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APU > SEC Filings for APU > Form 10-Q on 2-Aug-2013All Recent SEC Filings

Show all filings for AMERIGAS PARTNERS LP

Form 10-Q for AMERIGAS PARTNERS LP


2-Aug-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 June 30, 2013 ("2013 three-month period") with the three months ended June 30, 2012 ("2012 three-month period") and the nine months ended June 30, 2013 ("2013 nine-month period") with the nine months ended June 30, 2012 ("2012 nine-month period").
Executive Overview
Net loss attributable to AmeriGas Partners for the 2013 three-month period was $34.6 million compared with net loss attributable to AmeriGas Partners for the 2012 three-month period of $89.4 million. Average temperatures based upon heating degree days during the 2013 three-month period were approximately normal but significantly colder than the prior-year three-month period. The lower seasonal loss includes the colder weather's impact on retail propane volumes sold, higher average retail unit margins and lower operating and administrative expenses reflecting in large part the benefits from the integration of Heritage Propane. Results for the 2013 three-month period include $9.9 million of transition costs associated with Heritage Propane while results for the prior-year period include $15.0 million of transition and acquisition costs associated with Heritage Propane.
Net income attributable to AmeriGas Partners for the 2013 nine-month period was $275.3 million compared with net income attributable to AmeriGas Partners for the 2012 nine-month period of $87.0 million. Results in the 2013 nine-month period benefited from the full-period operations of Heritage Propane which was acquired by the Partnership on January 12, 2012. Notwithstanding average temperatures that were approximately 4.1% warmer than normal, net income attributable to AmeriGas Partners increased $188.3 million principally reflecting weather that was nearly 16.8% colder than the prior-year period and the full-period benefit of Heritage Propane. The return to more normal weather in the 2013 nine-month period from the record-setting warm weather experienced in the prior-year period resulted in greater retail volumes sold. Results for the 2013 nine-month period include $20.7 million of transition costs associated with Heritage Propane while the prior-year nine-month period includes $26.9 million of

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                            AMERIGAS PARTNERS, L.P.


transition and acquisition costs associated with Heritage Propane.The prior-year
nine-month period results also include a $13.3 million loss on extinguishments
of debt.
2013 three-month period compared with 2012 three-month period

Three Months Ended June 30,                  2013           2012            Increase (Decrease)
(millions of dollars)
Gallons sold (millions):
Retail                                        224.7          204.0             20.7          10.1  %
Wholesale                                      16.6           14.8              1.8          12.2  %
                                              241.3          218.8             22.5          10.3  %
Revenues:
Retail propane                           $    500.9     $    491.5      $       9.4           1.9  %
Wholesale propane                              17.5           16.0              1.5           9.4  %
Other                                          63.3           64.4             (1.1 )        (1.7 )%
                                         $    581.7     $    571.9      $       9.8           1.7  %
Total margin (a)                         $    276.0     $    237.9      $      38.1          16.0  %
EBITDA (b)                               $     59.1     $      1.8      $      57.3          N.M.
Operating income (loss) (b)              $      6.6     $    (48.3 )    $      54.9          N.M.
Net loss attributable to AmeriGas
Partners                                 $    (34.6 )   $    (89.4 )    $     (54.8 )       (61.3 )%
Degree days - % colder (warmer) than
normal (c)                                      0.5 %        (23.8 )%             -             -


 N.M. - Variance is not meaningful.

(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 (loss) 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 June 30, 2013 and 2012, includes acquisition and transition expenses of $9.9 million and $15.0 million, respectively, associated with Heritage Propane.

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

                                                Three Months Ended
                                                     June 30,
(millions of dollars)                            2013         2012
Net loss attributable to AmeriGas Partners   $   (34.6 )    $ (89.4 )
Income tax benefit                                   -         (0.2 )
Interest expense                                  41.2         41.9
Depreciation                                      41.7         38.3
Amortization                                      10.8         11.2
EBITDA                                       $    59.1      $   1.8

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AMERIGAS PARTNERS, L.P.

(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.

Retail gallons sold in the 2013 three-month period increased more than 10% from the 2012 three-month period reflecting average temperatures based upon heating degree days that were approximately normal but significantly colder than the prior-year three-month period. Based upon heating degree-day data, temperatures in the Partnership's service territories during the 2013 three-month period averaged approximately 0.5% colder than normal while temperatures in the prior-year period averaged approximately 23.8% warmer than normal. Retail propane revenues increased $9.4 million during the 2013 three-month period reflecting the higher retail volumes sold ($49.9 million) offset in large part by the effects of a decline in average retail selling prices ($40.5 million) which were the result of lower propane product costs. Wholesale propane revenues increased $1.5 million for the 2013 three-month period on slightly higher wholesale sales. 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 7% 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 slightly lower than in the 2012 three-month period. Total cost of sales decreased $28.3 million principally reflecting the effects on retail propane cost of sales of the lower average propane product costs ($60.1 million) partially offset by effects of the greater retail volumes sold ($30.0 million).
Total margin increased $38.1 million in the 2013 three-month period principally reflecting higher retail propane total margin ($39.4 million). The increase in retail propane total margin reflects the increase in retail volumes sold and modestly higher average retail propane unit margins.
EBITDA in the 2013 three-month period increased $57.3 million principally reflecting the higher total margin ($38.1 million) and lower operating and administrative expenses ($18.5 million) reflecting, among other things, synergies from the integration of Heritage Propane, lower self-insured liability and casualty expenses ($7.2 million), and lower Heritage Propane integration transition expenses. Operating and administrative expenses in the 2013 three-month period include $9.9 million of transition expenses associated with the integration of Heritage Propane while operating and administrative expenses in the prior-year period include Heritage Propane transition expenses of $15.0 million. Operating income increased $54.9 million in the 2013 three-month period principally reflecting the higher total margin ($38.1 million) and the lower operating and administrative expenses ($18.5 million) partially offset by increased depreciation and amortization expense ($3.0 million).

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                            AMERIGAS PARTNERS, L.P.


2013 nine-month period compared with 2012 nine-month period

Nine Months Ended June 30,                   2013            2012            Increase (Decrease)
(millions of dollars)
Gallons sold (millions):
Retail                                      1,039.8           814.3            225.5          27.7  %
Wholesale                                      81.9            83.4             (1.5 )        (1.8 )%
                                            1,121.7           897.7            224.0          25.0  %
Revenues:
Retail propane                           $  2,327.4      $  2,106.7      $     220.7          10.5  %
Wholesale propane                              86.4           120.9            (34.5 )       (28.5 )%
Other                                         220.8           183.7             37.1          20.2  %
                                         $  2,634.6      $  2,411.3      $     223.3           9.3  %
Total margin (a)                         $  1,264.4      $    963.5      $     300.9          31.2  %
EBITDA (b)                               $    550.5      $    310.0      $     240.5          77.6  %
Operating income (b)                     $    404.0      $    206.9      $     197.1          95.3  %
Net income attributable to AmeriGas
Partners                                 $    275.3      $     87.0      $     188.3         216.4  %
Degree days - % (warmer) than normal
(c)                                            (4.1 )%        (18.3 )%             -             -

(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 nine months ended June 30, 2013 and 2012, includes acquisition and transition expenses of $20.7 million and $26.9 million, respectively, associated with Heritage Propane. EBITDA for the the nine months ended June 30, 2012 includes a pre-tax loss of $13.3 million associated with extinguishments of debt.

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

                                                   Nine Months Ended
                                                        June 30,
(millions of dollars)                               2013           2012
Net income attributable to AmeriGas Partners   $    275.3        $  87.0
Income tax expense                                    0.5            1.0
Interest expense                                    124.2          103.4
Depreciation                                        117.7           94.6
Amortization                                         32.8           24.0
EBITDA                                         $    550.5        $ 310.0

(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 nine-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 nine-month period averaged approximately 4.1% warmer than normal but 16.8% colder than the 2012 nine-month period. Retail gallons sold were 225.5 million gallons (27.7%) greater than in the prior-year period principally reflecting the full-period impact of the Heritage Propane operations and the colder 2013 nine-month period weather.
Retail propane revenues increased $220.7 million during the 2013 nine-month period reflecting the higher retail volumes sold ($583.4 million) partially offset by a decline in average retail selling prices ($362.7 million) which were the result of lower propane product costs. Wholesale propane revenues declined $34.5 million principally reflecting lower average wholesale propane selling prices ($32.3 million) and lower wholesale volumes sold ($2.2 million). Average daily wholesale propane commodity prices during the 2013 nine-month period at Mont Belvieu, Texas, one of the major supply points in the U.S., were approximately 28% lower than such prices during the prior-year nine-month period. Total revenues from fee income and other ancillary sales and services in the 2013 nine-month period were $37.0 million higher than in the 2012 nine-month period principally reflecting the full-period effects of Heritage Propane. Total propane cost of sales decreased $88.1 million during the 2013 nine-month period principally reflecting the effects of the lower propane commodity prices on retail propane cost of sales ($403.8 million) and lower wholesale propane cost of sales ($37.2 million) substantially offset by the effects of the greater retail volumes sold ($352.9 million). Cost of sales associated with ancillary sales and services increased $10.5 million principally reflecting the full-period effects of Heritage Propane.
Total margin increased $300.9 million in the 2013 nine-month period principally reflecting higher total propane margin ($274.3 million) and greater total margin from ancillary sales and services ($26.6 million). These increases principally reflect the incremental full-period effects of Heritage Propane, the colder 2013 nine-month period weather and, with respect to total propane margin, slightly higher 2013 nine-month period average unit margins reflecting the lower propane product costs.
EBITDA in the 2013 nine-month period increased $240.5 million principally reflecting the higher total margin ($300.9 million) and the absence of the $13.3 million loss on extinguishments of debt recorded in the prior-year period partially offset by higher operating and administrative expenses ($78.2 million) primarily attributable to the full-period effects of Heritage Propane operations. Operating and administrative expenses in the 2013 nine-month period include $20.7 million of transition expenses associated with integration of Heritage Propane while operating and administrative expenses in the prior-year period include Heritage Propane acquisition and transition-related expenses of $26.9 million. Operating income increased $197.1 million in the 2013 nine-month period principally reflecting the higher total margin ($300.9 million) partially offset by the previously mentioned greater operating and administrative expenses ($78.2 million) and increased depreciation and amortization expense ($32.0 million) reflecting in large part the full-period effects of Heritage Propane.
FINANCIAL CONDITION AND LIQUIDITY
Financial Condition
The Partnership's debt outstanding at June 30, 2013, totaled $2,383.2 million (including current maturities of long-term debt of $10.0 million and bank loans of $80.0 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 June 30, 2013, including current maturities, comprises $2,250.8 million of AmeriGas Partners' Senior Notes and $52.4 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 June 30, 2013, there were $80.0 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 June 30, 2013. The average daily and peak bank loan borrowings outstanding under the Credit Agreement during the 2013 nine-month period were $106.6 million and $200.5 million, respectively. The average daily and peak bank loan borrowings outstanding under the Credit Agreement during the 2012 nine-month period were $111.5 million and $239.5 million, respectively. At June 30, 2013, the Partnership's available borrowing capacity under the Credit Agreement was $390.9 million.
The Partnership's management believes that the Partnership has sufficient liquidity in the forms of cash and cash equivalents on hand, cash expected to be generated from operations, and bank loan borrowings available under the AmeriGas Credit Agreement to meet its anticipated contractual and projected cash commitments.

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AMERIGAS PARTNERS, L.P.

On July 29, 2013, the General Partner's Board of Directors approved a quarterly distribution of $0.84 per Common Unit payable on August 19, 2013, to unitholders of record on August 9, 2013. During the nine months ended June 30, 2013, the Partnership declared and paid quarterly distributions on all limited partner units at a rate of $0.84 per Common Unit for the quarter ended March 31, 2013 and $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 $272.4 million in the 2013 nine-month period compared to $253.5 million in the 2012 nine-month period. Cash flow from operating activities before changes in operating working capital was $444.9 million in the 2013 nine-month period compared with $237.0 million in the prior-year period largely reflecting the full period effects of the operations of Heritage Propane in the current-year period and the beneficial impact of colder weather on our operating results. Cash used to fund changes in operating working capital was $172.5 million in the 2013 nine-month period compared to cash provided from changes in working capital of $16.5 million in the 2012 nine-month period. The increase in cash used to fund changes in working capital in the 2013 nine-month period reflects, among other things, greater cash needed to fund increased sales of propane and greater interest payments on long-term debt associated with the Heritage Propane acquisition. The prior-year nine-month period cash provided by operating working capital benefited from the timing of the acquisition of Heritage Propane on cash receipts from Heritage Propane customers.
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 $75.9 million in the 2013 nine-month period compared with $1,483.4 million in the prior-year period. The 2012 nine-month period cash used in investing activities largely reflects the cash portion of the Heritage Acquisition purchase price paid, net of cash acquired. The Partnership spent $80.7 million for property, plant and equipment (comprising $34.0 million of maintenance capital expenditures, $15.7 million of capital expenditures associated with Heritage Propane integration activities and $31.0 million of . . .

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