
--------- -------------
Subject to amortization:
Customer relationships and
noncompete agreements $ 50,331 $ 50,178
Accumulated amortization (22,965) (20,756)
-------- --------
$ 27,366 $ 29,422
-------- --------
Not subject to amortization:
Goodwill $525,823 $525,732
Excess reorganization value 93,320 93,320
-------- --------
$619,143 $619,052
-------- --------
Amortization expense of intangible assets was $1,094 and $2,209 for the three
and six months ended March 31, 2006, respectively, and $1,187 and $2,353 for the
three and six months ended March 31, 2005, respectively. Our expected aggregate
amortization expense of intangible assets
-9-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
for the next five fiscal years is as follows: Fiscal 2006 - $4,377; Fiscal 2007
- - $3,736; Fiscal 2008 - $3,455; Fiscal 2009 - $3,127; Fiscal 2010 - $2,811.
3. LONG-TERM DEBT
In January 2006, AmeriGas Partners and AP Eagle Finance Corp. issued $350,000 of
7.125% Senior Notes due 2016. The proceeds of this registered public debt
offering were used to refinance AmeriGas OLP's $160,000 Series A and $68,800
Series C First Mortgage Notes, including a make-whole premium, its $35 million
term loan due October 1, 2006, and $59,550 of Amerigas Partner's $60,000 10%
Senior Notes due 2006 pursuant to a tender offer, plus a premium. The
Partnership incurred a loss on extinguishment of debt associated with
refinancings of $17,079, which is reflected in the Condensed Consolidated
Statements of Operations for the three and six months ended March 31, 2006.
4. RELATED PARTY TRANSACTIONS
Pursuant to the Partnership Agreement and a Management Services Agreement among
AmeriGas Eagle Holdings, Inc., the general partner of Eagle OLP, and the General
Partner, the General Partner is entitled to reimbursement for all direct and
indirect expenses incurred or payments it makes on behalf of the Partnership.
These costs, which totaled $84,435 and $163,087 during the three and six months
ended March 31, 2006, respectively, and $80,735 and $159,429 during the three
and six months ended March 31, 2005, 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 $3,748 and $4,535 during the three and six months ended March
31, 2006, respectively, and $2,521 and $5,754 during the three and six months
ended March 31, 2005, respectively. In addition, UGI and certain of its
subsidiaries (excluding Atlantic Energy which is discussed separately) provide
office space and automobile liability insurance and sell propane to the
Partnership. These costs totaled $719 and $1,583 during the three and six months
ended March 31, 2006, respectively, and $1,157 and $2,154 during the three
months ended March 31, 2005, respectively.
AmeriGas OLP 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 six months ended March 31, 2006 totaled $15,217 and $27,473,
respectively, and $11,558 and $20,064 during the three and six months ended
March 31, 2005, respectively. Amounts due to Atlantic Energy totaled $5,768,
$2,505 and $2,124 at March 31, 2006, September 30, 2005 and March 31, 2005,
respectively, and are reflected in accounts payable - related parties in the
Condensed Consolidated Balance Sheets. Prior to the November 2004 sale of our
50% ownership interest in Atlantic Energy, we purchased propane on behalf of
Atlantic Energy. Atlantic Energy
-10-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
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 six
months ended March 31, 2005 all of which occurred prior to the sale of our
ownership interest.
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 six months ended March 31, 2005. 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 March 31, 2006. Amounts due from Atlantic Energy at
September 30, 2005 and March 31, 2005 totaled $2,505 and $18, respectively,
which are included in accounts receivable - related parties in the Condensed
Consolidated Balance Sheets.
5. 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 $8.6 million at March 31, 2006. 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.
-11-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
On August 21, 2001, AmeriGas Partners, through AmeriGas OLP, acquired the
propane distribution businesses of Columbia Energy Group (the "2001
Acquisition") pursuant to the terms of a purchase agreement (the "2001
Acquisition Agreement") by and among Columbia Energy Group ("CEG"), Columbia
Propane Corporation ("Columbia Propane"), Columbia Propane, L.P. ("CPLP"), CP
Holdings, Inc. ("CPH," and together with Columbia Propane and CPLP, the "Company
Parties"), AmeriGas Partners, AmeriGas OLP and the General Partner (together
with AmeriGas Partners and AmeriGas OLP, the "Buyer Parties"). As a result of
the 2001 Acquisition, AmeriGas OLP acquired all of the stock of Columbia Propane
and CPH and substantially all of the partnership interests of CPLP. Under the
terms of an earlier acquisition agreement (the "1999 Acquisition Agreement"),
the Company Parties agreed to indemnify the former general partners of National
Propane Partners, L.P. (a predecessor company of the Columbia Propane
businesses) and an affiliate (collectively, "National General Partners") against
certain income tax and other losses that they may sustain as a result of the
1999 acquisition by CPLP of National Propane Partners, L.P. (the "1999
Acquisition") or the operation of the business after the 1999 Acquisition
("National Claims"). At March 31, 2006, 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. In 2003, we settled the
individual personal injury and property damage claims of the Swigers. In 2004,
the court granted the plaintiffs' motion to include customers acquired from
Columbia Propane in August 2001 as additional potential class members and the
plaintiffs amended their complaint to name additional parties pursuant to such
ruling. Subsequently, in March 2005, we filed a cross-claim against CEG, former
owner of Columbia Propane, seeking indemnification for conduct undertaken by
Columbia Propane prior to our acquisition. Class
-12-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
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
defend against the remaining claims in this lawsuit.
We also have other contingent liabilities, pending claims and legal actions
arising in the normal course of our business. We cannot predict with certainty
the final results of these and the aforementioned matters. However, it is
reasonably possible that some of them could be resolved unfavorably to us and
result in losses in excess of recorded amounts. We are unable to estimate any
possible losses in excess of recorded amounts. Although management currently
believes, after consultation with counsel, that damages or settlements, if any,
recovered by the plaintiffs in such claims or actions will not have a material
adverse effect on our financial position, damages or settlements could be
material to our operating results or cash flows in future periods depending on
the nature and timing of future developments with respect to these matters and
the amounts of future operating results and cash flows.
-13-
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)
competitive pressures from the same and alternative energy sources; (5) failure
to acquire new customers thereby reducing or limiting any increase in revenues;
(6) liability for environmental claims; (7) increased customer conservation
measures due to high energy prices and improvements in energy efficiency and
technology resulting in reduced demand; (8) adverse labor relations; (9) large
customer, counterparty, or supplier defaults; (10) 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; (11) political, regulatory and
economic conditions in the United States and in foreign countries; and (12)
reduced access to capital markets and interest rate fluctuations.
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.
-14-
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 March 31, 2006 ("2006 three-month period") with the three
months ended March 31, 2005 ("2005 three-month period") and (2) the six months
ended March 31, 2006 ("2006 six-month period") with the six months ended March
31, 2005 ("2005 six-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 fiscal 2006
six-month period was 8.7% warmer than normal and 2.6% warmer than the prior-year
period. In addition to the weather conditions, our volumes reflect the effects
of customer conservation due to a continuing trend of high propane prices.
The Partnership reported net income of $133.8 million for the first half of
fiscal 2006, a decrease of $6.7 million compared to the same period in fiscal
2005. The 2006 six-month period results include the effects of a $17.1 million
loss on early extinguishment of debt related to debt refinancings and a
favorable net adjustment in reserves, reflecting improved claims history, for
general insurance, litigation and medical claims of $3.4 million. The 2005
six-month period results included an after-tax gain of $7.1 million in
connection with the November 2004 sale of our 50% ownership interest in Atlantic
Energy, Inc ("Atlantic Energy"). The Partnership's retail gallons sold during
the fiscal 2006 six-month period reflect the effects of warmer than normal
weather conditions and the negative effects of customer conservation resulting
from higher propane costs and selling prices. Although the Partnership
experienced reduced volumes, we were able to effectively manage product costs
and customer pricing, which enabled us to partially offset the adverse effect of
the lower volumes.
-15-
AMERIGAS PARTNERS, L.P.
2006 THREE-MONTH PERIOD COMPARED WITH 2005 THREE-MONTH PERIOD
Increase
Three Months Ended March 31, 2006 2005 (Decrease)
- ---------------------------- ------ ------ --------------
(millions of dollars)
Gallons sold (millions):
Retail 341.4 378.8 (37.4) (9.9)%
Wholesale 44.0 59.4 (15.4) (25.9)%
------ ------ ------
385.4 438.2 (52.8) (12.0)%
====== ====== ======
Revenues:
Retail propane $630.3 $610.6 $ 19.7 3.2 %
Wholesale propane 48.1 53.0 (4.9) (9.2)%
Other 39.7 34.7 5.0 14.4 %
------ ------ ------
$718.1 $698.3 $ 19.8 2.8 %
====== ====== ======
Total margin (a) $270.8 $268.5 $ 2.3 0.9 %
EBITDA (b) $116.2 $135.2 $(19.0) (14.1)%
Operating income $116.3 $117.9 $ (1.6) (1.4)%
Net income $ 78.8 $ 96.2 $(17.4) (18.1)%
Heating degree days - % warmer than normal (c) 12.1 4.9 -- --
(a) Total margin represents total revenues less cost of sales - propane and
cost of sales - other.
(b) EBITDA (earnings before interest expense, income taxes, 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 our 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
March 31,
------------------
2006 2005
------ ------
Net income $ 78.8 $ 96.2
Income tax expense (benefit) 0.1 (0.1)
Interest expense 19.4 20.7
Depreciation 16.8 17.0
Amortization 1.1 1.4
------ ------
EBITDA $116.2 $135.2
====== ======
(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.
-16-
AMERIGAS PARTNERS, L.P.
Based upon national heating degree-day data, temperatures during the 2006
three-month period were 12.1% warmer than normal and 7.6% warmer than the
prior-year period. Retail propane volumes sold decreased approximately 10%
principally due to the warmer winter weather and the negative effects of
customer conservation driven by continued high propane selling prices.
Retail propane revenues increased $19.7 million reflecting an $80.1 million
increase due to higher average selling prices partially offset by a $60.4
million decrease due to the lower retail volumes sold. Wholesale propane
revenues decreased $4.9 million reflecting a $13.7 million decrease due to lower
volumes sold partially offset by an $8.8 million increase resulting from higher
average selling prices. In the 2006 three-month period, our average retail
propane product cost per retail gallon sold was approximately 17% higher than in
the 2005 three-month period, which resulted in higher year-over-year prices to
our customers. Total cost of sales increased to $447.3 million in the 2006
three-month period from $429.8 million in the 2005 three-month period, primarily
reflecting the increase in propane product costs partially offset by the
decreased volumes sold. Total margin increased $2.3 million compared to the 2005
three-month period due to increased customer pricing in response to an increase
in costs incurred.
EBITDA during the 2006 three-month period was $116.2 million compared to $135.2
million during the 2005 three-month period. This $19.0 million decrease in
EBITDA primarily reflects (1) a $17.1 million loss on the early extinguishment
of debt associated with the refinancings of AmeriGas OLP's Series A and Series C
First Mortgage Notes totaling $228.8 million and $59.6 million of the
Partnership's $60 million 10% Senior Notes, and (2) a $4.5 million increase in
operating and administrative expenses, partially offset by the previously
mentioned increase in total margin. The increase in operating and administrative
expenses principally resulted from higher employee compensation and benefits
expenses, higher vehicle fuel costs and vehicle lease expense and increased
uncollectible accounts expense partially offset by a $3.4 million favorable net
adjustment in reserves for general insurance, litigation, and medical claims,
mainly reflecting an improvement in claims history.
Operating income decreased $1.6 million primarily reflecting the previously
mentioned increase in operating and administrative expenses, partially offset by
the increase in total margin and a decrease in depreciation and amortization
expense. Net income in the 2006 three-month period decreased $17.4 million
reflecting the previously mentioned decrease in operating income and the loss on
early extinguishment of debt, partially offset by a $1.3 million decrease in
interest expense.
-17-
AMERIGAS PARTNERS, L.P.
2006 SIX-MONTH PERIOD COMPARED WITH 2005 SIX-MONTH PERIOD
Increase
Six Months Ended March 31, 2006 2005 (Decrease)
- -------------------------- -------- -------- --------------
(millions of dollars)
Gallons sold (millions):
Retail 633.3 675.6 (42.3) (6.3)%
Wholesale 82.2 103.8 (21.6) (20.8)%
-------- -------- ------
715.5 779.4 (63.9) (8.2)%
======== ======== ======
Revenues:
Retail propane $1,173.5 $1,086.1 $ 87.4 8.0 %
Wholesale propane 93.3 95.0 (1.7) (1.8)%
Other 81.6 73.4 8.2 11.2 %
-------- -------- ------
$1,348.4 $1,254.5 $ 93.9 7.5 %
======== ======== ======
Total margin $ 493.3 $ 473.6 $ 19.7 4.2 %
EBITDA (a) $ 208.4 $ 221.6 $(13.2) (6.0)%
Operating income $ 191.0 $ 185.6 $ 5.4 2.9 %
Net income $ 133.8 $ 140.5 $ (6.7) (4.8)%
Heating degree days - % warmer than normal 8.7 6.2 -- --
(a) The following table includes reconciliations of net income to EBITDA for
the periods presented:
Six Months Ended
March 31,
----------------
2006 2005
------ ------
Net income $133.8 $140.5
Income tax expense 0.1 2.2
Interest expense 38.3 41.2
Depreciation 33.8 34.9
Amortization 2.4 2.8
------ ------
EBITDA $208.4 $221.6
====== ======
Temperatures during the 2006 six-month period were 8.7% warmer than normal and
2.6% warmer than the prior-year period. Retail propane volumes sold decreased
approximately 6% principally due to the warmer winter weather and the negative
effects of customer conservation driven by continued high propane selling
prices.
Retail propane revenues increased $87.4 million reflecting a $155.4 million
increase due to higher average selling prices partially offset by a $68.0
million decrease due to the lower retail volumes sold. Wholesale propane
revenues decreased $1.7 million reflecting a $19.7 million decrease due to lower
volumes sold partially offset by a $18.0 million increase due to higher average
selling prices. In the 2006 six-month period, our average retail propane product
cost per retail gallon sold was approximately 19% higher than in the 2005
six-month period, which resulted in higher year-over-year prices to our
customers. The average wholesale cost per gallon of propane at Mont Belvieu, one
of the major propane supply points in the United States, was approximately 23%
greater than the average cost per gallon during the 2005 six-month period. Total
cost of sales increased to $855.1 million in the 2006
-18-
AMERIGAS PARTNERS, L.P.
six-month period from $780.9 million in the 2005 six-month period, primarily
reflecting the increase in propane product costs partially offset by the
decreased volumes sold. Total margin increased $19.7 million compared to the
2005 six-month period principally due to higher average margin per retail
gallon, which is largely attributable to our product cost and customer pricing
management efforts.
EBITDA during the 2006 six-month period was $208.4 million compared to $221.6
million during the 2005 six-month period. This $13.2 million decrease in EBITDA
primarily reflects (1) a $17.1 million loss on the previously mentioned early
extinguishment of debt, (2) an $8.5 million decrease in other income primarily
reflecting the absence of the $9.1 million pre-tax gain on the sale of Atlantic
Energy recognized during the 2005 six-month period, and (3) a $7.3 million
increase in operating and administrative expenses, partially offset by the
previously mentioned increase in total margin. The increase in operating and
administrative expenses principally resulted from higher employee compensation
and benefits expenses, higher vehicle fuel costs and vehicle lease expense and
increased uncollectible accounts expense partially offset by a $3.4 million
favorable net adjustment in reserves for general insurance, litigation, and
medical claims, mainly reflecting an improvement in claims history.
Operating income increased $5.4 million reflecting the previously mentioned
increase in total margin and a $1.5 million decrease in depreciation and
amortization expense, largely offset by the previously mentioned decrease in
other income and the increase in operating and administrative expenses. Net
income in the 2006 six-month period decreased $6.7 million principally
reflecting the previously mentioned decrease in EBITDA, partially offset by (1)
a $2.9 million decrease in interest expense, (2) a $2.1 million decrease in
income taxes and (3) the previously mentioned decrease in depreciation and
amortization expense. The reduction in income taxes is attributable to the
income tax expense on the gain on the Partnership's sale of Atlantic Energy that
took place in 2005 six-month period.
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL CONDITION
The Partnership's long-term debt outstanding at March 31, 2006 totaled $935.6
million (including current maturities of $3.1 million) compared to $913.5
million (including current maturities of $118.1 million) at September 30, 2005.
In January 2006, AmeriGas Partners and AP Eagle Finance Corp. issued $350
million of 7.125% Senior Notes due 2016. The proceeds of this registered public
debt offering were used to refinance AmeriGas OLP's $160 million Series A and
$68.8 million Series C First Mortgage Notes, including a make-whole premium,
its $35 million term loan due October 1, 2006, and $59.6 million of Amerigas
Partners' $60 million 10% Senior Notes due 2006 pursuant to a tender offer,
plus a premium. The Partnership incurred a loss on extinguishment of debt
associated with refinancings of $17.1 million, which is reflected in its
results for the three and six months ended March 31, 2006.
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
-19-
AMERIGAS PARTNERS, L.P.
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 March 31,
2006, there were no borrowings outstanding under the Credit Agreement. Issued
and outstanding letters of credit under the Revolving Credit Facility, which
reduce the amount available for borrowings, totaled $58.9 million at March 31,
2006 and was approximately the same amount issued and outstanding during the
2006 six-month period. 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. Due in part to the
issuance of 2.3 million Common Units in September 2005, during the 2006
six-month period generally, the Partnership did not need to use its Revolving
Credit Facility to fund its operations. During the six months ended March 31,
2005, the average daily borrowings outstanding under the Credit Agreement were
$30.7 million and the peak borrowings outstanding were $84.0 million. The
Partnership also has an effective debt and equity shelf registration statement
with the Securities and Exchange Commission under which it may issue Common
Units or Senior Notes due 2016 in underwritten public offerings.
The quarterly distribution was raised to $0.58 per limited partner unit ($2.32
per unit annually) from $0.56 per unit ($2.24 per unit annually) for the quarter
ended March 31, 2006 and will be paid on May 18, 2006 to holders of record on
May 10, 2006. During the six months ended March 31, 2006, the Partnership
declared and paid quarterly distributions of $0.56 per limited partner unit on
its limited partner units for the quarters ended December 31, 2005 and September
30, 2005. The ability of the Partnership to declare and pay quarterly
distributions on its limited partner units in the future depends upon a number
of factors. These factors include (1) the level of Partnership earnings; (2) the
cash needs of the Partnership's operations (including cash needed for
maintaining and increasing operating capacity); (3) changes in operating working
capital; and (4) the Partnership's ability to borrow under its 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
$57.6 million at March 31, 2006 compared to $99.2 million at September 30, 2005.
Due to the seasonal nature of the propane business, cash flows from operating
activities are generally strongest during the second and third fiscal quarters
when customers pay for propane purchased during the heating-season months.
Conversely, operating cash flows are generally at their lowest levels during the
first and fourth fiscal quarters when the Partnership's investment in working
capital, principally accounts receivable and inventories, is generally greatest.
Accordingly, cash flows from operating activities during the six months ended
March 31, 2006 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 $47.5 million
during the 2006 six-month period compared to $54.1 million during the 2005
six-month period. Cash flow from operating activities before changes in working
capital was $186.9 million in the 2006 six-month period compared to $176.9
million in the prior-year six-month period. Cash required to fund changes in
operating working capital during the 2006 six-month period totaled $139.4
million compared to the $122.8 million required in the prior-year six-month
period, largely
-20-
AMERIGAS PARTNERS, L.P.
reflecting the change in accrued interest and customer deposits, partially
offset by the effects of higher propane commodity prices.
INVESTING ACTIVITIES. We spent $35.6 million for property, plant and equipment
(including maintenance capital expenditures of $12.5 million and growth capital
expenditures of $23.1 million) during the six months ended March 31, 2006, which
remained consistent compared to $35.1 million (including maintenance capital
expenditures of $11.6 million and growth capital expenditures of $23.5 million)
during the prior-year six-month period. We received proceeds of $5.7 million for
the sale of assets during the six months ended March 31, 2006 compared to $10.4
million during the prior-year six-month period. The decrease in proceeds
received from disposals of assets reflects the higher number of district
locations sold during the 2005 six-month period compared to the current year
period. The decrease in cash flow used for business acquisitions reflects a
higher number of businesses acquired during the 2005 six-month period compared
to the current year period.
FINANCING ACTIVITIES. Cash flow used by financing activities was $58.6 million
in the 2006 six-month period compared to $51.9 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 AmeriGas OLP's Series A and
Series C First Mortgage Notes, its $35 million term loan due October 1, 2006,
and $59.6 million of AmeriGas Partners' $60 million 10% Senior Notes due 2006
pursuant to a tender offer, plus a premium, through the issuance of $350.0
million of 7.125% Senior Notes due 2016. The Partnership also incurred a $17.1
million loss on extinguishment of debt in connection with refinancings.
-21-
AMERIGAS PARTNERS, L.P.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary financial market risks include commodity prices for propane and
interest rates on borrowings.
The risk associated with fluctuations in the prices the Partnership pays for
propane is principally a result of market forces reflecting changes in supply
and demand for propane and other energy commodities. The Partnership's
profitability is sensitive to changes in propane supply costs, and the
Partnership generally attempts to pass on increases in such costs to customers.
The Partnership may not, however, always be able to pass through product cost
increases fully, particularly when product costs rise rapidly. In order to
reduce volatility of the Partnership's propane market price risk, we use
contracts for the forward purchase or sale of propane, propane fixed-price
supply agreements, and over-the-counter derivative commodity instruments
including price swap and option contracts. Over-the-counter derivative commodity
instruments utilized by the Partnership are generally settled at expiration of
the contract. In order to minimize credit risk associated with derivative
commodity contracts, we monitor established credit limits with the contract
counterparties. Although we use derivative financial and commodity instruments
to reduce market price risk associated with forecasted transactions, we do not
use derivative financial and commodity instruments for speculative or trading
purposes.
The Partnership has both fixed-rate and variable-rate debt. Changes in interest
rates impact the cash flows of variable-rate debt but generally do not impact
its fair value. Conversely, changes in interest rates impact the fair value of
fixed-rate debt but do not impact its cash flows.
Our variable rate debt includes borrowings under AmeriGas OLP's Credit
Agreement. 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
forecasted issuances of fixed-rate debt, from time to time we enter into
interest rate protection agreements.
The following table summarizes the fair values of unsettled market risk
sensitive derivative instruments held at March 31, 2006. Fair values reflect the
estimated amounts that we would receive or (pay) to terminate the contracts at
the reporting date based upon quoted market prices of comparable contracts at
March 31, 2006. 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:
-22-
AMERIGAS PARTNERS, L.P.
Fair Change in
Value Fair Value
----- ----------
(Millions of dollars)
March 31, 2006:
Propane commodity price risk $2.0 $(4.4)
Interest rate risk 1.7 (4.4)
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.
-23-
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, (i) recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's
rules and forms, and (ii) accumulated and communicated to our management,
including the Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding disclosure.
(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 1A. RISK FACTORS
In addition to the other information set forth in this report, you should
carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in
our Annual Report on Form 10-K for the fiscal year ended September 30, 2005,
which could materially affect our business, financial condition or future
results. The risks described in our Annual Report on Form 10-K are not the only
risks facing the Partnership. Other unknown or unpredictable factors could also
have material adverse effects on future results.
ITEM 6. EXHIBITS
The exhibits filed as part of this report are as follows:
EXHIBIT NO. EXHIBIT
- ----------- -------
31.1 Certification by the Chief Executive Officer relating to the
Registrant's Report on Form 10-Q for the quarter ended March 31,
2006, 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 March 31,
2006, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification by the Chief Executive Officer and the Chief
Financial Officer relating to the Registrant's Report on Form 10-Q
for the quarter ended March 31, 2006, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
-25-
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 their behalf by the
undersigned thereunto duly authorized.
AmeriGas Partners, L.P.
(Registrant)
By: AmeriGas Propane, Inc.,
as General Partner
Date: May 8, 2006 By: /s/ Jerry E. Sheridan
------------------------------------
Jerry E. Sheridan
Vice President - Finance
and Chief Financial Officer
Date: May 8, 2006 By: /s/ William J. Stanczak
------------------------------------
William J. Stanczak
Controller and Chief Accounting
Officer
-26-
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 March 31, 2006, 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 March 31, 2006, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification by the Chief Executive Officer and the Chief Financial
Officer relating to the Registrant's Report on Form 10-Q for the quarter
ended March 31, 2006, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.