10-Q 1 w97051e10vq.txt FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2004 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 1-13692 Commission file number 33-92734-01 Commission file number 333-72986-02 Commission file number 333-72986-01 AMERIGAS PARTNERS, L.P. AMERIGAS FINANCE CORP. AMERIGAS EAGLE FINANCE CORP. AP EAGLE FINANCE CORP. (Exact name of registrants as specified in their charters) Delaware 23-2787918 Delaware 23-2800532 Delaware 23-3074434 Delaware 23-3077318 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 460 North Gulph Road, King of Prussia, PA 19406 (Address of principal executive offices) (Zip Code) (610) 337-7000 (Registrants' telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] At April 30, 2004, the registrants had units and shares of common stock outstanding as follows: AmeriGas Partners, L.P. - 52,373,272 Common Units AmeriGas Finance Corp. - 100 shares AmeriGas Eagle Finance Corp. - 100 shares AP Eagle Finance Corp. - 100 shares AMERIGAS PARTNERS, L.P. TABLE OF CONTENTS
PAGES ------- PART I FINANCIAL INFORMATION Item 1. Financial Statements AmeriGas Partners, L.P. Condensed Consolidated Balance Sheets as of March 31, 2004, September 30, 2003 and March 31, 2003 1 Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2004 and 2003 2 Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2004 and 2003 3 Condensed Consolidated Statement of Partners' Capital for the six months ended March 31, 2004 4 Notes to Condensed Consolidated Financial Statements 5 - 11 AmeriGas Finance Corp. Balance Sheets as of March 31, 2004 and September 30, 2003 12 Note to Balance Sheets 13 AmeriGas Eagle Finance Corp. Balance Sheets as of March 31, 2004 and September 30, 2003 14 Note to Balance Sheets 15 AP Eagle Finance Corp. Balance Sheets as of March 31, 2004 and September 30, 2003 16 Note to Balance Sheets 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18 - 24 Item 3. Quantitative and Qualitative Disclosures About Market Risk 24 - 25 Item 4. Controls and Procedures 26 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 27 Signatures 28 - 29
-i- AMERIGAS PARTNERS, L.P. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (Thousands of dollars)
March 31, September 30, March 31, 2004 2003 2003 --------------- --------------- --------------- ASSETS Current assets: Cash and cash equivalents $ 13,073 $ 45,872 $ 22,769 Accounts receivable (less allowances for doubtful accounts of $14,901, $9,192 and $11,826, respectively) 211,108 100,170 201,081 Accounts receivable - related parties 2,010 2,915 6,998 Inventories 67,548 70,171 69,247 Prepaid expenses and other current assets 16,870 17,204 20,978 --------------- --------------- --------------- Total current assets 310,609 236,332 321,073 Property, plant and equipment (less accumulated depreciation and amortization of $505,553, $473,090 and $441,462, respectively) 608,834 594,604 609,013 Goodwill and excess reorganization value 606,621 602,475 591,155 Intangible assets (less accumulated amortization of $14,053, $11,934 and $10,203, respectively) 28,403 27,032 21,436 Other assets 20,918 21,733 17,297 --------------- --------------- --------------- Total assets $ 1,575,385 $ 1,482,176 $ 1,559,974 =============== =============== =============== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Current maturities of long-term debt $ 58,949 $ 58,705 $ 60,673 Bank loans 3,000 - - Accounts payable - trade 119,735 87,352 147,974 Accounts payable - related parties 512 930 1,948 Customer deposits and advances 17,515 52,771 14,756 Interest accrued 32,056 31,987 33,255 Other current liabilities 61,191 66,303 60,787 --------------- --------------- --------------- Total current liabilities 292,958 298,048 319,393 Long-term debt 866,763 868,581 889,344 Other noncurrent liabilities 59,903 54,859 50,516 Commitments and contingencies (note 6) Minority interests 7,969 7,005 7,053 Partners' capital 347,792 253,683 293,668 --------------- --------------- --------------- Total liabilities and partners' capital $ 1,575,385 $ 1,482,176 $ 1,559,974 =============== =============== ===============
See accompanying notes to condensed consolidated financial statements. -1- AMERIGAS PARTNERS, L.P. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (Thousands of dollars, except per unit)
Three Months Ended Six Months Ended March 31, March 31, ------------------------------ ------------------------------ 2004 2003 2004 2003 ------------- ------------- ------------- ------------- Revenues: Propane $ 654,142 $ 595,138 $ 1,077,403 $ 1,005,718 Other 33,568 30,408 70,505 64,859 ------------- ------------- ------------- ------------- 687,710 625,546 1,147,908 1,070,577 ------------- ------------- ------------- ------------- Costs and expenses: Cost of sales - propane 392,297 349,327 631,419 577,621 Cost of sales - other 12,899 11,334 28,280 26,406 Operating and administrative expenses 139,395 133,923 263,158 254,869 Depreciation and amortization 19,816 18,431 39,471 35,922 Other (income), net (4,656) (3,016) (7,938) (4,202) ------------- ------------- ------------- ------------- 559,751 509,999 954,390 890,616 ------------- ------------- ------------- ------------- Operating income 127,959 115,547 193,518 179,961 Loss on extinguishment of debt - (3,023) - (3,023) Interest expense (21,167) (21,884) (42,302) (44,583) ------------- ------------- ------------- ------------- Income before income taxes 106,792 90,640 151,216 132,355 Income tax benefit (expense) 79 320 (628) 62 Minority interests (1,221) (1,084) (1,789) (1,629) ------------- ------------- ------------- ------------- Net income $ 105,650 $ 89,876 $ 148,799 $ 130,788 ============= ============= ============= ============= General partner's interest in net income $ 1,057 $ 899 $ 1,488 $ 1,308 ============= ============= ============= ============= Limited partners' interest in net income $ 104,593 $ 88,977 $ 147,311 $ 129,480 ============= ============= ============= ============= Net income per limited partner unit: Basic $ 2.00 $ 1.80 $ 2.81 $ 2.62 ============= ============= ============= ============= Diluted $ 1.99 $ 1.80 $ 2.81 $ 2.62 ============= ============= ============= ============= Average limited partner units outstanding: Basic 52,373 49,433 52,360 49,433 ============= ============= ============= ============= Diluted 52,431 49,491 52,436 49,483 ============= ============= ============= =============
See accompanying notes to condensed consolidated financial statements. -2- AMERIGAS PARTNERS, L.P. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Thousands of dollars)
Six Months Ended March 31, ---------------------------- 2004 2003 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 148,799 $ 130,788 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 39,471 35,922 Other, net 7,560 9,056 Net change in: Accounts receivable (111,521) (124,250) Inventories 5,917 (6,726) Accounts payable 29,570 62,865 Other current assets and liabilities (36,776) (35,669) ------------ ------------ Net cash provided by operating activities 83,020 71,986 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for property, plant and equipment (31,064) (32,885) Proceeds from disposals of assets 5,479 3,019 Acquisitions of businesses, net of cash acquired (33,122) (2,175) ------------ ------------ Net cash used by investing activities (58,707) (32,041) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Distributions (58,178) (54,926) Minority interest activity (787) (700) Increase (decrease) in bank loans 3,000 (10,000) Issuance of long-term debt - 89,100 Repayment of long-term debt (1,147) (88,050) ------------ ------------ Net cash used by financing activities (57,112) (64,576) ------------ ------------ Cash and cash equivalents decrease $ (32,799) $ (24,631) ============ ============ CASH AND CASH EQUIVALENTS: End of period $ 13,073 $ 22,769 Beginning of period 45,872 47,400 ------------ ------------ Decrease $ (32,799) $ (24,631) ============ ============
See accompanying notes to condensed consolidated financial statements. -3- AMERIGAS PARTNERS, L.P. CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (unaudited) (Thousands, except unit data)
Accumulated Number of other Total Common General comprehensive partners' Units Common partner income (loss) capital ------------ ------------- ------------- ------------- ------------- BALANCE SEPTEMBER 30, 2003 52,333,208 $ 255,423 $ 2,577 $ (4,317) $ 253,683 Net income 147,311 1,488 148,799 Net gains on derivative instruments 21,902 21,902 Reclassification of net gains on derivative instruments (19,504) (19,504) ------------- ------------- ------------- ------------- Comprehensive income 147,311 1,488 2,398 151,197 Distributions (57,596) (582) (58,178) Common Units issued in connection with incentive compensation plan 40,064 1,090 1,090 ------------ ------------- ------------- ------------- ------------- BALANCE MARCH 31, 2004 52,373,272 $ 346,228 $ 3,483 $ (1,919) $ 347,792 ============ ============= ============= ============= =============
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, 2003 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, 2003 ("2003 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. The following table presents the components of comprehensive income for the three and six months ended March 31, 2004 and 2003:
Three Months Ended Six Months Ended March 31, March 31, ---------------------------- --------------------------- 2004 2003 2004 2003 ------------ ------------ ------------ ------------ Net income $ 105,650 $ 89,876 $ 148,799 $ 130,788 Other comprehensive (loss) income (11,738) (12,268) 2,398 (10,581) ------------ ------------ ------------ ------------ Comprehensive income $ 93,912 $ 77,608 $ 151,197 $ 120,207 ------------ ------------ ------------ ------------
Other comprehensive (loss) income is principally the result of changes in the fair value of propane commodity derivative instruments and interest rate protection agreements, net of reclassifications of net gains and losses to net income. UNIT-BASED COMPENSATION. As permitted by Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), we apply the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), in recording compensation expense for grants of equity instruments to employees. -6- AMERIGAS PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited) (Thousands of dollars, except per unit) We use the intrinsic value method prescribed by APB 25 for our unit-based employee compensation plans. We recorded unit-based compensation expense of $664 and $484 during the three and six months ended March 31, 2004, respectively, and $693 and $1,023 during the three and six months ended March 31, 2003, respectively. If we had determined unit-based compensation expense under the fair value method prescribed by SFAS 123, net income and basic and diluted income per limited partner unit for the three and six months ended March 31, 2004 and 2003 would have been as follows:
Three Months Ended Six Months Ended March 31, March 31, ------------------------------ ------------------------------ 2004 2003 2004 2003 ------------- ------------- ------------- ------------- Net income as reported $ 105,650 $ 89,876 $ 148,799 $ 130,788 Add: Unit-based employee compensation expense included in reported net income 664 693 484 1,023 Deduct: Total stock and unit-based employee compensation expense determined under the fair value method for all awards (807) (862) (725) (1,246) ------------- ------------- ------------- ------------- Pro forma net income $ 105,507 $ 89,707 $ 148,558 $ 130,565 ------------- ------------- ------------- ------------- Basic income per limited partner unit: As reported $ 2.00 $ 1.80 $ 2.81 $ 2.62 Pro forma $ 1.99 $ 1.80 $ 2.81 $ 2.61 Diluted income per limited partner unit: As reported $ 1.99 $ 1.80 $ 2.81 $ 2.62 Pro forma $ 1.99 $ 1.79 $ 2.80 $ 2.61 ------------- ------------- ------------- -------------
USE OF ESTIMATES. We make estimates and assumptions when preparing financial statements in conformity with accounting principles generally accepted in the United States of America. These estimates and assumptions affect the reported amounts of assets and liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities. Actual results could differ from these estimates. 2. ACQUISITIONS On October 1, 2003, AmeriGas OLP acquired substantially all of the retail propane distribution assets and business of Horizon Propane LLC ("Horizon Propane") for total cash consideration of $31,044. In December 2003, AmeriGas OLP paid Horizon Propane a working capital adjustment of $111 in accordance with the Asset Purchase Agreement. During its fiscal year ended June 30, 2003, Horizon Propane sold over 30 million gallons of propane from ninety locations in twelve states. In addition, several smaller acquisitions of retail propane businesses were completed during the six months ended March 31, 2004. The pro forma effect of all of these transactions is not material. -7- AMERIGAS PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited) (Thousands of dollars, except per unit) 3. INTANGIBLE ASSETS The Partnership's intangible assets comprise the following:
March 31, September 30, 2004 2003 ------------ ------------ Subject to amortization: Customer relationships and noncompete agreements $ 42,456 $ 38,966 Accumulated amortization (14,053) (11,934) ------------ ------------ $ 28,403 $ 27,032 ------------ ------------ Not subject to amortization: Goodwill $ 513,301 $ 509,155 Excess reorganization value 93,320 93,320 ------------ ------------ $ 606,621 $ 602,475 ------------ ------------
The increases in intangible assets during the six months ended March 31, 2004 resulted from Partnership business acquisitions. Amortization expense of intangible assets was $1,031 and $2,119 for the three and six months ended March 31, 2004, respectively, and $765 and $1,552 for the three and six months ended March 31, 2003, respectively. Our expected aggregate amortization expense of intangible assets for the next five fiscal years is as follows: Fiscal 2004 - $4,108; Fiscal 2005 - $3,727; Fiscal 2006 - $3,342; Fiscal 2007 - $2,712; Fiscal 2008 - $2,483. 4. 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 $85,183 and $163,437 during the three and six months ended March 31, 2004, respectively, and $75,306 and $147,497 during the three and six months ended March 31, 2003, respectively, include employee compensation and benefit expenses of employees of the General Partner and general and administrative expenses. 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 $2,370 and $5,532 during the three and six months ended March 31, 2004, respectively, and $2,627 and $4,244 during the three and six months ended March 31, 2003, respectively. In addition, UGI and certain of its subsidiaries provide office space and automobile liability insurance to the Partnership. These expenses totaled $779 and $1,240 during the three and six months ended March -8- AMERIGAS PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited) (Thousands of dollars, except per unit) 31, 2004, respectively, and $444 and $875 during the three and six months ended March 31, 2003, 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 $14,979 and $21,232 during the three and six months ended March 31, 2004, respectively, and $8,039 and $10,823 during the three and six months ended March 31, 2003, respectively. Purchases of propane by AmeriGas OLP from Atlantic Energy during the three and six months ended March 31, 2004 totaled $14,354 and $22,034, respectively, and during the three and six months ended March 31, 2003 totaled $12,897 and $18,658, 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 six months ended March 31, 2004 or 2003. On occasion, 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 to Atlantic Energy totaled $400 at March 31, 2004. Amounts due from Atlantic Energy at September 30, 2003 and March 31, 2003 totaled $2,042 and $6,714, respectively. Amounts due to or due from Atlantic Energy are included in accounts payable - related parties or accounts receivable - related parties, respectively, in the Condensed Consolidated Balance Sheets. 5. LONG-TERM DEBT In April 2004, AmeriGas OLP repaid $53,750 of maturing First Mortgage Notes. In conjunction with this repayment, in April 2004, AmeriGas Partners issued $28,000 face amount of 8.875% Senior Notes due 2011 at an effective rate of 7.18%, and contributed the net proceeds of $30,135 to AmeriGas OLP. 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 proceeds, net of underwriters' fees, 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. -9- AMERIGAS PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited) (Thousands of dollars, except per unit) 6. 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 $13,000 at March 31, 2004. 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 ("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, 2004, the potential amount payable under this indemnity by the Company Parties was -10- AMERIGAS PARTNERS, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited) (Thousands of dollars, except per unit) approximately $63,000. 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 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 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. 7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In December 2003, the Financial Accounting Standards Board ("FASB") revised Financial Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"), which was originally issued in January 2003 and clarifies Accounting Research Bulletin No. 51, "Consolidated Financial Statements." FIN 46 was effective immediately for variable interest entities created or obtained after January 31, 2003. For variable interests created or acquired before February 1, 2003, FIN 46 is effective for our interim period ended March 31, 2004. If certain conditions are met, FIN 46 requires the primary beneficiary to consolidate certain variable interest entities. The Partnership has not created or obtained any variable interest entities prior to, or after January 31, 2004. Therefore, the adoption of FIN 46 did not affect the Partnership's financial position or results of operations. -11- AMERIGAS FINANCE CORP. (a wholly owned subsidiary of AmeriGas Partners, L.P.) BALANCE SHEETS (unaudited)
March 31, September 30, 2004 2003 ---------- ------------- 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 FINANCE CORP. (A WHOLLY OWNED SUBSIDIARY OF AMERIGAS PARTNERS, L.P.) NOTE TO BALANCE SHEETS (unaudited) AmeriGas Finance Corp. ("AmeriGas Finance"), a Delaware corporation, was formed on March 13, 1995 and is a wholly owned subsidiary of AmeriGas Partners, L.P. ("AmeriGas Partners"). As of November 21, 2003, AmeriGas Partners and AmeriGas Finance have an effective unallocated shelf registration statement with the Securities and Exchange Commission under the Securities Act of 1933 under which AmeriGas Partners may issue up to $500,000,000 of debt or equity securities. AmeriGas Finance will be the co-obligor of the debt securities, if any, issued pursuant to the registration statement. AmeriGas Partners owns all 100 shares of AmeriGas Finance common stock outstanding. -13- AMERIGAS EAGLE FINANCE CORP. (a wholly owned subsidiary of AmeriGas Partners, L.P.) BALANCE SHEETS (unaudited)
March 31, September 30, 2004 2003 ---------- ------------- 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- 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. -15- AP EAGLE FINANCE CORP. (a wholly owned subsidiary of AmeriGas Partners, L.P.) BALANCE SHEETS (unaudited)
March 31, September 30, 2004 2003 ---------- ------------- 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. -16- AP EAGLE FINANCE CORP. (A WHOLLY OWNED SUBSIDIARY OF AMERIGAS PARTNERS, L.P.) NOTE TO BALANCE SHEETS (unaudited) AP Eagle Finance Corp. ("AP Eagle Finance"), a Delaware corporation, was formed on April 12, 2001 and is a wholly owned subsidiary of AmeriGas Partners, L.P. ("AmeriGas Partners"). On August 21, 2001, AmeriGas Partners and AP Eagle Finance jointly and severally issued $200,000,000 face amount of 8.875% Series A Senior Notes due May 2011. On December 20, 2001, AmeriGas Partners and AP Eagle Finance exchanged $199,985,000 face amount of 8.875% Series A Senior Notes due May 2011 for a like amount of AmeriGas Partners and AP Eagle Finance 8.875% Series B Senior Notes due May 2011 pursuant to a registered exchange offer. On May 3, 2002, AmeriGas Partners and AP Eagle Finance jointly and severally issued $40,000,000 face amount of 8.875% Series B Senior Notes due May 2011. On December 3, 2002, AmeriGas Partners and AP Eagle Finance jointly and severally issued $88,000,000 face amount of 8.875% Senior Notes due May 2011. On April 4, 2003, AmeriGas Partners and AP Eagle Finance exchanged (1) $15,000 face amount of 8.875% Series A Senior Notes due May 2011 and (2) $88,000,000 face amount of 8.875% Senior Notes due May 2011 for like amounts of AmeriGas Partners and AP Eagle Finance 8.875% Series B Senior Notes due May 2011 pursuant to a registered exchange offer. In April 2003, AmeriGas Partners and AP Eagle Finance jointly and severally issued $32,000,000 face amount of 8.875% Series B Senior Notes due May 2011. In April 2004, AmeriGas Partners and AP Eagle Finance jointly and severally issued $28,000,000 face amount of 8.875% Series B Senior Notes due May 2011. AmeriGas Partners owns all 100 shares of AP Eagle Finance common stock outstanding. -17- AMERIGAS PARTNERS, L.P. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ANALYSIS OF RESULTS OF OPERATIONS The following analyses compare the Partnership's results of operations for (1) the three months ended March 31, 2004 ("2004 three-month period") with the three months ended March 31, 2003 ("2003 three-month period") and (2) the six months ended March 31, 2004 ("2004 six-month period") with the six months ended March 31, 2003 ("2003 six-month period"). AmeriGas Finance Corp., AmeriGas Eagle Finance Corp. and AP Eagle Finance Corp. have nominal assets and do not conduct any operations. Their sole purpose is to serve as co-obligors for debt securities issued by AmeriGas Partners, L.P. Accordingly, discussions of the results of operations and financial condition and liquidity of these entities are not presented. 2004 THREE-MONTH PERIOD COMPARED WITH 2003 THREE-MONTH PERIOD
Three Months Ended March 31, 2004 2003 Increase -------- -------- ----------------- (millions of dollars) Gallons sold (millions): Retail 403.9 393.4 10.5 2.7% Wholesale 112.2 95.3 16.9 17.7% -------- -------- -------- 516.1 488.7 27.4 5.6% ======== ======== ======== Revenues: Retail propane $ 573.8 $ 532.0 $ 41.8 7.9% Wholesale propane 80.4 63.1 17.3 27.4% Other 33.5 30.4 3.1 10.2% -------- -------- -------- $ 687.7 $ 625.5 $ 62.2 9.9% ======== ======== ======== Total margin (a) $ 282.5 $ 264.9 $ 17.6 6.6% EBITDA (b) $ 146.6 $ 129.9 $ 16.7 12.9% Operating income $ 128.0 $ 115.5 $ 12.5 10.8% Net income $ 105.7 $ 89.9 $ 15.8 17.6% Heating degree days - % (warmer) colder than normal (c) (1.5) 1.0 - -
(a) Total margin represents total revenues less cost of sales - propane and cost of sales - other. (b) EBITDA (earnings before interest expense, income taxes, and depreciation and amortization) should not be considered as an alternative to net income (as an indicator of operating performance) or as an alternative to cash flow (as a measure of liquidity or ability to service debt obligations) and is not a measure of performance or financial condition under accounting principles generally accepted in the United States of America. Management believes EBITDA is a meaningful non-GAAP financial measure used by investors to compare the Partnership's operating performance with that of other companies within the propane industry. The Partnership's definition of EBITDA may be different from that used by other companies. Weather significantly impacts demand for propane and profitability because many customers use propane for heating purposes. Due to the seasonal nature of the Partnership's propane business, EBITDA for interim periods is not necessarily indicative of amounts to be expected for a full year. -18- AMERIGAS PARTNERS, L.P. The following table includes reconciliations of net income to EBITDA for the periods presented:
Three Months Ended March 31, -------------------- 2004 2003 -------- -------- Net income $ 105.7 $ 89.9 Income tax benefit (0.1) (0.3) Interest expense 21.2 21.9 Depreciation 18.6 17.4 Amortization 1.2 1.0 -------- -------- EBITDA $ 146.6 $ 129.9 ======== ========
(c) Deviation from average heating degree days based upon national weather statistics provided by the National Oceanic and Atmospheric Administration ("NOAA") for 335 airports in the United States, excluding Alaska. Weather based upon heating degree days was 1.5% warmer than normal during the 2004 three-month period compared to weather that was 1.0% colder than normal in the prior-year three-month period. Retail propane volumes sold increased 10.5 million gallons in the 2004 three-month period due primarily to the October 2003 Horizon Propane acquisition partially offset by the continuing effects of the weakened economy on commercial and industrial customer sales volumes. Low margin wholesale volumes increased 16.9 million gallons primarily reflecting the effects of product cost hedging activities. Retail propane revenues increased $41.8 million reflecting (1) a $27.6 million increase due to higher average selling prices and (2) a $14.2 million increase due to the higher retail volumes sold. Wholesale propane revenues increased $17.3 million reflecting (1) an $11.2 million increase due to the higher volumes sold and (2) a $6.1 million increase due to higher average selling prices. Selling prices in the 2004 three-month period were higher than in the prior-year three-month period as the industry continues to experience unusually high propane product costs resulting from, among other things, higher crude oil and natural gas prices. Total cost of sales increased $44.5 million primarily reflecting the increase in volumes sold and higher propane product costs. Total margin increased $17.6 million principally due to higher average retail propane unit margins and the higher retail volumes sold. The benefits of derivative hedge instruments and favorable supply arrangements during this period of escalating product costs and market volatility resulted in the Partnership recording higher than normal unit margins while maintaining competitive prices. EBITDA increased $16.7 million in the 2004 three-month period reflecting (1) the previously mentioned increase in total margin, (2) the absence of a $3.0 million loss on extinguishment of long-term debt that occurred in the 2003 three-month period, and (3) a $1.6 million increase in other income. These increases were partially offset by a $5.5 million increase in operating and administrative expenses principally due to higher employee payroll and overtime expenses related to the increased volumes associated with the Horizon Propane acquisition. These increases were partially offset by the beneficial effects on operating expenses of the management realignment completed in late Fiscal 2003 which streamlined business processes, eliminated -19- AMERIGAS PARTNERS, L.P. duplication and reduced overhead expenses. Operating income in the 2004 three-month period increased less than the increase in EBITDA due to higher depreciation and amortization expense associated with recent acquisitions and the absence of the previously mentioned loss on extinguishment of long-term debt. 2004 SIX-MONTH PERIOD COMPARED WITH 2003 SIX-MONTH PERIOD
Increase Six Months Ended March 31, 2004 2003 (Decrease) ---------- ---------- ------------------------- (millions of dollars) Gallons sold (millions): Retail 708.4 717.6 (9.2) (1.3)% Wholesale 145.3 167.0 (21.7) (13.0)% ---------- ---------- ---------- 853.7 884.6 (30.9) (3.5)% ========== ========== ========== Revenues: Retail propane $ 973.9 $ 906.0 $ 67.9 7.5 % Wholesale propane 103.5 99.7 3.8 3.8 % Other 70.5 64.9 5.6 8.6 % ---------- ---------- ---------- $ 1,147.9 $ 1,070.6 $ 77.3 7.2 % ========== ========== ========== Total margin $ 488.2 $ 466.6 $ 21.6 4.6 % EBITDA (a) $ 231.2 $ 211.2 $ 20.0 9.5 % Operating income $ 193.5 $ 180.0 $ 13.5 7.5 % Net income $ 148.8 $ 130.8 $ 18.0 13.8 % Heating degree days - % (warmer) colder than normal (4.1) 1.1 - -
(a) The following table includes reconciliations of net income to EBITDA for the periods presented:
Six Months Ended March 31, 2004 2003 -------- -------- Net income $ 148.8 $ 130.8 Income tax expense (benefit) 0.6 (0.1) Interest expense 42.3 44.6 Depreciation 36.9 33.9 Amortization 2.6 2.0 -------- -------- EBITDA $ 231.2 $ 211.2 ======== ========
Based upon heating degree day data, temperatures in the 2004 six-month period were 4.1% warmer than normal compared to temperatures that were 1.1% colder than normal in the prior-year six-month period. Notwithstanding volume growth from acquisitions, retail propane volumes sold decreased 9.2 million gallons in the 2004 six-month period due principally to the effects of continuing economic weakness on commercial and industrial customer sales volumes and the warmer weather in the 2004 six-month period. Low margin wholesale volumes decreased 21.7 million gallons primarily reflecting the effects of product cost hedging activities. -20- AMERIGAS PARTNERS, L.P. Retail propane revenues increased $67.9 million as a $79.5 million increase due to higher average selling prices was partially offset by an $11.6 million decrease due to the lower retail volumes sold. Wholesale propane revenues increased $3.8 million as a $16.8 million increase due to higher average selling prices was partially offset by a $13.0 million decrease due to the lower volumes sold. Retail and wholesale selling prices were higher during the 2004 six-month period principally as a result of the continued high propane product costs within the industry. Other revenues from ancillary sales and services were $70.5 million in the 2004 six-month period and $64.9 million in the 2003 six-month period. Although total propane volumes decreased, total cost of sales increased $55.7 million reflecting the effects of higher propane product costs. Total margin increased $21.6 million as a result of (1) recent acquisitions and higher average retail and wholesale propane unit margins on reduced gallons sold and (2) a $3.8 million increase in margin from ancillary sales and services. Notwithstanding the previously mentioned increase in the commodity price of propane, retail and wholesale propane unit margins were higher than in the 2003 six-month period reflecting the effects of higher average selling prices. EBITDA increased $20.0 million in the 2004 six-month period reflecting (1) the previously mentioned increase in total margin, (2) a $3.7 million increase in other income, and (3) the absence of a $3.0 million loss on extinguishment of long-term debt in the prior year six-month period. These increases were partially offset by an $8.3 million increase in operating and administrative expenses principally due to higher compensation and distribution expenses resulting from the impact of Horizon Propane and other recent acquisitions, partially offset by the beneficial effects on operating expenses of the management realignment completed in late Fiscal 2003. Other income in the 2004 six-month period includes greater income from finance charges and asset sales while other income in the prior-year six-month period was reduced by a $1.0 million charge associated with the adoption of SFAS No. 143, "Accounting for Asset Retirement Obligations." Operating income in the 2004 six-month period increased less than the increase in EBITDA due to higher depreciation and amortization expense as a result of recent acquisitions and the absence of the aforementioned loss on extinguishment of long-term debt. -21- AMERIGAS PARTNERS, L.P. FINANCIAL CONDITION AND LIQUIDITY FINANCIAL CONDITION The Partnership's long-term debt outstanding at March 31, 2004 totaled $925.7 million (including current maturities of $58.9 million) compared to $927.3 million (including current maturities of $58.7 million) at September 30, 2003. In April 2004, AmeriGas OLP repaid $53.8 million of maturing First Mortgage Notes. In conjunction with this repayment, in April 2004, AmeriGas Partners issued $28 million face amount of 8.875% Senior Notes due 2011 at an effective rate of 7.18%, and contributed the net proceeds of $30.1 million to AmeriGas OLP. AmeriGas OLP's Credit Agreement expires on October 15, 2006 and consists of (1) a $100 million Revolving Credit Facility and (2) a $75 million Acquisition Facility. The Revolving Credit Facility may be used for working capital and general purposes of AmeriGas OLP. The Acquisition Facility provides AmeriGas OLP with the ability to borrow up to $75 million to finance the purchase of propane businesses or propane business assets or, to the extent it is not so used, may be used for working capital and general purposes. At March 31, 2004, there were $3 million of borrowings outstanding under the Revolving Credit Facility. AmeriGas OLP's short-term borrowing needs are seasonal and are typically greatest during the fall and winter heating-season months due to the need to fund higher levels of working capital. Issued and outstanding letters of credit under the Revolving Credit Facility, which reduce the amount of available borrowing capacity, totaled $41.2 million at March 31, 2004. AmeriGas OLP also has a credit agreement with the General Partner to borrow up to $20 million on an unsecured, subordinated basis, for working capital and general purposes. UGI has agreed to contribute up to $20 million to the General Partner to fund such borrowings. AmeriGas Partners periodically issues debt and equity securities and expects to continue to do so. It has issued debt securities and common units in underwritten public offerings in each of the last three fiscal years. Most recently, it issued debt securities in April 2004 and common units in June 2003. The Partnership has effective debt and equity shelf registration statements with the SEC under which it may issue up to an additional (1) 1.4 million AmeriGas Partners Common Units and (2) up to $500 million of debt or equity securities pursuant to an unallocated shelf registration statement. During the six months ended March 31, 2004, the Partnership declared and paid the minimum quarterly distribution of $0.55 (the "MQD") on all limited partner units for the quarter ended September 30, 2003 and December 31, 2003. The MQD for the quarter ended March 31, 2004 will be paid on May 18, 2004 to holders of record on May 10, 2004. 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 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. -22- AMERIGAS PARTNERS, L.P. CASH FLOWS OPERATING ACTIVITIES. The Partnership had cash and cash equivalents totaling $13.1 million at March 31, 2004 compared to $45.9 million at September 30, 2003. Due to the seasonal nature of the propane business, cash flows from operating activities are generally strongest during the second and third fiscal quarters when customers pay for propane purchased during the heating season months. Conversely, operating cash flows are generally at their lowest levels during the first and fourth fiscal quarters when the Partnership's investment in working capital, principally accounts receivable and inventories, is generally greatest. Accordingly, cash flows from operating activities during the six months ended March 31, 2004 are not necessarily indicative of cash flows to be expected for a full year. The Partnership uses its Credit Agreement to satisfy its seasonal cash flow needs. Cash flow provided by operating activities was $83.0 million during the 2004 six-month period compared to $72.0 million in the prior-year six-month period. Cash flow from operating activities before changes in working capital was $195.8 million in the 2004 six-month period compared to $175.8 million in the prior-year six-month period reflecting the improved 2004 six-month period operating results. Cash required to fund changes in operating working capital during the 2004 six-month period totaled $112.8 million, an increase from the $103.8 million required in the prior-year six-month period. INVESTING ACTIVITIES. We spent $31.1 million for property, plant and equipment (including maintenance capital expenditures of $12.1 million and growth capital expenditures of $19.0 million) during the six months ended March 31, 2004 compared to $32.9 million (including maintenance capital expenditures of $11.8 million and growth capital expenditures of $21.1 million) during the prior-year six-month period. The decrease is due in large part to lower PPX(R) capital expenditures associated with purchases of cylinders and overfill protection devices ("OPDs"). The increase in proceeds received from disposals of assets reflects the sale of three district locations during the 2004 six-month period. During the six months ended March 31, 2004, the Partnership acquired Horizon Propane and several smaller propane distribution businesses for $33.1 million. FINANCING ACTIVITIES. Cash flow used by financing activities was $57.1 million in the 2004 six-month period compared to $64.6 million in the prior-year period. Financing activity is primarily the result of repayments and issuances of long-term debt, borrowings under our Credit Agreement and distributions on limited partner units. 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. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In December 2003, the Financial Accounting Standards Board ("FASB") revised Financial Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"), which was originally issued in January 2003 and clarifies Accounting Research Bulletin No. 51, "Consolidated Financial Statements." FIN 46 was effective immediately for variable interest entities created or obtained after January 31, 2003. For variable interests created or acquired -23- AMERIGAS PARTNERS, L.P. before February 1, 2003, FIN 46 is effective for our interim period ended March 31, 2004. If certain conditions are met, FIN 46 requires the primary beneficiary to consolidate certain variable interest entities. The Partnership has not created or obtained any variable interest entities prior to, or after January 31, 2004. Therefore, the adoption of FIN 46 did not affect the Partnership's 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. 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. Our variable rate debt includes borrowings under AmeriGas OLP's Credit Agreement. This agreement has interest rates that are generally indexed to short-term market interest rates. Our long-term debt is typically issued at fixed rates of interest based upon market rates for debt having similar terms and credit ratings. As these long-term debt issues mature, we may refinance such debt with new debt having interest rates reflecting then-current market conditions. This debt may have an interest rate that is more or less than the refinanced debt. In order to reduce interest rate risk associated with near-term forecasted issuances of fixed-rate debt, from time to time we enter into interest rate protection agreements. -24- AMERIGAS PARTNERS, L.P. The following table summarizes the fair values of unsettled market risk sensitive derivative instruments held at March 31, 2004. Fair values reflect the estimated amounts that we would receive or pay to terminate the contracts at the reporting date based upon quoted market prices of comparable contracts at March 31, 2004. The table also includes the changes in fair value that would result if there were an adverse change of ten percent in (1) the market price of propane and (2) interest rates on ten-year U.S. treasury notes:
Fair Change in Value Fair Value ------- ---------- (Millions of dollars) March 31, 2004: Propane commodity price risk $ 2.5 $ (3.6) Interest rate risk (3.7) (4.7)
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. -25- AMERIGAS PARTNERS, L.P. ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures The Partnership's management, with the participation of the Partnership's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Partnership's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Partnership's disclosure controls and procedures as of the end of the period covered by this report were designed and functioning effectively to provide reasonable assurance that the information required to be disclosed by the Partnership in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. The Partnership believes that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. (b) Change in Internal Control over Financial Reporting No change in the Partnership's internal control over financial reporting occurred during the Partnership's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Partnership's internal control over financial reporting. -26- 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 March 31, 2004, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification by the Chief Financial Officer relating to the Registrants' Report on Form 10-Q for the quarter ended March 31, 2004, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *32 Certification by the Chief Executive Officer and the Chief Financial Officer relating to the Registrant's Report on Form 10-Q for the quarter ended March 31, 2004, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) The Registrant did not file any Current Reports on Form 8-K during the second quarter of fiscal year 2004. ------------------ * This Exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to liability under that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing. -27- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. AmeriGas Partners, L.P. ----------------------------------------------- (Registrant) By: AmeriGas Propane, Inc., as General Partner Date: May 17, 2004 By: /s/ Martha B. Lindsay ----------------------------------------------- Martha B. Lindsay Vice President - Finance and Chief Financial Officer By: /s/ Richard R. Eynon ----------------------------------------------- Richard R. Eynon Controller and Chief Accounting Officer AmeriGas Finance Corp. ----------------------------------------------- (Registrant) Date: May 17, 2004 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: May 17, 2004 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 -28- AP Eagle Finance Corp. ----------------------------------------------- (Registrant) Date: May 17, 2004 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 -29- 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 March 31, 2004, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification by the Chief Financial Officer relating to the Registrants' Report on Form 10-Q for the quarter ended March 31, 2004, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *32 Certification by the Chief Executive Officer and the Chief Financial Officer relating to the Registrant's Report on Form 10-Q for the quarter ended March 31, 2004, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ------------------ * This Exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to liability under that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.