ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS Information contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations may contain forward-looking statements. 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, counter-party 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) capital market conditions, including, reduced access to capital markets and interest rate fluctuations; (15) changes in commodity market prices resulting in significantly higher cash collateral requirements; and
(16) 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.

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AMERIGAS PARTNERS, L.P. ANALYSIS OF RESULTS OF OPERATIONS The following analyses compare the Partnership's results of operations for
(1) the three months ended December 31, 2008 ("2008 three-month period") with the three months ended December 31, 2007 ("2007 three-month period"). Executive Overview
Our net income for the 2008 three-month period increased to $124.0 million from $54.3 million in the prior-year three-month period. The 2008 three-month period net income includes a $39.5 million gain on the sale of our California storage facility in November 2008. Additionally, our results reflect the beneficial impact of weather that was 6.9% colder than the 2007 three-month period and unusually high retail unit margins resulting from a rapid and sharp decline in propane product costs during the 2008 three-month period. We presently expect unit margins to return to more normal levels over the course of Fiscal 2009. Wholesale propane commodity prices declined more than 50% from the beginning to the end of the 2008 three-month period compared with wholesale propane commodity prices that increased nearly 20% from the beginning to the end of the prior-year period. Retail volumes were about equal to the prior year as the effects of the colder weather and the benefits from the acquisition of the assets of Penn Fuel Propane, LLC ("Penn Fuels Acquisition") were offset by continued customer conservation and the adverse effects of the significant deterioration in general economic activity which has occurred over the last year. Operating expenses were slightly higher than the prior year reflecting greater bad debt expense, higher general insurance expense and incremental expenses associated with the Penn Fuels Acquisition.
2008 three-month period compared with 2007 three-month period

Increase Three Months Ended December 31, 2008 2007 (Decrease) (millions of dollars) Gallons sold (millions): Retail 278.2 279.1 (0.9 ) (0.3 )% Wholesale 41.4 32.3 9.1 28.2 % 319.6 311.4 8.2 2.6 % Revenues: Retail propane $ 634.9 $ 647.7 $ (12.8 ) (2.0 )% Wholesale propane 43.7 52.0 (8.3 ) (15.9 )% Other 48.5 48.5 - 0.0 % $ 727.1 $ 748.2 $ (21.1 ) (2.8 )% Total margin (a) $ 281.5 $ 241.8 $ 39.7 16.4 % EBITDA (b) $ 164.1 $ 93.1 $ 71.0 76.3 % Operating income $ 144.8 $ 74.0 $ 70.8 95.7 % Net income $ 124.0 $ 54.3 $ 69.7 128.4 % Heating degree days - % warmer than normal (c) 0.8 % 7.2 % - -

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

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AMERIGAS PARTNERS, L.P.

(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:

Three Months Ended December 31, 2008 2007 Net income $ 124.0 $ 54.3 Income tax expense 0.7 0.7 Interest expense 18.7 18.2 Depreciation 19.4 18.7 Amortization 1.3 1.2 EBITDA $ 164.1 $ 93.1

(c) Deviation from average heating degree days for the 30-year period 1971-2000 based upon national weather statistics provided by the National Oceanic and Atmospheric Administration ("NOAA") for 335 airports in the United States, excluding Alaska.

Based upon heating degree-day data, average temperatures in our service territories were 0.8% warmer than normal during the 2008 three-month period compared with temperatures in the prior-year period that were 7.2% warmer than normal. Notwithstanding the colder 2008 three-month period weather and the benefit of the Penn Fuels Acquisition on October 1, 2008, retail gallons sold were about equal to the prior-year period reflecting, among other things, continued customer conservation and the adverse effects of the significant deterioration in general economic activity which has occurred over the last year.
Retail propane revenues declined $12.8 million during the 2008 three-month period reflecting a $10.7 million decrease due to lower average selling prices and a $2.1 million decrease as a result of the lower retail volumes sold. Wholesale propane revenues declined $8.3 million reflecting a $23.0 million decrease from lower wholesale selling prices partially offset by a $14.7 million increase from higher wholesale volumes sold. From the beginning to the end of the 2008 three-month period, wholesale propane commodity prices at Mont Belvieu, Texas declined more than 50% compared with a nearly 20% increase in commodity prices during the 2007 three-month period. Total cost of sales decreased $60.8 million to $445.5 million principally reflecting the effects of the lower propane product costs.

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AMERIGAS PARTNERS, L.P. Total margin was $39.7 million greater in the 2008 three-month period reflecting the beneficial impact of unusually high retail unit margins resulting from a rapid and sharp decline in propane product costs during the 2008 three-month period. We presently expect unit margins to return to more normal levels over the course of Fiscal 2009.
EBITDA during the 2008 three-month period was $164.1 million compared with EBITDA of $93.1 million in the 2007 three-month period. The 2008 three-month period EBITDA includes a $39.9 million pre-tax gain from the sale of the Partnership's California LPG storage facility. In addition to the gain from the sale of the California storage facility, the 2008 three-month period EBITDA reflects the previously mentioned $39.7 million increase in total margin partially offset by slightly higher operating and administrative expenses. Operating and administrative expenses increased due in large part to higher bad debt expense, greater general insurance expenses and incremental expenses from the Penn Fuels Acquisition partially offset by, among other things, lower vehicle fuel expenses.
Operating income increased $70.8 million reflecting the $71.0 million increase in EBITDA and slightly higher depreciation and amortization expense associated with acquisitions and plant and equipment expenditures made since the prior year. Net income increased $69.7 million during the 2008 three-month period reflecting the increase in operating income partially offset by a slight increase in interest expense from greater average bank loan borrowings.
FINANCIAL CONDITION AND LIQUIDITY
Financial Condition
The Partnership's total debt outstanding at December 31, 2008 was $1,079.0 million (including current maturities of long-term debt of $71.2 million). Total debt outstanding at December 31, 2008 includes long-term debt comprising $779.8 million of AmeriGas Partners' Senior Notes, $150.1 million of AmeriGas OLP First Mortgage Notes and $3.1 million of other long-term debt. The Partnership's total debt outstanding also includes $146 million outstanding under AmeriGas OLP's Credit Agreement. AmeriGas OLP expects to repay $70 million of long-term debt maturing in March 2009 with proceeds from the issuance of a term loan or through revolver borrowings.
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. In addition, a rapid and precipitous decline in commodity propane prices in late Fiscal 2008 which continued into Fiscal 2009 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 December 31, 2008, the Partnership had made collateral deposits of $131.8 million associated with these derivative financial instruments.

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AMERIGAS PARTNERS, L.P. In order to meet its short-term cash needs, AmeriGas OLP has a $200 million credit agreement ("Credit Agreement") which expires on October 15, 2011. In addition, on November 14, 2008, AmeriGas OLP entered into a $50 million revolving credit agreement with two major banks ("Supplemental Credit Agreement") which expires on May 14, 2009. AmeriGas OLP's Credit Agreement 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. The Supplemental Credit Agreement 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 Credit Agreement.
There were $146 million of borrowings outstanding under the credit agreements at December 31, 2008 which are classified as bank loans on the Condensed Consolidated Balance Sheets. Issued and outstanding letters of credit under the Revolving Credit Facility, which reduce the amount available for borrowings, totaled $50.0 million at December 31, 2008. The average daily and peak bank loan borrowings outstanding under the credit agreements during the 2008 three-month period were $131.8 million and $184.5 million, respectively. The average daily and peak bank loan borrowings outstanding under the Credit Agreement during the 2007 three-month period were $26.5 million and $81.0 million, respectively. At December 31, 2008, the Partnership's available borrowing capacity under the credit agreements was $54.0 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 agreements, UGI agreed to provide guarantees of up to $50 million to AmeriGas OLP's propane suppliers through September 30, 2009. At December 31, 2008, the Partnership had $25 million of unused UGI guarantees.
Based on existing cash balances, cash expected to be generated from operations, and borrowings available under AmeriGas OLP's Credit Agreement and the Supplemental Credit Agreement, the Partnership's management believes that the Partnership will be able to meet its anticipated contractual commitments, including current maturities of long-term debt, and projected cash needs during Fiscal 2009.
During the three months ended December 31, 2008 the Partnership declared and paid quarterly distributions on all limited partner units at a rate of $0.64 per Common Unit for the quarter ended September 30, 2008. The quarterly distribution of $0.64 per limited partner unit for the quarter ended December 31, 2008 will be paid on February 18, 2009 to holders of record on February 10, 2009. 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 Partnership's operations (including cash needed for maintaining and increasing operating capacity); (3) changes in operating working capital; and (4) the Partnership's ability to borrow under its credit agreements, refinance maturing debt, and increase its long-term debt. Some of these factors are affected by conditions beyond the Partnership's control including weather, competition in markets we serve, the cost of propane and changes in capital market conditions.

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AMERIGAS PARTNERS, L.P. 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 lowest levels during the first and fourth fiscal quarters when the Partnership's investment in working capital is generally greatest. The Partnership may use its Credit Agreement and, in Fiscal 2009, its Supplemental Credit Agreement to satisfy its seasonal operating cash flow needs. Cash flow used by operating activities was $68.0 million in the 2008 three-month period compared to $38.3 million in the 2007 three-month period. Cash flow from operating activities before changes in operating working capital was $101.9 million in the 2008 three-month period compared with $78.4 million in the prior-year period principally reflecting the improved operating results. Cash required to fund changes in operating working capital totaled $169.9 million in the 2008 three-month period compared with $116.7 million in the prior-year period. The greater cash required to fund operating working capital in the current-year period principally reflects $114.0 million of cash required to fund counterparty collateral requirements under product cost management contracts and the impact of the timing of purchases and decrease in current-year period propane product costs on accounts payable. These increases in cash required to fund working capital were partially offset by the amount of cash receipts from customers resulting principally from lower propane prices and the effects of lower wholesale propane product prices on cash used for purchases of propane inventory.
Investing activities. Investing activity cash flow is principally affected by investments in property, plant and equipment, cash paid for acquisitions of businesses and proceeds from sales of assets. Cash flow used in investing activities was $8.9 million in the 2008 three-month period compared with $12.6 million in the prior-year period. We spent $19.1 million for property, plant and equipment (comprising $8.6 million of maintenance capital expenditures and $10.5 million of growth capital expenditures) in the 2008 three-month period compared with $18.2 million (comprising $7.3 million of maintenance capital expenditures and $10.9 million of growth capital expenditures) in the 2007 three-month period. In November 2008, the Partnership sold its California LPG storage facility for net cash proceeds of $42.4 million. Also during the 2008 three-month period, the Partnership paid total net cash of $33.8 million for acquisitions of retail propane businesses, principally the Penn Fuels Acquisition.
Financing activities. Cash provided by financing activities was $108.0 million in the 2008 three-month period compared with $31.0 million in the prior-year period. Distributions in the 2008 three-month period totaled $37.2 million compared with $35.2 million in the prior-year period principally reflecting a higher per-unit distribution rate. Net cash borrowed under credit agreements totaled $146 million in the 2008 three-month period compared to $67 million in the prior-year period. The higher 2008 three-month period borrowings reflect in large part borrowings to fund the previously mentioned counterparty collateral payments and the Penn Fuels Acquisition.

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AMERIGAS PARTNERS, L.P.
Partnership Sale of Propane Storage Facility On November 13, 2008, AmeriGas OLP sold its 600,000 barrel refrigerated, above-ground storage facility located on leased property in California for net cash of $42.4 million. During the three months ended December 31, 2008, we recorded a pre-tax gain of $39.9 million associated with this transaction, which increased net income by $39.5 million.
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 and our maturing long-term debt. 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. The Partnership's management believes it has sufficient liquidity to meet such obligations and its projected cash needs in Fiscal 2009.

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AMERIGAS PARTNERS, L.P.