þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 23-2787918 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
PAGES | ||||||||
Part I Financial Information |
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Item 1. Financial Statements (unaudited) |
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1 | ||||||||
2 | ||||||||
3 | ||||||||
4 | ||||||||
5 - 15 | ||||||||
16 - 22 | ||||||||
22 - 23 | ||||||||
24 | ||||||||
25 | ||||||||
25 | ||||||||
26 | ||||||||
Exhibit 10.1 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32 |
-i-
December 31, | September 30, | December 31, | ||||||||||
2009 | 2009 (1) | 2008 (1) | ||||||||||
ASSETS |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 10,486 | $ | 59,213 | $ | 42,032 | ||||||
Accounts receivable (less allowances for doubtful accounts of $12,936
$13,239 and $24,610, respectively) |
271,065 | 136,147 | 267,057 | |||||||||
Accounts receivable related parties |
6,888 | 5,851 | 4,888 | |||||||||
Inventories |
119,850 | 87,940 | 105,646 | |||||||||
Derivative financial instruments |
43,757 | 14,970 | 600 | |||||||||
Collateral deposits |
| | 131,784 | |||||||||
Prepaid expenses and other current assets |
11,357 | 12,386 | 15,856 | |||||||||
Total current assets |
463,403 | 316,507 | 567,863 | |||||||||
Property, plant and equipment (less accumulated depreciation and
amortization of $821,470, $804,239 and $752,464, respectively) |
637,325 | 628,899 | 622,639 | |||||||||
Goodwill |
666,404 | 665,663 | 660,597 | |||||||||
Intangible assets (less accumulated amortization of $25,363, $23,970 and
$21,350, respectively) |
32,894 | 32,611 | 31,433 | |||||||||
Other assets |
12,618 | 13,884 | 14,476 | |||||||||
Total assets |
$ | 1,812,644 | $ | 1,657,564 | $ | 1,897,008 | ||||||
LIABILITIES AND PARTNERS CAPITAL |
||||||||||||
Current liabilities: |
||||||||||||
Current maturities of long-term debt |
$ | 82,705 | $ | 82,225 | $ | 71,249 | ||||||
Bank loans |
24,000 | | 146,000 | |||||||||
Accounts payable trade |
212,845 | 115,041 | 179,066 | |||||||||
Accounts payable related parties |
4,393 | 2,252 | 1,830 | |||||||||
Customer deposits and advances |
68,293 | 87,760 | 83,148 | |||||||||
Derivative financial instruments |
15,633 | 19,284 | 158,369 | |||||||||
Other current liabilities |
88,452 | 114,043 | 86,486 | |||||||||
Total current liabilities |
496,321 | 420,605 | 726,148 | |||||||||
Long-term debt |
784,146 | 783,419 | 861,756 | |||||||||
Other noncurrent liabilities |
74,224 | 77,215 | 89,047 | |||||||||
Commitments and contingencies (note 6) |
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Partners capital: |
||||||||||||
AmeriGas Partners, L.P. partners capital: |
||||||||||||
Common unitholders (units issued - 57,054,888, 57,046,388 and |
412,471 | 367,708 | 394,350 | |||||||||
57,013,951, respectively) |
||||||||||||
General partner |
4,149 | 3,698 | 3,963 | |||||||||
Accumulated other comprehensive income (loss) |
28,799 | (6,947 | ) | (188,481 | ) | |||||||
Total AmeriGas Partners, L.P. partners capital |
445,419 | 364,459 | 209,832 | |||||||||
Noncontrolling interests |
12,534 | 11,866 | 10,225 | |||||||||
Total partners capital |
457,953 | 376,325 | 220,057 | |||||||||
Total liabilities and partners capital |
$ | 1,812,644 | $ | 1,657,564 | $ | 1,897,008 | ||||||
(1) | As adjusted in accordance with the transition provisions for accounting for noncontrolling interests in
consolidated subsidiaries (Note 3). |
- 1 -
Three Months Ended | ||||||||
December 31, | ||||||||
2009 | 2008 (1) | |||||||
Revenues: |
||||||||
Propane |
$ | 614,358 | $ | 678,628 | ||||
Other |
42,237 | 48,436 | ||||||
656,595 | 727,064 | |||||||
Costs and expenses: |
||||||||
Cost of sales propane (excluding depreciation shown below) |
375,449 | 428,469 | ||||||
Cost of sales other (excluding depreciation shown below) |
14,120 | 17,069 | ||||||
Operating and administrative expenses |
146,814 | 159,985 | ||||||
Depreciation |
19,983 | 19,420 | ||||||
Amortization |
1,398 | 1,323 | ||||||
Gain on sale of California storage facility |
| (39,887 | ) | |||||
Other income, net |
(3,783 | ) | (4,081 | ) | ||||
553,981 | 582,298 | |||||||
Operating income |
102,614 | 144,766 | ||||||
Interest expense |
(16,493 | ) | (18,725 | ) | ||||
Income before income taxes |
86,121 | 126,041 | ||||||
Income taxes |
(1,167 | ) | (637 | ) | ||||
Net income |
84,954 | 125,404 | ||||||
Less: net income attributable to noncontrolling interests |
(995 | ) | (1,441 | ) | ||||
Net income attributable to AmeriGas Partners, L.P. |
$ | 83,959 | $ | 123,963 | ||||
General partners interest in net income attributable to AmeriGas Partners, L.P. |
$ | 1,407 | $ | 1,545 | ||||
Limited partners interest in net income attributable to AmeriGas Partners, L.P. |
$ | 82,552 | $ | 122,418 | ||||
Income per limited partner unit basic and diluted (note 2) |
||||||||
Basic |
$ | 1.15 | $ | 1.50 | ||||
Diluted |
$ | 1.15 | $ | 1.50 | ||||
Average limited partner units outstanding (thousands): |
||||||||
Basic |
57,055 | 57,014 | ||||||
Diluted |
57,105 | 57,062 | ||||||
(1) | As adjusted in accordance with the transition provisions for accounting for noncontrolling interests in
consolidated subsidiaries (Note 3). |
- 2 -
Three Months Ended | ||||||||
December 31, | ||||||||
2009 | 2008 (1) | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net income |
$ | 84,954 | $ | 125,404 | ||||
Adjustments
to reconcile net income to net cash from operating activities: |
||||||||
Depreciation and amortization |
21,381 | 20,743 | ||||||
Provision for uncollectible accounts |
3,236 | 8,589 | ||||||
Gain on sale of California LPG storage facility |
| (39,887 | ) | |||||
Net change in settled accumulated other comprehensive income (loss) |
3,841 | (11,408 | ) | |||||
Other, net |
(143 | ) | (1,590 | ) | ||||
Net change in: |
||||||||
Accounts receivable |
(138,657 | ) | (56,193 | ) | ||||
Inventories |
(31,725 | ) | 39,663 | |||||
Accounts payable |
99,945 | 5,342 | ||||||
Collateral deposits |
| (113,954 | ) | |||||
Other current assets |
1,050 | 12,740 | ||||||
Other current liabilities |
(47,302 | ) | (57,449 | ) | ||||
Net cash used by operating activities |
(3,420 | ) | (68,000 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Expenditures for property, plant and equipment |
(26,726 | ) | (19,139 | ) | ||||
Proceeds from disposals of assets |
1,566 | 1,605 | ||||||
Net proceeds from sale of California LPG storage facility |
| 42,426 | ||||||
Acquisitions of businesses, net of cash acquired |
(4,386 | ) | (33,784 | ) | ||||
Net cash used by investing activities |
(29,546 | ) | (8,892 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Distributions |
(39,186 | ) | (37,166 | ) | ||||
Noncontrolling interest activity |
(687 | ) | (667 | ) | ||||
Increase in bank loans |
24,000 | 146,000 | ||||||
Repayment of long-term debt |
(201 | ) | (271 | ) | ||||
Proceeds from issuance of Common Units, net of tax withheld |
310 | 118 | ||||||
Capital contributions from General Partner |
3 | 1 | ||||||
Net cash (used) provided by financing activities |
(15,761 | ) | 108,015 | |||||
Cash and cash equivalents (decrease) increase |
$ | (48,727 | ) | $ | 31,123 | |||
CASH AND CASH EQUIVALENTS: |
||||||||
End of period |
$ | 10,486 | $ | 42,032 | ||||
Beginning of period |
59,213 | 10,909 | ||||||
(Decrease) increase |
$ | (48,727 | ) | $ | 31,123 | |||
(1) | As adjusted in accordance with the transition provisions for accounting for noncontrolling interests in
consolidated subsidiaries (Note 3). |
- 3 -
Accumulated | Total | |||||||||||||||||||||||||||
other | AmeriGas | Total | ||||||||||||||||||||||||||
Number of | Common | General | comprehensive | Partners, L.P. | Noncontrolling | partners | ||||||||||||||||||||||
Common Units | unitholders | partner | income (loss) | partners capital | interests | capital | ||||||||||||||||||||||
For the three months ended December 31, 2009: |
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Balance September 30, 2009 |
57,046,388 | $ | 367,708 | $ | 3,698 | $ | (6,947 | ) | $ | 364,459 | $ | 11,866 | $ | 376,325 | ||||||||||||||
Net income attributable to AmeriGas Partners, L.P |
82,552 | 1,407 | 83,959 | 995 | 84,954 | |||||||||||||||||||||||
Net gains on derivative instruments |
44,188 | 44,188 | 448 | 44,636 | ||||||||||||||||||||||||
Reclassification of net gains on
derivative instruments |
(8,442 | ) | (8,442 | ) | (87 | ) | (8,529 | ) | ||||||||||||||||||||
Comprehensive income |
82,552 | 1,407 | 35,746 | 119,705 | 1,356 | 121,061 | ||||||||||||||||||||||
Distributions |
(38,227 | ) | (959 | ) | (39,186 | ) | (687 | ) | (39,873 | ) | ||||||||||||||||||
Unit-based compensation expense |
128 | | 128 | | 128 | |||||||||||||||||||||||
Common Units issued in connection
with incentive compensation
plans, net of tax withheld |
8,500 | 310 | 3 | 313 | 313 | |||||||||||||||||||||||
Balance December 31, 2009 |
57,054,888 | $ | 412,471 | $ | 4,149 | $ | 28,799 | $ | 445,419 | $ | 12,535 | $ | 457,954 | |||||||||||||||
For the three months ended December 31, 2008 (1): |
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Balance September 30, 2008 |
57,009,951 | $ | 308,186 | $ | 3,094 | $ | (63,905 | ) | $ | 247,375 | $ | 10,723 | $ | 258,098 | ||||||||||||||
Net income attributable to AmeriGas Partners, L.P |
122,418 | 1,545 | 123,963 | 1,441 | 125,404 | |||||||||||||||||||||||
Net losses on derivative instruments |
(179,913 | ) | (179,913 | ) | (1,835 | ) | (181,748 | ) | ||||||||||||||||||||
Reclassification of net losses on
derivative instruments |
55,337 | 55,337 | 563 | 55,900 | ||||||||||||||||||||||||
Comprehensive loss |
122,418 | 1,545 | (124,576 | ) | (613 | ) | 169 | (444 | ) | |||||||||||||||||||
Distributions |
(36,489 | ) | (677 | ) | (37,166 | ) | (667 | ) | (37,833 | ) | ||||||||||||||||||
Unit-based compensation expense |
117 | | 117 | | 117 | |||||||||||||||||||||||
Common Units issued in connection
with incentive compensation
plans, net of tax withheld |
4,000 | 118 | 1 | 119 | 119 | |||||||||||||||||||||||
Balance December 31, 2008 |
57,013,951 | $ | 394,350 | $ | 3,963 | $ | (188,481 | ) | $ | 209,832 | $ | 10,225 | $ | 220,057 | ||||||||||||||
(1) | As adjusted in accordance with the transition provisions for accounting for noncontrolling interests in
consolidated subsidiaries (Note 3). |
- 4 -
1. | Nature of Operations |
|
AmeriGas Partners, L.P. (AmeriGas Partners) is a publicly traded limited partnership that
conducts a national propane distribution business through its principal operating
subsidiaries AmeriGas Propane, L.P. (AmeriGas OLP) and AmeriGas OLPs subsidiary, AmeriGas
Eagle Propane, L.P. (Eagle OLP). AmeriGas Partners, AmeriGas OLP and Eagle OLP are
Delaware limited partnerships. AmeriGas OLP and Eagle OLP are collectively referred to
herein as the Operating Partnerships, and AmeriGas Partners, the Operating Partnerships
and all of their subsidiaries are collectively referred to herein as the Partnership or
we. |
||
The Operating Partnerships are engaged in the distribution of propane and related equipment
and supplies. The Operating Partnerships comprise the largest retail propane distribution
business in the United States serving residential, commercial, industrial, motor fuel and
agricultural customers from locations in 50 states. |
||
At December 31, 2009, AmeriGas Propane, Inc. (the General Partner), an indirect wholly
owned subsidiary of UGI Corporation (UGI), held a 1% general partner interest in AmeriGas
Partners and a 1.01% general partner interest in AmeriGas OLP. The General Partner and its
wholly owned subsidiary Petrolane Incorporated (Petrolane, a predecessor company of the
Partnership) also owned 24,691,209 Common Units of AmeriGas Partners. The remaining
32,363,679 Common Units are publicly held. The Common Units represent limited partner
interests in AmeriGas Partners. |
||
AmeriGas Partners holds a 99% limited partner interest in AmeriGas OLP. AmeriGas OLP,
indirectly through subsidiaries, owns an effective 0.1% general partner interest and a
direct 99.9% limited partner interest in Eagle OLP. |
||
AmeriGas Partners and the Operating Partnerships have no employees. Employees of the General
Partner conduct, direct and manage our operations. The General Partner provides management
and administrative services to AmeriGas Eagle Holdings, Inc. (AEH), the general partner of
Eagle OLP, under a management services agreement. The General Partner is reimbursed monthly
for all direct and indirect expenses it incurs on our behalf (see Note 5). |
2. | Significant Accounting Policies |
The condensed consolidated financial statements include the accounts of AmeriGas Partners
and its majority owned subsidiaries principally comprising AmeriGas OLP and Eagle OLP. We
eliminate all significant intercompany accounts and transactions when we consolidate. We
account for the General Partners 1.01% interest in AmeriGas OLP and an unrelated third
partys approximate 0.1% limited partner interest in Eagle OLP (prior to its redemption in
July 2009) as noncontrolling interests in the condensed consolidated financial statements. |
||
AmeriGas Finance Corp., AmeriGas Eagle Finance Corp. and AP Eagle Finance Corp. are wholly
owned finance subsidiaries of AmeriGas Partners. Their sole purpose is to serve as
co-obligors for debt securities issued by AmeriGas Partners. |
- 5 -
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, 2009 condensed
consolidated balance sheet data were derived from audited financial statements, but do not
include all disclosures required by accounting principles generally accepted in the United
States of America (GAAP). These financial statements should be read in conjunction with
the financial statements and related notes included in our Annual Report on Form 10-K for
the year ended September 30, 2009. Weather significantly impacts demand for propane and
profitability because many customers use propane for heating purposes. Due to the seasonal
nature of the Partnerships propane business, the results of operations for interim periods
are not necessarily indicative of the results to be expected for a full year. |
||
As discussed below, certain prior-period amounts have been adjusted to comply with recently
adopted Financial Accounting Standards Board (FASB) accounting guidance for the
presentation of noncontrolling interests in consolidated financial statements. |
||
Allocation of Net Income Attributable to AmeriGas Partners. Net income attributable to
AmeriGas Partners, L.P for partners capital and statement of operations presentation
purposes is allocated to the General Partner and the limited partners in accordance with
their respective ownership percentages after giving effect to amounts distributed to the
General Partner in excess of its 1% general partner interest in AmeriGas Partners based on
its incentive distributions rights (IDRs) under the Fourth Amended and Restated Agreement
of Limited Partnership of AmeriGas Partners (Partnership Agreement). |
||
Net Income Per Unit. On October 1, 2009, we adopted new accounting guidance regarding the
application of the two-class method for determining income per unit. This new guidance
addresses the application of the two-class method for master limited partnerships (MLPs)
when IDRs are present and entitle the holder of such rights to a portion of distributions
from the MLP. The new guidance addresses how current period earnings of the MLP should be
allocated to the general partner, limited partners and, when applicable, holders of IDRs. |
||
The new guidance regarding the two-class method requires that income per limited
partner unit be calculated as if all earnings for the period were distributed and requires a
separate calculation for each quarter and year-to-date period. In periods when our net
income attributable to AmeriGas Partners exceeds
our Available Cash, as defined in the Partnership Agreement, and is above certain levels, the
calculation according to the two-class method results in an increased allocation of
undistributed earnings to the General Partner. In periods when our Available Cash in respect
of the quarter or year-to-date periods exceeds our net income (loss) attributable to
AmeriGas Partners, the calculation according to the two-class method results in an
allocation of earnings to the General Partner greater than its relative ownership interest
in the Partnership (or in the case of a net loss attributable to AmeriGas Partners, an
allocation of such net loss to the Common Unitholders greater than their relative ownership
interest in the Partnership). The new guidance requires retrospective application of the
guidance to all periods presented. The retrospective impact of the new guidance did not
impact the three months ended December 31, 2008. |
- 6 -
The following table sets forth the allocation of net income attributable to AmeriGas
Partners to the limited partners in accordance with the two-class method and the terms of
our Partnership Agreement: |
Three Months Ended | ||||||||
December 31, | ||||||||
2009 | 2008 | |||||||
Common Unitholders interest in
net income attributable to AmeriGas Partners |
$ | 65,408 | $ | 85,598 | ||||
Weighted average Common Units
outstanding basic (thousands) |
57,055 | 57,014 | ||||||
Potentially dilutive Common Units (thousands) |
50 | 48 | ||||||
Weighted average Common Units
outstanding diluted (thousands) |
57,105 | 57,062 | ||||||
Theoretical distributions of net income in accordance with the two-class method for the
three months ended December 31, 2009 and 2008 resulted in an increased allocation of net
income to the General Partner in the computation of income per limited partner unit which
had the effect of decreasing earnings per limited partner unit by $0.30 and $0.65,
respectively. |
||
Potentially dilutive Common Units included in the diluted limited partner units outstanding
computation reflect the effects of restricted Common Unit awards granted under the General
Partners incentive compensation plans. |
||
Comprehensive Income. Other comprehensive income (loss) is principally the result of
changes in the fair value of propane commodity derivative instruments and interest rate
protection agreements qualifying as cash flow hedges, net of reclassifications of net gains
and losses to net income. |
||
Reclassifications. In addition to the previously mentioned prior-period adjustments
resulting from the adoption of accounting guidance relating to the presentation of
noncontrolling interests, we have reclassified certain other prior-period balances to
conform to the current-period presentation. |
||
Use of Estimates. We make estimates and assumptions when preparing financial statements in
conformity with GAAP. These
estimates and assumptions affect the reported amounts of assets and liabilities, revenues
and expenses, as well as the disclosure of contingent assets and liabilities. Actual
results could differ from these estimates. |
||
Subsequent Events. Management has evaluated the impact of subsequent events through
February 5, 2010, the date the financial statements were filed with the SEC, and the effects
of such evaluation have been reflected in the financial statements and related disclosures. |
- 7 -
3. | Accounting Changes |
|
Adoption of New Accounting Standards |
||
Noncontrolling Interests. Effective October 1, 2009, we adopted new guidance regarding the
accounting for and presentation of noncontrolling interests in consolidated financial
statements. The new guidance significantly changed the accounting and reporting relating to
noncontrolling interests in a consolidated subsidiary. Noncontrolling interests are now
classified within partners capital, a change from their prior classification between
liabilities and partners capital. Earnings attributable to noncontrolling interests are now
included in net income and deducted from net income to determine net income attributable to
AmeriGas Partners. In addition, changes in a parents ownership interest while retaining
control are accounted for as equity transactions and any retained noncontrolling equity
investments in a former subsidiary are initially measured at fair value. In accordance with
the new guidance, prior periods have been adjusted to conform to the new presentation. |
||
Earnings Per Unit. As previously mentioned, on October 1, 2009, we adopted new accounting
guidance regarding the application of the two-class method for determining income per unit
as it relates to MLPs. This new guidance addresses the application of the two-class method
for MLPs when incentive distribution rights are present and entitle the holder of such
rights to a portion of the distributions. See Net Income Per Unit above for additional
information. |
||
Business Combinations. On October 1, 2009, we adopted new guidance on the
accounting for business combinations. The new guidance applies to all transactions or other
events in which an entity obtains control of one or more businesses. The new guidance
establishes, among other things, principles and requirements for how the acquirer (1)
recognizes and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree; (2) recognizes and
measures the goodwill acquired in a business combination or gain from a bargain purchase;
and (3) determines what information with respect to a business combination should be
disclosed. The new guidance applies prospectively to business combinations for which the
acquisition date is on or after the date of adoption. Among the more
significant changes in accounting for acquisitions are (1) transaction costs will generally
be expensed (rather than being included as costs of the acquisition); (2) contingencies,
including contingent consideration, will generally be recorded at fair value with subsequent
adjustments recognized in operations (rather than as adjustments to the purchase price); and
(3) decreases in valuation allowances on acquired deferred tax assets will be recognized in
operations (rather than decreases in goodwill). The new guidance did not have a material
effect on the three months ended December 31, 2009. |
||
Intangible Asset Useful Lives. On October 1, 2009, we adopted new accounting guidance which
amends the factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under GAAP. The intent of
the new guidance is to improve the consistency between the useful life of a recognized
intangible asset under GAAP relating to intangible asset accounting and the period of
expected cash flows used to measure the fair value of the asset under GAAP relating to
business combinations and other applicable accounting literature. The new guidance must be
applied prospectively to intangible
assets acquired after the effective date. The adoption of the new guidance did not impact
our financial statements. |
- 8 -
4. | Intangible Assets |
|
The Partnerships intangible assets comprise the following: |
December 31, | September 30, | December 31, | ||||||||||
2009 | 2009 | 2008 | ||||||||||
Subject to amortization: |
||||||||||||
Customer relationships and
noncompete agreements |
$ | 58,257 | $ | 56,581 | $ | 52,783 | ||||||
Accumulated amortization |
(25,363 | ) | (23,970 | ) | (21,350 | ) | ||||||
$ | 32,894 | $ | 32,611 | $ | 31,433 | |||||||
Not subject to amortization: |
||||||||||||
Goodwill |
$ | 666,404 | $ | 665,663 | $ | 660,597 | ||||||
The increase in goodwill and other intangible assets during the three months ended
December 31, 2009 principally reflects the effects of acquisitions. Amortization expense of
intangible assets was $1,393 and $1,317 for the three months ended December 31, 2009 and
2008, respectively. No amortization is included in cost of sales in the Condensed
Consolidated Statements of Operations. Our expected aggregate amortization expense of
intangible assets for the next five fiscal years is as follows: Fiscal 2010 $5,456;
Fiscal 2011 $5,366; Fiscal 2012 $5,297; Fiscal 2013 $4,742; Fiscal 2014 $3,789. |
5. | Related Party Transactions |
Pursuant to the Partnership Agreement and a Management Services Agreement among AEH, 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 $90,495 and $90,750 for the three months ended
December 31, 2009 and 2008, respectively, include employee compensation and benefit expenses
of employees of the General Partner and general and administrative expenses. |
||
UGI provides certain financial and administrative services to the General Partner. UGI bills
the General Partner monthly for all direct and indirect corporate expenses incurred in
connection with providing these services and the General Partner is reimbursed by the
Partnership for these expenses. The allocation of indirect UGI corporate expenses to the
Partnership utilizes a weighted, three-component formula based on the relative percentage of
the Partnerships revenues, operating expenses and net assets employed to the total of such
items for UGIs other operating subsidiaries for which general and administrative services
are provided. The General Partner believes that this allocation method is reasonable and
equitable to the Partnership. Such corporate expenses totaled $1,203 and $2,249 during the
three months ended December 31, 2009 and 2008, respectively. In addition, UGI and certain of
its subsidiaries provide office space, stop loss medical coverage and automobile liability
insurance to the Partnership. These expenses, net of any recoveries, totaled $88 and $813
during the three months ended December 31, 2009 and 2008, respectively. |
- 9 -
AmeriGas OLP purchases propane from UGI Energy Services, Inc. and subsidiaries (Energy
Services), which is owned by an affiliate of UGI, pursuant to a Product Sales Agreement
whereby Energy Services has agreed to sell and AmeriGas OLP has agreed to purchase a
specified amount of propane annually at a terminal located in Chesapeake, Virginia. The
Product Sales Agreement took effect on May 1, 2005 and will continue until April 30, 2010.
The price to be paid for product purchased under the agreement is determined annually using
a contractual formula that takes into account published index prices and the locational
value of deliveries at the terminal. Purchases of propane by AmeriGas OLP from Energy
Services totaled $9,784 and $5,874 during the three months ended December 31, 2009 and 2008,
respectively. Amounts due to Energy Services at December 31, 2009, September 30, 2009 and
December 31, 2008 totaled $3,982, $1,451 and $1,081, respectively, which are included in
accounts payable related parties in our Condensed Consolidated Balance Sheets. |
||
The Partnership also sells propane to other affiliates of UGI. Such amounts were not
material during the three months ended December 31, 2009 and 2008, respectively. |
6. | Commitments and Contingencies |
Environmental Matters |
||
By letter dated March 6, 2008, the New York State Department of Environmental
Conservation (DEC) notified AmeriGas OLP that DEC had placed property owned by the
Partnership in Saranac Lake, New York on its Registry of Inactive Hazardous Waste Disposal
Sites. A site characterization study performed by DEC disclosed contamination related to
former manufactured gas plant (MGP) operations on the site. DEC has classified the site as
a significant threat to public health or environment with further action required. The
Partner has researched the history of the site and its ownership interest in the site. The
Partnership has reviewed the preliminary site characterization study prepared by the DEC,
the extent of the contamination, and the possible existence of other potentially responsible
parties. The Partnership has communicated the results of its research to DEC and is awaiting
a response before doing any additional investigation. Because of the preliminary nature of
available environmental information, the ultimate amount of expected clean up costs cannot
be reasonably estimated. |
||
Other Matters |
||
On May 27, 2009, the General Partner was named as a defendant in a purported class action
lawsuit in the Superior Court of the State of California in which plaintiffs are challenging
AmeriGas OLPs weight disclosure with regard to its portable propane grill cylinders. The
complaint purports to be brought on behalf of a class of all consumers in the state of
California during the four years prior to the date of the California complaint, who
exchanged an empty cylinder and were provided with what is alleged to be only a
partially-filled cylinder. The plaintiffs seek restitution, injunctive relief, interest,
costs, attorneys fees and other appropriate relief. |
- 10 -
Since that initial suit, various AmeriGas entities have been named in more than a dozen
similar suits that have been filed in various courts throughout the United States. These
complaints purport
to be brought on behalf of nationwide classes, which are loosely defined as to include all
purchasers of liquefied propane gas cylinders marketed or sold by AmeriGas OLP and another
unaffiliated entity nationwide in 2008 and 2009. The complaints claim that defendants
conduct constituted unfair and deceptive practices that injured consumers and violated the
consumer protection statutes of at least thirty-seven states and the District of Columbia,
thereby entitling the class to damages, restitution, disgorgement, injunctive relief, costs
and attorneys fees. Some of the complaints also allege violation of state slack filling
laws. Additionally the complaints allege that defendants were unjustly enriched by their
conduct and they seek restitution of any unjust benefits received, punitive or treble
damages, and pre-judgment and post-judgment interest. A motion to consolidate the purported
class action lawsuits was heard by the Multidistrict Litigation Panel (MDL Panel) on
September 24, 2009 in the United States District Court for the District of Kansas. By Order,
dated October 6, 2009, the MDL Panel transferred the pending cases to the United States
District Court for the Western District of Missouri. |
||
On or about October 21, 2009, the General Partner received a notice that the Offices of the
District Attorneys of Santa Clara, Sonoma, Ventura, San Joaquin and Fresno Counties and the
City Attorney of San Diego have commenced an investigation into AmeriGas OLPs cylinder
labeling and filling practices in California and issued an administrative subpoena seeking
documents and information relating to those practices. We are cooperating with these
California governmental investigations and we are vigorously defending the lawsuits. |
||
Samuel and Brenda Swiger and their son (the Swigers) sustained personal injuries and
property damage as a result of a fire that occurred when propane that leaked from an
underground line ignited. In July 1998, the Swigers filed a class action lawsuit against
AmeriGas Propane, L.P. (named incorrectly as UGI/AmeriGas, Inc.), in the Circuit Court of
Monongalia County, West Virginia, in which they sought to recover an unspecified amount of
compensatory and punitive damages and attorneys fees, for themselves and on behalf of
persons in West Virginia for whom the defendants had installed propane gas lines, resulting
from the defendants alleged failure to install underground propane lines at depths required
by applicable safety standards. In 2003, AmeriGas OLP settled the individual personal injury
and property damage claims of the Swigers. In
2004, the court granted the plaintiffs motion to include customers acquired from Columbia
Propane Corporation in August 2001 as additional potential class members and the plaintiffs
amended their complaint to name additional parties pursuant to such ruling. Subsequently, in
March 2005, AmeriGas OLP filed a crossclaim against Columbia Energy Group, former owner of
Columbia Propane Corporation, seeking indemnification for conduct undertaken by Columbia
Propane Corporation prior to AmeriGas OLPs acquisition. Class counsel has indicated that
the class is seeking compensatory damages in excess of $12,000 plus punitive damages, civil
penalties and attorneys fees. |
||
In 2005, the Swigers filed what purports to be a class action in the Circuit Court of
Harrison County, West Virginia against UGI, an insurance subsidiary of UGI, certain officers
of UGI and the General Partner, and their insurance carriers and insurance adjusters. In the
Harrison County lawsuit, the Swigers are seeking compensatory and punitive damages on behalf
of the putative class for violations of the West Virginia Insurance Unfair Trade Practice
Act, negligence, intentional misconduct, and civil conspiracy. The Swigers have also
requested that the Court rule that insurance coverage exists under the policies issued by
the defendant insurance companies for damages sustained by the members of the class in the
Monongalia County lawsuit. The Circuit
Court of Harrison County has not certified the class in the Harrison County lawsuit at this
time and, in October 2008, stayed that lawsuit pending resolution of the class action
lawsuit in Monongalia County. We believe we have good defenses to the claims in both
actions. |
- 11 -
We cannot predict with certainty the final results of any of the environmental or other
pending claims or legal actions described above. However, it is reasonably possible that
some of them could be resolved unfavorably to us and result in losses in excess of recorded
amounts. We are unable to estimate any possible losses in excess of recorded amounts.
Although we currently believe, 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. In addition to the matters described above, there are other pending
claims and legal actions arising in the normal course of our businesses. While the results
of these other pending claims and legal actions cannot be predicted with certainty, we
believe, after consultation with counsel, the final outcome of such other matters will not
have a significant effect on our consolidated financial position, results of operations or
cash flows. |
7. | Fair Value Measurement |
|
The following table presents our financial assets and financial liabilities that are
measured at fair value on a recurring basis for each of the fair value hierarchy levels,
including both current and noncurrent portions, as of December 31, 2009 and 2008: |
Quoted Prices in | ||||||||||||||||
Active Markets | Significant | |||||||||||||||
for Identical | Other | |||||||||||||||
Assets and | Observable | Unobservable | ||||||||||||||
Liabilities | Inputs | Inputs | ||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
Derivative financial instruments: |
||||||||||||||||
December 31, 2009: |
||||||||||||||||
Assets |
$ | | $ | 43,864 | $ | | $ | 43,864 | ||||||||
Liabilities |
$ | | $ | (15,633 | ) | $ | | $ | (15,633 | ) | ||||||
December 31, 2008: |
||||||||||||||||
Assets |
$ | | $ | 623 | $ | | $ | 623 | ||||||||
Liabilities |
$ | | $ | (174,860 | ) | $ | | $ | (174,860 | ) |
- 12 -
8. | Disclosures About Derivative Instruments, Hedging Activities and Financial
Instruments |
|
Derivative Instruments and Hedging Activities |
||
The Partnership is exposed to certain market risks related to its ongoing business
operations. Management uses derivative financial and commodity instruments, among other
things, to manage these risks. The primary risks managed by derivative instruments are
commodity price risk and interest rate risk. Although we use derivative financial and
commodity instruments to reduce market risk associated with forecasted transactions, we do
not use derivative financial and commodity instruments for speculative or trading purposes.
The use of derivative instruments is controlled by our risk management and credit policies
which govern, among other things, the derivative instruments the Partnership can use,
counterparty credit limits and contract authorization limits. Because our derivative
instruments generally qualify as hedges under GAAP, we expect that changes in the fair value
of derivative instruments used to manage commodity or interest rate market risk would be
substantially offset by gains or losses on the associated anticipated transactions. |
||
Commodity Price Risk |
||
In order to manage market risk associated with the Partnerships fixed-price programs which
permit customers to lock in the prices they pay for propane principally during the months of
October through March, the Partnership uses over-the-counter derivative commodity
instruments, principally price swap contracts. At December 31, 2009, there were 93.8 million
gallons of propane hedged with over-the-counter price swap and option contracts. The maximum
period over which we are currently
hedging propane market price risk is 15 months with a weighted average of 3 months. We
account for substantially all of our commodity price risk contracts as cash flow hedges.
Changes in the fair values of contracts qualifying for cash flow hedge accounting are
recorded in AOCI and noncontrolling interests, to the extent effective in offsetting changes
in the underlying commodity price risk, until earnings are affected by the hedged item. At
December 31, 2009, the amount of net gains associated with commodity price risk hedges
expected to be reclassified into earnings during the next twelve months based upon current
fair values is $40,615. |
||
Interest Rate Risk |
||
Our long-term debt is typically issued at fixed rates of interest. As these long-term debt
issues mature, we typically refinance such debt with new debt having interest rates
reflecting then-current market conditions. In order to reduce market rate risk on the
underlying benchmark rate of interest associated with near- to medium-term forecasted
issuances of fixed-rate debt, from time to time we may enter into interest rate protection
agreements (IRPAs). At December 31, 2009, the total notional amount of the Partnerships
unsettled IRPAs was $150,000. Our current unsettled IRPA contracts hedge forecasted interest
payments associated with the issuance of debt expected to occur in June 2010. We account for
IRPAs as cash flow hedges. Changes in the fair values of IRPAs are recorded in AOCI and
noncontrolling interests, to the extent effective in offsetting changes in the underlying
interest rate risk, until earnings are affected by the hedged interest expense. At December
31, 2009, the amount of net losses associated with IRPAs expected to be reclassified into
earnings during the next twelve months based upon current fair values is $1,048. |
- 13 -
Derivative Financial Instruments Credit Risk |
||
The Partnership is exposed to credit loss in the event of nonperformance by counterparties
to derivative financial and commodity instruments. Our counterparties principally consist
of major energy companies and major U.S. financial institutions. We maintain credit
policies with regard to our counterparties that we believe reduce overall credit risk. These
policies include evaluating and monitoring our counterparties financial condition,
including their credit ratings, and entering into agreements with counterparties that govern
credit limits. Certain of these agreements call for the posting of collateral by the
counterparty or by the Partnership in the form of letters of credit, parental guarantees or
cash. Although we have concentrations of credit risk associated with derivative financial
instruments held by certain derivative financial
instrument counterparties, the maximum amount of loss due to credit risk that, based upon
the gross fair values of the derivative financial instruments, we would incur if these
counterparties that make up the concentration failed to perform according to the terms of
their contracts was not material at December 31, 2009. We generally do not have
credit-risk-related contingent features in our derivative contracts. |
||
The following table provides information regarding the balance sheet location and fair value
of derivative assets and liabilities existing as of December 31, 2009: |
Derivative Assets | Derivative Liabilities | |||||||||||||||
Balance Sheet | Fair | Balance Sheet | Fair | |||||||||||||
As of December 31, 2009 | Location | Value | Location | Value | ||||||||||||
Derivatives Designated as Hedging Instruments: |
||||||||||||||||
Propane contracts |
Derivative financial instruments and Other assets | $ | 38,366 | Derivative financial instruments | $ | | ||||||||||
Interest rate contracts |
Derivative financial instruments | 3,856 | Derivative financial instruments | (14,049 | ) | |||||||||||
Total Derivatives Designated
as Hedging Instruments |
$ | 42,222 | $ | (14,049 | ) | |||||||||||
Derivatives Not Designated as
Hedging Instruments: |
||||||||||||||||
Propane contracts |
Derivative financial instruments | $ | 1,642 | Derivative financial instruments | $ | (1,584 | ) | |||||||||
Total Derivatives Not Designated
as Hedging Instruments |
$ | 1,642 | $ | (1,584 | ) | |||||||||||
Total Derivatives |
$ | 43,864 | $ | (15,633 | ) | |||||||||||
- 14 -
The following table provides information on the effects of derivative instruments on
the consolidated statement of operations and changes in AOCI and noncontrolling interest for
the three months ended December 31, 2009: |
Location of | ||||||||||||
Gain | Gain (Loss) | Gain (Loss) | ||||||||||
Recognized in | Reclassified from | Reclassified from | ||||||||||
AOCI and Noncontrolling | AOCI and Noncontrolling | AOCI and Noncontrolling | ||||||||||
Interest | Interest into Income | Interest into Income | ||||||||||
Cash Flow |
||||||||||||
Hedges: |
||||||||||||
Propane contracts |
$ | 38,947 | Cost of sales | $ | 8,664 | |||||||
Interest rate contracts |
5,689 | Interest expense /other income | (135 | ) | ||||||||
Total |
$ | 44,636 | $ | 8,529 | ||||||||
The amounts of derivative gains or losses representing ineffectiveness and the amounts
of gains or losses recognized in income as a result of excluding from ineffectiveness
testing were not material. The amount of net gains or losses associated with propane
contracts not designated as hedging instruments was not material during the three months
ended December 31, 2009. |
||
Financial Instruments |
||
The carrying amounts of financial instruments included in current assets and current
liabilities (excluding unsettled derivative instruments and current maturities of long-term
debt) approximate their fair values because of their short-term nature. The carrying amounts
and estimated fair values of our remaining financial instrument assets and (liabilities) at
December 31, 2009 (including unsettled derivative instruments) are as follows: |
Asset (Liability) | ||||||||
Carrying | Estimated | |||||||
Amount | Fair Value | |||||||
Derivative instruments |
$ | 28,231 | $ | 28,231 | ||||
Long-term debt |
$ | (866,851) | $ | (867,392) |
We estimate the fair value of long-term debt by using current market prices and by
discounting future cash flows using rates available for similar type debt. |
- 15 -
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
- 16 -
- 17 -
Increase | ||||||||||||||||
Three Months Ended December 31, | 2009 | 2008 | (Decrease) | |||||||||||||
(millions of dollars) | ||||||||||||||||
Gallons sold (millions): |
||||||||||||||||
Retail |
267.4 | 278.2 | (10.8 | ) | (3.9 | )% | ||||||||||
Wholesale |
44.6 | 41.4 | 3.2 | 7.7 | % | |||||||||||
312.0 | 319.6 | (7.6 | ) | (2.4 | )% | |||||||||||
Revenues: |
||||||||||||||||
Retail propane |
$ | 560.9 | $ | 634.9 | $ | (74.0 | ) | (11.7 | )% | |||||||
Wholesale propane |
53.5 | 43.7 | 9.8 | 22.4 | % | |||||||||||
Other |
42.2 | 48.5 | (6.3 | ) | (13.0 | )% | ||||||||||
$ | 656.6 | $ | 727.1 | $ | (70.5 | ) | (9.7 | )% | ||||||||
Total margin (a) |
$ | 267.0 | $ | 281.5 | $ | (14.5 | ) | (5.2 | )% | |||||||
EBITDA (b) |
$ | 123.0 | $ | 164.1 | $ | (41.1 | ) | (25.0 | )% | |||||||
Operating income |
$ | 102.6 | $ | 144.8 | $ | (42.2 | ) | (29.1 | )% | |||||||
Net income attributable to AmeriGas Partners |
$ | 84.0 | $ | 124.0 | $ | (40.0 | ) | (32.3 | )% | |||||||
Heating degree days % colder (warmer)
than normal (c) |
1.3 | % | (0.8 | )% | | |
(a) | Total margin represents total revenues less cost of sales propane and cost of sales
other. |
|
(b) | Earnings before interest expense, income taxes, depreciation and amortization (EBITDA)
should not be considered as an alternative to net income attributable to AmeriGas Partners
(as an indicator of operating performance) and is not a measure of performance or financial
condition under accounting principles generally accepted in the United States of America
(GAAP). Management believes EBITDA is a meaningful non-GAAP financial measure used by
investors to (1) compare the Partnerships operating performance with other companies within
the propane industry and (2) assess its ability to meet loan covenants. The Partnerships
definition of EBITDA may be different from that used by other companies. Management uses
EBITDA to compare year-over-year profitability of the business without regard to capital
structure as well as to compare the relative performance of the Partnership to that of other
master limited partnerships without regard to their financing methods, capital structure,
income taxes or historical cost basis. In view of the omission of interest, income taxes,
depreciation and amortization from EBITDA, management also assesses the profitability of the
business by comparing net income attributable to AmeriGas Partners for the relevant years.
Management also uses EBITDA to assess the Partnerships profitability because its parent,
UGI Corporation, uses the Partnerships EBITDA to assess the profitability of the
Partnership. UGI Corporation discloses the Partnerships EBITDA as the profitability measure
to comply with the GAAP requirement to provide profitability information about its domestic
propane segment. EBITDA in the three months ended December 31, 2008 includes a pre-tax gain
of $39.9 million from the sale of a California LPG storage facility. |
- 18 -
Three Months Ended | ||||||||
December 31, | ||||||||
2009 | 2008 | |||||||
Net income attributable to AmeriGas Partners |
$ | 84.0 | $ | 124.0 | ||||
Income tax expense |
1.1 | 0.7 | ||||||
Interest expense |
16.5 | 18.7 | ||||||
Depreciation |
20.0 | 19.4 | ||||||
Amortization |
1.4 | 1.3 | ||||||
EBITDA |
$ | 123.0 | $ | 164.1 | ||||
(c) | Deviation from average heating degree days for the 30-year period 1971-2000 based upon
national weather statistics provided by the National Oceanic and Atmospheric Administration
(NOAA) for 335 airports in the United States, excluding Alaska. Prior year data has been
adjusted to correct a NOAA error. |
- 19 -
- 20 -
- 21 -
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK |
- 22 -
Fair Value - | ||||||||
Asset | Change in | |||||||
(Millions of dollars) | (Liability) | Fair Value | ||||||
December 31, 2009: |
||||||||
Propane swap and option contracts |
$ | 38.4 | $ | (12.1 | ) | |||
Interest rate protection agreements |
$ | (10.2 | ) | $ | (5.3 | ) |
- 23 -
ITEM 4. | CONTROLS AND PROCEDURES |
(a) | Evaluation of Disclosure Controls and Procedures |
The Partnerships management, with the participation of the Partnerships Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of the Partnerships
disclosure controls and procedures as of the end of the period covered by this report.
Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Partnerships disclosure controls and procedures as of the end of the period
covered by this report were designed and functioning effectively to provide reasonable
assurance that the information required to be disclosed by the Partnership in reports filed
under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms, and (ii) accumulated and communicated to our management,
including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding disclosure. |
(b) | Change in Internal Control over Financial Reporting |
No change in the Partnerships internal control over financial reporting occurred during the
Partnerships most recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Partnerships internal control over financial reporting. |
- 24 -
ITEM 1A. | RISK FACTORS |
ITEM 6. | EXHIBITS |
Exhibit | ||||||||||||
No. | Exhibit | Registrant | Filing | Exhibit | ||||||||
10.1 | AmeriGas Propane, Inc. Supplemental Executive Retirement Plan as Amended and Restated Effective January 1, 2009 |
|||||||||||
10.2 | Amendment
2009-1 to the UGI Corporation Supplemental Executive Retirement Plan
and Supplemental Savings Plan as Amended and Restated effective January 1, 2009
|
UGI | Form 10-Q (12/31/09) | 10.1 | ||||||||
10.3 | UGI Corporation 2009 Supplemental Executive Retirement Plan For New Employees
|
UGI | Form 10-Q (12/31/09) | 10.2 | ||||||||
31.1 | Certification by the Chief Executive Officer relating to the Registrants Report on Form 10-Q for the quarter ended December 31, 2009, 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 December 31, 2009, 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 Registrants Report on Form 10-Q for the quarter ended December 31, 2009, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
- 25 -
AmeriGas Partners, L.P. (Registrant) |
||||
By: | AmeriGas Propane, Inc., | |||
as General Partner | ||||
Date: February 5, 2010 | By: | /s/ Jerry E. Sheridan | ||
Jerry E. Sheridan | ||||
Vice President Finance
and Chief Financial Officer |
||||
Date: February 5, 2010 | By: | /s/ William J. Stanczak | ||
William J. Stanczak | ||||
Controller and Chief Accounting Officer |
- 26 -
10.1 | AmeriGas Propane, Inc. Supplemental Executive Retirement Plan as Amended and Restated
Effective January 1, 2009. |
|||
31.1 | Certification by the Chief Executive Officer relating to the Registrants Report on Form10-Q
for the quarter ended December 31, 2009, 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 December 31, 2009, 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
Registrants Report on Form 10-Q for the quarter ended December 31, 2009, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. |