-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MjPS3T4mzgHYL2LjMKdE5W0BpWvV8IPxt5frXX8L4bmYa26+tsOr2nf17AlEmGo9 89p9f9l+QMOBMQC3ADnIjA== 0000893220-03-001448.txt : 20030814 0000893220-03-001448.hdr.sgml : 20030814 20030814142503 ACCESSION NUMBER: 0000893220-03-001448 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AP EAGLE FINANCE CORP CENTRAL INDEX KEY: 0001161868 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-72986-01 FILM NUMBER: 03846253 BUSINESS ADDRESS: STREET 1: P O BOX 965 CITY: VALLEY FORGE STATE: PA ZIP: 19482 BUSINESS PHONE: 6103371000 MAIL ADDRESS: STREET 1: P O BOX 965 CITY: VALLEY FORGE STATE: PA ZIP: 19482 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERIGAS PARTNERS LP CENTRAL INDEX KEY: 0000932628 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RETAIL STORES, NEC [5990] IRS NUMBER: 232787918 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13692 FILM NUMBER: 03846252 BUSINESS ADDRESS: STREET 1: 460 N GULPH RD STREET 2: BOX 965 CITY: VALLEY FORGE STATE: PA ZIP: 19406 BUSINESS PHONE: 6103377000 MAIL ADDRESS: STREET 1: 460 NORTH GULPH ROAD CITY: KING OF PRUSSIA STATE: PA ZIP: 19406 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERIGAS EAGLE FINANCE CORP CENTRAL INDEX KEY: 0001161869 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-72986-02 FILM NUMBER: 03846254 BUSINESS ADDRESS: STREET 1: P O BOX 965 CITY: VALLEY FORGE STATE: PA ZIP: 19482 BUSINESS PHONE: 6103371000 MAIL ADDRESS: STREET 1: P O BOX 965 CITY: VALLEY FORGE STATE: PA ZIP: 19482 10-Q 1 w89126e10vq.txt AMERIGAS PARTNERS FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 1-13692 Commission file number 333-72986-02 Commission file number 333-72986-01 AMERIGAS PARTNERS, L.P. AMERIGAS EAGLE FINANCE CORP. AP EAGLE FINANCE CORP. (Exact name of registrants as specified in their charters) Delaware 23-2787918 Delaware 23-3074434 Delaware 23-3077318 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 460 North Gulph Road, King of Prussia, PA 19406 (Address of principal executive offices) (Zip Code) (610) 337-7000 (Registrants' telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] At July 31, 2003, the registrants had units and shares of common stock outstanding as follows: AmeriGas Partners, L.P. - 52,333,208 Common Units AmeriGas Eagle Finance Corp. - 100 shares AP Eagle Finance Corp. - 100 shares AMERIGAS PARTNERS, L.P. TABLE OF CONTENTS
PAGES ----- PART I FINANCIAL INFORMATION Item 1. Financial Statements AmeriGas Partners, L.P. Condensed Consolidated Balance Sheets as of June 30, 2003, September 30, 2002 and June 30, 2002 1 Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2003 and 2002 2 Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2003 and 2002 3 Condensed Consolidated Statement of Partners' Capital for the nine months ended June 30, 2003 4 Notes to Condensed Consolidated Financial Statements 5 - 11 AmeriGas Eagle Finance Corp. Balance Sheets as of June 30, 2003 and September 30, 2002 12 Note to Balance Sheets 13 AP Eagle Finance Corp. Balance Sheets as of June 30, 2003 and September 30, 2002 14 Note to Balance Sheets 15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 - 23 Item 3. Quantitative and Qualitative Disclosures About Market Risk 23 - 24 Item 4. Controls and Procedures 24 - 25 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 26 Signatures 27
-i- AMERIGAS PARTNERS, L.P. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (Thousands of dollars)
June 30, September 30, June 30, 2003 2002 2002 ---------- ------------- ---------- ASSETS Current assets: Cash and cash equivalents $ 33,959 $ 47,400 $ 45,089 Accounts receivable (less allowances for doubtful accounts of $10,741, $7,588 and $8,980, respectively) 109,427 83,274 93,823 Accounts receivable - related parties 875 6,862 3,492 Inventories 59,420 62,496 53,798 Prepaid expenses and other current assets 24,414 31,238 18,831 ---------- ------------- ---------- Total current assets 228,095 231,270 215,033 Property, plant and equipment (less accumulated depreciation and amortization of $457,574, $408,590 and $393,284, respectively) 607,225 611,550 613,724 Goodwill and excess reorganization value 599,652 589,923 589,924 Intangible assets (less accumulated amortization of $10,948, $8,651 and $8,077, respectively) 27,176 22,586 24,193 Other assets 16,633 17,289 22,219 ---------- ------------- ---------- Total assets $1,478,781 $ 1,472,618 $1,465,093 ========== ============= ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Current maturities of long-term debt $ 60,988 $ 60,398 $ 58,219 Bank loans - 10,000 - Accounts payable - trade 72,454 81,891 73,892 Accounts payable - related parties 1,006 5,003 2,044 Customer deposits and advances 14,666 53,177 28,322 Interest accrued 17,247 34,492 19,197 Other current liabilities 67,159 62,863 61,778 ---------- ------------- ---------- Total current liabilities 233,520 307,824 243,452 Long-term debt 868,832 885,386 888,214 Other noncurrent liabilities 52,727 44,810 41,952 Commitments and contingencies (note 7) Minority interests 7,576 6,232 6,861 Partners' capital 316,126 228,366 284,614 ---------- ------------- ---------- Total liabilities and partners' capital $1,478,781 $ 1,472,618 $1,465,093 ========== ============= ==========
See accompanying notes to condensed consolidated financial statements. - 1 - AMERIGAS PARTNERS, L.P. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (Thousands of dollars, except per unit)
Three Months Ended Nine Months Ended June 30, June 30, -------------------------- -------------------------- 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Revenues: Propane $ 257,705 $ 226,192 $ 1,263,423 $ 998,326 Other 29,431 28,277 94,290 87,650 ----------- ----------- ----------- ----------- 287,136 254,469 1,357,713 1,085,976 ----------- ----------- ----------- ----------- Costs and expenses: Cost of sales - propane 145,637 105,992 723,258 506,123 Cost of sales - other 12,310 12,032 38,716 35,702 Operating and administrative expenses 119,136 108,846 374,005 338,330 Depreciation and amortization 18,891 16,632 54,813 49,306 Equity investee (income) loss 637 54 493 (458) Other (income), net (3,008) (856) (7,066) (2,172) ----------- ----------- ----------- ----------- 293,603 242,700 1,184,219 926,831 ----------- ----------- ----------- ----------- Operating income (loss) (6,467) 11,769 173,494 159,145 Loss on extinguishments of debt - - (3,023) (752) Interest expense (21,468) (21,784) (66,051) (66,541) ----------- ----------- ----------- ----------- Income (loss) before income taxes (27,935) (10,015) 104,420 91,852 Income tax (expense) benefit 343 68 405 (148) Minority interests 178 2 (1,451) (1,263) ----------- ----------- ----------- ----------- Net income (loss) $ (27,414) $ (9,945) $ 103,374 $ 90,441 =========== =========== =========== =========== General partner's interest in net income (loss) $ (274) $ (100) $ 1,034 $ 904 =========== =========== =========== =========== Limited partners' interest in net income (loss) $ (27,140) $ (9,845) $ 102,340 $ 89,537 =========== =========== =========== =========== Net income (loss) per limited partner unit: Basic $ (0.54) $ (0.20) $ 2.06 $ 1.84 =========== =========== =========== =========== Diluted $ (0.54) $ (0.20) $ 2.06 $ 1.83 =========== =========== =========== =========== Average limited partner units outstanding: Basic 49,847 49,432 49,571 48,736 =========== =========== =========== =========== Diluted 49,847 49,432 49,631 48,830 =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements. - 2 - AMERIGAS PARTNERS, L.P. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Thousands of dollars)
Nine Months Ended June 30, ---------------------- 2003 2002 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 103,374 $ 90,441 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 54,813 49,306 Other, net 11,005 868 Net change in: Accounts receivable (26,025) 4,096 Inventories 3,224 19,274 Accounts payable (13,433) (1,379) Other current assets and liabilities (45,803) (35,199) --------- --------- Net cash provided by operating activities 87,155 127,407 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for property, plant and equipment (43,425) (38,586) Proceeds from disposals of assets 6,037 6,329 Acquisitions of businesses, net of cash acquired (27,009) (736) --------- --------- Net cash used by investing activities (64,397) (32,993) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions (82,388) (81,035) Minority interest activity (358) (199) Decrease in bank loans (10,000) - Issuance of long-term debt 122,780 40,900 Repayment of long-term debt (141,996) (98,607) Proceeds from issuance of Common Units 75,005 56,556 Capital contributions from General Partner 758 571 --------- --------- Net cash used by financing activities (36,199) (81,814) --------- --------- Cash and cash equivalents (decrease) increase $ (13,441) $ 12,600 ========= ========= CASH AND CASH EQUIVALENTS: End of period $ 33,959 $ 45,089 Beginning of period 47,400 32,489 --------- --------- (Decrease) increase $ (13,441) $ 12,600 ========= =========
See accompanying notes to condensed consolidated financial statements. - 3 - AMERIGAS PARTNERS, L.P. CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (unaudited) (Thousands, except unit data)
Accumulated Number of units other Total ------------------------ General comprehensive partners' Common Subordinated Common Subordinated partner income (loss) capital ---------- ------------ --------- ------------ ----------- ------------- ----------- BALANCE SEPTEMBER 30, 2002 39,541,286 9,891,072 $ 201,660 $ 17,846 $ 2,214 $ 6,646 $ 228,366 Net income 100,961 1,379 1,034 103,374 Net gains on derivative instruments 17,052 17,052 Reclassification of net gains on derivative instruments (26,062) (26,062) ------------- ----------- Comprehensive income (9,010) 94,364 Distributions (76,124) (5,440) (824) (82,388) Common Units issued in connection with public offering 2,900,000 75,005 758 75,763 Common Units issued in connection with executive compensation plan 850 21 - 21 Conversion of Subordinated Units to Common Units 9,891,072 (9,891,072) 13,785 (13,785) - ---------- ------------ --------- ------------ ----------- ------------- ----------- BALANCE JUNE 30, 2003 52,333,208 - $ 315,308 $ - $ 3,182 $ (2,364) $ 316,126 ========== ============ ========= ============ =========== ============= ===========
See accompanying notes to condensed consolidated financial statements. - 4 - AMERIGAS PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Thousands of dollars, except per unit) 1. BASIS OF PRESENTATION The condensed consolidated financial statements include the accounts of AmeriGas Partners, L.P. ("AmeriGas Partners") and its principal operating subsidiaries AmeriGas Propane, L.P. ("AmeriGas OLP") and AmeriGas OLP's subsidiary, AmeriGas Eagle Propane, L.P. ("Eagle OLP"). AmeriGas Partners, AmeriGas OLP and Eagle OLP are Delaware limited partnerships. AmeriGas OLP and Eagle OLP are collectively referred to herein as "the Operating Partnerships," and AmeriGas Partners, the Operating Partnerships and all of their subsidiaries are collectively referred to herein as "the Partnership" or "we." We eliminate all significant intercompany accounts and transactions when we consolidate. We account for AmeriGas Propane, Inc.'s (the "General Partner's") 1.01% interest in AmeriGas OLP and an unrelated third party's approximate 0.1% limited partner interest in Eagle OLP as minority interests in the condensed consolidated financial statements. The Partnership's 50% ownership interest in Atlantic Energy, Inc. ("Atlantic Energy"), a propane storage terminal located in Chesapeake, Virginia, is accounted for by the equity method. The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). They include all adjustments which we consider necessary for a fair statement of the results for the interim periods presented. Such adjustments consisted only of normal recurring items unless otherwise disclosed. The September 30, 2002 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These financial statements should be read in conjunction with the financial statements and related notes included in our Annual Report on Form 10-K for the year ended September 30, 2002 ("2002 Annual Report"). Weather significantly impacts demand for propane and profitability because many customers use propane for heating purposes. Due to the seasonal nature of the Partnership's propane business, the results of operations for interim periods are not necessarily indicative of the results to be expected for a full year. NET INCOME PER UNIT. Net income per unit is computed by dividing net income, after deducting the General Partner's 1% interest in AmeriGas Partners, by the weighted average number of limited partner units outstanding. Potentially dilutive Common Units included in the diluted limited partner units outstanding computation reflect the effects of Common Unit awards issued under AmeriGas Propane, Inc. incentive compensation plans. - 5 - AMERIGAS PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited) (Thousands of dollars, except per unit) COMPREHENSIVE INCOME (LOSS). The following table presents the components of comprehensive income (loss) for the three and nine months ended June 30, 2003 and 2002:
- ------------------------------------------------------------------------------------ Three Months Ended Nine Months Ended June 30 June 30, ---------------------- ---------------------- 2003 2002 2003 2002 - ------------------------------------------------------------------------------------ Net income (loss) $ (27,414) $ (9,945) $ 103,374 $ 90,441 Other comprehensive income (loss) 1,571 (5,436) (9,010) 14,576 - ------------------------------------------------------------------------------------ Comprehensive income (loss) $ (25,843) $ (15,381) $ 94,364 $ 105,017 - ------------------------------------------------------------------------------------
Other comprehensive income (loss) is principally the result of changes in the fair value of propane commodity derivative instruments and interest rate protection agreements, net of reclassifications of net gains and losses to net income. UNIT-BASED COMPENSATION. As permitted by Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), we apply the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), in recording compensation expense for grants of equity instruments to employees. We recorded unit-based compensation expense of $618 and $1,641 during the three and nine months ended June 30, 2003, respectively, and $411 and $740 during the three and nine months ended June 30, 2002, respectively. Our unit-based compensation expense under the provisions of APB 25 for all periods presented was not materially different from amounts determined under the provisions of SFAS 123. USE OF ESTIMATES. We make estimates and assumptions when preparing financial statements in conformity with accounting principles generally accepted in the United States. 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. RECLASSIFICATIONS. In order to more appropriately classify direct costs associated with the Partnership's Prefilled Propane Xchange ("PPX(R)") program, for the three and nine months ended June 30, 2003, certain costs previously considered operating and administrative expenses have been included in cost of sales. We have reclassified $6,796 and $12,809 of such costs incurred during the three and nine months ended June 30, 2002, respectively, to conform to the current-period presentation. In January 2003, the Partnership recorded a loss on an early extinguishment of long-term debt. This loss has been reflected in the Condensed Consolidated Statements of Operations for the nine months ended June 30, 2003 as "loss on extinguishments of debt." A loss associated with a November 2001 early extinguishment of long-term debt previously included in other (income), net, in the Condensed Consolidated Statement of Operations for the nine months ended June 30, 2002 has been reclassified to conform to the current-period presentation (see Note 5). - 6 - AMERIGAS PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited) (Thousands of dollars, except per unit) 2. INTANGIBLE ASSETS The Partnership's intangible assets comprise the following:
------------------------------------------------------------- June 30, September 30, 2003 2002 ------------------------------------------------------------- Subject to amortization: Customer relationships and noncompete agreements $ 38,124 $ 31,237 Accumulated amortization (10,948) (8,651) ------------------------------------------------------------- $ 27,176 $ 22,586 ------------------------------------------------------------- Not subject to amortization: Goodwill $ 506,332 $ 496,603 Excess reorganization value 93,320 93,320 ------------------------------------------------------------- $ 599,652 $ 589,923 -------------------------------------------------------------
The increases in intangible assets during the nine months ended June 30, 2003 resulted from Partnership business acquisitions. Amortization expense of intangible assets was $745 and $2,297 for the three and nine months ended June 30, 2003, respectively, and $892 and $2,713 for the three and nine months ended June 30, 2002, respectively. Our expected aggregate amortization expense of intangible assets for the next five fiscal years is as follows: Fiscal 2003 - $3,140; Fiscal 2004 - $3,306; Fiscal 2005 - $3,068; Fiscal 2006 - $2,661; Fiscal 2007 - $2,030. 3. COMMON UNIT ACTIVITY On June 17, 2003, AmeriGas Partners sold 2,900,000 Common Units in an underwritten public offering at a public offering price of $27.12 per unit. The net proceeds of the public offering totaling $75,005 and the associated capital contributions from the General Partner totaling $1,531 were contributed to AmeriGas OLP and used to reduce indebtedness under its bank credit agreement and for general partnership purposes. The underwriters' overallotment option expired unexercised. In December 2002, the General Partner determined that the cash-based performance and distribution requirements for the conversion of the then-remaining 9,891,072 Subordinated Units, all of which were held by the General Partner, had been met in respect of the quarter ended September 30, 2002. As a result, the Subordinated Units were converted to an equivalent number of Common Units effective November 18, 2002. The conversion of the Subordinated Units did not result in an increase in the total number of AmeriGas Partners limited partner units outstanding. - 7 - AMERIGAS PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited) (Thousands of dollars, except per unit) 4. RELATED PARTY TRANSACTIONS Pursuant to the Second Amended and Restated Agreement of Limited Partnership of AmeriGas Partners and a Management Services Agreement between 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 totaled $68,553 and $215,750 during the three and nine months ended June 30, 2003, respectively, and $64,691 and $200,955 during the three and nine months ended June 30, 2002, respectively. UGI Corporation ("UGI") provides certain financial and administrative services to the General Partner. UGI bills the General Partner for these direct and indirect corporate expenses and the General Partner is reimbursed by the Partnership for these expenses. Such corporate expenses totaled $2,455 and $6,699 during the three and nine months ended June 30, 2003, respectively, and $1,266 and $4,196 during the three and nine months ended June 30, 2002, respectively. UGI and certain of its subsidiaries also provide office space, and during the three and nine months ended June 30, 2003 provided automobile liability insurance, to the Partnership. These expenses totaled $441 and $1,315 during the three and nine months ended June 30, 2003, respectively, and $358 and $1,071 during the three and nine months ended June 30, 2002, respectively. The Partnership purchases propane on behalf of Atlantic Energy. Atlantic Energy reimburses AmeriGas OLP for its purchases plus interest as Atlantic Energy sells such propane to third parties or to AmeriGas OLP itself. The total dollar value of propane purchased on behalf of Atlantic Energy was $941 and $11,764 during the three and nine months ended June 30, 2003, respectively, and $3,573 and $11,365 during the three and nine months ended June 30, 2002, respectively. Purchases of propane by AmeriGas OLP from Atlantic Energy during the three and nine months ended June 30, 2003 totaled $2,240 and $20,898, respectively, and during the three and nine months ended June 30, 2002 totaled $1,585 and $10,939 respectively. The General Partner also provides other services to Atlantic Energy including accounting, insurance and other administrative services and is reimbursed for the related costs. Such costs were not material during the three and nine months ended June 30, 2003 or 2002. In addition, AmeriGas OLP enters into product cost hedging contracts on behalf of Atlantic Energy. When these contracts are settled, AmeriGas OLP is reimbursed the cost of any losses, or distributes the proceeds of any gains, to Atlantic Energy. Amounts due from Atlantic Energy at June 30, 2003, September 30, 2002 and June 30, 2002 totaled $772, $5,243 and $3,148, respectively, which amounts are included in accounts receivable - related parties in the Condensed Consolidated Balance Sheets. - 8 - AMERIGAS PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited) (Thousands of dollars, except per unit) 5. LONG-TERM DEBT On December 3, 2002, AmeriGas Partners issued $88,000 face amount of 8.875% Senior Notes due 2011 at an effective interest rate of 8.30%. The net proceeds, including debt premium, of $89,100 were used on January 6, 2003 to redeem prior to maturity AmeriGas Partners' $85,000 face amount of 10.125% Senior Notes due 2007 at a redemption price of 102.25%, plus accrued interest. The Partnership recognized a loss of $3,023 in the quarter ended March 31, 2003 related to the redemption premium and other associated costs and expenses. In November 2001, AmeriGas Partners redeemed prior to maturity $15,000 face value of its 10.125% Senior Notes at a redemption price of 103.375%. The Partnership recognized a loss of $752 in the quarter ended December 31, 2001 related to the early redemption. In April 2003, AmeriGas OLP repaid $53,750 of maturing First Mortgage Notes. In conjunction with this repayment, in April 2003 AmeriGas Partners issued $32,000 face amount of 8.875% Series B Senior Notes due 2011 at an effective interest rate of 7.72% and contributed the net proceeds of $33,680, including debt premium, to AmeriGas OLP. 6. MANAGEMENT REALIGNMENT In June 2003, the General Partner announced a plan to realign its management structure. Pursuant to the plan, the Partnership will close its seven regional offices located across the country and will relocate four regional vice presidents to its Valley Forge, Pennsylvania headquarters. In addition, the Partnership reconfigured its eighty geographically-based market areas into approximately sixty market areas. The management realignment is expected to be substantially complete by September 30, 2003. The new management structure is expected to further streamline business processes, eliminate duplication and reduce overhead expenses. As a result of the management realignment, the Partnership incurred charges for severance, lease termination and other expenses totaling $3,022 which are reflected as operating and administrative expenses in the Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2003. As of June 30, 2003, $2,698 of costs associated with the management realignment, principally comprising employee severance and lease termination costs, are included in other current liabilities in the Condensed Consolidated Balance Sheet. Additional future costs to be incurred in conjunction with the management realignment are not expected to have a material effect on our results of operations. - 9 - AMERIGAS PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited) (Thousands of dollars, except per unit) 7. COMMITMENTS AND CONTINGENCIES The Partnership has succeeded to certain lease guarantee obligations of Petrolane relating to Petrolane's divestiture of nonpropane operations before its 1989 acquisition by QFB Partners. Future lease payments under these leases total approximately $17,000 at June 30, 2003. The leases expire through 2010 and some of them are currently in default. The Partnership has succeeded to the indemnity agreement of Petrolane by which Texas Eastern Corporation ("Texas Eastern"), a prior owner of Petrolane, agreed to indemnify Petrolane against any liabilities arising out of the conduct of businesses that do not relate to, and are not a part of, the propane business, including lease guarantees. In December 1999, Texas Eastern filed for dissolution under the Delaware General Corporation Law. In May 2001, Petrolane filed a declaratory judgment action in the Delaware Chancery Court seeking confirmation of Texas Eastern's indemnification obligations and judicial supervision of Texas Eastern's dissolution to ensure that its indemnification obligations to Petrolane are paid or adequately provided for in accordance with law. Those proceedings are pending. Pursuant to a Liquidation and Winding Up Agreement dated September 17, 2002, PanEnergy Corporation ("PanEnergy"), Texas Eastern's sole stockholder, assumed all of Texas Eastern's liabilities as of December 20, 2002, to the extent of the value of Texas Eastern's assets transferred to PanEnergy as of that date (which was estimated to exceed $94,000), and to the extent that such liabilities arise within ten years from Texas Eastern's date of dissolution. Notwithstanding the dissolution proceeding, and based on Texas Eastern previously having satisfied directly defaulted lease obligations without the Partnership's having to honor its guarantee, we believe that the probability that the Partnership will be required to directly satisfy the lease obligations subject to the indemnification agreement is remote. On August 21, 2001, AmeriGas Partners, through AmeriGas OLP, acquired the propane distribution businesses of Columbia Energy Group (the "2001 Acquisition") pursuant to the terms of a purchase agreement (the "2001 Acquisition Agreement") by and among Columbia Energy Group ("CEG"), Columbia Propane Corporation ("CPC"), Columbia Propane, L.P. ("CPLP"), CP Holdings, Inc. ("CPH," and together with CPC 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 CPC and CPH and substantially all of the partnership interests of CPLP. Under the terms of an earlier acquisition agreement (the "1999 Acquisition Agreement"), the Company Parties agreed to indemnify the former general partners of National Propane Partners, L.P. (a predecessor company of the Columbia Propane businesses) and an affiliate (collectively, "National General Partners") against certain income tax and other losses that they may sustain as a result of the 1999 acquisition by CPLP of National Propane Partners, L.P. (the "1999 Acquisition") or the operation of the business after the 1999 Acquisition ("National Claims"). At June 30, 2003, the potential amount payable under this indemnity by the Company Parties was approximately $71,000. These indemnity - 10 - AMERIGAS PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited) (Thousands of dollars, except per unit) obligations will expire on the date that CPH acquires the remaining outstanding partnership interest of CPLP, which is expected to occur on or after July 19, 2009. Under the terms of the 2001 Acquisition Agreement, CEG agreed to indemnify the Buyer Parties and the Company Parties against any losses that they sustain under the 1999 Acquisition Agreement and related agreements ("Losses"), including National Claims, to the extent such claims are based on acts or omissions of CEG or the Company Parties prior to the 2001 Acquisition. The Buyer Parties agreed to indemnify CEG against Losses, including National Claims, to the extent such claims are based on acts or omissions of the Buyer Parties or the Company Parties after the 2001 Acquisition. CEG and the Buyer Parties have agreed to apportion certain losses resulting from National Claims to the extent such losses result from the 2001 Acquisition itself. We also have other contingent liabilities, pending claims and legal actions arising in the normal course of our business. We cannot predict with certainty the final results of these matters. However, it is reasonably possible that some of them could be resolved unfavorably to us. Although management currently believes, 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. - 11 - AMERIGAS EAGLE FINANCE CORP. (a wholly owned subsidiary of AmeriGas Partners, L.P.) BALANCE SHEETS (unaudited)
June 30, September 30, 2003 2002 -------- ------------ ASSETS Cash $1,000 $ 1,000 ------ ------------ Total assets $1,000 $ 1,000 ====== ============ STOCKHOLDER'S EQUITY Common stock, without par value; 100 shares authorized, issued and outstanding $ - $ - Additional paid-in capital 1,000 1,000 ------ ------------ Total stockholder's equity $1,000 $ 1,000 ====== ============
See accompanying note to balance sheets. - 12 - AMERIGAS EAGLE FINANCE CORP. (A WHOLLY OWNED SUBSIDIARY OF AMERIGAS PARTNERS, L.P.) NOTE TO BALANCE SHEETS (unaudited) AmeriGas Eagle Finance Corp. (Eagle Finance), a Delaware corporation, was formed on February 22, 2001 and is a wholly owned subsidiary of AmeriGas Partners, L.P. (AmeriGas Partners). On April 4, 2001, AmeriGas Partners and Eagle Finance jointly and severally issued $60,000,000 face amount of 10% Senior Notes due April 2006. AmeriGas Partners owns all 100 shares of Eagle Finance common stock outstanding. - 13 - AP EAGLE FINANCE CORP. (a wholly owned subsidiary of AmeriGas Partners, L.P.) BALANCE SHEETS (unaudited)
June 30, September 30, 2003 2002 -------- ------------- ASSETS Cash $ 1,000 $ 1,000 -------- ------------- Total assets $ 1,000 $ 1,000 ======== ============= STOCKHOLDER'S EQUITY Common stock, without par value; 100 shares authorized, issued and outstanding $ - $ - Additional paid-in capital 1,000 1,000 -------- ------------- Total stockholder's equity $ 1,000 $ 1,000 ======== =============
See accompanying note to balance sheets. - 14 - AP EAGLE FINANCE CORP. (A WHOLLY OWNED SUBSIDIARY OF AMERIGAS PARTNERS, L.P.) NOTE TO BALANCE SHEETS (unaudited) AP Eagle Finance Corp. (AP Eagle Finance), a Delaware corporation, was formed on April 12, 2001 and is a wholly owned subsidiary of AmeriGas Partners, L.P. (AmeriGas Partners). On August 21, 2001, AmeriGas Partners and AP Eagle Finance jointly and severally issued $200,000,000 face amount of 8.875% Series A Senior Notes due May 2011. On December 20, 2001, AmeriGas Partners and AP Eagle Finance exchanged $199,985,000 face amount of 8.875% Series A Senior Notes due May 2011 for a like amount of AmeriGas Partners and AP Eagle Finance 8.875% Series B Senior Notes due May 2011 pursuant to a registered exchange offer. On May 3, 2002, AmeriGas Partners and AP Eagle Finance jointly and severally issued $40,000,000 face amount of 8.875% Series B Senior Notes due May 2011. On December 3, 2002, AmeriGas Partners and AP Eagle Finance jointly and severally issued $88,000,000 face amount of 8.875% Senior Notes due May 2011. On April 4, 2003, AmeriGas Partners and AP Eagle Finance exchanged (1) $15,000 face amount of 8.875% Series A Senior Notes due May 2011 and (2) $88,000,000 face amount of 8.875% Senior Notes due May 2011 for like amounts of AmeriGas Partners and AP Eagle Finance 8.875% Series B Senior Notes due May 2011 pursuant to a registered exchange offer. In April 2003, AmeriGas Partners and AP Eagle Finance jointly and severally issued $32,000,000 face amount of 8.875% Series B Senior Notes due May 2011. AmeriGas Partners owns all 100 shares of AP Eagle Finance common stock outstanding. - 15 - AMERIGAS PARTNERS, L.P. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following analyses compare the Partnership's results of operations for (1) the three months ended June 30, 2003 ("2003 three-month period") with the three months ended June 30, 2002 ("2002 three-month period") and (2) the nine months ended June 30, 2003 ("2003 nine-month period") with the nine months ended June 30, 2002 ("2002 nine-month period"). AmeriGas Eagle Finance Corp. and AP Eagle Finance Corp. have nominal assets and do not conduct any operations. Their sole purpose is to serve as co-obligors for debt securities issued by AmeriGas Partners, L.P. Accordingly, discussions of the results of operations and financial condition and liquidity of these entities are not presented. 2003 THREE-MONTH PERIOD COMPARED WITH 2002 THREE-MONTH PERIOD
- -------------------------------------------------------------------------------- Increase Three Months Ended June 30, 2003 2002 (Decrease) - -------------------------------------------------------------------------------- (Dollars in millions) Gallons sold (millions) (a): Retail 182.4 182.5 (0.1) (0.1)% Wholesale 21.7 27.9 (6.2) (22.2)% ------ ------ ------ 204.1 210.4 (6.3) (3.0)% ====== ====== ====== Revenues: Retail propane $244.2 $213.1 $ 31.1 14.6 % Wholesale propane 13.5 13.1 0.4 3.1 % Other 29.4 28.3 1.1 3.9 % ------ ------ ------ $287.1 $254.5 $ 32.6 12.8 % ====== ====== ====== Total margin (b) $129.2 $136.4 $ (7.2) (5.3)% Modified EBITDA (c) $ 13.1 $ 28.5 $(15.4) (54.0)% Operating income (loss) $ (6.5) $ 11.8 $(18.3) (155.1)% Heating degree days - % colder (warmer) than normal (d) (0.5) 4.3 - - - --------------------------------------------------------------------------------
(a) Retail gallons sold in the 2003 three-month period include certain bulk gallons previously considered wholesale gallons. Prior-period gallon amounts have been adjusted to conform to the current period classification. (b) Total margin represents total revenues less cost of sales. (c) Modified EBITDA (earnings before interest expense, income taxes, depreciation and amortization, equity investee income, loss on debt extinguishments, and minority interests) should not be considered as an alternative to net income (as an indicator of operating performance) or as an alternative to cash flow (as a measure of liquidity or ability to service debt obligations) and is not a measure of performance or financial condition under accounting principles generally accepted in the United States. Management believes Modified EBITDA is a meaningful non-GAAP financial measure used by investors to compare the Partnership's operating performance with other companies within the propane industry. The Partnership's definition of Modified EBITDA may be different from that used by other companies. Weather significantly impacts demand for propane and profitability because many customers use propane for heating purposes. Due to the seasonal nature of the Partnership's propane business, Modified EBITDA for interim periods is not necessarily indicative of amounts to be expected for a full year. - 16 - AMERIGAS PARTNERS, L.P. The following table includes reconciliations of net loss to Modified EBITDA for the periods presented:
Three Months Ended June 30, ------------------ 2003 2002 ------ ------ Net loss $(27.4) $ (9.9) Minority interests (0.2) - Income tax benefit (0.3) (0.1) Interest expense 21.5 21.8 Depreciation 17.9 15.5 Amortization 1.0 1.1 Equity investee loss 0.6 0.1 ------ ----- Modified EBITDA $ 13.1 $28.5 ====== =====
(d) Deviation from average heating degree days based upon national weather statistics provided by the National Oceanic and Atmospheric Administration ("NOAA") for 335 airports in the United States, excluding Alaska. Retail gallons sold in the 2003 three-month period were substantially equal to the prior-year three-month period reflecting the effects of slightly colder early spring weather on heating-related sales offset principally by lower commercial and industrial sales resulting from continuing economic weakness and price-induced conservation. Low-margin wholesale propane volumes sold in the 2003 three-month period totaled 21.7 million gallons, a decline of 6.2 million gallons, reflecting a decrease in supply-related product cost management activity. Retail propane revenues increased $31.1 million in the 2003 three-month period due to higher average retail selling prices. Wholesale propane revenues increased $0.4 million reflecting (1) a $3.3 million increase as a result of higher average wholesale propane selling prices partially offset by (2) a $2.9 million decrease as a result of the lower wholesale volumes sold. Retail and wholesale propane selling prices in the 2003 three-month period reflect significantly higher propane commodity costs. Other revenues increased $1.1 million due in large part to increased hauling activity. Total propane cost of sales increased $39.6 million in the 2003 three-month period reflecting the previously mentioned higher propane commodity costs. The $7.2 million decrease in total margin is principally due to lower unit margins from our PPX(R) grill cylinder exchange business in the 2003 three-month period and lower average unit margins from our non-PPX(R) customers. Margins in the prior-year period benefited from lower propane commodity prices as a result of reduced demand for propane during the warmer than normal 2002 winter heating season. The $15.4 million decrease in Modified EBITDA reflects the previously mentioned decrease in total margin and a $10.3 million increase in operating and administrative expenses partially offset by a $2.2 million increase in other income. Although Modified EBITDA is not a measure of performance or financial condition under accounting principles generally accepted in the United States, management believes Modified EBITDA is a meaningful non-GAAP financial measure used by investors to compare our operating performance with other companies within the retail propane industry. The higher 2003 three-month period operating expenses include, among other - 17 - AMERIGAS PARTNERS, L.P. things, (1) $3.0 million of expenses associated with the realignment of the Partnership's management structure announced in June 2003; (2) greater medical and general insurance expenses; and (3) higher incentive compensation expenses. The greater other income in the 2003 three-month period reflects greater income from sales of fixed assets and higher finance charge income. Operating income decreased $18.3 million in the 2003 three-month period reflecting the previously mentioned decline in Modified EBITDA and greater depreciation expense principally associated with PPX(R). 2003 NINE-MONTH PERIOD COMPARED WITH 2002 NINE-MONTH PERIOD
- ---------------------------------------------------------------------------------- Nine Months Ended June 30, 2003 2002 Increase - ---------------------------------------------------------------------------------- (Dollars in millions) Gallons sold (millions) (a): Retail 900.0 826.2 73.8 8.9% Wholesale 188.7 165.3 23.4 14.2% -------- -------- -------- 1,088.7 991.5 97.2 9.8% ======== ======== ======== Revenues: Retail propane $1,150.2 $ 923.5 $ 226.7 24.5% Wholesale propane 113.2 74.8 38.4 51.3% Other 94.3 87.7 6.6 7.5% -------- -------- -------- $1,357.7 $1,086.0 $ 271.7 25.0% ======== ========= ======== Total margin $ 595.7 $ 544.2 $ 51.5 9.5% Modified EBITDA (b) $ 228.8 $ 208.0 $ 20.8 10.0% Operating income $ 173.5 $ 159.1 $ 14.4 9.1% Heating degree days - % colder (warmer) than normal 0.9 (9.5) - - - ----------------------------------------------------------------------------------
(a) Retail gallons sold in the 2003 nine-month period include certain bulk gallons previously considered wholesale gallons. Prior-period gallon amounts have been adjusted to conform to the current period classification. (b) The following table includes reconciliations of net income to Modified EBITDA for the periods presented:
Nine Months Ended June 30, --------------------------- 2003 2002 ------------ ----------- Net income $ 103.4 $ 90.4 Minority interests 1.4 1.3 Income tax (benefit) expense (0.4) 0.1 Interest expense 66.1 66.5 Loss on extinguishments of debt 3.0 0.8 Depreciation 51.8 46.0 Amortization 3.0 3.3 Equity investee loss (income) 0.5 (0.4) ------------ ----------- Modified EBITDA $ 228.8 $ 208.0 ============ ===========
Weather based upon heating degree days was 0.9% colder than normal during the 2003 nine-month period compared to weather that was 9.5% warmer than normal in the 2002 nine-month - 18 - AMERIGAS PARTNERS, L.P. period. Although temperatures nationwide averaged near normal during the 2003 nine-month period, our overall results reflect weather that was significantly warmer in the West and generally colder than normal in the East. Retail propane volumes sold increased 73.8 million gallons in the 2003 nine-month period due principally to the effects of the colder weather partially offset by the effects of price-induced customer conservation and, with respect to commercial and industrial customers, continuing economic weakness. Wholesale volumes totaled 188.7 million gallons, an increase of 23.4 million gallons, reflecting the effects of the colder weather and supply-related product cost management activities. Retail propane revenues increased $226.7 million reflecting (1) a $144.2 million increase due to higher average selling prices and (2) an $82.5 million increase due to the higher retail volumes sold. Wholesale propane revenues increased $38.4 million reflecting (1) a $27.8 million increase due to higher average selling prices and (2) a $10.6 million increase due to the higher volumes sold. The higher retail and wholesale selling prices reflect significantly higher propane product costs during the 2003 nine-month period resulting from, among other things, higher crude oil and natural gas prices and lower propane inventories. Other revenues increased $6.6 million reflecting higher customer fee and hauling revenue. Total cost of sales increased $220.1 million reflecting the higher propane product costs and higher volumes sold. The $51.5 million increase in total margin is principally due to the higher propane gallons sold and, to a lesser extent, slightly higher average retail propane unit margins. Notwithstanding the previously mentioned significant increase in the commodity price of propane, retail propane unit margins were slightly higher than the prior-year period reflecting the effects of the higher average selling prices and the benefits of favorable propane product cost management activities. Modified EBITDA increased $20.8 million in the 2003 nine-month period reflecting the previously mentioned increase in total margin and a $4.9 million increase in other income partially offset by a $35.7 million increase in Partnership operating and administrative expenses. Operating and administrative expenses increased principally due to higher medical and general insurance expenses, higher distribution expenses due to higher vehicle fuel costs, and higher incentive compensation and uncollectible accounts expenses. In addition, the Partnership incurred $3.0 million of costs during the 2003 nine-month period as a result of its management realignment announced in June 2003. Other income in the 2003 nine-month period includes a gain of $1.1 million from the settlement of certain hedge contracts and greater income from sales of assets and finance charges while other income in the prior-year nine-month period was reduced by a $2.1 million loss from declines in the value of propane commodity option contracts. Operating income in the 2003 nine-month period increased less than the increase in Modified EBITDA due to higher depreciation expense principally associated with PPX(R). FINANCIAL CONDITION AND LIQUIDITY FINANCIAL CONDITION The Partnership's long-term debt outstanding at June 30, 2003 totaled $929.8 million (including current maturities of $61.0 million) compared to $945.8 million (including current maturities of $60.4 million) at September 30, 2002. On December 3, 2002, AmeriGas Partners issued $88 - 19 - AMERIGAS PARTNERS, L.P. million face amount of 8.875% Senior Notes due 2011 at an effective interest rate of 8.30%. The net proceeds of $89.1 million were used on January 6, 2003 to redeem prior to maturity AmeriGas Partners' $85 million face amount of 10.125% Senior Notes due 2007 at a redemption price of 102.25%, plus accrued interest. The Partnership recognized a loss of $3.0 million in the quarter ended March 31, 2003 relating to the redemption premium and other associated costs and expenses. In April 2003, AmeriGas OLP repaid $53.8 million of maturing First Mortgage Notes. In conjunction with this repayment, in April 2003 AmeriGas Partners issued $32 million face amount of 8.875% Series B Notes due 2011 at an effective interest rate of 7.72% and contributed the net proceeds of $33.7 million, including debt premium, to AmeriGas OLP. AmeriGas OLP's Second Amended and Restated Bank Credit Agreement consists of a $100 million Revolving Credit Facility and a $75 million Acquisition Facility. At June 30, 2003, there were no borrowings outstanding under these facilities. Up to $30 million of the Acquisition Facility may be used for working capital purposes. Issued and outstanding letters of credit under the Revolving Credit Facility, which reduce available borrowing capacity, totaled $27 million at June 30, 2003. AmeriGas OLP's Bank Credit Agreement expires October 1, 2003. The Partnership expects to renew this facility prior to its expiration. On June 17, 2003, AmeriGas Partners sold 2,900,000 Common Units in an underwritten public offering at a public offering price of $27.12 per unit. The net proceeds of the public offering totaling $75,005 and the associated capital contributions from the General Partner totaling $1,531 were contributed to AmeriGas OLP and used to reduce indebtedness under its bank credit agreement and for general partnership purposes. The underwriters' overallotment option expired unexercised. AmeriGas Partners has debt and equity shelf registration statements with the SEC under which it may issue up to an additional $28 million of 8.875% Series B Senior Notes and an additional 1.4 million Common Units. During the nine months ended June 30, 2003, the Partnership declared and paid the minimum quarterly distribution of $0.55 (the "MQD") on all limited partner units for the quarters ended September 30, 2002, December 31, 2002, and March 31, 2003. The MQD for the quarter ended June 30, 2003 will be paid on August 18, 2003 to holders of record on August 8, 2003. Effective November 18, 2002, the 9,891,072 Subordinated Units held by the General Partner were converted to Common Units (see "Conversion of Subordinated Units" below). The ability of the Partnership to declare and pay the MQD on its Common Units in the future depends upon a number of factors. These factors include (1) the level of Partnership earnings; (2) the cash needs of the Partnership's operations (including cash needed for maintaining and increasing operating capacity); (3) changes in operating working capital; and (4) the Partnership's ability to borrow under its Amended Bank Credit Agreement, to refinance maturing debt, and to increase its long-term debt. Some of these factors are affected by conditions beyond our control including weather, competition in markets we serve, and the cost of propane. - 20 - AMERIGAS PARTNERS, L.P. CASH FLOWS The Partnership had cash and cash equivalents totaling $34.0 million at June 30, 2003 compared to $47.4 million at September 30, 2002. Due to the seasonal nature of the propane business, cash flows from operating activities are generally strongest during the second and third fiscal quarters when customers pay for propane purchased during the heating season and are generally at their lowest levels during the first and fourth fiscal quarters. Accordingly, cash flows from operating activities during the nine months ended June 30, 2003 are not necessarily indicative of cash flows to be expected for a full year. OPERATING ACTIVITIES. Cash provided by operating activities was $87.2 million during the 2003 nine-month period compared to $127.4 million in the prior-year nine-month period. Cash required to fund changes in operating working capital during the 2003 nine-month period totaled $82.0 million, a significant increase from the $13.2 million required in the prior-year nine-month period, principally reflecting the effects of the higher propane commodity costs on changes in customer accounts receivable and inventories and the higher volumes sold. Cash flow from operating activities before changes in working capital was $169.2 million in the 2003 nine-month period compared to $140.6 million in the prior-year nine-month period reflecting the improved 2003 nine-month period operating results. INVESTING ACTIVITIES. We spent $43.4 million for property, plant and equipment (including maintenance capital expenditures of $16.2 million and growth capital expenditures of $27.2 million) during the nine months ended June 30, 2003 compared to $38.6 million (including maintenance capital expenditures of $15.2 million and growth capital expenditures of $23.4 million) during the prior-year nine-month period. The increase is due in large part to greater PPX(R) capital expenditures associated with purchases of overfill protection devices ("OPDs"). During the nine months ended June 30, 2003, the Partnership acquired several propane distribution businesses for $27.0 million. FINANCING ACTIVITIES. The Partnership declared and paid the MQD on all limited partner units and the general partner interests during each of the 2003 and 2002 nine-month periods. During the 2003 nine-month period, AmeriGas OLP repaid all outstanding borrowings under its Revolving Credit Facility. In December 2002, AmeriGas Partners received $89.1 million of net proceeds from the issuance of $88 million face amount of 8.875% Senior Notes due 2011. On January 6, 2003, the net proceeds were used to repay prior to maturity the remaining $85 million face amount of 10.125% Senior Notes at a redemption price of 102.25%, plus accrued interest. In April 2003, AmeriGas Partners issued $32 million face amount of 8.875% Series B Senior Notes due 2011 and contributed the net proceeds of $33.7 million to AmeriGas OLP. Also in April 2003, AmeriGas OLP repaid $53.8 million of maturing First Mortgage Notes. CONVERSION OF SUBORDINATED UNITS In December 2002, the General Partner determined that the cash-based performance and distribution requirements for the conversion of the remaining 9,891,072 Subordinated Units, all of which were held by the General Partner, had been met in respect of the quarter ended September 30, 2002. As a result, these Subordinated Units were converted to a like number of Common Units effective - 21 - AMERIGAS PARTNERS, L.P. November 18, 2002. The conversion of the Subordinated Units did not result in an increase in the total number of AmeriGas Partners limited partner units outstanding. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board ("FASB") recently issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity" ("SFAS 150"); SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149"); SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" ("SFAS 148"); SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"); and FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of the instruments within the scope of SFAS 150 were previously classified as equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise shall be effective for the Partnership on July 1, 2003. For financial instruments created before May 31, 2003, and still existing on July 1, 2003, transition shall be achieved by reporting the cumulative effect of a change in an accounting principle by initially measuring the instruments at fair value or other measurement attribute required by SFAS 150. The adoption of SFAS 150 did not affect our financial position or results of operations. SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 149 amends SFAS 133 for decisions made (1) as part of the FASB's Derivatives Implementation Group ("DIG") process; (2) in connection with other FASB projects dealing with financial instruments; and (3) in connection with implementation issues raised in relation to the application of the definition of a derivative. SFAS 149 is effective for contracts entered into or modified after June 30, 2003. Based upon the types of contracts currently entered into by the Partnership, we do not believe SFAS 149 will have a material impact on our financial position or results of operations. SFAS 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. As permitted by SFAS 123, we currently apply the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), in recording compensation expense for grants of equity instruments to employees. The disclosures required by SFAS 148 are included in Note 1 to Condensed Consolidated Financial Statements. - 22 - AMERIGAS PARTNERS, L.P. SFAS 146 addresses accounting for costs associated with exit or disposal activities and replaces the guidance in Emerging Issues Task Force ("EITF") No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." Generally, SFAS 146 requires that a liability for costs associated with an exit or disposal activity, including contract termination costs, employee termination benefits and other associated costs, be recognized when the liability is incurred. Under EITF No. 94-3, a liability was recognized at the date an entity committed to an exit plan. SFAS 146 became effective for disposal activities initiated after December 31, 2002. The initial adoption of the provisions of SFAS 146 did not affect our financial position or results of operations. FIN 45 expands the existing disclosure requirements for guarantees and requires that companies recognize, at the inception of a guarantee, a liability for the fair value of the obligations undertaken when issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are effective for guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are included in Note 7 to Condensed Consolidated Financial Statements. The application of FIN 45 did not have a material effect on our financial position or results of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our primary financial market risks include commodity prices for propane and interest rates on borrowings. The risk associated with fluctuations in the prices the Partnership pays for propane is principally a result of market forces reflecting changes in supply and demand for propane and other energy commodities. The Partnership's profitability is sensitive to changes in propane supply costs, and the Partnership generally attempts to pass on increases in such costs to customers. The Partnership may not, however, always be able to pass through product cost increases fully, particularly when product costs rise rapidly. In order to reduce the volatility of the Partnership's propane market price risk, we use contracts for the forward purchase or sale of propane, propane fixed-price supply agreements, and over-the-counter derivative commodity instruments including price swap and option contracts. Over-the-counter derivative commodity instruments utilized by the Partnership are generally settled at expiration of the contract. In order to minimize credit risk associated with derivative commodity contracts, we monitor established credit limits with the contract counterparties. Although we use derivative financial and commodity instruments to reduce market price risk associated with forecasted transactions, we do not use derivative financial and commodity instruments for speculative or trading purposes. The Partnership has both fixed-rate and variable-rate debt instruments. Changes in interest rates impact the cash flows of variable-rate debt but generally do not impact its fair value. Conversely, changes in interest rates impact the fair value of fixed-rate debt but do not impact their cash flows. - 23 - AMERIGAS PARTNERS, L.P. Our variable rate debt includes borrowings under AmeriGas OLP's Bank Credit Agreement. These debt 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 near-term 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 June 30, 2003. It also includes the changes in fair value that would result if there were an adverse change in (1) the market price of propane of 10 cents per gallon and (2) interest rates on ten-year U.S. treasury notes of 50 basis points:
- --------------------------------------------------------------- Fair Change in Value Fair Value - --------------------------------------------------------------- (Millions of dollars) June 30, 2003: Propane commodity price risk $ 1.3 $ (8.6) Interest rate risk (1.5) (2.1) - ---------------------------------------------------------------
Because the Partnership's derivative instruments generally qualify as hedges under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," we expect that changes in the fair value of derivative instruments used to manage propane price or interest rate risk would be substantially offset by gains or losses on the associated underlying transactions. ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures The Partnership's management, with the participation of the Partnership's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Partnership's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Partnership's disclosure controls and procedures as of the end of the period covered by this report were designed and functioning effectively to provide reasonable assurance that the information required to be disclosed by the Partnership in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. The Partnership believes that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. - 24 - AMERIGAS PARTNERS, L.P. (b) Change in Internal Control over Financial Reporting No change in the Partnership's internal control over financial reporting occurred during the Partnership's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Partnership's internal control over financial reporting. - 25 - AMERIGAS PARTNERS, L.P. PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) List of Exhibits: 31.1 Certification by the Chief Executive Officer relating to the Registrants' Report on Form 10-Q for the quarter ended June 30, 2003 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification by the Chief Financial Officer relating to the Registrants' Report on Form 10-Q for the quarter ended June 30, 2003 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification by the Chief Executive Officer and Chief Financial Officer relating to the Registrants' Report on Form 10-Q for the quarter ended June 30, 2003 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) The following Current Reports on Form 8-K were filed during the fiscal quarter ended June 30, 2003:
DATE ITEM NUMBER CONTENT April 16, 2003 5, 7 Underwriting Agreement dated April 11, 2003 and Third Supplemental Indenture dated April 16, 2003 pertaining to AmeriGas Partners, L.P. 8.875% Series B Senior Notes due 2011. April 30, 2003 7, 9, 12 Press Release of AmeriGas Partners, L.P. reporting its financial results for the second fiscal quarter ended March 31, 2003. June 12, 2003 5, 7 Underwriting Agreement dated June 11, 2003, pertaining to 2,900,000 Common Unit offering. Opinion of Morgan, Lewis & Bockius LLP, dated June 12, 2003, relating to certain tax matters and consent of Morgan, Lewis & Bockius LLP.
- 26 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. AmeriGas Partners, L.P. --------------------------------------- (Registrant) By: AmeriGas Propane, Inc., as General Partner Date: August 14, 2003 By: /s/ Martha B. Lindsay ----------------------------------- Martha B. Lindsay Vice President - Finance and Chief Financial Officer By: /s/ Richard R. Eynon ------------------------------------ Richard R. Eynon Controller and Chief Accounting Officer AmeriGas Eagle Finance Corp. --------------------------------------- (Registrant) Date: August 14, 2003 By: /s/ Martha B. Lindsay ----------------------------------- Martha B. Lindsay Vice President - Finance and Chief Financial Officer By: /s/ Richard R. Eynon ------------------------------------ Richard R. Eynon Controller and Chief Accounting Officer AP Eagle Finance Corp. --------------------------------------- (Registrant) Date: August 14, 2003 By: /s/ Martha B. Lindsay ----------------------------------- Martha B. Lindsay Vice President - Finance and Chief Financial Officer By: /s/ Richard R. Eynon ----------------------------------- Richard R. Eynon Controller and Chief Accounting Officer - 27 - AMERIGAS PARTNERS, L.P. EXHIBIT INDEX 31.1 Certification by the Chief Executive Officer relating to the Registrants' Report on Form 10-Q for the quarter ended June 30, 2003 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification by the Chief Financial Officer relating to the Registrants' Report on Form 10-Q for the quarter ended June 30, 2003 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification by the Chief Executive Officer and Chief Financial Officer relating to the Registrants' Report on Form 10-Q for the quarter ended June 30, 2003 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. EX-31.1 3 w89126exv31w1.txt CERTIFICATION BY CHIEF EXECUTIVE OFFICER EXHIBIT 31.1 I, Eugene V.N. Bissell, certify that: 1. I have reviewed this interim report on Form 10-Q of AmeriGas Partners, L.P., AmeriGas Eagle Finance Corp. and AP Eagle Finance Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in this report; 4. The registrants' other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrants and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrants' disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrants' internal control over financial reporting that occurred during the registrants' most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants' internal control over financial reporting; and 5. The registrants' other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants' auditors and the audit committee of the registrants' board of directors (or persons fulfilling the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants' ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants' internal control over financial reporting. Date: August 14, 2003 By: /s/ Eugene V.N. Bissell ______________________________________ Eugene V.N. Bissell President and Chief Executive Officer AmeriGas Propane, Inc. AmeriGas Eagle Finance Corp. AP Eagle Finance Corp. EX-31.2 4 w89126exv31w2.txt CERTIFICATION BY CHIEF FINANCIAL OFFICER EXHIBIT 31.2 I, Martha B. Lindsay, certify that: 1. I have reviewed this interim report on Form 10-Q of AmeriGas Partners, L.P., AmeriGas Eagle Finance Corp. and AP Eagle Finance Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in this report; 4. The registrants' other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrants and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrants' disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrants' internal control over financial reporting that occurred during the registrants' most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants' internal control over financial reporting; and 5. The registrants' other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants' auditors and the audit committee of the registrants' board of directors (or persons fulfilling the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants' ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants' internal control over financial reporting. Date: August 14, 2003 By: /s/ Martha B. Lindsay ______________________________ Martha B. Lindsay Vice President - Finance and Chief Financial Officer AmeriGas Propane, Inc. AmeriGas Eagle Finance Corp. AP Eagle Finance Corp. EX-32 5 w89126exv32.txt CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT 32 CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER RELATING TO A PERIODIC REPORT CONTAINING FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- I, Eugene V. N. Bissell, Chief Executive Officer, and I, Martha B. Lindsay, Chief Financial Officer, of each of AmeriGas Propane, Inc., a Pennsylvania corporation and the General Partner of AmeriGas Partners, L.P., a Delaware limited partnership (the "Partnership"), AmeriGas Eagle Finance Corp. ("Eagle Finance Corp.") and AP Eagle Finance Corp. ("AP Finance Corp.") and collectively with the Partnership, AP Finance Corp. and Eagle Finance Corp., (the "Registrant") hereby certify that: (1) The Registrant's periodic report on Form 10-Q for the period ended June 30, 2003 (the "Form 10-Q") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Registrant. * * * CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER /s/ Eugene V. N. Bissell /s/ Martha B. Lindsay - --------------------------- -------------------------------- Eugene V. N. Bissell Martha B. Lindsay Date: August 14, 2003 Date: August 14, 2003 A signed original of this written statement required by Section 906 has been provided to AmeriGas Partners, L.P., AmeriGas Eagle Finance Corp. and AP Eagle Finance Corp. and will be retained by AmeriGas Partners, L.P., AmeriGas Eagle Finance Corp. and AP Eagle Finance Corp. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----