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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2003
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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
460 North Gulph Road, King of Prussia, PA 19406
(ADDRESS OF PRINCIPAL OFFICES) (ZIP CODE)
(610) 337-1000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF CLASS NAME OF EACH EXCHANGE
ON WHICH REGISTERED
Common Stock, without par value New York Stock Exchange, Inc.
Philadelphia Stock Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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 [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of UGI Corporation Common Stock held by nonaffiliates
of the registrant on March 31, 2003 was $1,248,875,250.
At December 12, 2003 there were 42,809,144 shares of UGI Corporation Common
Stock issued and outstanding.
Documents Incorporated By Reference: Portions of the Annual Report to
Shareholders for the year ended September 30, 2003 are incorporated by reference
into Parts I and II of this Form 10-K. Portions of the Proxy Statement for the
Annual Meeting of Shareholders to be held on February 24, 2004 are incorporated
by reference into Part III of this Form 10-K.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
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TABLE OF CONTENTS
Page
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PART I: BUSINESS...................................................................... 1
Items 1 And 2. Business and Properties....................................................... 1
AmeriGas Propane Business..................................................... 2
Utility and Electric Operations............................................... 9
UGI Enterprises, Inc. ........................................................ 18
- Domestic Businesses........................................... 18
- International Businesses...................................... 19
Business Segment Information.................................................. 20
Employees..................................................................... 21
Item 3. Legal Proceedings............................................................. 22
Item 4. Submission of Matters to a Vote of Security Holders........................... 25
PART II: SECURITIES AND FINANCIAL INFORMATION.......................................... 25
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......... 25
Item 6. Selected Financial Data....................................................... 27
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................... 28
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................... 28
Item 8. Financial Statements and Supplementary Data................................... 28
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.......................................................... 28
Item 9A. Controls and Procedures....................................................... 28
(i)
Page
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PART III: UGI MANAGEMENT AND SECURITY HOLDERS........................................... 30
Item 10. Directors and Executive Officers of Registrant................................ 30
Item 11. Executive Compensation........................................................ 30
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters............................................... 30
Item 13. Certain Relationships and Related Transactions................................ 30
Item 14. Principal Accountant Fees and Services........................................ 30
PART IV: ADDITIONAL EXHIBITS, SCHEDULES AND REPORTS.................................... 34
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............. 34
Signatures.................................................................... 44
Index to Financial Statements and Financial Statement Schedules.................................... F-2
(ii)
PART I: BUSINESS
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
UGI Corporation is a distributor and marketer of energy products and
services. We have two primary business lines: we are a domestic and
international distributor of propane, and we are also a provider of natural gas,
electricity and related services through regulated distribution utilities as
well as through non-utility electric generation, commodity marketing and heating
and cooling installation and service businesses.
We conduct our domestic propane distribution business through AmeriGas
Partners, L.P., ("AmeriGas Partners" or the "Partnership"), which is the
nation's largest retail propane distributor. AmeriGas Partners conducts its
business through its direct and indirect subsidiaries, AmeriGas Propane, L.P.
("AmeriGas OLP") and AmeriGas Eagle Propane, L.P. ("Eagle OLP," and together
with AmeriGas OLP, the "Operating Partnership"). Eagle OLP has a less-than-one
percent minority limited partner. The Partnership's sole general partner is our
subsidiary, AmeriGas Propane, Inc. ("AmeriGas Propane" or the "General
Partner"). The common units of AmeriGas Partners represent limited partner
interests in a Delaware limited partnership; they trade on the New York Stock
Exchange under the symbol "APU." We have an effective 48% ownership interest in
the Partnership; the remaining interest is publicly held. See Note 1 to the
Company's Consolidated Financial Statements.
Our subsidiary UGI Utilities, Inc. ("UGI Utilities," or "Utilities")
owns and operates a natural gas distribution utility ("Gas Utility") and an
electric distribution utility ("Electric Utility") in eastern Pennsylvania. It
serves approximately 292,000 natural gas customers and approximately 61,600
electric customers. Electric Utility, together with the electric generating
interests of UGI Development Company described below, is referred to herein as
"Electric Operations."
UGI Enterprises, Inc. ("Enterprises") conducts domestic and
international energy-related businesses through subsidiaries. UGI Energy
Services, Inc. ("ESI") markets natural gas, oil and electricity in the eastern
region of the United States under the trade name GASMARK(R). ESI also owns and
operates liquefied natural gas and propane peak-shaving plants. UGI Development
Company ("UGID"), a subsidiary of ESI, owns and operates interests in
Pennsylvania-based electric generation assets. UGI HVAC Enterprises, Inc.
operates a heating and cooling installation and service business in the
Mid-Atlantic region.
Enterprises conducts its international propane distribution business
through wholly-owned subsidiaries and joint ventures. It owns FLAGA GmbH, the
largest retail propane distributor in Austria and one of the largest suppliers
in the Czech Republic and Slovakia. In March 2001, Enterprises acquired an
approximate 20% interest in Elf Antargaz, S.A. ("Antargaz"), one of the largest
distributors of propane in France. Enterprises also participates in a propane
distribution joint venture in China.
UGI was incorporated in Pennsylvania in 1991. UGI Corporation is not
subject to regulation by the Pennsylvania Public Utility Commission ("PUC"). It
is also exempt from registration as a holding company and not otherwise subject
to the Public Utility Holding
Company Act of 1935, except for Section 9(a)(2), which regulates the acquisition
of voting securities of an electric or gas utility company. Our executive
offices are located at 460 North Gulph Road, King of Prussia, Pennsylvania
19406, and our telephone number is (610) 337-1000. In this report, the terms
"Company" and "UGI," as well as the terms "our," "we," and "its," are sometimes
used as abbreviated references to UGI Corporation or, collectively, UGI
Corporation and its consolidated subsidiaries. Similarly, the terms "AmeriGas
Partners" and the "Partnership" are sometimes used as abbreviated references to
AmeriGas Partners, L.P. or, collectively, AmeriGas Partners, L.P. and its
subsidiaries, including the Operating Partnership.
BUSINESS STRATEGY
Since 1999, our strategic direction has focused on growing our existing
natural gas, electric and propane businesses while seeking additional related
and complementary growth opportunities. We are employing our core competencies
from our existing businesses, as well as using our national scope, international
experience, extensive asset base and access to customers, to accelerate growth
in related and complementary businesses, both domestic and international. During
fiscal year 2003, we completed a number of transactions in pursuit of this
strategy.
AMERIGAS PROPANE BUSINESS
Our domestic propane distribution business is conducted through
AmeriGas Partners. Upon completion of the Columbia Propane acquisition described
below, we became the largest retail propane distributor in the United States,
based on retail volume. As of September 30, 2003, the Partnership operated from
approximately 650 district locations in 46 states. AmeriGas Propane manages the
Partnership. Although our consolidated financial statements include 100% of the
Partnership's revenues, assets and liabilities, our net income reflects only our
48% effective interest in the income or loss of the Partnership, due to the
publicly-owned limited partner interest. See Note 1 to the Company's
Consolidated Financial Statements.
On August 21, 2001, AmeriGas OLP acquired the propane distribution
businesses of Columbia Energy Group. These businesses were conducted through
Columbia Propane Corporation and its approximate 99% owned subsidiary, Columbia
Propane, L.P. Prior to the acquisition, Columbia Propane, based in Richmond,
Virginia, was the seventh largest retail propane marketer in the United States,
selling approximately 308 million gallons annually from 186 locations in 29
states. Following the acquisition, Columbia Propane, L.P. changed its name to
AmeriGas Eagle Propane, L.P. and Columbia Propane Corporation changed its name
to AmeriGas Eagle Propane, Inc. Both entities do business under the trade name
AmeriGas(R). AmeriGas OLP and AmeriGas Eagle Holding, Inc. own more than 99% of
Eagle OLP and an unaffiliated third party retains the remaining interest.
On October 1, 2003, AmeriGas OLP acquired substantially all of the
retail propane distribution assets and business of Horizon Propane LLC ("Horizon
Propane") for approximately $31 million. During its 2003 fiscal year, Horizon
Propane sold over 30 million gallons of propane from ninety locations in twelve
states.
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GENERAL INDUSTRY INFORMATION
Propane is separated from crude oil during the refining process and
also extracted from natural gas or oil wellhead gas at processing plants.
Propane is normally transported and stored in a liquid state under moderate
pressure or refrigeration for economy and ease of handling in shipping and
distribution. When the pressure is released or the temperature is increased, it
is usable as a flammable gas. Propane is colorless and odorless; an odorant is
added to allow its detection. Propane is clean burning, producing negligible
amounts of pollutants when properly consumed.
The primary customers for propane are residential, commercial,
agricultural, motor fuel and industrial users to whom natural gas is not readily
available. Propane is typically more expensive than natural gas, competitive
with fuel oil when operating efficiencies are taken into account and, in most
areas, cheaper than electricity on an equivalent energy basis.
PRODUCTS, SERVICES AND MARKETING
As of September 30, 2003, the Partnership distributed propane to
approximately 1.3 million customers from approximately 650 district locations in
46 states. The Partnership also sells, installs and services propane appliances,
including heating systems. In certain markets, the Partnership also installs and
services propane fuel systems for motor vehicles. Typically, district locations
are found in suburban and rural areas where natural gas is not available.
Districts generally consist of an office, appliance showroom, warehouse and
service facilities, with one or more 18,000 to 30,000 gallon storage tanks on
the premises. As part of its overall transportation and distribution
infrastructure, the Partnership operates as an interstate carrier in 48 states
throughout the United States. It is also licensed as a carrier in Canada.
The Partnership sells propane primarily to five markets: residential,
commercial/industrial, motor fuel, agricultural and wholesale. Approximately 84%
of the Partnership's fiscal year 2003 sales (based on gallons sold) were to
retail accounts and approximately 16% were to wholesale customers. Sales to
residential customers in fiscal 2003 represented approximately 42% of retail
gallons sold; industrial/commercial customers 34%; motor fuel customers 11%; and
agricultural customers 7%. Transport gallons, which are large-scale deliveries
to retail customers other than residential, accounted for 6% of 2003 retail
gallons. No single customer accounts for 5% or more of the Partnership's
consolidated revenues.
In the residential market, which includes both conventional and
manufactured housing, propane is used primarily for home heating, water heating
and cooking purposes. Commercial users, which include motels, hotels,
restaurants and retail stores, generally use propane for the same purposes as
residential customers. The Partnership continues to expand its PPX Prefilled
Propane Xchange program ("PPX(R)"). At September 30, 2003, PPX was available at
approximately 20,000 retail locations throughout the United States. Sales of our
PPX grill cylinders to retailers are included in the commercial/industrial
market. The PPX program enables consumers to exchange their empty 20-pound
propane grill cylinders for filled cylinders at various retail locations such as
home centers, mass merchandisers and grocery and convenience stores. During
fiscal year 2002, the Partnership introduced PPX Plus. PPX Plus cylinders are
3
equipped with a special overfill protection device ("OPD") required by the
National Fire Protection Association ("NFPA").
Industrial customers use propane to fire furnaces, as a cutting gas and
in other process applications. Other industrial customers are large-scale
heating accounts and local gas utility customers who use propane as a
supplemental fuel to meet peak load deliverability requirements. As a motor
fuel, propane is burned in internal combustion engines that power over-the-road
vehicles, forklifts and stationary engines. Agricultural uses include tobacco
curing, chicken brooding and crop drying. In its wholesale operations, the
Partnership principally sells propane to large industrial end-users and other
propane distributors.
Retail deliveries of propane are usually made to customers by means of
bobtail and rack trucks. Propane is pumped from the bobtail truck, which
generally holds 2,400 to 3,000 gallons of propane, into a stationary storage
tank on the customer's premises. The Partnership owns most of these storage
tanks and leases them to its customers. The capacity of these tanks ranges from
approximately 120 gallons to approximately 1,200 gallons.
The Partnership also delivers propane to retail customers in portable
cylinders with capacities of 4 to 24 gallons. Some of these deliveries are made
to the customer's location, where empty cylinders are either picked up for
replenishment or filled in place.
PROPANE SUPPLY AND STORAGE
The Partnership has over 200 domestic and international sources of
supply, including the spot market. Supplies of propane from the Partnership's
sources historically have been readily available. During the year ended
September 30, 2003, over 90% of the Partnership's propane supply was purchased
under supply agreements with terms of 1 to 3 years. Approximately 79% of the
volumes purchased under those agreements were from 10 suppliers, including BP
Products North America Inc. and its affiliate BP Marketing Inc. (approximately
20%); Dynegy Midstream Services (approximately 18%); and Enterprise Products
Operating LP and its affiliate Canadian Enterprises Gas Products Ltd.
(approximately 15%). The availability of propane supply is dependent upon, among
other things, the severity of winter weather and the price and availability of
competing fuels such as natural gas and crude oil. Although no assurance can be
given that supplies of propane will be readily available in the future,
management currently expects to be able to secure adequate supplies during
fiscal year 2004. If supply from major sources were interrupted, however, the
cost of procuring replacement supplies and transporting those supplies from
alternative locations might be materially higher and, at least on a short-term
basis, margins could be affected. Aside from BP, Dynegy and Enterprise Products,
no single supplier provided more than 10% of the Partnership's total propane
supply in fiscal year 2003. In certain market areas, however, some suppliers
provide 70% to 80% of the Partnership's requirements. Disruptions in supply in
these areas could also have an adverse impact on the Partnership's margins.
During fiscal year 2003, 92% of the Partnership's supply contracts
provided for pricing based upon posted prices at the time of delivery or index
formulas based on the current prices established at major storage points such as
Mont Belvieu, Texas, or Conway, Kansas. In addition, some agreements provided
maximum and minimum seasonal purchase volume
4
guidelines. The percentage of contract purchases, and the amount of supply
contracted for at fixed prices, will vary from year to year as determined by the
General Partner. The Partnership uses a number of interstate pipelines, as well
as railroad tank cars, delivery trucks and barges, to transport propane from
suppliers to storage and distribution facilities. The Partnership stores propane
at facilities in Arizona, Pennsylvania, Virginia and several other states.
Because the Partnership's profitability is sensitive to changes in
wholesale propane costs, the Partnership generally seeks to pass on increases in
the cost of propane to customers. There is no assurance, however, that the
Partnership will always be able to pass on product cost increases fully,
particularly when product costs rise rapidly. Product cost increases can be
triggered by periods of severe cold weather, supply interruptions, or other
unforeseen events. The General Partner has adopted supply acquisition and
product price risk management practices to reduce the effect of price volatility
on product costs. These practices currently include the use of summer storage,
forward purchases and derivative commodity instruments such as options and
propane price swaps. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Market Risk Disclosures."
The following graph shows the average prices of propane on the propane
spot market during the last five fiscal years at Mont Belvieu, Texas and Conway,
Kansas, two major storage areas.
AVERAGE PROPANE SPOT MARKET PRICES
[AVERAGE PROPANE SPOT MARKET PRICES GRAPH]
Mont Belvieu Conway
Oct-96 51.57 51.53
Nov-96 58.05 63.41
Dec-96 61.04 84.29
Jan-97 47.45 63.39
Feb-97 38.71 39.02
Mar-97 38.50 37.26
Apr-97 34.88 35.26
May-97 35.31 36.48
Jun-97 34.43 35.86
Jul-97 34.91 34.63
Aug-97 37.03 36.53
Sep-97 38.68 37.95
Oct-97 39.83 37.32
Nov-97 35.95 35.00
Dec-97 33.57 31.36
Jan-98 30.07 28.21
Feb-98 29.79 28.32
Mar-98 27.39 27.84
Apr-98 29.06 29.47
May-98 27.42 27.82
Jun-98 24.42 24.84
Jul-98 24.54 24.55
Aug-98 24.12 23.87
Sep-98 24.83 24.04
Oct-98 25.72 24.57
Nov-98 24.79 23.20
Dec-98 20.89 18.72
Jan-99 21.75 19.61
Feb-99 22.43 20.58
Mar-99 24.10 23.40
Apr-99 28.26 27.58
May-99 28.31 26.88
Jun-99 30.95 28.68
Jul-99 37.26 34.62
Aug-99 40.51 37.56
Sep-99 43.18 42.40
Oct-99 45.46 43.39
Nov-99 43.44 38.78
Dec-99 42.83 35.10
Jan-00 56.11 42.32
Feb-00 59.72 47.26
Mar-00 51.13 47.65
Apr-00 46.88 43.64
May-00 51.31 50.81
Jun-00 55.47 56.22
Jul-00 54.88 56.29
Aug-00 58.54 63.52
Sep-00 64.21 70.95
Oct-00 61.82 64.05
Nov-00 60.71 60.45
Dec-00 77.63 79.75
Jan-01 77.27 83.03
Feb-01 59.39 63.03
Mar-01 54.94 57.12
Apr-01 54.37 60.26
May-01 51.20 56.90
Jun-01 43.17 47.70
Jul-01 38.87 43.27
Aug-01 41.54 45.71
Sep-01 41.67 46.53
Oct-01 39.48 44.19
Nov-01 33.04 35.19
Dec-01 30.43 30.34
Jan-02 29.05 26.60
Feb-02 31.20 27.92
Mar-02 37.95 35.93
Apr-02 41.52 40.07
May-02 40.69 38.09
Jun-02 37.51 35.25
Jul-02 37.19 35.47
Aug-02 41.49 41.53
Sep-02 47.17 45.93
Oct-02 47.95 47.12
Nov-02 47.26 48.01
Dec-02 52.40 52.32
Jan-03 60.38 57.70
Feb-03 77.30 73.03
Mar-03 62.77 57.09
Apr-03 50.42 50.28
May-03 54.09 55.41
Jun-03 55.98 59.71
Jul-03 53.01 58.90
Aug-03 54.84 63.63
Sep-03 52.00 59.44
5
COMPETITION
Propane competes with other sources of energy, some of which are less
costly for equivalent energy value. Propane distributors compete for customers
against suppliers of electricity, fuel oil and natural gas, principally on the
basis of price, service, availability and portability. Electricity is a major
competitor of propane, but propane generally enjoys a competitive price
advantage over electricity for space heating, water heating and cooking. Fuel
oil is also a major competitor of propane and is generally less expensive than
propane. Operating efficiencies and other factors such as air quality and
environmental advantages, however, generally make propane competitive with fuel
oil as a heating source. Furnaces and appliances that burn propane will not
operate on fuel oil, and vice versa, and, therefore, a conversion from one fuel
to the other requires the installation of new equipment. Propane serves as an
alternative to natural gas in rural and suburban areas where natural gas is
unavailable or portability of product is required. Natural gas is generally a
less expensive source of energy than propane, although in areas where natural
gas is available, propane is used for certain industrial and commercial
applications and as a standby fuel during interruptions in natural gas service.
The gradual expansion of the nation's natural gas distribution systems has
resulted in the availability of natural gas in some areas that previously
depended upon propane. However, natural gas pipelines are not present in many
regions of the country where propane is sold for heating and cooking purposes.
In the motor fuel market, propane competes with gasoline and diesel
fuel as well as electric batteries and fuel cells. Wholesale propane
distribution is a highly competitive, low margin business. Propane sales to
other retail distributors and large-volume, direct-shipment industrial end-users
are price sensitive and frequently involve a competitive bidding process.
The retail propane industry is mature, with only modest growth in total
demand for the product foreseen. Therefore, the Partnership's ability to grow
within the industry is dependent on its ability to acquire other retail
distributors and to achieve internal growth, which includes expansion of the
PPX(R) program (through which consumers can exchange an empty propane grill
cylinder for a filled one) and strategic accounts program (formerly called
"national accounts," through which the Partnership encourages large,
multi-location propane users to enter into a supply agreement with it rather
than with many small suppliers), as well as the success of its sales and
marketing programs designed to attract and retain customers. The failure of the
Partnership to retain and grow its customer base would have an adverse effect on
its results.
The domestic propane retail distribution business is highly
competitive. The Partnership competes in this business with other large propane
marketers, including other full-service marketers, and thousands of small
independent operators. In recent years, some rural electric cooperatives and
fuel oil distributors have expanded their businesses to include propane
distribution and the Partnership competes with them as well. The ability to
compete effectively depends on providing high quality customer service,
maintaining competitive retail prices and controlling operating expenses.
Based on the most recent annual survey by the American Petroleum
Institute, the 2002 domestic retail market for propane (annual sales for other
than chemical uses) was approximately 11.9 billion gallons and, based on LP-GAS
magazine rankings, 2002 sales volume of the ten
6
largest propane companies (including AmeriGas Partners) represented
approximately 32% of domestic retail sales. Management believes the
Partnership's 2003 retail volume represents 9% of the domestic retail market.
PROPERTIES
As of September 30, 2003, the Partnership owned approximately 87% of
its district locations. In addition, the Partnership subleases three one-million
barrel underground storage caverns in Arizona to store propane and butane for
itself and third parties. The Partnership also owns a 600,000 barrel
refrigerated, above-ground storage facility located on leased property in
California, which could be used in connection with waterborne imports or exports
of propane or butane. The California facility, which the Partnership operates,
is currently leased to several refiners for the storage of butane. In Virginia,
the Partnership has a 50% indirect equity interest in a 476,000 barrel
refrigerated, above-ground import terminal.
The transportation of propane requires specialized equipment. The
trucks and railroad tank cars utilized for this purpose carry specialized steel
tanks that maintain the propane in a liquefied state. As of September 30, 2003,
the Partnership operated a transportation fleet with the following assets:
APPROXIMATE QUANTITY & EQUIPMENT TYPE % OWNED % LEASED
400 Trailers 90 10
200 Tractors 45 55
150 Railroad tank cars 0 100
2,500 Bobtail trucks 20 80
350 Rack trucks 25 75
2,200 Service and delivery trucks 25 75
Other assets owned at September 30, 2003 included approximately 900,000
stationary storage tanks with typical capacities of 121 to 2,000 gallons and
approximately 2.4 million portable propane cylinders with typical capacities of
1 to 120 gallons. The Partnership also owned approximately 6,100 large volume
tanks which are used for its own storage requirements. AmeriGas OLP has debt
secured by liens and mortgages on its real and personal property. AmeriGas OLP
owns approximately 67% of the Partnership's property, plant and equipment.
TRADE NAMES, TRADE AND SERVICE MARKS
The Partnership markets propane principally under the "AmeriGas(R),"
"America's Propane Company(R)" and "PPX Prefilled Propane Xchange(R)" trade
names and related service marks. UGI owns, directly or indirectly, all the
right, title and interest in the "AmeriGas" and related trade and service marks.
The General Partner owns all right, title and interest in the "America's Propane
Company" and "PPX Prefilled Propane Xchange" trade names and related service
marks. The Partnership has an exclusive (except for use by UGI, AmeriGas, Inc.
and the General Partner), royalty-free license to use these names and trade and
service marks. UGI and
7
the General Partner each have the option to terminate its respective license
agreement (on 12 months prior notice in the case of UGI), without penalty, if
the General Partner is removed as general partner of the Partnership other than
for cause. If the General Partner ceases to serve as the general partner of the
Partnership for cause, the General Partner has the option to terminate its
license agreement upon payment of a fee equal to the fair market value of the
licensed trade names. UGI has a similar termination option, however, UGI must
provide 12 months prior notice in addition to paying the fee.
SEASONALITY
Because many customers use propane for heating purposes, the
Partnership's retail sales volume is seasonal, with approximately 59% of the
Partnership's fiscal year 2003 retail sales volume occurring during the
five-month peak heating season from November through March. As a result of this
seasonality, sales are concentrated in the Partnership's first and second fiscal
quarters (October 1 through March 31). Cash receipts are greatest during the
second and third fiscal quarters when customers pay for propane purchased during
the winter heating season.
Sales volume for the Partnership traditionally fluctuates from
year-to-year in response to variations in weather, prices, competition, customer
mix and other factors, such as conservation efforts and general economic
conditions. For historical information on national weather statistics, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
GOVERNMENT REGULATION
The Partnership is subject to various federal, state and local
environmental, safety and transportation laws and regulations governing the
storage, distribution and transportation of propane. These laws include, among
others, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA" or, the
"Superfund Law"), the Clean Air Act, the Occupational Safety and Health Act, the
Homeland Security Act of 2002, the Emergency Planning and Community Right to
Know Act, the Clean Water Act and comparable state statutes. CERCLA imposes
joint and several liability on certain classes of persons considered to have
contributed to the release or threatened release of a "hazardous substance" into
the environment without regard to fault or the legality of the original conduct.
Propane is not a hazardous substance within the meaning of federal and state
environmental laws. However, the Partnership owns and operates real property
where such hazardous substances may exist. See Notes 1 and 12 to the Company's
Consolidated Financial Statements.
All states in which the Partnership operates have adopted fire safety
codes that regulate the storage and distribution of propane. In some states
these laws are administered by state agencies, and in others they are
administered on a municipal level. The Partnership conducts training programs to
help ensure that its operations are in compliance with applicable governmental
regulations. With respect to general operations, NFPA Pamphlets No. 54 and No.
58, which establish a set of rules and procedures governing the safe handling of
propane, or comparable regulations, have been adopted as the industry standard
in a majority of the states in which the Partnership operates. Effective April
1, 2002, NFPA Pamphlet No. 58 requires portable propane cylinders to be equipped
with an OPD. Although NFPA Pamphlet No. 58 has
8
not yet been adopted in all states, the Partnership complies with the OPD
requirements throughout the United States. Effective July 2004, NFPA Pamphlet
No. 58 requires stationary cylinders that are filled in place to be re-qualified
periodically. The Partnership maintains various permits under environmental laws
that are necessary to operate certain of its facilities, some of which may be
material to the operations of the Partnership. Management believes that the
procedures currently in effect at all of its facilities for the handling,
storage and distribution of propane are consistent with industry standards and
are in compliance in all material respects with applicable environmental, health
and safety laws.
With respect to the transportation of propane by truck, the Partnership
is subject to regulations promulgated under the Federal Motor Carrier Safety Act
and the Homeland Security Act of 2002. These regulations cover the security of
and transportation of hazardous materials and are administered by the United
States Department of Transportation ("DOT"). The Natural Gas Safety Act of 1968
required the DOT to develop and enforce minimum safety regulations for the
transportation of gases by pipeline. The DOT's pipeline safety code applies to,
among other things, a propane gas system which supplies 10 or more customers
from a single source and a propane gas system any portion of which is located in
a public place. The code requires operators of all gas systems to provide
training and written instructions for employees, establish written procedures to
minimize the hazards resulting from gas pipeline emergencies, and keep records
of inspections and testing.
EMPLOYEES
The Partnership does not directly employ any persons responsible for
managing or operating the Partnership. The General Partner provides these
services and is reimbursed for its direct and indirect costs and expenses,
including all compensation and benefit costs. At September 30, 2003, the General
Partner had approximately 6,200 employees, including approximately 400 temporary
and part-time employees, working on behalf of the Partnership. UGI also performs
certain financial and administrative services for the General Partner on behalf
of the Partnership and is reimbursed by the Partnership for its direct and
indirect costs and expenses.
UTILITY AND ELECTRIC OPERATIONS
Our utility business is conducted by UGI Utilities, Inc., a wholly
owned subsidiary. Utilities operates its business through two divisions, the gas
division ("Gas Utility") and the electric division ("Electric Utility"). Until
June 2003, Utilities also owned interests in electric generating facilities in
Pennsylvania, through its subsidiary, UGID. In June 2003, ownership of UGID was
transferred to ESI. UGID's electric generation operations, together with
Electric Utility, are referred to as "Electric Operations." All of these
businesses are described below.
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GAS UTILITY
NATURAL GAS CHOICE AND 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 was 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 distribution companies ("LDCs") like Gas Utility 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 PUC.
Generally, Pennsylvania 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. 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.
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") approving Gas Utility's restructuring plan
substantially as filed. Gas Utility designed its restructuring plan to ensure
reliability of gas supply deliveries to Gas Utility on behalf of residential and
small commercial and industrial customers. In addition, the plan changed Gas
Utility's base rates for firm customers. It also changed the calculation of
purchased gas cost rates. See "Utility Regulation and Rates."
Since October 1, 2000, all of Gas Utility's customers have had the
option to purchase their gas supplies from an alternative gas supplier. Large
commercial and industrial customers of Gas Utility have been able to purchase
their gas from other suppliers since 1982. During fiscal year 2003, two
third-party suppliers qualified to serve residential or small commercial and
industrial customers in Gas Utility's service territory. Together, they are
serving approximately 4,500 customers. Management believes none of the Gas
Competition Act, the Gas Restructuring Order, or commodity sales to residential
and small commercial and industrial customers by third-party suppliers will have
a material adverse impact on the Company's financial condition or results of
operations.
SERVICE AREA; REVENUE ANALYSIS
Gas Utility distributes natural gas to approximately 292,000 customers
in portions of 15 eastern and southeastern Pennsylvania counties through its
distribution system of approximately 4,800 miles of gas mains. The service area
consists of approximately 3,000 square miles and includes the cities of
Allentown, Bethlehem, Easton, Harrisburg, Hazleton, Lancaster, Lebanon and
Reading, Pennsylvania. Located in Gas Utility's service area are major
production centers for basic industries such as specialty metals, aluminum and
glass.
System throughput (the total volume of gas sold to or transported for
customers within Gas Utility's distribution system) for the 2003 fiscal year was
approximately 83.8 billion cubic feet ("bcf"). System sales of gas accounted for
approximately 43% of system throughput, while gas transported for residential,
commercial and industrial customers (who bought their gas from
10
others) accounted for approximately 57% of system throughput. Based on industry
data for 2001, residential customers account for approximately 34% of total
system throughput by LDCs in the United States. By contrast, for the 2003 fiscal
year, Gas Utility's residential customers represented 26% of its total system
throughput.
SOURCES OF SUPPLY AND PIPELINE CAPACITY
Gas Utility meets its service requirements by utilizing a diverse mix
of natural gas purchase contracts with producers and marketers, and storage and
transportation service contracts. These arrangements enable Gas Utility to
purchase gas from Gulf Coast, Mid-Continent, Appalachian and Canadian sources.
For the transportation and storage function, Utilities has agreements with a
number of pipeline companies, including Texas Eastern Transmission Corporation,
Columbia Gas Transmission Corporation and Transcontinental Gas Pipeline
Corporation.
GAS SUPPLY CONTRACTS
During fiscal year 2003, Gas Utility purchased approximately 37 bcf of
natural gas for sale to customers. Approximately 88% of the volumes purchased
were supplied under agreements with ten major suppliers. The remaining 12% of
gas purchased was supplied by approximately 25 producers and marketers. Gas
supply contracts are generally no longer than one year.
In fiscal years 2002 and 2003, as a result of changing market
conditions following the bankruptcy of Enron Corp., a number of suppliers with
which Utilities formerly did business exited the wholesale trading market. This
development did not significantly impact Utilities' ability to secure gas
supplies.
SEASONAL VARIATION
Because many of its customers use gas for heating purposes, Gas
Utility's sales are seasonal. Approximately 60% of fiscal year 2003 throughput
occurred during the winter season from November through March.
COMPETITION
Natural gas is a fuel that competes with electricity and oil, and to a
lesser extent, with propane and coal. Competition among these fuels is primarily
a function of their comparative price and the relative cost and efficiency of
fuel utilization equipment. Electric utilities in Gas Utility's service area are
seeking new load, primarily in the new construction market. Fuel oil dealers
compete for customers in all categories, including industrial customers. Gas
Utility responds to this competition with marketing efforts designed to retain
and grow its customer base.
In substantially all of its service territory, Gas Utility is the only
regulated gas distribution utility having the right, granted by the PUC or by
law, to provide gas distribution services. Under the Gas Competition Act, retail
customers may purchase their natural gas from a supplier other than Gas Utility.
Commercial and industrial customers in Gas Utility's service
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territory have been able to do this since 1982. As of October 2003, two
marketers have qualified to serve residential and small commercial and
industrial customers. Together they serve approximately 4,500 customers. Gas
Utility provides transportation services for residential and small commercial
and industrial customers who purchase natural gas from others.
A number of Gas Utility's commercial and industrial customers have the
ability to switch to an alternate fuel at any time and, therefore, are served on
an interruptible basis under rates which are competitively priced with respect
to their alternate fuel. Gas Utility's profitability from these customers,
therefore, is affected by the difference, or "spread," between the customers'
delivered cost of gas and the customers' delivered alternate fuel cost. See
"Utility Regulation and Rates - Gas Utility Rates." Commercial and industrial
customers representing 18% of total system throughput have locations which
afford them the opportunity, although none has exercised it, of seeking
transportation service directly from interstate pipelines, thereby bypassing Gas
Utility. The majority of customers in this group are served under transportation
contracts having three- to twenty-year terms. Included in these two groups are
Utilities' ten largest customers in terms of annual volume. All of these
customers have contracts with Utilities, nine of which extend beyond fiscal year
2004. No single customer represents, or is anticipated to represent, more than
5% of the total revenues of Gas Utility.
OUTLOOK FOR GAS SERVICE AND SUPPLY
Gas Utility anticipates having adequate pipeline capacity and sources
of supply available to it to meet the full requirements of all firm customers on
its system through fiscal year 2004. Supply mix is diversified, market priced,
and delivered pursuant to a number of long- and short-term firm transportation
and storage arrangements, including transportation contracts held by some of
Utilities' larger customers.
During fiscal year 2003, Gas Utility supplied transportation service to
two major cogeneration installations and three electric generation facilities.
Gas Utility continues to pursue opportunities to supply natural gas to electric
generation projects located in its service territory. Gas Utility also continues
to seek new residential, commercial and industrial customers for both firm and
interruptible service. In the residential market sector, Gas Utility connected
approximately 9,600 residential heating customers during fiscal year 2003, which
represented a record annual increase. Of those new customers, new home
construction accounted for over 7,300 heating customers. Customers converting
from other energy sources, primarily oil and electricity, and existing
non-heating gas customers who have added gas heating systems to replace other
energy sources, accounted for the balance of the additions. The number of new
commercial and industrial customers was over 1,100.
Utilities continues to monitor and participate extensively in
rulemaking and individual rate and tariff proceedings before the Federal Energy
Regulatory Commission ("FERC") affecting the rates and the terms and conditions
under which Gas Utility transports and stores natural gas. Among these
proceedings are those arising out of certain FERC orders and/or pipeline filings
which relate to (i) the pricing of pipeline services in a competitive energy
marketplace; (ii) the flexibility of the terms and conditions of pipeline
service tariffs and contracts; and (iii) pipelines' requests to increase their
base rates, or change the terms and conditions of their storage and
transportation services.
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Gas Utility's objective in negotiations with interstate pipeline and
natural gas suppliers, and in proceedings before regulatory agencies, is to
assure availability of supply, transportation and storage alternatives to serve
market requirements at the lowest cost possible, taking into account the need
for security of supply. Consistent with that objective, Gas Utility negotiates
the terms of firm transportation capacity on all pipelines serving Gas Utility,
arranges for appropriate storage and peak-shaving resources, negotiates with
producers for competitively priced gas purchases and aggressively participates
in regulatory proceedings related to transportation rights and costs of service.
ELECTRIC OPERATIONS
ELECTRICITY GENERATION CUSTOMER CHOICE AND COMPETITION ACT
On January 1, 1997, Pennsylvania's Electricity Generation Customer
Choice and Competition Act ("ECC Act") became effective. The ECC Act permits all
Pennsylvania retail electric customers to choose their electric generation
supplier. Pursuant to the Act, all electric utilities were required to file
restructuring plans with the PUC which, among other things, included unbundled
prices for electric generation, transmission and distribution and a competitive
transition charge (CTC) for the recovery of "stranded costs" which would be paid
by all customers receiving distribution service. Stranded costs generally are
electric generation-related costs that traditionally would be recoverable in a
regulated environment but may not be recoverable in a competitive electric
generation market. Under the ECC Act, Electric Utility is obligated to provide
energy to customers who do not choose alternate suppliers. Electric Utility will
continue to be the only regulated electric utility having the right, granted by
the PUC or by law, to distribute electric energy in its service territory.
On June 19, 1998, the PUC entered its Opinion and Order (the
"Restructuring Order") in Electric Utility's restructuring proceeding under the
ECC Act. The Electric Restructuring Order authorized Electric Utility to recover
from its customers approximately $32.5 million in stranded costs (on a full
revenue requirements basis, which includes all income and gross receipts taxes)
over an estimated four-year period which commenced January 1, 1999 through a
CTC, together with carrying charges on unrecovered balances of 7.94%. Under the
terms of the Restructuring Order, Electric Utility generally could not increase
the generation component of prices during the period that stranded costs were
being recovered through the CTC. Electric Utility's recovery of stranded costs
through the CTC was completed during fiscal year 2003.
SERVICE AREA; SALES ANALYSIS
Electric Utility supplies electric service to approximately 61,600
customers in portions of Luzerne and Wyoming Counties in northeastern
Pennsylvania through a system consisting of approximately 2,100 miles of
transmission and distribution lines and 14 transmission substations. For fiscal
year 2003, about 53% of sales volume came from residential customers, 36% from
commercial customers and 11% from industrial customers. Electricity transported
for customers who purchased their power from others pursuant to the ECC Act
represented approximately 1% of fiscal year 2003 sales volume.
13
SOURCES OF SUPPLY
Electric Utility has third-party generation supply contracts in place
for substantially all of its expected energy requirements for fiscal year 2004.
Electric Utility distributes both electricity that it purchases from others and
electricity that customers purchase from other suppliers. At September 30, 2003,
alternate suppliers served customers representing less than 1% of system load.
Electric Utility expects to continue to provide energy to the great majority of
its distribution customers for the foreseeable future.
ELECTRIC GENERATION
In June 2003, UGID increased its ownership interest in the Conemaugh
generating station ("Conemaugh") from 1.11% to approximately 6% (102 megawatts).
Conemaugh is a 1,711 megawatt, coal-fired generation station located near
Johnstown, Pennsylvania. It is owned by a consortium of energy companies and
operated by a unit of Reliant Resources, Inc. In addition, UGID is the indirect,
50% owner of Hunlock Creek Energy Ventures ("Energy Ventures"). The generation
assets of Energy Ventures consist of the 48 megawatt, coal-fired Hunlock
generating station, located near Kingston, Pennsylvania, and a 44 megawatt,
gas-fired turbine generator at the same site. A subsidiary of Allegheny Energy,
Inc. is the other general partner in Energy Ventures. Under the joint venture
agreement, UGID has the right to purchase one-half the output of Energy
Ventures' generation at cost. It also has the right to require an affiliate of
Allegheny Energy, Inc. ("Allegheny") to purchase UGID's ownership interest in
Energy Ventures. Allegheny has a corresponding call right on UGID's interest in
Energy Ventures. These "put" and "call" rights are effective for a 90-day period
commencing January 1, 2006. UGID is a non-utility company, wholly-owned by ESI.
UGID markets the electric generation it controls to third parties.
ENVIRONMENTAL FACTORS
Energy Ventures' operation of Hunlock Station complies with the air
quality standards of the Pennsylvania Department of Environmental Protection
("DEP") with respect to stack emissions. Under the Federal Water Pollution
Control Act, Hunlock station has a permit from the DEP to discharge water into
the North Branch of the Susquehanna River. The Federal Clean Air Act Amendments
of 1990 (the "Clean Air Act Amendments") impose emissions limitations for
certain compounds, including sulfur dioxide and nitrous oxides. Both the
Conemaugh Station and the Hunlock Station are in material compliance with these
emission standards.
UTILITY REGULATION AND RATES
PENNSYLVANIA PUBLIC UTILITY COMMISSION JURISDICTION
Utilities' gas and electric utility operations, which exclude electric
generation, are subject to regulation by the PUC as to rates, terms and
conditions of service, accounting matters, issuance of securities, contracts and
other arrangements with affiliated entities, and various other matters. UGID has
FERC authority to sell power at market-based rates. Generally, UGID is not
subject to regulation by the PUC.
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FERC ORDERS 888 AND 889
In April 1996, FERC issued Orders No. 888 and 889, which established
rules for the use of electric transmission facilities for wholesale
transactions. FERC has also asserted jurisdiction over the transmission
component of electric retail choice transactions. In compliance with these
orders, the PJM Interconnection, LLC ("PJM"), of which Utilities is a member,
has filed an open access transmission tariff with the FERC establishing
transmission rates and procedures for transmission within the PJM control area.
Under the PJM tariff and associated agreements, Electric Utility is entitled to
receive certain revenues when its transmission facilities are used by third
parties.
GAS UTILITY RATES
The Gas Restructuring Order included an increase in firm-residential,
commercial and industrial ("retail core-market") base rates, effective October
1, 2000. The increase, calculated in accordance with the Gas Competition Act,
was designed to generate approximately $16.7 million in additional annual
revenues. The Order also provided that Gas Utility reduce its purchased gas cost
rates by an annualized amount of $16.7 million for the first 14 months following
the base rate increase.
Effective December 1, 2001, Gas Utility was required to reduce its
purchased gas cost rates to retail core-market customers by an amount equal to
the margin it receives from customers served under interruptible rates to the
extent they use capacity contracted for by Gas Utility for retail core-market
customers. As a result of these changes in its regulated rates, since December
1, 2001, Gas Utility's operating results have been more sensitive to heating
season weather and less sensitive to the market prices of alternative fuel.
BASE RATES
As stated above, Gas Utility's current base rates went into effect
October 1, 2000 pursuant to The Gas Restructuring Order. See Note 3 to the
Company's Consolidated Financial Statements.
PURCHASED GAS COST RATES
Gas Utility's gas service tariff contains Purchased Gas Cost ("PGC")
rates which provide for annual increases or decreases in the rate per thousand
cubic feet ("mcf") which Gas Utility charges for natural gas sold by it, to
reflect Utilities' projected cost of purchased gas. PGC rates may also be
adjusted quarterly, or, under certain conditions monthly, to reflect purchased
gas costs. Each proposed annual PGC rate is required to be filed with the PUC
six months prior to its effective date. During this period the PUC holds
hearings to determine whether the proposed rate reflects a least-cost fuel
procurement policy consistent with the obligation to provide safe, adequate and
reliable service. After completion of these hearings, the PUC issues an order
permitting the collection of gas costs at levels which meet that standard. The
PGC mechanism also provides for an annual reconciliation. Utilities has two PGC
rates. PGC (1) is applicable to small, firm, core-market customers consisting of
the residential and small commercial and industrial classes; PGC (2) is
applicable to firm, contractual, high-load factor customers served on three
separate rates. In addition, residential customers maintaining a high load
factor may
15
qualify for the PGC (2) rate. As described above, the Gas Restructuring Order
provided for ongoing adjustments to Gas Utilities' PGC rates, commencing
December 1, 2001, to reflect margins, if any, from interruptible rate customers
who do not obtain their own pipeline capacity.
ELECTRIC UTILITY RATES
The PUC approved a settlement establishing rules for Electric Utility's
Provider of Last Resort ("POLR") service on March 28, 2002, and a separate
settlement that modified these rules on June 13, 2002 (collectively, the "POLR
Settlement") under which Electric Utility terminated stranded cost recovery
through its CTC and is no longer subject to the statutory generation rate caps
as of August 1, 2002 for commercial and industrial ("C&I") customers and as of
November 1, 2002 for residential customers. Charges for generation service (1)
were initially set at a level equal to the rates paid by Electric Utility
customers for POLR service under the statutory rate caps; (2) may be raised at
certain designated times by up to 5% of the total rate for distribution,
transmission and generation through December 2004; and (3) may be set at market
rates thereafter. Electric Utility may also offer multiple year POLR contracts
to its customers. The POLR Settlement provides for annual shopping periods
during which customers may elect to remain on POLR service or choose an
alternate supplier. Customers who do not select an alternate supplier will be
obligated to remain on POLR service until the next shopping period. Residential
customers who return to POLR service at a time other than during the annual
shopping period must remain on POLR service until the date of the second open
shopping period after returning. C&I customers who return to POLR service at a
time other than during the annual shopping period must remain on POLR service
until the next open shopping period, and may, in certain circumstances, be
subject to generation rate surcharges. Consistent with the terms of the POLR
Settlement, Electric Utility's POLR rates will increase beginning January 2004
for commercial and industrial customers, and June 2004 for residential
customers.
Additionally, pursuant to the requirements of the ECC, the PUC is
currently developing post-rate cap POLR regulations that are expected to further
define post-rate cap POLR service obligations and pricing. As of September 30,
2003, fewer than 1% of Electric Utility's customers have chosen an alternative
electricity generation supplier.
STATE TAX SURCHARGE CLAUSES
Utilities' gas and electric service tariffs contain state tax surcharge
clauses. The surcharges are recomputed whenever any of the tax rates included in
their calculation are changed. These clauses protect Utilities from the effect
of increases in most of the Pennsylvania taxes to which it is subject.
UTILITY FRANCHISES
Utilities holds certificates of public convenience issued by the PUC
and certain "grandfather rights" predating the adoption of the Pennsylvania
Public Utility Code and its predecessor statutes which it believes are adequate
to authorize it to carry on its business in substantially all the territory to
which it now renders gas and electric service. Under applicable
16
Pennsylvania law, Utilities also has certain rights of eminent domain as well as
the right to maintain its facilities in streets and highways in its territories.
OTHER GOVERNMENT REGULATION
In addition to regulation by the PUC, the gas and electric utility
operations of Utilities are subject to various federal, state and local laws
governing environmental matters, occupational health and safety, pipeline safety
and other matters. Certain of Utilities' activities involving the interstate
movement of natural gas, the transmission of electricity, transactions with
non-utility generators of electricity, and other matters, are also subject to
the jurisdiction of FERC.
Utilities is subject to the requirements of the federal Resource
Conservation and Recovery Act, CERCLA and comparable state statutes with respect
to the release of hazardous substances on property owned or operated by
Utilities. See ITEM 3. "LEGAL PROCEEDINGS - Environmental Matters-Manufactured
Gas Plants." The electric generation activities of UGID are also subject to the
Clean Air Act Amendments, the Federal Water Pollution Control Act and comparable
state statutes and regulations. See "UTILITY OPERATIONS - Electric Operations -
Environmental Factors."
EMPLOYEES
At September 30, 2003, Utilities had approximately 1,000 employees.
17
UGI ENTERPRISES, INC.
Through its subsidiaries, Enterprises develops energy-related
businesses for us in the United States and abroad as described below. We expect
Enterprises to continue to evaluate and develop new related and complementary
business opportunities for us.
DOMESTIC BUSINESSES
NATURAL GAS AND ELECTRICITY MARKETING
ESI conducts a non-utility energy marketing business under the trade
names GASMARK(R) and POWERMARK(R). GASMARK(R) sells natural gas directly to
approximately 5,000 commercial and industrial customers in Pennsylvania, New
Jersey, New York, Delaware, Maryland, Virginia, Ohio, North Carolina and the
District of Columbia through the transportation systems of 35 utility systems.
Energy Services also sells fuel oil and has the ability to sell electricity to
commercial and industrial customers in Pennsylvania, New Jersey and Maryland.
During fiscal year 2003, ESI significantly increased its size by acquiring the
northeastern gas marketing operations of a subsidiary of TXU Corp. This
acquisition added approximately 1,000 customers to ESI's customer base and
increased its natural gas sales volume approximately 60%.
The gas marketing business is a high revenue, low margin business. A
majority of GASMARK(R)'s commodity sales are made under fixed price agreements.
ESI manages supply cost volatility related to these agreements by entering into
exchange-traded natural gas futures contracts and fixed-price supply
arrangements with a diverse group of natural gas producers and holders of
interstate pipeline capacity. Exchange-traded natural gas futures contracts are
guaranteed by the New York Mercantile Exchange ("NYMEX") and have nominal credit
risk. ESI also bears the risk for balancing and delivering natural gas to its
customers under various pipelines and LDC tariffs. Failure to meet these
guidelines can result in additional expense in the form of penalties, which can
be substantial in relation to ESI's results of operations.
Credit is another risk factor in the commodity marketing business. ESI
bears the risks of customer defaults and supplier non-performance on commodity
and pipeline capacity contracts. ESI seeks to mitigate risk of supplier defaults
by diversifying its supply and pipeline transportation purchases across a number
of suppliers. ESI also requires credit support from customers in higher-risk
transactions. This credit support can take the form of prepayments, bonds and
letters of credit. ESI also maintains credit insurance. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Market
Risk Disclosures."
ESI also operates a natural gas liquefaction, storage and vaporization
facility in Temple, Pennsylvania and propane storage and propane-air mixing
stations in Bethlehem, Reading and Steelton, Pennsylvania. These plants were
formerly owned by Utilities. Utilities has a call on a majority of the winter
capacity of these facilities through March 2004 at a PUC-approved formula price.
ESI is able to make opportunistic off-peak sales of LNG from these facilities at
market prices.
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ELECTRIC GENERATION
During fiscal year 2003, UGID was transferred to ESI. See "UTILITY AND
ELECTRIC OPERATIONS - Electric Generation" for a description of UGID's
generation assets. The output from these plants is sold in the spot market and
under fixed-term contracts.
HVAC SERVICE
UGI HVAC Enterprises, Inc. ("HVAC") was acquired by Enterprises in
September 2000. Together with its subsidiary, McHugh Service Company, HVAC
conducts a heating, ventilation air-conditioning and refrigeration service
business serving portions of Utilities' gas service area and adjacent eastern
market areas, including Philadelphia suburbs and portions of New Jersey and
northern Delaware. It serves more than 100,000 customers in residential,
commercial, industrial and new construction markets. During fiscal year 2003,
HVAC generated approximately $46 million in revenues and employed approximately
350 people.
INTERNATIONAL BUSINESSES
FLAGA GmbH
In September 1999, subsidiaries of Enterprises acquired all of the
stock of Flaga GmbH, a privately-held company founded in 1947. FLAGA distributes
propane, butane and propane/butane mix (collectively, "LPG") in Austria, the
Czech Republic and Slovakia for residential, commercial, industrial and autogas
applications. During fiscal year 2003, FLAGA distributed approximately 34
million gallons of LPG. FLAGA operates from 6 distribution locations in Austria,
1 in the Czech Republic and 2 in Slovakia. In addition, FLAGA has 7 sales
offices in the Czech Republic. As of September 30, 2003, FLAGA had a total of
321 employees of which 165 were located in Austria, 120 in the Czech Republic
and 36 in Slovakia.
FLAGA has the largest propane distribution market position in Austria
with an estimated 34% retail market share, serving residential, commercial and
industrial customers. The retail propane industry in Austria is mature, with
only modest growth in propane demand foreseen. Residential customers generally
commit to prepaid tank rental agreements. Competition for renewals and for new
customer installations is based on the terms and conditions of tank leases as
well as on product prices. Much of FLAGA's Austrian cylinder business is
conducted through approximately 600 neighborhood resellers with whom FLAGA has a
long business relationship. FLAGA competes with other propane marketers and with
other sources of energy, principally natural gas and wood.
The Czech market for LPG, which currently represents about 30% of
FLAGA's total volume, is growing approximately 2% to 4% per year. FLAGA entered
the Czech market in 1994 when it purchased a portion of the formerly state-run
LPG company from the Czech government as part of its privatization plan. FLAGA's
main facility in the Czech Republic is its bulk storage and cylinder filling and
repair plant in Hustopece, located in the southeast quadrant of the Czech
Republic. FLAGA estimates its market share in the Czech Republic at
approximately 15%, ranking it third in the country.
19
The Slovak market for LPG has been growing significantly in the area of
autogas sales volume in the last three years. FLAGA estimates that its share of
the LPG market in Slovakia is 24%, ranking it second in the country.
ANTARGAZ
In March 2001, UGI France, Inc., together with Paribas Affaires
Industrielles ("PAI") and Medit Mediterranea GPL, S.r.l. ("Medit"), acquired the
stock and certain related assets of Antargaz, one of the largest distributors of
LPG in France. We acquired an approximate 20% interest, PAI an approximate 68%
interest, Medit an approximate 10% interest and certain members of Antargaz
management, the remaining interest. PAI is a leading private equity fund manager
in Europe with strong management and financial skills and Medit is a supplier of
logistics services to the LPG industry in Europe, primarily Italy. During fiscal
year 2003, Antargaz sold approximately 344 million gallons of LPG. Due, in part,
to our membership on the Board of Directors of Antargaz, we believe we have
significant influence over the company's operating and financial policies.
Antargaz has an approximate 24% market share in France. The French LPG
market is characterized by modest growth, about 1% per year, and stable market
conditions. Antargaz serves nearly one million customers using a logistical
system that includes ten major import/storage facilities, 30 bulk storage depots
and 16 cylinder filling plants. Antargaz's customer base consists of
residential, commercial, agricultural and motor fuel accounts who use LPG for
space heating, cooking, water heating, process heat and transportation. Antargaz
has approximately 1,350 employees.
CHINAGAS PARTNERS
During 1998, Enterprises formed ChinaGas Partners, L.P. ("ChinaGas")
with affiliates of Energy Transportation Group, Inc. to develop, build and
operate LPG projects in the People's Republic of China. On October 28, 1998,
ChinaGas and its wholly owned subsidiary together acquired 50% of the shares of
an existing Chinese company known as the Nantong Huayang LPG Port Co., Ltd.
("Port Company") which operated an integrated LPG business, including an import
terminal and distribution business, serving the provinces along the lower and
middle reaches of the Yangtze River. On August 1, 2002, the shareholders of the
Port Company agreed to split the company into two separate companies: a terminal
company owned completely by China National Chemical Supply & Sales Corporation
and a retail distribution company owned by ChinaGas. The separation became
effective in December 2002. The terminal company is currently pursuing bulk
chemical storage business but continues to support the retail distribution
company through a long-term LPG storage lease. Enterprises owns 50% of the
distribution business.
BUSINESS SEGMENT INFORMATION
The table stating the amounts of revenues, operating income (loss) and
identifiable assets attributable to each of UGI's business segments for the
2003, 2002 and 2001 fiscal years appears
20
in Note 21 to the Consolidated Financial Statements contained in our 2003 Annual
Report to Shareholders and is incorporated in this Report by reference.
EMPLOYEES
At September 30, 2003, UGI and its subsidiaries had approximately 8,200
employees.
21
ITEM 3. LEGAL PROCEEDINGS
With the exception of the matters set forth below, no material legal
proceedings are pending involving UGI, any of its subsidiaries, or any of their
properties, and no such proceedings are known to be contemplated by governmental
authorities other than claims arising in the ordinary course of business.
ENVIRONMENTAL MATTERS - MANUFACTURED GAS PLANTS
In the late 1800s through the mid-1900s, UGI Utilities and its former
subsidiaries owned and operated a number of manufactured gas plants ("MGPs")
prior to the general availability of natural gas. Some constituents of coal tars
and other residues of the manufactured gas process are today considered
hazardous substances under the Superfund Law and may be present on the sites of
former MGPs. Between 1882 and 1953, UGI Utilities owned the stock of subsidiary
gas companies in Pennsylvania and elsewhere and also operated the business of
some gas companies under agreement. Pursuant to the requirements of the Public
Utility Holding Company Act of 1935, by 1953, UGI Utilities had divested all of
its utility operations other than those which now constitute Gas Utility and
Electric Utility.
UGI Utilities does not expect its costs for investigation and
remediation of hazardous substances at Pennsylvania MGP sites to be material to
its results of operations because UGI Utilities is currently permitted to
include in rates, through future base rate proceedings, prudently incurred
remediation costs associated with such sites. UGI Utilities has been notified of
several sites outside Pennsylvania on which (1) MGPs were formerly operated by
it or owned or operated by its former subsidiaries and (2) either environmental
agencies or private parties are investigating the extent of environmental
contamination or performing environmental remediation. UGI Utilities is
currently litigating three claims against it relating to out-of-state sites.
Consolidated Edison Company of New York v. UGI Utilities, Inc. On
September 20, 2001, Consolidated Edison Company of New York ("ConEd") filed suit
against Utilities in the United States District Court for the Southern District
of New York, seeking contribution from Utilities for an allocated share of
response costs associated with investigating and assessing gas plant related
contamination at former MGP sites in Westchester County, New York. The complaint
alleges that Utilities "owned and operated" the MGPs prior to 1904. The
complaint also seeks a declaration that Utilities is responsible for an
allocated percentage of future investigative and remedial costs at the sites.
ConEd believes that the cost of remediation for all of the sites could exceed
$70 million. Utilities believes that it has good defenses to the claim and is
defending the suit.
In November 2003, the court granted Utilities' motion for summary
judgment in part, dismissing all claims premised on a disregard of the separate
corporate form of Utilities' former subsidiaries and dismissing claims premised
on Utilities' operation of three of the MGPs under operating leases with ConEd's
predecessors. The court reserved decision on the remaining theory of liability,
that Utilities was a direct operator of the remaining MGPs.
22
City of Bangor, Maine v. Citizens Communications Co. In April 2003,
Citizens Communications Company ("Citizens") served a complaint naming Utilities
as a third-party defendant in a civil action pending in United States District
Court for the District of Maine. In that action, the plaintiff, City of Bangor,
sued Citizens to recover environmental response costs associated with MGP wastes
generated at a plant allegedly operated by Citizens' predecessors at a site on
the Penobscot River. Citizens subsequently joined Utilities and ten other
third-party defendants alleging that the third-party defendants are responsible
for an equitable share of any response costs Citizens may be required to pay to
the City of Bangor. Remedial proposals for the site range between $5 million and
$50 million. Utilities is unable to estimate what portion of this potential cost
may be associated with MGP wastes. Utilities believes that it has good defenses
to the claim.
Atlanta Gas Light Company v. UGI Utilities, Inc. By letter dated July
29, 2003, Atlanta Gas Light Company ("AGL") served Utilities with a complaint
filed in the United States District Court for the Middle District of Florida in
which AGL alleges that Utilities is responsible for 20% of approximately $8
million incurred by AGL in the investigation and remediation of a former MGP
site in St. Augustine, Florida. Utilities formerly owned stock of the St.
Augustine Gas Company, the owner and operator of the MGP. Utilities believes
that it has good defenses to the claim and is defending the suit.
RELATED MATTER
UGI Utilities, Inc. v. Insurance Co. of North America, et al. On
February 11, 1999, UGI Utilities, Inc. filed suit in the Court of Common Pleas
of Montgomery County, Pennsylvania against more than fifty insurance companies,
including Insurance Services, Ltd. (AEGIS). The complaint alleges that the
defendants breached contracts of insurance by failing to indemnify Utilities for
certain environmental costs. Utilities has now settled with all known solvent
defendants. The suit has been stayed pending resolution of the remaining claims.
OTHER
Swiger, et al. v. UGI/AmeriGas, Inc. et al. Plaintiffs Samuel and
Brenda Swiger and their son (the "Swigers") sustained personal injuries and
property damage as a result of a fire that occurred when propane that leaked
from an underground line ignited. In July 1998, the Swigers filed a class action
lawsuit against AmeriGas Propane, L.P. (named incorrectly as "UGI/AmeriGas,
Inc."), in the Circuit Court of Monongalia County, West Virginia (Civil Action
No. 98-C-298), in which they sought to recover an unspecified amount of
compensatory and punitive damages and attorney's fees, for themselves and on
behalf of persons in West Virginia for whom the defendants had installed propane
gas lines, allegedly resulting from the defendants' failure to install
underground propane lines at depths required by applicable safety standards.
Plaintiffs have filed various motions with the court, which seek to broaden the
scope of their claims and to expand the size of the class to include customers
whose lines were installed by other propane suppliers. These motions are
currently pending before the court and defendants cannot predict the outcome of
those motions. Beginning in 2001, the defendants voluntarily undertook to
inspect and replace underground lines of its current customers that may not be
in compliance with applicable safety standards. The General Partner expects to
complete the line replacement project by late fiscal 2004 or early fiscal 2005.
In 2003, the defendants settled the
23
individual personal injury and property damage claims of the Swigers. The
defendants believe they have defenses to the claims of the class members and
intend to vigorously defend against the remaining claims in this lawsuit.
24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the last
fiscal quarter of fiscal year 2003.
EXECUTIVE OFFICERS
Information regarding our executive officers is included in Part III of
this Report and is incorporated in Part I by reference.
PART II: SECURITIES AND FINANCIAL INFORMATION
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our Common Stock is traded on the New York and Philadelphia stock
exchanges under the symbol "UGI." On January 28, 2003, our Board of Directors
approved a 3-for-2 split of our Common Stock, effective April 1, 2003. Sales
prices and dividends paid for all periods presented in the following tables are
reflected on a post-split basis. The following table sets forth the high and low
sales prices for the Common Stock on the New York Stock Exchange Composite
Transactions tape as reported in The Wall Street Journal for each full quarterly
period within the two most recent fiscal years:
2003 FISCAL YEAR HIGH LOW
4th Quarter $33.45 $28.86
3rd Quarter 35.05 29.00
2nd Quarter 30.57 24.93
1st Quarter 26.99 23.27
2002 FISCAL YEAR HIGH LOW
4th Quarter $24.51 $17.11
3rd Quarter 22.14 19.60
2nd Quarter 20.99 18.06
1st Quarter 21.02 17.79
25
DIVIDENDS
Quarterly dividends on our Common Stock were paid in the 2003 and 2002
fiscal years as follows:
2003 FISCAL YEAR AMOUNT
4th Quarter $0.285
3rd Quarter 0.285
2nd Quarter 0.275
1st Quarter 0.275
2002 FISCAL YEAR AMOUNT
4th Quarter $0.275
3rd Quarter 0.267
2nd Quarter 0.267
1st Quarter 0.267
HOLDERS
On December 12, 2003, UGI had 9,776 holders of record of Common Stock.
26
ITEM 6. SELECTED FINANCIAL DATA
Year Ended
September 30,
---------------------------------------------------------------------
2003 2002 2001(a) 2000(a) 1999(a)
---- ---- ------- ------- -------
(Millions of dollars, except per share amounts)
FOR THE PERIOD:
INCOME STATEMENT DATA:
Revenues $ 3,026.1 $ 2,213.7 $ 2,468.1 $ 1,761.7 $ 1,383.6
========== ========== ========== ========== ==========
Income before accounting changes $ 98.9 $ 75.5 $ 52.0 $ 44.7 $ 55.7
Cumulative effect of accounting changes (b) -- -- 4.5 -- --
---------- ---------- ---------- ---------- ----------
Net income (c) $ 98.9 $ 75.5 $ 56.5 $ 44.7 $ 55.7
========== ========== ========== ========== ==========
Earnings per common share- basic (d)
Income before accounting changes $ 2.34 $ 1.83 $ 1.28 $ 1.09 $ 1.16
Cumulative effect of accounting changes, net -- -- 0.11 -- --
---------- ---------- ---------- ---------- ----------
Net income - basic $ 2.34 $ 1.83 $ 1.39 $ 1.09 $ 1.16
========== ========== ========== ========== ==========
Earnings per common share - diluted (d)
Income before accounting changes $ 2.29 $ 1.80 $ 1.27 $ 1.09 $ 1.16
Cumulative effect of accounting changes, net -- -- 0.11 -- --
---------- ---------- ---------- ---------- ----------
Net income - diluted (c) (e) $ 2.29 $ 1.80 $ 1.38 $ 1.09 $ 1.16
========== ========== ========== ========== ==========
Cash dividends declared per common share $ 1.13 $ 1.083 $ 1.050 $ 1.017 $ 0.98
========== ========== ========== ========== ==========
AT PERIOD END:
BALANCE SHEET DATA:
Total assets $ 2,781.7 $ 2,614.4 $ 2,550.2 $ 2,275.8 $ 2,140.5
========== ========== ========== ========== ==========
Capitalization:
Debt:
Bank loans - AmeriGas Propane $ -- $ 10.0 $ -- $ 30.0 $ 22.0
Bank loans - UGI Utilities 40.7 37.2 57.8 100.4 87.4
Bank loans - other 15.9 8.6 10.0 4.3 11.6
Long-term debt (including current
maturities):
AmeriGas Propane 927.3 945.8 1,005.9 857.2 744.7
UGI Utilities 217.3 248.4 208.4 172.9 180.0
Other 78.9 81.5 80.9 85.5 91.6
---------- ---------- ---------- ---------- ----------
Total debt 1,280.1 1,331.5 1,363.0 1,250.3 1,137.3
---------- ---------- ---------- ---------- ----------
Minority interests in AmeriGas Partners 134.6 276.0 246.2 177.1 209.9
UGI Utilities preferred shares subject
to mandatory redemption 20.0 20.0 20.0 20.0 20.0
Common stockholders' equity 569.8 317.3 255.6 247.2 249.2
---------- ---------- ---------- ---------- ----------
Total capitalization $ 2,004.5 $ 1,944.8 $ 1,884.8 $ 1,694.6 $ 1,616.4
========== ========== ========== ========== ==========
RATIO OF CAPITALIZATION:
Total debt 63.9% 68.5% 72.3% 73.8% 70.4%
Minority interest 6.7% 14.2% 13.1% 10.5% 13.0%
UGI Utilities preferred shares subject
to mandatory redemption 1.0% 1.0% 1.1% 1.2% 1.2%
Common stockholders' equity 28.4% 16.3% 13.5% 14.5% 15.4%
---------- ---------- ---------- ---------- ----------
100.0% 100.0% 100.0% 100.0% 100.0%
========== ========== ========== ========== ==========
(a) Arthur Andersen LLP audited our consolidated financial statements for 2001,
2000, and 1999. See Item 15 - Notice Regarding Arthur Andersen LLP.
(b) Includes cumulative effect of accounting changes associated with (1) the
Partnership's changes in accounting for tank fee revenue and tank
installation costs and (2) the Company's adoption of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (see Notes 1 and 15 to Consolidated Financial
Statements).
(c) Pro forma net income and diluted earnings per share after applying
retroactively the Partnership's changes in accounting for tank installation
costs and tank fee revenue are as follows: 2000 - $44.6 and $1.09; 1999 -
$55.9 and $1.17, respectively.
(d) Earnings per share for all periods presented reflect the effects of the
Company's 3-for-2 common stock split distributed April 1, 2003 to
shareholders of record on February 28, 2003.
(e) SFAS No. 142, "Goodwill and Other Intangible Assets," was adopted effective
October 1, 2001. Net income and net income per diluted share adjusted to
reflect the impact of SFAS No. 142 as if it had been adopted at the
beginning of the periods presented are as follows: 2001 - $70.5 and $1.72;
2000 - $59.4 and $1.45; 1999 - $68.9 and $1.43, respectively.
27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations, entitled "Financial Review" and contained on pages 13 through 26
of UGI's 2003 Annual Report to Shareholders, is incorporated in this Report by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
"Quantitative and Qualitative Disclosures About Market Risk" are
contained in Management's Discussion and Analysis of Financial Condition and
Results of Operations under the caption "Market Risk Disclosures" on pages 23
and 24 of the UGI 2003 Annual Report to Shareholders and are incorporated in
this Report by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Financial Statement Schedules referred to
in the Index contained on pages F-2 and F-3 of this Report are incorporated in
this Report by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During fiscal year 2002, UGI engaged a new independent auditor,
PricewaterhouseCoopers LLP. The information required by Item 9 is incorporated
in this Report by reference to UGI's Current Report on Form 8-K dated May 21,
2002.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of
the Company's disclosure controls and procedures as of the end of the period
covered by this report. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures as of the end of the period covered by this report were designed and
functioning effectively to provide reasonable assurance that the information
required to be disclosed by the Company in reports filed under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms. The
Company believes that a controls system, no matter how well
28
designed and operated, cannot provide absolute assurance that the objectives of
the controls system are met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within a
company have been detected.
(b) Change in Internal Control over Financial Reporting
No change in the Company's internal control over financial reporting occurred
during the Company's most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the Company's internal control over
financial reporting.
29
PART III: UGI MANAGEMENT AND SECURITY HOLDERS
ITEMS 10 THROUGH 14.
In accordance with General Instruction G(3), and except as set forth
below, the information required by Items 10, 11, 12, 13 and 14 is incorporated
in this Report by reference to the following portions of UGI's Proxy Statement,
which will be filed with the Securities and Exchange Commission by January 28,
2004:
CAPTIONS OF PROXY STATEMENT
INFORMATION INCORPORATED BY REFERENCE
-------------------------------------------- -------------------------------------------------
Item 10. Directors and Executive Election of Directors - Nominees; Corporate
Officers of Registrant Governance
Board Committees and Meeting Attendance
Securities Ownership of Management - Section
16(a) - Beneficial Ownership Reporting Compliance
Copies of the Company's Principles of
Corporate Governance and the Code of
Ethics for the Chief Executive Officer
and Senior Financial Officers of UGI
Corporation are available on the Company's
website, www.ugicorp.com or by writing to
Robert W. Krick, Vice President and
Treasurer, UGI Corporation, P. O. Box 858,
Valley Forge, PA 19482.
Item 11. Executive Compensation Compensation of Directors
Compensation of Executive Officers
Item 12. Security Ownership of Certain Beneficial Owners Securities Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters Securities Ownership of Management
Approval of Proposed UGI Corporation 2004 Equity
Compensation Plan - Equity Compensation
Item 13. Certain Relationships and Related Transactions Compensation of Executive Officers - Stock
Ownership Policy and Indebtedness of Management
Item 14. Principal Accountant Fees and Services The Independent Accountants
30
The information concerning the Company's executive officers required by
Item 10 is set forth below.
EXECUTIVE OFFICERS
NAME AGE POSITION
- --------------------- --- -------------------------------------------
Lon R. Greenberg 53 Chairman, Director, President
and Chief Executive Officer
Eugene V.N. Bissell 50 President and Chief Executive
Officer, AmeriGas Propane, Inc.
Robert J. Chaney 61 President and Chief Executive
Officer, UGI Utilities, Inc.
Michael J. Cuzzolina 58 Vice President - Accounting and Financial
Control; Chief Accounting Officer and Chief
Risk Officer
Bradley C. Hall 50 Vice President - New Business Development
Robert H. Knauss 50 Vice President and General Counsel
Anthony J. Mendicino 55 Senior Vice President - Finance
and Chief Financial Officer
All officers are elected for a one-year term at the organizational
meetings of the respective Boards of Directors held each year.
There are no family relationships between any of the officers or
between any of the officers and any of the directors.
Lon R. Greenberg
Mr. Greenberg was elected Chairman of UGI effective August 1, 1996,
having been elected Chief Executive Officer effective August 1, 1995. He was
elected Director and President of UGI and a Director of UGI Utilities in July
1994. He was elected a Director of AmeriGas Propane, Inc. in 1994 and has been
Chairman since 1996. He also served as President and Chief Executive Officer of
AmeriGas Propane (1996 to 2000). Mr. Greenberg was Senior Vice President - Legal
and Corporate Development (1989 to 1994). He joined the Company in 1980 as
Corporate Development Counsel.
31
Eugene V.N. Bissell
Mr. Bissell is President and Chief Executive Officer of AmeriGas
Propane, Inc. (since July 2000), having served as Senior Vice President - Sales
and Marketing (1999 to 2000) and Vice President - Sales and Operations (1995 to
1999). Previously, he was Vice President - Distributors and Fabrication, BOC
Gases (industrial gases) (1995), having been Vice President - National Sales
(1993 to 1995) and Regional Vice President Southern Region for Distributor and
Cylinder Gases Division, BOC Gases (1989 to 1993). From 1981 to 1987, Mr.
Bissell held various positions with the Company and its subsidiaries, including
Director, Corporate Development. Mr. Bissell is immediate past president, and a
member of the Board of Directors of the National Propane Gas Association.
Robert J. Chaney
Mr. Chaney is President and Chief Executive Officer of UGI Utilities,
Inc., (since March 1999). He previously served as Executive Vice President (1998
to 1999), Vice President and General Manager - Gas Utility Division (1991 to
1998) and Vice President - Rates and Energy Utilization - Gas Utility Division
(1981 to 1991) of UGI Utilities, Inc.
Michael J. Cuzzolina
Mr. Cuzzolina was elected Vice President - Accounting and Financial
Control, Principal Accounting Officer and Chief Risk Officer of the Company in
July 2003. He served as President and Chief Operating Officer of Flaga GmbH from
1999 to 2003. Mr. Cuzzolina joined the Company in 1974 and previously served as
Vice President - Accounting and Financial Control (1984 to 1999).
Bradley C. Hall
Mr. Hall is Vice President - New Business Development (since October
1994). He also serves as President of UGI Enterprises, Inc. (since 1994). He
joined the Company in 1982 and held various positions in UGI Utilities, Inc.,
including Vice President - Marketing and Rates.
Robert H. Knauss
Mr. Knauss was elected Vice President and General Counsel on September
30, 2003. He previously served as Vice President - Law and Associate General
Counsel of AmeriGas Propane, Inc. (1996 to 2003), and Group Counsel - Propane of
UGI (1989 to 1996). He joined the Company in 1985. Previously, Mr. Knauss was an
associate at the firm of Ballard, Spahr, Andrews & Ingersoll in Philadelphia.
Anthony J. Mendicino
Mr. Mendicino is Senior Vice President - Finance and Chief Financial
Officer (since December 2002). He previously served as Vice President - Finance
and Chief Financial Officer (September 1998 to December 2002). Mr. Mendicino
served as President and Chief Operating Officer (July 1997 to June 1998) and as
Senior Vice President (January 1997 to June 1997) of Eastwind Group, Inc., a
holding company formed to acquire and consolidate middle-market
32
manufacturing businesses. Mr. Mendicino was Senior Vice President and Chief
Financial Officer and a director (1987 to 1996) of UTI Energy Corp., a
diversified oil field service company. From 1981 to 1987, Mr. Mendicino held
various positions with UGI, including Treasurer.
33
PART IV: ADDITIONAL EXHIBITS, SCHEDULES AND REPORTS
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
(1) and (2) The financial statements and financial statement
schedules incorporated by reference or included in this report
are listed in the accompanying Index to Financial Statements
and Financial Statement Schedules set forth on pages F-2
through F-3 of this report, which is incorporated herein by
reference.
NOTICE REGARDING ARTHUR ANDERSEN LLP
Arthur Andersen LLP audited our consolidated financial
statements for the three years in the period ended September
30, 2001 and issued a report thereon dated November 16, 2001.
Arthur Andersen LLP has not reissued their report or consented
to the incorporation by reference of such report into the
Company's prospectuses for the offer and sale of common stock.
On June 15, 2002, Arthur Andersen LLP was convicted of
obstruction of justice by a federal jury in Houston, Texas in
connection with Arthur Andersen LLP's work for Enron Corp. On
September 15, 2002, a federal judge upheld this conviction.
Arthur Andersen LLP ceased its audit practice before the SEC
on August 31, 2002. Effective May 21, 2002, we terminated the
engagement of Arthur Andersen LLP as our independent
accountants and engaged PricewaterhouseCoopers LLP to serve as
our independent accountants for our fiscal years ending
September 30, 2002 and 2003. Because of the circumstances
currently affecting Arthur Andersen LLP, as a practical matter
it may not be able to satisfy any claims arising from the
provision of auditing services to us, including claims
available to security holders under federal and state
securities laws.
34
(3) LIST OF EXHIBITS:
The exhibits filed as part of this report are as follows
(exhibits incorporated by reference are set forth with the
name of the registrant, the type of report and registration
number or last date of the period for which it was filed, and
the exhibit number in such filing):
INCORPORATION BY REFERENCE
- -----------------------------------------------------------------------------------------------------------------
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
- ----------- ----------------------------------------------- -------------- ------------------- --------
3.1 (Second) Amended and Restated Articles of UGI Amendment No. 1 on 3.(3)(a)
Incorporation of the Company Form 8 to Form 8-B
(4/10/92)
*3.2 Bylaws of UGI as amended through September 30,
2003
4 Instruments defining the rights of security
holders, including indentures. (The Company
agrees to furnish to the Commission upon
request a copy of any instrument defining the
rights of holders of long-term debt not
required to be filed pursuant to Item
601(b)(4) of Regulation S-K)
4.1 Rights Agreement, as amended as of August 18, UGI Registration 4.3
2000, between the Company and Mellon Bank, Statement No.
N.A., successor to Mellon Bank (East) N.A., as
Rights Agent, and Assumption Agreement dated 333-49080
April 7, 1992
4.2 The description of the Company's Common Stock UGI Form 8-B/A (4/17/96) 3.(4)
contained in the Company's registration
statement filed under the Securities Exchange
Act of 1934, as amended
4.3 UGI's (Second) Amended and Restated Articles
of Incorporation and Bylaws referred to in 3.1
and 3.2 above
4.4 Note Agreement dated as of April 12, 1995 AmeriGas Form 10-Q (3/31/95) 10.8
among The Prudential Insurance Company of Partners, L.P.
America, Metropolitan Life Insurance Company,
and certain other institutional investors and
AmeriGas Propane, L.P., New AmeriGas Propane,
Inc. and Petrolane Incorporated
4.5 First Amendment dated as of September 12, 1997 AmeriGas Form 10-K (9/30/97) 4.5
to Note Agreement dated as of April 12, 1995 Partners, L.P.
("1995 Note Agreement")
35
INCORPORATION BY REFERENCE
- ----------------------------------------------------------------------------------------------------------------
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
- ----------- ----------------------------------------------- --------------- ------------------- -------
4.6 Second Amendment dated as of September 15, AmeriGas Form 10-K (9/30/98) 4.6
1998 to 1995 Note Agreement Partners, L.P.
4.7 Third Amendment dated as of March 23, 1999 to AmeriGas Form 10-Q (3/31/99) 10.2
1995 Note Agreement Partners, L.P.
4.8 Fourth Amendment dated as of March 16, 2000 to AmeriGas Form 10-Q (6/30/00) 10.2
1995 Note Agreement Partners, L.P.
4.9 Fifth Amendment dated as of August 1, 2001 to AmeriGas Form 10-K (9/30/01) 4.8
1995 Note Agreement Partners, L.P.
4.9(a) Second Amended and Restated Agreement of AmeriGas Form 8-K (9/30/00) 1
Limited Partnership of AmeriGas Partners, L.P. Partners, L.P.
4.10 Amended and Restated Agreement of Limited AmeriGas Form 10-K (9/30/01) 3.8
Partnership of AmeriGas Eagle Propane, L.P. Partners, L.P.
dated July 19, 1999
10.1 Service Agreement (Rate FSS) dated as of UGI Form 10-K (9/30/95) 10.5
November 1, 1989 between Utilities and
Columbia, as modified pursuant to the orders
of the Federal Energy Regulatory Commission at
Docket No. RS92-5-000 reported at Columbia Gas
Transmission Corp., 64 FERC Para. 61,060 (1993),
order on rehearing, 64 FERC Para. 61,365 (1993)
10.2 Service Agreement (Rate FTS) dated June 1, Utilities Form 10-K (12/31/90) (10)o.
1987 between Utilities and Columbia, as
modified by Supplement No. 1 dated October 1,
1988; Supplement No. 2 dated November 1, 1989;
Supplement No. 3 dated November 1, 1990;
Supplement No. 4 dated November 1, 1990; and
Supplement No. 5 dated January 1, 1991, as
further modified pursuant to the orders of the
Federal Energy Regulatory Commission at Docket
No. RS92-5-000 reported at Columbia Gas
Transmission Corp., 64 FERC Para. 61,060 (1993),
order on rehearing, 64 FERC Para. 61,365 (1993)
10.3 Transportation Service Agreement (Rate FTS-1) Utilities Form 10-K (12/31/90) (10)p.
dated November 1, 1989 between Utilities and
Columbia Gulf Transmission Company, as
modified pursuant to the orders of the Federal
Energy Regulatory Commission in Docket No.
RP93-6-000 reported at Columbia Gulf
Transmission Co., 64 FERC Para. 61,060 (1993),
order on rehearing, 64 FERC Para. 61,365 (1993)
36
INCORPORATION BY REFERENCE
- ----------------------------------------------------------------------------------------------------------------
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
- ----------- ----------------------------------------------- --------------- ------------------- -------
10.4 Amended and Restated Sublease Agreement dated UGI Form 10-K (9/30/94) 10.35
April 1, 1988 between Southwest Salt Co. and
AP Propane, Inc. (the "Southwest Salt Co.
Agreement")
10.5 Letter dated July 8, 1998 pursuant to Article UGI Form 10-K (9/30/99) 10.5
1, Section 1.2 of the Southwest Salt Co.
Agreement re: option to renew for period of
June 1, 2000 to May 31, 2005 and related
extension notice
10.6** UGI Corporation Directors Deferred UGI Form 10-K (9/30/00) 10.6
Compensation Plan Amended and Restated as of
January 1, 2000
10.7 [Intentionally omitted]
10.8** UGI Corporation Annual Bonus Plan dated March UGI Form 10-Q (6/30/96) 10.4
8, 1996
10.9** UGI Corporation Directors' Equity Compensation UGI Form 10-Q (3/31/03) 10.3
Plan Amended and Restated as of April 29, 2003
10.10** UGI Corporation 1997 Stock Option and Dividend UGI Form 10-Q (3/31/03) 10.4
Equivalent Plan Amended and Restated as of
April 29, 2003
10.11** UGI Corporation 1992 Directors' Stock Plan UGI Form 10-Q (3/31/03) 10.2
Amended and Restated as of April 29, 2003
10.12** UGI Corporation Senior Executive Employee UGI Form 10-K (9/30/97) 10.12
Severance Pay Plan effective January 1, 1997
10.13** UGI Corporation 2000 Directors' Stock Option UGI Form 10-Q (3/31/03) 10.1
Plan Amended and Restated as of April 29, 2003
10.14** UGI Corporation 2000 Stock Incentive Plan UGI Form 10-Q (3/31/03) 10.5
Amended and Restated as of April 29, 2003
10.15** 1997 Stock Purchase Loan Plan UGI Form 10-K (9/30/97) 10.16
10.16** UGI Corporation Supplemental Executive UGI Form 10-Q (6/30/98) 10
Retirement Plan Amended and Restated effective
October 1, 1996
10.17** [Intentionally omitted]
10.18 Credit Agreement dated as of August 28, 2003 AmeriGas Form 10-K (9/30/03) 10.1
among AmeriGas Propane, L.P., AmeriGas Partners, L.P.
Propane, Inc., Petrolane Incorporated,
Wachovia Bank, National Association, as Agent,
Issuing Bank and Swing Line Bank, and certain
banks.
10.19 [Intentionally omitted]
37
INCORPORATION BY REFERENCE
- ----------------------------------------------------------------------------------------------------------------
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
- ----------- ----------------------------------------------- --------------- ------------------- -------
10.20 Partnership Agreement of Hunlock Creek Energy Utilities Form 10-K (9/30/01) 10.24
Ventures dated December 8, 2001 by and between
UGI Hunlock Development Company and Allegheny
Energy Supply Hunlock Creek LLC
*10.21 Amendment No. 1 to Partnership Agreement of
Hunlock Creek Energy Ventures, dated June 26,
2003, by and between UGI Hunlock Development
Company and Allegheny Energy Supply Hunlock
Creek, LLC
10.22 Notice of appointment of Wachovia Bank, AmeriGas Form 10-K (9/30/03) 10.6
National Association as collateral Agent Partners, L.P.
effective as of August 28, 2003, pursuant to
Intercreditor and Agency Agreement dated as of
April 19, 1995
10.23 Intercreditor and Agency Agreement dated as of AmeriGas Form 10-Q (3/31/95) 10.2
April 19, 1995 among AmeriGas Propane, Inc., Partners, L.P.
Petrolane Incorporated, AmeriGas Propane,
L.P., Bank of America National Trust and
Savings Association ("Bank of America") as
Agent, Mellon Bank, N.A. as Cash Collateral
Sub-Agent, Bank of America as Collateral Agent
and certain creditors of AmeriGas Propane, L.P.
10.23(a) First Amendment dated as of July 31, 2001 to AmeriGas Form 10-K (9/30/01) 10.8
Intercreditor and Agency Agreement dated as of Partners, L.P.
April 19, 1995
10.24 General Security Agreement dated as of April AmeriGas Form 10-Q (3/31/95) 10.3
19, 1995 among AmeriGas Propane, L.P., Bank of Partners, L.P.
America National Trust and Savings Association
and Mellon Bank, N.A.
10.24(a) First Amendment dated as of July 31, 2001 to AmeriGas Form 10-K (9/30/01) 10.10
General Security Agreement dated as of April Partners, L.P.
19, 1995
10.25 Subsidiary Security Agreement dated as of AmeriGas Form 10-Q (3/31/95) 10.4
April 19, 1995 among AmeriGas Propane, L.P., Partners, L.P.
Bank of America National Trust and Savings
Association as Collateral Agent and Mellon
Bank, N.A. as Cash Collateral Agent
10.25(a) First Amendment dated as of July 31, 2001 to AmeriGas Form 10-K (9/30/01) 10.12
Subsidiary Security Agreement dated as of Partners, L.P.
April 19, 1995
10.26 Restricted Subsidiary Guarantee dated as of AmeriGas Form 10-Q (3/31/95) 10.5
April 19, 1995 by AmeriGas Propane, L.P. for Partners, L.P.
the benefit of Bank of America National Trust
and Savings Association, as Collateral Agent
38
INCORPORATION BY REFERENCE
- ----------------------------------------------------------------------------------------------------------------
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
- ----------- ----------------------------------------------- --------------- ------------------- -------
10.27 Trademark License Agreement dated April 19, AmeriGas Form 10-Q (3/31/95) 10.6
1995 among UGI Corporation, AmeriGas, Inc., Partners, L.P.
AmeriGas Propane, Inc., AmeriGas Partners,
L.P. and AmeriGas Propane, L.P.
10.28 Trademark License Agreement, dated April 19, AmeriGas Form 10-Q (3/31/95) 10.7
1995 among AmeriGas Propane, Inc., AmeriGas Partners, L.P.
Partners, L.P. and AmeriGas Propane, L.P.
10.29 Stock Purchase Agreement dated May 27, 1989, Petrolane Registration 10.16(a)
as amended and restated July 31, 1989, between Incorporated/ Statement No.
Texas Eastern Corporation and QFB Partners AmeriGas, Inc. 33-69450
10.30 Pledge Agreement dated September 1999 between UGI Form 10-K (9/30/99) 10.28
Eastfield International Holdings, Inc. and
Raiffeisen Zentralbank Osterreich
Aktiengesellschaft ("RZB")
10.31 Pledge Agreement dated September 1999 between UGI Form 10-K (9/30/99) 10.29
EuroGas Holdings, Inc. and RZB
10.32 Form of Guarantee Agreement dated September UGI Form 10-K (9/30/99) 10.30
1999 between UGI Corporation and RZB relating
to loan amount of EURO 74 million
10.33 Form of Guarantee Agreement dated September UGI Form 10-K (9/30/00) 10.33
2000 between UGI Corporation and RZB relating
to loan amount of EURO 14.9 million
10.34 Form of Guarantee Agreement dated September UGI Form 10-K (9/30/00) 10.34
2000 between UGI Corporation and RZB relating
to loan amount of EURO 9 million
10.34(a) Amendments dated October 11, 2001 to September UGI Form 10-K 10.34(a)
1999 Guarantee Agreements between UGI (9/30/02)
Corporation and RZB
10.35** Description of Change of Control arrangements UGI Form 10-K (9/30/99) 10.33
for Messrs. Greenberg, Cuzzolina, Hall, Knauss
and Mendicino
10.36** Change of Control Agreement for Mr. Chaney Utilities Form 10-K (9/30/03) 10.21
10.37** Description of Change of Control arrangement AmeriGas Form 10-K (9/30/99) 10.31
for Mr. Bissell Partners, L.P.
10.38** 2002 Non-Qualified Stock Option Plan Amended UGI Form 10-Q (3/31/03) 10.7
and Restated as of April 29, 2003
10.39** 1992 Non-Qualified Stock Option Plan Amended UGI Form 10-Q (3/31/03) 10.6
and Restated as of April 29, 2003
39
INCORPORATION BY REFERENCE
- ----------------------------------------------------------------------------------------------------------------
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
- ----------- ----------------------------------------------- --------------- ------------------- -------
10.40 Service Agreement for comprehensive delivery UGI Form 10-K (9/30/00) 10.40
service (Rate CDS) dated February 23, 1998
between UGI Utilities, Inc. and Texas Eastern
Transmission Corporation
10.41 Service Agreement for comprehensive delivery UGI Form 10-K (9/30/00) 10.41
service (Rate CDS) dated February 23, 1999
between UGI Utilities, Inc. and Texas Eastern
Transmission Corporation
10.42 Purchase Agreement dated January 30, 2001 and AmeriGas Form 8-K 10.1
Amended and Restated on August 7, 2001 by and Partners, L.P.
among Columbia Energy Group, Columbia Propane (8/8/01)
Corporation, Columbia Propane, L.P., CP
Holdings, Inc., AmeriGas Propane, L.P.,
AmeriGas Partners, L.P., and AmeriGas Propane,
Inc.
10.43 [Intentionally omitted]
10.44 Agreement by Petrolane Incorporated and Petrolane Form 10-K (9/23/94) 10.13
certain of its subsidiaries party thereto Incorporated
("Subsidiaries") for the Sale of the
Subsidiaries' Inventory and Assets to the
Goodyear Tire & Rubber Company and D.C.H.,
Inc., as Purchaser, dated as of December 18,
1985
10.45 Purchase Agreement by and among Columbia National Propane Form 8-K (4/19/99) 10.5
Propane, L.P., CP Holdings, Inc., Columbia Partners, L.P.
Propane Corporation, National Propane
Partners, L.P., National Propane Corporation,
National Propane SPG, Inc., and Triarc
Companies, Inc. dated as of April 5, 1999
10.46 Capital Contribution Agreement dated as of AmeriGas Form 8-K (8/21/01) 10.2
August 21, 2001 by and between Columbia Partners, L.P.
Propane, L.P. and AmeriGas Propane, L.P.
acknowledged and agreed to by CP Holdings, Inc.
10.47 Promissory Note by National Propane L.P., a AmeriGas Form 10-K (9/30/01) 10.39
Delaware limited partnership in favor of Partners, L.P.
Columbia Propane Corporation dated July 19,
1999
10.48 Loan Agreement dated July 19, 1999, between AmeriGas Form 10-K (9/30/01) 10.40
National Propane, L.P. and Columbia Propane Partners, L.P.
Corporation
10.49 First Amendment dated August 21, 2001 to Loan AmeriGas Form 10-K (9/30/01) 10.41
Agreement dated July 19, 1999 between National Partners, L.P.
Propane, L.P. and Columbia Propane Corporation
40
INCORPORATION BY REFERENCE
- ----------------------------------------------------------------------------------------------------------------
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
- ----------- ----------------------------------------------- --------------- ------------------- -------
10.50 Columbia Energy Group Payment Guaranty dated AmeriGas Form 10-K (9/30/01) 10.42
April 5, 1999 Partners, L.P.
10.51 Keep Well Agreement by and between AmeriGas AmeriGas Form 10-K (9/30/01) 10.46
Propane, L.P. and Columbia Propane Corporation Partners, L.P.
dated August 21, 2001
10.52 Management Services Agreement effective as of AmeriGas Form 10-K (9/30/01) 10.47
August 21, 2001 between AmeriGas Propane, Inc. Partners, L.P.
and AmeriGas Eagle Holdings, Inc., the general
partner of AmeriGas Eagle Propane, L.P.
10.53 Storage Transportation Service Agreement (Rate Utilities Form 10-K 10.25
Schedule SST) between Utilities and Columbia (9/30/02)
dated November 1, 1993, as modified pursuant
to orders of the Federal Energy Regulatory
Commission
10.54 No-Notice Transportation Service Agreement Utilities Form 10-K 10.26
(Rate Schedule NTS) between Utilities and (9/30/02)
Columbia dated November 1, 1993, as modified
pursuant to orders of the Federal Energy
Regulatory Commission
10.55 No-Notice Transportation Service Agreement Utilities Form 10-K 10.27
(Rate Schedule CDS) between Utilities and (9/30/02)
Texas Eastern Transmission dated February
23, 1999, as modified pursuant to various
orders of the Federal Energy Regulatory
Commission
10.56 No-Notice Transportation Service Agreement Utilities Form 10-K 10.28
(Rate Schedule CDS) between Utilities and (9/30/02)
Texas Eastern Transmission dated October 31,
2000, as modified pursuant to various orders
of the Federal Energy Regulatory Commission
10.57 Firm Transportation Service Agreement (Rate Utilities Form 10-K 10.29
Schedule FT-1) between Utilities and Texas (9/30/02)
Eastern Transmission dated June 15, 1999,
as modified pursuant to various orders of the
Federal Energy Regulatory Commission
10.58 Firm Transportation Service Agreement (Rate Utilities Form 10-K 10.30
Schedule FT-1) between Utilities and Texas (9/30/02)
Eastern Transmission dated October 31, 2000,
as modified pursuant to various orders of the
Federal Energy Regulatory Commission
10.59 Firm Transportation Service Agreement (Rate Utilities Form 10-K 10.31
Schedule FT) between Utilities and (9/30/02)
Transcontinental Gas Pipe Line dated October
1, 1996, as modified pursuant to various
orders of the Federal Energy Regulatory
Commission
41
INCORPORATION BY REFERENCE
- ----------------------------------------------------------------------------------------------------------------
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
- ----------- ----------------------------------------------- --------------- ------------------- -------
*10.60 Purchase and Sale Agreement dated as of
November 30, 2001, as amended by Amendment No.
1 dated as of August 29, 2003 between UGI
Energy Services, Inc. and Energy Services
Funding Corporation
*10.61 Receivables Purchase Agreement dated as of
November 30, 2001, as amended by Amendment No.
1 dated as of August 29, 2003 among Energy
Services Funding Corporation, UGI Energy
Services, Inc., Market Street Funding
Corporation and PNC Bank, National Association
*10.62 Performance Guaranty dated as of August
29, 2003 by UGI Corporation in favor of Market
Street Funding Corporation and PNC Bank,
National Association
*13 Pages 13 through 55 of the 2003 Annual Report
to Shareholders
*14 Code of Ethics for principal executive,
financial and accounting officers
18 Letter of Arthur Andersen LLP regarding change AmeriGas Form 10-Q 18
in accounting principles Partners, L.P. (12/31/00)
*21 Subsidiaries of the Registrant
*23 Consent of PricewaterhouseCoopers LLP
*31.1 Certification by the Chief Executive Officer
relating to the Registrant's Report on Form
10-K for the year ended September 30, 2003
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
*31.2 Certification by the Chief Financial Officer
relating to the Registrant's Report on Form
10-K for the year ended September 30, 2003
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
*32 Certification by the Chief Executive Officer
and the Chief Financial Officer relating to
the Registrant's Report on Form 10-K for the
fiscal year ended September 30, 2003, pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002.
* Filed herewith.
** As required by Item 14(a)(3), this exhibit is identified as a compensatory
plan or arrangement.
42
(b) REPORTS ON FORM 8-K:
The Company furnished information in a Current Report on Form 8-K
during the fourth quarter of fiscal year 2003 as follows:
Date of Report Item Number(s) Content
- -------------- -------------- -----------------------------------------
07/30/03 7, 12 Press Release reporting financial results
for the third fiscal quarter ended
June 30, 2003
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: December 16, 2003 By: Anthony J. Mendicino
---------------------------------
Anthony J. Mendicino
Senior Vice President - Finance
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below on December 16, 2003, by the following persons
on behalf of the Registrant in the capacities indicated.
SIGNATURE TITLE
Lon R. Greenberg Chairman, President
- -------------------------- and Chief Executive Officer
Lon R. Greenberg (Principal Executive Officer)
and Director
Anthony J. Mendicino Senior Vice President - Finance
- -------------------------- and Chief Financial Officer
Anthony J. Mendicino (Principal Financial Officer
Michael J. Cuzzolina Vice President - Accounting and
- -------------------------- Financial Control
Michael J. Cuzzolina (Principal Accounting Officer)
Stephen D. Ban Director
- --------------------------
Stephen D. Ban
Thomas F. Donovan Director
- --------------------------
Thomas F. Donovan
44
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below on December 16, 2003, by the following persons
on behalf of the Registrant in the capacities indicated.
SIGNATURE TITLE
Richard C. Gozon Director
- ------------------------
Richard C. Gozon
Ernest E. Jones Director
- ------------------------
Ernest E. Jones
Anne Pol Director
- ------------------------
Anne Pol
Marvin O. Schlanger Director
- ------------------------
Marvin O. Schlanger
James W. Stratton Director
- ------------------------
James W. Stratton
45
UGI CORPORATION AND SUBSIDIARIES
FINANCIAL INFORMATION
FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K
YEAR ENDED SEPTEMBER 30, 2003
F-1
UGI CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The consolidated financial statements and supplementary data of UGI Corporation
and subsidiaries, together with the report thereon of PricewaterhouseCoopers LLP
dated November 17, 2003 and Arthur Andersen LLP dated November 16, 2001, listed
in the following index, are included in UGI's 2003 Annual Report to Shareholders
and are incorporated in this Form 10-K Annual Report by reference. With the
exception of the pages listed in this index and information incorporated in
Items 1, 2, 7, 7A and 8, the 2003 Annual Report to Shareholders is not to be
deemed filed as part of this Report.
Reference
----------------------------
Annual
Report to
Form 10-K Shareholders
(page) (page)
----------- ----------
Reports of Independent Accountants:
On Consolidated Financial Statements Exhibit 13 28
On Financial Statement Schedules F-4 to F-5
Financial Statements:
Consolidated Balance Sheets, September 30,
2003 and 2002 Exhibit 13 30 to 31
For the years ended September 30, 2003, 2002 and 2001:
Consolidated Statements of Income Exhibit 13 29
Consolidated Statements of Cash Flows Exhibit 13 32
Consolidated Statements of Stockholders'
Equity Exhibit 13 33
F-2
UGI CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED)
Reference
---------------------------------
Annual
Report to
Form 10-K Shareholders
(page) (page)
------------ ------------
Notes to Consolidated Financial
Statements Exhibit 13 34 to 55
Supplementary Data (unaudited):
Quarterly Data for the years ended
September 30, 2003 and 2002 Exhibit 13 53
Financial Statement Schedules:
For the years ended September 30, 2003, 2002 and 2001:
I - Condensed Financial
Information of Registrant
(Parent Company) S-1 to S-3
II - Valuation and Qualifying
Accounts S-4 to S-5
Annual Reports on Form 10-K/A
Annual Reports on Form 10-K/A for the UGI Utilities, Inc. and AmeriGas
Propane, Inc. savings plans will be filed by amendment within the time period
specified by Rule 15d-21(b).
We have omitted all other financial statement schedules because the required
information is either (1) not present; (2) not present in amounts sufficient to
require submission of the schedule; or (3) the information required is included
elsewhere in the financial statements or related notes.
F-3
REPORT OF INDEPENDENT AUDITORS
To the Directors and Stockholders of
UGI Corporation:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 15a (1) and (2) present fairly, in all material respects,
the financial position of UGI Corporation and its subsidiaries at September 30,
2003 and 2002, and the results of their operations and their cash flows for each
of the two years in the period ended September 30, 2003 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedules listed in the index
appearing under Item 15a (1) and (2) present fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedules are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. The consolidated financial
statements of UGI Corporation and its subsidiaries as of and for the year ended
September 30, 2001 were audited by other independent accountants who have ceased
operations. Those independent accountants expressed an unqualified opinion on
those financial statements in their report dated November 16, 2001.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" in fiscal 2002.
As discussed above, the consolidated financial statements of UGI Corporation and
its subsidiaries for the year ended September 30, 2001, were audited by other
independent auditors who have ceased operations. As described in Note 1, these
financial statements have been restated to reflect a 3-for-2 common stock split.
We audited the adjustments described in Note 1 that were applied to restate the
2001 consolidated financial statements for the 3-for-2 common stock split. In
our opinion, such adjustments are appropriate and have been properly applied. As
described in Note 1, these financial statements have also been revised to
include the transitional disclosures required by Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" which was
adopted by the Company as of October 1, 2001. We audited the transitional
disclosures described in Note 1. In our opinion, the transitional disclosures
for 2001 in Note 1 are appropriate. However, we were not engaged to audit,
review or apply procedures to the 2001 consolidated financial statements of the
Company other than with respect to such adjustments and, accordingly, we do not
express an opinion or any other form of assurance on the 2001 consolidated
financial statements taken as a whole.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
November 17, 2003
F-4
THIS REPORT IS A COPY OF THE PREVIOUSLY ISSUED ACCOUNTANT'S
REPORT OF ARTHUR ANDERSEN LLP AND HAS NOT BEEN REISSUED BY
ARTHUR ANDERSEN LLP.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of UGI Corporation:
We have audited, in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements included in UGI
Corporation's annual report to shareholders for the year ended September 30,
2001, incorporated by reference in this Form 10-K, and have issued our report
thereon dated November 16, 2001. Our report on the financial statements includes
an explanatory paragraph with respect to the changes in the method of accounting
for tank installation costs and nonrefundable tank fees and the adoption of SFAS
No. 133 as discussed in Notes 1 and 3 to the financial statements. Our audits
were made for the purpose of forming an opinion on those basic consolidated
financial statements taken as a whole. The schedules listed in the Index on
pages F-2 and F-3 are the responsibility of UGI Corporation's management and are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
November 16, 2001
F-5
UGI CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
BALANCE SHEETS
(Millions of dollars)
September 30,
ASSETS 2003 2002
- ------ ---- ----
Current assets:
Cash and cash equivalents $ 0.6 $ 0.2
Accounts and notes receivable 1.7 2.2
Deferred income taxes 0.2 0.2
Prepaid expenses and other current assets 0.5 0.3
----- -----
Total current assets 3.0 2.9
Investments in subsidiaries 689.4 388.4
Other assets 8.5 4.5
----- -----
Total assets $700.9 $395.8
====== ======
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts and notes payable $ 10.7 $ 10.2
Accrued liabilities 7.7 3.8
----- -----
Total current liabilities 18.4 14.0
Noncurrent liabilities 112.7 64.0
Commitments and contingencies
Common stockholders' equity:
Common Stock, without par value (authorized - 150,000,000 shares;
issued - 49,798,097 shares) 582.4 396.6
Retained earnings 90.9 39.7
Accumulated other comprehensive income 4.7 6.6
----- -----
678.0 442.9
Less treasury stock, at cost (108.2) (125.1)
----- -----
Total common stockholders' equity 569.8 317.8
----- -----
Total liabilities and common stockholders' equity $700.9 $395.8
====== ======
Commitments and Contingencies:
In addition to the guarantees of FLAGA debt described in Note 4 to
Consolidated Financial Statements, at September 30, 2003, UGI Corporation had
agreed to indemnify the issuers of $42.0 of surety bonds issued on behalf of
certain UGI subsidiaries. As of September 30, 2003, UGI Corporation is
authorized to guarantee up to $10.0 and $180.0 of supplier obligations on behalf
of UGI Development Company and UGI Energy Services, Inc., respectively. At
September 30, 2003, UGI Corporation had guarantees outstanding of $2.0 and
$152.6 on behalf of UGI Development Company and UGI Energy Services, Inc.,
respectively.
S-1
UGI CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
STATEMENTS OF INCOME
(Millions of dollars, except per share amounts)
Year Ended
September 30,
---------------------------------
2003 2002 2001
---- ---- ----
Revenues $- $- $-
Costs and expenses:
Operating and administrative expenses 18.6 13.6 10.8
Other income, net (17.6) (12.4) (9.7)
----- ----- ----
1.0 1.2 1.1
----- ----- ----
Operating loss
(1.0) (1.2) (1.1)
Interest expense on intercompany debt
(1.5) (1.3) (2.4)
----- ----- ----
Loss before income taxes
(2.5) (2.5) (3.5)
Income tax benefit
(2.4) (0.9) (0.7)
----- ----- ----
Loss before equity in income
of unconsolidated subsidiaries (0.1) (1.6) (2.8)
Equity in income before accounting changes
of unconsolidated subsidiaries 99.0 77.1 54.8
------ ------ ------
Income before equity in accounting changes
of unconsolidated subsidiaries 98.9 75.5 52.0
Equity in accounting changes
of unconsolidated subsidiaries -- -- 4.5
----- ----- ----
Net income
$ 98.9 $ 75.5 $ 56.5
====== ====== ======
Earnings per common share:
Basic:
Income before accounting changes $ 2.34 $ 1.83 $ 1.28
Cumulative effect of accounting changes, net -- -- 0.11
----- ----- ----
Net income $ 2.34 $ 1.83 $ 1.39
====== ====== ======
Diluted:
Income before accounting changes $ 2.29 $ 1.80 $ 1.27
Cumulative effect of accounting changes, net -- -- 0.11
----- ----- ----
Net income $ 2.29 $ 1.80 $ 1.38
====== ====== ======
Average common shares outstanding (millions):
Basic 42.220 41.325 40.745
====== ====== ======
Diluted 43.236 41.907 41.060
====== ====== ======
S-2
UGI CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
STATEMENTS OF CASH FLOWS
(Millions of dollars)
Year Ended
September 30,
-----------------------------------------
2003 2002 2001
---- ---- ----
NET CASH PROVIDED BY OPERATING
ACTIVITIES (A)
$ 97.2 $113.9 $108.3
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in unconsolidated subsidiaries (117.1) (101.5) (49.2)
Net repayments (advances) to unconsolidated subsidiary
-- 13.0 (13.0)
------ ----- -----
Net cash used by investing activities (117.1) (88.5) (62.2)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends on Common Stock (47.8) (44.8) (53.2)
Issuance of intercompany long-term debt
44.5 8.0 --
Issuance of Common Stock 23.7 11.0 7.6
Repurchases of Common Stock
(0.1) -- (1.0)
------ ----- -----
Net cash used by financing activities 20.3 (25.8) (46.6)
------ ----- -----
Cash and cash equivalents increase (decrease)
$ 0.4 $ (0.4) $ (0.5)
====== ===== =====
Cash and cash equivalents:
End of period
$ 0.6 $ 0.2 $ 0.6
Beginning of period 0.2 0.6 1.1
------ ----- -----
Increase (decrease)
$ 0.4 $ (0.4) $ (0.5)
====== ===== =====
(a) Includes dividends received from unconsolidated subsidiaries of $94.0,
$111.7 and $110.4, respectively, for the years ended September 30, 2003,
2002 and 2001.
S-3
UGI CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Millions of dollars)
Charged
Balance at (credited) Balance at
beginning to costs and end of
of year expenses Other year
--------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2003
- -----------------------------
Reserves deducted from assets in
the consolidated balance sheet:
Allowance for doubtful accounts $ 11.8 $ 18.5 $(15.8)(1) $ 14.8
=========== =========
$ 0.3 (2)
Other reserves:
Self-insured property and casualty
liability $ 42.7 $ 21.2 $(15.1)(3) $ 48.4
=========== =========
(0.4)(2)
Insured property and casualty liability $ 3.5 $ (2.8) $ (0.1)(2) $ 0.6
=========== =========
Environmental, litigation and other $ 13.9 $ 6.0 $ (4.6)(3) $ 15.7
=========== =========
0.4 (2)
YEAR ENDED SEPTEMBER 30, 2002
- -----------------------------
Reserves deducted from assets in
the consolidated balance sheet:
Allowance for doubtful accounts $ 15.6 $ 14.2 $(18.0)(1) $ 11.8
=========== =========
Allowance for amortization of
other deferred costs - AmeriGas Propane $ 1.1 $ - $ (1.1)(2) $ -
=========== =========
Other reserves:
Self-insured property and casualty
liability $ 37.4 $ 19.0 $(15.6)(3) $ 42.7
=========== =========
1.9 (2)
Insured property and casualty liability $ 1.5 $ - $ 2.0 (2) $ 3.5
=========== =========
Environmental, litigation and other $ 11.7 $ 3.7 $ (2.6)(3) $ 13.9
=========== =========
1.1 (2)
S-4
UGI CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (CONTINUED)
(Millions of dollars)
YEAR ENDED SEPTEMBER 30, 2001
- -----------------------------
Reserves deducted from assets in
the consolidated balance sheet:
Allowance for doubtful accounts $ 9.3 $18.3 $ (11.7)(1) $ 15.6
============ ===========
(0.3)(2)
Allowance for amortization of
other deferred costs - AmeriGas Propane $ 1.0 $ 0.1 $ - $ 1.1
============ ===========
Other reserves:
Self-insured property and casualty
liability $ 36.3 $15.8 $ (15.2)(3) $ 37.4
============ ===========
0.5 (2)
Insured property and casualty liability $ 2.1 $(0.6) $ - $ 1.5
============ ===========
Environmental, litigation and other $ 12.0 $ 1.9 $ (2.6)(3) $ 11.7
============ ===========
0.4 (2)
(1) Uncollectible accounts written off, net of recoveries.
(2) Other adjustments.
(3) Payments, net.
S-5
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
3.2 Bylaws of UGI as amended through September 30, 2003
10.21 Amendment No. 1 to Partnership Agreement of Hunlock Creek
Energy Ventures dated June 26, 2003
10.60 Purchase and Sale Agreement dated as of November 30, 2001,
and amended by Amendment No. 1 dated as of August 29, 2003
between UGI Energy Services, Inc. and Energy Services
Funding Corporation
10.61 Receivables Purchase Agreement dated as of November 30,
2001, as amended by Amendment No. 1 dated as of August 29,
2003 among Energy Services Funding Corporation, UGI Energy
Services, Inc., Market Street Funding Corporation and PNC
Bank, National Association
10.62 Performance Guaranty dated as of August 29, 2003 by UGI
Corporation in favor of Market Street Funding Corporation
and PNC Bank, National Association
13 Pages 13 through 55 of the 2003 Annual Report to
Shareholders
14 Code of Ethics for principal executive, financial and
accounting officers
21 Subsidiaries of the Registrant
23 Consent of PricewaterhouseCoopers LLP
31.1 Certification by the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act
31.2 Certification by the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act
32 Certification by the Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act
46