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 1-1398
UGI UTILITIES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1174060
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
UGI UTILITIES, INC.
100 Kachel Boulevard, Suite 400
Green Hills Corporate Center, Reading, PA
(Address of principal executive offices)
19607
(Zip Code)
(610) 796-3400
(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 26,781,785 shares of UGI Utilities, Inc.
Common Stock, par value $2.25 per share, outstanding, all of which were held,
beneficially and of record, by UGI Corporation.
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UGI UTILITIES, INC.
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 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
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PART I FINANCIAL INFORMATION
UGI UTILITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Thousands of dollars)
June 30, September 30, June 30,
2000 1999 1999
---- ---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 3,060 $ 11,063 $ 1,432
Accounts receivable (less allowance for doubtful accounts
of $2,734, $1,716 and $1,852, respectively) 34,148 21,887 32,717
Accrued utility revenues 7,040 6,867 5,773
Inventories 22,197 28,103 21,376
Deferred income taxes 5,268 2,972 7,249
Prepaid expenses and other current assets 4,139 6,283 7,047
-------- -------- --------
Total current assets 75,852 77,175 75,594
Property, plant and equipment, at cost (less accumulated depreciation
and amortization of $285,451, $270,003 and $267,365, respectively) 563,001 556,793 551,278
Regulatory assets 56,576 61,082 59,449
Other assets 18,464 17,483 17,782
-------- -------- --------
Total assets $713,893 $712,533 $704,103
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 22,143 $ 7,143 $ 7,143
Bank loans 61,900 87,400 59,600
Accounts payable 33,532 37,881 30,485
Other current liabilities 47,862 31,048 47,657
-------- -------- --------
Total current liabilities 165,437 163,472 144,885
Long-term debt 157,919 172,904 180,042
Deferred income taxes 114,940 112,284 111,034
Other noncurrent liabilities 23,399 24,313 25,786
Commitments and contingencies
Redeemable preferred stock 20,000 20,000 20,000
Common stockholder's equity:
Common Stock, $2.25 par value (authorized - 40,000,000 shares;
issued and outstanding - 26,781,785 shares) 60,259 60,259 60,259
Additional paid-in capital 68,559 68,559 68,559
Retained earnings 103,380 90,742 93,538
-------- -------- --------
Total common stockholder's equity 232,198 219,560 222,356
-------- -------- --------
Total liabilities and stockholder's equity $713,893 $712,533 $704,103
======== ======== ========
See accompanying notes to consolidated financial statements.
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UGI UTILITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(Thousands of dollars)
Three Months Ended Nine Months Ended Twelve Months Ended
June 30, June 30, June 30,
------------------ ------------------ --------------------
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
Revenues $ 77,554 $ 77,338 $ 368,574 $ 357,800 $ 431,421 $ 417,944
--------- --------- --------- --------- --------- ---------
Costs and expenses:
Gas, fuel and purchased power 35,907 33,816 185,822 176,601 214,442 202,965
Operating and administrative expenses 21,826 22,381 62,628 63,593 85,775 87,073
Operating and administrative expenses
- related parties 986 1,258 2,988 3,727 4,207 5,015
Taxes other than income taxes 2,913 4,879 14,280 21,058 18,454 25,277
Depreciation and amortization 5,794 5,800 17,202 17,189 23,019 22,824
Other income, net (2,177) (1,595) (9,447) (3,793) (10,823) (4,928)
--------- --------- --------- --------- --------- ---------
65,249 66,539 273,473 278,375 335,074 338,226
--------- --------- --------- --------- --------- ---------
Operating income 12,305 10,799 95,101 79,425 96,347 79,718
Interest expense 4,348 4,238 13,755 13,000 18,287 17,587
--------- --------- --------- --------- --------- ---------
Income before income taxes 7,957 6,561 81,346 66,425 78,060 62,131
Income taxes 3,085 2,485 31,538 25,149 30,660 23,403
--------- --------- --------- --------- --------- ---------
Net income 4,872 4,076 49,808 41,276 47,400 38,728
Dividends on preferred stock 388 388 1,163 1,163 1,550 1,551
--------- --------- --------- --------- --------- ---------
Net income after dividends on preferred stock $ 4,484 $ 3,688 $ 48,645 $ 40,113 $ 45,850 $ 37,177
========= ========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
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UGI UTILITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Thousands of dollars)
Nine Months Ended Twelve Months Ended
June 30, June 30,
------------------ --------------------
2000 1999 2000 1999
---- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 49,808 $ 41,276 $ 47,400 $ 38,728
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 17,202 17,189 23,019 22,824
Deferred income taxes, net (1,136) 148 4,508 4,494
Other, net 3,936 1,220 5,200 4,334
-------- -------- -------- --------
69,810 59,833 80,127 70,380
Net change in:
Accounts receivable and accrued utility revenues (15,560) (14,014) (7,173) (2,878)
Inventories 5,906 7,084 (821) (942)
Deferred fuel costs 7,882 6,870 (4,108) (3,764)
Accounts payable (4,349) (8,362) 3,047 1,536
Other current assets and liabilities 14,521 9,634 8,254 1,042
-------- -------- -------- --------
Net cash provided by operating activities 78,210 61,045 79,326 65,374
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (23,230) (25,014) (34,600) (38,208)
Net proceeds (costs) of property, plant and equipment disposals (313) (357) (697) 320
-------- -------- -------- --------
Net cash used by investing activities (23,543) (25,371) (35,297) (37,888)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (37,170) (30,162) (37,558) (30,849)
Repayment of long-term debt -- -- (7,143) (7,143)
Bank loans increase (decrease) (25,500) (8,800) 2,300 8,900
-------- -------- -------- --------
Net cash used by financing activities (62,670) (38,962) (42,401) (29,092)
-------- -------- -------- --------
Cash and cash equivalents increase (decrease) $ (8,003) $ (3,288) $ 1,628 $ (1,606)
======== ======== ======== ========
CASH AND CASH EQUIVALENTS:
End of period $ 3,060 $ 1,432 $ 3,060 $ 1,432
Beginning of period 11,063 4,720 1,432 3,038
-------- -------- -------- --------
Increase (decrease) $ (8,003) $ (3,288) $ 1,628 $ (1,606)
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
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UGI UTILITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include
the accounts of UGI Utilities, Inc. ("UGI Utilities") and its wholly
owned subsidiaries (collectively, "the Company" or "we"). We eliminate
all significant intercompany accounts and transactions when we
consolidate. We have reclassified certain prior-period balances to
conform with the current period presentation. UGI Utilities is a wholly
owned subsidiary of UGI Corporation ("UGI") 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. Effective October 1, 1999, Electric Utility's interests
in its electric generating facilities were transferred to UGI
Utilities' wholly owned non-utility subsidiary UGI Development Company,
("UGID"). UGID has been granted "Exempt Wholesale Generator" status by
the Federal Energy Regulatory Commission.
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 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.
UGI Utilities' comprehensive income as determined under Statement of
Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income" was the same as its net income for all periods
presented.
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UGI UTILITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars)
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 two reportable segments: (1) Gas Utility and (2) Electric
Utility. Although (1) Pennsylvania's Electricity Customer Choice Act
unbundled prices for electric generation, transmission and distribution
services and (2) on October 1, 1999 we transferred our electric
generation assets to our non-utility subsidiary UGID, we currently
manage and evaluate our electric generation, transmission and
distribution operations on a combined basis. Accordingly, these
electric operations have been combined for segment presentation
purposes.
The accounting policies of our two reportable segments are the same as
those described in the Significant Accounting Policies note contained
in the Company's 1999 Annual Report. We evaluate each segment's
performance principally based upon its earnings before income taxes.
No single customer represents more than 5% of the total revenues of
either Gas Utility or Electric Utility. Financial information by
business segment follows:
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UGI UTILITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars)
2. SEGMENT INFORMATION (continued)
THREE MONTHS ENDED JUNE 30, 2000:
Elimina- Gas Electric All
Total tions Utility Utility other
----- ----- ------- ------- -----
Segment revenues $ 77,554 $ -- $ 59,252 $ 18,302 $ --
Segment profit:
EBITDA $ 18,099 $ -- $ 14,334 $ 3,765 $ --
Depreciation and amortization (5,794) -- (4,873) (921) --
--------- ---- --------- --------- ----
Operating income 12,305 -- 9,461 2,844 --
Interest expense (4,348) -- (3,790) (558) --
--------- ---- --------- --------- ----
Income before income taxes $ 7,957 $ -- $ 5,671 $ 2,286 $ --
========= ==== ========= ========= ====
Segment assets (at period end) $ 713,893 $ -- $ 617,061 $ 96,832 $ --
========= ==== ========= ========= ====
THREE MONTHS ENDED JUNE 30, 1999:
Elimina- Gas Electric All
Total tions Utility Utility other
----- ----- ------- ------- -----
Segment revenues $ 77,338 $- $ 60,392 $ 16,946 $ --
Segment profit (loss):
EBITDA $ 16,599 $- $ 11,314 $ 5,296 $ (11)
Depreciation and amortization (5,800) -- (4,768) (1,032) --
--------- ---- --------- --------- ---------
Operating income (loss) 10,799 -- 6,546 4,264 (11)
Interest expense (4,238) -- (3,523) (715) --
--------- ---- --------- --------- ---------
Income (loss) before income taxes $ 6,561 $- $ 3,023 $ 3,549 $ (11)
========= ==== ========= ========= =========
Segment assets (at period end) $ 704,103 $(85) $ 608,550 $ 95,407 $ 231
========= ==== ========= ========= =========
- -----------------------------------
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.
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UGI UTILITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars)
2. SEGMENT INFORMATION (continued)
NINE MONTHS ENDED JUNE 30, 2000:
Elimina- Gas Electric All
Total tions Utility Utility other
----- ----- ------- ------- -----
Segment revenues $ 368,574 $ -- $ 310,095 $ 58,479 $ --
Segment profit:
EBITDA $ 112,303 $ -- $ 96,690 $ 15,613 $ --
Depreciation and amortization (17,202) -- (14,258) (2,944) --
--------- ----- --------- --------- -----
Operating income 95,101 -- 82,432 12,669 --
Interest expense (13,755) -- (12,077) (1,678) --
--------- ----- --------- --------- -----
Income before income taxes $ 81,346 $ -- $ 70,355 $ 10,991 $ --
========= ===== ========= ========= =====
Segment assets (at period end) $ 713,893 $ -- $ 617,061 $ 96,832 $ --
========= ===== ========= ========= =====
NINE MONTHS ENDED JUNE 30, 1999:
Elimina- Gas Electric All
Total tions Utility Utility other
----- ----- ------- ------- -----
Segment revenues $ 357,800 $ -- $ 302,593 $ 55,207 $ --
Segment profit (loss):
EBITDA $ 96,614 $ -- $ 81,604 $ 15,038 $ (28)
Depreciation and amortization (17,189) -- (14,212) (2,977) --
--------- --------- --------- --------- ---------
Operating income (loss) 79,425 -- 67,392 12,061 (28)
Interest expense (13,000) -- (11,097) (1,903) --
--------- --------- --------- --------- ---------
Income (loss) before income taxes $ 66,425 $ -- $ 56,295 $ 10,158 $ (28)
========= ========= ========= ========= =========
Segment assets (at period end) $ 704,103 $ (85) $ 608,550 $ 95,407 $ 231
========= ========= ========= ========= =========
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UGI UTILITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars)
2. SEGMENT INFORMATION (continued)
TWELVE MONTHS ENDED JUNE 30, 2000:
Elimina- Gas Electric All
Total tions Utility Utility other
----- ----- ------- ------- -----
Segment revenues $ 431,421 $ -- $ 353,139 $ 78,282 $ --
Segment profit (loss):
EBITDA $ 119,366 $ -- $ 102,050 $ 17,355 $ (39)
Depreciation and amortization (23,019) -- (19,042) (3,977) --
--------- ---- --------- --------- ---------
Operating income (loss) 96,347 -- 83,008 13,378 (39)
Interest expense (18,287) -- (16,164) (2,123) --
--------- ---- --------- --------- ---------
Income (loss) before income taxes $ 78,060 $ -- $ 66,844 $ 11,255 $ (39)
========= ==== ========= ========= =========
Segment assets (at period end) $ 713,893 $ -- $ 617,061 $ 96,832 $ --
========= ==== ========= ========= =========
TWELVE MONTHS ENDED JUNE 30, 1999:
Elimina- Gas Electric All
Total tions Utility Utility other
----- ----- ------- ------- -----
Segment revenues $ 417,944 $ -- $ 344,798 $ 73,146 $ --
Segment profit (loss):
EBITDA $ 102,542 $ -- $ 84,917 $ 17,714 $ (89)
Depreciation and amortization (22,824) -- (18,837) (3,987) --
--------- --------- --------- --------- ---------
Operating income (loss) 79,718 -- 66,080 13,727 (89)
Interest expense (17,587) -- (15,049) (2,538) --
--------- --------- --------- --------- ---------
Income (loss) before income taxes $ 62,131 $ -- $ 51,031 $ 11,189 $ (89)
========= ========= ========= ========= =========
Segment assets (at period end) $ 704,103 $ (85) $ 608,550 $ 95,407 $ 231
========= ========= ========= ========= =========
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UGI UTILITIES, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(Thousands of dollars)
3. Commitments and Contingencies
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.
Certain private parties have filed, or threatened to file, suit against
UGI Utilities to recover costs of investigation or remediation of
several MGP 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.
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 $11,000 in costs incurred by UGI
Utilities at various MGP sites. 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 $2,400 which is net of
amounts applied to site-specific environmental costs associated with
Pennsylvania sites.
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UGI UTILITIES, INC.
Notes to Condensed Consolidated Financial Statements (continued)
(unaudited)
(Thousands of dollars)
In addition to these environmental 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. However, such
damages or settlements 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.
4. 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.
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.
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UGI UTILITIES, INC.
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 results of operations should be read in conjunction
with the segment information included in Note 2 to the Condensed Consolidated
Financial Statements.
2000 THREE-MONTH PERIOD COMPARED WITH 1999 THREE-MONTH PERIOD
Increase
Three Months Ended June 30, 2000 1999 (Decrease)
- --------------------------- ---- ---- ----------
(Millions of dollars)
GAS UTILITY:
Revenues $ 59.3 $ 60.4 $ (1.1) (1.8)%
Total margin (a) $ 31.7 $ 30.0 $ 1.7 5.7%
EBITDA (b) $ 14.3 $ 11.3 $ 3.0 26.5%
Operating income $ 9.5 $ 6.5 $ 3.0 46.1%
Natural gas system throughput - bcf 15.4 14.7 0.7 4.8%
Heating degree days - % warmer
than normal 7.4 15.5 -- --
ELECTRIC UTILITY:
Revenues $ 18.3 $ 16.9 $ 1.4 8.3%
Total margin (a) $ 9.2 $ 10.8 $ (1.6) (14.8)%
EBITDA (b) $ 3.8 $ 5.3 $ (1.5) (28.3)%
Operating income $ 2.8 $ 4.3 $ (1.5) (34.9)%
Electric sales - gwh 205.5 198.2 7.3 3.6
------ ------ ------ ------
bcf - billions of cubic feet. gwh - millions of kilowatt hours.
(a) Gas and Electric utilities' total margin represents total revenues less
cost of sales and revenue-related taxes, i.e. gross receipts taxes. For
financial statement purposes, revenue-related taxes are included in
"taxes other than income taxes" on the condensed consolidated
statements of income.
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UGI UTILITIES, INC.
(b) 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.
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 each increased $3.0 million 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 the benefit of $1.5 million from a power supply
agreement settlement.
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.
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UGI UTILITIES, INC.
2000 NINE-MONTH PERIOD COMPARED WITH 1999 NINE-MONTH PERIOD
Increase
Nine Months Ended June 30, 2000 1999 (Decrease)
- -------------------------- ---- ---- ----------
(Millions of dollars)
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%
Natural gas system throughput - bcf 67.2 64.1 3.1 4.8%
Heating 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 $ 12.1 $ 0.6 5.0%
Electric sales - gwh 689.5 676.6 12.9 1.9%
------ ------ ------ ------
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.
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
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UGI UTILITIES, INC.
$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.
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UGI UTILITIES, INC.
2000 TWELVE MONTH PERIOD COMPARED WITH 1999 TWELVE-MONTH PERIOD
Increase
Twelve Months Ended June 30, 2000 1999 (Decrease)
- ----------------------------- ---- ---- ----------
(Millions of dollars)
GAS UTILITY:
Revenues $353.1 $344.8 $ 8.3 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%
Natural gas system throughput - bcf 79.3 76.0 3.3 4.3%
Heating 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 $ 17.4 $ 17.7 $ (0.3) (1.7)%
Operating income $ 13.4 $ 13.7 $ (0.3) (2.2)%
Electric sales - gwh 913.3 890.4 22.9 2.6%
------ ------ ------ ------
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.
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.
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UGI UTILITIES, INC.
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 each
decreased $0.3 million, 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.
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UGI UTILITIES, INC.
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL CONDITION
The Company's debt outstanding at June 30, 2000 totaled $242.0 million compared
with $267.4 million at September 30, 1999. Included in these amounts are bank
loans of $61.9 million and $87.4 million, respectively. Under our revolving
credit agreements, we may borrow up to $97 million. In addition, UGI Utilities
can issue up to an additional $52 million of debt under its Medium Term Note
program.
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 4).
CASH FLOWS
The Company's cash flows from operating activities are seasonal and are
generally greatest during the second and third fiscal quarters when customers
pay bills incurred during the heating season and are generally lowest during the
first and fourth fiscal quarters. Accordingly, cash flows from operations for
the nine months ended June 30, 2000 are not necessarily indicative of cash flows
to be expected for a full year.
OPERATING ACTIVITIES. Cash provided by operating activities was $78.2 million
during the nine months ended June 30, 2000 compared with $61.0 million in the
prior-year period. Changes in operating working capital in the 2000 nine-month
period provided $8.4 million of operating cash flow compared to $1.2 million
provided in the prior year. Cash generated by operating activities before
changes in operating working capital totaled $69.8 million, $10.0 million higher
than in the prior year, reflecting the greater operating results.
INVESTING ACTIVITIES. We spent $23.2 million for property, plant and equipment
in the nine months ended June 30, 2000 compared with $25.0 million in the
prior-year period. The decrease principally reflects lower information services
capital expenditures.
FINANCING ACTIVITIES. Cash flows from financing activities in each of the 2000
and 1999 nine-month periods includes dividends on preferred stock of $1.2
million. During the 2000 nine-month period, UGI Utilities paid $36.0 million of
dividends to its parent company, UGI, compared with $29.0 million in the
prior-year period. Net repayments under UGI Utilities' revolving credit
agreements totaled $25.5 million in the 2000 nine-month period compared with
$8.8 million in the 1999 nine-month period.
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UGI UTILITIES, INC.
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
The Company is exposed to market risk from changes in prices for natural gas and
electricity it purchases, and from changes in interest rates. Although Gas
Utility is 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 produces 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, 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 interest rate exposure associated with borrowings under our revolving
credit agreements. These agreements provide for interest rates on borrowings
which are indexed to short-term market interest rates. Based upon the average
level of borrowings outstanding under these agreements during the most recent
fiscal year ended September 30, 1999, an increase in short-term interest rates
of 100 basis points (1%) would have increased annual interest expense by
approximately $0.6 million.
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UGI UTILITIES, INC.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
10 2000 UGI Corporation Stock Incentive Plan is
incorporated by reference to Exhibit 10.1 to the UGI
Corporation Form 10-Q for the Quarter ended June 30,
2000
12.1 Computation of ratio of earnings to fixed charges
12.2 Computation of ratio of earnings to combined fixed
charges and preferred stock dividends
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 Utilities, Inc.
(Registrant)
Date: August 11, 2000 By: /s/ J. C. Barney
- ---------------------- --------------------------------------
J. C. Barney, Senior Vice President -
Finance
(Principal Financial Officer)
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UGI UTILITIES, INC.
EXHIBIT INDEX
12.1 Computation of ratio of earnings to fixed charges
12.2 Computation of ratio of earnings to combined fixed
charges and preferred stock dividends
27 Financial Data Schedule