FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2001
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 January 31, 2002, there were 27,463,062 shares of UGI Corporation
Common Stock, without par value, outstanding.
UGI CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PAGES
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 2001,
September 30, 2001 and December 31, 2000 1
Condensed Consolidated Statements of Income for the three
and twelve months ended December 31, 2001 and 2000 2
Condensed Consolidated Statements of Cash Flows for the
three and twelve months ended December 31, 2001 and 2000 3
Notes to Condensed Consolidated Financial Statements 4 - 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14 - 24
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24 - 26
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 28
-i-
UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Millions of dollars)
December 31, September 30, December 31,
2001 2001 2000
---------- ---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 108.7 $ 87.5 $ 108.6
Short-term investments, at cost which approximates market value 4.2 3.6 3.9
Accounts receivable (less allowance for doubtful accounts of
$16.4, $15.6 and $11.0, respectively) 232.1 180.8 353.1
Accrued utility revenues 27.3 11.1 37.3
Inventories 122.2 128.6 121.8
Deferred income taxes 33.1 25.2 0.5
Utility regulatory assets -- -- 18.4
Prepaid expenses and other current assets 21.1 22.1 49.9
---------- ---------- ----------
Total current assets 548.7 458.9 693.5
Property, plant and equipment, at cost (less accumulated depreciation
and amortization of $666.4, $645.5 and $598.8, respectively) 1,267.9 1,268.0 1,090.7
Goodwill and excess reorganization value 639.9 641.1 665.0
Intangible assets (less accumulated amortization of $7.1, $5.8 and
$3.9, respectively) 30.0 31.3 7.3
Utility regulatory assets 55.9 56.2 54.6
Other assets 99.6 94.7 56.0
---------- ---------- ----------
Total assets $ 2,642.0 $ 2,550.2 $ 2,567.1
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 98.7 $ 98.3 $ 85.2
AmeriGas Propane bank loans 8.0 -- 37.0
UGI Utilities bank loans 82.1 57.8 102.6
Other bank loans 10.0 10.0 10.1
Accounts payable 212.3 167.0 297.3
Other current liabilities 233.2 234.4 180.1
---------- ---------- ----------
Total current liabilities 644.3 567.5 712.3
Long-term debt 1,157.3 1,196.9 1,053.1
Deferred income taxes 190.3 182.4 172.7
Other noncurrent liabilities 80.2 81.6 83.8
Commitments and contingencies (note 7)
Minority interests in AmeriGas Partners 277.5 246.2 237.3
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) 395.0 395.0 394.5
Retained earnings 22.0 9.0 16.2
Accumulated other comprehensive income (loss) (12.7) (13.5) 18.5
Unearned compensation - restricted stock -- -- (0.4)
---------- ---------- ----------
404.3 390.5 428.8
Treasury stock, at cost (131.9) (134.9) (140.9)
---------- ---------- ----------
Total common stockholders' equity 272.4 255.6 287.9
---------- ---------- ----------
Total liabilities and stockholders' equity $ 2,642.0 $ 2,550.2 $ 2,567.1
========== ========== ==========
See accompanying notes to consolidated financial statements.
-1-
UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(Millions, except per share amounts)
Three Months Ended Twelve Months Ended
December 31, December 31,
---------------------------- ---------------------------
2001 2000 2001 2000
----------- ----------- ------------ ----------
Revenues:
AmeriGas Propane $ 371.4 $ 432.5 $ 1,357.3 $ 1,251.6
UGI Utilities 141.5 166.5 559.7 482.2
International Propane 13.7 13.9 50.7 50.5
Energy Services and other 92.8 124.2 382.7 247.9
----------- ----------- ------------ ----------
619.4 737.1 2,350.4 2,032.2
----------- ----------- ------------ ----------
Costs and expenses:
AmeriGas Propane cost of sales 196.4 264.8 767.6 734.4
UGI Utilities - gas, fuel and purchased power 87.1 103.3 358.6 263.9
International Propane cost of sales 7.0 9.0 26.4 30.6
Energy Services and other cost of sales 84.2 116.2 350.2 233.1
Operating and administrative expenses 147.5 129.6 535.7 472.9
Utility taxes other than income taxes 2.6 2.4 9.4 12.3
Depreciation and amortization 23.2 26.0 102.4 100.0
Provision for exit costs - Hearth USA(TM) -- -- 8.5 --
Other income, net (2.4) (6.4) (18.9) (28.3)
----------- ----------- ------------ ----------
545.6 644.9 2,139.9 1,818.9
----------- ----------- ------------ ----------
Operating income 73.8 92.2 210.5 213.3
Income (loss) from equity investees 3.8 (0.2) 2.5 (0.8)
Interest expense (28.2) (26.4) (106.6) (101.1)
Minority interests in AmeriGas Partners (9.1) (16.3) (16.4) (14.6)
----------- ----------- ------------ ----------
Income before income taxes, subsidiary preferred
stock dividends and accounting changes 40.3 49.3 90.0 96.8
Income tax expense (15.8) (21.8) (39.4) (44.5)
Dividends on UGI Utilities Series Preferred Stock (0.4) (0.4) (1.6) (1.6)
----------- ----------- ------------ ----------
Income before accounting changes 24.1 27.1 49.0 50.7
Cumulative effect of accounting changes, net -- 4.5 -- 4.5
----------- ----------- ------------ ----------
Net income $ 24.1 $ 31.6 $ 49.0 $ 55.2
=========== =========== ============ ==========
Earnings per share:
Basic:
Income before accounting changes $ 0.88 $ 1.00 $ 1.80 $ 1.87
Cumulative effect of accounting changes, net -- 0.17 -- 0.16
----------- ----------- ------------ ----------
Net income $ 0.88 $ 1.17 $ 1.80 $ 2.03
=========== =========== ============ ==========
Diluted:
Income before accounting changes $ 0.87 $ 1.00 $ 1.78 $ 1.87
Cumulative effect of accounting changes, net -- 0.16 -- 0.16
----------- ----------- ------------ ----------
Net income $ 0.87 $ 1.16 $ 1.78 $ 2.03
=========== =========== ============ ==========
Average common shares outstanding:
Basic 27.401 27.073 27.249 27.153
=========== =========== ============ ==========
Diluted 27.813 27.185 27.534 27.208
=========== =========== ============ ==========
Dividends declared per share $ 0.40 $ 0.3875 $ 1.5875 $ 1.525
=========== =========== ============ ==========
See accompanying notes to consolidated financial statements.
-2-
UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Millions of dollars)
Three Months Ended Twelve Months Ended
December 31, December 31,
--------------------- ---------------------
2001 2000 2001 2000
-------- -------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 24.1 $ 31.6 $ 49.0 $ 55.2
Reconcile to net cash provided by operating activities:
Depreciation and amortization 23.2 26.0 102.4 100.0
Cumulative effect of accounting changes -- (4.5) -- (4.5)
Minority interests in AmeriGas Partners 9.1 16.3 16.4 14.6
Deferred income taxes, net (0.7) 5.6 (11.8) 6.9
Hearth USA(TM) exit costs -- -- 8.5 --
Other, net (1.0) (4.7) (0.3) 15.6
-------- -------- -------- --------
54.7 70.3 164.2 187.8
Net change in:
Accounts receivable and accrued utility revenues (70.6) (218.1) 133.9 (185.1)
Inventories and prepaid propane purchases 6.3 (5.9) 8.0 (30.5)
Deferred fuel costs 6.9 (11.7) 28.5 (15.7)
Accounts payable 45.6 140.0 (88.6) 170.5
Other current assets and liabilities (13.5) 9.1 3.2 18.7
-------- -------- -------- --------
Net cash provided (used) by operating activities 29.4 (16.3) 249.2 145.7
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (23.4) (17.7) (83.7) (74.5)
Net proceeds from disposals of assets 2.8 1.5 5.5 8.4
Acquisitions of businesses, net of cash acquired -- (0.1) (209.0) (63.0)
Investments in joint venture entities -- (6.0) (26.6) (6.0)
Short-term investments (increase) decrease (0.6) 3.7 (0.1) 0.2
Other, net 0.1 (3.0) 1.1 (3.9)
-------- -------- -------- --------
Net cash used by investing activities (21.1) (21.6) (312.8) (138.8)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends on Common Stock (11.0) (10.4) (53.8) (41.4)
Distributions on Partnership public Common Units (12.4) (11.1) (45.6) (40.4)
Issuance of long-term debt 0.2 23.7 284.7 176.4
Repayment of long-term debt (36.9) (0.9) (173.0) (93.7)
AmeriGas Propane bank loans increase (decrease) 8.0 7.0 (29.0) (13.0)
UGI Utilities bank loans increase (decrease) 24.3 2.2 (20.5) 0.8
Other bank loans increase 0.2 1.4 5.0 6.0
Issuance of AmeriGas Partners Common Units 37.5 39.8 37.5 39.8
Proceeds from sale of AmeriGas OLP interest -- -- 50.0 --
Issuance of Common Stock 3.0 0.8 9.8 3.1
Repurchases of Common Stock -- -- (1.0) (7.2)
-------- -------- -------- --------
Net cash provided by financing activities 12.9 52.5 64.1 30.4
-------- -------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- 0.1 (0.4) --
-------- -------- -------- --------
Cash and cash equivalents increase $ 21.2 $ 14.7 $ 0.1 $ 37.3
======== ======== ======== ========
Cash and cash equivalents:
End of period $ 108.7 $ 108.6 $ 108.7 $ 108.6
Beginning of period 87.5 93.9 108.6 71.3
-------- -------- -------- --------
Increase $ 21.2 $ 14.7 $ 0.1 $ 37.3
======== ======== ======== ========
During the twelve months ended December 31, 2001 and 2000, UGI Utilities, Inc.
paid cash dividends to UGI of $36.4 and $33.9, respectively. During the twelve
months ended December 31, 2001 and 2000, AmeriGas, Inc. paid cash dividends to
UGI of $36.1 and $54.7, respectively. During those same periods, UGI paid cash
dividends to holders of Common Stock of $53.8 and $41.4, 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-
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 that owns and operates
natural gas and electric utility, propane distribution, energy
marketing and related businesses in the United States. Through foreign
subsidiaries and joint-venture affiliates, UGI also distributes propane
in Austria, the Czech Republic, Slovakia, France and China. Our wholly
owned subsidiary, UGI Utilities, Inc. ("UGI Utilities"), owns and
operates a natural gas distribution utility ("Gas Utility") in parts of
eastern and southeastern Pennsylvania and an electricity distribution
and electricity generation business (collectively referred to as
"Electric Utility") in northeastern Pennsylvania. We conduct a national
propane distribution business through AmeriGas Partners, L.P.
("AmeriGas Partners") and its principal operating subsidiaries AmeriGas
Propane, L.P. ("AmeriGas OLP") and AmeriGas Eagle Propane, L.P. ("Eagle
OLP"). AmeriGas Partners, AmeriGas OLP and Eagle OLP are Delaware
limited partnerships. UGI's wholly owned second-tier subsidiary
AmeriGas Propane, Inc. (the "General Partner") serves as the general
partner of AmeriGas Partners and AmeriGas OLP. AmeriGas OLP and Eagle
OLP (collectively referred to as "the Operating Partnerships") comprise
the largest retail propane distribution business in the United States
serving residential, commercial, industrial, motor fuel and
agricultural customers from locations in 46 states. We refer to
AmeriGas Partners and its subsidiaries together as "the Partnership"
and the General Partner and its subsidiaries, including the
Partnership, as "AmeriGas Propane."
At December 31, 2001, the General Partner and its wholly owned
subsidiary Petrolane Incorporated ("Petrolane," a predecessor company
of AmeriGas OLP) collectively held a 1% general partner interest and a
49.7% limited partner interest in AmeriGas Partners, and effective
51.2% and 51.1% ownership interests in AmeriGas OLP and Eagle OLP,
respectively. Our limited partnership interest in AmeriGas Partners
comprises 14,633,932 Common Units and 9,891,072 Subordinated Units. The
remaining 49.3% interest in AmeriGas Partners comprises 24,320,354
publicly held Common Units representing limited partner interests.
Our wholly owned subsidiary, UGI Enterprises, Inc. ("Enterprises"),
conducts an energy marketing business primarily in the Middle Atlantic
region of the United States 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 ("FLAGA"); (2) owns and
operates a heating, ventilation and air-conditioning service business
in the Middle Atlantic states ("HVAC"); and (3) participates in propane
joint-venture businesses in France 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 the Partnership's results of operations and net assets as
minority interest in the condensed consolidated statements of income
and balance sheets.
-4-
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
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 ("SEC").
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, 2001
("Company's 2001 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.
Shares used in the diluted earnings per share calculation reflect
incremental shares issuable for stock options and awards.
Comprehensive income was $24.9 million and $50.1 million for the three
months ended December 31, 2001 and 2000, respectively. Other
comprehensive income of $0.8 million in the three months ended December
31, 2001 is principally the result of changes in the fair value of
derivative instruments net of reclassifications to net income. Other
comprehensive income of $18.5 million in the three months ended
December 31, 2000 consisted primarily of transition adjustments
relating to the adoption of Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), totaling $7.1 million, and income associated
with changes in the fair value of derivative instruments, net of
reclassifications to net income.
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) AmeriGas Propane; (2) Gas
Utility; (3) Electric Utility; (4) Energy Services; and (5) an
international propane segment comprising FLAGA and our international
propane equity investments ("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 2001 Annual Report and those described in Note 3
below. 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 accounting principles generally accepted in the United States. We
evaluate the performance of Gas Utility, Electric Utility, and Energy
Services principally based upon their earnings before income taxes.
-5-
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 December 31, 2001:
Corporate
AmeriGas Gas Electric Energy International and
Total Elims. Propane Utility Utility Services Propane Other (a)
---------- ------- ---------- -------- -------- -------- ------------- --------
Revenues $ 619.4 $ (0.5) $ 371.4 $ 121.3 $ 20.2 $ 83.7 $ 13.7 $ 9.6
========== ======= ========== ======== ======== ======== ============= ========
Segment profit:
EBITDA $ 97.0 $ (0.1) $ 58.0 $ 29.8 $ 3.5 $ 2.4 $ 2.5 $ 0.9
Depreciation and amortization (23.2) -- (16.3) (4.9) (0.8) (0.2) (0.7) (0.3)
---------- ------- ---------- -------- -------- -------- ------------- --------
Operating income 73.8 (0.1) 41.7 24.9 2.7 2.2 1.8 0.6
Income from equity investees 3.8 -- 0.3 -- -- -- 3.5 --
Interest expense (28.2) 0.1 (22.7) (3.6) (0.6) -- (1.2) (0.2)
Minority interests (9.1) -- (9.1) -- -- -- -- --
---------- ------- ---------- -------- -------- -------- ------------- --------
Income before income taxes,
subsidiary preferred stock
dividends, and accounting changes $ 40.3 $ -- $ 10.2 $ 21.3 $ 2.1 $ 2.2 $ 4.1 $ 0.4
========== ======= ========== ======== ======== ======== ============= ========
Segment assets (at period end) $ 2,642.0 $ (30.5) $ 1,543.0 $ 713.4 $ 106.3 $ 59.1 $ 145.1 $ 105.6
========== ======= ========== ======== ======== ======== ============= ========
Investments in equity investees $ 47.3 $ -- $ 3.4 $ -- $ 10.4 $ -- $ 33.5 $ --
========== ======= ========== ======== ======== ======== ============= ========
Goodwill and excess reorganization value $ 639.9 $ -- $ 589.0 $ -- $ -- $ -- $ 47.4 $ 3.5
========== ======= ========== ======== ======== ======== ============= ========
Three Months Ended December 31, 2000:
Corporate
AmeriGas Gas Electric Energy International and
Total Elims. Propane Utility Utility Services Propane Other (a)
---------- ------- ---------- -------- -------- -------- ------------- ---------
Revenues $ 737.1 $ (0.7) $ 432.5 $ 146.0 $ 20.5 $ 111.5 $ 13.9 $ 13.4
========== ======= ========== ======== ======== ======== ============= ========
Segment profit (loss):
EBITDA $ 118.2 (0.2) $ 75.3 $ 35.5 $ 3.8 $ 1.6 $ 0.5 $ 1.7
Depreciation and amortization (26.0) -- (18.5) (4.9) (1.0) (0.1) (1.1) (0.4)
---------- ------- ---------- -------- -------- -------- ------------- --------
Operating income (loss) 92.2 (0.2) 56.8 30.6 2.8 1.5 (0.6) 1.3
Loss from equity investees (0.2) -- -- -- -- -- (0.2) --
Interest expense (26.4) 0.2 (20.0) (4.4) (0.7) -- (1.2) (0.3)
Minority interests (16.3) -- (16.3) -- -- -- -- --
---------- ------- ---------- -------- -------- -------- ------------- --------
Income (loss) before income taxes,
subsidiary preferred stock
dividends, and accounting changes $ 49.3 $ -- $ 20.5 $ 26.2 $ 2.1 $ 1.5 $ (2.0) $ 1.0
========== ======= ========== ======== ======== ======== ============= ========
Segment assets (at period end) $ 2,567.1 $ (22.6) $ 1,439.8 $ 719.7 $ 102.5 $ 82.0 $ 125.7 $ 120.0
========== ======= ========== ======== ======== ======== ============= ========
Investments in equity investees $ 16.0 $ -- $ -- $ -- $ 10.4 $ -- $ 5.6 $ --
========== ======= ========== ======== ======== ======== ============= ========
Goodwill and excess reorganization value $ 665.0 $ -- $ 610.0 $ -- $ -- $ 0.6 $ 50.4 $ 4.0
========== ======= ========== ======== ======== ======== ============= ========
(a) Principally comprises UGI, UGI Enterprises' HVAC and Hearth USA(TM)
operations, and UGI Enterprises' corporate and general expenses.
Hearth USA(TM) ceased operations in October 2001.
-6-
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 December 31, 2001:
Corporate
AmeriGas Gas Electric Energy International and
Total Elims. Propane Utility Utility Services Propane Other
---------- ------- ---------- -------- -------- -------- ------------- ---------
Revenues $ 2,350.4 $ (2.6) $ 1,357.3 $ 476.1 $ 83.6 $ 342.9 $ 50.7 $ 42.4
========== ======= ========== ======== ======== ======== ============= ========
Segment profit (loss):
EBITDA $ 312.9 $ (1.0) $ 192.0 $ 102.3 $ 14.0 $ 8.4 $ 7.0 $ (9.8)
Depreciation and amortization (102.4) -- (73.3) (20.2) (3.4) (0.4) (3.9) (1.2)
---------- ------- ---------- -------- -------- -------- ------------- ---------
Operating income (loss) 210.5 (1.0) 118.7 82.1 10.6 8.0 3.1 (11.0)
Income (loss) from equity investees 2.5 -- 0.3 -- -- -- 2.3 (0.1)
Interest expense (106.6) 1.0 (83.0) (15.5) (2.6) (0.4) (4.9) (1.2)
Minority interests (16.4) -- (16.4) -- -- -- -- --
---------- ------- ---------- -------- -------- -------- ------------- ---------
Income (loss) before income taxes,
subsidiary preferred stock
dividends, and accounting changes $ 90.0 $ -- $ 19.6 $ 66.6 $ 8.0 $ 7.6 $ 0.5 $ (12.3)
========== ======= ========== ======== ======== ======== ============= ========
Segment assets (at period end) $ 2,642.0 $ (30.5) $ 1,543.0 $ 713.4 $ 106.3 $ 59.1 $ 145.1 $ 105.6
========== ======= ========== ======== ======== ======== ============= ========
Investments in equity investees $ 47.3 $ -- $ 3.4 $ -- $ 10.4 $ -- $ 33.5 $ --
========== ======= ========== ======== ======== ======== ============= ========
Goodwill and excess reorganization value $ 639.9 $ -- $ 589.0 $ -- $ -- $ -- $ 47.4 $ 3.5
========== ======= ========== ======== ======== ======== ============= ========
Twelve Months Ended December 31, 2000:
Corporate
AmeriGas Gas Electric Energy International and
Total Elims. Propane Utility Utility Services Propane Other
---------- ------- ---------- -------- -------- -------- ------------- ---------
Revenues $ 2,032.2 $ (3.0) $ 1,251.6 $ 403.0 $ 79.2 $ 228.6 $ 50.5 $ 22.3
========== ======= ========== ======== ======== ======== ============= ========
Segment profit (loss):
EBITDA $ 313.3 $ (0.2) $ 179.7 $ 108.1 $ 16.6 $ 3.8 $ 2.4 $ 2.9
Depreciation and amortization (100.0) -- (70.4) (19.1) (4.7) (0.2) (4.6) (1.0)
---------- ------- ---------- -------- -------- -------- ------------- ---------
Operating income (loss) 213.3 (0.2) 109.3 89.0 11.9 3.6 (2.2) 1.9
Loss from equity investees (0.8) -- -- -- -- -- (0.8) --
Interest expense (101.1) 0.2 (76.7) (16.4) (2.4) -- (5.1) (0.7)
Minority interest (14.6) -- (14.6) -- -- -- -- --
---------- ------- ---------- -------- -------- -------- ------------- ---------
Income (loss) before income taxes,
subsidiary preferred stock
dividends, and accounting changes $ 96.8 $ -- $ 18.0 $ 72.6 $ 9.5 $ 3.6 $ (8.1) $ 1.2
========== ======= ========== ======== ======== ======== ============= ========
Segment assets (at period end) $ 2,567.1 $ (22.6) $ 1,439.8 $ 719.7 $ 102.5 $ 82.0 $ 125.7 $ 120.0
========== ======= ========== ======== ======== ======== ============= ========
Investments in equity investees $ 16.0 $ -- $ -- $ -- $ 10.4 $ -- $ 5.6 $ --
========== ======= ========== ======== ======== ======== ============= ========
Goodwill and excess reorganization value $ 665.0 $ -- $ 610.0 $ -- $ -- $ 0.6 $ 50.4 $ 4.0
========== ======= ========== ======== ======== ======== ============= ========
-7-
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
3. ADOPTION OF SFAS NO. 142
Effective October 1, 2001, we adopted the provisions of SFAS No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 addresses
the financial accounting and reporting for acquired goodwill and other
intangible assets and supersedes Accounting Principles Board ("APB")
Opinion No. 17, "Intangible Assets." SFAS 142 addresses the financial
accounting and reporting for intangible assets acquired individually or
with a group of other assets (excluding those acquired in a business
combination) at acquisition and also addresses the financial accounting
and reporting for goodwill and other intangible assets subsequent to
their acquisition. Under SFAS 142, an intangible asset is amortized
over its useful life unless that life is determined to be indefinite.
Goodwill, including excess reorganization value, and other intangible
assets with indefinite lives are not amortized but are subject to tests
for impairment at least annually. In accordance with the provisions of
SFAS 142, we ceased the amortization of goodwill and excess
reorganization value effective October 1, 2001.
The Company's intangible assets comprise the following:
December 31, 2001 September 30, 2001
-----------------------------------------------------------------------------------------------------
Gross Accumulated Gross Accumulated
Carrying Amount Amortization Carrying Amount Amortization
-----------------------------------------------------------------------------------------------------
Subject to amortization:
Customer relationships,
noncompete agreements
and other $ 37.1 $ (7.1) $ 37.1 $ (5.8)
Not subject to amortization:
Goodwill (a) $ 546.6 $ 547.8
Excess reorganization value 93.3 93.3
-----------------------------------------------------------------------------------------------------
$ 639.9 $ 641.1
-----------------------------------------------------------------------------------------------------
(a) The change in the carrying amount of goodwill from September 30,
2001 to December 31, 2001 is the result of foreign currency
translation.
Amortization expense of intangible assets for the three months ended
December 31, 2001 was $1.3 million. Amortization expense of intangible
assets for the three months ended December 31, 2000, including
amortization of goodwill and excess reorganization value prior to the
adoption of SFAS 142, was $6.8 million. Our expected aggregate
amortization expense of intangible assets for the next five fiscal
years is as follows: Fiscal 2002 - $4.0 million; Fiscal 2003 - $3.6
million; Fiscal 2004 - $3.5 million; Fiscal 2005 - $3.1 million; Fiscal
2006 - $2.6 million.
-8-
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
The following tables provide reconciliations of reported and adjusted
net income and diluted earnings per share as if SFAS 142 had been
adopted as of October 1, 2000. Basic earnings per share is not
materially different from diluted earnings per share and, therefore, is
not presented:
Three Months Ended
December 31,
------------------------------------------------------------------------------------------------------------
2001 2000
------------------------------------------------------------------------------------------------------------
NET INCOME:
Reported income before accounting changes $ 24.1 $ 27.1
Add back goodwill and excess reorganization value amortization - 6.4
Adjust minority interest in AmeriGas Partners - (2.6)
Adjust income tax expense - 0.8
------------------------------------------------------------------------------------------------------------
Adjusted income before accounting changes 24.1 31.7
Cumulative effect of accounting changes - 4.5
------------------------------------------------------------------------------------------------------------
Adjusted net income $ 24.1 $ 36.2
------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE:
Reported income before accounting changes $ 0.87 $ 1.00
Add back goodwill and excess reorganization value amortization - 0.24
Adjust minority interest in AmeriGas Partners - (0.10)
Adjust income tax expense - 0.03
------------------------------------------------------------------------------------------------------------
Adjusted income before accounting changes 0.87 1.17
Cumulative effect of accounting changes - 0.16
------------------------------------------------------------------------------------------------------------
Adjusted net income $ 0.87 $ 1.33
------------------------------------------------------------------------------------------------------------
In accordance with the provisions of SFAS 142, we are required to
perform transitional goodwill impairment tests for each of our
reporting units within six months of the date of adoption. Thereafter,
we will perform impairment tests annually and whenever events or
circumstances indicate that the value of goodwill might be impaired. In
connection with these goodwill impairment tests, SFAS 142 prescribes
a two-step method for determining goodwill impairment. In the first
step, we determine the fair value of our reporting units that have
goodwill. To the extent the carrying amount of the reporting unit
exceeds its fair value, we will then perform the second step of the
transitional impairment test which requires allocation of the reporting
unit's fair value to all of its assets and liabilities in a manner
similar to a purchase price allocation, with any residual fair value
being allocated to goodwill. A transitional impairment loss, if any,
equal to the excess of the carrying value of goodwill over its implied
fair value will be recorded as the cumulative effect of a change in
accounting principle in the quarter of adoption.
We have completed the transitional impairment test with respect to the
Partnership and have determined that, based upon the Partnership's
fair value, its goodwill and excess reorganization value was not
impaired as of October 1, 2001. We will complete the transitional
impairment tests with respect to our other reporting units which have
goodwill, principally FLAGA, by March 31, 2002.
-9-
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
4. CHANGES IN ACCOUNTING
Effective October 1, 2000, the Partnership (1) applied the provisions
of SEC Staff Accounting Bulletin No. 101 entitled "Revenue Recognition"
("SAB 101") with respect to its nonrefundable tank fees and (2) changed
its method of accounting for costs to install Partnership-owned tanks
at customer locations. These accounting changes are further described
below.
Tank Fee Revenue Recognition. In order to comply with the provisions of
SAB 101, effective October 1, 2000, the Partnership changed its method
of accounting for annually billed nonrefundable tank fees. Prior to the
change, nonrefundable tank fees for installed Partnership-owned tanks
were recorded as revenue when billed. Under the new accounting method,
revenues from such fees are recorded on a straight-line basis over one
year. As a result of the new accounting method, on October 1, 2000, we
recorded an after-tax charge of $2.1 million representing the
cumulative effect of the change in accounting method on prior years.
The change in accounting method for nonrefundable tank fees did not
have a material impact on reported revenues for the periods presented.
Accounting for Tank Installation Costs. Effective October 1, 2000, the
Partnership changed its method of accounting for tank installation
costs which are not billed to customers. Prior to the change in
accounting method, all such costs to install Partnership-owned tanks at
a customer location were expensed as incurred. Under the new accounting
method, all such costs, net of amounts billed to customers, are
capitalized and amortized over the estimated period of benefit not
exceeding ten years. The Partnership believes that the new accounting
method better matches the costs of installing Partnership-owned tanks
with the periods benefited. As a result of this change in accounting,
we recorded after-tax income of $6.9 million representing the
cumulative effect of the change in accounting method on prior years.
Cumulative Effect of Accounting Changes and Pro Forma Disclosure. The
cumulative effect impact of these accounting changes reflected on the
Condensed Consolidated Statements of Income for the three months ended
December 31, 2000 and the related diluted per share amounts, as well
as the cumulative effect impact resulting from the adoption of SFAS
133, comprise the following:
- -----------------------------------------------------------------------------------------------------------
Income Tax Diluted
Pre-Tax Income (Expense) After-Tax Earnings (Loss)
(Loss) Benefit Income (Loss) Per Share
- -----------------------------------------------------------------------------------------------------------
Tank fees $ (3.5) $ 1.4 $ (2.1) $ (0.08)
Tank installation costs 11.3 (4.4) 6.9 0.25
SFAS 133 (0.4) 0.1 (0.3) (0.01)
- -----------------------------------------------------------------------------------------------------------
Total $ 7.4 $ (2.9) $ 4.5 $ 0.16
- -----------------------------------------------------------------------------------------------------------
-10-
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
Pro forma net income and net income per diluted share for the twelve
months ended December 31, 2000 adjusted to reflect the full-year impact
of the changes in accounting for tank installation costs and tank fees
is not materially different than reported amounts.
5. ACQUISITION OF COLUMBIA PROPANE
On August 21, 2001, AmeriGas Partners, through AmeriGas OLP, acquired
the propane distribution businesses of Columbia Energy Group ("Columbia
Propane Businesses") in a series of equity and asset purchases pursuant
to the terms of the Purchase Agreement dated January 30, 2001 and
Amended and Restated August 7, 2001 ("Columbia Purchase Agreement") by
and among Columbia Energy Group ("CEG"), Columbia Propane Corporation
("Columbia Propane"), Columbia Propane, L.P. ("CPLP"), CP Holdings,
Inc. ("CPH"), AmeriGas Partners, AmeriGas OLP, and the General Partner.
The acquired businesses comprised the seventh largest retail marketer
of propane in the United States with annual sales of over 300 million
gallons from locations in 29 states. The acquired businesses were
principally conducted through Columbia Propane and its approximate 99%
owned subsidiary, CPLP (referred to after the acquisition as "Eagle
OLP"). AmeriGas OLP acquired substantially all of the assets of
Columbia Propane, including an indirect 1% general partner interest and
an approximate 99% limited partnership interest in Eagle OLP.
The purchase price of the Columbia Propane Businesses consisted of
$201.8 million in cash. In addition, AmeriGas OLP agreed to pay CEG for
the amount of working capital, as defined, in excess of $23 million.
The Columbia Purchase Agreement also provided for the purchase by CEG
of limited partnership interests in AmeriGas OLP valued at $50 million
for $50 million in cash, which interests were exchanged for 2,356,953
Common Units of AmeriGas Partners having an estimated fair value of
$54.4 million. Concurrently with the acquisition, AmeriGas Partners
issued $200 million of 8.875% Senior Notes due 2011, the net proceeds
of which were contributed to AmeriGas OLP to finance the acquisition of
the Columbia Propane Businesses, to fund related fees and expenses, and
to repay debt outstanding under AmeriGas OLP's Bank Credit Agreement.
The purchase price of the Columbia Propane Businesses has been
preliminarily allocated to the assets acquired and liabilities assumed
as follows:
------------------------------------------------------------------------------------------
Working capital $ 23.2
Property, plant and equipment 181.4
Customer relationships and noncompete agreements
(estimated useful life of 15 and 5 years, respectively) 21.0
Other assets and liabilities (1.0)
------------------------------------------------------------------------------------------
Total $ 224.6
------------------------------------------------------------------------------------------
The Partnership is currently in the process of completing the review
and determination of the fair value of the Columbia Propane Businesses'
assets acquired and liabilities assumed, principally the fair values of
property, plant and equipment and identifiable intangible assets.
-11-
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
Accordingly, the allocation of the purchase price is subject to
revision. The operating results of the Columbia Propane Businesses are
included in our consolidated results from August 21, 2001.
The following table presents unaudited pro forma income statement and
diluted per share data for the three months ended December 31, 2000 as
if the acquisition of the Columbia Propane Businesses had occurred as
of October 1, 2000:
Three Months Ended
December 31, 2000
--------------------------------------------------------------
Revenues $ 863.9
Income before accounting changes 30.5
Net income 35.0
Diluted earnings per share:
Income before accounting changes $ 1.12
Net income $ 1.29
--------------------------------------------------------------
The pro forma results of operations reflect the Columbia Propane
Businesses' historical operating results after giving effect to
adjustments directly attributable to the transaction that are expected
to have a continuing impact. They are not adjusted for, among other
things, the impact of normal weather conditions, operating synergies
and anticipated cost savings. In our opinion, the unaudited pro forma
results are not necessarily indicative of the actual results that would
have occurred had the acquisition of the Columbia Propane Businesses
occurred as of the beginning of the years presented or of future
operating results under our management.
6. ENERGY SERVICES ACCOUNTS RECEIVABLE SECURITIZATION FACILITY
On November 30, 2001, Energy Services entered into a three-year
receivables purchase facility ("Receivables Facility") with an issuer
of receivables-backed commercial paper. Under the Receivables
Facility, Energy Services transfers, on an ongoing basis and without
recourse, its trade accounts receivable to its wholly owned, special
purpose, bankruptcy-remote subsidiary, Energy Services Funding
Corporation ("ESFC") which is consolidated for financial statement
purposes. ESFC, in turn, has sold, and subject to certain conditions,
may from time to time sell, an undivided interest in these receivables
for up to $50 million. The proceeds of these sales are less than the
face amount of the accounts receivable sold by an amount that
approximates the purchaser's financing cost of issuing its own
receivables-backed commercial paper. ESFC has been structured to
isolate its assets from creditors of Energy Services and its
affiliates, including UGI. In accordance with a servicing arrangement,
Energy Services continues to service, administer and collect trade
receivables on behalf of the commercial paper issuer and ESFC. This
two-step transaction is accounted for as a sale of receivables
following the provisions of SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities."
At December 31, 2001, $9 million of accounts receivable were sold and
removed from the Condensed Consolidated Balance Sheet. The loss on the
sale, which is included in other
-12-
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
income, net, was not material. The cash proceeds from the Receivables
Facility, which are used by Energy Services for working capital
purposes, are included in cash flows from operating activities on the
Condensed Consolidated Statements of Cash Flows.
7. COMMITMENTS AND CONTINGENCIES
There have been no significant subsequent developments to the
commitments and contingencies reported in the Company's 2001 Annual
Report.
-13-
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 December 31, 2001 ("2001 three-month period") with the three months
ended December 31, 2000 ("2000 three-month period") and (2) the twelve months
ended December 31, 2001 ("2001 twelve-month period") with the twelve months
ended December 31, 2000 ("2000 twelve-month period"). Our analyses of results of
operations should be read in conjunction with the segment information included
in Note 2 to the Condensed Consolidated Financial Statements.
-14-
UGI CORPORATION AND SUBSIDIARIES
2001 THREE-MONTH PERIOD COMPARED WITH 2000 THREE-MONTH PERIOD
- ----------------------------------------------------------------------------------------------------------------
Increase
Three Months Ended December 31, 2001 2000 (Decrease)
- ----------------------------------------------------------------------------------------------------------------
(Millions of dollars)
AMERIGAS PROPANE:
Revenues $ 371.4 $ 432.5 $ (61.1) (14.1)%
Total margin $ 175.0 $ 167.7 $ 7.3 4.4 %
EBITDA (a) $ 58.0 $ 75.3 $ (17.3) (23.0)%
Operating income $ 41.7 $ 56.8 $ (15.1) (26.6)%
Retail gallons sold (millions) 265.6 257.0 8.6 3.3 %
Degree days - % (warmer) colder than normal (b) (15.3) 13.4 -- --
GAS UTILITY:
Revenues $ 121.3 $ 146.0 $ (24.7) (16.9)%
Total margin $ 46.0 $ 53.6 $ (7.6) (14.2)%
EBITDA (a) $ 29.8 $ 35.5 $ (5.7) (16.1)%
Operating income $ 24.9 $ 30.6 $ (5.7) (18.6)%
System throughput - billions of cubic feet ("bcf") 19.4 24.2 (4.8) (19.8)%
Degree days - % (warmer) colder than normal (19.2) 10.0 -- --
ELECTRIC UTILITY:
Revenues $ 20.2 $ 20.5 $ (0.3) (1.5)%
Total margin (c) $ 7.5 $ 8.7 $ (1.2) (13.8)%
EBITDA (a) $ 3.5 $ 3.8 $ (0.3) (7.9)%
Operating income $ 2.7 $ 2.8 $ (0.1) (3.6)%
Distribution sales - millions of kilowatt hours ("gwh") 227.9 241.8 (13.9) (5.7)%
ENERGY SERVICES:
Revenues $ 83.7 $ 111.5 $ (27.8) (24.9)%
Total margin $ 4.6 $ 2.5 $ 2.1 84.0 %
EBITDA (a) $ 2.4 $ 1.6 $ 0.8 50.0 %
Operating income $ 2.2 $ 1.5 $ 0.7 46.7 %
INTERNATIONAL PROPANE:
Revenues $ 13.7 $ 13.9 $ (0.2) (1.4)%
Total margin $ 6.7 $ 4.9 $ 1.8 36.7 %
EBITDA $ 2.5 $ 0.5 $ 2.0 400.0 %
Operating income (loss) $ 1.8 $ (0.6) $ 2.4 400.0 %
Income (loss) from equity investees $ 3.5 $ (0.2) $ 3.7 N.M.
- ----------------------------------------------------------------------------------------------------------------
N.M. - Not Meaningful.
(a) EBITDA (earnings before interest expense, income taxes, depreciation
and amortization) should not be considered as an alternative to net
income (as an indicator of operating performance) or as an alternative
to cash flow (as a measure of liquidity or ability to service debt
obligations) and is not a measure of performance or financial condition
under accounting principles generally accepted in the United States.
(b) Deviation from average heating degree days based upon national weather
statistics provided by the National Oceanic and Atmospheric
Administration ("NOAA") for 335 airports in the continental United
States.
(c) Electric Utility's 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 incomes taxes" on the Condensed Consolidated
Statements of Income.
-15-
UGI CORPORATION AND SUBSIDIARIES
AMERIGAS PROPANE. Temperatures based upon national heating degree days were
15.3% warmer than normal in the 2001 three-month period compared to weather that
was 13.4% colder than normal in the 2000 three-month period. According to the
National Climatic Data Center, U.S. weather in the 2001 three-month period was
the second warmest in the last 107 years. Although the significantly warmer
weather adversely affected our heating-related sales volumes, retail gallons
sold increased 8.6 million gallons (3.3%) as a result of the August 21, 2001
acquisition of Columbia Propane. Additionally, sales to commercial, industrial
and motor fuel customers were negatively impacted by the weaker U.S. economy in
the 2001 three-month period.
Retail propane revenues decreased $38.9 million to $298.8 million reflecting (1)
a $50.2 million decrease as a result of lower average selling prices partially
offset by an $11.3 million increase due to the higher retail volumes sold.
Wholesale propane revenues decreased $27.3 million reflecting (1) a $22.9
million decrease resulting from lower average selling prices and (2) a $4.4
million decrease as a result of lower wholesale volumes sold. The lower retail
and wholesale selling prices reflect significantly lower propane product costs
in the 2001 three-month period. The average wholesale price of propane at Mont
Belvieu in the 2001 three-month period was approximately 35 cents per gallon
compared to 65 cents per gallon in the prior-year period. Other revenues
increased $5.1 million primarily due to the impact of the Columbia Propane
acquisition. Cost of sales decreased $68.4 million reflecting the lower average
propane product costs.
Total margin increased $7.3 million reflecting the impact of the higher retail
propane gallons sold and greater margin from ancillary sales and service income
as a result of the Columbia Propane acquisition. The Partnership was able to
attain comparable average retail propane unit margins in the 2001 three-month
period.
EBITDA decreased $17.3 million (23.0%) in the 2001 three-month period as the
increase in total margin was more than offset by (1) a $22.1 million increase in
Partnership operating and administrative expenses and (2) a $2.1 million
decrease in other income. The increase in operating expenses in the current year
includes expenses of Columbia Propane's operations partially offset by lower
volume-driven costs including (1) distribution costs; (2) employee-related costs
including lower overtime and incentive compensation costs; and (3) uncollectible
accounts expense. Operating income decreased less than the decrease in EBITDA
principally due to the elimination of goodwill amortization resulting from the
adoption of SFAS 142 on October 1, 2001, partially offset by higher depreciation
and amortization resulting from the Columbia Propane acquisition. The prior-year
three-month period includes $5.9 million of goodwill and excess reorganization
value amortization. Other loss in the 2001 three-month period includes a loss of
$0.8 million from the early redemption of $15 million of AmeriGas Partners
Senior Notes and a decline of $2.1 million in the value of propane call option
contracts.
GAS UTILITY. Weather in Gas Utility's service territory during the 2001
three-month period was 19.2% warmer than normal compared to weather that was
10.0% colder than normal in the prior-year period. In particular, the key
heating-season months of November and December 2001 were among the warmest on
record. The warmer weather and to a lesser extent the general economic recession
resulted in a significant reduction in sales to firm- residential, commercial
and industrial ("core market") customers and lower firm and interruptible
delivery service volumes.
The decrease in Gas Utility revenues in the 2001 three-month period is primarily
a result of the lower
-16-
UGI CORPORATION AND SUBSIDIARIES
core market sales and, to a lesser extent, the lower firm and interruptible
delivery service volumes. Gas Utility cost of gas was $75.3 million in the 2001
three-month period compared to $92.4 million in the prior-year period also a
result of the decline in core-market sales.
The decrease in Gas Utility total margin reflects (1) a $4.6 million decrease in
core market margin resulting from the lower sales; (2) the impact of the lower
firm delivery service volumes; and (3) lower margin contribution from
interruptible customers. In accordance with Gas Utility's Restructuring order
entered on June 29, 2000 pursuant to Pennsylvania's Gas Competition Act,
beginning December 1, 2001 Gas Utility is required to reduce its PGC rates by an
amount equal to the margin it receives from interruptible customers using
pipeline capacity contracted by Gas Utility for core-market customers. As a
result, beginning December 1, 2001, Gas Utility's margin is more sensitive to
the effects of heating-season weather and less sensitive to the market prices of
alternative fuels.
Gas Utility EBITDA and operating income each decreased $5.7 million reflecting
the previously mentioned decline in total margin partially offset by lower
operating and administrative expenses. The decrease in operating and
administrative expenses principally resulted from lower charges for
uncollectible accounts and lower distribution system expenses.
ELECTRIC UTILITY. The decrease in kilowatt-hour sales in the 2001 three-month
period reflects the impact of weather that was 29% warmer than in the prior-year
period. Electric Utility revenues declined reflecting the decline in
distribution system sales partially offset by higher wholesale sales.
Notwithstanding the decrease in sales, Electric Utility cost of sales was $11.9
million in the 2001 three-month period, an increase of $1.0 million from the
prior-year period, reflecting higher per-unit purchased power costs and the
impact on cost of sales resulting from the formation of Hunlock Creek Energy
Ventures, our joint-venture electricity generation business formed December 8,
2000. The formation of Energy Ventures results in lower power production and
depreciation expenses but higher costs of sales because Electric Utility must
purchase a greater percentage of its electricity needs from others, including
Energy Ventures.
Total Electric Utility margin declined $1.2 million as a result of the higher
purchased power costs and the lower sales. EBITDA and operating income decreased
$0.3 million and $0.1 million, respectively, reflecting the lower total margin
offset by lower power production expenses and, with respect to operating income,
lower depreciation expense subsequent to the formation of Energy Ventures.
ENERGY SERVICES. Revenues from Energy Services declined $27.8 million,
notwithstanding acquisition-related volume growth, as a result of lower natural
gas prices and the volume impact of warmer 2001 three-month period weather. The
volume increases resulted primarily from the July 2001 acquisition of the energy
marketing businesses of PG Energy Services, Inc. Total margin, EBITDA and
operating income were higher in the 2001 three-month period reflecting the
greater acquisition-driven sales volumes and higher average unit margins.
INTERNATIONAL PROPANE. FLAGA's results in the 2001 three-month period benefited
from weather that was approximately normal compared to weather that was 19%
warmer than normal in the prior-year period. The higher sales in the period, in
addition to higher average unit margins, resulted in a $1.8 million increase in
total margin. The increase in operating income principally reflects the greater
-17-
UGI CORPORATION AND SUBSIDIARIES
total margin and a $0.4 million decrease in amortization expense resulting from
the adoption of SFAS 142 on October 1, 2001. Income from international propane
equity investees in the three-month period principally includes income from our
investments in Antargaz. Antargaz results in the 2001 three-month period
benefited from colder than normal weather and higher than normal unit margins
resulting from lower propane product costs.
CORPORATE & OTHER. Corporate & Other operating income in the 2001 three-month
period declined $0.7 million principally reflecting lower interest income.
Operating income in the prior-year period included operating losses from Hearth
USA(TM) which ceased operations in October 2001.
INTEREST EXPENSE AND INCOME TAXES. The increase in interest expense principally
reflects higher Partnership long-term debt outstanding partially offset by lower
levels of UGI Utilities and Partnership bank loans outstanding and lower
short-term interest rates. The lower effective income tax rate in the 2001
three-month period is primarily due to the elimination of nondeductible goodwill
amortization resulting from the adoption of SFAS 142 and, to a lesser extent,
the impact of equity income from Antargaz.
-18-
UGI CORPORATION AND SUBSIDIARIES
2001 TWELVE-MONTH PERIOD COMPARED WITH 2000 TWELVE-MONTH PERIOD
Increase
Twelve Months Ended December 31, 2001 2000 (Decrease)
- ---------------------------------------------------------------------------------------------------
(Millions of dollars)
AMERIGAS PROPANE:
Revenues $ 1,357.3 $ 1,251.6 $ 105.7 8.4%
Total margin $ 589.7 $ 517.2 $ 72.5 14.0%
EBITDA $ 192.0 $ 179.7 $ 12.3 6.8%
Operating income $ 118.7 $ 109.3 $ 9.4 8.6%
Retail gallons sold (millions) 829.4 794.5 34.9 4.4%
Degree days - % (warmer) than normal (7.4) (3.7) -- --
GAS UTILITY:
Revenues $ 476.1 $ 403.0 $ 73.1 18.1 %
Total margin $ 170.4 $ 176.5 $ (6.1) (3.5)%
EBITDA $ 102.3 $ 108.1 $ (5.8) (5.4)%
Operating income $ 82.1 $ 89.0 $ (6.9) (7.8)%
System throughput - bcf 72.5 81.9 (9.4) (11.5)%
Degree days - % (warmer) than normal (8.5) (2.0) -- --
ELECTRIC UTILITY:
Revenues $ 83.6 $ 79.2 $ 4.4 5.6 %
Total margin $ 27.5 $ 38.2 $ (10.7) (28.0)%
EBITDA $ 14.0 $ 16.6 $ (2.6) (15.7)%
Operating income $ 10.6 $ 11.9 $ (1.3) (10.9)%
Distribution sales - gwh 931.6 923.5 8.1 0.9 %
ENERGY SERVICES:
Revenues $ 342.9 $ 228.6 $ 114.3 50.0%
Total margin $ 15.6 $ 7.2 $ 8.4 116.7%
EBITDA $ 8.4 $ 3.8 $ 4.6 121.1%
Operating income $ 8.0 $ 3.6 $ 4.4 122.2%
INTERNATIONAL PROPANE:
Revenues $ 50.7 $ 50.5 $ 0.2 0.4%
Total margin $ 24.3 $ 19.9 $ 4.4 22.1%
EBITDA $ 7.0 $ 2.4 $ 4.6 191.7%
Operating income (loss) $ 3.1 $ (2.2) $ 5.3 240.9%
Income (loss) from equity investees $ 2.3 $ (0.8) $ 3.1 N.M.
- ---------------------------------------------------------------------------------------------------
AMERIGAS PROPANE. Temperatures based upon heating degree days were 7.4% warmer
than normal during the 2001 twelve-month period compared to weather that was
3.7% warmer than normal in the 2000 twelve-month period. Retail propane gallons
sold increased 34.9 million gallons (4.4%) due to the Columbia Propane
acquisition partially offset by the impact of the warmer 2001 twelve-month
period weather and the slowing economy.
Total retail propane revenues increased $102.0 million reflecting (1) a $59.5
million increase as a result of higher average selling prices and (2) a $42.5
million increase as a result of the higher retail volumes sold. The $3.7 million
decrease in wholesale revenues reflects (1) a $2.2 million decrease as a result
of lower volumes sold and (2) a $1.5 million decrease as a result of lower
average wholesale
-19-
UGI CORPORATION AND SUBSIDIARIES
selling prices. Nonpropane revenues increased $7.5 million to $100.5 million as
a result of the Columbia Propane acquisition. Cost of sales increased as a
result of the greater retail volumes sold and, to a lesser extent, higher
average propane product costs. Propane product costs were significantly higher
during the 2001 winter heating season, declining during the second half of the
2001 twelve-month period.
Total margin increased $72.5 million due to higher average retail unit margins
and greater retail volumes sold. Unit margins, particularly during the second
quarter of fiscal 2001, benefited from gains on derivative hedge instruments and
favorably priced supply arrangements.
EBITDA increased $12.3 million in the 2001 twelve-month period as the increase
in total margin was reduced by a $55.1 million increase in the Partnership's
operating and administrative expenses and lower other income. The increase in
operating and administrative expenses is due in large part to (1) the impact of
acquisitions, principally Columbia Propane, and growth-related expenses
associated with PPX(R); (2) higher distribution expenses including higher
vehicle fuel and maintenance expense; and (3) higher overtime and incentive
compensation costs. Operating income increased $9.4 million as the increase in
EBITDA was reduced primarily by greater depreciation expense associated with
Columbia Propane.
GAS UTILITY. Weather in Gas Utility's service territory based upon heating
degree days was 8.5% warmer than normal in the 2001 twelve-month period compared
to weather that was 2.0% warmer than normal in the prior year twelve-month
period. Total system throughput declined 11.5% reflecting the effects of the
warmer weather, price-induced customer conservation, and the effects of the
general recession on commercial and industrial customers. In addition, higher
natural gas prices relative to oil prices during the winter of 2001 prompted
fuel switching by many of our interruptible customers who have the ability to
switch to alternative fuels.
The increase in Gas Utility revenues in the 2001 twelve-month period is
primarily a result of higher average purchased gas cost ("PGC") rates primarily
during the 2001 winter heating season offset partially by the effect of the
decline in throughput. Natural gas costs at the end of the 2001 twelve-month
period were significantly lower than they were at the beginning of the period.
Gas Utility cost of gas was $305.7 million in the 2001 twelve-month period
compared to $226.6 million in the 2000 twelve-month period reflecting the higher
average purchased gas costs during the 2001 winter heating season.
Gas Utility total margin declined $6.1 million principally reflecting lower
margin from interruptible and firm delivery service customers reflecting lower
2001 twelve-month period throughput to these customers and lower average
interruptible unit margins due to the decline in the spread between oil and
natural gas prices.
Gas Utility EBITDA and operating income declined $5.8 million and $6.9 million,
respectively, reflecting the net effects of the decrease in total margin,
slightly higher operating expenses and higher pension income. The increase in
operating expenses includes, among other things, greater required allowances for
uncollectible accounts and lower income from environmental insurance litigation
settlements partially offset by lower distribution system maintenance expense.
Depreciation expense increased $1.0 million reflecting greater depreciation
associated with distribution system capital expenditures.
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UGI CORPORATION AND SUBSIDIARIES
ELECTRIC UTILITY. Distribution system sales in the 2001 twelve-month period
increased slightly from the prior year. Revenues were higher as a result of
wholesale sales generated by Energy Ventures and, to a lesser extent, the
greater distribution system sales. Cost of sales totaled $52.8 million in the
2001 twelve-month period compared to $37.4 million in the prior year reflecting
the impact on cost of sales resulting from the formation of Energy Ventures,
higher per-unit purchased power costs, and the higher 2001 sales.
Electric Utility total margin decreased $10.7 million as a result of the higher
purchased power costs. EBITDA and operating income declined less than the
decrease in total margin reflecting lower power production expenses resulting
from the formation of Energy Ventures and lower utility realty taxes.
Depreciation expense decreased $1.2 million reflecting the impact of the
formation of Energy Ventures.
ENERGY SERVICES. Revenue from Energy Services increased significantly reflecting
higher natural gas prices principally during the winter of 2001 and
acquisition-related volume growth. Total margin, EBITDA and operating income
were also higher reflecting the acquisition-driven increase in total margin.
INTERNATIONAL PROPANE. The increase in EBITDA and operating income in the 2001
twelve-month period principally reflects improved results from FLAGA. FLAGA's
results reflect the effects of colder weather and greater retail propane unit
margins. Income from international propane equity investees in the 2001
twelve-month period includes $4.0 million in income from our March 2001 debt and
equity investments in Antargaz and a loss of $1.1 million from the write-off of
our propane joint venture in Romania.
CORPORATE & OTHER. Corporate & Other operating income in the 2001 twelve-month
period declined $12.9 million reflecting $8.5 million of shut-down costs
associated with Hearth USA(TM) and lower interest and investment income.
INTEREST EXPENSE AND INCOME TAXES. Interest expense increased $5.5 million in
the 2001 twelve-month period as a result of greater amounts of Partnership
long-term debt outstanding. The effective income tax rate in the 2001
twelve-month period was 43.8% compared to 46.0% in the prior-year period.
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL CONDITION
The Company's debt outstanding totaled $1,356.1 million at December 31, 2001
compared to $1,363.0 million at September 30, 2001. UGI Utilities expects to
refinance $26 million of maturing Medium-Term Notes due October 2002 through
debt issued pursuant to its shelf registration statements with the SEC covering
a total of $125 million of debt securities. In November 2001, AmeriGas Partners
redeemed prior to maturity $15 million of its 10.125% Senior Notes at a
redemption price of 103.375%. AmeriGas OLP expects to repay $60 million of
maturing First Mortgage Notes due April 2002 with a combination of new debt and
cash generated by operations or from borrowings under our Bank Credit Agreement.
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UGI CORPORATION AND SUBSIDIARIES
On October 5, 2001, AmeriGas Partners sold 350,000 Common Units to the General
Partner at a market price of $19.81 per unit. On December 11, 2001, AmeriGas
Partners sold 1,843,047 Common Units in an underwritten public offering at a
public offering price of $21.50 per unit. Approximately $45 million, comprising
the net proceeds of these sales and related capital contributions from the
General Partner, were contributed to AmeriGas OLP and used to reduce Bank
Credit Agreement borrowings and for working capital. On January 8, 2002, after
the end of the first quarter of fiscal 2002, the underwriters partially
exercised their overallotment option in the amount of 585,000 Common Units. The
remainder of the overallotment option has expired. Approximately $12 million,
comprising the net proceeds of this sale and related capital contributions from
the General Partner, was contributed to AmeriGas OLP and used for working
capital. After these transactions, we held effective 50.6% and 50.5% ownership
interests in AmeriGas OLP and Eagle OLP, respectively.
As more fully described in Note 6 to Condensed Consolidated Financial
Statements, on November 30, 2001, Energy Services entered into a receivables
purchase facility with an issuer of receivables-backed commercial paper. Under
this arrangement, Energy Services transfers, on an ongoing basis and without
recourse, its trade accounts receivable to a wholly-owned, special purpose,
bankruptcy-remote subsidiary, Energy Services Funding Corporation ("ESFC"),
which in turn has the ability to sell an undivided interest in these
receivables. The level of funding available under this three-year facility is
limited to $50 million. At December 31, 2001, $9 million of accounts receivable
had been sold. The cash proceeds from the sale are reflected as operating cash
flows on the Condensed Consolidated Statements of Cash Flows.
During the three months ended December 31, 2001, the Partnership declared and
paid the minimum quarterly distribution of $0.55 (the "MQD") for the quarter
ended September 30, 2001. The MQD for the quarter ended December 31, 2001 will
be paid on April 1, 2002 to holders of record on February 28, 2002. The ability
of the Partnership to declare and pay the MQD on all units depends upon a number
of factors. These factors include (1) the level of Partnership earnings; (2) the
cash needs of the Partnership's operations (including cash needed for
maintaining and increasing operating capacity); (3) changes in operating working
capital; and (4) the Partnership's ability to borrow under its Bank Credit
Agreement, to refinance maturing debt, and to increase its long-term debt. Some
of these factors are affected by conditions beyond our control including
weather, competition in markets we serve, and the cost of propane.
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 three months
ended December 31, 2001 are not necessarily indicative of the cash flows to be
expected for a full year. Included in consolidated cash and short-term
investments at December 31, 2001 and 2000 are $50.1 million and $64.4 million,
respectively, of cash and short-term investments held by UGI.
OPERATING ACTIVITIES. Cash provided by operating activities was $29.4 million
during the three months ended December 31, 2001 compared with cash used by
operating activities of $16.3 million during the prior-year three-month period.
Changes in operating working capital during the current year period used $25.3
million of operating cash flow compared with $86.6 million of cash used in the
prior year. The
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UGI CORPORATION AND SUBSIDIARIES
significant decline in cash used by operating activities reflects a smaller
seasonal increase in accounts receivable due primarily to lower 2001 three-month
period propane and natural gas selling prices. In addition, cash flows reflect
$9 million of net cash received by Energy Services pursuant to its accounts
receivable securitization facility. Cash flow from operating activities before
changes in operating working capital declined in the 2001 three-month period
reflecting the decline in operating results.
INVESTING ACTIVITIES. We spent $23.4 million for property, plant and equipment
in the 2001 three-month period, an increase of $5.7 million from the prior year,
reflecting higher Partnership capital expenditures subsequent to the Columbia
Propane acquisition and higher Partnership expenditures for grill cylinder
overfill protection valves to comply with governmental regulations.
FINANCING ACTIVITIES. During the three month periods ended December 31, 2001 and
2000, we paid cash dividends on UGI Common Stock of $11.0 million and $10.4
million, respectively, and the Partnership paid the MQD on all publicly held
Common Units (as well as the Common and Subordinated Units we own). During the
2001 three-month period, the Partnership received net proceeds of $37.5 million
from its public offering of 1.8 million Common Units. During the 2001
three-month period, AmeriGas OLP repaid $20 million of Acquisition Facility
borrowings and AmeriGas Partners redeemed $15 million of its 10.125% Senior
Notes.
ADOPTION OF SFAS NO. 142
Effective October 1, 2001, we adopted the provisions of SFAS No. 142, "Goodwill
and Other Intangible Assets" ("SFAS 142"). SFAS 142 addresses the financial
accounting and reporting for acquired goodwill and other intangible assets and
supersedes APB Opinion No. 17, "Intangible Assets." SFAS 142 addresses the
financial accounting and reporting for intangible assets acquired individually
or with a group of other assets (excluding those acquired in a business
combination) at acquisition and also addresses the financial accounting and
reporting for goodwill and other intangible assets subsequent to their
acquisition. Under SFAS 142, an intangible asset is amortized over its useful
life unless that life is determined to be indefinite. Goodwill, including excess
reorganization value, and other intangible assets with indefinite lives are not
amortized but are subject to tests for impairment at least annually. As a result
of the adoption of SFAS 142, we ceased the amortization of goodwill and excess
reorganization value effective October 1, 2001.
For a more detailed discussion of SFAS 142 and its impact on the Company's
results, see Note 3 to Condensed Consolidated Financial Statements.
IMPACT OF GAS RESTRUCTURING ORDER
On June 29, 2000, the Pennsylvania Public Utility Commission issued its order
("Gas Restructuring Order") approving Gas Utility's restructuring plan filed by
Gas Utility pursuant to Pennsylvania's Natural Gas Choice and Competition Act.
Among other things, the implementation of the Gas Restructuring Order resulted
in an increase in Gas Utility's core-market base rates effective October 1,
2000. This base rate increase was designed to generate approximately $16.7
million in additional annual revenues. The Gas Restructuring Order also required
Gas Utility to reduce its PGC rates by an annualized amount of $16.7 million for
the first 14 months following the October 1, 2000 base rate increase.
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UGI CORPORATION AND SUBSIDIARIES
Beginning December 1, 2001, Gas Utility is required to reduce its PGC rates by
an amount equal to the margin it receives from interruptible customers using
pipeline capacity contracted by Gas Utility for core-market customers. As a
result, beginning December 1, 2001, Gas Utility operating results are more
sensitive to the effects of heating-season weather and less sensitive to the
market prices of alternative fuels.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued SFAS No. 143,
"Accounting for Asset Retirement Obligations" ("SFAS 143") and SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144").
SFAS 143 addresses financial accounting and reporting for legal obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. SFAS 143 requires that the fair value of a liability for
an asset retirement obligation be recognized in the period in which it is
incurred with a corresponding increase in the carrying value of the related
asset. Entities shall subsequently charge the retirement cost to expense using a
systematic and rational method over the related asset's useful life and adjust
the fair value of the liability resulting from the passage of time through
charges to interest expense. The Company is required to adopt SFAS 143 effective
October 1, 2002. The Company is currently in the process of evaluating the
impact SFAS 143 will have on its financial condition and results of operations.
SFAS 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," as it relates to the disposal of a segment of a business. SFAS
144 establishes a single accounting model for long-lived assets to be disposed
of based upon the framework of SFAS 121, and resolves significant implementation
issues of SFAS 121. SFAS 144 is effective for the Company October 1, 2002. The
Company believes that the adoption of SFAS 144 will not have a material impact
on its financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk exposures are (1) market prices for propane, natural gas
and electricity; (2) changes in interest rates; and (3) foreign currency
exchange rates.
Price risk associated with fluctuations in the prices the Partnership and FLAGA
pay for propane, and Energy Services pays for natural gas, are principally a
result of market forces reflecting changes in supply and demand. The
Partnership's profitability is sensitive to changes in propane supply costs, and
the Partnership generally attempts to pass on increases in such costs to
customers. The Partnership may not, however, always be able to pass through
product cost increases fully, particularly when product costs rise rapidly. In
order to manage a portion of the Partnership's propane market price risk, it
uses contracts for the forward purchase or sale of propane, propane fixed-price
supply agreements, and over-the-counter derivative commodity instruments
including price swap and option contracts. FLAGA's profitability is also
sensitive to changes in propane supply
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UGI CORPORATION AND SUBSIDIARIES
costs. FLAGA on occasion also uses derivative commodity instruments to reduce
market risk associated with purchases of propane. In order to manage market
price risk relating to substantially all of Energy Services' forecasted sales of
natural gas, we purchase exchange-traded natural gas futures contracts. In
addition, in the past we have, on occasion, utilized a managed program of
derivative instruments, including natural gas and oil futures contracts, to
preserve gross margin associated with certain of our natural gas customers.
Although we use derivative financial and commodity instruments to reduce market
price risk associated with forecasted transactions, we do not use derivative
financial and commodity instruments for speculative or trading purposes.
Exchange-traded natural gas futures contracts are guaranteed by the New York
Mercantile Exchange ("NYMEX") and have nominal credit risk. The change in market
value of these contracts generally requires daily cash settlement in margin
accounts with brokers. Over-the-counter derivative commodity instruments
utilized by the Partnership and FLAGA to hedge forecasted purchases of propane
are generally settled at expiration of the contract. In order to minimize credit
risk associated with these contracts, we carefully monitor established credit
limits with the contract counterparties.
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. Because of this ratemaking mechanism, there is
limited commodity price risk associated with our Gas Utility operations.
Electric Utility's electricity distribution business purchases most of its
electric power needs under power supply arrangements of various lengths and on
the spot market. Prices for electricity can be volatile especially during
periods of high demand or tight supply. Because the generation component of
Electric Utility's rates is subject to rate caps as a result of the Electricity
Restructuring Order that are expected to extend through August 2002 in the case
of its commercial and industrial customers and May 2003 in the case of its
residential customers, any increase in the cost of electricity purchased by
Electric Utility will negatively impact Electric Utility's results. Electric
Utility has mitigated this electricity cost exposure by entering into power and
capacity contracts for a substantial portion of these periods.
We have both fixed-rate and variable-rate debt. Changes in interest rates impact
the cash flows of variable-rate debt but generally do not impact its fair value.
Conversely, changes in interest rates impact the fair value of fixed-rate debt
but do not impact cash flows.
Our variable-rate debt includes borrowings under AmeriGas OLP's Bank Credit
Agreement, borrowings under UGI Utilities' revolving credit agreements, and a
substantial portion of FLAGA's debt. These debt agreements have interest rates
that are generally indexed to short-term market interest rates.
Our long-term debt is typically issued at fixed rates of interest based upon
market rates for debt having similar terms and credit ratings. As these
long-term debt issues mature, we may refinance such debt with new debt having
interest rates reflecting then-current market conditions. This debt may have an
interest rate that is more or less than the refinanced debt. In order to reduce
interest rate risk associated with forecasted issuances of fixed-rate debt, we
generally enter into interest rate protection agreements.
The primary currency for which the Company has exchange rate risk is the U.S.
dollar versus the EURO. We do not currently use derivative instruments to hedge
foreign currency exposure associated with our
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UGI CORPORATION AND SUBSIDIARIES
international propane operations and investments, principally FLAGA and
Antargaz. As a result, the U.S. dollar value of our foreign denominated assets
and liabilities will fluctuate with changes in the associated foreign currency
exchange rates, principally the EURO. With respect to FLAGA, our exposure to
changes in foreign currency exchange rates has been significantly limited
because the purchase of FLAGA is financed primarily with EURO denominated debt,
and FLAGA's U.S. dollar denominated financial instrument assets and liabilities
are substantially equal in amount. With respect to our debt and equity
investments in Antargaz, a 10% decline in the value of the EURO would reduce the
book value of these investments by approximately $3.0 million, which amount
would be reflected in other comprehensive income.
The following table summarizes the fair values of unsettled market risk
sensitive derivative instruments held at December 31, 2001. It also includes the
changes in fair value that would result if there were adverse changes in (1) the
market price of propane of 10 cents per gallon; (2) the market price of natural
gas of 50 cents per dekatherm; and (3) interest rates on ten-year U.S. treasury
notes of 100 basis points:
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Fair Change in
Value Fair Value
- --------------------------------------------------------------------------------
(Millions of dollars)
December 31, 2001:
Propane commodity price risk $ (15.8) $ (13.0)
Natural gas commodity price risk (1.6) (2.3)
Interest rate risk (2.2) (9.5)
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UGI CORPORATION AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) The Company filed the following Reports on Form 8-K during the
fiscal quarter ended December 31, 2001:
Date Item Numbers Content
---- ------------ -------
October 15, 2001 5 & 7 Announcement of Closing of Hearth USA and
Fiscal Year 2001 Earnings Forecast
November 9, 2001 5 Notice of Fourth Quarter and Year End Earnings
Conference Call Webcast
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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: February 13, 2002 By: /s/ A. J. Mendicino
- ------------------------ -------------------------------------
A. J. Mendicino, Vice President -
Finance and Chief Financial Officer
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