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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-13692
Commission file number 33-92734-01
Commission file number 333-72986-02
Commission file number 333-72986-01
AMERIGAS PARTNERS, L.P.
AMERIGAS FINANCE CORP.
AMERIGAS EAGLE FINANCE CORP.
AP EAGLE FINANCE CORP.
(Exact name of registrants as specified in their charters)
Delaware 23-2787918
Delaware 23-2800532
Delaware 23-3074434
Delaware 23-3077318
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
460 North Gulph Road, King of Prussia, PA 19406
(Address of principal executive offices)(Zip Code)
(610) 337-7000
(Registrants' telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
At July 31, 2004, the registrants had units and shares of common stock
outstanding as follows:
AmeriGas Partners, L.P. - 54,473,272 Common Units
AmeriGas Finance Corp. - 100 shares
AmeriGas Eagle Finance Corp. - 100 shares
AP Eagle Finance Corp. - 100 shares
AMERIGAS PARTNERS, L.P.
TABLE OF CONTENTS
PAGES
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
AmeriGas Partners, L.P.
Condensed Consolidated Balance Sheets as of June 30, 2004,
September 30, 2003 and June 30, 2003 1
Condensed Consolidated Statements of Operations for the three
and nine months ended June 30, 2004 and 2003 2
Condensed Consolidated Statements of Cash Flows for the
nine months ended June 30, 2004 and 2003 3
Condensed Consolidated Statement of Partners' Capital for the
nine months ended June 30, 2004 4
Notes to Condensed Consolidated Financial Statements 5 - 12
AmeriGas Finance Corp.
Balance Sheets as of June 30, 2004 and September 30, 2003 13
Note to Balance Sheets 14
AmeriGas Eagle Finance Corp.
Balance Sheets as of June 30, 2004 and September 30, 2003 15
Note to Balance Sheets 16
AP Eagle Finance Corp.
Balance Sheets as of June 30, 2004 and September 30, 2003 17
Note to Balance Sheets 18
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 19 - 26
Item 3. Quantitative and Qualitative Disclosures About Market Risk 26 - 27
Item 4. Controls and Procedures 27
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 28 - 29
Signatures 30 - 31
-i-
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Thousands of dollars)
June 30, September 30, June 30,
2004 2003 2003
---------- ---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 23,306 $ 45,872 $ 33,959
Accounts receivable (less allowances for doubtful accounts
of $13,420, $9,192 and $10,741, respectively) 129,631 100,170 109,427
Accounts receivable - related parties 3,724 2,915 875
Inventories 63,940 70,171 59,420
Prepaid expenses and other current assets 15,283 17,204 24,414
---------- ---------- ----------
Total current assets 235,884 236,332 228,095
Property, plant and equipment (less accumulated depreciation and
amortization of $521,790, $473,090 and $457,574, respectively) 601,334 594,604 607,225
Goodwill and excess reorganization value 606,715 602,475 599,652
Intangible assets (less accumulated amortization of $15,120,
$11,934 and $10,948, respectively) 27,350 27,032 27,176
Other assets 20,687 21,733 16,633
---------- ---------- ----------
Total assets $1,491,970 $1,482,176 $1,478,781
========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current maturities of long-term debt $ 59,469 $ 58,705 $ 60,988
Accounts payable - trade 71,296 87,352 72,454
Accounts payable - related parties 188 930 1,006
Customer deposits and advances 21,519 52,771 14,666
Employee compensation and benefits accrued 31,944 26,307 29,253
Interest accrued 16,603 31,987 17,247
Other current liabilities 31,564 39,996 37,906
---------- ---------- ----------
Total current liabilities 232,583 298,048 233,520
Long-term debt 842,115 868,581 868,832
Other noncurrent liabilities 58,730 54,859 52,727
Commitments and contingencies (note 7)
Minority interests 8,240 7,005 7,576
Partners' capital 350,302 253,683 316,126
---------- ---------- ----------
Total liabilities and partners' capital $1,491,970 $1,482,176 $1,478,781
========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
- 1 -
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(Thousands of dollars, except per unit)
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- --------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Revenues:
Propane $ 282,510 $ 257,705 $ 1,359,913 $ 1,263,423
Other 32,597 29,431 103,102 94,290
----------- ----------- ----------- -----------
315,107 287,136 1,463,015 1,357,713
----------- ----------- ----------- -----------
Costs and expenses:
Cost of sales - propane 169,095 145,637 800,514 723,258
Cost of sales - other 14,923 12,310 43,203 38,716
Operating and administrative expenses 118,125 119,136 381,283 374,005
Depreciation and amortization 19,968 18,891 59,439 54,813
Other (income), net (3,011) (2,371) (10,949) (6,573)
----------- ----------- ----------- -----------
319,100 293,603 1,273,490 1,184,219
----------- ----------- ----------- -----------
Operating (loss) income (3,993) (6,467) 189,525 173,494
Loss on extinguishment of debt -- -- -- (3,023)
Interest expense (20,516) (21,468) (62,818) (66,051)
----------- ----------- ----------- -----------
(Loss) income before income taxes (24,509) (27,935) 126,707 104,420
Income tax benefit (expense) 237 343 (391) 405
Minority interests 140 178 (1,649) (1,451)
----------- ----------- ----------- -----------
Net (loss) income $ (24,132) $ (27,414) $ 124,667 $ 103,374
=========== =========== =========== ===========
General partner's interest in net (loss) income $ (241) $ (274) $ 6,448 $ 2,708
=========== =========== =========== ===========
Limited partners' interest in net (loss) income $ (23,891) $ (27,140) $ 118,219 $ 100,666
=========== =========== =========== ===========
Net (loss) income per limited partner unit:
Basic $ (0.45) $ (0.54) $ 2.25 $ 2.03
=========== =========== =========== ===========
Diluted $ (0.45) $ (0.54) $ 2.24 $ 2.03
=========== =========== =========== ===========
Average limited partner units outstanding:
Basic 53,188 49,847 52,635 49,571
=========== =========== =========== ===========
Diluted 53,188 49,847 52,708 49,631
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
- 2 -
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Thousands of dollars)
Nine Months Ended
June 30,
----------------------
2004 2003
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 124,667 $ 103,374
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 59,439 54,813
Provision for uncollectible accounts 7,833 7,955
Other, net (240) 3,050
Net change in:
Accounts receivable (33,881) (26,025)
Inventories 9,585 3,224
Accounts payable (19,062) (13,433)
Other current assets and liabilities (39,353) (45,803)
--------- ---------
Net cash provided by operating activities 108,988 87,155
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (44,612) (43,425)
Proceeds from disposals of assets 7,938 6,037
Acquisitions of businesses, net of cash acquired (33,388) (27,009)
--------- ---------
Net cash used by investing activities (70,062) (64,397)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (87,275) (82,388)
Minority interest activity (719) (358)
Decrease in bank loans -- (10,000)
Issuance of long-term debt 30,135 122,780
Repayment of long-term debt (55,347) (141,996)
Proceeds from issuance of Common Units 51,197 75,005
Capital contributions from General Partner 517 758
--------- ---------
Net cash used by financing activities (61,492) (36,199)
--------- ---------
Cash and cash equivalents decrease $ (22,566) $ (13,441)
========= =========
CASH AND CASH EQUIVALENTS:
End of period $ 23,306 $ 33,959
Beginning of period 45,872 47,400
--------- ---------
Decrease $ (22,566) $ (13,441)
========= =========
See accompanying notes to condensed consolidated financial statements.
- 3 -
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(unaudited)
(Thousands, except unit data)
Accumulated
Number of other Total
Common General comprehensive partners'
Units Common partner income (loss) capital
------ ------ ------- ------------- --------
BALANCE SEPTEMBER 30, 2003 52,333,208 $ 255,423 $ 2,577 $ (4,317) $ 253,683
Net income 118,219 6,448 124,667
Net gains on derivative instruments 28,777 28,777
Reclassification of net gains
on derivative instruments (22,354) (22,354)
--------- ------- -------- ---------
Comprehensive income 118,219 6,448 6,423 131,090
Distributions (86,402) (873) (87,275)
Common Units issued in
connection with public offering 2,100,000 51,197 517 51,714
Common Units issued in
connection with incentive
compensation plan 40,064 1,090 1,090
---------- --------- ------- -------- ---------
Balance June 30, 2004 54,473,272 $ 339,527 $ 8,669 $ 2,106 $ 350,302
========== ========= ======= ======== =========
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"), the owner of a propane storage terminal located
in Chesapeake, Virginia, is accounted for by the equity method.
The accompanying condensed consolidated financial statements are unaudited
and have been prepared in accordance with the rules and regulations of the
U.S. Securities and Exchange Commission ("SEC"). They include all
adjustments which we consider necessary for a fair statement of the
results for the interim periods presented. Such adjustments consisted only
of normal recurring items unless otherwise disclosed. The September 30,
2003 condensed consolidated balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
accounting principles generally accepted in the United States of America.
These financial statements should be read in conjunction with the
financial statements and related notes included in our Annual Report on
Form 10-K for the year ended September 30, 2003 ("2003 Annual Report").
Weather significantly impacts demand for propane and profitability because
many customers use propane for heating purposes. Due to the seasonal
nature of the Partnership's propane business, the results of operations
for interim periods are not necessarily indicative of the results to be
expected for a full year.
NET INCOME PER UNIT. Net income per unit is computed by dividing net
income, after deducting the General Partner's interest in AmeriGas
Partners, by the weighted average number of limited partner units
outstanding.
Effective April 2004, the Partnership adopted Emerging Issues Task Force
Issue No. 03-6, "Participating Securities and the Two-Class Method under
FASB Statement No. 128" ("EITF 03-6"), which results in the calculation of
net income per limited partner unit for each period according to
distributions declared and participation rights in undistributed earnings,
as if all of the earnings for the period had been distributed. In periods
with undistributed earnings above certain levels, the calculation
according to the two-class method results in an increased allocation of
undistributed earnings to the General Partner and a dilution of the
earnings to the limited partners. Due to the seasonality of the
- 5 -
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
propane business, the dilutive effect of EITF 03-6 on net income per
limited partner unit will typically impact the first three fiscal
quarters. EITF 03-6 is not expected to impact net income per limited
partner unit for the fiscal year. The dilutive effect of EITF 03-6 on net
income per limited partner unit was $(0.10) and $(0.03) for the nine
months ended June 30, 2004 and 2003, respectively.
Potentially dilutive Common Units included in the diluted limited partner
units outstanding computation reflect the effects of restricted Common
Unit awards granted under AmeriGas Propane, Inc. incentive compensation
plans.
COMPREHENSIVE (LOSS) INCOME. The following table presents the components
of comprehensive (loss) income for the three and nine months ended June
30, 2004 and 2003:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------- -----------------------------
2004 2003 2004 2003
---------- --------- ----------- -------------
Net (loss) income $ (24,132) $ (27,414) $ 124,667 $ 103,374
Other comprehensive income (loss) 4,025 1,571 6,423 (9,010)
---------- --------- ----------- -------------
Comprehensive (loss) income $ (20,107) $ (25,843) $ 131,090 $ 94,364
---------- --------- ----------- -------------
Other comprehensive income (loss) is principally the result of changes in
the fair value of propane commodity derivative instruments and interest
rate protection agreements, net of reclassifications of net gains and
losses to net income.
UNIT-BASED COMPENSATION. As permitted by Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), we apply the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
25"), in recording compensation expense for grants of equity instruments
to employees.
- 6 -
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
We use the intrinsic value method prescribed by APB 25 for our unit-based
employee compensation plans. We recorded unit-based compensation expense
of $72 and $556 during the three and nine months ended June 30, 2004,
respectively, and $618 and $1,641 during the three and nine months ended
June 30, 2003, respectively. If we had determined unit-based compensation
expense under the fair value method prescribed by SFAS 123, net (loss)
income and basic and diluted (loss) income per limited partner unit for
the three and nine months ended June 30, 2004 and 2003 would have been as
follows:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------- -------------------------
2004 2003 2004 2003
----------- ---------- ---------- ------------
Net (loss) income as reported $ (24,132) $ (27,414) $ 124,667 $ 103,374
Add: Unit-based employee compensation
expense included in reported
net income 72 618 556 1,641
Deduct: Total stock and unit-based
employee compensation expense
determined under the fair
value method for all awards (216) (726) (941) (1,972)
----------- ---------- ---------- ------------
Pro forma net (loss) income $ (24,276) $ (27,522) $ 124,282 $ 103,043
----------- ---------- ---------- ------------
Basic (loss) income per limited partner unit:
As reported $ (0.45) $ (0.54) $ 2.25 $ 2.03
Pro forma $ (0.45) $ (0.55) $ 2.24 $ 2.03
Diluted (loss) income per limited partner unit:
As reported $ (0.45) $ (0.54) $ 2.24 $ 2.03
Pro forma $ (0.45) $ (0.55) $ 2.24 $ 2.02
----------- ---------- ---------- ------------
USE OF ESTIMATES. We make estimates and assumptions when preparing
financial statements in conformity with accounting principles generally
accepted in the United States of America. These estimates and assumptions
affect the reported amounts of assets and liabilities, revenues and
expenses, as well as the disclosure of contingent assets and liabilities.
Actual results could differ from these estimates.
2. ACQUISITIONS
On October 1, 2003, AmeriGas OLP acquired substantially all of the retail
propane distribution assets and business of Horizon Propane LLC ("Horizon
Propane") for total cash consideration of $31,044. In December 2003,
AmeriGas OLP paid Horizon Propane a working capital adjustment of $111 in
accordance with the Asset Purchase Agreement. During its fiscal year ended
June 30, 2003, Horizon Propane sold over 30 million gallons of propane
from ninety locations in twelve states. In addition, several smaller
acquisitions of retail propane businesses were completed during the nine
months ended June 30, 2004. The pro forma effect of all of these
transactions is not material.
- 7 -
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
3. COMMON UNIT ACTIVITY
On May 26, 2004, AmeriGas Partners sold 2,000,000 Common Units in an
underwritten public offering at a public offering price of $25.61 per
unit. On June 10, 2004, the underwriters partially exercised their
overallotment option in the amount of 100,000 Common Units. The net
proceeds of the public offering totaling $51,197 and the associated
capital contributions from the General Partner totaling $1,045 were
contributed to AmeriGas OLP and used to reduce indebtedness under its bank
credit agreement and for general partnership purposes.
On June 17, 2003, AmeriGas Partners sold 2,900,000 Common Units in an
underwritten public offering at a public offering price of $27.12 per
unit. The net proceeds of the public offering totaling $75,005 and the
associated capital contributions from the General Partner totaling $1,531
were contributed to AmeriGas OLP and used to reduce indebtedness under its
bank credit agreement and for general partnership purposes. The
underwriters' overallotment option expired unexercised.
4. INTANGIBLE ASSETS
The Partnership's intangible assets comprise the following:
June 30, September 30,
2004 2003
--------- ---------
Subject to amortization:
Customer relationships and
noncompete agreements $ 42,470 $ 38,966
Accumulated amortization (15,120) (11,934)
--------- ---------
$ 27,350 $ 27,032
--------- ---------
Not subject to amortization:
Goodwill $ 513,395 $ 509,155
Excess reorganization value 93,320 93,320
--------- ---------
$ 606,715 $ 602,475
--------- ---------
The increases in intangible assets during the nine months ended June 30,
2004 resulted from Partnership business acquisitions. Amortization expense
of intangible assets was $1,067 and $3,186 for the three and nine months
ended June 30, 2004, respectively, and $745 and $2,297 for the three and
nine months ended June 30, 2003, respectively. Our expected aggregate
amortization expense of intangible assets for the next five fiscal years
is as follows: Fiscal 2004 - $4,196; Fiscal 2005 - $3,838; Fiscal 2006 -
$3,450; Fiscal 2007 - $2,816; Fiscal 2008 - $2,586.
- 8 -
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
5. RELATED PARTY TRANSACTIONS
Pursuant to the Partnership Agreement and a Management Services Agreement
among AmeriGas Eagle Holdings, Inc., the general partner of Eagle OLP, and
the General Partner, the General Partner is entitled to reimbursement for
all direct and indirect expenses incurred or payments it makes on behalf
of the Partnership. These costs, which totaled $71,509 and $234,946 during
the three and nine months ended June 30, 2004, respectively, and $68,553
and $215,750 during the three and nine months ended June 30, 2003,
respectively, include employee compensation and benefit expenses of
employees of the General Partner and general and administrative expenses.
UGI Corporation ("UGI") provides certain financial and administrative
services to the General Partner. UGI bills the General Partner for these
direct and indirect corporate expenses and the General Partner is
reimbursed by the Partnership for these expenses. Such corporate expenses
totaled $2,154 and $7,686 during the three and nine months ended June 30,
2004, respectively, and $2,455 and $6,699 during the three and nine months
ended June 30, 2003, respectively. In addition, UGI and certain of its
subsidiaries provide office space and automobile liability insurance to
the Partnership. These expenses totaled $679 and $1,919 during the three
and nine months ended June 30, 2004, respectively, and $441 and $1,315
during the three and nine months ended June 30, 2003, respectively.
The Partnership purchases propane on behalf of Atlantic Energy. Atlantic
Energy reimburses AmeriGas OLP for its purchases plus interest as Atlantic
Energy sells such propane to third parties or to AmeriGas OLP itself. The
total dollar value of propane purchased on behalf of Atlantic Energy was
$3,875 and $25,108 during the three and nine months ended June 30, 2004,
respectively, and $941 and $11,764 during the three and nine months ended
June 30, 2003, respectively. Purchases of propane by AmeriGas OLP from
Atlantic Energy during the three and nine months ended June 30, 2004
totaled $3,091 and $25,125, respectively, and during the three and nine
months ended June 30, 2003 totaled $2,240 and $20,898, respectively.
The General Partner also provides other services to Atlantic Energy
including accounting, insurance and other administrative services and is
reimbursed for the related costs. Such costs were not material during the
three and nine months ended June 30, 2004 or 2003. On occasion, AmeriGas
OLP enters into product cost hedging contracts on behalf of Atlantic
Energy. When these contracts are settled, AmeriGas OLP is reimbursed the
cost of any losses, or distributes the proceeds of any gains, to Atlantic
Energy. Amounts due from Atlantic Energy at June 30, 2004, September 30,
2003 and June 30, 2003 totaled $1,421, $2,042 and $772, respectively.
Amounts due from Atlantic Energy are included in accounts receivable -
related parties in the Condensed Consolidated Balance Sheets.
- 9 -
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
6. LONG-TERM DEBT
In April 2004, AmeriGas OLP repaid $53,750 of maturing First Mortgage
Notes. In conjunction with this repayment, in April 2004, AmeriGas
Partners issued $28,000 face amount of 8.875% Senior Notes due 2011 at an
effective rate of 7.18%, and contributed the net proceeds of $30,135 to
AmeriGas OLP.
In April 2003, AmeriGas OLP repaid $53,750 of maturing First Mortgage
Notes. In conjunction with this repayment, AmeriGas Partners issued
$32,000 face amount of 8.875% Senior Notes due 2011 at an effective
interest rate of 7.72% and contributed the net proceeds of $33,680,
including debt premium, to AmeriGas OLP.
On December 3, 2002, AmeriGas Partners issued $88,000 face amount of
8.875% Senior Notes due 2011 at an effective interest rate of 8.30%. The
proceeds, net of underwriters' fees, of $89,100 were used on January 6,
2003 to redeem prior to maturity AmeriGas Partners' $85,000 face amount of
10.125% Senior Notes due 2007 at a redemption price of 102.25%, plus
accrued interest. The Partnership recognized a loss of $3,023 in the
quarter ended March 31, 2003 related to the redemption premium and other
associated costs and expenses.
7. 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 $13,000 at June 30, 2004. These leases
expire through 2010 and some of them are currently in default. The
Partnership has succeeded to the indemnity agreement of Petrolane by which
Texas Eastern Corporation ("Texas Eastern"), a prior owner of Petrolane,
agreed to indemnify Petrolane against any liabilities arising out of the
conduct of businesses that do not relate to, and are not a part of, the
propane business, including lease guarantees. In December 1999, Texas
Eastern filed for dissolution under the Delaware General Corporation Law.
PanEnergy Corporation ("PanEnergy"), Texas Eastern's sole stockholder,
subsequently assumed all of Texas Eastern's liabilities as of December 20,
2002, to the extent of the value of Texas Eastern's assets transferred to
PanEnergy as of that date (which was estimated to exceed $94,000), and to
the extent that such liabilities arise within ten years from Texas
Eastern's date of dissolution. Notwithstanding the dissolution proceeding,
and based on Texas Eastern previously having satisfied directly defaulted
lease obligations without the Partnership's having to honor its guarantee,
we believe that the probability that the Partnership will be required to
directly satisfy the lease obligations subject to the indemnification
agreement is remote.
On August 21, 2001, AmeriGas Partners, through AmeriGas OLP, acquired the
propane distribution businesses of Columbia Energy Group (the "2001
Acquisition") pursuant to the terms of a purchase agreement (the "2001
Acquisition Agreement") by and among
- 10 -
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
Columbia Energy Group ("CEG"), Columbia Propane Corporation ("Columbia
Propane"), Columbia Propane, L.P. ("CPLP"), CP Holdings, Inc. ("CPH," and
together with Columbia Propane and CPLP, the "Company Parties"), AmeriGas
Partners, AmeriGas OLP and the General Partner (together with AmeriGas
Partners and AmeriGas OLP, the "Buyer Parties"). As a result of the 2001
Acquisition, AmeriGas OLP acquired all of the stock of Columbia Propane
and CPH and substantially all of the partnership interests of CPLP. Under
the terms of an earlier acquisition agreement (the "1999 Acquisition
Agreement"), the Company Parties agreed to indemnify the former general
partners of National Propane Partners, L.P. (a predecessor company of the
Columbia Propane businesses) and an affiliate (collectively, "National
General Partners") against certain income tax and other losses that they
may sustain as a result of the 1999 acquisition by CPLP of National
Propane Partners, L.P. (the "1999 Acquisition") or the operation of the
business after the 1999 Acquisition ("National Claims"). At June 30, 2004,
the potential amount payable under this indemnity by the Company Parties
was approximately $61,000. These indemnity obligations will expire on the
date that CPH acquires the remaining outstanding partnership interest of
CPLP, which is expected to occur on or after July 19, 2009.
Under the terms of the 2001 Acquisition Agreement, CEG agreed to indemnify
the Buyer Parties and the Company Parties against any losses that they
sustain under the 1999 Acquisition Agreement and related agreements
("Losses"), including National Claims, to the extent such claims are based
on acts or omissions of CEG or the Company Parties prior to the 2001
Acquisition. The Buyer Parties agreed to indemnify CEG against Losses,
including National Claims, to the extent such claims are based on acts or
omissions of the Buyer Parties or the Company Parties after the 2001
Acquisition. CEG and the Buyer Parties have agreed to apportion certain
losses resulting from National Claims to the extent such losses result
from the 2001 Acquisition itself.
We also have other contingent liabilities, pending claims and legal action
arising in the normal course of our business. We cannot predict with
certainty the final results of these matters. However, it is reasonably
possible that some of them could be resolved unfavorably to us. Although
management currently believes that damages or settlements, if any,
recovered by the plaintiffs in such claims or actions will not have a
material adverse effect on our financial position, damages or settlements
could be material to our operating results or cash flows in future periods
depending on the nature and timing of future developments with respect to
these matters and the amount of future operating results and cash flows.
8. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2003, the Financial Accounting Standards Board ("FASB")
revised Financial Interpretation No. 46, "Consolidation of Variable
Interest Entities" ("FIN 46"), which was originally issued in January 2003
and clarifies Accounting Research Bulletin No. 51, "Consolidated Financial
Statements." FIN 46 was effective immediately for
- 11 -
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
variable interest entities created or obtained after January 31, 2003. For
variable interest entities created or acquired before February 1, 2003,
FIN 46 was effective beginning with our interim period ended March 31,
2004. If certain conditions are met, FIN 46 requires the primary
beneficiary to consolidate certain variable interest entities. The
Partnership has not created or obtained any variable interest entities
prior to, or after January 31, 2003. Therefore, the adoption of FIN 46 did
not affect the Partnership's financial position or results of operations.
- 12 -
AMERIGAS FINANCE CORP.
(a wholly owned subsidiary of AmeriGas Partners, L.P.)
BALANCE SHEETS
(unaudited)
June 30, September 30,
2004 2003
------ ------
ASSETS
Cash $1,000 $1,000
------ ------
Total assets $1,000 $1,000
====== ======
STOCKHOLDER'S EQUITY
Common stock, without par value; 100 shares authorized,
issued and outstanding $ -- $ --
Additional paid-in capital 1,000 1,000
------ ------
Total stockholder's equity $1,000 $1,000
====== ======
See accompanying note to balance sheets.
- 13 -
AMERIGAS FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF AMERIGAS PARTNERS, L.P.)
NOTE TO BALANCE SHEETS
(unaudited)
AmeriGas Finance Corp. ("AmeriGas Finance"), a Delaware corporation, was formed
on March 13, 1995 and is a wholly owned subsidiary of AmeriGas Partners, L.P.
("AmeriGas Partners").
As of November 21, 2003, AmeriGas Partners and AmeriGas Finance have an
effective unallocated shelf registration statement with the Securities and
Exchange Commission under the Securities Act of 1933 under which AmeriGas
Partners may issue up to $446,219,000 of debt or equity securities. AmeriGas
Finance will be the co-obligor of the debt securities, if any, issued pursuant
to the registration statement.
AmeriGas Partners owns all 100 shares of AmeriGas Finance common stock
outstanding.
- 14 -
AMERIGAS EAGLE FINANCE CORP.
(a wholly owned subsidiary of AmeriGas Partners, L.P.)
BALANCE SHEETS
(unaudited)
June 30, September 30,
2004 2003
------ ------
ASSETS
Cash $1,000 $1,000
------ ------
Total assets $1,000 $1,000
====== ======
STOCKHOLDER'S EQUITY
Common stock, without par value; 100 shares authorized,
issued and outstanding $ -- $ --
Additional paid-in capital 1,000 1,000
------ ------
Total stockholder's equity $1,000 $1,000
====== ======
See accompanying note to balance sheets.
- 15 -
AMERIGAS EAGLE FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF AMERIGAS PARTNERS, L.P.)
NOTE TO BALANCE SHEETS
(unaudited)
AmeriGas Eagle Finance Corp. ("Eagle Finance"), a Delaware corporation, was
formed on February 22, 2001 and is a wholly owned subsidiary of AmeriGas
Partners, L.P. ("AmeriGas Partners").
On April 4, 2001, AmeriGas Partners and Eagle Finance jointly and severally
issued $60,000,000 face amount of 10% Senior Notes due April 2006.
AmeriGas Partners owns all 100 shares of Eagle Finance common stock outstanding.
- 16 -
AMERIGAS FINANCE CORP.
(a wholly owned subsidiary of AmeriGas Partners, L.P.)
BALANCE SHEETS
(unaudited)
June 30, September 30,
2004 2003
------ ------
ASSETS
Cash $1,000 $1,000
------ ------
Total assets $1,000 $1,000
====== ======
STOCKHOLDER'S EQUITY
Common stock, without par value; 100 shares authorized,
issued and outstanding $ -- $ --
Additional paid-in capital 1,000 1,000
------ ------
Total stockholder's equity $1,000 $1,000
====== ======
See accompanying note to balance sheets.
- 17 -
AP EAGLE FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF AMERIGAS PARTNERS, L.P.)
NOTE TO BALANCE SHEETS
(unaudited)
AP Eagle Finance Corp. ("AP Eagle Finance"), a Delaware corporation, was formed
on April 12, 2001 and is a wholly owned subsidiary of AmeriGas Partners, L.P.
("AmeriGas Partners").
On August 21, 2001, AmeriGas Partners and AP Eagle Finance jointly and severally
issued $200,000,000 face amount of 8.875% Series A Senior Notes due May 2011. On
December 20, 2001, AmeriGas Partners and AP Eagle Finance exchanged $199,985,000
face amount of 8.875% Series A Senior Notes due May 2011 for a like amount of
AmeriGas Partners and AP Eagle Finance 8.875% Series B Senior Notes due May 2011
pursuant to a registered exchange offer. On May 3, 2002, AmeriGas Partners and
AP Eagle Finance jointly and severally issued $40,000,000 face amount of 8.875%
Series B Senior Notes due May 2011. On December 3, 2002, AmeriGas Partners and
AP Eagle Finance jointly and severally issued $88,000,000 face amount of 8.875%
Senior Notes due May 2011. On April 4, 2003, AmeriGas Partners and AP Eagle
Finance exchanged (1) $15,000 face amount of 8.875% Series A Senior Notes due
May 2011 and (2) $88,000,000 face amount of 8.875% Senior Notes due May 2011 for
like amounts of AmeriGas Partners and AP Eagle Finance 8.875% Series B Senior
Notes due May 2011 pursuant to a registered exchange offer.
In April 2003, AmeriGas Partners and AP Eagle Finance jointly and severally
issued $32,000,000 face amount of 8.875% Series B Senior Notes due May 2011.
In April 2004, AmeriGas Partners and AP Eagle Finance jointly and severally
issued $28,000,000 face amount of 8.875% Series B Senior Notes due May 2011.
AmeriGas Partners owns all 100 shares of AP Eagle Finance common stock
outstanding.
- 18 -
AMERIGAS PARTNERS, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Information contained in this Management's Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this Quarterly Report may
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
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) price volatility and availability of
propane, and the capacity to transport it to our market areas; (3) changes in
laws and regulations, including safety, tax and accounting matters; (4) large
supplier, counterparty or customer defaults; (5) competitive pressures from the
same and alternative energy sources; (6) failure to acquire new customers
thereby reducing or limiting any increase in revenues; (7) liability for
environmental claims; (8) customer conservation measures and improvements in
energy efficiency and technology resulting in reduced demand; (9) adverse labor
relations; (10) inability to make business acquisitions on economically
acceptable terms resulting in failure to acquire new customers thereby limiting
any increase in revenues; (11) liability 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, including
liability in excess of insurance coverage; (12) political, regulatory and
economic conditions in the United States and in foreign countries; and (13)
interest rate fluctuations and other capital market conditions.
These factors are not necessarily all of the important factors that could cause
actual results to differ materially from those expressed in any of our
forward-looking statements. Other unknown or unpredictable factors could also
have material adverse effects on future results. We undertake no obligation to
update publicly any forward-looking statement whether as a result of new
information or future events except as required by federal securities laws.
- 19 -
AMERIGAS PARTNERS, L.P.
ANALYSIS OF RESULTS OF OPERATIONS
The following analyses compare the Partnership's results of operations for (1)
the three months ended June 30, 2004 ("2004 three-month period") with the three
months ended June 30, 2003 ("2003 three-month period") and (2) the nine months
ended June 30, 2004 ("2004 nine-month period") with the nine months ended June
30, 2003 ("2003 nine-month period"). AmeriGas Finance Corp., AmeriGas Eagle
Finance Corp. and AP Eagle Finance Corp. have nominal assets and do not conduct
any operations. Their sole purpose is to serve as co-obligors for debt
securities issued by AmeriGas Partners, L.P. Accordingly, discussions of the
results of operations and financial condition and liquidity of these entities
are not presented.
2004 THREE-MONTH PERIOD COMPARED WITH 2003 THREE-MONTH PERIOD
Increase
Three Months Ended June 30, 2004 2003 (Decrease)
(millions of dollars) -------- -------- --------------
Gallons sold (millions):
Retail 175.2 182.4 (7.2) (3.9)%
Wholesale 55.0 21.7 33.3 153.5%
-------- -------- -------
230.2 204.1 26.1 12.8%
======== ======== =======
Revenues:
Retail propane $ 247.9 $ 244.2 $ 3.7 1.5%
Wholesale propane 34.6 13.5 21.1 156.3%
Other 32.6 29.4 3.2 10.9%
-------- -------- -------
$ 315.1 $ 287.1 $ 28.0 9.8%
======== ======== =======
Total margin (a) $ 131.1 $ 129.2 $ 1.9 1.5%
EBITDA (b) $ 16.1 $ 12.6 $ 3.5 27.8%
Operating loss $ (4.0) $ (6.5) $ 2.5 38.5%
Net loss $ (24.1) $ (27.4) $ 3.3 12.0%
Heating degree days - % warmer than normal(c) (8.0) (0.5) -- --
(a) Total margin represents total revenues less cost of sales - propane and
cost of sales - other.
(b) EBITDA (earnings before interest expense, income taxes, and depreciation
and amortization) should not be considered as an alternative to net income
(as an indicator of operating performance) or as an alternative to cash
flow (as a measure of liquidity or ability to service debt obligations)
and is not a measure of performance or financial condition under
accounting principles generally accepted in the United States of America.
Management believes EBITDA is a meaningful non-GAAP financial measure used
by investors to compare the Partnership's operating performance with that
of other companies within the propane industry. The Partnership's
definition of EBITDA may be different from that used by other companies.
Weather significantly impacts demand for propane and profitability because
many customers use propane for heating purposes. Due to the seasonal
nature of the Partnership's propane business, EBITDA for interim periods
is not necessarily indicative of amounts to be expected for a full year.
- 20 -
AMERIGAS PARTNERS, L.P.
The following table includes reconciliations of net loss to EBITDA for the
periods presented:
Three Months Ended
June 30,
--------------------------
2004 2003
--------- ------------
Net loss $ (24.1) $ (27.4)
Income tax benefit (0.2) (0.3)
Interest expense 20.5 21.5
Depreciation 18.6 17.8
Amortization 1.3 1.0
--------- ------------
EBITDA $ 16.1 $ 12.6
========= ============
(c) Deviation from average heating degree days based upon national weather
statistics provided by the National Oceanic and Atmospheric Administration
("NOAA") for 335 airports in the United States, excluding Alaska.
Weather based upon heating degree days was 8.0% warmer than normal during the
2004 three-month period compared to weather that was essentially normal in the
prior year three-month period. Notwithstanding the beneficial effects of
acquisitions, retail propane volumes sold decreased 7.2 million gallons in the
2004 three-month period due primarily to the warmer than normal weather and
price related conservation. Low margin wholesale volumes increased 33.3 million
gallons primarily reflecting the effects of product cost hedging activities.
Retail propane revenues increased $3.7 million reflecting a $13.3 million
increase due to higher average selling prices partially offset by a $9.6 million
decrease due to the lower retail volumes sold. Wholesale propane revenues
increased $21.1 million principally reflecting the higher volumes sold due to
product cost hedging activities. Selling prices in the 2004 three-month period
were higher than in the prior-year three-month period as the industry continues
to experience unusually high propane product costs resulting from, among other
things, higher crude oil and natural gas prices. Total cost of sales increased
$26.1 million primarily reflecting the previously mentioned increase in
wholesale volumes sold and higher propane product costs. Total margin increased
$1.9 million principally due to higher average retail propane unit margins
partially offset by the lower retail volumes sold.
EBITDA increased $3.5 million in the 2004 three-month period reflecting (1) the
previously mentioned increase in total margin, (2) a $1.0 million decrease in
operating and administrative expenses and (3) a $0.6 million increase in other
income. The decrease in operating and administrative expenses was due to the
absence of $3.0 million of expenses associated with initiating the management
realignment in June 2003, the continued beneficial effects on operating expenses
of the realignment and lower incentive compensation expenses. These decreases
were partially offset by incremental operating and administrative expenses
associated with the Horizon Propane and Active Propane acquisitions. Operating
loss in the 2004 three-month period improved less than the increase in EBITDA
due to higher depreciation and amortization expense related to recent
acquisitions and higher depreciation associated with PPX(R).
- 21 -
AMERIGAS PARTNERS, L.P.
2004 NINE-MONTH PERIOD COMPARED WITH 2003 NINE-MONTH PERIOD
Increase
Nine Months Ended June 30, 2004 2003 (Decrease)
---------- ---------- -----------------
(millions of dollars)
Gallons sold (millions):
Retail 883.6 900.0 (16.4) (1.8)%
Wholesale 200.3 188.7 11.6 6.1 %
---------- ---------- --------
1,083.9 1,088.7 (4.8) (0.4)%
========== ========== ========
Revenues:
Retail propane $ 1,221.8 $ 1,150.2 $ 71.6 6.2 %
Wholesale propane 138.1 113.2 24.9 22.0 %
Other 103.1 94.3 8.8 9.3 %
---------- ---------- --------
$ 1,463.0 $ 1,357.7 $ 105.3 7.8 %
========== ========== ========
Total margin $ 619.3 $ 595.7 $ 23.6 4.0 %
EBITDA (a) $ 247.3 $ 223.8 $ 23.5 10.5 %
Operating income $ 189.5 $ 173.5 $ 16.0 9.2 %
Net income $ 124.7 $ 103.4 $ 21.3 20.6 %
Heating degree days - % (warmer) colder
than normal (4.6) 0.9 -- --
(a) The following table includes reconciliations of net income to EBITDA for
the periods presented:
Nine Months Ended
June 30,
-----------------
2004 2003
---- ----
Net income $ 124.7 $ 103.4
Income tax expense (benefit) 0.3 (0.4)
Interest expense 62.8 66.0
Depreciation 55.6 51.8
Amortization 3.9 3.0
-------- --------
EBITDA $ 247.3 $ 223.8
======== ========
Based upon heating degree day data, temperatures in the 2004 nine-month period
were 4.6% warmer than normal compared to temperatures that were 0.9% colder than
normal in the prior-year nine-month period. Notwithstanding volume growth from
acquisitions, retail propane volumes sold decreased slightly in the 2004
nine-month period due principally to the effects of the warmer weather in the
2004 nine-month period. Low margin wholesale volumes increased 11.6 million
gallons primarily reflecting the effects of product cost hedging activities.
Retail propane revenues increased $71.6 million as a $92.6 million increase due
to higher average selling prices was partially offset by a $21.0 million
decrease due to the lower retail volumes sold. Wholesale propane revenues
increased $24.9 million due to a $17.9 million increase due to higher average
selling prices and a $7.0 million increase due to the higher volumes sold
relating to product cost hedging activities. Retail and wholesale selling prices
were higher during the 2004 nine-month period principally as a result of the
continued high propane product costs within the industry. Although total propane
volumes decreased slightly, total cost of sales increased $81.7 million
reflecting the effects of higher propane product costs, the
- 22 -
AMERIGAS PARTNERS, L.P.
previously mentioned increase in wholesale volumes sold and, to a lesser extent,
greater costs associated with increased non-propane sales and services.
Total margin increased $23.6 million as a result of (1) recent acquisitions and
higher average retail propane unit margins on reduced gallons sold and (2) a
$4.3 million increase in margin from non-propane sales and services.
Notwithstanding the previously mentioned increase in propane product costs,
retail and wholesale propane unit margins were higher than in the 2003
nine-month period reflecting the effects of higher average selling prices.
EBITDA increased $23.5 million in the 2004 nine-month period reflecting (1) the
previously mentioned increase in total margin, (2) a $4.4 million increase in
other income, and (3) the absence of a $3.0 million loss on extinguishment of
long-term debt in the prior year nine-month period. These increases were
partially offset by a $7.3 million increase in operating and administrative
expenses principally due to higher compensation and distribution expenses
resulting from the impact of Horizon Propane and other recent acquisitions,
partially offset by the absence of $3.0 million of expenses associated with
initiating the management realignment in June 2003 and the continued beneficial
effects on operating expenses of the realignment. Other income in the 2004
nine-month period includes greater income from finance charges and higher
earnings from our equity investment in Atlantic Energy, while other income in
the prior year nine-month period was reduced by a $1.0 million charge associated
with the adoption of SFAS No. 143, "Accounting for Asset Retirement
Obligations."
Operating income in the 2004 nine-month period increased less than the increase
in EBITDA due to higher depreciation and amortization expense related to recent
acquisitions, higher depreciation associated with PPX(R) and the absence of the
aforementioned loss on extinguishment of long-term debt. Net income in the 2004
nine-month period increased to $124.7 million from $103.4 million in the 2003
nine-month period due to (1) the increase in operating income, (2) a $3.2
million decrease in interest expense, and (3) the absence of the aforementioned
$3.0 million loss on extinguishment of long-term debt in the 2003 nine-month
period. Interest expense decreased principally as a result of lower long-term
debt outstanding.
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL CONDITION
The Partnership's long-term debt outstanding at June 30, 2004 totaled $901.6
million (including current maturities of $59.5 million) compared to $927.3
million (including current maturities of $58.7 million) at September 30, 2003.
In April 2004, AmeriGas OLP repaid $53.8 million of maturing First Mortgage
Notes. In conjunction with this repayment, in April 2004, AmeriGas Partners
issued $28 million face amount of 8.875% Senior Notes due 2011 at an effective
rate of 7.18%, and contributed the net proceeds of $30.1 million to AmeriGas
OLP.
AmeriGas OLP's Credit Agreement expires on October 15, 2006 and consists of (1)
a $100 million Revolving Credit Facility and (2) a $75 million Acquisition
Facility. The Revolving Credit Facility may be used for working capital and
general purposes of AmeriGas OLP. The Acquisition Facility provides AmeriGas OLP
with the ability to borrow up to $75 million to finance the purchase of propane
businesses or propane business assets or, to the extent it is not so
- 23 -
AMERIGAS PARTNERS, L.P.
used, for working capital and general purposes. There were no borrowings
outstanding under the Revolving Credit Facility at June 30, 2004. AmeriGas OLP's
short-term borrowing needs are seasonal and are typically greatest during the
fall and winter heating season months due to the need to fund higher levels of
working capital. Issued and outstanding letters of credit under the Revolving
Credit Facility, which reduce the amount of available borrowing capacity,
totaled $42.8 million at June 30, 2004.
AmeriGas OLP also has a credit agreement with the General Partner to borrow up
to $20 million on an unsecured, subordinated basis, for working capital and
general purposes. UGI has agreed to contribute up to $20 million to the General
Partner to fund such borrowings.
AmeriGas Partners periodically issues debt and equity securities and expects to
continue to do so. It has issued debt securities and common units in
underwritten public offerings in each of the last three fiscal years. Most
recently, it has issued debt securities in April 2004 and issued common units in
an underwritten public offering in May 2004. The Partnership has effective debt
and equity shelf registration statements with the SEC under which it may issue
up to an additional (1) 1.4 million AmeriGas Partners Common Units and (2) up to
$446.2 million of debt or equity securities pursuant to an unallocated shelf
registration statement.
During the nine months ended June 30, 2004, the Partnership declared and paid
the minimum quarterly distribution of $0.55 (the "MQD") on all limited partner
units for the quarters ended September 30, 2003, December 31, 2003 and March 31,
2004. The MQD for the quarter ended June 30, 2004 will be paid on August 18,
2004 to holders of record on August 10, 2004. The ability of the Partnership to
declare and pay the MQD on its Common Units in the future depends upon a number
of factors. These factors include (1) the level of Partnership earnings; (2) the
cash needs of the Partnership's operations (including cash needed for
maintaining and increasing operating capacity); (3) changes in operating working
capital; and (4) the Partnership's ability to borrow under its Credit Agreement,
to refinance maturing debt, and to increase its long-term debt. Some of these
factors are affected by conditions beyond our control including weather,
competition in markets we serve and the cost of propane.
CASH FLOWS
OPERATING ACTIVITIES. The Partnership had cash and cash equivalents totaling
$23.3 million at June 30, 2004 compared to $45.9 million at September 30, 2003.
Due to the seasonal nature of the propane business, cash flows from operating
activities are generally strongest during the second and third fiscal quarters
when customers pay for propane purchased during the heating season months.
Conversely, operating cash flows are generally at their lowest levels during the
first and fourth fiscal quarters when the Partnership's investment in working
capital, principally accounts receivable and inventories, is generally greatest.
Accordingly, cash flows from operating activities during the nine months ended
June 30, 2004 are not necessarily indicative of cash flows to be expected for a
full year. The Partnership uses its Credit Agreement to satisfy its seasonal
cash flow needs. Cash flow provided by operating activities increased to $109.0
million during the 2004 nine-month period from $87.2 million in the prior-year
nine-month period due to improved operating results. Cash flow from operating
activities before changes in working capital was $191.7 million in the 2004
nine-month period compared to $169.2 million in the prior-year nine-month
period. Cash required to fund changes in operating working capital during
- 24 -
AMERIGAS PARTNERS, L.P.
the 2004 nine-month period totaled $82.7 million, comparable to the $82.0
million required in the prior-year nine-month period.
INVESTING ACTIVITIES. We spent $44.6 million for property, plant and equipment
(including maintenance capital expenditures of $15.1 million and growth capital
expenditures of $29.5 million) during the nine months ended June 30, 2004
compared to $43.4 million (including maintenance capital expenditures of $16.2
million and growth capital expenditures of $27.2 million) during the prior-year
nine-month period. The slight increase is due to greater expenditures relating
to growth initiatives partially offset by lower PPX(R) capital expenditures
associated with purchases of overfill protection devices ("OPDs"). The increase
in proceeds received from disposals of assets reflects the sale of three
district locations during the 2004 nine-month period. During the nine months
ended June 30, 2004, the Partnership acquired Horizon Propane and several
smaller propane distribution businesses for $33.4 million.
FINANCING ACTIVITIES. Cash flow used by financing activities was $61.5 million
in the 2004 nine-month period compared to $36.2 million in the prior-year
period. Financing activity is primarily the result of repayments and issuances
of long-term debt, borrowings under our Credit Agreement, issuances of Common
Units and distributions on limited partner units.
In April 2004, AmeriGas OLP repaid $53.8 million face amount of maturing First
Mortgage Notes. In conjunction with this repayment, AmeriGas Partners issued $28
million face amount of 8.875% Senior Notes due 2011 at an effective rate of
7.18%, and contributed the net proceeds of $30.1 million to AmeriGas OLP.
In May 2004, AmeriGas Partners sold 2,000,000 Common Units in an underwritten
public offering. In June 2004, the underwriters partially exercised their
overallotment option in the amount of 100,000 Common Units. The net proceeds of
the public offering and the related capital contribution from the General
Partner were contributed to AmeriGas OLP and used to reduce indebtedness under
its Credit Agreement and for general partnership purposes.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2003, the Financial Accounting Standards Board ("FASB") revised
Financial Interpretation No. 46, "Consolidation of Variable Interest Entities"
("FIN 46"), which was originally issued in January 2003 and clarifies Accounting
Research Bulletin No. 51, "Consolidated Financial Statements." FIN 46 was
effective immediately for variable interest entities created or obtained after
January 31, 2003. For variable interest entities created or acquired before
February 1, 2003, FIN 46 was effective beginning with our interim period ended
March 31, 2004. If certain conditions are met, FIN 46 requires the primary
beneficiary to consolidate certain variable interest entities. The Partnership
has not created or obtained any variable interest entities prior to, or after
January 31, 2003. Therefore, the adoption of FIN 46 did not affect the
Partnership's financial position or results of operations.
Effective April 2004, the Partnership adopted Emerging Issues Task Force Issue
No. 03-6, "Participating Securities and the Two-Class Method under FASB
Statement No. 128" ("EITF 03-6"), which results in the calculation of net income
per limited partner unit for each period according to distributions declared and
participation rights in undistributed earnings, as if all of the earnings for
the period had been distributed. In periods with undistributed earnings above
- 25 -
AMERIGAS PARTNERS, L.P.
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 the first three fiscal quarters. EITF 03-6 is
not expected to impact net income per limited partner unit for the fiscal year.
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. This agreement has interest rates that are generally indexed to
short-term market interest rates. Our long-term debt is typically issued at
fixed rates of interest based upon market rates for debt having similar terms
and credit ratings. As these long-term debt issues mature, we may refinance such
debt with new debt having interest rates reflecting then-current market
conditions. This debt may have an interest rate that is more or less than the
refinanced debt. In order to reduce interest rate risk associated with near-term
forecasted issuances of fixed-rate debt, from time to time we enter into
interest rate protection agreements.
- 26 -
AMERIGAS PARTNERS, L.P.
The following table summarizes the fair values of unsettled market risk
sensitive derivative instruments held at June 30, 2004. Fair values reflect the
estimated amounts that we would receive or pay to terminate the contracts at the
reporting date based upon quoted market prices of comparable contracts at June
30, 2004. The table also includes the changes in fair value that would result if
there were an adverse change of ten percent in (1) the market price of propane
and (2) interest rates on ten-year U.S. treasury notes:
Fair Change in
Value Fair Value
----- ----------
(Millions of dollars)
June 30, 2004:
Propane commodity price risk $ 2.7 $ (6.5)
Interest rate risk 2.0 (3.9)
----- ------
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.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Partnership's management, with the participation of the Partnership's
Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the Partnership's disclosure controls and procedures as
of the end of the period covered by this report. Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the
Partnership's disclosure controls and procedures as of the end of the
period covered by this report were designed and functioning effectively to
provide reasonable assurance that the information required to be disclosed
by the Partnership in reports filed under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms. The Partnership
believes that a controls system, no matter how well designed and operated,
cannot provide absolute assurance that the objectives of the controls
system are met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within a
company have been detected.
(b) Change in Internal Control over Financial Reporting
No change in the Partnership's internal control over financial reporting
occurred during the Partnership's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the
Partnership's internal control over financial reporting.
- 27 -
AMERIGAS PARTNERS, L.P.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
10.1 AmeriGas Propane, Inc. Executive Employee Severance Pay Plan,
as amended December 15, 2003.
10.2 AmeriGas Propane, Inc. 2000 Long-Term Incentive Plan on Behalf
of AmeriGas Partners, L.P., as amended December 15, 2003.
10.3 UGI Corporation 2004 Omnibus Equity Compensation Plan,
effective as of January 1, 2004. (Incorporated by reference to
Exhibit 99.1 of UGI Corporation's Registration Statement No.
333-118147).
10.4 UGI Corporation 2000 Stock Incentive Plan Amended and Restated
as of December 16, 2003. (Incorporated by reference to Exhibit
10.2 of UGI Corporation's Quarterly Report on Form 10-Q for
the period ended June 30, 2004).
31.1 Certification by the Chief Executive Officer relating to the
Registrants' Report on Form 10-Q for the quarter ended June
30, 2004, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification by the Chief Financial Officer relating to the
Registrants' Report on Form 10-Q for the quarter ended June
30, 2004, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
*32 Certification by the Chief Executive Officer and the Chief
Financial Officer relating to the Registrant's Report on Form
10-Q for the quarter ended June 30, 2004, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
- ----------------------
* This Exhibit shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise
subject to liability under that section, nor shall it be deemed incorporated by
reference in any filing under the Securities Act of 1933, as amended, or the
Exchange Act, except as expressly set forth by specific reference in such
filing.
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AMERIGAS PARTNERS, L.P.
(b) The Registrant furnished and filed information in a Current Report on Form
8-K during the third quarter of fiscal year 2004 as follows:
DATE ITEM NUMBER(s) CONTENT
- ---- -------------- -------
April 28, 2004 12 Press release reporting financial results for the fiscal
quarter ended March 31, 2004
April 29, 2004 5, 7 Underwriting Agreement dated April 22, 2004 and Fourth
Supplemental Indenture dated April 27, 2004 pertaining
to AmeriGas Partners, L.P. 8.875% Series B Senior Notes
due 2011.
May 24, 2004 5, 7 Underwriting Agreement dated May 20, 2004, pertaining to
AmeriGas Partners, L.P. Common Unit offering.
- 29 -
AMERIGAS PARTNERS, L.P.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
AmeriGas Partners, L.P.
-------------------------
(Registrant)
By: AmeriGas Propane, Inc.,
as General Partner
Date: August 13, 2004 By: /s/ Martha B. Lindsay
-----------------------
Martha B. Lindsay
Vice President - Finance
and Chief Financial Officer
By: /s/ Richard R. Eynon
-----------------------
Richard R. Eynon
Controller and Chief Accounting Officer
AmeriGas Finance Corp.
--------------------------
(Registrant)
Date: August 13, 2004 By: /s/ Martha B. Lindsay
-----------------------
Martha B. Lindsay
Vice President - Finance
and Chief Financial Officer
By: /s/ Richard R. Eynon
-------------------------------
Richard R. Eynon
Controller and Chief Accounting Officer
AmeriGas Eagle Finance Corp.
-----------------------------
(Registrant)
Date: August 13, 2004 By: /s/ Martha B. Lindsay
-------------------------------
Martha B. Lindsay
Vice President - Finance
and Chief Financial Officer
By: /s/ Richard R. Eynon
----------------------------------
Richard R. Eynon
Controller and Chief Accounting Officer
- 30 -
AMERIGAS PARTNERS, L.P.
AP Eagle Finance Corp.
----------------------------------
(Registrant)
Date: August 13, 2004 By: /s/ Martha B. Lindsay
-------------------------------
Martha B. Lindsay
Vice President - Finance
and Chief Financial Officer
By: /s/ Richard R. Eynon
----------------------------
Richard R. Eynon
Controller and Chief Accounting Officer
- 31 -
AMERIGAS PARTNERS, L.P.
EXHIBIT INDEX
10.1 AmeriGas Propane, Inc. Executive Employee Severance Pay Plan, as amended
December 15, 2003.
10.2 AmeriGas Propane, Inc. 2000 Long-Term Incentive Plan on Behalf of AmeriGas
Partners, L.P., as amended December 15, 2003.
10.3 UGI Corporation 2004 Omnibus Equity Compensation Plan, effective as of
January 1, 2004. (Incorporated by reference to Exhibit 99.1 of UGI
Corporation's Registration Statement No. 333-118147).
10.4 UGI Corporation 2000 Stock Incentive Plan Amended and Restated as of
December 16, 2003. (Incorporated by reference to Exhibit 10.2 of UGI
Corporation's Quarterly Report on Form 10-Q for the period ended June 30,
2004).
31.1 Certification by the Chief Executive Officer relating to the Registrants'
Report on Form 10-Q for the quarter ended June 30, 2004, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by the Chief Financial Officer relating to the Registrants'
Report on Form 10-Q for the quarter ended June 30, 2004, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
*32 Certification by the Chief Executive Officer and the Chief Financial
Officer relating to the Registrant's Report on Form 10-Q for the quarter
ended June 30, 2004, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
- ------------------
* This Exhibit shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
otherwise subject to liability under that section, nor shall it be deemed
incorporated by reference in any filing under the Securities Act of 1933,
as amended, or the Exchange Act, except as expressly set forth by specific
reference in such filing.