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APU > SEC Filings for APU > Form 10-Q on 9-May-2014All Recent SEC Filings

Show all filings for AMERIGAS PARTNERS LP

Form 10-Q for AMERIGAS PARTNERS LP


9-May-2014

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," 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, 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 (i) our Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2013 and
(ii) our Annual Report on Form 10-K for the fiscal year ended September 30, 2013, 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, 2014 ("2014 three-month period") with the three months ended March 31, 2013 ("2013 three-month period") and the six months ended March 31, 2014 ("2014 six-month period") with the six months ended March 31, 2013 ("2013 six-month period").

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AMERIGAS PARTNERS, L.P.

Executive Overview
During the 2014 three-month period, average temperatures were significantly colder than the prior-year period. Most of the United States east of the Rocky Mountains experienced significantly colder than normal winter weather. As a result of this colder than normal winter weather, an increase in propane exports and a record volume of propane sales during the fall 2013 crop drying season which reduced propane inventories entering the winter peak heating season, the retail propane industry experienced significant logistical and infrastructure challenges caused by industry-wide storage and transportation issues principally during January and February 2014. The logistical challenges resulted in supply shortages in certain regions of the United States and also led to significant increases in wholesale propane supply costs at a number of major supply hubs. Net income attributable to AmeriGas Partners for the 2014 three-month period was $240.1 million compared with net income attributable to AmeriGas Partners of $213.2 million for the 2013 three-month period. Average temperatures based upon heating degree days were approximately 8.1% colder than normal and 9.7% colder than the prior-year three-month period. Most of the U.S. east of the Rocky Mountains experienced significantly colder than normal winter weather while temperatures in the western U.S. were warmer than normal. The higher net income in the current year primarily reflects modestly higher retail unit margins and the colder weather's impact on retail propane volumes sold. The beneficial effects of the colder weather on retail volumes sold were muted, however, by wholesale supply challenges in certain regions of the U.S. caused by industry-wide storage and transportation issues exacerbated by prolonged periods of unusually cold weather. In order to assure that customers in these regions were adequately supplied, the Partnership instituted supply allocation measures which limited total retail volumes sold and increased distribution costs per gallon. Our attention on ensuring adequate supply of propane to retail customers during these periods of short supply also reduced income from ancillary sales and services. Notwithstanding expense synergies achieved from the completion of the Heritage Propane integration in Fiscal 2013, operating and administrative expenses were modestly higher in the current-year period reflecting, among other things, the higher distribution costs and higher uncollectible accounts expense. Results for the 2013 three-month period include $5.4 million of transition costs associated with Heritage Propane.
Net income attributable to AmeriGas Partners for the 2014 six-month period was $375.0 million compared with net income attributable to AmeriGas Partners of $309.9 million for the 2013 six-month period. Average temperatures based upon heating degree days during the 2014 six-month period were approximately 6.2% colder than normal and 11.5% colder than the prior-year six-month period. The higher net income primarily reflects modestly higher average retail unit margins and the colder weather's impact on retail propane volumes sold partially offset by the impact on retail volumes sold of supply allocation measures instituted by the Partnership in certain regions experiencing supply constraints. Operating and administrative expenses were slightly higher in the current-year period reflecting, among other things, the previously mentioned higher distribution expenses and higher uncollectible accounts expense partially offset by the full benefits from the integration of Heritage Propane completed in Fiscal 2013. Results for the 2013 six-month period include $10.9 million of transition costs associated with Heritage Propane.
2014 three-month period compared with 2013 three-month period

Three Months Ended March 31,                 2014           2013             Increase (Decrease)
(millions of dollars)
Gallons sold (millions):
Retail                                        474.9          464.4             10.5            2.3  %
Wholesale                                      35.3           39.0             (3.7 )         (9.5 )%
                                              510.2          503.4              6.8            1.4  %
Revenues:
Retail propane                           $  1,365.5     $  1,057.0      $     308.5           29.2  %
Wholesale propane                              55.9           41.4             14.5           35.0  %
Other                                          72.2           77.8             (5.6 )         (7.2 )%
                                         $  1,493.6     $  1,176.2      $     317.4           27.0  %
Total margin (a)                         $    608.1     $    563.8      $      44.3            7.9  %
Operating and administrative expenses    $    281.3     $    265.3      $      16.0            6.0  %
EBITDA (b)                               $    331.2     $    303.6      $      27.6            9.1  %
Operating income (b)                     $    284.9     $    257.5      $      27.4           10.6  %
Net income attributable to AmeriGas
Partners                                 $    240.1     $    213.2      $      26.9           12.6  %
Degree days - % colder (warmer) than
normal (c)                                      8.1 %         (1.5 )%             -              -

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AMERIGAS PARTNERS, L.P.

(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, includes transition expenses of $5.4 million associated with the integration of Heritage Propane.

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)                              2014          2013
Net income attributable to AmeriGas Partners   $    240.1      $ 213.2
Income tax benefit                                   (0.1 )          -
Interest expense                                     42.0         41.8
Depreciation                                         38.4         37.6
Amortization                                         10.8         11.0
EBITDA                                         $    331.2      $ 303.6

(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 2014 three-month period increased 2.3% from the 2013 three-month period. The increase in retail gallons sold reflects average temperatures based upon heating degree days that were 8.1% colder than normal and 9.7% colder than the prior-year period. Most of the U.S. east of the Rocky Mountains experienced significantly colder than normal winter weather while temperatures in the western U.S. were warmer than normal. The beneficial effects of the colder weather on retail volumes sold, however, were muted by supply challenges in certain regions of the U.S. caused by industry-wide storage and transportation issues exacerbated by prolonged periods of unusually cold weather. In order to ensure that customers in these regions were adequately supplied during these periods of cold weather, the Partnership instituted supply allocation measures which limited total retail volumes sold and increased distribution costs per gallon. The Partnership's attention on assuring adequate supply of propane to retail customers during these periods of short supply reduced income from ancillary sales and services.
Retail propane revenues increased $308.5 million during the 2014 three-month period reflecting the effects of higher average retail selling prices ($284.6 million), largely the result of higher propane product costs, and the higher retail volumes sold ($23.9 million). Wholesale propane revenues increased $14.5 million during the 2014 three-month period reflecting the effects of higher wholesale selling prices ($18.4 million) partially offset by the effects of lower wholesale volumes sold ($3.9 million). Average daily wholesale propane commodity prices during the 2014 three-month period at Mont Belvieu, Texas, one of the major supply points in the U.S., were approximately 51% higher than such prices during the prior-year three-month period. In addition, certain regions of the U.S. experienced an even greater increase in wholesale commodity prices due to supply constraints caused by industry-wide storage and transportation issues exacerbated by the unusually cold weather conditions. Total revenues from fee income and other ancillary sales and services in the 2014 three-month period were slightly lower than in the 2013 three-month period. Total cost of sales during the 2014 three-month period increased $273.1 million principally reflecting the effects of the higher average propane product costs ($246.4 million) and, to a lesser extent, the effects of the greater retail volumes sold ($12.5 million).

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AMERIGAS PARTNERS, L.P.

Total margin increased $44.3 million in the 2014 three-month period principally reflecting higher retail propane total margin ($49.6 million) partially offset by lower margin from ancillary sales and services. The increase in retail propane total margin reflects modestly higher average retail propane unit margins and the increase in retail volumes sold.
EBITDA in the 2014 three-month period increased $27.6 million principally reflecting the higher total margin ($44.3 million) partially offset by higher operating and administrative expenses ($16.0 million). The increase in operating and administrative expenses reflects in large part higher distribution-related expenses associated with the higher retail volumes sold as well as higher distribution costs caused by the supply shortages in certain regions of the U.S. and greater uncollectible accounts expense. These higher distribution-related expenses were partially offset by synergies from the integration of Heritage Propane which was completed in Fiscal 2013. Operating and administrative expenses in the prior-year three-month period include $5.4 million of transition expenses associated with the integration of Heritage Propane. Operating income increased $27.4 million in the 2014 three-month period principally reflecting the higher total margin ($44.3 million) partially offset by the higher operating and administrative expenses ($16.0 million).
2014 six-month period compared with 2013 six-month period

Six Months Ended March 31,                   2014           2013             Increase (Decrease)
(millions of dollars)
Gallons sold (millions):
Retail                                        849.0          815.1             33.9            4.2  %
Wholesale                                      72.8           65.3              7.5           11.5  %
                                              921.8          880.4             41.4            4.7  %
Revenues:
Retail propane                           $  2,283.5     $  1,826.6      $     456.9           25.0  %
Wholesale propane                             108.2           68.9             39.3           57.0  %
Other                                         147.7          157.4             (9.7 )         (6.2 )%
                                         $  2,539.4     $  2,052.9      $     486.5           23.7  %
Total margin (a)                         $  1,071.3     $    988.4      $      82.9            8.4  %
Operating and administrative expenses    $    518.9     $    508.8      $      10.1            2.0  %
EBITDA (b)                               $    561.5     $    491.4      $      70.1           14.3  %
Operating income (b)                     $    464.6     $    397.4      $      67.2           16.9  %
Net income attributable to AmeriGas
Partners                                 $    375.0     $    309.9      $      65.1           21.0  %
Degree days - % colder (warmer) than
normal (c)                                      6.2 %         (4.7 )%             -              -

(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 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, includes acquisition and transition expenses of $10.9 million associated with the integration of Heritage Propane.

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

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                            AMERIGAS PARTNERS, L.P.



                                                  Six Months Ended
                                                     March 31,
(millions of dollars)                             2014         2013
Net income attributable to AmeriGas Partners   $    375.0    $ 309.9
Income tax expense                                    1.4        0.6
Interest expense                                     83.6       83.0
Depreciation                                         79.9       75.9
Amortization                                         21.6       22.0
EBITDA                                         $    561.5    $ 491.4

(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.

Retail gallons sold in the 2014 six-month period increased 4.2% compared with the 2013 six-month period. The increase in retail gallons sold reflects average temperatures based upon heating degree days that were 6.2% colder than normal and 11.5% colder than the prior-year period principally reflecting significantly colder weather in the eastern half of the United States. The effects of the colder weather, however, were muted by supply challenges in certain regions of the U.S. experienced during the winter heating season caused by prolonged periods of unusually cold weather. In order to ensure that customers in these regions were adequately supplied during these extreme weather conditions, the Partnership instituted supply allocation measures which limited total retail volumes sold and increased distribution costs per gallon.
Retail propane revenues increased $456.9 million during the 2014 six-month period reflecting the effects of higher average retail selling prices ($381.0 million), largely the result of higher propane product costs, and the higher retail volumes sold ($75.9 million). Wholesale propane revenues increased $39.3 million during the 2014 six-month period reflecting the effects of higher wholesale selling prices ($31.4 million) and higher wholesale volumes sold ($7.9 million). Average daily wholesale propane commodity prices during the 2014 six-month period at Mont Belvieu, Texas, one of the major supply points in the U.S., were approximately 43% higher than such prices during the prior-year six-month period. In addition, certain regions of the U.S. experienced an even greater increase in wholesale commodity prices due to supply constraints caused by industry-wide storage and transportation issues exacerbated by the unusually cold weather conditions. Total revenues from fee income and other ancillary sales and services in the 2014 six-month period were lower than in the 2013 six-month period. Total cost of sales during the 2014 six-month period increased $403.7 million principally reflecting the effects of the higher average propane product costs ($358.6 million) and, to a lesser extent, the effects of the greater retail and wholesale volumes sold ($47.4 million).
Total margin increased $82.9 million in the 2014 six-month period principally reflecting higher retail propane total margin ($89.0 million) partially offset by lower margin from ancillary sales and services. The increase in retail propane total margin reflects modestly higher average retail propane unit margins and the increase in retail volumes sold.
EBITDA in the 2014 six-month period increased $70.1 million principally reflecting the higher total margin ($82.9 million) partially offset by higher operating and administrative expenses ($10.1 million). The increase in operating and administrative expenses reflects, among other things, higher distribution-related expenses associated with the higher retail volumes sold, higher distribution costs caused by the supply challenges in certain regions of the U.S. during the second quarter of Fiscal 2014, and higher uncollectible accounts and general insurance expenses. These increases were partially offset by expense synergies from the integration of Heritage Propane completed in Fiscal 2013. Operating and administrative expenses in the prior-year six-month period include $10.9 million of transition expenses associated with the integration of Heritage Propane. Operating income increased $67.2 million in the 2014 six-month period principally reflecting the higher total margin ($82.9 million) partially offset by the slightly higher operating and administrative expenses ($10.1 million).
FINANCIAL CONDITION AND LIQUIDITY
Financial Condition
The Partnership's debt outstanding at March 31, 2014, totaled $2,494.0 million (including current maturities of long-term debt of $9.8 million and bank loans of $198.0 million). 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). Total long-term debt outstanding at March 31, 2014, including current maturities, comprises $2,250.8 million of AmeriGas Partners' Senior Notes and $45.2 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.

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AMERIGAS PARTNERS, L.P.

At March 31, 2014, there were $198.0 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 $64.7 million at March 31, 2014. The average daily and peak bank loan borrowings outstanding under the Credit Agreement during the 2014 six-month period were $203.4 million and $320 million, respectively. 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. At March 31, 2014, the Partnership's available borrowing capacity under the Credit Agreement was $262.3 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.

On April 28, 2014, the General Partner's Board of Directors approved a quarterly distribution of $0.88 per Common Unit, equal to an annual rate of $3.52. This distribution is a 4.8% increase from the previous quarterly rate of $0.84 per Common Unit. The new quarterly rate is effective with the distribution payable on May 19, 2014, to unitholders of record on May 9, 2014. During the six months ended March 31, 2014, the Partnership declared and paid quarterly distributions on all limited partner units at a rate of $0.84 per Common Unit for the quarters ended December 31, 2013, and September 30, 2013.

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 . . .

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