UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-13692
Commission file number 33-92734-01
Commission file number 333-72986-02
Commission file number 333-72986-01
AMERIGAS PARTNERS, L.P.
AMERIGAS FINANCE CORP.
AMERIGAS EAGLE FINANCE CORP.
AP EAGLE FINANCE CORP.
(Exact name of registrants as specified in their charters)
Delaware 23-2787918
Delaware 23-2800532
Delaware 23-3074434
Delaware 23-3077318
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
460 North Gulph Road, King of Prussia, PA 19406
(Address of principal executive offices) (Zip Code)
(610) 337-7000
(Registrants' telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
At April 30, 2005, the registrants had units and shares of common stock
outstanding as follows:
AmeriGas Partners, L.P. - 54,492,605 Common Units
AmeriGas Finance Corp. - 100 shares
AmeriGas Eagle Finance Corp. - 100 shares
AP Eagle Finance Corp. - 100 shares
AMERIGAS PARTNERS, L.P.
TABLE OF CONTENTS
PAGES
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
AmeriGas Partners, L.P.
Condensed Consolidated Balance Sheets as of March 31, 2005,
September 30, 2004 and March 31, 2004 1
Condensed Consolidated Statements of Operations for the three and six
months ended March 31, 2005 and 2004 2
Condensed Consolidated Statements of Cash Flows for the
six months ended March 31, 2005 and 2004 3
Condensed Consolidated Statement of Partners' Capital for the
six months ended March 31, 2005 4
Notes to Condensed Consolidated Financial Statements 5 - 13
AmeriGas Finance Corp.
Balance Sheets as of March 31, 2005 and September 30, 2004 14
Note to Balance Sheets 15
AmeriGas Eagle Finance Corp.
Balance Sheets as of March 31, 2005 and September 30, 2004 16
Note to Balance Sheets 17
AP Eagle Finance Corp.
Balance Sheets as of March 31, 2005 and September 30, 2004 18
Note to Balance Sheets 19
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 20 - 28
Item 3. Quantitative and Qualitative Disclosures About Market Risk 28 - 29
Item 4. Controls and Procedures 29
PART II OTHER INFORMATION
Item 1. Legal Proceedings 30
Item 6. Exhibits 30
Signatures 31 - 32
i
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Thousands of dollars)
March 31, September 30, March 31,
2005 2004 2004
----------- ------------ -----------
ASSETS
Current assets:
Cash and cash equivalents $ 10,992 $ 40,583 $ 13,073
Accounts receivable (less allowances for doubtful accounts
of $16,889, $11,964 and $14,901, respectively) 250,519 141,709 222,086
Accounts receivable - related parties 2,483 5,137 2,010
Inventories 75,953 84,753 67,548
Prepaid expenses and other current assets 12,119 25,934 16,870
----------- ----------- -----------
Total current assets 352,066 298,116 321,587
Property, plant and equipment (less accumulated depreciation and
amortization of $549,648, $520,447 and $505,553, respectively) 592,423 592,353 608,834
Goodwill and excess reorganization value 617,006 609,058 606,621
Intangible assets (less accumulated amortization of $18,511,
$16,158 and $14,053, respectively) 30,469 28,612 28,403
Other assets 17,207 22,088 20,918
----------- ----------- -----------
Total assets $ 1,609,171 $ 1,550,227 $ 1,586,363
=========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current maturities of long-term debt $ 59,106 $ 60,068 $ 58,949
Bank loans 12,000 - 3,000
Accounts payable - trade 135,061 112,315 119,735
Accounts payable - related parties 2,336 1,309 512
Customer deposits and advances 31,673 78,907 28,493
Employee compensation and benefits accrued 27,577 30,023 26,637
Interest accrued 30,671 30,675 32,056
Other current liabilities 41,414 39,173 34,554
----------- ----------- -----------
Total current liabilities 339,838 352,470 303,936
Long-term debt 840,395 841,283 866,763
Other noncurrent liabilities 61,267 59,687 59,903
Commitments and contingencies (note 6)
Minority interests 8,447 7,749 7,969
Partners' capital 359,224 289,038 347,792
----------- ----------- -----------
Total liabilities and partners' capital $ 1,609,171 $ 1,550,227 $ 1,586,363
=========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
- 1 -
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(Thousands of dollars, except per unit)
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- ----------------------------
2005 2004 2005 2004
---------- ----------- ------------- -----------
Revenues:
Propane $ 663,677 $ 654,142 $ 1,181,128 $1,077,403
Other 34,591 33,568 73,356 70,505
--------- --------- ----------- ----------
698,268 687,710 1,254,484 1,147,908
--------- --------- ----------- ----------
Costs and expenses:
Cost of sales - propane 416,741 392,297 752,050 631,419
Cost of sales - other 13,017 12,899 28,852 28,280
Operating and administrative expenses 137,094 139,395 267,713 263,158
Depreciation and amortization 18,430 19,816 37,748 39,471
Other income, net (4,907) (4,656) (17,456) (7,938)
--------- --------- ----------- ----------
580,375 559,751 1,068,907 954,390
--------- --------- ----------- ----------
Operating income 117,893 127,959 185,577 193,518
Interest expense (20,733) (21,167) (41,236) (42,302)
--------- --------- ----------- ----------
Income before income taxes and minority interests 97,160 106,792 144,341 151,216
Income tax benefit (expense) 182 79 (2,133) (628)
Minority interests (1,120) (1,221) (1,695) (1,789)
--------- --------- ----------- ----------
Net income $ 96,222 $ 105,650 $ 140,513 $ 148,799
========= ========= =========== ==========
General partner's interest in net income $ 15,076 $ 17,681 $ 17,568 $ 20,219
========= ========= =========== ==========
Limited partners' interest in net income $ 81,146 $ 87,969 $ 122,945 $ 128,580
========= ========= =========== ==========
Net income per limited partner unit:
Basic $ 1.49 $ 1.68 $ 2.26 $ 2.46
========= ========= =========== ==========
Diluted $ 1.49 $ 1.68 $ 2.25 $ 2.45
========= ========= =========== ==========
Average limited partner units outstanding (thousands):
Basic 54,493 52,373 54,485 52,360
========= ========= =========== ==========
Diluted 54,533 52,431 54,542 52,436
========= ========= =========== ==========
See accompanying notes to condensed consolidated financial statements.
- 2 -
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Thousands of dollars)
Six Months Ended
March 31,
-----------------------
2005 2004
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 140,513 $ 148,799
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 37,748 39,471
Gain on sale of Atlantic Energy (9,135) -
Other, net 7,766 7,560
Net change in:
Accounts receivable (112,683) (108,588)
Inventories 9,011 5,917
Accounts payable 23,773 29,570
Other current assets and liabilities (42,855) (39,709)
--------- ---------
Net cash provided by operating activities 54,138 83,020
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (35,069) (31,064)
Proceeds from disposals of assets 10,406 5,479
Net proceeds from sale of Atlantic Energy 11,504 -
Acquisitions of businesses, net of cash acquired (18,626) (33,122)
--------- ---------
Net cash used by investing activities (31,785) (58,707)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (60,539) (58,178)
Minority interest activity (824) (787)
Increase in bank loans 12,000 3,000
Repayment of long-term debt (2,581) (1,147)
--------- ---------
Net cash used by financing activities (51,944) (57,112)
--------- ---------
Cash and cash equivalents decrease $ (29,591) $ (32,799)
========= =========
CASH AND CASH EQUIVALENTS:
End of period $ 10,992 $ 13,073
Beginning of period 40,583 45,872
--------- ---------
Decrease $ (29,591) $ (32,799)
========= =========
See accompanying notes to condensed consolidated financial statements.
- 3 -
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(unaudited)
(Thousands, except unit data)
Accumulated
Number of other Total
Common General comprehensive partners'
Units Common partner income (loss) capital
---------- --------- -------- -------------- -----------
BALANCE SEPTEMBER 30, 2004 54,473,272 $ 276,887 $ 2,783 $ 9,368 $ 289,038
Net income 122,945 17,568 140,513
Net losses on derivative instruments (17,896) (17,896)
Reclassification of net gains
on derivative instruments 7,529 7,529
--------- -------- -------- ---------
Comprehensive income 122,945 17,568 (10,367) 130,146
Distributions (59,934) (605) (60,539)
Common Units issued in
connection with incentive
compensation plan 19,333 579 579
---------- --------- -------- -------- ---------
BALANCE MARCH 31, 2005 54,492,605 $ 340,477 $ 19,746 $ (999) $ 359,224
========== ========= ======== ======== =========
See accompanying notes to condensed consolidated financial statements.
- 4 -
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
AmeriGas Partners, L.P. ("AmeriGas Partners") and its principal operating
subsidiaries AmeriGas Propane, L.P. ("AmeriGas OLP") and AmeriGas OLP's
subsidiary, AmeriGas Eagle Propane, L.P. ("Eagle OLP"). AmeriGas Partners,
AmeriGas OLP and Eagle OLP are Delaware limited partnerships. AmeriGas OLP
and Eagle OLP are collectively referred to herein as "the Operating
Partnerships," and AmeriGas Partners, the Operating Partnerships and all
of their subsidiaries are collectively referred to herein as "the
Partnership" or "we." We eliminate all significant intercompany accounts
and transactions when we consolidate. We account for AmeriGas Propane,
Inc.'s (the "General Partner's") 1.01% interest in AmeriGas OLP and an
unrelated third party's approximate 0.1% limited partner interest in Eagle
OLP as minority interests in the condensed consolidated financial
statements. The Partnership's 50% ownership interest in Atlantic Energy,
Inc. ("Atlantic Energy") was accounted for by the equity method (see Note
3). Atlantic Energy's principal asset is a propane storage terminal
located in Chesapeake, Virginia.
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,
2004 condensed consolidated balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
accounting principles generally accepted in the United States of America.
These financial statements should be read in conjunction with the
financial statements and related notes included in our Annual Report on
Form 10-K for the year ended September 30, 2004 ("2004 Annual Report").
Weather significantly impacts demand for propane and profitability because
many customers use propane for heating purposes. Due to the seasonal
nature of the Partnership's propane business, the results of operations
for interim periods are not necessarily indicative of the results to be
expected for a full year.
NET INCOME PER UNIT. Net income per unit is computed by dividing net
income, after deducting the General Partner's interest in AmeriGas
Partners, by the weighted average number of limited partner units
outstanding.
Effective April 2004, the Partnership adopted Emerging Issues Task Force
Issue No. 03-6, "Participating Securities and the Two-Class Method under
FASB Statement No. 128" ("EITF 03-6"), which results in the calculation of
net income per limited partner unit for each period according to
distributions declared and participation rights in undistributed earnings,
as if all of the earnings for the period had been distributed. In periods
with undistributed earnings above certain levels, the calculation
according to the two-class method results in an increased allocation of
undistributed earnings to the General Partner
-5-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
and a dilution of the earnings to the limited partners. Due to the
seasonality of the propane business, the dilutive effect of EITF 03-6 on
net income per limited partner unit will typically impact our first three
fiscal quarters. EITF 03-6 is not expected to impact net income per
limited partner unit for the fiscal year. The dilutive effect of EITF 03-6
on net income per diluted limited partner unit was $(0.26) and $(0.30) for
the three and six months ended March 31, 2005, respectively, and $(0.31)
and $(0.36) for the three and six months ended March 31, 2004,
respectively. Prior-period basic and diluted income per limited partner
unit amounts have been recalculated in accordance with EITF 03-6.
Potentially dilutive Common Units included in the diluted limited partner
units outstanding computation reflect the effects of restricted Common
Unit awards granted under AmeriGas Propane, Inc. incentive compensation
plans.
COMPREHENSIVE INCOME. The following table presents the components of
comprehensive income for the three and six months ended March 31, 2005 and
2004:
Three Months Ended Six Months Ended
March 31, March 31,
------------------- --------------------
2005 2004 2005 2004
-------- -------- --------- --------
Net income $ 96,222 $105,650 $140,513 $148,799
Other comprehensive income (loss) 15,775 (11,738) (10,367) 2,398
-------- -------- -------- --------
Comprehensive income $111,997 $93,912 $130,146 $151,197
-------- -------- -------- --------
Other comprehensive income (loss) is principally the result of changes in
the fair value of propane commodity derivative instruments and interest
rate protection agreements, net of reclassifications of net gains and
losses to net income.
UNIT-BASED COMPENSATION. As permitted by Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), we apply the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
25"), in recording compensation expense for grants of equity instruments
to employees.
-6-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
We use the intrinsic value method prescribed by APB 25 for our unit-based
employee compensation plans. We recorded unit-based compensation expense
(benefit) of $391 and $(104) during the three and six months ended March
31, 2005, respectively, and $664 and $484 during the three and six months
ended March 31, 2004, respectively. The forfeiture of restricted units in
fiscal 2005 resulted in the reversal of previously recognized expense. If
we had determined unit-based compensation expense under the fair value
method prescribed by SFAS 123, net income and basic and diluted income per
limited partner unit for the three and six months ended March 31, 2005 and
2004 would have been as follows:
Three Months Ended Six Months Ended
March 31, March 31,
----------------------- ------------------------
2005 2004 2005 2004
-------- --------- ----------- ---------
Net income as reported $ 96,222 $105,650 $ 140,513 $ 148,799
Add (deduct): Unit-based employee
compensation expense (benefit)
included in reported net income 391 664 (104) 484
Deduct: Total stock and unit-based
employee compensation expense
determined under the fair
value method for all awards (517) (807) (167) (725)
-------- -------- --------- ---------
Pro forma net income $ 96,096 $105,507 $ 140,242 $ 148,558
-------- -------- --------- ---------
Basic income per limited partner unit:
As reported $ 1.49 $ 1.68 $ 2.26 $ 2.46
Pro forma $ 1.49 $ 1.68 $ 2.25 $ 2.45
Diluted income per limited partner unit:
As reported $ 1.49 $ 1.68 $ 2.25 $ 2.45
Pro forma $ 1.49 $ 1.68 $ 2.25 $ 2.45
RECLASSIFICATIONS. We have reclassified certain prior year balances to
conform to the current period presentation.
USE OF ESTIMATES. We make estimates and assumptions when preparing
financial statements in conformity with accounting principles generally
accepted in the United States of America. These estimates and assumptions
affect the reported amounts of assets and liabilities, revenues and
expenses, as well as the disclosure of contingent assets and liabilities.
Actual results could differ from these estimates.
2. ACQUISITIONS
During the six months ended March 31, 2005, AmeriGas OLP acquired several
retail propane distribution businesses for total cash consideration of
$18,626. The operating results of these businesses have been included in
our operating results from their
-7-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
respective dates of acquisition. The pro forma effects of these
transactions were not material to the Partnership's results of operations.
3. SALE OF OWNERSHIP INTEREST IN ATLANTIC ENERGY, INC.
In November 2004, the Partnership sold its 50% ownership interest in
Atlantic Energy consisting of 3,500 shares of common stock ("Shares")
pursuant to a Stock Purchase Agreement ("Agreement") by and between AmerE
Holdings, Inc. ("AmerE"), an indirect wholly owned subsidiary of AmeriGas
OLP, and UGI Asset Management, Inc., an indirect wholly owned subsidiary
of UGI Corporation ("UGI"). UGI Asset Management, Inc. purchased AmerE's
Shares for $11,504 in cash, which is net of post-closing adjustments, as
defined in the Agreement. The Partnership recognized a pre-tax gain on the
sale totaling $9,135 ($7,107 net of tax), which amount is included in
"Other income, net" in the Condensed Consolidated Statement of Operations
for the six months ended March 31, 2005.
4. INTANGIBLE ASSETS
The Partnership's intangible assets comprise the following:
March 31, September 30,
2005 2004
------------ -------------
Subject to amortization:
Customer relationships and
noncompete agreements $ 48,980 $ 44,770
Accumulated amortization (18,511) (16,158)
------------ ---------
$ 30,469 $ 28,612
------------ ---------
Not subject to amortization:
Goodwill $ 523,686 $ 515,738
Excess reorganization value 93,320 93,320
------------ ---------
$ 617,006 $ 609,058
------------ ---------
The increases in intangible assets during the six months ended March 31,
2005 resulted from Partnership business acquisitions. Amortization expense
of intangible assets was $1,187 and $2,353 for the three and six months
ended March 31, 2005, respectively, and $1,031 and $2,119 for the three
and six months ended March 31, 2004, respectively. Our expected aggregate
amortization expense of intangible assets for the next five fiscal years
is as follows: Fiscal 2005 - $4,541; Fiscal 2006 - $4,213; Fiscal 2007 -
$3,575; Fiscal 2008 - $3,299; Fiscal 2009 - $2,978.
-8-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
5. RELATED PARTY TRANSACTIONS
Pursuant to the Partnership Agreement and a Management Services Agreement
among AmeriGas Eagle Holdings, Inc., the general partner of Eagle OLP, and
the General Partner, the General Partner is entitled to reimbursement for
all direct and indirect expenses incurred or payments it makes on behalf
of the Partnership. These costs, which totaled $80,735 and $159,429 during
the three and six months ended March 31, 2005, respectively, and $85,183
and $163,437 during the three and six months ended March 31, 2004,
respectively, include employee compensation and benefit expenses of
employees of the General Partner and general and administrative expenses.
UGI provides certain financial and administrative services to the General
Partner. UGI bills the General Partner for all direct and indirect
corporate expenses incurred in connection with providing these services
and the General Partner is reimbursed by the Partnership for these
expenses. Such corporate expenses totaled $2,521 and $5,754 during the
three and six months ended March 31, 2005, respectively, and $2,370 and
$5,532 during the three and six months ended March 31, 2004, respectively.
In addition, UGI and certain of its subsidiaries provide office space,
automobile liability insurance, and, during the three months ended March
31, 2005, sold propane, to the Partnership. These costs totaled $1,157 and
$2,154 during the three and six months ended March 31, 2005, respectively,
and $779 and $1,240 during the three and six months ended March 31, 2004,
respectively.
Subsequent to the acquisition of Columbia Propane and prior to the
November 2004 sale of our 50% ownership interest in Atlantic Energy, we
purchased propane on behalf of Atlantic Energy. Atlantic Energy reimbursed
AmeriGas OLP for its purchases plus interest as Atlantic Energy sold such
propane to third parties or to AmeriGas OLP itself. The total dollar value
of propane purchased on behalf of Atlantic Energy was $2,420 during the
six months ended March 31, 2005, all of which occurred prior to the sale
of our ownership interests. The total dollar value of propane purchased on
behalf of Atlantic Energy was $14,979 and $21,232 during the three and six
months ended March 31, 2004, respectively. Purchases of propane by
AmeriGas OLP from Atlantic Energy during the three and six months ended
March 31, 2005 totaled $11,558 and $20,064, respectively, and during the
three and six months ended March 31, 2004 totaled $14,354 and $22,034,
respectively.
In November 2004, in conjunction with the sale of our 50% ownership
interest in Atlantic Energy, UGI Asset Management, Inc. and AmeriGas OLP
entered into a Product Sales Agreement whereby UGI Asset Management, Inc.
has agreed to sell and AmeriGas OLP has agreed to purchase a specified
amount of propane annually at the Atlantic Energy terminal in Chesapeake,
Virginia. The Product Sales Agreement took effect on April 1, 2005 and
will continue for a primary term of five years with an option to extend
the agreement for up to an additional five years. The price to be paid for
product purchased
-9-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
under the agreement will be determined annually using a contractual
formula that takes into account published index prices and the locational
value of deliveries at the Atlantic Energy terminal.
Prior to the sale of Atlantic Energy, the General Partner also provided it
with other services including accounting, insurance and other
administrative services and was reimbursed for the related costs. Such
costs were not material during the three and six months ended March 31,
2005 and 2004. In addition, AmeriGas OLP entered into product cost hedging
contracts on behalf of Atlantic Energy. When these contracts were settled,
AmeriGas OLP was reimbursed the cost of any losses by, or distributed the
proceeds of any gains to, Atlantic Energy. Amounts due from Atlantic
Energy at March 31, 2005 and September 30, 2004 totaled $18 and $2,906,
respectively. Amounts due to Atlantic Energy totaled $400 at March 31,
2004. Amounts due from/to Atlantic Energy are included in accounts
receivable - related parties and accounts payable - related parties in the
Condensed Consolidated Balance Sheets.
6. COMMITMENTS AND CONTINGENCIES
The Partnership has succeeded to certain lease guarantee obligations of
Petrolane relating to Petrolane's divestiture of non-propane operations
before its 1989 acquisition by QFB Partners. Future lease payments under
these leases total approximately $11,000 at March 31, 2005. The leases
expire through 2010 and some of them are currently in default. The
Partnership has succeeded to the indemnity agreement of Petrolane by which
Texas Eastern Corporation ("Texas Eastern"), a prior owner of Petrolane,
agreed to indemnify Petrolane against any liabilities arising out of the
conduct of businesses that do not relate to, and are not a part of, the
propane business, including lease guarantees. In March 1999, Texas Eastern
filed for dissolution under the Delaware General Corporation Law.
PanEnergy Corporation ("PanEnergy"), Texas Eastern's sole stockholder,
subsequently assumed all of Texas Eastern's liabilities as of December 20,
2002, to the extent of the value of Texas Eastern's assets transferred to
PanEnergy as of that date (which was estimated to exceed $94,000), and to
the extent that such liabilities arise within ten years from Texas
Eastern's date of dissolution. Notwithstanding the dissolution proceeding,
and based on Texas Eastern previously having satisfied directly defaulted
lease obligations without the Partnership's having to honor its guarantee,
we believe that the probability that the Partnership will be required to
directly satisfy the lease obligations subject to the indemnification
agreement is remote.
On August 21, 2001, AmeriGas Partners, through AmeriGas OLP, acquired the
propane distribution businesses of Columbia Energy Group (the "2001
Acquisition") pursuant to the terms of a purchase agreement (the "2001
Acquisition Agreement") by and among 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,
-10-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
AmeriGas OLP and the General Partner (together with AmeriGas Partners and
AmeriGas OLP, the "Buyer Parties"). As a result of the 2001 Acquisition,
AmeriGas OLP acquired all of the stock of Columbia Propane and CPH and
substantially all of the partnership interests of CPLP. Under the terms of
an earlier acquisition agreement (the "1999 Acquisition Agreement"), the
Company Parties agreed to indemnify the former general partners of
National Propane Partners, L.P. (a predecessor company of the Columbia
Propane businesses) and an affiliate (collectively, "National General
Partners") against certain income tax and other losses that they may
sustain as a result of the 1999 acquisition by CPLP of National Propane
Partners, L.P. (the "1999 Acquisition") or the operation of the business
after the 1999 Acquisition ("National Claims"). At March 31, 2005, the
potential amount payable under this indemnity by the Company Parties was
approximately $58,000. These indemnity obligations will expire on the date
that CPH acquires the remaining outstanding partnership interest of CPLP,
which is expected to occur on or after July 19, 2009.
Under the terms of the 2001 Acquisition Agreement, CEG agreed to indemnify
the Buyer Parties and the Company Parties against any losses that they
sustain under the 1999 Acquisition Agreement and related agreements
("Losses"), including National Claims, to the extent such claims are based
on acts or omissions of CEG or the Company Parties prior to the 2001
Acquisition. The Buyer Parties agreed to indemnify CEG against Losses,
including National Claims, to the extent such claims are based on acts or
omissions of the Buyer Parties or the Company Parties after the 2001
Acquisition. CEG and the Buyer Parties have agreed to apportion certain
losses resulting from National Claims to the extent such losses result
from the 2001 Acquisition itself.
Samuel and Brenda Swiger and their son (the "Swigers") sustained personal
injuries and property damage as a result of a fire that occurred when
propane that leaked from an underground line ignited. In July 1998, the
Swigers filed a class action lawsuit against AmeriGas Propane, L.P. (named
incorrectly as "UGI/AmeriGas, Inc."), in the Circuit Court of Monongalia
County, West Virginia, in which they sought to recover an unspecified
amount of compensatory and punitive damages and attorney's fees, for
themselves and on behalf of persons in West Virginia for whom the
defendants had installed propane gas lines, allegedly resulting from the
defendants' failure to install underground propane lines at depths
required by applicable safety standards. In 2004, the court granted the
plaintiffs' motion to include customers acquired from Columbia Propane in
August 2001 as additional potential class members and to amend their
complaint to name additional parties consistent with such ruling. In 2003,
we settled the individual personal injury and property damage claims of
the Swigers. Class counsel has indicated that the class is seeking
compensatory damages in excess of $12,000 plus punitive damages, civil
penalties and attorneys' fees. We believe we have good defenses to the
claims of the class members and intend to vigorously defend against the
remaining claims in this lawsuit.
-11-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
We also have other contingent liabilities, pending claims and legal action
arising in the normal course of our business. We cannot predict with
certainty the final results of these and the aforementioned matters.
However, it is reasonably possible that some of them could be resolved
unfavorably to us. 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 amount of future operating results and cash flows.
7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"). SFAS
123R replaces SFAS 123 and supersedes APB 25. SFAS 123, as originally
issued in 1995, established as preferable a fair-value-based method of
accounting for share-based payment transactions with employees. However,
SFAS 123 permitted entities the option of continuing to apply the guidance
in APB 25, as long as the footnotes to financial statements disclosed what
net income would have been had the preferable fair-value-based method been
used. SFAS 123R requires that the compensation cost relating to
share-based payment transactions be recognized in the financial
statements. The cost is required to be measured based on the fair value of
the equity or liability instruments issued. SFAS 123R covers a wide range
of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation
rights, and employee share purchase plans. SFAS 123R is effective for our
fiscal year ending September 30, 2006. Under all of the transition
methods, unrecognized compensation expense for awards that are not vested
on the adoption date will be recognized in the Partnership's statements of
operations through the end of the requisite service period. The
Partnership does not believe that the adoption of SFAS 123R will have a
material impact on its results of operations or financial position.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets - An Amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from fair
value measurement for nonmonetary exchanges of similar productive assets
in paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary
Transactions," and replaces it with an exception for exchanges that lack
commercial substance. SFAS 153 specifies that a nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected
to change significantly as a result of the exchange. SFAS 153 is effective
for interim periods beginning after June 15, 2005. The Partnership does
not believe that the adoption of SFAS 153 will have a material effect on
its consolidated results of operations or financial position.
-12-
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
8. SUBSEQUENT EVENTS - LONG-TERM DEBT REFINANCING AND DISTRIBUTION INCREASE
In April 2005, the Partnership repaid $53,750 of maturing AmeriGas OLP
First Mortgage Notes with the proceeds from a $35,000 term loan maturing
on October 1, 2006, borrowings under its revolving credit facility and
existing cash balances.
In April 2005, the General Partner declared an increase in the
Partnership's regular quarterly distribution to $0.56 per limited partner
unit payable May 18, 2005 to unitholders of record May 10, 2005. The
annualized distribution rate after the increase will be $2.24 per limited
partner unit.
In May 2005, the Partnership refinanced $373,360 of its outstanding 8.875%
Series B Senior Notes due 2011 through the issuance of $415,000 of 7.25%
Senior Notes due 2015. In connection with the refinancing, the Partnership
incurred a loss on early extinguishment of debt totaling $33,496. The loss
will be recognized in the third quarter of fiscal 2005.
-13-
AMERIGAS FINANCE CORP.
(a wholly owned subsidiary of AmeriGas Partners, L.P.)
BALANCE SHEETS
(unaudited)
March 31, September 30,
2005 2004
--------- -------------
ASSETS
Cash $ 1,000 $ 1,000
------- -------
Total assets $ 1,000 $ 1,000
======= =======
STOCKHOLDER'S EQUITY
Common stock, without par value; 100 shares authorized,
issued and outstanding $ - $ -
Additional paid-in capital 1,000 1,000
------- -------
Total stockholder's equity $ 1,000 $ 1,000
======= =======
See accompanying notes to balance sheets.
-14-
AMERIGAS FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF AMERIGAS PARTNERS, L.P.)
NOTE TO BALANCE SHEETS
(unaudited)
AmeriGas Finance Corp. ("AmeriGas Finance"), a Delaware corporation, was formed
on March 13, 1995 and is a wholly owned subsidiary of AmeriGas Partners, L.P.
("AmeriGas Partners").
As of November 21, 2003, AmeriGas Partners and AmeriGas Finance have an
effective unallocated shelf registration statement with the Securities and
Exchange Commission under the Securities Act of 1933 under which AmeriGas
Partners may issue up to $446,219,000 of debt or equity securities. AmeriGas
Finance will be the co-obligor of the debt securities, if any, issued pursuant
to the registration statement.
In May 2005, AmeriGas Partners and AmeriGas Finance jointly and severally issued
$415,000,000 face amount of 7.25% Senior Notes due 2015. AmeriGas Partners used
the proceeds to repay principal and premium on $373,360,000 of 8.875% Senior
Notes due 2011.
AmeriGas Partners owns all 100 shares of AmeriGas Finance common stock
outstanding.
-15-
AMERIGAS EAGLE FINANCE CORP.
(a wholly owned subsidiary of AmeriGas Partners, L.P.)
BALANCE SHEETS
(unaudited)
March 31, September 30,
2005 2004
--------- -------------
ASSETS
Cash $ 1,000 $ 1,000
------- -------
Total assets $ 1,000 $ 1,000
======= =======
STOCKHOLDER'S EQUITY
Common stock, without par value; 100 shares authorized,
issued and outstanding $ - $ -
Additional paid-in capital 1,000 1,000
------- -------
Total stockholder's equity $ 1,000 $ 1,000
======= =======
See accompanying notes to balance sheets.
-16-
AMERIGAS EAGLE FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF AMERIGAS PARTNERS, L.P.)
NOTE TO BALANCE SHEETS
(unaudited)
AmeriGas Eagle Finance Corp. ("Eagle Finance"), a Delaware corporation, was
formed on February 22, 2001 and is a wholly owned subsidiary of AmeriGas
Partners, L.P. ("AmeriGas Partners").
On April 4, 2001, AmeriGas Partners and Eagle Finance jointly and severally
issued $60,000,000 face amount of 10% Senior Notes due April 2006.
AmeriGas Partners owns all 100 shares of Eagle Finance common stock outstanding.
-17-
AP EAGLE FINANCE CORP.
(a wholly owned subsidiary of AmeriGas Partners, L.P.)
BALANCE SHEETS
(unaudited)
March 31, September 30,
2005 2004
--------- -------------
ASSETS
Cash $ 1,000 $ 1,000
------- -------
Total assets $ 1,000 $ 1,000
======= =======
STOCKHOLDER'S EQUITY
Common stock, without par value; 100 shares authorized,
issued and outstanding $ - $ -
Additional paid-in capital 1,000 1,000
------- -------
Total stockholder's equity $ 1,000 $ 1,000
======= =======
See accompanying notes to balance sheets.
-18-
AP EAGLE FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF AMERIGAS PARTNERS, L.P.)
NOTE TO BALANCE SHEETS
(unaudited)
AP Eagle Finance Corp. ("AP Eagle Finance"), a Delaware corporation, was formed
on April 12, 2001 and is a wholly owned subsidiary of AmeriGas Partners, L.P.
("AmeriGas Partners").
On August 21, 2001, AmeriGas Partners and AP Eagle Finance jointly and severally
issued $200,000,000 face amount of 8.875% Series A Senior Notes due May 2011. On
December 20, 2001, AmeriGas Partners and AP Eagle Finance exchanged $199,985,000
face amount of 8.875% Series A Senior Notes due May 2011 for a like amount of
AmeriGas Partners and AP Eagle Finance 8.875% Series B Senior Notes due May 2011
pursuant to a registered exchange offer.
On May 3, 2002, AmeriGas Partners and AP Eagle Finance jointly and severally
issued $40,000,000 face amount of 8.875% Series B Senior Notes due May 2011.
On December 3, 2002, AmeriGas Partners and AP Eagle Finance jointly and
severally issued $88,000,000 face amount of 8.875% Senior Notes due May 2011.
On April 4, 2003, AmeriGas Partners and AP Eagle Finance exchanged (1) $15,000
face amount of 8.875% Series A Senior Notes due May 2011 and (2) $88,000,000
face amount of 8.875% Senior Notes due May 2011 for like amounts of AmeriGas
Partners and AP Eagle Finance 8.875% Series B Senior Notes due May 2011 pursuant
to a registered exchange offer.
In April 2003, AmeriGas Partners and AP Eagle Finance jointly and severally
issued $32,000,000 face amount of 8.875% Series B Senior Notes due May 2011.
In April 2004, AmeriGas Partners and AP Eagle Finance jointly and severally
issued $28,000,000 face amount of 8.875% Series B Senior Notes due May 2011.
In May 2005, AmeriGas Partners repaid $373,360,000 face amount of 8.875% Series
B Senior Notes due 2011 and related premium through the issuance of $415,000,000
face amount of 7.25% Senior Notes due 2015.
AmeriGas Partners owns all 100 shares of AP Eagle Finance common stock
outstanding.
-19-
AMERIGAS PARTNERS, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Information contained in this Management's Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this Quarterly Report may
contain forward-looking statements. Such statements use forward-looking words
such as "believe," "plan," "anticipate," "continue," "estimate," "expect,"
"may," "will," or other similar words. These statements discuss plans,
strategies, events or developments that we expect or anticipate will or may
occur in the future.
A forward-looking statement may include a statement of the assumptions or bases
underlying the forward-looking statement. We believe that we have chosen these
assumptions or bases in good faith and that they are reasonable. However, we
caution you that actual results almost always vary from assumed facts or bases,
and the differences between actual results and assumed facts or bases can be
material, depending on the circumstances. When considering forward-looking
statements, you should keep in mind the following important factors which could
affect our future results and could cause those results to differ materially
from those expressed in our forward-looking statements: (1) adverse weather
conditions resulting in reduced demand; (2) cost volatility and availability of
propane, and the capacity to transport propane to our market areas; (3) changes
in laws and regulations, including safety, tax and accounting matters; (4) large
supplier, counterparty or customer defaults; (5) competitive pressures from the
same and alternative energy sources; (6) failure to acquire new customers
thereby reducing or limiting any increase in revenues; (7) liability for
environmental claims; (8) customer conservation measures and improvements in
energy efficiency and technology resulting in reduced demand; (9) adverse labor
relations; (10) inability to make business acquisitions on economically
acceptable terms resulting in failure to acquire new customers thereby limiting
any increase in revenues; (11) liability 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; (12) political, regulatory and economic conditions in the
United States and in foreign countries; and (13) interest rate fluctuations and
other capital market conditions.
These factors are not necessarily all of the important factors that could cause
actual results to differ materially from those expressed in any of our
forward-looking statements. Other unknown or unpredictable factors could also
have material adverse effects on future results. We undertake no obligation to
update publicly any forward-looking statement whether as a result of new
information or future events except as required by Federal securities laws.
-20-
AMERIGAS PARTNERS, L.P.
ANALYSIS OF RESULTS OF OPERATIONS
The following analyses compare the Partnership's results of operations for (1)
the three months ended March 31, 2005 ("2005 three-month period") with the three
months ended March 31, 2004 ("2004 three-month period") and (2) the six months
ended March 31, 2005 ("2005 six-month period") with the six months ended March
31, 2004 ("2004 six-month period"). AmeriGas Finance Corp., AmeriGas Eagle
Finance Corp. and AP Eagle Finance Corp. have nominal assets and do not conduct
any operations. Their sole purpose is to serve as co-obligors for debt
securities issued by AmeriGas Partners, L.P. Accordingly, discussions of the
results of operations and financial condition and liquidity of these entities
are not presented.
EXECUTIVE OVERVIEW
The Partnership reported net income of $140.5 million and net income per diluted
limited partner unit of $2.25 for the first half of fiscal 2005, which includes
an after-tax gain of $7.1 million ($0.13 per limited partner unit) in connection
with the sale of its 50% ownership interest in Atlantic Energy, Inc. The
Partnership's results were adversely affected by (1) the negative effects of
customer conservation resulting from higher propane selling prices due to
significantly higher propane product costs and (2) weather that was
approximately 6% warmer than normal and 2% warmer than last year. The
combination of these factors resulted in an approximate 5% decrease in retail
propane volumes sold compared to the first half of fiscal 2004. The Partnership
was able to reduce its operating and administrative expenses during the second
quarter through the implementation of warm weather action plans in an effort to
lessen the negative effects of warmer than normal winter weather and
price-induced customer conservation on volumes sold. These action plans are
expected to remain in place for the remainder of the fiscal year.
In May 2005, the Partnership issued $415 million of 7.25% Senior Notes due 2015
in connection with the refinancing of $373.4 million of its 8.875% Series B
Senior Notes due 2011. The refinancing resulted in a loss on early
extinguishment of debt totaling $33.5 million, but will lower annual interest
expense meaningfully and extend the maturity of the debt by several years. The
loss on early extinguishment will be recognized during the third quarter of
fiscal 2005.
-21-
AMERIGAS PARTNERS, L.P.
2005 THREE-MONTH PERIOD COMPARED WITH 2004 THREE-MONTH PERIOD
Increase
Three Months Ended March 31, 2005 2004 (Decrease)
(millions of dollars) ------- ------- --------------------
Gallons sold (millions):
Retail 378.8 403.9 (25.1) (6.2)%
Wholesale 59.4 112.2 (52.8) (47.1)%
------- ------- -------
438.2 516.1 (77.9) (15.1)%
======= ======= =======
Revenues:
Retail propane $ 610.6 $ 573.8 $ 36.8 6.4 %
Wholesale propane 53.0 80.4 (27.4) (34.1)%
Other 34.7 33.5 1.2 3.6 %
------- ------- -------
$ 698.3 $ 687.7 $ 10.6 1.5 %
======= ======= =======
Total margin (a) $ 268.5 $ 282.5 $ (14.0) (5.0)%
EBITDA (b) $ 135.2 $ 146.6 $ (11.4) (7.8)%
Operating income $ 117.9 $ 128.0 $ (10.1) (7.9)%
Net income $ 96.2 $ 105.7 $ (9.5) (9.0)%
Heating degree days - % warmer than normal (c) (4.9) (1.5) - -
(a) Total margin represents total revenues less cost of sales - propane and
cost of sales - other.
(b) EBITDA (earnings before interest expense, income taxes, and depreciation
and amortization) should not be considered as an alternative to net income
(as an indicator of operating performance) or as an alternative to cash
flow (as a measure of liquidity or ability to service debt obligations)
and is not a measure of performance or financial condition under
accounting principles generally accepted in the United States of America
("GAAP"). Management believes EBITDA is a meaningful non-GAAP financial
measure used by investors to compare the Partnership's operating
performance with that of other companies within the propane industry. The
Partnership's definition of EBITDA may be different from that used by
other companies. Weather significantly impacts demand for propane and
profitability because many customers use propane for heating purposes. Due
to the seasonal nature of the Partnership's propane business, EBITDA for
interim periods is not necessarily indicative of amounts to be expected
for a full year.
The following table includes reconciliations of net income to EBITDA for
the periods presented:
Three Months Ended
March 31,
-------------------------
2005 2004
-------- -------
Net income $ 96.2 $ 105.7
Income tax benefit (0.1) (0.1)
Interest expense 20.7 21.2
Depreciation 17.0 18.6
Amortization 1.4 1.2
------- -------
EBITDA $ 135.2 $ 146.6
======= =======
(c) Deviation from average heating degree days based upon national weather
statistics provided by the National Oceanic and Atmospheric Administration
("NOAA") for 335 airports in the United States, excluding Alaska.
-22-
AMERIGAS PARTNERS, L.P.
Based upon national heating degree day data, temperatures were 4.9% warmer than
normal during the 2005 three-month period compared to temperatures that were
1.5% warmer than normal during the 2004 three-month period. Retail propane
volumes sold decreased 6.2% due to the combination of warmer than normal winter
weather and the negative effects of customer conservation resulting from
record-high propane prices.
Retail propane revenues increased $36.8 million reflecting a $72.5 million
increase due to higher average selling prices partially offset by a $35.7
million decrease due to the lower retail volumes sold. Wholesale propane
revenues decreased $27.4 million reflecting a $37.8 million decrease due to
lower volumes sold partially offset by a $10.4 million increase resulting from
higher average selling prices. The higher average retail and wholesale selling
prices per gallon reflect the continuance of significantly higher propane
product costs principally resulting from higher crude oil prices. The average
wholesale cost per gallon at Mont Belvieu, one of the major propane supply
points in the United States, was approximately 17% greater than the average cost
per gallon during the 2004 three-month period. Notwithstanding the lower propane
volumes sold, total cost of sales increased $24.6 million primarily reflecting
the increase in propane product costs. Total margin decreased $14.0 million
compared to the 2004 three-month period due to the lower retail volumes sold
partially offset by slightly higher average retail propane margins per gallon
and higher margin from ancillary sales and services.
EBITDA during the 2005 three-month period was $135.2 million compared to $146.6
million during the 2004 three-month period. The $11.4 million decline in EBITDA
reflects the aforementioned decrease in total margin partially offset by lower
operating and administrative expenses. In conjunction with the Partnership's
warm weather action plans, operating and administrative expenses decreased $2.3
million reflecting lower employee compensation and benefit costs and vehicle
repair expenses partially offset by higher vehicle fuel and vehicle lease
expenses. Operating income decreased $10.1 million reflecting the decrease in
EBITDA slightly offset by lower depreciation expense. Net income in the 2005
three-month period decreased $9.5 million reflecting the lower operating income
and slightly lower interest expense.
-23-
AMERIGAS PARTNERS, L.P.
2005 SIX-MONTH PERIOD COMPARED WITH 2004 SIX-MONTH PERIOD
Increase
Six Months Ended March 31, 2005 2004 (Decrease)
(millions of dollars) --------- --------- --------------------
Gallons sold (millions):
Retail 675.6 708.4 (32.8) (4.6)%
Wholesale 103.8 145.3 (41.5) (28.6)%
--------- --------- --------
779.4 853.7 (74.3) (8.7)%
========= ========= ========
Revenues:
Retail propane $ 1,086.1 $ 973.9 $ 112.2 11.5 %
Wholesale propane 95.0 103.5 (8.5) (8.2)%
Other 73.4 70.5 2.9 4.1 %
--------- --------- --------
$ 1,254.5 $ 1,147.9 $ 106.6 9.3 %
========= ========= ========
Total margin $ 473.6 $ 488.2 $ (14.6) (3.0)%
EBITDA (a) $ 221.6 $ 231.2 $ (9.6) (4.2)%
Operating income $ 185.6 $ 193.5 $ (7.9) (4.1)%
Net income $ 140.5 $ 148.8 $ (8.3) (5.6)%
Heating degree days - % warmer than normal (6.2) (4.1) - -
(a) The following table includes reconciliations of net income to EBITDA for
the periods presented:
Six Months Ended
March 31,
-------------------------
2005 2004
---------- ----------
Net income $ 140.5 $ 148.8
Income tax expense 2.2 0.6
Interest expense 41.2 42.3
Depreciation 34.9 36.9
Amortization 2.8 2.6
------- -------
EBITDA $ 221.6 $ 231.2
======= =======
Temperatures during the 2005 six-month period were 6.2% warmer than normal
compared to temperatures that were 4.1% warmer than normal during the 2004
six-month period. Retail propane volumes sold decreased nearly 5% principally
due to the warmer than normal winter weather and the negative effects of
customer conservation driven by record-high propane selling prices.
Retail propane revenues increased $112.2 million reflecting a $157.3 million
increase due to higher average selling prices partially offset by a $45.1
million decrease due to the lower retail volumes sold. Wholesale propane
revenues decreased $8.5 million reflecting a $29.6 million decrease due to lower
volumes sold partially offset by a $21.1 million increase due to higher average
selling prices. The higher average retail and wholesale selling prices per
gallon reflect significantly higher propane product costs principally resulting
from higher crude oil prices. The average wholesale cost per gallon of propane
at Mont Belvieu was approximately 31% greater than the average cost per gallon
during the 2004 six-month period. Total cost of sales increased
-24-
AMERIGAS PARTNERS, L.P.
$121.2 million reflecting the higher propane product costs. Total margin
decreased $14.6 million principally due to the lower retail volumes sold
partially offset by slightly higher average retail propane margins per gallon
and higher margin from ancillary sales and services.
Notwithstanding a $9.1 million pre-tax gain recognized on the Partnership's sale
of its 50% ownership interest in Atlantic Energy, Inc. ("Atlantic Energy"),
EBITDA during the 2005 six-month period decreased $9.6 million compared to the
2004 six-month period as a result of the aforementioned decrease in total margin
and a $4.6 million increase in operating and administrative expenses. The
increase in operating and administrative expenses principally resulted from
higher vehicle fuel costs, vehicle lease expense, general insurance and
uncollectible accounts expense. These increases were partially offset
principally by lower employee compensation and benefit costs and lower vehicle
repairs and maintenance expenses. Operating income decreased $7.9 million
reflecting the decrease in EBITDA slightly offset by lower depreciation expense.
Net income in the 2005 six-month period decreased $8.3 million reflecting the
lower operating income and increased income taxes resulting from the
Partnership's gain on the sale of its ownership interest in Atlantic Energy
partially offset by lower interest expense.
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL CONDITION
The Partnership's long-term debt outstanding at March 31, 2005 totaled $899.5
million (including current maturities of $59.1 million) compared to $901.4
million (including current maturities of $60.1 million) at September 30, 2004.
In April 2005, the Partnership repaid $53.8 million of maturing AmeriGas OLP
First Mortgage Notes with the proceeds from a $35 million term loan maturing
October 1, 2006, borrowings under its revolving credit facility and existing
cash balances. In May 2005, the Partnership refinanced $373.4 million of its
outstanding 8.875% Series B Senior Notes due 2011 through the issuance of $415.0
million of 7.25% Senior Notes due 2015. In connection with the refinancing, the
Partnership incurred a loss on early extinguishment of debt totaling $33.5
million which will be recognized in the third quarter of fiscal 2005.
AmeriGas OLP's Credit Agreement expires on October 15, 2008 and consists of (1)
a $100 million Revolving Credit Facility and (2) a $75 million Acquisition
Facility. The Revolving Credit Facility may be used for working capital and
general purposes of AmeriGas OLP. The Acquisition Facility provides AmeriGas OLP
with the ability to borrow up to $75 million to finance the purchase of propane
businesses or propane business assets or, to the extent it is not so used, for
working capital and general purposes, subject to restrictions in the AmeriGas
Partners Senior Notes indentures. At March 31, 2005, there were $12.0 million of
borrowings outstanding under the Credit Agreement, which are classified as bank
loans. AmeriGas OLP's short-term borrowing needs are seasonal and are typically
greatest during the fall and winter heating season months due to the need to
fund higher levels of working capital. Issued and outstanding letters of credit
under the Revolving Credit Facility, which reduce the amount of available
borrowing capacity, totaled $54.4 million at March 31, 2005.
-25-
AMERIGAS PARTNERS, L.P.
AmeriGas OLP also has a credit agreement with the General Partner to borrow up
to $20 million on an unsecured, subordinated basis, for working capital and
general purposes. UGI has agreed to contribute up to $20 million to the General
Partner to fund such borrowings.
AmeriGas Partners periodically issues debt and equity securities and expects to
continue issuing securities in the future. It has issued debt securities and
Common Units in underwritten public offerings in each of the last three fiscal
years. Most recently, it issued debt securities through a private placement in
May 2005 and Common Units in May 2004 in an underwritten public offering.
Proceeds of the offerings are used to refinance indebtedness and for general
Partnership purposes, including funding acquisitions. The Partnership has
effective debt and equity shelf registration statements with the SEC under which
it may issue up to an additional (1) 1.4 million AmeriGas Partners Common Units
and (2) up to $446.2 million of debt or equity securities pursuant to an
unallocated shelf registration statement.
During the six months ended March 31, 2005, the Partnership declared and paid
the minimum quarterly distribution of $0.55 (the "MQD") on all limited partner
units for the quarters ended September 30, 2004 and December 31, 2004. On April
26, 2005, the Partnership declared an increase in the regular quarterly
distribution to $0.56 per limited partnership unit ($2.24 on an annual basis).
The quarterly distribution of $0.56 for the quarter ended March 31, 2005 will be
paid on May 18, 2005 to holders of record on May 10, 2005. 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 Partnership's operations
(including cash needed for maintaining and increasing operating capacity); (3)
changes in operating working capital; and (4) the Partnership's ability to
borrow under its Credit Agreement, to refinance maturing debt, and to increase
its long-term debt. Some of these factors are affected by conditions beyond our
control including weather, competition in markets we serve, the cost of propane
and changes in capital market conditions.
CASH FLOWS
OPERATING ACTIVITIES. The Partnership had cash and cash equivalents totaling
$11.0 million at March 31, 2005 compared to $40.6 million at September 30, 2004.
Due to the seasonal nature of the propane business, cash flows from operating
activities are generally strongest during the second and third fiscal quarters
when customers pay for propane purchased during the heating season months.
Conversely, operating cash flows are generally at their lowest levels during the
first and fourth fiscal quarters when the Partnership's investment in working
capital, principally accounts receivable and inventories, is generally greatest.
Accordingly, cash flows from operating activities during the six months ended
March 31, 2005 are not necessarily indicative of cash flows to be expected for a
full year. The Partnership uses its Credit Agreement to satisfy its seasonal
cash flow needs. Cash flow provided by operating activities was $54.1 million
during the 2005 six-month period compared to $83.0 million during the 2004
six-month period. Cash flow from operating activities before changes in working
capital was $176.9 million in the 2005 six-month period compared to $195.8
million in the prior-year six-month period. These decreases reflect the negative
effects of customer conservation resulting from significantly higher propane
selling prices and greater cash required to fund changes in working capital.
Cash required to fund changes in operating working capital during the 2005
six-month period totaled $122.8 million compared to the $112.8 million required
in the prior-year six-month period
-26-
AMERIGAS PARTNERS, L.P.
reflecting the effects of the higher selling prices on accounts receivable and
higher propane costs on inventories and accounts payable.
INVESTING ACTIVITIES. We spent $35.1 million for property, plant and equipment
(including maintenance capital expenditures of $11.6 million and growth capital
expenditures of $23.5 million) during the six months ended March 31, 2005
compared to $31.1 million (including maintenance capital expenditures of $11.6
million and growth capital expenditures of $19.5 million) during the prior-year
six-month period. The significant increase is due to greater expenditures
relating to growth initiatives. The increase in proceeds received from disposals
of assets reflects the sale of seven district locations during the 2005
six-month period compared to three district locations in the 2004 six-month
period. During the 2005 six-month period, the Partnership sold its 50% ownership
interest in Atlantic Energy for $11.5 million. The Partnership acquired several
retail propane businesses for $18.6 million during the 2005 six-month period and
$33.1 million during the 2004 three-month period.
FINANCING ACTIVITIES. Cash flow used by financing activities was $51.9 million
in the 2005 six-month period compared to $57.1 million in the prior-year period.
The Partnership's financing activities are typically the result of repayments
and issuances of long-term debt, borrowings under our Credit Agreement,
issuances of Common Units and distributions on partnership interests.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"). SFAS 123R replaces
SFAS 123 and supersedes APB 25. SFAS 123, as originally issued in 1995,
established as preferable a fair-value-based method of accounting for
share-based payment transactions with employees. However, SFAS 123 permitted
entities the option of continuing to apply the guidance in APB 25, as long as
the footnotes to financial statements disclosed what net income would have been
had the preferable fair-value-based method been used. SFAS 123R requires that
the compensation cost relating to share-based payment transactions be recognized
in the financial statements. The cost is required to be measured based on the
fair value of the equity or liability instruments issued. SFAS 123R covers a
wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. SFAS 123R is effective for our fiscal year ending
September 30, 2006. Under all of the transition methods, unrecognized
compensation expense for awards that are not vested on the adoption date will be
recognized in the Partnership's statements of operations through the end of the
requisite service period. The Partnership does not believe that the adoption of
SFAS 123R will have a material impact on its results of operations or financial
position as detailed in Note 1 to the Condensed Consolidated Financial
Statements.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
- An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions"
("SFAS 153"). SFAS 153 eliminates the exception from fair value measurement for
nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB
Opinion No. 29, "Accounting for Nonmonetary Transactions," and replaces it with
an exception for exchanges that lack commercial substance. SFAS 153 specifies
that a nonmonetary exchange has commercial substance if the future cash flows of
the entity are expected to change significantly as a result of
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AMERIGAS PARTNERS, L.P.
the exchange. SFAS 153 is effective for interim periods beginning after June 15,
2005. The Partnership does not believe that the adoption of SFAS 153 will have a
material effect on its consolidated results of operations or financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary financial market risks include commodity prices for propane and
interest rates on borrowings.
The risk associated with fluctuations in the prices the Partnership pays for
propane is principally a result of market forces reflecting changes in supply
and demand for propane and other energy commodities. The Partnership's
profitability is sensitive to changes in propane supply costs, and the
Partnership generally attempts to pass on increases in such costs to customers.
The Partnership may not, however, always be able to pass through product cost
increases fully, particularly when product costs rise rapidly. In order to
reduce volatility of the Partnership's propane market price risk, we use
contracts for the forward purchase or sale of propane, propane fixed-price
supply agreements, and over-the-counter derivative commodity instruments
including price swap and option contracts. Over-the-counter derivative commodity
instruments utilized by the Partnership are generally settled at expiration of
the contract. In order to minimize credit risk associated with derivative
commodity contracts, we monitor established credit limits with the contract
counterparties. Although we use derivative financial and commodity instruments
to reduce market price risk associated with forecasted transactions, we do not
use derivative financial and commodity instruments for speculative or trading
purposes.
The Partnership has both fixed-rate and variable-rate debt. Changes in interest
rates impact the cash flows of variable-rate debt but generally do not impact
its fair value. Conversely, changes in interest rates impact the fair value of
fixed-rate debt but do not impact its cash flows.
Our variable rate debt includes borrowings under AmeriGas OLP's Credit
Agreement. This agreement has interest rates that are generally indexed to
short-term market interest rates. Our long-term debt is typically issued at
fixed rates of interest based upon market rates for debt having similar terms
and credit ratings. As these long-term debt issues mature, we may refinance such
debt with new debt having interest rates reflecting then-current market
conditions. This debt may have an interest rate that is more or less than the
refinanced debt. In order to reduce interest rate risk associated with near-term
forecasted issuances of fixed-rate debt, from time to time we enter into
interest rate protection agreements.
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AMERIGAS PARTNERS, L.P.
The following table summarizes the fair values of unsettled market risk
sensitive derivative instruments held at March 31, 2005. Fair values reflect the
estimated amounts that we would receive or (pay) to terminate the contracts at
the reporting date based upon quoted market prices of comparable contracts at
March 31, 2005. The table also includes the changes in fair value that would
result if there were an adverse change of ten percent in (1) the market price of
propane and (2) interest rates on ten-year U.S. treasury notes:
Fair Change in
Value Fair Value
----------------------
(Millions of dollars)
March 31, 2005:
Propane commodity price risk $ 1.2 $ (0.9)
Interest rate risk (2.2) (3.6)
Because the Partnership's derivative instruments generally qualify as hedges
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," we expect that changes in the fair value of derivative instruments
used to manage propane price or interest rate risk would be substantially offset
by gains or losses on the associated underlying transactions.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Partnership's management, with the participation of the Partnership's
Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the Partnership's disclosure controls and procedures as
of the end of the period covered by this report. Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the
Partnership's disclosure controls and procedures as of the end of the
period covered by this report were designed and functioning effectively to
provide reasonable assurance that the information required to be disclosed
by the Partnership in reports filed under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms. The Partnership
believes that a controls system, no matter how well designed and operated,
cannot provide absolute assurance that the objectives of the controls
system are met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within a
company have been detected.
(b) Change in Internal Control over Financial Reporting
No change in the Partnership's internal control over financial reporting
occurred during the Partnership's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the
Partnership's internal control over financial reporting.
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AMERIGAS PARTNERS, L.P.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
South Coast Air Quality Management District Matter. On February 21, 2005,
AmeriGas Propane, L.P. ("AmeriGas OLP"), a principal operating subsidiary of
AmeriGas Partners, L.P. ("AmeriGas Partners"), received notice from the South
Coast (of California) Air Quality Management District ("SCAQMD") that it
intended to seek civil penalties totaling $0.1 million for five (5) violations
of air emissions regulations at AmeriGas OLP's LPG terminal in San Pedro,
California. After an inspection of the San Pedro terminal by SCAQMD on April 15,
2005, AmeriGas Partners expects SCAQMD to issue additional notices of violation
of regulations related to the installation of emission reduction equipment at
the facility that may involve monetary penalties of $0.1 million or more.
AmeriGas Partners is working with SCAQMD to assure that the facility is in
compliance with applicable regulations and believes the resolution of this
matter will not have a material effect on the results of operations or financial
condition of AmeriGas Partners.
ITEM 6. EXHIBITS
10.1 AmeriGas Propane, Inc. Supplemental Executive Retirement Plan
Amended and Restated as of March 1, 2005.
10.2 Purchase Agreement dated April 13, 2005 among AmeriGas Partners,
L.P. (the "Partnership"), AmeriGas Finance Corp., ("Finance Corp.,"
and together with the Partnership, the "Issuers"), AmeriGas
Propane, L.P., AmeriGas Eagle Propane, L.P., a Delaware limited
partnership, and AmeriGas Eagle Holdings, Inc., and Credit Suisse
First Boston LLC, as representative of the several purchasers,
relating to the offering and sale by the Issuers of $415.0 million
principal amount of 7.25% Senior Notes due 2015 in accordance with
Rule 144A and Regulation S.
10.3 Form of Confidentiality and Post-Employment Activities Agreement
between AmeriGas and each of Messrs. Bissell, Katz and Knauss.
31.1 Certification by the Chief Executive Officer relating to the
Registrants' Report on Form 10-Q for the quarter ended March 31,
2005, 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 March 31,
2005, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification by the Chief Executive Officer and the Chief
Financial Officer relating to the Registrant's Report on Form 10-Q
for the quarter ended March 31, 2005, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
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AMERIGAS PARTNERS, L.P.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
AmeriGas Partners, L.P.
------------------------------------
(Registrant)
By: AmeriGas Propane, Inc.,
as General Partner
Date: May 6, 2005 By: /s/ Michael J. Cuzzolina
-----------------------------------
Michael J. Cuzzolina
Vice President - Finance
and Chief Financial Officer
By: /s/ William J. Stanczak
-----------------------------------
William J. Stanczak
Controller and Chief Accounting Officer
AmeriGas Finance Corp.
------------------------------------
(Registrant)
Date: May 6, 2005 By: /s/ Michael J. Cuzzolina
-----------------------------------
Michael J. Cuzzolina
Vice President - Finance
and Chief Financial Officer
By: /s/ William J. Stanczak
-----------------------------------
William J. Stanczak
Controller and Chief Accounting Officer
AmeriGas Eagle Finance Corp.
------------------------------------
(Registrant)
Date: May 6, 2005 By: /s/ Michael J. Cuzzolina
-----------------------------------
Michael J. Cuzzolina
Vice President - Finance
and Chief Financial Officer
By: /s/ William J. Stanczak
-----------------------------------
William J. Stanczak
Controller and Chief Accounting Officer
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AMERIGAS PARTNERS, L.P.
AP Eagle Finance Corp.
-----------------------------------
(Registrant)
Date: May 6, 2005 By: /s/ Michael J. Cuzzolina
-----------------------------------
Michael J. Cuzzolina
Vice President - Finance
and Chief Financial Officer
By: /s/ William J. Stanczak
-----------------------------------
William J. Stanczak
Controller and Chief Accounting Officer
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AMERIGAS PARTNERS, L.P.
EXHIBIT INDEX
10.1 AmeriGas Propane, Inc. Supplemental Executive Retirement Plan Amended and
Restated as of March 1, 2005.
10.2 Purchase Agreement dated April 13, 2005 among AmeriGas Partners, L.P. (the
"Partnership"), AmeriGas Finance Corp., ("Finance Corp.," and together
with the Partnership, the "Issuers"), AmeriGas Propane, L.P., AmeriGas
Eagle Propane, L.P., a Delaware limited partnership, and AmeriGas Eagle
Holdings, Inc., and Credit Suisse First Boston LLC, as representative of
the several purchasers, relating to the offering and sale by the Issuers
of $415.0 million principal amount of 7.25% Senior Notes due 2015 in
accordance with Rule 144A and Regulation S.
10.3 Form of Confidentiality and Post-Employment Activities Agreement between
AmeriGas and each of Messrs. Bissell, Katz and Knauss.
31.1 Certification by the Chief Executive Officer relating to the Registrants'
Report on Form 10-Q for the quarter ended March 31, 2005, 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 March 31, 2005, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification by the Chief Executive Officer and the Chief Financial
Officer relating to the Registrant's Report on Form 10-Q for the quarter
ended March 31, 2005, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.