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APU > SEC Filings for APU > Form 10-Q on 15-May-2013All Recent SEC Filings

Show all filings for AMERIGAS PARTNERS LP

Form 10-Q for AMERIGAS PARTNERS LP


15-May-2013

Quarterly Report


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

FORWARD-LOOKING STATEMENTS
Information contained in this Quarterly Report on Form 10-Q 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 customers; (3) the availability of, and our ability to consummate, acquisition or combination opportunities; (4) successful integration and future performance of acquired assets or businesses, including Heritage Propane, and achievement of anticipated synergies; (5) changes in laws and regulations, including safety, tax, consumer protection and accounting matters; (6) competitive pressures from the same and alternative energy sources; (7) failure to acquire new customers and retain current 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; (16) the impact of pending and future legal proceedings; and (17) the timing and success of our acquisitions and investments to grow our business. These factors, and those factors set forth in Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012, 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.

ANALYSIS OF RESULTS OF OPERATIONS
The following analyses compare the Partnership's results of operations for the three months ended March 31, 2013 ("2013 three-month period") with the three months ended March 31, 2012 ("2012 three-month period") and the six months ended March 31, 2013 ("2013 six-month period") with the six months ended March 31, 2012 ("2012 six-month period").
Executive Overview
Net income attributable to AmeriGas Partners for the 2013 three-month period was $213.2 million compared with net income attributable to AmeriGas Partners for the 2012 three-month period of $133.9 million. The increase primarily reflects the effects of weather that averaged near normal across our service territories in the 2013 three-month period compared with the record-setting warm weather and early end to the heating season experienced in the prior-year three-month period. Net income attributable to AmeriGas Partners for the prior-year period includes a pre-tax loss of $13.4 million associated with extinguishments of debt. Results for the 2013 three-month period include $5.4 million of transition costs associated with Heritage Propane while results in the prior-year period include $8.1 million of transition and acquisition costs associated with Heritage Propane.
Average temperatures in the 2013 three-month period based upon heating degree days in our service territories were approximately 1.5% warmer than normal compared to weather that was approximately 22% warmer than normal in the 2012 three-month period. Retail propane gallons sold were more than 19% greater reflecting the effects of the colder weather and, to a much lesser extent, the full-period effects of the Heritage Propane operations beginning January 12, 2012.
Net income attributable to AmeriGas Partners for the 2013 six-month period was $309.9 million compared with net income attributable to AmeriGas Partners for the 2012 six-month period of $176.4 million. Results in the 2013 six-month period benefitted from the full-period operations of Heritage Propane which was acquired by the Partnership on January 12, 2012. Average

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AMERIGAS PARTNERS, L.P.

temperatures in our service territories during the 2013 six-month period were approximately 5% warmer than normal but nearly 15% colder than in the prior-year six-month period. Retail propane gallons sold were nearly 34% greater reflecting the full-period effects of the operations of Heritage Propane and the colder weather. Average unit margins during the 2013 six-month period were slightly higher than the prior-year period reflecting lower propane product costs. Results for the 2013 six-month period include $10.9 million of transition costs associated with Heritage Propane while the prior-year period includes $11.9 million of transition and acquisition costs associated with Heritage Propane.The prior-year period results also include the $13.4 million loss on extinguishments of debt.
2013 three-month period compared with 2012 three-month period

Three Months Ended March 31,                 2013            2012             Increase (Decrease)
(millions of dollars)
Gallons sold (millions):
Retail                                        464.4           389.4             75.0           19.3  %
Wholesale                                      39.0            33.7              5.3           15.7  %
                                              503.4           423.1             80.3           19.0  %
Revenues:
Retail propane                           $  1,057.0      $  1,032.4      $      24.6            2.4  %
Wholesale propane                              41.4            50.4             (9.0 )        (17.9 )%
Other                                          77.8            72.8              5.0            6.9  %
                                         $  1,176.2      $  1,155.6      $      20.6            1.8  %
Total margin (a)                         $    563.8      $    485.6      $      78.2           16.1  %
EBITDA (b)                               $    303.6      $    224.5      $      79.1           35.2  %
Operating income (b)                     $    257.5      $    195.0      $      62.5           32.1  %
Net income attributable to AmeriGas
Partners                                 $    213.2      $    133.9      $      79.3           59.2  %
Heating degree days - % (warmer) than
normal (c)                                     (1.5 )%        (21.7 )%             -              -

(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 attributable to AmeriGas Partners (as an indicator of operating performance) and is not a measure of performance or financial condition under accounting principles generally accepted in the United States of America ("GAAP"). Management believes EBITDA is a meaningful non-GAAP financial measure used by investors to (1) compare the Partnership's operating performance with that of other companies within the propane industry and (2) assess the Partnership's ability to meet loan covenants. The Partnership's definition of EBITDA may be different from those used by other companies. Management uses EBITDA to compare year-over-year profitability of the business without regard to capital structure as well as to compare the relative performance of the Partnership to that of other master limited partnerships without regard to their financing methods, capital structure, income taxes or historical cost basis. In view of the omission of interest, income taxes, depreciation and amortization from EBITDA, management also assesses the profitability of the business by comparing net income attributable to AmeriGas Partners for the relevant years. Management also uses EBITDA to assess the Partnership's profitability because its parent, UGI Corporation, uses the Partnership's EBITDA to assess the profitability of the Partnership which is one of UGI Corporation's reportable segments. UGI Corporation discloses the Partnership's EBITDA in its disclosure about reportable segments as the profitability measure for its domestic propane segment. EBITDA for the three months ended March 31, 2013 and 2012, includes acquisition and transition expenses of $5.4 million and $8.1 million, respectively, associated with Heritage Propane. EBITDA for the three months ended March 31, 2012 includes a pre-tax loss of $13.4 million associated with extinguishments of debt.

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                            AMERIGAS PARTNERS, L.P.


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

                                                   Three Months Ended
                                                        March 31,
(millions of dollars)                                2013            2012
Net income attributable to AmeriGas Partners   $    213.2         $ 133.9
Income tax expense                                      -             0.8
Interest expense                                     41.8            45.0
Depreciation                                         37.6            35.4
Amortization                                         11.0             9.4
EBITDA                                         $    303.6         $ 224.5

(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.

Operating results in the 2013 three-month period were significantly higher than in the 2012 three-month period as the prior-year period experienced the negative effects of record-setting warm temperatures and an early end to the heating season. Based upon heating degree-day data, temperatures in the Partnership's service territories during the 2013 three-month period averaged approximately 1.5% warmer than normal while temperatures in the prior-year period averaged approximately 21.7% warmer than normal. The improved 2013 three-month period results also reflect, to a much lesser extent, the full-period effects of the acquisition of Heritage Propane on January 12, 2012. As a result of the significantly colder 2013 three-month period temperatures and, to a lesser extent, the full-period effect of the Heritage Propane operations, our retail gallons sold were 75.0 million gallons (19.3%) greater than in the prior-year period.
Retail propane revenues increased $24.6 million during the 2013 three-month period reflecting the higher retail volumes sold ($198.8 million) offset in large part by a decline in average retail selling prices ($174.2 million) the result of lower propane product costs. Wholesale propane revenues declined $9.0 million for the 2013 three-month period principally reflecting lower average wholesale propane selling prices ($16.9 million) partially offset by higher wholesale volumes sold ($7.9 million). Average daily wholesale propane commodity prices during the 2013 three-month period at Mont Belvieu, Texas, one of the major supply points in the U.S., were approximately 31% lower than such prices during the prior-year three-month period. Total revenues from fee income and other ancillary sales and services in the 2013 three-month period were $5.0 million higher than in the 2012 three-month period principally reflecting the full period benefit of Heritage Propane. Total cost of sales decreased $57.6 million principally reflecting the effects on retail propane cost of sales of the significantly lower average propane product costs ($163.4 million) and lower wholesale cost of sales ($10.8 million) partially offset by effects of the greater retail volumes sold.

Total margin increased $78.2 million in the 2013 three-month period principally reflecting higher total retail propane margin ($72.0 million) and greater total margin from ancillary sales and services ($4.4 million). The increase in retail propane total margin reflects the increase in retail volumes sold.

EBITDA in the 2013 three-month period increased $79.1 million principally reflecting the higher total margin ($78.2 million) and the absence of the $13.4 million loss on extinguishments of debt recorded in the prior-year period partially offset by higher operating and administrative expenses ($13.0 million) reflecting the full-period effects of the operations of Heritage Propane and incremental costs associated with the higher sales partially offset by expense synergies from the Heritage Propane acquisition. Operating and administrative expenses in the 2013 three-month period include $5.4 million of transition expenses associated with Heritage Propane while operating and administrative expenses in the prior-year period include Heritage Propane acquisition and transition expenses of $8.1 million. Operating income increased $62.5 million in the 2013 three-month period principally reflecting the higher total margin ($78.2 million) partially offset by the greater operating and administrative expenses and increased depreciation and amortization expense ($3.8 million).

Interest expense decreased $3.3 million in the 2013 three-month period principally reflecting lower average long-term debt outstanding.

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                            AMERIGAS PARTNERS, L.P.


2013 six-month period compared with 2012 six-month period

Six Months Ended March 31,                   2013            2012            Increase (Decrease)
(millions of dollars)
Gallons sold (millions):
Retail                                        815.1           610.3            204.8          33.6  %
Wholesale                                      65.3            68.6             (3.3 )        (4.8 )%
                                              880.4           678.9            201.5          29.7  %
Revenues:
Retail propane                           $  1,826.6      $  1,615.2      $     211.4          13.1  %
Wholesale propane                              68.9           104.9            (36.0 )       (34.3 )%
Other                                         157.4           119.3             38.1          31.9  %
                                         $  2,052.9      $  1,839.4      $     213.5          11.6  %
Total margin (a)                         $    988.4      $    725.6      $     262.8          36.2  %
EBITDA (b)                               $    491.4      $    308.2      $     183.2          59.4  %
Operating income (b)                     $    397.4      $    255.1      $     142.3          55.8  %
Net income attributable to AmeriGas
Partners                                 $    309.9      $    176.4      $     133.5          75.7  %
Heating degree days - % (warmer) than
normal (c)                                     (4.7 )%        (17.5 )%             -             -

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

(b) Earnings before interest expense, income taxes, depreciation and amortization ("EBITDA") should not be considered as an alternative to net income attributable to AmeriGas Partners (as an indicator of operating performance) and is not a measure of performance or financial condition under accounting principles generally accepted in the United States of America ("GAAP"). Management believes EBITDA is a meaningful non-GAAP financial measure used by investors to (1) compare the Partnership's operating performance with that of other companies within the propane industry and (2) assess the Partnership's ability to meet loan covenants. The Partnership's definition of EBITDA may be different from those used by other companies. Management uses EBITDA to compare year-over-year profitability of the business without regard to capital structure as well as to compare the relative performance of the Partnership to that of other master limited partnerships without regard to their financing methods, capital structure, income taxes or historical cost basis. In view of the omission of interest, income taxes, depreciation and amortization from EBITDA, management also assesses the profitability of the business by comparing net income attributable to AmeriGas Partners for the relevant years. Management also uses EBITDA to assess the Partnership's profitability because its parent, UGI Corporation, uses the Partnership's EBITDA to assess the profitability of the Partnership which is one of UGI Corporation's reportable segments. UGI Corporation discloses the Partnership's EBITDA in its disclosure about reportable segments as the profitability measure for its domestic propane segment. EBITDA for the six months ended March 31, 2013 and 2012, includes acquisition and transition expenses of $10.9 million and $11.9 million, respectively, associated with Heritage Propane. EBITDA for the the six months ended March 31, 2012 includes a pre-tax loss of $13.4 million associated with extinguishments of debt.

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

                                                  Six Months Ended
                                                     March 31,
(millions of dollars)                                2013       2012
Net income attributable to AmeriGas Partners   $    309.9    $ 176.4
Income tax expense                                    0.6        1.2
Interest expense                                     83.0       61.6
Depreciation                                         75.9       56.3
Amortization                                         22.0       12.7
EBITDA                                         $    491.4    $ 308.2

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

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AMERIGAS PARTNERS, L.P.

Results for the 2013 six-month period reflect the full-period operations of Heritage Propane acquired in January 2012. Based upon heating degree-day data, temperatures in the Partnership's service territories during the 2013 six-month period averaged approximately 4.7% warmer than normal but 14.8% colder than the 2012 six-month period. Retail gallons sold were 204.8 million gallons greater than in the prior-year period principally reflecting the full-period impact of the Heritage Propane operations and the colder 2013 six-month period weather. Retail propane revenues increased $211.4 million during the 2013 six-month period reflecting the higher retail volumes sold ($542.1 million) partially offset by a decline in average retail selling prices ($330.7 million) the result of lower propane product costs. Wholesale propane revenues declined $36.0 million principally reflecting lower average wholesale propane selling prices ($31.0 million) and lower wholesale volumes sold ($5.0 million). Average daily wholesale propane commodity prices during the 2013 six-month period at Mont Belvieu, Texas, one of the major supply points in the U.S., were approximately 35% lower than such prices during the prior-year six-month period. Total revenues from fee income and other ancillary sales and services in the 2013 six-month period were $38.1 million higher than in the 2012 six-month period principally reflecting such revenues from the full-period effects of Heritage Propane. Total cost of sales decreased $49.3 million principally reflecting the effects of the lower propane commodity prices on retail propane cost of sales
($349.2 million) and lower wholesale propane cost of sales ($37.9 million)
substantially offset by the effects of the greater retail volumes sold ($328.4 million). Cost of sales associated with ancillary sales and services increased $9.4 million principally reflecting the full-period effects of Heritage Propane.

Total margin increased $262.8 million in the 2013 six-month period principally reflecting higher total propane margin ($234.1 million) and greater total margin from ancillary sales and services ($28.7 million). These increases principally reflect the incremental full-period effects of Heritage Propane, the colder 2013 six-month period weather and, with respect to total propane margin, slightly higher 2013 six-month period average unit margins reflecting the lower propane product costs.

EBITDA in the 2013 six-month period increased $183.2 million principally reflecting the higher total margin ($262.8 million) and the absence of the $13.4 million loss on extinguishments of debt recorded in the prior-year period partially offset by higher operating and administrative expenses ($96.6 million) primarily attributable to the full-period effects of Heritage Propane operations. Operating and administrative expenses in the 2013 six-month period include $10.9 million of transition expenses associated with Heritage Propane while operating and administrative expenses in the prior-year period include Heritage Propane acquisition and transition-related expenses of $11.9 million. Partnership operating income increased $142.3 million in the 2013 six-month period principally reflecting the higher total margin ($262.8 million) partially offset by the previously mentioned greater operating and administrative expenses
($96.6 million) and increased depreciation and amortization ($29.0 million)
principally reflecting the full-period effects of Heritage Propane.

Interest expense increased $21.4 million in the 2013 six-month period reflecting higher average long-term debt outstanding during the period subsequent to the Heritage Acquisition.

FINANCIAL CONDITION AND LIQUIDITY
Financial Condition
The Partnership's debt outstanding at March 31, 2013, totaled $2,436.3 million (including current maturities of long-term debt of $26.3 million and bank loans of $115.9 million). The Partnership's debt outstanding at September 30, 2012, totaled $2,378.0 million (including current maturities of long-term debt of $30.7 million and bank loans of $49.9 million). Total long-term debt outstanding at March 31, 2013, including current maturities, comprises $2,250.8 million of AmeriGas Partners' Senior Notes and $69.6 million of other long-term debt. 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. AmeriGas OLP has a $525 million unsecured credit agreement ("Credit Agreement") which expires October 2016.
At March 31, 2013, there were $115.9 million of borrowings outstanding under the Credit Agreement which are classified as bank loans on the Condensed Consolidated Balance Sheets. Issued and outstanding letters of credit under the Credit Agreement, which reduce the amount available for borrowings, totaled $54.1 million at March 31, 2013. The average daily and peak bank loan borrowings outstanding under the Credit Agreement during the 2013 six-month period were $118.1 million and $200.5 million, respectively. The average daily and peak bank loan borrowings outstanding under the Credit Agreement during the 2012 six-month period were $134.9 million and $239.5 million, respectively. At March 31, 2013, the Partnership's available borrowing capacity under the Credit Agreement was $355.0 million.

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AMERIGAS PARTNERS, L.P.

The Partnership's management believes that the Partnership will be able to meet its anticipated contractual commitments and projected cash needs for the remainder of Fiscal 2013 from existing cash balances, cash expected to be generated from operations and borrowings available under the Credit Agreement.

On April 29, 2013, the General Partner's Board of Directors approved a quarterly distribution of $0.84 per Common Unit, equal to an annual rate of $3.36. This distribution is a 5% increase from the previous quarterly rate of $0.80 per Common Unit. The new quarterly rate is effective with the distribution payable on May 17, 2013, to unitholders of record on May 10, 2013. During the six months ended March 31, 2013, the Partnership declared and paid quarterly distributions on all limited partner units at a rate of $0.80 per Common Unit for the quarters ended December 31, 2012 and September 30, 2012. 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 Agreement, 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. 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, principally accounts receivable and inventories, is generally greatest. The Partnership may use its Credit Agreement to satisfy its seasonal operating cash flow needs.
Cash flow provided by operating activities was $215.2 million in the 2013 six-month period compared to $153.1 million in the 2012 six-month period. Cash . . .

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