<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file number 1-13692
Commission file number 33-92734-01
AMERIGAS PARTNERS, L.P.
AMERIGAS FINANCE CORP.
(Exact name of registrants as specified in their charters)
Delaware 23-2787918
Delaware 23-2800532
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
460 North Gulph Road, King of Prussia, PA
(Address of principal executive offices)
19406
(Zip Code)
(610) 337-7000
(Registrants' telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
At January 31, 1999, the registrants had units and shares of common stock
outstanding as follows:
AmeriGas Partners, L.P. - 22,105,993 Common Units
19,782,146 Subordinated Units
AmeriGas Finance Corp. - 100 shares
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AMERIGAS PARTNERS, L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGES
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
AmeriGas Partners, L.P.
Condensed Consolidated Balance Sheets as of December 31, 1998,
September 30, 1998 and December 31, 1997 1
Condensed Consolidated Statements of Operations for the three
and twelve months ended December 31, 1998 and 1997 2
Condensed Consolidated Statements of Cash Flows for the three
and twelve months ended December 31, 1998 and 1997 3
Condensed Consolidated Statement of Partners' Capital for the
three months ended December 31, 1998 4
Notes to Condensed Consolidated Financial Statements 5 - 7
AmeriGas Finance Corp.
Balance Sheets as of December 31, 1998 and September 30, 1998 8
Note to Balance Sheets 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10 - 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16 - 17
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
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AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Thousands of dollars)
<TABLE>
<CAPTION>
December 31, September 30, December 31,
1998 1998 1997
---------------- --------------- ----------------
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 14,070 $ 8,873 $ 24,375
Accounts receivable (less allowances for doubtful accounts
of $6,599, $6,432, and $8,072, respectively) 86,857 58,778 118,331
Inventories 43,250 49,394 78,746
Prepaid expenses and other current assets 15,032 16,301 11,721
---------------- --------------- ----------------
Total current assets 159,209 133,346 233,173
Property, plant and equipment (less accumulated depreciation and
amortization of $214,526, $205,083, and $175,832, respectively) 440,391 442,042 444,727
Intangible assets (less accumulated amortization of $147,450,
$141,382, and $122,831, respectively) 625,180 629,355 672,123
Other assets 13,048 12,473 13,740
---------------- --------------- ----------------
Total assets $ 1,237,828 $ 1,217,216 $ 1,363,763
================ =============== ================
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current maturities of long-term debt $ 6,194 $ 6,068 $ 6,544
Bank loans 62,000 10,000 75,000
Accounts payable - trade 44,018 34,075 53,544
Accounts payable - related parties 2,206 6,799 3,396
Other current liabilities 82,514 103,355 70,177
---------------- --------------- ----------------
Total current liabilities 196,932 160,297 208,661
Long-term debt 693,634 702,926 696,263
Other noncurrent liabilities 48,985 50,069 51,784
Commitments and contingencies
Minority interest 4,019 4,049 5,115
Partners' capital 294,258 299,875 401,940
---------------- --------------- ----------------
Total liabilities and partners' capital $ 1,237,828 $ 1,217,216 $ 1,363,763
================ =============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 4
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(Thousands of dollars, except per unit)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
December 31, December 31,
-------------------------------- --------------------------------
1998 1997 1998 1997
---------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Propane $ 212,145 $ 277,523 $ 769,249 $ 939,829
Other 25,639 25,400 79,990 80,803
---------------- ------------ ------------- ---------------
237,784 302,923 849,239 1,020,632
---------------- ------------ ------------- ---------------
Costs and expenses:
Cost of sales - propane 93,434 151,633 352,514 523,667
Cost of sales - other 11,094 11,527 32,614 35,157
Operating and administrative expenses 83,590 80,867 322,943 313,652
Depreciation and amortization 15,578 15,582 63,221 62,086
Other income, net (704) (723) (726) (10,641)
---------------- ------------ ------------- ---------------
202,992 258,886 770,566 923,921
---------------- ------------ ------------- ---------------
Operating income 34,792 44,037 78,673 96,711
Interest expense (16,664) (16,950) (65,903) (65,902)
---------------- ------------ ------------- ---------------
Income before income taxes 18,128 27,087 12,770 30,809
Income tax (expense) benefit (266) (340) 71 88
Minority interest (207) (296) (235) (417)
---------------- ------------ ------------- ---------------
Net income $ 17,655 $ 26,451 $ 12,606 $ 30,480
================ ============ ============= ===============
General partner's interest in net income $ 177 $ 265 $ 126 $ 305
================ ============ ============= ===============
Limited partners' interest in net income $ 17,478 $ 26,186 $ 12,480 $ 30,175
================ ============ ============= ===============
Income per limited partner unit $ 0.42 $ 0.63 $ 0.30 $ 0.72
================ ============ ============= ===============
Average limited partner units outstanding (thousands) 41,888 41,881 41,888 41,836
================ ============ ============= ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 5
AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
December 31, December 31,
-------------------------------- -------------------------------
1998 1997 1998 1997
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,655 $ 26,451 $ 12,606 $ 30,480
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 15,578 15,582 63,221 62,086
Other, net (117) 1,687 (4,629) 4,056
------------- ------------- ------------ -------------
33,116 43,720 71,198 96,622
Net change in:
Accounts receivable (29,025) (41,131) 28,010 28,123
Inventories and prepaid propane purchases 7,220 8,064 35,930 15,547
Accounts payable 5,529 1,846 (10,504) (26,398)
Other current assets and liabilities (21,596) (19,349) 10,378 (1,012)
------------- ------------- ------------ -------------
Net cash provided (used) by operating activities (4,756) (6,850) 135,012 112,882
------------- ------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (7,228) (6,987) (31,818) (24,904)
Proceeds from disposals of assets 935 667 5,421 10,537
Acquisitions of businesses, net of cash acquired (2,367) (1,388) (9,055) (12,096)
------------- ------------- ------------ -------------
Net cash used by investing activities (8,660) (7,708) (35,452) (26,463)
------------- ------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (23,272) (23,246) (93,085) (92,923)
Minority interest activity (237) (237) (1,040) (1,024)
Increase (decrease) in bank loans 52,000 47,000 (13,000) (2,000)
Issuance of long-term debt - 13,000 10,000 14,131
Repayment of long-term debt (9,878) (1,653) (12,752) (3,943)
Capital contribution from General Partner - - 12 26
------------- ------------- ------------ -------------
Net cash provided (used) by financing activities 18,613 34,864 (109,865) (85,733)
------------- ------------- ------------ -------------
Cash and cash equivalents increase (decrease) $ 5,197 $ 20,306 $ (10,305) $ 686
============= ============= ============ =============
CASH AND CASH EQUIVALENTS:
End of period $ 14,070 $ 24,375 $ 14,070 $ 24,375
Beginning of period 8,873 4,069 24,375 23,689
------------- ------------- ------------ -------------
Increase (decrease) $ 5,197 $ 20,306 $ (10,305) $ 686
============= ============= ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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AMERIGAS PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(unaudited)
(Thousands, except unit data)
<TABLE>
<CAPTION>
Number of units Total
---------------------------------- General partners'
Common Subordinated Common Subordinated partner capital
--------------- --------------- ----------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SEPTEMBER 30, 1998 22,105,993 19,782,146 $ 157,866 $ 139,012 $ 2,997 $ 299,875
Net income 9,224 8,254 177 17,655
Distributions (12,159) (10,880) (233) (23,272)
--------------- --------------- ----------- --------------- ------------ ------------
BALANCE DECEMBER 31, 1998 22,105,993 19,782,146 $ 154,931 $ 136,386 $ 2,941 $ 294,258
=============== =============== =========== =============== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 7
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars, except per unit)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
AmeriGas Partners, L.P. (AmeriGas Partners), its subsidiary AmeriGas
Propane, L.P. (the "Operating Partnership"), and their corporate
subsidiaries, together referred to in this report as "the Partnership"
or "we." We eliminate all significant intercompany accounts and
transactions when we consolidate. We account for AmeriGas Propane,
Inc.'s (the "General Partner's") 1.01% interest in the Operating
Partnership as a minority interest in the condensed consolidated
financial statements. Certain prior-period balances have been
reclassified to conform with the current period presentation.
The accompanying condensed consolidated financial statements are
unaudited and have been prepared in accordance with the rules and
regulations of the U.S. Securities and Exchange Commission. They
include all adjustments which we consider necessary for a fair
statement of the results for the interim periods presented. Such
adjustments consisted only of normal recurring items unless otherwise
disclosed. These financial statements should be read in conjunction
with the financial statements and related notes included in our Annual
Report on Form 10-K for the year ended September 30, 1998. Weather
significantly impacts demand for propane and profitability because many
customers use propane for heating purposes. Due to the seasonal nature
of the Partnership's propane business, the results of operations for
interim periods are not necessarily indicative of the results to be
expected for a full year.
Management makes estimates and assumptions when preparing financial
statements in conformity with generally accepted accounting principles.
These estimates and assumptions affect the reported amounts of assets
and liabilities, revenues and expenses, as well as the disclosure of
contingent assets and liabilities. Actual results could differ from
these estimates.
During the quarter ended December 31, 1998, we adopted Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income" (SFAS 130). SFAS 130 establishes standards for reporting and
displaying comprehensive income and its components in financial
statements. Comprehensive income includes net income and all other
nonowner changes in equity. The Partnership's comprehensive income was
the same as its net income for all periods presented.
-5-
<PAGE> 8
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars, except per unit)
During the quarter ended December 31, 1998, we adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
(SFAS 131). SFAS 131 establishes standards for reporting information
about operating segments as well as related disclosures about products
and services, geographic areas, and major customers. In determining our
reportable segments under the provisions of SFAS 131, we examined the
way we organize our business internally for making operating decisions
and assessing business performance. Based on this examination, we have
determined that we have a single reportable operating segment which
engages in the distribution of propane and related equipment and
supplies.
No single customer represents 1% or more of consolidated revenues. In
addition, virtually all of the Partnership's revenues are derived from
sources within the U.S., and virtually all of its long-lived assets are
located in the U.S.
2. RELATED PARTY TRANSACTIONS
In accordance with the Amended and Restated Agreement of Limited
Partnership of AmeriGas Partners, the General Partner is entitled to
reimbursement of all direct and indirect expenses incurred or payments
it makes on behalf of the Partnership, and all other necessary or
appropriate expenses allocable to the Partnership or otherwise
reasonably incurred by the General Partner in connection with the
Partnership's business. These costs totaled $49,761 and $48,408 during
the three months ended December 31, 1998 and 1997, respectively. During
the twelve months ended December 31, 1998 and 1997, such expenses
totaled $186,270 and $179,798, respectively. In addition, UGI
Corporation (UGI) provides certain financial and administrative
services to the General Partner. UGI bills the General Partner for
these direct and indirect corporate expenses, and the General Partner
is reimbursed by the Partnership for these expenses. During the three
months ended December 31, 1998 and 1997, such corporate expenses
totaled $1,348 and $1,452, respectively. During the twelve months ended
December 31, 1998 and 1997, such corporate expenses totaled $5,831 and
$6,528, respectively.
3. COMMITMENTS AND CONTINGENCIES
The Partnership has succeeded to certain lease guarantee obligations of
Petrolane Incorporated (Petrolane), a predecessor company of the
Partnership, relating to Petrolane's divestiture of nonpropane
operations before its 1989 acquisition by QFB Partners. Lease payments
under these leases total approximately $51,000 at December 31, 1998.
The leases expire through 2010, and some of them are currently in
default. The Partnership has succeeded to the indemnity agreement of
Petrolane by which Texas Eastern Corporation (Texas Eastern), a prior
owner of Petrolane, agreed to indemnify
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<PAGE> 9
AMERIGAS PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars, except per unit)
Petrolane against any liabilities arising out of the conduct of
businesses that do not relate to, and are not a part of, the propane
business, including lease guarantees. To date, Texas Eastern has
directly satisfied defaulted lease obligations without the Partnership
having to honor its guarantee. The Partnership believes the probability
that it will be required to directly satisfy such lease obligations is
remote.
In addition, the Partnership has succeeded to Petrolane's agreement to
indemnify Shell Petroleum N.V. (Shell) for various scheduled claims
that were pending against Tropigas de Puerto Rico (Tropigas). Petrolane
had entered into this indemnification agreement in conjunction with its
sale of the international operations of Tropigas to Shell in 1989. The
Partnership also succeeded to Petrolane's right to seek indemnity on
these claims first from International Controls Corp., which sold
Tropigas to Petrolane, and then from Texas Eastern. To date, neither
the Partnership nor Petrolane has paid any sums under this indemnity,
but several claims by Shell, including claims related to certain
antitrust actions aggregating at least $68,000, remain pending.
In addition to these matters, there are other pending claims and legal
actions arising in the normal course of our business. We cannot predict
with certainty the final results of these matters. However, it is
reasonably possible that some of them could be resolved unfavorably to
us. Management believes, after consultation with counsel, that damages
or settlements, if any, recovered by the plaintiffs in such claims or
actions will not have a material adverse effect on our financial
position but could be material to our operating results or cash flows
in future periods depending on the nature and timing of future
developments with respect to these matters and the amounts of future
operating results and cash flows.
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<PAGE> 10
AMERIGAS FINANCE CORP.
(a wholly owned subsidiary of AmeriGas Partners, L.P.)
BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------ -------------
<S> <C> <C>
ASSETS
Cash $ 1,000 $ 1,000
------------ -------------
Total assets $ 1,000 $ 1,000
============ =============
STOCKHOLDER'S EQUITY
Common stock, $.01 par value; 100 shares authorized,
issued and outstanding $ 1 $ 1
Additional paid-in capital 999 999
------------ -------------
Total stockholder's equity $ 1,000 $ 1,000
============ =============
</TABLE>
The accompanying note is an integral part of these financial statements.
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<PAGE> 11
AMERIGAS FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF AMERIGAS PARTNERS, L.P.)
NOTE TO BALANCE SHEETS
AmeriGas Finance Corp. (AmeriGas Finance), a Delaware corporation, was formed on
March 13, 1995 and is a wholly owned subsidiary of AmeriGas Partners, L.P.
(AmeriGas Partners).
On April 19, 1995, AmeriGas Partners issued $100,000,000 face value of 10.125%
Senior Notes due April 2007. AmeriGas Finance serves as a co-obligor of these
notes.
AmeriGas Partners owns all 100 shares of AmeriGas Finance Common Stock
outstanding.
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<PAGE> 12
AMERIGAS PARTNERS, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ANALYSIS OF RESULTS OF OPERATIONS
The following analyses compare the Partnership's results of operations for (1)
the three months ended December 31, 1998 (1998 three-month period) with the
three months ended December 31, 1997 (1997 three-month period) and (2) the
twelve months ended December 31, 1998 (1998 twelve-month period) with the twelve
months ended December 31, 1997 (1997 twelve-month period). AmeriGas Finance
Corp. has nominal assets and does not conduct any operations. Accordingly, a
discussion of the results of operations and financial condition and liquidity of
AmeriGas Finance Corp. is not presented.
1998 THREE-MONTH PERIOD COMPARED WITH 1997 THREE-MONTH PERIOD
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Increase
Three Months Ended December 31, 1998 1997 (Decrease)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Millions of dollars)
Gallons sold (millions):
Retail 220.7 248.6 (27.9) (11.2)%
Wholesale 48.1 82.7 (34.6) (41.8)%
------ ------ -----
268.8 331.3 (62.5) (18.9)%
====== ====== =====
Revenues:
Retail propane $193.7 $240.2 $(46.5) (19.4)%
Wholesale propane 18.4 37.3 (18.9) (50.7)%
Other 25.7 25.4 .3 1.2%
------ ------ ------
$237.8 $302.9 $(65.1) (21.5)%
====== ====== ======
Total margin $133.3 $139.8 $ (6.5) (4.6)%
EBITDA (a) $ 50.4 $ 59.6 $ (9.2) (15.4)%
Operating income $ 34.8 $ 44.0 $ (9.2) (20.9)%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) EBITDA (earnings before interest expense, income taxes, depreciation and
amortization) should not be considered as an alternative to net income
(as an indicator of operating performance) or as an alternative to cash
flow (as a measure of liquidity or ability to service debt obligations)
and is not a measure of performance or financial condition under
generally accepted accounting principles.
Retail volumes sold during the 1998 three-month period were lower than the
prior-year period due primarily to significantly warmer weather. Based upon
degree day information obtained from
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<PAGE> 13
AMERIGAS PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
the National Oceanic and Atmospheric Administration (NOAA) for 335 airports in
the continental U.S., weather during the three months ended December 31, 1998
was 11.0% warmer than normal and 12.2% warmer than the same period last year.
Although weather-sensitive heating volumes declined the most, agricultural
volumes were also down as a result of the warmer than normal weather and a dry
autumn which reduced demand for crop drying. Wholesale volumes of propane sold
were lower in the 1998 three-month period due to reduced low margin sales of
storage inventories and, to a lesser extent, the effects of the warmer weather.
Total revenues from retail propane sales decreased $46.5 million during the 1998
three-month period reflecting (1) a $27.0 million decrease as a result of the
lower volumes sold and (2) a $19.5 million decrease from a reduction in average
selling prices. Wholesale revenues declined $18.9 million during the 1998
three-month period due to (1) a $15.6 million reduction from the lower volumes
sold and (2) a $3.3 million decrease from lower average selling prices. The
lower average retail and wholesale selling prices were due to significantly
lower propane product costs.
Total margin decreased $6.5 million in the 1998 three-month period as a result
of the lower retail volumes sold. The decline in total margin resulting from the
lower sales was partially offset by higher average retail unit margins. The
higher average retail unit margins reflect lower propane product costs during
the three months ended December 31, 1998.
The decrease in EBITDA and operating income in the 1998 three-month period
primarily reflects (1) the decline in total margin and (2) modestly higher
operating expenses. Operating expenses were $83.6 million during the three
months ended December 31, 1998 compared with $80.9 million in the same period
last year. The increase in operating expenses principally resulted from (1)
higher compensation and benefit expenses and (2) higher vehicle repair and lease
expense.
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<PAGE> 14
AMERIGAS PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
1998 TWELVE-MONTH PERIOD COMPARED WITH 1997 TWELVE-MONTH PERIOD
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Increase
Twelve Months Ended December 31, 1998 1997 (Decrease)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Millions of dollars)
Gallons sold (millions):
Retail 757.4 804.3 (46.9) (5.8)%
Wholesale 170.5 232.7 (62.2) (26.7)%
------- -------- -------
927.9 1,037.0 (109.1) (10.5)%
======= ======== =======
Revenues:
Retail propane $ 699.6 $ 822.5 $(122.9) (14.9)%
Wholesale propane 69.6 117.3 (47.7) (40.7)%
Other 80.0 80.8 (.8) (1.0)%
------- --------- -------
$ 849.2 $ 1,020.6 $(171.4) (16.8)%
======= ========= =======
Total margin $ 464.1 $ 461.8 $ 2.3 .5%
EBITDA $ 141.9 $ 158.8 $ (16.9) (10.6)%
Operating income $ 78.7 $ 96.7 $ (18.0) (18.6)%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
We sold fewer retail gallons of propane in the 1998 twelve-month period due to
significantly warmer temperatures during the peak heating-season months
(comprising January through March and November through December). Based upon
degree day information provided by NOAA for 335 airports in the continental
U.S., temperatures during these peak heating-season months in the 1998
twelve-month period were 13.1% warmer than normal and 9.4% warmer than the same
period last year. Wholesale volumes of propane sold were lower in the 1998
twelve-month period due to reduced sales of storage inventories.
Total revenues from retail propane sales declined $122.9 million in the twelve
months ended December 31, 1998. The decrease reflects (1) a $74.9 million
decrease as a result of lower average retail propane selling prices and (2) a
$48.0 million reduction as a result of the lower volumes sold. Wholesale
revenues were $47.7 million lower than those in the prior-year period due to (1)
a $31.4 million decrease resulting from the lower volumes sold and (2) a $16.3
million decline from lower average selling prices. The lower average retail and
wholesale selling prices reflect significantly lower propane product costs.
Total margin increased $2.3 million in the 1998 twelve-month period,
notwithstanding the decline in retail volumes, primarily due to higher average
retail unit margins. Average retail unit margins
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<PAGE> 15
AMERIGAS PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
were greater during the 1998 twelve-month period principally as a result of the
lower propane product costs.
Although total margin during the 1998 twelve-month period was greater than the
prior-year period, EBITDA and operating income declined primarily due to (1)
lower other income and (2) higher operating and administrative expenses. Other
income in the 1998 twelve-month period includes a $4.0 million loss from two
interest rate protection agreements. We entered into these agreements to reduce
interest rate exposure associated with an anticipated refinancing of the
Operating Partnership's Acquisition Facility in late fiscal 1998. When we
postponed the refinancing due to volatility in the corporate debt markets in the
fourth quarter of fiscal 1998, we recorded a loss on the interest rate
protection agreements because they no longer qualified for hedge accounting
treatment. Other income in the 1997 twelve-month period includes (1) $4.7
million of income from the sale of the Partnership's 50% interest in Atlantic
Energy, Inc., (2) higher customer finance charges and (3) higher interest
income. Operating and administrative expenses were $322.9 million in the 1998
twelve-month period compared with $313.7 million in the same period last year.
The increase in operating expenses is primarily due to (1) incremental expenses
associated with acquisitions and new business activities (including start-up
locations and our PPX Prefilled Propane Xchange(R) program) and (2) higher
compensation and benefit expenses.
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL CONDITION
The Partnership's debt outstanding at December 31, 1998 totaled $761.8 million
compared with $719.0 million at September 30, 1998. The increase in debt
principally reflects a $43 million seasonal increase in net borrowings under the
Operating Partnership's Bank Credit Agreement.
During the three months ended December 31, 1998, the Partnership declared and
paid the minimum quarterly distribution of $.55 (the "MQD") on all units for
the quarter ended September 30, 1998. The MQD for the quarter ended December
31, 1998 will be paid on February 18, 1999 to holders of record on February 10,
1999 of all Common and Subordinated units. The ability of the Partnership to
pay the MQD on all units 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 growing
operating capacity), (3) changes in operating working capital, and (4) the
Partnership's ability to borrow. Some of these factors are affected by
conditions beyond our control including weather, competition in markets we
serve, and the cost of propane.
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<PAGE> 16
AMERIGAS PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CONVERSION OF SUBORDINATED UNITS
The subordination period applicable to the Subordinated Units will extend until
the first day of any quarter beginning on or after April 1, 2000, provided that
certain cash performance and distribution requirements are met. However,
4,945,537 Subordinated Units may convert into Common Units on the first day
after the record date for distributions based upon any quarter ending on or
after March 31, 1998, and an additional 4,945,537 may convert on the first day
after the record date for distributions based upon any quarter ending on or
after March 31, 1999, if certain cash performance and distribution requirements
are met. The cash performance requirements for conversion have not been met to
date. They are dependent upon many factors including highly seasonal operating
results, changes in working capital, asset sales and debt refinancings.
Management believes, however, that it is reasonably possible that 9,891,074
Subordinated Units will convert into Common Units during fiscal 1999.
CASH FLOWS
Cash and cash equivalents totaled $14.1 million at December 31, 1998 compared
with $8.9 million at September 30, 1998. Due to the seasonal nature of the
propane business, cash flows from operating activities are generally strongest
during the second and third fiscal quarters of the Partnership when customers
pay for propane purchased during the heating season and are typically at their
lowest levels during the first and fourth fiscal quarters. Accordingly, cash
flows from operations during the three months ended December 31, 1998 are not
necessarily indicative of cash flows to be expected for a full year.
OPERATING ACTIVITIES. Cash used by operating activities was $(4.8) million
during the three months ended December 31, 1998 compared with $(6.9) million
during the prior-year period. The decrease in cash used for operating activities
reflects the warmer weather's impact on cash needed to fund operating working
capital. Changes in operating working capital during the three months ended
December 31, 1998 required $37.9 million of operating cash flow while changes in
operating working capital during the three months ended December 31, 1997
required $50.6 million of operating cash flow. Cash flow from operating
activities before changes in working capital was $33.1 million in the three
months ended December 31, 1998 compared with $43.7 million during the three
months ended December 31, 1997 reflecting the decrease in the Partnership's
operating results.
INVESTING ACTIVITIES. We spent $7.2 million for property, plant and equipment
(including maintenance capital expenditures of $2.5 million) during the three
months ended December 31, 1998 compared with $7.0 million (including maintenance
capital expenditures of $2.4 million) in the prior-year period. During the three
months ended December 31, 1998, we acquired several propane businesses for an
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<PAGE> 17
AMERIGAS PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
aggregate $2.4 million in cash. During the three months ended December 31, 1997,
we made acquisition-related cash payments of $1.4 million.
FINANCING ACTIVITIES. During the three-month periods ended December 31, 1998 and
1997, we declared and paid the MQD on all Common and Subordinated units and the
general partner interests. During the three months ended December 31, 1998, we
made $9.9 million of long-term debt repayments principally reflecting
prepayments of the Operating Partnership's Acquisition Facility. The Operating
Partnership borrowed $52 million under its Revolving Credit Facility during the
1998 three-month period principally to meet seasonal working capital needs and
to fund the Partnership's distribution payments. During the 1997 three-month
period, the Operating Partnership borrowed $47 million under the Revolving
Credit Facility and $13 million under the Acquisition Facility.
YEAR 2000 MATTERS
The Year 2000 ("Y2K") issue is a result of computer programs being written using
two digits (rather than four) to identify and process a year in a date field.
Computer programs, computer-controlled systems and equipment with embedded
software may recognize date fields using "00" as the year 1900 rather than the
year 2000. If uncorrected, miscalculations and possible computer-based system
failures could result which might disrupt business operations. We are
designating the following information as our "Year 2000 Readiness Disclosure."
Recognizing the potential business consequences of the Y2K issue, we are using
internal and external resources to conduct a detailed assessment of critical,
date sensitive computer-based systems and to identify and modify systems which
are not Y2K compliant. The scope of such efforts includes (1) our information
technology ("IT") systems such as computer hardware and software we use in the
operation of our business; (2) non-IT systems that contain embedded computer
technology such as micro-controllers contained in various equipment, facilities
and vehicles; and (3) the readiness of third parties, including our suppliers
and key vendors, and certain of our customers. We have directed our Y2K
compliance efforts toward ensuring that we will be able to continue to perform
three critical operating functions: (1) obtain products to sell; (2) provide
service to our customers; and (3) bill customers and pay our vendors and
employees. We have completed the assessment of our IT and non-IT systems.
We have successfully modified or replaced all of our critical IT systems,
including the installation of our integrated financial system software. These
systems include our customer information and data systems and our financial
systems including payroll and the fuel accounting supply and transportation
system. We currently anticipate that any required modification to our critical
non-IT systems will be completed by March 31, 1999.
-15-
<PAGE> 18
AMERIGAS PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
In addition to internal Y2K remediation activities, we are in the process of
assessing the readiness of our key suppliers and third-party providers. Although
none of our products or services are directly date sensitive, as a company with
operations throughout the United States we are dependent upon other companies
whose IT and non-IT systems may not be Y2K compliant. We rely on these companies
for the supply and transportation of propane. Additionally, we depend on other
companies to supply us with propane tanks and cylinders, fuel for our vehicles,
as well as other products and services we need to operate our businesses. If key
third parties cannot provide products or services because of their own Y2K
problems, it could have a material adverse impact on our operations. The extent
of such impact would depend upon the duration of disruption and our costs to
find alternative sources of products and services, among others. We expect to
complete our evaluation of key supplier and third-party provider Y2K readiness
by March 31, 1999.
We are in the process of developing contingency plans to address, to the extent
reasonably possible, disruptions arising from Y2K related failures of key
suppliers and third-party providers. We anticipate the major elements of these
contingency plans will be based upon the use of manual back-up systems,
alternative supply sources, higher critical inventory levels, and additional
staffing. These contingency plans attempt to mitigate the impact of third-party
Y2K noncompliance. However, they cannot assure that business disruptions caused
by key suppliers or third-party providers will not have a material adverse
impact on our operations. We anticipate the business contingency plans will be
completed by June 30, 1999. In addition to the business risks noted above, there
are other Y2K risks which are beyond our control, any of which could have a
material adverse impact on our operations. Such risks include the failure of
utility and telecommunications companies to provide service and the failure of
financial institutions to process transactions.
Incremental costs associated with our Y2K efforts have not had a material effect
on our results of operations. Estimated future costs to modify existing IT and
non-IT systems are expected to be less than $0.5 million and will be financed
through internally generated funds. We expense Y2K costs as incurred. Costs
associated with information system improvement initiatives are expensed or
capitalized in accordance with our accounting policy for software development
costs.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk exposures are market prices for propane and changes in
long-term interest rates.
-16-
<PAGE> 19
AMERIGAS PARTNERS, L.P.
Price risk associated with fluctuations in the prices we pay for propane is
principally a result of market forces reflecting changes in supply and demand.
The Partnership's profitability is sensitive to changes in propane supply costs
and the Partnership generally seeks to pass on increases in such costs to
customers. There is no assurance, however, that the Partnership will be able to
do so. In order to manage propane market price risk, we use contracts for the
forward purchase of propane, propane fixed-price supply agreements, and
derivative commodity instruments such as price swap and option contracts.
Although we use derivative financial and commodity instruments to reduce market
price risk associated with forecasted transactions, we do not use derivative
financial and commodity instruments for trading purposes.
We use long-term debt as a primary source of capital. These debt instruments are
typically issued at fixed interest rates. When these debt instruments mature, we
refinance such debt at then-existing market interest rates which may be more or
less than the interest rates on the maturing debt. In addition, we may attempt
to reduce interest rate risk associated with a forecasted issuance of new debt.
In order to reduce interest rate risk associated with these transactions, we
occasionally enter into interest rate protection agreements.
At December 31, 1998, the impact on the fair value of the Partnership's market
risk sensitive instruments resulting from (1) a 5 cent a gallon decline in the
market price of propane and (2) a 50 basis point decline in interest rates on
U.S. treasury notes, would not be materially different than that reported in the
Partnership's 1998 Annual Report on Form 10-K.
We expect that any losses from market risk sensitive instruments used to manage
propane price or interest rate market risk would be substantially offset by
gains on the associated underlying transactions.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
27.1 Financial Data Schedule of AmeriGas Partners, L.P.
27.2 Financial Data Schedule of AmeriGas Finance Corp.
(b) No Current Report on Form 8-K was filed by either AmeriGas
Partners, L.P. or AmeriGas Finance Corp. during the fiscal quarter
ended December 31, 1998.
-17-
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
AmeriGas Partners, L.P.
---------------------------------------
(Registrant)
By: AmeriGas Propane, Inc.,
as General Partner
Date: February 11, 1999 By: Martha B. Lindsay
- ------------------------ ---------------------------------------
Martha B. Lindsay
Vice President - Finance
and Chief Financial Officer
By: Richard R. Eynon
---------------------------------------
Richard R. Eynon
Controller and Chief Accounting Officer
AmeriGas Finance Corp.
---------------------------------------
(Registrant)
Date: February 11, 1999 By: Martha B. Lindsay
- ------------------------ ---------------------------------------
Martha B. Lindsay
Vice President - Finance
and Chief Financial Officer
By: Richard R. Eynon
---------------------------------------
Richard R. Eynon
Controller and Chief Accounting Officer
-18-
<PAGE> 21
AMERIGAS PARTNERS, L.P.
EXHIBIT INDEX
27.1 Financial Data Schedule of AmeriGas Partners, L.P.
27.2 Financial Data Schedule of AmeriGas Finance Corp.
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS OF AMERIGAS
PARTNERS, L.P. AS OF AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
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<MULTIPLIER> 1,000
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
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<CASH> 14,070
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<RECEIVABLES> 93,456
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<CURRENT-ASSETS> 159,209
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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<NAME> AMERIGAS FINANCE CORP.
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<PERIOD-TYPE> 3-MOS
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