1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-13692
Commission file number 33-92734-01
AMERIGAS PARTNERS, L.P.
AMERIGAS FINANCE CORP.
(Exact name of registrants as specified in their charters)
Delaware 23-2787918
Delaware 23-2800532
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
460 North Gulph Road, King of Prussia, PA
(Address of principal executive offices)
19406
(Zip Code)
(610) 337-7000
(Registrants' telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
At April 30, 2001, the registrants had units and shares of common stock
outstanding as follows:
AmeriGas Partners, L.P. - 34,404,286 Common Units
9,891,072 Subordinated Units
AmeriGas Finance Corp. - 100 shares
2
AMERIGAS PARTNERS, L.P.
TABLE OF CONTENTS
PAGES
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
AmeriGas Partners, L.P.
Condensed Consolidated Balance Sheets as of March 31, 2001,
September 30, 2000 and March 31, 2000 1
Condensed Consolidated Statements of Operations for the three, six
and twelve months ended March 31, 2001 and 2000 2
Condensed Consolidated Statements of Cash Flows for the six
and twelve months ended March 31, 2001 and 2000 3
Condensed Consolidated Statement of Partners' Capital for the
six months ended March 31, 2001 4
Notes to Condensed Consolidated Financial Statements 5 - 10
AmeriGas Finance Corp.
Balance Sheets as of March 31, 2001 and September 30, 2000 11
Note to Balance Sheets 12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13 - 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20 - 21
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
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AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Thousands of dollars)
March 31, September 30, March 31,
2001 2000 2000
---------- ---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 13,909 $ 10,795 $ 4,285
Accounts receivable (less allowances for doubtful accounts
of $11,240, $6,529 and $7,243, respectively) 194,009 97,376 123,380
Inventories 67,534 65,489 50,855
Prepaid expenses and other current assets 15,477 15,185 15,279
---------- ---------- ----------
Total current assets 290,929 188,845 193,799
Property, plant and equipment (less accumulated depreciation and
amortization of $323,855, $277,790 and $257,524, respectively) 449,205 436,119 430,845
Intangible assets (less accumulated amortization of $201,472
$188,655 and $177,308, respectively) 609,677 621,920 607,936
Other assets 11,073 11,336 11,791
---------- ---------- ----------
Total assets $1,360,884 $1,258,220 $1,244,371
========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current maturities of long-term debt $ 65,781 $ 64,512 $ 16,821
Bank loans 17,000 30,000 5,000
Accounts payable - trade 92,679 73,786 61,698
Accounts payable - related parties 2,795 3,001 3,603
Other current liabilities 83,020 95,714 74,293
---------- ---------- ----------
Total current liabilities 261,275 267,013 161,415
Long-term debt 788,376 792,722 784,021
Other noncurrent liabilities 38,311 39,927 39,719
Commitments and contingencies (note 4)
Minority interest 3,744 2,587 3,602
Partners' capital 269,178 155,971 255,614
---------- ---------- ----------
Total liabilities and partners' capital $1,360,884 $1,258,220 $1,244,371
========== ========== ==========
See accompanying notes to consolidated financial statements.
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AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(Thousands of dollars, except per unit)
Three Months Ended Six Months Ended Twelve Months Ended
March 31, March 31, March 31,
-------------------------- -------------------------- --------------------------
2001 2000 2001 2000 2001 2000
----------- ----------- ----------- ----------- ----------- -----------
Revenues:
Propane $ 534,643 $ 366,225 $ 940,003 $ 636,043 $ 1,326,927 $ 924,762
Other 22,809 22,651 49,917 53,881 93,125 94,988
----------- ----------- ----------- ----------- ----------- -----------
557,452 388,876 989,920 689,924 1,420,052 1,019,750
----------- ----------- ----------- ----------- ----------- -----------
Costs and expenses:
Cost of sales - propane 334,743 205,957 588,295 350,650 824,550 490,829
Cost of sales - other 8,682 9,403 19,905 23,404 37,877 40,670
Operating and administrative
expenses 102,203 92,032 195,975 181,536 357,159 338,841
Depreciation and amortization 18,403 16,475 36,706 32,746 71,341 65,602
Other income, net (1,259) (2,236) (2,482) (3,377) (7,638) (6,765)
----------- ----------- ----------- ----------- ----------- -----------
462,772 321,631 838,399 584,959 1,283,289 929,177
----------- ----------- ----------- ----------- ----------- -----------
Operating income 94,680 67,245 151,521 104,965 136,763 90,573
Interest expense (19,855) (18,035) (39,844) (36,015) (78,593) (69,527)
----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes 74,825 49,210 111,677 68,950 58,170 21,046
Income tax benefit 460 323 405 5 415 68
Minority interest (788) (526) (1,185) (749) (698) (319)
----------- ----------- ----------- ----------- ----------- -----------
Income before accounting changes 74,497 49,007 110,897 68,206 57,887 20,795
Cumulative effect of accounting changes -- -- 12,494 -- 12,494 --
----------- ----------- ----------- ----------- ----------- -----------
Net income $ 74,497 $ 49,007 $ 123,391 $ 68,206 $ 70,381 $ 20,795
=========== =========== =========== =========== =========== ===========
General partner's interest in net income $ 745 $ 490 $ 1,234 $ 682 $ 704 $ 208
=========== =========== =========== =========== =========== ===========
Limited partners' interest in
net income $ 73,752 $ 48,517 $ 122,157 $ 67,524 $ 69,677 $ 20,587
=========== =========== =========== =========== =========== ===========
Income per limited partner unit -
basic and diluted:
Income before accounting changes $ 1.67 $ 1.16 $ 2.49 $ 1.61 $ 1.33 $ 0.49
Cumulative effect of accounting
changes -- -- 0.28 -- 0.29 --
----------- ----------- ----------- ----------- ----------- -----------
Net income $ 1.67 $ 1.16 $ 2.77 $ 1.61 $ 1.62 $ 0.49
=========== =========== =========== =========== =========== ===========
Average limited partner units
outstanding - basic and diluted
(thousands) 44,295 41,969 44,076 41,969 43,020 41,958
=========== =========== =========== =========== =========== ===========
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AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Thousands of dollars)
Six Months Ended Twelve Months Ended
March 31, March 31,
------------------------- -------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 123,391 $ 68,206 $ 70,381 $ 20,795
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of accounting changes (12,494) -- (12,494) --
Depreciation and amortization 36,706 32,746 71,341 65,602
Other, net 2,665 1,037 (229) (3,577)
--------- --------- --------- ---------
150,268 101,989 128,999 82,820
Net change in:
Accounts receivable (102,237) (58,710) (77,366) (32,739)
Inventories and prepaid propane purchases (2,023) 5,987 (15,717) (12,020)
Accounts payable 18,687 14,420 30,173 23,435
Other current assets and liabilities (21,134) (25,726) 1,022 (18,909)
--------- --------- --------- ---------
Net cash provided by operating activities 43,561 37,960 67,111 42,587
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (18,761) (12,858) (36,330) (28,073)
Proceeds from disposals of assets 1,927 1,801 7,530 5,215
Acquisitions of businesses, net of cash acquired (147) (14,833) (40,954) (15,763)
--------- --------- --------- ---------
Net cash used by investing activities (16,981) (25,890) (69,754) (38,621)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (49,218) (46,633) (95,851) (93,221)
Minority interest activity (139) (528) (666) (1,036)
Increase (decrease) in bank loans (13,000) (17,000) 12,000 --
Issuance of long-term debt -- 126,000 70,000 149,000
Repayment of long-term debt (1,352) (70,014) (13,459) (70,893)
Proceeds from Common Unit offering 39,836 -- 39,836 --
Capital contributions from General Partner 407 -- 407 16
--------- --------- --------- ---------
Net cash provided (used) by financing activities (23,466) (8,175) 12,267 (16,134)
--------- --------- --------- ---------
Cash and cash equivalents increase (decrease) $ 3,114 $ 3,895 $ 9,624 $ (12,168)
========= ========= ========= =========
CASH AND CASH EQUIVALENTS:
End of period $ 13,909 $ 4,285 $ 13,909 $ 4,285
Beginning of period 10,795 390 4,285 16,453
--------- --------- --------- ---------
Increase (decrease) $ 3,114 $ 3,895 $ 9,624 $ (12,168)
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
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AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(unaudited)
(Thousands, except unit data)
Accumulated
Number of units other Total
------------------------ General comprehensive partners'
Common Subordinated Common Subordinated partner income (loss) capital
---------- ------------ ---------- ------------ ------- ------------- ---------
BALANCE SEPTEMBER 30, 2000 32,078,293 9,891,072 $ 118,872 $ 35,542 $ 1,557 $ - $ 155,971
Net income 94,742 27,415 1,234 123,391
Cumulative effect of change in
accounting principle - SFAS No. 133 8,921 8,921
Net gain on derivative
instruments 13,988 13,988
Reclassification adjustments (24,576) (24,576)
---------- --------
Comprehensive income (1,667) 121,724
Distributions (37,846) (10,880) (492) (49,218)
Common Units issued in connection
with public offering 2,300,000 39,836 402 40,238
Common Units issued in connection
with acquisition 25,993 458 5 463
---------- ------------ ---------- ------------ ------- ------------- ---------
BALANCE MARCH 31, 2001 34,404,286 9,891,072 $ 216,062 $ 52,077 $ 2,706 $ (1,667) $ 269,178
========== ========= ========= ========= ======= ============ =========
See accompanying notes to consolidated financial statements.
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AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
AmeriGas Partners, L.P. ("AmeriGas Partners"), its subsidiary AmeriGas
Propane, L.P. (the "Operating Partnership"), and their corporate
subsidiaries, together referred to in this report as "the Partnership" or
"we." We eliminate all significant intercompany accounts and transactions
when we consolidate. We account for AmeriGas Propane, Inc.'s (the "General
Partner's") 1.01% interest in the Operating Partnership as a minority
interest in the condensed consolidated financial statements.
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. 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, 2000 ("2000 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.
Comprehensive income, which comprises net income and other comprehensive
income, for the three and six months ended March 31, 2001 was $51,915 and
$121,724, respectively. Other comprehensive loss of $22,582 in the three
months ended March 31, 2001 is principally a result of the reclassification
of derivative hedge gains to net income. The Partnership's comprehensive
income in the three and six months ended March 31, 2000 was the same as its
net income.
2. CHANGES IN ACCOUNTING
Effective October 1, 2000, we (1) adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities ("SFAS 133"); (2) applied the provisions of SEC Staff
Accounting Bulletin No. 101 entitled "Revenue Recognition" ("SAB 101") with
respect to our nonrefundable tank fees; and (3) changed our method of
accounting for costs to install Partnership-owned tanks at customer
locations. These accounting changes are further described below.
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AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
(1) ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (SFAS 133)
SFAS 133, as amended by SFAS Nos. 137 and 138, establishes accounting and
reporting standards for derivative instruments and for hedging activities.
It requires that all derivative instruments be recognized as either assets
or liabilities and measured at fair value. The accounting for changes in
fair value depends upon the purpose of the derivative instrument and
whether it is designated and qualifies for hedge accounting. To the extent
derivative instruments qualify and are designated as hedges of the
variability of cash flows associated with forecasted transactions, the
effective portion of the gain or loss on such derivative instruments is
generally reported in other comprehensive income and the ineffective
portion, if any, is reported in net income. Such amounts reported in other
comprehensive income are reclassified into net income when the forecasted
transaction affects earnings. If a cash flow hedge is discontinued because
it is probable that the forecasted transaction will not occur, the net gain
or loss is immediately reclassified into earnings. To the extent derivative
instruments qualify and are designated as hedges of changes in the fair
value of an existing asset, liability or firm commitment, the gain or loss
on the hedging instrument is recognized in earnings along with the changes
in fair value of the hedged asset, liability or firm commitment
attributable to the hedged risk.
In accordance with our propane price risk management policy, we use
derivative instruments, including price swap and option contracts, to
manage the cost of a portion of our forecasted purchases of propane and to
manage market risk associated with propane storage inventories. These
derivative instruments generally qualify and are designated as cash flow or
fair value hedges. The fair values of these derivative instruments are
affected by changes in propane product prices. In addition to these
derivative instruments, we may also enter into contracts for the forward
purchase of propane as well as fixed price supply agreements to manage
propane market price risk. These contracts qualify for the normal purchases
and normal sales exception of SFAS 133 and therefore are not adjusted to
fair value.
We use fixed-rate long-term debt as a source of capital. As these long-term
debt issues mature, we often refinance such debt with fixed-rate debt
bearing then-existing market interest rates. On occasion, we enter into
interest rate protection agreements ("IRPAs") to reduce market interest
rate risk associated with these forecasted debt issuances. We designate
these IRPAs as cash flow hedges. Gains or losses on IRPAs are included in
other comprehensive income and reclassified into interest expense when
interest expense on the associated debt issue affects earnings.
The adoption of SFAS 133 resulted in a cumulative effect charge to net
income of $736 and an increase to other comprehensive income of $8,921. The
increase in other
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AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
comprehensive income is attributable to net gains on derivative instruments
designated and qualifying as cash flow hedges on October 1, 2000.
Gains and losses included in accumulated other comprehensive income at
March 31, 2001 relating to cash flow hedges will be reclassified into net
income when (1) the forecasted purchase of propane subject to the hedges
impacts net income and (2) interest on anticipated issuances of fixed-rate
long-term debt is reflected in net income. Virtually all of the net loss
included in accumulated other comprehensive loss at March 31, 2001 hedges
interest rate risk associated with forecasted issuances of ten-year debt.
Accordingly, this loss will be reflected in interest expense over ten
years. The actual amount of derivative gains or losses that will ultimately
be reclassified into net income will depend upon the value of such
derivative contracts when settled. The fair value of derivative instruments
is included in other current assets, other current liabilities and other
noncurrent liabilities in the March 31, 2001 Condensed Consolidated Balance
Sheet.
(2) REVENUE RECOGNITION
In order to comply with the provisions of SAB 101, effective October 1,
2000 we changed our method of accounting for annually billed nonrefundable
tank fees. Historically, nonrefundable tank fees for installed
Partnership-owned tanks were recorded as revenue when billed. Under the new
accounting method, revenue from such fees are being recorded on a
straight-line basis over one year. Accordingly, on October 1, 2000, we
recorded a charge of $5,984 representing the cumulative effect of the
change in accounting method on prior years. The change in accounting method
for nonrefundable tank fees did not have a material impact on reported
revenues in fiscal 2001 and would not have materially impacted revenues in
periods prior to the change. At March 31, 2001, the deferred revenue
balance relating to nonrefundable tank fees was $6,166.
(3) ACCOUNTING FOR TANK INSTALLATION COSTS
Effective October 1, 2000, we changed our method of accounting for tank
installation costs which are not billed to customers. Prior to the change
in accounting method, all such costs to install Partnership-owned tanks at
a customer location were expensed as incurred. Under the new accounting
method, all such costs, net of billings, are capitalized and amortized
using an accelerated method that reflects the attrition of the
Partnership's customers. We believe that the new accounting method better
matches the costs of installing Partnership-owned tanks with the periods
benefited. As a result of this change in accounting, we recorded income of
$19,214 representing the cumulative effect of the change in accounting
method on prior years.
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AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
The effect on net income from the change in accounting for tank
installation costs during the three and six months ended March 31, 2001 was
not material.
CUMULATIVE EFFECT OF ACCOUNTING CHANGES AND PRO FORMA DISCLOSURE
The cumulative effect impact reflected on the Consolidated Statements of
Operations and related per unit (basic and diluted) amounts resulting from
the above changes in accounting principles comprise the following:
--------------------------------------------------------------------------------
Cumulative Cumulative Effect Per
Effect Limited Partner Unit
--------------------------------------------------------------------------------
SFAS No. 133 $ (736) $ (0.02)
Revenue recognition (5,984) (0.14)
Tank installation costs 19,214 0.44
--------------------------------------------------------------------------------
Total $ 12,494 $ 0.28
--------------------------------------------------------------------------------
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AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
The following table reflects pro forma net income and net income per
limited partner unit after applying retroactively the changes in
accounting for tank installation costs and nonrefundable tank fees:
--------------------------------------------------------------------------------------
AS AS
REPORTED ADJUSTED
--------------------------------------------------------------------------------------
TWELVE MONTHS ENDED MARCH 31, 2001:
Net income $57,887 $57,175
Income per limited partner unit - basic and diluted $ 1.33 $ 1.32
THREE MONTHS ENDED MARCH 31, 2000:
Net income $49,007 $49,600
Income per limited partner unit - basic and diluted $ 1.16 $ 1.17
SIX MONTHS ENDED MARCH 31, 2000:
Net income $68,206 $68,711
Income per limited partner unit - basic and diluted $ 1.61 $ 1.62
TWELVE MONTHS ENDED MARCH 31, 2000:
Net income $20,795 $20,901
Income per limited partner unit - basic and diluted $ 0.49 $ 0.50
--------------------------------------------------------------------------------------
3. RELATED PARTY TRANSACTIONS
In accordance with the Amended and Restated Agreement of Limited
Partnership of AmeriGas Propane, L.P. and the Second Amended and Restated
Agreement of Limited Partnership of AmeriGas Partners, the General Partner
is entitled to reimbursement of all direct and indirect expenses incurred
or payments it makes on behalf of the Partnership, and all other necessary
or appropriate expenses allocable to the Partnership or otherwise
reasonably incurred by the General Partner in connection with the
Partnership's business. These costs totaled $57,208, $112,585 and $201,249
during the three, six and twelve months ended March 31, 2001, respectively,
and $52,677, $104,246 and $192,405 during the three, six and twelve months
ended March 31, 2000, respectively. In addition, UGI Corporation ("UGI")
provides certain financial and administrative services to the General
Partner. UGI bills the General Partner for these direct and indirect
corporate expenses and the General Partner is reimbursed by the Partnership
for these expenses. Such corporate expenses totaled $1,341, $2,478 and
$4,556 during the three, six and twelve months ended March 31, 2001,
respectively, and $1,474, $1,907 and $4,636 during the three, six and
twelve months ended March 31, 2000, respectively.
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AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
4. COMMITMENTS AND CONTINGENCIES
There have been no significant developments relating to the commitments and
contingencies reported in the Partnership's 2000 Annual Report.
5. ISSUANCE OF COMMON UNITS
In October 2000, we issued 2,300,000 Common Units in a public offering. The
net proceeds from the Common Unit offering and related capital
contributions from the General Partner of approximately $40,600 were used
to reduce Bank Credit Agreement indebtedness and for working capital
purposes. The Common Units were issued under a shelf registration statement
covering 9,000,000 Common Units filed with the SEC which was declared
effective on September 22, 2000.
6. AGREEMENT TO PURCHASE COLUMBIA PROPANE
On January 30, 2001, we signed a definitive agreement to purchase the
retail propane distribution businesses of Columbia Energy Group
("Columbia") for approximately $208,000, subject to a working capital
adjustment. The Columbia propane businesses currently comprise the fifth
largest retail marketer of propane in the U.S. with total sales of over 300
million gallons from 186 locations in 29 states. At closing the seller will
receive approximately $155,000 cash and approximately $53,000 of AmeriGas
Partners Common Units. The cash portion of the purchase price and related
fees and expenses will be funded with approximately $165,000 of long-term
debt to be issued by AmeriGas Partners. The transaction is complex, and
negotiations to complete the transaction are ongoing. Although no assurance
can be given, we currently expect that the transaction will close during
the third fiscal quarter of 2001.
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AMERIGAS FINANCE CORP.
(a wholly owned subsidiary of AmeriGas Partners, L.P.)
BALANCE SHEETS
(unaudited)
March 31, September 30,
2001 2000
---- ----
ASSETS
Cash $1,000 $1,000
------ ------
Total assets $1,000 $1,000
====== ======
STOCKHOLDER'S EQUITY
Common stock, $.01 par value; 100 shares authorized,
issued and outstanding $ 1 $ 1
Additional paid-in capital 999 999
------ ------
Total stockholder's equity $1,000 $1,000
====== ======
See accompanying note to consolidated financial statements.
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AMERIGAS FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF AMERIGAS PARTNERS, L.P.)
NOTE TO BALANCE SHEETS
AmeriGas Finance Corp. ("AmeriGas Finance"), a Delaware corporation, was formed
on March 13, 1995 and is a wholly owned subsidiary of AmeriGas Partners, L.P.
("AmeriGas Partners").
On April 19, 1995, AmeriGas Partners issued $100,000,000 face value of 10.125%
Senior Notes due April 2007. AmeriGas Finance serves as a co-obligor of these
notes.
AmeriGas Partners owns all 100 shares of AmeriGas Finance Common Stock
outstanding.
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AMERIGAS PARTNERS, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following analyses compare the Partnership's results of operations for (1)
the three months ended March 31, 2001 ("2001 three-month period") with the three
months ended March 31, 2000 ("2000 three-month period"); (2) the six-months
ended March 31, 2001 ("2001 six-month period") with the six-months ended March
31, 2000 ("2000 six-month period"); and (3) the twelve months ended March 31,
2001 ("2001 twelve-month period") with the twelve months ended March 31, 2000
("2000 twelve-month period"). AmeriGas Finance Corp. has nominal assets and does
not conduct any operations. Accordingly, a discussion of the results of
operations and financial condition and liquidity of AmeriGas Finance Corp. is
not presented.
2001 THREE-MONTH PERIOD COMPARED WITH 2000 THREE-MONTH PERIOD
------------------------------------------------------------------------------------------------------------
Three Months Ended March 31, 2001 2000 Increase
------------------------------------------------------------------------------------------------------------
(Millions of dollars)
Gallons sold (millions):
Retail 287.9 266.8 21.1 7.9%
Wholesale 132.4 86.6 45.8 52.9%
------ ------- -------
420.3 353.4 66.9 18.9%
====== ======= =======
Revenues:
Retail propane $430.6 $313.5 $ 117.1 37.4%
Wholesale propane 104.0 52.7 51.3 97.3%
Other 22.8 22.7 0.1 0.4%
------ ------- -------
$557.4 $ 388.9 $ 168.5 43.3%
====== ======= =======
Total margin $214.0 $ 173.5 $ 40.5 23.3%
EBITDA (a) $113.1 $ 83.7 $ 29.4 35.1%
Operating income $ 94.7 $ 67.2 $ 27.5 40.9%
Heating degree days - % colder (warmer) than
normal (b) (0.8) (15.4) - -
------------------------------------------------------------------------------------------------------------
(a) EBITDA (earnings before interest expense, income taxes, depreciation and
amortization) should not be considered as an alternative to net income (as
an indicator of operating performance) or as an alternative to cash flow
(as a measure of liquidity or ability to service debt obligations) and is
not a measure of performance or financial condition under accounting
principles generally accepted in the U.S.
(b) 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 continental U.S.
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AMERIGAS PARTNERS, L.P.
Based upon national heating degree day data, temperatures in the 2001
three-month period were 0.8% warmer than normal compared to weather that was
15.4% warmer than normal in the prior-year period. Retail volumes of propane
sold increased 21.1 million gallons (7.9%) primarily as a result of the colder
weather and the impact of fiscal 2000 acquisitions partially offset by customer
conservation and fuel switching resulting from higher 2001-period fuel bills.
Wholesale volumes increased 45.8 million gallons (52.9%) principally due to
greater sales associated with product cost management activities.
Total revenues from retail propane sales increased $117.1 million reflecting (1)
a $92.3 million increase as a result of higher average selling prices and (2) a
$24.8 million increase as a result of the higher volumes sold. Wholesale propane
revenues increased $51.3 million reflecting (1) a $27.8 million increase as a
result of higher wholesale volumes sold and (2) $23.5 million due to higher
average wholesale selling prices. The higher retail and wholesale selling prices
resulted from higher propane supply costs during the quarter. Other revenues in
the 2001 three-month period were virtually unchanged from the prior year as a
decrease in revenues from appliance sales and service was offset by higher tank
fee revenues resulting from the change in accounting for such fees. Cost of
sales in the 2001 three-month period increased $128.1 million reflecting higher
propane supply prices and the greater retail and wholesale volumes sold.
Total margin increased $40.5 million (23.3%) reflecting higher average retail
unit margins and higher retail volumes. The benefits of derivative hedge
instruments and favorably priced supply arrangements during this period of
rapidly escalating product costs and market volatility resulted in the
Partnership recording higher than normal unit margins while maintaining
competitive prices.
The significant increase in EBITDA and operating income in the 2001 three-month
period resulted from the higher total margin. Operating and administrative
expenses of the Partnership were $102.2 million in the 2001 three-month period
compared with $92.0 million in the prior year which includes $1.6 million of
tank installation costs. In the current year, these costs are being capitalized
in accordance with the Partnership's change in accounting principle. Adjusting
for such costs in the prior year, operating and administrative expenses
increased $11.8 million. The increase in operating and administrative expenses
resulted from (1) higher distribution expenses including higher vehicle fuel and
maintenance expenses; (2) higher overtime and incentive compensation costs; (3)
an increase in uncollectible customer accounts expense due to significantly
higher customer accounts receivable balances; and (4) the impact on operating
expenses of acquisitions made in fiscal 2000.
The Partnership's interest expense for the 2001 three-month period increased
$1.8 million due principally to higher levels of long-term debt outstanding and,
to a lesser extent, higher average Revolving Credit Agreement borrowings.
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AMERIGAS PARTNERS, L.P.
2001 SIX-MONTH PERIOD COMPARED WITH 2000 SIX-MONTH PERIOD
-------------------------------------------------------------------------------------------------------------------
Increase
Six Months Ended March 31, 2001 2000 (Decrease)
-------------------------------------------------------------------------------------------------------------------
(Millions of dollars)
Gallons sold (millions):
Retail 544.9 500.5 44.4 8.9%
Wholesale 221.4 143.2 78.2 54.6%
------ ------ ------
766.3 643.7 122.6 19.0%
===== ===== =====
Revenues:
Retail propane $768.3 $553.9 214.4 38.7%
Wholesale propane 171.7 82.1 89.6 109.1%
Other 49.9 53.9 (4.0) (7.4)%
------ ------ ------
$989.9 $689.9 $300.0 43.5%
====== ====== ======
Total margin $381.7 $315.9 $65.8 20.8%
EBITDA $188.2 $137.7 $50.5 36.7%
Operating income $151.5 $105.0 $46.5 44.3%
Heating degree days - % colder (warmer) than
normal 5.2 (14.8) - -
-------------------------------------------------------------------------------------------------------------------
Temperatures in the 2001 six-month period were 5.2% colder than normal compared
to weather that was 14.8% warmer than normal in the prior-year six-month period.
Retail volumes of propane sold increased 44.4 million gallons (8.9%) primarily
as a result of the colder weather and, to a lesser extent, acquisitions
completed in fiscal 2000. Wholesale volumes totaled 221.4 million gallons, an
increase of 78.2 million gallons, principally reflecting higher sales associated
with product cost management activities.
Total revenues from retail propane sales increased $214.4 million reflecting (1)
a $165.3 million increase as a result of higher average selling prices and (2)
$49.1 million as a result of the higher retail volumes sold. Wholesale propane
revenues increased $89.6 million reflecting (1) a $44.8 million increase as a
result of higher average selling prices and (2) $44.8 million as a result of the
higher wholesale volumes sold. The higher retail and wholesale selling prices
resulted from higher propane supply costs. Other revenues decreased $4.0 million
in the 2001 six-month period primarily reflecting lower revenues from appliance
sales and service and the impact of the change in accounting for tank
installation costs on tank installation revenue. Cost of sales in the 2001
six-month period increased $234.1 million as a result of higher propane product
costs and the greater retail and wholesale volumes sold.
Total margin increased $65.8 million in the 2001 six-month period reflecting the
impact of higher average retail unit margins and the higher retail volumes sold.
The benefits of derivative hedge instruments and favorably priced supply
arrangements during this period of rapidly escalating
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AMERIGAS PARTNERS, L.P.
product costs and market volatility resulted in the Partnership recording higher
than normal retail unit margins during the 2001 six-month period while
maintaining competitive prices.
The increase in EBITDA and operating income during the 2001 six-month period
principally resulted from the increase in total margin. Operating and
administrative expenses of the Partnership were $196.0 million in the 2001
six-month period compared to $181.5 million in the prior year which includes
$4.8 million of costs associated with the installation of Partnership-owned
tanks. In the 2001 six-month period, such costs were capitalized in accordance
with the Partnership's change in accounting principle. Adjusting for these costs
in the prior-year period, operating and administrative expenses increased $19.3
million principally reflecting (1) higher distribution expenses including
vehicle fuel and maintenance costs; (2) higher overtime and incentive
compensation costs; (3) higher required reserves for uncollectible accounts; and
(4) growth-related expenses associated with our PPX(R) grill cylinder exchange
business and businesses acquired in fiscal 2000. Depreciation and amortization
expense increased $4.0 million reflecting $2.1 million of depreciation
associated with tank installation costs and depreciation and amortization
resulting from fiscal 2000 acquisitions.
The Partnership's interest expense for the 2001 six-month period increased $3.8
million primarily as a result of higher levels of long-term debt outstanding.
2001 TWELVE-MONTH PERIOD COMPARED WITH 2000 TWELVE-MONTH PERIOD
------------------------------------------------------------------------------------------------------------------
Increase
Twelve Months Ended March 31, 2001 2000 (Decrease)
------------------------------------------------------------------------------------------------------------------
(Millions of dollars)
Gallons sold (millions):
Retail 815.6 778.2 37.4 4.8%
Wholesale 336.2 218.9 117.3 53.6%
-------- --------- ------
1,151.8 997.1 154.7 15.5%
======== ========= ======
Revenues:
Retail propane $1,084.7 $ 810.5 $274.2 33.8%
Wholesale propane 242.3 114.2 128.1 112.2%
Other 93.1 95.1 (2.0) (2.1)%
-------- --------- ------
$1,420.1 $ 1,019.8 $400.3 39.3%
======== ========= ======
Total margin $557.6 $ 488.3 $69.3 14.2%
EBITDA $208.1 $ 156.2 $51.9 33.2%
Operating income $136.8 $ 90.6 $46.2 51.0%
Heating degree days - % colder (warmer) than
normal 3.5 (13.2) - -
------------------------------------------------------------------------------------------------------------------
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19
AMERIGAS PARTNERS, L.P.
Temperatures based upon heating degree days during the 2001 twelve-month period
were 3.5% colder than normal compared to weather that was 13.2% warmer than
normal in the prior year. Retail propane gallons sold increased mainly due to
higher residential heating, commercial and industrial gallons resulting from the
colder weather and the impact of acquisitions. Wholesale volume increased 117.3
million gallons (53.6%) primarily as a result of product cost management
activities.
Total revenues from retail propane sales increased $274.2 million reflecting (1)
a $235.2 million increase as a result of higher selling prices and (2) $39.0
million as a result of the higher retail gallons sold. The increase in wholesale
revenues includes an increase of (1) $66.9 million from higher average selling
prices and (2) $61.2 million from the greater wholesale volumes. Other revenues
in the 2001 twelve-month period were slightly lower as higher hauling, tank fees
and other customer fees were more than offset by lower appliance sales and
service revenue and the absence of customer tank installation revenue resulting
from the change in accounting for tank installation costs. Cost of sales
increased as a result of the higher propane costs and greater volumes sold.
Total margin increased $69.3 million due to higher average retail unit margins
and greater retail volumes sold. Unit margins in the 2001 twelve-month period
benefited from gains on derivative hedge instruments and favorably priced supply
arrangements.
EBITDA increased $51.9 million in the 2001 twelve-month period as the increase
in total margin was partially offset by higher operating and administrative
costs. The 2001 twelve-month period operating expenses reflect (1) greater
distribution expenses including vehicle fuel and maintenance costs; (2) higher
overtime and incentive compensation costs; (3) increased uncollectible accounts
expense; and (4) growth-related expenses associated with PPX(R) and
acquisitions. Operating income increased $46.2 million reflecting the higher
EBITDA offset by an increase in depreciation and amortization expense associated
with acquisitions and tank installation costs.
Interest expense of the Partnership increased $9.1 million principally as a
result of greater levels of long-term debt outstanding and higher interest
expense on Bank Credit Agreement borrowings.
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL CONDITION
The Partnership's debt outstanding at March 31, 2001 totaled $871.2 million
comprising $854.2 million of long-term debt (including current maturities of
$65.8 million) and $17 million under its Revolving Credit Facility. Included in
long-term debt outstanding at March 31, 2001 is $70 million of Acquisition
Facility borrowings.
In October 2000, the Partnership issued 2,300,000 Common Units in a public
offering. The net proceeds from the Common Unit offering and related capital
contributions from the General Partner were used to reduce Bank Credit Agreement
indebtedness and for working capital purposes. The
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AMERIGAS PARTNERS, L.P.
Common Units were issued under a shelf registration statement covering 9,000,000
Common Units filed with the SEC which was declared effective September 22, 2000.
On April 4, 2001, subsequent to the end of the quarter, AmeriGas Partners issued
$60 million face value of 10% Senior Notes due April 2006. The proceeds of these
notes were contributed to the Operating Partnership and used to (1) repay
revolving loans under the Operating Partnership's bank credit facilities and (2)
to fund a portion of the scheduled April 2001 $58 million principal repayment on
the Operating Partnership's First Mortgage Notes.
During the six months ended March 31, 2001, the Partnership declared and paid
the minimum quarterly distribution of $0.55 (the "MQD") on all units for the
quarters ended September 30, 2000 and December 31, 2000. The MQD for the quarter
ended March 31, 2001 will be paid on May 18, 2001 to holders of record on May 8,
2001 of all Common and Subordinated units. The ability of the Partnership to pay
the MQD on all units depends upon a number of factors. These factors include (1)
the level of Partnership earnings; (2) the cash needs of the Partnership's
operations (including cash needed for maintaining and increasing operating
capacity); (3) changes in operating working capital; and (4) the Partnership's
ability to borrow under its Bank 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.
The Partnership's management believes that cash flow from operations, Bank
Credit Agreement borrowings, and long-term debt issued to refinance maturing
debt, will be sufficient to satisfy its liquidity needs, including the payment
of the MQD, in fiscal 2001.
The Partnership's ability to attain the cash-based performance and distribution
requirements necessary to convert the 9,891,072 Subordinated Units held by the
General Partner depends upon a number of factors, including highly seasonal
operating results, changes in working capital, asset sales and debt
refinancings. Due to the historical "look-back" provisions of the conversion
test, the Partnership cannot satisfy the cash-based performance requirements for
conversion any earlier than in respect of the quarter ending June 30, 2002.
CASH FLOWS
Due to the seasonal nature of the propane business, cash flows from operating
activities are generally strongest during the second and third fiscal quarters
of the Partnership when customers pay for propane purchased during the heating
season and are generally at their lowest levels during the first and fourth
fiscal quarters. Accordingly, cash flows from operating activities during the
six months ended March 31, 2001 are not necessarily indicative of cash flows to
be expected for a full year.
OPERATING ACTIVITIES. Cash provided by operating activities was $43.6 million
during the six-months ended March 31, 2001 compared with $38.0 million during
the prior-year six-month period. Changes in operating working capital during the
2001 six-month period used $106.7 million of operating cash flow compared with
$64.0 million in the prior year. Changes in working capital in the 2001
six-month period included a significant increase in accounts receivable and to a
lesser extent propane inventories due to greater propane sales and higher
propane product costs. Cash flow from operating activities
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21
AMERIGAS PARTNERS, L.P.
before changes in operating working capital was $150.3 million in the six months
ended March 31, 2001 compared with $102.0 million in the prior-year period
reflecting the improved 2001 six-month period operating results.
INVESTING ACTIVITIES. We spent $18.8 million for property, plant and equipment
(including maintenance capital expenditures of $9.4 million) during the
six-months ended March 31, 2001 compared with $12.9 million (including
maintenance capital expenditures of $4.0 million) in the six-months ended March
31, 2000. Included in the 2001 six-month period capital expenditures are $3.2
million of costs resulting from the Partnership's change in accounting method
for customer tank installation costs (see Note 2 to Condensed Consolidated
Financial Statements).
FINANCING ACTIVITIES. During the six-month periods ended March 31, 2001 and
2000, we declared and paid the MQD on all Common and Subordinated units and the
general partner interests. Notwithstanding the cash needed to fund a significant
increase in working capital during the 2001 six-month period resulting from
higher propane supply prices and colder weather, we were able to reduce our bank
loans $13 million due in large part to the use of $40.6 million of proceeds from
the public offering of 2,300,000 Common Units and related General Partner
contributions to pay down borrowings under the Bank Credit Agreement. During the
2000 six-month period, the Operating Partnership borrowed $46 million under the
Acquisition Facility and subsequently repaid all Acquisition Facility
borrowings, totaling $69 million, with the proceeds from an $80 million issuance
of First Mortgage Notes.
CHANGES IN ACCOUNTING
Effective October 1, 2000, we (1) adopted SFAS 133; (2) applied the guidance of
SAB No. 101 entitled "Revenue Recognition" with respect to our nonrefundable
tank fees; and (3) changed our method of accounting for costs to install
Partnership-owned tanks at customer locations. The net effect of these
accounting changes on prior periods resulted in a $12.5 million increase in net
income for the six-months ended December 31, 2000 which amount is reflected on
the Consolidated Statement of Operations as "cumulative effect of accounting
changes."
The adoption of SFAS 133 resulted in a cumulative effect charge to net income of
$0.7 million and a cumulative effect increase to accumulated other comprehensive
income of $8.9 million which amount represents the fair value of derivative
instruments qualifying and designated as cash flow hedges on October 1, 2000.
Because our derivative instruments historically have been highly effective in
hedging exposure to changes in cash flows associated with forecasted purchases
or sales of propane, changes in the fair value of propane inventories, and
changes in the risk-free rate of interest on forecasted issuances of debt, we do
not expect SFAS 133 will have a material impact on our future results of
operations. However, if such instruments are not deemed highly effective in the
future, or if we use derivative instruments that do not meet the stringent
requirements for hedge accounting under SFAS 133, future results could reflect
greater volatility.
The adoption of SAB 101 resulted in a cumulative effect charge to net income of
$6.0 million representing the impact on prior periods resulting from the
application of SAB 101 as it relates to
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22
AMERIGAS PARTNERS, L.P.
our method of recognizing revenue associated with nonrefundable fees for
installed Partnership-owned tanks. Prior to October 1, 2000, such fees, which
are generally received annually, were recorded as revenue when billed. In
accordance with SAB 101, we now record such nonrefundable fees on a
straight-line basis over one year. The adoption of this revenue recognition
method is not expected to materially impact the Partnership's future financial
condition or results of operations.
In order to more appropriately match the costs of installing Partnership-owned
tanks at customer locations with the associated periods of benefit, we changed
our method of accounting for tank installation costs. Previously, such costs
were expensed as incurred. Effective October 1, 2000, such costs, net of
billings, are capitalized and amortized using an accelerated method that
reflects the attrition of the Partnership's customers. The change in accounting
for tank installation costs resulted in a cumulative effect increase to net
income of $19.2 million representing the impact on prior periods resulting from
the accounting change. For a more detailed discussion of these accounting
changes, see Note 2 to Condensed Consolidated Financial Statements.
AGREEMENT TO PURCHASE COLUMBIA PROPANE
On January 30, 2001, we signed a definitive agreement to purchase the retail
propane distribution businesses of Columbia Energy Group ("Columbia") for
approximately $208 million, subject to a working capital adjustment. The
Columbia propane businesses currently comprise the fifth largest retail marketer
of propane in the U.S. with total sales of over 300 million gallons from 186
locations in 29 states. At closing the seller will receive approximately $155
million cash and approximately $53 million of AmeriGas Partners Common Units.
The cash portion of the purchase price and related fees and expenses will be
funded with approximately $165 million of long-term debt to be issued by
AmeriGas Partners. The transaction is complex, and negotiations to complete the
transaction are ongoing. Although no assurance can be given, we currently expect
that the transaction will close during the third fiscal quarter of 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk exposures are market prices for propane and changes in
interest rates.
Our profitability is sensitive to changes in propane supply costs, and we
generally attempt to pass on increases in such costs to customers. There is no
assurance, however, that we will be able to do so. In order to manage a portion
of our propane market price risk, we use contracts for the forward purchase of
propane, propane fixed-price supply agreements, and derivative commodity
instruments such as price swap and option contracts. Although we use derivative
commodity instruments to reduce market price risk associated with forecasted
transactions and propane storage inventories, we do not use derivative financial
and commodity instruments for trading purposes. We attempt to minimize our
credit risk with our counterparties through the application of credit policies.
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23
AMERIGAS PARTNERS, L.P.
We have market risk exposure from changes in interest rates on borrowings under
the Operating Partnership's Bank Credit Agreement. This agreement has interest
rates on borrowings that are indexed to short-term market interest rates. At
March 31, 2001, borrowings outstanding under this facility totaled $87 million.
Based upon average borrowings under this agreement during Fiscal 2000, an
increase in interest rates of 100 basis points (1%) would have increased
interest expense on an annual basis by $0.9 million. We also use fixed-rate
long-term debt as a source of capital. As these fixed-rate long-term debt issues
mature, we intend to 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. On occasion, we enter into
interest rate protection agreements to reduce interest rate risk associated with
a forecasted issuance of debt.
The following table summarizes the fair value of our market risk sensitive
derivative instruments at March 31, 2001. It also includes the change in fair
value that would result if there were an adverse change in (1) the market price
of propane of 10 cents a gallon and (2) interest rates on ten-year U.S. treasury
notes of 100 basis points:
--------------------------------------------------------------------------------
Fair Change in
Value Fair Value
-------------------------------------------------------------------------------
(Millions of dollars)
March 31, 2001:
Propane commodity price risk $ (0.1) $ (2.5)
Interest rate risk (1.7) (8.0)
--------------------------------------------------------------------------------
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AMERIGAS PARTNERS, L.P.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
10.1 Purchase Agreement by and among Columbia Energy Group, Columbia
Propane Corporation, Columbia Propane, L.P., AmeriGas Propane, L.P.,
AmeriGas Partners, L.P. and AmeriGas Propane, Inc., dated as of
January 30, 2001
(b) AmeriGas Partners, L.P. filed two Current Reports on Form 8-K during
the fiscal quarter ended March 31, 2001:
Date Item Number(s) Content
---- -------------- -------
1/11/01 5 & 7 Advance notice of webcast of regular
earnings conference call
1/31/01 5 & 7 Announcement of execution of definitive
agreement to purchase the retail propane
businesses of Columbia Energy Group
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25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
AmeriGas Partners, L.P.
--------------------------
(Registrant)
By: AmeriGas Propane, Inc.,
as General Partner
Date: May 14, 2001 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: May 14, 2001 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
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26
AMERIGAS PARTNERS, L.P.
EXHIBIT INDEX
10.1 Purchase Agreement by and among Columbia Energy Group, Columbia
Propane Corporation, Columbia Propane, L.P., AmeriGas Propane, L.P., AmeriGas
Partners, L.P. and AmeriGas Propane, Inc. dated as of January 30, 2001.