1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-13692
Commission file number 33-92734-01
AMERIGAS PARTNERS, L.P.
AMERIGAS FINANCE CORP.
(Exact name of registrants as specified in their charters)
Delaware 23-2787918
Delaware 23-2800532
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
460 North Gulph Road, King of Prussia, PA
(Address of principal executive offices)
19406
(Zip Code)
(610) 337-7000
(Registrants' telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
At April 30, 1999, the registrants had units and shares of common stock
outstanding as follows:
AmeriGas Partners, L.P. - 22,105,993 Common Units
19,782,146 Subordinated Units
AmeriGas Finance Corp. - 100 shares
2
AMERIGAS PARTNERS, L.P.
TABLE OF CONTENTS
PAGES
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
AmeriGas Partners, L.P.
Condensed Consolidated Balance Sheets as of March 31, 1999,
September 30, 1998 and March 31, 1998 1
Condensed Consolidated Statements of Operations for the three,
six and twelve months ended March 31, 1999 and 1998 2
Condensed Consolidated Statements of Cash Flows for the six
and twelve months ended March 31, 1999 and 1998 3
Condensed Consolidated Statement of Partners' Capital for the
six months ended March 31, 1999 4
Notes to Condensed Consolidated Financial Statements 5 - 7
AmeriGas Finance Corp.
Balance Sheets as of March 31, 1999 and September 30, 1998 8
Note to Balance Sheets 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10 - 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18 - 19
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
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AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Thousands of dollars)
March 31, September 30, March 31,
1999 1998 1998
---------- ------------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 16,453 $ 8,873 $ 16,019
Accounts receivable (less allowances for doubtful accounts
of $8,115, $6,432, and $9,619, respectively) 93,963 58,778 100,466
Inventories 37,042 49,394 53,005
Prepaid expenses and other current assets 17,139 16,301 11,698
---------- ---------- ----------
Total current assets 164,597 133,346 181,188
Property, plant and equipment (less accumulated depreciation and
amortization of $223,846, $205,083, and $184,349, respectively) 438,241 442,042 445,853
Intangible assets (less accumulated amortization of $153,535,
$141,382, and $129,143, respectively) 619,752 629,355 667,746
Other assets 11,712 12,473 13,356
---------- ---------- ----------
Total assets $1,234,302 $1,217,216 $1,308,143
========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current maturities of long-term debt $ 5,190 $ 6,068 $ 6,470
Bank loans 5,000 10,000 --
Accounts payable - trade 39,680 34,075 39,939
Accounts payable - related parties 2,283 6,799 6,875
Other current liabilities 90,766 103,355 82,992
---------- ---------- ----------
Total current liabilities 142,919 160,297 136,276
Long-term debt 714,742 702,926 695,195
Other noncurrent liabilities 45,941 50,069 50,444
Commitments and contingencies
Minority interest 4,321 4,049 5,283
Partners' capital 326,379 299,875 420,945
---------- ---------- ----------
Total liabilities and partners' capital $1,234,302 $1,217,216 $1,308,143
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
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AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(Thousands of dollars, except per unit)
Three Months Ended Six Months Ended Twelve Months Ended
March 31, March 31, March 31,
---------------------- ---------------------- ----------------------
1999 1998 1999 1998 1999 1998
--------- --------- --------- --------- --------- ---------
Revenues:
Propane $ 284,276 $ 287,654 $ 496,421 $ 565,177 $ 765,871 $ 874,881
Other 20,649 18,528 46,288 43,928 82,111 80,784
--------- --------- --------- --------- --------- ---------
304,925 306,182 542,709 609,105 847,982 955,665
--------- --------- --------- --------- --------- ---------
Costs and expenses:
Cost of sales - propane 120,450 138,337 213,884 289,970 334,627 454,195
Cost of sales - other 8,345 8,461 19,439 19,988 32,498 35,614
Operating and administrative
expenses 88,740 85,573 172,330 166,440 326,110 318,143
Depreciation and amortization 16,444 15,669 32,022 31,251 63,996 62,241
Other income, net (1,300) (1,243) (2,004) (1,966) (783) (4,830)
--------- --------- --------- --------- --------- ---------
232,679 246,797 435,671 505,683 756,448 865,363
--------- --------- --------- --------- --------- ---------
Operating income 72,246 59,385 107,038 103,422 91,534 90,302
Interest expense (16,409) (16,864) (33,073) (33,814) (65,448) (65,865)
--------- --------- --------- --------- --------- ---------
Income before income taxes 55,837 42,521 73,965 69,608 26,086 24,437
Income tax (expense) benefit 145 213 (121) (127) 3 164
Minority interest (591) (458) (798) (754) (368) (353)
--------- --------- --------- --------- --------- ---------
Net income $ 55,391 $ 42,276 $ 73,046 $ 68,727 $ 25,721 $ 24,248
========= ========= ========= ========= ========= =========
General partner's interest in
net income $ 554 $ 423 $ 730 $ 687 $ 257 $ 242
========= ========= ========= ========= ========= =========
Limited partners' interest in
net income $ 54,837 $ 41,853 $ 72,316 $ 68,040 $ 25,464 $ 24,006
========= ========= ========= ========= ========= =========
Income per limited partner unit $ 1.31 $ 1.00 $ 1.73 $ 1.62 $ 0.61 $ 0.57
========= ========= ========= ========= ========= =========
Average limited partner units
outstanding (thousands) 41,888 41,888 41,888 41,884 41,888 41,863
========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
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AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Thousands of dollars)
Six Months Ended Twelve Months Ended
March 31, March 31,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 73,046 $ 68,727 $ 25,721 $ 24,248
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 32,022 31,251 63,996 62,241
Other, net 3,673 2,079 (1,231) 5,960
--------- --------- --------- ---------
108,741 102,057 88,486 92,449
Net change in:
Accounts receivable (37,433) (24,892) 3,363 24,107
Inventories and prepaid propane purchases 13,164 33,908 16,030 (4,611)
Accounts payable 1,171 (8,281) (4,735) (951)
Other current assets and liabilities (20,017) (6,820) (572) (4,067)
--------- --------- --------- ---------
Net cash provided by operating activities 65,626 95,972 102,572 106,927
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (15,838) (15,401) (32,014) (28,143)
Proceeds from disposals of assets 2,291 1,502 5,942 3,745
Acquisitions of businesses, net of cash acquired (2,968) (5,622) (5,422) (14,501)
--------- --------- --------- ---------
Net cash used by investing activities (16,515) (19,521) (31,494) (38,899)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (46,542) (46,517) (93,085) (93,010)
Minority interest activity (528) (528) (1,039) (1,054)
Increase (decrease) in bank loans (5,000) (28,000) 5,000 (7,000)
Issuance of long-term debt 73,007 13,000 83,007 14,131
Repayment of long-term debt (62,468) (2,456) (64,539) (4,043)
Capital contribution from General Partner -- -- 12 --
--------- --------- --------- ---------
Net cash used by financing activities (41,531) (64,501) (70,644) (90,976)
--------- --------- --------- ---------
Cash and cash equivalents increase (decrease) $ 7,580 $ 11,950 $ 434 $ (22,948)
========= ========= ========= =========
CASH AND CASH EQUIVALENTS:
End of period $ 16,453 $ 16,019 $ 16,453 $ 16,019
Beginning of period 8,873 4,069 16,019 38,967
--------- --------- --------- ---------
Increase (decrease) $ 7,580 $ 11,950 $ 434 $ (22,948)
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
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AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(unaudited)
(Thousands, except unit data)
Number of units Total
-------------------------- General partners'
Common Subordinated Common Subordinated partner capital
---------- ------------ --------- ------------ ------- --------
BALANCE SEPTEMBER 30, 1998 22,105,993 19,782,146 $ 157,866 $ 139,012 $2,997 $299,875
Net income 38,164 34,152 730 73,046
Distributions (24,317) (21,760) (465) (46,542)
----------- ----------- --------- --------- ------ --------
BALANCE MARCH 31, 1999 22,105,993 19,782,146 $ 171,713 $ 151,404 $3,262 $326,379
=========== =========== ========= ========= ====== ========
The accompanying notes are an integral part of these financial statements.
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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), its subsidiary AmeriGas
Propane, L.P. (the "Operating Partnership"), and their corporate
subsidiaries, together referred to in this report 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 the Operating
Partnership as a minority interest in the condensed consolidated
financial statements. Certain prior-period balances have been
reclassified to conform with the current period presentation.
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. 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. 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, 1998. 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.
Management makes estimates and assumptions when preparing financial
statements in conformity with generally accepted accounting principles.
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.
On October 1, 1998, we adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income" (SFAS 130).
SFAS 130 establishes standards for reporting and displaying
comprehensive income and its components in financial statements.
Comprehensive income includes net income and all other nonowner changes
in equity. The Partnership's comprehensive income was the same as its
net income for all periods presented.
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AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars, except per unit)
On October 1, 1998, we adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS 131). SFAS 131
establishes standards for reporting information about operating
segments as well as related disclosures about products and services,
geographic areas, and major customers. In determining our reportable
segments under the provisions of SFAS 131, we examined the way we
organize our business internally for making operating decisions and
assessing business performance. Based on this examination, we have
determined that we have a single reportable operating segment which
engages in the distribution of propane and related equipment and
supplies.
No single customer represents 1% or more of consolidated revenues. In
addition, virtually all of the Partnership's revenues are derived from
sources within the U.S., and virtually all of its long-lived assets are
located in the U.S.
2. RELATED PARTY TRANSACTIONS
In accordance with the Amended and Restated Agreement of Limited
Partnership of AmeriGas Partners, the General Partner is entitled to
reimbursement of all direct and indirect expenses incurred or payments
it makes on behalf of the Partnership, and all other necessary or
appropriate expenses allocable to the Partnership or otherwise
reasonably incurred by the General Partner in connection with the
Partnership's business. These costs totaled $51,192, $100,953 and
$191,020 during the three, six and twelve months ended March 31, 1999,
respectively, and $46,442, $94,850 and $181,448 during the three, six
and twelve months ended March 31, 1998, respectively. In addition, UGI
Corporation (UGI) provides certain financial and administrative
services to the General Partner. UGI bills the General Partner for
these direct and indirect corporate expenses, and the General Partner
is reimbursed by the Partnership for these expenses. Such corporate
expenses totaled $1,419, $2,767 and $5,655 during the three, six and
twelve months ended March 31, 1999, respectively, and $1,595, $3,047
and $6,329 during the three, six and twelve months ended March 31,
1998, respectively.
3. CONVERSION OF SUBORDINATED UNITS
The Amended and Restated Agreement of Limited Partnership of AmeriGas
Partners provides that a total of 4,945,537 Subordinated Units may
convert into Common Units on the first day after the distribution
record date for any quarter ending on or after March 31, 1998, and an
additional 4,945,537 Subordinated Units may convert on the first day
after the distribution record date for any quarter ending on or after
March 31, 1999, if as of such quarterly dates certain historical and
projected cash generation based requirements are met. All of the
Partnership's Subordinated Units are held by the General Partner and
its wholly owned subsidiary, Petrolane Incorporated (Petrolane).
Because the required cash generation based
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AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars, except per unit)
objectives were achieved at March 31, 1999, a total of 9,891,074
Subordinated Units will convert to Common Units on May 18, 1999. The
remaining outstanding 9,891,072 Subordinated Units are eligible to
convert to Common Units on the first day after the record date for any
quarter ending on or after March 31, 2000 in respect of which certain
historical cash generation based requirements are met.
4. COMMITMENTS AND CONTINGENCIES
The Partnership has succeeded to certain lease guarantee obligations of
Petrolane, a predecessor company of the Partnership, relating to
Petrolane's divestiture of nonpropane operations before its 1989
acquisition by QFB Partners. Lease payments under these leases total
approximately $48,000 at March 31, 1999. 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. To date, Texas Eastern
has directly satisfied defaulted lease obligations without the
Partnership having to honor its guarantee. The Partnership believes the
probability that it will be required to directly satisfy such lease
obligations is remote.
In addition, the Partnership has succeeded to Petrolane's agreement to
indemnify Shell Petroleum N.V. (Shell) for various scheduled claims
that were pending against Tropigas de Puerto Rico (Tropigas). Petrolane
had entered into this indemnification agreement in conjunction with its
sale of the international operations of Tropigas to Shell in 1989. The
Partnership also succeeded to Petrolane's right to seek indemnity on
these claims first from International Controls Corp., which sold
Tropigas to Petrolane, and then from Texas Eastern. To date, neither
the Partnership nor Petrolane has paid any sums under this indemnity,
but several claims by Shell, including claims related to certain
antitrust actions aggregating at least $68,000, remain pending.
In addition to these matters, there are other pending claims and legal
actions arising in the normal course of our business. We cannot predict
with certainty the final results of these matters. However, it is
reasonably possible that some of them could be resolved unfavorably to
us. Management 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. However, such 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.
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AMERIGAS FINANCE CORP.
(a wholly owned subsidiary of AmeriGas Partners, L.P.)
BALANCE SHEETS
(unaudited)
March 31, September 30,
1999 1998
-------- -------------
ASSETS
Cash $1,000 $1,000
------ ------
Total assets $1,000 $1,000
====== ======
STOCKHOLDER'S EQUITY
Common stock, $.01 par value; 100 shares authorized,
issued and outstanding $ 1 $ 1
Additional paid-in capital 999 999
------ ------
Total stockholder's equity $1,000 $1,000
====== ======
The accompanying note is an integral part of these financial statements.
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AMERIGAS FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF AMERIGAS PARTNERS, L.P.)
NOTE TO BALANCE SHEETS
AmeriGas Finance Corp. (AmeriGas Finance), a Delaware corporation, was formed on
March 13, 1995 and is a wholly owned subsidiary of AmeriGas Partners, L.P.
(AmeriGas Partners).
On April 19, 1995, AmeriGas Partners issued $100,000,000 face value of 10.125%
Senior Notes due April 2007. AmeriGas Finance serves as a co-obligor of these
notes.
AmeriGas Partners owns all 100 shares of AmeriGas Finance Common Stock
outstanding.
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AMERIGAS PARTNERS, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ANALYSIS OF RESULTS OF OPERATIONS
The following analyses compare the Partnership's results of operations for (1)
the three months ended March 31, 1999 (1999 three-month period) with the three
months ended March 31, 1998 (1998 three-month period); (2) the six months ended
March 31, 1999 (1999 six-month period) with the six months ended March 31, 1998
(1998 six-month period); and (3) the twelve months ended March 31, 1999 (1999
twelve-month period) with the twelve months ended March 31, 1998 (1998
twelve-month period). AmeriGas Finance Corp. has nominal assets and does not
conduct any operations. Accordingly, a discussion of the results of operations
and financial condition and liquidity of AmeriGas Finance Corp. is not
presented.
1999 THREE-MONTH PERIOD COMPARED WITH 1998 THREE-MONTH PERIOD
- --------------------------------------------------------------------------------
Increase
Three Months Ended March 31, 1999 1998 (Decrease)
- --------------------------------------------------------------------------------
(Millions of dollars)
Gallons sold (millions):
Retail 284.8 265.7 19.1 7.2%
Wholesale 66.8 60.8 6.0 9.9%
------ ------ -----
351.6 326.5 25.1 7.7%
====== ====== =====
Revenues:
Retail propane $259.5 $260.3 $ (.8) (.3)%
Wholesale propane 24.8 27.3 (2.5) (9.2)%
Other 20.6 18.6 2.0 10.8%
------ ------ -----
$304.9 $306.2 $(1.3) (.4)%
====== ====== =====
Total margin $176.1 $159.4 $16.7 10.5%
EBITDA (a) $ 88.7 $ 75.1 $13.6 18.1%
Operating income $ 72.2 $ 59.4 $12.8 21.5%
Heating degree days - % warmer
than normal (11.0) (14.0) -- --
- --------------------------------------------------------------------------------
(a) 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 generally accepted accounting principles.
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AMERIGAS PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Retail and wholesale volumes of propane sold during the 1999 three-month period
increased due to slightly colder weather and growth in our customer base. Based
upon degree day information obtained from the National Oceanic and Atmospheric
Administration (NOAA) for 335 airports in the continental U.S., weather during
the three months ended March 31, 1999 was 11.0% warmer than normal but 3.5%
colder than the same period last year.
Total revenues from retail propane sales decreased $.8 million during the 1999
three-month period reflecting a $19.6 million decrease in average retail propane
selling prices partially offset by an $18.8 million increase as a result of the
higher volumes sold. Wholesale propane revenues declined $2.5 million during the
three months ended March 31, 1999 due to a $5.1 million decrease from lower
average selling prices partially offset by a $2.6 million increase from greater
volumes sold. The lower average retail and wholesale selling prices reflect
lower propane product costs. Other revenues increased $2.0 million principally
due to higher terminal and appliance sales revenues.
Total margin increased $16.7 million in the 1999 three-month period primarily as
a result of the greater retail propane volumes sold and, to a lesser extent,
higher average retail propane unit margin. The higher average retail unit margin
reflects lower propane product costs during the three months ended March 31,
1999.
The increases in EBITDA and operating income during the 1999 three-month period
principally reflect the increase in total margin partially offset by moderately
higher operating expenses. Operating expenses were $88.7 million during the 1999
three-month period compared with $85.6 million in the same period last year. The
increase in operating expenses principally resulted from higher payroll costs, a
portion of which is associated with the increase in retail volumes sold.
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AMERIGAS PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
1999 SIX-MONTH PERIOD COMPARED WITH 1998 SIX-MONTH PERIOD
- --------------------------------------------------------------------------------
Increase
Six Months Ended March 31, 1999 1998 (Decrease)
- --------------------------------------------------------------------------------
(Millions of dollars)
Gallons sold (millions):
Retail 505.5 514.3 (8.8) (1.7)%
Wholesale 114.9 143.5 (28.6) (19.9)%
------ ------ ------
620.4 657.8 (37.4) (5.7)%
====== ====== ======
Revenues:
Retail propane $453.2 $500.6 $(47.4) (9.5)%
Wholesale propane 43.2 64.6 (21.4) (33.1)%
Other 46.3 43.9 2.4 5.5%
------ ------ ------
$542.7 $609.1 $(66.4) (10.9)%
====== ====== ======
Total margin $309.4 $299.1 $ 10.3 3.4%
EBITDA $139.1 $134.7 $ 4.4 3.3%
Operating income $107.0 $103.4 $ 3.6 3.5%
Heating degree days - % warmer
than normal (11.0) (7.5) -- --
- --------------------------------------------------------------------------------
Retail volumes of propane sold were slightly lower in the 1999 six-month period
primarily as a result of a significant decline in agricultural gallons, due to a
dry autumn which reduced demand for crop drying, and the effects of warmer
heating-season weather. Based upon degree day information provided by NOAA for
335 airports in the continental U.S., weather during the six months ended March
31, 1999 was 11.0% warmer than normal and 3.8% warmer than the same period last
year. The decrease in retail volumes resulting from the lower agricultural sales
and the warmer weather was partially offset by the effects of an increase in the
number of customers we serve. Wholesale volumes sold during the 1999 six-month
period decreased primarily from reduced sales of storage inventories.
Total revenues from retail propane sales declined $47.4 million during the 1999
six-month period reflecting (1) a $38.8 million decrease as a result of lower
average retail propane selling prices and (2) an $8.6 million decrease from the
lower retail volumes sold. Wholesale propane revenues decreased $21.4 million
reflecting (1) a $12.9 million decrease from lower volumes sold and (2) an $8.5
million decrease as a result of lower average wholesale selling prices. The
decline in average retail and wholesale selling prices resulted from lower
propane product costs. Other
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AMERIGAS PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
revenues increased $2.4 million in the 1999 six-month period principally due to
greater appliance sales, terminal revenues and various fees.
Total margin increased $10.3 million in the 1999 six-month period,
notwithstanding the lower volumes sold, principally due to (1) higher average
retail propane unit margin and (2) greater margin from other sales and services
including appliance sales and terminal operations. Average retail propane unit
margin was greater during the six months ended March 31, 1999 as a result of the
lower propane product costs and, to a lesser extent, a greater proportion of
higher margin residential heating gallons.
EBITDA and operating income increased during the six months ended March 31, 1999
principally reflecting the increase in total margin partially offset by higher
operating expenses. Operating and administrative expenses were $172.3 million
during the 1999 six-month period compared with $166.4 million in the prior-year
period. The increase in operating expenses is principally due to (1) higher
compensation and benefit expenses, (2) an increase in vehicle repair and lease
expense and (3) higher expenses associated with acquisitions and new business
activities. These increases were partially offset by a reduction in general
liability insurance expense.
1999 TWELVE-MONTH PERIOD COMPARED WITH 1998 TWELVE-MONTH PERIOD
- --------------------------------------------------------------------------------
Increase
Twelve Months Ended March 31, 1999 1998 (Decrease)
- --------------------------------------------------------------------------------
(Millions of dollars)
Gallons sold (millions):
Retail 776.5 802.4 (25.9) (3.2)%
Wholesale 176.5 220.0 (43.5) (19.8)%
------ -------- -------
953.0 1,022.4 (69.4) (6.8)%
====== ======== =======
Revenues:
Retail propane $698.7 $ 774.4 $ (75.7) (9.8)%
Wholesale propane 67.2 100.5 (33.3) (33.1)%
Other 82.1 80.8 1.3 1.6%
------ -------- -------
$848.0 $ 955.7 $(107.7) (11.3)%
====== ======== =======
Total margin $480.9 $ 465.9 $ 15.0 3.2%
EBITDA $155.5 $ 152.5 $ 3.0 2.0%
Operating income $ 91.5 $ 90.3 $ 1.2 1.3%
Heating degree days - % warmer
than normal (11.7) (4.9) -- --
- --------------------------------------------------------------------------------
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AMERIGAS PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
We sold fewer retail gallons of propane in the 1999 twelve-month period due to
the effects of warmer temperatures. Based upon degree day information provided
by NOAA for 335 airports in the continental U.S., temperatures during the 1999
twelve-month period were 11.7% warmer than normal and 7.1% warmer than the 1998
twelve-month period. Wholesale volumes of propane sold were lower in the 1999
twelve-month period due to reduced sales of storage inventories.
Total retail propane revenues declined $75.7 million in the twelve months ended
March 31, 1999. The decrease reflects (1) a $50.7 million decrease as a result
of lower average retail propane selling prices and (2) a $25.0 million reduction
due to the lower volumes of propane sold. Wholesale propane revenues declined
$33.3 million in the 1999 twelve-month period due to (1) a $19.9 million
reduction from the lower volumes sold and (2) a $13.4 million decrease as a
result of lower average wholesale selling prices. The lower average retail and
wholesale selling prices reflect significantly lower propane product costs.
Total margin increased $15.0 million in the 1999 twelve-month period,
notwithstanding the decline in retail volumes, principally due to (1) higher
average retail unit margins and (2) higher margins from other sales and services
including appliance sales, terminal operations and various fees.
The increase in EBITDA and operating income for the 1999 twelve-month period
primarily reflects the increase in total margin partially offset by (1) an $8.0
million increase in operating and administrative expenses and (2) a $4.0 million
decrease in other income. The increase in operating expenses primarily reflects
(1) an increase in compensation and benefits expenses, (2) higher incremental
expenses associated with acquisitions and new business activities (including
start-up locations and our PPX Prefilled Propane Xchange(R) program), and (3)
higher vehicle lease costs. These increases were partially offset by lower
accruals for uncollectible accounts. Other income in the 1999 twelve-month
period includes a $4.0 million loss from two interest rate protection agreements
associated with an anticipated refinancing of the Operating Partnership's
Acquisition Facility in late fiscal 1998. When we postponed the refinancing due
to volatility in the corporate debt markets in the fourth quarter of fiscal
1998, we recorded a loss on the interest rate protection agreements because they
no longer qualified for hedge accounting treatment.
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL CONDITION
The Partnership's debt outstanding at March 31, 1999 totaled $724.9 million
compared with $719.0 million at September 30, 1998. During the quarter ended
March 31, 1999, the Operating Partnership issued $70 million of ten-year Series
D First Mortgage Notes, the proceeds of which were used
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AMERIGAS PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
principally to repay borrowings under the Acquisition Facility as well as to
reduce borrowings under the Revolving Credit Facility.
During the six months ended March 31, 1999, the Partnership declared and paid
the minimum quarterly distribution of $.55 (the "MQD") on all units for the
quarters ended September 30, 1998 and December 31, 1998. The MQD for the quarter
ended March 31, 1999 will be paid on May 18, 1999 to holders of record on May
10, 1999 of all Common and Subordinated units. The ability of the Partnership to
pay the MQD on all units 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 growing operating
capacity), (3) changes in operating working capital, and (4) the Partnership's
ability to borrow. Some of these factors are affected by conditions beyond our
control including weather, competition in markets we serve, and the cost of
propane.
CONVERSION OF SUBORDINATED UNITS
The Amended and Restated Agreement of Limited Partnership of AmeriGas Partners
provides that a total of 4,945,537 Subordinated Units may convert into Common
Units on first day after the distribution record date for any quarter ending on
or after March 31, 1998, and an additional 4,945,537 Subordinated Units may
convert on the first day after the distribution record date for any quarter
ending on or after March 31, 1999, if as of such quarterly dates certain
historical and projected cash generation based requirements are met. All of the
Partnership's Subordinated Units are held by the General Partner and its wholly
owned subsidiary, Petrolane. Because the required cash generation based
objectives were achieved at March 31, 1999, a total of 9,891,074 Subordinated
Units will convert to Common Units on May 18, 1999. The remaining outstanding
9,891,072 Subordinated Units are eligible to convert to Common Units on the
first day after the record date for any quarter ending on or after March 31,
2000 in respect of which certain historical cash generation based requirements
are met.
CASH FLOWS
Cash and cash equivalents totaled $16.5 million at March 31, 1999 compared with
$8.9 million at September 30, 1998. Due to the seasonal nature of the propane
business, cash flows from operating activities are generally strongest during
the second and third fiscal quarters when customers pay for propane purchased
during the heating season and are typically at their lowest levels during the
first and fourth fiscal quarters. Accordingly, cash flows from operations during
the six months ended March 31, 1999 are not necessarily indicative of cash flows
to be expected for a full year.
OPERATING ACTIVITIES. Cash flows from operating activities were $65.6 million
during the six months ended March 31, 1999 compared with $96.0 million during
the prior-year period. Changes in operating
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AMERIGAS PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
working capital during the six months ended March 31, 1999 required $43.1
million of operating cash flow while changes in operating working capital during
the six months ended March 31, 1998 required $6.1 million of operating cash
flow. The higher cash required for working capital in 1999 is principally a
result of a smaller decrease in inventories and a larger increase in accounts
receivable. Cash flow from operating activities before changes in working
capital was $108.7 million in the six months ended March 31, 1999 compared with
$102.1 million during the six months ended March 31, 1998 reflecting the
improvement in 1999 operating results.
INVESTING ACTIVITIES. We spent $15.8 million for property, plant and equipment
(including maintenance capital expenditures of $6.3 million) during the six
months ended March 31, 1999 compared with $15.4 million (including maintenance
capital expenditures of $4.4 million) in the prior-year period. During the six
months ended March 31, 1999, we acquired several propane businesses for an
aggregate $3.0 million in cash. During the six months ended March 31, 1998, we
made acquisition-related cash payments of $5.6 million.
FINANCING ACTIVITIES. During the six-month periods ended March 31, 1999 and
1998, we declared and paid the MQD on all Common and Subordinated units and the
general partner interests. On March 31, 1999, the Operating Partnership issued
$70 million of ten-year Series D First Mortgage Notes. The proceeds were used
principally to repay borrowings under the Acquisition Facility and the Revolving
Credit Facility. During the 1998 six-month period, the Operating Partnership
borrowed $13 million under its Acquisition Facility. During the six months ended
March 31, 1999, we made $62.5 million of long-term debt repayments including $60
million in repayments of the Operating Partnership's Acquisition Facility. The
Operating Partnership had net repayments of $5 million and $28 million under its
Revolving Credit Facility during the 1999 six-month period and the 1998
six-month period, respectively.
YEAR 2000 MATTERS
The Year 2000 ("Y2K") issue is a result of computer programs being written using
two digits (rather than four) to identify and process a year in a date field.
Computer programs, computer-controlled systems and equipment with embedded
software may recognize date fields using "00" as the year 1900 rather than the
year 2000. If uncorrected, miscalculations and possible computer-based system
failures could result which might disrupt business operations. We are
designating the following information as our "Year 2000 Readiness Disclosure."
Recognizing the potential business consequences of the Y2K issue, we conducted a
detailed assessment of our critical, date sensitive, computer-based systems to
identify those systems that were not Y2K compliant and developed a program to
modify those systems that were not otherwise scheduled for replacement prior to
the year 2000. Our Y2K compliance efforts focused
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AMERIGAS PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
on our ability to continue to perform three critical operating functions: (1)
obtain products to sell; (2) provide service to our customers; and (3) bill
customers and pay our vendors and employees.
Those systems that we assessed included (1) our information technology ("IT")
systems such as computer hardware and software we use in the operation of our
business and (2) our non-IT systems that contain embedded systems with
potentially date sensitive components such as micro-controllers contained in
various equipment and facilities. Among these systems are our customer
information and data systems and our financial systems including payroll and our
propane fuel accounting, supply and transportation system. In order to identify
and modify those systems that we determined were not Y2K compliant, we used
internal resources as well as outside consultants and vendor representatives. In
addition to assessing, identifying and modifying our own systems, we developed
and implemented a program to attempt to determine the Y2K compliance status of
third parties, including our key suppliers and vendors, and certain of our
customers. As of March 31, 1999, we have successfully modified or replaced all
of our critical IT and non-IT systems that were not Y2K compliant.
As previously mentioned, in addition to assuring our IT and non-IT systems are
Y2K compliant, we developed and implemented a program to assess the readiness of
our key suppliers and third-party providers. Although none of our products or
services are of themselves date sensitive, as a company with operations
throughout the United States, we are dependent upon other companies whose IT and
non-IT systems may not be Y2K compliant. We rely on these companies for the
supply and transportation of propane. Additionally, we depend on other companies
to supply us with propane tanks and cylinders, fuel for our vehicles, as well as
other products and services we need to operate our businesses. We have completed
our program to contact and inquire of the readiness of these key suppliers and
vendors. We have evaluated the responses received from our critical vendors and
suppliers and to the extent we were not satisfied with the responses, or have
determined that the responses indicate a lack of Y2K readiness, we have
developed or are in the process of developing contingency plans. The major
elements of these contingency plans are based upon the use of manual back-up
systems, alternative supply sources, higher critical inventory levels, and
additional staffing. These contingency plans attempt to mitigate the potential
impact of Y2K noncompliance by our key suppliers and vendors. However, these
plans cannot assure that business disruptions that may be caused by key
suppliers or third-party providers will not have a material adverse impact on
our operations. We anticipate that our contingency plans will be completed by
June 30, 1999.
In addition, there are other Y2K risks which are beyond our control, any of
which could have a material adverse impact on our operations. Such risks
include, but are not limited to, the failure of utility and telecommunications
companies to provide service and the failure of financial institutions to
process transactions.
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20
AMERIGAS PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Incremental costs associated with our Y2K efforts have not had a material effect
on our results of operations. We expense Y2K costs as incurred. Costs associated
with information system improvement initiatives are expensed or capitalized in
accordance with our accounting policy for software development costs. Because
our Y2K compliance program is substantially complete, we do not expect future
costs will be significant.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk exposures are market prices for propane and changes in
interest rates.
Price risk associated with fluctuations in the prices we pay for propane is
principally a result of market forces reflecting changes in supply and demand.
The Partnership's profitability is sensitive to changes in propane supply costs
and the Partnership generally seeks to pass on increases in such costs to
customers. There is no assurance, however, that the Partnership will be able to
do so. In order to manage propane market price risk, we use contracts for the
forward purchase of propane, propane fixed-price supply agreements, and
derivative commodity instruments such as price swap and option contracts.
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 trading purposes.
The Partnership has interest rate exposure associated with borrowings under its
Bank Credit Agreement. The Bank Credit Agreement provides for interest rates on
borrowings which are indexed to the agent bank's reference rate or offshore
interbank borrowing rates. Based upon Bank Credit Agreement borrowings
outstanding as of March 31, 1999, an increase in interest rates of 50 basis
points (0.5%) would increase annual interest expense by less than $.1 million.
Due to the seasonal nature of our business, the level of borrowings outstanding
at March 31, 1999 is not necessarily indicative of the level of borrowings
throughout the year. Additionally, the Partnership uses long-term debt as a
primary source of capital. These debt instruments are typically issued at fixed
interest rates. When these debt instruments mature, we refinance such debt at
then-existing market interest rates which may be more or less than the interest
rates on the maturing debt. In addition, we may attempt to reduce interest rate
risk associated with a forecasted issuance of new debt. In order to reduce
interest rate risk associated with these transactions, we occasionally enter
into interest rate protection agreements.
At March 31, 1999, the impact on the fair value of the Partnership's market risk
sensitive instruments resulting from (1) a 5 cent a gallon decline in the market
price of propane and (2) a 50 basis point decline in interest rates on U.S.
treasury notes, would not be materially different than that reported in the
Partnership's 1998 Annual Report on Form 10-K.
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AMERIGAS PARTNERS, L.P.
We expect that any losses from market risk sensitive instruments used to manage
propane price or interest rate market risk would be substantially offset by
gains on the associated underlying transactions.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
10.1 Second Amendment dated as of March 25, 1999 to
Amended and Restated Credit Agreement
10.2 Third Amendment dated as of March 23, 1999 to Note
Agreement dated as of April 12, 1995
10.3 Note Agreement dated as of March 15, 1999 among
AmeriGas Propane, L.P., AmeriGas Propane, Inc., and
certain institutional investors
27.1 Financial Data Schedule of AmeriGas Partners, L.P.
27.2 Financial Data Schedule of AmeriGas Finance Corp.
(b) No Current Report on Form 8-K was filed by either AmeriGas
Partners, L.P. or AmeriGas Finance Corp. during the fiscal
quarter ended March 31, 1999.
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22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
AmeriGas Partners, L.P.
-----------------------
(Registrant)
By: AmeriGas Propane, Inc.,
as General Partner
Date: May 14, 1999 By: Martha B. Lindsay
- ------------------- ---------------------------------------
Martha B. Lindsay
Vice President - Finance
and Chief Financial Officer
By: Richard R. Eynon
---------------------------------------
Richard R. Eynon
Controller and Chief Accounting Officer
AmeriGas Finance Corp.
----------------------
(Registrant)
Date: May 14, 1999 By: Martha B. Lindsay
- ------------------- ---------------------------------------
Martha B. Lindsay
Vice President - Finance
and Chief Financial Officer
By: Richard R. Eynon
---------------------------------------
Richard R. Eynon
Controller and Chief Accounting Officer
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AMERIGAS PARTNERS, L.P.
EXHIBIT INDEX
10.1 Second Amendment dated as of March 25, 1999 to Amended and Restated
Credit Agreement
10.2 Third Amendment dated as of March 23, 1999 to Note Agreement dated as
of April 12, 1995
10.3 Note Agreement dated as of March 15, 1999 among AmeriGas Propane, L.P.,
AmeriGas Propane, Inc., and certain institutional investors
27.1 Financial Data Schedule of AmeriGas Partners, L.P.
27.2 Financial Data Schedule of AmeriGas Finance Corp.