Filed by Bowne Pure Compliance
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2008
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-13692
AMERIGAS PARTNERS, L.P.
(Exact name of registrant as specified in its charters)
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|
|
Delaware
(State or other jurisdiction of
incorporation or organization)
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|
23-2787918
(I.R.S. Employer
Identification No.) |
460 North Gulph Road, King of Prussia, PA 19406
(Address of principal executive offices) (Zip Code)
(610) 337-7000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
At April 30, 2008, there were 57,009,951 Common Units of AmeriGas Partners, L.P. outstanding.
AMERIGAS PARTNERS, L.P.
TABLE OF CONTENTS
-i-
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Thousands of dollars)
|
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|
|
|
|
|
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|
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March 31, |
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September 30, |
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March 31, |
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2008 |
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2007 |
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2007 |
|
ASSETS |
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|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
20,881 |
|
|
$ |
34,034 |
|
|
$ |
52,508 |
|
Accounts receivable (less allowances for doubtful accounts of $21,565,
$15,150 and $19,333, respectively) |
|
|
356,399 |
|
|
|
184,038 |
|
|
|
268,401 |
|
Accounts receivable related parties |
|
|
4,661 |
|
|
|
3,684 |
|
|
|
5,007 |
|
Inventories |
|
|
130,523 |
|
|
|
124,840 |
|
|
|
103,672 |
|
Derivative financial instruments |
|
|
7,419 |
|
|
|
18,300 |
|
|
|
3,644 |
|
Prepaid expenses and other current assets |
|
|
8,388 |
|
|
|
10,124 |
|
|
|
7,632 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
528,271 |
|
|
|
375,020 |
|
|
|
440,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment (less accumulated depreciation and
amortization of $708,893, $679,081 and
$651,033, respectively) |
|
|
624,243 |
|
|
|
633,978 |
|
|
|
582,217 |
|
Goodwill |
|
|
640,108 |
|
|
|
640,664 |
|
|
|
619,938 |
|
Intangible assets (less accumulated amortization of $31,598, $29,253 and
$27,119, respectively) |
|
|
28,471 |
|
|
|
29,809 |
|
|
|
23,782 |
|
Other assets |
|
|
14,770 |
|
|
|
17,313 |
|
|
|
15,761 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,835,863 |
|
|
$ |
1,696,784 |
|
|
$ |
1,682,562 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
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LIABILITIES AND PARTNERS CAPITAL |
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Current liabilities: |
|
|
|
|
|
|
|
|
|
|
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Current maturities of long-term debt |
|
$ |
71,682 |
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|
$ |
1,925 |
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$ |
1,376 |
|
Bank loans |
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|
56,000 |
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|
|
|
|
|
|
|
|
Accounts payable trade |
|
|
215,099 |
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|
|
163,092 |
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|
|
175,464 |
|
Accounts payable related parties |
|
|
4,263 |
|
|
|
3,588 |
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|
|
3,001 |
|
Customer deposits and advances |
|
|
37,006 |
|
|
|
99,137 |
|
|
|
38,049 |
|
Derivative financial instruments |
|
|
5,204 |
|
|
|
|
|
|
|
249 |
|
Other current liabilities |
|
|
98,281 |
|
|
|
110,851 |
|
|
|
92,439 |
|
|
|
|
|
|
|
|
|
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|
Total current liabilities |
|
|
487,535 |
|
|
|
378,593 |
|
|
|
310,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
861,264 |
|
|
|
931,117 |
|
|
|
931,386 |
|
Other noncurrent liabilities |
|
|
61,515 |
|
|
|
64,460 |
|
|
|
68,069 |
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|
|
|
|
|
|
|
|
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|
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Commitments and contingencies (note 3) |
|
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|
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|
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Minority interests |
|
|
12,412 |
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|
|
11,386 |
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|
|
11,881 |
|
Partners capital |
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|
413,137 |
|
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|
311,228 |
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|
|
360,648 |
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|
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|
|
|
|
|
|
|
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|
|
|
|
|
|
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|
Total liabilities and partners capital |
|
$ |
1,835,863 |
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|
$ |
1,696,784 |
|
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$ |
1,682,562 |
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|
|
|
|
|
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|
See accompanying notes to condensed consolidated financial statements.
- 1 -
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(Thousands of dollars, except per unit amounts)
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|
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Three Months Ended |
|
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Six Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Propane |
|
$ |
960,307 |
|
|
$ |
764,773 |
|
|
$ |
1,659,976 |
|
|
$ |
1,334,697 |
|
Other |
|
|
46,349 |
|
|
|
45,035 |
|
|
|
94,848 |
|
|
|
91,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,006,656 |
|
|
|
809,808 |
|
|
|
1,754,824 |
|
|
|
1,426,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Costs and expenses: |
|
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|
|
|
|
|
|
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|
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|
|
|
|
Cost of sales propane |
|
|
661,279 |
|
|
|
485,015 |
|
|
|
1,149,144 |
|
|
|
856,010 |
|
Cost of sales other |
|
|
14,717 |
|
|
|
15,289 |
|
|
|
33,199 |
|
|
|
33,000 |
|
Operating and administrative expenses |
|
|
164,656 |
|
|
|
155,702 |
|
|
|
317,540 |
|
|
|
294,152 |
|
Depreciation and amortization |
|
|
20,022 |
|
|
|
18,574 |
|
|
|
39,846 |
|
|
|
37,141 |
|
Other income, net |
|
|
(7,305 |
) |
|
|
(4,032 |
) |
|
|
(12,150 |
) |
|
|
(8,424 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
853,369 |
|
|
|
670,548 |
|
|
|
1,527,579 |
|
|
|
1,211,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
153,287 |
|
|
|
139,260 |
|
|
|
227,245 |
|
|
|
214,520 |
|
Interest expense |
|
|
(18,697 |
) |
|
|
(17,816 |
) |
|
|
(36,927 |
) |
|
|
(35,789 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interests |
|
|
134,590 |
|
|
|
121,444 |
|
|
|
190,318 |
|
|
|
178,731 |
|
Income taxes |
|
|
(84 |
) |
|
|
(139 |
) |
|
|
(777 |
) |
|
|
(1,050 |
) |
Minority interests |
|
|
(1,556 |
) |
|
|
(1,419 |
) |
|
|
(2,286 |
) |
|
|
(2,155 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
132,950 |
|
|
$ |
119,886 |
|
|
$ |
187,255 |
|
|
$ |
175,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General partners interest in net income |
|
$ |
1,373 |
|
|
$ |
1,199 |
|
|
$ |
1,960 |
|
|
$ |
1,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest in net income |
|
$ |
131,577 |
|
|
$ |
118,687 |
|
|
$ |
185,295 |
|
|
$ |
173,771 |
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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|
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|
Income per limited partner unit (note 1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.58 |
|
|
$ |
1.47 |
|
|
$ |
2.47 |
|
|
$ |
2.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
1.58 |
|
|
$ |
1.47 |
|
|
$ |
2.46 |
|
|
$ |
2.37 |
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
Average limited partner units outstanding (thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
57,005 |
|
|
|
56,822 |
|
|
|
56,999 |
|
|
|
56,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
57,037 |
|
|
|
56,850 |
|
|
|
57,036 |
|
|
|
56,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, |
|
|
|
2008 |
|
|
2007 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
187,255 |
|
|
$ |
175,526 |
|
Adjustments to reconcile net income to net
cash from operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
39,846 |
|
|
|
37,141 |
|
Provision for uncollectible accounts |
|
|
9,280 |
|
|
|
7,132 |
|
Other, net |
|
|
1,513 |
|
|
|
2,534 |
|
Net change in: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(182,343 |
) |
|
|
(106,351 |
) |
Inventories |
|
|
(5,580 |
) |
|
|
(3,714 |
) |
Accounts payable |
|
|
52,682 |
|
|
|
31,414 |
|
Other current assets and liabilities |
|
|
(74,448 |
) |
|
|
(71,539 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
28,205 |
|
|
|
72,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Expenditures for property, plant and equipment |
|
|
(31,276 |
) |
|
|
(38,830 |
) |
Proceeds from disposals of assets |
|
|
6,253 |
|
|
|
2,385 |
|
Acquisitions of businesses, net of cash acquired |
|
|
(774 |
) |
|
|
(438 |
) |
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(25,797 |
) |
|
|
(36,883 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Distributions |
|
|
(70,332 |
) |
|
|
(66,570 |
) |
Minority interest activity |
|
|
(1,092 |
) |
|
|
(1,016 |
) |
Increase in bank loans |
|
|
56,000 |
|
|
|
|
|
Issuance of long-term debt |
|
|
|
|
|
|
70 |
|
Repayment of long-term debt |
|
|
(911 |
) |
|
|
(833 |
) |
Proceeds from issuance of Common Units |
|
|
766 |
|
|
|
814 |
|
Capital contributions from General Partner |
|
|
8 |
|
|
|
8 |
|
|
|
|
|
|
|
|
Net cash used by financing activities |
|
|
(15,561 |
) |
|
|
(67,527 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents decrease |
|
$ |
(13,153 |
) |
|
$ |
(32,267 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
|
|
End of period |
|
$ |
20,881 |
|
|
$ |
52,508 |
|
Beginning of period |
|
|
34,034 |
|
|
|
84,775 |
|
|
|
|
|
|
|
|
Decrease |
|
$ |
(13,153 |
) |
|
$ |
(32,267 |
) |
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
- 3 -
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL
(unaudited)
(Thousands of dollars, except unit data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other |
|
|
Total |
|
|
|
Number of |
|
|
Common |
|
|
General |
|
|
comprehensive |
|
|
partners |
|
|
|
Common Units |
|
|
unitholders |
|
|
partner |
|
|
income (loss) |
|
|
capital |
|
Balance September 30, 2007 |
|
|
56,988,702 |
|
|
$ |
293,245 |
|
|
$ |
2,952 |
|
|
$ |
15,031 |
|
|
$ |
311,228 |
|
Net income |
|
|
|
|
|
|
185,295 |
|
|
|
1,960 |
|
|
|
|
|
|
|
187,255 |
|
Net gains on derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,865 |
|
|
|
22,865 |
|
Reclassification of net gains on
derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,017 |
) |
|
|
(39,017 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
185,295 |
|
|
|
1,960 |
|
|
|
(16,152 |
) |
|
|
171,103 |
|
Distributions |
|
|
|
|
|
|
(69,542 |
) |
|
|
(790 |
) |
|
|
|
|
|
|
(70,332 |
) |
Unit-based compensation expense |
|
|
|
|
|
|
364 |
|
|
|
|
|
|
|
|
|
|
|
364 |
|
Common Units issued in connection
with incentive compensation plans |
|
|
21,249 |
|
|
|
766 |
|
|
|
8 |
|
|
|
|
|
|
|
774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2008 |
|
|
57,009,951 |
|
|
$ |
410,128 |
|
|
$ |
4,130 |
|
|
$ |
(1,121 |
) |
|
$ |
413,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 OLPs subsidiary, AmeriGas Eagle Propane, L.P. (Eagle OLP).
AmeriGas Partners, AmeriGas OLP and Eagle OLP are Delaware limited partnerships. AmeriGas
OLP and Eagle OLP are collectively referred to herein as the Operating Partnerships, and
AmeriGas Partners, the Operating Partnerships and all of their subsidiaries are collectively
referred to herein as the Partnership or we. We eliminate all significant intercompany
accounts and transactions when we consolidate. We account for AmeriGas Propane, Inc.s (the
General Partners) 1.01% interest in AmeriGas OLP and an unrelated third partys
approximate 0.1% limited partner interest in Eagle OLP as minority interests in the
condensed consolidated financial statements. AmeriGas Propane, Inc. is an indirect wholly
owned subsidiary of UGI Corporation (UGI).
AmeriGas Finance Corp., AmeriGas Eagle Finance Corp. and AP Eagle Finance Corp. are
wholly-owned finance subsidiaries of AmeriGas Partners. Their sole purpose is to serve as
co-obligors for debt securities issued by AmeriGas Partners, L.P.
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, 2007 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, 2007. Weather significantly impacts demand for propane and
profitability because many customers use propane for heating purposes. Due to the seasonal
nature of the Partnerships propane business, the results of operations for interim periods
are not necessarily indicative of the results to be expected for a full year.
Allocation of Net Income. Net income for partners capital and statement of operations
presentation purposes is allocated to the General Partner and the limited partners in
accordance with their respective ownership percentages after giving effect to amounts
distributed to the General Partner in excess of its 1% general partner interest in AmeriGas
Partners, if any, in accordance with the Third Amended and Restated Agreement of Limited
Partnership of AmeriGas Partners as amended by Amendment No. 1.
- 5 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
Net Income Per Unit. Income per limited partner unit is computed in accordance with
Emerging Issues Task Force (EITF) Issue No. 03-6, Participating Securities and the
Two-Class Method under FASB Statement No. 128 (EITF 03-6), by dividing the limited
partners interest in net income by the weighted average number of limited partner units
outstanding. The two class method requires that income per limited partner unit be
calculated as if all earnings for the period were distributed and requires a separate
calculation for each quarter and year-to-date period. Thus, in periods when our net income
exceeds our aggregate distributions paid and undistributed earnings are above certain
levels, the calculation according to the two-class method results in an increased allocation
of undistributed earnings to the General Partner. Due to the seasonality of the propane
business, EITF 03-6 will typically impact net income per limited partner unit for our first
three fiscal quarters. Theoretical distributions of net income in accordance with EITF 03-6
for the three months ended March 31, 2008 and 2007 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 $0.73 and $0.62,
respectively. Theoretical distributions of net income in accordance with EITF 03-6 for the
six months ended March 31, 2008 and 2007 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 $0.79 and $0.69, respectively.
Potentially dilutive Common Units included in the diluted limited partner units outstanding
computation reflect the effects of restricted Common Unit awards granted under the General
Partners incentive compensation plans.
Comprehensive Income. The following table presents the components of comprehensive income
for the three and six months ended March 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net income |
|
$ |
132,950 |
|
|
$ |
119,886 |
|
|
$ |
187,255 |
|
|
$ |
175,526 |
|
Other comprehensive income (loss) |
|
|
(33,257 |
) |
|
|
30,399 |
|
|
|
(16,152 |
) |
|
|
29,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
99,693 |
|
|
$ |
150,285 |
|
|
$ |
171,103 |
|
|
$ |
204,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) is principally the result of changes in the fair value of
propane commodity derivative instruments and interest rate protection agreements, net of
reclassifications of net gains and losses to net income.
Reclassifications. We have reclassified certain prior-year balances to conform to the
current period presentation.
- 6 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
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.
Recently Issued Accounting Pronouncements. In March 2008, the Financial Accounting Standards
Board (FASB) ratified the consensus reached in EITF 07-4, Application of the Two-Class
Method under FAS 128 to Master Limited Partnerships (EITF 07-4). EITF 07-4 addresses the
application of the two-class method for master limited partnerships when incentive
distribution rights are present and entitle the holder of such rights to a portion of the
distributions. EITF 07-4 states that when earnings exceed distributions, the computation of
earnings per unit should be based on the terms of the partnership agreement. Accordingly,
any contractual limitations on the distributions to incentive distribution rights holders
would need to be determined for each reporting period. If distributions are contractually
limited to the holder of the incentive distribution rights holders share of currently
designated available cash as defined in the partnership agreement, undistributed earnings in
excess of available cash should not be allocated with respect to the incentive distribution
rights. EITF 07-4 is effective for fiscal periods that begin after December 15, 2008, and
would be accounted for as a change in accounting principle and applied retrospectively.
Early adoption of EITF 07-4 is not permitted. We are currently evaluating the impact of EITF
07-4.
In March 2008, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 161,
Disclosures about Derivative Instruments and Hedging Activities (SFAS 161). SFAS 161
requires enhanced disclosures in the following areas: (1) qualitative disclosures about the
overall objectives and strategies for using derivatives; (2) quantitative disclosures on the
fair value of the derivative instruments and related gains and losses in a tabular format;
and (3) credit-risk-related contingent features in derivative instruments. SFAS 161 is
effective for fiscal years and interim periods beginning after November 15, 2008. We are
currently evaluating the impact of the provisions of the SFAS 161.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations
(SFAS 141R). SFAS 141R applies to all transactions or other events in which an entity
obtains control of one or more businesses. SFAS 141R establishes, among other things,
principles and requirements for how the acquirer (1) recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree; (2) recognizes and measures the goodwill acquired
in a business combination or gain from a bargain purchase; and (3) determines what
information with respect to a business combination should be disclosed.
SFAS 141R applies prospectively to business combinations for which the acquisition date
is on or after the first annual reporting period beginning on or after December 15, 2008.
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).We are currently
evaluating the impact of the provisions of SFAS 141R.
- 7 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
Also in December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB No. 51 (SFAS 160). SFAS 160
establishes accounting and reporting standards that require, among other things, (1)
ownership interests in subsidiaries held by parties other than the parent be presented
within equity, but separate from the parents equity; (2) earnings attributable to minority
interests be included in net earnings, although such earnings will continue to be deducted
to measure earnings per unit; (3) changes in a parents ownership interest while retaining
control be accounted for as equity transactions; and (4) any retained noncontrolling equity
investments in a former subsidiary be initially measured at fair value. SFAS 160 is
effective for fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008. We are currently evaluating the impact of the provisions of SFAS
160.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157).
SFAS 157 defines fair value, establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about fair value measurements. In
February 2008, the FASB issued two final staff positions (FSPs) amending SFAS 157. FSP
SFAS 157-1 amends SFAS 157 to exclude SFAS No. 13, Accounting for Leases, and its related
interpretive accounting pronouncements that address leasing transactions. FSP SFAS 157-2
delays the effective date of SFAS 157 until fiscal years beginning after November 15, 2008
for non-financial assets and liabilities that are recognized or disclosed at fair value in
the financial statements on a non-recurring basis. The standard, as amended, applies
prospectively to new fair value measurements for the Partnership as follows: on October 1,
2008 the standard will apply to our measurements of fair values of financial instruments and
recurring fair value measurements of non-financial assets and liabilities; on October 1,
2009, the standard will apply to all remaining fair value measurements including
nonrecurring measurements of non-financial assets and liabilities such as measurement of
potential impairments of goodwill, other intangible assets and other long-lived assets. It
will also apply to fair value measurements of non-financial assets acquired and liabilities
assumed in business combinations. We are currently evaluating the impact of the provisions
of SFAS 157.
- 8 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
2. Related Party Transactions
Pursuant to the Partnership Agreement and a Management Services Agreement among AmeriGas
Eagle Holdings, Inc., the general partner of Eagle OLP, and the General Partner, the General
Partner is entitled to reimbursement for all direct and indirect expenses incurred or
payments it makes on behalf of the Partnership. These costs, which totaled $92,947 and
$182,232 during the three and six months ended March 31, 2008, respectively, and $92,189 and
$175,256 during the three and six months ended March 31, 2007, respectively, include
employee compensation and benefit expenses of employees of the General Partner and general
and administrative expenses.
UGI provides certain financial and administrative services to the General Partner. UGI
bills the General Partner for all direct and indirect corporate expenses incurred in
connection with providing these services and the General Partner is reimbursed by the
Partnership for these expenses. Such corporate expenses totaled $5,436 and $6,787 during
the three and six months ended March 31, 2008, respectively, and $3,827 and $6,148 during
the three and six months ended March 31, 2007, respectively. In addition, UGI and certain
of its subsidiaries provide office space, medical stop loss coverage and automobile
liability insurance to the Partnership. These costs totaled $596 and $1,107 during the
three and six months ended March 31, 2008, respectively, and $658 and $1,296 during the
three and six months ended March 31, 2007, respectively.
AmeriGas OLP purchases propane from UGI Energy Services, Inc. and subsidiaries (Energy
Services), which is owned by an affiliate of UGI. Purchases of propane by AmeriGas OLP
from Energy Services totaled $21,195 and $34,536 during the three and six months ended March
31, 2008, respectively, and $15,718 and $24,336 during the three and six months ended March
31, 2007, respectively. Amounts due to Energy Services totaled $3,811, $3,507 and $3,001 at
March 31, 2008, September 30, 2007 and March 31, 2007, respectively, and are reflected in
accounts payable related parties in the Condensed Consolidated Balance Sheets.
3. Commitments and Contingencies
On August 21, 2001, AmeriGas Partners, through AmeriGas OLP, acquired the propane
distribution businesses of Columbia Energy Group (the 2001 Acquisition) pursuant to the
terms of a purchase agreement (the 2001 Acquisition Agreement) by and among Columbia
Energy Group (CEG), Columbia Propane Corporation (Columbia Propane), Columbia Propane,
L.P. (CPLP), CP Holdings, Inc. (CPH, and together with Columbia Propane and CPLP, the
Company Parties), AmeriGas Partners, AmeriGas OLP and the General Partner (together with
AmeriGas Partners and AmeriGas OLP, the Buyer Parties). As a result of the 2001
Acquisition, AmeriGas OLP acquired all of the stock of Columbia Propane and CPH and
substantially all of the partnership
interests of CPLP. Under the terms of an earlier acquisition agreement (the 1999 Acquisition Agreement),
- 9 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
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, 2008, the potential
amount payable under this indemnity by the Company Parties was approximately $58,000. These
indemnity obligations will expire on the date that CPH acquires the remaining outstanding
partnership interest of CPLP, which is expected to occur on or after July 19, 2009. Under
the terms of the 2001 Acquisition Agreement, CEG agreed to indemnify the Buyer Parties and
the Company Parties against any losses that they sustain under the 1999 Acquisition
Agreement and related agreements (Losses), including National Claims, to the extent such
claims are based on acts or omissions of CEG or the Company Parties prior to the 2001
Acquisition. The Buyer Parties agreed to indemnify CEG against Losses, including National
Claims, to the extent such claims are based on acts or omissions of the Buyer Parties or the
Company Parties after the 2001 Acquisition. CEG and the Buyer Parties have agreed to
apportion certain losses resulting from National Claims to the extent such losses result
from the 2001 Acquisition itself.
Samuel and Brenda Swiger and their son (the Swigers) sustained personal injuries and
property damage as a result of a fire that occurred when propane that leaked from an
underground line ignited. In July 1998, the Swigers filed a class action lawsuit against
AmeriGas Propane, L.P. (named incorrectly as UGI/AmeriGas, Inc.), in the Circuit Court of
Monongalia County, West Virginia, in which they sought to recover an unspecified amount of
compensatory and punitive damages and attorneys fees, for themselves and on behalf of
persons in West Virginia for whom the defendants had installed propane gas lines, resulting
from the defendants alleged failure to install underground propane lines at depths required
by applicable safety standards. In 2003, we settled the individual personal injury and
property damage claims of the Swigers. In 2004, the court granted the plaintiffs motion to
include customers acquired from Columbia Propane in August 2001 as additional potential
class members and the plaintiffs amended their complaint to name additional parties pursuant
to such ruling. Subsequently, in March 2005, we filed a cross-claim against CEG, former
owner of Columbia Propane, seeking indemnification for conduct undertaken by Columbia
Propane prior to our acquisition. Class counsel has indicated that the class is seeking
compensatory damages in excess of $12,000 plus punitive damages, civil penalties and
attorneys fees. We believe we have good defenses to the claims of the class members and
intend to defend against the remaining claims in this lawsuit.
- 10 -
AMERIGAS PARTNERS, L.P.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars, except per unit)
By letter dated March 6, 2008, the New York State Department of Environmental Conservation
(DEC) notified AmeriGas OLP that DEC had placed property owned by AmeriGas OLP 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 operations on the site. DEC has classified the
site as a significant threat to public health or environment with further action required.
The Partnership is researching the history of the site and is investigating DECs findings.
Due to the early stage of such investigation, an estimate of possible loss cannot be made.
We also have other contingent liabilities, pending claims and legal actions arising in the
normal course of our business. We cannot predict with certainty the final results of these
and the aforementioned matters. However, it is reasonably possible that some of them could
be resolved unfavorably to us and result in losses in excess of recorded amounts. We are
unable to estimate any such possible excess losses. Although management currently believes,
after consultation with counsel, that damages or settlements, if any, recovered by the
plaintiffs in such claims or actions will not have a material adverse effect on our
financial position, damages or settlements could be material to our operating results or
cash flows in future periods depending on the nature and timing of future developments with
respect to these matters and the amounts of future operating results and cash flows.
- 11 -
AMERIGAS PARTNERS, L.P.
|
|
ITEM 2. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
FORWARD-LOOKING STATEMENTS
Information contained in this Managements Discussion and Analysis of Financial Condition and
Results of Operations may contain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements
use forward-looking words such as believe, plan, anticipate, continue, estimate,
expect, may, will, or other similar words. These statements discuss plans, strategies, events
or developments that we expect or anticipate will or may occur in the future.
A forward-looking statement may include a statement of the assumptions or bases underlying the
forward-looking statement. We believe that we have chosen these assumptions or bases in good faith
and that they are reasonable. However, we caution you that actual results almost always vary from
assumed facts or bases, and the differences between actual results and assumed facts or bases can
be material, depending on the circumstances. When considering forward-looking statements, you
should keep in mind the following important factors which could affect our future results and could
cause those results to differ materially from those expressed in our forward-looking statements:
(1) adverse weather conditions resulting in reduced demand; (2) cost volatility and availability of
propane, and the capacity to transport propane to our market areas; (3) the availability of, and
our ability to consummate, acquisition or combination opportunities; (4) successful integration and
future performance of acquired assets or businesses; (5) changes in laws and regulations, including
safety, tax and accounting matters; (6) competitive pressures from the same and alternative energy
sources; (7) failure to acquire new customers thereby reducing or limiting any increase in
revenues; (8) liability for environmental claims; (9) increased customer conservation measures due
to high energy prices and improvements in energy efficiency and technology resulting in reduced
demand; (10) adverse labor relations; (11) large customer, counterparty or supplier defaults; (12)
liability in excess of insurance coverage for personal injury and property damage arising from
explosions and other catastrophic events, including acts of terrorism, resulting from operating
hazards and risks incidental to transporting, storing and distributing propane, butane and ammonia;
(13) political, regulatory and economic conditions in the United States and foreign countries;
(14) reduced access to capital markets and interest rate fluctuations; and (15) the impact of
pending and future legal proceedings.
These factors are not necessarily all of the important factors that could cause actual results to
differ materially from those expressed in any of our forward-looking statements. Other unknown or
unpredictable factors could also have material adverse effects on future results. We undertake no
obligation to update publicly any forward-looking statement whether as a result of new information
or future events except as required by the federal securities laws.
- 12 -
AMERIGAS PARTNERS, L.P.
ANALYSIS OF RESULTS OF OPERATIONS
The following analyses compare the Partnerships results of operations for (1) the three months
ended March 31, 2008 (2008 three-month period) with the three months ended March 31, 2007 (2007
three-month period) and (2) the six months ended March 31, 2008 (2008 six-month period) with the
six months ended March 31, 2007 (2007 six-month period).
Executive Overview
Weather significantly impacts demand for propane and profitability because many customers use
propane for heating purposes particularly during the first half of our fiscal year. As a result,
our earnings are generally higher in the first and second fiscal quarters. 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. In addition, high and
volatile commodity prices like those experienced over the last several years can result in lower
customer consumption and increased competitive pressures in certain markets.
The Partnership reported net income of $133.0 million during the 2008 three-month period compared
with net income of $119.9 million in the prior-year three-month period. Temperatures during the
2008 three-month period were approximately normal but modestly colder than the prior-year
three-month period. Notwithstanding the volume benefits from acquisitions made during the twelve
months ended September 30, 2007 (fiscal 2007) and the colder weather, retail gallons sold
declined slightly in the 2008 three-month period due to, among other
things, customer conservation,
resulting from record high propane commodity costs, and general economic conditions. Although
retail volumes sold were slightly lower than in the prior year, the Partnerships operating results
benefited from higher total margin in the 2008 three-month period due to higher average retail unit
margins.
The Partnership reported net income of $187.3 million during the 2008 six-month period compared
with net income of $175.5 million in the prior-year six-month period. Temperatures during the 2008
six-month period were 3.4% warmer than normal but slightly colder than the prior-year six-month
period. Similar to the 2008 three-month period, customer conservation resulting from, among other
things, significant increases in propane product costs and general economic conditions resulted in
slightly lower retail gallons sold. Although retail volumes sold were slightly lower than in the
prior year, operating results benefited from higher total margin in the 2008 six-month period due
to higher average retail unit margins.
- 13 -
AMERIGAS PARTNERS, L.P.
2008 three-month period compared with 2007 three-month period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
Three Months Ended March 31, |
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
(millions of dollars) |
|
|
|
|
|
|
|
|
|
|
Gallons sold (millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
|
368.5 |
|
|
|
370.1 |
|
|
|
(1.6 |
) |
|
|
(0.4 |
)% |
Wholesale |
|
|
40.1 |
|
|
|
42.4 |
|
|
|
(2.3 |
) |
|
|
(5.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
408.6 |
|
|
|
412.5 |
|
|
|
(3.9 |
) |
|
|
(0.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail propane |
|
$ |
895.5 |
|
|
$ |
716.4 |
|
|
$ |
179.1 |
|
|
|
25.0 |
% |
Wholesale propane |
|
|
64.8 |
|
|
|
48.4 |
|
|
|
16.4 |
|
|
|
33.9 |
% |
Other |
|
|
46.4 |
|
|
|
45.0 |
|
|
|
1.4 |
|
|
|
3.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,006.7 |
|
|
$ |
809.8 |
|
|
$ |
196.9 |
|
|
|
24.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total margin (a) |
|
$ |
330.7 |
|
|
$ |
309.5 |
|
|
$ |
21.2 |
|
|
|
6.8 |
% |
EBITDA (b) |
|
$ |
171.8 |
|
|
$ |
156.4 |
|
|
$ |
15.4 |
|
|
|
9.8 |
% |
Operating income |
|
$ |
153.3 |
|
|
$ |
139.3 |
|
|
$ |
14.0 |
|
|
|
10.1 |
% |
Net income |
|
$ |
133.0 |
|
|
$ |
119.9 |
|
|
$ |
13.1 |
|
|
|
10.9 |
% |
Heating degree days % warmer than normal (c) |
|
|
0.4 |
% |
|
|
3.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Total margin represents total revenues less cost of sales propane and cost of sales -
other. |
|
(b) |
|
Earnings before interest expense, income taxes, depreciation and amortization (EBITDA) should
not be considered as an alternative to net income (as an indicator of operating performance)
and is not a measure of performance or financial condition under accounting principles
generally accepted in the United States of America (GAAP). Management believes EBITDA is a
meaningful non-GAAP financial measure used by investors to compare the Partnerships operating
performance with other companies within the propane industry and our ability to meet loan
covenants. The Partnerships definition of EBITDA may be different from that used by other
companies. Management uses EBITDA to compare year- over- year profitability of the business
without regard to capital structure as well as to compare the relative performance of the
Partnership to that of other master limited partnerships without regard to their financing
methods, capital structure, income taxes or historical cost basis. In view of the omission of
interest, income taxes, depreciation and amortization from EBITDA, management also assesses
the profitability of the business by comparing net income for the relevant years. Management
also uses EBITDA to assess its profitability because the Partnerships parent, UGI
Corporation, uses the Partnerships EBITDA to assess the profitability of the Partnership. UGI
Corporation discloses the Partnerships EBITDA as the profitability measure to comply with the
requirement in Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information, to provide profitability information about
its domestic propane segment. Management also considers that weather significantly impacts
demand for propane and profitability because many customers use propane for heating purposes. |
|
(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. |
- 14 -
AMERIGAS PARTNERS, L.P.
The following table includes reconciliations of net income to EBITDA for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
Net income |
|
$ |
133.0 |
|
|
$ |
119.9 |
|
Income tax expense |
|
|
0.1 |
|
|
|
0.1 |
|
Interest expense |
|
|
18.7 |
|
|
|
17.8 |
|
Depreciation |
|
|
18.8 |
|
|
|
17.6 |
|
Amortization |
|
|
1.2 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
171.8 |
|
|
$ |
156.4 |
|
|
|
|
|
|
|
|
Based upon heating degree-day data, average temperatures in our service territories were
approximately normal during the 2008 three-month period compared with temperatures in the
prior-year period that were 3.7% warmer than normal. Notwithstanding the slightly colder 2008
three-month period weather and the benefits of acquisitions made in fiscal 2007, retail gallons
sold were about equal to the prior-year period reflecting, among other things, customer
conservation, in response to increasing propane product costs, and general economic conditions. The
average wholesale propane cost at Mont Belvieu, Texas for the 2008 three-month period increased
nearly 52% over the average cost in the same period last year.
Retail propane revenues increased $179.1 million reflecting a $182.2 million increase due to the
higher average selling prices partially offset by a $3.1 million decrease as a result of the lower
retail volumes sold. Wholesale propane revenues increased $16.4 million reflecting $19.0 million
from higher wholesale selling prices partially offset by a decrease of $2.6 million from lower
wholesale volumes sold. Total cost of sales increased $175.7 million to $676.0 million reflecting
the effects of higher propane product costs.
Total margin was $21.2 million greater in the 2008 three-month period principally reflecting higher
average propane margins per retail gallon sold.
EBITDA during the 2008 three-month period was $171.8 million, $15.4 million higher than the
prior-year period. The previously mentioned increase in total margin as well as a $3.3 million
increase in other income was partially offset by higher operating and administrative expenses as a
result of expenses associated with acquisitions, increased vehicle expenses and, to a lesser
extent, higher uncollectible accounts expenses.
Partnership operating income increased $14.0 million reflecting the previously mentioned greater
EBITDA partially offset by higher depreciation and amortization expense associated with
acquisitions and plant and equipment expenditures made since the prior year. Partnership net income
increased $13.1 million in the 2008 three-month period principally reflecting the previously
mentioned increase in operating income and slightly higher interest expense resulting from greater
average short-term borrowings required to fund higher working capital.
- 15 -
AMERIGAS PARTNERS, L.P.
2008 six-month period compared with 2007 six-month period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
Six Months Ended March 31, |
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
(millions of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gallons sold (millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
|
647.6 |
|
|
|
653.0 |
|
|
|
(5.4 |
) |
|
|
(0.8 |
)% |
Wholesale |
|
|
72.4 |
|
|
|
77.0 |
|
|
|
(4.6 |
) |
|
|
(6.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
720.0 |
|
|
|
730.0 |
|
|
|
(10.0 |
) |
|
|
(1.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail propane |
|
$ |
1,543.2 |
|
|
$ |
1,247.8 |
|
|
$ |
295.4 |
|
|
|
23.7 |
% |
Wholesale propane |
|
|
116.8 |
|
|
|
86.9 |
|
|
|
29.9 |
|
|
|
34.4 |
% |
Other |
|
|
94.8 |
|
|
|
91.7 |
|
|
|
3.1 |
|
|
|
3.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,754.8 |
|
|
$ |
1,426.4 |
|
|
$ |
328.4 |
|
|
|
23.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total margin (a) |
|
$ |
572.5 |
|
|
$ |
537.4 |
|
|
$ |
35.1 |
|
|
|
6.5 |
% |
EBITDA (b) |
|
$ |
264.8 |
|
|
$ |
249.5 |
|
|
$ |
15.3 |
|
|
|
6.1 |
% |
Operating income |
|
$ |
227.2 |
|
|
$ |
214.5 |
|
|
$ |
12.7 |
|
|
|
5.9 |
% |
Net income |
|
$ |
187.3 |
|
|
$ |
175.5 |
|
|
$ |
11.8 |
|
|
|
6.7 |
% |
Heating degree days % warmer than normal (c) |
|
|
3.4 |
% |
|
|
5.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
(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 (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 compare the Partnerships operating
performance with other companies within the propane industry and our ability to meet loan
covenants. The Partnerships definition of EBITDA may be different from that used by other
companies. Management uses EBITDA to compare year-over-year profitability of the business
without regard to capital structure as well as to compare the relative performance of the
Partnership to that of other master limited partnerships without regard to their financing
methods, capital structure, income taxes or historical cost basis. In view of the omission of
interest, income taxes, depreciation and amortization from EBITDA, management also assesses
the profitability of the business by comparing net income for the relevant years. Management
also uses EBITDA to assess its profitability because the Partnerships parent, UGI
Corporation, uses the Partnerships EBITDA to assess the profitability of the Partnership. UGI
Corporation discloses the Partnerships EBITDA as the profitability measure to comply with the
requirement in Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information, to provide profitability information about
its domestic propane segment. Management also considers that weather significantly impacts
demand for propane and profitability because many customers use propane for heating purposes. |
|
(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. |
- 16 -
AMERIGAS PARTNERS, L.P.
The following table includes reconciliations of net income to EBITDA for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
Net income |
|
$ |
187.3 |
|
|
$ |
175.5 |
|
Income tax expense |
|
|
0.8 |
|
|
|
1.1 |
|
Interest expense |
|
|
36.9 |
|
|
|
35.8 |
|
Depreciation |
|
|
37.5 |
|
|
|
35.2 |
|
Amortization |
|
|
2.3 |
|
|
|
1.9 |
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
264.8 |
|
|
$ |
249.5 |
|
|
|
|
|
|
|
|
Based upon heating degree-day data, average temperatures in our service territories were 3.4%
warmer than normal compared with temperatures in the prior-year period that were 5.8% warmer than
normal. Notwithstanding the slightly colder 2008 six-month period weather and the benefits of
acquisitions made in fiscal 2007, retail gallons sold were slightly lower reflecting, among other
things, customer conservation, in response to increasing propane
product costs, and general economic
conditions. The average wholesale propane cost at Mont Belvieu, Texas for the 2008 six-month period
increased 55% over the average cost in the same period last year.
Retail propane revenues increased $295.4 million reflecting a $305.7 million increase due to the
higher average selling prices partially offset by a $10.3 million decrease as a result of the lower
retail volumes sold. Wholesale propane revenues increased $29.9 million reflecting $35.2 million
from higher wholesale selling prices partially offset by a decrease of $5.3 million from lower
wholesale volumes sold. Total cost of sales increased $293.3 million to $1,182.3 million in the
2008 six-month period from $889.0 million in the 2007 six-month period reflecting higher propane
product costs.
Total margin was $35.1 million greater in the 2008 six-month period principally reflecting higher
average propane margins per retail gallon sold partially offset by the effects on margin of the
slightly lower retail volumes sold.
EBITDA during the 2008 six-month period was $264.8 million, $15.3 million higher than the
prior-year period. The previously mentioned increase in total margin as well as a $3.7 million
increase in other income was partially offset by higher operating and administrative expenses as a
result of expenses associated with acquisitions, increased vehicle expenses and, to a lesser
extent, higher uncollectible accounts expenses.
Partnership operating income increased $12.7 million reflecting the previously mentioned greater
EBITDA reduced by higher depreciation and amortization expense associated with acquisitions and
plant and equipment expenditures made since the prior year. Partnership net income increased $11.8
million in the 2008 six-month period principally reflecting the previously mentioned increase in
operating income and slightly higher interest expense resulting from greater average short-term
borrowings.
- 17 -
AMERIGAS PARTNERS, L.P.
FINANCIAL CONDITION AND LIQUIDITY
Financial Condition
The Partnerships total debt outstanding at March 31, 2008 was $988.9 million (including current
maturities of long-term debt of $71.7 million) compared to total debt outstanding at September 30,
2007 of $933.0 million (including current maturities of $1.9 million). Total debt outstanding at
March 31, 2008 includes long-term debt comprising $779.8 million of AmeriGas Partners Senior
Notes, $150.4 million of AmeriGas OLP First Mortgage Notes and $2.7 million of other long-term
debt. Total debt outstanding at March 31, 2008 also includes $56 million outstanding under AmeriGas
OLPs Credit Agreement.
AmeriGas OLPs Credit Agreement is currently scheduled to expire in October 2011 and consists of
(1) a $125 million Revolving Credit Facility and (2) a $75 million Acquisition Facility. The
Revolving Credit Facility may be used for working capital and general purposes of AmeriGas OLP.
The Acquisition Facility provides AmeriGas OLP with the ability to borrow up to $75 million to
finance the purchase of propane businesses or propane business assets or, to the extent it is not
so used, for working capital and general purposes. AmeriGas OLPs short-term borrowing needs are
seasonal and are typically greatest during the fall and winter heating-season months due to the
need to fund higher levels of working capital. At March 31, 2008, there were $56 million of
borrowings outstanding under the Credit Agreement. Issued and outstanding letters of credit under
the Revolving Credit Facility, which reduce the amount available for borrowings, totaled $44.4
million at March 31, 2008. The average daily and peak bank loan borrowings outstanding under the
Credit Agreement during the 2008 six-month period were $50.1 million and $101 million,
respectively. The average daily and peak bank loan borrowings outstanding under the Credit
Agreement during the 2007 six-month period were $2.4 million and $92 million, respectively.
AmeriGas Partners periodically issues equity securities and may continue to do so. Proceeds from
the Partnerships equity offerings have generally been used by the Partnership to reduce
indebtedness and for general Partnership purposes, including funding acquisitions.
At March 31, 2008, the amount of net assets of Partnerships subsidiaries that was restricted from
transfer as a result of the amount of Available Cash, computed in accordance with the Partnership
Agreement, the applicable debt agreements and the partnership agreements of the Partnerships
subsidiaries, totaled approximately $1,100 million.
The Partnership increased its regular quarterly distribution by approximately 5% to $0.64 per
Common Unit for the quarter ended March 31, 2008. The quarterly distribution of $0.64 per limited
partner unit for the quarter ended March 31, 2008 will be paid on May 18, 2008 to holders of record
on May 9, 2008. During the six months ended March 31, 2008, the Partnership declared and paid
quarterly distributions on all limited partner units at a rate of $0.61 per Common Unit for each of
the quarters ended December 31, 2007 and September 30, 2007. The ability of the Partnership to
declare and pay the quarterly distribution on its Common Units in the
future depends upon a number of factors. These factors include (1) the level of Partnership
earnings; (2) the cash needs of the Partnerships operations (including cash needed for maintaining
and increasing operating capacity); (3) changes in operating working capital; and (4) the
Partnerships ability to borrow under its Credit Agreement, refinance maturing debt, and increase
its long-term debt. Some of these factors are affected by conditions beyond the Partnerships
control including weather, competition in markets we serve, the cost of propane and changes in
capital market conditions.
- 18 -
AMERIGAS PARTNERS, L.P.
Cash Flows
Operating activities. The Partnership had cash and cash equivalents totaling $20.9 million at
March 31, 2008 compared to $34.0 million at September 30, 2007. 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 Partnerships 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, 2008 and 2007 are not necessarily indicative of
cash flows to be expected for a full year. The Partnership generally uses its Revolving Credit
Facility to satisfy its seasonal cash flow needs.
Cash flow provided by operating activities was $28.2 million during the 2008 six-month period
compared to cash provided of $72.1 million during the 2007 six-month period. Cash flow from
operating activities before changes in working capital was $237.9 million in the 2008 six-month
period compared to $222.3 million in the prior-year six-month period reflecting the improved 2008
six-month period results. Cash required to fund changes in operating working capital during the
2008 six-month period totaled $209.7 million compared to $150.2 million required in the prior-year
six-month period. The higher cash required to fund operating working capital in the 2008 six-month
period compared with the 2007 six-month period principally reflects the impact of the timing of
and increase in propane prices on cash receipts from customers. This increase in working capital
cash requirements was partially offset principally by the effects of the timing and increasing
purchase price per gallon of propane on accounts payable and the timing of customers use of their
deposits and prepayments.
Investing activities. We spent $31.3 million for property, plant and equipment (including
maintenance capital expenditures of $12.9 million and growth capital expenditures of $18.4 million)
during the 2008 six-month period compared to $38.8 million (including maintenance
capital expenditures of $13.2 million and growth capital expenditures of $25.6 million) during the
prior-year six-month period. During the 2008 six-month period, we made cash payments of $1.9
million associated with business acquisitions which was partially offset by a $1.2 million cash
payment we received from a working capital adjustment associated with a fiscal 2007 business
acquisition.
- 19 -
AMERIGAS PARTNERS, L.P.
Financing activities. Cash flow used by financing activities was $15.6 million in the 2008
six-month period compared to $67.5 million of cash flow used in the prior-year period. The
Partnerships cash flow from financing activities are typically the result of repayments and
issuances of long-term debt, borrowings under AmeriGas OLPs Credit Agreement, issuances of Common
Units and distributions on partnership interests. During the 2008 six-month period, the Partnership
had net borrowings under the Credit Agreement totaling $56 million which were used to fund the
increased working capital. AmeriGas Partners paid total cash distributions to Common Unitholders
and the General Partner totaling $70.3 million and $66.6 million during the 2008 and the 2007
six-month periods, respectively. The higher amount in the 2008 six-month period principally
reflects a higher quarterly per-unit distribution rate in the current year of $0.61 per Common Unit
compared to a quarterly rate of $0.58 per Common Unit in the prior-year six-month period.
AmeriGas OLP Environmental Matter
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 AmeriGas OLP 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 operations on the
site. DEC has classified the site as a significant threat to public health or environment with
further action required. The Partnership is researching the history of the site and is
investigating DECs findings. Due to the early stage of such investigation, an estimate of possible
loss cannot be made.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary financial market risks are commodity prices for propane and interest rates on
borrowings.
The risk associated with fluctuations in the prices the Partnership pays for propane is principally
a result of market forces reflecting changes in supply and demand for propane and other energy
commodities. The Partnerships profitability is sensitive to changes in propane supply costs, and
the Partnership generally 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, or on a
timely basis, particularly when product costs rise rapidly. In order to reduce the volatility of
the Partnerships propane market price risk, we use contracts for the forward purchase or sale of
propane, propane fixed-price supply agreements, and over-the-counter derivative commodity
instruments including price swap and option contracts. Over-the-counter derivative commodity
instruments utilized by the Partnership are generally settled at expiration of the contract. In
order to minimize credit risk associated with derivative commodity contracts, we monitor
established credit limits with the contract counterparties. Although we use derivative financial
and commodity instruments to reduce market price risk associated with forecasted transactions, we
do not use derivative financial and commodity instruments for speculative or trading purposes.
The Partnership has both fixed-rate and variable-rate debt. Changes in interest rates impact the
cash flows of variable-rate debt but generally do not impact its fair value. Conversely, changes
in interest rates impact the fair value of fixed-rate debt but do not impact its cash flows.
Our variable-rate debt includes borrowings under AmeriGas OLPs 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 to medium term forecasted issuances of fixed-rate debt, from time to time we
enter into interest rate protection agreements.
- 20 -
AMERIGAS PARTNERS, L.P.
The following table summarizes the fair values of unsettled market risk sensitive derivative
instruments held at March 31, 2008. 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, 2008. The table also includes the changes in fair value that
would result if there were a ten percent adverse change in (1) the market price of propane and (2)
the three-month LIBOR:
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
|
Change in |
|
|
|
Value |
|
|
Fair Value |
|
|
|
(Millions of dollars) |
|
March 31, 2008: |
|
|
|
|
|
|
|
|
Propane commodity price risk |
|
$ |
7.8 |
|
|
$ |
(7.5 |
) |
Interest rate risk |
|
|
(6.9 |
) |
|
|
(4.5 |
) |
Because the Partnerships derivative instruments generally qualify as hedges under Statement of
Financial Accounting Standards 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 anticipated transactions.
- 21 -
AMERIGAS PARTNERS, L.P.
ITEM 4. CONTROLS AND PROCEDURES
(a) |
|
Evaluation of Disclosure Controls and Procedures |
|
|
|
The Partnerships management, with the participation of the Partnerships Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of the Partnerships
disclosure controls and procedures as of the end of the period covered by this report.
Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Partnerships disclosure controls and procedures as of the end of the period
covered by this report were designed and functioning effectively to provide reasonable
assurance that the information required to be disclosed by the Partnership in reports filed
under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms, and (ii) accumulated and communicated to our management,
including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding disclosure. |
|
(b) |
|
Change in Internal Control over Financial Reporting |
|
|
|
No change in the Partnerships internal control over financial reporting occurred during the
Partnerships most recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Partnerships internal control over financial reporting. |
- 22 -
AMERIGAS PARTNERS, L.P.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Saranac Lake, New York Matter. 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 AmeriGas OLP 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 operations on the site. DEC has classified the site as a significant
threat to public health or environment with action required. The Partnership is researching the
history of the site and is investigating DECs findings.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider
the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the
fiscal year ended September 30, 2007, which could materially affect our business, financial
condition or future results. The risks described in our Annual Report on Form 10-K are not the
only risks facing the Partnership. Other unknown or unpredictable factors could also have material
adverse effects on future results.
ITEM 6. EXHIBITS
The exhibits filed as part of this report are as follows (exhibits incorporated by reference are
set forth with the name of the registrant, the type of report and registration number or last date
of the period for which it was filed, and the exhibit number in such filing):
|
|
|
|
|
Exhibit |
|
|
No. |
|
Exhibit |
|
|
|
|
|
|
31.1 |
|
|
Certification by the Chief Executive Officer relating to the
Registrants Report on Form 10-Q for the quarter ended March 31,
2008, 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,
2008, 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 March 31, 2008, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |
- 23 -
AMERIGAS PARTNERS, L.P.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
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AmeriGas Partners, L.P.
(Registrant)
By: AmeriGas Propane, Inc.,
as General Partner
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Date: May 9, 2008 |
By: |
/s/ Jerry E. Sheridan
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Jerry E. Sheridan |
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Vice President Finance
and Chief Financial Officer |
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Date: May 9, 2008 |
By: |
/s/ William J. Stanczak
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William J. Stanczak |
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Controller and Chief Accounting Officer |
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- 24 -
AMERIGAS PARTNERS, L.P.
EXHIBIT INDEX
31.1 |
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Certification by the Chief Executive Officer relating to the
Registrants Report on Form 10-Q for the quarter ended March 31,
2008 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
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Certification by the Chief Financial Officer relating to the
Registrants Report on Form 10-Q for the quarter ended March 31,
2008, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32 |
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Certification by the Chief Executive Officer and the Chief
Financial Officer relating to the Registrants Report on Form 10-Q
for the quarter ended March 31, 2008, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |