Filed by Bowne Pure Compliance
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2008
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-13692
AMERIGAS PARTNERS, L.P.
(Exact name of registrant as specified in its charters)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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23-2787918
(I.R.S. Employer
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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
At
January 31, 2009, there were 57,046,388 Common Units of AmeriGas Partners, L.P.
outstanding.
AMERIGAS PARTNERS, L.P.
TABLE OF CONTENTS
-i-
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Thousands of dollars)
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December 31, |
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September 30, |
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December 31, |
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2008 |
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2008 |
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2007 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
42,032 |
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$ |
10,909 |
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$ |
14,158 |
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Accounts receivable (less allowances for doubtful accounts of $24,610,
$20,215 and $15,591, respectively) |
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267,057 |
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218,411 |
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322,419 |
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Accounts receivable related parties |
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4,888 |
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5,130 |
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4,237 |
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Inventories |
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105,646 |
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144,206 |
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155,243 |
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Derivative financial instruments |
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600 |
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13 |
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36,249 |
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Collateral deposits |
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131,784 |
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17,830 |
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Prepaid expenses and other current assets |
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15,856 |
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28,597 |
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8,570 |
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Total current assets |
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567,863 |
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425,096 |
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540,876 |
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Property, plant and equipment (less accumulated depreciation and
amortization of $752,464, $743,097 and $695,085, respectively) |
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622,639 |
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616,834 |
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630,269 |
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Goodwill |
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660,597 |
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640,843 |
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639,350 |
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Intangible assets (less accumulated amortization of $21,350, $20,033 and
$30,417, respectively) |
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31,433 |
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27,579 |
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28,646 |
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Other assets |
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14,476 |
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14,721 |
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16,496 |
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Total assets |
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$ |
1,897,008 |
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$ |
1,725,073 |
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$ |
1,855,637 |
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LIABILITIES AND PARTNERS CAPITAL |
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Current liabilities: |
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Current maturities of long-term debt |
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$ |
71,249 |
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$ |
71,466 |
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$ |
1,660 |
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Bank loans |
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146,000 |
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67,000 |
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Accounts payable trade |
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179,066 |
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172,800 |
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259,095 |
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Accounts payable related parties |
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1,830 |
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2,017 |
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3,881 |
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Employee compensation and benefits accrued |
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22,987 |
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31,408 |
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18,893 |
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Interest accrued |
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12,259 |
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23,490 |
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12,623 |
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Customer deposits and advances |
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83,148 |
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106,946 |
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82,566 |
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Derivative financial instruments |
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158,369 |
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55,792 |
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Other current liabilities |
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51,240 |
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68,642 |
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52,420 |
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Total current liabilities |
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726,148 |
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532,561 |
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498,138 |
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Long-term debt |
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861,756 |
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861,924 |
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930,889 |
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Other noncurrent liabilities |
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89,047 |
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72,490 |
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67,197 |
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Commitments and contingencies (note 1) |
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Minority interests |
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10,225 |
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10,723 |
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11,642 |
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Partners capital |
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209,832 |
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247,375 |
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347,771 |
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Total liabilities and partners capital |
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$ |
1,897,008 |
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$ |
1,725,073 |
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$ |
1,855,637 |
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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 amounts)
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Three Months Ended |
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December 31, |
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2008 |
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2007 |
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Revenues: |
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Propane |
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$ |
678,628 |
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$ |
699,669 |
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Other |
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48,436 |
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48,499 |
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727,064 |
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748,168 |
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Costs and expenses: |
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Cost of sales propane (excluding depreciation shown below) |
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428,469 |
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487,865 |
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Cost of sales other (excluding depreciation shown below) |
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17,069 |
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18,482 |
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Operating and administrative expenses |
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159,985 |
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152,884 |
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Depreciation and amortization |
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20,743 |
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19,824 |
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Gain on sale of California storage facility |
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(39,887 |
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Other income, net |
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(4,081 |
) |
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(4,845 |
) |
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582,298 |
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674,210 |
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Operating income |
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144,766 |
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73,958 |
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Interest expense |
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(18,725 |
) |
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(18,230 |
) |
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Income before income taxes and minority interests |
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126,041 |
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55,728 |
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Income taxes |
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(637 |
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(693 |
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Minority interests |
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(1,441 |
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(730 |
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Net income |
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$ |
123,963 |
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$ |
54,305 |
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General partners interest in net income |
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$ |
1,545 |
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$ |
587 |
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Limited partners interest in net income |
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$ |
122,418 |
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$ |
53,718 |
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Income per limited partner unit basic and diluted (note 1) |
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$ |
1.50 |
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$ |
0.87 |
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Average limited partner units outstanding (thousands): |
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Basic |
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57,014 |
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56,993 |
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Diluted |
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57,062 |
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57,036 |
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See accompanying notes to condensed consolidated financial statements.
- 2 -
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Thousands of dollars)
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Three Months Ended |
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December 31, |
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2008 |
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2007 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
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$ |
123,963 |
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$ |
54,305 |
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Adjustments to reconcile net income to net
cash from operating activities: |
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Depreciation and amortization |
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20,743 |
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19,824 |
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Provision for uncollectible accounts |
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8,589 |
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3,394 |
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Gain on sale of California LPG storage facility |
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(39,887 |
) |
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Net change in settled accumulated other comprehensive income |
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(11,408 |
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2,439 |
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Other, net |
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(149 |
) |
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(1,536 |
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Net change in: |
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Accounts receivable |
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(56,193 |
) |
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(142,328 |
) |
Inventories |
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39,663 |
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(30,403 |
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Accounts payable |
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5,342 |
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96,296 |
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Collateral deposits |
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(113,954 |
) |
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Other current assets |
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12,740 |
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1,554 |
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Other current liabilities |
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(57,449 |
) |
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(41,801 |
) |
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Net cash used by operating activities |
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(68,000 |
) |
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(38,256 |
) |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Expenditures for property, plant and equipment |
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(19,139 |
) |
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(18,183 |
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Proceeds from disposals of assets |
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1,605 |
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4,435 |
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Net proceeds from sale of California LPG storage facility |
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42,426 |
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Acquisitions of businesses, net of cash acquired |
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(33,784 |
) |
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1,157 |
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Net cash used by investing activities |
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(8,892 |
) |
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(12,591 |
) |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Distributions |
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(37,166 |
) |
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(35,161 |
) |
Minority interest activity |
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(667 |
) |
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(647 |
) |
Increase in bank loans |
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146,000 |
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67,000 |
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Repayment of long-term debt |
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(271 |
) |
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(385 |
) |
Proceeds from issuance of Common Units |
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118 |
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162 |
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Capital contributions from General Partner |
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1 |
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2 |
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Net cash provided by financing activities |
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108,015 |
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30,971 |
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Cash and cash equivalents increase (decrease) |
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$ |
31,123 |
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$ |
(19,876 |
) |
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CASH AND CASH EQUIVALENTS: |
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End of period |
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$ |
42,032 |
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$ |
14,158 |
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Beginning of period |
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10,909 |
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|
34,034 |
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Increase (decrease) |
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$ |
31,123 |
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$ |
(19,876 |
) |
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See accompanying notes to condensed consolidated financial statements.
- 3 -
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL
(unaudited)
(Thousands of dollars, except unit data)
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Accumulated |
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other |
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Total |
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Number of |
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Common |
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General |
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comprehensive |
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partners |
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Common Units |
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unitholders |
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partner |
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income (loss) |
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capital |
|
Balance September 30, 2008 |
|
|
57,009,951 |
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|
$ |
308,186 |
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|
$ |
3,094 |
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|
$ |
(63,905 |
) |
|
$ |
247,375 |
|
Net income |
|
|
|
|
|
|
122,418 |
|
|
|
1,545 |
|
|
|
|
|
|
|
123,963 |
|
Net losses on derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(179,913 |
) |
|
|
(179,913 |
) |
Reclassification of net losses on
derivative instruments |
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|
|
|
|
|
|
|
|
|
|
|
|
|
55,337 |
|
|
|
55,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Comprehensive loss |
|
|
|
|
|
|
122,418 |
|
|
|
1,545 |
|
|
|
(124,576 |
) |
|
|
(613 |
) |
Distributions |
|
|
|
|
|
|
(36,489 |
) |
|
|
(677 |
) |
|
|
|
|
|
|
(37,166 |
) |
Unit-based compensation expense |
|
|
|
|
|
|
117 |
|
|
|
|
|
|
|
|
|
|
|
117 |
|
Common Units issued in connection
with incentive compensation plans |
|
|
4,000 |
|
|
|
118 |
|
|
|
1 |
|
|
|
|
|
|
|
119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008 |
|
|
57,013,951 |
|
|
$ |
394,350 |
|
|
$ |
3,963 |
|
|
$ |
(188,481 |
) |
|
$ |
209,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
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 OLPs 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 Partners) 1.01% interest in AmeriGas OLP and an unrelated third partys
approximate 0.1% limited partner interest in Eagle OLP as minority interests in the
condensed consolidated financial statements. AmeriGas Propane, Inc. is an indirect wholly
owned subsidiary of UGI Corporation (UGI).
AmeriGas Finance Corp., AmeriGas Eagle Finance Corp. and AP Eagle Finance Corp. are wholly
owned finance subsidiaries of AmeriGas Partners. Their sole purpose is to serve as
co-obligors for debt securities issued by AmeriGas Partners.
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, 2008 condensed
consolidated balance sheet data were derived from audited financial statements, but do not
include all disclosures required by accounting principles generally accepted in the United
States of America (GAAP). 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, 2008. Weather significantly impacts demand for propane and
profitability because many customers use propane for heating purposes. Due to the seasonal
nature of the Partnerships propane business, the results of operations for interim periods
are not necessarily indicative of the results to be expected for a full year.
Allocation
of Net Income. Net income for partners capital and statement of
operations presentation purposes is allocated to the General Partner and the limited
partners in accordance with their respective ownership percentages after giving effect to
amounts distributed to the General Partner in excess of its 1% general partner interest in
AmeriGas Partners (incentive distributions), if any, in accordance with the Third Amended
and Restated Agreement of Limited Partnership of AmeriGas Partners as amended by Amendment
No. 1.
- 5 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
Net Income Per Unit. Income per limited partner unit is computed in
accordance with Emerging Issues Task Force (EITF) Issue No. 03-6, Participating
Securities and the Two-Class Method under Financial Accounting Standards Board (FASB)
Statement No. 128 (EITF 03-6), by dividing the limited partners interest in net income
by the weighted average number of limited partner units outstanding. The two class
method requires that income per limited partner unit be calculated as if all earnings for
the period were distributed and requires a separate calculation for each quarter and
year-to-date period. Thus, in periods when our net income exceeds our aggregate
distributions paid and undistributed earnings are above certain levels, the calculation
according to the two-class method results in an increased allocation of undistributed
earnings to the General Partner. Due to the seasonality of the propane business, EITF 03-6
will typically impact net income per limited partner unit for our first three fiscal
quarters. Theoretical distributions of net income in accordance with EITF 03-6 for the three
months ended December 31, 2008 and 2007 resulted in an increased allocation of net income to
the General Partner in the computation of income per limited partner unit which had the
effect of decreasing earnings per limited partner unit by $0.65 and $0.07, respectively.
Potentially dilutive Common Units included in the diluted limited partner units outstanding
computation reflect the effects of restricted Common Unit awards granted under the General
Partners incentive compensation plans.
Comprehensive Income (Loss). The following table presents the components of comprehensive
income (loss) for the three months ended December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Net income |
|
$ |
123,963 |
|
|
$ |
54,305 |
|
Other comprehensive (loss) income |
|
|
(124,576 |
) |
|
|
17,105 |
|
|
|
|
|
|
|
|
Comprehensive (loss) income |
|
$ |
(613 |
) |
|
$ |
71,410 |
|
|
|
|
|
|
|
|
Other comprehensive (loss) income is principally the result of changes in the fair value of
propane commodity derivative instruments and interest rate protection agreements, net of
reclassifications of net gains and losses to net income. The significant increase in other
comprehensive loss for the three months ended December 31, 2008 reflects the effect of a
significant decrease in wholesale propane prices on the fair values of propane commodity
derivative instruments.
Reclassifications. We have reclassified certain prior-year balances to conform to the
current-period presentation.
- 6 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
Use of Estimates. We make estimates and assumptions when preparing financial statements in
conformity with GAAP. 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.
Newly Adopted Accounting Standards. We adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157), effective
October 1, 2008. SFAS 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures about fair value
measurements. In February 2008, the FASB issued two FASB
Staff Positions (FSPs) amending SFAS 157. FSP SFAS 157-1 amends SFAS 157 to exclude SFAS
No. 13, Accounting for Leases, and its related interpretive accounting pronouncements that
address leasing transactions. FSP SFAS 157-2 delays the effective date of SFAS 157 until
fiscal years beginning after November 15, 2008 for non-financial assets and liabilities that
are recognized or disclosed at fair value in the financial statements on a non-recurring
basis. The standard, as amended by FSP SFAS 157-1 and FSP
SFAS 157-2, applies to new fair value measurements for the
Partnership as follows: effective October 1, 2008 (Fiscal 2009)
the standard applies to our measurements of fair values of financial
instruments and recurring fair value measurement of non-financial
assets and liabilities; on October 1, 2009 (Fiscal 2010), the
standard will apply to all remaining fair value measurements
including nonrecurring measurements of non-financial assets and
liabilities such as potential impairments of goodwill, other
intangible assets and other long-lived assets. It will also apply to
non-financial assets acquired and liabilities assumed that are
initially measured at fair value in a business combination but that
are not subject to remeasurement at fair value in subsequent periods. In October 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active, which clarifies the
application of SFAS 157 to financial assets in a market that is not active. FSP 157-3 allows
for the use of unobservable inputs in determining the fair value of a financial asset when
relevant observable inputs do not exist or when observable inputs require significant
adjustment based on unobservable data. FSP 157-3 did not have an impact on our results of
operations or financial condition. See Note 5 for further information on fair value
measurements in accordance with SFAS 157.
Effective October 1, 2008, we adopted FSP No. FIN 39-1, Amendment of FASB Interpretation
No. 39 (FSP 39-1). FSP 39-1 permits companies to offset fair value amounts recognized for
the right to reclaim cash collateral (a receivable) or the obligation to return cash
collateral (a payable) against fair value amounts recognized for derivative instruments
executed with the same counterparty under a master netting agreement. In addition, upon the
adoption, companies are permitted to change their accounting policy to offset or not offset
fair value amounts recognized for derivative instruments under master netting arrangements.
FSP 39-1 requires retrospective application for all periods presented. We have elected to
continue our policy of reflecting derivative asset or liability positions, as well as cash
collateral, on a gross basis in our Condensed Consolidated Balance Sheets. Accordingly, the
adoption of FSP 39-1 did not impact our financial statements.
Also effective October 1, 2008, we adopted SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities (SFAS 159). Under SFAS 159, we may elect to
report individual financial instruments and certain items at fair value with changes in fair
value reported in earnings. Once made, this election is irrevocable for those items. The
adoption of SFAS 159 did not impact our financial statements.
- 7 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
Recently Issued Accounting Standards Not Yet Adopted. In April 2008, the FASB issued FSP No.
SFAS 142-3, Determination of the Useful Life of Intangible Assets (FSP SFAS 142-3). FSP
SFAS 142-3 amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset under SFAS
No. 142, Goodwill and Other Intangible Assets (SFAS 142). The intent of FSP SFAS 142-3
is to improve the consistency between the useful life of a recognized intangible asset under
SFAS 142 and the period of expected cash flows used to measure the fair value of the asset
under SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R) and other
applicable accounting literature. FSP SFAS 142-3 is effective for financial statements
issued for fiscal years beginning after December 15, 2008 (Fiscal 2010) and must be applied
prospectively to intangible assets acquired after the effective date. We are currently
evaluating the provisions of FSP SFAS 142-3.
In March 2008, the FASB ratified the consensus reached in EITF 07-4, Application of the
Two-Class Method under FAS 128 to Master Limited Partnerships (EITF 07-4). EITF 07-4
addresses the application of the two-class method for master limited partnerships when
incentive distribution rights are present and entitle the holder of such rights to a portion
of the distributions. EITF 07-4 states that when earnings exceed distributions, the
computation of earnings per unit should be based on the terms of the partnership agreement.
Accordingly, any contractual limitations on the distributions to incentive distribution
rights holders would need to be determined for each reporting period. If distributions are
contractually limited to the holder of the incentive distribution rights holders share of
currently designated available cash as defined in the partnership agreement, undistributed
earnings in excess of available cash should not be allocated with respect to the incentive
distribution rights. EITF 07-4 is effective for fiscal years that begin after December 15,
2008 (Fiscal 2010), and would be accounted for as a change in accounting principle and
applied retrospectively. Early adoption of EITF 07-4 is not permitted. We are currently
evaluating the impact of EITF 07-4 on our income (loss) per limited partner unit
calculation.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities (SFAS 161). SFAS 161 requires enhanced disclosures in the following
areas: (1) qualitative disclosures about the overall objectives and strategies for using
derivatives; (2) quantitative disclosures of the fair value of the derivative instruments
and related gains and losses in a tabular format; and (3) credit-risk-related contingent
features in derivative instruments. SFAS 161 is effective for fiscal years and interim
periods beginning after November 15, 2008 (second quarter of Fiscal 2009). We are currently
evaluating the impact of the provisions of SFAS 161 on our future disclosures.
- 8 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
In December 2007, the FASB issued SFAS 141R, Business Combinations. SFAS 141R applies to
all transactions or other events in which an entity obtains control of one or more
businesses. SFAS 141R establishes, among other things, principles and
requirements for how the acquirer (1) recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest
in the acquiree; (2) recognizes and measures the goodwill acquired in a business combination
or gain from a bargain purchase; and (3) determines what information with respect to a
business combination should be disclosed. SFAS 141R applies prospectively to business
combinations for which the acquisition date is on or after the first annual reporting period
beginning on or after December 15, 2008 (Fiscal 2010). Among the more significant changes in
accounting for acquisitions are (1) transaction costs will generally be expensed (rather
than being included as costs of the acquisition), (2) contingencies, including contingent
consideration, will generally be recorded at fair value with subsequent adjustments
recognized in operations (rather than as adjustments to the purchase price) and (3)
decreases in valuation allowances on acquired deferred tax assets will be recognized in
operations (rather than decreases in goodwill). Generally, the effects of SFAS 141R will
depend on future acquisitions.
Also in December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB No. 51 (SFAS 160). SFAS 160 is
effective for us on October 1, 2009 (Fiscal 2010). This standard will significantly change
the accounting and reporting relating to noncontrolling interests in a consolidated
subsidiary. After adoption, noncontrolling interests ($10,225, $10,723 and $11,642 at
December 31, 2008, September 30, 2008 and December 31, 2007, respectively) will be
classified as partners capital, a change from its current classification as minority
interests between liabilities and partners capital. Earnings attributable to minority
interests ($1,441 and $730 in the three months ended December 31, 2008 and 2007,
respectively) will be included in net income although such income, in accordance with EITF
03-06 or EITF 07-04, when adopted, will continue to be deducted to measure income per
limited partner unit. In addition, changes in a parents ownership interest while retaining
control will be accounted for as equity transactions and any retained noncontrolling equity
investments in a former subsidiary will be initially measured at fair value.
2. |
|
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 $90,750 and
$89,285 during the three months ended December 31, 2008 and 2007, respectively, include
employee compensation and benefit expenses of employees of the General Partner and general
and administrative expenses.
- 9 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
UGI provides certain financial and administrative services to the General Partner. UGI
bills the General Partner for all direct and indirect corporate expenses incurred in
connection with providing these services and the General Partner is reimbursed by the
Partnership for these expenses. The allocation of indirect UGI corporate expenses to the
Partnership utilizes a weighted, three-component formula comprising revenues, operating
expenses and net assets employed and considers the Partnerships relative percentage of such
items to the total of such items for all UGIs operating subsidiaries for which general and
administrative services are provided. Management believes that this allocation method is
reasonable and equitable to the Partnership. Such corporate expenses totaled $2,249 and
$1,351 during the three months ended December 31, 2008 and 2007, respectively. In addition,
UGI and certain of its subsidiaries provide office space, medical stop loss coverage and
automobile liability insurance to the Partnership. These costs totaled $813 and $511 during
the three months ended December 31, 2008 and 2007, respectively.
AmeriGas OLP purchases propane from UGI Energy Services, Inc. and subsidiaries (Energy
Services), which is owned by an affiliate of UGI. Purchases of propane by AmeriGas OLP
from Energy Services totaled $5,874 and $13,341 during the three months ended December 31,
2008 and 2007, respectively. Amounts due to Energy Services totaled $1,081, $1,309 and
$3,751 at December 31, 2008, September 30, 2008 and December 31, 2007, respectively, and are
reflected in accounts payable related parties in the Condensed Consolidated Balance
Sheets.
On October 1, 2008, AmeriGas OLP acquired all of the assets of Penn Fuel Propane, LLC (now
named UGI Central Penn Propane, LLC, CPP) from CPP, a second-tier subsidiary of UGI
Utilities, Inc, for $32,000 cash plus estimated working capital of $1,621. UGI Utilities,
Inc is a wholly owned subsidiary of UGI. CPP sold propane to customers primarily in eastern
Pennsylvania. AmeriGas OLP funded the acquisition of the assets of CPP principally from
borrowings under its Credit Agreement.
3. |
|
Commitments and Contingencies |
On August 21, 2001, AmeriGas Partners, through AmeriGas OLP, acquired the propane
distribution businesses of Columbia Energy Group (the 2001 Acquisition) pursuant to the
terms of a purchase agreement (the 2001 Acquisition Agreement) by and among Columbia
Energy Group (CEG), Columbia Propane Corporation (Columbia Propane), Columbia Propane,
L.P. (CPLP), CP Holdings, Inc. (CPH, and together with Columbia Propane and CPLP, the
Company Parties), AmeriGas Partners, AmeriGas OLP and the General Partner (together with
AmeriGas Partners and AmeriGas OLP, the Buyer Parties). As a result of the 2001
Acquisition, AmeriGas OLP acquired all of the stock of Columbia Propane and CPH and
substantially all of the partnership interests of CPLP. Under the terms of an earlier
acquisition agreement (the 1999 Acquisition Agreement), the Company Parties agreed to
indemnify the former general partners of National Propane Partners, L.P. (a predecessor
company of the Columbia Propane businesses) and an affiliate (collectively, National
General Partners) against certain income tax and other losses that they may sustain as a
result of the 1999 acquisition by CPLP of National Propane Partners, L.P. (the 1999
Acquisition) or the operation of the business
- 10 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
after the 1999 Acquisition (National
Claims). At December 31, 2008, the potential amount payable under this indemnity by the Company Parties was
approximately $58,000. These indemnity obligations will expire on the date that CPH acquires
the remaining outstanding partnership interest of CPLP, which is expected to occur on or
after July 19, 2009. Under the terms of the 2001 Acquisition Agreement, CEG agreed to
indemnify the Buyer Parties and the Company Parties against any losses that they sustain
under the 1999 Acquisition Agreement and related agreements (Losses), including National
Claims, to the extent such claims are based on acts or omissions of CEG or the Company
Parties prior to the 2001 Acquisition. The Buyer Parties agreed to indemnify CEG against
Losses, including National Claims, to the extent such claims are based on acts or omissions
of the Buyer Parties or the Company Parties after the 2001 Acquisition. CEG and the Buyer
Parties have agreed to apportion certain losses resulting from National Claims to the extent
such losses result from the 2001 Acquisition itself. We believe that liability under such
indemnity agreement is remote.
Samuel and Brenda Swiger and their son (the Swigers) sustained personal injuries and
property damage as a result of a fire that occurred when propane that leaked from an
underground line ignited. In July 1998, the Swigers filed a class action lawsuit against
AmeriGas Propane, L.P. (named incorrectly as UGI/AmeriGas, Inc.), in the Circuit Court of
Monongalia County, West Virginia, in which they sought to recover an unspecified amount of
compensatory and punitive damages and attorneys fees, for themselves and on behalf of
persons in West Virginia for whom the defendants had installed propane gas lines, resulting
from the defendants alleged failure to install underground propane lines at depths required
by applicable safety standards. In 2003, we settled the individual personal injury and
property damage claims of the Swigers. In 2004, the court granted the plaintiffs motion to
include customers acquired from Columbia Propane in August 2001 as additional potential
class members and the plaintiffs amended their complaint to name additional parties pursuant
to such ruling. Subsequently, in March 2005, we filed a cross-claim against CEG, former
owner of Columbia Propane, seeking indemnification for conduct undertaken by Columbia
Propane prior to our acquisition. Class counsel has indicated that the class is seeking
compensatory damages in excess of $12,000 plus punitive damages, civil penalties and
attorneys fees.
In 2005, the Swigers filed what purports to be a class action in the Circuit Court of
Harrison County, West Virginia against UGI, an insurance subsidiary of UGI, certain officers
of UGI and the General Partner, and their insurance carriers and insurance adjusters. In the
Harrison County lawsuit, the Swigers are seeking compensatory and punitive damages on behalf
of the putative class for violations of the West Virginia Insurance Unfair Trade Practice
Act, negligence, intentional misconduct, and civil conspiracy. The Swigers have also
requested that the Court rule that insurance coverage exists under the policies issued by
the defendant insurance companies for damages sustained by the members of the class in the
Monongalia County lawsuit. The Circuit Court of Harrison County has not certified the class
in the Harrison County lawsuit at this time and, in October 2008, stayed that lawsuit
pending resolution of the class action
lawsuit in Monongalia County. We believe we have good defenses to the claims in both
actions.
- 11 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
By letter dated March 6, 2008, the New York State Department of Environmental Conservation
(DEC) notified AmeriGas OLP that DEC had placed property owned by the Partnership in
Saranac Lake, New York on its Registry of Inactive Hazardous Waste Disposal Sites. A site
characterization study performed by DEC disclosed contamination related to former
manufactured gas plant operations on the site. DEC has classified the site as a significant
threat to public health or environment with further action required. The Partnership has
researched the history of the site and its ownership interest in the site. The Partnership
has reviewed the preliminary site characterization study prepared by the DEC and the
possible existence of other potentially responsible parties. Because of the preliminary
nature of available environmental information, the amount of expected clean up costs cannot
be reasonably estimated. When such expected clean up costs can be reasonably estimated, it
is possible that the amount could be material to the Partnerships results of operations.
We also have other contingent liabilities, pending claims and legal actions arising in the
normal course of our business. We cannot predict with certainty the final results of these
and the aforementioned matters. However, it is reasonably possible that some of them could
be resolved unfavorably to us and result in losses in excess of recorded amounts. We are
unable to estimate any such possible excess losses. Although management currently believes,
after consultation with counsel, that damages or settlements, if any, recovered by the
plaintiffs in such claims or actions will not have a material adverse effect on our
financial position, damages or settlements could be material to our operating results or
cash flows in future periods depending on the nature and timing of future developments with
respect to these matters and the amounts of future operating results and cash flows.
4. |
|
Partnership Sale of Propane Storage Facility |
On November 13, 2008, AmeriGas OLP sold its 600,000 barrel refrigerated, above-ground
storage facility located on leased property in California for net cash of $42,426. During
the three months ended December 31, 2008, we recorded a pre-tax gain of $39,887 associated
with this transaction, which increased net income by $39,485.
5. |
|
Fair Value Measurement |
As described in Note 1, the Partnership adopted SFAS 157 effective October 1, 2008. SFAS 157
defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements. SFAS 157
defines fair value as the price that would be received to sell an asset or paid to transfer
a liability (an exit price) in an orderly transaction between market participants at the
measurement date. SFAS 157 clarifies that the fair value should be based upon assumptions
that market participants would use when pricing an asset or
- 12 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
liability, including assumptions about risk and risks inherent in valuation techniques and
inputs to valuations. This includes not only the credit standing of counterparties and
credit enhancements but also the impact of our own nonperformance risk on our liabilities.
SFAS 157 requires fair value measurements to assume that the transaction occurs in the
principal market for the asset or liability or in the absence of a principal market, the
most advantageous market for the asset or liability (the market for which the reporting
entity would be able to maximize the amount received or minimize the amount paid). We apply
fair value measurements to certain assets and liabilities principally comprising commodity
and interest rate derivative instruments. We evaluate the need for credit adjustments to our
derivative instrument fair values in accordance with the requirements noted above. Such
adjustments were not material to the fair values of our derivative instruments.
In accordance with SFAS 157, we maximize the use of observable inputs and minimize the use
of unobservable inputs when measuring fair value. Fair value is based upon actively-quoted
market prices, if available. In the absence of actively-quoted market prices, we seek price
information from external sources, including counterparty quotes and prices for similar
instruments in active markets. If pricing information from external sources is not
available, or if we believe that observable pricing is not indicative of fair value,
judgment is required to develop estimates of fair value.
For derivative contracts where observable pricing information is not available from external
sources for the specific commodity or location, we may determine fair value using a
different commodity or delivery location and adjust such prices using spread approximation
models, or we may use recent market price indicators and adjust such prices using historical
price movements.
We also use the following fair value hierarchy, which prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels:
|
|
|
Level 1 Quoted prices (unadjusted) in active markets for identical assets and
liabilities that we have the ability to access at the measurement date. The
partnership did not have any derivative financial instruments categorized as Level
1 at December 31, 2008. |
|
|
|
|
Level 2 Inputs other than quoted prices included within Level 1 that are
either directly or indirectly observable for the asset or liability, including
quoted prices for similar assets or liabilities in active markets, quoted prices
for identical or similar assets or liabilities in inactive markets, inputs other
than quoted prices that are observable for the asset or liability, and inputs that
are derived from observable market data by correlation or other means. Instruments
categorized in Level 2 include non-exchange traded derivative financial instruments
such as over-the-counter commodity price swaps and interest rate protection
agreements. |
|
|
|
|
Level 3 Unobservable inputs for the asset or liability including situations
where there is little, if any, market activity for the asset or liability. The
partnership did not have any derivative financial instruments categorized as Level
3 at December 31, 2008. |
- 13 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
The fair value hierarchy gives the highest priority to quoted prices in active markets
(Level 1) and the lowest priority to unobservable data (Level 3). In some cases, the inputs
to measure fair value might fall into different levels of the fair value hierarchy. The
lowest level input that is significant to a fair value measurement in its entirety
determines the applicable level in the fair value hierarchy. Assessing the significance of
a particular input to the fair value measurement in its entirety requires judgment,
considering factors specific to the asset or liability.
SFAS 157 requires fair value measurements to be separately disclosed by level within the
fair value hierarchy. The following table presents our assets and liabilities that are
measured at fair value on a recurring basis for each hierarchy level, including both current
and non-current portions as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Derivative financial instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
|
|
|
$ |
623 |
|
|
$ |
|
|
|
$ |
623 |
|
Liabilities |
|
|
|
|
|
|
(174,860 |
) |
|
|
|
|
|
|
(174,860 |
) |
6. |
|
Supplemental Credit Agreement |
As a result of greater cash needed to fund counterparty collateral requirements resulting
from rapid and precipitous declines in propane commodity prices during the three months
ended December 31, 2008, on November 14, 2008, AmeriGas OLP entered into a revolving credit
agreement with two major banks (Supplemental Credit Agreement). The Supplemental Credit
Agreement expires on May 14, 2009 and permits AmeriGas OLP to borrow up to $50,000 for
working capital and general purposes. Except for more restrictive covenants regarding the
incurrence of additional indebtedness by AmeriGas OLP, the Supplemental Credit Agreement
has restrictive covenants similar to AmeriGas OLPs existing credit agreement.
- 14 -
AMERIGAS PARTNERS, L.P.
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
FORWARD-LOOKING STATEMENTS
Information contained in this Managements Discussion and Analysis of Financial Condition and
Results of Operations may contain forward-looking statements. Such statements use forward-looking
words such as believe, plan, anticipate, continue, estimate, expect, may, will, or
other similar words. These statements discuss plans, strategies, events or developments that we
expect or anticipate will or may occur in the future.
A forward-looking statement may include a statement of the assumptions or bases underlying the
forward-looking statement. We believe that we have chosen these assumptions or bases in good faith
and that they are reasonable. However, we caution you that actual results almost always vary from
assumed facts or bases, and the differences between actual results and assumed facts or bases can
be material, depending on the circumstances. When considering forward-looking statements, you
should keep in mind the following important factors which could affect our future results and could
cause those results to differ materially from those expressed in our forward-looking statements:
(1) adverse weather conditions resulting in reduced demand; (2) cost volatility and availability of
propane, and the capacity to transport propane to our market areas; (3) the availability of, and
our ability to consummate, acquisition or combination opportunities; (4) successful integration and
future performance of acquired assets or businesses; (5) changes in laws and regulations, including
safety, tax and accounting matters; (6) competitive pressures from the same and alternative energy
sources; (7) failure to acquire new customers thereby reducing or limiting any increase in
revenues; (8) liability for environmental claims; (9) increased customer conservation measures due
to high energy prices and improvements in energy efficiency and technology resulting in reduced
demand; (10) adverse labor relations; (11) large customer, counter-party or supplier defaults; (12)
liability in excess of insurance coverage for personal injury and property damage arising from
explosions and other catastrophic events, including acts of terrorism, resulting from operating
hazards and risks incidental to transporting, storing and distributing propane, butane and ammonia;
(13) political, regulatory and economic conditions in the United States and foreign countries; (14)
capital market conditions, including, reduced access to capital markets and interest rate
fluctuations; (15) changes in commodity market prices resulting in significantly higher cash
collateral requirements; and (16) the impact of pending and future legal proceedings.
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 the federal securities laws.
- 15 -
AMERIGAS PARTNERS, L.P.
ANALYSIS OF RESULTS OF OPERATIONS
The following analyses compare the Partnerships results of operations for (1) the three months
ended December 31, 2008 (2008 three-month period) with the three months ended December 31, 2007
(2007 three-month period).
Executive Overview
Our net income for the 2008 three-month period increased to $124.0 million from $54.3 million in
the prior-year three-month period. The 2008 three-month period net income includes a $39.5 million
gain on the sale of our California storage facility in November 2008. Additionally, our results
reflect the beneficial impact of weather that was 6.9% colder than the 2007 three-month period and
unusually high retail unit margins resulting from a rapid and sharp decline in propane product
costs during the 2008 three-month period. We presently expect unit margins to return to more normal
levels over the course of Fiscal 2009. Wholesale propane commodity prices declined more than 50% from the
beginning to the end of the 2008 three-month period compared with
wholesale propane commodity prices that
increased nearly 20% from the beginning to the end of the prior-year period. Retail volumes were
about equal to the prior year as the effects of the colder weather and the benefits from the
acquisition of the assets of Penn Fuel Propane, LLC (Penn Fuels Acquisition) were offset by
continued customer conservation and the adverse effects of the significant deterioration in general
economic activity which has occurred over the last year. Operating expenses were slightly higher
than the prior year reflecting greater bad debt expense, higher general insurance expense and
incremental expenses associated with the Penn Fuels Acquisition.
2008 three-month period compared with 2007 three-month period
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
Three Months Ended December 31, |
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
(millions of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Gallons sold (millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
|
278.2 |
|
|
|
279.1 |
|
|
|
(0.9 |
) |
|
|
(0.3 |
)% |
Wholesale |
|
|
41.4 |
|
|
|
32.3 |
|
|
|
9.1 |
|
|
|
28.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
319.6 |
|
|
|
311.4 |
|
|
|
8.2 |
|
|
|
2.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail propane |
|
$ |
634.9 |
|
|
$ |
647.7 |
|
|
$ |
(12.8 |
) |
|
|
(2.0 |
)% |
Wholesale propane |
|
|
43.7 |
|
|
|
52.0 |
|
|
|
(8.3 |
) |
|
|
(15.9 |
)% |
Other |
|
|
48.5 |
|
|
|
48.5 |
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
727.1 |
|
|
$ |
748.2 |
|
|
$ |
(21.1 |
) |
|
|
(2.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total margin (a) |
|
$ |
281.5 |
|
|
$ |
241.8 |
|
|
$ |
39.7 |
|
|
|
16.4 |
% |
EBITDA (b) |
|
$ |
164.1 |
|
|
$ |
93.1 |
|
|
$ |
71.0 |
|
|
|
76.3 |
% |
Operating income |
|
$ |
144.8 |
|
|
$ |
74.0 |
|
|
$ |
70.8 |
|
|
|
95.7 |
% |
Net income |
|
$ |
124.0 |
|
|
$ |
54.3 |
|
|
$ |
69.7 |
|
|
|
128.4 |
% |
Heating degree days % warmer than normal (c) |
|
|
0.8 |
% |
|
|
7.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Total margin represents
total revenues less cost of sales propane and cost of sales
other. |
- 16 -
AMERIGAS PARTNERS, L.P.
|
|
|
(b) |
|
Earnings before interest expense, income taxes, depreciation and amortization (EBITDA)
should not be considered as an alternative to net income (as an indicator of operating
performance) and is not a measure of performance or financial condition under accounting
principles generally accepted in the United States of America (GAAP). Management believes
EBITDA is a meaningful non-GAAP financial measure used by investors to (1) compare the
Partnerships operating performance with other companies within the propane industry and (2)
assess its ability to meet loan covenants. The Partnerships definition of EBITDA may be
different from that used by other companies. Management uses EBITDA to compare
year-over-year profitability of the business without regard to capital structure as well as
to compare the relative performance of the Partnership to that of other master limited
partnerships without regard to their financing methods, capital structure, income taxes or
historical cost basis. In view of the omission of interest, income taxes, depreciation and
amortization from EBITDA, management also assesses the profitability of the business by
comparing net income for the relevant years. Management also uses EBITDA to assess the
Partnerships profitability because its parent, UGI Corporation, uses the Partnerships
EBITDA to assess the profitability of the Partnership. UGI Corporation discloses the
Partnerships EBITDA as the profitability measure to comply with the requirement in
Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information, to provide profitability information about its domestic
propane segment. |
|
|
|
The following table includes reconciliations of net income to EBITDA for the periods presented: |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
124.0 |
|
|
$ |
54.3 |
|
Income tax expense |
|
|
0.7 |
|
|
|
0.7 |
|
Interest expense |
|
|
18.7 |
|
|
|
18.2 |
|
Depreciation |
|
|
19.4 |
|
|
|
18.7 |
|
Amortization |
|
|
1.3 |
|
|
|
1.2 |
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
164.1 |
|
|
$ |
93.1 |
|
|
|
|
|
|
|
|
|
|
|
(c) |
|
Deviation from average heating degree days for the 30-year period 1971-2000 based upon
national weather statistics provided by the National Oceanic and Atmospheric Administration
(NOAA) for 335 airports in the United States, excluding Alaska. |
Based upon heating degree-day data, average temperatures in our service territories were 0.8%
warmer than normal during the 2008 three-month period compared with temperatures in the prior-year
period that were 7.2% warmer than normal. Notwithstanding the colder 2008 three-month period
weather and the benefit of the Penn Fuels Acquisition on October 1, 2008, retail gallons sold were
about equal to the prior-year period reflecting, among other things, continued customer
conservation and the adverse effects of the significant deterioration in general economic activity
which has occurred over the last year.
Retail propane revenues declined $12.8 million during the 2008 three-month period reflecting a
$10.7 million decrease due to lower average selling prices and a $2.1 million decrease as a result
of the lower retail volumes sold. Wholesale propane revenues declined $8.3 million reflecting a
$23.0 million decrease from lower wholesale selling prices partially offset by a $14.7 million
increase from higher wholesale volumes sold. From the beginning to the end of the 2008 three-month period, wholesale propane commodity prices at Mont Belvieu, Texas declined more than 50%
compared with a nearly 20% increase in commodity prices during the 2007 three-month period. Total cost of
sales decreased $60.8 million to $445.5 million principally reflecting the effects of the lower
propane product costs.
- 17 -
AMERIGAS PARTNERS, L.P.
Total margin was $39.7 million greater in the 2008 three-month period reflecting the beneficial
impact of unusually high retail unit margins resulting from a rapid and sharp decline in propane
product costs during the 2008 three-month period. We presently expect unit margins to return to
more normal levels over the course of Fiscal 2009.
EBITDA during the 2008 three-month period was $164.1 million compared with EBITDA of $93.1 million
in the 2007 three-month period. The 2008 three-month period EBITDA
includes a $39.9 million pre-tax
gain from the sale of the Partnerships California LPG storage facility. In addition to the gain
from the sale of the California storage facility, the 2008 three-month period EBITDA reflects the
previously mentioned $39.7 million increase in total margin partially offset by slightly higher
operating and administrative expenses. Operating and administrative expenses increased due in large
part to higher bad debt expense, greater general insurance expenses and incremental expenses from
the Penn Fuels Acquisition partially offset by, among other things, lower vehicle fuel expenses.
Operating income increased $70.8 million reflecting the $71.0 million increase in EBITDA and
slightly higher depreciation and amortization expense associated with acquisitions and plant and
equipment expenditures made since the prior year. Net income increased $69.7 million during the
2008 three-month period reflecting the increase in operating income partially offset by a slight
increase in interest expense from greater average bank loan borrowings.
FINANCIAL CONDITION AND LIQUIDITY
Financial Condition
The
Partnerships total debt outstanding at December 31, 2008
was $1,079.0 million (including current
maturities of long-term debt of $71.2 million). Total debt outstanding at December 31, 2008
includes long-term debt comprising $779.8 million of AmeriGas Partners Senior Notes, $150.1
million of AmeriGas OLP First Mortgage Notes and $3.1 million of
other long-term debt. The Partnerships total debt outstanding
also includes $146 million outstanding under AmeriGas
OLPs Credit Agreement. AmeriGas OLP
expects to repay $70 million of long-term debt maturing in March 2009 with proceeds from the
issuance of a term loan or through revolver borrowings.
AmeriGas OLPs 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. In
addition, a rapid and precipitous decline in commodity propane prices in late Fiscal 2008 which
continued into Fiscal 2009 resulted in greater cash needed by the Partnership to fund counterparty
collateral requirements. These collateral requirements are associated with derivative financial
instruments used by the Partnership to manage market price risk associated with fixed sales price
commitments to customers principally during the heating-season months of October through March. At
December 31, 2008, the Partnership had made collateral deposits of $131.8 million associated with
these derivative financial instruments.
- 18 -
AMERIGAS PARTNERS, L.P.
In order to meet its short-term cash needs, AmeriGas OLP has a $200 million credit agreement
(Credit Agreement) which expires on October 15, 2011. In addition, on November 14, 2008, AmeriGas
OLP entered into a $50 million revolving credit agreement with two major banks (Supplemental
Credit Agreement) which expires on May 14, 2009. AmeriGas OLPs Credit Agreement consists of (1) a
$125 million Revolving Credit Facility and (2) a $75 million Acquisition Facility. The Revolving
Credit Facility may be used for working capital and general purposes of AmeriGas OLP. The
Acquisition Facility provides AmeriGas OLP with the ability to borrow up to $75 million to finance
the purchase of propane businesses or propane business assets or, to the extent it is not so used,
for working capital and general purposes, subject to restrictions in the AmeriGas OLP First
Mortgage Notes. The
Supplemental Credit Agreement permits AmeriGas OLP to borrow up to $50 million for working capital
and general purposes. Except for more restrictive covenants regarding the incurrence of additional
indebtedness by AmeriGas OLP, the Supplemental Credit Agreement has restrictive covenants
substantially similar to the Credit Agreement.
There were $146 million of borrowings
outstanding under the credit agreements at December 31, 2008
which are classified as bank loans on the Condensed Consolidated
Balance Sheets. Issued and outstanding letters of credit under the Revolving Credit Facility, which
reduce the amount available for borrowings, totaled
$50.0 million at December 31, 2008. The average daily and peak bank loan borrowings outstanding under the credit agreements during the
2008 three-month period were $131.8 million and $184.5 million, respectively. The average daily and
peak bank loan borrowings outstanding under the Credit Agreement during the 2007 three-month period
were $26.5 million and $81.0 million, respectively. At December 31, 2008, the Partnerships available
borrowing capacity under the credit agreements was $54.0 million.
In order to reduce cash collateral payment obligations and to provide the Partnership with greater
borrowing flexibility and a more cost effective use of its credit agreements, UGI agreed to provide
guarantees of up to $50 million to AmeriGas OLPs propane suppliers through September 30, 2009. At
December 31, 2008, the Partnership had $25 million of unused UGI guarantees.
Based on existing cash balances, cash expected to be generated from operations, and borrowings
available under AmeriGas OLPs Credit Agreement and the Supplemental Credit Agreement, the
Partnerships management believes that the Partnership will be able to meet its anticipated
contractual commitments, including current maturities of long-term debt, and projected cash needs
during Fiscal 2009.
During the three months ended December 31, 2008 the Partnership declared and paid quarterly
distributions on all limited partner units at a rate of $0.64 per Common Unit for the quarter ended
September 30, 2008. The quarterly distribution of $0.64 per limited partner unit for the quarter
ended December 31, 2008 will be paid on February 18, 2009 to holders of record on February 10,
2009. The ability of the Partnership to declare and pay the quarterly distribution on its Common
Units in the future depends upon a number of factors. These factors include (1) the level of
Partnership earnings; (2) the cash needs of the Partnerships operations (including cash needed for
maintaining and increasing operating capacity); (3) changes in operating working capital; and (4)
the Partnerships ability to borrow under its credit agreements, refinance maturing debt, and
increase its long-term debt. Some of these factors are affected by conditions
beyond the Partnerships control including weather, competition in markets we serve, the cost of
propane and changes in capital market conditions.
- 19 -
AMERIGAS PARTNERS, L.P.
Cash Flows
Operating activities. Due to the seasonal nature of the Partnerships business, cash flows from
operating activities are generally strongest during the second and third fiscal quarters when
customers pay for propane consumed during the heating season months. Conversely, operating cash
flows are generally at their lowest levels during the first and fourth fiscal quarters when the
Partnerships investment in working capital is generally greatest. The Partnership may use its
Credit Agreement and, in Fiscal 2009, its Supplemental Credit Agreement to satisfy its seasonal
operating cash flow needs. Cash flow used by operating activities was $68.0 million in the 2008
three-month period compared to $38.3 million in the 2007 three-month period. Cash flow from
operating activities before changes in operating working capital was $101.9 million in the 2008
three-month period compared with $78.4 million in the prior-year period principally reflecting the
improved operating results. Cash required to fund changes in operating working capital totaled
$169.9 million in the 2008 three-month period compared with $116.7 million in the prior-year
period. The greater cash required to fund operating working capital in the current-year period
principally reflects $114.0 million of cash required to fund counterparty collateral requirements
under product cost management contracts and the impact of the timing of purchases and decrease in
current-year period propane product costs on accounts payable. These increases in cash required to
fund working capital were partially offset by the amount of cash receipts from customers resulting
principally from lower propane prices and the effects of lower wholesale propane product prices on
cash used for purchases of propane inventory.
Investing activities. Investing activity cash flow is principally affected by investments in
property, plant and equipment, cash paid for acquisitions of businesses and proceeds from sales of
assets. Cash flow used in investing activities was $8.9 million in the 2008 three-month period
compared with $12.6 million in the prior-year period. We spent $19.1 million for property, plant
and equipment (comprising $8.6 million of maintenance capital expenditures and $10.5 million of
growth capital expenditures) in the 2008 three-month period compared with $18.2 million (comprising
$7.3 million of maintenance capital expenditures and $10.9 million of growth capital expenditures)
in the 2007 three-month period. In November 2008, the Partnership sold its California LPG storage
facility for net cash proceeds of $42.4 million. Also during the 2008 three-month period, the
Partnership paid total net cash of $33.8 million for acquisitions of retail propane businesses,
principally the Penn Fuels Acquisition.
Financing
activities. Cash provided by financing activities was $108.0 million in the 2008
three-month period compared with $31.0 million in the prior-year period. Distributions in the 2008
three-month period totaled $37.2 million compared with $35.2 million in the prior-year period
principally reflecting a higher per-unit distribution rate. Net cash borrowed under credit
agreements totaled $146 million in the 2008 three-month period compared to $67 million in the prior-year
period. The higher 2008 three-month period borrowings reflect in large part borrowings to fund the
previously mentioned counterparty collateral payments and the Penn Fuels Acquisition.
- 20 -
AMERIGAS PARTNERS, L.P.
Partnership Sale of Propane Storage Facility
On November 13, 2008, AmeriGas OLP sold its 600,000 barrel refrigerated, above-ground storage
facility located on leased property in California for net cash of $42.4 million. During the
three months ended December 31, 2008, we recorded a pre-tax gain of $39.9 million associated with
this transaction, which increased net income by $39.5 million.
Effect of Recent Market Conditions
The recent unprecedented volatility in credit and capital markets may create additional risks to
the Partnership in the future. We are exposed to financial market risk resulting from, among other
things, changes in interest rates and conditions in the credit and capital markets. Recent
developments in the credit markets increase our possible exposure to the liquidity and credit risks
of our suppliers, counterparties associated with derivative financial instruments and our
customers.
We believe that we have sufficient liquidity in the form of revolving credit facilities, letters of
credit and guarantee arrangements to fund our operations including the collateral requirements of
our derivative financial instruments and our maturing long-term debt. Additionally, we do not have
significant amounts of long-term debt maturing or revolving credit agreements terminating in the
next several fiscal years. Accordingly, we do not believe that recent conditions in the credit and
capital markets will have a significant impact on our liquidity. Although we believe that recent
financial market conditions will not have a significant impact on our ability to fund our existing
operations, such market conditions could restrict our ability to make a significant acquisition or
limit the scope of major capital projects, if access to credit and capital markets is limited, and
could adversely affect our results of operations.
We are subject to credit risk relating to the ability of counterparties to meet their contractual
payment obligations or the potential non-performance of counterparties to deliver contracted
commodities or services at contract prices. We monitor our counterparty credit risk exposure in
order to minimize credit risk with any one supplier or financial instrument counterparty. We have a
diverse customer base that spans broad geographic, economic and demographic constituencies. No
single customer represents more than ten percent of our revenues or operating income.
Notwithstanding our diverse customer profile, current conditions in the credit markets could affect
the ability of some of our customers to pay timely or result in increased customer bankruptcies
which may lead to increased bad debts.
As previously mentioned, in order to manage market risk associated with the Partnerships
fixed-price programs which permit customers to lock in the prices they pay for propane, the
Partnership has entered into derivative financial instruments that have collateral provisions.
These derivative instruments are used to manage market price risk principally during the
heating-season months of October through March. The Partnerships management believes it has
sufficient liquidity to meet such obligations and its projected cash needs in Fiscal 2009.
- 21 -
AMERIGAS PARTNERS, L.P.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary financial market risks include commodity prices for propane and interest rates on
borrowings.
The risk associated with fluctuations in the prices the Partnership pays for propane is principally
a result of market forces reflecting changes in supply and demand for propane and other energy
commodities. The Partnerships profitability is sensitive to changes in propane supply costs and
the Partnership generally passes on increases in such costs to customers. The Partnership may not,
however, always be able to pass through product cost increases fully or on a timely basis,
particularly when product costs rise rapidly. In order to reduce the volatility of the
Partnerships 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 to hedge forecasted purchases of propane are generally
settled at expiration of the contract. These derivative financial instruments contain collateral
provisions. As previously mentioned, precipitous declines in propane commodity prices late in
Fiscal 2008 which continued into Fiscal 2009 resulted in greater collateral requirements by our
derivative instruments counterparties. In order to minimize our credit risk associated with
derivative commodity contracts, we monitor established credit limits with our 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 OLPs Credit Agreement and Supplemental
Credit Agreement. These agreements have interest rates that are generally indexed to short-term
market interest rates. Our long-term debt is typically issued at fixed rates of interest based upon
market rates for debt having similar terms and credit ratings. As these long-term debt issues
mature, we may refinance such debt with new debt having interest rates reflecting then-current
market conditions. This debt may have an interest rate that is more or less than the refinanced
debt. In order to reduce interest rate risk associated with forecasted issuances of fixed-rate
debt, from time to time we enter into interest rate protection agreements.
- 22 -
AMERIGAS PARTNERS, L.P.
The following table summarizes the fair values of unsettled market risk sensitive derivative
instruments held at December 31, 2008. It also includes the changes in fair value that would result
if there were a ten percent adverse change in (1) the market price of propane and (2) the
three-month LIBOR:
|
|
|
|
|
|
|
|
|
|
|
Asset (Liability) |
|
|
|
|
|
|
|
Change in |
|
(Millions of dollars) |
|
Fair Value |
|
|
Fair Value |
|
December 31, 2008: |
|
|
|
|
|
|
|
|
Propane swap and option contracts |
|
$ |
(149.8 |
) |
|
$ |
(12.3 |
) |
Interest rate protection agreements |
|
|
(24.4 |
) |
|
|
(2.7 |
) |
Because the Partnerships derivative instruments generally qualify as hedges under SFAS No. 133, 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 anticipated
transactions.
ITEM 4. CONTROLS AND PROCEDURES
(a) |
|
Evaluation of Disclosure Controls and Procedures |
|
|
|
The Partnerships management, with the participation of the Partnerships Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of the Partnerships
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 Partnerships 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 (i) recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms, and (ii) accumulated and communicated to our management,
including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding disclosure. |
|
(b) |
|
Change in Internal Control over Financial Reporting |
|
|
|
No change in the Partnerships internal control over financial reporting occurred during the
Partnerships most recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Partnerships internal control over financial reporting. |
- 23 -
AMERIGAS PARTNERS, L.P.
PART II OTHER INFORMATION
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider
the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the
fiscal year ended September 30, 2008, which could materially affect our business, financial
condition or future results. The risks described in our Annual Report on Form 10-K are not the
only risks facing the Partnership. Other unknown or unpredictable factors could also have material
adverse effects on future results.
ITEM 6. EXHIBITS
The exhibits filed as part of this report are as follows:
|
|
|
|
|
Exhibit |
|
|
No. |
|
Exhibit |
|
31.1 |
|
|
Certification by the
Chief Executive Officer
relating to the
Registrants Report on
Form 10-Q for the quarter
ended December 31, 2008,
pursuant to Section 302
of the Sarbanes-Oxley Act
of 2002.
|
|
|
|
|
|
|
31.2 |
|
|
Certification by the
Chief Financial Officer
relating to the
Registrants Report on
Form 10-Q for the quarter
ended December 31, 2008,
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
Registrants Report on
Form 10-Q for the quarter
ended December 31, 2008,
pursuant to Section 906
of the Sarbanes-Oxley Act
of 2002.
|
- 24 -
AMERIGAS PARTNERS, L.P.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
AmeriGas Partners, L.P.
(Registrant)
|
|
|
By: |
AmeriGas Propane, Inc.,
|
|
|
|
as General Partner |
|
|
|
|
|
|
|
|
|
Date: February 6, 2009 |
By: |
/s/ Jerry E. Sheridan
|
|
|
|
Jerry E. Sheridan |
|
|
|
Vice President Finance
and Chief Financial Officer |
|
|
|
|
Date: February 6, 2009 |
By: |
/s/ William J. Stanczak
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William J. Stanczak |
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Controller and Chief Accounting Officer |
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- 25 -
AMERIGAS PARTNERS, L.P.
EXHIBIT INDEX
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31.1 |
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Certification by the Chief Executive Officer relating to the Registrants Report on Form10-Q
for the quarter ended December 31, 2008, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
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31.2 |
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Certification by the Chief Financial Officer relating to the Registrants Report on Form 10-Q
for the quarter ended December 31, 2008, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
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32 |
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Certification by the Chief Executive Officer and the Chief Financial Officer relating to the
Registrants Report on Form 10-Q for the quarter ended December 31, 2008, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. |