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APU > SEC Filings for APU > Form 10-K on 29-Nov-2013All Recent SEC Filings

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Form 10-K for AMERIGAS PARTNERS LP


29-Nov-2013

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") discusses our results of operations and our financial condition. MD&A should be read in conjunction with our Items 1 "Business," 1A "Risk Factors," and 2 "Properties" and our Consolidated Financial Statements in Item 8 below.
Executive Overview

Our results in Fiscal 2013 were significantly affected by colder heating-season and spring weather and the full-year operations of Heritage Propane which we acquired in January 2012. Although temperatures based upon heating degree days averaged slightly warmer than normal in Fiscal 2013, temperatures were significantly colder than the record-setting warm temperatures experienced in Fiscal 2012 which significantly increased our retail volumes sold.
Net income attributable to AmeriGas Partners for Fiscal 2013 was $221.2 million compared with net income attributable to AmeriGas Partners for Fiscal 2012 of $11.0 million. Results in Fiscal 2013 benefited from the full-year operations of Heritage Propane which was acquired by the Partnership on January 12, 2012 (see Note 4 to Consolidated Financial Statements for further information). Notwithstanding average temperatures that were approximately 5% warmer than normal in Fiscal 2013, temperatures were approximately 16% colder than the prior year. Results for Fiscal 2013 include $26.5 million of transition costs associated with Heritage Propane while Fiscal 2012 includes $46.2 million of transition and acquisition costs associated with Heritage Propane. Fiscal 2012 results also include a $13.3 million loss on extinguishments of debt. Looking ahead, our results in Fiscal 2014 will be influenced by a number of factors including, among others, temperatures in our service territories during the peak heating-season, the level and volatility of commodity prices for propane, the strength of economic activity and customer conservation. During Fiscal 2013, we completed the integration of Heritage Propane and we expect to reap the full-year benefits of the integration in Fiscal 2014.

Analysis of Results of Operations
The following analyses compare the Partnership's results of operations for
(1) Fiscal 2013 with Fiscal 2012 and (2) Fiscal 2012 with the year ended September 30, 2011 ("Fiscal 2011").

Fiscal 2013 Compared with Fiscal 2012

                                                                               Increase
(Dollars in millions)                     2013            2012                (Decrease)

Gallons sold (millions):
Retail                                   1,245.2         1,017.5           227.7          22.4  %
Wholesale                                  101.8           105.6            (3.8 )        (3.6 )%
                                         1,347.0         1,123.1           223.9          19.9  %
Revenues:
Retail propane                        $  2,775.8      $  2,536.3      $    239.5           9.4  %
Wholesale propane                          109.0           141.3           (32.3 )       (22.9 )%
Other                                      281.7           244.0            37.7          15.5  %
                                      $  3,166.5      $  2,921.6      $    244.9           8.4  %
Total margin (a)                      $  1,506.5      $  1,201.9      $    304.6          25.3  %
Operating and administrative
expense                               $    943.9      $    888.7      $     55.2           6.2  %
EBITDA (b)                            $    591.2      $    324.7      $    266.5          82.1  %
Operating income                      $    392.2      $    170.6      $    221.6         129.9  %
Net income attributable to AmeriGas
Partners                              $    221.2      $     11.0      $    210.2          N.M.
Heating degree days - %
(warmer) than normal (c)                    (4.9 )%        (18.6 )%            -             -


N.M. - Variance is not meaningful.

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


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(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 industry segments. UGI Corporation discloses the Partnership's EBITDA in its disclosure about industry segments as the profitability measure for its domestic propane segment. EBITDA for Fiscal 2012 includes net pre-tax losses associated with extinguishments of debt of $13.3 million. EBITDA and operating income for Fiscal 2013 and Fiscal 2012 include acquisition and transition expenses of $26.5 million and $46.2 million, respectively, associated with Heritage Propane.

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

                                                   Fiscal
                                               2013       2012
Net income attributable to AmeriGas Partners $ 221.2    $  11.0
Income tax expense                               1.7        2.0
Interest expense                               165.4      142.6
Depreciation                                   159.3      134.2
Amortization                                    43.6       34.9
EBITDA                                       $ 591.2    $ 324.7

(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.

Results for Fiscal 2013 reflect the full-year operations of Heritage Propane acquired in January 2012. Based upon heating degree-day data, temperatures in the Partnership's service territories during Fiscal 2013 averaged approximately 4.9% warmer than normal but 16.2% colder than in Fiscal 2012. Retail gallons sold increased 227.7 million gallons (22.4%) principally reflecting the full-year impact of the Heritage Propane operations and the colder Fiscal 2013 weather.

Retail propane revenues increased $239.5 million during Fiscal 2013 reflecting the higher retail volumes sold ($567.6 million) partially offset by a decline in average retail selling prices ($328.1 million) which were the result of lower propane product costs. Wholesale propane revenues declined $32.3 million principally reflecting lower average wholesale propane selling prices ($27.2 million) and lower wholesale volumes sold ($5.1 million). Average daily wholesale propane commodity prices during Fiscal 2013 at Mont Belvieu, Texas, one of the major supply points in the U.S., were approximately 19% lower than such prices during Fiscal 2012. Total revenues from fee income and other ancillary sales and services in Fiscal 2013 were $37.7 million higher than in Fiscal 2012 principally reflecting the full-year effects of Heritage Propane. Total propane cost of sales decreased $71.0 million principally reflecting the effects of the previously mentioned lower propane commodity prices on retail propane cost of sales ($371.7 million) and lower wholesale propane cost of sales ($35.4 million) substantially offset by the effects of the greater retail volumes sold ($336.1 million). Cost of sales associated with ancillary sales and services increased $11.3 million principally reflecting the full-year effects of Heritage Propane.
Total margin increased $304.6 million in Fiscal 2013 principally reflecting higher total propane margin ($278.2 million) and greater total margin from fee income and ancillary sales and services ($26.4 million). These increases principally reflect the incremental full-year effects of Heritage Propane, the colder Fiscal 2013 weather and, with respect to total propane margin, slightly higher average unit margins reflecting in large part the lower propane product costs.
EBITDA in Fiscal 2013 increased $266.5 million principally reflecting the higher total margin ($304.6 million) and the absence of the $13.3 million loss on extinguishments of debt recorded in Fiscal 2012 partially offset by higher Partnership operating and administrative expenses ($55.2 million) primarily attributable to the full-year effects of Heritage Propane operations. Operating


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and administrative expenses in Fiscal 2013 include $26.5 million of transition expenses associated with the integration of Heritage Propane while operating and administrative expenses in Fiscal 2012 include Heritage Propane acquisition and transition-related expenses of $46.2 million. Operating income increased $221.6 million in Fiscal 2013 principally reflecting the higher total margin ($304.6 million) partially offset by the previously mentioned greater operating and administrative expenses ($55.2 million) and increased depreciation and amortization expense ($33.7 million) reflecting in large part the full-year effects of Heritage Propane. Interest expense was $22.8 million higher in Fiscal 2013 principally reflecting the full-year effects of interest on long-term debt used to fund the Heritage Propane acquisition.

Fiscal 2012 Compared with Fiscal 2011
                                                                               Increase
(Dollars in millions)                     2012            2011                (Decrease)
Gallons sold (millions):
Retail                                   1,017.5           874.2           143.3          16.4  %
Wholesale                                  105.6           124.8           (19.2 )       (15.4 )%
                                         1,123.1           999.0           124.1          12.4  %
Revenues:
Retail propane                        $  2,536.3      $  2,173.5      $    362.8          16.7  %
Wholesale propane                          141.3           187.0           (45.7 )       (24.4 )%
Other                                      244.0           177.5            66.5          37.5  %
                                      $  2,921.6      $  2,538.0      $    383.6          15.1  %
Total margin (a)                      $  1,201.9      $    932.7      $    269.2          28.9  %
Operating and administrative
expenses                              $    888.7      $    620.6      $    268.1          43.2  %
EBITDA (b)                            $    324.7      $    297.1      $     27.6           9.3  %
Operating income                      $    170.6      $    242.9      $    (72.3 )       (29.8 )%
Net income attributable to AmeriGas
Partners                              $     11.0      $    138.5      $   (127.5 )       (92.1 )%
Heating degree days - %
(warmer) than normal (c)                   (18.6 )%         (1.0 )%            -             -

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

(b) 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 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 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. UGI Corporation discloses the Partnership's EBITDA as the profitability measure to comply with the GAAP requirement to provide profitability information about its domestic propane segment. EBITDA for Fiscal 2012 and Fiscal 2011 includes net pre-tax losses of $13.3 million and $38.1 million, respectively, associated with extinguishments of debt. EBITDA and operating income for Fiscal 2012 include acquisition and transition expenses of $46.2 million associated with Heritage Propane.


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

                                                   Fiscal
                                               2012       2011
Net income attributable to AmeriGas Partners $  11.0    $ 138.5
Income tax expense                               2.0        0.4
Interest expense                               142.6       63.5
Depreciation                                   134.2       83.0
Amortization                                    34.9       11.7
EBITDA                                       $ 324.7    $ 297.1

(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.

Based upon heating degree-day data, temperatures in the Partnership's service territories during Fiscal 2012 averaged 18.6% warmer than normal and 18.3% warmer than Fiscal 2011. The winter heating season also came to an early end with temperatures in the month of March averaging 38% warmer than normal. Notwithstanding the record warm weather's impact on our legacy volumes, retail propane gallons sold were 143.3 million gallons greater than in the prior year reflecting the impact of Heritage Propane.

Retail propane revenues increased $362.8 million during Fiscal 2012 primarily reflecting higher retail volumes sold. The higher retail volumes sold reflects incremental gallons sold associated with Heritage Propane partially offset by the effects of weather-reduced volumes in our legacy operations. Wholesale propane revenues decreased $45.7 million principally reflecting lower wholesale volumes sold ($28.8 million) and lower average wholesale propane selling prices ($16.9 million). Average daily wholesale propane commodity prices during Fiscal 2012 at Mont Belvieu, Texas, one of the major supply points in the U.S., were approximately 20% lower than such prices during Fiscal 2011. Total revenues from fee income and other ancillary sales and services in Fiscal 2012 were $66.5 million higher than Fiscal 2011 reflecting such revenues from Heritage Propane. Total cost of sales increased $114.4 million principally reflecting incremental cost of sales from Heritage Propane offset in part by both the previously mentioned lower retail and wholesale volumes sold by our legacy operations and the lower average propane commodity prices.

Total margin increased $269.2 million in Fiscal 2012 reflecting higher total propane margin ($220.7 million) and higher total margin from ancillary sales and services ($48.5 million). The increases principally reflect incremental margin from Heritage Propane partially offset by lower total propane margin from our legacy operations resulting from the significantly warmer weather.

EBITDA (which includes the losses on extinguishments of debt) in Fiscal 2012 increased $27.6 million principally reflecting the higher total margin ($269.2 million) and a $24.8 million lower loss from extinguishments of debt partially offset by higher operating and administrative expenses ($268.1 million) primarily attributable to Heritage Propane. Fiscal 2012 operating and administrative expenses include $46.2 million of acquisition and transition expenses associated with Heritage Propane. Operating income (which excludes the losses on extinguishments of debt) decreased $72.3 million in Fiscal 2012 principally reflecting the higher total margin ($269.2 million) more than offset by the increased operating and administrative costs ($268.1 million) and greater depreciation and amortization expense ($74.4 million) principally associated with Heritage Propane. Interest expense was $79.1 million higher in Fiscal 2012 principally reflecting interest on long-term debt used to fund the Heritage Propane acquisition.

Financial Condition and Liquidity
Capitalization and Liquidity
The Partnership's debt outstanding at September 30, 2013, totaled $2,417.0 million (including current maturities of long-term debt of $12.0 million and bank loans of $116.9 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 September 30, 2013, including current maturities, comprises $2,250.8 million of AmeriGas Partners' Senior Notes, $32.0 million of HOLP Senior Notes and $17.3 million of other long-term debt.


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In order to finance the cash portion of the acquisition of Heritage Propane, on January 12, 2012, AmeriGas Finance Corp. and AmeriGas Finance LLC (the "Issuers") issued $550 million principal amount of 6.75% Notes due May 2020 (the "6.75% Notes") and $1 billion principal amount of 7.00% Notes due May 2022 (the "7.00% Notes). The 6.75% Notes and the 7.00% Notes are fully and unconditionally guaranteed on a senior unsecured basis by AmeriGas Partners. The 6.75% Notes and the 7.00% Notes and the guarantees rank equal in right of payment with all of AmeriGas Partners' existing Senior Notes. In connection with the acquisition of Heritage Propane, AmeriGas Partners, AmeriGas Finance Corp., AmeriGas Finance LLC and UGI entered into a Contingent Residual Support Agreement ("CRSA") with ETP pursuant to which ETP will provide contingent, residual support of $1.5 billion of debt ("Supported Debt" as defined in the CRSA).

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. At September 30, 2013, AmeriGas OLP had a $525 million unsecured credit agreement ("Credit Agreement") which is scheduled to expire in October 2016.
At September 30, 2013 and 2012, there were $116.9 million and $49.9 million of borrowings outstanding under the Credit Agreement, respectively. The average interest rates on the Credit Agreement borrowings at September 30, 2013 and 2012, were 2.69% and 2.72%, respectively. Borrowings under the Credit Agreement are classified as bank loans on the Consolidated Balance Sheets. Issued and outstanding letters of credit under the Credit Agreement, which reduce the amounts available for borrowings, totaled $53.7 million and $47.9 million at September 30, 2013 and 2012, respectively. The average daily and peak bank loan borrowings outstanding under the Credit Agreement during Fiscal 2013 were $103.8 million and $200.5 million, respectively. The average daily and peak bank loan borrowings outstanding under credit agreements during Fiscal 2012 were $95.3 million and $239.5 million, respectively. At September 30, 2013, the Partnership's available borrowing capacity under the Credit Agreement was $354.4 million.
Based on existing cash balances, cash expected to be generated from operations, and borrowings available under the Credit Agreement, the Partnership's management believes that the Partnership will be able to meet its anticipated contractual commitments and projected cash needs during Fiscal 2014. For a more detailed discussion of the Credit Agreement, 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 Fourth 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. 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). When 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 2013, Fiscal 2012 and Fiscal 2011 were as follows:

                      Fiscal
             2013      2012      2011
1st Quarter  $0.80    $0.7400    $0.705
2nd Quarter  0.80     0.7625     0.705
3rd Quarter  0.84     0.8000     0.740
4th Quarter  0.84     0.8000     0.740


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During Fiscal 2013, Fiscal 2012 and Fiscal 2011, the Partnership made quarterly distributions to Common Unitholders in excess of $0.605 per limited partner unit. As a result, the General Partner received a greater percentage of the total Partnership distribution than its aggregate 2% general partner interest in AmeriGas OLP and AmeriGas Partners. The total amount of distributions received by the General Partner with respect to its aggregate 2% general partner ownership interests totaled $27.4 million in Fiscal 2013, $19.7 million in Fiscal 2012 and $9.0 million in Fiscal 2011. Included in these amounts are incentive distributions received by the General Partner during Fiscal 2013, Fiscal 2012 and Fiscal 2011 of $19.3 million, $13.0 million and $5.0 million, respectively.
Cash Flows
Operating activities. Due to the seasonal nature of the Partnership's business, cash flows from operating activities are generally greatest 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 agreements to satisfy its seasonal operating cash flow needs.
Cash flow from operating activities was $355.6 million in Fiscal 2013, $344.4 million in Fiscal 2012 and $188.9 million in Fiscal 2011. Cash flow from operating activities before changes in operating working capital was $439.3 million in Fiscal 2013, $211.3 million in Fiscal 2012 and $283.7 million in Fiscal 2011. Cash provided by (used to) fund changes in operating working capital totaled $(83.7) million in Fiscal 2013, $133.2 million in Fiscal 2012 and $(94.9) million in Fiscal 2011. Cash flow from changes in operating working capital primarily reflects the impact of propane prices on cash receipts from customers as reflected in changes in accounts receivable and cash paid for propane purchased as reflected in changes in inventories and accounts payable. The greater cash flow from operating activities before changes in operating working capital in Fiscal 2013 largely reflects the full year effects of the operations of Heritage Propane and the improved operating results. The greater cash provided by changes in working capital in Fiscal 2012 largely reflects the timing of the acquisition of Heritage Propane on cash receipts from Heritage Propane customers and the effects of lower volumes sold on changes in accounts receivable from our legacy operations.
Investing activities. Investing activity cash flow principally comprises expenditures for property, plant and equipment, cash paid for acquisitions of businesses and proceeds from sales of assets. Cash flow used in investing activities was $108.9 million in Fiscal 2013, $1,520.1 million in Fiscal 2012 and $106.1 million in Fiscal 2011. Fiscal 2012 cash flow used in investing activities reflects cash used for the acquisition of Heritage Propane. We spent $111.1 million for property, plant and equipment (comprising $51.5 million of maintenance capital expenditures, $20.4 million of capital expenditures associated with Heritage Propane integration activities and $39.2 million of growth capital expenditures) in Fiscal 2013; $103.1 million for property, plant and equipment (comprising $45.0 million of maintenance capital expenditures, $17.6 million of capital expenditures associated with Heritage Propane integration activities and $40.5 million of growth capital expenditures) in Fiscal 2012; and $77.2 million for property, plant and equipment (comprising $38.2 million of maintenance capital expenditures and $39.0 million of growth capital expenditures) in Fiscal 2011. Cash paid for acquisitions in Fiscal 2012 principally reflects the January 2012 acquisition of Heritage Propane. Financing activities. Financing activity cash flow principally comprises distributions on AmeriGas Partners Common Units, issuances and repayments of long-term debt, bank loan borrowings, and issuances of AmeriGas Partners Common Units. Cash flow provided (used) by financing activities was $(294.2) million in Fiscal 2013, $1,227.1 million in Fiscal 2012 and $(81.8) million in Fiscal 2011. The greater distributions in Fiscal 2013 primarily reflects the higher quarterly per-unit distribution rates and the full-year impact of a greater number of Common Units outstanding. The greater distributions in Fiscal 2012 compared to Fiscal 2011 reflects a greater number of Common Units outstanding, due to the . . .

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