Analysis of Results of Operations
The following analysis compares the Partnership's results of operations for
(1) Fiscal 2008 with Fiscal 2007 and (2) Fiscal 2007 with Fiscal 2006. The following table provides gallons sold, weather and certain financial information for the Partnership and should be read in conjunction with the sections "Fiscal 2008 Compared to Fiscal 2007" and "Fiscal 2007 Compared to Fiscal 2006" below.

                                                      Year Ended September 30,
    (Millions of dollars, except where noted)     2008          2007          2006
    Gallons sold (millions):
    Retail                                          993.2       1,006.7         975.2
    Wholesale                                       111.2         117.4         119.7

                                                  1,104.4       1,124.1       1,094.9


    Revenues:
    Retail propane                              $ 2,439.2     $ 1,958.5     $ 1,816.0
    Wholesale propane                               185.4         137.6         137.7
    Other                                           190.6         181.3         165.6

                                                $ 2,815.2     $ 2,277.4     $ 2,119.3


    Total margin (a)                            $   906.9     $   840.2     $   775.5
    EBITDA (b)                                  $   313.0     $   338.7     $   237.9
    Operating income                            $   234.9     $   265.7     $   184.1
    Net income                                  $   158.0     $   190.8     $    91.2
    Degree days - % warmer than normal (c)            3.4 %         6.5 %        10.2 %

(a) Total margin represents total revenues less cost of sales - propane and cost of sales
- other.

(b) Earnings before interest expense, income taxes, depreciation and amortization
("EBITDA") should not be considered as an alternative to net income (as an indicator of operating performance) and is not a measure of performance or financial condition under accounting principles generally accepted in the United States of America ("GAAP"). Management believes EBITDA is a meaningful non-GAAP financial measure used by investors to (1) compare the Partnership's operating performance with other companies within the propane industry and
(2) assess its ability to meet loan covenants. The Partnership's definition of EBITDA may be different from that used by other companies. Management uses EBITDA to compare year-over-year profitability of the business without regard to capital structure as well as to compare the relative performance of the Partnership to that of other master limited partnerships without regard to their financing methods, capital structure, income taxes or historical cost basis. In view of the omission of interest, income taxes, depreciation and amortization from EBITDA, management also assesses the profitability of the business by comparing net income for the relevant years. Management also uses EBITDA to assess the Partnership's profitability because its parent, UGI Corporation, uses the Partnership's
EBITDA to assess the profitability of the Partnership.
UGI
Corporation
discloses the
Partnership's
EBITDA as the
profitability
measure to
comply with
the
requirement in
Statement of
Financial
Accounting
Standards
No. 131,
"Disclosures
about Segments
of an
Enterprise and
Related
Information,"
to provide
profitability
information
about its
domestic
propane
segment.

The following table includes reconciliations of net income to EBITDA for the periods presented:

                                           Year Ended September 30,
                                         2008         2007        2006
                  Net income           $   158.0     $ 190.8     $  91.2
                  Income tax expense         1.7         0.8         0.2
                  Interest expense          72.9        71.5        74.1
                  Depreciation              75.7        71.6        67.8
                  Amortization               4.7         4.0         4.6

                  EBITDA               $   313.0     $ 338.7     $ 237.9

(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.

Fiscal 2008 Compared with Fiscal 2007
Based upon heating degree-day data, average temperatures in our service territories were 3.4% warmer than normal in Fiscal 2008 compared with temperatures that were 6.5% warmer than normal in Fiscal 2007. Notwithstanding the slightly colder Fiscal 2008 weather and the full-year 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 a weak economy. The average wholesale propane cost at Mont Belvieu, Texas, one of the major liquefied petroleum gas ("LPG") supply points in the U.S. increased nearly 50% during Fiscal 2008 over the average cost during Fiscal 2007.
Retail propane revenues increased $480.7 million in Fiscal 2008 reflecting a $507.0 million increase due to the higher average selling prices partially offset by a $26.3 million decrease as a result of the lower retail volumes sold. Wholesale propane revenues increased $47.8 million in Fiscal 2008 reflecting a $55.1 million increase from higher average wholesale selling prices partially offset by a $7.3 million decrease from lower wholesale volumes sold. Total cost of sales increased $471.1 million to $1,908.3 million in Fiscal 2008 reflecting higher propane product costs.
Total margin was $66.7 million greater in Fiscal 2008 principally reflecting higher average propane margin per retail gallon sold and, to a much lesser extent, higher fee income.
EBITDA in Fiscal 2008 was $313.0 million compared to EBITDA of $338.7 million in Fiscal 2007. Fiscal 2007 EBITDA includes $46.1 million resulting from the sale of the Partnership's Arizona storage facility. Excluding the effects of this gain in Fiscal 2007, EBITDA in Fiscal 2008 increased $20.4 million over Fiscal 2007 principally reflecting the previously mentioned increase in total margin partially offset by a $47.9 million increase in operating and administrative expenses. The increased operating expenses reflect expenses associated with acquisitions, increased vehicle fuel and maintenance expenses, greater general insurance expense and, to a lesser extent, higher uncollectible accounts expenses largely attributable to the higher revenues.
The Partnership's operating income decreased $30.8 million in Fiscal 2008 reflecting the lower EBITDA and higher depreciation and amortization expense resulting from the full-year effects of Fiscal 2007 propane business acquisitions and plant and equipment expenditures. Fiscal 2007 Compared with Fiscal 2006
Temperatures in the Partnership's service territories based upon heating degree days during Fiscal 2007 were 6.5% warmer than normal compared with temperatures that were 10.2% warmer than normal during Fiscal 2006. Retail propane volumes sold increased approximately 3.2% reflecting greater demand attributable to the colder weather and the effects of higher sales in our AmeriGas Cylinder Exchange program.
Retail propane revenues increased $142.5 million in Fiscal 2007 reflecting an $83.8 million increase due to higher average selling prices and $58.7 million due to the higher volumes sold. Wholesale propane revenues decreased slightly reflecting a $2.6 million decrease due to lower volumes sold largely offset by a $2.5 million increase due to higher average selling prices. In Fiscal 2007, our average retail propane product cost per retail gallon sold was approximately 4% higher than in Fiscal 2006 resulting in higher year-over-year prices to our customers. Total cost of sales increased to $1,437.2 million in Fiscal 2007 from $1,343.8 million in Fiscal 2006 primarily reflecting the increase in propane product costs and the increased volumes sold. Total margin increased $64.7 million principally due to the higher average retail propane margins per gallon, the higher volumes and higher fees in response to increases in operating and administrative expenses.

EBITDA during Fiscal 2007 increased $100.8 million as a result of the previously mentioned increase in total margin, a $46.1 million gain from the sale of the Partnership's storage facility in Arizona, and the absence of a $17.1 million loss on early extinguishments of debt recorded in Fiscal 2006 partially offset by a $27.2 million increase in operating and administrative expenses. The $17.1 million loss on early extinguishments of debt in Fiscal 2006 was associated with refinancings of AmeriGas OLP's Series A and Series C First Mortgage Notes totaling $228.8 million, and $59.6 million of AmeriGas Partners' 10% Senior Notes, with $350 million of 7.125% AmeriGas Partners' Senior Notes due 2016. The Partnership also used a portion of the proceeds from the issuance of the 7.125% Senior Notes to repay AmeriGas OLP's $35 million term loan. The increase in Fiscal 2007 operating and administrative expenses principally resulted from higher (1) employee compensation and benefits, (2) vehicle costs and (3) maintenance and repairs expenses. Both Fiscal 2007 and 2006 benefited from favorable expense reductions related to general insurance primarily reflecting improved claims experience.
Operating income increased $81.6 million in Fiscal 2007 mainly reflecting the previously mentioned increase in EBITDA but excluding the impact of the prior period's $17.1 million loss on extinguishments of debt (which is included in EBITDA but not operating income) slightly offset by greater depreciation expense. Net income in Fiscal 2007 increased $99.6 million reflecting the increase in operating income, the absence of the Fiscal 2006 loss on extinguishments of debt and a decrease in interest expense. Financial Condition and Liquidity
Capitalization and Liquidity
The Partnership's debt outstanding at September 30, 2008 totaled $933.4 million (including current maturities of long-term debt of $71.5 million). Total debt outstanding at September 30, 2008 includes long-term debt comprising $779.8 million of AmeriGas Partners' Senior Notes, $150.2 million of AmeriGas OLP First Mortgage Notes and $3.4 million of other long-term debt. AmeriGas OLP expects to refinance $70 million of long-term debt maturing in March 2009 with proceeds from the issuance of a term loan.
AmeriGas OLP's Credit Agreement expires on October 15, 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, subject to restrictions in the AmeriGas OLP First Mortgage Notes. Issued and outstanding letters of credit under the Revolving Credit Facility, which reduce the amount available for borrowings, totaled $42.9 million at September 30, 2008 and $58.0 million at September 30, 2007. AmeriGas OLP's short-term borrowing needs are seasonal and are typically greatest during the fall and winter heating-season months due to the need to fund higher levels of working capital. The average daily and peak bank loan borrowings outstanding under the Credit Agreement during Fiscal 2008 were $39.1 million and $106.0 million, respectively. The average daily and peak bank loan borrowings outstanding under the Credit Agreement during Fiscal 2007 were $1.6 million and $92.0 million, respectively. There were no borrowings outstanding under the Credit Agreement at September 30, 2008 or 2007. At September 30, 2008, the Partnership's available borrowing capacity under the Credit Agreement was $157.1 million. Although commodity propane prices increased through much of Fiscal 2008, a precipitous decline in prices in late Fiscal 2008 which continued into Fiscal 2009 has resulted in greater cash needed by the Partnership to fund counterparty collateral requirements. These collateral requirements are associated with derivative financial instruments used by the Partnership to manage market price risk associated with fixed sales price commitments to customers principally during the heating-season months of October through March. At September 30, 2008, the Partnership had made collateral deposits of $17.8 million associated with these derivative financial instruments. At November 20, 2008, such collateral deposits totaled $144.5 million. In order to reduce cash collateral payment obligations and to provide the Partnership with greater borrowing flexibility and a more cost effective use of its Credit Agreement, in October 2008, UGI agreed to provide guarantees of up to $50 million to AmeriGas OLP's propane suppliers through September 30, 2009. In addition, on November 14, 2008, AmeriGas OLP entered into a revolving credit agreement with two major banks ("Supplemental Credit Agreement"). The Supplemental Credit Agreement expires on May 14, 2009, and permits AmeriGas OLP to borrow up to $50 million for working capital and general purposes. Except for more restrictive covenants regarding the incurrence of additional indebtedness by AmeriGas OLP, the Supplemental Credit Agreement has restrictive covenants substantially similar to the existing AmeriGas OLP Credit Agreement. At November 20, 2008, the Partnership had $49.5 million of available borrowing capacity under its revolving credit agreements and $25.0 million of unused UGI guarantees.

At September 30, 2008, the amount of net assets of the Partnership's 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 Partnership's subsidiaries, totaled approximately $900 million.
In order to borrow under the Credit Agreement and the Supplemental Credit Agreement, AmeriGas OLP must satisfy certain financial covenants including, but not limited to, a minimum interest coverage ratio, a maximum debt to EBITDA ratio and a minimum EBITDA, as defined. AmeriGas OLP's financial covenants calculated as of September 30, 2008 permitted it to borrow up to the maximum amount available under its Credit Agreement.
Based upon existing cash balances, the availability of the UGI guarantees, cash expected to be generated from operations and borrowings available under its Credit Agreement and the Supplemental Credit Agreement, the Partnership's management believes that the Partnership will be able to meet its anticipated contractual commitments and projected cash needs in Fiscal 2009. In addition, the Partnership's management believes its liquidity will begin to improve in December 2008. For a more detailed discussion of the Partnership's credit facilities, see Note 6 to Consolidated Financial Statements. Partnership Distributions
The Partnership makes distributions to its partners approximately 45 days after the end of each fiscal quarter in a total amount equal to its Available Cash as defined in the Third Amended and Restated Agreement of Limited Partnership, as amended (the "Partnership Agreement") for such quarter. Available Cash generally means:
1. cash on hand at the end of such quarter,

2. plus all additional cash on hand as of the date of determination resulting from borrowings after the end of such quarter,

3. less the amount of cash reserves established by the General Partner in its reasonable discretion.

The General Partner may establish reserves for the proper conduct of the Partnership's business and for distributions during the next four quarters. In addition, certain of the Partnership's debt agreements require reserves be established for the payment of debt principal and interest.
Distributions of Available Cash are made 98% to limited partners and 2% to the General Partner (giving effect to the 1.01% interest of the General Partner in distributions of Available Cash from AmeriGas OLP to AmeriGas Partners) until Available Cash exceeds the Minimum Quarterly Distribution of $0.55 and the First Target Distribution of $0.055 per Common Unit (or a total of $0.605 per Common Unit). If Available Cash exceeds $0.605 per Common Unit in any quarter, the General Partner will receive a greater percentage of the total Partnership distribution but only with respect to the amount by which the distribution per Common Unit to limited partners exceeds $0.605.

Quarterly distributions of Available Cash per limited partner unit paid during Fiscal 2008, Fiscal 2007 and Fiscal 2006 were as follows:

                                                 Fiscal
                                       2008       2007       2006
                        1st Quarter   $ 0.61     $ 0.58     $ 0.56
                        2nd Quarter     0.61       0.58       0.56
                        3rd Quarter     0.64       0.61       0.58
                        4th Quarter     0.64       0.86       0.58

Because the Partnership made distributions to Common Unitholders in excess of $0.605 per limited partner unit beginning in the third quarter of Fiscal 2007, the General Partner has received a greater percentage of the total Partnership distribution than its aggregate 2% general partner interest in AmeriGas Partners and AmeriGas OLP. The total amount of distributions received by the General Partner with respect to its 1% general partner interest in AmeriGas Partners during Fiscal 2008 and Fiscal 2007 totaled $2.1 million and $5.2 million which amounts included incentive distributions of $0.7 million and $3.7 million, respectively.
On July 30, 2007, the General Partner's Board of Directors approved a distribution of $0.86 per Common Unit payable on August 18, 2007 to unitholders of record on August 10, 2007. This distribution included the regular quarterly distribution of $0.61 per Common Unit and $0.25 per Common Unit reflecting a distribution of a portion of the proceeds from the Partnership's sale of its Arizona storage facility in July 2007.
Contractual Cash Obligations and Commitments The Partnership has certain contractual cash obligations that extend beyond Fiscal 2008 including obligations associated with long-term debt, interest on long-term fixed-rate debt, lease obligations, derivative instruments and propane supply contracts. The following table presents significant contractual cash obligations as of September 30, 2008:

                                                              Payments Due by Period
                                                                                                   Fiscal 2014
                                                   Fiscal         Fiscal           Fiscal              and
(Millions of dollars)                 Total         2009         2010-2011        2012-2013        thereafter
Long-term debt (a)                  $   933.0      $  71.2      $      95.9      $       0.9      $       765.0
Interest on long-term fixed-rate
debt (b)                                432.2         67.7            119.4            110.1              135.0
Operating leases                        222.0         45.4             71.5             48.1               57.0
Derivative financial instruments
(c)                                      59.8         55.8              4.0                -                  -
Propane supply contracts                 36.5         36.5                -                -                  -

Total                               $ 1,683.5      $ 276.6      $     290.8      $     159.1      $       957.0

(a) Based upon stated maturity dates.

(b) Based upon stated interest rates.

(c) Represents the sum of amounts due from us if derivative financial instrument liabilities were settled at the September 30, 2008 amounts reflected in the financial statements.

The components of the other noncurrent liabilities included in our Consolidated Balance Sheet at September 30, 2008 principally consist of property and casualty liabilities and, to a much lesser extent, liabilities associated with executive compensation plans and employee post-employment benefit programs. These liabilities are not included in the table of Contractual Cash Obligations and Commitments because they are estimates of future payments and not contractually fixed as to timing or amount. The table above excludes the Penn Fuel Propane, LLC purchase obligation of $33.6 million (see "Subsequent Events-Acquisition of Penn Fuel Propane, LLC and Partnership sale of Propane Storage Facility" below).

Effect of Recent Market Conditions
The recent unprecedented volatility in credit and capital markets may create additional risks to the Partnership in the future. We are exposed to financial market risk resulting from, among other things, changes in interest rates and conditions in the credit and capital markets. Recent developments in the credit markets increase our possible exposure to the liquidity and credit risks of our suppliers, counterparties associated with derivative financial instruments and our customers.
We believe that we have sufficient liquidity in the form of revolving credit facilities, letters of credit and guarantee arrangements to fund our operations including the collateral requirements of our derivative financial instruments. Additionally, we do not have significant amounts of long-term debt maturing or revolving credit agreements terminating in the next several fiscal years. Accordingly, we do not believe that recent conditions in the credit and capital markets will have a significant impact on our liquidity. Although we believe that recent financial market conditions will not have a significant impact on our ability to fund our existing operations, such market conditions could restrict our ability to make a significant acquisition or limit the scope of major capital projects, if access to credit and capital markets is limited, and could adversely affect our results of operations.
We are subject to credit risk relating to the ability of counterparties to meet their contractual payment obligations or the potential non-performance of counterparties to deliver contracted commodities or services at contract prices. We monitor our counterparty credit risk exposure in order to minimize credit risk with any one supplier or financial instrument counterparty. We have a diverse customer base that spans broad geographic, economic and demographic constituencies. No single customer represents more than ten percent of our revenues or operating income. Notwithstanding our diverse customer profile, current conditions in the credit markets could affect the ability of some of our customers to pay timely or result in increased customer bankruptcies which may lead to increased bad debts.
As previously mentioned, in order to manage market risk associated with the Partnership's fixed-price programs which permit customers to lock in the prices they pay for propane, the Partnership has entered into derivative financial instruments that have collateral provisions. These derivative instruments are used to manage market price risk principally during the heating-season months of October through March. If market prices for propane were to continue to fall during the Fiscal 2009 heating season, we could be required to make significant additional cash collateral payments or to provide guarantees. The Partnership's management believes it has sufficient liquidity to meet such obligations and its projected cash needs in Fiscal 2009. In addition, the Partnership's management believes its liquidity will begin to improve in December 2008. Cash Flows
Operating activities. Due to the seasonal nature of the Partnership's business, cash flows from operating activities are generally strongest during the second and third fiscal quarters when customers pay for propane consumed during the heating season months. Conversely, operating cash flows are generally at their . . .