Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2009
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission file number 1-13692
AMERIGAS PARTNERS, L.P.
(Exact name of registrant as specified in its charters)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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23-2787918
(I.R.S. Employer
Identification No.) |
460 North Gulph Road, King of Prussia, PA 19406
(Address of principal executive offices) (Zip Code)
(610) 337-7000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
At April 30, 2009, there were 57,046,388 Common Units of AmeriGas Partners, L.P. outstanding.
AMERIGAS PARTNERS, L.P.
TABLE OF CONTENTS
- i -
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Thousands of dollars)
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March 31, |
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September 30, |
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March 31, |
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2009 |
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2008 |
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2008 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
10,211 |
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$ |
10,909 |
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$ |
20,881 |
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Accounts receivable (less allowances for doubtful accounts of $28,558,
$20,215 and $21,565, respectively) |
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265,711 |
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218,411 |
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356,399 |
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Accounts receivable related parties |
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5,814 |
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5,130 |
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4,661 |
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Inventories |
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92,917 |
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144,206 |
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130,523 |
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Derivative financial instruments |
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244 |
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13 |
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7,419 |
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Collateral deposits |
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11,862 |
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17,830 |
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Prepaid expenses and other current assets |
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11,421 |
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28,597 |
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8,388 |
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Total current assets |
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398,180 |
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425,096 |
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528,271 |
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Property, plant and equipment (less accumulated depreciation and
amortization of $769,711, $743,097 and $708,893, respectively) |
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623,929 |
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616,834 |
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624,243 |
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Goodwill |
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661,263 |
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640,843 |
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640,108 |
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Intangible assets (less accumulated amortization of $22,658, $20,033 and
$31,598, respectively) |
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30,775 |
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27,579 |
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28,471 |
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Other assets |
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13,655 |
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14,721 |
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14,770 |
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Total assets |
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$ |
1,727,802 |
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$ |
1,725,073 |
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$ |
1,835,863 |
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LIABILITIES AND PARTNERS CAPITAL |
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Current liabilities: |
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Current maturities of long-term debt |
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$ |
1,119 |
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$ |
71,466 |
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$ |
71,682 |
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Bank loans |
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56,000 |
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Accounts payable trade |
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141,389 |
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172,800 |
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215,099 |
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Accounts payable related parties |
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2,735 |
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2,017 |
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4,263 |
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Customer deposits and advances |
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41,822 |
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106,946 |
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37,006 |
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Derivative financial instruments |
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61,395 |
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55,792 |
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5,204 |
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Other current liabilities |
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95,850 |
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123,540 |
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98,281 |
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Total current liabilities |
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344,310 |
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532,561 |
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487,535 |
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Long-term debt |
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861,576 |
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861,924 |
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861,264 |
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Other noncurrent liabilities |
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99,403 |
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72,490 |
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61,515 |
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Commitments and contingencies (note 3) |
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Minority interests |
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12,363 |
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10,723 |
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12,412 |
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Partners capital |
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410,150 |
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247,375 |
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413,137 |
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Total liabilities and partners
capital |
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$ |
1,727,802 |
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$ |
1,725,073 |
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$ |
1,835,863 |
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See accompanying notes to condensed consolidated financial statements.
- 1 -
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(Thousands of dollars, except per unit amounts)
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Three Months Ended |
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Six Months Ended |
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March 31, |
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March 31, |
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2009 |
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2008 |
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2009 |
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2008 |
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Revenues: |
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Propane |
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$ |
780,123 |
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$ |
960,307 |
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$ |
1,458,751 |
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$ |
1,659,976 |
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Other |
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43,254 |
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46,349 |
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|
91,690 |
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94,848 |
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823,377 |
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1,006,656 |
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1,550,441 |
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1,754,824 |
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Costs and expenses: |
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Cost of sales propane (excluding depreciation shown below) |
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460,189 |
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661,279 |
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888,658 |
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1,149,144 |
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Cost of sales other (excluding depreciation shown below) |
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|
13,737 |
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14,717 |
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|
30,806 |
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|
|
33,199 |
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Operating and administrative expenses |
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165,118 |
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|
164,656 |
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|
325,103 |
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|
|
317,540 |
|
Depreciation and amortization |
|
|
20,894 |
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|
|
20,022 |
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|
|
41,637 |
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|
|
39,846 |
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Gain on sale of California storage facility |
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|
|
|
|
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|
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|
(39,887 |
) |
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|
Other income, net |
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|
(4,676 |
) |
|
|
(7,305 |
) |
|
|
(8,757 |
) |
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|
(12,150 |
) |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
655,262 |
|
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|
853,369 |
|
|
|
1,237,560 |
|
|
|
1,527,579 |
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|
|
|
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|
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|
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Operating income |
|
|
168,115 |
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|
|
153,287 |
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|
|
312,881 |
|
|
|
227,245 |
|
Interest expense |
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|
(17,795 |
) |
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|
(18,697 |
) |
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|
(36,520 |
) |
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|
(36,927 |
) |
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|
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|
|
|
|
|
|
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Income before income taxes and minority interests |
|
|
150,320 |
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|
134,590 |
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|
276,361 |
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|
|
190,318 |
|
Income taxes |
|
|
(774 |
) |
|
|
(84 |
) |
|
|
(1,411 |
) |
|
|
(777 |
) |
Minority interests |
|
|
(1,711 |
) |
|
|
(1,556 |
) |
|
|
(3,152 |
) |
|
|
(2,286 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
147,835 |
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$ |
132,950 |
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|
$ |
271,798 |
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$ |
187,255 |
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|
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|
|
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|
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General partners interest in net income |
|
$ |
1,783 |
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|
$ |
1,373 |
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$ |
3,329 |
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$ |
1,960 |
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|
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Limited partners interest in net income |
|
$ |
146,052 |
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|
$ |
131,577 |
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$ |
268,469 |
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|
$ |
185,295 |
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Income per limited partner unit basic and diluted (note 1) |
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Basic |
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$ |
1.71 |
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$ |
1.58 |
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$ |
3.21 |
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$ |
2.47 |
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Diluted |
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$ |
1.71 |
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$ |
1.58 |
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$ |
3.21 |
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$ |
2.46 |
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|
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Average limited partner units outstanding (thousands): |
|
|
|
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|
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Basic |
|
|
57,046 |
|
|
|
57,005 |
|
|
|
57,030 |
|
|
|
56,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Diluted |
|
|
57,081 |
|
|
|
57,037 |
|
|
|
57,071 |
|
|
|
57,036 |
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|
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See accompanying notes to condensed consolidated financial statements.
- 2 -
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Thousands of dollars)
|
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|
|
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Six Months Ended |
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|
March 31, |
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|
2009 |
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2008 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
|
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Net income |
|
$ |
271,798 |
|
|
$ |
187,255 |
|
Adjustments to reconcile net income to net
cash from operating activities: |
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|
|
|
|
|
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Depreciation and amortization |
|
|
41,637 |
|
|
|
39,846 |
|
Provision for uncollectible accounts |
|
|
12,751 |
|
|
|
9,280 |
|
Gain on sale of California LPG storage facility |
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|
(39,887 |
) |
|
|
|
|
Net change in settled accumulated other comprehensive income |
|
|
(7,985 |
) |
|
|
1,597 |
|
Other, net |
|
|
1,734 |
|
|
|
(84 |
) |
Net change in: |
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|
|
|
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Accounts receivable |
|
|
(59,480 |
) |
|
|
(182,343 |
) |
Inventories |
|
|
52,392 |
|
|
|
(5,580 |
) |
Accounts payable |
|
|
(30,958 |
) |
|
|
52,682 |
|
Collateral deposits |
|
|
5,968 |
|
|
|
|
|
Other current assets |
|
|
17,175 |
|
|
|
2,358 |
|
Other current liabilities |
|
|
(89,636 |
) |
|
|
(76,806 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
175,509 |
|
|
|
28,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Expenditures for property, plant and equipment |
|
|
(37,894 |
) |
|
|
(31,276 |
) |
Proceeds from disposals of assets |
|
|
4,161 |
|
|
|
6,253 |
|
Net proceeds from sale of California LPG storage facility |
|
|
42,426 |
|
|
|
|
|
Acquisitions of businesses, net of cash acquired |
|
|
(38,456 |
) |
|
|
(774 |
) |
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(29,763 |
) |
|
|
(25,797 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Distributions |
|
|
(74,353 |
) |
|
|
(70,332 |
) |
Minority interest activity |
|
|
(1,126 |
) |
|
|
(1,092 |
) |
Increase in bank loans |
|
|
|
|
|
|
56,000 |
|
Repayment of long-term debt |
|
|
(70,637 |
) |
|
|
(911 |
) |
Proceeds from issuance of Common Units, net of tax withheld |
|
|
(338 |
) |
|
|
766 |
|
Capital contributions from General Partner |
|
|
10 |
|
|
|
8 |
|
|
|
|
|
|
|
|
Net cash used by financing activities |
|
|
(146,444 |
) |
|
|
(15,561 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents decrease |
|
$ |
(698 |
) |
|
$ |
(13,153 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
|
|
End of period |
|
$ |
10,211 |
|
|
$ |
20,881 |
|
Beginning of period |
|
|
10,909 |
|
|
|
34,034 |
|
|
|
|
|
|
|
|
Decrease |
|
$ |
(698 |
) |
|
$ |
(13,153 |
) |
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
- 3 -
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL
(unaudited)
(Thousands of dollars, except unit data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
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Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other |
|
|
Total |
|
|
|
Number of |
|
|
Common |
|
|
General |
|
|
comprehensive |
|
|
partners |
|
|
|
Common Units |
|
|
unitholders |
|
|
partner |
|
|
income (loss) |
|
|
capital |
|
Balance September 30, 2008 |
|
|
57,009,951 |
|
|
$ |
308,186 |
|
|
$ |
3,094 |
|
|
$ |
(63,905 |
) |
|
$ |
247,375 |
|
Net income |
|
|
|
|
|
|
268,469 |
|
|
|
3,329 |
|
|
|
|
|
|
|
271,798 |
|
Net losses on derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(182,235 |
) |
|
|
(182,235 |
) |
Reclassification of net losses on
derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147,098 |
|
|
|
147,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
268,469 |
|
|
|
3,329 |
|
|
|
(35,137 |
) |
|
|
236,661 |
|
Distributions |
|
|
|
|
|
|
(72,999 |
) |
|
|
(1,354 |
) |
|
|
|
|
|
|
(74,353 |
) |
Unit-based compensation expense |
|
|
|
|
|
|
795 |
|
|
|
|
|
|
|
|
|
|
|
795 |
|
Common Units issued in connection
with incentive compensation
plans, net of tax withheld |
|
|
36,437 |
|
|
|
(338 |
) |
|
|
10 |
|
|
|
|
|
|
|
(328 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2009 |
|
|
57,046,388 |
|
|
$ |
504,113 |
|
|
$ |
5,079 |
|
|
$ |
(99,042 |
) |
|
$ |
410,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
- 4 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
The condensed consolidated financial statements include the accounts of AmeriGas Partners,
L.P. (AmeriGas Partners) and its principal operating subsidiaries AmeriGas Propane, L.P.
(AmeriGas OLP) and AmeriGas OLPs subsidiary, AmeriGas Eagle Propane, L.P. (Eagle OLP).
AmeriGas Partners, AmeriGas OLP and Eagle OLP are Delaware limited partnerships. AmeriGas
OLP and Eagle OLP are collectively referred to herein as the Operating Partnerships, and
AmeriGas Partners, the Operating Partnerships and all of their subsidiaries are collectively
referred to herein as the Partnership or we. We eliminate all significant intercompany
accounts and transactions when we consolidate. We account for AmeriGas Propane, Inc.s (the
General Partners) 1.01% interest in AmeriGas OLP and an unrelated third partys
approximate 0.1% limited partner interest in Eagle OLP as minority interests in the
condensed consolidated financial statements. The General Partner is an indirect wholly owned
subsidiary of UGI Corporation (UGI).
AmeriGas Finance Corp., AmeriGas Eagle Finance Corp. and AP Eagle Finance Corp. are wholly
owned finance subsidiaries of AmeriGas Partners. Their sole purpose is to serve as
co-obligors for debt securities issued by AmeriGas Partners.
The accompanying condensed consolidated financial statements are unaudited and have been
prepared in accordance with the rules and regulations of the U.S. Securities and Exchange
Commission (SEC). They include all adjustments which we consider necessary for a fair
statement of the results for the interim periods presented. Such adjustments consisted only
of normal recurring items unless otherwise disclosed. The September 30, 2008 condensed
consolidated balance sheet data were derived from audited financial statements, but do not
include all disclosures required by accounting principles generally accepted in the United
States of America (GAAP). These financial statements should be read in conjunction with
the financial statements and related notes included in our Annual Report on Form 10-K for
the year ended September 30, 2008. Weather significantly impacts demand for propane and
profitability because many customers use propane for heating purposes. Due to the seasonal
nature of the Partnerships propane business, the results of operations for interim periods
are not necessarily indicative of the results to be expected for a full year.
Allocation of Net Income. Net income for partners capital and statement of operations
presentation purposes is allocated to the General Partner and the limited partners in
accordance with their respective ownership percentages after giving effect to amounts
distributed to the General Partner in excess of its 1% general partner interest in AmeriGas
Partners (incentive distributions), if any, in accordance with the Third Amended and
Restated Agreement of Limited Partnership of AmeriGas Partners as amended by Amendment No.
1. (Partnership Agreement)
- 5 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
Net Income Per Unit. Income per limited partner unit is computed in accordance with
Emerging Issues Task Force (EITF) Issue No. 03-6, Participating Securities and the
Two-Class Method under Financial Accounting Standards Board (FASB) Statement No. 128
(EITF 03-6), by dividing the limited partners interest in net income by the weighted
average number of limited partner units outstanding. The two class method requires that
income per limited partner unit be calculated as if all earnings for the period were
distributed and requires a separate calculation for each quarter and year-to-date period.
Thus, in periods when our net income exceeds our aggregate distributions paid and
undistributed earnings are above certain levels, the calculation according to the two-class
method results in an increased allocation of undistributed earnings to the General Partner.
Theoretical distributions of net income in accordance with EITF 03-6 for the three months
ended March 31, 2009 and 2008 resulted in an increased allocation of net income to the
General Partner in the computation of income per limited partner unit which had the effect
of decreasing earnings per limited partner unit by $0.85 and $0.73, respectively.
Theoretical distributions of net income in accordance with EITF 03-6 for the six months
ended March 31, 2009 and 2008 resulted in an increased allocation of net income to the
General Partner in the computation of the income per limited partner unit which had the
effect of decreasing earnings per limited partner unit by $1.49 and $0.79, respectively.
Potentially dilutive Common Units included in the diluted limited partner units outstanding
computation reflect the effects of restricted Common Unit awards granted under the General
Partners incentive compensation plans.
Comprehensive Income. The following table presents the components of comprehensive income
for the three and six months ended March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net income |
|
$ |
147,835 |
|
|
$ |
132,950 |
|
|
$ |
271,798 |
|
|
$ |
187,255 |
|
Other comprehensive income (loss) |
|
|
89,439 |
|
|
|
(33,257 |
) |
|
|
(35,137 |
) |
|
|
(16,152 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
237,274 |
|
|
$ |
99,693 |
|
|
$ |
236,661 |
|
|
$ |
171,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss) is principally the result of changes in the fair value of propane
commodity derivative instruments and interest rate protection agreements qualifying as cash
flow hedges, net of reclassifications of net gains and losses to net income.
- 6 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
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 GAAP. These estimates and assumptions affect the reported amounts of assets
and liabilities, revenues and expenses, as well as the disclosure of contingent assets and
liabilities. Actual results could differ from these estimates.
Newly Adopted Accounting Standards. Effective March 31, 2009, we adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 161, Disclosures about Derivative
Instruments and Hedging Activities (SFAS 161). SFAS 161 requires enhanced disclosures
for all derivative instruments and hedging activity accounted for under SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities (SFAS 133). SFAS 161
provides greater transparency by requiring disclosure regarding: (1) how and why an entity
uses derivatives, (2) how derivatives and related hedged items are accounted for under SFAS
133 and its related interpretations, and (3) how derivatives and related hedged items affect
an entitys financial position, financial performance and cash flows. See Note 7 for
disclosures required by SFAS 161.
Effective October 1, 2008, we adopted the provisions of SFAS No. 157, Fair Value
Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for
measuring fair value in GAAP, and expands disclosures
about fair value measurements. In February 2008, the Financial Accounting Standards Board
(FASB) issued two FASB Staff Positions (FSPs) amending SFAS 157. FSP FAS 157-1 amends
SFAS 157 to exclude SFAS No. 13, Accounting for Leases, and its related interpretive
accounting pronouncements that address leasing transactions. FSP FAS 157-2 delays the
effective date of SFAS 157 until fiscal years beginning after November 15, 2008 (Fiscal
2010) for non-financial assets and liabilities that are recognized or disclosed at fair
value in the financial statements on a non-recurring basis. The adoption of the initial
phase of SFAS 157 did not have a material effect on the Partnerships financial statements
and the Partnership does not anticipate that the adoption of the remainder of SFAS 157 will
have a material effect on the Partnerships consolidated financial statements. In October
2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset When
the Market for That Asset Is Not Active,
(FSP 157-3) which clarifies the application of SFAS 157 to
financial assets in a market that is not active. FSP 157-3 did not have an impact on our
results of operations or financial condition. See Note 5 for further information on fair
value measurements in accordance with SFAS 157.
- 7 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
Effective October 1, 2008, we adopted FSP No. FIN 39-1, Amendment of FASB Interpretation
No. 39 (FSP 39-1). FSP 39-1 permits companies to offset fair value amounts recognized for
the right to reclaim cash collateral (a receivable) or the obligation
to return cash collateral (a payable) against fair value amounts recognized for derivative
instruments executed with the same counterparty under a master netting agreement. In
addition, upon the adoption, companies are permitted to change their accounting policy to
offset or not offset fair value amounts recognized for derivative instruments under master
netting arrangements. FSP 39-1 requires retrospective application for all periods presented.
We have elected to continue our policy of reflecting derivative asset or liability
positions, as well as cash collateral, on a gross basis in our Condensed Consolidated
Balance Sheets. Accordingly, the adoption of FSP 39-1 did not impact our financial
statements.
Also effective October 1, 2008, we adopted SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities (SFAS 159). Under SFAS 159, we may elect to
report individual financial instruments and certain items at fair value with changes in fair
value reported in earnings. Once made, this election is irrevocable for those items. The
adoption of SFAS 159 did not impact our financial statements.
Recently Issued Accounting Standards Not Yet Adopted. In April 2009, the FASB issued FSP
FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly
(FSP 157-4). FSP 157-4 provides additional guidance for estimating fair value in
accordance with SFAS 157 when the volume and level of activity for the asset or liability
have significantly decreased. FSP 157-4 is effective for interim and annual periods ending
after June 15, 2009. We are currently evaluating the provisions of FSP 157-4.
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures About Fair
Value of Financial Instruments (FSP 107-1 and 28-1). FSP 107-1 and 28-1 amends SFAS No.
107, Disclosures About Fair Value of Financial Instruments, to require disclosures about
fair value of financial instruments for interim reporting periods of publicly traded
companies as well as in annual financial statements. FSP 107-1 and 28-1 is effective for
interim periods ending after June 15, 2009. We are currently evaluating the provisions of
FSP 107-1 and 28-1.
Also in April 2009, the FASB issued FSP FAS 115-2 and 124-2, Recognition and Presentations
of Other-Than-Temporary Impairments (FSP 115-2 and 124-2). FSP 115-2 and 124-2 amends
other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the
guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial statements.
The FSP does not amend existing recognition and measurement guidance related to
other-than-temporary impairments of equity securities. FSP 115-2 and 124-2 is effective for
interim and annual reporting periods ending after June 15, 2009. We are currently
evaluating the provisions of FSP 115-2 and 124-2.
- 8 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
In
April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of
Intangible Assets (FSP 142-3). FSP 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets
(SFAS 142). The intent of FSP 142-3 is to improve the consistency between the useful
life of a recognized intangible asset under SFAS 142 and the period of expected cash flows
used to measure the fair value of the asset under SFAS No. 141 (revised 2007), Business
Combinations (SFAS 141R) and other applicable accounting literature. FSP 142-3 is
effective for financial statements issued for fiscal years beginning after December 15, 2008
(Fiscal 2010) and must be applied prospectively to intangible assets acquired after the
effective date. We are currently evaluating the provisions of FSP 142-3.
In March 2008, the FASB ratified the consensus reached in EITF 07-4, Application of the
Two-Class Method under FAS 128 to Master Limited Partnerships (EITF 07-4). EITF 07-4
addresses the application of the two-class method for master limited partnerships when
incentive distribution rights are present and entitle the holder of such rights to a portion
of the distributions. EITF 07-4 states that when earnings exceed distributions, the
computation of earnings per unit should be based on the terms of the partnership agreement.
Accordingly, any contractual limitations on the distributions to incentive distribution
rights holders would need to be determined for each reporting period. If distributions are
contractually limited to the holder of the incentive distribution rights holders share of
currently designated available cash as defined in the partnership agreement, undistributed
earnings in excess of available cash should not be allocated with respect to the incentive
distribution rights. EITF 07-4 is effective for fiscal years that begin after December 15,
2008 (Fiscal 2010), and would be accounted for as a change in accounting principle and
applied retrospectively. Early adoption of EITF 07-4 is not permitted. We are currently
evaluating the impact of EITF 07-4 on our income (loss) per limited partner unit
calculation.
In December 2007, the FASB issued SFAS 141R, Business Combinations. SFAS 141R applies to
all transactions or other events in which an entity obtains control of one or more
businesses. SFAS 141R establishes, among other things, principles and requirements for how
the acquirer (1) recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (2)
recognizes and measures the goodwill acquired in a business combination or gain from a
bargain purchase; and (3) determines what information with respect to a business combination
should be disclosed. SFAS 141R applies prospectively to business combinations for which the
acquisition date is on or after the first annual reporting period beginning on or after
December 15, 2008 (Fiscal 2010). Among the more significant changes in accounting for
acquisitions are (1) transaction costs will generally be expensed (rather than being
included as costs of the acquisition), (2) contingencies, including contingent
consideration, will generally be recorded at fair value with subsequent adjustments
recognized in operations (rather than as adjustments to the purchase price) and (3)
decreases in valuation allowances on acquired deferred tax assets
will be recognized in operations (rather than decreases in goodwill). Generally, the effects
of SFAS 141R will depend on future acquisitions.
- 9 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
Also in December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB No. 51 (SFAS 160). SFAS 160 is
effective for us on October 1, 2009 (Fiscal 2010). This standard will significantly change
the accounting and reporting relating to noncontrolling interests in a consolidated
subsidiary. After adoption, noncontrolling interests ($12,363, $10,723 and $12,412 at March
31, 2009, September 30, 2008 and March 31, 2008, respectively) will be classified as
partners capital, a change from its current classification as minority interests between
liabilities and partners capital. Earnings attributable to minority interests ($1,711 and
$3,152 in the three and six months ended March 31, 2009, respectively, and $1,556 and $2,286
in the three and six months ended March 31, 2008, respectively) will be included in net
income although such income, in accordance with EITF 03-06 or EITF 07-04, when adopted, will
continue to be deducted to measure income per limited partner unit. In addition, changes in
a parents ownership interest while retaining control will be accounted for as equity
transactions and any retained noncontrolling equity investments in a former subsidiary will
be initially measured at fair value.
2. |
|
Related Party Transactions |
Pursuant to the Partnership Agreement and a Management Services Agreement among AmeriGas
Eagle Holdings, Inc., the general partner of Eagle OLP, and the General Partner, the General
Partner is entitled to reimbursement for all direct and indirect expenses incurred or
payments it makes on behalf of the Partnership. These costs, which totaled $98,492 and
$189,242 during the three and six months ended March 31, 2009, respectively, and $92,947 and
$182,232 during the three and six months ended March 31, 2008, 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. The allocation of indirect UGI corporate expenses to the
Partnership utilizes a weighted, three-component formula comprising revenues, operating
expenses and net assets employed and considers the Partnerships relative percentage of such
items to the total of such items for all UGIs operating subsidiaries for which general and
administrative services are provided. Management believes that this allocation method is
reasonable and equitable to the Partnership. Such corporate expenses totaled $5,324 and
$7,573 during the three and six months ended March 31, 2009, respectively, and $5,436 and
$6,787 during the three and six months ended March 31, 2008, respectively. In addition, UGI
and certain of its subsidiaries provide office space, medical stop loss coverage and
automobile liability insurance to the Partnership. These
costs totaled $792 and $1,609 during the three and six months ended March 31, 2009,
respectively, and $596 and $1,107 during the three and six months ended March 31, 2008,
respectively.
- 10 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
AmeriGas OLP purchases propane from UGI Energy Services, Inc. and subsidiaries (Energy
Services), which is owned by a subsidiary of UGI. Purchases of propane by AmeriGas OLP
from Energy Services totaled $13,507 and $19,381 during the three and six months ended March
31, 2009, respectively, and $21,195 and $34,536 during the three and six months ended March
31, 2008, respectively. Amounts due to Energy Services totaled $1,621, $1,309 and $3,811 at
March 31, 2009, September 30, 2008 and March 31, 2008, respectively, and are reflected in
accounts payable related parties in the Condensed Consolidated Balance Sheets.
On October 1, 2008, AmeriGas OLP acquired all of the assets of Penn Fuel Propane, LLC (now
named UGI Central Penn Propane, LLC, CPP) from CPP, a second-tier subsidiary of UGI
Utilities, Inc., for $32,000 cash plus estimated working capital of $1,621. UGI Utilities,
Inc is a wholly owned subsidiary of UGI. CPP sold propane to customers primarily in eastern
Pennsylvania. AmeriGas OLP funded the acquisition of the assets of CPP principally from
borrowings under its Credit Agreement. Pursuant to the acquisition agreement, in February
2009, AmeriGas OLP reached an agreement with UGI Utilities on the working capital adjustment
pursuant to which UGI Utilities paid AmeriGas OLP $1,352 plus interest.
3. |
|
Commitments and Contingencies |
On August 21, 2001, AmeriGas Partners, through AmeriGas OLP, acquired the propane
distribution businesses of Columbia Energy Group (the 2001 Acquisition) pursuant to the
terms of a purchase agreement (the 2001 Acquisition Agreement) by and among Columbia
Energy Group (CEG), Columbia Propane Corporation (Columbia Propane), Columbia Propane,
L.P. (CPLP), CP Holdings, Inc. (CPH, and together with Columbia Propane and CPLP, the
Company Parties), AmeriGas Partners, AmeriGas OLP and the General Partner (together with
AmeriGas Partners and AmeriGas OLP, the Buyer Parties). As a result of the 2001
Acquisition, AmeriGas OLP acquired all of the stock of Columbia Propane and CPH and
substantially all of the partnership interests of CPLP. Under the terms of an earlier
acquisition agreement (the 1999 Acquisition Agreement), the Company Parties agreed to
indemnify the former general partners of National Propane Partners, L.P. (a predecessor
company of the Columbia Propane businesses) and an affiliate (collectively, National
General Partners) against certain income tax and other losses that they may sustain as a
result of the 1999 acquisition by CPLP of National Propane Partners, L.P. (the 1999
Acquisition) or the operation of the business after the 1999 Acquisition (National
Claims). At March 31, 2009, the potential amount payable under this indemnity by the
Company Parties was approximately $58,000. These indemnity obligations will expire on the
date that CPH acquires the remaining outstanding partnership interest of CPLP, which is
expected to occur on or after July 19, 2009. Under the terms of the 2001 Acquisition
Agreement,
CEG agreed to indemnify the Buyer Parties and the Company Parties against any losses that
they sustain under the 1999 Acquisition Agreement and related agreements (Losses),
including National Claims, to the extent such claims are based on acts or omissions of CEG
or the Company Parties prior to the 2001 Acquisition. The Buyer Parties agreed to indemnify
CEG against Losses, including National Claims, to the extent such claims are based on acts
or omissions of the Buyer Parties or the Company Parties after the 2001 Acquisition. CEG and
the Buyer Parties have agreed to apportion certain losses resulting from National Claims to
the extent such losses result from the 2001 Acquisition itself. We believe that liability
under such indemnity agreement is remote.
- 11 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
Samuel and Brenda Swiger and their son (the Swigers) sustained personal injuries and
property damage as a result of a fire that occurred when propane that leaked from an
underground line ignited. In July 1998, the Swigers filed a class action lawsuit against
AmeriGas Propane, L.P. (named incorrectly as UGI/AmeriGas, Inc.), in the Circuit Court of
Monongalia County, West Virginia, in which they sought to recover an unspecified amount of
compensatory and punitive damages and attorneys fees, for themselves and on behalf of
persons in West Virginia for whom the defendants had installed propane gas lines, resulting
from the defendants alleged failure to install underground propane lines at depths required
by applicable safety standards. In 2003, we settled the individual personal injury and
property damage claims of the Swigers. In 2004, the court granted the plaintiffs motion to
include customers acquired from Columbia Propane in August 2001 as additional potential
class members and the plaintiffs amended their complaint to name additional parties pursuant
to such ruling. Subsequently, in March 2005, we filed a cross-claim against CEG, former
owner of Columbia Propane, seeking indemnification for conduct undertaken by Columbia
Propane prior to our acquisition. Class counsel has indicated that the class is seeking
compensatory damages in excess of $12,000 plus punitive damages, civil penalties and
attorneys fees.
In 2005, the Swigers filed what purports to be a class action in the Circuit Court of
Harrison County, West Virginia against UGI, an insurance subsidiary of UGI, certain officers
of UGI and the General Partner, and their insurance carriers and insurance adjusters. In the
Harrison County lawsuit, the Swigers are seeking compensatory and punitive damages on behalf
of the putative class for violations of the West Virginia Insurance Unfair Trade Practice
Act, negligence, intentional misconduct, and civil conspiracy. The Swigers have also
requested that the Court rule that insurance coverage exists under the policies issued by
the defendant insurance companies for damages sustained by the members of the class in the
Monongalia County lawsuit. The Circuit Court of Harrison County has not certified the class
in the Harrison County lawsuit at this time and, in October 2008, stayed that lawsuit
pending resolution of the class action lawsuit in Monongalia County. We believe we have good
defenses to the claims in both actions.
- 12 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
By letter dated March 6, 2008, the New York State Department of Environmental Conservation
(DEC) notified AmeriGas OLP that DEC had placed property owned by the Partnership in
Saranac Lake, New York on its Registry of Inactive Hazardous Waste Disposal Sites. A site
characterization study performed by DEC disclosed contamination related to former
manufactured gas plant (MGP) operations on the site. DEC has classified the site as a
significant threat to public health or environment with further action required. The
Partnership has researched the history of the site and its ownership interest in the site.
The Partnership has reviewed the preliminary site characterization study prepared by the DEC
and the possible existence of other potentially responsible parties. The Partnership continues to seek additional information
about the site. Because of the preliminary nature of available environmental information,
the amount of expected clean up costs cannot be reasonably estimated. When such expected
clean up costs can be reasonably estimated, it is possible that the amount could be material
to the Partnerships results of operations.
We also have other contingent liabilities, pending claims and legal actions arising in the
normal course of our business. We cannot predict with certainty the final results of these
and the aforementioned matters. However, it is reasonably possible that some of them could
be resolved unfavorably to us and result in losses in excess of recorded amounts. We are
unable to estimate any such possible excess losses. Although management currently believes,
after consultation with counsel, that damages or settlements, if any, recovered by the
plaintiffs in such claims or actions will not have a material adverse effect on our
financial position, damages or settlements could be material to our operating results or
cash flows in future periods depending on the nature and timing of future developments with
respect to these matters and the amounts of future operating results and cash flows.
4. |
|
Partnership Sale of Propane Storage Facility |
On November 13, 2008, AmeriGas OLP sold its 600,000 barrel refrigerated, above-ground
storage facility located on leased property in California for net cash proceeds of $42,426.
We recorded a pre-tax gain of $39,887 associated with this transaction, which increased net
income for the six months ended March 31, 2009 by $39,485.
5. |
|
Fair Value Measurement |
As described in Note 1, the Partnership adopted SFAS 157 effective October 1, 2008. SFAS 157
defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements. SFAS 157
defines fair value as the price that would be received to sell an asset or paid to transfer
a liability (an exit price) in an orderly transaction between market participants at the
measurement date. SFAS 157 clarifies that the fair value should be based upon assumptions
that market participants would use when pricing an asset or
- 13 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
liability, including assumptions about risk and risks inherent in valuation techniques and
inputs to valuations. This includes not only the credit standing of counterparties and
credit enhancements but also the impact of our own nonperformance risk on our liabilities.
SFAS 157 requires fair value measurements to assume that the transaction occurs in the
principal market for the asset or liability or in the absence of a principal market, the
most advantageous market for the asset or liability (the market for which the reporting
entity would be able to maximize the amount received or minimize the amount paid). We apply
fair value measurements to certain assets and liabilities principally comprising commodity
and interest rate derivative instruments. We evaluate the need for credit adjustments to our
derivative instrument fair values in accordance with the requirements noted above. Such
adjustments were not material to the fair values of our derivative instruments.
In accordance with SFAS 157, we maximize the use of observable inputs and minimize the use
of unobservable inputs when measuring fair value. Fair value is based upon actively-quoted
market prices, if available. In the absence of actively-quoted market prices, we seek price
information from external sources, including counterparty quotes and prices for similar
instruments in active markets. If pricing information from external sources is not
available, or if we believe that observable pricing is not indicative of fair value,
judgment is required to develop estimates of fair value.
For derivative contracts where observable pricing information is not available from external
sources for the specific commodity or location, we may determine fair value using a
different commodity or delivery location and adjust such prices using spread approximation
models, or we may use recent market price indicators and adjust such prices using historical
price movements.
We use the following fair value hierarchy, which prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels:
|
|
|
Level 1 Quoted prices (unadjusted) in active markets for identical assets and
liabilities that we have the ability to access at the measurement date. The
Partnership did not have any derivative financial instruments categorized as Level
1 at March 31, 2009. |
|
|
|
Level 2 Inputs other than quoted prices included within Level 1 that are
either directly or indirectly observable for the asset or liability, including
quoted prices for similar assets or liabilities in active markets, quoted prices
for identical or similar assets or liabilities in inactive markets, inputs other
than quoted prices that are observable for the asset or liability, and inputs that
are derived from observable market data by correlation or other means. Instruments
categorized in Level 2 include non-exchange traded derivative financial instruments
such as our over-the-counter commodity price swaps and interest rate protection
agreements. |
- 14 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
|
|
|
Level 3 Unobservable inputs for the asset or liability including situations
where there is little, if any, market activity for the asset or liability. The
Partnership did not have any derivative financial instruments categorized as Level
3 at March 31, 2009. |
The fair value hierarchy gives the highest priority to quoted prices in active markets
(Level 1) and the lowest priority to unobservable data (Level 3). In some cases, the inputs
to measure fair value might fall into different levels of the fair value hierarchy. The
lowest level input that is significant to a fair value measurement in its entirety
determines the applicable level in the fair value hierarchy. Assessing the significance of
a particular input to the fair value measurement in its entirety requires judgment,
considering factors specific to the asset or liability.
SFAS 157 requires fair value measurements to be separately disclosed by level within the
fair value hierarchy. The following table presents our assets and liabilities that are
measured at fair value on a recurring basis for each hierarchy level, including both current
and non-current portions as of March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Derivative financial instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
|
|
|
$ |
419 |
|
|
$ |
|
|
|
$ |
419 |
|
Liabilities |
|
$ |
|
|
|
$ |
(87,753 |
) |
|
$ |
|
|
|
$ |
(87,753 |
) |
6. |
|
Supplemental Credit Agreements |
As a result of greater cash needed to fund counterparty collateral requirements resulting
from rapid and precipitous declines in propane commodity prices during the three months
ended December 31, 2008, on November 14, 2008, AmeriGas OLP entered into a revolving credit
agreement with two major banks (Supplemental Credit Agreement). The Supplemental Credit
Agreement was scheduled to expire on May 14, 2009 but was voluntarily terminated on April
17, 2009 concurrent with the signing of a new $75,000 revolving credit facility (as further
described below). The Supplemental Credit Agreement permitted AmeriGas OLP to borrow up to
$50,000 for working capital and general purposes. Except for more restrictive covenants
regarding the incurrence of additional indebtedness by AmeriGas OLP, the Supplemental
Credit Agreement had restrictive covenants similar to AmeriGas OLPs $200,000 credit
agreement expiring October 15, 2011 (Credit Agreement).
In order to increase liquidity, on April 17, 2009, AmeriGas OLP entered into a new $75,000
unsecured revolving credit facility (2009 Supplemental Credit Agreement) with three major
banks. The 2009 Supplemental Credit Agreement expires on July 1, 2010 and permits AmeriGas
OLP to borrow up to $75,000 for working capital and general purposes. Except for more
restrictive covenants regarding the incurrence of
additional indebtedness by AmeriGas OLP, the 2009 Supplemental Credit Agreement has
restrictive covenants substantially similar to AmeriGas OLPs Credit Agreement.
- 15 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
7. |
|
Disclosures About Derivative Instruments and Hedging Activities |
The Partnership is exposed to certain market risks related to its ongoing business
operations. Management uses derivative financial and commodity instruments, among other
things, to manage these risks. The primary risks managed by derivative instruments are
commodity price risk and interest rate risk. Although we use derivative financial and
commodity instruments to reduce market risk associated with forecasted transactions, we do
not use derivative financial and commodity instruments for speculative or trading purposes.
The use of derivative instruments is controlled by our derivative, hedging and credit
policies which govern, among other things, the derivative instruments the Partnership can
use, counterparty credit limits and contract authorization limits.
Because our derivative instruments generally qualify as hedges under
SFAS No. 133, we expect that changes in the fair value of
derivative instruments used to manage commodity or interest rate
market risk would be substantially offset by gains or losses on the
associated anticipated transactions.
Commodity Price Risk
In order to manage market risk associated with the Partnerships fixed-price programs which
permit customers to lock in the prices they pay for propane principally during the heating
season months of October through March, the Partnership uses over-the-counter derivative
commodity instruments, principally price swap contracts. At March 31, 2009, there were 152.3
million gallons of propane hedged with over-the-counter price swap contracts. The maximum
period over which we are currently hedging propane market price risk is 21 months. We
account for commodity price risk contracts as cash flow hedges. Changes in the fair values
of contracts qualifying for cash flow hedge accounting are recorded in accumulated other
comprehensive income (AOCI) and minority interest, to the extent effective in offsetting
changes in the underlying commodity price risk, until earnings are affected by the hedged
item.
Interest Rate Risk
Our long-term debt is typically issued at fixed rates of interest. As these long-term debt
issues mature, we typically refinance such debt with new debt having interest rates
reflecting then-current market conditions. In order to reduce market rate risk on the
underlying benchmark rate of interest associated with near- to medium-term forecasted
issuances of fixed rate debt, from time to time we may enter into interest rate protection
agreements (IRPAs). As of March 31, 2009, the total notional amount of the Partnerships
unsettled IRPAs was $150,000. Our current unsettled IRPA contracts hedge issuances of debt
forecasted to occur through July 2010. We account for IRPAs as cash flow hedges. Changes in
the fair values of IRPAs are recorded in AOCI and minority interest, to the extent effective
in offsetting changes in the underlying interest rate risk, until earnings are affected by
the hedged interest expense.
Credit Risk Concentration
The Partnership is exposed to credit loss in the event of nonperformance by counterparties
to derivative financial and commodity instruments. Our counterparties principally consist
of major energy companies and major U.S. financial institutions. We
maintain credit policies with regard to our counterparties that we believe reduce overall
credit risk. These policies include evaluating and monitoring our counterparties financial
condition, including their credit ratings, and entering into agreements with counterparties
that govern credit limits. Certain of these agreements call for the posting of collateral by
the counterparty or by the Partnership in the form of letters of credit, parental guarantees
or cash. We generally do not have credit-risk-related contingent features in our derivative
contracts.
- 16 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
The following table provides information regarding the balance sheet location and fair value
of derivative assets and liabilities existing as of March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets |
|
|
Derivative Liabilities |
|
|
|
Balance Sheet |
|
Fair |
|
|
Balance Sheet |
|
Fair |
|
As of March 31, 2009 |
|
Location |
|
Value |
|
|
Location |
|
Value |
|
Derivatives Designated as
Hedging Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Propane contracts |
|
|
|
|
|
|
|
Derivative
financial instruments and Other noncurrent liabilities |
|
$ |
(64,378 |
) |
Interest rate contracts |
|
Other assets |
|
$ |
175 |
|
|
Other noncurrent liabilities |
|
|
(23,178 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives Designated
as Hedging Instruments |
|
|
|
$ |
175 |
|
|
|
|
$ |
(87,556 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as
Hedging Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Propane contracts |
|
Derivative financial instruments |
|
$ |
244 |
|
|
Derivative financial instruments |
|
$ |
(197 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives Not Designated
as Hedging Instruments |
|
|
|
$ |
244 |
|
|
|
|
$ |
(197 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives |
|
|
|
$ |
419 |
|
|
|
|
$ |
(87,753 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides information on the effects of derivative instruments on the
consolidated statement of operations and changes in AOCI and minority interest for the three
and six months ended March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of |
|
|
|
|
|
Gain or (Loss) |
|
|
(Loss) |
|
(Loss) |
|
|
|
Recognized in |
|
|
Reclassified from |
|
Reclassified from |
|
|
|
AOCI and Minority |
|
|
AOCI and Minority |
|
AOCI and Minority |
|
Three Months Ended March 31, 2009 |
|
Interest |
|
|
Interest into Income |
|
Interest into Income |
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow |
|
|
|
|
|
|
|
|
|
|
Hedges: |
|
|
|
|
|
|
|
|
|
|
Propane contracts |
|
$ |
(3,709 |
) |
|
Cost of sales |
|
$ |
(90,086 |
) |
Interest rate contracts |
|
|
1,364 |
|
|
Interest expense / other income |
|
|
(2,585 |
) |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(2,345 |
) |
|
|
|
$ |
(92,671 |
) |
|
|
|
|
|
|
|
|
|
|
|
- 17 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of |
|
|
|
|
|
Loss |
|
|
Loss |
|
Loss |
|
|
|
Recognized in |
|
|
Reclassified from |
|
Reclassified from |
|
|
|
AOCI and Minority |
|
|
AOCI and Minority |
|
AOCI and Minority |
|
Six Months Ended March 31, 2009 |
|
Interest |
|
|
Interest into Income |
|
Interest into Income |
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow |
|
|
|
|
|
|
|
|
|
|
Hedges: |
|
|
|
|
|
|
|
|
|
|
Propane contracts |
|
$ |
(166,869 |
) |
|
Cost of sales |
|
$ |
(145,852 |
) |
Interest rate contracts |
|
|
(17,226 |
) |
|
Interest expense / other income |
|
|
(2,719 |
) |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(184,095 |
) |
|
|
|
$ |
(148,571 |
) |
|
|
|
|
|
|
|
|
|
|
|
The amounts of derivative gain or loss representing ineffectiveness and the amounts of gain
or loss recognized in income as a result of excluding from ineffectiveness testing was not
material. The Partnership reclassified losses of $1,659 into income during the three and six
months ended March 31, 2009 as a result of the discontinuance of cash flow hedges. The
amount of net losses associated with cash flow hedges expected to be reclassified into
earnings during the next twelve months based upon current fair values
is $71,827.
- 18 -
AMERIGAS PARTNERS, L.P.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Information contained in this Managements Discussion and Analysis of Financial Condition and
Results of Operations may contain forward-looking statements. Such statements use forward-looking
words such as believe, plan, anticipate, continue, estimate, expect, may, will, or
other similar words. These statements discuss plans, strategies, events or developments that we
expect or anticipate will or may occur in the future.
A forward-looking statement may include a statement of the assumptions or bases underlying the
forward-looking statement. We believe that we have chosen these assumptions or bases in good faith
and that they are reasonable. However, we caution you that actual results almost always vary from
assumed facts or bases, and the differences between actual results and assumed facts or bases can
be material, depending on the circumstances. When considering forward-looking statements, you
should keep in mind the following important factors which could affect our future results and could
cause those results to differ materially from those expressed in our forward-looking statements:
(1) adverse weather conditions resulting in reduced demand; (2) cost volatility and availability of
propane, and the capacity to transport propane to our market areas; (3) the availability of, and
our ability to consummate, acquisition or combination opportunities; (4) successful integration and
future performance of acquired assets or businesses; (5) changes in laws and regulations, including
safety, tax and accounting matters; (6) competitive pressures from the same and alternative energy
sources; (7) failure to acquire new customers thereby reducing or limiting any increase in
revenues; (8) liability for environmental claims; (9) increased customer conservation measures due
to high energy prices and improvements in energy efficiency and technology resulting in reduced
demand; (10) adverse labor relations; (11) large customer, counter-party or supplier defaults; (12)
liability in excess of insurance coverage for personal injury and property damage arising from
explosions and other catastrophic events, including acts of terrorism, resulting from operating
hazards and risks incidental to transporting, storing and distributing propane, butane and ammonia;
(13) political, regulatory and economic conditions in the United States and foreign countries; (14)
capital market conditions, including, reduced access to capital markets and interest rate
fluctuations; (15) changes in commodity market prices resulting in significantly higher cash
collateral requirements; and (16) the impact of pending and future legal proceedings.
These factors are not necessarily all of the important factors that could cause actual results to
differ materially from those expressed in any of our forward-looking statements. Other unknown or
unpredictable factors could also have material adverse effects on future results. We undertake no
obligation to update publicly any forward-looking statement whether as a result of new information
or future events except as required by the federal securities laws.
- 19 -
AMERIGAS PARTNERS, L.P.
ANALYSIS OF RESULTS OF OPERATIONS
The following analyses compare the Partnerships results of operations for (1) the three months
ended March 31, 2009 (2009 three-month period) with the three months ended March 31, 2008 (2008
three-month period) and (2) the six months ended March 31, 2009 (2009 six-month period) with the
six months ended March 31, 2008 (2008 six-month period).
Executive Overview
Our net income for the 2009 three-month period increased to $147.8 million from $133.0 million in
the prior-year three-month period primarily from higher average retail propane unit margins.
Temperatures based upon heating degree days were approximately 2.3% warmer than normal compared
with temperatures that were 1.0% warmer than normal in the prior-year period. Wholesale propane
commodity prices generally stabilized during the three-months ended March 31, 2009 following a more
than 50% decline in propane commodity prices during the first quarter of Fiscal 2009. As a result
of this decline, average wholesale propane product costs in the three-months ended March 31, 2009
were more than 50% lower than such costs a year ago. Retail volumes sold in the 2009 three-month
period were lower than in the prior-year three-month period reflecting the effects of the
significant deterioration in general economic activity, customer conservation and the effects of
the warmer weather. Notwithstanding the lower retail sales, total margin was higher as a result of
greater average unit margins resulting from the significantly lower and less volatile propane
product costs. We expect unit margins to return to more normal levels over the remainder of Fiscal
2009.
Our net income for the 2009 six-month period increased to $271.8 million from $187.3 million in the
prior-year six-month period. The 2009 six-month period net income includes a $39.5 million gain on
the sale of our California storage facility in November 2008. As previously mentioned, wholesale
propane commodity prices declined more than 50% during the first half of the 2009 six-month period
and generally remained at these lower levels during the second half of the period. Average
wholesale propane prices in the six-months ended March 31, 2009 were approximately 50% lower than
such prices during the prior-year six-month period. Notwithstanding the benefits from the
acquisition of the assets of Penn Fuel Propane, LLC (Penn Fuel
Acquisition) and 2009 six-month period
temperatures that were slightly colder than last year, our retail volumes were lower reflecting
the effects of the significant deterioration in general economic
activity and customer conservation. Operating expenses were slightly higher than the prior year generally reflecting greater
provisions for bad debts, incremental expenses from the Penn Fuel Acquisition, and higher payroll
and benefits expense.
- 20 -
AMERIGAS PARTNERS, L.P.
2009 three-month period compared with 2008 three-month period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
Three Months Ended March 31, |
|
2009 |
|
|
2008 |
|
|
(Decrease) |
|
(millions of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gallons sold (millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
|
342.9 |
|
|
|
368.5 |
|
|
|
(25.6 |
) |
|
|
(6.9 |
)% |
Wholesale |
|
|
40.8 |
|
|
|
40.1 |
|
|
|
0.7 |
|
|
|
1.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
383.7 |
|
|
|
408.6 |
|
|
|
(24.9 |
) |
|
|
(6.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail propane |
|
$ |
740.6 |
|
|
$ |
895.5 |
|
|
$ |
(154.9 |
) |
|
|
(17.3 |
)% |
Wholesale propane |
|
|
39.5 |
|
|
|
64.8 |
|
|
|
(25.3 |
) |
|
|
(39.0 |
)% |
Other |
|
|
43.3 |
|
|
|
46.4 |
|
|
|
(3.1 |
) |
|
|
(6.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
823.4 |
|
|
$ |
1,006.7 |
|
|
$ |
(183.3 |
) |
|
|
(18.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total margin (a) |
|
$ |
349.5 |
|
|
$ |
330.7 |
|
|
$ |
18.8 |
|
|
|
5.7 |
% |
EBITDA (b) |
|
$ |
187.3 |
|
|
$ |
171.8 |
|
|
$ |
15.5 |
|
|
|
9.0 |
% |
Operating income |
|
$ |
168.1 |
|
|
$ |
153.3 |
|
|
$ |
14.8 |
|
|
|
9.7 |
% |
Net income |
|
$ |
147.8 |
|
|
$ |
133.0 |
|
|
$ |
14.8 |
|
|
|
11.1 |
% |
Heating degree days % warmer than normal (c) |
|
|
2.3 |
% |
|
|
1.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Total margin represents total revenues less cost of sales propane and cost of sales
other. |
|
(b) |
|
Earnings before interest expense, income taxes, depreciation and amortization (EBITDA)
should not be considered as an alternative to net income (as an indicator of operating
performance) and is not a measure of performance or financial condition under accounting
principles generally accepted in the United States of America (GAAP). Management believes
EBITDA is a meaningful non-GAAP financial measure used by investors to (1) compare the
Partnerships operating performance with other companies within the propane industry and (2)
assess its ability to meet loan covenants. The Partnerships definition of EBITDA may be
different from that used by other companies. Management uses EBITDA to compare
year-over-year profitability of the business without regard to capital structure as well as
to compare the relative performance of the Partnership to that of other master limited
partnerships without regard to their financing methods, capital structure, income taxes or
historical cost basis. In view of the omission of interest, income taxes, depreciation and
amortization from EBITDA, management also assesses the profitability of the business by
comparing net income for the relevant years. Management also uses EBITDA to assess the
Partnerships profitability because its parent, UGI Corporation, uses the Partnerships
EBITDA to assess the profitability of the Partnership. UGI Corporation discloses the
Partnerships EBITDA as the profitability measure to comply with the requirement in
Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information, to provide profitability information about its domestic
propane segment. |
The following table includes reconciliations of net income to EBITDA for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
Net income |
|
$ |
147.8 |
|
|
$ |
133.0 |
|
Income tax expense |
|
|
0.8 |
|
|
|
0.1 |
|
Interest expense |
|
|
17.8 |
|
|
|
18.7 |
|
Depreciation |
|
|
19.6 |
|
|
|
18.8 |
|
Amortization |
|
|
1.3 |
|
|
|
1.2 |
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
187.3 |
|
|
$ |
171.8 |
|
|
|
|
|
|
|
|
|
|
|
(c) |
|
Deviation from average heating degree days for the 30-year period 1971-2000 based upon
national weather statistics provided by the National Oceanic and Atmospheric Administration
(NOAA) for 335 airports in the United States, excluding Alaska. |
- 21 -
AMERIGAS PARTNERS, L.P.
Based upon heating degree-day data, average temperatures in our service territories were 2.3%
warmer than normal during the 2009 three-month period compared with temperatures in the prior-year
period that were 1.0% warmer than normal. Notwithstanding the benefit of the October 1, 2008 Penn
Fuel Acquisition, retail gallons sold were less than the prior-year period reflecting, among other
things, the adverse effects of the significant deterioration in general economic activity which has
occurred over the last year, continued customer conservation and the slightly warmer weather.
Retail propane revenues declined $154.9 million during the 2009 three-month period reflecting a
$92.7 million decrease due to lower average selling prices and a $62.2 million decrease as a result
of the lower retail volumes sold. Wholesale propane revenues declined $25.3 million reflecting the
decrease in year-over-year wholesale selling prices. Wholesale propane commodity prices at Mont
Belvieu, Texas, one of the major supply points in the U.S., generally stabilized during the three
months ended March 31, 2009 following a more than 50% decline in prices during the first quarter of
Fiscal 2009. Wholesale propane commodity prices at Mont Belvieu during the three months ended March
31, 2009 were more than 50% lower than such prices a year ago. Total cost of sales decreased $202.1
million to $473.9 million principally reflecting the effects of the lower propane product costs.
Total margin was $18.8 million greater in the 2009 three-month period reflecting the beneficial
impact of higher than normal retail unit margins resulting from the previously mentioned
significantly lower and less volatile propane product costs. We expect unit margins to return to
more normal levels over the remainder of Fiscal 2009.
EBITDA during the 2009 three-month period was $187.3 million compared with EBITDA of $171.8 million
in the 2008 three-month period. The greater 2009 three-month period EBITDA reflects the previously
mentioned $18.8 million increase in total margin partially offset by lower other income and
slightly higher operating and administrative expenses. The higher operating and administrative
expenses reflect greater compensation and benefits expenses, including incremental expenses
resulting from the Penn Fuel Acquisition, offset in large part by lower vehicle fuel expense.
Operating income increased $14.8 million reflecting the $15.5 million increase in EBITDA and
slightly higher depreciation and amortization expense associated with acquisitions and plant and
equipment expenditures made since the prior year. Net income increased $14.8 million during the
2009 three-month period largely reflecting the increase in operating income.
- 22 -
AMERIGAS PARTNERS, L.P.
2009 six-month period compared with 2008 six-month period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
Six Months Ended March 31, |
|
2009 |
|
|
2008 |
|
|
(Decrease) |
|
(millions of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gallons sold (millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
|
621.1 |
|
|
|
647.6 |
|
|
|
(26.5 |
) |
|
|
(4.1 |
)% |
Wholesale |
|
|
82.2 |
|
|
|
72.4 |
|
|
|
9.8 |
|
|
|
13.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
703.3 |
|
|
|
720.0 |
|
|
|
(16.7 |
) |
|
|
(2.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail propane |
|
$ |
1,375.6 |
|
|
$ |
1,543.2 |
|
|
$ |
(167.6 |
) |
|
|
(10.9 |
)% |
Wholesale propane |
|
|
83.2 |
|
|
|
116.8 |
|
|
|
(33.6 |
) |
|
|
(28.8 |
)% |
Other |
|
|
91.7 |
|
|
|
94.8 |
|
|
|
(3.1 |
) |
|
|
(3.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,550.5 |
|
|
$ |
1,754.8 |
|
|
$ |
(204.3 |
) |
|
|
(11.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total margin (a) |
|
$ |
631.0 |
|
|
$ |
572.5 |
|
|
$ |
58.5 |
|
|
|
10.2 |
% |
EBITDA (b) |
|
$ |
351.4 |
|
|
$ |
264.8 |
|
|
$ |
86.6 |
|
|
|
32.7 |
% |
Operating income |
|
$ |
312.9 |
|
|
$ |
227.2 |
|
|
$ |
85.7 |
|
|
|
37.7 |
% |
Net income |
|
$ |
271.8 |
|
|
$ |
187.3 |
|
|
$ |
84.5 |
|
|
|
45.1 |
% |
Heating degree days % warmer than normal (c) |
|
|
1.7 |
% |
|
|
3.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Total margin represents total revenues less cost of sales propane and cost of sales
other. |
|
(b) |
|
Earnings before interest expense, income taxes, depreciation and amortization (EBITDA)
should not be considered as an alternative to net income (as an indicator of operating
performance) and is not a measure of performance or financial condition under accounting
principles generally accepted in the United States of America (GAAP). Management believes
EBITDA is a meaningful non-GAAP financial measure used by investors to (1) compare the
Partnerships operating performance with other companies within the propane industry and (2)
assess its ability to meet loan covenants. The Partnerships definition of EBITDA may be
different from that used by other companies. Management uses EBITDA to compare
year-over-year profitability of the business without regard to capital structure as well as
to compare the relative performance of the Partnership to that of other master limited
partnerships without regard to their financing methods, capital structure, income taxes or
historical cost basis. In view of the omission of interest, income taxes, depreciation and
amortization from EBITDA, management also assesses the profitability of the business by
comparing net income for the relevant years. Management also uses EBITDA to assess the
Partnerships profitability because its parent, UGI Corporation, uses the Partnerships
EBITDA to assess the profitability of the Partnership. UGI Corporation discloses the
Partnerships EBITDA as the profitability measure to comply with the requirement in
Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information, to provide profitability information about its domestic
propane segment. |
- 23 -
AMERIGAS PARTNERS, L.P.
The following table includes reconciliations of net income to EBITDA for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
271.8 |
|
|
$ |
187.3 |
|
Income tax expense |
|
|
1.4 |
|
|
|
0.8 |
|
Interest expense |
|
|
36.5 |
|
|
|
36.9 |
|
Depreciation |
|
|
39.0 |
|
|
|
37.5 |
|
Amortization |
|
|
2.7 |
|
|
|
2.3 |
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
351.4 |
|
|
$ |
264.8 |
|
|
|
|
|
|
|
|
|
|
|
(c) |
|
Deviation from average heating degree days for the 30-year period 1971-2000 based upon
national weather statistics provided by the National Oceanic and Atmospheric Administration
(NOAA) for 335 airports in the United States, excluding Alaska. |
Based upon heating degree-day data, average temperatures in our service territories were 1.7%
warmer than normal during the 2009 six-month period compared with temperatures in the prior-year
period that were 3.7% warmer than normal. Notwithstanding the colder 2009 six-month period weather
and the benefit of the Penn Fuel Acquisition on October 1, 2008, retail gallons sold were lower
than the prior-year period reflecting, among other things, the adverse effects of the significant
deterioration in general economic activity which has occurred over the last year and continued
customer conservation.
Retail propane revenues declined $167.6 million during the 2009 six-month period reflecting a
$104.5 million decrease due to lower average selling prices and a $63.1 million decrease as a
result of the lower retail volumes sold. Wholesale propane revenues declined $33.6 million
reflecting a $49.6 million decrease from lower wholesale selling prices partially offset by a $16.0
million increase from higher wholesale volumes sold. From the beginning to the end of the first
quarter of Fiscal 2009, wholesale propane commodity prices at Mont Belvieu, Texas declined more
than 50% and generally remained at these lower price levels during the second half of the 2009
six-month period. Average wholesale propane prices in the 2009 six-month period were approximately
50% below average prices in the previous-year period. Total cost of sales decreased $262.8 million
to $919.5 million principally reflecting the effects of the lower propane product costs.
Total margin was $58.5 million greater in the 2009 six-month period reflecting the beneficial
impact of higher than normal retail unit margins resulting from a rapid and sharp decline in
propane product costs during the first half of the 2009 six-month period. We expect unit margins to
return to more normal levels over the remainder of Fiscal 2009.
EBITDA during the 2009 six-month period was $351.4 million compared with EBITDA of $264.8 million
in the 2008 six-month period. The 2009 six-month period EBITDA includes a $39.9 million pre-tax
gain from the sale of the Partnerships California LPG storage facility. In addition to the gain
from the sale of the California LPG storage facility, the 2009 six-month period EBITDA reflects the
previously mentioned $58.5 million increase in total margin partially offset by slightly higher
operating and administrative expenses and lower other income. The slightly higher operating and
administrative expenses reflect in large part higher provisions for bad debts, greater general
insurance expenses and incremental expenses from the Penn Fuel Acquisition partially offset by,
among other things, lower vehicle fuel expenses.
Operating income increased $85.7 million reflecting the $86.6 million increase in EBITDA and
slightly higher depreciation and amortization expense associated with acquisitions and plant and
equipment expenditures made since the prior year. Net income increased $84.5 million during the
2009 six-month period reflecting the increase in operating income.
- 24 -
AMERIGAS PARTNERS, L.P.
FINANCIAL CONDITION AND LIQUIDITY
Financial Condition
The Partnerships debt outstanding at March 31, 2009 totaled $862.7 million (including current
maturities of long-term debt of $1.1 million) compared with total debt outstanding of $933.4
million (including current maturities of long-term debt of $71.5 million) at September 30, 2008.
Total debt outstanding at March 31, 2009 includes long-term debt comprising $779.8 million of
AmeriGas Partners Senior Notes, $80.0 million of AmeriGas OLP First Mortgage Notes and $2.9
million of other long-term debt. At March 31, 2009, there were no amounts borrowed under AmeriGas
OLPs credit agreements (as further described below). In March 2009, AmeriGas OLP repaid $70
million of its First Mortgage Notes with cash generated from operations.
AmeriGas OLPs short-term borrowing needs are seasonal and are typically greatest during the fall
and winter heating-season months due to the need to fund higher levels of working capital. In
addition, a rapid and precipitous decline in commodity propane prices in late Fiscal 2008 which
continued into Fiscal 2009 resulted in greater cash needed by the Partnership to fund counterparty
collateral requirements during the six months ended March 31, 2009. These collateral requirements
are associated with derivative financial instruments used by the Partnership to manage market price
risk associated with fixed sales price commitments to customers principally during the
heating-season months of October through March. At March 31, 2009, the Partnership had outstanding
$11.9 million of collateral deposits associated with these derivative financial instruments.
In order to meet its short-term cash needs, AmeriGas OLP has a $200 million credit agreement
(Credit Agreement) which expires on October 15, 2011. In addition, on November 14, 2008, AmeriGas
OLP entered into a $50 million revolving credit agreement with two major banks (Supplemental
Credit Agreement) which was terminated on April 17, 2009 in conjunction with the signing of a new
$75 million revolving credit facility described below. AmeriGas OLPs Credit Agreement consists of
(1) a $125 million Revolving Credit Facility and (2) a $75 million Acquisition Facility. The
Revolving Credit Facility may be used for working capital and general purposes of AmeriGas OLP. The
Acquisition Facility provides AmeriGas OLP with the ability to borrow up to $75 million to finance
the purchase of propane businesses or propane business assets or, to the extent it is not so used,
for working capital and general purposes, subject to restrictions in the AmeriGas OLP First
Mortgage Notes. The Supplemental Credit Agreement permitted AmeriGas OLP to borrow up to $50
million for working capital and general purposes.
- 25 -
AMERIGAS PARTNERS, L.P.
On April 17, 2009, AmeriGas OLP voluntarily terminated its Supplemental Credit Agreement and
entered into a new $75 million unsecured revolving credit facility (2009 Supplemental Credit
Agreement) with three major banks. The New Supplemental Credit Agreement expires on July 1, 2010
and permits AmeriGas OLP to borrow up to $75 million for working capital and general purposes.
Except for more restrictive covenants regarding the incurrence of additional indebtedness by
AmeriGas OLP, the 2009 Supplemental Credit Agreement has restrictive covenants substantially
similar to AmeriGas OLPs Credit Agreement.
There were no borrowings outstanding under the credit agreements at March 31, 2009. Issued and
outstanding letters of credit under the Revolving Credit Facility, which reduce the amount
available for borrowings, totaled $77.5 million at March 31, 2009. The average daily and peak bank
loan borrowings outstanding under the credit agreements during the 2009 six-month period were $83.8
million and $184.5 million, respectively. The average daily and peak bank loan borrowings
outstanding under the Credit Agreement during the 2008 six-month period were $50.1 million and $101
million, respectively. At March 31, 2009, the Partnerships available borrowing capacity under the
credit agreements was $172.5 million.
In order to reduce cash collateral payment obligations and to provide the Partnership with greater
borrowing flexibility and a more cost effective use of its credit agreements, UGI agreed to provide
guarantees of up to $50 million to AmeriGas OLPs propane suppliers through September 30, 2009. At
March 31, 2009, the Partnership had $25 million of unused UGI guarantees.
Based on existing cash balances, cash expected to be generated from operations, and borrowings
available under AmeriGas OLPs Credit Agreement and the 2009 Supplemental Credit Agreement, the
Partnerships management believes that the Partnership will be able to meet its anticipated
contractual commitments and projected cash needs during Fiscal 2009.
On
April 28, 2009, the General Partners Board of Directors
approved a quarterly distribution of $0.67 per
Common Unit equal to an annual rate of $2.68 per Common Unit. The new quarterly rate is effective
with the distribution payable on May 18, 2009 to unitholders of record on May 8, 2009. This
distribution reflects an increase of approximately 5% from the previous quarters regular quarterly
distribution rate of $0.64 per Common Unit. During the six months ended March 31, 2009, the
Partnership declared and paid quarterly distributions on all limited partner units at a rate of
$0.64 per Common Unit for each of the quarters ended December 31, 2008 and September 30, 2008. The
ability of the Partnership to declare and pay the quarterly distribution on its Common Units in the
future depends upon a number of factors. These factors include (1) the level of Partnership
earnings; (2) the cash needs of the Partnerships operations (including cash needed for maintaining
and increasing operating capacity); (3) changes in operating working capital; and (4) the
Partnerships ability to borrow under its credit agreements, refinance maturing debt, and increase
its long-term debt. Some of these factors are affected by conditions beyond the Partnerships
control including weather, competition in markets we serve, the cost of propane and changes in
capital market conditions.
- 26 -
AMERIGAS PARTNERS, L.P.
Cash Flows
Operating activities. Due to the seasonal nature of the Partnerships business, cash flows from
operating activities are generally strongest during the second and third fiscal quarters when
customers pay for propane consumed during the heating season months. Conversely, operating cash
flows are generally at their lowest levels during the first and fourth fiscal quarters when the
Partnerships investment in working capital is generally greatest. The Partnership may use its
credit agreements to satisfy its seasonal operating cash flow needs. Cash flow provided by
operating activities was $175.5 million in the 2009 six-month period compared to $28.2 million in
the 2008 six-month period. Cash flow from operating activities before changes in operating working
capital was $280.0 million in the 2009 six-month period compared with $237.9 million in the
prior-year period principally reflecting the improved operating results. Cash required to fund
changes in operating working capital totaled $104.5 million in the 2009 six-month period compared
with $209.7 million in the prior-year period. The decrease in cash required to fund
operating working capital in the current-year period principally
reflects lower net cash required to fund changes in accounts
receivable and inventories due in large part to the effects of
declining wholesale propane product costs. This decrease in cash used
to fund changes in accounts receivable and inventories was partially offset by the
impact of the timing of payments and decrease in current-year period propane product costs on
accounts payable.
Investing activities. Investing activity cash flow is principally affected by investments in
property, plant and equipment, cash paid for acquisitions of businesses and proceeds from sales of
assets. Cash flow used in investing activities was $29.8 million in the 2009 six-month period
compared with $25.8 million in the prior-year period. We spent $37.9 million for property, plant
and equipment (comprising $17.3 million of maintenance capital expenditures and $20.6 million of
growth capital expenditures) in the 2009 six-month period compared with $31.3 million (comprising
$12.9 million of maintenance capital expenditures and $18.4 million of growth capital expenditures)
in the 2008 six-month period. The greater capital expenditures in the 2009 six-month period include
expenditures associated with an ongoing system software replacement. In November 2008, the
Partnership sold its California LPG storage facility for net cash proceeds of $42.4 million. Also
during the 2009 six-month period, the Partnership paid total net cash of $38.5 million for
acquisitions of retail propane businesses, principally the Penn Fuel Acquisition.
Financing activities. The Partnerships financing activities cash flows are typically the result of
repayments and issuances of long-term debt, borrowings under AmeriGas OLPs credit agreements,
issuances of Common Units and distributions on partnership interests. Cash used by financing
activities was $146.4 million in the 2009 six-month period compared with $15.6 million in the
prior-year period. Distributions in the 2009 six-month period totaled $74.4 million compared with
$70.3 million in the prior-year period principally reflecting a higher quarterly per-unit
distribution rate. There were no borrowings outstanding under the credit agreements at the end of
the 2009 six month period compared to $56 million at the end of the prior period. The higher amount
at the end of the prior period was required to fund higher working capital. Repayments of long-term debt
in the 2009 six-month period totaled $70.6 million compared to $0.9 million in the prior period
reflecting the repayment of $70 million of AmeriGas OLPs First Mortgage Notes.
Partnership Sale of Propane Storage Facility
On November 13, 2008, AmeriGas OLP sold its 600,000 barrel refrigerated, above-ground storage
facility located on leased property in California for net cash of $42.4 million. We recorded a
pre-tax gain of $39.9 million associated with this transaction, which increased net income for the
six months ended March 31, 2009 by $39.5 million.
- 27 -
AMERIGAS PARTNERS, L.P.
Effect of Recent Market Conditions
The recent unprecedented volatility in credit and capital markets may create additional risks to
the Partnership in the future. We are exposed to financial market risk resulting from, among other
things, changes in interest rates and conditions in the credit and capital markets. Recent
developments in the credit markets increase our possible exposure to the liquidity and credit risks
of our suppliers, counterparties associated with derivative financial instruments and our
customers.
We believe that we have sufficient liquidity in the form of revolving credit facilities, letters of
credit and guarantee arrangements to fund our operations including the collateral requirements of
our derivative financial instruments and our maturing long-term debt. Additionally, we do not have
significant amounts of long-term debt maturing or revolving credit agreements terminating in the
next several fiscal years. Accordingly, we do not believe that recent conditions in the credit and
capital markets will have a significant impact on our liquidity. Although we believe that recent
financial market conditions will not have a significant impact on our ability to fund our existing
operations, such market conditions could restrict our ability to make a significant acquisition or
limit the scope of major capital projects, if access to credit and capital markets is limited, and
could adversely affect our results of operations.
We are subject to credit risk relating to the ability of counterparties to meet their contractual
payment obligations or the potential non-performance of counterparties to deliver contracted
commodities or services at contract prices. We monitor our counterparty credit risk exposure in
order to minimize credit risk with any one supplier or financial instrument counterparty. We have a
diverse customer base that spans broad geographic, economic and demographic constituencies. On an
annual basis, no single customer represents more than ten percent of our revenues or operating
income. Notwithstanding our diverse customer profile, current economic conditions and the
conditions in the credit markets could affect the ability of some of our customers to pay timely or
could result in increased customer bankruptcies which may lead to increased bad debts.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Our primary financial market risks include commodity prices for propane and interest rates on
borrowings.
The risk associated with fluctuations in the prices the Partnership pays for propane is principally
a result of market forces reflecting changes in supply and demand for propane and other energy
commodities. The Partnerships profitability is sensitive to changes in propane supply costs and
the Partnership generally passes on increases in such costs to customers. The Partnership may not,
however, always be able to pass through product cost increases fully or on a timely basis,
particularly when product costs rise rapidly. In order to reduce the volatility of the
Partnerships propane market price risk, we use contracts for the forward purchase or sale of
propane, propane fixed-price supply agreements, and over-the-counter derivative commodity
instruments including price swap and option contracts. Over-the-counter derivative commodity
instruments utilized by the Partnership to hedge forecasted purchases of propane are generally
settled at expiration of the contract. These derivative financial instruments contain collateral
provisions. As previously mentioned, precipitous declines in propane commodity prices late in
Fiscal 2008 which continued into Fiscal 2009 resulted in greater collateral requirements by our
derivative instruments counterparties. In order to minimize our credit risk associated with
derivative commodity contracts, we monitor established credit limits with our contract
counterparties. Although we use derivative financial and commodity instruments to reduce market
price risk associated with forecasted transactions, we do not use derivative financial and
commodity instruments for speculative or trading purposes.
- 28 -
AMERIGAS PARTNERS, L.P.
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 their fair value. Conversely, changes
in interest rates impact the fair value of fixed-rate debt but do not impact their cash flows.
Our
variable-rate debt includes borrowings under AmeriGas OLPs
credit agreements. These agreements have interest rates that are generally indexed to short-term
market interest rates. Our long-term debt is typically issued at fixed rates of interest based upon
market rates for debt having similar terms and credit ratings. As these long-term debt issues
mature, we may refinance such debt with new debt having interest rates reflecting then-current
market conditions. This debt may have an interest rate that is more or less than the refinanced
debt. In order to reduce interest rate risk associated with forecasted issuances of fixed-rate
debt, from time to time we enter into interest rate protection agreements.
The following table summarizes the fair values of unsettled market risk sensitive derivative
instruments held at March 31, 2009. It also includes the changes in fair value that would result if
there were a ten percent adverse change in (1) the market price of propane and (2) the three-month
LIBOR:
|
|
|
|
|
|
|
|
|
|
|
Asset (Liability) |
|
|
|
|
|
|
|
Change in |
|
(Millions of dollars) |
|
Fair Value |
|
|
Fair Value |
|
March 31, 2009: |
|
|
|
|
|
|
|
|
Propane
price swap contracts |
|
$ |
(64.3 |
) |
|
$ |
(10.4 |
) |
Interest rate protection agreements |
|
|
(23.0 |
) |
|
|
(4.4 |
) |
Because the Partnerships derivative instruments generally qualify as hedges under SFAS No. 133, we
expect that changes in the fair value of derivative instruments used to manage propane price or
interest rate risk would be substantially offset by gains or losses on the associated anticipated
transactions.
- 29 -
AMERIGAS PARTNERS, L.P.
ITEM 4. CONTROLS AND PROCEDURES
(a) |
|
Evaluation of Disclosure Controls and Procedures |
The Partnerships management, with the participation of the Partnerships Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of the Partnerships
disclosure controls and procedures as of the end of the period covered by this report.
Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Partnerships disclosure controls and procedures as of the end of the period
covered by this report were designed and functioning effectively to provide reasonable
assurance that the information required to be disclosed by the Partnership in reports filed
under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms, and (ii) accumulated and communicated to our management,
including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding disclosure.
(b) |
|
Change in Internal Control over Financial Reporting |
No change in the Partnerships internal control over financial reporting occurred during the
Partnerships most recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Partnerships internal control over financial reporting.
- 30 -
AMERIGAS PARTNERS, L.P.
PART II OTHER INFORMATION
ITEM 1A. RISK FACTORS
In addition to the information presented below and the other information set forth in this Report,
you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our
Annual Report on Form 10-K for the fiscal year ended September 30, 2008, which could materially
affect our business, financial condition or future results. The risks described below and in our
Annual Report on Form 10-K are not the only risks facing the Partnership. Other unknown or
unpredictable factors could also have material adverse effects on future results.
Unforeseen difficulties with the implementation or operation of our information systems could
adversely affect our internal controls and our business.
We contracted with third-party consultants to assist us with the design and implementation of an
information system that supports our Order-to-Cash business processes. The efficient execution of
our business is dependent upon the proper functioning of our internal systems. Any significant
failure or malfunction of our information system may result in disruptions of our operations. Our
results of operations could be adversely affected if we encounter unforeseen problems with respect
to the operation of this system.
ITEM 6. EXHIBITS
The exhibits filed as part of this report are as follows (exhibits incorporated by reference are
set forth with the name of the registrant, the type of report and registration number or last date
of the period for which it was filed, and the exhibit number in such filing):
Incorporation by Reference
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Exhibit |
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No. |
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Exhibit |
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Registrant |
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Filing |
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Exhibit |
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10.1 |
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UGI Corporation
2004 Omnibus Equity
Compensation Plan
Nonqualified Stock
Option Grant Letter
for AmeriGas
Employees, dated
January 1, 2009.
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UGI
Corporation
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Form 10-Q (3/31/09)
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10.3 |
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10.2 |
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AmeriGas Propane,
Inc. 2000 Long-Term
Incentive Plan on
Behalf of AmeriGas
Partners, L.P., as
amended and
restated effective
January 1, 2005,
Restricted Unit
Grant Letter dated
as of January 1,
2009. |
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10.3 |
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Credit Agreement,
dated as of April
17, 2009, among
AmeriGas Propane,
L.P., as Borrower,
AmeriGas Propane,
Inc., as Guarantor,
Petrolane
Incorporated, as
Guarantor, Citizens
Bank of
Pennsylvania, as
Syndication Agent,
JPMorgan Chase,
N.A., as
Documentation Agent
and Wachovia Bank,
National
Association, as
Administrative
Agent.
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AmeriGas Partners,
L.P.
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Form 8-K (4/17/09)
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10.1 |
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- 31 -
AMERIGAS PARTNERS, L.P.
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Exhibit |
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No. |
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Exhibit |
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Registrant |
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Filing |
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Exhibit |
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10.4 |
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UGI Corporation
2004 Omnibus Equity
Compensation Plan
Performance Unit
Grant Letter for
UGI Employees,
dated January 1,
2009.
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UGI
Corporation
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Form 10-Q (3/31/09)
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10.1 |
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10.5 |
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UGI Corporation
2004 Omnibus Equity
Compensation Plan
Nonqualified Stock
Option Grant Letter
for UGI Employees,
dated January 1,
2009.
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UGI
Corporation
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Form 10-Q (3/31/09)
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10.5 |
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10.6 |
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UGI Corporation
2004 Omnibus Equity
Compensation Plan
Stock Unit Grant
Letter for UGI Employees,
dated January 1,
2009.
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UGI
Corporation
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Form 10-Q (3/31/09)
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10.8 |
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31.1 |
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Certification by
the Chief Executive
Officer relating to
the Registrants
Report on Form 10-Q
for the quarter
ended March 31,
2009, pursuant to
Section 302 of the
Sarbanes-Oxley Act
of 2002. |
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31.2 |
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Certification by
the Chief Financial
Officer relating to
the Registrants
Report on Form 10-Q
for the quarter
ended March 31,
2009, pursuant to
Section 302 of the
Sarbanes-Oxley Act
of 2002. |
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32 |
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Certification by
the Chief Executive
Officer and the
Chief Financial
Officer relating to
the Registrants
Report on Form 10-Q
for the quarter
ended March 31,
2009, pursuant to
Section 906 of the
Sarbanes-Oxley Act
of 2002. |
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- 32 -
AMERIGAS PARTNERS, L.P.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
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AmeriGas Partners, L.P.
(Registrant)
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By: |
AmeriGas Propane, Inc.,
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as General Partner |
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Date: May 8, 2009 |
By: |
/s/ Jerry E. Sheridan
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Jerry E. Sheridan |
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Vice President Finance
and Chief Financial Officer |
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Date: May 8, 2009 |
By: |
/s/ William J. Stanczak
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William J. Stanczak |
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Controller and Chief Accounting Officer |
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- 33 -
EXHIBIT INDEX
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Exhibit |
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No. |
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Description |
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10.2 |
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AmeriGas Propane, Inc. 2000 Long-Term Incentive Plan on Behalf
of AmeriGas Partners, L.P., as amended and restated effective
January 1, 2005, Restricted Unit Grant Letter dated as of
January 1, 2009. |
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31.1 |
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Certification by the Chief Executive Officer relating to the
Registrants Report on Form 10-Q for the quarter ended March
31, 2009, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
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31.2 |
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Certification by the Chief Financial Officer relating to the
Registrants Report on Form 10-Q for the quarter ended March
31, 2009, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
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32 |
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Certification by the Chief Executive Officer and the Chief
Financial Officer relating to the Registrants Report on Form
10-Q for the quarter ended March 31, 2009, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. |
- 34 -