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 June 30, 2000
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 1-11071
UGI CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2668356
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
UGI CORPORATION
460 North Gulph Road, King of Prussia, PA
(Address of principal executive offices)
19406
(Zip Code)
(610) 337-1000
(Registrant's 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 July 31, 2000, there were 27,009,719 shares of UGI Corporation
Common Stock, without par value, outstanding.
2
UGI CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PAGES
-----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2000,
September 30, 1999 and June 30, 1999 1
Condensed Consolidated Statements of Income for the three,
nine and twelve months ended June 30, 2000 and 1999 2
Condensed Consolidated Statements of Cash Flows for the nine
and twelve months ended June 30, 2000 and 1999 3
Notes to Condensed Consolidated Financial Statements 4 - 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13 - 27
Item 3. Quantitative and Qualitative Disclosures About Market Risk 27 - 28
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 29
Signatures 30
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3
UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Millions of dollars)
June 30, September 30, June 30,
2000 1999 1999
-------- -------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 91.3 $ 40.5 $ 152.5
Short-term investments, at cost which approximates market value 3.9 15.1 5.4
Accounts receivable (less allowance for doubtful accounts of
$10.1, $8.0 and $9.0, respectively) 145.4 102.9 101.5
Accrued utility revenues 7.0 6.9 5.8
Inventories 91.7 87.1 55.3
Deferred income taxes 15.7 13.7 17.4
Prepaid expenses and other current assets 17.4 24.7 18.6
-------- -------- --------
Total current assets 372.4 290.9 356.5
Property, plant and equipment, at cost (less accumulated depreciation
and amortization of $563.8, $514.9 and $502.6, respectively) 1,075.9 1,084.1 1,002.4
Intangible assets (less accumulated amortization of $184.9, $165.9 and
$159.6, respectively) 677.9 653.1 615.2
Utility regulatory assets 56.6 61.1 59.4
Other assets 47.2 46.7 45.4
-------- -------- --------
Total assets $2,230.0 $2,135.9 $2,078.9
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 95.7 $ 26.7 $ 23.4
Operating Partnership bank loans 25.0 22.0 20.0
UGI Utilities bank loans 61.9 87.4 59.6
Other bank loans 1.9 11.6 --
Accounts payable 111.3 100.6 67.4
Other current liabilities 154.4 154.0 144.8
-------- -------- --------
Total current liabilities 450.2 402.3 315.2
Long-term debt 1,035.2 989.6 893.7
Deferred income taxes 170.8 174.3 160.0
Other noncurrent liabilities 85.5 90.6 79.9
Commitments and contingencies
Minority interest in AmeriGas Partners 200.2 209.9 231.8
UGI Utilities redeemable preferred stock 20.0 20.0 20.0
Common stockholders' equity:
Common Stock, without par value (authorized - 100,000,000 shares;
issued - 33,198,731 shares) 394.6 394.8 394.5
Retained earnings (accumulated deficit) 16.1 (8.2) 13.2
Accumulated other comprehensive income (loss) (0.1) 0.5 --
Unearned compensation - restricted stock (1.0) (1.7) (2.0)
-------- -------- --------
409.6 385.4 405.7
Treasury stock, at cost (141.5) (136.2) (27.4)
-------- -------- --------
Total common stockholders' equity 268.1 249.2 378.3
-------- -------- --------
Total liabilities and stockholders' equity $2,230.0 $2,135.9 $2,078.9
======== ======== ========
See accompanying notes to consolidated financial statements.
-1-
4
UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(Millions, except per share amounts)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Revenues:
AmeriGas Propane $ 209.7 $ 162.0 $ 899.6 $ 704.7
UGI Utilities 77.6 77.3 368.6 357.8
International Propane 9.2 -- 38.5 --
Energy Services and other 39.4 20.0 106.2 69.7
----------- ----------- ----------- -----------
335.9 259.3 1,412.9 1,132.2
----------- ----------- ----------- -----------
Costs and expenses:
AmeriGas Propane cost of sales 119.3 71.0 493.4 304.3
UGI Utilities - gas, fuel and purchased power 35.9 33.8 185.8 176.6
International Propane cost of sales 5.1 -- 22.3 --
Energy Services and other cost of sales 37.9 18.3 100.9 65.2
Operating and administrative expenses 107.4 104.9 346.3 323.3
Utility taxes other than income taxes 2.9 4.9 14.3 21.1
Depreciation and amortization 23.8 22.6 70.8 66.9
Other income, net (5.1) (5.6) (18.2) (11.7)
----------- ----------- ----------- -----------
327.2 249.9 1,215.6 945.7
----------- ----------- ----------- -----------
Operating income 8.7 9.4 197.3 186.5
Merger fee income, net -- 21.5 -- 19.9
Interest expense (24.3) (21.0) (72.1) (63.1)
Minority interest in AmeriGas Partners 8.9 7.8 (19.7) (22.8)
----------- ----------- ----------- -----------
Income (loss) before income taxes and
subsidiary preferred stock dividends (6.7) 17.7 105.5 120.5
Income tax (expense) benefit 2.4 (5.9) (49.1) (52.4)
Dividends on UGI Utilities Series
Preferred Stock (0.4) (0.4) (1.2) (1.2)
----------- ----------- ----------- -----------
Net income (loss) $ (4.7) $ 11.4 $ 55.2 $ 66.9
=========== =========== =========== ===========
Earnings (loss) per share:
Basic $ (0.17) $ 0.36 $ 2.02 $ 2.06
=========== =========== =========== ===========
Diluted $ (0.17) $ 0.36 $ 2.02 $ 2.06
=========== =========== =========== ===========
Average common shares outstanding:
Basic 27.190 31.672 27.270 32.420
=========== =========== =========== ===========
Diluted 27.190 31.711 27.300 32.474
=========== =========== =========== ===========
Dividends declared per share $ 0.3875 $ 0.375 $ 1.1375 $ 1.095
=========== =========== =========== ===========
Twelve Months Ended
June 30,
---------------------------
2000 1999
----------- -----------
Revenues:
AmeriGas Propane $ 1,067.4 $ 851.8
UGI Utilities 431.4 418.0
International Propane 38.5 --
Energy Services and other 127.0 87.4
----------- -----------
1,664.3 1,357.2
----------- -----------
Costs and expenses:
AmeriGas Propane cost of sales 579.9 368.4
UGI Utilities - gas, fuel and purchased power 214.4 202.9
International Propane cost of sales 22.3 --
Energy Services and other cost of sales 120.1 82.2
Operating and administrative expenses 452.2 427.8
Utility taxes other than income taxes 18.4 25.3
Depreciation and amortization 93.6 89.3
Other income, net (23.3) (11.5)
----------- -----------
1,477.6 1,184.4
----------- -----------
Operating income 186.7 172.8
Merger fee income, net -- 19.9
Interest expense (93.6) (83.9)
Minority interest in AmeriGas Partners (7.6) (9.9)
----------- -----------
Income (loss) before income taxes and
subsidiary preferred stock dividends 85.5 98.9
Income tax (expense) benefit (39.9) (42.2)
Dividends on UGI Utilities Series
Preferred Stock (1.6) (1.6)
----------- -----------
Net income (loss) $ 44.0 $ 55.1
=========== ===========
Earnings (loss) per share:
Basic $ 1.56 $ 1.69
=========== ===========
Diluted $ 1.56 $ 1.69
=========== ===========
Average common shares outstanding:
Basic 28.188 32.538
=========== ===========
Diluted 28.217 32.597
=========== ===========
Dividends declared per share $ 1.5125 $ 1.46
=========== ===========
See accompanying notes to consolidated financial statements.
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5
UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Millions of dollars)
Nine Months Ended Twelve Months Ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
------ ------ ------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 55.2 $ 66.9 $ 44.0 $ 55.1
Reconcile to net cash provided by operating activities:
Depreciation and amortization 70.8 66.9 93.6 89.3
Minority interest in AmeriGas Partners 19.7 22.8 7.6 9.9
Deferred income taxes, net 1.6 0.1 9.2 3.4
Other, net 5.9 7.0 5.4 6.2
------ ------ ------ ------
153.2 163.7 159.8 163.9
Net change in:
Accounts receivable and accrued utility revenues (50.0) (24.4) (50.1) (6.8)
Inventories and prepaid propane purchases (1.2) 23.5 (29.7) 20.6
Deferred fuel costs 7.9 6.9 (4.1) (3.8)
Accounts payable 8.8 (12.5) 38.7 1.8
Other current assets and liabilities (1.2) (13.5) 1.1 (1.8)
------ ------ ------ ------
Net cash provided by operating activities 117.5 143.7 115.7 173.9
------ ------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (50.2) (51.5) (68.9) (74.3)
Net proceeds from disposals of assets 4.4 2.6 6.7 5.2
Acquisitions of businesses, net of cash acquired (55.9) (3.2) (130.3) (4.4)
Investments in joint venture partnerships -- (4.9) -- (6.9)
Short-term investments decrease 11.2 76.4 1.5 96.5
Other, net (1.0) (5.4) (1.0) (3.5)
------ ------ ------ ------
Net cash provided by investing activities (91.5) 14.0 (192.0) 12.6
------ ------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends on Common Stock (30.9) (36.4) (42.4) (48.4)
Distributions on Partnership public Common Units (29.4) (29.2) (39.2) (39.0)
Issuance of long-term debt 210.2 75.8 308.1 85.8
Repayment of long-term debt (87.5) (63.4) (95.0) (71.2)
AmeriGas Propane bank loans increase 3.0 10.0 5.0 9.0
UGI Utilities bank loans increase (decrease) (25.5) (8.8) 2.3 8.9
Other bank loans decrease (9.3) -- (9.3) --
Issuance of treasury stock 3.0 3.4 4.3 4.9
Repurchases of Common Stock (8.6) (23.2) (118.5) (26.1)
------ ------ ------ ------
Net cash provided (used) by financing activities 25.0 (71.8) 15.3 (76.1)
------ ------ ------ ------
FOREIGN CURRENCY EXCHANGE EFFECT ON CASH: (0.2) -- (0.2) --
------ ------ ------ ------
Cash and cash equivalents increase (decrease) $ 50.8 $ 85.9 $(61.2) $110.4
====== ====== ====== ======
Cash and cash equivalents:
End of period $ 91.3 $152.5 $ 91.3 $152.5
Beginning of period 40.5 66.6 152.5 42.1
------ ------ ------ ------
Increase (decrease) $ 50.8 $ 85.9 $(61.2) $110.4
====== ====== ====== ======
During the twelve months ended June 30, 2000 and 1999, UGI Utilities, Inc. paid
cash dividends to UGI of $36.0 and $29.0, respectively. During the twelve months
ended June 30, 2000 and 1999, AmeriGas, Inc. paid cash dividends to UGI of $46.6
and $48.2, respectively. During those same periods, UGI paid cash dividends to
holders of Common Stock of $42.4 and $48.4, respectively. The ability of UGI to
declare and pay cash dividends on its Common Stock is dependent upon its cash
balances and the receipt of cash dividends from its wholly owned subsidiaries,
principally UGI Utilities, Inc. and AmeriGas, Inc. AmeriGas's ability to pay
dividends is dependent upon distributions paid by the Partnership.
See accompanying notes to consolidated financial statements.
-3-
6
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Millions of dollars, except per share amounts)
1. BASIS OF PRESENTATION
UGI Corporation ("UGI") is a holding company with three primary
subsidiaries. Our natural gas utility and electric utility operations
are conducted through a wholly owned subsidiary, UGI Utilities, Inc.
("UGI Utilities"). UGI Utilities owns and operates a natural gas
distribution utility ("Gas Utility") in parts of eastern and
southeastern Pennsylvania and an electric utility generation and
distribution operation ("Electric Utility") in northeastern
Pennsylvania (together we refer to them as "Utilities"). We conduct a
national propane distribution business through AmeriGas Partners, L.P.
("AmeriGas Partners") and its operating subsidiary, AmeriGas Propane,
L.P. (the "Operating Partnership"), both of which are Delaware limited
partnerships. We refer to AmeriGas Partners and the Operating
Partnership together as "the Partnership." At June 30, 2000, UGI,
through subsidiaries, held an effective 2% general partner interest and
a 56.4% limited partner interest in the Operating Partnership. Our
wholly owned subsidiary, UGI Enterprises, Inc. ("Enterprises"),
conducts an energy marketing business through its wholly owned
subsidiary, UGI Energy Services, Inc. ("Energy Services"). Through
other subsidiaries, Enterprises (1) owns and operates a propane
distribution business in Austria, the Czech Republic and Slovakia, (2)
owns and operates a newly formed retail hearth products business in the
Middle Atlantic region of the U.S., and (3) participates in propane
joint-venture projects in Romania and China.
Our condensed consolidated financial statements include the accounts of
UGI and its majority-owned subsidiaries, together referred to as "we"
or "the Company." We eliminate all significant intercompany accounts
and transactions when we consolidate. We report the public unitholders'
interest in AmeriGas Partners' results of operations and net assets as
minority interest in the condensed consolidated statements of income
and balance sheets. We have reclassified certain prior-period balances
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 the related notes included in our
Annual Report on Form 10-K, as amended, for the year ended September
30, 1999 ("Company's 1999 Annual Report"). Due to the seasonal nature
of our businesses, the results of operations for interim periods are
not necessarily indicative of the results to be expected for a full
year.
-4-
7
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
The Company's other comprehensive income (loss) for the three and nine
months ended June 30, 2000 as determined under Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," was approximately $(0.5) million.
2. SEGMENT INFORMATION
Based upon SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" ("SFAS 131"), we have determined that the
Company has five business segments: (1) a U.S. propane distribution
business ("AmeriGas Propane"), (2) a natural gas utility operating in
eastern Pennsylvania ("Gas Utility"), (3) an electricity distribution
and generation operation in northeastern Pennsylvania ("Electric
Utility"), (4) an energy marketing business arranging the supply and
transportation of natural gas and electricity to customers in the
Middle Atlantic states ("Energy Services"), and (5) an international
propane distribution segment comprising a wholly owned propane
distribution business in eastern Europe and joint-venture projects in
Romania and China ("International Propane"). Although AmeriGas Propane
and Gas Utility are the only segments that meet the SFAS 131
quantitative thresholds for reportable segments, the Company has
included supplemental segment information for Electric Utility, Energy
Services, and International Propane.
The accounting policies of the five segments disclosed are the same as
those described in the Significant Accounting Policies note contained
in the Company's 1999 Annual Report. We evaluate our AmeriGas Propane
and International Propane segments' performance principally based on
their earnings before interest expense, income taxes, depreciation and
amortization ("EBITDA"). Although we use EBITDA to evaluate these
segments' performance, it 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. We
evaluate the performance of Gas Utility, Electric Utility, and Energy
Services principally based upon their earnings before income taxes.
No single customer represents more than 5% of consolidated revenues. In
addition, all of our reportable segments' revenues, other than those of
our International Propane segment, are derived from sources within the
U. S., and all of our reportable segments' long-lived assets, other
than those of our International Propane segment, are located in the
U.S. Financial information by business segment follows:
-5-
8
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
2. SEGMENT INFORMATION (CONTINUED)
Three Months Ended June 30, 2000:
AmeriGas Gas Electric
Total Elims. Propane Utility Utility
---------- ---------- ---------- ---------- ----------
Revenues $ 335.9 $ (0.8) $ 209.7 $ 59.3 $ 18.3
========== ========== ========== ========== ==========
Segment profit (loss):
EBITDA $ 32.5 $ -- $ 14.0 $ 14.3 $ 3.8
Depreciation and amortization (23.8) -- (17.0) (4.9) (0.9)
---------- ---------- ---------- ---------- ----------
Operating income (loss) 8.7 -- (3.0) 9.4 2.9
Interest expense (24.3) -- (18.7) (3.8) (0.6)
Minority interest 8.9 -- 8.9 -- --
---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes and subsidiary preferred
stock dividends $ (6.7) $ -- $ (12.8) $ 5.6 $ 2.3
========== ========== ========== ========== ==========
Segment assets (at period end) $ 2,230.0 $ (14.7) $ 1,286.6 $ 615.3 $ 96.8
========== ========== ========== ========== ==========
Investment in equity investees $ 5.8 $ -- $ -- $ -- $ --
========== ========== ========== ========== ==========
Energy International Other Corp.
Services Propane Enterprises & Other
---------- ---------- ---------- ----------
Revenues $ 38.2 $ 9.2 $ 1.2 $ 0.8
========== ========== ========== ==========
Segment profit (loss):
EBITDA $ 0.6 $ (0.3) $ (1.4) $ 1.5
Depreciation and amortization (0.1) (0.7) (0.1) (0.1)
---------- ---------- ---------- ----------
Operating income (loss) 0.5 (1.0) (1.5) 1.4
Interest expense -- (1.1) -- (0.1)
Minority interest -- -- -- --
---------- ---------- ---------- ----------
Income (loss) before income
taxes and subsidiary preferred
stock dividends $ 0.5 $ (2.1) $ (1.5) $ 1.3
========== ========== ========== ==========
Segment assets (at period end) $ 36.0 $ 123.9 $ 7.6 $ 78.5
========== ========== ========== ==========
Investment in equity investees $ -- $ 5.8 $ -- $ --
========== ========== ========== ==========
Three Months Ended June 30, 1999:
AmeriGas Gas Electric
Total Elims. Propane Utility Utility
---------- ---------- ---------- ---------- ----------
Revenues $ 259.3 $ (0.8) $ 162.0 $ 60.4 $ 16.9
========== ========== ========== ========== ==========
Segment profit (loss):
EBITDA $ 32.0 $ -- $ 14.3 $ 11.3 $ 5.3
Depreciation and amortization (22.6) -- (16.6) (4.7) (1.1)
---------- ---------- ---------- ---------- ----------
Operating income (loss) 9.4 -- (2.3) 6.6 4.2
Merger fee income, net 21.5 -- -- -- --
Interest expense (21.0) -- (16.6) (3.6) (0.6)
Minority interest 7.8 -- 7.8 -- --
---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes and subsidiary preferred
stock dividends $ 17.7 $ -- $ (11.1) $ 3.0 $ 3.6
========== ========== ========== ========== ==========
Segment assets (at period end) $ 2,078.9 $ (15.3) $ 1,202.5 $ 608.6 $ 95.4
========== ========== ========== ========== ==========
Investment in equity investees $ 6.1 $ -- $ -- $ -- $ --
========== ========== ========== ========== ==========
Energy International Other Corp.
Services Propane Enterprises & Other
---------- ---------- ---------- ----------
Revenues $ 20.0 $ -- $ -- $ 0.8
========== ========== ========== ==========
Segment profit (loss):
EBITDA $ 0.9 $ -- $ (0.9) $ 1.1
Depreciation and amortization -- -- -- (0.2)
---------- ---------- ---------- ----------
Operating income (loss) 0.9 -- (0.9) 0.9
Merger fee income, net -- -- -- 21.5
Interest expense -- -- -- (0.2)
Minority interest -- -- -- --
---------- ---------- ---------- ----------
Income (loss) before income
taxes and subsidiary preferred
stock dividends $ 0.9 $ -- $ (0.9) 22.2
========== ========== ========== ==========
Segment assets (at period end) $ 15.5 $ 6.2 $ 1.3 $ 164.7
========== ========== ========== ==========
Investment in equity investees $ -- $ 6.1 $ -- $ --
========== ========== ========== ==========
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9
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
2. SEGMENT INFORMATION (CONTINUED)
Nine Months Ended June 30, 2000:
AmeriGas Gas Electric
Total Elims. Propane Utility Utility
-------- -------- -------- -------- --------
Revenues $1,412.9 $ (2.3) $ 899.6 $ 310.1 $ 58.5
======== ======== ======== ======== ========
Segment profit (loss):
EBITDA $ 268.1 $ -- $ 152.2 $ 96.7 $ 15.6
Depreciation and amortization (70.8) -- (50.3) (14.3) (2.9)
-------- -------- -------- -------- --------
Operating income (loss) 197.3 -- 101.9 82.4 12.7
Interest expense (72.1) -- (54.7) (12.1) (1.7)
Minority interest (19.7) -- (19.7) -- --
-------- -------- -------- -------- --------
Income (loss) before income
taxes and subsidiary preferred
stock dividends $ 105.5 $ -- $ 27.5 $ 70.3 $ 11.0
======== ======== ======== ======== ========
Segment assets (at period end) $2,230.0 $ (14.7) $1,286.6 $ 615.3 $ 96.8
======== ======== ======== ======== ========
Investment in equity investees $ 5.8 $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
Energy International Other Corp.
Services Propane Enterprises & Other
-------- -------- -------- --------
Revenues $ 103.8 $ 38.5 $ 2.4 $ 2.3
======== ======== ======== ========
Segment profit (loss):
EBITDA $ 2.3 $ 1.6 $ (4.1) $ 3.8
Depreciation and amortization (0.2) (2.7) (0.2) (0.2)
-------- -------- -------- --------
Operating income (loss) 2.1 (1.1) (4.3) 3.6
Interest expense -- (3.2) -- (0.4)
Minority interest -- -- -- --
-------- -------- -------- --------
Income (loss) before income
taxes and subsidiary preferred
stock dividends $ 2.1 $ (4.3) $ (4.3) $ 3.2
======== ======== ======== ========
Segment assets (at period end) $ 36.0 $ 123.9 $ 7.6 $ 78.5
======== ======== ======== ========
Investment in equity investees $ -- $ 5.8 $ -- $ --
======== ======== ======== ========
Nine Months Ended June 30, 1999:
AmeriGas Gas Electric
Total Elims. Propane Utility Utility
--------- --------- --------- --------- ---------
Revenues $ 1,132.2 $ (1.6) $ 704.7 $ 302.6 $ 55.2
========= ========= ========= ========= =========
Segment profit (loss):
EBITDA $ 253.4 $ -- $ 154.1 $ 81.6 $ 15.0
Depreciation and amortization (66.9) -- (49.4) (14.2) (3.0)
--------- --------- --------- --------- ---------
Operating income (loss) 186.5 -- 104.7 67.4 12.0
Merger fee income, net 19.9 -- -- -- --
Interest expense (63.1) -- (49.6) (11.1) (1.9)
Minority interest (22.8) -- (22.8) -- --
--------- --------- --------- --------- ---------
Income (loss) before income
taxes and subsidiary preferred
stock dividends $ 120.5 $ -- $ 32.3 $ 56.3 $ 10.1
========= ========= ========= ========= =========
Segment assets (at period end) $ 2,078.9 $ (15.3) $ 1,202.5 $ 608.6 $ 95.4
========= ========= ========= ========= =========
Investment in equity investees $ 6.1 $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
Energy International Other Corp.
Services Propane Enterprises & Other
--------- --------- --------- ---------
Revenues $ 69.7 $ -- $ -- $ 1.6
========= ========= ========= =========
Segment profit (loss):
EBITDA $ 2.1 $ (0.3) $ (3.6) $ 4.5
Depreciation and amortization -- -- -- (0.3)
--------- --------- --------- ---------
Operating income (loss) 2.1 (0.3) (3.6) 4.2
Merger fee income, net -- -- -- 19.9
Interest expense -- -- -- (0.5)
Minority interest -- -- -- --
--------- --------- --------- ---------
Income (loss) before income
taxes and subsidiary preferred
stock dividends $ 2.1 $ (0.3) $ (3.6) $ 23.6
========= ========= ========= =========
Segment assets (at period end) $ 15.5 $ 6.2 $ 1.3 $ 164.7
========= ========= ========= =========
Investment in equity investees $ -- $ 6.1 $ -- $ --
========= ========= ========= =========
-7-
10
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
2. SEGMENT INFORMATION (CONTINUED)
Twelve Months Ended June 30, 2000:
AmeriGas Gas Electric
Total Elims. Propane Utility Utility
-------- -------- -------- -------- --------
Revenues $1,664.3 $ (3.0) $1,067.4 $ 353.1 $ 78.3
======== ======== ======== ======== ========
Segment profit (loss):
EBITDA $ 280.3 $ -- $ 156.9 $ 102.1 $ 17.3
Depreciation and amortization (93.6) -- (67.2) (19.1) (3.9)
-------- -------- -------- -------- --------
Operating income (loss) 186.7 -- 89.7 83.0 13.4
Interest expense (93.6) -- (71.6) (16.2) (2.1)
Minority interest (7.6) -- (7.6) -- --
-------- -------- -------- -------- --------
Income (loss) before income
taxes and subsidiary preferred
stock dividends $ 85.5 $ -- $ 10.5 $ 66.8 $ 11.3
======== ======== ======== ======== ========
Segment assets (at period end) $2,230.0 $ (14.7) $1,286.6 $ 615.3 $ 96.8
======== ======== ======== ======== ========
Investment in equity investees $ 5.8 $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
Energy International Other Corp.
Services Propane Enterprises & Other
-------- -------- -------- --------
Revenues $ 124.5 $ 38.5 $ 2.5 $ 3.0
======== ======== ======== ========
Segment profit (loss):
EBITDA $ 2.9 $ 1.8 $ (6.2) $ 5.5
Depreciation and amortization (0.3) (2.7) (0.2) (0.2)
-------- -------- -------- --------
Operating income (loss) 2.6 (0.9) (6.4) 5.3
Interest expense -- (3.2) -- (0.5)
Minority interest -- -- -- --
-------- -------- -------- --------
Income (loss) before income
taxes and subsidiary preferred
stock dividends $ 2.6 $ (4.1) $ (6.4) $ 4.8
======== ======== ======== ========
Segment assets (at period end) $ 36.0 $ 123.9 $ 7.6 $ 78.5
======== ======== ======== ========
Investment in equity investees $ -- $ 5.8 $ -- $ --
======== ======== ======== ========
Twelve Months Ended June 30, 1999:
AmeriGas Gas Electric
Total Elims. Propane Utility Utility
---------- ---------- ---------- ---------- ----------
Revenues $ 1,357.2 $ (2.1) $ 851.8 $ 344.9 $ 73.1
========== ========== ========== ========== ==========
Segment profit (loss):
EBITDA $ 262.1 $ -- $ 156.0 $ 84.9 $ 17.7
Depreciation and amortization (89.3) -- (66.1) (18.8) (4.0)
---------- ---------- ---------- ---------- ----------
Operating income (loss) 172.8 -- 89.9 66.1 13.7
Merger fee income, net 19.9 -- -- -- --
Interest expense (83.9) -- (65.6) (15.1) (2.5)
Minority interest (9.9) -- (9.9) -- --
---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes and subsidiary preferred
stock dividends $ 98.9 $ -- $ 14.4 $ 51.0 $ 11.2
========== ========== ========== ========== ==========
Segment assets (at period end) $ 2,078.9 $ (15.3) $ 1,202.5 $ 608.6 $ 95.4
========== ========== ========== ========== ==========
Investment in equity investees $ 6.1 $ -- $ -- $ -- $ --
========== ========== ========== ========== ==========
Energy International Other Corp.
Services Propane Enterprises & Other
---------- ---------- ---------- ----------
Revenues $ 87.4 $ -- $ -- $ 2.1
========== ========== ========== ==========
Segment profit (loss):
EBITDA $ 2.3 $ (0.8) $ (4.6) $ 6.6
Depreciation and amortization (0.1) -- -- (0.3)
---------- ---------- ---------- ----------
Operating income (loss) 2.2 (0.8) (4.6) 6.3
Merger fee income, net -- -- -- 19.9
Interest expense -- -- -- (0.7)
Minority interest -- -- -- --
---------- ---------- ---------- ----------
Income (loss) before income
taxes and subsidiary preferred
stock dividends $ 2.2 $ (0.8) $ (4.6) $ 25.5
========== ========== ========== ==========
Segment assets (at period end) $ 15.5 $ 6.2 $ 1.3 $ 164.7
========== ========== ========== ==========
Investment in equity investees $ -- $ 6.1 $ -- $ --
========== ========== ========== ==========
-8-
11
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
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. Future lease
payments under these leases total approximately $35 million. 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 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's having to honor its guarantee.
In addition, the Partnership has succeeded to Petrolane's agreement to
indemnify Shell Petroleum N.V. ("Shell") for various scheduled claims,
including claims related to antitrust actions, 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. In
1999, a case brought by an unsuccessful entrant into the Puerto Rican
propane market was dismissed by the Supreme Court of Puerto Rico for
lack of subject matter jurisdiction, with the Court concluding that the
Public Service Commission of Puerto Rico has exclusive jurisdiction
over the matter. In the only pending litigation, the Supreme Court of
Puerto Rico denied the motion of the defendants to dismiss, remanding
the matter to the trial court for proceedings consistent with its
ruling. In this case the plaintiff seeks treble damages in excess of
$11.7 million.
The Partnership believes the probability that it will be required to
directly satisfy the above-described lease obligations and the
remaining claim subject to the indemnification agreements is remote.
We, along with other companies, have been named as a potentially
responsible party ("PRP") in several administrative proceedings and
private party recovery actions for the cleanup or recovery of costs
associated with cleanup of various waste sites, including some
Superfund sites. In addition, we have identified environmental
contamination at several of our properties and have voluntarily
undertaken investigation and, as appropriate, remediation of these
sites in cooperation with appropriate environmental agencies or private
parties.
-9-
12
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
The gas distribution business has been one of UGI Utilities' main
businesses since it began in 1882. Prior to the construction of major
natural gas pipelines in the 1950s, gas used for lighting and heating
was produced at manufactured gas plants ("MGPs") from processes
involving coal, coke or oil. Some constituents of coal tars produced
from this process are today considered hazardous substances under the
Superfund Law and may be located at these sites. At sites where a
former subsidiary of UGI Utilities operated an MGP, we believe that UGI
Utilities should not have significant liability because UGI Utilities
generally is not legally liable for the obligations of its
subsidiaries. Under certain circumstances, however, a court could find
a parent company liable for environmental damage at sites owned by a
subsidiary company when the parent company either (1) itself operated
the facility causing the environmental damage or (2) otherwise so
controlled the subsidiary that the subsidiary's separate corporate form
should be disregarded. There could be, therefore, significant future
costs of an uncertain amount associated with environmental damage
caused by MGPs that UGI Utilities owned or directly operated, or that
were owned or operated by former subsidiaries of UGI Utilities, if a
court were to conclude that the subsidiary's separate corporate form
should be disregarded. In many circumstances where UGI Utilities may be
liable, we may not be able to reasonably quantify expenditures because
of a number of factors. These factors include the various costs
associated with potential remedial alternatives, the unknown number of
other potentially responsible parties involved and their ability to
contribute to the costs of investigation and remediation, and changing
environmental laws and regulations.
UGI Utilities has filed suit against more than fifty insurance
companies alleging that the defendants breached contracts of insurance
by failing to indemnify UGI Utilities for certain environmental costs.
The suit seeks to recover more than $11 million in costs incurred by
UGI Utilities at various MGPs. The parties have agreed to stay the
litigation pending the voluntary exchange of documents and settlement
negotiations. To date, UGI Utilities has entered into settlement
agreements with several of the insurers and during the three months
ended March 31, 2000 recorded pretax income of $2.4 million which is
net of recoveries applied to site-specific environmental costs
associated with Pennsylvania sites.
In addition to these matters, there are other pending claims and legal
actions arising in the normal course of our businesses. We cannot
predict with certainty the final results of environmental and other
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.
-10-
13
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
4. PRO FORMA FINANCIAL INFORMATION
On September 21, 1999, Enterprises, through subsidiaries, acquired all
of the outstanding stock of FLAGA Beteiligungs Aktiengesellschaft
("FLAGA") for net cash consideration of $73.7 million and the
assumption of approximately $18 million of debt. The purchase price has
been allocated to the net assets acquired based upon their estimated
fair values. Unaudited pro forma revenues, net income (loss) and
diluted earnings (loss) per share of the Company for the three and nine
months ended June 30, 1999 as if the acquisition of FLAGA had occurred
as of October 1, 1998 are $271.9 million, $9.8 million, and $0.31; and
$1,171.9 million, $65.5 million and $2.02, respectively. The pro forma
results of operations give effect to FLAGA's historical operating
results in accordance with U.S. generally accepted accounting
principles and adjustments for interest expense, goodwill amortization
and depreciation expense, and income taxes, but do not adjust for
normal weather conditions and anticipated operating efficiencies. In
management's opinion, the unaudited pro forma results are not
indicative of the actual results that would have occurred had the
acquisition of FLAGA occurred as of October 1, 1998, or of future
operating results under the ownership and management of the Company.
During the nine months ended June 30, 2000, the Partnership acquired
several retail propane distribution businesses for net cash
consideration of $55.9 million. These acquisitions have been accounted
for by the purchase method of accounting. Accordingly, the purchase
price has been preliminarily allocated to the assets and liabilities
based upon their estimated fair values with the balance of the purchase
price recorded as goodwill. Results of those acquired businesses are
included in the consolidated results from the date of their
acquisition. On a pro forma basis, these acquired businesses would not
have had a material impact on the Company's results of operations for
the periods presented.
5. NATURAL GAS COMPETITION ACT
On June 22, 1999, Pennsylvania's Natural Gas Choice and Competition Act
("Gas Competition Act") was signed into law. The purpose of the Gas
Competition Act is to provide all natural gas consumers in Pennsylvania
with the ability to purchase their gas supplies from the supplier of
their choice. Under the Gas Competition Act, local gas distribution
companies ("LDCs") may continue to sell gas to customers, and such
sales of gas, as well as distribution services provided by LDCs,
continue to be subject to price regulation by the Pennsylvania Public
Utility Commission ("PUC"). The Gas Competition Act, in conjunction
with a companion bill, eliminated the gross receipts tax on sales of
gas commencing January 1, 2000.
-11-
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UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
Generally, LDCs will serve as the supplier of last resort for all
residential and small commercial and industrial customers unless the
PUC approves another supplier of last resort. LDCs are generally
precluded from increasing rates for the recovery of costs, other than
gas costs, until January 1, 2001. The Gas Competition Act requires
energy marketers seeking to serve customers of LDCs to accept
assignment of a portion of the LDC's interstate pipeline capacity and
storage contracts at contract rates, thus avoiding the creation of
stranded costs. After July 1, 2002, a natural gas supplier may petition
the PUC to avoid such contract release or assignment. The PUC, however,
may only grant the petition if certain findings are made and the LDC
fully recovers the cost of contracts.
On October 1, 1999, Gas Utility filed its restructuring plan with the
PUC pursuant to the Gas Competition Act. On June 29, 2000, the PUC
entered its order ("Gas Restructuring Order") in Gas Utility's
restructuring plan approving such plan substantially as filed. The
Company does not believe the Gas Competition Act and the Gas
Restructuring Order will have a material adverse impact on its
financial condition or results of operations.
-12-
15
UGI CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ANALYSIS OF RESULTS OF OPERATIONS
The following analyses compare our results of operations for (1) the
three months ended June 30, 2000 ("2000 three-month period") with the
three months ended June 30, 1999 ("1999 three-month period"); (2) the
nine months ended June 30, 2000 ("2000 nine-month period") with the
nine months ended June 30, 1999 ("1999 nine-month period"); and (3) the
twelve months ended June 30, 2000 ("2000 twelve-month period") with the
twelve months ended June 30, 1999 ("1999 twelve-month period"). Our
analyses of results of operations should be read in conjunction with
the segment information included in Note 2 to Condensed Consolidated
Financial Statements.
-13-
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UGI CORPORATION AND SUBSIDIARIES
2000 THREE-MONTH PERIOD COMPARED WITH 1999 THREE-MONTH PERIOD
- -------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Increase
Three Months Ended June 30, 2000 1999 (Decrease)
- -------------------------------------------------------------------------------------------------
(Millions of dollars)
AMERIGAS PROPANE:
Revenues $209.7 $162.0 $ 47.7 29.4%
Total margin $ 90.3 $ 91.0 $ (0.7) (0.8)%
EBITDA (c) $ 14.0 $ 14.3 $ (0.3) (2.1)%
Operating loss $ (3.0) $ (2.3) $ 0.7 30.4%
Retail gallons sold (millions) 135.4 140.5 (5.1) (3.6)%
Degree days - % warmer than normal (a) 9.0 3.8 -- --
GAS UTILITY:
Revenues $ 59.3 $ 60.4 $ (1.1) (1.8)%
Total margin (b) $ 31.7 $ 30.0 $ 1.7 5.7%
EBITDA (c) $ 14.3 $ 11.3 $ 3.0 26.5%
Operating income $ 9.4 $ 6.6 $ 2.8 42.4%
System throughput - billions of
cubic feet ("bcf") 15.4 14.7 0.7 4.8%
Degree days - % warmer than normal 7.4 15.5 -- --
ELECTRIC UTILITY:
Revenues $ 18.3 $ 16.9 $ 1.4 8.3%
Total margin (b) $ 9.2 $ 10.8 $ (1.6) (14.8)%
EBITDA (c) $ 3.8 $ 5.3 $ (1.5) (28.3)%
Operating income $ 2.9 $ 4.2 $ (1.3) (30.1)%
Sales - millions of kilowatt hours ("gwh") 205.5 198.2 7.3 3.7%
ENERGY SERVICES:
Revenues $ 38.2 $ 20.0 $ 18.2 91.0%
Total margin $ 1.4 $ 1.7 $ (0.3) (17.6)%
EBITDA (c) $ 0.6 $ 0.9 $ (0.3) (33.3)%
Operating income $ 0.5 $ 0.9 $ (0.4) (44.4)%
INTERNATIONAL PROPANE:
Revenues $ 9.2 $ -- $ 9.2 N.M.
Total margin $ 4.0 $ -- $ 4.0 N.M.
EBITDA (c) (d) $ (0.3) $ -- $ (0.3) N.M.
Operating income (loss) (d) $ (1.0) $ -- $ (1.0) N.M.
-14-
17
UGI CORPORATION AND SUBSIDIARIES
(a) Based upon national weather statistics provided by the National Oceanic
and Atmospheric Administration ("NOAA") for 335 airports in the
continental U.S.
(b) Gas and Electric utilities' total margin represents revenues less cost
of sales and revenue-related taxes, i.e. gross receipts taxes. For
financial statement purposes, revenue-related taxes are included in
"Utility taxes other than income taxes" on the condensed consolidated
statements of income.
(c) 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.
(d) Includes equity in net income (loss) of international joint ventures.
N.M. Not meaningful.
AMERIGAS PROPANE. Weather during the 2000 three-month period was 9.0% warmer
than normal and 5.4% warmer than last year. Temperatures in the Partnership's
mountain and western regions, which typically comprise a substantial portion of
heating-related volume in the spring season, were significantly warmer than
normal. The warmer temperatures and price-induced deferrals of purchases by
customers resulted in a 5.1 million gallon decrease in retail volumes sold.
Wholesale volumes of propane sold increased 26.3 million gallons reflecting
higher sales associated with product cost management activities.
Total revenues from retail propane sales increased $27.1 million during the 2000
three-month period reflecting a $31.8 million increase as a result of higher
average selling prices partially offset by the impact of the lower retail
gallons sold. Wholesale propane revenues increased $20.3 million due about
equally to the higher volumes sold and higher average selling prices. The
increase in retail and wholesale selling prices resulted from higher propane
product costs. Cost of sales in the 2000 three-month period increased $48.3
million as a result of the higher propane product costs and the increase in
wholesale volumes.
Total margin for the 2000 three-month period was $0.7 million (0.8%) lower than
the prior-year period as the impact of lower retail volumes sold to residential
and commercial customers was offset by slightly higher average unit margins and
greater total margin from PPX Prefilled Propane Xchange(R) ("PPX (R)").
-15-
18
UGI CORPORATION AND SUBSIDIARIES
EBITDA for the 2000 three-month period was $0.3 million (2.1%) lower than the
prior-year period as the slightly lower total margin was offset by slightly
lower total operating expenses. Operating expenses of the Partnership were $77.9
million in the 2000 three-month period compared to $78.3 million in the
prior-year period. Operating expenses in the 2000 three-month period are net of
$3.3 million of income from adjustments to employee compensation and benefit
accruals recorded earlier in the fiscal year. Excluding the impact of these
adjustments, operating expenses were higher reflecting expenses associated with
recent business acquisitions, higher vehicle fuel expenses, and expenses
associated with new business initiatives, primarily PPX(R). Operating income
declined $0.7 million reflecting higher depreciation and amortization expense.
GAS UTILITY. Weather in Gas utility's service territory during the 2000
three-month period was 7.4% warmer than normal but 9.6% colder than the
prior-year period. The increase in total system throughput principally resulted
from higher interruptible delivery service volumes and to a lesser extent higher
core market sales resulting from an increase in the number of customers and the
colder spring weather.
Gas Utility revenues declined $1.1 million in the 2000 three-month period as the
impact on revenues from the greater interruptible delivery service volumes and
higher core market sales was more than offset by (1) a $3.6 million decrease in
off-system sales revenue and (2) the elimination of gross receipts tax ("GRT")
revenue effective January 1, 2000 pursuant to the Gas Competition Act. Gas
Utility cost of sales was $27.5 million in the 2000 three-month period, a
decrease of $0.8 million, principally reflecting the lower off-system sales. Gas
Utility total margin increased $1.7 million reflecting (1) increased margin from
interruptible customers as a result of the higher interruptible throughput and a
greater spread between oil and natural gas prices and (2) increased core market
margin.
Gas Utility EBITDA and operating income increased $3.0 million and $2.8 million,
respectively, during the 2000 three-month period. The increase reflects (1) the
previously mentioned $1.7 million increase in total margin and (2) a decrease in
operating and administrative expenses. Operating and administrative expenses,
excluding depreciation and amortization, declined $1.3 million in the 2000
three-month period principally reflecting a decrease in distribution system
maintenance expenses.
ELECTRIC UTILITY. Electric Utility sales during the 2000 three-month period
increased slightly from the prior year. Revenues increased as a result of the
higher sales as well as higher transmission revenues from alternate electric
power suppliers. Electric Utility cost of sales was $8.3 million in the 2000
three-month period, an increase of $2.8 million from the prior-year period.
Electric Utility cost of sales in the current-year period includes costs
associated with the higher sales and transmission revenues. Cost of sales in the
prior-year period includes a benefit of $1.5 million from a power supply
agreement settlement.
-16-
19
UGI CORPORATION AND SUBSIDIARIES
Electric Utility's total margin decreased $1.6 million because the prior year
included the beneficial impact of the previously mentioned power supply
agreement settlement on 1999 three-month period results. The decline in EBITDA
and operating income in the 2000 three-month period principally reflects the
decrease in total margin.
ENERGY SERVICES. Total revenues from Energy Services increased $18.2 million in
the 2000 three-month period primarily as a result of significantly higher
natural gas prices and, to a much lesser extent, higher volumes sold including
additional sales resulting from acquisition activity during the period.
Notwithstanding the slightly higher sales, total margin was slightly lower due
to lower average unit margins. The lower EBITDA and operating income reflect the
decrease in total margin.
INTERNATIONAL PROPANE. Variances in international propane revenue, total margin,
EBITDA and operating income (loss) are mainly due to the Company's European
propane distribution operation, FLAGA, acquired in September 1999. Weather in
Austria and the Czech Republic was nearly 50% warmer than normal during the 2000
three-month period. The warmer weather and customer conservation resulting from
higher propane product costs adversely impacted volumes sold. Additionally, the
higher propane costs negatively impacted FLAGA's unit margin.
CORPORATE AND OTHER ENTERPRISES. Corporate and other EBITDA and operating income
in the 2000 three-month period were higher reflecting income from the sale of
UTI Energy Corporation common stock. Other Enterprises' results in the 2000
three-month period reflects the operating results of the Company's retail
hearth, grill and spa superstore business, Hearth USA(TM), while results in the
prior-year period reflect pre-operating expenses associated with this business.
-17-
20
UGI CORPORATION AND SUBSIDIARIES
2000 NINE-MONTH PERIOD COMPARED WITH 1999 NINE-MONTH PERIOD
- -----------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Increase
Nine Months Ended June 30, 2000 1999 (Decrease)
- -------------------------------------------------------------------------------------------------
(Millions of dollars)
AMERIGAS PROPANE:
Revenues $899.6 $704.7 $194.9 27.7%
Total margin $406.2 $400.4 $ 5.8 1.4%
EBITDA $152.2 $154.1 $ (1.9) (1.2)%
Operating income $101.9 $104.7 $ (2.8) (2.7)%
Retail gallons sold (millions) 635.9 646.0 (10.1) (1.6)%
Degree days - % warmer than normal 14.1 9.6 -- --
GAS UTILITY:
Revenues $310.1 $302.6 $ 7.5 2.5%
Total margin $145.0 $136.3 $ 8.7 6.4%
EBITDA $ 96.7 $ 81.6 $ 15.1 18.5%
Operating income $ 82.4 $ 67.4 $ 15.0 22.3%
System throughput - billions of
cubic feet ("bcf") 67.2 64.1 3.1 4.8%
Degree days - % warmer than normal 11.1 12.4 -- --
ELECTRIC UTILITY:
Revenues $ 58.5 $ 55.2 $ 3.3 6.0%
Total margin $ 31.3 $ 30.7 $ 0.6 2.0%
EBITDA $ 15.6 $ 15.0 $ 0.6 4.0%
Operating income $ 12.7 $ 12.0 $ 0.7 5.8%
Sales - millions of kilowatt hours ("gwh") 689.5 676.6 12.9 1.9%
ENERGY SERVICES:
Revenues $103.8 $ 69.7 $ 34.1 48.9%
Total margin $ 4.6 $ 4.5 $ 0.1 2.2%
EBITDA $ 2.3 $ 2.1 $ 0.2 9.5%
Operating income $ 2.1 $ 2.1 $ -- --
INTERNATIONAL PROPANE:
Revenues $ 38.5 $ -- $ 38.5 N.M.
Total margin $ 16.1 $ -- $ 16.1 N.M.
EBITDA $ 1.6 $ (0.3) $ 1.9 N.M.
Operating loss $ (1.1) $ (0.3) $ 0.8 N.M.
-18-
21
UGI CORPORATION AND SUBSIDIARIES
AMERIGAS PROPANE. Temperatures based upon heating degree days were 14.1% warmer
than normal in the 2000 nine-month period and 4% warmer than the prior-year
period. Retail propane volumes sold declined 10.1 million gallons as a result of
the warmer weather's effect on heating-related sales partially offset by
increased non-heating related PPX(R) and motor fuel sales. Wholesale volumes
increased 54.7 million gallons as a result of higher wholesale sales associated
with product cost management activities.
Total retail propane revenues increased $127.8 million reflecting a $136.9
million increase from higher average selling prices partially offset by a $9.1
million decrease from the lower retail volumes sold. Wholesale propane revenues
increased $59.0 million reflecting a $38.2 million increase from higher
wholesale prices and $20.8 million from the higher wholesale volumes sold. As
previously mentioned, the higher propane selling prices reflect significantly
higher propane product costs during the 2000 nine-month period. Other revenues
increased $8.1 million reflecting, in part, higher customer fees and hauling,
tank rent and PPX(R) cylinder sales revenue. Cost of sales in the 2000
nine-month period increased $189.2 million as a result of the higher propane
product costs and the greater wholesale volumes sold.
Notwithstanding the lower retail volumes in the 2000 nine-month period, total
margin increased $5.8 million principally as a result of (1) greater volumes
sold to higher margin PPX(R) customers, (2) slightly higher average unit
margins, and (3) an increase in margin from customer fees, tank rent and
ancillary sales and services.
EBITDA declined $1.9 million, notwithstanding the slightly higher total margin,
reflecting higher operating and administrative expenses in the 2000 nine-month
period. Operating and administrative expenses of the Partnership were $259.4
million in the 2000 nine-month period compared to $250.6 million in the
prior-year period. The increase in operating expenses includes (1) higher
vehicle fuel costs and (2) higher expenses associated with the expansion of
PPX(R) and other new business and acquisition activities. Operating income
decreased $2.8 million in the 2000 nine-month period reflecting the decline in
EBITDA and slightly higher charges for depreciation and amortization.
GAS UTILITY. Weather in Gas Utility's service territory in the 2000 nine-month
period was 11.1% warmer than normal compared to weather that was 12.4% warmer
than normal during the prior year period. More than eighty percent of the
increase in system throughput during the 2000 nine-month period resulted from
increased delivery service volumes to interruptible customers with the remainder
representing higher sales to core market customers.
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22
UGI CORPORATION AND SUBSIDIARIES
The increase in Gas Utility's revenues during the 2000 nine-month period
principally resulted from (1) a $7.4 million increase in core market revenues,
reflecting higher sales and higher average purchased gas cost ("PGC") rates
partially offset by the impact of the elimination of GRT effective January 1,
2000, and (2) a $6.5 million increase in revenues from interruptible customers.
These increases in revenue were partially offset by lower off-system sales
revenues and lower firm delivery service revenues. Gas Utility cost of gas was
$161.1 million in the 2000 nine-month period compared with $154.4 million in the
prior-year period. The increase reflects higher average PGC rates and higher
core market sales partially offset by lower costs associated with the previously
mentioned decline in off-system sales.
Gas Utility total margin increased $8.7 million reflecting (1) a $4.4 million
increase in total interruptible retail and interruptible delivery service
margin; (2) a $3.2 million increase in core market margin; and (3) slightly
higher firm delivery service total margin.
Gas Utility EBITDA and operating income increased $15.1 million and $15.0
million, respectively, during the 2000 nine-month period as a result of (1) the
higher total margin; (2) a $3.7 million increase in other income; and (3) a
decrease in net operating expenses. Other income in the 2000 nine-month period
includes (1) income from the refund of revenue-related tax overpayments made in
prior years (including associated interest); (2) interest income from purchased
gas cost undercollections; and (3) higher income from a construction project and
other activities. Gas Utility's net operating expenses declined $2.8 million
reflecting higher costs associated with environmental matters and customer
accounts more than offset by (1) $2.4 million in income from an insurance
settlement and (2) $0.9 million from adjustments to incentive compensation
accruals recorded in the three months ended December 31, 1999.
ELECTRIC UTILITY. Electric sales for the 2000 nine-month period increased 1.9%
on weather that was slightly colder than in the prior year. Revenues increased
as a result of the higher sales as well as an increase in transmission revenues
from alternate electric power suppliers selling electricity to some of our
customers. Cost of sales increased to $24.7 million in the 2000 nine-month
period from $22.2 million in the prior year reflecting the higher sales and
higher costs associated with the greater transmission revenues.
Electric Utility operations total margin increased $0.6 million principally
reflecting the impact of the higher sales. EBITDA and operating income also
increased reflecting higher total margin and a $2.0 million increase in other
income. These increases were partially offset by higher utility realty taxes and
greater power production maintenance expenses.
ENERGY SERVICES. Revenues increased $34.0 million during the 2000 nine-month
period primarily as a result of higher natural gas prices. Total margin, EBITDA
and operating income were approximately equal to the prior-year period, despite
slightly higher volumes sold, due to lower average unit margins.
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UGI CORPORATION AND SUBSIDIARIES
INTERNATIONAL PROPANE. International Propane results for the nine months ended
June 30, 2000 include FLAGA, acquired September 1999. The results of FLAGA
during the 2000 nine-month period were adversely affected by warmer than normal
weather and higher propane supply costs resulting in lower than normal unit
margins and price-induced conservation.
CORPORATE AND OTHER ENTERPRISES. The decrease in corporate and other EBITDA and
operating income reflects lower interest income on cash investments. Other
Enterprise' results in the 2000 nine-month period primarily reflects the
operating results of Hearth USA(TM). The prior-year nine-month period includes
due diligence expenses associated with Enterprises' domestic and international
new business activities as well as start-up expenses associated with Hearth
USA(TM).
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UGI CORPORATION AND SUBSIDIARIES
2000 TWELVE-MONTH PERIOD COMPARED WITH 1999 TWELVE-MONTH PERIOD
- ---------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Increase
Twelve Months Ended June 30, 2000 1999 (Decrease)
- -----------------------------------------------------------------------------------------------------
(Millions of dollars)
AMERIGAS PROPANE:
Revenues $1,067.4 $ 851.8 $ 215.6 25.3%
Total margin $ 487.5 $ 483.4 $ 4.1 0.8%
EBITDA $ 156.9 $ 156.0 $ 0.9 0.6%
Operating income $ 89.7 $ 89.9 $ (0.2) (0.2)%
Retail gallons sold (millions) 773.1 781.1 (8.0) (1.0)%
Degree days - % warmer than normal 13.8 11.2 -- --
GAS UTILITY:
Revenues $ 353.1 $ 344.9 $ 8.2 2.4%
Total margin $ 169.2 $ 159.8 $ 9.4 5.9%
EBITDA $ 102.1 $ 84.9 $ 17.2 20.3%
Operating income $ 83.0 $ 66.1 $ 16.9 25.6%
System throughput - billions of
cubic feet ("bcf") 79.3 76.0 3.3 4.3%
Degree days - % warmer than normal 11.6 12.9 -- --
ELECTRIC UTILITY:
Revenues $ 78.3 $ 73.1 $ 5.2 7.1%
Total margin $ 39.3 $ 39.0 $ 0.3 0.8%
EBITDA $ 17.3 $ 17.7 $ (0.4) (2.3)%
Operating income $ 13.4 $ 13.7 $ (0.3) (2.2)%
Sales - millions of kilowatt hours ("gwh") 913.3 890.4 22.9 2.6%
ENERGY SERVICES:
Revenues $ 124.5 $ 87.4 $ 37.1 42.4%
Total margin $ 6.1 $ 5.2 $ 0.9 17.3%
EBITDA $ 2.9 $ 2.3 $ 0.6 26.1%
Operating income $ 2.6 $ 2.2 $ 0.4 18.2%
INTERNATIONAL PROPANE:
Revenues $ 38.5 $ -- $ 38.5 N.M.
Total margin $ 16.1 $ -- $ 16.1 N.M.
EBITDA $ 1.8 $ (0.8) $ 2.6 N.M.
Operating loss $ (0.9) $ (0.8) $ 0.1 N.M.
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UGI CORPORATION AND SUBSIDIARIES
AMERIGAS PROPANE. Temperatures based upon heating degree days were 13.8% warmer
than normal in the 2000 twelve-month period and 2.6% warmer than the 1999
twelve-month period. Retail propane gallons sold were 8.0 million gallons lower
as reductions in heating-related sales were partially offset by higher motor
fuel and PPX(R) sales. Wholesale volumes of propane sold increased 65.8 million
gallons to 245.3 million gallons reflecting an increase in sales associated with
propane product cost management activities.
Total retail propane revenues increased $137.3 million due to higher average
retail propane selling prices. Wholesale propane revenue increased $66.8 million
reflecting (1) a $41.9 million increase as a result of higher prices and (2) a
$24.9 million increase as a result of higher wholesale volumes. Other revenues
increased $11.7 million reflecting higher customer fees and higher hauling, tank
rent, and ancillary sales and service revenue. Cost of sales increased $211.6
million as a result of higher propane product costs.
Total margin increased $4.1 million in the 2000 twelve-month period due to (1)
higher total margin from our expanding PPX(R) cylinder exchange business, (2)
slightly higher average unit margins, and (3) an increase in margin from
customer fees, tank rent and ancillary sales and services.
EBITDA was $0.9 million higher in the 2000 twelve-month period as the increase
in total margin and a $6.1 million increase in other income was partially offset
by higher operating and administrative expenses. Other income in the 1999
twelve-month period is net of a $4.0 million loss from interest rate protection
agreements. Other income in the 2000 twelve-month period includes, among other
things, higher gains from asset sales and greater finance charge income.
Operating expenses of the Partnership were $338.4 million in the 2000
twelve-month period compared with $329.6 million in the prior-year period. The
increase in operating and administrative expenses includes higher vehicle fuel
and repairs and maintenance expenses and expenses associated with new business
activities. Operating income declined $0.2 million, despite the increase in
EBITDA, reflecting a $1.1 million increase in depreciation and amortization
expense.
GAS UTILITY. Weather in Gas Utility's service territory during the 2000
twelve-month period was 11.6% warmer than normal but 2.1% colder than the prior
year. Total system throughput increased as a result of the colder weather and an
increase in total customers.
The increase in Gas Utility's revenues during the 2000 twelve-month period
resulted from (1) a $5.8 million increase in core market revenues (reflecting
higher core market volumes and PGC rates less the elimination of GRT revenue
effective January 1, 2000) and (2) a $7.5 million increase in interruptible
delivery service revenues. Partially offsetting these revenue increases were
lower firm delivery service revenues and lower revenues from off-system sales.
Gas Utility cost of sales was $178.6 million in the 2000 twelve-month period
compared with $171.9 million in the 1999 twelve-month period reflecting higher
average purchased gas cost rates and the higher core market sales.
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UGI CORPORATION AND SUBSIDIARIES
Gas Utility total margin increased $9.4 million reflecting (1) a $5.3 million
increase in margin from interruptible customers as a result of higher volumes
transported and higher average margins, (2) increased core market margin, and
(3) a slight increase in firm delivery service margin.
Gas Utility EBITDA and operating income were higher in the 2000 twelve-month
period principally as a result of the greater total margin, a $4.2 million
increase in other income and slightly lower operating expenses. Other income in
the 2000 twelve-month period includes (1) income from the refund of
revenue-related tax overpayments made in prior years (including associated
interest), (2) greater income from a construction project and other activities,
and (3) interest income from purchased gas cost undercollections.
ELECTRIC UTILITY. Total kilowatt-hour sales were higher in the 2000 twelve-month
period reflecting greater air-conditioning related sales during the fourth
quarter of fiscal 1999 and an increase in the number of customers. Electric
Utility revenues increased $5.2 million as a result of the increased sales and
higher transmission revenues associated with alternate suppliers serving
customers on our distribution system. Cost of sales increased $4.7 million
reflecting the increase in total sales and costs associated with the higher
transmission revenues.
Electric Utility's total margin increased $0.3 million principally as a result
of the higher 2000 twelve-month period sales. EBITDA and operating income
decreased $0.4 million and $0.3 million, respectively, notwithstanding the
increase in total margin and higher other income, reflecting greater (1) utility
realty taxes, (2) power generation maintenance costs, and (3) customer service
and information expenses.
ENERGY SERVICES. Revenues from Energy Services during the 2000 twelve-month
period increased substantially from the prior-year period reflecting higher
average natural gas prices. Total margin increased $0.9 million reflecting
higher average unit margins from gas marketing and greater income from power
marketing and other services. The greater 2000 twelve-month period EBITDA and
operating income reflects the increase in total margin.
INTERNATIONAL PROPANE. Revenues and total margin in the 2000 twelve-month period
represent the operations of FLAGA subsequent to September 21, 1999. EBITDA in
the 2000 twelve-month period primarily reflects the results of FLAGA and, to a
much lesser extent, results of the company's equity investments in China and
Romania. EBITDA and operating loss in the 1999 twelve-month period reflects
equity losses from our China and Romanian joint ventures.
CORPORATE AND OTHER ENTERPRISES. The decrease in corporate and other EBITDA and
operating income reflects lower interest income on cash investments. Other
Enterprises' results in the 2000 and 1999 twelve-month periods reflects start-up
costs and operating results of Hearth USA(TM). The 1999 twelve-month period also
includes greater due diligence expenses associated with Enterprises domestic and
international new business activities.
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UGI CORPORATION AND SUBSIDIARIES
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL CONDITION
The Company's debt outstanding totaled $1,219.7 million at June 30, 2000
compared to $1,137.3 million at September 30, 1999. The increase in debt
reflects the Operating Partnership's issuance of $80 million of Series E First
Mortgage Notes at an effective interest rate of 8.47%. In addition, the
Operating Partnership borrowed a total of $116 million under its Acquisition
Facility and made Acquisition Facility repayments of $69 million with the
proceeds from the Series E First Mortgage Notes. At June 30, 2000, there was $70
million outstanding under the Acquisition Facility. Partially offsetting these
increases in Partnership debt was a $25.5 million decline in UGI Utilities bank
loans outstanding. At June 30, 2000, UGI Utilities had $61.9 million of bank
loans outstanding and had agreements under which it could borrow up to a total
of $97 million. In addition, UGI Utilities can also issue an additional $52
million of debt under its Medium Term Note Program.
In June 2000, the Operating Partnership's Bank Credit Agreement was amended to,
among other things, extend the Acquisition Facility termination date to
September 15, 2002. Then-outstanding borrowings under the Acquisition Facility
will be due in their entirety on such date.
The Partnership makes distribution to its partners 45 days after the end of each
quarter in a total amount equal to Available Cash (as defined in the partnership
Agreement) for such quarter. During the nine months ended June 30, 2000, the
Partnership declared and paid the minimum quarterly distribution of $0.55 (the
"MQD") on all limited partner units and the general partner interest for the
quarters ended September 30, 1999, December 31, 1999 and March 31, 2000. The MQD
for the quarter ended June 30, 2000 will be paid on August 18, 2000 to holders
of record August 10, 2000 of all Common and Subordinated Units. The
Partnership's ability to declare and pay the full MQD on all units depends upon
a number of factors including (1) the level of 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
ability of the Partnership to borrow and refinance debt. Some of these factors
are affected by conditions beyond the Partnership's control including weather,
competition in markets we serve, and the cost of propane.
The 9,891,072 Subordinated Units of the Partnership which are held by the
Company are eligible to convert to Common Units on the first day after the
record date for any quarter ending on or after March 31, 2000 in respect of
which certain historical cash-based performance and distribution requirements
are met. The ability of the Partnership to attain the cash-based performance and
distribution requirements depends upon a number of factors including highly
seasonal operating results, changes in working capital, asset sales and debt
refinancings. Due to significantly warmer than normal weather and the impact of
higher propane product costs on working capital, the Partnership did not achieve
the cash-based performance requirements in respect of the quarters ended March
31, 2000 and June 30, 2000. Due to the historical "look-back" provisions of the
conversion test, the possibility is remote that the Partnership will satisfy the
cash-based performance requirements for conversion any earlier than in respect
of the quarter ending March 31, 2002.
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28
UGI CORPORATION AND SUBSIDIARIES
On April 25, 2000, UGI announced a 3.3% increase in its quarterly dividend to
$0.3875 per common share, or $1.55 per share on an annual basis.
On October 1, 1999, Gas Utility filed its restructuring plan with the PUC
pursuant to the Gas Competition Act. On June 29, 2000, the PUC entered its order
("Gas Restructuring Order") in Gas Utility's restructuring plan approving such
plan substantially as filed. The Company does not believe the Gas Competition
Act and the Gas Restructuring Order will have a material adverse impact on its
financial condition or results of operations (see Note 5).
CASH FLOWS
Our cash flows are seasonal and are generally greatest during the second and
third fiscal quarters when customers pay bills incurred 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 nine months
ended June 30, 2000 are not necessarily indicative of the cash flows to be
expected for a full year. Included in consolidated cash and short-term
investments at June 30, 2000 and 1999 are $48.3 million and $23.3 million,
respectively, of cash and short-term investments held by UGI.
OPERATING ACTIVITIES. Cash provided by operating activities during the nine
months ended June 30, 2000 totaled $117.5 million compared with $143.7 million
during the prior-year period which included the after-tax benefit of a $25
million merger termination fee. Changes in operating working capital during the
2000 nine-month period required $35.7 million of operating cash flow while
changes in operating working capital during the prior-year period required $20.0
million of operating cash flow. The higher cash required for working capital in
the 2000 nine-month period reflects the impact of higher propane product costs
on accounts receivable and inventories. Operating cash flow before changes in
working capital was $153.2 million in the 2000 nine-month period compared to
$163.7 million in the 1999 nine-month period The 1999 nine-month period amount
includes the after-tax benefit of the merger termination fee.
INVESTING ACTIVITIES. Cash used by investing activities during the nine months
ended June 30, 2000 totaled $91.5 million compared with cash provided by
investing activities of $14.0 million in the prior-year period. The prior year
includes cash from changes in short-term investments of $76.4 million compared
to $11.2 million in the current year. We spent $50.2 million for property, plant
and equipment in the 2000 nine-month period compared with $51.5 million in the
prior year principally reflecting lower Partnership capital expenditures. Cash
paid for Partnership acquisitions totaled $55.9 million in the 2000 nine-month
period compared with $3.2 million in the prior-year nine-month period.
FINANCING ACTIVITIES. During the nine months ended June 30, 2000 and 1999, we
paid cash dividends on Common Stock of $30.9 million and $36.4 million,
respectively, and the Partnership paid the MQD on all publicly held Common Units
(as well as on the Common and Subordinated units we own). During the 2000
nine-month period, the Operating Partnership borrowed $116 million under the
Acquisition Facility and made Acquisition Facility repayments, totaling $69
million. Acquisition Facility repayments were made with the proceeds from the
issuance of ten-year Series E First Mortgage Notes.
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UGI CORPORATION AND SUBSIDIARIES
During the nine months ended June 30, 2000, the Operating Partnership had net
borrowings of $3 million under its Revolving Credit Facility compared with
borrowings of $10 million in the prior-year period. UGI Utilities made net
revolving credit agreement repayments of $25.5 million in the 2000 nine-month
period compared with net repayments of $8.8 million in the same period last
year.
ADOPTION OF NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). SFAS No. 133, as amended by SFAS No. 137, is
required to be adopted by the Company for the first quarter of fiscal 2001. The
Company is currently assessing its impact on the Company's financial position
and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Our primary market risk exposures are market prices for propane, natural gas and
electricity, and changes in interest rates.
In order to manage a portion of our propane market price risk, the Partnership
uses contracts for the forward purchase of propane, propane fixed-price supply
agreements, and derivative commodity instruments such as price swap and option
contracts. On occasion, the Partnership enters into wholesale product cost
management activities to reduce price risk associated with changes in the fair
value of a portion of its propane storage inventory. In order to manage market
price risk relating to substantially all of UGI Energy Services' firm
commitments to sell natural gas, we purchase exchange-traded natural gas futures
contracts.
Although Gas Utility is also subject to changes in the price of natural gas, the
current regulatory framework allows Gas Utility to recover prudently incurred
gas costs from its customers. In addition, Pennsylvania's Natural Gas Choice and
Competition Act permits local distribution companies to recover prudently
incurred costs of gas sold to customers. Because of this ratemaking mechanism,
there is limited commodity price risk associated with our Gas Utility
operations.
The Company's Electric Utility operations include the regulated sale of
electricity through its distribution business and the production of electricity
through its electric generation business unit. Currently our electric generation
operations produce electricity exclusively for our distribution business,
generating approximately 50% of its electricity needs. Electric Utility
purchases the remainder of its electric power needs under power supply
arrangements of varying length terms with other producers and, to a lesser
extent, on the spot market. Spot market prices for electricity and, to a lesser
extent, monthly market-based contracts can be volatile, especially during
periods of high demand. In accordance with Electric Utility's Restructuring
Order, the transmission and distribution components of Electric Utility's rates
are "capped" through July 1,
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30
UGI CORPORATION AND SUBSIDIARIES
2001. In addition, Electric Utility's generation rate cap is expected to extend
through December 31, 2002. Accordingly, Electric Utility does not currently have
the ability to pass on increases in its power costs through rate increases to
its customers.
We have market risk exposure from changes in interest rates on borrowings
primarily from the Operating Partnership's Bank Credit Agreement, UGI Utilities'
revolving credit agreements and debt agreements of FLAGA. These agreements have
interest rates on borrowings that are indexed to short-term market interest
rates. Based upon average borrowings under these agreements during fiscal 1999,
an increase in short-term interest rates of 100 basis points (1%) would have
increased annual interest expense by approximately $2.0 million. On occasion we
enter into interest rate protection agreements to reduce interest rate risk
associated with forecasted issuances of debt.
We do not currently use derivative instruments to hedge foreign currency
exposure associated with our international propane operations, principally
FLAGA. As a result, the U.S. dollar value of foreign denominated assets and
liabilities will fluctuate with changes in the associated foreign currency
exchange rates. Our net exposure to changes in foreign currency exchange rates
has been significantly limited, however, because our net investment in FLAGA,
our principal international propane operation, was financed with EURO
denominated debt.
At June 30, 2000, the impact on the fair value of market risk sensitive
derivative instruments from an adverse change in (1) the market price of propane
of 10 cents a gallon, (2) the market price of natural gas of 50 cents a
dekatherm (3) interest rates on ten-year U.S. treasury notes of 100 basis
points, and (4) the market price of oil of 10 cents a gallon, would not be
materially different from that reported in the Company's 1999 Annual Report.
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UGI CORPORATION AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
10.1 UGI Corporation 2000 Stock Incentive Plan
10.2 First Amendment dated as of March 16, 2000 to Note
Agreement dated as of March 15, 1999 is incorporated
by reference to Exhibit 10.1 to AmeriGas Partners
L.P's. Form 10-Q for the Quarter ended June 30, 2000
10.3 Fourth Amendment dated as of March 16, 2000 to Note
Agreement dated as of April 12, 1995 is incorporated
by reference to Exhibit 10.2 to AmeriGas Partners,
L.P. Form 10-Q for the Quarter ended June 30, 2000
10.4 Third Amendment dated as of March 22, 2000 to Amended
and Reinstated Credit Agreement is incorporated by
reference to Exhibit 10.3 to AmeriGas Partners, L.P.
Form 10-Q for the Quarter ended June 30, 2000
10.5 Fourth Amendment dated as of June 6, 2000 to Amended
and Reinstated Credit Agreement is incorporated by
reference to Exhibit 10.4 to AmeriGas Partners, L.P.
Form 10-Q for the quarter ended June 30, 2000
10.6 Note Agreement dated as of March 15, 2000 among
AmeriGas Propane L.P., AmeriGas Propane Inc. and
certain institutional investors is incorporated by
reference to Exhibit 10.5 to AmeriGas Partners L.P.
Form 10-Q for the Quarter ended June 30, 2000
27 Financial Data Schedule
(b) The Company did not file any Current Reports on Form 8-K
during the fiscal quarter ended June 30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UGI Corporation
-----------------------
(Registrant)
Date: August 11, 2000 By: /s/ A. J. Mendicino
- ---------------------- ---------------------------------------------
A. J. Mendicino, Vice President - Finance and
Chief Financial Officer
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UGI CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
10.1 UGI Corporation 2000 Stock Incentive Plan
27 Financial Data Schedule